490 Under s 133C, a reference to an option contained in a lease extends to an option of the kind included in clause 15 of the lease of 23 June 2000.
491 Were it necessary for me to decide the matter, I would be of the opinion that a finding that one of the terms referred to in point 3 at paragraph [462] above was an implied term of the lease would not have been sufficient to cause the lease to be one to which s 133E applied. Even assuming that the implied term to be one "by which the lessee's entitlement to the option is made to depend on performance by the lessee" of the clause or clauses of the lease comprehended by the implied term, two problems would confront any submission that section 133E applied. First, it would be necessary to conclude that the implied term was a "provision" that the lease "contains"; and, second, it would be necessary to conclude that the obligation breach of which was relevant to the operation of the implied term was a "specified obligation".
492 The word "contains" used in relation to "provision" and the word "specified" used in relation to "obligation" carry with them a strong message of explicit expression and identification. This is particularly so where, as in the s 133E context, the question whether there is an entitlement to exercise the option depends on whether or not a particular kind of notice has been given within a particularly specified (and very short) time after purported exercise. The parties simply will not know, at that point, what, if any, implied terms supplement the express terms of their contract. Only a decision of a court can establish the existence of an implied term. It follows that implied terms cannot have been in contemplation when the scheme of the legislation was devised.
Specific performance
493 Because, on the view I have taken, TBPL's purported exercise of the clause 15 option was ineffective because the option was no longer available to be exercised at 17 April 2003, the question of specific performance, at the suit of TBPL, of a contract for sale constituted by exercise of the option does not arise. Again however, it is desirable that I deal with submissions on that subject in case the matter is taken further.
494 In the discussion that follows, I proceed on the basis that any contract for sale arising upon exercise of the clause 15 option was as described at paragraph [469] above, that is, a subsisting contract for the sale of the property at a price to be fixed in the way for which the contract itself provides. As is made clear by the decision in Booker Industries Pty Ltd v Wilson Parking (Qld) Pty Ltd (above), the most that can be awarded by way of specific performance of such a contract is the kind of order discussed in Brown v Heffer [1967] HCA 40; (1967) 116 CLR 344 at 350, that is, an order confined to the taking of the proper steps to cause the price to be fixed by the agreed mechanism and, if and when that has been achieved, to transfer the land for that price.
495 Consideration of the barriers to specific performance postulated by NGC must be against that background.
TBPL's alleged "iniquities"
496 NGC points to five "iniquities" on Barr's part (or, more accurately, on the part of TBPL) which, it says, should cause the court to withhold specific performance at the suit of TBPL. The implicit assumption, which I accept, is that because TBPL was, at material times, wholly owned and controlled by Barr, conduct of Barr is relevant to the question of discretionary withholding of the equitable remedy sought by TBPL. There is, of course, a question whether the allegedly disentitling conduct bears a sufficiently close relationship to the equity on which TBPL relies to be relevant to the enforcement of that equity.
497 First, NGC says, there were breaches of fiduciary duties owed by both Barr and Shigeo to NGC and that TBPL was a knowing participant in those breaches.
498 Second, NGC says that Barr acted dishonestly towards NGC by lies, forgeries and deceptions related to his representation that he had sought and then obtained development consent for NGC's major residential project.
499 Third, NGC relies on what it terms abuse by Barr of his relationship with NGC in order to conduct the plantation that was the purpose of the lease. Reference is made to Barr's use of NGC's land for the planting of test plots before the lease was entered into, Barr's fraudulent use of his connection with NGC to borrow funds that he needed to pursue his secret joint venture with Shigeo and Barr's dishonest use of NGC's resources to establish the plantation at a saving of $300,000 to the joint venture. The relevant action of Barr alleged by NGC here is forgery and delivery to the Commonwealth Bank of a guarantee by NGC and supporting documents by which NGC was exposed to potential liability to that bank.
500 Fourth, NGC says that Barr "betrayed his position with" NGC in his dealings with Austcorp , in that he divulged to Austcorp information that was confidential to NGC.
501 Fifth, NGC points to action by Barr in an attempt to dissuade Shigeo from participating in these proceedings so as to further TBPL's claims.
502 Because the first of these matters has ramifications going beyond the "unclean hands" question, it is desirable that it be addressed immediately.
Fiduciary duty
503 It is submitted by NGC that both Barr and Shigeo stood in a fiduciary relationship to it at the time of the grant of the lease the option and that, in and about the granting of the lease and the option, each breached fiduciary duties owed to NGC. As a result, it is said, NGC had an equity entitling it to rescind the lease (including the clause 15 option) and is entitled to a declaration that it has validly done so; or an order rescinding or setting aside the lease. NGC also considers itself entitled to a declaration that the lease (including the clause 15 option) was held by TBPL on a constructive trust for NGC. As mentioned above, breaches of fiduciary duty are also relied upon by NGC in arguing that "unclean hands" TBPL's part would preclude an order for specific performance in favour of TBPL and against NGC.
504 In the case of Shigeo, it must be accepted that he was a fiduciary of NGC when the lease was granted by NGC to TBPL in June 2000. He became a director of NGC in April 1992 and continued in office beyond June 2000.
505 In addressing the proposition that Barr was a fiduciary of NGC, it is necessary to go back in more detail to certain of the factual matters already mentioned.
506 Barr was aware of NGC's interest in clearing as much of Kings Forest as possible. The plan was, after all, to establish a substantial town or, at least, to obtain the approvals necessary to proceed with such a development. Cleared land was obviously more desirable than bushland or forest.
507 A risk was taken in clearing the Cudgen Paddock. The Council complained strenuously about what it regarded as unauthorised development by clearing. NGC responded by arguing that existing use rights justified what had been done.
508 By October 1999, Barr had formed a view that a plantation would serve NGC's objective of preventing regrowth of native flora, thereby preserving the advantages obtained by clearing. Barr was also aware that cultivation of either lemon myrtle trees or lemon scented tea trees could produce commercial advantages by way of exploitation of the oil produced by the trees. While there was, in late 1999, an idea that NGC might joint venture with some outside party, Barr eventually decided that he should have the advantage of a plantation's produce wholly for himself. Hence the idea of the lease ultimately taken by TBPL.
509 Barr, however, was short of capital. He had to resort to borrowing to obtain $150,000 to put towards the plantation project. That was not enough. It was no doubt for that reason that he originally envisaged that he, Shigeo and "Narui Head Office" would be equal partners in the venture. After January 2000, however, there was no reference to Narui Norin being a partner. The plan became one under which Barr and Shigeo would each contribute an initial $150,000. Barr's shortage of cash is made clear by his requests of 22 March 2000 and 3 April 2000 that Shigeo provide the $11,200 (or $10,700) needed for the initial 300,000 trees (the source of this need is something that will need to be addressed in another context).
510 It is significant that Barr dealt directly with Hiroyuki in seeking the lease. Before his first approach to Hiroyuki (on 16 or 24 March 2000), however, Barr outlined the leasing proposal to Shigeo (on 2 March 2000), saying that he "would be undertaking this with your support and approval". This may be an indication that Barr saw Shigeo as a co-venturer with him. Or Barr may have been simply asking for Shigeo's support in the approach he was making to Hiroyuki. That the former may have been the situation is suggested by the content of Barr's 22 March 2000 letter to Shigeo saying that it would be a "good idea" for him to discuss with Hiroyuki "our intentions" - presumably intentions of Barr and Shigeo. That there was, by then, some form of arrangement between them is borne out by the next paragraph in which Barr sought Shigeo's confirmation of payment of $11,200 deposit for trees (something repeated in his 3 April 2000 letter). Since NGC was not to be involved in the plantation project, it cannot have been envisaged that this would be paid by NGC or Narui Norin. Shigeo was involved personally.
511 Barr's confidential letter to Shigeo dated 17 June 2000 manifested an intention of Barr to have a "contractual agreement" with Shigeo and a desire not to "expose S Narui involvement". That was consistent with an approach under which Barr or, more precisely, his company TBPL would be the apparent operator of the proposed plantation, with Shigeo as a kind of sleeping partner.
512 The terms of the joint venture were subscribed to by Barr and Shigeo in the document of 23 June 2000 (see paragraph [40] above). That document made it perfectly clear that Shigeo was to have a one-half profit share in the plantation venture; also that the lease would be "fifty/fifty beneficial to S. Narui".
513 It is thus established that when Hiroyuki, representing NGC, granted the lease to TBPL, Barr and Shigeo had come to an arrangement under which they would be the beneficial owners of the cultivation project. There is a question about what Hiroyuki actually knew at that point. His knowledge is relevant because it must, in my view, be accepted that he, although not an officer of NGC, was the person who made decisions for it. It is appropriate to proceed on the basis that Hiroyuki, as the responsible officer of the holding company, Narui Norin, was the guiding mind and will of NGC.
514 In approaching findings about Hiroyuki's state of mind, the court has, apart from contemporary documents, only his untested statements ruled admissible on 6 August 2009 (see Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2009] NSWSC 769; (2009) 258 ALR 598). That evidence must be treated with care. Taken at face value, it indicates that Hiroyuki signed the lease because Shigeo had explained to him the advantages of having a plantation operator keep down native vegetation; that Hiroyuki did not know that the lessee was Barr's company; that Hiroyuki did not know of the partnership arrangement between Barr and Shigeo; and that Hiroyuki did not know that Shigeo had a financial interest in the plantation venture. Hiroyuki's statements also indicate that had he known that Shigeo stood to gain financially from the granting of the lease, he would not have signed it.
515 Hiroyuki did not read, write or speak English but he had staff members who did. Any such staff member who read Barr's letter of 16 or 24 March 2000 and the accompanying form of agreement (and the lease as finally drafted) must have known of Barr's personal involvement. In the case of the lease, the lessee's name "Tim Barr Pty Ltd" would, of itself, have been enough to make the connection; and this would have been so even if only the execution page was sent to Japan, as the evidence seems to indicate may have been the case: the lessee's name "Tim Barr Pty Ltd" appears on that page. I have already observed that it is inconceivable that Mr Takaku of Narui Norin did not appreciate that Barr was the person who had signed the execution page of the lease as director of the company bearing his own name. In the case of the earlier document and its covering letter of 16 or 24 March 2000, there was quite unambiguous reference by Barr to "my draft agreement between my company Barr Project Management and Narui Norin head office". A person conversant with the English language, able to read English and generally familiar with the situation at Kings Forest must have been aware that the proposal put forward by Barr to Narui Norin by the letter of 16 or 24 March 2000 and subsequently by submission of the lease itself for execution by NGC involved a transaction between NGC and a company owned by Barr.
516 But such knowledge on the part of Mr Takaku or any other Narui Norin staff member able to read English does not mean that the information was imparted to Hiroyuki. Shigeo was Hiroyuki's principal adviser in relation to Kings Forest. Shigeo was also a trusted family member. It is therefore likely that anything apparently submitted at Shigeo's instigation would be accepted by Hiroyuki at face value and would be regarded as acceptable and in order from Narui Norin's viewpoint. It is therefore quite conceivable that if the relevant English speaking staff member knew that Shigeo - who, after all, spoke, read and wrote English - had cleared the signing of a particular English language document, he or she would not see it as necessary or appropriate to inform Hiroyuki of its content.
517 In his written communication of 22 March 2000, Barr suggested to Shigeo that he should "discuss with the Chairman and the President [ie, Hiroyuki] our intentions in accordance with my draft letter and lease agreement between our two companies". There is no evidence that Shigeo did so. There was a strong disincentive for Shigeo to inform Hiroyuki of his own role as a co-venturer with Barr in the plantation project. He must have known that such a personal involvement on his part would attract the strong disapproval of his Japanese employer and, in particular, of Hiroyuki. At the same time, however, it is virtually certain that Shigeo had discussed the lease proposal with Hiroyuki. I have already referred to the telephone conversation of 1 June 2000 in which Shigeo asked Hiroyuki to sign the preliminary lease document or heads of agreement submitted by Barr. It is most unlikely that Hiroyuki, sitting in his office in Japan, would have signed any document concerning Kings Forest without some form of clearance or recommendation from Shigeo, the Narui Norin executive with direct and particular responsibility for that part of the Narui Norin business.
518 Shigeo, for his part, could not have hoped to keep from Hiroyuki the fact that Barr's own company was the prospective lessee. Barr had written direct to Hiroyuki to that effect on 16 or 24 March 2000. Shigeo knew this. Shigeo must have assumed that Mr Takaku or some other English speaking member of the head office staff might translate Barr's letter for Hiroyuki or at least inform him of its content. It must be assumed that a letter in English addressed by Barr to Hiroyuki and received at head office would be brought to Hiroyuki's attention in some way.
519 The likelihood is (and I find) that, despite his later statements to the contrary, Hiroyuki was aware that the lease proposal and the documents he was signing in relation to it on behalf of NGC were in favour of Barr's own company; but that he was, as he says, unaware of Shigeo's involvement as a partner in the plantation project.
520 In the case of Shigeo, it is clear, as I have said, that, as a director of NGC, he stood in a fiduciary relationship to NGC. He was a director of NGC from April 1992. For that reason, he owed to NGC in June 2000 both fiduciary duties and the duties imposed by Part 2D.1 of the Corporations Law as then in force. In relation to Barr, the position is different. It is not suggested that he was an officer of NGC owing statutory duties. The proposition is simply that that he owed fiduciary duties to NGC.
521 It was Barr's company, BPM, that was retained as project manager by NGC. BPM owed duties to NGC accordingly. They were contractual duties and no doubt included duties to preserve and protect the subject matter of the managed property. NGC maintains, however, that both Barr and Shigeo, in the course of management of the property, reported to NGC matters concerning such management and were aware that NGC relied on them to keep it informed about matters affecting the management of Kings Forest. That, NGC says, was sufficient to cause Barr, as well as Shigeo, to owe NGC duties to act honestly and in good faith, to act in the best interests of NGC, to avoid a position of conflict between their own interests and those of NGC and to act with reasonable care and skill.
522 There is a question whether, as NGC maintains, Barr himself had undertaken or agreed to act for or on behalf or in the interests of NGC in the exercise of powers or discretions affecting the interests of NGC in a legal or practical sense. These words were used by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) HCA 64; [1984] 156 CLR 41 at 96 - 97 to describe the "critical feature".
523 This formulation was questioned by Mr Justice B H McPherson in his article "Fiduciaries: Who Are They?" (1998) 72 ALJ 288. He saw the content of the description of the relationship as no more than the content of the description of the duty, apart from the element concerned with undertaking or agreeing. The emphasis, in his opinion, should be on circumstances and the question whether they are such as to imply a requirement to act for or on behalf of or in the interests of another person, with the indicia being reliance and dependence.
524 In Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 at 113, Gaudron J and McHugh J said, in a passage approved by McHugh J, Gummow J, Hayne J and Callinan J in Pilmer v The Duke Group Ltd [2001] HCA 31; (2001) 207 CLR 165 at [74]:
"In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations -- not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict."
525 The source of the obligation lies in the ascendancy that, in the circumstances, one person has over the other or the vulnerability in which the second person stands in relation to the first.
526 In the present case, the circumstances were that NGC, the owner of a large tract of land in northern New South Wales, was wholly owned and controlled by Narui Norin and had no officer of its own active in Australia, except for Shigeo during his periodic visits. Within the corporate group of which NGC formed part, Hiroyuki was the officer responsible for NGC and NGC's decision-maker. He was based in Japan and did not speak, write or read English. Shigeo reported to Hiroyuki and it was to Shigeo that Hiroyuki looked for information relevant to NGC's affairs. Shigeo was himself fairly unfamiliar with Australia and Australian conditions. He was dependent on local assistance. Shigeo obtained that assistance overwhelmingly from Barr.
527 According to the case advanced by NGC in these proceedings, the circumstances just mentioned are sufficient to justify the conclusion that Barr stood in a fiduciary relationship to NGC. TBPL disagrees. The crucial issue, in my view, is whether the reliance undoubtedly placed upon Barr by Shigeo and the ascendancy of Barr and vulnerability of Shigeo that it entailed was in reality reliance by NGC itself. It is necessary, at this point, to go back to the untested statements of Hiroyuki. He says that it was on Shigeo that he relied to manage Kings Forest in the interests of NGC and Narui Norin. Hiroyuki did not see Barr's regular reports to Shigeo; he was not even aware that Barr was sending such reports. Hiroyuki made decisions concerning Kings Forest on the basis of advice given to him by Shigeo and sometimes by others within Narui Norin. Shigeo produced his own written reports concerning Kings Forest. He provided these to subordinates of Hiroyuki. Hiroyuki himself did not see them. He relied on Shigeo to bring to his attention anything of particular importance.
528 Shigeo played an administrative role for Hiroyuki and was the link between, on the one hand, Hiroyuki and Narui Norin and, on the other, Barr and others directly engaged in Australia on tasks concerning the property. Bearing that in mind and in the circumstances just described, I must prefer the submission of TBPL that it is not open to the court to find that NGC relied on advice and guidance of Barr in such a way as to cause Barr to occupy a position of ascendancy over NGC, so that NGC was vulnerable to Barr. Barr's influence was upon Shigeo and it was Shigeo upon whom Hiroyuki (and therefore NGC) relied. There is virtually no evidence of communications between Shigeo and Hiroyuki. There is no basis for finding that Barr exercised any form of ascendancy in or affecting the NGC decision-making undertaken by Hiroyuki.
529 I proceed, therefore, on the footing that, while Shigeo, being a director, stood in a fiduciary relationship to NGC and therefore owed to NGC both fiduciary duties and the statutory duties I have mentioned, no corresponding duties were owed to NGC by Barr.
Breach of duty?
530 The catalogue of duties pleaded by NGC (see paragraph [11] above) goes beyond fiduciary duties as such. It may be accepted, however, that Shigeo owed all of those duties to NGC. The duty to act honestly, in good faith, in the best interests of NGC and with reasonable care and skill were duties imposed by Division 1 of Part 2D.1 of the Corporations Law. They may also be equitable duties that are not fiduciary duties. For present purposes, however, it is necessary to concentrate on fiduciary duties alone, so far as Shigeo is concerned. This is because the principal claims NGC advances on the basis of breach of duty by Shigeo are constructive trust claims.
531 It is the contention of NGC that Shigeo breached the fiduciary duty he owed to NGC because he, without the informed consent of NGC, derived benefit when NGC granted the lease of 23 June 2000 (including the clause 15 option) to TBPL. By virtue of the joint venture agreement he entered into with Barr on the same day, Shigeo was to have a half interest in the lease. This is the force of the penultimate paragraph of the agreement, as confirmed by Shigeo, referring to the lease being "fifty / fifty beneficial to S. Narui".
532 The relevant duty of a fiduciary is the duty not to use the fiduciary position as an unauthorised source of personal profit unless he or she has the informed consent of the beneficiary of the duty to do so. In Chan v Zacharia [1984] HCA 36; (1984) 154 CLR 178, Deane J said at 199:
"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. Any such benefit or gain is held by the fiduciary as constructive trustee."
533 A fiduciary will avoid a finding of liability to account if, after the fiduciary has disclosed to the person to whom the duty is owed all relevant facts known to the fiduciary, that person consents to the relevant acquisition by the fiduciary. There was debate before me on the question whether the putatively wronged beneficiary of the fiduciary duty must, in order to prove breach of duty, establish absence of full disclosure by the fiduciary and consent by that beneficiary or whether it is for the person seeking to resist a finding of breach of fiduciary duty to establish, by way of defence, that disclosure was made and consent was given. The latter is the correct approach. This is because, as Brennan CJ, Gaudron J, McHugh J and Gummow J made clear in Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 467, the fiduciary has no duty to obtain an informed consent from the person to whom the fiduciary duty is owed, rather "the existence of an informed consent would have gone to negate what otherwise was a breach of duty".
534 The aspect of the Barr-Shigeo joint venture agreement recognising that Shigeo was to have a one-half interest in the lease (including the option it contained) involved Shigeo's obtaining an obvious advantage from NGC's granting of the lease and option. He thereby derived personal profit from the grant of the lease and option by NGC. That must be accepted as having amounted to a breach of fiduciary duty by Shigeo unless TBPL, as the party seeking to resist the finding of breach, establishes that Shigeo made relevant and full disclosure to NGC and NGC, in turn, consented to the obtaining of the benefit by Shigeo.
535 TBPL again points to Barr's letter of 22 March 2000 to Shigeo with which he enclosed a copy of the preliminary lease document and said:
"It would be a good idea if we discuss this in detail during your visit and it might also be a good idea to discuss with the Chairman and the President our intentions in accordance with my draft letter and lease agreement between our two companies."
536 The reference here to the "lease agreement between our two companies" is clearly a reference to the preliminary lease document Barr had prepared for submission to Hiroyuki and wished to discuss with Shigeo during Shigeo's apparently forthcoming visit to the property (in his 22 March 2000 letter to Shigeo, Barr referred to "picking you up this week end"). The reference to "my draft letter" is unexplained. No light is cast on it by the remainder of the evidence. It is, I suppose, conceivable that Barr was referring to a draft of the letter that was eventually signed by both him and Shigeo on 23 June 2000 to create the joint venture. But there is no evidence to support a finding that a draft of that letter existed at that time or that it was to such a draft that Barr was referring.
537 There is likewise no evidence that Shigeo discussed with "the Chairman and the President" - that is, Hiroyuki - what Barr referred to as "our intentions". Hiroyuki's statements admitted into evidence suggest that he was, at the time, unaware that Barr and Shigeo were contemplating the joint venture that was formed by the letter of 23 June 2000 and that he did not know of the joint venture after its formation. Shigeo, of course, had good reason not to act on any suggestion that he tell Hiroyuki about the joint venture proposal and discuss it with him. Shigeo, as an executive employee of Narui Norin, must have known - or, at least apprehended - that Hiroyuki would not countenance his deriving a private benefit from a transaction to be entered into the wholly owned subsidiary, NGC.
538 Barr's suggestion that Shigeo discuss "our intentions" with Hiroyuki is thus one that Shigeo would most likely have ignored in case he should get himself into trouble within the Narui Norin hierarchy.
539 I cannot find that Shigeo informed Hiroyuki (and therefore NGC) of the matters disclosure of which to NGC would have been relevant to a conclusion of informed consent by NGC to a breach of fiduciary duty by Shigeo through participation in the joint venture with Barr.
540 TBPL next submits that disclosure of those matters to NGC occurred by means of communication by Barr to Mr Hynes and Mr McDermid. TBPL relies, in this regard, on Barr's "confidential" letter of 17 June 2000 to Shigeo in which he said that the "lease signed by Narui head office" was too advantageous to the tenant and that he had therefore "agreed with Robert [Hynes] acting for Narui company to draw up a new lease". Barr also said in that letter that, as a result of matters explained to him by Mr Hynes and Mr McDermit, he intended to have "the new company Tim Barr Pty Ltd" take the lease of the Cudgen Paddock. Barr went on to explain to Shigeo that "Steve and Waynes company" - the supplier of trees - would "sign an agreement with Tim Barr Pty Ltd" and "I will have a contractual arrangement with your self in place because I told Jeff [McDermid] we do not want to expose S. Narui involvement in Narui Gold Coast Pty Ltd financial tax records each year they both agreed".
541 The "they" who "both agreed" may be taken to be Mr Hynes and Mr McDermid. It is their acknowledgement that Barr was to have a "contractual arrangement" with Shigeo to avoid exposure of Shigeo's "involvement in Narui Gold Coast Pty Ltd financial tax records each year" that TBPL puts forward as evidence of informed consent by NGC to Shigeo's breach of fiduciary duty by participation in the joint venture by Barr.
542 There are two problems for TBPL here. First, one cannot know precisely what was said to Mr Hynes and Mr McDermid and what it was that they supposedly "agreed". Second, it is not possible to conclude that either of them had NGC's authority sufficient to enable him to receive disclosures intended for NGC.
543 It is clear from the evidence that Mr McDermid's firm had some form of ongoing retainer to attend to NGC's taxation affairs. In a report to Shigeo dated 15 March 2000, when the introduction of the new goods and services tax regime was imminent, Barr referred to a meeting with Mr McDermid "where he informed me of a lot of tax incentive savings for Narui Company regarding the GST". There are other references in the evidence to taxation services provided by Mr McDermid's firm to NGC.
544 In the case of Mr Hynes, Barr's report of 15 March 2000 said to Shigeo, also in the context of goods and services tax, that he would "like to use" Mr Hynes in the future, from which it may be inferred that the relationship was quite new as at 17 June 2000.
545 The inference that should be drawn, and which I do draw, is that Barr consulted each of Mr McDermid and Mr Hynes for Barr's own purposes related to his taking of the lease. His account of the advice they gave about using a new company, instead of BPM (in case some default from the past should come to haunt BPM), is entirely consistent with their being advisers to Barr. The same is true of the advice they reportedly gave about TBPL entering into an agreement with "Steve and Waynes company" and having a "contractual agreement with your self in place". These were not aspects of concern or importance to NGC. They were the concerns of Barr.
546 It is true that Mr Hynes prepared the lease that was ultimately executed and that Barr purported to instruct him on behalf of NGC; also that Mr Hynes opened his file and sent his bill in such a way as to imply that NGC was his client. But no officer of NGC instructed him. The only contact he had, so far as the evidence shows, was contact with Barr - the person he had advised regarding structuring of his own transactions in which the lease from NGC played a central part. Mr Hynes' real client was Barr. Barr wanted to present to Hiroyuki a professionally drawn lease. He also had a distinct interest of his own in seeing a valid lease in place. It suited Barr to have a solicitor prepare a lease in circumstances where he had a basis for saying that it had been prepared for NGC.
547 With the evidence as it is, I cannot find that such disclosure (if any) as Barr made to Mr McDermid and Mr Hynes of matters the disclosure of which to NGC might have caused Shigeo's conduct not to have entailed breach of fiduciary duty was disclosure to NGC.
TBPL's complicity and its consequences
548 NGC submits that Barr knowingly participated in the breach by Shigeo of the fiduciary duty owed by Shigeo to NGC; and that TBPL also did so. Given that TBPL was wholly owned and controlled by Barr and had no mind or will but his, I accept that, if Barr was relevantly complicit in Shigeo's breach, then so too was TBPL.
549 Under the so-called second limb of Barnes v Addy (above), a defendant is liable if that defendant assists a trustee or other fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary.
550 The relevant concept of knowledge was explained by Gleeson CJ, Gummow J, Callinan J, Heydon J and Crennan J in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (above) at [177] - [178]. A person will have "knowledge" of a fiduciary's dereliction, in the relevant sense, if (a) the person has actual knowledge; or (b) the person wilfully shuts his or her eyes to the obvious; or (c) the person wilfully and recklessly fails to make such inquiries as an honest and reasonable man would make; or (d) the person has knowledge of circumstances which would indicate the facts too an honest and reasonable man.
551 The members of the High Court also explained in Farah Constructions the relevant concept of "dishonest and fraudulent design" (what I have called "dereliction"). Their Honours made it clear (at [181]) that not every breach of trust or of fiduciary duty is to be regarded as within the concept. Some breaches are well-intentioned. Others are trivial. Some merit dispensation because the person owing the duty acted honestly and reasonably and ought fairly to be excused. What is necessary is some element of dishonesty or fraud in the equitable sense.
552 NGC submits that Barr (and therefore TBPL) should be taken to have had actual knowledge of all relevant aspects of Shigeo's conduct - in essence, that he supported the lease proposal and was party to the actions that caused NGC, through Hiroyuki, to grant the lease to TBPL; and that Barr knew that Shigeo was to obtain for himself, through the related and apparently contemporaneous joint venture arrangement, a one-half interest in the lease and the option. NGC submits in the alternative that Barr (and therefore TBPL) had knowledge of circumstances which would indicate the facts to an honest and reasonable man.
553 By his letter of 22 March 2000 to Shigeo, Barr showed that he considered it a "good idea" for Shigeo to have a discussion with Hiroyuki about "our intentions". As I have said, it is not possible to say precisely what it was that Barr thought Shigeo should discuss. Yet there is no suggestion that Barr took any care to ensure that Shigeo did have relevant discussion with Hiroyuki. That, to my mind, is sufficient to justify in relation to Barr (and therefore TBPL) the second of the findings suggested by NGC, that is, that he had knowledge of circumstances which would indicate to an honest and reasonable person the facts amounting to breach of fiduciary duty by Shigeo. The facts in question are, of course, that Shigeo was to obtain, through his side-deal with Barr and TBPL, an interest in the lease that Barr wished NGC, at the instigation of Hiroyuki, to grant to TBPL; and that NGC, whether through Hiroyuki or otherwise, had not given its informed consent to the obtaining of that personal benefit by Shigeo.
554 Barr and, through him, TBPL had knowledge of circumstances which would indicate to honest and reasonable persons that participation by Shigeo in the way in which he participated transgressed ordinary standards of honest behaviour. Shigeo's taking of the personal benefit he obtained from a combination of the grant of the lease (including the clause 15 option to purchase) by NGC to TBPL and the contemporaneous making of the joint venture agreement between himself and Barr can on no view be classed as well intentioned or as trivial or as conduct honestly and reasonably engaged in. It was within the relevant concept of "dishonest and fraudulent design".
555 Shigeo occupies, as against NGC, the position of a defaulting fiduciary and therefore must hold for the benefit of NGC the advantage he derived in breach of duty. That advantage is the one-half interest in the lease granted by NGC to TBPL and the option to purchase included in it. And TBPL, as legal owner of the lease and option, must hold them subject to, at the least, a constructive trust in favour of NGC as to an undivided one-half interest.
556 That, however, is not the end of the matter. The knowing complicity of TBPL in Shigeo's breach of duty in relation to the grant of the lease and option by NGC means that TBPL should not be allowed to retain any benefit from that transaction. Such retention would be against conscience. TBPL must therefore be regarded as holding the lease and the associated option to purchase, as to the whole, upon a constructive trust for NGC (subject, however, to a possibility to be considered presently).
557 These conclusions tend to overshadow other consequences of Shigeo's breach of fiduciary duty. I nevertheless return briefly to the question of unclean hands and observe that the first of the "iniquities" alleged by NGC against TBPL (see paragraph [497]) has been established; also that that "iniquity" bore a sufficiently close relationship to the equity asserted by NGC to be relevant to the enforcement of that equity. TBPL's involvement in Shigeo's breach of fiduciary duty in connection with the creation of the lease and the clause 15 option operated upon and in relation to TBPL's subsequent exercise of that option. The connection was of the quality referred to in Kation Pty Ltd v Lamru Pty Ltd [2009] NSWCA 145; (2009) 257 ALR 336 at [28] per Hodgson JA and [2] per Allsop P.
558 That particular finding of "unclean hands" against TBPL would be, of itself, sufficient to warrant the withholding of an order for specific performance against NGC and in favour of TBPL. There is no need to address the other alleged "iniquities".
Intervention of third party rights
559 I return to the prima facie position stated at paragraph [556] that TBPL should be regarded as having held the lease and the clause 15 option, as to the whole, upon a constructive trust for NGC.
560 TBPL says that a constructive trust should not be imposed in favour of NGC because this would cut impermissibly across established third party rights. The rights said to be relevant are rights of Austcorp which, TBPL says, should be regarded as an "innocent" party for these purposes.
561 It will be recalled that, on 19 March 2003, TBPL granted to Austcorp an option to purchase the lease and an option to purchase the freehold of the Cudgen Paddock; and that Austcorp purported to exercise that option on 16 April 2003, nominating its wholly owned subsidiary Austcorp Project No 3 Pty Ltd as purchaser. That purported exercise occurred on the day immediately before that on which TBPL purported to exercise the clause 15 option.
562 TBPL contends that, from either the grant of the option to Austcorp on 19 March 2003 or the exercise of that option on 16 April 2003, Austcorp (or in the latter case, one assumes, its nominated subsidiary) derived an interest in the freehold of the Cudgen Paddock and that it would be inappropriate to recognise any constructive trust in favour of NGC inconsistent with that interest.
563 One matter canvassed in submissions is whether it was determined at an earlier stage of these proceedings that Austcorp had an interest in the Cudgen Paddock. In Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2004] NSWSC 986; (2004) 51 ACSR 129, Palmer J said (at [49]):
"By means of the option deed [ie, the deed of 19 March 2003], Austcorp advanced its commercial interest in the land by acquiring from TBPL an interest in the nature of a proprietary interest, although that interest is contingent on TBPL successfully enforcing its option against Narui [ie, NGC]."
564 It is accepted by both parties that, by virtue of the clause 15 option, TBPL had an equitable interest in the land. The rationale was explained by Latham CJ in Commissioner of Taxes (Queensland) v Camphin [1937] HCA 30; (1937) 57 CLR 127 at 132:
"When an option to purchase property has been given for value and the option contract is one which would be specifically enforced in equity, a court of equity attaches to it the consequence that it creates an equitable interest in the property which is the subject matter of the option ( London and South Western Railway Co. v. Gomm (1882) 20 Ch. D. 562). The contract remains a contract imposing an obligation on the person giving the option, but, when it is an option relating to land and capable of specific performance, the ordinary doctrine of a court of equity results in the person giving the option becoming a trustee of the land for the intended objects of the trust ( Central Trust and Safe Deposit Co. v. Snider (1916) 1 A.C. 266, at p. 272)."
565 NGC argues that Austcorp, by contrast, at no stage had an equitable interest in the strict sense and that it was for this reason that Palmer J said merely that it had an interest "in the nature of" a proprietary interest. NGC's submission is put on the basis that a conditional option to purchase land is really the same as a conditional contract to purchase land and that, unless and until the condition is satisfied, the purchaser does not have an equitable interest by virtue of the contract. NGC relies on the decisions of the High Court in McWilliam v McWilliams Wines Pty Ltd [1964] HCA 6; (1964) 114 CLR 656 and Brown v Heffer (above).
566 For reasons I sought to state in Forder v Cemcorp Pty Ltd [2001] NSWSC 281; (2001) 51 NSWLR 486, I do not think that such an analysis based on those two cases is supportable in the light of later High Court authority. Even though, as the majority pointed out in Tanwar Enterprises Pty Ltd v Cauchi (above) at [53], such thinking is "is bedevilled by circularity", an equitable interest was traditionally seen to be the concomitant of an entitlement to specific performance. But in the light of later cases such as Legione v Hateley (above), KLDE Pty Ltd v Commissioner of Stamp Duties (Queensland) [1984] HCA 63; (1984) 155 CLR 288, Chan v Cresdon [1989] HCA 63; (1989) 168 CLR 242, Stern v McArthur (above) and Bahr v Nicolay (No 2) [1988] HCA 16; (1988) 164 CLR 604, a right to a lesser equitable remedy in respect of land (in particular, injunction) may be regarded as giving rise to an equitable interest. It should therefore be accepted that Austcorp, as from the time it took the option granted to it by NGC, had an equitable interest in TBPL's own proprietary interest, in that Austcorp was in a position to obtain an injunction restraining TBPL from dealing with that proprietary interest in a way that would preclude its meeting the claims of Austcorp resulting from exercise of Austcorp's option.
567 To the extent that Austcorp may therefore be said to have had an interest in NGC's land, the interest was, of its nature, one that did not and could not exist independently of the interest in that land enjoyed by TBPL by virtue of the clause 15 option. Austcorp held through or under TBPL. It had, at best, a right to seek the assistance of equity against TBPL to prevent disposition or dissipation by TBPL of its own interest or against NGC to prevent interference by NGC with TBPL's interest.
568 Submissions were made on the question whether the existence of an interest of Austcorp of the kind just described should cause the court to withhold recognition of a constructive trust in favour of NGC in respect of TBPL's interest in the land.
569 As Ward J observed in Australian Building & Technical Solutions Pty Ltd v Boumelhem [2009] NSWSC 460 at [143], the High Court said in both Bathurst City Council v PWC Properties Pty Ltd [1998] HCA 59; (1998) 195 CLR 566 and Giumelli v Giumelli [1999] HCA 10; (1999) 196 CLR 101 that, before a constructive trust is imposed, the court should decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust. In the former case, Gaudron J, McHugh J, Gummow J, Hayne J and Callinan J said, at [42]:
"An equitable remedy which falls short of the imposition of a trust may assist in avoiding a result whereby the plaintiff gains a beneficial proprietary interest which gives an unfair priority over other equally deserving creditors of the defendant: cf Re Polly Peck International Plc [No 2] [1998] 3 All ER 812 at 826-827; Fortex Group Ltd v MacIntosh [1998] 3 NZLR 171; Dobbs Law of Remedies, 2nd ed (1993), vol 1, s5.18(3); Goode, "Proprietary Restitutionary Claims" in Cornish et al (eds), Restitution: Past, Present and Future (1998) 63, at pp 65-67."
570 Guided by the approaches thus taken by the High Court, Ward J said (at [145]:
"As a general statement of principle, a constructive trust will be treated as coming into existence at the time of the conduct which gives rise to the trust. In such a case, the doctrine of priorities would apply and, where the equities are equal, the beneficiary of the constructive trust would be entitled to priority over the holder of a later equitable interest or an unsecured creditor of the constructive trustee."
571 After reviewing a number of decided cases, her Honour observed (at [151]):
"What is not clear is in what circumstances the presence of third party interests will cause the court either not to impose a constructive trust at all or only to impose a constructive trust shaped to commence from the time of judicial determination (as was done in Muschinski ) rather than at an earlier time."
572 Ward J then referred to two cases acknowledging the High Court's concerns in the Bathurst City Council case as to the circumstances in which imposition of a constructive trust might accord unfair priority. The first is Distronics Ltd v Edmonds [2002] VSC 454 where Warren J (as she then was) said:
"The plaintiffs sought the declaration of a constructive trust as their primary relief. They sought also, and alternatively, equitable compensation and an account of profits. Mindful of the clarification of the relief expressed by the High Court in Bathurst City Council I must consider whether there are other means available to resolve the controversy between the parties. If a constructive trust is imposed it must be capable of being moulded so as to be effective from the date of judgment subject to appropriate orders to protect third parties such as the Buxton interests and any mortgagee including the repayment of moneys owed."
573 Warren J ordered equitable compensation.
574 Subsequently, in Victoria University of Technology v Wilson [2004] VSC 33, Nettle J said (at [216]):
"In Distronics Ltd v Edmonds [sic], Warren J (as her Honour then was) refused to impose a constructive trust over land the subject of a joint venture development, because she could not be satisfied that it would not unfairly advantage the plaintiffs over third party creditors of the defendant company. Likewise here, I do not think that I can be satisfied that the imposition of a constructive trust over the software would be devoid of the risk of giving the university unfair priority over third party investors. And as will be seen, I do not consider that it is necessary to make such an order in order to do equity to the university."
575 Having referred to these two Victorian cases, Ward J then said in Australian Building & Technical Solutions (at [165]):
"There appears to be no authoritative guidance as to what is meant by "unfair priority", in the context of equally deserving third parties or those having legitimate claims or needing protection."
576 Although, as her Honour says, there is no authoritative guidance on this matter, the circumstances of this case seem to me to suggest a clear - and negative - answer to the question whether Austcorp is, in the particular context, an "equally deserving" third party.
577 The Austcorp option was created by a deed the parties to which were TBPL (therein called "Tim Barr"), Barr and Austcorp. The deed was dated 19 March 2003. It contained definitions of "Lease" and "Tim Barr Call Option" referring to the lease dated 23 June 2000 the subject of these proceedings and the option to purchase created by clause 15 of the lease. Recital G to the deed read in part as follows:
"G. Tim Barr considers that:-
(a) the Lease is subsisting, valid and enforceable but this is disputed by Narui in litigation in the Equity Division of the Supreme Court of New South Wales, Sydney;
(b) The Tim Barr Call Option is subsisting, valid and enforceable but if the litigation results in the Lease being declared unenforceable, the Tim Barr Call Option will not be enforceable."
578 Austcorp can thus be seen to have been on notice that, as TBPL itself knew, TBPL's entitlement to the lease was in question; also of TBPL's view (which is curious, in light of the stance taken by TBPL in these proceedings) that, if TBPL were shown not to be entitled to the lease, then it would not be entitled to the option either.
579 Other aspects of the evidence make it clear that Austcorp knew more than the bare fact of the existence of the dispute recited in the deed. The relevant officer of Austcorp was Mr Hung. He was in charge of the negotiations with Barr that led to the deed of 19 March 2003.
580 On 5 March 2003, Barr emailed to Mr Hung a form of agreement, referred to as a "proposal". The terminology used makes it clear that Barr was not the author, but that is beside the point. The document contained a definition of "Court Proceedings" referring to these present proceedings and separate proceedings in relation to another part of Kings Forest involving Charles Harrison. Each proceeding was identified by its court file number. Clause 4 of the document made certain provisions:
"In the event that Narui [ie, NGC] contests the validity of the exercise of the Land Option [ie, the clause 15 option] on any grounds including on any one or more of grounds [sic] in the Court Proceedings."
581 It is not suggested that this document was signed by Austcorp. But its receipt by Mr Hung must be taken to have alerted Austcorp (if it was not already aware) to the fact that there were various grounds alleged by NGC in these proceedings as a basis for its contention that there had been no valid exercise of the clause 15 option.
582 In his affidavit of 20 September 2007, Mr Hung deposed that he was not aware, as at the date of exercise of the Austcorp option (16 April 2003), of NGC's allegation in the then current amended defence to further amended statement of claim of the existence of the joint venture agreement between Barr and Shigeo and various allegations of false representations by Barr. In the course of cross-examination, however, it was established that Mr Hung was in fact aware of a number of relevant matters in April 2003. He knew that one of the issues in the proceedings was whether TBPL had engaged in plantation activities on the land without necessary development consent. When shown a contemporary letter of advice from Austcorp's solicitors, Mr Hung accepted that he was aware of a like issue concerning a licence from NPWS, as well as an issue regarding alleged misleading and deceptive representations by TBPL. Mr Hung also accepted under cross-examination that he had received a copy of the pleading and was aware of its content, at least in general terms.
583 The equitable interest in the land accruing to Austcorp by virtue of the deed of 19 March 2003 had no existence independently of the equitable interest that accrued to TBPL by reason of the grant of the clause 15 option. Austcorp knew that, on one basis or another, these proceedings might result in a finding that TBPL had no such interest. Austcorp accepted that, in that eventuality, it would have no interest either. Austcorp's interest was made to depend on the outcome of the attacks mounted by NGC upon TBPL and TBPL's interest.
584 Because Austcorp chose to occupy that position, I accept the submission of NGC that this is not really a case of contest between competing interests of NGC and Austcorp. Austcorp's position was, in reality, that if NGC prevailed against TBPL in such a way that NGC's land was not burdened by TBPL's interest under the clause 15 option, then NGC would likewise prevail against Austcorp, in the sense that Austcorp's dependent interest would also be obliterated.
585 But even if Austcorp's interest conflicted with NGC's prima facie right to a constructive trust as against TBPL, the conclusion would be that Austcorp was not, as against NGC, an "equally deserving" third party. It was a third party with actual notice of NGC's claims and, while it may not have known all the details of the claims and of the precise bases on which they were advanced, it could not be said that NGC would attain "unfair priority" if NGC's claims were vindicated by the imposition of a constructive trust superior to TBPL's interest as the holder of the clause 15 option and therefore superior also to Austcorp's interest derived from TBPL's interest.
586 The existence of Austcorp's rights would therefore not have deterred the court from imposing the constructive trust referred to at paragraph [556] above.
Conclusions
587 As stated at paragraph [443] above, TBPL's central claim for an order for specific performance of a contract for sale arising from purported exercise of the clause 15 option on 17 April 2003 fails. This is because of the conclusions stated at paragraphs [440] and [442].
588 The balance of these reasons (from and including paragraph [445]) proceed on the assumed basis that the clause 15 option did not become unavailable by reason of termination of the lease by NGC. On that assumed footing, the result would have been that the steps taken by TBPL on 17 April 2003 were effective to bring into operation a contract for sale as described at paragraph [469] above but a decree of specific performance of that contract would have been refused, as a discretionary matter, because of TBPL's complicity in Shigeo's breach of the fiduciary duty owed by him to NGC; added to which that complicity on TBPL's part would have resulted in recognition of a constructive trust, in favour of NGC, of the whole of TBPL's interest arising from exercise of the clause 15 option, which constructive trust would have been imposed regardless of the rights of Austcorp.
589 In summary, therefore, TBPL is not entitled to any relief in relation to the Cudgen Paddock and TBPL's claims must be dismissed.
590 I shall invite submissions in due course on the question whether findings on additional matters are necessary or desirable (particularly as to NGC's cross claim) and as to the precise orders that should be made to give effect to these reasons and to dispose of the proceedings. It will also be necessary for submissions to be made on the question of costs.
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