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Canberra Residential Developments Pty Limited v Brendas (No 5) [2009] FCA 34 (30 January 2009)

Last Updated: 30 January 2009

FEDERAL COURT OF AUSTRALIA


Canberra Residential Developments Pty Limited v Brendas (No 5) [2009] FCA 34


EQUITY – fiduciary duties owed by a director of a trustee company developing land on behalf of a syndicate of builders who formed a joint venture to do so – whether duties breached when the Joint Venture Deed precluded the acquisition of further land without the unanimous approval of all members of the joint venture and, in the absence of any such approval, a company in which the director was interested acquired other land
Held: there was no breach of fiduciary duty by the director


Corporations Act 2001 (Cth) ss 45A, 135, 249H(1) and (2), 250N, 286(1), 292(2), 293, 294, 295, 298 and 1317H
Partnership Act 1963 (ACT) s 7


Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41
Consul Development Pty Limited v D.P.C. Estates Pty Limited [1975] HCA 8; (1975) 132 CLR 373
Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq. 461
Phipps v Boardman [1967] 2 AC 46
Hurley v BGH Nominees Pty Ltd (1982) 6 ACLR 791; (1984) 10 ACLR 197
Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1
Spies v The Queen [2000] HCA 43; (2000) 201 CLR 603
Cope v Butcher (1996) 20 ACSR 37
Moorgate Tobacco Co Limited v Philip Morris Limited (No. 2) [1984] HCA 73; (1984) 156 CLR 414
James Birtchnell v The Equity Trustees, Executors and Agency Company Limited [1929] HCA 24; (1929) 42 CLR 384
United Dominions Corporation Limited v Brian Proprietary Limited [1985] HCA 49; (1985) 157 CLR 1
In Plus Group Ltd v Pyke [2002] 2 BCLC 201
H.A. Stephenson & Son Limited (in liquidation) v Gillanders, Arbuthnot and Company [1931] HCA 47; (1931) 45 CLR 476
Re Tivoli Freeholds Ltd [1972] V.R. 445
Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89
Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449
Japan Abrasive Materials Pty Ltd v Australian Fused Materials Pty Ltd [1998] HCA 30; (1998) 16 ACLC 1,172
Securities and Exchange Commission v Chenery Corporation (1943) 318 US 80
Pilmer v Duke Group Limited (in Liquidation) [2001] HCA 31; (2001) 207 CLR 165
Warman International Limited v Dwyer [1995] HCA 18; (1995) 182 CLR 544
Meyers v Casey [1913] HCA 50; (1913) 17 CLR 90

CANBERRA RESIDENTIAL DEVELOPMENTS PTY LIMITED ACN 098 326 375 v SPIROS BRENDAS, BEVERLEY ROSE BRENDAS, KENOSS PTY LIMITED ACN 008 544 232 AND CANBERRA LAND DEVELOPMENTS PTY LIMITED ACN 103 875 823
ACD 21 OF 2006


GRAHAM J
30 JANUARY 2009
CANBERRA

IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
ACD 21 OF 2006

BETWEEN:
CANBERRA RESIDENTIAL DEVELOPMENTS PTY LIMITED ACN 098 326 375
Applicant

AND:
SPIROS BRENDAS
First Respondent

BEVERLEY ROSE BRENDAS
Second Respondent

KENOSS PTY LIMITED ACN 008 544 232
Third Respondent

CANBERRA LAND DEVELOPMENTS PTY LIMITED ACN 103 875 823
Fourth Respondent

JUDGE:
GRAHAM J
DATE OF ORDER:
30 JANUARY 2009
WHERE MADE:
CANBERRA

THE COURT ORDERS THAT:


  1. The Further Amended Application filed 19 November 2007 be dismissed.
  2. The Applicant pay the Respondents’ costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.


IN THE FEDERAL COURT OF AUSTRALIA
AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
ACD 21 OF 2006

BETWEEN:
CANBERRA RESIDENTIAL DEVELOPMENTS PTY LIMITED ACN 098 326 375
Applicant

AND:
SPIROS BRENDAS
First Respondent

BEVERLEY ROSE BRENDAS
Second Respondent

KENOSS PTY LIMITED ACN 008 544 232
Third Respondent

CANBERRA LAND DEVELOPMENTS PTY LIMITED ACN 103 875 823
Fourth Respondent

JUDGE:
GRAHAM J
DATE:
30 JANUARY 2009
PLACE:
CANBERRA

REASONS FOR JUDGMENT

The Applicant

  1. The applicant in these proceedings, Canberra Residential Developments Pty Limited ACN 098 326 375, was registered under the Corporations Act 2001 (Cth) (‘the Act’) in the Australian Capital Territory on 19 October 2001. The persons who sought the registration and consented to become members were Danny Mihailidis and Andrija (‘Andro’) Glavinic, although Mr Glavinic has little recollection of his participation.
  2. The replaceable rules referred to in Part 2B.4 and s 135 of the Act were expressly excluded by the applicant’s Constitution and have no application to it.
  3. As a proprietary company (see s 45A of the Act) the applicant was not required to hold an annual general meeting (cf s 250N of the Act in respect of public companies).
  4. As a small proprietary company (see s 45A(2) of the Act) the applicant was not required to prepare an annual financial report or directors’ report unless directed to do so by shareholders with at least 5% of the votes or by the Australian Securities and Investments Commission (see ss 292(2), 293, 294, 295 and 298 of the Act).
  5. The applicant was, however, required to keep written financial records in accordance with s 286(1) of the Act which relevantly provided as follows:
‘286(1) A company ... must keep written financial records that:

(a) correctly record and explain its transactions and financial position and performance; and

(b) would enable true and fair financial statements to be prepared and audited.

The obligation to keep financial records of transactions extends to transactions undertaken as trustee.’

  1. According to Mr Robert Cobanov, a director and secretary and also a shareholder in the applicant, the applicant has had no assets other than its subscribed share capital, now $8, which ‘sits at the accountant’s office ... on the file’. The applicant has no bank account in its own name, as opposed to in a representative capacity. It has never ‘earned $1’ and never lodged an income tax return on its own account.
  2. The applicant did open a bank account at the Woden Plaza branch of St George Bank Limited on 25 October 2001 into which, inter alia, three cheques for $50,000 each were deposited on 29 October 2001. From about February 2002 it maintained a bank account at National Australia Bank Limited. That account was styled ‘Canberra Residential Developments Pty Limited Business Management’. As at 27 March 2003 it had a credit balance of $110,939.40.
  3. Notwithstanding the fact that the applicant was not required by the Act to hold an annual general meeting, clause 4.1 of the applicant’s Constitution contemplated that the company in general meeting could resolve to conduct annual general meetings in which case such meetings were to be held until such time as the relevant requirement may have been dispensed with in accordance with clause 4.2.
  4. There is no evidence to indicate that the members of the applicant ever resolved to conduct annual general meetings in accordance with clause 4.1 of the Constitution. The evidence of Mr Francesco Antonio (‘Frank’) Porreca, a director of and also a shareholder in the applicant, was that the company in general meeting never passed any such resolution that he could remember. He wasn’t sure that he had ever attended a meeting of the applicant’s shareholders. Mr Robert Cobanov could only recall a general meeting of shareholders of the applicant being called to remove Mr Danny Mihailidis as a director. That removal was effected on 20 July 2004.
  5. Subject to s 249H(2) of the Act, meetings of members of the applicant required at least 21 days notice thereof (see s 249H(1) of the Act and clause 5.2 of the applicant’s Constitution).
  6. Under clause 6.1(b) of the applicant’s Constitution no business could be transacted at any general meeting unless a quorum of members was present at all times during the meeting. The requisite quorum was the attendance of two members present in person.
  7. Under clause 8.2 of the applicant’s Constitution the minimum number of directors was expressed to be one and the maximum was ten.
  8. Clause 8.2 also provided for the first directors to be appointed by the members who signed the Constitution for the purpose of registering the applicant (i.e. Messrs Mihailidis and Glavinic). Once appointed as a director his or her tenure was, subject to disqualification or removal, unlimited in point of time.
  9. Clause 8.6 empowered the applicant by ordinary resolution passed at a general meeting of members to increase or reduce the number of directors and clause 8.8 empowered the applicant by ordinary resolution to remove any director and appoint another person in his or her stead. In addition, clause 8.7 empowered the directors to fill casual vacancies and to appoint additional directors.
  10. The original directors of the applicant appointed on 19 October 2001 were Andrija Glavinic, Robert Cobanov, Francesco Antonio Porreca, Danny Mihailidis and Spiros Brendas, the first respondent.
  11. The first respondent ceased to be a director of the applicant on 11 April 2003. On 20 July 2004 two new directors were appointed, namely John Domitrovic and Drago Novakovic, following the removal of Danny Mihailidis on that day.
  12. In the case of the applicant clause 12.5 of the Constitution required the attendance of two directors to constitute a quorum at meetings of directors.
  13. An historical company extract prepared by the Australian Securities and Investments Commission in respect of the applicant on 29 August 2006 reveals that the applicant had eight shares on issue as at that date and that a total of $8 had been paid in respect of those shares. The eight shares were held as to two by Andrija Glavinic, as to two by Danny Mihailidis, as to two by Robert Cobanov and as two by Francesco Antonio Porreca. A former shareholder who had held one share was the first respondent. When there were five shareholders there were, according to Mr Porreca, only five shares on issue. However, when Mr Brendas ceased to be a shareholder three additional shares were issued to even things up amongst the remaining four shareholders.
  14. Upon the registration of the applicant, Robert Cobanov, Andro Glavinic, Frank Porreca, Danny Mihailidis and Spiros Brendas were appointed as secretaries. Robert Cobanov, Andro Glavinic and Frank Porreca still hold office as such. Mr Brendas ceased to be a secretary of the applicant on 11 April 2003 and Mr Mihailidis ceased to be a secretary of the applicant on 20 July 2004. On 20 July 2004 John Domitrovic and Drago Novakovic were appointed as additional secretaries of the applicant.

Interest

  1. In relation to ‘interest’, clause 9.1 of the applicant’s Constitution provided:
‘9.1 Notwithstanding any rule of law or equity to the contrary a director of the Company shall not be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise, nor shall any such contract or any contract transaction or arrangement entered into by or on behalf of the Company in which any director shall be in any way interested be avoided or be rendered voidable nor shall any director so contracting or being interested be liable to account to the Company for any profit realised by any such contract transaction or arrangement by reason of such director holding that office or by reason of the fiduciary relationship thereby established and any such director notwithstanding his conflicting interests and/or such fiduciary relationship may as a director vote in respect of any such contract, transaction or arrangement and may take part in the execution of any deed document or instrument giving effect to evidencing or in any way relating to any such contract, transaction or arrangement but disclosure of any such interestedness shall be made an (sic) recorded as contemplated by Part 2D.1 Div 2 of the Corporations Law. Failure to make and/or to record such disclosures as aforesaid shall not operate to avoid or render voidable any such contract transaction or arrangement.’

The ‘Corporations Law’ was defined in the Constitution to be the ‘Corporations Law and any future statutory modification thereof’. I infer that the Act fell within the relevant definition as a ‘future statutory modification’ of the Corporations Law.

The Second, Third and Fourth Respondents

  1. The fourth respondent, Canberra Land Developments Pty Limited ACN 103 875 823 was registered in the Australian Capital Territory on 26 February 2003. Between 26 February 2003 and 26 March 2003 the sole director and secretary of the fourth respondent was Malcolm John Weston. On 26 March 2003 Mr Weston ceased to be a director and secretary, his place on the board being taken by Graham Leonard Brand, the Chief Executive Officer of Morgan & Banks Investments Pty Limited and the first respondent, Spiros Brendas, who also became its secretary.
  2. There are 100 shares on issue in the fourth respondent, 50 of which are held by Graham Leonard Brand and 50 of which are held by Kenoss Pty Limited ACN 008 544 232, the third respondent.
  3. The second respondent in the proceedings, Beverley Rose Brendas, is the wife of the first respondent, Spiros Brendas.

The First Joint Venture

  1. 32 individual companies, one partnership of two companies, and one, I assume, partnership of 2 natural persons, whose names and addresses as ‘syndicate members’ were set out in Schedule 1 to a ‘Canberra Residential Developments (No 1) Joint Venture Deed’, executed such a Deed on 12 February 2002. They were the 34 parties of the first part to the Deed, jointly and severally called the ‘Joint Venture Members’.
  2. 34 persons or groups of persons whose names and addresses were set out as ‘Principals’ in Schedule 2 to the said Deed executed same as the parties of the second part. They were jointly and severally called the ‘Principals’. In 28 instances the ‘Principal’ was an individual and in the remaining 6 the relevant principal was two or in one case, four separate individuals.
  3. The applicant was the party of the third part to the said Joint Venture Deed, and was called the ‘Manager’.
  4. The occasion for the execution of the Canberra Residential Developments (No 1) Joint Venture Deed on 12 February 2002 was the earlier acquisition by the applicant of Block 4 Section 1 Gungahlin (the ‘Horse Park Estate’ later referred to as ‘Horse Park 1’) for $16.5 million by restricted auction on 13 December 2001, the relevant 10% deposit being funded by contributions from the 34 parties who later became Joint Venture Members under the Joint Venture Deed. The Joint Venture Deed recorded that the Joint Venture commenced on 13 December 2001 (see clause 3.1).
  5. The restricted auction was one where bidding was restricted to persons who had applied in advance for and secured the right to bid at the auction and who had agreed to execute and deliver a form of ‘Undertaking Of Compliance With The National Code Of Practice For The Construction Industry’. On about 5 December 2001 the Gungahlin Development Authority advised Mr Mihailidis, as chairman of the applicant, that the applicant was accepted as an eligible bidder at the restricted auction of Horse Park 1 on 13 December 2001.
  6. The firm of solicitors who prepared the Joint Venture Deed for the parties to it was known as Bradley Allen. That firm was apparently retained following the formation of a ‘group’ to collectively buy broadacre land and develop it. The person who would appear to have initiated the idea that a group be formed was Mr Danny Mihailidis. The sequence of events would appear to have been that Mr Mihailidis, a builder in the Australian Capital Territory, spoke to a number of other builders in the Territory with a view to forming a collective buying group. Some of the people whom he approached early on would appear to have included Ivan Ivankovic, Drago Novakovic, Gojko (‘George’) Dosen and Andro Glavinic. The initial group meeting would appear to have taken place at the Austrian Club at Mawson in the Australian Capital Territory, one evening in 2001. It was attended by about 6 or 7 builders. After some ‘talking around’ the group would appear to have expanded to become about 12 in number. At that stage a meeting was held when the aim was expressed that the group should be expanded to 20. The initial meeting would appear to have taken place a couple of weeks before contact was first had with Mr John Bradley of Bradley Allen. Following the consideration of a couple of firms’ names Bradley Allen was selected as solicitors for the emerging group. The suggestion that Bradley Allen be considered for such appointment apparently flowed from Mr Mihailidis, who had had some previous dealings with the firm. The initial instructions would appear to have been conveyed to Mr Bradley by Mr Mihailidis. Various meetings took place some, at least, of which would appear to have been attended by Mr Glavinic.
  7. It would appear that the group considered the possibility of forming a joint venture, a partnership and/or a proprietary limited company. The proposal that a joint venture be considered apparently emanated from Mr Bradley, who also explained why the group needed a company.
  8. Recital C in the Joint Venture Deed provided as follows:
‘C. Each Joint Venture Member has a corresponding Principal and vice versa as set out in Schedule 3. Each Principal is a director of the corresponding Joint Venture Member.’

  1. Schedule 3 to the Joint Venture Deed provided a link between the syndicate members, also referred to as Joint venture members in Schedule 1, and the several Principals thereof listed in Schedule 2. In Schedule 3 not only were the relevant syndicate or joint venture members’ names recorded but also the relevant Australian Company Numbers were added. Where the corresponding Principals were shown their respective addresses were also included.
  2. Leaving aside the relevant Australian Company Numbers and addresses, Schedule 3 listed the relevant syndicate or joint venture members and corresponding Principals as follows:

Joint Venture Member Corresponding Principal

1. Paitres Pty Ltd
Danny Mihailidis
2. Katarina Homes Pty Ltd
Andrija Glavinic
3. Porreca Homes Pty Ltd
Silvio Piero Porreca
4. Cobanov Investments Pty Ltd
Robert Cobanov
5. Kenoss Pty Ltd
Spiros Brendas
6. Stylemark Investments Pty Ltd
Simon (Sime) Gulan
7. Aztec Homes Pty Ltd
Bozo Ikic
8. Mark Porreca Pty Ltd
Mark Porreca
9. Anita Constructions Pty Ltd
Gojko Dosen
10. MTJ Pty Ltd
Ivan Tijan
11. Mascot Homes Pty Ltd
Denis Nickolas Vidovic
12. Amanda Homes Pty Ltd
Jozo (Joseph) Glavinic
13. I & D Homes Pty Ltd
Drago Novakovic and Ivan Ivankovic
14. Twilight Homes (ACT) Pty Limited
Ivica (Ivan) Bacic
15. MHK Enterprises Pty Ltd
Mico (Mice) Kljusuric
16. B & T Homes Pty Ltd
Ivan Bulum
17. Jukic Homes Pty Ltd
Josip Jukic
18. Libertas Homes Pty Ltd
Joe Zdravko Ostojic
19. Galovac Pty Ltd
Joso Tokich
20. Lemezina Bros Pty Ltd
George Lemezina
21. Victory Homes Pty Ltd
Vince Crncevic
  1. Phillip & Anton Homes Pty Ltd and Antophil Pty Ltd t/as PA & A Partnership
Drago Domazet
23. I & A Homes Pty Ltd
Anto Vujica and John Tisot
24. Rosedale Homes Canberra Pty Ltd
Nicholas Joseph Andric and Bryan Anthony Carroll
25. Pinto Homes Pty Ltd
Walter Pinto
26. ACT Builders Pty Ltd
Boris Domitrovic and John Domitrovic and Don Sipinkas and Tony Milosis
27. Hodome Pty Ltd and SZ Investments Pty Ltd
Jere Susa and Zeljko Susa
28. Zelic Homes Pty Ltd
Frank Zelic
29. Mostar Pty Ltd
Zdenko Cvitanovic
30. Patrician Homes Pty Ltd
Stefan Stefanac
31. Ivan & Vesela Ostojic
Ivan Ostojic
32. Golem Homes Pty Ltd
Zeljko Golem
33. Cobvec Developments Pty Ltd
Tony Vecchi and Robert Cobanov
34. Matkovic Pty Ltd
Andrija Glavinic

  1. One of the definitions contained in clause 1.1 of the Joint Venture Deed was a definition of ‘Joint Venture Unit Investment’ which provided as follows:
‘“Joint Venture Unit Investment” means the amount shown in Schedule 4 as the initial capital contributions paid by each Joint Venture Member to the Manager to be invested and managed in accordance with the provisions of this Deed.’

  1. Schedule 4 to the Joint Venture Deed was entitled ‘JOINT VENTURE MEMBERS, JOINT VENTURE UNIT INVESTMENT, AND PORTFOLIO SHARE’. In three columns it listed the syndicate or joint venture members, a monetary amount and a ‘Portfolio Share’ such as ‘10/470’ against their respective names. In each instance the relevant denominator was 470 and the fractions recorded together totalled the whole, or 470/470. The relevant monetary amounts were the ‘initial capital contributions paid by each Joint Venture Member to the Manager to be invested and managed in accordance with the provisions of the Deed’. Each amount was defined as the relevant ‘Joint Venture Unit Investment’.
  2. It was anticipated that Horse Park 1, a greenfields site, could be developed and subdivided in three stages to create 470 separate lots. It was contemplated that there would be a legal partition of the land beneficially owned by the joint venturers as tenants in common, with a division of the lots amongst the joint venture members pro rata according to their respective fractional financial interests, which the joint venture members as builders, perhaps with the exception of the third respondent, could then turn to account.
  3. The recitals in the Joint Venture Deed, apart from Recital C, which has already been referred to, were as follows:
‘A. The Joint Venture Members have agreed to form a Joint Venture called the CANBERRA RESIDENTIAL DEVELOPMENTS (NO 1) JOINT VENTURE (called the “Joint Venture”) for the purposes of acquiring the Land undertaking the Project and the then division of the Residential Blocks to issue in accordance with the Portfolio Share to the total number of Portfolio Shares of the Joint Venture Members.

  1. The relationship between the Joint Venture Members is that of Joint Venturers in common and not that of partners.
...

  1. The Joint Venture Members have agreed to equally contribute certain moneys to the Joint Venture and to make certain future contributions of income and capital to enable the objectives of the Joint Venture to be achieved and to be fully and effectively managed.
  2. The Joint Venture Members have agreed to appoint the Manager to act as sole and exclusive manager of the Joint Venture for the purposes and objectives of the Joint Venture, and the Manager has agreed to accept such appointment as Manager of the Joint Venture.
  3. The Joint Venture Members have agreed to ratify the appointment of the Directors as the initial Directors and Shareholders of the Manager.
  4. The Joint Venture Members, the Principals and the Manager have agreed to enter into this Deed to record their respective rights, obligations and duties in the ownership of the Joint Venture Assets, the management of the Joint Venture, and the membership of the Joint Venture.’
  1. ‘Land’ was defined in clause 1.1 of the Joint Venture Deed to mean the Horse Park Estate.

‘Project’ was defined to mean:

‘... the development of the Land, in stages, into a residential estate including all engineering, sub-division, roadways, hydraulic services, landscaping etc all as required under the terms of the Holding Lease issued by the ACT Government for the Land and the Deed, which stages of works, when certified as complete pursuant to the provisions of the Deed, will then enable the issue of the Residential Blocks;’

‘Joint Venture Assets’ was defined to mean:

‘... the Land and investment in the Project together with any other property, including houses, townhouses or residential units which may be constructed by the Manager, interests or other assets constructed, acquired or entered into by the Manager on behalf of the Joint Venture from time to time in accordance with the provisions of this Deed including but in no way limited to land, shares and other equities, businesses, cash, goodwill and any other undertaking, investment or asset whatsoever;’

Other expressions which were defined in clause 1.1 of the Joint Venture Deed included ‘Bankers’, ‘Financier’, ‘Gross Joint Venture Income’, ‘Joint Venture Bank Account’, ‘Joint Venture Capital’ and ‘Joint Venture Outgoings’.

  1. Recital F to the Joint Venture Deed was a somewhat curious one, which suggested a measure of misunderstanding by the draftsman of the applicant’s status as a company with a Constitution which provided for the appointment of directors in accordance with that Constitution.
  2. The word ‘Directors’ was defined in clause 1.1 of the Canberra Residential Developments (No 1) Joint Venture Deed to mean:
‘... the Directors of the Manager from time to time as elected by the Joint Venture Members and until otherwise Resolved by a Simple Majority shall be Danny Mihailidis, Andrija Glavinic, Francesco Antonio Porreca, Robert Cobanov and Spiros Brendas;’

  1. In clause 1.1 of the Joint Venture Deed ‘Simple Majority’ was defined to mean:
‘... a resolution passed at a duly convened meeting of Members of the Joint Venture by a majority of votes in person or by proxy, or, if a poll is demanded, passed by numbers representing in person or by proxy a majority. (Portfolio Shares shall not be taken into account in the determination of votes);’

By way of contrast, ‘Special Majority’ was defined to mean:

‘... a resolution passed at a duly convened meeting of Members of the Joint Venture by a majority of at least seventy percent (70%) of votes in person or by proxy, or, if a poll is demanded, passed by numbers representing in person or by proxy a majority of at least seventy percent (70%). (Portfolio Shares shall not be taken into account in the determination of votes)’

The requirements for a resolution of members of the joint venture to be passed by a ‘Special Majority’ are unique. They bear no resemblance to the requirements for the passage of a ‘special resolution’ of members of a company such as the applicant, under the Act, in terms of the required percentage in favour or the length or form of the requisite notice of meeting.

  1. Clause 29 provided for ‘Meetings of Members of the Joint Venture and Annual General Meetings’.

Another illustration of the misunderstanding of the applicant’s status as a separate and distinct corporate entity is to be found in clause 29.2(e) and (f) of the Joint Venture Deed, which provided as follows:

‘29.2 Annual General Meeting
...

(e) Until otherwise determined at an Annual General Meeting the number of Directors to be appointed as Directors of the Manager shall be not less than 5 and not more than 7.

(f) At each Annual General Meeting the Joint Venture Members shall elect from amongst the Principals those persons to be appointed as Directors of the Manager for the ensuing year.’

It will be appreciated that whilst Mr Frank Porreca was the son of a Principal, he was not himself ‘eligible’ under clause 29.2(f) to serve as a director of the applicant. But clause 29.2(e) and (f) was not determinative of his entitlement.

  1. It is, perhaps, possible to construe the relevant part of the Joint Venture Agreement as some sort of proxy agreement whereby those persons who were principals of syndicate or joint venture members and also directors of the applicant agreed to exercise their powers as members of the applicant in accordance with the will of a simple majority of joint venture members voting at a duly convened meeting of such members. In my opinion, the relevant provisions of the Joint Venture Deed should not be so construed. It would seem to me that the parties to the Joint Venture Deed simply sought to arrogate to themselves the right to determine the composition of the board of directors of the applicant from time to time regardless of the provisions of clause 8 of the applicant’s Constitution. Apart from other considerations Mr Frank Porreca was not a joint venture member nor was he a principal for his parents’ company, Porreca Homes Pty Limited. According to Mr Brendas, Mr Frank Porreca became a director of the applicant because of his father, Silvio Piero Porreca. Frank Porreca was described as a ‘learner builder’. The directors of the applicant were not, as such, parties to the Joint Venture Deed and Frank Porreca was neither a party nor a signatory in any capacity.
  2. This case is concerned with the pursuit of land development opportunities other than that for which the Canberra Residential Developments (No 1) Joint Venture Deed provided. In determining what, if any, obligations may have fallen upon any of the directors of the applicant in respect of developments other than the Horse Park 1 development, it is necessary to consider the terms of the Joint Venture Deed and the relationship between the syndicate or joint venture members on the one hand and the applicant as the ‘Manager’ on the other, in some detail.
  3. In clause 1.1 of the Joint Venture Deed the word ‘Manager’ was defined to mean:
‘... the party defined as the Manager [the applicant] or such other Manager as appointed by the Members of the Joint Venture from time to time pursuant to the provisions of this Deed;’

  1. Clause 4 of the Joint Venture Deed dealt with ‘Joint Venture Ownership and Capital Contributions’. It relevantly provided:
‘4.1 Beneficially for Joint Venture Members: The Manager and the Members of the Joint Venture covenant and agree that the Land, the interest in the Project and the other Joint Venture Assets shall be beneficially owned by the Members of the Joint Venture as tenants in common in the shares in which the Joint Venture Members from time to time contribute the capital to the Joint Venture and that each Joint Venture Member is fully legally and beneficially entitled to the Portfolio Share but subject to the obligations of each Joint Venture Member as provided in this Deed.

4.2 Bare Trustee: The Members of the Joint Venture ratify and authorise the purchase of the Land and authorise purchase of the other Joint Venture Assets by the Manager in the name of the Manager and authorise the Manager to become registered as Proprietor or owner of the Land and other Joint Venture Assets and to hold the Land and other Joint Venture Assets as bare trustee and as agent for the Members of the Joint Venture to be held by the Manager only and on and upon the terms and conditions of this Deed.

4.3 No Partnership: Nothing contained in this Deed shall be construed to constitute a party to this Deed a partner, agent or representative of any other party or to create a commercial or other partnership or any company or corporate entity for any purpose whatsoever (except the capacity of the Manager as bare trustee agent and representative of the Joint Venture Members in accordance with this Deed).

4.4 Several Obligations Only: The obligations of the parties under this Deed shall be several obligations, and not joint nor joint and several obligations.

4.5 Capital Contributions: Each Joint Venture Member agrees to pay the Joint Venture Unit Investment to the Manager prior to 4.00 pm 24 January 2002. Each Joint Venture Member shall not be required to make any further contributions of capital to the Joint Venture, other than as provided for in Clause 6, unless otherwise agreed by a Special Majority at a duly convened meeting of Members of the Joint Venture.
...’

  1. Clause 6 dealt with ‘Subdivision & Allocation of Residential Blocks’.
  2. Under the heading ‘Purposes and Objectives of the Joint Venture and Manager’s Powers’ clause 2 of the Joint Venture Deed provided as follows:
‘2.1 The purposes and objectives of the Joint Venture are firstly; ratification of the acquisition of the Land by the Manager on behalf of the Joint Venture Members; secondly, undertaking the Project in stages; and the then division of the Residential Blocks to issue on completion of each stage, equally as between the Joint Venture Members in proportion to the respective Portfolio Share of such Member to the total Portfolio Share.

2.2 The Manager may, with the consent by simple majority of Joint Venture Members elect to sell by auction, tender, private treaty or otherwise all or some of these Residential Blocks or otherwise develop these Residential Blocks for houses, townhouses or residential units and to then sell by auction, tender, private treaty or otherwise.

2.3 The Manager is expressly empowered by this Deed to carry out the purposes and objectives of the Joint Venture and all matters ancillary thereto and to exercise any of its powers whatsoever in its absolute discretion without the requirement for any consent, endorsement, approval or ratification whatsoever from any Joint Venture Member.

2.4 The expansion and widening of the purposes and objectives of the Joint Venture described in 2.1 and 2.2 shall require the consent of a Simple Majority of Joint Venture Members.

2.5 The acquisition of any other investments or additional real estate whether broadacre land, residential land or redevelopment land etc. and whether in the ACT or elsewhere, or the engaging in any other projects or ventures not contemplated or required as ancillary to the undertaking of the Project shall require the unanimous consent of all Joint Venture Members.

2.6 The Joint Venture Members are all residential builders active in the house and land market in the ACT. Through the acquisition of the Land, the undertaking of the works required by the Deed, and then issue of the Residential Leases at cost price to the Joint Venture Members, the Joint Venture Members should be able to achieve both a developer’s profit on land as well as a builder’s profit on construction.

2.7 The Joint Venture Members covenant and agree to encourage and support each other in the ownership, development and sale of the Residential Blocks to achieve realistic margins, returns and prices and each covenant and agree with the other not to discount either the Residential Blocks, any house and land package or any constructed residential dwelling beyond what the Manager determines as realistic margins having regard to prices and margins as historically achieved by the Joint Venture Members.’

(Emphasis added)

  1. The limited scope of the joint venture was reinforced by clause 3.2 of the Joint Venture Deed, which provided:
‘3.2 The Joint Venture may be extended for other developments and projects if so resolved by all of the Joint Venture Members.’

(Emphasis added)

  1. There has been no suggestion that by the ‘unanimous consent’ of all 34 joint venture members they have agreed to the acquisition of any real estate other than Horse Park 1 or to the engagement of the joint venture members in any projects other than the development of that land.
  2. It may be observed that the collective buying group which emerged from Mr Mihailidis’ initiative expanded to become a group of 34 which together constituted the joint venture members under the Joint Venture Deed. The syndicate or joint venture members having contributed monetary amounts towards a fund for the purchase and development of Horse Park 1, the applicant, as trustee for the joint venture members, then proceeded to acquire Horse Park 1 and pay the deposit from that fund.
  3. The syndicate or joint venture members thereupon became the joint beneficial owners of Horse Park 1 as tenants in common in undivided shares which shares were equal to their respective fractional financial interests which had 470 as their common denominator.

The applicant’s appointment as manager

  1. Clause 39 of the Joint Venture Deed recorded the acceptance by the applicant of its appointment as Manager for the joint venture as follows:
‘39.1 The Manager hereby accepts and confirms its appointment as sole and exclusive Manager for the Joint Venture on the terms and conditions as provided for in this Deed and acknowledges it has acquired the Land for and on behalf of the Joint Venture Members for the purposes of undertaking the Project.’

  1. Clause 22 of the Joint Venture Deed set out the ‘Manager’s Powers’ and clause 23 set out the ‘Duties of the Manager’. The powers contained in clause 22 included:
‘...
22.2 The Manager shall act as the manager and bare trustee of the Joint Venture and all Joint Venture Assets and as agent for the Joint Venture Members. The Manager may enter into legally binding arrangements and transactions in that capacity and may enter into binding arrangements and transactions and execute all documents and agreements as the Manager shall in its absolute discretion deem appropriate.
...

22.4 The Powers of the Joint Venture Manager shall be exercisable by the Joint Venture Manager exclusively (that is, to the exclusion of all Joint Venture Members). The Joint Venture Manager’s Powers shall include:

(a) To Acquire Property to become a Joint Venture Asset
subject to the consent of the Joint Venture Members, to acquire any property or investments whatsoever (including any partial, legal or equitable interest) as a Joint Venture Asset on whatever terms the Joint Venture Manager determines in its absolute discretion;
...

(k) Carry on Business
to carry on either alone or in partnership with any other person any business which the Manager thinks fit and for that purpose may employ in any such business the whole or any part of the Joint Venture Assets or the income thereof as the Manager shall see fit to apply for the purposes thereof and for this purpose may acquire property, engage managers (whether corporate or not) and other employees of the business and may borrow money and give security over the Joint Venture Assets or any part thereof in such form and at such rates of interest and upon such terms and conditions as the Manager thinks fit. The Manager may delegate any of the powers vested in it by this sub-clause to any person. The Manager shall not be under any liability in respect of any loss arising out of the carrying on of any business as aforesaid.
...’

  1. The duties of the Manager contained in clause 23 included:
‘23.1 The Duties of the Joint Venture Manager shall include
...

(c) Accounts and Records
to keep and maintain proper accounts and records of all Joint Venture activities including quarterly reports to enable Joint Venture Members to apply (sic) with their GST and Instalment Activity requirements and annual Financial Accounts in respect of the activities of the Joint Venture;
...’

Remuneration

  1. The financial rewards, if one could so describe them, for the Manager and those who served as its directors were limited. The applicant received no income for the services provided by it to the joint venture members and the directors received no remuneration or other payments from the company in accordance with clause 8.9 of its constitution which provided:
‘8.9 The remuneration of the Directors shall from time to time be determined by the Company in general meeting. That remuneration shall be deemed to accrue from day to day. Furthermore, the Directors may be paid or reimbursed all travel and other expenses incurred by them in the course of carrying out the business of the Company.’

  1. However, it was clearly intended that all expenses associated with the management of the joint venture would be treated as expenses of the joint venture including fees that the joint venture members might agree to pay to those who represented the joint venture members by serving as directors of the applicant from time to time.
  2. Clause 24 of the Joint Venture Deed provided under the heading ‘Reimbursement of Expenses and Directors’ Fees’:
‘24.1 The Manager shall be entitled to be reimbursed for all out-of-pocket expenses and other outgoings incurred in respect of carrying out its duties. Such expenses shall form part of the Joint Venture Outgoings and shall be paid out of the Gross Joint Venture Income or shall be reimbursed to the Manager together with interest thereon at a rate of 12% per annum out of Gross Joint Venture income in the event that the Manager has already paid such expenses (and which shall be deemed to be a Manager’s Loan for the purposes of this Deed).

24.2 In addition the Manager shall be reimbursed for all meeting expenses, the costs of the general administration of the Manager and the direct costs charged to the Manager such as accounting fees, legal fees etc.

24.3 The Joint Venture Members may from time to time determine a Directors’ fee to be payable to the Directors in respect of their various attendances and activities on behalf of the Joint Venture Members.’

Conflict of interest negatived

  1. Clause 30 of the Joint Venture Deed was headed ‘Potential conflict negatived’. It provided as follows:
‘30.1 No Conflict Where Manager has Interest

The Manager may exercise or concur in the exercising of all powers and discretions hereby given or given by law notwithstanding that the Manager or a director or shareholder of the Manager has or may have a direct or indirect personal or other interest in the mode or result of exercising such power or discretion or may benefit either directly or indirectly as a result of the exercise of any such power or discretion.

30.2 Joint Venture Member as Director or Shareholder of Manager

A Joint Venture Member or Principal may be a director or shareholder or both of the Manager and the Manager may be a director or shareholder or both of a Joint Venture Member, and it is hereby deemed that no conflict of interest and duty shall arise from that situation.’

Entire agreement

  1. Clause 36.2 of the Joint Venture Deed provided:
‘36.2 This Deed supercedes all prior discussions and writings and constitutes the entire and only agreement between the parties and it may not be changed altered or amended other than by a Special Majority.’

Further background to the joint venture agreement

  1. The events which preceded the acquisition by the applicant of Horse Park 1 were said by Mr Glavinic, in his affidavit sworn 16 April 2007, to have been as follows:
‘5. Before the auction I and the other directors of CRD held a number of meetings with prospective syndicate members. Our objective was to form a syndicate made up of local builders to purchase and develop the land. The intention was that CRD would hold the land on behalf of the syndicate members and develop it as a residential subdivision. Once the development had reached the stage that the Government would issue leases for the residential blocks, they would be allocated among the syndicate members. The members would have to put up some money initially to be used as a deposit for the purchase of the land. The balance of the cost of the raw land, the cost of engineering services and civil works, financing costs and all other costs of developing the subdivision were intended to be paid using funds to be borrowed by CRD from the National Australia Bank. These loan funds would be repaid from funds to be provided by the syndicate members, in each case in proportion to their individual block allocations, when each of the three stages of the development reached practical completion. Later, when the government was ready to issue the leases for the individual blocks, each lease would be registered in the name of the syndicate member to whom the block had been allocated. The intention was that syndicate members would pay for the residential building blocks allocated to them at cost price (that is, at the cost to CRD of purchasing, developing and subdividing the land without paying a developer’s profit to CRD). That way, if syndicate members decided to sell their blocks as vacant land they would have the opportunity to make a developer’s profit on the sale. If they decided to sell their blocks as house and land packages, they would have the opportunity to make a developer’s profit on the sale of the land and a builder’s profit on the construction of the house.

  1. Before the auction I and the other CRD directors collected cheques from the syndicate members to pay for the deposit and members told us how many blocks they wanted to have allocated to them after the land had been subdivided.’

Fiduciary Duties

  1. A person who occupies a fiduciary position may not use that position to gain a profit or advantage for himself, nor may he obtain a benefit by entering into a transaction in conflict with his fiduciary duty, without the informed consent of the person to whom he owes the duty (per Gibbs CJ in Hospital Products Limited v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 67).
  2. The rule that a person in a fiduciary position is not entitled to make a profit without the knowledge and assent of the person to whom the fiduciary duty is owed is not limited to cases where the profit arises from the use of the fiduciary position or of the opportunity or knowledge gained from it. The basis of the rule is that a person in a fiduciary position may not place himself in a situation where his duty and interest conflict (per Gibbs J in Consul Development Pty Limited v D.P.C. Estates Pty Limited [1975] HCA 8; (1975) 132 CLR 373 (‘Consul’) at 393).
  3. A person under a fiduciary obligation shall not put himself in a position where his interests and duty conflict or, if conflict is unavoidable, shall resolve it in favour of duty and shall not, except by special arrangement, make a profit out of his position (per Dawson J in Hospital Products at 142).
  4. A fiduciary can defeat a claim to account for profits acquired by reason of his fiduciary position and by reason of the opportunity resulting from it only on the ground that the profits were made with the knowledge and assent of the person to whom the fiduciary obligation was owed (per Gibbs CJ in Hospital Products at 73).
  5. The equitable rules are exceedingly strict (per Gibbs CJ in Hospital Products at 73).
  6. The archetype of a fiduciary is the trustee but it is recognised that there are other classes of persons who normally stand in a fiduciary relationship to one another – eg partners, principal and agent, director and company, master and servant, solicitor and client, tenant-for-life and remainderman. There is no reason to suppose that these categories are closed (per Gibbs CJ in Hospital Products at 68).
  7. The principle, so far as it applies to directors, was expressed by Lord Cranworth L.C. in Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq. 461 at 471 as follows:
‘A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.’

In Phipps v Boardman [1967] 2 AC 46 Lord Hodson suggested that the phrase ‘possibly may conflict’ as used by Lord Cranworth may require consideration.

  1. Hurley v BGH Nominees Pty Ltd (1984) 10 ACLR 197 was a decision of Walters J in the Supreme Court of South Australia. There are aspects of his Honour’s judgment with which I respectfully disagree.
  2. The first defendant, BGH Nominees Pty Ltd was a company in which there were six shares on issue, two of which were held by Noel Joseph Hurley, whom I would understand to have been the first plaintiff and one of which was owned by Noel J Hurley Pty Limited which I would understand to have been the second plaintiff. The other three shares were held by the second defendant, Robert Brian Heath. BGH Nominees Pty Limited carried on business as trustee of a trading trust of which the beneficiaries were Mr Hurley, Noel J Hurley Pty Ltd and Robert Heath Nominees Pty Ltd.
  3. BGH Nominees Pty Limited carried on its business from premises occupied pursuant to a lease which expired on 30 June 1981.
  4. Mrs Heath would appear to have been the third defendant and another company controlled by Mr Heath, Mr Yipod Pty Ltd, the fourth defendant.
  5. The plaintiffs suing as shareholders in BGH Nominees Pty Limited claimed that Mr Heath had breached his fiduciary duty as a director of BGH Nominees Pty Limited in that while holding office as a director he entered into a transaction for the purchase of the freehold of the premises which were occupied by BGH Nominees Pty Limited under the lease. It was claimed that Mrs Heath and Mr Yipod Pty Limited participated in and took advantage of Mr Heath’s breach of fiduciary duty to the company.
  6. As it transpires the matter was heard by Walters J over a protracted period of time. The hearing occupied two days in May 1982 after which the matter went to the Full Court of the Supreme Court of South Australia on an interlocutory appeal brought against the decision of Walters J dismissing an application on the part of the defendants that the action be dismissed on the plaintiffs’ opening and the pleadings. The appeal was heard on two days in June 1982 after which the Full Court delivered its reserved judgment on 23 July 1982 dismissing the appeal. Thereupon the trial resumed before Walters J on a series of dates in March, June and July 1984, following which his Honour delivered his reasons for judgment on 18 July 1984. At 201 Walters J found that
‘... because of his position as a director of [BGH Nominees Pty Ltd] and of the knowledge and opportunity acquired by him as a director of [BGH Nominees Pty Ltd] ... Mr Heath was able to purchase the property in question for the benefit of Mr Yepod (sic) [Pty Ltd], in other words, for the benefit of himself and his wife. In that situation, it seems to me that he acquired the property in a fiduciary capacity and as a constructive trustee for [BGH Nominees Pty Ltd], and I so find.’

  1. At 205 Walters J said:
‘... it seems to me that a director must not disregard the interests of members of his company, or the interests of beneficiaries who are not shareholders but who are entitled to receive a benefit from the company’s activities as a trustee of the relevant trust. I think it would be entirely unreal if a director were allowed to address his mind simply to the interests of the company and not to the additional consideration whether the transaction sought to be impugned was for the benefit of the shareholders or, indeed, the beneficiaries of a trust of which the company is trustee. ...’

  1. His Honour proceeded to refer to that passage in the judgment of Mason J, as his Honour then was, in Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1 at 7 where his Honour said:
‘... the directors of a company in discharging their duty to the company must take account of the interest of its shareholders and its creditors. Any failure by the directors to take into account the interests of creditors will have adverse consequences for the company as well as for them. ...’

  1. Relying upon Mason J’s reference to the need for directors to have regard to the interests of creditors, Walters J proceeded to say at 206, by way of obiter dicta and in my view incorrectly, at least in relation to fiduciary duties said to be owed by a director of a company to beneficiaries of a trading trust of which the company was trustee:
‘I am disposed to think that the position of the beneficiaries of a trading trust company can be no lower than that of creditors of the company. And I do not think it can rightly be said that the fiduciary responsibility of a director is owed simply to the company by virtue of his status as a director and that it does not extend to responsibility to shareholders or, indeed, to beneficiaries of a trust of which the company is trustee. ...’

  1. Somewhat curiously, the last mentioned passage seems to fly in the face of the judgments of the Full Court on the interlocutory appeal then under consideration in Hurley v BGH Nominees Pty Ltd (1982) 6 ACLR 791 at 796 and 800. In the reasons for judgment of King CJ with whom Mitchell J agreed, his Honour said
‘... there is no authority which establishes that a director of a trustee company is under a fiduciary duty to the beneficiaries of the trust in respect of property held by the trustee company in its capacity as trustee. ...’

  1. After referring extensively to Betts, Buchanan and Baxt on Corporate Trustees (1979) White J, as the third member of the Full Court, highlighted that to reach a conclusion such as that reached by Walters J, with which I respectfully disagree, would ‘require a marked departure from current thinking and practice by the courts’.
  2. White J said at 800:
‘... The duty of the directors to the company is clear ... but it is not at present clear what duty they owe to the beneficiaries. Any breach of duty by a director to the company is a breach of fiduciary duty, not a breach of trust. The director’s duty to the company is quite separate and distinct from the company’s duty to the beneficiaries. What of the director’s duty to the beneficiaries? The law has not been fully developed in this area. ... Whatever the future developments of the law may be, it is not clear now that the beneficiaries under this trust deed have a cause of action against these defendants (other than the company) ...’

  1. In Spies v The Queen [2000] HCA 43; (2000) 201 CLR 603 at [93] Gaudron, McHugh, Gummow and Hayne JJ recorded the view that:
‘93 ...it is “extremely doubtful” whether Mason J “intended to suggest that directors owe an independent duty directly to creditors” (Heydon, “Directors’ Duties and the Company’s Interests” in Finn (ed), Equity and Commercial Relationships (1987) 120, at p126)’

  1. At [95] Gaudron, McHugh, Gummow and Hayne JJ went on to say:
‘95 In so far as remarks in Grove v Flavel (1986) 43 SASR 410) suggest that the directors owe an independent duty to, and enforceable by, the creditors by reason of their position as directors, they are contrary to principle and later authority ... and do not correctly state the law.’

  1. In Cope v Butcher (1996) 20 ACSR 37 Acting-Master Johnston in the Supreme Court of Western Australia was unwilling to follow the passage in the judgment of Walters J, which, in my opinion, is plainly wrong. The learned Acting-Master said at 38:
‘... the law in this State [Western Australia] must be that the directors of a trustee company owe no duty to unit holders of a unit trust solely because of the holding of [a] ... directorship of the trustee company. ...’

  1. Inherent in the nature of the fiduciary relationship is a position, a disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other (per Dawson J in Hospital Products at p 142).
  2. Contractual and fiduciary relationships may co-exist between the same parties. In situations where the basic contractual relationship has provided a foundation for the erection of a fiduciary relationship it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction (per Mason J in Hospital Products at 97 and 99; see also per Deane J in Moorgate Tobacco Co. Limited v Philip Morris Limited [No. 2] [1984] HCA 73; (1984) 156 CLR 414 at 436).
  3. Reliance is placed by the applicant upon James Birtchnell v The Equity Trustees, Executors and Agency Company Limited [1929] HCA 24; (1929) 42 CLR 384 (‘Birtchnell’). In that case James Birtchnell and Lawrence Alfred Birtchnell (the appellants) brought an action against the respondents, The Equity Trustees Executors and Agency Company Limited and one Reginald Stanley Porter, as executors of the will of the late John Porter, claiming, firstly, an account of all monies paid by one Spreckley to the said John Porter in respect of and arising from sales of land and of all monies which the respondents had received or were entitled to receive in respect of or arising from such sales from Spreckley or his legal personal representatives, secondly, payment to each of the plaintiffs of one-third of such monies, and, thirdly, such other relief as might be just.

The appellants had alleged that they had been in partnership with the late John Porter.

The matter came before Irvine CJ in the Supreme Court of Victoria who held that the purchases and sales involved in the dealings under consideration were not part of the relevant partnership business, that the purchases and sales were carried through the books of the partnership for convenience and that there was no express or implied agreement that the scope of the business be extended to include the carrying on of a general business in land speculation and further that there never was any intention that a new partnership was to exist in such business.

By a majority the High Court allowed the appeal to it and ordered that the judgment of Irvine CJ be discharged. The High Court further ordered that an account should be ordered of monies derived by John Porter from his dealings with Spreckley in relation to three particular Estates.

The majority in the High Court consisted of Isaacs, Rich and Dixon JJ. Rich J’s judgment included a short statement of his reasons. He did, however, indicate that he had read the judgment of Dixon J, as his Honour then was, and agreed with it.

  1. Dixon J said at 409 that it was necessary to begin by ascertaining the subject matter over which the fiduciary obligations extended (see also per Gibbs CJ in Hospital Products at p73).
  2. The partnership between the two Birtchnells and John Porter had been in relation to a land agency business, one of estate and financial agents and auctioneers, which they had carried on since 1889. After John Porter’s death in 1927 the two surviving partners discovered that he was sharing in the profits arising from some speculations in land which were carried out through the firm’s agency by one of its clients. They sued John Porter’s executors to compel them to account as for profits obtained by him without disclosure by availing himself of his position as a partner.
  3. Dixon J agreed with Irvine CJ’s finding that the partners were not disabled from investing and speculating in land for their own separate advantage. However he observed that it did not follow that a partner could, consistently with his duty, secretly share with a client of the firm the profits of a speculation which the client employed the firm to carry out on his behalf.
  4. The partnership agreement was varied in 1908 in a manner which supposed that the firm itself had acquired or would acquire interests in land. The partners acquired interests in the profits of 33 land speculations all save for three of which were entered into after discussion among and with the concurrence of all three partners. In the three remaining cases the approval of all the partners was subsequently given.

The partnership secured land for clients for the purpose of subdivision. It subdivided land for clients, and sold it in allotments, and it performed the perhaps more difficult service of collecting the purchase-money for which it accounted after deducting commission. In all such business the firm looked for opportunities to secure, in addition, a share of the proceeds, and it obtained such a share, sometimes as a further reward for services or as an incitement to additional exertion in realising the land, and sometimes as a result of investing capital in the speculation. It followed that the partnership was entitled to avail itself of any opportunity to embark upon such a transaction which came to the knowledge of the partners or any of them and knowledge and information acquired by a partner as to the readiness of a client to share such profits, as to the conditions upon which he would do so, and generally as to every fact bearing upon the terms which the partnership might negotiate with him, were all matters which no partner could lawfully withhold from the firm and turn to his own account. The relation between such a client and the partnership was a matter affecting the joint interests which each member was bound to safeguard and protect and no member could enter into dealings or engagements which conflicted or might conflict with those interests or which gave him a bias against a fair discharge of his duty in that respect (see per Dixon J at 410-412).

It appeared that John Porter and Spreckley arranged not later than 27 June 1925, and probably long before that date, to share the profits to arise from the realisation of land through the agency of the firm by subdivision, sale of allotments on terms, and collection of the instalments, and that much if not all of this land was acquired by Spreckley through the firm in order that it might be realised in that manner. It was implicit in Irvine CJ’s judgment that he considered that John Porter had concealed from his partners the fact that he possessed or had acquired a special advantage over them in the transaction. Dixon J considered that the evidence left no doubt that this was so.

Dixon J observed that the specific occasion and cause of John Porter being admitted to participate in the profits of the real estate transactions involving Spreckley were not established. His Honour entertained a series of possibilities. At 417-8, he said:

  1. Birtchnell was, of course, a case concerning fiduciary duties owed by partners one to the other. Before going into the detail as he did, Dixon J said at 407-8:
‘The relation between partners is, of course, fiduciary. Indeed, it has been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners. ... The relation is based, in some degree, upon a mutual confidence that the partners will engage in some particular kind of activity or transaction for the joint advantage only. In some degree it arises from the very fact that they are associated for such a common end and are agents for one another in its accomplishment. ... The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm. Once the subject matter of the mutual confidence is so determined, it ought not to be difficult to apply the clear and inflexible doctrines which determine the accountability of fiduciaries for gains obtained in dealings with third parties. Of the duties imposed by these doctrines, one ... is that which forbids a partner from withholding from the firm any opportunity of advantage which falls within the scope of its undertakings, and from using for his own exclusive benefit, information, knowledge or resources to which the firm is entitled. Another duty ... is that which requires a fiduciary to refrain from engagements which conflict, or which may possibly conflict, with the interests of those whom he is bound to protect ...’

  1. As Dixon J observed in Birtchnell, none of the partners was precluded from investing and speculating in land for his own separate advantage. John Porter’s failing was that, as a partner in a firm, he secretly shared profits from land speculation, with a client of the firm, where the client had employed the firm to carry out the land speculation on the client’s behalf.
  2. There is no correspondence between Birtchnell and the facts of the present case. Apart from other considerations, what is in issue in this case is an alleged breach of fiduciary duty said to be owed by the first respondent to the applicant. The case is not one brought by the third respondent’s 33 fellow joint venturers in which breaches of fiduciary duties said to be owed by the third respondent to the other joint venture members were alleged.
  3. It is also important to distinguish a joint venture from a partnership. In this case the parties were emphatic that they were not to be treated as partners. No joint venturer gained any authority to act as agent for or to bind any or all of the other joint venturers.
  4. An enterprise described as a ‘joint venture’ may well bear the characteristics of a partnership and thus be properly described as a partnership, as was the case in United Dominions Corporation Limited v Brian Proprietary Limited [1985] HCA 49; (1985) 157 CLR 1 (‘Brian’), but in many instances joint venturers will go to no ends of trouble to ensure that they are not seen to be partners. That was certainly the case in relation to the Horse Park 1 joint venture (see s 7 of the Partnership Act 1963 (ACT).
  5. In Brian, Mason, Brennan and Deane JJ said at 10:
‘The term “joint venture” is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots’ law, “adventure”) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as ... joint ownership. ...’

  1. I pause to observe that it is commonplace for joint ventures to exist where the parties are not associated with one another in a financial ‘undertaking or endeavour with a view to mutual profit’. Clearly, the joint venture in this case had no interest in ‘mutual’ profit. It was formed so as to allow a capital asset in the form of broadacre land to be acquired and developed so as to permit its subdivision into numerous residential leasehold estates which could then be allocated to the several joint venture members according to their respective financial contributions. In some respects it could be compared with a collective of independent grocery stores acquiring product in bulk and then dividing it amongst themselves to enable stock in trade to be acquired at a cheaper price than would otherwise be the case.
  2. In Consul, Gibbs J found, at 399, that a manager/director of the respondent, which conducted a business of acquiring dilapidated properties, renovating them and reselling them at a profit, would not be in breach of his fiduciary duty to the respondent or any of the other companies in the group which were, together, controlled by Mr J W Walton, solicitor, were he to buy a property which Mr Walton had, uninfluenced by him, decided not to buy.
  3. Where a director of a company has been excluded from all decision-making and all participation in the company’s affairs, with the consequence that his influence is such that he might as well have resigned, his duty to the company is diminished. Provided that he does not use the company’s property, his duty may be reduced to vanishing point (per Sedley LJ in In Plus Group Ltd v Pyke [2002] 2 BCLC 201 at [89]-[90]).
  4. In the circumstances of this case it is necessary to identify the scope and character of the applicant’s undertaking, and thereby ascertain the subject matter over which the fiduciary obligations of the directors of the applicant extended. In so doing, it is appropriate to have regard to the nature of the applicant and the purposes for which it was formed, the terms of the Joint Venture Deed constituting the Horse Park 1 joint venture and the limitations imposed thereby upon the undertakings of the applicant and also to the course of dealing actually pursued by the applicant as opposed to matters which some of the joint venture members may have had in contemplation and which may in certain limited circumstances have led to an expansion of the applicant’s activities.
  5. The scope and character of the applicant’s undertaking is not to be determined, for present purposes, by reference to its statutory powers. In another era one would have addressed corporate capacity by reference to the true meaning of a company’s memorandum of association. But that is not the issue in the context of a claimed breach of fiduciary duty by a director of a company registered in 2001.
  6. The scope and character of a company’s undertaking should be ascertained for present purposes by seeking to ascertain the general intention and common understanding of the members (see generally per Dixon J, as his Honour then was in H.A. Stephenson & Son Limited (in liquidation) v Gillanders, Arbuthnot and Company [1931] HCA 47; (1931) 45 CLR 476 at 487. See also per Menhennitt J in Re Tivoli Freeholds Ltd [1972] V.R. 445 at 470-472).
  7. In the context of clauses 2.5 and 3.2 of the Joint Venture Deed it is difficult to see how the scope and character of the undertaking of the applicant could be expanded beyond its role as trustee and manager of Horse Park 1, in the absence of an amendment to the Joint Venture Deed or a unanimous resolution of the joint venture members. There was no such amendment or unanimous resolution proposed or passed at any time. As will be apparent later, this is really the beginning and the end of the matter.
  8. The raison d’etre for the incorporation of the applicant was to serve as the trustee for and manager of the Canberra Residential Developments (No. 1) Joint Venture. One only has to turn to Recital F, the definition of ‘Directors’ in clause 1.1 and to the provision for the remuneration of ‘Directors’ in clause 24.3 of the Joint Venture Deed to see that the undertaking of the applicant was inextricably intertwined with and limited by the undertaking of the joint venture itself.
  9. It is clear that the function of the Joint Venture Deed was to regulate the relationship between the members of the joint venture and also to provide for the management of it by the applicant. It is equally clear that as the ‘sole and exclusive manager’ of the Horse Park 1 joint venture, the applicant’s role was, as the Joint Venture Deed indicated, that of a ‘bare trustee agent and representative of the Joint Venture Members in accordance with [the] Deed’ (see clauses 4.2, 4.3, 22.2 and 39.1).
  10. Notwithstanding the registration of the applicant on 19 October 2001, almost four months before the execution of the Joint Venture Deed on 12 February 2002, the joint venture was expressed to commence on 13 December 2001, being the date upon which the applicant acquired Horse Park 1 as trustee for the 34 parties whose contributions funded the relevant deposit and who later became joint venture members under the joint venture deed. It will be recalled that Mr Bradley, as solicitor for the emerging group, had proposed the joint venture structure and the need for a company to serve the joint venture members as the applicant did.

The consequences of a breach of fiduciary duty

  1. A fiduciary cannot be permitted to retain a profit or benefit which he has obtained by reason of his breach of fiduciary duty. A fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where there was a conflict, or possible conflict of interest and duty, or (2) by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position (per Mason J in Hospital Products at 107).
  2. Any profit or benefit obtained by a fiduciary is held by him as a constructive trustee. Once it is established that the fiduciary is liable to account for a profit or benefit which he has obtained there can be no objection to his being held to account as a constructive trustee of that profit or benefit. It can make no difference that it was not his duty to obtain the profit or benefit for the person to whom the duty was owed. What is important is that the advantage has accrued to him in breach of his fiduciary duty or by misuse of his fiduciary position. The consequence is that he must account for it and in equity the appropriate remedy is by means of a constructive trust (per Mason J in Hospital Products at 107-8).
  3. Equity does not assume jurisdiction to punish a fiduciary for misconduct by making him account for more than he actually received as a result of his breach of fiduciary duty (per Mason J in Hospital Products at 109).
  4. In a situation where the fiduciary has so mixed an indeterminate profit with his own property as to render the identification of the gain impossible, in such circumstances the whole will be treated as trust property, except so far as the fiduciary may be able to distinguish what is his own (per Mason J in Hospital Products at 109).
  5. The form of inquiry which ought to be directed will vary according to the circumstances. In each case the form of inquiry to be directed is that which will reflect as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty. One approach more favourable to the fiduciary, is that he should be held liable to account as constructive trustee not of the entire business but of the particular profits which flowed to him in breach of his duty. Another approach, less favourable to the fiduciary, is that he should be held accountable for the entire business and its profits, due allowance being made for the time, energy, skill and financial contribution that he has expended or made (per Mason J in Hospital Products at 110).
  6. If the breach of fiduciary duty is a sine qua non in the sense that the pursuit of the activity for the purpose of obtaining the legitimate profit or benefit could not have been undertaken as a practical business operation on its own without seeking also to obtain the forbidden profit or benefit, then there is much to be said for the view that the fiduciary’s liability to account should extend to all profits and benefits (per Mason J in Hospital Products at 114).
  7. When a party to a fiduciary relationship acts in breach of his fiduciary obligations and obtains an advantage for himself at the expense of and without the knowledge or consent of the party to whom the duty was owed, the party in breach is bound to account to the other party for the improper advantage which he obtained (per Gibbs CJ in Brian at 8).
  8. A fiduciary is under a duty to refrain from pursuing, obtaining or retaining for himself any collateral advantage in relation to the matter the subject of the fiduciary duty without the knowledge and informed assent of those to whom the duty is owed (per Mason, Brennan and Deane JJ in Brian at 13).

Rules in Barnes v Addy

  1. The claims made by the applicant against the second, third and fourth respondents rely upon the so called ‘rule in Barnes v Addy’.
  2. In Farah Constructions Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 (‘Farah Constructions’) the High Court quoted the rule and proceeded to comment upon it at [111] et seq. At [111]-[113] the Court said:
‘111 The “rule in Barnes v Addy” stated. In Barnes v Addy Lord Selborne LC said:
“Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.”
The form of liability referred to in the first part of the last sentence is often called the “first limb” of Barnes v Addy, and the form of liability referred to in the second part of the last sentence is often called the “second limb”. In Barnes v Addy itself, the Court of Appeal in Chancery (Lord Selborne LC, James and Mellish LJJ) upheld the decision of Wickens V-C that two solicitors, Mr Preston and Mr Duffield, had not received any trust property and had no knowledge of any dishonest and fraudulent design to make them parties to the breach of trust by the sole trustee. It was insufficient that Mr Preston had been alive to the danger of the course of appointing a sole trustee and that Mr Duffield had prepared the appointment of that trustee.

112 It has become common to describe the first limb as involving “knowing receipt” and the second limb as involving “knowing assistance”. ...

113 In recent times it has been assumed, but rarely if at all decided, that the first limb applies not only to persons dealing with trustees, but also to persons dealing with at least some other types of fiduciary. ...’

(Footnotes omitted)

  1. In Farah Constructions two companies, Farah Constructions Pty Limited and Say-Dee Pty Limited, had entered into a joint venture for the redevelopment of a parcel of inner-suburban land in Sydney. Farah Constructions Pty Limited was to be responsible for managing the development application, constructing the development, and selling the land. Profits were to be shared equally. The development application for the land was refused by the local council, in part because the site was said to be ‘too small to achieve its full development potential and return a positive urban design outcome’. The property which Farah Constructions Pty Limited and Say-Dee Pty Limited had acquired was 11 Deane Street, Burwood. Thereafter, Mr Elias, who controlled Farah Constructions Pty Limited, his wife and each of his two daughters entered into contracts to acquire one unit each in a building located at 15 Deane Street, Burwood and one of four units each in a building at 20 George Street, Burwood. Then another company controlled by Mr Elias, Lesmint Pty Limited acquired 13 Deane Street, Burwood. Say-Dee Pty Limited in a cross-claim against Farah Constructions Pty Limited, Mr Elias, Mrs Elias and each of their two daughters and Lesmint Pty Limited claimed declarations that they held their respective interests in the land at 13 and 15 Deane Street and 20 George Street on constructive trusts for a partnership between Farah Constructions Pty Limited and Say-Dee Pty Limited.
  2. The High Court held that Farah Constructions Pty Limited owed a fiduciary duty to Say-Dee Pty Limited which required disclosure of information obtained from the council relating to the amalgamation of joint venture land with adjacent land and information that neighbouring properties were available for purchase. However it also found that Farah Constructions Pty Limited had fulfilled its obligations of disclosure.
  3. In relation to Mrs Elias and the two daughters the Court was concerned to address the rule in Barnes v Addy, had it been found that Farah Constructions Pty Limited had been in breach of its fiduciary duty to Say-Dee Pty Limited. At [110] the Court said:
‘110 There was no dispute about the fact that ... if Farah was in breach of its fiduciary duty to Say-Dee, Mr Elias was liable, being in the same position, and that Lesmint was also liable, since it was Mr Elias’s alter ego. Hence the imposition of constructive trusts over the items of property in the names of Mr Elias and Lesmint was an available remedy. The position was much more controversial in relation to the three units in No 15 in the names of Mrs Elias and her two daughters. ...’

  1. At [171] in Farah Constructions the High Court asked, rhetorically what was required by the requirement of ‘knowledge’ expressed in the second limb of Barnes v Addy.
  2. The Court proceeded to respond to its question at [174]-[178] as follows:
‘174 ... it has been customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l'Industrie en France SA:
“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”
In Bank of Credit and Commerce International (Overseas) Ltd v Akindele (BCCI), Nourse LJ observed that the first three categories have generally been taken to involve “actual knowledge”, as understood both at common law and in equity, and the last two as instances of “constructive knowledge” as developed in equity, particularly in disputes respecting old system conveyancing. After noting that in Royal Brunei the Privy Council had discounted the utility of the Baden categorisation, Nourse LJ in BCCI went on to express his own view that the categorisation was often helpful in identifying the different states of knowledge for the purposes of a knowing assistance case.

175 Although Baden post-dated the decision in Consul, the five categories found in Baden assist in an analysis of that for which Consul provides authoritative guidance on the question of knowledge for the second limb of Barnes v Addy.

176 Thus, support in Consul can be found for categories (i), (ii) and (iii) . Further, Consul also indicates that category (iv) suffices. However, in Consul, Stephen J held that knowledge of circumstances which would put an honest and reasonable man on inquiry, later identified as the fifth category in Baden, would not suffice. Gibbs J left open the possibility that constructive notice of this description would suffice. Barwick CJ agreed with Stephen J.

177 The result is that Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the second limb of Barnes v Addy, but does not travel fully into the field of constructive notice by accepting the fifth category. In this way, there is accommodated, through acceptance of the fourth category, the proposition that the morally obtuse cannot escape by failure to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons.

178 These conclusions in Consul as to what is involved in “knowledge” for the second limb represent the law in Australia. ...’

(Footnotes omitted)

  1. In relation to breaches of fiduciary duty, the High Court in Farah Constructions said at [184]:
‘184 Breaches of trust and breaches of fiduciary duty vary greatly in their seriousness. Some breaches are well intentioned, some are trivial. In Maguire v Makaronis, this Court observed:
“The stringency apparent in some of the nineteenth century breach of trust cases displayed what Lord Lindley MR called ‘a very hard state of the law, and one which shocked one's sense of humanity and of fairness’. The result was what his Lordship called the deliberate relaxation of the law by s 3 of the Judicial Trustees Act 1896 (UK). This conferred a power of curial relief in respect of breach of trust where the trustee had acted ‘honestly and reasonably’ and ‘ought fairly to be excused’. There is no such general power of dispensation in respect of loss caused by breach of duty owed by other fiduciaries.”
However, some breaches of fiduciary duty by company officers, employees, auditors, experts, receivers, and receivers and managers and liquidators may be excused on similar grounds.’

(Footnotes omitted)

The present case

  1. These proceedings were commenced by an Application brought under s 1317H of the Corporations Act 2001 (Cth) filed 14 September 2006. The original Application was superseded by an Amended Application filed 30 November 2006 which was itself replaced by a Further Amended Application filed 19 November 2007. Under the Further Amended Application relief was not sought under s 1317H of the Corporations Act 2001. The prayers for relief in the Further Amended Application were as follows:
‘On the grounds stated in the accompanying fifth further amended statement of claim, the applicant claims in its own right, or alternatively in its capacity as a trustee of the constructive trust pleaded in paragraph 43 of the fifth further amended statement of claim:

1. ...

2. ...

  1. orders for the taking of an account of profits earned by the first respondent and awarding any profits earned by the first respondents (sic) to the applicant, with interest [paragraph 24.3 of the fifth further amended statement of claim];
4. ...

5. ...

  1. orders for the taking of an account of profits earned by the second respondent and awarding any profits earned by the second respondents (sic) to the applicant, with interest [paragraph 28.3 of the fifth further amended statement of claim];
  2. orders for the taking of an account of profits earned by the third respondent and awarding any profit earned by the third respondent to the applicant, with interest [paragraph 32.1 of the fifth further amended statement of claim];
  3. ...
  4. a declaration that the fourth respondent holds the residential blocks identified in paragraph 19.2 of the fifth further amended statement of claim on trust for the applicant and an order that the fourth respondent transfer title to the residential blocks to the applicant [paragraph 42.1 of the fifth further amended statement of claim];
  5. a declaration that the fourth respondent holds monies comprising any retained or undistributed proceeds from the sale of residential blocks in Horse Park 2 Estate to which the third respondent is beneficially entitled, including the third respondent’s share of the proceeds of sale of the blocks identified in paragraph 19.2 of the fifth further amended statement of claim, on trust for the applicant and an order that the fourth respondent pay the monies to the applicant [paragraph 42.2 of the fifth further amended statement of claim];
  6. orders for the taking of an account of profits earned by the fourth respondent and awarding the third respondent’s share of any profit earned by fourth respondent to the applicant, with interest [paragraph 42.3 of the fifth further amended statement of claim].
  7. ...
  8. interest;
  9. costs.’
  10. Paragraph 43 of the Fifth Further Amended Statement of Claim filed 19 November 2007 provided as follows:
‘43 The applicant sues:

(a) in its personal capacity;

(b) alternatively, in its capacity as trustee of the constructive trust pleaded in subparagraph 5(d) of the Applicant’s Reply filed on 7 September 2007 ...’

  1. In its Amended Reply to the Fifth Amended Defence of the First to Third Respondents and Fourth Further Amended Defence of the Fourth Respondent the applicant claimed, relevantly in the alternative, that it held the benefit of its causes of action against the respondents on a constructive trust for the 51 members of the group which had registered an interest in participating in what was to have been a joint venture no. 2 in respect of the purchase and development of land known as Horse Park 2.
  2. The applicant alleged that as at 27 March 2003 the group of 51 intending members of what might become joint venture no. 2 constituted:
‘... an inchoate joint venture, in that the terms of the joint venture had not been agreed by the members and reduced in writing in the form of a deed or executed agreement to establish the rights, liabilities, obligations, benefits and entitlements of the members and no agreement had been entered into between the members and [the applicant] to appoint [the applicant] as trustee and Manager of the joint venture and to establish [the applicant’s] powers, duties, rights and obligations in relation to the management of the intended joint venture and the assets of the joint venture.’

  1. Prayer for relief 3 was predicated upon claimed breaches of fiduciary duty said to be owed to the applicant by Mr Brendas.

Prayer for relief 6 was based upon Mrs Brendas’ knowingly or alternatively dishonestly assisting Mr Brendas to commit the breaches of fiduciary duty said to have been owed by Mr Brendas to the applicant.

Prayer for relief 7 was predicated upon the third respondent knowingly or alternatively dishonestly assisting Mr Brendas to commit the breaches of fiduciary duty said to have been owed by him to the applicant.

Prayers for relief 9 and 10 were predicated upon the fourth respondent knowingly or alternatively dishonestly assisting Mr Brendas to commit the breaches of fiduciary duty said to have been owed by him to the applicant.

  1. Counsel for the applicant, Mr Orlov, submitted that there were two available formulations of the duties of the directors of the applicant in this case. Firstly, a duty, arising from the joint venture deed of 12 February 2002, to act in the interests of the applicant in performing its functions and duties as Manager under the joint venture deed of 12 February 2002 including such other functions and duties as it may have been directed to perform from time to time by the members of the joint venture.
  2. Alternatively, it was a duty, arising under the joint venture deed and as a result of conduct outside the scope of the deed, to act in the interests of the applicant in performing its functions and duties as Manager under the joint venture deed made 12 February 2002 and such other functions and duties as the applicant undertook voluntarily to perform for the benefit of the joint venture as a whole.
  3. The applicant drew a distinction between its activities as Manager in respect of the Horse Park 1 joint venture and other activities in which it was said to have engaged, which took the form of ‘spotting’ – identifying other properties for possible acquisition by the joint venture members, pre-registration enabling the applicant to bid at restricted government land auctions with a view to purchasing same for the benefit of the members of joint venture no. 1 and purchasing land at such restricted government land auctions.
  4. The applicant placed reliance upon two notes appearing in Frank Porreca’s record of the Annual General Meeting of syndicate or joint venture members of joint venture no. 1 held on 19 November 2002. Under the heading ‘General Discussion’ a number of items were noted, including:
‘- Option to look at all auctions including unit sites.
- First option will go to existing members.’

Mr Porreca’s evidence in respect of the first of these notes was that a resolution was passed on a show of hands by a majority, the extent of which was unknown, of syndicate or joint venture members who were present, it being acknowledged that not all members were present. The resolution was said to be to the effect that the applicant should consider all upcoming government land auctions for further development opportunities, including sites that may be suitable for multi-unit development by the members.

His evidence in respect of the second note was that an ‘expansion’ of the joint venture to include new members was ‘discussed’. It is clear that the discussion did not lead to any resolution being proposed or considered.

  1. Mr Porecca’s evidence in respect of a resolution is inconsistent with the formal minutes of the meeting which make no mention of such a resolution. Under the heading ‘GENERAL DISCUSSION’ the following notes relevantly appeared:
‘7. GENERAL DISCUSSION
...
  1. The resolution that was said to have been passed at the Annual General Meeting was not a unanimous resolution such as would empower the applicant to acquire any additional real estate, or to extend the joint venture to embrace developments or projects other than the development of Horse Park 1.
  2. The applicant submitted that in relation to properties other than Horse Park 1 which it spotted or had been spotted and for which it secured pre-registration rights to bid at the relevant restricted government land auction, a standard procedure was followed whereby on the letterhead of the applicant invitations were extended to all members of the joint venture no. 1 to record expressions of interest in becoming part of a syndicate of persons to make up a joint venture no. 2. Those invitations to lodge expressions of interest called for expressions of interest to be lodged by a specified time on a specified date with specified requirements for the contribution of moneys which collectively would be applied to pay the relevant deposit if the matter were to proceed to a purchase.
  3. The applicant submitted that until the closing time for the submission of expressions of interest it held its knowledge of the available purchase of another property and its pre-registration in relation to the possible purchase of that property in trust for all 34 members of joint venture no. 1.
  4. The submission progressed to say that from the closing time for expressions of interest the benefit of the pre-registration was held for the benefit of those who expressed interest and paid their deposit which may well have involved a lesser number of members of joint venture no. 1 than the 34 identified in the Joint Venture Deed.
  5. The applicant accepted that it was constrained not to pre-register for land auctions except for the benefit of the members of joint venture no. 1. It was not, because of the relationship established by the Joint Venture Deed, permitted to pursue pre-registration on its own account and for its own benefit on the premise that it may put together a joint venture of which it might become the Manager. The applicant acknowledged that it could not replicate an arrangement such as joint venture no. 1 for its own benefit. It reached this conclusion on the basis that it was always open to the 34 members of joint venture no. 1 to decide to purchase a property for which it may have secured pre-registration and, in the circumstances, it could not, without breaching its own fiduciary duties to the members of joint venture no. 1, place itself in a position where its duty and interest conflicted.
  6. The problem with the applicant’s argument seems to me to lie in the transition from an arrangement whereby it is said that the applicant held the relevant pre-registration for the benefit of the 34 members of joint venture no. 1 up to and including the closing time for expressions of interest in respect of the possible acquisition of another property and that thereafter it was held for the benefit of those who expressed an interest in proceeding to become members of a joint venture or syndicate of purchasers of the new property.
  7. Were the applicant to avoid a breach of its own fiduciary duty to the members of joint venture no. 1 it would need the informed consent of all of the non-participants in the new enterprise.
  8. It is common ground that there was never any unanimous resolution by the 34 members in joint venture no. 1 to proceed with the acquisition of any other property. By clauses 2.5 and 3.2 the joint venture members bound themselves one with the other and also with the Manager not to purchase any other property to be subject to a joint venture arrangement between them without the unanimous approval of all of the joint venture members.
  9. Not only was there no such unanimous approval, but also there was no express informed consent of those who elected not to submit an expression of interest in participating in any of the other property acquisitions that were contemplated from time to time.
  10. It would seem to me that there was no evidence from which informed consent may be implied simply by the failure of individual joint venture members to sign up for participation in the purchase of other properties. The members had agreed that unanimity was required for there to be any other collective purchases and the applicant was a party to the joint venture deed (see Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 466-7). They had rights to a level playing field such that the applicant would not be used as a vehicle for purchasing and developing other greenfields properties which may work to the benefit of those who chose to participate, but to the detriment of those who did not.
  11. Another unanimous resolution case was Japan Abrasive Materials Pty Ltd v Australian Fused Materials Pty Ltd [1998] HCA 30; (1998) 16 ACLC 1,172, which concerned a joint venture company where a shareholders’ agreement required a unanimous vote on certain matters. Absent a unanimous decision under the shareholders’ agreement, no duty arose on the part of the directors to exercise their voting powers in the interests of the company as a whole.
  12. Counsel for the applicant submitted that the informed consent of non participants would be implied but this would seem to be inconsistent with the terms of clauses 2.5 and 3.2 of the Deed in the absence of an amendment to the Deed or, arguably, express written consent.
  13. The applicant also submitted that from 12 February 2002 it was open to any individual joint venture member or collection of joint venture members or, indeed, the fourth respondent, to bid at any auction for the purchase of any land. The only relevant qualification was that if the members voted unanimously to purchase a particular property then the members would automatically lose their individual rights to bid against the collective.

A Second Joint Venture

  1. Fifty-one individual companies, one partnership of two companies, one individual and seven, I assume, partnerships of two natural persons each, whose names and addresses as ‘syndicate members’ were set out in Schedule 1 to a ‘Canberra Residential Developments (No 2) Joint Venture Deed’ executed such a deed on 23 February 2004. They were the 60 parties of the first part to the Deed, jointly and severally called the ‘Joint Venture Members’.
  2. Sixty persons or groups of persons whose names and addresses were set out as ‘Principals’ in Schedule 2 to the said Deed executed same as parties of the second part. They were jointly and severally called the ‘Principals’. In 51 instances the ‘Principal’ was an individual and in the remaining nine the relevant principal was two or in one case four separate individuals.
  3. The applicant was the party of the third part to the said joint venture deed and was called the ‘Manager’.
  4. The occasion for the execution of the Canberra Residential Developments (No 2) Joint Venture Deed on 23 February 2004 was the earlier acquisition by the applicant of Block 25 Section 1 Gungahlin and Block 2 Section 1 Harrison (collectively known as ‘Harrison Estate 1’) for $42 million by restricted auction on 13 August 2003. The joint venture deed recorded that the joint venture commenced on 13 August 2003.
  5. The Canberra Residential Developments (No 2) Joint Venture Deed was, like the Canberra Residential Developments (No 1) Joint Venture Deed, prepared for the parties to it by the firm of solicitors known as Bradley Allen.
  6. Of the 60 syndicate or joint venture members named in the Canberra Residential Developments (No 2) Joint Venture Deed, only 24 would appear to have been syndicate or joint venture members under the Canberra Residential Developments (No 1) Joint Venture Deed. Whilst the remaining ten members of the Canberra Residential Developments (No 1) Joint Venture did not, apparently, participate in the second joint venture, different companies associated with seven of the Principals in the first joint venture did become syndicate or joint venture members in the second joint venture. The remaining 29 syndicate or joint venture members in the second joint venture were all new participants with no association with the first joint venture.
  7. Kenoss Pty Limited, the third respondent, was not a syndicate or joint venture member in the second joint venture. Indeed, before the purchase of Harrison Estate 1 by the applicant on 13 August 2003, Mr Brendas, the first respondent, had already ceased to be a director of the applicant, having resigned on 11 April 2003. On that date he ceased to be both a director and also a secretary of the applicant.

The occasion for these proceedings

  1. It was not uncommon for the ACT government to offer greenfields and other lands for sale from time to time. For example, on 15 November 2001, L J Hooker Commercial conducted a land auction on behalf of the ACT government offering an 18 hectare parcel of land for sale by restricted auction and 7 other much smaller parcels of land for sale by open auction. On 26 September 2002 L J Hooker Commercial offered 6 parcels of land for sale on behalf of the ACT government, one site having a land area of 54,813 m2 and the other 5 lots having much smaller areas.
  2. As one might expect, Danny Mihailidis, Andro Glavinic, Robert Cobanov, Frank Porreca and Spiros Brendas were alert to offers by the ACT government of greenfields sites for sale including sites such as Horse Park 1 which had been acquired by the applicant at a restricted auction, the Gungahlin Development Authority having sent Mr Mihailidis a facsimile as ‘Chairman’ of the applicant on or about 5 December 2001, advising that the applicant had been accepted and was eligible to bid at the auction of Horse Park 1 on 13 December 2001.
  3. On or about 27 February 2003 Andro Glavinic completed an ‘APPLICATION FOR THE RIGHT TO BID AT THE RESTRICTED AUCTION AND INDUSTRIAL CONDUCT UNDERTAKING’ in respect of the auction of ‘Condor 4 Estate’, ‘Horse Park II Estate’, ‘Dunlop 4 West Estate’ and ‘Block 6 Section 157 Belconnen’. That application, albeit in Mr Glavinic’s own name stated that the applicant was a ‘Joint Venture’ and identified the ‘names and addresses of principals’ as Canberra Residential Developments Pty Ltd, the applicant, of which Mr Glavinic was said to be the Deputy Chairman.
  4. Notification of the forthcoming restricted auction for Horse Park 2 was given in the ‘Canberra Times’ newspaper on Saturday 20 February 2003.
  5. Some 11 or 12 applications to bid at the restricted auction were received and accepted. The approved parties included Kenoss Pty Limited, the third respondent, for whom the relevant ‘Contact Person’ was Spiros Brendas, the first respondent, Canberra Residential Developments Pty Ltd, the applicant, for whom the relevant ‘Contact Person’ was Danny Mihailidis and Canberra Land Developments Pty Ltd, the fourth respondent, for whom the relevant ‘Contact Person’ was Mal Weston.
  6. By letters dated 21 March 2003 the Gungahlin Development Authority advised each of the applicant, the third respondent and the fourth respondent that they were eligible to bid at the auction for ‘Horse Park 2 Estate’.
  7. It will be apparent that there had been something of a parting of the ways between Messrs Mihailidis, Glavinic, Cobanov and Frank Porreca on the one hand and Mr Brendas on the other before 27 March 2003. As indicated earlier Mr Brendas ceased to be a director and secretary of the applicant on 11 April 2003.
  8. As it transpires 12 persons became registered bidders for Horse Park 2 on 27 March 2003. Danny Mihailidis was the registered bidder in respect of the applicant, Mal Weston was the registered bidder in respect of the third respondent and Ian Hansen was the registered bidder in respect of the fourth respondent.
  9. On 26 March 2003 Mr Weston had ceased to be a director and secretary of the fourth respondent. On that day Mr Brendas became a director and secretary of the fourth respondent and Graham Leonard Brand also became a director of the fourth respondent.
  10. The bidding for Horse Park 2 commenced at $7 million and concluded with a successful bid of $25,300,000 on behalf of the fourth respondent. There were some 73 intermediate bids before the fall of the hammer.
  11. On the day prior to the auction of Horse Park 2 and the other greenfields sites which were being auctioned along with it, a meeting took place attended by Danny Mihailidis, Andro Glavinic, Frank Porreca and Robert Cobanov. It is clear that consideration was given to setting bid limits for the new group of 51 intending joint venture members in respect of the Dunlop, Condor and Horse Park 2 sites.
  12. Frank Porreca’s file note of the meeting on 26 March 2003 was headed:
‘CRD.
J.V.2
Present: Dany (sic), Andro, Frank.
Robert.’

His file note concluded:

‘Dunlop 3.9 mil. - $4.0 mil
Condor - $8.569 - $9.0 mil
Gungahlin [Horse Park 2]: 17.5 – 19.0’

  1. Mr Glavinic’s file note of the same meeting had the heading:
‘MITING (sic) C.R.D FOR OCTION (sic) & PRI PAID (sic) DEPOZET (sic) OF $50,000 PAID FOR DEPOZIT (sic)
NA MITING (sic) BILI ANDRO DENI (sic) ROBERT FRANK’

Mr Glavinic’s file note concluded:

‘1 DUNLOP DEVELOPMENT $4,335,355: $3.9 MILON (sic) TO BID
...
2 CONDOR TO BID $8.5 MILON (sic) ROULEN
                TO $9 MILION (sic) MAXIMOM (sic)
  1. GANGALEN (sic) [Horse Park 2] TO BID ON OCTION (sic) FROM 17.5 TO 18.5 MILION (sic) MAXIMOM (sic)’
  2. It was common for Mr Glavinic to record his file notes partly in English and partly in his native language Croatian. Apparently the word ‘ROULEN’ in Croatian translates into English as ‘round’.
  3. Of the 74 unsuccessful bids which preceded the fourth respondents’ successful bid for Horse Park 2, some 50 bids were cast which were greater than the maximum of $19 million contemplated by Messrs Mihailidis, Glavinic, Frank Porreca and Robert Cobanov at their meeting on 26 March 2003. The level at which Mr Mihailidis stopped bidding is not entirely clear. It would appear to have been in the vicinity of $20-21 million. At that stage there were some three bidders still vying for the property. One of those dropped out, leaving the final bidding to the fourth respondent and a third party.
  4. When cross-examined about the meeting on the eve of the Horse Park 2 auction, Mr Glavinic acknowledged that Mr Brendas had not been invited to attend the meeting. Mr Glavinic then gave the following evidence in response to a question asked by me:
‘Q And may I take it that he wasn’t invited because this meeting took place after the decision had been made not to include him in any joint venture because he had started the proceedings, and you had to think about the rest of the consortium. Is that right?

A That is correct.’

The relationship between the third respondent and the other syndicate/joint venture members under the first joint venture deed

  1. At all material times the shares in the third respondent would appear to have been owned as to one by the first respondent and as to the other by the second respondent, the directors of the third respondent being the first and second respondents.
  2. The third respondent itself owned shares in Kenoss Contractors Pty Limited which had been registered on 6 September 1995. 149,997 shares in that company were apparently held by the third respondent, the remaining three shares being held as to two by the second respondent and as to one by Joanne Brenda[s].
  3. The third respondent also owned 49 shares in Petra Civil Pty Limited, a company registered on 5 November 1999. The remaining 51 shares were held by Dimitri Brendas. At all material times the sole director of Petra Civil Pty Limited was the first respondent who was also the company secretary.
  4. In addition the third respondent owned half the issued shares in the fourth respondent which had been registered on 26 February 2003. The remaining shares were registered in the name of Graham Leonard Brand.
  5. When the emerging group, which ultimately grew to become the 34 syndicate or joint venture members in the first joint venture, was contemplating the acquisition of large greenfields sites back in 2001 it took advice from Young Consulting Engineers Pty Limited and also Northrop Consulting Engineers in relation to likely development costs. One property in respect of which advice was taken was ‘Dunlop 3 Estate’.

At a meeting of 21 members of the then group on 21 November 2001 it was reported that the Dunlop land had sold for $5.675 million, the applicant having ceased bidding for the then group at $5.65 million.

  1. In respect of the ‘next auction’ being Horse Park 1, the minutes of the meeting of the group on 21 November 2001 record:
‘All members asked if they wanted to commit, members unanimously agreed.’

  1. Options were then discussed on how to finance a parcel of land that was twice as large as the Dunlop land. The minutes record the options as:
‘- New members approached
- Spiros offered to take larger percentage i.e. 20%
- Existing members increase equity
- Joint venture but C.R.D. to control’

  1. In respect of the first joint venture, the portfolio share of the third respondent was similar to that of a number of other syndicate or joint venture members namely 15/470. It would appear that the third respondent did not end up taking a larger percentage, such as 20 per cent.
  2. Clause 6 of the Canberra Residential Developments (No 1) Joint Venture Deed was headed ‘Subdivision & Allocation of Residential Blocks’. Under that heading clause 6.1 provided as follows:
‘6.1 In accordance with the requirements of the Deed, the manager shall engage a Chartered Engineer and other consultants and shall appoint a Valuer. As expeditiously as possible the Engineer, in conjunction with the Valuer shall cause to be prepared a draft Subdivision Implementation Plan of the Land and a Subdivision Design.’

  1. In relation to the execution of the necessary civil engineering works for the development of Horse Park 1, it would appear that the applicant as manager under the first joint venture deed authorised Young Consulting Engineers Pty Limited to accept a tender dated 21 May 2002 submitted by Petra Civil Pty Limited for the execution of those works.
  2. By its letter dated 25 June 2002 Young Consulting Engineers Pty Limited wrote to Petra Civil Pty Limited attention ‘Mr Spiros Brendas’ in the following terms:
‘HORSE PARK ESTATE
ENGINEERING SERVICES
LETTER OF ACCEPTANCE

Dear Sir,
On behalf of Canberra Residential Developments we advise that your tender dated 21 May 2002 for an amount of $10,764,679 (including GST) for the above project has been accepted.
...
The formal Contract Documents for the project are now being prepared and will be forwarded to you shortly.’

  1. It is clear that in the light of clause 9.1 of the Constitution of the applicant and clause 30.2 of the Canberra Residential Developments (No 1) Joint Venture Deed it was open to the applicant to contract with Mr Brendas’ company Petra Civil Pty Limited in respect of the civil engineering works required for the development of Horse Park 1.
  2. The civil engineering works for Horse Park 1 fell behind, leading to differences of opinion as to what, if any, extensions of time should be allowed.
  3. On 9 December 2002 Mr Mihailidis as Chairman of the applicant wrote a letter to Petra Civil Pty Limited in relation to the ‘Horse Park Estate’ in which he said:
‘For several weeks now CRD Directors have suspected that Petra Civil may fail to meet it’s contractual program date to complete Stage 1 of the above estate due to lack of Project Co-ordination. Spiro Brendas has reported at several CRD Directors’ meetings that he was experiencing problems and delays with Staff, Subcontracts and Suppliers, not having contracts, nor working to a scheduled and detailed programme.
...

We are gravely concerned that CRD will suffer further delays and additional costs due to Petra Civil lack of project coordination and not submitting correct documentation on time.

CRD require Petra Civil to submit for consideration a revised Program for Stages 1 and 2 with accurate and specific details and dates for practical completion. ...’

  1. A letter of 16 December 2002 from the solicitors for Petra Civil Pty Limited, who were also the solicitors for the first, second and third respondents, to the solicitors for the applicant suggest that the contract for the execution of the civil engineering works was not executed by Petra Civil Pty Limited until 18 September 2002. There was an allegation that in doing so Petra Civil Pty Limited relied upon certain representations that were said to have been made earlier in September 2002 and which were referred to in the letter of 16 December 2002. The letter included:
‘After our client signed the contract of 18 September 2002, it received a letter from Youngs of the same date granting an extension of time of 3 weeks to Stage 1 only of the contract. There are three things to note about this letter of Youngs. First, Youngs refused to extend the date for Stages 2 and 3, contrary to what had been promised by John Bradley. Secondly, it purported to include as a reason for the 3 week extension of time granted for Stage 1 “minor delays due to wet weather”. You should note that John Bradley made no mention of wet weather, the sole reason for the extension of time being the delay in the dates for the drawings named.
...
Petra sought extensions of time for wet weather, but all the requests have been refused by Youngs. Numerous excuses have been propounded. ...’

  1. It is unnecessary to go into the rights and wrongs of the differences between the applicant and Petra Civil Pty Limited. The important point is that they sowed the seeds for an estrangement between Messrs Mihailidis, Glavinic, Frank Porreca and Robert Cobanov on the one hand and Spiros Brendas on the other.
  2. The relationship between the applicant and Petra Civil Pty Limited turned sour on or about 23 December 2002 when Frank Porreca writing for Danny Mihailidis as chairman of the applicant wrote to Petra Civil Pty Limited as follows:
‘As you are well aware Petra Civil is in default of its Contract to Canberra Residential Developments (CRD) as from 22 November 2002 for Stage 1. Also it appears that it will be likely that Petra Civil will be in default with Stages 2 and 3.

On 9 December 2002 CRD requested Petra Civil to submit a comprehensive program in detail to allow CRD to consider granting an extension of time for completion. As to date we have not received a reply that adequately explains Petra Civil’s revised program. The uncooperative behaviour from Petra Civil has given CRD cause to doubt as to whether Petra Civil has the capability to complete this project.
...’

  1. On 12 February 2003 Petra Civil Pty Limited wrote to Young Consulting Engineers Pty Limited forwarding amended construction programs for Stages 2 and 3 following what were said to be verbal instructions from Mr Mihailidis to Mr Allan Hasani, an employee of Petra Civil Pty Limited, ‘via telephone’.
  2. Thereupon Mr Mihailidis wrote a letter on behalf of the applicant to Young Consulting Engineers on 13 February 2003 in which he said
‘Please find attached an open letter handed to me by Spiro Brendas last night 12 February 2003.
...
The contents in the attached letter do not reflect our Minute records or the discussions we had with Spiro Brendas and Allan Hasani on the evening of 4th February 2003.

At 8:50pm on 12 February 2003 I telephoned Allan Hasani and read out to him the contents of the attached letter ...

Allan Hasani said that he did not instruct anyone to write the letter in that form ...

At 7:15am on 13 February 2003 I rang and spoke to Spiro Brendas and read out the contents of the letter. Spiro also said he did not instruct anyone to write a letter in that form.

CRD wish to inform you that neither Danny Mihailidis nor any of the other CRD Committee Members have given instructions to Petra Civil or any of their staff to amend any part of any program.
...’

  1. I have referred to these communications between the parties so as to highlight the friction between the interests of the joint venture members in the first joint venture, other than the first respondent, and Mr Brendas’ civil engineering contracting business, Petra Civil Pty Limited.
  2. The next development occurred on or about 11 February 2003. A typed agenda for a ‘DIRECTORS MEETING’ to be held at the Croatia Deakin Soccer Club on 11 February 2003 was brought into existence. The anticipated attendees were identified as:
‘Danny Mihailidis – Andro Glavinic – Robert Cobanov
Frank Porreca’

No mention was made of Mr Brendas as a potential attendee.

  1. A transcription, with partial translation from the Croatian language, of Mr Glavinic’s file note in respect of the meeting between Danny Mihailidis, Robert Cobanov, Frank Porreca and himself on 11 February 2003 included:
‘... we had a meeting ... without Spiro, because Spiro was not invited, because in our view there is a conflict of interest since he started proceeding with litigation.’

The reference to ‘litigation’ would appear to be more accurately expressed as a reference to an arbitration instituted by Petra Civil Pty Limited.

  1. The agenda for the ‘Directors Meeting’ of 11 February 2003 to which Mr Brendas was not invited included an item reading:
‘Discussion about Spiro’s position.’

  1. Against that item Mr Glavinic wrote on his copy of the agenda ‘not etend (sic) eni (sic) mor (sic) miting (sic)’.
  2. Frank Porreca’s note of what he described as a ‘Committee Meeting’ attended by Messrs Mihailidis, Glavinic, Robert Cobanov and himself on 11 February 2003 included:
‘• Spiro rang about meeting
  1. Mr Cobanov’s account of the 11 February 2003 meeting included against the heading ‘SPIRO’:
‘→ asked why not at meeting → issues in regards to contract and disputes → conflict of interest’

  1. Notwithstanding Mr Glavinic’s note on his copy of the agenda for the ‘Directors Meeting’ on 11 February 2003, Mr Brendas would appear to have had notice of and to have attended a ‘Directors Meeting’ called for 18 February 2003 at the Croatia Deakin Soccer Club.

Whilst Mr Frank Porreca’s note of the ‘Committee Meeting’ only shows Mr Mihailidis, Mr Glavinic, Mr Cobanov and himself as being present, Mr Glavinic’s copy of the agenda has a tick against each of those who were recorded as intended ‘attendees’, including Mr Brendas. In relation to the agenda item ‘Spiro’s position as Director’ Mr Frank Porreca’s notes record:

‘- Dispute proceedings have commenced.
- Spiro agrees that there is a fixed contract and so he can’t claim against CRD
- Spiro doesn’t want to claim against CRD and wants to claim against YCE [Young Consulting Engineers Pty Limited]
- Spiro believes that YCE & in-particular Jim Boxall is to blame
- Spiro explained that Kennoss (sic) Contractors are running the business not Petra
- Spiro to talk to his solicitor
- Spiro given additional $1.0 mil. credit from his bank.’

  1. A translation of Mr Glavinic’s notes of the 18 February 2003 meeting confirmed that Mr Brendas claimed that Petra Civil Pty Limited had a dispute with Young Consulting Engineers Pty Limited. The note continued:
‘• We had a big discussion with Spiro. Our position is that we are concerned with Spiro being on the Board, because he has started the proceedings. He said he will talk to his solicitor and will give us his answer after that talk, and will make a decision. We said to him why he goes to CRD and not to Yangs [Youngs], he also said it’s Yang’s [Young’s] fault that he has no contract with Yangs [Youngs] so he goes to CRD. We achieved nothing with Spiro.’

  1. A further ‘Directors Meeting’ was called by Mr Mihailidis for 25 February 2003 at the Croatia Deakin Soccer Club. Whilst Mr Brendas was not recorded as an intended ‘attendee’, it would appear that the meeting was attended by Messrs Mihailidis, Glavinic, Frank Porreca, Robert Cobanov and Brendas. Mr Frank Porreca’s note of the ‘Committee Meeting’ included, relevantly:
‘• Because of conflict there will be only 1 issued (sic) discussed and Spiro will leave after – he agreed’

  1. It would appear that Mr Brendas made it known to the others that he would call a general meeting of members of the first joint venture for all to attend. Mr Frank Porreca’s notes record:
‘• Spiro acknowledges that he has delayed CRD
• Spiro to fix issues with practical completion
• Spiro explained that he won’t cease work on the job
  1. It is appropriate to note that, notwithstanding his apparent success in business, Mr Brendas is illiterate. When confronted with documents in the witness box he was unable to read them in a comprehensible way. In the circumstances the lack of any notes by him as to what transpired at these meetings is readily explicable.
  2. It is clear that a group comprising Messrs. Mihailidis, Glavinic, Frank Porreca and Robert Cobanov called on National Australia Bank Limited on 3 March 2003 to address the question of financing the purchase of greenfields land that was then coming up for sale including Horse Park 2. The apparent exclusion of Mr Brendas from the meeting with the Bank on 3 March 2003 appears to have been deliberate. Mr Frank Porreca’s evidence was that his personal position as at 3 March 2003 was that he did not want Mr Brendas as a director of the applicant involved in the up and coming auction on 27 March 2003.
  3. On 6 March 2003 Mr Mihailidis circulated an ‘expression of interest’ form by email to Messrs Glavinic, Frank Porreca and Robert Cobanov. Mr Brendas was not copied with that form. The text of Mr Mihailidis’ message was:
‘Directors

Please read through the attachment and let me know of your views and if it is OK we can commence faxing it out.

If you know of anyone that wants to participate just fax them this copy.

Regards
Danny’

  1. The ‘expression of interest’ form was on a letterhead created for the applicant which at the foot thereof included Mr Mihailidis’ name, telephone number, mobile telephone number and facsimile number.
  2. The form contemplated an expression of interest in participating in a joint venture to bid for ‘Dunlop 4 Estate’ and/or ‘Condor 4 Estate’ and/or ‘Horse Park II Estate Gungahlin’. The form contemplated inclusion of contact details and the identification of an interested party underneath the text reading:
‘We wish to inform you that CRD is preparing for Joint Venture No 2 to bid at the next Residential Land Auction on 27 March 03.

If you wish to express your interest please complete the form and FAX it to the Fax Number listed below before 14 March 03. If you wish to discuss any issues please don’t hesitate to call Danny Mihailidis on Mobile: 0407 223 177.’

  1. The differences of opinion in relation to the rights and wrongs of the respective parties to the contract between the applicant and Petra Civil Pty Limited in respect of civil engineering works for Horse Park 1 were made clear by a letter sent by Petra Civil Pty Limited’s solicitors to the solicitors for the applicant on 6 March 2003, which were expressed in quite strong terms.
  2. It would appear that a ‘Without Prejudice Meeting’ was called to take place at the office of Petra Civil’s solicitors on 11 March 2003. The participants at the meeting were the applicant, Petra Civil Pty Limited, Kenoss Contractors Pty Limited and Young Civil Engineers Pty Limited. The meeting would appear to have been attended by Mr Ian Gilespie-Jones, Allan Hassani and Mr Brendas representing Petra Civil Pty Limited, Mrs Brendas representing Kenoss Contractors Pty Limited, Ray Young, Mitchell Alexander and David Smith representing Young Consulting Engineers Pty Limited, Messrs Mihailidis, Glavinic, Robert Cobanov and Frank Porreca representing the applicant and Mark Flint of Bradley Allen, the applicant’s solicitors.
  3. On 12 March 2003 a meeting took place attended by Messrs Mihailidis, Frank Porreca, Robert Cobanov, Spiros Brendas and Andro Glavinic. In cross-examination, Mr Cobanov gave the following evidence about that meeting:
‘Q Now, this was quite a heated meeting, was it not, Mr Cobanov?

A Yes, it was. Yes, it was.’

  1. During the course of the meeting, Mr Brendas was asked to leave wasn’t he?
  2. Yes. Towards the end of the meeting, yes.
  3. In particular, Mr Mihailidis was very angry with Mr Brendas, wasn’t he?
  4. Yes.’

A little later Mr Cobanov amplified what he meant by his references to the meeting being heated by responding to certain questions that I asked of him as follows:

‘Q Was it heated at the time when Mr Brendas was present?

A Yes.

Q Or did it become heated after he had gone?

  1. Started heating up while Spiro was there ... and it continued to be heated.
  2. Was the conversation that took place after he left heated or not?
  3. To an extent, people had started to calm down but, yes, it was heated. Yes. Danny, from what I can recall, Danny was just that fired up.
  4. ... so that it went up and went down?
  5. Yes.
  6. When he was present it became heated, after he had gone it was heated but it calmed down?
  7. Yes.’
  1. Mr Mihailidis was not called to give evidence in the proceedings. Whilst there were differences of opinion between the other witnesses as to whether the meeting was heated or not, I find that it was heated in the manner in which Mr Cobanov described it.
  2. As to whether there was any place for Mr Brendas on the board of the applicant or in any future joint venture involving the development of greenfields sites, the evidence of Mr Cobanov is important. In cross-examination he gave the following evidence:
‘Q He [Mr Mihailidis] said, didn’t he:
“We just can’t have somebody like that on the board with us again”?

A He did say words to that effect, yes
...
Q Then it was said:
“We are just going to have to exclude him on the next joint venture”
Do you recall that?

  1. Vaguely. Again, I just remember it was very heated and it was all banning of Spiro.
...

  1. You’re being asked did Mr Glavinic use the words namely:
“He has got to go”?

  1. Words to that effect, yes.
  2. Then Mr Porreca said:
“Yes, I agree”?

  1. Yes, that’s typical. Yes, words to that effect.
  2. Then you said words to the effect:
“If everybody agrees, we will have to exclude him”

  1. Yes.
  2. Was there a formal vote taken?
  3. No, I just think it was unanimously, you know ...
...’

  1. As to whether or not the words ‘we can’t have someone like that on the board with us again’ were spoken by Mr Mihailidis in Mr Brendas’ presence or after he had left the meeting, Mr Cobanov said:
‘A ... I believe it was probably after Spiro left as – when I think back about it, yes, because Danny never had the guts to say things right to Spiro’s face so, Yes. Quite right.’

  1. Mr Frank Porreca’s notes of the ‘Committee Meeting’ held on 12 March 2003 which was attended by Messrs Mihailidis, Robert Cobanov, Spiros Brendas, Andro Glavinic and himself included in respect of future meetings a proposal by Mr Glavinic which Mr Porreca noted in the following terms:
‘Spiro is here in his capacity as a director of CRD. Any further discussions to do with Petra are to be agendaed by Spiro through Danny – Acknowledge & approved by all. Also added by Dany (sic) that any items to be discussed by CRD about Petra then Spiro will be excused from the meeting → Agreed and supported by all. Dany (sic), Andro, Spiro , Robert & Frank.’

  1. Mr Cobanov’s notes of the same meeting concluded with the following in respect of the then proposed Canberra Residential Developments Joint Venture No 2:
‘KENOSS excluded’

  1. Mr Cobanov’s evidence was that the involvement of the third respondent in a future joint venture was the subject of discussion at the 12 March 2003 meeting after Mr Brendas had left. His evidence in respect of the note was as follows:
‘Q That simply recorded the decision that had been made at the meeting that Kenoss would be excluded from any consideration to be involved in or becoming a member of any new proposed joint venture?’

  1. Yes. I believe so. Yes.
  1. Mr Glavinic agreed that a decision had been made to exclude Mr Brendas from the next joint venture.
  2. Further meetings took place on 18 March and 19 March which involved Danny Mihailidis, Robert Cobanov, Frank Porreca and Andro Glavinic. The first three of these gentlemen appear to have had a meeting with representatives of National Australia Bank Limited on 18 March 2003. All four appear to have had a meeting on the same day with ‘potential new members’ and on the following day another meeting appears to have taken place with a ‘group from’ the first joint venture. It is quite apparent that Mr Brendas was not a participant in any of these meetings. The inference seems obvious to me that he was deliberately excluded on the basis that Messrs Mihailidis, Glavinic, Frank Porreca and Robert Cobanov did not want him to be involved in a Horse Park 2 joint venture, with the applicant serving as the manager.
  3. As it happened, Messrs Mihailidis, Robert Cobanov, Frank Porreca and Andro Glavinic sought to secure, on this occasion, 50 members for a new joint venture on the basis that each would put in $50,000 to fund the deposit for whatever purchase might be made, if any, on 27 March 2003.
  4. It is clear from Mr Cobanov’s note of the meeting on 19 March 2003 that the priority list so far as those members of the former syndicate/joint venture, who wished to become involved in a new joint venture together with others, were concerned was

(i) Horse Park 2
(ii) Condor
(ii) Dunlop

Consideration of purchasing Horse Park 2

  1. An agenda for a ‘Directors Meeting’ called for 28 January 2003 at the Croatia Deakin Soccer Club showed the anticipated attendees, who were the actual attendees, as Messrs Mihailidis, Glavinic, Robert Cobanov, Frank Porreca and Brendas. The last item on the agenda was ‘Land Release Report’.
  2. Mr Glavinic’s notes on his copy of the agenda are not easy to follow. It may be that apart from the misspelling of a number of English words, he has used words in the Croatian language. His note reads:
‘Deni (sic) [referring to Mr Mihailidis] [unreadable] oction (sic) end of March olso (sic) land octon (sic) [unreadable] push fowurd (sic)’

  1. Mr Glavinic’s file note of the 28 January 2003 meeting included, after translation and transcription:
‘6 We talked about Gangalen [Gunghalin (sic)] auction, it will be at the end of March. We have to get prepared for auction, together with our members.’

  1. Mr Cobanov’s note of the same meeting included:
‘LAND RELEASE End of March ... Land Auction brought forward from → May’

  1. Mr Frank Porreca’s note of the ‘Committee Meeting’ concluded with:
‘• Auction – end of March – Combined May & March.’

  1. Mr Glavinic’s note of a ‘Committee Meeting’ on 11 February 2003, attended by Messrs Mihailidis, Frank Porreca, Robert Cobanov and himself but ‘without Spiro, because Spiro was not invited’ when translated and transcribed included:
‘Deni [Danny] suggested to apply for bidding at the auction for Andro ... perhaps Frank’s father’

  1. The applicant concedes that Mr Brendas ‘was not permitted to participate’ in a new joint venture with other interested syndicate or joint venture members from joint venture no. 1.
  2. As previously indicated such an application for the right to bid in respect of Condor 4 Estate, Horse Park II Estate, Dunlop 4 West Estate and Block 6 Section 157 Belconnen was signed by Mr Glavinic on 27 February 2003.
  3. On 4 March 2003 an internal memo was sent from the manager of ‘Property Development & Investment Group 2’ to ‘Property Finance Manager & SCB, PD & IG’ within National Australia Bank Limited in relation to the possible involvement of Canberra Residential Developments Pty Limited and others in the purchase of Condor 4, Dunlop 4 or Horse Park 2. The memorandum included:
‘Re: Canberra Residential Developments Pty Ltd (CRD) & Others (To form a new entity)

NOTE AS A NEW ENTITY IS BEING FORMED AND LEND WILL BE 70% OF MARKET VALUE THIS APPLICATION IS NOT AGGREGATED WITH EXISTING CRD EXPOSURE.
AUCTION 27/3/03
Comments PFI & Then Peter Mitchell SCB URGENT ACTION 27/3/03

Further to our support material of 4/3 we provide the following information to support the issuance of a indicative letter of offer ...

Please note Stage 1 horsepark estate was settled 1/3/03 ( $ 9 Million) Stage 2 anticipated 4/03 Stage 3 &3b 6/03

The strength of the group is that 100 % presales occurs as the individual members must purchase and pay for their blocks prior to receipt of the title. This is done to reduce stamp duty costs and all members are aware of this requirement to pay prior to titles issuing. With stage 1 we made the call and all funds were received within 5 days of call. Our call for the funds is made once each stage achieves practical completion.

This is a very strong group
...

Purpose – The Majority of the members of CRD plus a number of other quality builders who wish to join the group now wish to purchase further land to develop as they will be finished the current project in a few months time. They perceive that shareholders will number between 30 & 40 and require indicative approval to go to Auction to bid for 2 of the 3 englobo Land auctions that will occur this month. It is important to note that there is only a couple of land releases each year.

A/ Condor 4   126 Blocks ...
B/ Dunlop 4  130 Blocks ...
C/ Gungahlin 317 dwellings ... (stage 2 Horsepark estate)
...

RECOMMENDATION-

The strength of this group is their number & financial position & if there was a issue the risk is spread between 30-45 guarantors.
...
The groups main aim is to produce stock to their members at a base price.
...’

  1. The first explicit mention of Horse Park 2 in a record of Mr Cobanov, Mr Frank Porreca or Mr Glavinic was in a minute of a ‘Residential Advisory Group’ apparently held on 12 February 2003 which was attended by Messrs Mihailidis and Frank Porreca. In that note Mr Porreca recorded:
‘Gungahlin – HP2’

  1. Whilst the agenda for a ‘Directors Meeting’ on 28 January 2003 included as an item ‘Land Release Report’, Mr Brendas had already taken an initiative to have Kenoss Pty Limited, the third respondent take an interest in Horse Park 2 itself. On 22 January 2003 one of the third respondent’s staff members, Mr Mal Weston, wrote to Raine & Horne at Gungahlin as follows:
‘RE: HORSEPARK ESTATE 2

Further to our recent discussion between Spiros Brendas, you and myself, I have outlined our intentions and proposal to acquire the upcoming broadacre development in Gungahlin, Horsepark Estate 2.

Kenoss intends to apply to the ACT Government to purchase the new released land, which will comprise of approximately 350 – 370 blocks of residential property. The ACT Government expects to put the land to auction around the end of March 2003.

Kenoss is wishing to attract a Joint Venture Partner to the development to the extent of around 30% equity participation, which would equate to approximately $8 - $10 million investment. Kenoss would set up a joint venture vehicle in conjunction with its equity partner or a share base consistent with its equity investment.
...
1. BACKGROUND
Kenoss Pty Ltd is already a partner of the Canberra Residential Development Group, which is developing the $29 Million dollar residential subdivision, Horsepark Estate Block 4 Section 11 in Gungahlin comprising of 470 residential blocks or (sic) land. This development is immediately adjacent to the proposed purchase.

Kenoss Pty Ltd is contracted to provide all services to the Horsepark Estate development including
...
The development is already well advanced with completion anticipated 30 June 2003.
...
2. FUNDING
Funding is required to purchase at auction, approximately 350 – 370 residential blocks at Horsepark Estate Stage 2.

The Gungahlin Development Authority is currently completing plans for the new subdivision and the exact number of blocks will be known around the end of January 2003.
...

...
We would welcome early discussion with a Joint Venture Partner immediately and contact can be made in the first instance with Mal Weston (0439 487 796) or Spiros Brendas (0417 884 828).

Yours faithfully

Mal Weston’

  1. On 4 February 2003 Colliers International provided a report to Australia and New Zealand Banking Group Limited which included a chapter on ‘Market Commentary’. That chapter included a table headed ‘RESIDENTIAL, COMMERCIAL & COMMUNITY LAND RELEASES 2002 – 2003’ after the sentence reading ‘The following is a draft land release program for the ACT market for the coming next 2 years’. Under the heading:
‘2002-03 Residential Leases
New Development Areas
2002-03’

five separate greenfields sites were identified which it was anticipated would yield 120, 370, 260, 130 – 160 and 470 dwellings. One of those sites was Gungahlin – Horse Park Stage II.

  1. On or about 4 March 2003 Mr Gerard Abbey of Raine & Horne Real Estate wrote a letter to Mr R Drummond at National Commercial Finance Pty Limited which was copied to Mr Mal Weston of Kenoss and Bernie Bryant of BDB Property Consulting regarding ‘Horse Park 2 Estate’. The letter included:
‘This note follows up our meeting last week with Spiros Brendas and Mal Weston of Kenoss, together with Bernie Bryant and yourself.

At the outset, I should say that I am extremely pleased that Bernie and yourself have been able to facilitate the introduction of a joint venture partner to Kenoss at our invitation. ...
...

Marketing Strategy

Canberra’s home building market is particularly skewed towards speculative building and is dominated by little more than a handful of builders. ...

These builders should be targeted. I believe a commitment to 100 plus blocks will be obtained from 3 – 4 builders within 48 hours of the auction. I would be happy to secure these sales at $145,000, allowing the major builders the initial choice of blocks across the whole of the development.

A subsequent focus on the existing consortium builders should see firm sales exceeding 200 blocks by late April – early May 2003.

Better prices will be obtained for multi unit, dual occupancy and the designated surveillance blocks, which allow multi titling. These should be held back to obtain the premium.
...
I look forward to your acceptance of the proposal and Raine & Horne’s appointment as the exclusive marketing agent.’

  1. On or about 11 March 2003 a discussion paper was brought into existence in respect of a possible borrowing by Morgan and Banks Investments Pty Ltd and Kenoss Pty Ltd from Internationale Nederlanden Groep. The document included:
‘Purpose Assist finance acquisition of 99 year lease over vacant land at Gungahlin ACT released by the Government owned Gungahlin Development Authority. Site is to be auctioned on March 27, 2003. ...
...
General Morgan and Banks are high net worth individuals with increasing interest in property industry. Advice is provided by finance directors (Gordan (sic) Brand), consultant (Richard Drummond) and legal (Gerrard Toltz). Drummond is the driver behind property activities. ...

The Brendas’ are not known to ING as either counterparts or contractors. ... the contracting firm of Kenoss is well regarded ... . No negative comments could be provided regarding capabilities.
...
No commitment is sought however indicative expression of interest is requested prior to going to auction.
...’

  1. On 13 March 2003 ING Bank (Australia) Limited wrote to Mr Richard Drummond at Morgan and Banks Investments Pty Ltd indicating that ING was keen to support Morgan and Banks Investments Pty Ltd in the potential acquisition of Horse Park 2.
  2. On 14 March 2003 Mr Gerard Abbey of Raine & Horne Gungahlin wrote to Kenross (sic) Pty Ltd confirming the ‘presale of blocks in the Horse Park Estate 2 to the extent of the following:
‘ Buyer 1 ..... 70 blocks
Buyer 2 ..... 50 blocks
Buyer 3 ..... 20 blocks
Buyer 4 .... 20 blocks

We also wish to confirm multiple buyers for smaller amounts of blocks which whom we are currently in negotiations with (sic).’

  1. On or about 27 February 2003 the fourth respondent lodged an application for the Right to Bid at the Restricted Auction and Industrial Conduct Undertaking with the Gungahlin Development Authority.
  2. On about 20 March 2003 Gerrard Toltz sent an email to Ian Gilespie-Jones, the solicitor for the third respondent enclosing a proposed Joint Venture Agreement between Morgan & Banks Developments Pty Limited for whom Mr Toltz acted and the third respondent.
  3. Following the making by the fourth respondent of the successful bid for Horse Park 2 and the fall of the hammer, a deposit of $2,530,000 was paid to the Gungahlin Development Authority on 27 March 2003. Half of the deposit of $1,265,000 was paid by ‘Morgan & Banks’ and the other half of $1,265,000 was paid by Kenoss Pty Limited.
  4. On 27 March 2003 a joint venture agreement was entered into between Morgan & Banks Developments Pty Limited, the third respondent and the fourth respondent. A ‘Shareholders Agreement’ was also entered into between the same parties on the same day.

Annual General Meeting of syndicate/joint venture members of the first joint venture

  1. By an undated document on the letterhead of the applicant, the ‘CRD Committee’ gave notice of an Annual General Meeting to be held at 7.30pm on 19 November 2002 at the Croatia Deakin Club.
  2. Clause 29.2(a) of the Joint Venture Deed had required an annual general meeting of the joint venture to be held on or prior to 31 October in each year. The notice given by the CRD Committee was as follows:
‘Dear Members,

In accordance with our Deed of Agreement we must conduct a Annual General Meeting and so this time has arrived. It is important that you attend. The evening will be very informative and there may be many questions that need answering.

Some of the issues to be covered will be as follows:

● Project report
● Design of Terrace Units
● Design and submission of other houses
● CRD administration
● Future ventures

A proxy form is attached to this letter for those who can’t attend. It would be expected that all would attend so that we can share a Christmas toast.

Yours Sincerely,
CRD Committee’

  1. The minutes of the Annual General Meeting to which reference has been made above, suggested that ‘all members were in attendance’. The attendance sheet seems to suggest that approximately 30 individuals were there.
  2. One of the items of business transacted at the annual general meeting was recorded as follows:
‘5. ELECTION OF COMMITTEE/Board of Directors There was unanimous decision by all to retain the existing composition of the Board of Directors until the following AGM. MOTION CARRIED.’

The witnesses

  1. Five witnesses were called by the applicant. These were Richard Drummond of National Commercial Finance Pty Limited who undertook spotting activities in respect of real estate investments for Morgan & Banks. Mr Drummond was not entitled to payment of a fee in relation to his introduction of Horse Park 2 to Morgan & Banks. Rather, he was entitled to a profit share and was paid an ongoing fee for assisting with the development. He wasn’t paid an upfront fee and he only received a share of profit if a certain return was achieved. Mr Drummond’s fees were to Morgan & Banks Developments Pty Limited’s account and Mr Weston’s fees were to Kenoss Pty Limited’s account.

Mr Graham Brand who was the sole director of Morgan & Banks Developments Pty Limited, a wholly owned subsidiary of Morgan & Banks Investments Pty Limited, and a director of the fourth respondent, gave evidence for the applicant.

The other witnesses for the applicant were Messrs Robert Cobanov, Frank Porreca and Andro Glavinic. On a number of issues I found Mr Cobanov’s memory to be quite uncertain. Amongst other things, his evidence displayed a misunderstanding on his part of the role of directors in relation to a company and demonstrated an inability to distinguish a joint venture from a company.

Mr Frank Porreca professed to having an inability to remember much of what had transpired in 2001-2003. I found his evidence to be unreliable.

I found Mr Glavinic to be straightforward and reasonably astute.

Given the passage of time between the events of 2001-2003 and the giving by Messrs Robert Cobanov, Frank Porreca and Andro Glavinic of their oral evidence in November 2007, I must say that I have found their contemporaneous manuscript file notes of greater assistance than their oral evidence in discerning the facts.

  1. The only witness called for the first, second and third respondents was Mr Spiros Brendas. He had been born in Greece and came to live in Australia in 1964. As previously mentioned he is illiterate. He is unable to read or write in the English language, especially when confronted with the handwritten notes of others. When he was asked to turn to specific pages within Exhibit A Volume 1, a large bundle of documents in chronological order commencing at page 0.01 and running through to page 263, he had an obvious difficulty in finding the relevant pages. Notwithstanding these difficulties he presented as an astute businessman.
  2. The fourth respondent did not call any witnesses.

Consideration

  1. The applicant did not carry on any business for profit on its own account.
  2. It was brought into existence, firstly to serve as a bare trustee of land acquired by it on behalf of syndicate members who had made contributions to the cost thereof, and, secondly, to manage and implement the development of that land and its distribution, in divisible lots, amongst the relevant syndicate members.
  3. By becoming a party to the Canberra Residential Developments (No 1) Joint Venture Deed dated 12 February 2002, the applicant became the trustee of Horse Park 1 for the 34 syndicate or joint venture members who had contributed to the cost thereof and the manager of the development in accordance with the terms thereof.
  4. The rights and liabilities of the applicant and of the 34 syndicate or joint venture members were regulated by the Joint Venture Deed. In the circumstances, the fiduciary relationship between the applicant and the 34 syndicate or joint venture members had to be consistent with and conform to the terms of the Joint Venture Deed.
  5. It was not open to the applicant to purchase other broadacre land on behalf of some but not all of the 34 syndicate or joint venture members who made contributions to the cost thereof for development and distribution in divisible lots amongst such members, nor was it open to the applicant to do so on behalf of some but not all of such members and others.
  6. Whilst identifying other properties for possible acquisition by the 34 syndicate or joint venture members and undertaking pre-registration to enable the applicant to bid at a restricted government land auction with a view to purchasing same on behalf of such syndicate or joint venture members, may have been or become a proper activity for the applicant to engage in, consistent with its obligations under the Joint Venture Deed, it had no authority to purchase any land at such a government land auction without the unanimous approval of all 34 syndicate or joint venture members.
  7. In the absence of a willingness on the part of the third respondent to approve the purchase of Horse Park 2 by the 34 syndicate or joint ventures members, it was not open to the applicant to purchase Horse Park 2 for itself or on behalf of others without breaching its fiduciary and other duties to such syndicate or joint venture members.
  8. It was not open to the applicant to advance the interests of some, but not all, of the 34 syndicate or joint venture members and others by facilitating the acquisition of broadacre land, the development thereof and the distribution amongst them of divisible lots, to the disadvantage or potential disadvantage of the non-participating syndicate or joint venture members. It was not part of the business of the applicant to find and secure land for competitors of any of the builders who were members of Joint Venture No 1.
  9. At no time, whether before or after 19 November 2002 did the applicant’s business or undertaking, consistent with its obligations under the Joint Venture Deed, include the pursuit of the purchase of broadacre land such as Horse Park 2 for a 51 member syndicate, including some but not all of the 34 syndicate or joint venture members from Joint Venture No 1.
  10. Mr Brendas, as a director of the applicant, undoubtedly owed fiduciary duties to the applicant, notwithstanding the relationship between the applicant and the 34 syndicate or joint venture members whereunder directors of the applicant were treated by such members as a corporatised committee of such members with Mr Frank Porreca lacking standing to serve as a member of such a committee.
  11. In Securities and Exchange Commission v Chenery Corporation (1943) 318 US 80 at 85-86, cited with approval by McHugh, Gummow, Hayne and Callinan JJ in Pilmer v Duke Group Limited (in Liquidation) [2001] HCA 31; (2001) 207 CLR 165 at [77] (“Pilmer”), Frankfurter J said in the Supreme Court of the United States:
‘But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?’

  1. The fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is “a conflict or a real or substantial possibility of a conflict” between the personal interests of the fiduciary and those to whom the duty is owed (per McHugh, Gummow, Hayne and Callinan JJ in Pilmer at [78]). In this case Mr Brendas owed his duty to the applicant.
  2. However, given the strictures imposed on the applicant by the Joint Venture Deed, there was no possibility of Mr Brendas securing an advantage in respect of Horse Park 2 for himself at the expense of the applicant.
  3. Mr Brendas did not acquire his knowledge of the ACT Government’s offer to sell Horse Park 2 at auction on 27 March 2003 by virtue of his position as a director of the applicant.
  4. In the absence of any unanimous resolution of the 34 syndicate or joint venture members authorising the purchase on their behalves of Horse Park 2, of which Mr Brendas must have been well aware, it was perfectly proper for him to pursue the purchase by the fourth respondent of Horse Park 2. His position was similar to that of the Manager/Director in Consul who bought a property which Mr Walton had decided not to buy, only, in Mr Brendas’ case, he knew that Horse Park 2 was a property which the applicant could not buy, consistent with its obligations to the 34 syndicate or joint venture members of Joint Venture No 1.
  5. Furthermore, Mr Brendas was in a position where, once the 51 member syndicate, which the other members of the board of the applicant sought to have it serve as trustee and manager in respect of Horse Park 2, had reached their agreed limit (of which Mr Brendas had no knowledge) and they ceased to bid, there was nothing to preclude Mr Brendas’ interests from pressing on in competition with the other remaining bidders to secure Horse Park 2 for the fourth respondent.
  6. In addition, Mr Brendas, and by inference the third respondent, had been peremptorily excluded from any participation in what became a 51 member syndicate, which the other members of the board of the applicant sought to form notwithstanding the constraints imposed on the applicant by the Joint Venture Deed. In my opinion, he could not, in the circumstances, have been under any duty to refrain from seeking to secure Horse Park 2 for the fourth respondent at the auction on 27 March 2003.
  7. Mr Brendas did not owe any fiduciary duties to the 51 members of the proposed syndicate, nor, for that matter, did he owe any fiduciary duties directly to the 34 syndicate or joint venture members in Joint Venture No 1.
  8. In my opinion the applicant’s submission that after 19 November 2002, if not before, a director of the applicant was not permitted to pursue any opportunity to acquire broadacre land released for sale at restricted government land auction for his own benefit or for the benefit of any company in which he was interested, or of which he was a director, without the prior informed consent of the applicant, should be rejected.
  9. There was no scope for a director of the applicant to prefer his own interest to that of the applicant or to use some special information of the applicant to his advantage such as might give the applicant the right to claim the advantage as its own, in the circumstances of this case.
  10. It follows that, by his involvement in the purchase by the fourth respondent of Horse Park 2 Mr Brendas did not breach any fiduciary duty owed by him to the applicant. In the circumstances it could not be said that any of the second, third and fourth respondents engaged in “knowing assistance” of Mr Brendas in breach of his fiduciary duties.
  11. Whilst it is unnecessary to address the equitable defences raised by the respondents, it would seem to me that, given that these proceedings were not instituted until 14 September 2006 i.e. approximately three and a half years after the purchase of Horse Park 2 by the fourth respondent, the applicant clearly stood by and allowed profits to be made of which it now seeks an account. It would seem to me that a defence of laches would succeed, were it necessary to take such a defence into account. In addition, the conduct of the other directors of the applicant and thus the applicant would make it inequitable to order an account.
  12. An applicant may not stand by and permit a respondent to make profits and then claim an entitlement to those profits (per Mason CJ, Brennan, Deane, Dawson and Gaudron JJ in Warman International Limited v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 559.
  13. Given the wrongful involvement of the applicant in pursuing the acquisition of Horse Park 2 for the 51 intending members of the new syndicate, it would be appropriate to deprive the applicant of any relief, to which it was otherwise entitled, on account of its own unclean hands. No court of equity will aid a man to derive advantage from his own wrong (per Isaacs J in Meyers v Casey [1913] HCA 50; (1913) 17 CLR 90 at 124).
  14. In the foregoing circumstances, the Further Amended Application filed 19 November 2007 should be dismissed with costs.
  15. In addition, there should be no continuing restraint imposed upon the fourth respondent preventing it from dealing with any residual land held by it arising out of its

acquisition of Horse Park 2 nor should there be any restraint upon the fourth respondent preventing it from dealing with the profits derived by it from its development of Horse Park 2.


I certify that the preceding two hundred and sixty-nine (269) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham.

Associate:


Dated: 30 January 2009


Counsel for the Applicant:
R Crowe SC (only on 26, 27, 28, 29 and 30 November 2007) and M Orlov


Solicitor for the Applicant:
Bradley Allen


Counsel for the First, Second and Third Respondents:
A S Martin SC and D J C Mossop


Solicitor for the First, Second and Third Respondents:
Gillespie-Jones & Co


Counsel for the fourth respondent:
B J Salmon QC (to 7 March 2008) and S M Whybrow (from 10 April 2008)


Solicitor for the fourth respondent:
J S O’Connor Harris & Co


Dates of Hearing:
26, 27, 28, 29, 30 November 2007, 4, 5, 6, 7 March and 10, 11 April 2008


Date of Judgment:
30 January 2009

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