The second golf course at Lost Farm
463 At the centre of LGT's case were allegations that Sattler had breached his duty arising both under the rule which prohibits a fiduciary from deriving a profit from his or her position as such and under the rule which requires the fiduciary to avoid any situation in which there is a sensible possibility of a conflict of interest (or of interest and duty) arising. LGT relied specifically upon the judgment of Deane J in Chan v Zacharia (1984) 154 CLR 178, 198-199, where his Honour referred to these rules as "themes":
The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one "fundamental rule" embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the "use of fiduciary position" doctrine is but an illustration or part of a wider "conflict of interest and duty" doctrine (see, e.g., Boardman v. Phipps; N.Z. Netherlands Society "Oranje" Inc. v. Kuys), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee: see Keith Henry & Co. Pty. Ltd. v. Stuart Walker & Co. Pty. Ltd. That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed.
For a recent discussion of these rules, see Streeter v Western Areas Exploration Pty Ltd (2011) 278 ALR 291, 303-305 per McLure P.
464 In what I perceived to be the primary aspect of LGT's case about the second course at Lost Farm, it was submitted that the opportunity to establish that business came to Sattler as a result of his fiduciary position. In making that submission, LGT invoked the second of Deane J's themes in Chan v Zacharia. In a secondary aspect, it was submitted that the establishment and intended conduct of a competing business at Lost Farm necessarily involved Sattler in a situation where his own interests conflicted with his duty to, or with the interests of, the company of which he was a fiduciary. In making that submission, LGT invoked the first of the themes in Chan v Zacharia. I shall deal with those submissions in turn, commencing with LGT's opportunity case.
465 Here I should commence by noting certain features of that case, as outlined above. First, the present point is not whether LGT had a legal entitlement, an option, or a right of first refusal, with respect to the use of Lost Farm as a golf course. That is not to say that the absence of any such entitlement etc is irrelevant to the determination of the opportunity point, but it is to say that LGT's case as such is concerned with the obligations of Sattler rather than with its own legal entitlements. Secondly, neither is the present point based on any kind of estoppel in favour of LGT and against Sattler. Sattler may well have tolerated an assumption to be made by the other investors that LGT would ultimately be permitted some kind of participation in a second course at Lost Farm, but such a circumstance, if correct (and I shall deal with it), would make no contribution to an answer to the question whether the opportunity to develop such a prospective course, for Sattler, resulted from his fiduciary position (although it may have a bearing on the defence of laches, to which I shall return in due course). Thirdly, the point - at least as such - is not concerned with the question whether Sattler obtained LGT's fully-informed consent to availing himself of an investment opportunity which belonged to the company. Much of LGT's factual case centred on what was said to be the many occasions over the years when Sattler might well have obtained the Board's consent to him developing Lost Farm in his own name. He did not seek that consent. The anterior point, rather, is whether the opportunity to make that development resulted from Sattler's fiduciary position at all: if not, the occasion did not arise for Sattler to seek such consent. Fourthly, if well-founded, the point must be absolute, in the sense of proposing that Sattler would be bound by his fiduciary duty not to conduct a golf course on Lost Farm without LGT's fully-informed consent, regardless of his ongoing association with LGT. I was reminded, for example, of the authority that stands for the proposition that a director who comes by an opportunity as a result of his or her fiduciary position with the company cannot escape the consequences of that circumstance by resigning: see Canadian Aero Service Ltd v O'Malley (1973) 40 DLR (3d) 371, 386-388; Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110, 141 and CMS Dolphin Ltd v Simonet [2002] BCC 600, 623. Thus it must be LGT's case that, by involving himself in the management of LGT, Sattler was forever deprived of the ability to conduct his own golf course on Lost Farm without LGT's fully-informed consent (or without, of course, being required to account in the sense explained by Deane J in Chan v Zacharia).
466 There are two other related aspects of their client's opportunity case that counsel for LGT stressed. The first is that LGT does not say that the opportunity to use the Lost Farm land belonged to it in equity in some absolute sense. Rather, the allegation (as made clear in the Further Amended Statement of Claim) is that LGT had the opportunity to establish a second course at Lost Farm. That is to say, it was the circumstance that the course at Barnbougle Dunes existed, and that the proposed course at Lost Farm would be a second course, that contributed to LGT's claim to the latter. The second aspect is that the opportunity in question did not arise, at least as a relevantly mature entity recognisable in equity, until the course at Barnbougle Dunes was established and operating profitably. Only then, as it was put by counsel for LGT, was Sattler's conscience burdened with the fiduciary obligation not to take the opportunity for himself.
467 That brings me to the controversy that lies at the core of this proceeding: was the opportunity to establish and to conduct a golf course business on Lost Farm one that came to Sattler as a result of his position as director/CEO of LGT? LGT said yes, in the sense that it was Ramsay who, then LGT itself which, initiated the idea of using the dunes land at Barnbougle for golf; and Ramsay had, from the outset, earmarked Lost Farm as the site for a potential future course. It was LGT's own success at Barnbougle Dunes that made the concept of a second course a viable one. Had Sattler not been the owner of the land at Lost Farm, and had the actual owner contacted him with a proposal to make the land available for golf, such an offer could not be understood otherwise than as being a result of Sattler's fiduciary position. It would have been a clear breach of his fiduciary duty for him to have accepted the offer in his own name rather than offering it to LGT. On the case of LGT, it makes no difference that Sattler was also the landowner at Lost Farm - the opportunity to operate a second course there came to him by reason of his fiduciary position no less because of that circumstance.
468 The defendants proposed that the question set out in the previous paragraph should be answered in the negative. While accepting LGT's general case at the level of principle, they submitted that the particular circumstances of the case did make a difference. They had two main streams of argument in this respect. The first related to Sattler's position as landowner, which preceded, and underlay, the whole Barnbougle Dunes project. The opportunity to use Lost Farm in any way - including as a golf course - belonged to Sattler from the outset. It did not result from his position with LGT. As put by senior counsel in opening:
The fact that Mr Sattler consented to become a director of Links Golf Tasmania in late 2002, does not operate, and should not be viewed as operating, as effectively charging the balance of his land, and its developmental capacity, to the company to which he now owes the fiduciary duty.
The second stream of argument was that, from the outset, the business of LGT was to develop and to operate a single golf course on the leased land. The terms of the leases and of the shareholders' agreement reflected this basic fact. The defendants stressed that the wherewithal to operate a golf course was land, and the intractable fact of the matter was that LGT had access to a defined piece of land under the leases, and nothing more. They submitted that LGT was, in effect, a single-purpose venture, and that any opportunity that came to Sattler with respect to land which was not encompassed in that purpose was his to take without reference to the company of which he was fiduciary.
469 According to the submissions advanced on behalf of LGT, the defendants' position was factually incorrect and legally unsound. It was submitted that the real dynamic of the relationship between Sattler and LGT was that everyone recognised the potential of Lost Farm as the site for a future golf course. They recognised also that it would be commercially prudent to build Barnbougle Dunes first and see if it prospered. Consistently with this, LGT identified the relevant opportunity as one which arose only once Barnbougle Dunes was operating profitably. It was argued that, even if Sattler originally had the opportunity to develop Lost Farm in any way, even as a golf course, that opportunity was commercially immature, and therefore unattractive, until LGT's own experience, with all the risky entrepreneurial effort that that involved, had demonstrated that the dunes land at Barnbougle would - not could - provide the basis for a successful business. It was argued that, while Sattler might have the land, the resources and the ability (and might even - contrary to LGT's case - have had the "idea") to build a golf course at Lost Farm from a date well before he met Ramsay, the opportunity to derive a "benefit or gain" (per Deane J) from such a development was one that came to Sattler as a result of his fiduciary position.
470 It was also submitted on behalf of LGT that all the investors in LGT other than Sattler wanted LGT to have some kind of participation in any course that was built on Lost Farm. There was never any acceptance by those investors, or by LGT itself, that Sattler could develop Lost Farm without there being such participation. It was, it was submitted, unthinkable that LGT would be unconcerned about the establishment of an adjacent competing business in which it did not have equity. Besides, if Sattler at any stage had the slightest doubt about the matter, he could, and should, have put his intentions squarely on the table in order to obtain LGT's fully-informed consent to the course that he proposed. That was never done. As a fiduciary, Sattler was in no position to place upon the general flow of interactions involved in the history of LGT an interpretation which was favourable to his own interests and adverse to those of LGT: the onus was on him, at the very least, to clarify the situation.
471 The axes of contest as I have identified them make it necessary to commence with the cases that deal with the perimeters and content of the fiduciary relationship and of the duties which it involves. Here I am bound to commence with what was said by the Full Court in Canberra Residential Developments Pty Ltd v Brendas (2010) 188 FCR 140, 147 [36]:
But the mere existence of a fiduciary relationship does not define the nature of the duties that arise for three reasons. First, it is wrong to assume that the duty owed by a fiduciary attaches to every aspect of the fiduciary's conduct, however, irrelevant that conduct is to the relationship that is the source of the duty: Re Coomber [1911] 1 Ch 723 at 728-729. Second, the scope of the duty is very much dependent upon the facts of the particular case: Hospital Products at 69, 73 per Gibbs CJ and 102 per Mason J. See also Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 206. In most cases the duty will be determined in large part by reference to the nature of the activities of the principal: Birtchnell v Equity Trustees, Executors and Agency Company Ltd (1929) 42 CLR 384 at 407-408, referring to the need to identify the principal's "venture or undertaking". Third, defining the scope of the duty must be approached with commonsense and with an appreciation of the sort of circumstances in which it has been applied in the past. It should only be applied to a state of affairs which discloses a real conflict of duty and interest and not just some theoretical or rhetorical conflict: Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606 at 637-638.
In identifying how fiduciary relationships, and the duties arising under them, fit into these three categories, it is useful to consider the cases to which their Honours referred.
472 In Re Coomber [1911] 1 Ch 723, a mother, being of advanced years, made a gift to her son of businesses which had been in the family for a considerable period, and of which the son was now the manager. It was argued that the son was, as manager, the fiduciary of his mother, and thus incapable of receiving the gift without obtaining the mother's fully-informed consent - based on market valuations and the like - to the course she proposed to follow (rather than, for example, selling the businesses to third parties). In the absence of any suggestion of undue influence, it was held that there was nothing in the fiduciary relationship which stood in the way of the gift going ahead as the mother intended. Making the distinction between a gift and a sale, Fletcher Moulton LJ said ([1911] 1 Ch at 729):
It is possible that there might have been a transaction between the son and the mother, with regard to a purchase of this leasehold property, in which the son would have had to shew that he had given her full information in every possible way as to the value. But in this case the gift was not based on value in any way at all. The mother knew the house, she had lived in it for twenty years, and knew the son was managing it. She meant it to go to the son whatever its value was….
473 In Hospital Products Ltd v US Surgical Corporation (1984) 156 CLR 41, the question was whether the relationship in question was a fiduciary one at all, the majority holding that it was not. Indeed, Gibbs CJ (a member of the majority) held that there was "no part of the transaction to which a fiduciary obligation might sensibly be limited" (156 CLR at 73). The case as such does not, therefore, stand as authority as to the scope of a fiduciary's duties. Mason J, however, dissented with respect to the existence of such a relationship, and was thus required to consider the consequences of his holding, in which context his Honour said (156 CLR at 102-103):
The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship. Fiduciary relationships range from the trustee to the errand boy, the celebrated example given by Fletcher Moulton L.J. in his judgment in In re Coomber, in which, after referring to the danger of trusting to verbal formulae, he pointed out that the nature of the curial intervention which is justifiable will vary from case to case. In accordance with these comments it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case: Phipps v. Boardman; Kuys; Canadian Aero Service Ltd. v. O'Malley. The often-repeated statement that the rule in Keech v. Sandford applies to fiduciaries generally tends to obscure the variable nature of the duties which they owe. The rigorous standards appropriate to a trustee will not apply to a fiduciary who is permitted by contract to pursue his own interests in some respects. Thus, in the present case the so-called rule that the fiduciary cannot allow a conflict to arise between duty and interest (Kuys) cannot be usefully applied in the absolute terms in which it has been stated.
That was the passage to which the Full Court referred in Canberra Residential; and it did so in a way that would make Mason J's dictum - albeit that his Honour was in dissent - binding on me. Indeed, the proposition that "that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case" was recently described by Jacobson J, with the assent of Rares and Besanko JJ, as "fundamental": Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd (2011) 285 ALR 63, 89 [206].
474 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 was a negligence case, but the negligence had been that of agents with respect to their principals. In the passage referred to by the Full Court in Canberra Residential, Lord Browne-Wilkinson was concerned to make the following point ([1995] 2 AC at 206):
[T]he extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties. Thus, in the case of an agent employed under a contract, the scope of his fiduciary duties is determined by the terms of the underlying contract. Although an agent is, in the absence of contractual provision, in breach of his fiduciary duties if he acts for another who is in competition with his principal, if the contract under which he is acting authorises him so to do, the normal fiduciary duties are modified accordingly: see Kelly v. Cooper [1993] A.C. 205, and the cases there cited.
The reference to Kelly v Cooper [1993] AC 205 was to an opinion of the Privy Council delivered by his Lordship himself, and the two authorities to which he there referred were New Zealand Netherlands Society "Oranje" Inc v Kuys [1973] 1 WLR 1126, to which I refer below, and the following passage from the judgment of Mason J in Hospital Products (156 CLR at 97):
That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all-important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.
475 In Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384, a member of a partnership had taken a share of the profit made by a client of the firm on the resale of land arranged by the firm. The arrangement had not been disclosed to the other partners. There was, it seems, a question whether speculation on land was within the scope of the partnership business (the trial Judge having found that it was not). In that context, Dixon J said (42 CLR at 408):
The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm. Once the subject-matter of the mutual confidence is so determined, it ought not to be difficult to apply the clear and inflexible doctrines which determine the accountability of fiduciaries for gains obtained in dealings with third parties.
476 Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606 was a very particular kind of case. It was claimed that a rule of a trade union which made employees generally in a certain line of work eligible for membership was ultra vires, to the extent that it applied to the joint managing directors of a company, upon the ground that membership of a trade union would place them in positions in which their interests as members would conflict with their duties to their company. The claim was rejected, substantially on the basis that the fiduciary obligation was for the benefit of the principal, and could not be used by the fiduciary to shield himself or herself from some other obligation. In the course of the case there was, according to Upjohn LJ ([1963] 2 QB at 637), "some discussion … as to the ambit of the rule" which defined the fiduciary obligation. His Lordship was of the view that, in cases of doubt such as the standard of hotel accommodation to which a director should be entitled, it would be a matter for the principal either to clarify the matter or to relax the operation of the rule. As pointed out by the Full Court, his Lordship said that the rule ([1963] 2 QB at 638) -
… must be applied realistically to a state of affairs which discloses a real conflict of duty and interest, and not to some theoretical or rhetorical conflict.
As to the matter of scope, or ambit of the duty, his Lordship said ([1963] 2 QB at 638):
[It] would be quite wrong to attempt any definition of the ambit of the rule. It is there, firm and untrammelled, waiting to be applied to the changing times and conditions of the times as circumstances may require, only to be relaxed where those entitled to the benefit of it are of full age, sui juris and have all the requisite knowledge, not only of all the relevant facts but of their rights.
477 I should now return to Hospital Products, and to the passage from the judgment of Mason J which I have set out in para 473 above. The expression "must be moulded according to the nature of the relationship", used by his Honour, was derived from the opinion of the Privy Council in Kuys [1973] 1 WCR at 1129-1130. In the facts of that case, the secretary of the appellant society - which their Lordships considered to be a fiduciary position - commenced a newspaper on his own account in circumstances where the society had a self-evident interest in conducting a similar publication. Their Lordships noted ([1973] 1 WLR at 1130):
Another source of finance would be advertising, and there was evidence that the main likely clients, the airlines, were interested in supporting the society. Thus, in these circumstances, if Kuys had proceeded to launch a newspaper, without any special arrangement, there would be at the least a case for saying that to claim or retain the benefit of it for himself would be a breach of fiduciary duty.
However, the subject of the future publication of a newspaper or bulletin by or on behalf of the society had been actively discussed at a meeting attended by the respondent Kuys, the president of the society and at least one other committee member. The evidence about that discussion was something on which, in their Lordships' view, the "entire case" depended ([1973] 1 WLR at 1128-1129):
… [Kuys] should publish a new newspaper to be called "The Windmill Post" which should be his property; that the society should have the right to publish in it the society's news; that the society would guarantee for six months the purchase of the new paper at 1s. per copy by 2,000 members; finally that at the end of six months these terms, including the question whether the society would continue its support, would be re-negotiated.
478 Their Lordships adopted what had been said by Lord Upjohn (in dissent) in Boardman v Phipps [1967] AC 46, 123:
Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case.
Speaking of Kuys, their Lordships said ([1973] 1 WLR at 1130):
A person in his position may be in a fiduciary position quoad a part of his activities and not quoad other parts: each transaction, or group of transactions, must be looked at.
Their Lordships found support for that approach in Tufton v Spern [1952] 2 TLR 516, and in the words of Dixon J in Birtchnell to which I have referred above. After the passage at p 1130 of the report to which I have referred at para 477 above, their Lordships continued ([1973] 1 WLR at 1130-1131):
On the other hand, what has already been said as to Kuys' position and responsibilities, left open the way for a special arrangement, and equally, such an arrangement was, on the Judge's findings, made. It was straightforward and, in the circumstances, reasonable. The Bulletin could not be carried on: to produce a newspaper obviously involved the risk of loss. The contract limited the society's commitment to the purchase of 2,000 copies at 1s. each for six months. Kuys was to secure what advertising and other income he could to cover all outgoings and his own remuneration. He was not to come down upon the society for any losses. As one witness said, he was not to cry on its shoulder. The newspaper was to be his for ill and for good.
Their Lordships concluded this aspect of their reasoning by holding that there was "established a set of facts which would fully displace any potential fiduciary obligation on Kuys to hold the newspaper in trust for the society" ([1973] 1 WLR at 1131).
479 Additionally to Boardman v Phipps, the other case to which Mason J referred in Hospital Products was Canadian Aero, a judgment of Laskin J in the Supreme Court of Canada which has been so influential in this area of the law. At one level, that judgment informs us of the content of the general rule (40 DLR (3d) at 382):
Descending from the generality, the fiduciary relationship goes at least this far: a director or a senior officer like O'Malley or Zarzycki is precluded from obtaining for himself, either secretly or without the approval of the company (which would have to be properly manifested upon full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so where the director or officer is a participant in the negotiations on behalf of the company.
An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.
At another level, however, the judgment supplies qualifications to the rule, and it was to these that Mason J referred in Hospital Products. Having referred to Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 381, Laskin J said (40 DLR (3d) at 383):
What I would observe is that the principle, or, indeed, principles, as stated, grew out of older cases concerned with fiduciaries other than directors or managing officers of a modern corporation, and I do not therefore regard them as providing a rigid measure whose literal terms must be met in assessing succeeding cases, In my opinion, neither the conflict test, referred to by Viscount Sankey, nor the test of accountability for profits acquired by reason only of being directors and in the course of execution of the office, reflected in the passage quoted from Lord Russell of Killowen, should be considered as the exclusive touchstones of liability. In this, as in other branches of the law, new fact situations may require a reformulation of existing principle to maintain its vigour in the new setting.
The other passage in Laskin J's reasons to which Mason J was, I think, referring was the following (40 DLR (3d) at 390):
It is a mistake, in my opinion, to seek to encase the principle stated and applied in Peso, by adoption from Regal (Hastings) Ltd v Gulliver, in the straight-jacket of special knowledge acquired while acting as directors or senior officers, let alone limiting it to benefits acquired by reason of and during the holding of those offices, As in other cases in this developing branch of the law, the particular facts may determine the shape of the principle of decision without setting fixed limits to it.
480 The need for the content of the fiduciary duty to be moulded according to the nature of the relationship and the facts of the case is also reflected in something Deane J himself said in Chan v Zacharia (154 CLR at 205):
In that regard, one cannot but be conscious of the danger that the over-enthusiastic and unnecessary statement of broad general principles of equity in terms of inflexibility may destroy the vigour which it is intended to promote in that it will exclude the ordinary interplay of the doctrines of equity and the adjustment of general principles to particular facts and changing circumstances and convert equity into an instrument of hardship and injustice in individual cases.
I would refer also to what was said by McLure P in Streeter (278 ALR at 304 [70]):
Of course, the scope of the rules can be narrowed or excluded by contract or other instrument which defines the duties and powers of the fiduciary…. However, that is not the only means by which the content of fiduciary duties can be affected. The High Court has said that the content of fiduciary duties are moulded to the character of the particular relationship so that even within an established fiduciary relationship, the content of the duties will not be uniform for all cases: United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 11 ; 60 ALR 741 at 746. Further, the subject matter over which fiduciary obligations extend can be ascertained from the course of dealing between the parties or the circumstances of the appointment of the fiduciary: Chan v Zacharia (1984) 154 CLR 178 at 196 and 204 ; 53 ALR 417 at 431. In my view, these authorities provide the principled basis for any narrowing of the fiduciary rules applying to directors.
Likewise, in the recent Scottish case Commonwealth Oil and Gas Co Ltd v Baxter [2010] SC 156, in which an otherwise relatively censorious approach (if I may so observe with respect) was taken to the duty of a non-executive director, Lord Hamilton said ([2010] SC at 161 [10]):
In the same way, if a director were to draw to the attention of his company a particular commercial opportunity, whether in an embryonic or developed state, and to obtain the company's consent to pursue that opportunity on his own personal behalf, his duty to avoid a possible conflict of interest would not extend to that opportunity. Similarly, it seems to me that if, without the identification of any particular opportunity, the company, expressly or implicitly, were to give its prior consent to a director pursuing possibly competing interests, his duty would not extend to avoiding such conflicts. If, for example, in the present case agreement had been reached between Mr Baxter and COGCL that some opportunities (say, any onshore) would be brought to COGCL but that others (say, offshore) could be exploited by Mr Baxter for his own interest and benefit, the scope of Mr Baxter's duties would have been modified by that arrangement. Even without express agreement, the actings of parties could in some circumstances have given rise to a modification of Mr Baxter's duties.
481 The foregoing survey of the authorities leads me to the view that, at a high level to commence with, there are three questions to be asked: is the relationship a fiduciary one at all; what is the scope of the duty; and what is the content of the duty? At each point, the answer may be influenced by any contract by reference to which the relationship exists, or which impinges on the relationship or the duties which arise under it. The answer may also be influenced by arrangements, understandings or practices which obtain in the circumstances. The scope of the duty and, it seems, the very existence of the relationship, may depend on the line of business in which the putative fiduciary is engaged (assuming, for example, that he or she is the director of a trading company or a member of a trading partnership). As the Privy Council said in Kuys, a person may be in a fiduciary position quoad part only of his or her activities. That case provides an example of one in which, to the clear understanding of the putative principal, the putative fiduciary has his or her own interests parallel to, and separate from, those of the principal, and is allowed to pursue them.
482 Looking only at "the character of the venture or undertaking" in the present case, LGT's argument would reach first base at least by reason of the fact that the activity proposed for Lost Farm was a golf course: the very line of business, and in the very locality, that were the existing concern for LGT. Indeed, it being accepted by all in the present case that, particularly in a relatively remote location, the development of a second golf course on an adjacent site would be of advantage to the operator of the existing course, LGT of all businesses was especially well-placed to derive a benefit from such a development. However, it is clear from the cases - particularly from Mason J's endorsement of Kuys - that these circumstances, as such, need not be conclusive as to the scope of Sattler's fiduciary duty. There may be cases where the beneficiary has permitted the fiduciary to conduct his or her own business - even one of the same character - separate from that in relation to which the fiduciary duty is owed. There may also, in my view, be cases in which the prospect of the fiduciary acting in that way, even if not expressly agreed to, was inescapably an aspect of the parties' relationship.
483 Returning to LGT's opportunity case, the allegation that LGT had the intention of building, developing and operating a second golf course on the land at Barnbougle once the first course and various facilities were established and operating profitably was denied by the defendants, not only as a matter of pleading, but in a submission of length and substance at the conclusion of the trial. That submission critically examined the 26 particulars by reference to which LGT had alleged, in its Further Amended Statement of Claim, that it had the intention referred to. It was said that no one of those particulars provided evidence of the formation of such an intention, either directly or as a matter of inference. Responding to those submissions, it was said on behalf of LGT that the defendants were paying so much attention to the trees that they lost sight of the wood (see Nolan v Nolan [2004] VSCA 109 at [120]) by selectively referring to the evidence which had in fact been led about the matters particularised and of taking things out of context. However that may be, the fact is that, as the defendants pointed out, over many, apparently well-minuted, Board meetings, the directors of LGT never resolved to make an investment, or an offer of a proposal for an investment, in a new golf course at Lost Farm. They knew that Sattler was contemplating such a development either for himself as such or as part of some kind of project involving Keiser. In the meantime the new course was taking shape, under their very noses as it were. As Sattler accepted, they showed a keen interest in the question whether they, or LGT, would be invited to participate. But they did not cause LGT as such to form the intention referred to in its Further Amended Statement of Claim.
484 Notwithstanding the terminology of LGT's pleading, it would be wrong to treat its case as a whole as contingent upon a finding that it had the intention of developing a second course at Lost Farm. The case is concerned not with LGT's intention as such, but with the question whether the development of Lost Farm as a golf course was an opportunity that came to Sattler as a result of his fiduciary position. The case was conducted with that question as its focus. But the circumstances to which the defendants referred, and which I mentioned towards the end of the previous paragraph, are indeed relevant to that question, in the sense that they reflect the defendants' case that the opportunity resulted not from Sattler's fiduciary position but from the inescapable reality, recognised by all concerned from the outset, that Sattler owned the land in question, and could bring it into play - qua landowner, not qua director - as and when he chose.
485 It is convenient here to consider what I have described above as the second stream in the defendant's argument about Lost Farm. Here the defendants first relied upon the terms of the leases: one executed on 30 November 2001, and a group of four in relevantly identical terms executed on 10 January 2003. It was submitted that the scope of Sattler's fiduciary obligation was limited by the scope of the business that LGT was able to carry on, or at least that it was contemplated that it would carry on. It was said that LGT was a single-purpose company, the purpose being to establish and to operate one golf course (and clubhouse) on the leased land at Barnbougle Dunes. It was said that this purpose was to be discerned not in the dreamings of Ramsay or the other investors, but in the objective facts that LGT's only access to the wherewithal to operate a golf course - land - was via the lease with Sattler. Both the first lease of 30 November 2001 and the four leases of 10 January 2003 contained a specification of the use to which the land at Barnbougle Dunes could be put, and this did not include the construction or development of a second course at Lost Farm.
486 While I accept that the terms of the leases were consistent with the defendants' case on scope, I would not accept that those terms, of their own force or as a necessary consequence, produced the result for which the defendants contend. LGT was not constitutionally limited to the operation of a single golf course. The leases were, of their nature, confined to the land of which LGT had been able to secure possession, and the use to which that land could be put, limited in the leases, was self-evidently relevant only to that land. There was nothing in the leases, however, which provided for the kind of limitation for which the defendants contend. LGT was a single purpose company in fact, but that was no more than a reflection of the circumstance that the land at Barnbougle Dunes was the only land of which it had possession. There is no reason why LGT, if properly resourced, might not have expanded its operations, within its established line of business and on an adjacent site, with the economies that that offered, if the opportunity arose.
487 Much of the analysis required in the present case is made the more complex by Sattler's position as landowner and lessor. But the present question can be tested by changing the facts a little. Assume that Sattler was nothing more than landowner and lessor, and held no office or position in LGT. Assume that Dixon, while General Manager of LGT, received (in that capacity) correspondence from Sattler indicating his willingness to make Lost Farm available for long-term lease to an acceptable consortium. For Dixon to have put such a consortium together without first giving LGT the chance to take the lease, or to be part of the consortium, would have been a clear breach of his fiduciary duty. It would have been four-square within the scope of his fiduciary obligation. It would have been no answer to say that LGT was only a single-purpose company which had no concern with expansion opportunities of the kind proposed.
488 The other agreement upon which the defendants relied as confining the scope of Sattler's fiduciary obligation was the shareholders' agreement signed by Sattler and Ramsay on 10 January 2003. It will be recalled that cl 16.2 of that agreement gave Sattler the right to conduct a business in competition with that of LGT on any part of the land at Barnbougle that was not leased to LGT. The defendants submitted that conduct which was permitted by that provision must necessarily lie outside the scope of Sattler's fiduciary obligation. On the defendants' case, "it is the contractual foundation which is all-important because it is the contract that regulates the basic rights and liabilities of the parties": Hospital Products 156 CLR at 97 per Mason J. Literally, this principle, as stated by Mason J, deals with a fiduciary relationship which is itself erected upon contract, but undoubtedly would have equal application to any situation in which a fiduciary and his or her principal entered into a contract which governed their relationship in relevant respects (see Streeter 278 ALR at 304 [70] per McLure P).
489 This submission on the part of the defendants opened up a number of areas of contention which occupied the energies of the parties and the time of the court: whether the shareholders' agreement was binding on LGT, the extent of the knowledge of the agreement on the part of the investors other than Ramsay and Sattler and the relevance of the agreement after the failure of the memberships offering, to name three. I shall return to those matters later when I deal with the position which Sattler occupied when he was no longer a director. In a context in which he remained a director, however, the defendants' point may be dealt with on a more basic level.
490 Clause 16.2 was part of an agreement between shareholders. It operated to qualify a special restriction on competition, provided for in cl 16.1, which went beyond anything arising under the general law. By reason only of his or her position as such, a shareholder is under no duty not to compete with the company of which he or she is a member. By cl 16.1 of the shareholders' agreement of 10 January 2003, however, Ramsay and Sattler subjected themselves to such a duty. But they did so subject to the exception for which cl 16.2 provided. Although Sattler was a director of LGT at the time of the making of the shareholders' agreement, that need not always have been so. The four leases, executed contemporaneously with the shareholders' agreement, provided for a combined term of 40 years. That Sattler would not always be a director of LGT must, therefore, have been a realistic possibility. Absent a provision such as cl 16.2, the restriction provided for in cl 16.1 would apply in an unqualified way even where Sattler was not a director. It would have amounted to an exceptional burden for a landowner who held shares in a company of which he was not a fiduciary. There is every reason to think that, in January 2003, Sattler would not have tolerated the prospect of such an outcome.
491 But it would be another thing altogether to propose that cl 16.2 operated to confine the scope of Sattler's fiduciary obligation as a director of LGT, such that he could compete against LGT while occupying a position central to the management thereof, a position to which fiduciary obligations would conventionally attach. Neither would the restriction in cl 16.1 have made such a reading of cl 16.2 either necessary or natural. Whether the fiduciary nature of a director's position precludes him or her from being involved in a competing business is a question which, of itself, is not free of contention, as I discuss below. On any view, however, a director is in a different position, relevantly, from that of a mere shareholder. Clause 16.1 not being concerned with restrictions on a director, I cannot see why the exception for which cl 16.2 provided should be understood otherwise.
492 Thus I do not accept that the terms of the leases or of the shareholders' agreement put LGT contractually out of court at the outset, in the sense of defining the scope of Sattler's fiduciary duty in a way that necessarily excluded the opportunity to use any land other than that which LGT occupied. But neither do I exclude these documents - especially the leases - from the broad landscape of facts and circumstances by reference to which questions of scope - and, indeed, of the content of the duty itself - are to be addressed. If not conclusive in themselves, the documents are consistent with the defendants' scope case generally. As so much of that case turned on what, in the defendants' submission, I should perceive to have been the reality of the situation as between Sattler and the other investors in LGT, it is convenient to trace the course of their relationship, and their thinking about Lost Farm, chronologically.
493 LGT submitted that the opportunity to build a second course on Lost Farm was first identified by Ramsay. However, subject possibly to a layer of sophistication introduced by the qualifier "second", I could not accept that submission. Sattler had been given a rough plan of a proposed development by Campbell Smith in 1993, in which a golf course on Lost Farm was indicated. Circumstances from which the permanent rejection of the idea of building a golf course on Lost Farm could not be inferred intervened, and nothing had happened by the time of Ramsay's approach in 2000. It was pointed out on behalf of LGT that Sattler never mentioned the events of 1993 at the time of that approach, at the time of accepting Wood and McCleery into LGT in 2003 or at the time of so accepting Hetrel in 2004. That is so. It seems that the old documents of 1993 were amongst a small collection of papers that survived the burning of Sattler's house in 2005, and that he found them only when he was looking through the old filing cabinet in which they were stored, after the fire. Like a number of other dimensions of LGT's case, its submission in this regard had the flavour of an estoppel submission about it, as though the point was whether Sattler had induced his co-investors to proceed by reference to certain assumptions. That, of course, is not LGT's case at all. These old documents bear not upon Sattler's conduct towards LGT or the other investors, but upon the locus and the nature of the opportunities for development which Sattler had. Be it granted that they were not in his mind during the early years of Barnbougle Dunes, it remains the fact that the use of Lost Farm as a golf course was not something that was first introduced to him by Ramsay or by LGT.
494 The impression to be gained from the submissions made on behalf of LGT is that, absent the arrival of Ramsay on the scene in late 2000, it would never have occurred to Sattler to use the Lost Farm land for golf (or, as I understand the submission, so to use any of the dunes land at Barnbougle). Counsel drew attention to publicity material published by LGT with Sattler's endorsement, to Sattler's nomination for "entrepreneur of the year" and to other like material, to the effect that Sattler was a businessman and a potato farmer with no interest in golf who was, the say the least, highly sceptical about Ramsay's ideas in 2001. Clayton was cross-examined about his "understanding" of the nature of Sattler's reaction to Ramsay's suggestion, and said that Sattler thought Ramsay was a "nutter", adding: "He thought there was this crazy guy [who] wants to build this course …."
495 In his evidence, Sattler said that the picture painted of him being a potato farmer with no understanding of golf was wrong, and was done for marketing purposes only. He said that he did know the difference between a links course and a parkland course. He accepted that, from the outset, Ramsay had shown an interest in the possibility of developing a golf course on Lost Farm, but -
… [w]hen it was first discussed I was dealing with Greg Ramsay, and Greg Ramsay had no money, and was very keen and very enthusiastic about conquering the world in relation to golf, so I was very reserved in all my approaches to all issues relating to one, two golf courses, or anything else.
If Sattler did think that Ramsay was a "nutter", or similar, I am not persuaded that that perception related to the prospect that the dunes land at Barnbougle might be used for golf. Rather, it may have related to the practical reality that he, Ramsay, was young, inexperienced in business and conspicuously under-resourced for the kind of development that he had in mind.
496 In the period to November 2002, when Ramsay was LGT's alter ego, he well appreciated that Lost Farm, and the full range of development opportunities that went with it, were Sattler's to keep or to surrender, and, if the latter, on terms dictated by him. Ramsay pressed Sattler for an option over Lost Farm, and none was given. He sought and secured Sattler's consent to conveying to Carter the prospect of LGT having an option over Lost Farm. He even went to the length of having his solicitor draw up an option, thereby demonstrating that access to Lost Farm for the purpose of golf was a serious matter which warranted black and white terms. Knowing these things, and knowing that no option had been granted, LGT committed itself to a lease of the Barnbougle Dunes land for a period of 10 years from January 2002. On any objective view of things, these events favour the defendants' case that Lost Farm was Sattler's to use or not as he chose and, if the latter, when he chose.
497 The business plans drawn up by Ramsay in these early years do not alter this conclusion. As I have noted above, they were not in fact the plans by reference to which LGT charted its course. The main purpose to which they were put, it seems, was to promote Barnbougle Dunes to potential investors (or "members") and to government. The context in which they were put to actual use was that in which LGT was seeking funding, either from government or under the PDS. The hasty adoption of one of these plans by an ostensible meeting of the Board of LGT on 6 January 2003 was, I consider, an instance of the latter. They were not, in my view, an appropriate basis upon which to found conclusions about the reality of the relationship between Sattler and LGT.
498 Additionally, relevantly to the matter of Lost Farm, these plans were expressed in terms which could be understood to mean almost anything. The opportunity for a second course tended to be expressed by reference to how the available land might in the future be used. More importantly, as counsel for the defendants pointed out, when it came to publishing a firm statement having legal effect with respect to prospective investors, the PDS made no reference to Lost Farm or to the possibility of a second course. Indeed, the PDS is as reliable a guide as any as to the limits of LGT's intended business as at the first few months of 2003. It is as clear as may be that Ramsay had no intention of incorporating the right to play golf on any future second course in the entitlements being offered to those who subscribed for membership bonds. It was, of course, something which he could not then promise. But neither was it something to which these "members" would have been contingently entitled in the event that LGT did come to operate a second course on Lost Farm.
499 LGT also submitted that the opportunity to build a second course on Lost Farm was "the basis of all the communications … with the State". With respect to the period which preceded May 2003, I suppose that the "communications" to which LGT referred were those by which Ramsay secured his initial loan of $20,000, and those involving both Sattler and Ramsay, which occurred in late 2002 and the first five months of 2003. Sattler appears to have had little or nothing to do with the former. The conditions attaching to the loan (see para 64 above) made no reference to any second course. As to the latter, Ramsay's communications with the government were ambiguous at best, as I shall attempt to demonstrate.
500 In Ramsay's letter to the DSD of 30 October 2002, he did identify a second course as constituting the third of three development stages contemplated by LGT. But he said: "Mike Keiser will finance this development". If the DSD was supposed to read this as an indication that Keiser's finance would be by way of investment in LGT, it would have been misleading at best, as is clear from what I have set out in para 90 above. Keiser's communications with Ramsay to that point involved no suggestion that he would invest in LGT. Likewise, if Ramsay's suggestion that LGT had been "approached by several well known international development companies who wish to participate in this next stage" is to be understood as implying that such participation not only was readily available but also would have been channelled through LGT, this would have misrepresented the reality of the situation to a considerable degree. The interest shown by the companies to which Ramsay presumably referred related not to participation in a second course after the first had been built, but to the construction of a course on Lost Farm first as an alternative to Barnbougle Dunes, and would have involved side-lining Doak, with whom Ramsay had made his arrangements. After Ramsay's unenthusiastic responses on 9 June and 7 August 2002, it seems that nothing further had come of the interest shown by these investors by the time of Ramsay's letter to the DSD on 30 October 2002.
501 The real significance of the possibility of there being, at some time in the future, a second course on Lost Farm for the relationship between LGT and the government was that such an outcome would conduce to the economic development of the area around Bridport. That was the card that LGT was playing, and it was played by Sattler and Ramsay at their meeting with Bacon and Lennon on 3 December 2002. That it would be LGT, rather than Sattler, that was possessed of, and would exercise, that opportunity was not, however, a circumstance relevant to the obtaining of government assistance. Rather, it was Sattler's association with LGT in late 2002 and early 2003 that provided the commercial and political gravitas without which I doubt that LGT would have made much progress beyond its original loan of $20,000. The officers of the DSD/DED may well have assumed that LGT would participate in any second course that might be built in the future, but the "basis" of any such assumption would surely have been that Sattler would, as a matter of his own dispensation, have chosen to develop Lost Farm in that way. If this aspect of LGT's submission is intended to imply that government funding would not have been obtained without an understanding on the part of the DED that LGT would participate in the development of Lost Farm, I would have no hesitation in rejecting it.
502 LGT's next submission was that the opportunity to participate in the development of a second course on Lost Farm, if the first course were successful, was "the basis of all the communications with Keiser". I think the contrary is much closer to the truth. Keiser had been told by Ramsay - wrongly as he later discovered - that LGT had an option over Lost Farm. Sattler certainly had no communication with Keiser of which the "basis" was that LGT would have an opportunity to participate. Keiser's first offer, made on 7 January 2002 (some 10 months before Sattler became a director of LGT), contemplated that it would be Sattler, not LGT, who entered into any formalised arrangement with respect to the second course. His second offer, of 6 January 2003, was made directly to Sattler, and did not concern LGT at all. His emphatic statement to Ramsay of 26 February 2003 - that if the first course were built, he would be "there for the second" - must, of course, be seen in the light of the circumstance that these two offers were still on the table: on Sattler's table, not LGT's. Save possibly for the very early period when Sattler was unknown to Keiser, the whole tenor of Keiser's potential involvement was that it would be Sattler with whom he would deal in relation to any funding for, or involvement in, the second course.
503 It was submitted on behalf of LGT that the opportunity to participate in the development of Lost Farm was "a condition of the involvement of all equity participants". So to submit, however, was to overreach the facts of the case, at least as disclosed in the evidence. Undoubtedly Wood and McCleery, in the period leading to 10 May 2003, wanted such an opportunity to be a condition of their involvement, and it now suits LGT's case to view the events of that time as though such a condition existed. But the reality is otherwise. Wood and McCleery wanted a contractual assurance that LGT would be able to participate in any second course at Lost Farm - as, of course, and perhaps most obviously, did Ramsay. All three were quite conscious of the uncertainty which surrounded their investments in the absence of such an assurance. But nothing was put to Sattler either before, or as a condition to, the investors' commitments to LGT. McCleery, who with Ramsay was probably most anxious to secure such an assurance, considered that any demand then made of Sattler would be counterproductive. That is, such a demand might have been met with a rebuff, upon which the three investors would have had to decide whether to withdraw altogether. They may have sensed that there was every prospect that, faced with such a demand, Sattler would have abandoned the Barnbougle Dunes project. The investors committed their moneys well appreciating that they had no contractual assurance about Lost Farm, and that the ability of LGT to participate in any future development at that site was wholly for Sattler to decide.
504 It is well to appreciate what was really happening in the period in early 2003 when Wood and McCleery committed themselves (and, in the case of Wood, his syndicate members) to invest in LGT. The realities were as follows. First, both Ramsay and Sattler had invested considerable personal, reputational and (relatively speaking) financial capital in the proposal under which the golf course would be developed. Neither wanted to withdraw from that proposal. Secondly, particularly considering the involvement of Doak and the support of Keiser, Sattler had come to share the view which Ramsay always had that the Barnbougle property was an outstanding site for a links golf course. If finance could be obtained for the construction of the course, therefore, the prospect of ultimate success was encouraging to say the least. The value to Sattler of turning hitherto unwanted dunes land into the site for a viable business should not be underestimated. Thirdly, Ramsay had neither the resources nor (individually) the backing to make a substantial personal investment in the course. Sattler was not initially prepared to invest money, his contribution at that time being confined to "in kind" resources such as the use of equipment and farm labour. Fourthly, the public offering of foundation memberships was well on the way to being a failure. It was clear that the funds that had been contributed would have to be returned. LGT had nothing to offer by way of security to a commercial lender and, besides, the investors had set their minds on not burdening LGT with conventional debt. This meant that, in very large measure, the construction of the course would have to be financed by way of government loans and third party (ie non-Ramsay and non-Sattler) equity. Fifthly, the Wood and McCleery groups (in the case of the latter, consisting of McCleery alone by May 2003) were very enthusiastic, and manifestly were prepared to hazard their capital in a venture that held the potential for an exciting future in the game that they loved. Although the investment would not be easy for either group, it would have been a great disappointment for them if the project had failed at the outset.
505 This combination of realities had an influence on the dynamics of the interactions between the various players which is unmistakeable, even at this substantial remove in point of time. In negotiations with the DED, both Ramsay and Sattler were anxious to maximise the potential of the Barnbougle Dunes project for employment, and tourism development generally, in the Bridport area. Thus they included the prospective second course in their presentations. As mentioned above, however, the material presented to departmental officers was relatively agnostic about the commercial structuring of any such future development. Wood and McCleery, both of whom were investors of some commercial acumen, could readily perceive the dangers in the kind of uncertain waters in which Ramsay and Sattler were then paddling with respect to Lost Farm. Further, they were the ones - more so at that point even than Sattler - who were about to part with large sums of money by way of an investment in a fairly unusual undertaking. Ramsay - as was his wont whenever the opportunity arose to promote the advantages of the Barnbougle site - had from the outset pointed out to Wood and to McCleery that the potential for golfing development included Lost Farm. Thus it came to pass that both Wood and McCleery, in their correspondence with Ramsay in February, March and April 2003, raised, and eventually stressed, the importance of having some concrete commitment from Sattler that they, or LGT should they invest in it, would be entitled to participate in the development of Lost Farm, should that ever occur. Sattler was aware of their interest in such matters, but, when consulted by Ramsay about McCleery's letter of 26 February 2003, he made it clear that there was no agreement such as would entitle LGT to participate in that development.
506 All parties were aware, of course, that the development of the Barnbougle Dunes course represented the real level of entrepreneurial risk in all of this. If that course succeeded, the development of Lost Farm - although potentially a considerably more expensive undertaking - would have been an obviously attractive investment. Sattler could have developed Lost Farm at the outset, but he first wanted to see if Barnbougle Dunes prospered. That was manifestly Keiser's position - a position which, of itself, carried weight with all the Australian investors. And it was self-evident to Wood and to McCleery. It is understandable that they wanted to have assurances of participation in the development of Lost Farm before they made a commitment to investing in the more risky, more pioneering, course to the west of The Cut. This perspective on things was, I infer, the genesis of McCleery's draft agreement into the settlement of which Ramsay put so much effort. However when Ramsay ultimately put the agreement to Sattler, he did so in a very formalistic way, and without even the knowledge, it seems, of McCleery. As for Wood, he made it clear in his oral evidence that he took very little interest in the draft agreement.
507 To an extent, the complications obvious in Ramsay's elaborations upon McCleery's original draft agreement of 26 April 2003 reflected the reality that any proposal which was to be put to Sattler would have to be both limited and conditional. Neither these investors nor LGT as such were or was in a position to take over Lost Farm, as it were, either as a purchase of the freehold or by way of the development of a new golf course. Rather, their proposal was conditional upon the area being developed by others - either Sattler himself or Keiser, or a combination of the two, as matters appeared at that time. Then the participation of LGT would be limited to 20%, but of what was clearly the subject of changing perceptions in the period which followed McCleery's first draft of the proposed agreement. It will be recalled that Ramsay's view was that an agreement should not be put to Sattler for consideration until the other investors had reached their own common position. It is not clear whether they ever did so, but, given the terms of Ramsay's proposal of 2 May 2003, it is not difficult to see why McCleery would have taken the view that it would be counterproductive for that proposal to be forwarded to Sattler.
508 One may sympathise with Wood and McCleery insofar as they were being asked to invest in a risky proposal which, if it prospered, would provide a platform for a later investment that had surer prospects. One may understand why they wanted an assurance that they would be part of the latter. On the other hand, however, it must be recognised that they were making no suggestion that they should, in May 2003, be bound to invest in the development of Lost Farm. They wanted to keep their options open to do so, or not to do so, depending on how events turned out. And they were not proposing that they should pay a premium of some kind for that commercial advantage, over and above what was their appropriate investment in Barnbougle Dunes as such. It is hard to see why Sattler ought to have regarded himself as under any ethical or moral obligation to consider favourably any such proposal as Wood and McCleery almost put to him in May 2003. In one aspect of LGT's case, what happened at this time was characterised as Sattler securing the money that was invested by Wood and McCleery. That was strictly not so, of course (it was LGT that derived the benefit of those investments), but, even so, I do not share the perception that the investments by these men contributed more to the Barnbougle project generally than was legitimately reflected in the equity in the first course, and that course only, which they thereby obtained.
509 Counsel for LGT made much of the circumstance, as they characterised the events of May 2003 and May 2004, that Sattler had chosen to take the funds provided by Bump 'n' Run, McCleery and Hetrel as equity, thereby spreading the risk, by comparison with a situation in which he (Sattler) obtained loan funding. They submitted:
[A]ccepting for the moment Sattler's contention that the second course opportunity was something that he always understood that he had, that does not mean that he preserved that opportunity unburdened by fiduciary obligations to LGT in the meantime. It is frequently the case that businessmen have part of what they need for a successful venture, but not all of it. Frequently, they have exploration and production rights (maybe, even a mine), but not the capital to exploit them; they have an invention but not the capital to develop it; they have production rights but not the capital to exploit them; they have some land but not the capital to develop it. In order to develop their mine or their production rights, or the invention, or their land, they need to bring in joint venture parties. When they do so, their opportunity to exploit what was once theirs alone becomes burdened by their fiduciary obligations to those who have joined the venture with them.
Notwithstanding the submission here of what is "frequently" the case, counsel for LGT were unable to refer me to any previously decided case, in any common law jurisdiction, with facts analogous to those of this case, in the sense of the question having arisen whether it would be a breach of a director's fiduciary duty to take advantage of a commercial opportunity which was his or hers before the commencement of his or her association with the company concerned. In the context of the present case, what counsel described as "what was once theirs" should be understood as the land on which the Barnbougle Dunes course was developed. In the case of a mining entrepreneur who commenced, for example, with exploration rights in relation to two parcels of land, for him or her to become a shareholder and director of a company formed to exploit those rights on the first parcel of land would not, as I understand the doctrines of equity, make it a breach of fiduciary duty for him or her to decide to exploit the rights which related to the other parcel save with the consent of the company.
510 That brings me to Sattler's statement of intention at the investors' meeting on 10 May 2003 (see para 198 above), when it was clear for the first time that Sattler himself would have to carry the burden of capitalising LGT. The statement that Sattler intended that "the group of equity holders in LGT be offered the opportunity to participate" formed an important part of LGT's case, not because it was said to be promissory in the contractual sense, nor even as the foundation for an estoppel, but because it closed the door on any argument on behalf of the defendants that Sattler had LGT's implicit consent to develop Lost Farm without first offering the original investors the opportunity to participate. I am here concerned, however, not with the question of consent, but with the anterior question of the source or derivation of the opportunity of which Sattler, on LGT's case, took advantage in 2007 and subsequently. How did the meeting of 10 May 2003 throw light on the reality of the relationship between the parties?
511 It must be recalled that this meeting occurred before the first sod had been turned in the construction of Barnbougle Dunes. Ramsay's membership bond financing proposal had failed. The non-Sattler investors had demonstrated their inability to provide sufficient equity to build the golf course. Sattler had assumed that burden, almost by default. But, apropos the future developments to which the exchanges towards the end of the meeting referred, the elephant in the room, so to speak, was that Sattler was not only the landowner of the area on which a second course might be built, but the only person then known to have the financial strength to contemplate building such a course, or, indeed, constructing the accommodation and developing the real estate to which Wood's note refers. Quite clearly, Sattler was being questioned in his capacity as landowner and source of capital. The assumption being that it would be he, possibly with the involvement of Keiser, who would in due course develop Lost Farm, the question was whether the then investors in LGT would have the opportunity to participate. It would, in my view, be quite at odds with the reality of the situation to understand these exchanges on 10 May 2003 as some kind of forward indication by LGT qua beneficiary that it would not consent to the development of Lost Farm by Sattler qua fiduciary unless it were granted the right to participate to an extent, and on terms, suitable to itself.
512 Although described by Wood, in his notes, as a "pledge", what Sattler said was no such thing. It was a statement of his then intention. It was not suggested by LGT that the statement as made was inaccurate or misleading. It was "taken in good faith by all concerned", but it could only be so taken for what it was. Further, the investors accepted that Keiser might well have an involvement (which might, I would add, have been of such a size and character as to have excluded any other non-Sattler equity participants), and that Sattler had "no wish to be restricted in any way at this point of proceedings". On any view, the general sense of these exchanges was one in which the other investors both understood and accepted that the opportunity to develop Lost Farm was firmly in Sattler's quarter, and that the matter of the involvement of LGT or its investors was for Sattler to decide by reference to circumstances existing when the occasion for such a development arose.
513 The sense of the exchange occurring towards the end of the meeting on 10 May 2003 is to be contrasted with what was in the contemplation of Ramsay, McCleery and (to a lesser extent) Wood in the weeks leading to that meeting, when it was in prospect that they would all be required to provide personal security for what was then intended to be a loan from the State government to a subsidiary of LGT. The circumstances then confronting those investors were ripe for a contractual engagement as between LGT and Sattler. The investors' unstated concerns related to Sattler's position as landowner, not as fiduciary. But, rather than pressing Sattler for a contract to which LGT would be a party, the investors were content to rely on his statement of intention "in good faith". It would, in my view, be most odd if equity so worked as to leave Sattler the landowner in a position for which he might have made, but did not make, a contract: a position which would, absent consensus, deliver to LGT a commercial position more advantageous to itself than any that Sattler would conceivably have agreed to at the time, namely, that he needed LGT's consent to undertake any development, at any time, of a golf course on Lost Farm.
514 Over the next four years or so, to the extent that the parties involved at Barnbougle Dunes turned their minds to the prospect of there being a second course at Lost Farm, the silent - and occasionally explicit - assumption by reference to which they proceeded was that the land in question was Sattler's to do with as he proposed, and that any participation by LGT would be a matter for him to determine, by reference to his own interests. That is to say, it was recognised that Sattler had two very distinct capacities, that of director and that of landowner, and that any decision with respect to the future use of Lost Farm as a golf course, including the extent of participation of LGT or any other investor, would be made by Sattler the landowner, not Sattler the director.
515 Without repeating the factual narrative which is set out earlier in these reasons, I refer in this respect to the expectation, which existed at least until well into 2007, that Keiser would either fund the construction of the second course, or be a significant equity participant, at the option of Sattler alone; to Sattler's email to Wood of 23 January 2004 making it clear, in the context of the structuring of Doak's remuneration, that Barnbougle Dunes had no options "on", or connection to, the adjoining site; to Wood's email to Doak's attorney on the same subject on 28 June 2004; to Hetrel's facsimile to his solicitor on 14 September 2004; to the discussion of Sattler's "master plan" (unsatisfactory though the evidence was) at the Board meeting on 6 March 2006; to the engagement of Coore by Sattler rather than by LGT; and to the publicity which was inferentially given to Sattler's decision to proceed with the second course in August 2007.
516 LGT would, as I read its case, want to be understood as submitting that all these indications were at best equivocal, in the sense that it was only in early 2007 that Sattler set out on the course from which he ultimately, according to LGT, derived a gain which resulted from his fiduciary position. Only then did the opportunity to develop Lost Farm as a second course present itself in a commercially mature form. And it did so, it is said, because of the success of LGT's own enterprise at Barnbougle Dunes. Apart from anything else, it is this circumstance which is said to compel the conclusion that the opportunity resulted from Sattler's position as director of LGT. There can be no doubt about the factual premise upon which this aspect of LGT's case is based. Sattler did wait until the course at Barnbougle Dunes was operating profitably before he committed himself to develop Lost Farm. And he had reached that stage by early 2007, engaging Coore to do the required design work. There does not seem to be any serious suggestion on behalf of the defendants that Sattler would have taken these steps in the absence of the successful example of Barnbougle Dunes.
517 However, it is equally significant that the Board of LGT, having a keen interest in some kind of involvement in the expected second course at Lost Farm, took no concrete step to turn their ambitions into a commercial reality. LGT's own inaction, while relevant to the defence of laches to which I shall turn below, also speaks volumes of the reality of the relationship between itself and Sattler. It is here that the circumstances mentioned in para 483 above become important, and not merely as a matter of pleading. If the development of Lost Farm was truly to be regarded as something which LGT, rather than Sattler, was entitled in equity to undertake, it is odd that no resolutions were passed in that regard and, indeed, that no discussion was held at Board level as to how it would be financed, or done generally. The contrast with Canadian Aero - to take a case which stands as the paradigm instance of the articulation of the principle upon which LGT relies - could scarcely be more stark.
518 There was some debate in the present case as to whether LGT could have funded the development of a golf course at Lost Farm on its own account, or using the resources of its shareholders other than Sattler. This was, with respect, both the wrong time and the wrong place to conduct that debate. It should have been done within LGT in 2007. Had there been any reality in what LGT now claims to have been its entitlement in equity to that development, it would have been conducted there and then. The fact that it was not confirms the impression, which otherwise I derive from the evidence as a whole, that the reality of the relationship as between Sattler and LGT was that the future use of Lost Farm was a question for Sattler to determine, as landowner. The ongoing interest which the other directors, and shareholders, showed in that subject was not that which a principal would show in the activities of his or her fiduciary. It was that of a company with a successful business on one parcel of land in the availability of an adjoining parcel in circumstances where the owner of the latter had his own agenda with respect to it.
519 There is another facet of LGT's approach to the Lost Farm question in, and in the period leading to, 2007 which deserves to be illuminated. Just as Sattler waited until, from the success of Barnbougle Dunes, the opportunity to develop Lost Farm was commercially mature, so too did LGT wait until Sattler had made his own intentions clear before addressing the issue of its own involvement - to the extent that it addressed that matter at all. LGT never confronted what it now asks the court to accept was the reality of its position, namely, that it would, if Sattler observed his fiduciary obligations, build and then operate a golf course at Lost Farm. There was never a suggestion that it would bind itself to such an outcome. The limited nature of the draft agreement being prepared by Ramsay and McCleery in April and May 2003 continued to reflect the reality of LGT's position in 2007, that is, the prospect of LGT taking on the Lost Farm business in its own right was never really in contemplation. What was desired, at best, was some kind of involvement or participation in a business with Sattler and/or Keiser. When the Sattler decided to proceed with Lost Farm, LGT would then measure out the extent and nature of the participation for which it would contend. I appreciate that seeing things in this way is to proceed by way of inference, but it is, in my view, an inference which comes powerfully out of all of the evidence in the case.
520 To propose that the taking up of the opportunity to develop Lost Farm as a golf course was something that fell within the scope of Sattler's fiduciary duty is, in my view, to adopt a position conspicuously asynchronous with the reality of the relationship between the parties as disclosed in the evidence. That relationship was, relevantly to the scope point, one in which Sattler was the landowner, not the fiduciary. And it was in the former capacity only that he determined, ultimately, that he would not admit LGT to any kind of participation in the new business at Lost Farm. The commercial potential of Lost Farm for golf was, at base, an attribute of the land itself. And the land was Sattler's asset. He was drawn into participation in LGT first by the excess of Ramsay's aspirations over his resources and secondly by the failure of Ramsay's chosen means of raising funds. Thus he found himself in a fiduciary position. Inescapably, he had two hats to wear, but the reality of the situation was one in which all concerned appreciated, and participated on the basis, that choices about Lost Farm were Sattler's to make "when his directorial Akubra [was] on the locker-room shelf" (Austin, RP, "Fiduciary Accountability for Business Opportunities", in Finn, PD (ed), Equity and Commercial Relationships, Law Book Co, 1987, p 141 at p 150.
521 For the above reasons, I would hold that the establishment of a second golf course business at Lost Farm fell outside the scope of Sattler's fiduciary duty to LGT. I propose, however, to add some brief remarks with respect to LGT's submission that, albeit that Sattler was the landowner at Lost Farm and developed the land in that capacity, the opportunity to do so, at least in a commercially realistic way, was delivered to him by LGT, and by the example presented by the success of its own enterprise at Barnbougle Dunes.
522 It is broadly correct to say that Sattler's development of Lost Farm resulted from that example, amongst other things. It would, however, be a quite different thing to say that the opportunity to develop Lost Farm came to Sattler as the result of his fiduciary position with LGT. Sattler was a director, and the CEO, of LGT, but the success of Barnbougle Dunes was notorious. Undoubtedly that success enhanced the value of Lost Farm as a site for a golf course - not merely because Barnbougle Dunes provided the example, but also because the advantages of co-location were effectively delivered by LGT - but these circumstances do not, in my view, of themselves provide a basis for any conclusion to the effect that the opportunity to develop Lost Farm came to Sattler because of his fiduciary position as director and CEO of LGT. By the example and location of LGT's own business, that opportunity was available to the owner of the land at Lost Farm, even if he had had no management connection of any kind with LGT.
523 In Streeter, McLure P (with the assent of Buss JA) drew a distinction (278 ALR at 305 [76]) -
… between those cases in which the fiduciary was under a positive duty to acquire or seek to acquire a particular benefit or property for the company (Cook v Deeks [1916] 1 AC 554; Chan; Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; [1972] 2 All ER 162; Keech v Sandford (1726) 25 ER 223) and cases where there is no such positive duty.
Having referred to the facts of the case before her, her Honour continued (278 ALR at 305 [77]):
The High Court's formulation of the profit rule in [Warman International Ltd v Dwyer (1995) 182 CLR 544] and Chan focuses attention on the conduct of the fiduciary. There must be a causal connection between the fiduciary office and the receipt of the benefit. The "opportunity" referred to in the profit rule is that taken by the fiduciary to obtain the profit. If the opportunity is derived by reason of his fiduciary position, it is irrelevant that the company to whom the duty is owed was unwilling, unlikely or unable to make the profits for which an account is taken or that the fiduciary acted honestly and reasonably: Warman at CLR 588; ALR 209; Maguire at CLR 468; ALR 741; Boardman v Phipps [1967] 2 AC 46; [1966] 3 All ER 721 (Boardman).
524 In the present case, counsel for LGT made it clear that it was not suggested that Sattler was under any obligation to develop Lost Farm as a golf course at all. He could have used it as a potato farm, as a drive-in cinema, or whatever; he could also have allowed it to remain undeveloped. Sattler was, therefore, under no positive duty to LGT to seek to acquire for it the benefits that were potentially available from the development of Lost Farm as a golf course. The case is, in this respect, quite different from those in the Canadian Aero line of authority.
525 That makes applicable, in my view, the question which McLure P proposed should be asked in situations in which no such positive duty exists: was there "a causal connection between the fiduciary office and the receipt of the benefit"? In the present case, that question must be answered in the negative. The receipt of the benefit arose from the opportunity to build a golf course on Lost Farm, and that opportunity did not depend, in a causal sense, upon Sattler's fiduciary position. Let it be granted that it was a mature, commercially attractive, opportunity substantially because of LGT's experience, but that is, as I have said, a different point. The opportunity did not result from Sattler's position as director and CEO.
526 My conclusion that the development of a business at Lost Farm fell outside the scope of Sattler's fiduciary duty to LGT will be sufficient for the defendants on this part of the case, but they also raised the defence of laches, and it is convenient that I deal with that point at this stage.
527 The equitable defence of laches has recently been the subject of a comprehensive examination by Murphy JA in Streeter (278 ALR at 405-412). On this aspect of the case, his Honour's reasons attracted the assent of McClure P and Buss JA. At the level of general principle, Murphy JA said: (278 ALR at 405-406 [632]-[636]):
In Fysh v Page (1956) 96 CLR 233 at 243-4 ; [1956] ALR 474 (Fysh) Dixon CJ, Webb and Kitto JJ said:
If a plaintiff establishes prima-facie grounds for relief the question whether he is defeated by delay must itself be governed by the kind of considerations upon which the principles of equity proceed. If the delay means that to grant relief would place the party whose title might otherwise be voidable on equitable grounds in an unreasonable situation, or if, because of change of circumstances, it would give the party claiming relief an unjust advantage or would impose an unfair prejudice on the opposite party, these are matters which may suffice to answer the prima-facie grounds for relief. See Lindsay Petroleum Co v Hurd and the observation in Lord Blackburn's speech in Erlanger v New Sombrero Phosphate Co.
In Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221 at 239-40 (Lindsay Petroleum) it was said:
Now the doctrine of laches in Courts of Equity is not an arbitrary or a technical doctrine. Where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material. But in every case, if an argument against relief, which otherwise would be just, is founded upon mere delay, that delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried upon principles substantially equitable. Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy.
In Orr v Ford (1989) 167 CLR 316 at 341 ; 84 ALR 146 at 160 (Orr) Deane J said:
The ultimate test effectively remains that enunciated … in Lindsay Petroleum Co v Hurd, namely, whether the plaintiff has, by his inaction and standing by, placed the defendant or a third party in a situation in which it would be inequitable and unreasonable "to place him if the remedy were afterwards to be asserted": see Erlanger v New Sombrero Phosphate Co, and also, per Rich J, Hourigan.
The doctrine of laches comprehends two themes. One is delay implying not just quiescence, but rather acquiescence and assent, and the other is delay involving prejudicial change of circumstances - as to which see Bell Group at [9307] and see generally R P Meagher, J D Heydon and M J Leeming, Meagher, Gummow and Lehane's Equity: Doctrines & Remedies (4th ed, 2002) [36-005]-[36-020].
In Orr (at CLR 343; ALR 161) Deane J referred to the statement in Lindsay Petroleum (at 241) to the effect that in order that the plaintiff's remedy should be lost by laches, it is ordinarily necessary that there should be sufficient knowledge of the facts constituting the title to relief.
528 In the present case, the question is whether, by reason of LGT's own acquiescence when aware of the relevant facts, or of prejudice to Sattler brought about by the passage of time, it would be inequitable to require Sattler to account to LGT for the profits of the business conducted by him at Lost Farm. As I understand the defendants' case, there were two points at which LGT should have acted: after the shareholders' dinner on 13 October 2007, and (ie alternatively) after the dispatch of Wood's shareholders' update on 7 July 2008. At each of these times, it was said by the defendants, it was clear that Sattler proposed to develop Lost Farm on his own account, without equity participation on the part of LGT.
529 I did not understand counsel for LGT to take issue with the basic premise that, if the non-Sattler shareholders in LGT were aware that LGT would be excluded from equity participation in Lost Farm, it ought then to have acted, rather than leaving the matter until mid-2009. However, LGT's case was that, on each of these occasions, Sattler kept it on the hook by temporising with respect to the full extent of his intentions for the development of Lost Farm. Apart from the obvious point that equity would not listen sympathetically to a laches argument advanced on behalf of someone who had acted in this way, LGT submitted that it was not until the other directors knew all the facts which would be relevant to an informed decision whether to challenge Sattler on the course which he proposed that time commenced to run in the sense that LGT's inaction amounted to acquiescence.
530 In the view I take of the evidence (see para 366 above), at least by the shareholders' dinner on 13 October 2007 there was no longer any real doubt about Sattler's intention to develop Lost Farm in his own name. Indeed, I do not understand counsel for LGT to have submitted otherwise. Their point, rather, was that Sattler never made it clear to the other directors and shareholders that LGT was to have no involvement of any kind in the operation of that course. The position taken by LGT is best revealed in the following passage of its counsel's cross-examination of Sattler, which related to the situation as at the dinner on 13 October 2007:
Q. And what you said at that dinner was that you were going to go ahead with the second course?
A. Yes.
Q. And you told the others present that LGT would profit from the establishment of the second course?
A. I can't remember the exact detail, no, but I - sorry.
Q. You told them that LGT would be able to run services pursuant to an agreement with you in relation to the second course?
A. I don't understand your question.
Q. Well, you have told them that you're going ahead with the second course? A. Yes.
Q. And they are asking you what the involvement of LGT is going to be in the second course?
A. Yes.
Q. And the one thing you don't say to them is "You boys have got to understand LGT is going to have nothing whatsoever to do with the second course." You don't express yourself like that, do you?
A. No, I said that there will be a constructed by the Sattler family.
Q. You said it will be constructed by the Sattler family?
A. Correct.
Q. But you also - they asked you what the involvement of LGT was going to be in the business once it got going?
A. I believe they did, yes.
Q. Thinking back it's inconceivable that they wouldn't have asked you such questions?
A. Yes, but you're asking from a dinner where there was quite a bit of alcohol consumed for me to give exact details.
Q. Yes, sure. And when they ask you what was to be the involvement of LGT in the second course, you weren't able to give exact details?
A. Correct.
Q. Because you hadn't yet worked it out?
A. Correct.
Q. But you didn't say to them, "You guys have got to understand that this business is going to be built and LGT is going to have no part in its operation whatsoever." You didn't?
A. Are you asking me as a question or making a statement?
Q. No, it's a question. You didn't express yourself like that at the meeting, did you?
A. No.
531 The position was, therefore, that LGT knew that it would not be the, or a, proprietor of the proposed new golf course business at Lost Farm. What was left open was the prospect that it might have some non-proprietorial role. That is consistent with what Hetrel understood to be the gist of Sattler's message at the dinner, and it is consistent with what Hetrel said he told Sattler on several occasions, namely, "that, as long as the golf traffic was coming through Barnbougle Dunes, I would not have a problem with the second course, but I needed to understand how it was going to work". It is also consistent with McCleery's recollection of what was said at the dinner. I would find, therefore, that, in October 2007, LGT acquiesced in Sattler developing the second course on his own account. It had its reasons for doing that, and it may be that Sattler was temporising with respect to the extent of involvement, if any, which LGT would have. But LGT must be taken to have appreciated that its entitlements in that regard were uncertain, and depended on decisions by Sattler which had not yet been made. Against that understanding, LGT took no step to hold Sattler to what it now claims was the consequence of his fiduciary position, namely, that he could avoid sharing the profits of any new business at Lost Farm with LGT only by first obtaining its fully-informed consent to the establishment of such a business.
532 Although the other directors of LGT were unaware of it at the time, Sattler was then well advanced along the road of burdening himself with substantial debt to fund the construction of the new course. That burden included not only the contractual obligations involved, but also the wide-ranging mortgage security which Sattler proposed to give. Sattler bound himself to those arrangements on 10 April 2008. If he were to be required, indefinitely, to share the profits of Lost Farm with LGT, he would undoubtedly have been prejudiced by LGT's inaction between October 2007 and April 2008. Had LGT moved promptly to assert its entitlement in equity to those profits, Sattler might well have decided not to proceed with the construction of Lost Farm at all. LGT's inaction caused Sattler to change his position in a way that would now make it inequitable for him to be required to account to LGT for part of the profits earned in the conduct of the business at Lost Farm. It is no answer for LGT to say, as it did in submissions made on its behalf, that the other directors, and shareholders, knew nothing of Sattler's negotiation of the $4.5m State loan. They ought reasonably to have assumed that Sattler would have obtained funding from somewhere and, by their inaction, they took the risk that Sattler would change his position in ways which might well make it inequitable to hold him to account.
533 If there was any ambiguity in the extent or quality of LGT's understanding as to the way in which Sattler proposed to proceed, it could not have existed beyond the shareholders' update sent by Wood on 7 July 2008. Wood advised the shareholders that the new course would be developed by Sattler in partnership with Keiser, and that LGT would not be invited to participate. Construction of the course commenced in or about October 2008. What stage had been reached by the time that LGT commenced its first proceeding against Sattler on 15 July 2009? That question is not answered with clarity in the evidence, but it may be inferred that construction of the course had advanced to a significant extent. The sharing of employees as between Barnbougle Dunes and Lost Farm had been put on a regular footing, with Mrs Sattler and Dixon keeping accounts of the times involved. Ponting had, since January 2009, been engaged entirely on Lost Farm operations. At the Board meeting on 7 February 2009, Sattler reported that, at Lost Farm, six holes had been shaped and were waiting for Coore to arrive to finish them off. Seeding was expected to begin in the first week of March. That timing was not achieved, it seems, but Wood stated in his report of 20 March 2009 that seeding would commence in that month. These indications justify the inference, which I draw, that, by mid-2009, very substantial construction towards the completion of the Lost Farm golf course had occurred on Sattler's land. Realistically, by then, the die had been cast, not only in terms of financial obligations and burdens, but also in terms of permanent changes to the land itself. If LGT's claim for an account is now successful, it will mean that Sattler was deprived of the opportunity to decide, at the outset, that he would prefer not to establish a new business on Lost Farm at all, rather than being obliged to dedicate his time, energies and resources to the generation of profits to be shared with LGT.
534 It should not be assumed that Sattler's positions as majority shareholder and CEO effectively neutered the capacity of the Board to take such action as it considered in the best interests of LGT, as it did over Sattler's opposition in April 2009. Sattler's vote was originally only one-fifth, and was ultimately only one-third, of the voting power on the Board. It is true that, at any time after 1 July 2004, Sattler might have used his voting power at a general meeting to replace the other members of the Board, but at least such an expedient would have brought the present aggravations of LGT into the forum where, on one view, they properly belonged. However that may be, my present point is that the Board's failure squarely to confront Sattler with what it now says were breaches of fiduciary duty on his part is not to be explained by Sattler's position of dominance on the share register. Neither was this a case in which the deliberations of the Board were a mere formality calculated only to legitimise the steps taken by the individual who controlled the company. This was a real Board which met regularly. Its members were men of commercial substance with an active involvement in the business concerned. They were only too conscious of the Lost Farm question. Had they formed the resolve, at an early date, to confront Sattler with what LGT now says is the reality of the position that he was in - that he could develop Lost Farm as a golf course in his own name only with the consent of LGT - there was nothing in the formal, institutional or practical workings of the Board that would have made it impossible, or even (apart perhaps from the bad blood that might have been involved) difficult for them to have done so.
535 For the above reasons, had I been against the defendants on the substance of LGT's case that Sattler breached his fiduciary duty when he established the new golf course at Lost Farm on his own account, I would have held that July 2009 was too late for LGT to have commenced proceedings asserting its rights in that regard.
536 As I mentioned at the outset, the defendants made an omnibus submission that, if I were against them as to any aspect of Sattler's conduct, he should be relieved from liability under s 1318 of the Corporations Act, which reads:
If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person's appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
The section applies to an officer or employee of a corporation, and would clearly apply to Sattler in the circumstances of the present case.
537 In Australian Securities And Investments Commission v MacDonald (No 12) (2009) 259 ALR 116, having considered the authorities on the notion of honesty as used in ss 1317S and 1318 of the Corporations Act, Gzell J said (259 ALR at 122 [22]):
In my view a person acts honestly for the purposes of ss 1317S(2) and 1318(1), in the ordinary meaning of that term, if that person's conduct is without moral turpitude in the sense that it is without deceit or conscious impropriety, without intent to gain improper benefit or advantage and without carelessness or imprudence at a level that negates the performance of the duty in question. That conclusion may be drawn from evidence of the person's subjective intent. But a lack of such subjective intent will not lead the court to conclude that a person has acted honestly if a reasonable person in that position would regard the conduct as exhibiting moral turpitude.
This understanding of the notion was adopted by Siopis J in Hydrocool Pty Ltd v Hepburn (No 4) (2011) 279 ALR 646, 716-717 [481].
538 The question arises whether I should, in the alternative as it were, make a finding on the question whether Sattler acted honestly when he kept for himself the opportunity to establish a business at Lost Farm. Having given the matter considerable thought, I have come to the view that it would be inappropriate to proceed in that way. The question would arise only if I were wrong on the breach of duty aspect, and then, almost inevitably, it would be the nature and context of the error, and of the correct conclusion then hypothetically reached, that would provide the context for a finding of honesty, or otherwise, under s 1318. This is not, in my view, a situation in which a conclusion on the matter of honesty, based on some alternative finding on the primary facts, can sensibly be reached.
539 I turn next to so much of LGT's case as relied on the conflict rule to attack Sattler's decision to establish and to carry on a business at Lost Farm which would compete directly with that of LGT at Barnbougle Dunes. Here I should make two things clear at the outset. First, LGT's conflict case depends to no extent upon the soundness of its opportunity case. That is to say, even if the opportunity to develop Lost Farm did not come to Sattler as a result of his fiduciary position, the carrying on of a competing business on Lost Farm necessarily involved a conflict of interest and duty, with the result that Sattler would be required to account for any benefit or gain which he derived from that business. In this compartment of the case, my conclusion above as to scope provides no shield for the defendants, as, on LGT's argument, the very fact of competition would have given rise to a conflict well within the scope of Sattler's fiduciary duty. Indeed, the circumstance that Sattler intended - as I would hold was his entitlement otherwise - to conduct an independent business to compete with that owned by LGT might be viewed as placing a sharper edge upon the questions of conflict which would potentially arise. Secondly, the present point is concerned with the contemporaneous conducting of two arguably competitive businesses, not with Sattler's decision to conduct the Lost Farm business himself rather than offer it to LGT. If the opportunity rule and the conflict rule are to be seen as inhabiting completely separate jurisprudential hemispheres, there is a sense in which the very act of making that decision might be seen as involving Sattler in a conflict. But it would only be so if the opportunity to conduct a golf course on Lost Farm came to Sattler by reason of his fiduciary position (a question with which I have already dealt), or if Sattler were under a positive duty to pursue that opportunity on behalf of LGT (see Streeter, 278 ALR at 303 [68]) which, of course, he was not.
540 The modern Australian formulation of the conflict rule is that provided by Mason J in his dissenting judgment in Hospital Products (156 CLR at 103):
Accordingly, the fiduciary's duty may be more accurately expressed by saying that he is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he is bound to protect: Aberdeen Railway Co. v. Blaikie Brothers. By linking the obligation not to make a profit or take a benefit to a situation of conflict or possible conflict of interest the proposition, in accordance with the authorities, (a) excludes the relevance of an inquiry into the actual motives of the fiduciary; and (b) excludes restitutionary relief when the interest of the fiduciary is remote or insubstantial: see Boulting v. Association of Cinematograph, Television and Allied Technicians; Phelan v. Middle States Oil Corporation.
What Mason J referred to "a real or substantial possibility of a conflict" is the same notion as Lord Upjohn described as "a real sensible possibility of conflict" in Boardman v Phipps [1967] 2 AC 46, 124. Although his Lordship was in dissent, his formula was endorsed by the Privy Council in Queensland Mines Ltd v Hudson (1978) 18 ALR 1, 3 and has been applied both in the NSW Court of Appeal (Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1, 89 [425]) and, twice recently, in the Full Court (Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1 at [99] and Omnilab Media [2011] FCAFC 166 at [174] and [230]). The way the principle was expressed by Mason J in Hospital Products was adopted by McHugh, Gummow, Hayne and Callinan JJ in Pilmer v Duke Group Ltd (In Liq) (2001) 207 CLR 165, 199 [78]. I would refer also, in this context, to what was said by McLure P in Streeter (278 ALR at 303 [67]):
Mason J in Hospital Products stated the conflict rule in terms of a conflict between "interest and interest". I understand the analysis to be as follows. A fiduciary has (within the scope of his engagement or undertaking) a duty of undivided loyalty to the person to whom the duty is owed, in this case the company of which he is a director. Thus, ordinarily a director cannot have personal interests that conflict with the interests of the company. Although the conflict rule is usually formulated in terms of the need to avoid a conflict of duty and interest, the Mason J formulation assists in the understanding (and application) of the conflict rule.
541 With respect to the content and application of the conflict rule in the context of the present case, I am confronted with diametrically opposed positions being taken by the parties, at the levels both of legal principle and of fact. As a matter of principle, LGT's submission was that the court should regard it as self-evident that the carrying on of a competitive business would necessarily involve a company director in a conflict of interest, and would always give rise to a breach of fiduciary duty. The defendants submitted that participation by a company director in a competing business would never, as such, amount to a breach of fiduciary duty. As a matter of fact, LGT submitted that the conduct of another golf course on adjacent land would necessarily involve competition for LGT at Barnbougle Dunes; while the defendants submitted Sattler's business at Lost Farm was from the outset complementary to, rather than competitive with, LGT's business at Barnbougle Dunes. I shall turn to these axes of contest presently, but I should first mention two discrete matters that might otherwise complicate the discussion, if for no other reason than to clear the decks.
542 The first involves a submission by the defendants that, whatever might be the situation otherwise, Sattler was permitted to compete with LGT, and it was not a breach of his fiduciary duty to do so, by operating a second golf course on Lost Farm because that prospect was specifically contemplated by cl 16.2 of the shareholders' agreement of 10 January 2003 (see paras 131 and 135 above). For reasons given at paras 490-491 above, I would not uphold that submission. As a shareholder, Sattler was permitted to compete. The agreement, however, was not concerned with any right to compete while Sattler held office as a director.
543 The second discrete matter is in the nature of a preliminary to what follows. In the facts of the case, Sattler did not carry on a business at Lost Farm at all before the commencement of this proceeding - unless undertaking construction activities should be regarded as an aspect of the carrying on of the business then in contemplation. By the time that Lost Farm commenced to trade as a business, Sattler no longer held either of his fiduciary positions with LGT. As I shall demonstrate in due course, that circumstance had a significant impact on LGT's competition case, and I shall turn to it. For the present, however, I shall deal with the uncomplicated questions - one legal and the other factual - of whether it would amount to a breach of duty for Sattler, while the fiduciary of LGT, to carry on a business which competed with LGT's business and of whether the new golf course at Lost Farm was to be regarded as competitive with LGT's business in the relevant sense.
544 As to the legal question, it is well to commence with the classic statement of Lord Cranworth LC in Aberdeen Ry Co v Blaikie Bros (1854) 1 Macq 461, 471:
A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.
So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into.
Aberdeen involved an allegation that a railway company had defaulted on a contract to purchase an agreed number of iron chairs. The chairman of the board of the company was, however, also a member of the firm from which the company had agreed to take the chairs. This was, therefore, an instance of a trader supplying goods to the company of which he was a director. The breach of fiduciary duty involved in that course of action was held to provide a complete defence, and the railway company was assoilzied from the action on the contract. Aberdeen was a supplier case rather than a competitor case, and is of present interest because of the above general statement of principle which has been so influential in this area of the law.
545 With respect to Sattler's right to compete in the present case, the defendants based themselves on the dictum of Lord Blanesburgh in Bell v Lever Brothers, Ltd [1932] AC 161, 195:
And this brings me to the position of a director in relation to contracts of the second class, with which we are here alone concerned. The principle will be found in the case usually cited in relation to it, al-though reported only in the Weekly Notes, of London and Mashonaland Exploration Co. v. New Mashonaland Exploration Co.[1891] WN 165, where it was held that, it not appearing from the regulations of the company that a director's services must be rendered to that company and to no other company, he was at liberty to become a director even of a rival company, and it not being established that he was making to the second company any disclosure of information obtained confidentially by him as a director of the first company he could not at the instance of that company be restrained in his rival directorate. What he could do for a rival company, he could, of course, do for himself.
The defendants referred to the view expressed in Meagher, Heydon and Leeming, Equity - Doctrines and Remedies that "it seems to be established that a director of a company may at the same time be a director of a competitor or, presumably, personally carry on a competing business" (4th ed, p 185), for which Bell v Lever Bros is given as the main authority.
546 Counsel for LGT submitted that the dictum of Lord Blanesburgh "is not good law in Australia". They referred me to no binding decision, however, in which this had been held. Rather, counsel's submission was more in the nature of an argument as to why the dictum should not be accepted. In this project, they referred me to the comprehensive treatment of the subject by Heenan J in Western Areas Exploration Pty Ltd v Streeter (No 3) (2009) 234 FLR 265, 287-291, [76]-[90], which, while reversed on appeal, contains a comprehensive discussion on the present question and which, according to counsel for LGT, was not relevantly affected by that reversal. His Honour's conclusion was (234 FLR at 291 [90]) "that the rule recognising that to a limited extent a director may be a director of another company which competes with the business of the first company rests on somewhat fragile grounds".
547 As is apparent from the extract set out above, Lord Blanesburgh's view of the law was based on the short and, it seems, ex tempore judgment of Chitty J in London and Mashonaland Exploration Co, Ltd v New Mashonaland Exploration Co, Ltd [1891] WN 165. In that case, the plaintiff and the defendant were in the same line of work, and were, as stated in the report of the case, "rival companies". Lord Mayo was the chairman of the board of the plaintiff, but had never attended a board meeting. His name then appeared on the defendant's prospectus, "at the head of its list of directors". The plaintiff's motion to restrain the defendant from publishing any statement that Lord Mayo was one of its directors, and to restrain Lord Mayo from so acting, was unsuccessful. Chitty J's judgment was as follows:
… [E]ven assuming that Lord Mayo had been duly elected chairman and director of the plaintiff company, there was nothing in the articles which required him to give any part of his time, much less the whole of his time, to the business of the company, or which prohibited him from acting as a director of another company; neither was there any contract express or implied to give his personal services to the plaintiff company and to another company. No case had been made out that Lord Mayo was about to disclose to the defendant company any information that he had obtained confidentially in his character of chairman: the analogy sought to be drawn by the plaintiff company's counsel between the present case and partnerships was incomplete: no sufficient damage had been shewn, and no case had been made for an injunction: the application was wholly unprecedented, and must be dismissed with costs.
This judgment has been criticized as having been "firmly rooted in the law of contract", and as giving "no explicit mention" to fiduciary obligations: Christie, "The Director's Fiduciary Duty not to Compete" (1992) 55 MLR 506, 509. Although they referred to the article by Christie, counsel for LGT in the present case did not descend to detail in their submission - if such a submission was indeed to be understood - that Mashonaland Exploration was wrongly decided.
548 Rather, counsel's argument proceeded from the proposition that In re Thomson [1930] 1 Ch 203 was correctly decided and, because it was not referred to by Lord Blanesburgh in Bell v Lever Bros, the dictum of his Lordship in the latter case was the more likely to be doubtful. In Thomson, the defendant, a co-executor under a will, took a lease of premises into the occupation of which a yacht agency business being carried on by the executors as trustees under the will was proposed to be moved. The defendant not only took that lease and excluded the business from the premises, but he proceeded to set up there his own business in competition with that of the estate. By the time the matter came to be heard, the business being conducted by the estate had been transferred to the relevant beneficiary under the testator's will, as a result of which, according to the reasons of Clauson J, "the defendant is, as everybody admits, now free to carry on a competing business" ([1930] 1 Ch at 212). So the point of the debate before his Lordship related only to costs.
549 Clauson J defined the matter which he had to decide as follows ([1930] 1 Ch at 213):
A testator carrying on the business of a yacht agent appoints an executor and directs him to carry on the business. The executor accepts the position of executor and in fact carries on the business; is that executor at liberty to sever his connection with the business, though it still remains a portion of the testator's estate, and himself start a competing yacht agent's business?
For the purposes of answering this question, Clauson J accepted what was said in the Defence, namely, that owners of yachts for sale commonly placed them on the books of multiple agents, the first to secure an acceptable offer from a prospective purchaser being the one who secured the business and earned the commission. His Lordship thus considered the hypothetical case of a yacht being on the books both of the business being run by the estate and of the defendant's own business. If an intending purchaser made an offer for the yacht, the defendant would have been placed in the position of having to choose between taking the sale for his own business and making it available to the business being conducted by the estate. His Lordship took the view that it would have been a breach of the defendant's fiduciary duty to the estate, as co-executor, to take the former course. Having referred to Aberdeen Railway, Clauson J said ([1930] 1 Ch at 215-216):
The rule of universal application is that an executor and trustee having duties to discharge of a fiduciary nature towards the beneficiaries under the will - in this particular case the duty of a fiduciary nature was to carry on the business of the testator to the best advantage of the beneficiaries - he shall not be allowed to enter into any engagement in which he has or can have a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect…. Having regard to the special nature of a yacht agent's business, it appears to me clear that I am bound to answer that question by saying that, by starting such a business and entering into such engagements, Mr. Allen would have been entering into engagements which would conflict, or certainly possibly might conflict with the interest of the beneficiaries under the will, because he would be obtaining for himself chances of earning a commission which, but for such competition, might be obtained for the beneficiaries under the will.
Concluding, Clauson J made it clear that his decision related only to the facts of the case before him "and in particular [to] the position of a yacht agent and the nature of the business which a yacht agent carries on" ([1930] 1 Ch at 216).
550 Bell v Lever Bros itself involved undisclosed personal dealings by company directors in a particular commodity trade which lay within the boundaries of their company's normal line of business. Returning to what Lord Blanesburgh there said, as set out in para 545 above, it is necessary to appreciate what his Lordship meant by "contracts of the second class". He had earlier identified two classes of contract ([1932] AC at 194):
[T]he liability of a director in respect of profits made by him from a contract in which his company also is concerned is one thing: his liability, if any there be, in respect of his profits from a contract in which the company has no interest at all is quite another. In the first case, unless by the company's regulations the director is permitted, subject to or without conditions, to retain his profit, he must account for it to the company. In the second case, the company has no concern in his profit and cannot make him accountable for it unless it appears - this is the essential qualification - that in earning that profit he has made use either of the property of the company or of some confidential information which has come to him as a director of the company..
His Lordship then referred to a direction which had been given to the jury by the trial judge that no director having a duty to promote the best interests of the company concerned "can be allowed to enter into engagements in which he has or can have a personal interest which conflicts or may possibly conflict with the interests of those whom he is bound to protect. No question is liable on such occasion to be raised as to the fairness or unfairness of the dealing" ([1932] AC at 194). Lord Blanesburgh thought this to be a reference to Lord Cranworth's statement in Aberdeen Railway, and continued ([1932] AC at 195):
I can have little doubt that, like Lord Cranworth's statement, the quotation is concerned with a company's contracts in which, on the other side of the table, a director is interested, and with reference to which the company's regulations are silent. The quotation is not addressed to a director's own contracts with outsiders in which the company has no financial interest at all.
That Lord Blanesburgh's dictum should be understood as limited to "a director's own contracts with outsiders in which the company has no financial interest at all" was the view of the Court of Session in Baxter ([2010] SC at 178 [77] per Lord Nimmo Smith, Lord Hamilton and Lady Paton concurring). Their Lordships (in Baxter) referred, with apparent approval, to what had been said by Lord Denning in Scottish Co-Operative Wholesale Society Ltd v Meyer [1959] AC 324, 366 (albeit in a slightly different legal context):
So long as the interests of all concerned were in harmony, there was no difficulty. The nominee directors could do their duty by both companies without embarrassment. But, so soon as the interests the two companies were in conflict, the nominee directors were placed in an impossible position.
551 Lord Blanesburgh's approach was not that taken by other members of the House of Lords in Bell v Lever Bros. Indeed, the case was not decided by reference to the fiduciary duties of the directors at all: it was a case about mistake, and about a servant's duty to disclose misconduct. A review of the arguments of counsel makes that clear (see [1932] AC at 164-167). Of the other members of the House, only Lord Atkin said anything that even indirectly bore upon the extent of those duties, from which it is tolerably clear that his Lordship would not have shared the view of Lord Blanesburgh if the point had directly arisen: see [1932] AC at 213.
552 A case which did directly involve a director of a company being a principal in a competing firm was Aubanel and Alabaster Ltd v Aubanel (1949) 66 RPC 343, referred to by Hope JA in Mordecai v Mordecai (1988) 12 NSWLR 58, 63-64 (to which I shall come presently). In that case the defendant, while still director of the plaintiff company, commenced business in partnership with another in competition with the plaintiff. On an interlocutory motion, Danckwerts J noted that an employee would not be permitted so to act. His Lordship continued (66 RPC at 346):
But a director is not an employee, though he is an officer of the company, and it seems to be accepted that he can engage in a competing business in the absence of an agreement with the company to the contrary.
His Lordship noted the statement in the 12th edition of Buckley on Companies, at p 877, that a director was not precluded from "carrying on business in the same field as the company on his own behalf", so long as he or she did not use the company's property or confidential information. Danckwerts J said that this was in accordance with what Lord Blanesburgh had said in Bell v Lever Bros, and continued (66 RPC at 346):
It seems to me that the dangers of a director using confidential information (acquired as director) to assist him in the competing business and the difficulties of avoiding such use of any confidential information, are considerable, but I must accept the proposition that such competition is permissible.
The case before his Lordship did, however, involve more than mere competition. Solicitation was also involved in the conduct of the defendant, and the plaintiff's motion was successful.
553 Although, in the years which followed, there were a number of judgments in which the fiduciary duties of directors were the subject of treatment, it was not, so far as I have been able to discern, until Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238 that the right to compete was given any consideration of substance. That judgment arose out of an interlocutory application, and the (apparently) ex tempore reasons of McLelland J were expressed with the caution which is customary on such occasions. Noting that the question whether a director could compete with his or her own company "does not have a simple answer" (10 NSWLR at 240-241), his Honour found it sufficient for his then purposes to hold, provisionally, that a director ought not to be regarded as subject to a less onerous obligation than an employee with respect to the use of confidential information in the competing business, in which respect his Honour applied by analogy Faccenda Chicken Ltd v Fowler [1986] ICR 297. Riteway does not, therefore, take the general question of the right of a director to compete - absent some risk of the use of confidential information - any further.
554 The question came tangentially before the NSW Court of Appeal the following year in Mordecai, in which the judgment of Hope JA attracted the assent of Samuels and Priestley JJA. As is clear from his Honour's reasons, the conduct of the directors in that case was quite egregious: it went well beyond competing with their company and involved a concerted project to divert all the business of that company to another company, leaving the first company effectively moribund. His Honour, therefore, found it unnecessary to deal with what he described (12 NSWLR at 63) as "the general position about the right of directors to compete", but he "assume[d] the correctness" (12 NSWLR at 62) of what Lord Blanesburgh had said in Bell v Lever Bros.
555 A case more directly on point was On the Street Pty Ltd v Cott (1990) 3 ACSR 54. The defendant was a director of the plaintiff, and the editor of the magazine which it published. Due to differences with the majority shareholder, the defendant resigned from her position as editor and, taking other members of the staff of the plaintiff with her, commenced a competing business by way of another company which was very promptly incorporated for the purpose. Although the defendant also resigned as director of the plaintiff, there was, it seems, a period of about 11 days before that resignation became effective, during which time Powell J effectively treated her as being a non-executive director. As to the position of such a director, his Honour said (3 ACSR at 61):
Despite the development of the law affecting the position and duties of directors of a company, there does not yet seem to have been accepted as a general principle, affecting all directors any prohibition against a director of a company being a director of another company which competes, in a way of business, with the first company; indeed, such dicta as may be found in the cases would suggest that, at least if he not be an executive director, a director may be a director of a rival company, so long as he does not divulge to, or use for the benefit of, the rival company confidential information of the first company (see, for example, London and Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891] WN 165; Bell v Lever Brothers Limited [1932] AC 161; Berlie Hestia (NZ) Ltd v Fernyhough [1980] 2 NZLR 150, 161; Riteway Express Pty Ltd v Clayton (1987) 10 NSWLR 238). In the case of an executive director, such as a managing director, it may be that, even in the absence of an express term in any employment contract requiring the director to serve the company exclusively, some such term would be implied (see, for example, Industrial Development Consultants Pty Limited v Cooley [1972] 2 All ER 162; Thomas Marshall (Exporters) Limited v Guinle [1978] 3 WLR 116).
Accordingly, Powell J dissolved the injunction which had previously been granted on an interlocutory basis.
556 Unlike the situation in On the Street, the defendant in Rosetex Company Pty Ltd v Licata (1994) 12 ACSR 779 remained a director of his original company at all relevant times. He had been the controlling director of that company, the plaintiff. When it went into receivership, the defendant provided some assistance to, but had no financial interest in, two other companies in the same line of trade as the plaintiff. While recognizing that the proposition for which Mashanoland was taken to be authority had been received with reservation, Young J nonetheless held that there was no rule of law that the fiduciary position of a director precluded him or her from competing with his or her company (12 ACSR at 782-783).
557 Although the facts of R v Byrnes (1995) 183 CLR 501 did not involve the participation of company directors in a competing trading enterprise, Brennan, Deane, Toohey and Gaudron JJ touched upon the general question of a director who becomes a director of another company (where the interests of the companies did not necessarily coincide - 183 CLR at 516) or who went into business for his or her own benefit. Their Honours said (183 CLR at 516-5167):
A company is entitled to the unbiased and independent judgment of each of its directors. A director of a company who is also a director of another company may owe conflicting fiduciary duties. Being a fiduciary, the director of the first company must not exercise his or her powers for the benefit or gain of the second company without clearly disclosing the second company's interests to the first company and obtaining the first company's consent. Nor, of course, can the director exercise those powers for the director's own benefit or gain without clearly disclosing his or her interest and obtaining the company's consent. A fiduciary must not exercise an authority or power for the personal benefit or gain of the fiduciary or a third party to whom a fiduciary duty is owed without the beneficiary's consent.
The emphasis here, it may be noted, is on the way that competing interests might infect the fiduciary's decision-making or conduct generally in what ought to be the interests of his or her principal or beneficiary.
558 Although the facts of SEA Food International Pty Ltd v Lam (1998) 16 ACLC 552 did not as such require application of Bell v Lever Bros, in the course of considering the extent of the fiduciary duty of the respondent in that case Cooper J held (16 ACLC at 553) that it was not "impermissible per se for a director of a company to be, at the same time, a director of a competitor, or to personally carry on a competing business".
559 The right-to-compete question arose again in the English Court of Appeal in Plus Group Ltd v Pyke [2002] EWCA Civ 370. That case did involve a director of a company being involved in a rival company, but this occurred only some six months after he had been excluded from the management of the plaintiff company and, quite clearly in the view of Brooke LJ, with whose reasons Jonathan Parker LJ agreed, treated most shabbily by the board of that company. Because of the very unusual facts, their Lordships did not consider the case an appropriate occasion to revisit the general principle which flowed from Bell v Lever Bros. I note that Sedley LJ, in separate reasons, expressed strong reservations as to the soundness of that principle.
560 Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 was a case in which a retiring director made some limited arrangements to carry out work for a client of the company of which he was a director after the retirement took effect. Those arrangements, which involved another company which the director caused to be established for the purpose, were made while the director was still holding office as such but after he had been effectively excluded from any role in the management of the company by the majority shareholder. Nothing said by Rix LJ, who delivered what was effectively the judgment of the Court of Appeal, dealt with the Bell v Lever Bros point as such, but it should be noted that the case proceeded on the unstated assumption that, had the director done what he did other than in circumstances of forced imminent retirement, it would have amounted to a breach of his fiduciary duty. A significant factor was that the plaintiff company undertook surveying, and the work which the retiring director proposed to do would have been done for an existing, regular (in fact the major), client of the company.
561 Finally in this context, I refer to Baxter, mentioned briefly at para 480 above. In the facts of that case, a non-executive director of the pursuer, an Anguillan company, became president and CEO of another company, and subsequently signed a memorandum of understanding which, for a period, secured for that other company the opportunity to take up a valuable exploration opportunity which arose in Azerbaijan. While not then involved in explorations of the specific kind (offshore explorations), the pursuer was generally interested in finding opportunities in Azerbaijan. It was held that the signing of the memorandum amounted to a breach of the director's fiduciary obligation to the pursuer. Although more of an opportunity case, there was a dimension of Baxter that made relevant the line of jurisprudence which I am presently considering. Lord Nimmo Smith, whose reasons were effectively those of the Court of Session, expressed quite substantial reservations about Bell v Lever Bros, at least to the extent that Lord Blanesburgh's words might have been construed as permitting a director to be involved in any competing undertaking at all. His Lordship said ([2010] SC at 179 [78]):
The key question in every case is whether, in the particular circumstances of that case, there is a real sensible possibility of conflict. It may be that there were circumstances in Mashonaland which do not appear from the brief report of that case and which would justify the conclusion that there was there no conflict. Prima facie, a person who is a director of two companies with competing interests falls foul of Aberdeen Rly v Blaikie Bros: his duty to each conflicts with his interest in the other. This conflict may be avoided by the giving by the first company of informed consent to its director's pursuing his own interest, either as director of the second or on his own account, and informed consent in turn depends on full disclosure ….
It may be noted that his Lordship's prima facie proposition related to companies with competing interests, rather than to companies that were in competition with each other in, for example, the product market. The absence of a single, unambiguously defined, concept of competition is a factor (amongst others) which has, in my view, contributed to the uncertainty which attends this area of the law.
562 It is, in my view, a striking feature of the authorities referred to above how rare have been the circumstances in which a court has been called on to deal with the pure case of a director's involvement in a competing business, without any additional or complicating factor. However, as a Judge sitting at first instance, I must accept that, in Australia, Bell v Lever Bros is good law to the extent that it stands for the proposition that merely by acting as a director of a competing company, or carrying on a competitive business on his or her own behalf, a company director will not be regarded as being in breach of his or her fiduciary obligations. I so conclude from the treatment of the subject in On the Street, Rosetex and SEA Food, limited though it was. Stated in its highest form, the proposition for which Bell v Lever Bros stands is, as put by McLure P in Streeter (278 ALR at 303 [69]), "a director is permitted to occupy board positions in competing companies". That is to say, merely by occupying such positions, the director will not be regarded as placing himself or herself in a position of conflict. But, it must be accepted, Lord Blanesburgh's words in Bell v Lever Bros extended also to the permissibility of a director conducting a business on his or her own account in competition with the company on the board of which he or she sat. That would, presumably, involve the performance of active, executive, functions in a competitive business, and would not be analogous to a situation in which the director held non-executive positions on the boards of two companies. But it would seem to be permitted, as for example was the involvement of a non-executive director in an executive role in a competing company in On the Street. As against this, my attention has been drawn to no decision of an Australian court in which Bell v Lever Bros has been rejected.
563 Although nowhere so stated in terms, the principle with which the authorities are consistent is that carrying on business - including doing so by working as an executive director of a company - in competition with the company of which he or she is a non-executive director will not necessarily be regarded as involving a conflict of interest or duty. It cannot be assumed, as a matter of fact, that a situation of this kind will inescapably involve "a real or substantial possibility of a conflict between [the director's] personal interests and those of the persons whom he [or she] is bound to protect" (Hospital Products, per Mason J, 156 CLR at 103). So understood, the principle is a very high-level one that could be used only as the broadest of starting points for the resolution of issues arising in a particular case.
564 Notwithstanding the heavily qualified nature of the legal principle on which LGT relies, to the extent that the defendants' case is to be understood as involving the proposition that Lord Blanesburgh's dictum in Bell v Lever Bros opens up as legitimate any and all kinds of competitive business to the director of a company, that proposition must be rejected. The question whether, in the light of the nature of the competitive business, the director's role in it and other relevant circumstances, the director's conduct would give rise to the sensible possibility of conflict, is not foreclosed by the dictum. At most, the dictum means that the mere fact of being the director of a company will not preclude the director from engaging in a competing business on his or her own account. But it leaves open any issues of actual conflict, or of conflict reasonably perceived to be within the range of sensible possibilities, arising on the facts of a particular case.
565 As it seems to me, when any such issues arise, it would have to be in a context which recognised that the conflict rule is concerned with a director's exercise of powers qua fiduciary in the service of his or her company. In a setting in which those powers are not being exercised, and there is no duty to exercise them, what may in other circumstances be perceived as a conflict-based breach of duty will not be so. A company cannot throw the mantle of conflict over every decision its director makes: it is only in respect of those decisions which involve the exercise of powers or functions in the service of the company (including the omission to do so where a duty exists) that the director can be held to account as fiduciary.
566 In the facts which were presumptively in prospect in the present case, for example, if an internationally-known celebrity based overseas had made clear his or her desire to play a round of golf in Australia, it would have involved Sattler in a conflict if he had to choose whether to pursue that opportunity for publicity on behalf of Barnbougle Dunes or on behalf of Lost Farm. On the other hand, if the celebrity had written a letter to Sattler expressing his or her desire to play golf specifically at Lost Farm, for Sattler to have facilitated such an outcome without first attempting to persuade the celebrity to play at Barnbougle Dunes instead would not have involved him in a conflict. In the latter case, Sattler would not be exercising any power or performing any duty as fiduciary of LGT. This kind of example serves to demonstrate how fact-sensitive the operation of the conflict rule must be when disconnected from the opportunity rule in circumstances where the fiduciary is involved in a business which is competitive to some extent.
567 That brings me to the defendants' alternative case that the golf course at Lost Farm would not be in competition with the golf course at Barnbougle Dunes. In their Defence, the defendants alleged that Sattler's development of Lost Farm was "in the best interests of LGT", to which allegation the subjoined particulars included the following:
….
(f) Sattler's construction of a second course at Lost Farm was intended to, and has attracted more golfers and visitors to the Barnbougle area generally to the benefit of the Barnbougle Dunes golf course.
(g) Sattler's construction of a second course at Lost Farm will provide more high standard accommodation close to Barnbougle Dunes and encourage more golfers and visitors to the Barnbougle Dunes Golf Course.
(h) Sattler's construction of a second course at Lost Farm will encourage golfers and visitors to the Barnbougle area to stay for longer periods, in order to play golf and enjoy the facilities at both courses.
(i) Golfers and visitors are more likely to come to Barnbougle Dunes if there are two golf courses.
(j) The existence of a second course enhances the number of golfers and visitors likely to patronise the facilities at Barnbougle Dunes especially the restaurant and bar.
568 In their factual case, the defendants relied on the following evidence in chief of Keiser:
I envisaged that there would be a considerable benefit to the Barnbougle Dunes course if the second course were to proceed. It is the common experience that two courses placed next to each other will generate three times the income, if the proper infrastructure is in place to support the visitors. This is [the] approach I have taken at Bandon, in Oregon. The reason for this is that the area becomes a destination, rather than a stopover. Golfers are more likely to come out of their way to visit, and the presence of a second course results in players being more likely to stay longer, playing both courses at least once (and often more than once). The effect is increased again with three or four good courses next to each other.
What Keiser here referred was sometimes described as the "one plus one equals three" effect.
569 The same tendency was also described, in the evidence of Dean Dransfield ("Dransfield"), the principal of Dransfield & Co Pty Ltd, advisers and managers to the hospitality and tourism industries, as the "destination effect". In his report, which was tendered by the defendants, he said:
Accordingly, in my opinion, an adjacent and complementary full service resort with a different standard of offering to Barnbougle Dunes, which includes a golf course, restaurant, lounge, wellness facility, clubhouse and accommodation, provides more choice and activity for players and their travelling party, increasing the attractiveness of a stay at all and the prospect of a longer stay at Barnbougle Dunes and in its vicinity. This is especially significant, given its remote location and limited external amenities, compared with established golfing destinations such as the Gold Coast, Sunshine Coast and Hunter Valley as well as the Murray River area and Mornington Peninsula.
On the case of the defendants, although it may seem to a layperson that two adjacent golf courses would self-evidently be in competition with each other, that was not so in the environment of Barnbougle and should not be held to be so on the evidence.
570 Dransfield's report also contained trading figures for the Barnbougle Dunes course, upon which the defendants sought to rely in support of their proposition that the opening of Lost Farm had not been detrimental to LGT. Given the very short period involved where the two courses were operating at the same time, and having regard to the picture conveyed generally by those figures, I am not persuaded of their utility in assisting in the determination of the factual question - to the extent that it arises - whether the two courses are competitive or complementary. Particularly given the circumstance that Barnbougle Dunes itself is still a relatively young course, Dransfield's limited analysis was not, in my view, sufficient to sustain a conclusion about the effect of the opening of Lost Farm on what would have been the ongoing trading experience of LGT, not only now but into the future.
571 In the course of cross-examination, Dransfield made a significant concession, as follows:
Q: If someone was going to stay overnight before Lost Farm was established, he would have to play both of his games, wouldn't he, on Barnbougle Dunes, on the first course? If that was their intention, to play two rounds of golf.
A: That's right.
Q: And if he wants to play two rounds now, he can split his rounds between Barnbougle Dunes and Lost Farm?
A: That's correct.
Clayton, currently a member of the Board of LGT, said, in relation to the Board's anticipation about the effect of Lost Farm on Barnbougle Dunes:
Well, no one knew what effect it would have. You could anticipate it being negative, but no one truly knew what the effect would be.
Clayton's experience in golf in Australia is extensive. He clearly took the view that the prospect of Lost Farm having a beneficial, rather than a detrimental, effect on Barnbougle Dunes was by no means self-evident.
572 There is also the circumstance that all (at least so far as I could see) of the evidence about the mutually beneficial effect of adjacent golf courses elsewhere was based upon experiences of golf courses in common ownership. Keiser's evidence as to Bandon Dunes certainly was. There appears to be no directly-applicable precedent for a situation in which two courses are, in effect, part of the same functional complex but not commonly owned. Here I do not regard the situation of a kind of regional cluster of separately-owned courses in a particular town or locality, of which there was also some limited evidence, as sufficiently proximate to the circumstances at Barnbougle to provide a basis for findings of any present utility.
573 As will be apparent, the whole benefit or detriment issue is subject to a number of qualifications and provisos, and is attended by a degree of uncertainty. Although there is some experience upon which to base an intelligent conclusion, inevitably an element of intuition would be involved. What is most striking about the whole question is that it is not one which a court should be required to answer. It is a question for the golf course operators, and for their supporting investors, themselves. It is they, with their capital at stake, who must make the necessary judgment as to whether the opening of an adjacent course would be beneficial or detrimental, and who must live with the consequences of that judgment. Thus it is that a court does not generally attempt to grapple with the question whether a particular engagement, or course of action, by a director will in fact give rise to a conflict of the kind that must be avoided, in the conventional way of making a determination on the balance of probabilities. As I have said, that function lies where it belongs, with the company to whom the duty is owed. Rather, the court is concerned only with the question whether there is a real, sensible or, in the words of Mason J, substantial, possibility of such a conflict arising. If the answer to that question is in the affirmative, the director must (if the problem is addressed prospectively) obtain his or her company's fully-informed consent or (if the problem is addressed after the event) account to his or her company for any benefit or gain obtained from resolving such conflicts as do arise in a way which prefers his or her (ie the director's) own interests over those of the company. In these respects, the position of a company director, although one to which fiduciary duties attach, is, in my view, different from that of fiduciaries in some other situations, such as, possibly, executors of estates where the beneficiaries are not sui juris.
574 The present question is whether a conflict of interest and duty would arise from the ongoing conduct of a business at Lost Farm which was competitive with that of LGT at Barnbougle Dunes. It is with that ultimate question in mind that I must address the purely factual question raised by the Defence, namely, whether the Lost Farm business would be in competition with the Barnbougle Dunes business. Here one starts with the fact that someone playing golf on Lost Farm cannot, at the very same time, also be playing golf on Barnbougle Dunes. That is, of course, perhaps the simplest of starting points, and one must allow for the very real prospect, established on the evidence, that most (I could not say all) of the visitors to the area will choose to play golf on both courses. But this does not mean that the two businesses should not be regarded as being in competition with each other. Co-location of competitive businesses, particularly in the recreation and tourism industries, may well bring benefits to all, but it would be a bold call to assert that this would not leave at least some scope for competition as between such businesses. When the issue is thus identified, the evidence upon which the defendants relied speaks rather differently, and less relevantly. The "destination effect" may indeed produce three times the original business from the establishment of a second course, but how that enhanced level of business would be distributed as between the two entities would remain, surely, a matter of competition. The question which equity requires the fiduciary to ask of himself or herself is not "will my establishment of a second business deliver a benefit to the first?", but "in the conduct of a second business, is it a substantial possibility that I will be required to make decisions, and to conduct myself generally, in circumstances where I will be confronted with a conflict?". The evidence led by the defendants does not assist in resolving the second question.
575 In the nature of things, the prospect that Sattler, operating his own business at Lost Farm, would, from time to time if not regularly, be obliged to make decisions that might work to the relative advantage of Lost Farm over Barnbougle Dunes, or vice versa, could not be dismissed as insubstantial. Nothing in the evidence suggests otherwise. The situations in which Sattler might find himself facing a conflict may be of such subtlety that he himself would not recognise the fact of conflict. Even an attempt at even-handedness may not achieve the result which equity would require, which is that of undivided loyalty to the company of which the fiduciary is a director. I would, therefore, reject the defendants' case that, because of the destination effect and allied considerations, Sattler's new business at Lost Farm could never be regarded as competitive with that of LGT at Barnbougle Dunes and, for that reason, that the conduct of such a business could never present to a conflict of a kind that would give rise to a breach of fiduciary duty on the part of Sattler, considered as a director and the CEO of LGT.
576 That conclusion does not, however, mean that LGT is entitled to succeed on this aspect of its case. Originally, it sought a declaration that Sattler held his interest in the Lost Farm business as constructive trustee of LGT. On the 43rd day of the trial (the fifth day of LGT's closing address), counsel for LGT announced that their client no longer sought such a declaration. From that point, the relief sought by LGT with respect to the Lost Farm business was, and remains, an account of profits, alternatively equitable damages. Down to the point where Sattler resigned as CEO of LGT - 13 January 2010 - there is nothing in the evidence to suggest that the Lost Farm business had any revenue, much less any profits, at all. In January 2010, the Lost Farm golf course was still under construction. The evidence does not permit me to make a finding as to the stage of completion which had by then been reached, but it was not until October 2010 that even a "soft" opening of the course took place. Neither the course itself nor any of the ancillary businesses was or were in operation by January 2010. On the evidence, I would have to find that Lost Farm was not even operating as a business until well after Sattler resigned as CEO of LGT.
577 I must, therefore, reject LGT's case to the extent that it involves a general claim for an account of Lost Farm profits with respect to the period before that date. Whether any such claim would survive Sattler's resignation as CEO (which post-dated his removal as director) is a subject to which I shall turn in the next section of these reasons.
578 That is not to exclude the prospect that, in respect of the period of the construction of the Lost Farm golf course, Sattler may have found himself in a position of conflict in circumstances which would speak in terms of remedial orders in favour of LGT. To the extent that LGT's case involves such circumstances, however, they are dealt with specifically below. So far as I can see in the evidence, once it be accepted (as I have held) that Sattler was not stepping over the line marked out by equity in establishing the Lost Farm golf course, there is nothing in the events preceding 13 January 2010 that would provide the basis for an order that Sattler account to LGT for any part of the profits of the Lost Farm business.
579 For those reasons, to the extent that LGT's case on the second course at Lost Farm is based upon a conflict arising before 13 January 2010, I would reject that case.