FEDERAL COURT OF AUSTRALIA Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129 Citation: Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129 Parties: CHAMELEON MINING NL v MURCHISON METALS LIMITED (ACN 078 257 799), PHILLIP FELICE GRIMALDI, GREGORY BENNETT BARNES, CROSSLANDS RESOURCES LTD (ACN 061 262 397), PINNACLE NOMINEES PTY LTD (ACN 008 928 443) and JACK HILLS HOLDINGS PTY LTD (ACN 127 384 696) File number(s): NSD 2355 of 2007 Judge: JACOBSON J Date of judgment: 20 October 2010 Catchwords: CORPORATIONS – directors' duties – whether company officer a de facto director - five extraordinary transactions – whether transactions in breach of directors' duties – whether another entity knowingly concerned in breaches – Corporations Act remedies – indemnification of officers in breach of duties EQUITY – directors' duties – whether company officer a de facto director – five extraordinary transactions – whether transactions in breach of directors' duties – whether another entity liable for breaches as accessory under the first and second limbs of Barnes v Addy – equitable remedies considered – no constructive trust over shares – nature of benefit or profit – account of profits ordered Legislation: Corporations Act 2001 (Cth) ss 9, 180, 181, 182, 710, 711, 728 Evidence Act 1995 (Cth) ss 136, 140 Federal Court of Australia Act 1976 (Cth) s 54A Federal Court Rules O 22 r 4(2) Cases cited: Advance Bank Australia Limited v FAI Insurances Limited (1987) 9 NSWLR 464 cited Albion Insurance Co v GIO (NSW) (1969) 121 CLR 342 cited Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 referred to Australian Postal Corp v Lutak (1991) 21 NSWLR 584 cited Australian Securities Commission v AS Nominees (1995) 133 ALR 1 cited Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35 cited Barnes v Addy (1874) LR 9 Ch App 244 followed Beach Petroleum NL v Johnson (1993) 43 FCR 1 applied Beatty v Guggenheim Exploration Co (1919) 225 NY 380 cited Blackwell v Moray (1991) 5 ACSR 255 cited Boardman v Phipps [1967] 2 AC 46 cited Briginshaw v Briginshaw (1938) 60 CLR 336 cited Burke v LFOT Pty Limited (2002) 209 CLR 282 referred to Chan v Zacharia (1984) 154 CLR 178 cited Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35 cited Baden v Societe Generale pour Favoriser le Developpement du Commerce et de L'Industrie en France SA [1993] 1 WLR 509 followed Canson Enterprises Ltd v Boughton [1996] 1 WWR 412 discussed Cement Australia Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101 referred to Chew v R (1992) 173 CLR 626 cited Colbeam Palmer Limited v Stock Affiliates Pty Limited (1968) 122 CLR 25 discussed Commissioner of Taxation v Macquarie Health Corp Limited (1998) 88 FCR 451 cited Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373 discussed Corporate Affairs Commission v Drysdale (1978) 141 CLR 236 discussed Coulton v Holcombe (1986) 162 CLR 1 referred to Cowan de Groot Properties Ltd v Eagle Trust Plc [1992] 4 All ER 700 distinguished Daly v The Sydney Stock Exchange Limited (1986) 160 CLR 371 discussed Dart Industries Inc v Décor Corporation Pty Limited (1993) 179 CLR 101 referred to Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 followed Emanuel Management Pty Limited (in liq) v Foster's Brewing Group Limited (2003) 178 FLR 1 cited Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 followed Farrow Finance Co Limited (in liq) v Farrow Properties Pty Limited (in liq) (1997) 26 ACSR 544 cited Foskett v McKeown [2001] 1 AC 102 discussed Giumelli v Giumelli (1999) 196 CLR 101 referred to Hagan v Waterhouse (1992) 34 NSWLR 308 discussed Hall v Poolman (2007) 65 ACSR 123 cited Harlowe's Nominees Pty Limited v Woodside (Lakes Entrance) Oil Company No Liability (1967) 121 CLR 483 cited Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 discussed Harris v S (1976) 2 ACLR 51 cited Ho v Akai Pty Limited (in liq) (2006) 24 ACLC 1,526 cited Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 discussed Howard Smith Limited v Ampol Petroleum Limited [1974] AC 821 cited John Alexander's Clubs Pty Ltd v White City Tennis Club Limited (2010) 266 ALR 462 cited Jones v Dunkel (1959) 101 CLR 298 cited Kalls Enterprises Pty Limited (in liq) v Baloglow (2007) 63 ACSR 557 cited Katingal Pty Limited v Amor (1999) 30 ACSR 545 cited Maronis Holdings Limited v Nippon Credit Australia Pty Limited (2001) 38 ACSR 404 cited Mavaddat v Lee (2007) 34 WAR 67 referred to McNally v Harris (No 3) [2008] NSWSC 861 followed McNeil v Fultz (1906) 38 SCR 198 not followed Mills v Mills (1938) 60 CLR 150 cited Mistmorn Pty Limited (in liq) v Yasseen (1996) 21 ACSR 173 followed Murphy v Overton Investments Pty Limited (2004) 216 CLR 388 referred to Natcomp Technology Australia Pty Limited v Graiche (2001) 19 ACLC 1,117 cited National Australia Bank Ltd v Nobile (1988) 100 ALR 227 referred to News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 cited Ngurli Limited v McCann (1953) 90 CLR 425 cited Nominal Defendant v Owens (1978) 22 ALR 128 cited Nudrill Pty Limited v La Rosa [2010] WASCA 158 referred to O'Halloran v RT Thomas & Family Pty Limited (1998) 45 NSWLR 262 discussed Orr v Ford (1989) 167 CLR 316 discussed Paul A Davies (Australia) Pty Limited v Davies [1983] 1 NSWLR 440 discussed Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 109 cited Pilmer v Duke Group Ltd (2001) 207 CLR 165 discussed Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769 cited Qantas Airways Limited v Gama (2008) 247 ALR 273 cited Re Dawson; Union Fidelity Trustee Co Limited v Perpetual Trustee Co Limited [1966] 2 NSWR 211 discussed Re Goldcorp Exchange Limited (In Receivership) [1995] 1 AC 74 discussed Re Hampshire Land Co [1896] 2 Ch 743 referred to Re HIH Insurance Limited (in prov liq) and HIH Casualty and General Insurance; ASIC v Adler (2002) 41 ACSR 72 followed Re Lo-Line Electric Motors Limited [1988] Ch 477 cited Re Richborough Furniture Limited [1996] BCC 155 discussed Re Unisoft Group (No 3) [1994] 1 BCLC 609 referred to Robins v Incentive Dynamics Pty Limited (in liq) (2003) 45 ACSR 244 applied Richardson & Wrench (Holdings) Pty Limited v Ligon No 174 Pty Limited (1994) 123 ALR 681 cited Royal Brunei Airlines Sdn v Tan Bhd [1995] 2 AC 378 followed Scott v Scott (1963) 109 CLR 649 cited Short v Crawley (No 30) [2007] NSWSC 1322 referred to Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 applied Swindle v Harrison [1997] 4 All ER 705 cited Target Holdings Ltd v Redferns [1996] 1 AC 421 followed Tesco Supermarkets Ltd v Nattrass [1972] AC 153 cited The Bell Group Limited v Westpac Banking Corporation (No 9) (2009) 70 ACSR 1 discussed The Duke Group Ltd (In Liq) v Almain Investments Ltd [2003] SASC 415 cited Timber Engineering Co Pty Ltd v Anderson (1980) 2 NSWLR 488 cited United States Surgical Corporation v Hospital Products International Pty Limited [1983] 2 NSWLR 157 discussed Yorke v Lucas (1985) 158 CLR 661 cited Youyang Pty Limited v Minter Ellison Morris Fletcher (2003) 212 CLR 484 discussed Date of hearing: 29 & 30 September 2009; 1, 2, 6 - 9, 12 - 15 & 19 - 23 October 2009; and 3 - 5 February 2010 Date of last submissions: 12 October 2010 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 1133 Counsel for the Applicant: Mr N Hutley SC with Mr S Habib SC and Mr C Withers Solicitor for the Applicant: Lavan Legal (Piper Alderman until 14 September 2010) Counsel for the First, Fourth and Sixth Respondents: Mr J Karkar QC with Mr S Penglis Solicitor for the First, Fourth and Sixth Respondents: Freehills Counsel for the Second Respondent: Mr M Watts Solicitor for the Second Respondent: MJ Woods & Co Counsel for the Third and Fifth Respondents (Cross Respondent from 5 February 2010): Mr J Sheahan SC with Mr H Stowe Solicitor for the Third and Fifth Respondents (Cross Respondent from 5 February 2010): Jackson McDonald IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2355 of 2007 BETWEEN: CHAMELEON MINING NL Applicant AND: MURCHISON METALS LIMITED ACN 078 257 799 First Respondent PHILLIP FELICE GRIMALDI Second Respondent GREGORY BENNETT BARNES Third Respondent CROSSLANDS RESOURCES LTD (ACN 061 262 397) Fourth Respondent PINNACLE NOMINEES PTY LTD (ACN 008 928 443) Fifth Respondent JACK HILLS HOLDINGS PTY LTD (ACN 127 384 696) Sixth Respondent JUDGE: JACOBSON J DATE OF ORDER: 20 OCTOBER 2010 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Leave is granted to the Applicant to file and serve a Fourth Further Amended Statement of Claim in the form annexed to the Applicant's Notice of Motion filed 6 October 2010. 2. The parties bring in short minutes of order to reflect the reasons for judgment herein. 3. The parties be heard briefly on the question of costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 2355 of 2007 BETWEEN: CHAMELEON MINING NL Applicant AND: MURCHISON METALS LIMITED (ACN 078 257 799) First Respondent PHILLIP FELICE GRIMALDI Second Respondent GREGORY BENNETT BARNES Third Respondent CROSSLANDS RESOURCES LTD (ACN 061 262 397) Fourth Respondent PINNACLE NOMINEES PTY LTD (ACN 008 928 443) Fifth Respondent JACK HILLS HOLDINGS PTY LTD (ACN 127 384 696) Sixth Respondent JUDGE: JACOBSON J DATE: 20 OCTOBER 2010 PLACE: SYDNEY REASONS FOR JUDGMENT Chapter 1 - Introduction [1] Background [7] The Parties [7] An outline of the transactions [21] The New Millennium Transaction [21] The March 2004 Placement [34] The Cadetta Transaction [41] The July 2004 Placement and the provision of cheques to the Iron Jack Vendors [50] The August 2004 Placement [61] Winterfall's acquisition of the Iron Jack Project and the negotiations between NiCu and Zuks [64] Structure of the Judgment [79] Chapter 2 – Relevant Legal Principles [84] Introduction [84] The Corporations Act definition of a director [86] Section 9(b)(i): de facto directors [87] Section 9(b)(ii): shadow directors [93] Section 9: officers [100] Section 180(1): The duty of reasonable care and diligence [103] Section 181: The duty to act in good faith and in the best interests of the company [105] The duty to act for a proper purpose [110] The duty not to improperly use the position [113] Fiduciary duties [116] Barnes v Addy [119] The degree of knowledge in Barnes v Addy [129] Chapter 3 – Management of Chameleon [133] When did Mr Barnes become a director of Chameleon? [134] Was Mr Grimaldi a de facto director? [142] Dealings with the Priders [182] Perception of Outsiders [200] Consultant [202] Shadow director [209] Officer [212] Chapter 4 – tHE nEW mILLENnIUM tRANSACTION [213] The factual basis of the claim [213] The background facts: July 2001 to February 2002 [218] Mr Greeve's reservations: February 2002 [226] Chameleon agrees to withdraw in favour of Weboz: February/March 2002 [230] Weboz arranged to purchase properties from Mr Barnes [244] The sale agreement between New Millennium and Weboz and the on-sale to Chameleon [246] Issue of shares in Weboz to New Millennium, Pinnacle and Triumph [255] Weboz announces a profit on the New Millennium Transaction [260] Whether the dishonest agreement has been proved [261] New Millennium was not a real opportunity for Chameleon [271] The reason why Weboz was interposed [277] The benefits to Weboz and Mr Grimaldi [285] The sale of Old Hall Creek and Christmas Creek [299] The transfer of 1.4 million shares to Triumph [301] Jones v Dunkel does not assist [305] Conclusion on the New Millennium Transaction [307] Ratification [309] Chapter 5 – The March Placement [311] The case as pleaded [311] The background facts [317] Mr Roberts' evidence of the loan account [322] No breach of duty proved in the March Placement [333] Chapter 6 – February / June 2004: The Introduction of the Iron Jack / Winterfall Acquisition to Murchison [344] Overview: the case as pleased and conducted [344] Winterfall's agreements with the Iron Jack Vendors [354] February/March 2004: Events following execution of the agreement [361] The Windsor Hotel meeting [368] Mr Zuks negotiates a second extension [375] Heads of Agreement between NiCu and Winterfall [378] May/June 2004: NiCu fails to pay; Addendum to NiCu/Winterfall Heads of Agreement [382] NiCu's financial situation in the period February to June 2004 [392] Conclusions on the introduction of the Iron Jack/Winterfall acquisition to Murchison [394] Chapter 7 – The Cadetta Transaction [401] Pleadings & Overview [401] Mr Scook's evidence [412] Mrs Hardie's evidence [433] Mr Evans' evidence [439] The Cadetta Heads of Agreement [455] The transfer of 5 million Chameleon shares to NiCu and the sale of the shares [461] Value of the Cadetta tenements [470] Factual findings [482] Chameleon's claims of breach of duty against Mr Grimaldi and Mr Barnes [498] The 5 million Chameleon shares as a commission [501] Application for leave to amend the Statement of Claim [517] Conclusions on the claims advanced in relation to the Cadetta Transaction [533] Claim against Murchison [544] Chapter 8 - The July 2004 Placement and Provision of Cheques for $152,750 to the Iron Jack Vendors [545] Pleadings [545] The background facts [558] Mr Roberts' evidence [590] Mr Zuks' evidence [601] Factual findings [613] Knowledge of Mr Grimaldi, Mr Barnes and Mr Zuks [655] Claims against Mr Grimaldi and Mr Barnes [667] Claims against Murchison [695] The claim against Winterfall [709] Chapter 9: The August Placement [732] Pleading [732] Background facts and evidence [739] Chameleon's submissions [755] The respondents' submissions [759] Chameleon's submissions in reply [764] Findings [767] Chapter 10: The Reverse Takeover of Winterfall and the issue of shares to Pinnacle [786] Pleadings [786] The evidence [789] Findings [799] Chapter 11: The Royalty Payment to the Iron Jack Vendors [811] The relevance of the royalty payment [811] Whether the royalty is relevant [815] Valuation of the royalty: Introduction [827] Mr Zuks' evidence [843] Mr Kopejtka's evidence [846] Mr McGuiness' approach: the adjustment factor [855] Mr Adams' evidence [870] Mr Lonergan's evidence [878] Mr Gray's evidence [907] Conclusion on valuation of royalty [911] Chapter 12: Relief [918] Overview [918] The relevant legal principles [930] Payment of the cash consideration to the Iron Jack Vendors [944] Expenditure on development of the Iron Jack tenements [960] Delay: The facts [968] No constructive trust over Murchison's shares in Winterfall [977] The profit principle [979] The tracing principle [1011] Laches [1021] Account of profits in relation to Murchison's shares in Winterfall [1032] Allowance in favour of Murchison [1040] Equitable compensation payable by Murchison [1049] The Pinnacle Shares [1071] Mr Grimaldi is liable to account for the 10 million shares in Murchison [1076] The measure of Mr Grimaldi's liability to account [1080] Whether Murchison is liable to account for the 10 million shares [1085] Relief against Winterfall [1098] Corporations Act remedies [1101] Conclusions on relief [1106] Chapter 13: Cross Claims [1113] Overview [1113] The claim for contribution against Mr Grimaldi [1118] The cross-claim against Mr Barnes [1122] Cross-claim by Mr Grimaldi [1127] Orders [1132] Chapter 1 - Introduction 1 The applicant ("Chameleon") claims that three of its former directors and a fourth person who is said to have been a de facto or shadow director, were guilty of serious breaches of their fiduciary duties to the company. 2 The three former directors are Mr Landan Roberts, Mr Dick Whitbread and Mr Gregory Barnes. The alleged de facto or shadow director is Mr Phillip Grimaldi. The conduct and role of each of Mr Grimaldi and Mr Barnes in the affairs of Chameleon is at the heart of the case. 3 The gravamen of Chameleon's case is that through a number of extraordinary transactions, Mr Grimaldi and Mr Barnes "siphoned" shares and cash from Chameleon for their own benefit and for the benefit of the first respondent ("Murchison"). Mr Grimaldi was a director of Murchison and held approximately 20% of the shares in that company. Mr Barnes also held a substantial number of shares in Murchison. 4 The critical transactions occurred in 2004. Their relevance to the proceeding is that they are said to be the means by which Murchison obtained desperately needed funds to acquire a 60% shareholding in the fourth respondent, referred to in these reasons as Winterfall, and through it, a controlling stake in an iron ore tenement in Western Australia. The tenement is known as Iron Jack and is now thought to be worth in the order of $1 billion. 5 Chameleon contends that, through Grimaldi, Murchison had knowledge of the breaches of fiduciary duty by the directors or officers of Chameleon so as to be liable for knowing receipt of the funds or knowing assistance in the breaches under the first and second limbs of Barnes v Addy (1874) LR 9 Ch App 244. 6 Chameleon makes a number of claims for relief including a constructive trust or an account of profits or equitable damages in respect of Murchison's interest in the Iron Jack tenement. Background The Parties 7 Chameleon was incorporated on 16 November 2001. It was listed on the Australian Securities Exchange ("ASX") shortly after 16 April 2003. 8 There is an issue in the proceeding as to precisely when Mr Barnes became a director of Chameleon. This is relevant to his liability for alleged breaches of duty in relation to a transaction that took place in 2002. He was a director of Chameleon at all other relevant times. 9 Mr Barnes and Mr Whitbread were directors of Chameleon from, or about, the date of its incorporation. Mr Roberts remained as a director until 11 January 2006. Mr Whitbread remained a director until 15 November 2002. Neither of them is a party to the proceeding but Mr Roberts gave evidence for Chameleon. 10 There were two other directors of Chameleon who held office from 15 November 2002 until 11 January 2006. They were Mr Nicholas Dondas and Mr Sullana Niurou. They are not parties to the proceeding. 11 Chameleon was ordered to be wound up in December 2004 but it subsequently entered into a Deed of Company Arrangement and was eventually reinstated to the ASX's official list in September 2007. 12 Mr Grimaldi was never formally appointed as a director of Chameleon. However, Chameleon contends that from early 2002 until about September 2004 Mr Grimaldi participated in decisions that affected substantial parts of the business of Chameleon, as well as its financial standing. Chameleon also contends that during the same period Mr Roberts and Mr Barnes were accustomed to act in accordance with Mr Grimaldi's instructions. Mr Grimaldi is the second respondent in the proceeding. 13 Mr Barnes was the third respondent in the proceeding until shortly before closing addresses. At that time, Mr Barnes and the fifth respondent (Pinnacle), a company owned and controlled by him, settled the claims against them, without admission of liability on terms that require them to pay $6 million to Chameleon 14 I granted leave to Chameleon on 3 February 2010 to discontinue the proceeding against Mr Barnes and Pinnacle. Mr Barnes remains as a cross-defendant to a claim for contribution made against him by Murchison and Winterfall. 15 Murchison is a public company whose shares are listed on the ASX. It was incorporated in 1997 under the name Weboz Limited and later changed its name to NiCu Metals Limited before a further name change to Murchison. It was suspended from trading on the ASX in late 2001 for failure to maintain a sufficient spread of shareholders and was not relisted until March 2005. 16 I will usually refer to Murchison by that name but it is sometimes convenient to refer to it by the names Weboz or NiCu, depending upon the date of the event in question. 17 Winterfall was known by that name during the critical period in these proceedings namely from early 2004 to October 2004. It then changed its name to Iron Jack Limited, and later to Crosslands Resources Ltd. At least until about June 2004, Mr Nikolajs Zuks was the beneficial owner of all or most of the shares in Winterfall. 18 The sixth respondent, Jack Hills Holdings Pty Limited ("JHH") was joined as a respondent after the close of evidence. It is a wholly owned subsidiary of Murchison and was joined following a late disclosure of documents by Murchison which revealed that in about September 2007 JHH took a transfer of Murchison's shares in Winterfall. 19 No complaint was made about the late disclosure or the late joinder of JHH as a party. Chameleon claims that JHH took its transfer of Murchison shares in Winterfall with notice of Chameleon's beneficial interest in the shares. 20 With the consent of all parties, the claim against JHH was deferred pending the determination of the claims against Murchison, Mr Grimaldi and Winterfall and the cross-claim against Mr Barnes. I made an order under O 29 r 2 of the Federal Court Rules giving effect to the deferral on 3 February 2010. An outline of the transactions The New Millennium Transaction 21 The first transaction relied upon by Chameleon is known as the New Millennium transaction. It took place over a period commencing in late 2001 and was completed in about April 2002. The cash and funds obtained by Murchison under the transaction were not employed directly in the acquisition of an interest in the Jack Hills project. 22 Nevertheless, Chameleon relies on the transaction as an important part of the background against which Murchison acquired its interest in Winterfall. Chameleon also points to the involvement of Mr Grimaldi in the New Millennium transaction as evidence of his role in the management of Chameleon. In addition, Chameleon relies upon certain benefits obtained under the transaction by Mr Grimaldi (through his shareholding in Murchison) and by Mr Barnes (through his shareholding in Pinnacle) as well as by Mr Whitbread through his interest in a company called Triumph Industries Limited ("Triumph"). 23 The substance of the New Millennium transaction is that Murchison acquired for itself a corporate opportunity that is said to have been available to Chameleon and from which Murchison acquired 7 million shares in Chameleon and $250,000 in cash. Murchison is said to have received that property with actual knowledge (through Mr Grimaldi) that the shares were obtained by breaches of duty by Mr Barnes and Mr Whitbread. Chameleon claims that Murchison and Mr Grimaldi are liable for the receipt of that property under the first and second limbs of Barnes v Addy. 24 Full details of all the transactions which are the subject of this proceeding are to be found in the detailed narrative chronology in the Appendix to this judgment. I will set out in this section a brief description of the main facts of the New Millennium transaction. 25 In late 2001 Chameleon began negotiating with New Millennium Resources Ltd ("New Millennium") for the acquisition of certain mining interests in Western Australia. The negotiations appear to have been reasonably advanced in early 2002. They involved the acquisition of New Millennium's mining interests in return for a share issue of 3.2 million Chameleon shares. 26 However, in February 2002, one of New Millennium's directors expressed concerns about the transaction and suggested that New Millennium try to find another buyer. 27 An alternative proposal was then put forward by Mr Grimaldi to Chameleon under which Weboz would acquire the mining interests from New Millennium for 3.2 million Weboz shares and on-sell the mining interests to Chameleon. 28 On 1 March 2002, Chameleon withdrew its offer to New Millennium in favour of its "closely related" company, Weboz. This enabled Weboz to acquire two properties from New Millennium. 29 At about the same time, Mr Barnes and Mr Grimaldi arranged for Pinnacle to sell two of its properties to Weboz for 2.4 million Weboz shares. 30 Shortly afterward, Chameleon agreed to purchase the four mining properties (that is to say the two properties acquired by Weboz from New Millennium and the two acquired from Pinnacle) for 7 million Chameleon shares and $250,000 cash, payable by "progressive payments". 31 Thus, the effect of these transactions was that Chameleon acquired from Weboz the properties it was negotiating to purchase from New Millennium (together with two other properties) for a larger consideration than it was negotiating with New Millennium. Chameleon also agreed to pay cash to Weboz, notwithstanding that there was no cash component in the proposed acquisition from New Millennium. 32 Moreover, Mr Barnes obtained 2.4 million shares in Weboz for properties that are said to have been over-valued, and 1.4 million of those shares were transferred to Mr Whitbread's nominee, Triumph. 33 Two additional facts should be noted. As a result of the transaction, Weboz, on 12 September 2002 announced a profit of approximately $1.6 million on the sale of the four mining tenements to Chameleon. Weboz also increased its spread of shareholders by allotting shares directly to the shareholders of New Millennium in consideration for the acquisition of the tenements. The March 2004 Placement 34 The March 2004 Share Placement involved a somewhat unusual placement of shares by Chameleon. It was authorised by a resolution of directors of Chameleon dated 28 February 2004 for the purposes of raising $750,000 to meet the acquisition and other costs associated with the acquisition of a gold mine known as the Palm Springs Gold Mine. 35 However, after the resolution was passed, the principal of a Delaware company who had previously told Mr Roberts that he would be able to introduce investors to Chameleon, informed Mr Roberts that he was unable to do so. 36 Shortly afterward, Mr Grimaldi identified persons or companies to whom the shares would be issued, but for purposes different from those which were authorised by the Board resolution. In particular, Mr Grimaldi identified Weboz as one of the allottees of the shares that were to be the subject of the Placement. 37 At Mr Grimaldi's direction, 750,000 shares were allotted to Weboz at 10 cents per share, that is to say, for a consideration of $75,000. Also, at Mr Grimaldi's direction, Mr Roberts credited the sum of $75,000, being the consideration for the share issue, to Weboz's loan account with Chameleon. Mr Roberts did so even though he was not aware of the balance of the loan account. 38 Chameleon contends that prior to the Placement, Chameleon had discharged its debt to Weboz arising out of the New Millennium transaction and that no money (or, at most an insignificant sum) was owing by Chameleon to Weboz on the loan account. 39 The net effect of the transaction, for present purposes, is therefore said by Chameleon to be that Weboz received 750,000 shares in Chameleon for no consideration. 40 The effect of the respondents' submission is that the credit of the $75,000 to the Weboz loan account is the beginning and the end of the matter because that was the consideration. The Cadetta Transaction 41 Stripped to its bare essentials, the Cadetta Transaction involved the sale to Chameleon by a dealer in mining interests of a prospecting licence and three applications for exploration licences, in consideration for an issue of shares in Chameleon. 42 The vendor was Mr Dean Scook, or interests associated with him. Mr Scook gave evidence that he attended meetings with, inter alia, Mr Barnes and Mr Grimaldi about the negotiations. The effect of his evidence, and that of his business partner, Mrs Carole Hardie, was that Mr Scook agreed to sell the four mining interests to Chameleon in return for the issue of 8 million Chameleon shares. 43 However, according to Mr Scook, he learned from Mr Barnes or Mr Grimaldi that Chameleon proposed to "write up" the transaction showing a purchase price of 13 million shares but he was not concerned about who received the additional 5 million shares because he was very satisfied to receive 8 million shares for the mining interests. 44 Chameleon's acquisition of the mining interests was effected through a takeover of a company called Cadetta Resources Limited ("Cadetta"). The shareholders of Cadetta included Jamora Nominees Pty Limited ("Jamora") which appears to have been associated with Mr Scook. 45 In May 2004, 13 million Chameleon shares and an equal number of options, were issued by Chameleon to Cadetta's shareholders, including Jamora. Five million of those shares were then transferred by Jamora to NiCu for "nil" consideration. 46 The net effect of the transaction was that Chameleon acquired (or was intended to acquire) the mining interests and NiCu received 5 million shares in Chameleon for no stated consideration. 47 The respondents made a strong attack on Mr Scook's credit but there is no escape from the proposition that NiCu received 5 million shares in Chameleon for no apparent consideration. 48 The effect of the respondents' submission is that the allotment of the 5 million shares to NiCu was, to the knowledge of all relevant parties, a fee or commission payable to Mr Grimaldi for introducing the Cadetta Transaction to Chameleon. 49 The Cadetta transaction is of particular importance to the central issue in the case because, immediately after the allotment of the five million Chameleon shares to NiCu, Mr Grimaldi arranged for the sale of the shares. The proceeds of the sale of the shares were then provided by NiCu to Winterfall. Those funds were used by Winterfall to meet an instalment of the purchase price due to the Iron Jack Vendors. The July 2004 Placement and the provision of cheques to the Iron Jack Vendors 50 The July 2004 Placement and the provision by Chameleon to the Iron Jack Vendors of two cheques totalling approximately $152,000 are the most critical transactions in the proceeding. 51 These transactions are to be viewed against the background of certain Heads of Agreement dated 30 May 2004 between NiCu, Winterfall and Mr Zuks under which NiCu agreed to pay $350,000 to Winterfall. Those funds were, in turn, required by Winterfall to meet its obligations to the Iron Jack Vendors to secure Winterfall's investment in the Iron Jack Project. The Heads of Agreement also provided for NiCu to take over Winterfall in return for an issue of shares in NiCu to the shareholders of Winterfall. 52 I will set out later in Chapter 1 an overview of the contractual arrangements under which Winterfall acquired its interest in the Iron Jack Project and the arrangements which provided for NiCu to acquire its majority interest in Winterfall. These arrangements demonstrate the parlous financial position of NiCu and its desperate need for funds to enable it to meet its commitments to Winterfall. 53 The arrangements also show Winterfall's urgent need for funds to meet its obligations to the Iron Jack Vendors and the pressure that was applied by Mr Zuks to Mr Grimaldi for NiCu to meet its commitment to Winterfall. 54 These matters are critical to an appreciation of the significance of the July 2004 Placement and the provision of the cheques to the Iron Jack Vendors, as well as to the claims of breach of duty in relation to those transactions. 55 The July 2004 Placement was suggested by Mr Grimaldi in late June 2004 and announced to the ASX on 12 July 2004. It was for a capital raising of $360,000 by the issue of eight million shares in Chameleon at 4.5 cents per share. The stated purpose was exploration activity at the Palm Springs Gold Mine. 56 On 9 July 2004, Mr Barnes signed a cheque for $56,250 on Chameleon's account payable to one of the Iron Jack Vendors. The cheque was drawn before amounts thus far raised from investors in the July 2004 Placement had been cleared and, on 12 July 2004 the cheque was dishonoured. 57 The cheque for $56,250 was re-presented later in July, together with a further Chameleon cheque for $96,500 signed by Mr Barnes in favour of another of the Iron Jack Vendors. The two cheques, totalling $152,750 were debited to Chameleon's bank account on 29 July 2004. 58 Mr Zuks was concerned that Chameleon and NiCu may be related parties and he asked Mr Grimaldi and/or Mr Barnes for evidence that NiCu was permitted to use Chameleon's funds for NiCu's corporate purposes. 59 Consideration of certain documents which were prepared by Mr Grimaldi and/or perhaps others on behalf of Chameleon, purporting to authorise the drawing of the cheques as a loan by Chameleon to NiCu, bear upon the question of knowledge of breach of the directors' fiduciary duties in relation to this transaction. 60 The amount of $152,750 paid out of Chameleon's bank account to the Iron Jack Vendors represented a substantial part of Chameleon's available cash. The August 2004 Placement 61 On 11 August 2004 Chameleon announced that it had issued five million shares to professional investors at $0.05 per share to raise $250,000. As with the other placements, the stated purpose was to meet costs associated with the development of the Palm Springs Gold Mine. 62 At the direction of Mr Grimaldi, Chameleon issued NiCu with 4,175,000 shares, as part of the August 2004 Placement. However, it appears that Chameleon did not receive any payment from NiCu for the allotment of the 4,175,000 shares. 63 Chameleon relies upon the August 2004 Placement as one of the essential transactions grounding its claim for a constructive trust over Murchison's interest in the Iron Jack Project. It contends that part of the proceeds were used to discharge a debt due from Murchison to Winterfall. Winterfall's acquisition of the Iron Jack Project and the negotiations between NiCu and Zuks 64 Winterfall acquired its interest in the Iron Jack Project under an agreement made in February 2004 with a number of persons and companies described in this proceeding as the Iron Jack Vendors. The agreement provided that the purchase price was $1 million, payable in three instalments. The agreement also provided for payment by Winterfall to the Iron Jack Vendors of a royalty of $0.80 per tonne of iron ore. 65 Mr Zuks paid the first instalment himself but he was not in a position to pay the second instalment of $400,000 which was due in April 2004. He raised part of that money from two other persons to whom I will refer later, but his over-riding purpose was to locate a listed public company through which the acquisition of the Iron Jack Project could be completed. 66 In mid-April 2004 Mr Zuks obtained an extension of time for the payment of the second instalment to the Iron Jack Vendors. At about the same time, Mr Zuks had a meeting with Mr Barnes and Mr Grimaldi in the course of which Mr Grimaldi said he had the money and would like NiCu to "do the Winterfall deal". 67 The "deal" which Mr Zuks wished to put in place was for Winterfall to be sold to a public company which could provide the balance of the purchase price for the Iron Jack Project and the necessary capital to develop it. Mr Zuks' intention was that he and his partners would hold 40% of the public company. 68 At some time during the negotiations Mr Barnes and Mr Grimaldi told Mr Zuks that they wanted a "spotter's fee" for introducing the transaction to NiCu. 69 On 30 May 2004 NiCu entered into a written agreement with Winterfall under which NiCu agreed to pay Winterfall the sum of $350,000 "on signing" the agreement. That sum was required by Winterfall to meet the next instalment due by it to the Iron Jack Vendors. 70 The agreement, which was described as a Heads of Agreement, also reflected the arrangements proposed by Mr Grimaldi to Mr Zuks for a "reverse takeover" of Winterfall by NiCu. Winterfall was to be converted to a public company to be acquired by NiCu, and Mr Zuks and his partners were to receive 40% of NiCu upon the completion of the takeover. 71 NiCu failed to pay to Winterfall the $350,000 that was due immediately upon signing the Heads of Agreement. Notwithstanding this, NiCu and Winterfall signed an Addendum to the Heads of Agreement in early June 2004 under which Winterfall agreed to issue shares to: … nominees of Philip Grimaldi at nil cost in consideration for introducing NiCu Metals to Winterfall. 72 NiCu's failure to pay the $350,000 due to Winterfall on signing the Heads of Agreement left Winterfall in the position that it was unable to meet the instalment of the purchase price due to the Iron Jack Vendors on 5 June 2004. 73 Mr Zuks was able to obtain an extension of time for the payment to 1 July 2004 but only upon conditions that required Winterfall to pay an additional $110,000 to the Iron Jack Vendors. Mr Grimaldi agreed to provide the additional funds to Winterfall. 74 Those additional funds appear to have been obtained by Mr Grimaldi during June 2004 out of the proceeds of sale of some of the five million Chameleon shares that NiCu received on completion of the Cadetta Transaction. 75 I will deal with the "tracing" question in more detail later in my reasons. It is sufficient to say by way of introduction that the proceeds of sale of some of NiCu's Chameleon shares received from the Cadetta Transaction appear to have been paid to Winterfall and applied by Winterfall to meet the penalty extracted by the Iron Jack Vendors for the failure of Winterfall to pay the second instalment on time. Also, a small part of the proceeds of sale of those shares, namely $20,000, seems to have been provided by NiCu to Winterfall toward the $350,000 payment which was still outstanding under the Heads of Agreement. 76 Importantly, the two cheques totalling $152,750 drawn by Mr Barnes (and arranged by Mr Grimaldi) in favour of the Iron Jack Vendors in July 2004 were handed to Winterfall after the extended date for payment of the second instalment of the purchase price payable to the Iron Jack Vendors. 77 Ultimately, NiCu was able to meet its obligation to Winterfall under the Heads of Agreement in late July 2004. NiCu did so by raising funds from various sources but the two cheques totalling $152,750 obtained from Chameleon comprised more than 40% of the funding. I will refer in more detail later to the sources of the funds obtained by NiCu. 78 The reverse takeover of Winterfall was completed on 11 November 2004. Shareholders of Winterfall received a total of 80 million shares and more than 30 million options in NiCu (by then known as Murchison) in exchange for their shares in Winterfall. Ten million of those shares and some millions of options were issued for the benefit of Mr Barnes and Mr Grimaldi in exchange for the ten million free shares which had been allotted to them in Winterfall, apparently as their "spotter's fee". Structure of the Judgment 79 I have divided the judgment into chapters as set out in the Table of Contents. The next chapter contains a brief statement of the applicable legal principles. I have set out a narrative chronology which contains a full account of the relevant facts as an Annexure to this judgment. A first draft of the narrative chronology was prepared by counsel for Chameleon. Counsel for Murchison, Winterfall and JHH proposed a number of amendments which were agreed to by counsel for Chameleon and all other parties. Accordingly, the narrative chronology which appears as the Annexure has been taken directly from the document which was agreed between the parties. 80 Chapter 3 is entitled Management of Chameleon. It addresses the question of when Mr Barnes became a director and, in particular, whether Mr Grimaldi was a de facto or shadow director. 81 Chapters 4, 5, 6, 7, 8, 9, 10 and 11 address each of the transactions alleged to involve breaches of duty by the directors of Chameleon. I will set out my findings of fact as to each transaction, as well as my conclusions in respect of the liability of the directors. 82 Chapter 12 deals with relief. 83 Chapter 13 deals with the cross-claim made by Murchison and Winterfall against Mr Grimaldi. Chapter 2 – Relevant Legal Principles Introduction 84 There was very little dispute between the parties as to the applicable legal principles. Much of what follows is drawn from Chameleon's submissions, but with some amendments to take account of observations made in the written submissions of the respondents. 85 The general law and statutory duties of directors, which lie at the heart of this proceeding, apply equally to directors who are validly appointed, and to "de facto" directors, "shadow directors" and "officers"; see Austin RP, Ford HAJ, Ramsay IM, Company Directors (LexisNexis Butterworths, Sydney, 2005) at [8.8]. The Corporations Act definition of a director 86 Section 9 of the Corporations Act 2001 (Cth) ("Corporations Act") extends the definition of a "director" to persons who are not validly appointed as directors if: they act in the position of a director (s 9(b)(i)); or the directors of the company are accustomed to act in accordance with their instructions or wishes (s 9(b)(ii)). Section 9(b)(i): de facto directors 87 The extended definition of a "director" in s 9(b)(i) appears to be a codification of the common law concept of a "de facto" director. The legislative history of the definition was discussed in Corporate Affairs Commission v Drysdale (1978) 141 CLR 236 by Mason J at 242ff and by Aickin J at 248ff. 88 The effect of what was said in Corporate Affairs Commission v Drysdale at 243, 255, is that a person who acts as a director, though not validly appointed or described as a director, is subject to the same statutory duties to the company as are owed by directors validly appointed to office. 89 The same position applies in English law. There, the relevant statutory definition has been held to include a case where a person has acted as a director, even though not validly appointed, or even if there has been no appointment at all: Re Richborough Furniture Limited [1996] BCC 155; see also Austin, Ford, Ramsay Company Directors at [5.9]. 90 Whether a person is acting as a director of a company will depend upon the nature of the functions and powers which are exercised and the extent to which they are exercised. It is a question of fact which may often be one of degree. It requires consideration of the duties performed by the person in the context of the operation and circumstances of the company: Deputy Commissioner of Taxation v Austin (1998) 28 ACSR 565 at 569-570 (Madgwick J); Natcomp Technology Australia Pty Limited v Graiche (2001) 19 ACLC 1,117 at [13] (NSW Court of Appeal) per Stein JA. 91 The circumstances which bear on the question include the size of the company, its internal practices and structure and how the alleged de facto director is perceived by outsiders who deal with the company: Deputy Commissioner of Taxation v Austin at 570. 92 The question is not answered by looking at the label which the alleged director adopts as a description of his or her corporate capacity. Rather, it is necessary to see what actions he or she did, not what euphemism the person applied to those actions: Mistmorn Pty Limited (in liq) v Yasseen (1996) 21 ACSR 173 at 182 (Davies J). Section 9(b)(ii): shadow directors 93 The definition of a "director" in s 9(b)(ii) of the Corporations Act extends to "shadow directors". The following propositions emerge from the authorities. 94 First, the purpose of the definition is to identify the persons, other than professional advisers, who have real influence or control over the corporate affairs of the company: Ho v Akai Pty Limited (in liq) (2006) 24 ACLC 1,526 at 1,531 (Finn, Weinberg and Rares JJ). 95 Second, what is required is customary compliance with the wishes of the shadow directors by the Board rather than by an individual director: Re Lo-Line Electric Motors Limited [1988] Ch 477 at 488; Emanuel Management Pty Limited (in liq) v Foster's Brewing Group Limited (2003) 178 FLR 1 ("Emanuel") at [265] (Chesterman J). 96 Colourful metaphors have been applied so as to illustrate this requirement. For example, the shadow director must be in effect the puppet master controlling the actions of the Board; the directors must be the cat's paw of the shadow director; Emanuel at [266] citing Re Unisoft Group (No 3) [1994] 1 BCLC 609 ("Unisoft") at 620 (Harman J). 97 Third, it is not necessary that the shadow director's instructions or directions cover the entire field of the company's corporate activities; rather s 9(b)(ii) only requires that, as and when the Board is instructed or directed, it is accustomed to act in accordance with the shadow director's instructions or wishes: Australian Securities Commission v AS Nominees (1995) 133 ALR 1 at 52 (Finn J). 98 Fourth, the reference to the directors being "accustomed to act" requires acts, not on one individual occasion, but over a period of time and as a regular course of conduct: Emanuel at [266]; Unisoft at 620. 99 Fifth, it is not necessary to show that formal instructions or directions be given in those matters in which the shadow director has been involved; the underlying concept is that the third party plays the tune and the directors "dance" to it in their capacity as directors: Australian Securities Commission v AS Nominees Ltd at 52 citing Harris v S (1976) 2 ACLR 51 at 64 per Wells J. Section 9: officers 100 The definition of an "officer" of a corporation includes a director or secretary of a corporation but it extends to other categories of persons including those described in the definition in s 9(b)(i), (ii) and (iii). These are persons: who make or participate in making decisions that affect the whole or a substantial part of the business of the corporation; or who have the capacity to affect significantly the corporation's financial standing; or in accordance with whose instructions or wishes the directors are accustomed to act. 101 The first and second of these categories are concerned with identifying persons who are involved in the management of the corporation. They focus upon the extent of the relevant person's participation, the nature of the decisions in which the person participated and the capacity of the person to affect the company's standing: Re HIH Insurance Limited (in prov liq) and HIH Casualty and General Insurance; ASIC v Adler (2002) 41 ACSR 72 ("Re HIH"); Re Dwyer v Lippiatt (2004) 50 ACSR 333. 102 The third category is concerned with shadow officers: Austin RP, Ramsay IM Ford's Principles of Corporations Law (13th ed, LexisNexis Butterworths, Sydney, 2007) at [8.020]; Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35 at [480] – [481]. The definition of shadow officers appears to be interchangeable with that of shadow directors. Section 180(1): The duty of reasonable care and diligence 103 The duty of care and diligence is stated in s 180(1) of the Corporations Act. The applicable principles are well settled. They were conveniently summarised by Santow J in Re HIH at [372]. 104 It is sufficient for present purposes to refer only to the fourth of fifteen principles stated by Santow J. This is, that in determining whether a director has exercised reasonable care and diligence one must ask what an ordinary person with the knowledge and experience of the defendant might be expected to have done if he or she were acting on their own behalf: Re HIH at [372(4)], citing inter alia, Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 109. Section 181: The duty to act in good faith and in the best interests of the company 105 The good faith and best interests duty is stated in s 181(1)(a). As with the duty of care and diligence, the principles are well travelled. They need not be stated in any detail. 106 The principles are summarised in Re HIH at [735]. They include the fiduciary duty of a director not to promote his or her personal interest by making or pursuing a gain in circumstances where there is a conflict, or a real or substantial possibility of a conflict, between the director's personal interests and those of the company. 107 More recently, Owen J summarised the principles in The Bell Group Limited v Westpac Banking Corporation (No 9) (2009) 70 ACSR 1 ("Bell Group") at [4619]. His Honour observed that the question of whether a director acted bona fide in the best interests of the company contains both a subjective and an objective element. 108 The factual enquiry focuses on the state of mind of the director, but the court is entitled to look at surrounding circumstances that throw light on any assertions made by a director that he or she was acting honestly: Bell Group [4619(1), (5) and (7)]; see also Maronis Holdings Limited v Nippon Credit Australia Pty Limited (2001) 38 ACSR 404 ("Maronis Holdings") at [188] per Bryson J. 109 A director must give real and actual consideration to the interests of the company. A mere general sense of honesty of purpose is not sufficient: Bell Group at [4619(6)]; Blackwell v Moray (1991) 5 ACSR 255 at 271 per Cohen J. The duty to act for a proper purpose 110 The proper purpose duty is stated in s 181(1)(b). It has been explained in a number of well known authorities. 111 The essential principle is that the powers and funds of a company may be used only for the purposes of the company and not for a collateral purpose: Advance Bank Australia Limited v FAI Insurances Limited (1987) 9 NSWLR 464 at 493, applying Mills v Mills (1938) 60 CLR 150 and Ngurli Limited v McCann (1953) 90 CLR 425; see also Harlowe's Nominees Pty Limited v Woodside (Lakes Entrance) Oil Company No Liability (1967) 121 CLR 483; and see Maronis Holdings at [189]; Emanuel at [1187]. 112 The court is to determine as a matter of law the purpose for which the power may be exercised. It is also to decide whether, as a matter of fact, the purpose for which the power was exercised was within the category of permissible purposes: Howard Smith Limited v Ampol Petroleum Limited [1974] AC 821 at 835; see the discussion in Austin, Ford, Ramsay Company Directors at [7.18]. The duty not to improperly use the position 113 Section 182(1) provides that directors must not improperly use their position to gain an advantage for themselves or someone else or to cause detriment to the corporation. 114 The subsection imposes an objective standard of impropriety and a director may act improperly without any intention of acting dishonestly or otherwise than in the best interests of the company: Chew v R (1992) 173 CLR 626 at 640; R v Byrnes (1995) 183 CLR 501 at 514 (Brennan, Deane, Toohey & Gaudron JJ). 115 Some examples of cases in which it has been found that a director contravened s 182(1) or its predecessor are collected in Austin, Ford, Ramsay Company Directors at [9.18]. The examples include Robins v Incentive Dynamics Pty Limited (in liq) (2003) 45 ACSR 244 ("Robins"). There, an officer lent funds of the company to another company which he controlled and the loan conferred no benefit on the company giving it. Nor was there any proper loan documentation or security and no steps were taken to cause the loan to be repaid. Fiduciary duties 116 In Austin, Ford, Ramsay Company Directors at [8.5], the authors identify five closely related equitable rules which apply to conflicts of interest on the part of directors and senior officers. The rules were considered and discussed by Owen J in Bell Group at [4496]ff. 117 It is unnecessary to repeat the discussion of the principles set out in full in Bell Group. It is sufficient to say by way of introduction that Chameleon pleads and relies upon the fiduciary duties owed by the directors (including Mr Grimaldi) and appears to rely on each of the five applicable rules. 118 The five applicable rules are the conflict of interest rule, the conflict of duties rule, the misappropriation rule, the profit rule and the business opportunity rule. I will refer to the rules in more detail, to the extent necessary, when considering my findings. Barnes v Addy 119 As Owen J observed in Bell Group at [4629], the jurisprudence surrounding the principle in Barnes v Addy is disparate and complex. Nevertheless, his Honour's analysis of the principles, and the decision of the High Court in Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 230 CLR 89 ("Farah"), enable me to state the relevant propositions quite succinctly. 120 The principle under which persons who are not trustees should be made responsible as constructive trustees for the breaches of trust committed by a trustee were stated by Lord Selborne LC in Barnes v Addy (1874) LR 9 Ch App 244 at 251-252. The relevant passage is to be found in Farah at [111] and Bell Group at [4633]. 121 It is unnecessary to repeat the passage. As is well known, the first limb involves "knowing receipt" and renders third parties liable where they receive and become chargeable with some part of the trust property. The second limb involves "knowing assistance" but parties are not liable under this limb: … unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. Farah at [111] – [112]. 122 Unless and until the High Court says otherwise, there is ample authority for the proposition that the first limb of Barnes v Addy is not confined to persons dealing with trustees but extends to dealings with other fiduciaries, in particular company directors: Kalls Enterprises Pty Limited (in liq) v Baloglow (2007) 63 ACSR 557 at [152] – [159]; cf Farah at [113]. 123 The second limb of Barnes v Addy renders a defendant liable if the defendant assists a fiduciary with knowledge of a dishonest and fraudulent design on the part of a fiduciary; the principle is not confined to trustees but also applies knowing assistance to other types of fiduciaries: Farah at [160]. 124 In determining whether liability is established under the second limb, Australian courts are to apply Lord Selborne's formulation rather than the general principle of accessory liability stated in Royal Brunei Airlines Sdn v Tan Bhd [1995] 2 AC 378. The position in Australia is that defendants are not liable unless they assist with knowledge in a dishonest and fraudulent design: Farah at [162] – [163]. 125 Although the High Court said little about the meaning of the phrase "dishonest and fraudulent design", their Honours emphasised that any breach of trust or breach of fiduciary duty relied upon must be dishonest and fraudulent. The test appears to incorporate objective standards of "ordinary decent people": Farah at [173], [179]; Bell Group at [4725] – [4727]. 126 An allegation that a party was a knowing participant in a dishonest and fraudulent design is a serious one which should be pleaded and particularised; it is to be proved to the Briginshaw v Briginshaw (1938) 60 CLR 336 standard: Farah at [170]; Bell Group at [4728]. 127 An essential difference between the first and second limbs of Barnes v Addy is that, under the first limb, a stranger can only be liable for knowing receipt if property has come into his or her hands whereas the second limb, or knowing assistance, does not necessarily involve a transfer of property to the third party: Bell Group at [4737]. 128 As Owen J observes in Bell Group at [4737], this may explain a distinction which has been recognised, at least in English authority, between the two limbs. This is that under the first limb, a knowing receipt case does not require that the misapplication of trust funds should be fraudulent, whereas under the second limb the fiduciary must have acted fraudulently: see discussion of the authorities in Bell Group at [4735] – [4737], in particular Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769. The degree of knowledge in Barnes v Addy 129 As Owen J observes in Bell Group at [4740], the question of what a stranger implicated in a breach of trust must "know" in order to be liable has created significant controversy. 130 The position in relation to the degree of knowledge required for the second limb of Barnes v Addy has been settled in Australia by the High Court: Farah at [177]. What is required is knowledge falling within any of the first four categories stated by Peter Gibson J in Baden v Societe Generale pour Favoriser le Developpement du Commerce et de L'Industrie en France SA, decided in 1983 and in [1993] 1 WLR 509 ("Baden") at 575 - 576, 582. 131 The relevant passage from Baden enumerating the categories is set out in Farah at [174]. I do not need to reproduce it. 132 The position in relation to the degree of knowledge required to attract liability under the first limb is less clear. However, the analysis of the authorities in Bell Group at [4743] – [4745] supports the view expressed by Owen J that, at least for the time being, the test for knowledge under both limbs is the same. Chapter 3 – Management of Chameleon 133 Two issues arise. First, when did Mr Barnes become a director of Chameleon? Second, whether Mr Grimaldi was a de facto or shadow director of Chameleon within the extended definition of "director" in s 9 of the Corporations Act, or alternatively whether he was an "officer" of Chameleon. Related to this is, during what period was Mr Grimaldi a "director". When did Mr Barnes become a director of Chameleon? 134 Mr Barnes contends, in his Amended Defence, that he did not become a director of Chameleon until 27 November 2002. He filed lengthy written submissions to the effect that the evidence does not support a finding that he was a director prior to July 2002. The submissions analyse at some length the corporate records, such as they are, of Chameleon, some of which record that Mr Barnes was appointed as a director at the time of the company's incorporation on 16 November 2001, whilst others suggest that he was appointed at a later date. 135 I do not consider it necessary to engage in the exercise suggested by Mr Barnes. This is because he has on two occasions admitted that he was appointed as a director of Chameleon on 16 November 2001 and, notwithstanding his denials of the accuracy of that proposition, he has failed to enter the witness box to give evidence of, inter alia, the date of his appointment. 136 The first admission was contained in Mr Barnes' defence filed on 15 April 2008. It is true that Mr Barnes purported to withdraw that admission in his Amended Defence filed on 11 May 2009 after Chameleon amended its Statement of Claim to raise the New Millennium transaction. But, at least prima facie, leave was required to withdraw the admission: Federal Court Rules O 22 r 4(2). 137 Not only was leave to withdraw the admission never sought, as I have said, Mr Barnes did not enter the witness box to seek to explain his altered stance. 138 The conflicting documentary evidence to which Mr Barnes referred is not a basis for ignoring the admission, particularly where a public record of Chameleon, apparently signed by Mr Barnes, is to the same effect as the admission contained in his original defence. 139 The second admission is to be found in Chameleon's Annual Report for the year ending 30 June 2003. The Annual Report states, in two places, that Mr Barnes was appointed as a director of Chameleon on 16 November 2001. It appears to bear the signature of Mr Barnes. 140 The suggestion made in Mr Barnes' written submissions that he may not have signed the Annual Report cannot be supported in the absence of evidence from him. The Annual Report is an important public record. On its face it bears a signature which appears to be that of Mr Barnes. It is clear that if Mr Barnes wishes to contend otherwise, he was required to give evidence in support of that contention. 141 In those circumstances I find that, on the balance of probabilities, Mr Barnes was appointed as a director of Chameleon on 16 November 2001. He was therefore a director of Chameleon when the New Millennium transaction took place, and during the period relevant to the other transactions which are in issue in these proceedings. Was Mr Grimaldi a de facto director? 142 As Madgwick J said in Austin at 569 - 570, companies come in many shapes and sizes and, in determining whether a person is a de facto director, it is necessary to consider the duties performed by the person in the context of the company's operations and circumstances. 143 Chameleon's operations were described in its prospectus dated 21 January 2003 for the issue of 37,500,000 fully paid shares and attached options. Chameleon was said to be a "junior" exploration company which was incorporated in November 2001 for the purpose of consolidating a portfolio of exploration areas in the Kimberley region of Western Australia and certain Fijian mining properties previously owned by interests associated with Mr Robert McLennan. 144 According to the prospectus, if the capital raising was fully subscribed, Chameleon would have a market capitalisation of $14.4 million. As at January 2003, it had twenty shareholders of whom twelve were not promoters or related parties. The shareholders then included Weboz but Weboz's seven million shares were to be distributed to its 663 shareholders, thereby apparently providing a sufficient spread of shareholders to obtain listing on the ASX. 145 The narrative chronology shows that from about February 2002, Mr Grimaldi played a significant role in the acquisition of the Kimberley prospects, which Chameleon acquired through the New Millennium transaction, and in the acquisition by Chameleon of the Fiji properties from Mr McLennan. Mr Grimaldi also assisted in the preparation of the prospectus and the listing of Chameleon. 146 Counsel for Chameleon submitted that Mr Grimaldi had a "pervasive" role in most of Chameleon's activities from about February 2002 to about November 2004. Their written submissions listed 22 instances in which Mr Grimaldi was said to have been involved in the affairs of Chameleon during the period in question. The 22 instances were said to demonstrate that Mr Grimaldi directed Chameleon's corporate strategy in a number of significant matters. The submissions went on to list eleven instances in which Mr Grimaldi was said to have involved himself in the day to day running of the company. 147 It is clear from the discussion in Austin, and from the terms of the first limb of the extended definition of "director" in s 9(b)(i), that what must be demonstrated is that the alleged de facto director acted as a director. Ordinarily, this will involve the carrying out of management functions or tasks that would typically be expected of a director: Austin at 570; Mistmorn at 182 - 183; Austin, Ford, Ramsay Company Directors at [5.9]. 148 Some of the actions to which counsel for Chameleon referred were not acts of Mr Grimaldi qua director. Examples of these are "instructions" or "directions" given by Mr Grimaldi to Mr Roberts to prepare management accounts or to find investors. I do not accept that these were instructions or directions in the ordinary sense. Rather, they were statements made by Mr Grimaldi to Mr Roberts. 149 Those statements have to be considered in light of the evidence that Mr Roberts and Mr Grimaldi were, at the relevant time, close friends. Indeed, they shared accommodation from October 2002. Statements such as these are explicable on the basis that Mr Grimaldi counselled and advised Mr Roberts on many matters relating to the affairs of Chameleon. No doubt Mr Grimaldi realised that it was to his advantage to see Chameleon "cashed up" and listed on the ASX. But it does not follow that he acted as a director in advising Mr Roberts as to each and every step to take. 150 Similar observations apply to Mr Grimaldi's involvement in the New Millennium transaction. He was a director and substantial shareholder of Weboz. The transaction was of some benefit to Weboz (and to Mr Grimaldi). This explains the steps taken by Mr Grimaldi to influence Mr Roberts and other directors of Chameleon to adopt and implement the terms of the New Millennium transaction which conferred benefits on Weboz and Mr Grimaldi. 151 Nevertheless, there are a large number of other actions carried out by Mr Grimaldi which, in my view, constitute the performance of tasks that would typically be expected of a director of Chameleon. In coming to this view, I have taken into account the circumstances of the company. These were that it was a "start up" junior mining explorer, with very limited funds, whose affairs were managed in an informal (indeed unorthodox) manner. 152 The first action of Mr Grimaldi which was an act qua director of Chameleon was his negotiation for the acquisition by Chameleon of the Fijian mining interests of Mr McLennan's company, Rupert Company Limited ("Rupert"). The Board of Chameleon authorised Mr Grimaldi to negotiate the purchase at a meeting recorded in minutes dated 16 May 2002. The negotiations were completed in July 2002. 153 I was not referred to Chameleon's Articles of Association or Constitution in relation to this or any other of the acts that were relied upon. However, I consider that it is open to me to find that this was a function which would ordinarily be expected to be undertaken by the directors. It was a fundamental part of the rationale for the business operations of Chameleon as stated in its prospectus. Moreover, it involved the exercise of a discretion as to the form and amount of the consideration to be provided. 154 It is true that a Board of Directors may delegate some part of their functions of management to a delegate, with full discretion to act independently of instructions from the Board: Tesco Supermarkets Ltd v Nattrass [1972] AC 153 at 171. But the negotiations for the acquisition of Rupert's mining properties involved an essential plank of Chameleon's business operations. The consideration provided to Rupert gave it more than 49% of the issued capital of Chameleon. The carrying out of that transaction is not one which would ordinarily be delegated by a Board to a person who was not a director. This is especially so where Mr Grimaldi did not put forward any written (or oral) agreement indicating that the functions undertaken by him were strictly circumscribed or subject to Board control. 155 Second, on 31 May 2002 Chameleon engaged a company known as Chameleon Ventures Ltd ("Chameleon Ventures") to prepare a prospectus for Chameleon's proposed capital raising. Importantly, the minutes of the meeting of 31 May 2002 noted that Chameleon Ventures sought the assistance of Mr Grimaldi in the preparation of the prospectus. Thereafter, Mr Grimaldi and Mr Roberts were engaged, through Chameleon Ventures, in the preparation of Chameleon's prospectus. 156 The disclosure requirements and content of a prospectus are regulated by Division 4 of Part 6D.2 of the Corporations Act, in particular ss 710 and 711. There are serious consequences for mis-statements and omissions in a prospectus: s 728 of the Corporations Act. The disclosure requirements include a statement of fees paid or payable to persons named in the prospectus as performing a function in a professional, advisory or other capacity in connection with the preparation of a prospectus. 157 These provisions assume that persons will be engaged in a professional or advisory capacity to assist a company in the preparation of a prospectus. Commonly such persons are members of a due diligence committee which plans and verifies the content of the prospectus: Austin, Ford, Ramsay Company Directors at [13.13]. 158 But there was nothing to suggest that Mr Grimaldi's functions were limited to professional or advisory duties that were part of the overall planning and verification process. Indeed, Mr Roberts' evidence on this topic was that Mr Grimaldi decided the contents of the prospectus and dealt with external service providers including registries, sponsoring brokers, vendors and valuers. The force of that evidence was not reduced in cross-examination by counsel for Mr Grimaldi. 159 Third, following completion of the prospectus, Mr Grimaldi told Mr Roberts that Chameleon's next task was to find investors in order to raise capital and achieve the minimum spread of shareholders required for listing. From January 2003 until March 2003, Mr Grimaldi and Mr Roberts were engaged in that task. 160 Fourth, in September 2003, Mr Grimaldi wrote to Mr Trevor Prider of Zenith Development Company Ltd ("Zenith") about the provision of funding for Chameleon. Shortly afterward, on 7 October 2003, Mr Grimaldi wrote to Mr Ian Prider about a meeting stating inter alia that: … we believe … it would be a good idea for Zenith to have a representative on the board of (Chameleon) … I will organise a directors [sic] resolution to approve your appointment … 161 Fifth, at about the same time, on 27 September 2003, Mr Ian Prider's law firm, Prider & Co Lawyers wrote a letter of advice to Mr Grimaldi about a statutory demand which had been served on Chameleon. The letter responded to an earlier letter to Prider & Co from Mr Grimaldi. Mr Prider's letter was addressed to "Phillip Grimaldi, Chameleon Mining NL". 162 The letter from Mr Grimaldi to Prider & Co, and the response from Prider & Co, provide evidence of Mr Grimaldi carrying out management tasks that would ordinarily be performed by a director or senior officer of a company. The fact that Prider & Co's letter of advice was addressed to Mr Grimaldi at Chameleon is evidence that Mr Grimaldi was reasonably perceived by an outsider dealing with the company to be a director or senior officer of Chameleon. 163 Sixth, on 13 January 2004 Mr Grimaldi wrote directly to Mr McLennan telling him to withdraw his legal action against Chameleon and settle the matter commercially. 164 Seventh, during February and March 2004 Mr Grimaldi oversaw the issue of shares in Chameleon's March Placement. 165 Mr Grimaldi's involvement in the Placement came about when the principal of another company informed Mr Roberts that he was unable to deliver on commitments previously made to introduce investors to Chameleon. 166 What seems to me to take Mr Grimaldi's involvement in the process beyond that of an adviser was his identification of the parties to whom the Placement shares would be issued and his determination of the amounts to be allotted to persons taking up shares in the Placement. In my opinion, that constituted the exercise of "top level management functions" which would ordinarily be exercised by a director. 167 The eighth instance is Mr Grimaldi's involvement in the Cadetta Transaction. The central issue in that transaction is whether, as Chameleon alleges, Mr Barnes and Mr Grimaldi dishonestly orchestrated the transaction so as to procure the transfer of 5 million Chameleon shares to Weboz. 168 That question turns largely upon whether I accept the evidence of Mr Scook and I will deal with it in more detail later. However, Chameleon also submitted that Mr Grimaldi and Mr Barnes acted as directors of Chameleon in negotiating the Cadetta Transaction with Mr Scook. 169 Mr Grimaldi contested the allegation that he acted as a director of Chameleon although he gave no evidence. He submitted that he was a "dealmaker" and, because he was successful, NiCu received 5 million shares in Chameleon, presumably as a success fee or commission. 170 There are real difficulties characterising the role played by Mr Grimaldi in the Cadetta Transaction. On any view of the evidence of the negotiations, there was no mention of a fee or commission payable to NiCu. The only suggestion of any payment to be made to Mr Grimaldi was the evidence of Mr Evans that Mr Scook said that Mr Grimaldi would be "looked after". Mr Evans said he understood this to mean that Mr Grimaldi was "part of the deal process" and would be "rewarded for that role". 171 The evidence of the witnesses who gave evidence of the negotiations indicates that Mr Grimaldi attended all the critical meetings with Mr Scook. The evidence does not make any mention of the capacity in which Mr Grimaldi attended. Mr Scook said he formed the view that Mr Grimaldi was a director of Chameleon and that he was working with Mr Barnes on the Cadetta Transaction. 172 The question of whether Mr Grimaldi and/or Murchison are liable to account for the 5 million Chameleon shares will be considered in full later. I will therefore defer consideration of the precise role occupied by Mr Grimaldi. 173 It is sufficient to observe that there is force in the view that Mr Grimaldi's role in the negotiations of the Cadetta Transaction was one that would typically be carried out by a director. It is clear in my view that he was acting on behalf of Chameleon in negotiating the transaction. Whether he was a director or a consultant, he owed fiduciary duties to Chameleon and the question of liability to account for the shares is better considered under that head. 174 Ninth, according to Mr Roberts, Mr Grimaldi negotiated the acquisition of a copper mine in Chile known as Cerro Negro Copper Mine on behalf of Chameleon and made all the decisions on Chameleon's strategy occasionally asking Mr Roberts to do specific administrative tasks in relation to the deal. It is true that this evidence was given in the form of a conclusion but its probative value is supported by emails from Mr Grimaldi to Mr Evans dated 30 July 2004 and 10 October 2004. 175 The acquisition was completed in the form of a takeover by Chameleon of a company known as Chalceus Limited. That transaction was announced to the ASX on 28 July 2004 after Mr Grimaldi informed Mr Roberts that he had reached agreement for the acquisition of Chalceus. 176 Tenth, Mr Grimaldi drafted the ASX announcement of Chameleon's July Placement. This is clear from his email to Mr Barnes' secretary dated 12 July 2004 and the attachment. The text of those documents is set out in the narrative chronology (see [300] – [301]). The email reveals that Mr Grimaldi's role in the July Placement went so far as to include depositing funds raised from the Placement into Chameleon's bank account. 177 Eleventh, during August 2004 Mr Grimaldi suggested to Mr Roberts that Chameleon should do a further share placement. Mr Grimaldi also told Mr Roberts how many shares should be issued and to whom, and in what numbers the shares should be allotted. The placement was announced to the ASX on 11 August 2004. 178 It is unnecessary to consider each of the eleven examples relied upon in [96] of Chameleon's written submissions as evidence that Mr Grimaldi was involved in the day to day running of the company. Three of the examples are sufficient. 179 First, as I mentioned above, in September 2003 Mr Grimaldi corresponded with lawyers who were then acting for Chameleon, about a statutory demand that had been served on the company. The lawyers, Prider & Co, wrote a letter of advice addressed to "Phillip Grimaldi, Chameleon Mining NL". Mr Grimaldi's reply to the letter instructed Prider & Co how to deal with the demand. 180 Second, on 12th and 14th January 2004 Mr Grimaldi sent ASX announcements to Mr Barnes' secretary with instructions to send them to the ASX. 181 Third, on 6 March 2004, Mr Grimaldi provided comments and draft text for inclusion in an announcement to be made by Chameleon to the ASX. Dealings with the Priders 182 A further matter on which Chameleon relied to support a finding that Mr Grimaldi was a de facto director was his role in Chameleon's dealings with Mr Trevor Prider and Mr Ian Prider and their companies, Zenith Development Company Limited ("Zenith") and ACN 103 850 406 ("ACN"). 183 That matter was not related to any of the five transactions with which the case is concerned. Nevertheless, the dealings were relevant to the role of Mr Grimaldi in the management of Chameleon, and to the question of Chameleon's financial position. 184 The dealings arose out of steps taken by Chameleon to satisfy a condition imposed by the ASX in April 2003 for the inclusion of the company on its official list, namely that Chameleon obtain subscriptions for $3.2 million under its prospectus. 185 On 14 July 2003 Chameleon resolved to issue shares and options to Zenith and ACN for a total consideration of $3 million. On 16 July 2003, Prider & Co, lawyers, wrote to Chameleon's auditors confirming that Zenith and ACN had the capacity to complete the transaction. 186 On the same day, 16 July 2003, Chameleon's auditors furnished the company with a letter for the purpose of Chameleon's ASX listing, stating that the auditors were not aware of anything which would cause them to believe that Chameleon would have a deficiency of working capital. 187 Chameleon was listed on the ASX on 12 August 2003. It would appear that the consideration of $3 million said to have been provided for the issue of the shares to Zenith and ACN enabled Chameleon to satisfy the minimum subscription requirements imposed by the ASX. The ASX's announcement of 6 August 2003 noted the issued capital of Chameleon and proceeded upon the assumption that the shares were issued for cash. 188 An extraordinary series of events then followed. It was Mr Grimaldi's role in those events which gave rise to Chameleon's submission that his actions provided further evidence that he was a de facto director. 189 The events commenced with a Deed dated 5 August 2003 between Zenith and a company called Tembo Gold Holdings Pty Limited ("Tembo") which was associated with Mr Grimaldi. Chameleon was also a party, as guarantor of the obligations of Tembo. The relevant terms of the Deed are set out in the narrative chronology. In particular, the Deed entitled Zenith to set off any funds owed to it by Tembo against any funds that Zenith might owe to Chameleon. 190 Zenith and ACN did not pay the $3 million in subscription fee for the share allotment. On 24 December 2003, Chameleon sent a letter to Mr Ian Prider demanding payment of that sum. The letter appears to bear the signature of Mr Roberts. He claimed that the signature was a forgery. I do not need to decide that question. There was no suggestion that the letter was not duly sent. 191 Chameleon made further demands on the Priders in January 2004. On 19 January 2004 Prider & Co wrote to Mr Roberts stating that, under the Deed referred to above, Zenith was entitled to set off the amount of $3.1 million owing by Tembo to Zenith against the $3 million due to Chameleon for the shares allotted to Zenith and ACN. The set off was said to arise from Chameleon's guarantee of the obligations of Tembo. Accordingly, Zenith and ACN claimed they were not indebted to Chameleon for the $3 million subscription amounts. 192 The situation for Chameleon was very serious. The failure of Zenith and ACN to pay left a $3 million hole in Chameleon's balance sheet. On 30 January 2004 Chameleon's auditors queried whether the company could continue as a going concern. Mr Grimaldi was closely involved in meetings and correspondence during February 2004 to seek to resolve the problem. 193 On 14 February 2004 Mr Grimaldi sent an "internal memo" to Mr Barnes. The memo was important because the effect of it is that Mr Grimaldi advised Mr Barnes that Chameleon should not go into administration or liquidation now because of the Priders' refusal to pay and: If you think you have problems now, they will be nothing to what will happen if you blow the whistle now. 194 The memo from Mr Grimaldi concluded by saying: I recommend and it is within our legal and financial capabilities. We work hard and get NiCu Metals cashed up. 195 Chameleon made much of the phrase "get NiCu Metals cashed up". This was said to explain the need to treat Chameleon as a "milch cow" from which to siphon funds. However in my view, that over-emphasises the significance of the phrase. Each of the transactions relied on by Chameleon must be construed in its full context. 196 The dealings with the Priders were critical to the affairs of Chameleon and its status as a listed public company. Plainly, Mr Grimaldi was closely involved in the dealings. His company, Tembo, was a party to the Deed of 5 August 2003 which left Chameleon with the $3 million shortfall in its balance sheet. He was also actively involved in the steps that were taken to try to repair the damage. 197 Some of the steps which Mr Grimaldi took were consistent with the role of a person acting as a director of Chameleon. He advised Mr Barnes and Mr Roberts as to how to handle the situation and attended meetings with the Priders. 198 I am troubled by the question of whether Mr Grimaldi "wore a Chameleon hat" in all of the actions to which I have referred. He was a director of Tembo which was indebted to Zenith. This gave rise to the curiosity that it may have been in Tembo's interests for Zenith to be able to set off that debt against Zenith's debt to Chameleon. 199 Nevertheless, it seems to me that the better view is that the steps Mr Grimaldi took, and, in particular, the advice he gave to Mr Barnes in the internal memo of 14 February 2004, Mr Grimaldi made high level management decisions on matters that affected Chameleon's financial standing. The actions taken by him in relation to the debt of $3 million from Zenith and ACN went to the heart of Chameleon's financial standing. I am satisfied on the balance of probabilities that Mr Grimaldi had the practical direction of Chameleon's dealings with the Priders. This was sufficient to make him a de facto director in those dealings: Austin at 571 Perception of Outsiders 200 The most telling evidence that Mr Grimaldi was reasonably perceived by outsiders to have acted as a director or officer of Chameleon is to be found in a letter from Chameleon's auditors that Mr Grimaldi was their main source of information and, although he was not a director, he appeared to them to be "the manager of the company". 201 There was also evidence that Mr Grimaldi negotiated with creditors and received requests for payment from creditors. Consultant 202 Counsel for Mr Grimaldi submitted that his client was a consultant to Chameleon who was engaged by that company to assist it with a number of specific matters. That was the effect of his cross-examination of Mr Roberts at T236 to T242. He also relied on a concession obtained in cross-examination of Mr Roberts by senior counsel for Mr Barnes that the term "consultant" was an accurate description of Mr Grimaldi's relationship with Chameleon. 203 The minutes to which Mr Roberts was taken in cross-examination on this question were confined to the preparation of Chameleon's prospectus and the authorisation given by the Board to Mr Grimaldi to negotiate the acquisition of mining exploration properties from Mr McLennan. 204 The authorisation granted to Mr Grimaldi to negotiate with Mr McLennan was consistent with his assumption of the role of a director, indeed with that of a managing director or chief executive. There were no limitations on the exercise of his discretion as to the price to be offered or as to the terms and conditions of the purchase. Nor was the delegation expressed to be subject to the control or approval of the other directors. 205 The minutes dealing with the preparation of the prospectus authorised the appointment of Mr Roberts' company, Chameleon Ventures as management consultants to Chameleon to prepare the prospectus. Minutes dated 31 May 2002 recorded that Chameleon Ventures sought the assistance of Mr Grimaldi in the preparation of the prospectus. 206 Minutes dated 30 August 2002 again referred to the preparation of the prospectus and described Mr Grimaldi as "the company's consultant." 207 I do not consider that Mr Grimaldi's role, as described in the minutes to which I was referred, affects my conclusion that he was a de facto director. The minutes dealt with only a very small part of the wide range of his activities. In any event, as the authorities make clear, the description of a person as a "consultant" does not necessarily inform the conclusion as to whether a person is a director. 208 This also disposes of the submission based on Mr Roberts' concession in cross-examination that Mr Grimaldi was a consultant, not a director. Shadow director 209 The matters to which I have referred in considering the question of whether Mr Grimaldi was a de facto director of Chameleon show that he exercised a very real influence in the corporate affairs of the company. Although it is not necessary to demonstrate that Mr Grimaldi's influence extended to the whole field of Chameleon's corporate activities, it seems to me that the evidence amply demonstrates that he did exercise a real influence during the whole of the period referred to above. 210 However, in order to establish that Mr Grimaldi was a shadow director, Chameleon must establish that the directors, as a Board, were accustomed to act in accordance with the instructions or wishes of Mr Grimaldi. 211 That is a difficult factual question which I do not need to answer because I have found that Mr Grimaldi was a de facto director. In any event, the case turns largely on whether Mr Grimaldi owed fiduciary duties to Chameleon in participating in the transactions which are the subject of these proceedings and on whether he had the requisite degree of knowledge to make him liable to account for breaches of fiduciary duties by Messrs Barnes, Roberts and Whitbread. Officer 212 For the same reason, I do not propose to address the question of whether Mr Grimaldi was an "officer" of Chameleon. Nevertheless, I should record that, in my opinion, there is substantial force in the proposition that he was an officer within (b)(i) and (b)(ii) of the definition of that term in s 9 of the Corporations Act. Chapter 4 – tHE nEW mILLENnIUM tRANSACTION The factual basis of the claim 213 The claim in respect of the New Millennium Transaction, as it was put in closing address, was based upon Chameleon's contention that Mr Grimaldi, Mr Barnes and Mr Whitbread entered into a dishonest agreement for Weboz to acquire Chameleon's corporate opportunity in order to confer benefits upon Mr Grimaldi and Weboz, Mr Barnes and Pinnacle and Mr Whitbread and his nominee, Triumph. 214 The agreement is pleaded in paragraph 56JA of the Statement of Claim. The dishonest purpose or design is pleaded in paragraph 56ANA. 215 The agreement is said to have been made in communications between Mr Grimaldi, Mr Barnes and Mr Whitbread in late February 2002 or early March of that year. The essence of the agreement is said to have been that Chameleon would withdraw its offer to acquire certain mining properties from New Millennium in order to allow Weboz to acquire them and on-sell the properties to Chameleon. 216 There are said to have been three other essential terms of the agreement. The first is that Mr Barnes or Pinnacle would sell two worthless mining properties to Weboz which would on-sell them to Chameleon as part of a package with the New Millennium assets. The second is that Mr Whitbread or his nominee would receive part of the consideration payable to Mr Barnes or Pinnacle (in the form of shares in Weboz) in return for Mr Whitbread's agreement that Chameleon acquire the New Millennium assets and Mr Barnes' properties from Weboz. The third is that Mr Roberts would not be told of these arrangements. 217 In order to address the claim, it is necessary to refer to the essential factual elements which are said to support it. The background facts: July 2001 to February 2002 218 Some months before the incorporation of Chameleon, Mr Whitbread learned from Mr Barnes that New Millennium may be disposing of its mining interests in the Kimberley region of Western Australia. In late September 2001 Mr Whitbread wrote to the CEO of New Millennium enquiring about the acquisition of three mining properties, "Tarraji", "Mt Dockrell" and "Turtle". The consideration suggested by Mr Whitbread for the acquisition of the properties was 2,400,000 shares in a new company, with those shares to be distributed to New Millennium's 240 shareholders. 219 Mr Barnes was a director of New Millennium but in his initial proposal letter to that company Mr Whitbread described Mr Barnes as "your geologist". 220 On 15 October 2001, Mr Barnes wrote to Mr Whitbread stating that he had held discussions with New Millennium and: … they will do the deal at about 3.2 million shares .. 221 The negotiations were sufficiently advanced that in about November 2001, Mr Johnston, a director of New Millennium, told Mr Greeve, another director of that company, that if the transaction went ahead, he (Mr Johnston) would become a director of Chameleon. 222 The negotiations for the acquisition of the New Millennium properties continued after the incorporation of Chameleon. Minutes of a meeting of shareholders of Chameleon held on 19 November 2001 record that Mr Whitbread reported that he and Mr Barnes were in negotiations with New Millennium. 223 Minutes of a meeting of directors of Chameleon dated 21 December 2001 state that Mr Whitbread reported that Mr Barnes "the company's geologist acting for the company" reported that the Chairman of New Millennium had responded favourably to selling the properties to Chameleon for an issue of 3 million shares. Chameleon resolved to offer that amount of shares to acquire the properties. 224 On or about 24 December 2001 Chameleon sent a letter to New Millennium offering to acquire the properties for 3 million shares in Chameleon. The letter was tabled at a Chameleon Board meeting on 28 December 2001. 225 The events recorded in the narrative chronology show that during January and February 2002 Mr Whitbread continued to pursue the negotiations for the acquisition of the New Millennium properties. The last step taken by Mr Whitbread to seek to acquire the properties directly from New Millennium was on 27 February 2002 when he sent a fax to Mr Greeve requesting acceptance of Chameleon's offer by 7 March 2002. Mr Greeve's reservations: February 2002 226 Mr Greeve gave evidence that he had the carriage of the negotiations with Chameleon. He gave evidence that at a meeting of directors of New Millennium on 7 February 2002 he expressed reservations about pursuing the transactions with Chameleon. 227 Most notably, Mr Greeve gave evidence that at the meeting on 7 February 2002 he told the other directors of New Millennium that Mr Whitbread had been the chairman of Cambridge Credit, "one of Australia's most famous corporate scandals" and he doubted whether any company in which Mr Whitbread was involved would be able to raise money or list on the stock exchange. He also told the Board that the correspondence he had received from Mr Whitbread did not give him confidence that Chameleon would be able to achieve those objectives. He suggested that New Millennium try to find a buyer that would be more likely to be able to list. 228 Mr Greeve was not cross-examined on that evidence and I accept that he reported to the Board of New Millennium in words to that effect. 229 The minutes of the meeting of the directors of New Millennium of 7 February 2002 record that the company was in negotiations with Chameleon to sell its Australian mining properties. The minutes also record that whilst the concept of selling the tenements for equity was approved by the Board, it was agreed that more information was required from Chameleon and that New Millennium would evaluate other sales opportunities. Chameleon agrees to withdraw in favour of Weboz: February/March 2002 230 In about February 2002, Mr Grimaldi suggested to Mr Roberts that Chameleon could increase its spread of shareholders if Weboz were to acquire the mining interests from New Millennium and then on-sell them to Chameleon. 231 Although there was no direct evidence, I would infer that Mr Grimaldi suggested this means of proceeding with the transaction, at least in part, to be able to increase the spread of shareholders in Weboz. This is to be inferred from the terms of his proposal to Mr Roberts and from the fact that on 28 December 2001 the ASX had announced that Weboz's listing was suspended until it could demonstrate a sufficient spread of shareholders in accordance with the ASX Listing Rules. 232 The effect of what was proposed by Mr Grimaldi seems to be that both Chameleon and Weboz could increase the spread of shareholders by the device of distributing shares to the shareholders of New Millennium. 233 On 1 March 2002 Mr Barnes wrote to the Board of New Millennium. The letter is the lynchpin of Chameleon's claim that Messrs Grimaldi, Barnes and Whitbread entered into the dishonest agreement to confer benefits upon themselves. The letter is set out in full in the narrative chronology and I will not repeat it but reference should be made to the salient parts. 234 In particular, the letter states that Chameleon has withdrawn its offer in favour of its "closely related" company Weboz which was recently suspended for having only 400 shareholders. The letter continues by suggesting that the same deal be done with Weboz as was proposed for Chameleon, namely 3.2 million shares in return for New Millennium's mining interests in the Kimberley. The letter also states that the deal could happen next week with Weboz being relisted immediately, thereby providing benefits to "our" shareholders more quickly than through Chameleon's offer: which is why they withdrew in favour of their associates. 235 On 4 March 2002 Mr Grimaldi wrote to Mr Greeve enclosing a letter addressed to the CEO of New Millennium containing an offer by Weboz to acquire the Tarraji, Mt Dockrell and Turtle properties in exchange for 3.2 million shares in Weboz. 236 Mr Greeve's unchallenged evidence was that he regarded Weboz's offer as more attractive than a sale to Chameleon which was yet to be listed on the ASX. His reasons included the fact that Weboz's suspension could probably be lifted relatively quickly whereas the process of obtaining a new listing was far more cumbersome. 237 On 14 March 2002 Mr Whitbread sent a fax to Mr Barnes with a suggested draft of a letter to be sent to the Board of New Millennium. The draft included the following: I further give notice that as a director of New Millennium Resources NL it is my opinion that the offer made ….. by Weboz … should be accepted … 238 On 18 March 2002 Mr Greeve wrote to Mr Grimaldi stating that New Millennium was interested in selling the Tarraji and Mr Dockrell properties (but not Turtle) to Weboz in exchange for 3.2 million shares in Weboz. 239 Mr Grimaldi replied to Mr Greeve the following day, 19 March 2002, stating that Weboz agreed to Mr Greeve's proposal. 240 On 19 March 2002 Mr Whitbread and Mr Roberts attended a meeting of the directors of Chameleon. Mr Barnes was not present. The minutes record that Mr Whitbread stated that Mr Grimaldi wanted to increase the number of shareholders in Weboz and that: … the directors of New Millennium had become reluctant in accepting shares in an unlisted company … 241 Although Mr Roberts could not recall Mr Whitbread saying the words that I have quoted, I am satisfied that he did say words to the effect of those recorded in the minutes. 242 The minutes of the meeting also record that Mr Whitbread said he had the verbal approval of Mr Roberts and Mr Barnes for Mr Grimaldi and Mr Barnes to negotiate with the directors of New Millennium for the purchase of the mining leases on the terms in the minutes. The terms included: Weboz was to purchase the mining leases from New Millennium in return for an issue of shares in Weboz; The shares in Weboz which were to be received by New Millennium were to be distributed to New Millennium's shareholders; and Chameleon was to purchase the mining leases from Weboz in exchange for an issue of shares in Chameleon to Weboz. 243 The Board of New Millennium resolved on 21 March 2002 to transfer the Tarraji and Mt Dockrell tenements to Weboz in exchange for the issue of 3.2 million shares in that company. Weboz arranged to purchase properties from Mr Barnes 244 At some time before 21 March 2002 Mr Barnes and Mr Grimaldi arranged for Pinnacle to sell the Old Halls Creek and Christmas Creek mining properties to Weboz. The effect of Mr Grimaldi's fax of 21 March 2002 was that Weboz would issue 2,400,000 shares to Mr Barnes or Pinnacle as the consideration for the acquisition of those properties. 245 An agreement between Pinnacle and Weboz for the sale and purchase of the Old Halls Creek and Christmas Creek mining properties was entered into on 4 April 2002. The consideration stated in the agreement for the acquisition of the properties by Weboz was 2.4 million Weboz shares and $10,000 cash. The sale agreement between New Millennium and Weboz and the on-sale to Chameleon 246 On 4 April 2002, Weboz and New Millennium entered into a sale and purchase agreement for the acquisition by Weboz of the Tarraji and Mt Dockrell properties. The stated consideration was 3.2 million Weboz shares. 247 On 15 April 2002 there was a meeting of directors of Chameleon attended by Mr Whitbread and Mr Roberts. Chameleon resolved to purchase from Weboz the Tarraji and Mt Dockrell properties as well as the Old Halls Creek and Christmas Creek properties. The consideration payable was resolved to be 7 million fully paid shares in Chameleon and $250,000 in progressive payments. 248 Mr Roberts' evidence was that Mr Grimaldi provided him with a document containing his proposal for the consideration payable by Chameleon. Mr Roberts said he did not question the proposed purchase price as he trusted Mr Grimaldi. I accept this evidence. 249 The written sale and purchase Deed between Weboz and Chameleon was dated 22 April 2002. It recited the purchase by Weboz of the four mining properties from New Millennium and Pinnacle and provided for the sale of those properties by Weboz to Chameleon. The consideration was stated to be 7 million fully paid Chameleon shares and $250,000 in cash for 100% interest in the properties. 250 $75,000 of the cash component of the consideration was payable within 90 days of signing the agreement. The remaining $175,000 was payable on the listing of Chameleon on the ASX. 251 The sale and purchase Deed, and an Addendum to it were signed by Whitbread and Roberts on behalf of Chameleon. The Addendum to the Deed provided for Weboz to offer the 7 million Chameleon shares received by it to Weboz's shareholders, pro rata, to their holdings. 252 This was the device by which Chameleon increased its spread of shareholders, bringing into it as shareholders of Chameleon the holders of shares in New Millennium. This was so, notwithstanding that New Millennium was reluctant to take, as consideration for the sale of its assets, shares in an unlisted company. 253 On 30 April 2002 Chameleon and Weboz executed a further sale and purchase agreement for the acquisition by Chameleon of the four mining properties which were the subject of the Deed dated 22 April 2002. Curiously, the new agreement provided for Weboz to sell only 90% of its interest in the four mining properties to Chameleon even though the consideration payable was exactly the same. 254 The Addendum to the Deed also provided for Weboz to assist Chameleon in preparing documentation to obtain listing on the ASX and to assist in obtaining underwriters. Issue of shares in Weboz to New Millennium, Pinnacle and Triumph 255 On 29 May 2002 the directors of Weboz authorised the issue of 3.2 million new Weboz shares to New Millennium and those shares were then distributed to the 240 shareholders of New Millennium who became shareholders in Weboz. 256 On the same day, 29 May 2002, the directors of Weboz resolved to allot 2.4 million shares to Pinnacle or its nominees, as consideration for the two mining properties purchased by Weboz from Pinnacle. 257 On 27 June 2002 Weboz transferred 1.4 million of the 2.4 million shares allotted to Pinnacle or its nominees, to Triumph. This was in accordance with a direction that had been given by Mr Barnes to Mr Grimaldi on 19 April 2002. 258 On 31 July 2002 Triumph transferred 159,000 of the 1.4 million shares in Weboz to a number of persons and entities, some of which appear to have been associated with Mr Whitbread. 259 Triumph transferred the remaining 1,241,000 Weboz shares received by it to another company associated with Mr Whitbread on 5 December 2002. Weboz announces a profit on the New Millennium Transaction 260 On 12 September 2002 Weboz issued a preliminary final report to the ASX announcing a profit of $1,650,000 from the on-sale to Chameleon of the assets that Weboz had acquired from New Millennium and Pinnacle. Whether the dishonest agreement has been proved 261 There are two essential planks in Chameleon's claim that Messrs Grimaldi, Barnes and Whitbread entered into the dishonest agreement pleaded in para 56JA of the Statement of Claim. 262 The first is that the opportunity for Chameleon to obtain the New Millennium assets was a real opportunity. 263 The second is that Messrs Grimaldi, Barnes and Whitbread agreed to interpose Weboz between New Millennium and Chameleon for the dishonest purpose of obtaining benefits for themselves or corporate entities in which they were interested. 264 It is true, as Mr Hutley emphasised, that the New Millennium Transaction was most unusual, and that it contained some unexplained features. One feature which was not explained in the evidence was why Mr Barnes gave Mr Whitbread 1.4 million of the 2.4 million shares in Weboz, that formed the consideration for the sale of Old Halls Creek and Christmas Creek. 265 However, ultimately, I am not persuaded that the dishonest agreement for which Chameleon contends was made out. There are five reasons for this which I will summarise before setting out my reasons in more detail. 266 First, I do not consider that Chameleon had a real opportunity to acquire the New Millennium properties directly from New Millennium. 267 Second, there is a rational explanation for why Weboz was interposed in the transaction between New Millennium and Chameleon. 268 Third, whilst it is plain that Weboz obtained benefits from the transaction which were of a most unusual nature, I am not persuaded that this was the substantive purpose which the parties sought to achieve. 269 Fourth, the claim that the Old Halls Creek and Christmas Creek properties were worthless (or seen by the parties as worthless) has not been established. 270 Fifth, I am not satisfied that the issue of the 1.4 million Weboz shares to Triumph was the dishonest price for Mr Whitbread's assent to the New Millennium transaction in the form in which it went ahead. New Millennium was not a real opportunity for Chameleon 271 It is plain that Mr Greeve was reluctant to sell the New Millennium assets to Chameleon because he did not consider the company to have good prospects of obtaining a listing on the ASX. He said so in the clearest possible terms at the meeting of 7 February 2002. 272 Chameleon submits that this does not matter because the evidence demonstrates no more than Mr Greeve's personal reluctance to sell the assets. According to Chameleon, it has not been shown that Mr Greeve's view represented the views or the decision of the Board of New Millennium which resolved to obtain further information from Chameleon. 273 In my opinion, Chameleon's approach to the matter is not supported by the objective facts and gives an unrealistic view of the matter. 274 Mr Greeve had the carriage of the negotiations. The force of what he said at the meeting on 7 February 2002 was quite plain and could not have given any responsible director of New Millennium the slightest confidence that there was any real prospect of entering into a commercially satisfactory agreement with Chameleon. 275 Quite apart from what Mr Greeve told the meeting about Mr Whitbread, he went on to say that the correspondence that Mr Whitbread had thus far sent him did not give him any confidence that the company would be able to raise money or to list on the ASX. Whilst the formal Board resolution states that New Millennium agreed that more information was required from Chameleon, that is merely a summary of the conclusion reached by the directors of New Millennium and must be read in the light of what Mr Greeve reported to the Board at the meeting. 276 Moreover, Mr Greeve's evidence, which I accept, was that at the time when he received the letter of 1 March 2002 from Mr Barnes, Chameleon had not provided any correspondence to him which advanced the position beyond the unsatisfactory material provided by Mr Whitbread up to the time of the Board meeting of New Millennium of 7 February 2002. The reason why Weboz was interposed 277 Mr Barnes was present by telephone at the Board meeting of New Millennium on 7 February 2002. He could not have been deaf to the remarks made at the meeting by Mr Greeve about the desirability of finding a buyer for the tenements that was likely to be able to list on the ASX. 278 In my view, the inescapable inference from this is that some time between 7 February 2002 and 1 March 2002 Mr Barnes told Mr Whitbread and/or Mr Grimaldi and Mr Roberts of what Mr Greeve had said at the meeting. I think it is plain that during this period Mr Whitbread and Mr Grimaldi learned, either directly or indirectly from Mr Barnes, that Chameleon did not have realistic prospects of entering into a transaction with New Millennium. 279 It is clear in my opinion that Mr Grimaldi, Mr Barnes and Mr Whitbread learned, in this way, that what was required by New Millennium was a purchaser with real prospects of a successful listing and that New Millennium did not see Chameleon as having any prospects. 280 The evidence in this case demonstrates that Mr Grimaldi was not one to stand by idly when a corporate opportunity presented itself. This explains why Weboz was interposed. 281 Weboz was listed, but the quotation of the company on the ASX had been suspended. What was needed was a spread of shareholders. A purchase of the New Millennium assets presented an opportunity for Mr Grimaldi to structure the acquisition in a way that would suit Weboz's desire to remove the suspension. That appears to be what he told Mr Greeve when he contacted him in early March 2002. 282 Weboz's status therefore provided a rational explanation to interpose it between New Millennium and Chameleon. 283 It is true that New Millennium's shareholders ultimately received shares in Chameleon but in my view that was beside the point. What they did not want to obtain was shares in Chameleon as the consideration for the sale of the New Millennium assets. Instead, they received the Weboz shares as consideration, with the Chameleon shares coming to them indirectly through the structure adopted by Mr Grimaldi. 284 Whilst the interposition of Weboz is therefore explicable on a rational basis, the other questions go to the benefits obtained by Mr Grimaldi, Mr Barnes and Mr Whitbread and whether they were part of the agreement, and its substantial purpose. The benefits to Weboz and Mr Grimaldi 285 Weboz obtained three identifiable benefits. The first was the immediate on-sale of the properties acquired from New Millennium and Pinnacle, apparently at a higher consideration than it provided to the vendors. It received 7 million Chameleon shares (plus cash or right to be paid cash) in return for properties which it had acquired from the vendors for 5.6 million Weboz shares. 286 Chameleon's shares were 20c fully paid shares. Weboz's shares appear to be 8c shares; that was the issue price per share recorded in the Weboz Annual Reports for the year ended 30 June 2002 as the price per share for the allotment to New Millennium. 287 There are difficulties in determining the question of what a company has given up when it enters into a transaction of the type entered into between New Millennium and Weboz and Chameleon and Weboz. The decision of the High Court in Pilmer v Duke Group Ltd (2001) 207 CLR 165 ("Pilmer") is authority for the proposition that the loss suffered by a company when it issues new shares in consideration for the acquisition of an asset is the opportunity of turning the shares which it did issue to some other more advantageous use in a different transaction; otherwise it gives up nothing by issuing and allotting the shares: Pilmer at [56]. 288 Here, there was no evidence of the value of any lost opportunity. The position therefore seems to me to be that what Chameleon gave up was the outlay of cash and whatever may have been the administrative cost of issuing the shares. As the Court said in Pilmer at [64]: Otherwise, however, it gave up, or lost nothing by the issue of its shares. 289 What seems to me to follow from this is that Chameleon outlaid cash to acquire the properties whereas Weboz did not. It was therefore the cash component of the consideration which Chameleon provided to Weboz that represented the real benefit to Weboz, and corresponding detriment to Chameleon. 290 However I am not satisfied that this involved any dishonesty on the part of the Chameleon directors, or that it was part of a dishonest or fraudulent design on the part of Messrs Grimaldi, Barnes and Whitbread. I have reached this view because of Mr Roberts' evidence about those benefits of the transaction to Chameleon and because of inferences that are plainly open on the documentary evidence. 291 Mr Roberts was unequivocal in his answer under cross-examination that he regarded the acquisition of the properties as beneficial to Chameleon. Also he considered that Chameleon got the tenements for a good price. 292 Moreover, the objective factual circumstances strongly support an inference that Mr Whitbread formed the view that the acquisition of the New Millennium tenements was in the interests of Chameleon. He had pursued Mr Greeve to have New Millennium sell the properties to Chameleon. 293 For reasons set out above, in my view Mr Whitbread and Mr Grimaldi were aware that New Millennium was unwilling to sell the properties to Chameleon. In my view the inference is plain that Mr Whitbread and Mr Barnes considered, in those circumstances, that the best and indeed the only possible way in which Chameleon could acquire the properties was through interposing Weboz. 294 Whilst Chameleon agreed to pay cash, $175,000 was payable only upon listing and Weboz agreed to assist Chameleon in that endeavour. No doubt there was an incentive to Mr Grimaldi to secure that event because it triggered the obligation of Chameleon to pay the sum of $175,000 in cash. 295 There is no escape from the proposition that Weboz obtained the benefit of the entitlement to receive the cash component of the consideration. But I am not satisfied that the exercise of the power by the directors of Chameleon was carried out to confer an advantage on Weboz, otherwise than for the benefit of Chameleon. 296 Rather, it seems to me that the agreement to pay cash to Weboz has to be considered in light of the existence of mixed purposes that were evident in the New Millennium transaction. Those purposes included the acquisition of the New Millennium assets that would not otherwise have been available to Chameleon. I am not satisfied that in those circumstances the payment of cash to Weboz was the substantial object of the transaction or that it formed the "real ground" of the action undertaken by the Chameleon Board, with the participation of Mr Grimaldi: see Mills v Mills (1938) 60 CLR 150 at 185 - 186 per Dixon J. 297 The second benefit obtained by Weboz was the ability to increase the spread of its shareholding. But Chameleon received a benefit in the same form. Whether these benefits were properly obtained in accordance with the ASX Listing Rules, or mere "window-dressing" was not argued. It is therefore not open to me to express any view about the proprietary of what was done. 298 The third benefit to Weboz was the opportunity to declare a profit on the transaction. Again, whether the profit was a genuine one, or nothing more than an inflated paper profit, was not in issue. The short answer to the question raised before me is that there is nothing to suggest that Messrs Whitbread and Barnes saw this as the substantial object of the transaction, or indeed that they were aware that Weboz would seize the opportunity to declare a profit of the magnitude that it did on this transaction. The sale of Old Hall Creek and Christmas Creek 299 Nor am I satisfied that Mr Barnes' real or substantial purpose was to sell "worthless" properties to Weboz for on-sale to Chameleon, or that Messrs Whitbread and Grimaldi's real purpose was to achieve that result. 300 There was documentary evidence of a valuation by Mr Maynard of the Old Halls Creek and Christmas Creek properties at $292,000. Chameleon did not lead evidence that the properties were worthless and its own expert, Mr Pyper valued Christmas Creek at $100,000. The transfer of 1.4 million shares to Triumph 301 The redirection of 1.4 million of the 2.4 million shares in Weboz received by Pinnacle to Mr Whitbread's company Triumph is a troubling part of the transaction. It was unexplained on the evidence but I am not satisfied that it was, as Chameleon contends, the dishonest consideration provided to Mr Whitbread as the price for his support of the transaction. That was a central part of Chameleon's submissions. It contended that the existence of the dishonest agreement between Mr Grimaldi, Mr Barnes and Mr Whitbread was put beyond doubt because there was no other reason, apart from a dishonest one, for Mr Barnes to give to Mr Whitbread 1.4 million shares that Pinnacle was entitled to receive under the agreement it had reached with Weboz. 302 However, the allegation is a serious one and the effect of s 140(2) of the Evidence Act 1995 (Cth) ("Evidence Act") and the authorities which have considered it is that I ought not to make a finding against Mr Whitbread without clear and cogent evidence: Qantas Airways Limited v Gama (2008) 247 ALR 273 at [110], [123] – [132]. 303 There are other "innocent" explanations which are open on the evidence for why Mr Barnes would have transferred the shares in Weboz to Mr Whitbread's company. In particular, Mr Roberts admitted in cross-examination that he was involved in transferring shares in Weboz to friends, relatives and associates in order to create a spread of shareholders. 304 Whether this was an abuse of the ASX Listing Rules, or illegal warehousing, is not to the point. The short answer to Chameleon's contention is that there are other reasons why the transaction was structured in the way that it was. The suggestion that the transfer of the Weboz shares to Triumph points to the dishonest agreement, contended for by Chameleon, is not open on the evidence. Jones v Dunkel does not assist 305 It was for Chameleon to prove the dishonest agreement pleaded in the Statement of Claim to the standard stated in s 140(1) of the Evidence Act, taking into account the matters required to in s 140(2). It has not done so. 306 The failure of Messrs Grimaldi, Barnes and Whitbread to give evidence does not provide a basis for drawing the inferences sought to be made out by Chameleon. It is well established that the "rule" in Jones v Dunkel (1959) 101 CLR 298 cannot be employed to fill gaps in the evidence or to convert conjecture and suspicion into inferences: Heydon JD, Cross on Evidence (7th ed, LexisNexis Butterworths, 2004) at p 41 [1214]. Conclusion on the New Millennium Transaction 307 For the reasons set out above, the agreement pleaded in paras 56JA and 56ANA of the Statement of Claim has not been proved. All of the allegations of breach of fiduciary duty or participation therein and the various alternative causes of action depended upon the proof of that matter. 308 It follows in my opinion that Chameleon fails on this aspect of the case. Ratification 309 The respondent submitted that if I were to find the para 56JA agreement to be made out, all of the shareholders of Chameleon at the time of the New Millennium transaction, namely Mr Barnes, Mr Whitbread and Mr Roberts gave their knowing consent. 310 Since I am of the view that the agreement has not been proved I do not propose to deal with that question. Chapter 5 – The March Placement The case as pleaded 311 The claim which is pleaded in respect of the March Placement is a narrow one. What is alleged is that in respect of an allotment of 750,000 shares to NiCu, which formed part of a total allotment of 6,900,000 Chameleon shares, no money or other consideration was ever received by Chameleon from NiCu for those shares. 312 The substance of the claim is pleaded in para 60, 63 and 64 of the Statement of Claim. In addition to the allegation that no money or other consideration was provided by NiCu, para 60 alleges that there was no arrangement between Chameleon and NiCu for the payment for the shares, nor was any security provided by NiCu. 313 Para 64 of the Statement of Claim alleges that the authorisation for the allotment of 750,000 shares to NiCu was a breach by Mr Roberts of his duty of good faith to Chameleon under s 181(1)(a) of the Corporations Act, and his corresponding fiduciary duty. The breach is said to be that the purpose of the allotment of the 750,000 shares to NiCu was to confer a benefit on it and that Chameleon obtained no benefit from the allotment. 314 Mr Grimaldi is said to have had knowledge of Mr Roberts' breach of duty and to have been knowingly concerned in it: see para 67 of the Statement of Claim. 315 In its Re-Amended Defence at para 33 - 35, Murchison pleads that the consideration for the issue of the 750,000 shares to NiCu was the deduction of the amount owing on a loan account between the companies. The loan account is said to have been in existence from 30 June 2002 and moneys are said to have been owed by Chameleon to NiCu under it. The consideration for the allotment is said to be that the debt owing by Chameleon to NiCu under the loan account was reduced by $75,000. 316 The effect of Chameleon's Amended Reply to Murchison's Defence is that Chameleon was not indebted to NiCu at the relevant time: see para 7 and 13 of the Re-Amended Reply. The background facts 317 The origins of the March Placement are to be found in discussions which took place between Mr Roberts and Mr Justin Pettett, the principal of a company known as Northern Alliance Resources Ltd ("Northern Alliance") in about February 2004. At that time, Mr Pettett told Mr Roberts that he would try to find investors to take up a total of 7,750,000 shares in Chameleon. 318 A resolution of the directors of Chameleon dated 28 February 2004 authorised Chameleon to issue 7,750,000 shares to professional investors at 10c per share to raise $750,000 to meet the costs of the acquisition and development of the Palm Springs gold mine. The resolution was signed by Mr Barnes and Mr Roberts. 319 Mr Pettett subsequently told Mr Roberts that he was unable to introduce investors. Mr Roberts then discussed the matter with Mr Grimaldi who said creditors of Chameleon could be paid from the proposed share issue by allotting them shares in lieu of cash. 320 Mr Grimaldi then drafted a letter to be sent by Northern Alliance to Chameleon directing Chameleon to issue 6,900,000 shares (that is, less than the number specified in the resolution) to a number of different persons or entities. Northern Alliance sent the letter to Chameleon on 1 March 2004 directing the issue of the 6,900,000 shares to 12 different persons or entities, including 750,000 shares to NiCu, or Weboz as it was then called. 321 Mr Grimaldi identified the parties to whom the shares would be issued and the amounts. He included NiCu/Weboz on the list of allottees for 750,000 shares. Mr Roberts credited the sum of $75,000 against the loan account he believed Chameleon had with Weboz. Mr Roberts said he was not aware of the balance of the account at that time. Mr Roberts' evidence of the loan account 322 Critical to the question of whether Weboz provided consideration for the allotment of the 750,000 shares is the evidence of the existence of the loan account. The evidence was given in Mr Roberts' affidavit and in his supplementary oral evidence in chief, as well as in cross-examination. 323 In para 97 - 99 of his affidavit Mr Roberts states that after the end of the 30 June 2002 financial year he prepared a set of management accounts for Chameleon, and that he took a great deal of assistance and direction from Mr Grimaldi in the preparation of the accounts. 324 Mr Roberts expanded on this evidence orally. He said in his evidence in chief that he was told by Mr Grimaldi that in order to record the moneys that were outstanding to NiCu in relation to "the Chameleon transaction" a loan account had to be established, and a loan account called "Loan to NiCu" was put in place. 325 Mr Roberts went on to say in chief that over the succeeding years he had many discussions with Mr Grimaldi about "payments between Chameleon and Weboz". He continued by saying that a practice developed between Mr Roberts and Mr Grimaldi under which: If I was unaware of where to record a transaction I would ask him, and if it related to NiCu, he would instruct me as such. 326 Mr Roberts was cross-examined about this evidence by senior counsel for Murchison, Mr Karkar QC. His evidence at T198 was as follows: That is the case, isn't it, that within the accounts of Chameleon there was a loan account with NiCu? ----Yes And that loan account was reflected from time to time in the books of account of Chameleon which you prepared. That's correct, isn't it? --- With the assistance of Mr Grimaldi and the auditor. 327 After this exchange, Mr Karkar took Mr Roberts to the accounts of Chameleon for the year ended 30 June 2003. He was taken to the liabilities recorded in the accounts and he accepted that as at 30 June 2003 Chameleon owed Weboz an amount slightly in excess of $146,000 "(b)ased on what I was aware of the transactions at that time". 328 Later on in cross-examination Mr Roberts agreed that until late 2004 there was a close relationship between Chameleon and NiCu and that there were loans between them with "money going both ways". 329 Importantly, for present purposes, Mr Roberts also said in his affidavit at [156] that the 750,000 shares which were issued to Weboz as part of the March Placement equated to $75,000 and was credited, at Mr Grimaldi's direction: …against the loan account that Chameleon had with Weboz at the time. 330 He went on to say at [157] that: I was not aware of the balance of the Chameleon Loan Account at the time. 331 Mr Roberts was not asked to expand upon the evidence in [156] and [157] of his affidavit in his oral evidence in chief. However, the following relevant exchange took place when he was cross-examined by Mr Karkar at T193 - 194: Now, you recall in March 2004 Chameleon issued 7.75 million shares?---Yes. And the purpose of issuing those shares was principally to pay creditors of Chameleon?---Yes. Included amongst those credidtors was Weboz or NiCu?---I believe that's correct. Those shares were issued to the various people and those various people were credited with the amount of the consideration for the shares and the shares were issued at 10 cents per share?--- I believe that's correct. Of the 7.75 million shares that were issued, 750 were allotted to Weboz or NiCu in reduction – 750,000 shares were allotted to Weboz or NiCu in reduction of Chameleon's debt to NiCu?---Yes And Chameleon's loan account with NiCu was credited with $75,000, being the price for the 750,000 shares?---Yes. You would agree that there was nothing exceptional about that transaction? It was an issue of shares at 10 cents in reduction of a debt?---Nothing surprising there. 332 Mr Roberts also gave the following answers in cross-examination by counsel for Mr Grimaldi at T261: Now, in paragraph 156 of your affidavit, you refer to an issue of shares of 750,000 Chameleon shares to Weboz. You were cross-examined about that earlier. Do you remember that?---Yes. And you say that you credited the amount of $75,000, being the consideration for those 750,000 shares, to the loan account that Chameleon had with Weboz. Remember saying that in your affidavit?---Yes Now, irrespective of whether Weboz had a debit or a credit balance with Chameleon, it is true, isn't it, you would have had to make an accounting entry which recorded the issue of shares and the payment of consideration by Weboz for those share, isn't it?---Yes. No breach of duty proved in the March Placement 333 It seems to me that, having regard to the very narrow basis on which the breach of duty is founded, Chameleon has not established its claim. 334 The claim rests entirely on the proposition that Chameleon received no benefit from the issue and allotment of the 750,000 shares to Weboz because it is said that Weboz provided no consideration. Thus it is said that the purpose of the allotment was to confer a benefit on Weboz, and a corresponding detriment on Chameleon. 335 What underlies this contention is the submission that, when the March Placement was made, Chameleon was not indebted to Weboz, having discharged all of its obligations arising from the cash consideration payable under the New Millennium Transaction. 336 I accept Chameleon's submission that by 1 March 2004 Chameleon had discharged all of its obligations to Weboz arising from its agreement to pay in cash part of the purchase price payable under the New Millennium Transaction. I also accept that even allowing for disputes between the parties as to what was, or was not, properly recorded in the loan account, only a small debt of less than $8,000 was owing to Weboz. 337 But I do not accept that it follows from this that Weboz failed to provide any consideration for the allotment. It seems to me to follow quite plainly from Mr Roberts' evidence in [156] of his affidavit and the cross-examination set out at 331 - 332 above that the inter-company loan account between Chameleon and Weboz was charged with the sum of $75,000 being the consideration payable for the allotment of the shares. 338 Accordingly, the evidence establishes that Chameleon did receive consideration for the 750,000 shares issued to Weboz, namely the crediting in Chameleon's favour of the sum of $75,000 to the inter-company loan account that existed between the two companies. 339 The effect of Chameleon's submission was that the only loan account that was established was the account called "Loan to NiCu" which Mr Roberts established at Mr Grimaldi's suggestion to deal with the moneys payable on the New Millennium Transaction and that there were no other loans between the parties. I do not accept that submission. It is clear from Mr Roberts' evidence that there was a running loan account between the companies and that he credited the $75,000 to it. 340 Whether the loan account was in credit or debit is irrelevant to the question of whether Chameleon received consideration. The consideration was the crediting of the sum of $75,000 to the account. 341 It is true that Mr Roberts gave evidence that he did not know the balance of the account at the time. It also seems to be true that if the loan account had been properly and accurately kept there would have been nothing owing by Chameleon to Weboz so that the $75,000 entry would have resulted in Weboz being indebted to Chameleon on the loan account for that sum. 342 However, it was no part of Chameleon's case as pleaded or opened that the acceptance of the consideration from Weboz in the form of crediting the inter-company loan account was a breach of duty by Mr Roberts. Nor was it part of Chameleon's pleaded case that Mr Roberts failed to give any real or actual consideration to Chameleon's interests. Chameleon's case, as stated in para 92 of its written opening and paras 60 and 63 and 64 – 66 of the Statement of Claim are all dependent upon the assertion that Chameleon received no consideration for the allotment. There is nothing in that material to suggest that it was part of Chameleon's case that the debiting of the loan account was itself a breach of Mr Roberts' duty to Chameleon. 343 The short answer to Chameleon's claim in respect of the March Placement is that it has not made good the claim which is pleaded. The only alternative claims to the claim of absence of consideration were that there was no arrangement between the companies to pay, nor any security. The debiting of the loan account at Mr Grimaldi's direction was probably sufficient to give rise to an obligation to pay the moneys lent. In any event that issue was not pursued. Nor was any factual consequence alleged to follow from the failure to provide security. Chapter 6 – February / June 2004: The Introduction of the Iron Jack / Winterfall Acquisition to Murchison Overview: the case as pleased and conducted 344 It is at the heart of Chameleon's case that its funds, including in particular the two cheques totalling $152,750 paid to the Iron Jack Vendors (to which I referred at [76] above), were used by Murchison to acquire its interest in Winterfall, and through it, the Iron Jack Project. 345 The effect of Chameleon's claim is that the two payments for totalling $152,750 to the Iron Jack Vendors were made for the purpose of entitling Mr Grimaldi and Mr Barnes, through Pinnacle, to obtain a "spotter's fee" of 10 million shares in Winterfall for introducing Murchison (then known as NiCu) into the transaction. 346 The relevant paragraphs of the Statement of Claim are 121(c), 121(i), 127, 128, 129, 167 - 171, 173 - 175 and 200. 347 These paragraphs plead that the payments were orchestrated by Mr Grimaldi and procured by Mr Barnes for the purpose of assisting NiCu to fulfil its obligations to the Iron Jack Vendors pursuant to an agreement made between NiCu and Winterfall in May 2004. 348 The drawing of the cheques is said to have been a contravention of the statutory and fiduciary duties of Mr Grimaldi and Mr Barnes to Chameleon. NiCu is said to have had knowledge of the breaches of duty, through the knowledge of Mr Grimaldi. 349 The "spotter's fee" is not pleaded in express terms in the Statement of Claim but it was referred to in Chameleon's closing written submissions at [176(a)]. 350 The evidence of the fee emerged in cross-examination of Mr Zuks at T810 and T814 - 816. The evidence was not objected to by the respondents and, in my opinion, was within the ambit of the case as it was conducted. No complaint was made about it in [77] of Murchison's closing written submissions which addressed the issue. 351 However, Murchison did contend that Chameleon's claim for a constructive trust over the 10 million shares issued to Pinnacle as the "spotter's fee" was not pleaded and not opened. 352 In my opinion the claim was sufficiently pleaded in the paragraphs of the Statement of Claim to which I have referred. The claim of a constructive trust was pleaded in express terms in [200]. It was opened by Mr Hutley in his oral opening recorded at T78. I reject Murchison's submission as to the scope of the pleading. The pleading issue was correctly addressed in [231] of Chameleon's submissions in reply and by Mr Hutley in oral argument on 3 March 2010. 353 The July Cheques and the allotment of the 10 million shares to Pinnacle are dealt with later in the judgment. This chapter addresses the introduction of the Iron Jack Project to NiCu, and, in particular, the "spotter's fee" as well as the obligations undertaken by NiCu to Winterfall so as to enable that company to fulfil its obligations to the Iron Jack Vendors. Winterfall's agreements with the Iron Jack Vendors 354 Commencing in around December 2003, Mr Zuks, on behalf of Winterfall, entered into negotiations with the persons and companies that I have called the Iron Jack Vendors, for the acquisition of the tenements known as Jack Hills and Weld Range. 355 The Iron Jack Vendors were Mr William Hitch, Mr Karl Wolzak and Mr Michael Ruane, and their associated entities, Tyson Resources Pty Limited and Zeedam Enterprises Pty Limited. The tenements are located in the mid-west region of Western Australia. 356 At the time of the negotiations, and at the time when Winterfall entered into an agreement with the Iron Jack Vendors in February 2004, Mr Zuks held 90% of the shares in Winterfall and was a director of that company. His brother, Mr Ruslan Zuks held the remaining 10% interest. The agreement between Winterfall and the Iron Jack Vendors was entered into on 19 February 2004. 357 The agreement provided for the purchase by Winterfall from the Iron Jack Vendors of the Iron Jack and Weld Range tenements for a total consideration of $1 million, payable by instalments, and a royalty of 80 cents per tonne of iron ore removed from the tenements: clauses 1.1, 3 and 4. 358 The instalments of the purchase price were payable by Winterfall to the Iron Jack Vendors as follows: $100,000 on signing the agreement; $400,000 within 60 days of execution of the agreement, that is to say, by 18 April 2004; $500,000 within 24 months of execution of the agreement. 359 The time by which each of the payments was to be made was stated to be of the essence of the agreement: cl 18. 360 Winterfall also agreed to pursue the cost of the grant of the tenements, which were at that time in the form of exploration licences, and to maintain the tenements in good standing, including compliance with relevant legislation applicable to mining tenements in Western Australia. February/March 2004: Events following execution of the agreement 361 On 19 February 2004, that is to say the date of execution of the agreement, Mr Zuks paid the first instalment of the purchase price of $100,000 to the Iron Jack Vendors from his own funds. 362 However, Mr Zuks did not have the money to pay the second instalment of $400,000 due by 18 April 2004. Accordingly, Mr Zuks approached other persons, including Mr Robert Vagnoni and Mr Paul Kopejtka to put up the required funds. 363 On 4 March 2004 Mr Vagnoni and Mr Kopejtka agreed with Mr Zuks to contribute $150,000 toward the acquisition in return for an interest in the tenements. That agreement provided for the sum of $150,000 to be payable to Mr Zuks on signing the agreement with a further $250,000 to be payable upon the sale of Winterfall to a public company. 364 At about that time Mr Vagnoni and Mr Kopejtka each paid the sum of $75,000 to Mr Zuks but he was still short of the amount required to meet the second instalment to the Iron Jack Vendors. Nor had Mr Zuks been able at that time to fulfil his intention of locating a public company into which Winterfall would be sold so as to enable Winterfall to meet its obligations under the agreement with the Iron Jack Vendors. 365 In about mid-April 2004 Mr Zuks contacted one of the Iron Jack Vendors and negotiated an extension of time for the payment of the second instalment to 5 May 2004. In return for this, Mr Zuks agreed that Winterfall would pay part of the second instalment, namely $50,000 (plus GST) to the Iron Jack Vendors by 19 April 2004. That sum was provided by Mr Kopejtka on 19 April 2004. This left a balance of $350,000 payable on the second instalment. 366 At around the same time, Mr Barnes and Mr Grimaldi approached Mr Zuks about the possibility of NiCu entering into the transaction for the acquisition of an interest in the Iron Jack Project. 367 Mr Barnes and Mr Grimaldi knew Mr Zuks by reason of their involvement in a transaction known as the ATL transaction. That transaction is not relevant to the present matter except as background. The meeting between Mr Barnes, Mr Grimaldi and Mr Zuks in relation to the Iron Jack Project took place at the Windsor Hotel in Perth. The meeting was held in March or April 2004. Mr Zuks said in evidence that it was more likely to have been in April than March. The Windsor Hotel meeting 368 The discussion between Mr Barnes, Mr Grimaldi and Mr Zuks at their meeting at the Windsor Hotel is set out in the agreed chronology. 369 The only oral evidence of that meeting was the evidence obtained in Mr Hutley's cross-examination of Mr Zuks. I accept his evidence that the meeting took place in April 2004. 370 Whether the date of the meeting was before or after Mr Kopejtka supplied the funds to secure an extension of time from the Iron Jack Vendors, it is clear that "time was ticking" for the payment of the second instalment of the purchase price and that Mr Zuks told Mr Barnes and Mr Grimaldi of this. 371 It is also clear that Mr Grimaldi said that he wanted "to do the deal", that is to say to provide the funding for the acquisition of the Project from the Iron Jack Vendors, and that he said he had the money to do it. 372 At the time of the meeting, Mr Zuks knew that Mr Grimaldi was a director of NiCu and that Mr Barnes was the managing director of Chameleon. 373 In my view, it follows that Mr Grimaldi's statement that he had the money to do the deal, is to be taken as a statement made on behalf of NiCu. 374 It is not clear from Mr Zuks' evidence whether Mr Barnes and Mr Grimaldi raised the question of the spotter's fee at the Windsor Hotel meeting. But for reasons mentioned below, it is plain that they requested the payment of that fee by 30 May 2004, or at the latest, by early June 2004. Mr Zuks negotiates a second extension 375 In early May 2004, Mr Zuks successfully negotiated a further extension of time to pay the balance of the second instalment due to the Iron Jack Vendors. The balance then stood at $350,000 plus $35,000 GST. 376 The agreement between Winterfall and the Iron Jack Vendors was recorded in a letter described as a "Heads of Agreement" dated 5 May 2004. That Heads of Agreement provided for an extension of the deadline for the payment of the second instalment to 1 June 2004. 377 The urgency of the situation and the difficulty in which Winterfall found itself was emphasised in the statement contained in the Heads of Agreement signed by Mr Zuks which stated that if the deadline for payment of the $350,000 was not met, all the tenements would "come back" to the Iron Jack Vendors and no payments to date would be refundable. Heads of Agreement between NiCu and Winterfall 378 On 30 May 2004, NiCu and Winterfall entered into a Deed described as Heads of Agreement by which NiCu agreed to provide Winterfall with the sum of $350,000. Although it was not settled in the Deed, both parties were aware that those funds were required by Winterfall to meet the instalment due to the Iron Jack Vendors. 379 The NiCu/Winterfall Heads of Agreement provided for NiCu to pay the sum of $350,000 to Winterfall on signing the Agreement, that is to say, two days before Winterfall was due to pay that sum to the Iron Jack Vendors; see cl 3(b). 380 Clause 3(c) of the Heads of Agreement provided for a form of "reverse takeover" of Winterfall with that company to be converted to a public company and then taken over by NiCu, subject to Mr Zuks and his partners receiving 40% of the issued capital of NiCu. 381 Thus, what was to take place was an exchange of shares, with the shareholders of Winterfall exchanging their shares in that company for an issue of 40% of the share capital of NiCu. May/June 2004: NiCu fails to pay; Addendum to NiCu/Winterfall Heads of Agreement 382 NiCu failed to pay the $350,000 due to Winterfall on 30 May 2004. This constituted a breach of the express terms of the NiCu/Winterfall Heads of Agreement and was contrary to Mr Grimaldi's statement to Mr Zuks at the Windsor Hotel that he (that is, NiCu) had the money to pay. 383 Mr Zuks complained immediately to Mr Grimaldi. Mr Zuks attempted in his evidence to downplay the seriousness of the situation. He said he was "disappointed" and "anxious" but that he did not threaten Mr Grimaldi at that stage. 384 In my view, the situation was very serious for both Mr Zuks and Mr Grimaldi. Mr Zuks stood to lose Winterfall's interest in the Iron Jack and Weld Range tenements and the $100,000 he had thus far invested. Mr Grimaldi stood to lose the benefit of the commercial opportunity that he was keen for NiCu to take up. 385 Mr Zuks seemed to me to be an experienced and capable businessman. I have no doubt that he understood the seriousness of the situation but the effect of his evidence was that Mr Grimaldi was always confident that the funds would be made available shortly. 386 I accept that Mr Zuks did not threaten Mr Grimaldi in early June but in my view, Mr Zuks was not a person who could be fobbed off indefinitely. Nor were the Iron Jack Vendors likely to have been persons who could be trifled with. I will return to this when I consider the circumstances which culminated in the drawing of the cheques for $152,750 in July 2004. 387 Another event in early June 2004 which is of particular significance is the execution of an Addendum to the NiCu/Winterfall Heads of Agreement. The execution page of the Addendum bears a date in June 2004 but the date of execution is left blank. I accept Mr Zuks' evidence that the Addendum was negotiated shortly after the execution of the Heads of Agreement. 388 Curiously, the Addendum contains a schedule which expressed the date of the document to be 28 May 2004. It seems clear that the document was not signed until early June 2004. 389 The significant clause of the Addendum is cl 3(d) which is set out in full in the agreed chronology. I will not repeat the clause but the importance of it is that Winterfall agreed that the shareholders to be nominated by Winterfall to receive shares in NiCu would "… include nominees of Phillip Grimaldi at nil cost in consideration for introducing NiCu Metals to Winterfall Pty Limited". 390 It is plain from this clause, and from the cross-examination of Mr Zuks at T814 to T816 that Mr Grimaldi and Mr Barnes raised the question of the spotter's fee with Mr Zuks before the execution of the NiCu/Winterfall Heads of Agreement, or at the very latest by early June 2004 when the Addendum was signed. 391 Mr Zuks' evidence at T815 was that the number of shares to be issued to Mr Grimaldi's nominees "may have been" discussed. The evidence is sufficient for me to infer that Mr Grimaldi raised, at least in general terms, the number of shares to be issued. NiCu's financial situation in the period February to June 2004 392 Chameleon submits that NiCu's financial position in the relevant period in 2004 was precarious. Murchison submits it was "in pause". The only relevant question is whether Murchison had the funds needed to pay Winterfall the instalment of $350,000 (plus GST) due on 1 June 2004. 393 The evidence makes it plain that NiCu did not have the funds. Its financial reports for the period show that NiCu had little or no operating revenue and very little cash. Moreover, NiCu's lack of funds is to be inferred from its failure to make the payment due under the NiCu/Winterfall Heads of Agreement and the circumstances in which payment was ultimately made. Conclusions on the introduction of the Iron Jack/Winterfall acquisition to Murchison 394 The conclusions which I reach in this chapter are matters of fact which inform the ultimate question of whether Mr Grimaldi and Mr Barnes breached their statutory and fiduciary duties to Chameleon and whether Murchison is liable under either of the limbs of Barnes v Addy. 395 The relevant conclusions are as follows. First, from the time of the meeting between Mr Grimaldi, Mr Barnes and Mr Zuks at the Windsor Hotel in April 2004, Mr Grimaldi and Mr Barnes knew that there was a valuable opportunity for NiCu to acquire an interest in the Iron Jack Project provided it could come up with the funds. 396 Second, Mr Grimaldi and Mr Barnes knew from the time of the meeting at the Windsor Hotel that an acquisition of an interest in the Iron Jack Project had the potential to increase the value of the shares they already held in NiCu. 397 Third, at some time between April 2004 and 30 May 2004, when the NiCu/Winterfall Heads of Agreement was executed, Mr Grimaldi and Mr Barnes agreed with Mr Zuks as to the structure of the transaction, namely for NiCu to pay the instalment of $350,000 due to the Iron Jack Vendors and for there to be a reverse takeover through an exchange of shares between the companies. 398 Fourth, at the same time, namely prior to the execution of the NiCu/Winterfall Heads of Agreement on 30 May 2004, (or at latest when the Addendum was signed in early June), Mr Zuks agreed to pay Mr Grimaldi and Mr Barnes a spotter's fee in the form of shares in Winterfall, to be exchanged for shares in NiCu, upon completion of the transaction. 399 Fifth, the spotter's fee was quite plainly for the benefit of Mr Grimaldi and Mr Barnes but the receipt of that benefit was dependent upon NiCu making payment of the instalment of $350,000 to the Iron Jack Vendors. 400 Sixth, there were no benefits for Chameleon. Chapter 7 – The Cadetta Transaction Pleadings & Overview 401 Chameleon's primary case is that the Cadetta Transaction was orchestrated by Mr Barnes and Mr Grimaldi so as to enable NiCu to receive 5 million shares in Chameleon which NiCu could then sell for the purpose of raising funds to assist in the acquisition of Winterfall and the Iron Jack tenements. 402 The claim is one of dishonesty on the part of Mr Barnes and Mr Grimaldi who are alleged to have procured the purchase of the Cadetta tenements at an overvalue in order to enable NiCu to receive 5 million shares in Chameleon for no consideration and for no benefit to Chameleon. 403 The claim is pleaded in Parts 8.6 and 8.7 of the Statement of Claim and, in particular, at paragraphs 77, 86 and 87 - 90. 404 There is a second limb to the claim based upon breach of the duty of reasonable care insofar as it is alleged that the value of the Cadetta tenements was substantially less than the value of the Chameleon shares transferred to the Cadetta shareholders as consideration for the acquisition of the tenements. 405 The primary claim turns largely upon the evidence of the meetings and conversations between the persons who negotiated the Cadetta Transaction. Those meetings took place in Perth, or suburbs of Perth, in April and May 2004. The persons who attended those meetings were Mr Scook and his business partner, Mrs Hardie, Mr Barnes and Mr Grimaldi and a Mr Don Evans. 406 Mr Evans was a person who facilitated the transaction. He received a commission, paid in shares in Chameleon in circumstances referred to below. He gave evidence as to what was said at the various meetings. 407 Mr Scook and Mrs Hardie also gave evidence but, as I have previously said, Mr Barnes and Mr Grimaldi did not. 408 The only other persons who had any relevant involvement in the matter were Mr Brian Davis, a geologist, and Mr Terence Martin Quinn, a director of Jamora Nominees Pty Ltd. 409 Mr Davis gave a number of presentations on the Cadetta tenements at Mr Scook's office but he does not appear to have attended any of the critical meetings at which the Cadetta Transaction was negotiated. 410 The question of whether I accept Chameleon's primary claim turns largely upon whether I accept the evidence of Mr Scook or that of Mr Evans. There was a concerted attack on the credit of each of those witnesses. 411 The secondary claim turns upon the circumstances in which the Cadetta Transaction was struck and upon expert geological evidence given by Mr Pyper on behalf of Chameleon and Mr Davis on behalf of Mr Barnes and Pinnacle. Mr Scook's evidence 412 Mr Scook swore an affidavit on 18 March 2009 and a further affidavit on 21 September 2009 in reply to an affidavit of Mr Evans. 413 In accordance with my usual practice, I required evidence of all critical conversations to be given orally. 414 In his first affidavit, Mr Scook referred only to meetings at which discussions took place between the parties about the sale of the Cadetta tenements. It was not until Mr Evans' affidavit of 2 July 2009 was filed that Mr Scook addressed, in his second affidavit, a meeting between the parties in relation to certain other tenements known as the Desert Resources tenements, which led to further discussions culminating in the Cadetta Transaction. 415 In his oral evidence Mr Scook said that Mr Evans, who he described as a share promoter, rang him in early April 2004 and asked him if he had: … any tenements that may be suitable for a public registered company to help – to help with the share price … 416 Mr Scook went on to say that a meeting was then held within a few days attended by Mr Barnes, Mr Grimaldi, Mr Evans and Mr Scook. He said the meeting took place at Chameleon's office at Labouchere Road in South Perth. 417 According to Mr Scook, Mr Barnes and Mr Grimaldi looked through the documents which Mr Scook provided about the Desert Resources tenements in the Peak Hill district of Western Australia. He said he asked for 22 million shares and related options in Chameleon in return for the sale of those tenements. 418 Mr Scook said that Mr Barnes and Mr Grmaldi were very interested in the Peak Hill area and they said "they were happy with the deal". 419 However, Mr Barnes or Mr Grimaldi then phoned Mr Scook and said "the deal was too big". Mr Scook then had a further meeting with Mr Barnes, Mr Grimaldi and Mr Evans. 420 This meeting was said to have taken place within a few days and Mr Scook said he "presented them", that is to say Messrs Barnes, Grimaldi and Evans, with details of the Cadetta tenements. Mr Scook said he told them he wanted 8 million shares in Chameleon in "unescrowed stock" in return for the Cadetta tenements. 421 The following exchange then took place between Mr Scook and Chameleon's counsel, Mr Habib SC: Can I just stop you there. When you say 'they' did – let's just start with, did Mr Grimaldi say anything to you at that meeting? --- We can do a deal on eight million shares. Did Mr Barnes say anything during that meeting? --- Yes, he was there. He was there and he agreed. 422 Mr Scook was then asked whether he had any conversation about the 13 million shares that were the subject of the bidder's statement pursuant to which the share exchange between Chameleon and Cadetta was effected. The following exchange occurred: Firstly, did you have a conversation about the 13 million ---? --- Yes, I did, on or about the time of the heads of agreement being put together or the bidder's statement. All right. Now, firstly, can you tell his Honour who you had the conversation with?--- I had the conversation in relation to --- No, who with?---With Barnes – with Barnes, at the time, or Grimaldi. No, with Grimaldi, actually. To the best of your – is that ---?---Yes. That is right? Now, what was the conversation that you had? --- The conversation was that we wanted to mark the deal up by 5 million shares, from 8 to 13 million. 423 Objection was taken to the last answer and the question was pursued as follows: … what did he say?--- He said "We will mark the transaction up and call it 13 million shares". 424 Importantly, Mr Scook said nothing in chief about any conversation he had with Mr Barnes or Mr Grimaldi for the disposition of the 5 million shares which comprised the balance of the consideration after the issue to Mr Scook of the 8 million shares requested by him. 425 However, that matter was taken up in cross-examination by counsel for Mr Grimaldi. The effect of what Mr Scook said is recorded at T399 and T413 - 417. 426 The substance of that evidence under cross-examination was that at the time when the parties to the negotiations were discussing the Cadetta Heads of Agreement, Mr Scook made an agreement with Mr Barnes and Mr Grimaldi about the 5 million shares. 427 The evidence which Mr Scook gave about the agreement was given in very vague terms. He was asked whether he made an agreement with Mr Barnes and Mr Grimaldi to "send them five million shares" to which he replied: No, to send them back to – well, I assumed – I didn't care, really. After all, I was sitting with the managing director of Chameleon. I would have thought he had the authority to do whatever. 428 Mr Grimadi's counsel put it to Mr Scook that he was rewarding Mr Grimaldi with the payment of 5 million Chameleon shares as a reward or commission for Mr Grimaldi's assistance in procuring the Cadetta Transaction. Mr Scook denied this. 429 The thrust of Mr Scook's evidence under cross-examination by Mr Watts was that he only wanted 8 million Chameleon shares, which were worth about $640,000 on the market at the time and that the transaction was very profitable for him because he paid only about $12,000 for the tenements. He said he agreed to a commission of 2.66 million shares to Mr Evans and he did not care what happened to the remaining 5 million shares because the transaction provided him with such a large profit. 430 Mr Scook was also cross-examined by Mr Sheahan SC, senior counsel for Mr Barnes and Pinnacle. Much of Mr Sheahan's cross-examination was directed to matters affecting the valuation of the Cadetta tenements. However, he did cross-examine Mr Scook about two matters affecting the credibility of his evidence. 431 First, Mr Scook agreed that the "marking up" of the deal from 8 million shares to 13 million shares would dilute the value of the shares received by Mr Scook and depress the price. Mr Scook said "(n)obody likes to give away profit" but he probably gave it no thought because $640,000 provided him with such a large profit on the deal. 432 Second, Mr Scook ultimately agreed, that if, as he suggested, Chameleon was entitled to direct the disposition of the 5 million shares, the target statement issued by Cadetta on the takeover would have been misleading. Mrs Hardie's evidence 433 Mrs Hardie swore two affidavits. The first was sworn on 1 April 2009 and the second on 21 September 2009 in reply to Mr Evans. Mrs Hardie gave evidence of the critical meetings orally. 434 Mrs Hardie's evidence in chief was that she was told by Mr Scook in early April 2004 that Chameleon wanted to purchase the Cadetta tenements and that she attended two or three meetings in relation to that transaction. She said in reply to Mr Evans' affidavit that she did not recall attending a meeting at which Desert Resources was discussed. 435 In her oral evidence in chief, Mrs Hardie said the last meeting was attended by Mr Scook, Mr Barnes, Mr Grimaldi and herself. Her recollection of the meeting was that Mr Scook said he wanted 8 million shares for the Cadetta tenements and that Mr Grimaldi or Mr Barnes replied: Okay, we can do that. That's fine. 436 Mrs Hardie said nothing in her oral evidence about any conversation in relation to the remaining 5 million shares. She gave evidence of her understanding, or more accurately her lack of understanding, as to what was to occur. Her evidence is set out at [14] – [15] of her first affidavit as follows: Sometime towards the end of April 2004, I ascertained that Chameleon's formal offer for the purchase of those interests was going to be in the amount of 13 million shares. I did not understand why that was the case, but I believed, based on the discussion between Mr Scook, Mr Barnes and Mr Grimaldi described above that Chameleon would only pay 8 million for the 4 mining interests. I did not know where the remaining 5 million was going and I did not give it much thought. I assumed that since the transaction was negotiated by people who I understood were two directors of Chameleon, including the managing director, that they had authority to do whatever it was they were doing with the 5 million shares. 437 In her cross-examination by Mr Watts at T458, Mrs Hardie repeated the effect of that evidence. She said her understanding was that Mr Scook said he wanted 8 million shares, that at some point she became aware that the arrangement was for 13 million shares, that it was arranged between Mr Scook, Mr Grimaldi and Mr Barnes and she did not know what was happening to the 5 million shares: … but I knew that Cadetta was only going to receive eight million shares. 438 In cross-examination by Mr Sheahan, Mrs Hardie reiterated that the only meetings she attended with Mr Grimaldi and Mr Barnes were about the Cadetta tenements. She could not be sure that Mr Evans attended every meeting but at the last meeting Mr Scook said he wanted 8 million shares for the Cadetta tenements. Mr Evans' evidence 439 Mr Evans swore an affidavit on 2 July 2009. He gave evidence of the critical conversations by video link from Rome. He gave evidence in chief in some detail of a substantial number of relevant meetings and conversations. 440 Mr Evans has known Mr Barnes since about 1990, and Mr Scook since about 1999. He said he was introduced to Mr Grimaldi in late March or early April 2004 and that he met with Mr Barnes and Mr Grimaldi at Mr Barnes' office. 441 In the course of that meeting, Mr Grimaldi is said to have shown Mr Evans a prospectus for NiCu but there was also discussion about Chameleon with Mr Grimaldi saying: I also think Chameleon needs gold tenements. 442 Mr Evans said he then arranged a meeting at Mr Scook's office attended by Mr Scook, Mrs Hardie, Mr Grimaldi and Mr Evans. He says that during that meeting Mr Grimaldi said: If you can assist a company called Chameleon, I have a need for some projects in that company to boost its profile … we are looking for gold tenements. 443 Mr Scook replied that he had a strong portfolio of tenements in the Peak Hill region. Mr Evans went on to say that this led to a further meeting at Mr Scook's office attended by Mr Scook, Mrs Hardie, Mr Grimaldi and Mr Evans. Mr Davis, the geologist, is also said to have been present. There was a package presented by Mr Scook for the Desert Resources tenements which Mr Evans said were discussed by Mr Scook and Mr Grimaldi. 444 Mr Evans went on to say that there was then a further meeting between Mr Scook, Mr Grimaldi, Mr Barnes and Mr Evans at Mr Barnes' office. Mr Evans said that Mr Scook suggested a figure of around 22.5 million Chameleon shares for the acquisition of the tenements. Mr Barnes said that was "a heck of a lot of shares" and would be difficult to do. 445 Importantly, Mr Evans attributed the following words to Mr Scook in the course of this meeting: I expect a strong value for these shares and I have to look after Phil Grimaldi and Don [i.e. Mr Evans] in this process. 446 Following a number of telephone conversations, Mr Evans said there was a further meeting at Mr Barnes' office attended by Mr Scook, Mrs Hardie, Mr Barnes, Mr Grimaldi and Mr Evans. He said that it was in this meeting that Mr Scook proposed a transaction in relation to the Cadetta tenements. Mr Evans said that Mr Scook asked for 15 million shares as consideration for the transaction and: … that he would be looking at the same circumstances as the previous deal with Desert where myself and Phil Grimaldi would be looked after in that – in that amount of stock. 447 Mr Evans went on to say that Mr Grimaldi confirmed at the meeting what Mr Scook had said about the need for Mr Grimaldi "to be looked after in the allotment of shares that were to be issued" if the transaction went ahead. 448 According to Mr Evans, he attended one or two further meetings at Mr Barnes' office with Mr Scook and he was subsequently contacted by Mr Scook by telephone in early May 2004. He said Mr Scook informed him that a deal had been agreed and that Mr Scook and Mrs Hardie: … were to receive 8 million shares … from a deal where 13 million shares were being issued, and my allotment would be 2.666 million representing a third of that side of the deal. 449 Clearly enough, therefore, the effect of what Mr Evans says he was told was that a deal had been done for the issue of 13 million shares as consideration for the sale of the Cadetta tenements, with Mr Scook's interests to receive 8 million of those shares and pay a commission of one third of 8 million, namely 2.666 million, to Mr Evans. Nothing else was said to have been conveyed to Mr Evans about the recipient of the remaining 5 million shares. 450 Mr Evans was then cross-examined briefly by Mr Watts. He was asked, over Mr Hutley's objection, a question about his understanding as to why the 2.666 million shares were paid to him. He said he understood they were payment for his introduction to the transaction but he went on to give unresponsive evidence about Mr Grimaldi also being "looked after" as part of the deal process. 451 Mr Hutley cross-examined Mr Evans quite vigorously. He put to Mr Evans that the unresponsive answer to which I have referred was given because he wished to "support a business associate of yours, Mr Barnes". Mr Evans denied this. 452 Mr Hutley then put to Mr Evans that he had been associated with Mr Grimaldi as a director and shareholder of a company called Ferro Resources Exploration Limited. 453 Mr Evans' evidence was that he thought he was doing Mr Grimaldi a favour by going on to the Board, that he had forgotten about the matter and that the company had never actually engaged in any business. 454 Mr Evans was also cross-examined by Mr Hutley about other matters going to his independence, his recollection and his credit. The Cadetta Heads of Agreement 455 Cadetta was incorporated on 4 May 2004 for the purpose of selling the Cadetta tenements to Chameleon. The shareholders of Cadetta were Jamora, Grand Enterprises Pty Limited, Amy Elizabeth Scook and Cameron Thomas Hardie. Mrs Hardie and Mr Quinn were the directors. 456 The Cadetta Heads of Agreement were executed the following day, 5 May 2004. That document provided for the takeover of Cadetta by Chameleon in exchange for the issue of 13 million shares and 13 million options in Chameleon. It was expressed to be conditional upon the issue by Chameleon of a bidder's statement in accordance with the takeover provisions of the Corporations Act. 457 It was also a term of the Cadetta Heads of Agreement that, on completion, Chameleon would enter into a "Form of Acceptance and Transfer" with each shareholder. 458 On 6 May 2004 Chameleon issued a bidder's statement for the takeover of Cadetta. The bidder's statement and accompanying letter were signed by Mr Roberts. The offer provided that the consideration offered by Chameleon to the shareholders of Cadetta was one Chameleon share and one Chameleon option for each Cadetta share and option. 459 The following day, 7 May 2004, Chameleon announced to the ASX that it had received 100% acceptance of its offer to the shareholders of Cadetta for the acquisition. 460 The announcement was apparently made prior to the receipt by Chameleon of Cadetta's target statement. That document was dated 14 May 2004 and was signed by Mrs Hardie and Mr Quinn. The target statement stated that the directors recommended acceptance of the offer because the price of 8 cents per share capitalised Cadetta at $1,040,000 (13 million x 8 cents) which represented a profit to Cadetta's shareholders. The transfer of 5 million Chameleon shares to NiCu and the sale of the shares 461 The transfer of 5 million Chameleon shares, forming part of the consideration provided by Chameleon to the shareholders of Cadetta, is dealt with in Mrs Hardie's affidavits and in affidavits sworn by Mr Quinn on 19 March 2009 and 8 April 2009, as well as in their oral evidence. 462 The effect of the evidence is that Mrs Hardie dealt with the documentation and Mr Quinn merely signed the documents as requested by Mrs Hardie. He did so in his capacity as a director of Jamora which was the transferor of the shares. 463 I accept Mrs Hardie's evidence that on about 7 May 2004 she prepared transfer forms for the 5 million shares in Chameleon. Her evidence was that she left the name of the transferee of the shares in blank. 464 Mrs Hardie's oral evidence was that she was asked by either Mr Barnes, Mr Grimaldi or Mr Scook to prepare transfers for 5 million of those shares. She said that subsequently Mr Grimaldi rang her and asked her to re-do the transfer forms into parcels of 500,000 shares which she did, and she arranged for their signature. 465 After the share transfers were signed, Mrs Hardie sent them to Mr Barnes' office. 466 The transfer forms for nine of the ten parcels of 500,000 shares were in evidence. They were signed on behalf of Jamora as transferor by Mr Quinn and on behalf of NiCu as transferee by Mr Grimaldi. The tenth transfer form was not in evidence but it appears to have been in the same terms. 467 According to the agreed chronology, Mrs Hardie was instructed by Mr Barnes or Mr Grimaldi that the 5 million shares were to be transferred to Mr Barnes and Mr Grimaldi. However, as I have said, Mrs Hardie's oral evidence was that she could not recall whether the instructions came from Mr Barnes, Mr Grimaldi or Mr Scook. She did not, in her oral evidence, say that her instructions were to transfer the shares to Mr Barnes and Mr Grimaldi. 468 The overall effect of the evidence seems to me to be that the share transfers were executed by Jamora with the names of the transferees left in blank. The date recorded on each of the nine transfer forms in evidence was 10 June 2004. It seems to me that the transfer forms were delivered to Mr Barnes' office by Mrs Hardie but that NiCu's name as transferee of the 5 million shares was inserted later when the documents were signed by Mr Grimaldi. 469 Tracing schedules prepared by the parties demonstrate that NiCu sold the shares and banked the proceeds to its account. The sum of $125,090 in payments made by NiCu to Winterfall under the NiCu/Winterfall Heads of Agreement was sourced from the funds raised by NiCu from the sale of the shares. Value of the Cadetta tenements 470 Chameleon and Mr Barnes each adduced expert evidence of the value of the Cadetta tenements as at May 2004. Mr Pyper gave evidence for Chameleon and Mr Davis gave evidence for Mr Barnes. 471 Chameleon accepted in its closing written submissions that Mr Pyper valued the Cadetta tenements at $382,000 whereas Mr Davis put a value on the tenements at a range of $730,000 to $1.09 million. 472 I do not need to determine which of the experts is to be preferred. There are three reasons for this. 473 First, Mr Pyper agreed that there is a high level of subjectivity involved in the valuation of exploration tenements so that "there will be a broad and unusual range of reasonable opinion as to value." 474 Second, Mr Pyper accepted that both valuations were within the range of reasonable variation of expert evidence, although he said that his approach was a conservative one whereas Mr Davis' valuation adopted optimistic assumptions. 475 Third, what seems to me to be the most important consideration in this matter is not an ex post facto attempt to value the tenements. Rather, the question is what expert reports were available at the time of the transaction and what they do show. 476 As to that question, the evidence is all one way. Mr Davis prepared a report in May 2004 entitled "Cadetta Resources Pty Limited Report on the Geology and Gold Prospectivity of Peak Hill Project Tenements." The four tenements that were the subject of that report were the Cadetta tenements. 477 The Report was prepared by Mr Davis at Mr Scook's request and was provided by Mr Davis to Mr Barnes at about the time when it was prepared. The Report stated that exploration expenditure on the tenement portfolio was warranted based on the high potential for gold discovery. 478 It is true that Mr Davis did not put a value on the Cadetta tenements when he carried out his work in May 2004. However, that seems to me to be of no real significance in the present case. 479 This is because, as Mr Griffin, another expert called by Mr Barnes, said, what is of importance in the case of a junior mining explorer, is not so much conventional valuation benchmarks, but the potential of a project to improve market capitalisation and share price. 480 In short, the Cadetta Transaction was not a cash sale. It provided for the acquisition of the tenements by the issue of 13 million shares to the Cadetta shareholders. Chameleon did not give up the 8 cent value of each of those shares, that is to say, $1,040,000, in acquiring Cadetta. Instead, it gave up the value of the lost opportunity of issuing those shares in a more advantageous acquisition: Pilmer v Duke Group at 192. There was no evidence as to the value of the lost opportunity. 481 The answer to the question of breach of duty does not turn on valuation evidence. In so far as it relates to Chameleon's primary case and to the claim of breach of the duty of reasonable care, it turns on whether I accept Mr Scook's evidence of the terms of the Cadetta Transaction. In any event, I do not consider that the claim of over-value has been made out. Factual findings 482 In my opinion, the evidence of Mr Evans is to be preferred to that of Mr Scook on the critical question of the terms of the Cadetta Transaction. There are four reasons for this. 483 First, the evidence put forward by Mr Scook seems to me to have no rational commercial explanation, even in the somewhat murky commercial world in which the parties carried on business. 484 Mr Scook and his counter-parties in the negotiations, Mr Barnes and Mr Grimaldi, are businessmen. They deal in speculative mining stocks, or at least they did so at the relevant time. Yet Mr Scook asks me to accept that there were no real negotiations between the parties over the number of shares he was to receive. 485 On Mr Scook's version of the meetings, he wanted 8 million Chameleon shares but there was no discussion whatsoever about that figure. Rather, he asks me to find that Mr Barnes and Mr Grimaldi accepted the figure without debate and, later on, Mr Grimaldi proposed that the transaction be written up at 13 million shares with the identity of the recipient of the additional 5 million shares being entirely unexplained. 486 Mr Scook was vitally interested in the outcome of the negotiations. He was facing criminal charges over another matter and he had outstanding bankruptcy proceedings against him. I cannot accept that he engaged in the negotiations without any debate as to the price or that he had no knowledge of who was to receive the 5 million shares or why the recipient of those shares was to receive them. Nor can I accept that Mr Scook did not care who was to get the remaining 5 million shares. 487 By contrast, the evidence of Mr Evans is consistent with the manner in which I would expect these parties to do business. There were negotiations over the sale price with Mr Scook initially asking for 15 million shares and eventually agreeing to a figure of 13 million shares. 488 The effect of Mr Evans' evidence was that the parties agreed on the figure of 13 million shares, with Mr Evans to receive from Mr Scook a commission of one third of Mr Scook's parcel after Mr Grimaldi was "looked after". This explains Mr Evans' commission of 2.666 million shares, which was one third of Mr Scook's 8 million shares, with the remaining 5 million shares to go to Mr Grimaldi. 489 Whether Mr Grimaldi was entitled, as a matter of law to retain his commission of 5 million shares is another question. It turns upon the way in which Chameleon pleaded and conducted the case. 490 It is true that Mr Evans gave, what may have been an unresponsive answer to Mr Watts about "looking after" Mr Grimaldi in the passage that I have set out above. But I do not consider that he did so as an advocate for Mr Barnes' cause. The evidence he gave in cross-examination was consistent with what he had already said in chief. Moreover, the payment of a commission to Mr Grimaldi (whether lawfully or not) provides the only rational explanation for the way in which the transaction was arrived at. 491 Second, I do not consider that Mrs Hardie's evidence corroborates that of Mr Scook. At most it demonstrates that Mr Scook agreed to accept 8 million shares. But, in my view, Mrs Hardie's evidence does not address the balance of what took place in the course of the negotiations. That is to say, Mr Scook did agree to accept 8 million shares net, after the payment to Mr Grimaldi of his commission but the commission was payable out of the total sale price of 13 million shares. 492 Third, Mr Evans was a more acceptable witness than Mr Scook. There may well be difficulties in judging demeanour when a witness is cross-examined by video link but Mr Evans appeared to me to give his evidence consistently and carefully. In coming to this view I have taken into account Mr Hutley's cross-examination of Mr Evans at T647 about Mr Scook's assurance that he would not sell the shares. There is some force in Mr Hutley's attack on that evidence but I have come to the conclusion that notwithstanding this I should accept Mr Evans in preference to Mr Scook. 493 Mr Scook, who gave evidence in the witness box, was an unsatisfactory witness. At times he seemed to be quite careless about the accuracy of his evidence. For example, he said in chief, of the meeting about Desert Resources (which he had omitted altogether from his first affidavit) that Mr Barnes and Mr Grimaldi said they would proceed with the deal. He was forced under cross-examination by Mr Sheahan to concede that this evidence was "mistaken". 494 Mr Scook was also forced to concede that if his version of events is correct, the target statement authorised and signed by Cadetta was false. He went so far as to say it was, but in my view, the true position was as stated in the bidder's statement and the target statement. That is to say, there was a one for one exchange of shares. There was no disclosure of the commission to Mr Grimaldi and the statements were misleading in that respect. 495 Fourth, I reject Chameleon's submission as to the application of the rule in Jones v Dunkel. It does not follow from the failure of Mr Barnes and Mr Grimaldi to give evidence that I ought to accept Mr Scook's evidence. 496 The failure of Mr Barnes and Mr Grimaldi to give evidence is a factor to be taken into account in weighing the evidence. But what I have to do is to evaluate the evidence of the transaction that was given by Mr Scook and Mr Evans. Even allowing for the fact that the principal parties to the transaction, on the purchaser's side, did not give evidence, I cannot accept Mr Scook's evidence for the reasons stated above. 497 It seems to me that this approach is consistent with the observations of Hill J in Flack v Chairperson, National Crime Authority (1997) 80 FCR 137 at 149; see also Heydon JD Cross on Evidence (7th ed, LexisNexis Buttherworths, Sydney, 2004) at [1215], pages 41, 42. Chameleon's claims of breach of duty against Mr Grimaldi and Mr Barnes 498 At the heart of Chameleon's case was the proposition that Mr Scook agreed to sell the Cadetta tenements for 8 million shares and that the 5 million shares that were transferred to NiCu were not paid as a commission to Mr Grimaldi. It was claimed that the agreement was written up to 13 million shares to enable Mr Grimaldi to appropriate the additional 5 million shares for his, or NiCu's benefit. 499 The primary case sought to be made out by Chameleon was therefore one of commercial fraud perpetrated by Mr Grimaldi and Mr Barnes on Chameleon. The case was, as I have said, that Mr Grimaldi and Mr Barnes devised the Cadetta Transaction in the form that it took for the purpose of providing NiCu with a substantial number of Chameleon shares which NiCu could sell in order to pay for the acquisition of Winterfall and the Iron Jack Project. 500 It follows from my preference for Mr Evans' evidence to the evidence of Mr Scook that the payment of the 5 million shares to Mr Grimaldi (or at his direction) was characterised by the parties to the Cadetta Transaction as a commission payable to Mr Grimaldi. Mr Evans did not use the word "commission" but that was the effect of his evidence that Mr Grimaldi would be "looked after". Thus, Mr Scook and Mr Grimaldi treated the 5 million shares as a commission payable by Mr Scook (or Cadetta) out of the 13 million Chameleon shares which ultimately constituted the consideration for the transaction. There was no suggestion by Mr Evans that the other parties to the negotiations, including Mr Barnes, took any different approach. The 5 million Chameleon shares as a commission 501 In the course of preparing my reasons for judgment, I asked my Associate to raise a question with the parties as to the way in which the claim in relation to the Cadetta Transaction was pleaded. My Associate wrote to the parties' legal representatives on 30 July 2010 asking whether it was part of Chameleon's case that if I were to find that the 5 million shares constituted a commission payable to Mr Grimaldi, the payment constituted a breach by Mr Grimaldi of his duties to Chameleon for which Mr Grimaldi and Murchison are liable to account. I received short written responses from the relevant parties. 502 Chameleon stated that it was always Chameleon's case that the payment amounted to a breach of Mr Grimaldi's duties under the Corporations Act, and the general law, no matter how the payment is characterised. Chameleon also contended that the commission claim falls within the pleadings, pointing in particular to paragraphs 89, 90(a) and 90(b) of the Third Further Amended Statement of Claim. Chameleon also referred me to a number of paragraphs in its closing written submissions, in particular paragraphs [206] and [208] in support of the proposition that the transfer of the 5 million shares to Mr Grimaldi constituted a breach by him of his duties to Chameleon. 503 On a literal reading of the Statement of Claim, the effect of the allegation of the payment or transfer of the shares was said to be for the improper purposes stated in paragraphs 87(a) to (f) of the Statement of Claim. However, it seems to me that on a fair reading of the paragraphs to which I have referred, Chameleon's allegations are broad enough to encompass a claim that the Cadetta Transaction constituted a breach by Mr Grimaldi and Mr Barnes of their duties to Chameleon even if the transfer of the shares to NiCu constituted a commission arrangement between Mr Grimaldi and Mr Scook. 504 What seems to me to be important is that the allegation that the payment was a commission was not raised by the respondents in their Defences. Rather, the claim that the payment constituted a commission was raised in evidence by Mr Grimaldi and Mr Barnes in answer to the claim. 505 The suggestion that it was a commission was put to Mr Scook in cross-examination by counsel for Mr Grimaldi at T417 and T418. In particular, at T418, Mr Watts put to Mr Scook that he provided the 5 million shares to Mr Grimaldi "as a commission for assisting with the happening of the Cadetta takeover deal". He put a proposition in similar terms to Mrs Hardie at T462. I am entitled to infer that Mr Watts put those questions on instructions from Mr Grimaldi. 506 Moreover, as I have said, the effect of Mr Evans' evidence was that the 5 million shares were provided to Mr Grimaldi as a commission payable to him as an introduction fee. 507 In its closing written submissions Chameleon did not contend that if its primary case of a payment for improper purposes was rejected it ought nevertheless to succeed on the basis that the payment was to be characterised as an illicit commission. Indeed, the word "commission" did not appear in the closing submissions. Nor was the case opened on the basis of an alternative claim for the relevant respondents to account for an unlawful commission. 508 However, in my view, the effect of what was said in Chameleon's closing written submissions at [206] and [208] is broad enough to include the claim to recover the payment if it should be characterised as a commission. In particular, at [208], Chameleon submitted that the arrangement through which Mr Barnes and Mr Grimaldi procured the transfer of the 5 million shares constituted a breach of their duties not to have an interest that conflicted with their duties to Chameleon and not to use their positions as a director or officer improperly to gain an advantage for themselves or another under s 182(1) of the Corporations Act. 509 The effect of Mr Grimaldi's submissions on this issue was that the payment of the 5 million shares was a commission which was paid to Mr Grimaldi with the knowing, and fully informed, consent of the directors and a majority of the shareholders of Chameleon: see Mr Grimaldi's submissions at paras 148(vii), 190, 222 and 241. 510 In its response to this, Chameleon submitted that the transaction was, inter alia, a dishonest and fraudulent design intended to confer a benefit on Murchison, Mr Barnes and Mr Grimaldi and that Mr Grimaldi could not rely upon the proposition that the directors had approved the payment because Mr Grimaldi failed to inform them of his personal interest in the transaction; see Chameleon Submissions in Reply [116] and [117]. 511 It follows in my view that the characterisation of the transfer of the 5 million shares to NiCu as a payment of a commission to Mr Grimaldi was "in the arena" in the conduct of the proceedings. What is more, the characterisation of it as an illicit payment, regardless of the purpose for which the payment was to be used was also in issue, as a matter of fact and law, in the conduct of the case. 512 The first occasion on which Chameleon described the payment as a commission was on 3 March 2010 when the matter came before me, after closing addresses, on an application by Murchison for leave to file further written submissions. The debate on that occasion was not concerned with the characterisation of the Cadetta Transaction but Mr Hutley stated that just taking 5 million shares as a commission was a breach of Mr Grimaldi's duties to Chameleon. That statement was no more than a passing comment but there was a sufficient opportunity for Murchison and Grimaldi to respond to it at the time. Moreover, what it does show in my view is that the failure on the part of Chameleon to characterise the payment as a commission in the course of the trial was not deliberate. 513 I do not think that anything turns on the fact that in its written submissions Chameleon expressly disavowed the proposition that the 5 million shares constituted a commission paid to Mr Grimaldi: see paragraphs 187 and 188(c) of Chameleon's closing submissions and paragraphs 102(c) and 118 of its written submissions in reply. The issue which arises is whether it is open to Chameleon to contend, in the alternative, that Murchison and Mr Grimaldi are liable to account for the commission. In my opinion, Chameleon is entitled to do so on the case as pleaded, or at least, on the case as run at the trial. 514 Support for this approach may be found in the observations of Murphy JA in Nudrill Pty Limited v La Rosa [2010] WASCA 158 at [17] and [32]. As his Honour observed at [32], a plaintiff is ordinarily entitled to rely on any legal consequences which arise from the material facts pleaded. 515 Here, the material facts were that Mr Grimaldi and Mr Barnes procured the transfer of 5 million Chameleon shares to NiCu out of the total consideration of 13 million shares. It is true that the payment was said to be for the improper purposes stated in paragraphs 87(a) to (f) but I do not consider that the pleading of the material facts was in all respects confined by the allegation that the payment was for the stipulated purpose. 516 The gravamen of the allegation was that the payment was a breach of duty because it was for those purposes. However, the characterisation of the payment is a matter of law and if its characterisation constitutes a breach of duty regardless of the purposes for which it is made, that seems to me to fall within the material facts pleaded in the Statement of Claim. Application for leave to amend the Statement of Claim 517 On 30 September 2010, against the possibility that I may reject Chameleon's submissions on the pleading issue, Chameleon's solicitors wrote to my Associate foreshadowing an application for leave to amend the Statement of Claim. A Notice of Motion was filed on 6 October 2010 and I heard argument on 12 October 2010. The proposed amendment pleads in [93A] to [93D], that if (which is denied) the 5 million Chameleon shares were paid to Mr Grimaldi (or on his behalf to NiCu) as a commission, the receipt of the shares constituted a breach of Mr Grimaldi's duties to Chameleon under ss 181(1)(a), 181(1)(b) and 182(1)(a) of the Corporations Act and his fiduciary duties to the company. Consequential amendments are pleaded in [93E] to [93G]. 518 In my view leave to amend should be granted to enable Chameleon to file a Fourth Further Amended Statement of Claim incorporating these amendments. 519 Plainly, the application to amend was made at the latest possible stage in the proceedings but I do not consider that the concerns identified by the High Court in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 ("Aon") weigh against Chameleon's application. There are 6 reasons for this. 520 First, as a Full Court of this Court recently observed, Aon is not a case of "one size fits all": Cement Australia Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101 at [51]. The factors identified by the High Court are relevant to the exercise of the discretion but the weight to be given to the factors and the outcome of the balancing process may vary depending on the facts of the case. 521 Second, this is not a case in which considerations of case management or delay or inconvenience play any part. In particular, the proposed amendments merely seek to bring the pleadings into conformity with the factual evidence that was given by all relevant witnesses and to conform with the factual issues ventilated at the trial. As Davies J said in National Australia Bank Ltd v Nobile (1988) 100 ALR 227 at 235: (p)leadings are intended to enhance the achievement of justice, not hinder it. 522 In this case it would be unjust to exclude reliance upon a particular characterisation of the evidence which was based on facts that were in issue at the trial. 523 Third, the question which arises is analogous to an application to agitate a new point on appeal. As the High Court said in Coulton v Holcombe (1986) 162 CLR 1 at 7 - 8, the powers of an appellate court with respect to amendment are ordinarily to be exercised within the general framework of the issues that are settled at the trial. If evidence could have been given which could have prevented the point from succeeding, it cannot be taken afterward. 524 Here, the factual issues were settled in the manner that I have described. The competing factual contentions were fully litigated. The present issue turns, essentially upon my finding as to Mr Evans' evidence and the factual contention raised by Mr Grimaldi at the hearing, as well as upon the issue of informed consent. No further evidence could have been given on this issue which could have altered the result. 525 Fourth, the question whether leave to amend in the present case ought to be granted turns on the absence of any prejudice to the respondents. In my opinion, there is no prejudice. 526 Mr Watts submitted that there is prejudice to Mr Grimaldi because he would have adduced evidence that the payment was in the nature of a gift from Mr Scook. I reject that submission. That evidence would have been contrary to the basis upon which Mr Watts cross-examined Mr Scook. It would also have been contrary to the evidence Mr Grimaldi intended to adduce if he had entered the witness box. 527 The suggestion that Mr Grimaldi might have entered the witness box had he known that the claim against him was based upon the characterisation of the payment as a commission must also be rejected. If Mr Grimaldi had elected to give evidence, the evidence he intended to give was that the 5 million Chameleon shares were a commission: see Exhibit A1 on the Notice of Motion. 528 In any event, the suggestion that the payment of the 5 million shares was a gift is no answer to the claim of breach of fiduciary duty. The tender of evidence to support that contention would be futile. 529 Mr Watts also submitted that Mr Grimaldi is prejudiced by the amendment because he will be unable to invoke the interlocutory processes of the court including a claim for further discovery. I am satisfied that full discovery on all issues pertaining to the Cadetta Transaction has been given. Nor is there any scope for interlocutory processes in relation to the amendment. 530 I also reject Mr Watts' submission that he was deprived of the opportunity to fully cross-examine witnesses, in particular Mr Scook and Mr Evans, on all issues relevant to the claim propounded in the Fourth Further Amended Statement of Claim. 531 Fifth, I reject the submission on behalf of Murchison and Mr Grimaldi that Chameleon has failed to explain the reason for the late amendment. The reasons sufficiently appear in the correspondence to which I have referred. 532 Sixth, as I have already said, I reject the submission that Chameleon deliberately refrained from seeking an amendment during the course of the trial. Conclusions on the claims advanced in relation to the Cadetta Transaction 533 In my opinion, the claim that the Cadetta Transaction was devised by Mr Grimaldi and Mr Barnes for the improper purpose of siphoning funds from Chameleon to assist in meeting NiCu's obligations to Winterfall has not been made out. It is true that the 5 million Chameleon shares were sold by NiCu and the proceeds, or part of them, were used to fund the acquisition of Winterfall. But this does not necessarily lead to an inference of purpose. 534 The purpose of the transaction is to be gleaned primarily from the evidence of the negotiations which culminated in the execution of the Cadetta Heads of Agreement. That document was signed on 5 May 2004, more than three weeks before the execution of the NiCu/Winterfall Heads of Agreement on 30 May 2004. 535 It is true that Mr Grimaldi and Mr Barnes were discussing the Winterfall transaction with Mr Zuks in April 2004 but the evidence does not establish with any reasonable certainty the course of the negotiations. 536 Thus, I do not consider it is open to me to infer that the NiCu/Winterfall transaction was so advanced by 5 May 2004, when the Cadetta Heads of Agreement were executed, that the purpose of the Cadetta Transaction was to provide funds for NiCu to apply toward Winterfall. 537 Also, the share transfers from Jamora to NiCu were dated 10 June 2004, some five weeks after the date of the Cadetta Heads of Agreement. The evidence establishes that when the transfers were prepared by Mrs Hardie on or about 7 May 2004, Mr Grimaldi requested that the name of the transferee be left blank. The inference I would draw from this is that Mr Grimaldi did not know at the time the identity of the person or persons to whom the shares would be transferred. 538 In my opinion, it does not follow from Mr Grimaldi's instruction to leave the share transfers blank that his purpose was to provide NiCu with funds for the acquisition of Winterfall. 539 All that I am left with is that the 5 million shares were subsequently used by NiCu for the purpose alleged, and the evidence of NiCu's lack of funds. But this does not give rise to a reasonable and definite inference that the purpose of a transaction entered into before the NiCu/Winterfall agreement was reached was to provide funds for the completion of the later transaction. 540 In order to establish the inference sought to be drawn by Chameleon, I would have to be satisfied that the circumstances do more than give rise to conflicting inferences of equal degree of probability, otherwise the choice between them is a mere matter of conjecture: Heydon JD Cross on Evidence at [9055], page 304, citing Nominal Defendant v Owens (1978) 22 ALR 128 at 132. 541 Here, the circumstances do not satisfy that test. Any inference that might be drawn from later events, that the purpose of the Cadetta Transaction was to assist NiCu in its acquisition of Winterfall, is outweighed by the events which culminated in the execution of the Cadetta Heads of Agreement and the delivery of the blank share transfers. It follows that Chameleon's contention of improper purpose is mere conjecture. 542 Nor does the failure of Mr Grimaldi and Mr Barnes to give evidence assist Chameleon's claim. The rule in Jones v Dunkel cannot be employed to fill gaps in the evidence, or to convert conjecture and suspicion into inference: Heydon JD Cross on Evidence at [1215], page 41. 543 It follows that I reject the primary claim advanced by Chameleon in relation to the Cadetta Transaction. However, in my opinion Chameleon must succeed in its alternative contention that Mr Grimaldi is liable to account for his commission of 5 million shares. It is a fundamental principle of equity that a person in a fiduciary relationship is required to account for any personal benefit or gain obtained by reason of his or her fiduciary position: Chan v Zacharia (1984) 154 CLR 178 at 198 – 199. Even if Mr Grimaldi discussed the commission with the other directors he did not obtain their informed consent because he failed to disclose his personal interest. Claim against Murchison 544 For reasons explained more fully later (see [700] – [704]), Murchison is liable as an accessory under the first and second limbs of Barnes v Addy for knowing receipt or knowing assistance in relation to the 5 million shares. Mr Grimaldi had actual knowledge of the circumstances in which he received the commission. He must be taken to have known that he was not entitled to retain it or to apply it for Murchison's benefit. Mr Grimaldi's knowledge was attributable to Murchison. Mr Grimaldi's fraud was, at least in part, for the benefit of Murchison because it received the 5 million shares in Chameleon which it later sold to assist in funding its obligation under the NiCu/Winterfall Heads of Agreement. Chapter 8 - The July 2004 Placement and Provision of Cheques for $152,750 to the Iron Jack Vendors Pleadings 545 Chameleon's case in relation to the July 2004 Placement and provision of the cheques for $56,250 and $96,500 to the Iron Jack Vendors is pleaded in Parts 8.12, 8.15, 8.16 and 8.16A of the Statement of Claim. In my opinion, the claims of breach of statutory and fiduciary duties are fully and clearly pleaded in those parts of the pleading. So too are the claims of accessory liability and liability under both limbs of Barnes v Addy that are pleaded against Murchison and Winterfall. 546 The claims of breach of duty that are pleaded against Mr Grimaldi and Mr Barnes are pleaded in the alternative. The first claim pleaded in para 109A, is that the July Placement was arranged and organised by Mr Grimaldi and Mr Barnes for the purpose of raising funds to assist NiCu to fulfil its obligations to pay, on behalf of Winterfall, the instalment of the purchase price that was payable to the Iron Jack Vendors. 547 The second claim addresses the drawing and provision of the two cheques totalling $152,750 to the Iron Jack Vendors. The material facts are pleaded in paragraphs 118 to 121 of the Statement of Claim. Paragraph 121(c) makes it plain that the claims of breach of duty in respect of the drawing and provision of the cheques are made in the alternative to the claim in respect of the July Placement. 548 This is also made clear in the pleading of the breaches of duty commencing at [122]. What is alleged is that the organisation by Mr Grimaldi and Mr Barnes of the July Placement "and/or" the drawing and provision of the cheques to the Iron Jack Vendors constituted breaches of their statutory and equitable duties to Chameleon. 549 The provisions of the Corporations Act alleged to have been breached by Mr Grimaldi and Mr Barnes (and by Mr Roberts and Mr Dondas to the extent they purported to authorise a loan of the $152,750 to NiCu) are: s 180(1) (reasonable care and diligence); s 181(1)(a) (good faith); s 181(1)(b) (duty to exercise powers for a proper purpose); and s 182(1) (duty not to improperly use position to gain advantage for themselves or someone else). 550 The fiduciary duties said to have been breached by Mr Grimaldi and Mr Barnes in respect of the July Placement and/or the drawing and provisions of the cheques are: not to have an interest that conflicted with their duties to Chameleon; not to misuse their positions as a director or officer of Chameleon for personal advantage or for the advantage of a third person; and not to misappropriate Chameleon's property (that is, the $152,750) for the benefit of a third party. 551 NiCu is said to have had knowledge of the factual matters giving rise to the breaches of duty alleged against Mr Grimaldi and Mr Barnes and to have been knowingly concerned in the contraventions of the Corporations Act. 552 Claims under each limb of Barnes v Addy are also pleaded against Murchison. Those claims correspond to the claims of knowing involvement, and rely upon the knowledge of Mr Grimaldi. 553 Murchison is said to have held the cheques on trust for Chameleon and to hold any assets which it purchased or obtained by the use of those cheques on trust for Chameleon. 554 A separate claim under Barnes v Addy is also pleaded against Winterfall. This is pleaded in Part 8.16A, and was introduced by an amendment, granted with leave, after Mr Hutley cross-examined Mr Zuks. 555 The claim against Winterfall is that prior to the issue of the cheques, Mr Zuks agreed with Mr Grimaldi and Mr Barnes that each of those two persons would receive a payment for introducing NiCu to Winterfall. The pleading continues by alleging in paragraph 130C that Winterfall through Mr Zuks knew a substantial number of facts which showed the unlawfulness of the payments. 556 The relevant facts included the following: NiCu had not been able to make the payment due to Winterfall under the NiCu/Winterfall Heads of Agreement. Mr Grimaldi and Mr Barnes were arranging for Chameleon to provide funds to assist NiCu to meet its obligations to Winterfall. Mr Grimaldi and Mr Barnes had a conflict of interest with respect to the provision of the cheques because of their entitlement to an introduction fee. The evidence provided to Winterfall by or on behalf of Chameleon failed to demonstrate that Chameleon had authorised the provision of the cheques with knowledge of the benefits to be received by Mr Grimaldi and Mr Barnes. 557 Winterfall is said to have received the cheques with knowledge, on the part of Mr Zuks, of the breaches of duty by Mr Grimaldi and Mr Barnes. The categories of knowledge that are pleaded fall within the first four categories stated in Baden. The Background Facts 558 The relevant background facts are set out in the agreed chronology in the Appendix to this judgment. Nevertheless, it seems to be necessary to reproduce the salient background matters in this chapter. 559 On 1 July 2004 Winterfall was due to pay the balance of the second instalment of purchase price to the Iron Jack Vendors. The balance was $350,000 (plus GST) in accordance with the extension of time that had previously been granted. However, Winterfall failed to meet the extended deadline because NiCu failed to pay the sum pursuant to the NiCu/Winterfall Heads of Agreement. 560 In early July 2004 Chameleon had only very small amounts of cash in its bank accounts. One of its accounts was conducted at the George's Terrace Branch of the St George Bank. That account was in credit on 5 July 2004 in an amount of approximately $4,700. 561 Notwithstanding this, in early July 2004, Mr Barnes and/or Mr Grimaldi told Mr Zuks that some of the payments due to the Iron Jack Vendors would be met by Chameleon. I will return to this when I deal with Mr Zuks' evidence. 562 The evidence in the case includes a document entitled "Resolution of Directors of Chameleon Mining NL as at 8 Juli [sic] 2004." The document bears the signatures of Mr Dondas and Mr Roberts. 563 Provision was made on the Resolution for the signature of another director, Mr Niurou, but his signature does not appear on the document. 564 The terms of the Resolution are as follows: Loan NiCu Metals Ltd: The company owned [sic] NiCu Metals Ltd approximately $75,000. The two companies had from time to time loan [sic] funds to each other. It was resolved to pay NiCu Metals the sum of $56,500 as a short term loan which would be repaid within 14 days. 565 The original Resolution signed by Mr Dondas and Mr Roberts is Exhibit B. It is a faxed document with a fax imprint at the top. The fax imprint shows the name "Good Beginnings", which is the fax header of Mr Dondas, and the date 9 July 2004. It bears the signature of Mr Dondas in black and the signature of Mr Roberts in blue ink but there is no other evidence on the document of the date on which it was signed. 566 I infer from the fax header on Exhibit B that Mr Dondas signed the Resolution on, or shortly before, 9 July 2004 and that he faxed it to Mr Roberts on that date. Mr Roberts' evidence was that he did not sign the document until August or September 2004. I will refer to that evidence later. 567 On 9 July 2004 Mr Barnes signed a cheque for $56,250 drawn in favour of Data Mapping, which was one of the Iron Jack Vendors. The cheque was drawn on Chameleon's account at the St George Bank and was countersigned by Mr Barnes' secretary, Ms Janine Walker. 568 The details on the cheque butt record the amount of the cheque and describe the funds as "Loan to NiCu re Jack Hills project". 569 It appears that at around that time Chameleon had received some funds from investors in advance of the announcement of Chameleon's July Placement but those funds had not been cleared when Data Mapping presented the cheque for payment. The cheque was dishonoured by the Bank on 12 July 2004. 570 Mr Zuks spoke to Mr Grimaldi and Ms Walker about the dishonoured cheque. I will deal with those conversations again later. 571 On 12 July 2004, that is to say the same day as the cheque for $56,250 was dishonoured, Mr Grimaldi sent an email to Mr Barnes and Ms Walker. The text of Mr Grimaldi's email is reproduced in the chronology. Mr Grimaldi said in the email that he had banked some funds from the Share Placement into the St George account so that the total balance was $225,000. He said another $45,000 was on the way. 572 Mr Grimaldi's email attached a draft ASX announcement of Chameleon's Share Placement. The draft, although prepared by Mr Grimaldi, was to be signed by Mr Barnes. The draft stated that the funds raised in the Placement were to be used for exploration activity at the Palm Springs project. 573 On 12 July 2004 Mr Barnes appears to have written to the ASX announcing the Placement. The copy of the letter that was in evidence is unsigned, but Mr Barnes' name appears under the space that was left for the signature. 574 By a letter dated 14 July 2004 addressed to Mr Barnes at his facsimile number, Mr Grimaldi confirmed the advance of $56,250 (although he referred to an advance of $56,500), and requested a further advance. It is not clear whether the letter was sent on that date, or whether it was sent at all. There is no fax imprint on the copy letter that was in evidence. 575 The letter of 14 July 2004 was written on the letterhead of NiCu and was signed by Mr Grimaldi as "Executive Director". The letter was as follows: Re: Loan from Chameleon to NiCu Metals Ltd We hereby confirm that Chameleon Mining N.L. has advanced this company the sum of $56,500 as a short term loan, to be repaid within 10 days. This company would like to request a further advance of $96,500 to paid [sic] on Friday 16th July on the same terms and conditions. 576 Mr Zuks gave evidence that he was concerned that Chameleon and NiCu might be related parties and that he requested evidence from Mr Grimaldi that Chameleon was authorised to lend moneys to NiCu. I will deal with this again later but it is sufficient to record at this stage, that Mr Zuks said that, following upon this conversation, Mr Grimaldi provided him with a copy of the "8 Juli" Resolution and a copy of the letter of 14 July 2004. 577 On 15 July 2004 Chameleon wrote to Registries Ltd, which was apparently the company's share registry, stating that it had made a placement of 8 million ordinary shares at 4.5 cents per share to private professional investors as per the attached list. The letter bears the signature "L Roberts", but Mr Roberts' evidence was that he did not sign it. 578 The effect of the letter of 15 July 2004 was that the amount raised by Chameleon in its July Placement was $360,000 (8 million x 4.5 cents). 579 The evidence also includes a letter bearing the date 16 July 2004 which contains a signature that appears to be the signature of Mr Roberts. His evidence was that he did not sign the document and that it contains an electronic copy of his signature. 580 The text of the letter is set out in the chronology but I will repeat it, for convenience, as follows: We hereby agree to advance NiCu Metals Ltd on a short term loan basis the sum of $96,500 the funds are to be used to finalize the Jack Hills iron ore project. We also advise that the funds must be repaid within 10 days. 581 On 20 July 2004 Mr Barnes and Ms Walker signed a cheque for $96,500 in favour of Zeedam Enterprises Pty Limited, one of the Iron Jack Vendors. The cheque was drawn on Chameleon's account at the St George Bank. Mr Zuks gave evidence that he collected the cheque from Mr Barnes' office. 582 The cheque butt of the cheque for $96,500 contains the following information: Zeedam Enterprises Pty Ltd (loan refer Nik Zuks/Phil Grimaldi) 583 By 22 July 2004 Winterfall had failed to meet its obligation to pay $385,000 to the Iron Jack Vendors. On that date, Mr Hitch sent a fax to Mr Zuks stating that Winterfall's "exclusive period" had come to an end and "we are now dealing with the other offers". The letter went on to say: … you still have a few days until we will be responding to these offers… 584 It is plain that following the receipt of the fax from Mr Hitch there were urgent discussions between Mr Zuks and Mr Grimaldi. On 26 July 2004 Mr Grimaldi sent a fax to Mr Zuks. The text of the letter is set out in the chronology. 585 The fax from Mr Grimaldi includes the following statement: We have paid to you and made available to you via Chameleon Mining NL, a total of $318,000 we have ready to be paid to you $32,000 plus the GST of $35,000 on the original total sum of $350,000. 586 On the same day, 26 July 2004, Mr Zuks sent a letter to Mr Hitch. The letter attached Mr Grimaldi's fax of the same date. The letter went on to say that "you hold a cheque that can be re-presented." This was apparently a reference to the dishonoured cheque for $56,250. The letter also stated that Mr Zuks held $126,250 with a further $130,000 currently "in an account in Sydney". 587 On 27 July 2004, Mr Hitch sent a fax to Mr Zuks. The fax included a statement that "we will pick up outstanding monies", including $96,250 due to Zeedam, "tomorrow". The fax concluded with a statement in bold that the cheques must be ready tomorrow and "no further extension of time will be granted". 588 Mr Hitch's fax and the letter from Mr Zuks of 26 July 2004 make it clear in my view that the cheque for $96,250 was not collected from Ms Walker until 28 July 2004. 589 The cheque for $56,250 was then re-presented by the Iron Jack Vendors, together with the cheque for $96,500. The two cheques were debited to Chameleon's account at the St George Bank on 29 July 2004. Mr Roberts' evidence 590 Mr Roberts' evidence of his involvement in the Winterfall/Iron Jack transaction commenced with a conversation which he said took place in June 2004 with Mr Grimaldi. The effect of the conversation was that Mr Grimaldi told Mr Roberts that Winterfall had an option to acquire "some iron ore assets" and that NiCu had secured an option to purchase Winterfall. 591 Mr Roberts went on to say that Mr Grimaldi told him that NiCu needed $500,000 to exercise the option and asked whether Mr Roberts wanted to be involved in raising funds. Mr Grimaldi told Mr Roberts he would receive an allocation of shares in Winterfall (or NiCu) for his efforts. He then set about trying to raise funds for NiCu. 592 Mr Roberts' affidavit describes the inception of the July Placement made by Chameleon. The effect of his description is that the July Placement came about as a result of conversations between Mr Grimaldi, Mr Koh (of New Millennium), Mr Evans and Mr Roberts in late June 2004. However, Mr Roberts' evidence was that Mr Koh was to introduce investors to Chameleon, not for the purpose of exploration of the Palm Springs project (as later stated in the ASX announcement), but for the purpose of the acquisition of a company known as Chalceus Pty Ltd ("Chalceus"), and through it, the Cerro Negro Mine in Chile. 593 In his affidavit evidence, and in his oral evidence in chief, Mr Roberts said that he did not find out about the cheques for $56,250 and $96,500 until he reviewed the bank statements for Chameleon's account at St George Bank in August or September 2004. He said he asked Mr Grimaldi what the cheques were for and Mr Grimaldi told him they were related to NiCu and he (Mr Roberts) was asked to code them to NiCu. 594 Mr Roberts went on to say that he had another discussion with Mr Grimaldi at about the same time, in which Mr Grimaldi advised him that he had some documents prepared in relation to the transaction, and that Mr Grimaldi prepared them and asked him to sign them. 595 According to Mr Roberts, he did not sign the original of the "8 Juli" Resolution until it was presented to him by Mr Grimaldi in about August or September 2004. Mr Roberts' evidence was that he signed the document without questioning Mr Grimaldi about it. 596 Mr Roberts also said that Mr Grimaldi did not say, at the time when he presented the Resolution, that NiCu would repay the money; he said only that he needed some supporting documentation regarding the cheques. 597 I referred earlier to Mr Roberts' evidence about the letters of 15th and 16th July 2004. His evidence was that he did not sign those letters. 598 Mr Roberts' evidence was that he was not asked by Mr Grimaldi or Mr Barnes to approve the loans of $56,250 or $96,500 to NiCu. Nor was there any Board meeting to approve those loans. 599 In cross-examination by Mr Karkar, for Murchison, Mr Roberts adhered to his evidence that he signed the "8 Juli" Resolution in August or September 2004 when he was preparing Chameleon's accounts. He said he signed the document because he trusted Mr Grimaldi. He said he considered that Mr Grimaldi was assisting both Chameleon and NiCu. 600 Mr Roberts denied, under cross-examination by Mr Sheahan, that he discussed each of the payments of $56,250 and $96,500 with Mr Barnes in advance of the payments. Mr Roberts also denied the suggestion, put to him by Mr Sheahan, that Mr Barnes was initially reluctant to make the advances. Mr Roberts said he did not discuss the mater with Mr Barnes at all. Mr Zuks' evidence 601 Mr Zuks dealt with the receipt of the two cheques from Chameleon in his affidavit. He said that when Mr Grimaldi told him that the funds would be coming from Chameleon, Mr Zuks said that if Chameleon and NiCu were related parties, then the payment by Chameleon of NiCu's debt may require shareholder approval. 602 Mr Grimaldi is said to have replied in words to the effect that no such issue arose because Chameleon and NiCu had an arrangement under which they lent money to each other when required for corporate purposes. 603 Mr Zuks said that on a separate occasion he was told words to similar effect by Mr Barnes. 604 Mr Zuks went on to say in para 60 of his affidavit that he asked Mr Grimaldi to provide him with "some comfort" that the payments were approved by Chameleon and NiCu and that Mr Grimaldi faxed two documents to him. 605 The first document was said to be a minute of a meeting of directors of Chameleon confirming that the directors "had agreed that CHM should lend the sum of $152,750 to MMX." He said he had not been able to locate the minute sent to him by Mr Grimaldi but it was very similar to the document I have described as the "8 Juli" Resolution save that: it referred to a loan of $152,750, not just to $56,500 as stated in the "8 Juli" Resolution; and it was signed by all the Chameleon directors, not just Mr Roberts and Mr Dondas. 606 The second document was said to be a copy of the letter dated 14 July 2004 which was the letter from Mr Grimaldi to Mr Barnes confirming the loan for $56,250 and requesting a second loan of $96,500. 607 Mr Zuks went on to say that he collected the two cheques from Mr Barnes' office "some time shortly after receiving the documents referred to above". 608 Mr Hutley cross-examined Mr Zuks very closely about these events. The principal part of the cross-examination is at T819 to T826. 609 The effect of Mr Zuks' evidence recorded at those pages of the transcript was: he first learned that the cheque for $56,250 would be coming from Chameleon in a conversation with Mr Grimaldi, and it was "a bit of a surprise to me"; he knew that Mr Barnes had a substantial personal interest in the outcome of the NiCu/Winterfall transaction and that the loan from Chameleon to NiCu may be a related party transaction because of the involvement of Mr Barnes and Mr Grimaldi; he was told prior to receiving the cheque for $56,250 on 9 July 2004 that Chameleon was doing a capital raising, but it was not for the purpose of putting money into Chameleon; he said, initially, that he was told before the first payment, that Chameleon would pay the next two instalments, but later he appeared to say that the conversation was limited to the first instalment; he was provided with a minute and a letter before the first payment; Mr Barnes felt uncomfortable and indicated this in his "body language" and "his words weren't flowing clearly" when telling him that the money was coming from Chameleon; Mr Hitch phoned him when the first cheque "bounced" and he then spoke to Ms Walker who said "Greg and Phil were handling it"; he then spoke to Mr Grimaldi; and the minute was in general terms and said that NiCu and Chameleon had an arrangement under which they could loan money to each other if required. 610 Mr Hutley continued his cross-examination of Mr Zuks the following day. The evidence in relation to the cheques is to be found at T831 - 835. The additional evidence on this topic was: Mr Zuks' "main bit of comfort" was the minute which he received before the first cheque arrived; the minute was signed by Mr Barnes and the other directors of Chameleon; he could not recall their names but one was Mr Dondas; he did not want any relationship with Mr Barnes because of some problems Mr Barnes left behind at New Millennium; Zeedam enterprises made it clear to Mr Zuks that if the payment was not on time, he was at risk, and he communicated this to Mr Grimaldi; he said, at one point that the letter of 14 July 2004 was the only document he received in relation to the two cheques from Mr Grimaldi or Mr Barnes and he knew that they were: …(t)he two gentlemen who had the interest in the successful consummation of the deal … he may not have received the document prior to the first cheque but "(i)t was around that time"; and there was anxiety about missing deadlines, but not "desperation". 611 Later, at T851, Mr Zuks denied that he was "content not to enquire at all as to the propriety of what was taking place, and particularly as to the source of funds". 612 Mr Zuks also said it was "just dead wrong" to suggest that he knew the moneys for the Iron Jack Vendors was being sourced substantially through Chameleon. Factual findings 613 There are a number of aspects of the evidence of Mr Roberts and Mr Zuks which I cannot accept. I will set out below my findings. The findings are based on what seem to me to be the objective probabilities to be gleaned from the evidence of Mr Roberts and Mr Zuks, as well as the documentary evidence. 614 It is clear that Mr Zuks was told by Mr Grimaldi that the first cheque would be provided by Chameleon. That was Mr Zuks' evidence and Mr Zuks went to Mr Barnes' office to collect the cheque. 615 The first cheque was dated 9 July 2004 and accordingly the conversation between Mr Grimaldi and Mr Zuks must have taken place on or before that date. 616 Plainly, Mr Grimaldi and Mr Barnes knew that the purpose of drawing the first cheque was to meet part of the instalment of purchase price payable by NiCu for its acquisition of an interest in the Iron Jack Project. 617 This is consistent with the entry on the butt of the cheque drawn by Mr Barnes, and with the evidence of Mr Zuks that Mr Grimaldi told him that the funds would be coming from Chameleon. 618 Mr Zuks said on a number of occasions in his cross-examination that he was told by Mr Grimaldi and/or Mr Barnes that the first two payments would be coming from Chameleon. In my opinion, it is more likely that the initial discussions were only about the first payment. 619 This is supported by the fact that the "8 Juli" Resolution referred only to the first payment, and the fact that the second cheque was not drawn until several weeks later. Also, Mr Grimaldi's letter of 14 July 2004 indicates that he did not request the further advance of $96,500 until that date. 620 The first cheque, as I have said, was drawn by Mr Barnes. Mr Grimaldi told Mr Zuks that the instalment was coming from Chameleon. I infer from this that Mr Grimaldi discussed the drawing of the cheques with Mr Barnes shortly before 9 July 2004. Plainly, NiCu did not have the funds. Accordingly, I find that Mr Grimaldi procured Mr Barnes to draw the cheque. 621 Importantly, prior to 9 July 2004 Mr Zuks knew that Mr Barnes, as drawer of the cheque, and Mr Grimaldi as its procurer, stood to benefit from the successful completion of Winterfall's acquisition of the Iron Jack Project. Mr Zuks conceded this in his evidence. 622 However, what concerned Mr Zuks was that the involvement of Mr Barnes and Mr Grimaldi made it a related party transaction. I accept that this was his concern, but whether this, and the other matters to which I will refer later, are sufficient to affix him (and through him, Winterfall) with the requisite degree of knowledge for "accessory" liability, is a difficult question. I will deal with it later. 623 I accept that Mr Zuks asked Mr Grimaldi and Mr Barnes for evidence that Chameleon was authorised to provide the funds which were the subject of the payment to Data Mapping, that is to say, the cheque for $56,250. This request was made before the cheque was drawn. 624 This finding is supported by Mr Zuks' evidence and by the fact that the "8 Juli" Resolution was faxed from Mr Dondas' office with Mr Dondas' signature on it, on the morning of 9 July 2004. 625 The inference I draw is that Mr Zuks requested "some evidence" on or very shortly before 9 July 2004, and that Mr Barnes or Mr Roberts requested Mr Dondas to sign the document at that time. 626 I am entitled to infer that Mr Barnes made the request of Mr Dondas, or at very least, he knew that the request was made. A copy of Mr Barnes' passport was in evidence in the tender bundle but some of the entries are illegible. The passport shows that Mr Barnes was absent from 13 July 2004 to 31 July 2004 but the entries do not permit me to determine whether he left Australia earlier in that month. His written submissions state that the passport records that Mr Barnes arrived in Chile on 7 July 2004. I cannot decipher the entries upon which counsel rely. But even if Mr Barnes did leave Australia on that date, it is sufficiently close to the 9 July 2004 that the inference to which I refer remains open in the absence of evidence from Mr Barnes to the contrary. In particular, there is no explanation for how Mr Barnes signed a cheque dated 9 July 2004 if in fact he was in Chile on that date. 627 I reject Mr Roberts' evidence that he did not sign the "8 Juli" Resolution until August or September 2004. As I have said, the fax header sheet, and the objective circumstances, suggest that the document was faxed from Mr Dondas' office on 9 July 2004. Mr Zuks wanted some evidence. It is not likely that the document remained in limbo until Mr Roberts commenced preparing the accounts in August or September. 628 It seems to me to be far more likely that the "8 Juli" Resolution was signed by Mr Roberts on or shortly after 9 July 2004 and that it was shown to Mr Zuks at that time, in order to give him "comfort". 629 Whether Mr Zuks was entitled to take "comfort" from the document is a different question. 630 I reject Mr Zuks' evidence that he was provided with a Chameleon minute that referred to the sum of $152,750. No such document was produced in evidence. Moreover, no such document could have existed before the cheque for $56,250 was collected by Mr Zuks because the additional "advance" was not requested by Mr Grimaldi until at least 14 July 2004. 631 Nor do I accept that Mr Zuks was shown a minute in general terms providing that Chameleon and NiCu had an arrangement for inter-company loans. 632 It may be true that Mr Roberts did not see the cheque for $56,250 until he was preparing the accounts. But the matters I have referred to above indicate that, by about 9 July 2004, he was aware that a cheque for that amount had been drawn by Chameleon. 633 The cheque drawn on 9 July 2004 was dishonoured but I am entitled to infer that both Mr Barnes and Mr Grimaldi believed there were moneys in Chameleon's bank account at that time. Having regard to Chameleon's financial position, the only possible source of funds was from the capital raising which Mr Grimaldi was arranging on Chameleon's behalf. 634 That Mr Grimaldi was acting on behalf of Chameleon is plain from his email to Mr Barnes and Ms Walker of 12 July 2004. He was collecting the proceeds of the capital raising and depositing them in Chameleon's bank account. 635 The purpose of the capital raising appears to have been to fund the acquisition of Chalceus although Mr Grimaldi's draft announcement on 12 July 2004 described the purpose as being for the Palm Springs project. 636 Whether the purpose of the capital raising was for Chalceus or Palm Springs is not clear. But what is clear is that there is no evidence that the capital raising was for the purpose of enabling NiCu to fund the acquisition of Winterfall. 637 It is true that some of the moneys were used for that purpose. But it does not follow that it was Chameleon's purpose in making the July Placement to use the funds for the acquisition of Winterfall by NiCu. The use of the funds for NiCu's benefit, and NiCu's difficult financial position do not give rise to the inference suggested by Chameleon. Rather, the proposition that the funds were raised for a purpose other than the purpose of funding Chalceus or Palm Springs is mere conjecture. 638 I accept that Mr Grimaldi and Mr Barnes told Mr Zuks that Chameleon was doing a capital raising. I also accept that Messrs Grimaldi and Barnes did not tell Mr Zuks that the capital raising was for the purpose of assisting NiCu to fund the Iron Jack acquisition. 639 That statement would have been quite false and I can see no evidentiary basis for drawing such an inference. Thus, Mr Zuks' knowledge (if any) of the breach of fiduciary duty by Mr Barnes and Mr Grimaldi turns on the matters of which he was aware in relation to the loan or purported loan of the sum of $56,250. 640 Similar questions arise in relation to the knowledge of Mr Grimaldi, Mr Barnes and Mr Zuks of the circumstances attending the drawing of the second cheque. I will deal separately with the question of knowledge later. 641 Nevertheless, it is sufficient to observe at this point that Mr Grimaldi and Mr Barnes were aware of the fact that the cheque for $56,250 was drawn by Chameleon to assist NiCu, which they must have known was short of funds. They are also to be taken to know that Chameleon was short of funds and that the "loan" to NiCu was to be made out of funds raised by Chameleon for an entirely different purpose. 642 Most importantly, Mr Grimaldi and Mr Barnes knew that the funds were to be advanced to NiCu to assist it in completing an acquisition, the successful completion of which would entitle them to an introduction fee. Mr Zuks knew that as well. The evidence does not establish that, by this time, Mr Zuks had agreed to provide them with a specific number of shares, but the inference I draw from the evidence is that the arrangement was for a substantial number of shares to be allocated to Messrs Barnes and Grimaldi. 643 The date on which the cheque for $56,250 was dishonoured is not established but I infer that it occurred within a few days of 9 July 2004. The date stated in the agreed chronology is 12 July 2004. It may be that the cheque was dishonoured because the funds referred to in Mr Grimaldi's email of 12 July 2004 had not reached Chameleon's bank account in Perth. Or it may be that the funds referred to in that email were used for other purposes. 644 In any event, it is plain that when the cheque was dishonoured, Mr Zuks spoke to Mr Grimaldi about the matter. Mr Zuks said so in his evidence. I doubt that the conversation was a pleasant one. The circumstances speak for themselves. 645 I accept that Mr Zuks spoke to Ms Walker after the cheque was dishonoured and that he was told that Mr Barnes and Mr Grimaldi were handling the matter. I also accept that Mr Zuks was told at some time by Ms Walker that he could re-present the cheque. But that seems to have happened later. 646 I accept that Mr Grimaldi showed Mr Zuks the letter dated 14 July 2004 addressed to Barnes and that he did so on or shortly after that date. 647 Mr Zuks accepted in his evidence that he did not place as much reliance on the letter as he did on the minute. 648 I do not think that anything turns on whether Mr Roberts signed the letter of 15 July 2004 to Registries Ltd or the letter of 16 July 2004. I am inclined to the view that he either signed the letters himself or that his signature was placed on them electronically with his approval. 649 The document dated 16 July 2004 is an important one because it purports to approve the advance of $96,500 to NiCu to enable the acquisition of the Jack Hills project. 650 I have already rejected Mr Roberts' evidence that he did not become aware of the two cheques until August or September. It seems to me that he was aware of the second cheque for $96,500 at about the time when it was drawn. The letter of 16 July 2004 is some evidence of this. 651 But Mr Roberts' knowledge of the advance of $96,500 and his apparent agreement to it does not conclude the matter. This is because I am satisfied that Mr Roberts was not told of the personal interest of Mr Grimaldi and Mr Barnes in the acquisition of the Jack Hills project. 652 I infer from the letter of 16 July 2004 that Mr Grimaldi requested Mr Barnes to draw the cheque for $96,500 on or about the date it bears, namely 20 July 2004. There is no explanation in the evidence of how Mr Barnes came to sign the cheque at a time when he was overseas. Nothing turns on that because it was never suggested on Mr Barnes' behalf that he did not sign the cheque. 653 It is plain from the letters of 26 July 2004 and 27 July 2004 between the Iron Jack Vendors and Mr Zuks, and between Mr Grimaldi and Mr Zuks that by then the situation was desperate. I consider Mr Zuks' evidence that he was anxious about the missed deadlines as an understatement. Even for an experienced businessman such as Mr Zuks, his anxiety levels must have been high. 654 It was not until 26 July 2004 that Mr Zuks told Mr Hitch he could re-present the cheque for $56,250 (drawn on 9 July 2004). Mr Zuks did not collect the cheque for $96,500 from Ms Walker until 28 July 2004 when he was told by the Iron Jack Vendors in the clearest terms that no further extensions would be granted. Knowledge of Mr Grimaldi, Mr Barnes and Mr Zuks 655 It is clear that Mr Grimaldi and Mr Barnes knew that the two cheques were drawn for the purpose of providing NiCu with funds to complete the Iron Jack Project in which they had a personal interest through their introduction fee. 656 There is no basis for finding that Mr Grimaldi and Mr Barnes disclosed their personal interest to any of the other directors of Chameleon. I find that they did not do so. 657 I also find that Mr Grimaldi and Mr Barnes knew that the "advances" were to be made at a time when Chameleon was short of funds and that the moneys came out of funds raised for Chameleon by Mr Grimaldi for an entirely different purpose. 658 The total sum "advanced" to NiCu was $152,750 which represented nearly half of the funds raised by the July Placement. I find that Mr Grimaldi and Mr Barnes were aware of that. 659 The second "advance" of $96,500 was made more than 14 days after the "advance" of $56,250 and therefore beyond the terms of the short term nature of the initial advance of funds. The second cheque was drawn on 20 July 2004 but it was not collected until 28 July 2004, more than 14 days after the date on which the first cheque was drawn. Mr Grimaldi and Mr Barnes must have been aware of that. 660 There was no Board meeting to approve the advances. Nor was there any resolution signed by all the directors or shareholders. Mr Barnes and Mr Grimaldi were aware of that. 661 Mr Zuks, as I have said, knew of the personal interest of Mr Grimaldi and Mr Barnes in the completion of the acquisition of Winterfall and that the two cheques were provided by Chameleon to NiCu for that purpose. 662 The only document provided to Mr Zuks that purported to authorise any part of the transaction was the "8 Juli" Resolution. It was confined to the first cheque and was, on its face, signed by only two directors. These facts were known to Mr Zuks. 663 The "8 Juli" Resolution contained no disclosure of the personal interest of Mr Grimaldi or Mr Barnes. Mr Zuks was not cross-examined about that. 664 Chameleon submitted that I should find that Mr Barnes and Mr Grimaldi were aware that, notwithstanding the statement on the "8 Juli" Resolution that Chameleon was indebted to NiCu for $75,000, no such debt was outstanding at the time. 665 There is no evidence before me as to how the figure of $75,000 came to be inserted in the document. It does not accord with the amount stated in the audited accounts for Chameleon or NiCu as at 30 June 2004. The audited accounts for both companies show the amount outstanding from Chameleon to NiCu as $38,250. 666 In the absence of evidence from Mr Grimaldi and Mr Barnes, I am entitled to infer that they knew that Chameleon was not indebted to NiCu for the amount stated in the "8 Juli" Resolution, or at least, that they failed to make any enquiry as to that fact. Claims against Mr Grimaldi and Mr Barnes 667 The factual findings make it plain that Mr Grimaldi as a de facto director of Chameleon, and Mr Barnes as a director, breached their statutory duties to the company under each of the provisions of the Corporations Act relied upon by Chameleon. 668 The circumstances attending the drawing of the cheques make it plain that each of Mr Grimaldi and Mr Barnes arranged for Chameleon's funds to be paid to the Iron Jack Vendors for the express purpose of assisting NiCu to complete the acquisition of Winterfall and thereby to acquire an interest in the Iron Jack Project. 669 Mr Barnes drew the cheques. Mr Grimaldi requested him to do so. It was Mr Grimaldi who procured the drawing of the cheques which were drawn for the benefit of NiCu, that company being without funds to honour its contractual commitments to Winterfall. 670 But what is most telling is the personal interest of Mr Grimaldi and Mr Barnes. Each had a direct personal interest in the completion by NiCu of the acquisition of Winterfall because of their entitlement to the "introduction fee" for introducing NiCu to Winterfall. 671 The personal interest of Mr Grimaldi and Mr Barnes in the successful completion of the transaction by NiCu gave rise to a real and substantial possibility of conflict between their personal interests and their duty to Chameleon in permitting Chameleon's funds to be used to assist NiCu to complete the transaction. 672 In substance what was done was that Mr Grimaldi and Mr Barnes diverted more than $152,000 of funds raised by Chameleon for its own corporate purposes, to NiCu, for NiCu's benefit and, in particular, for the personal benefit of Mr Grimaldi and Mr Barnes through the introduction fee. 673 The funds that were diverted consisted of nearly half of the funds raised by Chameleon. Those funds were raised to enable Chameleon to develop the Palm Springs project, or perhaps for the acquisition of Chalceus. Nearly half of those moneys were diverted to NiCu for its corporate purposes in a transaction in which Mr Grimaldi and Mr Barnes was personally interested. 674 In procuring Chameleon to draw the cheques and in actually drawing them, each of Mr Grimaldi and Mr Barnes failed to act in good faith and failed to act in the best interests of Chameleon in breach of the duty of good faith stated in s 181(1)(a) of the Corporations Act. The case provides a clear example of a contravention of that section in accordance with the principles stated by Santow J in Re HIH at [735] and by Owen J in Bell Group at [4619]. 675 Neither Mr Grimaldi nor Mr Barnes went into the witness box to assert that he was acting honestly. In my opinion, both acted dishonestly. 676 Similarly, the actions of Mr Grimaldi and Mr Barnes breached the duty to act for a proper purpose stated in s 181(1)(b). They authorised the funds of Chameleon to be used for a purpose other than the purposes of the company. In particular, they authorised the use of the funds for a collateral purpose of assisting NiCu to complete a transaction in which each of Mr Grimaldi and Mr Barnes had a personal interest: see Advance Bank and the other authorities referred to at [111] above. 677 Even if it were a proper corporate purpose of Chameleon to permit its funds to be advanced to NiCu, the advancing of those funds to NiCu to assist in completing a transaction in which Mr Grimaldi and Mr Barnes were personally interested could not be within the range of permissible corporate purposes of Chameleon. 678 The only relevant exception to that proposition may be that the advance might have been within the range of permissible purposes for which the power was exercised if there were full disclosure to the Board of Chameleon of the personal interests of Mr Grimaldi and Mr Barnes through their entitlement to the introduction fee. 679 I do not need to decide whether such a use of the funds was authorised because in my opinion the evidence is clear that Mr Grimaldi and Mr Barnes made no disclosure to the other directors of their personal interest in the "introduction" or "success" fee. 680 So too, the findings I have made show that Mr Grimaldi and Mr Barnes acted improperly to use their position to gain an advantage for themselves in breach of s 182(1). I referred to the principal authorities in [114] – [115] above. 681 The decision in Robins referred to at [115] above is analogous to the present case. There, the directors of a company, Incentive Dynamics Pty Limited, advanced moneys to another company, Coldwick Pty Limited for the purpose of Coldwick purchasing two investment properties. The directors of Incentive Dynamics were majority shareholders of Coldwick. 682 The directors apparently sought to characterise the moneys as a loan but there was no loan agreement or security. Nor was the advance properly characterised as a discharge, by way of off-set, against obligations owing by Incentive Dynamics to third parties: see at [39]. 683 Mason P, with whom Stein and Giles JJA agreed, was of the view, at [56], that the incontrovertible facts established that unless Coldwick's assets were intended to be held on trust for Incentive Dynamics from the outset, the payments represented an improper use of the officers' position to gain an advantage for themselves as majority stockholders of Coldwick, and for Coldwick which did not have the funds to acquire the properties. 684 His Honour considered at [58] that the officers had failed in their attempt to suggest a basis for an honest receipt by Coldwick of Incentive Dynamics' funds so that: … the transactions were from start to finish an improper diversion of Incentive Dynamics' moneys in favour of a body which, through its directors, was complicit in and privy to the impropriety. 685 Those observations apply with even greater force to the present case. There was no Board meeting to approve either of the advances as loans. The only document purporting to be a resolution of the directors of Chameleon was signed by only two of the directors. There was no explanation from any of the directors as to how the funds of Chameleon that had been raised for one purpose could be applied for another purpose, namely the benefit of NiCu, in particular at a time when Chameleon was plainly short of funds to carry out its own activities. 686 The only suggestion of any benefit to Chameleon was the evidence given by Mr Roberts in cross-examination that the successful listing of NiCu would be of benefit to those Chameleon shareholders who held shares in NiCu. I do not see how that can be said to be for the benefit of the company as a whole. 687 Even if the advances were properly characterised as loans, which in my opinion they were not, the exercise (if any) of the Board's powers was vitiated by the failure of Mr Grimaldi and Mr Barnes to disclose their personal interest in the advance of the moneys. 688 The advances were not loans. They were, as in Robins, diversions of Chameleon's funds to NiCu for the purpose of enabling, or at least assisting, NiCu to acquire for its own benefit, and not for the benefit of Chameleon, an interest in the Iron Jack Project through the acquisition of Winterfall. Moreover, they were advances which were procured by Mr Grimaldi and Mr Barnes in circumstances in which they had a direct conflict of interest and duty by reason of their entitlement to a fee for the successful consummation of the acquisition of Winterfall. 689 Even if Mr Grimaldi was not a de facto director of Chameleon, he stood in a fiduciary relationship with it because of his role in the July Placement. 690 The evidence makes it clear that he raised the funds for the July Placement on behalf of Chameleon. He remitted those funds to Chameleon's bank account at St George's Terrace. In carrying out this role, he undertook to act in the interests of Chameleon and not in his own interests. This is sufficient to give rise to a fiduciary relationship even if Mr Grimaldi was not a director: Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 ("Hospital Products") at 71 - 72 per Gibbs CJ; News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410 at 538 - 541 per Lockhart, von Doussa and Sackville JJ. 691 In procuring funds which he raised for Chameleon's purposes to be used for his benefit in a transaction in which he was personally interested, Mr Grimaldi breached his fiduciary duties to Chameleon. 692 For the same reason, the drawing by Mr Barnes of the two cheques totalling $152,750 constituted a breach by Mr Barnes of his fiduciary duties as a director of Chameleon. 693 Mr Grimaldi and Mr Barnes are liable to account to Chameleon for the personal benefits or gains obtained by them by the misuse of their fiduciary capacities. The principles are well established and are stated in well known authorities such as Chan v Zacharia at 198 - 199. 694 I will deal with this again when I consider the question of relief. Claims against Murchison 695 The factual findings which I have made about the involvement of Mr Grimaldi and Mr Barnes in the drawing of the cheques are sufficient to give rise to liability on the part of Murchison under both limbs of Barnes v Addy. 696 The elements to be satisfied for liability under the "knowing receipt", or first limb, were summarised by Owen J in Bell Group at [4748]. Each of the elements seems to me to be satisfied. The cheques were "trust property" in the sense referred to in the authorities and they were "misapplied" by Mr Grimaldi and Mr Barnes because they were dealt with in a manner inconsistent with the trusts of which they were well aware; see Consul Development Pty Limited v DPC Estates Pty Limited (1975) 132 CLR 373 ("Consul") at 396 per Gibbs J; Farah at [134]. 697 NiCu was not the payee of the cheques but it received the benefit of them because the funds were "advanced" by Chameleon for the benefit of NiCu and therefore "passed through the defendant's hands"; see Consul at 411 per Stephen J. This seems to me to satisfy the requirement that the third party, NiCu, has received the trust property: Bell Group at [4663]. 698 The element of knowledge on the part of NiCu is satisfied because Mr Grimaldi had actual knowledge that the cheques were to be misapplied. The cheques were, to Mr Grimaldi's actual knowledge, to be applied for a purpose, other than that for which the funds were raised by Chameleon. Mr Grimaldi also knew that he and Mr Barnes had a personal interest in the consummation of the transaction for which the funds were applied. 699 Counsel for Murchison accept that, subject to one exception, Mr Grimaldi was the controlling mind of NiCu and his knowledge is to be attributed to NiCu with respect to the matters in issue in this proceeding. 700 The exception on which Murchison relies is the principle stated in Re Hampshire Land Co [1896] 2 Ch 743 ("Re Hampshire Land") at 748-750, that knowledge by a director of his or her own fraud committed upon the company is not to be attributed to, and is not the knowledge of, the company. 701 It is true that the drawing of the cheques conferred a personal benefit on Mr Grimaldi by reason of his entitlement to an introduction fee. This may be thought to have been a fraud committed against both Chameleon and NiCu because Mr Grimaldi owed fiduciary duties to both of those companies. 702 However, what is to be borne in mind in the present case is that the drawing of the cheques was partly for the benefit of NiCu. That company received a very substantial benefit from the drawing of the cheques because the payments to the Iron Jack Vendors enabled NiCu to complete its acquisition of Winterfall. The circumstances in which the cheques were procured from Chameleon give rise to an inference that, without them, NiCu would have been unable to complete the transaction. 703 The position seems to me to be covered by the analysis of the authorities by von Doussa J in Beach Petroleum NL v Johnson (1993) 43 FCR 1 at 24 - 32. His Honour observed at 30 that a company is imputed with the knowledge of a person who is the directing mind of the company, acting in the area of operations assigned to him, when his actions are not totally in fraud of the company and, by design or result, are partly for the benefit of the company: see also Farrow Finance Co Limited (in Liq) v Farrow Properties Pty Limited (in Liq) (1997) 26 ACSR 544 at 587 per Hansen J. 704 Accordingly, Mr Grimaldi's knowledge is to be imputed to NiCu. 705 It follows from what I have said that the necessary elements for the "knowing assistance", or second limb, of Barnes v Addy are also satisfied. This is because the personal interest of Mr Grimaldi and Mr Barnes in securing their introduction fee may be said to be a dishonest and fraudulent design. It was not a simple breach of trust which might be excused under s 1318 of the Corporations Act but involved the receipt of an illicit commission. It meets the test stated in Farah at [179], as further explained in Bell Group at [4726] – [4727]. 706 NiCu had actual knowledge of the fraudulent and dishonest design of Mr Grimaldi and Mr Barnes through the knowledge of Mr Grimaldi. For the reasons mentioned above, this knowledge is to be attributed to NiCu. 707 Murchison is also liable for aiding and abetting the contraventions of ss 181 and 182 of the Corporations Act committed by Mr Barnes. Mr Grimaldi was also knowingly concerned in those contraventions: see s 79(a) and (c) of the Corporations Act. This is because Mr Grimaldi had actual knowledge of all of the essential elements of the contraventions: Yorke v Lucas (1985) 158 CLR 661; Richardson & Wrench (Holdings) Pty Limited v Ligon No 174 Pty Limited (1994) 123 ALR 681 at 693 per Burchett J. 708 I will need to deal separately with the question of relief which I will do in Chapter 12. An issue which arises in that chapter is whether Chameleon is entitled to equitable relief if the "advance" of $152,750 has been repaid. The claim against Winterfall 709 The claim against Winterfall turns on whether Mr Zuks' knowledge was sufficient to satisfy any of the degrees of knowledge falling within the first four categories of Baden. 710 I am satisfied that Mr Zuks had actual knowledge of the principal facts pleaded in para 130C of the Statement of Claim. In particular, he knew that NiCu had not been able to make the payment due to Winterfall under the NiCu/Winterfall Heads of Agreement and he knew that Mr Grimaldi and Mr Barnes were arranging for Chameleon to provide funds to assist NiCu. 711 Most importantly, Mr Zuks knew that Mr Grimaldi and Mr Barnes had a personal interest in the provision of the cheques to the Iron Jack Vendors because he had agreed that Winterfall would pay them an introduction fee upon completion of the transaction. The only evidence Mr Zuks received of any purported corporate authorisation of the advance was the "8 Juli" Resolution. He received that before he was provided with the first cheque but that cheque was dishonoured. 712 By the time Mr Zuks received the second cheque on 28 July 2004, the time for repayment of the "advance" which was the subject of the first cheque had already expired. There was no resolution authorising the advance of $152,750. 713 Mr Zuks denied that he was content not to enquire as to the propriety of what was taking place. Whether or not the "8 Juli" Resolution supported the force of his denial in relation to the first cheque, the position had changed by 28 July. 714 By 28 July 2004, Mr Zuks knew that the first cheque which was purportedly authorised by the "8 Juli" Resolution had been dishonoured. He also knew that the period of the short term loan of $56,250 stated in the document had already expired and he had no resolution authorising a new advance of $56,250, or an advance of $96,500. 715 Moreover, Mr Zuks also knew of the personal interest of Mr Barnes and Mr Grimaldi in the transaction. It was not put to Mr Zuks expressly that his knowledge of their personal interest made him aware of their position of conflict. But I do not think it was critical to do so. It seems to me to be sufficient that he knew of their personal interest in the transaction through the introduction fee which he had agreed to pay them. 716 Furthermore, it seems to me that the effect of Mr Zuks' evidence is that he made no enquiry of the other directors of Chameleon as to whether they were aware of, or approved, the personal interest of Mr Barnes and Mr Grimaldi in the transaction. 717 This is particularly evident in Mr Zuks' answer when Mr Hutley put it to him that he was content not to enquire as to the propriety of what was taking place. He said at T851 that this was not correct but: … I certainly let Grimaldi do what he had to do; I didn't have to sit there breathing over his shoulder and checking everything that he was doing. I was very happy to see that Barnes and Grimaldi … would receive a fee for introduction … and it was for them to decide where to place it. 718 In my opinion, this answer, when read in light of Mr Zuks' knowledge of the circumstances in which the cheques were drawn and presented, fell within the second, third and/or fourth categories of knowledge in Baden. Mr Zuks wilfully shut his eyes to the obvious, or wilfully and recklessly failed to make such enquiries as an honest and reasonable man would make, or, at very least, he had knowledge of circumstances which would indicate the facts to an honest and reasonable man. 719 The relevant circumstances were, Mr Zuks' knowledge of the entitlement of Mr Grimaldi and Mr Barnes to an introduction fee, the dishonouring of the first cheque, the obvious inability of NiCu to meet its contractual commitment to Winterfall and the increasingly anxious, if not desperate position in which Mr Zuks found himself by late July 2004. I have described these circumstances in detail and do not need to repeat them, save to reiterate that Mr Zuks had no evidence of any corporate resolution of Chameleon on which he could rely. It seems to me that this satisfies the tests stated in the authorities. The second and third categories of knowledge in Baden are often described as species of actual knowledge, whilst the fourth category is a form of constructive knowledge: Farah at [174]; Bell Group at [932]. But as Owen J said in Bell Group at [932], proof of the kind of knowledge in the fourth category may be sufficient to allow a court to infer that a person had one of the subjective states of mind required for the second and third categories. 720 The third category of knowledge (and perhaps the second) apply to cases where there has been a "complete and aloof disregard" of the facts or consequences: Bell Group at [6203]. Owen J went on to observe that such behaviour may well be characterised as dishonest, but it need not necessarily be dishonest so as to fall within those categories. His Honour gave an example of an allegation of recklessness. 721 Although I have rejected certain aspects of Mr Zuks' evidence, I did not consider him to be a dishonest person. Rather, he seemed to me to be experienced and capable and indeed to have a good level of knowledge of the duties of directors. He had a sufficient understanding of the laws of related party transactions as to raise that issue with Mr Grimaldi and Mr Barnes. I am entitled to take this into account in assessing whether he had the necessary degree of knowledge: Bell Group at [933]. 722 In my opinion, I am entitled to infer from Mr Zuks' knowledge of the personal interest of Mr Grimaldi and, in particular, Mr Barnes, that Mr Zuks knew of the conflict of interest and duty. Mr Zuks knew that Mr Barnes was the Managing Director of Chameleon. Even if Mr Zuks was not aware of Mr Grimaldi's role as a de facto director of Chameleon, or of his fiduciary relationship to Chameleon, Mr Zuks' knowledge of Mr Barnes' interest is sufficient. 723 Any person with Mr Zuks' level of understanding would have known that Mr Barnes had a duty to disclose his interest in the NiCu/Winterfall transaction in order for the Board of Chameleon to give a valid approval of the "loan" to NiCu. 724 It is no answer to this to say that Mr Zuks was not aware of what passed between Mr Barnes and the Board of Chameleon. The authority on which Murchison relies to make good this proposition, namely Cowan de Groot Properties Ltd v Eagle Trust Plc [1992] 4 All ER 700 at 767 is distinguishable from the facts of the present case. 725 Here is seems to me that Mr Zuks' knowledge of, at least, Mr Barnes' personal interest and the other circumstances I have described, including the fact that Mr Zuks did not have a Board resolution authorising the loans of $152,750, were sufficient to constitute knowledge falling within the second and third categories in Baden. 726 In any event, it is not necessary to prove that a stranger who participated in a breach of fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper: Consul at 398. Gibbs J went on to say: It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognizing an impropriety that would have been apparent to an ordinary man. 727 Here Mr Zuks had knowledge of all the facts. Even if he was "morally obtuse", the impropriety of the drawing of the cheques would have been apparent to an ordinary person. That is sufficient to satisfy the fourth category of knowledge in Baden. 728 It seems to me that the authorities which apply to accessory liability under s 79 of the Corporations Act are also satisfied because, for the reasons referred to above, Mr Zuks had actual knowledge of the contraventions: Yorke v Lucas; Richardson & Wrench v Ligon No 174 Pty Limited. 729 The cheques for $152,750 passed through Mr Zuks' hands. They were delivered by him to the Iron Jack Vendors to meet, in part, the liabilities of Winterfall to those persons. That seems to me to satisfy the element of receipt of trust property. The finding I have made as to Mr Zuks' knowledge therefore gives rise to liability by Winterfall under the "knowing receipt" limb of Barnes v Addy. 730 Chameleon did not plead a claim against Winterfall under the second limb of Barnes v Addy. Accordingly, the question of whether Mr Zuks had knowledge of a dishonest and fraudulent design on the part of Mr Barnes or Mr Grimaldi does not arise. 731 I will deal with the question of relief against Winterfall later. Chapter 9: The August Placement Pleading 732 The August Placement is pleaded in Parts 8.18 and 8.19 of the Statement of Claim. 733 The substance of the pleading is that the August Placement was authorised and effected by Mr Roberts in breach of his duties to Chameleon because NiCu gave no consideration for the 4,175,000 shares issued to NiCu under the Placement. 734 A similar allegation is made in respect of 625,000 shares issued under the Placement to a Mr Trevor Lobb, for which Mr Lobb paid NiCu $25,000. NiCu is said to have given no consideration to Chameleon for the $25,000 NiCu received from Mr Lobb for the Chameleon shares. 735 Mr Roberts' actions in authorising and effecting the Placement and issuing 4,175,000 Chameleon shares to NiCu and 625,000 shares to Mr Lobb are said to have constituted breaches of Mr Roberts' good faith and proper purpose duties under ss 181(1)(a) and (b) of the Corporations Act. 736 Mr Roberts is also said to have breached his duty to Chameleon not to use his position improperly to gain an advantage for someone else, namely NiCu and Mr Lobb, under s 182(1) of the Corporations Act. 737 NiCu, through Mr Grimaldi, is said to have been knowingly concerned in the breaches in accordance with s 79 of the Corporations Act. 738 In addition, claims under both limbs of Barnes v Addy are pleaded against Mr Grimaldi and NiCu for "knowing receipt" and "knowing assistance" in respect of Mr Roberts' breaches of fiduciary duty to Chameleon. Background facts and evidence 739 The background facts and the evidence of Chameleon's claim in respect of the August Placement are found, almost entirely, in the affidavit evidence of Mr Roberts. The principal facts are also referred to in paras 329 to 332 and 334 of the chronology. 740 Mr Roberts' affidavit evidence was that in early August 2004 Mr Grimaldi suggested to him that Chameleon should make a share placement because "funds are running low again". 741 Mr Roberts continues by stating that he and Mr Grimaldi discussed the number of shares which should be issued. Mr Grimaldi is said to have told Mr Roberts that the placement should be of 5 million shares at 5 cents with the allotments to include 4,175,000 shares to NiCu and 625,000 shares to Mr Lobb. 742 The following is set out in Mr Roberts' affidavit: As NiCu had no cash at the time to meet the costs of the placement, Phillip said to me that it would be acceptable for Chameleon to accept shares in NiCu for the placement of shares to NiCu in Chameleon. I did not know whether this was correct. 743 The affidavit continues by referring to a discussion said to have taken place between Mr Roberts and Mr Grimaldi about the relative marketability of shares in Chameleon and NiCu. According to Mr Roberts, he was told by Mr Grimaldi it would be easier to sell NiCu shares than Chameleon shares. 744 Mr Roberts then says that Mr Grimaldi directed him to issue shares in the Placement to Mr Lobb "in relation to a loan that Trevor Lobb had made to Phillip." Chameleon did not receive any consideration from Mr Lobb but he (Mr Roberts) "added this amount to the consideration owing by NiCu." 745 The explanation for Mr Grimaldi's request to Mr Roberts that he issue shares in the Placement to Mr Lobb was that Mr Lobb lent $25,000 to Mr Grimaldi (or NiCu) to provide funds for the acquisition by NiCu of Winterfall. The relevant facts are set out in the agreed chronology at [322]. 746 Mr Roberts says in his affidavit that the effect of the arrangements was that the total consideration owing by NiCu in the Placement was $240,000. He says this equated to NiCu issuing 1,200,000 shares to Chameleon but: I do not recall the shares in NiCu ever being issued to Chameleon as consideration for the August placement by Chameleon. 747 Mr Roberts' affidavit goes on to say that all funds that were to be received from the sale of the NiCu shares by Chameleon would have been "predominantly used" to meet development costs on the Palm Springs project. 748 The Placement was announced to the ASX on 11 August 2004. The announcement stated that Chameleon had issued 5 million ordinary shares to professional investors at 5 cents per share to raise $250,000 to meet additional costs associated with the development of the Palm Springs gold mine. 749 Mr Roberts was cross-examined by Mr Karkar about the purpose of the Placement. Mr Roberts said at T229 that Mr Grimaldi asked him to do the Placement because Chameleon did not have any capital at that time. The cross-examination continued: So it was for the purpose of raising money for the company? --- Cash or equivalent, yes. 750 Mr Lobb also gave evidence. The effect of it, when read with the evidence of Mr Roberts, is that, on 28 July 2004 Mr Lobb agreed to lend Mr Grimaldi $25,000 to assist NiCu with its investment in the Iron Jack Project. The loan was obtained by Mr Grimaldi in fortuitous circumstances, just as the deadline was approaching for the payment of the instalment due to the Iron Jack Vendors. Without it, NiCu, and Winterfall, would have been $25,000 short of the sum required to satisfy the instalment due at 5 pm on 28 July 2004. Mr Lobb's $25,000 was deposited directly into Mr Zuks' bank account just before the deadline expired. 751 Mr Lobb's affidavit evidence was that the loan to NiCu was documented in a memorandum of understanding which provided for NiCu to repay the loan to Mr Lobb or his private superannuation fund. He said that he rejected a proposal from Mr Grimaldi that Mr Lobb accept shares in Chameleon in satisfaction of the loan. 752 In cross-examination, Mr Lobb accepted that on 23 November 2006 he sent a fax to Chameleon acknowledging that he received the 625,000 shares in the August Placement after he had made the loan of $25,000 to NiCu. 753 The fax was written in response to a request from Chameleon to explain the circumstances in which Mr Lobb received 625,000 shares in the Placement. The effect of Mr Lobb's fax of 23 November 2006 was that he accepted the shares in Chameleon in satisfaction of his loan to NiCu. 754 Chameleon's first draft of the narrative chronology states that in August and September 2004, NiCu sold 4,025,000 of the 4,175,000 Chameleon shares it received in the August Placement. However, this is disputed by Murchison as noted in a footnote which refers to an agreed schedule of transactions. Chameleon's submissions 755 Chameleon submits that I should make the following findings: Mr Roberts caused 4,175,000 shares in the Placement to be issued to NiCu at Mr Grimaldi's direction. At the time Mr Roberts issued those shares, he had not received any satisfactory assurance from NiCu that it would pay for the shares. Chameleon did not receive any payment from NiCu for the issue of the 4,175,000 shares. Mr Roberts caused Chameleon to issue 625,000 shares in the Placement to Mr Lobb at Mr Grimaldi's direction, and without any payment to Chameleon The 625,000 shares were issued to Mr Lobb as a result of Mr Lobb's agreement to lend $25,000 to NiCu for the purpose of making its instalment payment to Winterfall Mr Lobb did not pay Chameleon for the shares. 756 Chameleon's submissions continue by referring to tracing schedules prepared by the parties which are said to demonstrate that in the period from August to November 2004, NiCu sold 4,875,000 Chameleon shares and obtained proceeds of approximately $107,000. 757 Chameleon goes on to refer to NiCu's difficult financial situation at that time. NiCu is said to have had no funds to organise the capital raising it required to pay the remaining instalment of $500,000 due to the Iron Jack Vendors. Also, on 30 August 2004, NiCu was delisted from the ASX because it failed to pay its listing fees. 758 Chameleon submits that the factual findings it asks me to make support a number of factual inferences, as follows: The issue of 625,000 shares to Mr Lobb provided a benefit to NiCu, that is to say, as satisfaction for Mr Lobb's loan to NiCu. Mr Grimaldi caused Mr Roberts to issue 4,175,000 shares in Chameleon to NiCu because Mr Grimaldi needed funds to arrange for NiCu's proposed capital raising in October/November 2004. NiCu used the funds it received from the sale of the Chameleon shares to maintain its ongoing existence, to arrange the capital raising it conducted in October/November 2004 which facilitated NiCu's readmission to the ASX official list in March 2005: … and in part, [to] fund payments to Zuks and Winterfall. The respondents' submissions 759 Murchison submits that the uncontradicted evidence of Mr Roberts was that the August Placement was for a legitimate purpose. 760 Murchison also submits that Chameleon does not contend that any part of the 4,175,000 shares was the source of any payment to the Iron Jack Vendors and that Chameleon's submissions as to the use of the funds for the other purposes stated in Chameleon's submissions was not part of Chameleon's pleaded case. 761 Moreover, Murchison takes issue with the proposition that it was reliant on Chameleon funds at the relevant time. It points to the receipt of funds of over $1 million from various investors during August and September 2004. 762 The effect of Mr Grimaldi's submissions is that Chameleon has not made out the case that it pleaded against him. 763 Mr Barnes and Pinnacle made no submissions in relation to the August Placement because no claim is made against them in relation to this transaction. Chameleon's submissions in reply 764 In its submissions in reply, Chameleon contends that Murchison does not appear to contest Chameleon's proposed factual findings, other than to dispute the submission as to the use that was made of the proceeds of sale of the shares issued to NiCu in the August Placement. 765 As to this, Chameleon submits that some $57,000 of those funds were used on 27 September 2004 to discharge part of the $150,000 debt that Murchison owed Winterfall under cl 3(b) of the NiCu/Winterfall Heads of Agreement. 766 The documents on which Chameleon relies to support this submission include a bank statement of Winterfall with Macquarie Bank that records a deposit from NiCu on 24 September 2004 of $150,000. Findings 767 Chameleon has not made out the case which it pleaded. The case as pleaded was that Mr Roberts breached his duties to Chameleon by authorising the placement of 4,175,000 shares to NiCu and 625,000 shares to Mr Lobb for no consideration to Chameleon. 768 However, Mr Roberts' evidence is contrary to this claim. The effect of his evidence was that the consideration for the issue of those shares was the promise by Mr Grimaldi to issue 1,200,000 shares in NiCu which would be more easily saleable than the shares in Chameleon to be issued to NiCu. 769 Mr Roberts' evidence did not go so far as to say that the 1,200,000 shares were not issued. He merely said he could not recall whether that had occurred. But even if the shares were not issued to Chameleon, that does not support the claim that was pleaded. This is because, on Mr Roberts' own evidence, the arrangements he made with Mr Grimaldi were for the issue of NiCu shares to Chameleon. 770 It is true that the arrangements outlined in Mr Roberts' evidence might support a finding that he received no satisfactory assurance that NiCu would pay for the shares. But that is an entirely different case from the one that was pleaded. Accordingly, I cannot make the finding proposed by Chameleon. 771 It appears to be correct, as Chameleon contends, that NiCu and Mr Lobb did not pay for the shares. But again, that is not to the point, because the claim that was pleaded was that NiCu gave no consideration for the issue of the shares. 772 Mr Lobb's evidence provides a confusing picture of his arrangements with Mr Grimaldi, and, in particular, how the loan to NiCu was to be repaid. That is not a criticism of Mr Lobb. I think the preferable view of what took place is that Mr Grimaldi arranged the issue to Mr Lobb of 625,000 Chameleon shares in the August Placement in satisfaction, or partial satisfaction, of NiCu's obligations to Mr Lobb. 773 But whatever the arrangements were between Mr Grimaldi and Mr Lobb, they do not alter the conclusion I have reached as to the issue that is raised in this proceeding in relation to the August Placement. That turns on Mr Roberts' evidence of his conversations with Mr Grimaldi. As I have already said, the effect of the evidence is that Mr Grimaldi agreed to issue shares in NiCu to Chameleon as consideration for the shares issued to NiCu and Mr Lobb in the August Placement. 774 I do not accept Murchison's submission that Mr Roberts' evidence was that the August Placement was for a proper purpose but I do not need to make that finding on the case that was pleaded. 775 It seems to me to be somewhat extraordinary that Mr Roberts' evidence as to the arrangements he made with Mr Grimaldi is at odds with the plain terms of the ASX announcement. It goes without saying that an issue of shares for cash, as announced to the ASX, is quite contrary to the terms of the arrangement explained in Mr Roberts' evidence. But no such case was pleaded or conducted and I make no finding about it. 776 In view of the findings I have made, I do not need to address Chameleon's submissions as to the purpose for which the shares were issued to NiCu or the uses which NiCu made of the funds. However I will consider those submissions briefly. 777 Chameleon submitted that the purpose of the allotment was, in part, to enable NiCu to meet its remaining obligations under the NiCu/Winterfall Heads of Agreement. Chameleon also submitted that $57,000 of the proceeds of NiCu's sale of the shares was applied toward a payment of $150,000 to Winterfall on 24 September 2004. 778 These submissions fall within the pleaded case; see Statement of Claim paras 141(a) and 158. However, for reasons set out below, I reject the submissions. 779 The only evidence as to the purpose of the issue to NiCu of 4,175,000 shares under the August Placement is to be found in Mr Roberts' evidence of his conversations with Mr Grimaldi. That evidence is quite vague. What was discussed was a curious form of share swap in lieu of a cash subscription. 780 I am prepared to infer that NiCu did not have the cash to meet the subscription and that it intended, to the knowledge of Mr Roberts, to sell the Chameleon shares to raise funds. But there is no evidence of any discussion as to the purpose for which the funds were to be used. It seems to me that the submission that the purpose included payment of the $150,000 that remained due to Winterfall under cl 3(b) of the NiCu/Winterfall Heads of Agreement is mere conjecture. 781 Nor can I be satisfied that the sum of $57,000 from the proceeds of sale of Chameleon's shares was, as Chameleon submitted, the source of that part of the payment of $150,000 deposited to Winterfall's bank account on 24 September 2004. 782 It is true that $150,000 was deposited on that day. Mr Zuks could not recall whether the payment was by way of reimbursement of the $150,000 due under cl 3(b). He said "I think it was working capital." However, I note that para 342 of the agreed chronology states that on 27 September 2004 NiCu repaid Chameleon $150,000. 783 But in any event, the Schedule of Agreed Transactions, Schedule C, demonstrates the difficulty in determining whether any part of the proceeds of sale of the Chameleon shares formed part of the payment of $150,000. This is because there were substantial sums received by NiCu from other investors at that time. For example, transactions with the line numbers C79, C88 and C96 of Schedule C show that $500,000 was received from third party investors between 30 August 2004 and 17 September 2004. 784 The suggestion that, in the period from August 2004 to the end of 2004, NiCu used the proceeds of sale of the 4,175,000 Chameleon shares to maintain its corporate existence to assist in its arrangements for a capital raising seems to fall within [158] of the Statement of Claim. But it is not possible to determine that the funds were used for those purposes. This is again illustrated by the schedule of agreed transactions, Schedule C, which shows that in the period from 18 June 2004 to 14 December 2004 more than $1m was received from third party investors. 785 It follows that Chameleon's claim in relation to the August Placement must fail. Chapter 10: The Reverse Takeover of Winterfall and the issue of shares to Pinnacle Pleadings 786 The reverse takeover of Winterfall by Murchison and the issue of shares in Winterfall/Murchison to Pinnacle are pleaded in Parts 8.22 to 8.24 and 9.1 of the Statement of Claim. 787 The matters pleaded in those paras are related to matters which I have addressed in earlier chapters, namely the Cadetta Transaction and the provision of the cheques for $152,750 to the Iron Jack Vendors. 788 The substance of what is pleaded is that Pinnacle was allotted 10 million shares in Winterfall by reason of the breaches of statutory and fiduciary duties to Chameleon in relation to the Cadetta Transaction and the drawing of the cheques for $152,750 in favour of the Iron Jack Vendors. The evidence 789 On or about 14 September 2004 NiCu issued a bidder's statement for the purchase of all of the issued shares in Winterfall. The bidder's statement was prepared by Mr Grimaldi, with only a small amount of assistance from Mr Zuks. 790 During the period from September to October 2004 there were discussions between Mr Grimaldi, Mr Zuks and other parties who were to receive shares in Murchison in order to give effect to the reverse takeover. 791 Ultimately, agreement was reached that the number of shares to be issued in Winterfall was 80 million. The shareholders included Mr Zuks, Mr Kopejtka, Mr Vagnoni and entities associated with them. 792 There were discussions between Mr Grimaldi and Mr Zuks in October 2004 as to the precise number of shares to be allocated to Mr Grimaldi and Mr Barnes for their introduction fee. On 24 October 2004, Mr Grimaldi wrote to Mr Zuks setting out schedules of "seed capital" that had been raised for the venture and claiming 10 million "free shares" in Winterfall for Mr Grimaldi and Mr Barnes to be issued in the name of Pinnacle. 793 On 26 October 2004, 10 million shares in Winterfall were issued to Pinnacle. Those shares constituted the payment of the introduction fee to Mr Grimaldi and Mr Barnes, as initially agreed with Mr Zuks in April or May 2004, although the precise number of shares to be issued was not finally agreed upon until October 2004. 794 On 31 October 2004, Mr Barnes, on behalf of Pinnacle, signed a form of acceptance of Murchison's offer to acquire Pinnacle's 10 million shares in Winterfall. The terms of the takeover made by NiCu (which changed its name to Murchison on 7 October 2004), were for the issue of one new fully paid Murchison share in exchange for each share in Winterfall. Provision was also made for the issue of Murchison options to accepting Winterfall shareholders. 795 On 11 November 2004, Murchison held a meeting of directors attended inter alia by Mr Grimaldi and Mr Kopejtka. Murchison resolved to issue 80 million new fully paid shares and a number of attaching options, to be allocated and issued to the shareholders of Winterfall. 796 Mr Kopejtka knew, on 11 November 2004, that the effect of the resolution was that 10 million shares "and some millions of the options" were to be issued for the benefit of Mr Grimaldi and Mr Barnes. 797 The allotment and issue of the shares in Murchison to the shareholders of Winterfall constituted the completion of the reverse takeover of Winterfall by Murchison. That was effected on 11 November 2004. 798 On the same day, 11 November 2004, Mr Grimaldi resigned from the Board of Murchison. It appears that he was requested to do so following upon "feedback" received by Mr Kopejtka and Mr Vagnoni from Murchison's underwriters. Findings 799 Subject to one question, the factual matters that arise in relation to the completion of the reverse takeover are uncontroversial. 800 It is plain that Pinnacle, as nominee for Mr Grimaldi and Mr Barnes, was issued with 10 million shares in Winterfall as the "introduction fee" or "spotter's fee" arranged between Mr Zuks and Mr Grimaldi and Mr Barnes. 801 It is also plain that Pinnacle exchanged its 10 million shares in Winterfall for 10 million shares in Murchison which were issued to Pinnacle on completion of the takeover. A number of options in Murchison were also issued to Pinnacle as part of the consideration for the takeover but the options appear to have lapsed and are therefore irrelevant to the claims in this proceeding. 802 The only factual question which arises is whether I should find that without the payments received by NiCu, in breach of the duties of Mr Grimaldi and Mr Barnes to Chameleon, Murchison would have been unable to acquire Winterfall. 803 Chameleon submits that this finding is plainly supported by the evidence. It relies on the history of defaults by NiCu in meeting its obligations to Winterfall to pay the instalment of $350,000 due under the NiCu/Winterfall Heads of Agreement. Chameleon also relies upon the circumstances in which the cheques for $152,750 came to be provided to the Iron Jack Vendors at the expiration of the deadline of 5 pm on 28 July 2004. 804 In my opinion, the factual circumstances relied upon by Chameleon clearly give rise to the inference for which it contends. I reject the submissions made by Murchison that, having regard to Mr Grimaldi's "resourcefulness", it ought to be inferred that if it became necessary to do so, he would have secured alternate sources for the funds. 805 It is plain that Mr Grimaldi's "resourcefulness" was exhausted by this time. Perhaps the most telling answer to Murchison's submission is that but for the chance meeting between Mr Grimaldi and Mr Lobb at lunchtime on 28 July 2004, NiCu would still have been $25,000 short. The statement, emphasised in bold in the letter from the Iron Jack Vendors, demonstrated beyond argument, that no further extensions would be granted. 806 Whether or not Mr Zuks told Mr Grimaldi that if he did not come up with the money, the deal was off, it was clear that by 28 July 2004, that was the position so far as the Iron Jack Vendors were concerned. 807 It follows in my opinion that, without the cheques obtained by NiCu from Chameleon, its attempts to acquire Winterfall, and with it an interest in the Iron Jack Project, would have collapsed. Indeed, there is no evidence from Murchison or Mr Grimaldi to the contrary of that proposition. 808 I also find that the $125,090 that NiCu obtained from the proceeds of sale of the shares it received from the Cadetta Transaction was needed by NiCu to assist in funding its obligations to Winterfall under the NiCu/Winterfall Heads of Agreement. 809 I find that but for the receipt of the proceeds of sale from the Cadetta Transaction and the cheques for $152,750, which Murchison obtained from Chameleon through the breaches of fiduciary duty of Mr Grimaldi and Mr Barnes: Murchison would not have been able to pay the instalment due to Winterfall under the NiCu/Winterfall Heads of Agreement; Winterfall's acquisition of the Iron Jack Project would not have been made; the reverse takeover of Winterfall by Murchison would not have been undertaken; and Murchison would not have obtained ownership, through Winterfall, of the Iron Jack tenements. 810 The liability of Mr Barnes and Mr Grimaldi as fiduciaries, and of Murchison as a knowing participant, to account for the profits obtained by them in breach of fiduciary duty is well established. I will deal with the remedy to be ordered in a separate chapter because: (i)t is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts: Warman International Ltd v Dwyer (1994) 182 CLR 544 ("Warman") at 559. Chapter 11: The Royalty Payment to the Iron Jack Vendors The relevance of the royalty payment 811 Murchison and Winterfall assert in their Defence, that the royalty payable under the agreement between Winterfall and the Iron Jack Vendors is relevant to the terms of any relief ordered in favour of Chameleon. The assertion is made in para 127(b) of the Re-Amended Defence filed by Murchison and Winterfall. 812 The effect of the assertion is that if I order that Murchison or Winterfall holds on trust for Chameleon either Murchison's interest in Winterfall, or Winterfall's interest in the Iron Jack Project, I should bring to account in the order the present value of the royalty payable by Winterfall to the Iron Jack Vendors. 813 Chameleon submits that the royalty is entirely irrelevant to the question of the relief to be granted. The substance of Chameleon's submission is that Murchison's assertion ignores the contractual position between the relevant parties, as well as the nature of Chameleon's claim and that it amounts to "double counting". 814 I will deal below with the issue of principle that separates the parties. If Murchison is correct in its assertion, it is then necessary to consider a substantial amount of expert (and lay) evidence which was adduced on the valuation question. Whether the royalty is relevant 815 In my opinion, the royalty payable under the agreement between Winterfall and the Iron Jack Vendors is irrelevant to the relief claimed in these proceedings. There are three reasons for this which are reflected in the submissions made by Chameleon. 816 First, the royalty payable by Winterfall to the Iron Jack Vendors was part of the consideration payable under the agreement between those parties. It was not part of the consideration payable under the NiCu/Winterfall Heads of Agreement which (for reasons set out below) is the relevant agreement for the purpose of considering the relief claimed by Chameleon. 817 The consideration payable under the NiCu/Winterfall Heads of Agreement was $350,000 (plus a reimbursement payment of $150,000) and the takeover of Winterfall by NiCu. 818 Second, the basis of Chameleon's claim against Murchison for an interest in Murchison's shareholding in Winterfall (and for an interest in Winterfall's entitlement to the Iron Jack tenements) arises from the circumstances in which NiCu acquired its interest pursuant to the NiCu/Winterfall Heads of Agreement. 819 What is alleged by Chameleon is that Murchison obtained its interest through its "knowing receipt" of trust property or "knowing assistance" in the breaches of fiduciary duty committed by Mr Grimaldi and Mr Barnes which enabled Murchison to acquire its shareholding in Winterfall. 820 I have already made findings favourable to Chameleon on that issue. In particular, I have concluded that NiCu received the cheques for $152,750 with knowledge of the breaches of Mr Grimaldi and Mr Barnes. I have also concluded that without those payments NiCu's attempts to acquire Winterfall and, through it, an interest in the Iron Jack Project, would not have gone ahead. 821 I made similar findings in relation to Winterfall's knowing receipt of the cheques. 822 It is true that the consideration payable by Winterfall to the Iron Jack Vendors included the contractual obligation to pay a royalty of 80 cents per tonne on the iron ore removed from the mines. But it does not follow from this that in determining the proportionate interest which Winterfall holds on trust for Chameleon, Winterfall is entitled to bring to account the present day value (as at February 2004) of the royalty stream. 823 This is because Chameleon's claimed entitlement to an interest in the Iron Jack Project is to either an interest in the Project itself (through Winterfall) or to an account of the profits of the Project. 824 In either event (subject to the question of whether that relief is granted), Chameleon's interest will be reflected without bringing to account the present day value of the royalty stream. Thus, if Winterfall holds a portion of its interest in the Iron Jack Project on trust for Chameleon, that interest is an interest in the capital of the Project which would entitle Chameleon to a share of the income. Chameleon's entitlement to a share of the income would then take account of the ongoing obligation to pay the royalty as and when it arises. 825 A similar approach applies to an account of profits. The profits will be determined after the ongoing royalty payments are taken into account because an account of profits will be an account of net profits of the Project. 826 Third, it follows from what I have said above that the assertion made by Murchison would lead to impermissible double counting in the carrying out of the orders necessary to give effect to Chameleon's claim. Valuation of the royalty: Introduction 827 Although I have come to the view that the value of the royalty obligation is irrelevant to the determination of the relief, I will deal with it as briefly as possible. 828 A large slab of evidence was directed to the valuation question. Murchison adduced expert evidence from Mr J K McGuiness, a partner in the accounting firm KPMG, who valued the royalty at 19 February 2004 and 28 July 2004. The first date corresponds to the date on which Winterfall entered into the agreement with the Iron Jack Vendors for the acquisition of the tenements. 829 The second date corresponds to the date of the replacement agreements between Winterfall and the Iron Jack Vendors. Those agreements were entered into on 28 July 2004, the "final" deadline imposed on Mr Zuks by the Iron Jack Vendors, and the date on which Mr Zuks collected the cheque for $96,500 from Mr Barnes' office. 830 Each of the agreements with the Iron Jack Vendors provided, relevantly, for Winterfall to pay a royalty of $0.80 per tonne of iron mined, indexed to the Japanese Bench Price as at 19 February 2004. 831 Mr McGuiness assessed the values of the royalty, on the basis of the assumptions and information in his report, at a range of $4.5 million to $6.1 million (as at 19 February 2004) and $5.0 million to $6.6 million (as at 28 July 2004). 832 Chameleon called evidence from Mr W R Lonergan, a director of Lonergan Edwards & Associates Ltd, a firm which specialises in valuation services and related advice, to evaluate and comment upon Mr McGuiness' valuation. 833 Mr Lonergan considered that Mr McGuiness failed to recognise and reflect a number of basic risks associated with the right to receive the royalty. Mr Lonergan calculated the value of the royalty at 19 February 2004 to be in the range of $153,000 to $178,000. He calculated the value at 28 July 2004 as falling within a range of $166,000 to $191,000. 834 The valuation question turns largely upon whether I accept Mr McGuiness' evidence or the evidence of Mr Lonergan. However, in coming to that determination, it is necessary for me to take into account two further expert reports, as well as evidence going to the valuation issue that was given by Mr Zuks and Mr Kopejtka. 835 The two additional experts were Mr R G Adams, a Senior Management Consultant with CRU Strategies, and Mr M R Gray, a director of Analytical Outcomes Pty Ltd. 836 Mr Adams' firm, CRU Strategies, is part of the CRU Group which is apparently the world's leading provider of specialised market research, forecasting and business advisory services for worldwide metal and mining industries. CRU Services is located in Washington State in the USA. 837 Mr Adams was called by Murchison to answer three questions which are relevant to the valuation issue, as follows: How would the output of a project such as the Iron Jack Project be marketed? What price could the producers expect to get for the ore at the Port of Geraldton? Were the price forecasts used by Murchison in its financial analysis realistic? 838 Mr Gray was called by Chameleon. His firm, Analytical Outcomes, is located in Fyshwick, ACT. It is an independent consulting firm which provides analysis and advice in a number of fields, including mineral industry outlook and commodity market analysis. 839 Mr Gray's report addressed the potential significance of the spot market for iron ore to a valuation of the royalty and the impact, if any, of some of Mr Adams' evidence, in particular as to the Japanese benchmark price system. 840 Mr Zuks' evidence on this issue dealt with his negotiations with the Iron Jack Vendors and his views as to the profitability of the Project, including the first stage of it which involved trucking the ore from the Port of Geraldton. 841 Mr Kopejtka's evidence relevant to the valuation exercise consisted of a paragraph in his affidavit of 1 July 2008 in which he described the development of the Iron Jack Project as "speculative" and certain financial modelling described in his supplementary affidavit. 842 I will deal with the evidence but I do not propose to record in detail the content of the experts' reports. Rather, I will address the material as briefly as possible in the course of setting out my reasons as to the main integers of the valuation exercise. Mr Zuks' evidence 843 Murchison relied upon evidence given by Mr Zuks of the negotiations which he undertook with the Iron Jack Vendors and, in particular, certain statements he made to them about the value of the royalty and the potential to quickly exploit the Project by trucking ore from Geraldton. Mr Zuks also gave evidence, on which Murchison relied, that the first stage of the Project was potentially profitable, that the ore could be sold on the spot market and that the first stage was capable of being achieved within 12 – 18 months. 844 It is true, as Murchison submits, that this evidence was not cross-examined upon. However, the conversations with the Iron Jack Vendors were not admitted as proof of the fact. Also, the evidence as to Mr Zuks' views was limited under s 136 of the Evidence Act 1995 (Cth) and was admitted only as evidence of his personal views of the profitability of the Project. 845 In my opinion, it follows that the evidence of Mr Zuks on this issue carries little, if any, weight in determining the valuation question. Mr Kopejtka's evidence 846 Mr Kopejtka is, or was at the time of the proceedings, the Chairman of Murchison. He has had lengthy experience with project management in the mining industry. He has had detailed involvement with the Iron Jack Project since early 2004. 847 In paragraph 70 of his affidavit of 1 July 2008, Mr Kopejtka said that the work he undertook in relation to the development of the Jack Hills and Weld Range tenements in the fourth quarter of 2004: made it very clear to me that the development of the Project [i.e. Jack Hills and Weld Range] was very speculative. 848 Mr Kopejtka went on to say that his view was based upon a number of factors. The factors included matters which relate exclusively to what is known as Stage 1 of the Iron Jack Project, namely the exploration of a measured resource of 7.7 million tonnes of ore. 849 He said in paragraph 70(c) that the proposal for Stage 1 was to truck the iron ore from Jack Hills over a distance of 600 km to the Port of Geraldton and to ship it from that Port. Mr Kopejtka also said that: no similar 'trucking' exercise had ever been attempted … and there were real issues as to the commercial viability of such a process … 850 Mr Kopejtka also said that there was a real issue as to whether it would be possible to raise the necessary sum of $15 million to $20 million to enable Stage 1 to proceed and if it was not commercially viable to truck the ore, Murchison could only pursue the Project once the necessary rail and port infrastructure had been built. The estimated cost of the infrastructure was $250 million and it would take "many years" to construct. 851 When Mr Kopejtka entered the witness box, he sought to correct paragraph 70 of his affidavit by stating that the word "speculative" was to be read in relation to Stage 2 of the Project which comprised an inferred resource of an additional 60 million tonnes. He went so far as to say that there was "pretty much a nil risk attached to Stage 1." 852 Mr Kopejtka was cross-examined vigorously but not unfairly, by Mr Hutley as to the apparent inconsistency between Mr Kopejtka's affidavit and his "correction" in the witness box. 853 I cannot accept Mr Kopejtka's attempts to depart from his affidavit. The proposition that his description of the Project as "speculative" was limited to Stage 2 is contrary to the reasons he identified for forming the view that the Project was "very speculative". 854 Those reasons applied to Stages 1 and 2. They included express references to the untested nature of trucking the ore from Stage 1 over a distance of 600 km. They contemplated the possibility that trucking was "not commercially viable" and that substantial infrastructure may be required. These were statements in clear terms that Stage 1 was speculative. Mr McGuiness' approach: the adjustment factor 855 Mr McGuiness set out in section 1.3 of his report the assumptions he was instructed to make. His instructions included matters going to Stages 1 and 2 and to a further stage which I will call Stage 3. He assumed that Stage 1 consisted of a measured resource of 7.7 million tonnes, with Stage 2 comprising an "inferred resource" of 59.3 million tonnes. Stage 3 related to the potential which existed, in an as yet undrilled area, for the extraction of additional iron ore to bring the Project to a total of 300 million tonnes. 856 Critical to Mr McGuiness' approach is his acknowledgment that he was not provided with any information as to the "economic viability" of the Project. He made assumptions that the production profiles with which he was provided could be achieved. These assumptions included an acceptance of the reasonableness of the assumptions that were made as to the timeframe for matters such as governmental approvals, construction of port and rail infrastructure and the expected size of the reserve able to be mined. 857 Mr McGuiness then applied a discounted cash flow analysis to the assumed income stream to assess a value of the royalty. His expected production profile covered the period from 30 June 2006 to 30 June 2032. 858 Mr McGuiness properly accepted at T947 that his assessment of the value of the royalty was based on the assumptions that he made and that it was subject to the caveat that he did not have any input from a geological or other specialist as to the sustainable nature of the mine. 859 I accept that in giving his evidence Mr McGuiness was a true professional witness. He is not to be criticised for the approach he took which was one of providing assistance to the Court. However, as Mr McGuiness acknowledged, a hypothetical purchaser of the royalty stream would wish to take a reasoned view of the economic viability of the mine plans at the valuation date. This was not part of his brief. 860 The only allowance which Mr McGuiness made for the uncertainties attached to his assumptions was to apply an "adjustment factor" which he acknowledged to be a "subjective assessment". He said that it reflected a notional adjustment that a hypothetical purchaser may make to reflect the lack of information about the economic viability of the tenements. 861 The adjustments are stated in paragraph 2.2.11 of Mr McGuiness' report and are applied in his tables at paragraph 2.3.1 and 2.4.1. I do not propose to repeat them. Mr McGuiness frankly acknowledged that his report does not identify the process by which he arrived at the adjustment factor, other than to say it was subjective. 862 Clearly, the question of whether a hypothetical purchaser would have proceeded upon the basis of Mr McGuiness' report turns upon the view of the purchaser as to the reasonableness of the assumptions which were made by Mr McGuiness. 863 This exposes the lack of utility in Mr McGuiness' report. I repeat that I make no criticism of Mr McGuiness, but the difficulty is that Murchison did not prove the reasonableness of a number of the critical assumptions that underlay the report. 864 One of the critical assumptions was the commencement date of Stage 2 and the rate of production which Mr McGuiness assumed for that stage of the Project. He acknowledged that he did not analyse whether or not it would have been economic to proceed to that stage of the mine plan at the level of production stated in his calculations. No doubt, Mr McGuiness was not qualified to engage in that analysis but it reduces the value of his report to one of a mere calculation based on unproven assumptions. 865 What is particularly telling in relation to Mr McGuiness' assumption as to the production profile of Stage 2, is a concession made by Mr Adams under cross-examination by Mr Habib. Mr Adams was qualified to express a view as to the reasonableness of the assumptions in the production profile. 866 The following exchange took place: I will just ask – to speed things up, I will just ask you to assume that apart from the 7.7 measured resource, there was approximately 60 million that was inferred. All right? ---Oh. Well --- Now --- ? --- I will assume that. Yes. Well, I am asking you to assume it. If, on that basis, if there was only 60 million inferred, it would be highly unlikely that a port and rail infrastructure would be built, in your experience, on the back of 60 million, correct?---Yes. It definitely would not be built. 867 The projected royalty stream for Stage 2 related to the stage of the Project which produced the major rates of production in Mr McGuiness' assessment. It follows from what I have said above that a hypothetical purchaser could not rely upon Mr McGuiness' assessment of the value of the royalty stream attributable to that stage of the Project. 868 Nor could a hypothetical purchaser rely on the calculations with respect to Stage 1. This is because, inter alia, Mr McGuiness was not provided with Mr Kopejtka's affidavit in which he described the development of the Project, including Stage 1 as very speculative during the fourth quarter of 2004. 869 The third stage of the Project comprised production of iron ore up to 2032. Mr McGuiness' subjective adjustment factor of 50% fails to grapple with the essential question of the view that a hypothetical purchaser would take as to the reasonableness of the production profile over that lengthy period. Mr Adams' evidence 870 One of the elements of uncertainty which impacts upon the valuation is the price of iron ore as at the valuation dates. Mr Adams' evidence was directed at that issue, and in particular, the reasonableness of the assumptions as to the price of iron ore made in Mr McGuiness' report. 871 The effect of Mr Adams' evidence as to the sale price of iron ore was that Murchison could have sold the iron ore through five year contracts at the traditional Australian benchmark price, or by selling individual shipments at the spot price. He went on to say that the price forecasts used by Murchison appeared to be approximately midway between the prices prevailing in the spot and contract markets and were: … reasonable in the context of then prevailing market circumstances and the qualifications that must always be attached to any forecast of future commodity market prices. 872 Mr Adams impressed me as an experienced and knowledgeable expert. However, there are a number of difficulties in his evidence insofar as it affects the valuation issue in the present case. 873 First, Mr Adams' instructions were to approach the question from the point of view of Murchison, not from the perspective of a hypothetical purchaser of the income stream. 874 Second, although Mr Adams was of the view that it would have been open to Murchison to sell on the spot market, the only producers he referred to in his report as sellers in that market were small Indian producers who sold iron onto the Chinese market. 875 Third, he accepted that in 2004 the normal practice for new iron ore mining projects was to sell the majority of their iron ore on a long term contract basis. Indeed, he described the spot market as a market of last resort. 876 Fourth, there was no mention in Murchison's prospectus of November 2004 of any intention to sell iron ore on the spot market. Mr Adams appeared to agree with that proposition. 877 Fifth, in February 2004 the prevailing contract price for iron ore was $27.83 per tonne and CRU was forecasting an increase in the contract price as at February 2005 by up to 24%. That would have taken the contract price in February 2005 to approximately $34.50 per tonne. However, the price used in Murchison's production profile (on which Mr McGuiness expressed his opinion) was $68 per tonne. This would have required an increase in the contract price of 100% over the price forecast by CRU. Mr Lonergan's evidence 878 Mr Lonergan, as with Mr McGuiness, valued the royalty stream on a discounted cash flow analysis. However, unlike Mr McGuiness, he considered each of the matters he identified as uncertainties facing the Project at the valuation dates and formed an opinion as to the probability of each matter occurring. It was the compounding effect of each of these probabilities which resulted in the very low valuation arrived at by Mr Lonergan. 879 Murchison made a strong attack on the credibility of Mr Lonergan's evidence. It described him as an "unprofessional biased witness" who did not set out to assist the Court but, rather, to be an advocate for Chameleon's case. I will address that submission after I deal with the major features of Mr Lonergan's evidence. 880 The uncertainties which Mr Lonergan identified included the consent and approvals needed for Stage 1. He considered that the timing was likely to be more protracted than that which was contemplated in Murchison's production profile. Mr Adams appeared to accept that there was some validity in this. 881 Mr Lonergan also considered the Project to be only a "Marginal Deposit". He pointed out that the tenements had been tested only sufficiently to prove the existence of 7.7 million tonnes of ore, which was a "measured resource" rather than a "reserve" under the applicable 2004 Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves ("JORC Code") standard. Further there had been limited drilling and testing some 35 years earlier. 882 Murchison criticised Mr Lonergan for his treatment of the measured resource of 7.7 tonnes. However, Mr Adams accepted in cross-examination there was uncertainty at the valuation dates as to whether the measured resource would be converted to a reserve. He considered that Mr Lonergan should have reduced the size of the resource, rather than to ascribe a 90% probability to its conversion into a reserve. 883 But it seems to me that the effect of Mr Adams' concession was to accept, at least in principle, the validity of Mr Lonergan's approach. As Mr Adams acknowledged, one way or another there had to be a discount to deal with the risk that not all of the measured resource could be extracted. 884 What was then necessary was, as Mr Lonergan said, an analysis of whether the Project was still economically viable at the assumed lower deposit size. 885 Similarly, Mr Lonergan's approach to the inferred resource of 59.3 million seems to me to be justified by reference to the definition in the JORC Code. It describes an inferred resource as one for which the tonnage, grade and mineral content can be estimated with a low level of confidence. 886 A further uncertainty to which Mr Lonergan referred was the price of iron ore. He adopted the benchmark or contract price in his valuation and pointed out that at those prices the Project would be uneconomic. 887 Mr Adams' acceptance of the proposition that the contract price is the norm for new miners supports the approach taken by Mr Lonergan. It is true that Mr Lonergan failed to take into account an increase in the benchmark price of 24% predicted by CRU, but this would not have brought the iron ore price within range of the $68 per tonne figure which was assumed by Mr McGuiness. 888 The essential difference between the approach of Mr Lonergan and Mr McGuiness to the uncertainties in the production profile was that Mr Lonergan exposed in some detail the uncertainties and ascribed a probability to each of them, whereas Mr McGuiness applied a subjective adjustment factor. 889 Mr McGuiness quite fairly accepted that in addressing the uncertainties, "one way you can do it" is to adopt the cumulative probability approach. Mr Adams accepted that Mr Lonergan's cumulative probability approach was "theoretically reasonable" but he considered it to be "poorly implemented" in two respects. They were: First, Mr Lonergan failed to distinguish between different risks at different stages of the project; and he assigned "arbitrary probabilities" that did not "appear to correspond with the actual risks typically experienced in this industry." 890 I am not satisfied that either of those criticisms is made good. Mr Lonergan's approach to the first stage was consistent with Mr Kopejtka's view that the Project, including the first stage, was speculative. 891 It is true that Mr Lonergan assigns a low probability to the likely success of the trucking operations within the time frame assumed in the production profiles. But the fact that this is contrary to Mr Zuks' evidence of the economic viability of that process is not to the point. As I said earlier, that was Mr Zuks' personal view. It provides no answer to Mr Lonergan's assessment of the probabilities, particularly bearing in mind the remarks made in paragraph 70 of Mr Kopejtka's affidavit. 892 There was considerable debate between the parties as to the discount rate to be applied to the cost of capital. Mr McGuiness applied a discount rate of 20% to 23% whereas Mr Lonergan's derived discount rate was 26% to 29%. 893 In arriving at their respective discount rates, Mr McGuiness and Mr Lonergan adopted different "Beta" factors as the appropriate Beta for the investment in the royalty stream. Mr McGuiness adopted a Beta of 1.19 to 1.35. Mr Lonergan adopted a Beta of 2. It is the difference between the Betas which explains the difference between the discount rates for the cost of capital applied by Mr McGuiness and Mr Lonergan respectively. 894 The Beta factor is an integer of the formula provided by the Capital Asset Pricing Model ("CAPM") for the derivation of the cost of equity, or a measure of the systematic risk of the asset. 895 Mr McGuiness observed that the Beta factor measures the relative risk of an investment relative to a well-diversified portfolio of investments, and a Beta factor of more than one identifies an asset that is riskier than the market risk of a well diversified portfolio. Mr Lonergan adopted the same approach. 896 The Beta factors selected by each of Mr McGuiness and Mr Lonergan were based upon published Beta factors for companies with iron ore exploration activities. 897 However, in selecting the companies which he considered to be comparable, Mr Lonergan also took into account a factor known as the "R-squared" value which is a measure of the proportion of total risk that is due to market risk. Mr McGuiness did not consider R-squared characteristics in his selection of the appropriate Beta factor. 898 Mr Karkar cross-examined Mr Lonergan quite forcefully on his selection of the Beta factor. The effect of the proposition put by Mr Karkar was that Mr Lonergan had double counted, by taking into account in the Beta factor, the very same risks that he had identified in assessing the probabilities that the Project would proceed. 899 Mr Lonergan accepted that it is not appropriate to allow for firm specific or diversifiable risks in the discount rate. He also accepted that this concession "appears to be" inconsistent with para 88 of his report, in which he set out the matters relevant to the selection of the Beta factor. 900 In addition, Mr Lonergan accepted that para 88 of his report was contrary to a passage taken from an authoritative commentator, Professor Officer. 901 Notwithstanding these concessions, I do not consider that Mr Lonergan engaged in double counting. The approach which Mr McGuiness took to the assessment of the Beta factor seems to me to be much the same as that which was adopted by Mr Lonergan. This appears from cross-examination of Mr McGuiness in which he accepted that in the absence of a like-for-like comparison, each of them (Mr McGuiness and Mr Lonergan) had looked to companies "that are at least relative in the same industry". 902 Mr McGuiness also accepted, at least as a "general proposition", the matters relating to the R-squared value which Mr Lonergan took into account. 903 Ultimately, the difference between Mr Lonergan and Mr McGuiness on this question was the choice of the companies which they selected for the applicable Beta factor. They accepted that they could not find a precise like-for-like comparison or "pure play comparative" and selected from a number of companies which they identified. 904 Mr Lonergan considered that certain companies, including large diversified producers, such as BHP and Rio Tinto, should be excluded from the process. This seems to me to be no more than a difference of professional opinion between two very well qualified and competent experts. 905 It follows from what I have said above in relation to each aspect of Mr Lonergan's evidence that I reject the attack that was made upon him. 906 In coming to this view, I have taken into account the various criticisms made of Mr Lonergan's evidence by Mr Adams. It is true that Mr Adams exposed a number of errors but they seemed to me to be of a relatively minor nature. I do not consider they affected the credibility of Mr Lonergan's evidence. Mr Gray's evidence 907 The effect of Mr Gray's evidence was that it is unlikely that a willing but not anxious buyer would have accepted a valuation of the royalty based on an assumption that the ore was to be sold at spot prices. 908 Murchison submitted that I ought not to accept this evidence. I reject this submission because it was clear from the cross-examination of Mr Gray that the opportunity to sell on the spot market was not a real one. 909 As Mr Gray said in cross-examination at T706, there were no mechanisms established by junior miners out of Australia to sell into the spot market. His concession that it was a potential opportunity waiting for them to pursue if they cared to, must be read with his qualifying comment: … if they cared to bear the risk and the cost of pursuing that opportunity 910 Mr Gray made the point quite plainly in re-examination at T713 – 714 when he said he would have formed the view that the costs and risks associated with access to the spot market were such that the impact on the economic viability of the Project was zero. Conclusion on valuation of royalty 911 Without any criticism of any of the experts who gave evidence, I do not consider that I am in a position to determine the relevant question. This is because the relevant question is what price would a willing but not anxious purchaser have paid for the right to receive the royalty stream. It seems to me that this is not to be confined to a valuation exercise. 912 Rather, the question incorporates other market considerations including comparable sales, if any. It also involves matters of market perception in a highly speculative market. The observations about market conditions at the relevant time made by Mr Adams and Mr Gray show the volatility of the market including record benchmark and spot prices, followed by the collapse of spot prices and, subsequently, the return to boom conditions. 913 It is true that these matters are discussed by the experts in their consideration of the relevance of the spot market, and the ability of an Australian junior miner to be able to gain access to it. It is also true that I accept Mr Gray's evidence that the opportunity to sell on the spot market was not a real one. 914 Nevertheless, these were unprecedented conditions for iron ore producers and, ultimately, the Iron Jack Project has proved to be highly successful. The use of hindsight is not a legitimate tool but in the emerging boom conditions that existed at the relevant dates, a hypothetical purchaser may well have been prepared to pay a premium over Mr Lonergan's ultra-conservative valuation. 915 That would depend on possible comparable transactions as to which no evidence was before me. 916 The difficulties which arise in the determination of this question go beyond the exercise of reducing a loss on a revenue account to a single capital sum. As the High Court said in Murphy v Overton Investments Pty Limited (2004) 216 CLR 388 at [51], courts often undertake that exercise, whilst acknowledging its difficulty and the imperfections involved in the result. 917 But here, if Murchison is correct on the issue of principle (which in my opinion it is not), I am required to determine the price which a hypothetical reasonable purchaser would have paid for an income stream for a commodity in a market which was entering into hitherto unknown market conditions. It bore the evidentiary onus which it failed to satisfy. Chapter 12: Relief Overview 918 Chameleon has succeeded in its claim against Mr Grimaldi and Murchison in respect of the Cadetta Transaction, as well as against Mr Grimaldi, Murchison and Winterfall, in respect of the misapplication of the cheques for $152,750. The question which then arises is what relief ought to be ordered. 919 Chameleon claims, at its election, a constructive trust, or an account of profits. Alternatively, it claims equitable compensation. Its claims for a constructive trust or an account of profits from Murchison is made over Murchison's 100% shareholding in Winterfall, or alternatively over a percentage interest of Murchison's shareholding in Winterfall. Chameleon also claims a constructive trust or an account of profits in respect of the 10 million shares issued to Pinnacle as a "spotter's fee". 920 The percentage interest is claimed by reference to the amount of Chameleon's "trust property" which was knowingly received, or in which Murchison knowingly assisted the breaches of duty of Mr Grimaldi and Mr Barnes. On the findings I have made, that sum is $277,840 which is comprised of $125,090 from the proceeds of sale of the shares received by NiCu in the Cadetta Transaction, and the cheques for $152,750. Chameleon seeks a percentage interest calculated by reference to the proportion which that sum bears to the consideration paid by Winterfall to the Iron Jack Vendors and the Weld Range vendors. 921 The cash component of the consideration provided by Winterfall to those vendors was $1,160,000. It follows that Chameleon's claim for a constructive trust or an account of profits over a proportionate share of Murchison's holding in Winterfall, or the iron ore ventures, would be approximately 24%. 922 As Murchison pointed out on several occasions, Chameleon's claim is a very large one. The market capitalisation of Murchison on 25 September 2009 was approximately $660 million, most if not all of which seems to be attributable to Murchison's interest in the Iron Jack and Weld Range projects. Chameleon's claim for a constructive trust over the whole of Murchison's shareholding in Winterfall would therefore amount to many hundreds of millions of dollars. Even a claim for a proportionate interest would, on the market capitalisation to which I have referred, amount to about $160 million. 923 Murchison described Chameleon's claim, which is based upon the misapplication of its funds in the amount of less than $280,000, as an egregious attempt at "gold digging". Hyperbole aside, it is clear enough that the question of relief is to be informed by the cardinal principle of equity to which I referred earlier, namely that the remedy must be fashioned to fit the nature of the case and the particular facts: Warman at 559. 924 As the High Court observed in Warman at 560, the outcome in cases of this kind depends upon a number of factors. These include the nature of the property, and the relationship between the profit made and the duties of the fiduciary. 925 The first issue which therefore arises is what was the nature of the property (if any) acquired by Mr Grimaldi, and received by Murchison. 926 This issue is relatively clear in the case of Mr Grimaldi. He and Mr Barnes obtained, through Pinnacle, 10 million shares in Winterfall as a "spotter's fee". They exchanged those shares for shares in Murchison under the takeover. 927 The position is less clear in the case of Murchison. Chameleon's funds were mixed with other funds of NiCu and were applied in partial satisfaction of NiCu's contractual obligations to Winterfall. On one view, NiCu did not acquire a specific item of property but it obtained benefits in the form of its ability to complete its contractual obligations to Winterfall. This ultimately resulted in Murchison's acquisition of Winterfall and, through it, the interest in the Iron Jack and Weld Range tenements. 928 The second issue which arises is, what was the profit? Is it to be calculated by reference to the proportion that the sum of $277,840 bears to the consideration provided by Winterfall to the Iron Jack and Weld Range vendors, or is it to be determined by reference to a wider range of matters? Other matters which may be relevant include the funds expended by Murchison on the development of the tenements as well as capital raised for the purpose of the venture. 929 The third issue is delay. It is well established that a claim for an account of profits may be defeated by laches, acquiescence and delay: see Warman at 559. Murchison and Winterfall rely upon this defence. It involves a consideration of events which occurred between 28 July 2004 and the commencement of these proceedings in November 2007. The relevant legal principles 930 The three remedies which are relevant to the present case were discussed in Warman at 556ff, although the "primary focus" in that case was the remedy of account. 931 It is well established that an errant fiduciary may be held accountable as a constructive trustee for a profit or benefit obtained by reason of his or her breach of duty: Hospital Products at 108. 932 So too, it is clear that a third party who receives trust property with the requisite degree of knowledge may be bound by a constructive trust over the property: Commissioner of Taxation v Macquarie Health Corp Limited (1998) 88 FCR 451 at 497 per Emmett J. 933 But as the High Court observed in Farah at [200], ordinarily relief by way of a constructive trust is imposed only if another remedy is not suitable. Thus, before a constructive trust is imposed, the Court should first decide whether, having regard to the circumstances, there is an appropriate equitable remedy, falling short of the imposition of a trust: Giumelli v Giumelli (1999) 196 CLR 101 ("Giumelli") at [10], [49]. 934 Even if a constructive trust is an appropriate remedy, it may be appropriately moulded having regard to the flexible nature of equitable relief. In Hospital Products at 108, Mason J cited with approval the words of Cardozo J in Beatty v Guggenheim Exploration Co (1919) 225 NY 380 at 389: A court of equity in decreeing a constructive trust is bound by no unyielding formula. The equity of the transaction must shape the measure of relief. 935 A factor which is of considerable importance in determining whether to impose a constructive trust is the nature of the property over which a trust is claimed. The authorities point to a distinction between cases in which a specific asset is acquired, and cases in which a business is acquired and operated: Warman at 560 - 561. 936 Also, where the benefit which is obtained by a fiduciary as a consequence of its breach of duty is a loan of money, it may be "contrary to principle" to impose a constructive trust over the money so as to transform the creditor's personal claim into a proprietary remedy: Daly v The Sydney Stock Exchange Limited (1986) 160 CLR 371 ("Daly") at 379 per Gibbs CJ. 937 In Daly, Gibbs CJ at 379 - 380 considered that the imposition of a trust was not only unnecessary to protect the legitimate rights of the lender, but could also lead to unjust consequences for the borrower/fiduciary (including the liability to account for profits made with the use of the money) and to third parties; see also Katingal Pty Limited v Amor (1999) 30 ACSR 545 at 548. 938 The distinction between the acquisition of a specific asset and the acquisition and conduct of a business is also relevant to the question of whether, and if so, on what terms, an account of profits will be ordered. It may be inappropriate to compel an errant fiduciary to account for the whole of the profit from the conduct of the business over an indefinite period of time: Warman at 561. 939 Also, the profits in respect of which an account is ordered are usually of an income nature but in some circumstances they may be profits of a capital nature. But the question of what form of account is appropriate, or indeed whether it is appropriate to grant such a remedy must await a consideration of all the circumstances and the identification of the gain: United States Surgical Corporation v Hospital Products International Pty Limited [1983] 2 NSWLR 157 at 213. 940 The assessment of a profit will often be very difficult. Mathematical exactness is not required but it is necessary to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of duty: Warman at 558. 941 It may be that the profits or gain are not the product or consequence of the misapplication of the principal's property but are the product of the fiduciary's skill, efforts and resources: Warman at 561. Whether it is appropriate to make an allowance in favour of the errant fiduciary for its efforts and investments will depend upon the facts of the case: Warman at 561 - 562. 942 What must be borne in mind is that: … the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff: Warman at 561. 943 It is well established that where a breach of duty by a fiduciary causes loss to the principal, equitable compensation may be ordered. The object of an order for equitable compensation differs from damages at law. The question is would the loss have occurred but for the breach and "[c]onsiderations of causation, foreseeability and remoteness do not readily enter into the matter": Re Dawson; Union Fidelity Trustee Co Limited v Perpetual Trustee Co Limited [1966] 2 NSWR 211 ("Re Dawson") at 215 per Street J; see also Meagher RP, Heydon JD, Leeming MJ Meagher Gummow & Lehane's Equity Doctrines & Remedies (4th ed, LexisNexis Butterworths, Sydney, 2002) at [5-260]. Payment of the cash consideration to the Iron Jack Vendors 944 On 28 July 2004, NiCu completed its obligation to Winterfall to pay the cash consideration of $350,000 due under the NiCu/Winterfall Heads of Agreement. On the same date Winterfall completed its obligation to pay the instalment of $350,000 due to the Iron Jack Vendors. 945 As I said in Chapter 10, the event which enabled NiCu to satisfy its obligation to Winterfall was the acquisition of the cheques for $152,750 from Chameleon. Although I should add, for completeness, that it was the fortuitous meeting with Mr Lobb that enabled Mr Grimaldi to find the final $25,000. 946 On the same date, 28 July 2004, Winterfall and the Iron Jack Vendors entered into two agreements which replaced the earlier agreements entered into between them. The replacement agreements reflected concessions extracted from Mr Zuks by the Iron Jack Vendors as a result of delays in payment of the instalment of $350,000. 947 The concessions included an increased allocation of shares in NiCu to the Iron Jack Vendors on completion of the reverse takeover of Winterfall and an agreement to acquire additional tenements from the Iron Jack and Weld Range vendors. The replacement agreements also provided for the amount of the second instalment to be $400,000 in lieu of the previous figure of $350,000, and brought forward the date of the final instalment to 19 February 2005. 948 The cash consideration stipulated in the first of the replacement agreements provided for the sum of $1 million to be paid as follows: $100,000 on execution; $400,000 no later than 28 July 2004; and $500,000 no later than 19 February 2005. 949 The instalment of $400,000 was apparently comprised of the sum previously agreed at $350,000, together with a penalty of $50,000 agreed between Mr Zuks and the Iron Jack Vendors. 950 The cash consideration payable by Winterfall to the Iron Jack Vendors under the second replacement agreement was $110,000. 951 It follows that the total cash consideration payable under the two replacement agreements between Winterfall and the Iron Jack Vendors was $1,110,000. However, Murchison's submissions proceed on the basis that the total cash consideration was $1,160,000. It is not clear to me whether this involves a double counting of the penalty of $50,000 but I am prepared to deal with the matter on the footing that the total consideration was $1,160,000. 952 The parties produced tracing schedules and considerable documentary evidence to show the dates, and sources, of the payment of the cash consideration of $1,160,000 to the Iron Jack Vendors. The results seem to me to be accurately stated in Murchison's document entitled "First, Fourth and Sixth Respondents' Response to Applicant's Chronology" at [65]ff. 953 The cash component of the $1,160,000 cash consideration was paid as follows: February 2004: $100,000; April 2004: $50,000; May 2004: $50,000; June 2004: $110,000; July 2004: $350,000; February 2005: $500,000. 954 The payment in February 2004 was made by Mr Zuks out of his own funds. The payments in April 2004 and May 2004 were made by Mr Kopejtka and his wife from their own funds. 955 The payment of $110,000 in June 2004 was made by Mr Zuks but, by June 2004, NiCu had begun to make payments to Mr Zuks on account of NiCu's obligations to Winterfall pursuant to the NiCu/Winterfall Heads of Agreement. The amounts paid by NiCu to Mr Zuks in June 2004 were $125,000. These payments were of course made before the receipt of the cheques for $152,750. NiCu raised some of the cash from the sale of the Chameleon shares issued to NiCu under the Cadetta Transaction. 956 The July 2004 payment of $350,000 of course included the cheques from Chameleon for $152,750. The balance of the $350,000 came from a series of cheques provided to the Iron Jack Vendors by Mr Zuks, NiCu and Mr Kopejtka. 957 NiCu's contributions came of out of cheques drawn on an account known as the "Kiosk Account". The funds came largely from amounts raised from investors including Mr Lobb. One of the investors was Westglade Pty Limited. The principal of that company, Mr Cecil Hoffman gave evidence. His investment was secured by shares held by NiCu in Chameleon but NiCu has no liability to account to Chameleon for the funds received from Mr Hoffman's company, Westglade Pty Limited. The short answer to Chameleon's claim is that there is no evidence that Murchison allocated any shares to the security or that the Chameleon shares were obtained by Murchison through any breach of duty for which Murchison is liable. 958 The final payment of $500,000 was made by NiCu, on behalf of Winterfall, to the Iron Jack Vendors in February 2005. The funds for that payment were obtained by NiCu through a placement of shares made to various investors through Martin Place Securities Limited. 959 I have set out the breakdown of the various contributions to the payment of the cash consideration for the acquisition of the Iron Jack and Weld Range tenements in some detail because two things are clear from it. First, as I said earlier, the funds obtained from Chameleon comprised approximately 24% of the cash consideration. Second, a number of innocent third parties contributed cash, either directly, or through the share placement. Expenditure on development of the Iron Jack tenements 960 Mining at the Iron Jack Project commenced in the last quarter of 2006 and the first shipment of iron ore from the Project occurred in February 2007. Further shipments have taken place since that time. 961 Needless to say, very substantial expenditure was required to develop the Project. During the period up to 28 November 2007, Winterfall spent $52,695,159 on the development and working of the Project. 962 The development of the Project appears to have encouraged a great deal of investor interest in Murchison's shares. In the period from November 2006 to November 2007, more than 562 million Murchison shares changed hands on the ASX at a total value of over $2 billion. More than 11 million options were also traded in that period at a total value of over $25 million. 963 Additional capital for the Project was raised through a Share Subscription Agreement made on or about 19 September 2007 between Murchison, Winterfall and Mitsubishi Development Pty Limited ("Mitsubishi"). Under the Share Subscription Agreement, Mitsubishi agreed to subscribe for 80 million partly paid shares in Winterfall for a total subscription amount of $150 million. Provision was made in the Agreement for the shares to become fully paid upon Mitsubishi making the "residual contribution" in accordance with the Agreement. 964 Prior to the execution of the Share Subscription Agreement, Chameleon had written to Murchison giving notice of a number of claims against Murchison including the claim that its funds were used to contribute to Murchison's purchase of the Jack Hills tenements. I will deal with this under the heading of delay but it is necessary to record at this stage that the terms of the Share Subscription Agreement included an indemnity given by Murchison to Mitsubishi arising from the claims identified in Chameleon's letter. 965 At the time when the Share Subscription Agreement was executed, Murchison held the whole of the issued capital of Winterfall which consisted of 80 million shares. On or about 27 September 2007, Murchison transferred its 80 million shares in Winterfall to Jack Hills Holdings for a nominal consideration. 966 On 27 September 2007, pursuant to the terms of the Share Subscription Agreement, Winterfall issued 80 million partly paid shares to Mitsubishi so that the total issued capital of Winterfall comprised 160 million shares. Jack Hills Holdings held 80 million fully paid shares and Mitsubishi held 80 million partly paid shares. 967 Since 2007, substantial further working capital has been raised and spent on the development and working of the Iron Jack Project. I do not propose to set out all the details. It is sufficient to say that, according to Murchison's submissions, the Annual Report for Murchison for the year ended 30 June 2009 records that Winterfall has spent $93,221,000 on the exploration of (including feasibility studies for) the Iron Jack tenements. Delay: The facts 968 Although the events with which this proceeding is concerned occurred, principally, in 2004, Chameleon did not give notice of its claim to Murchison until 21 November 2006. The effect of the letter is set out at [397] of the agreed chronology and I will not repeat it. 969 The explanation for the delay is to be found largely in the evidence of Mr John Chambers who became a director and company secretary of Chameleon in January 2006. Mr Chambers' evidence addresses the financial difficulties of Chameleon and his difficulty in obtaining the company's books and records. 970 Chameleon was ordered to be wound up on the ground of insolvency on 22 December 2004. Mr John Vouris was appointed as liquidator. The subsequent events are set out in the agreed chronology at [376] – [395]. 971 The relevant events include the entry into of a Subscription Agreement between Chameleon and Centrebright Pty Limited, the execution of a Deed of Company Arrangement and the termination of the winding up on 11 May 2006. 972 Of particular importance is the evidence of Mr Chambers as to the state of the books and records of Chameleon. The effect of his evidence as summarised in the chronology is that the books and records were inadequate and he was unable to obtain any assistance from Mr Grimaldi and Mr Barnes. 973 In about July 2006, Mr Chambers began to investigate some of Chameleon's dealings. By September 2006, he had started to investigate dealings by Chameleon's former directors that may have provided benefits to them or to Murchison. He sought counsel's advice in mid-September 2006. I accept his evidence that his investigation was hampered by Chameleon's inadequate books and records, but, for reasons stated later, I do not consider that this provides a complete answer on the question of laches. 974 By September 2007 Chameleon had raised sufficient funds, through a share placement, to be able to seek legal advice about its claims against Murchison and the former Chameleon directors. The investigation of the claims seems to have been sufficiently advanced for them to be the subject of an ASX announcement and media speculation. 975 Chameleon's ASX announcement was followed by an announcement made by Murchison to the ASX on 17 September 2007 which described the suggestion that Chameleon was entitled to an interest in the Jack Hills Project or the revenue derived from it as "totally spurious". 976 Chameleon commenced this proceeding on 29 November 2007. On the same date, Murchison issued an announcement to the ASX stating that an initial review of the claims confirmed that the proceeding had no substance. Murchison has issued further public statements denying the substance of the claims against Murchison and Winterfall. No constructive trust over Murchison's shares in Winterfall 977 Ordinarily, I would not consider whether to impose a constructive trust until after I have addressed the appropriateness of other forms of relief: Farah at [201]. However, in my opinion, it is clear in this case it would not be appropriate to impose a constructive trust over Murchison's shares in Winterfall. 978 The essential reason why no constructive trust arises is that, whether one approaches the matter by reference to the "profit" rule or the tracing rules, the shares which Murchison acquired in Winterfall were not the profit or the property which Murchison obtained from the breach: Hospital Products at 110; Maguire v Makaronis (1997) 188 CLR 449 at 468. The profit principle 979 The profit principle has been stated in a very large number of cases including landmark authorities such as Phipps v Boardman [1967] 2 AC 46. As Mason J said in Hospital Products at 108, the decided cases provide many illustrations of the fiduciary who has been held to be accountable as a constructive trustee of a profit or benefit which it obtained for itself in breach of its fiduciary duty. 980 It is no answer to the application of the profit rule that the profit is of a kind that the principal could not have obtained or that no loss is caused to the principal: Hospital Products at 109. The object of the rule is to prevent the fiduciary from being swayed by considerations of personal interest and from misusing the fiduciary position for its personal advantage: Warman at 557 - 558. 981 If I were to pause at that point, it might be thought that the application of the profit principle would lead, at least prima facie, to the imposition of a constructive trust. I held in Chapter 8 that Mr Grimaldi and Mr Barnes were in a position of conflict between their fiduciary duties to Chameleon and their personal interests when they drew, or authorised the drawing of, the cheques for $152,750. So too, Mr Grimaldi received his commission of 5 million shares from the Cadetta Transaction by the misuse of his fiduciary position. 982 It would seem to follow that the fundamental rule of equity ought to apply, namely that Messrs Grimaldi and Barnes as fiduciaries and Murchison as an accessory, ought to account as a constructive trustee for what they acquired in breach of their fiduciary obligations: Consul at 392 – 393; Timber Engineering Co Pty Ltd v Anderson (1980) 2 NSWLR 488 ("Timber Engineering") at 494 - 495 per Kearney J; Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 ("Harris v Digital Pulse") at [335] – [336] per Heydon JA. 983 But the statement of the profit principle and the finding of breach in relation to the Cadetta Transaction and the misapplication of the cheques do not answer the question which arises in relation to Chameleon's claim for a constructive trust over Murchison's shares in Winterfall. 984 As Mason J observed in Hospital Products at 110, the propriety of granting relief by way of a constructive trust is ordinarily to be answered by considering two questions. The first is what is the breach of the fiduciary duty? The second is what is the profit or benefit the fiduciary has made in consequence of the breach? 985 I have answered the first question in Chapters 7 and 8. It is the second question which determines whether a constructive trust over the Winterfall shares is appropriate. Thus, the relevant question is whether the acquisition by Murchison of the shares in Winterfall was the profit or benefit which Murchison made as a consequence of the breaches of fiduciary duty owed by Messrs Grimaldi and Barnes to Chameleon. 986 Here, the profit or benefit which Murchison obtained by reason of the breach must be considered in light of the provisions of the NiCu/Winterfall Heads of Agreement and the Addendum to that document because the funds were purportedly applied pursuant to the Heads of Agreement. 987 There are a number of differences between the terms of the NiCu/Winterfall Heads of Agreement and the Addendum. The substance of the two documents is that NiCu was to provide Winterfall with $350,000 for working capital and that NiCu would take over Winterfall on the basis set forth in the documents. The payment of the $350,000 was not expressed to be a pre-condition for the takeover but that was the substance of the arrangements. 988 The Addendum provides in Clause 3(b) that the $350,000 of working capital was to equal 10% of the issued capital of Winterfall. Clause 3(c) provides that shares equal to 10% of Winterfall's issued capital would be issued to NiCu or its nominee. That clause, read literally, would seem to confine NiCu to a very small stake in Winterfall but it appears to be limited to the proportion of the issued capital that was intended to reflect the contribution of $350,000. 989 The overall effect of the contractual arrangements between NiCu and Winterfall, when read in light of all the surrounding circumstances including Winterfall's Iron Jack agreement, seems to me to be that NiCu agreed to invest $350,000 in Winterfall to be used as working capital, and in particular, to be applied in satisfaction of Winterfall's obligation to pay the second instalment to the Iron Jack Vendors. In return for this, NiCu obtained the right to take over Winterfall on the terms set out in the documents. 990 Neither of these documents state the consideration payable by NiCu for the acquisition of its shareholding in Winterfall. There was provision for NiCu or its nominee to acquire on the takeover a stake in Winterfall amounting to 60% of that company. There was also provision for NiCu to undertake a capital raising of $2,500,000. In addition, clauses 3(b) and 3(c) of the Addendum seem to recognise some correlation between the investment of $350,000 and the number of shares to be issued to NiCu. 991 Clauses 3(b) and 3(c) might be thought to demonstrate a causal nexus between the issue of a proportion of the shares in Winterfall and the use of the funds obtained by NiCu through its participation in the breaches of fiduciary duty in the Cadetta Transaction and the misapplication of the cheques. However, it seems to me that later events show that there was no such nexus. 992 In particular, there was considerable debate in September to October 2004 as to the number of shares to be issued in NiCu and Winterfall to enable the share swap contemplated by the bidder's statement to be effected. The relevant events are referred to in the chronology at [345] and [351] – [354]. These matters appear to indicate that the way in which the share issue in Winterfall was effected was not based upon the terms of the Addendum. 993 The criteria which must be satisfied where a party seeks a proprietary remedy such as a constructive trust, or a personal remedy such as an account of profits, is that there must be a sufficient connection, or causal nexus, between the breach of duty and the profit: Maguire v Makaronis at 468. It follows from what I have said above that this test is not satisfied. 994 Nor is there a sufficient causal nexus between the acquisition by NiCu of its majority shareholding in Winterfall and the breaches of fiduciary duty. It is true that "but for" the breaches of duty in which NiCu participated, it would not have been able to make the takeover. However, it seems to me that what is contemplated is a common sense approach to causation which takes account of broader considerations, including the whole of the dealings between the parties. I refer to this again below when addressing the matter of an account of profits. 995 Here, in my opinion the contribution of $350,000 (which included funds obtained through breach of trust) was not sufficiently proximate to the issue of the shares by Winterfall to NiCu on the completion of the takeover. The genesis of the takeover was the willingness of NiCu to fund the capital and other costs of developing the Iron Jack Project. It is true that the NiCu/Winterfall Heads of Agreement provided for NiCu to raise additional capital of only $2,500,000. But that was merely a first step. The underlying basis for NiCu to enter the engagement was that it was a public company, which would be restored to the ASX list, and able to raise substantial funding to reap the benefits of the investment in the Iron Jack Project. 996 What the arrangements between the parties contemplated was that NiCu would raise substantial funds (perhaps in the hundreds of millions of dollars), whether by debt, or the issue of equity, to fund the carrying out of the Iron Jack Project. That was the sine qua non for the takeover. 997 The relevant benefit which NiCu obtained by reason of its participation in the breaches of trust in the Cadetta Transaction and the misapplication of the cheques was therefore not the shares in Winterfall. Rather, it was the benefit of its "investment" of the applicable portion of that sum in the working capital of Winterfall in accordance with the NiCu/Winterfall Heads of Agreement. 998 Some support for the view that Murchison is liable to account for the Winterfall shares might at first sight be thought to follow from the following observations made by Mason J in Hospital Products at 113 - 114: In some circumstances it may be proper to hold a fiduciary liable to account for a profit or benefit arising from the pursuit of an activity which did not amount to a breach of fiduciary duty but for the circumstance that the activity was also undertaken for the purpose of obtaining another profit or benefit which was a breach of fiduciary duty. If the breach of fiduciary duty is a sine qua non in the sense that the pursuit of the activity for the purpose of obtaining the legitimate profit or benefit could not have been undertaken as a practical business operation on its own without seeking also to obtain the forbidden profit or benefit, then there is much to be said for the view that the fiduciary's liability to account should extend to all profits and benefits. (156 CLR at 113-114) 999 However, I do not consider his Honour's observation is applicable in the present case. He was addressing the question of whether the distributor was liable to account for profits made from sales of the products in the United States market where competition with the principal in that market would not of itself have amounted to a breach. The issue with which Mason J engaged in the passage I have quoted was the possibility of the distributor accounting for all its profits, including those from the United States market, where the secret manufacturing capacity was developed in order to compete with the principal in the United States market as well as in the Australian market. 1000 What his Honour was therefore addressing was the situation that might arise where the ambit of the fiduciary relationship does not limit the fiduciary's liability to account for profits resulting from the breach of duty. Thus the fiduciary may be liable to account for profits flowing from an activity which would not of itself amount to a breach of duty where the legitimate activity was undertaken for the purpose of also obtaining a profit which fell within the ambit of, and was in breach of, the relevant fiduciary duty. 1001 In Hospital Products the activity which may have constituted a breach of fiduciary duty was the sine qua non for the pursuit of the legitimate activity in the United States market. That is in my view a different position from that which arises in the present case. 1002 Here, in a practical sense, the breach of duty involved in the use of the funds obtained through the Cadetta Transaction and the delivery of the cheques for $152,750 were necessary steps to be completed before Murchison could pursue its takeover of Winterfall. Indeed, I have found that without the payments, the takeover would not have gone ahead. But the two steps, namely the payment of the $350,000 and the takeover of Winterfall, are separate steps which are to be distinguished from those which Mason J was addressing in Hospital Products. In the present case the benefit of the ability to make the investment is to be distinguished from the ability to make the takeover. 1003 In Hospital Products, what his Honour was addressing was the possibility that the profits made were not necessarily restricted to those which were made within the geographical ambit of any fiduciary relationship. His Honour's analysis explains why that may be so. But here, in my opinion, the breach of duty constituted by the delivery of the cheques was not a sine qua non for the takeover in the sense to which Mason J referred. The reasons for this view are explained above. 1004 The present case is also quite different from that which arose in Timber Engineering. There, two employees of the principal built up and conducted another business known as Mallory Trading, using the facilities of their principal. Kearney J said at 496 that it was clear that the business of Mallory Trading had its genesis in the resources and facilities of the principal. His Honour found that the whole substance of Mallory Trading as a viable business enterprise stemmed from the resources of the principal. 1005 It was for this reason that Kearney J held that it was appropriate to declare a proprietary interest (though in the form of an equitable lien rather than a declaration of trust) over the shares in Mallory Trading. 1006 By contrast, in the present case the takeover by Murchison of Winterfall did not have its genesis in the use of the funds from the Cadetta Transaction or the misapplication of the cheques for $152,750. Chameleon's funds were not the source of the takeover. Rather, the genesis of the transaction was the provision of substantial outside funding and the willingness of those associated with the venture to raise further sizeable amounts of capital in order to render it workable. 1007 Nor does the decision of the New South Wales Court of Appeal in Paul A Davies (Australia) Pty Limited v Davies [1983] 1 NSWLR 440 ("Paul A Davies") support Chameleon's case. 1008 In Paul A Davies, a property was purchased under a contract in which the purchaser paid the deposit with funds obtained in breach of fiduciary duty. The balance was paid using funds borrowed by the fiduciary from a bank. The only real question before the New South Wales Court of Appeal was whether the moneys raised by the mortgage could be regarded as moneys provided by the defaulting fiduciary from its own resources: see at 450 per Hutley JA. 1009 The Court of Appeal overturned the decision of the trial Judge who had held that a constructive trust over the property was limited to a percentage interest based on the ratio that the deposit bore to the purchase price. It may be that this decision is limited to the proposition that money borrowed by the defaulting fiduciary on the security of the property is excluded from consideration when calculating the entitlement to a share in the profit by reference to capital contributions: Mavaddat v Lee (2007) 34 WAR 67 at [51] per McLure JA, citing Australian Postal Corp v Lutak (1991) 21 NSWLR 584 at 594 per Bryson J. 1010 But whether or not the decision in Paul A Davies is so limited, it is clear that the decision turned upon the applicability of the profit principle and the tracing principle to the facts of the case. This can be seen most clearly in the judgment of Mahoney JA at 455 - 457. In my opinion, for reasons set out above, the shares in Winterfall are not the relevant profit. Nor, for reasons set out below, are they attracted by the tracing principle. The tracing principle 1011 The tracing principle is to be distinguished from the exercise of following. As Lord Millett explained in Foskett v McKeown [2001] 1 AC 102 at 127, both of them are exercises in locating assets which are taken to "represent" an asset belonging to a plaintiff and, over which, the plaintiff asserts ownership. He continued: Following is the process of following the same asset as it moves from hand to hand. Tracing is the process of identifying a new asset as the substitute for the old. [at 127] 1012 Lord Millett went on to say at 128: Tracing is thus neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them, and justifies his claim that the proceeds can properly be regarded as representing his property. 1013 See also the statement of the principle by Emmett J in Commissioner of Taxation v Macquarie Health Corp Limited at 497. 1014 It seems to me to be plain that the shares in Winterfall that Murchison obtained on its takeover of that company do not represent the traceable proceeds of the cheques for $152,750. The shares are not a substitute for the cheques. Nor are they the same asset passing from hand to hand. The same approach applies to the proceeds of sale of the 5 million shares obtained from the Cadetta Transaction. 1015 Chameleon pointed to the observation made by Lord Mustill in Re Goldcorp Exchange Limited (In Receivership) [1995] 1 AC 74 ("Re Goldcorp") at 109, that the law relating to the creation and tracing of equitable proprietary interests is still in a state of development. However, I do not see how that observation can assist Chameleon. 1016 This is because it is impossible in my opinion to treat the shares in Winterfall as representing Chameleon's money. The cheques do not have: … a continued existence, actual or notional, as will enable equity to grant specific relief. In re Diplock [1948] Ch 465 at 521, cited in Re Goldcorp at 109. 1017 It is true that the cheques were Chameleon's "trust property" and that they were mixed with other moneys in completing NiCu's obligation to pay the sum of $350,000 under the NiCu/Winterfall Heads of Agreement. Also, those funds were then paid at the direction of Winterfall in partial satisfaction of its obligation to the Iron Jack Vendors. But this is not a case in which a mixed fund was used by Murchison to acquire its interest in Winterfall because the cheques formed part of the working capital provided by Murchison. They were not used to acquire shares in Winterfall. Chameleon is not entitled to claim a proportionate interest in Murchison's shareholding in Winterfall; cf Scott v Scott (1963) 109 CLR 649 at 664. 1018 An alternative approach, though not necessarily falling under the rubric of tracing is to be found in the observations of Spigelman CJ in Evans v European Bank Ltd (2004) 61 NSWLR 75. His Honour observed at [160] that: … it is an essential aspect of accessorial liability for "knowing receipt" that the act of transfer of the property … must be in breach of a fiduciary obligation. 1019 See also the discussion by Owen J in Bell Group at [4754] and [4778]. 1020 Applying this approach, a constructive trust cannot attach to Murchison's shares in Winterfall because the shares were not acquired with the funds improperly obtained from Chameleon. Laches 1021 As Deane J observed in Orr v Ford (1989) 167 CLR 316 at 340, the availability of a defence of laches and what will suffice to make it good depends on the nature of the claim. His Honour went on to say at 340 - 341 that the preferable approach is to treat the phrase "gross laches" as deliberately imprecise. It involves consideration of the period of delay and the prejudice to the defendant or third parties. The ultimate test is: … whether the plaintiff has, by his inaction and standing by, placed the defendant or a third party in a situation in which it would be inequitable and unreasonable "to place him if the remedy were afterwards to be asserted. Orr v Ford at 341 [references omitted]. 1022 More recently, in Bell Group at [9303] – [9314], Owen J expressed the test in similar terms. He said that unreasonable delay alone will not be sufficient to attract a laches defence. The delay must render it unjust in all the circumstances of the case for relief to be granted. In determining where the balance of justice lies, the nature of the property, the extent of the delay and the prejudice to the defendant (and third parties) are all to be taken into account. 1023 Also, the Court is to consider the explanation for the delay and the events which have occurred since the party asserting the claim for relief first became aware of the circumstances giving rise to the claim: The Duke Group Ltd (In Liq) v Alamain Investments Ltd [2003] SASC 415 at [156] per Doyle CJ. 1024 Whilst I accept that the lack of documents provides some explanation, it seems to me that the letter of 21 November 2006 shows on its face that Chameleon had sufficient documentation in its possession to make the statements and assertions in it about the use of the cheques to contribute to the acquisition of the Jack Hills tenements. 1025 The letter says on its face that "(o)ur records indicate" that Chameleon funds were directly applied to contribute to the purchase of the Jack Hills tenements. 1026 Mr Chambers insisted in cross-examination by Mr Karkar that he did not have sufficient records to make that assertion. However, I do not accept that aspect of his evidence. The letter seems to me to be sufficiently clear, as was the existence of the material relating to the cheques. 1027 Similarly, I am not satisfied that the lack of funds provides a complete explanation for the delay. There was evidence of the terms of a Subscription Agreement with Centrebright dated 10 June 2005 under which that company agreed to pay the sum of $1.53 million to subscribe for shares in Chameleon. Also, Mr Chambers' investigative work was funded by Centrebright. As at 30 December 2006, Centrebright had lent $395,000 to Chameleon; those funds seem to have been applied for operating and running expenses, although Mr Chambers was unable to recall the precise use which had been made of the money. 1028 On balance, I am inclined to the view that if the question of relief were to turn purely on the length of the delay, the relevant delay in the present case would not be a bar to relief. However, the authorities indicate that the real focus of the defence of laches is on the prejudice to the defendant, rather than the length of the delay. What seems to me to be of particular relevance in relation to the claim for a constructive trust is the proprietary nature of the claim. 1029 Chameleon's claim was not announced publicly until September 2007. A large amount of funds was spent on the development of the Jack Hills Project before that time and Murchison's stock was actively traded on the ASX. The rights of third parties, including the rights of shareholders who have acquired shares in publicly listed companies is a matter of particular concern where those persons' rights would be affected by the grant of equitable relief: Sons of Gwalia Ltd v Margaretic (2007) 231 CLR 160 at [55] per Gummow J; see also John Alexander's Clubs Pty Ltd v White City Tennis Club Limited (2010) 266 ALR 462. 1030 The remarks made by Gummow J were directed at the remedy of rescission. However, they seem to me to be equally applicable where an equitable remedy, especially one of a proprietary nature, is sought. 1031 The impact on innocent third parties was referred to in Giumelli at [10] as a relevant consideration. In my view, it is apt to take it into account in the present case as a reason for denying proprietary relief. However I do not consider it is an answer to the claims for an account of profits or equitable compensation. Account of profits in relation to Murchison's shares in Winterfall 1032 As I said above, the relevant benefit, in a causal sense, which Murchison obtained was the ability to provide $350,000 of working capital to Winterfall. I do not consider that Murchison's ability to acquire shares in Winterfall, or the acquisition of the shares, to be sufficiently connected to the breaches of fiduciary duty. 1033 The distinction which I have drawn may be narrow but it is best explained by what was said in Maguire v Makaronis at 468. There, Brennan CJ, Gaudron, McHugh and Gummow JJ said that where a plaintiff seeks recovery of a profit, the necessary connection has been identified by asking whether the profit was obtained by reason of the defendant's fiduciary position. Their Honours went on to say that: (p)articularly where a complex course of dealing is in issue, minds reasonably may differ as to the outcome of the application of these principles. [At 468]. 1034 An account of profits is a personal remedy which is designed to strip a defaulting fiduciary of its profits, whether or not the principal has suffered a loss commensurate with the fiduciary's profit: Dart Industries Inc v Décor Corporation Pty Limited (1993) 179 CLR 101 ("Dart Industries") at 111 per Mason CJ, Deane, Dawson, Toohey JJ; Meagher Heydon Leeming Meagher, Gummow & Lehane's Equity Doctrines and Remedies at [5-245]; see also Short v Crawley (No 30) [2007] NSWSC 1322 at [763] per White J. 1035 In my view, that remedy is appropriate in the present case. Murchison obtained a profit or benefit from its participation in the breach of fiduciary duty by Mr Grimaldi and Mr Barnes as a result of which Chameleon's funds, amounting to $277,840 were invested in Winterfall. An accounting of profits is therefore to be made to strip Murchison of the profits it made as a consequence of the breach. 1036 The profit which Murchison obtained is not to be approached upon the basis that it is a percentage of Murchison's shareholding in Winterfall. The shareholding is not the relevant profit. Rather it is the "investment" of Chameleon's funds in Winterfall, which funds ultimately formed part of a much larger pool of working capital comprised of debt and equity in the Project. It was in effect an investment of capital in an income stream to be produced by the working of the Iron Jack Project. Accordingly, the benefit is the amount of the income stream produced by the "investment" of Chameleon's funds in the carrying on of the Project. 1037 The authorities to which I referred earlier show that the form of an order for an accounting depends on all the circumstances, and the assessment of the profit may be difficult. What seems to me to be appropriate in the present case is to order Murchison to account for the income it received as a consequence of the investment of $277,840 in Winterfall from 28 July 2004 to the present time. The exercise will be a complex one. What will be required, in effect, will be an accounting of all of the funds, whether debt or equity, which Murchison (or its subsidiaries) invested in the Iron Jack Project from 28 July 2004 and a calculation of the net profits derived by Murchison (or the relevant subsidiary) from the venture. 1038 Chameleon will be entitled to a portion of the income referable to the use of its funds of $277,840 during the period to which I have referred. 1039 Murchison will be required to disgorge the funds it received from Chameleon, that is to say, the $277,840 to the extent that those funds have not been repaid. Even if the funds have already been repaid that is not an answer to Chameleon's claims. The claims are based on the profit principle and the tracing principle. It is no answer for a defaulting fiduciary to simply repay the moneys obtained. The fiduciary's obligation is to make restitution of the trust estate: see Maguire v Makaronis at 469. Allowance in favour of Murchison 1040 Since I have come to the view that no constructive trust attaches to Murchison's shares in Winterfall, I do not need to address the question of whether any allowance ought to be made in favour of Murchison. However, I will deal with that issue briefly. 1041 The High Court observed in Warman at 561 that, especially in the case of a business, it may well be inequitable to compel the errant fiduciary to account for the whole of the profit from the conduct of the business. 1042 The principle is clear that the onus is upon the defendant to establish that it is inequitable to order an account of the entire profits but, ultimately, it is a matter of judgment which will depend upon the facts of each case: Warman at 561 - 562. 1043 It may be that the absence of "grave misconduct" is to be demonstrated by the fiduciary as a "passport" to an indulgence in its favour: Harris v Digital Pulse at [335]. But the observations of the High Court in Warman at 561 - 562 suggest that all of the facts must be weighed in the balance. The absence of an antecedent arrangement appears to be only one of the factors: Warman at 562. In any event, an allowance for expenditure would still be open. 1044 Here, it seems to me to be plain that any increase in the value of the Iron Jack tenements over the amount paid by Winterfall to the Iron Jack Vendors is largely attributable to the development of the Project. The evidence establishes that, even before Chameleon announced its claims to the public in September 2007, Winterfall had spent many millions of dollars in the development of the Project. By November 2007 more than $52 million had been spent on it. 1045 The expenditure of these funds seems to me to be a most important factor. It is true that but for the use which was made of Chameleon's funds, Murchison would not have been able to take over Winterfall and, through it, to pursue the Project. It is also true that the misuse of Chameleon's funds was serious and attracted the operation of both limbs of Barnes v Addy. Murchison had actual knowledge, through Mr Grimaldi, of the dishonesty that was involved in the misapplication, or malapplication of the funds. 1046 But when the proceeds of the Cadetta Transaction and the cheques for $152,750 are put in their full context, even if the shares in Winterfall can be said to represent Chameleon's property, the significance of the funds in relation to the "profit" is reduced to a very small amount. 1047 This in my opinion is an example of a case where it appears that a "significant proportion of an increase in (the) profits has been generated by the skill, efforts, property and resources" of Murchison and Winterfall: Warman at 561. It is, for the most part, not a case where risks have been taken to which Chameleon's property was exposed. Rather, almost all of the risks are attributable to the expenditure of a sizeable sum of capital on the development of the Project. 1048 Thus, if there were to be an account of profits referrable to a 24% interest in the Project, as contended by Chameleon, there would be an allowance against that interest to reflect, in particular, the substantial investment of funds contributed to the Project by or on behalf of Murchison. It seems to me that this would be likely to produce a similar figure to that which would result from the accounting exercise to which I referred above. Equitable compensation payable by Murchison 1049 As an alternative to an account of profits, Chameleon is entitled at its election, to equitable compensation for the misapplication of its funds. 1050 Mr Grimaldi used his illicit commission, and he and Mr Barnes caused the cheques for $152,750 to be misapplied in breach of their fiduciary duties to Chameleon. Murchison was an accessory to their breaches of duty. It follows from this that relief in the form of equitable compensation must, at very least be payable by Mr Grimaldi. Chameleon no longer seeks relief from Mr Barnes but the question which arises is whether equitable compensation is payable by Murchison and the measure of that compensation. 1051 In Maguire v Makaronis the Court cited with apparent approval the following observation of Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 434: … the basic rule is that a trustee in breach of trust must restore or pay to the trust estate either the assets which have been lost to the estate by reason of the breach or compensation for such loss. 1052 The observations of the High Court in Youyang Pty Limited v Minter Ellison Morris Fletcher (2003) 212 CLR 484 ("Youyang") at [35]ff are to similar effect. 1053 There is no equitable by-pass to the need for Chameleon to establish causation of loss but on questions of causation it is important to focus on the relevant equitable duty: Youyang at [44] citing Mummery LJ in Swindle v Harrison [1997] 4 All ER 705 at 733, 734. 1054 The authorities were comprehensively reviewed by Spigelman CJ in O'Halloran v RT Thomas & Family Pty Limited (1998) 45 NSWLR 262 ("O'Halloran") at 272 - 278. His Honour's review addresses Australian, English and Canadian authorities as well as academic articles and other writing on the subject of equitable compensation. The review does not include reference to Youyang which was decided later but I do not consider that anything in that case alters the statements of principle to be found in Spigelman CJ's judgment. 1055 The following principles emerge from O'Halloran: The object of equitable compensation is to restore persons who have suffered loss to the position in which they would have been if there were no breach of the equitable obligation. The defendant's wrongful act must relevantly cause the damage complained of and the plaintiff is to be put in the same position it would have been if it had not sustained the wrong. It follows from this that the defendant is only liable for the consequences of the wrong and it is not required to pay by way of compensation more than the loss suffered from the wrong. The plaintiff's actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight but the losses to be made good are only those which, on a common sense view of causation, were caused by the breach. The common sense formula should not be treated as a single formulation of the test for causation because causation in equity is not susceptible to the formulation of a single test. What is required is the identification of criteria which supply an adequate or sufficient connection between the equitable compensation and the breach of fiduciary duty. There is a sufficient connection where the loss would not have occurred if there had been no breach of duty. The preferable approach is to look to the policy behind compensation for beach of fiduciary duty and to determine the remedy that best furthers that policy. Directors who misapply, or are parties to the misapplication of the funds or other property of that company are liable to recoup the company for a loss thereby obtained. 1056 In the present case, Mr Grimaldi obtained a benefit in the form of a commission by the use of his fiduciary position. Also, the cheques for $152,750 were drawn and misapplied by Mr Grimaldi and Mr Barnes in circumstances in which they obtained a benefit when there was a conflict between their fiduciary duty to Chameleon and their personal interest in the introduction fee. I will return to the question of whether Messrs Grimaldi and Barnes are liable to account for the "introduction fee", namely the shares in Winterfall (or the Murchison shares for which they were exchanged). I will also deal later with the question of the liability of Murchison to account, as an accessory, for the benefits obtained by Messrs Grimaldi and Barnes. 1057 It is sufficient to say at this stage that the principles to which I referred above show that Mr Grimaldi is liable to Chameleon to make equitable compensation for the receipt of his commission and the misapplication of the cheques. Mr Barnes would also have been liable in relation to the cheques if Chameleon's claims against him had not been compromised. 1058 The analysis referred to in Chapter 10 shows that Messrs Grimaldi and Barnes breached the profit rule. The objective of that rule is to prevent the fiduciary from being swayed by considerations of personal interest and from misusing the fiduciary position for its personal advantage: Warman at 557 - 558. Yet that was precisely what Mr Grimaldi did in obtaining his commission and what Messrs Grimaldi and Barnes did in drawing or procuring the cheques. 1059 Their misapplication of the cheques was for their personal advantage. The circumstances in my view show that they exercised their powers dishonestly. I am reinforced in that view by their failure to give evidence. They are to be held to exacting standards and are liable for losses caused to Chameleon in the same way as a trustee of a traditional trust: O'Halloran at 278. 1060 That said, the difficulty which arises in determining the loss is that Chameleon did not seek to make out a claim of loss to the company other than the deprivation of its funds. It was not suggested that the company lost the benefit of any item of property, or investment opportunity, other than the moneys themselves. Rather the focus of the case was upon the claim for a constructive trust or an account of profits. 1061 It was not suggested that Chameleon lost an opportunity to make such an investment by reason of the misapplication of the cheques or by the issue of the 5 million shares in the Cadetta Transaction. 1062 It seems to me therefore that, subject to what I have to say below in relation to the claim over Pinnacle's shares in Winterfall, the only loss relevantly caused to Chameleon by the misapplication of the cheques was the loss of the use of that money. 1063 Also, no loss has been demonstrated by the issue of the 5 million shares in the Cadetta Transaction, although of course Mr Grimaldi is liable to account for the benefits received from his commission. 1064 The only question which then arises is what rate of interest ought to apply. There are two rates of interest which are relevant. The first is "the trustee's" rate which applies where the trustee has not profited from the breach of trust or been guilty of serious misconduct. The second rate is the "mercantile rate" which applies to the most serious cases where the trustee has been guilty of acts of misconduct contributing to the loss of trust funds: Re Dawson at 218; see also Ford HAJ, Lee WA, Principles of the Law of Trusts (Thomson Reuters, subscription service) at [17.2230] (update 73). 1065 The Court's jurisdiction in selecting the appropriate rate is exercisable only for compensatory purposes: Re Dawson at 218. Nevertheless, this is plainly a case which falls within the higher category and ought to carry the "mercantile rate". That is a rate which should reflect the reality of the market place: Hagan v Waterhouse (1992) 34 NSWLR 308 at 393 per Kearney J. 1066 In addition, compound interest is to be applied. This is because as Kearney J said in Hagan v Waterhouse at 393 citing earlier authority, a trustee will normally be charged compound interest not only where he or she has used the money for his own commercial purposes but also where the trustee has been guilty of fraud or serious misconduct. 1067 His Honour also referred at 393 to an earlier edition of Ford & Lee, Principles of the Law of Trusts, as authority for the proposition that an award of compound interest is a device of equity to minimise the possibility that any profit can remain in the trustee's hands. 1068 The assessment of compensation payable by an accessory to a breach of trust will ordinarily be assessed on the same principles as apply to a defaulting trustee because the accessory is treated as if it were a trustee: McNally v Harris (No 3) [2008] NSWSC 861 at [22]. 1069 It follows in my view that Mr Grimaldi and Murchison are liable to Chameleon for equitable compensation in the sum of $152,750 together with interest at commercial rates. There was evidence in an affidavit of Ms Banton as to the applicable rates of interest but in the event of any disagreement, I will determine the rate. 1070 Compound interest is to be payable. The approach adopted by Kearney J in Hagan v Waterhouse at 394 was to provide for compound interest on annual rests. It seems to me that where an errant fiduciary has had the benefit of its principal's funds, compound interest ought to be payable on monthly rests. That seems to me to accord with modern commercial practice and it achieves the purpose to which Kearney J referred. The Pinnacle Shares 1071 It is clear from the findings I made in Chapter 10 that the use of the proceeds from the Cadetta Transaction and the drawing of the cheques for $152,750 resulted in the conferral of personal benefits on Mr Grimaldi and Mr Barnes in the form of the "introduction fee". That was a benefit they received by reason of their breaches of fiduciary duty to Chameleon. 1072 The principles to which I referred earlier make it plain that Messrs Grimaldi and Barnes would have been liable to account to Chameleon for the benefit in the form of the 10 million shares in Winterfall which were issued to Pinnacle in satisfaction of the payment of the introduction fee. 1073 The 10 million Winterfall shares were then exchanged by Pinnacle for 10 million shares in Murchison on completion of the reverse takeover. The 10 million shares in Murchison "represented" the shares in Winterfall for which Messrs Grimaldi and Barnes were liable to account to Chameleon. 1074 The evidence suggests that Pinnacle no longer holds the 10 million shares in Murchison. Some were allotted or transferred to Mr Grimaldi or his nominees and others to Mr Barnes or his nominees. 1075 In the absence of Mr Barnes and Pinnacle as respondents to Chameleon's claim, the following questions arise: First, what is the liability of Mr Grimaldi to account for the benefits and, in particular, is this to be at the highest value of the shares between the date of breach and the date of judgment? Second, is Murchison liable to account for the 10 million shares and, if so, on what basis? Mr Grimaldi is liable to account for the 10 million shares in Murchison 1076 Mr Grimaldi did not receive all of the 10 million shares in Murchison but it seems to me that he is liable to Chameleon to account for the whole of that parcel of shares. 1077 The shares which Mr Grimaldi received in his own right were the dishonest benefit derived by him by reason of his receipt of the commission and his procurement of the cheques for $152,750. It is plain on the principles I have previously discussed that Mr Grimaldi is liable to account for those shares, either as a constructive trustee or by way of an account of profits. 1078 It is also clear in my view that Mr Grimaldi is liable to account for the remaining shares as an accessory or to pay equitable compensation in respect of those shares: McNally v Harris at [22]. 1079 I will refer below in more detail to the principles upon which an accessory may be liable to an order for an account of profits. That question arises in relation to the claim that Murchison is liable to account to Chameleon for Mr Grimaldi's profits. The measure of Mr Grimaldi's liability to account 1080 A question arises as to whether Mr Grimaldi is liable to account to Chameleon for the value of the 10 million shares at the highest price obtained between the date of breach and the date of judgment. 1081 Some support for the proposition may be found in the decision of the Supreme Court of Canada in McNeil v Fultz (1906) 38 SCR 198 at 205. However, the analysis of the authorities undertaken by White J in McNally v Harris at [27]ff shows that McNeil v Fultz does not contain an accurate statement of the law in Australia or England. 1082 The position in Australia was stated by White J in McNally v Harris at [41] as follows: The general principle in relation to the making of presumptions against wrongdoers on questions of assessment of value, or of damages, is not simply that every presumption is to be made against a wrongdoer. Rather it is that a Court can resolve questions of value against a wrongdoer whose actions have made the assessment of damages problematic. [Citations omitted] 1083 It seems to me that the principle stated in McNeil v Fultz is based upon a conceptual approach that has been rejected in modern authorities. There is no irrebuttable presumption that but for the breach, the trust property would have been disposed of at its highest value. 1084 Such an approach is inconsistent with the view stated in Target Holdings and followed in O'Halloran by Spigelman CJ, and by the High Court in Youyang, that the quantum of equitable compensation is to be fixed at the date of judgment in accordance with no fixed formula but having regard to hindsight. I do not see that an account of profits ought to be approached on a different basis. The account of profits is ordered to strip the errant fiduciary of its profits, not as a vehicle for the unjust enrichment of the plaintiff: Warman at 561. Whether Murchison is liable to account for the 10 million shares 1085 The essential question which arises in Chameleon's claim to an account of profits in respect of the 10 million Winterfall shares (and the 10 million Murchison shares for which they were exchanged) is whether a participant in a breach of fiduciary duty is also liable to account for the profits made by the fiduciary. 1086 As the learned authors of Meagher Gummow & Lehane's Equity Doctrines & Remedies (4th ed) observe at [5-245] p 202, a knowing participant in the fiduciary's breach of duty must account for the profits made by the participant. But is the participant also liable to account for the profits by the fiduciary? 1087 In the Hospital Products litigation at first instance, McLelland J appeared to give some support to the proposition that the participant may be jointly liable with the fiduciary to account to the beneficiary for any benefit obtained by the fiduciary as a result of the breach: United States Surgical Corporation v Hospital Products International Pty Limited [1982] 2 NSWLR 766 at 817. 1088 However, the effect of statements made by the High Court as to the basis upon which an order for an account is made suggest that strictly, each respondent must account for its own profits and not those made by other respondents. 1089 This seems to follow from what the High Court said in Warman at 569 - 570. Also, as the High Court said in Dart Industries at 111: An account of profits is confined to profits actually made, its purpose being not to punish the defendant but to prevent unjust enrichment. 1090 The statement of Windeyer J in Colbeam Palmer Limited v Stock Affiliates Pty Limited (1968) 122 CLR 25 at 34 is to the same effect. His Honour said that the errant fiduciary is: … stripped of profits he had made which it would be unconscionable that he retain. 1091 The learned authors of Meagher Gummow & Lehane's Equity Doctrines & Remedies (4th ed) also refer at [5-245] p 204, to the decision of the British Columbian Court of Appeal in Canson Enterprises Ltd v Boughton [1996] 1 WWR 412 as an example of a case where an accessory who knew that the fiduciary was making secret profits was not liable to account for the profits because it had not shared in them. 1092 It seems to me that the proper approach in the present case is that Murchison ought not to be liable to Chameleon to account for the 10 million Winterfall shares or the 10 million Murchison shares because that was not a profit made by Murchison. To order Murchison to account seems to me to be contrary to the approach stated by the High Court in the authorities mentioned above. 1093 I do not consider that this issue turns upon whether Mr Grimaldi's actions constituted a fraud on Murchison; see Re Hampshire Land. Accordingly, it is not necessary to consider the question. 1094 It is true that I have concluded that Mr Grimaldi is liable to account as an accessory for the profit made on the 10 million shares obtained by Pinnacle. But that is because he shared in the profits. He may not have shared in all of the profits but his failure to give evidence entitles me to presume against him that he shared in all of them. 1095 In my view, this follows from the fact that the introduction fee arose from the discussions between Mr Grimaldi and Mr Barnes and Mr Zuks which culminated in the NiCu/Winterfall Heads of Agreement and the Addendum thereto. The Addendum provided for the issue of the shares to Mr Grimaldi or his nominees. 1096 The evidence establishes that those shares were ultimately crystallised as the 10 million Winterfall shares allotted to Pinnacle but it is clear that Pinnacle was merely the vehicle through which those shares were to be distributed to Mr Grimaldi and Mr Barnes. In the absence of any evidence from either of them, I am entitled to assume against Mr Grimaldi as a wrongdoer, in assessing the benefit he received, or the quantum of compensation, that he shared in the benefits flowing from the issue of the 10 million shares. 1097 The position is quite different in relation to the accessory liability of Murchison which, clearly, did not share in or receive any benefit from the issue of the 10 million shares. Relief against Winterfall 1098 I found in Chapter 8 that Winterfall, through Mr Zuks, had the requisite degree of knowledge to attract liability for "knowing receipt" of the cheques for $152,750 under the first limb of Barnes v Addy. 1099 Winterfall is therefore liable to account for the benefit received by it from the use of those funds. The relevant benefit is, as stated in relation to Murchison, the benefit of the investment of the funds as part of a pool of working capital, comprising debt and equity. The account is therefore to be determined on the same basis as for Murchison but limited to the contribution of $152,750. 1100 Chameleon is also entitled, at its election, to equitable compensation and interest at mercantile rates on the use of those funds. Corporations Act remedies 1101 Mr Grimaldi contravened ss 181(1)(a) and (b) and 182(1) of the Corporations Act by the receipt of his commission in the Cadetta Transaction and by the misapplication of the cheques for $152,750. 1102 Chameleon has discontinued its claim against Mr Barnes and I therefore do not need to consider whether he contravened the Corporations Act in relation to those transactions. 1103 The findings of knowledge which I made against Murchison are sufficient to support a finding that Murchison was "knowingly concerned" in Mr Grimaldi's breaches pursuant to s 79(c) of the Corporations Act. 1104 Accordingly, I have power under s 1317H(1) of the Corporations Act to order Mr Grimaldi and Murchison to compensate Chameleon for damage suffered by the contraventions of ss 181 and 182 to which I have referred. 1105 For the purposes of making a compensation order, the damage suffered by Chameleon includes the profit made by Mr Grimaldi or Murchison resulting from the contraventions. Conclusions on relief 1106 For reasons set out above, Murchison and Winterfall are liable to account to Chameleon for the profits obtained by them through the breaches of duty to which I have referred in relation to the Cadetta Transaction and the misapplication of the cheques. 1107 The effect of this is that there will be an order for Murchison and Winterfall to account for the income received by them as a consequence of the investment of Chameleon's funds of $277,840 in the Iron Jack Project from 28 July 2004 to date. 1108 I have power under s 54A the Federal Court of Australia Act 1976 (Cth) to appoint a referee to carry out the taking of accounts and my strong preliminary view is that I would so order. 1109 Mr Grimaldi, as the perpetrator of the breaches, is liable to account for the profits obtained by him through the investment of those funds. 1110 Mr Grimaldi is also liable to account to Chameleon for the 10 million shares in Murchison obtained by Pinnacle on completion of the reverse takeover of Winterfall by Murchison. 1111 The profits in respect of those shares are to be assessed at the prices quoted for Murchison shares on the ASX at the date of judgment unless it be shown that Pinnacle or Mr Grimaldi or his nominees disposed of the shares at an earlier date. In that event, the profits are to be determined by reference to the sale price of those shares. 1112 At Chameleon's election, Murchison, Mr Grimaldi and Winterfall are liable for equitable compensation in respect of the sum of $152,750 from 28 July 2004 to date at mercantile rates of interest, compounded on monthly rests. Chapter 13: Cross Claims Overview 1113 Murchison and Winterfall cross-claim against Mr Grimaldi for an indemnity or contribution in equity in respect of any judgment which may be entered against Murchison and/or Winterfall. The claim is made upon the ground that Mr Grimaldi is co-ordinately liable to Chameleon for the losses claimed by Chameleon against Murchison and Winterfall. 1114 A corresponding claim is made against Mr Barnes in [145] of the cross-claim. 1115 It is well established that the principle of equitable contribution requires that those who are jointly or severally liable for the same loss or damage should contribute to the compensation payable in respect of the loss or damage, either equally, or proportionately where the amount of their liability differs: Albion Insurance Co Limited v GIO (NSW) (1969) 121 CLR 342 at 346, 349-350; Burke v LFOT Pty Limited (2002) 209 CLR 282 ("Burke") at [14], [15], [38], [88]. 1116 The usual test is that parties are required to make contribution where they share "co-ordinate liabilities" or a "common obligation" to "make good the one loss"; Burke at [15], [38]. 1117 The right of contribution is founded on concepts of fairness and justice or "natural justice" which requires that if one of several persons has paid more that his or her proper share toward discharging a common obligation, he or she is entitled to contribution from those who have not: Burke at [22], [38]. The claim for contribution against Mr Grimaldi 1118 The liabilities for which Mr Grimaldi and Murchison have a common obligation are the liability to account for the profits obtained from the breaches of duty in relation to the Cadetta Transaction and the liability to account for the misapplication of the cheques. 1119 It is clear that the liability of Murchison is based on breaches of duty by Mr Grimaldi to Chameleon. In those circumstances, Mr Grimaldi is liable to make contribution to the sum found to be due by Murchison on the taking of accounts. 1120 The usual principle is that equity is equality and I do not see any basis to depart from it. 1121 The same result follows in respect of any order for equitable compensation in relation to the cheques. The cross-claim against Mr Barnes 1122 It follows from what I said in relation to the cross-claim against Mr Grimaldi that subject to what I say below Mr Barnes ought also be liable to Murchison to contribute to the sum found to be due on the taking of accounts. 1123 A difficulty arises on the cross-claim against Mr Barnes. I was satisfied that he would have been liable to Chameleon in relation to the misapplication of the cheques. However, it was unnecessary for me to determine whether he had any primary or accessory liability in relation to Mr Grimaldi's commission under the Cadetta Transaction. This was because of Chameleon's discontinuance of its claim against Mr Barnes. 1124 To the extent that it is necessary for me to determine the question of Mr Barnes' liability under the Cadetta Transaction for the purpose of the cross-claim, I do not consider that this question was fully addressed. 1125 I would therefore be inclined to the view that the order for contribution against Mr Barnes should be limited to a sum found to be due on the taking of the accounts in relation to the "investment" of $152,750. 1126 Mr Barnes has paid $6 million to Chameleon without admission of liability in satisfaction of the claims against him by Chameleon. That amount may be in excess of his share of the sum found to be due on the taking of accounts. That should be reflected in the orders I will make. Cross-claim by Mr Grimaldi 1127 Mr Grimaldi claims an indemnity from Murchison in respect of his liabilities to Chameleon. 1128 The entitlement (if any) of Mr Grimaldi to be indemnified by Murchison arises from clauses 19.1 and 19.2 of Murchison's Constitution. The effect of those provisions, as referred to in Murchison's submissions, is that Mr Grimaldi is entitled to an indemnity against any liability incurred by him in or arising from the discharge of his duties of office, but only to the extent that Murchison is not precluded by law from indemnifying him. 1129 The provisions of s 199A of the Corporations Act are therefore enlivened. Section 199A(2) precludes Murchison from indemnifying Mr Grimaldi against liabilities incurred by him as an officer, including the liability that is owed to Chameleon, that did not arise out of conduct in good faith. 1130 Section 199A(3) relevantly provides that a company must not indemnify a person against legal costs incurred in defending or resisting proceedings in which the person is found to have a liability for which he or she could not be indemnified under s 199A(2). 1131 Mr Grimaldi's liability arises out of conduct which was not conduct in good faith: Hall v Poolman (2007) 65 ACSR 123 at [318] – [327], [412]. He is therefore not entitled to indemnity. Orders 1132 The parties are to bring in short minutes of order to reflect my reasons for judgment. 1133 I will hear the parties briefly on the question of costs. I certify that the preceding one thousand one hundred and thirty-three (1133) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jacobson. Associate: Dated: 20 October 2010 Annexure A