Garslev Holdings Pty Ltd v Overdean Developments Pty Ltd

1. [1]

   MEAGHER JA: I agree with Griffiths AJA.

2. [2]

   KIRK JA: I agree with Griffiths AJA.

3. [3]

   GRIFFITHS AJA: This appeal arises from two judgments and orders dated 17 November 2021 and 20 January 2022 in the Equity Division of the Supreme Court: Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 3) [2021] NSWSC 1482 (primary judgment or PJ) and Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 4) [2022] NSWSC 24 (costs judgment or CJ) respectively. There is also a cross-appeal and a notice of contention.

4. [4]

   By way of broad overview, the appeal concerns findings made by the primary judge (Williams J) arising from the following two principal matters:

5. [5]

   In brief, the following findings of the primary judge are challenged on appeal:

6. [6]

   Additional grounds of appeal (some of which are expressed to be in the alternative) claim that the primary judge erred in finding that:

7. [7]

   The appellants also challenge the relief granted by the primary judge.

8. [8]

   I will defer summarising the cross-appeal and notice of contention.

Background facts summarised

1. [9]

   Mr Brian Dean (second plaintiff below) established the Dean Super Fund in December 2012. Mr Dean was and remains the sole beneficiary of the Dean Super Fund. BAD Nominees was the trustee of the Dean Super Fund from its establishment until 5 September 2018. Mr Dean was the sole shareholder and director of BAD Nominees at all times. Overdean Developments Pty Ltd (first plaintiff below) became the trustee of the Dean Super Fund after BAD Nominees was removed from that role. Mr Dean left school when he was in Year 8 and aged 14 and he worked as a train driver with NSW Railways for 38 years until 2003, after which time he worked as a farmer.

2. [10]

   In February 2013, BAD Nominees (in its capacity as trustee of the Dean Super Fund) made a loan (February 2013 loan) of $2 million to BLE to fund the acquisition of 39 lots of land (Beechworth land) by assignment from the existing mortgagee, Suncorp Metway Ltd. The mortgagor of the Beechworth land, Redhill Developments Pty Ltd, had defaulted under the mortgage and, instead of exercising its power of sale, Suncorp agreed to assign its interest as mortgagee to BLE. The February 2013 loan was secured on the terms of a general security agreement (February 2013 security) (see at PJ[41] for a summary of the specific terms of the February 2013 security). The February 2013 security was registered on the Personal Property Securities Register on 13 May 2013.

3. [11]

   BAD Nominees also provided a loan to Griffith Estates prior to July 2014. That loan does not feature prominently in the present dispute.

4. [12]

   On 14 July 2014, administrators were appointed to both BLE and Griffith Estates. There were then 28 lots of the Beechworth land unsold. Reports issued by the administrators of BLE recorded that BAD Nominees’ security interest ranked first in priority amongst secured creditors. BAD Nominees lodged a proof of debt with the administrators for an amount of $807,903.04 claimed to be owing under the February 2013 loan.

5. [13]

   The administration of BLE proved to be long and complex. It gave rise to several proceedings, including In the matter of Beechworth Land Estates Pty Ltd (Admin Apt) and Griffith Estates Pty Ltd (Admin Appt) No 2 [2015] NSWSC 336.

6. [14]

   In early May 2016, Messrs L Smits and Mahommed (third and fourth defendants below respectively) became aware that BAD Nominees was still awaiting payment out of the administration of BLE and lacked legal representation in proceedings then on foot relating to the administration. The plaintiffs alleged that, at this point, Messrs L Smits and Mahommed concocted what was described below as the Attorney conspiracy. This conspiracy was said to involve Messrs L Smits and Mahommed planning and procuring an agreement under which they could overcharge for legal services provided to BAD Nominees, which payments would be assured by a power of attorney that would also prevent Mr Dean from complaining by preventing him from acting in the name of BAD Nominees (see in more detail at PJ[54]. At PJ[614], the primary judge found that it was not necessary to determine the Attorney conspiracy as the plaintiffs had made no reference to it in their written or oral submissions).

7. [15]

   Mr L Smits (who has practised as a solicitor at various times over many years) did not have a practising certificate at this time. On 19 January 2016, he had become a bankrupt. At that time, he had not held a practising certificate for some years. He again obtained a practising certificate on 7 February 2017 (which was subject to conditions, such as not being allowed to operate a trust account or be a trustee of any trust – see PJ[419]).

8. [16]

   Following a series of discussions and meetings between Mr Dean and Messrs L Smits and Mahommed, as noted above, the 9 May 2016 agreements were executed. Some key features of these agreements may be summarised as follows:

9. [17]

   After the execution of these agreements, Messrs L Smits and Mahommed notified the administrators of the existence of the Power of Attorney and took various related steps thereupon (see in more detail at PJ[119]–[133]).

10. [18]

    On 10 August 2016, BAD Nominees entered into a deed with Maitland Finance and Acquisition Pty Ltd (MAFA) pursuant to which it assigned, or purported to assign, to MAFA the debt owed to it by BLE (MAFA Deed) (see in more detail at PJ[147]–[152]).

11. [19]

    On 2 August 2017, it was agreed between the administrators of BLE, BAD Nominees and MAFA that nine lots of the Beechworth land would be transferred from BLE to BAD Nominees in consideration for a reduction of $1,000,000 in the amount claimed by BAD Nominees in the administration of BLE (2 August 2017 contract) (see in more detail at PJ[176]–[177]). This followed the making of an offer to that effect by the administrators of BLE to BAD Nominees in June 2017. The plaintiffs pleaded that, upon the making of that offer, Messrs L Smits and Mahommed agreed to what was described below as the Vestecorp conspiracy, pursuant to which they would resurrect and perform the Attorney conspiracy and use the Power of Attorney to procure the transfer of two lots of the Beechworth land to Vestecorp and themselves under the pretence of BAD Nominees’ indebtedness to them (see in more detail at PJ[164]).

12. [20]

    On 18 January 2018, Mr Cohen, a solicitor retained on behalf of BAD Nominees by Mr Dean, engaged another solicitor, Mr Bennett, to act on the transfer to BAD Nominees of the nine Beechworth lots as mortgagee in possession. Mr Bennett received a market-based appraisal of the value of the nine lots at an aggregate value of $923,000.

13. [21]

    On 21 February 2018, BLE went into liquidation.

14. [22]

    On 23 February 2018, Brereton J held, in related proceedings, that the Power of Attorney was irrevocable for three years under s 15 of the Powers of Attorney Act 2003 (NSW): see In the matter of Beechworth Land Estates Pty Ltd [2018] NSWSC 1630 (in relation to which, see further at PJ[199]–[216]). The plaintiffs alleged below that, upon his Honour making those orders, Messrs L Smits, Mahommed, J Smits (the sixth defendant below who was the sole director and shareholder of Garslev Holdings Pty Ltd at all material times), Vestecorp and Garslev (first defendant below) agreed to what was described as the Garslev conspiracy. The elements of the Garslev conspiracy were said to be as follows (see PJ[217], noting that the primary judge ultimately rejected the Garslev conspiracy allegations at PJ[677]):

    1. (1)

       Messrs L Smits and Mahommed would use the Power of Attorney to transfer the nine lots to Garslev.

    2. (2)

       Garslev would immediately sell the nine lots.

    3. (3)

       Garslev would use the proceeds of sale of those lots to fund a property development that Garslev was undertaking in Yeppoon, Qld (Yeppoon development).

    4. (4)

       Messrs L Smits and Mahommed would continue to manage the Yeppoon development for Garslev.

    5. (5)

       Messrs L Smits and Mahommed would receive the profit made by Garslev from the Yeppoon development, with the profit to be calculated on the basis that the money raised by Garslev from the sale of the nine lots was to be treated as a capital investment by them in the Yeppoon development.

    6. (6)

       Messrs L Smits and Mahommed would claim that they were owed over $850,000 in fees by BAD Nominees, and would claim that the nine lots were worth $850,000 rather than the $1,000,000 value attributed to them in the 2 August 2017 contract. These claims would be made in order to justify the assignment of the nine lots to Garslev for $850,000, notwithstanding that Messrs L Smits and Mahommed expected that the nine lots would sell for an aggregate price of greater than $1,000,000.

    7. (7)

       BAD Nominees would receive no benefit from the transfer of the nine lots because the defendants would “take all that they could and leave BAD Nominees with nothing”.

    8. (8)

       The result for BAD Nominees would be that it paid for the recovery of the nine lots but would receive no benefit from that recovery, and that benefit would be received solely by Messrs L Smits and Mahommed.

    9. (9)

       They would not tell Mr Dean about any of the above, because if Mr Dean knew he would prevent the agreement being put into effect.

15. [23]

    On 20 March 2018, Mr Mahommed (on behalf of BAD Nominees) entered into a deed with Garslev. The 20 March 2018 deed assigned to Garslev BAD Nominees’ right to the transfer of the nine lots under the 2 August 2017 contract and BAD Nominees’ other rights in relation to BLE, in consideration for $850,000. It also permitted Garslev to “pay” that $850,000 sum by deducting fees allegedly owed, or to become owing in the future, by BAD Nominees to Messrs L Smits and Mahommed and Vestecorp determined by Garslev in its absolute discretion to be the debts of BAD Nominees (see in more detail at PJ[231]–[241]).

16. [24]

    Garslev became the registered proprietor of the nine lots of Beechworth land on 5 November 2018. On or about the same date, Mr Mahommed (on behalf of BAD Nominees) entered into two further deeds with Garslev (collectively with the 20 March 2018 deed, the Garslev deeds). By the first deed, Messrs L Smits and Mahommed and Vestecorp assigned to Garslev their rights in respect of those alleged present and future debts in consideration for Garslev’s promise to pay to them the equivalent amounts out of the proceeds of the Yeppoon development (5 November 2018 deed of assignment) (see in more detail at PJ[322]–[335]). By the 5 November 2018 deed of settlement, Garslev set off unspecified amounts of the alleged debts assigned to it against the $850,000 payable to BAD Nominees under the 20 March 2018 deed and BAD Nominees acknowledged that Garslev had thereby satisfied all of its obligations under that deed (see in more detail at PJ[336]–[348]). Effectively, the nine lots were transferred to Garslev without it having made any actual monetary payment to BAD Nominees.

17. [25]

    Garslev promptly sold the nine lots for an aggregate sale price of $1,126,000. The majority of the sale proceeds were paid into Court pursuant to orders made on 1 February 2019 in the proceeding below. Garslev subsequently purported to allocate $50,000 of that amount as security for costs in related proceedings.

18. [26]

    Using the Power of Attorney, in the latter half of 2018 Mr Mahommed retained Mr L Smits to act as BAD Nominees’ solicitor in litigation concerning its remaining rights against BLE (noting that this was not the only time Mr Mahommed retained Mr L Smits’ legal services over the relevant period). Despite BAD Nominees’ rights against BLE having been assigned to Garslev under the 20 March 2018 deed, the costs associated with that litigation were charged to BAD Nominees.

19. [27]

    Given the complexity of these arrangements, it may be helpful to illustrate some of them diagrammatically.

20. [28]

    Before summarising the primary judgment and the costs judgment, it is desirable to outline the multiple other proceedings in which these parties have been involved arising from BAD Nominees’ relationship with BLE, and to say something further about the procedural history of the proceeding which gives rise to the present appeal.

21. [29]

    The other proceedings relating to BLE following the involvement of Messrs L Smits and Mahommed from May 2016 are:

    1. (1)

       In the matter of Beechworth Land Estates Pty Ltd (administrators appointed) [2017] NSWSC 1447: Gleeson JA published reasons for orders made on 23 October 2017, including the joinder of Mr Dean and Messrs L Smits and Mahommed as parties in the proceedings.

    2. (2)

       In the matter of Beechworth Land Estates Pty Ltd (in liq) and Griffith Estates Pty Ltd (in liq) (No 5) [2018] NSWSC 959: Robb J published reasons for judgment relating to remuneration of voluntary administrators.

    3. (3)

       In the matter of Beechworth Land Estates Pty Ltd [2018] NSWSC 1630: Brereton J published reasons for judgment as to why he granted declaratory relief to the effect that the Power of Attorney was irrevocable.

    4. (4)

       In the matter of Beechworth Land Estates Pty Ltd (in liquidation) and Griffith Estates Pty Ltd (in liquidation) [2018] NSWSC 1703: Black J published reasons for judgment as part of disputes between various parties who asserted claims to the assets of BLE.

    5. (5)

       In the matter of Beechworth Land Estates Pty Ltd (admins apptd) and Griffith Estates Pty Ltd (admins apptd); Cussen and of Beechworth Land Estates Pty Ltd v Douglas Estate Holdings Pty Ltd [2019] NSWSC 1129: Parker J published reasons for judgment concerning disputes about priority between BLE’s various creditors. The dispute included an issue as to whether a debt owing under the February 2013 security had priority over the administrators’ remuneration and disbursements.

    6. (6)

       In the present appeal proceedings, there were also several interlocutory disputes which resulted in the primary judge publishing separate reasons for judgment regarding the setting aside of various notices to produce and the provision of security for an undertaking as to damages: see respectively Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd [2020] NSWSC 670 and Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 2) [2020] NSWSC 745.

    7. (7)

       Finally, shortly before the appeal was heard, Hammerschlag CJ in Eq gave reasons for judgment for winding up Garslev and appointing a liquidator: In the matter of Garslev Holdings Pty Ltd [2023] NSWSC 609.

22. [30]

    It is desirable to say something more about the difficulties which confronted the primary judge in the substantive proceedings below. The proceedings were commenced in December 2018 and were listed for an expedited final hearing in May 2019. That final hearing was vacated on two occasions. The trial was conducted over 11 days commencing on 22 June 2020. As the primary judge noted at PJ[33], the conduct of the parties had added to the complexity of the litigation. This included the fact that the defendants had read no less than 14 affidavits by Mr Mahommed rather than providing a comprehensive affidavit addressing all of the issues. The Court Book covered six volumes and the defendants tendered several folders of documents some of which were duplicates of those in the Court Book.

23. [31]

    The primary judge also noted at PJ[35] that the defendants provided 340 pages of written submissions prior to the commencement of the hearing. Mr L Smits (who appeared below both for himself and the other defendants) subsequently provided more succinct written closing submissions (comprising 41 pages of single spaced submissions) but then declined the opportunity to supplement them with any oral submissions.

24. [32]

    In these circumstances, it is understandable that the primary judge reserved her judgment for some time. The primary judgment exceeds 250 pages and the costs judgment is approximately 20 pages.

25. [33]

    The smooth and orderly conduct of the proceedings below was also made more difficult by various other events. Several of the plaintiffs’ claims were expressly abandoned or were taken to be abandoned. What remained were claims for breach of fiduciary duty; liability under the first or second limbs of Barnes v Addy (1874) 9 Ch App 244 (knowing receipt or knowing assistance respectively); and fraud on the power.

26. [34]

    The plaintiffs ultimately sought a declaration that each of the 9 May 2016 agreements was rescinded in equity as void ab initio for breach of fiduciary duty: PJ[455]. The plaintiffs also sought either a declaration that the Garslev deeds have been rescinded or an order that they be rescinded. This relief was sought on the following three alternative bases (PJ[457]):

    1. (1)

       If the Power of Attorney was rescinded as sought, then the three deeds entered into by Mr Mahommed on behalf of BAD Nominees purporting to exercise his authority under the Power of Attorney must also be rescinded.

    2. (2)

       Messrs L Smits and Mahommed acted in breach of their fiduciary duties by acting in circumstances where their interests conflicted with those of BAD Nominees.

    3. (3)

       The nomination of Garslev as the transferee of the nine lots and the execution of the three deeds was a fraud on the Power of Attorney, irrespective of whether Messrs L Smits and Mahommed owed and breached fiduciary duties to BAD Nominees.

27. [35]

    The plaintiffs claimed that rescission was also available as against Garslev because (PJ[458]):

    1. (1)

       Garslev became chargeable with the nine lots and the other rights assigned to it under the 20 March 2018 deed because it had knowledge that the property was being assigned to it in breach of fiduciary duties owed by Messrs L Smits and Mahommed to BAD Nominees (relying on the first limb of Barnes v Addy);

    2. (2)

       Garslev procured the three deeds, which it knew were entered into in breach of fiduciary duties owed by Messrs L Smits and Mahommed to BAD Nominees or were a fraud on the power; and/or

    3. (3)

       Garslev and Mr J Smits were co-conspirators in the Garslev conspiracy, and knowingly assisted in breaches of fiduciary duty that were a dishonest and fraudulent design (relying on the second limb of Barnes v Addy).

28. [36]

    The plaintiffs contended that, if orders for rescission were made, they were entitled to relief in the form of a declaration that the sum of $1,126,000 received by Garslev from the sale of the nine lots was held on trust for BAD Nominees (PJ[459(1)]) or to restitution or equitable compensation in that sum (PJ[459(2)]). The plaintiffs contended that, if orders for rescission were not made, they were entitled to relief in the form of equitable compensation for the alleged breaches of fiduciary duty and fraud on the power (PJ[460(1)]) and a declaration that Garslev held the sum of $1,126,000 on constructive trust for BAD Nominees on the basis that Garslev had knowledge of the alleged breaches of fiduciary duty or fraud on the power and received those sale proceeds as a volunteer (PJ[460(2)]). The plaintiffs made submissions on how orders for restitution or equitable compensation should be made if they were found to be entitled to such relief (PJ[461]).

29. [37]

    The plaintiffs also claimed compounding interest on the basis that Messrs L Smits and Mahommed were defaulting fiduciaries, costs and interest on costs (PJ[472]).

30. [38]

    The defendants denied liability in respect of the plaintiffs’ claims. They raised claims in defence that the plaintiffs lacked standing; that the doctrines of res judicata, issue estoppel or Anshun estoppel applied; that various other estoppel claims were available; and that the proceedings were an abuse of process.

31. [39]

    The defendants cross-claimed for damages in the sum of $769,397.20 (plus interest). This sum was said to comprise the outstanding fees due to Mr L Smits and Vestecorp under either the 9 May 2016 agreements or to Mr L Smits personally in respect of legal services performed by him, under the various retainers entered into by Mr Mahommed on behalf of BAD Nominees, less the $850,000 sum specified as consideration for the assignment of the nine lots in the 20 March 2018 deed (PJ[473]).

32. [40]

    The defendants also cross-claimed against Mr Dean for allegedly having procured or induced breaches by BAD Nominees of the Consultancy Agreement and the three deeds entered into with Garslev (see in more detail at PJ[474]–[476]).

33. [41]

    The defendants claimed pre-judgment interest and costs (PJ[478]).

Primary judge’s findings and reasons summarised

1. [42]

   The primary judge rejected the defendants’ claim that the plaintiffs lacked standing to maintain the proceedings (PJ[479]–[485]).

2. [43]

   The primary judge also rejected many (but not all) of the defendants’ claims that the doctrines of res judicata, issue estoppel or Anshun estoppel applied (PJ[486]–[535]). This is because, while various issues related to the parties’ agreements had been litigated earlier, those earlier proceedings had not necessarily resolved any ultimate issue of fact or law put in issue in these proceedings.

3. [44]

   This conclusion was subject to two exceptions. First, as noted at PJ[504], the plaintiffs were issue estopped from raising the following matters, which had been determined by Brereton J:

   1. (1)

      whether the Power of Attorney was coupled with an interest of the attorneys in earning 25% of recoveries referred to in cl 1 of the IAD; and

   2. (2)

      whether the IAD entitled Messrs L Smits and Mahommed and Vestecorp to receive 25% of monies payable to BAD Nominees in respect of the Griffith Estates’ lots only.

4. [45]

   Secondly, the plaintiffs were Anshun estopped from maintaining the following claims (see PJ[514]–[522] and [524]):

   1. (1)

      The 9 May 2016 agreements were void, voidable or should be rescinded by reason of alleged breaches by Messrs L Smits and Mahommed of fiduciary duties owed to BAD Nominees and Mr Dean at the time those documents were negotiated and executed.

   2. (2)

      The retainer of Mr L Smits in 2017 to act as solicitor for BAD Nominees involved a breach of fiduciary duty by Messrs L Smits and Mahommed and a breach of the terms of the Power of Attorney.

   3. (3)

      The claim that Messrs L Smits and Mahommed and Vestecorp owed fiduciary obligations to Mr Dean and BAD Nominees during the May 2016 negotiations; the claim that they breached those obligations (or, in the case of Mr Mahommed and Vestecorp that they procured and participated in a breach by Mr L Smits of those obligations) by entering into inter alia the 9 May 2016 agreements; the claim that, by reason of those matters, the agreements were “void, voidable and rescinded”; and the claim that by reason of those matters any document entered into by Messrs L Smits and Mahommed on behalf of BAD Nominees using the Power of Attorney should also be rescinded.

   4. (4)

      The claim that the retainer of Mr L Smits in 2017 to act as solicitor for BAD Nominees involved a breach of fiduciary duty by Messrs L Smits and Mahommed and a breach of the terms of the Power of Attorney, and that the 2017 retainer was therefore void, voidable or rescinded or cannot be enforced by Mr L Smits on the basis that he cannot take advantage of his own wrong.

5. [46]

   The primary judge dismissed various other estoppel claims by the defendants at PJ[536]–[558]. Her Honour also rejected the defendants’ claims of abuse of process, including their claim that the plaintiffs had invoked the Court’s procedures for an illegitimate purpose, describing the claim as “nothing more than a complaint about what they say will be the effect on them if the plaintiffs’ claims are upheld”: PJ[565].

6. [47]

   The plaintiffs pleaded below that the execution of the 9 May 2016 agreements per se involved breaches of fiduciary duties by Messrs L Smits and Mahommed and, accordingly, each of those agreements was “void, voidable and rescinded”. In light of her Honour’s findings as to Anshun estoppel (see at [45] above), the primary judge held that this claim for relief could not succeed (PJ[570]).

7. [48]

   The plaintiffs alleged that after the execution of the 9 May 2016 agreements Messrs L Smits and Mahommed were the fiduciaries of BAD Nominees. In particular, they pointed to the following matters as underpinning the fiduciary relationship:

8. [49]

   Messrs L Smits and Mahommed denied the existence of any fiduciary relationship. In particular, they made the following claims (PJ[117]-[118]):

9. [50]

   After noting that the Power of Attorney was a “prescribed power of attorney” within the meaning of s 8 of the Powers of Attorney Act, her Honour acknowledged that, in determining the powers and obligations imposed on Messrs L Smits and Mahommed by that instrument, together with a question of whether the Power of Attorney included the implied terms as claimed by the plaintiffs, regard had to be had to “the circumstances in which it was entered into” (including the execution of the Consultancy Agreement and the IAD at the same time) and the provisions of Pt 2 of the Powers of Attorney Act governing prescribed powers of attorney (PJ[571]).

10. [51]

    After noting the terms of cl 2 of the Power of Attorney, the primary judge found that the Power of Attorney was signed in circumstances where BAD Nominees had made loans to BLE and Griffith Estates in its capacity as trustee of the Dean Super Fund. Those loans remained unpaid after the companies went into administration approximately two years earlier and no valid security was held in relation to the loan to Griffith Estates. Her Honour further noted that the administration proceedings were on foot and BAD Nominees lacked legal representation. Her Honour found that the object of the 9 May 2016 agreements, including the Power of Attorney, was recorded in cl 3 of the IAD, which contained the following acknowledgment by BAD Nominees to Messrs L Smits and Mahommed and Vestecorp:

11. [52]

    The primary judge reasoned that reading cl 2 of the Power of Attorney as a whole and in the context of the “factual matrix” described by her Honour, cl 2 and p 5 of the Power of Attorney delineated the scope of the things which the attorneys were authorised to do on behalf of BAD Nominees (PJ[577]).

12. [53]

    Her Honour then noted that the Power of Attorney did not contain any provision which authorised the attorneys to confer a benefit on themselves or a third party (PJ[581]).

13. [54]

    The primary judge rejected the defendants’ submission that cl 6(c) (i.e., the attorney must not benefit from being an attorney, unless expressly authorised by the principal) was subject to and qualified by cl 2. Her Honour held that cl 2 said nothing which qualified the requirements of cl 6(c). The primary judge also made clear at PJ[585] that this did not mean that Messrs L Smits and Mahommed were not entitled to work towards earning the 25% of recoveries referred to in cl 1 of the IAD.

14. [55]

    The primary judge explained at PJ[589] why she rejected the defendants’ submission that Messrs L Smits and Mahommed did not owe fiduciary duties to BAD Nominees (and/or Mr Dean) because the Power of Attorney was irrevocable both under s 15 of the Powers of Attorney Act and at common law. The defendants claimed that, at common law, an attorney appointed under an irrevocable power of attorney did not owe any fiduciary duties to the principal and could act contrary to the principal’s interests subject to the express terms of the instrument appointing the attorney. Those submissions were rejected by the primary judge for reasons which may be summarised as follows:

15. [56]

    The principal’s inability to revoke the Power of Attorney did not preclude by necessary implication any fiduciary duties that would otherwise be owed. Her Honour explained that this was “because the rationale for common law’s treatment of a power coupled with a grant of an interest as irrevocable and not subject to fiduciary duties owed by the attorney lies in the nature of the interest granted to the attorney and the purpose of the power”, citing this Court’s decision in Despot v Registrar-General of NSW [2013] NSWCA 313 at [49]-[52].

16. [57]

    The primary judge found that the purpose of the Power of Attorney was to protect and advance the rights and interests of BAD Nominees (as trustee of the Dean Super Fund) as a secured creditor of BLE and a creditor of Griffith Estates (PJ[594]). Her Honour also found that the attorneys’ interest in earning 25% of any recoveries for themselves and Vestecorp as provided in cl 1 of the IAD was an interest which was “wholly aligned” with the interest of BAD Nominees in achieving such recoveries.

17. [58]

    Accordingly, at PJ[596] the primary judge concluded that the Power of Attorney was not irrevocable at common law and that any fiduciary duties of the attorneys were not excluded on that basis. Her Honour concluded at PJ[598] that the question whether equity imposed fiduciary duties on Messrs L Smits and Mahommed as attorneys, and the extent of any such duties, depended on the terms of the Power of Attorney and the purpose for which it was granted (citing Despot at [48]).

18. [59]

    Importantly, the primary judge made clear at PJ[600] that she accepted the defendants’ submission that any fiduciary duty had to accommodate itself to the relationship created by the 9 May 2016 agreements and any such duty could not alter the intended operation of the contract, citing Taheri v Vitek (2014) 87 NSWLR 403; [2014] NSWCA 209 at [115] per Leeming JA, with whom Bathurst CJ agreed.

19. [60]

    The primary judge then turned her attention to the issue of whether the Power of Attorney here was qualified or conditioned by any implied or express terms. Her Honour made the following findings:

    1. (1)

       It was an implied term that Messrs L Smits and Mahommed would not act in circumstances of a conflict between their interests and those of BAD Nominees.

    2. (2)

       It was an express term that the attorneys must act in BAD Nominees’ best interests.

    3. (3)

       Subject to the qualification that, properly construed, the reference to 25% of recoveries in cl 1 of the IAD is a reference to monies actually recovered by the efforts of the attorneys and consultants, the 9 May 2016 agreements did not include an implied term that Mr L Smits and Vestecorp would only be paid if and when they were the cause of BAD Nominees recovering money from BLE.

    4. (4)

       The 9 May 2016 agreements did not include an implied term that the Power of Attorney was only to be used for the purpose of providing the services pursuant to the Consultancy Services Agreement.

    5. (5)

       The 9 May 2016 agreements did not include an implied term that all fees charged, including under the Consultancy Agreement, would be fair, reasonable and proportionate and could be substantiated and ascertained to be fair, reasonable and proportionate from invoices.

    6. (6)

       There were no implied terms that would incorporate by reference the provisions of s 172 of the Legal Profession Uniform Law 2014 (NSW) to fees charged by each of Mr L Smits and Vestecorp to the extent that they engaged in legal practice.

20. [61]

    Ultimately, the primary judge accepted the plaintiffs’ submission that the execution of the Power of Attorney created a fiduciary relationship between BAD Nominees as principal and Messrs L Smits and Mahommed as attorneys (PJ[604]). This fiduciary relationship was of the kind as between an agent and principal, which attracted the proscriptive duties of not placing oneself in a position of conflict and not obtaining an unauthorised benefit from the fiduciary relationship (PJ[605]–[607]).

21. [62]

    It is well to set out PJ[605] (emphasis added and footnote omitted):

22. [63]

    The primary judge rejected the defendants’ claim that these proscriptive fiduciary duties were inconsistent with the express terms of the 9 May 2016 agreements. Her Honour added at PJ[607] that the fiduciary duties were “entirely consistent” with cll 2 and 6 of the Power of Attorney.

23. [64]

    After explaining at some length at PJ[608] her reasons for rejecting the defendants’ submissions as to why the proscriptive fiduciary duties were not owed, her Honour acknowledged, however, that those duties “must accommodate themselves to the particulars of the underlying relationship that gave rise to the duty so that the scope of the duties conform to the scope and limits of that relationship” (citing Howard v Commissioner of Taxation (2014) 253 CLR 93; [2014] HCA 21 at [34]-[35] per French CJ and Keane J and at [60] per Hayne and Crennan JJ).

24. [65]

    The primary judge found at PJ[662]:

25. [66]

    Her Honour stated that, even if the $850,000 sum did represent fair value, it was plainly contrary to the interests of BAD Nominees to enter into the 20 March 2018 deed permitting “payment” of the $850,000 in the manner it did, because its effect was to empower Garslev to determine whether and in what amounts fees allegedly payable to Messrs L Smits and Mahommed and Vestecorp would be paid out of the $850,000 without investigating their entitlement to the fees claimed and without consultation with BAD Nominees: PJ[663].

26. [67]

    Considering all of the circumstances, the primary judge determined that the 20 March 2018 deed was contrary to the interests of BAD Nominees and conferred unauthorised benefits on Messrs L Smits, Vestecorp and Garslev (PJ[670]–[672]). Her Honour further found that there were a number of apparent conflicts of interest at the time the 20 March 2018 deed was entered into (PJ[674]).

27. [68]

    The primary judge found that, by having drafted and/or executed the 20 March 2018 deed, Messrs L Smits and Mahommed breached their fiduciary duties to BAD Nominees because it conferred unauthorised benefits on Mr L Smits and Vestecorp and Garslev and because they acted in circumstances of conflict (PJ[673], [675]).

28. [69]

    The primary judge also found that the established breaches of fiduciary duty involved and constituted a dishonest and fraudulent design (PJ[703] and see further at [80]ff below).

29. [70]

    However, the primary judge at PJ[676] rejected the plaintiffs’ contention that the 20 March 2018 deed was entered into in breach of fiduciary duties owed by Messrs L Smits and Mahommed to BAD Nominees on the grounds that they were acting as agents of Garslev in entering into the deed and the deed was entered into in furtherance of the alleged Garslev conspiracy. This was because there was insufficient evidence to establish the alleged Garslev conspiracy and, consequently, the alleged agency relationship between Messrs L Smits and Mahommed and Garslev (see in more detail at PJ[677]–[685]). As will emerge below at [164]ff, the appellants submit under appeal ground 3 that some of the primary judge’s findings of breach of fiduciary duties were outside the pleadings.

30. [71]

    The primary judge found that “[t]he obvious effect of the terms of the [three] Garslev deeds was to ensure that no part of the $850,000 payable to BAD Nominees under the 20 March 2018 deed would pass to BAD Nominees” (PJ[692]). Her Honour rejected Mr L Smits’ evidence that BAD Nominees was contractually obliged to pay his fees as solicitor and that the 5 November 2018 deed of assignment was in BAD Nominees’ interest because it provided a means for it to comply with those obligations. This was primarily because the deed purported inter alia to approve the payment of invoices which either had not been reviewed by Mr Mahommed prior to executing the deed or were yet to be issued by Mr L Smits in amounts unknown, and to waive BAD Nominees’ statutory right to have the legal costs assessed or taxed (PJ[694]).

31. [72]

    The primary judge concluded that by drafting and/or executing the three Garslev deeds, Messrs L Smits and Mahommed breached their fiduciary duties owed to BAD Nominees by conferring unauthorised benefits on Mr L Smits, Vestecorp and Garslev and by acting in circumstances where there was a conflict between the interests of BAD Nominees and their own interests (PJ[700], [702]). The primary judge set out at PJ[701] a list of conflicts of interest which existed when the Garslev deeds were entered into.

32. [73]

    The primary judge rejected, however, the plaintiffs’ allegations that the Garslev deeds were entered into in furtherance of the alleged Garslev conspiracy (PJ[704]).

33. [74]

    Having regard to her Honour’s earlier finding that the purpose of the power conferred on Messrs L Smits and Mahommed by the Power of Attorney was to protect and enforce the rights and interests of BAD Nominees (as trustee of the Dean Super Fund) as a creditor of both BLE and Griffith Estates, the primary judge found that the execution of the 20 March 2018 deed was a fraud on the power because “Messrs Smits and Mahommed did exercise the power for that extraneous purpose” and the “execution of that deed … was not an exercise of the power in good faith and for a proper purpose” (PJ[708]).

34. [75]

    The primary judge found at PJ[709] that the Garslev deeds were a fraud on the power:

35. [76]

    However, the primary judge expressly rejected the plaintiffs’ contention that the execution of these deeds was a fraud on the power because they were entered into in furtherance of the alleged Garslev conspiracy, for the same reasons as given earlier (see at [70] above) (PJ[710]).

36. [77]

    The primary judgment addressed three claims made against Garslev as identified at [35] above (in short, liability under both the first and second limbs of Barnes v Addy, and liability for having induced or procured breaches of fiduciary duty by Messrs L Smits and Mahommed).

37. [78]

    The primary judge noted the plaintiffs’ submission that considering the case on those three alternative bases may add unnecessary complexity because, in the particular circumstances, it was sufficient for the plaintiffs’ claims for relief if Garslev was found to have induced or procured the breaches of fiduciary duty (at PJ[712]). Accordingly, her Honour addressed this claim first.

38. [79]

    After considering the authorities relating to liability under this cause of action, the primary judge concluded at PJ[716]:

39. [80]

    The primary judge turned next to the claim under the second limb of Barnes v Addy. After considering some authorities relating to establishing liability under this cause of action, the primary judge rejected the plaintiffs’ allegations that the 20 March 2018 deed and the Garslev deeds were a dishonest and fraudulent design because the Power of Attorney was being used in furtherance of the Garslev conspiracy (this finding resting on the fact that the plaintiffs had failed to prove the Garslev conspiracy, as referred to above) (PJ[721]).

40. [81]

    Nevertheless, the primary judge accepted that, for the following reasons, the breaches of fiduciary duty by Messrs L Smits and Mahommed in relation to the Garslev deeds were a dishonest and fraudulent design for other reasons advanced by the plaintiffs (PJ[722]-[735]).

41. [82]

    First, as to the 20 March 2018 deed, the Power of Attorney was used to assign to Garslev the right to receive a transfer of the nine Beechworth lots and other rights in consideration for a mere promise by Garslev to pay the $850,000 at some unspecified time in the future by paying to third parties unspecified amounts they claimed were owing to them or would become owing to them in the future, with Garslev having no obligation to inquire whether those amounts were in fact owing by BAD Nominees (PJ[723]). These features “alone transgressed ordinary standards of honest behaviour by enabling Garslev to take the benefit of the nine lots as soon as the transfers could be facilitated whilst leaving BAD Nominees at the mercy of its alleged creditors and Garslev as to whether or to what extent it received any benefit from the assignment of its rights to Garslev” (PJ[724]). Indeed, the primary judge found that all of these features of the transaction were apparent from the terms of the 20 March 2018 deed, and it was plain that the attorneys stood to benefit (PJ[725]).

42. [83]

    The primary judge found that Mr J Smits had read the 20 March 2018 deed before resolving that Garslev would execute the deed. Thus, Garslev, through its sole director, had actual knowledge of the features identified above and that BAD Nominees was being signed up to the transaction by its attorney, Mr Mahommed, who stood to benefit from the deed. Her Honour continued at PJ[727] (emphasis added; citations removed):

43. [84]

    For these reasons, the primary judge concluded that the breaches of fiduciary duty by Messrs L Smits and Mahommed in relation to the 20 March 2018 deed were a dishonest and fraudulent design and that Garslev knowingly assisted Messrs L Smits and Mahommed in those breaches (PJ[730]–[731]).

44. [85]

    As to the other deeds, the primary judge repeated her finding that the effect of their terms was to ensure that no part of the $850,000 payable to BAD Nominees under the 20 March 2018 would pass to BAD Nominees. Her Honour found that Garslev knew the effect of the Garslev deeds at the time that it entered into them. Her Honour concluded that the breaches of fiduciary duty by Messrs L Smits and Mahommed in relation to the Garslev deeds were a dishonest and fraudulent design and Garslev “either had actual knowledge of their effect or wilfully shut its eyes to their effect” (PJ[734]–[735]).

45. [86]

    Having found Garslev liable under the second limb of Barnes v Addy, the primary judge considered that it was unnecessary to address the plaintiffs’ claim under the first limb. Nevertheless, her Honour added at PJ[737]:

46. [87]

    The stated qualification was that it would have been necessary to determine whether the first limb of Barnes v Addy applied in circumstances where the property was transferred to Garslev by the attorneys who were fiduciaries, but not trustees. Her Honour noted “some continuing uncertainty about that question” as divergent views have been expressed by intermediate appellate courts (compare Pittmore Pty Ltd v Chan (2020) 104 NSWLR 62; [2020] NSWCA 344 at [155]–[156] with Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 at [254]). The primary judge considered that it was not appropriate to express a view given it was not necessary to do so in the circumstances (PJ[740]).

47. [88]

    The primary judge noted that the plaintiffs put their claims for equitable compensation or restitution against Mr J Smits on two alternative bases (PJ[741]), namely:

    1. (1)

       He was liable for procuring or inducing the breaches of fiduciary duty committed by Messrs L Smits and Mahommed in entering into the Garslev deeds because he was a party to the alleged Garslev conspiracy.

    2. (2)

       He knowingly assisted in those breaches of fiduciary duty, which were a dishonest and fraudulent design, because he failed to make inquiries that an honest and reasonable person in his position would have made.

48. [89]

    The claim on the first basis was rejected because the plaintiffs had failed to prove the alleged Garslev conspiracy (PJ[742]).

49. [90]

    The claim on the second basis was rejected because Mr J Smits was not a party to the relevant deeds and his involvement extended only to causing Garslev to enter into those deeds with the knowledge he had in his capacity as the sole director of Garslev. The primary judge considered that the plaintiffs had failed to articulate any reason why Mr J Smits personally should be held to have knowingly assisted in the breaches of fiduciary duty committed by Messrs L Smits and Mahommed, or why Mr J Smits should be personally liable for those breaches in which Garslev knowingly assisted (PJ[743]). These findings are challenged in the cross-appeal.

50. [91]

    The relief granted by the primary judge may be summarised as follows.

51. [92]

    First, the following deeds were rescinded ab initio:

    1. (1)

       Deed of Assignment dated 20 March 2018 between BAD Nominees (as assignor) and Garslev (as assignee).

    2. (2)

       Deed of Assignment dated 5 November 2018 between BAD Nominees, Garslev, Peter Mahommed and Leonardus Smits.

    3. (3)

       Deed of Settlement dated 5 November 2018 between BAD Nominees, Garslev, Peter Mahommed, Vestecorp and Leonardus Smits.

52. [93]

    Secondly, Garslev was ordered to account to Overdean (as trustee of the Dean Super Fund) for the net proceeds of sale of the nine lots of Beechworth land that were the subject of the declaration made on 23 October 2017 in proceeding 2017/279755.

53. [94]

    Thirdly, a declaration was made that monies paid into Court during the period since February 2019 representing the net proceeds of sale of the nine lots of Beechworth land referred to immediately above less the sum of $50,000 were impressed with a constructive trust for the benefit of Overdean (as trustee of the Dean Super Fund).

54. [95]

    Fourthly, those monies held in Court were impressed with a constructive trust referred to immediately above and were ordered to be paid to Overdean (as trustee of the Dean Super Fund).

55. [96]

    Fifthly, Messrs L Smits and Mahommed were ordered to pay equitable compensation to Overdean (as trustee of the Dean Super Fund) in the amount of $1,058,579 plus interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW) for the period from 30 April 2019 until the date of the orders.

56. [97]

    Sixthly, the third further amended statement of claim was otherwise dismissed.

57. [98]

    Seventhly, the defendants’ further amended cross-claim was dismissed.

58. [99]

    Finally, the parties were given an opportunity to make submissions on costs.

The costs judgment

1. [100]

   It is unnecessary to summarise the primary judge’s reasons in the costs judgment as they do not feature heavily in the appeal. After describing which of the plaintiffs’ and defendants’ claims succeeded or failed (and making some critical comments about the conduct of both the plaintiffs’ and defendants’ cases), and addressing an accidental omission in Order 6 identified at PJ[856], the primary judge made the following orders at CJ[82]:

Vacation of original appeal hearing dates and related matters

1. [101]

   The appeal was initially set down for hearing on 23 and 24 November 2022. On the morning of 23 November 2022, the Court (comprised of the same bench) heard an application to vacate those hearing dates on account of Mr L Smits having COVID-19 and being unable to instruct the appellants’ senior counsel (Mr GS Clarke KC) during the hearing. The Court made orders vacating those hearing dates.

2. [102]

   At the same time, the Court made orders striking out the appellants’ original 44-page notice of appeal and requiring the appellants to file and serve by 5pm on 28 November 2022 an amended notice of appeal “in proper form containing grounds limited to those in paragraphs (2)(a) to (g) of their supplementary submissions filed on 20 October 2022”. The Court also granted leave to the respondents to file and serve a proposed notice of contention and notice of cross-appeal annexed to a notice of motion filed on their behalf in these proceedings on 17 November 2022.

3. [103]

   The Court ordered that the parties’ submissions on the substantive appeal that had been filed to date were to stand as their submissions in support of, or in response to, the amended notice of appeal. The parties were otherwise directed to file and serve brief submissions in support of, or in response to, the respondents/cross-appellants’ notice of contention and notice of cross-appeal. The Court reserved judgment on the costs associated with the vacation of the original hearing dates.

4. [104]

   The matter was then relisted for hearing on 20 March 2023. On 16 March 2023, the appellants requested that the hearing be vacated again on account of the ill health of their solicitor, Mr L Smits. The respondents consented. The Court ordered that the hearing listed for 20 March 2023 be vacated, that the costs thrown away by the making of the order to vacate be reserved and that the matter be stood over for a new hearing date to be fixed.

5. [105]

   The appeal was listed for hearing on 9 June 2023.

6. [106]

   The day before the hearing of the appeal, Hammerschlag CJ in Eq delivered judgment in In the matter of Garslev Holdings Pty Ltd [2023] NSWSC 609. His Honour ordered that Garslev be wound up but that order was then stayed until 12 June 2023 to avoid any adverse consequences of the winding up on the conduct of the appeal. At the commencement of the appeal, the Court gave leave for the respondents to press their cross-appeal against Garslev.

Amended notice of appeal

1. [107]

   On 1 December 2022, the appellants filed an amended notice of appeal containing the following grounds of appeal:

2. [108]

   The appellants sought the following orders:

3. [109]

   The parties filed a series of written submissions. In the case of the appellants, written submissions were filed on 13 May 2022, 20 October 2022, 14 November 2022 and 28 November 2022. The respondents filed written submissions on 7 November 2022, 24 November 2022 and 2 December 2022. The parties also filed written submissions on the cross-appeal. To avoid adding unduly to the length of these reasons, I will seek to address the parties’ primary submissions (including their oral submissions) in this section of the judgment.

4. [110]

   Each of the seven grounds of appeal raised in the amended notice of appeal filed on 1 December 2022 will now be addressed in turn.

Ground 1 (no fiduciary duties owed)

1. [111]

   The appellants’ primary contention is that the primary judge erred in concluding that Messrs L Smits and Mahommed owed proscriptive fiduciary duties to BAD Nominees upon execution of the 9 May 2016 agreements. They claim that those agreements only gave rise to contractual obligations and rights, which left no room for there to be an overlaying fiduciary relationship such as to impose proscriptive duties in addition to or in qualification of the 9 May 2016 agreements. The appellants’ challenge to these findings was commendably more focused on the appeal when compared with the way in which the defendants’ case was conducted below. Indeed, in the defendants’ closing written submissions below, the defendants simply repeated (without elaboration) their opening submissions on whether there was a fiduciary relationship or duty (the opening written submissions on this topic occupied approximately 200 paragraphs).

2. [112]

   This ground of appeal raises the following claims by the appellants:

3. [113]

   The two matters overlap and it is convenient to deal with them together.

4. [114]

   The appellants added that the 9 May 2016 agreements were given for valuable consideration and were part of a single arrangement, each being consideration for the others. They emphasised that the Power of Attorney was irrevocable, as was confirmed by the terms of the IAD. Clause 1 of the IAD contained an express authorisation and direction from Mr Dean (as the sole director of BAD Nominees) for the attorneys to pay 25% of all monies, damages, interests and costs due to BAD Nominees in respect of the Griffith Estates lots “as directed in writing by you and for your absolute benefit and the balance of 75% thereof shall be paid to BAD” (emphasis added). Moreover, they pointed to the fact that in cl 2 of the IAD Mr Dean acknowledged that he had obtained, or had had ample opportunity to obtain, independent advice in relation to these matters. They also emphasised the breadth of the obligations imposed on the attorneys by cll 6(c) and (d) of the Power of Attorney, which stated respectively that the attorneys must not benefit from being an attorney unless expressly authorised by the principal and that they must always act in the principal’s best interests.

5. [115]

   The appellants also pointed to s 16(1)(a) of the Powers of Attorney Act in support of their contention that the irrevocable Power of Attorney could not be revoked or otherwise terminated even if the attorneys acted without the principal’s concurrence.

6. [116]

   The appellants placed heavy reliance on Palmer J’s decision in Cordiant Communications (Australia) Pty Ltd v The Communications Group Holdings Pty Ltd [2005] NSWSC 1005 in support of their contention that, because the Power of Attorney was irrevocable (as held by Brereton J in his 2018 judgment), it did not attract proscriptive fiduciary duties. This authority was referred to only in passing in the defendants’ written outline of submissions below. Indeed, it was relegated to a footnote, which may explain why it was not addressed by the primary judge.

7. [117]

   In the appeal, the appellants relied on the following passages from Cordiant at [152]-[153] and [158]:

8. [118]

   Cordiant is not inconsistent with the primary judge’s reasoning. That is because, as Palmer J made clear in the final paragraph extracted immediately above, the general principles enunciated therein are “subject to any contractual provision to the contrary”. This necessarily focuses attention on relevant clauses in inter alia the Power of Attorney.

9. [119]

   Clause 2 of the Power of Attorney dealt with powers. It stated:

10. [120]

    At the end of cl 2, the following statement was added (without alteration):

11. [121]

    Accordingly, as the primary judge correctly found, the Power of Attorney was irrevocable during the specified three year period, a matter which the appellants contended has particular significance.

12. [122]

    As noted above, the matters set out in “SECTION 2. POWERS” (which matters are the subject of the attorneys’ powers, rights and privileges) included express reference to BAD Nominees’ loan to BLE and the related security:

13. [123]

    Clause 6 is another important part of the Power of Attorney (particularly cll 6(c)-(e)):

14. [124]

    The appellants contended that there was no warrant to impose fiduciary duties on top of those contained in the Power of Attorney which would lead to an inconsistency. Emphasis was placed on the breadth of the duties imposed on the attorneys by cll 6(c) (i.e., prohibition on benefitting from being an attorney, unless expressly authorised by the principal); (d) (i.e., always act in the principal’s best interests); and (e) (i.e., always act honestly in all matters concerning the principal’s legal and financial affairs).

15. [125]

    I do not accept that there is any inconsistency between these matters, as claimed by the appellants.

16. [126]

    It is well settled that a contractual and fiduciary relationship may co-exist between the same parties but there is a need for any fiduciary relationship (assuming it to exist at all) to accommodate relevant contractual terms to avoid any inconsistency. As Mason J said in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97; [1984] HCA 64:

17. [127]

    The primary judge was well aware that any fiduciary duties must accommodate the particulars of the underlying relationship which created those duties, such that the scope of the fiduciary duties conforms to the scope and limits of that relationship. Her Honour made express reference to this at PJ[608(7)], citing Howard at [34]-[35] per French CJ and Keane J and at [60] per Hayne and Crennan JJ, as noted at [64] above.

18. [128]

    Another related aspect of Mason J’s influential judgment in Hospital Products is relevant here. It concerns the issue of whether the fact that a party is entitled under a contractual arrangement to act in that party’s own interests precludes the existence of a fiduciary relationship where one party is obliged to act in the interests of another. His Honour said at 99:

19. [129]

    Hospital Products involved a similar claim to that raised by the appellants here, namely that the presence of a “best efforts” clause in the contract was inconsistent with the co-existence of a fiduciary duty. Mason J accepted that a contractual term might be so precise in stipulating what a party could do that there was no relevant area of discretion remaining so as to provide a basis for the creation of a fiduciary duty. His Honour found, however, that in the particular circumstances of that case, the appellant enjoyed a substantial area of discretion in performing its contractual obligation to promote the market in Australia for the respondent’s surgical stapling products. Consequently, the contractual best efforts promise did not relevantly limit the ambit of the appellant’s discretion in discharging that responsibility.

20. [130]

    The position is similar here. The attorneys had a very broad discretion under the 9 May 2016 agreements in carrying out their responsibilities and services under those agreements. The breadth of that discretion is reflected in the wide range of matters identified in what is described as “SECTION 2. POWERS” in the Power of Attorney. Those are the matters to which the attorneys were appointed as “authorised representatives and agents” of the principal and empowered “to exercise all powers, rights and privileges” in relation thereto.

21. [131]

    The breadth of the attorneys’ discretion and powers is further reflected in the IAD, particularly cl 3 which specifically acknowledges the importance to BAD Nominees of the attorneys’ “input and assistance” in enforcing its securities and associated rights vis-à-vis BLE and Griffith Estates. The breadth of the power and discretions is further reinforced by the terms of item 1 to the Consultancy Agreement. For example, under the heading “Power of Attorney of 8 May 2016 (sic)”, the consultants’ “Services” are stated as including:

22. [132]

    Item 1 then identifies a wide range of other services under the headings “Planning” and “Operational” (see [145] below).

23. [133]

    The primary judge explained why she rejected the defendants’ submission that cl 2 of the Power of Attorney qualified or limited the relevant proscriptive fiduciary duties. Her Honour stated at PJ[608(7)]:

24. [134]

    The appellants have failed to demonstrate any error in that reasoning. Rather, her Honour was correct to find that the fiduciary duties arose from the nature of the relationship between BAD Nominees and the attorneys (which was a relationship based on trust and confidence) and the purpose and relevant terms of the 9 May 2016 agreements (see particularly PJ[605] which is set out at [62] above).

25. [135]

    Nor do I accept their claim that the primary judge’s conclusion that Messrs L Smits and Mahommed owed proscriptive fiduciary duties was based upon the plaintiffs’ allegations below concerning specified alleged conduct by the attorneys.

26. [136]

    I also respectfully agree with her Honour’s reasoning at PJ[609] that there is no inconsistency between the relevant fiduciary duties and the fact that Messrs L Smits and Mahommed and Vestecorp were entitled to look to BAD Nominees to pay any fees to which they were entitled under the Consultancy Agreement. As her Honour noted, as attorneys, Messrs L Smits and Mahommed “were not entitled to treat the interests of BAD Nominees as secondary to their own interests or the interests of Vestecorp in relation to [the consultancy] fees”.

27. [137]

    As noted above, the appellants also contended that there was no, or no sufficient, vulnerability here to give rise to the existence of fiduciary duties. In particular, they submitted that the primary judge failed to make findings as to the circumstances in which the 9 May 2016 agreements came into existence with the consequence that no vulnerability had been established. They claimed that they had argued below that, contrary to Mr Dean’s evidence, he had in fact obtained legal advice before executing the 9 May 2016 agreements. They contended that the primary judge needed to make findings in relation to a range of matters raised by them below which were relevant to the commercial context and surrounding circumstances to the execution of the 9 May 2016 agreements. Instead, it is said that the primary judge determined the operation and effect of the 9 May 2016 agreements in the context of the plaintiffs’ allegations below concerning specific alleged conduct of the defendants, which conduct was disputed by the defendants. The defendants contended that the terms of the agreements needed to be construed in the context of the circumstances in which they had come into being, citing Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37 at [46], [52] per French CJ, Nettle and Gordon JJ and at [116]-[117] per Kiefel and Keane JJ.

28. [138]

    For the following reasons, I do not accept these contentions. First, I reject the claim that the primary judge failed to make findings or take into account the context in which the 9 May 2016 agreements were made. Her Honour addressed those matters at some length at PJ[603]-[611].

29. [139]

    It is true that the primary judge made no express finding in response to the appellants’ claim below that Mr Dean had obtained legal advice before executing the 9 May 2016 agreements. In my respectful view, however, no significance attaches to that omission. That is because cl 2 of the IAD contained an express acknowledgment by Mr Dean either that “independent advice” had been obtained or, alternatively, that there was ample opportunity to obtain such advice, in relation to the Power of Attorney, the Consultancy Agreement and the affairs of BAD Nominees. That acknowledgment of itself does not preclude the existence of a fiduciary relationship having regard to the nature of the relationship between the relevant parties essentially being one of agency and where trust and confidence was reposed in the attorneys and the other matters identified at [48] above.

30. [140]

    Secondly, I reject the appellants’ submission that the primary judge failed to make findings concerning events leading up to the execution of the 9 May 2016 agreements, which events the appellants claim were inconsistent with BAD Nominees being vulnerable to misuse by the attorneys. The appellants’ case seemed to be that because BAD Nominees had recovered some of its investment with BLE prior to the involvement of Messrs L Smits and Mahommed, there was no basis for finding any vulnerability. In support of this claim, the appellants relied upon various matters, including the fact that Mr Dean swore in his affidavit dated 7 December 2018 that BAD Nominees paid for, and released, 26 Beechworth lots which BLE had either sold or held as mortgagee in possession or had refinanced. But even if that be accepted, it does not deny BAD Nominees’ position of vulnerability. Indeed, as will shortly be developed, that vulnerability was expressly acknowledged in the IAD (see at [144] below).

31. [141]

    It is well settled that a fiduciary relationship is one which arises where a person is given a “special opportunity to exercise [a] power or discretion to the detriment of [another] person who is accordingly vulnerable to abuse by the fiduciary of his position” (Hospital Products at 97 per Mason J). Although his Honour was in dissent in the outcome of that case, this observation “is generally seen as an important and correct statement of principle”: Heydon, Leeming and Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies, (5th ed, 2015, LexisNexis Butterworths) at [5-005] (Equity: Doctrines and Remedies).

32. [142]

    That is not to suggest that the vulnerability of any contracting party to breach by another party is sufficient of itself to create a fiduciary relationship. As pointed out in Equity: Doctrines and Remedies at [5-005], “the element which Mason J described as the critical element is the essential element in most cases – ‘that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person’”. As found by the primary judge, that is what Messrs L Smits and Mahommed agreed to do here, as is recorded in cl 2 of the Power of Attorney which expressly refers to their appointment as “authorised representatives and agents” of BAD Nominees (see at [120] above).

33. [143]

    Focusing on the issue of vulnerability, I consider that the following additional factors support the primary judge’s conclusion that, as agents and authorised representatives of BAD Nominees, Messrs L Smits and Mahommed were in a fiduciary relationship with BAD Nominees and that this fiduciary relationship included the proscriptive duties identified by her Honour.

34. [144]

    First, BAD Nominees’ vulnerability was expressly acknowledged in the IAD. As has previously been noted, it was made explicit in cl 1 of that document that the attorneys were entitled to receive 25% of all monies payable to BAD Nominees in respect of the Griffith Estates’ lots for the “absolute benefit” of those attorneys. But other important parts of the IAD highlighted BAD Nominees’ vulnerability. For example:

35. [145]

    Secondly, relevant provisions of the Consultancy Agreement reflect BAD Nominees’ vulnerability and dependency upon Messrs L Smits and Mahommed (the latter acting through his company Vestecorp). Under that agreement, Mr L Smits and Vestecorp were engaged as consultants by BAD Nominees. They were engaged to perform a wide range of “Services”, which naturally required the consultants to exercise significant judgment, discretion and power, as reflected in item 1 of that agreement, which stated:

36. [146]

    This early part of the description of the Services makes explicit the connection between the Consultancy Agreement and the Power of Attorney.

37. [147]

    Item 2 identified the consultants’ representative as Messrs L Smits and Mahommed and the Principal’s representative was identified in Item 3 as Mr Dean.

38. [148]

    Thirdly, as the primary judge pointed out at PJ[604], the very purpose of the execution of the Power of Attorney, whereby the attorneys were required to act as agents of BAD Nominees in respect of the matters specified on p 5, was to protect and advance the interests of BAD Nominees as a secured creditor of BLE and a creditor of Griffith Estates. The interests of the attorneys in earning 25% of recovery monies, as provided for in cl 1 of the IAD, was not inconsistent with their express obligation under cll 2 and 6 of the Power of Attorney to act “as authorised representatives and agents” for and on behalf of, and in the best interests of, BAD Nominees in relation to the relevant matters. As the primary judge found at PJ[604]:

39. [149]

    For these reasons, the appellants have failed to establish any error in the primary judge’s reasoning as to why the 9 May 2016 agreements (and the Power of Attorney in particular) gave rise to the relevant proscriptive fiduciary duties.

Ground 2 (implied terms)

1. [150]

   As noted above, the primary judge found in the plaintiffs’ favour regarding the following two aspects of the Power of Attorney (see at [60] above):

2. [151]

   The appellants contended that: the first of those terms should not be implied, having regard to the express obligations imposed upon the attorneys in cl 6 of the Power of Attorney; the term is unnecessary and does not go without saying; and the 9 May 2016 agreements work reasonably without implying such a term. They added that the implied term is inherently uncertain as to its meaning because of the obscurity as to what “conflicts in interest” are as a matter of contract law.

3. [152]

   As to the second matter, the defendants claimed that it involved an impermissible re-writing of the 9 May 2016 agreements (particularly the Power of Attorney).

4. [153]

   The appellants also submitted that these two matters regarding the Power of Attorney should be rejected because of the primary judge’s failure to make any findings as to the commercial context in which the contracts came to be executed.

5. [154]

   Finally, in their written submissions in reply, the appellants claimed that the findings formed part of her Honour’s reasoning in finding the subsistence of the proscribed fiduciary duties. They claimed that this occurred in circumstances where the plaintiffs failed to plead, and the primary judge failed to find, that there were breaches of any implied term.

6. [155]

   For the following reasons, I reject those submissions. First, I repeat what is said above regarding the alleged inconsistency between the implied term that Messrs L Smits and Mahommed would not act in circumstances of a conflict between their interests and BAD Nominees and the terms of the Power of Attorney.

7. [156]

   Secondly, cl 6(c) of the Power of Attorney, which prohibits the attorney from benefitting from that status unless expressly authorised by the Principal, is narrower than, and not coterminous with, the implied term regarding avoidance of conflicts of interests.

8. [157]

   Thirdly, having regard to the nature of the relationship and the trust and confidence implicit in it, I reject the appellants’ contention that the implied term is unnecessary and does not go without saying.

9. [158]

   Fourthly, I reject the appellants’ claim that, as a matter of contract law, the notion of “conflicts in interest” is inherently uncertain. The content of the obligation is well understood, albeit that its application may give rise to difficulties in individual cases (which is not the case here).

10. [159]

    As to the proper construction of cl 1 of the IAD, I do not consider that it involves an impermissible re-writing of the 9 May 2016 agreements. Rather, it clarifies the ambit of cl 1 of the IAD and otherwise accords with well established principles of construction.

11. [160]

    As to the appellants’ complaints that the two matters were not pleaded and that the primary judge did not find any breaches of the terms, the terms were adequately pleaded at [58] of the third further amended statement of claim. The defendants denied the existence of the alleged implied terms in [58] of the second further amended defence.

12. [161]

    As to the primary judge’s findings, her Honour noted at PJ[243] that the plaintiffs alleged that the attorneys caused BAD Nominees to enter into the 20 March 2018 deed in breach of their fiduciary duties “not to act in conflict”. Her Honour noted the defendants’ denial at PJ[244]. The primary judge then expressly found at PJ[601(1)] that it was an implied term of the Power of Attorney that the attorneys would not act in circumstances of a conflict between their interests and those of BAD Nominees and her Honour provided a detailed explanation for that finding (with which I respectfully agree).

13. [162]

    Similarly, her Honour gave detailed reasons at PJ[602] as to why cl 1 of the IAD should be read in the manner found by her Honour. I also respectfully agree with those reasons. As her Honour explained, that qualified term involved reading into cl 1 the words “and recovered by your efforts”. Moreover, contrary to the appellants’ submissions, I consider that it is necessarily implicit in the primary judge’s findings that Messrs L Smits and Mahommed breached their fiduciary duties that the two relevant terms were also breached (see in particular her Honour’s findings at PJ[607] and [609]).

14. [163]

    Finally, the appellants’ submission that the primary judge made no findings as to the commercial context in which the 9 May 2016 agreements came to be executed is without substance. As noted above, her Honour made express reference at PJ[571] to the need, in determining whether or not there were implied terms as claimed by the plaintiffs, for regard to be had to “the circumstances in which [the Power of Attorney] was entered into (including the execution of the Consultancy Agreement and the IAD at the same time)”.

Ground 3 (no breach of 9 May 2016 agreements or fiduciary duties)

1. [164]

   As presented, this ground had several elements. Ultimately all were directed to the primary judge’s order to rescind the Garslev deeds (i.e., the 20 March 2018 deed of assignment, the 5 November 2018 deed of assignment and the 5 November 2018 deed of settlement). The basis for rescinding these deeds was the primary judge’s finding that, by having BAD Nominees execute those deeds, Messrs L Smits and Mahommed acted in breach of their fiduciary duties, which breaches bore the character of being a dishonest and fraudulent design.

2. [165]

   In brief, the appellants challenged the primary judge’s findings of breaches of fiduciary duties because they were claimed to traverse a wider range of matters than the plaintiffs’ pleaded case. Although it was not always easy to follow the appellants’ pleading complaints, it appears the complaints relate in large part to the alleged “disparity” between the primary judge’s findings of breach and her Honour’s rejection of the Garslev conspiracy.

3. [166]

   In their written submissions in reply filed on 14 November 2020, the appellants claimed that there was a lack of clarity and specificity in the plaintiffs’ pleaded case which caused the primary judge to make findings outside the pleadings. The appellants then referred to the following three aspects of the pleadings:

4. [167]

   During the course of the hearing of the appeal, Mr Clarke KC handed up three separate aide memoires which identified the relevant pleadings in respect of the Garslev deeds. Unfortunately, the paragraphs of the pleadings referred to in some of the aide memoires were different from the paragraphs of the pleadings identified in the relevant parts of the appellants’ supplementary submissions filed on 20 October 2022 in support of ground 3. The references in the aide memoires also went beyond the three specific matters which were identified in the appellants’ written reply, as referred to immediately above. This created some confusion. Nevertheless, doing the best as one can in the circumstances, I will address each of the three topics in turn and give primary attention to the pleading paragraph references in the three aide memoires.

5. [168]

   The appellants summarised the plaintiffs’ pleaded case regarding the 20 March 2018 deed of assignment as containing the following allegations (“SC” refers to the third further amended statement of claim):

6. [169]

   The appellants also emphasised that the primary judge had rejected the plaintiffs’ allegations both in respect of the Garslev conspiracy and the Garslev agency. They submitted that those matters were no longer “live” issues in the plaintiffs’ fiduciary duty case. Moreover, they pointed to the fact that, contrary to the plaintiffs’ allegation that the Power of Attorney did not authorise Messrs L Smits and Mahommed to enter into any retainer for the provision of legal services by Mr L Smits, Brereton J had held that Mr Mahommed was entitled under the Power of Attorney to retain Mr L Smits as solicitor for BAD Nominees from September 2017. Thus, that was no longer a “live” issue.

7. [170]

   The appellants then contended that the remaining (or live) issues were those that were pleaded in various paragraphs of the third further amended statement of claim as set out in the first aide memoire and did not include the following matters upon which the primary judge proceeded to make findings adverse to the appellants:

8. [171]

   The appellants contended that the primary judge should not have found that Messrs L Smits and Mahommed entered into the 20 March 2018 deed (and the 5 November 2018 deeds) to extract for themselves, and for Vestecorp, benefits using the mechanism of the transfer of the nine lots to Garslev as a means of extracting their very high fees from the value of the nine lots and putting it beyond BAD Nominees’ ability to scrutinise and object to those fees.

9. [172]

   The appellants added that, under cll 2 and 3 of the 20 March 2018 deed of assignment, although there was provision for Garslev to pay the $850,000 by way of offset of BAD Nominees’ liabilities to third party creditors (including the attorneys), Garslev was absolutely obliged to pay the $850,000 to, or for the benefit of, BAD Nominees, including in cash.

10. [173]

    For the following reasons, those submissions are not accepted.

11. [174]

    The appellants’ claims regarding BAD Nominees paying conveyancing costs and stamp duty in order to complete the 2 August 2017 contract arose, not because of the plaintiffs’ pleadings as such, but rather because of the evidence given by Messrs L Smits and Mahommed to the effect that they caused BAD Nominees to enter into the 20 March 2018 deed because inter alia BAD Nominees lacked the funds required to complete the 2 August 2017 contract. As the primary judge noted at PJ[630], these matters were raised by the defendants in their defences and in their submissions.

12. [175]

    It was for this reason, therefore, that the primary judge made findings in respect of the defendants’ claims that BAD Nominees lacked the funds to complete the 2 August 2017 contract.

13. [176]

    For these reasons, the appellants’ pleading objection in relation to this matter is rejected.

14. [177]

    The second pleading objection relates to the primary judge’s finding that the sum of $850,000 was less than fair value for the rights which were assigned to Garslev under the 20 March 2018 deed. Again, it is important to appreciate how this matter arose. As the primary judge noted at PJ[661], it arose in the context of Mr Mahommed’s cross-examination. He was asked to identify the benefit to BAD Nominees in entering into the 20 March 2018 deed, to which he said that the benefit was that “we actually had a buyer for the nine lots”. The adequacy of that response was then analysed by the primary judge. At PJ[662] her Honour explained why there was material which cast doubt on the proposition that $850,000 was a fair value for the rights which were assigned to Garslev under the 20 March 2018 deed. Her Honour then added at PJ[663] that, even if that figure represented fair value, the 20 March 2018 deed was contrary to BAD Nominees’ interests, for reasons which her Honour explained. It was entirely appropriate for her Honour to conduct that analysis, having regard to Mr Mahommed’s evidence and noting that no objection was made to the question which was put to him in cross-examination and elicited his response.

15. [178]

    The third pleading objection in relation to the 20 March 2018 deed primarily concerns the primary judge’s findings at PJ[673]. Those findings were that by drafting the 20 March 2018 deed and approving Mr Mahommed’s execution of the deed on behalf of BAD Nominees, both Mr L Smits and his co-attorney breached their fiduciary duty by conferring unauthorised benefits on Mr L Smits, Vestecorp and Garslev. Her Honour then explained at some length at PJ[674] why entry into the 20 March 2018 deed occurred in the context of various conflicts of interest which her Honour identified in that paragraph. These findings were not outside the scope of the pleadings. Paragraph 157 of the third further amended statement of claim explicitly stated that, on 20 March 2018, Messrs L Smits and Mahommed were subject to a fiduciary duty not to act in conflict. Paragraph 158 particularised the plaintiffs’ claims as to why Messrs L Smits and Mahommed, as well as Garslev, were acting in conflict with specific reference to the interest of the attorneys and Vestecorp securing their purported fees on the best terms for them, which were in conflict with the interests of BAD Nominees.

16. [179]

    For these reasons, there is no substance in any of the appellants’ pleading complaints relating to the primary judge’s findings concerning the 20 March 2018 deed.

17. [180]

    The appellants summarised the primary judge’s findings as follows in relation to the two 5 November 2018 deeds:

18. [181]

    The appellants contended that these findings by the primary judge went beyond the pleaded case in ways similar to those which they complained of in respect of the primary judge’s findings relating to the 20 March 2018 deed.

19. [182]

    The appellants focused particular attention on the primary judge’s findings at PJ[689] and [692] and, in particular, her Honour’s finding that the effect of the Garslev deeds “was to ensure that no part of the $850,000 payable to BAD Nominees under the 20 March 2018 deed would pass to BAD Nominees”. They submitted that Messrs L Smits and Mahommed received no real benefit from the Garslev deeds and would receive nothing in respect of any of the invoices which they rendered. They added that the 20 March 2018 deed did not require Garslev to pay the obligations in a specified time and that under the 5 November 2018 deeds no proceeds were to be received from the Yeppoon development.

20. [183]

    For the following reasons, I do not accept those submissions.

21. [184]

    First, for not dissimilar reasons to those given immediately above, there is no substance in the pleading objection. The plaintiffs explicitly pleaded at [263] of the third further amended statement of claim that Messrs L Smits and Mahommed were subject to fiduciary duties not to act in conflict when the Garslev deeds were executed. Moreover, the particulars of the alleged conflicts of interest were set out at some length at [264] of the pleading. The primary judge’s findings, to which objection is now taken, were comfortably within both the pleaded case and the way in which this part of the case was conducted below. It was made clear in the plaintiffs’ opening that their case was that Messrs L Smits and Mahommed acted in conflict when using their position as attorneys of BAD Nominees in nominating Garslev as transferee of the nine Beechworth lots and reference was made to the three deeds with Garslev in that context. The plaintiffs then opened their case by submitting that the three deeds should be rescinded on the following bases:

22. [185]

    As noted above, in their closing written submissions, the defendants simply repeated without elaboration their detailed opening submissions as to why there was no fiduciary relationship or fiduciary duty, including a claim that there was no conflict of duty or interest and that such conflicts were “excluded contractually”. They added that, in their defence, they held “vested or assigned interest” which they were entitled to protect and advance.

23. [186]

    Finally, in so far as the appellants challenge the correctness of the primary judge’s findings at PJ[689] and [692] I consider that those findings were correctly made, for the reasons given by her Honour in those paragraphs.

24. [187]

    These matters are developed further below in explaining why ground 4a is also rejected.

25. [188]

    In oral address, Mr Clarke KC explained that the third aide memoire related to the primary judge’s finding that, because there was a dishonest and fraudulent design in the breach of fiduciary duties, and Garslev knowingly assisted in that dishonest and fraudulent design, it was appropriate to grant relief against Garslev by rescinding the three deeds which it executed. Those findings are specifically challenged under ground 5 of the appeal. In oral address, Mr Clarke KC did not elaborate upon the appellants’ pleading objections concerning this matter. Accordingly, it is appropriate to address those objections under ground 4b.

Ground 4a (whether any breaches of fiduciary duties bore the quality of a “dishonest or fraudulent” design)

1. [189]

   The appellants noted the primary judge’s finding that only breaches of a fiduciary duty which amount to a dishonest and fraudulent design are capable of giving rise to liability under the second limb of Barnes v Addy, which relates to a third party knowingly assisting in the breach.

2. [190]

   The appellants contended that the primary judge’s finding that the breaches of fiduciary duties were a dishonest and fraudulent design were based on her Honour’s reasons at PJ[723]-[725].

3. [191]

   The appellants challenged that reasoning on the following grounds:

4. [192]

   For the following reasons, all these contentions are rejected.

5. [193]

   First, the primary judge’s finding that the breaches of fiduciary duty by Messrs L Smits and Mahommed in relation to principally the Garslev deeds were a dishonest and fraudulent design was based on her Honour’s analysis of the following features of the 20 March 2018 deed (see PJ[724]).

6. [194]

   The Power of Attorney was used to assign to Garslev under the 20 March 2018 deed the right to receive the nine Beechworth lots (and other rights) for what her Honour viewed to be inadequate or at least uncertain consideration. This was because Garslev’s promise to pay the $850,000 transfer price was unlimited as to time and (perhaps more significantly) could be satisfied by Garslev paying to various third parties (including the attorneys, consultants and Mr L Smits personally as a solicitor) unspecified amounts which those third parties could claim to be owed to them by BAD Nominees. Moreover, Garslev had no obligation to inquire whether any such claimed amounts were in fact owed by BAD Nominees. Accordingly, how much if any of the $850,000 transfer price was in fact paid to BAD Nominees by Garslev depended entirely on the amounts claimed by the third parties and how much Garslev determined in its absolute discretion to pay (without being obliged to make any inquiries into the validity of any such claims). The primary judge concluded (correctly) that this left BAD Nominees at the “mercy” of these parties.

7. [195]

   Secondly, none of the multiple matters raised by the appellants at [191] above undermines the primary judge’s analysis of the features of the 20 March 2018 deed. In particular (responding to each of those matters seriatim):

Ground 4b (whether Garslev and Mr J Smits had the requisite knowledge of the “dishonest or fraudulent” design)

1. [196]

   The appellants raised yet another pleading objection in relation to the primary judge’s finding that Mr J Smits had sufficient knowledge of the dishonest and fraudulent design, which knowledge was attributed to Garslev.

2. [197]

   Having regard to [181] and [182(d)] of the third further amended statement of claim, the appellants submitted that the plaintiffs raised four allegations concerning Mr J Smits and Garslev, namely that they:

3. [198]

   The appellants contended that these allegations lacked clarity and were not adequately expressed so as squarely to indicate to Mr J Smits how the plaintiffs put their case against him and Garslev. They emphasised that Mr J Smits was entitled to rely upon a fair reading of the pleadings in deciding whether or not he should give evidence. The appellants also criticised the plaintiffs for having pleaded alternative states of mind. These matters were developed in the appellants’ written submissions filed on 20 October 2022 at [63] to [71]. They contended that neither Mr J Smits nor Garslev knew with the requisite particularity and clarity what the plaintiffs’ case was and that it was significant that the plaintiffs did not call Mr J Smits as a witness.

4. [199]

   As to Mr J Smits’ understanding of the 20 March 2018 deed, the appellants submitted that it was not an easy read, even for a lawyer. Merely because there was evidence that Mr J Smits had read the deed did not mean that he understood it, contrary to the primary judge’s finding at PJ[726]. The appellants emphasised that there was no evidence as to what legal advice Mr J Smits received in respect of the deed. For these reasons, the appellants submitted that there was no basis for the primary judge to find that Mr J Smits had actual knowledge of the features of the transaction.

5. [200]

   The appellants also challenged the primary judge’s finding at PJ[727] that Mr J Smits did not act reasonably and honestly because he failed to make inquiries about the Power of Attorney. The appellants submitted that these findings cannot stand because:

6. [201]

   For the following reasons, this pleading objection is also rejected. First, the appellants have incorrectly summarised the plaintiffs’ allegation relating to this subject. They omitted to mention [171] to [180] of the third further amended statement of claim which also contains additional relevant pleadings on this subject which were not limited to the unsuccessful claims of a Garslev conspiracy. For example, it was pleaded that Mr L Smits knew of the terms of the 20 March 2018 deed and that his co-attorney Mr Mahommed was executing the deed pursuant to the Power of Attorney; that he knew from the terms of the deed that the Power of Attorney was not being used in the interests of BAD Nominees and instead in the interests of Messrs L Smits and Mahommed; and he failed to make any inquiries as to Mr Dean’s knowledge and approval of the deed.

7. [202]

   These pleadings were sufficient to put Garslev and Mr J Smits on notice of the claim that they had knowledge of the dishonest and fraudulent design.

8. [203]

   Secondly, I see no substance in the appellants’ complaint that Mr J Smits and Garslev had inadequate notice of the claims against them because alternative states of mind were pleaded (referring to the terms of [181] and [182(d)] of the pleading). The plaintiffs were entitled to plead the case in the alternative. The appellants’ complaint is not strengthened by the fact that Mr J Smits elected not to give evidence. That was his forensic choice which he presumably took on advice. There is no basis to conclude that this decision was made because he did not have a case to answer having regard to the pleadings outlined above.

9. [204]

   The written opening confirmed that the plaintiffs’ case was that Garslev and Mr J Smits had knowledge of the dishonest and fraudulent design. The plaintiffs’ counsel contended at [275] of the opening submissions that equitable compensation and a constructive trust should be ordered against Garslev because it had either constructive or actual knowledge that BAD Nominees’ property was being taken in breach of fiduciary duty. Furthermore, it was explicitly stated at [278] that constructive notice was sufficient and that, as agent of Garslev, Mr J Smits’ actions ought to be treated as those of Garslev. In [281(b)] of the opening submissions, it was contended that one of the bases of Mr J Smits’ liability was that “he was knowingly involved in a fraudulent and dishonest design”.

10. [205]

    Thirdly, the appellants have failed to establish any appellable error in the primary judge’s finding at PJ[726] that Mr J Smits had in fact read the 20 March 2018 deed and had actual knowledge of its features. Although Mr J Smits elected not to give evidence, his brother gave evidence that he had been told by Mr J Smits immediately before the deed was signed on 20 March 2018 that he understood it and had discussed it with a third party, who Mr L Smits assumed was one of his brother’s “retinue of advisers”.

11. [206]

    Fourthly, the appellants’ challenge to the primary judge’s finding at PJ[727] to the effect that an honest and reasonable person in Mr J Smits’ position would have made inquiries about whether the Power of Attorney permitted Mr Mahommed to cause BAD Nominees to enter into the 20 March 2018 deed is also baseless. Her Honour was well entitled to rely upon Mr L Smits’ evidence that not only did Mr J Smits have his own “retinue of advisers”, but that he also had a number of lawyers in his family with whom he freely consulted.

Ground 5 (fraud on the power)

1. [207]

   As noted above, the plaintiffs relied on the doctrine of fraud on the power as an alternative basis for rescinding the Garslev deeds to cover the contingency that the primary judge did not find that Messrs L Smits and Mahommed breached their fiduciary duties to BAD Nominees. Accordingly, although it was strictly unnecessary for the primary judge to determine the fraud on the power case, her Honour proceeded to do so. The appellants challenged these findings because they claimed that the findings were premised on the following two incorrect bases:

2. [208]

   In their written submissions in reply, the appellants contended that different relief would be available depending upon whether liability was based upon breaches of fiduciary duty as opposed to fraud on the power. They emphasised that because the attorneys were not parties to the 20 March 2018 deed, any breach of fiduciary duty by them could not found an order against Garslev which involved rescinding the Garslev deeds. Any such relief would depend upon some finding of procurement or knowing receipt or knowing assistance. Accordingly, the appellants claimed that if they fail in their challenge to the fraud on the power point, orders based on the primary judge’s judgment could not stand.

3. [209]

   The appellants said that these matters did not involve mere “procedural points”. They claimed that the primary judge’s orders were based on the findings against the attorneys of breach of fiduciary duties by them and were not based upon any finding that Garslev assisted or participated in any fraud on the power (citing PJ[744]-[745]). They added that the orders made against Garslev rescinding the Garslev deeds were based on the primary judge’s findings that Garslev knowingly assisted those breaches, and not upon any finding that Garslev assisted or participated in any fraud on the power by the attorneys. They submitted that it was important to understand the way in which the plaintiffs pleaded the fraud on the power case against the attorneys.

4. [210]

   With respect to the 20 March 2018 deed, the plaintiffs pleaded that the use of the Power of Attorney was a fraud on the power because it was not used bona fide for a proper purpose and instead it was used for improper purposes as particularised at [169] of the pleading. The primary judge found at PJ[708] that the purpose of enabling the attorneys to determine the fees to be paid to them without determining the knowledge or approval of BAD Nominees was extraneous to the purpose for which the power was conferred. The appellants challenged this finding as being inconsistent with the terms of the 9 May 2016 agreements, as well as the terms of the consequent retainer agreements because it was under those agreements that fees payable to the attorneys were determined. The attorneys were not at large to determine what fees were payable to them.

5. [211]

   As to the 5 November 2018 deeds, the appellants pointed to the plaintiffs’ pleading at [273] of the third further amended statement of claim and to the primary judge’s findings at PJ[709]. The appellants contended that the primary judge’s findings there went beyond the pleaded matters, particularly bearing in mind the seriousness of the findings.

6. [212]

   The appellants contended, moreover, that the primary judge’s findings were not sustainable on the facts because the $850,000 was payable by Garslev in all events and the primary judge erred in ascribing improper purposes to them.

7. [213]

   Having regard to the appellants’ failure to make good its grounds of appeal relating to fiduciary duties, it is strictly unnecessary to resolve this part of the appeal. For completeness, however, I would also reject this part. Contrary to the appellants’ contention, the primary judge did not find at PJ[708] that the attorneys were obliged to seek directions from Mr Dean for approval of their fees. Rather, her Honour was making the point that because the purpose of the power conferred on the attorneys by the Power of Attorney was to protect BAD Nominees’ rights and interests, it was extraneous to that purpose for the attorneys to have BAD Nominees enter into the 20 March 2018 deed which had the effect of having Garslev step into the shoes of BAD Nominees in approving these fees.

8. [214]

   As to the other matter raised by the appellants, although the primary judge did not make an explicit finding that it was inevitable that the attorneys would render excessive fee invoices after 20 May 2018 in relation to unauthorised work, her Honour referred several times to the fact that the obvious effect of the various deeds was to ensure that no part of the $850,000 would pass to BAD Nominees. To the extent that that conclusion was based upon an expectation that this amount would be exhausted by fees rendered by Messrs L Smits and Mahommed and Vestecorp, there was a sufficient evidentiary basis for that conclusion (see at [195](c)] above).

Ground 6 (costs)

1. [215]

   The appellants did not contend that the primary judge had erred in making the costs orders below. Rather, this ground of appeal simply turns on whether or not any of the other grounds of appeal succeed. For this reason, it is unnecessary to elaborate on it any further.

Ground 7 (the appropriateness of the relief)

1. [216]

   Putting all the other grounds of appeal to one side, the appellants contended that the primary judge erred in ordering the relief which her Honour did.

2. [217]

   First, the appellants submitted that no equitable compensation order should have been made against Messrs L Smits and Mahommed because they did not receive any pecuniary benefit from the matters the subject of the proceeding and Overdean should not be over-compensated for its actual proven loss. Alternatively, any such order ought to have been in the amount of $846,732.78 and not $1,058,579 as referred to in Order 7, as made below.

3. [218]

   Secondly (and related to the first matter), the appellants claimed at [94] of their written submissions filed on 20 October 2022 that the primary judge erred and made an accounting error in ordering Messrs L Smits and Mahommed to pay equitable compensation to Overdean in the amount of $1,058,579 (plus interest). They claimed that the true figure should have been $846,732.78. This is because they say that the net proceeds of sale of the nine Beechworth lots were lower than as calculated by the primary judge and should have been arrived at by subtracting from the gross sale proceeds of $1,126,000 the correct expenses being $102,226 for GST, $59,621 for Settlement Costs and $117,421.02 for re-sale costs.

4. [219]

   In their written submissions in reply, the appellants reiterated their claim that the primary judge had made insufficient deductions in calculating a “net” sale proceeds figure. In support of this claim, cross-references were made to the following material (noting that the figure for GST in paragraph (c) differs from the figure set out at [218] above):

5. [220]

   In their written submissions in reply, the appellants also claimed (evidently for the first time) that the primary judge had made insufficient deductions against the figure of $850,000. The following cross-references were given in support of that claim:

6. [221]

   Thirdly (and apparently in support of the first claim), the appellants submitted that, if the constructive trust in relation to the monies paid into Court (and later paid to Overdean) which founded the order against Garslev to account survives, this is sufficient compensation in favour of Overdean. This is because the object is to compensate Overdean as the new trustee for its actual and proven loss. The appellants submitted that neither Messrs L Smits nor Mahommed received any pecuniary benefit from the matters raised against them in the proceeding. In these circumstances, the appellants contended that it was sufficient to make orders in relation to the constructive trust monies for the respondents to receive adequate equitable compensation.

7. [222]

   As to the first of those matters, no appellable error has been established in relation to her Honour’s conclusion that Messrs L Smits and Mahommed should be ordered to pay equitable compensation to Overdean. Contrary to the appellants’ submission, the order that Garslev account to Overdean for the net proceeds of sale does not provide sufficient compensation for Overdean. That is particularly so as matters stand at present, given that, as noted at [106] above, there is now an order that Garslev be wound up and no evidence has been adduced to the Court to indicate that the taking of accounts will fully compensate Overdean.

8. [223]

   Moreover, as the primary judge noted at PJ[764], Messrs L Smits and Mahommed have an equity to prevent Overdean from enforcing against them the order for equitable compensation (including interest) to the extent that it would recover more than it had lost.

9. [224]

   As to the appellants’ complaint that the amount of that equitable compensation should be varied, it is necessary for them to establish that there was an accounting error in her Honour’s calculation of the net proceeds of the sale of the nine Beechworth lots. Her Honour explained at PJ[749] that the gross sale proceeds amounted to $1,126,000. Her Honour then deducted from that figure stamp duty and registration fees of $57,800 and legal costs and disbursements of $9,621, relying on the figures set out in Mr Mahommed’s affidavit affirmed on 8 March 2019.

10. [225]

    In oral address on the appeal, Mr Clarke KC frankly and properly conceded that there was no evidence to support the figures listed in Table 11 of the defendants’ submissions dated 24 April 2020. That table simply asserted amounts of $59,621 in respect of “associated settlement costs” and $117,421.02 for “re-sale costs paid by Garslev”. Moreover, as noted at [219(c)] above, in their written submissions in reply, the appellants advanced a different figure in relation to the amount of GST (together with “other statutory adjustments for land tax and council rates”) which was paid for by Garslev. The appellants left entirely unclear, however, which of these two figures was correct.

11. [226]

    In the absence of any evidence on these matters, and having regard to the confusion in the appellants’ own submissions, the appellants’ claim that there was an accounting error is rejected.

12. [227]

    As to the appellants’ claim (which was raised for the first time on the appeal in their written submissions in reply filed on 14 November 2022) that the primary judge made insufficient deductions against the $850,000, this matter was not developed at all in either the appellants’ written submissions in reply or in oral address. The appellants were content simply to make a series of cross-references to multiple other documents, including submissions and pleadings, as set out at [220] above. It would be tedious to reproduce the material the subject of those cross-references. Some of the cross-references are to material of some length, including for example, the cross-reference referred to at [220(c)] above to ten pages of the defendants’ submissions dated 20 May 2019. These submissions were said to itemise invoices issued by Mr L Smits and Vestecorp to BAD Nominees, as well as an invoice dated 12 November 2018 issued by Law Albury Wodonga.

13. [228]

    The Court was given no assistance at all in seeking to understand how that vast material made good the appellants’ claim that the primary judge had made insufficient deductions against the figure of $850,000. The same may be said in relation to the other material which was the subject of cross-references as set out at [220] above.

14. [229]

    In my view, the appellants have fallen far short of discharging their onus of establishing the alleged error. This aspect of ground 7 is also rejected.

15. [230]

    As to the third matter raised by the appellants under ground 7 (see at [221] above), I have explained why I reject the appellants’ submission that no order for equitable compensation should be made against Messrs L Smits or Mahommed. I do not accept that Overdean will be adequately compensated merely by orders in relation to the constructive trust monies.

16. [231]

    Finally, having regard to the time which has passed since the primary judge made orders in the proceeding below, it is necessary that Order 7 dated 17 November 2021 be varied so as to take account of that passage of time.

17. [232]

    The cross-appeal challenges the primary judge’s finding at PJ[743] that Mr J Smits was not liable personally, as opposed to Garslev, under the second limb of Barnes v Addy. Her Honour gave two reasons there for that finding:

18. [233]

    The cross-appellants challenged both those reasons. As to the first, they submitted that the relevant matters were in fact addressed at [281]-[286] of their written submissions below dated 16 June 2020. It was submitted there (at [284]) that Mr J Smits’ “moral obliquity is shown by the fact that he had Garslev enter the three Deeds, the terms and circumstances of which would have made it evident to an honest person that Smits and Mahommed were acting in conflict in order to profit at the expense of Nominees”. The plaintiffs also submitted below that Mr J Smits would have known from the terms of the various deeds that the purpose was to take BAD Nominees’ property and that this involved a breach of fiduciary duty. Reliance was placed on what Leeming JA said in Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd (2014) 87 NSWLR 609; [2014] NSWCA 266 at [139] (Gleeson JA agreeing):

19. [234]

    As to the second alleged error, the cross-appellants contended that her Honour erroneously considered Pittmore to be inconsistent with their claim that Mr J Smits was personally liable, contending instead that Pittmore at [169] supports their case.

20. [235]

    The cross-appellants’ essential argument seems to be that a company director does not escape personal liability when he or she knows the essential facts giving rise to a dishonest breach of fiduciary duty in which the director is participating merely because the company of which the person is a director entered into a contractual relationship.

21. [236]

    The cross-appellants seek an order against Mr J Smits personally in similar terms to those which the primary judge made vis-à-vis Garslev.

22. [237]

    In response, in their written submissions on appeal, the cross-respondents were content to rely on relevant parts of their supplementary submissions dated 20 October 2022 relating to grounds 3 to 4b of the appeal and on their written reply submissions relating to ground 5 of the appeal (fraud on the power).

23. [238]

    In oral address on the appeal, when pressed by the Court to respond to the cross-appellants’ challenge to the primary judge’s reasoning at PJ[743], Mr Clarke KC submitted that the issue did not arise if he was successful in his argument that Garslev was not liable under the second limb in Barnes v Addy. When further pressed on the contingency that that part of the appeal failed, Mr Clarke KC submitted that a distinction should be drawn between corporate and personal liability. He submitted that Garslev’s liability stemmed from Mr J Smits having signed the documents in his capacity as sole director and that he did not participate in any other way in the attorneys’ alleged breach of fiduciary duties.

24. [239]

    Assuming in the cross-appellants’ favour that they did in fact make submissions below in support of their contention that Mr J Smits should be personally liable (see, in particular, at [284] of their written submissions dated 16 June 2020), for the following reasons I consider that her Honour was correct to reject the contention.

25. [240]

    Pittmore does not support the cross-appellants’ case. At [162]-[170] of Pittmore, Leeming JA addressed the proposition whether a sole director acting merely as a director of a company is liable in equity for procuring or inducing a breach of trust or fiduciary duty by the company of which he is a director. His Honour’s reasons for doubting that proposition may be summarised as follows:

26. [241]

    His Honour’s view was only a provisional one (see at [170]); it was not necessary to reach a final view on the issue in that case. Here, the cross-appellant assumed the correctness of the discussion by Leeming JA but sought to distinguish it on the basis that the actions taken by Mr J Smits were not taken merely in his capacity as a director. It suffices here to assume the correctness of his Honour’s provisional view without deciding the point.

27. [242]

    I consider that the cross-appellants have not pointed to any step taken by Mr J Smits other than in his capacity as a director of Garslev.

28. [243]

    Contrary to the cross-appellants’ contention, the passage cited at [233] above from Hasler takes the matter no further. The correctness of the passage may not be doubted, but it says nothing about the relevant issue here, namely whether the second limb of Barnes v Addy is said to apply not only to a company, but also to a director who acts in no other capacity than as a director.

29. [244]

    Apart from emphasising Mr J Smits’ “moral obliquity”, the cross-appellants pointed to nothing done by Mr J Smits personally (apart from signing the relevant agreements in his capacity as sole director of Garslev) which would support a finding that his actions were taken other than in his capacity as director. There was no evidence, for example, that Mr J Smits acted as he did because there were other dealings in his own personal interest which were advanced by Garslev’s participation. The challenge of establishing any such dealings was not assisted, of course, by the fact that Mr J Smits elected not to give evidence in the proceeding. Although Mr J Smits had the requisite knowledge (as imputed to Garslev) of the dishonest and fraudulent design, he did not render any assistance in his personal capacity as opposed to as a director of Garslev. It is Garslev that facilitated and/or furthered the breach of fiduciary duties by Messrs L Smits and Mahommed (see the discussion of Dodds-Streeton J in Re-Engine Pty Ltd (in liq) v Fergusson (2007) 209 FLR 1; [2007] VSC 57 at [117]-[124]).

30. [245]

    For these reasons, the cross-appeal should be dismissed.

31. [246]

    The notice of contention raised the following two grounds:

32. [247]

    Having regard to the appellants’ failure to establish any of its grounds of appeal, it is unnecessary to determine the notice of contention.

33. [248]

    For these reasons I propose the following orders be made:

34. [249]

    My tentative view is that the appellants should pay the respondents’ costs of the appeal, including reserved costs, and the cross-appellants should pay the cross-respondents’ costs of the cross-appeal.

35. [250]

    If any party disagrees with these proposed orders, it should file and serve within 14 days hereof brief written submissions not exceeding 5 pages as to why different orders should be made. Any response should be provided within a further 7 days thereof, with the same page limit. Final orders will then be made on the papers without a further oral hearing.