TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)

JUDGMENT OF: Underwood CJ, Evans and Tennent JJ

Equity - General principles - Fiduciary obligations - General principles - Conflict of interest and duty - Test of fiduciary relationship - Commercial contract - Agreement between fish processor and abalone diver - Each paid 50 per cent of price of acquisition of diver's licence - Diver to pay processor 50 per cent of beach price of abalone and sell all of catch to processor - Agreement frustrated by statutory and regulatory changes to licensing regime - Diver refused to comply with spirit of agreement - Liability to account for profit or gain received in breach of fiduciary duty - Principles applicable - Basis for account of profits - Stripping of profits wrongly gained - Interest to be paid on amounts found due.

Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544; Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 69 ALJR 678; Wallersteiner v Moir (No 2) [1975] 1 All ER 849, applied.

Equity - Trusts and trustees - Constitution and classification of trusts generally - Classification of trusts in general - Constructive trusts - General principles - Common intention - Express trust becoming impossible of performance - Frustrated by statutory and regulatory changes - Breach of fiduciary duty - Remedy of constructive trust on terms moulded according to the nature of the relationship and the facts of the case - Terms of the trust.

Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178; Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, applied.

Tasmanian Seafoods Pty Ltd v Kossman [2005] TASSC 5, followed.

Judgment Number: [2005] TASSC 36

TASMANIAN SEAFOODS PTY LTD v MALCOLM CLIVE MacQUEEN

3 Counsel to be heard further with respect to final orders.

TASMANIAN SEAFOODS PTY LTD v MALCOLM CLIVE MacQUEEN

1 This appeal is brought from orders made by Slicer J on 6 May and 2 September 2004. In essence, the litigation concerns the nature and extent of the appellant's interest in certain rights that the first respondent had to fish for abalone. In order to understand the issues, it is necessary to trace the history of these rights and the history of the relationship between the parties.

2 The appellant is a substantial processor of abalone and a substantial investor in the industry. The first respondent is an abalone diver and carries on business in partnership with his wife, the second respondent. In 1988 the first respondent approached the appellant with a view to a joint purchase of commercial abalone licence, Entitlement 123, that was on the market for sale. The vendor was a Mr Vanderwoude and his price was $610,000. The appellant and the respondents agreed that the first respondent would buy this licence and that the appellant and the respondents would each contribute $305,000. The licence was issued pursuant to the Sea Fisheries Regulations 1962, reg17A. It was subject to a number of conditions, one of which limited the quantity of abalone ("the quota") that the holder could catch. Entitlement 123 was also subject to a condition that the holder could only fish in waters around the Furneaux Group of islands. There were only five commercial abalone licences issued with this restriction. They were issued to residents of Flinders Island who were known as Furneaux divers. All the other commercial abalone licences issued pursuant to the Sea Fisheries Regulations, reg17A, were conditioned that the holders not fish in the waters around the Furneaux Group of islands.

3 In 1988 a quota was expressed as a certain number of units. A unit represented a weight of abalone. This weight varied from time to time as the authorities managed the abalone fisheries. The quota attached to a licence held by a Furneaux diver was 20 units. All the other Tasmanian commercial abalone licences had a quota of 28 units.

4 On 13 August 1988, the appellant and the respondents entered into a deed to govern their relationship upon the purchase of Mr Vanderwoude's commercial abalone licence. The deed recited:

•

that there was an agreement for Mr Vanderwoude to transfer the licence to the first respondent or nominee;

•

that the first respondent nominated himself, his wife and the appellant as purchasers;

•

a declaration by the first respondent that he held the licence as trustee for the appellant and the second respondent on the terms set out in the deed;

•

that the appellant and the respondents were the beneficial owners of the licence as tenants in common in equal shares.

(a) The respondents were obliged to deliver, at their expense, all the catch to the appellant at its factory "in the mainland of Tasmania".

(b) The appellant was to pay the respondents the average price, as defined by the deed, for the catch.

(c) The respondents were to pay to the appellant one-third of the average price for all the abalone caught pursuant to the quota.

(d) The appellant was entitled to deduct from the purchase price (b) from the sum due to it under par(c).

(e) The respondents could not sell any part of the quota without the consent of the appellant and in the event of such a sale, the respondents had to pay the appellant a portion of the sale price calculated with reference to the average price.

(f) If the respondents were not likely to catch all the quota in any year, they had to assign the uncaught portion to the appellant.

(g) General covenants that the respondents would use their best endeavours to catch the full quota, not to breach the regulations, and so on.

(h) The respondents were to pay all royalties and licence fees.

(i) The respondents were not to catch or deliver abalone to the appellant if the appellant's factory was closed.

(j) The respondents were not to sell, assign, charge or deal with the licence in any way without the consent of the appellant.

(k) The respondents appointed the appellant and its principal executive officer attorneys for the purpose of transferring the licence.

(l) In the event of the respondent not catching the full quota, the respondents had to pay the appellant a sum equal to one-third of the average price of the abalone not caught.

5 In addition, the deed contained a termination clause which brought the arrangements to an end on the happening of certain specified events. Those events included the incapacity of the first respondent to continue diving and the giving of three months' notice by either side. In the event of termination, the appellant and the respondents each had a right to buy the other's interest in the licence for a sum equal to one-half of the current market price for Furneaux Island Group commercial abalone licences in Tasmania.

6 In 1989, the Government decided to remove the geographical restrictions on fishing in the waters around the Furneaux Islands. From 1 January 1990, all commercial abalone divers were entitled to fish anywhere in Tasmanian waters. By way of compensation for losing their exclusive fishing rights off the Furneaux Islands, the five Furneaux Group licence holders were each issued with a further eight quota units, free of charge. This brought all the commercial abalone licences into line, with each holding 28 units. However the eight units issued to each of the holders of the Furneaux Group licences were subject to restrictions, namely:

•

only the diver to whom they were issued could catch the quota;

•

the units were non-transferable; and

•

the units had to be surrendered when the diver ceased to be a commercial abalone diver.

7 With effect from 1 January 1991, the regulatory scheme underwent a radical change. Those changes were described by Crawford J in Tasmanian Seafoods Pty Ltd v Kossman & Anor [2005] TASSC 5 at par8. I take the liberty of setting out his Honour's description of those changes as follows:

"With effect from 1 January 1991, the Sea Fisheries Regulations were significantly amended by the Sea Fisheries Amendment (Abalone Licences and Fees) Regulations 1990. The licence system was restructured. The diving entitlement was uncoupled from the entitlement to hold quota units. There were created abalone quota licences. Commercial abalone licences became known as commercial abalone diver's licences and the provisions relating to them were substantially amended. The holder of a commercial abalone diver's licence was entitled to take abalone for commercial purposes under the authorisation of the holder of an abalone quota licence. (Regulation 17A.) At first, the holder of an abalone quota licence was required to be an individual, but from a later date corporations were permitted to hold such a licence. The holder could not personally take abalone unless also the holder of a commercial abalone diver's licence. In that way, investment in licences to take abalone in commercial quantities, and the opportunity to hold such licences, was extended. Each abalone quota licence was expressed to authorise the taking of a specified number of quota units. There was no longer a limit, upper or lower, on the number of quota units that might be owned by an individual. As with the previous quotas, a quota unit was expressed as a weight, the amount of which has varied from time to time. An abalone quota licence authorised the holder of the licence and any person authorised by the holder under the licence and whose authorisation had been approved under reg17(1), to take, in total, not more than the number of abalone quota units specified in that licence. (Regulation 16H.) The holder of the abalone quota licence had to apply to the Minister for approval of each licensed commercial abalone diver authorised by the holder to take abalone under the licence and the number of abalone quota units the holder had authorised the diver to take. (Regulation 16I.) The holder of the abalone quota licence was entitled to apply to have that licence transferred to another person. (Regulation 16K.) Prior to that regulation, transfers were not legally possible but in effect, they were officially endorsed by the issue of a new licence to a proposed 'transferee' in place of the 'transferor's' licence, which was surrendered."

8 Like Mr Kossman, on 1 January 1991, the first respondent became the holder of an abalone quota licence for 28 units, eight of which were restricted in the manner I have set out, and the holder of a commercial abalone diver's licence. These two licences replaced the commercial abalone licence that was the subject of the express trust created by the deed.

9 Over the ensuing years, there were several further changes to the statutory regulations governing the abalone fishing industry. These relatively minor changes are detailed in the Kossman judgment at pars10 and 11. It is unnecessary to set them out here.

10 Notwithstanding the issue of a further eight units and the subsequent statutory changes, the parties continued to do business with each other in accordance with the terms of the 1988 deed. The respondents delivered the fish caught pursuant to the 28 quota units to the appellant's factory at their expense and paid the appellant one-third of the average price for them.

11 However, during 1993 there were several discussions between the first respondent and the appellant's managing director, Mr Hansen. The former told the latter that he would like to change the way he was working. But there was a problem about the eight Furneaux Group quota units. There were differences between the evidence of Mr Hansen and the evidence of the first respondent as to who said what during the negotiations prior to the end of 1993 that do not need to be examined on this appeal. However, it may be noted that in a letter dated 14 December 1993, the first respondent proposed to Mr Hansen that the appellant and the respondents each take 10 of the original quota units. This would leave the first respondent holding the original 10 quota units plus the eight Furneaux Group quota units. With respect to these 18 units, the letter suggested that the appellant pay the respondents in full for the abalone caught pursuant to 14 of these units and with respect to the remaining four, the respondents would pay one-third of the average price as defined by the deed. It was the respondents' case at trial that agreement was reached on this basis. The appellant denied that any agreement was reached. The learned trial judge found for the appellant on this issue. The respondents lodged a cross-appeal against this finding, but at the hearing of the appeal, Mr Ayliffe, counsel for the respondents, abandoned the cross-appeal. There should be an order that it be dismissed.

12 Although the parties could not reach an agreement with respect to the eight Furneaux Group quota units, on 7 January 1994 they executed a deed of partition and divided the 20 quota units equally between them.

13 Discussions between Mr Hansen and the first respondent with respect to the eight Furneaux Group quota units continued after the execution of the deed of partition. The respondents engaged solicitors. The latter corresponded with the appellant's solicitors with respect to a draft new agreement prepared upon Mr Hansen's instructions. It is clear that both the appellant and the respondents considered that a new agreement was necessary because of the restrictions on the eight Furneaux Group quota units, but the parties were unable to come to terms.

14 During 1994 and 1995, the appellant and the first respondent continued to discuss what they should do with respect to the eight Furneaux Group quota units. On 14 September 1994, the respondents ceased supplying abalone to the appellant's factory at Smithton. That year, the first respondent dived for the ten quota units from the original licence that he owned absolutely, plus the eight Furneaux Group quota units. He was, of course, paid in full for the ten quota units and he was also paid in full for four of the Furneaux Group quota units. The respondents paid the appellant one-third of the average price for the abalone taken pursuant to the other four Furneaux Group quota units. There was a dispute in the evidence about whether, by silence, the appellant acquiesced in that arrangement.

15 In 1995, the first respondent suggested to Mr Hansen that if he was not happy with the 1994 arrangement, the first respondent was prepared to catch the appellant's ten quota units from the original licence, plus his own ten units and the eight Furneaux Group quota units upon the basis that he pay the appellant one-third of the average price for the whole 28 units. The appellant sent its ten quota units to the first respondent and in that year he caught 28 units. This was a reversion to the arrangements set out in the 1988 deed and the business dealings between the parties from January 1990 to January 1994, with one exception. The respondents did not supply the fish to the appellant. They simply paid the appellant one-third of the average beach price and sold the fish elsewhere. Again there was a dispute on the evidence as to whether the appellant complained about the lack of supply. The respondent sent money to the appellant each year thereafter. The sum sent was equal to one-third of the price paid to them for abalone caught pursuant to four of the eight Furneaux Group quota units. The appellant did not accept this arrangement and commenced these proceedings by the issue of a writ on 22 July 1998.

16 As a result of the statutory changes and the execution of the deed of partition, at the time of trial, the commercial abalone licence which was the subject of the 1988 deed, had become:

•

a fishing licence (abalone dive) which authorised the first respondent to take abalone in commercial quantities;

•

a fishing licence (abalone quota) issued pursuant to the Fisheries (Abalone) Rules 2000 the first respondent for 18 quota units, eight of which were subject to the restrictions imposed at the time of their issue in 1991; and

•

a fishing licence (abalone quota) issued to the appellant pursuant to the Fisheries (Abalone) Rules 2000 for 10 quota units.

17 By its statement of claim, the appellant made the following claims:

•

entitlement to a declaration that the respondents (sic) hold the fishing licence (abalone dive) and the eight former Furneaux Group units attached to the fishing licence (abalone quota) issued to the first named respondent, in trust to the extent of one-half for the appellant and one-half for the respondents;

•

an order for account for the value of the two licences which have been used to generate income, plus interest;

•

alternatively, equitable damages for breach of trust and/or breach of fiduciary duty;

•

tracing;

•

certain consequential other orders and relief.

18 At par41 of his reasons for judgment published on 6 May 2004, the learned trial judge found that:

"[t]he eight units were ... held subject to a trust, the terms of which differed from the original [the 1988 deed] since they lacked assignability and permanency and were personal to the first[respondent]."

19 His Honour then referred to a number of cases which considered the issue of whether a personal licence created a proprietorial interest. He concluded that because of the personal nature of the eight Furneaux Group quota units, they could not be trust property, but held, at par49:

"[t]he plaintiff was entitled to the proceeds as a result of the trust, but not to a declaration of interest in the quota right."

20 He said nothing at all about the appellant's claim for a declaration of trust with respect to the fishing licence (abalone dive).

21 Following the learned trial judge's conclusion that the eight Furneaux Group quota units attached to the fishing licence (abalone quota) were incapable of constituting trust property, his Honour said in his reasons for judgment dated 6 May 2004 at par57:

"The trust was that of entitlement to proceeds, not property in its own right. The terms of the trust were as before, namely one-third/two-third division of the value of the catch. The plaintiff is entitled to enforcement of the terms, but does not acquire thereby the right as claimed in the statement of claim, pars14A, 25(a) to (c)."

22 The learned trial judge concluded that the appellant was entitled to equitable damages on that basis and awarded $275,834. His Honour's reasons for judgment dated 6 May 2004 concluded, at par62:

"The plaintiff is entitled to equitable compensation in an amount of $275,834, together with interest to be assessed. It is entitled to a declaration that it ought receive one-third of the return, calculated in accordance with the market beach price, for the catch of abalone derived by the defendants pursuant to the 8 Furneaux units during such period as the licence and the quota units remain in force."

23 The trial was adjourned for further argument with respect to interest and costs. On 2 September 2004, the learned trial judge assessed interest in the sum of $85,982 and concluded, at par24:

(1) There be judgment for the plaintiff in the sum of $361,816.

(2) The defendants pay the plaintiff's taxed costs on a party/party basis up to, until and including 25 November 2003.

(3) The plaintiff pay the defendants' costs on a party/party basis as and from 26 November 2003.

'For so long as the first named defendant is entitled to take abalone pursuant to 8 abalone quota units issued to him, generally known as Furneaux units, then the plaintiff is entitled to receive one third of the return, calculated in accordance with the market beach price, for the catch of abalone derived from those 8 Furneaux units'."

24 The notice of appeal contains 30 grounds. They can be summarised as follows. The learned trial judge erred in that he:

(a) failed to declare that the first respondent held the fishing licence (abalone dive) in trust as to one-half for the appellant and one-half for the respondents;

(b) failed to declare that the first respondent held the eight Furneaux Group quota units attached to the fishing licence (abalone quota) in trust as to one-half for the appellant and one-half for the respondents;

(c) erred with respect to the terms of the constructive trust that he did declare;

(d) consequentially erred in law with respect to his calculation of equitable damages;

(e) erred in law by applying an incorrect basis for the calculation of interest;

(f) erred in the exercise of his discretion when making the order for costs.

25 Upon the hearing of the appeal, it was agreed that the argument with respect to costs should await the outcome of the other grounds of the appeal.

26 On the first day of the trial, counsel for the appellant conceded the plea in the statement of claim, par9, that "the [respondents] have held and continue to hold the fishing licence (abalone dive) as an express, or alternatively a constructive trustee on behalf of the [appellant] as to one-half interest ...". Paragraph 1 of the prayer for relief in the statement of claim seeks a declaration to that effect. It would appear that the learned trial judge overlooked that concession, for no declaration was made with respect to the fishing licence (abalone dive). Mr Ayliffe conceded that the appellant was entitled to that declaration.

27 The first question with respect to the status of these quota units is whether, assuming that they were capable of being trust property, they were trust property governed by the terms of the 1988 deed. It is difficult to see how these quota units could have been trust property within the meaning of the 1988 deed. They did not exist when the deed was entered into. In addition, unlike the 20 quota units that did comprise trust property, the entitlements conferred by the eight Furneaux Group quota units could only be utilised by the personal exertion of the first respondent, are incapable of transfer to another and will not exist once the first respondent ceases to be a commercial abalone diver. All of this makes them incompatible with a considerable number of significant clauses in that deed. At par40 of his reasons for judgment dated 6 May 2004, the learned trial judge said:

"The statutory and regulatory reforms post the agreement and the terms of allocation of the 8 Furneaux units, did not permit those quotas to be subject to the above terms. The severance of the terms of the licence and the quota by government created concurrent rights and obligations stated by contract and equity. Given the finding that there had been no variation of contract by agreement, the relationship between the parties became determined by both the 1988 agreement and the principles of trust. The contract might determine the terms of the constructive trust, but the rights and obligations of the parties were co-existing (Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41; Breen v Williams (1996) 186 CLR 71). The accommodation by law and equity to co-existing rights has its origin in the principles stated in Koech v Sandford (1726) Sal Cas: 25 ER 223. The plaintiff and first defendant were trustees of one-half of an interest in (i) the diving entitlement; and (ii) the 8 Furneaux units. The interest might fall short of full beneficial ownership since the grant of the units and thereby the right of the first defendant to dive for them is extinguished upon the decision of the diver to cease diving."

28 Although I have some difficulty in entirely following the learned trial judge's reasoning in that paragraph, Mr Ayliffe accepted that his Honour was there making a finding that the eight Furneaux Group quota units were trust property, but the terms of the trust were not those expressed in the 1988 deed. Mr McElwaine, who appeared as counsel for the appellant, submitted that the learned trial judge either found, or should have found, as Mr Ayliffe contended. I accept those submissions. It seems to me that the eight Furneaux Group quota units attached to firstly, the commercial abalone licence and secondly, the fishing licence (abalone quota), were such that upon a proper construction of the 1988 deed, they were not trust property subject to that deed. I think that as a consequence of the regulatory changes that came into force on 1 January 1991, the same can be said of the fishing licence (abalone dive) so that upon that date the deed was frustrated and came to an end. What then was the status of the eight Furneaux Group quota units, for it is common ground that they were issued to the first respondent after the execution of the 1988 deed solely because he was the holder of the commercial abalone licence that he held in trust in accordance with the terms of the deed?

29 Mr Ayliffe submitted that the eight Furneaux Group quota units were incapable of constituting trust property because the conditions attached to them made them inalienable, and personal to the first respondent. Mr McElwaine's submission was that notwithstanding the conditions, a beneficial interest in those units was alienable and they constituted property held by the first respondent on a constructive trust for the appellant and the second respondent.

30 The following statement is taken from Underhill, Law of Trusts and Trustees (13 ed) 122:

"What property is capable of being made the subject of a trust

All property real or personal, legal or equitable, at home or abroad and whether in possession or action, remainder or reversion, and whether vested or contingent, may be made the subject of a trust, unless -

(a) the policy of the law or some statutory enactment has made it inalienable; or

(b) where the property is land abroad the trusts sought to be created are inconsistent with the lex loci situs."

31 This statement was cited with approval in Jacob's Law of Trusts in Australia, 6 ed at 707. Immediately thereafter, the authors said:

"The property, the subject of the trust, must be certain, but, provided that it is capable of being disposed of inter vivos or by will, it may be the subject of a valid trust."

32 The bottom line is that inalienable property cannot be the subject of a trust. With respect to the eight Furneaux Group quota units attached to the fishing licence (abalone quota), the following facts are admitted on the pleadings:

•

they are for the personal diving use of the first respondent;

•

the entitlement to take abalone pursuant to the units and the units themselves are not transferable; and

•

the units must be surrendered by the first respondent when he ceases to be a licensed commercial diver.

33 There have been a number of cases that have considered whether a quota and/or a fishing licence is capable of being trust property. In Kelly v Kelly (1990) 64 ALJR 234, the court said, at 236:

"Whatever the position with the abalone permit, there can be no doubt that the abalone authority gave rise to valuable rights which were capable of being held for the partnership in such a way as to constitute partnership property: see Ambler v Bolton (1872) LR 14 Eq 427; O'Brien v Komesaroff [1982] HCA 33; (1982) 150 CLR 310. Despite the fact that it could only be done indirectly and with the consent of the Director of Fisheries, it was plainly possible to make what was effectively the transfer of an authority for consideration, thus enabling a value to be placed upon it. This was so, notwithstanding that there were certain requirements in respect of an abalone authority which were personal to the holder, such as the requirement that he be medically fit to dive."

34 In Pennington v McGovern (1987) 45 SASR 27, King CJ said, at 31:

"The provisions of the regulations to which I have referred as to the contemplated value and transferability of the licence and as to the right to hold it notwithstanding that its exercise is subject to the direction and instructions of another, are all, to my mind, indicia of rights of property and I have no difficulty in reaching the conclusion that the rights conferred by the licence are proprietary in character. All forms of property may be the subject of a trust unless the policy of the law or any statutory enactment has made particular property inalienable, R P Meagher and W M C Gummow, Jacobs Law of Trusts in Australia (5th ed 1986), p 657. The property in question in this case is not, in my opinion, inalienable in the relevant sense. The licence itself can be transferred only with the consent of the Director, but the regulations clearly contemplate that the licence may be held by a person who has entered into an arrangement by which the exercise of the licence is to be subject to the directions and instructions of another. No consent is required to such an arrangement. I do not see the requirement that the transfer of the licence itself is subject to consent as an obstacle to a licence and the rights conferred by it being the subject matter of a trust."

"For the reasons which I have expressed above and for those expressed by the learned Chief Justice, I agree that the fishing licence is proprietary in the sense that it is capable of being transferred in accordance with the fiduciary obligations which are placed upon the licence holder under the terms of this deed and in the events which have happened. The transfer of such licence is necessarily subject to the consent of the director. But the beneficial owner under the deed is entitled to the transfer of that licence to a person who albeit is nominated by the beneficial owner, is capable of complying with the provisions of the Act and regulations and to whom the consent of the director is given for transfer." [Bold emphasis added.]

36 In Pennington the licence was alienable, albeit only with the consent of the director. With respect to inalienable property, Legoe J said, at 44 - 45:

"There are some forms of property the transfer of which is wholly, or partly prohibited and the restriction may prevent a trust being created in relation to them. When parties by contracting create a chose in action they may, as part of their agreement, provide that it is not to be assignable. Such provision will be upheld, for example Helstan Securities Ltd v Hertfordshire County Council [1978] 3 All ER 262. The deed which is the subject of these proceedings does not state that the fishing licence is not assignable or transferable. Counsel for the appellant argued strenuously that the relevant legislation in this case, namely the Fisheries Act 1982 and regulations thereunder, prevent the operation of a trust. The legislation may simply prohibit the creation of a trust in such terms that any attempt to do so is to be completely ineffective in the sense that no change in the legal position of any person arises or can arise in the future from the acts purporting to create the trust."

37 Edwards v Olsen [1996] SASC 5703; (1996) 67 SASR 266 was a case in which the regulations permitted the director, in the exercise of his discretion, to accept the surrender of a licence held by the proposed transferor and to issue a new licence to the proposed transferee in its stead. With respect to this situation, Olsson J said, at 281 - 282:

"There does not appear to have been any policy consideration under the statutes or regulations which would found a prohibition against the vesting of beneficial interests in licences, registrations, authorities or permits in parties other than the actual holder, because this would have had no impact on the proper management of relevant fisheries or the due discharge of the legal and practical responsibilities of the legal holder, which would remain unaltered. Licences, registrations, authorities and permits are clearly 'property', the beneficial ownership of which can form the subject matter of legal relationships, absent some express statutory provision to the contrary (see Pennington v McGovern 1987) 45 SASR 27; Kelly v Kelly (1990) 64 ALJR 234). I would therefore hold that this was the situation."

38 Zeeman J examined a considerable number of cases concerning this issue of alienability in a slightly different context in Poulos Bros (Wholesale) Pty Ltd v Abbott A88/1994. In that case, the licence in question was attached to a particular boat which clearly was, of course, alienable property. In the course of giving his reasons for judgment, his Honour said, at 10:

"A mortgage may be given over any type of property unless the law makes it inalienable. In that respect there is no reason to differentiate between property which may be made the subject of a trust and that which may be made the subject of a security."

39 In my view, the conditions imposed upon the eight Furneaux Group quota units attached to the fishing licence (abalone quota) were such that "any purported creation of a trust [was] completely ineffective in the sense that no change in the legal position of [either the appellant or the respondent arose] or can arise in the future from the act purporting to create the trust" per Ford and Lee, Principles of the Law of Trusts, 2 ed at 149.

40 Mr McElwaine submitted that the relevant test was whether the terms of the statute expressly or impliedly barred alienability. He relied upon Tasmanian Seafoods Pty Ltd v Peters, unreported Supreme Court of Queensland, 2 July 1999. In that case the parties signed an agreement in 1993 for the sale and purchase of a fishing licence. At the time of the agreement the licence was not transferable. It became transferable at the end of 1996, but subsequent to that date, the authority refused to register the transfer lodged by the plaintiff. The plaintiff then applied for an order of specific performance of the agreement. The defendant did not appear at the hearing to oppose the making of the order. In his reasons for judgment, Wilson J said, at par19:

"The court cannot grant specific performance unless the licence was property capable of being the subject of a trust. If the licence was property, was the beneficial interest alienable, even if the legal interest was not? The plaintiff's counsel submitted that the legislation was directed at ensuring that the licensee exploited the fishery responsibly and that it was not directed at or concerned with who got the benefit of the fruits of that exploitation; in other words, that there was no implied barrier to the transfer of the beneficial interest."

41 His Honour then referred to the cases I have mentioned and said, at par28:

"In my view, the licence in question in the present case did have the character of property. There was an implied prohibition on transfer of the legal title, but no such implied prohibition on transfer of the beneficial title. Accordingly, it could be the subject of a trust. The annual renewal of the licence did not change its identity. Nor did the repeal of that legislation and the subsequent issue of authorities under the new legislation. See Pennington at p31."

42 It seems to me that this case does not assist Mr McElwaine's submission. The present case is not one of statutory silence leaving open the possibility of implied permission for the transfer of a beneficial interest. The agreed facts in the present case are that the licence is personal to the first respondent and the entitlements it confers can only be taken up by him. When the first respondent ceases to hold a diving licence, the eight Furneaux Group quota units will no longer exist. By reason of these facts, it seems clear to me that these units are just as inalienable, and therefore incapable of constituting trust property, as was the pension payable under the State Service Superannuation Act 1972 (Qld) referred to in R v Bruynius [1995] 1 Qd R 492. Section 54 of that Act provided:

"Subject to sections 46A and 55 pensions, benefits and payments under this Act shall not be in any way assigned ... to any person other than the beneficiary or payee ...".

43 In that case the court held that the purported assignment of the pension was invalid.

44 As I have said, the learned trial judge reached the conclusion that the eight Furneaux Group quota units were not trust property (although he did so describe them from time to time in other passages in his judgment) for he held that the appellant's entitlement was to "the proceeds as a result of the trust". In my respectful opinion he was correct in concluding that the eight Furneaux Group abalone quota units were not trust property, but it would appear that the learned trial judge did not consider the status of the fish caught pursuant to the entitlement conferred by those units. Upon the hearing of the appeal, Mr Ayliffe conceded that if the Furneaux Group quota units were not trust property, the fish caught pursuant to the entitlement conferred by them must be trust property. In my opinion, the appellant is entitled to a declaration accordingly.

45 Herein lies the nub of the dispute between the parties. The eight Furneaux Group quota units were issued to the first respondent because he was the holder of trust property within the meaning of the 1988 deed. Accordingly, the respondents accept that with respect to these units, the respondent was, and is, a trustee and a fiduciary. The general obligations imposed upon a fiduciary were stated by Deane J in Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178 at 198 - 199 in these terms:

"The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one 'fundamental rule' embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. Notwithstanding authoritative statements to the effect that the 'use of fiduciary position' doctrine is but an illustration or part of a wider 'conflict of interest and duty' doctrine (see, eg, Phipps v Boardman [1967] 2 AC, at p l23; NZ Netherlands Society v Kuys [1973] 1 WLR, at p 129; [1973] 2 All ER, at p 1225), the two themes, while overlapping, are distinct. Neither theme fully comprehends the other and a formulation of the principle by reference to one only of them will be incomplete. Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it."

46 In Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, Mason J (as he then was) described the general duty of a fiduciary in the following terms at 107:

"The principle, accepted by the courts below, is that the fiduciary cannot be permitted to retain a profit or benefit which he has obtained by reason of his breach of fiduciary duty (Consul Development (1975) 132 CLR at p393; Queensland Mines (1978) 52 ALJR at p401; 18 ALR at p3). A fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where there was a conflict, or possible conflict of interest and duty or (2) by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position."

47 If the fiduciary does not account for the benefit, gain or advantage, then the fiduciary becomes a constructive trustee in respect of it. In this respect Mason J said in Hospital Products at 107 - 108:

"Any profit or benefit obtained by a fiduciary in either of the two situations already described is held by him as a constructive trustee (Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd [1958] HCA 33; (1958) 100 CLR 342, at p 350). Neither principle nor authority provide any support for the proposition that relief by way of constructive trust is available only in the case where a profit or benefit obtained by the fiduciary was one which it was an incident of his duty to obtain for the person to whom he owed the fiduciary duty. Once it is established that the fiduciary is liable to account for a profit or benefit which he has obtained there can be no objection to his being held to account as a constructive trustee of that profit or benefit. It can make no difference that it was not his duty to obtain the profit or benefit for the person to whom the duty was owed. What is important is that the advantage has accrued to him in breach of his fiduciary duty or by his misuse of his fiduciary position. The consequence is that he must account for it and in equity the appropriate remedy is by means of a constructive trust."

See also De Tozser v Tasmanian Seafoods Pty Ltd A86/1992 at 7 - 8.

48 However, the exact nature and extent of a fiduciary's obligations in any given case will depend upon the nature and scope of the relationship between the parties. See, eg, Kelly v Cooper [1993] AC 205 at 215; Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 465 - 467; Hospital Products Limited (supra) at 97. In determining the extent of the obligations, and consequentially declaring the terms of a constructive trust, the obligation of a Court of Equity is to do "practical equity". See Bridgewater v Leahy [1998] HCA 66; (1998) 72 ALJR 1525. With respect to the implementation of a practical equity, Mason J said in Hospital Products at 102:

"... it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case."

49 These principles were applied by Crawford J in Tasmanian Seafoods Pty Ltd v Kossman (supra). In that case, Crawford J referred, at par44, to the need to provide equitable relief that is practically just and which prevents unjust enrichment, a proposition enunciated by the High Court in Warman International Ltd v Dwyer [1995] HCA 18; (1994) 182 CLR 544 at 588 and in Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 69 ALJR 678 at 684. However, it may be noted that in Warman the joint judgment eschewed that the liability of a fiduciary to account for a profit made in breach of a fiduciary duty is determined by reference to the concept of unjust enrichment, for there is no obligation to show that the beneficiary has suffered injury or loss.

What did the learned trial judge do in this case?

50 Under the heading "Terms of trust and remedy", the learned trial judge said, at par57:

"The trust as of 1991, absent the requirement to supply, as it applied to the 8 units was one of entitlement to a percentage of sales, less payment of royalties, licence fees and the provision of labour and skill by the first defendant."

51 I am uncertain as to why his Honour selected the year 1991. It may be a reference to 1 January 1991, the date substantial changes to the regulatory scheme came into operation. In which case his Honour may have proceeded on the assumption that the eight Furneaux Group quota units were subject to the terms of the 1988 deed until it came to an end by frustration because of the regulatory changes. If this was his Honour's reasoning, it is true that from 1991 the deed would no longer impose an obligation of supply, but it certainly does not follow that the first respondent's duty as fiduciary did not include a duty to supply. The evidence showed that from 1 January 1990 until at least the execution of the deed of partition on 7 January 1994, the parties dealt with the entitlements from the eight Furneaux Group quota units in exactly the same way as they dealt with the 20 original units, viz, in accordance with those terms of the 1988 deed that governed the catching, delivery and sale of the fruits of the quota units. Accordingly, one would think that in 1991 the requirement that the respondent supply the fish caught pursuant to the eight Furneaux Group quota units to the appellant at its factory "in the mainland of Tasmania" would have been a fiduciary duty and a term of the constructive trust.

52 At par41 of his reasons for judgment, the learned trial judge made it clear that he considered that the eight Furneaux Group quota units were not subject to the express trust when he said:

"The 8 units were likewise held subject to a trust, the terms of which differed from the original [1988 deed] since they lacked assignability and permanency and were personal to the first defendant."

53 His Honour then examined some authority and concluded that the units lacked assignability necessary to enable them to be trust property, although he did, as I have said, continue to describe them as trust property from time to time.

54 In his reasons for judgment at par57, the learned trial judge continued:

"The plaintiff had provided capital for the purchase of the original licence/quota entitlement and was entitled to a return on its investment. The first defendant provided skills and labour, accompanied by hazard and effect on health, and was required to meet statutory fees."

55 No exception can be taken to those conclusions. His Honour then said:

"Partition of the 20 units deprived the remaining 8 of the characterisation of property."

56 With respect, I think it was the conditions imposed upon the eight units that deprived them of the categorisation of property, not the deed of partition, but nothing turns on this. The learned trial judge then said, correctly in my respectful view:

"The trust was that of entitlement to proceeds, not property in its own right."

57 As I have observed, the trust also attached to the fish caught in the exercise of the entitlement conferred by the eight units, as well as, of course, the proceeds of sale. Thereafter, the learned trial judge concluded, at par57:

"The terms of the trust were as before, namely one-third/two-third division of the value of the catch. The plaintiff is entitled to enforcement of the terms, but does not acquire thereby the right as claimed in the statement of claim, pars14A, 25(a) to (c)."

58 His Honour did not elaborate as to why he reached the conclusion that this was the practical equity, nor explain why, if the terms of the trust were "as before" the requirement to supply the fish to the appellant's factory "in the mainland of Tasmania" was not also a term of the trust.

59 Paragraph 14A of the statement of claim related only to the fishing licence (abalone dive) and its predecessor. It was deleted from the statement of claim by an amendment. Paragraph 14(a) also related only to the fishing licence (abalone dive) and its predecessor. By par14(a) the plaintiff (appellant) sought an account for its share in that licence plus interest. It would appear that the learned trial judge erroneously believed that par14(a) concerned the eight Furneaux Group quota units attached to the fishing licence (abalone quota). Paragraphs 20 - 25 of the statement of claim concerned the appellant's interest in those units. First, by par22, the appellant claimed an account of the income earned from the appellant's interest in those units. Second, by par25, the appellant additionally claimed restoration of its interest in those units, alternatively damages and tracing. The learned trial judge gave no reasons why the appellant should not have an account, as well as the alternative remedies that were sought. I shall return to this aspect of the appeal.

60 I hope I do not do Mr McElwaine's arguments on the central issue on this appeal an injustice if I summarise the essence of them as follows:

•

The 1988 deed never applied to the eight Furneaux Group quota units, or alternatively, did not apply to them after the statutory change that came into force on 1 January 1991. The 1988 deed did not apply to any licence issued after 1 January 1991. The deed came to an end on that date, or alternatively, after the deed of partition, and therefore had little or no significance in determining what was the practical equity in the circumstances as they existed after 1994. This was not a case where there were co-existing fiduciary and contractual obligations.

•

Alternatively, so many of the terms of the 1988 deed were inapplicable to the eight Furneaux Group quota units because of the restrictions imposed on them, none of the terms of that deed should govern the terms of the trust.

•

The learned trial judge plainly erred when he applied some of the terms of the deed but not others, especially the obligation to supply.

•

The initial investment was a joint 50/50 investment of capital and the trust should be declared to reflect that investment after making allowances for the payment of fees, royalties and costs of diving.

61 For the respondents, Mr Ayliffe contended that the reference to the 1988 deed to determine the terms of the trust was appropriate and in accordance with the following passage taken from the judgment of Mason J in Hospital Products Limited (supra) at 97:

"That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."

62 Mr Ayliffe further submitted that the conclusion reached by the learned trial judge on the issue of the terms of the trust was appropriate and should not be disturbed.

63 It was common ground that the financial provisions in the 1988 deed were based upon these propositions:

•

Each party would contribute one-half of the capital cost of acquiring the trust assets.

•

One-third of the gross earnings from the utilisation of those assets would go each to the appellant and the respondents by way of return on their capital investment and one-third would go to the respondents to cover licence fees, royalties and costs of diving, including the first respondent's labour.

64 According to agreed figures tendered at the trial, in 1997 (a year selected at random) the average beach price for a kilo of abalone was $33.57. With respect to the one-third attributed to cost of diving etc, royalties in that year were $4 per kilo and costs of diving $2.95, making a total of $6.95. There was no evidence of the cost of licence fees for that year. The cost of diving was the actual cost in that year of employing a licensed diver to catch abalone. Thus, it can be seen that in 1997, out of the one-third beach price allowed for costs of diving, royalties and licence fees ($11.19), $7.19 was attributable to the cost of diving and licence fees. Thus, the commercial arrangements that persisted between the parties until 1994 provided the first respondent with a fee for diving considerably in excess of the fee that would have been payable to another diver to catch the same abalone, after it became lawful for this to be done. So, the terms of the trust declared by the learned trial judge were more favourable to the respondents than the terms of the 1988 deed and the arrangements between the parties between 1990 and 1994 because they did not have to bear the cost of supply to the appellant's factory. On the other side of the ledger, the terms propounded by Mr McElwaine were more favourable to the appellant than the terms of the 1988 deed and the arrangements between the parties between 1990 and 1994 because the cost attributable to diving was based on the market cost of employing a diver to take abalone, a figure considerably less than that allowed under the deed for the first respondent to perform the same task.

65 The facts of this case are barely distinguishable from Tasmanian Seafoods Pty Ltd v Kossman (supra) a case determined after the case at hand. Mr Kossman was also a Furneaux Group diver. He entered into a written agreement with the appellant in December 1985 to purchase a commercial abalone fishing licence that carried the same conditions and the same quota as did the licence held by the first respondent. Mr Kossman's obligation under the written agreement was to pay the appellant one quarter of the average beach price for all the abalone caught, not one-third as was the case with the respondents, but in virtually all other respects the obligations of the parties under the deed were the same as the obligations of the appellant and the respondents under the 1988 deed.

66 In Kossman, it was common ground that after the regulatory changes that took effect on 1 January 1991, the terms of the 1985 deed did not govern either the 20 original quota units or the eight Furneaux Group quota units.

67 Unlike the respondents, in 1990, Mr Kossman claimed that the appellant had no interest at all in the eight Furneaux Group quota units and retained the whole of the benefits earned from those units. The appellant complained about this and threatened action. Mr Kossman relented and treated the eight Furneaux Group quota units in exactly the same way as the original 20 units had been treated under the 1985 deed.

68 The only material distinction between the respondents' position and that of Mr Kossman was that the respondents entered into a deed of partition with respect to the original 20 units and Mr Kossman did not. Mr Kossman still held all 28 units at the time the appellant commenced proceedings against him.

69 In 1994 relations between the appellant and Mr Kossman followed more or less the same path as had the relations between the appellant and the respondents. Mr Kossman gradually ceased to supply the appellant with the fish caught pursuant to the 28 units until August that year when supply stopped altogether. However, unlike the respondents, after 1994 Mr Kossman made no payments to the appellant, apart from a small sum.

70 From the reasons for judgment in the Kossman case, it appears that the submissions in that case with respect to the terms of the trust were, in substance, the same as the submissions put in this case.

71 In Kossman, Crawford J declared the practical equity in these terms at par42 of his reasons for judgment:

"In my view the answer to the issue is clear. This is an appropriate case for the application of the principles stated by Mason J in the Hospital Products case to which I referred earlier. The 1985 contractual arrangements laid the foundation for the basic rights and liabilities of the parties. Until 1994, and notwithstanding the frustration of the arrangements on 1 January 1991 by the regulatory changes, the parties essentially continued to deal with each other as if those arrangements still applied, with Mr Kossman paying the plaintiff 25 per cent of the price for the abalone and selling and delivering all of the fish to the plaintiff. What then happened in 1994 and thereafter was that Mr Kossman, contrary to the protests of the plaintiff, breached his plain fiduciary duties by withholding supply and ceasing payment. In the words of Mason J, 'the fiduciary relationship ... must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them', to the extent reasonably possible."

72 In the present case, Mr McElwaine's primary submission was that practical equity requires a declaration as to one-half beneficial ownership by his client, after payment of the diving costs, royalties, and licence fees. This submission was put to the learned trial judge. It was met with the proposition that although it is proposed that all costs and royalties are to be shared equally, the cost of diving set out in the figures submitted by Mr McElwaine is less than that allowed for in the original proposition that underpinned the agreement in the first place. There is force in that argument. On the other hand there is considerable force in a countering argument that the benefit to the respondents by reason of the generous allowance for catching the abalone was offset by the benefit to the appellant of a guaranteed supply of fish to its processing works, a benefit not included in his Honour's declaration.

73 In his evidence, Mr Hansen said that handling a larger supply of abalone increased total turnover and therefore total profitability, and that a regular supply of abalone was very important to the appellant's business. On several occasions Mr Hansen said, in effect, that supply by the respondents was an important matter to the appellant but there were no figures to show in dollar terms how important the loss of supply from the eight Furneaux Group quota units had been. With respect to the respondents, the first respondent gave evidence that tended to show that by 1994, it had become difficult and expensive for him to supply abalone to the appellant's factory at Smithton. However, in cross-examination the first respondent denied that he stopped supply because it was financially advantageous to him to do so.

74 Although the evidence for the appellant was that supply was an important issue for the appellant, and although the evidence of the first respondent was that he did not stop supply because it was too expensive or difficult, little was said in closing submissions before the learned trial judge about supply being a term of the constructive trust. A great deal was said about whether the appellant acquiesced in the stoppage of supply in 1994 and 1995, and about the fact that there was no claim for damages for "breach of contract" for failure to supply, but so far as I was able to discern, no submission was put that supply should be a term of a constructive trust nor that supply should not be a term of a constructive trust. On the appeal, Mr McElwaine complained at length that the learned trial judge had relieved the respondent of the obligation to supply, but did so only to support his argument that selection of some terms of the deed, but not others (supply) to formulate the terms of the trust was not the appropriate equity.

75 I accept that by the end of 1994 the 1988 deed was not operative and that in this respect, this case is different from the Hospital Products case. However, the material facts are that from the time the eight Furneaux Group quota units were issued in January 1990 until the relationship broke down after the execution of the deed of partition, the core dealings between the parties with respect to the taking, the supply and the division of the proceeds from the fruits of the entitlement conferred by those units was:

•

one-third to the respondents for the cost of diving, royalties, etc;

•

one-third to the respondents for a return on their capital investment;

•

one-third to the appellant for a return on its capital investment;

•

all fish to be supplied to the appellant at the expense of the respondents.

76 In fashioning the practical equity to the circumstances of each case, regard should be had to the nature of the trust property, whether earnings from that property had been derived by the labour and skill of the trustee and any antecedent arrangements for profit sharing. See Warman International Ltd v Dwyer (supra) at 368 - 370.

77 The terms of the trust propounded by Mr McElwaine are unjust to the respondents in that although they will benefit from the absence of an obligation to supply, they will lose the generous allowance, provided by the antecedent arrangements, for the cost of diving, a task that the first respondent cannot delegate to another. On the other hand, the order made by the learned trial judge deprives the appellant of supply, which was, according to Mr Hansen's evidence, a significant benefit to the appellant also provided by the antecedent arrangements. In these circumstances it seems to me that the practical equity calls for the terms equivalent to the pre-1994 arrangements, viz:

•

the respondents to pay all the costs of diving, royalties and licence fees;

•

the respondents to pay the appellant one-third of the average price for abalone taken pursuant to the eight Furneaux Group quota units;

•

the respondents to deliver all those abalone to the appellant's factory "in the mainland of Tasmania".

78 This was the practical equity in Kossman and it should be applied in this case notwithstanding that in this case, the original 20 units have not been the subject of any trust since January 1994.

• counsel for the appellant did not contend that supply should be a term of the constructive trust;

• counsel for the respondents did not contend that supply was not practical.

80 The evidence at trial with respect to value of supply to the appellant was limited to general statements, and the practicality of the respondents' ability to supply the appellant with all the abalone caught pursuant to the eight Furneaux Group quota units, was sketchy and inconclusive. The absence of evidence of the cost of supplying the abalone to the appellant and the absence of any evidence of the loss from the failure to supply makes it very difficult to fashion an alternative equity to the one I would order. I would set aside the declaration made by the learned trial judge but before finally making a declaration as to the terms of the trust, I would give counsel an opportunity to be heard further in the light of what I have just written.

81 The "principal tool in equity for awarding money is the action of account which is clearly not [a claim] for damages ..." per McGregor on Damages (15 ed) par5. An order for an inquiry and account was the appellant's principal claim in these proceedings. Of course, the Supreme Court Civil Procedure Act 1932, s11(13)(a), conferred upon the learned trial judge a discretion to award equitable damages or compensation, in the exercise of his discretion. However, whether or not an account should be ordered is determined "according to settled principles", per Warman International Ltd v Dwyer (supra) at 559. As I have noted, the learned trial judge did not discuss the basis upon which he declined to make an order an account. His Honour merely asserted that the appellant was entitled to equitable damages. In so doing he fell into error. The Court said in Warman at 560:

"But the basic principle remains that a principal who so elects is entitled to an account of profits, subject to considerations of the kind already mentioned." [viz disabling conduct on the part of the appellant.]

82 Indeed, Mr Ayliffe did not argue to the contrary. The appellant is entitled to an order that there be an inquiry and an account taken of the amount due by the first respondent to the appellant for its share of the income earned from the trust property and the profits that came into the hands of the respondents from that property. I would order that the account be taken by the Master of this Court. It also seems to me convenient that the Master assess the equitable compensation to which the appellant is entitled. It may be that at the end of this exercise there is no difference between the two remedies, but the appellant is nonetheless entitled to both orders. With respect to this, the following passage taken from Warman International Ltd v Dwyer (supra) at 559 is apposite:

"Ordinarily a fiduciary will be ordered to render an account of the profits made within the scope and ambit of his duty Phipps v Boardman (1967) 2 AC at 127 per Lord Upjohn. Of course, if the loss suffered by the plaintiff exceeds the profits made by the fiduciary, the plaintiff may elect to have a compensatory remedy against the fiduciary. That election will bind the plaintiff Kendall v Marsters (1860) 2 De G F and J 200 [1860] EngR 964; (45 ER 598)."

83 The result of the assessment and account can be reported to a judge so the appellant's election between remedies can be taken and final judgment entered. As to election, see Warman International at 569 - 570. I do not see any need to give the Master directions for he will make the inquiry and take the account in accordance with the law.

84 In the light of the foregoing it is not necessary to deal with the appellant's claims that errors attended the assessment of damages, but if the assessment is to be done by the learned Master, it might be helpful if I deal with the issues raised on the appeal concerning the assessment of equitable damages. The learned trial judge's calculations of the equitable damages with respect to the amount due to the appellant in accordance with the terms of the trust as he declared them to be, were based on agreed figures. The calculation in the reasons for judgment published on 6 May 2004 contained a mathematical error that was corrected in the reasons published on 2 September 2004. His Honour's calculations stopped at the end of the calendar year 2002. The trial concluded on 4 December 2003. No damages were assessed from 1 January until the date of trial, although agreed figures for 2003 up to the first day of the trial were supplied to his Honour. The appellant was entitled to have its damages assessed up to the date of trial. See Wroth v Tyler [1974] 1 Ch 30 at 56 - 60.

85 Following the completion of the hearing, the learned trial judge said in his reasons for judgment published on 2 September 2004 at par2:

"For the purpose of judgment, no distinction is made as between the defendants. Both parties conducted their respective cases on the basis that Mr and Mrs MacQueen were in partnership and jointly liable to the plaintiff for unpaid money arising from the relationship between the parties. Evidence given at trial showed that the defendants had conducted joint farming and investment operations which presumably had returned a joint profit, and that each defendant had had the benefit of the money retained."

86 No complaint is made about that finding. The appellant's argument on the assessment of damages is that although the learned trial judge set out the law correctly, he failed to apply it to the circumstances of the case. With respect to the amount to be allowed for interest, the appellant argued that the learned trial judge erred in that:

•

he allowed nothing in his interest calculation for the disgorgement of profit that came the respondents' way because they withheld trust monies due to the appellant;

•

the calculation of interest was based upon the deposit rates of interest and not lenders' rates of interest; and

•

the calculation should have been based on rests more frequent than once a year.

87 Mr Ayliffe agreed that the learned trial judge set out the correct principles of law for the assessment of the interest component of equitable compensation and agreed that the assessment was calculated as Mr McElwaine claimed but contended that equitable compensation was a very flexible remedy and that the learned trial judge was entitled to calculate interest as he did.

88 In his reasons for judgment dated 6 May 2004, the learned trial judge recited a claim made by the appellant that it was entitled to interest as part of its entitlement to strip the respondents of any profit they may have made from the retention of the trust funds. His Honour then stated with respect to this claim that any rate of interest must accord with the principles stated in Wallersteiner v Moir (No 2) [1975] 1 All ER 849 and Hagen v Waterhouse (1991) 34 NSWLR 308. No complaint is made about those references. The hearing was then adjourned. It resumed on 13 August 2004.

89 In his reasons published on 2 September 2004, the learned trial judge cited this passage from the judgment of Lord Denning in Wallersteiner v Moir (supra) at 855 - 856:

"The principles on which the courts of equity acted are expounded in a series of cases of which I would take the judgment of Romilly MR in Jones v Foxall [1852] EngR 407; (1852) 15 Beav 388; of Lord Cranworth LC in Attorney-General v Alford (1855) 4 De G M & G 843 at 851; of Lord Hatherley LC in Burdick v Garrick (1870) 5 Ch App 233 at 241, 242; of Sir W M James LJ in Vyse v Foster (1872) LR 8 Ch App 309 at 333. Those judgments show that, in equity, interest is never awarded by way of punishment. Equity awards it whenever money is misused by an executor or a trustee or anyone else in a fiduciary position - who has misapplied the money and made use of it himself for his own benefit. The court presumes -

'that the party against whom relief is sought has made that amount of profit which persons ordinarily do make in trade, and in those cases the Court directs rests to be made [ie compound interest]':

see Burdick v Garrick (1870) LR 5 Ch App at 242 by Lord Hatherley LC. The reason is because a person in a fiduciary position is not allowed to make a profit out of his trust; and, if he does, he is liable to account for that profit or interest in lieu thereof.

In addition, in equity interest is awarded whenever a wrongdoer deprives a company of money which it needs for use in its business. It is plain that the company should be compensated for the loss thereby occasioned to it. Mere replacement of the money - years later - is by no means adequate compensation, especially in days of inflation. The company should be compensated by the award of interest. That was done by Sir William Page Wood V-C (afterwards Lord Hatherley) in one of the leading cases on the subject, Atwool v Merryweather (1867) LR 5 Eq 464n at 468, 469. But the question arises: should it be simple interest or compound interest? On general principles I think it should be presumed that the company (had it not been deprived of the money) would have made the most beneficial use open to it, cf Armory v Delamirie (1722) 1 Stra 505[1722] EWHC KB J94; , [1558-1774] All ER Rep 121. It may be that the company would have used it in its own trading operations; or that it would have used it to help its subsidiaries. Alternatively, it should be presumed that the wrongdoer made the most beneficial use of it. But, whichever it is, in order to give adequate compensation, the money should be replaced at interest with yearly rests, ie compound interest.

Applying these principles to the present case, I think we should award interest at the rate of 1 per cent per annum above the official bank rate or minimum lending rate in operation from time to time and with yearly rests."

90 That is a statement of the law that has been adopted many times in this country. See Southern Cross Commodities Pty Ltd (in liq) v Ewing (1987) 14 ACLR 39; Adler and Anor v Australian Securities and Investments Commission [2003] NSWCA 131 (8 July 2003) at pars727 - 728; Colbeam Palmer Ltd v Stock Affiliates Ltd [1968] HCA 50; (1968) 122 CLR 25 at 34.

91 Application of that principle makes the appellant's financial position irrelevant. The material fact is the use to which the respondents put the money, or the presumed most beneficial use to which it could have been put, whichever is most favourable to the appellant. There was uncontested evidence that at the material times the respondents conducted several businesses and used borrowed money to do so. There would have been a profit to them by way of saved interest by not disgorging the trust funds due to the appellant. After citing Wallersteiner the learned trial judge said at par 8 of his reasons for judgment dated 2 September 2004 that he proposed to apply the "official bank rate or minimum lending rate in operation from time to time with yearly rests". However, he proceeded to make an interest calculation on the minimum deposit rate plus 1 per cent. In so doing his interest calculation fell into error.

92 There is no rule of law or equity that requires the calculation of compound interest to be made with yearly rests. It is true that Lord Denning referred to that interval in Wallersteiner at 856, but I do not understand his Lordship to have been declaring that such an interval is set in stone for all cases. As with all equitable compensation, what is reasonable will depend on the circumstances of the case. In my view this will be a matter for the Master to determine, but it seems to me that if the respondents operated on 90 day bills, then the calculation of interest in accordance with the Wallersteiner principle requires to be calculated with 90 day rests as well. To do otherwise would not result in an accurate disgorgement of profit.

(b) the orders and declaration made on 2 September 2004 be set aside;

(c) a declaration be made that the first respondent holds Fishing Licence (Abalone Dive) issued to him pursuant to the Living Marine Resources Management Act 1995 and the Fisheries Rules 2002 upon trust for the appellant as to one-half interest;

(d) a declaration be made that the first respondent holds the fruits of each exercise of the entitlements conferred by eight quota units numbers 3456 - 3463 inclusive, generally known as the Furneaux Units, issued pursuant to the said Act and the said Rules upon trust for the appellant as to one-half interest;

(e) a declaration be made that the terms of the trust in Order (d) have been since 1 January 1994, and are that:

•

the first respondent is entitled to have and use the licence in Order (c) to dive for and take abalone pursuant to the entitlement conferred by the quota units referred to in Order (d);

•

the income derived from the first respondent from taking such abalone ...

[I would need to hear counsel further before completing the terms of this declaration];

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an inquiry be held;

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an account taken; and

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an assessment made

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the benefit, profit or advantage derived by the respondents since 1 January 1994 by reason of them having available to them income which ought to have been paid to the appellant in accordance with the terms of the trust declared in Order (e); and

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the amount of equitable compensation payable to the appellant by the respondents by reason of their breach of the trust declared in Order (e).

(g) the learned Master is to provide a report to a judge as to his finding before entry of judgment;

(h) it is declared that within 21 days of the pronouncement of final orders the appellant is entitled at its election to:

•

judgment against the respondents in accordance with the amount determined upon the taking of the account; or

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judgment for the amount of equitable compensation.

94 I would give counsel leave to speak to the terms of the proposed order generally and would need to hear them further with respect to the claim for an injunction, as it does not seem to have been considered by the learned trial judge.

TASMANIAN SEAFOODS PTY LTD v MALCOLM CLIVE MacQUEEN

95 I agree with the reasons of Underwood CJ and the orders and course that he proposes.

TASMANIAN SEAFOODS PTY LTD v MALCOLM CLIVE MacQUEEN

96 I agree with the reasons of Underwood CJ and the orders and course that he proposes.