Plaintiff v Defendant

EQUITY - Whether equitable compensation available remedy for a conflict of duty and duty - Causation - Whether causal link between alleged breach of fiduciary duty and plaintiff's alleged loss - But-for test - Effect of hypothetical independent legal advice and whether plaintiff would have followed it - Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd & Anor [2018] HCA 43; (2018) 265 CLR 1 - Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2013) 212 CLR 484 - Onus on plaintiff to prove a causal link - Meaning of 'a Court should not speculate against the plaintiff' when approaching causation - GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers & Ors [2005] VSCA 113.

EQUITY - Knowing receipt - Plaintiff was held to be a trustee in Ambridge Investments Pty Ltd v Baker & Ors [2010] VSC 59 - Whether defendant knowingly received trust funds when receiving legal fees from the plaintiff - Recipient liability under Barnes v Addy [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244 - Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 - Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 - Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; (2012) 200 FCR 296 - Categories of knowledge pursuant to Baden v Société Générale pour Favoriser le Developpement du Commerce et de L'Industrie en France SA [1993] 1 WLR 509 - Whether category (v) Baden knowledge establishes recipient liability - Carl Zeiss Stiftung v Herbert Smith & Co (a firm) & Anor (No 2) (1969) 2 Ch 276 - Eagle Trust Plc v SBC Securities Ltd [1993] 1 WLR 484 - Whether defendant knew specific facts putting an honest and reasonable person on notice that the plaintiff was a trustee before judgment in Ambridge Investments Pty Ltd v Baker & Ors [2010] VSC 59.

1 A former client of a firm of solicitors sought to recover a sum equivalent to the fees the client had paid to those solicitors for representing the client in hard-fought commercial litigation. The former client did not allege that the solicitors had done a poor job or had acted negligently in representing the client. Rather, the former client claimed that in representing it in the litigation along with its co-defendants, the solicitors had breached the fiduciary duty of loyalty they owed to the client. The former client claimed that, alternatively, in receiving payments for legal fees, the solicitors had knowingly received monies that the former client had paid to them in breach of trust.

2 Since at least December 2004 this Court has entertained a series of proceedings associated with a business venture commenced in November 1999 for the purchase and development of a commercial property at 176 Wellington Parade, East Melbourne ('the Property').[1] This proceeding is brought by one of the participants in the business venture, Break Fast Investments Pty Ltd ('Break Fast'), the plaintiff, against its former lawyers Rigby Cooke Lawyers (a firm of solicitors) ('Rigby Cooke').[2] The claim is for equitable compensation[3] arising from Break Fast paying legal fees to Rigby Cooke for representing Break Fast (and others) in litigation brought against them by another one of the participants in the business venture.

3 Before coming to the present proceeding, it is necessary to say something briefly about the litigation in which Rigby Cooke had acted for Break Fast. I commence with the outcome. On 12 March 2010, in Ambridge Investments Pty Ltd v Baker & Ors[4] ('the Ambridge Proceeding'), Justice Vickery of this Court handed down a judgment on a preliminary question ('Vickery J Judgment') declaring that Break Fast, the sixth defendant in that proceeding, held the legal interest in the Property on trust for four joint venture partners in the development of the Property. Justice Vickery declared Ambridge Investments Pty Ltd ('Ambridge') to be one of the four joint venture partners, holding a 25% beneficial interest in the Property.

4 Break Fast had disputed that it held the Property on trust, arguing that it owned the legal and beneficial interest in the Property in its own right. Its position was that the joint venture between the participating interests was reflected in their shareholding in Break Fast, rather than through any beneficial interests in a trust, and that Ambridge was neither a participating joint venture partner nor a shareholder in Break Fast.

(a) Ambridge had argued (and the judge found) that it was a joint venture partner in an unincorporated joint venture, with Break Fast being the manager of the joint venture and trustee of the Property and each joint venture partner having an equitable interest in the Property; but

(b) Break Fast had argued that there was an incorporated joint venture which did not include Ambridge among the joint venture partners, with Break Fast being the operating company of the joint venture and absolute owner of the Property and neither its shareholders (representing the joint venture partners) nor the joint venture partners themselves having any equitable interest in the Property.

6 Ambridge commenced the Ambridge Proceeding against Break Fast and seven other defendants in January 2005. The other seven defendants were:

(a) the original directors and shareholders of Break Fast, namely Theodore Baker ('Baker'), Chris Voukidis ('Voukidis') and Mark Stanley ('Stanley');

(b) companies associated with two of those three men, namely Career Path Pty Ltd (associated with Baker) ('Career Path'), C&O Voukidis Pty Ltd ('C&O Voukidis') and Oxley Group Finance Pty Ltd ('Oxley') (associated with Voukidis); and

(c) IMF Pty Ltd ('IMF'), a company associated with Todd McGrouther ('McGrouther'), which Ambridge alleged held a 10% interest in the unincorporated joint venture.

7 In broad terms, Ambridge claimed that it was a 25% joint venture partner with Career Path (ie Baker) (40%), C&O Voukidis (ie Voukidis) (25%) and IMF (ie McGrouther) (10%) in the beneficial ownership and development of the Property.

8 Rigby Cooke was retained to act for all defendants except Stanley in resisting Ambridge's claim. It is convenient to refer to Rigby Cooke's clients as being Break Fast and, separately, the others (except Stanley) as 'the Voukidis Defendants'. Break Fast and the Voukidis Defendants together will be referred to as 'the Break Fast Defendants'. Rigby Cooke represented the Break Fast Defendants from the commencement of the proceeding in January 2005 through to and until shortly after the judgment on the preliminary question was handed down on 12 March 2010. In doing so, Rigby Cooke took its instructions to resist Ambridge's claim from Voukidis and Baker, both in their capacities as directors of Break Fast and also for themselves and their associated companies, and from McGrouther on behalf of IMF.

9 Stanley (for whom Rigby Cooke did not act) had ceased to be a director of Break Fast in December 2002 and, by the commencement of the Ambridge Proceeding, his shareholding in Break Fast had been acquired by Oxley (a Voukidis company).

10 After the Vickery J Judgment in 2010, the control of Break Fast shifted. By at least May 2013, Break Fast was under the effective control of Gregory Taylor ('Taylor') and his son Eugene, both of whom had been appointed as directors on 31 October 2011. It was Taylor who had been the driving force behind the Ambridge Proceeding. One of his companies, Headland Pty Ltd ('Headland'), had its own (sub) joint venture arrangement with Ambridge to conduct Ambridge's role as joint venture partner in the Property joint venture. Another of his companies, The H20 Company Pty Ltd ('H20'), a lender to Ambridge, had appointed a receiver to Ambridge in August 2004 who then instituted the claim against the eight defendants. H2O funded the receivership. Prior to the receivership, Ambridge had been under the control of Stanley.

11 Under Taylor's control, Break Fast commenced this proceeding against Rigby Cooke, its former lawyers, in May 2013.

(a) Ambridge, under the effective control of Taylor, sued Break Fast, the Voukidis Defendants and Stanley claiming that Ambridge was a joint venture partner in an unincorporated joint venture of which Break Fast was the manager and, in relation to which, Break Fast held the Property on trust for the joint venture partners;

(b) Break Fast, at that time controlled by Voukidis and Baker, instructed Rigby Cooke to represent the Break Fast Defendants in the Ambridge Proceeding to deny the claim that Break Fast was a trustee and that Ambridge had any interest in the joint venture (however it was structured); and

(c) Break Fast, having lost the Ambridge Proceeding and now under the effective control of Taylor, commenced this proceeding suing Rigby Cooke over the fees that Break Fast had paid to Rigby Cooke for resisting Ambridge's claim on Break Fast's own instructions in the Ambridge Proceeding.

13 In essence, in the current proceeding Break Fast contended that Rigby Cooke had been caught in a conflict of duties in acting for Break Fast, who was alleged to be a trustee, at the same time as acting for the Voukidis Defendants against whom no such allegation had been made in the Ambridge Proceeding. Break Fast claimed that Rigby Cooke breached its fiduciary duty of loyalty to Break Fast by not advising it to adopt a passive role and not to pay any fees towards the defence of the claim, beyond providing discovery, in the Ambridge Proceeding. Further, in receiving fees from Break Fast allegedly known to have been sourced from alleged trust assets, in the face of allegedly mounting evidence that demonstrated that Break Fast was in fact a trustee as had been claimed by Ambridge, Break Fast also contended in the current proceeding that Rigby Cooke had knowingly received trust monies which Break Fast had paid to Rigby Cooke in breach of trust.

14 Although a more detailed chronology of events will be given below, it is pertinent to mention at this point that the Ambridge Proceeding did not ultimately continue beyond the declarations made by Vickery J in determining the preliminary issue. For that reason, no orders were ever made for the taking of accounts between the joint venture partners, or as to any relief other than costs, because all relevant partners became bankrupt, insolvent and/or were deregistered. The Ambridge Proceeding was finally dismissed on 6 October 2020.

15 Upon the pleadings and submissions, the following issues arise for determination:

(a) Was there a conflict, or a 'real and sensible possibility'[5] of conflict, of duties in Rigby Cooke acting for Break Fast and the Voukidis Defendants in the Ambridge Proceeding?

(b) If so, did Break Fast consent or acquiesce to Rigby Cooke acting in the circumstances?

(c) Did Rigby Cooke have sufficient knowledge of the trust alleged in the Ambridge Proceeding to become liable for knowing receipt of trust funds?

(d) If Rigby Cooke breached its fiduciary duty, or is liable for knowing receipt, is Break Fast entitled to equitable compensation for payments made to Rigby Cooke and for its liability to pay costs pursuant to the costs order made against Break Fast in the Ambridge Proceeding?

(e) If Rigby Cooke is liable to pay equitable compensation, what is the proper quantum of that compensation?

(f) Do any of the following defences otherwise disentitle Break Fast from relief:

(i) unclean hands;

(ii) laches or statutory limitations periods by analogy;

(iii) contributory negligence and Section 26 of the Wrongs Act 1958 (Vic), or mitigation;

(iv) advocate's immunity;

(v) estoppel and a counter claim; or

(vi) is Break Fast otherwise prevented from obtaining any relief?

16 In his judgment on the preliminary question in the Ambridge Proceeding, Vickery J made a substantial number of findings in respect of contested facts relating to the nature of the business structure and the participants in the acquisition and development of the Property. Some of his Honour's findings were made after dismissing attempted explanations given by Voukidis (and others called to give evidence for the defendants in that proceeding) for documents which, on their face, supported Ambridge's case. His Honour made adverse findings as to the credit of Voukidis and some other witnesses called for the defendants.

17 For the purpose of this proceeding, Rigby Cooke accepted the facts as found by his Honour in the Ambridge Proceeding as constituting the true state of affairs between Ambridge and the Break Fast Defendants in their dealings with one another before Rigby Cooke was retained.[6] Having said that, of course, Rigby Cooke is not fixed with all that knowledge until the publication of the Vickery J Judgment in that proceeding. Until that point, the facts were contested, and one of the questions in this case is about the legal and factual character of the 'knowledge' which Rigby Cooke did possess, particularly about the prospect of Break Fast being found to be a trustee, along the journey of acting for the Break Fast Defendants in the Ambridge Proceeding.

18 With that introduction, I turn to outline the key events (as found) which occurred between around November 1999, when the Property was purchased, and late 2004 when Rigby Cooke was retained by the Break Fast Defendants to act in the brewing dispute between Ambridge and those defendants. After that, I will set out some of the non-controversial, key developments over the course of the Ambridge Proceeding. In particular, I will introduce some of the events which the parties to the current proceeding have identified as being significant to the determination of what Rigby Cooke 'knew' concerning the prospect of Break Fast being found to be a trustee in the Ambridge Proceeding. It is also necessary to say something about what happened to the Ambridge Proceeding after the Vickery J Judgment.

Identification of a potential property and pre-auction work

19 In November 1999, Ambridge undertook work in relation to selecting and purchasing a property which could be refurbished and sold for a profit. In November 1999, Ambridge identified the Property as a suitable investment and undertook some preliminary work.[7] Prior to the auction on 24 November 1999, the following relevant events occurred:

(a) Ambridge engaged a firm of architects and property consultants ('AXIA'), which prepared a pre-purchase report 'for Ambridge' that Stanley, in his capacity as CEO of Ambridge, emailed to Baker and Voukidis;[8]

(b) Ambridge engaged a firm of solicitors ('Meerkin & Apel') to review the auction contract. Meerkin & Apel prepared a letter of advice addressed to 'Mr Mark Stanley, Ambridge Investments Pty Ltd' that Stanley, in his capacity as CEO of Ambridge, sent to Voukidis.[9] Justice Vickery noted that at this point, not only was Voukidis likely aware of Ambridge's involvement, he had in fact made use of the materials provided by Ambridge as 'preliminary work for the enterprise';[10]

(c) Voukidis, on behalf of himself and on Baker's behalf, instructed Garry Ganis ('Ganis'), a director of Powerlan Technologies Ltd (in which Baker had a substantial interest), to attend the auction and, if successful, to sign a cheque for the deposit and to report back to Voukidis and Baker;[11]

(d) on 23 November 1999, Stanley, in his capacity as CEO of Ambridge, sent a fax on Ambridge letterhead to Taylor setting out a concluded agreement that Ambridge would receive a fee of $500,000 for managing the Property transaction and that this fee would be 'invested as a percentage of equity in [sic] transaction'.[12] Vickery J held that this arrangement was agreed to between Baker, Voukidis and Stanley and that this was supported by the fact that Ambridge would have been incurring commissioning fees for AXIA's report and for Meerkin & Apel's advice for which Ambridge would likely have wanted to have an agreement in place on reimbursement from the joint venturers;[13]

(e) Break Fast was incorporated on 23 November 1999, with its directors being listed as Voukidis (also company secretary), Baker and Stanley and its four shares being held beneficially by Voukidis (one share), Baker (two shares) and Stanley (one share).[14] The following day, John Esquivel ('Esquivel'), an accountant of Mason Voukidis Chartered Accountants, whose duties included incorporating companies on behalf of its clients, wrote to Stanley advising him of the incorporation of Break Fast, its directors and shareholders;[15] and

(f) while notices of beneficial ownership dated 23 November 1999 filled in by Baker and Voukidis stating that they held shares in Break Fast for the benefit of their respective companies had been filed in the Break Fast company register, Justice Vickery held that those notices had been created later and backdated to the November 1999 date.[16]

20 On 24 November 1999, Ganis, Taylor, Stanley, and Ambridge's general manager, Graeme Jacobs ('Jacobs'), attended the auction, at which the Property was acquired for $6,000,000.[17]

21 The purchase of the Property was settled on 29 February 2000.[18] The purchase was financed by a loan with National Australia Bank Limited ('NAB' and the 'NAB Loan').[19]

Taylor's work on behalf of Ambridge advancing the joint venture

22 In 2000, Taylor, on behalf of Ambridge, undertook the following work to advance the joint venture:

(a) prior to settlement, Ambridge purchased café furniture for the continued use by the café situated on the Property. Taylor's company, Headland paid the purchase price of $10,000 on behalf of Ambridge;[20]

(b) AXIA was appointed as architects to undertake the refurbishment of the Property. Upon $25,000 becoming due for payment to AXIA by Break Fast, Ambridge and Headland each paid AXIA $12,134.75, which was treated as further capital contributions by Ambridge to the joint venture;[21]

(c) every two to three weeks, Taylor, on behalf of Ambridge, attended consultants' and project co-ordination meetings organised by AXIA regarding the refurbishment. Jacobs, and occasionally Stanley also, attended, and following the meetings, Stanley would routinely fax, on Ambridge letterhead, AXIA's minutes of those meetings to Voukidis;[22] and

(d) throughout the year, Taylor spent around 15 hours of unremunerated work per week liaising with AXIA.[23]

23 Jacobs, as general manager of Ambridge, was responsible for the preparation of Break Fast's financial statements from 2000 to late 2002, which were based on and included the following:

(a) in March and April 2000, Voukidis and Jacobs came to an agreement that Jacobs, in his capacity as general manager of Ambridge, would prepare the accounts for Break Fast and would liaise with Voukidis;[24]

(b) from March 2000, Jacobs created a computer program to produce monthly financial management data of Break Fast's accounts;[25] and

(c) Jacobs prepared quarterly accounts for Break Fast, with the first accounts being produced in the first and second quarters of 2000.[26] Justice Vickery noted:

the form of the balance sheets were [sic] consistent with a partnership by way of a joint venture of the kind alleged by the plaintiffs [Ambridge]. The accounts were inconsistent with the structure of company ownership as alleged by the Defendants, with shares held by the contributors in Break Fast held reflecting their interests in the venture.[27]

24 A number of the year 2000 balance sheets/profit and loss statements, as prepared by Jacobs, were considered by Vickery J in the Ambridge Proceeding. Bearing in mind that any accounting entry which acknowledged Ambridge as having an equity or partnership interest in the joint venture supported Ambridge's case, and was inconsistent with the Break Fast Defendants' case, relevant features of and observations about those records were as follows:

(a) February 2000: the February 2000 balance sheet named 'T Baker', 'C Voukidis' and 'Ambridge Investments Pty Ltd' under the heading 'Owners Equity';[28]

(b) May 2000: under the heading 'Partners' Equity' the balance sheet of May 2000 named 'Baker & Voukidis' (personally, instead of their corporate nominees) and 'Ambridge Investments Pty Ltd' (instead of Stanley personally) with Ambridge's capital contribution as $500,000.[29] Jacobs, on Ambridge letterhead, faxed the May 2000 balance sheet to Voukidis on 13 July 2000, in relation to which Jacobs and Voukidis had a phone call on 14 July 2000. Justice Vickery pointed out that Voukidis had written in handwriting on the fax referring to the 'joint venture details' and setting out 'Tod 10%, Ambridge 25%, CV 25% and TB 40%' and that Jacobs' contemporaneous note of that conversation recorded 'JV Parties: Tod McGrouther 10% 300K; Ambridge 25% 500K; Chris V 25%; Theo Baker 40%'.[30] Vickery J did not accept Voukidis' explanation that he had taken those notes in the event that they 'went down the path of a joint venture'.[31] His Honour further did not accept Voukidis' statement in cross-examination that although he had not written back to Jacobs to correct any error in the balance sheet, he did 'not need to because I spoke to him about it.'[32] Instead, Vickery J held that Voukidis had accepted the preparation of the Break Fast accounts as in the May 2000 statement, including that Ambridge held a 25% interest and thereby admitted Ambridge was a joint venture partner with a 25% interest;[33]

(c) June 2000: Break Fast's balance sheet in June 2000 largely mirrored the account of ownership structure that had been conveyed in the previous balance sheets, with the addition of a 10% interest of McGrouther. It again referred to 'Partners' Equity' under which Ambridge, Voukidis, Baker and McGrouther were listed.[34] Jacobs provided the balance sheet to Baker via email, though in cross examination Baker denied having received it, which Vickery J did not accept;[35] and

(d) end June 2000: the profit and loss statement for Break Fast prepared in late 2001 for the year ended June 2000 showed a net loss which was distributed across the 'partners'. Under reference to 'partnership funds' and 'partner funds', both, the profit and loss statement and the end June 2000 balance sheet respectively, listed Ambridge and Baker, McGrouther and Voukidis' corporate entities C&O Voukidis, IMF and Career Path.[36] On the basis of that balance sheet, profit and loss statement and general ledger for the year ending 30 June 2000, in a teleconference between Baker, Voukidis, Stanley and Jacobs on 15 August 2000, Baker and Voukidis stated that those accounts were correct and that they could be submitted to NAB.[37] Jacobs emailed this balance sheet 'for Break Fast as manager of the [Property] joint venture' to NAB on 18 August 2000.[38]

25 Throughout the course of 2000, draft joint venture agreements were being prepared and discussed in the following terms:

(a) in March 2000, Ambridge engaged Howard Obst ('Obst') of Tress Cox & Maddox to prepare joint venture agreements on behalf of Break Fast for the Property joint venture. Stanley and Jacobs gave Obst instructions to prepare a joint venture agreement in respect of the Property joint venture and a separate joint venture agreement between Headland and Ambridge. Obst prepared the first draft of a joint venture agreement for the Property joint venture by 3 February 2000, which listed Break Fast as 'joint venture manager' holding the Property on behalf of the joint venturers.[39] This draft agreement was sent to Jacobs of Ambridge and Taylor of Headland;[40]

(b) a second draft was sent to Voukidis and forwarded to Stanley of Ambridge on 4 February 2000. It explicitly described Ambridge as one of the 'Joint Venturers' and set out Ambridge's 'Participating Interest' as 25% with an allocation of a $500,000 'Acquisition Fee' to be applied as its capital contribution;[41]

(c) by reference to a conversation that Jacobs and Voukidis had had regarding the draft joint venture agreement, Jacobs sent a facsimile letter on Ambridge letterhead to Taylor on 16 March 2000, stating that 'Chris [Voukidis] is largely in agreement with the operative provisions of the deed [joint venture agreement]' but that Voukidis required the role and responsibilities of Ambridge in the selection, development and management of the Property to be more 'fleshed out' and documented.[42] Vickery J found to be unlikely Voukidis' claims that he had objected to the structure depicted in the second draft agreement as a joint venture instead of by way of a shareholding in Break Fast, and to some of its operative terms.[43] His Honour also held that it was within Voukidis' authority to approve or disapprove the structure on Baker's behalf.[44] Further, there was no evidence that Voukidis had given instructions to Obst to draw up a shareholders agreement in line with the Break Fast Defendants' contentions of the structure;[45]

(d) a third, marked up, draft joint venture agreement was prepared by 22 March 2000 which Obst sent to Jacobs;[46]

(e) separately, by 6 April 2000, Stanley's company Ambridge and Taylor's company Headland had executed a written joint venture agreement in respect of Ambridge's interest in the Property joint venture. Each 'participating interest' in Ambridge's 25% interest in the Property was recorded at 50%. Ambridge was appointed as 'venture manager' holding the assets in its name as nominee for the beneficial owners, namely itself and Headland;[47] and

(f) following McGrouther's acceptance of an oral offer and his payment of a sum of $300,000 by cheque payable to Break Fast on 9 June 2000 in exchange for a 10% interest in the Property, the draft joint venture agreement underwent further amendments.[48] However, Vickery J held that it had not been until 12 February 2001 that McGrouther advised the other joint venturers that his interest in the joint venture would be held by IMF.[49] In a fax from Jacobs to Voukidis on 13 July 2000 and a telephone conversation between Jacobs and Voukidis on 14 July 2000, of which Jacobs took notes (above at paragraph 24(b)), the breakdown in ownership was set out as: Ambridge 25%; Voukidis 25%; Baker 40%; and McG[50]uther 10%.50 McGrouther delegated management of the investment to Baker and Voukidis, who acted on McGrouther's (and later IMF's) behalf f[51]m then on.51

26 As mentioned at paragraph 19(f), notices of beneficial ownership (backdated to 23 November 1999) each signed by Baker (and Voukidis) had been filed in the Break Fast company register. Justice Vickery held that such a notice was a 'document of significance' because it purported to demonstrate that Baker (and Voukidis) held shares in Break Fast on behalf of other entities, as listed in the schedule to[52]he notice.52 The schedule of beneficial owners to Baker's notice listed Baker's company Career Path as holding an 80% interest in Baker's two shares (equivalent to a 40% interest in the Property), with McGrouther's company IMF holding the remaining 20% (equivalent to 10% of the Property). The schedule to Voukidis' notice purportedly stated that Voukidis held his share in Break Fast on behalf of his company, C&amp[53] Voukidis.53 No notice of beneficial ownership was filed in respect of Stanley's share in[54]reak Fast.54 Vickery J held that these notices would have suggested to an onlooker that it was indeed through the beneficial ownership of the shares in Break Fast that the parties had an interest in the Property, but ultimately, he held that they had been created well after 23 November 1999 an[55]backdated.55

27 Baker signed Career Path's tax return schedule for the year ending 30 June 2000, which claimed a loss in a joint venture akin to the amount of loss recorded in the Break Fast accounts as having been sustained by Career Path. In the trial of the Ambridge Proceeding, Baker admitted that 'it was not open for Career Path to have claimed a loss on a joint venture if Career Path's investment in the Wellington Parade Property was by way of a shareholding in Break Fast only'.[56]

28 The 2000 - 2003 financial reports for IMF, McGrouther's company, listed under the heading 'Current Assets' the item 'Break Fast Investments $300,000' on the balance sheet for each of those years. Separately, the balance sheets had a category for 'Shares in Unlisted Companies' that did not refer to Break Fast. Vickery J concluded that IMF's accounts were drawn up in relation to the Property to allow for a distinction between the Property investment and investments in shares of unlisted companies, and that such distinction was designed to accommodate investment structures like incorporated or unincorporated joint ventures.[57]

29 On 8 February 2001, Voukidis emailed Baker and McGrouther, and on 12 February 2001 forwarded the same email to Jacobs, to request the 'firm details of which entity or individual(s) you would like to hold your interest in the Wellington Parade joint venture'.[58] On or around that date, Jacobs was informed of the nominated companies which were to beneficially hold the interests of all of the joint venturers, namely: C&O Voukidis (holding Voukidis' interest), Career Path (holding Baker's interest), IMF (holding McGrouther's interest) and Ambridge.[59]

30 In late 2000 or early 2001, Break Fast made an application to Colonial First State Investments Limited ('Colonial') to refinance its NAB Loan to enable the refurbishment of the Property. On 6 February 2001, Break Fast received a letter of offer from Ashe Morgan Winthrop, the property investment broker, for an advance of some $9,345,000 secured by a mortgage over the Property.[60]

31 In 2001, Mr Fink, a credit analyst working at Ashe Morgan Winthrop, received documents from Jacobs by facsimile including a letter on 13 September 2001 from Jacobs, and a draft balance sheet and profit and loss statements for Break Fast for the year ended June 2001. The letter, which was signed by Jacobs, referred to the management accounts being for 'the above named joint venture' and the draft balance sheet refers to the relevant 'Partners' Equity'.[61]

32 Break Fast had initially discovered these documents in the Ambridge Proceeding in 2005. In September 2008, Break Fast discovered more documents in the Ambridge Proceeding which included draft management accounts regarding the Property, a balance sheet for Break Fast for the year ended June 2001 and a fax letter dated 13 September 2001 from Jacobs to Fink.[62] The September 2001 fax letter discovered in 2008 was almost identical to the one discovered in 2005 and was marked as having been sent from the same machine. However, it differed in that it referred to the 'above named company' instead of 'joint venture'. Also, the draft balance sheet discovered in 2008 referred to 'Shareholders' Equity' rather than 'Partners' Equity', and reference to Ambridge had been replaced with 'Mark Stanley'.[63] In stating that 'the implausibility of this scenario is patent. One is driven to the conclusion that the second discovered documents are tainted with something much more lowly - the malodorous aroma of eraser and inkpot,'[64] Vickery J accepted that the 2005 discovered versions of the documents were those that had in fact been sent to Fink, and rejected the 2008 discovered versions as untruthful alterations.[65]

33 A number of relevant events and communications occurred in relation to Break Fast's accounts in 2001:

(a) an email chain from July 2001 shows correspondence with a firm of accountants, Mason Carter, in relation to preparing accounts and tax returns for Break Fast for the financial year ended June 2000. In an email from Voukidis to Mason Carter (copying Jacobs and Stanley) on 10 July 2001, Voukidis sought clarification that the 'accounts have been prepared on the basis that Break Fast Investments Pty Ltd acts as manager of a joint venture and does not prepare accounts as an operating company.'[66] In a reply email on the same date, Jacobs (copying Mason Carter) stated that the accounts 'are being prepared on the basis of an unincorporated JV with BFI as manager.'[67] Even though Voukidis and Mason Carter had been informed of the basis on which the accounts were prepared, Voukidis provided no counter instructions to Mason Carter that the accounts should be prepared on the basis of Break Fast being the operating company;[68]

(b) Mason Carter ended up not preparing the FY2000 tax return for Break Fast. Instead, Stannards Accountants and Advisers ('Stannards'), on instructions of Ambridge, carried out the accounting work for Break Fast between 1999 and 2003. Ambridge instructed Stannards to prepare financial statements and tax returns for Break Fast for FY2000, which were completed by 9 October 2001. The tax return was prepared and lodged as a partnership income tax return and declared that Break Fast was the manager of the joint venture/partnership which included Ambridge as a partner;[69]

(c) the balance sheet for the year ended 30 June 2001 referred to 'Partners' Equity' and the participating partners now C&O Voukidis (instead of Voukidis) and Career Path (instead of Baker), Ambridge and McGrouther;[70] and

(d) profit and loss statements were prepared for July 2001 and August 2001, as well as a balance sheet for July 2001 which continued to contain references to 'Partner's Equity'.[71]

Significant documents and events in 2002 and 2003

34 Around July 2002, Voukidis, as director of C&O Voukidis, which was the trustee of the Voukidis Family Trust, prepared accounting records of the Voukidis Family Trust. These records listed an interest in the Property (rather than as an interest in a share issued by a company) over the asset value of $1,250,000. Vickery J considered this to constitute an admission against Voukidis and C&O Voukidis that the interest in the Property was held directly by C&O Voukidis as opposed to by holding shares in Break Fast.[72]

35 On 8 October 2002, Ambridge sent to Baker a copy of the joint venture agreement signed by Stanley ostensibly on behalf of Break Fast and on behalf of Ambridge. The agreement was materially in the same form as the third draft but referred to Voukidis', Baker's and McGrouther's corporate nominees (C&O Voukidis, Career Path and IMF respectively) and Ambridge as the 'Joint Venturers', Break Fast as the 'Venture Manager' and that the venture manager would 'hold the [P]roperty on behalf of the joint venturers as nominee'. The agreement was not executed by Baker because the relationship between Baker and Stanley had broken down at that stage (rather than because of a failure to reflect the operative provisions of the agreement from mid-July 2000).[73] No further attempts were made to formalise the relationship between the parties through any written document.[74]

36 Through his company Ambridge, Stanley was appointed by Baker and Voukidis to administer the Property joint venture, including managing Break Fast's finances, use of day to day funds and preparing the accounts. Throughout the course of 2002, the following events cast doubts on Stanley's management of Break Fast's funds:

(a) Stanley was using Break Fast's funds for his own purposes and delayed providing a full statement of Break Fast accounts to Baker and Voukidis on their request;[75]

(b) by December 2002, Ambridge owed Baker a sum of $1.167 million;[76]

(c) Voukidis alleged in 2002 that Ambridge's capital account was overdrawn by $581,000 which Stanley denied;[77] and

(d) by December 2002, Baker and Voukidis discovered that Stanley had borrowed monies for his own use under a loan agreement and had mortgaged both a property referred to as 'St Leonard's' in New South Wales and Stanley's share in Break Fast under what was referred to as the 'Tauber Loan Agreement.'[78]

37 By December 2002, Voukidis requested Stanley to resign as director of Break Fast and Taylor supported this.[79]

38 In December 2002, Meerkin & Apel was engaged to act on behalf of Break Fast in a proposed sale of the Property.[80] On 3 December 2002, Voukidis sent an email to Baker and Stanley with a draft minute concerning the sale of the Property including a resolution that 'the company [Break Fast] in its capacity as Manager of the Break Fast Joint Venture proceed with the sale of the [Property].'[81] Baker purportedly wrote to Stanley by email on 10 December 2002 about the draft minute requesting that Stanley 'delete the words "...in its capacity as Manager of the Break Fast Joint Venture..." because as you are aware, we have not yet resolved to implement any such structure'. Stanley purportedly responded, 'I will make the amendment before forwarding.'[82]

39 There were a number of reasons leading Vickery J to conclude that those email responses were not authentic: namely, no digital record of that email was available, the response by Baker stood in contrast to the presence of his and Voukidis' signatures on the minutes following the statement 'signed as a true and correct record', and Voukidis faxed a copy of the executed resolution (without the purportedly requested changes) to Meerkin & Apel and Baker received a copy of the fax. Neither Baker nor Voukidis indicated to Meerkin & Apel at any time that the minute signed by Baker, Voukidis and Stanley was incorrect.[83]

40 In December 2002 meetings took place between Taylor and Voukidis in which Taylor's directorship of Break Fast and Break Fast's corporate structure were discussed. Justice Vickery held that Voukidis 'made constant reference to the "joint venture" concerning the Property' in these discussions. His Honour accepted that Taylor informed Voukidis that Ambridge held Headland's (Taylor's company) interest in the Property on trust and that this interest was unaffected by Stanley's actions.[84]

41 On 12 December 2002, at a directors' meeting of Break Fast, Stanley and Voukidis appointed Taylor as director of Break Fast, as nominee of Ambridge in place of Stanley, to which Taylor consented. Stanley then resigned as a director of Break Fast.[85] The relevant notice was lodged with the Australian Securities & Investments Commission ('ASIC') and a copy was provided to Voukidis. This contradicts Voukidis' and Baker's later claim that Taylor has never been appointed as director of Break Fast.[86]

42 After 10 December 2002, Break Fast's accounts continued to be prepared on the basis of an unincorporated joint venture, including when Voukidis personally assumed responsibility for the preparation of the Break Fast accounts.[87] Some of Break Fast's (draft) accounts in 2002 and 2003 contained references to Break Fast as 'manager of the Wellington Parade Joint Venture' and the 'Joint Venture Capital Accounts'.[88]

Key events in 2004 including the caveat proceeding

43 In what Justice Vickery described as 'the first genuine turning point in the position of the Defendants', on 26 May 2004, Baker and Voukidis wrote a letter to Taylor in which they stated that 'neither the ASIC records not [sic] the records of the Company record Ambridge investments [sic] Pty Ltd as a shareholder of the Company.'[89]

44 Baker, Voukidis and Stanley signed a purported deed of acknowledgement dated 8 July 2004 stating that Break Fast was 'the legal and beneficial owner of the [P]roperty',[90] thereby acknowledging the structure of the joint venture that the Break Fast Defendants in the Ambridge Proceeding were asserting. Justice Vickery dismissed the authenticity of the deed, referring to the deed being 'inconsistent with 4½ years of prior conduct on behalf of the parties to the Wellington Parade Joint Venture' and 'with the financial accounts prepared for Break Fast' and with 'the draft joint venture agreements' and with the parties' conduct in the administration of the Property joint venture.[91]

45 On 17 August 2004, a liquidator was appointed to Ambridge. The following day, Taylor's company H20 appointed a receiver to Ambridge pursuant to a charge that Ambridge had assigned to H20.[92]

46 On 17 November 2004, the receiver of Ambridge lodged a caveat over the Property, claiming Ambridge's interest in it as a party to the joint venture.[93]

47 On 9 December 2004, Break Fast filed an originating motion in this Court to remove Ambridge's caveat over the Property ('the Caveat Proceeding'). Rigby Cooke and Herskope were retained by Break Fast.[94]

48 Initial instructions were conveyed by Voukidis to Michael Markowitz ('Markowitz') of Rigby Cooke on 1 December 2004. A file note taken by Markowitz stated that the corporate structure was 'nothing more than company shareholding'.[95] Markowitz sent a formal retainer to Voukidis on 2 December 2004.[96]

49 In his evidence in the current proceeding, Markowitz stated that Voukidis had been 'very impressive', 'very well presented' and 'very articulate'.[97]

50 The following day, Markowitz, on behalf of Break Fast, sent a letter to the receiver of Ambridge denying the existence of a joint venture, and stating that this denial was 'borne out by the accounts of the Company for each year since incorporation.'[98] Ambridge's lawyers, TressCox Lawyers ('TressCox') responded to this letter seeking clarification of whether Rigby Cooke acted for Voukidis and Baker as well as Break Fast. TressCox contended that the joint venture agreement document, which was in Ambridge's possession, proved the existence of a joint venture, as did the 'various copy accounts and draft accounts of Break Fast Investments'.[99]

51 On 16 December 2004, the receiver of Ambridge filed an affidavit in the Caveat Proceeding.[100] This would have brought to Rigby Cooke's attention a number of key documents mentioned above, notably:

(a) a fax dated 12 April 2000 from Jacobs on Ambridge letterhead that referred to the 'joint venture' and expenditure for AXIA which was to be paid by Ambridge;[101]

(b) a fax dated 13 September 2001 from Jacobs on Ambridge letterhead to Ashe Morgan Winthrop attaching the 'management accounts for the above named joint venture for the year ended 30 June 2001' with those accounts referring to C&O Voukidis, Ambridge, McGrouther and Career Path under the heading 'Partners' Equity';[102]

(c) a fax dated 23 August 2002 from Jacobs on Ambridge letterhead to Voukidis attaching Break Fast's draft financials for the year ended 30 June 2002 with those accounts referring to C&O Voukidis, Ambridge, McGrouther and Career Path under the heading 'Partners' Equity';[103]

(d) a fax dated 6 February 2003 from Esquivel to Jacobs attaching some of Break Fast account transactions which show Break Fast 'as manager for Wellington parade [sic] Joint Venture';[104]

(e) a fax dated 1 May 2003 from Voukidis to Taylor attaching 'copies of draft accounts for Break Fast' with those accounts stating that they were for Break Fast 'as manager of the Wellington Pde, East Melbourne Joint Venture' and referring to Ambridge, Career Path, C&O Voukidis and IMF under the heading of 'Joint Venture Capital Accounts';[105]

(f) a fax dated 8 October 2002 from Stanley on Ambridge letterhead to Powerlan Technologies Ltd attaching the joint venture agreement version that had been signed by Stanley;[106]

(g) Ambridge's financial statements prepared by Stannards referring to 'Equity in Joint Venture' listing 'Wellington Parade Joint Venture' and 'P'ship (Break Fast Inv)';[107] and

(h) an email dated 21 July 2003 from Voukidis to Stanley copying (amongst others) Baker, Taylor and Jacobs, which implied that Ambridge was part of the ownership structure of the Property.[108]

52 On 20 December 2004, Justice Gillard of this Court made an order in the Caveat Proceeding that the caveat over the Property be removed upon an undertaking by Break Fast and its directors not to sell, dispose of or encumber the Property without giving Ambridge 30 days' written notice.[109]

53 On 31 January 2005, Ambridge, funded by H2O, commenced the Ambridge Proceeding in this Court against the following eight defendants: Baker, Voukidis, Career Path, IMF, C&O Voukidis, Break Fast, Oxley and Stanley.[110] Rigby Cooke acted for the first to seventh defendants (that is, the Break Fast Defendants), but not for the eighth defendant Stanley.

54 In the context of an application for security for costs, Ambridge's receiver swore an affidavit on 24 February 2005,[111] which contained many of the documents referred to in his 16 December 2004 affidavit in the Caveat Proceeding (referred to above at paragraph 51), and additionally exhibited (amongst other documents):

(a) an email dated 3 December 2002 from Voukidis to Baker and Stanley attaching the draft minute relating to the sale of the Property which stated that 'it was resolved that [Break Fast] in its capacity as Manager of the Break Fast Joint Venture proceed with the sale of the [Property]';[112]

(b) a fax dated 10 December 2002 from Voukidis to Meerkin & Apel attaching the minute referred to above signed by Voukidis, Stanley and Baker;[113]

(c) an email dated 23 August 2003 from Voukidis to Stanley which referred to an earlier fax by Stanley 'regarding the Ambridge Investments Pty Ltd Capital Account in the Break Fast Investments Joint Venture';[114] and

(d) a letter dated 31 July 2002 from Stanley on Ambridge letterhead to Taylor referring to previous 'discussions regarding the financial structure of the Wellington Parade Joint Venture' and acknowledging Taylor's 'request for an account of the conduct of the joint venture to date and the relationship between the joint venturers'.[115]

55 In early September 2005, Mary Nemeth ('Nemeth'), who had recently joined Rigby Cooke as a partner, took over the conduct of the Ambridge Proceeding from Markowitz.

56 On 15 November 2005, Ambridge applied for an injunction to restrain Break Fast from paying the fees of the Break Fast Defendants in the Ambridge Proceeding.[116] It was common ground that, if paid by Break Fast, any legal fees would necessarily be paid from the Property assets. This application was heard before Justice Whelan on 25 November 2005 and the part of the summons applying to restrain Break Fast from paying the legal fees for the Break Fast Defendants was dismissed.[117] At the hearing of the summons, Whelan J stated that:

If it transpires that [Break Fast] is a trustee then it might have difficulty justifying to the beneficiaries the costs it's spent in trying to prove it wasn't one, but until I decide that, how can I stop the company that wants to contend that it is the owner, from running the case that it is that?[118]

57 Over the course of 2005, the following relevant correspondence, file notes and documents were prepared for the Ambridge Proceeding:

(a) around September 2005: Nemeth recorded that there were 'Documents requiring explanation on our part' and that there was the 'deed of [acknowledgment] à Stanley à not a JV';[119]

(b) 14 September 2005: in a conversation between Markowitz and Nemeth, Nemeth recorded that Stanley was a 'notorious conman - director of Break Fast - stole $2m à ASIC à bankrupt in other proceedings';[120]

(c) 25 October 2005: Nemeth prepared a file note of a meeting with Herskope in which she recorded 'Stanley stole money from Baker' and noted that this was 'relevant to why the [joint venture] never went ahead'.[121] In oral evidence in the current proceeding, Nemeth stated that at that time she had seen a draft joint venture agreement that had been signed by somebody (she could not recall by whom), but she recalled it had not been signed by all parties;[122]

(d) 27 October 2005: Nemeth emailed Herskope stating that she had 'finished reviewing the discovery of both parties for relevant documents' and she had started a draft chronology.[123] The chronology was finalised in December 2005. Amongst other things, it referred to:[124]

(i) the notices of beneficial ownership by Voukidis and Baker introduced at paragraph 19(f) and 26 and said 'Note the absence of such a document for the shares held by Mark Stanley';

(ii) the deed of acknowledgement introduced at paragraph 44 noting that Stanley held his share in the Property 'legally and beneficially for himself';

(iii) balance sheets, general ledger details, profit and loss statements and financial statements which included references to 'Partner Equity' and Ambridge; and

(iv) the draft joint venture agreements;

(e) 28 October 2005: Nemeth prepared a file note after a meeting attended by Voukidis and Philip Sheezel of Rigby Cooke in which Nemeth recorded:

best case - no joint venture à you win

worst case à there was a joint venture

alternative defence

Stanley stole money from joint venture & that needs to be deducted from the equity in the joint venture - which leaves nothing.[125]

In evidence in the current proceeding, Nemeth explained that she had been instructed that Stanley was a 'con-man' and was going to be Ambridge's witness;[126]

(f) 18 November 2005: just prior to the hearing of Ambridge's application before Whelan J, Nemeth emailed Herskope stating that she had not found any authority supporting Ambridge's assertion that the principle that the costs of a dispute between shareholders should not be borne by the company to which the dispute relates, applies to an alleged joint venture;[127]

(g) 22 November 2005: Nemeth recorded in a file note of a conversation with David Collins ('Collins') (Break Fast's senior counsel at the time, leading Herskope) that they had 'discussed the merits of the case & fact that there are risks' and that Collins 'said he has not been shown any documents & is concerned regarding the state of documents regarding the existence of a joint venture';[128]

(h) 30 November 2005: Nemeth emailed Voukidis suggesting that Break Fast should offer inspection of Break Fast's 'books' including registers, financial records and other records of information and stated that 'we need to start scoring some points in this case if we are going to successfully defend it'. Voukidis' queried in that context 'what is this "IF" stuff??';[129] and

(i) 1 December 2005: Nemeth prepared a file note of a conversation with Voukidis regarding the prospects recording that she 'thought there was a lot to suggest that any JV was between [Ambridge] and [Headland]' and that 'then [the judge] had to deal with the issue of the mortgage by Stanley of his one share'.[130]

58 Bearing in mind that the case was listed for trial on 28 February 2006 (but, as will be explained, the trial did not proceed on that date), the following correspondence and file notes were prepared in 2006,:

(a) 14 February 2006: Nemeth prepared a file note of a conversation with Voukidis, following a conference he had had with Collins the previous day in which Voukidis had been strongly questioned. Nemeth recorded that she made these statements to Voukidis:[131]

(i) 'in isolation [the documents] were difficult but put in context, provided explanations could be provided which were accepted by the Judge then the case could be defended';

(ii) she 'had always been told by [Herskope] that there were explanations for the documents and that these explanations were plausible'; and

(iii) 'the problem was that [Collin's cross-examination] of [Voukidis] meant that he took the view that they could not be explained to the satisfaction of the Judge';

(b) 17 February 2006: Collins emailed Voukidis (copying, amongst others, Herskope and Nemeth) a joint memorandum of advice prepared by Collins and Herskope, which set out the prospect of the defence succeeding in the Ambridge Proceeding: in substance, counsel considered the outcome was 'uncertain and largely unpredictable' because the success of the defence turned on the impression obtained by the trial judge of witnesses when cross-examined and, more particularly, whether Voukidis' explanation of documents which appeared to be consistent with there being an unincorporated joint venture was accepted;[132]

(c) 23 February 2006: Nemeth wrote a file note recording that 'both [Collins] and I believe that there is a 50% / 50% chance of success & if we are going to win we are going to have to do so (sic) hard work both now and during trial' and that their clients 'need to deal with the allegations made by responding statement & in [cross-examination]';[133] and

(d) 1 March 2006: after the vacation of the trial date, Nemeth prepared a file note of a meeting with Herskope, Collins, Voukidis and Baker recording that 'risk in the case is could lose it à could lose it on JV or on estoppel' and noted that an offer to settle had been withdrawn by her clients.[134]

59 On the first day of the listed trial date, 28 February 2006, Justice Dodds-Streeton granted Ambridge's application for leave to amend Ambridge's statement of claim.[135] Doing so came at the cost of the trial having to be vacated. The proceeding did not come back on for trial until October 2009.

60 The amended statement of claim was filed on 29 March 2006 ('ASOC'). A more detailed description of amendments to Ambridge's statement of claim is provided later in these reasons. Among other things, the new pleading amended the alleged breaches. It also made reference to the May 2000 Balance sheet which Voukidis had annotated with the handwritten words 'Ambridge 25%', and the 16 March 2000 fax from Taylor to Jacobs stating that 'Chris [Voukidis] is largely in agreement with the operative provisions of the deed [joint venture agreement]'.[136] A defence to that statement of claim was filed on 1 May 2006.[137]

61 A further amended statement of claim was filed on 4 August 2006 ('FASOC').[138] On 1 November 2006, Ambridge filed a second further amended statement of claim ('2nd FASOC'), which introduced an alternative trust claim that Break Fast had acquired the Property as bare trustee for Voukidis, Baker and Stanley (or their corporate nominees).[139]

62 Collins provided a memorandum of advice on 1 December 2006, which contained a summary of the flaws in Ambridge's 2nd FASOC indicating that consideration was being given to a summary dismissal application. However, counsel also acknowledged that:

The facts of this case, including the preparation of accounts and financial statements on the basis that a joint venture did exist, and various items of correspondence consistent with a joint venture having been entered into, make it clear that the plaintiff [Ambridge] does have an arguable case. In my opinion there is no realistic prospect of the plaintiff's [Ambridge's] claim being summarily dismissed. Accordingly, I can see no utility in pursuing applications to strike out the SFASOC or obtain further particulars for that purpose.[140]

Significant documents and events in 2007 and 2008

63 In light of the undertaking given on 20 December 2004, Rigby Cooke, on Break Fast's instructions, gave notice to TressCox on 23 March 2007 of Break Fast's intention to further encumber the Property to increase its loan facility with Colonial.

64 TressCox filed a summons on behalf of Ambridge dated 13 April 2007, together with a sworn affidavit by the receiver of Ambridge, seeking orders including that Break Fast be restrained from increasing its loan facility with Colonial or creating any further encumbrance over the Property, without Ambridge's prior consent.[141]

65 On 26 April 2007, Williams J ordered by consent that Break Fast be permitted to increase its loan facility, secured against the Property, by an amount of $819,379.52 and to make payments set out in a schedule. The schedule listed some specific items of legal fees, and other specific expenses, but otherwise the summons was adjourned to be heard on 3 May 2007.

66 On 27 April 2007, TressCox sent an email to Rigby Cooke (then forwarded by Rigby Cooke to Voukidis and Baker) seeking to prevent a further drawdown of $890,000 by Break Fast, over and above the amount permitted by the 26 April 2007 order. The further drawdown was partially intended to fund the legal costs of the Break Fast Defendants in the Ambridge Proceeding.[142]

67 On 3 May 2007, Williams J made further orders, also by consent ('the 3 May 2007 Order'). The order permitted the increase of the loan facility with Colonial, secured against the Property, by an amount of $890,620.48. Her Honour ordered $340,000 of that amount to be paid into a trust account only to be withdrawn 'for legal fees and disbursements incurred by [Break Fast] in defending [the Ambridge Proceeding]'.[143] Nemeth provided a copy of this order to Voukidis and Baker.[144] The 3 May 2007 Order was preceded by a letter from TressCox dated 30 April 2007[145] and discussions between counsel. In the letter of 30 April, TressCox offered, on behalf of Ambridge, that Break Fast be permitted to drawdown $100,000 into Rigby Cooke's trust account to fund the legal costs of Break Fast in the Ambridge Proceeding. Additionally, TressCox continued by stating that any 'future expenses, including legal expenses, should be able to be funded out of Break Fast's cash flow'. Whilst the permitted drawdown amount was, evidently, increased by agreement to $340,000 by the time the order was made, Rigby Cooke and the Break Fast Defendants thereafter assumed that Ambridge accepted that Break Fast could use business income (rental) to pay for its legal costs of the proceeding.

68 On 1 August 2007, in contravention of the 3 May 2007 Order, Voukidis used the sum of $340,000 that was to be used for legal fees in the Ambridge Proceeding only, to pay for security for costs in a separate proceeding to which Voukidis and Baker were parties. As described below, Voukidis finally admitted to his contravention of the 3 May 2007 Order in two affidavits that he swore on 24 August 2009.[146]

69 Correspondence and file notes of conversations between Nemeth, Herskope, Voukidis and Baker demonstrate that Nemeth persisted in seeking some proof from Voukidis of his compliance with the 3 May 2007 Order. They also showed that Nemeth explicitly raised the possibility that there had been a contravention of the orders made on 26 April 2007 and 3 May 2007. They also demonstrated Rigby Cooke's concerns about the credibility of Voukidis and Baker, but also of Stanley and Jacobs, at trial. For example:

(a) 26 November 2007: in an email chain between Nemeth, Voukidis and Herskope, Nemeth raised that she and Herskope were concerned that TressCox 'will seek to bring a contempt of court application against you and / or seek to draw adverse inferences in relation to your credit at trial' if documents confirming compliance with the orders were not provided;[147]

(b) 28 April 2008: Nemeth and Baker had a conversation in which Nemeth 'explained that credit of [Baker and Voukidis] in particular [Voukidis] was a problem';[148]

(c) 5 May 2008: Nemeth recorded in a file note of a conversation with Herskope in which Herskope had told Nemeth about a meeting with Voukidis in which Herskope had told Voukidis to settle the Ambridge Proceeding and that 'he is going to loose [sic] the case';[149]

(d) 20 May 2008: Nemeth and Herskope discussed, amongst other things, that Jacobs' credit was an issue because he had been convicted of a dishonesty offence;[150]

(e) 11 August 2008: email chain between Nemeth and Voukidis stating that the documents provided did not prove that the drawdown had been in compliance with the 3 May 2007 Order;[151]

(f) 21 August 2008: Nemeth explained to Voukidis and Baker that she was certain there was non-compliance with the 3 May 2007 Order, that any delay in relation to discovery orders concerning the payment 'was causing credit issues and the longer it took to provide documents the more damage it was causing' and that a contempt application was 'likely' to occur;[152]

(g) 28 August 2008: Nemeth emailed Collins to discuss that a bank statement she had received from the client appeared to prove that the 3 May 2007 Order had not been complied with;[153] and

(h) 5 November 2008: Nemeth sent an email to Voukidis and Baker pointing out that Ambridge would argue at trial that documents, such as the fax from Jacobs to Ashe Morgan Winthrop (referred to above at paragraph 32), had been created by the Break Fast Defendants for the purpose of the Ambridge Proceeding given that two different versi[154] existed.154

70 In the midst of the events listed in the previous paragraph, Herskope prepared a memorandum of advice dated 13 March 2008 in relation to the implications of a possible breach of the orders of 26 April 2007 and 3 May 2007, setting out that the material provided at the time did not appear to evidence compliance with the 3 May 2007 Order. Herskope further pointed out that a contempt application for failing to comply with the orders might render Break Fast or its directors liable to penalties for contempt and, even if such an application was not made, it 'leaves Mr Voukidis in particular vulnerable to a significant attack on his credit at trial.'[155] In a later memorandum dated 26 May 2008, Herskope stated that he 'apprehended' that discovery of particular categories of documents would result in TressCox becoming aware of 'the failure to comply with those orders.'[156]

71 On 22 February 2008, Ambridge filed a third further amended statement of claim ('3rd FASOC') which included a claim requiring the taking of accounts and adjustment of interests as between the parties considering any transaction that had occurred since acquisition of the Property.

Significant documents and events from 2009 onwards

Voukidis' admission to breach of the 3 May 2007 Order

72 On 24 April 2009, TressCox filed a summons for discovery of documents, including for documents relating to Break Fast's compliance with the 3 May 2007 Order.[157] Ambridge then issued subpoenas, including to NAB, to obtain originals of the Break Fast bank statements. In May 2009, Rigby Cooke retained new counsel on the instructions of its clients.[158]

73 On 24 August 2009, Voukidis swore two affidavits in which he admitted to having failed to comply with the 3 May 2007 Order, and to having altered the relevant NAB statements for the purpose of discovery.[159] Vickery J in the Ambridge Proceeding later held that Voukidis' conduct had been in breach of the 3 May 2007 Order and the conduct had been 'wilful, contumelious and dishonest'.[160] Vickery J further held that evidence by Voukidis was 'central' to the Break Fast Defendant's case, but that Voukidis was an 'unreliable witness' and his Honour would not accept Voukidis' evidence on contentious matters except if supported by cogent independent evidence.[161]

74 Break Fast had continued to fund the litigation until about October 2009, when it essentially ran out of rental income and lost the ability to take out further loans. In October 2009, Voukidis and Baker corresponded by emails in which Baker asked Voukidis to 'put back into Break Fast, for the payment of the legal fees, just some of the money which you used for unrelated Break Fast matters' to which Voukidis responded that he had no 'excess funds' to fund the Ambridge Proceeding but expressed confidence that 'winning [the Ambridge Proceeding] is a very likely outcome.'[162] From around this point Baker and Voukidis funded the litigation themselves.[163]

75 On 30 June 2009, Ambridge filed a fourth further amended statement of claim ('4th FASOC') which included a number of new allegations that had not been pleaded previously, including:

(a) an allegation that Break Fast owed Ambridge equitable and fiduciary duties and breached those causing Ambridge to suffer loss and damage;

(b) an allegation that Career Path, C&O Voukidis, IMF and Ambridge owed each other equitable and fiduciary duties and Career Path, C&O Voukidis and IMF breached those causing Ambridge to suffer loss and damage; and

(c) claiming Baker and/or Voukidis were liable for damages and/or equitable compensation.

76 On 5 August 2009, the Break Fast Defendants filed an amended defence and counterclaim. On 29 September 2009 Baker, Voukidis and McGrouther made witness statements for the forthcoming trial that dealt in detail with the allegations made against the Break Fast Defendants. Through to trial, the Voukidis Defendants persisted in giving instructions to Rigby Cooke that there was no concluded joint venture with Ambridge. A pithy version of the history according to Voukidis was given in one of the two affidavits he swore on 24 August 2009 when admitting to making alterations to documents. He said:

Baker, McGrouther and myself started the Break Fast business with Stanley in November 1999. The property was purchased then and settled in March 2000. Stanley also became involved in other investments we entered into including the St Leonards Joint Venture through his company FBN Investments Ply Ltd and the Clarence Street investment. Between 2000 and 2002 Stanley whilst a director of Break Fast, St Leonards and Clarence Street misappropriated substantial monies from Break Fast, St Leonards and Clarence Street. As a result of his activities Stanley was jailed pursuant to an ASIC and ATO prosecution. Stanley resigned as a director of Break Fast in December 2002, he was made bankrupt in 2003 and his company Ambridge went into liquidation in 2003. It was only after we discovered part of his misappropriations at the end of 2002 that I was first formally introduced to Greg Taylor. This was in December 2002 and over three years after Break Fast had started. I was unaware of Taylor or his involvement with Stanley prior to that date. Taylor told me that he was in business with Stanley and Stanley had ripped him off. At this time I explained to Taylor that there was no joint venture in existence in Break Fast and it was company structure in which Stanley held shares personally. I believe Taylor already knew at this time that there was no concluded joint venture agreement between the parties relating to Break Fast.[164]

77 On 6 October 2009, the Ambridge Proceeding commenced before Justice Vickery on the 'preliminary issue' of whether a joint venture between the parties existed in relation to the Property.

78 On 13 October 2009, a fifth further amended statement of claim was filed ('5th FASOC'), and now included allegations against Oxley (and Voukidis as its director). On 14 October 2009, a second further amended defence and counterclaim was filed.[165]

79 The trial on the 'preliminary question' ran until 13 November 2009.

80 By 3 March 2010, Break Fast had retained a new law firm, Mason Sier Turnbull, in place of Rigby Cooke. The judgment of Justice Vickery on the preliminary issue in the Ambridge Proceeding was handed down on 12 March 2010.

81 Events relevant to the Ambridge Proceeding after the Vickery J Judgment were:

(a) shortly after the Vickery J Judgment, on 22 March 2010, Ambridge filed a further summons in the proceeding seeking, among other things, disclosure of the whereabouts of Break Fast's books of accounts and orders, which application would result in Taylor being appointed a director of Break Fast;

(b) Baker, Career Path, IMF, Break Fast and Oxley appealed the Vickery J Judgment in March 2010, however, the Court of Appeal dismissed the appeal on 4 November 2011;

(c) Taylor and his son Eugene were both appointed directors of Break Fast on 31 October 2011, and Voukidis and Baker ceased to be directors on 2 November 2012 and 15 April 2014 respectively;

(d) in or around 2012, the Property was sold for approximately $22 million by receivers that had been appointed, but after the repayment of debts, receiver's fees and interest, and the payment of further legal fees, the proceeds were exhausted;[166]

(e) on 4 July 2014, Justice Elliott ordered Break Fast to pay Ambridge's costs in the proceeding from its commencement to 12 March 2010;[167]

(f) by 2016, C&O Voukidis had been wound up, and Baker and Voukidis had declared bankruptcy;[168] and

(g) on 6 October 2020, Justice Almond dismissed the Ambridge Proceeding and made orders including that Voukidis pay Ambridge's costs of the trial of the preliminary issue insofar as they had not been recovered from the other defendants. That dismissal put an end to any mechanism to pursue orders for an accounting between the joint venturers.[169]

82 It is convenient, by way of summary of the foregoing narrative, to identify the key indicia that Break Fast either was or was not a trustee of an unincorporated joint venture.

83 The following were the key indicia that Break Fast was a trustee of an unincorporated joint venture:

(a) Joint venture agreement: in March 2000, Ambridge gave instructions to Tress Cocks Maddox to draft a joint venture agreement. In 2002, the joint venture agreement was partially signed by Stanley on behalf of Break Fast and Ambridge. By October 2005 at the latest, Rigby Cooke was aware of the draft agreements;

(b) Financial statements: many of Break Fast's financial statements (including balance sheets, profit and loss statements, tax returns) referred to Break Fast as 'manager' of the Property joint venture, the 'Partners' Equity', used the term 'joint venture' and named Voukidis, Baker and later also McGrouther (and/or their respective corporate nominees) along with Ambridge (rather than Stanley);

(c) Correspondence referring to 'joint venture': there were numerous communications between Voukidis, Baker, Jacobs and others which contained references to accounts being prepared on the basis of an unincorporated joint venture with Break Fast as its manager and there was no credible correspondence correcting any of those communications;

(d) Pre-purchase and pre-settlement work: Ambridge identified the Property as a potential investment, conducted pre-purchase work such as engaging AXIA and Meerkin & Apel, continued to engage AXIA and purchased café furniture paid for by Ambridge. There was correspondence that showed that Ambridge would receive a $500,000 management fee that would be considered as its capital contribution to the joint venture;

(e) Voukidis' Family Trust: the records of Voukidis' Family Trust listed C&O Voukidis' interest as interest in the Property rather than in a share, which Vickery J considered to have been an admission by Voukidis;

(f) McGrouther's financial reports for IMF from 2000 to 2003: IMF's reports showed Break Fast as a property investment in a way indicating an investment structure such as an unincorporated joint venture as opposed to displaying it as an investment in shares of an unlisted company;

(g) Career Path's tax return: in FY2000, Baker's company Career Path claimed a loss in a joint venture that was likely the loss sustained in the Property joint venture. Such a claim would not have been possible if the interest in the Property was held by way of shareholding in Break Fast; and

(h) Decreasing credibility of Baker and Voukidis: in February 2006, Collins raised concerns with Rigby Cooke that some documents indicating a joint venture could not be satisfactorily explained by Voukidis. As of late 2007, Rigby Cooke became aware that there was a dispute about Voukidis' and Baker's compliance with the 3 May 2007 Order with Rigby Cooke pointing out the effects of such non-compliance on Voukidis' and Baker's credibility as witnesses. Further, in or around November 2008, Rigby Cooke became aware that Ambridge alleged that some documents supportive of the Break Fast Defendants' case had been falsified.

84 The following were the key indicia against Break Fast being a trustee of an unincorporated joint venture:

(a) Instructions: from beginning to end throughout the Ambridge Proceeding, Voukidis and Baker provided instructions denying that Break Fast was a trustee and that documents that indicated the contrary only reflected a proposed structure that had been abandoned;

(b) Joint venture agreement: there was no fully executed joint venture agreement;

(c) Notices of beneficial ownership: notices of beneficial ownership in Break Fast existed for Voukidis and Baker (albeit held by Vickery J to have been backdated) and no such notice existed for Stanley;

(d) Deed of acknowledgment: the 2004 deed of acknowledgment between Break Fast, Voukidis, Baker and Stanley purported to evidence an agreement that Break Fast was the legal and beneficial owner of the Property;

(e) Emails/facsimiles: there was an email chain between Baker, Stanley and Voukidis in December 2002 in which Baker purportedly instructed Stanley to delete reference to Break Fast as manager of the joint venture, and a letter fax of September 2001 from Jacobs to Ashe Morgan Winthrop that referred to 'company' instead of 'joint venture', 'shareholders' instead of 'partners' and 'Stanley' instead of 'Ambridge'. By November 2008, Rigby Cooke became aware that Ambridge contended the September 2001 letter fax and other documents to have been falsified;

(f) Stanley's mortgage over his Break Fast share: Stanley mortgaged his share in 2002, implying that the share in Break Fast was held by him beneficially (and not for Ambridge) and was of real commercial value - Rigby Cooke knew this in 2005;

(g) Stanley misappropriating funds: Stanley had misappropriated funds, which was known to Rigby Cooke from 2005, supporting an inference that a contest between the word of Voukidis and Baker on the one hand, and that of Stanley on the other, would likely favour the Break Fast Defendants;

(h) Stanley's and Jacobs' lack of credibility: Stanley and Jacobs had both been convicted of dishonesty offences and therefore Rigby Cooke considered them to lack credibility as witnesses for Ambridge, supporting the same inference set out in the previous subparagraph;

(i) Unsuccessful application to restrain Break Fast from paying legal fees: in 2005, Ambridge had unsuccessfully applied to restrain Break Fast from paying legal fees from the Property assets to Rigby Cooke, supporting an inference that the proposition that Break Fast was a trustee was genuinely contestable;

(j) Appearance of Voukidis as reliable witnesses: initially, Rigby Cooke perceived Voukidis as impressive, well-presented and articulate, supporting the inference set out in subparagraph (g);

(k) Amendments of the statement of claim: commencing in 2006, Ambridge amended the statement of claim six times, with changes of substance,[170] supporting an inference that Ambridge's claim that the parties had agreed on an unincorporated joint venture lacked cogency; and

(l) Opinion of counsel: counsel's memoranda of advice pointed out the uncertainty of litigation and the significance of the Court's findings on the credibility of the witnesses to the determination of the case.

85 With that description of the background, I turn to the issues to be determined in the current proceeding.

86 As put in final submissions, Break Fast argued that Rigby Cooke breached a fiduciary duty of undivided loyalty owed to Break Fast by acting for Break Fast concurrently with the Voukidis Defendants in defence of the Ambridge Proceeding, when there were potentially adverse interests between the two clients (or client groups). The fiduciary conflict that Break Fast relies upon is a conflict of duty and duty - that is, a conflict between the duty Rigby Cooke owed to Break Fast in acting for it in the defence of the Ambridge Proceeding and the duty Rigby Cooke owed to the Voukidis Defendants in the defence of the Ambridge Proceeding.

87 Ultimately, Break Fast submitted that the existence of that conflict of duty and duty did not turn on the strength of the Ambridge claims against the Break Fast Defendants. Instead, the existence of the conflict was said to be manifest by reason of the pleaded facts. It existed, Break Fast contended, in the very nature of the allegations themselves. By acting for both Break Fast and the Voukidis Defendants, when their interests in the outcome of the Ambridge Proceeding did not 'coincide', and when Break Fast was (at least until end of 2009 or beginning of 2010) paying for the defence of all of the Break Fast Defendants out of the assets alleged to be trust assets, Rigby Cooke placed itself in a situation in which there was a real and sensible possibility that its duties to each client would conflict.

88 Break Fast further contended that, faced with such a real and sensible possibility of conflict, Rigby Cooke was duty-bound to cease acting for Break Fast and to advise it to obtain independent legal advice. Such advice would have concerned whether Break Fast should actively defend the Ambridge Proceeding and continue to spend alleged trust moneys paying legal costs beyond that which was necessary to give the discovery required of Break Fast as a party to the proceeding. Such legal advice, Break Fast contended, would probably (almost certainly, on its argument) have been that Break Fast should not actively defend the proceeding but simply abide by the outcome, and that it should not spend alleged trust assets on legal costs save for the purpose of meeting its discovery obligations.

89 Had Break Fast been given that independent advice in the Ambridge Proceeding, Break Fast contended in this proceeding that it would not have continued to defend the Ambridge Proceeding or spent money which, as it transpired, was trust money, on the payment of legal costs. Because it had continued to do those things Break Fast contended it has suffered loss, namely its personal liability as a trustee which has breached the trust to replenish the trust estate. It claimed that its loss was caused by Rigby Cooke's breach of fiduciary duty. Accordingly, Break Fast claimed equitable compensation from Rigby Cooke for the amount it paid from trust assets, or is liable to pay, for the defence of the Ambridge Proceeding.

90 For its part, Rigby Cooke appeared to accept that it owed Break Fast and the Voukidis Defendants fiduciary duties, including a duty to avoid any conflict, or the real and sensible possibility of a conflict, between the interests of and duties owed to Break Fast and the interest of and duties owed to the Voukidis Defendants.[171] But, Rigby Cooke denied that Break Fast and the Voukidis Defendants had any conflicting interests in their respective defences to the Ambridge Proceeding. Rigby Cooke also denied that it had any conflicting duties to each or any of its clients by acting for them concurrently. Alternatively, if there was any such conflict, or real and sensible possibility of a conflict, Rigby Cooke denied that it had had any obligation to cease acting for Break Fast in the circumstances as they existed. Even if it had breached the fiduciary duty alleged, Rigby Cooke denied that such breach caused the loss for which Break Fast claimed equitable compensation.

91 Having given a broad overview of the arguments of the two sides, it is necessary to be more specific about the nature of the conflict which Break Fast relies upon in this action. The starting point is its pleaded case. At paragraph 28 of its third further amended statement of claim filed on 12 November 2020 ('Break Fast's third FASOC'), Break Fast alleged that Rigby Cooke owed it a fiduciary duty -

By reason of the relationship of solicitor and client arising from the Rigby Cooke retainer, Rigby Cooke owed to Break Fast a fiduciary duty which obliged Rigby Cooke to avoid any conflict, or real possibility of conflict, between the interests of, and duties owed to, Break Fast and the interests of, and duties owed to, the Voukidis Defendants and to cease to act for Break Fast, or alternatively the Voukidis Defendants, in the event of such a conflict (the Rigby Cooke Fiduciary Duty).

92 Pausing there, I observe that the paragraph above contains a mixture of assertions concerning the conflicting interests of the clients and the conflicting duties of Rigby Cooke.

93 Break Fast alleged in paragraph 30 of the 3rd FASOC that Rigby Cooke breached the fiduciary duty by 'acting concurrently for Break Fast as well as the Voukidis Defendants'. In the intervening paragraphs, 29 and 29A, Break Fast sought to explain why 'acting concurrently' was, of itself, a breach of the Rigby Cooke fiduciary duty.

94 In paragraph 29, Break Fast alleged that the interests of Break Fast in the Ambridge Proceeding were 'adverse' to those of the Voukidis Defendants. That adversity was said to arise from various facts, namely that:

(a) it was alleged in the Ambridge Proceeding that Break Fast was the trustee of the Property and/or income from and borrowings against it ('the trust assets');

(b) the Voukidis Defendants had an interest in defending the Ambridge Proceeding and having Break Fast pay for their defence;

(c) Break Fast had an interest in taking a passive role so that the trust assets were not dissipated and that Break Fast was not exposed to the risk of an adverse cost order; and

(d) by paying legal costs, including for the defence of the Voukidis Defendants, Break Fast risked breaching its trust duties whereas the Voukidis Defendants did not face such risk.

95 Because of those matters, and because Break Fast did in fact apply trust assets, in breach of trust, to pay for the legal costs of the Break Fast Defendants, Break Fast asserted in paragraph 29A of Break Fast's third FASOC that -

... there was an actual or real possibility of conflict between the interests of Break Fast and the interests of the Voukidis Defendants and between the duties owed by Rigby Cooke to Break Fast and the Voukidis Defendants (the Conflict).[172]

96 Break Fast expanded upon its description of the elements of the alleged conflict in its written submissions. In Break Fast's written opening submission[173] and written closing submissions,[174] Break Fast emphasised these alleged facts:

(a) that the Ambridge Proceeding was, from the outset, substantively a contest between persons holding an interest in the joint venture (Voukidis, Baker and McGrouther's nominee company, on the one hand, and Ambridge, on the other);

(b) as the joint venture manager and owner of the Property Break Fast had no particular interest in that contest;

(c) by using the assets of the joint venture to fund the defence including the costs of the Voukidis Defendants, Break Fast risked being found in breach of trust, a risk which did not affect the Voukidis Defendants; and

(d) that expenditure was of no benefit to Break Fast or the trust but only advantaged the interests of the Voukidis Defendants.

97 In another submission,[175] Break Fast referred to 'certain claims ... made by Ambridge against Voukidis and Baker which asserted their liability to Break Fast, not merely Ambridge', a reference to some pleadings first introduced by Ambridge at paragraphs 28 and 30 of its 4th FASOC. In another submission,[176] Break Fast referred to the personal interests of Voukidis and Baker in their capacity as shareholders of Break Fast being 'not in unison' with those of Break Fast. Break Fast argued that it was in the interests of Voukidis and Baker, but not those of Break Fast, to deny the joint venture and Ambridge's interest in it because that would enhance the value of their equity in Break Fast. Break Fast repeated that it was in Voukidis' and Baker's interests (but not Break Fast's) to use Break Fast's assets to defend the litigation.

98 In its written closing submission, under the heading 'Four Indicia of Conflict', Break Fast listed four factors which, in combination, constituted Rigby Cooke's conflict, three of which have been referred to thus far:

• First, the absence of substantive allegations made against (and limited relief sought from) Break Fast, which was in contrast with the allegations made against (and relief sought from) Voukidis Defendants;
• Second, the unique consequences for Break Fast if it was found to be a trustee and Joint Venture manager as alleged;
• Third, the position of Voukidis and Baker as shareholders, directors and co-defendants of Break Fast; and
• Fourth, the credible documentary evidence in favour of Ambridge's case which ought to have made plain the conflict arising from the above factors.[177]

99 Break Fast argued that as a consequence of these 'indicia', a real and sensible possibility of conflict arose between Break Fast's interests and those of the Voukidis Defendants which, taken together, gave rise to an 'undeniable and actual conflict' on the part of Rigby Cooke.

100 The last of those four indicia was either disavowed or not advanced in Break Fast's closing oral submissions as elements giving rise to the conflict itself.[178] Instead, Break Fast argued that the conflict which Rigby Cooke faced arose from and was manifest in the pleaded allegations against Break Fast and the Voukidis Defendants in the Ambridge Proceeding alone. If relevant at all, the developing strength of Ambridge's case as documents were revealed to Rigby Cooke was, so it was contended, of more relevance to the causation argument that would follow upon any finding of liability for a breach of a fiduciary duty.

101 Another formulation of the conflict which Rigby Cooke faced in acting for Break Fast concurrently with the Voukidis Defendants was set out at paragraph 56 of Break Fast's written closing submission. The conflict existed, it said, because:

(a) As the alleged trustee, it [Break Fast] was at risk of being in breach of trust if it defended the action and used its assets to do so because its assets belonged to the putative trust;

(b) It was at risk of an adverse costs order if Ambridge succeeded in the litigation, for which it would ordinarily be jointly and severally liable with the other defendant;

(c) Legal costs paid by Break Fast from its assets were putative trust assets;

(d) Voukidis and Baker had a conflict of interest themselves, including by reason of their position as directors (with attendant duties) and co-defendants of Break Fast, and were arguably not in a position to instruct on behalf of Break Fast; and

(e) Break Fast should obtain independent legal advice in respect of the conflict.

102 Finally, to complete this section on Break Fast's identification of the elements which produced the alleged conflict in which Rigby Cooke was placed, in its written closing submission Break Fast sought to illustrate the alleged conflict with a concrete example arising in the course of the litigation. Referring to the 3 May 2007 Order and Voukidis' non-compliance with that order, Break Fast argued that in dealing with that non-compliance, Rigby Cooke only gave attention to Voukidis and his creditworthiness and failed to consider the separate interests of Break Fast. Break Fast argued that those events 'illustrate what can go wrong when a lawyer has a conflict of interest between concurrent clients'.[179]

103 In broad terms, Break Fast claimed that Rigby Cooke had placed itself in conflict of duty and duty by acting concurrently for Break Fast and the Voukidis Defendants, because -

(a) in respect of the Ambridge Proceeding, the interests of Break Fast, on the one hand, and the Voukidis Defendants, on the other, were 'adverse' to one another; and

(b) as a consequence of that adversity, Rigby Cooke was placed in a situation where its duty to one client was in conflict with its duty to the other client, or at least there was a real and sensible possibility of such a conflict.

104 From the summary I have just given, it is apparent that the collection of elements which was said to produce that conflict varied somewhat between the different formulations of the conflict that were put forward.

105 From the debate in this case it became clear that there was a need to be cautious and particular in the use of terms and concepts. In the jurisprudence on this subject there are several different types of conflict that might be in play in any given case:

(a) first, a conflict between the personal interest of the fiduciary and the personal interest of the principal (a conflict of interest and interest);

(b) secondly, a conflict between the personal interest of the fiduciary and the fiduciary's duty to the principal (a conflict of interest and duty); and

(c) thirdly, a conflict between the fiduciary's duty to one principal and the fiduciary's duty to another principal (a conflict of duty and duty).

106 As stated, the conflict that Break Fast asserts in this case is one between duty and duty. The duty of a fiduciary toward a principal may be identified or assessed, in part, by reference to the interests of the principal. Similarly, an alleged conflict between the duties of a fiduciary towards two principals may be identified or assessed, in part, by reference to the conflicting nature of the different interests of the different principals.

107 But the interest of the principal is not a proxy for the duty of the fiduciary. In other words, the interest of the principal does not of itself identify or define the scope of a duty owed by the fiduciary to the principal, nor do the conflicting interests of those principals necessarily identify or define the scope of any conflict between the duties owed to them by the fiduciary.

108 As explained by Professor Parkinson in The Principles of Equity:

The primary obligations of fiduciaries are twofold. First, the fiduciary must not place herself or himself in a position of conflict between duty and interest.[180] Secondly, a fiduciary is not permitted to profit from the position of trust, beyond the terms of remuneration provided for in the contract or retainer. These are known as the "conflict" and "profit" rules. Fiduciaries who breach these, and other fiduciary obligations, will be legally liable unless they have the informed consent of those to whom the fiduciary duty is owed.[181]

109 A breach by a fiduciary of a duty owed to a principal may, in some circumstances, lead to the fiduciary being liable to account to the principal for any benefit or gain accrued to the fiduciary by reason of the breach. In other circumstances, the breach may render the fiduciary liable to compensate the principal for the loss caused by the breach through an award of equitable compensation.

110 Addressing the circumstances in which a fiduciary may be liable to account to a principal for the benefit or gains accrued to a fiduciary by reason of the breach, Deane J in Chan v Zacharia[182] explained how the conflict and profit rules are two themes of one fundamental rule:

The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one "fundamental rule" embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the "use of fiduciary position" doctrine is but an illustration or part of a wider "conflict of interest and duty" doctrine (see, e.g., Phipps v. Boardman, at p l23; N.Z. Netherlands Society v. Kuys, at p 1229), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it.[183]

111 Chan v Zacharia involved the allegation of a breach of fiduciary duty owed by one former partner in a medical practice to another partner. It was a case of conflict of interest and duty. There is no reason to suppose that the observations of Deane J regarding the objective behind the conflict rule in cases of conflict of interest and duty do not also apply, with modification, to cases of conflict of duty and duty. In other words, rather than the objective being to preclude the fiduciary being swayed by the considerations of personal interest, in the case of a conflict between two duties the objective would be to preclude the fiduciary being swayed by considerations of serving another principal's interest. Courts have recognised that both categories of conflict are expressions of an overriding requirement that 'fiduciaries give undivided loyalty to the persons whom they serve'.[184]

112 In Marron v Chatham Daunt Pty Ltd[185] ('Marron v Chatham Daunt') using the term allegiance in place of loyalty, Byrne J explained how the two categories of conflict (and the misuse of confidential information) were branches off the one stem -

The entitlement of a client to the undivided attention and interest of the solicitor is put in jeopardy in two separate situations at least. See O'Reilly v Law Society of New South Wales (1988) 24 NSWLR 204 at 213, per Mahoney JA. First, where there is either a conflict of allegiance leading to a conflict between a solicitor's duty to the client and the solicitor's personal interest or where such a conflict exists between the separate duties of the solicitor to two clients or where both such conflicts exist at the same time. Second, where the solicitor has information from a confidential source which may be relevant to the interests of the client and the question then arises whether the solicitor, owing allegiance to the source and to the client, should disclose it.[186]

113 There has been some support for the proposition that a stricter standard is applied when determining the existence of a conflict between duty and duty than when determining whether there is a conflict between interest and duty. In Oceanic Life Ltd v HIH Casualty and General Insurance Ltd,[187] Austin J stated that a solicitor must avoid any 'real and sensible possibility of conflict' between a duty to serve the interests of the client and personal interest. Contrastingly, the rule was that the solicitor must avoid any 'actual conflict' between the duty to serve the interest of one client and the duty to serve the interests of another client.[188]

114 For the latter proposition, his Honour relied upon the decision of Richardson J (a member of the New Zealand Court of Appeal) in Farrington v Rowe McBride & Partners[189] ('Farrington'). In Farrington, a case involving the investment of a client's award of damages for a personal injuries claim into a mortgage lending business operated by the legal firm's major client, Richardson J stated that:

A solicitor's loyalty to his client must be undivided. He cannot properly discharge his duties to one whose interests are in opposition to those of another client.

...

But the acceptance of multiple engagements is not necessarily fatal. There may be an identity of interests or the separate clients may have unrelated interests. In some circumstances they may even be able and prepared to look after their own interests. Such cases seem straightforward so long as it is apparent that there is no actual conflict between the duties owed in each relationship.[190]

It may perhaps be going too far to conclude as stated in Finn, Fiduciary Obligations (1977) page 253 that if the same fiduciary acts for two different and unrelated beneficiaries in the same matter or transaction without the informed consent of both to the double employment then this without more is a conflict within the rule (see also Bowstead on Agency, 14th ed, 1976) pp 142-143). But certainly, consistent with the underlying principle, it must be sufficient that there be an actual opposition of interests. In that situation for the solicitor to accept the second engagement without the consent of each principal would be inconsistent with his separate duty to each client.

Assessed by that actual conflict standard I have no hesitation in concluding that the rule applied in this case.[191]

116 Although the propositions stated by Richardson J in Farrington have largely been endorsed by Australian authority, statements by the New South Wales Court of Appeal in Beach Petroleum NL v Kennedy[192] ('Beach Petroleum') seem to undermine the suggestion that there is any difference in the standard for determining the existence of a conflict in respect of the two categories. After explaining that the duty and duty and the interest and duty categories of conflict both involve the same overriding duty of undivided loyalty,[193] the Court added, 'there is no substantive difference between a duty and interest conflict and a duty and duty conflict'.[194] Nonetheless, the Court also observed that in Maguire v Makaronis,[195] the High Court had referred with approval to the formulation of the conflict of duty and duty case by Richardson J in Farrington. The passage cited by the High Court included the sentence (in the extract at paragraph 114 above) to the effect that multiple engagements were 'straightforward so long as it is apparent that there is no actual conflict between duties owed in each relationship'.

117 In Marron v Chatham Daunt, immediately following the passage extracted above at paragraph 112, Byrne J also commented on the possible distinction between the requirement for an actual conflict of interest as opposed to only the potential for a conflict of interest, specifically referring to Farrington on the one hand and Beach Petroleum on the other. His Honour said -

I have used the expression 'conflict of allegiance' which was adopted by Wootten J in the passage quoted above in deference to the distinction which might exist between actual conflicts of interest and potential conflicts of interest. See Farrington v Rowe McBride & Partners [1985] NZCA 21; [1985] 1 NZLR 83 at 92, per Richardson J; Beach Petroleum NL v Abbott Tout Russell Kennedy (1997) 26 ACSR 114. In a sense, any transaction contains within it the potential for conflict, and it may be said that breaches of fiduciary duty or of ethical standards occur only where this potential becomes a reality. I am not at all certain, however, that the distinction is always available or helpful.[196]

118 In my view, so long as a judge gives proper emphasis to the need for a possible or potential conflict to be both 'real' and 'sensible', as explained below, there is little width in any difference between a real and sensible possibility of conflict and an actual conflict. A presently existing 'real and sensible possibility of conflict' is sufficiently equivalent to an actual conflict so that, in the words of Byrne J, the distinction is not likely to be 'available or helpful'.

119 Assuming that the applicable test for a conflict of duty and duty is the same as one for a conflict of interest and duty, namely whether there is a real and sensible possibility of conflict, the meaning of that phrase needs a little more attention. It appears to have its genesis in the speech of Lord Upjohn in Boardman v Phipps.[197]

120 It is important to recall that Lord Upjohn was in dissent in his opinion in that case. The majority upheld the decision that a solicitor had breached his fiduciary duty when, as the solicitor to a trust, he had gained information and the opportunity to acquire shares in a company, gain control of it and improve its performance and, in doing so, he had made a personal profit. By a majority, the House of Lords held the solicitor liable to account to the trust for the gains. Lord Upjohn considered the principle that no trustee should be permitted to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect. His Lordship said -

The phrase 'possibly may conflict' requires consideration. In my view it means that a reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.[198]

121 Lord Upjohn's use of the adjectives 'real' and 'sensible' were intended as words of limitation, confining the very broad notion of a 'possibility' of a conflict. Ultimately, Lord Upjohn found there was no such possibility of conflict in that sense.[199]

122 It follows, in my view, that to find a real and sensible possibility of a conflict of interest and duty or duty and duty, one needs to be able to identify in a sensible, ie practical way, the potential for a real conflict to arise. Merely a theoretical or remote possibility of an ill-defined conflict will not suffice. Otherwise, the application of the principle to solicitors risks imposing an unjustifiable constraint on the freedom of clients to retain legal services, a countervailing public interest.[200]

123 A common context for the assertion of a real and sensible possibility of a conflict of duty and duty occurs when an injunction is sought to restrain a solicitor from acting for one client where to do so would likely require that solicitor to breach a duty owed to another client or a former client. Examples are cases where there is a real concern that a solicitor:

(a) may misuse confidential information received from one client, to its prejudice, in order to comply with a duty to advance the interests of the other;[201] or

(b) might be bound by a duty to advise the first client to take a step that would be detrimental to the second client (for example, to advise a purchaser-client to rescind a contract with a vendor-client or to advise an investor-client to invest money in the business of another client).[202]

124 In these instances, the Court is able to identify a specific type of conduct by the solicitor-fiduciary that would involve the breach of a duty to one client in order to carry out the solicitor-fiduciary's duty to another client. The conflict of duty is not found merely in the fact of double employment, or of there being differing interests or risks associated with each client in respect of the matter at hand.

125 These observations lead to a vital point. In a case of an alleged conflict between duty and duty, it is essential to identify how the duties conflict, not merely the interests of or risks to the clients. The first step in that endeavour is to identify the actual duty or obligation owed by the fiduciary to the principal. In In re Goldcorp Exchange Limited,[203] the Privy Council held:

To describe someone as a fiduciary, without more, is meaningless. As Frankfurter J said in S.E.C. v Chenery Corporation [1943] USSC 32; (1943) 318 U.S. 80, 885-86, cited in Goff and Jones, The Law of Restitution, 4th ed (1993), p 664:

To say that a man is a fiduciary only begins analysis; it gives direction to further enquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge those obligations? And what are the consequences of his deviation from duty?[204]

126 Having identified what duty the fiduciary owed to each client-principal, it is then necessary to enquire how those duties were adverse to one another, or potentially adverse. This touchstone of conflict is illustrated by statements in a number of cases. In Nasr v Vihervaara,[205] Doyle CJ (with whom Vanstone and White JJ agreed) held:

In particular, if a solicitor possesses confidential information as a result of acting for the former client, and it would be in the interests of the new client that the information be made available for use by the new client, there is an obvious conflict between the duty of confidentiality owed to the former client, and the duty to bring to the attention of the new client information which might advance the interests of the new client.[206]

... "the fiduciary may be unable to discharge adequately the one obligation without conflicting with the requirement for observance of the other obligation": Breen v Williams (at 135), per Gummow J; see also Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 42 FCR 390 at 392-393. [207]

128 The nature of conflicting duties is also explained in the context of its cure, namely fully informed consent. The knowledge necessary for the consent to be fully informed is that the solicitor may be disabled by the duty to one client from fulfilling the duty to the other. This was explained by Lord Jauncey for the Privy Council in Clark Boyce v Mouat:

Informed consent means consent given in the knowledge that there is a conflict between the parties and that as a result the solicitor may be disabled from disclosing to the other party the full knowledge which he possesses as to the transaction or may be disabled from giving advice to one party which conflicts with the interests of the other.[208]

129 Nevertheless, although the critical feature of this type of conflict is that the fiduciary's duties must be in conflict with one another, it is usually the case that the duties are in conflict because the interests of the clients are opposed to one another. So much is illustrated by a statement from Brooking JA (with whom Ormiston JA and Chernov JA agreed) in Spincode Pty Ltd v Look Software Pty Ltd,[209] when, discussing a 1987 paper by Professor Finn concerning the duty of loyalty, he said:

The entitlement to the undivided loyalty of a fiduciary whom one has retained is said to find its expression in a duty not to place oneself in a position in which the fiduciary owes a duty to a client which is inconsistent with the duty owed to another client [...] The conflict of duty and duty rule is discussed in relation to two situations [...] The first is where the fiduciary acts for two unrelated beneficiaries in the same matter where the interests of the two are, or are potentially adverse.[210]

130 It is important to add that the interests of the client-principals must generally be opposed or adverse to one another, not merely 'different' or 'not coincident' or 'not aligned'. What is required is that they lead in different directions. It is the inconsistent, opposed or adverse nature of the principals' interests which creates the problem. A fiduciary, duty-bound to serve both, may be 'swayed' by the duty to one against the interest of the other. 'Swayed' connotes the fiduciary being induced or led away from serving the interests of the principal which the fiduciary is duty-bound to protect. As Deane J explained in Chan v Zacharia, it is the objective of the conflict rule to prevent the fiduciary from being so induced.

131 Thus, in Farrington, Richardson J identified the paradigm situation in which a solicitor's duty of undivided loyalty would be challenged, ie when a solicitor has to discharge a duty to one client whose interests are in opposition to the other.[211]

132 In Break Fast's written opening submission, it argued that the requirement of single-minded loyalty may be breached when the relationship between concurrent clients 'does not reflect an identity of interests' or the clients' interests 'do not coincide'.[212] A number of cases were said to exemplify this principle. In my opinion, that formulation advanced by Break Fast was too loose or too broad. The cases referred to do not indicate that mere lack of identity of interest or the absence of coinciding interests between the principals whom the fiduciary was bound to serve will give rise to a conflict of duties owed by the fiduciary.

133 Going to some of the cases which Break Fast cited in support of the proposition it advanced:

(a) Oceanic Life Limited v HIH Casualty and General Insurance Ltd[213] concerned solicitors who possessed confidential information of its client, an insured, when acting for an insurer who was denying indemnity to that insured. Given that the solicitors would be bound to use all relevant information at their disposal to advance its insurer-client's case, there would be a plain, actual breach of loyalty if the insured's information was used for the insurer;

(b) Ji v Bluestars Real Estate Pty Ltd & Ors[214] concerned a plaintiff who applied to restrain the same solicitor from acting for all defendants where, on the pleaded defence, the defendants alleged the other defendant's liability for apportionment purposes, a plain actual conflict;

(c) in Power v Ekstein,[215] Power applied to bring derivative claims in the name of a company against Ekstein, the controller of that company. Austin J found 'obviously unacceptable conflicts' if Ekstein was able to control the company bringing the derivative claims against himself personally and his Honour foresaw likely conflicts arising for any solicitor acting both for the controller of the company and the company itself in those derivative claims. The conflicts would arise in matters of apportionment of liability and contribution;

(d) Sharp & Anor v Rata International Pty Ltd[216] concerned a plaintiff seeking to restrain solicitors from acting for all defendants in an oppression claim where one personal defendant was alleged to be conducting the affairs of the company-defendants oppressively towards the plaintiff. Allegations were made that the personal defendant had breached a fiduciary duty owed to the company-defendants causing harm to the companies - a clear conflict on the allegations made. Almond J identified circumstances where the conduct of the litigation for the companies might be influenced by a duty owed to, or the solicitor's interest in the retainer of, the personal defendant;

(e) in Nangus Pty Ltd & Anor v Charles Donovan Pty Ltd (in liq) & Anor,[217] counsel appeared for the tenant and the guarantor of a tenant in a claim for rent where, if the rent was owing, counsel's argument on the guarantee, if successful, would mean that the whole burden of damages was thrown upon his tenant-client. The defences filed on behalf of each client were inconsistent; and

(f) Day v Ponsonby[218] was a case in which the Court held that counsel could not hold two briefs for different creditors to the same fund where the two clients were rivals in their claims upon the fund.

134 Having emphasised this point, it is worth repeating that the opposing interests of clients are not of themselves necessarily indicative of any adverse or conflicting duties on the part of a solicitor who acts for both of them. For there to be adverse or conflicting duties the opposing interests of the clients must be interests that the fiduciary is duty-bound to protect or advance and that the fiduciary cannot protect or advance at the same time.

135 In summary, from the foregoing discussion I consider that the following principles apply to guide my analysis of this case:

(a) in the context of a duty and duty conflict, the objective of the conflict rule is to prevent a fiduciary of one principal being swayed from observing the duty to that principal by considerations of a duty to another;

(b) although there is a view that the applicable standard for determining whether a duty and duty conflict exists is to ask whether an actual conflict exists, the better view is that the same standard applies as for interest and duty conflicts, namely whether there is a real and sensible possibility of conflict;

(c) to find a real and sensible possibility of conflict requires being able to identify, in a practical way, the potential for a real conflict to arise. A merely theoretical or remote possibility of an ill-defined conflict will not suffice;

(d) a duty and duty conflict requires, first, the identification of the duties owed to the fiduciary's principals and, secondly, a practical articulation of how those duties do or may conflict in the sense of disabling the fiduciary from discharging the duty to one because of the requirement to observe a duty to the other;

(e) the existence of different, non-aligned or even adverse interests between two principals of a fiduciary is not sufficient in itself to show that the fiduciary has a duty and duty conflict when acting for them both; but

(f) in order to find that the fiduciary's duties are in conflict it is usually necessary to identify interests of the principals (1) which the fiduciary is duty-bound to protect or advance and (2) which are opposed to one another.

What were Rigby Cooke's duties to Break Fast and the Voukidis Defendants?

136 Break Fast retained Rigby Cooke on 2 December 2004 to act on its behalf in respect of its dispute with Ambridge. The terms of the retainer were wide enough to embrace both the Caveat Proceeding then on foot and the broader Ambridge Proceeding that soon followed. The scope of the retainer was set out in a letter of that date.[219] Essentially, it was to undertake the usual tasks associated with acting in a litigious matter including completing court documents, attending hearings and briefing counsel. It also expressly included advising Break Fast in relation to the claims made by Ambridge (through its receiver).

137 There was no separate letter of retainer sent to the Voukidis Defendants. Nevertheless, Rigby Cooke individually corresponded with Voukidis, Baker and McGrouther (for themselves and their respective companies, C&O Voukidis, Career Path and IMF) to obtain their instructions to accept service (and implicitly to act) on their behalves in the Ambridge Proceeding. The correspondence was exchanged in late January and early February 2005.[220] Just prior to the first listed trial date in late February 2006, Nemeth emailed Voukidis, Baker and McGrouther saying that it had come to her attention that no fee agreement had been entered into by any of them with Rigby Cooke and that fee agreements had been prepared and emailed to them.[221] The next day, Rigby Cooke sent cost agreements to each of Voukidis, Baker and McGrouther.[222] Although the email correspondence and the fee agreements did not explicitly set out the duties Rigby Cooke was bound to perform under the retainer, I consider it is to be inferred that the duties owed toward the Voukidis Defendants corresponded with those that had been outlined in the Break Fast retainer letter.

138 It is important to note that, except for a limited purpose, the scope of Rigby Cooke's duties to Break Fast, on the one hand, and the Voukidis Defendants, on the other, did not explicitly include a duty to give advice as to how the cost of defending the proceeding should be funded. The limited purpose was the extent to which it was necessary for Rigby Cooke to take instructions on, give advice about and represent Break Fast in relation to the various applications made by Ambridge in November 2005 and May 2007 to restrain or limit Break Fast from using the Property assets to fund the defence of the proceeding.

139 More particularly, the terms of Rigby Cooke's retainer by the Voukidis Defendants did not extend to advising those defendants how they could minimise or deflect their own personal liability to pay Rigby Cooke's fees for representing them in the Ambridge Proceeding. Nor could it be argued that there was any general duty in tort imposed upon Rigby Cooke to separately advise the Voukidis Defendants how they may avoid or deflect their personal responsibility for paying Rigby Cooke's fees. No suggestion of any such duty was ever made by Break Fast in the case before me.

140 So, the primary duty owed to each client turned upon the allegations that were made against the respective client in the Ambridge Proceeding, and the obligations of Rigby Cooke as solicitor to exercise care and skill to defend those allegations and advance any counter allegation that was advisable for the purpose of obtaining a successful outcome in the proceeding. Additionally, because Rigby Cooke was acting for multiple defendants, it owed each client a fiduciary duty to avoid a real and sensible possibility of any conflict between its duties (as so defined) owed to each of them.

What allegations were made against each defendant?

141 From the commencement of the Ambridge Proceeding on 31 January 2005 through to its hearing in October and November 2009 there were a total of seven versions of the statement of claim. They were as follows:

(a) the writ filed 31 January 2005 ('Writ');

(b) an ASOC filed 29 March 2006;

(c) the FASOC filed 4 August 2006;

(d) the 2nd FASOC filed 1 November 2006;

(e) the 3rd FASOC filed 22 February 2008;

(f) the 4th FASOC filed 30 June 2009; and

(g) the 5th FASOC filed 13 October 2009.

142 Brief reference was made to some amendments in the Background section above. Without intending to canvas all the various claims and variations of them, it is informative to notice some of the main allegations and claims made against different defendants over the course of time and how the allegations changed.

143 The Writ contained 17 paragraphs. By way of relief, Ambridge, amongst other relief, sought declarations that:

(a) Ambridge had an equitable interest in the Property as tenant in common with Career Path, IMF and C&O Voukidis;

(b) Break Fast held the Property as nominee and bare trustee for the joint venturers, including Ambridge as to 25%; and

(c) Ambridge was a member of Break Fast.

144 The allegations in the Writ included that, in or about 2000, Break Fast (as joint venture manager) had entered a joint venture agreement with Career Path, IMF, C&O Voukidis and Ambridge (as joint venturers). The joint venture agreement was said to have been partly in writing, partly oral and partly to implied. It was contended that the terms of the alleged joint venture agreement included that Break Fast would hold the Property 'non-beneficially' as bare trustee on behalf of the joint venturers and would be the joint venture manager, and that the joint venturers would participate in the joint venture in the following proportions: Career Path, IMF and C&O Voukidis as to 75% and Ambridge as to 25%.

145 In the Writ, the only parties alleged to have breached the joint venture agreement were Baker, Voukidis, Career Path, IMF and C&O Voukidis. Their breach was said to have consisted of failing to recognise the interests of Ambridge in the joint venture, wrongfully asserting that Break Fast held the property beneficially, and failing or refusing to acknowledge Taylor as a director of Break Fast.

146 In the ASOC, filed 14 months later, additional paragraphs were added and changes were made to existing paragraphs. In this version, Ambridge alleged the existence of an 'antecedent agreement' made between Baker, Voukidis and Stanley in or about November 1999. Further, in respect of the joint venture agreement, to which Break Fast was still alleged to have been a party, the date was amended from 'about 2000' to 'about 2000, alternatively 2001'. Rather than being an agreement to enter a joint venture to purchase, develop and manage the Property, it was amended to have been a joint venture to 'hold, develop and manage the Property'. In this version, Break Fast is alleged to have breached the joint venture agreement along with Career Path, IMF and C&O Voukidis in the same way as had been alleged against the latter three in the previous version.

147 In the FASOC, Ambridge removed the allegation of an antecedent agreement and the breach of it. It changed the date of the alleged joint venture agreement again to alleging that it had been made 'in late 1999 or early 2000'. Additionally, the central purpose of the joint venture was changed, becoming: ' to acquire, hold, develop and manage the Property'. Further, Break Fast, as Joint Venture Manager, was alleged, by the terms of the joint venture agreement, to hold not only the Property but 'all Joint Venture assets'.

148 The FASOC no longer alleged that Break Fast was one of the defendants who had breached the joint venture agreement, and instead the allegation of breach was confined to the three corporate Voukidis Defendants, there being a new allegation that the three individual Voukidis Defendants had jointly and severally procured those breaches.

149 A new section was introduced under the heading 'Control over Break Fast' in which it was alleged that 'the defendants' had jointly and severally taken steps to exercise dominion and control over Break Fast in denial of Ambridge's 25% interest in the joint venture. Payments were alleged to have been made or transactions entered into by Break Fast without the approval of Ambridge.

150 In the 2nd FASOC, Ambridge amended the terms of the pleading concerning the joint venture agreement. Rather than alleging that Break Fast had entered that agreement with Career Path, IMF and C&O Voukidis, the 2nd FASOC alleged that Break Fast had entered the agreement with Voukidis, Baker and Stanley. The particulars of the allegation of the agreement were reformulated. The persons said to be holding the proportions of shares in the joint venture were also changed from the corporate Voukidis Defendants to the individual Voukidis Defendants (together with Stanley instead of Ambridge).

151 In this version, Ambridge reintroduced Break Fast as being a defendant who had breached the joint venture agreement, this time alleging that Baker and Voukidis had procured the breaches, including by Break Fast.

152 Furthermore, under the heading 'Control over Break Fast', Ambridge expanded on particulars it had provided under the previous version relating to unauthorised payments or transactions made by Break Fast. Additionally, in this version, Ambridge introduced an 'alternative trust claim', being an alternative claim if the Court did not conclude there was a joint venture as alleged. In the alternative trust claim, Ambridge alleged that Voukidis, Baker and Stanley agreed that Break Fast would acquire the Property as bare trustee for them or their respective nominees. Under that alternative claim, it was alleged that Break Fast held a 25% interest in the Property on constructive trust or a resulting trust for Ambridge. A declaration was added to the prayer for relief in those terms.

153 In the 3rd FASOC Ambridge introduced a paragraph under the heading 'Taking of Accounts and Adjustment of Interest'. In the paragraph that followed (paragraph 27) Ambridge alleged:

Any amounts which are found by the Court to be payable by any of the parties to any other of the parties by way of final relief will be determined following the payment of all liabilities of Break Fast, the taking of any necessary accounts and the making of any necessary adjustments as between the parties, having regard to payments and other transactions which have occurred since the acquisition of the Property.

154 The 4th FASOC contained a number of changes. In it, Ambridge alleged for the first time an agreement called 'the Property Search Agreement' made in late September 1999 between Baker, Voukidis and Stanley. The joint venture agreement was now alleged to have been made between mid-November 1999 and prior to 24 November 1999 between Voukidis, Baker and Ambridge (but not Break Fast). Ambridge alleged that, by the agreement's terms, 'Newco', which became Break Fast, would purchase the Property as trustee for, and in its capacity as manager of a joint venture between Baker, Voukidis and Ambridge, in proportions to be determined after the purchase price of the Property and required capital contributions of each participant were known. Ambridge alleged that around 24 November 1999 Voukidis, Baker, Ambridge and Break Fast had agreed, among other things, to Ambridge being paid a fee of $500,000 pursuant to the Property Search Agreement.

155 Ambridge then alleged that a number of events happened, including:

(a) the preparation of a draft joint venture agreement in February 2000;

(b) the settlement of the purchase of the Property by Break Fast on 29 February 2000;

(c) a further agreement involving Break Fast in March/April and May 2000 that the terms of the draft joint venture agreement were acceptable;

(d) a further financial contribution allegedly made by Ambridge to Break Fast between February and August 2000;

(e) Ambridge's management of the redevelopment works of the Property; and

(f) the nomination by Baker and Voukidis of entities which would hold their interests in the joint venture.

From all of those facts Ambridge alleged that there were terms of a joint venture agreement binding Break Fast, Career Path, IMF, C&O Voukidis and Ambridge. Break Fast was included among the defendants said to have breached the joint venture agreement including by making decisions and undertaking steps without the consent of Ambridge regarding the borrowing of money, grant of securities over the Property and dealing with the joint venture Property.

156 In a new and separate section, under the heading 'the Duties', Ambridge alleged that Break Fast owed Ambridge specific equitable and fiduciary duties including to act in good faith in its dealings towards Ambridge, not to use the Property of the joint venture for a purpose not related to the interests of all joint venturers, to avoid conflicts of interest and not to deny Ambridge's interest in the joint venture. Under a new and separate heading 'Breaches of Duties' Ambridge alleged that Break Fast had breached those fiduciary and equitable duties relying upon and repeating its allegations of Break Fast's breach of the joint venture agreement.

157 In a further new section, Voukidis and Baker were alleged to have knowingly assisted Break Fast's breaches of its fiduciary duties towards Ambridge and to have knowingly received payments made by Break Fast in breach of those duties. Accordingly, in paragraph 30, Ambridge alleged that 'each of Voukidis and Baker are liable in equity to account to, or pay equitable compensation to, Ambridge Investments, alternatively Break Fast'. For the first time, an order was sought that a receiver be appointed to manage the affairs of Break Fast.

158 The final version, the 5th FASOC, was substantially in the same terms as the 4th FASOC. Oxley was added to those defendants said to be liable for assisting in the breaches of trust and being liable to account to or pay equitable compensation to Ambridge, alternatively Break Fast, for moneys allegedly paid in breach of trust.

159 There are several observations to make about the allegations pleaded by Ambridge over the course of time.

160 First, the allegations made against Break Fast involved matters of diverse factual and legal substance, not merely as to its status as a trustee. That is to say, over the course of time, Ambridge alleged that Break Fast, as a separate legal person, entered agreements with other persons whereby Break Fast took upon itself specific contractual duties including to hold property in a particular capacity, perform contractual and equitable duties towards specified persons, undertake the management duties in connection with the joint venture, and so on. Similarly, the Voukidis Defendants were also alleged (in different combinations, and at different times) to have entered, and breached, the same joint venture agreement

161 Ambridge also alleged (in some versions of its claim) that Break Fast, alone, owed and breached fiduciary duties toward Ambridge that arose in consequence, not only of the joint venture agreement, but also in consequence of other events that had allegedly occurred.

162 Further, the relief claimed against Break Fast did not stop at merely declaring that it was a bare trustee of property. The relief sought extended to declarations that Break Fast had entered a joint venture agreement subject to specified terms (including that it perform the role of a joint venture manager), that it held a particular, proportionate interest in property on constructive trust for Ambridge, as well as declarations from time to time as to the membership and control of the company.

163 Secondly, separate and different allegations were made against the Voukidis Defendants which did not directly involve Break Fast. For example, Ambridge alleged against the Voukidis Defendants their entry into the separate 'antecedent agreement' (ASOC), a 'Property Search Agreement' (4th FASOC) and their liability to account as between the alleged joint venture participants (3rd FASOC). Other allegations, while primarily directed towards the Voukidis Defendants, necessarily implied the involvement by Break Fast. These included allegations that the Voukidis Defendants procured Break Fast to breach the joint venture agreement including by allegedly making unauthorised payments for purposes not related to the interests of all joint venturers and in breach of Break Fast's fiduciary duties.

164 Thirdly, important aspects of the allegations and claims involving Break Fast varied over time, for example:

(a) the date of the joint venture agreement;

(b) whether Break Fast was or was not a party to the joint venture agreement;

(c) the persons with whom Break Fast allegedly entered into the joint venture agreement;

(d) whether Break Fast did or did not breach the joint venture agreement;

(e) the source and nature of the trust of which Break Fast was alleged to be the bare trustee, ie whether it was the joint venture agreement alone, the joint venture agreement together with other events, or entirely independently of any agreement; and

(f) the nature of the breaches of the alleged agreement or fiduciary duty alleged against Break Fast, ranging from none at all, to denying the trust and not recognising Ambridge as a joint venture participant, through to making payments and entering transactions that were unrelated to the interests of all joint venture participants.

165 Before leaving this section, it is useful to note, in broad terms, the thrust of the defence that was filed on behalf of Break Fast and the Voukidis Defendants to the allegations made in the Ambridge Proceeding.

166 From the outset, the Break Fast Defendants denied the central allegation that they (or any of them) had entered the joint venture agreement, in any of the various iterations that Ambridge alleged. The Break Fast Defendants each positively asserted that Break Fast owned the Property beneficially. They also denied that Ambridge was a shareholder in Break Fast.

167 By the defence filed 1 May 2006 in response to the ASOC, the Break Fast Defendants pleaded, in the alternative, that if a joint venture agreement was found to have been made between Ambridge and any of the Break Fast Defendants, then Ambridge had a substantial outstanding liability to the joint venture because of unauthorised payments Stanley had allegedly caused Break Fast to make to Ambridge out of the assets of the joint venture. Accordingly, the Break Fast Defendants pleaded that if Break Fast was liable to pay Ambridge any sum as a joint venturer, Break Fast was entitled to deduct from such sum the amounts that Ambridge was liable to repay to the joint venture.

Did Break Fast have an interest in the Ambridge Proceeding?

168 An important aspect of Break Fast's argument in this proceeding is that, properly analysed, Break Fast had no real interest in the outcome of the Ambridge Proceeding. Break Fast contended before me that the main dispute in the Ambridge Proceeding was one between joint venture participants, and that Break Fast, as a separate legal entity, had no real interest in the outcome of that dispute. According to Break Fast now, its only interest then lay in whether it 'reported' for the proceeds of the joint venture to shareholders, on the one hand, or to beneficiaries of a trust, on the other. It could simply have remained passively disinterested, so it argued, and abide by the outcome of the joint venture participants' dispute.

169 I reject that analysis of Break Fast's interest and role in the Ambridge Proceeding.

170 Break Fast was not only an alleged active participant in the factual events which were said to have taken place, but it had real, consequential stakes as an individual legal person in the findings to be made on the contested events.

171 As appears from the summary of the allegations I have set out above, Break Fast was itself alleged to have been a party to the joint venture agreement. It denied having entered that agreement. The precise particulars of how and with whom it had entered the joint venture agreement varied in the respects I have described. If it was proven, against Break Fast's denial, that it did in fact enter the joint venture agreement, the consequences for Break Fast were significant and onerous. Rather than being the beneficial owner of the Property, as it contended, Break Fast would only hold a legal interest in the land. Put another way, instead of having a valuable asset on its balance sheet, Break Fast would have none (save a right of indemnity against the Property for liabilities properly incurred). Further, if, against its denial, Break Fast held the Property on trust, it would be subject to the onerous duties of a trustee rather than being free of such duties. And if it were found to be a party to the alleged joint venture agreement, Break Fast would be subject to other enforceable contractual obligations to which it would not be subject if it were not party to such an agreement.

172 In my view, it is simplistic and incorrect to equate the Ambridge Proceeding with a shareholders dispute or an oppression action as Break Fast contended in the current proceeding. In Power v Ekstein,[223] Austin J dealt with an argument that the case before him was a dispute between shareholders and not the companies in question. For the assessment of whether a company should participate in the litigation and commit its assets to do so, his Honour adopted the test of 'whether it is necessary or expedient in the interests of the company as a whole'.[224]

173 In the Ambridge Proceeding, Break Fast faced allegations which, once determined, would determine the capacity in which it held property, what were or were not its own assets and what legal or equitable duties it was or was not subject to. Break Fast was no mere spectator in a dispute between rival shareholders. The dispute went to the very question whether the protagonist, Ambridge, was in fact a shareholder or otherwise a participant in a venture in which Break Fast was said to be both manager and trustee. In my view, if, on the instructions of its directors, Break Fast had arguable grounds to dispute the factual allegations being made, it had a real and substantial interest in defending the claims made against it based upon those facts. Given what was at stake for Break Fast, it was necessary and expedient in the interests of the company as a whole to defend the proceeding.

174 On 24 November 2005, Ambridge sought an order from Whelan J to restrain Break Fast from paying legal fees to Rigby Cooke for the defence of any of the Break Fast Defendants. The application failed. Whelan J said he would not make an order that would prevent Break Fast from defending the Ambridge Proceeding asking, 'How can I stop the company that wants to contend that it is the owner from running the case that it is that?'[225] With respect to his Honour, that question seems to me to neatly encapsulate Break Fast's proper and substantive interest in the Ambridge Proceeding.

Did the Voukidis Defendants have an interest in the Ambridge Proceeding?

175 Essentially, the three individual Voukidis Defendants, and their associated companies, shared a similar interest in defeating the Ambridge Proceeding. On their version of events, their participation in the project to develop the Property was in their capacity as shareholders in Break Fast, and that shareholding excluded Ambridge. The share formerly held by Stanley, on their version of events, had been passed to Oxley under a mortgage.

176 In substance, the interests of the Voukidis Defendants lay in defeating Ambridge's claim to a 25% interest in the joint venture which, inevitably, would have reduced the value of their own stake in the project. Defeating Ambridge would also have maintained the control of the project between them without having to defer to the interest or influence of Ambridge.

177 Clearly, the consequences of Ambridge succeeding in its claim were not identical for Break Fast on the one hand and the Voukidis Defendants on the other. But what is the significance, if anything, of that observation for this case?

Were the interests of Break Fast and the Voukidis Defendants adverse or opposed?

178 In my view, while the interests of Break Fast and the Voukidis Defendants in the outcome of the Ambridge Proceeding were different, they were not adverse or opposed in any sense that is relevant for determining whether there was a conflict of duty and duty for the legal practitioner representing them both.

179 Ambridge's claims that Break Fast held the Property on trust, and that Ambridge held a 25% interest in the joint venture with the Voukidis Defendants, both stemmed primarily from the one allegation that the Break Fast Defendants had entered into the joint venture agreement with Ambridge. Break Fast's defence as to the trust and the Voukidis Defendants' denial of the Ambridge stake in the project both lay in disputing that allegation. Further, Ambridge's alternative claims that Break Fast held the Property on a constructive or resulting trust in which Ambridge held a 25% beneficial interest also depended upon a common factual narrative which both Break Fast and the Voukidis Defendants had their own reasons for denying.

180 This was not a situation where the defence for one defendant, if advanced, compromised the defence of another. Nor were there allegations of apportionment or contribution which set one defendant against another.

181 Several defendants having different interests in, or experiencing different impacts from, the outcome of the same proceeding does not of itself mean that those defendants have opposing interests in the proceeding. The outcome of a claim may impact different defendants in different ways. But where both impacts stem from the same outcome and each defendant relies, commonly, on pressing or resisting that same outcome, their interests are in fact aligned.

182 In my view, that is the proper analysis of the positions of Break Fast and the Voukidis Defendants in respect of the claims made in the Ambridge Proceeding. Each faced somewhat different impacts and consequences from a potential finding that they had concluded a joint venture agreement with Ambridge along the lines alleged. Those impacts differed because of their different roles and relationships to the subject matter of the Ambridge Proceeding. But those differences did not cause their individual interests in defending the Ambridge Proceeding to be in conflict with one another.

183 Having made the general observations above as to the interests of Break Fast, on the one hand, and the Voukidis Defendants, on the other, and whether those interests were adverse or opposed, I turn to the specific allegations of conflict made by the plaintiff in this proceeding. I do so by reference to the various elements of conflict which I have already summarised and which I can conveniently amalgamate.

184 First conflict element: that Break Fast, uniquely, faced the allegations that it was a trustee and had acted in breach of trust whereas the Voukidis Defendants faced no such allegations.

185 This feature is an example of the various defendants facing different impacts or consequences from the allegations made rather than facing allegations that set them in conflict with one another. As already explained, these differences did not cause their interests to be adverse or opposed. They simply reflected their different participatory roles in the overall project. Of themselves, those different impacts or consequences neither set their interests against one another nor did they imply that the same lawyer acting for them in the litigation would necessarily have conflicting duties towards them.

186 Second conflict element: that Break Fast faced no substantive allegations in the Ambridge Proceeding; the proceeding was essentially a dispute between shareholders or joint venturers; and, so, Break Fast only had an interest in taking a passive role.

187 I have dealt with this element at paragraph 172. I disagree with the propositions within it for the reasons I have already stated.

188 Had Break Fast been the only defendant in the proceeding, and its directors were neither shareholders nor stakeholders in the joint venture itself, in my view, there would be nothing amiss if solicitors acted on the directors' instructions to dispute the claims made against the company if, on those instructions, there was a viable defence to the allegations made. Break Fast, as a separate legal person, would have had all the interests I have identified above in denying the existence of the trust and its role as trustee if, on those instructions, there was an arguable case that it did not enter the joint venture agreement or relinquish its beneficial ownership of the Property.

189 The question is whether anything changes in that analysis because the directors were also either shareholders or stakeholders in the joint venture and, thus, had personal interests as co-defendants as well. In my view, the various attempts to posit conflicting personal interests by reason of their status as shareholders, stakeholders or co-defendants failed for the reasons that follow.

190 Third conflict element: that Break Fast faced only risk, without benefit, in spending money that was potentially sourced from trust assets in defending a claim in which it had no interest; whereas, the Voukidis Defendants faced only benefit, without financial risk, in having Break Fast paying the defence costs for the Break Fast Defendants from potential trust assets.

191 This element appears to be vital to Break Fast's assertion of a supposed conflict of interest between itself, on the one hand, and the Voukidis Defendants, on the other, giving rise to a conflict of duty and duty faced by Rigby Cooke.

192 As to the first proposition within this element - namely, that Break Fast faced only risk with no benefit in defending a claim in which it had no interest - I reject it for the same reasons I have stated in answering the second element of conflict. The second limb of this element of conflict - namely, that the Voukidis Defendants had an interest in having Break Fast paying their defence costs - may appear true at a superficial level. On close analysis, however, it is of no significance in this particular case, for a number of reasons.

193 First, there was no evidence that the Voukidis Defendants could not fund their own defences. In fact, the opposite appeared to be true. As counsel for Break Fast in this proceeding pointed out, and was accepted by Nemeth, Baker himself was extremely wealthy.[226] Voukidis himself was an accountant with apparent financial resources of his own.[227] Later in the Ambridge Proceeding, in October 2009, the Voukidis Defendants funded the costs of the trial from their own resources.[228] In other words, although it might have been expedient to have Break Fast pay their legal costs, it was not essential that Break Fast would do so for the Voukidis Defendant to have their interests protected.

194 Furthermore, it was not the case that the Voukidis Defendants had no personal stake in the fund under the control of Break Fast from which the legal costs were being paid. Either that fund was the asset of the company of which they were the three shareholders, or it was the property of the trust in which, collectively, they held the largest interest subject only to adjustment between themselves and Ambridge.

195 There was potential for there to be some future adjustment between the joint venture participants because of expenses that had been paid to or on behalf of those participants from Break Fast's funds. Such potential future adjustment was something which was readily contemplated by all the parties to the Ambridge Proceeding. Such an adjustment had been contemplated as the practical solution to the problem that would arise if it later transpired that Break Fast had been spending trust money, against the interest of one of the beneficiaries (namely, Ambridge), in defending the Ambridge Proceeding.

196 The possibility that there might be the need to adjust the beneficiaries' interests if Ambridge succeeded in the action was discussed on numerous occasions between Rigby Cooke and the Voukidis Defendants.[229] It was also the subject of Break Fast's counsel's submissions to the Court in response to the restraint application brought by Ambridge in November 2005.[230] Justice Whelan himself alluded to it as a likely solution in his remarks during that application.[231] Collins and Herskope advised on 17 February 2006 that for the purpose of any distribution among joint venturers, should it be found Break Fast was a trustee of a joint venture, Break Fast would first need to reimburse to the trust all legal costs paid to defend the proceeding because Break Fast would not have been entitled to indemnify itself out of trust funds to deny it held the Property on trust.[232] Such a reimbursement would, logically, have had to come from the pockets of the Voukidis Defendants, or an equivalent sum would have had to be deducted from their interests in the trust assets. Further, as set out earlier in these reasons, an adjustment between joint venturers was a prospect which Ambridge itself had contemplated in its pleading in paragraph 27 of the 3rd FASOC.[233]

197 It follows that it is simply wrong to say that the Voukidis Defendants faced no risk, but only benefit, by having Break Fast pay the legal costs of the Ambridge Proceeding.

198 Finally, and significantly, even if (contrary to what I have found) there was a conflict between the interests of the Voukidis Defendants in having their defence costs paid by Break Fast, on the one hand, and of Break Fast in avoiding the risk of being in breach of trust by paying fees out of trust assets, on the other, this scenario did not produce any conflict between the duties owed to them by Rigby Cooke. Saying that the Voukidis Defendants had an interest in having their defence costs paid is not the same thing as saying that Rigby Cooke had a duty to pursue that outcome for them.

199 As stated earlier,[234] Rigby Cooke had no duty to obtain a free litigation service for the Voukidis Defendants or to have Break Fast pay their defence costs. Ensuring that Break Fast pay the Voukidis Defendants' defence costs was not part of the terms of Rigby Cooke's retainer or otherwise a general law duty owed by Rigby Cooke to the Voukidis Defendants. Rigby Cooke did not advise its clients how the fees were to be paid. The clients decided that for themselves and it was not suggested otherwise.[235] Rigby Cooke was not 'disabled' from performing its duty to give proper legal advice to Break Fast owing to any conflicting duty to the Voukidis Defendants to secure for them payment of their defence costs out of the funds at Break Fast's disposal ─ because there was no such conflicting duty. Put another way, the Voukidis Defendants would have had no cause of action against Rigby Cooke for failing to advise Break Fast that it must or should pay the Voukidis Defendants' defence costs. On this particular matter, there was no prospect of Rigby Cooke being swayed by its duty to one against performing its duty toward the other.

200 If, contrary to my view, Rigby Cooke breached a duty owed to Break Fast for failing to advise it to take a passive role only in the Ambridge Proceeding and not to spend money from the Property assets on the defence of the proceeding, such a breach was not a manifestation of any conflict of duties owed to several clients. It was not submitted that Rigby Cooke declined to give such advice to Break Fast because it was disabled or swayed from doing so by a conflicting duty owed to the Voukidis Defendants. At the highest, it would have been the breach of a unilateral duty owed to Break Fast alone which would sound in either negligence or breach of retainer. It would not have been a breach of a fiduciary duty loyalty.

201 Fourth conflict element: that Voukidis and Baker, in their personal capacities, had interests which conflicted with those of Break Fast and, thus, their interests and duties as directors; accordingly, Break Fast ought to have been advised to obtain independent legal advice.

202 Voukidis, Baker and McGrouther were no doubt interested in maximising the value of their stake in the Property. To that end, their personal interests lay in denying the claim that Ambridge had any interest in the Property or joint venture or that it was a shareholder in Break Fast. Once again, their interests were different to that of Break Fast. But Break Fast's interest in asserting that it was the legal and beneficial owner of the Property lay in denying and defeating the same allegations made by Ambridge which were the source of Ambridge's claim that it shared a 25% stake in the joint venture with the Voukidis Defendants and was a shareholder in Break Fast.

203 The proposition that Voukidis and Baker had personal interests in the Ambridge Proceeding may be accepted. But the proposition that their interests in maximising their personal stakes conflicted with the interests of Break Fast is not borne out by this analysis. To arrive at that conclusion one also needs to find that Break Fast itself had no separate interest in defending the proceeding - a proposition that I reject.

204 To the extent that Voukidis and Baker, as Break Fast's directors, needed to take care that their personal interests in maximising their financial stake did not cause them to misrepresent the facts and, in so doing, also put Break Fast into jeopardy, was a risk inherent in the reality that they were both directors and shareholders or potential beneficiaries of Break Fast. It was never suggested that Rigby Cooke should have advised Voukidis and Baker to divest themselves of their directorships. It is difficult to see what utility would have been gained in advising Break Fast to obtain independent legal advice about its prospects of success whilst Voukidis and Baker remained its directors. Why should it be supposed that Voukidis and Baker would have given different instructions on Break Fast's behalf about the same events to lawyers who were not also acting for the Voukidis Defendants?

205 Very late in the piece, about four and a half years into the Ambridge Proceeding and not long before the trial commenced, Ambridge pleaded some allegations that Voukidis and Baker had knowingly assisted Break Fast to breach its fiduciary duties towards Ambridge giving rise to a liability on their part to Ambridge, alternatively to Break Fast.[236] Had there been such a claim made by Break Fast against Voukidis and Baker, Rigby Cooke may have been caught in a conflict in acting for both. But there was no such claim. There was merely an assertion by Ambridge to that extent. That assertion would have been defeated along with its other claims if Ambridge had not been found to be a beneficiary of a trust of which Break Fast was the trustee, or that it held any beneficial interest in the Property. Therefore, it was an allegation like all other allegations that Break Fast and the Voukidis Defendants both had consistent interests in defeating. At the time, no-one thought to suggest that, by reason of that allegation, Rigby Cooke faced a conflict in acting for all Break Fast Defendants at the trial nor was there evidence of any practical conflict emerging in the conduct of the trial.

206 I will briefly address the example which Break Fast gave of an actual conflict which allegedly arose in the conduct of the Ambridge Proceeding.[237] Counsel for Break Fast submitted that the episode in November 2007 concerning Break Fast's non-compliance with 3 May 2007 Order illustrated what can go wrong when a lawyer has a conflict of interest between concurrent clients. It is to be recalled that on 3 May 2007, Justice Williams ordered, by consent, that Break Fast should place $340,000 into Rigby Cooke's trust account for paying legal fees and disbursements to defend the Ambridge Proceeding. That money was to come from a larger pool of funds which Break Fast proposed to borrow against a mortgage over the Property. In cross examination in the trial before me, counsel for Break Fast sought to get Nemeth to concede that she must have known by November 2007 that Break Fast had not deposited the $340,000 into the Rigby Cooke trust account notwithstanding that she must also have known that Break Fast had drawn down that amount from the loan. Nemeth resisted that proposition, recalling that she was only aware that the $340,000 had not been put in trust some nine months later, in August 2008.

207 Counsel sought to discredit Nemeth over this evidence. The purpose of discrediting her, so it seemed, was to challenge the credibility of her evidence on a different topic, namely, whether, and if so, when she realised, or ought to have realised, that the Break Fast Defendants' defence in the Ambridge Proceeding was hopeless (relevant to its alternative claim of 'knowing receipt'). It was not put to Nemeth that during her investigations and enquiries into Break Fast's compliance with the 3 May 2007 Order she was so distracted by concerns about Voukidis' credit on the point, and the possibility he might be in contempt of court, that she overlooked some 'separate interest' of Break Fast on the matter of its non-compliance. Yet that was the illustration of the alleged conflict which Break Fast chose to use in final written submissions.

208 There is no merit to this so-called illustration of conflict. It is difficult to see what Break Fast's 'separate interest' was. The potentially adverse impact on Voukidis' credit lay in the fact that, under his control, Break Fast had not complied with the order. His credit and Break Fast's compliance were intrinsically inter-related. Focusing on his credit was not to the detriment of Break Fast. The solution to this credit issue was to get Break Fast to comply with the order or to ascertain if there was some plausible justification for apparent non-compliance. The real problem posed to both Break Fast and the Voukidis Defendants was that Voukidis' credit was vital to their respective defences. Focusing on Voukidis' explanation and protecting his credit was in the interests of all Break Fast Defendants. It was not suggested in submissions that there was something which Rigby Cooke ought to have done for Break Fast's 'separate interest' which it failed to do or was deterred from doing because of a duty owed to protect Voukidis' interest.

209 In my view, these various shortcomings in Break Fast's conflict of duty claim in this proceeding, as I have addressed them above, explain a number of things. First, they explain the difficulties which Break Fast has had in formulating a consistent definition of the conflict. Secondly, they explain the 'curiosity' that I put to counsel for Break Fast during submissions in this case, namely, the fact that so many lawyers apparently missed the existence of the conflict (assuming there had been one) during the course of the Ambridge Proceeding. Here I refer to the fact that no application was made by Ambridge to try and restrain Rigby Cooke from acting for both Break Fast and the Voukidis Defendants during the course of the proceeding. That matter is all the more conspicuous given that, if nothing else, Ambridge was enthusiastic about making applications during the pre-trial period of the Ambridge Proceeding. Neither Markowitz nor Nemeth for Rigby Cooke saw the existence of any conflict. None of the counsel who acted for the Break Fast Defendants in the Ambridge Proceeding saw themselves in any apparent conflict, and those counsel included two entirely different sets of senior and junior counsel. Lastly, none of the judges before whom the matter came - Whelan J, Williams J and Vickery J - saw fit to raise any concerns whether Rigby Cooke may have had a conflict acting for the Break Fast Defendants.

210 As counsel for Break Fast in this proceeding rightly pointed out, none of those observations prove that there was no conflict. Of course, it is a matter which I must consider for myself. But, having done so, and reached the conclusions I have, I draw some small comfort from the fact that my judgment on the matter seemingly accords with those who faced the facts in real time between 2005 and 2010.

211 I reject Break Fast's submission that Rigby Cooke breached a fiduciary duty of loyalty owed to it by acting concurrently for both Break Fast and the Voukidis Defendants in defending the Ambridge Proceeding. In short, Break Fast has not established that Rigby Cooke faced any real or sensible possibility of having conflicting duties by acting concurrently for Break Fast and the Voukidis Defendants in defending the Ambridge Proceeding.

212 Having reached that conclusion, I will only proceed to consider the remaining arguments in relation to breach of fiduciary duty in case it is later found I was wrong. I will deal first with Rigby Cooke's alternative argument that Break Fast consented to Rigby Cooke acting with conflicting duties so that it did not breach its fiduciary duty of loyalty to Break Fast. Secondly, I will consider whether any assumed breach of fiduciary duty caused Break Fast to suffer loss so as to entitle it to equitable compensation.

213 These considerations still do not exhaust the issues that were raised in opposition to the cause of action based upon breach of fiduciary duty. Beyond those that I have mentioned, there still remain the defences of unclean hands, laches, statutory limitation of action by analogy, contributory negligence, advocate's immunity and estoppel. Further, Rigby Cooke had an overriding argument that the cause of action for breach of fiduciary duty was simply unavailable to Break Fast because, in this case, the cause of action in knowing receipt must be taken to subsume it. Last is the question of the quantification of any equitable compensation to be awarded should Rigby Cooke fail to establish these aspects of its defence.

214 I will commence with the issues of consent and causation and defer consideration of the defences and quantum until after I have address the cause of action of knowing receipt of trust funds.

Did Break Fast consent or acquiesce to Rigby Cooke acting in the circumstances?

215 I now turn to the question of whether Break Fast consented to Rigby Cooke acting in a conflict of duty and duty.

216 Of course, I have not found that Rigby Cooke was acting in any such conflict so the discussion which follows must assume a finding contrary to the one I have actually made. Shortly, I will return to the difficulty this presents.

217 Rigby Cooke did not plead, in terms, that Break Fast had given informed consent to it acting in a conflict of duties. Rather, its defence focused on denying the existence of any such conflict. Although Break Fast drew attention to the absence of any pleaded consent, both sides addressed the issue of consent as if it had been pleaded, both as to the appropriate legal principles and to their application to the facts. It was not claimed that any prejudice would be suffered by Break Fast if this Court deals with the issue of consent. I consider it to be an issue that arises for determination.

218 The appropriate legal principles were not disputed by the parties. I have already referred to the passage in Clark Boyce v Mouat at paragraph 128 above. Essentially, for the purpose of this case, informed consent means consent given in the knowledge that there is a conflict of duties owed to multiple parties and that, as a result, the solicitor may be disabled from giving advice to one party which conflicts with the interests of the other.

219 What constitutes fully informed consent is a question of fact in all the circumstances of each case. There is no precise formula which will determine in all cases if fully informed consent has been given. Relevant considerations may include whether independent legal advice has been given by a third party.[238] Generally, informed consent will require that an explanation has been given to the client of the risks to the client that its lawyer may not act entirely in its interests if it continues to retain that lawyer.[239]

220 A solicitor placing a client in a situation of such potential risk must ensure that the client is in a position to make a free and informed decision about the matter that is the subject of the retainer. If in those circumstances, the solicitor does not recommend independent legal advice, a heavy burden lies upon the solicitor to demonstrate that he or she has done everything to protect the interests of the client and to ensure that the client is aware of every circumstance that might be relevant to making choices on the matter at hand.[240]

221 Nevertheless, informed consent can be inferred from the circumstance of the client having retained the solicitors with full knowledge that those solicitors are also acting for other clients and of the circumstances said to give rise to the conflict.[241] In such circumstances, it has been held that the potential conflict was of the client's own making.

222 Attempting to meet that principle, Break Fast drew attention to Maher v Millennium Markets Pty Ltd[242] ('Maher') in which Osborne J distinguished Beach Petroleum and Bristol & West Building Society v Mothew[243] ('Bristol') on the basis that they were cases where the very fact of the retainer itself gave rise to the conflict.[244] In that situation, Break Fast argued, 'fully informed consent' could be inferred because the company is 'fully informed of the fact of the conflict'. Break Fast likened the present case to the different kind of situation which Osborne J postulated in Maher, namely, one where the conflict was not of such an obvious nature to be apparent to a layperson so that fully informed consent could not be inferred.

223 Rigby Cooke argued that, if there was any real and sensible possibility of conflict (which it denied), then Break Fast knew of it from the outset, and by retaining Rigby Cooke with that knowledge, Break Fast implicitly gave informed consent to any such conflict.

224 Break Fast rightly pointed out that Rigby Cooke had not contended that it had informed Break Fast of a potential conflict or that Break Fast had given express consent to any such conflict. Further, Break Fast argued there could not have been any implied consent because the conflict had not been obvious: it needed to be explained in this case, unlike in Beach Petroleum or Bristol, where the very fact of the retainer itself gave rise to the conflict. Nevertheless, Break Fast argued that Rigby Cooke should have explained that there had been a conflict in Rigby Cooke acting for Break Fast concurrently with the Voukidis Defendants for the five reasons that I extracted from Break Fast's submissions at paragraph 101 above.

225 Arguably, there is some inconsistency between this submission and Break Fast's earlier submission that the conflict in this case was manifest simply on the facts that were pleaded by Ambridge in the Ambridge Proceeding.

226 In addressing these arguments, I am faced with a difficulty. Informed consent requires a client to have been informed (or otherwise perceive) how the solicitor may be disabled from performing his or her duty towards the client. On the findings that I have made I have some difficulty in conceiving what information Rigby Cooke would have had to give to Break Fast to obtain Break Fast's informed consent to Rigby Cooke acting in the assumed conflict.

227 So I must assume (contrary to my findings) that a conflict of duties existed by Rigby Cooke acting concurrently for Break Fast and the Voukidis Defendants when-

(a) Ambridge alleged that Break Fast (but not the Voukidis Defendants) was a trustee;

(b) if it was a trustee, Break Fast would be in breach of trust if it paid legal fees from trust funds to defend the Ambridge Proceeding;

(c) in defending the proceeding, the Voukidis Defendants had personal financial interests separate from those of Break Fast;

(d) the Voukidis Defendants would personally benefit from Break Fast paying the legal fees; and

(e) Break Fast had no real interest in defending the claim.

228 In my view, the first four of those facts would have been self-evident to Break Fast, that is, to its controlling minds, Voukidis and Baker. Voukidis and Baker did not need to be informed of those matters. Nor, if it is supposed that Rigby Cooke had conflicting duties towards its clients because of those four matters alone, did Break Fast need to be informed of that conflict if, as it now contends, the conflict was manifest from those facts alone. Break Fast, knew each of those circumstances and knew also that Rigby Cooke acted for the Voukidis Defendants as well, and nevertheless Break Fast continued to retain Rigby Cooke. If a conflict of duty and duty subsisted in Rigby Cooke acting concurrently for all Break Fast Defendants by virtue of the first four circumstances then, in my view, fully informed consent could and should be inferred. Break Fast acquiesced in Rigby Cooke acting with the assumed conflicting duties.

229 However, if the fifth factor (namely, Break Fast's lack of any real interest in defending the claim) was a necessary circumstance for the existence of the conflict of duties, then it seems to me that the conflict was not so obvious or apparent to a layperson, or even to experienced business people like Voukidis and Baker. The conflict would not be so obvious because the alleged fact is not so obvious. Making the necessary assumptions for this hypothesis, some clear explanation was required of the fact that Break Fast had no real interest in defending the claim and how, in the combination of circumstances, Rigby Cooke might have been disabled or swayed from loyally serving Break Fast's interests in carrying out its retainer.

230 I have some doubts that such explanation required independent legal advice when the controlling minds of Break Fast were also Voukidis Defendants. Nevertheless, I am prepared to assume that it did.

231 Adopting the assumption that Rigby Cooke faced a conflict of duty and duty by acting concurrently for all Break Fast Defendants, and also assuming that such a conflict involves a finding that Break Fast had no real interest in defending the Ambridge Proceeding, I could not conclude that Break Fast gave fully informed consent to Rigby Cooke acting in such a conflict.

Is Break Fast entitled to equitable compensation for breach of fiduciary duty?

Is equitable compensation an available remedy for a conflict of duty and duty?

232 The first question that was raised in connection with Break Fast's entitlement to equitable compensation was whether an established breach of fiduciary duty constituted by a fiduciary acting in a conflict of duty and duty gives rise to an entitlement to equitable compensation. The question arose because of the lack of any authority in which equitable compensation was actually awarded for a breach of fiduciary duty in those particular circumstances. It was observed that the common context in which a conflict of duty and duty brings a matter to court is an application for an injunction to prevent a legal practitioner continuing to act for one client after being retained for another or to prevent the misuse of confidential information gained from one client for the benefit of another.

233 Nevertheless, Break Fast provided examples of two cases in which courts had recognised that equitable compensation could be awarded in such circumstances but, for particular reasons, which do not affect the principle, did not proceed to do so.[245]

234 Despite the absence of any clear examples of a court awarding equitable compensation for loss caused to a plaintiff by reason of a breach of fiduciary duty constituted by the fiduciary acting in a conflict of duty and duty, as a matter of principle and logic, it is difficult to see why such compensation should not be awarded in that situation when it has been awarded when loss is caused to a plaintiff by reason of a breach of fiduciary duty constituted by the fiduciary acting in a conflict of interest. Both forms of conflict stem from the same overriding duty of undivided loyalty and there is no substantive difference between a duty and interest conflict and a duty and duty conflict (see paragraph 116 above).

235 Consequently, I consider that there is no obstacle to awarding equitable compensation for loss caused by a fiduciary acting in a conflict of duty and duty. I proceed on the basis that an award of equitable compensation is available to Break Fast on the hypothesis that Rigby Cooke's breach of fiduciary duty caused Break Fast to suffer loss.

236 I turn to determining whether Break Fast established a causal link between the breach of fiduciary duty, on the one hand, and the loss suffered by Break Fast, on the other hand.

237 Break Fast argued that, faced with a potential conflict of duty and duty, Rigby Cooke could have discharged its fiduciary duty by recommending that Break Fast obtain independent legal advice as to whether Break Fast should play an active role in the defence of the Ambridge Proceeding and fund the Break Fast Defendants' legal costs from Break Fast's assets (which were alleged to be trust assets). On Break Fast's argument, by continuing to act for Break Fast without giving advice about the conflict or recommending that Break Fast obtain independent legal advice on the matter, in breach of its fiduciary duty, Rigby Cooke caused Break Fast to incur loss. That loss was the liability to restore the trust the monies Break Fast paid in breach of trust for the defence of the Ambridge Proceeding (beyond the costs necessary to comply with Break Fast's discovery obligations).

238 Two critical questions on causation follow, namely:

(a) what advice would an independent solicitor have given to Break Fast; and

(b) if the independent solicitor had advised Break Fast to adopt a passive role and abide the outcome of the case (after fulfilling its discovery obligations) and not to fund the defence of the Break Fast Defendants from potential trust assets, would the directors of Break Fast have followed that advice?

239 In respect of the first question, Break Fast argued that it was beyond doubt that an independent solicitor would have advised Break Fast that it should abide the outcome of the case and not play an active role in it. This, it argued, was because, properly analysed, the Ambridge Proceeding was in reality a dispute between the rival participants in the joint venture in which Break Fast had no real interest. Therefore, any independent solicitor considering Break Fast's position in respect of the proceeding would have advised it not to take an active role other than to complete its discovery obligations.

240 In respect of the second question, Break Fast argued that it had produced sufficient evidence to show that if given such advice the directors of Break Fast would likely have followed it. The 'sufficient evidence' it pointed to was that:

(a) the directors had paid $900,000 of their own funds in 2009 to meet legal costs when Break Fast could no longer do so;

(b) there was no evidence of the directors having ignored other legal advice given to them;

(c) it was inherently improbable that the directors would have ignored legal advice; and

(d) there was positive evidence that the directors had followed legal advice in several instances.

241 Break Fast therefore argued that it had produced sufficient evidence to establish a causal link between the breach of fiduciary duty, on the one hand, and the loss suffered by Break Fast (namely, its payment of legal fees beyond the cost of giving discovery out of trust assets), on the other. Having done so, Break Fast argued that the onus then fell upon Rigby Cooke to rebut causation which, Break Fast contended, Rigby Cooke had failed to do. Break Fast emphasised a principle it said was drawn from the authorities, namely that once a breach of fiduciary duty has been established, the Court should not 'speculate against the plaintiff' when approaching the issue of causation.

242 For its part, Rigby Cooke argued that Break Fast had failed to prove causation. Rigby Cooke argued there was no evidence that an independent solicitor would have advised Break Fast to take a passive role. Nor, it contended, was there evidence that, even if such advice had been given, Break Fast (then controlled by Voukidis and Baker) would have accepted such advice and caused Break Fast to take a passive role or otherwise decide not to incur legal fees in the defence of the proceeding. Rigby Cooke argued that some sort of direct evidence on those issues was required.

243 Furthermore, Rigby Cooke argued that inferences from such evidence as had been adduced made it more likely that the advice would not have been given and that, even if it had, the directors of Break Fast would not have followed it.

244 In Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd & Anor[246] ('Ancient Order of Foresters') the High Court was concerned with the equitable remedy of account of profits for a knowing assistance in the breach of fiduciary duty and, in particular, the proper approach to causation. Although the case involved a different equitable breach to the one presently being considered, and a different remedy, the High Court's approach to the question of causation for equitable remedies is pertinent for this case.

245 Gageler J, for the majority, commenced with the context in which causation is considered for the breach of an equitable obligation:[247]

Equity is not ignorant of questions of causation. What it stresses is that questions of causal nexus in a remedial context must be addressed by reference to the equitable obligation breach of which is to be vindicated by the remedy that is sought.

246 The causal connection required for a fiduciary to be liable to the equitable remedy of account was the 'but for' connection, as his Honour explained,[248] -

... in the same way as a causal connection sufficient for the fiduciary to be liable to the equitable remedy of compensation will exist if a loss to the person to whom the fiduciary obligation is owed would not have been sustained but for the breach.

247 His Honour continued by explaining how and why the approach of equity towards causation differs from the approach of the common law -

Because the concern of equity is to vindicate the equitable obligation that has been breached, the 'but for' connection will be sufficient even though other contributing causes might be in play.

...

Obviously enough, as with any other question of causation in equity, the causal connection between a fiduciary's breach of fiduciary obligation and a benefit or gain must be judged using common sense and 'with the full benefit of hindsight'. As with other questions of causation in equity, the enquiry into causation is not to be constrained by normative of limitations imported from the common law. To introduce those limitations would risk confusing distinct legal policies underlying distinct bases of legal liability and limiting equity's capacity to mould equitable relief to the circumstances of the individual case.[249]

248 It is important to note that equity's approach is to require only the 'but for' connection because of its concern to vindicate an obligation that has been breached. However, that concern does not extend to being satisfied with anything less than the 'but for' connection.

249 From the authorities, and equating what courts have said about a breach of trust with a breach of fiduciary duty, the following propositions are established -

(a) a claim for equitable compensation requires proof of a causal link between the breach and the loss, a principle expressed memorably by Mummery LJ in Swindle v Harrison,[250] quoted by the High Court in Youyang Pty Ltd v Minter Ellison Morris Fletcher[251] ('Youyang'), that '[t]here is no equitable by-pass of the need to establish causation' and that '[i]n questions of causation it is important to focus on the relevant equitable duty';

(b) the basic equitable principle applicable to breach of trust (and breach of fiduciary duty) is that the beneficiary is entitled to be compensated for any loss he would not have suffered but for the breach;[252]

(c) in approaching the issue of causation for breach of trust or fiduciary duty, once the 'but for' link is established equity does not enquire as to whether the loss was also caused by other acts or omissions, including those of a third party;[253]

(d) whilst the onus is upon the plaintiff to establish a causal link and there is no equitable by-pass to causation, it was explained in GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers & Ors[254] ('GM Pearce') -

Nevertheless, one must have regard to the principle that the court is entitled not to speculate against the interest of the plaintiff or to make assumptions against the defendant on the issue of causation. This allows the plaintiff to lead only a minimum of evidence to discharge the evidentiary burden of causation. Indeed, in this regard it has been said that -

[e]quity must strive to repair the breach of fiduciary duty lest the fiduciary in default could be exonerated too easily ... [and] the courts being seen to wink at wrong-doing.[255]

(e) once a causal link to the loss claimed is established, the onus shifts to the defendant to establish that it is inequitable to order the defendant to account for the whole of the identified benefit or gain (or compensate for the whole of the claimed loss).[256]

250 To understand what is meant by not 'speculating against' a plaintiff, once it has been established that the loss would not have occurred if there had been no breach of duty, as stated in GM Pearce, it is instructive to delve a little further into the cases which are the source of that principle.

251 In GM Pearce (at [66]), the Court gave an example from the Canadian case of Guerin v The Queen[257] concerning a fiduciary duty owed by the Crown to the First Nations Peoples. It arose when assessing compensation to an Indian group because a government department had proposed to grant a lease of certain land to a golf club. The Court of Appeal approved the speculative assumption made by the trial judge that the Indian plaintiffs would have desired to develop their land in the most advantageous way possible.

252 In GM Pearce, the Victorian Court of Appeal held that the trial judge in that case was not in error when calculating the amount of equitable compensation for a breach of fiduciary duty arising from a joint venture arrangement. The trial judge had found that the proposed joint venture vehicle, in a joint venture between the plaintiffs and the defendant, would have acquired the benefit of certain orders had the joint venture proceeded. The defendant (respondent on appeal) had argued that even with the benefit of hindsight it was not a natural assumption that the joint venture vehicle would have acquired those orders instead of the plaintiff company. However, the Court of Appeal held the judge was entitled to assume that the plaintiff company would have wished to develop the joint venture business in the most advantageous way possible, and therefore, those orders would have been obtained by the joint venture vehicle, had the joint venture gone ahead.

253 Finally, in GM Pearce, for the proposition extracted above at 249(d), the Court of Appeal cited the judgment of Austin J in _Charles Lo Presti Pty Ltd [258]arabalios_258 ('Karabalios'). In[259]rabalios,259 Austin J approved an award of equitable compensation made by a Master in favour of a real estate agency which had lost some of its rent roll business to another company that was set up by a former employee who had left with the rent roll. On appeal, the defendant had argued there was no evidence that any of the clients would have remained with the plaintiff real estate agency had the former employee not used the information in the rent roll. They argued that there was no evidence to support the proposition that if the former employee had not used the rent roll, he would not have been able to make approaches to the clients which ultimately led them to placing their business with the new agency.

254 Whilst accepting there was very little evidence of those matters, Austin J upheld the Master's findings which he said were made after carefully considering the evidence as a whole and drawing inferences of fact, arriving at the conclusion that it was unlikely that the former employee would have known the addresses of the clients whom he approached without using the rent roll.[260] In other words, once the Master had concluded that the employee would not have been able to make the approaches to the prospective clients without having impermissibly used the rent roll from the real estate agency, the Master was entitled to not speculate whether the clients would have remained with the real estate agency even if the former employee had not approached them.

255 I give these examples to emphasise that the entitlement to not speculate against the plaintiff does not justify making assumptions of fact that are otherwise necessary to establish the sufficient 'but for' connection between the breach and loss. Further, it is for the trial judge to determine what inferences may reasonably be drawn from the known facts. Where findings of fact enable a judge to be satisfied that, but for the breach of fiduciary duty loss would not have occurred, yet there remains a question as to the extent of the loss, the Court is entitled to make assumptions in favour of the plaintiff in determining the character and dimension of the loss. Seen this way, the principle in subparagraph 249(d) above is reinforced or re-stated by the principle in subparagraph 249(e), and both are harmonious with the principle in sub-paragraph 249(a).

256 Not speculating against the plaintiff in this sense does not entail supplementing the existing evidence with favourable assumptions in order to establish the sufficient causal connection to some loss.

257 I start with the reminder that this discussion of causation assumes a finding that Rigby Cooke had breached its fiduciary duty to Break Fast. That assumption implies a finding (contrary to my finding) that the interests of Break Fast and the Voukidis Defendants were truly opposed, and that there was a real and sensible possibility that Rigby Cooke might be swayed against fulfilling its duty to Break Fast because of its need to fulfil its duty to the Voukidis Defendants. This assumption carries with it acceptance of the proposition (which I have not accepted) that Break Fast had no genuine interest of its own to actively defend the Ambridge Proceeding and that, in substance, the dispute was only between joint venture participants.

258 Making those assumptions, I find that an independent solicitor would probably have advised Break Fast to adopt a passive role and not spend potential trust funds in defence of the Ambridge Proceeding.

259 It then becomes relevant what Break Fast's probable response would have been in light of Break Fast having been controlled by Voukidis and Baker. In my view, the evidence establishes that Voukidis and Baker were singularly fixed on denying Ambridge's claim. They maintained all the way to trial that they (and Break Fast) had not agreed with Stanley (on behalf of Ambridge) that Ambridge was a participant in the joint venture with a 25% interest. They maintained that position even after, and despite, the revelation of the fabricated documents in 2009. Further, even after Vickery J's Judgment they were not satisfied, and took the judgment on appeal.

260 On a number of occasions, in response to Rigby Cooke's advice that they might lose the case, Voukidis and Baker remained adamant that they would succeed. It appears that Voukidis and Baker were driven by a hostility towards Stanley whom they believed had stolen at least $2million from the venture.

261 As a fall-back position - one that they did not seem to think they would need to resort to - Voukidis and Baker knew that, if they lost, the joint venture participants would need to adjust their respective entitlements to the trust assets. This would have been achieved by balancing any benefit the Voukidis Defendants had received by virtue of Break Fast paying their defence costs against the large sum which the Voukidis Defendants believed Stanley had stolen from the venture. Therefore, I infer that the Voukidis Defendants (and Voukidis and Baker in particular) considered that, as the last resort, there would be ample coverage against any prospect that Break Fast was wrongly spending trust assets on their legal defence because of the amount that Stanley/Ambridge was obliged to repay to the trust.

262 Finally, contrary to Break Fast's submission in the current proceeding that Voukidis and Baker were shown to have been compliant with legal advice given to them, I think that the evidence shows something else. In my view, the evidence shows that Baker and, particularly, Voukidis who was predominantly giving instructions to Rigby Cooke, were particularly headstrong clients. The most obvious example of Voukidis' resistance to legal advice was his long, drawn-out resistance to Rigby Cooke's and Herskope's advice to give a clear explanation of what had been done with the additional $890,620.48 drawn down against the Colonial loan facility pursuant to the 3 May 2007 Order.

263 Additionally, a client who is willing to fabricate documents and maintain the pretence to his own lawyers that they are genuine, as Voukidis did, is not a client who one would naturally assume will be compliant with legal advice that he does not wish to hear.

264 For all these reasons, I am not persuaded that Voukidis and Baker, on behalf of Break Fast, would have accepted the advice of an independent solicitor that Break Fast should not play any active role in the Ambridge Proceeding beyond discovery and should not spend potential trust funds on legal costs for the Break Fast Defendants. Not only am I not persuaded of that fact, I am affirmatively satisfied on the balance of probabilities that Voukidis and Baker would not have accepted such advice. They were firmly convinced of the correctness of their own position and they had a practical fall-back position if they were wrong. Critically, the soundness of their position was (or would have been, hypothetically speaking) reinforced by Ambridge's failed applications to persuade the Court to prevent Break Fast spending potential trust assets on the defence of the Ambridge Proceeding.

265 Forming that conclusion does not, in my opinion, invite the operation of speculation one way or the other. The 'but for' nexus between breach and loss requires Break Fast to establish a logical, common sense chain of causation from the breach (ie, the failure to disclose a real and sensible possibility of conflict) to the loss (ie, the continued expenditure of trust funds by Break Fast in defence of the Ambridge Proceeding). That chain has the two links I have identified. Finding the first link (ie, independent legal advice being to take a passive role) to be more probable does not, of its own force, relieve the Court from having to enquire into the second link (ie, whether the legal advice would have been followed) or enable the Court to merely assume its existence in the plaintiff's favour.

266 In determining that Break Fast would not have followed any independent legal advice to take a passive role and not to pay the Break Fast Defendants' legal fees from possible trust assets, I have made inferences from what I regard to be a common sense evaluation of the evidence and used the benefit of hindsight.

267 It follows that Break Fast has failed to establish that, but for Rigby Cooke's (hypothesised) breach of fiduciary duty, Break Fast would not have suffered loss in the form of a liability to restore trust funds spent on the defence of the Ambridge Proceeding. No occasion arises (at this point) for speculating in Break Fast's favour as to the extent of the loss for which it might have been entitled to compensation. Had I found, however, that Break Fast established that the breach had caused loss, I would be entitled to not speculate against Break Fast, for example, in determining the earliest point from which loss commenced.

268 On this analysis, I conclude that Break Fast would fail on its claim for equitable compensation even if it had established the breach of fiduciary duty it had contended for.

Did Rigby Cooke knowingly receive trust money paid in breach of trust?

269 Break Fast pleaded its claim against Rigby Cooke for having knowingly received trust monies paid to it in breach of trust, in the following way:

(a) by applying the Property assets to pay Rigby Cooke's invoices for legal fees (in excess of discovery costs), Break Fast breached the trust;[261]

(b) Rigby Cooke knew that Break Fast applied income and borrowing made against the Property assets to pay Rigby Cooke's invoices;[262]

(c) from the commencement of the Ambridge Proceeding, alternatively from about September 2005, Rigby Cooke knew from documents in its possession that Ambridge was likely to be successful and the Court would declare the existence of the trust;[263]

(d) thus, Rigby Cooke knowingly received assets of the trust in payment of its invoices so that Break Fast is entitled to equitable compensation.[264]

270 Because of the Vickery J Judgment it is now understood that Break Fast was the trustee of the Property. It is common ground (or at least tacitly accepted) that by paying legal fees for the Break Fast Defendants from the proceeds of that Property, Break Fast in fact made those payments in breach of trust. It is not disputed that Rigby Cooke knew at the time of receiving the payments that at least some of its invoices were paid from income or borrowings made against the Property assets.

271 However, it is clearly in dispute in this proceeding whether, at the time of receiving payments of its fees from Break Fast, Rigby Cooke knew that those payments were made out of trust monies and were paid in breach of trust. If, as alleged by Break Fast, Rigby Cooke knew that Break Fast was a trustee of the Property, it should be taken that Rigby Cooke also knew that Break Fast, by paying legal fees for the Break Fast Defendants from the proceeds of that trust Property, would be doing so in breach of trust. Rigby Cooke denies knowing that Break Fast was a trustee and that the Property (and its proceeds) were trust assets until Vickery J determined that it was so.

272 As can be seen from the summary of the pleading above, Break Fast did not plead, expressly, that Rigby Cooke knew that the fees were paid to it out of trust money (in breach of trust). Instead, Break Fast only pleaded that Rigby Cooke knew that Ambridge was 'likely to be successful' in the Ambridge Proceeding so that the Court would declare the existence of the trust.

273 Therefore, the question is whether Rigby Cooke did in fact know at any time before the Vickery J Judgment that Ambridge was 'likely to be successful' and, even if it did, whether that was sufficient knowledge of the trust (and, consequentially, sufficient knowledge of the misapplication of trust assets) to establish Rigby Cooke's liability for knowingly receiving trust assets.

274 The equitable claim which Break Fast relies upon, knowing receipt of trust property, is commonly referred to as the first limb of the rule in Barnes v Addy.[265] Relevantly, the first limb, as originally expressed by Lord Selborne LC, is that 'strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers ... unless those agents receive and become chargeable with some part of the trust property'. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd[266] ('Farah Constructions'), the High Court explained that persons who receive trust property become chargeable if it is established that they received the property with notice of the trust.[267]

275 In Farah Constructions, the High Court confirmed that liability for knowing receipt ('recipient liability') was knowledge-based, and the consequential remedy of the imposition of a constructive trust was not to be regarded as a restitution-based remedy for unjust enrichment.[268] The High Court criticised the New South Wales Court of Appeal for adopting an approach to the first limb of Barnes v Addy that departed from the existing law.[269]

276 Further, in Farah Constructions the High Court approved[270] statements of Gibbs J (Barwick CJ agreeing) and Stephen J in Consul Development Pty Ltd v DPC Estates Pty Ltd[271] ('Consul Development') (albeit a 'knowing assistance' case) who, in turn, had approved statements made in Soar v Ashwell,[272] Lee v Sankey[273] and In re Blundell; Blundell v Blundell.[274] All emphasised a qualification to the first limb of Barnes v Addy, as it was originally expressed, namely that the stranger to the trust was only liable 'where the person received the property and dealt with it in a manner inconsistent with the trust of which he was cognisant' or where 'to his knowledge the money is being applied in a manner which is inconsistent with the trust' (emphasis added).

277 The case in Consul Development involved a claim against an agent of a non-trustee fiduciary who had breached a fiduciary duty to his principal. After considering whether the Barnes v Addy principle extended to agents of non-trustee fiduciaries, Gibbs J turned to the character of the knowledge that the defendant had to have possessed to be liable. Rejecting an argument that only actual knowledge that the relevant conduct was done in breach of the duty would be sufficient to impose liability, his Honour said:

It may be that it is going too far to say that a stranger will be liable if the circumstances would have put an honest and reasonable man on inquiry, when the stranger's failure to inquire has been innocent and he has not wilfully shut his eyes to the obvious. On the other hand, it does not seem to me to be necessary to prove that a stranger who participated in a breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper. It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognizing an impropriety that would have been apparent to an ordinary man.[275]

278 Similarly, Stephen J examined authorities prior to Selangor United Rubber Estates Ltd v Craddock (No 3) ('Selangor United Rubber Estates')[276] and Karak Rubber Co Ltd v Burden (No 2) ('Karak Rubber')[277] which had emphasised the need for some 'want of probity' to be established on the part of the recipient or assistant in order for liability to be established.[278] After considering Selangor United Rubber Estates and Karak Rubber, Stephen J concluded:

In my view the state of the authorities as they existed before Selangor did not go so far, at least in cases where the defendant had neither received nor dealt in property impressed with any trust, as to apply to them that species of constructive notice which serves to expose a party to liability because of negligence in failing to make inquiry. If a defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from enquiry for fear lest he learn of fraud. But to go further is, I think, to disregard equity's concern for the state of conscience of the defendant.[279]

279 In Baden v Société Générale pour Favoriser le Developpement du Commerce et de L'Industrie en France SA ('Baden'),[280] Peter Gibson J considered five potential categories of 'knowledge' which may be sufficient to render the knowing recipient liable. They were:

(iii) wilfully and recklessly failing to make such enquires as an honest and reasonable man would make;

(iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; and

(v) knowledge of circumstances which would put an honest and reasonable man on enquiry.[281]

280 In Grimaldi v Chameleon Mining NL (No 2)[282] ('Grimaldi'), the Full Federal Court helpfully explained the five Baden categories in this way:

The first two categories of "knowledge" require no comment. The third involves such a calculated abstention from inquiry as would disentitle the third party to rely upon lack of actual knowledge of the trustee's or fiduciary's wrongdoing. The fourth reflects what seems to have been accepted provisionally by three judges of the High Court in Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 398 and 412-413. It is, in essence, an understandable, objective, default rule designed to prevent a third party setting up his or her own "moral obtuseness" as the reason for not recognising an impropriety that would have been apparent to an ordinary person: Consul at 398. It is the surrogate of actual knowledge. The form of constructive notice used in category (v) derives from the bona fide purchaser for value without notice doctrine.[283]

281 Although the High Court in Farah Constructions firmly settled the law in finding that Baden categories (i) to (iv) knowledge sufficed as the knowledge requirement for assistance liability,[284] the Court did not settle the law for the knowledge requirement in relation to recipient liability.[285] Since Farah Constructions, at both single judge and intermediate appellate level, there has been solid support for the view that category (iv) Baden knowledge (but not category (v) knowledge) would establish recipient liability.[286] In Imobilari Pty Ltd v Opes Prime Stockbroking Ltd[287] ('Imobilari'), Finkelstein J summarised the current formulation of Baden (iv) knowledge required by recent authority for recipient liability as:

knowledge of facts that would put an honest and reasonable person on notice (but not merely enquiry) of a real and not remote risk that the transfer [of property] was in breach of trust or fiduciary duty or involved the misapplication of trust property.[288]

282 From those same authorities some important accompanying observations have been made:

(a) first, just as Stephen J implied in Consul Development that liability under both limbs of Barnes v Addy is imposed because of equity's concern for the state of the conscience of the defendant,[289] the Full Federal Court in Grimaldi stated specifically in relation to recipient liability,

[t]hat liability arises as a matter of conscience not of property. As with assistance liability, recipient liability should be seen as fault based and as making the same knowledge/notice demands as in assistance cases. We need not pursue this particular matter further because the weight of authority in this country appears now to draw no distinction between the two types of liability in this respect ...[290]

(b) secondly, and proceeding from the first point and from the exclusion of Baden category (v) knowledge as being insufficient to found Barnes v Addy liability under either limb, negligence does not suffice as a form of 'knowledge' to impose recipient (or assistance) liability;[291] and

(c) thirdly, in applying any of the categories of knowledge to the facts of a particular case, the Court should be cautious to eschew a rigid or formulaic approach.[292]

283 Having stated these general principles I turn to a case which bears most similarity to the present case, Carl Zeiss Stiftung v Herbert Smith & Co (a firm) & Anor (No 2)[293] ('Carl Zeiss').

284 The Carl-Zeiss-Stiftung Foundation of East Germany claimed to be the original Zeiss Foundation, and in 1955 brought an action against another organisation or foundation called the Carl-Zeiss-Stiftung Foundation of West Germany. The East German foundation alleged that the West German foundation was wrongfully using the name 'Carl-Zeiss-Stiftung' for the purpose of its business. Substantial litigation ensued between 1955 and 1967. In 1967 the East German foundation amended its claim to include a claim that the business of the West German foundation was its property or was held in trust for it. The claim was disputed.

285 In 1968, the East German foundation brought a new action, this time against two firms of solicitors who, consecutively, had acted for the West German foundation since 1955. The East German foundation alleged that each firm of solicitors had received money in payment of their professional fees and disbursements from the West German foundation, paid from the assets or income arising from its trade or business, well knowing all the facts alleged in the main proceeding and with notice that the monies were the East German foundation's property. Each was therefore said to be liable to account to the East German foundation for the sums received.

286 It was not in issue that the solicitors had received fees paid out of the West German foundation's assets. It was also accepted that they had received payment of their fees, properly, in the ordinary course of acting for defendants in litigation. No allegation of dishonesty was made against the solicitors.

287 In 1969, the matter came before the UK Court of Appeal from the decision of a judge who had dismissed the action. The judge had answered 'no' to a preliminary question whether, irrespective of the decision or the facts as alleged, the solicitors would be accountable to the East German foundation for the fees received acting for the West German foundation. The Court of Appeal also held that the solicitors could not be accountable, and the appeal was dismissed.

288 Statements from each of their Lordships on appeal are instructive.

289 Danckwerts LJ[294] drew specific attention to the words that Lord Selborne LC used immediately following on from the passage so often quoted as expressing the two limbs of the rule in Barnes v Addy, namely -

Those are the principles, as it seems to me, which we must bear in mind in dealing with the facts of this case. If those principles were disregarded, I know not how anyone could, in transactions admitting of doubt as to the view which a Court of Equity might take of them, safely discharge the office of solicitor, of banker, or of agent of any sort to trustees. But, on the other hand, if persons dealing honestly as agents are at liberty to rely on the legal power of the trustees, and are not to have the character of trustees constructively imposed upon them, then the transactions of mankind can safely be carried through.[295]

290 With respect to the claim before him, Danckwerts LJ said:

What the defendant solicitors knew was that the moneys came from the West German foundation and they knew of the allegations contained in the proceedings brought against that foundation by the plaintiffs in which they were instructed to act as solicitors for the West German foundation. They knew that claims were being made against the West German foundation that all their property and assets belonged to the plaintiffs or were held on trust for them. But claims are not the same thing as facts. ... What we have to deal with is the state of the defendant solicitors' knowledge (actual or imputed) at the date when they received payments of their costs and disbursements. At that date they cannot have had more than knowledge of the claims above mentioned. It was not possible for them to know whether they were well-founded or not. The claims depended upon most complicated facts still to be proved or disproved, and very difficult questions of German and English law. It is not a case where the West German foundation were holding property upon any express trust. They were denying the existence of any trust or any right of property in the assets claimed by the plaintiffs. Why should the solicitors of the West German foundation assume anything against their clients?[296]

Firstly, and to my mind decisively, whatever be the nature of the knowledge or notice required, cognisance of what has been termed "a doubtful equity" is not enough. ... The rule, as I understand it, is that no stranger can become a constructive trustee merely because he is made aware of a disputed claim the validity of which he cannot properly assess. Here it has been rightly conceded that no one can foretell the result of the litigation even if the plaintiffs were to prove all the facts they allege.

...

As to facts alleged in a statement of claim, [counsel for the defendants] was, to my mind, correct in submitting that a defendant's solicitor is under no duty to the plaintiffs to inquire into their accuracy for the purposes urged by [counsel for the plaintiffs], nor, where there is a likelihood of a conflict of evidence between his client's witnesses and those of the plaintiffs is he under any such duty to assess the result.[297]

Do the demands of justice and good conscience bring the present case within any of the foregoing categories? In my judgment, the question is one which demands a negative answer. The law being reluctant to make a mere agent a constructive trustee, as Lord Selborne L.C. put it in Barnes v. Addy, [1874] UKLawRpCh 20; 9 Ch.App. 244 , 251-252, mere notice of a claim asserted by a third party is insufficient to render the agent guilty of a wrongful act in dealing with property derived from his principal in accordance with the latter's instructions unless the agent knows that the third party's claim is well-founded and that the principal accordingly had no authority to give such instructions. The only possible exception to such exemption arises where the agent is under a duty to inquire into the validity of the third party's claim and where, although inquiry would have established that it was well-founded, none is instituted. But, as it is conceded by the plaintiffs that the defendant solicitors are under no such duty of inquiry, that further matter does not now call for consideration.[298]

293 Many judges since have discussed Carl Zeiss. In Eagle Trust Plc v SBC Securities Ltd ('Eagle Trust'),[299] Vinelott J discussed the case in these terms:

[Carl Zeiss] was not a case where the defendant solicitors had failed to make inquiries which they ought reasonably to have made. They knew as much about the case made by the East German foundation as anyone could know. What they did not know was whether or not the claim would succeed. The case was not therefore one where constructive notice, or what is described by Sachs L.J. as the "section 199 test", had any conceivable relevance. The question was whether, in all the circumstances, the defendant solicitors were liable on the footing that they had received moneys in payment of their fees knowing that the East German foundation claimed to be beneficially entitled to those moneys. It seems to me that the question whether the claim was good almost answers itself.[300]

294 In Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd,[301] Hansen J, illustrating his point by what was said by Vinelott J in Eagle Trust, cautioned against drawing principles from Carl Zeiss on the question of Barnes v Addy recipient liability because of the 'extraordinary nature of the claim being made by the plaintiffs in that case'.[302]

295 It is worth pausing to reflect on what led Hansen J to refer to the 'extraordinary nature' of the claim or Vinelott J to consider that the question whether the claim was good 'almost answers itself'. I infer that what lay behind those statements was the same concern expressed by Lord Selborne LC, emphasised by Danckwerts LJ, namely the prospect that the imposition of recipient liability upon solicitors who receive fees acting in good faith in relation to litigated claims 'admitting of doubt' would undermine the safe discharge of the office of solicitor.

296 In Victoria, the solicitor acting for a plaintiff or a defendant must now certify that there is a proper basis for the claim or the defence, as the case may be.[303] Now a statutory obligation, it is also consistent with professional conduct rules applicable to solicitors[304] as well as common law principles that apply for imposing personal liability on solicitors for the costs if they pursue a manifestly hopeless claim or defence.[305] In other words, there are existing constraints upon a solicitor who may act for a client where the claim or defence has no proper basis or real prospect of success. Additionally, an opposing party may bring an application before the Court to obtain summary judgment in their favour if they can establish that the claim or defence has no real prospect of success.[306]

297 But if each of those bridges is crossed, and short of the solicitor acting with 'moral obtuseness' in taking instructions and making enquiries (or failing to do so) so as not to discover that the claim or defence lacks a proper basis or real prospect of success, the imposition of equitable liability upon a solicitor which has the effect of deterring solicitors from fulfilling their role to advocate or defend their client's position would seem to represent some incoherence in the law.

298 In the present case, Break Fast drew attention to Sheather v Staples Waste Removals Pty Limited (No 2) ('Sheather').[307] It was submitted that this was a case which demonstrated the proposition that the character of the knowledge possessed by the recipient is to be assessed taking into account both the circumstances and the position of the relevant recipient, including where that person is a lawyer. In my view, that proposition may be accepted but it does not assist Break Fast in this case. Instead, for the reasons referred to above, the fact that Rigby Cooke was a firm of solicitors receiving fees, for value, for representing defendants in a contested legal proceeding, is a circumstance which should provoke caution about applying any Baden category of knowledge in a rigid or formulaic way without regard to the character of the task that a solicitor in that situation is undertaking.

299 The circumstances of Sheather were a far cry from either Carl Zeiss or the present case. In Sheather, a judge upheld a finding that a solicitor was liable to pay equitable compensation for knowingly assisting his client in a commercial transaction to breach the client's fiduciary duty owed to his principal, Staples. The client, an agent of Staples, employed the solicitor to facilitate the transfer of a domain name, 'staples.com.au', first to the client and then to a purchaser corporation for the sum of $75,000. In finding that the solicitor had Baden (iv) knowledge of the client's breach of fiduciary duty, the judge relied upon the fact that (1) the solicitor knew the client was transferring the domain name to himself because he was concerned that Staples would not pay his commission; (2) that the solicitor must have known that the client had deceived or was attempting to deceive the purchaser as to why the domain name was being transferred to it from the client rather than from Staples; and (3) the solicitor knew that the legal title to the domain name was held by Staples and that Staples did not agree to the transfer of the domain name to the client. In other words, the judge found that there was evidence that the solicitor's conduct was less than would be expected of an honest and reasonable person in his position at the time and, therefore, that he knowingly assisted in a fraudulent act on the part of the client.

300 As stated, Break Fast pleaded that Rigby Cooke knew from documents in its possession that Ambridge was 'likely to be successful' in establishing that Break Fast was a trustee of the Property. In my view, that allegation is little different to the argument put by the plaintiffs in the Carl Zeiss case.

301 Rigby Cooke came into possession of documents which it gathered, cumulatively, over time in the form of exhibits to affidavits filed in applications and through the process of making and receiving discovery. Many of those documents were consistent with and supported Ambridge's claim. However, there were also key documents and facts which were inconsistent with Ambridge's claim and appeared to support Break Fast's defence. I have summarised the documents and facts both in support of and against Ambridge's unincorporated joint venture case in the section headed 'Key Indicia' commencing at paragraph 82 above.

302 Rigby Cooke did not know of any specific 'fact' that would put an honest and reasonable person on notice (as opposed to mere enquiry) that Break Fast was the trustee of the Property. It knew and came into possession of many facts - some in favour of Ambridge's case, and others against - which, in combination, made the outcome of the question whether Break Fast was a trustee uncertain and therefore unknowable.

303 Rigby Cooke was not required to judge the facts, as Vickery J did, to arrive at a conclusion as to whether Break Fast was or was not a trustee. Rigby Cooke's function as a solicitor for one side of the litigation was to responsibly marshal the evidence for its clients and to present its clients' case as well as it could be presented at trial. This is what it did. A solicitor in Rigby Cooke's position may have been called upon to assess the prospects of success for its client in order to give advice, but it was not its role to adjudicate the result.

304 Further, it is difficult to imagine how Rigby Cooke could have arrived at a state of 'knowledge' about whether Break Fast was a trustee when so much depended upon credibility of the explanation by Voukidis and Baker. In substance, Voukidis' and Bakers' instructions to Rigby Cooke were that, despite appearances, they had not in fact reached agreement with Stanley that Ambridge would be a joint venture partner and have a 25% interest in the venture. Further, Baker and Voukidis instructed Rigby Cooke that the documents that appeared to suggest they had entered such an agreement were only prepared during a long period of negotiation on the footing that such an agreement might one day be reached.

305 It was not only Rigby Cooke that considered that the case turned on the competing credibility of Voukidis and Baker, on the one hand, and Stanley and Jacobs on the other. Likewise, experienced senior counsel arrived at the same conclusion as to the uncertainty of the result.

306 In the current proceeding, Break Fast sought to isolate particular documents that came into Rigby Cooke's possession at different periods of time and argue that, individually and collectively, those documents must have put an honest and reasonable lawyer on notice that Break Fast was in fact the trustee. That approach, in my view, simply illustrates the error: at that point in time, examination of those documents only demonstrated that Ambridge had an arguable case which the Break Fast Defendants would have to meet. Those documents were component parts of Ambridge's evidence which comprised its claim, against which the Break Fast Defendants had an arguable defence. Whether the Break Fast Defendants' defence was powerful, moderate or weaker, it was neither unarguable nor manifestly hopeless. It was a defence which appeared to have prospects of success.

307 Furthermore, Rigby Cooke did not fail to make enquiries about the documents that came into its possession. The narrative establishes that they sought and obtained their clients' instructions on the documents of concern. As in the Carl Zeiss case, and echoing the words of Vinelott J in Eagle Trust, Rigby Cooke came to know as much as anyone could know, save that they could not know that their clients would ultimately be disbelieved on the critical matters about the agreement and their explanation for the accounts and documents that appeared to support the existence of the unincorporated joint venture.

308 It is true that Rigby Cooke became very concerned about the credit of their clients, Voukidis in particular, because of the non-compliance with the 3 May 2007 Order and later because of the discovery of the fabricated documents. No doubt these dented Rigby Cooke's view of their clients' prospects and that is what Rigby Cooke expressly communicated to its clients. Nevertheless, those revelations did not cause Rigby Cooke to take the view that their client's case could not succeed - nor do I think that, in hindsight, I should find they should have taken that view. The matter was far too nuanced and complicated. The constantly changing and evolving nature of the way in which Ambridge formulated its claim by its pleading would, by itself, have reasonably contributed to the uncertainty of the outcome of the Ambridge Proceeding.

309 Although, in the current proceeding, Break Fast challenged Nemeth's explanation about when she knew that Voukidis had not complied with the 3 May 2007 Order, it was never put to Nemeth or Markowitz that they had avoided considering the weight of the case against their clients, or preferred to overlook the significance of the documents that went against their clients' position. Further, it was never put to Nemeth or Markowitz that they had been in any way dishonest - in fact, that suggestion was expressly eschewed.[308]

310 That is probably because the facts were to the contrary, especially after Nemeth took over from Markowitz around September 2005. She diligently reviewed the documents passed onto her by Markowitz and sought discovery of documents from her clients. Having reviewed the documents, in December 2005, she composed a detailed chronology of documents for a brief to counsel and included with it her own narrative about documents of concern. After obtaining counsel's advice in early 2006, she discussed with her clients the ramifications of the documents of concern and counsels' advice - which accorded with Nemeth's own view - that, ultimately, the case would turn on whether the judge accepted Voukidis and Baker's explanation for the existence of those documents.

311 From that time onwards the position remained much the same. More documents were gathered and more instructions were taken. Applications were fought in 2007 over the use of Break Fast's assets to fund the defence of the Ambridge Proceeding but it was not suggested that the case against Break Fast was so obvious and powerful that the money being spent was, almost inevitably, trust money. Whilst that is not determinative, it is of relevance. In my view, it highlights the artificiality of the current argument that an honest and reasonable solicitor, seeing all the documents which were available to Rigby Cooke at relevant times, would have been sufficiently on notice of the existence of the trust that they should now be liable to account to Break Fast for receiving payments of fees from trust assets. The argument suffers all the vices of a hindsight review of facts.

312 If criticism could be made of Rigby Cooke, in my view, it could rise no higher than a finding of negligence. I do not make any such finding but merely make that observation to emphasise that, whatever so-called 'notice' could be attributed to Rigby Cooke, it does not warrant the imposition of a form of liability that is justified because of equity's concern for conscience.

313 Finally, I should say something about the refinement to the Baden (iv) category of knowledge as expressed by Finkelstein J in Imobilari. I refer to his Honour's reference to notice 'of a real and not remote risk' that the transfer of property was involved in the application of trust property. In my view, in the context of a solicitor acting in litigation for a client over a disputed claim, that expression may be inapt to identify the solicitor whose 'moral obtuseness' justifies imposition of personal liability. Almost by definition, in any piece of litigation 'admitting of doubt' there is likely to be a 'real and not remote risk' that the case may fail. That is intrinsic to the nature of litigation. I do not think it is appropriate to rigidly apply that refinement to Baden (iv) knowledge as a means for determining whether to impose personal liability upon a solicitor who, otherwise in good faith, has received fees from a client who continuously denied the existence of a trust in contested litigation.

314 In answer to the question posed at the beginning of this discussion (paragraph 273 above), I am not satisfied that Rigby Cooke knew that Ambridge was 'likely to be successful' in its claim. At the highest, Rigby Cooke held an opinion, fluctuating in strength from time to time, about Ambridge's likely prospects of success. At times, Rigby Cooke appeared to hold an opinion that Ambridge would probably win. However, on the premise that its clients were believed by the trial judge, Rigby Cooke was of the opinion that Ambridge's claim would fail. Put shortly, opinion about a likelihood of the outcome of litigation is not knowledge of a fact.

315 Further, an opinion about the likelihood of success of a disputed claim about the existence of a trust amounts to no more than knowledge of a claim of an uncertain outcome. In the words of Sachs LJ in Carl Zeiss, it is no more than cognizance of a doubtful equity,[309] and in the words of Danckwerts LJ, claims are not the same as facts.[310]

316 In the result, I am not persuaded that Break Fast has established that Rigby Cooke had sufficient knowledge of the fact that Break Fast was a trustee of the Property to impose upon Rigby Cooke recipient liability under the first limb of Barnes v Addy.

Is Break Fast entitled to equitable compensation for knowing receipt?

317 Alternatively, if (contrary to my view) recipient liability should be imposed, there was no dispute (and I would have concluded) that 'but for' Rigby Cooke receiving the fees which Break Fast had paid to Rigby Cooke for defending the Break Fast Defendants in the Ambridge Proceeding, Break Fast would not have incurred a liability to restore the trust assets. Accordingly, if Rigby Cooke was liable for knowingly receiving trust money paid in breach of trust, I would have found that Rigby Cooke caused Break Fast to suffer loss and that Break Fast was entitled to equitable compensation for such loss.

318 Break Fast alleged that between February 2005 and February 2010 Rigby Cooke invoiced Break Fast a total sum of $2,746,837.37 for legal costs.[311] Those invoices included sums to be paid as fees for counsel. The sum was also GST-inclusive. In its pleading, Break Fast particularised the total equitable compensation it claimed from Rigby Cooke by reference to:[312]

(a) the $2,746,837.37, less amounts to meet the proper and necessary discovery obligations of Break Fast ('the discovery costs') and certain payments made directly to Herskope;

(b) plus an amount to meet the liability for the costs ordered to be paid to Ambridge by Elliott J on 4 July 2014 ('the adverse costs liability');[313]

(c) plus interest on those amounts.

319 Rigby Cooke disputed that $2,746,837.37 was the correct starting point for any calculation of equitable compensation.

320 In lieu of the $2,746,837.37 set out in the pleading, the parties reached agreement at trial that any compensation for money paid for the purpose of meeting the legal costs of the Break Fast Defendants should be assessed on a GST-exclusive basis. They also agreed that the arithmetical starting point for calculating those legal costs, excluding GST but including direct payments made without an invoice (other than for counsel), was $1,637,439.59.

321 As a result, the revised amount of equitable compensation that Break Fast sought for the breach of fiduciary duty claim was to be calculated as follows:

(a) $1,637,439.59 less the discovery costs (to be taxed);

(b) plus the adverse costs liability (also to be taxed);

(c) plus interest on those amounts.

322 For the knowing receipt claim, Break Fast sought equitable compensation for the first and third of those categories only.

323 Although agreeing that $1,637,439.59 was the correct starting point for the calculation, Rigby Cook argued that there should be a number of further deductions from that starting point to reach the true 'headline' figure. Those further deductions were:

(a) $34,614.53, being the net amount paid to TressCox in respect of costs orders made by the Court during the course of the litigation, most of which were determined in favour of Ambridge but some of which were determined in favour of Break Fast - although paid from the Rigby Cooke trust account, these amounts were paid without an invoice;

(b) $549,859.09, being payments made to counsel from the Rigby Cooke trust account - Rigby Cooke argued that the arrangement between itself and counsel was that the liability for their fees lay with the client;

(c) $231,000.43, being a component of a larger sum paid into Rigby Cooke's trust account as proceeds of the settlement of other litigation in which Break Fast was involved ('the OAMPS sum') - Rigby Cooke claims that the OAMPS sum, in substance, constituted Break Fast's cash flow or income from which Ambridge had permitted Break Fast to pay legal fees (and, thus, was not misapplied trust money);[314] and

(d) some other minor amounts paid as non-invoiced fees or disbursements from Rigby Cooke's trust account[315] - Rigby Cooke claims not to be liable for amounts that were not the subject of an invoice, seemingly because Break Fast's pleaded loss was predicated on 'invoiced' amounts.

324 Break Fast disputed all of the deductions mentioned in the last paragraph. Effectively, as to all of them, Break Fast contended that because it had to pay all of those sums as legal costs to defend the Break Fast Defendants in the Ambridge Proceeding, they all form part of the loss that Break Fast would not have incurred but for the breach of fiduciary duty. Further, as each category describes money that Break Fast paid or, in the case of the OAMPS sum, directed to be paid into the Rigby Cooke trust account, the money was Break Fast's trust money received by Rigby Cooke.

325 Specifically as to each category, Break Fast argued that -

(a) the $34,614.53, although not paid by way of legal fees for Rigby Cooke's services, is of the same nature as the adverse costs liability: that is, it is a legal-cost expense incurred by Break Fast for defending the Break Fast Defendants in the Ambridge Proceeding;

(b) as to the fees paid to counsel, it is irrelevant what the contractual arrangements may have been between Rigby Cooke and counsel: the payments still represent loss to Break Fast in the nature of legal fees it had to pay, and they were monies that passed through Rigby Cooke's trust account and so, of necessity, were monies received by Rigby Cooke;

(c) as to the OAMPS sum, that money plainly constituted part of the trust assets, the so-called agreement to permit legal fees to be paid from income or cash flow was disputed, and it can be hardly said that the receipt of a settlement sum in litigation was income or cash flow; and

(d) the non-invoiced amounts are not only de minimis but, whether invoiced or not, they are still losses paid as legal costs.

326 Additionally, Rigby Cooke disputed any liability to pay compensation for the adverse costs liability. In short, it seemed to argue that the causal connection between this liability and any breach of fiduciary duty by Rigby Cooke has not been established because Break Fast consented to the order being made when Taylor controlled both Ambridge and Break Fast. In this proceeding, Break Fast contended that there had been no other course it could have taken but to consent to the order because it lost the case. Break Fast's proposal is that if it succeeds in the action, the Court should order an assessment of that adverse costs liability on taxation. Alternatively, Break Fast argued that if there is any merit in Rigby Cooke's argument, the Court could order that the adverse costs order be set aside and that Ambridge's costs application be reheard with Rigby Cooke bearing the costs of disputing Break Fast's liability.

327 On the various matters in dispute, I accept and adopt Break Fast's position for the reasons it advanced. In my view, it is of no real relevance whether the legal costs and disbursements were paid with or without an invoice. On an issue of that nature, the particular form of pleading should not divert attention from the substance. I agree that it is irrelevant what contractual arrangement Rigby Cooke had with counsel as to the payment of their fees. The OAMPS sum was trust money and was not properly to be described as 'income' or 'cash flow'. I do not accept that it should be excluded because of the terms of the correspondence between solicitors preceding the 3 May 2007 Order. Lastly, the adverse costs order against Break Fast was, realistically speaking, inevitable once Break Fast was held to have been a trustee contrary to its defence. On all of these matters, the principle of not 'speculating against the plaintiff' would apply at this point to resolve any doubts in favour of Break Fast.

328 There was one further point. Exhibit E is a confidential document which sets out the settlement sum received by Ambridge when it sued TressCox and its former senior counsel for costs thrown away by reason of the adjournment of the trial in February 2006. In practical substance, that receipt should reduce the liability of Rigby Cooke to compensate Break Fast considering that it is really Taylor who now stands behind both Break Fast and Ambridge. However, to the extent that it does, the parties agree that it is an issue which can be factored into any assessment of the adverse costs liability, if it comes to that.

329 In short, my view of the result is represented in the table below:

To be considered as a possible adjustment to the adverse costs liability on taxation.

330 Because I have not found in favour of Break Fast on either of the bases of liability upon which it seeks relief, it is unnecessary to consider what orders should be made to give effect to any entitlement to relief that Break Fast would have enjoyed had I found in its favour.

Do any of the defences disentitle Break Fast from relief?

331 As stated at paragraph 15(f) above, Rigby Cooke raised a number of specific defences to Break Fast's claims if Break Fast had succeeded in establishing Rigby Cooke's liability. Clearly, since I have found that Break Fast does not succeed on liability, what follows is provided in case it is later found that I was wrong on those findings. In the circumstances, I will deal with the defences with relative brevity.

332 In defence to the allegations that Break Fast is entitled to equitable compensation for Rigby Cooke's breach of fiduciary duty and knowing receipt of trust assets, Rigby Cooke pleaded that Break Fast does not have clean hands having regard to its admitted breaches of trust.[316]

333 The reference to the 'admitted breaches of trust' was a reference to Break Fast's own pleading of its breaches of trust, namely that Break Fast had:

(a) impeached the validity of the trust instrument;

(b) impeached the title of a beneficiary;

(c) failed to adhere to and carry out the terms of the trust;

(d) failed to exercise reasonable care in the management of the Property assets;

(e) failed to get in, safeguard and preserve the Property assets;

(f) acted otherwise than for the purpose of advancing the common interests of the joint-venture parties and achieving the objectives of purchasing, developing and managing the Property;

(g) failed to hold and retain the Property assets in its name; and

(h) dealt with the Property assets without the unanimous agreement of all the joint-venture parties.[317]

334 I gratefully adopt the statement of principles set out by Kaye J in British American Tobacco Australia Ltd v Gordon (No 3):

The basic principle, relating to the doctrine of unclean hands, was stated by Isaacs J in Meyers v Casey,[318] namely, that equitable relief to a plaintiff may be denied:

"... where the right relied on, and which the Court of equity is asked to protect or assist, is itself to some extent brought into existence or induced by some illegal or unconscionable conduct of the plaintiff, so that protection for what he claims involves protection for his own wrongdoing. No Court of equity will aid a man to derive advantage from his own wrong, and this is really the meaning of the maxim."

Two qualifications to the doctrine of clean hands have been stated in the authorities. First, it is not sufficient that there is proven to be "general depravity" on the part of the party seeking equity. Rather, the wrongdoing must be "depravity in a legal as well in a moral sense". Secondly, the wrongdoing must have an "immediate and necessary relation" to the equity which is claimed. Those two qualifications are contained in the classic statement of the principle by Eyre CB in Dering v Earle of Winchelsea[319], where his Lordship stated:

"It is not laying down any principle to say that his (the plaintiff's) ill conduct disables him from having any relief in this Court. If this can be founded on any principle, it must be, that a man must come into a Court of Equity with clean hands; but when this is said, it does not mean a general depravity; it must have an immediate and necessary relation to the equity sued for; it must be a depravity in a legal as well in a moral sense."[320]

335 Relevantly for present purposes, to those principles may be added:

(a) the defence does not operate where the Court finds the plaintiff has 'washed his hands' of the impropriety, such as by showing that the misconduct ceased well before the suit or that clean hands may be achieved by suitable terms being imposed on the plaintiff;[321]

(b) a corporate plaintiff may wash its hands where 'the hands controlling it' have changed and the new directors' hands are not unclean;[322] and

(c) lastly, as with any equitable relief, the Court's discretion is unfettered and it may be guided by other relevant considerations in considering whether the defence ought to apply to disentitle relief in the circumstances.[323]

Was Break Fast guilty of a depravity in a legal and moral sense?

336 The first issue to consider is whether Break Fast was guilty of some 'depravity' in the legal and moral sense.

337 Rigby Cooke relied upon Break Fast's admitted breaches of trust as set out at paragraph 333. In my view, these appear to fall squarely within what might be called 'inequitable conduct', and 'depravity in a legal and moral sense'. Break Fast itself did not appear to dispute this proposition. Nevertheless, I would add that Break Fast's inequitable conduct also included its misrepresentations made both to Rigby Cooke and to the Court denying the truth that it had entered an agreement with Ambridge and the other joint venture participants that it, Break Fast, would hold the Property on trust and that Ambridge would be a joint venture participant with a 25% equity in the Property. That inequitable conduct extended to, and included, Break Fast's conduct, by its directors, Voukidis and Baker, in fabricating documents to conceal what Break Fast and its directors knew to be true and falsely suggested to Rigby Cooke that Break Fast had a viable defence in the Ambridge Proceeding.

Was there the required relationship between the conduct and the equity sued for?

338 The second issue is whether Break Fast's inequitable conduct had an immediate and necessary relation to the equity sued for.

339 Rigby Cooke submitted that an immediate and necessary connection existed because Break Fast's defence of the Ambridge Proceeding and its misapplication of trust funds to pay for that defence, was the necessary context for Rigby Cooke's alleged breach of fiduciary duty and knowing receipt of trust funds. Rigby Cooke pointed out that Break Fast's own pleading of the conflict claim expressly linked the payment of the legal fees with the existence of the alleged conflict, thus, making Break Fast's breach of trust duties a central element to the alleged conflict.[324]

340 Break Fast, on the other hand, denied that there was any immediate and necessary connection between Break Fast's breach of trust duties and Rigby Cooke's alleged breach of fiduciary duty. Break Fast did not appear to deny the existence of a connection between its breach of trust duties and the alleged knowing receipt claim. Nevertheless, Break Fast submitted that its own breach was the 'direct product' of Rigby Cooke's breach of fiduciary duty by acting concurrently for Break Fast and the Voukidis Defendants, and by failing to recommend that Break Fast obtain independent legal advice as to whether it should take an active role in defending the Ambridge Proceeding. On its own logic, this last proposition appears to be in favour of an immediate and necessary connection rather than against it.

341 On the submissions made, assuming they are directed towards the relevant 'immediate and necessary connection', I accept Rigby Cooke's argument and find that there is the requisite connection. First, neither party appears to dispute, and it seems logical, that Break Fast's breach of trust duties has an immediate and necessary relation to Rigby Cooke's alleged knowing receipt of the trust funds. Without Break Fast making the payments, Rigby Cooke could not (knowingly) have received the trust funds. Secondly, with respect to a connection between Break Fast's breach of trust and the conflict claim, it becomes relevant to identify what constituted Rigby Cooke's conflict. On the footing that Rigby Cooke's conflict was that it had acted concurrently for Break Fast and the Voukidis Defendants without advising Break Fast to obtain independent legal advice, which in turn caused Break Fast to take an active role in the Ambridge Proceeding and pay legal fees out of trust for the Break Fast Defendants' defence costs, the relevant immediate and necessary connection is thereby established.

342 However, it appears to me that, arguably, neither party addressed the relevant connection. On the authorities, the relevant connection is that between 'the plaintiff's misconduct and "the equity sued for"'. The equity which Break Fast wishes to uphold in the present case is an entitlement to equitable relief that would restore the trust fund (namely, by obtaining equitable compensation to the extent that trust monies were misapplied). If the restoration of the trust fund is 'the equity sued for' or the 'equity the plaintiff seeks to uphold', it seems to me that the relevant immediate and necessary relation is that between Break Fast's misconduct (ie payment of trust funds) and the need to restore the trust funds, irrespective of which claim (ie breach of fiduciary duty or knowing receipt) the equity arises from. In my view, that connection is plainly established.

343 Irrespective of which analysis applies, I find that the requisite connection between Break Fast's misconduct and the equity sued for is made out.

344 The third issue is whether Break Fast has washed its hands clean of its inequitable conduct.

345 Despite the usual notion that the corporate veil should not be lifted, Marshall Futures Ltd v Marshall ('Marshall Futures')[325] and Karl Suleman Enterprizes Pty Ltd (in liq) v Babanour ('Karl Suleman Enterprizes v Babanour')[326] are examples of cases in which courts peered behind the corporate veil to look at the controllers of the company. In each case, the relevant companies that had had unclean hands went into liquidation, and the Court then considered the respective liquidators' hands so as to determine whether the companies had clean hands. Nevertheless, even after a change of controlling hands, it is still possible that the new controlling hands are unclean, and therefore, the company's hands would be too.

346 Break Fast argued that it has had a complete change of directorship and that Taylor has 'completely clean hands'. Moreover, Break Fast submitted that, following the change of directors, Break Fast ceased paying legal costs from trust assets and brought the present proceeding as an effort to clean the hands of Break Fast by recovering monies 'for the benefit of the trust'.

347 Rigby Cooke disputed the proposition that Break Fast's purpose of this proceeding is to reinstate the fund and to clean its hands. Because the remedy of the taking of accounts was abandoned as a consequence of the order made by Almond J on 6 October 2020 in the Ambridge Proceeding,[327] Rigby Cooke argued that the purpose of the current proceeding is not to account to the joint venturers by replenishing the trust and making appropriate adjustments to the dispositions from it.

348 Further, Rigby Cooke relied upon evidence that, on 28 April 2012, Taylor caused Break Fast to agree to enter into a loan agreement with his company, Headland, for an advance of up to $1 million.[328] The agreement was executed by Taylor on behalf of Headland and by Taylor and his son on behalf of Break Fast.[329] By that agreement, Break Fast agreed to provide security for its obligations under the loan agreement by way of a mortgage over the Property. Break Fast's obligations under the loan agreement included that it must apply the proceeds of any recovery from court proceedings in first priority to the repayment of the loan made by Headland under the loan agreement.[330] In cross-examination, Taylor was unable to say whether he had obtained the consent of the joint venturers to enter the agreement upon those terms.[331] Taylor further stated, however, that the agreement had been terminated by a further deed made on 2 September 2016.[332] By a short deed of that date Break Fast and Headland agreed that no loan was made, no mortgage was given, no debt was created and the loan agreement was terminated.[333]

349 Rigby Cooke argued that Taylor's conduct likely caused Break Fast to breach the same trust duties that Break Fast had alleged it had itself breached when misapplying trust monies to pay Rigby Cooke's fees. In substance, Rigby Cooke contended that Break Fast had agreed to direct the proceeds of any recovery in this action away from the beneficiaries of the trust and that Taylor, as controller of Break Fast, whether such agreement had been terminated or not, and therefore does not have clean hands.

350 On the evidence to which Rigby Cooke has drawn attention, I am not persuaded that this proceeding is a means by which Break Fast seeks to amend its original breach of trust. The creation of the loan agreement and its termination four years later without some credible commercial explanation leaves doubt as to Taylor's real intentions. The nature of his conduct in procuring the loan agreement in the first place, without beneficiaries' consent, is not entirely erased by simply terminating the agreement. Unlike the liquidators in Marshall Futures and Karl Suleman Enterprizes v Babanour, I am not convinced that Taylor, now in control of Break Fast, intends to restore the original trust for the benefit of all of its beneficiaries. I do not find that he has 'completely clean hands' as asserted by Break Fast. I accept Rigby Cooke's arguments in this respect.

351 The final issue is, how would I exercise my discretion to uphold the defence of unclean hands on the findings I have made.

352 Break Fast contended that I ought to exercise my discretion against allowing the defence of unclean hands because, by failing to recommend that Break Fast obtain independent legal advice as to whether it should actively defend the Ambridge Proceeding, Rigby Cooke caused Break Fast to breach its trust duties. I reject that submission.

353 In considering whether it is unjust or inequitable that Rigby Cooke should be allowed to rely upon Break Fast's unclean hands to defeat a claim for equitable compensation for Rigby Cooke's own breach of fiduciary duty or knowing receipt of trust funds, I place significant weight on the fact that Break Fast, controlled by Voukidis and Baker, knew the entire time what the true facts were. Voukidis' and Baker's misrepresentation of the facts to Rigby Cooke, and Voukidis' and Baker's fabrication of documents which appeared to give credence to Break Fast's position, played a role in causing Rigby Cooke to have breached its fiduciary duty to Break Fast (upon the hypothesis, that it did breach such a duty). Voukidis' and Baker's conduct in doing so was, relevantly, the conduct of Break Fast.

354 In the peculiar combination of circumstances in this case, I consider it just that Rigby Cooke be permitted to rely upon the defence of unclean hands to Break Fast's claim for equitable compensation under either head of liability.

355 In summary, even if Break Fast had established an entitlement to equitable compensation for either breach of fiduciary duty or knowing receipt, I would not have awarded such compensation to Break Fast. It patently has unclean hands by reason of its own misapplication of trust monies. Its breach of trust duties has an immediate and necessary connection with the equity it seeks. By this proceeding, Break Fast has made no real effort to clean its hands of the inequity of which it is guilty. Instead, Break Fast has given priority to paying any proceeds so recovered toward a debt owed to a non-beneficiary third party. Finally, there is no reason to exercise my discretion against upholding the defence of unclean hands.

Laches, and statutory limitation of action by analogy

1. In Rigby Cooke's defence to Break Fast's third FASOC, Rigby Cooke pleaded that Break Fast was not entitled to equitable relief because Break Fast was 'guilty of laches in that it has unreasonably delayed in the institution and prosecution of its claim [the conflict and knowing receipt claim] such that it would now be unjust to require [Rigby Cooke] to repay the Rigby Cooke payments.' Further, Rigby Cooke alleged that, even if established, any alleged cause of action which accrued more than six years prior to the commencement of the current proceeding is barred by s 5(1) the Limitations of Actions Act 1958 (Vic) ('Limitations of Actions Act'). Break Fast denied that either defence applies.

1. The defence of laches encompasses two strands, as stated in Amaca Pty Ltd v CSR Ltd ('Amaca v CSR'):

As is evident from Lindsay Petroleum and Fysh, the defence encompasses two strands: one, a period of delay which, on the part of the person seeking the remedy, amounts to the equivalent of waiver; the other, a period of delay coupled with a change of circumstance that makes it unjust to allow the remedy. It seems that in either case mere delay itself will be insufficient: some element of unreasonableness is also required.[334]

1. The defence may be available even for claims brought within the six-year time period of s 5 of the Limitations of Actions Act (if applied by analogy), albeit only in an unusual if not exceptional case.[335]
2. Break Fast submitted that it must be established, as an element of the laches defence, that the plaintiff had knowledge of the wrong,[336] although attention was drawn to some doubt as to this proposition as expressed in Meagher, Gummow and Lehane's Equity Doctrines and Remedies.[337] The passage in that text to which Break Fast referred explains that the extent to which knowledge is relevant depends on which of the two strands of laches is being invoked, that is, whether it is the 'waiver' strand or the 'change of circumstance' strand:

The next question concerns knowledge. In order to have one's claim barred by laches, to what extent is it necessary to know what one's rights are? The answer is that, in the kind of laches which really consists of waiver implied by conduct, the party against whom the defence is urged must know both the facts on which the party's rights depend and also what those rights are. But it would appear that knowledge of the relevant facts gives rise to a presumption of knowledge of one's rights, and the availability of the means of knowledge is as good as knowledge. These propositions, as expressed in the third edition of this work, were approved by the New South Wales Court of Appeal. Such knowledge will not lightly be inferred against a fiduciary. However, in the kind of laches which consists of a plaintiff's long delay leading to the defendant (or third persons) reasonably altering their position to their detriment in reliance thereon, there seems to be no reason why the fact that the plaintiff is ignorant of his or her rights should bar a defence of laches. This distinction is further reason for seeking to employ the term laches with precision.[338]

1. A key element of the defence is whether, in all the circumstances, 'it would be practically unjust to give a remedy'.[339]
2. Rigby Cooke relied upon the following facts which it argued ought to engage the defence of laches:

(a) all of the events relied on by Break Fast as a basis for the claim for relief took place between January 2005 and 2009;

(b) from 24 November 2005, Break Fast knew that, if it were unsuccessful in defending Ambridge's claim in the Ambridge Proceeding, it would have to account for the legal costs it spent in defending the proceeding and yet, it continued to use the Property assets to fund the legal costs of the Break Fast Defendants;

(c) Break Fast was aware of the existence of the facts that it alleged give rise to the equitable relief from the date of the Vickery J Judgment on 12 March 2010;

(d) Break Fast only commenced this proceeding on 30 May 2013 (and only served the proceeding on Rigby Cooke on 28 May 2014);

(e) Break Fast amended its pleadings on five occasions and substantially reformulated its claim in late 2020 deleting the previous claims for breach of retainer, negligence, 'ordered payments' claim and duty of loyalty claim and introducing for the first time a claim based on an alleged conflict of duty by Rigby Cooke;

(f) the allegations in Break Fast's third FASOC relate to events that took place approximately 10 to 15 years ago and the key partners and employees have since left Rigby Cooke;

(g) Break Fast commencing other proceedings (to recover misappropriated monies from former directors of Break Fast) should be irrelevant to the question of delay in claiming loss from Rigby Cooke in respect of its alleged wrongdoing;

(h) Rigby Cooke has been prejudiced because oral testimony of key witnesses, being Nemeth and Markowitz, indicated that their recollection was 'significantly affected by the effluxion of time';

(i) the documentary record available from the Rigby Cooke file was not a complete record of all conversations and events between 2004 and 2009; and

(j) even if only little of the passage of time up to the trial in 2021 was Break Fast's fault, that does not prevent a defence of laches in the circumstances.

1. For its part, Break Fast relied on a different collection of the facts, namely:

(b) the breaches commenced with the first invoice issued by Rigby Cooke and paid by Break Fast and continued to the last invoice paid by Break Fast (ie the start of 2010);

(c) in the intervening period, Break Fast was unaware of its rights;

(d) Rigby Cooke were retained until March 2010 and Break Fast 'could not' have received advice on Rigby Cooke's potential breaches at that time;

(e) in 2011, Taylor was reinstated as a director. Prior to then, Break Fast had been under the control of Voukidis and Baker (who still continued to be directors until 2012 and 2014 respectively) and it was, Break Fast submitted, unlikely that Voukidis or Baker would have sought or received advice on Break Fast's behalf about causes of action which would have implicated Voukidis' and Baker's conduct in the Ambridge Proceeding. Therefore, Break Fast contended that until Taylor's reinstatement, Break Fast could not reasonably have taken action and then it took action within two years;

(f) Break Fast was seeking to recover funds lost from the trust through other proceedings in the interim and had limited funds to pursue multiple causes of action;

(g) Taylor funded various proceedings on behalf of Break Fast 'to vindicate the rights of the trust and Joint Venture'; and

(h) the case was largely a documentary one in which the facts were largely uncontested.

363 As stated in Orr v Ford,[340] it is necessary to first identify 'the substantive nature of the claim to which laches is said to constitute a bar'.[341] In this case, Rigby Cooke is seeking to use it as defence to the conflict and knowing receipt claims. From the substantive nature of the claims and the grounds advanced for the defence of laches, if laches is at all applicable, it would be the second strand of laches (as set out in Amaca v CSR, Orr v Ford, Lindsay Petroleum Co v Hurd[342] ('Lindsay Petroleum')). That is, the strand characterised by 'a period of delay coupled with a change of circumstance that makes it unjust to allow the remedy', noting that the delay requires an element of unreasonableness to it. On the basis that this is a 'change of circumstance' argument, I would adopt the view expressed in Meagher, Gummow and Lehane's Equity Doctrines and Remedies[343] that knowledge of the wrong is not an element of the defence.

1. It follows that to make out the defence, Rigby Cooke needs to establish that:

(a) there was unreasonable delay on the part of Break Fast in the commencement and prosecution of the proceeding; and

(b) in light of the nature and consequences of the delay, there was a change of circumstances which makes it 'practically unjust' to grant the relief sought.

1. As may be seen, there is a range of factors that tend both ways on each of the two matters just identified. On the issue of 'delay', one logically asks: delay from when? In the context of a defence which considers whether it is 'practically unjust' to grant the relief sought, it does not seem just to calculate delay from a point in time before Rigby Cooke ceased acting for Break Fast and until there was a change of control of Break Fast. That is because, the substantive nature of the claim to which laches is said to constitute a bar, is that Break Fast was precluded from obtaining the type of legal advice which may have enabled it to commence this proceeding. Moreover, it is not practical to expect Break Fast to take action against Rigby Cooke while Voukidis and Baker were in control of the company.
2. Thus, taking 2011 as the more realistic point in time to mark any commencement of delay, the commencement of the proceeding in May 2013 did not involve such a delay as to be characterised as unreasonable. In making that assessment, I take into account the dimension of this case and the steps that probably had to be taken in order to launch it. That said, apparently there was a delay in serving the writ, and then a considerable delay in bringing the matter to trial. Apart from the delay in service, it is more difficult to discern why the matter took so long to come to trial - but whatever the causes, it cannot be denied that the upshot was that the trial in 2021 concerned matters that took place between 10 and 15 years earlier.
3. Turning to the change of circumstances and the consequences of the delay, again there are some factors tending both ways. Although finely balanced, in all the circumstances, I do not find that those consequences, together with the period of delay, make it practically unjust for equitable compensation to be granted if Break Fast (contrary to my previous findings) was otherwise entitled to that relief. Rigby Cooke's witnesses, Markowitz and Nemeth, were still available and gave evidence. Overall, the evidence was mostly documentary and to the extent that witnesses were unable to recall matters from memory, there were detailed file notes and correspondence that effectively told the story. Against that background, any lapses of actual memory were generally inconsequential. It did not appear to me that there was any obvious gap in the documentary record, due to the effluxion of time, that prejudiced Rigby Cooke's ability to defend itself. In short, there was no 'unconscionable prejudice'[344] caused to Rigby Cooke by the delay.

368 Whether, at the end of the day, the defence of laches should prevail is a matter of degree and depends on the circumstances of the individual case.[345] In my judgment, in this case, the laches defence should not be upheld.

369 Rigby Cooke submitted that, if Break Fast otherwise had a valid claim of breach of fiduciary duty or knowing receipt against Rigby Cooke, such causes of action had accrued more than six years prior to the commencement of the current proceeding and would be statute barred by way of analogous application of s 5(1) of the Limitations of Actions Act.

370 The relevant principle, emanating from Knox v Gye,[346] is set out by Emerton J in Candibon Pty Ltd v Minister for Planning[347] ('Candibon'), distilling a passage from Dr Spry's Equitable Remedies[348] which, in turn, has received judicial approval in Cia de Seguros Imperio v Heath (REBX) Ltd & Ors.[349] Her Honour in Candibon held:

The Court may decide that the material equitable right is so similar to legal rights to which a limitation period is applicable that a limitation period should be applied to the equitable right also. If there is a sufficiently close similarity between the exclusive equitable right in question and legal rights to which the statutory provision applies, a court of equity will ordinarily act upon it by analogy, but it will so act only if there is nothing in the particular circumstances of the case that renders it unjust to do so. What is regarded by courts of equity as a sufficiently close similarity for this purpose involves a question of degree, and reference must be made to the relevant authorities. The basis of these principles is that, in the absence of special circumstances rendering this position unjust, the relevant equitable rules should accord with comparable legal rules.[350]

371 To establish the analogous application of the six year limitation period provided in s 5(1) of the Limitation of Actions Act, Rigby Cooke would have to show that:

(a) the conflict claim and the knowing receipt claim were sufficiently similar causes of action to a claim at law, such as a breach of retainer or negligence claim;

(b) it would not be unjust to apply the statutory time limit by analogy; and

(c) the claims accrued at least six years prior to filing of the writ.

372 Turning to the first of those three elements, Rigby Cooke argued that Break Fast's claims for equitable compensation for breach of fiduciary duty and knowing receipt of trust property were sufficiently similar to claims that could have been brought at common law. The common law claims it relied upon were causes of action for damages for breach of retainer and negligence. Rigby Cooke argued that those actions are sufficiently analogous to the equitable claims that Break Fast brought in this proceeding so as to warrant the application of the statutory six year limitation.

373 Rigby Cooke pointed out that in Break Fast's second further amended statement of claim ('Break Fast's second FASOC'), Break Fast had pleaded alternative claims for breach of retainer and negligence, claiming essentially the same sum of money by way of damages as it sought in Break Fast's third FASOC by way of equitable compensation.

374 Break Fast argued that the common law claims which Rigby Cooke had identified could not reasonably be considered 'sufficiently similar' to Break Fast's claims for breach of fiduciary duty and knowing receipt. It argued that the common law claims would not have led to relief by way of account profits, as is available as a form of relief for its claims in the equitable jurisdiction. Break Fast also argued that the Court should not have regard to its previous pleadings for the purpose of considering whether there may be a sufficiently similar claim available at common law.

375 Taking the last point first, I see no reason why I should not have regard to Break Fast's previously pleaded, but abandoned, cause of action. Even without any previous form of pleading, I could formulate myself, for the purpose of analysis, a hypothetical form of pleading to test the proposition whether there might be a sufficiently similar common law cause of action. Seeing the way that Break Fast previously formulated such a claim is no more than a shortcut to me doing so.

376 Turning to the alternative causes of action at law, in previously pleading a claim in negligence, Break Fast had relied on the solicitor-client relationship to establish a duty to exercise reasonable care and to inform the directors of any dishonest conduct in which a director of Break Fast might be engaged in connection with the Ambridge Proceeding.[351] In relation to a breach of retainer, Break Fast previously pleaded that Rigby Cooke had failed to advise Break Fast that Break Fast would be in breach of trust duties by using the Property assets to make payments (if it was held a trustee), failed to advise Break Fast that it should not use its assets to pay the legal fees, continued to act in those circumstances, and did not advise Break Fast to take a passive role in defending the Ambridge Proceeding. Furthermore, the loss that Break Fast claimed to have suffered was the amount of payments made to Rigby Cooke less discovery costs, but including the adverse costs liability.[352]

377 Clearly, there are similarities between the equitable causes of action upon which Break Fast has relied, and those common law causes of action, especially between the previously pleaded breach of retainer claim and the current claim for breach of fiduciary duty. Earlier in these reasons, I observed that certain elements of the breach of fiduciary duty case might have given rise to a claim in negligence or breach of retainer.[353] I also expressed the view that, for not having realised between 2005 and 2009 that the case against the Break Fast Defendants would succeed, at its highest only a finding of negligence could be made against Rigby Cooke.[354]

378 Notwithstanding some similarities, there are also some importance differences between the equitable claims and the alternative common law claims.

379 As I have been at pains to elaborate, the touchstone of the breach of fiduciary duty claim in this case is the establishment of the propensity for two concurrently owed duties to disable Rigby Cooke from properly fulfilling its duty owed to Break Fast. That propensity or possibility is not established by merely proving a duty on the part of Rigby Cooke to advise Break Fast that it had no interest (beyond discovery) to play an active role in the Ambridge Proceeding, or that Break Fast should not devote potential trust assets to pay the defence costs in the proceeding. A duty to give that advice was only one part of the collection of elements for Break Fast's breach of fiduciary duty case.

380 Furthermore, with respect to the knowing receipt case, I also emphasised the important difference between a mere negligent failure to enquire into facts, as a form of requisite knowledge, and the more culpable degree of knowledge which the equitable cause of action required.[355]

381 I have also noted the potentially wider recovery that a successful plaintiff may achieve by way of equitable compensation compared to damages because equity does not apply common law principles of remoteness,[356] and does not speculate against the plaintiff once a causal link is established.[357] These principles potentially enlarge the scope of loss which Break Fast could recover as equitable compensation for breach of fiduciary duty compared to what it might recover as damages for a successful claim in negligence or breach of retainer.

382 Finally, in my view, in terms of its conceptual nature, proofs and the type of remedy that it may have yielded, the knowing receipt claim is even more markedly different from the common law causes of action which Break Fast might have advanced.

383 Not having concluded that the conflicts claim or the knowing receipt claim was sufficiently similar to a claim at law, it is not necessary that I should consider whether it would be unjust to apply the statutory time limit by analogy.

384 In conclusion, I would not have applied the limit under section 5 of the Limitations of Actions Act by analogy to either of the two equitable claims had Break Fast succeeded on them.

Contributory negligence and failure to mitigate

385 Rigby Cooke asserted[358] the application of section 26 of the Wrongs Act 1958 (Vic) to reduce its liability to pay equitable compensation for breach of fiduciary duty or knowing receipt of trust funds. In Pilmer v The Duke Group Ltd,[359] the High Court referred to the 'severe conceptual difficulties'[360] in applying contributory negligence to diminish awards of equitable compensation for breach of fiduciary duty.[361] Equally (or even more so), in my view, would there be conceptual difficulties in applying contributory negligence to reduce equitable compensation for knowing receipt.

386 It follows that the defence of contributory negligence is not available to Rigby Cooke in this case. Neither do I consider that there is any duty on a plaintiff alleging breach of fiduciary duty in knowing receipt to mitigate their loss, and I would not have accepted that defence either.[362]

387 Rigby Cooke pleaded[363] that it is immune from suit on the principle of advocate's immunity insofar as the work it did out of court led to a decision affecting the conduct of the Ambridge Proceeding or was intimately connected with the conduct of that proceeding in court.

388 The principles are well established.[364]

389 If accepting Rigby Cooke's liability for having breached a duty by acting concurrently for Break Fast and the Voukidis Defendants, or for knowingly receiving misapplied trust funds, there is simply no relevant connection that would engage the immunity between its wrongdoing, on the one hand, and, on the other, either the work it did out of court affecting the conduct of the case in court or work that it did which was intimately connected with the conduct of the proceeding in court. A connection for this purpose is not established merely by a (wrongful) decision to act for a party to the litigation and then conducting their case in court accordingly.

390 Rigby Cooke alleged in its defence[365] that Break Fast is estopped from claiming the relief sought in the current proceeding. Rigby Cooke contended that it would be unconscionable to permit Break Fast to make its claims because:

(a) Break Fast had made representations that Break Fast would pay its legal fees for the conduct of its defence;

(b) Break Fast thereby had induced Rigby Cooke to act to its detriment by providing legal services and engaging counsel on Break Fast's behalf; and

(c) Rigby Cooke had done so in reliance upon Break Fast's representations.

391 Rigby Cooke also asserted a counterclaim for its fees based on the contract of retainer for its services, the provision of those services and the invoices that it had rendered.[366]

392 I reject both the defence of estoppel and the counterclaim for fees. I agree with Break Fast's submission that if, contrary to my findings, Break Fast succeeded in its claims for breach of fiduciary duty or knowing receipt, it is difficult to follow how the Court's order could be circumvented by Rigby Cooke claiming back improperly earned fees through an estoppel or by way of contract. Any breach of fiduciary duty would be disentitling conduct and likewise a breach of the contract by which the debt is said to have arisen. Moreover, it would not be unconscionable for Break Fast to resile from the alleged implied representation which is said to support the pleaded estoppel if, in fact, Rigby Cooke's continuance to act constituted a breach of fiduciary duty or its receipt of the fees constituted knowing receipt of misapplied trust funds.

393 Before concluding, I wish to briefly return to the argument raised by Rigby Cooke mentioned at paragraph 213 above. Rigby Cooke argued that Break Fast's claim that Rigby Cooke was liable for having knowingly received misapplied trust funds was the only cause of action available to Break Fast. For reasons that Rigby Cooke endeavoured to explain, the breach of fiduciary duty claim was, it argued, embodied within the Barnes v Addy claim and could not be separately maintained. It did not seem to me that this argument was as fully developed as it could have been. Break Fast paid it little attention. In the end I was not satisfied I was given enough assistance to be able to address it and I have chosen not to do so.

(a) Break Fast failed on its claim that Rigby Cooke breached a fiduciary duty;

(b) alternatively, if Rigby Cooke did breach its fiduciary duty by acting in a conflict of duties, Break Fast may or may not have given fully informed consent to it doing so depending upon which of the two hypotheses for the conflict identified at paragraphs 228 and 229 is adopted;

(c) further, if Rigby Cooke did breach its fiduciary duty, its breach did not cause Break Fast to suffer the loss for which it claimed equitable compensation;

(d) if Break Fast was entitled to equitable compensation for a breach of fiduciary duty, I would award $1,637,439.36 less the discovery costs (to be taxed), plus the adverse costs liability (also to be taxed), plus interest on those amounts;

(e) Break Fast failed on its claim that Rigby Cooke knowingly received misapplied trust assets;

(f) alternatively, if Rigby Cooke knowingly received misapplied trust assets, Rigby Cooke caused Break Fast to suffer loss so that Break Fast would be entitled to equitable compensation for such loss;

(g) if Break Fast was entitled to equitable compensation for Rigby Cooke's knowing receipt of misapplied trust assets, I would award $1,637,439.36 less the discovery costs (to be taxed), plus interest on that amount; and

(h) if Rigby Cooke was liable on either of the two bases alleged, I would have upheld its defence of unclean hands for both, but I would not have upheld its defences of laches, statutory limitation of action by analogy, contributory negligence or failure to mitigate loss, advocate's immunity or estoppel nor would I have accepted Rigby Cooke's counterclaim.

395 For the foregoing reasons there will be judgment for the defendant, Rigby Cooke, on the claim and its counterclaim will be dismissed.

[1] Ambridge Investments Pty Ltd (in liquidation) (receiver appointed) (ACN 077 299 051) v Tress Cox Lawyers (a firm) (ABN 93 281 528 297) & Anor (S CI 2014 04954); Break Fast Investments Pty Ltd & Anor v Gravity Ventures Pty Ltd & Ors (S CI 2010 04463); Ambridge Investments Pty Ltd (Receiver appointed) (in liquidation) (ACN 077 299 051) v Baker & Ors (S CI 2005 02014).

[2] The claim had also been brought against Alan Herskope (a barrister). Break Fast's claim against Herskope resolved at the commencement of the trial, so these reasons deal only with the claim against Rigby Cooke.

[3] An account of profits was claimed in the alternative but the plaintiff made an election during final submissions (as it was required to do) to pursue equitable compensation.

[4] [2010] VSC 59.

[5] Some authorities contain the phrase 'real and sensible risk' of conflict; I do not consider there to be any difference in meaning or content between the use of 'possibility' or 'risk' in this context.

[8] Vickery J Judgment [209] and [210]; Ex A 2076.

[11] Vickery J Judgment [213], [216], [220].

[13] Vickery J Judgment [227]-[230].

[16] Vickery J Judgment [319] and [328]; Ex A 1633.

[17] Vickery J Judgment [208] and [216].

[22] Vickery J Judgment [243]; eg Ex A 2153.

[29] Vickery J Judgment [249] and [250].

[30] Vickery J Judgment [250] and [251]; Ex A 1724 and Ex A 1728.

[33] Vickery J Judgment [254] and [255].

[34] Vickery J Judgment [257] and [258].

[36] Vickery J Judgment [259] and [260].

[37] Vickery J Judgment [336] and [337].

[38] Vickery J Judgment [338]; Ex A 1760.

[40] Vickery J Judgment [262]-[264].

[41] Vickery J Judgment [265]; Ex A 1648.

[42] Vickery J Judgment [269]; Ex A 1677.

[43] Vickery J Judgment [267]-[270] and [274].

[44] Vickery J Judgment [280] and [281].

[46] Vickery J Judgment [271]; Ex A 1686.

[48] Vickery J Judgment [289] and [330].

[50] Vickery J Judgment [332]; Ex A 1724.

[52] Vickery J Judgment [315]; Ex A 1633.

[55] Vickery J Judgment [319], [328] and [329].

[56] Vickery J Judgment [391]-[395]; Ex A 1791.

[57] Vickery J Judgment [311], eg 2001 financial statement: Ex A 2035.

[58] Vickery J Judgment [341]; Ex A 816.

[60] Vickery J Judgment [345]-[346].

[61] Vickery J Judgment [353]; Ex A 770.

[65] Vickery J Judgment [359] and [370].

[66] Vickery J Judgment [375]; Ex A 1788.

[67] Vickery J Judgment [376]; Ex A 1788.

[68] Vickery J Judgment [378] and [379].

[69] Vickery J Judgment [385]-[387]; Ex A 1873.

[71] Vickery J Judgment [408], [412] and [413]; Ex A 770.

[72] Vickery J Judgment [414]-[418]; Ex A 2073.

[73] Vickery J Judgment [419]-[422]; Ex A 1907.

[75] Vickery J Judgment [425]-[429].

[78] Vickery J Judgment [432] and [569]-[572].

[79] Vickery J Judgment [433]-[435].

[83] Vickery J Judgment [441]-[463]; Ex A 1922.

[84] Vickery J Judgment [466] and [467].

[85] Vickery J Judgment [436], [468].

[86] Vickery J Judgment [436], [468]-[474].

[87] Vickery J Judgment [453]-[456].

[88] Vickery J Judgment [457] and [458]; eg June 2002 and March 2003: Ex A 1986.

[89] Vickery J Judgment [477]-[478].

[91] Vickery J Judgment [480]-[486].

[92] Vickery J Judgment [94]; Ex A 693.

[120] Ex A 9130; Transcript 403 L18-L21.

[134] Ex A 7873; Transcript 450 L24-451 L3.

[143] Ex A 8165; Vickery J Judgment [140].

[146] Ex A 1428, [18]; Ex A 1423; Vickery J Judgment [141].

[150] Transcript 499 L10-L 13; Ex A 8296.

[161] Vickery J Judgment [145] and [146].

[163] A fact conceded by Break Fast in the current proceeding: Transcript 151.

[168] Transcript 225 L12-L15, L29-226 L4, 229 L21-L24.

[170] See below at [141]-[167].

[171] Defendant's written opening submission [31].

[172] Particulars to paragraph 29A of Break Fast's third FASOC set out various reasons why it is so alleged that Rigby Cooke knew or ought to have known why the conflict existed. It is not clear whether those allegations are germane to Break Fast's case on conflict.

[173] Break Fast's written opening submissions [12], [13].

[174] Break Fast's written closing submissions [20]-[22] and [27]-[29].

[175] Break Fast's written opening submission [15] (not repeated in its written closing submission).

[176] Appearing at [32] of Break Fast's written closing submission, not in its opening submission.

[177] Break Fast's written closing submission [17].

[179] Break Fast's written closing submission [41].

[180] Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46.

[181] Patrick Parkinson, The Principles of Equity (Law Book Co, 2003) 347; see also Breen v Williams (1996) 186 CLR 71, 93 (Dawson and Toohey JJ).

[182] [1984] HCA 36; (1984) 154 CLR 178.

[184] Breen v Williams (above n 181) 108 (Gaudron and McHugh JJ); see also Wan v McDonald [1992] FCA 4; (1991) 33 FCR 491,511, Burchett J citing a passage from Wootten J in Thompson v Mikkelsen (Supreme Court of New South Wales, Wootten J, 3 October 1974).

[185] [1998] VSC 110.

[187] [1999] NSWSC 292.

[189] [1985] NZCA 21; [1985] 1 NZLR 83.

[192] [1999] NSWCA 408; (1999) 48 NSWLR 1.

[195] [1997] HCA 23; (1997) 188 CLR 449 ('Maguire v Makaronis'), 465.

[196] Marron v Chatham Daunt (above n 185) [32].

[197] [1966] UKHL 2; [1967] 2 AC 46.

[198] Ibid 124; see also Beach Petroleum (above n 192) [425] and Rigg v Sheridan [2008] NSWCA 79, [38].

[199] Boardman v Phipps (above n 197) 131-3.

[200] Nasr v Vihervaara [2005] SASC 83; (2005) 91 SASR 222, [17] citing Drummond J in Carindale Country Club Estate Pty Ltd v Astill [1993] FCA 218; (1993) 42 FCR 307, 312-3.

[201] Marks & Spencer plc v Freshfields Bruckhaus Deringer [2004] 3 All ER 773; Theakstone v McCann (1995) 180 LSJS 208; Mallesons Stephen Jacques v KPMG Peat Marwick (1990) 4 WAR 357; Nasr v Vihervaara [2005] SASC 83; (2005) 91 SASR 222.

[203] [1995] 1 AC 74.

[205] [2005] SASC 83; (2005) 91 SASR 222.

[207] Beach Petroleum (above n 192) [201].

[208] [1994] 1 AC 428, 436 (emphasis added).

[209] [2001] VSCA 248; (2001) 4 VR 501.

[211] Farrington (above n 189) [114], [115].

[212] Break Fast's written opening submission [5], [6].

[213] [1999] NSWSC 292.

[214] [2018] VSC 11.

[215] [2010] NSWSC 137.

[216] [2013] VSC 328.

[217] [1989] VicRp 17; [1989] VR 184.

[218] (1842) 5 IR Eq 24.

[223] [2010] NSWSC 137.

[229] For example, 14 September 2005 in the handover between Markowitz and Nemeth Ex A 9130-9131 and Transcript 403; conference between Nemeth and Voukidis on 28 October 2005, Ex A 7654 and Transcript 416; conference between Nemeth, Voukidis and Herskope on 7 May 2008, Ex A 8293 and Transcript 496 L16.

[230] Outline of Submission dated 24 November 2005 prepared by Collins and Herskope, Ex A 9182, 7696, [5].

[231] Application on 24 November 2005: Ex A 7710 and Transcript 195 L26-L29.

[232] Ex A 9192 [11]; this written advice was sent to Voukidis (Ex A 7790). The same subject was also discussed between Nemeth and Voukidis on 15 February 2006: Ex A 7786, Transcript 437 L23-L30.

[233] Above at [153].

[234] Above at [138] and [139].

[236] Above at [157].

[237] Above at [102].

[238] Maguire v Makaronis (above n 195) 466-7.

[239] Marron v Chatham Daunt (above n 185) [36].

[240] Fitzpatrick v Waterstreet [2000] ANZ ConvR 15, 28 quoting Hope JA in Law Society of New South Wales v Moulton [1981] 2 NSWLR 736, 739-80.

[241] Beach Petroleum (above n 192) [465]; Bristol & West Building Society v Mothew [1998] Ch 1, 18-19.

[242] [2004] VSC 174.

[244] Break Fast's written closing submission [55].

[245] See Marron v Chatham Daunt (above n 185) and Agricultural Land Management Ltd v Jackson & Ors (No 2) [2014] WASC 102.

[246] [2018] HCA 43; (2018) 265 CLR 1.

[247] Ancient Order of Foresters (above n 246) [84] (citations omitted).

[248] Ancient Order of Foresters (above n 246) [88] (citations omitted).

[249] Ancient Order of Foresters (above n 246) [88], [89] (Gageler J).

[250] [1997] EWCA Civ 1339; [1997] 4 All ER 705, 733-734.

[251] [2003] HCA 15; (2013) 212 CLR 484, [44].

[252] Target Holdings Ltd v Redferns (a firm) [1995] UKHL 10; [1996] AC 421, 436; Youyang (above n 251) [46]; Ancient Order of Foresters (above n 246) [85], [88] (Gageler J).

[253] McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579, [18]-[21] (Gleeson CJ), [131]-[137] (Hayne J); Youyang (above n 251) [63]; Ancient Order of Foresters (above n 246) [88]-[90] (Gageler J).

[254] [2005] VSCA 113.

[255] Ibid [71] (Warren CJ, Chernov JA and Dodds-Streeton AJA agreeing) quoting Maguire v Makaronis (above n 195) 492-3.

[256] Ancient Order of Foresters (above n 246) [91] (Gageler J); AHRkalimpa Pty Ltd v Schmidt (No 3) [2019] VSC 197, [33].

[257] [1984] 2 SCR 335; (1984) 13 D.L.R. (4th) 321.

[258] [2000] NSWSC 395.

[261] Break Fast's third FASOC [17], [18].

[262] Break Fast's third FASOC [19].

[263] Break Fast's third FASOC [21].

[264] Break Fast's third FASOC [31A].

[265] [1874] UKLawRpCh 20; (1874) LR 9 Ch App 244.

[266] (2007) 230 CLR 89.

[271] [1975] HCA 8; (1975) 132 CLR 373.

[272] [1893] UKLawRpKQB 142; [1893] 2 QB 390, 396-7.

[273] [1873] UKLawRpEq 6; (1873) LR 15 Eq 204, 211.

[274] [1888] UKLawRpCh 84; (1888) 40 Ch D 370, 381.

[275] Consul Development (above n 271) 398.

[276] [1968] 1 WLR 1555.

[277] [1972] 1 WLR 602.

[278] Consul Development (above n 271) 410.

[279] Consul Development (above n 271) 412.

[280] [1993] 1 WLR 509.

[282] [2012] FCAFC 6; (2012) 200 FCR 296.

[284] Farah Constructions (above n 266) [177].

[285] Grimaldi (above n 282) [268]; Westpac Banking Corp v The Bell Group Ltd (in liq) (No 3) ('Westpac Banking Corp') [2012] WASCA 157; (2012) 44 WAR 1, [2127]-[2130].

[286] Kalls Enterprises Pt Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557, [197]; Imobilari (above n 287) [27]; Grimaldi (above n 282) [268]; Westpac Banking Corp (above n 285) [2128]; and see Westlaw, Ford and Lee: The Law of Trusts (online at 1 July 2021) [22A. 1380].

[287] [2008] FCA 1920.

[288] Imobilari (above n 287) [27] (citations omitted).

[289] Above at [278]; see also Gibbs J's reference to 'moral obtuseness' in the passage extracted above at [277].

[290] Grimaldi (above n 282) [267]; See also Westpac Banking Corp (above n 285) [2129]-[2130].

[291] Consul Development (above n 271) 412 (see above at [278]); Imobilari (above n 287) [28].

[292] Grimaldi (above n 282) [260].

[293] (1969) 2 Ch 276.

[295] Barnes v Addy (above n 265) 251-252.

[299] [1993] 1 WLR 484.

[301] [1998] 3 VR 16.

[303] Civil Procedure Act 2010 (Vic) ss 41 and 42.

[304] Australian Solicitors Conduct Rules 2015, rr 21.1, 21.3.

[305] White Industries (QLD) Pty Ltd v Flower and Hart [1998] FCA 806; (1998) 156 ALR 169, 236; Deputy Commissioner of Taxation v Levick [1999] FCA 1580, [11] cited in Levick v Deputy Commissioner of Taxation [2000] FCA 674; (2000) 102 FCR 155, [16].

[306] Order 22 of the Rules; Part 4.4 of the Civil Procedure Act 2010 (Vic). Although recent provisions, the jurisprudence is of very long-standing.

[307] [2014] FCA 84.

[311] Break Fast's third FASOC [14].

[312] Break Fast's third FASOC [31].

[313] Above at [81(e)].

[314] Above at [67].

[315] Items 91 - 93, 95, 97 and 98 of the Schedule A to Rigby Cooke's written closing submission.

[316] Paragraphs 31(a) and 31A(h)(i) of Rigby Cooke's defence to Break Fast's third FASOC.

[317] Break Fast's third FASOC [18].

[318] [1913] HCA 50; (1913) 17 CLR 90, 124.

[320] British American Tobacco Australia Ltd v Gordon (No 3) [2009] VSC 619, [148] and [149] (citations in the original).

[321] See J.D. Heydon, Mark Leeming and Peter G. Turner, Meagher, Gummow and Lehane's Equity Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2014) ('Meagher, Gummow and Lehane's Equity Doctrines and Remedies') [3-115]; Kettles and Gas Appliances v Hordern & Sons Ltd [1934] NSWStRp 51; (1934) 35 SR (NSW) 108, 129-130; Rhodes v Badenach [2000] TASSC 160, [44] and [45]; Karl Suleman Enterprizes Pty Ltd (in liq) (ACN 090 895 364) v Babanour [2004] NSWCA 214; (2004) 49 ACSR 612 ('Karl Suleman Enterprizes v Babanour'), [54].

[322] Marshall Futures Ltd v Marshall [1992] 1 NZLR 316, 330-1 cited in Karl Suleman Enterprizes v Babanour (above n 321) [55] and [57].

[323] Marshall Futures Ltd v Marshall [1992] 1 NZLR 316, 330-1 cited in Karl Suleman Enterprizes v Babanour (above n 321) [55].

[324] Break Fast's third FASOC [29A], [17] and [18].

[325] [1992] 1 NZLR 316.

[326] [2004] NSWCA 214; (2004) 49 ACSR 612.

[327] Above at [81(g)].

[328] Rigby Cooke's written closing submissions [5]; Transcript 275 L24 - 280 L30; Exhibit B, 11446-11479.

[330] Ibid clause 14; Transcript 275-6.

[332] Transcript 280 L17-L18; Transcript 283 L21-L24.

[334] Amaca v CSR [2015] VSC 582 [466] (varied appeal, but not on this point: CSR Ltd v Amaca Pty Ltd [2016] VSCA 320) ('CSR v Amaca').

[335] CSR v Amaca (above n 334) [325], [351].

[336] For example, see Re Auzhair Supplies (in Liq) [2013] NSWSC 1; (2013) 92 ACSR 554, [85]; Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654 [163].

[338] Meagher, Gummow and Lehane's Equity Doctrines and Remedies (above n 321) [38-070] (citations omitted).

[339] Orr v Ford [1989] HCA 4; (1989) 167 CLR 316, 341; Crawley v Short (above n 336) [164].

[340] [1989] HCA 4; (1989) 167 CLR 316.

[342] [1874] UKLawRpPC 1; (1874) LR 5 PC 221.

[344] Crawley v Short (above n 336) [163].

[345] Orr v Ford (above n 340) 346-7 (Deane J).

[346] [1872] UKLawRpHL 16; [1872] LR 5 HL 656, 674-5.

[347] [2011] VSC 415, [367] and [368].

[348] I C F Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages (LBC Information Services, 8th ed, 2010) 419-20.

[349] [2000] EWCA Civ 219; [2001] 1 WLR 112, 120.

[350] Candibon (above n 347) [368].

[351] Break Fast's second FASOC [12] and [13].

[352] Break Fast's second FASOC [22]-[25].

[353] Above at [200].

[354] Above at [312].

[355] Above at [281] and [282(b)].

[356] Above at [247] and [249(c)].

[357] Above at [249(a)].

[359] [2001] HCA 31; (2001) 207 CLR 165.

[361] See also Rahme v Benjamin & Khoury Pty Ltd (2019) NSWLR 550, 574 [127].

[364] Giannarelli v Wraith (1988) 165 CLR 543, 560; D'Orta-Ekenaike v Victoria Legal Aid [2005] HCA 12; (2005) 223 CLR 1, [34], [85]-[87]; Attwells v Jackson Lalic Lawyers Pty Limited [2016] HCA 16; (2016) 259 CLR 1, [2] and [3].

[365] Rigby Cooke's defence [98]-[101].

[366] Rigby Cooke's defence [103]-[108].