King Network Group Pty Limited v Club of the Clubs Pty Limited [2008] NSWCA 344 | Case summary

King Network Group Pty Limited v Club of the Clubs Pty Limited [2008] NSWCA 344 | Case summary | Zoe

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1 HODGSON JA: On 12 July 2007, pursuant to reasons given on 9 November 2006 and 11 July 2007, Bergin J made the following orders in proceedings in which the first respondent (COTC) and the second respondent (IMF) had sued the first appellant (KNG), the second appellant (Harry), the third appellant (KDG) and the late Spiros Stamoulis (Spiros) the representatives of whose estate are now the fourth appellant, alleging breaches of fiduciary duties and other causes of action, and in which KNG had put on a cross-claim against COTC: 1. Judgment for COTC against each of KNG, Harry Stamoulis and Spiros Stamoulis jointly and severally in the sum of $631,123.91 plus interest at Court rates from 25 June 2002 to 12 July 2007 (both days inclusive), in the amount of $289,841.44. 2. COTC is to pay KCOTC the amount of $49,323.04 plus interest at Court rates from 16 August 2001 to 12 July 2007 (both days inclusive) in the amount of $26,797.27. And KNG is to pay KCOTC the sum of $230,174.17 plus Interest at Court rates from 16 August 2001 to 12 July 2007 (both days inclusive) in the amount of $125,053.92. 3. Judgment for COTC against KDG in the sum of $2,146,637.22 plus interest at Court rates from 11 November 2003 to 12 July 2007 (both days inclusive) in the amount of $720,093.74. 4. The Court notes in respect of orders 1 and 3 that the plaintiff is not entitled to recover any amount in excess of the amount payable pursuant to order 3. 5. The Defendants are to pay the Plaintiff's costs of the Proceedings. 6. The above judgment and orders are stayed for 28 days from the date of these orders. 2 The appellants (all of whom are associated with the Stamoulis family) have appealed from those orders, seeking orders that the proceedings against them be dismissed. The respondents have put on a cross-appeal, seeking the following orders: 1. Paragraph 1 of the orders of Justice Bergin on 12 July 2007 be varied by deleting the figures "$631,123.91" and "$289,841.44" and substituting for them (respectively): (a) the figures "$3,108,652.30" (being 15% of [$14,310,914.80 + $2,4313,435 + $4,000,000]) and "$1,429,128.37"; or in the alternative (b) some other figures which the Court deems fit. 2. Paragraph 3 of the orders of Justice Bergin on 12 July 2007 be varied by deleting the figures "$2,146,637.22" and $720,093.74" and substituting for them (respectively): (a) the figure "$14,310,914.80" and "$4,800,625.78" or in the alternative (b) some other figures which the Court deems fit. 3. Further order that there be judgment for IMF (Australia) Ltd against each of Harry Stamoulis, Spiros Stamoulis and KDG jointly and severally in the sum of $14,310,914 plus interest at Court rates from 23 April 2001. 4. Orders of Justice Bergin on 12 July 2007 be otherwise affirmed. 5. Appellants to pay the respondents' costs of the appeal. 3 The circumstances giving rise to the proceedings are set out in some detail in the judgment of Young CJ in Eq, and in my recounting of the facts and issues I will focus on what I consider to be most significant.

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Outline of circumstances 4 The proceedings arose out of a joint venture for the purchase and development of certain land in the Cudgen Lake area of Kingscliff in the far north of New South Wales. The original parties to the joint venture were COTC (a company controlled by Mr Dalglish), Jandawn Pty Limited (Jandawn, a company controlled by Mr Shannon), Arts Investments Pty Limited (Arts, a company controlled by Mr Mancuso) and AWD Springwater Pty Limited (AWD, a Stamoulis company which was later replaced in the joint venture by KNG). The corporate vehicle for this venture was a company KingsHeath Club of the Clubs Pty Limited (KCOTC). IMF is a litigation funder which took an assignment of certain of KCOTC's rights. 5 On 22 June 1999, COTC and Jandawn signed heads of agreement with Lenen Pty Limited (Lenen) which provided for an option for the sale by Lenen of the subject land for $22.5 million. 6 On 4 August 1999, a joint venture agreement was executed, providing for a venture in which the shares were to be 25 per cent each for COTC and Jandawn, 37½ per cent for AWD and 12½ per cent for Arts. The shares of COTC and Jandawn were said to be granted in consideration of the provision of an option for the purchase of the land and COTC's contribution of "Intellectual Property Rights" (broadly, the idea for the development, know-how and the name "Club of The Clubs") and money expended to acquire these things. The shares of AWD and Arts were said to be granted in return for specific financial contributions: from AWD, payment of $500,000 and provision of a standby letter of credit of $2 million, and from Arts a financial guarantee of $4 million. 7 The "management and overseeing" of the joint venture Project was to be conducted by the "Joint Venture", and decisions of a "Steering Committee" were, subject to clause 13 of the agreement, to bind each of them. The Steering Committee consisted of five persons, one nominated by each venturer and one nominated by KPMG Corporate Finance Australia Pty Limited (KPMG) (which had and would be providing accounting services to the venture), and resolutions of the Steering Committee were to be carried by majority. Clauses 13.2 and 13.3 of the agreement provided as follows: 13.2 Powers of Participant Meetings The Participants agree that the management and control of the Project and the Joint Venture will vest with the Steering Committee, save for the following matters, in respect of which a determination by a meeting of all Participants under this clause will be final and binding: (a) any proposals regarding the raising of additional equity or capital for the purposes of the Project or the Joint Venture; (b) any decision regarding the acquisition of the Additional Land; (c) any proposals regarding the raising of any funding for the purposes of the Project (including the acquisition of the Additional Land) which require the provision of any form of security or encumbrance over any Joint Venture assets; (d) any decision, resolution or action relating to the undertakings or guarantees given pursuant to paragraph 3.1(b), including any calls, any reduction of the amount of the undertaking or guarantee or the release of parties from those undertakings or guarantees as the case may be; (e) approval of the prospectus to be issued by the .' Company; (f) determination of the timing of the sale of, and approval of the selling campaigns for, each of the stages of the Project; (g) any amendment to this Agreement; (h) the admission of a new Participant to the Joint Venture; (i) the sale or disposal of the Joint Venture's entire interest in the Project, prior to the completion of that Project; and (j) the termination of the Project or this Agreement.

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13.3 Resolutions at Participants' Meetings All matters and resolutions put before a meeting of Participants will be deemed to have been approved or passed by the Participants if Participants representing more than fifty per cent (50%) of the total interests in the Joint Venture present and voting at that meeting, vote in favour of it. Notwithstanding the previous sentence, a resolution in relation to the matters listed in clause 13.2 will be deemed to have been passed only if Participants representing more than seventy-five per cent (75%) of the total interests in the Joint Venture (whether or not present) vote in favour of it. 8 The agreement also contained provisions as to default, which included a procedure by which other joint venturers could (after the obtaining of a valuation and certain lapses of time) acquire the interest of the defaulter. 9 On 18 August 1999, the joint venturers signed two agreements, one with Lenen and one with a company apparently associated with it, namely Richtech Pty Limited (Richtech). 10 One of those agreements was a put and call option, whereby subject to certain conditions, the joint venturers could exercise options to purchase the subject land from Lenen in two stages (the "Option A" land for $8 million, and the "Option B" land for $12 million), and Lenen could exercise options to require the joint venture to buy those parcels of land in the same stages at the same price. This agreement contained a condition that the joint venturers within seven days provide an irrevocable bank guarantee or letter of credit for $4 million. 11 The other agreement signed on that day was an agreement with Richtech for certain works to be done in relation to the land for $2.5 million. 12 On 24 August 1999, KCOTC was incorporated, with shareholdings proportional to the shares in the joint venture. 13 Arts did not provide the $4 million guarantee required by the joint venture agreement, and the $4 million guarantee required by the put and call option was not provided within the seven day period or for some months thereafter. Extensions of time were granted. Eventually, by 10 December 1999 KNG paid $2 million to Lenen on a basis that was later set out in an agreement between the joint venturers signed on 10 February 2000 (apparently having also been previously signed on 17 January 2000). 14 The 10 February 2000 agreement amended the joint venture agreement by providing for payment by KNG of $2 million to Lenen subject to the right of the joint venture to substitute for it a guarantee of $4 million, in which event the $2 million was to be returned to be applied to fund the joint venture Project. By this amendment, KNG was also to pay a further $250,000 to fund the Project. 15 In consideration of these payments, the shares in the joint venture were adjusted to 52.5 per cent for KNG, 15 per cent for COTC, 12.5 per cent for Jandawn, 10 per cent for Arts and 10 per cent for KPMG. This agreement made further provision in the event that the $4 million bank guarantee was not provided by an incoming joint venturer, namely that the shareholding be further adjusted to 75 per cent for KNG, 12.5 per cent for KCOTC, 7.5 per cent for Jandawn and 5 per cent for Arts, and that KNG could elect to proceed in one of three ways. The third way, which was available only if there was failure to achieve by 1 August 2000 committed pre-sales of trust units in the joint venture Project equivalent to 40 per cent of construction costs, was "to complete the Purchase Contract (PC) as a Real Estate Transaction only". 16 On 27 May 2000, the Steering Committee unanimously adopted further amendments to the joint venture agreement. These amendments included that COTC was to have a 15 per cent share in the venture (and also to be paid start-up and out-of-pocket expenses of $317,500), KNG was to have 70 per cent, Jandawn to have 7.5 per cent and Arts to have 7.5 per cent; and that each was to be responsible for a proportionate share of the debt. Another provision of this amendment was that "It is the responsibility of each JV partner to meet their % share of all further funding requirements by utilising the resources at their disposal." This amendment also provided that, in the event of sale of the land due to circumstances set out in the 10 February 2000 agreement, the proportions in the venture were to be 80 per cent for KNG, 15 per cent for COTC, 2.5 per cent for Jandawn and 2.5 per cent for Arts. These amendments were signed on behalf of all the joint venturers. 17 On 15 June 2000, one call option (option A) was exercised, resulting in a contract for the purchase by the joint venturers from Lenen of the Option A land for $8 million. A Stamoulis company associated with KNG provided to Lenen a bank guarantee for $4 million (so that the $2 million previously paid was released for the purposes of the joint venture). The contract required $4 million to be paid by 1 September 2000. 18 By 1 August 2000, there had been no committed pre-sales of trust units in the proposed development. 19 On 25 August 2000, Lenen granted a variation of the requirement of payment of $4 million by 1 September, substituting a requirement for a bank guarantee for $10.7 million by 29 September 2000. 20 On 6 September 2000, the put and call option with Lenen was amended to include an obligation on the joint venture to lodge with Lenen on or before 1 April 2001 an unconditional bank guarantee for $12 million, the price for the Option B land. 21 On 18 September 2000, KNG sent a letter to the other venturers electing pursuant to clause 5 of the supplementary agreement (that is, the agreement of 10 February 2000) to proceed to complete the project as a real estate transaction only. 22 On 29 September 2000, there was a meeting of the joint venturers apart from COTC, and a document entitled "Overriding Supplementary Joint Venture Agreement" (OSJVA) was executed by them. This document noted that the joint venturers were required, under the current variation of their agreement with Lenen, to provide irrevocable bank guarantees for $10.7 million on or before 29 September 2000 and for another $12 million on or before 1 April 2001, and specified certain conditions on which the joint venture agreement could proceed, failing which KNG was given an irrevocable right to deal with the subject land and to have the other joint venturers transfer their interest in the joint venture at the direction of KNG, in which event KNG indemnified the other joint venturers in respect of payments to be made to Lenen and Richtech (as well as not continuing with the "Club of the Clubs" idea that had originated from COTC). 23 On 6 October 2000, KNG procured a bank guarantee for $10.7 million in favour of Lenen, and this was accepted by Lenen although it was some days late. 24 On 12 October 2000 there was a meeting of all the joint venturers. A vote was taken on the OSJVA. Three of the joint venturers voted for it, and COTC voted against it: it was noted that this meant that, in terms of interests in the joint venture, 85 per cent were for the OSJVA and 15 per cent against. Mr Dalglish expressed the view that the OSJVA was without validity or legality. 25 On 21 February 2001, Lenen signed a put and call option between it and KCOTC for the purchase and sale of the subject land for $20.2 million; and it subsequently terminated the put and call option with the joint venturers. KCOTC subsequently nominated KNG as the purchaser of the land. 26 On 23 January 2002, KNG granted to a new syndicate (which included Spiros' company KDG) an option to purchase the land for $25 million. That option was exercised, and that syndicate subsequently completed a venture that yielded a profit for KDG of $14,310,914.80.

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Fraud on the power 31 The primary judge was of the view that the principles stated in Gambotto were principles of company law, referring to what Hely J said in Cachia v Westpac Financial Services Limited [2000] FCA 161; 170 ALR 65 at [85]-[88]. 32 While not questioning Hely J's view that the Gambotto principles did not apply to a unit trust, I think the better view is that Gambotto was applying the general doctrine of "fraud on the power" in the context of a situation where a majority can exercise a power to affect the property rights of a minority: Peters' American Delicacy Co Limited v Heath (1939) 61 CLR 457 at 506; Gambotto at 444; Houghton v Immer (No 155) Pty Limited (1997) 44 NSWLR 46 at 53; Arakella v Paton [2004] NSWSC 13; 60 NSWLR 334 at [127]. 33 Gambotto states principles to be applied where a majority of shareholders amend articles of association of a company so as to permit expropriation of shares of a minority. Shareholders do not owe any fiduciary duties to each other, whereas joint venturers who are substantially in the position of partners do: UDC Limited v Brian Pty Limited (1985) 157 CLR 1. In those circumstances, I do not think any lower requirements should be imposed where a majority of joint venture partners amend the joint venture so as to permit expropriation of the shares of a minority in the joint venture. Accordingly, such an amendment must be for a proper purpose and must not be oppressive: that is, generally, it must be to secure the joint venture from significant detriment, and must be fair, both procedurally and substantively. 34 In order to apply these principles, it is appropriate to consider the contractual position prior to the amendment. It was contended for the respondents that it was not open to KNG to bring about such an amendment, because it had already elected to carry the venture through as a real estate transaction only, and because this election bound KNG to meet all the obligations necessary to achieve this (so that KNG's undertaking in the OSJVA to meet obligations and to indemnify other joint venturers was doing no more than it was already bound to do). In my opinion, the fact of the previous election to carry through the transaction as a real estate transaction only would not preclude the exercise of a power to amend the joint venture agreement. There is force in the contention that the election by KNG that it would complete the purchase contract as a real estate transaction only meant that it alone would do whatever was necessary to so complete the matter; but in my opinion, the better view is that this would not displace the express provision in the 27 May 2000 amendment that each joint partner should meet their percentage share of further funding requirements. 35 There is some merit in the view that the OSJVA was justified as being to secure the joint venture from significant detriment and was fair. COTC's previous major contribution, the idea of a "Club of the Clubs" had wholly failed; none of the other joint venturers had met their share of funding requirements or were proposing to do so; KNG was already exposed to the extent of about $6.5 million, and unless it immediately risked a further $10.7 million the joint venture would fail with probable substantial losses for all; and KNG was reluctant and possibly unwilling to provide this additional sum for the benefit of the joint venture partners who were unable or unwilling to meet their commitments. If this further commitment of $10.7 million was not provided, the shares of the joint venture partners could be regarded as having substantial negative value. 36 However, I think the better view is that the OSJVA was not justified, according to Gambotto principles. As things stood, KNG had total control, and a 70 per cent (or perhaps 80 per cent) interest in the venture, and had an entitlement to a 30 per cent (or perhaps 20 per cent) contribution to any loss that might be made; so that the expropriation of the interests of the minority would leave KNG better off only if a profit was made and thus if the shares of the minority did have positive value. In those circumstances, willingness to risk the further $10.7 million if, and only if, the minority lost their interests in the project was not in my opinion entirely reasonable. Furthermore, it appears that not only would the other joint venturers get nothing for their interests in the joint venture, but they were left with some liability in respect of past expenses. 37 For those reasons, in my opinion, the requirements of Gambotto to justify expropriation of the interests of a minority were not satisfied. Subsequent willingness, on terms not clearly defined, of KNG to allow participation of the other joint venturers, could not affect the validity of the OSJVA; and in my opinion would not do away with the fiduciary and contractual obligations owed to them.

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[285] I am satisfied that Stamoulis knew at the time the Land was sold that KNG was in breach of its fiduciary duty to COTC. He knew that KNG was accepting less than the asking price for the Land specifically to facilitate his father's entrée to the Macquarie Joint Venture. He caused KNG to compromise its fiduciary duty to COTC. 48 In Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 (decided after the primary judge's decision in this case), the High Court of Australia has stated at [163] that Australian courts should continue to apply the formulation of the second limb of Barnes v Addy, requiring that there be both a dishonest and fraudulent design of the trustee or fiduciary, and knowledge of this dishonest and fraudulent design by the third party. The High Court of Australia also made it clear (at [179]) that while "dishonest and fraudulent design can include both breach of trust and breach of fiduciary duty, any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent". 49 The primary judge did not address the question of whether there was a dishonest and fraudulent design of KNG, or of Harry its principal. The finding that Harry "knew" that KNG was in breach of its fiduciary duty to COTC does necessarily imply a finding that KNG itself "knew" (in the same sense) it was in breach of its fiduciary duty; but not necessarily a finding that KNG was carrying out "a dishonest and fraudulent design" or that Harry knew this. 50 It seems clear that a person may have acted dishonestly, judged by the standards of ordinary decent people, without appreciating that the act in question was dishonest by those standards: Farah at [173]. However, it appears necessary that the person must at least have such knowledge of the transaction as to render his or her participation contrary to normally acceptable standards of honest conduct: Barlow Clowes International Limited v Eurotrust International Limited [2005] UKPC 37; [2006] 1 WLR 1476 at [15]. 51 Even if one accepts that the words "and fraudulent" do not add anything substantial to the requirement that the fiduciary's design be dishonest, there is, in my opinion, a real question here whether what KNG (and Harry) did was "dishonest". 52 The purported adoption of the OSJVA was done openly; and although I have found it to be invalid, it cannot be considered obvious that it was invalid. As I noted in considering the question of fraud on the power, there were respectable arguments supporting its validity. KNG consulted solicitors, Mallesons, and received advice at the risk of successful action by one or more of the joint venturers was "relatively small" (although, as the primary judge commented, Mallesons were not given some relevant material, and did not notice that Mr Dalglish had asserted that the OSJVA was invalid and illegal, and that Harry "must have known" this). 53 In reaching her conclusion that Harry knew KNG was in breach of fiduciary duty, the primary judge relied on the secrecy or furtiveness of dealings following the OSJVA, such as arranging the put and call option with KCOTC, and on payment of $1.5 million plus GST to Arts. The latter matter was the subject of particular findings by the primary judge that an invoice dated 22 February 2004 for this amount was a device to facilitate payment by KNG to Arts of a share of $1.5 million plus GST in the gains of the real estate transaction, and that Harry's denial of involvement in this was unbelievable. 54 However, as indicated above, although the primary judge did state that, at the time the land was sold, Harry "knew" KNG was in breach of its fiduciary duty to COTC, she did not find in terms that Harry knew the OSJVA was invalid; but merely that he knew there were difficulties with the September adoption of it, that he knew COTC did not regard itself as bound by it, and that he was concerned that KNG was not acting in accordance with its fiduciary duty to COTC. And the primary judge did not in terms find KNG's conduct either dishonest or fraudulent. If her assertion that Harry "knew" KNG was in breach of its fiduciary duty was intended to include a finding that Harry knew the OSJVA was invalid and/or was acting dishonestly, in my opinion the primary judge would have needed to address these questions directly, which she did not do. I think the preferable view is that the primary judge's assertion that Harry "knew" KNG was in breach of fiduciary duty is correctly understood as asserting knowledge in one of the attenuated senses sufficient for the second limb of Barnes v Addy. 55 In the absence of a specific finding that Harry knew the OSJVA was invalid and/or was acting dishonestly, and in particular where dishonest and fraudulent conduct was not even alleged in COTC'S pleading, in my opinion it is open to this Court to reach its own view on these matters. I think it is clear that Harry knew there was a real question as to whether the OSJVA was valid; but in circumstances where in my opinion reasonable minds could differ on the issue of its validity, I would not myself conclude that Harry knew it was not valid. And if Harry did not know the OSJVA was invalid, this must mean he did not know that KNG's conduct in reliance on the OSJVA was in breach of fiduciary duty. Of course, "knowledge" for the purpose of the second limb of Barnes v Addy can fall short of actual knowledge in the ordinary sense of the word; but here I am dealing not with the question of Barnes v Addy "knowledge" but with the question of whether KNG's conduct was dishonest and fraudulent. 56 But for questions concerning the Arts invoice, I would not find, to the Briginshaw standard, that KNG's conduct was dishonest and fraudulent. The OSJVA was adopted openly, and was at least arguably effective to put an end to the fiduciary relationship (although I have reached the contrary conclusion). It was adopted at a time when an immediate further commitment of $10.7 million was required and when the other joint venturers were unable or unwilling to contribute anything. Subsequent "secrecy or furtiveness" would not weigh heavily in my mind, in circumstances where Mr Dalglish was also trying to turn events to his favour. KNG consulted solicitors on the matter. Some ordinary decent people might regard what KNG did as dishonest, but others might not. 57 The Arts invoice was dated nearly three and half years after the OSJVA, and had not been particularised as a ground for inferring dishonesty. It seems clear that it was Spiros who had the financial resources to support KNG's participation and was calling the financial shots; and in the circumstances where no allegation had been made concerning the Arts invoice, Spiros did not make a statement for the purpose of giving evidence in the case. By the time of the hearing, when Harry was challenged concerning the Arts invoice, Spiros was very ill, and he has since died. Even accepting that Arts had a 7.5 per cent interest in the project, not a 2.5 per cent interest (as possibly suggested by the 27 May 2000 amendment), $1.5 million to Arts would represent a profit of $20 million on the real estate transaction, which could only have been produced by a sale price of over $42.5 million, far in excess of what was achieved and of the value of the land. Although I do not consider there are sufficient grounds to overturn the primary judge's view that the invoice was a device to facilitate payment to Arts for a share of the real estate transaction, and that Harry's denial of involvement in this was unbelievable, I do not think that this is, in all the circumstances, sufficient to justify a finding that what KNG did concerning the OSJVA and the sale of the land was "dishonest and fraudulent". 58 For those reasons, I do not think the basis for accessorial liability under the second limb of Barnes v Addy was established.

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(6) As regards the costs below and costs of the appeal and restitutionary orders, written submissions are to be provided as follows: submissions from the respondents within seven days, submissions in response from the appellants within a further seven days, and submissions strictly in reply within a further seven days. 68 CAMPBELL JA: I have had the benefit of reading the reasons for judgment of Hodgson JA and Young CJ in Eq. In light of those reasons, I need not identify the facts of the case or the issues it raises. 69 I prefer to withhold agreement from paras [32]-[37] of the reasons of Hodgson JA. A reading of the reasons of the majority in Gambotto does not seem to me to show that the majority saw themselves as applying a general doctrine of fraud on a power. Rather, the reasoning was focused upon the circumstances in which there could be an alteration of the Articles of Association of a company that had the effect of expropriating some of the members. It may be that the outcome of Gambotto could one day be explained in terms of a general doctrine of fraud on a power, but that is not the course taken by either the majority judgment in Gambotto or the detail of the argument in the present case. 70 Further, I am wary about making a finding in general terms about the conditions that must be met before there can be a valid amendment to a joint venture agreement, entitling one joint venturer to expropriate another. 71 The joint venture in the present case was in its death throes at the time the OSJVA was entered. The Project, as defined in the original joint venture agreement, had proved unviable, and by far the most significant asset of the joint venture, its rights under the option agreement, was on the point of disappearing. Even so, just as partners owe each other a fiduciary duty until the partnership is not only dissolved but actually wound up (Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178), so joint venturers can owe each other a fiduciary duty until the affairs of the joint venture have been wound up. And similarly, powers contained in a joint venture agreement remain subject to the equitable doctrine of fraud on a power even when the joint venture is clearly unviable and approaching its end. 72 In accordance with that doctrine, the power of amendment is one that equity would require be used bona fide for the purpose for which it was conferred: General Assembly of the Free Church of Scotland v Lord Overtoun [1904] AC 515 at 695; British Equitable Assurance Co Ltd v Baily [1906] AC 35 at 42. The question of whether a power has been exercised bona fide for the purpose for which it was conferred is not the same as whether it was commercially reasonable to exercise the power. In my view, it was no part of the purpose for which the power of amendment in clause 13.2 was conferred to enable one of the joint venturers, in the dying days of the joint venture, to salvage for itself a significant benefit, such as the benefit of the option, even if that benefit would otherwise have been lost, and even when the salvaging was done in circumstances that incidentally resulted in other joint venturers being relieved of liabilities that would otherwise have fallen upon them. It is for this reason that, in my view, the purported exercise of the power of amendment was ineffective. When the power of amendment was ineffective, the OSJVA did not effectively bring to an end the fiduciary duties that KNG owed to the other joint venturers. 73 Subject to those remarks, I agree with the reasons of Hodgson JA. I agree with the orders he proposes. 74 YOUNG CJ in EQ: This is an appeal from Bergin J hearing a matter in the Commercial List of the Equity Division of this Court between former joint venture partners. 75 The first respondent, Club of the Clubs Pty Ltd (COTC) is a company controlled by a Mr Dalglish. 76 Mr Dalglish appears to have hit upon the idea that the NSW clubs could be convinced that they could together be involved with a holiday resort in a pleasant part of NSW. He considered that that idea was "intellectual property" which could be matched with cash to provide a viable project. 77 The first appellant, King Network Group Pty Ltd (KNG) is a company controlled by Harry Stamoulis. 78 The second appellant, Harry Stamoulis is the son of Spiros Stamoulis, now deceased, an experienced property developer. 79 The third appellant, King Development Group Pty Ltd (KDG) is a company of which both Spiros and Harry Stamoulis were at one time directors. 80 The fourth appellant is the estate of Spiros Stamoulis, represented by Harry and Helen Stamoulis. 81 The essential dispute is that the respondents say that, as joint venturers, in a project, the corporate vehicle for which was a company King Club of the Clubs Pty Ltd (KCOTC), they were excluded from profits by breaches of fiduciary duties by the appellants over a development in the Kingscliff/Cabarita/Cudgen areas of far northern NSW where land over which they had rights was sold to South Kingscliff Developments Pty Ltd (SKD). I will refer to it as "Land". 82 The second respondent is IMF (Australia) Pty Ltd, a litigation funder which took an assignment of certain of KCOTC's rights. 83 Unfortunately, it is difficult to define the ambit of the dispute between the parties until after a rather lengthy excursus into the relevant facts and documentation. 84 However, the claims made by the now respondents as plaintiffs are summarised in the primary judge's reasons. I will set them out in the succeeding paragraphs. 85 (1) First, COTC claims that KNG breached its fiduciary duty to it by selling the Land to SKD. It is claimed that there was a conflict between KNG's duty to the participants in the joint venture and KNG's private interests arising from the participation of "a Stamoulis company" in the Macquarie Bank Joint Venture (COTC claim against Stamoulis for breach of fiduciary duty); 86 (2) Secondly, KCOTC claims that Harry Stamoulis, as a director of KCOTC, breached his fiduciary duty to KCOTC by causing KCOTC to nominate KNG to exercise the put and call option whereby KCOTC transferred a valuable asset, the Land, to KNG for no consideration (KCOTC claim against KNG for breach of fiduciary duty); 87 (3) COTC claims that KNG has breached its contract with COTC by reason of: (a) its failure to share the profits from the sale of the Land on a pari passu basis; and (b) the sale of the Land to SKD at an undervalue (COTC claim against KNG for breach of contract); 88 (4) COTC and KCOTC claim that KNG has breached its contract in failing to honour contractual undertakings to indemnify KCOTC in relation to debts incurred (COTC and KCOTC debt claims against KNG); and 89 (5) COTC makes claims against various parties for assisting KNG and Harry Stamoulis in breaches of fiduciary duties (accessorial claims). 90 Central to the decision was the primary judge's consideration of a document called the Overriding Supplementary Joint Venture Agreement (OSJVA). 91 Her Honour's basic findings were that the OSJVA was not a valid agreement binding on COTC, that KNG had breached its fiduciary duties to the COTC by selling the joint venture land at an undervalue and that KNG was also liable for other breaches of contract. 92 After further submissions, the primary judge made orders on 12 July 2007 that the appellants or some of them pay the respondents a sum in excess of two million dollars. 93 It is of little value to outline the matters argued on appeal until after an understanding of the facts has been achieved. 94 I thus turn to the facts. Unfortunately, as the arrangements between the parties were adjusted almost from month to month, it is not possible to summarise the facts briefly. 95 In order to exploit his so-called "intellectual property", Mr Daglish and a Mr Shannon (who controlled a company, Jandawn Pty Ltd) were searching for a suitable site to be developed as a club of the clubs resort. 96 Mr Salvatore Mancuso who controlled a company Arts Investments Pty Ltd (Arts) and had access to finance, joined in the venture. 97 They were made aware of some land at Kingscliff in the Cudgen Lake area in the far north of NSW then owned by a company controlled by the Barclay Brothers through their company, Lenen Pty Ltd (the Cudgen Land). 98 In June 1999, Heads of Agreement were entered into, the parties being Lenen, COTC, Jandawn, Arts and a company AWD Springwater Pty Ltd (AWD) another Stamoulis company (subsequently replaced by KNG) whereby Lenen granted an option to sell the Cudgen Land for $22.5 million. 99 Her Honour noted that the parties I have just named entered into a Joint Venture Agreement which relevantly provided as follows: " RECITALS

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… 6 Steering Committee · (a) The Participants agree to establish the Steering Committee, whose function will be to: (i) procure and ensure that the Joint Venture pursues and achieves its purposes as stated in clause 2.1; (ii) oversee the conduct and progress of the Project; (iii) make decisions on behalf of the Participants regarding all matters arising in the course of the Project; (iv) procure the preparation of the accounts and financial statements recording the revenue, expenditure and activities of the Project; (v) liaise with the Manager, and receive progress reports in relation to the Project; (vi) determine all business and other policies relating to the conduct of the Project and dealings with the Site after the Project is completed; and (vii) such other functions as the Participants may delegate to the Steering Committee from time to time. (b) The Steering Committee will, unless otherwise agreed, consist of five (5) persons. Each of the Participants will be entitled to nominate one representative to the Steering Committee, and the fifth representative will be a person nominated by KPMG Corporate Finance (Australia) Pty Ltd (KPMG). The person so nominated by KPMG will be the Chairman of the Steering Committee. Each member of the Steering Committee appointed by the respective Participants will hold office until such time as the Participant that appointed him or her removes his or her nomination to the Steering Committee. (c) If a particular member of the Steering Committee retires, is removed or is unable to attend meetings of the Steering Committee, a person nominated by the Participant who originally nominated that member will replace him or her. (d) Each member of the Steering Committee, save for the person nominated by KPMG, will be entitled to cast one vote in relation to any resolution put to the Steering Committee. In the event that there is an equality of votes in relation to a given resolution put to the Steering Committee, the person nominated by KPMG will have a casting vote, and the Participants agree to be bound by the casting vote of that person. 7 Conduct of Meetings of Steering Committee

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(a) A participant will be in default under this agreement if: (i) the Participant transfers the whole or part of its interest in the Joint Venture otherwise than in accordance with this agreement; (ii) the Participant continues to breach any obligation under this agreement (other than an irremediable breach) for seven (7) days after receiving notice from the other Participants or the Manager specifying the breach and requiring it to be remedied; (iii) the Participant repeats a breach after having received notice from the other Participants or the Manager warning that repetition of the breach will, or is likely to result, in the other Participants or the Manager regarding that Participant as being in default under this clause 15(a). (iv) an order is made for the winding up or dissolution of the Participant; (v) a receiver, receiver and manager, voluntary administrator, trustee, provisional liquidator or similar officer is appointed for all or any part of the assets or undertaking of the Participant; (vi) the Participant enters into, or resolves to enter into, an arrangement, composition or compromise, or assignment for, the benefit of its creditors generally, or any class of creditors, or proceedings are commenced to sanction such an arrangement or compromise; (vii) the Participant stops payment of or is unable to pay its debts as and when they fall due; or (viii) the Participant ceases to carry on business. (b) If a Participant is in default (the defaulting Participant) the other Participants may give: (i) a notice in writing setting out the default (default notice) to the defaulting Participant; and (ii) a copy of the default notice to the Auditor together with an instruction to determine within thirty (30) days of the Auditor's receipt of the copy of the default notice: (1) the value of the default Participant's interest in the Joint Venture as at the date of the default notice; and (2) the damages sustained by the other Participants (the non-defaulting Participants) resulting from the default by the defaulting Participant (the damages). (c) In making a valuation of the interest in the Joint Venture of the defaulting Participant the Auditor must: (i) assume that a reasonable time is available in which to obtain a sale of that interest in the open market and for that purpose sixty (60) days will be deemed a reasonable time; (ii) have regard to such factors as the Auditor in his sole discretion believes should properly be taken into account based on the best information available at the time; (iii) act as an expert and not as an arbitrator. (d) The non-defaulting Participants will have an option to acquire the interest of the defaulting Participant on a pro-rata basis. (e) The option shall be exercisable by the non-defaulting Participants: (i) by serving written notice of exercise on the defaulting Participant with a cheque for the purchase price for the interest in the Joint Venture being purchased by each non-defaulting Participant; (ii) within (30) days of receipt of the Auditor's valuation; (iii) at a purchase price for the interest in the Joint Venture equal to the Auditor's valuation less: (1) any payments incurred by the non-defaulting Participants for and on account of the defaulting Participant (2) the damages assessed by the Auditor; (3) the costs of the Auditor in making the valuations. (f) If the non-defaulting Participants purchase the interest in the Joint Venture of the defaulting party pursuant to the foregoing option the defaulting Participant must immediately deliver to the non-defaulting Participants such instruments of assignment or conveyance as are reasonably necessary to transfer such Shareholding to the non-defaulting Participants." 100 Pursuant to cl 4(a), COTC, Jandawn, AWD and Arts agreed that their relationship to each other and the principles upon which the Project was to proceed were governed by ss 1 to 6 of the Statement of Principles (the Principles). Section 1 provided relevantly: " ON ASSET OWNERSHIP : They are to be owned as tenants in common with other venture syndicates. Each syndicate and its participants own a specific and undivided share of each asset. ON RIGHTS TO INCOME It is received separately by venture syndicates. Each syndicate participant determines its income independently of the other syndicate participants by including in its income the proceeds derived from the sale of its share of the product or resources produced by the venture. ON LIABILITIES INCURRED Syndicates and therefore syndicate participants are responsible only for the share of liabilities incurred by way of activities undertaken within the terms of this agreement in order to produce the sales product and resources. ON AGENCY STATUS Any syndicate or syndicate participants is not automatically agent for other participants and does therefore not have the authority to bind the other participants except as specified in this agreement." 101 Section 4 of the Principles provided as follows: " OBJECTIVES OF THE KINGSHEATH SYNDICATED JV

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1.Form a Steering Committee on which all participants in the KingsHeath JV are represented and to appoint a Manager, then as the owner of the land comprising the KingsHeath development site located at South Kingscliff and fronting the South Pacific Ocean, and taking into account its historical background, to bring into effect contemporaneously the following objectives: a. Make application for Development Consent (through Lenen Pty Ltd) incorporating a Plan of Subdivision which will optimize income and minimize costs to the joint venture participants. b. Steer the majority of the land subdivided into a development contract with an unlisted public company which the KingsHeath JV Steering Committee Manager will have incorporated, and to be known as KingsHeath Club of the Clubs Limited "KingsHeath Ltd". The development contract will also contain a Trust Agreement and a Trustee Management Agreement between the parties. Thus, KingsHeath Ltd will be empowered to act as the Single Responsible Entity (SRE), that is both trustee and manager for all stakeholders in the development, including residential and other classes of members. The shareholdings in KingsHeath Ltd are to be held by the KingsHeath Syndicated JV participants in the same proportions as their joint venture participation. The purpose being that the Syndicated JV participants will: - share the income of the KingsHeath CotC development as it materializes after payment of costs; - gain unfettered control of the proportionate interests which will materialize when appropriate in the form of residential allotment entitlements which in themselves arise from permission in the development consent for quality medium density residential development as ancillary and incidental to the primary intent for the zone of tourism development. 2. Proceed with the compilation and registration of a printed and electronic Prospectus, timely with the issue of development consent, for the sale of residential memberships. 3. Set up and train a sales force in terms of the residential memberships marketing plan, as well as to other principle of mutuality organizations." 102 On 18 August 1999, COTC, Jandawn, AWD and Arts executed an agreement with Richtech Pty Ltd (Richtech) setting out the obligations of the parties for the "Works" (the Works Agreement). "Works" were defined in the Works Agreement as "the infrastructure works external to the Land comprising water, sewer, electricity, telecom and a made road to the Land as are required by the Local Authority to enable the Land to be further subdivided in accordance with and consistent with the purposes and concept of the Project". 103 Although "Project" was not defined, the word "Projects" was defined to mean "the development of the Land into an integrated tourist facility incorporating a five star hotel, 18 hole golf course, residential developments, retail areas and other associated uses". The "Works Price" was $2,500,000. "Land Contract" was defined as "the Contract for the purchase of Lots 1 and 2 on the VGF Land between Lenen Pty Ltd as Vendor and COTCJV [each of COTC, Jandawn, AWD and Arts] or its nominee as Purchaser". 104 Clause 2 of the Works Agreement provided as follows: " 2 Engagement

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3.1 COTCJV shall within seven days of the date hereof provide to Lenen an irrevocable bank guarantee for an amount of $4,000,000 (the "Bank Guarantee") in such form as Lenen shall reasonably require as security for its obligations under this Agreement and the Contracts. 3.2 In lieu of the Bank Guarantee Lenen may in its discretion accept a Letter of Credit Facility. 3.3 If the Bank Guarantee or such Letter of Credit Facility reasonably acceptable to Lenen is not provided within the said period of seven days or such further period as Lenen may agree, then Lenen may by notice in Writing to COTCJV terminate this agreement in whuich event neither party will have any rights against the other." 108 KCOTC was incorporated on 24 August 1999, its original shareholders were Arts (125 shares), COTC (250 shares), Jandawn (250 shares) and KNG (375 shares). Messrs Dalglish, Shannon and Harry Stamoulis were the original directors. 109 In October 1999, Lenen agreed to extend the time for the provision of the guarantee first until 18 October 1999 and subsequently until 29 October 1999. 110 This date passed without the guarantee being furnished. However, discussions were taking place which involved reworking the joint venture agreements so that Harry Stamoulis would pay Lenen $2,225,000 in cash which Lenen would accept in lieu of the provision of a guarantee. 111 These discussions appear to have been initiated by KPMG in its letter of 8 December 1999 to the members of the joint venture, which letter, so far as is presently relevant is as follows: "Two revised structures are proposed. Both assume that the Stamoulis interest will pay $2.25m (10% of the purchase price) to Lenen this Friday to "secure" the Agreement with Lenen and hence give KHCotC control over the Project. It is a requirement that the Joint Venture shall have the right to exchange "deposit monies" for the $4.0m Guarantee at any time in the course of the next 3 months, ie., on or before 10 March 2000, in the event that an appropriate equity participant can be secured to underwrite the Financial Guarantee to be provided through HIH and St George Bank with Capital Finance, or other interests such as a builder. Structure 1 - Assume Bank Guarantee is in place by 10 March 2000

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In each scenario, including the third one - Harry's offer is impeccable. - Grant Park has not yet had the opportunity to discuss risk and reward. - Sam and Chris - as does KPMG - have moneysworth roles to play. - The best security for Harry - pending HIH - Capital Finance being put in place would seem to be first registered mortgage debenture over CotC JV - KHCotC Limited assets. - The most pressing need we have to get the RMIT design platform up to date. Allow $150,000. Then pre-selling can begin." 114 On 9 December 1999, KPMG again wrote to the directors of KCOTC with a revised basis of financial arrangements for the joint venture. 115 On this occasion KPMG advised that both structures now contemplated that the Stamoulis interest would pay $2 million (10% of the purchase price, excluding any amounts under the Works Agreement) to Lenen by 10 December 1999. KPMG advised that on this basis KCOTC would have control over the Project. It was noted that the Stamoulis interests would concurrently provide a cheque to KCOTC for $250,000 to enable funding of the Project. 116 This revised structure anticipated a new equity shareholder and KPMG advised that if that new shareholder required more than 15% but less than 20%, the additional 5% would be contributed pari passu from the Dalglish/Shannon and Mancuso interests. If the new participant required greater than 20% shareholding then the share in excess of 20% would be provided pari passu by all shareholders. Structure 2 referred to in the 8 December 1999 letter changed to accommodate the payment of $2 million to Lenen with a change in shareholding to Stamoulis at 75%, Dalglish at 12.5%, Shannon at 7.5% and Mancuso at 5%. 117 The letter continued: "The one proviso to the Stamoulis interests having the sole right to deal with the property as a real estate transaction only, shall only be triggered in the circumstances where firm commitments to pre-sales equivalent to 40% of the cost to construct have not been achieved by 1 July 2000. This cost base is to be estimated by Rider Hunt pursuant to the final Development Approval issued by the Tweed Shire." 118 KNG paid $2 million to Lenen by 10 December 1999. On 15 December 1999 David Beattie, Lenen's solicitor, confirmed that he had arranged for the sum of $2 million to be placed on fixed deposit with the ANZ Bank for the period of one month and that KCOTC had the right to substitute that cash deposit with a $4 million bank guarantee at any time prior to 10 March 2000 or 7 business days after the granting of development approval, whichever was the later. 119 Mr Beattie confirmed that if the substitution did not occur and if the put and call option was exercised, the $2 million would be applied as a deposit equal to 10% of the purchase price under each contract. 120 Mr Beattie also advised that in view of the new arrangements, Lenen required new agreements rather than assigning or novating the existing agreements. KPMG advised that the directors of KCOTC objected to the drafting of new agreements as an unnecessary incursion of costs. 121 KPMG drafted a "Supplemental Agreement Kingsheath, Club of the Clubs Joint Venture" (the Supplemental Agreement) for execution by the directors of KCOTC, COTC, Jandawn, KNG (replacing AWD) and Arts. 122 The minutes of a meeting of directors of KCOTC on 17 January 2000 record that Mr Holland from KPMG requested a motion to adopt the Supplemental Agreement so that it could be used in discussions with builders and hoteliers. The minutes record that Dalglish moved that the Supplemental Agreement be adopted. After Mancuso suggested some changes to the proposed clauses, Shannon seconded that motion. 123 The minutes do not record a resolution adopting the Supplemental Agreement but it is apparent that each of COTC, Jandawn, KNG and Arts signed the Supplemental Agreement that is dated 17 January 2000. 124 For reasons that were a mystery to the primary judge and indeed to us, the parties signed the Supplemental Agreement again on 10 February 2000. It seems appropriate to refer to the Supplemental Agreement as dated 10 February 2000. 125 The Supplemental Agreement provided relevantly: " 2 Performance of Obligations of KNG

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2.1 KNG shall pay the sum of Two Million Australian Dollars (AUD$2,000,000.00) to Lenen Pty Ltd by Friday, 10 December 1999. This sum shall be payable by bank cheque and deposited into the trust account of Lenen Pty Ltd's solicitor, David J Beattie of Level 3, 22 Clarendon Street, Sydney, New South Wales, 2000. This payment will be made subject to the Joint Venturers' right to substitute the sum paid for a $4 million bank guarantee in accordance with the provisions of the Put & Call Option Agreement. 2.2 KNG shall pay a further amount in the sum of Two Hundred and Fifty Thousand Australian Dollars (AUD$250,000) into the Company operating account at Westpac Banking Corporation by Friday, 17 December 1999 which moneys shall be applied to fund the Project in accordance with the terms of the Joint Venture Agreement. 2.3 The Joint Venture shall within three business days of provision by KNG and acceptance of the $4 million bank guarantee by Lenen Pty Ltd, pay into the operating account of the Company referred to in clause 2.2, the AUD$2,000,000 which it shall receive as a disgorgement from the trust account of David J Beattie in accordance with the terms of the Put & Call Option Agreement. These moneys shall be applied to fund the Project in accordance with the terms of the Joint Venture Agreement. On receipt of these funds by the Company, it shall immediately pay all debts owed by the Company properly relating to the Project including KPMG's Phase One Fees as defined in Schedule One of the Joint Venture Agreement. 2.4 In consideration of KNG providing the $2.25 million payments and providing a $4 million Bank Guarantee provided for in clause 2.1 of this Agreement, KNG is hereby granted an option to receive a transfer of shares in the Joint Venture and the Company of a further 15% shareholding in addition to its existing interests. This option is conditional upon the $4 million bank guarantee not being provided by NewCo to Lenen Pty Ltd by the later of 10 March 2000 or the date of issue of Development Consent.

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3.1 Completion of this Contract shall take place at the expiration of 14 days notice in writing by the Vendor to the Purchaser of the registration of a Plan of Subdivision in registrable form (generally in accordance with the VGF Plan) as a Deposited Plan at the Land Titles Office. 3.2 The Purchaser shall pay an instalment of $4,000,000 by way of Bank Cheque to the Vendor within three (3) months of the development approval defined in Clause 1.1 of the Option Agreement under which this Contract arose. 3.3 The Vendor shall not be obliged to complete this Contract unless all amounts owing to Richtech Pty Ltd by the Grantee under the Works Contract have been paid." 133 On 25 August 2000, Lenen wrote to Mr Mancuso confirming its offer and acceptance by Mancuso and the joint venture partners for an extension of the date for the provisional $4 million instalment payment referred to in cl 3.2 of the special conditions of the contract for the sale of the Land which was due on 1 September 2000. Lenen granted an extension to Friday 29 September 2000 on the terms and conditions set out in that letter as follows: "1. As a consideration for this extension of time Lenen will require the purchase price in respect of lots 1 & 2 to be increased from $8.0 million to $8.2 million with the increase in price of $200,000 payable on 1st April 2001. 2. The $4.0 million payment due on 1st September 2000 to be varied by CotCJV, providing an unconditional and unlimited in time Bank Guarantee acceptable to Lenen for $10.7 million and on receipt of same Lenen will return the existing $4.0 million bank guarantee previously provided by CotCJV. 3. On 1st April 2001 CotCJV to pay to Lenen $8.2 million in cash as settlement for lots 1 and 2 and $2.5 million in cash to Richtech Pty Ltd in settlement of the works agreement. If these payments in cash have not been received by both Lenen and Richtech, Lenen will be entitled to cash the $10.7 million bank guarantee. 4. On 1st April 2001 CotCJV to provide bank guarantee/s to the value of $12 million as security for the settlement on or before 22/08/2002 of contracts for the remaining lots 3, 4, 5 and 6 and on receipt of those bank guarantees Lenen will hand over title to lots 1 and 2 if available. 5. As an alternative to 4 above CotCJV to settle all remaining contracts for lots 3, 4, 5 and 6 by paying a further $11.5 million in cash to Lenen Pty Ltd on 1 April 2001. Lenen then will hand over all titles and return any bank guarantees to CotCJV held by it as security. Based on phone acceptance by yourself and your joint venture partners of the foregoing variations to the existing agreements between us, we will now instruct our solicitor David Beattie to amend his existing draft Deed of Variation as forwarded to Genevieve Overell on 18/08/2000 with appropriate amendments to include the foregoing to enable signing by all parties on or before 1st September 2000." 134 A part of the scheme was to pre-sell interests in the development to the clubs of NSW and thus provide some finance for its implementation. Unfortunately for the joint venturers, however, after testing the market, it became clear that the NSW clubs showed no interest at all in the Project. Not even one pre-sale had been effected by 1 August 2000. 135 In the light of this revelation, KPMG advised that the joint venturers give very careful consideration to formulating alternative strategies for the development of the Land, either in whole or in parts given the uncertainty of the Project being realised in the short to medium term. They said that they cannot recommend progressing with the preparation of an offering memorandum nor a prospectus until these issues are resolved. 136 Adrian Black had provided project management services to Mr Dalglish in previous developments. In August 2000, after a period of providing consultancy services to KCOTC, Black was appointed as Chief Executive Officer of KCOTC and Chairman of the Development Manager Panel. 137 On 6 September 2000, a Deed of Variation was entered into with Lenen which amended the put and call option to include the following: "9 A COTCJV agrees to lodge with Lenen on or before the 1 April 2001 an unconditional Bank Guarantee in favour of Lenen in an amount of $12,000,000.00 from an Australian Trading Bank approved by Lenen and otherwise in such form as Lenen shall approve as security for the obligations of COTCJV under the Contract or Contracts to arise from the exercise by COTCJV of Call Option B or the exercise by Lenen of Put Option B (as the case may be)." 138 It was at this stage that KNG elected to implement the Land Play. By that statement I mean that up until this point the basic concept was that there would be a luxury resort either for the clubs of NSW to operate or for the joint venture to operate. From now on, those visions were laid aside. 139 The election was made by a letter from Harry Stamoulis writing as a director of KNG to the directors of KCOTC. The letter referred to KPMG's letters of 5 September 2000 as a damning report on the marketing and funding strategies of the Project. That letter also noted that there were insufficient funds to cover the next stage of the Project. 140 The letter continued: "At our last Meeting it was noted that there was insufficient funds to cover the next stage of the project and it was suggested that each participant be requested to inject further funds and that such injection of further funds be treated by way of a capitalisation of debt. It appears that the Board is digressing from the decisions made at the Meeting held in May of this year where it was clearly stipulated that the funds owed to the shareholders (treated as moneysworth interest) would be attended to as soon as the builder and hotelier had been appointed. This is clearly set out in the Minutes of the Steering Committee held on 27 May 2000. It would however be my view that our first priority is to ensure that the payment to the landowners is met on 29 September 2000 and it would be my recommendation that priority should be given to this and that we should determine a strategy in which we maximise our opportunity of proceeding with the project as soon as possible notwithstanding the shift by KPMG in its position vis-à-vis their letter of the 5 September 2000. I take exception to the Recommendation Clause in the said letter as it lacks any substance and appears to skirt around the issues and one would have thought that more substantial recommendations would have been put forward given the purported knowledge that the project director has in relation to the overall project. Further KPMG appears to be preoccupied with its self vested interest in relation to "our involvement and the responsibilities and the basis for our remuneration. In view of the apparent delays that have now occurred it would appear that there is little option but for the Board to consider the "land play" option being exercised. This is a matter that I am presently giving serious consideration and respectfully suggest that all members should give due consideration given the time constraints. I therefore request that an urgent meeting of all participants be convened as soon possible to discuss the future strategies." 141 A meeting of the directors of KCOTC was scheduled for the afternoon of 18 September 2000. On that day Harry Stamoulis as director of KNG wrote to the directors of KCOTC in the following terms: "I wish to submit to the board a number of items for discussion which I have given serious consideration to in the last week. In view of the fact that the project has been delayed, I hereby give notice to the following:

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4.1 KNG Letter dated 18 September 2000 - Land Play. KNG's letter dated 18 September 2000 tabled. HS [Stamoulis] advised that he had spoken with his father over the weekend and come to the decision that they would not accept any further delays or inject further funds. HS advised that the project is dragging on and he and his family were not prepared to fund it alone and unless another equity participant was brought on board they see the project becoming a land play. MH [Mark Holland] asked HS whether a Club of the Clubs concept would be contemplated at all - Answer No. He further asked whether it should be KPMG's expectation that their fees be capped at $625,000 and relationships severed - Answer Yes. MH advised that if this was the case it was his view that KPMG would have no choice but to cease work on the project. RD [Dalglish] advised that his position was clear and it had been previously stated in his letter of 27 May 2000 and in his motion currently in front of the Board for resolution (refer to Agenda Item 4.2 adjourned from the Board Meeting held on 4 September). He further advised that he does not agree with KPMG's interpretation of the level of interest from Clubs as per their letter of 5 September 2000. HS stated that he agrees with RD in relation to KPMG's position. SM [Mancuso] asked if the land play was executed what payment is suggested for KPMG under the JV Supplementary Agreement. MH stated that the JV needs to understand that if a land play is accepted the distribution split will come into play; KNG 80% Club of Clubs 15%, Jandawn 2.5% and Arts 2.5%." 143 On 20 September 2000, Mr and Mrs Dalglish wrote to the directors of KCOTC in relation to KNG's letter of 18 September 2000. That letter also referred to the "adjourned motion". That was a reference to a motion proposed by Dalglish at the board meeting of 4 September 2000 that had been proposed and seconded, but deferred. 144 That motion was in the following terms: "That the shareholders of this company, KingsHeath Club of the Clubs Limited, ABN 48 089 214 648, be requested to proportionally contribute $2,000,000 to current assets on an interim basis. That the shareholders' proportional contribution be comprised of:

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And That the interim period extend until further equity is contributed as proposed. Or That satisfactory funding arrangements as proposed including purchase of the lands, have been made, And That all executive shareholder contracts cease of this date." 145 The letter claimed that the delay in the Project had been caused by a variety of factors and suggested that the blame could be attributed to the directors pursuing their own personal ends rather than the Project. The letter suggested a "way forward" including that the board "must meet" to do a number of things including: "7. To resolve further the already clear strategy for committed pre-sales to the 13 major clubs whose principal executives attended the very successful presentations made in the KPMG Parramatta Boardroom on 22-23 August 2000, at which all the Joint Venturers and Board of Directors were present. … For the purposes, as outlined above, I propose: - a meeting on Monday, 25 September, in Melbourne, at KPMG, at a time to be arranged." 146 On Thursday 21 September 2000, Mr Mancuso sent Mr Dalglish an email with an attachment identified as "Overriding Supplementary Joint Venture Agreement" (OSJVA). The subject of the email was "Draft go forward document". 147 Mr Mancuso advised that over the past few days he had endeavoured to find a middle ground to go forward and that he had tried to "protect us all in my construction of this draft". He said also that Messrs Holland and Shannon had some input into the document and concluded by saying "I hope it meets your approval and if not I'm sure you will respond with your comments and changes". 148 Mr Dalglish made notes on that email and on the draft agreement enclosed with the email and sent it to Mr Mancuso on 22 September 2000. Those notes dealt with a number of topics within the proposed OSJVA but commenced with the comment "why re-invent the wheel?" He concluded the note with the suggestion: "concentrate your intellectual horsepower on selling the product to clubs". 149 There was further correspondence between the directors culminating in the holding of a meeting on 25 September 2000 at KPMG offices in Melbourne. 150 Present at that meeting were Messrs Harry Stamoulis, Shannon and Mancuso. 151 The minutes of the meeting record the following: "1. Meeting scheduled time of 1.00 pm delayed in the expectation that Ray Dalglish may have been running late. A phone call was made to Ray Dalglish to determine his whereabouts. The call resulted in hearing from Ray that he would not be attending the meeting, (proposed by Ray). The meeting instructed Ray that it intended to take a vote on the OSJVA and that the meeting invited RWD's input. RWD stated that he would phone back in 20 minutes. RWD's call did not eventuate. 2.Notice of Motion 2.1 Sam Mancuso tabled as a motion the Overriding Supplementary Joint Venture Agreement dated 25-09-00 and that it be accepted and signed by all parties, a copy of which be forwarded to RWD for signing Seconded: Chris Shannon" 152 The minutes also record that Mr Mancuso tabled "as a motion" the OSJVA for the acceptance and signature by all parties with a copy to be forwarded to Dalglish for signing. The minutes record that the motion was adjourned "pending the Dalglish response". The minutes also record that the meeting was adjourned at 3.50pm waiting for Dalglish's response and input to the agenda. 153 The minutes include: "Meeting re convened at 4.15 pm Meeting attempted to call Ray at 4.25 pm and 4.26 pm on both home and mobile, on which a message read 'line was engaged' and a message was left to imply that reasonable time had passed in order for Ray to respond. Ray was again called at 5.00 pm, the same message was received that the line was engaged. Note: the motion 2.1 was carried and the Overriding Supplementary Joint Venture Agreement was signed by the parties present." 154 The document described as the OSJVA is a significant document in the case. The parties to the OSJVA were identified as KNG (First Part), COTC (Second Part), Jandawn (Third Part) and Arts (Fourth Part). The terms of the OSJVA included the following: " KHCotCJV shall be interpreted and mean all of the aforementioned Parties INTRODUCTION

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(M) All parties agree to meet proportionately as to the share holding as at the 15 September 2000 payments owing to all agreed creditors." 155 There was considerable activity and correspondence between the parties between 25 September and 12 October 2000. However, all that need be mentioned is that there was a KCOTC directors' meeting on 2 October 2000 at which Mr Dalglish tendered his resignation as a director to avoid perceived conflicts of interest and that a set of meetings were convened for 12 October 2000 to consider whether the decisions of 25 September 2000 made in Mr Dalglish's absence should be ratified. 156 In order to carry out this intention, on 8 October 2000, Mr Shannon sent to the KCOTC directors the agendas for the meetings of the shareholder/participants of KCOTC and the directors of KCOTC to be held on 12 October 2000. The agenda for the "shareholders/participants" meeting included the following: "1. Overriding Supplementary Joint Venture Agreement In the absence of RW Dalglish from the meeting of the 25th September, a meeting of shareholders is positioned at the time stated to discuss any issues pertaining to this document and to invite support to any changes that may require a Board resolution to amendments (if any) or other." 157 Mr Black produced a detailed report for the board to consider at its meeting on 12 October 2000. That report emphasised the need for market testing and the "essential" requirement for funding to "establish the next preferred form of development through to the point of financial closure". 158 The minutes of the meeting of shareholders of KCOTC on 12 October 2000 at 1.20pm included the following: " 1. Adoption of Minutes A motion was put by HS to accept the minutes of the 25 September 2000 and to include the Over-Riding Supplemental Joint Venture Agreement (ORSJVA) as signed by three of the Directors. Motion was seconded by CS. The matter was opened for discussion. RD requested that the title of the meeting be such that it can be legally constituted. Discussion ensued as to which entity the motion is being put to. … At 1.55 pm all voted in favour of convening a Joint Venture Steering Committee Meeting to consider the Minutes of a Joint Venturer's Meeting held on 25 September 2000. It was resolved that the Meeting held on 25 September 2000 was a Joint Venturer's (shareholders) Meeting. RD stated that each member of the JV has an equal vote and that the Chairman has the casting vote. MH and SM both stated that they thought that 75% majority was required. … At this point HS made it known that this was NOT a Joint Venture Steering Committee Meeting. The JV has called a Joint Venture/Shareholders Meeting and should continue with this meeting prior to the Directors Board Meeting. HS said to MH that there was no need to convene a Joint Venture Steering Committee Meeting and that the Joint Venture Steering Committee Meeting does not tell the Joint Venture/Shareholders what to do. … It was then decided that the Joint Venture Steering Committee Meeting would not proceed and that the meeting be reconvened as a Joint Venture/Shareholders Meeting. … CS asked whether the ORSJVA could be adopted. RD suggested that the document should be re-written. SM responded that if any of the shareholders wished to make amendments they can, however, he is in favour of the document in its current form. RD asked HS what his intentions were in relation to the ORSJVA. HS replied that he does not have any intentions at this stage, he is just looking to lock in the commitments from a hotelier and builder and has put a date on the commitment do so to try and emphasis the importance of the matter. … [Item k] [referring to clause (K) of the OSJVA] - no discussion [Item k2] [referring to clause (K)(ii) of the OSJVA] - RD stated that it is totally unacceptable to him to expect him to sign away his intellectual property. … A vote was called to adopt the document - Over Riding Supplemental Joint Venture Agreement. … CS - HS has stated that if the JV gets to a Heads of Agreement situation with a hotelier by this time they will accept and likely change the date. HS - agreed with this, stating, if we come to 10 November 2000 and the situation remains as it is currently then he will do whatever he needs to. If anyone wants to stay in the project then they will need to put up the same money. The only rights RD has is the Club of the Clubs concept. RD - argued that the reason the land was purchased (sold by Lenen) and DA achieved was because of his concept. … RD - voiced his strong objection. He stated that ORSJVA was without validity or legality and is outside the scope of all other Agreements made. He further stated that (it was prepared) at an illegal meeting. He stated that the ORSJVA was an agreement between some of the joint venturer's splitting up their share. He further stated that he was violently opposed to the Minutes stating it any other way. MH - suggested that perhaps one way the ORSJVA could have any weight or acceptance was if it was redrafted to state that the parties to the Agreement were KNG, Arts and Jandawn. Not Club of the Clubs. The only issue at stake would then be Club of the Clubs interests. HS - replied that they would not be redrawing the Agreement. The Agreement has been tabled, resolved, approved and adopted. Vote on whether it is agreed. RD - stated that he would abstain from any vote as it is an illegal motion. … Vote was taken on the adoption of minutes including the ORSJVA. 3 in favour - CS, SM and HS. 1 abstainer - RD because it is an improper motion and not legal in his view." 159 The minutes of the meeting of directors of KCOTC on 12 October 2000 at 4.09pm record the following: " 2. Notice of Motion (Stamoulis) Motion that the Over Riding Supplementary Joint Venture Agreement, with or without amendments, be adopted, with amendments (if any) put by CS. Seconded by HS. CS voted in favour. RD opposed. Chairman not required to cast vote as 2-1. Motion adopted." 160 At this point, I need to digress and deal with an allegation that the vote of Arts to these resolutions was secured by an underhand payment of $1,500,000. 161 KNG did not on its own constitute the 75+% majority that was need to put the OSJVA in place. The submission was made, and was accepted by the primary judge that a device was employed of Arts submitting a "dummy invoice" for $1,500,000 which was paid without demur as the price for Arts' consent to the OSJVA. 162 The invoice dated 22 February 2004 was addressed to Harry Stamoulis at KDG and was in the following terms: To our cost herein comprising introduction to project, commissions, provision of office facilities, assisting in negotiations for the acquisition of land at Kingscliff, providing advice in relation to proposed promotional material, administration and taking into account consideration care, skill and responsibility. SAY $1,500,000 Fees subject to GST $1,500,000 GST Applied $150,000 Total fees including GST $1,650,000

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163 The primary judge noted that Harry Stamoulis was cross-examined about an entry in the profit and loss statement of KDG for the year ending 30 June 2004 that recorded an expense of $1.5 million as consultants' fees to Arts. He accepted that the payment was in fact made to Arts by KDG. He denied that he was a party to any agreement pursuant to which the payment was made to Arts and said that his father, Spiros Stamoulis, was the person on behalf of KDG who reached agreement with Arts in relation to that payment (T292-293). 164 Harry Stamoulis said he believed his father used Arts or Mr Mancuso to help him with entry into the Macquarie Joint Venture. 165 The primary judge did not accept that Harry Stamoulis was a mere conduit for his father. She said that to suggest, as he did, that he did not think about the invoice for $1.5 million plus GST from Arts is simply unbelievable. She held the Arts invoice was clearly a device to facilitate a payment to Arts after the completion of the Land Play. 166 The primary judge continued by saying that whilst the absence of any evidence from Mr Mancuso and/or Mr S Stamoulis assists the plaintiffs' submission slightly, it was the evidence of Harry Stamoulis generally and that referred to above and later in this judgment that convinced her that KNG allowed Arts a share of $1.5 million plus GST in the gains of the Land Play. 167 The primary judge noted that ultimately the appellants abandoned their submission that the fact that because Arts was willing to agree to the OSJVA, fairness and reasonableness of cl 4(K) of OSJVA is established. 168 The appellants say that that finding was not supported by the evidence and that, in particular, it just was not necessary for the Stamoulis interests to obtain Arts' vote as they had sufficient majority to secure the passing of the resolution without the support of Arts. 169 The appellants also set out a number of other factors which her Honour did not take into account when making this finding (see Orange Book pp 39-40). 170 However, it seems to me that her Honour's finding was well within her mandate. 171 By the end of October 2000, KPMG had indicated its unwillingness to be further involved in the Project unless its fees were paid. Mr Black provided an "Urgency Report" to the directors of KCOTC in which he analysed the company's financial position. He advised that it was "necessary" not to incur any further liabilities because "the capacity to pay is uncertain at best". He also advised that it was appropriate for him to tender his resignation as CEO and that it would be a matter for the joint venture participants as to how best to use his services in the future. 172 A meeting took place on 13 November 2000 at which Messrs Stamoulis, Shannon and Mancuso were present. 173 The minutes record that it was a meeting of the "Joint Venture Participants (Shareholders)" of KCOTC. Mr Dalglish is recorded as an apology. Those Minutes include the following: " 4 Motion Harry Stamoulis moved Shareholders to agree to nominate as per clause 6 of the put and Call Option Agreement, KNG as the purchaser of the land and that the shareholders authorise the Directors of KingsHeath Club of the Clubs Limited to approve and sign all documents necessary to achieve the above. Seconded Sam Mancuso - Motion carried Sam stated his disappointment at the lack of interaction between the shareholders in finding a solution to the difficulties the Joint Venture is facing and suggested that the worst is yet to come. … General Business

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6 KNG notifies the shareholders of KingsHeath Club of the Clubs Limited that it intends to exercise its right under the Over Riding Supplemental Joint Venture Agreement. KNG has offered to hold discussions with each and every member (shareholder) of the Joint Venture Group as a sign of good faith in order to seek positive solutions to the development or sale of the land going forward. Sam Mancuso stated that he intended to withdraw from the project should the position of debt to the company not be resolved." 174 On 21 November 2000, KNG made another election for the Land Play. It wrote to the joint venture participants in the following terms: " RE: JOINT VENTURE On behalf of KNG I hereby give notice pursuant to paragraph 5.3 of the Joint Venture Supplementary Agreement dated 10 February 2000 and paragraph 4K of the Overriding Supplementary Joint Venture Agreement dated 25 September 2000 KNG elects to complete the joint venture project as a real estate transaction only. KNG's right to complete the joint venture project as a real estate transaction only is invoked by virtue of the joint venture parties and the company failing to achieve the pre-committed sale of units as set out in clause 5.4 of the said Supplementary Agreement and Clause 4K of the Overriding Supplementary Joint Venture Agreement." 175 On 29 November 2000, Harry Stamoulis wrote to the joint venture participants in the following terms: "You will recall that in May this year an agreement was entered into whereby each partner's entitlement was adjusted as a result of King Network Group Pty Ltd arranging for the appropriate bank guarantee to be provided. Please find enclosed herewith Transfer of Share form that is required to be executed by you in accordance with the agreement reached at the meeting held on 27 May 2000. It would be appreciated if you could sign the attached Transfer of Share form so that that the records can be brought up to date. Upon return of the Transfer of Share form I shall arrange for new Share Certificates to be issued reflecting the shareholding in Kingsheath Club of the Clubs Limited." 176 Although Jandawn and Arts completed the share transfers, COTC did not transfer its shares. 177 In December 2000, Mr Shannon commenced negotiations with the Ray Group seeking to interest it, with Macquarie Bank, in a new joint venture. On 15 December 2000, Shannon wrote to Brian Ray of the Ray Group in terms that included the following: "An important feature of the Club of the Clubs (CotC) concept sits within its marketing and sales strategy which is unique to CotC and is demonstrated in the formal documentation, which details how the entire project can be funded on little more than the cost of the land and the cost of the super precinct subdivision and planning and marketing costs, much of which is Bank Guarantee funded." 178 Mr Shannon suggested the following: "A newly formed entity (including part or whole of the original owning group) express their interest in remaining with the Club of the Clubs concept and with all future Club of the Clubs projects. The CotC entity would wish to pursue the development of the Clubs Services Plan (in conjunction with Macquarie) to the formation of a 'smart (credit) card' facility, as a development plan proposal by CotC." 179 Mr Shannon obviously spoke with Stamoulis about his interest in selling KNG's interest in the Land, and on 11 January 2001, Stamoulis advised Shannon that KNG was prepared to consider selling its interest in the Land for an amount not less than $16.5 million. Shannon advised Dalglish of this information on the same day with a breakdown of that figure as $2.25 million cash, $10.7 million land, $500,000 loan and $3.050 million costs. 180 On 21 January 2001, Mr Shannon wrote to KPMG (Mark Holland) advising that Mr Stamoulis had nominated a Land Play and had indicated that he would sell his interest for $16.5 million on terms to be negotiated. Mr Shannon advised Mr Holland that Dalglish and he wished to take 15% each and put a proposal to him based on an offering memorandum synopsis for a 70% equity participation at $37 million. 181 On 21 February 2001, Lenen signed a put and call option between it and KCOTC for the purchase and sale of the Land at $20.2 million. Clause 5 of that agreement provided that KCOTC could appoint a nominee to exercise the call option and that if a nominee was appointed KCOTC would guarantee the performance by the nominee purchaser. 182 That agreement was conditional upon the valid termination or rescission by Lenen of the put and call option dated 18 August 1999 and the contract for sale dated 15 June 2000. Lenen agreed that it would "as quickly as possible" take the necessary steps to rescind or terminate those agreements. 183 Also on 21 February 2001, KNG entered into a guarantee and an Indemnity Deed with Lenen guaranteeing payment of the purchase price to Lenen. 184 Lenen issued to COTC, Jandawn, KNG and Arts a Notice of Rescission dated 28th February 2001 in the following terms: "In the matter of a Contract ("the Contract") dated 15th day of June 2000 as varied by a Deed of Variation dated 6 September 2000 made between you as Purchaser and Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Queensland ("Lenen") as Vendor relating to Lots 1 and 2 on the Plan attached to the Contract and being part of Folio Identifiers hundred 194, 301 and 312/755701 ("the Land"). TAKE NOTICE that you are in default under the Contract in the following respect: You are in default under Clause 2.3 of the Contract for failing to obtain all necessary approvals from Tweed Shire Council ("the Council") and within 6 months of the date thereof comply with all the conditions of those approvals and the Development Application and in particular to provide all the services within the Land which are required by the Council in accordance with the requirements of the Council. TAKE NOTICE that unless the above default is remedied by the 18th day of April 2001 the Contract will be terminated by Lenen." 185 On 9 March 2001, Harrry Stamoulis wrote to Messrs Mancuso, Shannon and Dalglish advising that there was to be a meeting of the participants to the Put and Call Option Agreement to be held on 15 March 2001 at 11am at the Arts Group offices in Melbourne. The notice advised that the purpose of the meeting was to discuss the rescission notice issued by Lenen, the obligation to provide Lenen with a bank guarantee and other general business. 186 The minutes of the meeting on 15 March 2001 record that Messrs Harry Stamoulis, Dalglish, Shannon and Mancuso were present and record the following: "RD & CS do not think that the Rescission Notice is valid and believe the Bank guarantee for 12m is not due until June 2002. CS advised that David Beattie has misquoted clause 2.3. SM offered to pay his share of the Bank Guaranteed being 1.2m and told the others to pay their share. His view was that Lenen would be happy if it received the 12m and that there would not be any problems. He asked if everybody else could meet their obligations pay. HS advised SM that there was no need to put up any money, as it was not SM or anyone else's problem. As far as HS was concerned he owns 100% of the land as per the Overriding Supplementary Joint Venture Agreement (OSJVA) and other resolutions. SM said he was happy not to come up with any money as long as there was no claim against him. RD believes Lenen will not cash the 10.7m Bank Guarantee. SM again stressed that if Lenen were paid there would not be a problem. He also advised that he felt insulted that accusations were made against him regarding Tribal and that no apology was forthcoming. CS advised that the Tribal account was above board. RD again emphasised that the 12m Bank Guarantee should be paid in June 2002. SM asked what happens in the meantime. RD said it's up to HS. SM asked what position did the JV have if any to which RD had no comment. RD suggested that a reply to Lenen was required and that HS should be the one to reply. SM advised that the Rescission notice was not his problem; it is KNG's problem and the OVSJV covers this. CS also stated that he felt it was HS problem however he would help because HS has called a Land Play. CS touched on people buying the land from HS but nothing has been received in writing. HS re-iterated that the other participants had their opportunity to remain in the land however they could not meet their obligations therefore the various resolutions and agreements were passed. HS against stressed that he had put up 13.5m whereas the others had put up nothing. HS stated that if the Ray, Sam or Chris wished to have an interest in the land then they were welcome to put up money towards the acquisition of the land and avoid Lenen rescinding the contract. He advised if they were not prepared to do so he would make every effort to purchase the land as per previous resolutions. RD felt that we should advise Lenen that the JV had novated its rights in the land to Kingsheath Limited and that the Rescission Notice should be directed to Kingsheath. He also felt that each person should get their own legal advice. RD advised HS that he would send him his advice once he has it." 187 The primary judge held that it was apparent that at that time, Mr Dalglish was pursuing other parties to interest them in becoming involved in a joint venture to develop the Land. A further strategy adopted by Shannon and Dalglish was to purport to convene a meeting of KCOTC and the joint venture. This met with a rebuff by Harry Stamoulis who once again claimed that he had assumed 100% control of the "joint venture" and of KCOTC. 188 In his letter of 28 March 2001 to COTC and Jandawn, Harry Stamoulis wrote: "In accordance with the resolutions carried last year it is KNG's intent to ensure that Kingsheath Club of the Clubs Ltd will assume obligations to Lenen Pty Ltd and Richtech equivalent to those of the Joint Venture. I expect that the Notice of rescission has been issued by Lenen Pty Ltd to facilitate this occurring and it is not likely to result in the Joint Venture parties being exposed to a large claim by Lenen because the land transaction will still be proceeding." 189 Lenen issued a Notice of Rescission dated 3 April 2001 to COTC, Jandawn, KNG and Arts in the following terms: "In the matter of a Put and Call Option ("the Put and Call Option") dated the 18th day of August 1999 between Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Queensland ("Lenen") said Club of the Clubs Pty Ltd, Jandawn Pty Ltd, Arts Investments Pty Ltd and AWD Spring Water Pty Limited as varied by Deeds of Variation dated the 15th day of June 2000 and the 6th September 2000 between Lenen and you relating to the land described in Certificates of Title Folio Identifiers 194, 301 and 312/755701 ("the Land"). TAKE NOTICE you are in default under the Put and Call Option in the following respect: You have failed to lodge with Lenen on or before the 1st April 2001 an unconditional Bank Guarantee in favour of Lenen in the amount of $12,000,000.00 as required by the Deed of Variation dated the 6th September 2000. TAKE NOTICE that unless the default is remedied by the 19th April 2001 Put and Call Option will be terminated by Lenen." 190 Each of Messrs Dalglish and Shannon wrote to Lenen protesting about this Notice of Rescission and arguing that it was invalid. However, Mr Beattie wrote separate letters to each of them on 9 April 2001 to the effect that time was of the essence and that he would not withdraw the Notice of Rescission. 191 Lenen issued two Notices of Termination to COTC, Jandawn, KNG and Arts both dated 23 April 2001. 192 The first was in relation to Land Contract in the following terms: "In the matter of a Contract ("the Contract") dated 15th day of June 2000 as varied by a Deed of Variation dated 6 September 2000 made between you as Purchaser and Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Queensland ("Lenen") as Vendor relating to Lots 1 and 2 on the Plan attached to the Contract and being part of Folio Identifiers 194, 301 and 312/755701 ("the Land"). TAKE NOTICE that as you have not remedied the default under Clause 2.3 of the Contract by 18 April 2001 the Contract is hereby terminated by Lenen." 193 The other Notice of Termination was in relation to the put and call option in the following terms: "In the matter of a Put and Call Option ("the Put and Call Option") dated the 18th day of August 1999 between Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Brisbane ("Lenen") the said Club of the Clubs Pty Ltd, Jandawn Pty Ltd, Arts Investments Pty Ltd and AWD Spring Water Pty Limited as varied by Deeds of Variation dated the 15th day of June 2000 and the 6th September 2000 between Lenen and you relating to the land described in Certificates of Title Folio Identifiers 194, 301 and 312/755701 ("the Land"). TAKE NOTICE that as you have not lodged with Lenen the Bank Guarantee in the amount of $12,000,000.00 by the 19 April 2001 the Put and Call Option is hereby terminated." 194 On 9 July 2001, KNG entered into a Memorandum of Understanding (MOU) with Macquarie Bank and the Ray Group in which it was agreed that the three parties would undertake certain due diligence investigations. 195 The MOU recorded the fact that on 21 June 2001, the Ray Group had presented a proposal for the joint development of the Land and other land known as Koala Beach, of which the Ray Group was joint venture partner and equitable owner with a company, Cinereus Beach Pty Ltd. The MOU also recorded that KNG had proposed that each of the parties should contribute $11 million to the proposed joint venture as initial capital and that the Land be acquired for $25 million on entering into the proposed joint venture or 30 June 2002. 196 The MOU also recorded that the parties had not agreed to these proposals. However it was agreed that KNG would not during the due diligence investigation period grant to any other party a legal or equitable interest in the Land or undertake any negotiations with any other party to grant such an interest in the Land. 197 On 23 January 2002, a Joint Venture Deed was executed by South Kingscliff Developments (SKD), the new joint venture vehicle Hopper No 1 Pty Ltd, Kingscliff South Pty Ltd, a company associated with Brian Ray, King Development Group (KDG), KNG, Macquarie Bank, Brian Ray and various Ray Group companies, S Stamoulis and Ryssal-One Pty Ltd. 198 The recitals to that Joint Venture Deed recorded that KNG was the owner of the Land and that it had funded the acquisition of the Land and paid all holding costs using funds lent to it by interests related to it. 199 The recitals also recorded that Hopper, Kingscliff South and KDG intended to constitute themselves as joint venturers to facilitate the development of the Project on the Land. KNG was not to be a party in the joint venture, but was a party to the Deed for the purpose of the promise to enter into the put and call option in relation to the Land. "Project" was defined as "the proposed development known as 'Kingscliff South' (or such other name as the Joint Venturers may from time to time agree) comprising a resort apartment hotel and a mixture of medium density and residential lots as shown in the Master Plan in the form of the New Scheme or the Old Scheme as the case may be". The New and Old Scheme provided respectively for 1105 dwellings or 799 dwellings. 200 On the same day KNG granted to those joint venturers a call option to purchase the Land. That option was granted pursuant to a Call Option Deed, cl 2.3 of which provided that upon the exercise of the call option, KNG and the joint venture nominee would be immediately bound as vendor and purchaser respectively on the terms of the contract that was annexed to the Deed. The contract annexed to the Deed was between KNG and SKD at a price of $25 million. 201 There were various other agreements and deeds signed on the same day with provision for the Ray Group to become the manager of the new development and for Macquarie to become the financier of the development. KNG also executed a Power of Attorney in favour of SKD operative from the date of the Joint Venture Deed to the Termination Date, which was defined to mean the date that KNG's obligations to SKD and the joint venture under the Macquarie Joint Venture Deed ceased. 202 The Macquarie Joint Venture proceeded to develop the Land and on 11 November 2003, a deed was executed whereby KDG and Macquarie Bank agreed to transfer their interests in the joint venture to the Ray Group. The consideration for the sale of the interests was $20 million. 203 KCOTC was placed into liquidation on 16 August 2001, Mr Keith Sutherland being appointed liquidator. 204 On 17 September 2004, Mr Sutherland as liquidator of KCOTC entered into agreements with the second respondent assigning various causes of action to the second respondent. 205 The appellants say that the learned primary judge erred in a number of respects. In summary these are as follows:

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(G) The judge miscalculated fair compensation. 206 A cross-appeal was filed by COTC basically saying that the amount awarded by her Honour was too low. I will consider this under head (H). 207 As COTC is now in liquidation, leave was sought and given to proceed with this appeal against it. 208 The appeal was heard on 31 March and 1 and 2 April 2008, Mr I M Jackman SC and Mr I G Waller SC appearing for the appellants and Mr B A Coles QC and Mr H Stowe for the respondents. 209 I believe that the most efficient way of determining the issues raised on the appeal is to consider the matters listed (A)-(H) above, or at least so much of them that are relevant for a decision to be made on the appeal and the cross-appeal. 210 (A) and (B) It will be remembered that the parties had, by their initial agreement of 4 August 1999, agreed in cl 4(b) that the management and overseeing of the Project will be conducted by the joint venture and that the decisions of the Steering Committee in relation to the joint venture, will, subject to cl 13, bind each of them. 211 Clause 13.1 of the initial agreement entrusted the management and control of the Project and the joint venture to the Steering Committee with ten exceptions which, by cl 13.2 were to be decided by the participants personally. 212 The Steering Committee's role was, inter alia, to oversee the conduct and progress of the Project. "Project" (note the capital P) was defined as "the development of the Site, and the subsequent sale of properties or interests in properties on the Site once the development is completed, in the manner described in the document entitled 'Club of the Clubs - Executive Summary and Marketing Concept' …". 213 "Joint Venture" was defined as "the joint venture established under this Agreement and known as Kings-Heath Club of the Clubs Syndicated Joint Venture". 214 The ten excepted matters were: "(a) any proposals regarding the raising of additional equity or capital for the purposes of the Project or the Joint Venture; (b) any decision regarding the acquisition of the Additional Land; (c) any proposals regarding the raising of any funding for the purposes of the Project (including the acquisition of the Additional Land) which require the provision of any form of security or encumbrance over any Joint Venture assets; (d) any decision, resolution or action relating to the undertakings or guarantees given pursuant to paragraph 3.1(b), including any calls, any reduction of the amount of the undertaking or guarantee or the release of parties from those undertakings or guarantees as the case may be; (e) approval of the prospectus to be issued by the Company; (f) determination of the timing of the sale of, and approval of the selling campaigns for, each of the stages of the Project; (g) any amendment to this Agreement; (h) the admission of a new Participant to the Joint Venture; (i) the sale or disposal of the Joint Venture's entire interest in the Project, prior to the completion of that Project; and (j) the termination of the Project or this Agreement." 215 The basal proposition of the respondents was that although the resolutions of 12 October 2000 were passed by the appropriate majority at properly convened meetings, the Land Play was not able to be authorised under cl 13. 216 The parties seem agreed that the construction of cl 13 must be approached as a commercial document having regard to its commercial purpose. However, the appellants say that that means giving it maximum flexibility. 217 The primary judge held that the commercial purpose was to facilitate the implementation of the Project and to avoid delay in its progress. 218 The primary judge then looked at paragraphs (a), (d), (g), (h), (i) and (j) and said that the OSJVA did not fall into any of those categories. 219 A clause entrusting the whole management of a project to a committee or board of directors is a very common one in corporate undertakings. 220 A very common example is s 198A of the Corporations Act 2001 (Cth) or its predecessors in Table A to previous Companies Acts which provides that the management of the company is to be managed by or under the direction of the directors. 221 Such provisions have been given very wide operation. For instance in Gramophone and Typewriter Ltd v Stanley [1908] 2 KB 89 at 105, Buckley LJ said: "even a resolution of a numerical majority at a general meeting cannot impose its will upon the directors when articles have confided to them the control of the company's affairs." 222 It seems to me that cl 13 was intended to deal with all decisions that needed to be made with respect to the Project or the joint venture. Apart from the ten matters, the decisions of the Steering Committee bound the participants to the exclusion of the participants. 223 However, no Steering Committee meeting was held on 12 October 2000. The two meetings held were of the participants and of the directors of KCOTC. 224 I should repeat part of the minutes of the first meeting of 12 October 2000 at which the joint venturers made clear what was the nature of the meetings that were being held. 225 The minutes read: "At 1.55 pm all voted in favour of convening a Joint Venture Steering Committee Meeting to consider the Minutes of a Joint Venturer's Meeting held on 25 September 2000. It was resolved that the Meeting held on 25 September 2000 was a Joint Venturer's (shareholders) Meeting. RD stated that each member of the JV has an equal vote and that the Chairman has the casting vote. MH and SM both stated that they thought that 75% majority was required. … At this point HS made it known that this was NOT a Joint Venture Steering Committee Meeting. The JV has called a Joint Venture/Shareholders Meeting and should continue with this meeting prior to the Directors Board Meeting. HS said to MH that there was no need to convene a Joint Venture Steering Committee Meeting and that the Joint Venture Steering Committee Meeting does not tell the Joint Venture/Shareholders what to do. … It was then decided that the Joint Venture Steering Committee Meeting would not proceed and that the meeting be reconvened as a Joint Venture/Shareholders Meeting." 226 It was common ground on this appeal that the current matter was not one for the Steering Committee, but needed to be considered by the participants. 227 One would have thought that this would mean that as there must be some body which could make decisions, that the participants themselves could make decisions but that they had to be unanimous. 228 As there was no unanimity, one needs to consider whether what was done was within the ten exceptions in cl 13.2, those matters being the only matters where the participants in the joint venture had power to make decisions by majority. 229 The only possibilities are the items mentioned by the primary judge. 230 The appellants' primary argument was addressed to (g) namely, "any amendment to this agreement". 231 The learned primary judge rejected this submission because she ruled that there was no suggestion that the parties contemplated or intended that the provisions of cl 13 were to apply to amendments to agreements other than the Joint Venture Agreement. She emphasised that cl 13.2(g) referred to this agreement and noted that the Joint Venture Agreement made no provision for a Land Play. 232 Appellants' counsel point to authority such as Kearns v Hill (1990) 21 NSWLR 107 and Permanent Trustee Co Ltd v National Australia Managers Ltd (M McLelland CJ in Eq, 8 August 1994, unreported) that provisions such as cl 13.2(g) are usually construed so as to give the parties maximum flexibility to provide machinery to meet any contingency. 233 They further submit that the judge's distinction between the Joint Venture Agreement as this agreement and other agreements was artificial and without substance. Furthermore it was in any event wrong to make the distinction as all the agreements by the parties went to vary and amend the original Joint Venture Agreement. 234 The respondents say that when considering powers of amendment one must look to: (a) the context of the overall agreement; (b) the reference to the commercial objectives of the agreement; and (c) construe any power of amendment consistently with a reasonable outcome, unless it is abundantly clear that a contrary result was intended. 235 No matter how wide the power to vary might otherwise be, the respondents submit that it would not extend to an alteration to the agreements by which some members of the joint venture were enabled to expropriate the interests of another member or members. 236 Furthermore, it is put that the authorities relied on by the appellants do not mean that in every case the power to amend must be construed flexibly and broadly. Even if that proposition is too widely expressed, the authorities do not authorise an expropriation by means of an amendment to the agreement. 237 One needs to look at the "true purpose" of the resolutions. 238 The primary judge said the true purpose of the resolutions was to have all parties accept (or agree to) and sign an agreement whereby: (1) if the imposed timeframes were not complied with, KNG would be given the right to deal with the Land at its sole discretion but in accordance with the put and call option and the variations thereto, and to require the other participants to transfer their interests at its direction; and (2) there would be a change in the nature of the benefit to be delivered to KNG in the Land Play from one in which it was required to share any profits on a pari passu basis with the other participants to one in which it did not have to share any profits. 239 The primary judge approached the problem by first identifying the true purpose of the resolutions and then considering whether they were "in relation to" any of the relevant matters listed in cl 13.2. 240 If the matter did not come within (g), the appellants submitted that it fell within (a) which referred to the raising of additional equity or capital. 241 The primary judge ruled that the presence of the provisions in the OSJVA in relation to the timeframes for the payments by the builder and hotelier and other provisions dealing with KNG's agreement to underwrite the $10.7 million guarantee due to Lenen do not justify characterising the resolutions as resolutions in relation to the raising of additional capital or equity as that expression is to be understood in cl 13.2(a) of the Joint Venture Agreement. 242 She ruled that the expression the "raising of additional capital or equity" in the Joint Venture Agreement has the meaning well understood by commercial parties, and these participants in particular, of going to the market and/or banks and/or financial institutions with various forms of security to raise that capital or equity additional to that already in place. The purpose of these resolutions was not to raise additional equity or capital for the purposes of the Project or the joint venture. Their true purpose was as described above. 243 Thus, she ruled that the resolutions did not come within (a). 244 I consider that one needs to look at cl 13 in a broad commercial manner. The parties to my mind were setting out a scheme whereby all decisions could be made by less than the unanimous vote of the joint venturers. Administrative decisions were to be made by the Steering Committee, more fundamental decisions were to be made by the participants themselves by a majority. 245 Clause 13.2 contains ten core matters which were reserved to the participants. 246 I consider that one should construe cl 13.2 widely and globally. On this basis, the resolutions of 12 October 2000 are clearly valid. 247 In any event, on a broad construction, the resolutions fell under (g) and/or (a) subject to the doctrine of fraud on the power to which I will return. 248 In particular I agree with the submission that to confine (g) to amendments to the initial agreement is too artificial to stand. The parties were building on their initial agreement from month to month and must have intended the power of amendment to mean their Joint Venture Agreement as for the time being in force. 249 I should add that I do not consider that it necessarily follows that if a resolution was not validly passed under cl 13.2 it was completely invalid. However, in the circumstances, it is unnecessary to develop this thought. 250 However, if it is appropriate to hold that the resolutions of 12 October 2000 were passed on a fraud on the power to amend, the result in equity may be affected. 251 The respondents placed considerable reliance on the High Court's approach in Gambotto v WCP Ltd (1995) 182 CLR 432. 252 In Gambotto, the court took a strict view as to amendment to the articles of association of a corporation which had the effect of expropriating the property of a shareholder. 253 In Gambotto at 445, Mason CJ, Brennan, Deane and Dawson JJ, with reference to what Dixon J said in Peters' American Delicacy Co Limited v Heath (1939) 61 CLR 457 at 507, referred to the problem of identifying some element, the presence of which would always vitiate a resolution for the alteration of articles of association and said: "The exercise of a power conferred by a company's constitution enabling the majority shareholders to expropriate the minority's shareholding for the purpose of aggrandising the majority is valid if and only to the extent that the relevant provisions of the company's constitution so provide. The inclusion of such a power in a company's constitution at its incorporation is one thing. But it is another thing when a company's constitution is sought to be amended by an alteration of articles of association so as to confer upon the majority power to expropriate the shares of a minority. Such a power could not be taken or exercised simply for the purpose of aggrandising the majority. In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders. In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs - resulting in detriment to the interests of the existing shareholders generally - and expropriation is a reasonable means of eliminating or mitigating that detriment." 254 The appellants say that the Gambotto approach is confined to alteration to the constitutions of corporations and should not be applied to joint ventures. 255 In support of that proposition, the appellants cited the decision of Hely J in Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65 at 85 [87] where his Honour said that the Gambotto approach did not apply in trust law where the governing focus was the trust deed. 256 The recent decision of the Privy Council in Citco Banking Corp v Pusser's Ltd [2007] 2 BCLC 483 reinforces the view that courts should be slow to expand the fields covered by the Gambotto approach. 257 Having considered his Honour's reasons in Cachia and the remarks of Austin J in Arakella Pty Ltd v Paton (2004) 60 NSWLR 334 at 364 [127], her Honour did not apply the Gambotto approach to the joint venture documents. Despite the respondents' submissions to us, I agree that she took the right course. 258 However, it is clear that there must be consideration of the doctrine of fraud on the power in the traditional sense. 259 That doctrine was succinctly defined by Hely J in Cachia at 83: "74.The equitable doctrine of "fraud on the power" requires that a power, including an amendment power, reserved in a trust must not be exercised for a purpose, or with an intention beyond the scope of or not justified by the instrument creating the power: Vatcher v Paull [1915] AC 372 at 378. The same principle applies to the exercise of a statutory power. In each case, the power has to be exercised bona fide, for the purpose for which it is given: Lancedale Holdings Pty Ltd v Heath Group Australasia Pty Ltd [1999] NSWSC 609 (per Bryson J) ; [1999] NSWCA 460 (on appeal). It may be that an amendment to a trust deed enabling the majority unitholders to expropriate the minority's units for the sole purpose of aggrandising the majority might fail for want of good faith, or because it would be beyond the scope of the enabling power." 260 It was submitted that the amendment power in cl 13.2 of the Joint Venture Agreement would not authorise an amendment to the whole substratum of the joint venture. In this regard reliance was placed upon the following passage of Hely J's judgment: "68.The power of variation conferred by this clause is apparently unconfined. There are, however, some authorities which suggest that a power to vary a trust deed may be held not to extend to a variation which would alter the substratum of the trust: see, eg, Re Dyer ; Dyer v Trustees Executors & Agency Co [1935] VR 273; Re Ball's Settlement Trusts; ; Ball v Ball [1968] 1 WLR 899; Re Blocksidge [1997] 1 Qd R 234; Kearns v Hill (1990) 21 NSWLR 107; Lock v Westpac Banking Corporation (1991) 25 NSWLR 593 at 602. This may be no more than an application of the equitable doctrine of fraud on the power, referred to in [74] of these reasons." 261 The appellants submit that there is no basis for the argument that cl 13.2 could not authorise the disposal of the interest in the Land, or could not authorise such a disposal or adjustment of interests in the Land in favour of one or more of the participants at the expense of the others. It was submitted that subparagraphs (a), (i) and (j) of cl 13.2 are expressed with absolute generality and subpara (h) necessarily involves the disposal in favour of any new participant of at least some of the interests held by the existing participants. 262 It was further submitted that to construe cl 13.2 as precluding the participants from voting in their own self-interest in relation to amendments to the agreement would completely stultify the operation of the Joint Venture Agreement. 263 The respondents submit that although Hely J was dealing with unit trusts, the doctrine is equally applicable to this joint venture. It was submitted that by the application of the fraud on the power doctrine, there is an unqualified prohibition on the exercise of majority power under cl 13.2 of the Joint Venture Agreement to effect appropriation of any participant's interest. 264 It was further submitted that the mere fact that cl 13.2 is in some respects expressed in broad terms does not preclude the operation of the doctrine. In this regard the plaintiffs relied upon cl 15 of the Joint Venture Agreement which provided a regime whereby a participant could "acquire the interest" of a defaulting participant "on a pro-rata basis". That regime included a process for the valuation of the defaulting participant's interest in the joint venture by the auditor. The purchase price of the interest of the defaulting participant was to be fixed by reference to the auditor's valuation less certain amounts (cl 15(e)(iii)). 265 The respondents submit that, in the light of the provisions of cl 15 of the Joint Venture Agreement, the parties could scarcely have contemplated that the powers in cl 13.2 would be used to appropriate the interests of minorities who were not "pulling their weight" in the joint venture in a manner so inconsistent with cl 15. 266 The respondents claimed the resolutions were void as a fraud on the power conferred by cl 13.2 of the Joint Venture Agreement by reason of the following matters:

[98]

(7) KNG continued to offer to the other participants the opportunity to share in the acquisition and on-sale of the Land, in return for some financial contribution. 268 In the circumstances, the appellants submit that the suggestion by COTC that KNG was seeking to obtain a windfall was particularly ironic. The appellants submitted that there was no improper purpose and no lack of bona fides in making the amendments, even if the amendments effected a fundamental restructuring of the participants' rights. 269 The respondents also relied upon Harry Stamoulis' admission that the purpose of the OSJVA was "simply to protect KNG's interest" because it was "safer" to provide the $10 million with the protection of the OSJVA (T234-235). The respondents submitted that this was "naked majority aggrandisement". 270 Had it been necessary for her to do so, the learned primary judge would have held that the doctrine applied and that for this reason also, the resolutions of 12 October were not for a proper purpose and therefore void. 271 The appellants say that the point of their submissions set out in [267] above was to indicate that KNG was conferring a tangible benefit on the other participants in relieving them of liabilities which the primary judge found they lacked the ability or willingness to meet. 272 Furthermore, her Honour's finding, which I have already explored, that the Arts vote was bought through the $1,500,000 fake invoice, a matter which caused her to dismiss the appellants' point 6, overlooks the fact that Mr Dalglish's friend, Mr Shannon (Jandawn) voted in favour of the resolutions. 273 It seems to me that the second of the points made by the appellants which the primary judge accepted and the third point (about which she said was not clear) are extremely telling. That is that (2) KNG was the only participant with the ability and willingness to meet those liabilities, and to provide the guarantees and the purchase money necessary to acquire the Cudgen Land and that (3) the "Club of the Clubs" concept was no longer feasible or realistic. 274 Although the learned primary judge said that (3) was not clear, she seems to have based this on the fact that Mr Dalglish was still arguing about the point. Well he might as his so-called "intellectual property" depended on the concept having some relevance and some value. However, we know that as at 1 August 2000, despite the activities of KPMG, not one pre-sale was made. 275 The scenario presented was clearly that no one was willing to put up any money to save the Project other than the Stamoulis interests. In particular, Mr Daglish had not put up one cent. A lot of money could be lost if the Project was not salvaged. KNG was the only offeror of salvage and, even then, it offered other participants the opportunity to continue their involvement, if they too were prepared to put up funding. 276 The appellants complain that her Honour repeats on a number of occasions a statement which they say is quite erroneous. 277 An instance is in [230] of the judgment where her Honour says: ""It is true that KNG was relieving the other participants of the liabilities to Lenen, but that is what it agreed to do by reason of its election on 18 September 2000 for the Land Play." 278 The appellants say correctly that this statement fails to recognise that the election of 18 September 2000 involved all participants contributing their respective proportions to the bank guarantee by 29 September 2000. The quid pro quo for the participants sharing in the gain (if any) from the Land Play was that they discharge their proportionate financial responsibilities. 279 In my view, the suggestion that the resolutions of 12 October 2000 should be set aside as a fraud on the power, fail. 280 Accordingly, I would uphold the appellants' contention that the OSJVA was valid. 281 (C) The next grounds of appeal focus on whether KNG achieved a fair or market value for the Cudgen Land by selling it to the Macquarie Joint Venture for $25 million. 282 The primary judge summed up the valuation evidence at [332]-[334]. She said that the respondents' final submissions did not contest the valuation made by Mr Love, the appellants' valuer, of $27.1 million (being the $28.5 million less the 5% discount of $1.4 million) subject to three qualifications. 283 The first qualification related to the amount of discount for the "town planning risk". The respondents accepted that any quantum of reduction is difficult and endorsed Mr Love's suggestion that it is very much "opinion based". Both experts agreed that some discount should be applied. The respondents submitted that an appropriate risk would be no more than half of what was allowed by Mr Love being $1.5 million resulting in a figure of $750,000. The primary judge accepted that as an appropriate figure by which to adjust the amount. 284 The second qualification related to the alleged erroneous assumptions by Mr Love in relation to projected sales rates. Mr Love assumed a sales rate of 8 per month and agreed that if such rate were doubled, it would have a very significant impact on the overall discounted value. Mr Cox, the respondents' expert valuer reviewed the Casuarina sales schedules and concluded that the rates of sale within the relevant periods were in the order of 16-20 per month. The judge notes that the respondents' submission was that a reasonable adjustment would be in the order of $1 million. She made an adjustment of what she held was a reasonable amount in the circumstances is $850,000. 285 The third qualification was that there should be an adjustment to the value of $27.1 million to reflect the "Put and Call Price". 286 The primary judge accepted that there should be an adjustment in this regard and that an appropriate premium is 5%. 287 The primary judge's valuation with the adjustments of $750,000 and $850,000 results in a figure of $28,700,000. Adjusting that figure by 5%, $1,435,000, results in a final figure of $30,135,000. 288 The appellants accept this finding. However, it must be realised that this is the value of the land as at January 2002. 289 The primary judge said more than once, see [253] and [335] that KNG's best endeavours were compromised by the desire to facilitate Spiros Stamoulis' entry into the Macquarie Joint Venture. He calculated that it was better to sell to the new joint venture at a discount and make up the sum discounted from profit from the joint venture. 290 Thus, she held, KNG did not use its best endeavours to sell the Land at fair or market value. It knew that the Ray Group was interested as early as January 2001. It was steered on a course by its director who, the judge was sure, felt constrained in the way that he marketed the Land because of his concern over the "contractual situation". KNG promised in the MOU that it would not seek to negotiate with any other parties once the figure of $25 million was struck in June 2001. It ceased any further efforts to market the Land in July 2001. 291 The primary judge noted that KNG/Stamoulis had little difficulty persuading the prospective Macquarie Joint Venturers to pay $25 million and she had little doubt that if Spiros Stamoulis had not stepped in and ended the negotiations by stating that he was comfortable with $25 million and a part of the joint venture, the market value could have been achieved. 292 Thus the primary judge was satisfied that KNG breached cl 5 of the Supplemental Agreement by failing to sell at fair or market value of $30.135 million and failing to share the gains on a pari passu basis with COTC. 293 The appellants say that Spiros Stamoulis' asking price was $28,000,000, but this is really of no moment. The judge accepted that he had used his best endeavours to get the best price. His last valuation, which was in 2000 valued the land at $20,000,000. He negotiated with Mr Ray at figures between $23 and $28 million and, ultimately there was agreement on $25 million. 294 Mr Jackman put that, bearing in mind the valuation of $20,000,000, it was appropriate to do a deal for $25,000,000. He put that it is wrong to reason back from a valuation as of January 2002 to consider the fair value in June 2001. 295 The price of $25,000,000 was agreed in principle on 21 June 2001. The final binding agreement was reached on 23 January 2002. In that six month period, it is clear that the value of the Land was rising: all the experts agreed on this. 296 The appellants say that the vital date is the date of the Memorandum of Understanding of 21 June 2001. 297 I have already set out a summary of the Memorandum of Understanding. It will be remembered that, although the document was explicitly said not to be a binding contract, it did contain an agreement that KNG would not during the due diligence investigation period grant to any other party a legal or equitable interest in the Land or undertake any negotiations with any other party to grant such an interest in the Land. 298 The appellants say that it is implicit in that Memorandum of Understanding and the agreement within it that the price at which the Land would be sold to the new joint venture was fixed. 299 The proposition was akin to saying that an agreement to negotiate in good faith on an understanding that one is selling land at $25,000,000 involves the proposition that it would be a breach to sell at a higher price even if the value of the land increases. 300 There is no authority which was cited to us which would support this proposition. However, the concepts of non contractual Memoranda of Understanding and Obligations to deal in good faith are still in the infancy of their development. 301 The concept of an agreement to negotiate has been touched upon by a number of cases in the past twenty years. 302 The Court of Appeal considered the law in Coal Cliff Collieries Pty Ltd v Sijehama (1991) 24 NSWLR 1. Broadly speaking the court held that such an arrangement normally was too illusory to be enforceable, but that a particular arrangement might, on its true construction show that one or more matters constituted enforceable obligations. 303 In England, a similar view has been taken, see Walford v Miles [1992] 2 AC 128 and Little v Courage Ltd (1994) 70 P & CR 469. 304 In Wellington City Council v Body Corporate 51702 (Wellington) [2002] 3 NZLR 486 at 491 [14], Tipping J giving the reasons of the New Zealand Court of Appeal said: "A contract purporting to bind the parties to negotiate, whether expressed in terms of good faith, best endeavours or otherwise, is in substance a contract to try and agree. Breach lies in failure to try, either at all or according to what may be required. Breach does not lie in failure to agree." 305 The principles have recently been again considered in New Zealand in Porter v Gullivers Travel Group Ltd [2007] NZCA 345 (noted in 13 BCB 15). 306 Thus, the prevailing view is that, whilst it may be a breach of a collateral contract, sometimes referred to as a "process contract", to withdraw from negotiations without cause, there is no obligation to conclude the deal, let alone conclude the deal at the price suggested. A person who has agreed to negotiate in good faith is not prevented from taking the position that as the market is rising so should the price. 307 Accordingly, I must accept that the vital date is January 2002 rather than June 2001 and, at that date the value of the land was over 30 million dollars. 308 Does that fact, if it be the fact, that the Stamoulis interests believed that they were bound to sell at $25 million alters the situation. I cannot see why it should. 309 Likewise, if the Stamoulis interests thought it was prudent not to rock the boat with the prospective Macquarie Bank Joint Venture, then the same comments would flow as were made by the learned primary judge about the motives of the sale at a discount. 310 Thus, I would not uphold this part of the appeal. 311 (D) The appellants say that questions of breach of fiduciary duty only arise if the judge's finding that the OSJVA was invalid is itself wrong. 312 This must be correct. 313 (E)-(G) For similar reasons, these aspects of the appeal have fallen away. 314 (H) For the above reasons and those of Hodgson JA, the cross-appeal should be dismissed. 315 It follows from what I have said that the appeal must be allowed. 316 Various orders were paid for payment of monies pending the appeal: these must now be reversed. 317 As to costs, I agree with Hodgson JA. 318 I agree that the orders stated by Hodgson JA are appropriate.

King Network Group Pty Limited v Club of the Clubs Pty Limited

At a glance

Court

Decision date

Before

Source

Judgment (99 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (22)

Cited By (6)