WESTERN AREAS EXPLORATION PTY LTD -v- STREETER [No 3] [2009] WASC 213 (31 July 2009)

WESTERN AREAS EXPLORATION PTY LTD -v- STREETER [No 3] [2009] WASC 213 (31 July 2009) - WASC 2009 case summary — Zoe

[110]

Many of the 'knowledge' and 'opportunity' cases, including Boardman v Phipps [1966] UKHL 2; [1967] 2 AC 46, which is a leading case, would seem to require that the benefit to be accounted for be acquired by the use of both the knowledge or the opportunity or of one or other of them. That is the way in which it is put by Lord Hodson in the extract from his speech which I have already reproduced ([1967] 2 AC 105). It is an idea which runs throughout the cases. The liability to account is said to attach to 'those, who by use of a fiduciary position make a profit'; Lord Russell of Killowen in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, 144. The liability is said to be to 'account for profits acquired by him by reason of his fiduciary position or by reason of the opportunity and the knowledge, or either, resulting from it': Lord Wright in the Regal case, supra, at 154. Or, as Lord Porter put it in that case (at 158): 'The legal proposition may, I think, be broadly stated by saying that one occupying a position of trust must not make a profit which he can acquire only by use of his fiduciary position, or, if he does, he must account for the profit so made'. And many more statements to the same effect could be extracted from the cases.

The question, however, remains, it being whether it is necessary for a plaintiff claiming an account to prove, that is to say to establish on the balance of probabilities, that the fiduciary did in fact use the knowledge, or the information, or the opportunity which came to him while he stood in that relationship and that he made the profit by such use. In my opinion it is not.

It is enough, I think, to show that the fiduciary gains his knowledge or opportunity within the fiduciary relationship; that it was knowledge or an opportunity which could have been used in the sense that it was relevant to the acquisition of the profit or benefit in fact acquired and that by doing what he did to acquire the profit or benefit the fiduciary placed himself in a position where his duty and interest did conflict or in a position where as a real and sensible possibility they may conflict. If that can be shown, and on the facts of this case the conflict was actual and not merely potential, it is not necessary to go further so as to prove that either the information or the opportunity was in fact used so as to acquire that benefit. The reason for that, I think, rests in policy and it is based, inter alia, on the impossibility of proof. That appears in one of the early cases. In Ex Parte Lacey [1802] EngR 75; (1802) 6 Ves Jun 625 at 627 Lord Eldon is reported to have said: 'I say, whether he makes advantage or not, if the connection does not satisfactorily appear to have been dissolved, it is the choice of the cestui que trusts, whether they will take back the property, or not; if the trustee has made no advantage. It is founded upon this; that though you may say in a particular case that he has not made advantage, it is utterly impossible to examine upon satisfactory evidence and the power of the court, by which I mean, in the power of the parties, in 99 cases out of 100 whether he made advantage or not'. Or, as Lord Eldon expressed it in a later case, Ex Parte James [1803] EngR 536; (1803) 8 Ves 337, 345: 'No court is equal to the examination and ascertainment of the truth in much the greater number of cases'. It is for this reason that the rule that a person in a fiduciary position is not to allow his interest to conflict with his duty is said to be absolute and inflexible. Should he do so then: 'The consequences of such a conflict are not discoverable. Both justice and policy are against their investigation': see Rich, Dixon & Evatt JJ in Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583 at 592. And for the same reason, in my opinion, whether a person so placed has in fact used advantages so acquired - knowledge or opportunity - is likewise 'non-discoverable' and proof that he did so is not required. The law was recently so laid down by Gibbs J, as he then was, in Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; (1975) 132 CLR 373 at 393. His Honour there said: 'However, the rule that a person in a fiduciary position is not entitled to make a profit without the knowledge and assent of the person to whom the fiduciary duty is owed is not limited to cases where the profit arises from the use of the fiduciary position or the opportunity or knowledge gained from it. The basis of the rule is that a person in a fiduciary position may not place himself in a situation where his duty and interest conflict. In Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 at 471; Lord Cranworth LC stated the principle so far as it applies to directors in the following words: 'A corporate body can act only by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application, that no-one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.'

[461]

281 If the position had been that the opportunity for the promotion of the ANPC proposal had come to Messrs Streeter and Cooper independently of Mr Brailey or of their roles as directors of the plaintiff, it would have been unnecessary for them to have attempted to secure the support of Mr Brailey and of the other shareholders of the plaintiff for the proposal. They could simply have maintained that this was an opportunity which had come to Mr Streeter without in any way entrenching upon his obligations or duties towards the plaintiff and that he was free to develop it through WANL or in any other form which might not involve the plaintiff. No attempt to give any explanation to that effect was made by Mr Cooper or by Mr Streeter to Mr Brailey at the time and there is no suggestion in any of the correspondence or documents that that was the way in which the opportunity had arisen or was being treated. In view of their connections with the plaintiff it might have been expected that efforts would have been made to document the lack of any such causal relationship had the opportunity arisen in the manner in which the defendants now contend. In that case, it might still have been necessary for the promoters of the WANL venture to secure the assent of WAE and its shareholders to the sale of the Cue tenements and of the change of the company name to permit both to be acquired by the new company and, if there were to be motions put to the EGM to that effect, Messrs Cooper and Streeter and related entities such as Jungle Creek would probably have been precluded from voting because of a conflict of interest. But that is not enough to explain exhibit 168 or the course of events which was followed because no attempt was made by Messrs Cooper or Streeter during this period to explain or to assert that they were free to deal with the ANPC opportunity as they saw fit without any duty or obligation towards the plaintiff. The explanation which is now advanced on their behalf for this conduct was not advanced or even articulated at the time of these events and I reject it.

[503]

It fails to mention that there was an opportunity to acquire the 30% interest in the Cue tenements held by Golden Granite for the payment of $5,000 and that this opportunity was taken up by Mr Streeter to acquire that interest via Jungle Creek, or further that Jungle Creek then sold that interest into WANL in return for 150,000 shares in the company.
No explanation was given of why the vendor shares to be issued to WAE in return for its 70% interest in the Cue tenements were held in trust by the unnamed company Candela or that Candela was controlled by Mr Streeter.
The explanation that it was prudent to accept an offer of shares to the value of $70,000 for an interest in the Cue tenements worth only 70% of $40,000, entirely withholds the detail that the tenements had originally been valued at $200,000 and that the latest valuation (arrived at after the agreement for sale had been executed) put the value at between $70,000 - $100,000 or that under the terms of the sale a minimum consideration of $100,000 had been agreed upon essentially to ensure that Mr Streeter's interests secured a sufficient number of shares in the new company WANL to achieve control.
It does not disclose that Messrs Streeter and Cooper, or their associated entities were allotted 5,625,000 and 400,000 options in the new company respectively or that Mr Streeter was allocated 4,000,000 shares at a concessional price of 6.66 cents per share for investing seed capital of $300,000.
It does not disclose that there had been a stage in the negotiations with the promoters of the new company when WAE might be offered a chance to subscribe to a million shares in the new company.
It makes no mention of the fact that Mr Brailey's resignation from the board of WAE had been because of his disapproval of the transfer of the opportunity to WANL.
It stated that the pending litigation with Mr Roberts was the obstacle to further progress by the plaintiff in 'pursuing further opportunities' when the Roberts original claim, the subject of the court proceedings, was only for the comparatively small amount of $12,985.20 (see exhibit 27, 3 TB 181 Local Court summons). It did not disclose that on 6 April 1998 the board of the plaintiff had resolved to pay this sum (exhibit 177, 3 TB 152) at a time when Messrs Streeter and Cooper were members of the board and present at the meeting (exhibit 177, 3 TB 152).
It did not disclose that Messrs Streeter and Cooper had by then already formulated a plan to put WAE into liquidation but had not implemented it and had no intention of the plaintiff 'pursuing further opportunities'.

[676]

Thus laches provides a bar to the grant of relief where there has been an unreasonable delay in the commencement or prosecution of proceedings and where the delay renders it unjust in all the circumstances to grant the relief sought.

Mere delay is insufficient to involve a laches defence, even in cases of 'spectacular delays'. For example, in Burroughs v Abott [1922] 1 Ch 86, the court granted rectification of an instrument after a delay of 12 years. A mortgagor's redemption suit was held not time-barred in Weld v Petrie [1929] 1 Ch 33 despite a delay of twenty-six years. Finally, in Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, the High Court granted specific performance twenty-six years after the cause of action arose.

The point of time from which the reasonableness of the delay is assessed is, prima facie, the time when the plaintiff became aware of the facts that gave rise to the availability of equitable relief. In Meagher, Gummow & Lehane at [36-085], the authors commented that where a plaintiff has knowledge of the relevant facts, he or she is presumed to have knowledge of his or her rights to a cause of action. They go on to say that the 'availability of the means of knowledge is as good as knowledge'. These propositions were confirmed in: Savage v Lunn [1998] NSWCA 204, 5 - 6; Savage v Lunn [1998] NSWCA 203, 59 - 60 (per Handley and Sheller JJA and Sheppard AJA).

Unreasonable delay alone will not be sufficient to attract a laches defence. The delay must render it unjust in all the circumstances of the case for relief to be granted (Spry, Equitable Remedies (6th ed, 2001) at 43). The doctrine can be relied upon where a plaintiff, in delaying to take or pursue and action has:

(a) acquiesced to the defendant's conduct; or

(b) caused the defendant or a third party to alter their position in reasonable reliance on the plaintiff's acceptance of the status quo or otherwise permitted a situation to arise that would be unjust to disturb.

The question is whether the balance of justice favours granting the remedy or withholding it. In Lindsay Petroleum Co v Hurd (1894) LR 5 PC 221 the Privy Council looked at, among other things, the nature of the claim, the nature of the property to which the claim relates, the identity of the party against whom the defence is raised, the length of the delay, the extent to which the delay has prejudiced the defendant and the acts of each party during the delay [9304] - [9308].

[703]

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. In the present case, not only was Dwyer actively dishonest, but also Warman commenced proceedings in the Supreme Court of Queensland in October 1988, shortly after Dwyer's departure, so that Dwyer had an opportunity to consider his position and take appropriate action such as the proper purchase of the goodwill of the agency business from Warman. And when the fiduciary is actively dishonest and obtains an identifiable profit from that dishonesty, it is more difficult still to conceive of circumstances in which no account at all should be ordered.

The outcome in cases of this kind will depend upon a number of factors. They include the nature of the property, the relevant powers and obligations of the fiduciary and the relationship between the profit made and the powers and obligations of the fiduciary. Thus, according to the rule in Keech v Sanford (1726) Sel Cas t King 61 [1726] EngR 961; [25 ER 226], a trustee of a tenancy who obtains for himself the renewal of a lease holds the new lease as a constructive trustee, even though the landlord is unwilling to grant it to the trust. But the rule 'depends partly on the nature of leasehold property' and partly on the position which the trustee occupies (footnotes omitted). A similar approach will be adopted in a case in which a fiduciary acquires for himself a specific asset which falls within the scope and ambit of his fiduciary responsibilities, even if the asset is acquired by means of the skill and expertise of the fiduciary and would not otherwise have been available to the person to whom the fiduciary duty is owed.

But a distinction should be drawn between cases in which a specific asset is acquired and cases in which a business is acquired and operated. Such a distinction was drawn by Upjohn J in Re Jarvis (decd) (supra) in the context of considering a defence of laches, acquiescence and delay. However, in our view, the distinction is also relevant in the context of the fiduciary's liability to account for profits...

...

In the case of a business it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal's goodwill over an indefinite period of time. In such a case, it may be appropriate to allow the fiduciary a proportion of the profits, depending upon the particular circumstances. That may well be the case when it appears that a significant proportion of an increase in profits has been generated by the skill, efforts, property and resources of the fiduciary, the capital which he has introduced and the risks he has taken, so long as they are not risks to which the principal's property has been exposed. Then it may be said that the relevant proportion of the increased profits is not the product or consequence of the plaintiff's property but the product of the fiduciary's skill, efforts, property and resources. This is not to say that the liability of a fiduciary to account should be governed by the doctrine of unjust enrichment, though that doctrine may well have a useful part to play; it is simply to say that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff.

It is for the defendant to establish that it is inequitable to order an account of the entire profits. If the defendant does not establish that that would be so, then the defendant must bear the consequences of mingling the profits attributable to those earned by the defendant's efforts and investment (footnotes omitted) in the same way that a trustee of a mixed fund bears the onus of distinguishing what is his own.

Whether it is appropriate to allow an errant fiduciary a proportion of profits or to make an allowance in respect of skill, expertise and other expenses is a matter of judgment which will depend on the facts of the given case (footnotes omitted). However, as a general rule, in conformity with the principle that a fiduciary must not profit from a breach of fiduciary duty, a court will not apportion profits in the absence of an antecedent arrangement for profit-sharing but will make allowance for skill, expertise and other expenses.

[706]

463 In this respect, it is clear that the subsequent growth and development of WANL were in large parts achieved by subsequent share issues and greater investment by the public, the defendants and the ANPC personnel which led to it growing into a much bigger company with many more shares on issue and with a much increased share capital deriving from all these processes. True it was that the discovery of the Forrestania project and its successful development to a highly valuable nickel producing mine, meant that there was cause for this appreciation in the value of the shares, and associated attraction for capital investment from many outside sources. But that is exactly what would be expected to happen in the event of any exploration mining company being fortunate enough to make a rich discovery leading to progress towards economic mining and production. The initial shareholders investing in such a project contemplate, even if only in hope, that their enterprise will be successful and that the value of their investment will grow. They realise or hope that such an eventuality is probable, that many others will invest and that the size and number of shareholders in the company will increase to an almost unrecognisable degree. That does not detract from the individuality of their original investment or its capacity to share, pro rata, with all the additional shares which may be issued to dilute their shareholding, in the growth and profits of the operation. Secondly, these defendants did not themselves provide the capital or the skill which led to the acquisition and success of the Forrestania mine. They did purchase further shares in WANL. Mr Streeter did make loans on commercial terms. Both he and Mr Cooper acted as directors but all that was done as investors and/or officers of WANL. It was WANL which raised the capital, engaged the contractors, spent money on exploration, mining and development and purchased, with its own money, the services of skilled geologists, engineers, financiers and others whose efforts, advice and wisdom led to the success of the operation.

At a glance

Court

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Judgment (747 paragraphs)

WESTERN AREAS EXPLORATION PTY LTD -v- STREETER [No 3] [2009] WASC 213 (31 July 2009)

The relief sought by the plaintiff - a constructive trust

Adjusting the constructive trust - equitable charge or lien

Messrs Streeter and Cooper become directors of WAE

Cases Cited (24)