Jagatramka v Wollongong Coal Limited

THE COURT: In June 2008, the following circular resolution (the June 2008 resolution) was passed by the directors of a company then called Gujarat NRE Minerals Ltd, and now known as Wollongong Coal Limited (WCL):

Two of the four directors of the company were Mr Arun Jagatramka and his wife, Mrs Mona Jagatramka (Mr Jagatramka and Mrs Jagatramka, or collectively the Jagatramkas). They are the appellants in these proceedings. They appeal against the primary judge’s decision to enter judgment in favour of WCL against them in an amount exceeding $12 million as at June 2019 (including interest) in respect of their support of this resolution (the primary judgment, Wollongong Coal Ltd v Gujarat NRE Properties Pty Ltd [2020] NSWSC 254). The primary judge held at [116] that by voting on the resolution and advancing a particular purpose for it when they in fact held a different and undisclosed intention as to the use to be made of the Cliff Road property, the subject of the resolution, the Jagatramkas had improperly used their position to gain a benefit for themselves, which they did not declare in breach of their fiduciary duties to WCL, including the duty to avoid a conflict of interest and the duty to act in good faith, in the interests of WCL and for a proper purpose.

At [66] of his Honour’s decision, the primary judge identified as the “key question” in the case the question as to “what was the real intention of Mr Jagatramka as at June 2008 in promoting, and Mr and Mrs Jagatramka voting in favour of, the June 2008 resolution to purchase the Cliff Road property”. The primary judge summarised WCL’s contention as being that their purpose was “to have constructed an opulent house in which they would reside exclusively, continuously and indefinitely at no cost to themselves.” This description was a compressed reference to the pleaded case, which was that:

In his Honour’s reasons, the primary judge used the shorthand label “the exclusive residence intention”, but that was simply a convenient label; the case put and pleaded was that, as at June 2008, the Jagatramkas' purpose was to have constructed an opulent house in which they would reside “exclusively, continuously and indefinitely” at no cost to themselves.

The Jagatramkas denied having the exclusive residence intention as at June 2008 and, in their defence, contended that it was intended that the Cliff Road property would be a guest house for visiting executives of the Gujarat Group and guests of WCL, consistent with the terms of the resolution. The primary judge referred to this as the “guest house purpose”.

A second, complementary purpose for the purchase of the Cliff Road property was advanced by the Jagatramkas, namely, to make a statement to the people of Wollongong that WCL was committed to Wollongong for the long term. The primary judge referred to this as “the public relations purpose”.

The major issue both at trial and on appeal was whether or not the Jagatramkas in fact had the exclusive residence intention as at June 2008. Because of the nature of the breaches alleged, it was accepted that the Briginshaw standard applied: see the primary judgment at [69]. His Honour referred to the principle in Briginshaw v Briginshaw (1938) 60 CLR 336; [1938] HCA 34 (“Briginshaw”) as being that the court should only make a finding of wrongdoing if satisfied to a standard that recognises the seriousness of what is alleged, and noted that this was reflected in s 140(2) of the Evidence Act 1995 (NSW). It is desirable at this point to set out the key passage from the judgment of Sir Owen Dixon in Briginshaw at 361–362, which is said to reflect the principle derived from that case:

As at June 2008, Mr Jagatramka held the position of non-executive Chairman of WCL, which he had held since the company’s incorporation in October 2004. Mrs Jagatramka was appointed a non-executive director of WCL on 12 July 2007.

WCL was only one of a number of companies in the Gurjarat Group of companies, of which Mr Jagatramka was the Chairman and Managing Director. Headquartered in Kolkata, the Gujarat Group was described as “one of the largest independent metallurgical coke producers in India”, operating coke plants in the states of Gujarat and Karnataka. The principal trading entity of the Gujarat Group was Gujarat NRE Coke Limited, which was registered in India and listed on the Bombay Stock Exchange.

As at 27 June 2008, approximately 82.964% of WCL’s shares were directly owned and controlled by other companies within the Gujarat Group. According to WCL’s Financial Year 2008 Annual Report, Gujarat NRE Coke Limited was engaged in coal mine ownership and operation in Australia, steel manufacture in India, and wind and waste heat power generation. WCL’s principal activities were the mining, production, sale and export of coal, and the development and improvement of road infrastructure to access new sources of coal.

Another key Gujarat Group entity, for the purposes of this appeal, was Bhanu Properties Pty Ltd (formerly known as and hereby referred to as Gujarat NRE Properties Pty Ltd or Properties), a shelf company which was incorporated on 17 January 2007. The whole of the issued capital, 10,000 fully paid shares of $1, was initially held by a related company, NRE Resources Pty Ltd. On 16 June 2008, the same day as the June 2008 resolution, the shares in Properties were transferred to WCL. A circular resolution by the directors of Properties of the same date authorised the registration of WCL as the holder of the shares. The directors of Properties, as at the time of the share transfer, were Mr and Mrs Jagatramka, and Mr Sanjay Sharma (Mr Sharma).

The purchase of the Cliff Road property referred to in the June 2008 resolution was not effected directly by WCL. The relevant contract for the sale of land was executed by Properties on 19 June 2008 for a purchase price of $5 million. Settlement of the sale contract occurred on 12 August 2008. On 18 July 2008, WCL received notice from the Commonwealth Government’s Foreign Investment Review Board (FIRB) that Properties’ proposed purchase of the Cliff Road property had been approved.

Mr and Mrs Jagatramka did not permanently reside in Wollongong as at June 2008. The evidence was that the Jagatramka family was permanently based in India, with Mr Jagatramka travelling to Australia with varying frequency, between once a fortnight and once a month. On those occasions, he would ordinarily stay in the country for a period of between three and ten days. Mrs Jagatramka was said to have accompanied Mr Jagatramka on every second or third trip, such that she was in Australia “once every two or three months on average”. During their visits to Australia, the Jagatramkas stayed in a unit in Bank Street, Wollongong, described by the primary judge as a four bedroom apartment with ocean views (the Bank Street unit). That was sold by WCL in 2013, at about the same time as the sale of WCL’s shares in Properties.

As at June 2008, neither Mr Jagatramka or Mrs Jagatramka, nor their children, had any permanent right to reside in Australia. Mr Jagatramka did not obtain a so-called “457 visa” (which allowed him, Mrs Jagatramka and their children to reside in Australia for a period of up to four years) until 6 September 2011. The visa was sponsored by WCL and bore the following relevant conditions, whereby Mr Jagatramka was required to:

Completion of the purchase of the Cliff Road property occurred around 12 August 2008. At about that time Mrs Jagatramka and Mr Sharma, the Company Secretary of WCL, commenced discussions with a Mr Lalit Mital, an architect of Dynamic Design Solutions, concerning the design and construction of a residence on the property.

On 9 January 2009, Properties entered into a client and architect agreement with Mr Mital. It was made clear to Mr Mital that he was to consult with Mrs Jagatramka on all elements of design and fit-out.

Other key elements in the chronology that occurred in 2011 were as follows:

Because it assumed some significance in the proceedings, it should be noted that the property comprised two floors and a basement. The first floor was made up of a master bedroom with an ensuite bathroom, three other bedrooms, two with ensuite bathrooms, a home theatre, laundry and a kitchenette. The ground floor comprised of a lounge/entertainment area, a dining room, two kitchens, a bathroom (including ensuite and powder room) and a guest bedroom. The basement floor contained a rumpus room, bathroom, storeroom and garage, although a valuation report prepared at the time of its sale treated the room in the basement as an additional bedroom.

The evidence was that from the date of the house-warming party the Jagatramkas and their children lived at the property and occupied it until April 2015, despite its sale on 18 June 2013.

The financial position of WCL fluctuated significantly in the period between 2008 and 2011. Its coal production output was 507,700 tonnes in 2008, 849,000 tonnes in 2009, 1,333,000 tonnes in 2010, and 1,550,000 tonnes in 2011. In the years 2008, 2009 and 2010, WCL suffered losses of $8 million, $9.2 million and $11.7 million, whilst in 2011 it earned a net profit of $24.6 million. It remained profitable in 2012, but suffered losses in 2013 ($76.6 million) and 2014 ($91.8 million). Although the primary judge referred to the financial position of WCL in one of his findings, it was neither suggested nor found that the purchase or development of the Cliff Road property was financially improvident.

The sale of WCL’s shares in Properties took place in response to WCL’s fortunes suffering significantly under a cash flow crisis, which was said to warrant the sale of “non-core assets of the business.” On 14 May 2013, a Valuation Report in respect of the Cliff Road property was issued by Opteon, ascribing a market value of $3.75 million to the property. This valuation was broken down as comprising $3 million for the land and $750,000 for improvements.

WCL sold its entire holding of 10,163,050 shares in Properties to Happy Mining Pty Ltd at a total price of $3.75 million (being the value of the Cliff Road property). This was effected by a Share Sale Deed between WCL and the purchaser made on 18 June 2013. WCL received the proceeds of the sale on 4 July 2013.

Prior to making the Deed, the board of WCL (upon Mr and Mrs Jagatramka having left the meeting) resolved to convert $9,353,050 in outstanding loans to Properties to the equivalent number of shares in the company valued at $1 each (the debt-to-equity swap).

Pursuant to a Deed of Assignment and Adherence to Agreement for Sale of Shares Dated 18 June 2013, the shares in Properties, and therefore control of the Cliff Road property, came into the ownership of Basant International Pty Ltd. The sole director of Basant was a Mr Kunal Chandak.

The Bank Street unit was also sold at the same time.

The sale of Properties was not sufficient to alleviate WCL’s cash flow issues. In an email to shareholders dated 4 October 2013, Mr Jagatramka described “falling coal prices and a strong Australian Dollar on top of liquidity constraints” as “affect[ing] day to day cash flow and [bringing] into question the operational viability of our company.” These concerns prompted WCL shareholders to approve a placement of the company’s shares to Jindal Steel & Power (Mauritius) Limited (Jindal), a member entity of the large Jindal Conglomerate.

This share placement resulted in Jindal assuming majority ownership and control of WCL as of approximately 16 October 2013. On 27 October 2013, Mr Jasbir Singh, a nominee of Jindal, was appointed Chairman and interim Chief Executive Officer of WCL following Mr Jagatramka’s resignation from the position the previous day.

Mr Jagatramka ceased to be a director of WCL upon tender of his resignation on 14 February 2014. Within a fortnight of Mr Jagatramka’s resignation, on 27 February 2014, the remaining three directors of the company (Mr Jasbir Singh, Mr Maurice Anghie and Dr Andrew Firek) signed a resolution (the 2014 resolution) approving the commencement of proceedings against Mr Jagatramka and the lodgement of a complaint with the Australian Securities and Investments Commission in relation to WCL’s dealings in the Cliff Road property, which was described as “a series of contrived and suspicious transactions comprised of apparent loans by the Company to [Properties], the conversion of these loans from debt to further shares in [Properties] and the sale of the shares in [Properties] to Basant …”.

Notwithstanding this resolution, the case ultimately pressed at trial was narrowly confined as indicated at [2]–[3] above. The respondent did not challenge the primary judge’s finding at [119(9)] that WCL received fair value for its shares in Properties based on fair value for the Cliff Road property.

For the purposes of the present appeal, it is prudent to note the following passage from the 2014 resolution, which considers the Jagatramkas’ occupation of the Cliff Road property as having been authorised under the ESA:

As noted at [4] above, and as pleaded by the respondent, the improper and undisclosed purpose of Mr Jagatramka in both promoting and voting for the June 2008 resolution, and of Mrs Jagatramka in respect of her vote, was that they would “construct an opulent house in which they would reside exclusively, continuously and indefinitely at no cost to themselves” (emphasis added). This was referred to by the primary judge at [66] as “the exclusive residence intention”. The Jagatramkas denied that this was their intention at the relevant time.

The exclusive residence intention was expressed as being distinct from the guest house purpose, as contended for by the Jagatramkas, whereby “it was intended that Cliff Road would be a guest house for visiting executives of companies in the Gujarat Group and guests of WCL” (see the primary judgment at [66]). In this Court, Mr Pritchard SC, who appeared with Mr Macauley for the appellants, also submitted in response to a question from the bench that the ancillary public relations purpose (see [6] above) was not inconsistent with the exclusive residence intention, and instead “makes less likely as a fact that the exclusive residence [intention] was the intention of [the appellants] in voting for [the June 2008 resolution].”

Neither of Mr and Mrs Jagatramka gave evidence at trial, nor did they call any witnesses. WCL called only one witness, Mr Sharma, who was a director of WCL and its Company Secretary at all material times. Mr Sharma affirmed two affidavits; one in support of WCL’s claim and another in defence of the Jagatramkas’ cross-claim for contribution. Dr Andrew Firek and Mr Maurice Anghie, both of whom were non-executive directors of WCL at all material times, each swore an affidavit in defence of the cross-claim. Mr Pritchard, who appeared with Mr Macauley for the Jagatramkas both at trial and on the appeal, cross-examined Mr Sharma and Dr Firek at length. Regrettably, Mr Anghie passed away prior to the trial and was therefore unable to be cross-examined.

Based on the body of evidence before him, the primary judge made the following findings of fact at [91], including that the Jagatramkas held the exclusive residence intention as at the time of the June 2008 resolution:

On the basis of these factual findings, the primary judge concluded at [116] that by voting on the June 2008 resolution in advancement of the undisclosed exclusive residence intention, as opposed to the guest house purpose as disclosed, the Jagatramkas improperly used their position as directors of WCL to obtain an undeclared benefit for themselves, in breach of their fiduciary duties to the company to avoid a conflict of interest and to act in good faith in the interests of the company and for a proper purpose. His Honour also held that the facts as found gave rise to breaches of the statutory duties in ss 181(1) and 182(1) of the Corporations Act 2001 (Cth).

Having synthesised the considerable body of authority discussing the principles of causation and remoteness in the context of equitable compensation for a breach of fiduciary duty (at [134]–[159] of the primary judgment), particularly that which follows the Canadian decision in Brickenden v London Loan & Savings Co [1934] 3 DLR 465, the primary judge concluded that the Jagatramkas breach of their fiduciary duties was causative of WCL suffering a loss of $6.403 million. His Honour summarised at [161]–[163] the relevant “chain of causation” as follows:

Following the application of interest to the loss suffered, the Jagatramkas were ordered to pay $12,081,742.99 in equitable compensation to WCL. It is from this decision that the Jagatramkas appeal.

By a Notice of Appeal filed in this Court, the Jagatramkas raised 12 distinct grounds of appeal against the decision of the primary judge. These grounds can be separated broadly into one of two categories: first, challenges to the primary judge’s findings of fact on the evidence before him; and secondly, challenges to the primary judge’s application of his findings of fact to the questions of liability and causation as a matter of law.

The following grounds of appeal fell into the first category, as expressed in the Notice of Appeal:

The latter category was comprised of the following grounds of appeal:

For the purposes of the appeal to this Court, the second category necessarily falls to be considered only in the event that the primary judge did not err in his findings of fact. Consequently, Mr Pritchard went to considerable length in drawing the Court’s attention to the factual bases of the primary judge’s finding that the Jagatramkas held the exclusive residence intention. On the appellants’ submission, the respondent’s case at first instance was “an inferential case. There’s no admissions. There’s nothing said by way of admissions by my clients about this improper purpose … you look at the facts and there’s obviously no Fox v Percy problem. There is Jones v Dunkel, which I’ll deal with, but his Honour has just inferred too much out of the facts. That’s to deal with the improper purpose issue.” This is formally raised in grounds 1, 3, 4 and 5 of the Notice of Appeal.

The primary judge reached his conclusion as to the Jagatramkas’ exclusive residence intention by a process of inferential reasoning based on circumstantial evidence. No documents evidenced that, as at June 2008, the Jagatramkas held the intention the primary judge ultimately attributed to them and no admissions were made by them, either on the pleadings or otherwise (given that neither gave evidence to found a conclusion that the intention was as alleged). The primary judge was, in those circumstances, constrained to fall back on reasoning from events almost entirely post-dating the resolution.

The primary judge set out what he described as the “links in the chain” of his reasoning process at [94] as follows:

As a matter of principle, such reasoning is, of course, permissible and the primary judge referred in this regard (at [92] and [93]) to the authorities of Transport Industries Insurance Co Ltd v Longmuir [1997] 1 VR 125 at 128–129; Nolan v Nolan [2004] VSCA 109 at [120]; Hyland v Hyland (1971) 18 FLR 461 at 467 (NSWCA); and Carapark Holdings Ltd v Commissioner of Taxation (Cth) (1967) 115 CLR 653; [1967] HCA 5 at 660–661. However, there are a number of matters which must be borne in mind.

First, although it was permissible to adopt this approach, it is not enough that the links considered as a whole lend support to the ultimate conclusion sought to be reached, but rather it is necessary to find that the circumstances proved made it reasonable to reach that conclusion on the balance of probabilities. The principle was stated by the High Court in Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5:

This is of particular importance in this case where what is sought to be established is that at the time the Jagatramkas propounded the June 2008 resolution, their undisclosed intention was that they and their children would reside at the Cliff Road property on an exclusive, indefinite and continuous basis. Thus, if the evidence said to support the holding of that intention gave rise to an inference of equal probability that the Jagatramkas’ intention was that they, along with other visiting executives, would make use of the property from time to time, WCL’s case would not be made out.

Second, it is critical to remember that what is in issue was Mr and Mrs Jagatramka’s intention in June 2008, not subsequently and, in particular, not at the time the ESA was entered into. Although the primary judge was correct that he was entitled to have regard to matters occurring after the June 2008 resolution, in doing so, particular care must be taken to have regard to the circumstances in which those matters arose.

The third matter is this. Although we have dealt with a number of the so-called links individually, ultimately it is necessary to look at the whole of the evidence to ascertain whether or not it establishes on the balance of probabilities that the case was made out. As was stated by the plurality in R v Hillier (2007) 228 CLR 618; [2007] HCA 13 at [46], it is critically important in a circumstantial case that all the circumstances are to be considered and weighed in determining whether there is an inference consistent with innocence reasonably open. Although this was a criminal case, in a civil case the need to weigh all the evidence to establish proof to the civil standard is equally important. That does not mean that the strength of the individual pieces of evidence said to make up the links should not be scrutinised.

The fourth matter is the significance of the fact that the Jagatramkas did not give evidence. The primary judge at [79] described this as a matter of “critical significance”. It is important to bear in the mind the use that can be made of the failure to call a witness, including a party witness who appeared to be in a position to cast light on whether or not an inference should be drawn. As was pointed out succinctly by the plurality in Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 at [64], the rule in Jones v Dunkel permits an inference, not that evidence not called by a party would have been adverse to the party, but that it would not have assisted the party. The failure cannot fill gaps in the evidence, as distinct from enabling an available inference to be drawn more comfortably. See also Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345; [2012] HCA 17 at [165]-[167], [232].

Fifth, it did not appear to be in dispute that one of the purposes of the purchase of the property as communicated by Mr Jagatramka to his fellow directors was that it would build confidence in the company’s presence in Wollongong, similar to its basketball and cricket team sponsorships. This was described by the primary judge at [66] as “the public relations purpose”. Ultimately, we are of the view that this did not play a significant role in the resolution of these proceedings.

Finally, it should be noted at the outset that the conclusion of the primary judge, whilst relying on circumstantial evidence, was also based at least in part on his conclusion that as Mr Jagatramka had exclusive use of the Bank Street unit, the reference in the June 2008 resolution to “accommodation facilities for executives of the NRE Group” did not extend to him even though he was the Chief Executive Officer and the most frequent visitor.

A very significant number of the so called “links in the chain” of reasoning are, in our opinion, completely equivocal. Moreover, the vast bulk of the references are to events well postdating June 2008 at which point in time Mr and Mrs Jagatramka had a permanent residence in India. There was nothing in the evidence to suggest that, as at June 2008, they intended that they would move to permanently reside in Wollongong and exclusively, continuously and indefinitely occupy the Cliff Road property. We have dealt with links (12) and (5) first as it seems to have been submitted that these were the strongest “links in the chain”.

It was argued by Mr Coleman SC, who appeared with Mr Riordan for WCL both at trial and on the appeal, that [94(12)] of the primary judgment disclosed “one of the stronger links” in the chain as to the exclusive residence intention, particularly in respect of the pleaded exclusivity of the Jagatramkas’ residence at the Cliff Road property. The argued strength of this “link” warrants its reproduction in full below:

Mr Pritchard submitted in reply that taken at its highest, this statement failed to support a finding that the Jagatramkas intended to reside exclusively at the property, as only one floor out of three was to be locked. In essence, this was not a request that the entire property be locked and vacated when the Jagatramkas were away. We accept that the strength of this “link” was lacking for a number of reasons which, taken together, highlight its equivocality in support of the exclusive residence intention.

First, to the extent that the primary judge purported to quote from evidence at [94(12)], the quotation is not accurate. The evidence given by Mr Sharma regarding this “link” did not form part of either of his two affidavits. To the extent that such words appear in the evidence, they are contained in the following passage from Mr Sharma’s evidence-in-chief:

Secondly, it was not clear at what point in time after June 2008 the statement was made; whether it was shortly after the June 2008 resolution, at some time in 2011 when the property was nearing completion, or at some point during the intervening period. Irrespective of whether the conversation occurred in June 2008 or October 2011, a significant period of time had elapsed before Mr Sharma gave his evidence-in-chief in November 2019, being either eight or 11 years.

Thirdly, even taken at its highest, the evidence was double-edged: accepting that the statement was made by Mr Jagatramka to Mr Sharma on an unspecified date after June 2008 and before or during October 2011, it was confined to the locking off of the first floor of the residence, which carried the implication that the ground and basement floors would remain available for use by others when Mr Jagatramka and his family were not in Wollongong.

As we have pointed out, the ground floor was comprised of a lounge/entertainment area, a dining room, two kitchens, a bathroom (including ensuite and powder room) and a guest bedroom. The basement floor contained a rumpus room, bathroom, store room and garage. The valuation report prepared by Opteon appears to have treated a room in the basement as an additional bedroom, notwithstanding its earlier description in the architectural floorplan as a “rumpus room”.

In view of these three factors, the “link” between [94(12)] and the finding that Mr and Mrs Jagatramka intended to establish an “exclusive” residence at the Cliff Road property is at best equivocal, and we accept that it is not strong. To the contrary, it provides the basis for an inference that Mr and Mrs Jagatramka intended that the ground and basement levels of the property would be available for visiting executives. This is inconsistent with the pleaded intention.

Mr Jagatramka’s role with WCL changed significantly in 2011 from being the non-executive Chairman of the company who visited Wollongong on a regular but far from permanent basis, to 2011 when he became Executive Chairman and was granted a salary together with other emoluments, including a suitable residence.

The primary judge (at [91(7)]) found that, to the extent that the June 2008 resolution gave effect to the guest house purpose, such purpose did not apply to the Jagatramkas as directors of WCL. In reaching this conclusion, his Honour focussed on the following conversation contained in the affidavit of Dr Firek and quoted at [49] of the primary judgment:

On the primary judge’s understanding of that conversation, Mr Jagatramka implicitly excluded himself and the other directors of WCL from being potential users of the guest house by his reference to the visiting executives “who we would entertain and accommodate there.”

The “link in the chain” between Mr Jagatramka’s and Dr Firek’s conversation, and the effective finding that the Jagatramkas were not the intended beneficiaries of the guest house purpose in the June 2008 resolution, was expressed at [94(5)] of the primary judgment, whereby:

However, Mr Sharma loosened this link in the course of his cross-examination by his acknowledgment that he understood, at the time of the purchase of the Cliff Road property, that Mr Jagatramka was a “visiting executive” for the purposes of the guest house purpose and the June 2008 resolution. In particular, attention should be paid to the following exchanges:

The evidence of Dr Firek also discloses a substantial degree of equivocality as to the link between the Bank Street unit and Cliff Road property. At [91(9)], the primary judge found that:

In the relevant paragraph of his affidavit as referred to by the primary judge, Dr Firek stated that he did not know, and it had not been disclosed to him that:

It was submitted by Mr Pritchard that if it were accepted that the June 2008 resolution applied to the Jagatramkas, the “links in the chain” relied upon by the primary judge become equivocal or anodyne at the very least. He proceeded to draw the Court’s attention to his cross-examination of Dr Firek in support of this submission, particularly the following passage in which Dr Firek appeared to contradict his earlier statements as to his understanding of Mr Jagatramka’s intention as at the time of the June 2008 resolution:

Frequent reference is made in the lengthy extract above to paragraph 16(v) of Dr Firek’s defence to Mr Jagatramka’s cross-claim, on which Dr Firek was cross-examined by Mr Pritchard. That particular subparagraph contained the following statement, as affirmed in the course of the cross-examination:

To the extent that Dr Firek’s evidence in cross-examination led the primary judge to accept that the Bank Street unit was Mr Jagatramka’s exclusive residence in Wollongong (see the primary judgment at [91(9)]), any resulting “link in the chain” to the exclusive residence intention (see the primary judgment at [94(5)]) is infected with significant equivocality by Dr Firek’s subsequent evidence in cross-examination as to his statement at paragraph 16(v) of his defence. Instead, Dr Firek’s evidence appears to support the argument that the Jagatramkas were contemplated to be “executives of NRE Groups” for the purposes of the June 2008 resolution.

Notwithstanding the considerable equivocality of Dr Firek’s evidence, the primary judge seemed to conclude that the question as to whether the June 2008 resolution applied to the Jagatramkas was immaterial to the issue of intention, rejecting the submission that “there is a fine distinction between the Jagatramkas having an intention to stay at Cliff Road with their family when they were in Australia and having a present, fixed and ‘entirely undisclosed intention’ in June 2008 to cause WCL to fund the acquisition and development of Cliff Road ‘so that they could reside there with their children on a permanent and exclusive basis’” (at [87] of the primary judgment).

According to the primary judge, the former intention did not enliven the disclosed guest house purpose, which was “not the Jagatramkas having an intention to say at Cliff Road with their family when in Australia.” The basis of this conclusion becomes clearer when understood in conjunction with the findings at [81(4)(c)(v)–(viii)] of the primary judgment that:

This distinction appears to lack an evidentiary basis, particularly with regard to the Briginshaw standard of proof. First, the terms of the resolution on its face do not exclude periodic occupation by the Jagatramkas on their visits from India. Second, Mr Jagatramka was the Chief Executive Officer and most frequent visitor. It would be surprising if the Chief Executive Officer would not use the residence, rather than it being only for the benefit of his subordinates. Although the primary judge found at [91(3)] that Mr Jagatramka did not say he was one of the senior executives who would use the Cliff Road property, Mr Jagatramka did not state to the contrary. To the extent that Mr Jagatramka described the Cliff Road property to Mr Sharma as an upgrade (see [94(5)] of the primary judgment), that could only refer to an upgrade to the Bank Street unit. That is presumably why Mr Sharma assumed Mr Jagatramka could stay at the Cliff Road property if he wished (see [64] above). So far as Mr Anghie was concerned, he stated that he did not know Mr Jagatramka intended to reside at the Cliff Road property and did not intend it to be used primarily as a guest house for guests and officers of WCL. Mr Anghie stated that it did not occur to him that Mr Jagatramka would need another property for that purpose. Although Mr Anghie records his belief, his affidavit does not disclose any statement in which Mr Jagatramka said the executives would not include him.

In that context, the fifth link is also quite equivocal on the question of whether or not, at the time of the resolution, the Jagatramkas intended to have the property as their exclusive residence. Even if Mr Jagatramka intended to use it in preference to the Bank Street unit on his visits to Australia, that does not lead to the conclusion that, as of June 2008, his intention was to reside there on an exclusive, continuous and indefinite basis. Accepting that it is only one “link in the chain”, it is equally consistent with the alternative hypothesis that as at June 2008, it was to be used as a guest house for existing executives, including himself and his family.

A further factor weighing against the primary judge’s distinction was drawn out of Mr Sharma’s cross-examination by Mr Pritchard, that is, the prevalence of the “guest house” in Indian corporate culture. At [55(12)], the primary judge made reference to the following extract from Mr Sharma’s cross-examination:

The primary judge, despite acknowledging at [59] that Mr Sharma was “the only witness for WCL”, did not address his evidence on the topic of corporate guest houses as bearing on the question of whether the Jagatramkas held the exclusive residence intention, as opposed to the guest house purpose. However, it appears from Mr Sharma’s cross-examination that such a purpose was within his contemplation as director of WCL, given that he had stayed in such a property and did not find the proposal “awkward” on his recollection. This serves to imbue Mr Sharma’s evidence on the question of intention with a further degree of equivocality.

There is no dispute that the findings the subject of these links were accurate. They establish it was Mr Jagatramka’s desire to build the guest house residence. However, the relevant question was whether it was his intention at that time that he and his family would reside in the property on an exclusive, indefinite and continuous basis. It is relevant but not a strong “link in the chain”.

It does not seem to us of any relevance one way or the other that the property was acquired by a single purpose vehicle.

These links essentially were relied upon by the primary judge to support the proposition that the Cliff Road property was designed as a private residence rather than as a guest house, and, second, that Mrs Jagatramka’s extensive involvement in its design and fit-out supported the proposition that the property was to be for the sole and exclusive use of her and her family.

These matters are related to link 5 with which we have dealt. So far as the actual design and fit-out is concerned, it does not seem to us the fact that it did not meet what some may consider the conventional definition of a guest house meant it was not constructed as a residence capable of being used by visiting executives on periodic visits to Australia. It was certainly capable of being used by a single family, but it was also capable of accommodating guests separately on the ground floor, even if the first floor was taken out of operation.

In dealing with link (5), Mr Coleman was asked why having the first floor locked was not consistent with visiting executives being allowed to come and use the ground floor. Mr Coleman stated that it was “equally consistent”, but that there were other matters which demonstrated that the onus had been discharged, relying in particular on the failure of Mr and Mrs Jagatramka to give evidence. However, what is significant, as with link (5), is that even if Mr and Mrs Jagatramka intended that part of the property only be used by them on their visits to Australia, the remainder was still available for visiting executives.

There is little doubt that Mrs Jagatramka’s intimate involvement with all aspects of the design and fit-out of the house pointed to the fact that it was the Jagatramkas’ intention to reside at the property on their visits to Australia. We have dealt with this in large measure in dealing with links (12) and (5). We would only add two matters. Even if this intention was not disclosed to all directors in June 2008, it does not prove that the Jagatramkas’ intention was to reside at the premises exclusively, continuously and indefinitely. Further, with respect, there is a degree of artificiality in the proposition that Mr Jagatramka’s fellow directors were not aware of Mr Jagatramka’s intention to use the property on his and his family’s visits to Australia. It would be surprising if they thought the Chief Executive Officer and the Chairman of WCL would do otherwise. That could well account for the equivocal nature of the evidence of Dr Firek, to which we have referred in dealing with link (5).

In considering these links, there are two matters of particular significance. First, Mr and Mrs Jagatramka had by that time obtained a 457 visa permitting them to remain in Australia for up to four years. There is no evidence they intended to apply for such a visa in 2008. Second, the occupation of the premises took place following the resolution of 27 July 2011 and the entry into the ESA. In concluding that this was a “link in the chain”, the primary judge considered that this supported the proposition that the Jagatramkas’ intention in 2008 was for these steps to occur. It seems to us equally open to conclude that once the visa had been obtained, the Jagatramkas sought permanent occupation of the premises for four years “the length of their visa”, and in doing so, had the necessary resolution passed and the ESA entered into. There is little doubt having regard to the terms of the 2014 resolution (see [30] above) that the suitable accommodation referred to in the ESA was the Cliff Road property.

Absent any finding of impropriety in the sale of the shares in Properties to Basant International, the fact that the Jagatramkas or their son occupied the property until 2015 does not seem to us to have any bearing on what their intention was in 2008.

It also does not seem to us of particular relevance that the Bank Street unit was not sold until 2013. Once the Jagatramkas had occupied the Cliff Road property, it was there to be used by other visiting executives should they wish to or be permitted to use it. It does not seem to us that it adds very much on the question of the Jagatramkas’ intention in June 2008.

In the present case there are in our opinion two competing hypotheses, neither of which depends on the credit of any of the witnesses. The first of these hypotheses is that at June 2008, it was not Mr and Mrs Jagatramka’s intention to reside at the Cliff Road property on an exclusive, indefinite and continuous basis, but rather to use it on a non-exclusive basis during their visits to Australia. The second is that it was built for the pleaded purpose, namely, with the intention that it be used by the Jagatramkas on an exclusive, indefinite and continuous basis.

In cases of this nature, the duty of an appellate court was summarised by the High Court in Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 in the following terms (at [56]):

In our opinion, weighing the competing factors (all “links in the chain”) the evidence does not establish on the balance of probabilities that at the time of the June 2008 resolution the Jagatramkas had the undisclosed intention of residing in the Cliff Road property on an exclusive, indefinite and continuous basis, although they may well have intended to use it from time to time when they visited this country as executives of WCL. Although the “links in the chain” as the matter of possibility could lead to the contrary conclusion, as we have pointed out most of the links are equivocal and indeed some links, particularly links (5) and (12), point the other way. Critically, in our view there is no evidence that as at June 2008, Mr and Mrs Jagatramka intended to reside in Australia on an indefinite basis, much less that they had applied for a visa to enable them to do so. Further, they did not commence to reside in the Cliff Road property until they had obtained such a visa and entered into the ESA. These matters tell strongly against them having the requisite intention in June 2008.

We have taken into account the fact that neither of the Jagatramkas gave evidence. Although we accept that we are entitled to infer that their evidence would not have assisted their case, and that their failure to give evidence permits an available inference to be drawn with greater confidence, it does not enable the trier of fact to infer that the evidence would have been adverse to the Jagatramkas. In the present case, we have assessed the fact that the Jagatramkas failed to give evidence in accordance with the authorities which we have cited at [49] above. We remain of the view, however, that WCL has failed to establish to the comfortable standard of proof required that the Jagatramkas held the pleaded intention as at June 2008. In particular, it does not remedy the absence of any evidence that the Jagatramkas intended to reside in Australia at the time of the June 2008 resolution.

It follows that ground 1 of the grounds of appeal has been made out, and the Jagatramkas are entitled to have the orders made against them set aside. It is unnecessary to deal with the remaining grounds of appeal.

WCL appealed against the dismissal of its claim against Properties on the basis that the primary judge, having found that Properties had knowledge of the breach of fiduciary duty by the Jagatramkas, erred in declining to grant relief against Properties by virtue of it being a knowing recipient of Trust Property (cross-appeal grounds 1-4).

WCL also appealed against the finding of the primary judge that the Jagatramkas should only be ordered to pay 75 per cent of WCL’s costs, rather than the whole of those costs as assessed or agreed.

As WCL has failed in respect of its claim for breach of fiduciary duty against the Jagatramkas, it follows that the cross-appeal so far as it relates to Properties must fail.

Further, having regard to our conclusion that the primary judge erred in his conclusion that the Jagatramkas breached their fiduciary duty, WCL had no entitlement to costs at first instance and the cross-appeal against the Jagatramkas also fails.

We would make the following orders: