Bowenbrae PL & Anor v Flying Fighters Maintenance and Restoration PL; Flying Fighters Maintenance and Restoration PL & Anor v Bowenbrae PL & Anor; Ultimate Aerobatics PL v Flying Fighters Maintenance and Restoration PL [2012] QDC 332

DISTRICT COURT OF QUEENSLAND CITATION: Bowenbrae PL & Anor v Flying Fighters Maintenance and Restoration PL; Flying Fighters Maintenance and Restoration PL & Anor v Bowenbrae PL & Anor; Ultimate Aerobatics PL v Flying Fighters Maintenance and Restoration PL [2012] QDC 332 PARTIES: BOWENBRAE PTY LTD (ACN 060 747 377) (first plaintiff) and NIGEL EDWARD ARNOT (second plaintiff) v FLYING FIGHTERS MAINTENANCE AND RESTORATION PTY LTD (ACN 087 084 197) (defendant) FLYING FIGHTERS MAINTENACE RESTORATION PTY LTD (ACN 087 084 197) (first plaintiff by counterclaim) and FLYING FIGHTERS PTY LTD (ACN 067 895 005) (second plaintiff by counterclaim) v BOWENBRAE PTY LTD (ACN 060 747 337) (first defendant by counterclaim) and NIGEL EDWARD ARNOT (second defendant by counterclaim) ULTIMATE AEROBATICS PTY LTD (ACN 061 278 564) (plaintiff) v FLYING FIGHTERS MAINTENANCE AND RESTORATION PTY LTD (ACN 087 084 197) (defendant) FILE NO/S: BD1528/08 BD1907/08 DIVISION: Brisbane Registry -- 1 of 57 -- 2 PROCEEDING: Commercial List ORIGINATING COURT: District Court, Brisbane DELIVERED ON: 6 November 2012 DELIVERED AT: Brisbane HEARING DATES: 12 July and 30 August 2012 (rulings on evidence); and 10, 11, 12, 13, 14, 17, 18, 19, 25 and 26 September 2012 (trial) JUDGE: Dorney QC, DCJ ORDERS: 1. In proceeding BD 1528/08, the judgment of the Court is that: (a) On the claim: (i) FFMR deliver up to Bowenbrae the Staggerwing aircraft VH-BBL; (ii) FFMR pay Bowenbrae the amount of $1,000.00 as damages for the detention of the Staggerwing aircraft VH-BBL; ((b (b) On the counterclaim: (i) Arnot pay FFMR $299,792.67 as equitable compensation; and (ii) Arnot pay FF $79,794.95 as equitable compensation. 2. In proceeding BD 1907/08, the judgment of the Court is that FFMR have judgment against UA on the claim. 3. The Court gives leave to the parties to file and serve written submissions on the issue of interest by 4:00pm on 13 November 2012. 4. The Court gives leave to the parties to file and serve written submissions on costs, by 4:00pm on 13 November 2012. 5. Both parties to bring in Short Minutes of the Judgments upon determination of all outstanding issues. CATCHWORDS: Detinue – recovery (where possessory and/or equitable lien alleged) – damages (and whether nominal and exemplary) Fiduciary duty –– whether equitable compensation - whether equitable charge – whether compromise – whether plea in bar operable Corporations Act 2001 (Cth) ss 286(1), 1305(1), 1305(2) Campbell, Some Historical and Policy Aspects of the Law of Equitable Liens (2009) 83 ALJ 97 Mason, Carter and Tolhurst, Mason and Carter’s Restitution -- 2 of 57 -- 3 Law In Australia , 2nd ed (2008) Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, 4th ed (2002) Sykes and Walker, The Law of Securities, 5th ed (1993) Young, Croft and Smith, On Equity (2009) Young, Declaratory Orders, 2nd ed (1984) Albemarle Supply Co Ltd v Hind & Co [1928] 1 KB 307 Anderson & Ors v ASIC [2012] QCA 301 ASIC v Rich (2005) 53 ACSR 752 BC Timber Industries Journal v Black [1934] 3 DLR 31 Beaton v McDivitt (1985) 13 NSWLR 134 Bennett v Minister of Community Welfare (1992) 176 CLR 408 Blacktown City Council v Hocking [2008] NSWCA 144 Bolwell Fibreglass Pty Ltd v Foley [1984] VR 97 CBA v Marwan Tabet [2008] VSC 161 Day v Perisher Blue Pty Ltd [2005] NSWCA 110 Deputy Commissioner of Taxation v Dick (2007) 64 ACSR 61 Duvall v Spry [1982] 2 NSWLR 68 Egan v State Transport Authority (1982) 31 SASR 481 Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 Fischer v Automobile Finance Co of Australia Ltd (1928) 41 CLR 167 Hall v Poolman (2007) 65 ACSR 123 Hartnett v Hynes [2009] QSC 225 Hewett v Court (1983) 149 CLR 639 Jones v Dunkel (1959) 101 CLR 298 Lawes v Nominal Defendant [2008] 1 Qd R 369 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 Medlik & Anor v Toowoomba City Council No 3063 of 1996, Supreme Court, 3 June 1998 Brisbane, Justice White Monaghan Surveyors Pty Ltd v Stratford Glen-Avon Pty Ltd [2012] NSWCA 94 O’Halloran v RT Thomas & Family P/L (1998) 45 NSWLR 262 Palace Backpackers Australia Pty Ltd v Christensen Industries Pty Ltd [2002] QDC 084 Pilmer v The Duke Group Limited (in liq) (2001) 207 CLR 165 Protean Enterprises (Newmarket) Pty Ltd v Randall [1975] VR 327 R v Towey (1996) 21 ACSR 46 Schmidt v Schmidt [1969] QWN 3 Spencer v Commonwealth (1907) 5 CLR 418 Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd [1952] 2 QB 246 Tubby Trout Pty Ltd & Anor v Sailbay Pty Ltd & Ors (1992) 113 ALR 748 Twynam Agricultural Group Pty Ltd v Williams [2012] -- 3 of 57 -- 4 NSWCA 326 University of Western Australia v Gray and Ors (No. 28) (2010) 185 FCR 335 United States Surgical Corporation v Hospital Products International P/L & Ors [1982] 2 NSWLR 766 WAQ v Di Pino [2012] QCA 283 Worrell v Issitch [2001] 1 Qd R 570 COUNSEL: S J Given (for the first and second plaintiffs and the defendants by counterclaim in the first proceeding; and for the plaintiff in the second proceeding) P J Roney SC (for the defendant and the plaintiffs by counterclaim in the first proceeding; and for the defendant in the second proceeding) SOLICITORS: Gall Stanfield & Smith Solicitors (for the first and second plaintiffs and the defendants by counterclaim in the first proceeding; and for the plaintiff in the second proceeding) Bickfords Lawyers (for the defendant and the plaintiffs by counterclaim in the first proceeding; and for the defendant in the second proceeding) -- 4 of 57 -- 5 CONTENTS Para No. Introduction [1] Chronology (corporate matters) [8] Other relevant events [16] Credibility [24] Arnot [26] S Hart [34] Petersen and L Hart [39] Tracey Anne Keller [46] Further witnesses [48] Proof of business records [52] Possessory liens [61] Equitable “liens” [66] Declaratory Orders (concerning liens) [70] Detinue [71] Breach of fiduciary duty [82] Limitation defences [87] Existence, and effect, of a compromise [91] The limitations on use of photographs [94] Damages for “legal costs” [96] “Restitution damages” and restitution generally [105] Equitable compensation [106] Recovery of Staggerwing VH-BBL [110] Damages for detention [136] Staggerwing; and Arnot’s fiduciary duty [141] Equitable lien [156] -- 5 of 57 -- 6 UA’s claim for services (including supply of parts and materials) [161] Compromise “in full”? [172] Value of Cub aircraft [183] Work on the Stearman [188] Yak 52 VH-VVS parts [197] Coad work (Yak 50 VH-YVO) [202] Claim for legal costs (Pitts Special VH-KKT) [211] Zero aircraft [228] Remaining relevant witnesses [246] Interest [250] Costs [253] Summary [254] -- 6 of 57 -- 7 Introduction [1] Nigel Edward Arnot (“Arnot”) and Steven Irvine Hart (“S Hart”) were in the late 1990s not only friends but also persons who both had a passion for aviation with a particular interest in aerobatics and flying “Warbirds” (a description of military aircraft from various 20th century wars), which aircraft included, amongst others, the Spitfire, the Zero, the Sea Fury, the Trojan, the MIG and a Russian military training aircraft, the Yak. [2] By an offer in writing made by Flying Fighters Pty Ltd (“FF”), then named Unlimited Aerobatics Pty Ltd (“UA”), dated 5 October 1998, to Arnot’s “company” UA contract work for, essentially, the proper maintenance of aircraft including that of all aircraft owned by FF was offered. There is some significant dispute about whether the work also involved buying and selling aircraft (and aircraft parts) on behalf of FF (for aircraft) and later FFMR (for parts) and, perhaps, other persons. Although that letter sought a signature on behalf of the contemplated company, it was never signed and returned, although Arnot, presumably as an employee of UA, began providing such services. While S Hart contended that the offer was made “to commence work with” Flying Fighters Maintenance and Restoration Pty Ltd (“FFMR”), considering that that company, then named Unlimited Aero Maintenance Pty Ltd (“UAM”), was only registered on 12 April 1999 (adopting the new name on 1 October 2001), it must have been with FF: see later discussion at [10] and [14] and S Hart’s acknowledgement that FF paid “Arnot” until March 1999. This, as it has turned out, has been typical of the looseness with which important evidence in these two proceedings has been given, which is also illustrated by the use by both Arnot and S Hart of personal and possessive pronouns when, in reality, describing corporate entities of which they were directors or, sometimes, only employees or agents or even advisors. This is despite S Hart, in particular, stressing in his affidavits that FF was a separate legal entity which owned the relevant aircraft so that the “assets” were “removed” from any maintenance based “risk” (i.e. that FFMR would have). [3] While a full survey of the actual contractual relationships – insofar as they can be determined – will be canvassed later, the close relationship between Arnot and S Hart began to deteriorate after the Australian Federal Police, with warrants, raided FFMR’s hangars at Archerfield on 9 May 2003. At its briefest, at a staff meeting of FFMR on 10 June 2003, S Hart told Arnot to remove one of “his” Warbirds, a Staggerwing aircraft VH-BBL, to which Arnot responded, in terms, that, if the Staggerwing went, he would also (though both the Staggerwing and Arnot stayed for some time still). Eventually, by a letter dated 22 September 2006, Arnot, as director of UA, stated that “I hereby withdraw my” services from FFMR. A final confirmation of Arnot’s rejection of any offer to continue by him, or UA, or both was sealed by the later letter of 5 October 2006 sent by UA, under the hand of Arnot, stating that “I” had decided to decline a proposed offer to take over FFMR. [4] Although there are aspects of the issues raised which emerged earlier than late 2006, it is from that time onwards that the relationship between Arnot and S Hart irreversibly deteriorated, leading to the present pleadings – in their amended and abandoned forms - in both proceedings. Both proceedings were ordered to be heard together, noting the similarity of witnesses and parties. -- 7 of 57 -- 8 [5] Although the pleadings, as amended in both proceedings, ranged far wider, what this Court has been asked to decide – which is still extremely wide and complex – are: whether there should be delivery up of the Staggerwing by FFMR to Arnot, or Bowenbrae Pty Ltd (“Bowenbrae”), or both [with a determination of whether there is a possessory lien existing, or an equitable “lien” (or charge), or both, and, if a possessory lien, the amount outstanding or, if an equitable charge, the amount of such charge]; further, if the Staggerwing has been wrongfully detained, or there was trespass to it, what damages, if any (and, if so, whether nominal only, or whether exemplary) are to be awarded; whether UA is owed $110,161.30 for “services rendered” [against which UA concedes a partial satisfaction of $35,000.00 for the sale of a Piper Cub J3 (“Cub”) aircraft] or whether there has been a compromise of this claim such that no amount is now owing; if FFMR has a provable claim against Bowenbrae and Arnot for $245,061.45 as “restitution” for works undertaken for and to their benefit whether, as Arnot asserts, in stark contrast, there was an agreement, as varied, between Arnot and S Hart such that, in consideration of Arnot’s forbearance to enforce an alleged loan of $275,000.00 to S Hart it was agreed between Arnot and FFMR that not only would the principal sum be repaid within 12 months but also the interest accruing on the loan would be “off-set” by restoration work to be undertaken by FFMR’s employees on the Staggerwing at no cost to Arnot and/or Bowenbrae; whether FFMR, regardless of any enforceable claim for restitution (as claimed above), is entitled against Arnot to damages for breach of Arnot’s duties as a director and officer of FFMR and, or alternatively, equitable compensation for breach of fiduciary duty, for not only the $245,061.45 but also for some or all of: $37,457.52 for restoration that Arnot allegedly caused to be undertaken on a Stearman aircraft VH-SNM; $454.95 for parts that Arnot allegedly caused to be purchased from Aircraft Spruce & Speciality Co for a Yak aircraft 52 VH-VVS; $2,773.70 for maintenance work by FFMR Arnot allegedly caused to be undertaken by UA on a Yak 50 aircraft VH-YVO (owned by Michael Coad); $14,500.00 for legal costs incurred as a consequence of seeking to recover charges for work undertaken on a Pitts Special aircraft VH- KKT; and whether FF has enforceable claims against Arnot for $79,794.95 for amounts allegedly received by Arnot and for which he failed to account (being part of the payments made to Richard Goode concerning an unsuccessful attempt to purchase a Zero aircraft by FF) for alleged breaches of Arnot’s duties as a director and officer of FF and, or alternatively, equitable compensation for breach of fiduciary duty. [6] As was pointedly indicated by Bowenbrae and Arnot in their joint written submissions, numerous other counterclaims advanced by both FFMR and FF have been abandoned either prior to, or during, the two proceedings here, including allegations of: a non-particularised claim for $50,000.00 for the theft of aircraft parts; -- 8 of 57 -- 9 a claim for $200,000.00 for lost commissions on the sale of aircraft; a claim for $100,000.00 for the theft of: 2 large aircraft tow-bars; various Yak 3 aircraft parts; various Yak 50 aircraft parts; 2 aircraft fabric rolls; aircraft dope; a gas bottle; tools; spray guns; and a T 28 aircraft propeller and engine [although these last two result from the recovery of them (or their kind) late in the week beginning 17 September 2012 and, as asserted in written submissions, notwithstanding that the valuable papers associated with the engine are missing, it is contended that the circumstances of removal and recent “discovery” by Arnot remain relevant to issues concerned with Arnot’s credit]; a claim for $130,000.00 for a secret commission on the sale of an L 39 aircraft; and a claim for $98,000.00 for the proceeds of the sale of a Yak aircraft misappropriated by Arnot. [7] Although those abandoned claims were contended by the plaintiffs by counterclaim in the first proceeding to be approached on the basis that legal advice given stated that there was not sufficient evidence to maintain them, it must remain of concern to the Court that it was considered that there was sufficient evidence to make the allegations in the pleadings concerning them in the first place. If it can be taken no higher, it at least indicates the level of antipathy that now exists between Arnot and S Hart (together with those who support the latter). Also in this mix is the abandoned claim by Bowenbrae for damages for “malicious and/or vexatious prosecution”. All these matters may have consequences in costs orders to be made. Chronology (corporate matters) [8] Because of reasons to be canvassed later dealing with my concerns about the credibility of the major players – which not only includes Arnot and S Hart but also Shirley Ann Petersen (“Petersen”) and Laura Elizabeth Hart (“L Hart”) – I intend to rely primarily upon relevant documentation put in evidence, or upon matters which are the subject of admissions, or non-contested facts in disclosure, in pleadings or in evidence, or other uncontested facts – and certainly for certain conversations for which there is no contemporaneous documentation of significance but later documentation is produced. [9] Bowenbrae was registered in Queensland on 9 July 1993. The ASIC Company Extract has Darryl Glen Beattie (“Beattie”) appointed as both director and secretary on 16 September 1999. There is no such Extract for UA. Unlimited Aerobatics Pty Ltd (later named Harts Flying Fighters Pty Ltd, and even later named FF) was registered on 20 January 1995, first changed its name on 14 December 2000 and eventually became FF on 1 October 2001. As earlier noted, FF, in its former name, was the company that offered the contract in the document dated 5 October 1998. [10] FFMR, particularly relevantly for the second proceeding, was not registered until 12 April 1999 (as also mentioned earlier). Although the ASIC Extract tendered stated that the “Details Start Date” was 24 August 2007, it is clear from the other entries in the Extract that the Application for Registration as a Proprietary Company was only lodged on 12 April 1999. Consequently, as was also earlier observed, it could not have been a party to any original agreement with UA concerning remuneration for undertaking contract work in the way described in the letter of 5 October 1998. Even more curiously, UA in its Further and Better Particulars of the Statement of -- 9 of 57 -- 10 Claim in the second proceeding, filed 2 September 2011, alleged that the original engagement of 5 October 1998 between UA and FFMR was varied “orally” between Arnot and S Hart and that, on occasions, the varied agreements were reduced to writing. Two instances of that were said to be the attached correspondence of 6 September 2002 and 17 January 2003. The problem is that the first letter was one from Nemesis Australia Pty Ltd (not purporting to act as any agent for FFMR) and the second was from Spider Tracks Pty Ltd to the National Australia Bank Limited advising that UA had a consulting agreement with “this company” and that the agreement “with this or associated companies” has been over 4 years. Despite all this contradictory documentary evidence, in the end, at least with respect to the second proceeding, FFMR does not raise any defence about incorrect parties to any agreement pleaded but, rather - consistently with correspondence written by FFMR in October 2006 - contended that such amounts as were owing for contract work contemplated by that letter of 5 October 1998 and later arrangements were either not proved to the relevant standard or were fully settled by a compromise; or, should that not be so, that an offset for the value of the Cub should be “at least $65,000.00”, although it is also contended that “independent evidence” was that its value was $90,000.00. [11] On the important issue of who were directors of FF and FFMR at the material times, the ASIC Company Extracts in the Trial Bundle of Bowenbrae and Arnot disclose – though only as to part of the full details - that: for FF, Arnot was a director between 14 December 2000 and 2 September 2004, Petersen was a director between 20 January 1995 and 25 September 2006 (and then from 2 October 2006 to at least mid 2008) and L Hart was a director from 20 January 1995 to at least mid 2008; and for FFMR, both Petersen and L Hart were directors, the former from 2 October 2006 until at least mid 2008 and the latter from 31 May 1999 to at least mid- 2008. [12] Independently of the ASIC Extracts, Arnot pleaded that he ceased to be a director of FFMR on 2 September 2004 (which is consistent with a notification in the ASIC Company Extract for that company). This was admitted by FFMR in the first proceeding, although it is also alleged that Arnot started as a director on 31 May 1999 and that Petersen and L Hart were co-directors for that period as well (an allegation deemed to admitted by a non-response in the Amended Reply). Again, none of this is inconsistent with the relevant ASIC Company Extract and is entirely consistent with an earlier extract exhibited to Arnot’s first affidavit. [13] By admissions made in the pleadings in the first proceeding, it appears that: S Hart was a director of FFMR between 12 April 1999 and 1 October 2001; and, between 12 April 1999 and when he was made bankrupt by the lodgement of a Debtor’s Petition on 26 April 2002, he was a “servant or agent” of FFMR. [14] As for Arnot’s employment position in FFMR, S Hart deposed that Arnot was initially its General Manager and, even after Arnot’s resignation as a director in 2004, he stayed as General Manager until he left in October 2006. That was similar to the depositions of L Hart and Petersen (the latter giving the most convincing explanation of the contractual arrangements, although referring to Arnot as a contracting party rather than UA and stating that the initial contract was with FF and that the transfer was effected to FFMR when “formed”). Petersen also asserts that Arnot was the Accountable Manager who was responsible for ensuring all activity -- 10 of 57 -- 11 was carried out by FFMR under its certificate of approval “within the limitations and conditions approved by CASA”. [15] Arnot himself, in his affidavit filed 1 March 2012, first stated that he was never referred to as the General Manager and that his roles were as an engineer and Workshop Manager. Despite that, in cross-examination, Arnott conceded that, while he ceased to be Manager in late 2004, he resumed that position by February or March 2005. In addition, in cross-examination, he freely admitted that he was the “boss of the operation” for work done in the hangar of FFMR, that it would be an accurate description of his role to call him “the Managing Director”, and that it was an accurate description to describe him also as “the General Manager of the business”. Although, then, expressing some reservation about the accuracy of those descriptions, Arnot eventually accepted that he signed documents as Managing Director and that it would accurately represent the way in which he saw his role as observed by the outside world. Other relevant events [16] In or about January 2000, according to Arnot, the Staggering was bought to the FFMR facility and Arnot began working on the aircraft himself or with the help of volunteers outside working hours. In October 2000, FFMR moved its workshop operations to Hangar 400, Wirraway Avenue, Archerfield from Hangar 406. Since Hanger 400 was the only FFMR hangar capable of containing the Staggerwing, it is likely to have been brought in January 2001: see paragraph [21] of these Reasons. [17] On 27 November 2000, by a Buy Contract Note, BNP Paribas Equities (Australia) Limited informed Harts Consulting Pty Ltd (“Harts Consulting”), “with attention to” S Hart, that it had bought “ON YOUR ACCOUNT” 500,000 shares in Harts Australasia Limited (“HAL”) for a consideration of $600,050.00. By facsimile transmission sent on 1 December 2000 from Petersen to Arnot, a copy of that Buy Contract Note was conveyed to Arnot, along with the Bank Account details of BNP Paribas Equities. In Arnot’s affidavit filed 11 December 2008, Arnot exhibited what he called “a true copy of the deposit details requested of me for the said sum of $275,000.00 dated 1 December 2000” and exhibited a further letter stating it was a true copy of his bank statement recording the transfer of the sum. The first of those documents was that very facsimile transmission from Petersen of 1 December 2000, together with the Buy Contract Note. The second of those documents was UA’s bank statement with NAB which showed that on 11 December 2000 Arnot had himself transferred $279,122.52 to UA and that, on the same day, UA had transferred to BNP Paribas Equities the sum of $275,000.00. [18] Of course, according to that affidavit of Arnot, the “said sum” of $275,000.00 was that which he asserted was the loan that S Hart asked him for in late 2000 (alleged to have been first agreed to be repaid in “approximately” 6 months). [19] By 29 December 2000, Arnot had been authorised to purchase and restore a Zero aircraft, which was to be purchased from Richard Nicholas Goode (“Goode”). FFMR and FF allege that the authorisation came from FFMR and the Zero was to be owned by FF. At times it has appeared to have been put in dispute by Arnot that FF made a payment of US$20,000.00 (or that sum less bank fees) on 29 December 2000 to Goode. Further, Arnot alleged that the agreement was only between him, FF and Goode. Evidence before the Court showed that Arnot had acknowledged on 3 -- 11 of 57 -- 12 September 2004 that US$98,630.50 was so paid to Goode: see “FFMR-04”, page 1. In Arnot’s affidavit filed 1 March 2012, he stated that he agreed that the payments set out in paragraph 180 of S Hart’s affidavit filed 2 November 2011 were those payments made by FF in respect of the Zero aircraft. S Hart’s affidavit, in the relevant paragraph, asserted that, in addition to the US$98,630.50, FF had made a payment of US$19,989.96 on 29 December 2000: see the Table in that paragraph. The documents referred to by S Hart appear to support this “additional” payment. This will have to be analysed in greater detail when attention is focused on that particular issue. [20] A Stearman aircraft VH-YSM, owned by Tom Smillie, entered the hangar facility of FFMR on 21 September 2001. This aircraft had its maintenance release issued by FFMR on 7 March 2005. [21] On 15 January 2001, the Staggerwing, the subject of the alleged lien, was entered into FFMR’s Job Record Book. This appears to have been, according to Arnot, because he, then, “fully intended to reimburse FFMR”. [22] On 1 October 2001, S Hart was first charged with tax offences (which involved defrauding the Commonwealth – and, therefore, dishonesty). They eventually came to trial in 2004. It is not in dispute that, after conviction, S Hart entered prison on 24 June 2004, was released on 3 March 2005, went back to prison on 23 May 2005 and was eventually finally released on 13 March 2008. It, therefore, became unnecessary to engage Division 5 of Part 5 of the Evidence Act 1977 (Qld) concerning evidence of convictions in civil proceedings. I will take the convictions into account, although in a general way only, when considering S Hart’s credibility. [23] On 9 May 2003, as related above, there was the raid by the Australian Federal Police and on 10 June 2003 the staff meeting was held at which the statements concerning the Staggerwing were made. I accept that the evidence of those who heard the statements, Arnot apart, is to the effect that S Hart conveyed that all non-profit making aircraft be removed. I find that no one heard Arnot make a statement about having an agreement with S Hart. Later events concerning the Arnot/S Hart “relationship” have been dealt with earlier, or will be canvassed later. It also assists in understanding some of the events of 2006 that on 18 April 2006 assets of FF and FFMR were automatically forfeited to the Commonwealth under its Proceeds of Crime Act 2002 (Cth) and FFMR was “forced to close” (according to L Hart) for approximately 7 weeks. Credibility [24] As I expressed earlier, I have many concerns about credibility. It is necessary to canvas each of the most important witnesses in turn. When a consideration is later undertaken of a particular aspect of this case, my findings of credibility will be applied to such a witness at that time. [25] I will, hence, deal with each of these witnesses in turn. Arnot [26] Arnot’s evidence was presented, in chief, by way of affidavit (as were all the major witnesses). Two days, pre-trial, were spent in determining objections by the parties -- 12 of 57 -- 13 to opposing parties’ witnesses. It, therefore, might have been expected that, by the time of the trial itself, it would be fairly clear where each witness stood concerning the issues about which he or she would be giving admissible evidence. [27] I have mentioned earlier the about-face that Arnot made concerning his role with FFMR up to late 2006. It was somewhat perplexing that he so readily agreed, in cross-examination, that his roles were as suggested to him, even though the evidence so given was contrary to what he had deposed in his various affidavits. That, of itself, might not be thought to be very significant. But in the context of a case where it was being alleged against Arnot and Bowenbrae that Arnot had undertaken roles which would generate fiduciary obligations, and that he was in a position to cause work to be undertaken on aircraft which he either owned or had some interest in without easy detection or constant supervision, it might not be surprising that he would respond by asserting a limited importance of his role. This he certainly did originally. But then, inconsistently, he readily accepted that he was, for instance, the “boss of the operation”, consistently with the evidence of Michael Joel Olive (“Olive”) that he was the person who told people what jobs to do and not to do. [28] That, of course, is but one aspect of Arnot’s evidence. Much more concerning is the significant difference between the evidence he gave, on oath, at earlier times as contrasted with the evidence he gave, on oath, in this trial. After stating in cross- examination that he “didn’t” have an understanding, certainly in 2004, of what the financial position of FF and FFMR was, he then admitted he certainly knew enough to be able to “genuinely” state his concerns about the financial position and to “genuinely” review the ways in which to increase its viability. More importantly, when taken to questions asked of him earlier in the cross-examination, in which he said he was not a director of FF although he had “believed” he was as at September 2004, he answered that he was a “director briefly” of FF. When, then, taken to an examination under oath conducted on 28 July 2003, he conceded that he gave answers there that he was not only a director of FF but also its Managing Director, having ultimate control, and that he was involved in the day-to-day running of FF. When presented with the present conflict with that latter evidence, he responded that “that’s what I believed at the time”, but “looking back at it, probably not”. When it was put to him as to how he could have made that mistake, he replied that “very simply, that’s what I believed in at that particular time”. As has been demonstrated from the ASIC Extracts, Arnot was a director at all times between 14 December 2000 and 2 September 2004 for FF. For completeness, Mr Arnot’s attention was drawn to a later passage in the same earlier examination where he conceded that he had replied, without hesitation, that he was the Managing Director of FF. [29] Another example of such inconsistency is that, after it was originally established that his evidence was, with respect to a $300,000.00 loan from him to FFMR, that he “negotiated” it “initially” with Mr Hart - after first stating that “he really could not recall” whether the negotiation was simply with L Hart and Petersen “and no another person” - he conceded that in his examination in 2003 he did state the latter proposition. But, more importantly, he also conceded that he had stated in that earlier examination that the examiners “could be satisfied, on oath” that, as far as he was then concerned, he had no communication with S Hart in any way in respect of that loan of $300,000.00, even though he may have “simply asked for (S Hart’s) advice”. He went on to add that, reading the transcript of the 2003 examination now, he would “definitely agree” that it “certainly was not” S Hart who had requested that Arnot advance the monies. Yet another example concerns Staggerwing invoices -- 13 of 57 -- 14 exhibited to his affidavits, which were presented there a genuine. When their authenticity was challenged, Arnot admitted in cross-examination that he did not “think” they were genuine, despite having deposed that he “did make some attempt to issue” them. When it was put to him that his original testimony was false, he replied that it was, instead, “incorrect”. [30] What, though, is perhaps the most concerning aspect of Arnot’s many reversals involves the documentation involving the $275,000.00 “loan”. This has been dealt with, albeit briefly, earlier. Arnot agreed in cross-examination that, at the time of the alleged variation, there had been no earlier agreement to pay interest, even though the loan had been made by that time. Rather, he stated that S Hart had agreed with him that he would “get a reasonable return for my money”. It was then put to him that his pleadings merely stated that it was a loan “repayable in 6 months”. He responded by disagreeing with the proposition that there was no agreement about “a reasonable return”. After then agreeing that a reasonable return in that context “would be” some kind of interest, he later adjusted that to meaning “getting some – some form of money”, being “some sort of return”, with that being whatever S Hart “thought a fair thing”. He then conceded that at no time had he ever taken any steps to recover any of this sum from S Hart. When, thereafter, he was taken back to a further examination (before Brabazon QC DCJ) on 30 February 2004, he was moved to agree that there was “never” an arrangement for interest to be paid on the loan. With respect to Arnot’s further assertion that it was only “after” the offer of a loan was made that he found out that S Hart was to use it to buy some shares, when taken back to his examination on 30 February 2004, he conceded that it was S Hart who stated that he “needed some money to buy some shares” and that he “didn’t have the right amount of money”, so that, since Arnot had “some money sitting there so I offered it to him to buy the shares” (emphasis added). [31] The last aspect of this alleged loan which has an effect on Arnot’s credibility involves the contemporaneous documents referred to at the beginning of these reasons. In cross-examination, Arnot conceded that in his affidavit filed 1 March 2012 he had stated that he had “never received” the facsimile transmission from Petersen, nor the BNP Paribas Equities Tax Invoice, asserting in that affidavit that the facsimile transmission did “not show any indication that it has been faxed and the fax details on the top of the Buy Contract Note are not able to be read”. Yet these two documents were the same documents which were part of Exhibit “NA-2” to his earlier affidavit filed 11 December 2008. When pressed in cross-examination about the assertion of non-receipt as being “demonstrably false”, he simply stated that there was “a mistake there, definitely”. Also important in this aspect, particularly in light of his denial that he knew that either he or UA had a beneficial interest in the shares bought in HAL, is his concession that, in the fax sent by him to S Hart on 7 February 2001, he used the words, concerning the $275,000.00, “the money I invested”. When pressed about his reference to the money being an investment, and after conceding that it “appears to be, yes”, he then proffered the “explanation” that the word, “invested”, “should have been in inverted commas”, even though he admitted that he himself had drafted that correspondence. [32] Further concerns about Arnot’s credit arose from arrangements made with respect to the insurer of the Pitts Special aircraft VH-KKT. Not only do letters dated as written in October 2006 contain obvious contradictions to his version of events given at trial, but also he gave information to a valuer, Richard Wayne Maclean (“Maclean”), about that aircraft’s condition (which formed the basis of the assumptions made by -- 14 of 57 -- 15 Maclean when he made that valuation). That information was entirely inconsistent with what was given in evidence by one of the purchasers of the Cub aircraft, thereby destroying any weight that the valuation might otherwise have had. Yet again, Arnot’s letter of 27 October 2006 suggested that the entity that was the owner of the aircraft had requested UA, through the insurance company, to conduct repairs, and that it was the insurance company that accepted “his” quotation to do that job. This is to be contrasted to the contemporaneous correspondence with the insurance company which, in clear terms, suggested that FFMR had agreed with UA to allow it to do the repairs. Lastly, Arnot now accepts that an invoice, which he previously described as a “perfectly legitimate invoice”, was in fact raised only on or about 12 October 2006, although it is shown as dated a month earlier. There is also the matter of “bogus” invoices for the Staggerwing. Although originally asserting that they were genuine, and relying on them in his affidavit, when it became more and more obvious that they were not, Arnot engaged first in a tactical retreat (resiling from “caus(ing)” them, to making “some attempt to issue” them), then in cross- examination, his final retreat was to say that they had just “surfaced” and anything he had earlier deposed to was - yet again - “incorrect”. [33] It has proved unnecessary for me to canvass the Kronk “evidence”. As the trial evolved, it could only have effect on the issue of credit – and, therefore, since it was led against Arnot, it will be left unexplored. In summary, I have severe concerns about both the credibility and reliability of any evidence that was led from Arnot where that is not supported by some contemporaneous documentation, some concession by his opponents, or some other non-contested evidence. S Hart [34] Although the written submissions of behalf of FFMR and FF contend that little of their case turns on issues of the credibility, among others, of S Hart, and that the objective facts which found their case remain clear because they do not depend upon the credibility of those witnesses, it is still important to make an assessment of the credibility of S Hart. This is partly because it has some relevance to that “little” part of the case that deals with whether or not the $275,000.00 was for a “loan”, but also because it is necessary for the Court to determine to what extent S Hart was, expressed at the very least, a guiding hand behind many of the decisions that were made involving certain issues in this case, especially those dealing with a “full and final settlement” of FFMR’s liability to UA. [35] Since I later determine that the amount of $275,000.00 advanced from Arnot to UA and then on, through BNP Paribas Equities, to Harts Consulting was not a loan – because I cannot be satisfied that the evidence given by Arnot on this issue can be accepted, because of my general doubts about his credibility and because of the contemporaneous documentation suggesting a conclusion strongly to the contrary – it is unnecessary to traverse much of S Hart’s evidence in order to discern credit. I reject the contention that, because a pleading admission was withdrawn, I can more readily conclude that later denials of such a loan are a lie: see the principles concerning unverified pleadings as explained in Anderson & Ors v ASIC1, per Philip McMurdo J at [27]. 1 [2012] QCA 301. -- 15 of 57 -- 16 [36] Nevertheless, I do have several concerns about the evidence of S Hart, even apart from the dishonesty convictions. The first results from the contrast between his training, background and experience (which was put forward as revealing a comprehensive understanding, and an ability to undertake a forensic analysis, of business books of accounts and financial reports) and his oral evidence. In addition, given S Hart’s asserted experience (canvassed in evidence) concerning the extent of various trusts that he caused to be created and the many companies involved in the Hart Group, it would not be expected that he would show any lack of understanding of how the $275,000.00 advanced by UA would be characterised in the various steps which were taken concerning it. Yet when questions were asked of him by the Court, it was disconcerting that his initial, if not final, answers showed such a lack of apparent understanding. First, when he was asked about his response that the sum in the ITSA letter “refers to monies lent to Harts Consulting” (emphasis added), his response was that that was because Hart Consulting “purchased all” the shares - which was an incomprehensible, non-responsive answer, particularly in light of the money being advanced by UA for a purchase and not a loan (according to S Hart’s own evidence). Secondly, when it was put to him that the shares must have been purchased “beneficially” he, without any hesitation (even given his earlier answer), agreed. But then, when it was asked of him that, if they were purchased beneficially, it was not “a loan”, his response was, simplistically, to suggest that “Arnot has got his shares.” Thirdly, when it was then put to him that, thus, Harts Consulting must be holding it for “him” beneficially, his response was that Harts Consulting was beneficially “owning” $275,000.00 worth of HAL shares, despite S Hart (correctly) stating in his last affidavit that “Arnot” “owned” the relevant shares “beneficially”. That whole series of answers does not in any way convince me that he had the deep understanding of commercial accounting that he asserted or, if he did, then it raises significant doubts about his willingness to give careful and accurate answers. [37] Additionally, there is a concern that I have resulting from the evidence involving various Trust Account Authorities signed personally, and alone, by him that are dated in January and February 2002. It is acknowledged that questions about these simply went to credit. Nevertheless, they have a wider impact for this case. It was an important aspect of the evidence led from FFMR and FF that S Hart did not have carriage of either of these proceedings because Petersen and L Hart were, insofar as FFMR and FF were concerned, the relevant directors and/or shareholders and/or beneficiaries of these relevant entities in the Hart Group at that time. This itself was premised on the “fact” that Petersen and L Hart were always “in control of the entities”, although S Hart acknowledged that due to his “extensive business connections and experience” he was always the “rain maker” for the family enterprises and his advice was sought “regularly”. The basis extended to the assertion that any decision made to purchase or sell an asset and to enter into any agreement or loan was made by Petersen and L Hart, even though with input from others, and that this was a “fundamental plank” for the operation of the various family businesses and entities during the relevant times. But when the evidence about how S Hart executed 5 of these authorities in early 2002 was canvassed, it was then clear that S Hart signed each of them in his own name without any assertion of authority, or any statement of acting on behalf, of the trustee (of which he was neither a director nor an officer). And this was where the evidence was that at least L Hart, if not Petersen, was, or were, present with him when those signatures were made. It strongly points to the conclusion that he was not simply an advisor but a guiding, if not a moving, hand. The proffered explanation that Peter Challen of -- 16 of 57 -- 17 Hawthorn Cuppaidge & Badgery had typed S Hart’s name without consulting the actual directors seems to stretch credulity, particular when a letter several months earlier of 4 October 2001 was sent to Harts Flying Fighters Pty Ltd, as trustee for the Unlimited Aerobatics Discretionary Trust (being the Trust in question), for the “attention” of “Mr Steve Hart Director”. That letter was a letter from Challen. There was no evidence of any correction attempted by any director of Challen’s potential “misunderstanding”. Given the crucial role that Petersen and L Hart played, allegedly, with respect to this Trust, it is an unlikely explanation that Challen just got it wrong as to who was the power figure in the Hart Group; and was never informed so. [38] Consequently, I do have concerns about both the credibility and reliability of any evidence that was led from S Hart unless it is supported by some cogent contemporaneous documentation or some other non-contested evidence, or merely involves a search of company records. Petersen and L Hart [39] It is no disrespect to either of these witnesses that I am considering this issue of credibility concerning them concurrently. The evidence led from both – if at times perhaps concerningly so – dovetailed with each other. Even so, in so far as their evidence was directed to actual events rather than the central role they played in the business of FFMR and FF, I accept that they were both credible and reliable. In particular, I accept the evidence by L Hart concerning the FF invoices which became Exhibit 52. As I understood the evidence, because those invoices were issued using the current computer template, aspects of the information printed in them did not necessarily reflect what would have been in such invoices if they had been printed at the time that they were originally prepared for dispatch. Given the nature of computer templates, I do not see any discrepancy between the affidavit evidence of L Hart about these issues and her oral evidence. In accordance with the principles analysed later, the stored electronic information is the important aspect of these “kept” records (and not the physical form in which it was printed for demonstrating its content). [40] Furthermore, I accept that the computer system that was run at the Archerfield hanger, and from which invoices were both prepared and dispatched, was a stand- alone computer system and distinct from that operated from the “office” which was run by Petersen and L Hart. The latter conclusion is reached because there is just simply no evidence, rather than speculation or conjecture, that there was some interconnectedness, particularly when the attack on L Hart’s assertions about the invoices – just canvassed – has been determined her way. [41] In conjunction with what I expressed above concerning S Hart, I do not accept that the constant refrain of Petersen and L Hart that they were the sole decision makers (apart from what input Arnot had as a director) for FFMR and FF. As already concluded, the “rain maker”, even when he was incarcerated, was the person who I conclude played a crucial role in decisions that were reached, even if the implementation was solely carried out at most, if not all, times by Petersen and L Hart. [42] I accept that Petersen was a very competent financial administrator and that L Hart was a dedicated director (even though I find she was loyal to a fault to S Hart). -- 17 of 57 -- 18 [43] I do not find that it was an appropriate practice - particularly because of the concerns that must be had about witness contamination (see Day v Perisher Blue Pty Ltd2) - as S Hart admitted, that both Petersen’s and L Hart’s drafts of affidavits were read by him and that what he did was that he “knocked (them) into shape”. Although S Hart, at the time of that statement, was simply giving evidence about the affidavits sworn in May 2012, the concession by Petersen that she gave all her affidavits to S Hart for that purpose compels me to the conclusion that S Hart (at the very least) was one person who knew the substance of the evidence to be given by Petersen and L Hart before he gave oral evidence in this trial. This is despite his denials that he “didn’t read their affidavits per se”. Such a conclusion is reinforced by concessions made by Petersen in her oral evidence that her affidavits deposed to such things as the detection of “an error in Steve’s affidavit” and the confirmation of conversations “that Steve described” in nominated paragraphs. The explanation that Petersen gave that she gave it to S Hart to check her spelling includes the use of a similar phrase to “knocking it into shape”. Additionally, to justify such a practise, by contending that this was the “professional state that the solicitor would want them before” such instructing solicitors settled them, again stretches credulity. Their evidence, to be accepted, depends upon independence of recollection. [44] But, as examined earlier, there is much in the documentary evidence in this case which gives support to many of the assertions made by both Petersen and L Hart. And, to that extent, I am minded to accept their evidence where it is consistent with such documentation or, as canvassed, it deals with actual day-to-day work. [45] The one remaining area where oral conversations are important is that concerning what was said when Arnot visited S Hart in jail. Since there are documents which are consistent with the versions of those conversations as given by both Petersen and L Hart, where there is conflict between Arnot and these two female witnesses, I do prefer the evidence of the latter for the above reasons. Tracey Anne Keller (“Keller”) [46] Keller was a former de facto partner of Arnot. In Arnot’s written submissions, a forceful attack is made upon Keller’s credit, contended to have resulted, particularly, from the circumstances of the break up of their relationship. But from my observation of Keller in the witness box I found her to be a considered and thoughtful witness who demonstrated no obvious grudge or ill feeling towards Arnot, candidly admitting that, in a property dispute with him which went to litigation, even though she received something less than 25% of what she sought and no costs, as well as no specific property, she “actually was pleased with” the judgment given by Lyons J, indicating that it was “not all about money”, and therefore she might have “a different viewpoint” from her cross-examiner. [47] In the end, she gave little evidence of direct value to the issues I have to decide. To the extent it impinged upon Arnot making use of her credit card to purchase parts which he intended to use himself, but to have FFMR repay the amount to him, while I accept her evidence about it, it adds little to my conclusions concerning Arnot’s credibility already expressed. 2 [2005] NSWCA 110 at [30]. -- 18 of 57 -- 19 Further witnesses [48] Although there were many other witnesses, apart from Goode (who will be dealt with separately), their evidence can be sufficiently dealt with when a consideration of the issue about which they gave evidence is undertaken. [49] With respect to Mr Goode, while there is no reason to doubt that he attempted to give his evidence honestly, the reliability of his evidence is extremely suspect. Although he was given many opportunities to explain the entries in Exhibit 20 both with respect to the “Nigel Arnot” Statement of Account and the “Arnot (Zero)” Statement of Account, he was at a loss to explain how his attempts to offset, against monies he owed, benefits that he provided (through Arnot). His evidence, after acknowledging that FF had caused the sums to be paid from it to him for the Zero aircraft, accepted that when he could not supply the aircraft, it was necessary to pay, or cause the money advanced to be repaid in kind. Despite admitting, through his Accounts, that FF both paid money to him and he repaid money to FF, he maintained he had no relationship with FF. What can be discerned from the evidence given by Goode is that from his perspective, except for the payments admitted to have been repaid by Goode directly to FF, Goode provided money and parts to Arnot, it being up to Arnot, entirely, to account to whom he determined (though that, as will be seen later, does not cover many other difficulties with that “evidence”). [50] It is also clear from the approach of Goode that his arrangements were directly with Arnot (even asserting confidentiality for his arrangements with Arnot, which needed Arnot’s consent to divulge) and not with Arnot’s company, UA. [51] Quite obviously, further discussion will be necessary in order to determine the actual outcome with respect to this issue. Proof of business records [52] Many business records were tendered, particularly by FFMR and FF. During the two days dedicated to the hearing of objections to affidavits filed, some objection was taken to limited categories of documents. In oral evidence, clarification from his clients’ witnesses was sought by Mr Roney SC, counsel for FFMR and FF, with respect to those categories to which objection had been made. Petersen gave oral evidence, on oath, that every document referred to by her was one which was kept as a record “with a view to it becoming part” of the relevant records of either FFMR or FF. Indeed, although in examination-in-chief, Ms Petersen was boldly asked whether “all” of the documents which were exhibited to her affidavits, insofar as they were either created for or on behalf of FFMR, or were received by it, became part of the financial records of the company “which you’ve kept”, to which, unsurprisingly, she responded “yes”. [53] L Hart, again to a question framed to her in examination-in-chief, was also asked whether she was able to say whether the various documents that she had dealt with in various places in her affidavits “formed part of the financial records of the companies, FFMR or FF”. She also unhesitatingly responded that “all” of the documents “form part of the financial or business records of our companies, FFMR, FF, FFA, other members of the family group”. -- 19 of 57 -- 20 [54] Necessarily, such very general comments made about “all” records must be subject to specific scrutiny if admissibility tests for them are to be seen to be met. [55] Relevantly, s 286(1) of the Corporations Act 2001 (Cth) states that a company must keep original financial records that both correctly record and explain its transactions and financial position and performance and that would enable true and fair financial statements to be prepared and audited. The definition of “financial records” in s 9 includes a variety of documents which besides invoices, receipts and vouchers, also encompasses documents of prime entry. [56] What, concerning proof, s 1305 of the Corporations Act provides is, by sub-section (1), that a book kept by a body corporate under a requirement of the Act “is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book” and, by sub-section (2), that a document purporting to be a book kept by a body corporate “is, unless the contrary is proved, taken to be a book kept as mentioned” in sub-section (1). In turn, books are defined in s 9 of the Act as including: a register; any other record of information; financial reports or financial records, however compiled, recorded or stored; and a document. [57] In CBA v Marwan Tabet3 Robson J, in the Commercial and Equity Division of the Supreme Court of Victoria, held that a loan contract, including its financial information, was a book kept by the CBA under a requirement of the Corporations Act for the purposes of s 1305 because the loan contract was a financial record required to be kept under s 286 since “it correctly recorded and explained the loan transaction and would enable true and fair statements to be prepared and audited”: at [7]. Moving to bank statements purported to be reproductions of matters stored by electronic means, Robson J, in addition, referred to s 1306(1) of the Act which provides that a book that is required by the Act to be kept or prepared may be kept or prepared: by making entries in a bound or loose leaf book; by recording or storing the matters concerned by means of a mechanical, electronic or other device; or in any other matter approved by ASIC. Reference was also made to s 1306(6) which provides that writing that purported to reproduce a matter recorded or stored by means of a mechanical, electronic or other device is, unless the contrary is established, taken to be a reproduction of that matter: at [8]. [58] In Tubby Trout Pty Ltd & Anor v Sailbay Pty Ltd & Ors4, Drummond J in the General Division of the Federal Court of Australia, although also referring to the Evidence Act 1905 (Cth), made reference to the legislative predecessor to the Corporations Act. He held that the evidentiary effect of such a record just discussed would depend upon its exact nature. Referring to cited authority (of the time), he held that not every document kept on a company’s premises will be a book kept by the corporation, even if it is a book as defined in the legislation, accepting the principle that the word “kept” does not simply mean a document which is retained by a corporation but requires the further characteristic of being in the nature of a document or record that is in some way maintained by the corporation in a systematic or periodic fashion: at 754. Earlier, Drummond J had held that, if a document is a letter sent by an outsider to the business, it would depend upon such matters as, for example, the content of the letter, its location in an inward correspondence file and how it was to be responded to by the business and whether 3 [2008] VSC 161. 4 (1992) 113 ALR 748. -- 20 of 57 -- 21 the letter could be said to be made for the purposes of the recipient’s business: at 752. [59] The decision of Austin J in ASIC v Rich5 is contrary to the conclusion in Tubby Trout. In particular, Austin J, in addressing the submission that there is no justification for extending the reach of s 1305 of the Corporations Act “to every piece of paper found in the possession of the company”, held that the risk of oppressive or unfair operation is addressed by preserving the court’s discretion to exclude evidence under the relevant Evidence Act, “as well as by insisting … that there must be something on the face of the document to satisfy the requirement that it purports to be a book kept by the body corporate”. That was held to address the concerns of the proponents of the narrower view, which included the cited authority in Tubby Trout. Immediately thereafter, Austin J stated that he adopted the “wider” construction that a document is “kept” for the purposes of s 1305 of the Act if it is retained or held (and is therefore “kept”, a fortiori, if it is maintained systematically and periodically): at 810 [265]. But that is clearly subject to the earlier qualification. [60] Accordingly, when considering marginally “kept” documents, even though there was no challenge to the generalised evidence that I have referred to above, I will make a decision with respect to that document at that time, noting that the absence of objection may mean it is to be given some weight. Possessory liens [61] As expressed in the authoritative text The Law of Securities6, where a possessory security arises from implication of the law it is known as a possessory lien: at 737. According to the text, possessory liens furnish an unadulterated example of the possessory security; and the right of the lienee is limited to that of holding possession (except where there has been statutory interference): also at 737. [62] Turning, then, to what kind of lien might arise in this case: on the evidence led, it can only be a particular, or special, lien. Again, as The Law of Securities instructs, such a lien merely enables the holder to retain the property until payment; and then payment only of the particular charges which have been incurred in relation to it: at 739. As to the classes of particular, or special, liens, it is only the second class analysed in that text that has present relevance. It arises where a person has improved, repaired or altered goods by the exercise of her or his “labour or skill”; and the person is given a lien for the price of such skill or labour, and for expenses incurred: also at 739. Particularly relevant to the present circumstances is the necessity that the work should have been done “by the order or at the request of the owner or some person authorised by him or her”. [63] This was the point made by the Full Court of the Court of Victoria in Protean Enterprises (Newmarket) Pty Ltd v Randall7 by holding that, so far as possessory liens are concerned, they “only” arise from “possession” of property given to the lienee “by the authority of the owner of the property”: 333-334. As was observed by Knox CJ, Gavan Duffy and Starke JJ in Fischer v Automobile Finance Co of Australia Ltd8, such authority can be inferred: at 174. 5 (2005) 53 ACSR 752 at 810 [264]. 6 Sykes and Walker, The Law of Securities (5th ed) (1993). 7 [1975] VR 327. 8 (1928) 41 CLR 167. -- 21 of 57 -- 22 [64] Also important in the present context is a statement in The Law of Securities that reservation of a right of free removal to the owner will negative a lien: at 742, noting that Albemarle Supply Co Ltd v Hind & Co9 is distinguishable because there was an agreement there that the lien continue. [65] As Duvall v Spry10 has held, expenses incurred for care and maintenance do not necessarily result in a lien arising. Caution, nevertheless, must be had about the authority of that case with respect to all liens, particularly statutory liens, because it was clear that Waddell J, in the Equity Division, held that the case was put on the basis that the alleged lienee incurred expense in the performance of a duty which was owed in respect of the property (which were animals): at 79. In particular, he held that no case had been cited to him which suggested that under the general law the performance of a statutory duty in respect of property may give rise to a lien enforceable against the owner for the expense of doing so, even though such may be provided by statute: also at 79. Equitable “liens” [66] As observed in The Law of Securities, a possessory lien is to be distinguished from an equitable lien because the latter “is not dependent upon possession at all”: at 737. As that text goes on to state, not only is an equitable lien not dependent upon possession, it does not “confer a right to possession”: at 751. [67] One of the seminal sources in Australia about the nature of an equitable lien is Hewett v Court11. There, Gibbs CJ held that an equitable lien arises by operation of law, depending neither upon contract nor upon possession but rather under a doctrine of equity “as part of a scheme of equitable adjustment of mutual rights and obligations”: at 645. As expressed by Deane J, the right is one “against property” which arises automatically by implication of equity to secure the discharge of an actual or potential indebtedness and, though “called a lien, it is, in truth, a form of equitable charge over the subject property…. in that it does not depend upon possession and may, in general, be enforced in the same way as any other equitable charge, namely, by sale or pursuance of a court order”: at 663. Deane J further stated that it differs from a traditional mortgage in that it does not transfer any title to the property and, while “it arises by implication of some equitable doctrine applicable to the circumstances, its implication can be precluded or qualified by express or implied agreement of the parties”: also at 663. Finally, with respect to identifying what circumstances are sufficient for the implication, independently of agreement, of an equitable lien between parties in a contractual relationship, Deane J held that they are: that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or a promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it; that the property (or, arguably, property including that property) be specifically identified and appropriated to the performance of the contract; and that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting 9 [1928] 1 KB 307. 10 [1982] 2 NSWLR 68. 11 (1983) 149 CLR 639. -- 22 of 57 -- 23 unconscientiously or unfairly if that owner were to dispose of the property to a stranger without the consent of the other party or without the actual or potential liability having been discharged; : at 668. [68] According to Mason and Carter’s Restitution Law In Australia12, while an equitable lien secures the discharge of an actual or potential indebtedness, it is not confined to contract and may operate in aid of a purely equitable “relationship” between the parties: at [1734]. [69] It also seems to be indisputable that, for at least the last 150 years, as a general principle, whenever an equitable lien arises upon property for a sum of money, that sum of money bears interest: see Some historical and policy aspects of the law of equitable liens13. Declaratory Orders (concerning liens) [70] The view is expressed in Declaratory Orders14 that liens have, in fact, been the subject of declarations, adding that it is “more necessary to make a declaration in (such a) case than in other cases as otherwise there may be great uncertainty”: at [2116]. Detinue [71] While this is referable to the claim by Bowenbrae and Arnot for delivery up of possession of the Staggerwing aircraft VH-BBL, it also concerns the claim, as set out in the Claim and the Statement of Claim, for $50,000.00 for “wrongful detention and/or trespass”. [72] In addition, it is the basis of the defence contention that a lien (of some kind) existed so as to preclude the establishment of this, or these, cause, or causes, of action. [73] Although Bowenbrae and Arnot did not abandon the claim for trespass, there is almost nothing in their written submissions which deals with it. For its part, FFMR in neither its written submissions nor the oral submissions made by its counsel at the conclusion of the trial addressed, in other than any cursory way, either cause of action. [74] But because detinue was considered explicitly, some survey of the relevant legal principles is desirable. [75] As remarked by Young CJ in Bolwell Fibreglass Pty Ltd v Foley15, the action of detinue, like the action of conversion, is an action “complaining of interference with the immediate right to possession, not with the title to property”: at 99. [76] In terms of the requirement for a demand, there being not much, in reality, in issue between the parties about other aspects of the cause of action itself (apart from 12 Mason, Carter and Tolhurst, Mason and Carter’s Restitution Law In Australia, 2nd ed (2008). 13 Campbell, Some historical and policy aspects of the law of equitable liens (2009) 83 ALJ 97, at footnote 52. 14 Young, Declaratory Orders, 2nd ed (1984). 15 [1984] VR 97. -- 23 of 57 -- 24 damages), it is of assistance that White J in Egan v State Transport Authority16 held that, with respect to the nature of the demand, subsequent conduct might amply prove the determination of the detaining party not to hand over the property, no matter what the form of the demand was: at 521. As White J added, the stand, in that case, adopted in the pleadings was identical with its stand before action and was, alone, sufficient to establish the action in detinue: also at 521. [77] Moving, then, to damages: in the English Court of Appeal decision of Strand Electric and Engineering Co Ltd v Brisford Entertainments Ltd17 Somervell LJ held that, for a claim in detinue, on a finding that the defendants had “for their own benefit” the use of the plaintiffs’ chattels, the wrong is not the mere deprivation, as in negligence and “possibly some detinue cases”, but the user: at 252. For his part, Denning LJ, while conceding that a wrongdoer who has merely detained the goods and not used them would not have to pay a hiring charge, held that where the owner has in fact suffered no loss, or less loss than is represented by a hiring charge, if the wrongdoer “has in fact used the goods he must pay a reasonable hire for them”: at 254. Romer LJ - after referring to the three salient facts there as being, first, that the equipment detained was profit earning property and, secondly, that the plaintiffs normally hired out the equipment in the course of their business and, thirdly, that the defendants during the period of wrongful detention applied the property to the furtherance of their own ends - held that it was a sound proposition that if the use of an article has a recognised hiring value then such value constitutes the measure of damages recoverable by the owner from a defendant who, by wrongful detention, has the use of that article: at 256. He specifically expressed no opinion as to what the plaintiff’s rights would have been in the matter of damages had the property detained been of a non-profit earning character or, if, although profit-earning, the plaintiffs had never applied it to remunerative purposes: at 257. [78] In Egan it was held that the tort of detinue is not complete until the defendant fails to deliver up the chattels at the time of judgment. Dealing specifically with exemplary damages, White J held that the ignominy surrounding the peremptory and overbearing exercise of contractual power (on an erroneous basis) justified, in that case, the award of a substantial, but not inflated, award of exemplary damages. Given the fact that it was 1982, White J awarded “the relatively modest sum” of $25,000.00 under that head. [79] More recently, McGill SC DCJ in Palace Backpackers Australia Pty Ltd v Christensen Industries Pty Ltd18 surveyed the remedies available in detinue. He, first, noted that commonly a defendant’s possession of the goods would have been wrongful from its inception and that, therefore, no real question arises as to the period over which any, for instance, hire charge should be calculated. In the case in question, he held that once there was a refusal to deliver the goods in response to a demand, the cause of action in detinue arose, giving rise to an obligation to “pay” for the goods thereafter: at [19]-[21]. [80] Concerning exemplary damages, the Queensland Court of Appeal in WAQ v Di Pino19 discussed potential judicial error in not ordering the payment of exemplary 16 (1982) 31 SASR 481. 17 [1952] 2 QB 246. 18 [2002] QDC 084. 19 [2012] QCA 283. -- 24 of 57 -- 25 damages. Gotterson JA (with whom Fraser JA and Mullins J agreed) considered, in particular, whether the “if, but only if” test for awarding exemplary damages applied in Queensland. After a review of many appellate authorities, and relying upon the clear direction emanating from the High Court in Farah Constructions Pty Ltd v Say-Dee Pty Ltd20, he held that in conformity with that direction the trial judge was required not to depart from applying that test in an assessment of exemplary damages, although adding the rider that, since there may be a genuine reason for querying whether the test ought to be one of universal application, in cases such as the one there considered (which was one for trespass to the person in the form of sexual assault) it was appropriate: at [62]-[63]. [81] The test, as explained in WAQ, is that, in a case where exemplary damages are appropriate, if, but only if, the sum which the decider has in mind to award as compensation is inadequate to punish the person for “outrageous conduct”, to mark a disapproval of such conduct and to deter the person from repeating it then some larger sum can be awarded: at, particularly, [54]. Breach of fiduciary duty [82] The allegation by both FFMR and FF concerning Arnot with respect to fiduciary duties owed to them arises not only from his position as a director of them but also from his position as the manager and an employee of them. As set out in paragraph 21 of the counterclaim, the duties allegedly owed were: a duty not to improperly use his position to gain an advantage for himself, or someone else, or cause detriment to them; a duty not to improperly use information obtained from his positions with them to gain an advantage for himself, or someone else, or cause detriment to them; and a duty to act in good faith and in the best interests of them. [83] No allegation was made that Arnot was in breach of statutory duties owed pursuant to, for instance, the Corporations Act, perhaps because he ceased to be a director of both some 2 years before leaving the FFMR hangar. [84] Although concerned with statutory obligations, in R v Towey21, Gleeson CJ, with whom Allen and James JJ agreed, canvassed duties under the general principles of company law: at 58. Although expressly confined to directors, in particular he identified that: a director is obliged to act bona fide for the benefit of the company; a director is obliged not to make a profit at the expense of the company; and a director is obliged to avoid a conflict of duty and personal interest. Earlier, Gleeson CJ had identified, with reference to a leading company text, that the clearest case of a director having a disabling personal interest, or conflict of duties, is when a director enters into a transaction with the company, whether by way of contract, trust or other transaction, under which the director stands to make a direct personal gain: at 57. Later, in a consideration of the duties of company directors, he noted that it is often necessary to distinguish between three different questions, which he identified as: first, the legal nature and extent of those duties; secondly, the practical content of the duties in light of the facts and circumstances of an individual case; and, thirdly, the likelihood, in an individual case, of a breach of duty being made the subject of 20 (2007) 230 CLR 89. 21 (1996) 21 ACSR 46. -- 25 of 57 -- 26 complaint (remarking that the third question is ordinarily not one which concerns the court because, if a case has come before a court, then that question will already have been answered): at 59. As to the second question, he noted that for what are “sometimes colloquially called family companies”, for practical purposes, if everything done by the directors is known to and approved by all shareholders, duties cannot safely be ignored, even though their practical content may be less stringent: at 59. Given Arnot’s continuing position as “boss”, similar considerations must apply to him, especially where so much trust was placed in him even after his resignation as director of both FF and FFMR. [85] Although reference is made in the written submissions on behalf of Arnot that “honesty” is a defence, it appears to rely upon a court granting relief under s 1318 of the Corporations Act. At best, in a case where such relief is claimed, the notion of “honesty” might simply be found to be useful in a determination of whether any genuine attempt at all had been made to carry out the duties and obligations of a person’s office or trusted position of control and authority (imposed either by the Corporations Act or by the general law): see a discussion by Palmer J in Hall v Poolman22. But no claim has been made in any pleading concerning Arnot for that relief. Where, as here, that has not been done and, therefore, where no opportunity has been given to Arnot’s opponents to investigate, by cross-examination or otherwise, this particular issue [particularly where s 1318(1) refers to the court having regard to all of the circumstances in the case, including those connected with the person’s appointment, where the person “ought fairly to be excused”], it is far too late to rely upon such a statutory provision during submissions. This is particularly so where the provision does not operate to remove the breach but, rather, has its operation as a dispensing power excusing the contravention: see Deputy Commissioner of Taxation v Dick23. [86] According to Equity: Doctrines and Remedies24, dishonesty or bad faith is irrelevant to a fiduciary’s liability, as is intention where duty and interest are in conflict and a profit is made (though it may affect the remedy): at [5-110] and [5-250]. Limitation defences [87] With leave given by the Court on 1 March 2011, FFMR and FF caused an amended counterclaim to be filed. Such leave to amend reserved to the defendants by counterclaim the right to raise limitation defences. [88] In consequence, in the Amended Reply, there was an allegation that any claims based upon a quantum meruit as particularized in paragraphs 14(f) and 14(g) of the counterclaim were statute barred: see paragraph 12(f). Similarly, the counterclaim as particularized in paragraph 23 of the amended pleading was also alleged to be statute barred, as was the claim particularized in paragraphs 26 to 32: see, respectively, paragraphs 17(d) and 19A(i). [89] But, despite that, in oral submissions made before me counsel for the defendants by counterclaim stated that the limitation points were not “being pressed”. This concession was made without specific reference to any particular paragraph of the pleading, although reference was made to “the Stearman claim” and the “Goode 22 (2007) 65 ACSR 123 at 193 [325]. 23 (2007) 64 ACSR 61 at 74 [78], per Santow JA. 24 Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, 4th ed (2002). -- 26 of 57 -- 27 claim”, it being acknowledged that certain counterclaims have not been pressed. The basis stated was that it was “an equitable case” and “not a common law quantum meruit case”. [90] It has thus become unnecessary for me to consider the issue canvassed by Applegarth J in Hartnett v Hynes25 where he noted that, insofar as the cause of action was one for “equitable compensation or damages for breach of fiduciary obligations”, while the Limitation of Actions Act 1974 (Qld) does not proscribe a time limit, equity may apply a limitation period by analogy: at [81]. Existence, and effect, of a compromise [91] One of the issues that is still live in these proceeding is whether or not certain claims in the second proceeding were compromised in full. [92] An analysis of the relevant principles was submitted by Bowenbrae and Arnot to have been made by White J (as she then was) in Medlik & Anor v Toowoomba City Council26. Its use for present purposes is limited; but she did canvass, relevantly for the case in question, the notion of it needing to be clear “that the parties intended to settle, once and for all, all matters” (arising out of the allegation there of negligent advice and the consequences flowing from that): at folios 10-11. She also noted that, as the plaintiffs had the assistance of capable solicitors throughout, had it not been their intention to settle all claims, something to that effect would surely have been included in correspondence, given the detailed nature of the formal negotiations: at folio 11. Accordingly, she held that the compromise was a complete defence. [93] Necessarily, that analysis can only be used as some general guidance as to whether such a compromise was reached in this case. Since the present proceedings are very different in their facts, the extent of the influence of the reasoning in Medlik must be limited in the way that I have indicated. The limitations on use of photographs [94] This particular matter was discussed in Blacktown City Council v Hocking27. Spigelman CJ, in considering the issue, held that it is not entirely clear in what circumstances photographs could be used as direct evidence, as distinct from explicating the evidence otherwise given. He canvassed many decisions including Schmidt v Schmidt28. In the end, he opined that Schmidt may need reconsideration as suggested by Young J (as he then was) in Beaton v McDivitt29. There, Young J had held that photographs can be treated as evidence and not merely as material to understand the evidence: at 142-143. In his separate consideration, Tobias JA concluded that care must be taken to ensure that the photographs are not used as the sole source from which a primary fact is to be inferred where that fact is not revealed on the face of the photograph (such as the condition of a structure at a time significantly removed from that when the photograph was taken): at [170]. His concluded view was that, in the absence of expert evidence directed to interpreting 25 [2009] QSC 225. 26 No 3063/1996, Supreme Court, 3 June 1998 Brisbane, Justice White. 27 [2008] NSWCA 144. 28 [1969] QWN 3. 29 (1985) 13 NSWLR 134. -- 27 of 57 -- 28 the relevant photograph, it was not open to the trial judge to substitute her or his own view as a lay observer over the evidence of an expert: at [172]. [95] In the later decision of Twynam Agricultural Group Pty Ltd v Williams30, Campbell JA, with whom Allsop P and Beasley JA agreed, after referring to Hocking, remarked that the trial judge had not used the photograph as the sole source from which a primary fact was to be inferred but, rather, permissibly used it as an aid in determining which of the accounts given by several witnesses was to be preferred: at [66]. Damages for “legal costs” [96] One of the claims made in the first proceeding is for the recovery, by payment, of fees paid by FFMR to its solicitors which were not recovered from the person who sued FFMR after service by FFMR of a statutory demand for the recovery of the value of work done on the Pitts Special aircraft VH-KKT. [97] FFMR alleged that in October 2006 Arnot, while still engaged with FFMR in a position of trust and without the knowledge and authority of either of the directors of FFMR, removed the aircraft while there remained substantial “funds” owing to FFMR. It is alleged that, while the amount of the actual invoice for the work was eventually paid by the owner of the aircraft, the outstanding “legal costs” have not been recovered. [98] The claim can be contended to result from Arnot’s breach of fiduciary duty. That duty is considered as arising from the evidence that Arnot was the person who controlled the employees of FFMR and was permitted access to FFMR’s hangar. As will be analysed later, the width of the equitable remedy of equitable compensation is potentially wider than that reviewed by the cases discussed in this section of the Reasons. Nevertheless, they provide the base upon which a consideration can be later undertaken. [99] FFMR’s written submissions are to the effect that, essentially, FFMR was forced to incur legal costs in defending an application which had been brought by the owner of the aircraft to set aside that statutory demand served upon it, for the payment of those “funds” by FFMR. It is further submitted that the necessity to serve that demand and, therefore, to defend a proceeding relating to it arose because Arnot, without authority of FFMR, caused the removal of the aircraft in circumstances which enabled Arnot to then “mislead” FFMR, the insurer (who had authorised the work) and the owner (by telling each a different story). [100] An alternative case put by FFMR was that, if fiduciary duties were not owed, Arnot acted in breach of his obligations “to act in good faith and for the benefit of his principal”. [101] Whatever the basis of liability, the contention by FFMR is that, if Arnot had not “deceived” the owner of the aircraft in the way that he did, the application to set aside the statutory demand would not have been brought “because (the owner) would have known that FFMR was in fact (owed) the money claimed”. 30 [2012] NSWCA 326. -- 28 of 57 -- 29 [102] What, apart from the existence of the factual basis for the establishment of the cause of action, is of concern to the Court is to what extent legal fees paid are recoverable when paid with respect to a third party, in circumstances where the party claiming the legal costs compromised the action in question, leaving such costs “unpaid” by the third party – though there is some dispute about that here (which will be dealt with in a full consideration of the issue). [103] Concerning the legal issue, Monaghan Surveyors Pty Ltd v Stratford Glen-Avon Pty Ltd31 decided that the first step in considering the question of causation is to identify the nature of the loss, or losses, suffered and, in circumstances where a claimant seeks to recover legal costs incurred in, say, defending proceedings brought against it, where the litigation is said to have been caused by a third party, the harm suffered may be identified as the loss of an opportunity to avoid the litigation: at [64], per Basten JA, with whom McColl JA and Young JA agreed. As the judgment went on to note, where the claimant has successfully defended the litigation, the loss “will be the difference between the costs incurred and the costs recovered from the other party”: also at [64], referencing University of Western Australia v Gray and Ors (No. 28)32. As further explored in Monaghan Surveyors, the claimant did not plead a case involving a lost opportunity but, rather, asserted “boldly” that its losses were the actual amounts expended by it; and neither party contended that the damages might be reduced on account of contingencies in accordance with the principles for assessment of loss identified in Malec v JC Hutton Pty Ltd33. Basten JA, after referring to the fact that there had been a claim of failure to mitigate, held that, for the purposes of addressing questions of causation, the harm is to be identified is the costs incurred and, where a quantified financial loss has accrued, rather than the failure of a hoped for benefit to eventuate, it cannot be said that this approach is erroneous: also at [66]. [104] In University of Western Australia Barker J expressed the view that, as a matter of principle, where a party is put to the trouble of defending an action by a reason of a wrongdoing of another party, and “is entitled to an indemnity from that party”, then, absent usual principles “such as those relating to mitigation of damage and the reasonableness of legal costs incurred”, the parties should be able to recover as damages the costs expended in a separate action: at [51]. Later in the judgment, after reference to Bennett v Minister of Community Welfare34 (where Barker J noted that the High Court found there was no intervening act to break the chain of causation), he held that, even though the “disabling acts in question” were those of the claimant itself (submitting that such were natural and legitimate steps for it take to protect its own interest), its conduct in taking the position it did, from which it later resiled, constituted an intrusion of “a new cause which disturbs the sequence of events, something which can be described as either unreasonable or extraneous or extrinsic”: at [172]. With respect to causation and equitable compensation, Spiegelman CJ, for the Court, in O’Halloran v RT Thomas & Family P/L35 held that the object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been in if there had been no breach of the equitable obligation; and, quoting from high Canadian consideration in dissent 31 [2012] NSWCA 94. 32 (2010) 185 FCR 335. 33 (1990) 169 CLR 638: at [66]. 34 (1992) 176 CLR 408. 35 (1998) 45 NSWLR 262. -- 29 of 57 -- 30 (aspects of which are followed in Australia), referred to assessment “with the full benefit of hindsight”, holding that foreseeability “is not a concern ... but it is essential that the losses made good are only those which on a commonsense view of causation were caused by the breach”: at 272-273. “Restitution damages” and restitution generally [105] The use by FFMR and FF, in their written submissions, of this term is not with reference to a response to an established claim based on unjust enrichment (see the discussion about the limits of such claims in Farah at 156 [150]-[151]) but, rather, in contrast to “reliance damages”. In this context, it is applicable to circumstances where a plaintiff has performed a contract which has conferred benefits on a defendant but where the plaintiff cannot claim the actual contract price. That is inapplicable here as no contract has been pleaded, must less proved. Nothing has been explored in these submissions about exactly how any “recipient liability” or any other restitutionary type of claim can be established against Bowenbrae – or even Arnot (who does not, and did not, own the aircraft). It, for instance, has not been identified how any quantum meruit basis can apply to Bowenbrae. Further, apart form some general throwaway references to (perhaps) potentially applicable principles regarding restitution, no development is essayed of how the referenced “elements” apply to Bowenbrae or whether only some of those (and if so, what), particularly where the further comment is made that “there may be cases in which restitution is available even though one of (these) elements is absent” (emphasis added). This is despite Farah pointedly remarking that the “areas in which the concept of unjust enrichment applies are specific and usually long established” and that “(r)ecipient liability for breach of... fiduciary duty has not been one of them”: at 156 [151]. Farah also rejected the “principle” that the plaintiff need only establish enrichment which is unjust on the ground of some “recognised factor”, leaving it to the defendant to negate knowledge: at 152 [139] and 157 [153]. Thus, apart from possible fiduciary obligations, there is nothing on which I have been addressed which founds any such liability against Bowenbrae, though the counterclaim, even as amended, limits claims for recovery of money against Bowenbrae to restitution. I hold that the counterclaim’s incorporation of paragraph 14 of the Further Amended Defence permits that “claim” articulated to be pressed, though it is noted that paragraph 14 raises no direct allegation against Bowenbrae (certainly on any “restitutionary basis”). The allegation, beyond Arnot’s involvement, is simply that the Staggerwing’s value was increased. Since, concerning Arnot, I have concluded that a breach of fiduciary duty is a proper basis for determining liability, I will only deal with that in the relevant proceeding because of the deficiencies that I have mentioned. Equitable compensation [106] Since the claims for equitable compensation in this case are based upon breaches of fiduciary duty, it is necessary to distil what it means in the circumstances of this case. As no breach of fiduciary duty, or its consequences, has been alleged (apart from, indirectly, the amended claim for an equitable lien) to be specifically visited upon Bowenbrae, this relief must be confined to relief, if any, against Arnot. -- 30 of 57 -- 31 [107] In Pilmer v The Duke Group Limited (in liq)36, the plurality judgment held that it is important to recognise the distinct character of a fiduciary obligation which sets it apart from contract and tort: at 196 [71]. In doing so, quoting from cited authority, reference was made to the essence of a fiduciary relationship, in contrast to contract or tort, which is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other. It was held by the plurality that, in particular, the fiduciary is under an obligation, without informed consent, not to promote the personal interest of the fiduciary by making or pursuing a gain in circumstances where there is “a conflict or real or substantial possibility of conflict” between personal interests of the fiduciary and those to whom the duty is owed: at 109 [78]. [108] In Pilmer the plurality went on to conclude that various judgments in the High Court established that, in Australia, the measure of compensation in respect of losses sustained by reason of a breach of duty by a trustee or other fiduciary is determined by equitable principles and that these do not necessarily reflect the rules for assessment of damages in tort or contract: at 201 [85]. With respect to the notion of “contributing fault”, it was held that there are conceptual difficulties in the path of acceptance of notions of contributory negligence as applicable to diminish awards of equitable compensation for breach of fiduciary duty, because contributory negligence focuses on the conduct of the plaintiff, while fiduciary law focuses upon the obligation by the defendant to act in the interests of the plaintiff: at 201 [85]- [86]. [109] It is also unnecessary, in this case, for the Court to concern itself with an account of profits since, as acknowledged by FFMR and FF, equitable compensation on the one hand, and an account of profits, on the other, are alternative and inconsistent remedies between which a plaintiff must elect; and, in the relevant first proceeding, the plaintiffs by counterclaim have elected for the former. Recovery of Staggerwing VH-BBL [110] In many ways, the Staggerwing events are not only illustrative of the evidentiary problems that beset these proceedings but also emblematic of the approach by both Arnot and S Hart of their easy going, unfocussed relationship while times were good between them, and the depth of their animosity when times were bad between them. [111] Turning, first, to the actual ownership of the Staggerwing. Although it is true, as appears in the written submissions filed on his behalf, that Arnot has maintained in his affidavits filed in these proceedings his assertion of co-ownership “with” Beattie, it should be noted, at this point, that Beattie in his two affidavits filed in these proceedings asserts “a half-share interest” in it for Bowenbrae alone, for which he stated it contributed half of the $180,000.00 purchase price. It is also true that while the registration with the Civil Aviation Safety Authority (“CASA”) was in the sole name of Bowenbrae (said by Beattie to be “my company”), Beattie stated that was “for convenience sake only”. What, though, does the evidence show? [112] While Beattie stated that he purchased “his” interest in 1999, he did state, in his second affidavit, that the purchase price of $180,000.00 was paid by Bowenbrae and that “subsequently” Arnot “reimbursed” it for 50% on a date which occurred in the 36 (2001) 207 CLR 165. -- 31 of 57 -- 32 year 2000. No document was produced by Bowenbrae to support such a payment by Arnot himself. Arnot, in contrast, suggested that the purchase was in 1998 (even though the certificate of registration with CASA was issued on 22 January 1999). But he also acknowledged, in one of his many affidavits, that his payment to Bowenbrae for “my share” was evidenced by documents dated 15 September 2000 and 18 October 2000. [113] Unfortunately for Arnot’s assertion of personal ownership, both those documents strongly suggest that it was UA and not Arnot who became the co-owner. [114] But the biggest problem for Arnot arises from his own evidence on oath. When taken to that examination (referred to earlier) in July of 2003, Arnot conceded that the Staggerwing was purchased by UA. This was in circumstances where he had first answered that “(he)” had purchased it but that, when confronted as to what he meant by “(him)”, he referred to “my company, Ultimate Aerobatics”. In the evidence that he then gave in this trial, he said that such an admission was a “mistake”, merely being one of “confusing me and my company”. When it was finally put to him that the answer that he gave in 2003 was the one that was honest and truthful, and that it remained the truth, Arnot answered that it “never was”. That is, he admitted he had been untruthful earlier under oath. [115] The only other documentary evidence relevant to this issue is a CASA application “to transfer a current aircraft registration”. That was received by it on 3 August 2006. It was asserted in that document that Arnot, in his own right, was then a co- owner of the Staggerwing. But the document itself is, at best, confusing in that Beattie has put his signature a number of times to it, stated to be on different dates, under an assertion both that he was the owner as an individual and that Bowenbrae was the owner (even though the individual owner details were not completed). It was not sought to be explained why it took until mid-2006 for this registration to be “corrected”. More intriguing was that both the affidavits of Arnot and Beattie concerning this CASA document simply asserted that this mid-2006 registration noted Bowenbrae as owner solely and Arnot as “the registered operator”. While it is true that Arnot was nominated as the registered operator in that document, it is also true that in Section 5.2 he, under his own signature, nominated himself as being a “property interest holder”. [116] Even more confusing is the statement contained in a letter sent by Arnot to S Hart, dated 25 May 2007 (and exhibited to an affidavit of his), which asserts that the Staggerwing aircraft “is owned jointly by Mr Beattie and myself”. If one thing is abundantly clear, it is that Mr Beattie has always asserted, for his part, that it was Bowenbrae who was the part owner on “his” side and has never asserted “joint” ownership. [117] I have so much difficulty accepting anything that Arnot says, particularly concerning whether something is his or is owned or done by some company (such as UA), that I cannot be satisfied on the balance of probabilities that, now, he is the owner (rather than UA). See, also, a letter from UA to S Hart (c/- Hart’s Flying Fighters), where the total amount of $627,569.09 there was stated to be moneys “owing” to UA as at 1 August 2000, in circumstances where that same amount is the one from which the $90,000.00 was to be deposited to Bowenbrae for obtaining this interest in the Staggerwing (as disclosed in the later letter of 15 September 2000 between the same parties). -- 32 of 57 -- 33 [118] Necessarily, that does not mean that Bowenbrae’s case for the return of the Staggerwing cannot be maintained. The written submissions of FF and FFMR do not contend otherwise. [119] Central to the right to return of the Staggerwing is whether there were any moneys which could supply the basis for a possessory lien. [120] Apart from the cost of parts which were incorporated into the Staggerwing – which will be dealt with later – the right to have FFMR’s employees work on the Staggerwing for no charge depends upon the alleged agreement between Arnot and S Hart concerning the loan of $275,000.00. While I have dealt with this aspect earlier, it does need some further examination to explain why I have come to the conclusion that it was either no agreement or, if there should be found to be one, that it did contain any term as to interest, or any term, even as amended, which authorised Arnot himself to order the carrying out of restoration work on the Staggerwing for which - not S Hart - but FFMR would not be entitled to charge. [121] As earlier canvassed, the $275,000.00 was advanced by UA for the purpose of UA being issued, at least by way of beneficial ownership of the issue, shares in HAL. [122] Even if I had not come to those conclusions on the evidence that I have already canvassed, there are many other reasons not to accept Arnot’s assertions with respect to either such a loan, or its terms. The Statement of Claim pleaded that the loan agreement entered into in 2000 was, in or about 2001, varied to provide that “in consideration of (Arnot’s) forbearance to enforce repayment of the loan” it was agreed that the $275,000.00 would be repaid within 12 months (being an extension of the original agreement about it being repayable within 6 months) and, also, that “interest accruing on the loan would be off-set by restoration work undertaken by employees of (FFMR) on the (Staggerwing) at no cost to (Bowenbrae and Arnot)” (emphasis added). There was no evidence at all given by Arnot about any forbearance; and Arnot’s evidence was not about “off-setting” restoration work against interest accruing. In his cross-examination, Arnot conceded that there was not an off-set, but rather that the “services” were to be “in substitution for” interest. Despite this, he had difficulty understanding that, if S Hart became bankrupt, there would be no ongoing obligation by S Hart to pay interest on any such loan. Rather, he appeared to believe that after the bankruptcy nothing would change because S Hart did not come to him and advise him that things had changed. On any proper legal analysis, interest could not continue to accrue on a debt which was subsumed in the bankruptcy. As noted in FFMR’s submissions, as the work done on the Staggerwing has been now valued, it closely approximates the entire amount of the loan itself – which was never stated by Arnot to be the subject of any “off-set” or “substitution”. Thus, it is absurd to contemplate that any right of the kind asserted by Arnot could possibly have been in lieu of interest which, as just established, could never have continued to run after S Hart’s bankruptcy in April of 2002. [123] In any event, it is difficult, if not impossible, to accept that, particularly where Petersen and L Hart were also directors of FFMR, regardless of S Hart’s position as the “rain maker”, they should not be told by Arnot of this agreement affecting FFMR, especially where before the alleged agreement Arnot has indicated an intention to pay, or cause UA to pay for labour. Where Arnot also conceded that one would expect FFMR to get something out of an agreement for a very substantial cost of labour - yet FFMR was to get nothing - even Arnot himself accepted that the -- 33 of 57 -- 34 fundamental concepts of the law concerning companies were contrary to such an agreement. Additionally, after accepting that the market value of the services provided would be approximately $400,000.00 if all the work to restore had eventually been completed, he further conceded that he never considered, or never even thought, that FFMR would get “absolutely no benefit whatsoever”, though that would be the upshot of his evidence. [124] As to whether any consideration of the circumstances surrounding the lodgement by Arnot of a proof of debt in S Hart’s bankruptcy would change any of the conclusions reached, I find that while there are some strange aspects to the evidence given by S Hart concerning the documents that were executed at the time of bankruptcy, there is nothing in that evidence, including those documents, which does not show an acknowledgment by Arnot that the sum of $275,000.00 was part of the many debts sought to be proved in that bankruptcy, even on his own case of the sum being a loan. [125] In the letter of ITSA, dated 30 April 2002, to Arnot, it is clear that ITSA was informing him, in order that he might raise questions or otherwise inform it of significant differences between what was contained in the letter and the true position, that it was Arnot who was a creditor in the amount of $275,000.00 “for amounts lent to Harts Consulting in 1999”. That seems, on its face, to be significantly different from S Hart’s evidence that S Hart had agreed to guarantee the original value of the beneficial ownership in the “investment” shares. S Hart’s explanation was that the year was a mistake, because it was in fact the year 2000, but he appeared to simply be stating that the year was the only thing which was wrong. Such an answer suggested that the reference to “lent” must, therefore, have been correct. Yet a few lines later S Hart stated that he said to Arnot that he would “then assume that worthless asset and give him a guarantee for it”, denying that there was a “loan” for the $275,000.00. It also appears to be contrary to S Hart’s statement in Exhibit 40 that he would “assume” the “debt”. Without further explanation, all that would be of serious concern to me. But evidence was then led about a Schedule that S Hart had prepared in his debtor’s petition which had described Arnot’s liability as a “guarantee given for shares purchased by Harts Consulting”. It would thus appear as if ITSA has mis-stated the reference to “lent”. While it is still somewhat perplexing that while all other guarantees referable to the bankruptcy were in writing that for Mr Arnot was not and while, even on S Hart’s evidence, the guarantee he gave was to Arnot (despite the documentary evidence establishing that it was UA that made the “investment”), none of these perplexing matters assists me in determining, on the balance of probabilities, that there was in fact a loan for this amount or that the terms of any such loan, as varied, permitted Arnot, endlessly, to cause work to be effected on an aircraft in which he has later claimed an interest. If nothing else, it again reinforces my conclusion that there is little that I can trust by way of oral evidence and much that is disconcerting even in the documentary evidence. As well, even if I were to accept the “loan” asserted by Arnot, it would have been terminated in the bankruptcy outcome, along with any interest due on it: see s 58(3)(a) and, particularly, s 153(1) of the Bankruptcy Act 1966 (Cth). Lastly, Exhibit 42 was stated by Arnot to be a copy of his Proof of Debt. It asserts $275,000.00 “lent” to S Hart. Even if I was trusting of Arnot’s evidence anyway, I would have considerable doubts about its authenticity. It not only was not any kind of response to ITSA’s letter of 30 April 2002, it was also simply produced, for the first time, in cross-examination of S Hart, although it had been disclosed. S Hart’s answer that he had seen it before must be taken as given in that context. No -- 34 of 57 -- 35 reference is made to “interest” – the nub of the Staggerwing claim – and the date of the much later 23 July 2002 is not explained (given the much earlier notification by ITSA). It is not the original (as no stamp or other entry is noted) and it is further unexplained why a copy which bears Arnot’s original signature was made (and to what end). [126] On the conclusion that there was no justification for Arnot authorising work to be done by FFMR on the Staggerwing for no remuneration (which was a conclusion that he conceded applied before his “new” agreement sidelined it), the only conclusion that can be reached is that no possessory lien could exist for any such work, because no agreement existed. [127] As the absence of an agreement was conceded by FFMR, it is necessary to consider the subsidiary argument that a possessory lien arose because parts belonging to FFMR were incorporated into the restoration work on the Staggerwing. [128] In cross-examination, Arnot conceded a liability on the owners to pay for such parts. It was uncontested at trial that the value of those parts was $11,119.08. [129] Before a final decision can be made as to whether the supply of parts gives rise to a possessory lien, it is necessary to understand the basis upon which the Staggerwing was placed into FFMR’s hangar at Archerfield and how the work was undertaken on it by FFMR employees. [130] Crucial to this matter is the staff meeting on 10 June 2003. [131] First, I accept the statement made by Olive that S Hart used the words “this is my fucking hangar, I will do with it as I want”. That statement was made at a time when S Hart, despite having no position of authority with FFMR, directed Arnot to remove the Staggerwing from FFMR’s hangar at Archerfield; but I accept that S Hart’s anger was a result of work having been seen by him to be done by Gary William Button (“Button”) on it (when any work was supposed to be by Arnot alone, in his own time). Contrary to Arnot’s written submissions, I do not accept that such a statement is consistent only with Arnot having been granted the right to use FFMR’s employees, rather than with a belief by S Hart that Arnot had worked on it, but only in his “own” time, especially where I have rejected Arnot’s evidence that, in reply, he raised the matter of an “agreement”. [132] Secondly, it is common ground that the Staggerwing was not removed and that work continued to be ordered by Arnot to be done on it. I accept that the non-removal happened because Arnot was concerned about damage to it, if moved. While it seems to be the case that it was, essentially, only during those times when S Hart was in jail that much of the ordered work was undertaken (indicating that Arnot was doing the work somewhat surreptitiously), it is also consistent with the conclusion – strongly advanced by FFMR - that there was no actual agreement between FFMR and Bowenbrae (or anybody on its behalf acting as a representative of such a part owner) to incorporate any parts belonging to FFMR into the restorative work done on the Staggerwing, particularly where I have found that there was no “off-set or substitution for interest” agreement. Any “agreement” could not sit well with FF and FFMR’s allegations of breach of fiduciary duty, which rely on Arnot causing things to be wrongly done rather than making an agreement on FF’s or FFMR’s behalf. (See, also, their denial of an agreement in paragraph 14 of the Amended Defence). -- 35 of 57 -- 36 Consequently, there is no evidence which establishes, on the balance of probabilities, that the installation of the parts (perhaps by Arnot himself) was done “by the order or at the request of the owner or some person authorised by him or her” to the legal entity owning the parts. I expressly reject Arnot’s assertions that he intended to pay for the parts (for reasons concerning his credibility and his “late” conversion to that stance). Furthermore, there is no evidence at all that Arnot, even in his role as agent for Bowenbrae (as owner), acted in any way which contradicts a right to free removal of the Staggerwing. Rather, to the contrary, the Staggerwing had been ordered by S Hart to be removed; and FFMR has led no evidence to suggest that S Hart was not authorised on that occasion to speak as he did, or that FFMR did not ratify, by conduct at least, that decision. Certainly the later meeting between Arnot and (at least) S Hart and Petersen (allowing the Staggerwing to stay) could be seen as such ratification, accepting – as I do – Petersen’s version of this event. [133] Hence, on the law as analysed earlier with respect to possessory liens, I am unable to conclude that the mere incorporation of parts owned by FFMR into the Staggerwing gives any right to FFMR to assert a possessory lien. In cross-examination, Arnot conceded a debt was owed. If so (which, as expressed, I doubt was his intention at the material times), the debt may have arisen on taking the parts, whatever use was then made of them. Another legal analysis could be that Arnot converted the parts, especially if he was personally responsible for their removal from FFMR’s stock for use (particularly those used by him in his own or volunteers’ time) with no intention to pay: see paragraph 12 of the Amended Reply (implicitly denying liability). The onus here is on FFMR; and it has not been discharged. Elsewhere, what I do hold is that the circumstances proved do give rise to equitable compensation being payable for the work done and the materials used. [134] So, I hold that the Staggerwing has been detained without good legal cause; and a sufficient demand for its return has been made, and pleaded. In such circumstances, Bowenbrae is entitled to an order for delivery up of the Staggerwing. [135] Since an equitable lien, or charge, confers no right to possession, that cannot be used as a reason for FFMR to have continued to detain the Staggerwing, even if it might have grounded a restraining order against Bowenbrae against disposal of it. Damages for detention [136] Since I have had no arguments presented to me on the issue of trespass, I will consider the issue simply from the perspective of detinue. [137] Bowenbrae has led no evidence before me – consistently with its Counsel’s (Mr Given’s) indication to the Court on Day 1 - about what use to which it might have put the Staggerwing but for its detention, at least in terms of providing a basis from which to calculate some amount referable to loss of its use. It is also clear that FFMR did not attempt to “use” the Staggerwing in any way which generated a return for it. [138] On the authorities that I have canvassed concerning damages for detinue, there is simply no basis upon which I can award other than nominal damages for the detention. It has not been submitted that it is not open to this Court to award nominal damages only. I do so not only in light of the above indication to the Court, but also -- 36 of 57 -- 37 because FFMR’s Senior Counsel (Mr Roney) made it clear to the Court that, consequent upon the above indication, he would not cross-examine on the issue. I fix those, in present day terms because of the continuing detention to trial, at $1,000.00. Furthermore, there is no basis upon which I can, properly, award exemplary damages. While the continuing retention by FFMR has been established at this trial to have no legal foundation, the approach both by Bowenbrae and FFMR has led to very little illumination being cast upon what has occurred as being properly characterised to be “outrageous conduct”, particularly in the context where I (later) find that the value of the work done on the Staggerwing is recoverable. It is clear from Arnot’s own concessions that something more than $200,000.00 can be allocated to the value of work done by FFMR on the Staggerwing. Thus, despite the absence of a legal basis for retention, it is explicable from FFMR’s perspective that its services had been utilised in doing, at least relative to this case, a substantial amount of work on an aircraft which was done in its hangar and for which it has seen no remunerative return. [139] The poisonous relationship that existed from late 2006 between Arnot and S Hart has no doubt added to the lack of clarity that any objective observer might otherwise have brought to this case. [140] In summary, I do not conclude that there are sufficient grounds for this Court to consider any award involving exemplary damages. Staggerwing; and Arnot’s fiduciary duty [141] Once the decision is reached that the agreement alleged by Arnot (which would have given legal justification for an authorisation to cause FFMR to carry out restoration work on the Staggerwing) has not been established, the focus moves to a consideration of who, or what, should bear the cost of such work, if anyone should. [142] Whether Arnot’s fiduciary duties to FFMR spring from his position as director (i.e. until 2 September 2004) or as General Manger (i.e. from then until Arnot left in October 2006), it is clear that Arnot’s position, even to him, was one of having charge of the operation for work done in the hangar of FFMR at all times that the Staggerwing was in FFMR’s hangar up until he finally left in October 2006. [143] In that position, particularly where cross-examination of him elicited a concession that there was no benefit at all to FFMR for the labour that was caused to be spent on the restoration work to the Staggerwing, subject to the issue to be discussed next of the awareness by FFMR’s directors of such work, it is clear that Arnot had no authority to cause such work to be done by FFMR’s employees without payment by the owner, or owners, of the Staggerwing. [144] The submissions made on Arnot’s behalf contend that both Petersen and L Hart would have been able to observe that restoration work was being done by FFMR on the Staggerwing. I have already concluded that neither Petersen nor L Hart were in a position to raise invoices concerning such work being undertaken on the Staggerwing. I do not accept, particularly bearing in mind the evidence of other witnesses who talked about the almost unobservable progress of the actual work which was undertaken on the Staggerwing, and the limited opportunities that Petersen and L Hart had to observe such work in any event and their lack of an enthusiast’s interest in it, that they had any knowledge of what was being undertaken -- 37 of 57 -- 38 on the Staggerwing during the relevant periods, apart from Arnot’s permitted work in his own time. As for S Hart, although I accept that he observed some progress on the restoration, given his lengthy spells in jail, it is probable that what he saw did fit with his understanding that Arnot was doing work in Arnot’s own spare time with volunteers. [145] Given those determinations, it is difficult to conclude otherwise than that Arnot was in a position where he had a duty which could be characterised as fiduciary, at least when it came to the authorisation of work on the Staggerwing in which FFMR had no interest of any kind and for which work FFMR would receive absolutely no benefit, and that any interest Arnot had in the Staggerwing would have raised a conflict between such interest and such duty. [146] It must follow from that conclusion that the authorisation of the work by Arnot on the Staggerwing was therefore in breach of that duty. From the analysis already done concerning equitable compensation, in order to restore FFMR to the position which existed before that breach, FFMR is entitled to a sum of money which is restorative. [147] As FFMR has submitted, neither the pleading by Bowenbrae and Arnot nor Arnot himself (in his affidavits or in his oral evidence) takes issue with the quantification of the claim, being calculated on the basis of what FFMR would have charged if there was an agreement. Support can be obtained from BC Timber Industries Journal v Black37 where the director of a journal (which derived most of its revenue from advertisements) used, free of charge, advertising space for his own purposes and was ordered to pay the cost at the full rate. In particular, Arnot acknowledged in cross-examination that he “didn’t do” any calculation which would suggest that there was an alternative and better calculation than that provided by FFMR to reflect the value of the services that were provided by FFMR for its work on the Staggerwing. He also stated that, if there was not a special rate negotiated by FFMR, the commercial rate was the rate which would have been applicable. [148] Since I refused a late amendment (made during oral submissions) to amend FFMR’s claim to increase the claimed amount to $272,209.00, it is to the claimed figure alone that present attention needs to be drawn. [149] Applying all applicable commercial rates for labour, I accept that the known labour supplied for the work in question (i.e. from documents to the end of 2005 which are the only ones still available) is $193,230.00. The additional parts are conceded to be worth $11,119.00. This concession was made in cross-examination, despite the Amended Reply contesting all liability. To this extent, the total of the benefit conferred is $204,349.08. [150] An allowance for further work then performed by FFMR in 2006 has been based upon a calculation made by reference to the work calculated up to the end of 2005. In cross-examination, Arnot conceded that work continued on the Staggerwing by FFMR through 2006. Excluding times for Christmas holidays and public holidays, on the basis of a figure of 39 hours per week – which was the average of the work performed for the last quarter of 2005 – at $60.00 per hour for such labour, calculations take the claim well in excess of the total pleaded claim of $245,061.45. 37 [1934] 3 DLR 31. -- 38 of 57 -- 39 [151] In consequence, I accept that the value of work performed and materials supplied by FFMR on the Staggerwing up to late 2006 was at least that sum of $245,061.45. [152] The further reasons why that total sum should be accepted on the basis used is that there was evidence, which I accept, that FFMR did charge other companies in the Hart Group at commercial labour rates. This is established by the disputed invoices where FF was charged by FFMR (produced only during the course of the trial). As canvassed above, I accept that they were printouts of the relevant contemporaneous information contained on the FFMR financial records; and establish such a charge out at commercial rates. [153] One contest which Mr Arnot did raise was whether it was incorrect to allow any time spent by Button at full commercial rates because Arnot had a practice of reducing his charge out rate by 20%. If it should matter - given the quantum of the claim over the amount that I would have found to be the appropriate value of services (in the way that I have analysed) - then I accept that the material contained in Exhibit 1 does indeed demonstrate that Arnot did no such thing. In cross- examination, he was taken to an example of work supervised by him in which a charge was raised for Button’s labour. Arnot not only accepted that the reference was to Button but that no 20% discount had been made. While Arnot protested that he did not prepare the particular invoice, Arnot produced no invoice himself which backed up his assertion. To the contrary, where another employee of FFMR was concerned, J Townsend, an apprentice, whose work Arnot regarded as “effectively useless”, it was demonstrated by Exhibit 17 that in an account that Arnot directed to be prepared in August 2004 the commercial rate for was used. [154] In summary, there is nothing in the evidence which gainsays the conclusion that the amount of equitable compensation that ought be awarded for the work done on the Staggerwing by FFMR is other than $245,061.45. [155] Because equitable compensation is awarded as an alternative to an account of profits, and since the remedy for the taking of an account is not pursued, it is on the basis of equitable compensation only that I intend to make an award in this case for this aspect. But there was no case established for the recovery of such compensation from Bowenbrae. Beattie’s evidence was to the sole effect that he would contribute to any cost of restoration by paying Arnot (presumably to account to UA). He did not authorise Arnot to breach any duty and he was not shown to have any knowledge at all of any breach. And because any other restitutionary action or remedy is also unable to be established (for the reasons already addressed), the only potential liability of Bowenbrae is through an equitable charge on the aircraft. Equitable lien [156] Since the work performed on the Staggerwing has been assessed by this Court in the sum of $223,548.33, it opens up a consideration of whether the court should determine that an equitable lien, or charge, should be held to exist. [157] Despite FFMR’s reference to Worrell v Issitch38, holding that a Court in Queensland, if otherwise seized of jurisdiction, may direct a sale of “mortgaged property” where there is an equitable charge, no such order has been sought in these 38 [2001] 1 Qd R 570. -- 39 of 57 -- 40 proceedings under s 99(2) of the Property Law Act 1974 (Qld) consequent upon any order that might be made. [158] With respect to the aspects of an equitable lien, the first element is actual indebtedness. The indebtedness is required to be on the part of the party who is the owner of the property. From conclusions already reached, the only owners are Bowenbrae and UA; but UA is not a party to the first proceeding. [159] While it has not been alleged that there was any contractual relationship between Bowenbrae and FFMR, a particular aspect of the equitable lien is that it arises under a doctrine of equity as part of a scheme of equitable adjustment of mutual rights and obligations. In terms of the analysis by Deane J in Hewett – where its circumstances were dependent on an agreement - the following analogous circumstances may be argued to exist in this case: that there is an actual “indebtedness” on the part of a party who is an owner of the property (i.e. UA who provided Arnot’s services to FFMR) to the other party arising from an expense occurred in relation to that property; that that property (i.e. the Staggerwing) can be specifically identified; and that the relationship between that actual indebtedness and the identified property is such that Bowenbrae, as a co-owner, would be acting unconsciously or unfairly if Bowenbrae and its co-owner were to dispose of the property to a stranger without the consent of FFMR, or without the actual “liability” to FFMR being discharged. [160] While those elements that I just canvassed were stated to be with respect to parties in a contractual relationship, it is also clear from the authorities and texts analysed that the position equally applies extra-contractually and may operate in aid of a purely equitable relationship between the parties. But the only parties relevant are FFMR and Bowenbrae. Since no equitable compensation can be ordered against Bowenbrae, I cannot see how any indebtedness can arise on Bowenbrae’s part, or for which it ought be liable, in equity. Further, there is no equitable relationship. Mere unfairness to FFMR cannot be the touchstone, particularly where the remedy may have been available if UA had been joined as a further defendant by counterclaim. If I had decided otherwise, given the guidance from Declaratory Orders, it would have been open here to make a declaration to the relevant effect, if appropriate. The concern of appropriateness arises from an obiter observation by McLelland J (not referred to in any of the appeal judgments from that decision and, therefore, not dissented from on appeal, although it was disturbed by the High Court’s rejection of any fiduciary liability) in United States Surgical Corporation v Hospital Products International P/L & Ors39 that, on an election to seek the remedy of equitable compensation instead of an account of profits, the remedy would not justify the imposition of “any lien or any other ancillary proprietary relief”: at 816. In On Equity40, after noting that, while equitable compensation and account of profits are personal remedies, proprietary remedies such as a constructive trust or “equitable lien” may be imposed to assist in the remedy provided by an account, it referred to Hospital Products as authority for such “ancillary proprietary relief” not being available to supplement equitable compensation: at [16.1190]. In Hospital Products, the distinction was made that an account is restitution of the gain rather than compensatory of the loss: at 814-815. It is therefore reasoned that a liability to 39 [1982] 2 NSWLR 766. 40 Young, Croft and Smith, On Equity (2009). -- 40 of 57 -- 41 account can be secured by an equitable lien but a liability to compensate cannot. Despite the concern that the text Equity: Doctrines and Remedies sees no intention on McLelland’ J’s part to draw a distinction between an account of profits and compensation, at least for a knowing participant (at [5-245]) – though the proposition being examined was whether an accessory can be liable at all for “the riches unjustly acquired” by the fiduciary – the true distinction in remedies here is based upon gain versus loss, where gain has direct relevance to the fiduciary’s property (whether that be tangible or intangible) and thereby can justify a proprietary remedy. Although the exercise of any discretion is a matter of “justice and good conscience”, since no compensation is awardable against Bowenbrae, I am of the view that it is not an appropriate discretion to be exercised here. UA’s claim for services (including supply of parts and materials) [161] As set out in the second proceeding, UA’s claim is for $110,161.30, conceded to be reduced by $35,000.00 for what UA has received “in partial satisfaction” by way of the Cub aircraft. [162] The response by FFMR in this second proceeding is that, essentially, whatever may be owed, a compromise was entered into between UA and FFMR which settled any such claim “in full”. I will come to deal with that at the end of this initial consideration. [163] With respect to the primary amount of $100,636.96, it was not challenged by FFMR. As UA’s submissions note, Petersen identified in evidence that FFMR’s own records recorded that $97,342.22 was owing. Given, then, that for the balance of $3,825.76 an invoice was raised for that amount, as UA’s submissions also note, the quantum of the plaintiff’s claim for $100,636.96 is in fact slightly less than the total of those other two amounts. Because no amendment was sought, and because I refused an amendment seeking to achieve the same end by FFMR, I will accept for present purposes that the initial sum of $100,636.96 has been established. [164] The next sum claimed by UA is $5,989.50 for an annual inspection on the Ryan aircraft VH-AGW. [165] FFMR contended in its written submissions that the Ryan aircraft had been booked into the FFMR job register on 13 September 2006 while Arnot was still the General Manager of the business, that the work was actually done at the FFMR premises, and that the aircraft remained there after the event. [166] But, in cross-examination, Petersen, after acknowledging that the Ryan aircraft was owned by George Mercadol, conceded that there was an arrangement by FFMR with him to carry out annual inspections on that Ryan aircraft at no cost, because FF and FFMR used this aircraft for its “joy flights”. She further stated that there was a “100 hourly” service due in September 2006 but that Arnot “had the aircraft” by that time. [167] Since the cross-examination took the matter no further, I am perplexed as to whether she was retracting her earlier evidence, even in part, or simply explaining an earlier arrangement. And since I do not accept what Arnot has deposed to, it is, therefore, not immediately clear why UA should be permitted to charge for an aircraft that either Arnot himself or UA owned by then or on which the work was either -- 41 of 57 -- 42 performed at FFMR’s premises or for which work no authorisation was given by FFMR to UA to do. [168] Given all the above matters, it is difficult to see how UA can successfully claim for undertaking such maintenance in its own right. But even if it can, this still subject to the determination of whether there was a compromise of all such amounts owing. [169] The next amount is $1,367.50 (being alleged to be for parts and materials purchased by UA on behalf of FFMR in about June 2006). The point that FFMR makes is that there is no suggestion that FFMR was in the type of financial difficulty whereby it could not afford to purchase parts, if required, itself. Petersen deposed that she could locate no evidence that showed that any such parts or materials went into aircraft of FFMR’s customers. Yet again, I am not satisfied, given my conclusion on Arnot’s credibility, that these parts and materials were, on the balance of probabilities, purchased by UA for FFMR. But if they are otherwise payable, they are still subject to the potential compromise. [170] The next aspect of the claim is for the sum of $2,167.34 alleged to have been “paid” by UA on behalf of FFMR in September/October 2006. [171] Apart from Arnot’s assertions and the production of a Tax Invoice for the figure of $1,439.89, there is nothing independent of Arnot’s evidence itself which shows that the parts or materials were for FFMR’s customers or that the work was requested to be done by FFMR. For reasons already identified, I do not accept Arnot’s assertions on this score; and, as already noted, they are subject to any potential compromise. Compromise “in full”? [172] In its submissions, UA contends that on the pleadings the only figure which could be the subject of any potential compromise is the sum of $100,636.96. My reading of paragraph 4 of the Amended Defence does not reveal such a conclusion. As paragraph 4(b) alleged, if there were to be any monies owing, an agreement was reached which compromised the claims made “in this proceeding” to any monies owing. The fact that there was a letter sent by UA to FFMR, dated 22 December 2006, whereby UA claimed approximately $100,000.00 does not invalidate that general allegation. Necessarily, it will depend upon the terms of any compromise that is found to have existed. [173] Because of my concerns about credibility (noted often above), I will place significant moment on the actual correspondence that passed between the parties with respect to this matter. [174] The first document in evidence was a letter from FFMR to UA dated 26 September 2006. Arnot’s own affidavit exhibits it. Among its items was an offer to transfer the ownership of the Cub aircraft VH-ALV to Arnot or his “nominated entity” as “settlement of the consulting fees outstanding to” UA. I accept from FF’s financial records that it had paid US $65,000.00 to UA for the Cub aircraft on 25 September 2000. Intriguingly, Arnot initially denied that he could have it transferred to him as he always had been the owner. At trial, his changed position was that it was part of an agreement (canvassed below). The second document was from UA to FFMR dated 5 October 2006. It referred to an “offer” of “Friday” 28 September 2006 to take over FFMR (and the workshop approval). What is reasonably clear is that that -- 42 of 57 -- 43 Friday was 29 September 2006. Further, the document dated 26 September 2006 was faxed on 29 September 2006 to the fax number appearing on the header to that letter of UA of 5 October 2006. The “offer”, if only impliedly, was limited to that part (of the overall offer) which was to purchase FFMR’s “business” and “workshop approval”. It states that the offer was declined by UA. But it is obvious from the first document that there were several discrete offers. [175] The next letter was from FFMR to UA, dated 10 October 2006. In it, FFMR referred to not being able to reach an agreement about “purchasing” the business. Nevertheless, it stated that, with regard to the money outstanding “to you”, it “would like to confirm” that “we hereby sign over the ownership” of the Cub aircraft and that, “as agreed”, this is for “full and final payment of all monies owed to you or your entities” (it being noted that the letter was addressed to Arnot at UA). Arnot’s “correspondence” concedes that he received this letter. [176] On 13 October 2006, without any indication to, or any knowledge of, FFMR, Arnot caused the Cub aircraft to be sold, for which he was paid on 16 October 2006. [177] The next non-contested letter was dated 27 October 2006, sent by FFMR to UA. In it, FFMR “confirms” the “full and final settlement”. [178] By a reply letter dated the same day (namely 27 October 2006), UA wrote to FFMR in which UA enclosed a “copy” of an earlier letter dated 17 October 2006 (alleged to be “posted” on 18 October 2006). Unlike other letters that UA wrote, this one, perhaps strangely, was “enclosed” as a copy letter. The letter dated 17 October 2006 – or at least the copy of it – asserts that UA wished “to make it very clear that the offer of the J-3 Cub as full and final settlement for the debt” is “rejected”. [179] The next letter acknowledged to have been sent between the parties is one dated 3 November 2006 from UA to FFMR. It referred to FFMR’s letter dated 31 October 2006 (stated to be received on 2 November 2006). In it, UA, under the hand of Arnot as “Director”, stated that at no time have “I accepted the offer made to me”, whether verbally or in writing, for the Cub as full payment for monies outstanding from FFMR to UA. It must be remarked that this particular letter referred to the letter dated 17 October 2006 as being “sent” on 17 October 2006 – and therefore contrary to the statement in the letter of 27 October 2006. This letter of 3 November 2006 also referred, for the first time in any correspondence up until then, to the amount of $275,000.00 being “loaned to Mr Hart” (though it was stated to be from “Ultimate Aerobatics Pty Ltd”). [180] As FFMR’s submissions point out, by 17 October 2006 the Cub aircraft had been sold and payment had been received, yet no mention of the sale occurred in any correspondence to that time. [181] If Arnot is to be accepted, then - as his correspondence clearly acknowledged to this extent at least - FFMR had transferred to him the Cub aircraft as consideration for something. Arnot’s assertion is that S Hart and he, alone, had agreed to the sale and that Arnot “keep the proceeds in reduction”. If so, why was there any mention of a “rejection” in the (copy) “letter” dated 17 October 2006? Although it is contended in UA’s written submissions that the sale of the Cub aircraft was consistent with an agreement - though allegedly with S Hart alone - which allowed Arnot himself to take the aircraft “in partial satisfaction of what was owed to him” (emphasis added), -- 43 of 57 -- 44 it is difficult to see where there is any specific evidence, or even support, for that “agreement”. Although the genesis of the “settlement” agreement on FFMR’s part is an assertion by S Hart that it occurred at a meeting with Arnot in prison on or about 23 September 2006 (after Arnot’s resignation), and even though I do not necessarily accept on its face what S Hart said occurred orally at that meeting (even though others gave some evidence of that meeting and its aftermath), there is no way to interpret the other events of late September and October 2006 other than to conclude that an agreement had been reached between the representatives of FFMR and UA (probably on 25 September 2009 between L Hart, Petersen and Arnot) that there was a “full and final” settlement of the debts falling under the rubric of “consultancy fees” which FFMR had incurred to UA. While it is concerning that the letter of 26 September 2006 (the following day) used the term “propose” rather than “confirm”, Arnot did sell the Cub aircraft under some agreement; and I reject his contention of some general right to reduce, by whatever price he could get, from his own efforts without any floor pricing, the sums owed to him. In dealing with the apparent disparity between the value of the Cub aircraft [whether that be $35,000.00 or $90,000.00 or even $65,000.00 (being the price paid for its purchase)] and the sum in excess of $100,000.00, I accept FFMR’s submissions that Arnot intended simply to get hold of the Cub aircraft and sell it and that did not matter how that was to be achieved (even agreeing to something - Arnot always asserting that there was some agreement - which he would later contest). [182] In summary, whatever reasons Arnot personally had for agreeing on behalf of UA to a “full and final” settlement with FFMR, I find that it did occur and that it is a complete defence for the claims made by UA in the second proceeding, as “consultancy fees outstanding” (when examined) contained many examples of the “additional” claims here: see, for example, US’s letter to FFMR dated 22 September 2006. Value of Cub aircraft [183] If I should be held to be wrong in the conclusion as to “settlement” that I have reached, it may assist in what then occurs if I express a view about the actual value of the aircraft. [184] In the disputed letter (namely that of 17 October 2006), Arnot, writing as Director of UA, stated that this aircraft was “valued at half” of a debt “in excess of $100,000.00”. Considering that he had just sold that aircraft for $35,000.00 at the date of that alleged letter, it is strange that he did not put that price of $35,000.00 in that letter. Although he was put forward as an expert in valuation, from the evidence led I reject any assertion of such expertise, he having no relevant background, learning or experience justifying a title of that kind. [185] More concerning is that there was no negotiation with Mr Button, and others, as prospective purchasers, about the figure of $35,000.00. It was simply offered to the purchasers at that price. It is that price that UA, through Arnot, proposed to the Court in this trial as indicative of its true value – presumably on the basis of “market value” equivalence (though Spencer’s Case41 might suggest otherwise). While I do not necessarily accept that the answer given by Mr Button that the $35,000.00 was a “good price” necessarily means that he regarded it as “a special deal”, UA led 41 Spencer v Commonwealth (1907) 5 CLR 418. -- 44 of 57 -- 45 evidence from a valuer, Maclean, seeking to uphold $32,000.00 as the true value. Although I have, briefly, canvassed his evidence earlier, for reasons I set out there, I do not accept that the valuation he gave was a valid valuation. [186] The only other evidence was that UA had sold it to FFMR in 2000 for $65,000.00, though the registration was never changed (which made it easy for Arnot to sell in mid-October 2006). [187] If it needed to be determined what its value was, given the evidence led by Button about the Cub aircraft having had its annual certification and, given that according to Button (who helped maintain the aircraft and do inspections on it so that he knew that it was in very good condition) it was maintained “to a very good standard” because “it was an old aircraft that had been pretty much restored”, I may well have preferred the sale price in 2000, namely, $65,000.00 as the true value as at October 2006. Work on the Stearman [188] This was one of the claims made in the counterclaim in the first proceeding. [189] The plaintiffs by counterclaim seek the sum of $37,457.52. It concerns an aircraft purchased by Arnot in early 2005 for which he paid $115,000.00. The substantive allegation is that in 2005 and 2006 Arnot caused restoration work to be undertaken on his Stearman to the claimed amount. As with the Staggerwing, the basis of the claim is said to be a breach by Arnot of his fiduciary duties to FFMR, on the basis that the work was undertaken at the behest of Arnot without the knowledge or approval of the other Directors of FFMR and for which Arnot did not agree to pay, and has not paid since. [190] In his evidence, Arnot conceded that he caused FFMR’s labour and resources to carry out what he considered to be $15,000.00 worth of work. For its part, FFMR, through the evidence of Petersen, assessed the value of such work to be $47,457.52. Petersen had calculated this figure from documents in FFMR’s financial records which were tied to “VH-SNM” (which was the aircraft’s registration). There is nothing in any cross-examination of Petersen which in any way diminished the value of either the source of that information or the method of calculation. Any cross- examination about delay in making the claim I find to be explicable in terms of the discovery of the potential claim, and the claims made in correspondence which were sent to Arnot soon after he left, in October 2006; and any assertion by Arnot himself is given no weight, especially where there was no cross-examination, for instance, of the items totalling $5,695.74 (which Arnot has directly deposed to). [191] Part of the determination to be made in this claim is to what extent a credit was agreed to be given for the value of a Tiger Moth aircraft engine, formerly owned by Arnot, as a set-off against the value to be spent by Arnot on that work. Petersen gave evidence to the effect that such an agreement was made with her prior to the work commencing, although she was only able to assess the value of the actual work after all the work that, in fact, had been done had been discovered by FFMR. She also gave evidence that the agreement was that the value to be allocated to the engine and, therefore, the work was $10,000.00. -- 45 of 57 -- 46 [192] Pausing for a moment as to the foundation of this claim, Arnot in cross-examination asserted that he did not seek to get any approval from anybody connected with FFMR until after all the work had been finished, when he asserts that for “the first time” he raised it with Troy Hart, explaining that any delay in raising it was because, simply, he “did feel I was entitled to do it”. This concession again reinforces the view that I have formed about Arnot’s cavalier view about obligations, duties and responsibilities which were the subject of these proceedings. It also adds to my considerable concern about accepting anything that he has stated, except where it is directly contrary to his own interest and, even then, only if there is some other support for his assertion. [193] Consequently, I do not accept, with respect to this Stearman claim, what Arnot has sworn to as the value of the Tiger Moth engine (i.e. as being between $18,000.00 and $20,000.00). Further, I reject his statement that no figure of $10,000.00 was discussed with Petersen, or agreed, particularly where the Amended Reply admitted that Arnot “sold” it for $10,000.00 (“which remained unpaid”) [see paragraph 16(c) of the Amended Reply and Answer] and where one of UA’s letters to FFMR of 3 November 2006 expressly refers to the $10,000.00. [194] During the evidence led with respect to this issue, Arnot asserted, consistently with what was pleaded in the Amended Reply that, by agreement with FFMR, he took a part off his Stearman on which he was then working and put it on a Stearman aircraft owned by Smillie. The problem with the allegation is that Arnot had caused a Release with respect to Smillie’s Stearman aircraft VH-YSM to be signed by Smillie on 7 March 2005. Consequently, it would be logical to conclude that that work had been finished by April 2005, in circumstances where Arnot did not cause FFMR to work on his Stearman, according to the “Time by Job Detail” records, in any real way until mid-April 2005. While there may be evidence (for instance that referred to in Arnot’s affidavit of the different blue and yellow paints on the Smillie Stearman) which supports Arnot’s assertion of a part from his Stearman being put on Smillie’s Stearman, how that could have affected Petersen’s figures is, further, unexplained (perhaps as a set-off, though no value was proferred). Hence, I reject any defence raised by Arnot concerning the Stearman owned by Smillie. In any event, Arnot admitted in cross-examination he had been reimbursed in circumstances where labour only was sought by FFMR. If there was extra labour involved, Arnot would still have had to pay for it, subject to some, perhaps, credit for removal (but the amount, if any, was never particularised, or identified in evidence); and if there was labour for the work on Smillie’s Stearman, it would have been done by FFMR. [195] Finally, I need to consider the evidence by Mr Arnot that he made an agreement about the Tiger Moth engine with T Hart. Arnot stated that he had put a proposal to T Hart “who was then the manager of the workshop” that the work undertaken on Arnot’s Stearman, including parts and consumables, would be offset against the money that Arnot was owed in respect of the Tiger Moth engine and that T Hart subsequently informed Arnot that Petersen and L Hart had agreed to Arnot’s proposal. While I have already accepted that the arrangement was made with Petersen herself, I also reject any involvement by T Hart, because the cross- examination of Arnot showed that it was Arnot himself who had resumed that position in charge of the workshop at the time he had stated that T Hart occupied that position; and I do not accept the evidence of Arnot, where, as here, there is no independent written verification. While it was submitted on Arnot’s behalf that a -- 46 of 57 -- 47 Jones v Dunkel42 enquiry should be undertaken with respect to the fact that T Hart was not called by FFMR to give evidence, given the conclusions that I have already reached and the fact that Arnot had subpoenaed him anyway, I reject the invitation to engage in such an exercise, particularly where I have such concerns about Arnot’s evidence in any event. [196] In summary, I find that the claim of $37,457.52 for equitable compensation has been established on the balance of probabilities. Yak 52 VH-VVS parts [197] This claim, brought by the plaintiffs by counterclaim in the first proceeding, deals with a Yak 52 aircraft VH-VVS. The claim is based upon, in the year 2006, Arnot causing parts to be purchased from Aircraft Spruce & Specialty Co for use on this particular aircraft at a cost of $454.95 (the subject of 2 identified invoices). [198] Part of the allegation relies upon the Yak 52 aircraft being owned by Arnot, or an associated entity of his. Arnot did not contest the fact of such ownership. In his latest affidavit, he referred to later selling it. [199] One of the parts in question was alleged to have been an interrupter pump for a long range fuel tank. In cross-examination, Arnot stated that his response was not that the parts in question were not in fact fitted but that he himself had paid for all the parts for his aircraft. He also stated that the parts from the source relied upon in the claim were not ones that he “recognised” and they were not for a Yak aircraft, though he expressly conceded that a long range fuel tank had been installed on his Yak aircraft. [200] Because of my scepticism about Arnot’s evidence generally, it is necessary to see what documentary evidence there is that concerns this claim. The two invoices were dated 13 April 2006 and 17 April 2006. They were both stated to be shipped to Arnot, with the documents stating that the purchaser was FF. Further documents advertising the parts are of no significant assistance and the letter dated 18 May 2007 from Shand Taylor Lawyers, on behalf of FFMR and FF, to Morgan Conley Lawyers, on behalf of Arnot and UA, merely stated the allegation itself, adding that the purchases were charged by the supplier to “our client’s credit card (presumably at Mr Arnot’s request)”. [201] Although Arnot led no evidence, at least of a documentary kind, which supported his statement that all parts for his Yak aircraft were paid by him, including that of a long range internal fuel tank, I, initially, am left in a state of not being able to determine, on the balance of probabilities, whether the parts that were the subject of the two invoices identified were in fact fitted to the relevant Yak aircraft, even though I might speculate that they were. It is necessary, nonetheless, to consider the evidence of Keller. Her first affidavit referred to the use of Arnot’s credit card for purchasing parts for his Yak aircraft, but giving the account to FFMR to pay. Since she was not cross-examined on the Yak issue and since the payment for the parts here (according to each of the two invoices) was by “credit card” (although not identified), I am satisfied that this evidence is relevant and cogent to this issue. But because the above solicitor’s letter refers to “our client’s credit card”, I am thrown 42 (1959) 101 CLR 298. -- 47 of 57 -- 48 back into a field of uncertainty again. Thus, I find that this claim has not been established to the requisite standard of proof. Coad work (Yak 50 VH-YVO) [202] This is with respect to an annual inspection on a Michael Coad (“Coad”) owned Yak 50 aircraft VH-YVO. The amount claimed is $2,773.70. [203] The claim is based upon an allegation that Arnot caused invoices to be issued in the name of UA to Coad for work which was in fact performed by FFMR. Further, it is alleged that Coad then paid either Arnot or UA that sum and, thereby, deprived FFMR of the benefit of the payment for the provision of those services. Again, the underlying obligation relied upon is the fiduciary duty said to be owed by Arnot to FFMR. [204] The pleading response, contained in the Amended Reply, is simply to deny the relevant allegations as being “unparticularised and not within the knowledge” of the defendants by counterclaim. While this denial might be able to be characterised as being a deemed admission, where, as here, Arnot identified a person who in fact carried out the work [namely, Cameron Rolph-Smith (“C Rolph-Smith”)], Arnot asserted that the work was carried out at a hanger which was not owned by FFMR, and that evidence was not objected to as irrelevant, it is necessary to determine this issue. I take this position despite Mr Roney SC stating at the outset of the trial that objections would not be taken to irrelevant material where there were deemed admissions in the pleadings. It is insufficient for that general assertion to be made when no objection is specifically taken to the actual evidence when led, meaning that there was no occasion to make a ruling on its admissibility when it was necessary to do so. [205] It is not disputed that the work in question was done between 26 September 2006 and 6 October 2006. From earlier findings that I have made, Arnot then still worked at the FFMR hanger (which he did not leave until 12 October 2006 - at least officially). The job register book of FFMR showed that the Coad Yak aircraft entered into the hanger of FFMR on 26 September 2006, which book was then under Arnot’s control. It was entered up in FFMR’s document as: “Carry out annual inspection”. Further, there is a Certification Sheet signed by William Turner (“Turner”), FFMR’s Chief Engineer, on 6 October 2006 and a Certification signed by Arnot himself, dated 6 October 2006, both on documents which are clearly those of FFMR. FFMR’s timesheets show Turner’s work for FFMR. [206] While Arnot asserts that he and C Rolph-Smith did the majority of the work, he stated that Button might have done some of it and that, if he did, he would have been paid for such work by FFMR. In the same section of the cross-examination, Arnot conceded that at least some of the work done on the aircraft was done in the FFMR hanger, albeit a “brief” inspection, by Turner. [207] Arnot, although conceding that in previous years Coad had always used FFMR to undertake the annual inspection (which had gone on for the previous 6 years), stated that Coad approached him to do this particular work. When pressed for an explanation for such an approach, Arnot stated that the expertise was “no longer at FFMR” because he and C Rolph-Smith had left. Even with respect to that, he conceded that the latter had been re-engaged as an independent contractor to -- 48 of 57 -- 49 perform services for FFMR on occasions after that through to the end of October 2006, thus acknowledging that C Rolph-Smith would have been FFMR’s contractor. [208] Finally, he conceded that without the certification by Turner the aircraft could not have been flown legally and that Turner was then an employee of FFMR. When further pressed about his statement that he gave instructions for an invoice to be raised by FFMR for Turner’s fee, he conceded that there was no such document. [209] Because of the evidence given by Arnot it is met with great scepticism on my part, even if I were to accept even part of what Arnot has stated about this issue, I would conclude that Arnot appropriated to himself work that was, at least potentially, work to be undertaken by FFMR at a time when, even though he had notified his, and UA’s, withdrawal of his services to FFMR on 22 September 2006, he continued to do certain work for them. I conclude that the Coad work was work done where he did in fact have a conflict of duty and interest and that he breached his fiduciary duty by taking that Coad work. [210] Accordingly, FFMR is entitled to recover the sum of $2,773.70 by way of equitable compensation for such claim. Claim for legal costs (Pitts Special VH-KKT) [211] I have canvassed, earlier, aspects of this when considering Arnot’s credibility. [212] There are many aspects that were not in contention here. First, it was common ground that FFMR did perform certain work on this aircraft, that a legal proceeding was brought against FFMR concerning the cost of that work performed, and that this proceeding was compromised after the payment by the owner of the aircraft. As to fiduciary obligations, his letter of resignation dated 26 September 2006 expressly stated that Arnot would continue work at FFMR “until” this aircraft was “completed”. It can therefore be concluded that FFMR placed Arnot in a position of trust. The argument is as to whether that trust was abused in a fiduciary setting. [213] Again, FFMR has raised in its written submissions that there was a deemed admission. But it did not specifically object to any of the evidence which thereby might have been rendered irrelevant. Accordingly, as I have indicated before, I will consider this particular issue in light of that evidence. [214] I accept that the owner of the aircraft brought a proceeding to seek to set aside a statutory demand served by FFMR on it with respect to payment for the work performed. FFMR’s argument is that there was a necessity to serve that demand and, therefore, to defend any proceeding that arose out of it, because Arnot misled FFMR, the relevant insurer who authorised the repairs, and the owner of the aircraft, by telling to each a different version. [215] The circumstances of the misleading will now be detailed. Arnot wrote to the loss adjustor agent for the insurer on 5 September 2006 (before his resignation letter of 22 September 2006 referred to earlier) stating that UA had taken over the particular job and that FFMR had agreed to that. In a letter to FFMR of 27 October 2006, Arnot told a different story, suggesting that in fact he had been contacted by the insurer and instructed to conduct the repairs and that the insurer had accepted his quote with an undertaking on his behalf to pay the costs incurred to FFMR to date. -- 49 of 57 -- 50 The contents of that letter relied upon the “pretence” that an invoice dated 12 September 2006 had been legitimately issued by FFMR to UA. I find that Arnot needed to take that step in order to perpetuate the deceit. In that letter of 27 October 2006 Arnot stated that the invoice dated 12 September 2006 was raised when he was “managing the company” and that it was “a perfectly legitimate invoice”. Arnot has admitted in an affidavit filed this year that in fact it was backdated by a month. Accordingly, it was not issued until the day on which he caused the particular aircraft to be removed from FFMR’s possession. [216] The affidavit filed in the Supreme Court proceeding by James Sutter Wilson, the director of the aircraft’s owner, Arenco Holdings Pty Ltd, shows that the basis of disputing the debt was information given to him by Arnot that the insurer had entered into an agreement with FFMR that the aircraft would be repaired by UA. The affidavit also referred to the invoice issued which was (falsely) dated 12 September 2006. It is also clear from that affidavit that the deponent was of the belief that the amounts referred to in the statutory demand were not owed to FFMR or, if they were to be owed to FFMR, they would be owed by UA. [217] It is unnecessary the canvas the evidence further in order to conclude that there was undoubtedly a common sense causal link between Arnot’s behaviour and the bringing of the Supreme Court proceedings against FFMR, and no break in that chain of causation. On such a conclusion, two further issues remain. The first is whether the legal fees can be recovered by a court award in these circumstances; and the second is whether there has been a release which covers this matter (entered into at the behest of the insurance loss adjustor by FFMR). [218] As to the first issue, the cases that I have analysed concerning the recovery of legal costs, while endorsing a claim that did not rely upon a lost opportunity as still being a viable cause of action, on their face appeared to limit the recovery, where a person had defended the litigation in question, to the difference between the costs incurred and the costs recovered from the third party, although they were common law claims. [219] In this case, there were no costs which can be directly attributable as recovered from the third party. In fact, the costs sought are the costs of FFMR’s own solicitors as charged between solicitor and client, because each party to the proceeding agreed to pay its own costs. In terms of breach of fiduciary duty, since foreseeability is not a constituent element, it is difficult to see why a direct loss such as this is outside the ambit of such recovery. [220] As to the matter of non-recovery of any costs against the third party, it has been raised by FFMR that Arnot has not alleged a failure to mitigate (by alleging, for instance, a failure to mitigate by not seeking costs from the third party). I accept in these circumstances that the absence of such an allegation of failure to mitigate does permit FFMR to overcome this apparent hurdle. And, in any event, contributing fault is not a relevant issue for this remedy. [221] The next matter is whether the legal costs were reasonable. No evidence was led, or cross-examination undertaken, by Arnot to suggest in any way that the costs were not reasonable; and there is nothing on the face of them that shows that they are apparently unreasonable. Although in oral submissions Arnot contended that there was no proof of the $14,500.00 – which was not true because “payments” to the -- 50 of 57 -- 51 relevant solicitors were proved totalling $14,506.58 (including relevant Tax Invoices for them) – it was, in truth, the subject of a deemed admission under r 166(1)(a) of the Uniform Civil Procedure Rules 1999 (Qld). No amendment was sought of the Reply: even if it had been, FFMR would have had a good argument that such an admission should not be allowed to be withdrawn after the close of all evidence. [222] The last aspect to be considered is the Release and Discharge. This was dated as made 1 May 2007 and was entered into by FFMR at the behest of the insurer’s loss adjustor agent, GAB Robins Aviation (Australia). In it, FFMR acknowledged that in consideration for a payment of $14,012.43 “for work performed by us” on the Pitts Special aircraft VH-KKT, amongst others UA and Arnot “and their respective servants, employees and agents” are “hereby forever discharged and fully released” from “any and all further claims, demands or liability whatsoever” that FFMR “may have in respect of the said Pitts Special aircraft”. It further stated that the release and discharge “does not extend to include any other matters that might exist between” FFMR, Arnot and UA, because it is “acknowledged and understood that this release and discharge is limited to all matters concerning (that aircraft)” (emphasis added). Finally, it stated that FFMR “shall have no further claim upon the said parties to this release and discharge” “in respect of the said Pitts Special aircraft” and that the “discharge may be pleaded in bar to any such claim or any action, suit and/or demand”. [223] Arnot’s written submissions, relying upon to the statements by White J in Medlik contended that this particular claim is barred, on the proper interpretation of that Release and Discharge. [224] For its part, FFMR contends that Arnot was not a party to the negotiations, was not involved in the resolution of the proceeding, and that the release did not extend to include “any other matters” that might be alleged to exist between FFMR and Arnot. On that approach, those submissions contend that a claim for legal expenses resulting from a breach of fiduciary by Arnot cannot come within the terms of the Release and Discharge. [225] Although the words “in respect of” are capable of a wide meaning (see Lawes v Nominal Defendant43), they do take their meaning from the context. In the context of this Release and Discharge, I conclude that on its proper interpretation it is limited to claims concerning the performance of the actual work performed on the aircraft. Under that interpretation, particularly where the Release and Discharge referred expressly to the non-extension to any other matters that might exist between FFMR and Arnot, the ambit of the terms used is not apt to include a claim for breach of fiduciary duty and certainly not a claim where Arnot himself has been cause of the aircraft owner taking proceedings with respect to setting aside a statutory demand. After all, the sum of $14,012.43 is, as the document itself states, “for work performed” by FFMR on the aircraft. I reject Arnot’s argument that at least part of the discharge sum should be credited against the claim, based on that sum potentially covering some of the “legal costs” sought. [226] On that approach, there is no bar to FFMR suing, successfully, on the basis of such a breach of fiduciary duty by Arnot. 43 [2008] 1 Qd R 369 at 358 [46]. -- 51 of 57 -- 52 [227] Thus, FFMR can successfully recover the sum claimed of $14,500.00 as equitable compensation under this claim. Zero aircraft [228] I have touched upon this issue earlier when dealing with the credibility of Goode. While I intimated during the trial that S Hart’s analysis of Goode’s records would not persuade me to a particular view, I emphasised that I would not take the same approach to an explanation of the facts behind the documents that appeared in such records. That intimation has the additional aspect that, where mere statements of what witnesses said were contended to be not in dispute about the content of such documents, it did not, necessarily, entail that I was bound by them as to what occurred if there was independent evidence. Some of the confusion appears to have resulted from a failure to properly discern that the original money advanced for the purchase, through Arnot, was advanced by FF for the relevant Zero aircraft. The majority of Goode’s evidence on this aspect dealt with either payments or payments in kind (by the provision of parts) to Arnot, leaving it to Arnot, in turn, to account. Arnot’s accounting was to FFMR (and, seemingly, not FF), although (from the analysis below) Goode appeared to be indifferent as to any distinction between FF and FFMR, which provides, perhaps strangely, some clarity to his Accounts. [229] Unsurprisingly, FF and FFMR assert that there was an authorisation by both of them given to Arnot to enter into an agreement with Goode, or an associated entity, for the purchase and restoration of that Zero aircraft, although the reality appears to be that they were both content to leave Arnot to make arrangements on an unattributed basis with Goode generally, concerning both planes (which FF was to own) and parts (which FFMR was to receive): see S Hart’s first affidavit at para [183] with respect to FFMR; and paragraph 23(a) of the Amended Defence and Counterclaim for them both. [230] Arnot has asserted that the only agreement was between FF, Arnot and Goode: but that is unlikely since the Zero Account had had merged into it the running account in Arnot’s own name (which clearly involved both FF and FFMR from late June 1999). [231] Goode, for his part in a facsimile to Petersen dated 9 November 2006, asserted that, although Arnot made it clear to him that the Zero aircraft was ultimately for “S Hart”, Goode’s dealings and contractual relationships were only with Arnot and, in particular, he received the order for the Zero from Arnot. Support for Goode’s assertions about the arrangements is given in an invoice raised by him dated 15 September 2000 and addressed to Arnot at “Unlimited Aero Maintenance” for the sale of this Zero aircraft. But the reference to UAM only blurs the picture, being the early name of FFMR, though it was the place where Arnot was the “boss” (and, anyway, runs counter to Arnot’s own assertion). [232] The transactions were in US dollars. Hence, most of the documentation reflects that fact. From that perspective, the equivalent of US$20,000.00 was withdrawn from an account of FF (then named Harts Flying Fighters Pty Ltd) with the NAB on 29 December 2000 and entered in its records as directly referable to the Zero aircraft. The evidence is that that sum, less fees, was then transferred to Goode: see Goode’s entry in the “Nigel Arnot” Account on the same day discussed below. Further transactions involving Standard Chartered on 20 February 2001 for US$20,000.00, on 6 August 2001 for US$15,000.00, and on 24 October 2001 for US$15,000.00, -- 52 of 57 -- 53 were paid from Merrell Associates Ltd to Goode. As well, from NatWest documentation there was a transfer from GIO Finance Ltd to Goode of US$48,630.50. The eventual total of those payments was US$118,630.50 (or US$118,620.46 actually received by Goode himself). Despite this, FF and FFMR’s written submissions stated that it is not contested that FF caused US$98,630.50 to be paid to Goode for the Zero aircraft which Goode was to refund. That leaves the amount of US$20,000.00 paid on 29 December 2000 in limbo, even though that is the one entry from their documentation that appears to explicitly refer to the Zero aircraft itself. [233] It must be said at this stage that the document “Statement of Account – Arnot (Zero)” (a document prepared by Goode himself) also does not include that original US$20,000.00, thereby stating, by implication, that the “total” amount received by Goode was indeed US$98,630.50. Nonetheless, in another document prepared by Goode, “Statement of Account – Nigel Arnot”, there is an entry for 29 December 2000 of a receipt of US$19,989.96 credited to “Harts Flying Fighters”. Stripped of deducted fees, this is confirmation of the earlier referred to, though sometimes excluded, US$20,000.00. [234] If any confirmation of the figure of US$118,630.50 needs to be made, it is clear from Arnot’s last affidavit that he agreed that the payments set out in the immediately proceeding affidavit of S Hart were those payments made by FF in respect of the Zero aircraft. That included the payment of $19,989.96 – in truth US$20,000.00 - made 29 December 2000. [235] Accordingly, I will begin with the proposition that US$118,630.50 was paid by FF. I reach this conclusion despite Arnot’s written submissions denying that last payment by FF of $48,630.50. The submission is partly based on conflicting statements made by FF and FFMR in their rejoinder (which I am ignoring in favour of what the objectively interpreted documents show) and partly based upon apparently accurate entries appearing in what I have otherwise found to be the quite confusing financial documents prepared by Goode. Arnot’s argument is based upon accepting entries in the “Nigel Arnot” Statement but ignoring the “Arnot (Zero)” Statement which clearly acknowledged the sum of US$48,630.50 (although, as indicated earlier, it fails to pick up the earlier sum of approximately US$20,000.00 on 29 December 2000 – which I still need to explore later). It is impossible for Arnot to rely upon one of Goode’s Statements of Account and not the other unless it is clearly established why. Additionally, as I have already concluded concerning Goode, he was quite at a loss to explain his own Statements of Account; and what has just been canvassed – and what will next be canvassed - are good illustrations of why that is so. An alternative contention by Arnot does not appeal, either, as being a logical proposition. The running account conducted by Goode with Arnot (in Arnot’s own right) took account of the fact that, eventually, no one remained in the accounting process as paying this US$48,630.50 towards the Yak 52 “debt”. In fact, the consequence of all entries is that the Yak 52 is neutralised (probably because, as the account declares for 18 April 2002, the Yak 52 “was not received” – although there was no exploration of this particular matter at all). So nothing has been proved to remain outstanding for it. For the Zero, it was also neutralised in this Account because the “(Zero)” Account had transferred to it the sum of $48,630.50 referrable to 18 October 2002. -- 53 of 57 -- 54 [236] Regarding payments made by Goode directly to FF, it is not in dispute that two sums, each of US$25,000.00, were made on 11 February 2005 and 6 April 2005. [237] After deduction of those payments made from the total advance, a sum remains of US$68,630.50 for the Zero aircraft (on the assumption that the December 2000 $20,000.00 is still in play), before any deduction of $10,273.47 for “parts purchased” and accounted for by Arnot. That figure of $10,273.47 reflects a running account balance in which that first $20,000.00 payment by FF was appropriately acknowledged. Hence, on FF and FFMR’s approach, only US$48,630.50 should be utilised in the calculations. Despite the contentions by each side, the pleadings only add to the present confusion – with some of that confusion already being considered above. [238] Although Arnot’s written submissions asserted that primary documents contained in the bundle “FFMR 1 – 20” show that FFMR sold most of the parts that Arnot alleges that he gave to FFMR (as a conduit for parts supplied to him for that purpose by Goode), it is not at all clear from the face of the documents to which Arnot makes reference (apart from what I discuss next) how that is so. I do accept what S Hart “discovered” from an examination of the facts behind the records of FFMR for specific entries in the two Statements of Account of Goode (Ex 20), especially where Petersen has reviewed the documents and verified them from her own knowledge of the financial records of FF and FFMR. Thus, I am content to find that: US$51,814.52 credited by Goode to Arnot was not received by FF or FFMR (the problem from Arnot’s perspective being he has never bothered to identify why personal payments should remain with him in an acknowledged derivative account); and that US$20,557.00 referable to the Invoices dated 8 November 2004, 19 July 2005 and 21 February 2006 should not be credited to Arnot (on the basis that the parts detailed were never received by FFMR). But those earlier entries do not all necessarily deal directly with the Zero obligations. [239] Although the onus for establishing this claim is on FF and FFMR, the evidence from Goode, both orally and in his somewhat confusing documentation, shows that (from his perspective at least) he discharged any obligations he had to Arnot (and derivatively to FF and FFMR) by payments and by supplying parts to Arnot which were equal to the value of the outstanding amount. Then, it was the duty of Arnot to complete this aspect of the transactions. Since Arnot accepted that he was at least a conduit, his position on being given the money or parts by Goode brought with it obligations of a fiduciary nature. Thus, in the circumstances where Goode and any analysis undertaken from the financial and other records of FF and FFMR are the only sources of evidence made available by Arnot to satisfy this Court that there is sufficient evidence to gainsay a breach of his fiduciary duty, he must make good the evidential onus on him to that effect. [240] Unassisted by any cogent source other than FF and FFMR’s records, I must attempt to make what logical sense I can of such evidence. [241] The first difficulty is that the initial “Nigel Arnot” Statement started with a balance “agreed” as at 23 June 1999 of $37,284.57. That, clearly, was well before any payments were made by FF to Goode. Some explanation has been proferred, to Arnot’s advantage, by S Hart’s concession that the payment recorded on 6 July 1999 effectively brought the “Nigel Arnot” Account back to zero (though still being, in fact, negative “US$307.58”) at the time it was “to become a FFMR account”. Given -- 54 of 57 -- 55 that small negative balance at the beginning (being a balance of what Arnot owed to Goode) – ignoring presently the transfer on 30 April 2004 of $10,273.47 to the “Arnot (Zero)” account (referred to in paragraph [237]) – and given the further credit on “termination” on 9 October 2007 of US$4,353.07 (which is unexplained by Goode or Arnot, and inexplicable to FF and FFMR), the further sum of US$4,660.65 also remains unpaid by Arnot to FF and FFMR (although US$307.58 is primarily referable to FFMR). [242] S Hart accepted that the earlier transferor account of Goode’s was effectively FF’s and FFMR’s (subject to “rogue” entries). [243] In the end, I am totally unsatisfied that Arnot has discharged his evidentiary onus. It may well be that there is evidence somewhere that Arnot, after being advanced money or delivered parts by Goode, advanced or delivered them in turn to FF or FFMR’s stock: but it is not in any convincing evidence before me, apart from anything conceded by S Hart. [244] In conclusion, given the earlier decisions that I have reached, I find that there has been a breach by Arnot of his fiduciary duty. Since the figures that I have canvassed as showing a failure by Arnot to account for monies or the value of parts exceeds the sum claimed of US$61,857.03 (even giving Arnot credit of US$20,000.00 for the December 2000 payment being accounted for in the eventual transfer from the transferor running account), I will allow recovery of the claimed sum. Since it is not in dispute that the exchange rate as at 1 November 2006 was US$1.00 to AU$1.28999, or that it is the correct date for such conversion, the balance owing in Australian Dollars is $79,794.95. [245] But it remains to be determined who has a right to that sum. As noted, there is no evidence led about any breakdown of the actual figures flowing from the consequences of such failure to discharge the duty, as between FF and FFMR. Hence, I intend to allow only FF to recover that particular sum – in accordance with the pleadings - since I find that it was the intended purchaser of the Zero aircraft, paid the initial sums, permitted repayments in money or in kind to be channelled through FFMR, and sought recovery solely on the basis of the original Zero payments by it to Goode. Remaining relevant witnesses [246] Although a number of other witnesses were called, including John Dunne, Cameron Rolph-Smith, Kim Rolph-Smith and Michael Peter Ellis, it has been unnecessary for me to make any findings upon credibility concerning them, particularly when their evidence was not in contest, or the issue for which they were called has not now been pressed. [247] There is nothing that these witnesses gave evidence about which has any significant effect on the outcomes I have reached. In particular, although Dunne, C Rolph- Smith and K Rolph-Smith gave evidence concerning the T-28 engine and propeller – an aspect of one of the claims which is not being pressed – there is nothing particular in their evidence that enables me to reach any different conclusion on the issues canvassed concerning either Arnot or any of the major witnesses called by FF and FFMR. If anything, it only generally reinforces the view that I have formed that -- 55 of 57 -- 56 Arnot, on occasions, made statements to other persons which did not reflect the truth of the representation so made. [248] If I were to have been called upon to decide what various photographs [referable to the (sometime) missing T28 engine], on the application of the principles discussed above, I would have preferred not to make any independent call on what they contained. It seemed to me that each witness called could see an object, or objects, that opposing witnesses denied was, or were, there. If any decision were to be necessary, those supporting Arnot’s version would have been preferred. Like the decisions on photographs that I have analysed, I could not have independently reached a decision on what was shown (other than to conclude that I could see something beyond what FF and FFMR contended was not there). [249] Finally, because FF and FFMR have made submissions about the payment of costs of the action on an issue that now has been abandoned, it is necessary to say something, briefly, about Beattie. As submitted by them, Beattie was called in an attempt to prove facts to sustain a claim for damages based upon “malicious and/or vexatious prosecution”. Beattie was a person whose evidence I would have accepted, had it mattered. But that conclusion does not permit me to reach any final decision on any costs orders yet. Interest [250] I have been given no assistance with the calculation of interest (other than FF and FFMR at least nominating a rate of 8%, where 9% was originally claimed), either in the written submissions or in oral submissions made to me. [251] That is, of course, may be understandable where so much has still been a matter of contest between the various parties to the two proceedings. [252] The only way to deal, effectively, with the issue of interest is to reserve to the parties, when handing down my judgment, the right to make written submissions on it. Costs [253] As it is obvious that there will be widely differing submissions on costs, again as with interest, I will give leave to the parties to make written submissions on costs, at the time that the judgment is handed down in the two proceedings. Summary [254] Apart from interest, and costs, I have reached the following conclusions in this case: 1. In proceeding BD 1528/08: (a) On the claim: (i) It is ordered that FFMR deliver up to Bowenbrae the Staggerwing aircraft VH-BBL; (ii) FFMR is to pay Bowenbrae the sum of $1,000.00 as damages for detention of the Staggerwing; (b) On the counterclaim: (i) Arnot is to pay FFMR $299,792.67 by way of equitable compensation; and -- 56 of 57 -- 57 (ii) Arnot is to pay FF $79,794.95 by way of equitable compensation. 2. In proceeding BD 1907/08: (a) Judgment for FFMR against UA. [255] I also intend to order that, when all issues have finally been decided, the parties bring in Short Minutes of Judgment in both proceedings for final settlement by me. -- 57 of 57 --