Marriner & Ors v Australian Super Developments Pty Ltd & Ors [2012] VSCA 171

Marriner & Ors v Australian Super Developments Pty Ltd & Ors [2012] VSCA 171 - VSCA 2012 case summary — Zoe

[14]

[United Super Pty Ltd['s] directors included the third defendant by counterclaim Ralph Willis (after 13 April 2000) and the fourth defendant by counterclaim George Wason (after 5 September 1994). [CBUS], as a superannuation trust is subject to prudential regulation by APRA. It held the shares and units in ASD and the ASD trust from 1993 until 2000.

United Super Investments Pty Ltd ('USI'), a wholly owned subsidiary of United Super which held the shares and units in ASD and the ASD Unit Trust after 2000 when the shares and, perhaps, the units, passed to it from United Super.

[ASD] ... was, at all material times, the trustee of the Staged Developments Australia Unit Trust, established in 1993. It was the proprietor of part of the land upon which the Laguna Quays resort was conducted. Its shareholders and unit holders at all relevant times up to 2000 were Goldworthy and [CBUS], each holding six shares and sixty units. Thereafter all the shares were held by USI. The board of directors during the period 1999 to 2000 comprised appointees of each of the two venturers. The Marriner appointees were Gary Arthur Weaven, Ian Robert Court and Mr Marriner himself until they resigned on 3 November 2000. The [CBUS] appointees were Barry Frost, George Wason, Thomas John Supple Kane (to 28 January 2000) and Ralph Willis (from 27 November 2000). Mr Marriner was CEO of this company until 3 November 2000 when he resigned and the office was taken over by Ian Patience.

Matelda Oaks Pty Ltd, a wholly owned subsidiary of ASD was the proprietor of part of the land upon which the Laguna Quays resort was conducted. It was the trustee of the Victorian Property Trust.

ASD - Laguna Investments Pty Ltd, formerly called SDA Laguna Investments Pty Ltd ('Laguna Investments'), a wholly owned subsidiary of ASD is a company whose responsibility was the Laguna Quays project.

Laguna Management Pty Ltd ('Laguna Management'), a wholly owned subsidiary of Laguna Investments conducted the day-to-day operations of the Laguna Quays resort as agent for Laguna Investments.

Goldworthy Pty Ltd, the secondnamed defendant and secondnamed plaintiff by counterclaim, is a company controlled by Mr Marriner and of which he was director. Goldworthy held shares and units in ASD and the ASD Unit Trust respectively for the Marriner interests.

Fulham Holdings Ltd, the sixthnamed defendant, is a Marriner company which took an assignment of the debt owed by Laguna Investments to ASD under the 13 November 2001 agreements.

Laguna Australia Pty Ltd ('Laguna Australia'), the thirdnamed defendant is a Marriner company wholly owned by Fulham Holdings which was incorporated in April 2000. This is the company which purchased the real estate comprising the Laguna Quays project and the shares in Laguna Investments.

Laguna Australia Airport Pty Ltd ('Laguna Airport'), the fourthnamed defendant, is another Marriner company incorporated in October 2000 to own the airport which Mr Marriner wished to construct to service the Laguna Quays resort and the surrounding area.

Stage Design Pty Ltd ('Stage Design'), the fifthnamed defendant, was a wholly owned subsidiary of ASD until, under cl 10 of the November 2000 heads of agreement, its shares were to pass to Goldworthy.

Cumberland Management Pty Ltd, a company wholly owned by ASD, was used by it for another joint venture project, the development of the Cumberland Lodge in Lorne.[6]

[47]

These files and details of the application of the money were described by Mr Penridge as follows:

File 95925 - This file is described as 'Planning and Title Advices Club Villas'. The sum was applied in payment of a Wallace & Wallace account dated 28 December 2000 addressed to Laguna Airport.

File 96835 - This file is described as 'Laguna Quays Airstrip Advices'. The sum was applied in payment of a Wallace & Wallace account dated 29 December 2000 addressed to ASD.

File 98444 - This file is described as 'Laguna Australia Airport Pty Ltd purchased from ASD'. The sum was applied in payment of a Wallace & Wallace account dated 16 January 2001 addressed to Laguna Airport C/- 189 Flinders Lane, Melbourne.

File 96989 - This file is that dealing with the purchase of land for the runway by Laguna Airport from Mr Erbacher. In fact there were two contracts to purchase land from this vendor. This file deals with the purchase of an area of about 11 hectares being part of Lots 16 and 33 which was required for the runway extension. The purchase price was $82,000 and the sum $83,200 allocated to this file was paid into a separate trust account in the name of Erbacher in accordance with Mr Jephson's instruction of 19 February as 'settlement funds for Erbacher transaction'

Account 96978 - this was described as the 'General Advices File'. The trust ledger for this file shows the client to have been ASD. It was from this account that payments were made at Mr Jephson's direction.

For my present purposes, the position is that the third tranche funds were received by Wallace & Wallace for its clients ASD and Laguna Airport, and, with the possible exception of $86,500 which was paid to Mr Marriner's solicitors in Colac, the funds were applied for the benefit of the Laguna Quays project.

There is no doubt[16] that these funds, totalling $853,200, were dealt with by Wallace & Wallace as directed by Mr Jephson, except for one payment. On 22 May 2001 the sum of $80,000 was applied at Mr Marriner's own direction. With respect to the authority to give the instruction it is necessary that I examine the chronology in a little detail.

On 20 February 2001 the third tranche funds totalling $853,200 were received by Wallace & Wallace and treated in its accounts as follows -

[97]

Two questions arise, both of which must be answered favourably to the respondents if they are to recover the money from the bank. The first is whether as between the respondents and Rolls Razor Ltd. the terms upon which the loan was made were such as to impress upon the sum of £209,719 8s. 6d. a trust in their favour in the event of the dividend not being paid. The second is whether, in that event, the bank had such notice of the trust or of the circumstances giving rise to it as to make the trust binding upon them.

It is not difficult to establish precisely upon what terms the money was advanced by the respondents to Rolls Razor Ltd. There is no doubt that the loan was made specifically in order to enable Rolls Razor Ltd. to pay the dividend. There is equally, in my opinion, no doubt that the loan was made only so as to enable Rolls Razor Ltd. to pay the dividend and for no other purpose. This follows quite clearly from the terms of the letter of Rolls Razor Ltd. to the bank of July 15, 1964, which letter, before transmission to the bank, was sent to the respondents under open cover in order that the cheque might be (as it was) enclosed in it. The mutual intention of the respondents and of Rolls Razor Ltd., and the essence of the bargain, was that the sum advanced should not become part of the assets of Rolls Razor Ltd., but should be used exclusively for payment of a particular class of its creditors, namely, those entitled to the dividend. A necessary consequence from this, by process simply of interpretation, must be that if, for any reason, the dividend could not be paid, the money was to be returned to the respondents: the word 'only' or 'exclusively' can have no other meaning or effect.

That arrangements of this character for the payment of a person's creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the third person, has been recognised in a series of cases over some 150 years.[40]

[107]

A settlor must, of course, possess the necessary intention to create a trust, but his subjective intentions are irrelevant. If he enters into arrangements which have the effect of creating a trust, it is not necessary that he should appreciate that they do so; it is sufficient that he intends to enter into them. Whether paragraphs 1 and 2 of the undertaking created a Quistclose trust turns on the true construction of those paragraphs.

...Arrangements of this kind are not intended to provide security for repayment of the loan, but to prevent the money from being applied otherwise than in accordance with the lender's wishes. If the money is properly applied the loan is unsecured. This was true of all the decided cases, including the Quistclose case itself...

A Quistclose trust does not necessarily arise merely because money is paid for a particular purpose. A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower. Similarly payments in advance for goods or services are paid for a particular purpose, but such payments do not ordinarily create a trust. The money is intended to be at the free disposal of the supplier and may be used as part of his cashflow. Commercial life would be impossible if this were not the case.

The question in every case is whether the parties intended the money to be at the free disposal of the recipient: In re Goldcorp Exchange Ltd.[48] His freedom to dispose of the money is necessarily excluded by an arrangement that the money shall be used exclusively for the stated purpose, for as Lord Wilberforce observed in the Quistclose case:[49]

A necessary consequence from this, by a process simply of interpretation, must be that if, for any reason, [the purpose could not be carried out,] the money was to be returned to [the lender]: the word 'only' or 'exclusively' can have no other meaning or effect.[50]

[136]

The Marriner parties ... take the rather unattractive position that Mr Marriner had no role in this; Mr Jephson was acting as a free agent for the benefit of Mr Marriner and his companies ...

My impression of Mr Marriner's manner of dealing with creditors and the money of companies under his control is that he was involved in every aspect of his various projects, including Laguna Quays. It was he who planned the strategies required and he who actively participated in their implementation. I am satisfied, however, that his eye was on the big picture rather than the fine detail and that this applied particularly to his dealings with his creditors. So far as this project, at least, was concerned, creditors appear to have been an on-going problem. This caused Mr Marriner to conduct his dealings with them with little regard to the niceties of corporate identity. When money was required he was content to take it from any company which had it available, leaving the detail to be picked up by the accounting staff in the inter-company loan accounts. It seems, too, that Mr Jephson, whose task it was to deal with the creditors, was allowed to pursue, or at least not discouraged from pursuing, a similar approach. As he put it in cross examination, '... it's all money out of the same - out of the same group of companies. That's how I had to manage the cash flows of the companies'. And it was consistent with Mr Marriner's lack of concern for detail or, perhaps, by a conscious decision on his part not to know too much about these matters, that he gave Mr Jephson a fairly free rein. While it is true that Mr Marriner took an active role in agreeing upon the payment schedule for the JJ McDonald debt, it is significant that he called Mr Jephson to enquire whether there were available funds, before he committed to the letter of 16 October 2000. I accept the evidence of Dr Greig that, in this conversation which he heard on speakerphone Mr Marriner asked Mr Jephson whether the commitments in the letter would be able to be made of ASD and that Mr Jephson responded that he could see no reason why Mr Marriner should not sign the letter. There is no evidence that Mr Jephson told Mr Marriner that he intended to make the weekly pre-payments from the second tranche funds or that Mr Marriner directed him to do this. My impression of Mr Jephson is that he was a compliant participant in this, without troubling himself to know much beyond his particular task.

I must confess to considerable scepticism about this evidence. I think it exceedingly unlikely that Mr Marriner did not have a good idea of what Mr Jephson was doing to keep the creditors at bay and that, on occasions, it was his decision whether a particular account should be paid and from what source the money should be drawn. Ultimately, however, this is speculation.

I was invited by counsel for [CBUS] to treat Mr Marriner as an unreliable witness and to reject his evidence. I was reminded that he was often evasive and was inclined to make self-serving speeches when in the witness box. This I observed. I observed, too, that he showed himself to be emotional and even outraged that this proceeding was brought against him. I have already remarked at his cavalier approach to the niceties of corporate independence: he appeared to be content that money within his control be used for a purpose notwithstanding that the money was that of a company unconnected with that purpose.

I am, however, confronted with the uncontradicted evidence of both Mr Marriner and Mr Jephson. Notwithstanding my reservations, I will act upon this evidence. I conclude that Mr Marriner did not direct Mr Jephson to apply the second tranche funds as he did. Mr Jephson, having access to these funds, applied them to such of the creditors with whom he was dealing as he saw fit. The claims against Mr Marriner which depend upon his responsibility for the acts of Mr Jephson, therefore, must fail.[63]

[181]

In the course of the trial, I sought to tease out the nature of this trust. Was it a trust which arose from the receipt of funds which the recipient, Wallace & Wallace, knew were impressed with the Quistclose trust? Was it a trust which a solicitor owes to the client with respect to money received for the client? Counsel for [CBUS] appeared uncertain about this and, in the end, said that it did not matter. In each case, Wallace & Wallace were bound by their trustee obligations to disburse the money only in accordance with the direction of ASD in its capacity as beneficiary under the second or ancillary Quistclose trust or in its capacity as client under the solicitor's trust. I am not at all confident that this distinction can be put to one side in this way. In the former case, ASD would have to establish the existence of the Quistclose trust and then, further, that Wallace & Wallace had the required knowledge that the funds received were impressed with that trust. In the latter case, it is sufficient that the funds were received on trust for the client. On the facts as I have found them, ASD has failed to establish the pre-condition to a breach by the solicitors of their obligations with respect to money coming into their hands impressed with a Quistclose trust. The trust does not exist; the funds in the hands of Wallace & Wallace cannot be subject to such a trust.

Nor is the position very much assisted by the fact that the Marriner parties do not plead to the allegation that the funds when received were impressed with a trust, that the solicitors owed ASD trustee duties or that the solicitors acted in breach of those duties.

With considerable misgiving, therefore, I put the pleadings on this point to one side and address what I was told in final address was the real issue. On behalf of ASD, it was said that the disbursement of the third tranche funds by Wallace & Wallace was not authorised by ASD and that Mr Marriner in various ways was responsible for this. The position adopted by Mr Marriner was that, this may be the case, but that he had nothing to do with it.[78]

[220]

Acting in reckless disregard of others' rights or possible rights can be a telltale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct.

Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did.

Before leaving cases where there is real doubt, one further point should be noted. To inquire, in such cases, whether a person dishonestly assisted in what is later held to be a breach of trust is to ask a meaningful question, which is capable of being given a meaningful answer. This is not always so if the question is posed in terms of 'knowingly' assisted. Framing the question in the latter form all too often leads one into tortuous convolutions about the 'sort' of knowledge required, when the truth is that 'knowingly' is inapt as a criterion when applied to the gradually darkening spectrum where the differences are of degree and not kind.[98]

[255]

The last two items represent the payments from the second tranche funds which I have already described. The expenditure of about $5m in the first item represents a large number of payments set out in two lists annexed to a letter prepared by Mr Whalley the secretary of ASD and sent to [CBUS] by letter dated 2 November 2000. The first list comprises payments made by ASD between 21 October 1999 and 13 October 2000 totalling $4,395,977. The second is a list of payments made by Matelda Oaks as trustee of the Victorian Property Trust between 1 October 1999 and 30 June 2000 totalling $767,313. No distinction for present purpose was drawn between these lists. The total expenses were $5,096,290.

It will be recalled that by heads of agreement dated 30 June 2000, ASD and Matelda Oaks agreed to sell the Laguna Quays project to Laguna Australia for a total price of $26,500,000. The subject-matter of the sale was the real estate which was owned in part by ASD and in part by Matelda Oaks, and the shares in Laguna Investments which were held by ASD. By cl 11 the parties agreed that the purchase price also included the repayment to ASD of an inter company loan owed to it by Laguna Investments and that the loan was approximately $10m. The heads of agreement contemplated that the purchaser would enter into possession upon payment of the second instalment price on 31 October 2000. The balance of the price was to be paid as to a further 10% on 28 February 2001 and the balance on 1 March 2001 by vendor finance. The agreement contains in cl 9 the following:

9 [ASD] to complete works

[ASD] shall forthwith and at its own cost and expense complete or procure the completion of the capital works described in the budget set out in Annexure 4 provided always that the liability of [ASD] to complete such works shall not exceed A$4.7 million.

Annexure 4 is in these terms:

Annexure 4 - Capital Works Budget

The Company will undertake the first stage of rectification and development works including the following:

[257]

The total estimated cost of the above works is 4.7 million.

The matter is a little complicated by the fact that Mr Marriner was a director of ASD both before and in the months after the heads of agreement up to 3 November 2000. He was also the CEO of ASD for the same period with very wide powers. He was effectively the manager of the project and, indeed, still performed these functions after he had ceased to be director and CEO. He was therefore in a delicate position inasmuch as he was acting for the vendor and the purchaser pending settlement of the sale. And the sale was not settled on 31 October 2000 as contemplated; it did not occur until April 2002. It will appear from what I have already written that Mr Marriner adopted a fairly cavalier attitude to matters such as separate corporate identity. He was an enthusiast for the Laguna Quays project and he was prepared to spend much in pursuance of it. Since ASD was well resourced, he was content to use these resources on the project, leaving it to others to attend to the detail.

The case presented on behalf of [CBUS] accepted Mr Whalley's lists of expenditure as having been expended for the capital works referred to in Annexure 4. Mr Whalley's covering letter, however, makes no such assertion. He identifies in the lists items totalling $410,777 which are described as repair and maintenance costs. He said that the balance of $4.68m representing capital costs lay within the $4.7m limit.

In their submissions counsel for [CBUS] did not challenge the accuracy of Mr Whalley's lists and I see no reason to take a different position. The witness said that about $410,000 was spent by way of repair and maintenance costs upon the golf course, dams and the hotel lodge. I see no reason to doubt his allocation of this expenditure. Indeed, it is to some extent supported by the references to maintenance and repair items elsewhere in the correspondence. This maintenance and repair expenditure is not included in the capital works budget.

The remaining items, being the money spent from the second tranche funds, were applied directly or indirectly in payment to JJ McDonald after the time covered by Mr Whalley's lists. There is no evidence that the three payments of $90,000 made in October 2000 were applied to any particular activity on site. Likewise the $156,600 paid directly to the contractor. Given the nature of the work described in the JJ McDonald contract, I conclude that these payments were for capital works possibly works on the airstrip and roads. I am satisfied that they were Annexure 4 works.

I find, therefore, that Mr Marriner caused ASD and Matelda Oaks to expend a total of $ 5,112,113 on capital works. This is $412,113 in excess of the $4.7m limit.

I am satisfied that this excess was expended by Mr Marriner in breach of his statutory duty to ASD as a director. The evidence shows that, in this respect, as in others Mr Marriner was primarily concerned to continue the development of the Laguna Quays project for his own benefit. He was aware that expenditure beyond $4.7M was unauthorised. The best that might be said for him in this context is the he failed to keep track of the expenditure. He kept on spending so long as there was money available for him to use. It mattered not that it was the money of ASD which he was spending as its director pursuant to cl 9 of the June 2000 heads of agreement. He had a conflict of interest in dealing with this money since he represented the vendor as well as the purchaser. The heads of agreement permitted him to spend it, but his dual position required him to be meticulous in his exercise of this function. The evidence shows that he was less than meticulous. He put his interest as purchaser ahead of his interest as director of the vendor.

[436]

(a) in respect of Jephson's application of the 2nd Tranche Sum, ASD never had any claims against the Bank of Queensland;

(b) the evidence of Patience that, in advance of the ASD board meeting on 15 August 2001 he formed the view that Marriner was liable in respect of the bond moneys (which moneys included the 2nd Tranche Sum paid to McDonald);

(c) the ASD board meeting on 15 August 2001, at which the board referred to Marriner having 'wrongly expended moneys', and at which it discussed what action 'could and should be taken against Mr Marriner' (see exhibit 108 [13 CS 5292f]);

(d) the written evidence of Wason that, as at 6 September 2001, the directors of ASD were considering legal action against Marriner 'about the electricity guarantee funds' (which funds included the 2nd Tranche Sum));

(e) the 'focus notes' prepared by Patience, in which he recommended the 'integration' of the bond moneys issues into the final agreement with the Marriner parties;

(f) the undisputed fact that, in advance of the meeting on 6 September 2001, Patience gave his 'focus notes' to the directors of ASD;

(g) the evidence of Willis that, in advance of the meeting on 6 September 2001, Frost decided that the ASD directors would not raise the bond moneys issue with Marriner at that meeting (notwithstanding Willis' desire to so);

(h) the evidence of Paence that, at the meeting on 6 September 2001, no one raised the bond moneys issue with Marriner;

(i) the ASD board meeting on 18 September, at which the directors focused on Marriner and the Bank of Queensland in terms of recovering the bond moneys;

(j) the evidence of Patience that ASD's directors instructed him not to raise the bond moneys issues with Marriner;

(k) the debt schedule prepared by Patience on 21 September 2001, in which Marriner is listed as a debtor to ASD in respect of the 2nd Tranche Sum;

(l) Patience's memorandum to the ASD directors dated 8 October 2001, in which he recommended the finalisation of all outstanding issues in the proposed deal with Marriner;

(m) the facts and matters identified in paragraphs 19(b) to 19(f) above;

(n) the undisputed fact that, after 5 September 2001 no one disclosed to Marriner that ASD might pursue him in respect of the application of the bond moneys;

(o) the evidence that, in order to stem operational losses, ASD wanted to sell the Resort as quickly as possible;

(p) the undisputed evidence that Marriner was the only prospective purchaser of the Resort;

(q) the unchallenged evidence of Marriner that he would not have proceeded with the purchase of the Resort unless the bond moneys issue had been addressed and resolved in his favour; and

(r) the other relevant facts and mailers identified in section .3 of the Defendants' closing submissions dated 15 September 2009.

At a glance

Court

Decision date

Before

Source

Judgment (467 paragraphs)

Marriner & Ors v Australian Super Developments Pty Ltd & Ors [2012] VSCA 171 (3 August 2012)

Parties