The Appellant submitted that there was no causal link between any breach of his duty to R T Thomas and the loss to R T Thomas occasioned by the decline in value of the Jeffries shares.

Analysis of causation depends on the purpose and scope of the rule being applied_: Environment Agency (Formerly National Rivers Authority) v Empress Car Co. (Abertillery) Limited_ [1998] UKHL 5; (1998) 2 WLR 350, 356, 358; South Australian Asset Management Corporation v York Montague Limited [1996] UKHL 10; (1997) AC 191, 211-216; Barnes v Hay (1988) 12 NSWLR 337, 353. Issues of causation of loss arising from the breach of fiduciary obligations are to be determined in a different way from breach of common law and statutory obligations. The analysis by the trial judge of causation for the purposes of s212 of the Corporations Law, is not determinative of the case based on breach of director's duties.

The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation. A defendant is responsible for the plaintiff's actual loss as a consequence of the breach: Nocton v Lord Asburton (1914) AC 932, 953; Target Holdings Ltd v Redferns [1995] UKHL 10; (1996) 1 AC 421, 432, 439; Canson Pty Limited v Boughton & Co (1991) 85 DLR (4th) 129, 163.

The power to dispose of the property of a company is a fiduciary power: Bishopsgate Investment Management Limited (In Liq) v Maxwell (No 2) (1994) 1 All ER 261 at 265-266; Mills v Mills [1938] HCA 4; (1938) 60 CLR 150 at 185-186; Whitehorse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285, 293-296.

In the case of a trustee of a traditional trust, the test of causation is whether the loss would have occurred had there been no breach: Re Dawson (deceased); Union Fidelity Trustee Co limited v Perpetual Trustee Co limited (1966) 2 NSWR 211, 215; Maguire v Makaronis [1997] HCA 23; (1996) 188 CLR 449 at 469-470, 463-464; Target Holdings Ltd v Redferns [1995] UKHL 10; (1996) 1 AC 421, 432, 434; Bartlett v Barclays Trust Co (Nos 1 & 2) (1980) Ch 515.

The appellation "fiduciary" does not invoke a fixed body of rules. The Court must identify what constitutes "an adequate or sufficient connection" between the equitable compensation claimed and the particular fiduciary duty found to be breached. Maguire v Makaronis supra 673.

The strict standard applicable to a trustee of a traditional trust with respect to the improper application of trust property also applies to the case of a director of a company who disposes of company property for an improper purpose: In re Lands Allotment Company (1894) 1 Ch 616 at 638; Re International Vending Machines Pty Limited and the Companies Act (1962) NSWR 1408; Mulkana Corporation Pty Limited (in liq) v Bank of New South Wales (1983) 8 ACLR 278 at 279; Daniels v Anderson (1995) 37 NSWLR 438, 596-598.

The trial judge was correct in finding that the loss occasioned by the inability to sell the shares to a third party, would not have occurred had there been no breach of duty.

Damages to R T Thomas should have been assessed on the basis of what it could have sold the Jeffries shares for in the market in about mid-May 1994. Alternatively, the trial judge was incorrect in finding that Thomas had abandoned its pleaded case against the appellant that he indemnify it for any amount it might be found to owe to Bowes & Brown. R T Thomas has to elect between the two bases for recovery.

3 In lieu thereof judgment for the Appellant in the amount of $1,045.761.

3 In lieu thereof judgment for the Appellant in the amount of $967,250.

4 Order that O'Halloran pay the cost of Bowes & Brown referred to in order A.5 of the orders made by the trial judge.

SPIGELMAN CJ: James Francis O'Halloran (to whom I will refer as "O'Halloran") was at all material times a director and Managing Director of R T Thomas & Family Pty Limited (to which I will refer as "Thomas"). He was also Chairman of the Board of Jeffries Industries Limited (to which I will refer as "Jeffries"). Thomas held shares in Jeffries

In 1993 Thomas entered into a put and call option with respect to its shares in Jeffries with Bowes & Brown Pty Limited (to which I will refer as "Bowes & Brown"). In January of 1994 that agreement was replaced by a new agreement under which there would be an immediate purchase of 225,000 shares in Jeffries @ $3 per share, a total consideration of $675,000.

On 21 January 1994, without payment of the $675,000, a transfer of the shares to Bowes & Brown was registered on Jeffries share register. In accordance with his Honour's findings, which I will set out in more detail below, it was O'Halloran, in his capacity as Managing Director of Thomas and Chairman of Jeffries, who enabled this irregular transaction to occur. He did so, in contumelious disregard of his obligations to Thomas. His motive for doing so, his Honour found, was his desire to retain control of Jeffries, in conjunction with a Mr Phillip Cook, another director of Jeffries and also a director of Bowes & Brown. O'Halloran and Cook had an interest in sterilising the voting power attached to the Thomas holding in Jeffries, for as long as they could.

Another director of Bowes & Brown, who played a role in the matter was Dr Kennett. A significant role was also played by a director of Thomas, Mr Marriott, who had come into conflict with Mr O'Halloran over the control of Jeffries. So had another director of Thomas, a Mr Giardini.

His Honour summarised his findings as to O'Halloran's motive in the following way:

"The probable explanation for Mr O'Halloran's conduct ... lies in the hostilities within Jeffries ... Mr Marriott and Mr Giardini were unhappy with the new direction of Jeffries. Mr O'Halloran aligned himself with Mr Phillip Cook in the conduct of Jeffries' affairs ... and the coming of Mr Phillip Cook coincided with a significantly more valuable consultancy agreement between Jeffries and H & J Hotels Pty Limited."

I interpolate to say that H & J Hotels Pty Limited was a private company controlled by O'Halloran. His Honour went on to say:

"There had been moves to displace Mr O'Halloran in November 1993, moves which involved a proxy battle, and by the end of that year relations between Mr Marriott (effectively representing those opposed to the new direction) and Mr O'Halloran were bad. The interests of Mr Phillip Cook and Mr O'Halloran called for the voting power of R T Thomas to be neutralised, and that was done by the transfer of the R T Thomas shares to Bowes & Brown even though finance was not in place and they could not be paid for, and by the conduct thereafter calculated to keep Bowes & Brown as the shareholder by holding out the prospect of payment, obscuring what had happened and misleading Mr Marriott as he tried to remedy R T Thomas' position, and impeding rectification of the register."

The sequence of events found by his Honour constituted a litany of deceit and breach of fiduciary obligations on the part of O'Halloran.

* The transfer of shares was executed by O'Halloran and Marriott in circumstances where Marriott said to O'Halloran that the transfer should not be delivered to Bowes & Brown unless he received a bank cheque and O'Halloran said: "Of course". Nevertheless, O'Halloran did hand over the transfer.

* Dr Kennett signed for Bowes & Brown as transferee after O'Halloran had assured him that he had been informed by Cook that finance for Bowes & Brown had been arranged.

* O'Halloran then gave the share transfers and the share certificates to a person who acted as secretary of Jeffries and, as Chairman of Jeffries, instructed him to have the transfers registered as soon as possible.

* The secretary sent a copy of the transfer by fax to Ernst & Young, who conducted the Jeffries share registry, for the purposes of registration. Ernst & Young acted on the fax and issued a new certificate in the name of Bowes & Brown.

To summarise the evidence at this point, his Honour found:

"Mr O'Halloran caused a transfer of the shares to Bowes & Brown to be registered in flagrant contravention of the agreement that the share transfer would not be given to Bowes & Brown until payment had been received."

* Marriott was informed that the settlement had not occurred on 21 January 1994. He again told O'Halloran that the share transfer to Bowes & Brown should not occur until the money was paid. Over the weeks that followed Marriott constantly inquired about the matter from O'Halloran and Cook. He was told by O'Halloran that he did not know what was happening but that he was pursuing payment. He was told by Cook that the money was being organised. Marriott was not told during this period that a transfer had in fact been registered.

* In April 1994 Marriott, having become concerned about the uncompleted sale of shares, went to inspect the share register. For the first time, he discovered that the transfer of shares had been registered on 21 January 1994. He informed Kennett, who discovered the fact for the first time himself.

* Marriott confronted O'Halloran and asked how the shares could have been transferred without payment. O'Halloran replied "I don't know I still have the share transfer". O'Halloran did have both the original and the new certificates and the transfer in his possession. To say in the circumstances that the transfer was in his possession, suggesting he held it as Managing Director of Thomas for purposes of an uncompleted transaction was, as his Honour found, false and misleading.

* Marriott and Giardini confronted Cook who gave an explanation for the delay in payment. Eventually, Cook provided a series of post-dated cheques as payment of the principal, together with a cheque by way of interest for the delay since 21 January. The smaller cheque for interest was met on presentation. The cheques for the principal were returned marked "Return to Drawer".

* Marriott on behalf of Thomas was still pressing for settlement. At the end of May, Kennett arranged finance for Bowes & Brown to pay for the shares. One of the terms of the loan was security over the shares, which required the certificates to be produced.

* At some time after 5 June a number of conversations occurred during which Kennett made it clear to Marriott that the acquisition could not proceed without the share scrip. Marriott had spoken to O'Halloran and had been told, falsely, that O'Halloran did not know where the share scrip was. In fact the share scrip was in O'Halloran's possession at all material times.

* At the end of June, when Jeffries share registry Ernst & Young sought the originals of the documents, O'Halloran sent the original certificate, in the name of Thomas, but did not send the share transfer or the certificate in the name of Bowes & Brown.

* Notwithstanding further requests, O'Halloran failed to produce the documents which were required to rectify the register, until after the commencement of the proceedings.

"I am satisfied that Mr O'Halloran wanted Bowes & Brown to remain as the holder of the shares, sent the original share certificate in an endeavour to divert Ernst & Young, but did not send the original share transfer because he had told Mr Marriott and others that he still had the share transfer and intended to divert them by continuing to say that he had. It was an egregious instance of a course of disinformation in which Mr O'Halloran was engaging."

* At an extraordinary General Meeting of Thomas on 26 July 1994, O'Halloran misled the meeting by telling it that he did not know why the shares has been transferred. Indeed, he moved a resolution that the register should be rectified, but did not disclose to the meeting the full knowledge that he had of the events. Nor did he deliver the share transfer or any share certificate to the share registry, notwithstanding many further requests.

"I have no hesitation in concluding that Mr O'Halloran set out to prevent rectification of the registry."

* In June, the share price of Jeffries commenced to decline, and eventually the shares came to be worth very little. They were suspended from trading on 14 September 1994.

Giles CJ CommD had to deal with a large number of claims and cross-claims most of which are of no relevance to this appeal.

* The share transfer was not stamped and accordingly, by force of statute was of no effect. His Honour applied s97(1) of the Stamp Duties Act 1920 as interpreted in Northumberland Insurance Ltd (In liq) v Alexander (1984) 8 ACLR 882. This aspect of the judgment was not challenged in this Court.

* Pursuant to the former s212 of the Corporations Law, His Honour found that the improper registration of the purported transfer from Thomas to Bowes & Brown entitled Thomas to damages against Jeffries [s212(2)(b)(ii)]. His Honour assessed the damages at $3.00 per share, the price at which Bowes & Brown had agreed to purchase the shares.

* His Honour found that Thomas' claim against O'Halloran was made out on the basis of breach of his duties as a director of Thomas. He assessed the damages in the same amount as in the case of Thomas against Jeffries, indicating that Thomas could not have double recovery.

* His Honour also found that Bowes & Brown was entitled to recover from Thomas under its cross-claim, on the basis that Thomas had failed to deliver shares in accordance with its contract. He assessed the damages as the loss of profit on resale of 225,000 shares at $3.50 per share, being in excess of $3.00 per share acquisition price.

* His Honour stated that Thomas had abandoned its pleaded case against O'Halloran that he indemnify it for any amount it might be found to owe to Bowes & Brown.

The pleadings alleged numerous breaches by O'Halloran of his obligations to Thomas. These included: breach of his fiduciary duty, and of the obligation under s232(6) of the Corporations Law, not to make improper use of his position; breach of his duty, and of the obligation under s232(4) of the Corporations Law, to exercise reasonable care and diligence in the exercise of his powers and the discharge of his duties; breach of his fiduciary duty not to place himself in a position where his duties as Director and his own interests conflict; breach of his duty not to exercise his powers as a Director for the improper purpose of serving the interests of others, namely Jeffries and Bowes & Brown, in preference to the interests of Thomas; breach of his fiduciary duty, and of the obligation under s232(6) of the Corporations Law, not to make improper use of his position to cause detriment to Thomas or to gain an advantage for himself or another person.

His Honour's conclusions in this respect were amply justified on the basis of his factual findings and were not challenged before this Court. His Honour said:

"I do not think that extended discussion of Mr O'Halloran's liability is necessary. On the findings I have made, Mr O'Halloran clearly acted contrary to the duties he owed to R T Thomas, having acted in a way likely to cause loss to R T Thomas and in furtherance of interests other than those of R T Thomas. The only question is the loss to R T Thomas occasioned by his conduct."

Subject to one matter, this appeal is also concerned only with the question of causation. The submission that there was no breach of duty was based on the proposition that the only relevant conduct was the failure to produce the Bowes & Brown share certificate in late May, during which period no-one asked O'Halloran to do so. As my analysis below will show, the relevant conduct is not so limited. Accordingly, the substantive issue is causation.

Counsel for O'Halloran had submitted to Justice Giles that the breaches identified by his Honour did not cause any "relevant loss". In rejecting this submission, his Honour said:

"Perhaps R T Thomas could have acted more forthrightly than it did, but on a commonsense approach in my opinion Mr O'Halloran's breach of duty caused R T Thomas to be deprived of registration as holder of, and effective control over, the shares, and caused the loss which it suffered by reason of that deprivation".

The submissions made before his Honour on the issue of causation, commenced with the proposition that the mere act of registration of the transfer did not cause any loss to Thomas, because Thomas thereafter affirmed the Bowes & Brown contract and sought to obtain payment. The submission made to his Honour was that the loss was caused by one of three events unrelated to registration. First, by the failure of Thomas to join with Bowes & Brown in reselling the shares in June 1994, before the price collapsed. Secondly, by the failure of Jeffries and Ernst & Young to rectify the register. Thirdly, by the failure of Thomas itself to take steps to compel rectification.

His Honour dealt with the submissions put to him in the following way:

"While the question of a joint sale was raised, the effective reason why nothing came of it was that the position as to share certificates was not known to either Mr Marriott (on behalf of R T Thomas) or Dr Kennett (on behalf of Bowes & Brown); also Dr Kennett took the matter no further because he was hoping that Bowes & Brown would be able to pay for the shares, which itself turned on having a share certificate or certificates. R T Thomas was in the position it was in because of Mr O'Halloran's breach of duties, and one of the consequences of that breach was that the position as to the share certificates was not known. I do not think it was incumbent on R T Thomas to press for a joint sale, and if, as at one point the submission seemed to be R T Thomas should have resold the shares unilaterally, it was simply not in a position to do so when Bowes & Brown was registered as the holder of the shares and Mr O'Halloran kept from R T Thomas the knowledge which might have enabled it to put itself in a position to do so. As to rectification of the register, the short answer is that Mr O'Halloran's breach of duty put R T Thomas in the position of needing rectification of the register, and kept from it the information necessary to extract itself from that position."

In this Court some different, but not dissimilar, arguments were put. A number of propositions can be distilled from the written and oral submissions, albeit they were not put in precisely this way or in this sequence.

It was submitted that the allegation of breach of duty in the pleadings did not extend to the subsequent conduct in refusing to deliver certificates and impeding rectification and registration. The Thomas pleadings do identify the relevant breaches of duty as occurring at or about the time of the improper registration. However, two aspects went beyond that time.

It is specifically pleaded that O'Halloran contravened his fiduciary duty, and the obligation under s232(6) of the Corporations Law, by "refusing to authorise" the rectification of the register "when to do so was in the interests of R T Thomas". The particulars of this allegation refer to correspondence between 1 August 1994 and 5 September 1994. This correspondence commenced with a demand for the rectification of the Jeffrey register.

By reason of the particulars, it appears that the pleading cannot justify the whole of the damages awarded because the share price had already fallen below $3 by 1 August, albeit not very far below. Accordingly, to uphold his Honour's actual award of damages it is necessary to establish a causal link between registration and loss at a time between January and June.

The pleading expressly stated, with respect to all alleged breaches, that: "By the wrongful registration of the share transfer ... R T Thomas lost the opportunity to sell its shares in Jeffries before their fall in value". This is the crucial issue. Can it be said, as a matter of causation, that the wrongful registration led to the loss of this opportunity?

The submissions for O'Halloran in this Court commenced with the same basic proposition as the submissions before his Honour: because Thomas affirmed the contract with Bowes & Brown after it discovered the wrongful registration, registration did not cause any loss.

It was submitted in this Court that the reasoning of his Honour should be understood as holding - and the true position should be found by this Court to be - that the only causal mechanism of the loss actually suffered arose:

(i) By reason only of the inability or failure to deliver a share certificate required by Bowes & Brown to secure finance, and not by reason of the improper registration; and

(ii) The ability to sell to any person other than Bowes & Brown should be ignored.

If either of these propositions is wrong, O'Halloran's appeal should be dismissed. They are both wrong.

As to proposition (i), Counsel for O'Halloran placed particular reliance on a finding which his Honour made in the context of dealing with R T Thomas' claim against Jeffries. His Honour found in favour of Thomas on the basis of the former s212 of the Corporations Law and_,_ accordingly, it was unnecessary for him to deal with the claims against Jeffries in negligence, conversion and under s1324 of the Corporations Law.

Section 212 was concerned with entries in the register. His Honour reasoned in the following way, not challenged before this Court, emphasis added to highlight the passage primarily relied upon:

"The fact of registration of the transfer did not relevantly cause R T Thomas to lose the sale to Bowes & Brown, since by the latter part of April 1994 the transfer was known but the agreement was kept on foot. But the fact of registration of the transfer and the maintenance of the registration cannot be divorced from the undisclosed retention of share certificate No 7183 in the name of Bowes & Brown and its successors - retention by Jeffries, the share certificates having been sent to Jeffries and falling under the control of Mr O'Halloran. That retention was so linked with causing the registration of the transfer that it was part of Jeffries conduct to which regard may be had in determining that it should be ordered to pay the damages sustained by R T Thomas and the amount of the damages.

What would have happened but for that conduct of Jeffries? That inquires into a hypothetical event, and the damages should reflect the lost commercial opportunity to sell the shares, whether by completion of the sale to Bowes & Brown or by sale to someone else."

After dealing with some evidence on quantification his Honour said:

"But it seems to me that, on rather unsatisfactory evidence, if there had not been the registration and maintenance of the transfer shares with the associated retention of the share certificates most likely Dr Kennett would have been able to take up the finance or alternatively the shares would have been sold on the market."

As I have said, this passage occurs in that part of his Honour's reasons in which he is dealing with the case of Thomas against Jeffries. Counsel for O'Halloran sought to use the first sentence highlighted above to read down his Honour's subsequent reasoning when he was dealing with the causal link between O'Halloran's conduct and Thomas' loss. His Honour there said:

"Perhaps R T Thomas could have acted more forthrightly than it did, but on a commonsense approach in my opinion Mr O'Halloran's breach of duty caused R T Thomas to be deprived of registration as holder of, and effective control over, the shares, and caused the loss which it suffered by reason of that deprivation".

Contrary to the submissions for O'Halloran, his Honour did not confine his causal analysis to deprivation of control of the shares. In the context of his reasoning with respect to Thomas' claim against O'Halloran, his Honour expressly refers to the breach of duty causing both the deprivation of registration and the deprivation of control of the shares.

Contrary to proposition (ii), above, his Honour did not restrict the causal relationship between the breach by O'Halloran of his duties and the loss occasioned to Thomas, simply to the transaction between Thomas and Bowes & Brown and the inability of the latter to obtain finance due to the unavailability of a share certificate in the name of Bowes & Brown. His Honour identified the causal link of the damage to the improper conduct, in terms of the inability to sell the shares at any time over the relevant period to any person, including third parties.

In that part of his Honour's reasoning concerned with the case against Jeffries he said expressly: "... damages should reflect the lost commercial opportunity to sell the shares, whether by completion of the sale to Bowes & Brown or by sale to someone else." He also said: "... most likely Dr Kennett would have been able to take up the finance or alternatively the shares would have been sold on the market". (Emphasis added)

Similarly, his Honour's reasoning in the context of Thomas' case against O'Halloran, referred to a submission by counsel then appearing for O'Halloran that: "At best ... R T Thomas had lost an opportunity to sell the shares to someone other than Bowes & Brown". It was submitted that there was "no evidence to quantify the value of the lost opportunity". His Honour held the evidence was adequate. Significantly, for purposes of the present submission, his Honour did not demur in any way from the proposition, put by counsel for O'Halloran, that what had to be assessed was the loss of a sale to a third party.

The causal link between default and damage depends on which of the two certificates is being considered: the original certificate in the name of Thomas or the new certificate in the name of Bowes & Brown. His Honour's finding was that the registration of the transfer had no effect because it was not stamped. This meant that the original certificate was still a valid indicator of title, although this was not known to the parties. The causal link involving a Bowes & Brown acquisition required the provision of the new certificate in the name of that company by way of security to a financier.

No submissions were made suggesting that anything before this Court turned on the identity of the certificate. O'Halloran had all the documents in his possession. Nevertheless, in view of the fact that the pleadings are limited, as noted above, to conduct with respect to registration, it remains necessary to identify a causal link between that conduct and the loss. There is no such link to the loss of a sale to Bowes & Brown. Registration was a necessary step for any such sale, it was not an impediment to it. The absence of a specific pleading of breach of a fiduciary obligation relevant to dealings with the new certificate issued in the name of Bowes & Brown, means that Thomas must establish loss of an opportunity to sell to a third party.

The submissions for O'Halloran in this Court are based on the premise that his Honour's finding on causation in the context of the case against Jeffries - "The fact of registration did not relevantly cause R T Thomas to lose the sale to Bowes & Brown" - was somehow determinative of causation in the case against O'Halloran. This is wrong.

As Lord Hoffmann has recently affirmed in Environment Agency (formerly National Rivers Authority) v Empress Car Co. (Abertillery) Limited [1998] UKHL 5; (1998) 2 WLR 350, analysis of causation depends on the rule being applied. His Lordship said:

"The first point to emphasise is that common sense answers to questions of causation will differ according to the purpose for which the question is asked. Questions of causation often arise for the purpose of attributing responsibility to someone, for example, so as to blame him for something which has happened or to make him guilty of an offence or liable in damages. In such cases, the answer will depend upon the rule by which responsibility is being attributed. Take for example, the case of the man who forgets to take the radio out of his car and during the night someone breaks the quarterlight, enters the car and steals it. What caused the damage? If the thief is on trial, so that the question is whether he is criminally responsible, then obviously the answer is that he caused the damage. It is no answer for him to say that it was caused by the owner carelessly leaving the radio inside. On the other hand, the owner's wife, irritated at the third such occurrence in a year, might well say that it was his fault. In the context of an inquiry into the owner's blameworthiness under a non-legal, common sense duty to take reasonable care of one's own possessions, one would say that his carelessness caused the loss of the radio." (356 D-G) and

"... one cannot give a common sense answer to a question of causation for the purpose of attributing responsibility under some rule without knowing the purpose and scope of the rule. Does the rule impose a duty which requires one to guard against, or makes one responsible for, the deliberate act of third persons? ...

Before answering questions about causation, it is therefore first necessary to identify the scope of the relevant rule. This is not a question of common sense fact; it is a question of law." (358 B-E)

(See also South Australia Asset Management Corporation v York Montague Limited [1996] UKHL 10; (1997) AC 191, 211-216 per Lord Hoffmann.)

To the same effect are the following observations of Mahoney JA in this Court in Barnes v Hay (1988) 12 NSWLR 337, 353F:

"... the determination of a causal question involves, in my opinion, a normative decision as to whether, for the purposes of the case, the precedent act for which the defendant is responsible should be seen as causal of the plaintiff's loss. And, in my opinion, that evaluation is made, not by a `test' or `guide' such as the `but for' test, but by a functional evaluation of the relationship and the purposes or policy of the relevant part of the law."

The determination of an issue of causation for a specific statutory regime, such as s212 of the Corporations Law, is not determinative of this issue for another cause of action. In this case, his Honour expressly recognised this proposition when he said that the retention of the share certificates:

"... was so linked with causing the registration of the transfer that it was part of Jeffries conduct to which regard may be had in determining that it should be ordered to pay the damages sustained by R T Thomas and the amount of those damages".

The case against O'Halloran is based on a breach of fiduciary duty. It has long been established that questions of causation of loss said to arise from breach of fiduciary obligation are to be determined in a different way from breach of common law obligations. Specifically, the remedy of equitable compensation differs from damages in common law. It also differs from damages under a statutory regime where the Court is concerned with, and confined by, the construction of the statute. Causation for purposes of s 212 of the Corporations Law will not involve the same analysis of causation as is required for breach of a fiduciary obligation.

The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there had been no breach of the equitable obligation. (Nocton v Lord Ashburton (1914) AC 932, 952 per Viscount Haldane LC. See the discussion by Justice Gummow writing extra-judicially in "Compensation for Breach of Fiduciary Duty" in Youdan (ed) Equity Fiduciaries and Trusts (1989) 57-61; See also Meagher, Gummow and Lehane "Equity: Doctrines and Remedies" 3rd ed pars 552-553; Davidson "The Equitable Remedy of Compensation" (1982) 13 Melb. Uni L. Rev 349 esp 372; Davies "Equitable Compensation: Causation Forseeability and Remoteness" in Waters (ed) Equity Fiduciaries and Trusts (1993) 304-305; Tilbury "Equitable Compensation" in Parkinson (ed) The Principles of Equity (1996) paras 2202-2207, 2211.

In Target Holdings Ltd v Redferns [1995] UKHL 10; (1996) 1 AC 421, Lord Browne- Wilkinson said:

"At common law there are two principles fundamental to the award of damages. First, that the defendant's wrongful act must cause the damage complained of. Second, that the plaintiff is to be put `in the same position as he would have been in if he had not sustained the wrong for which he is now getting his compensation or reparation' Livingston the Rawyards Coal Co. (1885) App. Cas. 25, 39 per Lord Blackburn. Although, as will appear, in many ways equity approaches liability for making good a breach of trust from a different starting point, in my judgment those two principles are applicable as much in equity as at common law. Under both systems liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong. The detailed rules of equity as to causation and the quantification of loss differ, at least ostensibly, from those applicable at common law. But the principles underlying both systems are the same." (supra 432 E-H)

"Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests. To make good a loss in fact suffered by the beneficiaries and which, using hindsight and commonsense, can be seen to have been caused by the breach." (439)

In Canson Pty Limited v Boughton & Co (1991) 85 DLR (4th) 129, her Ladyship Justice McLachlin, who was in the minority, said:

"In summary, compensation is an equitable monetary remedy which is available when the equitable remedies of restitution and account are not appropriate. By analogy with restitution, it attempts to restore to the plaintiff what has been lost as a result of the breach, ie the plaintiff's lost opportunity. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight. Foreseeability is not a concern in assessing compensation, but it is essential that the losses made good are only those which on a commonsense view of causation, were caused by the breach. (163 e-g)

In my opinion this also represents the law in Australia. (Unlike some other aspects of Canadian fiduciary law, including the majority's approach in that case. See Breen v Williams (1996) 186 CLR 71, 94-95 per Dawson and Toohey JJ; 112-113 per Gaudron and McHugh JJ; 137 per Gummow J).

Causation and Breach of Fiduciary Duty by a Director

In this case the issue of compensation arises with respect to breaches of fiduciary duty by a director of a company. The range of duties plainly breached is such that, like Justice Giles, I do not believe it is necessary to compile a precise list of them. For the purposes of analysis it is sufficient to focus on O'Halloran's conduct when, as a director of Thomas, he surrendered possession of the share certificates in Jeffries issued in the name of Thomas, without payment of the purchase price, in order to have the transfer to Bowes & Brown registered so that his, and his allies', control over Jeffries would remain undisturbed. The power he exercised as a director in this regard was a fiduciary power which could not be exercised for an improper purpose. His Honour's factual findings make it clear that these powers were exercised for an improper purpose.

Similar issues arose in Bishopsgate Investment Management Limited (In liq) v Maxwell (No 2) (1994) 1 All ER 261. In that case Mr Ian Maxwell, a director of a corporate trustee of the assets of pension schemes for employees of companies controlled by his late father, Mr Robert Maxwell, had executed transfers of shares in publicly listed companies for nil consideration to Robert Maxwell Group PLC, a company of which he was also a director and which controlled the private interests of his father. Hoffmann LJ (as Lord Hoffmann then was) approved the reasons of the trial judge who had said that the power to alienate property of the company was a fiduciary power conferred by the articles. His Lordship went on to say:

"If a director chooses to participate in the management of a company and exercises powers on its behalf, he has a duty to act bona fide in the interests of the company. He must exercise the power solely for the purpose for which it was conferred. To exercise the power for another purpose is a breach of his fiduciary duties. ... Mr Ian Maxwell was in breach of his fiduciary duty because he gave away the company's assets for no consideration to a private family company of which he was a director. This was prima facie a use of his powers as a director for an improper purpose and in my judgment the burden was upon him to demonstrate the propriety of the transaction." (265)

In that case an issue of causation was raised by counsel for Mr Ian Maxwell. It was submitted that the essence of the breach of duty by Mr Ian Maxwell was his failure to make proper inquiries before signing and that therefore it had to be demonstrated that proper inquiries would have prevented the loss. It was submitted that he could have been fobbed off with some plausible explanation, or that some other director would have executed the transfer.

"In a case of breach of the fiduciary duty it seems to me that the cause of action is constituted not by failure to make inquiries but simply by the improper transfer of the shares to Robert Maxwell Group. Even if Mr Ian Maxwell had made inquiries and received reassuring answers from other directors whom he was reasonably entitled to trust, he would not have escaped liability for a transfer which was in fact for a purpose outside the powers entrusted to the Board. ... It was the improper transfer which caused the loss and the necessary causal connection is therefore established." (265-266)

His Lordship's description of the fiduciary nature of the power to transfer property of a company also represents the law in Australia. The power to allot shares was held to be a fiduciary power in Whitehouse v Carlton Hotel Pty Limited [1987] HCA 11; (1987) 162 CLR 285, 293-294. In that case the High Court held that the actuating purpose for the exercise of the power was improper and the duty was breached (ibid 294). (See also Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, 185-186 per Dixon J).

Not all duties owed by a director to the company are fiduciary duties. (See eg Permanent Building Society v Wheeler (1994) 11 WAR 187, 237-239 per Ipp J delivering the judgement of the Full Court). However, the exercise of the power to deal with the assets of the company, by directors who conduct the affairs of the company, is a fiduciary power that must not be exercised for improper purposes.

As I have noted above, a claim for equitable compensation for breach of a fiduciary obligation requires a causal link between the breach and the loss. Causation in equity is not, however, susceptible to the formulation of a single test. It is necessary to identify the purpose of the particular rule to determine the appropriate approach to issues of causation. (See Environment Agency v Empress Car Co (Abertillery) Ltd and Barnes v Hay as noted above).

There is an oft-cited formulation of the appropriate test for a trustee to be found in the judgment of Street J, as the former Chief Justice of NSW then was, in Re Dawson (deceased); Union Fidelity Trustee Co Limited v Perpetual Trustee Co Limited (1966) 2 NSWR 211. His Honour referred to a number of cases, including Caffrey v Darby [1801] EngR 484; (1801) 6 VES 488; 31 ER 1159, and said:

"Caffrey v Darby, supra, is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter." (215.10)

His Honour went on to refer to other authorities and concluded:

"The principles embodied in this approach do not appear to involve any inquiry into whether the loss was caused by or flowed from the breach. Rather the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach" (supra 215.45)

The High Court recently considered the position of causation in equity in Maguire v Makaronis [1997] HCA 23; (1996) 188 CLR 449. That case involved solicitors who had lent money to their own clients on the security of a mortgage without disclosing their interest in the lender/mortgagee. In a case of this character the primary remedy is rescission, rather than equitable compensation. The High Court did not purport to deal with compensation. However, the joint judgment of Brennan CJ, Gaudron, McHugh and Gummow JJ noted that Re Dawson was a case involving a traditional trust (469-470) and stressed that every fiduciary relationship must be carefully analysed to identify the particular obligations owed and the nature of the particular breaches found (463-464).

In Target Holdings Ltd v Redferns supra, Lord Browne-Wilkinson referred to Re Dawson and said, with reference to the trustee of a traditional trust:

"If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to what it would have been had the breach not been committed......

Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred ... thus the common law rules of remoteness of damage and causation do not apply. However, there does have to be some causal connection between the breach of trust and the loss to the trust estate for which compensation is recoverable viz. the fact that the loss would not have occurred but for the breach." (434 D-G)

To similar effect is the reasoning of Brightman LJ in Bartlett v Barclays Trust Co (Nos 1 & 2) (1980) Ch 515, where his Lordship said, in the same terms as Re Dawson:

"If specific restitution of the trust property is not possible, then the liability of the trustee is to pay sufficient compensation to the trust estate to put it back to where it would have been had the breach not been committed. ... Even if the immediate cause of the loss is the dishonesty or failure of a third party, the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred."

In Maguire v Makaronis, the High Court quoted this passage with approval in the context of dealing with a defaulting trustee and concluded:

"Thus, there is no translation into this field of discourse of the doctrine of novus actus interveniens". (470)

(See also Bennett v Minister for Community Welfare [1992] HCA 27; (1992) 176 CLR 408, 426-427 per McHugh J).

As is well known the appellation `fiduciary' does not invoke a fixed body of rules. It is not permissible to assimilate the position of all fiduciaries to that of the trustee of a traditional trust. As his Honour Justice Gummow has said, writing extra-judicially:

"However, on a number of grounds caution is necessary in reasoning directly from the law as it has developed in respect of trustees to fix the measure of liability of other fiduciaries". (Gummow J in Youdan (ed) supra 63).

"There still remains little discussion of the nature and degree of causation required in cases of breach of duty by non-trustee fiduciaries. In particular, what is required is to treat the loss claimed as one relevantly flowing from breach of the defendant's fiduciary duty to the plaintiff ..." (89)

"The essence of what Street J held was that the true inquiry is whether the loss would have happened had there been no breach, not whether the loss was caused by or flowed from the breach. Where the loss complained of occurs by a trustee making an investment that was unauthorised, the loss would not have occurred but for the breach. However, the loss may have been caused by or flowed more immediately, from some other event such as a general decline in the economy ...

The immediate question is how those principles apply to breach of a duty by non-trustee fiduciaries, where the controversy does not concern replacement of a trust fund." (89)

His Honour went on to refer to Brickenden v London Loan & Savings Co (1934) 3 DLR 465 where the Privy Council, on appeal from Canada, identified a category of cases involving breach of fiduciary obligation by a non-trustee fiduciary in which the Court does not inquire into aspects of causality at all.

The approach in Brickenden has been applied, or referred to without disapproval, on many occasions: Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 102 ALR 453, 479; Permanent Building Society v Wheeler supra 245-246; Gemstone Corporation of Australian Ltd v Grasso [1993] SASC 4211; (1994) 62 SASR 239, 262-263, 245, 252-253; Duke Group Ltd (in liq) v Pilmer [1998] SASC 6529; (1998) 27 ACSR 1, 368-369; Heytsbury v Kelly, unreported, Supreme Court of Western Australia, 15 April 1997, Ipp J, 41; Meagher, Gummow and Lehane supra para 2304 cf para 524; Tilbury in Parkinson (ed) supra paras 2214-2215.

It has, however, been the subject of some criticism or confinement: Heydon "Causal Relationships Between a Fiduciary's Default and the Principal's Loss" (1994) 110 LQR 328; Beach Petroleum NL v Abbott Tout Russell Kennedy (1997) 26 ACSR 114, 280-286; Swindle v Harrison [1997] EWCA Civ 1339; (1997) 4 All ER 705, 716-718; 723, 726, 733-734; "Limited Liability for Breach of Fiduciary Duty" (1998) 114 LQR 181.

The authority of Brickenden was explicitly left open by the High Court in Maguire v Makaronis supra 470-474 per Brennan CJ, Gaudron, McHugh and Gummow JJ; cf 490-492 per Kirby J. It is not necessary to resolve this matter in this case.

To adopt the words of the High Court in Maguire v Makaronis, the Court must identify "the criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty" (673). In the case of a trustee dealing with trust property, the law has proceeded beyond the invocation of the formulaic "common sense" approach to causation, by adopting a stringent test to the selection of those events preceding loss which are to be taken as causing the loss. There is a sufficient connection, irrespective of the identification of a separate and concurrent cause, when the loss would not have occurred if there had been no breach of duty.

As in the case of a disposition induced by fraud or duress:

"... in this field the court does not allow an examination into the relative importance of contributory causes". (Barton v Armstrong (1996) AC 104, 118 H)

The issue is whether, in the circumstances of this case, an "adequate or sufficient connection" is established by applying the test appropriate in the case of breach by the trustee of a traditional trust or by some other, less stringent, test.

As McLachlin J said in Canson Enterprises v Boughton supra:

"... the better approach, in my view, is to look to the policy behind compensation for breach of fiduciary duty and to determine what remedies will best further that policy." (155)

The strict standard applicable to a trustee of a traditional trust with respect to improper application of trust property is based on the vulnerability of beneficiaries with respect to the disposition of property by a trustee who has control over such disposition. This policy applies equally to the case of a director of a company, such as a managing director, (or a group of directors) who has (or have) the power to dispose of company property and who does (or do) dispose of such property for an improper purpose. The analogy of ensuring "restitution" to the estate (in the sense of "restoration") is, in my opinion, an appropriate one. Such a director (or directors) is (are) subject to the same stringent test with respect to the exercise of the fiduciary power to dispose of property, as is the trustee of a traditional trust. It is not necessary to consider the appropriate test for breach by a director of other fiduciary duties.

Policy favours a stringent test in the circumstances of this case. It is the vulnerability of a company which places its property in the power of directors, that makes it appropriate to adopt the approach to causation applicable to the trustee of a traditional trust in deciding issues of causation for the contravention by a company director of his or her duty not to exercise the power to dispose of property for an improper purpose. As McLachlin J put it in Canson Enterprises v Boughton supra:

"... equity is concerned, not only to compensate the plaintiff, but to enforce the trust which is at its heart." (154)

The authorities establish, with respect to fraudulent (in the equity sense of "fraud") misappropriation or misapplication of property, that the duties of a director are equivalent to that of a trustee. As Lindley LJ said in In re Lands Allotment Company (1894) 1 Ch 616, 638:

"Now, case after case has decided that directors of trading companies are not for all purposes trustees or in the position of trustees; or quasi trustees, or to be treated as trustees, in every sense; but if they deal with funds of the company, although those funds are not absolutely vested in them, but funds which are under their control, and deal with those funds in a manner which is beyond their powers, then as to that dealing they are treated as having committed a breach of trust ....... So that, when they get the assets of the company under their control, or into their hands, and deal with them in a way which is beyond the powers of the company, they are liable as for a breach of trust."

Re International Vending Machines Pty Limited and the Companies Act (1962) NSWR 1408, was a case in which directors lent a company's money for the purpose of the purchase of its own shares, contrary to the statutory prohibition against such loans. Jacobs J, after noting that duties of directors often differed from duties of trustees, said:

"However, the question still remains whether any of the duties of a director and of a trustee are alike and more particularly in this case it falls to be determined whether a director of a company, who disposes of property of the company in an ultra vires manner is liable in the same way as a trustee would be liable for disposing of trust property in a manner beyond the powers conferred on him by the trust instrument .... The act is wrongful; the director knows the wrongful circumstances and the director in this regard is in the same position as a trustee who disposes of trust property in breach of the law or of the terms of the trust instrument." (1420)

An appeal to the Privy Council from this decision was dismissed sub nom S_teen v Law_ (1964) AC 287; 63 SR (NSW) 511.

In Mulkana Corporation Pty Limited (in liq) v Bank of New South Wales (1983) 8 ACLR 278, Powell J reviewed the authorities which used the terminology of "trustee" in relation to directors and said:

"... while directors are not, properly speaking trustees, but fiduciary agents, the range of duties and obligations to which they are subject or obligations which place them, in relation to moneys or property which are in their possession, or over which they have control, in a position analogous to, although not identical with, that of trustees ... (I)t is analogous since, just as, in such a case, trustees would be liable to recoup the trust for any loss, directors who misapply, or are parties to the misapplication of funds or other property of the company, are, subject to the court's powers to relieve them from so doing, liable to recoup the company for any loss thereby sustained." (279)

The analogy to which his Honour made reference should encompass the approach to causation for purposes of a claim for equitable compensation. His Honour further reviewed the authorities in Daniels v Anderson (1995) 37 NSWLR 438, 594-598, also 494-495 per Clarke and Sheller JJA. (See also Russell v Wakefield Waterworks (1875) LR 20 Eq 474, 479 per Jessell MR; In re City Equitable Fire Insurance Co Ltd (1925) 1 Ch 407, 436 per Romer J; Selangor United Rubber Estates Ltd v Cradok (No. 3) (1968) 1 WLR 1555, 1576-1577 per Ungoed - Thomas J; Belmont Finance Corporation v Williams Furniture Ltd (No. 2) (1980) 1 All ER 393, 405 per Buckley LJ; Canson Enterprises Ltd v Boughton supra 146 per La Forest J, which passage, unlike other parts of the judgment, is consistent with Australian doctrine.

Whatever may be the desirability of ensuring flexibility in the application of fiduciary duties to company directors (see Teele "The Necessary Reformulation of the Classic Fiduciary Duty to Avoid a Conflict of Interest or Duties" (1994) 22 ABLR 99), there is no warrant for mitigating the application of exacting standards in the case of fraudulent dispositions of company property. The approach to causation which has been adopted for the trustee of a traditional trust should be applied to the exercise of this fiduciary power by a company director.

Applying the test - would loss have occurred if there had been no breach - in this case, compels the conclusion that his Honour's judgment was correct. The act of registration meant that Thomas lost the capacity to deal with the property by way of a sale to a third party. It is of no avail to O'Halloran to say that there was another cause of its failure to make such a sale - namely Thomas' attempt to enforce the contract with Bowes & Brown.

The affirmation of the contract with Bowes & Brown may, in a common law action, have been characterised as a novus actus interveniens. But this concept has no role to play in case of a breach of a fiduciary obligation involving disposition of property which disposition is fraudulent in equity. That is the present case.

On the stringent test appropriate to the facts in this case, O'Halloran's conduct was the cause of Thomas' loss. In any event, although it is not necessary to decide, causation could be established on a less stringent test.

I would not accept the submission that a sale to a third party should be discounted because no such sale could occur unless the contract with Bowes & Brown was terminated. Loss of the chance should be assessed on the basis that such termination occurred. It was O'Halloran's continued deception of both Thomas and Bowes & Brown which deprived Thomas and Bowes & Brown of the knowledge which would have impelled and enabled one or the other to take that step. It is clear that Thomas did intend to sell the shares.

Furthermore, I would not accept the submission put for O'Halloran that the findings about O'Halloran's subsequent conduct are not relevant to a case based on breach by improper registration. O'Halloran's systematic obstruction of all attempts to prevent any dealing with the shares or rectification of the register (in order to maintain the "ownership" of the shares by Bowes & Brown) constitutes a continuation by him of the original wrongful act. This conduct does not necessarily constitute, although it could also constitute, a further distinct breach of duty, breach whereof would have had to be separately pleaded. It also constitutes a direct link between the original conduct and the loss.

As McLachlin J said in Canson Enterprises v Boughton supra:

"Where the trustee's breach permits the wrongful or negligent acts of third parties, thus establishing a direct link between the breach and the loss, the resulting loss will be recoverable". (168 h)

This is directly applicable in the present case, save that the wrongful acts permitted by O'Halloran's original wrongful act, included further acts by himself, as well by another.

The facts of this case could have established an "adequate and sufficient" connection between the loss and breach of some other duty - a number of which are pleaded here - to which a less exacting standard is appropriate. However, as I have said, it is not necessary to decide this issue.

For these reasons O'Halloran's appeal should be dismissed.

Thomas has appealed from the judgment of Giles CJ CommD with respect to the quantification of its damages against O'Halloran. His Honour assessed Thomas' loss of the commercial opportunity to sell the shares at $3.00, being the price under the contract with Bowes & Brown. Counsel for Thomas in this Court submitted in the alternative:

(i) Damages should have been assessed at the market value of the shares, which was said to have been $3.65 per share; or

(ii) O'Halloran should have been found liable to indemnify Thomas for the amount which Thomas was ordered to pay to Bowes & Brown.

Counsel for both parties have agreed that if damage is to be assessed on the first basis, ie the $3.65 case the amount to be inserted in lieu of his Honour's judgment for Thomas against O'Halloran is $1,045,761. If damages are assessed on the second basis, ie the indemnity case, then the amount is $967,250. With respect to the second basis, however, there is also the costs of Bowes & Brown, which Thomas has been ordered to pay. The Court is not aware whether the amount of costs would be enough to make up the difference between the $3.65 case and the indemnity case.

With respect to the first basis, ie the $3.65 case, this is close to the basis which his Honour Justice Giles decided in Bowes & Brown's case against Thomas. The figure which he in fact applied to the Thomas case against O'Halloran was the same figure as he had identified as appropriate in the Thomas case against Jeffries.

In the context of his Honour's reasons for the Thomas case against Jeffries he indicated, on the issue computation that: "Precision would be illusory". His Honour's approach was as follows:

"But it seems to me that, on rather unsatisfactory evidence, if there had not been the registration and maintenance of the transfer of the shares with the associated retention of the share certificates most likely Dr Kennett would have been able to take up the finance, or alternatively the shares would have been sold on the market. The chance of the former I would assess as high, with the result that $3 per share should be taken in valuing the lost commercial opportunity, regarding the positive possibility of a sale at a higher price on the market and the negative possibility of no sale at any price as cancelling each other out."

When his Honour came to assess damages in Thomas' case against O'Halloran his Honour said:

"The evidence was rather unsatisfactory, but the reasons I have earlier given for arriving at damages of $666,750 are in my view again appropriate."

In the context of the Bowes & Brown cross-claim against Thomas, the starting point of his Honour's award was an amount consonant with the $3.65 per share basis of the Thomas submission in this Court.

His Honour had summarised Bowes & Brown cross-claim as follows:

"Bowes & Brown submitted that R T Thomas had agreed to sell the R T Thomas shares for $675,000, that in breach of contract it had failed to do so because it could not provide the share certificate for the shares and ultimately the shares had revested in R T Thomas, that it had conclusively refused to do so by terminating the agreement, and that Bowes & Brown was entitled to damages of $209,420.55 being the loss of profit on resale of 225,000 shares at $3.50 per share ($112,500) plus loss of the value of the 17,307 bonus shares on resale at $3.50 per share ($60,574.50) and plus loss of the dividend ($36,346.05)".

His Honour computed the damages in the following way:

"Again the damages should reflect the lost commercial opportunity, the chance that Bowes & Brown would have made a profit by the onsale of the shares and the bonus shares and receiving the dividend. Taking account of what I have already said, if it had to pay an additional $30,000 in respect of the bonus shares and the dividend and all the shares had been resold at the price of $3.50 per share, Bowes & Brown would have made a profit of $179,420.55; discounting that because of the element of chance and allowing for the fee of $16,875 payable to Pheonix, the damages should be $150,000."

As a matter of computation the award to Bowes & Brown of $150,000 works out at about 67c for each of the original 225,000 shares.

The $3.65 case as computed for purposes of this hearing commenced with the amount claimed by Thomas against Jeffries which his Honour set out in his judgment in the following passage:

"Damages of $882,516.61 were claimed as the amount necessary to put R T Thomas in the position it would have been in if the registration had not occurred, or alternatively if the register had been rectified when demand to that effect was made upon Jeffries. The damages were calculated as the value in mid-May 1994 of the 225,000 shares at $3.65 ($821,250) plus the value in mid-May 1994 of the 17,307 bonus shares that should have gone to R T Thomas at $3.65 per share ($63,170.55) and plus the dividend that should have gone to R T Thomas on 2 May 1994 ($36,246.06), less the value of the shares when the register was rectified ($38,250). Jeffries put no submissions to the contrary of R T Thomas' calculation ...the dispute was over liability".

So in this Court, O'Halloran has put no submissions to the contrary of this calculation. Rather the submissions were to the same effect as those already dealt with in the context of O'Halloran's appeal, namely that no sale to a third party should be taken into account by reason of Thomas' affirmation of the contract with Bowes & Brown.

Accordingly the question before this Court is whether or not it is appropriate to assess the damages on the basis that Thomas had sold the shares on the open market in or about mid-May. For the reasons I have already outlined in the case of the O'Halloran appeal, that is a perfectly reasonable basis on which to assess damages.

With respect to the indemnity basis, at the end of his reasons concerning Thomas' claim against O'Halloran, his Honour said:

"In my opinion, therefore, R T Thomas succeeds in its claim against Mr O'Halloran to the extent of damages of $666,750 (although it cannot have double recovery from both Jeffries and Mr O'Halloran). Again, no submission was made that R T Thomas' damages included any amount payable by it to Bowes & Brown."

The reference to "again" in this part of his Honour's reasoning is a reference back to the last paragraph of his Honour's reasoning with respect to the case of Thomas against Jeffries when his Honour said:

"In my opinion, therefore, R T Thomas succeeds in its claims against Jeffries to the extent of damages of $666,750. No submission was made that its damages included any amount payable by it to Bowes & Brown, and I take the pleaded claim to that effect to be abandoned."

There can be no doubt that Thomas did plead a detailed case seeking to pass on to O'Halloran any liability it may be found to have to Bowes & Brown. (Contrary to his Honour's statement, it did not in fact do so with respect to the case against Jeffries). Indeed, O'Halloran in his appeal on the issue of causation relies on this pleading to assert that it is only in this respect that Thomas expressly relied on the course of conduct by which O'Halloran systematically prevented Thomas' attempts to rectify the register.

We were informed by Mr Angyal, counsel for Thomas, that the mathematical calculation of damages against O'Halloran in submissions below, did not include a figure relating to damages that Thomas might have to pay Bowes & Brown if, contrary to the submissions below, it was found liable to do so. Nevertheless, there was no indication of any character that Thomas did abandon its claim for indemnity by O'Halloran.

It is noteworthy that counsel for O'Halloran did not suggest to this Court that the persons appearing for O'Halloran below had themselves believed that this aspect of the case had been abandoned during the course of the trial. In particular, it was not suggested that O'Halloran lost the opportunity of adducing any evidence, whether in chief or by way of cross-examination, relating to this aspect of the case.

Counsel for O'Halloran submitted that it would have been open for O'Halloran to argue below that Thomas was not liable to Bowes and, accordingly, that O'Halloran would not suffer any detriment under his indemnity. He suggested no other prejudice. This submission was repeated to this Court and can be dealt with here.

Counsel submitted that Thomas should not have been found liable to Bowes because when Bowes presented the post-dated cheques it had waived any requirement for delivery of the share certificates. It was the failure to deliver those certificates that constituted the breach by Thomas of its contract with Bowes & Brown. However, the extent of any waiver was plainly related to receipt of payment on the cheques when they were presented. When the cheques were dishonoured, any waiver of the requirement for delivery ceased at that point.

It is plain that his Honour misunderstood the position when he inferred that Thomas' claim for indemnity against any damages it might be ordered to pay Bowes & Brown was abandoned. There can be no doubt that the liability of Thomas to Bowes & Brown was caused by systematic breaches by O'Halloran of his obligations to Thomas.

This appeal is by way of rehearing. No submission has been made to the Court which could conceivably justify the Court in holding its hand from rectifying his Honour's misunderstanding of the position. In my opinion O'Halloran should be ordered to indemnify Thomas against the damages awarded against Thomas in favour of Bowes & Brown.

The two bases for varying his Honour's judgment for Thomas against O'Halloran are alternative. It may be that the award of costs in favour of Bowes & Brown involves an amount which is greater than the nominal difference between the amounts as agreed. Thomas should elect between the alternatives before this Court makes an order.

3 In lieu thereof judgment for the Appellant in the amount of $1,045,761.

3 In lieu thereof judgment for the Appellant in the amount of $967,250.

4 Order that O'Halloran pay the cost of Bowes & Brown referred to in order A.5 of the orders made by the trial judge.

PRIESTLEY JA: I have had the benefit of reading in draft the reasons of Spigelman CJ. I agree with them and with his conclusions.

For myself I only wish to add a note about the decision of the Privy Council in Brickenden v London Loan and Savings Co [1934] 3 DLR 465. It seems to me that notwithstanding recent criticism, it is an authority this court should follow, unless and until the High Court says otherwise.

Gummow J, in a paper delivered in Canada in 1988 (Compensation for Breach of Fiduciary Duty, in the volume of collected papers Equity, Fiduciaries and Trusts, 1989, edited by T.G. Youdan) said Brickenden was a decision to which little attention had at that time been paid outside Canada (at 90). It had been used by the New Zealand Court of Appeal in Farrington v Rowe McBride & Partners [1985] 1 NZLR, but apparently not in any modern reported decision in Australia. It did not appear in the Table of Cases in either the first (1975) or second (1984) edition of Equity Doctrines and Remedies by Meagher, Gummow and Lehane.

After publication of Gummow J's paper Brickenden was frequently relied on in Australia. It was treated as binding authority and applied in the Full Federal Court, Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 102 ALR 453, (Davies, Sheppard and Gummow JJ) and by Burchett J in Wav v McDonald [1992] FCA 4; (1992) 105 ALR 473. Other cases are cited by Spigelman CJ in his reasons. It was also treated as an authority in Meagher, Gummow and Lehane; 3rd ed 1992; par 2304, p 637. The use of Brickenden in some cases was criticised (mainly extra curially).

In Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 Brennan CJ and Gaudron, McHugh and Gummow JJ in their joint reasons, referred to Brickenden but came to the conclusion the decision was not relevant to the particular facts before them. However, in apparent reference to the criticism of Brickenden I have mentioned, they drew attention to the range of relationships which have in recent years been called fiduciary and indicated that the differing situations covered by the term might require different remedies. After referring to the statutory power given to courts to grant relief to a trustee for breaches of trust if the trustee had acted "honestly and reasonably" and "ought fairly to be excused", and the fact that no such general power of dispensation existed in respect of loss caused by breach of duty owed by other fiduciaries, they continued:

"Yet the policy of the law to hold the trustee up to the obligation to perform the trust is strongly manifested in cases where loss is occasioned upon breach arising from conflict between duty and interest. What one might call that heightened concern is manifested also, as we have sought to indicate earlier in these reasons, in the treatment of disloyalty by non-trustee fiduciaries. It may be that concern with respect to the apparent rigour of the reasoning in Brickenden reflects what has been seen as a tendency apparent in some recent decisions too readily to classify as fiduciary in nature relationships which might better be seen as purely contractual or as giving rise to tortious liability. Whilst that be so, it is not self-evident that the response should rest in a general denial of the applicability of the reasoning in Brickenden to delinquent fiduciaries, particularly solicitors and other professional advisers." (at 474, footnote omitted)

This seems to be a relatively clear signal that if it becomes necessary for the High Court to consider the criticism of Brickenden in a definitive way, the rule will be upheld although the range of situations to which the rule applies may be more carefully defined.

This seems the more likely in view of the position reached by Kirby J in his separate reasons in Maguire. He considered the rule in Brickenden in detail, and collected the critical literature (to which now should be added a note in (1998) 114 LQR 181 commenting on a recent decision in the English Court of Appeal). Kirby J's conclusion, at the end of his review was that Brickenden ought to be applied in Australia (at 488-495).

MEAGHER JA: I have read the judgment of the Chief Justice. I agree with it, and with the orders it proposes.

The facts are set out in the judgment of the Chief Justice. This includes a list of the perfidies of Mr O'Halloran. It seems to me that that list, long though it be, may not be complete. In addition to his other perfidies, I think the evidence discloses that Mr O'Halloran acted as a de facto director of Bowes and Brown: it was he, for example, presumably acting as "agent" for Bowes and Brown, the transference of the original shares, who procured the registration of the original transfer of shares; and having acted as if he were a director of Bowes and Brown, preferred his own interests at all times to those of Bowes and Brown. However, this aspect of the case was not explored either at first instance or on appeal, and may therefore be disregarded.

On the point which, however, cannot be disregarded - Mr O'Halloran's liability in equity to make restitution to R T Thomas & Family Pty Limited - what the Chief Justice says, must, with respect, be entirely correct. By committing many and serious breaches of the fiduciary duties he owed R T Thomas & Family Pty Limited, he deprived that company of its ability to deal with one of its main assets, viz., its shares in Jeffries. In such a situation, no Court exercising equitable jurisdiction would debate whether the loss arose from the wrongful transfer, the retention or non-retention of share certificates, the failure to record the transaction, continuing attempts to sell the shares, or anything else. The company had a valuable asset, O'Halloran neutralized it. Equity will see to it that the value of the asset is restored.