Plaintiff v Defendants

1 On 23 November 2012 I published my reasons for holding that the plaintiff (Windemac) was entitled to a one-third interest in a warehouse situated at 6 Malcolm Court, Kealba ("the Warehouse").[1] I specifically did not deal with the breach of fiduciary duties claim or the precise form of relief. I declined to make any orders and invited the parties in light of the published reasons to endeavour to resolve the matter. They have been unable to do so.

2 In addition to the submissions made at trial, further written submissions have been made by the parties dealing with the breach of fiduciary duties claim and the appropriate form of relief against each of the defendants and costs. There is substantial disagreement.

3 I will assume familiarity with the Judgment and will use the same defined terms.

4 It is convenient to start with this claim. Jada does not own the Warehouse but was the joint venture partner of Windemac.

5 By denying the joint venture agreement and continuing to assert, contrary to my findings, that no such agreement was entered into, Jada has clearly repudiated the joint venture agreement. As an alternative to its claims for equitable relief, Windemac has sought specific performance of the joint venture agreement. However, an order for specific performance against Jada may not result in any proprietary relief because Jada is not the registered proprietor of the Warehouse.

6 Further, the nature, extent and character of the relationship between the parties and the circumstances, context and history of the joint venture agreement (as set out in the Judgment) which included a relationship of trust and confidence between Jada and Windemac and their respective principals, fixed Jada with fiduciary duties.[2]

7 In the context of the joint venture agreement relating to the acquisition of the Warehouse, the content of the fiduciary duty was to act in the best interests of Windemac. Jada was required to acknowledge and secure the interest of Windemac in the Warehouse and continue to act and deal strictly on the basis of such interest and not retain the entire interest in the Warehouse, whether directly or indirectly, for its own or its associated companies benefit.

8 Jada has clearly and self-evidently breached its fiduciary duties to Windemac by asserting that Windemac has no interest in the Warehouse and effectively denying the joint venture agreement. Windemac is entitled to equitable relief. This is the form of relief that is appropriate in this case.

9 The relief to be fashioned in order to meet the needs of this case will be dealt with at the end of these reasons.

10 JPG is the registered proprietor of the Warehouse. JPG was itself subject to the very same fiduciary duties as Jada in circumstances where it was in effect the incorporated joint venture vehicle of the parties.[3]

11 Further and in any event it is clear that JPG is liable under both limbs of Barns and Addy.[4] The knowledge of Sharon, the sole director and shareholder of JPG is imputed to the company. JPG clearly had knowledge of Jada's fiduciary duties and the breach thereof.

12 In fact, JPG knowingly assisted in such breach by becoming the registered proprietor of the Warehouse and denying - contrary to my findings - that Windemac has any interest. Further, JPG clearly received a benefit (ownership of the Warehouse) in circumstances where it was aware of the breaches of fiduciary duty.

13 As a consequence Windemac is entitled to equitable relief against JPG. The precise form of relief will be discussed later.

14 It follows given their extensive involvement, as set out in the Judgment, that Sharon and George have the same accessorial liability as JPG. They have at the very least knowingly assisted in the breach of fiduciary duties. Sharon was at all relevant times the sole director of Jada and JPG. In relation to George, it is clear on the evidence that he was the driving force behind both companies and Sharon clearly took instructions from George. Given their direct knowledge and involvement in the breach of fiduciary duties, their conscience is affected, they are at fault and are accordingly liable.[5]

15 Accordingly, Windemac is entitled to equitable relief against Sharon and George.

16 Windemac seeks declaratory relief against JPG in relation to its one-third interest in the Warehouse and an order for the sale of the Warehouse on various terms and conditions. Further declarations are sought against Jada and JPG for breach of fiduciary duties and against George and Sharon for being knowingly involved in the breaches. Equitable compensation is sought against all defendants. The claim for equitable compensation is not put as an alternative claim to the claim that the Warehouse be sold. It was only put if I concluded that the interest of Windemac was in the equity in the Warehouse and not the Warehouse free of any encumbrance. In such a case and with the Westpac mortgage it is not surprising that Windemac elected to claim equitable compensation in the sum of $312,000. This amount is greater than one-third of the net equity in the Warehouse.

17 The alternative claims however, need to be considered in any event and apart from any view I may have as to the characterisation of Windemac's interest. Whatever its interest the alternatives need to be considered in order to determine the appropriate relief in this case. It is clear however that as between the joint venturers and JPG, Windemac is entitled to a one-third interest free of any mortgage. This does not however mean that proprietary relief is appropriate or desirable.

18 The defendants submit that consistent with the Judgment the only order should be that the Certificate of Title be rectified to record and reflect Windemac's proprietary interest. They oppose any other relief and contend that no other relief is necessary and appropriate in circumstances where the primary relief sought by Windemac was that it had an interest in the Warehouse. However, having found that Windemac does have an interest in the Warehouse, the question as to the appropriate form of relief needs to be considered. As noted in paragraph 16, Windemac has sought various forms of relief.

19 Whether the appropriate form of relief is a proprietary remedy (declarations, constructive trust and sale) or a personal remedy (equitable compensation) is not always easy to determine.

20 In Giumelli v Giumelli,[6] the High Court held that a constructive trust should not be imposed if in all of the circumstances there is an appropriate equitable remedy that falls short of the declaration and imposition of a trust. The position was repeated by the High Court recently in Farah Constructions Pty Ltd v Say-Dee Pty Ltd[7] where the court said 'ordinarily relief by way of constructive trust is imposed only if some other remedy is not suitable'.

21 In my opinion, in the peculiar circumstances of this case equitable compensation is a suitable remedy. There is no requirement or warrant for proprietary relief. Monetary compensation is sufficient.

22 Equitable compensation directs a defendant to restore the monetary value of the loss, which he or she has caused to the plaintiff.

23 The measure of equitable compensation is that sum which will restore the plaintiff to the position he or she would have been in had the breach of fiduciary duties not occurred. Equitable compensation is not assessed with respect to the foreseeable value at the time of the breach of fiduciary duty but rather by having regard to what actually happened.[8]

24 In Hill v Rose & Ors[9] Tadgell J said:

Counsel for the plaintiff contended that this client is entitled to receive an award in equity against Mr and Mrs Rose of monetary compensation of $250,000 for his loss resulting from their breach of their fiduciary obligation. In Nocton v Lord Ashburton [1914] AC 932 at pp. 952-3, Viscount Haldane LC affirmed that a court of equity has inherent and exclusive jurisdiction to award compensation against a fiduciary in favour of a beneficiary who has suffered loss by reason of a breach of the fiduciary's obligation. ...

The remedy, like any equitable remedy, is necessarily to be fashioned to meet the needs of the case. ... It might be appropriate to compensate the plaintiff's loss by reference to the defendants' gain, as in McKenzie v McDonald. Compensation may be awarded, however, in an appropriate case whether or not the defendant has made any direct pecuniary gain.

The aim of the equitable remedy evidently is to place the party who suffered following the breach of duty as nearly as possible in the position in which he would have stood had there been no breach. The aim therefore superficially resembles that of the common law award of damages but is achieved, if necessary, not by merely awarding monetary compensation but by way also of granting peculiarly equitable relief such as indemnity and rescission: Robinson v Abbott, at p. 368.

26 In the circumstances of this case and in the context of the joint venture agreement which on any view may be regarded as at an end, Windemac is entitled to recover the amount of its investment. But for the breach of fiduciary duty Windemac would have a one-third interest in the Warehouse which would roughly equate to its investment.[10] Windemac should recover its investment and not in the circumstances as submitted by the defendants be registered as the holder of a minority interest in the Warehouse, the majority being held by a party it has fallen out with.[11] Rather, Windemac should receive compensation for the interest it was entitled to.

27 I have endeavoured to mould the form of relief to accord with the particular circumstances and conduct applicable in this case. To this end, and on the basis that it is clearly not appropriate or desirable that the parties operate as co-owners, equitable compensation in the form of a return of the investment is the most appropriate form of relief. All parties are liable for the reasons given.

28 In my opinion the facts and circumstances of this case do not call for proprietary relief. Windemac has shown no interest in and has no particular attachment to the Warehouse. It took no steps to protect its interest until the lodging of a caveat on 12 January 2012. Windemac has not at any stage called for any accounting or disclosure in relation to its interest. The delay on the part of Windemac is peculiar and unexplained. This does not detract from its interest but it is a relevant factor so far as the form of relief is concerned. For this reason, I am not prepared to order interest or any accounting in respect of the rental.

29 Further, proprietary relief and in particular an order for the sale of the Warehouse is not desirable or appropriate in the circumstances and in particular given the existence of an asserted lease which I cannot simply ignore. Apart from this fact however there is no compelling reason to sell the Warehouse.

30 Accordingly, all defendants are liable to make good the sum of $312,000 and there will be an order for equitable compensation against each of Jada, JPG, George and Sharon jointly and severally. Of course Windemac is not entitled to recover more than $312,000.

31 Windemac has succeeded in its claim and is entitled to its costs to be taxed on a party and party basis.

32 The fact that it only established a one-third interest and not a two-thirds interest is not in my view a sufficient reason to deprive it of its costs. It has succeeded in establishing the joint venture agreement, breaches of fiduciary duty and accessorial liability. All of the matters required to establish its case to the extent of a two-thirds interest (which failed) were relevant to establishing the case that it ultimately succeeded on, that is, that it was entitled to a one-third interest. The extra documents, if any, and time taken at trial were de minimus.

33 Accordingly, there will be an order that the defendant pay the plaintiff's costs of the proceeding including costs reserved, such costs to be taxed as between party and party in the absence of agreement.

34 The orders that I propose to make are as follows:

(a) The defendants are jointly and severally liable to pay the plaintiff equitable compensation in the sum of $312,000.

(b) The plaintiff do all things necessary to effect the removal of caveat number AJ427363G dated 12 January 2012 from Certificate of Title volume 10122 folio 739.

(c) The defendants, jointly and severally pay the plaintiff's costs of the proceeding, such costs to be taxed as between party and party in the absence of agreement.

[1] Windemac Pte Ltd v Jada Ex Beverages Pty Ltd & Ors [2012] VSC 559 ("Judgment").

[2] United Dominions Corporation Pty Ltd v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1; Hospital Products v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 67-69; GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers and Others [2005] VSCA 113 at [49]- [56].

[3] Hill v Rose & Ors [1990] VicRp 13; [1990] VR 129.

[4] (1874) CR 9 CL, App 244.

[5] Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6, [267].

[6] [1999] HCA 10; (1999) 196 CLR 101 at 113 (per Gleeson CJ, McHugh, Gummow and Callinan JJ).

[9] [1990] VicRp 13; [1990] VR 129 at 143.

[10] According to Adrian Christie, who gave expert evidence as a certified property valuer, the market value of the Warehouse as at 30 December 2011 was $935,000. A one third interest equates to $311,667.

[11] In Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6, Finn, Stone and Perram JJ noted at [511]:

An account of profits, rather than a declaration of a constructive trust over part of a business, may be ordered where the latter would "thrust the parties into a continuing business relationship when it was clear there was no confidence or comity between them": Warman at 554 and see also 564. This, we would note, is an important but little discussed consideration in those cases where the imposition of a constructive trust can result in forcing parties into a long term business relationship which is likely to be undesirable or unworkable....