Plaintiffs v Defendant

PENALTY - Whether principles apply to an assessment of equitable compensation by the Court - Whether principles apply where there is an admission of liability for relief sought.

CONTRACT - Construction - Uncertainty - Election and repudiation where plaintiffs pursued parallel proceedings in the Czech Republic - Damages for breach.

SPECIAL REFEREE - Valuation of properties - Adoption of special referee's report - Rule 50.04 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic).

PRACTICE AND PROCEDURE - Preliminary question tried before final hearing - Question cannot be re-agitated at final hearing - Rule 47.04 of the Rules.

PART 1 - INTRODUCTION AND SUMMARY

1 This proceeding was commenced in 1998 against Jan Emil Talacko ('defendant') by his sister, Helena Marie Talacko ('Helena'), and the widow and children of their deceased brother, Peter Talacko ('Peter').

2 Helena has sued through a litigation guardian. Initially, the litigation guardian was her daughter, Anna Talacko. Since July 2005, however, the litigation guardian has been her son, Jan Talacko ('Dr Talacko'). Peter's widow is Margaret Helen Talacko ('Margaret') and the children are Alexandra Bennett ('Alexandra'), Martin Talacko ('Martin') and Rowena Talacko ('Rowena').

3 The plaintiffs allege that the defendant has not honoured agreements he made with his siblings in the early 1990s to share equally any interests in land he obtained in the Czech Republic, Slovakia and Germany as a result of the restitution of properties that had been confiscated from their parents - Alois and Anna Talacko[1] - by the communist governments of Czechoslovakia and East Germany after the Second World War.

4 The proceeding was settled when the parties entered into Terms of Settlement dated 23 February 2001 ('Terms'). In July 2005, however, the plaintiffs reinstated the proceeding on the basis that the Terms had been breached by the defendant. They applied for judgment in accordance with the Terms.

5 The allegation that the defendant had breached the Terms was heard as a preliminary question by Osborn J in November 2007 ('Preliminary Hearing') pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic) ('Rules'). On 24 April 2008, his Honour decided that the defendant had breached the Terms ('Preliminary Judgment').[2] I heard the remaining issues in the proceeding, which concerned the plaintiffs' entitlement to judgment for equitable compensation pursuant to cl 6 of the Terms.

6 Although the Terms are fully set out in [26] below, as cl 6 is central to this judgment, it is appropriate to set it out here. It states:

In the event that the Defendant breaches any term, condition or warranty in this agreement, then the Plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, and the production of these terms of settlement shall be conclusive evidence of the defendant's irrevocable consent to the entry of such judgment.[3]

7 It was common ground that the amended statement of claim that is referred to in cl 6 of the Terms is the amended statement of claim dated 18 May 2000 ('2000 ASC'). However, there was little agreement between the parties on any other aspect of cl 6.

8 The key questions for determination by me, and the conclusions I have reached for the reasons set out below, are as follows:

(a) Are the plaintiffs entitled to enter judgment for equitable compensation without having to prove that the defendant owed them a fiduciary duty or that he breached it? : Yes.

(b) Which properties are relevant to the assessment of equitable compensation? : The properties that had been restituted to the defendant as at the date of the Terms.[4]

(c) What is the date by reference to which the relevant properties are to be assigned values and what is to be the basis for those values? : The date is the date of this judgment and the values are to be based on those determined by the special referee as at the date of his report.[5]

(f) By pursuing parallel proceedings in the Czech Republic, did the plaintiffs repudiate the Terms or make an election that precludes them from obtaining judgment for equitable compensation pursuant to cl 6 of the Terms? : No.

(g) What is the amount of equitable compensation payable by the defendant to the plaintiffs? : €8,955,016 together with $881,017.[6]

9 For convenience, I have included a list of terms, abbreviations and key individuals at the end of this judgment.

PART 2 - FACTS

(1) Facts taken to be admitted - amended statement of claim dated 18 May 2000

10 The plaintiffs' claims against the defendant stem from agreements they allege in the 2000 ASC were entered into by Helena, Peter and the defendant ('siblings') in Melbourne in 1991 and 1992 ('Sibling Agreements').

11 On 8 October 2009, I ruled that cl 6 of the Terms entitled the plaintiffs to enter judgment for equitable compensation for breach of fiduciary duty without needing to prove either the existence of such a duty or its breach. As a result of the settlement in 2001 and my ruling of 8 October 2009, the facts alleged in the 2000 ASC have not been, and will not be, the subject of judicial determination in this proceeding. As will be seen from the reasons for my ruling of 8 October 2009, which are set out in Part 3(1) of this judgment, all facts alleged by the plaintiffs in the 2000 ASC in support of their claim for equitable compensation under cl 6 of the Terms are taken to be admitted by the defendant.

12 In these circumstances, in order for this judgment to be properly understood, it is necessary for me to set out significant portions of the 2000 ASC.

13 The relevant parts of the 2000 ASC are as follows:[7]

1. The first plaintiff ("Helena"), the defendant and the late Peter Talacko ("Peter") are the children of the late Alois Talacko ("Alois") and the late Anna Talacko ("Anna").
2. (a) Alois died on 13 January 1964;

(b) Anna died on 30 May 1984;

(c) Peter died on 24 November 1995.

(a) Helena and the defendant have been; and

(b) Peter was,

Czech citizens.

1. The second plaintiff ("Alexandra"), the third plaintiff ("Martin") and the fourth plaintiff ("Rowena") are the children of Peter.

1. Prior to 1948, Alois, Anna and Helena variously owned or owned interests in a number of real properties situated in:

(a) the Czech Republic, the Slovak Republic (both formerly Czechoslovakia) (the "Czech Properties"); and

(b) Germany (the "German Properties"),

(collectively, the "Properties").

Particulars

The Czech Properties

Hastalska 12 (cp 751), Prague 1 100%

Ramova 8 (cp 939), Prague 1 100%

Rybna 8 (cp 753), Prague 1 100%

Melantrichova (cp 465), Prague 1 67/144

Hastalska 15 (cp 755), Prague 1 7/12

Kollarova (cp 330), Holesovice-Bubny 100%

Agricultural land

17.4473 hectares of land in Repy

- Approximately 0.8 hectares of land in Kbely

Land situated in Slovakia

Approximately 364 hectares of land in Sucha

The German Properties

Kiefernstrasse 19, Dresden (land titles reference "Grundbuch von Dresden-Neustadt, Blatt 2247

Kiefernstrasse 19b, Dresden (land titles reference "Grundbuch von Dresden-Neustadt, Blatt 1621, Flurstueck 1595i)

Further particulars may be provided following discovery and interrogation, or otherwise as they become available to the plaintiffs.

1. (a) The Czech Properties were confiscated or nationalised by the communist Czech government between about 1948 and 1989.

(b) The German Properties were both placed under government management by the communist East German government in about 1952.

(c) The second of the German Properties, Kiefernstrasse 19b, Dresden, was formally expropriated, pursuant to statute, by the communist East German government on about 16 July 1984.

1. (a) In about 1989, after the communist regime in Czechoslovakia came to an end, there were reports that the new, democratically elected government, led by President Havel, might return property so confiscated or nationalised in and after 1948 to the former owners and their next of kin.

(b) In about 1989 or 1990, as part of the process of reunification of East and West Germany, the governments of East and West Germany issued a joint statement to the effect that any unjust dealings with property situated in East Germany should be addressed and rectified.

1. (a) In January or February 1990, Helena, the defendant and Peter (the "siblings") met at 312 Glenferrie Road, Malvern, Victoria (the "first meeting"), to discuss the reports concerning restitution of property and the manner in which they should undertake reclamation of the Properties.

(b) At the first meeting, the siblings promised and agreed with each other that:

(i) they would act in unison and together should there be an opportunity in the future to regain the Properties, and that the Properties would, once regained, be divided between them in equal shares;

(ii) each would take such action as he or she could on behalf of the siblings to procure the restitution of the Properties, although it was understood that Helena's capacity to assist in non-financial ways was limited due to her ill health.

1. (a) On about 11 July 1990, the East German government issued a decree outlining the procedures for the lodgement of claims for property located in East Germany confiscated or placed under state administration or trusteeship.

(b) The reunification treaty between the two German states of 31 August 1990 annexed legislation entitled "Vermoegensgesetz" which provided, inter alia, that former owners or successors of former owners of property seized under either the former national-socialist German government or the communist East German government may claim the return of the property or, alternatively, monetary compensation, such claims to be lodged by 30 June 1993.

1. Following the first meeting, in late 1990, and in pursuance of the mutual promises and agreement referred to in paragraph 9 above, the defendant, on behalf of the siblings:

(a) travelled to the Czech Republic, where he remained for about three months before returning to Australia:

(i) in order to investigate;

(ii) and investigated,

on behalf of the siblings, the possible restitution of the Czech Properties to the siblings;

(b) sent to the Stadtverwaltung Dresden Nord (the Council of the City of Dresden) and the Consulate General of the Federal Republic of Germany a letter claiming ownership of two of the German Properties, as well as war damage for the loss of the other German Properties and damages for confiscation and loss of income in respect of the German Properties, on behalf of the heirs of Herr Alois Talacko, being the siblings.

1. Also following the first meeting, the Czech legislature enacted the following laws (collectively, the "restitution laws"):

(a) in about October 1990, law no. 403/1990 (the "first restitution law");

(b) in about February 1991, law no. 87/1991 (the "second restitution law");

(c) later in 1991, law no. 229/1991 (the "third restitution law").

...

1. On about 4 March 1991, the siblings met (the "second meeting") at 312 Glenferrie Road.
2. At the second meeting, the siblings promised, and agreed with each other:

(a) that they would act in unison and together to procure restitution of the Properties;

(b) that each would take such action as he or she could on behalf of the siblings to procure the restitution of the Properties;

(c) that any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by any one or more of the siblings would be held by the relevant sibling for the benefit of himself or herself and the others in equal shares, provided that, if any of the siblings were to die, that sibling's share was to be held for the benefit of his or her children;

(d) that any of the Properties which were recovered by any one or more of the siblings would be divided between the siblings in equal shares, provided that, if any of the siblings were to die prior to such division, that sibling's share was to go to his or her children;

(e) further or alternatively, that any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by any one or more of the siblings would be divided between the siblings in equal shares, provided that, if any of the siblings were to die prior to such division, that sibling's share was to go to his or her children;

(f) further, or alternatively, that:

(i) the defendant and Peter would make claims for restitution in respect of the Properties on behalf of themselves and Helena, due to Helena's ill health;

(ii) the defendant would make claims for restitution in respect of the Czech Properties under the restitution laws on behalf of himself and Peter as well as Helena if Peter failed to obtain permanent residency in the Czech Republic prior to the expiry of the time limitations under the restitution laws;

(iii) Peter would make claims for restitution in respect of the Czech Properties under the restitution laws on behalf of himself and the defendant as well as Helena if the defendant failed to obtain permanent residency in the Czech Republic prior to the expiry of the time limitations under the restitution laws;

(g) that the costs of obtaining restitution of the Properties or any of them and other related expenditure would be borne equally by the siblings, provided that, if any of the siblings were to die, the obligation to meet that sibling's share of such costs or expenditure was to be borne by his or her estate.

1. Further, during the course of the second meeting, in consideration of and pursuant to the mutual promises and agreement referred to in the preceding paragraph, the siblings exchanged the following documents in order to give effect to the terms of those mutual promises and agreement:

(a) declarations in favour of each of the other siblings to the effect that the sibling making the declaration ceded all of his or her rights or entitlements to the Properties to the sibling in whose favour the declaration was made;

Particulars

The declarations were in writing, dated 4 March 1991, and were comprised as follows:

(1) declaration of Helena in favour of the defendant, Jan Talacko;

(2) declaration of Helena in favour of Peter;

(3) declaration of Peter in favour of the defendant;

(4) declaration of Peter in favour of Helena;

(5) declaration of the defendant in favour of Peter;

(6) declaration of the defendant in favour of Helena.

Copies of the declarations made by Helena in the Czech language, together with English translations of such documents, are available for inspection by prior appointment at the offices of the plaintiffs' solicitor. The plaintiffs do not presently have, or have copies of, the other declarations.

Further particulars may be provided following discovery.

(b) bequests to each of the other siblings of the whole of the interest in the Properties to which the sibling making the bequest was, at the date of his or her death, entitled;

Particulars

The bequests were in writing, dated 4 March 1991, and were comprised as follows:

(1) bequest of Helena to the defendant;

(2) bequest of Helena to Peter;

(3) bequest of Peter to the defendant;

(4) bequest of Peter to Helena;

(5) bequest of the defendant to Peter;

(6) bequest of the defendant to Helena.

Copies of the bequests made by Helena in favour of Peter and the defendant, and by the defendant in favour of Helena, in the Czech language, together with English translations of such documents, are available for inspection by prior appointment at the offices of the plaintiffs' solicitor. The plaintiffs do not presently have, or have copies of, the other bequests.

Further particulars may be provided following discovery.

1. In the premises, there was an agreement (the "Agreement") between the siblings, in consideration of the mutual promises referred to in paragraphs 9 and 17 above, to the effect:

(a) that the siblings would act in unison and together to procure restitution of the Properties;

(b) that each of the siblings would take such action as he or she could on behalf of the siblings to procure the restitution of the Properties;

(c) that any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by any one or more of the siblings would be held by the relevant sibling for the benefit of himself or herself and the others in equal shares, provided that, if any of the siblings were to die, that sibling's share was to be held for the benefit of his or her children;

(d) that any of the Properties which were recovered by any one or more of the siblings would be divided between the siblings in equal shares, provided that, if any of the siblings were to die prior to such division, that sibling's share was to go to his or her children;

(e) further or alternatively, that any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by any one or more of the siblings would be divided between the siblings in equal shares, provided that, if any of the siblings were to die prior to such division, that sibling's share was to go to his or her children;

(f) further, or alternatively, that:

(i) the defendant and Peter would make claims for restitution in respect of the Properties on behalf of themselves and Helena, due to Helena's ill health;

(ii) the defendant would make claims for restitution in respect of the Czech Properties under the restitution laws on behalf of himself and Peter as well as Helena if Peter failed to obtain permanent residency in the Czech Republic prior to the expiry of the time limitations under the restitution laws;

(iii) Peter would make claims for restitution in respect of the Czech Properties under the restitution laws on behalf of himself and the defendant as well as Helena if the defendant failed to obtain permanent residency in the Czech Republic prior to the expiry of the time limitations under the restitution laws;

(g) that the costs of obtaining restitution of the Properties or any of them and other related expenditure would be borne equally by the siblings, provided that, if any of the siblings were to die, the obligation to meet that sibling's share of such costs or expenditure was to be borne by his or her children;

(h) that any of the siblings who recovered any of the Properties would effect a transfer of the Properties or such interests in the Properties to the other or others as would be necessary to give effect to the foregoing terms of the Agreement.

1. Further or alternatively, in the premises each of the siblings was in a fiduciary relationship with each of the other siblings, and thereby owed to each of the other siblings a fiduciary duty, in relation to the recovery, administration, and disposal or distribution of the Properties:

(a) to act honestly and fairly towards each other and in the interests of the others and each of them;

(b) not to act for his or her own benefit alone;

(c) not to act capriciously or unconscionably towards the others or either of them.

1. Pursuant to, and for the purposes of carrying out, the Agreement and the fiduciary relationship referred to in the preceding paragraph:

(a) Peter travelled to Prague in about March or April 1991 in order to ascertain whether the first restitution law applied to any of the Czech Properties, and to progress generally the claims of the siblings in relation to restitution of the Properties, for which purpose he, inter alia:

(i) engaged a solicitor, Dr Buresova, to pursue on behalf of the siblings restitution of the Czech Properties situated in Prague under the restitution laws, and paid her a retainer of KC3000;

(ii) engaged another solicitor, Dr Elbrs, to pursue on behalf of the siblings restitution of the Czech Properties situated in Repy under the restitution laws, and paid him a retainer of KC5000;

(b) at some time after March or April 1991, Peter made an application for permanent residency in the Czech Republic;

(c) the siblings met on Peter's return from Prague in about May 1991, at which meeting Peter reported to the siblings the things he had done while in the Czech Republic, as set out in sub-paragraph (a), and the siblings decided that the defendant would travel to the Czech Republic next in order to further the siblings' claims for restitution in relation to the Czech Properties;

(d) on about 10 July 1991, Peter paid to the defendant A$5,000 in order to help meet the expenses of pursuing the siblings' claims for restitution in relation to the Properties;

(e) the defendant travelled to Prague in July 1991 and was joined there in September 1991 by Peter;

(f) in about September 1991, the defendant and Peter established a joint bank account at the Zivnotencka Bank in Prague, to which they were both signatories and into which they each deposited US$500, for use in pursuing the siblings' claims for restitution in relation to the Czech Properties;

(g) in about September 1991, the defendant and Peter established a bank account at the Ceska Sporitelna Savings Bank in Prague in the name of the defendant, to which they were both signatories and into which they each deposited KC200 for use in pursuing the siblings' claims for restitution in relation to the Czech Properties;

(h) in about September 1991, while Peter was in Prague, he assisted the defendant in preparing applications for restitution in respect of the Czech Properties on behalf of the siblings, it having been agreed between Peter and the defendant (pursuant to the Agreement, on behalf of themselves and Helena) that such applications would be made in the name of the defendant only, since he was the only one of the siblings who had, at that stage, obtained permanent residency of the Czech Republic;

(i) on about 28 January 1992, Peter paid to the defendant A$5,000 in order to help meet the expenses of pursuing the siblings' claims for restitution in relation to the Properties;

(j) on some date after April 1991, the defendant instructed the solicitor Buresova to pursue a formal application in the name of, and on behalf of, all three of the siblings for restitution of the German Properties (the "German application");

(k) [f]rom February 1994 until his death, Peter paid all solicitors' fees and like charges relating to the German application;

(l) pursuant to the German application:

(i) on about 27 June 1995, the German land titles register was amended to record that the property at Kiefernstrasse 19, Dresden, was owned by Peter, Helena and the defendant;

(ii) on about 3 May 1996, the restitution office at Dresden decreed that the property at Kiefernstrasse 19b, Dresden, was to be returned to the beneficiaries of the estates of Anna and Alois, namely, the siblings.

(m) Peter and Helena have, since restitution of the German Properties, paid their share of all land taxes and other charges, including Ablosebetrag, with respect to the German Properties.

1. (a) The defendant was granted permanent residency in the Czech Republic in about August 1991.

(b) Peter was granted permanent residency in the Czech Republic on 2 October 1991, which was two days after expiry of the 30 September 1991 deadline applicable to the lodging of restitution claims under the second restitution law.

...

(a) obtained, recovered or been granted title to, or entitlements or interests in;

(b) obtained income from,

some or all of the Czech Properties pursuant to the restitution laws.

Particulars

The following Properties or interests have been obtained by or granted to the defendant pursuant to the restitution laws:

(a) Seven twelfths share of Hastalska 15 (cp 755) and building lot 860, Prague 1;

(b) 253/288 share of 11 Melantrichova (cp 465) and building lot 425, Prague 1;

(c) Ramova 8 (cp 939) and building lot 821, Prague 1;

(d) Rybna 8 (cp 753) and building lot 832, Prague 1;

(e) Hastalska 12 (cp 751) and building lot 823, Prague 1.

These are the best particulars the plaintiffs are presently able to give. The plaintiffs do not know whether further Properties have been restituted to the defendant. Further particulars may be provided following discovery and interrogation.

1. In the premises, the defendant has, at all material times, held any interest in or entitlement to the Properties:

(a) pursuant to the terms of the Agreement;

(b) in his capacity as a fiduciary of:

(i) the siblings, and

(ii) following the death [of] Peter, Helena and Alexandra, Martin and Rowena, as children of Peter;

(c) on trust for:

(i) the siblings, and

(ii) following the death of Peter, himself, Helena and Alexandra, Martin and Rowena, as children of Peter.

(a) the Agreement;

(b) his fiduciary duty to the other siblings, and, following the death of Peter, to Helena and to Alexandra, Martin and Rowena, as children of Peter;

(c) trust,

the defendant:

(i) did not act honestly and fairly towards the plaintiffs or in their interests;

(ii) acted for his benefit alone, to the detriment of the plaintiffs;

(iii) acted capriciously and unreasonably towards the plaintiffs;

(iv) maintained, and continues to maintain, that he is the sole beneficial owner of the Properties and that none of the plaintiffs has any interest therein;

(v) failed and refused to divide the Properties recovered by him under the restitution laws between the siblings in equal shares, and, following the death of Peter, to divide the Properties so recovered by him between himself (as to a one third share), Helena (as to a one third share) and Alexandra, Martin and Rowena (as to a one ninth share each);

(vi) further or alternatively, failed and refused to divide any interest in the Properties, or income from the Properties, or proceeds from the sale of the Properties, recovered or obtained by him between the siblings in equal shares, and, following the death of Peter, to divide any such interest, income or proceeds between himself (as to a one third share), Helena (as to a one third share) and Alexandra, Martin and Rowena (as to a one ninth share each);

(vii) further, or alternatively, [failed and refused] to make claims under the restitution laws on behalf of himself and Helena, on account of her ill health, and Peter, on account of the fact that he did not obtain permanent residency in the Czech Republic prior to 30 September 1991;

(viii) failed and refused, upon recovering the Properties (or any of them) or any interest in the Properties (or any of them), to effect a transfer of the relevant Properties or interests such that the Properties or interests would be shared equally by the siblings and, following the death of Peter, shared between the defendant (as to a one third share), Helena (as to a one third share) and Alexandra, Martin and Rowena (as to a one ninth share each);

(ix) failed and refused to account to Helena and Peter and, following the death of Peter, the plaintiffs, for:

(A) their respective shares of any net income from the Properties;

(B) their respective shares of the net proceeds of any sale of the Properties or any interest in them;

(x) failed and refused to pay over to Helena and Peter and, following the death of Peter, to the plaintiffs:

(A) their respective shares of any net income from the Properties;

(B) their respective shares of the net proceeds of any sale of the Properties of any interest in them;

(xi) failed and refused to keep ... Helena and Peter and, following the death of Peter, the plaintiffs, informed of details relating to the Properties or interests in the Properties of which he had obtained restitution, and when such restitution was obtained;

(xii) otherwise failed and refused to act in a manner consistent with his obligations under the Agreement, and as a fiduciary and trustee.

Particulars

...

(3) On 8 November 1992, Helena sent a letter by certified mail to the defendant seeking the following information in relation to recovery of the Properties:

(a) the Properties already recovered from the Czech and German governments as well as those which the defendant was still endeavouring to obtain, and the details of any expenses to be offset against each of those Properties;

(b) the name and addresses of banks at which the defendant had accounts pertaining to the Properties, and the balances in these accounts;

(c) the whereabouts (and return of) the declarations and bequests signed by Helena, and referred to in paragraph 18 above;

(d) the approximate expenses incurred by the defendant during his visits to Prague for the purposes of recovering the Czech Properties under the restitution laws;

(e) financial remuneration which the defendant considered appropriate for his efforts in relation to recovering the Properties.

(4) By letter dated 14 November 1992, in reply to Helena's letter of 8 November 1992, the defendant:

(a) denied that he was a trustee of the Properties for the siblings;

(b) alleged that he was pursuing restitution of the Properties in his own right, on behalf and for the benefit of himself and his immediate family, and not on behalf and for the benefit of the siblings or, following their death, their children;

(c) refused to provide the information sought in Helena's letter dated 8 November 1992.

...

1. By reason of the said breaches, the plaintiffs have suffered loss and damage.

Particulars

The plaintiffs have suffered loss and damage because the defendant has not transferred or otherwise accounted to them for their share of the Properties, or interests in the Properties, or income or sale proceeds from the Properties, which the defendant has obtained or received. The plaintiffs are at present unable to particularise the extent of the loss and damage they have suffered. Further particulars may be provided following discovery and interrogation.

1. A declaration that, subject to the deduction of any expenses properly incurred by the defendant in obtaining restitution of any of the Properties, or any interests or entitlements in the Properties, he holds the same on trust for himself, as to a one third share, Helena, as to a one third share, and for Alexandra, Martin and Rowena, as to a one ninth share each.
2. A declaration that, subject to the deduction of any expenses reasonably incurred by the defendant in obtaining income from any of the Properties, or selling any of the Properties, he holds such income and any proceeds of such sales on trust for himself, as to a one third share, Helena, as to a one third share, and for Alexandra, Martin and Rowena, as to a one ninth share each.

1. An account as at the date of judgment in this proceeding of:

(i) each of the Properties and all interests in the Properties recovered or obtained by the defendant;

(ii) all income derived from the Properties by the defendant;

(iii) the proceeds of any sale of any of the Properties, or interests in the Properties, recovered or obtained by the defendant.

1. An order for payment by the defendant to the plaintiffs of all sums found to be due from the defendant to the plaintiffs on the taking of the account under the preceding paragraph.
2. Further or alternatively, damages for breach of contract.
3. Further or alternatively, equitable compensation for breach of fiduciary duty and/or breach of trust.
4. Further or alternatively, an order restraining the defendant from dealing in the Properties except in accordance with the Agreement.
5. Interest.
6. Costs.
7. Such further or other order as to the Court seems fit.

15 It will be necessary for me to refer to particular parts of the 2000 ASC in detail later in this judgment.

(2) Factual findings based on evidence at trial

16 The plaintiffs' primary witnesses were Alexandra, Martin, Rowena and Dr Talacko ('active plaintiffs'),[8] who swore or affirmed multiple affidavits. The plaintiffs also relied on affidavits of various Czech and Australian lawyers. Only the active plaintiffs were cross-examined.

17 I accept the evidence of all the plaintiffs' witnesses. The active plaintiffs gave evidence honestly and to the best of their recollection. Mr Williams, who appeared for the defendant, did not submit otherwise.

18 Despite filing several affidavits for the trial, the defendant did not call any evidence.

19 Notwithstanding that the defendant did not give evidence, it will be necessary for me to make some findings about his conduct and the reliability of statements he has made to this Court for two main reasons. The first reason is that Mr Howells, who appeared for the plaintiffs, tendered certain pages of the transcript of the defendant's evidence at the Preliminary Hearing, and he and Mr Williams made conflicting submissions about the conclusions that I should draw from that evidence. The second reason is that the plaintiffs have urged me to assess equitable compensation in a 'robust manner' on the basis that the defendant is a wrongdoer whose withholding of information from the Court and the special referee has made an accurate assessment of equitable compensation problematic.[9] This principle is discussed in [132] below.

20 Some of the plaintiffs' evidence relates to particular issues, such as the defendant's defences of penalty, repudiation and election and his claims for an allowance for his personal exertion, and will be discussed in the context of those issues. What follows are factual findings based on the plaintiffs' evidence and matters arising during the interlocutory history of the proceeding which are not in dispute. These findings establish the context for some of the issues in this proceeding and also provide a basis upon which further findings are made on specific issues.

21 The defendant is currently 80 years old. He has been married to Judith Talacko ('Judith') since 1965 and they have four children, including David Talacko ('David') and Paul Talacko ('Paul'), who live in Prague.

22 The defendant has Czech and Australian passports. It is not in dispute that, when in Melbourne, he lives at his wife's home at 312 Glenferrie Road, Malvern[10] and that, when in Prague, he lives in an apartment at Haštalská 12. This is one of the properties in issue in this proceeding. The defendant has lived in the apartment since 1992.

23 According to international movements records that the Department of Immigration and Multicultural Affairs produced on subpoena, the defendant has travelled to and from Australia every year since 1990. As the defendant has not given evidence to refute the contents of the records, I accept them as accurate statements of the defendant's travel to and from Australia. The records specify dates of arrival and departure, but do not disclose any information about the defendant's movements between those dates. Given the defendant's strong ties to Melbourne and Prague, it can safely be inferred that the defendant spent nearly all of his time in Melbourne on each of the occasions he travelled to Australia and that he spent nearly all of his time in Prague whenever he travelled outside of Australia. On this basis, according to the Department's records, the defendant has spent, on average, six months in Melbourne in each year since 1990.

24 I commenced to manage this proceeding on 10 March 2009. During the directions hearing on 10 and 11 March 2009, I informed the parties that, in principle, I favoured the appointment of a special referee to value the properties in issue in this proceeding and that I would endeavour to have the proceeding fixed for trial in September 2009.[11] On 25 March 2009, I fixed the trial for 5 October 2009 and reiterated that I was minded to appoint a special referee.

25 It was common ground that, on 12 May 2009, the defendant and his Prague-based sons, David and Paul, executed documents to transfer to David and Paul by way of gift all of the defendant's interests in all of the Czech properties in issue in this proceeding. The properties are those listed in Table 2 at [100] below and those listed next to the headings 'Řepy' and 'Kbely' in Table 11 at [369] below ('Czech Properties'). It appears that, although the transfer documents were registered some time later, they took effect from 12 May 2009. Tables 2 and 11 indicate that the Czech Properties are currently worth at least €14 million.

PART 3 - CLAUSE 6 OF THE TERMS OF SETTLEMENT

26 The trial of the proceeding, as originally constituted, commenced on 21 February 2001 before Ashley J (as his Honour then was). The executed Terms were dated 23 February 2001. They provide:

In full settlement of the matters the subject matter of the proceeding the plaintiffs and the defendant agree as follows:

1. The defendant to transfer all the right, title and interest that he has or shall have, to such person or entity as shall be nominated by the plaintiffs, in respect of the following:

(a) Kiefernstrasse 19 and Kiefernstrasse 19b, Dresden, Germany;

(b) 17.4473 hectares of land in Repy, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;

(c) approximately 0.8 hectares of land in Kbely, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;

(d) approximately 364 hectares of land in Sucha, as defined in the particulars to paragraph 6 of the Amended Statement of Claim herein.

This clause does not apply to any interest in land purchased by the defendant as from this date.

1. To give effect to paragraph 1, the defendant will sign all necessary documents and give all necessary documents and attend at any place as required by law in respect of the signing of such documents.
2. If by reason of applicable law, or some other cause, paragraph 1, or any part thereof, cannot be given effect to within 12 months of the date of these terms in respect of a particular property or properties the defendant shall at the direction of the plaintiffs and at their cost, take all reasonable steps to sell such property or properties at best market value and shall pay the net proceeds of such sale, after the deduction of all expenses, to the plaintiffs or at their direction.
3. The plaintiffs to be responsible for and pay in the first instance all transfer costs, expenses, taxes, duties, levies and charges in any way payable in respect of the transfer or sale of the properties.
4. The defendant to pay to the solicitor for the plaintiffs the sum of $150,000 in part payment of the plaintiffs' costs on or before 23 June 2001.
5. In the event that the Defendant breaches any term, condition or warranty in this agreement, then the Plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, and the production of these terms of settlement shall be conclusive evidence of the defendant's irrevocable consent to the entry of such judgment.
6. The parties shall forthwith consent to orders of the Court that the proceeding be struck out with no order as to costs, together with a right of reinstatement for the purpose of enforcing these terms.
7. The parties agree to release each other from all actions, suits, demands, liabilities and costs arising out of or in any way related to the subject matter of the proceeding.
8. The defendant warrants that:

(i) he has not reduced his right, title and interest in the properties the subject of these terms since the commencement of the proceeding;

(ii) the properties the subject of these terms, or any of them, are not encumbered;

(iii) that he shall not deal with the properties the subject of these terms otherwise than in accordance with these terms; and

(iv) that until transfer or sale he will pay costs, taxes and expenses associated with each property the subject of these terms.[12]

27 As I have said already, the Preliminary Judgment determined that the defendant breached the Terms. The precise breaches that were found by Osborn J will be discussed in Part 9(1) of this judgment. At this point, it suffices for me to say that cl 6 was enlivened as a result of the defendant's breach of the Terms.

28 The meaning and effect of cl 6 of the Terms were not determined by the Preliminary Judgment. Those matters fall to be determined by me.

(1) Ruling made on 8 October 2009 on the effect of cl 6 of the Terms

29 On 7 October 2009, the first day of the trial before me, Mr Howells made an application for a ruling on whether cl 6 of the Terms, properly construed, entitled the plaintiffs to enter judgment without having to prove that the defendant owed a fiduciary duty or that, if the defendant owed such a duty, it had been breached.

30 Not surprisingly, Mr Howells submitted that cl 6 entitled the plaintiffs to enter judgment against the defendant without proving that he owed a fiduciary duty or that the duty had been breached, while Mr Williams submitted that, if cl 6 was enforceable, it did not relieve the plaintiffs of their obligation to prove these matters.

Clause 6 of the terms of settlement dated 23 February 2001 means that once the Court has found that the defendant has breached any term, condition or warranty in the terms of settlement, the plaintiffs are entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by him, together with the costs of entering such judgment, without needing to prove either the existence of the fiduciary duty or the breach of it.

This is because by entering the terms of settlement the defendant has irrevocably consented to such judgment being entered against him on the bases that he is taken to have (1) owed the fiduciary duty as alleged in the amended statement of claim; and (2) committed the breach of the fiduciary duty as alleged in the amended statement of claim.

32 I informed the parties that I would deliver reasons for the ruling in my judgment. I now set out the reasons for the ruling.

33 The parties agreed that the principles to be applied in construing the Terms were correctly stated by Osborn J in the Preliminary Judgment. In that judgment, his Honour said that 'the fundamental principles governing the construction of the terms'[13] were stated by the High Court in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd.[14] His Honour referred to the following passage in Toll:

This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[15]

34 In accordance with the above principles, in interpreting cl 6, I have taken as my starting point the words used by the parties. Clause 6 states that, once the defendant breaches any term, condition or warranty in the Terms, 'the plaintiffs shall be entitled to enter judgment for an order that the defendant pay equitable compensation for breach of fiduciary duty' and that 'the production of [the Terms] shall be conclusive evidence of the defendant's irrevocable consent to the entry of such judgment.' It is to be noted that cl 6 states that the plaintiffs shall be entitled to 'enter judgment', rather than stating that they shall be entitled to 'apply for judgment'. This form of wording clearly favours Mr Howells' construction of cl 6.

35 If, as Mr Williams contended, cl 6 meant no more than that, once the clause was engaged, the plaintiffs were entitled to reinstate the proceeding to pursue their claim for equitable compensation for the breach of fiduciary duty alleged in the 2000 ASC, cl 6 would have no work to do. This is because any judgment in favour of the plaintiffs would result from them proving the existence of a fiduciary duty and its breach, rather than from any entitlement to judgment founded in cl 6. Mr Williams' construction ignores the critical words in cl 6 which confer upon the plaintiffs an entitlement to judgment.

36 When I put this to Mr Williams during the course of argument, he submitted that his construction of cl 6 did not deprive it of any benefit to the plaintiffs. He said that one benefit of cl 6 was that it prevented the defendant from arguing that the plaintiffs would be abusing the process of the Court by pursuing the original claim for breach of fiduciary duty against him. He informed me that, prior to the commencement of the original trial before Ashley J in 2001, the defendant had sought a stay of the proceeding on the basis that it constituted an abuse of process because the plaintiffs had instituted similar proceedings against the defendant in the Czech Republic. He submitted that cl 6 protected the plaintiffs from a similar stay application in the event that they reinstated the proceeding for the purpose of pursuing the claim for breach of fiduciary duty in the 2000 ASC.

37 I do not accept that the benefit referred to by Mr Williams in any way supports the construction contended for by him. It is plain from the wording of cl 6 that the benefit sought to be obtained by the plaintiffs in agreeing to cl 6 was an entitlement to judgment for equitable compensation on the basis of an admitted breach of fiduciary duty, rather than on the basis of a breach of fiduciary duty which had first to be proved by them.

38 No reasonable person would have believed that the plaintiffs had agreed to cl 6 in order to obtain a benefit of the type referred to by Mr Williams. Put simply, the value of such a benefit would have been eclipsed by the detriment that the plaintiffs would have suffered if cl 6 had the meaning advocated by Mr Williams. This is because such a meaning would confine the plaintiffs to the claim for breach of fiduciary duty in the 2000 ASC and preclude them from pursuing the alternative claims in the 2000 ASC for breach of contract and breach of trust.

39 Clearly, both parties sought to obtain a benefit by entering into the Terms. Mr Williams submitted that cl 6 was exclusively for the benefit of the plaintiffs and Mr Howells did not cavil with this. Yet, Mr Williams' construction of cl 6 would deprive the clause of any real benefit to the plaintiffs. Indeed, it would place them in a worse position than a clause that simply said that, upon breach by the defendant of any term, condition or warranty in the Terms, the plaintiffs had the option of reinstating the proceeding and pursuing their claims in the 2000 ASC. This is because, as I have already explained, the 2000 ASC included claims for breach of contract and breach of trust as well as breach of fiduciary duty, whereas cl 6 is confined to a claim for breach of fiduciary duty.

40 If, as Mr Williams argued, cl 6 merely enabled the plaintiffs to reinstate the proceeding in order to pursue one of their claims against the defendant as pleaded in the 2000 ASC, it would have been expressed in simpler and more direct language than that which is contained in cl 6. There certainly would not have been any reference to the entering of judgment.

41 I have considered the surrounding circumstances at the time the Terms were signed. The trial commenced on Wednesday, 21 February 2001. The plaintiffs opened their case on that day and the opening continued on Thursday, 22 February. On that day, Ashley J adjourned the hearing until Monday, 26 February to enable the parties to participate in a mediation on Friday, 23 February. The mediation took place before a private mediator as planned. On Monday, 26 February, the parties appeared before Ashley J and sought an adjournment until Wednesday, 28 February to enable settlement discussions to continue. Senior counsel for the plaintiffs said that he expected the proceeding to settle. Senior counsel for the defendant said that '[w]e have had very amiable discussions and I consent to the adjournment.' Ashley J granted the adjournment. On Wednesday, 28 February, the parties informed Ashley J that the proceeding had settled and his Honour made an order by consent dismissing the proceeding with no order as to costs.

42 The above circumstances indicate that the parties signed the Terms in order to resolve their dispute and to avoid a lengthy hearing. This is borne out by the opening words of the Terms, which state that the Terms were entered into '[i]n full settlement of the matters the subject matter of the proceeding'. The release in cl 8 of the Terms also supports the view that the parties were seeking to finalise all issues in the proceeding and to substitute the rights and obligations set out in the Terms for those alleged in the pleadings in the proceeding.

43 The construction contended by Mr Williams would not achieve the above objective of finality. For the reasons already given, on Mr Williams' construction, in the event of a breach by the defendant, the plaintiffs would be in a worse position than they had been at the commencement of the trial. On the other hand, the construction contended by Mr Howells would facilitate the objective of finality by obviating the need for the plaintiffs to adduce evidence of what took place between 1990 and 2001 to establish the existence and breach of the Sibling Agreements and, in turn, the existence and breach of a fiduciary duty owed by the defendant.

44 On Mr Howells' construction, a reinstated action would proceed on the basis that the defendant would be taken to have admitted the existence of the fiduciary duty and the breach of that duty as alleged in the 2000 ASC. As Mr Howells correctly pointed out, the Terms do not contain a clause -commonly found in terms of settlement - by which the defendant does not admit liability to the plaintiffs.

45 For the above reasons, I agree with Mr Howells' construction of cl 6. Once cl 6 is invoked, the defendant is taken to admit all facts alleged by the plaintiffs in the 2000 ASC in support of their claim for equitable compensation under the clause. Those facts obviously include all facts relating to the fiduciary duty that is said to be owed by the defendant to the plaintiffs and his breach of that duty. Those facts, in turn, include facts relating to the Sibling Agreements and their breach by the defendant.

(2) Interrelationship between cl 6 and the release in cl 8 of the Terms

46 There was some debate before me as to the interrelationship between cl 6 and cl 8 of the Terms. Mr Williams submitted that the mutual release in cl 8 extinguished all claims against the defendant other than the remedies of specific performance, damages or equitable compensation under cl 6. This was because the mutual release was not expressed to take effect upon compliance by the defendant with his obligations under the Terms and it therefore took effect when the Terms were signed. He submitted that the presence of cl 8 in the Terms was an important contextual matter to take into account in interpreting the scope of cl 6. He said that, apart from liability for judgment for equitable compensation for the breach of fiduciary duty set out in cl 6 and the costs of that judgment, the defendant was released from any further liability to the plaintiffs in respect of the properties referred to in the 2000 ASC. This meant, so it was said, that the defendant did not owe the plaintiffs any ongoing fiduciary duties and was not liable to them for any alleged breaches which post-dated the Terms.

47 During an exchange with the Bench, Mr Williams accepted that cl 8 did not have the effect of releasing the defendant in respect of the rights conferred by cl 6. He also agreed that the Court was required to apply normal principles of construction in interpreting the scope and effect of cl 6. Those principles have already been discussed in Part 3(1) of this judgment.

48 In my opinion, cl 8 has the effect of releasing the defendant from all claims set out in the 2000 ASC which have not been converted into obligations embodied in, or arising from, the Terms. As the plaintiffs elected to pursue judgment for equitable compensation for breach of fiduciary duty under cl 6 of the Terms, their rights must be determined in accordance with cl 6. This means, for example, that the plaintiffs can no longer claim against the defendant for the breach of contract and breach of trust claims set out in the 2000 ASC in relation to the properties covered by the 2000 ASC. There is no doubt, however, that the plaintiffs are entitled to exercise fully any rights that are conferred by cl 6 and that the exercise of those rights is unaffected by the release in cl 8. In this sense, cl 8 is subject to cl 6.

49 The critical issue is the nature and scope of the rights conferred by cl 6. I have determined that the plaintiffs are entitled to enter judgment for equitable compensation for breach of the fiduciary duty set out in the 2000 ASC and, for this purpose, the defendant is taken to admit to having committed that breach of fiduciary duty. Accordingly, for the purposes of cl 6, the defendant is a defaulting fiduciary and is liable to pay equitable compensation to the plaintiffs for the breach of fiduciary duty set out in the 2000 ASC. For the purposes of this Court assessing equitable compensation, the defendant is taken to remain a defaulting fiduciary until the time of judgment.

50 However, the defendant's ongoing status as a defaulting fiduciary for the purposes of the Court's assessment of equitable compensation pursuant to cl 6 is confined to the breach of fiduciary duty set out in the 2000 ASC. In making that assessment, the Court cannot take into account any breaches of fiduciary duty not set out in the 2000 ASC. It is not necessary for me to decide whether the defendant remained a fiduciary after the date of the Terms for any purpose unconnected with the relief sought under cl 6. Nor is it necessary for me to decide whether the plaintiffs may claim against the defendant for any alleged breaches of fiduciary duty which are not set out in the 2000 ASC in any separate proceeding. In particular, it is not necessary for me to decide what rights, if any, the plaintiffs have in respect of any alleged breach of fiduciary duty in connection with any property falling outside the 2000 ASC and therefore outside cl 6 of the Terms.

51 It is to the question of which properties fall within cl 6 that I now turn.

(3) Meaning of 'Properties' in cl 6 of the Terms

52 It will be recalled that, pursuant to cl 6 of the Terms, the plaintiffs are entitled to equitable compensation 'for breach of fiduciary duty in respect of each of the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by' the defendant.

53 Unsurprisingly, there was a dispute between the parties as to which properties cl 6 referred to. Mr Howells submitted that the plaintiffs' entitlement to equitable compensation should be assessed by reference to two-thirds of the value of the properties currently held by the defendant in the Czech Republic, Slovakia and Germany, without any distinction between interests that were restituted to him and interests that were purchased by him. Mr Williams submitted that if cl 6 was enforceable, equitable compensation should be assessed by reference to two-thirds of the value of the interests in the properties listed in paragraph 24 of the 2000 ASC. He submitted that interests in properties that were purchased by the defendant could not be taken into account.

(a) 'Properties' is defined by reference to paragraph 6 and not paragraph 24 of the 2000 ASC

54 The starting point for the analysis of which properties are encompassed by cl 6 of the Terms is the 2000 ASC. This is because cl 6 incorporates the definition of 'Properties' in the 2000 ASC. The relevant provisions of the 2000 ASC are set out in [13] above. The only paragraph of the 2000 ASC which, in terms, defines 'Properties' is paragraph 6. As noted already, that paragraph states:

Prior to 1948, Alois, Anna and Helena variously owned or owned interests in a number of real properties situated in:

(a) the Czech Republic, the Slovak Republic (both formerly Czechoslovakia) (the "Czech Properties"); and

(b) Germany (the "German Properties"),

(collectively, the "Properties").

Particulars

The Czech Properties

Hastalska 12 (cp 751), Prague 1 100%

Ramova 8 (cp 939), Prague 1 100%

Rybna 8 (cp 753), Prague 1 100%

Melantrichova (cp 465), Prague 1 67/144

Hastalska 15 (cp 755), Prague 1 7/12

Kollarova (cp 330), Holesovice-Bubny 100%

Agricultural land

17.4473 hectares of land in Repy

- Approximately 0.8 hectares of land in Kbely

Land situated in Slovakia

Approximately 364 hectares of land in Sucha

The German Properties

Kiefernstrasse 19, Dresden (land titles reference "Grundbuch von Dresden-Neustadt, Blatt 2247

Kiefernstrasse 19b, Dresden (land titles reference "Grundbuch von Dresden-Neustadt, Blatt 1621, Flurstueck 1595i)

Further particulars may be provided following discovery and interrogation, or otherwise as they become available to the plaintiffs.

55 Paragraphs 9 to 19 of the 2000 ASC refer to the Sibling Agreements. Paragraph 20 alleges that by reason of the matters in the paragraphs that precede it, 'each of the siblings was in a fiduciary relationship with each of the other siblings, and thereby owed to each of the other siblings a fiduciary duty, in relation to the recovery, administration, and disposal or distribution of the Properties'.

Since August 1991, the defendant has:

(a) obtained, recovered or been granted title to, or entitlements or interests in;

(b) obtained income from,

some or all of the Czech Properties pursuant to the restitution laws.

Particulars

The following Properties or interests have been obtained by or granted to the defendant pursuant to the restitution laws:

(a) Seven twelfths share of Hastalska 15 (cp 755) and building lot 860, Prague 1;

(b) 253/288 share of 11 Melantrichova (cp 465) and building lot 425, Prague 1;

(c) Ramova 8 (cp 939) and building lot 821, Prague 1;

(d) Rybna 8 (cp 753) and building lot 832, Prague 1;

(e) Hastalska 12 (cp 751) and building lot 823, Prague 1.

These are the best particulars the plaintiffs are presently able to give. The plaintiffs do not know whether further Properties have been restituted to the defendant. Further particulars may be provided following discovery and interrogation.

57 Paragraph 25 of the 2000 ASC states that by reason of the matters set out in the paragraphs that precede it, 'the defendant has, at all material times, held any interest in or entitlement to the Properties' in his capacity as a fiduciary of the plaintiffs. Paragraph 26 then refers to conduct of the defendant which he allegedly engaged in '[w]rongfully, and in breach of ... his fiduciary duty'. The conduct alleged includes that the defendant has failed to divide the 'Properties' recovered by him under the restitution laws and income from those 'Properties' between the siblings in equal shares. There is also an allegation that the defendant has failed to divide the net proceeds of the sale of any of the 'Properties', but no details are given of any properties that had been sold by the defendant.

58 Mr Williams submitted that the only properties that are relevant to the assessment of equitable compensation under cl 6 of the Terms are those properties that are set out in paragraph 24 of the 2000 ASC. He said that this followed from the fact that the equitable compensation is to be assessed for a breach of fiduciary duty constituted by the failure of the defendant to account to the plaintiffs for a two-thirds share of the properties that were restituted to him and from the fact that paragraph 24 is the only provision of the 2000 ASC which identifies the properties that were restituted to the defendant.

59 I reject this submission. Paragraph 24 of the 2000 ASC does not define 'Properties'. Nor does it allege that the defendant breached his fiduciary duty only in respect of the properties there listed. The properties are defined in paragraph 6 of the 2000 ASC. The use of the defined term 'Properties' in paragraphs 25 and 26 of the 2000 ASC makes it clear that what is being alleged is that the defendant has breached his fiduciary duty in respect of all of the 'Properties' as defined in paragraph 6.

60 My conclusion that the expression 'Properties' in paragraph 26 of the 2000 ASC is not confined to the properties listed in paragraph 24 is supported by the reference in paragraphs 26(c)(ix)(B) and 26(c)(x)(B) to the 'net proceeds of any sale of the Properties' and the absence of any reference to a sale of any property in paragraph 24. I note that paragraph 26(c)(vi) also refers to 'proceeds from the sale of the Properties' and that a similar expression is contained in the particulars of loss in paragraph 27.

61 Accordingly, it is paragraph 6, rather than paragraph 24, of the 2000 ASC which is the starting point for determining which properties are encompassed within cl 6 of the Terms.

(b) 'Properties' does not include interests purchased by the defendant

62 Mr Howells submitted that the properties that are relevant to the assessment of equitable compensation under cl 6 of the Terms include interests in properties that were purchased by the defendant. He relied upon three grounds for this submission. The first ground was the use of the word 'obtained' in the reference in cl 6 to 'the Properties and interests in the Properties ... recovered or obtained by' the defendant. The second ground was that the additional interests were purchased by the defendant out of income earned from the properties that were restituted to him. The third ground was that the defendant was able to obtain those additional interests only by exploiting his position as the recipient of the restituted properties, a position the defendant occupied by virtue of the fact that his siblings had earlier assigned their rights to him and entrusted him to act as the sole claimant to the benefit of them all.

63 I reject this submission. The expression 'recovered or obtained by him' in cl 6 of the Terms must be read in the context of the use of that expression in the 2000 ASC. As can be seen from paragraphs 19(c), 19(e) and 26(c)(vi) of the 2000 ASC, which are set out in [13] above, the composite expression refers to properties recovered by the defendant and income or sale proceeds obtained by him. The 2000 ASC does not refer to the purchase of interests in property by the defendant. Moreover, paragraph 26 of the 2000 ASC - the critical paragraph that sets out the breaches of fiduciary duty - refers to 'Properties recovered by [the defendant] under the restitution laws' and paragraph 24 refers to properties that the defendant has 'obtained, recovered or been granted title to, or entitlements or interests in ... the Czech Properties pursuant to the restitution laws.'

64 The question of whether the defendant has used income earned from restituted properties to purchase additional interests in some of the restituted properties is discussed in Part 5(5)(b) of this judgment. As will be seen, I have concluded that it is highly probable that the defendant partly funded the purchase of the additional interests from rental income that he earned from the restituted properties. Consistent with the 2000 ASC and the principles for assessing equitable compensation discussed in Part 5(1) of this judgment, however, the purchase of the additional interests in the properties would be relevant to the assessment of equitable compensation by virtue of the plaintiffs' entitlement to two-thirds of that income, rather than because the additional interests in the properties themselves fall within the definition of 'Properties' in paragraph 6 of the 2000 ASC.

65 As for the third ground, it must fail because the breach of fiduciary duty set out in the 2000 ASC and the Sibling Agreements is based on restitution of properties and not augmentation of the restituted properties through purchase.

(c) 'Properties' does not include those restituted after 23 February 2001

66 Mr Howells submitted that cl 6 of the Terms required assessment of equitable compensation by reference to all properties restituted to the defendant irrespective of whether restitution took place prior to or after the execution of the Terms on 23 February 2001. He based this submission on the statement at the end of the particulars to paragraph 6 of the 2000 ASC that '[f]urther particulars may be provided following discovery and interrogation, or otherwise as they become available to the plaintiffs.' As the plaintiffs provided further particulars dated 20 June 2008, which included interests in properties restituted to the defendant between 23 February 2001 and 20 June 2008, paragraph 6 of the 2000 ASC, and thus cl 6 of the Terms, extended to those additional interests.

67 I reject this submission. While the 2000 ASC had an ambulatory effect in relation to the definition of 'Properties' and could extend to interests in properties acquired by the defendant by way of restitution between the date of the 2000 ASC and the trial before Ashley J, once the claims in the 2000 ASC were settled by the execution of the Terms, the date of the Terms became significant in relation to the scope of the relief available to the plaintiffs. The expression 'breach of fiduciary duty' in cl 6 of the Terms refers to the breach of fiduciary duty set out in the 2000 ASC. Logically, that can only refer to a breach that had already taken place prior to the execution of the Terms. Any breach of fiduciary duty that post-dates the Terms cannot be a breach of fiduciary duty referred to in the 2000 ASC and cannot be the subject of an assessment of equitable compensation in accordance with cl 6 because it is not a breach that falls within that clause.

68 My conclusion that cl 6 does not extend to interests in property restituted to the defendant after 23 February 2001 is supported by a comparison between cl 1 and cl 6 of the Terms. Clause 1 imposes an obligation on the defendant 'to transfer all the right, title and interest that he has or shall have' in various specified properties. The expression 'shall have' clearly refers to interests in the specified properties acquired by the defendant after the date of the Terms. By way of contrast, cl 6 refers to 'the Properties and interests in the Properties (as defined in the amended statement of claim) recovered or obtained by' the defendant. It uses the past tense exclusively.

69 Mr Williams submitted that cl 8 of the Terms had the effect of releasing the defendant from all alleged breaches of fiduciary duty, whether the alleged breaches occurred before or after the execution of the Terms, and confined the plaintiffs to their remedy in cl 6. I have already discussed the interrelationship between cll 6 and 8 of the Terms in Part 3(2) of this judgment. I reject Mr Williams' submission that cl 8 extends to releasing the defendant from liability in respect of breaches of fiduciary duty constituted by his failure to transfer to the plaintiffs two-thirds of any interest in property restituted to him after 23 February 2001. While such a breach of fiduciary duty cannot form part of the equitable compensation to be awarded under cl 6 of the Terms, that does not necessarily mean that it is not capable of forming the subject matter of a separate proceeding by the plaintiffs against the defendant.

(d) Properties falling within paragraph 6 of the 2000 ASC

70 An issue arises as to the effect of any errors in paragraph 6 of the 2000 ASC in respect of any interest owned by the defendant in any property as at 18 May 2000, the date of the 2000 ASC. What is the effect of an overstatement or understatement in the interest held by the defendant in a property or a mis-description of a property?

71 The answer to this question must be informed by the fact that the 2000 ASC alleges that the defendant, in breach of his fiduciary duty, failed to provide information to the plaintiffs about the properties that were restituted to him. By virtue of my ruling of 8 October 2009, the defendant is taken to admit the alleged breaches of fiduciary duty. As a fiduciary, the defendant had an obligation to provide this information to the plaintiffs. He should not benefit by his failure to do so. Accordingly, in my opinion, the plaintiffs' entitlement to equitable compensation should be assessed by reference to the properties actually held by the defendant in the Czech Republic, Slovakia and Germany by way of restitution, as at the date of the Terms. It was common ground between the parties that the properties held by the defendant as at the date of the Terms were the same as the properties held by him as at the date of the 2000 ASC.

72 This means that, for the purposes of cl 6 of the Terms, equitable compensation can be assessed by reference to interests in property that had been restituted to the defendant as at 23 February 2001 even if those interests were not listed in the particulars to paragraph 6 of the 2000 ASC. This is because paragraph 6 defines 'Properties' generally to encompass those properties owned by Alois, Anna and Helena in Czechoslovakia and Germany prior to 1948. While the particulars to paragraph 6 list certain properties, it is clear that the list is not exhaustive.

73 Mr Williams submitted that, as the Terms were signed after the trial commenced before Ashley J, it was too late for the plaintiffs to supplement the particulars of the 'Properties' given in paragraph 6 of the 2000 ASC because further discovery and interrogation could not then take place. I reject this submission. Discovery is a continuing obligation. In any event, had the trial before Ashley J continued, the full extent of the defendant's ownership of property, as at the time of the trial, would have been revealed.

74 The defendant is taken to admit, as at the date of the Terms, that any property that was restituted to him by the government of the Czech Republic, Slovakia or Germany was held by him subject to the fiduciary duty owed to the plaintiffs that is set out in the 2000 ASC. This being the case, the defendant cannot escape paying equitable compensation to the plaintiffs in respect of any interest in property that the plaintiffs failed to list in paragraph 6 of the 2000 ASC because he did not disclose the existence of that interest to them.

75 It follows that cl 6 of the Terms has the effect of requiring the defendant to pay equitable compensation to the plaintiffs on the basis that the defendant breached his fiduciary duty to them (as set out in the 2000 ASC) in respect of all interests in property that he held as at the date of the Terms and that had been restituted to him by the government of the Czech Republic, Slovakia or Germany.

76 The plaintiffs relied on an affidavit of Dr Alexandr Mareš sworn on 5 September 2005 which set out in detail the properties that were either restituted to the defendant or purchased by him since 1992. They also relied on an affidavit of Josef Hlavička sworn on 22 October 2009, which provided details of the Suchá land. The defendant did not cross-examine Dr Mareš or Mr Hlavička. I accept their evidence.

77 According to the affidavits of Dr Mareš and Mr Hlavička, as at 23 February 2001, the following properties had been restituted to the defendant ('Restituted Properties'):

Table 1: Properties restituted to the defendant as at 23 February 2001

North of Karlovarska Street (Title deed no. 1072)

South of Karlovarska Street (Title deed no. 1072)

78 A number of observations can be made about Table 1 relative to paragraph 6 of the 2000 ASC.

79 First, the table does not include the properties at Kiefernstrasse 19 and Kiefernstrasse 19b in Dresden, Germany ('Dresden Properties') because they were restituted to the siblings in equal shares.

80 Secondly, the land at Holešovice is not included in the table because it was purchased by the defendant rather than being restituted to him.

81 Thirdly, the land at Kbely is not included because it was restituted to the defendant after 23 February 2001.

82 Fourthly, the defendant's interest in Melantrichova 11 is described as a 169/288 interest rather than the 67/144 (or 134/288) interest set out in paragraph 6 of the 2000 ASC because it is evident from Dr Mareš' affidavit that a 169/288 interest had been restituted to the defendant.

83 Fifthly, the defendant's interest in Haštalská 15 is described as 50 per cent, which is less than the 7/12 interest set out in paragraph 6 of the 2000 ASC. This is because Dr Mareš' affidavit makes it clear that only half of the interest in Haštalská 15 was restituted to the defendant.

84 Sixthly, the Rybná property is described as Rybná 29, whereas paragraph 6 of the 2000 ASC describes it as Rybná 8. It was common ground between the parties that paragraph 6 states the then correct title number, but an incorrect street number, in respect of this property. In accordance with the principle set out in [71] and [72] above, the plaintiffs' entitlement to equitable compensation extends to the Rybná property notwithstanding the mis-description in paragraph 6 of the 2000 ASC. In any event, independently of this principle, the property has been correctly identified by reference to its then title number. All future references to this property in this judgment will be to 'Rybná 29'.

85 The seventh observation relates to the land at Řepy. Although paragraph 6 of the 2000 ASC refers to 17.4473 hectares of land - being the extent of the land owned by Alois and Anna prior to 1948 - as at 23 February 2001, the defendant had obtained only 5.0846 hectares of this land by way of restitution.

86 Mr Howells submitted that equitable compensation should be assessed by reference to the 17.4473 hectares referred to in paragraph 6 of the 2000 ASC because that area of land fell within the definition of 'Properties' in that paragraph. As an additional reason for inclusion of the entire area, he referred to the fact that, in 1991, the defendant gave to his siblings a list of properties which stated that Alois owned 17.4473 hectares of land in Řepy. He also referred to what he said were representations by the defendant at the time of the 2001 settlement that he owned 17.4473 hectares of land in Řepy. I reject Mr Howells' submission. For the reasons set out in [71] and [72] above, only the 5.0846 hectares of land that were restituted to the defendant as at 23 February 2001 fall within cl 6 of the Terms. In addition, the evidence does not establish that the defendant had represented that, as at February 2001, he owned 17.4473 hectares of land in Řepy.

87 The eighth observation relates to the date of restitution of the Suchá land. The extract from title deed number 75 states that the defendant owns 100 per cent of the land covered by that title. The 'Ground[s] of acquisition of title' state 'Agreement No. V 542/95 - 1/96', 'Local Authority Decision No. 657/98 - PoVo - Pa - Z386/99 - 3/01', 'Agreement No. V173/03 on the surrender of thing' and 'Judgment 5C 171/01 - Z 900/02, Z 954/02'. The extract from title deed number 59 states that the defendant owns 100 per cent of the land covered by that title and the 'Ground[s] of acquisition of title' state 'Decision of the Ministry of Agriculture and the Government of the Slovak Republic No. 701/92 - 1/93, Decision of the Land Authority No. Z 1021/93 - 1-3/94'. The special referee treated the Suchá land as having been restituted to the defendant as at 23 March 1992. The defendant has not challenged this, or any other aspect of, the special referee's report.[18] He did not submit that all of the Suchá land had not been restituted to him as at 23 February 2001, whereas he did so submit with respect to Haštalská 15, Melantrichova 11 and the land at Řepy. I have therefore concluded that all of the land at Suchá was restituted to the defendant prior to 23 February 2001.[19]

(e) Determination regarding the properties referred to in cl 6 of the Terms

88 It follows from the above discussion that cl 6 of the Terms requires that equitable compensation be assessed by reference to the properties listed in Table 1 at [77] above.

PART 4 - SPECIAL REFEREE

89 At the directions hearing on 10 and 11 March 2009, the plaintiffs applied for an order that a special referee be appointed pursuant to r 50.01(1) of the Rules to value the Czech Properties, the Dresden Properties and the land owned by the defendant in Suchá, Slovakia (collectively 'Property Portfolio').[20] The defendant opposed the making of such an order. After further argument on this issue over a number of directions hearings, on 23 June 2009, I made an order ('SR Order')[21] appointing James Andreas Hollas of the Prague office of Jones Lang LaSalle as special referee ('special referee').

90 The SR Order required the special referee to prepare a report setting out his opinion on each of the following questions:

(a) What was the market value of each of the Properties on the date shown in the second column in schedule A for each Property?

(b) What was the market value of each of the Properties on 24 April 2008?

(c) What is the current market value of each of the Properties?

(d) (i) What rental income was earned for each of the Properties for each financial year or part of a financial year since the date listed in the second column in schedule A for each Property?

(ii) If it is not possible to determine what rental income was earned for any Property, what was the market rental for that Property for each financial year or part of a financial year since the date listed in the second column in schedule A for each Property?

(e) What:

(i) expenses of a capital nature; and

(ii) expenses of a non-capital nature,

have been incurred for each of the Properties for each financial year or part of a financial year since the date listed in the second column in schedule A for each Property?

91 The SR Order defined 'Properties' to be those properties in the Property Portfolio.[22] The second column in schedule A to the SR Order listed the date on which the defendant acquired an interest in each property. The special referee's valuation of the Property Portfolio is discussed in Part 4(2) of this judgment.

92 The SR Order set out detailed procedures to be followed by the special referee in preparing his report and by the parties in providing submissions, information and other assistance to the special referee. Paragraph 9(e) required the defendant to provide, by 31 July 2009, annual statements of income and expenditure in respect of each property in the Property Portfolio from the time he acquired an interest in the property. Paragraph 11 required the defendant to permit the special referee to inspect each property on or before 24 August 2009. Paragraph 15 required both parties to cooperate with the special referee and to use their best endeavours to provide to the special referee any information requested by him to enable him to perform his tasks.

93 The SR Order provided that if any party did not comply with his or her obligations, the special referee was required to complete his report using the best information available to him. The SR Order also required the special referee to refer in his report to any gaps in information and to explain the impact, if any, that those gaps had on his opinion.

94 In accordance with the SR Order, the special referee provided a report dated 24 September 2009 ('Initial SR Report'). During the hearing, the parties identified some supplementary questions for the special referee. On 22 and 28 October 2009, I made orders under r 50.03(2)(b)(i) of the Rules requiring the special referee to provide supplementary reports. In accordance with those orders, the special referee provided a supplementary report dated 27 October 2009 ('First Supplementary SR Report') and a further supplementary report dated 29 October 2009 ('Second Supplementary SR Report'). For convenience, I will refer to the Initial SR Report, as amended or clarified by the First and Second Supplementary SR Reports, as the 'SR Report'.

95 According to the correspondence in appendix 5 to the Initial SR Report, the defendant did not provide annual statements of income and expenditure to the special referee. He did, however, provide some incomplete Czech tax returns to the special referee. He objected to providing copies of leases to the special referee because of confidentiality requirements under Czech law. The special referee was not permitted to inspect any of the properties located in Prague 1, being the properties described as 'Prague 1 Properties' in Table 1 at [77] above ('Prague 1 Properties'). Dr Burešová, who is the defendant's attorney in the Czech Republic and was his representative in relation to the special referee, informed the special referee that David and Paul, as the new owners of the Prague 1 Properties, refused to permit the special referee to inspect those properties.

96 The SR Report states that the special referee was not provided with any information regarding tenancies and that he therefore valued the properties in the Property Portfolio on the assumption of full vacant possession. In the First Supplementary SR Report, the special referee stated that he had 'been forced to take a conservative approach on the valuations as [he] was prevented [from] gaining access to the majority of the properties.' In my order of 28 October 2009, I required the special referee to 'give [his] valuation of the properties in question on the assumption that they have been restored to the finest quality and have the finest quality facilities within the buildings.'

97 In response, the special referee stated in the Second Supplementary SR Report that '[f]or the five properties in Prague One an increase in value of 20% would be appropriate for the 2008 valuation and a figure of 15% for the current valuation is considered appropriate assuming that the properties have been refurbished to a high specification.' I will refer to the special referee's initial valuation of the Prague 1 Properties as the 'Initial Valuation' and the subsequent higher valuation as the 'Revised Valuation'.

98 The special referee described the gaps in the information provided to him by the defendant, and the effect of those gaps, as follows:

Despite being a requirement of the court order (paragraph 9) the defendant and his representative have failed to provide us with a substantial amount of information. Of the five required main pieces of information, we have only been provided with copies of reports on title for the Czech and Slovak properties (we have not been provided with details of the Dresden property). We have also been provided with some information relating to income and expenditure, however the information is incomplete and the figures provided are not capable of any meaningful analysis.

This lack of information has had a significant negative impact on the quality and accuracy of our valuation report. The most significant information that has been omitted are the copies of current leases of the properties. The leases will contain details of passing rentals, and this information is critical in enabling us to ascertain the Estimated Rental Value (ERV) of the property, which in turn can then be capitalised to provide the final valuation figure. The 'Direct Capitalisation' method, as it is known, is an established and accurate method of valuation for freehold investment properties, but without accurate rental records we have been unable to utilise this method and have had to rely on the 'Sales Comparison' approach. Whilst this method is an established and reasonably accurate one, it does have its limitations, particularly and obviously when there is limited comparable evidence available.

We were belatedly provided with some photographic evidence relating to the Prague One properties (information received on the 16th of September). From this limited information we have been able to ascertain that all of the Prague One properties, when restituted, were in a poor state of repair. We have therefore based our valuations on this assumption.

...

In addition to the missing information, the defendant and his representative have been generally obstructive which has prevented us from compiling a detailed and accurate report. In particular, we have been prevented from gaining access to the majority of the properties. This has meant that we have had to undertake 'roadside' inspections only and subsequently have been unable to view the majority of the property, such as the rear external elevations and all of the interiors. As a result we have had to make numerous assumptions regarding the condition of the property, which again affects the quality and accuracy of the valuation.

The court order requires us to provide details of all capital and non capital expenses for each property/site and for each financial year of ownership. In order to do this would need to have accurate records for each property or site for each year of ownership. All we have been provided with are some tax returns, however some years are missing and the returns only provide a basic total income and expenditure figure, and there is no itemised information for each properties or sites. We have also been provided with some internal accounting information in the form [of] income and expenditure figures belonging to the Defendant. However, again the information is incomplete, with a number of years missing. Furthermore, much of the information relating to individual properties has been deleted with the use of a black marker pen making any analysis impossible.

To summarise, the Defendants unwillingness to provide us with the required information and allow us access to the properties, has required us to make numerous assumptions which has adversely affected the quality and accuracy of our valuation report. In particular we have been unable to provide any detailed information on the Defendants income and expenditure details on the properties/sites since they were restituted, which was a major requirement for our report. This is particularly pertinent as it is evident that the Defendant has invested a significant amount of capital on some of the properties over the years.[23]

99 I will discuss the inadequacy of the information provided by the defendant to the special referee in Parts 5(4)(b) and 5(5)(b) and (c) of this judgment.

(a) Special referee's valuation of Prague 1 Properties

100 Table 2 below sets out the special referee's valuations of the Prague 1 Properties.

Table 2: Special referee's valuation of Prague 1 Properties

(b) Special referee's valuation of land in Řepy

101 The special referee revised his initial valuation of the Řepy land due to errors in the zoning in the Initial SR Report. His valuations in the First Supplementary SR Report are set out below.

Table 3: Special referee's valuation of land at Řepy

(c) Special referee's valuation of land at Suchá

102 The special referee valued the Suchá land on the assumption that it comprised 360 hectares. In his affidavit of 22 October 2009, Mr Hlavička calculated the total land area to be 369.94 hectares. Mr Williams did not seek to cross-examine Mr Hlavička. I accept Mr Hlavička's evidence and find that the total area is 369.94 hectares.

103 The special referee valued the land as at 24 September 2009 at €1,218,000 (or €3,383.33 per hectare), as at 24 April 2008 at €1,343,000 (or €3,730.55 per hectare) and as at 23 March 1992 at €336,000 (or €933.33 per hectare). The values derived when the 'per hectare' amounts are applied to 369.94 hectares are set out in Table 4 below.

Table 4: Special referee's valuation of land at Suchá

(d) Special referee's valuation of all Restituted Properties

104 Table 5 below sets out the total valuations of the Restituted Properties derived from Tables 2, 3 and 4. Table 5 provides valuations for all of the Prague 1 Properties in their entirety. In valuing Melantrichova 11 and Haštalská 15, it does not take into account the fact that only part interests in these properties were actually restituted to the defendant. This issue is discussed in Part 5(4)(c) of this judgment.

Table 5: Special referee's total valuations of the Restituted Properties

(e) Special referee's estimates of rental value

105 As the defendant did not provide to the special referee a breakdown of rental income for each property, the special referee used market rentals to determine the annual estimated rental value ('ERV') for each of the Prague 1 Properties. These ERVs for each property are set out in Table 6 below.

Table 6: Special referee's Estimated Rental Values for Prague 1 Properties

106 The special referee also provided ERVs for the Dresden Properties. These ERVs were nominal, however, because the Dresden Properties are dilapidated and have been untenanted for up to six years. ERVs were not provided for the land at Řepy or Suchá because information about rents for that land was virtually non-existent. If any rental income was earned on that land, it would not be material for the purposes of this proceeding.

107 Based on the Czech tax returns the defendant provided to the special referee, the special referee recorded some information regarding rental income and expenditure in relation to the Property Portfolio. That information, which the plaintiffs converted to Australian dollars based on exchange rates that they tendered without objection, is set out in Table 7 below.

Table 7: Rental income and expenditure information in defendant's tax returns

108 In addition to the comments set out at [98] above, the special referee said the following in relation to the information used to prepare Table 7:

The Court Order requires us to provide specific details relating to the expenses of a capital and non capital nature, in addition to the income, for each of the properties and for each financial year since the property was restituted. In order to achieve this we would have required extensive and detailed information from the Defendant. Unfortunately this has not been the case and we have only been provided with minimal and incomplete information.

We have been provided with copies (not all of them signed) of the Defendant's tax returns for the period from 1992 to 2008. However a number of tax returns are missing, furthermore the information is not sufficiently detailed to provide specific details for each individual property. All we have been able to collate is the total rental income and total expenditure for each tax year provided. We have summarised the information ... in the [relevant] table.[26]

109 I will discuss the inadequacy of the information provided by the defendant to the special referee in Parts 5(4)(b) and 5(5)(b) and (c) of this judgment.

110 Rule 50.04 of the Rules provides that the Court 'may as the interests of justice require adopt the report of a special referee or decline to adopt the report in whole or in part, and make such order or give such judgment as it thinks fit.' Rule 50.03(2)(b)(iii) also provides that, on receipt of a special referee's report, the Court may make an order to vary the report.

111 The principles applicable to the exercise of the Court's power under r 50.04 were recently considered by the Court of Appeal in Wenco Industrial Pty Ltd v W W Industries Pty Ltd.[27] The Court set out nine propositions that 'provide a general guide as to how the question of the adoption of a referee's report should be approached'.[28]

112 The first proposition emphasised 'that the Court has a wide power which is to be exercised "as the interests of justice require".'[29] The fourth proposition was stated in these terms:

where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for inquiry and report.[30]

113 The sixth proposition was that 'generally, the referee's findings of fact should not be re-agitated in the Court.'[31] The ninth proposition was that, subject to exceptions dealing with error of principle, absence or excess of jurisdiction, patent misapprehension of the evidence and perversity or manifest unreasonableness in fact finding, 'it would not ordinarily be ... a proper exercise of the discretion conferred by r 50.04 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report.'[32]

114 In the present case, the plaintiffs submitted that the SR Report should be adopted by the Court subject to an adjustment in the size of the land at Suchá from 360 hectares to 369 hectares in accordance with Mr Hlavička's affidavit of 22 October 2009.[33] They also submitted that the Court should adopt the special referee's Revised Valuation of the Prague 1 Properties[34] and that rental income should be calculated by reference to the special referee's ERVs.[35] The defendant did not challenge any aspect of the SR Report.

115 The SR Report shows a thorough analytical and scientific approach to the assessment of the matters referred to the special referee. It dealt with complex and technical valuation issues falling within the special referee's expertise. Those issues required assessment in light of knowledge of the local market and conditions prevailing in the three European countries in which the Property Portfolio is located.

116 Having regard to these matters and, in the absence of any serious challenge to the SR Report by any party, I have formed the view that the interests of justice require that the SR Report be adopted in its entirety subject to the adjustments I have made in this judgment. Accordingly, pursuant to r 50.04 of the Rules, I will order that the SR Report be adopted in its entirety subject to the adjustments made in this judgment. I will use the information in Tables 2 to 7 in assessing equitable compensation.

(1) Principles for assessing equitable compensation for breach of fiduciary duty

117 The Court, in its equitable jurisdiction, has the power to award compensation for a breach of fiduciary duty. [36]

118 As an equitable remedy, the award of compensation is discretionary and it is subject to the usual equitable defences, such as laches or acquiescence, that the Court may consider before granting relief.

119 The objective of the remedy is to place the innocent party, as nearly as possible, in the position in which he or she would have been had there been no breach of duty.[37] Equitable compensation is conceptually different from common law damages in that it involves restitution for the value of the loss or damage suffered by the innocent party as a result of a breach of duty.[38]

120 While at common law damages for breach of contract are generally assessed as at the date of the breach,[39] the normal rule in equity is that equitable compensation for breach of trust or fiduciary duty is assessed not as at the date of the breach but as at the time of the trial, with the full benefit of hindsight.[40] It can also be awarded on terms.[41]

121 In Re Dawson (deceased); Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd,[42] a case involving a breach of trust, Street J said:

The obligation of a defaulting trustee is essentially one of effecting restitution to the estate. The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage. ...

[I]f a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter. ...

[T]he inquiry in each instance would appear to be whether the loss would have happened if there had been no breach.

...

The cases to which I have referred demonstrate that the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract. ... [I]n equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he deprived it notwithstanding that market values may have increased in the meantime. The obligation to restore to the estate the assets of which he deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not at the date of deprivation. In this sense the obligation is a continuing one and ordinarily, if the assets are for some reason not restored in specie, it will fall for quantification at the date when recoupment is to be effected, and not before.

... [S]uch an obligation [to effect restitution in specie] must necessarily be measured in the light of market fluctuations since the breach of trust ... and ... must also necessarily be affected, where relevant, by currency fluctuations since the breach.[43]

122 In Hill v Rose,[44] Tadgell J (as his Honour then was) cited with approval this passage from Street J's judgment and said:

The obligation imposed by courts of equity upon defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract. It follows that the obligation is not limited or influenced by common law principles governing remoteness of damage, foreseeability or causation.[45]

123 I note that there is some inconsistency in the authorities regarding the issue of causation in assessing equitable compensation for breach of fiduciary duty.[46] The issue does not arise in this case because, under cl 6 of the Terms, the defendant has consented to the entry of judgment for equitable compensation for breach of fiduciary duty. There was no suggestion that the defendant's admitted breach of fiduciary duty did not cause loss to the plaintiffs.

124 The High Court has stated the 'cardinal principle of equity' to be that 'the remedy must be fashioned to fit the nature of the case and the particular facts.'[47] While equitable compensation is often computed by reference to the loss suffered by the innocent party, this is not always the case.[48] As Tadgell J observed in Hill v Rose:

The remedy, like any equitable remedy, is necessarily to be fashioned to meet the needs of the case. The method of calculation of monetary compensation will vary according to the nature of the fiduciary obligation whose breach is to be redressed. It might be appropriate to compensate the plaintiff's loss by reference to the defendant's gain ... Compensation may be awarded, however, in an appropriate case whether or not the defendant has made any direct pecuniary gain.[49]

125 Similarly, in Ferrari Investment (Townsville) Pty Ltd (in liq) v Ferrari,[50] Thomas JA said:

The present case concerns defaulting fiduciaries and more particularly, misappropriating fiduciaries. The obligation of such a party is essentially to effect restitution to the estate, and this may be achieved in a number of ways, one of which is to require the fiduciary to disgorge the equivalent of the advantage that has been taken. [51]

126 The English Court of Appeal's decision in Re Leeds and Hanley Theatres of Varieties Ltd[52] is an example of an explicitly gain-based assessment. In that case, the promoter of a theatre company purchased two music halls using a trustee and sold them to the theatre company at a substantially inflated price. The promoter was held to be in a fiduciary relationship with the theatre company and to have breached its duties by concealing the fact that it was the beneficial vendor of the halls. Equitable compensation was computed as the amount of the profit that was made by the promoter from the purchase and re-sale of the music halls.[53]

127 In McKenzie v McDonald,[54] the defendant breached his fiduciary obligations when he obtained the plaintiff's farm at an undervalue. The transaction reflected a purchase price of ₤4 per acre for the property, which was later sold on extended terms by the defendant at a price of ₤4 10s per acre. Dixon AJ (as his Honour then was) valued the property at ₤4 5s per acre at the time of the transaction. His Honour stated that, had the plaintiff elected to take an account of profits, she would have been entitled to receive the difference between the initial sale price and the higher resale price.[55] In assessing equitable compensation, however, his Honour considered that the extended nature of the terms upon which the property was resold meant that the price of ₤4 10s per acre did 'not afford an absolute criterion for ascertaining the defendant's liability.'[56] The defendant was regarded as having gained on the initial sale the amount of 5s per acre, which provided the basis for the Court's assessment. In substance, therefore, the decree indemnified the plaintiff for her loss.[57]

128 The decision of Warren J (as her Honour then was) in Disctronics Ltd v Edmonds,[58] affirmed in relevant respects by the Court of Appeal,[59] provides a further example of a gain-based assessment of equitable compensation and highlights the flexibility of the remedy. The plaintiffs were four joint venturers that proposed to purchase a golf course, negotiate a long-term lease with a tenant, and then sell the property for profit. They retained two of the defendants, Edmonds and Cahill - respectively, a financial adviser and a real estate agent - to provide services to the project on a fee basis. Later, when negotiations were well underway with the owner of a golf course and a likely tenant, the plaintiffs agreed to include Edmonds and Cahill in the venture and to share equally all of the profits from the project between the six of them. When the venture collapsed, Edmonds and Cahill formed a new joint venture with other persons. In breach of their fiduciary duties to the plaintiffs, Edmonds and Cahill misused confidential information to assist the new venture in making a successful bid for the golf course and installing the likely tenant on a long-term lease.

129 After referring to the plaintiffs' delay in bringing the proceedings and to the existence of other interests in the property, Warren J decided that the appropriate remedy was equitable compensation, rather than a constructive trust or an account of profits.[60]

130 In determining the remedy for a breach of fiduciary duty, it may be inequitable to compel the defaulting fiduciary to disgorge all of the profits if some of those profits are attributable to the use of his or her own skill, efforts, property or resources. This is a matter of judgement that depends on the facts of the case. The onus falls on the defaulting fiduciary to establish that, in all of the circumstances, it would be inequitable not to apportion the profits or to make some other allowance. In general, profits will only be apportioned if there exists an antecedent arrangement for the sharing of the profits. In the absence of such an arrangement, the defaulting fiduciary will ordinarily be entitled only to an allowance for skill, expertise and expenses.[61]

131 In Disctronics, the members of the joint enterprise had agreed to share the profits equally between themselves. Accordingly, Warren J held that Edmonds and Cahill should be treated as though each of them was one of the six original joint venturers. Her Honour assessed equitable compensation in an amount equivalent to four-sixths of the value of the golf course and four-sixths of the profit derived from the golf course. Her Honour also made an allowance for Edmonds and Cahill's expenses in acquiring the property.[62]

132 Where a defaulting fiduciary fails to keep and produce proper accounts of his or her dealings with property that is the subject of a fiduciary duty and thereby makes it difficult for the Court to assess the equitable compensation due to the plaintiff, 'the Court should assess the compensation in a robust manner'.[63] The Court should rely on the assumption against wrongdoers, the onus of proof, and resolve doubtful questions against the party whose actions have made an accurate determination problematic.[64] I will refer to this principle as the 'Robust Assessment Principle'. An early example of the application of this principle was Armory v Delamirie,[65] which involved an action in conversion against a jeweller who had removed the stones from an item of jewellery and refused to return them. On the question of the value of the stones, the jury were instructed that unless the defendant produced the stones and showed that they were not of 'the finest water', they should presume the strongest against him and make the value of the best stones the measure of their damages.[66]

(2) Application of the principles - general comments

133 As the purpose of equitable compensation is, ordinarily, to place the beneficiary of a fiduciary duty in the position in which he or she would have been had there been no breach of the duty, in the present case, the plaintiffs are broadly entitled to:

(a) an amount that is equal to two-thirds of the value of the Restituted Properties; and

(b) an amount that is equal to two-thirds of the income earned by the defendant from the Restituted Properties after allowing for any expenditure incurred by him in earning that income.

134 This broad statement of the relief to which the plaintiffs are entitled reflects the Sibling Agreements, which the defendant is taken to admit, pursuant to which the siblings agreed to pursue restitution on the basis that the sibling to whom the relevant properties were restituted would share equally with the other siblings those properties and the income from those properties, less expenses.[67] It is also consistent with the approach adopted by Warren J in Disctronics and, on appeal, by the Court of Appeal in Edmonds v Donovan.[68]

135 The practical application of the broad statement will be discussed below, together with various specific issues that arise, such as the valuation date of the Restituted Properties. Another issue that is discussed is whether any allowance should be made for the defendant's exertion in obtaining restitution of the Restituted Properties and in managing them since restitution.

(3) Ruling made on 13 October 2009 on evidence of the defendant's conduct

136 On 12 October 2009, Mr Howells sought a ruling that the plaintiffs be permitted to adduce evidence of the conduct of the defendant:

(a) since the Terms of Settlement were entered into, being conduct before the reinstatement of the proceeding and after reinstatement;

(b) being conduct which is relevant to explain the actions of the plaintiffs in initiating and maintaining proceedings in the Czech Republic referred to in the third amended defence;

(c) [being] conduct relevant to the conduct of the proceeding and the timing of the hearings and determinations; and

(d) being conduct relevant to his claim for an allowance for his endeavours.

137 Mr Williams criticised the plaintiffs' wording because it did not refer to the purpose for which the proposed evidence would be adduced. He suggested that, having regard to the submissions that the parties had made, it would be more accurate to describe the ruling sought by the plaintiffs as a ruling that they be permitted to adduce evidence of the alleged misconduct of the defendant since the Terms were entered, being alleged misconduct before the reinstatement of the proceeding and after reinstatement.

138 On 13 October 2009, I made the following ruling:

The plaintiffs are at liberty to adduce evidence of the alleged conduct of the defendant since the Terms of Settlement were executed on 23 February 2001 ('Terms'), being alleged conduct before the reinstatement of the proceeding in 2005 and after reinstatement, which falls into one or more of the following categories:

(a) conduct relating to the defendant's dealings with the properties referred to in clause 6 of the Terms ('Properties') which allegedly affected their value;

(b) conduct relating to the defendant's handling of the proceeding which allegedly affected the timing of the final hearing and final judgment in the proceeding and thus allegedly affected the quantum of equitable compensation to be awarded under clause 6 of the Terms if it is to be determined by reference to the value of the Properties;

(c) conduct concerning the amount of expenditure incurred by the defendant in relation to the Properties and his personal exertion in relation to the Properties; or

(d) conduct which allegedly resulted in the plaintiffs initiating and maintaining the proceedings in the Czech Republic that are referred to in the third further amended defence dated 13 March 2009,

provided that such evidence shall not be adduced for the purpose of establishing that the amount of equitable compensation, if any, to be awarded to the plaintiffs under clause 6 of the Terms should be increased by way of punishment, deterrence, denunciation or vindication.

139 I informed the parties that I would deliver reasons for the ruling in my judgment. I now set out the reasons for the ruling.

140 As Mr Howells did not seek to adduce evidence of the defendant's conduct preceding the Terms, my ruling relates only to evidence of the defendant's conduct since the Terms were executed, being evidence before and after the reinstatement of the proceeding in 2005.

141 During the course of argument, Mr Howells submitted that the defendant's conduct since the execution of the Terms has been so egregious that the Court should take it into account in augmenting the amount of equitable compensation otherwise payable by him. Mr Williams submitted that the Court would fall into error if it adopted this approach. He relied on Harris v Digital Pulse Pty Ltd.[69] In that case, Spigelman CJ and Heydon JA held that an assessment of equitable compensation for breach of a fiduciary duty arising under contract cannot reflect any amount solely by way of punishment, deterrence, denunciation or vindication.[70]

142 I agree with Mr Williams' submission. Although Harris is not binding on me, it is highly persuasive. In accordance with the High Court's comments in Farah Constructions Pty Ltd v Say-Dee Pty Ltd,[71] I will follow Harris. On this basis, it was not open to the plaintiffs to adduce evidence for the purpose of establishing that the amount of equitable compensation should be increased by way of punishment, deterrence, denunciation or vindication.

143 Harris does not stand for the proposition that a defendant's conduct can never be taken into account in assessing equitable compensation. Clearly, it can. As discussed in Part 5(1) of this judgment, equitable compensation is assessed with the benefit of hindsight and can be awarded on terms. Fluctuations in exchange rates and property values between the date of a breach of fiduciary duty and the date of judgment can be taken into account. A fiduciary who commits a breach of fiduciary duty in relation to property that is the subject of a fiduciary duty is treated as continuing to breach that duty until trial.

144 As I have already discussed in Part 3(1) of this judgment, in this case, by virtue of the breaches of the Terms that were found in the Preliminary Judgment, cl 6 of the Terms was enlivened. Pursuant to that clause, the defendant is taken to have admitted that he was a defaulting fiduciary in relation to the fiduciary duty set out in the 2000 ASC. His status as a defaulting fiduciary in that limited sense continued until judgment and is relevant to the assessment of equitable compensation. For example, if the defendant had deliberately burnt down the Prague 1 Properties after he breached the Terms and thus significantly reduced the current values of those properties, it could not seriously be suggested that evidence of this conduct was inadmissible.

145 The plaintiffs have consistently maintained that equitable compensation pursuant to cl 6 of the Terms must be assessed by reference to the value of the Property Portfolio. The valuation issue has thus loomed large in the proceeding. The special referee was appointed to address this important issue.

146 It follows, in my opinion, that the plaintiffs were entitled to adduce evidence of the defendant's dealings with the relevant properties in so far as his conduct affected their value.

147 During their opening addresses, both Mr Howells and Mr Williams put in issue the date at which the relevant properties should be valued for the purposes of the assessment of equitable compensation.

148 Mr Williams submitted that the relevant properties should be valued as at the date of restitution or as at the date of the breach of fiduciary duty. He said that the two dates are likely to be quite close because, on the plaintiffs' case, the defendant was obliged to transfer a one-third interest to each of his siblings upon a property being restituted to him and he failed to do so at that time. He said that the 'massive capital appreciation' of the properties since the time of restitution was due to the efforts of the defendant in improving them and caring for them and that it would overcompensate the plaintiffs for them to gain the benefit of the defendant's husbandry of the properties.

149 Mr Howells submitted that the relevant properties should be valued as at the date of the Preliminary Judgment on 24 April 2008 rather than as at the date of the SR Report on 24 September 2009 because the value of the properties, according to the SR Report, declined by just under 20 per cent between 24 April 2008 and 24 September 2009 due to the global financial crisis. He said that, in light of the defendant's refusal to comply with his obligations and the obstructive manner in which he conducted the proceeding, the plaintiffs should not be prejudiced by having equitable compensation assessed on the basis of the lower valuations prevailing as at 24 September 2009. To assess equitable compensation on the basis of the most recent valuation would, according to Mr Howells, allow the defendant to benefit from his wrongdoing.

150 Mr Howells submitted that, to the extent that the defendant's conduct delayed the hearing and final determination of the proceeding, the Court should, in the exercise of its discretion, value the relevant properties as at a date by which the proceeding would have been determined had it not been for the defendant's conduct. It was open to Mr Howells to make this submission and for the plaintiffs to adduce evidence relating to any delays caused by the defendant in so far as his conduct affected the value of the properties.

151 The defendant has consistently maintained that any amount of equitable compensation awarded to the plaintiffs by reference to the value of the relevant properties should be adjusted in his favour to reflect the amounts that he has expended in improving the properties and his personal exertion in procuring the restitution of the properties and in managing them since that time. In light of this, the plaintiffs were entitled to adduce evidence of the defendant's conduct which had a bearing on the allowance to be made for his expenditure and personal exertion.[72]

152 The defences relied upon by the defendant included repudiation and election, which were allegedly established by the plaintiffs' conduct in commencing proceedings in the District Court of Prague 1 on 22 February 2008 ('Czech proceeding'). These defences are discussed in Part 8 of this judgment. It was part of the plaintiffs' case that they initiated the Czech proceeding because of the conduct of the defendant and, for this reason, they sought to adduce evidence to explain their actions in initiating and maintaining the Czech proceeding.

153 Although repudiation and election are questions of law which do not depend on evidence of motive, those questions are informed by the circumstances in which the Czech proceeding was initiated and maintained. On this basis, evidence of the conduct of the defendant which resulted in the plaintiffs initiating and maintaining the Czech proceeding was, in my view, admissible.

154 Nothing that I have said affects the question of whether the defendant's conduct can be taken into account in assessing questions of interest and costs in the event that they become payable by him. That question and the related question of what evidence of conduct is admissible in relation to interest and costs have been deferred until after judgment.

(4) Equitable compensation based on value of Restituted Properties

155 As equitable compensation is assessed as at the time of the trial,[73] ordinarily, any relevant properties are valued as at that time in arriving at the equitable compensation to be paid by the defendant.[74] However, as discussed in [147] to [150] above, both parties submitted that I should depart from the ordinary rule.

156 I reject Mr Williams' submission that the Restituted Properties should be valued as at the time of restitution or as at the time of the initial breach of fiduciary duty. I have already concluded that cl 6 of the Terms requires the Court to assess equitable compensation for the breach of fiduciary duty alleged in the 2000 ASC in relation to the Restituted Properties. That breach continued from the date of restitution until the date of the Terms. It also continued from the date of the Terms until judgment.[75]

157 There was no direct evidence of what the plaintiffs would have done if the defendant had transferred a one-third interest in the Restituted Properties to his siblings in accordance with his fiduciary duty. Had the transfer occurred, it would have been in an environment of continuing friendly relations within the Talacko family. It would therefore be speculative to assume that the plaintiffs would have immediately on-sold their interests in the Restituted Properties if the defendant had complied with his fiduciary duty, so that their loss is the loss of use of the proceeds of sale dating back to a date shortly after restitution.

158 The active plaintiffs emphasised in their evidence that the Restituted Properties and, in particular, the Prague 1 Properties, were important from a family heritage perspective and not merely from a financial perspective. There was also evidence that the plaintiffs were willing to assist the defendant in managing and maintaining the Restituted Properties. Martin, in particular, gave evidence that he offered to move to Prague to help with the management and restoration of the Prague 1 Properties. Applying the Robust Assessment Principle[76] to this evidence, if it had been necessary for me to make a finding about what the plaintiffs would have done if the defendant had not breached his fiduciary duty, I would have found that the plaintiffs would have retained their interests in the Restituted Properties.[77]

159 I also reject Mr Howells' submission that the Restituted Properties should be valued as at the date of the Preliminary Judgment. According to the special referee, the reduction in the value of the Property Portfolio between 24 April 2008 and 24 September 2009 was caused by the global financial crisis. Even if I were to conclude that the defendant caused some delay in the progress of the proceeding, the plaintiffs did not present any evidence that, had it not been for this delay, the proceeding would have been heard prior to October 2009 and that judgment would have been delivered prior to today. Indeed, as Mr Williams submitted, the hearing date was fixed on 25 March 2009 and proceeded according to schedule, save for a two-day delay in the commencement date to which both parties agreed.

160 The delay between the Preliminary Judgment and this judgment resulted from the issues in the proceeding being split by the Court orders described in [349] below.

161 In all of the circumstances, while it is unfortunate for the plaintiffs that the amount of equitable compensation will be lower if assessed by reference to the value of the Restituted Properties as at 24 September 2009 than it would have been if assessed by reference to their value as at 24 April 2008, in my opinion there are no sufficient grounds for departing from the ordinary rule that the assessment of equitable compensation should be informed by the value of the relevant properties as at the date of judgment.

(b) Should the Initial or Revised Valuation of the Prague 1 Properties be adopted?

162 It will be recalled from [96] and [97] above that the special referee's Revised Valuation of the Prague 1 Properties for 2009 is 15 per cent higher than his Initial Valuation of those properties for 2009. The Initial Valuation was made on a conservative basis because the special referee was not permitted to inspect the properties. The Revised Valuation was made on the assumption that 'the properties have been refurbished to a high specification.'

163 Mr Howells submitted that the Court should adopt the Revised Valuation in accordance with the Robust Assessment Principle.[78] He said that, as the defendant had obstructed the special referee and had not permitted him to assess the actual condition of the Prague 1 Properties, the Court should adopt a 'robust approach' and assume, in the absence of evidence from the defendant, that the properties had been 'restored to the finest quality and have the finest quality facilities within the buildings.'

164 Mr Williams submitted that the Robust Assessment Principle was not applicable because the plaintiffs had not established that the defendant had withheld information from the Court. He also submitted that, unlike the position in Armory v Delamirie,[79] there was evidence before the Court as to the state of repair of the Prague 1 Properties at various stages.

165 For the reasons that follow, I am of the opinion that the Robust Assessment Principle applies and that the Revised Valuation for 2009 should be adopted in relation to the Prague 1 Properties.

166 The starting point is that the defendant is taken to have admitted that he committed the breach of fiduciary duty set out in the 2000 ASC. That breach includes a lack of honesty towards the plaintiffs, failures to account and the withholding of information. The defendant has not taken any step to remedy the breach and continues to be a defaulting fiduciary. He is a 'wrongdoer' for the purposes of the principle in Houghton v Immer (No 155) Pty Ltd.[80]

167 The defendant's conduct has also made it very difficult for the Court to accurately assess equitable compensation by reference to both the value of the Restituted Properties and the income earned from those properties. That conduct includes the following:

(a) The defendant and his representative, Dr Burešová, failed to provide to the special referee income and expenditure information that was complete or meaningful. According to the special referee, the information provided was not capable of any meaningful analysis and prevented use of the 'Direct Capitalisation' method of valuing the properties.[81]

(b) The defendant prevented the special referee from inspecting the Prague 1 Properties. The defendant did not give any explanation to the Court. According to the special referee, Dr Burešová informed him that he would not be allowed to inspect the properties because the new owners, David and Paul, had refused to give permission. In so far as it may be argued from these circumstances that it was the defendant's sons, rather than the defendant, who prevented the special referee from inspecting the properties and that the matter was beyond the defendant's control, I would reject the argument. It beggars belief that David and Paul, who received properties worth at least €14 million from the defendant by way of gift in May 2009,[82] would have defied their father if he had insisted that they permit the special referee to inspect the properties in September 2009. The true reason why the special referee did not inspect the Prague 1 Properties is that the defendant did not want him to do so. If David and Paul refused to consent to the inspections, in doing so they were carrying out the defendant's wishes, which he would have communicated to them, to exclude the special referee from the Prague 1 Properties. Accordingly, the defendant was either directly or indirectly responsible for the inability of the special referee to inspect the Prague 1 Properties.

(c) The defendant and Dr Burešová were 'generally obstructive' in relation to the special referee.[83]

(d) The defendant gave evidence at the Preliminary Hearing about the net income he earned from the Restituted Properties which was implausible and unreliable.[84]

(c) Valuations of two-thirds interests rather than value of properties as a whole

168 In accordance with the SR Order, the special referee assessed the market value of the properties in the Property Portfolio as a whole rather than the market value of the two-thirds interests in the properties that the plaintiffs would have owned if the defendant had not breached his fiduciary duty.

169 Mr Williams submitted that it would be inappropriate for the Court, in determining equitable compensation, to use two-thirds of the value assessed by the special referee. This was because there are disadvantages attending co-ownership which meant that, on a common sense view, the purchaser of a two-thirds interest in a property would be prepared to pay less than two-thirds of the value of the property as a whole. He submitted that, as the special referee had not assessed the value of two-thirds interests in the Restituted Properties, there was no evidence before the Court from which equitable compensation could be assessed.

170 I reject Mr Williams' submission. The relief sought by the plaintiffs is not a transfer to them of a two-thirds interest in the Restituted Properties. Rather, it is equitable compensation for breach of fiduciary duty. Equitable compensation must be assessed by the Court as at the date of judgment in the circumstances prevailing at the date of judgment.

171 In relation to the Czech Properties, the fact is that the defendant no longer owns those properties because he transferred them by way of gift to his sons, David and Paul. It is therefore artificial to ask what a purchaser would be willing to pay for a two-thirds interest in the restituted interests held by the defendant in each of those properties. The appropriate question to ask is: what is two-thirds of the market value of the properties that the defendant transferred to his sons, adjusted to reflect the defendant's restituted interest in each property? That question can be answered by adjusting the market value assessed by the special referee to reflect the restituted interest and then multiplying it by two-thirds.

172 In relation to the forest land at Suchá, the special referee's valuation was based on an amount per square metre. There is therefore no difficulty in adopting as the correct valuation the value of two-thirds of the total area of the forest.

173 Another issue that arose relates to Melantrichova 11 and Haštalská 15, in respect of which the defendant did not own the entire interest in the properties as at 23 February 2001. It will be recalled from Table 1 at [77] above, that, as at 23 February 2001, the defendant owned a 169/288 interest in Melantrichova 11 and a 1/2 interest in Haštalská 15. In accordance with the SR Order, the special referee assessed the market value of these properties as a whole rather than the market value of the defendant's relevant interest as at 23 February 2001. Mr Williams noted that two-thirds of 1/2 or 169/288 was less than 50 per cent and submitted that a purchaser would pay much less than the pro-rata value of a whole interest in a property when purchasing a minority interest in that property.

174 I reject Mr Williams' submission. For the reasons set out in [171] above, it is appropriate to assess equitable compensation in respect of Melantrichova 11 and Haštalská 15 by multiplying the special referee's value by the fraction representing the defendant's relevant interest and then multiplying the product by two-thirds.

(d) Component of equitable compensation based on two-thirds of property values

175 The component of equitable compensation based on two-thirds of the values of the Restituted Properties is set out in Table 8 below.

Table 8: Component of equitable compensation based on 2**/3 of property values**

Adjusted for 23/2/01 restituted ownership interests (€)[85]

(5) Equitable compensation based on net income from Restituted Properties

(a) Did the defendant earn any net income from the Restituted Properties?

176 Mr Williams submitted that, in assessing equitable compensation, the Court should not include a component for net income earned from the Restituted Properties because the defendant had not earned any net income from the properties. He relied on part of the transcript of the Preliminary Hearing where the defendant gave the following evidence in cross-examination:

[Mr Howells:] How much income have you received from the properties, that is all of the properties including the Prague 1 properties, during [the past] 17 years, Mr Talacko?

[Defendant:] I can assure you I've never paid tax, so I have no income. All the - all the revenue that I was able to get was spent on the [roofs] so they wouldn't leak and on the windows that were rotting and it was all spent on repairs.[86]

177 I do not accept the above evidence. Although the defendant did not give evidence before me and I was not able to assess his demeanour, I have read all of the pages of the transcript that were tendered before me[87] and this has enabled me to place the above passage in the context of the defendant's other evidence. The defendant had a tendency to be non-responsive or evasive during cross-examination.[88] For example, in relation to the Suchá land, although the defendant admitted that he 'was negotiating to sell it for some years', he said that he did not know what it was worth and that he did not have any idea what the value of the forest was on a per hectare basis.[89] By way of further example, he said that the Řepy land 'is restricted and in practical term[s] would have no commercial value'.[90] This evidence, along with the evidence that the defendant spent all income from the properties on repairs, is implausible and I place no reliance upon it.

178 Moreover, although the special referee stated that the defendant was obstructive and did not provide him with complete and meaningful information about income and expenditure, the defendant did provide to the special referee some incomplete Czech tax returns containing income and expenditure information. The special referee summarised that information, without vouching for its accuracy, and I have set out that summary in a modified form in Table 7 at [107] above. Table 7 shows that in the period from 1992 until 2008, the defendant had net income in some years and net income overall. Although the information in Table 7 has its limitations and is not entirely reliable, it does, in my opinion, establish that the evidence given by the defendant at the Preliminary Hearing was incorrect.

(b) What rental income did the defendant earn from the Restituted Properties?

179 Mr Howells submitted that, as the defendant did not present to the Court any evidence about the rental income from the Restituted Properties and gave incomplete and meaningless information to the special referee, the Court should use the special referee's ERVs to calculate the rental income the defendant received from the Prague 1 Properties. I agree with Mr Williams' submissions that the ERVs cannot be used for this purpose because they are founded on market rents on a continuous fully leased basis, whereas some of the rents from the Prague 1 Properties are low 'regulated rents' and it is likely that there some vacancies over the years. In addition, the ERVs are in euros from 1992, well before the euro was introduced.

180 As set out in [98] and [108] above, the special referee was at pains to point out that the rental information derived from the defendant's Czech tax returns - which is summarised in Table 7 at [107] above - was incomplete and 'not capable of any meaningful analysis'. The special referee clearly did not endorse the accuracy of the information.

181 Having regard to the special referee's views about this information, I have strong reservations about its accuracy and reliability. I am particularly concerned that reliance upon the information may well have the effect of understating the defendant's income, overstating the defendant's expenditure and thus prejudicing the plaintiffs. In the absence of any other evidence about the defendant's rental income, however, I will, with great reluctance, use that evidence for the purposes of assessing equitable compensation.

182 The question then arises as to what amount of income should be adopted for the years in which no income is stated because the defendant's Czech tax returns for those years were not provided to the special referee. The relevant years are 1993 to 1997 and 2003 to 2005.

183 In my opinion, it is appropriate to conclude that the defendant earned substantial rental income during the period from 1993 until 1997 because, notwithstanding that he would have carried out repairs to the properties during this period, he was able to spend significant amounts in purchasing additional interests in Melantrichova 11, Haštalská 15 and land at Holešovice. According to the SR Report,[91] the defendant paid CZK 3 million (€119,398) in purchasing an 84/288 interest in Melantrichova 11 in July 1993, CZK 485,000 (€19,303) in purchasing an interest in land in Holešovice in 1994, CZK 934,308 (€37,185) in purchasing a one-sixth interest in Haštalská 15 in March 1995 and CZK 921,500 (€36,675) in purchasing a further interest in land in Holešovice in 1995.

184 As the defendant did not present any evidence, it is not clear how he funded these purchases. Paragraph 21 of the 2000 ASC states that Peter gave to the defendant A$5,000 on 10 July 1991 and A$5,000 on 28 January 1992, and deposited US$500 into a bank account held jointly with the defendant in September 1991 and KC200 into a bank account established in the name of the defendant, to help meet the expenses of pursuing the siblings' claims for restitution. As the 2000 ASC does not state that the defendant repaid any of the above amounts, it can be inferred that he did not do so. It is therefore possible that the defendant used part, or all, of Peter's funds in paying the relevant purchase prices. Moreover, in Dr Mareš' affidavit of 5 December 2005, there is no reference to any mortgages in his discussion of the title deeds for the properties referred to in [183] above and [186] below and the possible sources of funds for the purchase of these interests. I therefore infer that the defendant did not borrow funds from any financier in order to make the purchases. The fact that the defendant did not repay the amounts given to him by Peter indicates that he did not have significant savings of his own. All of these circumstances make it highly probable that the defendant funded the purchases partly from rental income derived from the Prague 1 Properties.

185 The fact that the defendant did not give evidence enables me to infer that any evidence he would have given would not have assisted his case.[92] Applying the Robust Assessment Principle,[93] I can more confidently draw inferences favourable to the plaintiffs. I conclude that, in 1997, the defendant earned rental income in the vicinity of the rental income of $457,570.46 that he earned in 1998. I also conclude that he earned similar but reducing amounts in each of 1996, 1995, 1994 and 1993. For the reasons set out below, it is not necessary for me to form a view as to the precise amounts earned during these years.

186 I note that, according to the SR Report,[94] the defendant paid CZK 2,050,000 (€81,589) in purchasing a one-third interest in Haštalská 15 in July 1998 and CZK 3,900,000 (€155,218) in purchasing a 35/288 interest in Melantrichova 11 in 1999.

187 In relation to the period from 2003 until 2005, for the reasons set out above, it is appropriate to adopt the rental income shown in the defendant's Czech tax return for 2002, the first year prior to this period in which income is disclosed. The rental income for 2002 was $521,644. Accordingly, that amount will be adopted for each of the years from 2003 until 2005.

(c) What expenditure did the defendant incur on the Restituted Properties?

188 Mr Williams submitted that any amount of equitable compensation awarded to the plaintiffs should be reduced to reflect the expenditure incurred by the defendant in relation to the Restituted Properties.

189 I agree that it is appropriate to take into account the defendant's expenditure in relation to the Restituted Properties. The Sibling Agreements provided that 'the costs of obtaining restitution of the Properties or any of them and other related expenditure would be borne equally by the siblings'.[95] The difficulty is ascertaining the allowance to be made in relation to the defendant's expenditure.

190 The defendant did not tender any documents disclosing any expenditure incurred by him in relation to the Restituted Properties, whether for the purpose of obtaining restitution or in respect of improvements, repairs or maintenance on the properties. Nor did he give any oral evidence about any such expenditure. There is therefore no direct evidence before the Court of the amounts that were spent by the defendant to improve, repair or otherwise maintain the Restituted Properties.

191 Mr Williams cross-examined the active plaintiffs with a view to obtaining admissions that the defendant had incurred expenditure in relation to the Restituted Properties. The evidence given by the active plaintiffs was to the following effect:

(a) On a number of occasions, the plaintiffs had requested the defendant to provide details of any expenditure incurred by him in relation to the Restituted Properties and he had failed to provide any information.[96] Accordingly, they did not know what expenditure he had incurred in relation to the properties.

(b) During their visits to Prague, the active plaintiffs observed that the external appearance of the Prague 1 Properties had improved over the years. They specifically mentioned that the properties had been painted.

192 In my opinion, the plaintiffs' evidence does not assist the Court in determining the work that was performed on the Restituted Properties or the cost of that work.

193 As in the case of rental income earned on the Restituted Properties, I am forced to rely on the information derived by the special referee from the defendant's Czech tax returns - as summarised in Table 7 at [107] above - in assessing the defendant's expenditure on the properties. Once again, as Table 7 does not contain any expenditure information for the years from 1992 until 1997 and from 2003 until 2005, I will need to draw inferences about the expenditure for those years.

194 According to the SR Report, the Prague 1 Properties have had the benefit of a regular maintenance program and some have had some major work performed on them. However, the precise work and the cost of that work is not known. The Initial SR Report contains the following observations about the history of each of the Prague 1 Properties:

[Melantrichova 11] The subject property is of considerable age and is a listed historical building. We are aware that in 1992, when the property was restituted, it was in an extremely poor state of repair and partially utilised as a shelter and partly for storage purposes. From 1993 the property was gradually refurbished with the assistance of a number of state grants. In approximately 1990 a service tunnel, which runs beneath the property and was being constructed by the State Government is said to have caused minor structural damage to the property. In addition some heavy machinery utilised by a tenant on the first floor caused additional minor structural damage. The property has continued to be upgraded up to the present day, so we have assumed that these structural issues have been resolved.

[Haštalská 12] The subject property is said to date back to the mid 19th century and was extensively refurbished in 1992 after many years of apparent neglect. Since then there has been an on going maintenance programme.

[Haštalská 15] The subject property is said to date back to the mid 19th century and was refurbished in 1985. In 1995 the façade was refurbished and in 2004 the roof was replaced along with further modernisation works.

[Rybná 29] The subject property is said to date back to the mid 18th century and has been in its present basic format since the 1860's. The building was fully reconstructed in 1984 and in 1995 the original workshops on the upper floors were converted to residential apartments. In 1999 the ground floor retail units were reconstructed and in 2004 the roof was replaced along with further modernisation works.

[Rámová 8] The subject property is said to date back to the 15th century and is a listed historical building. In 1843 the property was rebuilt into its present basic format. In the year 2000 the property was extensively refurbished and in 2002 the roof was replaced. Since then there have been a series of on going property improvements.

195 In the First Supplementary SR Report, the special referee stated that, in 2002, the Municipality of Prague 1 made a grant of CZK 1 million for improvements to Melantrichova 11, a grant of CZK 165,000 for repairs to the roof and chimney of Rámová 8 and a grant of CZK 75,000 for repairs to the entrance door of Haštalská 12. As the special referee stated in relation to Melantrichova 11 that '[f]rom 1993 the property was gradually refurbished with the assistance of a number of state grants', it is likely that the abovementioned grants in 2002 were not the only grants the defendant received for improvements to the Prague 1 Properties.

196 From the above information, it can be inferred that initial repairs were required to the Prague 1 Properties in 1992. Accordingly, I infer that the defendant spent all of the rental income earned by him in 1992 on repairs and that there was no net income for that year.

197 In relation to the years from 1993 until 1997, the defendant would have spent considerable amounts on repairs and maintenance. However, he would have received government grants during these years to assist him with that work. As I have concluded in [184] above that it is highly probable that the defendant used income from the Prague 1 Properties to partly fund the purchase of additional property interests, I infer that the expenditure on the properties in the years from 1993 until 1997 did not exceed the rental income. In the absence of specific information, a conservative estimate of the net income for each of these years is $120,000. Accordingly, I adopt that amount as the net income for each of the years from 1993 until 1997.

198 In relation to the years from 2003 until 2005, it is appropriate to infer that the expenditure in each of those years was the same as the expenditure in 2002, the first year before that period in which the defendant's Czech tax returns disclose expenditure. The expenditure in 2002 was $284,047 and the net income for that year was $237,596. I adopt, as a conservative estimate, both the expenditure and net income figures for 2002 in respect of each of the years from 2003 until 2005.

(d) Component of equitable compensation based on two-thirds of net income

199 Having regard to my conclusions in [179] to [198] above, the rental income, expenditure and net income figures adapted from Table 7 at [107] above, can be used in assessing the income component of equitable compensation. As the plaintiffs claim a two-thirds interest in the Prague 1 Properties, which are t[97] only income-producing properties,97 the plaintiffs are entitled to two-thirds of the net income from those properties for each year since 1992. In relation to Melantrichova 11 and Haštalská 15, an adjustment is required to reflect the fact that, as at 23 February 2001, the defendant owned a part interest in those properties by way of restitution.

200 On the basis of the above conclusions, the component of equitable compensation based on two-thirds of the net income of the Prague 1 Properties is set out in Table 9 below.

Table 9: Component of equitable compensation based on 2**/3 of net income**

Adjustment for 23/2/01 restituted ownership interest[98]

(6) Allowance for defendant's rent-free use of an apartment in Haštalská 12

201 The defendant has occupied an apartment at Haštalská 12 since 1992. Mr Williams properly conceded that, if I decided to award equitable compensation on the basis that the defendant earned net income from the Prague 1 Properties, it would be appropriate for an allowance to be made in favour of the plaintiffs for the defendant's rent-free occupancy.

202 The evidence did not establish which apartment the defendant occupied. According to the SR Report, there are five apartments in Haštalská 12, two on the first floor and three on the second floor. The areas occupied by the apartments on the first floor are 102m2 and 147.61m2, respectively, and the areas occupied by those on the second floor are 60m2, 62.70m2 and 144.91m2, respectively. I have conservatively selected the apartment with the area of 62.70m2 as the defendant's apartment. The special referee calculated an ERV of €8,822 for that apartment in 2009, which is 7.66 per cent of the total ERV for the building for that year. Using this information, I have calculated the following allowance for the defendant's rent-free use of the apartment:

Table 10: Allowance for defendant's rent-free use of an apartment

203 There was some evidence that the defendant had an office in Prague. It was not clear, however, in which building the office was located or how long the office had been occupied by the defendant. The plaintiffs did not make any submissions in relation to the office. I am therefore not able to make any allowance for it.

(7) Should an allowance be made for the defendant's personal exertion?

204 Mr Williams submitted that any amount of equitable compensation awarded to the plaintiffs should be reduced to reflect the defendant's personal exertion in having the properties restituted to him and in managing and improving them since that time.

205 The defendant did not lead any evidence of his personal exertion in relation to the Restituted Properties. Mr Williams cross-examined the active plaintiffs with a view to obtaining admissions from them about the defendant's personal exertion and the allowance that should be made for such exertion. The evidence given by the active plaintiffs was to the following effect:

(a) In the past, they were prepared to make an allowance for the defendant's personal exertion as part of any settlement that was negotiated with him. For example, in 1997, they agreed to offer to the defendant that the properties be split on a 50:25:25 basis, whereby the defendant retained a 50 per cent share, Helena received a 25 per cent share and Peter's children received the remaining 25 per cent share. The offer was made and was rejected by the defendant.

(b) Their current view was that the defendant, through his conduct, had forfeited any right to an allowance for his personal exertion.

206 Alexandra said that, in 1997, she had offered the defendant compensation of $50,000 per year. She could not now remember whether the amount applied to every year since restitution or simply for the years that it took the defendant to secure restitution of the properties.

207 Mr Howells tendered part of the transcript of the defendant's evidence at the Preliminary Hearing on the question of what would be appropriate compensation for his efforts. That evidence included the following:

[Mr Howells:] What do you consider would be appropriate compensation for your efforts, Mr Talacko?

[Defendant:] The - for my efforts, which were supposed to be shared by my brother but unfortunately he did not get residence while I made an application for restitution, I think the letters of restitution is such - so special that it was important to wait until the matter of restitution is completely resolved. It was a special occasion that will never happen again in the foreseeable future that legislation would be part for restitution of specific dates, specific matters and I, perhaps lucky, I confirmed to this legislation and that is now restituted, and I was under no obligation, according to Czech legislation, that I'm to share with anybody. I might add to that that I certainly felt I have some moral obligation but that automatically was diminished when I was sued.

[Mr Howells:] Would you like to have a go at the question I asked you, Mr Talacko, what do you - - - ?

...

[Defendant:] Would you please repeat it then?

[Mr Howells:] What do you say would be appropriate compensation for your efforts?

[Defendant:] I have never looked into it, I don't know. I didn't have - I didn't have to.

HIS HONOUR: Is your position simply that you're entitled to having onto everything?

[Defendant:] It wasn't - it wasn't my proposition, it was the decision of the restitution laws in Czechoslovakia. They - I had little to do with that.

[HIS HONOUR:] Yes, but we're not in Czechoslovakia at the moment. What I'm saying to you is, is it your position in terms of your relationship to your brother and your sister and their families that you're entitled to everything? Is that your position? Absolutely everything?

[Defendant:] No, I already, if I may say, I had moderate obligation to do something, especially to my brother who - because he was a twin brother, and I never - I never expected that this type of thing would happen, didn't occur to me.

208 In my opinion, the above evidence is consistent with the non-responsive and evasive manner in which the defendant gave other evidence.[101]

209 For the reasons set out below, no allowance should be made for any personal exertion by the defendant in relation to the Restituted Properties.

210 The authorities make it clear that, in the absence of an antecedent agreement between a defaulting fiduciary and the beneficiaries of the fiduciary duty, the onus lies on the defaulting fiduciary to satisfy the Court that, in all of the circumstances of the case, an allowance should be made for his or her skill or expertise. I note that the authorities also discuss an allowance for the defaulting fiduciary's expenses; this has been discussed separately in Part 5(5)(c) of this judgment.

211 Mr Williams submitted that there was an antecedent agreement in this case. He relied on paragraph 19(g) of the 2000 ASC which stated that the Sibling Agreements provided that 'the costs of obtaining restitution of the Properties or any of them and other related expenditure would be borne equally by the siblings'. He submitted that the references to 'costs' and 'other related expenditure' were not confined to money spent, but extended to the opportunity cost of the defendant's personal exertion.

212 I reject Mr Williams' submission. The references to 'costs' and 'other related expenditure', in the context of paragraph 19(g) of the 2000 ASC, read as a whole, are to out-of-pocket costs, rather than to the opportunity cost of the defendant's exertion. Accordingly, the question of whether an allowance should be made for the defendant's personal exertion falls to be determined having regard to all of the circumstances of the case.

213 The relevant circumstances in this case include the following:

(a) All of the matters referred to in [167] above.

(b) The defendant has not provided any evidence of any personal exertion. Furthermore, at the Preliminary Hearing, he failed to answer the direct question: 'What do you consider would be appropriate compensation for your efforts ... ?' This is consistent with his refusal in 1992 to inform Helena of the financial remuneration that he considered to be appropriate for his efforts in recovering the Restituted Properties.[102]

(c) While the defendant would have spent some time completing forms and speaking to lawyers and Czech officials in relation to restitution, the restitution process for the Prague 1 Properties was completed by March 1992. After this time, the main work performed by the defendant in connection with those properties appears to have been liaising with tradespeople in relation to repairs, tenants in relation to rents, service providers in relation to various services and Czech officials in relation to grants. In the absence of evidence from the defendant, the Court is not able to determine how much time this work involved. Judging by the fact that the defendant was able to spend, on average, six months of each year in Melbourne, I infer that the time that the defendant was personally required to spend in relation to the properties was not significant. In the absence of evidence from the defendant, I am not satisfied that the work performed by him required any skill or expertise.

(d) It is not clear whether the defendant paid himself a salary or fee for managing the Restituted Properties as part of the expenditure on the properties which was included in the Czech tax returns he provided to the special referee. If he did, he would be doubly compensated for his exertions if an additional amount were allowed.

(e) The defendant's breach of fiduciary duty, which he is taken to have admitted, was of a very serious nature. It included a lack of honesty towards the plaintiffs, failures to account and the withholding of information.

214 In my opinion, the fact that the plaintiffs at various stages were prepared to offer the defendant compensation for his personal exertion is irrelevant. Those offers were made in the context of settlement discussions that took place at various times and were made blindly in the sense that the defendant consistently refused to disclose to the plaintiffs not only what income and expenditure he earned or spent on the properties, but also what work he personally did in relation to them.

(8) Conclusion on amount of equitable compensation

215 For the reasons set out above, unless any of the defendant's defences succeed, the plaintiffs will be entitled to the following equitable compensation:

(a) the amount of €8,839,244 referred to in Table 8 at [175] above and the amount of €115,772 referred to in Table 10 at [202] above, being a total of €8,955,016; and

(b) the amount of $881,017 referred to in Table 9 at [200] above.

216 As the parties did not make any detailed submissions on whether the judgment of the Court should be in euros or Australian dollars, I will hear submissions from them on this issue.

217 Mr Howells faintly submitted that, as the Australian dollar has appreciated significantly against the euro since the Preliminary Judgment on 24 April 2008, the plaintiffs would be prejudiced if today's exchange rate is used rather than the exchange rate as at 24 April 2008.

218 As in the case of the appropriate valuation date for the Restituted Properties, the ordinary rule is that the exchange rate prevailing as at the date of judgment should be applied in assessing equitable compensation.[103] For the reasons set out in Part 5(4)(a) of this judgment in relation to the appropriate valuation date, there are no grounds for departing from the normal rule. Accordingly, any conversion from euros to Australian dollars and vice versa will be at today's exchange rate.

219 I will therefore also hear further from the parties as to today's exchange rate.

220 In addition, I will hear further from the parties in relation to interest and costs.

PART 6 - DEFENCE: CLAUSE 6 CONSTITUTES A PENALTY

221 Mr Williams submitted that cl 6 was a penalty and therefore unenforceable. The only remedy available to the plaintiffs, it was said, was damages for any loss the plaintiffs could prove resulted from the breaches of the Terms that Osborn J found in the Preliminary Judgment.

222 In Ringrow Pty Ltd v BP Australia Pty Ltd,[104] the High Court confirmed that the basic principles governing the law of penalties in Australia are derived from the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd.[105]

223 The general rule is that a term that obliges one party to a contract to pay a sum of money to another upon a breach of the contract is unenforceable if the sum is a penalty rather than in the nature of liquidated damages.

224 The sum will be in the nature of liquidated damages if it is a genuine pre-estimate of the loss that is likely to be caused to the innocent party by the breach of the contract.[106] It will be penal in nature if the amount exceeds what can be regarded as a genuine pre-estimate of the loss likely to be caused by the breach.[107]

225 In Dunlop, Lord Dunedin observed that liquidated damages may be contrasted with a penalty on the basis that the latter is a payment of money stipulated as 'in terrorem' of the defaulting party.[108] The utility of identifying a penalty in this way has been doubted. In Bridge v Campbell Discount Co Ltd, Lord Radcliffe said that:

the line of demarcation is drawn in its simplest form ... if one says that a sum cannot be legally exacted as liquidated damages unless it is found to amount to 'a genuine pre-estimate of loss' ... If it does not amount to such a pre-estimate, then it is to be regarded as a penalty, and I do not myself think that it helps to identify a penalty, to describe it as in the nature of a threat 'to be enforced in terrorem' ...[109]

226 Deane J endorsed these remarks in O'Dea v Allstates Leasing System (WA) Pty Ltd.[110]

227 The question of whether a term provides for the payment of a penalty or liquidated damages is one of construction to be decided by reference to the terms and inherent circumstances of the contract, as judged at the time the contract was made and not at the time of the breach.[111] In construing the contract, it is the operation of the impugned term as a matter of substance that is important. Labels and statements of intention that are used by the parties are not determinative of the question. If the term, considered objectively, operates as a penalty then it will be unenforceable, regardless of the intention of the parties in making it.[112]

228 In Dunlop, Lord Dunedin identified various tests that might be applied to assist the task of construction. These tests are set out below.

229 The first, and best known, test is that the term will be unenforceable as a penalty if the sum stipulated is 'extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach.'[113] In AMEV-UDC Finance Ltd v Austin,[114] Mason and Wilson JJ expressed the same test in slightly different language. In that case, their Honours said that the sum stipulated will be a penalty if there is a 'degree of disproportion' between the sum and the likely loss sufficient to point to oppressiveness.[115]

230 In considering the extravagance and unconscionability of the sum, it is not enough that it be 'lacking in proportion' to the likely loss. The sum will not be a penalty unless it is 'out of all proportion' to that amount[116] or the degree of disproportion is sufficient to point to oppressiveness.[117] Moreover, in applying the test, it is the difference between the sum stipulated to be paid by the defaulting party and the loss likely to be suffered by the innocent party that is relevant. The test does not call for a broader inquiry into any lack of proportionality between the sum stipulated and the legitimate commercial interests of the innocent party.[118]

231 In AMEV-UDC, in addition to the 'degree of disproportion' between the sum stipulated and the innocent party's likely loss, Mason and Wilson JJ said that consideration should be given to 'the nature of the relationship between the contracting parties, a factor relevant to the unconscionability of the plaintiff's conduct in seeking to enforce the term.'[119] Subsequently, in AMEV Finance Ltd v Artes Studios Thoroughbreds Pty Ltd,[120] Clarke JA, with whom Kirby P and McHugh JA agreed, referred to this statement and concluded that a term 'should be struck down as a penalty only if the agreed sum be either extravagant in amount or imposes an unconscionable or unreasonable burden upon a party.'[121] Thus, the New South Wales Court of Appeal has decided that unconscionability constitutes an independent ground upon which a court may determine that a term is unenforceable as a penalty.[122] In Yarra Capital Group Pty Ltd v Sklash Pty Ltd,[123] Chernov JA, with whom Warren CJ agreed, expressed tentative support for this view, but his Honour acknowledged that it was unnecessary to decide the question in that case.[124]

232 On the present state of the authorities, there is uncertainty as to whether a sum may be a penalty on the independent ground that it imposes an unconscionable burden.[125] Such a ground does not appear in Lord Dunedin's formulation in Dunlop. His Lordship used the expression 'extravagant and unconscionable' and this formulation was reaffirmed by the High Court - with an explanation as to its meaning using the concept of proportionality - in Ringrow.[126]

233 The second test is that the term will be unenforceable as a penalty 'if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid'.[127] Lord Dunedin regarded this second test as being, in truth, a corollary to the first test.[128]

234 The third test applies 'when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage"'.[129] In this situation, there is a presumption that the term is a penalty.[130]

235 The final observation that was made by Lord Dunedin in Dunlop was that the fact that it is difficult to pre-estimate precisely the loss that might be caused by a breach of the contract presents no obstacle to a finding that the sum stipulated is a genuine pre-estimate of that loss.[131]

236 In Ringrow, the High Court appeared to accept that the principles relating to penalties apply not only to cases where money is payable but also to cases where money's worth (including property) is transferable on a particular event. In such a situation, one relevant comparison would be between the price payable for a property upon breach and the actual value of what is transferred.[132]

(2) Principles in the context of settlement agreements

237 The principles relating to penalties can be applied to a contract that settles litigation where particular consequences are stipulated in the event of a breach. However, much depends on the nature and circumstances of the contract and, in particular, the terms of the clause in question.

238 Where an action claiming a disputed amount is settled on the basis that a lesser amount will be paid by instalments, a clause in a settlement deed may be a penalty if it provides that, in the event of default in the payment of any instalment, the amount originally claimed is payable.[133] That will not be the case, however, where the deed contains an express or implied acknowledgment of indebtedness for the amount originally claimed.

239 The latter proposition is well illustrated by the Victorian Court of Appeal decision in Cameron v UBS AG.[134] In that case, UBS AG had obtained a judgment against Cameron in Switzerland for the equivalent in Swiss currency of $8.4 million and sought to enforce that judgment in the Supreme Court of Victoria.[135] Cameron disputed the enforceability of the judgment. The Victorian proceeding was settled on the basis that Cameron would pay to UBS AG the 'Settlement Sum' of $1 million by five instalments of $200,000 each. Clause 3 of the deed of settlement provided that, if Cameron defaulted in the payment of any instalment, UBS AG would be at liberty to apply for judgment for the full amount of $8.4 million less any payments already made and that Cameron would consent to the judgment. Clause 4 contained mutual releases which took effect upon compliance with the terms of the deed of settlement. Cameron defaulted in the payment of the first instalment and UBS AG applied for judgment for $8.4 million. Cameron argued that cl 3 was a penalty.

240 The Court of Appeal unanimously held that cl 3 was not a penalty. Although Winneke P, JD Phillips JA and Buchanan JA delivered separate judgments, their Honours' reasons were similar. They held that no issue of penalty arose in relation to cl 3 because, although the entitlement to judgment for $8.4 million was triggered by a breach of the deed by Cameron, the payment of $8.4 million was not to provide compensation for the breach or to punish Cameron for the breach. Their Honours characterised the deed as providing, in substance, an acknowledgment that $8.4 million was payable subject to a concession that the lower amount of $1 million would be accepted in full discharge of that obligation if paid in the manner set out in the deed. They rejected Cameron's argument that this characterisation would only be open if the deed contained an express acknowledgment by him that he owed $8.4 million. They held that, notwithstanding that the deed did not contain an express acknowledgment that Cameron owed $8.4 million, read as a whole and in the context of the dealings between the parties, such an acknowledgment was implicit.

If [a sum payable for a breach of an agreement] is not a genuine pre-estimate of damage it is unenforceable as being a penalty - meaning a penalty imposed merely to induce or compel compliance with the obligation which has not been fulfilled and intended therefore to secure for the innocent party a benefit or advantage which is altogether collateral to the purpose of the main agreement (because ex hypothesi it goes beyond mere compensation for the breach). In this instance the sum of $8.4m was not agreed as a genuine pre-estimate of damage should the defendant fail to comply with cl 2 in one respect or another; but neither was it a penalty imposed to induce or compel compliance by the defendant with cl 2, and thus to secure some collateral benefit or advantage to the plaintiff. The sum of $8.4m was the sum due and allegedly owing under the Swiss judgment; neither more nor less.

That is the key to this appeal. Although the defendant was wont in argument to approach this case as if the deed was simply an agreement for the payment by the defendant to the plaintiff of $1m, that is not what it was; it was a bargain about the enforcement of the Swiss judgment. The sum of $8.4m for which judgment in Victoria was to be obtained by consent under cl 3 was the sum for which judgment had already been recovered in Switzerland, the judgment which the plaintiff was seeking to enforce in this proceeding as successor to the Swiss Bank in the Swiss proceeding. That sum was quantified before the terms of settlement were entered into; the dispute was only over the plaintiff's right to enforce the Swiss judgment in Victoria, a right asserted in the statement of claim in this proceeding and denied by the defendant in his defence. By the terms of settlement the defendant secured to himself one last opportunity to pay a much lesser sum in full and final satisfaction of what the plaintiff was claiming in Victoria in reliance upon the Swiss judgment. For the opportunity to pay that lesser sum the defendant bargained away any defence he had to enforcement of the judgment in Victoria, consenting to judgment here if he made default in payment of the lesser sum modo et forma. That makes this case quite different from those in which the Courts have refused to lend assistance to the enforcement of a penalty. It is more akin to those cases described by Gibbs CJ in O'Dea where the sum payable upon default is already due and owing and the chance to pay a lesser sum or on terms is being afforded as a privilege or indulgence ...

In my opinion, when read fairly these terms of settlement did contain, by implication, an acknowledgment by the defendant of his liability for the $8.4m should there be default, and thus an acknowledgment of liability which, though conditional, was effective when the terms of settlement were agreed. Immediately before the terms of settlement there was a dispute about the enforceability of the Swiss judgment and so about the amount owing by the defendant under it; but, as I see it that dispute was finally resolved by the terms themselves and the deed. From that point onwards, the defendant was acknowledging his liability in respect of the Swiss judgment subject only to this: that if he paid a lesser sum according to cl 2 he could have a release from the larger sum. In those circumstances, ... the provision in cl 3 for consent to judgment is not a penalty.[136]

242 Winneke P agreed with the reasons of JD Phillips JA. His Honour added the following observations:

It was accepted that if the appellant had, in the deed, acknowledged his indebtedness for the amount of the judgment entered by the Swiss Court then cl 3 would not constitute a penalty. But where, as here, the appellant was contesting the right of the respondent to enforce that judgment there was and could be no such acknowledgement. In substance and fact, so it was submitted, cl 3 of the deed imposed an obligation on the appellant to pay a disputed sum of A$8.4m for breach of contractual terms requiring him to pay a much smaller sum.

In my opinion, this was not the substance of what the parties had, by their deed, agreed upon. At the time when the deed was executed, the respondent had a right to enforce an existing debt constituted by the judgment of the Swiss court. By the deed of settlement it forebore to exercise that right on condition that the indulgence which it afforded to the appellant, namely to pay a lesser sum over a period of time, was fulfilled. By entering into the deed the appellant implicitly acknowledged that the judgment debt was due and payable by his agreement that, if he did not meet the conditions upon which the indulgence was granted to him, he would submit to judgment in the amount of such judgment debt; thereby giving up any defences which he claimed to have. In my opinion, there is nothing inequitable or penal about such a compromise. In substance it amounts to a concession by the appellant that the debt is owed and will be paid if he fails to meet the terms of the indulgence granted by the respondent. All the advantages of amount and time were with the appellant provided that he complied with those terms. In these circumstances it seems to me to be of little moment that the appellant, prior to the execution of the compromise, was disputing the respondent's claim to enforce the foreign court's judgment, which was the background against which the compromise was made.[137]

243 Buchanan JA agreed with Winneke P and JD Phillips JA. His Honour added the following observations:

The appellant sought to equate his position when he entered into the deed made on 17 December 1998 with that of a person free from any obligation to the respondent, so that the consent to judgment in the sum equivalent to A$8.4m could be characterised as a punishment imposed for breach of the promise to pay $1m by instalments on specified dates. By maintaining his denial of any liability in respect of the judgment entered in the Swiss court, so the appellant said, he remained free from any obligation until he agreed to suffer judgment upon default. In my view the picture so painted was misleading. The substance of the transaction was that a claim based on a foreign judgment was compromised by the appellant agreeing to judgment for the amount of the claim, but obtaining an opportunity to satisfy the claim by paying [a] lesser sum by instalments.

It was conceded by the appellant that if the deed had taken the form of an acknowledgment of the obligation to pay the amount of the Swiss judgment followed by a promise to pay a lesser sum and thereby satisfy the first obligation, no question of penalty would have arisen. In my view that was the effect of the deed when looked at as a whole. The substance of the matter was not affected by the manner of its drafting. A penalty did not arise because, instead of an acknowledgment of debt in the amount of the claim followed by a provision enabling that obligation to be satisfied by payment of a lesser sum in a specified manner, the deed provided for payment of a lesser sum than the claim followed by an agreement to suffer judgment for the amount of the claim if the lesser sum was not paid.

The obligation to pay $8.4m was not one which sprang from the deed unheralded. Its genesis lay in the past dealings between the appellant and the respondent's predecessor. In my opinion the case is to be equated with those in which a creditor agrees to accept payment of part of his debt in full discharge if certain conditions are met but stipulates that if the conditions are not met, he will be entitled to recover the original debt. At one end of the spectrum covered by those cases is an undisputed judgment debt. Further towards the middle of the range is a sum ascertained in a suit in Chancery before a final decree has been made. At the other end of the spectrum, but still within it in my view, is the present case where the debt is the subject matter of a claim which is disputed but is not suggested to be a colourable device.[138]

(3) Trend in the authorities supporting freedom of contract

244 In recent cases, the High Court has emphasised that the principles relating to penalties should not unduly restrict the parties' freedom to enter into contracts of their choice. Thus, in AMEV-UDC, Mason and Wilson JJ stated:

there is much to be said for the view that the courts should return to ... allowing parties to a contract greater latitude in determining what their rights and liabilities will be, so that an agreed sum is only characterized as a penalty if it is out of all proportion to damage likely to be suffered as a result of breach ...[139]

245 The above passage was referred to with approval in Ringrow.[140] In that case, the Court went on to say:

Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed. That is why the law on penalties is, and is expressed to be, an exception from the general rule. It is why it is expressed in exceptional language.[141]

246 The above observations in AMEV-UDC and Ringrow indicate that the courts are becoming less inclined to strike down contractual clauses as penalties.

(4) Admissibility of evidence on the question of penalty

247 In Multiplex Constructions Pty Ltd v Abgarus Pty Ltd,[142] Cole J reviewed the principles to be applied in determining whether a contractual clause was a penalty for the purpose of deciding whether evidence relating to the circumstances of the inclusion of that clause was admissible.[143]

248 His Honour discussed two broad bases for determining whether a contractual clause is a penalty. They were the empirical basis, which involved a comparison between the loss suffered on breach and the amount specified in the clause, and the unconscionability basis, which involved a determination of whether enforcement of the clause would be unconscionable. He held that, notwithstanding that the question of penalty involves a question of construction and is not governed by the intentions or beliefs of the parties, evidence 'which shows the relationship between the parties, the genesis of, negotiation concerning, understanding of, and advice received regarding the relevant clause is material and admissible.'[144] It appears that his Honour was of the view that although such evidence was relevant to both the empirical basis and the unconscionability basis, it was particularly relevant to the latter.

249 It is not necessary for me to decide whether, and the extent to which, evidence of the parties' intentions is admissible on the question of penalty. This is because, as will appear below, the evidence in this case does not affect my conclusion that cl 6 of the Terms is not a penalty.

250 Mr Williams cross-examined the active plaintiffs at length about the circumstances in which cl 6 came to be included in the Terms with a view to establishing that cl 6 was a penalty. Dr Talacko did not execute the Terms because he was not then Helena's litigation guardian.

251 The evidence given by Alexandra, Martin and Rowena was to the following effect:

(a) Clause 6 was inserted in the Terms based on advice from the plaintiffs' lawyers and was drafted by the lawyers.

(b) They did not turn their minds to the provisions of the Terms that might be breached by the defendant, thereby invoking cl 6, because they expected that he would comply with the Terms. Nor did they turn their minds to the loss that would be suffered by them in the event of a breach by the defendant of any of the provisions of the Terms.

(c) At the time of the settlement discussions, they had the following understanding of the values of the relevant properties:

(i) based on a kerbside valuation of the Prague 1 Properties that had been prepared for them by CB Richard Ellis on 8 May 2000, those properties were worth approximately $4 to 5 million;

(ii) based on an offer they had received for the Dresden Properties in 1997, those properties were worth approximately $350,000;

(iii) based on what the defendant had told them, they estimated that the Suchá land was worth approximately $1 million;

(iv) they estimated that the Řepy land was worth approximately $1 to $2 million, with potential for the value to increase if the land was developed; and

(v) they did not know what the Kbely land was worth.

(d) In financial terms, the properties listed in cl 1 of the Terms ('Clause 1 Properties') were collectively worth less than the Prague 1 Properties, although the Řepy land had potential upside. The Prague 1 Properties were also of greater significance to them than the other properties from a family heritage perspective.

(e) They would have liked to receive a share of the Prague 1 Properties as part of the settlement, but the defendant was adamant that he would not include those properties in any settlement.

(f) They agreed to the Terms because they believed that they reflected the best settlement that could be achieved in the circumstances and in order to bring an end to the expensive and long drawn-out litigation.

252 Alexandra added that, by 1991, she had formed the view that the Prague 1 Properties were likely to be commercially valuable because this fact had been communicated to her in a letter from her mother, Margaret, at that time. In her discussions with the defendant between 1997 and 2001, she believed that the defendant had not seriously offered to her any share in the Prague 1 Properties. In addition to the Prague 1 Properties, she has visited the Dresden Properties, but she has not visited the properties at Řepy, Suchá or Kbely. It was the defendant, rather than any of the plaintiffs, that proposed, as part of the Terms, the transfer to the plaintiffs of the properties at Dresden, Řepy, Suchá and Kbely.

253 Martin added that he and his mother, Margaret, had a private meeting with the defendant about an hour after the Terms were signed. During this meeting, the defendant assured them that he intended to comply with the Terms. At the time that the Terms were signed, he estimated the value of the Clause 1 Properties to be $2.5 to $3 million. He accepted that, by entering into a settlement that did not include the Prague 1 Properties, the plaintiffs had accepted from the defendant slightly less than the amount to which they felt entitled. He added, however, that the extent of the shortfall depended upon the potential upside of the Řepy land. He understood that the Řepy land that was to be transferred pursuant to cl 1 of the Terms comprised 17.4473 hectares.

254 Rowena added that she understood the Prague 1 Properties to comprise approximately 50 per cent, and perhaps more, of the total value of the Property Portfolio. She also understood that the land at Řepy, comprising a large area of land outside Prague, and the land at Suchá may be valuable because of their potential for development. Among the plaintiffs, there had been 'floated' informally the idea of selling one of the properties that would be obtained pursuant to the Terms and using the proceeds from that sale to purchase other property in Prague. She thought that the Kbely property might have been sold because it had no emotional value to the plaintiffs.

255 On the question of whether cl 6 was included in the Terms to ensure that the defendant complied with the Terms or to punish him for any breach, I note that, in her affidavit of 28 September 2009, Alexandra said that '[t]he Plaintiffs' case centred on a claim for a share of all of the properties, so it was well understood by all of the Plaintiffs and the Defendant that all the properties were covered by the Terms of Settlement in the event that the Defendant failed to comply.' In her affidavit of 28 September 2009, Rowena said that Alexandra's statement accorded with her recollection of the circumstances at the time that the Terms were executed. In cross-examination, she said that she thought it was standard practice for terms of settlement to have a clause such as cl 6 to encourage the other party to fulfil his or her obligations. In his oral evidence, Martin said that the plaintiffs desired to ensure that the defendant complied with the Terms and that they had communicated this desire to their lawyers. He also said, however, that the plaintiffs had not given their lawyers any instructions about the precise wording of any clause to give effect to this desire.

256 Dr Talacko's sister, Anna Talacko, who was Helena's litigation guardian at the time of the settlement negotiations, did not give evidence. Dr Talacko said that she was in Melbourne and available to give evidence. No explanation was provided as to why she was not called. Mr Williams did not invite me to draw any inferences adverse to the plaintiffs from the fact that Anna Talacko did not give evidence and I do not do so. The active plaintiffs gave consistent evidence that they acted jointly in all matters relating to the litigation after consultation amongst themselves. Anna Talacko was present when the settlement was negotiated and she was a signatory to the Terms. The logical inference to be drawn is that, if she had been called to give evidence, her evidence would have been consistent with the evidence of Alexandra, Martin and Rowena in relation to the settlement and the provisions of the Terms.

(a) An amount of equitable compensation assessed by the Court cannot be a penalty

257 The suggestion that an amount of equitable compensation assessed by the Court in a contested hearing after applying equitable principles can constitute a penalty is a novel one. It is not surprising, therefore, that Mr Williams was unable to refer me to any case in which such an amount has been held to be a penalty. The cases that have held contractual clauses to be a penalty have involved clauses which prescribed the payment of a sum or a sum to be ascertained by reference to a formula without a curial assessment.[145]

258 In the 2000 ASC, the plaintiffs alleged that, pursuant to the Sibling Agreements, the defendant was obliged to share any properties that were restituted to him on the basis that he and his siblings (or in the event of a sibling's death, his or her children collectively) would be entitled to one-third each. The plaintiffs alleged, that once the properties were restituted to the defendant, he became a fiduciary and that he breached his fiduciary duty by failing to share the properties and income earned from them in accordance with the Sibling Agreements.

259 In his defence, the defendant denied that he entered into the Sibling Agreements, that he held the properties in a fiduciary capacity and that he breached any fiduciary duty. By executing the Terms, however, the defendant agreed that, if he breached the Terms, the plaintiffs would be entitled to the remedy provided for by cl 6 on the basis that he was to be taken to have admitted the plaintiffs' allegations in the 2000 ASC in so far as they supported the plaintiffs' entitlement to that remedy.

260 The effect of cl 6 of the Terms being invoked was, therefore, to entitle the plaintiffs to obtain from this Court an assessment of equitable compensation on the footing that the defendant admitted that he had breached the fiduciary duty alleged in the 2000 ASC. Viewed in this light, it is simply not open to the defendant to seek to prevent the plaintiffs from obtaining in this Court that which he irrevocably agreed they could obtain on the basis that any amount assessed by the Court would be a penalty.

261 In assessing equitable compensation in accordance with cl 6 of the Terms, the Court is performing its judicial function of determining the amount to be awarded to the plaintiffs on the basis agreed between the parties. That basis incorporates admissions that the defendant is taken to have made by executing the Terms, notwithstanding that those admissions were enlivened by a breach of the Terms. In my opinion, an amount determined by the Court in these circumstances and in accordance with equitable principles, cannot be a penalty. To hold otherwise would be perverse as well as paradoxical since equity fixes on the parties' consciences and a proper application of its principles cannot produce an unconscionable outcome. The amount assessed may be overturned on appeal on the basis that the Court failed to adhere to correct equitable principles in applying cl 6, but that is a different matter altogether.

262 Accordingly, I find that the principles relating to penalties are not applicable to cl 6 and that cl 6 cannot be a penalty. It follows that it is not necessary for me to apply the traditional tests in Dunlop to determine whether cl 6 is a penalty. It also follows that the plaintiffs' evidence that Mr Williams sought to rely upon was not relevant to the question of whether cl 6 constituted a penalty.

(b) Clause 6 cannot be a penalty because of an implicit acknowledgment of liability

263 If my conclusion in [262] above is incorrect, there arises the question of whether Cameron provides an alternative basis for deciding that the law of penalties is inapplicable to cl 6.

264 Mr Williams submitted that Cameron is distinguishable from the present case. He submitted that, in Cameron, there was an existing foreign judgment for a specific amount and the release in the settlement agreement never took effect because it was conditional upon compliance with the settlement terms. He submitted that the present case was different because the release in cl 8 of the Terms took effect upon the signing of the Terms and extinguished all of the plaintiffs' rights against the defendant except those rights set out in the Terms.

265 I have already discussed the interrelationship between cl 6 and cl 8 of the Terms in Part 3(2) of this judgment. It follows from that discussion that cl 8 does not affect the rights conferred on the plaintiffs by the Terms, including the right to enter judgment for equitable compensation under cl 6. The fact that cl 8 is not expressed to come into effect upon compliance with the Terms, as was the case in Cameron, does not assist the defendant on the question of penalty. By entering into the Terms, the defendant gave up any defences that he might have raised in respect of the plaintiffs' claim for equitable compensation for the breach of fiduciary duty set out in the 2000 ASC. The Court of Appeal reached a similar conclusion in Cameron even though the release in that case was conditional and the condition was not satisfied.

266 It follows that Mr Williams' submissions have not persuaded me that Cameron is distinguishable from the present case.

267 Consistently with Cameron, the defendant's agreement to the plaintiffs being entitled to enter judgment for equitable compensation on the footing that he is taken to admit the breach of fiduciary duty alleged in the 2000 ASC constitutes an acknowledgment that he is obliged to pay the amount assessed in accordance with cl 6.

268 Again, consistently with Cameron, the correct characterisation of the Terms is that, although the defendant originally disputed the plaintiffs' entitlement to equitable compensation for breach of fiduciary duty, his execution of the Terms constituted an implicit acknowledgment that the plaintiffs were entitled to this remedy and that the alternative course provided by cl 1 of the Terms was a concession, which applied only if he fully complied with the Terms. Once the defendant breached the Terms, the plaintiffs were entitled to equitable compensation in accordance with cl 6, not in order to punish the defendant for his breach, but in order to provide the relief to which they were entitled by virtue of execution of the Terms. On this basis, cl 6 cannot, as a matter of law, be a penalty.

269 The cases on penalties have always emphasised that a decision on whether a clause is a penalty cannot be made by rigid or mechanical comparisons of different amounts. Rather, the assessment must be made having regard to the particular contract, the context in which it was made and its inherent circumstances.

270 An important circumstance in the present case is that the Terms were signed nearly ten years after the events giving rise to the proceeding took place and three years after the proceeding was commenced. The Terms effected a settlement of a complex and long-running legal dispute between the parties involving various overseas properties. At all times, the plaintiffs were seeking two-thirds of all of the properties that had been restituted to the defendant. One of their complaints was that the defendant did not provide them with pertinent information relating to the properties restituted to him.

271 At the conclusion of the settlement negotiations, the plaintiffs agreed to accept a transfer of the Clause 1 Properties on the basis that, if the defendant failed to transfer them, he agreed to pay equitable compensation for the breach of fiduciary duty pleaded by them in their substantive claim for two-thirds of the value of all of the Restituted Properties. The defendant agreed that if he breached the Terms, he was to be taken to have admitted the plaintiffs' substantive claim based on the breach of fiduciary duty pleaded by them.

272 Viewed in this light, and adopting the analysis in Cameron, the interrelationship between cl 1 and cl 6 should not be seen as requiring the defendant to pay a greater amount if he breached the Terms rather than if complied with them; more accurately, it should be seen as a mechanism by which the plaintiffs agreed to forego their original claim for equitable compensation in respect of all of the Restituted Properties conditionally upon the defendant's compliance with the Terms. Put another way, the modification of the plaintiffs' claim, as reflected in cl 1, is conditional upon compliance with that clause and with the other provisions of the Terms and, in the event of non-compliance, the defendant is taken to admit his liability for the plaintiffs' original claim for equitable compensation for breach of fiduciary duty in respect of all of the Restituted Properties.

273 In my opinion, the present case provides a stronger basis than that which was present in Cameron for the implication of an acknowledgment of entitlement to judgment because, for the reasons set out in Part 3(1) of this judgment, cl 6 does not make sense unless it is read as containing an admission of the plaintiffs' allegations in the 2000 ASC relating to the existence of the fiduciary duty and its breach.

274 In short, the remedy of equitable compensation in cl 6 of the Terms was not provided as compensation for breach of the Terms. Rather, it was provided as compensation for the breach of fiduciary duty which was alleged in the 2000 ASC and which the defendant was taken to have admitted when he executed the Terms. While the defendant's breach of the Terms provided the occasion for the recoverability of the equitable compensation under cl 6, that clause was not intended to induce or compel compliance with cl 1 or with any other provision of the Terms or to punish the defendant for a breach of the Terms.

(c) Analysis if the traditional tests are applied

275 If my conclusions in [262] and [268] above are incorrect and it is necessary to apply the traditional tests in Dunlop in determining whether cl 6 is a penalty, the application of those tests, in my opinion, leads to the conclusion that cl 6 is not a penalty.

276 A preliminary issue arises as to the specific breach of the Terms that should be considered in comparing the loss likely to result from that breach with the amount of equitable compensation that is payable under cl 6. The comparison could be made with the likely loss from a breach of any provision of the Terms, a breach of cl 1 in its entirety or a breach of cl 1 constituted by a failure to transfer a particular property.

277 In the special circumstances of this case, the only sensible comparison is between the equitable compensation payable under cl 6 and the loss likely to result from a breach of cl 1 in its entirety. Having agreed to transfer the Clause 1 Properties, the defendant would either fully comply with cl 1 or wholly renege on his agreement to transfer the Clause 1 Properties. The evidence about the circumstances of the signing of the Terms supports the conclusion that the plaintiffs contemplated that the defendant would either transfer the Clause 1 Properties or would fail to transfer any of them and that it would be a breach of cl 1 in its entirety that would trigger an entitlement to equitable compensation under cl 6. Although it was theoretically possible that various clauses of the Terms could be breached by the defendant - in whole or in part - the substance of the matter was that he would either transfer all of the Clause 1 Properties or he would not and, in the latter case, he would pay equitable compensation under cl 6.

278 The evidence of the active plaintiffs was to the effect that, at the time of settlement, their understanding was that the Clause 1 Properties were worth between $2.35 million and $3.35 million (say $2.85 million), that the Prague 1 Properties were worth $4 to $5 million (say $4.5 million), and that all of the properties combined were worth between $6.35 million and $8.35 million (say $7.35 million). If equitable compensation under cl 6 is assessed on the basis of two-thirds of the combined value of all of the properties, the comparison is between obtaining properties worth $2.85 million under cl 1 and equitable compensation of $4.9 million under cl 6.

279 While the two amounts are not proportional, this fact alone is not sufficient to establish that cl 6 is a penalty under the first test in Dunlop. The amount payable under cl 6 must be 'extravagant' or 'out of all proportion' in comparison to the plaintiffs' likely loss. In my opinion, the amount recoverable under cl 6 cannot be so characterised. Nor would it be 'unconscionable' for the plaintiffs to recover the amount. It must be borne in mind that the plaintiffs were prevented from gaining a complete and accurate understanding of the Clause 1 Properties and their value by the defendant's failure to give them the relevant details they required. The vague and incomplete description of the properties in cl 1 of the Terms is testament to this fact.

280 Although questions of penalty must be determined in light of the circumstances at the time the contract is made and not at the time of the breach, Ringrow indicates that it may be appropriate in some cases to refer to later evidence. In that case, reference was made to subsequent valuation evidence. In this case, if it is appropriate to consider the special referee's current valuations, the fact that the Clause 1 Properties would greatly exceed two-thirds of the value of the Restituted Properties would eviscerate the penalty argument. Table 11 at [369] below values 6.4604 hectares at Řepy at €5,356,000, an average of €829,050 per hectare. When this average is applied to 17.4473 hectares in accordance with cl 1 of the Terms, the value is €14,464,684. When this is added to the value of the Dresden Properties (&#83[146]185,000),146 the value of 0.8 hectares of land at Kbely (&#83[147]317,648),147 and the value of 364 hectares of land in Suchá (&#8364[148]231,532),148 the total current value of the Clause 1 Properties (with the areas described in cl 1) is €16,198,864. On the other hand, the total revised value of the Restituted Properties is &#836[149]5,598,190149 and two-thirds of this amount is €10,775,021.

281 It is true that the plaintiffs have also sought equitable compensation under cl 6 on the basis of two-thirds of the rental earned from the Restituted Properties, subject to adjustment for expenditure incurred by the defendant. However, the plaintiffs' evidence was that the defendant had consistently refused to provide them with any information about income and expenditure. It was therefore impossible for them to put any value on any additional amount to be awarded to them under cl 6 in respect of net income.

282 The second test in Dunlop has no application, as cl 6 does not stipulate a sum payable. Even if one treats the values of the Clause 1 Properties and the amount payable under cl 6 as 'sums payable', for the reasons set out in relation to the application of the first test, cl 6 is not a penalty.

283 Mr Williams relied on the fact that the plaintiffs' entitlement to enter judgment for equitable compensation under cl 6 could be triggered by a breach of any provision of the Terms, whether major or minor, and irrespective of the loss that could possibly be sustained by the plaintiffs as a result of such a breach. He pointed out, for example, that if the defendant had failed to pay the amount of costs of $150,000 referred to in cl 5 of the Terms, cl 6, if enforceable, would entitle the plaintiffs to equitable compensation on the basis of the breach of fiduciary duty pleaded in the 2000 ASC. Mr Williams also relied upon the plaintiffs' evidence that they did not turn their minds to what loss they would suffer from a breach by the defendant of different clauses of the Terms.

284 For the reasons set out in [277] above, I am of the view that it would be unrealistic and artificial to focus on the different types of breaches that could enliven cl 6. The substance of the matter is that the plaintiffs contemplated that they would receive either a transfer of the Clause 1 Properties or equitable compensation under cl 6.

285 In any event, as the High Court pointed out in Ringrow, the stipulation of a single outcome based on different breaches of a contract 'does no more than reveal the existence of a possible precondition to the penalty doctrine.'[150] As in that case, it does not, of itself, demonstrate that the disparity between what the plaintiffs were to receive under cl 1 of the Terms and what they will receive under cl 6 is so great as to trigger the penalty doctrine.

286 The fact that cl 6 is capable of being triggered by different breaches with potentially different financial consequences for the plaintiffs is a factor to be taken into account in conjunction with all of the other circumstances of the case. In my opinion, the circumstances referred to in [267] to [281] above overwhelmingly point to cl 6 not being a penalty. The fact that cl 6 can be triggered by different breaches of the Terms is insufficient to constitute it a penalty. Accordingly, the third test does not result in a finding that cl 6 is a penalty.

287 For the above reasons, I reject the defendant's claim that cl 6 is unenforceable by reason of being a penalty.

288 Mr Williams submitted that cl 6 is void for uncertainty. A similar submission had been made at the Preliminary Hearing but the issue was not finally determined at that stage.

289 The language used in a contract must be 'certain in the sense that it provides a criterion by reference to which the rights of the parties may ultimately and logically be worked out, if not by the parties then by the courts.'[151]

290 A contractual provision will not be void for uncertainty merely because its language may admit more than one possible meaning or because, when construed, the application of the provision may produce more than one result.[152] Rather, a provision will be uncertain only where 'the language used [by the parties] was so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention.'[153]

291 Provided that the provision is susceptible of a meaning, it will ultimately bear the meaning that is determined by the Court upon the proper application of the principles of construction.[154]

292 Once the Court is satisfied that the parties intended to make a contract, it will endeavour to give effect to that intention by overcoming, if possible, any difficulties of construction that may arise.[155] While the Court must not rewrite the contract, the language used by the parties is to be interpreted fairly and broadly, and not narrowly or pedantically, especially in the context of commercial arrangements.[156] As Lord Wright said in G Scammell & Nephew Ltd v Ouston:

the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. [157]

293 In the Preliminary Judgment, Osborn J said the following in relation to the defendant's submission that cl 6 was void for uncertainty:

The defence contends that even if breach of the terms is established, clause 6 of the terms is so uncertain as to its meaning or effect as to be void for [un]certainty.

I do not accept this submission. There is in my view no uncertainty that the breach which I have found with respect to the transfer documentation relating to the Dresden property falls within the trigger description of "breaches any term, condition or warranty of this agreement". Further, it is apparent that such breach was not a trivial breach but a substantial and continuing one.

It seems to me that the terms of clause 6 are plain save for the phrase "for breach of fiduciary duty in respect of each of the Properties and Interests in the Properties (as defined in the amended statement of claim) recovered or otherwise obtained by him."

This phrase is in turn to be understood by reference to the amended statement of claim served on 19 May 2000. This statement of claim advanced claims based in part upon alleged breaches of fiduciary duty and sought inter alia equitable compensation.

Clause 6 is to be understood as requiring the payment of equitable compensation for the breaches of fiduciary duty alleged in the amended statement of claim in respect of each of the properties and interests in the properties referred to in that statement of claim and recovered or obtained by the defendant.

...

The final ascertainment of the relevant property recovered or obtained by the defendant as envisaged by clause 6 of the terms can and should be undertaken upon the trial of the further issues in the matter. The plaintiffs' claim is based upon lists of property prepared by the defendant and given to his brother Peter in or about 1990. The further and better particulars delivered on behalf of the defendant make clear that he does not contend that the descriptions of property in issue cannot be given any meaning. Rather, he contends that they are susceptible of alternative meanings. The question of what precise meaning should be adopted, should be left to the further hearing of the matter. The dispute may prove to be confined upon further particularisations of the claim for equitable compensation.

Likewise, the matters properly to be taken into account in the assessment of equitable compensation for breach of fiduciary duty are also in my view matters to be ascertained upon the further hearing of the matter and cannot without further investigation be regarded as inherently incapable of proper ascertainment.

In summary, the clause will require application to the facts of the matter and its consequences will require ascertainment. It is not itself in terms, however, which prevent either sensible application to the facts or the ascertainment of its consequences. It has not been demonstrated to be void for uncertainty.

The true principle is that it is "only if the court is unable to put any definite meaning on the contract that it can be said to be uncertain".

The defendant has not been able to demonstrate that this is such a case, but I will reserve to him the right to reagitate the question of uncertainty (if he so desires) upon the completion of the hearing of the further evidence in the matter.[158]

294 I agree with Osborn J's analysis in the Preliminary Judgment. His Honour held that the provisions of the Terms were not uncertain, although he refrained from a detailed consideration of cl 6 as this was not necessary for the purposes of the Preliminary Judgment.

295 It is apparent from the discussion in other parts of this judgment about the scope and effect of cl 6 that I have been able to ascertain the proper construction of cl 6 of the Terms by applying ordinary principles of construction. Accordingly, neither cl 6 nor any other provision of the Terms is void for uncertainty.

PART 8 - DEFENCES BASED ON PARALLEL CZECH PROCEEDING

296 Mr Williams submitted that the plaintiffs' initiation of the Czech proceeding on 22 February 2008 and their continuation of that proceeding constituted a repudiation of the Terms. He also submitted that this conduct constituted an election to pursue the relief sought in the Czech proceeding and that, consequently, the plaintiffs were precluded from obtaining equitable compensation in the present proceeding in this Court ('Victorian proceeding'). These submissions will be considered in Part 8(7) of this judgment after I set out the history of the Czech proceeding and the rulings that have been made by this Court in relation to that proceeding.

297 It should be noted that the defendant originally relied upon the defences of repudiation and election in respect of proceedings that Helena and Peter commenced in the Czech Republic in 1995 as well as those commenced by the plaintiffs in 2008. During the trial, however, Mr Williams properly conceded that, in light of my ruling dated 8 October 2009 (which is discussed in Part 3(1) of this judgment), it was no longer open to the defendant to rely upon those defences in respect of the 1995 Czech proceeding. On the basis of this concession, I will not discuss the 1995 Czech proceeding.

(1) Commencement of Czech proceeding and grant of preliminary injunction

298 The plaintiffs' complaint in the Czech proceeding is entitled 'Action to Recover Real Estate and Petition Seeking [a] Preliminary Injunction'. The subject matters of the complaint are the Czech Properties.[159]

299 The complaint recites many of the allegations of fact set out in the 2000 ASC, including the making of the Sibling Agreements and their breach by the defendant. It then describes the Victorian proceeding, the settlement of that proceeding by execution of the Terms and the breach of the Terms by the defendant. After listing the options that were available to the plaintiffs under Victorian law consequent upon the defendant's breach of the Terms, the complaint continues:

The Plaintiffs have decided to require from the Defendant equitable compensation that may under Australian law be also represented by a requirement for the transfer of shares of title to the Real Estate on the basis of the agreement made by the Talacko Siblings in 1990, or, alternatively on 4 March 1991, and for the provision of incomes and expenses and payment of a pro-rata part of the incomes to the Plaintiffs.

...

[I]n accordance with the law of the State of Victoria, the Plaintiffs have the right to require that the Defendant fulfil the requirement of the Plaintiffs resulting from the Amended statement of claim and that he [(i)] transfer to Plaintiff no. 1 one-third of his share of the legal title to each piece of the Real Estate and to each of Plaintiffs no. 2, no. 3 and no. 4 one-ninth of his share of the legal title to each piece of the Real Estate; (ii) submit to the Plaintiffs a statement of any and all income and expenses associated with the Real Estate, including any possible proceeds from the sale thereof, and (iii) pay to Plaintiff no. 1 one-third of his share of net proceeds from each piece of the Real Estate and to Plaintiffs no. 2, 3 and 4 one-ninth of his share of net proceeds from each piece of the Real Estate.

300 The complaint then states that, '[i]n consideration of the above stated facts', the plaintiffs seek judgment in the following terms:

1. The Defendant shall deliver (transfer) to the Plaintiffs shares of the legal title to the below stated real estate: to Plaintiff no. 1 one-third and to each of Plaintiffs no. 2, no. 3 and no. 4 one-ninth of the following Real Estate ... this to be executed within 15 days from the date of legal effect of this judgement.
2. Within two months after this judgment becomes legally effective, the Defendant shall deliver to the Plaintiffs a statement of all of his income and expenses associated with the legal title to the following Real Estate ...
3. The Defendant shall deliver to the Plaintiffs a pro-rata part of his net income arising in connection with the legal title to the below Real Estate ... this to be executed within 15 days after the date of calculation of such income ...
4. The Defendant shall reimburse the Plaintiffs' costs of the judicial proceedings.

301 The complaint also sought an ex parte injunction restraining the defendant 'from any disposal with the ... real estate' on the ground that 'an imminent risk exists that the Defendant might attempt to sell some or all of the Real Estate, thus effectively rendering impossible the enforcement of judgment as proposed by means of this Action.'

302 On 28 February 2008, the District Court of Prague 1 granted a preliminary injunction prohibiting the defendant from disposing of some of the Czech Properties and, in particular, from selling, letting for a period longer than 3 years, or encumbering those properties with other third party rights. On 19 March 2008, the defendant lodged an appeal with the City Court of Prague against the decision granting the preliminary injunction. In support of the appeal, the defendant filed a document entitled 'Answer to Complaint' and dated 4 April 2008, which included the following statement in relation to the Terms:

My participation in the amicable settlement was forced as the Plaintiffs threatened they would apply for the seizure of my wife's family house in Australia. At that time, my wife was staying in the house taking care of her sick mother and I was exposed to heavy psychological pressure from the Plaintiffs. I consider my signature on the Terms of Settlement invalid, for it was attached to the document under obviously disadvantageous conditions. At that time, I was in very bad mental and physical shape. ...

...

... I am confident that the settlement is also invalid because it was not inserted into any resolution of the [Supreme Court of Victoria]. Since the settlement fails to provide any enforcement title in Australia, it can not be compliant with the concept of Czech law. In the Czech Republic, I would never agree to an out-of-court settlement with respect to rights which have been statute barred (even if they existed).

... I admit I signed the Terms of Settlement on 23 February 2001. I consider the Terms of Settlement invalid as they were forced upon me. I signed them under distress and under obviously disadvantageous conditions.

During the day-long negotiation, at the end of which I was compelled to sign the terms of settlement, I had neither a Czech legal counsel nor the possibility to access one.

I wanted the purposeless proceedings to be terminated knowing that under international laws an Australian court may not decide on real estate in the Czech Republic. For the same reason, the Australian judge was not willing to make such a decision and did not mention the "so-called settlement" in the official minutes. Despite ... that, as a demonstration of my good faith, I paid the Plaintiffs all of their expenses in the amount of AUD 150,000.

What is more, under Article 6, if I breach the conditions of the settlement, the Plaintiffs cannot but seek compensation from an Australian court, not the transfer of the property.

Such compensation cannot exceed the value of the real estate in my possession (as specified in section 1) under the Terms of Settlement minus expenses. Requiring two thirds of all of the real estate would be invalid under the laws of Victoria. The options on page 10 of the complaint[160] have been fabricated and contradict the original text of the Terms of Settlement dated 23 February 2001.

303 Having regard to the principles discussed in this judgment and what the defendant's senior counsel told Ashley J on 28 February 2001,[161] the defendant's statement to the City Court of Prague is inaccurate in material respects and would have given that Court a false impression about the settlement, the scope and effect of the Terms and the legitimacy and efficacy of the Victorian proceeding. That false impression had the potential to seriously prejudice the plaintiffs. I cannot believe that any of the defendant's Australian lawyers would have had any role in the preparation of such a flawed statement.

304 Mr Williams informed me that it is not part of the defendant's case that he signed the Terms under duress. He submitted that, in his statement to the City Court of Prague, the defendant did not use the expression 'distress' in the sense of 'duress' under the common law but in the sense of what is recognised as duress in Czech law. I reject this submission. In my opinion, the defendant was using the expression in its natural meaning rather than in any technical sense under any particular system of law.

305 I have made the comments in [303] and [304] above for the purpose of recording this Court's disagreement with, and indeed disapproval of, the defendant's statement. The comments have not, however, influenced the determination of any issue in this proceeding.

306 On 6 June 2008, the City Court of Prague allowed the defendant's appeal and dismissed the preliminary injunction. However, the parties did not receive notice of this decision until July 2008.

307 On 28 April 2008, following the commencement of the Czech proceeding and publication of the Preliminary Judgment, the defendant applied by summons for a stay or dismissal of the Victorian proceeding on the basis that it was an abuse of process in light of the plaintiffs' pursuit of parallel proceedings in the Czech Republic. At the hearing of the summons before Osborn J on 20 June 2009, the plaintiffs offered undertakings to the Court not to pursue further the Czech proceeding without the leave of this Court. The undertakings were in the following form:

1. Until the conclusion of this proceeding including any appeals, they will not, without the leave of this Court, themselves or by their lawyers or other agents, take any step to prosecute the Petition proceeding in the District Court in Prague which has been ascribed number 20C-17/2008 except to maintain or, if necessary, enforce the injunctive relief given by the Court in that matter on 28 February 2008 which restrains the Defendant from dealing with the Properties the subject of the Order in any manner beyond a lease of up to 3 years duration.
2. In the event that a judgment of this Court granting relief in the form of equitable compensation for a two thirds proportion of the Properties as defined in the Amended Statement of Claim dated 18 May 2000, adjusted as determined by the Court is either accepted and abided by the Defendant or successfully enforced against him and satisfied, whether in Australia or the Czech Republic, they will not seek to obtain the same relief or any portion of the same relief, whether in the form of a sum of money or transfer of any interest in the Properties, against the Defendant, for breach of the Terms of Settlement by prosecuting the Petition proceeding in the District Court in Prague which has been ascribed number 20C-17/2008.
3. If following the conclusion of this proceeding, including any appeals, they decide to seek to prosecute the Petition proceeding in the District Court in Prague which has been ascribed number 20C-17/2008, they will first give reasonable notice to this Court and to the Defendant.
4. They will instruct their lawyers accordingly.

308 In his ruling dated 26 June 2008,[162] Osborn J concluded that he would not stay or dismiss the Victorian proceeding if the plaintiffs gave the abovementioned undertakings and also the usual undertaking as to damages with respect to the preliminary injunctions granted by the District Court of Prague 1. His Honour made the following relevant comments:

There are four preliminary observations that can be made about the Czech proceedings.

(1) They refer to and appear in part to be premised upon the history of the settlement of the Victorian proceedings.

(2) Nevertheless, they appear to seek substantive relief by way of orders with respect to the transfer of land in accordance with the claim originally made in the Victorian proceedings. Such a claim is not pursued in the claim for equitable compensation made to the Court following my decision on preliminary questions relating to the breach of the term of settlement.

(3) No evidence was called before me as to the law governing the Czech proceedings.

(4) The interlocutory relief granted preserves the principal assets of the defendant.[163]

309 His Honour dismissed the defendant's application for the following reasons:

First, the Victorian proceedings were validly instituted and had substantially progressed prior to the institution of the Czech proceedings. Since reinstatement following the initial settlement a substantial hearing has been conducted resulting in the determination of issues of liability. On the face of it that determination entitled the plaintiffs to judgement for equitable compensation in this Court unless for reasons I have left open, the terms of settlement can be avoided. If one or other proceeding is to be regarded as vexatious it appears to me that it is not the Victorian proceeding.

Secondly, I am not satisfied that the institution of the Czech proceedings is to be regarded as prima facie constituting an abuse of process, because of the doubt that I have identified with respect to potential differences in the remedies available.

Thirdly, I am satisfied the Czech proceedings were not issued vexatiously in the strict sense of proceedings issued with the intention of harming or annoying the defendant.

Fourthly, if the undertakings proposed are given, the Czech proceedings will not unfairly interfere with or have a tendency to interfere with the Victorian proceedings.

It appears that the consent of both participants is required to suspend the Czech court proceedings. Nevertheless, the evidence of the plaintiffs' Czech attorney is that until the City Court of Prague as a court of appeal decides on the defendant's appeal against the preliminary injunctions which have been granted, the District Court of Prague 1 will not proceed with the case. Further, if the undertakings proposed by the plaintiffs are given then the matter will not proceed further in respect of the preliminary injunction unless the defendant desires it to and with the leave of this Court.

Fifthly, insofar as the Czech proceedings have resulted in interlocutory orders, those orders can be balanced by the requiring of undertakings which this Court would have required if it had restrained the defendant from disposing of his assets prior to the completion of the Victorian litigation.

Sixthly, if the Czech proceeding is prosecuted after the completion of this proceeding, it should not be assumed that the Czech court will fail to have proper regard to the outcome of this proceeding.

Seventh, having regard to the above matters the defendant has not discharged the burden upon him to demonstrate the proceedings in the Czech Republic evidence an abuse of the process of this Court.[164]

310 The dismissal of the defendant's application was formalised in an order dated 26 June 2008. That order also granted leave to the defendant to amend his defence to raise an allegation that the plaintiffs' commencement of the Czech proceeding constituted an election by them to pursue their rights in the Czech proceeding to exclusion of their rights under the Terms or, alternatively, a repudiation by them of the Terms.

311 On 22 August 2008, Osborn J made an order that the defendant pay the plaintiffs' costs of and incidental to the Preliminary Hearing.

(3) Court of Appeal decision of 21 November 2008

312 On 5 November 2008, the defendant applied to the Court of Appeal for leave to appeal against the costs order of 22 August 2008. The parties agreed that, in the event that leave was granted, the appeal should be heard instanter by a Bench comprising two judges only.

313 On 21 November 2008, the Court of Appeal granted leave to appeal because Osborn J, in deciding to award costs to the plaintiffs, failed to give any express consideration to the possible effect of the defendant's new defences of election and repudiation - based on the commencement of the Czech proceeding - on the plaintiffs' entitlement to relief under cl 6 of the Terms. However, the Court went on to dismiss the appeal on the basis that those defences 'have no merit'.[165] The Court said:

In his second further amended defence, the [defendant] alleges that the initiation and prosecution of the ... Czech proceeding is conduct of the [plaintiffs] which is contrary to the terms of settlement and which:

(1) constituted an irrevocable election by the [plaintiffs] to pursue the rights asserted by them in the ... Czech proceeding, and in their defence of the appeal against the interlocutory order in that proceeding, to the exclusion of any rights which the [plaintiffs] may have to seek relief in the equitable jurisdiction of this Court pursuant to clause 6 of the terms of settlement;

(2) thereby disentitled the [plaintiffs] from seeking equitable compensation in this Court in relation to any of the properties which are the subject of the ... Czech proceeding; and

(3) further or alternatively, constituted a repudiation of the terms of settlement by them, such repudiation being accepted by the [defendant] in June 2008 following the discharge of the interlocutory order by the Czech court.

For present purposes, it is unnecessary to determine whether there is any merit in the allegation that the institution and prosecution of the ... Czech proceeding may have disentitled the [plaintiffs] to enforce clause 6 of the terms of settlement, at least in relation to the properties which are the subject of [the] ... Czech proceeding. This is because it remains open and arguable that the whole of clause 6 may be void or unenforceable on grounds of uncertainty or penalty. So much was recognised by the trial judge. The issue is whether the institution and prosecution of the ... Czech proceeding arguably constituted a repudiation by the [plaintiffs] of the terms of settlement as a whole, thus disentitling the [plaintiffs] to seek damages for breach of clause 1. For the following reasons, I am of the opinion that this allegation of repudiation is manifestly hopeless and cannot succeed. Accordingly, the position remains that, even if clause 6 of the terms of settlement is void or unenforceable, the decision of the trial judge on the preliminary issues means that the [plaintiffs] have established an entitlement to an order for damages for breach of the terms of settlement of some real substance.

The [defendant]'s repudiation case is based upon the allegation that the commencement and maintenance by the [plaintiffs] of the ... Czech proceeding is 'contrary' to the mutual releases contained in clause 8 of the terms of settlement, and that the only rights which the [plaintiffs] have is to enforce the terms of settlement in this Court by claiming equitable compensation under clause 6, or damages for breach of clause 1 if clause 6 is unenforceable for any reason.

As the trial judge noted when considering other issues of repudiation raised by the [defendant] in the course of the trial of the preliminary issues, in order to determine whether a party has repudiated a contract it is necessary to ascertain whether the conduct relied upon as constituting the repudiation conveys, objectively, an inability to perform the contract or a renunciation of it. This approach by the trial judge was correct. ...

...

In this case, the evidence discloses that the ... Czech proceeding was commenced in the following circumstances. First, the [plaintiffs]' attempts to enforce the terms of settlement in this Court were being vigorously defended by the [defendant]. The defences included an allegation that the [plaintiffs] had repudiated the terms of settlement, that the repudiation had been accepted and that the [defendant] was thereby discharged from any obligations imposed upon him by the terms of settlement. Second, the trial judge had reserved his decision on the preliminary issues, including the repudiation defence, and was yet to deliver his decision. Third, the [plaintiffs] had received legal advice that if their application to enforce the terms of settlement failed, and they wished to enforce their legal rights against the [defendant] in the Czech Republic, some of their legal rights would become unenforceable after February 2008 by reason of the operation of statutory time limitations in the Czech Republic. Fourth, the [plaintiffs] had objectively reasonable concerns that the [defendant] may act to dispose of or encumber the properties which are the subject of the ... Czech proceeding. These concerns arose in circumstances where they were unaware of any other property owned by the [defendant] in the Czech Republic and the [defendant] had transferred his interest in valuable real estate in Victoria to his wife, for no consideration, shortly after the original proceeding against him was commenced by the [plaintiffs]. Accordingly, the ... Czech proceeding includes a claim for interlocutory relief restraining the [defendant] from dealing with the subject properties.

Further, in determining whether the Court should find or infer that the commencement and maintenance of the Czech proceedings constituted a repudiation of the terms of settlement, it is necessary to consider the conduct of the [plaintiffs] when objection was taken by the [defendant] to the continued prosecution of both the application in this Court and the ... Czech proceeding. In this regard, the evidence discloses that the [plaintiffs] immediately offered undertakings to the [defendant], to the effect that they would not prosecute the ... Czech proceedings pending the final resolution of proceedings in this Court. The [defendant] refused to accept the undertakings and maintained the position that the [plaintiffs] were obliged to elect between proceeding in this Court or in the Czech Republic. When the [plaintiffs] refused to so elect, the [defendant] applied to stay or dismiss the proceeding in this Court as an abuse of process. As appears above, the trial judge rejected this application. Based upon revised undertakings, the trial judge held that the continued maintenance of the proceedings in both this Court and the Czech Republic was not vexatious or an abuse of process. The [defendant] did not seek leave to appeal against this decision.

In the circumstances established by the objective facts, the allegation that the [plaintiffs] repudiated the terms of settlement by commencing the ... Czech proceeding, and maintaining that proceeding in the circumstances of the undertakings which have been given, has no prospect of success. The Court could not, on any view of the objective facts, form the view that the [plaintiffs] have renounced the terms of settlement or have refused to perform their obligations thereunder. The continued maintenance of the ... Czech proceeding, subject to the undertakings accepted and imposed by the trial judge, stands merely to protect the [plaintiffs] in case their application to enforce the terms of settlement in this Court fails for any reason, including on appeal. On the question of any appeal, which unfortunately appears likely rather than possible given the intense antipathy between the parties, the [defendant] will have a right of appeal on all issues once all issues in the proceeding have been determined. This will include the right, if so advised, to appeal against the trial judge's decision in his determination of the preliminary issues that the [plaintiffs] did not repudiate the terms of settlement by the alleged repudiatory conduct which was then in issue. Accordingly, until all rights of appeal are exhausted, the [plaintiffs] remain at risk that they may fail altogether in their application to enforce the terms of settlement, because it is possible that an appeal Court will determine that the terms of settlement were validly terminated following acceptance of a repudiation by the [plaintiffs]. If that situation was to occur, the [plaintiffs] will be entitled to choose the forum in which they litigate their residual claims arising otherwise than under the terms of settlement.[166]

314 At the directions hearing before me on 10 and 11 March 2009, the defendant renewed his application for a stay or dismissal of the Victorian proceeding based on expert evidence that the Czech proceeding could continue to hearing and determination even if the plaintiffs fully complied with the undertakings they previously gave to this Court. During the directions hearing, the plaintiffs offered the following additional undertakings:

[5]. The Plaintiffs will not use any document or any information they obtain by way of discovery from the Defendant in the course of this proceeding for any purpose other than the purposes of this proceeding, and will not communicate any such document or any such information to their Czech Attorneys who act for them in the Petition Proceeding.[167]

[6]. If the Plaintiffs become aware that the District Court is intending to or is about to take a step or make a request of the parties in connection with the Petition Proceeding, they shall forthwith notify the Solicitors for the Defendant and the Court and shall cooperate in having the matter brought before this Court on short notice.

[7]. The Plaintiffs will instruct their Czech Attorneys to take whatever steps are properly open to them to notify the District Court of these undertakings and also to report to them upon the steps so taken. The Plaintiffs will inform the Defendant and the Court of those steps in a timely way.

315 In light of these additional undertakings, on 11 March 2009, I dismissed the defendant's application for a stay or dismissal of the Victorian proceeding.[168]

(5) Developments in the Czech proceeding after May 2009

316 In June 2009, the plaintiffs discovered that the defendant had signed documents to transfer the Czech Properties to his Prague-based sons, David and Paul.[169] They sought, and were granted, Mareva-type orders from the Court and a partial release from the undertakings they had given to the Court[170] in order to pursue Mareva-type relief in the Czech Republic. The plaintiffs' application for Mareva-type relief in the District Court of Prague 1 failed. The evidence was not clear as to whether the plaintiffs have appealed against that decision.

317 The defendant did not amend his defence to refer to the plaintiffs' application for Mareva-type relief in the Czech proceeding. Nor did he lead any evidence about the nature and scope of that application. However, Mr Williams cross-examined the active plaintiffs about the application.

(6) Oral evidence relating to the Czech proceeding

318 The evidence given by the active plaintiffs in relation to the Czech proceeding was to the following effect:

(a) The plaintiffs commenced the Czech proceeding in 2008 following advice that if they did not do so by 23 February 2008, the seven-year limitation period applicable under Czech law would preclude them from initiating any proceeding in relation to the Terms. They commenced the Czech proceeding for the purpose of protecting their rights under Czech law.

(b) The nature and form of the Czech proceeding was determined by legal advice that the plaintiffs received. When asked why the proceeding was a standalone proceeding, rather than a proceeding seeking to enforce any order that this Court might make, they replied that they relied upon legal advice from their Czech lawyers.

(c) The plaintiffs were not seeking to 'double-dip' by maintaining the Czech proceeding concurrently with the Victorian proceeding. The Czech proceeding was brought in case the plaintiffs were denied the relief that they sought in the Victorian proceeding under cl 6 of the Terms.

319 Alexandra and Martin said that they were unaware that a fresh application for an injunction had been initiated in the Czech Republic in 2009 following the defendant's transfer of the Czech Properties to his sons, David and Paul. Rowena and Dr Talacko were aware of those proceedings and Dr Talacko, at least, had given instructions in relation to them. He said that the purpose of the injunction was to prevent the registration of the transfers.

(7) Submissions of the parties on the defences of repudiation and election

320 Mr Williams submitted that the views of the Court of Appeal on the issues of repudiation and election, which were not fully argued before that Court, did not finally dispose of those defences. This was because the views of the Court of Appeal were expressed in the context of the bearing, if any, that those defences had on the question of whether Osborn J was correct in awarding costs to the plaintiffs in respect of the Preliminary Hearing. He said that, as the trial judge, I was required to consider the defences on their merits. He acknowledged, however, that the 'robust' views expressed by the Court of Appeal left only a 'narrow slit' in the window of opportunity for the defendant to press the defences.

321 Mr Howells did not cavil with Mr Williams' submission that I need to consider the defences on their merits.

322 In relation to the defence of repudiation, Mr Williams submitted that the only rights that the Terms conferred on the plaintiffs for a breach of cl 1 by the defendant were to seek, from this Court, specific performance in relation to the transfer of the Clause 1 Properties, damages or equitable compensation. By cl 8 of the Terms, the plaintiffs released all other claims against the defendant. The relief sought by the plaintiffs in the Czech proceeding, namely the transfer of interests in the Czech Properties, was inconsistent with the rights conferred upon them by the Terms and the release in cl 8, and evinced an intention on their part not to be bound by the Terms. In other words, according to Mr Williams, the plaintiffs had repudiated the Terms by pursuing the Czech proceeding. The defendant had accepted the repudiation, so it was said, by a letter dated 25 June 2008 from his solicitors to the plaintiffs' solicitors.

323 In relation to the defence of repudiation, Mr Howells adopted the views of the Court of Appeal.

324 Mr Howells also relied on the decision of the Court of Appeal in relation to the defence of election. However, a close analysis of the Court of Appeal's decision indicates that, although both defences were said to 'have no merit', the Court went on to say that it was not necessary to discuss the defence of election in detail.[171]

325 Mr Williams submitted that the plaintiffs had a choice of two inconsistent remedies. The first remedy was a claim for equitable compensation pursuant to the Terms. The second remedy was to treat the defendant as having repudiated the Terms, to bring the Terms to an end by accepting that repudiation and then to seek a transfer of interests in the Restituted Properties. It was not possible for the plaintiffs to pursue both a transfer of properties and equitable compensation, as the remedies were inconsistent. Consequently, by pursuing a claim for a transfer of interests in the Czech Properties in the Czech proceeding, the plaintiffs had elected not to pursue equitable compensation in this Court.

326 Mr Williams said that the existence of an election had to be determined objectively as at the time the commencement of the Czech proceeding was brought to the attention of the defendant. When the circumstances prevailing at that time were analysed objectively, the inevitable conclusion was that the plaintiffs were pursuing a transfer of interests in the Czech Properties. The subjective intentions of the plaintiffs were not relevant. The undertakings subsequently offered by the plaintiffs were also irrelevant, as these undertakings post-dated the time at which election was to be assessed.

327 In my opinion, viewed objectively, there is nothing in the conduct of the plaintiffs in relation to the Czech proceeding that indicates that they are no longer treating themselves as bound by the Terms. On the contrary, the subject matter of the Czech proceeding is relief said to flow from the defendant's breach of the Terms. Rather than indicating an intention not to bound by the Terms, the plaintiffs' pursuit of the Czech proceeding constitutes the use of another forum to enforce the Terms in addition to the enforcement of the Terms in this Court.

328 While the subjective intentions of the plaintiffs cannot determine whether their conduct is repudiatory, a reference to their evidence confirms what is otherwise apparent from their objective conduct. The plaintiffs are seeking to enforce the Terms primarily in this Court and the Czech proceeding has been brought out of an abundance of caution in case difficulties arise in respect of the relief available to them in this Court.

329 I have arrived at this conclusion independently of the reasoning of the Court of Appeal. That is not to say, however, that I do not agree with the reasoning of the Court of Appeal. On the contrary, if I may say so with respect, the Court of Appeal's reasoning is compelling.

330 It follows that I reject the defence of repudiation.

331 I reject Mr Williams' submissions that, by commencing the Czech proceeding, the plaintiffs elected to pursue a remedy in the Czech Republic which was inconsistent with the remedy of equitable compensation they were pursuing in this Court. In my opinion, the circumstances prevailing at the time of the commencement of the Czech proceeding indicate that the Czech proceeding was instituted as a defensive measure in light of the imminent expiration of the limitation period and that its purpose was to preserve the plaintiffs' rights in the Czech Republic pending the resolution of the Victorian proceeding. The complaint in the Czech proceeding makes it clear that the Czech proceeding was not intended to displace the Victorian proceeding or to bypass the relief provided for in the Terms. The Czech proceeding did not involve the plaintiffs treating the Terms as having come to an end. The Terms were central to the Czech proceeding. While the undertakings offered by the plaintiffs cannot alter the legal consequences of the commencement of the Czech proceeding, their terms confirm the correctness of the above characterisation of the Czech proceeding.

332 Moreover, I do not accept that the relief sought in the Czech proceeding is inconsistent with the relief sought in the Victorian proceeding. I accept Mr Hlavička's expert evidence that the relief sought in the Czech proceeding was designed to achieve the Czech law equivalent of equitable compensation. In his affidavit of 11 August 2008, Mr Hlavička said:

1. ... [I]n the petition filed in the ... Czech proceeding, the Plaintiffs claim (i) transfer of certain real estate situated in the Czech Republic and (ii) payment of a monetary sum calculated from the Defendant's earned income from his ownership of the claimed real estates. The claim is structured in this way because the concept of "equitable compensation" is not recognised by Czech law. ... [T]he Plaintiffs' filing the petition claiming the real estates instead of equitable compensation in the ... Czech proceedings was the only possible way under Czech law to protect the Client's legitimate rights before expiry of the statute of limitations.

1. ... [T]he petition in the ... Czech proceedings was intended to achieve the result under Clause 6 of the Terms of Settlement if there were any problems in achieving such results through the proceedings before the Supreme Court of Victoria, as the subject property is in the Czech Republic. The reason for lodging the ... Czech petition was to secure the Plaintiffs' claims in the Czech Republic, as any enforcement of the judgment of the Supreme Court of Victoria ... in the Czech Republic would be difficult, if not impossible. ...

1. Finally, I would like to emphasise that I do not believe that the Plaintiffs are trying to obtain twice the entitled amount by initiating the ... Czech proceedings and continuing the proceeding at the Supreme Court of Victoria. It has always been my impression that once the Plaintiffs achieve victory in any of the proceedings currently pending, the other proceeding would be stopped. If I believed otherwise, I would have never agreed to represent the Plaintiffs in the ... Czech proceedings because it would violate the ethical rules of the legal profession as set forth by the Czech Bar Association.

333 It follows that I reject the defence of election.

334 In his opening address, Mr Williams submitted that equity would not enforce cl 6 of the Terms because its subject matter is land located in a foreign jurisdiction. Although Mr Williams did not come back to this matter in his closing address, I will deal with it briefly.

335 Mr Williams contended that, as a matter of international comity, this Court should not grant relief based on the allegations in the 2000 ASC, including the making of the Sibling Agreements and their breach, when the plaintiffs are relying on the same allegations to seek remedies by way of transfer of property interests in the Czech Republic. It would be unseemly, Mr Williams said, for this Court to make orders affecting land in the Czech Republic in circumstances where the Czech courts would not enforce the same claims because they are contrary to Czech law or where those courts might make orders in relation to the land which are inconsistent with this Court's orders. Mr Williams did not cite any case directly supporting his position.

336 I reject Mr Williams' submission. In this Court, the plaintiffs are seeking judgment - with the consent of the defendant as set out in cl 6 of the Terms - for equitable compensation for the breach of fiduciary duty alleged in the 2000 ASC and admitted by the defendant by virtue of the execution of the Terms. They are seeking in personam relief rather than in rem relief. The defendant has made numerous attempts to use the existence of the Czech proceeding as a basis for reneging on his consent to judgment as set out in cl 6 of the Terms. All of those attempts have been unsuccessful. And rightly so. There is nothing inequitable about holding the defendant to his bargain as set out in cl 6 of the Terms.

337 For the reasons I have set out in Parts 8(8) and (9) of this judgment, there is, in substance, no inconsistency between the Victorian proceeding and the Czech proceeding. The material before the Court makes it clear that the Czech proceeding has been instituted as a defensive mechanism in case there is a difficulty in relation to any relief granted by this Court. There is no prospect of inconsistent obligations being imposed on the defendant arising from inconsistent orders of this Court and any Czech court. This is ensured by the undertakings that the plaintiffs have given to this Court. Those undertakings will also ensure that the plaintiffs will not be able to obtain double compensation from this Court and the Czech courts arising out of the same subject matter.

338 If the plaintiffs seek to enforce this judgment in the Czech Republic, the Czech courts will no doubt take into account the existence of the Czech proceeding in deciding the extent to which, if any, they are prepared to enforce this judgment.

339 Accordingly, in so far as the defendant seeks to pursue a defence based on international comity, I reject it.

PART 9 - ALTERNATIVE CLAIM: DAMAGES FOR BREACH OF THE TERMS

340 As I have concluded that cl 6 of the Terms is valid and enforceable, and that the plaintiffs are entitled to judgment for equitable compensation pursuant to it, it is not necessary for me to decide the plaintiffs' alternative claim for damages for breach of the Terms. As the issue was argued before me, however, I will set out my views on the damages to which the plaintiffs would have been entitled if they could not rely upon cl 6 of the Terms.

(1) Findings on breach of the Terms in the Preliminary Judgment

341 It will be recalled that cl 1 of the Terms required the defendant to transfer to the plaintiffs or their nominee the defendant's interest in the Clause 1 Properties.

342 In the Preliminary Judgment, Osborn J said that, although the pleadings raised a series of complex issues, he had 'come to the view that it is sufficient in the first instance to consider the plaintiffs' case with respect to the Dresden transfers.'[172] After considering the evidence, his Honour concluded as follows:

even on the defendant's own case, the defendant failed to execute the Dresden transfers between their delivery in October 2003 and June 2006, during which period the terms remained on foot.

The reasons offered for the defendant's failure to execute the documentation were variously described in evidence by the defendant, but I am satisfied that the fundamental reason was simply that he did not accept the plaintiffs were entitled, as a matter of fairness, to a transfer of the properties the subject of the terms. In turn, he wished to evade compliance with his obligation to execute the transfer documentation. Thus, he variously stated concerning his obligations with respect to the terms:

• It was his job to recover the property and he had to correct the evils of the past;
• You don't offer a bunch of flowers to someone who attacks you;
• He did all the work;
  • He spent a lot of money by way of incidental costs in pursuing recovery of the land;
  • Helena did nothing by way of comparable effort;
  • Peter visited the country but couldn't bear it and didn't want to come back
  • 'I know I spent a lot of time a lot of ... a lot of expenses and I could not see that somebody could come along and get the benefit of all my work without moving a finger and I think on reflection if that was the case I would do the same thing again because that's how I felt at the time.'

These views are to be understood against a background of serious antipathy to the plaintiffs arising in a context of perceived family grievance ...

It follows that I am satisfied:

(a) that the defendant was obliged to execute and deliver up the Dresden transfer documentation provided to him;

(b) that the failure to do so was actuated by extraneous considerations, inconsistent with the plaintiffs' obligations under the terms and forms part of a larger body of evidence supporting the view that after receipt of the Dresden transfer documentation the defendant refused to proceed with the terms.[173]

343 His Honour considered and rejected the defendant's allegation that the plaintiffs had repudiated the Terms. He then said:

Although it is strictly unnecessary having regard to the conclusions I have already expressed, I shall for the sake of completeness deal in a summary fashion with the other allegations made on behalf of the plaintiffs concerning alleged breaches of the terms by the defendant.[174]

344 His Honour then considered the other breaches of the Terms alleged by the plaintiffs and rejected all of them, other than the breach alleged in respect of the defendant's failure to pay his share of government charges pertaining to the Dresden Properties that were incurred subsequent to the date of the Terms. His Honour held that the defendant's failure to pay his share of these charges breached cl 9(iv) of the Terms.[175] In relation to the plaintiffs' allegation that the defendant had breached the Terms by failing to execute the framework agreement - which provided a framework for managing the transfer of the land at Řepy, Kbely and Suchá - his Honour did 'not accept that the framework agreement constituted documentation which [the defendant] was in strictness required to execute.'[176]

(2) Ruling made on 12 October 2009 precluding evidence of further breaches

345 On 12 October 2009, the plaintiffs applied for a ruling in the following terms:

The parties be at liberty to lead such further evidence as they may be advised, relevant to the question raised by paragraphs 29 and 39 of the amended statement of claim of 5 November 2007, namely whether the refusal or failure by the defendant to execute the Czech and Slovak properties transfer documents constituted breaches of the Terms of Settlement dated 23 February 2001.

the parties are not at liberty to lead further evidence relevant to the question raised by paragraphs 29 and 39 of the amended statement of claim of 5 November 2007, namely whether the refusal or failure by the defendant to execute the Czech and Slovak properties transfer documents constituted breaches of the terms of settlement dated 23 February 2001.

347 I informed the parties that I would deliver reasons for the ruling in my judgment. I now set out the reasons for the ruling.

348 The defendant strongly opposed the ruling sought by the plaintiffs. Mr Williams submitted that permitting a party to reagitate at the final hearing issues that had been the subject of a preliminary hearing in accordance with r 47.04 of the Rules would be unprecedented. Mr Howells did not refer me to any case where this course had been adopted.

349 On 4 November 2005, Williams J made an order that there be a separate trial of liability and quantum in this proceeding. This order was vacated by Osborn J on 8 November 2007. In lieu of the vacated order, his Honour made the following order:

pursuant to Rule 47.04 there be tried before the trial of the proceeding the questions raised by the following paragraphs of the pleadings, namely:

(a) paragraphs 10 to 50 (both inclusive) of the amended statement of claim dated 5 November 2007; and

(b) paragraphs 10 to 50 (both inclusive), 54A, and 57 to 64 (both inclusive) of the amended defence dated 2 November 2007; and

(c) paragraphs 1, 1A, 2, and 4 to 11 and 6 of the amended reply dated 5 November 2007.

350 The paragraphs of the pleadings referred to in the order of 8 November 2007 deal with the plaintiffs' allegations regarding the defendant's breaches of the Terms. It is thus clear from that order that the questions raised by those paragraphs would be tried by his Honour and would not form part of the final trial unless they were expressly reserved for the final trial by any subsequent order. In this regard, on 8 November 2007, Osborn J made a ruling that the question of penalty be dealt with at the final trial. Further, as set out in [293] above, in the Preliminary Judgment, his Honour reserved to the defendant the right to reagitate the question of uncertainty at the final trial.

351 In my opinion, it is a corollary of the order made by Osborn J under r 47.04 splitting the trial of the questions relating to breach from the trial of the questions relating to the relief to be awarded consequent to the findings as to breach that the plaintiffs cannot now seek supplementary findings about breach. Nor can they lead evidence about breaches of the Terms in addition to the breaches found by his Honour.

352 It would defeat the purpose of an order under r 47.04 if the questions that are the subject of hearing and determination at a preliminary hearing could be reagitated at the final hearing. Apart from the obvious case management difficulties that this would raise, there would also be a risk of inconsistent findings being made, particularly where the final hearing is before a different judge.

353 Mr Howells said that Osborn J's Preliminary Judgment made findings on all of the alleged breaches except the alleged breach of cl 1 in respect of the defendant's failure to execute transfers relating to the land at Řepy, Kbely and Suchá. He submitted that any findings that I made on those issues would not be inconsistent with his Honour's findings. He further submitted that I could make such findings by reference to the affidavits that were relied upon at the Preliminary Hearing and the relevant parts of the transcript of the Preliminary Hearing.

354 Mr Williams submitted that, as well as being unprecedented, the ruling sought by the plaintiffs would be inappropriate and unworkable. He said that, at the Preliminary Hearing, both parties relied on lay as well as expert evidence in relation to the alleged breaches by the defendant. Osborn J had the advantage of seeing the witnesses give evidence before him, whereas I would not have that advantage if I were simply to read the affidavits and relevant parts of the transcript, as the plaintiffs submitted that I should do.

355 Mr Williams also submitted that [189] of the Preliminary Judgment contained a finding by Osborn J that the defendant had not breached the Terms in relation to the non-execution of transfers relating to the land at Řepy, Kbely and Suchá. In the alternative, he submitted that, in so far as his Honour had left this issue open, he had done so because it was not necessary for him to make such a finding. According to Mr Williams, this was because the plaintiffs had pleaded and conducted their case before Osborn J on the basis that they would be entitled to equitable compensation under cl 6 if any breach of the Terms was established.

356 I do not agree with Mr Williams' primary submission that Osborn J made a finding that the defendant had not breached the Terms in relation to the non-execution of transfers relating to the land at Řepy, Kbely and Suchá. Paragraph 189 of the Preliminary Judgment merely referred to the framework agreement and did not refer to any transfers.

357 I do, however, agree with Mr Williams' alternative submission that Osborn J decided that it was not necessary for him to make a finding on whether the defendant breached the Terms by failing to execute transfers in relation to the land at Řepy, Kbely and Suchá. This is apparent from [185] of the Preliminary Judgment.

358 The amended statement of claim dated 5 November 2007 was clearly drafted on the premise that, if the plaintiffs established a single breach of the Terms by the defendant, they would be entitled to enter judgment for equitable compensation in accordance with cl 6. As Mr Williams pointed out, although the prayer for relief in the statement of claim contained an alternative claim for damages, there was, prior to the commencement of the final hearing before me, no express allegation in the statement of claim that the plaintiffs suffered loss as a result of any breach of the Terms. During the trial, I gave leave to the plaintiffs to add an express allegation to this effect.

359 Having pleaded and conducted their case before Osborn J on the basis that any breach of the Terms entitled them to equitable compensation under cl 6, the plaintiffs cannot now complain about the absence of an express finding in the Preliminary Judgment as to whether the defendant had breached the Terms by failing to execute transfers in respect of the land at Řepy, Kbely and Suchá. It is to be noted that the plaintiffs first raised this issue on the first day of the final hearing on 7 October 2009.

360 For the above reasons, I declined to make a ruling in the terms sought by the plaintiffs.

(3) Assessment of damages for breach of the Terms

361 There was a dispute between the parties as to whether Osborn J had found that the only breach of cl 1 of the Terms that the defendant had committed was his failure to transfer the Dresden Properties, or whether he had made a more general finding that the defendant had breached the Terms by failing to transfer all of the Clause 1 Properties. I note that the parties did not focus on his Honour's finding that the defendant breached cl 9(iv) of the Terms, and that the plaintiffs did not lead any evidence relating to the amount of government charges that the defendant had failed to pay in relation to the Dresden Properties.

362 Read in context, the only specific finding in the Preliminary Judgment of a breach in relation to cl 1 of the Terms is constituted by the defendant's failure to transfer the Dresden Properties. This is made clear in [133], [136] and [185] of the Preliminary Judgment. This interpretation also finds support in Osborn J's ruling on costs, where his Honour said that the plaintiffs had been successful 'in establishing a breach of the terms arising out of the failure and refusal by the defendant to execute documentation relating to the transfer of land at Dresden' and that 'the plaintiffs failed to make out further alternative allegations as to alleged breaches of the terms'.[177]

363 If the above interpretation of the Preliminary Judgment is correct, the loss suffered by the plaintiffs from the defendant's breach of the obligation to transfer his one-third interest in the Dresden Properties is one-third of the value of those properties at the time of the breach. Paragraph 133 of the Preliminary Judgment suggests that Osborn J held that the failure to transfer the Dresden Properties was a continuing breach of the Terms. On this basis, it is appropriate to adopt the special referee's valuation of the Dresden Properties as at 24 September 2009, namely €185,000, as the basis for assessing damages. Accordingly, the plaintiffs' damages are one-third of that amount, namely €61,666.

364 The SR Report states that the Dresden Properties are dilapidated and have been vacant for up to six years. It follows that no additional amount for lost income will be added to the damages amount.

365 As the plaintiffs did not lead evidence of the amount of government charges the defendant failed to pay in relation to the Dresden Properties, I am unable to increase the damages amount on account of the defendant's breach of cl 9(iv) of the Terms. Similarly, although in their written submissions the plaintiffs sought 'an amount for lost opportunity and an amount for exemplary damages', they did not explain the bases for awarding such amounts. Accordingly, I will not make any adjustment to the damages amount set out in [363] above.

366 Notwithstanding my conclusion that the only breach of the Terms that Osborn J found was in respect of the defendant's failure to transfer the Dresden Properties, I acknowledge that the alternative construction - that is, that Osborn J found that the defendant breached cl 1 in its entirety - has considerable force. This is particularly so having regard to his Honour's statement that the defendant did not execute the transfer for the Dresden Properties because 'he did not accept the plaintiffs were entitled ... to a transfer of the properties the subject of the terms'[178] and his subsequent statement that there was 'a larger body of evidence supporting the view that after receipt of the Dresden transfer documentation the defendant refused to proceed with the terms.'[179] I note also that the judgment of the Court of Appeal proceeded on the basis that his Honour had found that the defendant had breached the Terms by failing to transfer all of the Clause 1 Properties.[180]

367 There is therefore a real possibility that my interpretation of the Preliminary Judgment is incorrect. For this reason, I set out below the damages that I would have awarded to the plaintiffs if the breach of the Terms extended to all of the Clause 1 Properties and was not confined to the Dresden Properties.

368 Clause 1 of the Terms required the defendant to transfer the following properties to the plaintiffs:

(a) Kiefernstrasse 19 and Kiefernstrasse 19b, Dresden, Germany;

(b) 17.4473 hectares of land in Repy, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;

(c) approximately 0.8 hectares of land in Kbely, as defined in the particulars under paragraph 6 in the Amended Statement of Claim herein;

(d) approximately 364 hectares of land in Sucha, as defined in the particulars to paragraph 6 of the Amended Statement of Claim herein.

369 Table 11, below, sets out the defendant's current interests in the above properties and the special referee's valuations of the properties as at 24 September 2009:

370 Based on Table 11, I find that if the plaintiffs' damages need to be assessed by reference to a breach of cl 1 of the Terms in its entirety, the amount of those damages is €5,909,707.

371 As I mentioned in [116] above, I propose to make an order that the SR Report be adopted subject to the adjustments set out in this judgment.

372 I also propose to make an order that the defendant pay to the plaintiffs equitable compensation as set out in [215] above.

373 At first instance, however, it may be appropriate to adjourn the proceeding to a date to be fixed to enable the parties to make submissions on:

(a) the exchange rate to be used in converting the amount in euros set out in [215] above to Australian dollars or the amount in Australian dollars set out in [215] to euros;

(d) the precise form of the orders to be made to give effect to this judgment.

LIST OF TERMS, ABBREVIATIONS AND KEY INDIVIDUALS

The plaintiffs' amended statement of claim dated 18 May 2000.

Alexandra Bennett, the secondnamed plaintiff, daughter of Peter and Margaret and sister of Martin and Rowena.

The daughter of Helena and sister of Dr Talacko. Anna was Helena's litigation guardian until 2001. Helena's mother was also named Anna Talacko.

The properties listed in cl 1 of the Terms (see [26] of this judgment).

Proceeding issued by the plaintiffs against the defendant in the District Court of Prague 1 on 22 February 2008.

The Prague 1 Properties and the properties listed next to the headings 'Řepy' and 'Kbely' in Table 11 at [369] of this judgment.

The Czech currency, commonly referred to as Czech crowns.

David Talacko, one of the defendant's four children. He is based in Prague.

Jan Emil Talacko, the brother of Peter (twin) and Helena, the husband of Judith and the father of David and Paul.

The properties at Kiefernstrasse 19 and Kiefernstrasse 19b in Dresden, Germany.

Jan Talacko, the son of Helena and brother of Anna Talacko. Dr Talacko has been Helena's litigation guardian since July 2005.

The special referee's estimated rental values for the Prague 1 Properties.

The first supplementary report of the special referee dated 27 October 2009.

Helena Marie Talacko, the firstnamed plaintiff, the sister of Peter and the defendant; mother of Dr Talacko and Anna Talacko. Helena's mother was also named Anna Talacko.

The initial report of the special referee dated 24 September 2009.

The special referee's valuation of the Prague 1 Properties in the Initial SR Report.

Margaret Helen Talacko, the fifthnamed plaintiff, Peter's widow and the executor and trustee of Peter's estate; mother of Alexandra, Martin and Rowena.

Martin Talacko, the thirdnamed plaintiff, son of Peter and Margaret and brother of Alexandra and Rowena.

Paul Talacko, one of the defendant's four children. He is based in Prague.

Peter Talacko, the deceased brother of the defendant (twin) and Helena; husband of Margaret and father of Alexandra, Martin and Rowena.

The properties described as such in Table 1 at [77] of this judgment.

Hearing before Osborn J in November 2007 on the question of whether the defendant breached the Terms.

Judgment of Osborn J dated 24 April 2008 on the question of whether the defendant breached the Terms: Talacko v Talacko [2008] VSC 128.

The Czech Properties, the Dresden Properties and the land listed next to the heading 'Suchá' in Table 11 at [369] of this judgment.

The properties listed in Table 1 at [77] of this judgment.

The special referee's revised valuation of the Prague 1 Properties as described in the Second Supplementary SR Report.

The principle referred to in [132] of this judgment.

Rowena Talacko, the fourthnamed plaintiff, daughter of Peter and Margaret; sister of Alexandra and Martin.

Supreme Court (General Civil Procedure) Rules 2005 (Vic).

The second supplementary report of the special referee dated 29 October 2009.

Agreements the plaintiffs' allege in the 2000 ASC were entered into by the siblings in Melbourne in 1991 and 1992.

James Andreas Hollas of the Prague office of Jones Lang La Salle, appointed pursuant to the SR Order.

The Order dated 23 June 2009, as amended by the Order of 24 July 2009, appointing the special referee.

The Initial SR Report as amended or clarified by the First and Second Supplementary SR Reports.

Terms of Settlement executed by the plaintiffs and the defendant on 23 February 2001. Anna Talacko signed the Terms as litigation guardian for Helena.

[1] Unless stated otherwise, further references to Anna Talacko are to Helena's daughter rather than to her mother.

[2] Talacko v Talacko [2008] VSC 128.

[3] The Terms were handwritten and contain some minor errors.

[4] See Table 1 at [77] below.

[5] See Table 5 at [104] below. 'Special referee' is defined in [89] below.

[6] See [215] below. It was common ground between the parties that it was not necessary for me to distinguish between the entitlements of each plaintiff for the purposes of this judgment. I note also that Margaret was a plaintiff as executor and trustee of Peter's estate, and that she did not seek equitable compensation on her own behalf.

[7] The particulars to paragraphs 9, 11, 17, 19, 20, 21 and 25, and parts of the particulars to paragraph 26, of the 2000 ASC have been omitted.

[8] Although Dr Talacko is not a plaintiff, but the litigation guardian of one of the plaintiffs (Helena), for convenience, I will include him in the defined expression 'active plaintiffs'.

[9] Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46, 59 ('Houghton').

[10] This home was owned by the defendant and his wife jointly between 2 July 1980 and 16 October 1998. The defendant transferred his interest in the property to his wife in 1998 '[i]n consideration of [their] marriage', but nothing turns on this transfer for the purpose of this proceeding.

[11] Talacko v Talacko [2009] VSC 98, [25], [26].

[12] All errors are in the original handwritten Terms.

[13] Talacko v Talacko [2008] VSC 128, [26].

[14] [2004] HCA 52; (2004) 219 CLR 165 ('Toll').

[15] [2004] HCA 52; (2004) 219 CLR 165, 179 [40] (citations omitted).