Jagatramka v Wollongong Coal Limited

Court of Appeal (NSW)|2020-11-25|Before: Bathurst CJ, Bell P, White JA

243 CLR 361; [2011] HCA 11 Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 Nolan v Nolan [2004] VSCA 109 R v Hillier (2007) 228 CLR 618; [2007] HCA 13 Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 Wollongong Coal Ltd v Gujarat NRE Properties Pty Ltd [2020] NSWSC 254 Texts Cited: Nil Category: Principal judgment Parties: Arun Jagatramka (First Appellant/Second Cross-Respondent) Mona Jagatramka (Second Appellant/Third Cross-Respondent) Wollongong Coal Limited (Respondent/ Cross-Appellant) Gujarat NRE Properties Pty Limited (First Cross-Respondent) Representation: Counsel:

Gillard Consulting Lawyers (Appellants/Second and Third Cross-Respondents) Thomson Geer (Respondent/Cross-Appellant) Bartier Perry (First Cross-Respondent) File Number(s): 2020/99712 Publication restriction: Nil Decision under appeal Court or tribunal: Supreme Court Jurisdiction: Equity Citation: [2020] NSWSC 254 Date of Decision: 13 March 2020 Before: Rein J File Number(s): 2014/175645

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

[This headnote is not to be read as part of the judgment] The appellants, Mr Arun Jagatramka and his wife Mrs Mona Jagatramka (Mr Jagatramka and Mrs Jagatramka, collectively the Jagatramkas) were directors of the respondent, Wollongong Coal Limited (WCL). In June 2008, at which time the company was known as Gujarat NRE Minerals Limited, the directors passed a resolution to acquire a property at Cliff Road, Wollongong NSW (the Cliff Road property), for an estimated price of $5 million (the June 2008 resolution). The resolution anticipated that WCL would incur up to $4 million in additional expenses for the development of the property. The June 2008 resolution recorded that the property was intended to be purchased for the "development of accommodation facilities for executives of NRE Groups" (the guest house purpose). At all material times, WCL was a company within the NRE Group. Pursuant to the June 2008 resolution, WCL also become the sole shareholder of Bhanu Properties Pty Ltd (Properties). As at June 2008, Properties was known as Gujarat NRE Koyala Pty Ltd and both Mr and Mrs Jagatramka sat on its board of directors. On 19 June 2008, WCL (through Properties) purchased the Cliff Road property for a purchase price of $5 million. Settlement of the sale contract occurred on 12 August 2008, following which the Jagatramkas commenced discussions with an architect concerning the design and construction of a residence on the property. On 9 January 2009, Properties entered into a client and architect agreement with a Mr Mital of Dynamic Design Solutions. It was made clear to Mr Mital that he was to consult with Mrs Jagatramka on all elements of design and fit-out. As at the time of the June 2008 resolution and the subsequent purchase of the Cliff Road property, neither Mr or Mrs Jagatramka, nor their children, had any permanent right to reside in Australia. The family was based permanently in India, with Mr Jagatramka travelling to Australia with varying frequency, between once a fortnight and once a month, on which occasions he would stay in Australia for a period of between three and ten days. Mrs Jagatramka was said to have accompanied her husband on every second or third trip. During these visits, the Jagatramkas stayed in a unit on Bank Street, Wollongong (the Bank Street unit) owned by WCL. On 27 July 2011, the remuneration committee of WCL passed a resolution which appointed Mr Jagatramka as the company's Executive Chairman for a term of four years. The associated remuneration package provided for an annual cash salary of $1 million plus superannuation and, amongst other things, the supply of suitable accommodation in Wollongong. An executive services agreement (ESA) was executed to formalise the terms of Mr Jagatramka's appointment. Clause 6.5(a) of the ESA provided as follows: "The Company will provide a fully-furnished residential property of an appropriate standard to the Executive and his family members during the currency of the Term. The Company will pay entire cost including fringe benefit tax to provide and maintain such property". On 6 September 2011, Mr Jagatramka obtained a "457 visa", which allowed him, Mrs Jagatramka and their children to reside in Australia for a period of up to four years until 5 September 2015. The visa was sponsored by WCL and was contingent upon Mr Jagatramka remaining under the employ of WCL for its duration. Within one month, in or about October 2011, the construction of the new property at Cliff Road was completed, following which a house-warming party was held at the property on or about 10 October 2011. From the date of the house-warming party, the Jagatramkas and their children lived at the Cliff Road property and occupied it until April 2015, despite the sale of WCL's shares in Properties (and therefore its indirect interest in the Cliff Road property) in June 2013, in response to WCL experiencing a significant cash flow crisis. By way of a Share Sale Deed executed with Happy Mining Pty Ltd on 18 June 2013, WCL sold its entire shareholding in Properties at a total price of $3.75 million (being the value of the Cliff Road property as at 14 May 2013). WCL received the proceeds of the sale on 4 July 2013. The Bank Street unit was also sold at the same time. The sale of Properties did not alleviate WCL's cash flow issues, and the company's shares were eventually placed with Jindal Steel & Power (Mauritius) Limited (Jindal), following which Mr Jagatramka resigned from his role as Executive Chairman on 26 October 2013. Mr Jagatramka resigned as a director of WCL on 14 February 2014. Within a fortnight of his resignation, on 27 February 2014, the three remaining directors of WCL (Mr Jasbir Singh, Mr Maurice Anghie and Dr Andrew Firek) signed a resolution (the 2014 resolution) approving the company's commencement of proceedings against the Jagatramkas in relation to WCL's dealings in the Cliff Road property. It was contended by WCL that in voting on the June 2008 resolution, notwithstanding the guest house purpose, the Jagatramkas in fact held the undisclosed intention to reside at the Cliff Road property "exclusively, continuously and indefinitely" and at no cost to themselves (the exclusive residence intention), and as such had improperly used their position as directors to obtain a benefit for themselves. By failing to declare this conflict, the Jagatramkas were said to have breached their fiduciary duties to the company. At first instance, the material fact in issue was "the real intention of [the Jagatramkas] in promoting, and voting in favour of, the June 2008 resolution to purchase the Cliff Road property". Neither Mr or Mrs Jagatramka gave evidence at trial, nor did they call any witnesses. WCL called only one witness, Mr Sanjay Sharma (Mr Sharma), who was a director of WCL and its Company Secretary at all material times. The primary judge found that the Jagatramkas held the exclusive residence intention at the time of the June 2008 resolution. This finding was made by a process of inferential reasoning based on circumstantial evidence, which was informed by a series of 16 "links in the chain". Having concluded that the relevant tests of causation and remoteness were made out, the primary judge held that by holding the exclusive residence intention as at the time of the June 2008 resolution, the Jagatramkas were in breach of their fiduciary duties to WCL. They were ordered to pay $12,081,742.99 in equitable compensation to WCL. The Jagatramkas filed an appeal against this decision. WCL also cross-appealed against the dismissal of its claim against Properties for knowing receipt. The principal issue on appeal was whether the Jagatramkas in fact held the exclusive residence intention as at the time of the June 2008 resolution. The Court held (Bathurst CJ, Bell P and White JA), allowing the appeal and dismissing the cross-appeal:

The evidence before the primary judge did not establish on the balance of probabilities that, at the time of the June 2008 resolution, the Jagatramkas had the undisclosed intention of residing at the Cliff Road property on an exclusive, indefinite and continuous basis: a. most of the "links in the chain" identified by the primary judge were equivocal. Others in fact pointed against the exclusive residence intention: [87]; b. there was no evidence that as at June 2008, the Jagatramkas intended to reside in Australia on an exclusive, indefinite and continuous basis: [87]; c. the Jagatramkas did not commence their residence at the Cliff Road property until they had obtained a visa to reside in Australia temporarily following the execution of the ESA: [87]; d. that the Jagatramkas failed to give evidence, which enabled the drawing of a Jones v Dunkel inference, did not remedy the absence of any evidence that the Jagatramkas intended to reside in Australia on an exclusive, indefinite and continuous basis at the time of the June 2008 resolution: [88].
In cases involving competing hypotheses based on inferential reasoning from circumstantial evidence, neither of which depended on the credit of any witnesses, the duty of an appellate court is to weigh the conflicting evidence and draw its own inferences and conclusions in order to decide for itself which of the competing hypotheses was the more probable: [85]-[86]. Lee v Lee (2019) 266 CLR 129; [2019] HCA 28, applied.
As WCL failed in respect of its claim for breach of fiduciary duty against the Jagatramkas, it followed that the cross-appeal so far as it related to Properties must fail: [92].
Observations by the Court regarding the process of inferential reasoning in cases turning upon circumstantial evidence: a. although such reasoning is permissible, it is insufficient that the "links in the chain" relied upon, considered as a whole, lend support to the ultimate conclusion sought to be reached. Rather, it is necessary to find that the circumstances as proved made it reasonable to reach that conclusion on the balance of probabilities: [44]-[45]; b. if the "links in the chain" said to support a finding of fact give rise to an inference of equal probability to the contrary, then that finding cannot be made: [46]; c. it is critically important in a circumstantial case that the whole of the evidence is considered and weighed in determining whether there is an inference consistent with the case being dismissed on the balance of probabilities. That does not mean that the strength of the individual pieces of evidence said to make up the links should not be scrutinised: [48]; and d. the rule in Jones v Dunkel does not permit an inference that certain evidence not called by a party would have been adverse to that party, nor does it operate to fill gaps in the evidence. Instead, it permits an inference that such evidence would not have assisted the party: [49], [88]. Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125; Nolan v Nolan [2004] VSCA 109; Hyland v Hyland (1971) 18 FLR 461; Carapark Holdings Ltd v Commissioner of Taxation (Cth) (1967) 115 CLR 653; [1967] HCA 5; Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1; R v Hillier (2007) 228 CLR 618; [2007] HCA 13; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11; Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8; Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17, referred to.

Judgment

THE COURT: In June 2008, the following circular resolution (the June 2008 resolution) was passed by the directors of a company then called Gujarat NRE Minerals Ltd, and now known as Wollongong Coal Limited (WCL): "By this circular resolution, we the undersigned, being all of the Directors of Gujarat NRE Minerals Ltd (The Company), hereby resolve that in accordance with the provisions of Section 248A of the Corporations Act 2001: A. That the Company is hereby authorized to purchase entire shareholding, being 10,000 fully paid ordinary shares, of Gujarat NRE Koyala Pty Ltd from NRE Resources Pty Ltd for a total consideration of Aus $10,000 ($1.00 per share). B. That Mr. Sanjay Sharma be and is hereby authorized to do all such acts, deeds and things that may be deemed necessary, incidental and ancillary towards attainment of the aforesaid resolutions. Note: Board was informed that the Company has been offered with a rare opportunity to acquire a property at … Cliff Road, Wollongong, NSW 2500. It is one of the most exclusive addresses in Wollongong and perfectly suitable for a development of accommodation facilities for executives of NRE Groups. The cost of acquisition of property was estimated around $5,000,000 plus taxes and stamp duties. It was further anticipated that Company may incur additional $3,000,000 to $4,000,000 for the development of aforesaid accommodation facilities. The Board agreed that the above mentioned property would be most suitable for proposed development and for strategic reasons suggested to acquire the offered property in one of its wholly owned subsidiaries. It was brought into Board's knowledge that the Company may acquire Gujarat NRE Koyala Pty Ltd, which is a dormant company at present, from NRE Resources Pty Ltd for the purpose of acquiring and developing the above-mentioned property and accommodation facilities. The Board agreed and approved on same."
Two of the four directors of the company were Mr Arun Jagatramka and his wife, Mrs Mona Jagatramka (Mr Jagatramka and Mrs Jagatramka, or collectively the Jagatramkas). They are the appellants in these proceedings. They appeal against the primary judge's decision to enter judgment in favour of WCL against them in an amount exceeding $12 million as at June 2019 (including interest) in respect of their support of this resolution (the primary judgment, Wollongong Coal Ltd v Gujarat NRE Properties Pty Ltd [2020] NSWSC 254). The primary judge held at [116] that by voting on the resolution and advancing a particular purpose for it when they in fact held a different and undisclosed intention as to the use to be made of the Cliff Road property, the subject of the resolution, the Jagatramkas had improperly used their position to gain a benefit for themselves, which they did not declare in breach of their fiduciary duties to WCL, including the duty to avoid a conflict of interest and the duty to act in good faith, in the interests of WCL and for a proper purpose.
At [66] of his Honour's decision, the primary judge identified as the "key question" in the case the question as to "what was the real intention of Mr Jagatramka as at June 2008 in promoting, and Mr and Mrs Jagatramka voting in favour of, the June 2008 resolution to purchase the Cliff Road property". The primary judge summarised WCL's contention as being that their purpose was "to have constructed an opulent house in which they would reside exclusively, continuously and indefinitely at no cost to themselves." This description was a compressed reference to the pleaded case, which was that: "At the time of the [June 2008] resolution … both Arun Jagatramka and Mona Jagatramka intended that they, and/or their children, would reside at the Property on an exclusive, indefinite and continuous basis, and intended to cause Wollongong Coal or Gujarat Properties to allow them to reside at the Property."
In his Honour's reasons, the primary judge used the shorthand label "the exclusive residence intention", but that was simply a convenient label; the case put and pleaded was that, as at June 2008, the Jagatramkas' purpose was to have constructed an opulent house in which they would reside "exclusively, continuously and indefinitely" at no cost to themselves.
The Jagatramkas denied having the exclusive residence intention as at June 2008 and, in their defence, contended that it was intended that the Cliff Road property would be a guest house for visiting executives of the Gujarat Group and guests of WCL, consistent with the terms of the resolution. The primary judge referred to this as the "guest house purpose".
A second, complementary purpose for the purchase of the Cliff Road property was advanced by the Jagatramkas, namely, to make a statement to the people of Wollongong that WCL was committed to Wollongong for the long term. The primary judge referred to this as "the public relations purpose".
The major issue both at trial and on appeal was whether or not the Jagatramkas in fact had the exclusive residence intention as at June 2008. Because of the nature of the breaches alleged, it was accepted that the Briginshaw standard applied: see the primary judgment at [69]. His Honour referred to the principle in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 ("Briginshaw") as being that the court should only make a finding of wrongdoing if satisfied to a standard that recognises the seriousness of what is alleged, and noted that this was reflected in s 140(2) of the Evidence Act 1995 (NSW). It is desirable at this point to set out the key passage from the judgment of Sir Owen Dixon in Briginshaw at 361-362, which is said to reflect the principle derived from that case: "Except upon criminal issues to be proved by the prosecution, it is enough that the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue in on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency."

Some key chronological matters

As at June 2008, Mr Jagatramka held the position of non-executive Chairman of WCL, which he had held since the company's incorporation in October 2004. Mrs Jagatramka was appointed a non-executive director of WCL on 12 July 2007.
WCL was only one of a number of companies in the Gurjarat Group of companies, of which Mr Jagatramka was the Chairman and Managing Director. Headquartered in Kolkata, the Gujarat Group was described as "one of the largest independent metallurgical coke producers in India", operating coke plants in the states of Gujarat and Karnataka. The principal trading entity of the Gujarat Group was Gujarat NRE Coke Limited, which was registered in India and listed on the Bombay Stock Exchange.
As at 27 June 2008, approximately 82.964% of WCL's shares were directly owned and controlled by other companies within the Gujarat Group. According to WCL's Financial Year 2008 Annual Report, Gujarat NRE Coke Limited was engaged in coal mine ownership and operation in Australia, steel manufacture in India, and wind and waste heat power generation. WCL's principal activities were the mining, production, sale and export of coal, and the development and improvement of road infrastructure to access new sources of coal.
Another key Gujarat Group entity, for the purposes of this appeal, was Bhanu Properties Pty Ltd (formerly known as and hereby referred to as Gujarat NRE Properties Pty Ltd or Properties), a shelf company which was incorporated on 17 January 2007. The whole of the issued capital, 10,000 fully paid shares of $1, was initially held by a related company, NRE Resources Pty Ltd. On 16 June 2008, the same day as the June 2008 resolution, the shares in Properties were transferred to WCL. A circular resolution by the directors of Properties of the same date authorised the registration of WCL as the holder of the shares. The directors of Properties, as at the time of the share transfer, were Mr and Mrs Jagatramka, and Mr Sanjay Sharma (Mr Sharma).
The purchase of the Cliff Road property referred to in the June 2008 resolution was not effected directly by WCL. The relevant contract for the sale of land was executed by Properties on 19 June 2008 for a purchase price of $5 million. Settlement of the sale contract occurred on 12 August 2008. On 18 July 2008, WCL received notice from the Commonwealth Government's Foreign Investment Review Board (FIRB) that Properties' proposed purchase of the Cliff Road property had been approved.
Mr and Mrs Jagatramka did not permanently reside in Wollongong as at June 2008. The evidence was that the Jagatramka family was permanently based in India, with Mr Jagatramka travelling to Australia with varying frequency, between once a fortnight and once a month. On those occasions, he would ordinarily stay in the country for a period of between three and ten days. Mrs Jagatramka was said to have accompanied Mr Jagatramka on every second or third trip, such that she was in Australia "once every two or three months on average". During their visits to Australia, the Jagatramkas stayed in a unit in Bank Street, Wollongong, described by the primary judge as a four bedroom apartment with ocean views (the Bank Street unit). That was sold by WCL in 2013, at about the same time as the sale of WCL's shares in Properties.
As at June 2008, neither Mr Jagatramka or Mrs Jagatramka, nor their children, had any permanent right to reside in Australia. Mr Jagatramka did not obtain a so-called "457 visa" (which allowed him, Mrs Jagatramka and their children to reside in Australia for a period of up to four years) until 6 September 2011. The visa was sponsored by WCL and bore the following relevant conditions, whereby Mr Jagatramka was required to:

work only for WCL;
in the occupation listed in the most recently approved visa nomination form; and
without ceasing employment for a period exceeding 28 days.

Completion of the purchase of the Cliff Road property occurred around 12 August 2008. At about that time Mrs Jagatramka and Mr Sharma, the Company Secretary of WCL, commenced discussions with a Mr Lalit Mital, an architect of Dynamic Design Solutions, concerning the design and construction of a residence on the property.
On 9 January 2009, Properties entered into a client and architect agreement with Mr Mital. It was made clear to Mr Mital that he was to consult with Mrs Jagatramka on all elements of design and fit-out.
Other key elements in the chronology that occurred in 2011 were as follows: 1. the remuneration committee of WCL passed a resolution on 27 July 2011, which appointed Mr Jagatramka as the company's Executive Chairman and approved a draft remuneration package for him. This package provided for a four-year term of appointment, an annual cash salary of $1 million plus superannuation, a performance-based bonus, the supply of suitable accommodation and vehicles to Mr Jagatramka and his family, and health and life insurance; subsequent to which 2. an executive services agreement (ESA) was executed between WCL and Mr Jagatramka on 11 September 2011, cl 6.5 of which relevantly provided that: "(a) The Company will provide a fully-furnished residential property of an appropriate standard to the Executive and his family members during the currency of the Term. The Company will pay entire cost including fringe benefit tax to provide and maintain such property"; 1. the construction of the new property at Cliff Road was completed in or about October 2011; and 2. on or about 10 October 2011 a house-warming party was held at the premises to celebrate their completion.
Because it assumed some significance in the proceedings, it should be noted that the property comprised two floors and a basement. The first floor was made up of a master bedroom with an ensuite bathroom, three other bedrooms, two with ensuite bathrooms, a home theatre, laundry and a kitchenette. The ground floor comprised of a lounge/entertainment area, a dining room, two kitchens, a bathroom (including ensuite and powder room) and a guest bedroom. The basement floor contained a rumpus room, bathroom, storeroom and garage, although a valuation report prepared at the time of its sale treated the room in the basement as an additional bedroom.
The evidence was that from the date of the house-warming party the Jagatramkas and their children lived at the property and occupied it until April 2015, despite its sale on 18 June 2013.
The financial position of WCL fluctuated significantly in the period between 2008 and 2011. Its coal production output was 507,700 tonnes in 2008, 849,000 tonnes in 2009, 1,333,000 tonnes in 2010, and 1,550,000 tonnes in 2011. In the years 2008, 2009 and 2010, WCL suffered losses of $8 million, $9.2 million and $11.7 million, whilst in 2011 it earned a net profit of $24.6 million. It remained profitable in 2012, but suffered losses in 2013 ($76.6 million) and 2014 ($91.8 million). Although the primary judge referred to the financial position of WCL in one of his findings, it was neither suggested nor found that the purchase or development of the Cliff Road property was financially improvident.

The primary judge's findings

As noted at [4] above, and as pleaded by the respondent, the improper and undisclosed purpose of Mr Jagatramka in both promoting and voting for the June 2008 resolution, and of Mrs Jagatramka in respect of her vote, was that they would "construct an opulent house in which they would reside exclusively, continuously and indefinitely at no cost to themselves" (emphasis added). This was referred to by the primary judge at [66] as "the exclusive residence intention". The Jagatramkas denied that this was their intention at the relevant time.
The exclusive residence intention was expressed as being distinct from the guest house purpose, as contended for by the Jagatramkas, whereby "it was intended that Cliff Road would be a guest house for visiting executives of companies in the Gujarat Group and guests of WCL" (see the primary judgment at [66]). In this Court, Mr Pritchard SC, who appeared with Mr Macauley for the appellants, also submitted in response to a question from the bench that the ancillary public relations purpose (see [6] above) was not inconsistent with the exclusive residence intention, and instead "makes less likely as a fact that the exclusive residence [intention] was the intention of [the appellants] in voting for [the June 2008 resolution]."
Neither of Mr and Mrs Jagatramka gave evidence at trial, nor did they call any witnesses. WCL called only one witness, Mr Sharma, who was a director of WCL and its Company Secretary at all material times. Mr Sharma affirmed two affidavits; one in support of WCL's claim and another in defence of the Jagatramkas' cross-claim for contribution. Dr Andrew Firek and Mr Maurice Anghie, both of whom were non-executive directors of WCL at all material times, each swore an affidavit in defence of the cross-claim. Mr Pritchard, who appeared with Mr Macauley for the Jagatramkas both at trial and on the appeal, cross-examined Mr Sharma and Dr Firek at length. Regrettably, Mr Anghie passed away prior to the trial and was therefore unable to be cross-examined.
Based on the body of evidence before him, the primary judge made the following findings of fact at [91], including that the Jagatramkas held the exclusive residence intention as at the time of the June 2008 resolution: "(1) The idea for the Cliff Road purchase came from Mr Jagatramka. (2) Mr Jagatramka contacted the estate agent, Mr Cicedak, who appears to have been a buyer's agent, and who located Cliff Road for Mr Jagatramka. (3) Cliff Road was proposed by Mr Jagatramka as a property to 'accommodate senior executives of Gujarat and other Indian companies within the group when they are visiting Australia.' He did not say to anyone that he intended to be one of those senior executives who would use Cliff Road. (4) At the time of proposing the idea, Mr Jagatramka and his family had been using Bank Street, a four bedroom unit with ocean views, purchased in 2005 by WCL for use as his and his family's exclusive residence when in Australia. (5) Mr Jagatramka selected Cliff Road as the property to be purchased without any valuation of the property being obtained, and no valuation was sought prior to purchase. (6) Mr Jagatramka determined that a new company should be formed to hold Cliff Road, the shares in which were to be owned by WCL and the directors of which were to be himself, his wife and Mr Sharma. No reason has been advanced for the decision to use Properties as the purchaser. The reference to 'strategic reasons' in the preamble to the resolution has not been explained. (7) Although Mr Jagatramka did say to Mr Anghie that the new property would be used as a guest house 'for executives and directors who are coming to visit Wollongong,' I do not treat the reference to 'directors' as including himself, since he said (see [49] above) that they were executives 'who we would entertain and accommodate there'. He was already using Bank Street and he did not mention the intention that he would use Cliff Road, and nothing was said to Mr Firek or Mr Anghie about selling Bank Street. (8) If Mr Sharma was told by Mr Jagatramka in 2007 that he thought that WCL should upgrade Bank Street, that is not what Mr Firek and Mr Anghie were told. There is no evidence of any discussion as to the sale of Bank Street and Bank Street was not sold when Cliff Road was completed. (9) Mr Firek and Mr Anghie believed as at June 2008 that Mr Jagatramka or WCL had purchased a residential unit in which he would reside whenever he was in Wollongong: see paragraphs 12-19 of Mr Anghie's Affidavit and paragraph 27 of Mr Firek's Affidavit, and see Mr Firek's evidence at T360.20-38 where Mr Firek said that the unit was at Bank Street and owned by WCL. (10) The only purpose of the loans by WCL to Properties was to permit Properties to purchase Cliff Road and to pay for demolition and construction costs. (11) In the preceding financial year to 31 March 2008 when WCL purchased Cliff Road it had suffered a loss of $8 million (see CB A2:368-369) and in the following year suffered a loss of $9 million: CB A3:619-620, summarised in MFI 1. WCL was intending to spend $88 million in the 2009 year on expansion of the mine (and in fact spent a total of $129.9 million in that year). (12) It was Mr and Mrs Jagatramkas' intention as at June 2008 to have WCL (through Properties) buy and build a house at Cliff Road that would be used as a residence by them and exclusively by them, and they did not intend Cliff Road to be used as accommodation for visiting dignitaries or officials from India. I explain my reasons for this conclusion below. (13) Neither Mr nor Mrs Jagatramka informed Mr Firek or Mr Anghie that it was their intention that WCL would purchase a property, on which a new house was to be built, in which they and their family would reside in Australia exclusively." (Emphasis added.)
On the basis of these factual findings, the primary judge concluded at [116] that by voting on the June 2008 resolution in advancement of the undisclosed exclusive residence intention, as opposed to the guest house purpose as disclosed, the Jagatramkas improperly used their position as directors of WCL to obtain an undeclared benefit for themselves, in breach of their fiduciary duties to the company to avoid a conflict of interest and to act in good faith in the interests of the company and for a proper purpose. His Honour also held that the facts as found gave rise to breaches of the statutory duties in ss 181(1) and 182(1) of the Corporations Act 2001 (Cth).
Having synthesised the considerable body of authority discussing the principles of causation and remoteness in the context of equitable compensation for a breach of fiduciary duty (at [134]-[159] of the primary judgment), particularly that which follows the Canadian decision in Brickenden v London Loan & Savings Co [1934] 3 DLR 465, the primary judge concluded that the Jagatramkas breach of their fiduciary duties was causative of WCL suffering a loss of $6.403 million. His Honour summarised at [161]-[163] the relevant "chain of causation" as follows: "161 The Jagatramkas did not disclose the exclusive residence intention and did not abstain from voting on account of their conflict of interest and, moreover, positively asserted the guest house purpose. The Board voted for the purchase and redevelopment of Cliff Road and the vote is impugned thereby. The Jagatramkas' failure to disclose the exclusive residence intention and their advancement of the guest house purpose brought about the advancement of funds to enable Properties to purchase and develop Cliff Road. The consequence of the purchase of Cliff Road at $5 million and the expenditure of approximately $5 million was an expenditure of approximately $10,153 million. Cliff Road was sold for $3.75 million, making for WCL a loss of $6.403 million. 162 There can only be a small number of logical possibilities as to why WCL suffered a loss of $6.403 million and they are (1) WCL paid too much for Cliff Road. (2) WCL paid too much for the construction of the new house. (3) The construction of the house was a very significant overcapitalisation of the property or was of a style and nature that was not attractive to prospective purchasers. (4) WCL received too little for Cliff Road when it sold (i.e. when the shares in Properties were sold). (5) The Wollongong property market suffered a significant decline between 2008 and 2013. (6) All, or a combination, of the above. 163 … The individual items of expenditure were not the subject of attention by the Board of WCL or even approval, it seems, but the Jagatramkas were directly responsible for the design and fit out and the transfer of monies from WCL to Properties … WCL is not obliged to demonstrate why WCL incurred a loss of $6.403 million but, rather, that it did in fact incur a loss as a result of the entry by WCL into the purchase and development of Cliff Road. There would have been no loss had WCL not purchased Cliff Road: see O'Halloran [v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262] at 276-277 … Even under the common law concept of causation, the fact that other causes may have contributed to the loss or damage does not preclude a finding of a causal connection between the breach and the loss: Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [97]." (Emphasis added.)
Following the application of interest to the loss suffered, the Jagatramkas were ordered to pay $12,081,742.99 in equitable compensation to WCL. It is from this decision that the Jagatramkas appeal.

Grounds of appeal

By a Notice of Appeal filed in this Court, the Jagatramkas raised 12 distinct grounds of appeal against the decision of the primary judge. These grounds can be separated broadly into one of two categories: first, challenges to the primary judge's findings of fact on the evidence before him; and secondly, challenges to the primary judge's application of his findings of fact to the questions of liability and causation as a matter of law.
The following grounds of appeal fell into the first category, as expressed in the Notice of Appeal: "1 The learned trial judge erred (J [91]-[92], [94]-[95], [97], [121]) in: (a) holding that, in voting in June 2008 for the respondent to fund the acquisition and redevelopment of the Cliff Road Property, the appellants' undisclosed intention was to cause the respondent to build for them a house at which they would reside (when renovated), along with their children, rent-free on an exclusive, continuous and indefinite basis, contrary to the intended purpose that the property be used as a guesthouse for visiting corporate executives (the Improper Motive); and (b) failing to hold that the appellants' intention, in June 2008, was merely to stay at the Cliff Road Property, from time-to-time, when they were in Australia, which intention was disclosed to, or known by, the respondent. 2 The learned trial judge erred (J [33], [88]) in holding that the second appellant had no qualifications pertinent to the redevelopment of the Cliff Road Property in circumstances where the evidence before the learned trial judge was that she was the most qualified person within the respondent (and the larger corporate group) to oversee the redevelopment of the Cliff Road Property. 3 The learned trial judge erred (J [63], [91(9)]) in holding that, as at June 2008, Dr Firek was unaware that the first appellant intended to stay (when it was redeveloped) at the Cliff Road Property at all in circumstances where Dr Firek's pleaded defence on the Cross Claim, as well as evidence in cross-examination, was that the first appellant had represented to him in June 2008 that he intended to stay at the Cliff Road Property from time to time when visiting Australia for work associated with the respondent. 4 The learned trial judge erred (J [87]) in holding that it was to introduce a false comparison to compare the appellants having: (a) an intention, in June 2008, to stay at the Cliff Road Property, from time-to-time, when they were in Australia; and (b) the Improper Motive, in circumstances where the former intention had been disclosed to, or was known by, the other directors and officers of the respondent, and its existence (about which the respondent did not complain) negated the probative value of the evidence led to support the Improper Motive. 5 The learned trial judge erred in holding that the Improper Motive was the primary or dominant purpose behind, and causative of, the decision to fund the acquisition and redevelopment of the Cliff Road Property: J [113], [115]. … 12 The learned trial judge erred in holding that the first appellant had any relevant connection with either Happy Mining Pty Ltd or Basant International Pty Ltd (or its shareholder), as the evidence did not disclose any material connection or one that was required to be disclosed to the respondent: J [95], [122]-[123]."
The latter category was comprised of the following grounds of appeal: "6 The learned trial judge erred in holding that, in voting in June 2008 for the respondent to fund the acquisition and redevelopment of the Cliff Road Property, the appellants acted under a conflict of interest, and improperly used their positions to gain a benefit for themselves, in breach of their fiduciary duties to the respondent and those duties arising under ss 181 and 182 of the Corporations Act 2001 (Cth): J [116]. 7 The learned trial judge erred in law in holding that the decision in Brickenden v London Loan & Savings Co [1934] 3 DLR 465 precluded the court from considering the counterfactual of whether, had the appellants disclosed to the other directors of the respondent the Improper Motive, the respondent would nevertheless have proceeded to fund the acquisition and redevelopment of the Cliff Road Property: J [159]-[160]. 8 The learned trial judge erred in law in holding that the appellants bore the onus of demonstrating that, if they had disclosed to the other directors of the respondent the Improper Motive, the respondent would nevertheless have still proceeded to fund the acquisition and redevelopment of the Cliff Road Property (the Onus), as the Onus was always on the respondent to prove that any breach of duty caused the loss of $6.403m complained about: J [166]-[168]. 9 The learned trial judge erred in holding that, if the appellants rightly bore the Onus, they had not discharged it on the evidence: J [174]. 10 The learned trial judge erred (J [65], [171]-[173]) in giving "substantial weight" to, and accepting, the evidence of Mr Maurice Anghie that he would not have voted in June 2008 in favour of the proposal to fund the acquisition and re-development of the Cliff Road Property had he been aware of the Improper Motive, in circumstances where: (a) Mr Anghie was unavailable for cross-examination due to his death; and (b) the objective contemporaneous evidence, and the evidence ultimately of Dr Firek, contradicted Mr Anghie's affidavit evidence on this point, and, as such, the learned trial judge should have held that Mr Anghie still would have voted in June 2008 in favour of the acquisition of the Cliff Road Property had he been aware (if it were the case) of the existence of the Improper Motive. 11 The learned trial judge erred in holding that any breaches of duty by the appellants caused the respondent the loss of $6.403m complained about: J [165]."
For the purposes of the appeal to this Court, the second category necessarily falls to be considered only in the event that the primary judge did not err in his findings of fact. Consequently, Mr Pritchard went to considerable length in drawing the Court's attention to the factual bases of the primary judge's finding that the Jagatramkas held the exclusive residence intention. On the appellants' submission, the respondent's case at first instance was "an inferential case. There's no admissions. There's nothing said by way of admissions by my clients about this improper purpose … you look at the facts and there's obviously no Fox v Percy problem. There is Jones v Dunkel, which I'll deal with, but his Honour has just inferred too much out of the facts. That's to deal with the improper purpose issue." This is formally raised in grounds 1, 3, 4 and 5 of the Notice of Appeal.

Ground 1 - "links in the chain"

The primary judge reached his conclusion as to the Jagatramkas' exclusive residence intention by a process of inferential reasoning based on circumstantial evidence. No documents evidenced that, as at June 2008, the Jagatramkas held the intention the primary judge ultimately attributed to them and no admissions were made by them, either on the pleadings or otherwise (given that neither gave evidence to found a conclusion that the intention was as alleged). The primary judge was, in those circumstances, constrained to fall back on reasoning from events almost entirely post-dating the resolution.
The primary judge set out what he described as the "links in the chain" of his reasoning process at [94] as follows: "(1) The fact that it was Mr Jagatramka who first promoted the idea of purchasing a grand property and then selected Cliff Road without obtaining a valuation. (2) Mr and Mrs Jagatramka, together with Mr Sharma, were appointed as directors of Properties, a company created at the time of the purchase of Cliff Road and solely for that purpose. Its only asset between 2008 and 2013 was Cliff Road. (3) The instructions concerning the house were given by the Jagatramkas to the architect at a very early stage: see paragraphs 82 and 110 of Mr Sharma's first Affidavit. (4) There is no evidence that Mr and Mrs Jagatramka ever indicated that the style, design or fit out of Cliff Road needed to change because of Mr Jagatramka's entry into the ESA, i.e. to reflect that it should be changed in style from a guest house to a house suitable for the Jagatramkas to reside in. There is no evidence that the design of the house changed prior to or during construction. (5) Mr Jagatramka had the sole use of Bank Street at the time he proposed that WCL should buy a property - which he described to Mr Sharma in terms of an "upgrade": see T144.43 and Mr Sharma's second Affidavit at paragraphs 17 and 18. (6) There are features of Cliff Road's design and emphasis that are inconsistent with a corporate guest house, such as: (a) A 'master bedroom with ensuite' and three smaller bedrooms. (b) A rumpus room. (c) An elaborately fitted out home entertainment room. (d) Two kitchens - one being described as a corporate kitchen on the ground floor. (e) The reference by Mrs Jagatramka to 'Kavita's room', (Kavita being the Jagatramkas' daughter): see Mr Sharma's first Affidavit at paragraph 121. (f) The emphasis on Mr and Mrs Jagatramka's personal tastes and needs: for example, expensive statues of birds with focus lights, marble and faucets that had to be imported from India. (g) The fact that one of the rooms (on the ground floor) was described as a 'guest bedroom': CB A4:922. (h) The expenditure of in excess of $100,000 on entertainment equipment: see CB A4:953-955, 960, 962 and 965. (i) A car turntable. (7) Mrs Jagatramka in August 2008 referred to the need for a 'guest bed room': see Mr Sharma's first Affidavit, paragraph 111. I accept WCL's submission that a requirement for a 'guest bedroom' is consistent with a residential home not a guest house. (8) The choice of an architect of Indian background who Mrs Jagatramka thought would 'be better to understand "our taste" and "Vastu" requirements for the house': see Mr Sharma's first Affidavit at paragraphs 110-111. 'Vastu' apparently refers to an Indian system of design and layout. (9) The instruction that Mrs Jagatramka (who lived in India until late 2011) was to be consulted on all elements of design and fit out, and have the final say (CB A3:882, 895), including on the colour scheme: CB A3:883, 897-898, 901. It is not surprising that Mr Mital saw Mr and Mrs Jagatramka as the client and that Mrs Jagatramka saw herself as the client (see CB A3:721, A4:937-938, 941, 947 and A5:1379-1381), although the contract was with Properties. (10) The extensive involvement of Mrs Jagatramka in the design and fit out, and the reference by Mrs Jagatramka to her house in Ahmedabad as a guide for the architect: see CB A2:494. Her concern over details (such as balcony pillars and focus lights) bespeaks a connection with the property that is not consistent with the guest house concept. (11) There is no evidence that the architect was ever told that Cliff Road was to be used as a guest house and should be designed with that purpose in mind. The project was described as a 'residence' by Mr Jagatramka on behalf of Properties (CB A3:852), and the architect understood that he was involved in designing a 'home' (see CB A3:721) and referred to 'your prestigious house project' in a letter to the Jagatramkas (see CB A4:949). (12) Mr Jagatramka's instructions to Mr Sharma some time after June 2008 but before the house was finished and the ESA was entered into. Mr Jagatramka said to Mr Sharma: 'The first floor of the building must be able to be locked so that it can't be accessed while we are away. We need two kitchens. A corporate kitchen on the ground floor and a domestic kitchen on the first floor.' (13) The fact that after Mr and Mrs Jagatramka ceased to be directors of WCL they continued to reside in Cliff Road albeit under a lease entered into between Properties and NRE. Their son continued to live at Cliff Road for the course of his university studies in Wollongong at least until April 2015: T254.10. (14) The fact that when the Jagatramkas moved into Cliff Road there was no proposal or suggestion from them that WCL obtain a new property to use as a guest house for visiting officers and dignitaries and no later use by such persons of Bank Street or Cliff Road. The evidence is that no official or visiting dignitaries ever stayed at Bank Street or Cliff Road after the new house was constructed. (15) The fact that the ESA refers to accommodation of an 'appropriate standard' but does not identify Cliff Road, notwithstanding that it must have been clear by the date of the ESA that that is where Mr and Mrs Jagatramka intended to reside. (16) The fact that the Jagatramkas occupied Cliff Road from October 2011 on an exclusive, continuous basis."
As a matter of principle, such reasoning is, of course, permissible and the primary judge referred in this regard (at [92] and [93]) to the authorities of Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at 128-129; Nolan v Nolan [2004] VSCA 109 at [120]; Hyland v Hyland (1971) 18 FLR 461 at 467 (NSWCA); and Carapark Holdings Ltd v Commissioner of Taxation (Cth) (1967) 115 CLR 653; [1967] HCA 5 at 660-661. However, there are a number of matters which must be borne in mind.
First, although it was permissible to adopt this approach, it is not enough that the links considered as a whole lend support to the ultimate conclusion sought to be reached, but rather it is necessary to find that the circumstances proved made it reasonable to reach that conclusion on the balance of probabilities. The principle was stated by the High Court in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5: "Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence while the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort where direct proof is not available it is enough in [sic, if] the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture (see per Lord Robson, Richard Evans & Co Ltd v Astley [1911] AC 674 at 687). But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then though the conclusion may fall short of certainty it is not to be regarded as a mere conjecture or surmise …"
This is of particular importance in this case where what is sought to be established is that at the time the Jagatramkas propounded the June 2008 resolution, their undisclosed intention was that they and their children would reside at the Cliff Road property on an exclusive, indefinite and continuous basis. Thus, if the evidence said to support the holding of that intention gave rise to an inference of equal probability that the Jagatramkas' intention was that they, along with other visiting executives, would make use of the property from time to time, WCL's case would not be made out.
Second, it is critical to remember that what is in issue was Mr and Mrs Jagatramka's intention in June 2008, not subsequently and, in particular, not at the time the ESA was entered into. Although the primary judge was correct that he was entitled to have regard to matters occurring after the June 2008 resolution, in doing so, particular care must be taken to have regard to the circumstances in which those matters arose.
The third matter is this. Although we have dealt with a number of the so-called links individually, ultimately it is necessary to look at the whole of the evidence to ascertain whether or not it establishes on the balance of probabilities that the case was made out. As was stated by the plurality in R v Hillier (2007) 228 CLR 618; [2007] HCA 13 at [46], it is critically important in a circumstantial case that all the circumstances are to be considered and weighed in determining whether there is an inference consistent with innocence reasonably open. Although this was a criminal case, in a civil case the need to weigh all the evidence to establish proof to the civil standard is equally important. That does not mean that the strength of the individual pieces of evidence said to make up the links should not be scrutinised.
The fourth matter is the significance of the fact that the Jagatramkas did not give evidence. The primary judge at [79] described this as a matter of "critical significance". It is important to bear in the mind the use that can be made of the failure to call a witness, including a party witness who appeared to be in a position to cast light on whether or not an inference should be drawn. As was pointed out succinctly by the plurality in Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [64], the rule in Jones v Dunkel permits an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party. The failure cannot fill gaps in the evidence, as distinct from enabling an available inference to be drawn more comfortably. See also Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [165]-[167], [232].
Fifth, it did not appear to be in dispute that one of the purposes of the purchase of the property as communicated by Mr Jagatramka to his fellow directors was that it would build confidence in the company's presence in Wollongong, similar to its basketball and cricket team sponsorships. This was described by the primary judge at [66] as "the public relations purpose". Ultimately, we are of the view that this did not play a significant role in the resolution of these proceedings.
Finally, it should be noted at the outset that the conclusion of the primary judge, whilst relying on circumstantial evidence, was also based at least in part on his conclusion that as Mr Jagatramka had exclusive use of the Bank Street unit, the reference in the June 2008 resolution to "accommodation facilities for executives of the NRE Group" did not extend to him even though he was the Chief Executive Officer and the most frequent visitor.
A very significant number of the so called "links in the chain" of reasoning are, in our opinion, completely equivocal. Moreover, the vast bulk of the references are to events well postdating June 2008 at which point in time Mr and Mrs Jagatramka had a permanent residence in India. There was nothing in the evidence to suggest that, as at June 2008, they intended that they would move to permanently reside in Wollongong and exclusively, continuously and indefinitely occupy the Cliff Road property. We have dealt with links (12) and (5) first as it seems to have been submitted that these were the strongest "links in the chain".

Link (12) - Restriction of access to the first floor

It was argued by Mr Coleman SC, who appeared with Mr Riordan for WCL both at trial and on the appeal, that [94(12)] of the primary judgment disclosed "one of the stronger links" in the chain as to the exclusive residence intention, particularly in respect of the pleaded exclusivity of the Jagatramkas' residence at the Cliff Road property. The argued strength of this "link" warrants its reproduction in full below: "Mr Jagatramka's instructions to Mr Sharma some time after June 2008 but before the house was finished and the ESA was entered into. Mr Jagatramka said to Mr Sharma: 'The first floor of the building must be able to be locked so that it can't be accessed while we are away. We need two kitchens. A corporate kitchen on the ground floor and a domestic kitchen on the first floor.'"
Mr Pritchard submitted in reply that taken at its highest, this statement failed to support a finding that the Jagatramkas intended to reside exclusively at the property, as only one floor out of three was to be locked. In essence, this was not a request that the entire property be locked and vacated when the Jagatramkas were away. We accept that the strength of this "link" was lacking for a number of reasons which, taken together, highlight its equivocality in support of the exclusive residence intention.
First, to the extent that the primary judge purported to quote from evidence at [94(12)], the quotation is not accurate. The evidence given by Mr Sharma regarding this "link" did not form part of either of his two affidavits. To the extent that such words appear in the evidence, they are contained in the following passage from Mr Sharma's evidence-in-chief: "COLEMAN: Did you have any conversations with Mr Jagatramka about any particular feature of the house? SHARMA: Yes, we did discuss a few features of the house, the number of rooms and basically the kitchen on the first floor which was [a] domestic kitchen, and the kitchen downstairs would be a corporate kitchen, and also we spoke about the first floor, locking the first floor when - basically I understood from those conversation[s]-- … COLEMAN: What did he say to you about that? SHARMA: He said that basically the first floor should have a locking system so when he's away the floor can be locked in."
Secondly, it was not clear at what point in time after June 2008 the statement was made; whether it was shortly after the June 2008 resolution, at some time in 2011 when the property was nearing completion, or at some point during the intervening period. Irrespective of whether the conversation occurred in June 2008 or October 2011, a significant period of time had elapsed before Mr Sharma gave his evidence-in-chief in November 2019, being either eight or 11 years.
Thirdly, even taken at its highest, the evidence was double-edged: accepting that the statement was made by Mr Jagatramka to Mr Sharma on an unspecified date after June 2008 and before or during October 2011, it was confined to the locking off of the first floor of the residence, which carried the implication that the ground and basement floors would remain available for use by others when Mr Jagatramka and his family were not in Wollongong.
As we have pointed out, the ground floor was comprised of a lounge/entertainment area, a dining room, two kitchens, a bathroom (including ensuite and powder room) and a guest bedroom. The basement floor contained a rumpus room, bathroom, store room and garage. The valuation report prepared by Opteon appears to have treated a room in the basement as an additional bedroom, notwithstanding its earlier description in the architectural floorplan as a "rumpus room".
In view of these three factors, the "link" between [94(12)] and the finding that Mr and Mrs Jagatramka intended to establish an "exclusive" residence at the Cliff Road property is at best equivocal, and we accept that it is not strong. To the contrary, it provides the basis for an inference that Mr and Mrs Jagatramka intended that the ground and basement levels of the property would be available for visiting executives. This is inconsistent with the pleaded intention.

Link (5) - Did the June 2008 resolution apply to the appellants?

Mr Jagatramka's role with WCL changed significantly in 2011 from being the non-executive Chairman of the company who visited Wollongong on a regular but far from permanent basis, to 2011 when he became Executive Chairman and was granted a salary together with other emoluments, including a suitable residence.
The primary judge (at [91(7)]) found that, to the extent that the June 2008 resolution gave effect to the guest house purpose, such purpose did not apply to the Jagatramkas as directors of WCL. In reaching this conclusion, his Honour focussed on the following conversation contained in the affidavit of Dr Firek and quoted at [49] of the primary judgment: "MR JAGATRAMKA: We are looking at buying a house which is for sale in Cliff Road, Wollongong. It would help to solidify our presence in the community and garner community support. There are also quite a few Indian executives who visit Australia quite frequently who we would entertain and accommodate there. DR FIREK: I think that's a good idea. MR JAGATRAMKA OR DR FIREK: It would save money."
On the primary judge's understanding of that conversation, Mr Jagatramka implicitly excluded himself and the other directors of WCL from being potential users of the guest house by his reference to the visiting executives "who we would entertain and accommodate there."
The "link in the chain" between Mr Jagatramka's and Dr Firek's conversation, and the effective finding that the Jagatramkas were not the intended beneficiaries of the guest house purpose in the June 2008 resolution, was expressed at [94(5)] of the primary judgment, whereby: "Mr Jagatramka had the sole use of Bank Street at the time he proposed that WCL should buy a property - which he described to Mr Sharma in terms of an 'upgrade': see T144.43 and Mr Sharma's second Affidavit at paragraphs 17 and 18."
However, Mr Sharma loosened this link in the course of his cross-examination by his acknowledgment that he understood, at the time of the purchase of the Cliff Road property, that Mr Jagatramka was a "visiting executive" for the purposes of the guest house purpose and the June 2008 resolution. In particular, attention should be paid to the following exchanges: "PRITCHARD: … so you understood that this purchase [the Cliff Road property] was to be used by people visiting Australia for the purposes of the affairs of [WCL]; is that right? SHARMA: Yes. My understanding at that time was that this property will be used by all the visiting executives of the Gujarat group; including in India as well as in Australia. So that's right. For [WCL], yes. PRITCHARD: And Mr Jagatramka, even on that statement, was one of the people to be using this accommodation, as you understood it? SHARMA: Yes, my understanding was that he was one of the visiting executives, yes. PRITCHARD: Yes. You understood that this property has been purchased to permit Mr Jagatramka from time to time when visiting Australia for work undertaken in respect of [WCL] - to be his place - to be where he stayed; isn't that right? SHARMA: See, what I understood-- PRITCHARD: Is that right? SHARMA: What I understood-- … PRITCHARD: Did you want to just answer the question, but please focus on what was asked of you. Did you understand that the place was - this was to permit Mr Jagatramka to use this property when he stayed in Australia? SHARMA: Sir, my understanding was that if he wanted to, yes, he would be one of the person [sic, persons] to be using the property." (Emphasis added.)
The evidence of Dr Firek also discloses a substantial degree of equivocality as to the link between the Bank Street unit and Cliff Road property. At [91(9)], the primary judge found that: "Mr Firek and Mr Anghie believed as at June 2008 that Mr Jagatramka or WCL had purchased a residential unit in which he would reside whenever he was in Wollongong: see paragraphs 12-19 of Mr Anghie's Affidavit and paragraph 27 of Mr Firek's Affidavit, and see Mr Firek's evidence at T360.20-38 where Mr Firek said that the unit was at Bank Street and owned by WCL."
In the relevant paragraph of his affidavit as referred to by the primary judge, Dr Firek stated that he did not know, and it had not been disclosed to him that: 1. Mr Jagatramka intended to reside at the Cliff Road property; and 2. Mr Jagatramka did not intend for the Cliff Road property to be used primarily as a guesthouse for guests and officials of WCL. 1. Further, Dr Firek asserted that as at the date of the June 2008 resolution, it was his understanding that Mr Jagatramka or WCL had purchased a residential unit in Wollongong (the Bank Street unit) at which he would reside when in Wollongong on company business.
It was submitted by Mr Pritchard that if it were accepted that the June 2008 resolution applied to the Jagatramkas, the "links in the chain" relied upon by the primary judge become equivocal or anodyne at the very least. He proceeded to draw the Court's attention to his cross-examination of Dr Firek in support of this submission, particularly the following passage in which Dr Firek appeared to contradict his earlier statements as to his understanding of Mr Jagatramka's intention as at the time of the June 2008 resolution: "PRITCHARD: What is being said - and you should read it yourself, but what is being said is that you're saying in (b) that - you say, 'Mr Firek says that in approving the acquisition of Cliff Road, the property,' a bit further down, you relied on representations made by Mr and Mrs Jagatramka during the meeting, and that's a reference to the meeting - FIREK: Yes. PRITCHARD: -- on or about June 2008; do you agree with that? FIREK: Yes, that was actually-- PRITCHARD: Goodo. Then you say, 'The property ought be acquired and developed so it could be used as a guesthouse for guests and officials of Wollongong Coal'? FIREK: Yes. PRITCHARD: That was said to you? FIREK: Yes PRITCHARD: Or words to that effect; is that right? FIREK: Yes. PRITCHARD: And then that, 'Mr Jagatramka only intended to stay at the property from time to time when visiting Australia for work undertaken in respect of Wollongong Coal from his place of residence in India'; that was said to you too, wasn't it? FIREK: Now that is [a] point I - in view of what his Honour mentioned about - I knew about that unit being owned by Arun. So to me, to my understanding, that where he lived, would stay, and the Cliff property was for visiting business people and whatever. PRITCHARD: But you agree you have sworn to the fact - you have sworn to the truth of the fact that you say Mr Jagatramka or Mrs Jagatramka said to you that they intended - they only intended to stay at the property, that's the Cliff Road property, from time to time when visiting Australia for work undertaken with respect to Wollongong Coal from his place of residence in India? FIREK: Yes-- PRITCHARD: You agree you have sworn that to be true? FIREK: Yes, but to me-- PRITCHARD: Mr Firek, please, you can answer the question, but do you agree you have sworn that to be true? FIREK: Yes, but my interpretation of 'staying' and 'residence' is different. PRITCHARD: Okay. So you have no doubt you were told in June 2008 that whenever Mr Jagatramka came to Australia after the Cliff Road property was finished he would stay there; you have no doubt about that? … PRITCHARD: Is what you're saying that you were told in June 2008 that whenever Mr Jagatramka came to Australia after the Cliff Road property was completed he would stay there? FIREK: No, it was really would stay but on [a] casual basis. But my understanding - and if I sign it wrongly then I probably have to have consequences of this, but my understanding was that if residence was there and if there was casual - I didn't fully dwell on - say, you can stay there or - I'm just really - I always believe that his residence in coming to Australia would be that unit and staying there would be on casual basis, nothing of him and his family. So that is the difference, which maybe I wasn't precise enough. PRITCHARD: Just so I understand the truth of what you are saying or trying to say-- FIREK: Yes-- PRITCHARD: -- is you have no doubt you were told before June 2008 by Mr Jagatramka or Mrs Jagatramka that whenever they came to Australia after the property at Cliff Road was purchased they would stay there; is that right or wrong? FIREK: Yes, but I would throw a word 'on casual basis', not as a permanent resident. So that is where maybe we disagree on what I wanted to say and what it looks like I have said. PRITCHARD: Let's just put aside - we will come back to permanent basis or casual basis. FIREK: Yes. PRITCHARD: You have no doubt, do you, that in the lead-up to [the] June 2008 purchase of the property you were told by Mr Jagatramka that 'when the property is finished I'm going to stay there'; correct? FIREK: No. PRITCHARD: Well, you just said - do you agree he said, 'I'm going to stay there on a casual basis'? Is that what he said to you? FIREK: No, in that meeting in 2008 in June he didn't say anything about him staying in that - it was clearly emphasised it would be for visiting guests. PRITCHARD: I need to press to you, sir. How on earth did you come to swear as being true that in your evidence? FIREK: Maybe I misunderstood it but, answering your last question, my understanding and what was told to all of us in June 2008, that we are building a guesthouse for visiting people. There was nothing about staying casually. This later comment just crept in, I don't know at certain stage, in what stage, but in 2008 that was what we were told when we approved the purchase of the property. … PRITCHARD: Can you please try and explain as best you can, Mr Firek, how it is three weeks ago you swore an affidavit verifying the truth of the matters contained in your defence [to the Jagatramkas' cross-claim] which contain the statement that I have taken you to in subparagraph (v) on p 127 if you say now it was not true? FIREK: Well, only intended to stay at the property from time to time. So that's what I've - in my reply I've said 'on casual basis'. But to me it was a big difference between what I understood the whole case was all about, being a permanent residence for him and his family. He visiting from time to time was one understanding of the situation, but to me it was very separate which I believe all that case is all about … But I'm trying to explain myself that permanent residence with his family is a different story, which was apparently it's alleged that he stayed there permanently later on."
Frequent reference is made in the lengthy extract above to paragraph 16(v) of Dr Firek's defence to Mr Jagatramka's cross-claim, on which Dr Firek was cross-examined by Mr Pritchard. That particular subparagraph contained the following statement, as affirmed in the course of the cross-examination: "[Dr Firek] relied upon the representations made by Mr Jagatramka and/or Mrs Jagatramka during the meeting [regarding the June 2008 resolution] that: (iv) the Property ought to be acquired so that it could be used as a guest house for guests and officials of Wollongong Coal; and (v) Mr Jagatramka only intended to stay at the Property from time-to-time when visiting Australia for work undertaken with respect to Wollongong Coal from his place of residence in India" (emphasis added.)
To the extent that Dr Firek's evidence in cross-examination led the primary judge to accept that the Bank Street unit was Mr Jagatramka's exclusive residence in Wollongong (see the primary judgment at [91(9)]), any resulting "link in the chain" to the exclusive residence intention (see the primary judgment at [94(5)]) is infected with significant equivocality by Dr Firek's subsequent evidence in cross-examination as to his statement at paragraph 16(v) of his defence. Instead, Dr Firek's evidence appears to support the argument that the Jagatramkas were contemplated to be "executives of NRE Groups" for the purposes of the June 2008 resolution.
Notwithstanding the considerable equivocality of Dr Firek's evidence, the primary judge seemed to conclude that the question as to whether the June 2008 resolution applied to the Jagatramkas was immaterial to the issue of intention, rejecting the submission that "there is a fine distinction between the Jagatramkas having an intention to stay at Cliff Road with their family when they were in Australia and having a present, fixed and 'entirely undisclosed intention' in June 2008 to cause WCL to fund the acquisition and development of Cliff Road 'so that they could reside there with their children on a permanent and exclusive basis'" (at [87] of the primary judgment).
According to the primary judge, the former intention did not enliven the disclosed guest house purpose, which was "not the Jagatramkas having an intention to say at Cliff Road with their family when in Australia." The basis of this conclusion becomes clearer when understood in conjunction with the findings at [81(4)(c)(v)-(viii)] of the primary judgment that: "(v) Even if Mr Sharma deduced at the time that since Mr and Mrs Jagatramka were directors they 'could' stay at Cliff Road, that is not what Mr and Mrs Jagatramka (on the evidence of the conversations given by Mr Sharma, Mr Firek and Mr Anghie), were declaring was their intention to him or to Mr Firek and Mr Anghie. I do not think that the reference to 'executives of NRE Groups' in the [June 2008] resolution could be understood to include the Jagatramkas. If it were so intended by the Jagatramkas (as to which there was no evidence), it may have been deliberately ambiguous and would likely have been a subject of cross examination. (vi) The exclusive residence intention was most certainly inconsistent with the guest house purpose. (vii) The exclusive residence intention was most certainly not disclosed - the Jagatramkas deny that they had such an intention. (viii) Mr and Mrs Jagatramka, and Mr Firek and Mr Anghie, knew as at June 2008 that the Jagatramkas had exclusive use of Bank Street. It if [sic, If it] was intended that the Jagatramkas would use Cliff Road when it was constructed, the sale of Bank Street would have been an additional reason to support the purchase of Cliff Road, but no mention was made of it." (Emphasis added.)
This distinction appears to lack an evidentiary basis, particularly with regard to the Briginshaw standard of proof. First, the terms of the resolution on its face do not exclude periodic occupation by the Jagatramkas on their visits from India. Second, Mr Jagatramka was the Chief Executive Officer and most frequent visitor. It would be surprising if the Chief Executive Officer would not use the residence, rather than it being only for the benefit of his subordinates. Although the primary judge found at [91(3)] that Mr Jagatramka did not say he was one of the senior executives who would use the Cliff Road property, Mr Jagatramka did not state to the contrary. To the extent that Mr Jagatramka described the Cliff Road property to Mr Sharma as an upgrade (see [94(5)] of the primary judgment), that could only refer to an upgrade to the Bank Street unit. That is presumably why Mr Sharma assumed Mr Jagatramka could stay at the Cliff Road property if he wished (see [64] above). So far as Mr Anghie was concerned, he stated that he did not know Mr Jagatramka intended to reside at the Cliff Road property and did not intend it to be used primarily as a guest house for guests and officers of WCL. Mr Anghie stated that it did not occur to him that Mr Jagatramka would need another property for that purpose. Although Mr Anghie records his belief, his affidavit does not disclose any statement in which Mr Jagatramka said the executives would not include him.
In that context, the fifth link is also quite equivocal on the question of whether or not, at the time of the resolution, the Jagatramkas intended to have the property as their exclusive residence. Even if Mr Jagatramka intended to use it in preference to the Bank Street unit on his visits to Australia, that does not lead to the conclusion that, as of June 2008, his intention was to reside there on an exclusive, continuous and indefinite basis. Accepting that it is only one "link in the chain", it is equally consistent with the alternative hypothesis that as at June 2008, it was to be used as a guest house for existing executives, including himself and his family.
A further factor weighing against the primary judge's distinction was drawn out of Mr Sharma's cross-examination by Mr Pritchard, that is, the prevalence of the "guest house" in Indian corporate culture. At [55(12)], the primary judge made reference to the following extract from Mr Sharma's cross-examination: "Q. It's correct that in 2007/2008 it was your understanding that it was not uncommon for large corporate entities in India to have company guesthouses; is that right? A. That's correct, yes. Q. And what was the source of your understanding about that? A. Because I'm from - originally from India and I have actually - I don't recall, but I've heard about the guesthouses and I think I have stayed on one occasion, I don't know when, but I've stayed in one of the guesthouses long back. It was I think some of the big insurance company's guesthouse which was organised by. So I know that Indian companies do have a corporate guesthouse. Q. Okay. And so when Mr Jagatramka raised this issue with you you thought, 'That's a good idea'; is that right? A. I don't know whether it was my thought of whether a good idea or not. But, as I said, I did not found [sic] it a bit awkward with the proposal."
The primary judge, despite acknowledging at [59] that Mr Sharma was "the only witness for WCL", did not address his evidence on the topic of corporate guest houses as bearing on the question of whether the Jagatramkas held the exclusive residence intention, as opposed to the guest house purpose. However, it appears from Mr Sharma's cross-examination that such a purpose was within his contemplation as director of WCL, given that he had stayed in such a property and did not find the proposal "awkward" on his recollection. This serves to imbue Mr Sharma's evidence on the question of intention with a further degree of equivocality.

Links (1) and (2)

There is no dispute that the findings the subject of these links were accurate. They establish it was Mr Jagatramka's desire to build the guest house residence. However, the relevant question was whether it was his intention at that time that he and his family would reside in the property on an exclusive, indefinite and continuous basis. It is relevant but not a strong "link in the chain".
It does not seem to us of any relevance one way or the other that the property was acquired by a single purpose vehicle.

Links (3), (4), (6), (7), (8), (9), (10) and (11) - The design of the house and the involvement of Mrs Jagatramka

These links essentially were relied upon by the primary judge to support the proposition that the Cliff Road property was designed as a private residence rather than as a guest house, and, second, that Mrs Jagatramka's extensive involvement in its design and fit-out supported the proposition that the property was to be for the sole and exclusive use of her and her family.
These matters are related to link 5 with which we have dealt. So far as the actual design and fit-out is concerned, it does not seem to us the fact that it did not meet what some may consider the conventional definition of a guest house meant it was not constructed as a residence capable of being used by visiting executives on periodic visits to Australia. It was certainly capable of being used by a single family, but it was also capable of accommodating guests separately on the ground floor, even if the first floor was taken out of operation.
In dealing with link (5), Mr Coleman was asked why having the first floor locked was not consistent with visiting executives being allowed to come and use the ground floor. Mr Coleman stated that it was "equally consistent", but that there were other matters which demonstrated that the onus had been discharged, relying in particular on the failure of Mr and Mrs Jagatramka to give evidence. However, what is significant, as with link (5), is that even if Mr and Mrs Jagatramka intended that part of the property only be used by them on their visits to Australia, the remainder was still available for visiting executives.
There is little doubt that Mrs Jagatramka's intimate involvement with all aspects of the design and fit-out of the house pointed to the fact that it was the Jagatramkas' intention to reside at the property on their visits to Australia. We have dealt with this in large measure in dealing with links (12) and (5). We would only add two matters. Even if this intention was not disclosed to all directors in June 2008, it does not prove that the Jagatramkas' intention was to reside at the premises exclusively, continuously and indefinitely. Further, with respect, there is a degree of artificiality in the proposition that Mr Jagatramka's fellow directors were not aware of Mr Jagatramka's intention to use the property on his and his family's visits to Australia. It would be surprising if they thought the Chief Executive Officer and the Chairman of WCL would do otherwise. That could well account for the equivocal nature of the evidence of Dr Firek, to which we have referred in dealing with link (5).

Links (13)-(16) - The ESA and subsequent events

In considering these links, there are two matters of particular significance. First, Mr and Mrs Jagatramka had by that time obtained a 457 visa permitting them to remain in Australia for up to four years. There is no evidence they intended to apply for such a visa in 2008. Second, the occupation of the premises took place following the resolution of 27 July 2011 and the entry into the ESA. In concluding that this was a "link in the chain", the primary judge considered that this supported the proposition that the Jagatramkas' intention in 2008 was for these steps to occur. It seems to us equally open to conclude that once the visa had been obtained, the Jagatramkas sought permanent occupation of the premises for four years "the length of their visa", and in doing so, had the necessary resolution passed and the ESA entered into. There is little doubt having regard to the terms of the 2014 resolution (see [30] above) that the suitable accommodation referred to in the ESA was the Cliff Road property.
Absent any finding of impropriety in the sale of the shares in Properties to Basant International, the fact that the Jagatramkas or their son occupied the property until 2015 does not seem to us to have any bearing on what their intention was in 2008.
It also does not seem to us of particular relevance that the Bank Street unit was not sold until 2013. Once the Jagatramkas had occupied the Cliff Road property, it was there to be used by other visiting executives should they wish to or be permitted to use it. It does not seem to us that it adds very much on the question of the Jagatramkas' intention in June 2008.

Conclusion

In the present case there are in our opinion two competing hypotheses, neither of which depends on the credit of any of the witnesses. The first of these hypotheses is that at June 2008, it was not Mr and Mrs Jagatramka's intention to reside at the Cliff Road property on an exclusive, indefinite and continuous basis, but rather to use it on a non-exclusive basis during their visits to Australia. The second is that it was built for the pleaded purpose, namely, with the intention that it be used by the Jagatramkas on an exclusive, indefinite and continuous basis.
In cases of this nature, the duty of an appellate court was summarised by the High Court in Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 in the following terms (at [56]): "[56] Having rejected the essential planks of the trial judge's reasoning, it was not to the point for the Court of Appeal to formulate the question as which of the two hypotheses the trial judge considered to be the more probable. Nor was it to the point to consider whether the trial judge had been unduly influenced by the DNA evidence. It was an error for the Court of Appeal to dismiss the appeals in this 'very closely balanced' case on the footing that the trial judge's decision was neither glaringly improbable nor contrary to compelling inferences. It was the duty of the Court of Appeal to decide for itself which of the two hypotheses was the more probable. It was the duty of the Court of Appeal to persist in its task of 'weighing [the] conflicting evidence and drawing its own inferences and conclusions', and, ultimately, to decide for itself which of the two hypotheses was the more probable. It did not. The appellant's second ground is made good."
In our opinion, weighing the competing factors (all "links in the chain") the evidence does not establish on the balance of probabilities that at the time of the June 2008 resolution the Jagatramkas had the undisclosed intention of residing in the Cliff Road property on an exclusive, indefinite and continuous basis, although they may well have intended to use it from time to time when they visited this country as executives of WCL. Although the "links in the chain" as the matter of possibility could lead to the contrary conclusion, as we have pointed out most of the links are equivocal and indeed some links, particularly links (5) and (12), point the other way. Critically, in our view there is no evidence that as at June 2008, Mr and Mrs Jagatramka intended to reside in Australia on an indefinite basis, much less that they had applied for a visa to enable them to do so. Further, they did not commence to reside in the Cliff Road property until they had obtained such a visa and entered into the ESA. These matters tell strongly against them having the requisite intention in June 2008.
We have taken into account the fact that neither of the Jagatramkas gave evidence. Although we accept that we are entitled to infer that their evidence would not have assisted their case, and that their failure to give evidence permits an available inference to be drawn with greater confidence, it does not enable the trier of fact to infer that the evidence would have been adverse to the Jagatramkas. In the present case, we have assessed the fact that the Jagatramkas failed to give evidence in accordance with the authorities which we have cited at [49] above. We remain of the view, however, that WCL has failed to establish to the comfortable standard of proof required that the Jagatramkas held the pleaded intention as at June 2008. In particular, it does not remedy the absence of any evidence that the Jagatramkas intended to reside in Australia at the time of the June 2008 resolution.
It follows that ground 1 of the grounds of appeal has been made out, and the Jagatramkas are entitled to have the orders made against them set aside. It is unnecessary to deal with the remaining grounds of appeal.

The cross-appeal

WCL appealed against the dismissal of its claim against Properties on the basis that the primary judge, having found that Properties had knowledge of the breach of fiduciary duty by the Jagatramkas, erred in declining to grant relief against Properties by virtue of it being a knowing recipient of Trust Property (cross-appeal grounds 1-4).
WCL also appealed against the finding of the primary judge that the Jagatramkas should only be ordered to pay 75 per cent of WCL's costs, rather than the whole of those costs as assessed or agreed.
As WCL has failed in respect of its claim for breach of fiduciary duty against the Jagatramkas, it follows that the cross-appeal so far as it relates to Properties must fail.
Further, having regard to our conclusion that the primary judge erred in his conclusion that the Jagatramkas breached their fiduciary duty, WCL had no entitlement to costs at first instance and the cross-appeal against the Jagatramkas also fails.

Orders

We would make the following orders: 1. Appeal allowed. 2. Cross-appeal dismissed. 3. Set aside Order 1 of the orders made by the primary judge on 13 March 2020 and the orders made by him on 21 April 2020 and in lieu thereof make the following orders: 1. Proceedings dismissed. 2. The respondent to pay the appellants' costs of the appeal and the costs of the proceedings in the Court below and be entitled to a certificate under the Suitors' Fund Act 1951 (NSW) if eligible. 3. The respondent/cross-appellant pay the cross-respondents' costs of the cross-appeal.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 21 April 2021

Suitors' Fund Act 1951(NSW)

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