Denis Cassegrain & Ors v Gerard Cassegrain & Co Pty Ltd

Some background

1. The Judgment dealt with the plaintiffs' claims against Claude, Mr Sarks and Felicity in respect of the transfer GC&Co's shares in CaTTO and OAL to Felicity in January 2005. It was held that Claude and Mr Sarks had transferred the shares in breach of their fiduciary duty and that Felicity was in knowing receipt of the shares. The Final Orders Judgment dealt with the competing claims by the plaintiffs for an order winding up GC&Co and the defendants for the re-transfer of the Shares to GC&Co. An order was made for the winding up of GC&Co rather than the re-transfer of the shares to GC&Co (at [6]). The Final Orders Judgment included the following: 7. The next issue between the parties is the nature of the orders that should be made in respect of the compensation sought by the plaintiffs. There is no issue between the parties that consequent upon the judgment of 27 April 2012 an order for equitable compensation should be made. However the plaintiffs seek an order that the amount of equitable compensation be quantified immediately. It was submitted that it is a straightforward quantification of the difference between the amounts Felicity Cassegrain paid for the shares and the value of the shares recorded in the judgment. I am not satisfied that this is the appropriate way in which to proceed. Rather I agree with the defendants' submissions that there should be an inquiry in relation to the amount of compensation to be paid to GCC. Accordingly an order will be made for an inquiry in respect of the assessment of equitable compensation as against Claude Cassegrain, Felicity Cassegrain and Anthony Sarks. … 9. A further issue was raised as to whether the proper assessment of compensation under s 1317H of the Corporations Act involves an assessment of "damage" (or loss) at the date of the contravention or at the date the order is made. The plaintiffs contend for the former position and the defendants contend for the latter position. The plaintiffs point to the fact that the legislation does not refer to an "inquiry" as strong support that it is intended to be a straightforward assessment as at the date of contravention. 10. The plaintiffs also submitted that the Court of Appeal has decided that the determination of causation of loss under s 1317H should be determined "free from the strictures of analogy with equitable claims against fiduciaries": Adler v Australian Securities & Investment Commission (2003) 46 ACSR 504 at [709]. The defendants submitted that this decision is predicated upon the propositions that: (a) s 1317H needs to be construed independently of any common law or equitable analogue; (b) a compensation order must be based on evidence of actual damage, not a presumption of damage; and (c) in determining whether to make an order, and what order should be made, the Court must have regard to events occurring after the time of contravention of the Corporations Act. 11. I agree with the defendants' submissions that the fact that s 1317H(2) provides that "profits made by any person resulting from" a contravention are to be taken into account demonstrates that conceptually, the assessment of the "damage" cannot be made upon a snapshot taken of the corporation's position at the time of contravention. I am satisfied that the assessment of damage for the purposes of making a compensation order under s 1317H of the Corporations Act is to be made having regard to the position at the time the order is made: see also Ho v Akai Pty Ltd (in liq) (ACN 001 500 714) [2006] FCAFC 159 at [48]-[52]; [55]-[57].
2. In the CA Judgment Emmett JA, with whom Meagher and Ward JJA agreed, said: 161. The primary judge did not err in concluding that there should be an enquiry. Her Honour did not make a finding of value of the Shares for the purpose of determining of equitable or statutory compensation. Her Honour made no error in concluding that the Shares were transferred for a consideration less than their fair value. That was all that was necessary for her Honour to decide. No binding determination of the true value of the Shares as at the dates of the Transfers has been made. Some of the observations made above may well be relevant to, but not decisive of, the enquiry that should be conducted for the purposes of assessing equitable and statutory compensation. 162. The primary judge accepted that there should be an enquiry in relation to compensation. The Company contends that, in doing so, her Honour must be taken to have accepted the following contentions: ● Equitable compensation must generally be assessed at the time of trial and not at the time of breach. ● Compensation for breach of fiduciary duty is quantified at the date when recoupment is to be effected, whether the value has risen or fallen. ● The Company could only recover equitable compensation representing the value of the Shares at the date of breach if it had also proved that it could and would have realised the Shares at or about the date of transfer at that value. 163. The Company says that if the first proposition were the reason for concluding an enquiry was needed, the primary judge appears to have done so without also considering: ● the cardinal principle of equity that the remedy should be fashioned to fit the nature of the case and the particular facts; and ● the principle that the object of equitable compensation is to restore the wronged party to the position that it was in prior to the breaches and to make good any loss caused by the errant fiduciary's wrongful conduct. 164. The Company says that, in the present circumstances, those principles point to an outcome in which the order for equitable compensation should be determined by reference to the value of Shares at the time of breach, thereby putting the Company in as good a position, so far as money can, as that in which it was before the breach. Further, the Company says, the primary judge's acceptance of the proposition that equitable compensation should be quantified by reference to the current value of the Shares was erroneous. An errant fiduciary has a duty to restore the principal to the same position as it would have been in if no breach had been committed. The proposition apparently accepted by her Honour was at odds with the objective of equitable compensation referred to above. 165. The Company also contends that the primary judge erred in accepting the proposition that the compensation is to be quantified at the date when recoupment is to be effected, whether the value has risen or fallen. The Company says that the value of the Shares would have been affected not only by the influence of external factors, such as the rise or fall in the value of tea tree oil, but also by internal factors such as the degree of debt that the companies have incurred as a result of the management of the companies by Claude and Felicity in the meantime. 166. Finally, the Company contends that the primary judge erred in accepting that the Company could only recover equitable compensation representing the value of the Shares at the date of breach if it also proved that it would and could have realised the Shares at or about the date of transfer at that value. It says that it was deprived of the Shares by its directors who owed it a fiduciary duty. In those circumstances, it should not be required to prove that it was going to sell the Shares at the time of breach in order to recover equitable compensation for their value at that time. The errant fiduciaries were still in control of the Company at that time. 167. Accordingly, the Company says, the primary judge should have determined immediately the amount of equitable compensation by reference to the findings made by her Honour about the difference between the price paid in January 2005 and their true value as at that date, as found by her Honour. 168. The first response of Claude and Anthony is to refer to their grounds of appeal concerning the errors made by the primary judge in determining whether the Shares were transferred at an undervalue. Those errors, they say, demonstrate that it would be erroneous to assess equitable or statutory compensation of the values arrived at by her Honour. 169. In the primary judge's second judgment, her Honour accepted the submissions on behalf of Claude and Anthony that, in assessing damage for the purpose of s 1317H(2), it is not possible to do so upon a snapshot taken of the position of the relevant corporation at the time of contravention. Her Honour accepted that the assessment of damages for the purpose of making a compensation order under s 1317H is to be made having regard to the position at the time the order is made. … 173. However, it was not until mid January 2005 that the arrangements in relation to the Transfers were put in place. Her Honour found that Felicity knew that Claude wished to prevent his siblings from commencing further litigation against him. Her Honour found that Felicity knew that the purpose of the Transfers was to prevent the siblings from appointing a provisional liquidator to the Company. Her Honour did not accept that Felicity believed that she was paying proper value for the Shares and therefore that she had knowledge of circumstances that would indicate the relevant facts to an honest and reasonable person. … 177. Notwithstanding the claims made in the Statement of Claim, the plaintiffs did not press for the avoidance of the Transfers. The appropriate relief, if the Transfers are not to be avoided, would be an enquiry for the purposes of determining the equitable or statutory compensation that should be awarded to the Company in respect of the loss it suffered by reason of the Transfers. The primary judge made no error in directing an enquiry as to the compensation that should be paid as a consequence of the breaches of fiduciary and statutory duty. It is undesirable to constrain, by practical rulings, the conduct of that enquiry.
3. Emmett JA concluded that the appeals by Claude and Anthony should be dismissed and said: 179. It follows that there must be an enquiry as to the quantum of compensation or damages. That quantum will depend upon the value of the Shares. The values assessed by the primary judge in concluding that the Transfers were at an undervalue will not be binding on the parties so far as the assessment of the compensation or damages is concerned.
4. The remitter was heard on 25 February 2014 and the Further Judgment was given on 10 April 2014 granting leave to the plaintiffs to amend the pleading and including Felicity in the equitable compensation enquiry.

The Report

1. The Referee recounted the facts pertinent to the equitable compensation enquiry (the enquiry) (R [4]). In short form the facts as recounted referred to the establishment of the various companies; the establishment of the tea tree projects (the Projects) and the tea tree plantation on the "Wynne Property" at The Hatch on the North Coast of New South Wales; the arrangement between the Project Trustee, Australian Rural Group (ARG), OAL and the manager of the Projects, Agricultural & Rural Finance Pty Ltd (ARF) and the investors in the Projects; the decline in the price of tea tree oil; the appointment of administrators; the litigation in respect of CTK Engineering Pty Ltd; and the subsequent litigation (the Gardiner proceedings) against the investors in respect of loans that had been provided through ARF of monies owed to OAL (R [4]).
2. The Referee also referred to the pertinent findings in the Judgment relating to the impugned share transfers that occurred in January 2005. Those findings included that the CaTTO share was transferred to Felicity on 19 January 2005 for $60,423; the shares in OAL were transferred to Felicity on 20 January 2005 for $71,450; the share transfers were at a significant undervalue and were for an improper purpose; the share transfers were in breach of both the fiduciary duties and statutory duties owed by Claude and Mr Sarks; Felicity received the shares with knowledge of the breaches; and the transfers could not have occurred without Felicity's assistance and consent (R [6]).
3. The Referee then dealt with the respective parties' contentions as follows: 9. The liquidator contends that orders should be made for equitable compensation to be paid to GC&Co calculated as follows: i. For loss of the CaTTO share on 19 January 2005: $845,356, plus interest calculated from 20 January 2005 at pre-judgment rates; ii. For loss of the OAL shares on 20 January 2005: $2,776,908 plus interest calculated from 21 January 2005 at pre-judgment rates. 10. The parties are at issue as to the date at which compensation should be calculated. The liquidator contends that the appropriate date is the date of the transfer of the shares whereas the defendants contend that it should be the date of hearing.
4. The Referee referred to the claim by Claude and Mr Sarks that if the appropriate date for calculation of compensation is 2005 then they should be allowed a deduction for just allowances in respect of the CaTTO share (R [11]). The Referee also noted that Claude and Mr Sarks claimed that if the CaTTO share had not been transferred, the companies would have been wound up and, as determined by Mr Hood (a witness called by them in the Reference), the value of the CaTTO share was less than the transfer price. It was also contended that the liquidator had not discharged the onus of proof in respect of the OAL shares (R [11]).
5. The Referee referred to Felicity's defence that her actions were not causative of the loss suffered and thus she should not be held liable to pay any equitable compensation (R [12]). The Referee also noted Felicity's alternative claim that her culpability was substantially less and as a matter of discretion she should not be held liable for any amount or alternatively the whole amount that the Court might find payable by Claude and Mr Sarks (R [12]).
6. Having regard to the importance of the issue as to the date at which compensation should be calculated, it is appropriate to set out the passages of the Report on this topic in full: The date at which compensation should be calculated. 13. I return to the question of the appropriate date for the valuation of the shares. In order to understand the parties' arguments it is useful to consider some statements of general principles on this aspect. In "The principles of equity" edited by Patrick Parkinson he usefully sets out the matters, which arise about the date of assessment of the value of property for the purposes of equitable compensation. At Para [2217] he says: "The date of assessment of the value of property, money or services for the purposes of an award of equitable compensation is sometimes identified as the date on which restoration of the trust property should be made or the date of judgement. There can, however be neither a general nor even a prima facie rule for fixing the appropriate date of assessment. Rather, the date which the assessment ought to be made is the date which the justice of the case requires in all the circumstances. Three factors in particular are relevant to the requirements of justice in this context. The first is the nature of the obligation binding the defendant and the nature of the defendants' breach. For example, within the context of express trusts, the date of judgement may be an appropriate date at which to assess compensation where the case is simply that the defendant trustee has misappropriated trust property and is in continuing breach of the obligation to restore that property (value of the trust property having increased in value between the date of breach and the date of judgement). However, the date on which the trustee should reasonably have sold the property may be the appropriate date of assessment where the nature of the defendant trustees breach was a delay in selling the trust property which the trustee was under an obligation to sell. Outside the context of express trusts, the position is in the words of Tadgell J in Hill v Rose [1990] VR 129 at 143, that the "method of calculation of monetary compensation will vary according to the nature of the fiduciary obligation whose breach is to be redressed". This may result in value being taken as at the date of breach of the duty in question, or any other date appropriate in all the circumstances. The second factor relevant to the requirements of justice is the fact that, in order to enforce the high duty assumed and to provide an adequate remedy, the courts will, when dealing with the defaulting trustee (particularly one whose conduct is reprehensible), be strongly inclined to choose a date of assessment that favours the beneficiary rather than the wrongful trustee. This allows the courts, where appropriate, to assess compensation against a trustee at the best price of the property during the period of the breach. The third relevant factor is the response, which the plaintiff has made, or ought to have made, to the defendants breach ("mitigation"). 14. Plainly in the present case we are not involved with a trustee who had a continuing duty to preserve or replace trust assets. Given the findings of the trial judge which are set out in paragraph 6 above we are dealing with a breach of the fiduciary duty which related to the disposition of shares for an improper purpose at a substantial undervalue. As the plaintiff submitted once it is recognised that these were the relevant duties, then the assessment of damages is measured against what position G C & Co would have been in had the shares been transferred in the absence of conflict, for a proper purpose and at an appropriate value in early 2005. 15. The plaintiff's submission continued: "The issue, as posed above, assumes that had the breach of duty not occurred, the shares would have been sold by GC & Co in early 2005 (rather than held and preserved in their then state by that company until the date of this inquiry). That is, however, not a matter in issue. The Defendants have pleaded in their defences to the Points of Claim that the shares would have been sold shortly after the date of the impugned transfers. Further, Claude freely admitted in cross examination that in early 2005, GC & Co did not have the resources to properly exploit the opportunities that both the OAL and CaTTO shares represented and that the company would have had to sell the shares in any event. Further, it should not be overlooked that the company had a significant unpaid tax liability at this time, and Claude's affidavit evidence was that he would not have provided the assistance to CaTTO if the share had remained with GC & Co". 16. The evidence before me supports the submissions made by the plaintiffs. The defendants raise two issues on this question of the date. The first is a question of whether this debate has already been resolved either by the trial judge or the Court of Appeal. It is clear from the Chief Judges judgement of 24 July 2012 in paragraph 7 that rather than determine the amount of the equitable compensation she has found it appropriate that there should be an enquiry into the assessment of equitable compensation. 17. The plaintiffs conceded that they did in fact argue in the Court of Appeal that it was not necessary to have an enquiry and that indeed the date for assessment of damages, which should be found by the court, was the date of the breach in 2005. In response to this was the following from the Court of Appeal: "177 Notwithstanding the claims made in the Statement of Claim, the plaintiffs did not press for the avoidance of the Transfers. The appropriate relief, if the Transfers are not to be avoided, would be an enquiry for the purposes of determining the equitable or statutory compensation that should be awarded to the Company in respect of the loss it suffered by reason of the Transfers. The primary judge made no error in directing an enquiry as to the compensation that should be paid as a consequence of the breaches of fiduciary and statutory duty. It is undesirable to constrain, by practical rulings, the conduct of that enquiry". 18. Having regard to those comments it is plain that the Court of Appeal has left this question to be determined in the reference. 19. The defendants invited the court to find the following: (1) that, if the share in CaTTO had not been transferred to the fourth (sic) defendant, GC & Co and CaTTO would have probably remained in receivership or, if they had not, would have been wound up either by their members or at the instigation of one of their creditors; (2) that, in either of those events, the tea tree harvesting which had been commenced by CTK Engineering Pty Ltd in 2004 would not have been continued and the tea tree farming operations which were subsequently undertaken by CaTTO (and which required it to borrow very substantial sums) would not have been so undertaken; (3) that, instead, the receivers or a liquidator of CaTTO would, as a matter of practical inevitability, have proceeded to sell the 'Wynne' property forcibly sold, in its then condition, on the open market - so much is clear from the receiver's letter of 7 September 2004, at tab 10 to Mr Claude Cassegrain's affidavit of 12 September 2014; and (4) that, in that event, having regard to the assessment made by the defendants' valuer, Mr Hood, (that the 'Wynne' property was worth between $550,000 and $650,000 in early 2005), the sale proceeds of that property would have returned to GC & Co substantially less than the book value of its share in CaTTO (particularly when one takes into consideration the costs of sale and the fees chargeable by CaTTO's liquidator). 20. It also submitted that findings (2) and (3) above are matters of compelling, if irresistible, inference in light of the conduct, and ultimate outcome, of the CTK Engineering litigation, to which Mr Claude Cassegrain made reference in paragraph 7a. and b. of his affidavit of 12 September 2014. 21. The submission continued that the net result of the findings summarised above is that the plaintiffs' claim for equitable and/or statutory compensation in relation to the transfer of the share in CaTTO has no substance since if that share is presently worth any more than the price paid by the fourth defendant (sic), its increase in value is entirely attributable to the second defendant's industry and ingenuity in having CaTTO pursue the tea tree farming operation (as to which he has given extensive evidence in his affidavit of 13 September 2014). 22. The first three of these submissions require consideration at the present time. The suggestion that the liquidator would have sold the shares is a matter of inference and it seems contrary to the first defendant's evidence that he would need to sell shares himself in any event. The next assumption that the defendants make is that the proceeds to be achieved from a sale by the liquidator would be negligible. There is no evidence to support this apart from some evidence given by Mr. Reid that a forced sale environment for land might produce a drop in the price of the land by about 15%. This then raises the question of what is the value of the land. 23. In response to this defence the plaintiff makes the submission that it is a causation argument, which cannot be claimed by a defaulting fiduciary in a claim for equitable compensation. A useful discussion of the principles by Edelman J is to be found in Agricultural Land Management limited v Jackson (2014) 98 ACSR 615 in these terms: "16.4 Awards of substitutive compensation against company directors 363 The availability of an award of substitutive compensation is not confined to a common account taken against a trustee. It applies also to custodial fiduciaries such as company directors. In Madoff Securities International Ltd v Raven, Popplewell J said that 'the directors of a company are in a similar position in respect of the company's property as trustees … and the basic remedy for a misapplication of company property in breach of fiduciary duty, as with trustees misapplying trust property, is restitution'. 364 In Bishopsgate Investment Management Ltd (In Liq) v Maxwell (No 2), Mr Ian Maxwell was a director of a corporate trustee. He transferred shares held by the corporate trustee to a private family company in which he was also a director. The transfer was for no consideration. The shares were pledged by the private company to Crédit Suisse. 365 Hoffmann LJ held that Mr Ian Maxwell was in breach of his fiduciary duties to the corporate trustee and had prima facie used his powers as a director for an improper purpose. His Lordship said that the 'burden was upon him to demonstrate the propriety of the transaction'. 366 Counsel for Mr Ian Maxwell argued that the plaintiff had not proved causation. He argued that the burden was on the plaintiff to show that if Mr Ian Maxwell had made proper enquiries before signing the transfer certificates then he might still have been 'fobbed off' with some plausible explanation, or some other director might still have signed the transfer. 367 Hoffmann LJ rejected this argument saying: "In the case of breach of the fiduciary duty, it seems to me that the cause of action is constituted not by failure to make inquiries but simply by the improper transfer of the shares to Robert Maxwell Group Plc. Even if Mr Ian Maxwell had made inquiries and received reassuring answers from other directors whom he was reasonably entitled to trust, he would not have escaped liability for a transfer which was in fact for a purpose outside the powers entrusted to the board… It was the improper transfer which caused the loss and the necessary causal connection is therefore established." 368 In other words, where the claim is essentially for restoration or 'substitution' of the company's asset, the necessary causal connection to establish the liability of a director for dissipation of a company asset is merely to show that the director made the transfer without authority. The 'loss' is merely the dissipation of the asset. It is not to the point to ask whether the company would have suffered financial loss in any event. 369 Senior counsel for the defendants is in this case referred to a passage in the judgment of Hoffmann LJ which might not be wholly consistent with this principle. His Lordship was confronted with an argument made by counsel for Mr Ian Maxwell that the company's loss might not be the full value of the shares because the company might recover some of that value in an action against Crédit Suisse if it could defeat the plea of Crédit Suisse that it was a bona fide pledgee. His Lordship said that the company's liability as trustee was 'to restore the fund. Prima facie, therefore, its loss was its ability to make good the value of the shares'. 370 This passage might appear to inject issues of reparative compensation into the enquiry into substitutive compensation if it is understood as a concern with the financial detriment of the company for which Mr Ian Maxwell should compensate. But different explanations of this passage are also possible, consistent with a focus on substitutive compensation. One explanation, adapted from remarks of Lord Millett in a different context, might be that any recovery by the corporate trustee of the shares or their value from Crédit Suisse might be treated as trust money notionally restored to the trust estate on the taking of the account. 371 The decision in Bishopsgate, and the principle that a necessary causal connection is established by proof of an unauthorised transfer was considered by the New South Wales Court of Appeal in O'Halloran v R T Thomas & Family Pty Ltd. In that case, Mr O'Halloran was a director of the plaintiff company (R T Thomas). He was also the Chairman of the Board of another company, Jeffries. R T Thomas held shares in Jeffries. Mr O'Halloran amended the share registry of Jeffries to record a transfer of R T Thomas's shares to another company. The other company had not paid the option price for transfer of the shares. Mr O'Halloran wanted to use the transaction as a means of controlling Jeffries. The share price in Jeffries collapsed before the register could be rectified. R T Thomas sued Mr O'Halloran. It claimed that it suffered loss from an inability to sell its shares in Jeffries before the collapse. Mr O'Halloran was found liable for breach of fiduciary duty. 372 On appeal to the New South Wales Court of Appeal, the primary issue was causation in relation to the compensation for breaches of fiduciary duty by Mr O'Halloran. Mr O'Halloran argued that the real loss was not caused by the registration of the transfer. 373 Spigelman CJ (with whom Priestley JA and Meagher JA agreed) explained in O'Halloran why the same approach historically taken to a trustee of a traditional trust should also be taken to company directors who are custodians of company assets: "The strict standard applicable to a trustee of a traditional trust with respect to improper application of trust property is based on the vulnerability of beneficiaries with respect to the disposition of property by a trustee who has control over such disposition. This policy applies equally to the case of a director of a company, such as a managing director, (or a group of directors) who has (or have) the power to dispose of company property and who does (or do) dispose of such property for an improper purpose. The analogy of ensuring 'restitution' to the estate (in the sense of "restoration") is, in my opinion, an appropriate one. Such a director (or directors) is (are) subject to the same stringent test with respect to the exercise of the fiduciary power to dispose of property, as is the trustee of a traditional trust. It is not necessary to consider the appropriate test for breach by a director of other fiduciary duties. Policy favours a stringent test in the circumstances of this case. It is the vulnerability of a company which places its property in the power of directors, that makes it appropriate to adopt the approach to causation applicable to the trustee of a traditional trust in deciding issues of causation for the contravention by a company director of his or her duty not to exercise the power to dispose of property for an improper purpose. As McLachlin J put it in Canson Enterprises v Boughton (at 154): '…equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart'." 374 In a concurring judgment, Meagher JA put the point succinctly: "By committing many and serious breaches of the fiduciary duties he owed R T Thomas & Family Pty Ltd, he deprived that company of its ability to deal with one of its main assets, viz, its shares in Jeffries. In such a situation, no court exercising equitable jurisdiction would debate whether the loss arose from the wrongful transfer, the retention or non-retention of share certificates, the failure to record the transaction, continuing attempts to sell the shares, or anything else. The company had a valuable asset, O'Halloran neutralised it. Equity will see to it that the value of the asset is restored". 375 Since substitutive compensation is concerned with the duty of restore the value of an asset dissipated without authority it will not apply to every breach of duty by a company director. As McLachlin J explained in Canson Enterprises v Boughton 'the better approach … is to look to the policy behind compensation for breach of fiduciary duty and determine what remedies will best further that policy'. One 'policy' recognises the liability of a custodial fiduciary (including a company director) to restore an asset, or its value, where the asset has been dissipated without authority. This requires substitutive compensation. Another 'policy' is concerned with the reparation of losses suffered by a principal caused by the breaches of duty by the fiduciary. This requires reparative compensation. 24. See also AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 58; 3 WLR 1367 at Para [58] 25. Given what the Court of Appeal in O'Halloran has said there is no doubt that in this case where the directors have disposed of the property for an improper purpose the approach to causation is to be the same as that in respect of the traditional trust. In order to make the causal connection it is only necessary to show that the director made the transfer for an improper purpose. As has been pointed out, for example in Para 368 of Edelman J's judgment, it is not to the point to ask whether the company would have suffered financial loss in any event, such as the possibility of the liquidator selling the shares for substantially less than they were sold. In the circumstances this argument of the defendants is not relevant. 26. It must be remembered that what we are dealing with is the transfer of shares in companies. The value of such shares depends upon the underlying assets as well as other matters. In the 10 years between the date of the breach and the present hearing there has been a significant change in the assets and liabilities of the two companies. This was apparent to The Chief Judge as she noted that there was no evidence that the assets were the same at the two dates and that there was some evidence that established that the assets and liabilities of each of CaTTO and OAL were not as they were at the time of the transfer of shares to Felicity. See paragraph 4 of her judgment of 24 July 2012. 27. Claude Cassegrain in his affidavit of 12 September 2014 paragraphs 47 through 104 describes an enormous amount of work that was done to the business in the 10 years since 2005. As he says if the transfers had not taken place he would not have taken these steps and indeed he says without Felicity's financial backing CaTTO could not raise the necessary capital to undertake the work. 28. As appears from exhibit 9 before me ARF has received substantial income form the Gardiner proceedings but has failed [to] pay much of this income to AOL (sic) in discharge of its loan obligations. It also should be noted that substantial loans and dividends have been paid by CaTTO to Felicity and Claude over the period since 2005. 29. All these factors indicate that valuing the shares at the present time would have little relationship to the value of the shares if they had remained with GC & Co. This is another reason for inclining towards the valuation date being January 2005. 30. Given the nature of the fiduciary obligation and its breach, which occurred in January 2005, it would prima facie be appropriate to value the property in January 2005. The figures put forward by the plaintiff show that the beneficiary will recover a greater amount if 2005 is adopted. However this ultimately depends upon resolution of the valuation issues, which are somewhat complex. Without going into that exercise for this purpose I prefer to not rely on this factor and conclude that given the nature of the breach and the substantial change in the nature of the asset the appropriate date is January 2005. No questions of mitigation have arisen.
7. The Referee referred to Felicity's claim that she was not liable to pay any equitable compensation and the grounds she advanced in respect of this claim that: she was not a director or officer of GC&Co and was the "mere recipient" of the shares and did not do anything personally or relevantly to cause any loss to GC&Co; to order equitable compensation against Felicity would be inequitable and unconscionable and contrary to the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts; and that the Referee should report to the Court that no such equitable compensation should be awarded (R [33]).
8. The Referee decided that Felicity's participation in the transfers of the CaTTO share and OAL shares was such that she should be held liable to pay equitable compensation on the basis identified by Gibbs J in Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373 in particular at 395-6 (R [39]). The Referee said that the "only question" was whether Felicity should be liable for the whole amount or some reduced amount to reflect the extent of her involvement (R [41]). The Referee concluded that Felicity should be held liable for the full amount of the compensation to be awarded with the result that the three defendants are jointly and severally liable to pay that sum (R [47]).
9. The Referee then dealt with the value of the CaTTO share noting that the liquidator had relied upon the report of Jennifer Exner dated 13 June 2014 to establish the value of the share as at January 2005 at $845,356. The Referee noted that the "revised" value of the Wynne Property took into account the legal costs attributable to the "inconvenience" of having the registered lease removed from the title (R [48]; [52]). The Referee identified the issues between the parties as being the value of the Wynne Property and Ms Exner's use of the discounted cash flow method to determine the present value of future cash flows (R [53]). It was noted that the defendants called Mr Hood as a valuer, rather than relying upon its previous expert, Mr Rogers. Mr Hood valued the Wynne Property at $650,000 or $550,000 if sold in a forced sale (R [54]). The plaintiffs relied on their original valuer, Mr Reid. Ms Exner had relied upon the previously agreed value of the Wynne Property at $2,430,000 that had been reached between Mr Reid and Mr Rogers (R [54]).
10. The Referee referred to the criticisms of Mr Hood's approach to the valuation of the Wynne Property including that: his value was one quarter of the agreed value with no explanation as to why Mr Rogers' agreement had been abandoned; it was significantly less than all of the Valuer General's valuations since 1994 and was only 30% of the Valuer General's 2004 value at $1,830,000; it assumed that the highest and best use of the property was not as a tea tree plantation; he failed to take into account as a positive factor the $10 million spent on the Wynne Property; the valuation was based on only four comparable sales, three of which were eighteen months old; and it failed to take into account a comparable sale the explanation for which did not "withstand scrutiny" (R [55]). The Referee also said (R [55]): It was clear from Mr Hood's trenchant adherence to his claim that the highest and best use of the property was as a cattle farm (despite having earlier conceded that he had been told nothing of the property's many competitive advantages) that he had become an advocate for a cause (or, perhaps, an irrational defender of the contents of his report) rather than an objective, non-biased expert.
11. The Referee also said (R [56]): Having heard Mr Hood's cross examination I found his reasons for rejecting sales after the date of valuation was (sic) illogical. I also found his reluctance to use sale 9 of Mr Reid surprising. With regard to Mr Roger's sale 6 his suggestion that a rate of $1977 per ha was close to his own rate of $1500 per ha was not realistic. There seemed to be good reason for adopting tea tree farming as a highest and best use. He does not seem to have considered this possibility. By far the most difficult aspect of his evidence was his refusal to consider the Valuer Generals figures which made his figures simply wrong.
12. The Referee then dealt with Mr Reid's valuation. Mr Reid's opinion was based on his view that the highest and best use of the Wynne Property was as a tea tree farm (R [57]). The Referee then set out the criticisms that were made of Mr Reid's approach. Those criticisms included that although he acknowledged that the highest and best use of a particular parcel of land is generally determined by its economic productivity, if the Wynne Property had been operated as a tea tree plantation between 2005 and 2007 it would inevitably have incurred significant losses. Mr Reid also conceded that he did not inspect the property "thoroughly" at the time he first valued it in 2007. The criticisms of Mr Reid also suggested that he was guilty of "partiality" demonstrated by a particular answer that conveyed that without any information as to the productivity of the Wynne Property he nonetheless considered that he was justified in forming the view that its highest and best use was as a commercial tea tree farm. It was also apparent that none of the "so-called comparables" upon which Mr Reid relied had any commercial tea tree farming operations. There was also criticism of Mr Reid's cavilling with the meaning of the expression "hobby farm". Finally there was criticism of Mr Reid endeavouring to retreat from his evidence relating to the probable cost of converting the subject property to a grazing property at $700 per hectare (R [57]).
13. After referring to these criticisms the Referee said: 59. The criticism of Mr Reid for determining the highest and best use as a tea tree farm without full details of its economics is not justified as he had the business plan which gave a positive outlook to that use. The property was fully set up for that use and tea tree oil was being produced from it. In answering questions about hobby farms I do not think he showed partiality. He did change his view on the cost to change the property back to grazing no doubt because he had further time to consider the matter. 60. Having seen the witnesses and having regard to what I have said above I prefer the evidence of Mr Reid to that of Mr Hood.
14. The Referee also referred to the opinion provided by Ms Exner who used Mr Reid's valuation and deducted the legal costs and liabilities to provide a net asset position. The Referee described this process and referred to the relevant paragraphs of Ms Exner's reports. The Referee concluded that there was no doubt that the procedure adopted by Ms Exner would not "in normal circumstances" produce an accurate valuation of future earnings and accepted that the outcome was "an approximation" (R [64]). The Referee concluded that there was "sufficient conservatism" in Ms Exner's approach to ensure that the value was less than what it might have been if certain information had been made available to her (R [64]).
15. The Referee concluded that the value of the CaTTO share when it was transferred to Felicity on 19 January 2005 was $845,356.
16. The Referee then valued the OAL shares. The CA Judgment dealt with the expert evidence that had been given at trial that was reliant upon the assessments of the prospects of OAL recovering $10 million owing to it by ARF. It was noted in the CA Judgment that this in turn depended upon the prospects of ARF and OAL being successful in the Gardiner proceedings (at [141]). After referring to the findings at first instance that it was appropriate to put a value on the contingent asset, the Court of Appeal noted that a 50 per cent chance of success in the litigation did not translate into a value of the debt of 50 per cent of its face value (at [145]). The CA Judgment included the following (at [145]): In order to arrive at a value of the contingent asset, it would be necessary to determine what a prudent, but not anxious, buyer would pay for the chose in action in question. That would involve not only an assessment of the prospects of success but also an estimate of the considerable money and expenditure of time required in pursuing the claim. No attempt was made to value the chose in action on such a basis.
17. The Court of Appeal concluded that the finding at first instance that the OAL shares were transferred at an undervalue was correct. However it observed that there was a "real question" as to the extent of the undervalue (at [146]).
18. The Referee referred to the fact that as a result of these comments by the Court of Appeal the plaintiffs had obtained evidence from Mr Purcell, a solicitor expert in litigation funding, for the purpose of demonstrating the value of the choses in action (R [73]). The Referee observed that Ms Exner's opinion was based on Mr Purcell's findings and her evidence would stand or fall depending upon whether Mr Purcell's evidence was accepted (R [73]).
19. The Referee referred to Mr Purcell's explanation that a cause of action is rarely valued as an asset that can be sold or purchased at a particular price. Rather it was most likely that the cause of action would be attributed a "recoverable value" in an arrangement under which the litigation funder underwrites the cost of the legal proceedings to pursue the claim to settlement or adjudication. Mr Purcell said that the value of the cause of action in the claimant's hands was the quantum likely to be received by the claimant from the defendant, less the amount payable to the litigation funder (R [75]).
20. Mr Purcell's valuation started with the total debt as at 20 January 2005 of $13,412,302. He then reduced that figure: by 27% on the assumption that only 73% would be non-complying defendants; a further 25% as a risk discount to reflect the vicissitudes of litigation; a further 10% to take account of reduced recoveries due to those borrowers who could raise good defences; and a further 20% on the assumption that this percentage of non-complying defendants would not have financial capacity to satisfy a successful judgment. That reached a figure of $5,287,129.45. Mr Purcell then reduced that figure by $575,000 for legal costs for various steps described in his report to reach a figure of $4,712,129.45. Mr Purcell then concluded that if the funder was entitled to receive 25% of the recovered amount the value would be $3,390,347.08; and if the funder was entitled to receive 40% of the judgment amount that would be reduced to $2,597,277.67 (R [78]).
21. The Referee then referred to the defendants' criticisms of Mr Purcell that he: made no allowance for appeals in his assessment; he misinterpreted Senior Counsel's advice in relation to the claim; his assumption that 73% of the borrowers had failed to pay promptly was erroneous; and his report contained guesswork and speculation in respect of the capacity of the borrowers to pay the judgment, the costs of litigation and the outcome of possible defences (R [79]).
22. The Referee observed that such criticisms of Mr Purcell had to be seen in the context that the defendants had called no evidence of their own in respect of the value of the causes of action (R [80]). Mr Purcell conceded that any cost of the appeals would reduce the amount of recovery but expressed the opinion that he would be surprised if they would have eaten significantly into the amount of $4.7 million because much would depend upon the costs orders that would be made on appeal (R [81]).
23. The Referee said at [81]: It should be remembered that what we are concerned with is the price that a willing, but not anxious buyer would pay to acquire the causes of action in January 2005. We are not concerned with what is the actual amount recovered in due course and the ultimate costs incurred. Normally one takes into account hindsight in determining value when dealing with equitable compensation payable. Given the question involved it would not be appropriate to carry out the valuation exercise with the benefit of this amount of hindsight in the assessment of the value of the causes of action in early 2005. At that time the Gardiner proceedings had been started but not heard. That value depends on what a willing, but not anxious, vendor (sic) would pay at that time and what a wiling, but not anxious, seller would then accept. As Mr Purcell explained the normal deal would not contemplate appeals and if any eventuated there would be some further renegotiation of the funding terms.
24. The Referee dealt with the criticism in relation to the so-called misinterpretation of Senior Counsel's advice inferentially concluding that this had not occurred (R [83]). Mr Purcell's assumption that 73% of the borrowers had failed to pay promptly was based on a judgment of this Court in 2009 for 66 of the 206 defendants on the basis that they had made punctual payments. Mr Purcell conceded in cross-examination that in the ordinary course he would have called for documentary evidence such as debtors' ledgers to determine whether or not the defendants or some of them were non-compliant and did not do so in this case (R [84]). As to the question of the appropriateness for Mr Purcell to make the assessment of 73% the Referee said (R [84]): I would think that what is relevant is whether I could infer that from a judicial determination in 2009 that 27% by value had complied at that date, that in 2005 at least 73% had not complied. I doubt that I could, as the events of default are not limited to payment of monies on time. But in any event there is the possibility that some borrowers became non compliant between 2005 and 2009 thus making the 2005 non-compliant borrowers somewhat smaller. Given the failure of the scheme in 2002 it is likely that more borrowers became non compliant over the years thereafter reaching 73% by 2009. This suggests that some discount should be applied to the 73% figure as a matter of conservative assessment.
25. As to the complaint in respect of Mr Purcell's failure to expose his reasoning, the Referee said (R [85]): There is much force in the criticisms made concerning the assumptions made and in some cases the lack of explanation of the process of reasoning in arriving at particular opinions. If I were bound by the rules of evidence it would probably be that I would be bound to reject the report for this reason. In the circumstances however I think it is preferable to look at the individual items to see if there is some support, which may be apparent. I am mindful that although I am not bound by the rules of evidence they are a good guide, which assists in determining the truth of matters.
26. The Referee then went on to consider the matters raised in respect of Mr Purcell's evidence as follows: 86. In respect of the discount of 25% of the total to reflect the vicissitudes of litigation Mr Purcell's experience would I think be sufficient to enable him to make an accurate assessment. It is perhaps a quintessential example of where it is difficult to express reasons other than one's past experience in the area. A more debatable one is a reduction of 10% to take account of reduced recoveries due to defendants being able to successfully raise defences. No reasoning was expressed in his report as to how he arrived at this assessment. In cross-examination he could not suggest any reasonable basis for his assessment of the 10%. 87. The next assumption is his assessment of 20% as being the number of non-compliant defendants who would not have the financial capacity to satisfy a successful judgment against them. In his report he does expose his reasoning process at Para's 26 to 30. He was cross examined on those reasons and the main matter which emerged was that in the ordinary course he would have carried out some real property act searches to assist in determining recoverability. In this case he did not do that. 88. In respect of his assessment of legal costs it was suggested to him that his assessment was simply a stab in the dark. He rejected this and given his experience as a litigation solicitor I thought he would have been quite competent to make such assessments. 89. It will be recalled that when considering the approach of a litigation funder his comments in Para 57 indicated that the fund would receive 25% of the recoveries provided the recoveries were received within 12 months from the commencement of the funding, and 40% if the net recoveries were received after 12 months from the commencement of funding. There is no evidence, which would allow one to decide on the likelihood of the time of recovery. In these circumstances it is appropriate to work on the basis that 40% would be charged. 90. Having heard the cross examination it seems to me that some of his percentages should be adjusted. I propose to reduce the number of non-compliant defendants to 60%, to raise the percentage [of] the possible defences to 15% and to raise the percentage of those who do not have the financial capacity to 25%. Applying these increases the amount recoverable by ARF is $2,188,298. 91. It is necessary to incorporate this adjusted figure into Miss Exner's methodology. Her assumptions referred to in the plaintiff's contentions in Para 4 are the fact. She applies a net present value calculation to the recoverable amount due by ARF with 5 different scenarios which are that it will be recovered in 1 to 5 years. Adopting what appears to me to be a reasonable period of 3 years and applying that NPV to the amount of $2,188,298 one arrives at a value of $1,882,566 ($2,188,298*2,234,407 divided by 2,597,278). I find that the value of the OAL shares as at 20 January 2005 was $1,882,566.
27. The Referee analysed the claim for just allowances (at [92]-[99]) and said: 94. However equitable compensation looks to the loss suffered by the claimant whilst an account of profits looks to what the defendant fiduciary has gained. In an account of profits the fiduciary is required to give to the plaintiff the monetary value of what they have gained by their breach. As the High Court has pointed out in the passages from Warman, which, I have quoted above in taking an account in respect of profits of a business, due allowances have to be made. 95. The determination of equitable compensation in this case concerns the value of the share misappropriated at the relevant date. Accordingly there is no place for just allowances. In case someone may take a different view I will consider what might have been the just allowance if the relevant date was the date of the trial.
28. The Referee referred to Claude's evidence of the work that he performed between 2005 and the trial noting that no evidence was given of how one would value such work (R [97]).
29. The Referee then concluded his Report as follows: 100. In determining the amount of equitable compensation one has to give credit for the sums paid for the shares by the third defendant. This makes the compensation payable in respect of the one CaTTO share the sum of $784,923 plus interest calculated at pre-judgment rates from 20 January 2005 and in respect of the AOL (sic) shares in the sum of $1,811,116 plus interest calculated at pre-judgment rates from 21 January 2005. I determine that the amount of equitable compensation which is payable by the three defendants jointly and severally is the sum of $2,596,039 plus interest as calculated above.

The defendants' contentions

1. Claude and Mr Sarks contend that the Referee's conclusion (R [18]) that the date on which the equitable compensation is to be assessed was to be determined "in the reference" cannot stand with the dismissal of GC&Co's appeal.
2. They also contend that the Report should be rejected because it is predicated on an assumption or an implicit finding of "very doubtful validity" that had GC&Co chosen in January 2005 to sell its shares in CaTTO and OAL on the open market it would have had no difficulty in accomplishing sales of those shares for $784,023 and $1,811,116 respectively. It was submitted that it is scarcely probable that any party would willingly invest such a substantial sum of money on the footing that the only way in which the investment could be realised would be pursuant to proceedings for the compulsory winding up of the investee company.
3. They also contend that the Referee erred in preferring the evidence of Mr Reid to that of Mr Hood and that the Referee's acceptance of Mr Purcell's evidence is "open to legitimate criticism on a number of bases".
4. Claude and Mr Sarks contend that the Referee found that a hypothetical purchaser would readily and willingly pay $1,811,116 for OAL's shares notwithstanding that the hypothetical purchaser would have had no control over the conduct of the litigation by the company's major debtor (ARF) against that company's alleged debtors and notwithstanding that the outcome of the litigation would not become clear for some years. It was submitted that such a finding "offends common sense".
5. It was also contended that the Referee conflated the purpose of the enquiry of what the hypothetical purchaser of OAL's share capital would pay, with the price that a willing, but not anxious buyer would pay to acquire the causes of action in January 2005.
6. In addition to the submissions made by Claude and Mr Sarks which she adopted Felicity contends that there are significant errors of principle, being errors of law and errors of fact in the Report and that it should be rejected.
7. Felicity made the additional submission that even if there was no requirement imposed on the Referee by the Court as to the date on which equitable compensation was to be assessed, the Referee was in error in assessing equitable compensation by reference to the value of the shares as at January 2005.
8. Felicity also submitted that the Referee wrongly concluded that because she was found to have participated in the breach of fiduciary duty by Claude and Mr Sarks with knowledge of their improper purpose in transferring the shares in CaTTO and OAL to her, she was, without more, liable in equity to pay compensation for the full value of the shares (R [40]-[41]).
9. Felicity also submitted that the Referee wrongly concluded that she should pay compensation for the full value of the Shares without allowance or deduction (R [41]-[44]).
10. Finally Felicity submitted that the Referee omitted to take into account the nature and extent of her knowledge of improper purpose which did not relate to the value of the shares either at the date of the orders made at the trial or at the time of enquiry; and wrongly failed to exercise his discretion that she should not pay compensation or pay a substantially reduced amount of compensation (R [41]-[47]).
11. Before turning to consider the contentions of the parties I should record that Claude and Mr Sarks tendered a folder of materials (Ex 2) in respect of which there was controversy in relation to the documents in tabs 10, 11 and 12 (tr 9-11). Having regard to my findings the materials contained in tabs 10, 11 and 12 are not relevant and I reject it.

Consideration

1. As there is some overlap between the submissions made by Claude and Mr Sarks and those made by Felicity I will deal first with the submissions that are common to all defendants and then address Felicity's additional submissions separately.

Date of assessment of compensation

1. The first issue for determination relates to the date on which equitable compensation should be assessed. The defendants contend that there was a requirement imposed on the Referee by the Final Orders Judgment and/or the CA Judgment to assess equitable compensation as at the date of the hearing and not as at January 2005 when the breaches and the transfers occurred.
2. This is a factual inquiry as to whether such a requirement was imposed in the Final Orders Judgment and/or the CA Judgment. If no such requirement was imposed, Claude and Mr Sarks have not made a separate submission that the Referee's choice of January 2005 was wrong as a matter of law requiring the rejection of the Report. However submissions were made on Felicity's behalf that even if the Court did not impose a requirement on the Referee in respect of the date for assessment of equitable compensation, the Referee fell into error in deciding that the date for the assessment of the value of the shares was January 2005.
3. There was nothing in the Final Orders Judgment that expressly imposed a requirement on the Referee to assess equitable compensation as at the date of the hearing. In paragraph [7] of that judgment, the plaintiffs' claim to have the equitable compensation quantified "immediately" on what was submitted to be the "straightforward" basis of the difference between the amounts Felicity paid for the shares and the value of the shares recorded in the Judgment was rejected. It was rejected in favour of holding an enquiry as to the amount of equitable compensation payable by the defendants. There was nothing said about the date at which the equitable compensation should be assessed.
4. The parties appealed from the Judgment and the Final Orders Judgment. The liquidator's grounds of appeal included the following: 1. The court below erred when it refused to immediately quantify the order for equitable compensation against the respondents by reference to the difference between the amounts the second respondent paid for the appellant's shares in January 2005 and the findings the court below made about the value of those shares as at the date of transfer. (Reasons dated 24 July 2012 at [7]). 2. The court below should have held that, in order to do equity between the parties, the order for equitable compensation against the respondents should have been immediately assessed by reference to the difference between the amounts the second respondent paid for the appellant's shares in January 2005 and the findings the court below made about the value of those shares as at the date of transfer.
5. The defendants submitted that having regard to these grounds of appeal, it is clear that the plaintiffs construed the Final Orders Judgment to mean that it was not appropriate to assess equitable compensation as at the date of the transfers (the date of the breaches). The defendants submitted that the dismissal of this appeal carried with it the irresistible implication that the Court of Appeal intended the equitable compensation to be assessed at the date of the hearing and not at the date of the breaches in January 2005.
6. The Court of Appeal concluded that at first instance there was no finding of a value of the shares for the purpose of determining equitable or statutory compensation (at [161]). There was nothing in the CA Judgment that expressly stated that equitable compensation was to be assessed as at the date of the hearing or at the date of the breaches in January 2005.
7. The dismissal of the liquidator's appeal is not equivalent to a finding that equitable compensation had to be assessed as at the date of the hearing and not at the date of the breaches. Indeed the Court of Appeal's findings make no mention of that date. However the Court of Appeal said (at [161]) "No binding determination of the true value of the Shares as at the dates of the Transfers has been made". Although the reference to the value "as at the dates of the Transfers" may suggest that the Court of Appeal may have had in mind the dates of the transfers in January 2005 as the appropriate dates for the assessment of equitable compensation, neither the plaintiffs nor the defendants, nor indeed the Referee, relied upon this passage for that purpose. Rather the Referee emphasised the Court of Appeal's statement that it was undesirable to constrain the conduct of the enquiry by any practical rulings (at [177]) in concluding that the Court of Appeal "had left this question to be determined in the reference" (R [17]-[18]).
8. I am not satisfied that there was any requirement imposed on the Referee by the Court at first instance or on appeal in respect of the date for the assessment of equitable compensation.
9. It is appropriate to now deal with Felicity's submission that in any event the Referee erred in concluding that the date for assessment of the value of the shares was the date of the breaches in January 2005.
10. A "general rule" that the assessment of equitable compensation for breach of fiduciary duty should occur as at the time of trial, with the benefit of hindsight was developed following the analysis by McLachlin J (as the Chief Justice then was) in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 154; see Target Holdings Ltd v Redferns [1996] AC 421 at 437. In McNally v Harris (No 3) [2008] NSWSC 861 White J summarised the relevant cases on this topic and considered that the appropriate date for assessing compensation in that case was the date of making the orders rather than any other date such as the date the suit was commenced (at [17]).
11. In Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd & Anor (1996) 39 NSWLR 143 McLelland A-JA, with whom Priestley and Meagher JJA agreed said at 154: The fact that an equitable right of action accrues as soon as the breach is committed does not mean that the quantum of compensation is to be fixed as at the date of that breach. The date as at which the quantum of compensation is to be fixed is the date of determination of the proceedings, according to the circumstances then pertaining and with the full benefit of hindsight. The assessment is of the loss to the victim caused by the breach on a common sense view of causation: see Target Holdings Ltd v Redferns (at 363-366; 797-798), per Lord Browne-Wilkinson, applying Canson Enterprises Ltd v Boughton & Co (at 154-164), per McLachlin J.
12. It is appropriate to refer to McLachlin J's statement in Canson Enterprises Ltd v Boughton & Co upon which reliance was placed by McLelland A-JA (and indeed in the cases referred to above and many others). It was as follows (at 162): A related question which must be addressed is the time of assessment of the loss. In this area tort and contract law are of little help. There, the general rule is that damages are assessed based on the value of the shares as at the time of the wrongful act, in view of what was then foreseeable, either by a reasonable person, or in the particular expectation of the parties. Various exceptions or apparent exceptions are made for items difficult to value, such as shares traded in a limited market. The basis of compensation at equity, by contrast, is the restoration of the actual value of the thing lost through the breach. The foreseeable value of the items is not in issue. As a result, the losses are to be assessed as at the time of trial, using the full benefit of hindsight: Guerin, supra.
13. In Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484, Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ said at 499 (footnotes omitted): In Canson, McLachlin J, after putting to one side considerations that arise in tort and contract law, said that in equity "the losses are to be assessed as at the time of trial, using the full benefit of hindsight". Equity provides a range of remedies for breach of express, resulting, implied and constructive trust and apprehended and repeated breach. This appeal concerns the provision of a money remedy for breach of an express trust. The nature of that remedy may vary to reflect the terms of the trust, and the breach of which complaint is made. Generalisations may mislead.
14. In contrast to the "general rule" referred to in the abovementioned cases, Michael Tilbury and Gary Davis in paragraph [2217] of their chapter 22 "Equitable Compensation" in The Principles of Equity, edited by Patrick Parkinson (2nd ed 2003, Lawbook Co) (referred to by the Referee (R [13])), expressed the opinion that there could not be a "general nor even a prima facie rule" for fixing the appropriate date of assessment of equitable compensation. The learned authors argued that the assessment ought to be made on a date which "the justice of the case requires in all the circumstances". The three factors relevant to the requirements of justice in that context were identified as: (1) the nature of the obligation binding the defendant and the nature of the defendant's breach; (2) the choice of a date of assessment that favours the beneficiary rather than the wrongful trustee; and (3) any question of mitigation. Relevantly the authors expressed the opinion that the consideration of the first factor may result in "value being taken as at the date of the breach of the duty in question, or at any other date appropriate in all the circumstances". They referred to WMC Gummow's chapter "Compensation for Breach of Fiduciary Duty" in TG Youdan (ed), Equity, Fiduciaries and Trusts (1989, Carswell) 57 at pp 69-73 in support of the statement that there could be neither a general nor even a prima facie rule in respect of the appropriate date of assessment of equitable compensation. In fact WMC Gummow did not express such an opinion. Rather he said at 69: "Elaborate rules have been evolved in cases of breach of trust as to the time at which the loss is to be measured. I merely give several illustrations" with a footnote referring to DWM Waters, The Law of Trusts in Canada (2nd ed 1984, Carswell) at 993-1005. In that publication DWM Waters refers to various cases, concluding that in the "final assessment the principle is reparation for loss, and the calculation of that loss turns upon the individual factors in each particular case" (at 998). Messrs Tilbury and Davis also referred to Target Holdings Ltd v Redferns noting that in that case there was no distinction drawn between different types of duty.
15. More recently the criticisms of Lord Browne-Wilkinson's approach in Target Holdings Ltd v Redferns have been recognised: AIB Group (UK) plc v Mark Redler & Co Solicitors [2014] UKSC 583; 3 WLR 1367 at [20] per Lord Toulson with whom Lord Reed (writing separately) and Lord Neuberger, Baroness Hale and Lord Wilson agreed. In that case both Lord Toulson and Lord Reed analysed the decisions in Canson Enterprises Ltd v Boughton & Co and Target Holdings Ltd v Redferns. In particular Lord Browne-Wilkinson's analysis in Target Holdings Ltd v Redferns was considered for the purpose of deciding whether his Lordship's statement of the "fundamental principles" which guided him in that case should be affirmed, qualified or re-interpreted (at [49]). Lord Toulson considered that it would be a "backward step" for the United Kingdom Supreme Court to depart from Lord Browne-Wilkinson's fundamental analysis in Target Holdings Ltd v Redferns or to "re-interpret" the decision (at [63]). The Supreme Court affirmed the approach adopted by McLachlin J in Canson Enterprises Ltd v Boughton & Co referred to above.
16. In Target Holdings Ltd v Redferns Lord Browne-Wilkinson dealt with two arguments. The first (referred to as argument "A") related to the position where the trustee was under a continuing duty to reconstitute the trust fund. The second (referred to as argument "B") related to the position where there was an immediate right to have the trust fund reconstituted at the moment of the breach of trust (at [27]).
17. In respect of those two arguments Lord Reed said: 109. Argument (A) was thus dismissed on a procedural ground: the wrong remedy had been sought. Lord Browne-Wilkinson then turned to argument (B). He noted that the Court of Appeal had drawn a distinction between the case in which the breach of trust consisted of some failure in the administration of the trust, and the case where the trustee wrongfully paid away trust moneys. There was, he said, no doubt that in the former case, the restitution or compensation payable was assessed at the date of trial, not of breach. In the latter case, however, the Court of Appeal considered that events between the date of breach and the date of trial were irrelevant in assessing the loss suffered by reason of the breach. 110. As Lord Browne-Wilkinson remarked, the fact that there was an accrued cause of action as soon as the breach was committed did not mean that the quantum of the compensation payable was fixed on that date. The quantum was fixed at the date of judgment, as the figure then necessary to put the trust fund or the beneficiary back into the position it would have been in had there been no breach.
18. Lord Reed conducted an analysis of the cases since Target Holdings Ltd v Redferns, which included reference to Youyang Pty Ltd v Minter Ellison Morris Fletcher (at [123]-[124]). After referring to the recent cases in the Hong Kong Court of Final Appeal, Akai Holdings Ltd (in liq) v Kasikornbank PCL [2011] 1 HKC 357 and Libertarian Investments Ltd v Hall [2014] 1 HKC 368, his Lordship reached the following general conclusions: 133. Notwithstanding some differences, there appears to be a broad measure of consensus across a number of common law jurisdictions that the correct general approach to the assessment of equitable compensation for breach of trust is that described by McLachlin J in Canson Enterprises and endorsed by Lord Browne-Wilkinson in Target Holdings. In Canada itself, McLachlin J's approach appears to have gained greater acceptance in the more recent case law, and it is common ground that equitable compensation and damages for tort or breach of contract may differ where different policy objectives are applicable. 134. Following that approach, which I have discussed more fully at paras 90-94, the model of equitable compensation, where trust property has been misapplied, is to require the trustee to restore the trust fund to the position it would have been in if the trustee had performed his obligation. If the trust has come to an end, the trustee can be ordered to compensate the beneficiary directly. In that situation the compensation is assessed on the same basis, since it is equivalent in substance to a distribution of the trust fund. If the trust fund has been diminished as a result of some other breach of trust, the same approach ordinarily applies, mutatis mutandis. 135. The measure of compensation should therefore normally be assessed at the date of trial, with the benefit of hindsight (emphasis added).
19. However there will be circumstances where the Court may be justified in departing from the "general rule" or the date that the assessment is "normally" made at the date of trial. One such case was Southern Real Estate Pty Ltd v Dellow & Arnold [2003] SASC 318; (2003) 87 SASR 1. In that case the Full Court of the Supreme Court of South Australia (Debelle J, Nyland and Lander JJ agreeing) was dealing with breaches by a director of a company who prepared a list of customers while still a director of the company with the intention of using it once she had resigned as a director in breach of her duty to act bona fide and in the best interests of the company. The company was a real estate agency and the Court concluded that the most appropriate method of assessing the loss to the company was to assess the diminution in the value of the rent roll (the list of customers whose rental properties were managed by the company). After observing that the values of rent rolls had increased since the time of the breach to the point that if the rent roll were being valued at the date of the trial the multiple would be two, Debelle J said (at [52]): When assessing equitable compensation, the court applies the full benefit of hindsight and ordinarily determines that compensation at the date of the trial: Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd (1966) 84 WN (Pt 1) (NSW) 399; Canson Enterprises Ltd v Boughton & Co (at 162) per McLachlin J; Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 11 ACSR 785 at 851-852 per Ipp J and Permanent Building Society v Wheeler (at 235) per Ipp J. However, I think there are reasons why in this case the general rule should not apply.
20. Debelle J then identified the reasons for departing from the "general rule" including that if the director had acted conscionably with due regard for her duties as a director and negotiated to purchase part of the rent roll, the price would have been paid at the time of the breach, in January or February 2001. His Honour also observed that there was no evidence that the real estate agency intended to sell the rent roll and accordingly the price in 2001 was "the appropriate measure of the loss" (at [52]).
21. The Referee referred in detail to Edelman J's judgment in Agricultural Land Management Limited v Jackson (No 2) (2014) 98 ACSR 615. The Referee also referred to AIB Group (UK) plc v Mark Redler & Co Solicitors in which Edelman J's judgment was described as "erudite" (at [53]). In that case Lord Reed said at [93]: Putting the matter very broadly, compensation for the breach of an obligation generally seeks to place the claimant in the position he would have been in if the obligation had been performed. Equitable compensation for breach of trust is no different in principle: again putting the matter broadly, it aims to provide the pecuniary equivalent of performance of the trust.
22. As the High Court warned in Youyang Pty Ltd v Minter Ellison Morris Fletcher, generalisations may mislead. The particular circumstances of each case must guide the Court in crafting the appropriate remedy. For instance in Akai Holdings Ltd (in liq) v Kasikornbank PCL Lord Neuberger of Abbotsbury NPJ, with whom Chief Justice Ma, Bokhary, Chan and Ribeiro PJJ agreed, concluded that equitable compensation should be assessed by reference to the value of the subject shares at the date of their sale, some 18 months after the claim for knowing receipt arose (at [153]).
23. The Referee formed the view that in the circumstances of this particular case equitable compensation should be assessed by reference to the value of the shares in January 2005 having regard to factors including: (1) the nature of the breaches: (2) the fact that there had been substantial change to the assets since the breaches; and (3) the need to determine what the position would have been if the breaches of fiduciary duty had not occurred; concluding that if there had been no breaches of fiduciary duty the shares would have sold at a proper value (R [22]-[30]). The Referee described the valuation issues as "somewhat complex" but did not take this factor into account in determining that the appropriate date for valuation of the shares was January 2005 (R [30]). The Referee concluded that any valuation of the shares as at the date of the hearing would have "little relationship" to the value of the shares had they remained with GC&Co (R [29]). In this regard the Referee was using the benefit of hindsight.
24. The Referee was clearly cognisant of the authorities establishing the "general rule" that equitable compensation is to be assessed at the date of the trial. The Referee was satisfied that the "appropriate date" (the date consistent with the "requirements of justice") for valuation of the shares was January 2005. Felicity has not established that in the circumstances of this particular case the Referee erred in adopting that date.
25. The challenge made by Claude and Mr Sarks fails. The additional challenge made by Felicity also fails.

Market for the shares

1. The defendants contended that the Report should be rejected because of the Referee's implicit finding that had GC&Co chosen in January 2005 to sell the shares on the open market it would have had no difficulty in doing so for the values as found. It was submitted that there was no market for the CaTTO share or the OAL shares and any hypothetical sale would have had nil proceeds.
2. In response to this submission the plaintiffs relied upon Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari [2000] 2 Qd R 359. That was a case in which the directors, Mr and Mrs Ferrari, conceded that they were in breach of their fiduciary duties as directors by transferring or gifting the "rent roll" of the original real estate company to the new company, Ferrari Management Services Pty Ltd (at [18]). The new company was the "knowing beneficiary" of those breaches (at [18]). The issue on appeal was the manner in which the trial judge had assessed equitable compensation. Thomas JA, with whom Shepherdson J agreed (Pincus JA dissenting), concluded that the question of equitable compensation in the situation presented should have been assessed on the basis of the value to the misappropriating fiduciary rather than the value according to "an artificial hypothetical exercise" as if there had been a sale on the open market (at [45]). Thomas JA referred to Hope JA's judgment in Mordecai v Mordecai (1988) 12 NSWLR 58 at 70 where his Honour said: It is well-established that if property has some special potentiality which only one person would buy, it is to be valued on the basis of a notional sale to that person. The property is not valueless or diminished in value because there would be no other buyers: Vyricherla Narayana Gajapatiraju Bahadur Garut (Sri Raja) v Revenue Divisional Officer, Vizagapatam [1939] AC 302 at 316, 317 and Geita Sebea v Territory of Papua (1941) 67 CLR 544 at 557.
3. The defendants submitted that Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari is distinguishable for the "simple reason" that the asset was a rent roll and the issue was whether or not its value should have been discounted on the basis of the presence or otherwise of some restraint of trade provision (tr 14). The defendants submitted that one can readily understand the difference in value in those two circumstances. Whereas it was submitted that in the present case the Court is concerned with shares in two small proprietary companies, an entirely different circumstance from that which pertained in Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari. That distinguishing feature must be accepted. However the plaintiffs' reliance on the passage from Mordecai v Mordecai is still apt.
4. The Referee's finding (R [22]) that there was no evidence to support the claim that there was no market for the sale of the shares, was not challenged by the defendants. However the following submission was made (at par 10 of the written submission for Claude and Mr Sarks): GC&Co's share in CaTTO represented 50% of its issued capital, the other share having been held by Mr Claude Cassegrain. It is, with respect, quite unrealistic to assume, as the referee implicitly did, that some investor would have been ready, willing and able to purchase a one half interest in a company of which Mr Claude Cassegrain was the sole director for $784,023. That is not intended to be disrespectful of Mr Claude Cassegrain. However, while, in theory, such purchaser could, in the event of the deadlock with Mr Cassegrain (which could not be considered an unlikely occurrence), sue for CaTTO's winding up, it is scarcely probable that any party would willingly invest such a substantial sum of money on the footing that the only way in which investment could be realised would be pursuant to proceedings for the compulsory winding up of the investee company.
5. Ms Exner's valuation of the CaTTO share was predicated upon Felicity being the purchaser. It is not in issue that during the reference, none of the defendants took any issue with Ms Exner's assumptions about Felicity being the purchaser of the CaTTO share for valuation purposes. Nor did any of the defendants take any issue with Ms Exner's use of the Net Tangible Asset method in relation to the market valuation of the OAL shares.
6. It is also not in issue that the defendants did not put any competing valuation evidence about the market value of any of the shares before the Referee. In the circumstances the Referee was entitled to deal with Ms Exner's evidence in the manner described earlier.
7. The defendants' complaints in this regard are not made out.

Valuation of the Wynne Property

1. The defendants contended that the Report should be rejected because the Referee erred in preferring the evidence given by Mr Reid as to the value of CaTTO's property (the Wynne Property) in 2005 to the evidence of Mr Hood on that topic.
2. The contest between the parties before the Referee was that the plaintiffs' expert, Mr Reid, valued the property on the basis that the highest and best use of the land was for a tea tree plantation. Whereas the defendants' expert, Mr Hood, valued the property on the basis that the highest and best use of the land was for cattle grazing.
3. The Referee's analysis of Mr Reid's and Mr Hood's evidence is referred to earlier (at [23-[26]). The defendants submitted that the Referee should have accepted the criticisms that had been levelled at Mr Reid's opinion as referred to by the Referee and extracted earlier (R [57]) (at [25] above). It is clear that the Referee took into account the very matters that the defendants now seek to agitate again in this Court. However the defendants also submitted that the Referee disregarded Claude's unchallenged evidence that in order to pursue the tea tree farming operation, CaTTO had to borrow very substantial sums over the years and to undertake remediation and other activities on a very large scale. It was submitted that this evidence demonstrated that the tea tree farming activity was "fraught with risk and only proved justifiable in very recent years". It was submitted that the hypothetical purchaser of a half interest in CaTTO in January 2005 "would have had little enthusiasm for the undertaking of that risk".
4. It was also submitted that if the Referee had accepted Mr Hood's appraisal he would have been bound to conclude that the price paid by Felicity for the share in CaTTO actually exceeded the value of those shares as at January 2005.
5. It is not correct to say that the Referee disregarded Claude's evidence in relation to the borrowings and/or injection of capital into the tea tree business. Certainly there was reference to the $10 million that was spent on the property and the competitive attributes that resulted (R [27]; [55]). It is also clear that the Referee analysed both Mr Hood's evidence and Mr Reid's evidence in light of the deficiencies in that evidence alleged by the respective parties (R [55]; [57]).
6. The plaintiffs submitted that the Referee's approach was both scientific and systematic in the reasons he gave for preferring Mr Reid's evidence to Mr Hood's evidence (tr 4). The plaintiffs submitted that even if it were shown that this Court might have reached a different conclusion, the defendants need to demonstrate that no reasonable tribunal of fact could have reached the same conclusion as the Referee. It was submitted that there was nothing manifestly unreasonable in relation to the Referee's fact finding: Super Pty Ltd v SJP at 564.
7. In any event the plaintiffs submitted that the evidence negates any alternative conclusion being reached. They point to the evidence about the millions of dollars spent in establishing the Wynne Property as a tea tree plantation; the significant competitive cost advantages enjoyed by the Property; the fact that Mr Hood was not made aware of the expenditure or the advantages before he gave his evidence; and the entirely unexplained departure from the defendants' position at trial that the highest and best use of the Property in 2005 was as a tea tree plantation.
8. The analysis conducted by the Referee took into account the evidence of each witness including its deficiencies. The Referee concluded that having seen the witnesses and analysed their reports and evidence he clearly preferred the evidence of Mr Reid.
9. I am not satisfied that the Referee fell into error as alleged by the defendants.

Valuation of the choses in action

1. The defendants contended that the report should be rejected because the Referee erred in accepting Mr Purcell's evidence. It was submitted that such acceptance was open to "legitimate criticism on a number of bases".
2. The Referee analysed the evidence given by Mr Purcell (R [73]-[88]), referred to above (at [31]-[39]).
3. The written submissions for Claude and Mr Sarks included the following (par 14): In accepting, and relying on, Mr Purcell's evidence, the referee has implicitly equated the factors which would influence the assessment by a hypothetical purchaser of OAL's share capital (in 2005) of a fair price to be paid for those shares with the factors which a litigation lender would take into account in determining whether or not to finance ARF's recovery of all of the loans which had been made to the "farmer" - investors. One substantial fallacy in that approach is that ARF was not under OAL's control; it's (ARF's) shareholders in and following January 2005 were Richard Sarks and Anthony Gerard Sarks. Another is that an equity investor (such as the hypothetical purchaser of OAL's share capital) ordinarily expects to derive income by way of dividends and, although the ARF litigation with the investors was, in January 2005, in its infancy, in light of the events which had occurred in relation to the tea tree farming projects managed by OAL, any such investor would have appreciated that the prospects of obtaining any return on his investment in the foreseeable future was remote in the extreme.
4. The defendants also submitted that there was error in the Referee's approach to the valuation in paragraph 81 where it was said: It should be remembered that what we are concerned with is the price that a willing, but not anxious buyer would pay to acquire the causes of action in January 2005.
5. The defendants submitted that this is not correct because the enquiry was concerned with what the hypothetical purchaser of OAL's share capital would pay for it. The defendants have taken the Referee's statement in respect of the price to acquire the causes of action out of context. The relevant parts of paragraph 81 are extracted earlier (at [36]). Read in context it can be seen that the Referee was considering the total value of the OAL shares and dealing with the specific aspects of the "contingent asset". The Referee said earlier in his Report that what he was dealing with was the transfer of shares in companies, the value of which depended upon the underlying assets as well as other matters (R [26]).
6. The Referee was careful to adjust his figures on his own conclusions taking into account Mr Purcell's evidence. It was not a carte blanche acceptance in those circumstances but rather a careful and conservative analysis of aspects of the evidence given by Mr Purcell.
7. The plaintiffs submitted that the defendants have not sought to identify any error of principle in this aspect of the Referee's Report. Nor it is said have they identified any basis upon which the Court could find a perversity or manifest unreasonableness in the Referee's fact finding. It was submitted that the defendants' criticism rises no higher than a complaint that the Referee did not accept the defendants' competing submission that the OAL shares were worth nothing in 2005. This submission has force.
8. Another criticism made by Claude and Mr Sarks was that the Referee disregarded the prospect of appeals in the Gardiner proceedings. It is correct that there had been no appellate history in the Gardiner proceedings as at 2005. They had only just been commenced. It is not in issue that none of the parties put any evidence before the Referee in respect of any costs of appeals. Mr Purcell's approach was to accept that appeals may diminish the amount available but that this would depend upon any costs awards that would be made in the appellate Court. The Referee was entitled to review the evidence given by Mr Purcell in this way and to reach his own conclusions in respect of the figures that Mr Purcell had used. Notwithstanding those figures the Referee introduced even further reductions in the valuation.
9. Claude and Mr Sarks also contended that it was inappropriate for the Referee to accept Mr Purcell's evidence and analysis on the basis that he had assumed that 73% of the borrowers had failed to pay promptly. It was submitted that there was inconsistency in Mr Purcell's approach in not taking into account events post-dating the transfers of the shares but then making an assessment of non-compliant borrowers at 73% based on a post-transfer event, a judgment of this Court in 2009. The plaintiffs submitted that Mr Purcell's report was also based on a letter that had been written on 5 January 2004 by OAL's then solicitors where they had advised the insurer that virtually all of the borrowers were unable to rely upon the OAL indemnity because of their loan payment defaults.
10. This complaint is without substance. In any event the Referee did not accept the figure of 73% and built in a more conservative figure of 60% (R [90]).
11. I am not satisfied that the defendants' complaints regarding the Referee's analysis and conclusions in respect of Mr Purcell's evidence are made out.

Felicity's claims

1. As I have said earlier Felicity adopted the submissions and contentions made by Claude and Mr Sarks, all of which are without foundation. The primary argument raised by Felicity is that she should not be held liable for the loss because her conduct did not cause GC&Co's loss. The Referee dealt with this contention (R [35]-[47]).
2. The following passage from the Judgment is pertinent to this issue (at [268]): The only way in which the impugned share transactions could have been concluded was with the assistance and consent of Felicity. I do not accept her evidence that she had the discussions in relation to the sale of shares in December 2004 as she claimed in her evidence. This was not a case in which Felicity claimed that she agreed to the share transactions in January 2005, when they were actually completed. Rather Felicity maintained consistently with the case of her husband that the discussions and the share transactions were agreed to on 21 December 2004. She maintained that position throughout her evidence. The transactions did not occur in December 2004 and I am not satisfied that relief should be granted to Felicity under s 1318 of the Corporations Act.
3. In respect of this complaint the plaintiffs referred to Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 in which the High Court said at [199]: Where a defendant has received trust property, or property in relation to which fiduciary duties existed, with notice, the cause of action is complete without having to examine causation questions.
4. The Referee referred to this passage in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (R [40]) and said (R [41]): The only question is whether her liability should be for the full amount or whether it should be reduced to some lower level to reflect the extent of her involvement.
5. The Referee went on to refer to the High Court's judgment in Warman International Ltd v Dwyer (1995) 182 CLR 544 (R [41]-[42]) and said: 45. Here we are dealing with the acquisition of an asset so arguably the principal (sic) may not apply. If one looks at what is said as to why there should be some diminution of liability one finds reference to inter alia: ● Felicity's not being a director and owing no fiduciary duties, ● Felicity's only role being as a transferee, ● the second and fourth defendants actions in causing the transfer being on a commonsense view the cause, and ● that Felicity had no control of the approval of the transfer. 47. All this may be so but the transfer could not go ahead without her complicity and she was the one who received the property in question. Even if it were possible to allow for some reduction due to the factual circumstances, because of those two matters it would be inappropriate to allow a reduction. She should also be liable for full amount of the compensation to be awarded. It goes without saying, but I will say it anyway, the plaintiff is only entitled to receive one amount of compensation. The liability to pay the compensation will be jointly and severally by the three defendants.
6. Felicity submitted that the Referee's reference to the passage of Gibbs J's judgment in Consul Development Pty Limited v DPC Estates Pty Limited and to the High Court's decisions in Farah Constructions Pty Ltd v Say-Dee Pty Ltd and Warman International Ltd v Dwyer were all based on the erroneous assumption that they were relevant to the assessment of equitable compensation. The Referee was clearly cognisant of the different approaches to the remedy sought by the parties in those cases and identified the differences between an account of profits and equitable compensation.
7. It was submitted that the Referee failed to consider that it is necessary for there to have been a causal link between Felicity's conduct and the plaintiffs' loss. Although the Referee referred to the passage in Farah Constructions Pty Ltd v Say-Dee Pty Ltd in respect of the cause of action being complete without having to examine questions of causation, it is clear that the Referee did consider such questions. The Referee found that the transfers by which the losses were occasioned could not have gone ahead without Felicity's complicity. The Referee was clearly satisfied on a common sense view of causation that Felicity's conduct caused loss to GC&Co.
8. Felicity was in knowing receipt of the shares. Felicity's attempt to suggest that the transactions occurred in December 2004 was rejected at trial and was demonstrative of her understanding of the improper purpose for which the transactions occurred in January 2005. Without her participation there would have been no loss caused to GC&Co. The Referee was satisfied that the loss was caused by her conduct.
9. I am not satisfied that the Referee's approach to the loss caused to GC&Co is a basis for rejecting the Report.

Just allowance

1. Felicity claimed the Referee erred in failing to allow her any just allowance in respect of the award of equitable compensation. It is true that Felicity made such a claim albeit that it was based on Claude's conduct after the breach. It was acknowledged during the hearing of this application that no submissions were made separately on Felicity's behalf before the Referee (tr 26).
2. In any event as the Referee noted (R [97]) there was no evidence called by any of the defendants about how one would value any of the work which Claude did after 2005. Nor did Felicity lead any evidence to prove that any work done by Claude was done on her behalf.
3. The defendants acknowledged that if there is no error in the Referee's determination of the date for the assessment of equitable compensation, the claims for just allowances are irrelevant (tr 26).

Exercise of discretion

1. Felicity claimed that the Referee's discretion miscarried because he failed to take into account the extent of her knowledge and wrongly failed to reduce the amount of compensation payable by her. Felicity has always claimed that she was far less culpable than her husband and her father in the transactions the subject of the proceedings. That claim has been rejected both at trial and on the reference. Felicity was a pivotal part of the process and her knowledge of the improper purpose was taken into account by the Referee and previously by the Court.
2. I am not satisfied that the Referee erred in exercising his discretion in relation to the amount of equitable compensation to be awarded against Felicity.

Conclusion

1. I make the following orders: 1. The report of the Referee, Mr RH Macready, dated 30 January 2015, is adopted. 2. The second, third and fourth defendants, jointly and severally, are to pay equitable compensation in the amount of $2,596,039 to the first defendant, comprising: 1. Compensation payable in respect of the one CaTTO share in the amount of $784,923; and 2. Compensation payable in respect of the OAL shares in the amount of $1,811,116. 1. The interest as ordered by the Referee is to be agreed by the parties and included in a Short Minute of Order to be filed with my Associate by no later than 23 July 2015. Orders in respect of interest will be made in Chambers. 2. The parties are to endeavour to reach agreement on costs orders associated with the reference and with the hearing of the application for the adoption of the Report. The agreed costs orders are to be included in a Short Minute of Order to be filed with my Associate by no later than 23 July 2015. Orders in respect of costs will be made in Chambers. 3. If the parties are unable to agree on orders in respect of interest and/or costs I will hear argument on a date to be fixed, such date to be arranged with my Associate by no later than 23 July 2015. 4. These orders are to be taken out forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 June 2015