Jacques v Forte Enterprises Pty Ltd

Judgment 1These proceedings relate to a partnership formed in 1988 between the plaintiff, Mr Phillip Jacques ("Mr Jacques"), and the first and second defendants, Forte Enterprises Pty Ltd ("Forte") and Ahtram Nominees Pty Ltd ("Ahtram"). Forte is an investment vehicle for the third defendant, Mr George Senes ("Mr Senes"). Ahtram was the investment vehicle of Mr Victor Berger ("Mr Berger") but in 1993 Ahtram had agreed to transfer its interest in the partnership to Mr Senes. Mr D A Lloyd of counsel appears for Mr Jacques. Mr A Hourigan of counsel appears for all three defendants. 2Mr Jacques claims that, in relation to the sale of partnership property at Collaroy New South Wales to Landmark-Forum Pty Ltd ("Landmark"), Forte, Ahtram and Mr Senes breached fiduciary duties owed by them to him as a partner. 3The background is that the partnership conducted a gym, pool and motel at the property. The land was originally owned by Mr Jacques, but when Forte and Ahtram became involved they each paid in effect $1 M to Mr Jacques so that the partnership owned the land and the business and each partner had a one third share. 4There is no dispute that in late August 1996, Landmark was granted call options for each partner's one third share at a total price of $2.147 M, that Landmark exercised those options immediately and that subsequently, in November 1996, Landmark purchased from each of the three partners their respective interest in the property at Collaroy for a consideration of $774,533 each, making a total paid of $2.32 M. The partnership was dissolved following the sale. There is no dispute that, out of the proceeds of sale, all of the partnership's liability to the ANZ Bank of $2.1 M was discharged and that a portion of what was owed to Mr Senes (and a company owned by him) in respect of loans made to the partnership was repaid. Also as part of the November arrangement, Mr Jacques was, with the agreement of Forte and Ahtram, given certain benefits to which, as a partner, he was not strictly entitled. These were that he was permitted to take the business name and to take gym equipment which had a written down book value of $32,807. Also, importantly, it was agreed that he could purchase from Landmark a unit in the proposed development at cost. 5I referred to Ahtram agreeing because, although the evidence was that Mr Berger transferred his one third interest in the partnership to Mr Senes in 1993 so that as at 1996 Mr Senes had in effect a two thirds interest in the partnership (one third through Forte and one third in his own right), this transfer by Mr Berger was not formally completed and it was Ahtram, as one of the partners, that signed the agreement by which the benefits were confirmed: see Exhibit A4 at pp 1131 - 1136. That agreement is dated 1 November 1996 ("the November Agreement"). 6The purchaser of the partnership interest, Landmark, developed the property by demolishing the existing buildings and constructing on the land 36 units and selling those properties. Many of the sales were sales off the plan (16 of them having been sold before 23 October 1996) prior to completion of the building. 7Landmark is a company established in July 1996, the shares in which were at all relevant times held by companies connected with Mr Senes, a Mr Rod Hills and a Mr Paul Kelly in the proportions 50 per cent to Mr Senes' company on the one hand, and 50 per cent to Messrs Hills' and Kelly's companies combined on the other. All three were directors of Landmark at all relevant times, as were two sons of Mr Senes. 8Messrs Kelly and Hills have been business partners for many years. They operated a company called Realty Marketing Pty Ltd ("Realty") and a company called Property Development Corporation Pty Ltd ("PDC"). Realty was involved in selling real estate and PDC was involved in project construction. The names Realty and PDC were used interchangeably and nothing turns on the difference save that Messrs Hills and Kelly first became involved with the partnership in 1995 when Realty was retained by the partnership to prepare and lodge a development application to Warringah Council pursuant to an agreement dated 8 February 1995 (see pp 259 to 270 of Exhibit A1). By that agreement ("the Realty Agreement") the partnership agreed to make payments to Realty provided the development application was lodged within 12 weeks of the agreement and provided approval was obtained from the Council within one year of the date of the agreement. 9The application for development of the site was not lodged (it is agreed) until 22 September 1995 and approval of the Council was not obtained until May 1996. On the terms of the deed of 8 February 1995, no monies were due to Realty by reason of the failure to meet the specified deadlines. The deed, however, was purportedly amended by the deletion of the words "8 February" and replacement by the words "1 September". Those changes were made, I infer, to expand the time within which Realty could lodge the development application and obtain approval, or at least to make it appear that the time had been expanded. None of the defendants' witnesses were able to explain why the development application was not lodged within time or how the deed came to be varied. Messrs Senes' and Berger's initials are on the deed, as are Messrs Kelly's and Hills' initials, but nowhere are to be found Mr Jacques' initials and it is conceded by the defendants that he did not initial the variation. There is no evidence that Mr Jacques knew of the variation or agreed to it. 10On 29 August 1996, Mr Jacques signed (either himself or through Mr Senes, acting under a power of attorney in his favour from Mr Jacques signed at that time) a document described as a call option and bearing that date, by which he agreed that Landmark could purchase his interest in the partnership for $715,773: see pp 1088 to 1090 of Exhibit A4, which is a copy of the same document executed on behalf of Ahtram. 11Although the equivalent call option documents for Forte and Mr Jacques were not in evidence, it is accepted by each of the parties that documents in the same terms and for the same amount were signed by Forte and by or for Mr Jacques on or about that date. It will be noted that the total of the three amounts to be paid was $2.147 M (and not the $2.32 M which was ultimately paid by Landmark). 12On 26 June 1996, Mr Hills wrote on behalf of PDC to Mr Senes setting out some calculations which almost certainly provide the source of the figure of $2.147 M in the call options (see p 1020 of Exhibit A4). The calculations involved a deduction of $176,340 which Mr Hills calculated was payable to Realty as a result of it obtaining the development consent through a firm of architects. Mr Hills agreed that he must have incorrectly deducted $176,340 twice to arrive at the figure of $2.147 M. The calculations started with the assumption of a sale price of $2.5 M for the property. It is likely, it was agreed at the hearing, that the figure of $43,342.32 seen on the document was the actual cost of obtaining the development consent and that $80,000 was taken from cl 2.1(c)(ii) of the Realty Agreement. The total amount in the letter was the figure used in the call options granted by the partners to Landmark so that Landmark obtained the benefit of not only the amounts claimed by Realty but also of an additional $176,340 to which Realty on no view could have been entitled. 13The only partnership assets were the land and buildings on it and the gym, pool and motel business but the business could not be conducted by the partnership if the development went ahead and it seems to be agreed that the business was at the time struggling and kept afloat by loans from Mr Senes. 14There were conversations which Messrs Jacques and Senes had concerning the future plans for the partnership property. Mr Senes says that in 1995 he said to Mr Jacques (see par 22 of Mr Senes' affidavit sworn 27 March 2012): "We cannot afford to keep operating the partnership this way. We are losing too much money. It's only my company's loans that are propping up the partnership. I think we need to consider developing the land. Rod Hills and Paul Kelly are a couple of developers that I know and might be interested [in] undertaking development of the land. We would need to ask them to fund the building work but we can put up the equity"; and that Mr Jacques replied: "That sounds like a good idea, let's do that." Mr Jacques did not dispute this conversation but said that Mr Senes said to him that he (Mr Jacques) would receive one third of the profit from the development of the land (see par 8 of Mr Jacques' affidavit of 24 July 2012). 15In 1996, according to Mr Jacques, he had the following conversations with Mr Senes (see pars 22 and 23 of Mr Jacques' affidavit of 22 September 2011): Mid 1996 Mr Senes:You can't be involved in the development of the land because you do not have the capital. Mr Jacques:I want to be part of the development of the land. Mr Senes:Well you cannot afford it. The partnership has to end. July 1996 Mr Senes:We can sell the land to Rod Hills, Paul Kelly and their company Landmark. We can sell the property for $2.8 M. I think we should go ahead with the deal. 16Mr Senes refers to an offer to Mr Jacques to take a proportional equity share of the development, although the wording of the offer was not specified and this appears to be after the call options had been signed and exercised: see par 50 of his affidavit of 27 March 2012. Mr Jacques says that Mr Senes said to him: "to stay involved, you need to come up with one third of the building costs which are $6 - 7 M" and that he replied to that saying that he did not have that sort of money: see par 16 of Mr Jacques' affidavit of 24 July 2012. 17It is clear that Mr Jacques was concerned that the sale price of the property to Landmark would yield no return to him as a partner and, through the assistance of a Mr Adrian Waugh, he contacted a real estate agent, Mr Mark Caputo, in August 1996. Mr Caputo made enquiries and obtained from Sterling Estates (SA) Pty Ltd ("Sterling") a letter addressed to Mr Caputo, implicitly as agent for the partnership. The contents of the letter have been the object of considerable scrutiny in this case but the offer contained in the letter, although subject to conditions to which I shall return, is capable of being seen as an offer worth to the partnership, in effect, $4.65 M (less selling costs), or at least a serious indication by Sterling that it was interested in purchasing the right to develop the property in return for payment of the benefits specified in the letter. A promise of $4.65 M was well in excess of the Landmark purchase price reflected in the call option ($2.147 M) and even the amount of $2.32 M actually paid by Landmark (and which saw Landmark obtain the benefit of a deduction due, if due to anyone, to Realty). The $2.32 M figure is derived from multiplying the figure paid for Mr Jacques' one third interest in the land (see Exhibit A4 at p 1140) by three. 18There was agreement between the experts retained by the parties for the hearing that the property had a market value of $3.2 M as at November 1996. The Sterling offer 19The Sterling letter is found in Exhibit A1 at pp 60 to 62. It involves an offer of or proposal for a product swap - in return for Sterling taking over the project and building 35 apartments (including 3 commercial premises), the partnership would receive "8 apartments/retail offices" and $1.45 M (residual land value) at the end of the construction and sale process. The land would remain owned by the partnership until completion of the project and a mortgage would have to be given over the land in favour of Sterling. 20The letter stated: "we look forward to acceptance in principal [sic] from the vendor to our offer and the opportunity to finalise specific aspects of our offer in order that both parties may, upon agreement to the final terms and conditions of this offer, proceed to formal documentation of the Development Agreement." (Exhibit A1 at p 60) 21The offer was expressed to be subject to Sterling being provided with a geotechnical report (see Exhibit A1 at p 62). Sterling, according to the letter, contemplated completion within 12 months of commencement. Attached to the letters were calculations of the benefit to the partnership - eight units with an average selling price of $400,000 (a benefit to the partnership of $3.2 M) which, when added to the proposed residual value of $1.45 M, would yield $4.65 M to the partnership, from which would need to be deducted the $2.1 M ANZ Bank loan. 22The net profit would be $2.55 M (excluding selling costs) in comparison to a notional sale of the property for a cash purchase price of $3.35 M (see Exhibit A1 at p 64), also excluding selling costs and less the ANZ Bank repayment, that is, $1.15 M net profit. Repayment of the loans made by Mr Senes and his company would then have to be deducted from both net figures. Events after the call options were signed 23After he had signed the call option relating to his interest in the property and a power of attorney in favour of Mr Senes, Mr Jacques consulted a solicitor, Mr Peter Kennett of O'Brien, Connors and Kennett. Mr Kennett wrote to Mr Senes seeking copies of the documents signed. There followed an exchange of correspondence which, whilst it may not have resulted in Mr Kennett being provided with copies of documents that had been signed by Mr Jacques, consisted of letters from Mr Senes and one from Mr Berger to Messrs Jacques and Kennett. Mr Berger described himself as acting for Forte and Ahtram and asserted that he had no conflict of interest in acting against Mr Jacques (see letter of Milne, Berry and Berger dated 11 September 1996 in Exhibit A4 at p 1103). In the letters, threats were made to hold Mr Jacques responsible for any loss suffered by the partnership if the sale of the property did not proceed. In one letter, Mr Berger noted that he had received letters from the purchaser and that the purchaser had lodged a caveat. Landmark's name was not mentioned in this correspondence. 24Notwithstanding the belligerent tone of the letters, Mr Senes did on 17 September 1996 send a document containing a proposal, which followed discussions (the details of which are not known) between Messrs Senes and Kennett: see Exhibit A4 at pp 1109 - 1114. The offer was, if the sale of the property to Landmark proceeded, to pay Mr Jacques $71,895, to hand over gym equipment with a written down value of $32,807 and to permit Mr Jacques to buy a unit to the value of $300,000 at the discounted price of $75,000. That offer was said to give a total value to Mr Jacques of $179,702. The document pointed out that: "To achieve $179,702 nett for a sale other than to Landmark Forum at the Auction it would be necessary to achieve $3,650,000 gross excluding any auction costs. If the matter proceeds to Auction it means that assets of the partnership will be sold at auction including all gym equipment which if sold at auction would realise much less. " 25The calculations contained in the document were based upon the partnership having a liability of $2,142,719 (which I assume is a reference to the ANZ Bank loan) and a further liability to Mr Senes, or his company, of $400,151. The calculations include an amount due to PDC of $368,334. Mr Jacques or his solicitor negotiated for a change to that offer and in November it was agreed that Mr Jacques could purchase a unit for $180,000 (cost price), would receive an advance of $20,000 of his partnership entitlement and the gym equipment, be permitted to lease the gym and pool for a few months at no cost and take the business name used by the gym. Mr Jacques intended to establish a new gym business in his own name once he moved from the property, although as matters turned out he was apparently unsuccessful in his attempts. By the November Agreement the parties also confirmed that the call options were cancelled and rendered void and of no effect. Mr Jacques sold the unit for $310,000 within a very short period of settlement, producing a profit to him of $130,000 (excluding interest charges and other costs). Mr Jacques accepts that in his claim against the defendants he has to allow for deduction of the $20,000 advance from any entitlement to damages and accepts that he has to allow for the benefit of the discount on the unit, although it was submitted this should be at $75,000. It was not suggested that he needs to make any allowance for the benefit of the very short term lease, but the defendants do assert that an allowance should be made for the use of the business name if Mr Jacques is otherwise successful. 26Pursuant to the settlement by the November Agreement, Mr Jacques was required to enter into a contract for the sale of his one third interest in the property to Landmark for $774,553 and he signed the contract of sale, as did Mr Senes on behalf of Forte and Mr Berger on behalf of Ahtram, on 1 November 1996: see Exhibit A4 at p 1140. 27The offer from Mr Senes, unlike the earlier correspondence, clearly identified Landmark as the purchaser. Mr Senes' connection with Landmark was not hidden thereafter because the November Agreement, to which Mr Jacques and Landmark were a party (as well as Forte, Ahtram and Realty), referred to Mr Senes as a director of Landmark. The contract of sale between Mr Jacques and Landmark had annexed to it a certificate by the solicitors acting for Landmark, Remedios and Martin, certifying that they had explained to the directors of Landmark, including Mr Senes, who is named in the certificate, that there would be no cooling off period. Mr Jacques was not cross examined about this counterpart of the contract, nor was it contended that Mr Jacques had signed that document or noticed Mr Senes' name and hence appreciated its significance. 28Mr Jacques' case is that: (1)as a partner, Mr Senes, on behalf of Forte and in his own right because he had taken over the interest of Ahtram, owed him a fiduciary duty: (a)not to place himself in a position of conflict between his role as partner and other interests; (b)not to prefer his personal interests over Mr Jacques; (c)to act fairly and honestly with him; (2)Mr Senes did not disclose his involvement in Landmark to Mr Jacques. Mr Jacques claims that he did not know of Mr Senes' involvement in Landmark until he was advised of it during the course of Local Court proceedings brought by him based on the November Agreement, in which Forte and Ahtram had dissolved the partnership and agreed that there would be a taking of accounts. There was no claim for an account in this court; (3)Mr Senes did not properly consider the offer from Sterling nor the possibility of sale of the property on the open market and led Mr Jacques to believe that his support for the Landmark offer and discouragement of the Sterling offer was one not motivated by any other reason than a belief that the Landmark offer was the best deal available whereas in fact Mr Senes' support for the Landmark offer was motivated by his personal interest in Landmark and his desire that Landmark proceed with the development to the disadvantage of the partnership and in particular Mr Jacques; (4)Mr Senes' failure to disclose his interest and his promotion of the Landmark offer was a breach of his fiduciary duty and further was deliberate and dishonest in all the circumstances; and (5)the partnership, and therefore Mr Jacques, lost the benefit of the Sterling offer or proposal. 29The defendants accept (1) and dispute (3) - (5). So far as (2) is concerned, Mr Jacques' evidence is that Mr Senes did not tell him that he was a director and had an interest in Landmark through his company. In his affidavit, Mr Senes gave no evidence of having informed Mr Jacques of his involvement with Landmark and Mr Hourigan told me in opening that there was no such evidence. 30During cross examination, Mr Senes asserted that he believed he had told Mr Jacques of his interest in Landmark but given: (1)the absence of any evidence of it in Mr Senes' affidavit; (2)the expression of "belief" and the absence of any precise conversation with time, date and place in respect of the asserted conversation; (3)Mr Senes' failure to admit on the pleadings that he had such an interest; and (4)my impression of Mr Senes' credibility generally, to which I shall refer in more detail below; I am unable to accept Mr Senes' assertion that he did tell Mr Jacques that he held any interest in Landmark at any time before call options were executed. 31Mr Senes, Forte and Ahtram were jointly represented and no point was taken as to any difference between the liability of Mr Senes and Forte on the one hand and Ahtram on the other. Credibility of Mr Jacques 32It was submitted on behalf of the defendants that: (1)Mr Jacques' evidence was confusing and hesitant; (2)his denial of a prior relationship with Mr Kelly (T43.10) was designed to assist him in denying that he was comfortable with Messrs Hills and Kelly (see par 18 of the defendants' closing submissions); (3)he denied at T49.12 that lodgement of the development approval by Realty was to his benefit as a partner: see par 19 of the defendants' closing submissions; (4)I should not accept Mr Jacques' attempt "to paint himself as an inept businessman, indeed as a simple pool cleaner" (see T53.27) or that he left everything to Mr Senes (T53.46), when "but with only the assistance of his cousin he obtained the proposal from Sterling and engaged Mr Kennett to act on his behalf" (see par 20 of the defendants' closing submissions); (5)although Mr Jacques says that he was pushed out of the partnership because he was told that he did not have any funds to develop the property, he did not raise any complaint about this even though he was legally represented in September and October 1996; as such the Court should find that he negotiated for the additional benefits which he did obtain because he knew that Mr Senes had an "involvement in the ongoing profit entitlement" (see par 21 of the defendants' closing submissions); and (6)the Court should not accept Mr Jacques' evidence that he was not expressly offered a share of the profits but believed he would be (par 23 of the defendants' closing submissions; see also T49.48 - 49 and T50.10 - 27) and should infer that Mr Jacques was aware that Mr Senes was a director and shareholder of Landmark and that he was "offered an identical entitlement to [Mr] Senes, that is, an entitlement to profit share in the development of the property" (see par 25 of the defendants' closing submissions). 33I will deal here with (1) to (4) and will return to (5) and (6) after I have dealt with other matters: (1)I agree that Mr Jacques was not an impressive witness. He frequently gave non-responsive answers and I agree that his evidence was at times confusing. He appeared to be very vague as to his understanding of matters. I recognise that Mr Jacques may have been exaggerating his lack of sophistication but it needs to be taken into account that he left school when he was 15 years of age and has had limited commercial experience and it was said, and not challenged, that before his divorce he had left the financial side of the pool, gym and motel business to his wife. Further, he had always placed considerable trust and confidence in Mr Senes, who clearly had extensive experience and was, he thought, an astute businessman. The partnership's accounts were all handled by a Mr Wolstenholme, who was apparently Mr Senes' accountant. (2)I am not satisfied that his denial of a prior relationship with Mr Kelly was shown to be false. (3)Mr Jacques did not at T49 deny that the lodgement of the development approval was to the partnership's advantage. (4)I have dealt with this at subparagraph (1) above. The fact that Mr Jacques sought the assistance of a solicitor is not at all surprising given the prospect of receiving nothing from the partnership sale to Landmark and the fact that he had signed documents the contents of which he was uncertain. Credibility of Mr Senes 34Mr Senes' credibility was impugned and I think there is cause to doubt his veracity as a witness for the following reasons: (1)Mr Senes denied in cross examination that he was a property developer and denied that he had ever so described himself. Exhibit D establishes that in an affidavit of 8 November 2009 filed in these proceedings, he had in fact described himself in that way. (2)His failure to admit on the pleadings that he was a director of Landmark at all relevant times and to admit that he, through his family company Ionbudy Pty Ltd, had an interest in Landmark was significant particularly since the plaintiff's case was that Mr Senes failed to disclose those matters to him in 1996 and it is asserted by the defendants that Mr Jacques knew that Mr Senes did have those interests in Landmark. I am conscious of how much time has passed since 1996 but the pleadings are relatively recent. (3)I did not find Mr Senes' explanation for his conduct credible - he seemed, even on his own evidence, to have reacted with a surprising lack of enthusiasm for what on its face appeared to be a very attractive offer or proposal from Sterling. (4)Mr Senes said in cross examination (T235.13 - 16) that he had sought Messrs Kelly's and Hills' views about the letter, and the impression that he sought to create was that he had genuinely sought their views on behalf of the partnership. Given that he had already received Mr Hills' letter of 26 June 1996 (to which I have referred at par [12] above) and that he had become a director and shareholder of Landmark as to 50 per cent, I do not accept that if he did seek their views on the Sterling offer it was with a view to seeking their genuine impartial advice, but rather to encourage prompt action in having the call options signed as quickly as possible - they were prepared within two days at most of the letter from Sterling having been received by Mr Senes. (5)Mr Senes said that he did not recall giving instructions on behalf of Landmark for letters to be sent to Mr Jacques or for a caveat to be lodged at the same time he was writing to Mr Jacques (and Mr Kennett) as a partner threatening to take action because Mr Jacques' request for information about what he had signed seemed to presage some resistance on Mr Jacques' part to execution of the contract with Landmark. I think that is likely that Mr Senes did give those instructions and unlikely that he would not recall the very unusual circumstances involved. 35In relation to the evidence of both Messrs Senes and Jacques, I do think that it needs to be borne in mind that the events in question occurred 16 years ago. Mr Senes' characterisation of the Sterling offer 36Mr Senes says that he told Mr Jacques, in effect, that he could not see the deal with Sterling as a genuine offer, "especially with all the conditions attached" (see T234.1 - 34 and see T235), and that the offer "didn't stack up at the time at all" (see T235.22 - 28). 37Mr Senes in his evidence identified the following problems with the Sterling offer: (1)Sterling, he said, required the partnership to give the financier of the construction work a first mortgage; (2)the partnership would be indebted to Realty if it sold the property to someone unconnected with Realty; and (3)the proposed deal involved a product swap which would mean that the partnership would not receive any money for at least 12 months and more likely 18 months to 2 years. 38Mr Senes claimed that he took it as granted that Sterling wanted a first mortgage ahead of the ANZ Bank, but even though this seemed to evaporate at T236.24 to T237.25, he would not agree that that was not a problem: see T237.30. He said he read the letter "briefly" and passed it on to Messrs Kelly and Hills: see T236.15 and see again T237.32 - 34. I do not think that Sterling can be taken to have been insisting on a first mortgage in priority to the ANZ Bank. The letter contemplates the continued existence of a first mortgage to the bank and I think it unlikely that Sterling would have been understood as contemplating that the bank would agree to give up its first mortgage, which would be a most unlikely step for any bank to take. If there was a genuine concern about that, it could have been clarified. 39So far as (2) is concerned, Realty was, as at the date of the Sterling offer, strictly not entitled to any recompense for lodgement of the development application within the terms of the Realty Agreement unless the agreement was validly varied. I do not think it was validly varied (this was in effect conceded at the hearing) and I think that it is more likely than not that the attempt to alter the date of the deed was part of the same process by which the call options were signed. This is not to say that Realty would not have been entitled to seek reimbursement for the expenses incurred in obtaining the development application but, in the absence of a validly amended deed, Realty had no right to the benefits granted by the deed. 40So far as the delay mentioned in (3) is concerned, I accept that immediate payment by Landmark was a very relevant consideration. However, immediate payment of $2.147 M (as per the call options signed within two days of receipt of the Sterling letter) had to be weighed against $4.65 M to be paid 12 (or even 18) months later, less holding charges of between $210,000 to $305,000 on the $2.1 M and selling and legal costs, reducing the differential to approximately $2 M. The commercial significance of the gap between the two offers is of such a proportion that it is difficult to imagine that the delay in return would not be regarded as at least worthy of detailed consideration. Mr Senes did admit that the Sterling offer was, on its face, one that sounded interesting (T232.50) and looked very attractive (T233.14 - 27), yet he appears to have been, as a partner, strangely uninterested in it and the most likely explanation is that this was because he had already taken a 50 per cent stake in the proposed purchaser. It is clear that the directors of Landmark thought that the property was, from Landmark's point of view, worth developing, otherwise they would not have sought and obtained the call options and had Landmark exercise the call options, which had occurred by 29 August 1996. 41So far as subparagraphs and (6) above are concerned, these points have considerable force. I found Mr Jacques' position somewhat confused and confusing. Even on his own evidence of what Mr Senes said to him, there is some possibility that he realised that Mr Senes was planning to have a continuing involvement in the development of the property, and particularly after the offer of 17 September 1996 was received. The notion that Mr Jacques was "pushed out" (see T105 - T106, T110 and T116.10) seems linked to the notion that the partnership would remain on foot (and see T110 - T122). Mr Jacques says that he cannot recall receiving advice from Mr Kennett in relation to the letters and offers received from Mr Senes and even the documents settling the matter (see par 33 - 43 of his affidavit of 22 September 2011), which I find difficult to accept. 42There are a number of matters, however, which need to be taken into account: (1)Mr Jacques' lack of sophistication and business acumen and his reliance on Mr Senes in signing documents and his acceptance of Mr Senes' rejection of interest in the Sterling offer are consistent with a limited understanding of what Mr Senes was doing. (2)The fact that Mr Senes did not inform Mr Jacques of his 50 per cent holding in Landmark (and directorship) even when he and his solicitor, Mr Berger, wrote to Mr Jacques. Landmark was not even mentioned in the correspondence until Mr Senes made an offer to Mr Jacques in his memorandum sent on 17 September 1996. (3)The fact that, on Mr Jacques' version (see par [15] above), Mr Senes said to him "we can sell the land to Rod Hills, Paul Kelly and their company Landmark" was quite contrary to the true position because Landmark was as much his company as it was that of Messrs Hills and Kelly. (4)Mr Jacques' version of a conversation with Mr Senes that, to stay involved he, Mr Jacques, would have to come up with one third of $6 - 7 M. Mr Senes does not, on his evidence, tell Mr Jacques that he could become a shareholder in Landmark for little or no payment and yet there is no evidence that Mr Senes himself had to contribute $2 M or anything other than the nominal cost of the small number of shares in Landmark. Given that Mr Senes has not been shown to have contributed anything to entitle him to 50 per cent of Landmark, there is no reason why Mr Jacques would not have been interested in a proportionate share at no cost other than the face value of a few shares. (5)Whilst it is true that Mr Senes could not, as a partner in the partnership, offer Mr Jacques a unit, an offer of a unit could have come from Landmark as a purchaser keen to ensure that the deal proceeded. Mr Senes' note does not say that he is offering a unit as a director of Landmark, only that his proposal is that Mr Jacques receive a unit. If Landmark had an interest in the sale proceeding, it might have been willing to provide a unit even if Mr Senes was not a shareholder in Landmark. (6)The offer referred to at (5) was made against a background where Mr Jacques, through his solicitor, had asked for documents, where there appeared to be a concern by Mr Senes that Mr Jacques may not be willing to execute the contract for sale of the property to Landmark and where it is obvious that Mr Senes did not want the sale to Landmark to fall through. (7)Whether any other date might be relevant (a matter I discuss below), the starting point is the position as at the end of August 1996, not mid September or late October 1996. 43If the call options were both valid and validly exercised, then the partnership was committed to sale of the property at the total figure of $2.147 M, and on that figure, Mr Jacques would receive no benefit from the sale other than the significant reduction of debt owed by the partnership (to the ANZ Bank and to Mr Senes). Mr Senes offers no explanation as to why he or Landmark was willing to increase the sale figure and give any benefit to Mr Jacques after the call options had been signed and Mr Jacques did not give any coherent explanation of the basis on which he thought he was being offered benefits above those that a sale price of $2.147 M to Landmark would yield: see T114. 44One explanation of what occurred is that Mr Jacques, or at least Mr Jacques' solicitor, had learnt or been told the truth about Landmark and appreciated that the Landmark purchase was compromised by Mr Senes' close financial interest in Landmark and that Mr Senes appreciated the significance of that interest. That would explain why Mr Senes was willing (and able) to promise Mr Jacques the payment of monies based on a sale price of $3.65 M (see "Offer to P Jacques" in his memorandum at p 1112 of Exhibit A4). 45However, the plaintiff does not advance the contention that, as at mid September 1996, Mr Senes, conscious of a breach of fiduciary duty, sought to extricate himself (and Landmark) from the difficulties that created and the defendants did not admit that that was the reason for Mr Senes' offer. The defendants contend that Mr Jacques knew when he was negotiating in September 1996 that Mr Senes was involved with Landmark but they do not assert that it arose because Mr Senes told Mr Kennett that he was or because Mr Kennett told Mr Jacques that that was the position. 46Although I have doubts as to Mr Jacques' reliability as a witness, those doubts do not lead me to conclude that Mr Senes' vague claim to have informed Mr Jacques should be accepted and, if that is not accepted, the contention that Mr Jacques knew at the end of August 1996 can only be based on inference from his conduct and contrary to his evidence that he did not know. Having regard to all these matters, I accept Mr Jacques' evidence that he did not know, at the time of the receipt of the Sterling letter and at the time of execution of the call options, that Mr Senes was, through a family company, a 50 per cent shareholder of Landmark or that Mr Senes was a director of Landmark. Breach of fiduciary duty 47I find that Mr Senes had decided by July or August 1996 that the property should be developed but without the involvement of Mr Jacques and that Mr Jacques could be encouraged to bring the partnership to an end with no payment to him of any profit out of the venture if he was led to believe that all that could be obtained from the sale was $2.147 M (which would see the repayment of the ANZ Bank loan and nothing more). 48I am satisfied that Mr Senes did not want to investigate the Sterling offer because he was by July 1996 already involved with Landmark and sale to Sterling would preclude Landmark's involvement in the development of the project. Whether or not Mr Senes said to Mr Jacques that they were "in too deep with Rod and Paul" (meaning Messrs Hills and Kelly), as Mr Jacques contends, or whether Mr Senes said to Mr Jacques that the partnership had obligations to Rod and Paul (as Mr Senes contends: see par 31 of Mr Senes' affidavit), I am satisfied that Mr Senes did not give any consideration to whether the partnership had any legal obligation to Realty because he had or was about to take up a shareholder interest in Landmark with Messrs Hills and Kelly. I find on the balance of probabilities that the purported variation of the Realty Agreement and the call options were part of the process of cementing the relationship between Messrs Senes, Kelly and Hills through Landmark. 49I am satisfied that Mr Senes' rejection of the Sterling offer was based on his interest in Landmark and not on a proper consideration that the Sterling offer was inadequate, impractical or incapable of being brought to fruition. What Mr Senes did in August 1996 was obtain for himself a benefit out of the sale of partnership assets at a low price which was not disclosed to Mr Jacques at that time and involved him in a significant breach of his duty to Mr Jacques as a partner. 50There was no dispute that the partnership gave rise to a fiduciary duty owed by each partner to the others: see Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 at 407 per Dixon J. 51The first duty of a fiduciary is one of loyalty (Pilmer v The Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31) and a fiduciary has a duty to fully disclose matters relevant to the transaction at hand of which he is aware: see McKenzie v McDonald [1927] VLR 134 and Everingham v Everingham (1911) 12 SR (NSW) 5 and see Boardman v Phipps [1967] 2 AC 46 at 105 and Shears v Chisholm [1994] 2 VR 535 and R P Meagher, J D Heydon & M J Leeming, Meagher, Gummow and Lehane's equity: doctrines and remedies, 4th ed (2002), LexisNexis Butterworths at [509] and [521]. 52A partner cannot have a personal interest which is inconsistent with the interests of his partners (see Chan v Zacharia (1984) 154 CLR 178 at 198 - 199) unless there is consent to the conflicting interest with full information concerning that other interest. In my view, given that Mr Senes had taken a 50 per cent interest in Landmark, the situation was one in which independent advice would have been a necessary precondition to excusing the breach: see Maguire & Tansey v Makaronis (1997) 188 CLR 449 at 466 - 467. Damages 53There was no dispute between counsel on the principles applicable to damages where there had been a breach of fiduciary duty and the need for a causal connection to be established between the breach and loss: see Thomas v SMP (International) Pty Ltd (No 4) [2010] NSWSC 984 at [72] - [73], although Mr Lloyd also relied on [74] - [75], dealing with dishonesty, which the defendants did not concede was applicable. 54Mr Jacques was sufficiently concerned about the absence of a prospect of sale at a profit to the partnership that he contacted Mr Caputo to see if he could ascertain if developers would be interested and did obtain an offer from Sterling. He immediately passed on the Sterling offer to Mr Senes. Even on Mr Senes' version, he told Mr Jacques that the offer did not "stack up" and that in effect the partnership had a commitment to Messrs Hills and Kelly. Mr Jacques did not pursue the offer with Sterling after Mr Senes indicated that the partnership ought not pursue it and it is not necessary to resolve whether this occurred after Messrs Senes and Jacques had met with Sterling, as Mr Jacques asserts and Mr Senes denies. I am persuaded that the Sterling offer was not pursued in August 1996 because of the failure of Mr Senes to highlight the facts that put him in conflict with his role as a partner of Mr Jacques. 55I have referred to the need for Mr Jacques to obtain independent legal advice concerning the conflict of interest which existed. Mr Jacques did obtain independent legal advice, and with the benefit of that legal advice he negotiated a significantly improved result in comparison to what Mr Senes had in mind for him as at the end of August 1996. That significantly improved result was achieved as a result of negotiations commencing in mid September 1996 and concluding in late October 1996 and it led to the setting aside of the call options previously granted to Landmark. The difficult question is whether, on the evidence and in the absence of focused submissions on this point, I can conclude that the advice which Mr Kennett provided was advice on the conflict of interest or something different. Mr Jacques said that he did not think he told Mr Kennett about the Sterling offer: see T123.50, T124.17 - 22. Although I find that somewhat surprising, there is no evidence put before the Court which establishes that he did and he was not challenged on that evidence - rather it was put to him that he did not do so because the Sterling offer was worthless: see T124.5 - 41. 56By 23 October 1996, there had already been 16 prospective units sold following a marketing campaign launched by Landmark in September 1996: see T42 and T158.24 - 34. It is possible to contemplate that Mr Jacques had been appraised of the conflict of interest of Mr Senes by 17 September 1996 and had obtained advice on the point that it might not have been too late to pursue the Sterling offer, but this issue was not explored in cross examination (see T124.1 - 2) or in submissions and I am not persuaded that Mr Jacques received advice directed to the conflict of interest as such to enable me to conclude that Mr Jacques, adequately advised, was able to pursue the Sterling offer or insist that it should be pursued or demand a public sale of the property. There is also no evidence that Messrs Jacques or Kennett were made aware that there was no legal basis for the claims of Realty which claims were incorporated in the calculations provided by Mr Senes. If the antidote in the form of independent legal advice based on knowledge of all relevant facts is not proven to have occurred at a time when the Sterling offer could still be pursued, the causative effect of the breach of fiduciary duty remains potent. The onus of establishing fully informed consent lies on the fiduciary: see Maguire & Tansey v Makaronis at 466. It is very surprising that the agreement between the parties (that is, the November Agreement) did not contain a provision excluding the prospect of further action, but it did not and there was no defence based on the settlement or the passage of time. 57The plaintiff's case on damages was advanced primarily on the basis that the Court should accept that the Sterling offer was a reasonable, realistic offer that was open for acceptance, albeit with some negotiation likely and with conditions that needed to be fulfilled but which would very likely have been fulfilled. So, for example, the geotechnical report would have been obtained and it would not have been likely to dissuade Sterling because a geotechnical report was obtained by Landmark and it did not deter Landmark from proceeding. It was contended that the eight units offered should be treated as yielding $3.2 M, since that was the average value put on them by Sterling. Mr Lloyd accepted that the Sterling offer had to be discounted to some degree and he proposed a reduction of 20 per cent to allow for uncertainties in relation to the offer. 58An alternative approach suggested by Mr Lloyd was to adjust the figures adopted by Sterling by replacing an average selling price for the eight units offered by Sterling of $400,000 to the figure used in the valuation obtained by LandMark White in October 1996, that is, $356,000 per unit. A second variation would be to use the figure of $338,000 per unit used in a LandMark White August 1996 valuation. 59Because the offer was to provide eight units, the benefit to the partnership was not what Sterling thought the units were worth (that is, $3.2 M based on an average selling price of $400,000) but what the partnership would receive for the eight units at the completion of the project. 60In my view, the most appropriate method of assessing the loss caused by the failure to explore and potentially finalise the Sterling offer is to use the October 1996 valuation because it was based to some degree on actual sales off the plan and no evidence of the actual sale price of units was given (other than the sale price for Mr Jacques' unit). I think that the figure so derived ($2.848 M, which when added to the $1.45 M residual value for the land produces $4.298 M) would, after deduction of partnership liabilities, need to then be discounted by 35 per cent to allow for a number of uncertainties: (1)to reflect the limited uncertainty about whether agreement could be reached on the particular units and other contractual matters; (2)whether there might have been obstacles in the path of financing; and (3)general commercial uncertainties both in relation to the project and to Sterling's ability to meet its obligations. 61In relation to (3), I am not persuaded that the fact that Sterling was placed in liquidation in 2006 is of any relevance to the likelihood of its ability to finalise a deal in 1996 and complete construction and sale by 1998. Nor do I think that the defendants have established that there is any firm basis to think that Sterling or companies within the Sterling group could not have found the finance to meet their obligations if a deal had been struck. There was some evidence that the parent company of Sterling entered into much larger transactions after the date of its offer to the partnership: see Exhibit C. Another matter relevant to the likelihood of completion is that Landmark did proceed with the development. Whether Landmark itself ultimately made a profit on the project is irrelevant. Further, I think the onus of establishing that Sterling could not have met its obligations lay upon the defendants, which onus was not discharged. 62If damages are assessed by reference to the Sterling offer, the partnership would have received a net figure, after deduction of selling costs and interest for a period of 12 months on the ANZ Bank loan, of $3,873,100, from which would have had to be deducted: (1)payment of the first mortgage to ANZ Bank: $2.1 M; (2)interest on the $2.1 M for a further 6 months (in addition to the 12 months already allowed) at 10 per cent per annum: $105,000; (3)payment of the amount owing to Mr Senes, including interest at 12 per cent per annum, for 1.5 years: $472,000; and (4)council and water rates and a figure for Office of State Revenue: agreed at $7500. 63The deduction of amounts referred to in par [62] above produce a figure of $1,188,600. I would, however, reduce this figure by a further $50,000 to allow for the payment to Realty for the costs of obtaining the development consent. That net figure would need to be discounted by 35 per cent for the reasons previously indicated - producing an amount of $740,090 which when divided by 3 yields an amount of $246,697 as the figure that, allowing for uncertainties, Mr Jacques would have received. It is then necessary to deduct the $20,000 advanced and deduct the benefits he actually received, that is, gym equipment with a write down value of $32,807, a unit purchased at cost ($180,000) and sold for $310,000, and the right to use the business name for a proposed new gym that he was intending to open. The defendants put forward a figure of $20,000 to be allowed for the right to use the business name but no evidence has been led as to its worth or value. Accepting that it had some value to Mr Jacques, I ascribe a figure of $5000 to it. The final figure produced is $60,514. 64The above calculations can be summarised in tabular form as follows: Gross return to partnership $ 4,298,000 Deductions: Partnership Liabilities Selling costs $ 214,900 ANZ Bank interest (12 months at 10 per cent per annum) $ 210,000 ANZ Bank loan $ 2,100,000 Further 6 months interest on the ANZ Bank loan $ 105,000 (at 10 per cent per annum) Loan from Mr Senes $ 472,000 (includes 18 months interest at 12 per cent per annum) Payment to Realty for the development application $ 50,000 Subtotal $ 1,146,100 Discount of 35 per cent $ 744,965 Division by 3 $ 248,321 Deductions: Benefits to Mr Jacques Advance $ 20,000 Gym equipment $ 32,807 Profit from purchase and sale of unit $ 130,000 Business name $ 5000 Total $ 60,514