Robins v Potts[2013] QDC 196

DISTRICT COURT OF QUEENSLAND

1. [1]
   The five plaintiffs have bought a claim against Gregory Potts, the first defendant and Niclyn Pty Ltd, the second defendant. He is the controlling mind of that company. The second defendant is said to be sued “in its own right and as trustee of the Potts Family Trust”. Although the further amended Statement of Claim seeks a number of remedies, at the trial the real claim of the plaintiff was reduced to one of damages for breach of fiduciary duty.

The dispute

2. [2]
   The claim arises out of a transaction entered into in August 1998 when a company, Law Partner Mortgages Pty Ltd (“LPM”) advanced $330,000 to a Mr and Mrs MacSween. The money was used by the MacSweens to purchase the management rights of the Biloela Motor Inn and three strata titled units in the motel, being Lots 1, 2 and 9. The structure of ownership of the motel was unusual in that it was arranged in a Group Title so that individual owners acquired individual lots, being units in the motel. Lots 1, 2 and 9 were the management unit, the laundry and the dining room of the motel. Thus, whilst they were important to the operation of the motel, they did not generate income in the way that residential units at the motel did.

3. [3]
   The loan to the MacSweens by LPM was secured by a registered mortgage over Lots 1, 2 and 9. It is alleged in the further amended Statement of Claim that LPM was a solicitor nominee company holding its interest on behalf of the five plaintiffs (see paragraph 3 of the further amended Statement of Claim).

4. [4]
   Subsequently, on the 4th of November 1998, the second defendant became registered as second mortgagee of Lots 1, 2 and 9 (see paragraph 5 of the further amended Statement of Claim). On the 31st of October 2001 liquidators of LPM were appointed. The liquidator called a meeting of persons who had invested in the units, which meeting was held on the 18th of December 2001. Some, but not all, of the plaintiffs either attended or were represented at the meeting. Those represented, or personally present, were the second, third and fourth plaintiffs. A solicitor, Margaret Rimmer, also attended. She represented interests in 14 of the residential units. The first defendant also attended. His interest, through the second defendant, was as 2nd mortgagee of Lots 1 2 & 9 and in 5 of the residential units.

5. [5]
   At the meeting the plaintiffs allege that the first defendant proposed as an alternative to continued management by the liquidator that he would manage the property with a view to its sale on behalf of all investors (see para 10 of the further amended Statement of Claim and the particulars thereto, which clearly identify that “the property” referred to in para 10 was the Biloela Motor Inn and not just particular lots.) This allegation became a central issue at the trial.

6. [6]
   The plaintiffs allege that at this meeting the first defendant agreed with investors present at the meeting, including the second, third and fourth plaintiffs, that:

1. The existing on-site manager would remain in charge of day to day running of the motel and would be paid a management fee.

2. The first defendant and/or the second defendant would supervise that management on behalf of all unit holders, described as “the investors”.

3. The first defendant and/or the second defendant would collect the net receipts due to investors and account to them for the shares as agreed, or as to be agreed.

4. Funds held by the liquidator were to be distributed to investors as agreed.

7. [7]
   It is further alleged that on or about the 18th of December 2001, and to the defendant’s knowledge, the plaintiffs requested that the liquidator cease its management of Lots 1, 2 and 9.

8. [8]
   It is also alleged that subsequent to the meeting the first defendant spoke by phone to the male first plaintiff and during that conversation the first plaintiff agreed with the proposal from the first defendant to manage the motel on behalf of all of the investors.

9. [9]
   In the Further and Better Particulars of the Statement of Claim the plaintiffs allege the agreement by which the defendants acted as managers was also contained in:

1. (a)
   a letter from Rimmer Lawyers to the first defendant confirming the agreement that the first defendant would act as general manager and requesting a reconsideration of the agreed profit split from the business.

2. (b)
   a letter of the 2nd of May 2002 from the first defendant to Paul Rafton, requesting a management agreement and financial information in respect of the motel be forwarded to him.

3. (c)
   a letter of the 27th of May 2002 from the first defendant to Margaret Rimmer advising of the first defendant’s intention to make a lease payment with respect to the motel’s phone equipment.

4. (d)
   a letter from the first defendant’s solicitors, Lees Marshall Warnick, to Win Hughes and Paul Rafton requesting execution of a “management agreement” which had already been signed by Rimmer Lawyers.

5. (e)
   letters from the first defendant to the plaintiffs:

1. (i)
   of the 27th of May 2002 in respect of the distribution of profits from the motel with enclosed cheque for $1,250

2. (ii)
   of the 26th of August 2002 in respect of the distribution of profits

3. (iii)
   of the 11th of November 2002 in respect of the distribution of profits.

10. [10]
    It is further alleged that after the 18th of December 2001 the first defendant and the second defendant managed the motel by supervising the on-site managers, controlling rents and expenses arising from the operation of the motel and making distributions from income to the plaintiffs and other investors.

11. [11]
    In about April 2003 the local authority, the Banana Shire Council, took steps to sell Lots 1, 2 and 9 for non-payment of rates. A Notice of Sale was sent to the unit holders of those lots of the motel. Subsequently a notice was attached to the door of Lots 1, 2 and 9. The first defendant became aware of the proposed auction of the lots by the local authority. I shall refer later to the circumstances in which he became so aware.

12. [12]
    A dispute at the trial concerned the attempts by the first defendant to notify all or any of the plaintiffs of the impending auction. In any case the plaintiffs were unaware of the auction at the time of it.

13. [13]
    The first defendant attended the auction which was held on the 10th of December 2003. The second defendant was the only bidder. It purchased the three lots for $15,000. Subsequently, on the 4th of August 2004 it sold the lots to a company, Kirkpalm Pty Ltd as part of a larger sale to that company, for the sum of $129,375.

14. [14]
    The essential matters in dispute concern:

1. The allegation that the defendants agreed to manage the motel with a view to its sale on behalf of all of the unit holders and specifically whether they agreed to supervise the on-site managers, collect income and account to unit holders for income or profits.

2. Whether, by that agreement, the second defendant’s purchase and subsequent sale of Lots 1, 2 and 9 was a breach of an obligation owed by the first and/or second defendants to the plaintiffs.

15. [15]
    The defendants’ submissions at the end of the trial described the issue I have identified in (1) above as “the single contested issue of fact”.

Factual Considerations

16. [16]
    A critical issue concerns the discussion that occurred after the liquidators left the room during the meeting of investors of 18 December 2001.

17. [17]
    I find that at that meeting the first defendant undertook to those of the plaintiffs who were in attendance or represented that he would oversee the day to day management of the Biloela Motor Inn in the interests of all of the investors. In particular I find that:

1. (a)
   Whilst Mr and Mrs Farrand were to be responsible for the day to day management of the Biloela Motor Inn he would supervise their management on behalf of all of the investors.

2. (b)
   That he would supervise the receipt of income and payment of expenses by Mr and Mrs Farrand and would account to investors for their shares of any surplus, and provide regular accounts.

3. (c)
   That in so supervising the management of the motel the first defendant would act to protect the interests of the plaintiffs by, inter-alia, advising them of matters which might come to his attention as a result of the supervision which might adversely affect their interests.

18. [18]
    I also find that the first defendant reached a like agreement in a later conversation with Mr Robins and that the fifth plaintiffs subsequently became aware of the arrangement and by no later than a meeting at the Ipswich Golf Club at which the male fifth plaintiff met the first defendant, the fifth plaintiff also agreed to the arrangement.

19. [19]
    In coming to those conclusions I rely, in particular, upon the oral evidence of Mr Rafton, Mr Herbert, Mrs Vaccaneo, Mrs Patelski and Mr Robins and the affidavit of the male fifth plaintiff.

20. [20]
    Mr Rafton said that he attended the meeting of the 18th of December, although he said he did not recall its exact date. He did so as a representative of the fourth plaintiffs. He gave evidence that, though the meeting was over a decade prior to his having to recall details of it, he remembered that Mr Potts had made an offer to the investors to purchase their interests which was rejected. He said that Mr Potts indicated he would continue to manage the property in everyone’s interest (T1-131, L45/50). He said he believed the then managers were friends of Mr Potts (T1-131, L55 and T1-132, L25/30). He said he was aware Mr and Mrs Farrand were managing the Biloela Motor Inn at the time of the meeting (see, for example, T2-15, L5). He said that all of the investors at that meeting wished for the motel to be run with a view to its future sale. He said Mr Potts said he was prepared, if agreed, to “continue to oversee the management of the hotel, as it is now” (T2-18, L10/12). He was to oversee the income and outgoings associated with the operation of the motel and to provide regular financial reports (T2-18, L18/22). Mr Herbert said it was agreed to accept this offer and that, in due course, Mr Potts would prepare a draft management to be distributed for discussion and possible revision of the agreement.

21. [21]
    Mrs Vaccaneo’s evidence was, by itself, of little use because it was relatively vague. She did however, say that she recalled Mr Potts saying he knew the managers (T2-85, L10/11) and that Mr Potts was going to “oversee them” because of his friendship with them (T2-87, L45/55 and T2-88, L4/10). She said this was the impression she got from what Mr Potts had said (T2-88, L24). Her evidence was corroborative of others.

22. [22]
    Mrs Petelski gave generally similar evidence. She said there was discussion about keeping the motel going (T2-96, L18/22). She understood Mr and Mrs Farrand were managing the hotel and that was to continue in place after the meeting (T2-99, L26/40). She said Mr Potts said he knew them personally, could vouch for them and he would oversee their management (T2-100, L50 and T2-101, L1 and T2-102, L5/10).

23. [23]
    This evidence of what was discussed at that meeting is consistent with a later discussion Mr Potts had with another of the plaintiffs, Mr Robins.

24. [24]
    Mr Robins did not attend the meeting of the 18th of December. He was later rung by Mr Potts but Mr Robins was unable to say whether this was in December 2001 or early in 2002. In fact he said there were two conversations on the phone. Mr Potts offered to purchase Mr Robin’s interest for $40,000 but this was rejected by Mr Robins (T1-31, L30/40).  In an earlier conversation he had said Mr Potts rang him “and told him about managing the hotel and I agreed to that” (T1-32, L18/20). He said he knew Mr and Mrs Farrand were the managers and was told by Mr Potts that he knew them. They were, he said, to stay on as managers of the motel (T1-41, L28/34). In re-examination Mr Robins said Mr Potts was to “oversee the Farrands” and “keep an eye on things” (T1-76, L45/55 and T1-77, L5/8). He was to “oversee them on behalf of the investors” (T1-77, L18/24).

25. [25]
    In affidavits filed by way of evidence in chief pursuant to directions of the Court concerning the manner in which the trial should be conducted, each of the plaintiffs have sworn more specifically to the facts in issue. Indeed, it could rightly be said that they had really sworn to the issue. Consideration of their oral evidence showed their memory was in fact significantly more vague than appeared from the reading of their affidavits. In the circumstances, I have had little, if any, regard to the contents of the affidavits and preferred to determine the matter by consideration of their evidence under cross-examination and in re-examination.

26. [26]
    In my view, although the witnesses were not precise in recounting what was said, I do accept that the words used by Mr Potts at that meeting were to the effect that he was to supervise the day to day managers on behalf of all of the investors, to ensure their interests were protected, to supervise income and outgoings and to report regularly and distribute profits from time to time.

27. [27]
    My findings in that regard are supported significantly by contemporaneous documentation exhibited to the affidavit of Mr Paul Rafton.

28. [28]
    On the 2nd of May Mr Potts, in a letter under his hand but on the letterhead of the second defendant, wrote to the Lambda Group, for whom Mr Rafton worked and which was a financial advisor representing the interests of a number of the plaintiffs. In that letter Mr Potts said:

“We request the position of general manager and the management account to be transferred to us… We would also like to revisit the split of the financial position (profit and loss) of the business and revert to the original position.”

He then referred to a particular split of such profits.

29. [29]
    In my view the letter is not inconsistent with the view expressed in oral evidence by those whose evidence I have referred to although I accept that it does not of itself prove any such discussion.

30. [30]
    Subsequently on the 30th of January 2002 Rimmer Lawyers wrote to Mr and Mrs Potts. In that correspondence Mrs Rimmer wrote:

“I refer to our telephone conversation of Friday 25 January 2002. I confirm that I am happy for you to act as General Manager of the Biloela Motor Inn; for Rod and Raewyn Farrand to remain as on-site managers; and for Niclyn Pty Ltd to take control of the management bank account.

I would like to revisit the split of profits from the business.”

Again, this letter is not inconsistent with the account of the various witnesses to whom I have referred. Indeed it tends to support the arrangement which they say was agreed to.

31. [31]
    On the 27th of May 2002 Mr Potts wrote a letter to each of Mrs Rimmer, Mr Rafton and to his own company, Niclyn Pty Ltd. The letter referred to the “Biloela Motel” and was as follows:

“RE CAPITAL FINANCE

Dear Investors

On the 24th May 2002 the Motel received a letter of demand from capital finance [sic] in relation to the phone system leased to Law Partners. As this equipment is vital to the operation of the Motel we intend to pay the due amount of $3,956.16 by 5.00pm, Tuesday 28th May 2002, unless contrary advices are received from investors.

I await your urgent response in relation to this matter.”

32. [32]
    In my view the letter is important because it clearly illustrates that the first defendant was then actively involved in the management of the Biloela Motor Inn. He refers to the fact that “we intend to pay”, a phrase which, in my view, is clearly indicative of his having such a role. It was a letter strongly supportive of the view I have taken of the facts referred to in the evidence of the various plaintiffs.

33. [33]
    On the 27th of May 2002 he wrote a further letter to “Dear Investors” (Ex 14). It said:

“As per agreement we distribute profit from the collective investment in the Biloela Motel. Balance of the account as at date of letter is some $36,000.00 with some accounts and expenses pending, thus we retain at least $10,000.00 as a float for the Motel. Some expenses are due shortly, and are considered extraordinary so $20,000.00 will be considered profit and distributed.

Thus the 25% management fee of $5,000.00 is divided.

The distribution of 75% is in relation to useable units in the Motor Inn.

Thus $15,000.00 is to be distributed.

We hope to distribute funds on a monthly basis but will consider funds available monthly and will only distribute if substantial profits are available.

Yours faithfully

Greg Potts”

34. [34]
    Again, this letter makes it clear he was involved in decisions integral to the management of the hotel and is strongly supportive of the evidence of the investors that I have referred to.

35. [35]
    The $1,250.00 payable to the investors in Lots 1,2 and 9 (i.e. the plaintiffs) was sent by way of a cheque payable to the Lambda Group, suggesting Mr Potts identified them as acting for those investors. Similar letters were sent on the 26th of August and 23rd of October. The letters, under Mr Pott’s hand, refer to the fact that “we distributed the profit” and “we retain a float for the motel”. A letter in the same vein was again written on the 11th of November 2002.

36. [36]
    One might consider how this correspondence fits with the first defendant’s own evidence about the discussions of the 18th of December 2001. In giving his evidence Mr Potts was, in my view, unimpressive and on occasions evasive.

37. [37]
    He said he suffered a number of medical conditions and was taking medication, including Lithium, which might have affected his ability to recall events.

38. [38]
    He gave evidence that Mr and Mrs MacSween, who had been managing the motel, left in early 1999. He said he had a meeting initially with Mr Neilsen-Brown and a Mr Long. Subsequently he again met Mr Neilsen-Brown and Mrs Rimmer at Toowong prior to the Farrands commencing to manage the business in September 2001. He said that after that meeting a letter of agreement was produced which indicated that each of the owners was to look after their own arrears of rates for units in the Biloela Motor Inn (see T3-18, L20/55). It was initially said to be a letter of the 22nd of May from Rimmer Lawyers to Mrs Potts (T3-19, L9) but was then identified as a letter of January 2002 (T3-31, L18/22) being that at page 3 to the exhibits to the affidavit of Mr Rafton. It is important to realise that that letter post dated the meeting of the 19th of December 2001 and in any case makes no reference to payment of the arrears of rates. Instead it refers only to the phone call between Mrs Rimmer and Mrs Potts of the 25th of January 2002 and of the fact that Mrs Rimmer was happy for Mr Potts “to act as General Manager of the Biloela Motor Inn; for (Mr and Mrs) Farrand to remain as on-site managers and for Niclyn Pty Ltd to take control of the management bank account”. It referred also to a proposed reconsideration of the split of the profits from the business.

39. [39]
    That letter clearly does not record any agreement of the sort Mr Potts asserted in his evidence.

40. [40]
    The Farrands were, as I have said, appointed managers and took up that position in September 2001. Mr Potts had suggested their appointment to Mr Neilsen-Brown (T3-24, L10/12). They continued to be involved in the motel until about late 2003 or 2004 (T3-24, L35/60).

41. [41]
    In respect of the meeting of the 18th of December Mr Potts said that it was discussed that the existing managers were to remain in place (T3-33, L46/55). He said he conceded that they were friends of his (T3-34, L6). In respect of any role he himself was to undertake he said:

“I probably gave an indication that if it was required I could provide my services…. but they would have…. been the subject of the agreement.” (T3-34, L26/36)

42. [42]
    He said that this comment by him was a reference to the letter of agreement following the Toowong meeting but as I have already said the letter referred to does not refer to any role to be performed by him.

43. [43]
    Mr Potts said, and I accept, that there was no discussion about rates at the meeting of the 18th of December 2001 (T3-35, L1/10).

44. [44]
    The balance of his evidence in chief largely concerned the circumstances of his becoming aware of the auction of Lots 1, 2 and 9 by the Banana Shire Council and the purchase of those units by him on behalf of the second defendant. In respect of that he said that he did not receive any correspondence or letter of demand from the local authority (T3-36, L5/10) and I accept that that is probably true. He also said he became aware of the problem when he received a phone call from the Farrands advising him that notices had been posted on Lots 1, 2 and 9. I accept that. The manner in which that occurred, in my assessment, supports the plaintiff’s version of the role of the first defendant following the meeting of the 18th of December 2001.

45. [45]
    If the first defendant was not involved in assisting to manage the motel on behalf of all investors and reporting to them about problems, why would the Farrands have reported the matter to Mr Potts, and not to the plaintiffs who were ultimately those interested in Lots 1, 2 and 9. At least some of them, namely Mr Robins, Mr Hsi and Mr Rafton of the Lambda Group had visited the hotel well prior to this, and after a meeting at the Ipswich Golf Club to discuss the proposed written management agreement with a company to be owned by the first defendant. Mr Potts also attended their meeting. It is, in my view, almost inevitable that the Farrands would therefore have known of the plaintiffs, or at least some of them, and could have made contact with them if they had wished. That they did not do so is consistent with the letters from Mr Potts to which I have referred and which, in my view, are strongly supportive of the fact that Mr and Mrs Farrand acted as they did because Mr Potts had a supervisory role over their running of the motel on a day to day basis on behalf of all investors.

46. [46]
    The fact the Farrands were not called to give evidence, in my view, supports this assessment.

47. [47]
    Mr Potts says he subsequently attempted to telephone Mr Rafton and/or Mr Hughes of the Lambda Group on three occasions over three consecutive days. He said he intended to advise them of the rates issue. He said he got no response although he had left messages. I do not accept his evidence that he made such calls. It is inherently unlikely that he would have got no response or, if he did not, that he would not have made contact by letter or rung one or more of the plaintiff’s directly.

48. [48]
    I was particularly unimpressed by his assertion in response to questions by me at the end of his evidence, that he was unable or unwilling to contact the investors direct, and why that was so. He agreed he had previously spoken to Mr Robins on at least one occasion. He said it was also possible he had spoken to other investors. When I asked him why he had not attempted to ring them, he said:

“…In all honesty… I was being told by the investors that I was, was the – well, the nasty… the rapport with those investors was not good at that time… I recall one was particularly nasty.”

When I asked who that was he said “I can’t say. I couldn’t say specifically… I can’t recall”.

49. [49]
    In my view such answers were self serving and evasive and reflect poorly on the first defendant’s credit. I reject his evidence about his role in managing the Biloela Motor Inn after the meeting of December 2001 and accept that of the investors whose evidence I have referred to and whom I much preferred as witnesses of truth despite their lack of precision and somewhat vague reflection.

50. [50]
    In the circumstances I find;

1. That the Farrands, as on-site managers, would remain in charge of the day to day running of the Biloela Motor Inn, and were to be paid a fee for doing so.

2. That the first defendant would supervise the management of the Biloela Motor Inn on behalf of all of the investors including supervision of the Farrands and of receipt of income and distribution of outgoings of the motel business.

3. That funds accumulated from the running of the motel would from time to time be distributed by the first defendant in accordance with the formula referred to in letters to investor and exhibited to the affidavit of Mr Rafton.

4. That in so supervising the management of the motel the first defendant would act to protect the interests of the plaintiffs by, inter-alia, advising them of matters which might come to his attention as a result of his supervision, and which might adversely affect their interests. In my view this latter finding is to be inferred from the findings I have made about the evidence of the investors.

51. [51]
    One of the consequences of the discussion of the 18th of December 2001, and subsequently with Mr Robins and Mr His’s acceptance of that position, together with Mr Potts performing the supervisory role thereafter was that the plaintiffs came to rely on his presence in protecting their interests.

52. [52]
    It is important to understand that the rates notices for Lots 1, 2 and 9 were not an expense of the motel. Rates were an expense incurred by the lot holders individually. Notices would not have been sent by the Banana Shire Council to the Biloela Motor Inn, but to the registered owners of the lots. Exhibit EWR18 to the affidavit of Mr Robins is a letter from the solicitors for the Banana Shire Council, Wright Clarke Solicitors, to Mr Robins of the 30th of March 2005. Well after the auction. The letter is so far as here relevant, in the following terms:

“We advise that on 10th January 2003 a title search was conducted in respect of the abovementioned lots which showed that there were mortgages over the property. As such, we forwarded notices to the registered owners, Mr and Mrs MacSween, on 9th April 2003 and to the mortgagee, Law Partners Mortgages Pty Ltd on 10 April 2003. Additionally we did attempt service on 10th April 2003 on Niclyn Pty Ltd, care of Owen Harris & Associates. A search of Rinkdale Pty Ltd determined that it was de-registered as was Pondpark Pty Ltd. The letter to Law Partners Mortgages Pty Ltd was returned on 2nd June 2003, at which time we forwarded a copy to the appointed liquidator, care of Jefferson Stevenson & Co at 37o Queen Street, Level 4, Brisbane Qld 4000.”

53. [53]
    In such circumstances I am not prepared to find on the basis of that letter that either Mr and Mrs Farrand or Mr Potts became aware of the notices seeking arrears of rates. I note Mr Potts denied ever getting the letter addressed to Niclyn Pty Ltd. I think it highly probable that they did not become aware of the issue until notices of the auction were stuck to Lots 1, 2 and 9 by the council some little time before the auction as Mr Potts attested to.

54. [54]
    I have referred already to the first defendant’s inadequate attempts to contact the plaintiffs, or any of them, after becoming aware of such notices.

55. [55]
    Rather I find that the defendant determined not to notify them of the fact that the notices had been stuck to the lot doors, and determined instead that he would purchase the lots at the auction. In my view his failure to have made any attempt to notify them of that fact was motivated by his desire to purchase the lots for his significant financial advantage because, effectively, he would thus gain control of the management of the Biloela Motor Inn. This is consistent with his express desire at the meeting of the 18th of December to purchase the investor’s interests and his subsequent offer to Mr Robins to buy his share for some $40,000.

Fiduciary Obligations

56. [56]
    In my view his conduct involved a clear breach of the fiduciary duty he owed to each of the plaintiffs.

57. [57]
    I also find that if the plaintiffs had been informed of the impending auction that they would have discharged the arrears of rates to the council. Not to have done so would be inconsistent with their rejection of Mr Potts offer to purchase their interests made at the December meeting, and his later similar offer to Mr Robbins. It would also be inconsistent with the actions of responsible persons.

58. [58]
    In Hospital Products Limited v United States Surgical Corporation & Ors [1984] 156 CLR 41, Gibbs CJ, whilst finding that the relationship between the parties was a fiduciary one, referred to the decision of McLelland J at first instance in the New South Wales Supreme Court, which decision was upheld in the New South Wales Court of Appeal but overturned on appeal to the High Court. At first instance McLennan J had said that there were two matters of importance in deciding the existence of a fiduciary duty namely:

1. If one person is obliged, or undertakes, to act in relation to a particular matter in the interests of another and is entrusted with the power to affect those interests; and

2. The reason for the principle lies in the special vulnerability of those whose interests are entrusted to the power of another to the abuse of that power.

59. [59]
    In the Court of Appeal the Court said that the trial judge’s view about undertaking to act in the interests of another needed qualification and, meant that “a fiduciary relationship exists where the facts of the case in hand establish that a particular matter a person has undertaken to act in the interests of another and not in his own interests”. This was said by Gibbs CJ to be not inappropriate in the circumstances (see page 72.2 of the report).

60. [60]
    Gibbs CJ said that it was inappropriate to attempt to make general statements about the circumstances in which a fiduciary relationship will be found. He did, however, refer to a number of circumstances which have, in the cases, been relied on as indicating the presence of a fiduciary relationship. An example was the existence of a relationship of confidence which may be abused. Another is inequality of bargaining power. His Honour said that the fact the arrangement between the parties was purely commercial, and that they had dealt with each other at arms length and on an equal footing was also often decisive in indicating that no such fiduciary duty arose.

61. [61]
    This approach to a consideration of fiduciary duties is also apparent in the decision in Breen v Williams (1996) 186 CLR 71. Gaudron & McHugh JJ in a joint judgment said at p. 106:

“Australian courts have cautiously refrained from attempting to provide a general test for determining when persons or classes of persons stand in a fiduciary relationship with one another. This is because… the term “fiduciary relationship” defies definition.”

62. [62]
    Their Honours then referred with approval to the passage in the judgment of Gibbs CJ in the Hospital Products case to which I have already referred concerning the fruitlessness of attempting to make general statements about the circumstances of when a fiduciary relationship will be found.

63. [63]
    Later at p. 107 their Honours said

“…the courts have identified various circumstances that, if present, point towards, but do not determine, the existence of a fiduciary relationship. These circumstances, which are not exhaustive and may overlap, have included: the existence of a relation of confidence; inequality of bargaining power; an undertaking by one party to perform a task or fulfil a duty in the interests of another party; the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another; and a dependency or vulnerability on the part of one party that causes that party to rely on another”

64. [64]
    Their Honours then said at p. 108:

“The law of fiduciary duty rests not so much on morality or conscience as on the acceptance of the implications of the biblical injunction that "(n)o man can serve two masters" . Duty and self- interest, like God and Mammon, make inconsistent calls on the faithful. Equity solves the problem in a practical way by insisting that fiduciaries give undivided loyalty to the persons whom they serve. In Bray v Ford, Lord Herschell said:

"It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent's, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict””

65. [65]
    In respect of that duty, their Honours then said at p113:

“In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed”

66. [66]
    In my view the facts of this case support the view that a fiduciary relationship was created. In addition to the factual findings I have already referred to I am mindful of the following facts which, in my view, are supported by the evidence:

1. The plaintiffs were not at all familiar with the Biloela Motor Inn or indeed with Biloela generally or with motels.

2. They were highly desirous, and perhaps even desperate, to have someone to protect their interests and in such circumstances readily reposed their trust in the first defendant when he offered to care for their interests.

3. In such circumstances the plaintiffs readily grasped the opportunity to have the first defendant supervise the Farrand’s management of the hotel, such supervision to be in the interests of all of the investors.

4. To do so did not cause any undue burden on the first defendant or conflict with his own interests, since his interests in having the motel successfully operated pending a sale was consistent with the plaintiff’s interests and those of Mrs Rimmer’s clients.

5. By contrast the first defendant was living in Biloela, knew the on-site managers well and had previously done work at the Biloela Motor Inn and was considered familiar with its operations.

67. [67]
    It is fundamental to a fiduciary relationship that any purchase of property, in relation to which the fiduciary obligation exists, by the fiduciary, or for another by him, is voidable at the suit of the beneficiary unless the fiduciary can show the beneficiary was aware of and consented to the fiduciary’s dealing and can prove the transaction was fair (purchase rule, see P.D. Finn, Fiduciary Obligations^[1]).

68. [68]
    As I have already said, Mr Potts only became aware of the auction because the Farrand’s rang him when they first became aware of the notices being placed on the door of Lots 1, 2 and 9. They did so because he was, pursuant to the arrangement he had made with the plaintiffs, supervising their day to day management of the motel. In such circumstances he became aware of the auction only because of his fiduciary position. In Boardman & Anor v Phipps [1967] AC 46 at 111 Lord Hodson said:

“The appellants obtained knowledge by reason of their fiduciary position and they cannot escape liability by saying that they were acting for themselves and not as agents of the trustees”.

Similar considerations in this case dictate that the plaintiffs are entitled to succeed.

69. [69]
    In my view bidding to purchase Lots 1, 2 and 9 at the auction by the first defendant on behalf of the second defendant was a clear breach of the purchase rule, and both are liable to the plaintiffs for damages.

70. [70]
    The liability of the second defendant arises because it was knowingly involved in the purchase of the property by Mr Potts, and had knowledge, through him as the sole director of the company, of the circumstances. The use of the second defendant as the vehicle for purchasing Lots 1, 2 and 9 with knowledge of conduct which I have found was in breach of the fiduciary duty he owed to the plaintiffs, infects the second defendant’s purchase of the lots at auction and makes it, too, liable for damages.

Quantum

71. [71]
    The units were purchased in December 2003 by the first defendant on behalf of the second defendant at the auction for $15,000.00. They were subsequently sold by the second defendant to Kirkpalm Pty Ltd in July 2004 for $129,375.00.

72. [72]
    At the trial the plaintiffs relied on the evidence of a valuer, Mr Sheehan. He valued the units in December 2003 at $150,000.00 to $170,000.00 and as at April 2009 in the sum of $429,000.00.

73. [73]
    The plaintiff’s counsel submitted that the nature of the agreement was that the parties would run the motel and hold the asset until it could be re-sold to recoup the principle and interest. In my view there is no factual basis for the assertion that the property would be held for that duration or until that event. At best, it was to run the motel so that it could, at some indeterminate time, be sold as a going concern.

74. [74]
    It is impossible to know exactly when that sale might have occurred, but in my view, it might well have been when, or at about when, the sale was effected by the second defendant to Kirkpalm Pty Ltd.

75. [75]
    In my view the evidence of value given by Mr Sheehan was unconvincing. He accepted that it was an unusual corporate structure and that valuation was a difficult exercise.

76. [76]
    In the circumstances I find that there was little discernable change in the value of Lots 1, 2 and 9 between December 03 and July 04. In coming to this conclusion I am conscious of the fact that the first defendant offered to pay Mr Robins $40,000.00 for his interest in the lots and of the fact that he had invested $220,000.00 of the total advances made by investors of some $410,000.00 and that he was still owed $110,000.00. In fact, according to the plaintiff’s counsel, $110,610.67 out of a total sum due of $246,732.40 as set out in the plaintiffs’ submissions was his ongoing investment.

77. [77]
    In the circumstances I assess the plaintiffs’ loss as follows:

I would allow interest on the said sum at 10% per annum from July 2004 to date, a period of 8.666 years, amounting to $99,117.00.

78. [78]
    I therefore give judgment for the plaintiffs against each of the defendants in the sum of $213,492.00.

79. [79]
    I will hear argument as to costs.