Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq)

1. [1]

   MACFARLAN JA: I agree with Leeming JA.

2. [2]

   GLEESON JA: I agree with Leeming JA.

3. [3]

   LEEMING JA: This appeal and application for leave to cross-appeal have been brought from orders made following a trial lasting some three weeks in August and September 2020 in the Corporations List, resulting in a large judgment of 301 paragraphs delivered in October 2020: Mudgee Dolomite & Lime Pty Ltd v Robert Francis Murdoch; In the matter of Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510. In this Court, the hearing occupied two days. Partly that was because many fewer issues were debated on appeal than at trial. Partly it reflected the tailoring of the parties’ oral addresses in light of the parties’ comprehensive written submissions, supplemented at the hearing by the respondent’s helpful skeleton submissions, which were a model of their kind.

4. [4]

   The dispute arises out of two brothers and their two sons having established a number of companies to operate businesses connected with the quarrying and crushing of limestone and dolomite. One of the brothers and his son are alleged to have breached the fiduciary and analogous statutory duties owed by them as director and senior employee to their company. However, the issues at the forefront of the litigation in this Court are somewhat removed from the mainstream of such cases. They include the scope of the duties owed by the director and employee, the calculation of the profits for which they are liable to account, and the availability of partial discretionary defences.

5. [5]

   These reasons take the following form:

Parties

1. [6]

   The main protagonists are two brothers, Brian William Murdoch and Robert Francis Murdoch, the two sons of the late William John Murdoch, who had founded a business involving quarrying limestone near Mudgee shortly after the conclusion of World War II. Scott William Murdoch is the only son of Brian Murdoch, and Stephen Murdoch is the only son of Robert Murdoch. In the litigation, each son was aligned with his father. I shall refer for concision to the two brothers and their sons as Brian, Robert, Scott and Stephen. For completeness, each of Robert’s, Stephen’s and Scott’s wives is a shareholder in her husband’s company, and Scott’s wife is also a director, but the evidence suggested that none played any role in the transactions giving rise to the litigation in this Court.

2. [7]

   Mudgee Dolomite & Lime Pty Ltd (MDL) was incorporated in 1996. At all times, it has had two directors and two equal shareholders, Brian and Robert.

3. [8]

   In around early 1997, MDL acquired a limestone and dolomite quarry and crushing business from the administrators of Industrial Minerals Australia Pty Ltd, which became the “Buckaroo Road Quarry”. MDL acquired further land at Mudgee later in 1997, and between 1997 and 2002 conducted the “Bara Quarry” extracting rhyolite at that site.

4. [9]

   For many years, Brian was MDL’s Operations Manager and Production Manager, and Robert was its General Manager. Scott had not worked for MDL for some years, although that company paid him until 2015. Stephen was employed by MDL as a Production Manager from at least 2009 until 14 March 2014, and was an officer of MDL throughout that time for the purposes of the Corporations Act 2001 (Cth).

5. [10]

   MDL is solvent and (putting to one side the expense and distraction of litigation) profitable. Nonetheless, liquidators were appointed to it in November 2020 on what had become the joint application by Brian and Robert (Brian having abandoned a claim for a buy-out order in oppression proceedings heard simultaneously with Robert’s winding up application) following the irretrievable break-down of the relationship between the brothers. No challenge was made to the order that MDL be wound up. The liquidators are the second and third respondents to Brian’s application for leave to bring a cross-appeal in MDL’s name. They were properly joined, but played no active part in the hearing in this Court.

6. [11]

   Each of Brian, Robert, Scott and Stephen also operated separate companies. Brian was the sole director and shareholder of B Murdoch Pty Ltd (BMPL), Scott and his wife were the sole directors and shareholders of Stoneco Pty Ltd. Robert was until 2010 relevantly the sole director and majority shareholder of RK Murdoch Pty Ltd (RKM) (his wife owning the remaining shares and having been a director between 2003 and 2005); after 2010 Stephen became a director and after 2012 he became a 50% shareholder of RKM. Stephen was the sole director and (aside from his wife) the sole shareholder of Bright Pear Pty Ltd. That company is now known as Tilecote Pty Ltd, but I shall refer to “Bright Pear”.

7. [12]

   As will be seen below, each of Stoneco, RKM and Bright Pear owned or operated crushing equipment which could be used in quarries and mines.

8. [13]

   The events of greatest importance to the issues giving rise to the appeal and cross-appeal occurred between 2008 and 2012, and both the appeal and the cross-appeal concern the liability of Robert, Stephen, RKM and Bright Pear to account in equity and under statute.

9. [14]

   Each of BMPL, Stoneco, RKM and Bright Pear were 25% shareholders in Mudgee Stone Co Pty Ltd, whose four directors were Brian, Robert, Scott and Stephen. Mudgee Stone Co was incorporated in 2002, and acquired land at Oberon where it developed a business for quarrying, crushing and screening another mineral, alaskalite.

10. [15]

    From time to time Robert and Brian and their companies RKM and BMPL were involved in other activities, including their acquisition of an interest in Hi-Tech Concrete (which was sold in 2006), and in 2006 and 2007, residential subdivisions.

11. [16]

    The first proceeding also joined Kurdeez Minerals Pty Ltd (of which Stephen is the sole director) and Stephen’s wife, but the proceeding was dismissed against those parties. The proposed cross-appeal joins Kurdeez Minerals.

12. [17]

    From time to time members of the Murdoch family engaged, through the companies mentioned above, in joint ventures with external interests. This occurred in a variety of ways, as illustrated below.

13. [18]

    Ezy Lime Pty Ltd was described in the submissions as a “joint venture company”. Ezy Lime operated a quarry at Gunningbland near Parkes, some 230 km from Mudgee, as well as holding a 90% interest in the Lachlan Valley lime and magnesium quarry near Forbes (some 260 km from Mudgee). One third of its shares had been held by MDL until around 2005 but thereafter a one half interest in the company was divided equally between BMPL, RKM, Stoneco and Bright Pear.

14. [19]

    Similarly, Mid-Coast Lime Pty Ltd seems to have been 50% owned by MDL and 50% by interests associated with another family, but from around 2006, two of the four ordinary shares in Mid-Coast Lime were owned by BMPL and RKM (each company owning a single share). Mid-Coast Lime acquired a limestone deposit near Kempsey on the NSW north coast, some 600 km from Mudgee.

15. [20]

    Robert travelled to New Zealand in early 2008 for the purpose of a potential limestone quarry joint venture with a Mr Milton. This was ultimately acquired by RK Murdoch New Zealand Pty Ltd, a company associated with Robert and Stephen. There was some cross-examination suggesting that Brian was involved in this, although the primary judge observed that he may have misunderstood the thrust of some the questions (at [49]). His Honour said that the level of disclosure made by Robert and Stephen in respect of the acquisition of the New Zealand quarry “would not have amounted to a narrowing of the scope of the duty or to ratification, had a breach of duty otherwise been established”, and so nothing turns on this.

16. [21]

    Another company, W J Murdoch Pty Ltd, operated a quarry site for many years (pre-dating the incorporation of MDL) on land owned by the Bagnall family.

17. [22]

    It may readily be seen that each of Brian, Robert, Scott and Stephen was, by dint of the corporate structures established which have been summarised above, placed in a position of possible conflict whenever a new opportunity which “belonged” to MDL arose. That was because a new opportunity could be undertaken by MDL (co-owned by Brian and Robert), or by Mudgee Stone Co (co-owned by Brian, Robert, Scott and Stephen) or by one or more of Stoneco, RKM or Bright Pear, each of whose business operations extended to crushing services in mines and quarries including owning machinery to provide those services. Each of Brian, Robert and Stephen owed fiduciary duties to MDL as directors (or in the case of Stephen, as an employee). Each also owed fiduciary duties to Mudgee Stone as directors, and each knew that each man was also operating businesses through their own individual companies. Hence the significance of identifying the scope of the duties Brian, Robert and Stephen owed to MDL.

Overview of issues at first instance

1. [23]

   The primary judge heard and determined four proceedings. The appeal and cross-appeal are brought exclusively from orders made in the first proceeding. No appeal is brought from orders obtained by Robert in proceeding 2016/271516 for the winding up of MDL, or from the dismissal of Brian’s oppression suit (2016/355621) which had sought a compulsory buy-out, or from the dismissal of a derivative proceeding brought by Robert (2017/377222), seeking an account of profits or equitable compensation from Brian and Scott (although the issues raised in that proceeding are peripherally relevant to an aspect of the cross-appeal).

2. [24]

   The first proceeding (2016/84283) was a derivative proceeding brought by Brian in the name of MDL alleging breaches of duty owed to MDL, principally by Robert and Stephen and their companies RKM and Bright Pear. Robert was alleged to have breached duties in equity and pursuant to statute owed by him as a director. Stephen was employed as a senior manager of MDL and was said to have breached duties in equity and under statute.

3. [25]

   The pleading of accessorial liability was elaborate, but was largely passed over in the parties’ submissions in this Court. I do not say that by way of criticism; indeed it may be that nothing ultimately turned on this (for example, if Robert and Stephen are both solvent judgment debtors). It was addressed in some detail by the primary judge at [156]-[164]. Briefly, each of Robert, Stephen, RKM and Bright Pear was said to have been involved in the statutory breaches of each of Robert and Stephen within the meaning of s 79 of the Corporations Act. The primary judge said that it was plain that Stephen was involved in Robert’s breaches, but that it was not necessary to determine whether Robert was involved in Stephen’s breaches, because it “adds nothing to the direct claims advanced against Robert”.

4. [26]

   Insofar as MDL sued in equity, it was necessary to establish a different basis of accessorial liability. The pleading alleged an elaborate series of claims based on knowing receipt of trust property, which was met by the response that no property of MDL was received. Neither a corporate opportunity nor most forms of confidential information constitute property for the purposes of this form of accessorial liability: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [116]-[121]. This in turn seems to have led to MDL invoking the “alter ego” principles stated in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [243]. This had not been pleaded, but the trial judge accepted the defendants’ proper concession that they could point to no prejudice, and concluded at [164]:

5. [27]

   The appeal and cross-appeal were conducted on the basis that throughout that period, RKM was the “alter ego” of Robert and Bright Pear was the “alter ego” of Stephen for the purpose of accessorial liability in the sense stated in Grimaldi above. Each man and the company he controlled was in substance treated as the same actor, both for the purpose of knowledge and amenability to orders to account. As it was put in Hamilton v Whitehead (1988) 166 CLR 121 at 127; [1988] HCA 65 and Farah Constructions Pty Ltd v Say-Dee Pty Ltd at [128], his mind was the mind of the company. The approach of the primary judge resembled what occurred in Novoship (UK) Ltd v Mikhaylyuk [2012] EWHC 3586 (Comm) at [529], where it was said:

6. [28]

   That approach passes over the difficulties as to the conceptual basis of the analysis, as noted in J Glister, “Diverting Fiduciary Gains to Companies” (2017) 40(1) UNSWLJ 4. Is the liability based on agency, or piercing the corporate veil, or some other means such as a trust or the appreciation that a gain by the company is a gain by its sole shareholder? As Professor Glister observes at 21 and 26, the term “alter ego” is a term which displays both “elasticity” and “general flexibility”, but if anything detracts from the analysis. But I too shall pass over this, the point not being argued, and the parties proceeding on the basis that no distinction should be drawn, for the purpose of liability and remedy, between Robert and RKM, or between Stephen and Bright Pear. However, I note that on no view of RKM and Bright Pear being “alter egos” of their principals is Robert liable in equity for profits derived by Bright Pear.

7. [29]

   The derivative proceedings brought by Brian on behalf of MDL succeeded in part. The partial success was reflected in an order that Robert, Stephen, RKM and Bright Pear pay 30% of MDL’s costs. Many issues of fact were addressed in the evidence and the reasons for judgment which are outside the scope of the appeal and cross-appeal (these include claims based on the acquisition of various “swamped” crushers: at [264]-[268]; a claim based on the acquisition of land at Buckeroo: at [270]-[279]; claims concerning a business name, acquisition of land in New Zealand and various payments: at [280]-[286]).

8. [30]

   Confining attention to the live issues in this Court, MDL succeeded at first instance in obtaining orders concerning work done at the Cadia mine in Orange in New South Wales, and failed in respect of a claim based on the acquisition and operation of a quarry at Timboon in Victoria. The factual background of each venture is summarised below.

9. [31]

   The primary judge held that MDL was entitled to elect between (a) an account of the profits earned by RKM and Bright Pear from the work done by those companies at the Cadia mine, or (b) equitable compensation for any loss by reason of that work, and made a corresponding order (order 6 made on 24 November 2020). As was explained in Tang Man Sit v Capacious Investments Ltd [1996] AC 514 at 521:

10. [32]

    In the present case, the election between remedies is purely formal. It reflects the fact that liquidators were appointed to MDL on the joint application of Brian and Robert on the same day that judgment was entered, and MDL’s election was for its liquidators to make.

11. [33]

    MDL did not establish any loss in respect of the work done at Cadia. The primary judge found at [169] that MDL had not established the costs of acquiring or hiring the equipment necessary for it to perform the work other than from RKM or Bright Pear or that the amounts paid to them were more than a market rate. There is no notice of contention concerning this. Hence the only valuable remedy is an account of profits.

12. [34]

    The primary judge also made the following declaration:

13. [35]

    The primary judge quantified the profits at $4,358,106 (at [190]). Those profits were derived in the financial years ended 30 June 2010, 2011, 2012, 2013 and 2014, but more than 98% of the profits were derived in the financial years ended 30 June 2011, 2012 and 2013.

14. [36]

    The appeal brought by Robert, Stephen, RKM and Bright Pear is as of right. Leave to proceed against MDL in liquidation was granted on 10 February 2021.

15. [37]

    It is necessary to give a little more detail about the profits quantified by the primary judge. The primary judge found that RKM and Bright Pear together received revenue of $9,169,378 for work performed for Cadia in that five year period. In determining those companies’ profits, the parties’ accounting evidence was controversial only by the fact that the appellants’ accountant Mr Mullins included allowances of some $220,000 for “capital charge” and “economic risk”. His Honour dismissed that approach, saying at [190] it was not supported by any disclosed accounting standards or any other established accounting principles. Save for that point, which is challenged by ground 10 of the appeal, the calculation of profits of $4,358,106 was agreed. The present case stands in stark contrast with the contestability of an account of profits, of which Lindley LJ once said:

16. [38]

    Combining the revenues and expenses of RKM and Bright Pear, those profits were calculated by subtracting operating costs, insurance, general overheads, depreciation, interest and income tax. The result was the following profits for each financial year:

    1. (1)

       FY10 $26,827

    2. (2)

       FY11 $1,595,912

    3. (3)

       FY12 $1,579,923

    4. (4)

       FY13 $1,130,108

    5. (5)

       FY14 $25,337

17. [39]

    Grounds 1, 2 and 3 challenge the profits for FY10 and FY11, totalling some $1,622,738. These grounds were based on the principles in Peninsular and Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189 at 212-213; [1938] HCA 16 and turn on the proposition that RKM and Bright Pear subcontracted crushing services to MDL over that period.

18. [40]

    Ground 4 maintained, broadly speaking, that the parties’ conduct narrowed the scope of Robert’s and Stephen’s duties with the result that there was no breach. If accepted, this would lead to the whole judgment being set aside. No oral submissions were made in support of this ground, although it is cognate with the main grounds in the proposed cross-appeal.

19. [41]

    The gravamen of ground 5 was that the primary judge had erred in dismissing a defence based on Brian having stood by with sufficient knowledge while Robert and Stephen and their companies were making profits following breaches of fiduciary duty. Success on these grounds would curtail the profits the subject of the account so as to exclude much or all of the profits derived in the financial years ended 30 June 2012, 2013 and 2014, and involves this Court making a finding of fact pursuant to s 75A(10) of the Supreme Court Act 1970 (NSW) as to when Brian’s knowledge was sufficient so as to make it inequitable for him to recover an account of profits thereafter. This was the issue which occupied most time when the appeal was heard.

20. [42]

    Grounds 7 and 8 challenged causation, on the basis that “any loss of opportunity for MDL to hire equipment and carry out work at the Cadia mine would have happened in any event”. Grounds 6 and 9 were conclusionary. As noted above, ground 10 maintained that the Court should have accepted Mr Mullins’ opinion and made an additional allowance for capital and risk in the taking of any account of profits, thereby reducing the profits by some $220,000.

21. [43]

    Brian sought leave to bring a cross-appeal on behalf of MDL concerning the dismissal by the primary judge of MDL’s claim that RKM’s acquisition and Kurdeez Minerals’ operation of the Timboon Quarry in south western Victoria between Geelong and Warrnambool was in breach of fiduciary duties owed by Robert and Stephen. Pursuant to orders made by Gleeson JA on 20 July 2021, the application for leave was stood over to the hearing of the appeal.

22. [44]

    The application is in the Court’s inherent jurisdiction, in light of dicta to the effect that s 237 of the Corporations Act is unavailable where a company is being wound up: Chahwan v Euphoric Pty Ltd [2008] NSWCA 52; 245 ALR 780 at [124]-[125]. The principles were summarised by Barrett J in Carpenter v Pioneer Park Pty Ltd (2008) 71 NSWLR 577; [2008] NSWSC 551 at [23]-[36]. They include whether the proposed claim has a “solid foundation”, such that it is neither vexatious nor oppressive and enjoys reasonable prospects of success. The parties to Brian’s motion are different from the parties to the cross-appeal in MDL’s name for which the motion seeks a grant of leave. In particular, Brian properly joined the liquidators to the motion, because the liquidators have an interest in the assets of the company not being dissipated by proceedings brought in its name but driven by one shareholder. A regime was put in place to protect the assets of MDL from any adverse costs orders. The five respondents to the cross-appeal which Brian seeks this Court’s leave to bring (namely, Robert, Stephen, RKM, Kurdeez Minerals and Bright Pear) are the fourth, fifth, sixth, seventh and eighth respondents to Brian’s motion (in order to avoid confusion, the coversheet of this judgment names those companies in their former and not their latter capacity).

23. [45]

    The proposed grounds of the cross-appeal fell within three categories: (a) whether Timboon Quarry was an opportunity belonging to MDL (grounds 1-5), (b) whether Robert’s and Stephen’s duties to MDL were narrowed (grounds 6-8), and (c) whether the trial judge erred in his notional findings concerning pecuniary relief (ground 9).

24. [46]

    The narrow focus of the appeal and cross-appeal lends itself to a relatively brief summary of the facts and evidence.

Overview of factual background

1. [47]

   The various companies owned and controlled by Brian, Robert, Scott and Stephen have been summarised above.

2. [48]

   The primary judge found at [83] that MDL first contracted to work for Cadia Holdings Pty Ltd (which traded as Cadia Valley Operations or “CVO”) at its mine south west from Orange in June 2007. Starting in 2007, MDL provided stemming material for use in blast holes. The work was described in the contract as “Manufacture of Blast Hole Stemming Material Using Mobile Crushing Plant & Earth Moving Equipment”. In addition to the stemming material, MDL subsequently contracted to supply crushed rock for the use as road base for infrastructure works (this was described as the “Fluor contract”).

3. [49]

   The primary judge noted at [22] that Robert accepted in cross-examination that Stephen was the most senior MDL employee on site at the Cadia mine from 2009 until early 2014, although he was not on site for the whole of that period.

4. [50]

   Significant for present purposes was the “Cadia emergency” which emerged in 2010, described by the primary judge as follows at [85]:

5. [51]

   As his Honour there indicated, at first RKM and Bright Pear provided machinery and operators to perform work at Cadia. In the financial years ended 30 June 2010 and 2011, CVO was invoiced for this work by MDL and money was then transferred from MDL to RKM and Bright Pear. Grounds 1, 2 and 3 maintained that an account of profits was not available, as a matter of law, for work which was done, so it was said, by RKM and Bright Pear as subcontractors. In later years, RKM and Bright Pear invoiced CVO directly for work done by those companies’ machines at Cadia. It will be convenient to return to the detail of the evidence bearing upon this when addressing those grounds.

6. [52]

   Scott marked 30 March 2011 in his diary as “D-Day”. He gave evidence that:

7. [53]

   The primary judge said of Scott’s evidence when he was cross-examined about this:

8. [54]

   In around April 2011, Scott obtained a USB stick containing MYOB accounts for the group of companies. Brian gave evidence that he did so because “at that time I was worried about where everything was going, and we’re starting to search trying to find where everything was”. Scott said that he had an appointment to see the accountant Mr Portelli to do his personal accounts, and Brian had asked him to obtain the group accounts while he was there. He gave evidence that he was “astonished” by what he saw. Precisely what documents were contained on that USB stick is unclear. The documents produced by him in the proceedings include documents which contain references to invoices from May and June 2011, and so either the USB stick was in fact obtained later, or Scott had combined the documents originally obtained with those obtained later.

9. [55]

   One of the documents said by Scott to have been on the USB stick was a supplier payment register for the period 1 June 2009 to 1 February 2011 which stated that an amount of $1,464,529 had been paid by MDL to Bright Pear. Another document on the USB stick, namely, a supplier payment history for substantially the same period which disclosed some $1.3 million for payments at Cadia, supports the conclusion that the $1,464,529 was for work at Cadia. The date of these documents, and when they came to the attention of Brian and Scott is important for the purposes of the submission about Brian “standing by”. In this respect, the supplier payment register is unusual. It has the appearance of being a specially generated summary, rather than an automatically generated page of a ledger. Of all the financial statements said to have been provided on the USB stick, this is the only one which contains a summary, as opposed to individual ledger entries, and the only one for a period which does not end in June. The document bears the date 20 October 2011, but it seems likely – as counsel for Brian acknowledged – that that reflected when it was printed out, not necessarily when it was obtained in electronic form. This date is strikingly close in time to what seems to be the only other contemporaneous document bearing upon this. Stephen kept a diary, and in it he recorded an entry for 18 October 2011:

10. [56]

    The primary judge addressed this at [67]:

11. [57]

    Brian gave evidence that Scott had not told him the amount of money that had gone missing, only that it was substantial. His testimony included “Scott told me it was a lot of money missing. That’s all he told me”, and said that Scott had not specified a figure, like $1.5 million, nor had he said that the money had been diverted to RKM and Bright Pear.

12. [58]

    I interpolate to note that it seems that Brian had a poor understanding of accounting. I did not understand it to be suggested that Brian could, without assistance, have viewed the MYOB files independently and reached any conclusion that amounts had been paid to RKM or Bright Pear. The primary judged referred at [8] to Brian’s evidence that he did not complete secondary school and had no formal education thereafter.

13. [59]

    MDL’s profit and loss statement for the financial year ended 30 June 2011 was tendered on the basis that it had been produced as a document provided on the USB stick. (Either that is not so, or the USB stick was provided after April 2011.) The statement records an operating profit of $1.4 million, from total income of just over $10 million. The greatest expense, by far, is $2,840,988.15 said to be “Plant hire”. Another document also said to have been contained on the USB stick was a profit and loss statement for the same period with comparisons for the previous year. “Plant hire” for the previous year was a mere $113,701.

14. [60]

    MDL’s finalised annual accounts for the year ended 30 June 2011 showed slightly different amounts: “Hire of Plant & Equipment” of $2,353,667.41, contrasting with $193,183.64 for the previous year. The accounts were signed off by Brian and Robert as a fair presentation of MDL’s financial position, and while their signatures were not dated, Mr Portelli’s was dated 16 June 2012, such that it is reasonable to infer that Brian and Robert signed at around the same time.

15. [61]

    On 16 November 2011, Robert made an offer to Brian described as the “proposed split up of company assets”. It was incomplete – it did not ascribe value to any of the assets and in relation to Ezy Lime and Kempsey it simply stated “Too hard basket at this stage”. Its significance is principally in the entry made in Robert’s diary for the following day, which records Brian rejecting that offer and asking “’Where’s all the money’ MDL make[s]”.

16. [62]

    It was uncontroversial that Brian and Scott met the accountant Mr Portelli on 24 November 2011. Stephen’s diary for 21 November states:

17. [63]

    Coincidentally, the same note records:

18. [64]

    Stoneco took a sublease of the Braeside Quarry in November 2011 from Clifford Quarries Pty Ltd. There was a dispute in the evidence whether Braeside competed with MDL.

19. [65]

    Scott’s affidavit records that:

20. [66]

    On 16 December 2011, Stephen supplied a document to Brian formulating a different split of assets. His document was much more precise than the November proposal, dealing specifically which how Brian and Robert would divide the interests in land (valued at more than $8m) and the crushing and other equipment (valued at some $6.5m).

21. [67]

    On 16 March 2012 Robert and Brian met with a solicitor concerning the possibility of splitting MDL’s assets. A document which has the appearance of a filenote of the meeting states that it is “by Scott from [Brian’s] recollection”. The appellants relied on the following passage:

22. [68]

    Brian agreed in cross-examination that the knowledge he did not discuss was the knowledge he had learned from workers at Cadia.

23. [69]

    Ultimately, by an 11 page solicitor’s letter dated 25 May 2012, Brian expressed concern about Robert’s failure to disclose conflict and profits derived by Robert, that there needed to be full disclosure of MDL’s assets, which assets were said to “include items such as contractual rights that have been foregone by MDL and other companies in the [group], if those rights have been taken up for the benefit of RKM, [Bright Pear] or members of your family”. The letter then asked a series of questions on five topics, commencing with contracts taken up by RKM or Bright Pear at Cadia Mine. It fell short of making a demand that Robert, Stephen and their companies cease doing work which belonged to MDL.

24. [70]

    Thereafter, Brian commenced proceedings seeking the provision of documents, which were resolved in October 2014 by consent. Documents were produced. In November 2015 a draft statement of claim was sent to Robert’s solicitors, and in January 2016 Brian commenced proceedings seeking leave to institute derivative proceedings on behalf of MDL.

25. [71]

    The Timboon Quarry opportunity was noticed by Stephen while searching for quarrying equipment to use or resell. Stephen immediately told his father, and agreed in cross-examination that he had been searching the internet for the purposes of RKM.

26. [72]

    The primary judge recorded at [62] that in January 2011, Stephen and Robert inspected the Timboon Quarry. RKM acquired the Timboon Quarry by contract executed on 17 February 2011, prior to the auction which was advertised for 22 February 2011. The acquisition was of a pre-existing lime production business, together with the land, plant and equipment. Originally RKM obtained an assignment of the lease of the land, but subsequently purchased the reversion and some additional adjoining land.

27. [73]

    Kurdeez Minerals Pty Ltd was incorporated in February 2011 for the purpose of operating the Timboon Quarry. Stephen was the sole director and 90% shareholder of Kurdeez Minerals. Kurdeez operated the quarry and made “royalty” payments to RKM. The primary judge stated at [221] that it appeared to be common ground that “the ‘royalty’ payments were not costs of production in respect of the Timboon Quarry’s operations but were a means of distributing the income from the venture between Kurdeez Minerals and RKM”.

28. [74]

    MDL also drew attention to the fact that RKM’s acquisition of Timboon as a distressed asset from external administration mirrored MDL’s original acquisition in around May 1997 of the Buckaroo Road Quarry which it had acquired from the liquidator of Industrial Minerals Australia Pty Ltd.

29. [75]

    Separately from the above, there was a deal of evidence bearing upon the valuation of the Timboon Quarry. This is relevant to ground 9 which arises if a breach of duty is made out. It will be convenient to defer addressing this until dealing with that ground.

Overview of these reasons for judgment

1. [76]

   Robert and Stephen owed MDL fiduciary and statutory obligations as senior employees and, in the case of Robert, as a director. But “to say that a man is a fiduciary only begins the analysis”, to use Frankfurter J’s words quoted by the High Court in Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at [77]. That Robert and Stephen owed fiduciary obligations to MDL was admitted, but their scope was controversial both at trial and on appeal.

2. [77]

   Ground 4 of the appeal and grounds 1-8 of the cross-appeal challenging the findings as to the scope of the duties owed by Robert and Stephen are, logically, the starting point of the analysis. Depending on the finding of the scope of the fiduciary duties owed by Robert and Stephen, whether or not those duties were breached is uncontroversial. This accords with Dixon J’s observation nearly a century ago in Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 408; [1929] HCA 24:

3. [78]

   It will then be convenient to address the appellants’ submissions that part of the profits cannot be the subject of an account because of the reasoning in Peninsular and Oriental Steam Navigation Co v Johnson, the availability of the “standing by” discretionary defence, causation and quantification.

The challenges based on the scope of Robert’s and Stephen’s fiduciary duties

1. [79]

   In determining the scope of the duties owed to MDL by its director and employees, only limited assistance is derived from MDL’s Constitution. The document does not contain a clear statement delineating the company’s business. Clause 17.4 provided that a director was not disqualified from contracting with MDL, and a contract or arrangement entered into by MDL in which a director was interested would not be avoided. Nor would the director be liable to account to MDL for any profit arising, but the nature of the director’s interest must be disclosed by the director. The clause conformed with the replaceable rule in s 194 of the Corporations Act and its predecessors, discussed in R Austin, H Ford and I Ramsay, Company Directors: Principles of Law and Corporate Governance (LexisNexis Butterworths, 2005), pp 341-44. The primary judge found at [128], and no issue was taken on appeal, that no formal disclosure was required where the other director was already aware of the contract or arrangement, consistently with Woolworths Ltd v Kelly (1991) 22 NSWLR 189, but that that did not assist Robert in circumstances where Robert did not make full and fair disclosure of his interest in dealings between RKM and MDL.

2. [80]

   Neither side pointed to any business plans or provisions in contracts of employment which directly addressed the scope of Robert’s and Stephen’s fiduciary obligations. (If there was a written contract of employment for Robert, Brian or Stephen in evidence, the Court was not taken to it.) The MDL website, which was in evidence, described the company as “Australian Family Owned & Operated. Processing Limestone, Dolomite, Feldspar, Stonedust and Quarry Products”. It does not greatly assist delineating the scope of the company’s activities.

3. [81]

   However, as Dixon J stated in Birtchnell, the subject matter over which the fiduciary obligations extend is determined “by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm.” This was reaffirmed by Deane J in Chan v Zacharia (1984) 154 CLR 178 at 196; [1984] HCA 36 and by French CJ and Keane J in Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [34]:

4. [82]

   This Court applied Dixon J’s statement in Beach Petroleum NL v Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408, noting at [195] that “a role which was limited when originally assumed may, by reason of conduct in performance of the role, be expanded so as to extend the duty”.

5. [83]

   In Omnilab Media Pty Ltd v Digital Cinema Network Pty Ltd [2011] FCAFC 166; 285 ALR 63 at [206], Jacobson J said with the agreement of the other members of the Full Court that:

6. [84]

   In Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [143], Finn, Stone and Perram JJ emphasised the importance of actions taken by Mr Grimaldi without request and on his own initiative in determining the subject matter over which his fiduciary obligations extended. They added at [179], in a passage cited by Gageler J in Howard v Commissioner of Taxation at [110]:

7. [85]

   In Gunasegaram v Blue Visions Management Pty Ltd [2018] NSWCA 179; 129 ACSR 265 at [152], Gleeson JA said, citing that passage:

8. [86]

   To the same effect, Lord Upjohn had said in Boardman v Phipps [1967] 2 AC 46 at 127 that once a fiduciary relationship was found to have been established,

9. [87]

   The necessity of having regard to the actual course of dealing is so utterly orthodox that it may conceal the complexity of the interrelationship between common law and equity. While contract may be and often is the foundation of a status-based fiduciary relationship (such as a deed of trust, a partnership deed or a solicitor’s retainer), and the contract is ordinarily the starting point for identifying the scope of the fiduciary obligation, there are cases where the limits of the area within which the fiduciary is not free to act self-interestedly are delineated not by contract but by conduct. The conduct is apt to fall short of amounting to an informal variation of contract or estoppel or some other legally enforceable right, especially when it is borne in mind that many proposals to vary a contract will themselves give rise to a conflict. A mere course of conduct by a company or partnership expanding into a new area will, without more, prevent a director or partner from taking up an opportunity in his or her own name in that new area. Thus, while the fiduciary relationship must accommodate itself to the terms of the contract so that it is consistent with and conforms to them (as Mason J famously said in Hospital Products), not uncommonly a contract which appoints someone as a partner or director may be imprecise about the scope of the person’s obligation, leaving that scope to be made certain by the “course of dealing actually pursued”. This is one reason for “the danger of trusting to verbal formulae” and why it is important to note that there “is no class of case in which one ought more carefully to bear in mind the facts of the case ... than cases which relate to fiduciary and confidential relations”: In re Coomber [1911] 1 Ch 723 at 728-729; Boardman v Phipps at 125; Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18 at 559-560.

10. [88]

    Lord Sales succinctly summarised ways in which the scope of fiduciary duties may be expanded and contracted in his 2019 John Lehane lecture “The Interface between Contract and Equity”:

11. [89]

    Further, his Lordship noted that a contractual term to the effect that “no fiduciary obligation is created by this contract” will not be effective. The ultimate question is whether the parties have agreed to what in law is a fiduciary relationship: “even if they do not recognise it themselves and even if they have professed to disclaim it”: Garnac Grain Co Inc v H M F Faure & Fairclough Ltd [1968] AC 1130 at 1137. More generally, the High Court has said that parties cannot deem a relationship between themselves to be something it is not: Hollis v Vabu Pty Ltd (2001) 207 CLR 21; [2001] HCA 44 at [58]. That accords with Finn J’s observation that “parties cannot by the mere device of labelling, no matter how genuinely intentioned, either confer a particular legal character on a relationship that it does not possess or deny it a character that it does possess”: South Sydney District Rugby League Football Club Ltd v News Ltd [2000] FCA 1541; 177 ALR 611 at [134], although naturally the terms of their agreement will bear upon the nature of the relationship between them. None of this is to deny that sufficiently clear contractual language can in appropriate cases limit the scope of a fiduciary duty or even exclude it: see for example Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 at 15 and 17 and Eaton v Rare Nominees Pty Ltd (2019) 2 QR 222; [2019] QCA 190 at [66].

12. [90]

    It would thus be wrong to think that there is some bright line rule sufficient to determine the scope of a fiduciary obligation. In Howard, Hayne and Crennan JJ emphasised at [61]:

13. [91]

    This accords with, and is an illustration of a more general approach in equity described by Dixon CJ, McTiernan and Kitto JJ in Jenyns v Public Curator (Qld) (1953) 90 CLR 113 at 119; [1953] HCA 2 that such cases “do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition”. Rather a court of equity “takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case”.

14. [92]

    Accordingly, I turn to the course of dealing actually pursued by the firm.

15. [93]

    First, it was uncontroversial and the primary judge recorded at [51] that in around October 2009, Brian and Robert acquired a half interest in the Bylong Quarry, doing so for themselves and not for MDL. The primary judge noted that this evidence was “significant, so far as that acquisition did not take place within MDL or indeed in any company in the Murdoch Group”.

16. [94]

    Secondly, the primary judge recorded that at around the same time that Stephen and Robert were inspecting the Timboon Quarry which was bought by RKM and operated by Kurdeez Minerals, Scott was inspecting and causing Stoneco to acquire two other quarries (Braeside and Robinson’s Knob). As it happens, both were geographically much closer to Mudgee than Timboon. There was conflicting evidence as to whether those quarries competed with MDL. Scott maintained that on the whole they did not, although the primary judge recorded that Scott “acknowledges that there was an occasion on which he successfully tendered to supply the Australian Rail Track Corporation from the Braeside quarry, in competition with MDL’s Bylong quarry”. The primary judge found at [64] that:

17. [95]

    Thirdly, a deal of evidence was directed to the Timor Quarry in the Hunter Valley. In October 2007, Scott became aware of the opportunity to acquire this quarry. It was disclosed to MDL. Robert gave evidence that he was of the view that it was too costly, and he and Stephen declined Scott’s proposal to cause MDL to acquire it. The quarry was acquired by Scott’s company Stoneco, and was thereafter operated, albeit after a delay attributable to litigation in the Land and Environment Court. The primary judge recorded at [45] that:

18. [96]

    RKM and Bright Pear owned equipment which was used at, inter alia, the Cadia Mine; this was the basis of the account of profits ordered after trial. However, Stoneco’s depreciation schedule disclosed a crusher costing $100,000 acquired in July 2009, a jaw crusher costing some $180,000 acquired in October 2010, screening plant costing $170,000 acquired in November 2011 and a range of less expensive equipment and vehicles.

19. [97]

    Scott purchased a mobile crusher in July 2009 and a second crusher in October 2010. Of the first, there was a dispute at trial, and the primary judge recorded and appears to have accepted Scott’s evidence that the crusher was acquired for the Timor mine rather than to be made available for contracting use. The opportunity for performing crushing work in South Australia had been disclosed to Stephen, who thought it was not worthwhile to send the equipment to South Australia for a relatively small job. The primary judge found at [50] that:

20. [98]

    Finally, there was a deal of evidence concerning an “agreement” in November 2009 between Brian, Robert, Scott and Stephen to split their respective interests. In part the parties’ varying evidence on this went to the judge’s assessment of their reliability, and in part it was relied upon, without success, as a defence to the proceedings at trial. It was addressed at length at [52]-[57]. The primary judge recorded at [52] that:

21. [99]

    The primary judge found that Robert and Stephen breached the fiduciary and statutory duties they owed to MDL when they caused their own companies RKM and Bright Pear to perform work at Cadia, but rejected MDL’s claim that there was a breach when RKM and Kurdeez Minerals acquired and operated the Timboon Quarry in Victoria. Each finding was challenged.

22. [100]

    It is not necessary in order to resolve those challenges to identify exhaustively what the scope of the duties owed by Robert and Stephen was. It is sufficient to determine (a) whether working at Cadia, and (b) whether taking up the opportunity at Timboon, was or was not within the scope of the duties owed by Robert and Stephen. Intermediate questions, including the taking up of quarrying and crushing opportunities geographically closer to Mudgee do not arise. That reflects the ordinary pragmatic approach to the resolution of justiciable controversies, and carries with it a considerable simplification of the analysis.

23. [101]

    I have also largely passed over the fact that Robert’s fiduciary duties were owed both in his capacity as a director and in his capacity as an employee. The parties seem to have followed the same course (at least in this Court). Those duties differed. Professor Kershaw has recently emphasised how a single person can perform multiple and distinct fiduciary obligations, and indeed how common this is: D Kershaw, “Corporate Law’s Fiduciary Personas” (2020) 136 Law Quarterly Review 454. It seems likely that in relation to MDL’s existing contract at the Cadia mine, Robert’s duties as employee would be at the forefront, while in relation to the claim concerning the acquisition of Timboon mine, his position as a director would be more prominent. But for present purposes, I follow the parties’ approach which did not descend to an analysis of separate duties owed by Robert in those two capacities; the issues in this appeal may be resolved without that added complication.

24. [102]

    By ground 4 of the appeal, the appellants maintained that by reason of the creation of Mudgee Stone Co and the individual companies established by each of the four men, the scope of the fiduciary obligations owed by Robert and Stephen became narrowed so as to permit them to cause companies other than MDL to perform work at Cadia. The submission and the basis given by the primary judge for rejecting it may be seen in [127]:

25. [103]

    The appellants focussed upon what was said to be “a major event in the history of the relationship between Brian, Robert, Scott and Stephen Murdoch”, namely, the decision in around 2002 or 2003 to incorporate Mudgee Stone Co to carry on a business operating a quarry at Oberon and deploy its own mobile crushing equipment on that and other sites. Mudgee Stone Co had its own Hyundai Excavator and Chieftain Powerscreen crusher. Each of Stoneco, RKM and Bright Pear acquired and operated its own quarry and mobile equipment. As noted above, at least some of that equipment was “mobile” in the sense that it could (doubtless not without some cost, time and effort) be relocated to other locations – including potentially interstate, as was contemplated in relation to some crushing work in South Australia.

26. [104]

    The appellants submitted that it followed that each of Brian, Robert, Scott and Stephen was placed in a position of actual or potential conflict between interest and duty once the four of them were participating in Mudgee Stone Co, with Scott, Robert and Stephen operating their own companies as well as MDL. It was put that this:

27. [105]

    The appellants said that the primary judge’s reasoning that permitted a “diversion” of work begged the question. If RKM and Bright Pear were at liberty to carry out work self-interestedly, there was no “diversion” of work from MDL and no basis on which MDL was entitled to priority over the other companies. They added that it would have been impossible for MDL to fulfil its Cadia contracts without a narrowing of Robert’s duties sufficient to permit him to allocate RKM equipment to carry out the work at Cadia, and that the attenuation provisions in cl 17.4 of the Constitution “inform[ed] the possibility that directors’ duties may be attenuated in the manner claimed by the appellants”.

28. [106]

    The appellants submitted that asking whether there was full and fair disclosure when the disputed work items were undertaken was to frame the inquiry at the wrong point of time. Rather, the inquiry should have been made years earlier, when by reason of the incorporation of other corporate entities the possibility of conflict was created. From that time, Robert and Stephen “occupied” a position of conflict. It was said that it was “incorrect to seize upon later transactions (for the purpose of obtaining an account of profits) which flowed from the occupation of the position of conflict to which consent had already been given”.

29. [107]

    MDL complained, first, that this had not been pleaded. Secondly, MDL submitted that there was a world of difference between companies within the Murdoch Group (notably, MDL and Mudgee Stone Co), and companies such as RKM and Bright Pear. It was said that within the “Murdoch Group”, companies and assets “were held equally by each of Brian Murdoch (or his side of the family) and Robert Murdoch (or his side of the family)”. (The term “Murdoch Group” was confined to the companies which were equally owned by Brian or Brian and Scott on the one hand, and Robert or Robert and Stephen on the other hand, although of course all of the companies were “related” for the purposes s 50 of the Corporations Act.) In that way, it did not matter if assets (such as crushing equipment) were moved within the Murdoch Group because “[t]he profits generated by work that fell within the scope of the business of the Murdoch Group flowed through equally to the two sides of the family, irrespective of the corporate entity utilised for such work”. Thirdly, MDL submitted that the submissions amount to a circularity of reasoning, to the effect that “the Appellants’ difficulties with conflicts of duty and interest are best resolved by relieving the Appellants of any fiduciary obligations”. Fourthly, MDL submitted that the obviousness of the conflict did not remove the consequences for a person who acts self-interestedly; to the contrary, it rendered the breach more egregious. Fifthly, MDL submitted that the appellants’ failure to challenge the finding that there was no full or fair disclosure disentitled the appellants from contending that the duties were narrowed. Finally, it submitted that the appellants’ suggestion “that the temporal point for consideration of the issue of consent to the Cadia Work (which was undertaken in the period from 2010 to early 2014) was some earlier point in time (perhaps at the time of [Mudgee Stone] being incorporated in 2002)” was “with respect, nonsensical”, and that the appellants ran no case at trial that they had “blanket” or “carte blanche” consent to do so.

30. [108]

    This ground may be resolved quite concisely, in light of the fact that the only question is whether Robert and Stephen were free to cause RKM and Bright Pear to make money doing work at the Cadia mine which had been contracted to MDL.

31. [109]

    I do not agree with some of the submissions advanced by MDL. Only if a director’s or a fiduciary’s conduct falls within the scope of his or her fiduciary obligation will there be a breach of fiduciary duty. I incline to the view that, strictly speaking, it is for the plaintiff to plead the scope of the duty which it is alleged has been breached, rather than for the defendant to allege a more circumscribed scope which does not extend to the conduct alleged to constitute the breach. That view is consistent with decisions such as Jacobsen v Jacobsen [2017] NSWSC 1590 at [98] (“nor is the scope of any fiduciary obligation adequately pleaded”) and Galati v Deans (No 2) [2018] NSWSC 1813 at [93] (“The nature and scope of the alleged fiduciary duties need to be clearly articulated ...”). Often the fact that conduct which is alleged to be a breach falls within the scope of a scope of a fiduciary duty is not seriously in issue. But the establishment of separate companies with potentially competing businesses made the present litigation a case where the scope of the various fiduciary obligations was plainly a real issue.

32. [110]

    In the present case, neither side’s pleadings descended to these levels. But the parties proceeded to serve enormous affidavits dealing with their history (for example, Robert’s three affidavits comprise 1055 + 210 + 167 = 1432 paragraphs over some 220 pages excluding annexures and exhibits), largely admitted without objection. Much of that history bore on the question of scope. Brian made two affidavits in response. The appellants provided written opening submissions dated 27 July 2020, three weeks prior to the trial, confirming their denial of liability for the Cadia claims on the basis that “there is no such liability, as they were free to undertake these transactions.” MDL’s closing written submissions addressed the appellants’ submission that fiduciary obligations were moulded to accommodate the relationship giving rise to them, reproduced the passage from Grimaldi which itself reproduced the passage from Birtchnell mentioned above and then contended that Robert and Stephen each assumed and undertook a wide range of responsibilities for or on behalf of MDL (written submissions 14 September 2020, paras 28-29). In circumstances where it was for the plaintiffs to plead the point, where the evidence extended to scope, and where the issue was contested on the merits at trial and decided on the merits by the primary judge, I would not resolve this issue on a pleading point (noting further that strictly this should have been the subject of a notice of contention). I have addressed the pleading point a little elaborately in light of certain grounds of MDL’s proposed cross-appeal.

33. [111]

    I would also not accept a submission that the difference between MDL and Mudgee Stone Co can be ignored because both are co-owned by the two “sides” of the family. The distinction between a company co-owned by the two fathers, and one owned in equal shares by the two fathers and the two sons is real, and indeed is important in the present case, Scott needing to persuade Brian to take action on behalf of MDL against Robert and Stephen, as addressed in detail in grounds 5 and 6 below. And some of MDL’s submissions conflated the defence of consent with the separate and anterior issue of whether conduct is a breach of duty because it was outside the scope of the area within which the fiduciary could not act self-interestedly.

34. [112]

    Nonetheless, I do not accept the appellants’ submissions. First, the fact that MDL was unable to perform its contractual obligations at the Cadia mine is no defence to the claim that Robert and Stephen breached their fiduciary or statutory obligations to it by causing RKM and Bright Pear to do that work. As was said in Warman International Ltd v Dwyer at 558:

35. [113]

    Secondly, while in principle it is possible that steps such as the establishment of individual companies with businesses which were in competition with MDL altered the scope of Robert’s and Stephen’s fiduciary obligations to MDL, I do not accept that any narrowing extended to entitling Robert and Stephen to cause RKM and Bright Pear to do work at the Cadia mine. Whatever view may be taken of the effect of a corporate structure which exposed all of Brian, Robert, Scott and Stephen to the conflicts between duty and duty, and duty and interest, it did not permit Robert or Stephen to cause their own companies to do work at the Cadia mine which MDL had in fact been doing and had contracted to do.

36. [114]

    This was not a case of a new business opportunity to provide crushing services. Rather, it involved performing work which MDL had already contracted with CVO to do, at the Cadia mine site where MDL’s equipment was already located and to which employees such as Stephen had been inducted. As MDL observed, Robert gave evidence that “you just can’t go and get a subcontractor to get on the Cadia site. It takes them probably a month to be inducted to start with”. His evidence was directed to the impossibility of MDL performing its obligations without using RKM or Bright Pear resources, but the same evidence confirms the privileged position which RKM and Bright Pear were exploiting when they performed work on behalf of MDL.

37. [115]

    The duties in equity or their statutory counterparts were not so confined as to permit Robert or Stephen to act self-interestedly in exploiting opportunities at a worksite where MDL had contracted with CVO. I am conscious that the appellants strenuously maintained that MDL could not fulfil its existing contractual obligations at Cadia without RKM and Bright Pear making their own equipment available. That point is more directly addressed under the grounds concerning causation below. But it is as well to explain at this point why MDL’s incapacity did not mean that Robert and Stephen were free to act to cause their own companies to fulfil MDL’s obligations. Robert and Stephen as employees should have been acting in MDL’s best interests, and preferring MDL's interests to their own. Let it be assumed that, as they maintain, MDL could not fulfil its obligations, and the only companies which could fulfil them were RKM and Bright Pear. Even then it was for the company acting through persons not subject to an obvious conflict between duty to MDL and self-interest to determine whether MDL should breach its contract or seek to renegotiate with CVO or subcontract the work to RKM and Bright Pear. The non-conflicted decision-maker (most likely Brian) might well have chosen to have RKM and Bright Pear perform the work. The negotiation about price might then raise a legally interesting issue. It seems at least arguable that in that negotiation, all parties having participated in the establishment of competing companies, Robert and Stephen were free to act self-interestedly in determining the price at which their companies would subcontract to MDL. That might arguably be a “defined area of conduct” where, of necessity, Robert and Stephen were free to act self-interestedly in negotiating with MDL; cf Noranda Australia Ltd v Lachlan Resources NL at 15. But Brian (or some other non-conflicted MDL officer) never had the opportunity to determine how to respond to MDL’s incapacity to fulfil its obligations to CVO. In R v Byrnes (1995) 183 CLR 501 at 516-517; [1995] HCA 1, Brennan, Deane, Toohey and Gaudron JJ said:

38. [116]

    This suffices to reject this ground of appeal.

39. [117]

    The proposed cross-appeal contains nine grounds, eight of which are directed to impugning the finding by the primary judge that Robert and Stephen did not breach any fiduciary obligation owed to MDL when acquiring the Timboon Quarry. Those eight grounds have numerous sub-grounds. In large measure, they were developed collectively in written and oral submissions, and I shall follow the same course.

40. [118]

    The gravamen of all these grounds is a challenge to the same dispositive reasoning of the primary judge at [211]-[215]. MDL’s overarching claim is that the primary judge erred in finding that the acquisition and exploitation of the Timboon Quarry was not a breach of fiduciary duty. The grounds also include some more precise challenges to particular aspects of the reasons.

41. [119]

    The critical reasoning dispositive of the claim relating to Timboon Quarry is at [211]-[215]. In those paragraphs, the primary judge referred to a series of acquisitions of quarries by members of the Murdoch family other than through MDL. His Honour referred to Stoneco’s acquisition of the Timor Quarry, Brian’s and Robert’s personal acquisition of an interest first of 50% in October 2009 and then 100% in January 2013 in the Bylong Quarry, which was then leased to MDL, Stoneco’s acquisition in the Braeside and Robertson’s Knob quarries and RKM’s and Kurdeez Lime’s acquisition of Timboon, and concluded at [211] that:

42. [120]

    His Honour then stated at [213]-[214]:

43. [121]

    On that basis, his Honour concluded that there was no real and sensible possibility of a conflict between duties to MDL and the personal interests owed by Robert and Stephen in developing the Timboon Quarry and their duties to RKM and Kurdeez Minerals.

44. [122]

    The central points advanced by MDL on these grounds were as follows:

    1. (1)

       Robert had almost sole responsibility for identifying and pursuing new business opportunities (including acquiring quarries) for MDL.

    2. (2)

       MDL was involved in owning and operating limestone quarries and was actively looking for additional quarries at the time. Timboon was such a quarry.

    3. (3)

       MDL said that it was irrelevant whether MDL was “unwilling, unlikely or unable to make the profits”, relying upon Warman International Ltd v Dwyer, and so the probabilistic reasoning of the primary judge was irrelevant. MDL said it was irrelevant that it was not Robert’s duty to obtain the profit or benefit for MDL, and that it was sufficient that the advantage had accrued to Robert in breach of his fiduciary duty. MDL said that Robert was in a position of “real and sensible possibility of conflict” between his personal interests and at least his duty faithfully to pursue the interests of MDL.

45. [123]

    These submissions reduce to a question of scope of duty. As it was put in final submissions at trial, and developed in MDL’s written submissions on appeal, the question was whether a new lime quarry in Victoria was “sufficiently in the same ball park” as MDL’s existing business activities (picking up a metaphor from Natural Extracts Pty Ltd v Stotter (1997) 24 ACSR 110 at 139), although the main focus was not so much the similarity of the Timboon Quarry with the existing operations as its distance from the other quarries. It was also said to have been squarely within MDL’s existing and anticipated line of business.

46. [124]

    MDL also raised other narrower complaints about aspects of the reasoning of the primary judge. Two are best addressed immediately.

47. [125]

    First, MDL complained that it had been denied procedural fairness in three respects. MDL said that the appellants had not pleaded (i) that MDL was not the entity which more likely than not would have acquired the Timboon Quarry (ground 2(b)), (ii) that the opportunity had not “come to” Robert or Stephen in any capacity associated with MDL in circumstances where the appellants had merely pleaded that Stephen discovered the opportunity “in the course of his own personal research while searching for plant and equipment” (ground 5(b)), and (iii) reliance upon the acquisition of the Bylong Quarry by Brian and Robert in their own names (ground 8(b)).

48. [126]

    Ordinarily it is appropriate to deal with such a ground of appeal, which involves a serious criticism of the course taken by the court below, at the outset. The reason is that if there has been a material denial of procedural fairness, there will not have been a trial in accordance with law, and a retrial will be necessary: Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577; [2006] HCA 55 at [2]-[3], [117] and [172]; Windsor v Health Care Complaints Commission [2020] NSWCA 110 at [51]. Although this Court divided on whether or not there had been a procedurally fair trial in Manly Fast Ferry Pty Ltd v Wehbe [2021] NSWCA 67, it was agreed that that ground of appeal should be determined first: see at [35] and [116]. However, when asked during the hearing by the presiding judge and me, senior counsel confirmed that MDL did not seek a retrial, but rather that this Court was asked to simply to determine the issue:

49. [127]

    An appeal to this Court is by way of rehearing, with power to make fresh findings of fact: Supreme Court Act 1970 (NSW), s 75A(5), (6) and (10). MDL’s challenge to the conclusion by the primary judge that Timboon Quarry was outside the scope of the fiduciary duties owed by Robert and Stephen will be determined in light of the evidence at trial and the parties’ submissions on that issue. But in circumstances where it is not suggested that different evidence would or could have been led and a retrial is disavowed, a ground of appeal that a party was denied procedural fairness because a finding was made outside the pleaded case goes nowhere.

50. [128]

    Such claims that there have been a denial of procedural fairness, on which nothing can turn, recur in this Court. Most recently, in Sydney Trains v Batshon [2021] NSWCA 143 at [35]-[37] it was said:

51. [129]

    So too here. Either the primary judge made appellable error in finding that the Timboon Quarry was not within the scope of Robert’s and Stephen’s fiduciary duties or he did not. If his Honour did so in a way which was procedurally unfair, but nonetheless reached the correct conclusion in circumstances where (a) no further evidence is sought to be adduced, (b) it is not said that cross-examination would have differed and most importantly (c) no retrial is sought because this Court can determine the issue, then any denial of procedural fairness would be immaterial. I would not grant leave to cross-appeal on grounds 2(b), 5(b) and 8(b).

52. [130]

    However, because it is (or at least, it should be regarded) as no small matter to allege that the course adopted at trial was procedurally unfair, and lest it be thought there was something in these grounds, I should explain why in any event I am unpersuaded there was any procedural unfairness.

53. [131]

    It was said that the appellants did not plead that the scope of the business of MDL was confined geographically so as to exclude Timboon. Rather, the appellants had pleaded the 2009 resolution to split up MDL which narrowed the relevant duties, which was rejected by the primary judge (at [54]) and not challenged on appeal. But in contrasting the pleaded defence of the 2009 resolution with the unpleaded dispositive findings as to the scope of the duties owed by Robert and Stephen, MDL conflates two quite different things.

54. [132]

    The 2009 resolution was a positive defence requiring the appellants/defendants to establish that Brian, Robert, Scott and Stephen consensually agreed to split the business freeing each of them to act self-interestedly even in areas in which they would otherwise have been required to prefer the interests of MDL. The defence raised new and indeed controversial facts, which would have been an answer to MDL’s claim for breach of fiduciary duty in the event that breach had been made out. In contrast, MDL would fail unless it established breach of duty, which is to say, conduct which lay within the scope of Robert’s and Stephen’s fiduciary obligations owed to it. MDL did not address scope in its pleading. I have already mentioned that, strictly speaking, this fell to MDL to allege and establish. The appellants said that the complaints on appeal based on the pleading should be dismissed because they amounted to MDL’s failure to make out an element of its claim. I agree.

55. [133]

    Indeed, during the course of preparing these reasons, I noticed that this had been squarely addressed during the course of oral address. There was the following exchange:

56. [134]

    Any complaint about the way in which the Court approached the findings of scope of duty being procedurally unfair is difficult to reconcile with that exchange.

57. [135]

    In its written submissions in reply, MDL said that the connection between the high level of generality of MDL’s pleading and the alleged absence of any substance to MDL’s complaint about procedural fairness was unclear. The connection is that normally it is not necessary for a defendant to plead to an element of the plaintiff’s case which has not itself been pleaded. In any event, very lengthy affidavits were exchanged on these issues.

58. [136]

    The distinction between a pleading that Stephen discovered the Timboon Quarry opportunity “in the course of his own personal research” and the finding that the opportunity had not “come to” Robert or Stephen in any capacity associated with MDL, which is the basis of ground 5(b), is illusory. It may be as Brian submits that the defence to the Timboon Quarry claim did not expressly plead the scope of MDL’s business, but where the issue of competing quarries owned by other companies was raised in other proceedings and indeed was the subject of a concession (see below), and where the submission was explicitly made at trial, I do not see any substance to a claim that there was a denial of procedural fairness.

59. [137]

    The issue in ground 8(b) was squarely raised in the second derivative proceeding, which was directed to Scott’s purchase of crushing machines from 2009 and Stoneco’s acquisition of the Braeside basalt quarry, which was said to be a direct competitor to MDL’s business of supplying basalt products from the Bylong Quarry owned by Robert and Brian and operated by MDL. The primary judge summarised this at [250]. Indeed, Brian made a qualified concession at the commencement of the trial, recorded by the primary judge at [257], that in the event that Robert and Stephen were held liable in respect of the Timboon Quarry claims, then he accepted that Scott and Stoneco likewise ought to be held liable in respect of the matters pleaded in the second derivative proceeding. In other words, the ways in which the activities of Robert and Brian and the other companies related to MDL informed the scope of the fiduciary duties were squarely in issue in the proceedings that went to trial.

60. [138]

    Ground 8(g) of MDL’s proposed cross-appeal asserts that parts of the reasoning of the primary judge involved impermissible coincidence reasoning. Thus it was said that:

61. [139]

    This was not developed in oral submissions. I do not accept that there was any such error. Section 98 of the Evidence Act is a rule against the admissibility of evidence, but the documents supporting the (unchallenged) findings of primary fact concerning the acquisitions of other quarries were not objected to. Separately, s 95 of the Evidence Act forbids the use of evidence to which s 98 applies to prove a particular matter: see El-Haddad v R (2015) 88 NSWLR 93; [2015] NSWCCA 10 at [38]-[42]. The gravamen of this subground is that the primary judge contravened s 95. But the mode of reasoning seen in the dispositive passages (at [211] and, especially, at [214]) does not contravene the “coincidence rule”.

62. [140]

    The issue is not whether two or more events occurred coincidentally. The issue is whether the scope of MDL’s business of operating quarries extended outside the Mudgee area. What in fact occurred – the “actual course of conduct” of the parties – was relevant to that issue. Indeed, it was central to that issue. True it is that one way of formulating the mode of reasoning is to ask whether it is a “coincidence” that companies other than MDL acquired interests in the quarries at Timor, Bylong, Braeside, Robertson’s Knob as well as Timboon. But that is an artificial reformulation of the mode of reasoning adopted by the primary judge.

63. [141]

    In its written submissions, MDL sought to rely upon the reasoning in White v Johnston (2015) 87 NSWLR 779; [2015] NSWCA 18 at [136]-[139], but there evidence was tendered for no purpose other than to support a reasoning process that the defendant had a tendency to act in a particular way. The tendency was to render bills for dental work without providing such treatment, and there was error in admitting the evidence for a different purpose (namely, whether dental work actually performed on the plaintiff had no therapeutic purpose). That is a very different case. Here the evidence of other acquisitions was directly relevant to an issue: the scope of the fiduciary duties alleged to have been breached, which was informed by the actual course of conduct of the parties.

64. [142]

    MDL’s claims based on the acquisition and operation of Timboon Quarry turn on a conclusion as to the scope of the duties owed by Robert and Stephen. The conclusion is based on a series of primary facts. No challenge is made to the individual findings of fact as to the acquisition of other quarries (notably, the Bylong Quarry acquired by Robert and Brian, the Timor Quarry operated by Stoneco, and the Braeside and Robinson’s Knobb Quarries acquired by Stoneco at the same time RKM acquired Timboon Quarry).

65. [143]

    The primary judge said that it was highly unlikely that each of Brian, Robert, Scott and Stephen was undertaking these acquisitions in breach of their duties to MDL. This reasoning draws upon a pattern of conduct, as revealed in a series of acquisitions of quarries in New South Wales by entities other than MDL controlled by men who owed fiduciary obligations to MDL. It supports the conclusion that the scope of the duties owed by directors and employees of MDL did not extend to the Timboon Quarry in Victoria. The geographical area within which a company’s operations extend will largely depend on the nature of those operations. Some companies may and do operate over wide geographical areas, indeed worldwide. But a company which produces large amounts of crushed stone using heavy, expensive equipment is plainly limited in the areas throughout which it can operate.

66. [144]

    MDL pointed to evidence that in fact it was possible to sell, and MDL did sell, its products interstate. That is so. But on analysis, it supports the conclusion reached by the primary judge.

67. [145]

    The evidence was given by Robert in cross-examination. No differently from most questions of market delineation, the issue is not black-and-white. It warrants reproduction because of its nuances:

68. [146]

    The primary judge enjoyed an advantage this Court does not in evaluating that evidence. It is far from clear whether the exchanges reflect a witness who was being argumentative, or defensive, or rather was merely seeking to correct what (to the witness) were counsel’s obvious misunderstandings and simplifications. But noting in particular what was said concerning the abundance of lime plants, the small market for dolomite and the fact that it had been sold by the pallet (rather than by truckload – MDL sales reports distinguish “Dolomite–Bulk”, “Dolomite Bulk Bags” and “Dolomite 25KG Bags”), the evidence supports the primary judge’s conclusion that the Timboon Quarry was not within the scope of Robert’s and Stephen’s fiduciary obligations. The judge did not neglect that evidence when reaching the conclusion; to the contrary, his Honour explicitly had regard to it, saying at [215]:

69. [147]

    Finally, his Honour’s reasoning is also supported by the concession made by Brian and the interests associated with him at the commencement of the trial, recorded by the primary judge at [257]-[258], to the effect that if Robert and Stephen were liable in respect of the Timboon Quarry claims, then Scott and Stoneco were liable in respect of the Braeside Quarry and Robertson’s Knob Quarry. It was a remarkable fact that in the same month (February 2011) Robert and Stephen were investigating acquiring Timboon Quarry, Brian and Scott were investigating acquiring Braeside and Robinson’s Knob quarries. No error is to be discerned in the reasoning of the primary judge that it was more probable that Robert, Stephen and Scott were all acting self-interestedly in an area outside the scope of their fiduciary obligations as opposed to their being in breach.

70. [148]

    Against that reasoning, MDL submitted that it had in fact contemplated an expansion of its business well beyond New South Wales. This was addressed by the primary judge at [284], where his Honour said that after Robert and Brian visited New Zealand in around 2008 to investigate the land, there was “no evidence that any substantial consideration was then given to purchasing this land within MDL or within other companies in the Murdoch Group or by Brian and Robert personally, prior to the subsequent decision by Robert and Stephen to pursue that property” (which occurred in 2009 and 2010 and was beset with difficulties and was sold in 2018). There were difficulties regarding the evidence concerning the New Zealand visit (addressed by the primary judge at [49]) but there is nothing to cast doubt upon the findings of the primary judge. His Honour’s reasoning does not detract from, and indeed tends to confirm, that the geographical scope of MDL’s business did not extend to Timboon.

71. [149]

    Ultimately, the finding by the primary judge that the Timboon Quarry was outside the scope of the fiduciary obligations owed by Robert and Stephen is an evaluative conclusion, based on an assessment of primary facts. No separate submission was addressed to the scope of the statutory obligations owed by Robert and Stephen.

72. [150]

    I do not consider that MDL has established appellable error (or indeed any error) in the finding made by the primary judge. It follows that while there should be a grant of leave save for the grounds involving a denial of procedural fairness, grounds 1-8 of the cross-appeal should be dismissed.

The principles in Peninsular and Oriental Steam Navigation v Johnson (grounds 1, 2 and 3)

1. [151]

   These three grounds challenged the inclusion of $1,622,738 within the profits for which RKM and Bright Pear were held liable to account for work “subcontracted” to those companies (I use inverted commas because the appellants maintained that the primary judge had erred in not being persuaded that there was a contract). Those profits constituted “DWI1”, being the first disputed work item and which involved payments to RKM and Bright Pear for supplying MDL with equipment and a variety of crushing and loading services during the financial years ended 30 June 2010 and 2011. In that period, following the “emergency” at Cadia, MDL invoiced CVO for a range of work, including work done by machines owned or operated by RKM and Bright Pear. In turn, it seems that payments were made by MDL to RKM and Bright Pear calculated by reference to the number of hours the machines worked and an hourly rate. There was in fact a partially completed written contract between RKM and MDL in evidence, but Mr Kelly SC disavowed any reliance upon it (Mr Bedrossian SC deployed it for a different purpose in connection with the “standing by” defence – see below).

2. [152]

   These three grounds of appeal are related and were addressed collectively in the parties’ written and oral submissions. The submission advanced on appeal is a purely legal one. It takes the following form:

   1. (1)

      it may be inferred that there was a contract between RKM and MDL, and Bright Pear and MDL, for the hire of machinery on the Cadia site, despite its not being documented, on the basis of contemporaneous references to “subcontract”, the transfer of funds at particular hourly rates, and the way the case was opened and the way the defendants were cross-examined;

   2. (2)

      that contract was never rescinded and could never have been rescinded;

   3. (3)

      by application of or analogy with the principles in Peninsular and Oriental Steam Navigation Co v Johnson (1938) 60 CLR 189 at 212-213; [1938] HCA 16 it followed that an account of profits was not available and MDL could only sue for compensation for loss;

   4. (4)

      the statutory claims sounding in orders under s 1317H took the matter no further.

3. [153]

   The primary judge recorded the submission at [178] and [179] noting at the conclusion of the latter paragraph that:

4. [154]

   His Honour then stated at [180]:

5. [155]

   The dispositive paragraph was [182], which is as follows:

6. [156]

   In oral submissions, Mr Kelly maintained that this was a plain case for a contract between MDL and RKM or Bright Pear. The making of payments at precise hourly rates following the supply of machines to MDL which were then used at Cadia and for which CVO was invoiced by MDL was a very clear case of a contract for hire. “Equipment hire at an hourly rate is a paradigm example of a contract, even in the absence of a documented agreement.” The appellants also relied upon allegations in the pleading of subcontracting, which on the present issue were said to amount to admissions, the way the case was opened on behalf of MDL and the fact that Robert’s cross-examination proceeded positively on the basis that there was a subcontract (“You caused MDL to subcontract work at Cadia in 2010 and 11. Correct?”).

7. [157]

   The appellants also relied upon the in-house accountant, Ms Sullivan, who prepared summary sheets annexing the documents upon which charges were allocated between the companies. It was said that “[t]here was no issue that RKM and [Bright Pear] had hired the equipment and carried out the work she recorded on behalf of MDL”.

8. [158]

   It was on that basis that Mr Kelly was able to submit that “the case as pleaded, opened, particularised by reference to the workings of Ms Sullivan, and supported by the primary invoices, and, here, squarely put to the witness, is that the equipment was hired by way of subcontract.”

9. [159]

   Against the proposition advanced in MDL’s written submissions that the principle applied only for transfers of property which could not be rescinded, and not to the supply of services, Mr Kelly submitted that the distinction was not a crisp one and that the principles on which he relied could apply to the case of a lease, and were not limited to cases of transfer of ownership. He said that the underlying principle was directed to the inequity of “having your cake and eating it, too”; if the company had had the benefit of the hire, it could not simultaneously retain that benefit and strip the profits from the fiduciary who had entered into the transaction in a position of conflict. Mr Kelly accepted that it followed, if his submission were correct, that there could never be an account of profits against a self-dealing fiduciary who provided services to the person to whom the fiduciary duty was owed.

10. [160]

    In relation to the further submission that the extended definition of “damages” in s 1317H of the Corporations Act as including “profits” stood in the way of the argument, Mr Kelly submitted that the generally worded power to order pecuniary remedies should not be understood as undercutting this basic principle. It was said that this was supported by the analysis of the provision by the Federal Court in Grimaldi at [631].

11. [161]

    MDL responded by submitting that the appellants’ analysis “by reference to ‘sub-contract’ involves artificial categorisation, particularly in [the] context of the provision of services”, and relied on the proposition that “the Court has the ability in equity to give relief whenever ‘it can do what is practically just’ (Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102 at 113-114 ...)”. MDL said there was no inequity in an order for an account, that only the profit element was disgorged to MDL, and there was no double recovery. MDL also maintained that its statutory remedy under s 1317H was unaffected by this submission, noting that s 1317H(2) permitted an award of compensation for damage to include “profits made by any person resulting from the contravention or the offence”.

12. [162]

    By its notice of contention, MDL said that the authorities on which the appellants relied were inapplicable, because they only applied in respect of a voidable transaction involving a contract for the sale of property or the lending of money, and that in any event an account of profits was available both in equity and under s 1317H even though rescission is not possible or has not been sought.

13. [163]

    First, contrary to MDL’s submission, the issue is not a generalised one of whether the relief it seeks would be “practically just”. The notion that equitable remedies are granted or withheld on some abstraction of fairness or justice was despatched by Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 615-616; [1985] HCA 78, noting that centuries before John Selden’s writing “undefined notions of ‘justice’ and what was ‘fair’ had given way in the law of equity to the rule of ordered principle which is of the essence of any coherent system of rational law”. The “practical justice” to which MDL referred was the statement of principle in Vadasz concerning the greater power of a court of equity to achieve restitutio in integrum, thereby significantly enhancing the cases where rescission was available. This was explained by the High Court in Alati v Kruger (1955) 94 CLR 216 at 223-224; [1955] HCA 64. There is no general power, exercised according to ill-defined notions of “practical justice”, authorising a court to award equitable relief contrary to or without regard to principle.

14. [164]

    Secondly, there was no written contract, and the primary judge was correct to infer that given the relationship between MDL and RKM and Bright Pear, no formal contract was required. The primary judge referred to “not made a contract”, “contract which does not exist” and “no operative contract”. Those terms suggest, at the least, his Honour’s view that no formal written contract, and no formally negotiated contract was in existence. The language probably goes further to extend to the absence of any contractual relation between MDL and RKM and Bright Pear. However, nothing in his Honour’s reasons suggests that attention was given to whether there might have been an informal contract inferred principally from conduct (making the machines available and rendering invoices) as is advanced on appeal.

15. [165]

    As the appellants emphasised when the appeal was heard, the principles in Peninsular and Oriental Steam Navigation Co v Johnson do not turn on whether the contract which cannot be rescinded was formal or informal or written or oral or brought about by conduct.

16. [166]

    The primary judge relied on the justification for the rule, namely, that equity will not “remake” a contract between the parties, and reasoned that it was inapplicable, there being no contract between MDL and RKM or Bright Pear in the first place. I do not agree. I think the appellants are correct to submit that there was a contract, albeit an informal contract, for the hire of equipment by MDL at Cadia to fulfil MDL’s obligations. A contract for the sale or hire of a chattel may be brought into existence by informal words and conduct. In Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11,110 at 11,117 McHugh JA said that “a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words”. The same points were made by Ormiston J in Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 79-83, and in numerous other authorities collected in Tecnicas Reunidas SA v Andrew [2018] NSWCA 192 at [50]. As Allsop J has said, legal analysis as to the formation of contract need not be constricted to mechanical notions of offer and acceptance: Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [369]. All this reflects what Lord Wilberforce had earlier observed of the difficulties caused by English law having committed itself to a “rather technical and schematic doctrine of contract” which caused “many situations of daily life” only to “fit uneasily into the marked slots of offer, acceptance and consideration”: New Zealand Shipping Co Ltd v A M Satterthwaite & Co Ltd [1975] AC 154 at 167.

17. [167]

    I proceed on the basis, favourably to MDL, that there was an informal contract between RKM or Bright Pear (or both companies) and MDL for the supply and operation of crushing equipment at the Cadia mine.

18. [168]

    Equity intervenes in a case such as this to take away profits made by a fiduciary in breach of duty. Where the breach amounts to the transfer of property of the person to whom the fiduciary duty is owed, then a plaintiff is not permitted simultaneously to retain the transferred property and to take from the fiduciary the profits derived from the transaction. That would be doubly to enrich the person to whom the fiduciary duty is owed. But it does not follow that merely because a contract has not been, or can not be, rescinded that an account of profits is not available. That is not to insist that the principle upon which Mr Kelly relied is confined to cases of transfer of property. In principle, it could apply to a fiduciary who leases land to a beneficiary. It could even apply to a long term hiring contract, say for three years, where after one year the beneficiary becomes aware of the breach of fiduciary duty and seeks pecuniary remedies. The beneficiary cannot simultaneously have the benefit of the remaining two year term of the hire and sue the fiduciary for profits made over the balance of the term. But those cases are far removed from the present. While it is not to the point that there was no written contract, the unavailability of rescission of the informal contract does not stand in the way of an account of profits. In order to explain why, it is necessary to consider the principle on which Mr Kelly relied in some detail and in context.

19. [169]

    Peninsular and Oriental Steam Navigation Company v Johnson was a very different case. Simplifying the facts slightly, Mr Walter Johnson was managing director of Amalgamated Collieries of WA Ltd, and also a director of Johnson & Lynn Ltd. The latter company bought some mining machinery from the receiver of a partnership which had operated a mine at Ravenshorpe, to which Dixon J referred at 244 as “a distant and inaccessible place”. The price was £1,500. Dixon J stated that by the time the machinery was resold, the total cost including handling and transportation was some £7,543. Some of the machinery was sold to third parties, but around a year later, a larger quantity of the machinery was sold by Johnson & Lynn Ltd to Amalgamated Collieries of WA Ltd. Far from distancing himself from the transaction, Mr Johnson conducted the transaction on both sides.

20. [170]

    Dixon J pointed out at 246 what was left unproven by the evidence:

21. [171]

    Dixon J also recorded that it was conceded that the machinery could not be restored to Johnson & Lynn Ltd, and thus restitutio in integrum was “out of the question” (at 246). This being a plain case of a voidable transaction, the question was in the absence of rescission, whether Johnson & Lynn Ltd could be regarded as buying the machinery on behalf of Amalgamated Collieries of WA Ltd, in which case the firm would be accountable for the profit it made. That was rejected on the basis that Johnson & Lynn Ltd was perfectly at liberty to buy and sell second-hand machinery, and it had not been proven that around a year earlier Mr Johnson had intended that one of his companies was buying with an intention to sell to another (at 247).

22. [172]

    This latter point is significant. The reason that Dixon J pointed out that Johnson & Lynn Ltd purchased the assets as a speculation with a view to selling them, and not for the definite purpose of selling them to Amalgamated Collieries, appears a page earlier in the report (at 246-247):

23. [173]

    Then at 247-248, Dixon J reiterated:

24. [174]

    McTiernan J agreed with Dixon J. To the same effect, the third member of the Court, Latham CJ explained at 213:

25. [175]

    The same point was made by a unanimous High Court in Tracey v Mandalay Pty Ltd (1953) 88 CLR 215 at 239; [1953] HCA 9:

26. [176]

    The distinction to which Lord Buckmaster referred in Cook v Deeks [1916] 1 AC 554, reproduced in the passage from Tracey v Mandalay Pty Ltd above, reflected what had been determined in a series of cases involving company promoters in the mid to late nineteenth century, all of which in turn reflected (a) the perceived absence of a remedy of equitable compensation (b) the inability to claim damages for pure economic loss for negligent misrepresentation, and (c) the absence of any effective statutory regime regulating company prospectuses. Hence the significance of the equitable remedy of account of profits, and the (largely) equitable remedy of rescission.

27. [177]

    The line that was drawn at the conclusion of the nineteenth century in Erlanger v The New Sombrero Phosphate Company (1878) 3 App Cas 1218 and In re Cape Breton Company (1885) 29 Ch D 795, over the dissent of Bowen LJ, was that an account was available where there was a sale by a fiduciary of property which had been bought by the fiduciary on behalf of the principal to the principal, but not when the fiduciary had bought property on the fiduciary’s own account and later sold it to the principal. Promoters who sold their own property to a newly formed company fell into the latter category. In that case, an account of profits depended upon rescission being available. The decisions are clearly explained in D O’Sullivan, S Elliott and R Zakrzewski, The Law of Rescission (2nd ed, Oxford University Press, 2014), at [2.27]-[2.43] and in engaging detail by M Lobban, “Erlanger v The New Sombrero Phosphate Company (1878)” in C Mitchell and P Mitchell (eds) Landmark Cases in the Law of Restitution (Hart Publishing 2006), 123 esp at 137-143. Professor Lobban states (at 142):

28. [178]

    The principle applied by the High Court in Peninsular and Oriental Steam Navigation Co v Johnson is unloved and much criticised. It has been said that “the continuing vitality of the rule is in some doubt”: D O’Sullivan et al, The Law of Rescission, at [2.28], and it is criticised in M Conaglen, Fiduciary Loyalty: Protecting the Due Performance of Non-Fiduciary Duties (Hart Publishing, 2010), pp 87-90. As senior counsel for the appellants appreciated, the principle needed adjustment in light of the subsequent recognition that equitable compensation was available for breach of fiduciary duty by non-custodial fiduciaries, and as adjusted it is decidedly odd that rescission is a prerequisite to an account but not to an order to make equitable compensation. Ultimately, there is no good reason today for the pecuniary remedies available following a breach of fiduciary duty to turn on whether the fiduciary entered into a transaction with the principal’s property or with the fiduciary’s own property. Yet this Court continues to be bound by Peninsular and Oriental Steam Navigation Co v Johnson, as indeed was the court in Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1; [2014] WASC 102 at [379] and [400]-[404].

29. [179]

    In light of the above, it may readily be seen that there are two (related) reasons why the principles in Peninsular and Oriental Steam Navigation Co v Johnson do not assist the appellants. The first turns on the status of RKM and Bright Pear. The second turns on the nature of the contracts between RKM and Bright Pear, and MDL.

30. [180]

    First, the rule turns on whether at the time the property was acquired, the fiduciary was acting on behalf of his, her or its principal. This was of the essence of the reasoning in Erlanger itself, and as I have sought to emphasise, in the judgments of both Latham CJ and Dixon J. The same point was made in this Court by Hope JA in Walden Properties Ltd v Beaver Properties Pty Ltd [1973] 2 NSWLR 815 at 836. In the present case, it is plain that RKM and Bright Pear are in no way analogous to an agent who purchased property on its own account and later sold the property to a principal. If the analogy of a sale of property is to be stretched so as to apply to the facts in this appeal, RKM and Bright Pear performed crushing work as MDL’s agent. They did so in order that MDL might perform MDL’s obligations under its contract with CVO. This is far removed from entering into transactions in their own rights.

31. [181]

    Secondly, applying the rule makes no sense in the case of a contract for the supply of services which is incapable of rescission. There is no property which can be returned to the fiduciary. Mr Kelly conceded, in my view properly, that if his submission were accepted, then one could never get an account of profits from a fiduciary who in breach of duty supplied services to his or her principal; that causes one to doubt the correctness of the submission. This was explained in the course of the hearing by Gleeson JA:

32. [182]

    Although crushing and other services were supplied by RKM and Bright Pear to MDL pursuant to contracts, and although those contracts cannot be rescinded, MDL is not thereby precluded from seeking an account for profits. It follows that the primary judge’s conclusion rejecting this aspect of the defence was correct.

Did Brian “stand by” thereby disentitling him from some of the profits? (grounds 5 and 6)

1. [183]

   Ground 5 challenged the rejection of the submission that Brian (as the only unconflicted director of MDL) had “stood by” with sufficient knowledge of the breach of fiduciary duty by Robert and Stephen such that it was inequitable for MDL to require Robert and Stephen and their companies RKM and Bright Pear to account for profits thereafter made. Ground 6 was conclusionary but was treated in the appellants’ written submissions collectively with ground 5.

2. [184]

   The appellants drew attention to the discretionary nature of the remedy of account of profits, and in particular the statement in Warman International Ltd v Dwyer (1995) 182 CLR 544 at 599; [1995] HCA 18 that a plaintiff may not “stand by” permitting the fiduciary to make profits and then claim an entitlement to those profits.

3. [185]

   The appellants distinguished the complete defence which a fiduciary can make out by the giving of fully informed consent to a breach (see Maguire v Makaronis (1997) 188 CLR 449; [1997] HCA 23) from cases where, although the beneficiary fell short of consenting in a fully informed way to ongoing breaches of duty which resulted in profits to the fiduciary, nonetheless it may be inequitable for an account of profits to extend over that period. As Mr Kelly put it, “For the purpose of satisfying this requirement of this defence, the bar does not need to rise so high as to amount to being fully informed, and to stand by one doesn’t need to consent.”

4. [186]

   The appellants maintained that the only director of MDL not involved in the self-dealing had sufficient knowledge no later than April 2011 to make it inequitable for him not to take steps based on the breaches of duty until, almost a year later, his solicitor wrote in May 2012. I shall deal with the evidence bearing upon this shortly.

5. [187]

   The primary judge recorded the submission about Brian Murdoch “standing by” at [184] and resolved it at [185] as follows:

6. [188]

   The appellants submitted that that reasoning disclosed error, insofar as it equated the state of mind sufficient to engage the “standing by” discretionary defence with the complete defence of fully informed consent. As it was put:

7. [189]

   Secondly, the appellants maintained that Brian’s reluctance to confront Robert was no answer to the defence:

8. [190]

   In response, MDL maintained that Brian did not merely stand by. He made it clear that he did not consent to the diversion of Cadia work to Robert and Stephen, and took active steps to protect the company’s position. MDL submitted that “the evidence identifies that Brian Murdoch did not simply stand by, but rather made appropriate inquiries of the accountant, held a meeting with the accountant in order to obtain further information, and caused solicitors to write to Robert Murdoch regarding those concerns” (references omitted). MDL pointed to the seriousness of the potential allegation as supporting the reasonableness of Brian’s concern that he be careful to gather information. It was said that “[a]ccusing his own brother and nephew of effectively stealing money was plainly a difficult thing for him to do.”

9. [191]

   MDL also complained that the appellants’ complaint “rings hollow” because Robert and Stephen persisted in diverting Cadia work away from MDL even after the solicitor’s letter of 12 May 2012 and up until 2014, “and did so without any apology or apparent remorse or contrition”.

10. [192]

    Separately, MDL submitted that the defence only operated “if it can be said that Robert Murdoch and Stephen Murdoch were oblivious to there being any complaint regarding their activities and that they therefore were induced (by Brian Murdoch’s silence) into acting to their own prejudice in continuing to perform the Cadia Work through their own private corporate interests”. Because Robert and Stephen were entirely aware of Scott’s and thus Brian’s complaint by no later than 18 October 2011, they continued operations at their own risk.

11. [193]

    Finally, MDL took two very technical points about the notice of appeal. First, MDL said that insofar as the appellants’ submissions potentially suggest that an account of profits ought to have been limited to something less than the entire profit flowing from the Cadia Work, no ground of appeal had been directed to such an issue and the argument ought not to be permitted. But ground 5 explicitly contends that the primary judge should have found that MDL stood by with knowledge and permitted RKM and Bright Pear to do work at Cadia at their profit, and the submissions dated 13 January 2021 identified the evidence on which the appellants relied, making it plain that it was only after Brian and Scott became aware that some $1.5 million had been “taken” out of MDL. This objection was not maintained in oral submissions. There is nothing in it.

12. [194]

    Secondly, MDL submitted that there was no ground of appeal challenging the finding at [145]. Paragraph [145] deals with the application of Spellson v George (1992) 26 NSWLR 666 on the defence of consent. Although the primary judge used the language of “standing by”, that was in a different sense. The finding which matters is that at [185] which deals with this defence, and that is squarely challenged by this ground.

13. [195]

    It is as well to recall the operative principles. First, the equitable remedy of an account of profits is discretionary. One aspect of that discretion is that the remedy may be withheld entirely where an equitable defence such as laches or delay or acquiescence is made out. Consent (in the sense described by Wilberforce J in Re Pauling’s Settlement Trusts [1962] 1 WLR 86 at 108; [1961] 3 All ER 713 at 730 and by this Court in Spellson v George at 669E and 673G, namely, insofar as “[t]he court must consider all the circumstances of the case and decide whether it is fair and equitable that the beneficiary should sue the trustee”) is another.

14. [196]

    Secondly, and separately from the above, the court has ample power to fashion the account so as to achieve its purpose of taking from the fiduciary the profit or benefit derived by reason of the breach of duty, but avoiding punishing the fiduciary. This was at the forefront of the reasoning in Warman International Ltd v Dwyer itself, where the account of profits was limited to the first two years of operation of the businesses conducted by the errant fiduciary. The High Court set aside the orders made at first instance, where four years’ profits had been ordered, on the basis that they “went beyond what is fair and equitable in the circumstances”. Instead, “[a]n account of profits in respect of that period would, in our view, clearly cover the whole of the benefits acquired by [the corporate vehicle] through [the fiduciary’s] breach of fiduciary duty” (at 567-568).

15. [197]

    The High Court also identified three other bases upon which the account could be fashioned. One was to make just allowances, reflective of the contribution to the profits by the fiduciary’s skill, expertise and related expenses. Another, which the High Court said was not generally available unless there had been an antecedent arrangement for profit-sharing (as in O’Sullivan v Management Agency and Music Ltd [1985] QB 428), was to allow to the fiduciary a proportion of the profits earned. A third was that relied on by the appellants in the present case, namely at 559:

16. [198]

    The discretionary defence of “standing by” leading it to be inequitable to recover profits was applied by Phillips JA, with whom Winneke P and Charles JA agreed, in Edmonds v Donovan (2005) 12 VR 513; [2005] VSCA 27 at [77]. There, drawing upon the distinction drawn by Upjohn J in Re Jarvis Deceased [1958] 1 WLR 815 at 820-821; [1958] 2 All ER 336 at 341 between usurping a business in breach of fiduciary duty and taking up a specific asset, it was said:

17. [199]

    Thirdly, mathematical precision in this case is illusory. In a passage endorsed in Warman at 558, Slade J said in My Kinda Town Ltd v Soll [1982] FSR 147 at 159 that what is required “will not be mathematical exactness but only a reasonable approximation”. The High Court added, “What is necessary however is to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty”.

18. [200]

    Fourthly, the onus lies on the fiduciary to make out a case for the partial curtailment of an account. “It is for the defendant to establish that it is inequitable to order an account of the entire profits”: Warman International Ltd v Dwyer at 561.

19. [201]

    This Court conducting a review of a question such as this on an appeal by way of rehearing is bound to give deference to the decision of the trial judge. The ways in which an account of profits will be tailored to fit the particular facts of the case (which include the nature of the breach and the manner in which it is said that the plaintiff “stood by”) are evaluative judgments as to which minds might reasonably differ. However, assuming favourably to MDL that it is necessary for the appellants to establish error in accordance with the principles in House v The King, I have concluded that such error is made out.

20. [202]

    I accept the appellants’ submission that the primary judge erred at [185] as to a material matter of fact. “Full information” is not the test. If Brian had full information, he might be found to have consented or acquiesced in the course of conduct. If he fell short of having full information, such that Robert and Stephen failed to establish a defence of fully informed consent, he might nonetheless not be entitled to a full recovery of profits, on the basis that it is inequitable to permit the fiduciary – even a fiduciary who is in breach – to take all risks, over a period of some years, only then to be accountable for those profits when and if they turn out to have been made. (Of course, in fact Brian had full information, insofar as in his position as a director he was entitled to all of MDL’s books and records; the reference by the primary judge to his not having full information reflected the position in practice, and that was a consequence of his unilateral decision not to be involved in the management of his company.)

21. [203]

    Nor does Brian’s reluctance to confront his brother detract from the inequity in permitting profits to be accounted for years after the event when MDL had knowledge of Robert’s and Stephen’s activities. I would accept that this is relevant in the assessment of when Brian’s standing by led to his subsequent application for an account of profits to become inequitable. But it is far from decisive.

22. [204]

    I would frame the inquiry this way. When did Brian have sufficient information – namely, a belief that large amounts of money were being channelled from MDL into interests associated with Robert and Stephen – for it to become inequitable thereafter for him to obtain an accounting for profits made while he stood by permitting RKM and Bright Pear to continue to make those profits, bearing in mind the family and corporate history and the relationship between the men.

23. [205]

    At the factual level, it seems that the accountant provided a USB stick with MYOB accounts in April 2011, which disclosed payments of $1,464,529 to Bright Pear. They also relied upon a diary note from October 2011 in which Stephen recorded that Scott believed that Stephen had taken $1.5 million from the company. These matters were addressed at [67] by the primary judge:

24. [206]

    So far as the evidence disclosed, this was a company whose 50% owner and one of two directors did not receive management accounts or otherwise concern himself with the financial aspects of his company, except on the occasions each year he had to sign the annual statements. Being “at a loss to know what to do” does not excuse doing nothing for months while RKM and Bright Pear continued to perform work which MDL had contracted to perform.

25. [207]

    It was put orally that after Brian knew that more than a million dollars had been paid to Bright Pear, and did nothing save to see the company accountant in November, that:

26. [208]

    In response, it was said that there had been some deliberate concealment. An instance was the partially completed contract for hire, between MDL and Bright Pear. Robert denied in cross-examination that the contract was placed in the books and records of MDL with the intention of disguising who was really the beneficiary of this work, but even if this Court were in a position to go beyond his denial, little would turn on this given Brian’s actual knowledge by no later than October 2011.

27. [209]

    MDL also maintained that some months thereafter, MDL ceased to invoice CVO for crushing services in fact undertaken by RKM and Bright Pear, and those companies proceeded to invoice CVO directly, such that there ceased to be large payments from MDL to those companies on the face of MDL’s financial statements. Again I do not think that much turns on this in circumstances where Brian knew that more than a hundred thousand dollars had been paid out by MDL to RKM or Bright Pear every month.

28. [210]

    It is necessary steadily to bear in mind that this is not a case where MDL complains that it suffered any loss. There is no challenge to the finding that MDL suffered no loss. While it is settled principle that MDL may be entitled to recover profits made in breach of fiduciary duty which MDL could not itself ever have made, the fact that a plaintiff may thereby obtain a windfall gain, without ever running the risk that the business endeavour may be loss-making, engages discretionary considerations including the need to act promptly which may operate more stringently that in a case for equitable compensation for loss.

29. [211]

    Brian believed no later than by October 2011 that some $1.5 million had been paid out by MDL to Bright Pear. In fact, the amount was greater, and part of the payment was made to RKM rather than Bright Pear. In the scale of operations of MDL, that was a very substantial amount. It was more than the previous year’s entire profit. The fact that Brian did not know the precise amount, nor the precise recipient, is not to the point. (He did not know those details because, despite being a director and co-owner, he did not himself seek copies of the entries in the general ledger which showed payments, nor did he investigate the enormous new expense for suppliers that appeared in the 30 June 2011 financial statements of his company.)

30. [212]

    It is necessary to identify when it became inequitable for MDL to recover profits made by RKM and Bright Pear. The onus lays upon the appellants (Warman International Ltd v Dwyer at 561-562), and other things being equal, the court should err in favour of the person to whom the fiduciary obligation which has been breached was owed.

31. [213]

    When producing documents in 2020, Brian or Scott advised that they had been produced in April 2011. It is plain on the face of some of the documents that they could not have been produced prior to July 2011. It is clear beyond any doubt that there was an error on the part of those producing the documents. I do not think it would be right to limit the profits for which the appellants are required to account by reference to that error.

32. [214]

    Further, it is one thing to know that there are ongoing breaches of duty and take no action, keeping that information to oneself. It is another thing to tell the fiduciary of a belief that money is being taken from the company, but thereafter nonetheless to take no action.

33. [215]

    The contemporaneous documents confirm that by late October 2011 Brian or Scott or both of them had printed out copies of the relevant ledgers of MDL’s accounts, including a ledger with supplier payments of $1,464,529 to Bright Pear, and Scott had confronted Stephen with the accusation that $1.5 million had been taken from the company. In the absence of an explanation or an undertaking, firm action was thereafter required. None was taken for months. I conclude that from November 2011 it became inequitable for MDL to continue to sit back and permit RKM and Bright Pear to continue to make profits at Cadia.

34. [216]

    The primary judge found that Brian was understandably reluctant to confront his brother about these matters. The reluctance was understandable; he correctly realised the seriousness of the allegation, and he was far from being in perfect health. But that does not deny that it was inequitable for Brian to stand by and permit RKM and Bright Pear to make profits after November 2011 and then, in proceedings brought years later, recover those profits from those companies.

35. [217]

    These grounds are made out. It will be necessary for the parties to quantify the profits derived by RKM and Bright Pear at Cadia up to 31 October 2011 (so far as I can see, the primary documents necessary to do this are not found in the papers). It may be that the primary documents in evidence at the trial permit this to be done with precision; alternatively it should be possible to derive an estimate from the agreed total profit for that financial year.

Were the profits causally related to the breaches? (grounds 7, 8 and 9)

1. [218]

   These grounds were addressed collectively in both sides’ written submissions, and were only briefly addressed orally.

2. [219]

   The appellants maintained that the primary judge was “obliged to look at the conduct in the context in which it took place so as to determine whether there is in fact a ‘causally connected profit or gain’”. They relied on Streeter v Western Areas Exploration Pty Ltd (No 2) [2011] WASCA 17; 278 ALR 291 and Colour Control Centre Pty Ltd v Ty [1995] NSWSC 96 in support of the proposition that:

3. [220]

   They maintained that “if all of MDL’s equipment had already been taken up and was being used, with the result that MDL needed to engage subcontractors to carry out the DWI1 work in order to fulfil its contractual obligations to Cadia – as it did here – any profit in the subcontract would have been lost to MDL in any event”. They concluded that once it was appreciated that DWI 2, 3 and 4 were not diverted away from MDL, but were left behind when MDL left the Cadia site in order to carry out contractual obligations elsewhere, “no causal connection can be said to exist between any breach of fiduciary or other duty and the profit sought to be accounted for in favour of MDL.”

4. [221]

   The respondents rightly submitted that these grounds were contrary to settled, binding authority.

5. [222]

   It is axiomatic that a fiduciary can be ordered to account for profits which his, her or its principal could never make. In Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 409; [1929] HCA 24, Dixon J said that “the partner is responsible to his firm for profits, although his firm could not itself have gained them”. His Honour endorsed a statement by Vaughan Williams LJ in Costa Rica Railway Co Ltd v Forwood [1901] 1 Ch 746 at 761 that if a director chooses to enter into a contract in cases where they have or may have a conflicting interest, then “the law will denude them of all profits they may make thereby”, and “will do so notwithstanding the fact that there may not seem to be any reason of fairness why the profits should go into the pockets of their cestuis que trust, and although the profits may be such that their cestuis que trust could not have earned them all”. In Warman the High Court said at 562-563:

6. [223]

   Cardozo J made the same point 60 years earlier (in an intellectual property case):

7. [224]

   These grounds are not made out.

Challenge to the calculation of profits (ground 10)

1. [225]

   Ground 10 challenges the exclusion of a charge said to reflect the cost of capital and for risk from the computation of the profits of RKM and Bright Pear. The precise amount is $222,730. The appellants did not develop this ground orally.

2. [226]

   There had been two aspects to the claim for just allowances at trial. The first seems to have been a more general claim, based on the skill, efforts, property and resources of RKM and Bright Pear, to the effect that a more generous allowance based on the principles in Warman at 561-562 should have been made. This was rejected at [154]-[155], and that aspect of the decision is not challenged on appeal. The second is the narrow question concerning the charge for capital and risk proposed by Mr Mullins, the expert accountant called by the appellants, which was rejected at [190]. The ground was developed in paragraphs 59 and 60 of the appellants’ written submissions, which confined argument to this latter aspect.

3. [227]

   This ground attracted a notice of contention, namely, that “it was equally open to his Honour to reject such a claim for just allowances upon the basis that (and his Honour ought to have held that) Robert Murdoch’s 50% shareholding in [MDL] negatived the provision of any further allowance in favour of the Robert Murdoch interests”. This was maintained orally, although when members of the Court observed that it turned on the happenstance of Robert’s shareholding, no articulation of any principled basis was forthcoming.

4. [228]

   I reject the submission that the claim for just allowance should be rejected by reason of the fact that Robert is a co-owner of MDL, the company to which Robert and Stephen owed fiduciary obligations. That cannot be right in principle. The submission wrongly looks through the company to its shareholders, which is inconsistent with the facts that Robert and Stephen owed fiduciary duties to the company, and that it is the company which has brought proceedings to require them to account. Acceptance of the submission would produce capricious results. Suppose two directors only one of whom is a shareholder make profits for which they are accountable to their company. Why should the happenstance that one fiduciary is a shareholder but the other is not make any difference to the calculation of the profits made in breach of duty? The submission seeks to treat Robert and Stephen identically, despite the fact that while Robert is a 50% owner of MDL, Stephen is not. Fundamentally, the accounting required by equity is between fiduciary and the person to whom the fiduciary duties are owed. Here that is between company and director, or company and senior employee. The source of the fiduciary obligation being the corporate structure, there is no occasion to disregard it.

5. [229]

   Separately, Brian also submitted that “the end result is only marginally different to the conclusions reached by the learned Trial Judge”. This is a reference to the $222,730 being only some 5% of the profits ordered (of which it is noted “half of which notionally would flow through to Robert Murdoch himself via his shareholding in MDL”).

6. [230]

   I do not think it is an answer to an appellant who contends that there is appellable error in an amount of $222,730 to say that that is only around 5% of the total. I bear in mind that this is an appeal by way of rehearing, that many appeals in this Court involve amounts of less than $222,730, and the obligation to “determine as accurately as possible the true measure of the profit” in the passage from Warman reproduced at [199] above.

7. [231]

   Accordingly, I turn to the substance of the point, doing the best I can in light of the short, written submissions advanced in its support. So far as I can see, pages 7174 and 7175 of the appeal books contain pages of a report of Mr Mullins in reply (to which neither side made any reference in their submissions) explaining the different approaches. This is the document upon which the primary judge relied for the conclusion that the experts were agreed if the court rejected the inclusion of an allowance by way of capital charge or economic cost. Mr Ashby had applied pre-tax expenses of depreciation of $726,842 and interest of $64,616 to the revenue derived over the period in order to obtain an after-tax profit of $4,358,106. Mr Mullins’ preferred approach was to apply a pre-tax “capital charge” of $383,953 and an after-tax economic cost (risk) deduction of $467,638 for the same period. It will be seen that Mr Ashby’s deductions were $726,842 + $64,616 = $791,458 while Mr Mullins’ were $383,953 + $467,638 = $851,591. However, the effect of (notional) tax meant that the bottom-line difference between the two approaches was greater. That is to say, Mr Mullins’ smaller pre-tax deduction led to a larger incidence of (notional) tax in his calculations, which rose from Mr Ashby’s figure of $1,867,760 to $1,990,011. But that was more than outweighed by the after-tax deduction said to reflect risk.

8. [232]

   Mr Mullins accepted that if contrary to his views the calculation of profit should include depreciation and interest but not the capital charge and economic cost (risk) then he agreed with Mr Ashby’s calculation.

9. [233]

   The primary judge gave short reasons for rejecting the charge for capital and risk at [190]:

10. [234]

    I have no difficulty in principle in a calculation of profit including a charge for capital. A rational way for a company to determine how to deploy its finite capital may require a unit of the business to produce a certain return in order to justify the deployment. Moreover, it appears (from p 7172 of the appeal books) that Mr Mullins regarded the capital charge as incorporating depreciation of capital assets, which were excluded from his calculations in order to avoid double counting. My view is strengthened by the fact that Mr Ashby accepted in the course of cross-examination that an allowance for the opportunity cost of deploying capital could be appropriate. However, there is an overlap between a charge representing the cost of capital and the depreciation on the expensive items of machinery which already is found in the financial statements.

11. [235]

    Mr Mullins’ after-tax charge for economic cost is more problematic. His explanation is found at p 1854 of the appeal books. Its premise is that at the time an undertaking is commenced, it is not known with certainty that a profit will be achieved. The charge was calculated as the difference between the undiscounted net profit after tax and the discounted present value of net profit. Although the report stated that “I address the principles associated with the economic cost (risk) in section 5 (refer in particular to paragraphs 5.14 to 5.18”, those paragraphs merely repeat essentially verbatim and do not further explain the approach.

12. [236]

    I am unpersuaded by this reasoning. The task is to quantify the profit made by RKM and Bright Pear by certain activities over a certain time frame. The point arises in 2020, years after those activities occurred. This is not a case where one has to look forwards into the uncertain future to assess whether to take some action, where it may be appropriate to include an evaluation of risk. The task is to quantify the profits actually made by RKM and Bright Pear in a specified time frame in the historical past. Another way of making this point is to consider a case where a director takes a corporate opportunity. The opportunity may be very risky. Nonetheless, the director succeeds in making a large profit. The company has a right of election, after the event, between requiring the director to account for the profit or to compensate it for loss. The election is made with the benefit of hindsight, where it is known that the opportunity has been successfully exploited.

13. [237]

    In short, while I can see a basis for the capital charge (in which case it is necessary to remove the allowance for depreciation), I am unpersuaded by the reasoning for an after-tax charge representing risk.

14. [238]

    MDL’s substantive answer to the entirety of this ground was to say that the appellants have not explained why any capital charge or economic risk allowance ought to have been allowed. MDL’s submissions observe that there is no challenge to the reasoning that the allowance is unsupported by accounting standards or established accounting principles. And they make the important point that the determination of profit is (at least in the present case) an accounting exercise; cf Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 at [24].

15. [239]

    I accept MDL’s submission. It was made in writing, in submissions dated 31 March 2021. There was no written response from the appellants, and their oral submissions did not address this ground. Further, while some companies face real choices as to the deployment of their limited capital, and may even require subsidiaries or separate business units to make out a case for the deployment of capital including generating an internal rate of return, MDL seems to have been run very differently. Its margins were very high, especially when the conduct in breach of Robert’s and Stephen’s fiduciary and statutory duties is taken into account, and there is no suggestion in its financial statements or any other documents (at least, so far as I have seen) to any cost of capital. Instead, the accounts actually incorporate (large) amounts of depreciation for the company’s equipment. Fundamentally, the onus rests on Robert and Stephen to make out a case for deductions by way of general overheads in order to determine the profit: Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101; [1993] HCA 54. I am unpersuaded that this Court should intervene to alter the basis upon which profits have been calculated. This ground is not made out.

Proposed cross-appeal ground 9: Timboon Quarry quantification

1. [240]

   This ground concerns the quantification of the relief attributable to the acquisition of Timboon Quarry. For the reasons given above, it does not arise. Nor did it arise at trial. Nevertheless, the primary judge addressed it contingently, in the event he were wrong concerning this issue.

2. [241]

   The primary judge addressed MDL’s claimed loss at [220]-[233]. His Honour was required to resolve competing accounting and valuation evidence. This evidence addressed both historical realised profits and the present value of future profits. Realised profits were ultimately agreed at $2,356,910. Future profits were not agreed. The valuation evidence diverged on (a) the discount rate, (b) the lifetime of the quarry and (c) whether certain costs including for remediation should be incorporated. The primary judge also declined to determine whether interest was available.

3. [242]

   The principal contention within ground 10 of the proposed cross-appeal was that that the primary judge should have found that Timboon Quarry had sufficient limestone reserves to sustain at least 30 years of operations, or alternatively 25 or 20 years. MDL sought a declaration that it was entitled as against Kurdeez Minerals and RKM:

4. [243]

   The latter amount of $3,995,974 reflected MDL’s expert assessment of the net present value of cashflows from the quarry over 30 years (the time preferred by MDL’s expert), using a discount rate of 10% (the rate preferred by MDL’s expert) and not including an allowance for remediation costs. There was no dispute about the profit to be applied over the timeframe, save insofar as the cross-respondents’ expert made an allowance for the cost of a Rehabilitation Bond, while MDL’s expert chose not to do so.

5. [244]

   Although his Honour did not finally resolve the discount rate, the reasons at [228] and [230] suggest a scepticism with the 10% determined by MDL’s expert. His Honour doubted that a sufficient evidentiary basis for an estimate of a 30 year life of quarry was warranted, although he did not reach a final conclusion on this issue: at [233].

6. [245]

   If the primary judge had erred in concluding that there was no breach of duty in the acquisition of Timboon Quarry, then this Court would resolve this issue of fact if it could fairly do so. But there was no such error. The issue then becomes whether this Court should make notional findings as to the quantification of remedies to which MDL would be entitled in the event that both the trial judge and this Court is wrong as to the absence of liability, in circumstances where the primary judge did not himself make those findings. It seems plain that no useful purpose would be served in doing so, unless perhaps it exposes some error in legal principle.

7. [246]

   I doubt it would be appropriate in valuing the future profits to be derived from that quarry to ignore the remediation costs, which seem to have been progressive and ongoing (the judge expressed the same view, albeit tentatively, at [231]). However, the most significant difference between the experts in terms of the actual calculation was (as it often is) the appropriate discount rate (10% or 13.5%). The primary judge did not resolve that dispute (although as already noted, his Honour expressed some scepticism with the justification for MDL’s 10% figure), and it is outside the scope of the proposed ground of appeal. But without resolving that dispute, it is not possible to apply the calculations of either expert. The fact that resolving this proposed ground of appeal will be insufficient to determine what at best could only be a notional calculation of the net present value of future profits is, to my mind, a compelling indication of the inutility of the exercise. Indeed, it is a compelling reason not to grant leave.

8. [247]

   There is at least one other difficulty in the approach for which MDL contended. MDL sought to recover as “an account of profits” the present value of profits to be derived in the future over many years. In substance, this was seeking to recover the “benefit” obtained by Robert and Stephen and their companies, and accorded with the broad approach recognised in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1; [2018] HCA 43 esp at [24], [75] and [202]-[203]. The present value of future profits can be an appropriate method of valuing the asset. But it would be necessary to give credit for the acquisition cost of the quarry, which so far as I can see MDL’s calculations did not do.

Conclusion and orders

1. [248]

   For those reasons, the appeal should be allowed in part. The partial success confines the profits to which MDL is entitled to those earned by RKM and Bright Pear at the Cadia mine for the period until 31 October 2011, which is an amount of $1,622,738 plus such profits as were made between 1 July 2011 and 31 October 2011. It ought to be possible to quantify the total amount so as to obtain a money judgment. The orders I propose will permit the parties to be heard as to this.

2. [249]

   It is presently unclear whether each of Robert, Stephen, RKM and Bright Pear ought to be jointly and severally liable for that amount, or whether (a) each of Robert and RKM should be liable for the profits earned by RKM, and (b) each of Stephen and Bright Pear should be liable for the profits earned by Bright Pear. The orders I propose will also permit the parties to be heard as to this.

3. [250]

   The primary judge deferred the question of interest (see order 11 made on 24 November 2020). Neither side expressed any complaint about that course, or advanced any submissions concerning interest. In those circumstances, nothing need be said.

4. [251]

   Any dispute as to the quantum or form of the orders should be resolved by further submissions on the papers.

5. [252]

   In relation to costs, the cross-appeal has failed, and costs of it should follow the event. The appeal has succeeded in part. A costs order which gives the partially successful appellants a proportion of their costs is appropriate, in accordance with what was said in Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd (No 2) [2014] NSWCA 219, which approach simplifies and reduces the scope for further disputation concerning the quantification of the successful party’s costs, and recognises that precision in the exercise is illusory: James v Surf Road Nominees Pty Ltd (No 2) [2005] NSWCA 296 at [36]. I propose that MDL pay 50% of the appellants’ costs of the appeal.

6. [253]

   It will be necessary to re-exercise the discretion as to costs of the trial. The primary judge ordered the appellants to pay 30% of the costs of the derivative proceeding brought by Brian on MDL’s behalf (order 10 made on 24 November 2020). I incline to the view that there should be no order as to the costs of the derivative proceeding brought by Brian on MDL’s behalf, given that large aspects failed, and much of what succeeded at first instance should not have succeeded. However the parties are entitled to be heard about this, and the orders I propose will permit that to occur. My understanding is that a regime to which Brian and the liquidators have agreed protects the position of MDL, and that no order is necessary, but if that is not so, application may be made within the period in UCPR r 36.16.

7. [254]

   I propose the following formal orders.