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CITE

Notable Unreported Decision

Devren Pty Ltd v Old Coach Developments Pty Ltd[2015] QSC 53Boddice J
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Devren Pty Ltd v Old Coach Developments Pty Ltd[2015] QSC 53

SUPREME COURT OF QUEENSLAND

CITATION:	Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors [2015] QSC 53
PARTIES:	DEVREN PTY LTD ACN 124 794 127 (Plaintiff) v OLD COACH DEVELOPMENTS PTY LTD ACN 103 572 345 (First Defendant) PETER JOHN FRANCIS MILLER (Second Defendant) PETER JOHN FRANCIS MILLER and SUSAN MARY MILLER (as trustees of the Peter Miller Family Trust) (Third Defendants) TENTH ZECORE PTY LTD ACN 007 269 105 (Fourth Defendant) SUSAN MARY MILLER (Fifth Defendant)
FILE NO:	SC No 5638 of 2012
DIVISION:	Trial Division
PROCEEDING:	Civil Trial
ORIGINATING COURT:	Supreme Court of Queensland
DELIVERED ON:	19 March 2015
DELIVERED AT:	Brisbane
HEARING DATE:	28 July 2014; 29 July 2014; 30 July 2014; 31 July 2014; 1 August 2014; 28 October 2014; 29 October 2014; 30 October 2014
JUDGE:	Boddice J
ORDER:	The plaintiff’s claim is dismissed.
CATCHWORDS:	CORPORATIONS - LEGAL CAPACITY AND RELATIONS WITH OUTSIDERS - ASSUMPTIONS IN RELATION TO DEALINGS – whether a person convicted of fraud was a director of the plaintiff – whether, even if the person convicted of fraud was not a director of the plaintiff, and did not have actual authority to act on the plaintiff’s behalf, he had authority to act on the plaintiff’s behalf due to the doctrine of ostensible authority – whether, even if the person convicted of fraud was not a director of the plaintiff, and did not have actual authority to act on the plaintiff’s behalf, he had authority to act on the plaintiff’s behalf due to the doctrine of lingering apparent authority EQUITY – GENERAL PRINCIPLES – FIDUCIARY DUTIES – PARTICULAR CASES – JOINT VENTURER – whether the joint venture partners were fiduciaries to each other – whether the defendants breached their fiduciary duties to the plaintiff – whether the defendants’ alleged breach of fiduciary duty caused the claimed loss CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – DISCHARGE, BREACH AND DEFENCES TO ACTIONS FOR BREACH – whether the defendants breached their contractual duties to the plaintiff Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 O'Halloran v R T Thomas & Family Pty Ltd (1998) NSWLR 262 R v Burns (1996) 183 CLR 501 Corporations Act 2001 (Cth), s 206B
COUNSEL:	N Ferrett for the plaintiff The second defendant appeared on his own behalf, and on behalf of the first, third, fourth and fifth defendants
SOLICITORS:	Lillas and Loel Lawyers for the plaintiff The second defendant appeared on his own behalf, and on behalf of the first, third, fourth and fifth defendants

The plaintiff seeks declaratory and other relief against the defendants in respect of transactions entered into as a consequence of a joint venture agreement signed in June 2008 (“Joint Venture Agreement”). The joint venture project was the subdivision of land at Mango Hill in the State of Queensland. It is alleged that as a consequence of the defendants’ material breaches of the Joint Venture Agreement and other subsequent agreements, and the defendants’ breaches of fiduciary duty, the plaintiff has suffered loss.

The defendants deny they have breached the agreements or any fiduciary duty. They allege all steps taken in relation to the joint venture project were undertaken at the request, and with the authority, of the plaintiff. They also allege an agreement was entered into in May 2012 by which the plaintiff compromised all claims it had against the defendants in respect of the joint venture project.

Whilst there are multiple causes of action relied upon, the central issue for determination at trial is whether a person listed as a director of the plaintiff had authority to bind the plaintiff. Other issues are who the directors of the plaintiff were at the material times, whether fiduciary duties existed between the respective parties, whether those duties or any contractual obligations were breached, and whether the subsequent agreement compromised the plaintiff’s claims.

Background

The plaintiff was incorporated in or about 2007. Its directors, Peter Anthony Hobson (“Hobson”) and John Warnock (“Warnock”), had interests in the property industry. The plaintiff undertook property ventures in which its directors were involved jointly.

In 2008, Hobson was introduced to Matthew Clair (“Clair”), who also had an interest in exploring opportunities in the property industry. At around the same time, Warnock decided not to have any further involvement with the plaintiff. As a consequence, Clair became a shareholder in the plaintiff. Later, Clair was appointed a director of the plaintiff.

In 2008, correspondence sent on behalf of the plaintiff recorded Clair as its managing director, and Hobson as its chief executive officer. Hobson did not accept this suggested to an outsider that Clair had authority to act on behalf of the plaintiff. Clair and Hobson had shareholders and directors agreements about the operation of the plaintiff. Hobson agreed an outside person dealing with the plaintiff would not know of those arrangements.

The first defendant was incorporated in 2003. The second defendant was its founding director. The fourth defendant was incorporated in 1989. Both the second defendant and the fifth defendant were its founding directors. The second defendant and the fifth defendant are also the trustees of a family trust, and are sued as third defendants in that capacity.

On 28 January 2007, the third and fourth defendants agreed to purchase land at Mango Hill. The objects of their joint venture were to subdivide the land and sell it at a profit. It was agreed the first defendant would acquire the land, and carry out the project in accordance with the recommendations and directions of the second defendant as development manager. The third defendant owned 75% of the project, with the remaining 25% owned by the fourth defendant.

Subsequently, the first defendant purchased the land and obtained development approval for 30 residential allotments and one unit allotment. Two proposed lots were to be used as a temporary drainage detention basin. Settlement of the purchase was completed on 1 May 2008.

On 2 August 2008, the plaintiff purchased an interest in the joint venture. This purchase, through three written agreements executed by the parties, provided for the plaintiff to acquire a half interest in the joint venture, via the purchase of shares in the first defendant. Thereafter, the project proceeded with the second defendant acting as the development manager. Hobson and Clair undertook marketing and other responsibilities in relation to the project.

Over time, the second defendant became dissatisfied with Hobson and Clair’s performance. Their relationship deteriorated, as did the relationship between Hobson and Clair. In June 2010, the relationship between the second defendant, Hobson and Clair broke down completely. The second defendant removed Hobson and the plaintiff from further involvement in the project. Subsequently, Clair removed Hobson as a director of the plaintiff. In November 2011, Clair reappointed Hobson as a director of the plaintiff. The defendants were not informed of that re-appointment.

By December 2011, the project was completed with all lots sold, save for Lots 22 and 23, the drainage detention basin lots. Steps were subsequently taken to enhance those lots so that they may become saleable. This was undertaken by the second defendant, at some cost. Lot 22 was sold in about March 2013. Lot 23 was subject to a contract of sale, but it did not proceed to completion.

During the period of the joint venture, funds were distributed by the joint venture to the parties. Those funds to which the plaintiff was entitled were paid to other entities, at the direction of Clair. Whilst the nature of those funds was put in dispute in the plaintiff’s reply to the defendants’ defence, the trial was conducted on the basis the payments had been made in accordance with Clair’s direction.

The dispute for determination is whether those payments were made for and on behalf of the plaintiff, or for Clair personally. There were two competing positions. First, the plaintiff received the funds but Clair directed those funds be paid on behalf of the plaintiff to specified accounts. On that scenario, there is no loss to the plaintiff. Second, the defendants made those payments at the request of Clair personally, not for or on behalf of the plaintiff. On that scenario, the plaintiff is still owed that money.

Claim

The plaintiff claims it has suffered loss and damage as a consequence of contractual breaches by the defendants of the terms of various agreements. Alternatively, the plaintiff claims the defendants have breached fiduciary duties owed in the circumstances. Those breaches relate to actions taken by the defendants to exclude the plaintiff from the joint venture and to keep monies to which the plaintiff was contractually entitled under the agreements.

The plaintiff claims specified losses for the breaches of contract, including one requiring the transfer of Lot 23 to the plaintiff. Alternatively, the plaintiff claims equitable compensation for the loss and damage suffered, together with the recovery of profits generated by the defendants, as a consequence of the breaches of fiduciary duty. The plaintiff claims the fifth defendant is personally liable for assisting in those breaches of fiduciary duty.

The defendants deny any breach of contractual duty or fiduciary duty. They also deny the plaintiff has suffered loss and damage. The defendants plead distributions were made to the plaintiff in accordance with the requirements of the agreements and the plaintiff does not have an entitlement to Lot 23 in all of the circumstances. Alternatively, the defendants plead that by an agreement entered into on or about 4 May 2012, in exchange for the payment of $15,000, the plaintiff accepted it had no further right, entitlement or interest in the joint venture.

Evidence

Hobson and Clair were introduced to the second defendant in about mid-2008. They understood the second defendant was interested in undertaking the development project. In July 2008, Hobson and Clair met with the second defendant to discuss the opportunity to jointly pursue the development project at Mango Hill. At this time, Hobson and Clair were provided with a written valuation for the land in question.

Subsequent to that meeting, Hobson, Clair and the second defendant agreed the plaintiff would purchase a half interest in the proposed development. The purchase price was based on an agreed figure for the valuation of the project which was higher than contained in the written valuation. The agreed value was $4 million. After allowing for pre-paid expenses and loan funds, the plaintiff’s purchase price was $981,415.

Hobson said this price was agreed after the second defendant presented his skills and expertise in managing the project, and provided evidence two lots set aside for drainage detention purposes could become saleable lots, thereby increasing the overall profit of the project. The second defendant did not accept his expertise was a factor in reaching the agreed figure. He considered the valuation undervalued the land. He also understood both Hobson and Clair were experienced in developments.

Hobson, Clair and the second defendant discussed a division of responsibility for the project. It was agreed the second defendant would be the project manager, and would carry the responsibility for the project. Hobson was to assist with marketing whilst Clair would assist the second defendant on a day-to-day basis. Hobson was given the marketing responsibility as the second defendant understood he had significant past experience in marketing development projects.

On 2 August 2008, the terms of the agreed arrangement were formalised in three agreements. The plaintiff paid the agreed purchase price in accordance with an asset sale agreement. The plaintiff also acquired 49 shares in the first defendant, pursuant to a share purchase agreement. The remaining 51 shares remained in the defendants’ control. The second defendant contends the purchase price of $1 (for these shares) was not paid by the plaintiff in accordance with the share purchase agreement. The plaintiff contends it was paid for by physically handing over a $1 coin. However, the shares were transferred and stamp duty was assessed and paid on the purchase by the plaintiff.

Thereafter, the joint venture project proceeded largely in accordance with the earlier discussions. Decisions made in respect of the project were joint decisions, although the second defendant as project manager ultimately made the final decision. By April 2009, steps had been taken to market the developed lots.

As the project progressed, relations between the second defendant and Hobson deteriorated significantly. The second defendant attributed this to Hobson’s inability to perform the marketing tasks assigned to him, and his attempts to interfere with decisions made by the second defendant as project manager. Hobson rejected these assertions. He agreed it was anticipated some blocks would be sold prior to finalisation of Council approval, but that no such sales occurred whilst he was responsible for marketing of the development. The marketing agent subsequently appointed by the joint venture sold most of the lots.

The second defendant claimed the lack of pre-sales was unusual, and said Hobson had set the prices for the lots too high and sought commissions for himself. Hobson did not accept those assertions. He agreed he had chosen the initial marketing agents but denied reaching a private arrangement with those agents to be paid a commission on each lot. Hobson accepted he later asked whether he would be entitled to a commission if he introduced a purchaser of a lot.

The deteriorating relationship culminated in Hobson being removed by the second defendant from any involvement in marketing of the project. At or about the same time, the second defendant also lost confidence in Clair, who he considered unreliable. Hobson said his relationship with Clair also deteriorated, primarily as a consequence of Hobson’s concerns about Clair’s reliability.

By October 2009, the second defendant asserted the right to assume all responsibility for the project. He claimed a meeting of the joint venture agreed he should be paid a management fee of $80,000 for undertaking these additional duties. The second defendant alleged minutes recording that agreement were signed on 7 October 2009. No such minute was ever produced by the second defendant. He said that was because it was held by previous solicitors, who refused to release any documents whilst fees remained payable to them.

Hobson denied there was ever an agreement to pay a management fee of $80,000. In evidence-in-chief, Hobson claimed there was never any agreement to pay a management fee. Hobson later accepted there was an agreement whereby the plaintiff would pay a management fee to the second defendant. However, Hobson said the figure of that fee was never agreed between the parties.

By January 2010, Hobson and the second defendant were exchanging curt emails which displayed a complete breakdown in their relationship. The plaintiff began to default on its financial obligations. At the time, Suncorp also gave notice it would not extend financial assistance to the project beyond the end of February 2010. The second defendant claimed Hobson interfered with the project’s ability to find alternate finance by failing to provide necessary documentation to a prospective financier. This dispute further worsened relations between the second defendant and Hobson.

By late April 2010, relations between the second defendant and Hobson deteriorated to the point where the second defendant withdrew an invitation for Hobson to attend a meeting of the joint venture planned for 5 May 2010, and to attend any future meetings. Hobson and Clair met and agreed Clair would attend all meetings on the plaintiff’s behalf.

By email dated 29 April 2010, Clair informed Miller he did not have authority to make any decisions on the plaintiff’s behalf without first obtaining Hobson’s approval. Significantly, this email recorded:

“We have agreed that you are entitled to a project management fee – there was just no idea when that was to be paid. As discussed if this can be drawn down gradually it will assist everyone, as we are all tight at the moment.”^[1]

Hobson said he indicated in an email he did not agree to the payment of a management fee. However, he was unable to point to an email in those terms.

The non-attendance of Hobson at meetings did not result in any improvement in relations between the parties. In a letter dated 1 June 2010, the second defendant claimed Hobson was continuing to interfere in the project, asserting his approval was necessary before further steps or payments could be undertaken.

By letter dated 1 June 2010, Hobson advised the second defendant he was “prepared to accept [Clair’s] continuing role as a representative for Devren Pty Ltd”.^[2] He sought that the parties put aside any personal differences to focus upon the successful completion of the project. This letter did not say Clair could not make any decision without Hobson’s approval. Hobson said that was his agreement with Clair, but agreed the letter was not preceded by any face-to-face discussions with the second defendant.

The second defendant responded to Hobson’s letter by email dated 3 June 2010. The second defendant again asserted an entitlement to $80,000 for services rendered to date. The second defendant raised the prospect he would resign as project manager, asserting this would jeopardise funding of the joint venture.

On 30 June 2010, the second defendant sent a letter to Hobson, as secretary of the plaintiff, under the letterhead of the first defendant. The second defendant asserted there were obligations owing by the parties under both the Shareholder Agreement and the Joint Venture Agreement. Further, minutes of a meeting of 7 October 2009 confirmed a management fee of $80,000 was to be paid to the second defendant, but Hobson was demanding a distribution to the plaintiff before payment of that debt and was not permitting cheques to be signed on behalf of the first defendant in payment of this sum. In the letter, the second defendant asserted the management fee had been sought having regard to the additional duties he had had to undertake, and he was no longer prepared to act in that capacity unless the amount was paid to him.

In that letter, the second defendant further asserted the plaintiff had committed a fundamental default of the Shareholder Agreement, such that it was taken to have given a transfer notice of its shares in the first defendant and Hobson was deemed to have resigned as a director. The second defendant said he took this action “in the knowledge that the action would have no impact on the financial outcome to [the plaintiff], but also in the hope of securing … Hobson”.^[3]

On 30 June 2010, the same date as this letter was sent to the plaintiff, the first defendant held a meeting of shareholders. No notice of the meeting was given to the plaintiff, Clair or Hobson. Resolutions were passed removing Hobson as a director of the first defendant, and appointing the fifth defendant in his place. The resolutions recorded the plaintiff was in fundamental breach of its obligations under the Shareholders Agreement. The letter of 30 June 2010 was relied upon as the basis for that breach. The second defendant accepted the plaintiff was not given notice and 30 days to remedy the breach, as required by the Agreement. Both the second and fifth defendants signed the minutes of that meeting.

In his letter in response, dated 7 July 2010, Hobson disputed reliance upon a minute of 7 October 2009 but advised on a “without prejudice” basis he would “allow the continued appointment of Matthew Clair as a representative of Devren Pty Ltd to aid in the management of the project. This is to occur in conjunction with you [Miller] to ensure the successful completion of the joint venture”. Clair’s representation was not subject to any expressed requirement he obtain Hobson’s approval.

On 12 July 2010, a Form 484 was lodged with the Australian Securities and Investment Commission (“ASIC”) recording Hobson had ceased to be a director of the first defendant. Hobson did not accept his removal and sent correspondence to ASIC in early August 2010. ASIC replied by letter dated 27 September 2010 advising it would take no further action in respect of the matter but noting that recording a person’s name in the ASIC Register did not make them a director in law nor did their removal cause them to cease to be a director. ASIC adopted a similar stance in relation to a subsequent complaint by Hobson.

In December 2010, Hobson raised concerns with the joint venture’s bank as to the operation of the joint venture accounts and the need for signatures from the plaintiff (through its directors) and the second and the fifth defendants. As a consequence of that complaint, the bank determined to hold the remaining funds in a suspense account while the dispute remained unresolved.

The actions taken by Hobson led to a letter dated 24 December 2010 being sent to the plaintiff’s directors, under the hand of the second defendant on the letterhead of the first defendant. It advised the plaintiff’s voting rights had been suspended in accordance with clause 11.3.2 of the Joint Venture Agreement, with immediate effect. Later, the second defendant sent a concerns notice in respect of allegedly defamatory publications by Hobson in respect of the second defendant.

The dispute with the bank in relation to the operation of accounts continued into early 2011. The bank ultimately advised payments had been undertaken in circumstances where it had been given copies of company minutes indicating Hobson had resigned as a director of the first defendant, and had been replaced by the fifth defendant, and that Clair and Hobson no longer had authority to operate any bank accounts for the first defendant. The bank noted the changes were confirmed by an examination of the ASIC company extract.

Hobson said throughout this time his relationship with Clair became strained to the point where they instigated a Shareholders and Directors Code of Conduct in relation to the plaintiff’s affairs. The second defendant was never informed of this arrangement. Hobson agreed he had at one point told Clair there would be no money left in the project as any money would be “sucked up in fees and legal expenses”.^[4]

By March 2011, relations between Clair and Hobson reached the point where Clair, in an email to the second defendant, expressed fear of verbal and physical attacks from Hobson. Clair accused Hobson of not performing his responsibilities to the joint venture, and of repaying his own loans instead of creditors. Throughout this time, Clair kept the second defendant informed of the steps he was taking in respect of Hobson’s ongoing involvement in the plaintiff.

On 21 March 2011, Clair removed Hobson as a director of the plaintiff. A letter sent by Clair’s solicitors that day recorded Hobson had been removed due to Clair’s “significant concerns with respect to your financial position, state of mind and continuing conduct in contradiction of the interests of [the plaintiff]”. The letter recorded the plaintiff would work with the first defendant with a view to finalising “the detention basin lots and completing the Mango Hill development”.^[5] Clair subsequently wrote to ASIC setting out similar reasons for Hobson’s removal.

Hobson said the concerns raised in this letter related to events in his life, including a recent break up with a partner, the death of a sister and a cousin, and significant financial pressures. Hobson agreed he spoke to Clair about his situation. Clair was aware of all of those matters, including that Hobson had seen a psychologist. Hobson agreed he would have “embellished the financial side of things”. He conceded Clair may have been given “a picture that may have been worse than what I actually was”.^[6]

Hobson instructed solicitors to write to the second defendant’s solicitors advising Hobson’s removal as a director of the plaintiff was unlawful and of no legal effect, and that the first defendant should not consider Clair the sole director of the plaintiff. Hobson never challenged that Clair validly was still a director of the plaintiff. The letter sought an update with respect to the current position between the plaintiff and the first defendant, as negotiated between Clair and the second defendant, with respect to the ongoing development and sale of lots in accordance with the Joint Venture Agreement. There was no suggestion any agreement reached was contingent upon Hobson’s approval.

Clair’s solicitors, by a letter dated 30 March 2011, wrote to Hobson’s solicitors noting any action by Hobson which affected or delayed settlement of a lot being sold would cause significant financial damage to the plaintiff. They advised Clair would take all steps necessary, including commencement of legal proceedings against Hobson, in respect of any such losses to the plaintiff. In the meantime, Clair would continue to act in the best interests of the plaintiff.

Hobson’s removal as a director of the plaintiff was specifically noted by the second defendant in an email to Hobson dated 31 March 2011. That email referred to steps Hobson had taken seeking the lodgement of caveats on properties owned by the first defendant. The second defendant informed Hobson if he pursued that action, the second defendant would lodge caveats against properties owned by Hobson in order to secure a probable award in the defamation proceedings brought by the second defendant against Hobson.

By letter dated 14 April 2011, Hobson’s solicitors sought confirmation as to the present position of the Mango Hill development, and that there had been no changes between the plaintiff “via … Clair as the sole director (not admitted)” and the first defendant, either to the Shareholders Agreement or the Joint Venture Agreement. The letter also raised concerns in relation to payments made to and on behalf of the plaintiff.^[7] In this letter, Hobson sought to appoint his daughter as a director of the plaintiff, on the basis two signatories on the bank account would ensure no monies were withdrawn without the agreement of both Clair and Hobson’s nominee director.

Hobson’s daughter was not appointed as a director of the plaintiff. Hobson chose not to force the issue at that stage as he was “trying to be more conciliatory”.^[8] Hobson agreed he had later referred to Clair as “sole director” of the plaintiff in correspondence with a bank.^[9] He also agreed he accepted Clair, as the director of the plaintiff, had the right to later reappoint Hobson as a director.

In the following months, Clair’s solicitors made requests for Hobson to provide financial information about the plaintiff. They culminated in allegations Hobson had made unauthorised loans, and expressed concerns as to the true financial position of the plaintiff. Whilst this dispute was occurring, work was being undertaken to complete the remedial work to, and sale of, the detention basin lots. Distributions were also made by the first defendant on account of proceeds from the sale of the lots in the joint venture project.

Throughout this period, Clair continued to represent the plaintiff in the joint venture. At one point, Hobson received an email from Clair advising he was looking at ways to finalise the development. Hobson said he did not know anything further. Hobson agreed that by this time he wanted to see the development completed so he could obtain some money.

Hobson accepted that after he was removed as a director he agreed to Clair continuing to be a representative of the plaintiff in the joint venture. He denied he had agreed to Clair having unaffected access to do anything. Hobson also accepted that in the time period he was not a director of the plaintiff he did not contribute any further funds towards the plaintiff’s obligations. Hobson knew the plaintiff did not have sufficient funds to fund the remaining work on the development. The plaintiff had virtually no money sitting in its accounts. Hobson also accepted he had signed an authority authorising the deduction of sums owing to the joint venture by Clair from distributions made to the plaintiff.

Hobson did not accept he was happy for Clair to continue to manage and operate the plaintiff at that stage. Hobson took steps in relation to the bank to ensure Clair could not use funds inappropriately. Clair by this stage had been charged with fraud in respect of an unrelated matter. Hobson said since 15 April 2011, the plaintiff’s banker had placed a stop on the plaintiff’s account, and was not prepared to action any individual requests for instructions relating to the account unless given joint instructions by Hobson and Clair, a duly certified copy of a Board resolution made at a properly convened directors’ meeting, or sealed Court orders.

On 5 May 2011, the second defendant authorised the payment of fees rendered by solicitors on behalf of the first defendant. Those fees included work in respect of proposals for the sale of the detention basin lots and an alleged dissolution of the joint venture. On 28 September 2011, the second defendant authorised the payment of further legal fees on behalf of the first defendant. According to the accompanying accounts, the fees included telephone conversations in relation to a proposal by Clair to transfer lots. Hobson said those fees represented works he would not have authorised as part of the joint venture.

The second defendant authorised the payment of further legal fees on 31 November 2011, 22 December 2011 and 29 February 2012 in relation to the detention basin lots as well as other matters. Again, Hobson said he did not authorise that work, although he accepted in cross-examination he allowed payments for legal expenses to be debited against the plaintiff’s loan account.

During this period, the joint venture took steps to make the detention basin lots saleable. This work, undertaken at the second defendant’s expense, was funded by a loan against the property of the defendants. In exchange, Clair and the second defendant agreed the defendants would receive 75% of the profit from the sale of these lots, with the plaintiff to receive the remaining 25%. There was also an offer to increase the second defendant’s management fee from $80,000 to $110,000.

On 3 April 2012, the second defendant again authorised the payment of legal fees in relation to work undertaken by solicitors on behalf of the first defendant. That work was specified as including work in relation to the plaintiff and Clair. Again, Hobson said he did not authorise that work.

Unbeknown to the defendants, Clair had reappointed Hobson as a director of the plaintiff in November 2011, as part of an agreement with Clair to commence proceedings against the second defendant. Clair subsequently denied having reappointed Hobson as a director in an affidavit given to the second defendant. Hobson said the contents of that affidavit, to the effect Clair had not at any time expressly or by conduct authorised the reappointment of Hobson as a director of the plaintiff, were untrue.

Clair confirmed Hobson’s reappointment as a director in an email to Hobson dated 18 October 2011, and in a change to company details form executed by Clair on 15 October 2011. The form recorded Hobson’s appointment as a director on 16 October 2011. In response to Clair’s email confirmation of 18 October 2011, Hobson sought information as to the operational work for the detention basin and the first defendant’s detailed financials.

On 20 October 2011, Clair sent an email to Hobson proposing the following agenda for their next meeting:

“1.Discussion of final outstanding matters in OCD.

2Opening of Devren bank account.

Legal issues OCD – when to commence what time frame. Open discussion about who lawyers are and what each has been given advice wise.

Accounts of OCD.

Division of responsibilities moving forward.”

Clair advised he must maintain the dialogue with the first defendant until they were ready to prevent any further issues.^[10]

By email dated 21 October 2011, Hobson advised the plaintiff’s bank he had been reinstated as a director of the plaintiff. He asked the bank to contact Clair, “the current sole director of Devren”, confirming his reinstatement and ability to view and transact the account. The bank officer contacted Clair that same day who confirmed Hobson’s information was correct. On 24 October 2011, the bank confirmed by email that Hobson had been reinstated as a signing authority on the relevant accounts.

On 24 October 2011, Hobson sent Clair an email in response to the email attaching the new bank authority. He asked:

“Can I ask you for us to have a planning session on addressing all the OCD and Miller issues. No need to wait till the detention basin is out of Council if your plan is to act immediately after that. So can we get on the phone together and commence the plethora of material we need to address to attack Miller for all of his actions?”

Clair responded by email dated 25 October 2011, saying he would draft a summary of the issues, noting the point of the meeting was to discuss legal issues, as opposed to anything else. Hobson, by email of same date, agreed and requested Clair “nut out all of the items Peter Miller done [sic]”, listing them in order of importance so they had a clear plan of attack. Hobson noted they should be “getting [their] ducks lined up” prior to placing any caveats.

By subsequent email Clair informed Hobson it would take two to four weeks to get Council approval for the detention basin blocks. Clair later advised Hobson they needed to contact the banks as the second defendant could use the first defendant’s money to fight it. They would need to move “fast” to freeze the accounts. On 11 November 2011, Clair prepared a draft letter to be sent to his solicitor. He forwarded a copy to Hobson by email that day requesting Hobson review its contents. That letter proposed a plan of attack against the second defendant and others. The attack plan was divided into stages.

First, to continue working with the second defendant to arrange for the final detention basin blocks to be submitted to Council. Clair noted nothing could or should be done at this time as any move would allow the second defendant ample time to sabotage the project. Second, once the operational works were achieved, to commence a three-pronged attack by lodging caveats over blocks owned by the first defendant, and over the second and fifth defendants’ residential property. Third, to seek a Mareva injunction against entities associated with the second defendant. Fourth, to seek an interlocutory injunction to the relevant banks suspending the first defendant’s accounts.

The next phase of the plan was to file Supreme Court proceedings against the various defendants, making claims of mismanagement, misappropriation and misrepresentation. There was to be no negotiation or settlement. It was proposed they proceed “with a shock and awe strategy of multiple proceedings at once”. It was observed the second defendant would need to fund the entire litigation himself as he would have no access to the first defendant’s accounts, and as the second defendant was “broke”, this would assist them. The letter requested the instructing solicitors commence drafting proceedings.

On 13 November 2011, Clair confirmed by email to Hobson that his solicitors had been instructed to proceed. By email dated 14 November 2011, Hobson’s solicitors confirmed the course of action in Clair’s email to his solicitors was appropriate. Hobson forwarded that email to Clair, who forwarded it to his solicitor. On 15 November 2011, Clair sent Hobson another email. He noted a remaining outstanding issue was having a caveat registered against the fifth defendant’s property. That was said to be important, strategically and legally. Clair also noted as they had not yet filed the development application for the detention basin lots, and that would take a month or so, they had time to put the plan in order.

By email dated 30 November 2011, Clair confirmed with Hobson that the Council had received a works application for the detention basin lots. By email dated 13 January 2012, Hobson advised his solicitor Council had released development approval for the detention basis lots, and the second defendant could do nothing to jeopardise or halt the final stages of the development. He told his solicitor it was now a great time to move forward and address the plaintiff’s position. A conference was subsequently organised between Hobson and Clair.

Hobson agreed a tactical decision had been made to not file proceedings until the Council had approved the detention basin lots. It was decided Clair would continue to communicate with the second defendant to ensure the completion of the joint venture project. Hobson agreed it was a deliberately secretive act not to disclose Hobson’s reappointment as a director of the plaintiff to the second defendant.

Hobson said Clair, as part of their agreement to reappoint Hobson as a director of the plaintiff, had signed a waiver in October indicating nothing had changed from the original joint venture, nor had any funds been distributed. The reference to the waiver appears to relate to an email sent by Clair to Hobson on 30 August 2011, wherein Clair informed Hobson he had not entered into any private arrangements with the first or second defendants, nor had he received anything from them concerning the development. He also confirmed he would continue to act in the plaintiff’s best interests.

Hobson agreed one of the reasons proceedings were not commenced against the second defendant initially was to make sure the project was in a state of completion. Work needed to be undertaken in order to prepare Lots 22 and 23 so that they could become saleable. Hobson knew the second defendant would meet most of those payments. He knew the plaintiff had no money at that point and did not contribute at all to the cost. Hobson also had not contributed any more money for the development of those two lots. Hobson agreed he was letting the second defendant fund these works not knowing of Hobson’s reappointment or of their plans.

In 2012, Hobson took steps to remove Clair as a director of the plaintiff. He used a clause in the Shareholders Agreement between Clair and Hobson. Hobson said Clair had improperly used the plaintiff’s funds. Hobson gave Clair no reasons for his removal. Hobson did not inform the second defendant of Clair’s removal.

On 23 April 2012, solicitors acting for the plaintiff offered to finalise the joint venture arrangement on a without prejudice basis. By this time, one of the detention basin lots had been sold. The remaining one was still listed for sale. The offer involved the payment to the plaintiff of a lump sum of $15,000 in satisfaction of any entitlement the plaintiff may have to the sale proceeds of the last of the detention basin lots. Hobson said he had never instructed those solicitors to act on the plaintiff’s behalf. Clair also never consulted him in relation to a bargain along those lines.

On 4 May 2012, as the “sole director” of the plaintiff, Clair executed a document headed Memorandum of Agreement between “Devren Pty Ltd on the one part and Old Coach Developments Pty Ltd and the Peter Miller Family Trust on the other part”.^[11] That agreement recorded the plaintiff agreed to sell its rights to any future income in the Joint Venture Agreement to the Peter Miller Family Trust for a sum of $15,000. The agreement further recorded that payment would formally end the Joint Venture Agreement, and neither party would have any further claim whatsoever against one another or against the manager of the joint venture. The settlement sum was transferred by 9 May 2012.

The second defendant said at that time believed Clair to be the sole director of the plaintiff, and to have authority to act on behalf of the plaintiff. Hobson said he never gave authority for the plaintiff to reach an agreement along those lines.

Expert evidence

The plaintiff tendered expert evidence from a forensic accountant, Elia Lytras. In his report dated 21 July 2014 (“initial report”), Lytras assessed the amount payable to the plaintiff as at that date in two separate scenarios. In the first scenario, the defendants would retain the profits of the sale of Lot 22 and the plaintiff would receive Lot 23 unencumbered. In that scenario, Lytras opined the plaintiff would receive $562,218 and Lot 23 unencumbered. In the second scenario, the joint venturers would sell both Lots 22 and 23 and share the profits from those sales. In that scenario, Lytras opined the plaintiff would receive $587,563.

In a supplementary letter dated 25 July 2014 (“supplementary letter”), Lytras amended his assessment of the amount payable to the plaintiff in the first scenario. Lytras opined that the amount payable to the plaintiff should reflect the costs to the joint venture of transferring Lot 23 to the plaintiff, which would reduce the joint venturers’ recorded profit. As a consequence, the plaintiff would receive $386,920 and Lot 23 unencumbered. Further, in that supplementary letter, Lytras correlated his assessment of the $108,725 identified as having been received by the plaintiff from the joint venture with the $56,575 identified as having been received by the plaintiff in the pleadings. This discrepancy was caused by to a combination of treating the $49,493 additional equity contributed by the plaintiff as a loan repayment rather than a profit distribution, and a $2,657 calculation discrepancy.

In cross-examination on 29 July 2014, Lytras explained that the rationale for the amendments to his initial report centred on changes to his accounting assumptions, on the basis of instructions from the plaintiff’s solicitors as to how to treat payments to Clair, rather than any changes to the figures themselves.

Plaintiff’s submissions

The plaintiff submitted Clair did not, at any of the material times, have authority to bind the plaintiff. Clair was convicted of fraud on 6 December 2007. As a consequence, he was disqualified from managing a corporation. Alternatively, the plaintiff submitted that Clair’s authority as a director was governed by the plaintiff’s constitution, which required both Clair and Hobson’s agreement before any binding decisions could be made.

The plaintiff further submitted Clair could only have had ostensible authority to act on the plaintiff’s behalf if it could be established that Hobson had, by words or conduct, represented to the defendants that Clair had been authorised to act as the plaintiff’s agent and, in reliance upon those representations, the defendants had entered into transactions within the scope of that ostensible authority. Clair’s representations cannot be relevant to the question of ostensible authority, except to the extent they are shown to have been acquiesced in by Hobson, acting on the plaintiff’s behalf.

The plaintiff submitted there is no evidence to establish the defendants relied on any relevant representations by Hobson. The defendants were aware Hobson had been removed as a director from 21 March 2011. The defendants could not rely on any representation by Hobson after that date, as they did not believe Hobson had authority to act on the plaintiff’s behalf. The plaintiff submitted the only representations by Hobson relied upon by the defendants prior to that date were communications by Clair to the second defendant (with copies sent to Hobson) and a communication by Hobson to the second defendant dated 7 July 2010. The latter communication indicated Hobson would allow the continued appointment of Clair as the plaintiff’s representative to aid in the management of the project. However, that representation must be read in the context of Clair’s earlier communications to the second defendant, wherein Clair said he did not have authority to make any decisions on the plaintiff’s behalf without first obtaining Hobson’s approval.

The plaintiff submitted there is no evidence of any representation by the plaintiff that held Clair out as a director. Clair’s purported removal of Hobson was not an act of the company. The only relevant acts of the company were Hobson’s statements the second defendant should not treat Clair as the sole director (on the basis Hobson had not been removed legally as a director).

The plaintiff also submitted there is no evidence to establish Hobson was validly removed as a director. At the time Clair purported to remove Hobson, Clair was not a director of the plaintiff as he had been disqualified by reason of his conviction. Further, the clause in the plaintiff’s Shareholders Agreement, which Clair relied on to support his removal of Hobson as a director, provided the office of a director would be vacated if that director became, in the opinion of all of the other directors, incapable by reason of mental disorder of discharging the duties of director. Clair did not hold the requisite expertise to form such an opinion, and there was no evidence Hobson was suffering from any mental disorder at that time. Although Hobson was suffering stresses in his life, they were insufficient to engage the relevant clause in the plaintiff’s Shareholders Agreement.

The plaintiff further submitted as Clair was not a director, due to his conviction, he was not entitled to enter into the May 2012 agreement on the plaintiff’s behalf. There is no evidence to support a finding the defendants at that stage had been left with the impression, by reason of any representations by Hobson, that the plaintiff authorised Clair’s conduct. The evidence is to the contrary; the second defendant gave evidence he considered Hobson had no authority to act on behalf of the plaintiff after 31 March 2011.

The plaintiff submitted once that conclusion is reached, the transactions undertaken by the first defendant at the request of Clair, in respect of dividend payments due and payable to the plaintiff, constitute transactions made without the authority of the plaintiff. Whilst it is not disputed the payments were made at Clair’s direction, they are not payments made at the direction of the plaintiff. The monies remain due and payable to the plaintiff, in accordance with the Joint Venture Agreement. The payments authorised by the second defendant, in respect of legal expenses, out of the first defendant’s funds, were also not payments authorised by the joint venture.

The plaintiff further submitted there is no evidence to establish the second defendant is entitled to the $80,000 management fee. The second defendant has been unable to produce any minute dated 7 October 2010. There is no basis to conclude the parties reached any final agreement to this effect.

The plaintiff submitted, in respect of Lot 23 of the joint venture, that Clair’s agreement to allow the second defendant to receive 75% of the profit was an agreement between Clair and the second defendant at a time when Clair had no authority to make the agreement on behalf of the plaintiff. That agreement is accordingly of no effect. Clause 16.14 of the Shareholders Agreement provided what was to occur in respect of Lot 23. If it could not be sold, Lot 23 was to be transferred by the first defendant to the plaintiff free of charge. As a reasonable time has now passed, the lot ought to be transferred to the plaintiff in accordance with the Shareholders Agreement.

By way of an alternative claim, the plaintiff submitted the joint venture’s partners were fiduciaries to each other, and the plaintiff was in a position of vulnerability having regard to the second defendant’s position as manager of the joint venture, and the person having control over the first defendant. The contractual breaches by the defendants also constitute breaches of fiduciary duty, particularly the purported removal of Hobson and the plaintiff from management of the first defendant on 30 June 2010 by reason of an alleged fundamental breach of the agreements between the parties. Those steps allowed the second defendant to operate in a way that allowed him to make the payments sought by Clair, without the restriction of approval from the plaintiff’s representative, Hobson.

The plaintiff further submitted the defendants’ actions, in removing Hobson and the plaintiff, were made in circumstances where the defendants were well aware of the need to first give notice to remedy the breach. The Minutes of Meeting record a resolution to “waive” that notice. The failure of the fifth defendant to give evidence, where she was a signatory to those minutes, allows the Court to draw an inference the fifth defendant was aware of this breach. The conduct of the second defendant and fifth defendant is properly characterised as dishonest in all of the circumstances.

The plaintiff submitted the breaches of fiduciary duty caused the claimed losses. If the second defendant had not used his position in the first defendant to exclude the plaintiff and Hobson, the payments made at the direction of Clair would not have been made, and the plaintiff would have available to it the funds due and payable, including those amounts paid by way of legal fees in respect of the dispute between the plaintiff and Hobson.

Defendants’ submissions

The defendants submitted Clair had authority to act as the plaintiff’s sole director. He was the Managing Director of the plaintiff from the date it purchased a share in the joint venture. Hobson had also appointed Clair as the plaintiff’s agent for the joint venture on 7 July 2010 and had not withdrawn that authority. Hobson never contested that Clair was a director of the plaintiff at the relevant time. Hobson acknowledged to his bank that Clair was the sole director of the plaintiff on 21 October 2011. Hobson also negotiated his reinstatement as a director of the plaintiff with Clair, thereby acknowledging Clair’s authority as a director to appoint him. The defendants also rely on ASIC’s refusal to register an attempt by Hobson to have himself recorded as a director on 30 March 2011, and that Clair had good reason to remove Hobson as a director in accordance with their Shareholders Agreement.

The defendants submitted there was a conspiracy between Hobson and Clair to induce the defendants to expend monies on the detention basin lots, thereby benefiting the plaintiff. They deliberately withheld Hobson’s reappointment from the defendants. A principle known as “lingering apparent authority” applies in circumstances where a principal terminates the authority of the agent but does not inform third parties of that termination. It also applies if the agent acts in the presence of the principal, who stands silently and does nothing to dissuade the third party from believing that agent has the relevant authority. As a consequence, the plaintiff is estopped from denying the validity of Clair’s actions. Clair and Hobson also engaged in a dishonest deception. This was a joint decision by Hobson and Clair, in circumstances where Hobson knew the defendants would be expending money to complete the project for the benefit of the joint venture parties.

The defendants further submitted there is no evidence to establish Clair was validly removed as a director. Clair’s actions on behalf of the plaintiff are therefore valid, and the agreements executed by Clair on the plaintiff’s behalf are enforceable. Further, there is clear evidence Hobson acquiesced in Clair’s status as a sole director of the plaintiff. Hobson was aware the defendants were acting on the understanding Clair had authority to represent the plaintiff in respect of the joint venture.

As to Lots 22 and 23, the defendants submitted the agreement entered into by the joint venture partners envisaged the possibility the lots would not be able to be developed and sold. However, they were developed and Lot 22 was sold. Lot 23 was subject to a contract of sale which could not proceed because of the lodgement of a caveat by the plaintiff. The plaintiff was aware the defendants were funding the work on the detention basin lots. It is not a reasonable interpretation of the agreement to allow the plaintiff to benefit by receiving a lot for which it paid nothing towards its development.

In any event, the plaintiff agreed to forego its rights in exchange for $15,000, which was paid on 9 May 2012. That agreement was made by Clair at a time when the defendants believed Clair to have authority to act on the plaintiff’s behalf, and when Hobson had authorised Clair to continue as the plaintiff’s representative for the joint venture. The defendants were not aware of the steps Hobson had taken to remove Clair as a director of the plaintiff. The plaintiff has not refunded the $15,000 the defendants paid in accordance with the agreement. The plaintiff is estopped from denying the validity of the agreement.

Finally, the defendants submitted the plaintiff is currently insolvent and the purported appointment of Mahan as its director is a sham devised to allow the plaintiff to bring this action.

In respect of the claimed loss, the defendants submit Lytras made several errors in his calculations, such that $65,082 should be deducted from his assessed sums. Further, there is clear evidence the plaintiff agreed to pay the second defendant the sum of $80,000 by way of a management fee. The legal fees authorised by the second defendant were also properly incurred by the joint venture partners.

Findings

Generally

Both Hobson and the second defendant impressed me as being unreliable and inaccurate historians. Further, much of their evidence was characterised by underlying distrust for the other. The venom produced in the course of their deteriorating and increasingly toxic relationship, apparent in the vitriolic language used in many of the emails to each other, was apparent in the course of their evidence. Each was keen to disparage the other, and to cast aspersions on the motives for claims made by each other.

The evidence of both Hobson and the second defendant left me with the clear impression that each was prepared to tailor the answers to questions in order to place his conduct in a better light. I am satisfied I should be cautious accepting any of their evidence as to the conduct of others through the course of the joint venture, except to the extent it is supported by documentary or other evidence. Fortunately, there is a considerable body of contemporaneously sent emails and other communications which provide assistance in this regard.

There is a further aspect of concern in respect of Hobson’s evidence. He was, on occasions, evasive in his response to questions. His evidence in respect of the payment of a management fee to the second defendant was, at best, disingenuous. Hobson initially denied there was any agreement with the second defendant in respect of the payment of a management fee. Subsequently, he accepted there was an agreement to pay a management fee, although Hobson denied the amount of that fee was agreed between the parties. I do not accept his evidence on this issue in that respect.

I found Hobson to be particularly evasive in respect of this issue. Further, it is inconceivable the second defendant would have allowed a situation where there was an agreement for payment of a management fee which was unspecified in its amount. The second defendant impressed me as a person who pays close attention to the financial aspects of his projects, particularly they impacts on him personally.

Hobson’s responses to this issue satisfy me additional caution should be exercised in relation to any evidence Hobson gave by way of purported explanation for the contents of contemporaneous emails and other documentary evidence. I am satisfied Hobson was quite prepared to give deliberately inaccurate evidence in order to positively harm the defendants’ defence of the plaintiff’s claim.

Can the plaintiff bring the proceeding?

An issue which arose at the hearing was whether the plaintiff currently has a director who can properly give instructions. That issue arose as a consequence of the fact that Hobson is now an undischarged bankrupt.

The current director Mahan gave evidence he was appointed by Hobson as director of the plaintiff in early 2013. He signed a Consent to Act as Director on 27 February 2013. Mahan was recorded by ASIC as a director as of, and from, 27 February 2013. This appointment pre-dated Hobson’s bankruptcy.

The plaintiff’s Shareholders Agreement gives Hobson a power to appoint a director. He was a director of the plaintiff at the time he appointed Mahan. There is no basis to conclude Mahan was other than properly appointed as a director of the plaintiff.

Affidavit of Loel

At the hearing reference was made to an affidavit by James Beresford Loel, sworn 20 August 2013, and filed as part of an earlier application in the proceeding. The defendants sought to have the affidavit tendered as evidence at the hearing. They contended its contents were material to issues in dispute, namely, whether a management fee of $80,000 had been agreed between the parties, and the date of Hobson’s bankruptcy. They claimed they had notified the plaintiff of their intention to tender the affidavit as evidence.

The plaintiff opposed the tender of that affidavit, submitting that in proceedings commenced by claim, evidence should generally be given orally. The plaintiff also contended the defendants had not given notice of their intention to tender the affidavit as evidence, and the contents of the affidavit were hearsay and irrelevant to the issues to be determined in the hearing.

Whilst this Court has power to order evidence be given by way of affidavit and, generally, has a wide discretion in relation to the admission of evidence, I am satisfied there is no part of the affidavit which would provide relevant evidence that is material to the issues I must determine in the proceeding.

There is no suggestion Loel was present at the time of any of the discussions relevant to any agreement between the plaintiff and the second defendant as to the payment of a management fee. Any assertion by Loel as to the terms of such an agreement could only be on the basis of information provided to him. Nowhere in the affidavit does Loel swear that information was supplied by a particular individual, including Hobson.

In respect of Hobson’s bankruptcy, there is clear, uncontroverted evidence from the relevant statutory records as to the date of bankruptcy. Any assertion by Loel as to the date could be no more than based on information and belief.

The contents of the affidavit are irrelevant. The plaintiff’s objection to its admissibility is upheld.

Was Clair ever a director of the plaintiff?

On 24 September 2007, Clair entered pleas of guilty to two counts of fraud. The offences were committed between 30 April 2006 and 2 July 2006. Clair had also entered a plea, on 19 September 2007, in respect of a further offence of fraud committed between 31 May 2006 and 31 July 2006. On 6 December 2007, Clair was, in respect of each of those offences, placed on a recognisance in the sum of $1,000, conditioned that he be of good behaviour for a period of 12 months. Convictions were recorded in respect of each of those counts.

Section 206B of the Corporations Act relevantly provides:

“1.A person becomes disqualified from managing corporations if the person:

is convicted of an offence that:

involves dishonesty and is punishable by imprisonment for at least three months …”

The offences Clair was convicted of on 6 December 2007 carried a maximum penalty of imprisonment for five years, or 12 years in certain circumstances of aggravation. Whilst the defendants contend s 206B, properly construed, relates to the actual sentence imposed, the relevant words of the section do not support that conclusion. The words are “is punishable by imprisonment”, not “is punished by imprisonment” (emphasis added). The applicable phrase is directed to the nature of the penalty that may be imposed for the particular offence, not the actual sentence imposed on the particular offender.^[12]

As a consequence of Clair’s conviction, he was disqualified from managing corporations for a period of five years from 6 December 2007. That being so, he was not, during any of the relevant period, qualified to be a director of the plaintiff. As Clair was not a director during any of the relevant period, his removal of Hobson as a director was itself ineffective. Accordingly, Hobson remained a director of the plaintiff throughout the relevant period.

Did Clair have ostensible authority to bind the plaintiff?

The concept of ostensible authority is founded on the principle of estoppel. The doctrine is summarised in Halsbury’s Laws of Australia:^[13]

“Agency by estoppel arises when one person by words or conduct represents to another that a third person has been authorised as agent, and in reliance the other person enters into transactions with the third person within the scope of that ostensible authority. The first mentioned person is estopped from denying the fact of the third person’s agency under the general law of estoppel, and it is immaterial whether the ostensible agent has no authority, or merely acted in excess of the actual authority. The holding out may be by acts of the principal, or by the principal allowing the agent to hold himself or herself out as having authority. No representation made solely by the agent as to the extent of his or her authority can amount to a holding out by the principal.”

As can be seen from that enunciation of the doctrine, ostensible authority does not only relate to the principal’s representations, be they by words or conduct. It can also arise when the principal allows the agent to hold himself or herself out as having authority.

The plaintiff submits Hobson did not make any representations which could properly form the basis for ostensible authority, as at the time Hobson made the relevant representations, the second defendant did not believe Hobson to be a director of the plaintiff. However, this analysis fails to have regard to the fundamental basis upon which the defendants first entered into business relations with the plaintiff.

That fundamental basis was that Clair was a director of the plaintiff. Hobson had appointed Clair as a director of the plaintiff. He was aware the plaintiff’s business cards listed Clair as managing director. These acts constituted clear representations by Hobson, from the outset of the plaintiff’s dealings with the defendants, that Clair was a director of the plaintiff and authorised to act on the plaintiff’s behalf.

Throughout the plaintiff’s dealings with the defendants, Hobson never informed the defendants Clair lacked authority to bind the plaintiff. Even when Clair purported to remove Hobson as a director of the plaintiff, Hobson did not challenge Clair’s continuing appointment as a director of the plaintiff. Whilst Clair and Hobson may have had internal agreements in relation to decision-making within the plaintiff, Hobson accepted no outsiders, including the defendants, were aware of those arrangements.

Whilst the plaintiff points to a communication from Clair to the second defendant, wherein Clair indicated he would continue to represent the plaintiff but could not make decisions without Hobson’s consent and approval, no such qualification was imposed by Hobson in his communications with the second defendant confirming he was happy for Clair to continue as the authorised representative of the plaintiff in the joint venture. If there was an ongoing qualification on Clair’s entitlement to bind the plaintiff, a clear statement to that effect would be expected to have been made at that time.

There was also nothing in Clair or Hobson’s conduct which ought to have caused the defendants to have reasonably considered there was a limitation on Clair’s authority to bind the plaintiff. Throughout the period, Clair’s instructions were consistent with advancing the interests of the plaintiff, in the context of the joint venture. Even the instructions in relation to the payment of dividends due to the plaintiff were, on their face, in accord with the interests of the plaintiff. There was also no reason for the defendants to suspect Clair’s instructions were not with Hobson’s approval, even assuming there was a limitation on Clair’s authority.

Whilst Clair was never a director of the plaintiff, I am satisfied throughout the relevant period Clair had ostensible authority to act on behalf of the plaintiff. Each of his instructions in that respect were binding on the plaintiff.

There is an alternative basis upon which Clair had ostensible authority. That arises as a consequence of Hobson’s silence throughout the period in respect of any claim that Clair did not have authority to bind the plaintiff. If, as Hobson now contends, there was a specific restriction on Clair’s ability to bind the plaintiff, it was incumbent upon him to speak out, particularly as he was well aware that throughout this period Clair was acting as the plaintiff’s representative in respect of the joint venture, a position specifically confirmed by Hobson in correspondence with the second defendant.

That this silence is properly to be characterised as allowing Clair to hold himself out as having authority is confirmed by a consideration of Hobson’s conduct at the time arrangements were being made for remediation of the detention basin lots so they may be sold in accordance with the Joint Venture Agreement.

Hobson was well aware the second defendant was funding this remediation work, and that the plaintiff was contributing no further funds towards it. He was also well aware Clair was actively involved in providing instructions in relation to the performance of that work. Hobson made a deliberate tactical decision, in consultation with Clair, to not inform the defendants Hobson had been reappointed as a director of the plaintiff. This was done to ensure nothing would jeopardise the completion of that work, which was intended to financially benefit the plaintiff as a member of the joint venture.

All this occurred in the context of Hobson being aware the joint venture partners would need to make joint decisions in relation to that work. Those decisions involved not only the expenditure of money. They also involved seeking and obtaining the necessary approvals to allow the lots to become saleable. Hobson was plainly aware Clair was holding himself out as having authority to act on behalf of the plaintiff at this time. He willingly stood by whilst that process took place, including allowing the defendants to expend monies in relation to the remediation work. The plaintiff is bound by Clair’s actions throughout this period.

Were the payments made by the joint venture at Clair’s direction, payments to the plaintiff?

Lytras carefully considered all of the relevant documentation and found the records were largely accurate. His evidence is that the payments made by the first defendant, at the request of Clair, were in the amounts and on the dates and to the entities specified in those records. As Clair had ostensible authority to act on behalf of the plaintiff, there is no reason why those payments are not properly to be characterised as distributions to the plaintiff. They were paid in accordance with, and on the instructions of, the plaintiff’s authorised representative. The fact the plaintiff did not ultimately receive the benefits of those payments is not a loss attributable to the defendants. That loss is a matter between the plaintiff and Clair. The plaintiff is not entitled to recover those payments.

Solicitors’ fees

The plaintiff contends the payment by the first defendant of solicitors’ fees during the period when the second defendant and Hobson were in dispute was not authorised by the Joint Venture Agreement, and constitutes a breach of contract.

The fees related to issues concerning the joint venture. Those issues properly included disputes between parties to the joint venture. There is no basis to conclude those payments were outside the legitimate authority of the second defendant, or contrary to the terms of the joint venture and other agreements.

4 May 2012 agreement

At the time this agreement was entered into between the plaintiff and the defendants, Clair was, to the knowledge of Hobson, holding himself out as the authorised representative of the plaintiff in respect of the joint venture project. The defendants were not aware Hobson had been reappointed as a director of the plaintiff at that time. Hobson deliberately withheld this information from the defendants.

Clair had ostensible authority to bind the plaintiff at the relevant time. The agreement entered into was for valuable consideration, which was paid by the defendants. There was a sound commercial basis for the agreement: the plaintiff had no money and considerable funds were being expended to complete the detention basin lots. The 4 May 2012 agreement is binding on the plaintiff.

Significantly, not only was the agreement executed by Clair on behalf of the plaintiff but the plaintiff’s solicitors received, in accordance with the agreement, the agreed consideration of $15,000. There is no suggestion the plaintiff has refunded that amount.

The 4 May 2012 agreement expressly provided that the plaintiff forwent any entitlement to future income from the joint venture project. That included Lots 22 and 23. The plaintiff has no entitlement to recover any profit from Lot 22, or to receive Lot 23 as claimed in the statement of claim.

Even if I am wrong in that conclusion, a consideration of the terms of the Joint Venture Agreement does not support the plaintiff’s submission that it has an entitlement to have lot 23 transferred to it, unencumbered.

Whilst the Joint Venture Agreement envisaged Lot 23 would be transferred to the plaintiff if it were not sold, there is no basis to conclude a reasonable time has passed with regard to the sale of that lot. Lot 23 was subject to a contract of sale which could not proceed as a consequence of the plaintiff’s own actions in placing a caveat on that lot.

If the 4 May 2012 agreement was not enforceable, the plaintiff is only entitled to 25% of the profit from the sale of Lot 23, pursuant to an earlier agreement reached between the parties. That earlier agreement was made at a time when Clair had ostensible authority to bind the plaintiff. That agreement should be enforced in that event.

The management fee

An issue raised in the course of the evidence, although not on the pleadings, was whether an agreement had been reached between the plaintiff and the defendants for the payment of a management fee of $80,000 to the second defendant. That agreement was said to have arisen in circumstances where Hobson and Clair had not been performing their responsibilities as part of the joint venture project, and the second defendant had been required to perform more of the duties relevant to the joint venture project.

The second defendant contended the agreement was evidenced by minutes of a meeting held on 7 October 2009. The minute of that meeting has not been produced by the second defendant, despite persistent requests by the plaintiff. The second defendant says he is unable to produce it because his previous solicitors will not release it pending payment of their outstanding fees.

Whilst at first blush, the non-production such a crucial document would give reason to doubt the existence of the agreement, two factors satisfy me an agreement was made as alleged by the second defendant.

First, Hobson accepted in evidence the plaintiff had agreed to pay the second defendant a management fee, although he contended no amount was set for that fee.

Second, from a relatively early stage the second defendant was contending in correspondence an agreement had been reached between the parties for the payment of an $80,000 management fee. His claim is not a recent invention.

Whilst I am satisfied there was an agreement between the parties for the payment to the second defendant of a management fee of $80,000, there is no claim in the pleadings for recovery of that sum by the defendants.

Breach of fiduciary duty

Joint venture partners are in a position where each owes fiduciary duties to the other. The very nature of the relationship is one based on mutual trust, and the need for one party to act in good faith in respect of the other.

Directors of companies also owe fiduciary duties. Where, as here, a person is a director of more than one company, conflicting fiduciary duties may be owed by one person. The principle was summarised in R v Burns:^[14]

“A company is entitled to the unbiased and independent judgement of each of its directors. A director of a company who is also a director of another company may owe conflicting fiduciary duties. Being a fiduciary, the director of the first company must not exercise his or her powers for the benefit or gain of the second company without clearly disclosing the second company’s interest to the first company and obtaining the first company’s consent. Nor, of course, can the director exercise those powers for the director’s own benefit or gain without clearly disclosing his or her interest and obtaining the company’s consent. A fiduciary must not exercise an authority or power for the personal benefit or gain of the fiduciary or a third party to whom a fiduciary is owed without the beneficiaries consent.”^[15]

In the present case, the plaintiff contends the breach of fiduciary duty arises as a consequence of the joint venture arrangement and the control it afforded the second defendant in respect of both the first defendant and the operation of the joint venture project.

That structure is said to have resulted in a vulnerability, in the sense discussed by Mason J in Hospital Products Ltd v United States Surgical Corporation.^[16] The second defendant was appointed manager of the joint venture and attorney of the joint venture vehicle, the first defendant, in circumstances where the second defendant’s interests had majority control of the first defendant.

The plaintiff submits that having regard to this vulnerability the actions of the second defendant, with the assistance of the fifth defendant, in removing the plaintiff and Hobson from the first defendant and the joint venture on 30 June 2010 allowed the second defendant to operate thereafter without scrutiny. The plaintiff’s loss was as a consequence of those actions, which were taken when the second defendant was aware that under the Shareholders Agreement there was a need to give notice of a fundamental default and time to remedy but the second defendant did not do so.

That the second defendant, and by inference the fifth defendant, was aware of the need for notice is clear from the resolutions, which purported to waive such notice. The second defendant also admitted in evidence he was aware of the need for such notice. However, whilst the second defendant did not act in accordance with the Shareholders Agreement in removing the plaintiff and Hobson from the affairs of the first defendant, the plaintiff continued to have extensive involvement in the operation of the joint venture project. Clair was, to Hobson’s knowledge, continuing to act as the plaintiff’s representative throughout this time.

The second defendant’s actions did not result in the plaintiff being placed in a vulnerable position. The plaintiff, by its authorised representative Clair, continued to have an active involvement in the management of the joint venture project. It continued to be consulted as to decisions. The payments which the plaintiff complains about were expressly made at the request of the plaintiff’s authorised representative.

In any event, there is no causal connection between the alleged breach of fiduciary duty and the plaintiff’s losses. The need for such a causal connection was discussed in O'Halloran v R T Thomas & Family Pty Ltd^[17]:

“To adopt the words of the High Court in Maguire v Makaronis, the court must identify ‘… the criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty’. In the case of a trustee dealing with trust property, the law has proceeded beyond the invocation of the formulaic ‘common sense’ approach to causation, by adopting a stringent test to the selection of those events preceding loss which are to be taken as causing the loss. There is a sufficient connection, irrespective of the identification of a separate and concurrent cause, when the loss would not have occurred if there had been no breach of duty. As in the case of a disposition induced by fraud or duress ‘… in this field the court does not allow an examination into the relative importance of contributory causes’. The issue is whether, in the circumstances of the case, an ‘adequate or sufficient connection’ is established by applying the test appropriate in the case of breach by the trustee of a traditional trust or by some other, less stringent, test.”^[18]

Whilst equity may adopt a less stringent approach to causation, there must be a connection between the loss and the breach. Here, the loss arose by reason of Clair’s actions, not by reason of the second defendant’s actions. At all times, Clair was acting as the authorised agent of the plaintiff, giving instructions on the plaintiff’s behalf.

The claim the fifth defendant is liable for any breach of fiduciary duty by the second defendant is based on the principles in Barnes v Addy.^[19] Those principles are the genesis for liability by one for the breach of fiduciary duty of another under either of two limbs. Those principles were recently considered by Jackson J in Cornerstone Property and Development Pty Ltd v Suellen Properties Pty Ltd & Anor.^[20]

As I have not found the second defendant breached any fiduciary duty, there is no need to consider further the fifth defendant’s liability for such a breach. However, in the event I am wrong in that conclusion, I shall briefly state my conclusions on this aspect of the plaintiff’s case.

Whilst the second defendant removed Hobson and the plaintiff from the first defendant’s affairs, the second defendant continued to involve the plaintiff through its duly authorised representative Clair in decisions necessary to complete the joint venture project. All decisions made by the second defendant during this time advanced the interests of the joint venture partners.

A consideration of all of the relevant conduct does not support a conclusion that the fifth defendant’s conduct constituted a “transgression of ordinary standards of honest behaviour”.^[21] There is no basis to conclude the fifth defendant is liable for any breach of fiduciary duty by the second defendant.

Conclusions

The plaintiff has not established any breach of contractual duty by the defendants. The actions of the defendants were in accordance with the instructions of Clair, who at all times had ostensible authority to bind the plaintiff. The plaintiff also has not established any breach of fiduciary duty by the defendants.

The plaintiff’s claim is dismissed.

I shall hear the parties as to any ancillary or other orders, and as to costs.

Footnotes

[1] Ex.27.

[2] Ex.28.

[3] Statement of second defendant, para. 30.

[4] T7-16/10-20.

[5] Ex.49.

[6] T3-9/15.

[7] Ex.52.

[8] T3-12/20.

[9] T7-33/30.

[10] Ex.61.

[11] Ex.83.

[12] Coleman v DPP (2002) 5 VR 393 at 394-395.

[13] Halbury’s Laws of Australia (online ed.) at [15]-[60].

[14] (1996) 183 CLR 501 at 516-7.

[15] Citations omitted.

[16] (1984) 156 CLR 41 at 96-97.

[17] (1998) 45 NSWLR 262 at 278-279.

[18] Citations omitted.

[19] (1873-1874) LR 9 Ch A pp 244 at 251-252.

[20] [2014] QSC 265 at [60] – [65].

[21] Cornerstone Property and Development Pty Ltd v Suellen Properties Pty Ltd & Anor [2014] QSC 265 [92].

Editorial Notes

Published Case Name:
Devren Pty Ltd v Old Coach Developments Pty Ltd and Ors
Shortened Case Name:
Devren Pty Ltd v Old Coach Developments Pty Ltd
MNC:
[2015] QSC 53
Court:
QSC
Judge(s):
Boddice J
Date:
19 Mar 2015
White Star Case:
Yes

Appeal Status

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Cases Cited List of Cases Cited by this judgment

Case Name	Full Citation	Frequency
Coleman v DPP	View on:VR(2002) 5 VR 393	1 citation Jump To Cite 1 - (2002) 5 VR 393
Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd	[2015] 1 Qd R 75; [2014] QSC 265	2 citations Jump To Cite 1 - [2014] QSC 265 Cite 2 - [2014] QSC 265
Hospital Products Ltd v United States Surgical Corporation	View on:JADE(1984) 156 CLR 41	2 citations Jump To Cite 1 - (1984) 156 CLR 41 Cite 2 - (1984) 156 CLR 41
O'Halloran v R T Thomas & Family Pty Ltd	View on:JADE(1996) 183 CLR 501	2 citations Jump To Cite 1 - (1996) 183 CLR 501 Cite 2 - (1996) 183 CLR 501
O'Halloran v R T Thomas & Family Pty Ltd	View on:NSWLR(1998) NSWLR 262	1 citation Jump To Cite 1 - (1998) NSWLR 262
O'Halloran v RT Thomas & Family Pty Ltd	View on:NSWLR(1998) 45 NSWLR 262	1 citation Jump To Cite 1 - (1998) 45 NSWLR 262
Wood v Woad	(1873-1874) LR 9	1 citation Jump To Cite 1 - (1873-1874) LR 9

Cases Citing List of cases on Queensland Judgments citing this Judgment

Case Name	Full Citation	Frequency
Loel v Miller	[2017] QCA 203	1 citation
Miller v Loel	[2017] 2 Qd R 334; [2016] QSC 289	8 citations
Miller v Loel	[2016] QSC 135	2 citations

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Devren Pty Ltd v Old Coach Developments Pty Ltd[2015] QSC 53