Plaintiffs v Defendants

3 I say this, notwithstanding that a good deal of evidence and trial time was devoted to the question of the removal of the liability of $1,279,200 from the balance sheet of ASD. This was a liability of Laguna Investments to ASD in respect of the balance of the money lent by ASD to its subsidiary, Laguna Investments, to secure the Bank of Queensland bond required by the Mackay Electricity Board.[4]

4 The contentions put on behalf of the Marriner defendants about the conduct of ASD with respect to this matter were advanced with considerable vigour. Serious allegations of misleading and deceptive conduct and unconscientious conduct[5] were made. It was said that ASD and its directors engaged in sharp practice[6] and surreptitious conduct,[7] and a deliberate and calculated strategy[8] of non-disclosure knowing that Mr Marriner was labouring under a misapprehension as to the subject-matter of this part of the sale of the Laguna Quays Resort when he executed the agreements on 13 November 2001.

5 I start with the parties to the bond money claim whose liability is to be set-off. This claim is directed primarily at Mr Marriner whose conduct is said to have been in breach of his directorial and fiduciary duties owed to ASD. He is also said to be liable for procuring and inducing breaches of trust by Laguna Management and by Wallace & Wallace. A claim is also made against Goldworthy, Laguna Australia, Laguna Airport and Staged Design under both limbs of the rule in Barnes v Addy. The second ASD claim, the capital expenditure claim, is also directed to Mr Marriner as a breach of his directorial and fiduciary duties owed to ASD.[9] The counterclaimants are Mr Marriner, Goldworthy, Laguna Australia and Fulham Holdings. It should be noted that Fulham Holdings, which is the Marriner entity which purchased the debt owed by Laguna Investments to ASD for $30 million, is not said to be liable to ASD so that set-off by it is not possible.

6 The counterclaim depends upon certain representations which are alleged to have been made by ASD and United Super to "Laguna Australia and its nominees" prior to 19 October 2001.[10] Reliance upon the representations is alleged in paragraph 115 to have been, not by Mr Marriner or Goldworthy or Laguna Airport or Staged Design, but by Laguna Australia and Fulham Holdings. Likewise, the estoppel is said to have affected Laguna Australia and Fulham Holdings[11] and the misleading and deceptive conduct is said to have caused loss to Laguna Australia and Fulham Holdings.[12] In these circumstances, it is difficult to see how such a claim, if successful, could be effective as a set-off against a claim against any of the defendants to the ASD claims.

7 In the prayer for relief in the counterclaim, all of the counterclaimants seek against all of the defendants damages, equitable compensation in the alternative, and interest.[13] No basis for this is pleaded other than the matters which I have summarised above. I pass over the declarations which are sought in terms of the releases which are relied upon in the defences and which do not involve most of the parties to the counterclaim.[14]

8 Associated with the question of the Laguna Investment debt, the counterclaim seeks a declaration against ASD and United Super in terms of the estoppel which I have referred to[15] and an order varying the 19 October 2001 agreement and the debt assignment deed made between ASD and Fulham Holdings on 13 November 2001 so that the assigned debt would include the same sum, $1,279,200.[16] Further and alternatively to this, Laguna Australia and Fulham Holdings seek payment of this amount of $1,279,200.[17]

9 These affirmative claims pay no heed to the following fundamental aspects of the treatment of the second and third tranche funds. If, as I have found, the money provided to Laguna Investments and Laguna Management for the acquisition of the bank bond was a loan, it was properly a debt owing by Laguna Investments to ASD.[18] Either the debt had been repaid prior to 19 October 2001 or it had not. The proceeds of the first tranche which were paid in 1999 to ASD[19] may be treated as being repaid to ASD, leaving the debt of $1,279,800.[20] The application of the second tranche funds in October 2000 and the third tranche funds between February 2001 and June 2001 has been dealt with in my February judgment.[21] It will be recalled that the application of the funds of $426,200 in October 2000 was at the direction of the secretary of ASD, Mr Jephson. In these circumstances, this may be seen as a repayment by Laguna Investments of the debt to that extent. There may be a dispute within ASD as to the propriety of the application of these funds, but it can hardly be doubted that the payments in October 2000 reduced the debt.

10 The repayment of this remaining part of the loan, namely $853,300, may be more controversial. It was, however, paid to the solicitors Wallace & Wallace who, as I have found, were then acting as solicitors for ASD.[22] The position taken by the Marriner parties is that their employee, Mr Jephson, without Mr Marriner's knowledge and approval, directed the payment of this money in a way that he had no authority to do. It was not suggested that he did this for his own benefit. Indeed, the evidence showed that, for the most part, these unauthorised payments were applied to the Laguna Quays project or, perhaps, another Marriner venture. Since ASD was the owner of the Laguna Quays project it may be said that it was the beneficiary of these payments which were for the improvement of this asset. Since Laguna Australia was the purchaser of the Laguna Quays project under the June 2000 heads of agreement for an agreed price, it may be said that the payments were, also, for its benefit.

11 The issue as to the subject-matter of the claim may be tested in this way. What would have been the outcome had the debt of $1,279,200 owed by Laguna Investments, were sought to be enforced by ASD sometime late in 2001? This question was not raised even in rhetorical form at the trial. It is difficult to imagine that ASD would be able to recover that debt. The short answer by Laguna Investments would have been that, in the case of each of the second and third tranche funds, the money was paid at the direction of ASD or to its solicitor. Beyond this, Laguna Investments had no interest.

12 Against this background, the futility of this counterclaim is obvious. It is common ground that, under the 19 October 2001 agreement, Laguna Australia purchased the debt owing by Laguna Investments to ASD representing advances made by ASD to Laguna Investments for the Laguna Quays project.[23] This aspect of the transaction is repeated in the formal document of 13 November 2001.

13 In October and November 2001 the running account debt of Laguna Investments to ASD either did or did not include the bond money component of $1,279,200. If it did, this component was purchased by Laguna Australia or Fulham Holdings. The position as to the existence of this part of the debt is unaffected by its treatment in the accounts of ASD. Upon the view of the circumstances of the applications of the funds in question, its treatment in the accounts of ASD was entirely appropriate. I have in very brief terms, in my February judgment,[24] dealt with the issues of fact which generated such heat in this proceeding. It is not appropriate that I enlarge upon this and I do not do so except to say one thing. Much of the evidence relied upon by the Marriner parties is to be found in the answers of Mr Frost to questions in cross-examination regarding the treatment of this debt in the accounts. For the reason which I indicated to counsel at trial[25] I do not place weight on much of his evidence. This is, as I said at the time, not due to my perception that he was deliberately misleading the court or being evasive; it was, perhaps, due to his age or infirmity or perhaps the passage of time that he appeared ready to accede to suggestions made to him without appreciating their significance in the context of his own evidence and in the contemporary document before the court.

14 It is for the reasons set out in my February judgment and for the reasons set out above that I would dismiss the counterclaim.

[1] [2010] VSC 41 ("February judgment").

[2] Further Amended Counterclaim, delivered in the course of the trial pursuant to leave granted on 11 September 2009.

[4] See February judgment paras [19]ff.

[5] The withdrawn allegation of fraud also related to this conduct.

[6] Defendants' final submissions para 243.

[8] Defendants' final submissions para 214.

[14] Prayer for relief paras C, D, E, FC.

[20] The $600 discrepancy was not seen as significant.

[23] Schedule of Landholdings and Ownership of ASD, annexure to letter of 6 November 2001.