The minute bears a certificate "signed as a correct record" signed by Mr Duncan as Chairman.
275 Mr Ambler when dealing in his affidavit with this meeting (para88(a)) said "At this meeting there was discussion concerning the performance bond and to the best of my recollection Bruce Hill made a statement to the effect: 'We need to deal with the performance bond. It has not been put in place but it will be. The minute needs to be prepared so that a bond will be put in place and Girvan will give an indemnity to New Zealand. Is that agreed?'". He also said to the effect that the resolution as recorded relating to reasonable endeavours was not his recollection of the terms of the resolution. In oral evidence Mr Ambler said (t.1976-77) to the effect that each director present said that they agreed with Mr Hill's statement and Mr Hill said he would arrange to get a suitable minute put in place.
276 It is anomalous that this evidence shows four directors present discussing the implications of business recorded as established at a meeting of Mr Hill and Mr Bartrop five minutes earlier, and that the question of the bond rose out of discussion of business recorded as happening at the Hill-and-Bartrop meeting. Another anomaly is that from what Mr Ambler said the terms of the resolution were left to be established later by Mr Hill - "Bruce Hill said he would arrange to get a suitable minute put in place."
277 Mr Duncan in evidence also said that the reference to reasonable endeavours was a mistake, and that the minutes were prepared after the meeting and presented to him by Mr Hill for signature, that he spoke to Mr Hill about the difference between what had been said at the meeting and what was contained in the minutes and Mr Hill said "On reflection, I don't consider it that easy to get the bond." Then Mr Duncan signed the minutes. He did not recall whether he had told Mr Ambler about his conversation with Mr Hill.
278 Mr Hill did not give evidence. The minutes were prepared and were certified by Mr Duncan soon after the event; there is no record of their ever being corrected or reconsidered or discussed among all four persons recorded as present. It is a matter of duty that there should be minutes and that they should be accurate. It was the available record on which the company's directors and officers and others were to act. I have more confidence in the substantially contemporaneous record than I have in Mr Ambler's statement that it is not his recollection of the terms of the resolution, or Mr Duncan's evidence following and adopting Mr Ambler's evidence. In my finding the minutes are a substantially accurate record of what was decided about the provision of an insurance bond.
279 The qualification relating to using all reasonable endeavours made any protection offered by the resolution very difficult to make real. There was no definition and not even any consideration of what the terms of the bond would be, or of the circumstances in which it would operate or who would give it. "An insurance bond as security against its guarantee" would be quite different from "a performance or insurance bond to cover GVN/A's cost to complete the service works" which Mr McCulloch had first brought under consideration; or it could be, depending on what the terms of the bonds referred to were to be. Covering the cost to complete the works and providing security against liability under the Guarantee are, to my mind, entirely different concepts. The resolution has no more standing than a statement of intention by Girvan Australia; there is no corresponding decision of Girvan NZ or of Maronis requiring that Girvan Australia fulfil any condition or make any agreement or give any security or other protection, and there was no inter-partes agreement. The second part of the resolution relating to indemnity resolved to do no more than was Girvan Australia's obligation under the general law. The resolution did not refer to Maronis or to the mortgage, and gave no protection to Maronis. The resolution is completely lacking in any effect because Girvan NZ did not in fact incur any liability under the Guarantee. It is striking that no other of the considerations raised by Mr McCulloch was the subject of recorded discussion or decision by the directors of Girvan NZ or of Maronis, or of Girvan Australia, when the decisions of 1 June 1989 were made.
280 The minutes of the meeting purportedly of directors of Girvan NZ, also attributed to 12.30pm, records Mr Ambler and Mr Duncan as present, and Mr Ambler as Chairman. These minutes were apparently on their face prepared in advance of the meeting so as to deal and deal only with matters which might show authority to Nippon Credit and its solicitors; there are a resolution approving sealing the Guarantee and Indemnity, and resolutions about authority given to Mr Ambler, Mr Duncan and officers. Mr Ambler signed it as a correct record. Evidence of Mr Ambler shows that an officer, either Mr Ramsay, Ms Hooper or both, was at the meeting; Mr Duncan confirms this but neither officer can recall the event. Mr Ambler gave evidence and Mr Duncan confirmed that Mr Duncan asked the officer whether the minutes had been checked and were appropriate, to which the officer responded that they had been reviewed by Clayton Utz and were all in order. The resolution was then passed.
281 In the factual context, the report that Clayton Utz had reviewed the minutes and found them in order could have related and could only have been understood to have related to the minutes being in order so as to enable the contemplated transaction with Nippon Credit to take place. Clayton Utz's views about what was in order could not reasonably have been understood to relate to whether the directors should decide to enter into the transaction. The minutes are remarkable for their entire lack of reference to discussion or decision on whether the transaction should proceed or on any arrangements which should be made about the conditions brought under consideration by Mr McCulloch. The only reference in the minutes to any such matter is a statement "Approval of accommodation: the directors noted that the entry into the transaction evidenced by the Guarantee and Indemnity should be approved by the Company." There is no record of any consideration or decision relating to making arrangements or obtaining commitments from Girvan Australia, or from any building company or other subsidiary of Girvan Australia, or on any subject. There is no reference to the position of Maronis and no direction to Maronis or its directors to take any action.
282 A very striking anomaly is the treatment of Mr Ambler by himself and Mr Duncan as a director. Mr Ambler's evidence is to the effect that before the meetings he was asked by Ms Hooper to attend meetings that day as a director of Maronis and Girvan NZ and that in response he told her that he had resigned as a director of Girvan NZ. He says that he told her that he could not attend meetings and sign documents for Girvan NZ; showing that he well knew that he could not. Ms Hooper told him "I would have to go and see what is required to cover that" and later he was told by an officer, possibly Ms Hooper "We have talked to New Zealand and they want you to go on the Board to allow the loan to proceed." He was also told that the documents would come over for him to sign, and later Ms Lesley Robinson brought in documents and said "I have a document from Girvan NZ requesting you to go on to the board. This will allow you to sign documents today. You have to sign these documents." He then signed documents; he cannot exactly recall what they were; he believed that they had come from John Boscawen, who was responsible for secretarial matters in New Zealand. To the best of his recollection one was a form of consent to be appointed to the Board and the other was a letter of resignation.
283 Ms Lesley Robinson worked in the Sydney office of the Girvan Group as Mr McCulloch's secretary. She gave evidence to the effect that she obtained Mr Ambler's signature on documents for him to go back on the board of Girvan NZ for one day on 1 June 1989. Her evidence did not otherwise identify the documents. I accept that Mr Ambler signed some document or documents dealing with the subject on 1 June 1989, but it is not established what they were.
284 The view that Mr Ambler was a director of Girvan NZ must have been held by someone in the company's New Zealand office because he was stated to be such in a form of statutory declaration sent to Ms Hooper from the Auckland office that day; Mr Duncan later made a declaration in those terms. In my finding it must have been and it was known and obvious to Mr Ambler and to Mr Duncan, at the time of the purported meeting of directors of Girvan NZ, that no event had happened in New Zealand or anywhere else that day which had made Mr Ambler a director; in all reason there could not have been a decision of directors in New Zealand or any other event which had brought that about that day.
285 Mr Ambler said in cross-examination (t2084) to the effect that he was aware there had been no contact with any other director about a proposal for putting him on the board apart from Mr Duncan and Mr Boscawen the company secretary, but that he understood that the process which had been gone through was sufficient to allow him to go on the board. I do not believe that he understood that any such process had been gone through, because a man with his experience of life must have known that he could not be spirited onto the board of a public company without involving other directors, no matter what staff or company officers indicated to him. Documents such as he says he signed on 1 June have not been produced, but with the lapse of time and the intervening events their absence is not remarkable.
286 Documents produced through the evidence of Mr Boscawen (Exhibit W) show that it was clearly understood by Mr Boscawen that Mr Ambler was not a director but had resigned. Mr Boscawen produced a copy of a document dated 17 August 1989 by which Mr Boscawen sent to Lesley Robinson in Girvan's Sydney office documents for execution, including a certificate to be signed by any two directors in a list which did not include Mr Ambler, a consent by Mr Ambler to act as a director and a resignation; in his message Mr Boscawen said "Alan executed documents in June in respect of the Nippon Credit facility over the Liverpool Truck Stop." That is to say, Mr Boscawen's message shows that on 17 August he did not have a consent by Mr Ambler to act as a director or a resignation. Mr Boscawen also produced an undated form of consent by Mr Ambler to act as director, and a resignation bearing date 14 June 1989. These documents were probably prepared, and probably signed by Mr Ambler in or after August 1989, and they are adverse to Mr Ambler's credit. Also adverse to his credit is a document sent with the same message on 17 August 1989, described by Mr Boscawen as "The directors' resolution of St Martins Properties Ltd (dated September 5th, 1988) confirming the quorum of the company as to director. This document should be signed by Messrs Petersen, Duncan and Ambler." The resolution (also in Exhibit W) purports to record a minute of a meeting of 5 September 1988 resolving that any two directors should constitute a quorum, and signed by Mr Petersen, Mr Duncan and Mr Ambler. I regard it as obvious that this document, prepared long after the event which it purports to record (if indeed there was such an event) was prepared to establish the efficacy of the purported directors' meeting of Mr Ambler and Mr Duncan for Girvan NZ of 1 June 1989. It shows either that they conducted themselves irresponsibly as directors in treating two directors as a quorum when an earlier decision establishing that was not properly minuted; or if there had not actually been a meeting and resolution on 5 September 1988 (which is quite possible) that they participated in a false record. Either possibility is adverse to the credit of Mr Duncan and Mr Ambler.
287 Mr Ambler's readiness to be treated as having gone on the board of Girvan NZ to participate in one meeting and join in making what he must have known was a momentous decision in the company's affairs, and then go off the board is a powerful illustration of the signing role which he saw himself as occupying.
288 The minute of a meeting of directors of Maronis held on 1 June 1989 also gives the time as 12.30pm; this was attended by Mr Ambler and Mr Duncan, who as I decided elsewhere were Maronis' only directors. This too is a pro forma minute prepared in advance for the purposes of carrying out the contemplated arrangements with Nippon Credit. Apart from the statement "Approval of accommodation. The directors noted that the entry into the transaction evidenced by the Guarantee and Indemnity and the mortgage should be approved by the company" there is no record of any consideration of the circumstances in which Maronis was to execute the Guarantee and Indemnity and the Mortgage. There is no record of terms or conditions or any protections or arrangements for the benefit of Maronis; no record of any arrangement made with Girvan Australia or any of its subsidiaries, and no record of consideration of the conditions raised by Mr McCulloch, or of any other circumstances attending the decision. In these last respects the minute represents what in truth happened; Maronis did not have the benefit of any agreement or arrangement with Girvan Australia establishing in any way the basis on which it was to give the Mortgage, or stipulating for any protections or advantages in the transaction, and there was no address to considerations for the protection of Maronis raised by Mr McCulloch or to any other considerations for its protection. By the Mortgage Maronis simply handed over its asset and with it all its affairs and its commercial destiny, for Girvan Australia to use as a pledge, without obtaining any advantage under any contractual arrangement or less formal arrangement.
289 Conclusions on breaches of fiduciary duty. In his first affidavit Mr Duncan said (para [49]):
I was of the view that the funding arrangements were in the best interests of Maronis and Girvan NZ because I considered that it was in their best interests for the project to proceed as soon as possible and that this was unlikely to occur without the support of the parent company well beyond its Dextran Agreement commitment for the $8.0 million.
290 As explanation for this he referred to information and expressions in support of proceeding with the LTS project which had been directed to him since early in 1989. He referred to communications from Mr Don Collis Managing Director of Girvan NSW, Mr Ambler, Mr McCulloch, Mr Hill, Mr Petersen and to many records and said (first affidavit para [41]):
In 1989 I considered the key issues which arose in respect of the LTS project to be:
(a) what was the scope of the Parent Company's infrastructure works obligations under the Dextran Agreement?
(b) could the $15 million figure for these works be varied and if so by how much and who would share savings or pay for the overruns?
(c) there was a need to clarify the inter company debt position under the Dextran Agreement in view of rental guarantee obligations owed to Girvan NZ by the Parent Company following from the collapse of the Transpac Group, a major tenant of Dextran properties, plus certain accounting adjustments.
291 In his second affidavit (para [50]) Mr Duncan spoke of his forming "the view that this proposal to raise funds against the LTS site was in the interest of Girvan Australia and Girvan NZ" as something which happened at or as a result of the meeting and discussion of 13 March 1989. He also said (second affidavit para.[92]) that it was his view that accepting Nippon Credit's offer, which required security to be supplied by Maronis, was in the interest of Girvan NZ and Maronis "because that was the only solution for the development to proceed". He also said (para [119]):
As at 1 June 1989 I was of the opinion that entering into the Nippon Loan transaction was in the best interest of Maronis and Girvan NZ. The development was, in my opinion, likely to achieve substantial profits to both of these companies …
I held the view that construction and development of the LTS site would only be able to continue if the Nippon (or some other similar) loan transaction was entered into. It was my belief and understanding that Girvan NSW was not prepared to continue until it was sure that Girvan NZ was in a position to fund the cost. I knew that Girvan NZ had cash flow problems and was not able to raise the construction costs on its own behalf.
292 It was reasonable to consider how to make the project proceed, and to consider whether Girvan NZ and Maronis should support Girvan Australia in obtaining finance for the purpose; insisting on exact performance of financing arrangements in the Dextran Agreement, or attempting to raise the necessary finance without the support of Girvan Australia did not have much in their favour. However, none of the advice given to Mr Duncan and none of what he spoke of as key issues gave any support for giving the mortgage without any countervailing contractual protection or security, and Mr McCulloch advised in clear terms that protection should be obtained.
293 In oral evidence Mr Duncan confirmed that in May and June 1989 he was firmly of the view that it was in the best interest of Maronis to provide the necessary security for Girvan Australia to obtain the proposed A$15m facility with Nippon Credit (t1568). The only sign in Mr Duncan's evidence of consideration being given to how in particular the fund should be handled when advanced was his evidence (first affidavit, para [42(i)]) that on 13 March Mr Hill "proposed that the funds be managed in group treasury in the usual way." I conclude that he did not address whether there should be any special arrangements for depositing funds, earmarking them or limiting their use.
294 Mr Duncan's consideration of security or protection for Maronis in the form of a performance or insurance bond began, in his evidence, with Mr Hill telling him on about 13 March 1989 (first affidavit, para [42]):
I'm sure they will provide an insurance bond for the Liverpool Truck Stop project.
295 Mr Duncan also said he was informed by Mr McCulloch that an insurance bond could be put in place and that Mr Hill was sure of that and was dealing with it. I am not prepared to accept that Mr Hill gave any assurance, in any terms on which any decision could be based, that an insurance bond would be available. Mr Hill was not in a position to talk about obtaining a bond in any but the most general and unuseful of terms. The "reasonable endeavours" resolution on 1 June 1989 shows that there was no sense of assurance that a bond would be obtained. An assurance of the kind Mr Duncan said Mr Hill gave him could not be a reasonable basis for a decision to proceed, as there was no definition of the performance or insurance bond which was to be relied on and no knowledge of its terms apart from the general description in two or three words. It would be elementary to ascertain whether it met Mr McCulloch's ideas of what was appropriate. It would be necessary, if some such assurance was to be relied on for protection of Maronis' interests, that it should exist before or at the time that Maronis incurred the risk. From Maronis' point of view there was no element of urgency of a scale which would have had any impact on getting the bond in place. Clearly Mr Duncan knew that there was no other arrangement for securing Maronis' position against claims under the mortgage. This was well beyond the range of risk to which any rational adult would expose a sum as large as A$15m, whether incurring the risk personally or incurring it for any other persons for whom he was responsible.
296 Mr Duncan's position was that he agreed with the conditions proposed by Mr McCulloch, and that he believed they had been satisfied, or gave directions for others to see that they were. He said in evidence that he thought a construction contract was in place. However he did not have any reasonable basis for so thinking; in fact there was no contract, so of course he had not seen one, and reports given to him by Mr McCulloch, in writing and orally, can only have referred to negotiations between Mr McCulloch and Mr Collis of Girvan NSW and to what Mr McCulloch expected to emerge. A belief that there had been an agreement in principle is different, in the circumstances utterly different to a belief that a contract for performance of the works had been entered into, involved in which would be definitions of cost, time and the scope of works, none of which had been established in a binding way.
297 In my finding Mr Duncan was aware on 1 June that Maronis did not have the protection of a contract (and in such a matter only a written contract could be acceptable) which protected Maronis' interest by imposing on Girvan NSW a contractual obligation to carry out the infrastructure works, defined the works to be carried out and established contractually how much was to be paid for them and within what time the works were to be completed.
298 Submissions of Mr Duncan's counsel referred to the operation of the Girvan Group Treasury and the practice of pooling funds for common use with the maintenance of separate accounts for each company in the group. Mr Duncan described the Girvan Group Treasury Operation as he knew it to operate. He said to the effect that it was established in 1988 in consultation with auditors by Girvan Australia, that it was consistent with normal commercial practice he had observed in accounting practice, that it proved to be a highly effective and profitable operation for the benefit of all members of the group. He described the operation, and said "Group Treasury operated as a service to each company in the Girvan Group and for the benefit of the Grivan Group as a whole. Each Girvan Group entity was required to transfer available funds to Group Treasury on an unsecured basis and will be provided with funds as needed from Group Treasury." The transfers were duly recorded and often took place as book entries. There were benefits which included management of cash resources to gain economies of scale, group expertise and efficiency including obtaining better interest rates, borrowing at lower funds and more expertly managing funds. Other advantages were greater facility with financial information, central administration of finance and security documents and provision of risk management services against adverse currency and interest rate movements. Mr Hill, a director of Girvan Australia, initiated Group Treasury and coordinated its management. It had been initiated in or before July 1988, before the interest in Girvan NZ was acquired.
299 Mr Duncan's affidavit does not mention, as an ordinary part of the Group Treasury Operations, the mechanism adopted here in which Maronis did not deposit funds in Group Treasury and draw them as required, but provided security for Girvan Australia to borrow funds. Essentially, to seek an expression of the benefit which might be conceived to flow to Maronis, it was a benefit consisting of Girvan Australia having A$15m in its Group Treasury out of which it might from time to time advance money for Maronis business or undertake work which would benefit Maronis business, although there was no contractual or other commitment to do so.
300 I am satisfied that Mr Ambler in acting as a director of Maronis and in purporting to act as a director of Girvan NZ did not apply his mind to what he should do or make any decision about how directors' powers to commit those companies to the proposed transactions ought to be exercised; he did not consider where the companies' interests lay or how they should be served; he simply carried out indications given to him, principally by Mr Duncan but also in a subsidiary way by acts of preparation by company officers, about what decision was required, and carried out what he saw as his signing role without making any decision of his own. The same is true of his participation in the Maronis meeting of 15 May 1989.
301 When Mr Ambler acted in the state of mind which I have found he had and fulfilled a signing role when it was indicated to him that he should, he was failing in his duty to exercise his power in good faith in what he considered was the interests of the company, and he was acting for what is relevantly a collateral purpose (in the words of Clarke and Cripps JJA) or was acting from some bye motive, or for some other reason than honestly acting in discharge of his powers (to adapt the words of Viscount Finlay). To exercise the power because someone else has said it was appropriate to do so is altogether different to an exercise of powers in good faith in what one considers is the interests of the company. Doing what Mr Duncan indicated was appropriate, or doing what Mr Duncan indicated was fulfilment of something that had already been decided in some way by Girvan NZ, was acting for a purpose which was collateral to discharge of Mr Ambler's own duties as a director.
302 Mr Ambler's counsel submitted that he gave proper consideration to the interests of Maronis and honestly believed that he was acting in the interests of Maronis at all relevant times. It was submitted that "If it be the case that it is found that Ambler did not give such separate consideration, then it is necessary to objectively determine whether an intelligent and honest man in Ambler's position could in the whole of the existing circumstances have reasonably believed that the transactions were for the benefit of the company." This submission was based on the passage in Charterbridge to which I have referred elsewhere. It was applied in the Equiticorp Finance case because all parties accepted in the Court of Appeal that it should be; see Clarke and Cripps JJA at 147D-E. Their Honours expressed reservations about the test on the ground of its not being consistent with the traditional approach based on the examination of the director's own state of mind.
303 To put the affairs of Maronis wholly in the hands of Girvan Australia was entirely to disregard their separate corporate personalities and the separate ownership interests represented by the minority shareholding. It was simply and obviously wrong and unreasonable to adopt a point of view in which the interests of Maronis and the interests of Girvan Australia were equated; they were obviously different at that time, and there was the obvious prospect that further differences might arise through further changes in ownership interests, or different commercial outcomes for the different companies.
304 Other considerations could well have claimed the attention of directors of Girvan NZ and Maronis who were genuinely giving consideration to their interests. The expectation that Girvan Australia would meet its repayment obligations to Nippon Credit in twelve months' time was obviously involved. Directors could have considered whether there should be a working capital advance in one lump sum to Girvan Australia, or whether the advance or part of it should be set aside aside in a fund available only for use on the LTS site, or whether to seek a financing arrangement in which Nippon Credit paid the advance or part of it by instalments on certificates showing that work had been carried out. What could be considered could take many forms and produce many conceivable outcomes; but measures to protect Maronis could not reasonably be wholly disregarded. They were wholly disregarded, and this goes far beyond an indication that a piece of business was poorly managed; it establishes that the business was not considered at all.
305 In my respectful view the reservations expressed in Equiticorp were well based, the test drawn from Charterbridge and applied in Equiticorp (although not adopted by their Honours) is inconsistent with the traditional approach and its reference to the state of mind of the director, and is not based on Charterbridge, in which Pennycuick J dealt with an altogether different subject. However if the test stated by Pennycuick J and cited by Clarke and Cripps JJA at 147 is applied, I am of the view that intelligent and honest men in the positions of Mr Duncan and Mr Ambler could not in the whole of the existing circumstances have reasonably believed that the transactions were for the benefit of Maronis. There was an entire absence of any commitment by Girvan Australia to do anything for the benefit of Maronis. Maronis obtained no tangible advantage from Girvan Australia or from any other source by giving the mortgage. There was only hope and confidence that Girvan Australia would in some way bring about a good outcome. Many transactions can reasonably be undertaken on the basis that risks about outcomes depending on hope and confidence are worth taking: a company's only large asset and commercial destiny cannot reasonably be risked on that basis. You have to get something tangible for A$15m. Intelligent and honest directors could not in the circumstances have reasonably believed that the transaction was for the benefit of Maronis.
306 Any real consideration of the interest of the plaintiffs in the grant of the mortgage would have directed Mr Duncan and Mr Ambler to the need for attention of the whole board of Girvan NZ to the question and to Mr McCulloch's recommendations. The considerations presented by Mr McCulloch had not been met; they had not been fully addressed; token measures had been taken towards satisfying some of them. The decision involved all Maronis' assets and a significant proportion of the total interests of Girvan NZ. It was not a matter which could be dealt with informally or under assumed authority, or for which it was appropriate to assume that there could be no debate or that ratification would be automatic. Most of the directors of Girvan NZ were not present on 1 June and had not been involved in any consideration of the proposed mortagage or given their approval of it. Mr Duncan had not canvassed persons whom he believed to be directors in order to obtain their concurrence. Proceeding in the absence of and without consulting persons whom Mr Duncan was at the same time naming as directors in the statutory declaration is itself a demonstration that he did not give any real consideration to the matters under decision. He had the concurrence of Mr Petersen but he did not have the concurrence of Mr McCulloch. Mr Duncan had not discussed the subject with Mr Fielding or Mr Hoskins, whom he believed to be directors of Maronis, nor with Mr Kanas whom he believed to be a director of both companies. He had not discussed the subject with Mr Boscawen. (I accept Mr Kanas' evidence that he did not know of the matter, notwithstanding Mr Duncan's suggestion that he may have spoken about it with Mr Kanas in Brisbane). If Mr Duncan or Mr Ambler had given any real consideration to the interests of Girvan NZ and Maronis in making the decisions recorded on 1 June it would have been apparent that everyone whom he believed to be a director should have an opportunity to take part. This is so irrespective of any formality such as the entitlement of those absent to notice of a meeting on a strict reading of the articles.
307 Reasonable directors would have defined for themselves what advantages could flow from granting mortgage security to Nippon Credit to secure a loan by Nippon Credit to Girvan Australia. Maronis, with a large asset, no funds, no cash flow, no organisation and no contractual rights, under the Dextran Agreement or elsewhere, was a helpless creature and was hardly in a position to accomplish anything except in some transaction which conferred benefits on someone else; and there was no one but other Girvan companies at hand, unless perhaps the entire LTS project could be on-sold without doing any work on it. It could not be expected that there would be any advantage unless granting the mortgage caused Girvan Australia, by itself or some entity which it controlled, actually to carry out development of the LTS land, to carry out infrastructure works, to arrange financing and pay the costs, and to move Maronis to the position of owning the land with developed infrastructure. No contractual commitment was given by Girvan Australia or by any subsidiary to Maronis that any of these things would be done. There was no contractual commitment by Girvan Australia to Maronis that the funds borrowed or any funds would be available for financing the infrastructure works. There was nothing. Mr Duncan and Mr Ambler did not have, and did not ask for or look for an express decision or commitment by Girvan Australia to do anything for Maronis. There was no contractual arrangement and no express arrangement to settle Girvan NZ's claims and pay the facility fee out of the advance, and they were not paid to Maronis. Obtaining payment of Girvan NZ's entitlement was an advantage, though not a significant advantage as it was an entitlement and Girvan Australia was able to meet its obligations.
308 Consequences of giving the mortgage which a reasonable director of Maronis could possibly have hoped for can be divided into expectations that Girvan Australia would meet its obligations to Nippon Credit and that there would be no recourse to the mortgage, and expectations that Nippon Credit through some subsidiary or other entity would carry out the infrastructure works, finance them and give Maronis the benefits of a completed development. Expectations of the first kind would not on their own move any reasonable director to grant the security. Expectations of the second kind would lead a reasonable director to review what means Maronis had of seeing that they were fulfilled. Some conceivable protections were brought to attention by Mr McCulloch's review and recommendations in the Memorandum dated 28 March 1989. Mr McCulloch referred again, in different terms, to four of these conditions in his memorandum of 12 May 1989. This emphasised the need to attend to the conditions he referred to, but did not relieve directors from concern with all of Mr McCulloch's proposal.
309 No person, acting in his own interest or acting as a director of a company and considering its interests, could reasonably regard it as appropriate to proceed with no security of any kind, or decide to do so. The land mortgaged was Maronis' only asset; its value and the amounts borrowed were large. The works were to take place in a different country to where Maronis was formed and had its office. Although, in terms of economic interest, 74 per cent of the ownership of Maronis could be attributed to Girvan Australia, the other 26 per cent represented investments of some millions of dollars held by other unrelated persons. It was beyond the range of the judgment of any reasonable director of Maronis to decide to grant a mortgage without obtaining protection of any kind, and simply trust that Girvan Australia would handle matters in some way which produced a good outcome.
310 Obtaining money to assist the operation of Girvan Australia's Group Treasury was not the purpose of the transaction put forward by Mr Duncan in his evidence. His position was that he understood that the purpose of the loan was for its use in the LTS infrastructure works. However as the matter was dealt with in submissions, I should state my conclusion that it would not be an exercise of the powers of directors of Maronis for the purpose for which those powers were conferred to decide to grant the mortgage for the purpose of securing money for Girvan Australia or for facilitating the Group Treasury Operation. On any rational appraisal, the possibility that Girvan Australia might later use money to Maronis' advantage could not justify a decision to mortgage Maronis' only substantial asset.
311 In my finding directors who were rational adults and who gave any consideration whatever to the interest of Maronis in entering into the transaction could not have decided to give the mortgage. The transaction was momentous for Maronis, and reasonable directors had to address the interest of Maronis in some way which involved reviewing the operation of the transaction on Maronis, addressing conditions such as those Mr McCulloch had proposed, or some other array of considerations, and obtaining some recorded commitment by Girvan Australia which could in some way operate for Maronis' protection. In the due exercise of their powers as directors of Maronis there is a very wide range of considerations which Mr Ambler and Mr Duncan could have had regard to and of judgments which they could have formed about what was appropriate; but in no actual address to how they should exercise their powers could they decide to do nothing.
312 On 1 June 1989 Maronis had had dealings only with persons associated with Girvan Australia and its subsidiaries, and only in connection with preparations for the development of the LTS land and on no other business. It is doubtful whether Maronis had incurred any liability to either the Loc-Tex companies or Girvan NSW for work in preparation for the development; so far as appears, the claims for payment were made against Girvan NZ. Granting the mortgage and making credit available to Girvan Australia would not have been injurious to those creditors. Consideration of the interests of creditors is not relevant to the claim for breach of fiduciary duty as directors of Maronis against Mr Duncan and Mr Ambler. See Linton v. Telnet Pty Ltd (1999) 30 ACSR 465 at 473 and 474 where Giles JA stated considerations relating to the question whether directors should have paid attention to the interests of creditors.
313 For these reasons I find that the allegations in FFASC paras.20(e) and (f) have been proved and that Mr Duncan and Mr Ambler acted in breach of their duty as directors in their decisions which committed Maronis to giving the mortgage.
314 Claims against Mr Petersen. Mr Petersen was the leading figure in Girvan affairs. He was a director of Girvan Australia throughout the relevant events and became a director of Girvan NZ on the takeover and so remained. He was himself the majority shareholder in Girvan Australia. He was not ever a director of Maronis. The plaintiffs submitted that Mr Petersen owed duties to Maronis equivalent to those of a director of Maronis and that he fell within para.(b) of the definition of "director" in subs.2(1) of the Companies Act 1955 (New Zealand):
"Director includes :
(a) Any person occupying the position of director by whatever name called; and
(b) A person in accordance with whose directions or instructions the persons occupying the position of directors of a company are accustomed to act:"
315 There is no evidence of Mr Petersen making directions or instructions with which other persons occupying the position of directors of Maronis were accustomed to act. Obviously he was in a position to exert influence over directors of Maronis, but the proposition that in fact he and they acted as stated in para.(b) of the definition is to be established, if at all, by factual inferences from his opportunities to act in that way.
316 Evidence of Mr Duncan establishes that Mr Petersen's influence on the affairs of Girvan Australia was extensive. He brought about the appointments of Mr Duncan and Mr Ambler as directors of Girvan Australia and its subsidiaries. His opinions on matters for decision necessarily carried great weight. This I find was true for Girvan NZ as well as for Girvan Australia. The plaintiff submitted that if Mr Petersen had expressed opposition to the mortgage transaction it would not have gone ahead. This is probably correct, but it does not establish that he bears any responsibility.
317 Mr Petersen took part in the chain of events which led to Girvan Australia obtaining the advance from Nippon Credit. He was present at the informal meeting of 13 March 1989 and must have seen the agenda document Exhibit A3/655 and heard and participated in the discussion among the persons present. He was aware of or participated in the initiation of consideration of using the LTS site as security for a working capital advance. He wrote a memorandum to Mr McCulloch on 14 March 1989 (Exhibit A, p.661) which shows his involvement in the planning for the development and his anticipation of early commencement, with the contract for site works to be let about the end of April and construction to begin about the end of May. He saw Mr Hill's formal letter to the directors of Girvan NZ dated 17 March 1989 and took action to organise a meeting to discuss it. Mr McCulloch's memorandum dated 28 March 1989 with his proposals was circulated to Mr Petersen. He attended the meeting of Girvan Australia on 15 May 1989 which approved the Nippon Letter of Offer and signed both forms of acceptance. It is probable that he kept himself informed in other ways about progress with the financing arrangements and with preparation for work on the LTS site. Mr Petersen had much involvement and strong motivation to be interested and informed. He had been a leading figure in the takeover and in the Dextran Agreement and he personally was a profit warrantor. He had responsibilities as chairman of Girvan Australia which he could not discharge unless he kept himself fully informed.
318 Mr Duncan's evidence establishes (aff. 28/7/00 para.103, t.1795) that Mr Duncan met Mr Petersen and Mr Hill on 29 May 1989. The meeting dealt with settlement of the Nippon loan and the conditions sought by Mr McCulloch. Mr Duncan said in his affidavit "I recall Hill saying 'I should be able to get the bond but will not be able to do so by completion.' I recall Petersen instructing Hill and myself in words to the following effect: 'We've been talking about this (LTS) refinancing long enough. Everyone has agreed on the terms. This project is important for both companies. So long as Bruce thinks he can get the bond to satisfy Chris, go ahead and do it.'"
319 In cross-examination Mr Duncan was asked whether he took this as Mr Petersen's instructions and replied "More agreement, I think - agreement to go ahead with the transaction."
320 In my understanding of the words used taken with Mr Duncan's answer, Mr Petersen in this conversation indicated his agreement to complete the transaction; what he said had a strong tone of endorsement or encouragement but did not mean that Mr Petersen commanded or directed Mr Duncan or Mr Hill that the project must be completed. Mr Duncan did not understand that what Mr Petersen said to him took away Mr Duncan's responsibilities or opportunity for decision. To say "Everyone has agreed on the terms" was not correct in view of the state of communication with Mr McCulloch; the terms of the loan between Nippon Credit and Girvan Australia had been agreed, but it was not correct that Girvan NZ or Maronis had agreed on the terms between them and Girvan Australia. The qualification "so long as Bruce (Hill) thinks he can get the bond to satisfy Chris (McCulloch)" was a large qualification in view of the facts that the bond had not been defined, Mr Hill was not speaking in categorical terms about his being able to get the bond or what the bond would provide for, and it was not known whether what he proved able to get would satisfy Mr McCulloch, who was overseas. In my finding Mr Petersen did not, by what he said on 29 May 1989, bring about Maronis' participation in the transaction by an exercise of control or direction over Mr Duncan and Mr Ambler.
321 The plaintiffs referred to participation of Mr Petersen in events relating to management of LTS project and its financing after settlement in June 1989. In my view these events do not have any real bearing on his participation in the events of 1 June.
322 In my view there is no substantial evidence, and it should not be found, that Mr Petersen occupied any position of power or control in the affairs of Maronis and the events of 1 June 1989 which imposed on him a fiduciary duty of the kind incurred by its directors. He has not been shown to have exercised sufficient control or influence, or participation at all in the affairs of Maronis to justify attributing any such duty to him. The circumstances show that he had opportunity and motivation to control those events in detail, but the evidence does not show that he did so, or that he had any real participation in the events by which Maronis became bound to the mortgage. Mr Petersen himself did not give evidence, and this may assist a decision to draw factual inferences adverse to him if the inferences are available. However reasoning of this kind cannot supply the general lack of evidence of Mr Petersen's participation in the most significant events.
323 The Statement of Claim in section (v) para.20A and following alleges a number of matters which give colour but not substance to a conclusion that Mr Petersen controlled the events. He was as alleged in a position to control the composition of boards of directors, he had brought about the appointment of Mr Duncan and Mr Ambler to the board of Girvan Australia, and he was Mr Ambler's nephew. As a practical matter he could have caused them to be removed from their directorships and from their employment. These circumstances show what opportunities he had, but they do not show that he took the opportunities. It is also alleged in paras.24M and 24N that Mr Petersen had the opportunity to dissuade Mr Duncan and Mr Ambler from entering into the transactions, and to bring about other outcomes, but did not take any steps to do so. It is then alleged that he expressly or impliedly approved of their conduct and took no steps on or after 1 June 1989 to overcome its effect. All these circumstances then are alleged to have imposed on him duties of care and fiduciary duties to the New Zealand companies.
324 There were no substantial submissions upholding the allegations in the Statement of Claim which, as I understand them, set up duties of care under the common law owed by Mr Petersen to the New Zealand companies. In the circumstances the proposition does not require adjudication, but I am of opinion that it would not be correct to introduce common law duties of care into the field of the responsibility of directors for the affairs of associated companies of which they are not directors; their liability is defined by law in other ways. The proposition that Mr Petersen came under fiduciary duties must, in my understanding, be made good by establishing that in substance he occupied the position of a director, or of all the directors of Maronis in the control of its affairs; if he had done so I would think that he incurred a fiduciary duty in any exercises of that control; but it should not be found that he did so.
325 In my opinion I should give judgment for Mr Petersen.
326 Claims against Mr McCulloch. Mr McCulloch was, from the beginning of 1989 and throughout the relevant events, the leading figure in practical management of the affairs of Girvan NZ and its subsidiaries. Although his principal office was in Sydney, he travelled to New Zealand frequently, usually fortnightly, spent significant time there, and was in ready communication with Mr Boscawen and other persons concerned with affairs in New Zealand at all times. Mr McCulloch is a man of high ability with professional training and significant experience in business administration, and he had deep involvement in and a full grasp of the complex affairs and difficulties of carrying on the business in New Zealand. He was at first referred to as Acting Managing Director of Girvan NZ, later as Managing Director; how he came to be appointed in those ways is not clear but the descriptions fit what he was doing. He took an appropriately independent stance in upholding the interests of Girvan NZ in dealings with Girvan Australia.
327 Documents which Mr McCulloch prepared or participated in show that he supported Maronis making the LTS land available as security for a borrowing by Girvan Australia in circumstances and on conditions which he recorded. The nature of the conditions which he proposed shows that he gave careful and detailed consideration to the protection of the interests of Maronis and of Girvan NZ, and if the transaction had gone ahead on the basis of a decision to adopt his recommendations in one form or another it could not be found that he was in breach of the fiduciary duty of a director. His recommendations required compliance with various conditions which were not fulfilled. Nor could it be concluded that he was otherwise in breach of his duty of care, however arising, as a director. His views did not prevail; the persons who effectively made a decision on behalf of Maronis disregarded his recommendations.
328 It was not finally contended that Mr McCulloch was in breach of any fiduciary duty, but that he was in breach of a duty of care. One matter in relation to which this was contended was in the formulation of the proposal for providing security for what he knew was to be working capital advanced to Girvan Australia. In connection with this contention it was suggested that Mr McCulloch had no actual belief that an insurance bond could be obtained, and that he should have known that Girvan Australia was facing a cash shortage and that his proposal was likely to be used by other directors of Girvan NZ as a means of obtaining funds for Girvan Australia. I do not accept that Mr McCulloch did not believe that an insurance bond could be obtained. It was Mr McCulloch's evidence that he was assured by Mr Duncan that an insurance bond would be obtained, and I accept this evidence. Mr McCulloch did understand that Maronis was to provide security to obtain a working capital advance to Girvan Australia, but he proposed that should happen under conditions. He did not propose that there be a working capital advance to Girvan Australia in the circumstances as they transpired, and he cannot be regarded as having created the opportunity for or brought about the transaction in the form it actually took, because he strongly counselled that conditions should be imposed on the transaction. His advice was disregarded. If there had been an attempt to follow his advice there would not have been a transaction, as the insurance bond for which he counselled could not have been obtained; and for other reasons.
329 It was also said that Mr McCulloch was negligent in that he failed to ensure that independent legal advice was obtained for the Boards of Girvan NZ and Maronis. I do not regard it as having been Mr McCulloch's duty to ensure that independent legal advice was obtained, and I do not regard it as having been established that any such failure, if there was such a failure, caused Girvan NZ and Maronis to enter into the transaction. It was also said that Mr McCulloch was negligent in that "having been alerted by Boscawen to the fact that the transaction was about to be entered into, and having no reason to think that a bond or contract for the works was in place, he made no attempt to ascertain the true position from Duncan or to prevent the transaction going ahead". On the view of the facts most adverse to Mr McCulloch in this respect, he was in New York when he was told by Mr Boscawen by telephone several hours before the documents were executed about how transaction was to be settled that day. In all practicality he had no opportunity to intervene in or control or significantly to influence events in Sydney; he had made his position known, in writing and also by speaking to Mr Duncan, and it should not be regarded as negligent of him that he did not make a further attempt to intervene in the last few hours when his position was already known and recorded. Mr McCulloch's role in relation to the transaction in the form in which it proceeded was that his expressed stance was adverse to it and that he had assurances from Mr Duncan about how transaction would occur which were not fulfilled. Mr McCulloch was not a participant in the decision to cause Girvan NZ and Maronis to enter into the transaction. Whether or not there was any shortcoming in Mr McCulloch's conduct, it is plain that nothing Mr McCulloch did caused Maronis to enter into the transaction.
330 Mr McCulloch is not exposed to any liability for considering a course which differed from contractual rights under the Dextran Agreement, and which accepted that they might be departed from if the advantages of a different position could be achieved. The same should be said of Mr McCulloch's preparedness to depart from A$15m as the contemplated expenditure.
331 Mr McCulloch was associated from the beginning in March with consideration of making the LTS site available as security for Girvan Australia to borrow working capital. With hindsight after a decade for reflection, ways can be observed in which his handling of affairs could have been different or better. There is no doubt of the sincerity of his attention to the interests of Girvan NZ and its subsidiary. The motion which he proposed in his memorandum of 28 March 1989 and the conditions on which he proposed it could have been better framed if they had in some way restricted dealing with the money advanced so that it would be more certainly available for expenditure on the LTS site; it would have been as well to address in more detail what the arrangements were for financing the project when the arrangements in the Dextran Agreement were superseded. It would have been as well to seek to obtain clearly expressed commitments in writing from Girvan Australia about providing the financing. In retrospect his readiness to countenance a performance or insurance bond as the security for Girvan Australia's achieving the contemplated outcome and being protected against default by Girvan Australia could be improved on. Notwithstanding what hindsight can suggest in these and other ways, there is in my view no doubt that his proposal represented his sincere views on what should be done in the interests of Girvan NZ and its subsidiary. He was in a better position when immersed in the affairs of Girvan NZ in 1989 to come to a conclusion about how matters should be handled and to reconcile the considerations and pressures of the time than any person now can be with hindsight. In particular he was in a position to appraise the capacity of Girvan NZ to raise finance in any other way and to undertake the development in any other circumstances; he had been through the difficulties of negotiating finance for the Wanganui project and obtaining support from Girvan Australia for that.
332 Mr McCulloch did not bear the burden of responsibility for deciding what Girvan NZ and its subsidiary should do; he put his proposed motion to the board of Girvan NZ, the whole board. He was entitled to expect and to have consideration, contributions and the judgment of others.
333 Mr McCulloch continued to bear the main responsibility for day-to-day conduct of Girvan NZ's business and brought his proposals to the state recorded in his memoranda of 12 May 1989. He did not participate in the decisions of 15 May. He does not in any sense bear responsibility for the outcome and for the decisions made on 1 June 1989 by Mr Duncan and Mr Ambler.
334 Mr McCulloch was very concerned to get the work started as he regarded this as important for the interests of the New Zealand company and the survival of Girvan NZ. He did not in any way doubt that Girvan Australia would be in a position to finance the infrastructure works and, when the need arose, to discharge the borrowing. I am satisfied that his evidence about his belief on these matters was true and that his belief was sincerely held at the time. His attitude when he found, after the transactions, that the performance bond had not been obtained was an attitude of disappointment rather than outrage, and in his evidence he expressed recognition that it was the right of the board to decide not to take account of his recommendation.
335 In conversations by telephone with Mr Duncan shortly before and about the time of settlement he kept the requirement for a bond before Mr Duncan; he never abandoned it, and it was never overtaken by a better idea for providing security. On a realistic view of what caused Maronis to enter into the mortgage, Mr McCulloch's conduct, if it should be said that he acted in breach of fiduciary duty, did not cause the outcome. In my judgment however he did not act in breach of the fiduciary duty of a director of Maronis or of Girvan NZ.
336 I propose to give judgment for Mr McCulloch.
337 Claims against Clayton Utz. The seventh defendants Mr Brian Wilson and 46 others are the principals of the law firm Clayton Utz. The claims against them relate to acts and conduct of Mr P.C. McMahon, solicitor who became a partner in December 1988 and remains a partner. Claims against Clayton Utz are set out in s.IX paras.33 to 47 of FFASC. I will set out the effect of the pleaded allegations against Clayton Utz.
338 The first group of allegations is in paras.34 to 37 of FFASC. The introductory allegation in para.33 is "Clayton Utz acted as solicitors for Girvan Australia in relation to the Facility Agreement, the Loan and the securities …". This introductory allegation is of considerable importance because when addressing whether facts and circumstances imposed a duty of any kind on Clayton Utz towards Maronis the duties owed by Clayton Utz to Girvan Australia as their client are a prominent consideration adverse to a conclusion that a duty was incurred to any other person which was in conflict with or in any way inconsistent with the full performance of professional duties owed to Girvan Australia. On the predominance of a solicitor's duty of care to his own client see Hill v. Van Erp (1997) 188 CLR 159 at 167 (Brennan CJ) and at 196-197 (Gaudron J). The business in hand for Girvan Australia was managing the Facility Agreement and bringing it to a point where the loan could take place, and it was necessary to take steps towards the grant of the mortgage by Maronis to bring that about. It was Mr McMahon's professional duty to serve the interests of Girvan Australia in this respect, as in other respects.
339 Paragraph 34 alleges to the effect that in the course of acting for Girvan Australia when they knew that no other solicitor was acting on behalf of Maronis, Clayton Utz did a number of things things which forwarded obtaining the mortgage from Maronis. There are lengthy particulars of para.34.
340 Paragraph 35 alleges to the effect that Clayton Utz knew or ought to have known that the interest of Girvan Australia and the interest of Maronis were in actual or potential conflict such that Clayton Utz could not act for both and properly discharge their duties as solicitors to each. Again there are lengthy particulars, which must be addressed.
341 Paragraph 36 alleges to the effect that Clayton Utz owed to Maronis a duty of care and/or fiduciary duty not to act as solicitors for Maronis nor to purport to act for them without first obtaining Maronis' instructions based on informed consent. It is also alleged that Clayton Utz owed Maronis a duty of care and a fiduciary duty to make it clear that they were not acting for Maronis. In para.37 it is alleged to the effect that there were breaches of those duties.
342 Particulars (aa), (ab) and (a) to (d) of para.34 allege that Clayton Utz handled and knew the contents of a number of documents which were involved in the loan transaction including the Nippon Facility Letter dated 11 May 1989, drafts of the Facility Agreement and drafts of the securities; that Clayton Utz prepared minutes including minutes of Maronis, and arranged for their execution, and that Clayton Utz received documents which were completed on 1 June including the minutes, the security documents and authorities to deal with the certificate of title, Mr Duncan's statutory declarations and other documents. It is then alleged that Clayton Utz acted on and participated in settlement of the loan transaction by delivering the documents to Gadens. These allegations are correct except that it is alleged that Clayton Utz arranged for execution of the minutes whereas Mr McMahon did no more than send them to Mrs Hooper.
343 Particular (e) alleges that Clayton Utz received the form of Authority and Direction by Maronis which refers to the firm as "our solicitors", forwarded it to Mrs Hooper, received it back when executed and passed it on, all without demurring to its terms. Particular (f) alleges that Clayton Utz acted and/or purported to act for Maronis in relation to the securities. There are many particulars in support of this allegation. Among them it is alleged correctly that Clayton Utz purported to act for Maronis in the letter to Messrs McCormacks dated 22 May 1989 and in the letter to the Land Titles Office dated 31 May 1989. Many other acts which are referred to in support of the allegation do not in my finding make out the allegation. These include the terms of a number of written and oral communications between Mr McMahon and Ms Lighezzolo of Gadens, none of which as established in evidence contained or implied any assertion that Mr McMahon represented Maronis. There is a similar allegation about communications between Mr McMahon and Mr Downes, none of which bear out the allegation. There is a similar allegation relating to communications between Mr McMahon and Mrs Hooper, none of which bear out the allegation. There are also more general allegations which have not been made out, and an allegation relating to a letter of 18 August 1989 from Clayton Utz to Foreign Investment Review Board dealing with extension of the conditions of approval; this letter does not relate to the loan and mortgage, it was not written at a relevant time and was written on instructions obtained from Mr Young of Loc-Tex International Pty Ltd.
344 There was no contractual retainer by Maronis of Mr McMahon or his firm to act as solicitors for Maronis in relation to the mortgage, or for any legal business connected with the Nippon loan. Clayton Utz did not charge any professional fees to Maronis, its memorandum of fees Ex A5/1387 was directed to Capital Management in terms which show that the client was seen as Girvan Australia; no charge was made to anyone on the footing that work was done for Maronis. Although para.43 of FFASC refers to a retainer in an alternative allegation, it was not Maronis' case at the hearing that there was a contractual retainer. It is clear from the evidence that there were no communications which brought a contractual retainer into existence, and no circumstances in which an agreement of that kind should be implied. Mr McMahon received his instructions to act from Mr Downes, who then was the Managing Director of Capital Management Ltd, a mortgage broking company which was wholly owned by Girvan Australia. It was Mr McMahon's evidence that his communications with Mr Downes began with Mr Downes saying: "Girvan Australia wants you to review the loan documentation for the Nippon Loan transaction." Mr Downes presented the subject to Mr McMahon as business which was being undertaken for Girvan Australia, in generally these terms.