Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd & Anor [2014] QSC 265 [2015] 1 Qd R 75

SUPREME COURT OF QUEENSLAND CITATION: Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd and anor [2014] QSC 265 PARTIES: CORNERSTONE PROPERTY & DEVELOPMENT PTY LTD ACN 150 870 867 (plaintiff) and SUELLEN PROPERTIES PTY LTD ACN 154 671 691 (first defendant) and SUELLEN BASSETT RUSHBROOK (second defendant) FILE NO: BS2849/13 DIVISION: Trial Division PROCEEDING: Trial DELIVERED ON: 28 October 2014 DELIVERED AT: Brisbane HEARING DATE: 10, 11 and 12 June 2014 JUDGE: Jackson J ORDERS: The order of the Court is that: 1. The plaintiff’s claim against the first defendant is dismissed. 2. The plaintiff’s claim against the second defendant is dismissed. CATCHWORDS: EQUITY – TRUSTS AND TRUSTEES – LIABILITY FOR BREACH OF TRUST – WHO MAY BE LIABLE – RECIPIENT OF MISAPPLIED TRUST PROPERTY – where the plaintiff company entered into a contract for the purchase of land – where the second defendant was a director and shareholder of the plaintiff company – where both other directors resigned – where one of the other directors was the only other shareholder – where the other directors told the second defendant that their business dealings were at an end – where the second defendant allowed the contract to purchase land to lapse – where the second defendant caused the first defendant to enter into a new contract on the same terms as the plaintiff’s contract – whether the second defendant was in breach of her fiduciary duties – whether the first defendant -- 1 of 32 -- 2 was liable on the principles in Barnes v Addy Able Tours Pty Ltd v Mann [2009] WASC 192, cited Barnes v Addy (1874) 9 LR App 244, considered Black v S Freedman & Co (1910) 12 CLR 105, cited Blackmagic Design Pty Ltd v Overliese (2011) 191 FCR 1, referred to Blundell, re (1888) 40 Ch D 370, referred to Bofinger v Kingsway Group Ltd (2009) 239 CLR 269, cited Chan v Zacharia (1984) 154 CLR 178, cited Ciaglia v Ciaglia (2010) 269 ALR 175, cited CMS Dolphin Ltd v Simonet [2001] 2 All ER 294, referred to Commonwealth Bank of Australia v Smith (1991) 42 FCR 390, referred to Commonwealth Oil and Gas Ltd v Baxter [2010] SC 156, cited Consul Development Pty Ltd v DPC Estates Pty Ltd (132 CLR 373, considered Cook v Deeks [1916] 1 AC 554, considered Diplock, re [1948] Ch 465, cited DPC Estates Pty Ltd v Consul Development Pty Ltd [1974] 1 NSWLR 443, referred to El Ajou v Dollar Land Holdings Plc [1994] 2 All ER 685, cited Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, considered Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473, cited Furs Ltd v Tomkies (1936) 54 CLR 583, referred to Global Medical Solutions Australia Pty Ltd v Axiom Molecular Pty Ltd [2012] NSWSC 1262, cited Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 295, considered Hasler v Singtel Optus Pty Ltd (2014) 311 ALR 494, cited ICT Pty Ltd v Sea Containers Ltd 91995) 39 NSWLR 640, cited Kalls Enterprises Pty Ltd (in liq) and ors v Balaglow (2007) 63 ACSR 557, cited Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] 3 VR 16, cited Lands Allotment Co, re [1894] 1 Ch 616, cited Latec Investments Limited v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265, cited Lee v Sankey (1872) 15 Eq 204, referred to Maguire v Makaronis (1997) 188 CLR 449, cited Ministry of Health v Simpson [1951] AC 251, cited Montagu’s Settlement Trusts, re [1987] Ch 264, cited Nocton v Lord Ashburton [1914] AC 932, cited Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd (2011) 285 ALR 63, cited Pauling’s Settlement, re [1962] 1 WLR 86, referred to Potts v Robins [2013] QCA 273, cited -- 2 of 32 -- 3 Queensland Mines Ltd v Hudson (1978) 52 ALJR 399, considered R v Byrnes (199) 183 CLR 501, cited Royal Brunei Airlines Sdn Bhd v Tan [1995] AC 378, cited Satnam Investments Ltd v Dunlop Heywood [1999] 3 All ER 652, cited Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 1 WLR 1555, cited Soar v Ashwell [1893] 2 QB 390, referred to Spellson v George (1992) 26 NSWLR 666, referred to Staniar v Evans (1886) 34 Ch D 470, referred to Super 1000 Pty Ltd v Pacific General Securities Ltd (2008) 221 FLR 427 Trustor AB v Smallbone (No 2) [2001] 1 WLR 1177, considered Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638, cited Walker v Symonds (1818) 3 Swanston 1, cited Warman International Ltd v DwyerI(1995) 182 CLR 544, considered Westpac Banking Corporation Ltd v Bell Group Ltd (2011) 44 WAR 1, cited Wurth Australia Pty Ltd v Burgess [2012] WASC 504, cited Zhu v Treasurer (NSW) (2004) 218 CLR 530, cited Zomojo Pty Ltd v Hurd (No 2) (2012) 299 ALR 621, cited COUNSEL: D Whitehouse for the plaintiff P Hastie QC for the first defendant No appearance for the second defendant SOLICITORS: Lillas & Loel Lawyers for the plaintiff Hopgood Gamin for the first defendant No appearance for the second defendant JACKSON J: Introduction [1] This dispute relates to a property development project of land situated at 55 Carmichael Street, Chinchilla (“the Lot 7 project”). The project was originally pursued by Luke Chalmers, his wife, Lynette Lindsey Anne Chalmers (“the Chalmers”) and Suellen Bassett Rushbrook, the second defendant. [2] They had earlier formed Cornerstone Property & Development Pty Ltd, the plaintiff, for another purpose. Mr and Mrs Chalmers and the second defendant were the directors. In November 2011, they caused the plaintiff to enter into a conditional contract to buy the land (“the plaintiff’s contract”). The land is more particularly described as Lot 7 on RP 839246 County of Lytton, Parish of Chinchilla (“Lot 7”). [3] By Christmas of that year, the Chalmers and the second defendant had fallen out. The Chalmers informed the second defendant, inter alia, that she could proceed alone on the development of the Lot 7 project. At the end of February 2012, the plaintiff did not give notice of non-satisfaction of a due diligence condition under -- 3 of 32 -- 4 the plaintiff’s contract. In accordance with its terms, the contract ought to have proceeded, subject to a condition that a development approval be obtained within an identified time. The second defendant wished to proceed with the plaintiff’s contract. The Chalmers would have none of that. Both Mr Chalmers and Mrs Chalmers resigned as directors of the plaintiff. They instructed the solicitors acting for them and the plaintiff to inform the second defendant that the contract was not proceeding. The result was that the plaintiff’s contract did not proceed. The second defendant remained as the sole director. On 12 March 2012, Mr Chalmers again told the second defendant that they would not have anything further to do with her and repeated the statement they had made in December that she was free to proceed without them on the Lot 7 project. [4] Suellen Properties Pty Ltd, the first defendant, was incorporated at the end of 2011. The second defendant was then the sole director and shareholder. In March 2012, the second defendant obtained a new investor for the Lot 7 project. In April 2012, the second defendant caused the first defendant to enter into a contract to buy Lot 7, effectively in substitution for the plaintiff’s contract. [5] The new investor provided the funds for the first defendant to proceed with the Lot 7 project. An application by the first defendant for development approval was lodged. The new investor was the sole source of the funds to proceed with the application and expenses. The new investor became a shareholder and its representatives became the directors of the first defendant. In January 2013, the development approval was obtained. After that, the purchase of the land by the first defendant became due for settlement. The second defendant could not fund her share of the expenses. The new investor and the second defendant agreed that she would exit the first defendant and the Lot 7 project. Her shareholding in the first defendant was purchased by the new investor. She resigned as a director of the first defendant. The acquisition of Lot 7 was settled. [6] Throughout this process, the plaintiff lay moribund. No meetings of its directors or members were held and it engaged in no business. By 1 May 2012, Mr Chalmers had confirmed with the agent that the plaintiff’s contract was not proceeding. Also, from early May 2012, Mr Chalmers knew that the first defendant was proceeding with the project over Lot 7. When the first defendant had managed to obtain development approval and was ready to settle the purchase of the land, Mr Chalmers engaged lawyers on behalf of the plaintiff. They started this proceeding. The plaintiff’s claims [7] The plaintiff claims a variety of relief. The claims against the second defendant are based on alleged breaches of fiduciary duty or duty under ss 181(1) or 182(1) Corporations Act 2001 (Cth) (“CA”) as a director of the plaintiff. The basis of the claims is that second defendant acted in breach of those duties in causing the first defendant to enter into the contract to buy Lot 7 and in proceeding with the project. The relief sought against her is an account of profits or an order for compensation, either in equity, or under s 1317H(1) of the CA. [8] The claims against the first defendant, in equity, are based on the liability of a person who has received and become chargeable with trust property, or who has assisted with knowledge in a dishonest and fraudulent design on the part of the trustees, or who is the company alter ego of a defaulting director. Alternatively, -- 4 of 32 -- 5 they are based on the liability of a person involved in a contravention under s 181(1) or s 182(1) of the CA. The relief sought against the first defendant is a constructive trust over Lot 7, or an account of profits or an order for compensation, in equity, or an order for compensation under s 1317H(1) of the CA. Summary of conclusions [9] For the reasons which follow, in my view, the second defendant did not act in breach of fiduciary duty without informed consent. Also, in my view, she acted in good faith in the best interests of the plaintiff and for a proper purpose and did not improperly use her position as a director of the plaintiff, in the discharge of her duties to the plaintiff. [10] By April 2012, when the first defendant entered into its contract to purchase Lot 7, every indication the second defendant had received from the Chalmers was that the plaintiff was not proceeding with its purchase and the Chalmers would have nothing further to do with her (and I infer, through her, with the plaintiff). It will be necessary to discuss the plaintiff’s alternative claims for relief and their bases in some detail. However, the conclusions to which I have come are that the plaintiff is not entitled to the relief it claims against either the first or second defendants. Two adjacent projects [11] The Chalmers and the second defendant had known one another since 2006. Mr Chalmers had some experience in the building industry as a development or project manager. Mrs Chalmers had tertiary qualifications in property economics and also experience in evaluation, development and finance as a manager. The second defendant was engaging in business as a mortgage broker. [12] On 12 May 2011, the plaintiff was registered as a company. The directors were the Chalmers and the second defendant. The shareholders were Mr Chalmers as to 50 shares and the second defendant as to 50 shares. The original purpose of the plaintiff was to carry on business to provide development funding advice. [13] The Chalmers did research into the development of accommodation for the proposed coal seam gas mining industry expansion around Chinchilla. Mr Chalmers located two sites. One was at 47 Carmichael Street (“Lot 5”). That became the subject of a development project referred to in the evidence as the “Innobuild project” or the “Lot 5 project”. It did not involve the plaintiff. [14] The second site was the adjoining Lot 7. In June or July 2012, an agent informed Mr Chalmers that Lot 7 was available for purchase. According to Mr Chalmers, he and his wife were interested in purchasing that property. However they felt that they may have been overcommitted to the Innobuild project and, while they were very interested in the opportunity, had some reservations. Mrs Chalmers thought it was the second defendant who suggested purchasing Lot 7. [15] On 10 November 2011, the plaintiff agreed to purchase Lot 7 for the sum of $1,150,000, under the plaintiff’s contract. A deposit of $2,000 was paid. The solicitors for the plaintiff were Eaton Lawyers. [16] The terms of the plaintiff’s contract included that: -- 5 of 32 -- 6 (a) by cl 2(a) of the special conditions, the contract was “subject to and conditional upon the Buyer and Buyer’s solicitor being satisfied in all respects in their absolute discretion with all aspects of the Property relevant to the Buyer, within 45 days from the Contract Date (‘the Due Diligence Date’)”; (b) by cl 2(b) of the special conditions, “if the Buyer or the Buyer’s solicitor is not so satisfied, then the Buyer may by written notice to the Seller terminate this Contract. If the Buyer does not give notice of satisfaction or non- fulfilment of this Special Condition by the Due Diligence Date, then the Buyer is deemed to be satisfied with its Due Diligence enquiries and the Contract is unconditional in that respect”; (c) by cl 3(a) of the special conditions, the contract was “subject to and conditional upon the Buyer…lodging with the Local Authority a development application for the purpose of obtaining development approval which is acceptable to the Buyer within 60 days from written notification to the Seller that Special Condition 2 has been satisfied by the Buyer”; (d) by cl 3(b) of the special conditions, the contract was subject to and conditional upon the Buyer obtaining a development approval which was acceptable to it from the local authority within nine months from satisfaction of special condition 3(a); (e) by cl 3(c) of the special conditions, the buyer was required to diligently pursue the application and do all reasonable and necessary things until it had obtained an approval from the local authority which was acceptable to the buyer; (f) by cl 6(a) of the special conditions, settlement was to be 60 days after the buyer had given written notice to the seller that special condition 3(b) had been satisfied. [17] The 45 day due diligence date under special condition 2(a) of the plaintiff’s contract was extended more than once. The last extended period was due to end on 28 February 2012. [18] In December 2011, a dispute arose between the Chalmers and the second defendant about their dealings over the Innobuild project. The details do not matter and it would be inappropriate to deal with them because there is a separate dispute between some of the parties over that project. The dispute resulted in a meeting before Christmas 2011 where the Chalmers told the second defendant that they wanted to have no further business dealings with her. [19] In an affidavit sworn some time before the trial, Mrs Chalmers said that she and her husband felt that the plaintiff would be unable to proceed with settling the purchase of Lot 7 as they personally did not have the necessary funds to do so and did not want to overextend themselves and therefore place the Innobuild project in jeopardy. [20] After 1 February 2012, the Chalmers generally ceased communication with the second defendant. The second defendant sent emails or texts to Mr Chalmers on 1 -- 6 of 32 -- 7 February, 5 February 2012, 6 February 2012, 7 February 2012, 8 February 2012, 9 February 2012, 10 February 2012 and 14 February 2012. Mr Chalmers appears to have ignored nearly all those communications. [21] Eaton Lawyers were the Chalmers’ lawyers, and were the solicitors for the plaintiff under the plaintiff’s contract as well. In February 2012, Mr Chalmers consulted Mr Eaton about the Chalmers’ position. Mr Eaton advised the Chalmers to resign as directors of the plaintiff. [22] By notices of resignation dated 27 February 2012, the Chalmers resigned as directors of the plaintiff. This was plainly a part of their strategy to end their further dealings with the second defendant. [23] On 28 February 2012, Eaton Lawyers, as the plaintiff’s solicitors, sent an email to the Chalmers and the second defendant stating that the extended date to complete the due diligence had expired on that date. The email confirmed that at 5:15pm they did not hold instructions and stated that the seller had the right to terminate the contract. [24] The second defendant replied within minutes, purporting to give instructions to the solicitors as follows: “Please advise we wish to proceed ASAP.” [25] On 28 February 2012, also within minutes of receiving the email from Eaton’s Lawyers, the second defendant sent an email to the vendors as follows: “Hi as per my conversation with you Cornerstone Property & Development Pty Ltd will be proceeding with the purchase of 55 Carmichael Street Chinchilla.” [26] That evening, Mr Eaton sent a text message to the second defendant as follows: “I just spoke to luke [sic] and he says not proceeding. We at eatons lawyers [sic] cannot act for either of you if there is conflict. Please let me know how you resolve with luke [sic]...” [27] On 29 February 2012, the second defendant sent an email to the vendors as follows: “Further to our earlier discussions regarding the contract … there appears to be some difference between the directors/shareholders of the purchaser company as to whether we proceed to completion of settlement of the contract. I as a director and shareholder intend to proceed with deal however if the other shareholders chose not to proceed, we may need to arrange for a new contract to be drawn up with a new entity reflecting the previously agreed terms and conditions …” [28] On 1 March 2012, the second defendant sent an email to Mr Chalmers. The contents generally do not matter. At the end, she requested a meeting to discuss their differences. -- 7 of 32 -- 8 [29] On 12 March 2012, Mr Chalmers sent an email to the second defendant detailing the Chalmers’ complaints about the second defendant, particularly in relation to the Innobuild project, although they included a copy of an earlier email sent by Mrs Chalmers to the second defendant complaining about the allocation of the shareholding in the plaintiff. One of the subject matters of dispute was whether the second defendant should have any interest in the Innobuild project. Among other matters, Mr Chalmers stated, inter alia, that: “On the 13th of December we met you at West End Coffee Club to tell you that we did not want to continue our business relationship and that Lynette and I would pay back the money you loaned plus interest. At that time we were negotiating Leichardt Hwy Miles and 55 Carmichael Street [sic] we said we no longer wanted to proceed with these projects either and said that you could proceed without us. We expressed our feelings at that meeting in regards to past dealings with you and the trust issues we have with you and established it was too big of a risk to the project and future business to proceed with our business relationship. We asked what you would be happy with to part ways [sic] you refused to answer the question.” (emphasis added) [30] At the conclusion of Mr Chalmers’ 12 March 2012 email, he said: “Our position is as follows, our business relationship and dealings with you are at an end. We have paid you back your loan plus interest. The arrangements that Lynette and I were forced into after you left the project [sic] we will be seeking financial compensation for all losses and continued losses in the future. You are to cease discussion relating to the project.” (emphasis added) [31] On 18 March 2012, the second defendant sent an email to (Allan) Huia Gordon and another, apparently about the Lot 7 project. [32] On 11 April 2012, the first defendant entered into a contract to buy Lot 7 from the vendors. The contract was expressed to be on “conditions … the same as contract dated 10 November 2011 except Due Diligence expired on 28 February 2012”. [33] From April 2012, the first defendant proceeded to apply for development approval for Lot 7, as special condition 3 of the plaintiff’s contract had required. The fees and charges were funded by Mr Gordon or his companies who also paid for the consultants’ fees. [34] On 26 April 2012, the second defendant sent an email to Mr Gordon and Koa Fenton (his wife) which included the following: “The partnership as discussed with you and Hui [sic]… will open a bank account & the 10k be reimbursed to Hui [sic]. Re my conversation with Lee on Tuesday that [sic] the vendors [sic] solicitors due to the previous contract of purchase between Cornerstone Property & Development require me to indemnify the vendors from any legal action due to the new contract being between Suellen Properties P/L”. -- 8 of 32 -- 9 [35] On 1 May 2012, the solicitors for the vendors sent an email to Mr Chalmers informing him that if he wished to proceed with the plaintiff’s contract he was required to lodge a development application by no later than 15 May 2012. In May 2012, Mr Chalmers knew that the first defendant had agreed to purchase Lot 7 and was proceeding with the Lot 7 project. He took no action of any kind in response to the vendors or towards the second defendant or first defendant at that time. [36] On 15 November 2012, Mr Gordon and his brother became directors and shareholders of the first defendant. [37] On 23 January 2013, the first defendant obtained development approval for Lot 7. The development approval was acceptable to it. [38] Before settlement of the purchase of the land, the first defendant had spent $167, 546 on the Lot 7 project. [39] On 25 March 2013, the second defendant sold her shares in the first defendant to Mr Gordon and his brother. The price for her shares was $225,000. Of that, the second defendant appears to have received $85,000 on 26 March 2013. The balance was payable conditionally to be retained in her solicitors’ trust account. However, it also appears that with the agreement of the purchasers of the shares given in March 2014 she has been permitted to utilise $57,000 of that sum in payment of a loan on another account to Huidon Group Pty Ltd. [40] On 26 March 2013, the first defendant settled the purchase of the land. The purchase price was $1,160,000. Only a small deposit had been paid. The settlement was financed with a facility of $800,000 borrowed from Westpac Banking Corporation, I infer on the security of a registered mortgage over Lot 7. As well, Huidon Group Pty Ltd’s accounts show a disbursement of $360,344.80 on 26 March 2013, which I infer was a loan to the first defendant by another of Mr Gordon’s companies. The first defendant will also have paid other expenses including stamp duty and legal fees, which are evidenced by the documents tendered at the trial. [41] On 26 March 2013, the plaintiff started this proceeding. Mr Chalmers caused it to do so. It was unclear when Mr Chalmers claim was first notified to either of the defendants. I infer it was only shortly before the proceeding was started. The second defendant’s liability [42] I start with the second defendant’s liability. The Chalmers had deliberately sunk the plaintiff’s project to buy and develop Lot 7, whether or not they had good reason to want to rid themselves of further business involvement with the second defendant. They deliberately refused to go ahead with notifying the vendors that the due diligence condition was satisfied.1 They simultaneously resigned their offices as directors of the plaintiff. The second defendant wanted to preserve the project. She sought to do so, on behalf of the plaintiff. The Chalmers were having none of that. The Chalmers and the plaintiff’s solicitors, on Mr Chalmers’ instructions, informed the second defendant that the Chalmers were not proceeding. Mr Chalmers reinforced the position by writing to the second defendant asserting that the business relationship between the Chalmers and the second defendant was at an end. 1 The plaintiff’s contract operated so that if the time for due diligence passed without the plaintiff giving notice of non-satisfaction, the contract was no longer subject to that condition. -- 9 of 32 -- 10 [43] The second defendant’s reaction was perhaps predictable. First, she informed the vendors of the dispute between her and the Chalmers. Second, she informed the vendors that, accordingly, the purchase and contract might have to proceed with a new purchaser. Third, she obtained a new investor. Fourth, as sole director of the first defendant, she negotiated a new contract with the first defendant as purchaser. Fifth, as director of the first defendant, she proceeded with the Lot 7 project, by taking the steps required to obtain the development approval. [44] Through all this, the plaintiff continued to exist, although moribund. Except for its interest under the Lot 7 contract, there was no evidence that it had any other assets. That contract was not proceeding. It had only one director, the second defendant. Unlike the Chalmers, she failed to resign as a director so as to relieve herself of her director’s duties. The plaintiff had two shareholders: the second defendant and Mr Chalmers. Mr Chalmers lay in wait to see whether the project, as carried on by the first defendant, was successful. When development approval had been obtained and the project was going ahead, Mr Chalmers moved to make a claim through the plaintiff against the second defendant. [45] Nevertheless, the second defendant had remained a director of the plaintiff. In R v Byrnes2 the High Court said: “A company is entitled to the unbiased and independent judgment of each of its directors. A director of a company who is also a director of another company may owe conflicting fiduciary duties. Being a fiduciary, the director of the first company must not exercise his or her powers for the benefit or gain of the second company without clearly disclosing the second company’s interests to the first company and obtaining the first company’s consent. Nor, of course, can the director exercise those powers for the director’s own benefit or gain without clearly disclosing his or her interest and obtaining the company’s consent. A fiduciary must not exercise an authority or power for the personal benefit or gain of the fiduciary or a third party to whom a fiduciary duty is owed without the beneficiary’s consent.”3 (footnotes omitted) [46] Subject to two matters to be considered next, I would proceed on the basis of a finding that the second defendant was in breach of her fiduciary obligation not to act in a position of conflict of duty and duty or duty and interest. Scope of the “trust and agency” of the second defendant [47] In Queensland Mines Ltd v Hudson,4 a company declined to proceed on the acquisition of a mining exploration licence offered to it. The company did not have the resources to do so. Its affairs had been “mothballed” some months earlier. The managing director had originally pursued the prospect of the project using his position as a director. The managing director had negotiated to obtain the licence. He informed the company he felt obliged to proceed. Shortly afterwards he acquired the licence in his personal name. He undertook the obligations under the 2 (1996) 183 CLR 501. 3 Ibid, 516-7. 4 (1978) 52 ALJR 399. -- 10 of 32 -- 11 licence personally. He openly proceeded, personally, with the project without protest from the company. He resigned as managing director but remained as a director. The Privy Council analysed and approached the facts in two ways. One approach was that from the time when the company declined to proceed, the venture based on the licence was “outside the scope of the trust and outside the scope of the agency” created by the relationship of director and company. The other was that as the opportunity to profit arose initially by use of his position as managing director the director must account to the company unless he had the company’s fully informed consent and that on the facts he had that consent. [48] Both defendants rely on most of the facts by which the Chalmers withdrew from the plaintiff’s Lot 7 project and affairs as an answer to liability. Those facts raise as a question whether the second defendant’s “trust… and… agency” as a director was limited in scope. The question is whether that scope was limited in a way that permitted her to proceed personally on the Lot 7 project, on the analogy of Queensland Mines. The plaintiff alleges that the scope of the second defendant’s fiduciary duties extended to the plaintiff’s contract and the opportunity to purchase and develop and sell Lot 7, that is the Lot 7 project. The defendants deny that was within the scope of the second defendant’s duties, at least after 28 February 2012. [49] It can clearly be said that the Chalmers had forcefully intimated to the second defendant that they expected nothing further from her in relation to the Lot 7 project, by saying that she could proceed without them in December 2011, by resigning as directors and saying that the contract (and therefore the project) was not proceeding on 28 February 2012, and by Mr Chalmers repeating that in March 2012. In evidence, Mr Chalmers said that his expectation was that the second defendant might proceed with the Lot 7 project through the plaintiff. I reject that he thought that at the time when the relationship broke down. On the contrary, I find that his intention at the time was that the plaintiff would not proceed. Apart from his intention formed some time later to bring this claim, in my view, from end February 2012 at no relevant time did the Chalmers intend that the plaintiff would proceed with the project. [50] On these special facts, in my view, the scope of the second defendant’s “trust and agency” as a director was reduced, so that her conduct on behalf of the first defendant to pursue the Lot 7 project on behalf of the first defendant was outside that scope. Disclosure and informed consent [51] Alternatively, as the approach in Queensland Mines and the passage from Byrnes set out above illustrate, disclosure and informed consent will operate as a defence to a claim that a director must not exercise her powers for the benefit of the second company. The principles are of long standing and have been adapted to the liability of a company director for breach of fiduciary duty from the law of trusts. In Walker v Symonds,5 Lord Eldon said: “It is established by all the cases, that if the cestui que trust joins with the trustees in that which is a breach of trust, knowing the circumstances, such a cestui que trust can never complain of such a 5 (1818) 3 Swanston 1, 65. -- 11 of 32 -- 12 breach of trust. I go further, and agree that either concurrence in the act, or acquiescence without original concurrence, will release the trustees: but that is only a general rule, and the Court must inquire into the circumstances which induced concurrence or acquiescence; recollecting in the conduct of that inquiry, how important it is on the one hand, to secure the property of the cestui que trust; and on the other, not to deter men from undertaking trusts from the performance of which they seldom obtain either satisfaction or gratitude.” [52] There have been many cases considering the principle and its application. Re Pauling’s Settlement6 is recognised as containing an important discussion of relevant principles. In Australia, other leading cases are Farah Constructions Pty Ltd v Say-Dee Pty Ltd,7 Maguire v Makaronis,8 Blackmagic Design Pty Ltd v Overliese,9 Spellson v George,10 Commonwealth Bank of Australia v Smith,11 and Queensland Mines. As the plurality of the High Court said in Maguire v Makaronis: “What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given.”12 [53] Here, the second defendant did not disclose to Mr Chalmers, as the other shareholder interested in the affairs of the plaintiff, that she was proposing to proceed for the benefit of the first defendant, or her own benefit. She had informed them that the plaintiff was proceeding on 28 February 2012. Thereafter, on 12 March 2012, Mr Chalmers said in his email, inter alia, that in December 2011 he and his wife had “said we no longer wanted to proceed with these projects and said that you could proceed without us” and “our business relationship and dealings with you are at an end”. These statements were made in the context of a total breakdown in the relationship between the Chalmers and the second defendant. In that state of affairs, the plaintiff could not proceed. It had no assets or financial backer. It had no other business, on the evidence. [54] Was this an informed consent? In my view, it was. In reaching that conclusion, I acknowledge that it is particular to the facts of this case and that it is not often that informed consent can be inferred. Compare, for example, Furs Limited v Tomkies,13 where there was no such informed consent, even though the director’s relationship with the company was to be ended. First limb Barnes v Addy liability [55] Against the possibility of error in my findings that the second defendant did not breach her fiduciary duty or had the informed consent of the plaintiff, I proceed to 6 [1962] 1 WLR 86. 7 (2007) 230 CLR 89, 138-9 [107]. 8 (1997) 188 CLR 449. 9 (2011) 191 FCR 1, 23 [110]. 10 (1992) 26 NSWLR 666, 670 and 685. 11 (1991) 42 FCR 390, 393. 12 (1997) 188 CLR 449, 466. 13 (1935-1936) 54 CLR 583, 599-600. -- 12 of 32 -- 13 consider the first defendant’s liability in respect of the second defendant’s alleged breach of fiduciary duty. [56] The plaintiff alleges in the statement of claim that its interest in Lot 7 was diverted to the first defendant. At first glance, that characterisation seems to have some basis. The plaintiff’s interest under its contract to purchase Lot 7 was legally on foot when the first defendant entered into its contract to buy Lot 7 on the same terms from the vendors. The circumstances at the time were that the second defendant and the vendors both knew that the plaintiff’s contract was not likely to proceed, because of the dispute between the second defendant and the Chalmers. Of course, the vendors were under no obligation to the plaintiff outside their contractual obligations. That was not true of the second defendant’s position, prima facie. [57] Although the defendants plead that the plaintiff’s contract was terminated, the evidence does not clearly reveal what happened to it. Either one of the parties terminated it, or it was abandoned by neither party seeking to carry it into execution. However, the first defendant did not take an assignment of the benefit of the plaintiff’s interest under its contract. There was no transfer of either a legal or equitable interest in the land by the plaintiff to the first defendant. The true sense in which the plaintiff’s interest in the land was diverted is limited to the first defendant taking advantage of the opportunity to purchase the land from the vendors, largely on the same terms and conditions, because it knew of that opportunity from the second defendant by virtue of the second defendant’s knowledge as a director of the plaintiff. [58] Against the first defendant, the plaintiff relies upon the principle of liability described as the liability of a stranger to a trust under the first limb of Barnes v Addy.14 [59] The statement of principle by Lord Selborne in that case that is the source of the subsequent case law is as follows: “Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.” (emphasis added) 14 (1873-1874) LR 9 Ch App 244, 251-252. -- 13 of 32 -- 14 [60] The division into “knowing receipt”, or “recipient liability”, or first limb Barnes v Addy liability, on the one hand, and “knowing assistance”, or “accessory liability”, or second limb Barnes v Addy liability, on the other hand, stems from that passage. [61] I note that Barnes v Addy itself was not a first limb case at all. The transaction in that case was a transfer of trust property by a trustee, who exercised a power to appoint a new trustee to the relevant trust. The new trustee was appointed as a sole trustee. That was held to be a breach of trust by the original trustee. The liabilities under consideration were of the solicitor who had acted for the original trustee and the solicitor who had acted for the new trustee in the transaction. One of the solicitors had received some of the trust funds into his trust account for a time, but that was not the basis of his alleged liability, because it was not a beneficial receipt. It can be seen, as is often acknowledged, that Lord Selborne’s statement of principle about the liability of a stranger to a trust who receives trust property was obiter dictum. [62] Although there are now very many cases in which Barnes v Addy liability has been discussed, two further observations may be made at this point. First, the weight of discussion in the cases is about second limb liability. Second, before 1968 there were only a couple of reported cases said to have been based on the first limb of Barnes v Addy, where a stranger was held to have received and become chargeable as a constructive trustee of trust property.15 It was that year when Selangor United Rubber Estate Ltd v Cradock (No 3)16 heralded the extension of Barnes v Addy to a breach of director’s duty to his or her company, as opposed to breach of trust by a trustee. However, Selangor itself was a second limb Barnes v Addy liability case. [63] The ink that has been spilt since about 1985, by Judges and academics alike, in writing about the scope of the liability of a stranger to a trust under first limb Barnes v Addy liability, properly cautions my approach to the application of Lord Selborne’s statement of principle to the present facts. There is no question that Farah Constructions Pty Ltd v Say-Dee Pty Ltd17 is the leading case in Australia. It was surprising that neither of the parties referred to it in submissions. [64] Before Farah, a number of cases had either assumed or decided that first limb Barnes v Addy liability extended to a breach of fiduciary duty by a company director involving misapplication of the company’s property. Farah was decided on that assumption too, but the High Court made it clear that it was assuming, not deciding, that question. Accordingly, in Kalls Enterprises Pty Ltd (in liq) v Balaglow18 it was argued before the New South Wales Court of Appeal that first limb Barnes v Addy liability did not apply to a company director.19 The argument was rejected, on the basis that a director is treated as if trustee of the funds or property of the company under his control.20 I am bound by that decision, which in my respectful view is amply supported by other authority. It has also been 15 Staniar v Evans (1886) 34 Ch D 470, 478 and, on one possible view, Soar v Ashwell [1893] 2 QB 390, 405-406. Other cases were either decided before Barnes v Addy, such as Lee v Sankey (1872) 15 Eq 204, or decided that there was no liability on the facts, such as In re Blundell; Blundell v Blundell (1888) 40 Ch D 370. 16 [1968] 1 WLR 1555. 17 (2007) 230 CLR 89. 18 (2007) 63 ACSR 557. 19 Ibid, 583 [135]. 20 Ibid, 588 [157]-[159]. -- 14 of 32 -- 15 accepted, since re Lands Allotment Co,21 that directors are to be treated as if they are trustees of funds of a company in their hands or under their control. [65] In Westpac Banking Corporation Ltd v Bell Group Ltd,22 Drummond AJA held that the first limb of Barnes v Addy should be regarded as extending to a disposition of a company’s property made by a director in breach of his or her fiduciary duty to the company. I note that the cases relied on in Kalls, as cases within first limb Barnes v Addy liability for breach of a company director’s duty, were all cases involving misapplication of the company’s property, mostly meaning the company’s money. From this point, in my view, the best way to proceed is from first principle, although I acknowledge the assistance that the extensive case law and literature on the subject of first and second limb Barnes v Addy liability provides. [66] For this case, the first problem raised by Farah is whether the acquisition of Lot 7 by the first defendant was an acquisition of “trust property”, within the scope of first limb Barnes v Addy liability. In Farah, the defendants had acquired land on the advice of a defaulting fiduciary. At the time of the breach of fiduciary duty, the plaintiff had no interest in the land. It was not the proprietor. It was not a purchaser under a contract of sale. [67] In those circumstances, the High Court rejected that the defendants received trust property within the scope of first limb Barnes v Addy liability. It held that the information deployed by the defaulting fiduciary was neither confidential nor was it a trade secret, so that the analogy between property and those forms of information was not made out.23 The joint judgment continued that “it does not follow under the law as it stands that the information which third parties obtain from a fiduciary is trust property, or that land bought by using that information is trust property”.24 [68] If the information as to the availability of land for purchase is not trust property, is there another way of characterising the first defendant’s opportunity to purchase Lot 7 in the present case as trust property within the meaning of the first limb of Barnes v Addy? Since Farah, there have been several cases in which a breach of fiduciary duty consisting of misuse of business information or the “diversion” of a business opportunity has been made the subject of a second limb Barnes v Addy liability.25 But only one case of which I am aware has suggested or considered that for possible first limb liability.26 [69] Before the first defendant purchased Lot 7, no legal estate in the land was trust or other property of the plaintiff. The plaintiff’s interest in the land was as a purchaser under a conditional contract of sale. When any breach of fiduciary duty by the second defendant occurred, the land was not otherwise property of the plaintiff. The legal nature of the interest of a purchaser under a contract of sale has been analysed in the High Court in the context of a number of different equitable principles. Perhaps most recently, in Tanwar Enterprises Pty Ltd v Cauchi,27 it was observed 21 [1894] 1 Ch 616, 631. 22 (2011) 44 WAR 1, 386-7 [2136]-[2137]. 23 (2007) 230 CLR 89, 143-4. 24 Ibid, 144 [120]. 25 Able Tours Pty Ltd v Mann [2009] WASC 192; Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd (2011) 285 ALR 63; and Zomojo Pty Ltd v Hurd (No 2) (2012) 299 ALR 621. 26 Wurth Australia Pty Ltd v Burgess [2012] WASC 504, [45]. 27 (2003) 217 CLR 315, 332-333 [53]. -- 15 of 32 -- 16 that authority suggests that a purchaser has an equitable estate in the land which is commensurate with the availability of specific performance, but that to characterise the interest by reference to the availability of that relief, when that is what is in question, is circular. In the end, no particular principle or characterisation was accepted. [70] It follows from the earlier discussion that cases where first limb Barnes v Addy liability (that is, from Lord Selborne’s statement of principle) is the basis of the decision for a company director’s breach of fiduciary duty are a comparatively recent phenomenon. After 1968, the first of which I am aware is Belmont Finance Corporation v Williams.28 The cases since then involve the misapplication of the company’s money or other property, not a third party taking advantage of a commercial opportunity with notice of facts comprising breach of a director’s fiduciary obligation not to act in conflict of duty or personal interest. [71] It is noticeable that analysis of the width of the scope of the statement of principle of first limb Barnes v Addy liability has identified a number of different species of liability which could come within Lord Selborne’s statement of principle under the first limb. It assists further analysis to mention some of them briefly.29 First, the beneficiary of a trust may claim an equitable title to the trust property that takes in priority to the legal or equitable title acquired by another later in time, according to the usual principles of priority of legal and equitable interests in property.30 This is a species of proprietary claim which may be supported by a remedy by way of constructive trust, but it is based on equitable title to and following of trust property, not breach of trust or fiduciary duty, per se.31 Second, the beneficiary of a trust may claim an equitable title by tracing the conversion of trust property into another form of property according to the rules of tracing.32 Again, this is a species of proprietary claim which may be supported by a remedy by way of constructive trust. Third, the special rules applicable to the claim of a legatee or next-of-kin to recover an amount wrongly paid as a distribution by a personal representative, purportedly as a legacy or other distribution from the deceased’s estate, covered by re Diplock,33 is a species of personal claim. The remedy, although personal, may be expressed to be by way of constructive trust to account for the payment.34 Fourth, although not made explicit by Lord Selborne’s statement of principle, the beneficiary of a trust may claim that a stranger to a trust personally account for or restore the trust property received by him or her with notice. Although expressed to be a “constructive trust”, this is a species of personal claim, that the defendant is liable to account to and pay 28 [1980] 1 All ER 393, 405F. 29 I do not enter upon the extent of the “trust” or trust-like obligations of a constructive trustee in accordance with the analysis of the commentators, such as C Mitchell and S Watterson,“Remedies for Knowing Receipt”, in Mitchell (ed), Constructive and Resulting Trusts, (Oxford: Hart: 2010), 115. I also do not enter upon the comparison of a plaintiff’s proprietary right and a defendant’s personal obligation to restore the trust property where both could explain relief against specific trust property held by the defendant, such as that by J Dietrich and P Ridge, “‘The Receipt of What?’ Questions Concerning Third Party Recipient Liability in Equity and Unjust Enrichment” (2009) 31 MULR 47. 30 Compare Latec Investments Limited v Hotel Terrigal Pty Ltd (in liq) (1965) 113 CLR 265, 276 as to the priority of a mortgagor’s equity of redemption. 31 See Giumelli v Giumelli (1999) 196 CLR 101, 112 [3]-[6]. 32 Re Montagu’s Settlement Trusts [1987] Ch 264. 33 [1948] Ch 465; Ministry of Health v Simpson [1951] AC 251. 34 In Queensland, s 113 of the Trusts Act 1973 (Qld) provides, in effect, that the re Diplock principle extends to trusts and trustees as well as estates and personal representatives. -- 16 of 32 -- 17 a money sum to the plaintiff, for the trust property that was received by the defendant.35 That relief might be granted where a proprietary claim to the property itself cannot be the subject of a constructive trust, because the defendant has disposed of it.36 But as authority stands at present, the basis of liability differs from second limb Barnes v Addy liability. It does not depend on the existence of a fraudulent or dishonest design and breach of trust by the trustee, or (possibly) the same degree of knowledge of that breach of trust or assistance in that breach by the stranger to the trust. [72] Assuming, because it is impossible to know, that the first two of those species of liability come within Lord Selborne’s statement of principle of first limb Barnes v Addy liability, neither of them could be made out against the first defendant’s legal title to Lot 7. A declaration of constructive trust based on either of those species of liability would give effect to an equitable interest in Lot 7. If the first defendant is registered as the proprietor of the indefeasible title to Lot 7 under the Land Title Act 1994 (Qld), the plaintiff does not have an equitable title to Lot 7 which will be recognised against the first defendant’s legal title. By virtue of s 184 of the Land Title Act 1994 (Qld), the first defendant’s indefeasible title to Lot 7 under that Act takes free of any equitable interest of the plaintiff based on first limb Barnes v Addy liability. That point was settled in Farah.37 I note that the first defendant did not plead the operation of s 184 in its defence. Notwithstanding that, to proceed on a basis that is inconsistent with the effect of s 184 would be a legal error of the same kind as occurred in other Queensland cases referred to in Farah.38 [73] It is unnecessary to deal with the re Diplock principle in this case. No question of the wrongful distribution of trust property is raised as such. Neither the case nor s 113 of the Trusts Act 1973 (Qld) was relied on by the plaintiff. [74] So the question is narrowed to whether the plaintiff can make out a personal remedy that the first defendant account to the plaintiff by way of constructive trust, by the payment of a money sum.39 I note that this case is not one where the first defendant has disposed of the so-called trust property. So far there is no case where the plaintiff has succeeded on the claim for a personal remedy where the claim to an estate in the land is defeated by indefeasibility. However, White J in the Supreme Court of New South Wales has opined that there may be such a liability,40 as has Professor Michael Bryan in “Recipient Liability Under the Torrens System: Some Category Errors”.41 [75] In the first place, the question turns on whether the opportunity to enter into a contract to buy Lot 7 from the vendors was trust property of the plaintiff for the purposes of first limb Barnes v Addy liability. In my view, it was not. There are several cases where second limb Barnes v Addy liability has been found by reason 35 Bofinger v Kingsway Group Ltd (2009) 239 CLR 269, 290 [48]; Koorootang Nominees Pty Ltd v Australia and New Zealand Banking Group Ltd [1998] 3 VR 16. 36 Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 416-7 [559]. 37 (2007) 230 CLR 89, 169-171 [193]-[196]. 38 (2007) 230 CLR 89, 171 [194]. 39 See C Mitchell and S Watterson, “Remedies for Knowing Receipt”, in C Mitchell (ed), Constructive and Resulting Trusts, (Oxford: Hart: 2010), 115. 40 Super 1000 Pty Ltd v Pacific General Securities Ltd (2008) 221 FLR 427, 477- 478 [229]-[237]; Ciaglia v Ciaglia (2010) 269 ALR 175, 200 [115]. 41 C Rickett & R Grantham (eds), Structure and Justification in Private Law (Oxford: Hart: 2008) 339, 358. -- 17 of 32 -- 18 of the involvement of a stranger (third party) in a dishonest and fraudulent company director’s breach of fiduciary obligation where the stranger availed themself of a business opportunity with the requisite knowledge of the director’s breach of duty. But when the same question is asked about first limb Barnes v Addy liability, the relevant cases are few. The answer in the present case lies in the space between the determination by the High Court in Farah that non-confidential information is not trust property, on the one hand, and, the determination in cases of persuasive authority, which I accept, that a company’s money or tangible property in the hands of, or as disposed of by, a defaulting director is trust property, on the other hand. [76] Some commentators in the past have sought to analyse the scope of what is trust property in this context. Professor Austin did so in his thoughtful article “Constructive Trusts” in Finn (ed), Essays in Equity.42 He advocated then that it might be appropriate to let first limb liability as formulated by Brightman J in Karak “melt away”, but persisted in the analysis of the scope of the concept of receipt of trust property. In particular, he analysed the contention that information, including confidential information, is trust property for the purposes of first limb Barnes v Addy liability. [77] In my view, Professor Austin correctly identified some of the negative impacts that would flow from equity accepting that information can constitute trust property in this context. I acknowledge that what is written below is borrowed from his analysis, although the responsibility for its adaptation is mine. First, once it is accepted that not all information can be trust property, as Farah now conclusively decides, there is no identified criterion for drawing the line between the information which is and the information which is not property. It might be accepted that confidential information constituting a trade secret may be enough, but that is not this case, anymore than it was in Farah. Second, the extension of “trust property” to information does not lend itself to analysis by equity’s rules of priority concerning volunteers, bona fide purchasers and legal versus equitable titles, or tracing. It makes the central focus of first limb Barnes v Addy liability the personal liability or remedial constructive trust liability of the stranger to account for the receipt of and any benefit gained through the use of the “trust property”, as opposed to the maintenance of the title to or restoration of the traced proceeds of the “trust property”. Third, if information is treated as trust property, that may distort the scope of the fiduciary obligation itself, although it must be recognised that there are many situations where a disclosure of information in breach of confidence will be treated as, or as analogous to, a breach of fiduciary duty. Fourth, if information is “trust property” that may be traced into its product, the stranger’s gain, the result may be that the beneficiary can recover an unfairly enlarged gain, unless allowance is made for expenditure, skill and effort. [78] I would add two further considerations. In my view, it is important in asking the question as to the scope of “trust property” not to forget where first limb Barnes v Addy liability comes from and what the purpose of that liability is, in the sense of the interest it is designed to protect. Barnes v Addy was not about the liability of a person for the acquisition of property due to the dealings of another person who had an inconsistent fiduciary obligation. It was not even about the liability of a stranger to a trust in respect of the receipt of trust property with notice of the trustee’s breach of trust. So, in referring to receipt by a stranger to a trust of “trust property”, Lord 42 (1985, Law Book Co), 196. -- 18 of 32 -- 19 Selborne did not have in contemplation the present sort of discussion about information or business opportunity as trust property. In fact, at the very beginning of his reasons, his Lordship said: “It is equally important to maintain the doctrine of trusts which is established in this Court, and not to strain it by unreasonable construction beyond its due and proper limits. There would be no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them.”43 [79] In the context of liability for breach of fiduciary duty, whether by a trustee or another fiduciary such as a company director, it is rightly emphasised that the strictness of fiduciary obligations and the sometimes heavy burden of the relief which is granted to remedy a breach are warranted by the object or purpose of maintaining the high standards required of a trustee or other fiduciary, including a company director. But the liability of a stranger to the trust or fiduciary office to personally account under first limb Barnes v Addy liability is not as directly attended by that purpose or object. In my view, there is no reason, per se, why their position should be equated to the position of the trustee or fiduciary. I acknowledge, however, the existence of statements that tend in the opposite direction.44 [80] The earliest analogous case of which I am aware, considering business opportunity and information as “trust property” for first limb Barnes v Addy liability, is DPC Estates Pty Ltd v Consul Development Pty Ltd.45 The decision of the New South Wales Court of Appeal was overturned in the High Court, so it is not binding or even persuasive authority. As well, the analysis in a large part turned on second limb liability. Nevertheless, the breach of fiduciary duty in that case was by an employee whose duties required him to select and recommend properties for purchase by his employer. The employee dishonestly and in breach of fiduciary duty promoted particular properties to another investor, who purchased them. There were opposing views as to whether the use of the information and recommendations provided to buy the properties was a receipt of trust property by the purchaser. Jacobs P said: “I do not find it necessary to embark on this second question, which is one of fact, because in my view the principle of Barnes v. Addy is applicable. Upon the principle of that case a distinction must be drawn between a person who receives trust property for his own benefit, as a volunteer or otherwise, and others who deal with a fiduciary, but do not actually receive trust property. In the latter case a person is not to be held responsible as a constructive trustee unless, even though no trust property passes into his hands, he is cognisant of a dishonest design on the part of the trustee.”46 [81] Hutley JA, held that the liability of a person “obtaining from a fiduciary advantages in the form of information and assistance should be analogous to that of a third 43 (1874) 9 LR App 244, 251. 44 Zhu v Treasurer (NSW) (2004) 218 CLR 530, 572 [122]; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, 396-397. 45 [1974] 1 NSWLR 443. 46 Ibid, 457-8. -- 19 of 32 -- 20 party obtaining property from a fiduciary”. Hardie JA puzzlingly held that the “information and opportunities… belonged legally and morally to…” the employer.47 [82] In the High Court, this dispute over information and business opportunity as trust property was not necessary to the resolution of the case. However, Stephen J, with whom Barwick CJ agreed, said that the knowledge that willing vendors existed who were prepared to sell on terms thought to be advantageous was not property capable of being owned by anyone.48 [83] A relevant authority to the present case, in my view, is Commonwealth Oil and Gas Ltd v Baxter.49 The pursuer’s director was also a director and shareholder of the defender company. He negotiated a contract or memorandum granting an exclusive right to the defender company. The pursuer claimed that the director, in identifying the opportunity and procuring the memorandum, acted in breach of fiduciary duty. The Inner House of the Court of Session held that the commercial opportunity to enter into the memorandum was not trust property in the sense relevant for first limb Barnes v Addy liability.50 Lord Nimmo Smith said: “It appears to me to be clear… that knowing receipt depends in the first place on the prior existence of an asset which is subject to a trust in favour of a beneficiary. It is the disposal of that asset, in breach of fiduciary duty, and receipt of that asset by the recipient in knowledge of that breach, which together give rise to a constructive trust over that asset in the hands of the recipient.”51 (emphasis added) [84] In Ultraframe (UK) Ltd v Fielding,52 Lewison J considered a cognate question, as follows: “In Criterion Properties Ltd v. Stratford UK Properties Ltd [2004] 1 WLR 1846 a company had entered into an agreement with one of its directors. Lord Scott of Foscote (with whom the other Law Lords agreed) said: ‘The word “receipt” in the expression “knowing receipt” refers to the receipt by one person from another of assets. A person who enters into a binding contract acquires contractual rights that are created by the contract. There may be a “receipt” of assets when the contract is completed and the question whether there is “knowing receipt” may become a relevant question at that stage. But until then there is simply an executory contract which may or may not be enforceable. The creation by the contract of contractual rights does not constitute a “receipt” of assets in the sense that a “knowing receipt” involves a receipt of assets. The question whether an executory contract is enforceable is quite different from the question whether assets of which 47 Compare also Satnam Investments Ltd v Dunlop Heywood [1999] 3 All ER 652, 671. 48 (1974-1975) 132 CLR 373, 414. 49 [2010] SC 156. 50 Ibid, 164 and 184. 51 Ibid, 184. 52 [2005] EWHC 1638, [1492]-[1493]. -- 20 of 32 -- 21 there has been a “knowing receipt” are recoverable from the recipient. To confuse these two questions is likely to lead, and in the present case has, in my opinion, led, to further confusion.’ Thus Lord Scott distinguishes between rights held under an executory contract with the company which do not count as trust property (or assets); and benefits received under a completed contract, which can.” [85] In my view, and consistently with Farah, for first limb Barnes v Addy liability, where a trustee provides information to or otherwise assists a third party to acquire property in breach of the trustee’s fiduciary obligation not to act in conflict of duty or personal interest, but the property itself was not pre-existing trust property, the property acquired by the third party is not trust property within the operation of first limb Barnes v Addy liability. The same holds true in the analogous situation where the breach of fiduciary obligation is that of a company director who is a director of another company which acquires the property in question, where the property was not pre-existing company property. The liability of the third party in such a case is not one of first limb Barnes v Addy liability. If relief under Barnes v Addy is available, it lies in second limb liability. [86] As was said by the plurality in Farah, to abandon the requirement of the receipt of trust property under first limb Barnes v Addy liability “would be a radical change”.53 In my view, to find that the first defendant’s acquisition in the present case was such a receipt would be an impermissible step in that direction. [87] Finally, in leaving this question, I also acknowledge the assistance I received from Dietrich and Ridge, “‘The Receipt of What?’ Questions Concerning Third Party Recipient Liability in Equity and Unjust Enrichment”.54 Second limb Barnes v Addy liability [88] The plaintiff alleges breach of fiduciary duty by the second defendant and that the first defendant had knowledge of the facts giving rise to the breach. It specifically alleges that the first defendant is liable under the second limb of Barnes v Addy. The plaintiff alleges further that the second defendant’s knowledge was imputed to the first defendant and that the second defendant knew the facts giving rise to her breach of fiduciary duty to the plaintiff. However, the plaintiff does not allege any actual dishonesty or actual fraudulent design by the second defendant. [89] Lord Selborne’s statement of second limb Barnes v Addy liability refers to a “dishonest and fraudulent design” by the trustee. In Farah, the High Court said that “dishonest and fraudulent design can include not only a breach of trust but also breaches of fiduciary duty; but any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent”.55 The Court rejected the submission that the dishonest and fraudulent design integer of second limb Barnes v Addy liability might be abandoned. Therefore, the plaintiff’s formulation of second limb Barnes v 53 (2007) 230 CLR 89, 145 [121]. 54 (2009) 31 MULR 47, 73-76. 55 (2007) 230 CLR 89, 164 [179]. -- 21 of 32 -- 22 Addy liability without the integer of dishonest and fraudulent design must be rejected. [90] As an alternative, the plaintiff pleaded that there was a “dishonest and fraudulent design (as such a phrase is understood by reference to equitable principles) associated with the second defendant’s breach of fiduciary duty”. The plaintiff did not make any submissions as to how that plea should be understood. Whatever the plaintiff may mean, the requirement of a dishonest and fraudulent design by the second defendant must be applied in accordance with Farah. Other approaches, such as that in Royal Brunei Airlines Sdn Bhd v Tan56 should not be followed in this country to the exclusion of that requirement, as the High Court said in Farah.57 [91] This conclusion is emphasised by two recent cases. In Westpac Banking Corporation v Bell Group, the Western Australian Court of Appeal considered the meaning of the dishonest and fraudulent design integer. Drummond AJA said that the “explication” of dishonest and fraudulent design in Farah was not entirely clear to him. His Honour found that “it is not necessary… to show… the fiduciary acted with a conscious awareness that what he was doing was wrong…”. [92] However, in Hasler v Singtel Optus Pty Ltd,58 the New South Wales Court of Appeal, expressly not following Westpac Banking Corporation v Bell Group, held that the requirement of dishonesty for “dishonest and fraudulent designs” “amounts to a transgression of ordinary standards of honest behaviour”.59 In my view, the New South Wales Court of Appeal is correct, and the Western Australian Court of Appeal was wrong. There must be a transgression of ordinary standards of honest behaviour to engage second limb Barnes v Addy liability. [93] The second defendant’s alleged breach of fiduciary duty is based on the preclusion of a fiduciary office holder from acting in conflict of duty or interest. The second defendant’s motivation was plainly to obtain the benefit of a contract for the first defendant, of which she was then the sole director and shareholder, although she had already sought and obtained Mr Gordon’s financial support to be able to progress the project. But I do not infer that she had an intention to take that benefit for the first defendant or herself from the plaintiff. As things were known to her, there was no prospect that the plaintiff might have proceeded with its contract. The Chalmers had deliberately sought to bring that possibility to an end. It was they, not the second defendant, who chose that course. The position presented to the second defendant was a fait accompli. The plaintiff’s contract could not proceed. The plaintiff had no assets. The Chalmers refused to have anything to do with the second defendant. They had said that she could proceed on her own. In the face of the Chalmers’ denunciation of her, there was no commercial reason for the second defendant to think that the Chalmers, or the plaintiff as a company in which she and Mr Chalmers were the only shareholders, had any ongoing interest in the plaintiff persisting with its contract. [94] If the second defendant breached her fiduciary duty to the plaintiff, there was no dishonest or fraudulent design by her. Throughout the process, she did not know that the Chalmers, the only other persons interested in the plaintiff’s affairs, had any 56 [1995] 2 AC 378. 57 (2007) 230 CLR 89, 160 [163]. 58 (2014) 311 ALR 494. 59 Ibid, 519 [124]. -- 22 of 32 -- 23 ongoing interest in the project. From her perspective, the plaintiff was moribund because of their desire not to proceed. Only after the first defendant had faced the risks and expended the money and effort required to progress the project to development application, development approval and acquisition of the land, did the plaintiff rise, phoenix-like, through Mr Chalmers’ application to bring this proceeding in its name under s 237 of the CA. [95] In my view, the plaintiff’s claim under second limb Barnes v Addy liability must fail because the second defendant’s breach of fiduciary duty, if any, was not a dishonest and fraudulent design. Other third party liability for a breach of fiduciary obligation [96] The plaintiff also pleads that the first defendant was the corporate vehicle or alter ego of the second defendant, who used it to secure profits and cause losses by reason of her breach of fiduciary duty. [97] Apart from Barnes v Addy liability, there are other categories of case where a non- fiduciary may be responsible as a party to a breach of fiduciary obligation. Recently, they were essayed by the Full Court of the Federal Court of Australia in Grimaldi v Chameleon Mining NL (No 2).60 [98] One category identified in Grimaldi is where the third party is the corporate creature, vehicle, or alter ego of the wrongdoing fiduciary, who uses the corporation to secure the profit from or inflict the losses caused by the breach of fiduciary duty. Of the cases relied upon by the Full Court, the highest in authority is Cook v Deeks.61 The outcome in that case against the directors was “that they cannot retain the benefit of such contract for themselves, but must be regarded as holding it on behalf of the company”.62 As against the defaulting directors’ new company, it was held that “it acquired the rights of [the defaulting directors] with full knowledge of all the facts and the account must be directed in form as an account… against all the other defendants”,63 but there was no discussion in that case as to the basis in principle for that conclusion. Another similar alter ego case, not referred to as such in Grimaldi, is Farah, where the defaulting fiduciary’s company was said to be liable as his “alter ego” without further discussion.64 [99] There is some analysis of the basis of this liability in CMS Dolphin Ltd v Simonet.65 The question in that case was whether the defaulting fiduciary could be made personally liable to account for the profits of the new company which he had formed to take the customers and business opportunities of the plaintiff in breach of fiduciary duty. It was held that the defaulting fiduciary was personally liable to account for the profits made by the new company. [100] An analogous problem, perhaps, lies in the scope of equitable relief for specific performance against a volunteer company that is the creature of the contract breaker and which has participated in the breach by receiving property transferred in breach 60 (2012) 200 FCR 296, 356-358 [242]-[248]. 61 [1916] 1 AC 554, 556. 62 [1916] 1 AC 554, 563. 63 [1916] 1 AC 554, 565. 64 (2007) 230 CLR 89, 140 [110]. 65 [2001] 2 All ER 294, [98]-[105]. -- 23 of 32 -- 24 of contract. In that context, recent authority has analysed the basis for equity’s orders extending to the company, either as agent or as a volunteer.66 [101] In my view, this is a difficult area of principle. The inherent problem of a broad basis of liability, as a defaulting fiduciary’s alter ego, is that the company and the individual are treated as if they are the same legal personality, in opposition to the rule of separate corporate legal personality accepted in Saloman v A Saloman & Co Ltd.67 It is necessary for there to be a basis in authority and principle for a rule that permits that to be done. The difficulty may be illustrated by reference to another similar case, Trustor AB v Smallbone and others (No 2).68 The director of the plaintiff transferred its money to a company he controlled, in breach of fiduciary duty. There was no legal basis or entitlement to make the transfer, which was fraudulently made. The question raised was whether the director was personally liable to account for the receipt by the company the director controlled. The Court reasoned that “the court is entitled to ‘pierce the corporate veil’ and recognise the receipt of the company as that of the individual”.69 The company was characterised as “a device or façade in that it was used as the vehicle for the receipt of the money of [the plaintiff]”.70 Reference was made to, but liability was not based on, knowing receipt or knowing assistance cases.71 [102] The result in Trustor AB, that the director was liable to account personally for the money of the plaintiff dishonestly paid away in breach of fiduciary duty, was unexceptional. However, it is difficult to understand why it was considered necessary to identify the receipt by the company as a receipt by the defaulting director, in order to make the defaulting director liable to account. He was personally liable to restore the money dishonestly misapplied or stolen by his breach of fiduciary duty. The recipient company that the director controlled received the plaintiff’s money as a volunteer and would be liable upon a constructive trust to account for it as having received money dishonestly misapplied or stolen by a defaulting fiduciary.72 Respectfully, in my view, there must be some doubt about the need for the characterisations of “device” or “façade” or “vehicle for the receipt” as a free standing or independent principle of liability, requiring the director to account in the circumstances of that case. [103] Nevertheless, both Grimaldi and Farah accept the corporate “alter ego” basis of third party company liability. I note there has been criticism of the use of the company alter ego concept to ascribe liability in private law.73 A more conventional treatment of the subject of a separate company’s liability can be seen in El Ajou v Dollar Land Holdings Plc.74 [104] It may be accepted that, as sole director and shareholder, the second defendant’s knowledge was the knowledge of the first defendant. It may also be accepted that 66 ICT Pty Ltd v Sea Containers Ltd (1995) 39 NSWLR 640, 654-657. 67 [1897] AC 22. 68 [2001] 1 WLR 1177. 69 [2001] 1 WLR 1177, 1185 [23]. 70 [2001] 1 WLR 1177, 1186 [25]. 71 [2001] 1 WLR 1177, 1186 [26]. 72 Black v S Freedman & Co (1910) 12 CLR 105. 73 Watts, “The company’s alter ego – an imposter in private law”, (2000) 116 LQR 525-530. 74 [1994] 2 All ER 685. -- 24 of 32 -- 25 the knowledge of a corporation, once acquired, is not in general lost because the person whose knowledge represents the knowledge ceases to be involved.75 [105] Nevertheless, a potential problem with an “alter ego” analysis arises when considering the time at which the identity of the two personalities is to be tested. This case is a simple illustration. When the second defendant caused the first defendant to enter into its contract to purchase Lot 7, the second defendant was the sole director and shareholder of the first defendant. Even at that time, however, Mr Gordon was to be an investor in the Lot 7 project for the first defendant and it was his money to be used to carry it forward. In November 2011, prior to the development approval being granted, he and his brother became directors and shareholders. On 25 March 2013, they bought the second defendant’s shares. From then, the second defendant was no longer a director or shareholder. The contract to buy the land was not settled until after that, when the second defendant was no longer interested in the first defendant. Is the first defendant to be treated as the “alter ego” of the second defendant for the purpose of granting an equitable remedy to account for the second defendant’s breach of fiduciary duty and the first defendant’s purchase of the land at the date of judgment? No problem of this kind arose in Cook v Deeks or Farah. [106] In my view, the implications of such a broad basis of liability, by the “alter ego” route, and its capacity to undermine the limits on the scope of first limb Barnes v Addy liability, are such that it should only be accepted if clear authority or principle requires it. The relationships I have described above are primarily commercial relationships, not the relationships of trustee and beneficiary. There was no question of a relevant change in ownership of the shareholding or change of directors in any of the “alter ego” cases. In the result, I do not decide this question which was not fully argued before me. Acquiescence, preclusion or estoppel [107] I have previously made a finding that the Chalmers’ conduct was informed consent to any breach of fiduciary duty by the second defendant. [108] Mr Chalmers was aware of his continuing shareholding in the plaintiff, notwithstanding his resignation as a director, which I infer was a step taken to relieve himself of any obligation associated with that office. From a fairly early stage, in May 2012, it appears that he was aware that the second defendant and the first defendant were progressing with the project. He kept silent. He allowed them to proceed, without a word that the plaintiff had any ongoing interest. He allowed the first defendant to apply for development approval for the project. He allowed the first defendant to obtain development approval. He allowed the first defendant to incur the consultant’s fees, and other expenses of doing so. He allowed the first defendant to arrange any finance to complete the purchase of Lot 7. [109] Only after all that had occurred, only after the process was complete whereby the Chalmers avoided all risk and effort required to successfully complete the project up to that point, did Mr Chalmers bring this claim on the basis that the plaintiff had an ongoing interest. This state of affairs is not an excuse for the second defendant in 75 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473, 527 [244]. -- 25 of 32 -- 26 law. But it shows that the plaintiff’s claim is one adventitiously made through Mr Chalmers lying by. [110] In the passage from Walker v Symonds set out above, Lord Eldon referred to acquiescence in a breach of trust, after the fact, as an alternative to informed consent to what would otherwise be a breach of trust, before the fact. In a similar vein, although in the context of a partnership case, Deane J said in Chan v Zacharia:76 “The right to require an account from the fiduciary may be lost by reason of the operation of other doctrines of equity such as laches and equitable estoppel: see, e.g., Clegg v. Edmondson. It may still be arguable in this Court that, notwithstanding general statements and perhaps even decisions to the contrary in cases such as Regal (Hastings) Ltd. v. Gulliver and Phipps v. Boardman, the liability to account for a personal benefit or gain obtained or received by use or by reason of fiduciary position, opportunity or knowledge will not arise in circumstances where it would be unconscientious to assert it…” (footnotes omitted) [111] Both the defendants rely on estoppel as a defence. The first defendant alleges that the defendants acted on an assumption that the Chalmers did not wish the plaintiff to proceed with the plaintiff’s contract or be in any way involved or interested in the purchase of Lot 7. They allege that the Chalmers knew that the defendants were acting on those assumptions. [112] The Chalmers’ conduct was objectively calculated to cause both the second defendant and the Gordons to make the above assumptions and to act on those assumptions from April 2012. They were not aware of the plaintiff’s claim until March 2013. The second defendant did not appear at the trial or give evidence. Whether she was in fact induced by an assumption as to the Chalmers (and through Mr Chalmers as shareholder the plaintiff) not having any interest in the Lot 7 project must be matter of inference.77 [113] It is unnecessary to analyse the facts as an estoppel. In my view, it is unconscientious for the plaintiff to assert that either of the defendants is liable to account for any personal gain or benefit obtained by reason of a breach of fiduciary duty by the second defendant. For this purpose, on the facts of this case, the plaintiff is to be treated as fixed with Mr Chalmers’ state of mind and conduct. It is he who brings the proceeding in the plaintiff’s name because of an order authorising him to do so made under s 237 of the CA. On that basis, in my view, it is a case of unconscientious conduct and acquiescence. Relief in equity against the first defendant [114] The foregoing reasons would deny the plaintiff any relief against the first defendant as a party to the alleged breach of fiduciary duty by the second defendant. However, against the possibility of error in the conclusions that the first defendant did not receive Lot 7 as trust property or that any breach of fiduciary duty by the second defendant was not a dishones`t and fraudulent design, it is appropriate to 76 (1984) 154 CLR 178, 204; see also 186 (Brennan J), 206 (Dawson J) and 181-2 (Gibbs CJ). 77 Compare Gould v Vaggelas (1985) 157 CLR 215, 238-239. -- 26 of 32 -- 27 further consider the first defendant’s liability to the remedies claimed by the plaintiff. [115] The plaintiff alleges that the first defendant has made and will make profits. The only particulars provided are that the present value of Lot 7 substantially exceeds $1.15M, which was the amount of the purchase price under the plaintiff’s contract. The plaintiff also alleges that it has suffered loss or damage. The particulars of that loss are that had the first defendant not purchased Lot 7, the plaintiff would have done so and that the loss is the difference between the value of Lot 7 and the costs of acquisition and any improvement thereof. [116] The plaintiff claims an order that the first defendant holds any interest in Lot 7 on constructive trust for the plaintiff. It claims an account of profits as a personal remedy in the alternative. [117] As to the claim for a constructive trust over the first defendant’s interest in Lot 7, the first defendant has funded all of the development costs and a proportion of the purchase price by borrowing the funds from other companies in the Gordon group of companies. The balance of the purchase price was borrowed from the first defendant’s bank. The first defendant’s bank is a party who might be affected by any declaration of trust over the first defendant’s interest in Lot 7. However, it was neither made a party to the proceeding, nor was notice given to it of the plaintiff’s claim. [118] For the reasons previously given, no claim to a constructive trust over the first defendant’s interest as registered proprietor of the indefeasible title to Lot 7 is sustainable under first limb Barnes v Addy liability. However, even if a constructive trust over the land could otherwise be imposed, in my view it would be inequitable to declare or impose a constructive trust in the circumstances of this case. [119] That is because the first defendant incurred significant costs and expenses in obtaining its interest in Lot 7. As well, the first defendant is indebted to its bank for a substantial sum on account of the purchase price. A declaration of trust as sought by the plaintiff would leave the first defendant in the position where its expenses were not reimbursed and it would remain liable to its bank for the amount of the secured debt. [120] In making its claim for a constructive trust over the first defendant’s interest in Lot 7, the plaintiff does not offer to do equity by reimbursing the first defendant’s expenditure. That is perhaps not surprising. The plaintiff does not have and never has had the resources to pay any of those expenses from its own funds or by borrowing those funds from another person. There is no credible evidence to suggest that it is in a position to do so, even now. In those circumstances, it would be inequitable to order that the first defendant holds it interest in Lot 7 on constructive trust for the plaintiff, even if the plaintiff could make out a cause of action for that relief otherwise. [121] The plaintiff makes an alternative claim for equitable compensation on the ground that is has suffered loss and damage as a result of the second defendant’s breach of fiduciary obligation and the first defendant’s second limb Barnes v Addy liability. Although Lord Selborne’s statement of principle in Barnes v Addy referred to the -- 27 of 32 -- 28 liability of the third party as constructive trustee, it is now accepted that equitable compensation may be awarded where a plaintiff suffers loss as a result of the breach of fiduciary obligation, on the authority, inter alia, of Nocton v Lord Ashburton78 and Warman International Ltd v Dwyer.79 A plaintiff entitled to both remedies must elect between an account of profits and compensation.80 [122] Mr Chalmers gave some unconvincing evidence that the Chalmers (and I infer, therefore, the plaintiff) would have proceeded to develop the project over Lot 7 and acquired the land if the first defendant had not done so. I reject that evidence. Mr and Mrs Chalmers had no intention of proceeding with the project with the plaintiff as the owner. That was what they rejected in February 2012 and at no time after that did they offer to change their position. Not only that, there was no acceptable evidence tendered to show that they could have arranged the finance for the plaintiff to do so. [123] The alleged loss is a loss of an opportunity to make a profit. In my view, there is no prospect that the plaintiff would have acquired Lot 7 as suggested. However, the plaintiff submits that questions of causation are irrelevant to a claim for compensation for breach of fiduciary obligation or the liability of a person under second limb Barnes v Addy liability. The plaintiff submits that it is no answer to its claim for relief against either of the defendants that the plaintiff did not have the means to complete the purchase or the intention to go on with it. [124] In Warman International Ltd v Dwyer,81 the High Court considered the “stringent rule that the fiduciary cannot profit from his trust” and reiterated that “it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken or that the fiduciary acted honestly and reasonably”. I do not find it necessary to enter upon the question of the relevance of that statement in relation to a claim for equitable compensation for second limb Barnes v Addy liability against the first defendant. In particularising its claim for loss or damage, the plaintiff recognises that the amount of that loss or damage must be calculated by taking the value of Lot 7 and giving credit for the relevant expenses that would have been incurred against that value. [125] As to that value and those expenses, the first defendant’s evidence, by Mr Gordon, was simple and persuasive. The present value of Lot 7 is unclear. Despite attempts to sell it as a development site with approval, the first defendant has been unable to interest a buyer. It may have missed the market for accommodation for workers brought in by the expansion in the coal seam gas mining industry. [126] From the witness box, Mr Gordon made an offer on behalf of the first defendant, to transfer the land (I infer to the plaintiff) for the amount of the expenses incurred by the first defendant to date. The offer was not accepted. There are some interest costs paid to the first defendant’s bank in those expenses, but there is no reason to think that the plaintiff would not have incurred similar amounts of interest expense, if not more, since it is plain that the first defendant has been significantly funded by intra-company loans from other companies in the Gordon group of companies. It is not necessary to go into the details. 78 [1914] AC 932, 956-957. 79 (1995) 182 CLR 544, 556. 80 (1995) 182 CLR 544, 559. 81 (1995) 182 CLR 544, 557. See also Potts v Robins [2013] QCA 273, [55]. -- 28 of 32 -- 29 [127] The conclusion which follows is that the plaintiff has not proved on the balance of probabilities that it has suffered any loss or damage by reason of the first defendant entering into a contract to purchase Lot 7 and the subsequent acquisition of the land. [128] On the evidence, the plaintiff has suffered no loss by not having the opportunity to purchase and develop the land. It is also appears that to the date of the trial the first defendant has made no profits for which it might be ordered to account. Relief in equity against the second defendant [129] In Consul Development Pty Ltd v DPC Estates Pty Ltd82 a company bought properties from third parties on the advice of a defaulting fiduciary agent. The default was the agent’s breach of his fiduciary duty to give advice to or pursue opportunities on behalf of his employer. It was stated, in obiter, that in a case where the defaulting fiduciary does not get the property into their own hands, the appropriate relief against the defaulting fiduciary is an order “to account for the profits when he received them”.83 That is a personal liability. [130] In the present case, had the second defendant been responsible for a breach of fiduciary duty, she would have liable to account for the sum that she may be entitled to receive for her shares in the first defendant, when she sold those shares to the Gordons, in effect, $225,000. [131] In that case, it would be relevant to consider whether she should be entitled to an allowance for work and skill in her part in making the profit. It is uncontroversial in principle that such an allowance may be made in favour of a defaulting fiduciary, although as explained in Warman,84 “[w]hether 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”. [132] Unfortunately, the second defendant tendered no evidence on this question, as she did not appear at the trial. Mr Gordon said that she was involved in the process of making the application for the development approval. I would think that her involvement is likely to have been substantial, but it is conjecture beyond that. It is not unlikely that she incurred expenses, but there was no evidence of any. [133] The unsatisfactory conclusion is that there is no proper evidentiary basis on which to assess an allowance, even on a broad basis. For that reason, I do not make a finding as to an appropriate allowance. Improper use of position [134] As a director of the plaintiff, the second defendant was subject to the statutory obligation under s 182(1) of the CA that she: “must not improperly use [her] position to… gain an advantage for themselves or someone else”. 82 (1975) 132 CLR 373. 83 (1975) 132 CLR 373, 395. 84 (1994-1995) 182 CLR 544, 562. See also the cases referred to in Meagher, Heydon & Leeming, Meagher Gummow and Lehanes’ Equity: Doctrines and Remedies, 4th ed, [5-250]. -- 29 of 32 -- 30 [135] As to the impropriety required for “improper use of position”, it was also said in R v Byrnes: “Impropriety does not depend on an alleged offender’s consciousness of impropriety. Impropriety consists in a breach of the standards of conduct that would be expected of a person in the position of the alleged offender by reasonable persons with knowledge of the duties, powers and authority of the position and the circumstances of the case. When impropriety is said to consist in an abuse of power, the state of mind of the alleged offender is important: the alleged offender’s knowledge or means of knowledge of the circumstances in which the power is exercised and his purpose or intention in exercising the power are important factors in determining the question whether the power has been abused. But impropriety is not restricted to abuse of power. It may consist in the doing of an act which a director or officer knows or ought to know that he has no authority to do.”85 (footnotes omitted) [136] The second defendant was able to secure the first defendant’s contract by virtue of the information obtained as a director of the plaintiff and by informing the vendors that the plaintiff would not be proceeding. The second defendant used the information obtained as a director “to gain” the first defendant’s contract, and thereby gained an advantage for them both.86 [137] The authors of Ford’s Principles of Corporations Law,87 refer to Cook v Deeks88 as a case to which s 182(1) would apply. In that case, three of four directors and shareholders of the plaintiff secretly formed a second company which tendered successfully for construction work to the exclusion of the plaintiff, relying on the business connection and confidence which the plaintiff enjoyed with the party awarding the contract, but without the knowledge or consent of the fourth director and shareholder. The strategy was to rid themselves of the fourth director and shareholder. The Privy Council held that the three directors breached their fiduciary duties because “while entrusted with the conduct of the affairs of the company they deliberately designed to exclude, and used their influence and position to exclude, the company whose interest it was their first duty to protect”.89 [138] In the present case, did the second defendant contravene s 182(1)? I do not find any bad faith on her part. Any contravention lay in her lack of appreciation that whilst she remained a director of the plaintiff she was not free to continue with the project on behalf of the first defendant or for herself. In the language of the passage from Byrnes extracted above, that she ought to have known that she had no authority to act in those circumstances without the plaintiff’s consent. [139] However, having regard to the findings I have made as to the scope of the second defendant’s duties and the reduction in the scope of her trust and agency for the plaintiff, in my view, on the particular facts of this case, she did not breach those duties. Her use of position was not “improper”, on the particular facts of this case. 85 (1995) 183 CLR 501, 514-515. 86 Compare Marson Pty Ltd v Pressbank Pty Ltd [1990] 1 Qd R 264, 274. 87 Para [9.282.3]. 88 [1916] 1 AC 554. 89 [1916] 1 AC 554, 562. -- 30 of 32 -- 31 Good faith [140] Another statutory obligation of the second defendant, as a director of the plaintiff, was that she “must exercise [her] powers and discharge [her] duties… in good faith in the best interests of the corporation and… for a proper purpose”: s 181(1) CA. Section 181(1) has statutory progenitors stretching back to s 124 of the Companies Act 1961 (Qld), but the express requirements of good faith in the best interests and proper purpose were first introduced by the Corporate Law Economic Reform Act 1999 (Cth). It is accepted that they are two requirements.90 But they are informed by the concepts of fiduciary duty discussed in cases under the general law, such as Whitehouse v Carlton Hotel Pty Ltd.91 [141] Having regard to the findings I have made in the context of the second defendant’s fiduciary duties and in respect of s 182(1) of the CA, there is no separate purpose which would be served by analysing the operation of s 181(1) in relation to the second defendant’s discharge of her duties in the present case. In my view, there was no contravention of s 181(1) by her. Relief under the CA against the second defendant [142] Against the possibility that I may be wrong in those conclusions, I proceed to consider the second defendant’s liability for contravention of ss 181(1) or 182(1). [143] For a contravention of those provisions of the CA, the second defendant may be liable for an order to compensate the plaintiff for any “damage [that] resulted from the contravention”: s 1317H(1) CA. In this context, damage includes “profits made by any person resulting from the contravention”: s 1317H(2). Because that definition is inclusive, an award of “compensation” for damage being loss caused to the corporation and profits made by another party can be measured by profits of the contravenor or another person. [144] The conceptual muddle of including profits resulting from a contravention in the damage that results from the contravention in this context, and the difficulties that creates in the interpretation of s 1317H, are discussed in Grimaldi.92 The recent decision of the Full Court of the Federal Court in V-Flow Pty Ltd v Holyoake Industries Pty Ltd,93 supports that discussion, and also makes it clear that, in deciding upon an order for compensation under the statutory remedy, the Court should take into account the effort and expenditure made by the party liable to an order to compensate, in appropriate circumstances. [145] In effect, the second defendant may receive the sum of $225,000 for her shares in the first defendant. That amount is a profit for which the second defendant might be ordered to account in equity or an amount of damage for which she might be liable to compensate the plaintiff under s 1317H. Liability under s 1317H can be relieved, either wholly or in part, under s 1317S of the CA. However, the second defendant did not plead such relief, so there was no issue of that kind tendered for decision. 90 Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1, 350-351 [1979] and 524 [2732]. 91 (1987) 162 CLR 285. 92 (2012) 200 FCR 295, 432-434 [624]-[631]. 93 (2013) 296 ALR 418, 429-431 [53]-[61]. -- 31 of 32 -- 32 Relief against the first defendant as a person involved in a contravention [146] The plaintiff claimed that the first defendant was also liable to an order under s 1317H(1), as a contravenor, for the second defendant’s contravention of ss 181(1) of the CA by reason of s 181(2) and s 182(1), by reason of s 182(2). The scheme is that the first defendant is made a contravenor of ss 181(1) or 182(1), in respect of the second defendant’s breach, if the first defendant was a person involved in the contravention. Section 79 defines who is a person involved in a contravention, in a way that includes a person who is knowingly concerned in it. [147] If the second defendant was in breach of ss 181(1) or 182(1), the first defendant was knowingly concerned in the contravention by reason of the second defendant’s involvement as sole director of the first defendant.94 Thus, the first defendant would be a contravenor. The question of the first defendant’s liability to a compensation order, under s 1317H(1) of the CA, moves to whether loss or damage to the plaintiff resulted from the contravention, being the first defendant’s contravention. [148] For the same reasons as I have given in respect of the plaintiff’s claim for compensation or an account of profits in equity, in my view the plaintiff fails to prove that loss or damage resulted from the first defendant’s contravention or that the first defendant has made a profit for which an order for compensation might be made against the first defendant under s 1317H(1). However, an order might be made against the first defendant, under s 1317H(1), that it compensate the plaintiff for the profit made by the second defendant as a profit made by “any person” within the meaning of s 1317H(2). The plaintiff made such a claim. [149] The first defendant alleges that it should be relieved from any such liability under s 1317S of the CA. But it is unnecessary to pursue the question of the first defendant’s liability to compensate for the second defendant’s profit to finality, having regard to the other findings I have made. Conclusion [150] The plaintiff’s claim against the first defendant should be dismissed. The plaintiff’s claim against the second defendant should also be dismissed. [151] I will hear the parties on the question of costs. 94 Yorke v Lucas (1985) 158 CLR 661. -- 32 of 32 --