5.0 PROGRESS MEETING
Please let me know if you have any comments on the above structure. It is proposed that a telephone conference be arranged for late next week, say 22nd July. By this time it is envisaged that:
• PJC will have progressed the purchase negotiations;
• PJC / RB will have firmed up the lease arrangements;
• MQ will have arranged bank accounts for the incorporated vehicle to be used; and
• CTE / PJC will have commenced discussions with a prospective equity provider.
21 Of this memorandum, Warren J said ([2002] VSC 454 at [30]):
Donovan was annoyed by this latest scenario for three reasons. First, he realised that Edmonds wanted to be paid both a share of the purchase profit plus a debt arrangement fee of one per cent being $76,000. Secondly, the scenario and the facsimile of 10 July 1999 proposed an equity beyond the capacity of Disctronics. Thirdly, the high equity figure was derived from the allowance of a notional profit to be paid to the consortium by the equity provider.
It is, in my view, not difficult to see why Donovan would have baulked at the scheme of things proposed by Edmonds in his memorandum of 10 July 1999. Edmonds and Cahill had originally been engaged to provide services within their respective areas of expertise, and were to be paid therefor by way of fees. When the potential for the transaction to turn a tidy profit became clear to Edmonds, he and Cahill pressed to become co-venturers, in effect, and to share in that profit. Donovan did not resist that idea as such, but had it in mind that ownership of the golf course, with the benefit of the anticipated income stream from the Spotless rental payments, would be a good investment for Disctronics. It would not be such a good investment, however, if the amount of the equity required was to be set at such a level as would yield a handsome day-one profit for the individual participants in the transaction. By 10 July, therefore, the seed which would later grow into a tree of dissension had been sowed. If the transaction were to be considered as a speculation for six individuals, the higher the purchase price, the better. But, if the transaction were to be considered as an investment for Disctronics, the lower the purchase price, the better. Donovan, Quinert and the applicant, as directors of Disctronics, had reached the point of favouring the latter. But that would be to the detriment of Edmonds and Cahill, assuming - as Donovan appeared to be doing as at 10 July - that they would be likely to participate as co-venturers in their own right.
22 On Sunday 11 July 1999, Quinert attended his office to collect the documents which Edmonds had undertaken to leave for him, and other files. To his surprise, Edmonds was there when he arrived. Edmonds gave Quinert the documents, and spent 10-15 minutes also giving Quinert his views on what the latter, in his evidence in the Supreme Court, described as "the project". According to Quinert, Edmonds' manner was "quite intense", and he said that he was "the best person to run the project". He told Quinert that he (Quinert) should know that "Donovan was trying to make the project available as an investment for Disctronics". Edmonds said that it would be better just to sell the course and get out. Quinert did not enter into this controversy with Edmonds, but said that he would read the documents on the plane and discuss the matter with Donovan in London. The documents given to Quinert by Edmonds on 11 July included his memorandum of 10 July over Donovan's name.
23 Quinert arrived in London on 12 July 1999, and met with Donovan and the applicant. Donovan had already received copies of the documents which Edmonds had given to Quinert. Donovan told Quinert and Howard that one of his objectives was to make the project available as an investment opportunity for Disctronics, provided that the equity investment requirement could be handled by the company. He said that, in his view, Disctronics could afford up to $1.5m, most of which could be obtained through the redemption of the insurance bonds. According to Quinert's evidence in the Supreme Court, "Donovan made out a compelling argument as to why the investment would be beneficial for Disctronics and both Howard and I said that we agreed with his views." After that discussion, Donovan and the applicant suggested that Quinert should ring Edmonds, and raise certain matters with him.
24 The Disctronics Board meeting took place on 13, 14 and 15 July 1999, the third day of which was held not in London but at the company's manufacturing facility at Southwater. On the morning of either 13 or 14 July (it was not entirely clear on the evidence which), before the commencement of the meeting that day, the directors met informally in the hotel room of David Mackie ("Mackie"), the UK-based CEO of the Disctronics group who was the only member of the Board other than Donovan, Quinert and the applicant. What transpired was set out by Quinert in his affidavit in this case as follows:
We informed Mr Mackie that we had been pursuing the Project, and believed that if the equity investment requirement was around or less than $1.5 million, it would represent a suitable investment for Disctronics which could be funded through the redemption of the insurance bonds held in Australia. Mr Mackie did not take great interest in the discussion, as he was primarily focussed on substantial funding and cash flow issues facing the operational businesses of Disctronics. However, since the proposal would not require provision of capital from any of the operational businesses, as it would be funded through encashment of the insurance bonds, Mr Mackie had no objection to us pursuing the Project as a possible investment opportunity for Disctronics.
Both Donovan and the applicant gave evidence to substantially the same effect.
25 As requested by Donovan and the applicant on 12 July, Quinert did ring Edmonds on the morning of 13 July 1999 (London time). He commenced by expressing a concern about certain fees which, in Edmonds' proposal, would be received by Edmonds himself. Edmonds thereupon became aggressive and rude, and "shouted a lot of the time". After what appears to have been a lengthy and difficult discussion on the subject of financing, and of possible third party investors, Edmonds got to the subject of Disctronics. He said that Donovan was pursuing the deal for Disctronics which, according to Quinert's evidence, "would result in him [Edmonds] being screwed". Quinert said that Disctronics had the right to take the equity position, given that it had always been "Donovan's deal". He said that if Disctronics took up the project, then no equity fee would be payable and that Donovan, the applicant and himself, as directors of Disctronics "would rebate our entitlements to Disctronics so as to enhance Disctronics' position". Edmonds said that Donovan wanted Disctronics to "get the deal" so that Donovan could squeeze Edmonds and his friend Cahill on fees and entitlements. He accused Quinert of supporting the Disctronics investment "because Donovan, Howard and I [Quinert] would be able to retain the profits in Disctronics, a company we controlled, and relegate [Edmonds] and Cahill to minor fees". Quinert told Edmonds that he was paranoid. He told him that Donovan, the applicant and himself "would make more money individually if we did the deal externally". He said that, if the deal was done by Disctronics, "there were many issues and barriers including dilution factors which would stand between any ultimate profit and a realisation on the part of Donovan, [the applicant] and myself." He said that the sheer size, volume and volatility of Disctronics' CD businesses meant that "any profit obtained through the project could literally be wiped out overnight". He told Edmonds that there were good reasons for Disctronics to be focusing on "tangible investments in Australia". He said that he (Edmonds) was not privy to all the issues at stake, and that he should not make judgments in matters in which he did not have all the facts. He said that Edmonds was naïve to think that an external equity provider "would not squeeze him and Cahill right down to the minimal position on fees". Quinert said that he had seen this occur in the past, and that at least with Disctronics' involvement the uncertainties and difficulties with an external equity provider would be avoided.
26 On the following morning, 14 July 1999, Edmonds telephoned Quinert. He was calm. He said that he had discussed the project further with Cahill. He proposed that he and Cahill should leave the project, and take the Kingston Links property opportunity with them, but that the Donovan group should retain the relationship with Spotless. Quinert said that this was ridiculous, and that there was no logic to "disbanding and thereby separating the two key elements of the Project". As Quinert was on his way to (the second day of the) Board meeting for Disctronics, he said that he would ring Edmonds later.
27 After the Board meeting (I infer on 14 July 1999), Donovan, Quinert and the applicant met at a hotel in London to discuss the project, and in particular Edmonds' latest position. They discussed it for over two hours, although the applicant left after about half an hour once the "key points" had been discussed. They formulated what Quinert described as a "compromise proposal" to put to Edmonds. As set out in Quinert's evidence in the Supreme Court, the elements of that proposal were as follows:
(a) fees be fixed and agreed at $140,000.00 to Peter Cahill and Edmonds and $140,000.00 to Bucknall, Howard, Donovan and me, provided that $70,000.00 from our side of the fees would go to Rick Bucknall and $70,000.00 was to be retained between Howard, Donovan and me, except if Disctronics completed the transaction in which circumstances that last $70,000.00 would be rebated;
(b) the external disbursements of $140,000.00 would be paid before any profit share was calculated, and the internal disbursements (i.e. $210,000.00 to $280,000.00) would come out of consortium profit;
(c) if external equity was provided, we should try to cap the provider at 22% return on equity, but if internal equity was provided (i.e. by Disctronics) then there would be no profit cap to restrict Disctronics; and
(d) if the equity requirement for the Project was $1.5 million or less then Disctronics had the right to take over the deal, but that if it was more then Edmonds would have the mandate to procure external equity.
Either on that day or the following day, Quinert telephoned Edmonds and went through the compromise proposal that had been formulated. Edmonds said that he liked it, and that he would discuss the matter with Cahill.
28 On 16 July 1999, by which time Quinert was in Rome, he received a facsimile from Edmonds, sent on that day, but dated 12 July 1999. In the facsimile and the attached tables, Edmonds set out three alternative scenarios, broadly based upon the compromise proposal which Quinert had put to him by telephone on 14 July 1999. Although the numbers and assumptions differed as between these alternatives, the principles by reference to which they had been prepared were stated, in the cover sheet to Edmonds' facsimile, as follows:
1. 'Expert disbursements' are paid as required.
2. 'Internal Disbursements' of approximately $280k are split between KD, SH, MQ & RB on the one hand and PC & CE on the other.
3. If an external equity provider is used, the 'profit' is split six ways.
4. If Disctronics decides to participant [sic] as the owner (scenarios 2a & 2b), 'profit share' does not apply.
Quinert sent this facsimile on to Donovan, and later spoke to him. Donovan said that he had not intended that there would be "no profit share" if Disctronics were the purchaser of the golf course. Based on his discussions with Donovan, Quinert telephoned Edmonds on 16 July 1999 and accepted what had been set out in the latter's facsimile, subject to two matters: first, that Disctronics should not have been referred to specifically in the document, "because the matter at this stage was still confidential", and secondly, that the "external parties" - Edmonds, Cahill and Bucknall - should get some profit if Disctronics negotiated as purchaser, although the quantum would have to be based on "arms-length negotiations". According to Quinert, Edmonds said that he was happy with this, and thanked Quinert for reintroducing the prospect of there being some profit share for Cahill and himself, over and above their fees. At this stage, Quinert thought that the issue was resolved.
29 While these interchanges involving Quinert and Edmonds were taking place, Bucknall was continuing his negotiations with Rose. According to the evidence which he gave in the Supreme Court, by 13 July 1999, Bucknall had asked Rose for an annual rental of $1.2m and was confident that at least this rental would be achieved, so long as the Kingston Links audited revenue figures were substantiated, and the corporate packages lifted the number of rounds to approximately 60,000 annually.
30 On 19 July 1999, Edmonds sent Quinert a further facsimile which, although not in evidence in the present case, appears to have been by way of variation of that sent on 16 July. In her judgment, Warren J said that it contained "four core proposals" as follows ([2002] VSC 454 at [42]):
(1) External disbursements for the acquisition of the golf course were estimated at $140,000 if an external equity provider was involved.
(2) Moneys for internal disbursements of $200,000 were to be split, that is, $140,000 between Donovan, Howard, Quinert and Bucknall, and $140,000 between Edmonds and Cahill.
(3) Approximately 50 per cent of the notional profit of the transaction, excluding disbursements payable to Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill, accrued to the equity provider.
(4) The remaining notional profit would be applied to pay external disbursements, then internal disbursements and the balance called "a profit share" was to be split six ways between Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill equating to the sum of $30,000 each.
Quinert considered, and Warren J found, that the scenarios set out in this facsimile departed from the telephone conversation which the two men had had on 16 July. The scenarios were, according to Quinert, "largely dependent upon assumptions which were unknown at that time, being the cost of the land and the rental return to be obtained", and he did not respond to Edmonds' request to confirm the acceptability of them.
31 Edmonds' memorandum was considered at a teleconference on 20 July 1999 attended by Donovan, Quinert, Bucknall, Cahill and Edmonds. The applicant was unable to attend, but he later saw, and agreed with, the minutes of the meeting, and both the case in the Supreme Court and the present case have been conducted by reference to an assumption that he was a notional participant. Those minutes, prepared by Edmonds and subsequently accepted by all concerned, identified the topic of discussion as: "Property Venture to Acquire Kingston Links Golf Course and Arrange Spotless Services Limited to become Long Term as Operator/Tenant". The substantive parts of the minutes provided as follows:
5. PROPOSED FUNDING TABLE
Whilst it is too premature in the timeline of this transaction to accurately predict final numbers, the broad approach is to be as follows:
'Acquisition Costs' are to include cost of the legal work to be undertaken Oakley Thompson & Co which are roughly estimated at $20k.
'Disbursements - External' are to be paid as required. Such items are to include cost of funds, disbursements incurred to date (?), equity arrangement fee (if applicable) and valuation fee.
'Disbursement - Internal' are to be fixed at $140k for consulting, legal and introduction (KD, SH, MQ & RB) and $140k for property, administration and funding (PC & CE)
'Profit Share' / Initial Investor Return' are to be determined as the transaction unfolds. Profit share to the team is to be split 6 ways. It is anticipated that the day-one return on equity to the investor, net of costs, will be approximately 50% of the notional profit after Government duties and imposts (i.e. excluding disbursements to our team) accruing to the equity provider(s), up to a ROE of 22% for an external equity provider. The factors influencing the final approach will be the saleability of the project to an investor (what is the minimum return acceptable), the marketability of the project to the investor (does it appear as an attractive proposal) and whether or not the equity provider(s) form part of our team.
6. PROVISION OF EQUITY
It was agreed that the matter of sourcing equity funding would be further addressed only after the purchase price of the property and details of the lease arrangements are known.
7. ACQUISITION OF SUBJECT PROPERTY
Peter Cahill briefed the meeting on the progress to date of the negotiations with the vendor. Peter tabled a draft letter of offer addressed to Kingstons. After lengthy discussions regarding the requirements to avoid being assessed for double stamp duty and various amendments to the format of the letter, Peter was authorised to proceed to deliver the offer to Kingston. This is scheduled to occur tomorrow.
The potential to immediately sell plant and equipment to the prospective tenant was also discussed.
8. NEGOTIATIONS WITH PROSPECTIVE TENANT
Rick Bucknall discussed progress with Spotless. It was decided that Rick would reapproach Spotless and preposition our expectation that the initial rental would be in the order of $1.1 million per annum.
Warren J held that it was at this teleconference that a joint venture to acquire the Kingston Links golf course came into existence, and that the members of the venture were Donovan, Quinert, Bucknall, Edmonds, Cahill and the applicant.
32 By letter to Wood dated 21 July 1999, Cahill made a formal offer to purchase the Kingston Links golf course for the price of $7.75m, plus stock at value. The purchaser was identified as Quinert, Edmonds and the applicant, as nominees for a special purpose entity or entities. The offer was subject to three conditions precedent, one of which was that the purchasers should reach formal agreement with a golf club operator as to the terms and conditions of an acceptable management agreement. It seems that the offer was not acceptable to Wood, but he and Cahill continued negotiating. On 3 August 1999, they reached a verbal agreement for the sale of the golf course for the sum of $8.68m. According to a file note of that date made by Quinert, after a conversation with Cahill, that sum included "machinery".
33 During the same period, Bucknall's negotiations with Rose were also proceeding well. By letter dated 29 July 1999 to Donovan, Rose indicated that an annual rental of $1.165m was "achievable", subject to various matters set out in the letter. The letter also suggested that a minimum ten-year lease would be required, with a further ten-year option, and that the parties would need to agree upon a "measure of rental increase" as to which Rose added "usually CPI".
34 By early August, therefore, the members of the joint venture which had been formed on 20 July were in possession of the two key parameters by reference to which they could plot their future: the price at which Kingston Links was available for purchase, $8.68m, and the annual rental which was likely to be paid by Spotless, $1.165m. It was in this environment that what Warren J described as "the disintegration of the joint venture" took place.
35 On 3 August 1999, Quinert (by then back in Australia) had a conversation with Edmonds. Edmonds asked how much money Quinert had; and he also asked whether Donovan and the applicant had access to cash. Quinert responded that he himself, Donovan and the applicant all had access to funds. Edmonds asked a similar question about Bucknall. When asked by Quinert why these inquiries were being made, Edmonds said that, if Quinert, Donovan, Bucknall and the applicant could "come up with a few hundred thousand dollars between [them]" (Quinert's words in his evidence in the Supreme Court), he (Edmonds) had an idea about a new way that the project could be structured "so as to do it ourselves". Quinert told Edmonds to set out his proposal in writing.
36 Edmonds did set out his proposal in writing, on the same day. His memorandum included two scenarios, the first of which was based upon what he described as "external equity", in which event there would be "50% of initial paper profit to investor(s)". The second scenario was headed "equity participation by each team member". This involved an expedient which had not previously been mentioned at any stage, namely, "the six team members retaining ownership of the facility". In such a case, on Edmonds' calculations, each team member would be required to inject $126,666, making a total of $760,000.
37 Quinert discussed Edmonds' new proposal with the applicant, and the two of them later called Donovan in London. Donovan said that he would not agree to the proposal. He said that Disctronics was to be the equity investor. He told Quinert to tell Edmonds that Disctronics now intended to take up its entitlement in respect of the project, given that an equity injection of less than $800,000 was required.
38 On 4 August 1999, Quinert replied to Edmonds' memorandum of 3 August, and he did so effectively also on behalf of Donovan and the applicant. At the outset, Quinert confirmed that Disctronics "intends to exercise its entitlement to take on the acquisition". In the circumstances, the second scenario proposed by Edmonds was, according to Quinert, "not possible". The remainder of Quinert's memorandum was concerned with matters of detail, and of contention as between Edmonds and the Donovan group, and it is not necessary to set them out at length. The memorandum did, however, contain the following paragraphs:
In an effort to perhaps allay your fears I assure you that I believe the transaction can procure a real and substantial profit. As such there will be an entitlement to non associated consortium members for a return significantly greater than the agreed professional fees. Given that as I understand it, yours and PC's engagement was originally to be as consultants only this outcome when viewed in that context probably represents the best deal you have ever done. It would be extremely disappointing if you were not happy in those circumstances.
To be candid your approach always seems directed towards pushing the other consortium members to a position rather than simply discussing and resolving the matter in an open and co-operative serve. This is not my style and, frankly, I am personally not going to participate in such a process with people I consider associates. That is how I feel.
39 Also on 3 August 1999, Quinert activated a shelf company called Corwen Grange Pty Ltd ("Corwen Grange") and caused Disctronics to acquire one ordinary share in it. The purpose of this was so that Corwen Grange could be the nominee company to whom the golf course would be transferred on behalf of Disctronics. Quinert informed Cahill of that intention, and instructed him to name Corwen Grange as the offeror in the formal offer which he, Cahill, was then, as Quinert assumed, preparing to send to Wood.
40 The dispatch of Quinert's memorandum of 4 August 1999 led to some acrimonious discussions between the two contending sides, largely involving the applicant and Edmonds. According to Warren J ([2002] VSC 454 at [52]), "Edmonds, and also Cahill, asserted that the imposition by Donovan and the others of Disctronics into the role of equity provider in the transaction had an impact on the agreed profit share." Her Honour also said (at [56]):
On 5 and 6 August 1999 various discussions ensued between Howard, Quinert and Edmonds as to the position of Edmonds and Cahill. By this time relations between Edmonds on the one side and Howard and Quinert on the other had become strained. Edmonds was concerned that Donovan was allowing Disctronics to take over the acquisition whilst he saw an opportunity for the six team members to provide the equity themselves. Donovan, Howard and Quinert on the other hand saw Edmonds as seeking to gain more than he was entitled to and at the expense of Disctronics.
According to the evidence of the applicant in the Supreme Court, after he had read Edmonds' proposal of 3 August and Quinert's response of 4 August, he went to see Edmonds in his office (which was located conveniently to the offices of Oakley Thompson & Co where the applicant and Quinert were partners) on 4 August 1999. The applicant's evidence continued:
I told Edmonds that I thought the Disctronics scenario was contrived by him to enable the individuals to usurp Disctronics' entitlement, that the fees for which he and Cahill were asking were excessive, and that his suggestion that they were based on a paper profit was absurd and illogical. I asked him to reconsider the sum being sought. My final words were to the effect that I would not allow him to torpedo Disctronics' corporate opportunity.
By this stage, it seems, the discussions had become what was, in effect, a negotiation as to the size of the fees that would be paid to Edmonds and Cahill in total, given that they were clearly unhappy about their prospects of securing any significant profit on the transaction, now that Disctronics was to be the purchaser.
41 The applicant telephoned Donovan in London, who authorised him to negotiate a settlement of the dispute with Edmonds. The applicant and Quinert then went again to see Edmonds in the latter's office. After some bargaining, the position being taken by Edmonds was that he and Cahill would accept nothing less than $340,000 jointly, and the position being taken by the applicant on behalf of the Donovan group was that no more than $200,000 would be offered. That remained the position until late in the afternoon of 5 August 1999, when the applicant again went to see Edmonds. He told him that "Disctronics' final position was $300,000 (expressed on a joint all in basis)". Edmonds consulted Cahill, and returned to the applicant (now in his own office) with the advice that they would accept $300,000 jointly.
42 If Edmonds and Cahill were to be the beneficiaries of cash payments, it was necessary to define the conditions which would attach to that entitlement. The applicant's evidence in the Supreme Court continued:
I had already started to write out possible terms of settlement in the interval between leaving his room and him responding to me. I asked him whether the equity figure of $760,000 he had set out in the scenario entitled "Equity participation by each Team member" was able to be achieved. He told me that it was a bankable deal given the Spotless lease. He told me that he couldn't wait for me to complete the document as he had a commitment at Preston. I therefore told him that the fee payable was based upon first, the offer of $8.68m being accepted; second, a gross rent return of $1.165 million being received from Spotless Group; third, the sum of equity to be made available by Disctronics being ballpark what the individuals would on his scenario be required to inject; and finally that the finance facility would be sought on a non-recourse basis. He emphatically responded "yes" to each part and then hurriedly left.
43 The applicant completed his handwritten draft of the terms of settlement and, because he was to be away from his office the following day, 6 August 1999, left it for his secretary to type and to hand to Quinert for review. The typed document, as provided by Quinert to Edmonds, was as follows:
Our fee agreement is as follows:
Subject to:
l. a wholly-owned subsidiary of Disctronics Limited "D.L." or its/their nominee satisfactorily completing the acquisition of the Kingston Links Golf Course ("the Property") for an aggregate price not exceeding $8.688 m. ("the net purchase price") which said net purchase price includes all land, buildings, tradenames, goodwill, plant and equipment, machinery etc at on, upon or appurtenant to the enjoyment and use of the Property; and
2. C.E. and P.C. procuring bank finance ("the finance facility") for D.L. at not more than prevailing commercial rates of interest, fees and charges to a level which requires D.L. to contribute equity of not more than $750,000 to acquire the Property; and
3. the finance facility being provided on a non-recourse basis to the directors of D.L.; and
4. the finance facility being premised upon a net rental available to D.L, of $1.065m., being the gross rental payable by the intending Lessee (being a member of the Spotless Group of Companies who must unconditionally consent to entering into an Agreement for Lease of the Property for a term of not less than 5 x 5 x 5 x 5 years at a gross commencement rental of not less than $1.165 m. per annum plus rates, taxes, and outgoings within one month of D.L. entering into a conditional contract to purchase the Property) less the reasonable cost of engaging R.B. for a term of 1 x 1 x 1 years at a commencement salary package not to exceed $80,000 per annum to supervise the intending lessees use of the Property so as to preserve and enhance its value.
Then, but not otherwise:
5. D.L. shall pay C.E. and/or nominee on completion of the purchase of the Property $150,000; and
6. D.L. shall pay P.C. and/or nominee on completion of the purchase of the Property $150,000; and
7. D.L. shall pay R.B. and/or nominee on completion of the purchase of the Property $100,000.
These terms are confidential.
44 On 10 August 1999, Edmonds responded to Quinert in the following terms:
I acknowledge receipt of your proposal on Friday evening 6 August 1999, which purports to be an agreement. I must emphasise that no such agreement is in place. Confirmation of your revised offer was sought so that I could discuss the matter with Peter Cahill. However, the offer is a dramatic variation from the profit sharing arrangements that were agreed and documented and it is therefore unacceptable. Whilst Peter acknowledges being invited into the consortium initially as a consultant, the deal very clearly and demonstrably evolved into a joint venture between yourself, Kevin Donovan, Stephen Howard, Rick Bucknall, Peter Cahill and myself. From my end, I always considered that my interests, through Home Link Mortgage Corporation Limited, were part of a partnership/joint venture. The basis of the agreement and the formula for equity/profit sharing was documented (and countersigned by Kevin Donovan without objection from any of the participants). Clearly, you believe the joint venture (for which Oakley Thompson & Co is the appointed legal firm) is now at an end because you have excluded Peter, Rick and myself from any involvement as principals and are seeking to appoint us merely as consultants to the transaction so as to maximise your own commercial returns. I am immensely disappointed that you have repudiated the joint venture arrangements, which were very clear cut. The present proposed terms for our on-going involvement is unacceptable. Peter and I are somewhat relieved that we are no longer involved because we believe your integrity and ethics are profoundly lacking.
It may not have been entirely irrelevant to the content of this communication that Edmonds and Cahill were, by then, receiving their own legal advice.
45 On 11 August 1999, Quinert wrote to Cahill, noting that he had received Edmonds' memorandum of 10 August that day, and asking for Cahill to clarify his own position as soon as possible. Quinert's letter continued:
As I confirmed to you in our telephone conversation of 4th August last the Disctronics group had then elected to proceed with this acquisition through a wholly owned subsidiary Corwen Grange Pty Ltd. This election was made pursuant to the prior agreement of all concerned, which fact has been acknowledged by Chris Edmonds in the presence of myself and Stephen Howard. As such, you as agent have had a fiduciary obligation to the Disctronics group to act on its behalf and in its best interests in your discussions with the vendor. Please advise me of what action you have taken as the responsible agent towards securing the acquisition on behalf of Corwen Grange Pty Ltd.
Quinert added that, if the acquisition of the golf course had been successfully concluded, then Cahill's company would be entitled to the "success fee/estate agent's commission" provided for in its original letter of engagement to Donovan. If the acquisition had not been concluded, Quinert invited Cahill to submit his claim for hourly fees. He also asked Cahill for a report on the status of negotiations, so that the Donovan interests could "pick up the threads and proceed to the completion of the transaction".
46 On 12 August 1999, Quinert replied to Edmonds' memorandum dated 10 August 1999. In doing so, he said:
I made my position clear to you in my memorandum dated 4 August last. The document of 6 August was prepared by [the applicant] to confirm terms of a resolution which had been reached by you and he. I approved of and endorsed that resolution as did Kevin, Rick and on your representation so did you and Peter Cahill.
The Disctronics Group will be pursuing its right to acquire Kingston Links. This right has been acknowledged by all concerned including yourself. Any attempt on your part to undermine or frustrate that process will constitute a breach of your fiduciary obligations as a former consultant to the project. I will take legal action to prevent or remedy such a breach if required.
I consider the contents of your letter to be nothing more than a concoction of self serving misrepresentation and falsehood. I do not wish to speculate on your motives for this or the unnecessary and personal attack on my character. Suffice to say you have deemed it appropriate to dispense with nine years of friendship and loyalty to satisfy your purpose. No one is the better off for such a decision.
47 On 12 August 1999, the applicant wrote a lengthy letter to Edmonds, in what Warren J described as "self-serving terms". It was, to say the least, a forceful rejection of Edmonds' letter of 10 August 1999, which the applicant described as covering "the gamut from the distasteful to the artfully distorted". The applicant said:
1. Indisputably, the chronology of this transaction commenced with you and Peter Cahill acting as consultants to Solette Pty Ltd and subsequently that relationship moved to a joint venture. The venturers were Messrs Bucknall, Cahill, Donovan, Edmonds, Howard and Quinert. At all material times it was agreed between the venturers that if equity of less than $1.5m was required to acquire the Kingston Links Golf Course ("the Course") then the Disctronics Group of Companies could elect to proceed to solely acquire the Course and the joint venture would cease to exist subject always to satisfactory arrangements being made with the non-Disctronics Directors which would reward them for their endeavour and participation;
2. On the 3 August 1999 Michael Quinert, for the Disctronics Group, exercised Disctronics' entitlement by appropriately advising you.
The remainder of the applicant's letter was largely concerned to dispute the complexion placed upon things, particularly the discussions in which the applicant himself had been involved in the period leading to 6 August 1999, by Edmonds' memorandum of 10 August 1999. On 13 August 1999, Edmonds responded to the applicant, rejecting the latter's proposition that there had been an agreement that Disctronics could become the purchaser of the golf course if less than $1.5m by way of equity was required. According to Warren J, that rejection "contradicted the discussions between [Edmonds] and Donovan in July 1999 and between Edmonds and Quinert in July also".
48 Unbeknown to Donovan, Quinert or the applicant at the time, on 10 August 1999, Cahill wrote to Wood, advising him that the consortium was "dissolved". On the following day, 11 August, Wood replied to Cahill stating, according to Warren J ([2002] VSC 454 at [64]) "that he would be delighted if Cahill considered the acquisition in his own right or with another party". On 10 August 1999, Cahill contacted one Michael Buxton ("Buxton"), a business acquaintance of his. He proposed that Buxton should participate in a joint venture to acquire the Kingston Links golf course. As I shall mention presently, that proposal was put into effect, but not immediately.
49 On 19 August 1999, Quinert wrote to Wood enclosing a formal offer to purchase the Kingston Links golf course for the sum of $8.688m. The offer was made in the name of Corwen Grange. Giving Wood some background as to the nature of the joint venture which had then recently disintegrated, Quinert said:
As you are aware Mr Peter Cahill of Domain Hill Property Services Pty Ltd was until recently engaged in negotiations with you regarding the proposed acquisition of Kingston Links Golf Course ("the facility"). In conducting those negotiations Mr Cahill was acting as an agent for, and was a member of, a consortium which, was formed to pursue the acquisition on behalf of an equity investor. Pursuant to certain financial parameters agreed to by the consortium members, the equity investor which took up the option to pursue the acquisition was an unlisted public company group which operates pre-dominantly in the United Kingdom and the United States of America. Certain members of the consortium including myself, Mr Stephen Howard and Mr Kevin Donovan are also Directors of the equity investor group. On the 3 August last, Peter advised me that following further discussions, you had informed him that you would be prepared to recommend an offer of $8,688,000.00 for the acquisition of the facility subject only to that offer being put in writing. On the basis of that advice arrangements were made to incorporate a local subsidiary of the equity investor group on behalf of which the formal acquisition offer could then be made. The company so incorporated was Corwen Grange Pty Ltd ACN 088 393 337. Mr Howard and I were appointed as Directors of Corwen Grange Pty Ltd. At that point in proceedings a negotiation was initiated by a member of the consortium regarding advisory fees and other entitlements arising out of the consortium. This individual had originally invited Peter to participate first as an advisor and ultimately as a member of the consortium. Although Peter neither initiated nor participated directly in this kerfuffle, we were not surprised that as a friend and invitee of the chief protagonist, he felt bound to hold the line. We presume this is why when that person withdrew from the consortium so did Peter; despite the fact that he had substantially succeeded in his specific task of securing an agreement to purchase the property. Certainly, we have sought to assure Peter that upon settlement it is our intention to remit his fees and entitlements in recognition of Domain Hill's work. Unfortunately the abovementioned events have delayed the communication of the formal offer you requested from Peter. We regret any inconvenience caused by that delay and hope this explanation at least enables you to appreciate our position. As indicated, the investor group has always and still intends to proceed with the formal offer which was the subject of your discussions with Peter. As such, we enclose herewith the written offer put by Corwen Grange Pty Ltd.
Most likely because of the recent contact which he had received from Cahill, it seems that Wood did nothing in response to this offer from Quinert.
50 On 27 August 1999, Emanbee Pty Ltd ("Emanbee"), a Buxton company, made a written offer to Wood to purchase the Kingston Links Golf course for the sum of $8.7m. As noted by Warren J this was a mere $12,000 more than the offer which had been made by Corwen Grange. Although not informed by Cahill or Edmonds of the making of this offer, Quinert suspected that they may have put a competing offer to Wood. Accordingly, on 1 September 1999, he sent a letter, on the letterhead of Disctronics, to Cahill repeating a warning which he had earlier given about the latter's breach of fiduciary duty, requesting that Cahill withdraw as a competitor, threatening litigation and seeking a response. On the same day, 1 September 1999, in conversation with Bucknall, Wood said that his company had resolved to accept the offer from Emanbee. That is what subsequently happened. Kingston Links Country Club Pty Ltd ("KLCC") was registered on 12 October 1999 with Buxton, Edmonds and Cahill as directors. On 29 October 1999, KLCC executed a contract of sale with the registered proprietor of the land upon which the Kingston Links golf course stood. The transfer was registered on 14 December 1999. On 8 December 1999, KLCC entered into a lease with Spotless.
51 On 22 December 2000, Disctronics lodged a caveat over the title to the land on which the golf course stood, asserting the existence of a constructive trust in its favour. In her Honour's reasons of 23 October 2002, Warren J observed that no explanation had been given as to why Disctronics waited so long before taking that step. On 8 June 2001, KLCC commenced a proceeding for the removal of the caveat ("the caveat proceeding"). On 26 June 2001, the proceeding in the Supreme Court first referred to in para 2 above (and to which I shall hereafter refer as "the main proceeding") was commenced. Donovan, Quinert, Bucknall and the applicant were plaintiffs, as were Solette and Disctronics. In the then case of the plaintiffs, Disctronics was said to be a member of the joint venture which had been formed on 20 July 1999.
52 On 15 June 2001, Donovan, Quinert and the applicant, of the one part, and Disctronics, of the other part, executed an agreement (in which the parties of the first part were referred to as "the directors" and Disctronics was referred to as "DL") in the following terms:
Whereas
A. The directors were formerly members of a joint venture to acquire the Kingston Links Golf Course (KLGC) with others namely Christopher Edmonds (CT) [sic], Peter Cahill (PC) and Richard Bucknall (RB) to package an approved tenant and KLGC to an investor (the joint venture). The joint venturers agreed that the investor would be either a third party or DL;
B. On or about 14.07.'99 in London meetings of DL, the directors agreed that if the equity requirement to require KLGC was less than AUD$1.5m then the directors would seek to have DL become the equity participant and purchaser of KLGC (the "option"). The directors further agreed that if DL exercised its Option then the directors would rebate to DL any entitlement (whether on revenue or capital account) they may have as a consequence of their participation in the joint venture;
C. On 16.07.99 Mr Edmonds was informed of the directors' intention for DL to become the investor or equity participant. CE (for himself and PC) agreed with the directors' Option proposal. RB separately agreed with the Option proposal;
D. On 04.08.99 MJQ (for the directors of DL) wrote to CE exercising DL's Option and the right to acquire KLGC as the equity required to acquire KLGC was less than AUD$1.5m;
E. CE and PC (with others), in wilful breach of the terms of the joint venture and their obligations and duties to the venturers (including DL) have acquired KLGC, via a corporate vehicle, for themselves utilising confidential information obtained whilst either a consultant to DL (or the directors) or as a member of the joint venture. As a consequence of the wrongful action of CE and PC, DL has been precluded by deceit of CE & PC from acquiring KLCC notwithstanding the valid exercise of the Option;
F. In December 2000 DL lodged a caveat ("the caveat") claiming, inter alia, a constructive trust over and upon the freehold land component of KLGC;
G. Legal proceedings are foreshadowed to be imminently issued out of Supreme Court of Victoria by DL, the directors and RB in relation to both the Option and the caveat ("the proceedings");
H. The directors have concerns about their ability to fund from their own resources the anticipated costs of the proceedings. The directors are advised that the case to be put is compelling and the prospects of a favourable outcome are strong. The directors desire to prosecute the proceedings, as contemplated, which requires the directors to accept the litigation risk of being individual [sic] named plaintiffs with DL, in order to ensure that DL is afforded the opportunity of exercising its right to seek damages and compensation for the loss of its corporate opportunity and the wrongful appropriation of KLGC by CE, PC and others.
Now, for good and valuable consideration, this agreement witnesses:
1. DL shall pay all legal fees and disbursements associated with the prosecution of the proceedings, or either of them, to Mallesons, counsel, Oakley Thompson & Co including reasonable travel and accommodation costs;
2. The directors have agreed with RB that he will not be liable for either any legal fees or disbursements associated with the prosecution of the proceeding or in relation to any damages or costs orders of any description in favour of CE, PC (or others);
3. DL shall indemnify the directors (and for their obligation to RB) against payment of any order/s for costs, howsoever arising, in favour of CE, PC (or others) arising out of the prosecution of the proceedings or any damages they are found liable to pay to CE, PC (or others);
4. In consideration of DL's promises set out in paras 1 and 3 hereof the directors, and each of them, assign absolutely into and to the sole use of DL, any award of damages (whether our revenue or capital account), costs or interest made in their favour as a consequence of their participation in the joint venture or arising out of the proceedings and the ultimate outcome thereof;
5. The directors will do all such things required by DL, or its solicitors, to diligently prosecute the proceedings and to provide all reasonable assistance to DL.
53 On 16 November 2001, KLCC entered into a contract for the sale of the golf course to a third party, Gauntlet Services Pty Ltd ("Gauntlet") for the sum of $14m. Because of the existence of the Disctronics caveat, settlement of the contract was postponed. On 20 March 2002, the Supreme Court ordered that the caveat be removed, and that the proceeds of the sale of any settlement as between KLCC and Gauntlet be deposited into a trust account controlled by the parties' solicitors. On 9 April 2002, the trial of the main proceeding and the caveat proceeding commenced before Warren J, and ran until 1 May 2002. On 8 May 2002, notwithstanding the orders made on 20 March 2002, Gauntlett apparently served a notice of repudiation upon KLCC. The sale to Gauntlet did not, therefore, proceed. However, the property was in fact sold to another purchaser by contract of sale dated 17 June 2002.
54 On 23 October 2002, Warren J gave judgment in the main proceeding and the caveat proceeding. As to the former, her Honour explained the nature of the plaintiffs' case ([2002] VSC 454 at [95]):
They alleged that it was a term of the joint venture agreement that investigations would be conducted as to the financial viability of a joint venture golf course project. The plaintiffs alleged that the project was to be investigated on two bases, first, that the equity participant to acquire and own the golf course would be a third party to be identified at a later time. Secondly, that Disctronics or one of its related entities would be the equity participant in the project if it chose to do so.
The defendants accepted that a joint venture came into existence on 20 July 1999, but they denied that Disctronics was part of it, and they denied that Disctronics was entitled to be the equity participant if it chose to do so. Warren J described their position as follows ([2002] VSC 454 at [105]-[106]):
105. The K.L.C.C. defendants alleged that on about 20 July 1999 an agreement was entered into between Donovan, Quinert, Howard, Bucknall, Edmonds and Cahill to acquire the Kingston Links Golf Club, to split any profit share derived from such acquisition six equal ways between them and that the manner of funding the acquisition would be determined at a later time.
….
106. The defendants described this agreement as "the Golf Club Purchase Agreement". The defendants alleged that arising from that agreement each of the participants were in a fiduciary relationship and owed duties to one another. They alleged, also, that there were terms of the golf club purchase agreement that they would act in the interests of the group, act in good faith, not use confidential information imparted to them to the prejudice of the interests of the group and not seek to prefer their interests to the interests of the group and other related terms.
55 In the main proceeding, each side accused the other of repudiation. The defendants (including Edmonds and Cahill) alleged that Quinert's memorandum of 4 August 1999, and the actions of the Donovan interests thereafter down to about 9 August, repudiated the joint venture agreement which they (the defendants) asserted came into existence on 20 July. The plaintiffs alleged that Edmonds' memorandum of 10 August 1999 repudiated their own alleged version of the joint venture agreement of 20 July. Quite plainly, the intention of Donovan, Quinert and the applicant to put Disctronics forward as the purchaser of the golf course was central to this controversy. According to the plaintiffs, they were entitled to nominate Disctronics as the purchaser, such that Edmonds and Cahill were then contractually bound, without more, to proceed with the transaction at the price that had been negotiated with Wood. According to the defendants, assuming a purchase of the course at or about the negotiated price, all members of the joint venture were obliged to use their best endeavours to on-sell the property on the most advantageous terms, and the Donovan parties were not entitled to prefer their own interests, as directors of Disctronics, to those of the members of the joint venture.
56 Although Warren J decided the main proceeding favourably to Donovan, Quinert and the applicant, her Honour did not accept the entirety of their case as it was put. She accepted the contentions of the plaintiffs as to the nature of the joint venture formed on 20 July 1999, subject to two important qualifications: Disctronics was not a member of the joint venture, and there was no agreement that Disctronics could, if it so chose, be the equity provider (ie the ultimate purchaser of the property). As to the first aspect, her Honour said ([2002] VSC 454 at [132]-[134]):
132. I am not satisfied that Disctronics was contemplated as a part of that joint venture or, alternatively, to have an option to take the transaction over if it so desired. Indeed, Disctronics was not mentioned in the minutes of 20 July 1999.
133. There was extensive evidence as to conversations and communications between the plaintiffs and the defendants, particularly between Donovan, Howard and Quinert on the one hand and Edmonds on the other. There were inconsistencies on both sides. Donovan gave evidence as to a number of conversations that he had with Edmonds on 9 and 13 April and 2 and 6 July 1999 where he said he told Edmonds that the transaction for the acquisition of the Kingston Links Golf Course could be for the benefit of Disctronics if it so elected. Edmonds refuted the evidence of Donovan in this respect. Under intensive cross-examination Edmonds was emphatic that he was not told of the involvement of Disctronics until the conversation between he and Quinert on 14 July 1999. Despite some inconsistencies in Edmonds' versions of his conversations with Donovan I accept that he was not told of Disctronics' involvement until 6 July 1999, but even then, not in any detail until 14 July 1999.
134. I reached this view on four bases. First, it was apparent that at all times Donovan was the mastermind behind the transaction. He treated the acquisition of the golf course as his own to effect in whatever manner or form he chose including, if he wished, the involvement of a corporation. However, he kept his intentions to himself. This was all very well for his own commercial purposes but it is necessary to decide when Disctronics was first identified to Edmonds and Cahill for the purposes of that transaction. That date was on 6 July 1999 with respect to Edmonds and probably a short time later with respect to Cahill. Secondly, the plaintiffs were unable to identify any company records or minutes of board meetings of Disctronics that disclosed the making of a resolution that Disctronics would be involved in the transaction. The earliest evidence arose in the oral descriptions by Donovan, Howard and Quinert of the events at the board meeting in London on 13 April 1999 and the directions given at that meeting to Quinert as to what he was to say to Edmonds. It is difficult to accept that a corporation of the type such as Disctronics was did not have records of resolutions of financial decisions. Again it demonstrates that the involvement of Disctronics was a matter within the mind of Donovan to be revealed if and when he wished. The third factor was the notes of Quinert of the conversation with Edmonds of 14 July 1999. Quinert presented himself throughout the history of this matter as a solicitor who kept reasonable notes and records. I observe, also, that the evidence of Howard and Quinert did not contribute to any satisfactory way as to the involvement or even mention of Disctronics to Edmonds or Cahill before 14 July 1999. There is a fourth basis, the conduct in Donovan himself in this proceeding. He, somewhat carelessly given his membership of the legal profession, claimed the concept of the golf course investment was devised by he and Bucknall. In fact, he was forced to concede in cross-examination that the concept was derived from the CROI report. Donovan did not provide a plausible explanation for his falsehood. Unfortunately, it tainted his evidence as to his discussions with Edmonds prior to the formation of the joint venture particularly before 14 July 1999.
57 As to the second aspect, Warren J said ([2002] VSC 454 at [179]-[180]):
179. The plaintiffs claimed that the retainer of Edmonds and Cahill was for and by Disctronics and that the joint venture was for the benefit of Disctronics. It may have been and in all likelihood always was, intended by Donovan to be so. However, there are a number of difficulties as to the status and entitlement of Disctronics to make an election as asserted by the defendants. To some extent these matters have been addressed already. Nevertheless, I restate the position.
180. First, I do not accept that the identity of Disctronics was known by Edmonds and Cahill until about 6 July 1999 for the reasons stated. An agent cannot be retained to act for an unidentified principal. No retainer existed between Edmonds or Cahill on the one hand and Disctronics on the other. Secondly, there was no evidence of any board of directors' resolution, minute or other record of a resolution for Disctronics to proceed with the joint venture as alleged by the plaintiffs. Thirdly, the evidence as to the role and status of Disctronics in the transaction was inconclusive. Its role was very much in the mind of Donovan who treated the transaction throughout as his. I do not consider the evidence was sufficient to make out a claim by Disctronics that it could take the transaction as its own if it wished. It follows that the claim of Disctronics against the defendants fails.
In the result, Warren J held that Disctronics had no caveatable interest in the golf course land, and that "appropriate orders" would be made in the caveat proceeding for the removal of the caveat. Her Honour made no comment about the orders of 20 March 2002 under which, it seems, the caveat ought already to have been removed.
58 In summary, Warren J expressed the following conclusions:
1. A joint venture was formed initially between Donovan, Howard, Quinert and Solette by about early June 1999 and possibly as early as April 1999.
2. The joint venture as originally formed was varied to remove Solette and to consist therefrom of Donovan, Howard, Quinert, Bucknall, Edmonds and Cahill from 20 July 2002.
3. The joint venture was dissolved on 10 August 1999 as a result of actions by Edmonds and Cahill.
4. The two groups, the plaintiffs and the K.L.C.C. defendants, owed each other continuing obligations. The plaintiffs met their obligations by informing Edmonds of their plain intention of proceeding as set out in the separate letters sent by Quinert and Howard to Edmonds on 12 August 1999. The defendants breached their obligations by not making any disclosure of their intentions to the plaintiffs and by using confidential information obtained during the life of the joint venture.
5. No question or issue of repudiation arises because the duties mutually owed to the joint venture were ongoing.
6. The K.L.C.C. defendants breached the fiduciary duty they owed to the other members of the joint venture to act honestly and in good faith by secretly and furtively approaching Wood, Rose and Buxton; by making an offer to Wood that they knew would exceed the offer of the plaintiffs; by not telling the plaintiffs of their intentions especially when the opportunity presented itself.
7. Edmonds and Cahill were retained initially as agents by Donovan, Howard, Quinert and Solette.
8. The joint venture effected on 20 July 1999 did not affect the enduring duties of honest and good faith that lay with Edmonds and Cahill as a result of the retainer but the duties were subsumed into the new relationship of the joint venture.
It was these conclusions which provided the basis for her Honour's award of equitable damages in favour of Donovan, Quinert, Bucknall and the applicant. How those damages were calculated is of some importance in the present context, and I shall return to it.
59 The effect of the determinations made by Warren J is that there was no agreement, as between the six individual joint venturers, that Disctronics would be accepted as the purchaser to whom the golf course was on-sold if it elected to be that party. Thus, as against Edmonds and Cahill, Donovan and the others could not insist that the course be on-sold to Disctronics rather than to some third party who might have been prepared to pay more (as, presumably, Edmonds had in mind). If the Donovan group did not have a contractual entitlement to insert Disctronics as they intended, what colour did Warren J place upon Quinert's memorandum of 4 August 1999, and upon the actions of him and his colleagues thereafter until about 9 August? The answer was as follows: ([2002] VSC 454 at [165]-[166]):
The prevailing tenor of the relationship between Edmonds and Cahill on the one side and Donovan and the others on the other side up until the resolution of 20 July 1999 was one of constant change and movement. Even when the joint venture was cemented on 20 July 1999, pursuit of change and movement remained the approach of Edmonds. It is clear that by 4 August 1999 Donovan, Howard and Quinert had enough of Edmonds' commercial aggression and decided to adopt that approach themselves towards Edmonds and Cahill. This different attitude was aggravated by their desire to include Disctronics. However, in the context of a fluid and aggressive commercial relationship the desire to include Disctronics was not the cause of the falling out between the parties. The memorandum of offer of Quinert of 4 August 1999 was an attempt to re-negotiate with Edmonds and Cahill, no more. It did not amount to a repudiation of the joint venture.
….
From about 14 July 1999 onwards Edmonds and Cahill were aware of the desire of Donovan for Disctronics to be the equity provider in the transaction. That desire was maintained and openly known when the original joint venture was varied to include Edmonds and Cahill on 20 July and subsequently confirmed on 26 July 1999. The events thereafter until 10 August 1999 constituted no more than negotiations between the parties to change, even improve, their position. It started with the proposal of Edmonds on 3 August 1999 that the six joint venturers provide the equity themselves. That was rejected. It led to the proposal on 4 and 5 August 1999 of Howard and Quinert that Edmonds and Cahill be paid a fee, $150,000 each, and thereby be bought out. Edmonds and Cahill rejected that course. However, up until 10 August 1999 Edmonds and Cahill were members of a joint venture together with Donovan, Howard, Quinert and Bucknall. Mutual duties were owed by Edmonds and Cahill to Donovan and the others and vice versa. Donovan and the others could not exclude Edmonds and Cahill without the agreement of the latter two co-venturers. Nonetheless, Donovan and the others were entitled to attempt to re-negotiate their commercial relationship. There was nothing improper in that. Repudiation is constituted by conduct that is hostile to an existing contractual relationship. The conduct of Donovan and the others was not hostile. It was at most robust, commercially aggressive behaviour between experienced, tough business people.
It seems that this approach may have been the subject of criticism by Edmonds and Cahill in their subsequent appeal to the Court of Appeal. But before reaching that point, I should deal with the nature of the remedies which Warren J granted in favour of Donovan, Quinert, Bucknall and the applicant.
60 Those plaintiffs had contended that the golf course was held on constructive trust for them (in addition to their primary - unsuccessful - case that Disctronics was the constructive beneficiary). Warren J rejected that part of their case. Rather, her Honour awarded equitable damages by reference to the following reasoning ([2002] VSC 454 at [216]):
I am satisfied that it will be necessary for an assessment to be made for an amount of equitable compensation to be paid to the plaintiffs, except Disctronics, by Edmonds, Cahill and K.L.C.C. after the deduction of outstanding debts, including any adjustments to allow for ANZ, in an amount equivalent to four-sixths of the value of the golf course and, after the ascertainment of profits, an amount equivalent to four-sixths of the profit derived from the golf course. This component of the compensation is not the taking of an account in the strict sense, rather, an assessment of the opportunity that the plaintiffs lost. These amounts ought be calculated from the date of formal acceptance of the offer by the Kingston Group on 9 September 1999 to the date of final orders. They ought place the plaintiffs, excluding Disctronics, in the position they would have been save for the breaches of fiduciary duty by Edmonds and Cahill.
61 On 3 December 2002, Warren J made final orders in the proceeding before her. In reasons published on that day, her Honour identified the basis upon which the award of equitable damages would be calculated. Her Honour said ([2002] VSC 534 at [5]):
It is to be recalled at the outset that the task of the court at this stage is the assessment of equitable compensation. It is not the task of assessing damages or the taking of an account. The imperative of the assessment of equitable compensation here is to place the plaintiffs Donovan, Howard, Quinert and Bucknall in the position they would have been save for the breach of fiduciary duty by Edmonds and Cahill and as perpetrated through the vehicle of Kingston Links Country Club Pty Ltd.
Warren J noted that the parties had reached agreement on the "parameters of the issues between them" in the assessment of damages, such agreement providing for the assessment to be based on the calculation of profits arising from the acquisition, management and eventual sale of the golf course. They agreed that the operating profit and the capital profit of the golf course should be calculated as a single item. The parties were also agreed as to a basic figure for damages, and the matters upon which the adjudication of Warren J was required related only to various adjustments, which are not presently relevant. The profit arising from the "eventual sale" of the golf course arose for consideration because, by the time of Warren J's award of damages, KLCC had sold the golf course to a third party, by way of a transaction which is otherwise presently irrelevant. What is both relevant and important is the circumstance that Warren J's award uncontroversially took into account the profit which KLCC had derived from the operation of the golf course over the period during which it was the owner thereof.
62 Warren J's reasons of 3 December 2002 dealt also with the caveat proceeding, in which KLCC had claimed compensation under s 118 of the Transfer of Land Act 1958 (Vic) because, it alleged, Disctronics had lodged the caveat "without reasonable cause". That aspect of the caveat proceeding was not the subject of her Honour's reasons on 23 October 2002, but was dealt with on 3 December 2002. Her honour upheld that claim, and granted compensation to KLCC in the amount $100,000.
63 I note that neither the orders made by Warren J on 3 December 2002, nor her Honour's orders of that date in the caveat proceeding, were placed into evidence in the present proceeding.
64 Edmonds and Cahill appealed against the orders for equitable compensation made against them by Warren J, and Disctronics appealed against her Honour's orders for s 118 compensation made against it in the caveat proceeding.
65 While those appeals were pending, on 22 December 2003, the applicant wrote a letter to Bucknall, on Disctronics letterhead, in the following terms:
This letter is compiled for the purpose of being furnished to the auditor of Disctronics Limited (Mr Michael Phillips of PKF, Chartered Accountants, Level 11, 485 Latrobe Street, Melbourne VIC 3000) in relation to the conclusion of the financial audit of Disctronics Limited for year ended 30 June 2003.
We confirm:
1. Between 5 August 1999 and 26 June 2002 Disctronics Limited advanced to you (or at your direction to the Frontier Leisure Group) a gross amount of $204,262.28 against a success fee for services rendered in relation to, inter alia, the development and implementation of a concept for the acquisition, financing and leasing of existing or turn-key pay-as-you-play golf course and allied leisure projects;
2. On 6 December 2002 at the Supreme Court of Victoria at Melbourne Her Honour Justice Warren ordered that Messrs Cahill, Edmonds and others pay to Messrs Bucknall, Donovan, Howard and Quinert an amount of $3,327,174.67, (together with interest of $75,015.62) for breach of joint venture obligations or as a consequence of the Defendants' breach of fiduciary duties;
3. Further, Her Honour ordered that Disctronics:
i. claim as Plaintiff for compensation from Messrs Edmonds, Cahill and others be dismissed;
ii. caveat lodged upon land owned by Kingston Links Country Club Pty Ltd be removed;
iii. pay compensation to Kingston Links Country Club Pty Ltd in the sum of $107,000 (including interest);
iv. pay the costs of Kingston Links Country Club Pty Ltd in relation to the caveat to be taxed on a party/party basis (the quantum of which costs have not yet been determined);
v. pay costs of $130,000 to one of the Defendants namely Mr Michael Buxton; and
vi. pay the additional costs of certain of the other Defendants incurred by reason of the joinder of Disctronics claims in the substantive proceedings. Again the quantum of these costs has not yet been determined;
4. Disctronics has appealed against the finding of a trial judge that its caveat was lodged without reasonable cause and further it asserts that Kingston Links Country Club Pty Ltd did not suffer any damage by reason of a lodgement of that caveat and hence is not entitled to compensation;
5. Messrs Bucknall, Donovan, Howard and Quinert have appealed against Her Honour's finding that Messrs Edmonds and Cahill were each entitled to one-sixth profit arising on the sale by Kingston Links Country Club Pty Ltd of property owned by it and assert in their appeal that the breaches of duty made by Messrs Edmonds and Cahill (and their associated entities) to either Disctronics Limited or he individual joint venturers are so manifest that their claims to one-sixth profit shares ought to be forfeited;
6. Messrs Edmonds and Cahill have filed cross-appeals seeking to overturn the trial judge's findings;
7. Disctronics has paid all of the legal costs associated with the substantive proceedings, the caveat proceedings and the appeal to date; and
8. Disctronics has agreed to pay all of [the] legal costs associated with the prosecution of the appeal and further agree to indemnify all of Messrs Bucknall, Donovan, Howard and Quinert in relation to any liability for cost orders should the appeal by Messrs Edmonds and Cahill succeed (and the finding of the trial judge be reversed) in exchange for an agreement that the ultimate net proceeds of the litigation be applied as follows:
a. payment of any compensation, interest or legal costs to Messrs Edmonds, Cahill, Buxton or litigation-related corporations thereof;
b. in reimbursement of legal expenses paid or properly payable by Disctronics Limited to their solicitors (Mallesons and Oakley Thompson & Co) or counsel (various) in relation to the prosecution of the substantive proceedings, the caveat proceedings or the appeal(s) (the likely aggregate which is estimated to be in the vicinity of not less than $1.3m);
c. the sum then remaining be distributed into one-fifth shares as follows:
i. to you one-fifth from which the sum of $204,262 shall be repaid by you to Disctronics Limited in reimbursement of the advance against success fee paid to date to you (or to Frontier Leisure Group);
ii. to Disctronics Limited (in consideration of matters aforesaid - costs and indemnities) one-fifth
iii. to Messrs Donovan, Howard and Quinert (collectively hereafter referred to as the "Directors") three-fifths which aggregate net amount or benefit has been assigned by the Directors to Disctronics Limited (subject always to a satisfactory resolution of taxation issues relating to that assignment).
If this letter accurately sets out your recollection and understanding of the agreement, I would be grateful if you could sign the duplicate of this letter where indicated and return promptly to me.
Given the myriad possibilities of outcome, and the cost events that would follow, it is neither practical nor possible to determine what net sum you would receive as the balance of your success fee or profit entitlement if judgment at first instance were to be upheld by the Court of Appeal. Those possibilities range across the A-Z of speculation.
Should you have any queries in relation to any part of this letter please do not hesitate to contact me at your earliest convenience.
On the same day, Bucknall endorsed the duplicate of the letter "received and acknowledged", and signed it.
66 The appeals from the judgment of Warren J were heard in the Court of Appeal on 8, 9 and 10 November 2004. Judgment was pronounced on 22 February 2005. The main judgment was that of Phillips JA, with which Winneke P and Charles JA agreed.
67 The nature of the complaint expressed on behalf of Edmonds and Cahill in the Court of Appeal was expressed by Phillips JA as follows (12 VR at 526 [29]):
29. For the appellants, Mr. Sher submitted that the Quinert memorandum of 4 August plainly amounted to repudiation in that it claimed, falsely he said, that Disctronics had the right to take over the project as its own. No such "right" existed, he contended. Moreover, as the memorandum demonstrated, upon the exercise of that so-called right the agreement for profit-sharing with Edmonds and Cahill was simply put aside. No more were they to receive a share of the profits: they were relegated simply to the receipt of fees for services rendered. What Quinert proposed by the letter of 4 August was (Mr. Sher submitted) no more and no less than an exit fee, the amount of which had yet to be agreed but none the less a fee as distinct from a share of profit.
Phillips JA rejected that argument. His Honour said (at 526-527 [30]-[31]):
30. In my opinion the argument fails at both points. First, the introduction of Disctronics into the venture was not the departure that Mr. Sher was at pains to establish. As will be seen, Disctronics had always been in the wings. Disctronics was the vehicle of Donovan and, at least as between the respondents, it was always Donovan's call whether and when Disctronics would come into the venture. The claim that it had the "right to take over the venture" was perhaps misleading, but in a sense it was true. As Mr. Scerri pointed out, the joint venture into which Edmonds and Cahill were taken on 20 July always called for an equity provider and Disctronics now emerged as such. What was always proposed was that the six members of the consortium (once Edmonds and Cahill were admitted) would arrange for the purchase of a suitable golf course, arrange for a long term tenant to be installed and then on-sell the whole to some third party, thereby reaping what was called "the day 1 profit" (although in truth it was the only profit to be reaped by the consortium as such). That profit would be the difference between the price at which the vendor of the golf course could be persuaded to sell and the price which the third party would be willing to pay. It was as if the members of the consortium themselves purchased the golf course, installed the tenant, and then on-sold to the third party. Whether that third party itself kept the golf course and ran it with the tenant installed by the consortium was a matter for the third party: it would be of no direct concern to the consortium. In the various scenarios which were considered, and most of them were prepared by Edmonds, the third party was called "the equity provider" or "the investor"
31. As Mr. Scerri submitted, when the joint venture is properly understood the introduction of Disctronics on the scene was no departure at all. Disctronics was now to be the "equity provider" or "the investor" - the third party which had always been envisaged. In one sense it was true that Disctronics was to "take over the venture", but only in as much as the transfer of the golf course to Disctronics, as to any other third party, would mark the end of the joint venture as such. Importantly, the possibility that Disctronics would in the end be the purchaser had always been in contemplation, at least as one possibility. From the outset, Edmonds had been concerned to prepare what he called scenarios as a means of enabling the consortium to estimate how much an equity provider might be expected to pay for the golf course once the tenant was installed and thus to estimate in turn how much profit might be involved in the venture for the members of the consortium. Such figuring by Edmonds depended in part upon the value which he attributed to the golf course, which he did by capitalising the rental which the long term tenant might be expected to pay, and, as well, upon the debt-to-equity ratio adopted by the equity provider itself. Initially all such figures were speculative, but more certainty was introduced as negotiations progressed and the parties were able to establish the likely price of purchasing the golf course and the likely annual yield from the long term tenant. What is important for present purposes is that in the early scenarios prepared by Edmonds, he made allowance expressly for the possibility that Disctronics would be the equity provider.
….
37. … As Mr Scerri analysed it, and as I have described it above, the consortium which was set up on 20 July did in a sense "cease to exist" once the equity provider was identified as Disctronics and agreed to acquire the golf course. The consortium was in existence only to bring into relationship the vendor of the golf course and its ultimate purchaser, the consortium existing to act as the go-between and deriving a "day-1 profit" on the day a deal was achieved. In that sense the consortium "ceased to exist" on 4 August with the arrival of Disctronics on the scene as purchaser of the golf course. All else was detail; all else was to be worked out.
In my view, in these passages Phillips JA took the matter of Disctronics' entitlement a stage beyond that which had been reached by Warren J. His Honour said, in effect, not only that it was not a repudiation of the joint venture when Donovan and his colleagues proposed Disctronics as the purchaser of the golf course, but also that that proposal was in conformity with the agreement of 20 July 2002, and that Edmonds and Cahill were contractually obliged to go along with it.
68 In the appeal from Warren J's judgment in the caveat proceeding, Phillips JA noted (12 VR at 549 [93]) that it had been shown to be untenable to contend that KLCC held the golf course property on a constructive trust for Disctronics. However, that was apparent "only after a fifteen-day trial and more than 100 pages by way of reasons for judgment". His Honour held (at 549 [94]) that Donovan, Quinert and the applicant -
… were entitled to take the position that, had the joint venture gone ahead, it would have gone ahead with Disctronics as the equity provider and Disctronics would have been the company that took the golf course from the vendor and held it with the long term tenant installed.
His Honour also held (at 549-550 [95]):
… Disctronics was not a member of the consortium established on 20 July and therefore it was not the beneficiary of those fiduciary duties of which Edmonds and Cahill stood in breach. Those fiduciary duties were owed only as between members of the consortium, and that meant in the circumstances only owed to the respondents. Disctronics therefore was not a proper plaintiff for equitable relief against the appellants: it was still only on the side lines. Moreover, Disctronics had no interest of its own in the property being the golf course because, unless and until the vendor agreed to sell the property to Disctronics (the equity provider), the latter's interest in the property was no more than an expectation: a pretty sound expectation given the attitude of the respondents, but still only an expectation. And so it was on the date when the caveat was lodged. Disctronics had no interest of its own, even in equity, in the property itself and it had no claim as a plaintiff to compensation for breach of fiduciary duties. Hence the decision of the judge that it had no claim to relief and, importantly for present purposes, no caveatable interest.
Nonetheless, Phillips JA upheld Disctronics' case that the caveat had not been lodged without reasonable cause. His Honour said (at 550 [96]):
Disctronics could not act otherwise than by its directors. Its directors were Donovan, Howard and Quinert. The history of the proceeding makes it plain that those directors had reasonable grounds for supposing that they were entitled to equitable relief against Edmonds and Cahill and, perhaps, equitable relief by way of constructive trust, depending upon the evidence that was ultimately given and the discretion of the trial judge. Such might have led in the end to a constructive trust being recognised and, perhaps, even a constructive trust in favour of their nominee. Certainly had Disctronics not been named as caveator, it is difficult to suppose that a caveat would not have been lodged by the respondents themselves: one way or the other they were claiming that they, with Disctronics, were beneficially entitled to the golf course which was being run so successfully by Edmonds and Cahill through the new consortium. With great respect, it seems to me somewhat artificial to conclude that the caveat lodged in the name of Disctronics was lodged without reasonable cause when those who lodged it were the directors of Disctronics, the company which would have taken title to the golf course had the joint venture proceeded as planned and without the breaches of fiduciary duty for which the respondents were held entitled to compensation. In short, I think that in December 2000 the matter was sufficiently complex to warrant the caveat for the protection of the respondents' interests and I cannot think it determinative that the caveat named the company as caveator, even if, in the final analysis and in hindsight, the company was held to have no caveatable interest of its own.
69 In the result in the Court of Appeal, the appeal of Edmonds and Cahill was unsuccessful, and the appeal of Disctronics was successful. I do not overlook, of course, the circumstance that Disctronics had itself been unsuccessful before Warren J in the main proceeding, and from that outcome it did not appeal. The significance of that was pressed upon me by counsel for the Commissioner, and I shall return to it.
70 On 7 January 2004, the applicant, in his capacity as chairman of the Board of Disctronics, signed the Directors' Report which was part of the Annual Report of Disctronics for the year ended 30 June 2003. Under the heading "Litigation Report", the following appeared:
On 23 October 2002 the trial judge at the Supreme Court of Victoria:
(i) dismissed the Company's claim as plaintiff and awarded compensation to three of the directors of the Company namely Messrs Donovan, Howard and Quinert;
(ii) ordered the Company's caveat lodged upon land owned by Kingston Links Country Club Pty Ltd be removed.
At the Supreme Court on 6 December [2002] the Company was variously ordered to pay:
(i) compensation in the amount of AUD107,000 (including interest) to the registered proprietor of the land, upon which the Company lodged a caveat, and the registered proprietor's costs of the caveat proceedings to be taxed on a party-party basis. The quantum of these costs has not yet been determined;
(ii) all costs, on a party-party basis, of one group of the defendants to the substantive proceedings. This liability has been settled in the amount of AUD130,000;
(iii) the additional costs of certain of the other defendants incurred by reason of the joinder of the Company's claims in the substantive proceeding on a party-party basis. The quantum of these costs has not yet been determined.
The Company has appealed against the finding of the trial judge that the caveat was lodged without reasonable cause and further asserts in the appeal proceeding that the registered proprietor of the land did not suffer any damage by reason of the lodgement of the caveat and is not entitled to compensation.
Advice has been received from its solicitors that the Company has reasonable prospects of successfully appealing the order for compensation.
A hearing date for the appeal has not yet been set. The company has been advised by its solicitors that it is unlikely that the appeal will be determined in the 2004 financial year.
Subject always to judgment of the trial judge being upheld in the appeal hearing, the three directors of the Company awarded compensation by the Supreme Court have agreed, subject to satisfactory resolution of appurtenant taxation issues, to assign unto the Company such net compensation or benefit so received and to apply the receipt of net compensation or benefit in the manner following:
(i) First, in recoupment of all net legal expenses paid to the Company's solicitors (including counsel) and in recoupment of fees paid, or advances made, to the Company's external Consultants incurred in relation to the sports and leisure business project or the litigation arising therefrom; and
(ii) Secondly, for the Company's own use and benefit.
71 Turning now to the present proceeding, the applicant's case is broadly as follows. When the directors of Disctronics met in London over the period 12-14 July 1999, it was apparent to them that the combination of purchase price and anticipated rental income in respect of the Kingston Links golf course might well be such as to provide a valuable investment opportunity that was within the capacity of Disctronics. They informally resolved, therefore, that the investment would be made available to Disctronics if the amount of equity required to be injected at the outset was within the capacity of the company to raise. Having done so, it was not open to the directors thereafter to prefer their own benefit to the interests of Disctronics and to revert, in effect, to the original idea of securing a "day-one profit" from an on-sale to a third party investor. At the very latest by 4 August 1999, when Quinert, on behalf of himself and the other directors, informed Edmonds that Disctronics proposed to take up what was asserted to be the opportunity of making the investment, the directors had tied themselves into a position in which they were acting as such, rather than as individual investors. And once they were acting as such, they were, by nature of the fiduciary duties, precluded from deriving any individual profit from the purchase of the golf course. When the applicant received his share of the award of equitable damages, he was, therefore, precluded from asserting a beneficial entitlement thereto. He held that share on trust for Disctronics. Assuming the award to have the character of income, the applicant was not liable to pay income tax thereon: 1936 Act, s 96.
72 Counsel for the Commissioner made a number of what might be described as collateral attacks on the applicant's case that he received the award of equitable damages as fiduciary, and I shall come to them presently. First, however, I propose to consider whether that case is coherent in its own right.
73 That a director must account to his or her company for any benefit received by him or her in his or her capacity as such is an uncontroversial proposition which the Commissioner did not dispute. But the present was not a conventional case of a director taking personal advantage of a business opportunity which rightfully belonged to the company. The circumstances which made it unconventional, and which made the applicant's case more problematic, were, first, that the opportunity to make the Kingston Links investment was not originally Disctronics', secondly, that the proposed investment was not in Disctronics' normal line of business, thirdly, that the proposed investment was never adopted, or even mentioned, at a Disctronics Board meeting, and fourthly, that - at least according to the Commissioner's case - Disctronics did not have the right, as against all members of the joint venture, to acquire the golf course in its own name. I shall consider each of these circumstances in turn.
74 The first and second of them are related. If a company director comes upon a promising investment opportunity in the normal line of the company's business - eg if Donovan, as director of Disctronics, had come upon an opportunity to make an investment in some new optical disc venture - he or she would be regarded as holding the opportunity, and any resulting gain, as fiduciary for the company: Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134; Canadian Aero Service v O'Malley [1974] SCR 592; Warman International Ltd & Anor v Dwyer & Ors (1995) 182 CLR 544. However, the mere fact that a person is a director of a company - perhaps of a number of companies - does not give a fiduciary character to every investment which he or she makes, or to every profit-making opportunity of which he or she takes advantage. In its origins, the concept of investing in a golf course, engaging a stable, long-term, tenant, and then on-selling the course for a day-one profit was Donovan's, or perhaps Solette's. It was not Disctronics'. Neither was it in Disctronics' normal line of business. At the outset at least, Donovan was not under any obligation to involve Disctronics in that concept, or to offer the investment opportunity to Disctronics.
75 Had Donovan implemented his concept, as originally devised with the assistance of Bucknall, then, Disctronics could have claimed no interest in the resulting investment. When, as Warren J found, Quinert and the applicant (and possibly also Solette) were included in what her Honour found to be a joint venture in May or June 1999, the position was no different. The investment then envisaged had nothing to do with Disctronics.
76 On the applicant's case, the position was different from at least when the directors of Disctronics met in London over the period 12-14 July 1999. Had they procured the Board to resolve to make the investment contemplated, then, at least as between the three individuals involved and Disctronics, the proposed investment would have belonged in equity to the latter. Their failure to have done so brings into consideration the third circumstance referred to above. The applicant contends that the directors did enough then, and later, to preclude themselves from later asserting, as against Disctronics, that the investment opportunity belonged to them rather than to it. Although not made by the Board as such, the decision provisionally (ie subject to the equity requirement falling within a certain limit) to involve Disctronics in the proposed investment was made by all directors in a context in which they had come together for the purposes of a Board meeting. The decision was made by them in their capacities as Board members. The decision was communicated contemporaneously to Edmonds (and, inferentially, by him to Cahill). That Disctronics would be the purchaser if the equity requirement was within the specified limit was known to all six venturers when the joint venture was formed on 20 July 1999. Once it became known that the equity requirement was within that limit, Quinert, on behalf of himself, Donovan and the applicant, notified Edmonds on 4 August 1999 that Disctronics would take up the opportunity to be the purchaser. According to the applicant, by that stage at least, it was no longer open to him to assert, as against Disctronics, the right to insert some other purchaser into the proposed transaction with Kingston Links for the purpose of securing, for himself, the originally-intended day-one profit.
77 To the extent that it is significant, I would find that there is no doubt about the reality of the intention of Donovan, Quinert and the applicant to make the opportunity to purchase the golf course available to Disctronics. They made their decision so to proceed in what were plainly the interests of Disctronics rather than of themselves, they identified the source of funds which would be used, they informed their co-venturers of the condition under which the opportunity would be taken up by Disctronics, and they caused Disctronics to be issued a share in the company which was to be the nominee under the contract of sale, Corwen Grange. Indeed, it was the reality of their insistence upon Disctronics being the purchaser, and the refusal of Edmonds and Cahill to accept that, that ultimately led to the disintegration of the joint venture of 20 July 1999.
78 I am disposed to think that, if Disctronics' right to stand as the purchaser under any contract which the joint venture negotiated with Wood was, as between the joint venturers, uncontroversial, the applicant would be very close to making good his case. However, that right was, in the Supreme Court proceeding, highly controversial. This is, of course, the fourth problematic circumstance to which I referred above. Edmonds and Cahill rejected the entitlement of the Disctronics directors to introduce their company as the purchaser, and, according to the Commissioner's present case, Warren J rejected Disctronics' claim of an entitlement to stand as the purchaser. Disctronics did not appeal. The Commissioner submits that it follows that, as at the time when Edmonds and Cahill acted in breach of their fiduciary duties, it was not Disctronics that was the purchaser-in-waiting. Disctronics was not, therefore, in any position to claim, as against its directors, that it would have been the beneficiary of the outcome of whatever transaction was ultimately carried through with Wood.
79 There are, in my view, two broad considerations which the Commissioner's submissions in this regard encounters, and with which it did not come fully to grips. The first is to be found in the reasoning of Phillips JA in the Court of Appeal. A difficulty in the reasoning of Warren J, with respect, was that it left unanswered the question of what would have happened if Edmonds and Cahill had not acted as they did. I do not for a moment suggest that that question had to be answered on that occasion, but it does now. Warren J's reasoning would seem to imply that, had Edmonds and Cahill not walked away from the venture, the six venturers might have continued to negotiate aggressively (to use her Honour's term) on the subject of the identity of the equity provider. While her Honour appeared to accept that the Donovan group had every right to insist that it be Disctronics, clearly her reasons provide no support for the proposition that Edmonds and Cahill were contractually bound to accept that outcome.
80 It is not difficult to see why Edmonds and Cahill would, in such a situation, argue before the Court of Appeal that, unless they were contractually bound to accept Disctronics as the equity provider, they were entitled to have all members of the joint venture work towards finding a third-party investor whose offer for the course would yield the maximum day-one profit. For the Donovan group to have refused to tread that path, and to have insisted that the purchaser be Disctronics, would surely - according to Edmonds and Cahill - have been inconsistent with the joint venture agreement, and with the obligations of the venturers to each other. This was, however, the case that Phillips JA rejected. And his Honour did so not merely on the basis that, without any binding agreement on the identity of the equity provider, the parties would persevere with their joint venture to reap the day-one profit. Rather, his Honour did so on the basis that it had at least been the understanding of all the venturers on 20 July 1999 that, if the equity required were within a certain limit which was then known, Disctronics would provide that equity and purchase the course. Although subtle to a degree, the difference in reasoning between that of Phillips JA and that originally expressed by Warren J is, in my opinion, marked and, in the present context, important. Both lines of reasoning led to the same result in the Supreme Court, such that the discriminations which would have required the difference which I have mentioned to be revealed and confronted did not need to be made. In this state of things, counsel for the Commissioner submitted that, so far as the rights of Disctronics were concerned, the legally relevant determination was that of Warren J. Her Honour rejected Disctronics' claim to an entitlement to be the equity provider, and Disctronics did not appeal. Whatever might be implicit in the reasoning of Phillips JA, Disctronics could not now assert an interest of a kind that was rejected by Warren J.
81 The difficulty with this submission, in my view, is that it addresses the problem along the Disctronics - Edmonds/Cahill axis. As between the applicant and Edmonds and Cahill, the latter appealed from the orders made by Warren J, and put in issue the applicant's (and his colleagues') right to introduce Disctronics as the equity provider. In the Court of Appeal, the applicant's right to introduce Disctronics was accepted. As I read the reasons of Phillips JA, it was largely in consequence of his Honour accepting that right that the claim of Edmonds and Cahill - that Quinert's memorandum of 4 August 1999 was repudiatory - was rejected. Having run the case before Warren J, and subsequently the appeal, on the proposition not only that he was entitled to introduce Disctronics as the equity provider but also that, had Edmonds and Cahill continued to observe their fiduciary obligations, he would have introduced Disctronics, and considering his position as director, it would not have been open to the applicant later to assert, as against Disctronics, a personal right to retain the award of equitable damages by reference a different, contradictory, proposition.
82 Nothing I have written above should be taken as implying any doubt on my part as to the correctness of the conclusion by Warren J that Disctronics had no cause of action against Edmonds and Cahill. I am not here concerned with Disctronics' rights as against those parties. I am, of course, concerned with the obligations of the applicant towards Disctronics with respect to the award of equitable damages which was made in his name. I do not regard the findings which ultimately emerged from the Supreme Court proceeding as compromising the conclusion otherwise proper to be reached on the facts of the case. Indeed, if anything, I consider that the reasoning of Phillips JA rather supports it.
83 The second consideration is to be found in the basis upon which Warren J's award of equitable damages was calculated. The award included both the profit which KLCC had made on the operation of Kingston Links golf course during the period of about 30 months that it owned it and the profit which it made by the resale on 17 June 2002. Neither of these elements had anything in common with the gain that the six individual venturers would have made in August 1999 or thereabouts if Disctronics had not been the equity provider. That gain was to have been the so-called "day-one profit". If there is one thing that is absolutely plain in a picture which is murky in some regions, it is that neither the applicant nor any of the other individual plaintiffs in the Supreme Court had any intention of acquiring the golf course in his own name and thereafter holding it as a personal investment over the medium or long term. Indeed, the idea that they should do so, proffered by Edmonds as a possible scenario on 3 August 1999, was immediately, and rather categorically, rejected.
84 In the present case, counsel for the Commissioner submitted that the award of equitable damages should be viewed as compensation for the four individual plaintiffs for their loss of the anticipated day-one profit. It will be clear form what I have written above that I cannot accept that interpretation of the award. It was based on gains made by KLCC through the holding, and the eventual resale, of the property. Warren J made it clear that her award should be calculated in a way that placed the individual plaintiffs in the positions they would have occupied but for the breaches of fiduciary duty on the part of Edmonds and Cahill. But Donovan, Quinert and the applicant would never have beneficially derived the gains which formed the basis of her Honour's award. Those gains were calculated from the standpoint of an entity which retained the course in its ownership as an ongoing investment. Absent a suggestion that some other company might have been that presumptive investor - and, if there were any such suggestion, these gains could not have been the individual plaintiffs' in any event - it could only have been Disctronics whose denied gains formed the basis of the award of damages.
85 The position thus arrived at is, in my view, as follows. Albeit not by Board resolution, the directors of a company made a firm decision that they would cause the company to take up an attractive investment that was then available. By no fault of theirs, or of the company's, the opportunity to make that investment was denied them. Because of the contractual arrangements which governed the availability of the investment opportunity, the company could not sue. But the directors could. They did sue, and secured damages which represented not what they, as individuals beneficially entitled, had actually lost, but what would have been the gain of the company had the breaches of duty which denied it the investment opportunity not occurred. In these circumstances, are the directors entitled to assert, as against the company, that the damages are theirs to keep, as individuals? In my opinion, the nature of the problem needs only to be exposed as I have here for a negative answer to that question to be both necessary and obvious. In the circumstances postulated, and subject to the matters to which I turn below, the applicant's share of the damages awarded by Warren J belonged in equity to Disctronics.
86 I have not mentioned what might be thought to be a complication introduced by the position of Bucknall. He was not a director of Disctronics, but he was a joint venturer. He received his share of the damages awarded by Warren J, calculated in the way I have described above. I am prepared to assume, for present purposes, that he came under no obligation to account to Disctronics for that share. It may be true that, had the purchase of the golf course gone ahead as intended by Donovan and the other directors with Disctronics as the equity provider, Bucknall would have achieved somewhat less as day-one profit than was his share of the award. Notwithstanding that the Donovan group apparently proposed that Bucknall would receive something for his services in addition to the day-one profit, I am disposed to think that the outcome of the Supreme Court case was something of a windfall for him. But this view of things - which is tentative and taken for present purposes only, since Bucknall was not a party to this proceeding - does not in any sense compromise the conclusion which I have reached above as to the duties which the applicant, as director, owed to Disctronics when he received his share of the award.
87 I turn next to the collateral attacks made by the Commissioner on the applicant's case which I mentioned on para 72 above. The Commissioner first submitted that the applicant was estopped, "by conduct and election" from denying that he received the award of equitable damages as a fiduciary. Reliance was placed on the words of Mason J in Sargent v ASL Developments Ltd (1974) 131 CLR 634, 655:
A person is said to have a right of election when events occur which enable him to exercise alternative and inconsistent rights, i.e. when he has the right to determine an estate or terminate a contract for breach of covenant or contract and the alternative right to insist on the continuation of the estate or the performance of the contract. It matters not whether the right to terminate the contract is conferred by the contract or arises at common law for fundamental breach - in each instance the alternative right to insist on performance creates a right of election.
From this general position, the Commissioner moved to the more specific prohibition on approbating and reprobating. His counsel drew my attention to what was said by Brennan J in The Commonwealth v Verwayen (1990) 170 CLR 394, 421 (which was said to be of good general authority, notwithstanding that his Honour was in dissent):
A doctrine closely related to election, and sometimes treated as a species of election, is the doctrine of approbation and reprobation. This doctrine precludes a person who has exercised a right from exercising another right which is alternative to and inconsistent with the right he exercised as, e.g., where a person "having accepted a benefit given him by a judgment, cannot allege the invalidity of the judgment which conferred the benefit": Evans v. Bartlam, per Lord Russell of Killowen. An election is binding on the party who makes it once it is made overtly - or, at all events, not later than on the communication of the election to the party or parties affected thereby: Newbon v. City Mutual Life Assurance Society Ltd.; Scarf v. Jardine. It is binding whether or not others who are affected by the election have acted in reliance on it. In this respect, election is to be distinguished from estoppel: Khoury v. Government Insurance Office (N.S.W.).
The subject dealt with by Lord Russell in Evans v Bartlam [1937] AC 473 in the passage to which Brennan J referred was said to be an instance where the approbation in question was constituted by acceptance of the benefit of a judgment.
88 The Commissioner next relied on Kok Hoong v Leong Cheong Kweng Mines Ltd [1964] AC 993, in which the Privy Council had cause to consider the principle that there can be no estoppel in the face of a legislative provision. For reasons which their Lordships gave (at 1017), they expressed their opinion that Roe v Mutual Loan Fund (1887) 19 QBD 347 -
… cannot now be relied upon for any general principle governing estoppel in the face of a statute and that its continuing authority depends on the resort that a court may feel to be necessary in special circumstances to the general rule forbidding approbation and reprobation on the part of a litigant. Thus, despite the principle that limits estoppels where statutes are infringed, a litigant may be shown to have acted positively in the face of the court, making an election and procuring from it an order affecting others apart from himself, in such circumstances that the court has no option but to hold him to his conduct and refuse to start again on the basis that he has abandoned.
([1964] AC 993 at 1017-1018).
89 The principle on which the Commissioner relied was said to have application in a situation in which a benefit had been accepted, or a position had been abandoned, in earlier litigation in which the parties were the same as that in which the approbation and reprobation point later arose. But, according to the Commissioner, the principle applied also in later litigation where the parties were different. As to this proposition, reliance was placed on Express Newspapers plc v News (UK) Ltd [1990] 1 WLR 1320. That was a case in which, according to the headnote:
On 3 April 1989 in the "Daily Express" the plaintiff published an article, based on an exclusive interview, which quoted the words of the person interviewed. The first defendant published a report of the same story in its newspaper, "Today," on the same day. In the second edition of "Today" the story appeared in an altered form, similar to that in the "Daily Express," and containing the same quotations, without acknowledgment of the source of the story or the quotations. The plaintiff brought an action for breach of copyright in respect of that report. On 9 October the first defendant published an article on an unrelated topic, also based on an exclusive interview. On 10 October the plaintiff published a similar story in one of its newspapers, the "Daily Star." On 16 October the defendants served a defence to the plaintiff's claim, and the first defendant served a counterclaim in respect of the October article which was in form, the mirror image of the plaintiff's claim. On 18 October the plaintiff obtained summary judgment under R.S.C., Ord. 14 on its claim, with an order for an inquiry into damages.
The passage from the judgment of Browne-Wilkinson VC upon which the Commissioner relied was the reference to "legally indistinguishable" facts in the following extract:
However, I come back to the first point raised by Mr. Prescott, which greatly impresses me. The plaintiff applied for and obtained summary judgment against "Today" in relation to the Bordes article on facts which, in my judgment, are legally indistinguishable from the facts of the Ogilvy case. Mr. Burton sought to draw a distinction between the two cases on the grounds that the "Today" copying of the Bordes article involved the changing of the newspaper story between the first and second editions so as to appear on the same day as the article on Mrs. Bordes appeared in the "Daily Express." He contrasted that with the position where the "Daily Star" copying of the Ogilvy story occurred on the following day and was merely picked up in the ordinary course of press activity. In my judgment, the fact that "Today" were more efficient pirates than the "Daily Star" has no legal significance.
The fact is that if the defences now being put forward by the defendants in relation to the "Daily Star" article are good defences to the Ogilvy case, they were and are equally good defences to the claim by the "Daily Express" against "Today" newspaper relating to the Bordes claim. I think that what Mr. Montgomery describes as what is sauce for the goose is sauce for the gander has a rather narrower legal manifestation. There is a principle of law of general application that it is not possible to approbate and reprobate. That means you are not allowed to blow hot and cold in the attitude that you adopt. A man cannot adopt two inconsistent attitudes towards another: he must elect between them and, having elected to adopt one stance, cannot thereafter be permitted to go back and adopt an inconsistent stance.
It will, however, be immediately apparent that Express Newspapers has very limited potential to provide a legal principle of any practical utility in this case. In that case, one party was blowing hot and cold in the one proceeding. It was not even a case of different situations, much less of different parties. It is of no assistance to the Commissioner here.
90 According to the Commissioner, the sense in which the doctrine of approbation and reprobation is relevant to the present case is that, in the Supreme Court proceeding, the applicant had the choice of suing either on his own account or as agent for Disctronics. He chose to sue on his own account, and succeeded. He should not now be permitted to contend that it was not really his cause of action which was then involved, but Disctronics'. It is true, the Commissioner adds, that Disctronics also sued, but it failed, and did not appeal. For his part, the applicant was content to take the benefit of the judgment which he secured in his own name, and to defend it on appeal without any suggestion that it was Disctronics which was actually entitled as principal.
91 Assuming for the moment that the Commissioner's principal/agent framework of analysis is appropriate in the circumstances presently under discussion, I would accept that judgment in favour of an agent against the other contracting party would stand in the way of a subsequent proceeding, on the same cause of action, by the agent's principal. The principal's cause of action against the other party would have merged in the judgment in favour of the agent. But the principal's rights as against the agent would remain, as would the agent's rights as against the principal. Thus if, having taken the benefit of the judgment, the agent refused to account to the principal in relation to that benefit, the latter could sue the former. Or if the principal, having taken the benefit of the judgment obtained by the agent, then refused to indemnify the agent for his or her reasonable costs of obtaining the judgment, the agent could sue the principal. Far from standing in the way of subsequent proceedings of either of these kinds, the original judgment against the other contracting party would provide the basis for them.
92 I cannot see, in point of principle, why the analysis undertaken in the previous paragraph should be affected by the circumstance that, in the proceeding against the other contracting party, the agent sued not as such but as principal on his or her own behalf. The other party would be entitled to raise any defence that the plaintiff in the proceeding was not the true party with which he or she contracted. But if that defence were not taken, and judgment was entered against the other party, the agent/plaintiff could not resist later proceedings brought by the principal upon the ground that he or she had sued the other party in his or her own name and right. An agent cannot defeat the rights of a principal by taking it upon himself or herself to pretend, contrary to the facts, to be the principal. Likewise, if, in such a case, the agent had obtained judgment pretending to be the principal in his or her own cause, and then later had, without the need for any further proceeding by the real principal, agreed with the latter, truthfully to the facts, that he or she was indeed an agent and held the benefit of the judgment on behalf of the latter, cadit quaestio.
93 In a case of the kind just mentioned and assuming that the benefit of the judgment was in the nature of income, the question as to whose income it was would fall to be determined objectively, in accordance with the facts as they actually were. As against the revenue, the agent, having accounted to his or her principal for the income, would not be precluded from taking a position which was consistent with the facts, and with that accounting.
94 But I do not accept that the present issue is to be resolved by reference to the archetypal principal and agent dichotomy upon which the submissions made on behalf of the Commissioner were based. Indeed, I consider that the introduction of that dichotomy is something of a distraction. Had the applicant been no more than the agent of Disctronics, he would himself have had no cause of action against Edmonds and Cahill. On any view, however, the six individuals at least were principals in the joint venture. The applicant and others contended that Disctronics was too, but that contention was rejected in the Supreme Court. That was, however, neither here nor there. The applicant's obligations apropos the award of equitable damages arose out of the fiduciary office which he held, and the allocation of the golf course investment opportunity to Disctronics, and away from the applicant, by reason of the decisions which he and his fellow directors made in July 1999. It was open to the directors so to proceed without ipso facto converting themselves into mere agents in their dealings with Edmonds and Cahill. As between the directors of the one part and Edmonds and Cahill of the other part, the former were indeed principals, in the sense of being actual members of the joint venture, and not merely agents to bring the latter into contractual relations with Disctronics. But that circumstance is in no sense inconsistent with the directors owing duties as fiduciaries to Disctronics, and being held to account for any benefit which they derived from the joint venture.
95 Neither is the position affected by Disctronics' failure to make good its claim, before Warren J at least, that it was entitled to be the equity provider - ie the purchaser - in relation to the Kingston Links golf course. That was a claim against Edmonds and Cahill. It was sufficient, to sustain the rejection of the claim, for the court to have found that, as a matter of contract, Edmonds and Cahill never agreed to accept Disctronics as a joint venturer. The court was not required to consider the obligation that fell upon the applicant qua recipient of a share of its award. Indeed, for the applicant now to assert, contrary to the decision of Warren J, that Disctronics was entitled to be the equity provider on the sale of the golf course would not amount to approbating and reprobating at all. It would be the adoption of the very position which he adopted in the Supreme Court. He would, in the metaphor of Browne-Wilkinson VC, be blowing hot and hot, not hot and cold. If there be a principle of law under which the applicant is precluded from pressing for a judgment here which is inconsistent with that given against Disctronics in the Supreme Court, it is not the prohibition on approbation and reprobation.
96 The only other principle on which counsel for the Commissioner relied was issue estoppel. They submitted that the principle was as stated by Dixon J in Blair v Curran (1939) 62 CLR 464, 531-532:
A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared.
It will immediately be apparent why this submission on behalf of the Commissioner cannot be accepted: the parties here are not the same as those in the Supreme Court proceeding, where the first "judicial determination" was presumptively made. Ultimately, I did not understand counsel for the Commissioner to have any answer to this difficulty in their submission. In my view, it is fatal to it.
97 The next collateral attack made by the Commissioner involved the submission that the litigation agreement executed by the applicant, Disctronics and others on 15 June 2001 reflected an appreciation on the part of the applicant that any award of damages which he received in consequence of the then contemplated Supreme Court proceeding would be his to assign as he chose and would, therefore, prior to the operation of any such assignment, be his beneficially. I should say at once that the jurisprudential character, and relevance, of this contention on behalf of the Commissioner was never made very clear in the submissions presented on his behalf. The headline proposition with which this contention was associated was "the applicant has recognised his own liability and acted inconsistently with the 'fiduciary claim'". If the applicant had acted in the way thus proposed, it was never made clear how that circumstance would damage his claims in the present case, or advance those of the Commissioner. These submissions on behalf of the Commissioner were, of course, quite separate from those on preclusion and estoppel to which I have referred above.
98 The applicant was cross-examined as to why the litigation agreement was made. He said that, although dated 15 June 2001, the agreement was in fact executed immediately prior to the issue of the Supreme Court writ on 26 June 2001. At the time, "there were … some very substantial money concerns." According to the applicant, Donovan required a formal written commitment from Quinert and himself to the position upon which they had agreed in London in the period 12-14 July 1999, and which had been conveyed to Edmonds by Quinert's memorandum of 4 August 1999, namely, that Disctronics would be the equity provider if the Kingston Links golf course were acquired as envisaged by the joint venturers. In making this requirement, Donovan was, I infer, advancing the interests of Disctronics as such, and doing so from the position of the effective majority shareholder. For his part, the applicant was content to agree with what Donovan wanted, but required an indemnity against exposure to costs orders in return.
99 I do not accept that the litigation agreement involved a recognition by the applicant of his own liability for taxation, or conduct on his part which should now be seen as inconsistent with his claim to have received the award of equitable damages as fiduciary. The agreement was made more or less immediately before the main proceeding was commenced in the Supreme Court. It was anticipated, I infer, that that proceeding would have involved claims by Disctronics, Donovan, Quinert and the applicant. Disctronics was to pay the costs of all. Having extracted that promise from a public company of which they were directors, it was, to say the least, prudent for Donovan, Quinert and the applicant to assign any benefit which they stood to gain from the litigation to that company. Far from being inconsistent with the position that the applicant and his colleagues were suing in their capacity as directors, and therefore as fiduciaries, in my opinion the agreement reinforced that position. The shareholders of Disctronics who were not associated with the directors might reasonably, in my view, have raised their critical eyebrows at the suggestion that their company should pay the costs of litigation commenced, in part, by directors in their personal names without some prior written acknowledgment of the capacity in which those directors sued, and of the entitlements which would belong to the company if the directors should succeed. The litigation agreement was, in my opinion, both unsurprising and prudent, and wholly consistent with the position now taken by the applicant.
100 It was submitted on behalf of the Commissioner that the parenthetical expression in para B of the recitals to the litigation agreement, and in para 4 of the agreement itself, "whether on revenue or capital account", involved "language reflecting a consciousness of personal taxation attending the potential receipt". However, although the applicant was cross-examined about the purpose of his execution of the litigation agreement, and in an attempt to have him accept that it was based upon an assumed starting point that he, and the other directors, would otherwise hold the beneficial title to any award of damages which they secured, the applicant was not cross-examined with respect to the parenthetical expression which mentioned "revenue or capital account". It was not put to him that the use of that expression necessarily reflected a consciousness on his part of personal taxation issues that might attend the receipt of an award of damages in the Supreme Court. For that reason alone, if for no other, I could not uphold this submission on behalf of the Commissioner.
101 Counsel for the Commissioner next argued that the letter from Disctronics to Bucknall, over the hand of the applicant, dated 22 December 2003 was consistent only with an assumption then made both by the applicant and by Disctronics that the applicant's interest in the award of damages which had by then been made was, prior to assignment, a beneficial one. Counsel relied specifically upon so much of para 8(a)(iii) of the letter as acknowledged that the three-fifths of the award which was the share of Donovan, Quinert and the applicant had been assigned by them to Disctronics "subject always to a satisfactory resolution of taxation issues relating to that assignment". Pressed in cross-examination about this passage, the applicant refused to accept that it reflected a recognition on his part that he would be obliged to pay tax upon his one-fifth share before the assignment to Disctronics took effect. The applicant was unconvincing in those denials, and I am inclined to accept the position asserted, during cross-examination, by counsel for the Commissioner that the applicant was seeking to place a construction on the letter of 22 December 2003 which was most favourable to the case which he now advances. However, I am also disposed to the view that the passage on which the Commissioner relies is relatively benign for the applicant in the present circumstances. It seems clear - and the applicant himself accepted - that the only assignment to which para 8(c)(iii) could have been referring was that dated 15 June 2001. In terms at least, that assignment was not subject to the resolution of taxation issues. The applicant was unable to identify any taxation issues, the resolution of which amounted to a pre-condition, or the like, of the operation of the assignment of 15 June 2001. I am, therefore, of the view that the parenthetical expression inserted into para 8(c)(iii) of the letter of 22 December 2003 was something of a gloss on the actual terms of the assignment to which it referred, probably because the letter was required by auditors. The passage amounted to a statement by the applicant, as director of Disctronics, that the assignment should not be understood as passing to Disctronics the full net proceeds of the litigation, if it should be the case that the applicant himself was left with a taxation liability in relation thereto.
102 Notwithstanding that I have accepted the Commissioner's case about this letter to the extent indicated above, I cannot read the passage in question as involving a recognition by the applicant that he would be obliged to pay tax on his share of the award of damages because he received the share absolutely. I read it only as flagging, as it were, a possibility which might qualify the quantification of Disctronics' entitlement under the assignment. As such, there is nothing in the passage, in my view, which ties either Disctronics or the applicant to the position for which the Commissioner now contends, or which precludes the applicant from contending, as he does, that there were no "taxation issues" which would stand in the way of Disctronics beneficially receiving the full amount of the applicant's one-fifth share in the award of damages as proposed in this letter.
103 The next respect in which the Commissioner made a collateral attack on the applicant's case related to the Litigation Report contained in the Director's Report of 7 January 2004, to which I have referred at para 70. The applicant was cross-examined extensively on the Litigation Report, it being put to him that it was consistent only with a view, said to be held by him at the time, that he and his fellow directors received the award of equitable damages beneficially, and then assigned their interests therein to Disctronics. Although there were unconvincing aspects of the applicant's evidence when under cross-examination on this subject, he consistently maintained that he had, from the outset, been conscious of the fiduciary capacity in which he held the award of damages and, in my view, did so credibly.
104 More importantly, perhaps, the character of the applicant's obligations to Disctronics apropos his award of equitable damages was not to be determined by the view of the matter which the applicant himself took at the time, or at any time. Whether he held the award, or the anticipated award, as fiduciary is a question to be determined by an objective consideration of the facts and circumstances giving rise to the applicant's entitlement. As it happens, I consider that the Litigation Report was a fair, albeit spare, report to the shareholders of Disctronics about what actually happened in the Supreme Court proceeding, and the existence and operation of the litigation agreement of 15 June 2001. In my view, it is only with an eye artfully focused upon the legal distinctions which have become relevant in the present case that a reader of the report would readily see the kind of inconsistency to which the Commissioner now points. To the general reader of the Report, the message conveyed was that Donovan, Quinert and the applicant had secured damages in the case, that they had done so in their capacities as directors of Disctronics, and that they had made a formal assignment of their entitlements to those damages to Disctronics. At the high level that would be of interest to shareholders, and at the documentary level that would be of interest to auditors, these indications were not, in my view, inconsistent with the position for which the applicant now contends.
105 The final collateral attack made by the Commissioner on the applicant's case was to submit that the applicant's "demeanour and non-responsiveness in giving oral evidence" betrayed an appreciation on his part of the frailty of his now assertion that he held his share of the award of equitable damages as the fiduciary of Disctronics. Substantially for the reasons given in the previous paragraph, I would reject that attack. There were no contentious issues of fact here, the resolution of which might be influenced by a view which the court might take as to the applicant's credibility. Although there were some respects in which the applicant's responses under cross-examination were tendentious to a degree, I would reject any suggestion that he was making less than a conscientious attempt to deal truthfully with events which occurred many years ago. More relevantly for present purposes, I am unable to perceive how the quality or style of the oral evidence given by the applicant in 2011 should have anything more than the most marginal influence on the findings which the court should make with respect to well-documented transactions and events occurring in 1999. My conclusions in this aspect of the case have been based on uncontentious documents, and the record of the proceeding in the Supreme Court.
106 For the above reasons, I am satisfied that the applicant received his share of the award of equitable damages made in the Supreme Court as fiduciary for Disctronics. The award was not assessable income in his hands. The Commissioner's assessment should be set aside.
107 In the circumstances, I have not been required to consider a submission made by the applicant that the Commissioner's amended assessment of 5 August 2009 was out of time under s 170(1) of the 1936 Act. However, I would not have upheld that submission. The Commissioner submitted that he had four years, not two years, within which to amend because item 1 in the table in s 170(1) did not apply. The Commissioner relied on several "qualifications" to justify that submission, to none of which did the applicant offer a response on the merits. His case, rather, was that the form of s 170(1) on which the Commissioner relied had not been enacted (by amendment) until December 2005, subsequent both to the end of the 2005 tax year itself and to the lodgement of the applicant's return for that year. However, as the Commissioner pointed out in written submissions filed on 15 June 2011, item 15 of Sch 1 to the Tax Laws Amendment (Improvements to Self Assessment) Act (No 2) 2005 (Cth) provided for the relevant amendments to apply in relation to assessments for the 2004-05 year, and later years, of income. In their oral submissions, counsel for the applicant said nothing further about this aspect of their client's case.