First Plaintiff v Defendant

2 I have come to the conclusion that increased purchase price was part of a global or 'all in' commercial agreement negotiated between the parties which effected a rearrangement of their legal, financial and property interests as well as the resolution of the litigation between them. The increased purchase price is not apportioned or apportionable to a monetary claim giving rise to 'Loss' as defined in the policy, and is not claimable under the policy.

3 On 15 March 2010, Sayers entered into an option agreement ('land option') attached to an agreement to lease ('agreement to lease') dated 15 March 2010 of a gaming venue on Lot 1 ('property') of Proposed Plan of Subdivision 735413A ('plan of subdivision') and subsequently being the land described in Certificate of Title 10504 Folio 369, located on the north-east corner of Derrimut and Sayers Roads, Tarneit. The property was about 8,800m² in area. The owner of the property was Di Dio Nominees Pty Ltd (ACN 005 304 914) ('Di Dio'). On 10 September 2012, Di Dio granted a lease of the property to Sayers.

4 The agreement to lease was for a term of not less than ten years with three further terms of five years making a total of 25 years. The initial annual rental payable was 8% of the aggregate of $2.5 million representing the value of the property and Di Dio's construction costs for the gaming venue as certified by the architect of the works.

5 Under the land option, Sayers could purchase the property and gaming venue for $8,925,140 provided that the land option was exercised within a three year period from the commencement of the lease.

6 Under a share option ('share option') dated 15 March 2010, Di Dio was entitled to be issued with shares amounting to 10% of the issued share capital in Sayers at an issue price of $1 per share provided that Di Dio exercised the share option within ninety days of the exercise of the land option by Sayers.

7 On 8 September 2011, Di Dio and Sayers entered into a building contract with a contractor for the construction of a gaming venue and associated car park on the property.

8 On 19 October 2011, Di Dio, Sayers and Mr Salvalaggio entered into a project management agreement in respect of Di Dio's and Sayers' obligations for building and construction works. Mr Salvalaggio was appointed project manager. By 6 July 2012 Sayers had obtained a gaming venue licence.

9 On 10 September 2012, Di Dio as landlord and Sayers as tenant entered into a lease of the premises erected on the subject land after the completion of construction. The term of the lease was ten years with an option to extend for three further terms of five years. The agreed rental was $648,011.00 per annum plus GST.

10 By 31 July 2013, construction costs as estimated by Sayers' solicitor had reached $5,350,140.

11 On 4 August 2015, Sayers gave notice to Di Dio of its intention to exercise the land option. On 9 September 2015, Sayers notified Di Dio that it exercised the land option, providing a contract of sale signed by two of its directors and a guarantee of performance of the contract of sale.

12 On 7 October 2015, Di Dio gave notice to Sayers of its intention to exercise the share option. On or about 22 October 2015 Di Dio signed a vendor statement in relation to the land and a notice to the effect that Di Dio accepted an allotment of shares in Sayers under the share option. On or about 27 October 2015, Di Dio requested two amendments to the contract of sale. On 25 November 2015, Sayers signed an amended contract of sale incorporating those amendments.

13 Settlement was to take place on the later of 60 days or 14 days after Di Dio provided Sayers notice of the registration of the plan of subdivision. The registration of the plan of subdivision was to be procured by Di Dio.

14 In S ECI 2017 00024 ('2017 proceeding'), Sayers sought specific performance of the land option. Sayers alleged that Di Dio and Sayers had entered into an amended contract for the sale of the property to Sayers for a price of $8,925,140, which Di Dio denied. Di Dio was the defendant in the 2017 proceeding, and counterclaimed against Sayers, and Mr Salvalaggio, a director and owner of 20% of the shares in Sayers to the effect that the agreement to lease, land option, and amended contract of sale should be set aside for breach of fiduciary duty and unconscionable conduct by Mr Salvalaggio and Sayers, through Mr Salvalaggio. Mr Salvalaggio was the accountant of Di Dio and its principal, Angelo Di Dio ('Mr Di Dio'). Mr Salvalaggio provided accounting services through his company CS Accounting & Taxation Pty Ltd. Di Dio alleged that Mr Salvalaggio had not disclosed his financial interest to Mr Di Dio. Di Dio subsequently added Best Hooper, its solicitors for its transactions with Sayers, as a defendant to the counterclaim alleging breach of professional duties owed to Di Dio.

15 The 2017 proceeding was successfully mediated at a second mediation conducted by Manny Garantziotis KC ('mediator') on 25 November 2019 ('mediation').

16 Under the heads of agreement ('terms of settlement') between Sayers, Mr Salvalaggio and Di Dio, Sayers agreed to purchase the property for an amount of $11,000,000 in lieu of the previous purchase price of $8,295,140. Settlement would occur 30 days after registration of the plan of subdivision. Di Dio was to take all reasonable steps to obtain a statement of compliance with the conditions stated in the planning permit, and to ensure that the plan of subdivision was registered as soon as reasonably possible. If Di Dio failed to obtain registration of the plan of subdivision by 1 May 2020, no rent was payable by Sayers to Di Dio until the plan of subdivision was registered. The share option was terminated, and releases were agreed between the three parties. AIG's solicitor attended the mediation on behalf of Mr Salvalaggio. AIG did not consent to the settlement between Sayers and Di Dio but its solicitor did witness Mr Salvalaggio's signature consenting to the terms of settlement.

17 On 17 December 2019, Di Dio and Best Hooper also compromised their dispute. Best Hooper expressly denied liability, but agreed to pay Di Dio $300,000 within 14 days.

18 On or about 6 July 2020, the sale of the property to Sayers under the terms of settlement was completed.

19 In a letter dated 20 January 2020, Sayer's solicitors advised AIG's solicitors of the claimed amount which they said arose by reason of the adoption of the new purchase price of $11 million in the terms of settlement as against the old purchase price of $8,925,710.00.

20 In a letter dated 1 March 2020, AIG's solicitors responded that they had difficulty understanding the claims for coverage as the settlement achieved at the mediation had no real connection with the pleaded claims against Sayers, and the settlement achieved at mediation involved a re-negotiation of the price paid for the property under the contract of sale on a commercial basis. Further correspondence took place but the position remained the same. Sayers commenced this proceeding on 18 January 2021.

21 Under the section 'Policy Section 2 - Corporate Liability', the policy provided:

The Insurer shall pay the Loss of any Company arising from Corporate Liability.

22 It was common ground that Sayers was a Company as defined in the policy and AIG was the insurer.

23 The expression 'Corporate Liability' was relevantly defined to mean:

any liability arising from any actual or alleged act, error or omission of a Company...

24 In the 'General Terms and Conditions' of the policy, 'Claim' was relevantly defined in cl 3 to include a written demand and a counterclaim seeking compensation or other legal remedy. It was not disputed that Di Dio's counterclaim was a Claim as defined in the policy.

25 The term 'Loss' was relevantly defined in cl 21 of the 'General Terms and Conditions' of the policy to mean:

any amount which the Insured is legally liable to pay resulting from a Claim made against an Insured, including...awards of damages..., awards of costs or settlements...

26 It was not disputed that the definition of 'Loss' in the policy extended to awards of damages including equitable compensation but did not apply to claims of a non-monetary character. The only claim made against Sayers to which the definition of 'Loss' could relate was the claim for equitable compensation. The other claims against Sayers were non-monetary and did not give rise to any amount which Sayers was legally liable to pay.

27 At trial, the two issues which were ultimately in dispute between the parties were:

(a) did the obligation to pay the increased purchase price of $11,000,000 agreed in the terms of settlement 'result from' Di Dio's counterclaim against Sayers for equitable compensation; and

(b) if so, was the claimed amount a reasonable settlement of the claim for equitable compensation made by Di Dio in the counterclaim.

28 At trial, Sayers relied on a witness statement of John Kerr, a director of Sayers. It also relied on the witness statements of Jonathon Moore KC and Dean Guidolin (now SC) of the Victorian Bar who had acted for it in the 2017 proceeding, gave advice and appeared at the mediation. Sayers' solicitor, Daniela Sassano, produced a copy of Mr Moore KC's brief.

29 AIG briefly cross-examined Mr Kerr, and did not cross-examine any other witness. It accepted the evidence set out in Sayers' witness statements. It did not call any evidence.

30 The principles for construing insurance policies are well established, and were accepted by the parties. In Onley v Catlin Syndicate Pty Ltd as the Underwriting Member of Lloyd's Syndicate, the Full Court of the Federal Court summarised the proper approach to construction of insurance policies in these terms:

Necessarily, a policy of insurance is assumed to be an agreement which the parties intend to produce a commercial result:... as such, it ought to be given a businesslike interpretation being the construction which a reasonable business person would give to it:... The contract is naturally enough interpreted, in a temporal sense, as at the date on which it was entered into... The Courts frequently have regard to the contextual framework in which a contract is formed, to the extent to which it is known by both parties, to assist in identifying its purpose and commercial objective ... It goes without saying that a construction that avoids capricious, unreasonable, inconvenient or unjust consequences, is to be preferred where the words of the agreement permit.[1]

31 In CIMIC Group Limited v AIG Group Limited, Peden J of the New South Wales Supreme Court summarised the relevant principles for the construction of an insurance policy in these terms:

Central to this case is the proper construction of various clauses of the policies. The relevant principles of construction are not in doubt, and it is sufficient to note that:

(1) It is trite that the process of construing insurance contracts is governed by ordinary principles of contractual interpretation... A clause in an insurance policy must be considered in the context of the policy as a whole, and the policy must be set in its surrounding circumstances or factual matrix, including, if excess policies are involved, the broad scheme of insurance cover intended to provide layers of insurance against the same risk ...

(2) The court seeks to give effect to the intention of the parties based on the meaning of the words used and based on what a reasonable person would have understood the language to convey. Further, where words are unambiguous, they cannot be ignored simply to reach a result that is apparently more commercially convenient. Preference is given to a construction supplying a congruent operation to the various components of the whole and to avoid making commercial nonsense ...

(3) Regard may be had to the "genesis, aim and purpose" of the contract and a commercially sensible construction is to be preferred...

(4) An objective approach is taken to the construction process. Subjective intention of the parties is only relevant to rectification...[2]

32 Turning to the first issue, the threshold question is to determine the causation test that is to be applied in order to determine whether the increased purchase price resulted from Di Dio's counterclaim for equitable contribution against Sayers. What is required is that Sayers show on the balance of probabilities that the additional purchase price said to be the 'Loss' as defined in the policy 'resulted from' the claim for equitable contribution made against it in the 2017 proceeding.

33 The Court was assisted by the research of counsel in identifying previous insurance cases where the expression 'resulting from' or a like expression had been construed.

34 In the United Kingdom, an insurer is presumed liable only for loss 'proximately caused', a test which may be displaced by the full language and context of the policy. In The Financial Conduct Authority v Arch Insurance (UK) Ltd, Lord Hamblen and Lord Leggatt held:

The requirement of "proximate" causation is based on the presumed intention of the contracting parties... But it is a presumption capable of being displaced if, on its proper interpretation, the policy provides for some other connection between loss and the occurrence of an insured peril.[3]

35 In Australia, the foundational case for the construction of the phrase 'resulting from' is Kooragang Cement Pty Ltd v Bates,[4] where the New South Wales Court of Appeal reviewed previous authorities in Australia and the United Kingdom and held that where causation is an issue the case must be determined on its own facts. Kirby P (as his Honour then was) rejected the notion that the phrase 'results from' imports an idea of causation limited to the immediate proximate cause.[5] Kirby P accepted that the occurrence of events which gave rise to a predisposition was not, of itself, sufficient to satisfy a 'results from' test. What was required was a common sense evaluation of the causal chain.

36 In Unity Insurance Brokers Pty Limited v Rocco Penzano Pty Limited, McHugh J considered a policy which required the insured to show that the difference between the full indemnity and the settlement sum 'resulted from the breach'. McHugh J held that:

Whether one event caused or resulted from another is determined in legal proceedings by applying common sense criteria and not philosophical or scientific theories of causation.[6]

... the relevant connection between the claim and the professional services is the words "resulting from". This phrase is found within most of the clauses providing cover. The exclusion clauses use the phrase "arising directly from or in respect of" which is a wide phrase that generally only requires some causal or consequential relationship ... The phrase 'resulting from' is narrower but still does not require that one matter be the proximate cause of the other; instead it requires 'a common sense evaluation of the causal chain'...[7]

38 In Star Entertainment Group Limited v Chubb Australia Ltd, Allsop CJ described the relational prepositional phrase 'resulting from' as 'wider than a proximate cause, requiring a common sense evaluation of a causal chain'.[8]

39 In Swiss Re International Se v LCA Marrickville Pty Ltd, Jagot J said:

Where a required relationship is causal, it is generally accepted that the parties to a policy of insurance intend that a proximate causal relationship will suffice even if the cause must be "direct". A proximate causal relationship involves a search for a "real", "effective", "dominant" or "most efficient" cause, even if there are other proximate causes. Depending on the words used, something less than a proximate causal relationship may also suffice (particularly if the contemplated causal requirement may be either direct or indirect). I have kept this in mind below where I refer to "cause" rather than proximate cause.

...

Similarly, in [Star Entertainment] ... Allsop CJ noted that '[t]he relational prepositional phrase 'resulting from' is wider than a proximate cause, requiring a common sense evaluation of a causal chain:.. See also Davies, M 'Proximate Cause in Insurance Law' (1996) 7 Insurance Law Journal 135 in which the author said "[w]here the policy uses the words 'results from' or 'resulting from', it is not enough that the insured peril merely creates a predisposition for the loss to occur, but it is sufficient if there is an unbroken causal chain between peril and loss and if the peril provides the relevant causal explanation of the loss", citing Kooragang Cement.[9]

40 Finally, in Certain Underwriters of Lloyd's of London v Allianz Australia Insurance Limited, Riordan J referred to the New South Wales Court of Appeal decision in Erect Safe Scaffolding (Australia) v Sutton[10] and observed:

Giles JA[11] considered that the words 'arising out of' were wide but required a substantial relationship that was not remote. However, the relationship was 'less than that required by words such as "caused by" or "as a result of"'.[12]

41 I accept and will apply the law as set out in the Australian decisions above which requires a common sense evaluation of the causal chain.

42 I now turn to review the facts and determine whether the obligation to pay the claimed monies as part of an increased purchase price resulted from Di Dio's counterclaim against Sayers for equitable contribution using a common sense evaluation.

43 On 9 March 2016, Mr Salvalaggio was advised by email that Mr Di Dio did not want to sell the hotel anymore.

44 On 18 November 2016, and again on 3 February 2017, Sayers' solicitors wrote to Di Dio's solicitors concerning the lack of progress with the sale. In their letter of 3 February 2017, they advised that unless Di Dio confirmed the specific steps that were being taken to ensure that the planning permit conditions were satisfied as soon as reasonably practicable, a writ and statement of claim would be filed and served.

45 Sayers issued the 2017 proceeding on 13 February 2017, seeking specific performance of the amended contract of sale and damages.

46 On 21 April 2017, Di Dio filed its defence and counterclaim. The counterclaim was made against Sayers and Mr Salvalaggio and signed by senior and junior counsel. In the counterclaim, Di Dio alleged that Mr Salvalaggio had acted as the adviser and agent of Di Dio, and was in breach of his fiduciary duty to Di Dio. It was also alleged that Salvalaggio had engaged in unconscionable conduct, in circumstances where Mr Di Dio could not read English and had limited spoken English. It alleged that Mr Di Dio had previously suffered a series of strokes, arterial stenosis, and diabetes mellitus type 2. He was reliant on others to explain written documents to him.

47 The counterclaim also pleaded a Barnes v Addy[13] claim against Sayers and alleged breaches against s 51AC(1) of the Trade Practices Act 1974 (Cth) ('Trade Practices Act') and s 21(1) of sch 2 of the Competition and Consumer act 2010 (Cth) ('Australian Consumer Law').

48 The relief sought by Di Dio against Sayers in the counterclaim was as follows:

1. An order setting aside the Agreement to Lease, at least insofar as it contains terms to the effect alleged in paragraph 9 of the Amended Claim, and, if there exist agreements in terms of the [land option] and the Amended Contract of Sale, those agreements.
2. Further or in the alternative, an injunction under s 80 of the Trade Practices Act restraining Sayers from seeking to enforce terms in the Agreement to Lease that have the effect alleged in paragraph 9 of the Amended Claim and, if there exists agreements in terms of the [land option] and the Amended Contract of Sale, from seeking to enforce those agreements.

1. Further or in the alternative, an order under s 87(1) of the Trade Practices Act declaring the Agreement to Lease, at least insofar as it contains terms to the effect alleged in paragraph 9 of the Amended Claim, and, if there exist agreements in terms of the Option Agreement and the Amended Contract of Sale, those agreements, to be void.

1. Further or in the alternative, an injunction under s 232 of the Australian Consumer Law restraining Sayers from seeking to enforce the Amended Contract of Sale, if such an agreement exists.
2. Further or in the alternative, an order under s 237 of the Australian Consumer Law declaring the Amended Contract of Sale, if such an agreement exists, to be void.
3. Alternatively, equitable compensation.
4. Costs.

49 The claim for equitable compensation is the sixth prayer for relief and is stated to be an alternative claim. Apart from costs, it is the only claim in the prayer for relief which could result in a 'Loss' as defined in the policy.

50 On 28 April 2017, Sayer's insurance broker notified AIG of Sayer's claim under the policy. By a letter of 24 July 2017, AIG reserved its position on the claim as it considered that there were too many uncertainties and insufficient information to decide on coverage under the policy.

51 As a result, Sayers alone conducted the defence of the 2017 proceeding without the input or involvement of AIG. However, AIG's solicitors acted for Mr Salvalaggio in defending the counterclaim under the management liability section of the policy. This proceeding is not concerned with that section of the policy. Mr Salvalaggio subsequently resolved his claim against AIG.

Joint Advice from Mr Anastassiou KC and Mr Hosking

52 On 31 October 2017, Sayers obtained a memorandum of advice from Mr Anastassiou KC (as his Honour then was) and Mr Hosking of Counsel.

53 In a detailed written advice, Mr Anastassiou KC and Mr Hosking advised that Sayers had reasonable prospects of establishing its claim for specific performance. They considered that Sayers had good prospects of establishing either that Salvalaggio did not owe Di Dio fiduciary duties in connection with the gaming venue, or even if he did, Di Dio gave its fully informed consent to Salvalaggio obtaining a benefit in connection with the development of the property, as Di Dio obtained independent legal advice from its lawyers about the terms and effect of the agreement to lease and the land option.

54 They also considered that Sayers had good prospects of defending:

(a) the Barnes v Addy claim brought by Di Dio;

(b) the claim of unconscionability brought by Di Dio on the basis that Mr Di Dio did not suffer from a disability, and even if he did, Sayers did not take advantage of the disability as Di Dio obtained independent legal advice from Best Hooper; and

(c) the claims brought by Di Dio under s 51AC of the Trade Practices Act and s 21 of the Australian Consumer Law on the ground of unconscionability for the same reason, and because Di Dio's bargaining power in the negotiations in relation to the agreement to lease and the land option was at least as strong as that of Sayers.

55 Mr Tesarsch of Counsel provided preliminary advice to Mr Salvalaggio on 8 November 2017.

(a) it was unlikely that a Court would find that Mr Salvalaggio was a fiduciary of Di Dio in relation to the transactions the subject of dispute;

(b) the relationship of accountant and client was not one that was necessarily a fiduciary relationship;

(c) the question whether a particular relationship attracted fiduciary obligations depended on the circumstances;

(d) Mr Salvalaggio had instructed that Mr Di Dio was a shrewd and successful businessman;

(e) Mr Salvalaggio told Mr Di Dio that he was representing Sayers, and Di Dio retained Best Hooper as its lawyers;

(f) the agreement to lease and the land option were the subject of lengthy negotiations; and

(g) Di Dio was legally represented during the negotiations.

57 However, Mr Tesarsch considered that there were risks. They included:

(a) in the counterclaim, Mr Di Dio alleges inability to read English and significant health issues leading to cognitive impairment and that Mr Salvalaggio was aware of this;

(b) Mr Salvalaggio accepted various roles and responsibilities, and the lines were blurred on some occasions including when he relayed instructions to Best Hooper for Mr Di Dio and received advice from Best Hooper intended for Di Dio; and

(c) an employee of Mr Salvalaggio's accounting firm worked part-time for Di Dio at the relevant times.

58 Mr Tesarsch was of the preliminary view that Di Dio's claim for compensation may be misconceived. The claim would involve a comparison of the position that would have obtained if the amended contract of sale were performed as distinct from the position if Di Dio had not entered into the agreement to lease and land option. He considered that had the agreements not been made, Sayers would not have contributed fit out costs. There would have been no gaming venue development and the property would have been worth significantly less than the contract price in the amended contract of sale. Mr Tesarsch said the position may be dependent on any evidence deduced by Di Dio of any proposed alternative of the property.

59 Finally, Mr Tesarsch considered that Di Dio was unlikely to be able to prove its claim for unconscionable conduct, because it retained lawyers to advise and negotiate on its behalf, and the transaction was the subject of lengthy negotiations between the lawyers for the parties.

60 Following directions given by Croft J in the 2017 proceeding, Di Dio joined Best Hooper as third defendant to its counterclaim.

61 By letter dated 7 June 2018, Di Dio's solicitors advised the other parties that the relevant dates for the purpose of valuing the property were:

(a) 15 March 2012 - the date of the agreement;

(b) 30 June 2012 - the date on which the hotel was required to be built;

(c) 9 September 2015 - the date of the putative exercise of the option; and

(d) the current date as the latest possible date to obtain a valuation, and the value of the property if no option had been granted.

62 On or about 5 September 2018, Mr Guidolin of counsel was retained to advise Sayers as to the further conduct of the 2017 proceeding. On or about 7 February 2019, Mr Moore KC was retained as leading counsel for Sayers with Mr Guidolin as junior counsel.

63 On 19 February 2019, a conference was held with Mr Moore KC, Mr Guidolin, together with Mr Stakis and Mr Bateman as instructing solicitors. A second conference with Mr Moore KC was held on 22 February 2019. Mr Moore KC noted two options - first to offer Di Dio 'overs' for the land and building and waive the share option, or second to sell the business to Di Dio.

64 On 20 March 2019, Di Dio filed an expert witness statement prepared by Peter Grieve, valuer of Cropley Commercial Hotel Valuations. A substantial and detailed valuation report prepared by Mr Grieve was provided assessing the market rental and market value of the property.

65 Mr Grieve assessed the freehold value of the property based on the capitalisation of net market rental in accordance with the following table:

66 Mr Grieve also assessed the property on the basis that it was leased on the basis of an alternate use. He determined values as follows:

67 On 27 May 2019, Mr Moore KC, Mr Guidolin and Sayers' instructing solicitors conferred and discussed the ongoing conduct of the 2017 proceeding.

68 Following service by Sayers of a second further amended statement of claim on 17 May 2019, Di Dio filed an amended defence in the 2017 proceeding. Di Dio also provided further and better particulars of loss and damage based on Mr Grieve's valuation. The further and better particulars of loss and damage were in substance:

If the court finds that Sayers' purported exercise of the [land option] is effective (and the proper date of assessment of loss is the date of judgment)

1. The measure of Di Dio's loss will be the difference between the current value of the Land (which was, as at 14 March 2019, $11,900,000) and the amount that Di Dio would receive on settlement of a sale under the [land option], plus:

(a) any loss it suffers by reason of any damages, interest or costs payable by it to Sayers in this proceeding; or

(b) any loss it suffers by reason of any amount it may pay to Sayers in settlement of this proceeding.

1. ...

If the court finds that Sayers' purported exercise of the [land option] is effective (and the proper date of assessment of loss is the date of exercise of the [land option])

1. The measure of Di Dio's loss will be the difference between the value of the [property] as at the date of exercise of the [land option] (being $10,350,000) and the amount that Di Dio would receive on settlement of a sale under the [land option], plus:

(a) any loss it suffers by reason of any damages, interest or costs payable by it to Sayers in this proceeding; or

(b) any loss it suffers by reason of any amount it may pay to Sayers in settlement of this proceeding.

...

If the court finds that the Agreement to Lease would not have been entered

1. In the event that the Agreement for Lease (or the subsequent lease) had never been entered, Di Dio would have built a motel in the form described in the expert report of Peter Grieve filed in this proceeding (the Motel).

2. Assuming Di Dio had built the Motel, the measure of its loss would be the difference between the value of the [property] assuming the presence of the Motel (being $10,950,000) and the amount that Di Dio would receive on settlement of a sale under the [land option], taking into account the sum of rent Di Dio would have earned during the period from the construction of the Motel to date, plus:

(a) any loss it suffers by reason of any damages, interest or costs payable by it to Sayers in this proceeding; or

(b) any loss it suffers by reason of any amount it may pay to Sayers in settlement of this proceeding.

69 By a consent order made on 1 August 2019, Croft J referred the proceeding to mediation.

70 An email chain occurred between Sayers' legal advisers and board members prior to a special board meeting of Sayers directors on 3 September 2019. The email chain included the following:

(a) On 24 July 2019, Mr Stakis advised Mr Kerr that Di Dio's claim for loss arose as an alternative to its principal claim that the land option be set aside. Di Dio's loss as particularised was founded on three alternatives measured against the contract price:

(i) against a valuation of $10.35M (being the value at the time the land option was exercised);

(ii) against a valuation of $11.9M (being the current value of the land); and

(iii) against the value of an alternative motel development of $10.95M.

Mr Stakis advised that the last alternative was unlikely to be relevant as Di Dio was not contesting the construction agreement or the lease.

(b) Mr Stakis noted that in providing details of the loss, Di Dio had not taken into account the value of acquiring an interest in Sayers. Di Dio had also failed to provide a calculation of loss based on the value of the land in 2009 when the agreements were executed;

(c) Mr Stakis also advised that counsel was of the view that instead of procuring expert reports as to the value of the business to properly assess any loss claimed by Mr Di Dio, a mediation should be held to determine what it would take to resolve the matter without providing Di Dio with any interest in Sayers. He advised that even if Sayers succeeded in the litigation, Di Dio would have a right to a share in the business, which for obvious reasons was perhaps no longer tenable for the current owners;

(d) in an email sent on 2 August 2019, Mr Stakis advised that:

it would be useful for Sayers to have its own information regarding the value of the property and the value of the business, as the scope to settle the matter will turn on either offering the entire business to Di Dio or offering Di Dio a sum of money for the property and an amount for his entitlement to 10%.

(e) in the same email, Mr Stakis also advised that:

The mediation presents the best opportunity to achieve such a commercial outcome, as the proceeding otherwise, even if you are entirely successful, will result in Di Dio having 10% interest and that is likely to lead to ongoing difficulties.

(f) In response to an email from Mr Kerr, Mr Stakis said that:

As you have correctly observed with Di Dio, it is difficult to make any assessment whether he will approach the mediation in a constructive or commercial manner, but in an effort to constrain the mediation within realistic commercial parameters, my view is that you have your own information regarding the value of the land and a valuation of your business. It would seem to me that for Sayers, the ultimate objective of any settlement, if an outcome is possible, would not only involve in concluding the purchase of the land, but also divesting Di Dio of any right to take up 10% of Sayers.

(g) In relation to Di Dio's right to take up 10% of the shares in Sayers, Mr Stakis stated:

To date, Di Dio, appears to be somewhat oblivious to the issue regarding his right to take up 10%, as Di Dio has neither provided an expert report to take into account the value to him of 10% of Sayers, nor has it been appreciated that at least strictly under the agreement, the right is only to the shares in the trustee company and not the trust.

Nevertheless, you could expect that this issue will at some point arise, and in particular if you wish to reach a settlement that extinguishes his right to 10%, the settlement agreement would have to include express terms to that effect, and in that regard, you could expect Di Dio to want compensation for giving up that right.

(i) As to the provision of formal expert reports at this stage, Mr Stakis suggested that Sayers consider informal and relatively inexpensive reports principally to provide the directors with a foundation for making a commercial offer at a mediation. Mr Stakis said that if Di Dio was interested in a commercial settlement, his lawyers would want to see some independent advice as to the value of the business.

71 On 6 November 2019, a conference was held by Mr Moore KC which was attended by legal advisers and all members of the Sayers board. Mr Moore KC advised that Sayers had a 70% prospect of success if it could establish that Mr Di Dio knew of Salvalaggio's involvement, and a 50% prospect of success otherwise.

72 A note of the conference prepared by Mr Salvalaggio lists some of the considerations relevant to the purchase of the property by Sayers. They included the need to pay Council levies on the property of about $411,000 and $200,000 pursuant to an agreement under s 173 of the Planning and Environment Act 1987 (Vic).

73 On 20 November 2019, Mr Stakis provided Mr Moore KC and Mr Guidolin with an outline of considerations for the mediation. Two options for settlement were identified. In summary, either Sayers could buy the property or it could abandon the purchase and remain as a tenant. If it remained as a tenant, it would want $3 million in compensation for losing the asset and extended terms on the lease. The lease term was currently 10 years, commencing 10 September 2012, with an option for three further five year terms, giving 25 years in total.

74 In a spreadsheet attached to his outline, Mr Stakis noted s 173 agreement fees for road construction of $411,250 indexed quarterly based on CPI, a contribution to community centres of $645 per dwelling, and the provision of open space at $155 per dwelling. He also noted that current rent amounted to $775,000 per annum, a 3% annual increase, with a review in the sixth year of the ten year lease.

75 In his spreadsheet, Mr Stakis identified that the price of $8,295,140 was based on a land value of $3,575,000, being 8,800m² at $406.25 per m² plus Di Dio's construction costs of $5,350,140. A $5,000 deposit has been paid.

76 Mr Stakis also calculated the value of the share option as at 2019. The net asset value of Sayers was $9,671,000. The net value of a 10% interest in Sayers was $967,100. Di Dio's loan contribution to Sayers based on 10% of existing shareholders' loans would be $393,000.

77 Under the heading of 'Options for Settlement', Mr Stakis raised the issue of who would pay the costs of completing the subdivision as the planning permit would expire if the subdivision was not certified within two years. If the planning permit expired, an application for a fresh permit would have to be made.

78 Mr Stakis estimated Sayers' legal costs to mediation at $480,000 with a further estimate of costs to trial of $500,000.

79 In his witness statement, Mr Kerr said that Sayers ultimately incurred $5,350,140 in building and construction costs to develop the gaming venue. He said that Mr Di Dio continuously delayed performing the steps necessary to complete the amended contract of sale by deferring registration of the plan of subdivision.

80 In an email dated 9 August 2019 to Mr Stakis, Mr Kerr advised that after comments were received on various items, the Sayers' board would meet to make decisions that could be applied to any offers that may arise from mediation in the unlikely event that Di Dio would look at a realistic outcome from mediation.

81 In an email dated 15 August 2019, Mr Stakis responded as Mr Kerr had 'correctly observed with Di Dio', it was difficult to make any assessment as to whether he will approach the mediation in a constructive or commercial manner, but in an effort to constrain the mediation within realistic commercial parameters, his view was that you have your own information regarding the value of the land and the value of the business.

82 Mr Stakis said that it seemed to him that the ultimate objective of any settlement for Sayers, if an outcome were possible, would not only conclude the purchase of the property, but also divest Di Dio of any right to take up 10% of Sayers.

83 Mr Kerr said that he considered that there was a real risk that the whole of the agreement for lease might be set aside by the Court. He said that this would be commercially catastrophic for Sayers. Mr Kerr said that he considered the legal risks in the proceeding were therefore very significant.

84 Mr Kerr said that he and the other members of the board of Sayers considered the issues raised by Di Dio's counterclaim in preparation for attending the mediation on 25 November 2019.

85 At a special board meeting on 3 September 2019, Mr Kerr said that settlement alternatives were considered. The minutes of the board meeting included the following:

(a) various valuations of the subject land and the gaming venue business were assessed against Di Dio's expert report from Mr Grieve;

(b) Di Dio's share option was estimated to be worth about $1.2 million; and

(c) Sayers should give consideration to accepting an offer from Di Dio to pay $3 million in compensation to Sayers for Sayers forgoing the right to exercise the land option and continue to lease the property.

86 Mr Kerr said that prior to the mediation he and other board members had regard to Mr Moore KC's legal advice. The legal advice indicated to Mr Kerr that the counterclaim carried with it significant risk that Sayers would not be successful and that Di Dio may be successful in its counterclaim. If Sayers lost the proceeding, it would have to pay an amount of Di Dio's legal costs on top of Sayers' legal costs. Any appeal by Di Dio would add to the legal costs and substantially delay the resolution of the question of whether Sayers would buy the property and whether it could continue to operate its business. It would also delay resolution of the issue as to Sayers investment of $5,350,140 in construction costs.

87 Mr Kerr said that the board had to consider the risks of liability, quantum and legal costs against the possibility that Di Dio might succeed in the counterclaim. If Di Dio succeeded, and the agreements were set aside, Sayers would no longer have a gaming venue business to run as the counterclaim was seeking to set aside the agreement for lease. If Sayers had to pay compensation, it would face a significant pay out. There was a risk that the property could not be purchased by Sayers. The risk that the counterclaim might be successful had significant commercial consequences. Mr Kerr said that he was acutely aware that the legal risks of losing in the proceeding had to be weighed very carefully. Even if the land option were set aside, it did not follow that the share option would be set aside as this was a benefit to Di Dio of which it should not be deprived.

88 Mr Kerr said that all but one member of the board of Sayers attended the mediation. Mr Moore KC and Mr Guidolin attended for Sayers instructed by Mr Stakis and Mr Bateman. Mr Salvalaggio attended the mediation and was represented by Mr Tesarsch of counsel and David Chew, solicitor.

89 During the negotiations, Mr Salvalaggio and his representatives negotiated together with Sayers as one block against Di Dio. The mediation went late into the evening, with heads of agreement signed around 10.00pm.

90 Mr Kerr said that there were about 10 offers and counteroffers made between Sayers and Di Dio, each of which Sayers considered carefully. The initial offers from Di Dio contained terms whereby Di Dio would keep the land and Sayers would lease the property and run the gaming venue. During these negotiations Sayers sought compensation from Di Dio for giving up the land option.

91 Mr Kerr said that late in the afternoon the mediator came into the private session and said that Mr Di Dio was prepared to settle the claims in the proceeding by making an offer to sell the property. The mediator later informed the Sayers' directors that Di Dio's offer was $14 million plus GST. Sayers subsequently made counteroffers in the $9 million to high $10 million range.

92 In discussion, concern was expressed in the Sayers' camp, that Mr Di Dio might procrastinate and fail to register the plan of subdivision whilst Sayers was obligated to pay $650,000 in rent annually. This led to the imposition of a condition that Sayers could operate the gaming venue rent free from 1 May 2020 if the plan of subdivision was still unregistered. This ensured that Mr Di Dio would register the subdivision quickly.

93 Later in the evening, Sayers made an offer of $11 million which was accepted by Di Dio. The $11 million offer was negotiated as an 'all in' figure to resolve all claims in the proceeding on this basis.

94 Mr Guidolin said that he attended a conference in Mr Moore KC's chambers in late February 2019. Four directors of Sayers were present, but not Mr Salvalaggio. Mr Guidolin said that Mr Moore KC said words to the effect that he regarded the critical issue as being whether Mr Salvalaggio had adequately disclosed his interest in Sayers and that this issue might depend on whether a court believed Mr Salvalaggio over Mr Di Dio.

95 Mr Guidolin said that after reviewing the pleadings, he considered that there would be complexities associated with a court unravelling all of the conduct of the parties under the agreements. Sayers had contributed to the construction costs of the gaming venue, which would need to be factored into the Court's overall assessment. There was a real possibility that Di Dio would be enriched by setting aside the agreement to lease without any just allowance for the work done and improvements made by Sayers.

96 Mr Guidolin considered that there was a disconnect between what was being sought by way of equitable compensation on the one hand and the loss and damage that had been particularised. Mr Guidolin considered that the monetary claim by Di Dio in its prayer for relief created uncertainty for Sayers as to whether Di Dio might ultimately seek to set aside the whole agreement for lease or seek to elect between inconsistent remedies - that is rescission or compensation. Mr Guidolin considered that Di Dio's likely position at trial was difficult to ascertain from the pleadings.

97 Mr Guidolin said that to the best of his recollection the critical issue going into the mediation was whether the agreement to lease, land option and the amended contract of sale between Sayers and Di Dio should be set aside by reason of Mr Salvalaggio's alleged breach of fiduciary duty owed to Di Dio. The question of Di Dio's knowledge or fully informed consent was also in question because Di Dio had obtained independent advice from Best Hooper about the transactions. His legal representatives had acted for him in the negotiation of transaction documents and in relation to the exercise of the land option.

98 Mr Guidolin SC recalled that Mr Hamish Austin KC and Ms Nicole Papaleo of counsel appeared at the mediation for Di Dio and that Mr Ben Wyatt, solicitor, Ms Patricia Di Dio, a director of Di Dio, also attended. Mr Di Dio did not attend. Mr Howard Obst, solicitor, appeared for Best Hooper.

99 After the mediation had commenced in open session, the mediator came to the Sayers' room and said that Di Dio would not consider selling the property to Sayers. Negotiations then focussed on securing a long term lease for Sayers with Sayers to be compensated in return for not pressing its option.

100 Offers and counteroffers passed between Sayers and Di Dio and were to the effect that Sayers would retain the existing lease but would seek compensation of around $3 million for giving up its right to purchase the property. Di Dio made offers based on its retention of the property which were not close enough to what Sayers wanted.

101 Mr Guidolin recalled that late in the afternoon the mediator came into the Sayers room and said words to the effect that Di Dio was prepared to sell the property at the right price. Di Dio then offered to sell the property for $14 million. This was a high figure but within the range of what Sayers would pay if it were unsuccessful in defending the counterclaim. Sayers made a counteroffer of around $9.5 million. Di Dio counteroffered around $12.5 or $13 million. Sayers rejected this counteroffer.

102 Sayers' final offer was to pay $11 million for the property and a release from the counterclaim and share option. Each party was to bear its own costs. If registration of the plan of subdivision was not completed by 1 May 2020, Sayers would remain in possession of the property under the term of its lease rent-free until the plan of subdivision was registered.

103 Mr Moore KC said he was briefed to represent Sayers on or about 7 February 2019. He was asked to advise as to the conduct of the matter generally including any amendments to the pleadings.

104 Mr Moore conducted a conference on 19 February 2019. On the same day, he sent an email to Mr Guidolin about what he considered to be the critical issue in the case, and a real risk from Sayers' perspective. This was the potential failure of Mr Salvalaggio to disclose to Mr Di Dio his interest in the transaction and his fully informed consent. The email contained the following:

One issue we need to think about is what Di Dio has to prove in order to set aside any relevant contract with Sayers. On my brief review, there seems not to be many cases outside of the knowing assistance context (which Di Dio does not plead) dealing with the circumstances in which a contract between A and B can be set aside by reason of a breach of fiduciary by C owed to A. Does A have to show that B knew that C had breached C's fiduciary duty to A? And for this purpose, if C is acting for B, will C's knowledge be attributable to B?

There is some discussion in the attached material. My guess is that the answer to both questions is yes. Salvalaggio was acting for Sayers, so his knowledge is attributable to Sayers. And if the Court finds that Salvalaggio did not explain to Di Dio that Salvalaggio [sic] had a direct interest in Sayers, and thus there was no fully informed consent, Salvalaggio will know the objective facts that rendered his conduct a breach of fiduciary duty to Di Dio. That means, most likely, that the contract may be avoided by Di Dio.

105 Mr Moore KC conducted a second conference on 22 February 2019. Following receipt of more material from Mr Stakis, Mr Moore KC and Mr Guidolin prepared pleading amendments, and conducted further conferences on 27 May 2019 and 6 November 2019. At the conference on 6 November 2019, he noted that the property valuation of $8.35 million as at 30 June 2012 was almost the same as the agreement price. He noted that one builder completed both the shell and the fit out. Di Dio paid the costs of the shell while Sayers paid the cost of the fit out.

106 On 25 November 2019, the morning of the mediation, Mr Moore KC emailed Mr Guidolin and asked:

If it's going to settle what do you think would be the range of outcomes we'd recommend to the client?

Assuming risk of failure is with our side - you can't say we're better than say 60/40 on even the most favourable view of our case.

Getting rid of Di Dio as a shareholder and perhaps getting more favourable terms of a varied lease, with each party bearing their own costs - ultimately, however I think that commercial considerations will drive the result, and I don't think our client will accept that as a settlement. Nor will Di Dio - it will want to keep things where they are, we pay its costs and have the [land option] set aside.

Reviewing the brief again last night, I can't see this settling - Sayers clearly want the land. That's what it thought it was getting and would not have done the deal without [sic] it.

(a) the claimed amount was the additional amount required to settle the 2017 proceeding;

(b) Sayers was legally liable to pay this amount under the terms of settlement;

(c) the claimed amount represented compensation payable to Di Dio for the claims made in the 2017 proceeding;

(d) the settlement was in respect of the 2017 proceeding. It was not a mere commercial renegotiation of the purchase price but arose because of the counterclaim by Di Dio;

(e) the liability to pay the claimed amount arose from the terms of settlement agreed in a court-ordered mediation of the 2017 proceeding; and

(f) the settlement was a reasonable settlement of the claim against Sayers.

(a) the 2017 proceeding was a claim for specific performance of the land option and some transaction documents by which Sayers had exercised an option to purchase the property from Di Dio for about $8.9 million;

(b) Di Dio's counterclaim primarily sought that the land option and related transaction documents be set aside, enjoined or avoided;

(c) as against Mr Salvalaggio, Di Dio sought remedies if the counterclaim against Sayers was unsuccessful and the transaction documents were held to be enforceable;

(d) as against Best Hooper, Di Dio sought remedies in the event that the transaction documents were held to be enforceable, and Sayers exercised the land option;

(e) Sayers mischaracterised the counterclaim against it. The counterclaim was for orders setting aside or avoiding the agreements and, alternatively to that, for unspecified equitable compensation;

(f) the fact that Sayers agreed to pay more than the contracted purchase price does not establish any causal link between the counterclaim and the excess paid; and

(g) Sayers had the burden of proof that the legal liability to pay the claimed amount resulted from the equitable compensation claim in the counterclaim.

110 AIG did not submit that the legal advices given to Sayers by senior or junior counsel were erroneous, defective or mistaken. Rather they submitted that the advices had to be seen, and made sense in, Sayers' overall legal and commercial position.

111 AIG orally submitted that there was no real risk of the award of equitable compensation against Sayers because:

(a) Sayers' claim in broad terms was for specific performance of the land option and transaction documents;

(b) Di Dio advanced four principal claims against Sayers, namely:

(1) Salvalaggio owed Di Dio a fiduciary duty not to obtain a benefit from Di Dio, and acted in breach of that fiduciary duty;

(2) Sayers was the knowing recipient of an equitable interest in the property because of Salvalaggio's breach of fiduciary duty, and was liable to account for it;

(3) Sayers, through Salvalaggio, engaged in unconscionable conduct at general law, and the agreements were liable to be set aside; and

(4) Sayers, through Salvaggio, engaged in unconscionable conduct within the meaning of s 51AC(1) of the Trade Practices Act and under s 21(1) of the Australian Consumer Law, and the agreements were liable to be set aside; and

(c) Di Dio was only likely to suffer loss and damage by reason of Sayers' contravention if the land option and the amended contract of sale were held to be enforceable against it.

112 AIG drew attention to a letter from Best Hooper's solicitors to Di Dio's solicitors dated 17 May 2018 pointing out that if Di Dio was relying on a 'no transaction' case, the measure of loss ought to take into account (aside from the property value and the land option sale price);

(a) the benefits received by Di Dio as a result of the agreements, including rent;

(b) the benefits of the fit out; and

(c) the value of the right to the allotment of 10% of the issued shares in Sayers.

113 By order made on 18 May 2018 in the 2017 proceeding, Croft J ordered Di Dio to provide additional particulars by 29 June 2018. The particulars were provided to Best Hooper's solicitors by Di Dio's solicitors by letter dated 2 July 2018. The measure of the loss was said to be the difference between the value of the property and the amount that Di Dio would receive on settlement of a sale under the land option. Di Dio's solicitors agreed that:

any benefits that Di Dio received as a consequence of the transaction would also need to be taken into account (i.e. deducted from its loss). That accounting exercise will be undertaken throughout the course of the expert evidence to be filed by our client.

114 In reply, Sayers submitted that the award of equitable compensation was a conceivable possibility. The difference in land value was the only identified loss that appeared in the pleadings against Sayers. There was no challenge by AIG to the advices given by Sayers' legal advisers or counsel or the conduct of the mediation.

115 As to the likely quantum of exposure, Sayers submitted that the amount claimed fell within a range of possible settlements which were reasonable.

Discussion of the issues in the 2017 proceeding

116 It is appropriate to consider what relief was likely in the 2017 proceeding. It is clear that no remedy would lie against Sayers in the event that the counterclaim against it was not made out. The counterclaim against Sayers would be dismissed. It is conceivable in this circumstance that Di Dio would have compensatory claims against Salvalaggio or against Best Hooper, but not against Sayers.

117 If the counterclaim against Sayers was made out, the most likely result would be that the land option and the impugned transaction documents would be set aside.

118 In King v Lintrose Nominees Pty Ltd, a case involving a breach of fiduciary duty, Hayne J held that it was an inflexible rule that:

a person who has undertaken to discharge any duties for another in the purchase of property, cannot sell his own property to that other without fully disclosing his own personal interest in the matter.[14]

The Court will not enter into discussion as to the propriety of the price charged by the [fiduciary], nor is it material to enquire whether the [beneficiary] has or has not suffered a loss. If the breach of duty... be shown, the Court will set aside the transaction.[15]

120 These considerations led Hayne J to conclude that unless there was full disclosure of the agent's interest in the property, the 'inflexible rule' applied and the transaction would be set aside unless there cannot be restitutio in integrum.[16]

121 In subsequent proceedings, Hayne J's decision and reasons were not challenged or doubted.

122 Likewise in the well-known case of Maguire v Makaronis, four members of the High Court said:

... the breach of fiduciary duty having been established without satisfactory answer by the appellants, it then became necessary to determine the appropriate remedy. The nature of the case will determine the appropriate remedy available for selection by a plaintiff. Here the range of remedies was exclusively equitable in nature, the obligation which had been broken, that of a fiduciary, having been equitable in nature. Where the breach of duty was in a solicitor acting for a client in a transaction in which the solicitor had a personal interest, the court may order the solicitor "to replace property improperly acquired from the client" and achieve this by an order for rescission, unless it be shown that restitutio in integrum is no longer possible.

...

This equity to a decree of rescission is immediately generated by the preceding breach of fiduciary duty... The fiduciary duty forbade, in the circumstances of the case, entry by the appellants into the transaction of which the giving of the Mortgage was a central part. There was no response by the appellants which showed, in the necessary sense, a fully informed consent. Subject to the need for restitution, the Mortgage was liable to be set aside at the suit of the respondents. The breach of the duty was patent at the creation of the very thing which is to be set aside.[17]

123 The issue was considered by Mr Guidolin, who said in his witness statement:

Having reviewed the pleadings, it was my view at this stage of the proceedings that there would be complexities associated with a Court unravelling all the conduct of the parties under the agreements, in particular given that Sayers had also contributed to the construction costs of the gaming venue, which would need to be factored into the Court's overall assessment. An order setting aside the Agreement to Lease (and any other transaction documents) would give rise to a real possibility that Di Dio would be enriched by the grant of such relief without any just allowance for the work done and improvements made by Sayers. However, there remained a real risk in my view that subject to some form of equitable adjustments, the Agreement for Lease could be set aside.

I had a conversation with Mr Moore about whether it was likely that the Court would set aside the whole of the Agreement for Lease but I cannot remember when that conversation occurred or the precise details of that conversation.

124 The greatest risk and concern to Sayers was that the land option, amended contract of sale and other transaction documents might be rescinded, cancelled or set aside. This would leave Sayers with a large investment in fit out and other costs on the property which it could not recover.

(a) Sayers agreed to purchase the property, including all improvements and fixtures, from Di Dio for the price of $11 million plus GST on the same terms and conditions set out in the amended contract of sale including variations sought by Di Dio or as required by the terms of settlement;

(b) the share option was cancelled;

(c) the settlement of the sale of the property was agreed to take place within 30 days after registration of the plan of subdivision;

(d) Di Dio agreed to proceed to register the plan of subdivision expeditiously but by no later than 1 May 2020. If it failed to do so, rental payments would stop on 1 May 2020;

(e) Di Dio would provide Sayers with documents and information as to its communications with the Wyndham City Council and Land Victoria, and as to any capital gains tax that might be triggered by the surrender of the share option; and

(f) wide releases were granted by all parties.

(a) made no mention of the claimed amount of $1,971,604;

(b) made no mention of the claim by Di Dio for equitable compensation;

(c) made no provision for Mr Salvalaggio to contribute to the settlement;

(d) achieved separation of Sayers' and Di Dio's property and financial interests so that Di Dio had no continuing interest in, or involvement with, Sayers;

(e) expedited settlement of the sale of the property to Sayers;

(f) cancelled the share option which avoided the prospect that Di Dio might become a minority shareholder in Sayers and a lender to Sayers;

(g) bound the parties to seek orders to dismiss the proceeding, including the counterclaim, with no order as to costs; and

(h) were made in the context that Best Hooper would contribute $300,000 towards Di Dio's costs.

127 Approached as a matter of common sense, the settlement was a global or 'all in' settlement. It is not possible to allocate or apportion the increase in the purchase price from $8,925,140 to $11 million to the individual component parts of the settlement, or disaggregate the increase in purchase price into constituent elements. It is not possible to separate the value of the non-monetary claims from the value of the equitable compensation claim that might result in a 'Loss' within the meaning of the policy. Rather, the parties agreed on an increased purchase price as part of a global or 'all in' settlement.

128 The settlement was multi-faceted and may be treated as having six component parts. It achieved:

(a) resolution of Sayers' claim against Di Dio for specific performance;

(b) resolution of Di Dio's equitable claims against Sayers including its claims for breach of fiduciary duty, unconscionable conduct, and Barnes v Addy claims;

(c) resolution of Di Dio's statutory claims against Sayers under s 51AC(1) of the Trade Practices Act and s 21(1) of the Australian Consumer Law;

(d) significant commercial benefits for Sayers including the cancellation of the share option valued by Sayers at $967,100, expedited registration of the plan of subdivision and expedited compliance by Di Dio with the applicable planning permit conditions and Council requirements;

(e) separation of Sayers and Di Dio's property and financial interests; and

(f) resolution of respective claims for legal costs.

129 It would be contrary to common sense to ascribe the whole of the increased purchase price to the claim for equitable compensation thereby disregarding all of the other benefits obtained by Sayers from the terms of settlement.

130 I am not satisfied that the increased price for the purchase of the property resulted from the alternative claim for equitable compensation made by Di Dio. Rather it was a global settlement and resulted from the desire of the Sayers board to obtain all of the commercial and legal benefits that I have described in a single, enforceable agreement with Di Dio.

131 Sayers does not advance any fallback or alternative position in the event that the attribution of the whole of the increased purchase price to the alternative equitable compensation claim is seen to be wrong.

Second issue - Was the claimed amount a reasonable settlement of the claim for 'Loss' made by Di Dio against Sayers in the counterclaim?

132 The second issue can be dealt with shortly having regard to what I have already said.

133 The applicable legal principles are well established and are helpfully summarised in the reasons of the Court of Appeal in Protec Pacific Pty Ltd v Steuler Services GmbH & Co KG:

The onus of demonstrating that a settlement amount is reasonable rests on the party relying on a settlement as proof of its loss.

The test of reasonableness is an objective test. The subjective reasoning of the party relying on the settlement does not determine whether the settlement amount was reasonable.

The reasonableness of a settlement amount depends on the circumstances existing at the time of settlement. The settlement amount must be assessed based on the material the parties had available to them at that time and cannot be judged on material obtained later.

Demonstrating reasonableness requires proof not only that the result was reasonable but also that the negotiations were conducted with proper care and skill. The settlement amount must reflect the relevant party's true prospects of success if the proceeding had been conducted with care and skill because otherwise it will merely reflect that party's impaired prospects. The risk involved in the litigation and the reasoning which led to the settlement are the factors that will determine whether or not the settlement amount was reasonable.

The assessment of reasonableness will often require consideration of whether the party that later seeks to rely on the settlement had made sufficient inquiries and had sufficient information available to it to warrant making a compromise. That party must have acted reasonably in discovering the circumstances material to the settlement at the time of settlement. This may invite consideration of whether the cost of obtaining further information would outweigh the benefit, but knowledge of the opposite party's brief to counsel is not assumed.

There is no single answer to the question of what will constitute a reasonable settlement amount. That question requires consideration of the chances of the parties succeeding in their respective claims or defences. Prediction of likely outcomes in litigation is imperfect and imprecise. For this reason, in each case there will be a range within which a settlement amount will be reasonable.[18]

134 The global settlement was a commercial resolution of the legal, financial and property interests of Sayers and Di Dio. The claim by Di Dio for equitable compensation against Sayers was a component of the 2017 proceeding but a relatively small one by comparison with all of the other issues between Sayers and Di Dio. This distinguishes this case from most liability insurance policy cases where the monetary liability of the insured is the sole or principal issue in the earlier proceeding and forms the basis of a liability insurance claim.

135 It is not open to conclude, as Sayers must establish, that the increased purchase price was a fair and reasonable settlement of the monetary claim made by Di Dio for equitable compensation by Sayers. It was not directly linked with the claim for equitable compensation. There was little, if any, nexus between the claim by Di Dio against Sayers for equitable compensation and the increased purchase price paid by Sayers to ensure that it obtained all of the benefits that it received under the terms of settlement. It is not possible for the Court to allocate or apportion the purchase price of the property amongst all of the different legal and commercial benefits that Sayers obtained.

136 No criticism is made or intended of Sayers' counsel and legal advisers as they achieved what the Sayers board wanted them to achieve. They were able to:

(a) expedite the completion of the sale of the property and get good title;

(b) secure the gaming venue for Sayers; and

(c) obtain important additional commercial advantages;

as well as resolving all claims in the 2017 proceeding.

137 I find that Sayers has not established that the increase in purchase price was a reasonable settlement of the monetary claim made by Di Dio for equitable compensation. Rather the increased purchase price was a part of a much larger commercial and legal agreement between Sayers and Di Dio which included the settlement of all claims by Di Dio against Sayers, Mr Salvalaggio and Best Hooper and a commercial rearrangement of the sale of the property and gaming venue.

138 For the reasons that I have given, the claim brought by Sayers against AIG fails and must be dismissed.

[1] [2018] FCAFC 119; [2018] 360 ALR 92, 100-101, [33] (Allsop CJ, Lee and Derrington JJ) (citations omitted).

[2] [2022] NSWSC 999, [122] (citations omitted).

[3] [2021] UKSC 1, 46-47, [162]-[163] (citations omitted).

[4] (1994) 35 NSWLR 452, 463-4 (Kirby P; Sheller and Powell JJA agreeing) ('Kooragong Cement').

[6] (1998) 192 CLR 603, 612, [22] (citations omitted).

[7] [2015] NSWSC 392, [200] (citations omitted).

[8] (2021) 396 ALR 590, 609 [95] ('Star Entertainment').

[9] 2021) 394 ALR 461, 478-479, [43], [48] (Jagot J).

[10] [2008] NSWCA 114; (2008) 72 NSWLR 1 (Giles and Basten JJA and McClellan CJ at Common Law).

[12] [2018] VSC 735, [48].

[13] [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244 ('Barnes v Addy').

[14] King v Lintrose Nominees Pty Ltd (1993) V ConvR 54-483, 65,621 (citations omitted).

[17] Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449, 467 (Brennan CJ, Gaudron, McHugh and Gummow JJ) (citations omitted).

[18] [2014] VSCA 338, 299-300 [744]-[749] (Tate, Santamaria and Kyrou JJA) (citations omitted).