New South Wales Supreme Court CITATION : Club of the Clubs Pty Limited v King Network Group Pty Limited [2006] NSWSC 1138 HEARING DATE(S) : 13, 14, 15, 19, 20, 21 and 22 June 2006. Final written submissions 31 July 2006. JUDGMENT DATE : 9 November 2006 JUDGMENT OF : Bergin J DECISION : First plaintiff entitled to declarations in respect of breaches of fiduciary duty and breaches of contract. First defendant entitled to an order in respect of its Cross-Claim. CATCHWORDS : [CONTRACT] - whether certain resolutions were "in relation to matters listed in clause 13.2" of the Joint Venture Agreement - whether contract purportedly made pursuant to those resolutions valid and/or binding. - [FRAUD ON THE POWER] - whether doctrine applicable - whether principles in Gambotto v WCP Limited applicable. - [FIDUCIARY DUTY] - ambit of fiduciary duties of joint venturers - numerous agreements - lack of precision in authorisation of one joint venturer to sell the Land, the subject of proposed development - whether breach of fiduciary duty - whether accessorial liability for breach of fiduciary duty. - [CONTRACT] - whether breaches of contract - selling Land at an undervalue - whether breaches induced by other parties. Arakella Pty Ltd v Paton (2004) 60 NSWLR 334 Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333 Beswick v Beswick [1968] AC 58 Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 DC Thomson & Co Ltd v Deakin [1952] Ch 646 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1 Gambotto v WCP Limited (1995) 182 CLR 432 Jones v Dunkel (1959) 101 CLR 298 CASES CITED : McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 O'Sullivan v Management Agency and Music Ltd [1985] QB 428 Peters' American Delicacy Co v Heath (1939) 61 CLR 457 Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 Twinsectra Ltd v Yardley [2002] 2 AC 164 United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 Warman International Ltd v Dwyer (1995) 182 CLR 544 Williamson v Hine [1891] 1 Ch 390 Yeshiva Properties No 1 Pty Ltd v Marshall (2005) 219 ALR 112 Club of the Clubs Pty Limited - First plaintiff IMF (Australia) Limited - Second plaintiff PARTIES : King Network Group Pty Limited - First defendant Harry Stamoulis - Second defendant King Development Group Pty Limited - Third defendant Spiros Stamoulis - Fourth defendant FILE NUMBER(S) : SC 50131/2004 COUNSEL : BAJ Coles QC/ HWD Stowe - Plaintiffs IM Jackman SC/ IG Waller - Defendants SOLICITORS : Ebsworth & Ebsworth - Plaintiffs Clayton Utz - Defendants - 4 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J 9 NOVEMBER 2006 50131/04 CLUB OF THE CLUBS PTY LIMITED & ANOR v KING NETWORK GROUP PTY LIMITED & ORS JUDGMENT Para INTRODUCTION 1-2 The parties and the claims 3-7 THE FACTS Background to COTC concept 8-10 Introduction to Lenen Pty Ltd 11 The Executive Summary 12-14 Introduction to Mancuso/Arts 15 Lenen agrees to sell the Land 16 Concept and Development Agreement 17-18 Heads of Agreement for sale of the Land 19 Joint Venture Agreement – 4 August 1999 20-21 Statement of Principles 22-23 Works Agreement 24-26 Put and Call Option 27-28 Incorporation of KCOTC 29 Funding problems 30-35 KPMG letter – 8 December 1999 36-39 $2 million paid 40 Supplemental Joint Venture Agreement – 10 February 2000 41-43 Problems encountered – February to May 2000 44-49 Development Approval 50 May Agreement 51 Variation to Put and Call Option 52 Option A exercised 53 Extension of time 54 Clubs commitment unlikely 55 Black appointed as CEO 56 Further variation to Put and Call Option 57 KNG elects for "Real Estate Transaction Only" (Land Play) 58-59 Meeting – 18 September 2000 60 COTC/Dalglish request for a meeting 61-62 Proposal for Overriding Supplementary Joint Venture Agreement 63-65 KNG/Stamoulis letter – 23 September 2000 66 25 September 2000 Meeting 67-68 The OSJVA 69 KPMG letter to KNG/Stamoulis – 26 September 2000 70 KPMG letter to COTC/Dalglish (Shannon) – 29 September 2000 71 KNG/Stamoulis response to KPMG letter of 26 September 2000 72 KCOTC Directors Meeting – 2 October 2000 73-76 Shannon/KCOTC responds to KPMG letter of 29 September 2000 77 Notice of Meeting on 12 October 2000 78 $10.7 million guarantees provided – 6 October 2000 79 KNG/Stamoulis letter to KPMG – 6 October 2000 80 Agendas for 12 October 2000 Meeting 81 Black Report to the Board of KCTOC – 8 October 2000 82 Shareholders Meeting – 12 October 2000 83 Directors' Meeting – 12 October 2000 84 KCOTC Solvency issues 85 Meeting 13 November 2000 – KNG nominated as purchaser 86 KNG makes another election for Land Play 87-89 Subsequent negotiations 90-99 Notice of Rescission of Land Contract 100 15 March 2001 Meeting 101-103 Notice of Rescission of Put and Call Option 104-107 Notices of Termination 108-109 Dalglish seeks to acquire land 110-113 Macquarie Joint Venture 114-118 Assignment of Causes of Action to IMF 119-122 Caveats 123-134 PROCEEDINGS COMMENCED 135-140 THE LAND PLAY 141-145 CONSENT 146 Failure to complain 147-150 Implicit acceptance 151-154 15 March 2001 Meeting 155-162 VALIDITY OF THE OSJVA 163-165 The September and October resolutions 166-174 "in relation to a matter listed in clause 13.2" 175-184 Raising additional equity or capital 185-187 Any decision etc relating to the $4 million guarantee 188-190 Amendment to agreement 191-193 Admission of a new participant 194-196 Sale prior to completion 197-198 Termination 199-201 CONCLUSION ON VALIDITY OF THE OSJVA 202-205 FRAUD ON THE POWER 206-231 APPLICABILITY OF THE SUPPLEMENTAL AGREEMENT 232-233 BREACH OF FIDUCIARY DUTY OWED BY KNG TO COTC 234-257 ACCESSORIAL LIABILITY – STAMOULIS 258-285 ACCESSORIAL LIABILITY – S STAMOULIS AND KDG 286-293 BREACH OF FIDUCIARY DUTY OWED TO KCOTC BY STAMOULIS 294-310 BREACH OF CONTRACT BY KNG 311 Failure to Share Profits 312 Implied Term – Market Value 313-320 Valuation Evidence 321-322 Brian Cox 323-327 Garrie Raymond Love 328-331 Value 332-334 Under-value 335-337 INDUCING BREACHES OF CONTRACT 338-342 COTC AND IMF/KCOTC DEBTS CLAIMS AGAINST KNG 343-348 CONCLUSION 349-350 Introduction 1 This litigation arises out of a dispute between the participants in a joint venture, the aim of which was to acquire land and construct a resort style development consisting of residential and commercial premises with leisure facilities, including an 18 hole golf course (the Joint Venture). The land comprised Lots 194, 301 and 312 in DP 755701 in the Parish of Cudgen, County of Rous, in South Kingscliff on the North Coast of New South Wales (the Land). The Land abutted the Pacific Ocean coastline with a seafront frontage of 1.184 km. Lenen Pty Limited (Lenen), the directors and shareholders of which at the relevant time were Ian Barclay and Donald Barclay, was the registered proprietor of the Land. The corporate vehicle involved in the Joint Venture was KingsHeath Club of the Clubs Limited (KCOTC) incorporated on 24 August 1999. 2 The Land was not developed pursuant to the Joint Venture and ultimately one of the parties in the Joint Venture purported to assume total ownership of the Land to the exclusion of the other parties to the Joint Venture. It is that conduct and the consequential purported sale of the Land that is at the heart of the issues between the parties to this litigation. The relevant events occurred during the period 1999 to 2003 and the proceedings were not commenced until 2004. Many of the people involved in these events have not given evidence and the claims and counter claims have required a lengthy analysis of the documents and the evidence of those parties who did give evidence. The parties and the claims 3 The first plaintiff, Club of the Clubs Pty Limited (COTC), is a company of which Ray William Dalglish (Dalglish) and his wife, Maja Dalglish (Mrs Dalglish), are shareholders and directors. It was a party to the Joint Venture. Dalglish was a director of KCOTC from 26 August 1999. The second plaintiff, IMF (Australia) Limited (IMF), claims that KCOTC has assigned certain causes of action in respect of the Joint Venture to it. It purports to bring the causes of action that KCOTC had against the defendants and I will refer to those as KCOTC's various claims. There is an issue as to whether IMF is entitled to bring these causes of action and I will deal with that aspect of the matter separately. 4 The first defendant, King Network Group Pty Limited (KNG), was a party to the Joint Venture. The second defendant, Harry Stamoulis (Stamoulis), is the son of the fourth defendant, Spiros Stamoulis (S Stamoulis). Stamoulis was a director of KCOTC from 26 August 1999 and a director and shareholder of KNG from 3 September 1999. The third defendant, King Development Group Pty Limited (KDG), is a company of which S Stamoulis was a director and of which he and Stamoulis were equal shareholders from 22 November 2001. 5 There are a number of agreements between COTC and KNG and the other participants in the Joint Venture with which I will deal in detail later in this judgment. Ultimately the Joint Venture did not proceed as originally planned and the Land was acquired by KNG from Lenen for $20.2 million and sold to South Kingscliff Developments Pty Limited (SKD) for $25 million. KDG entered into a subsequent joint venture with SKD to acquire and develop the Land. The shareholders of SKD, in equal shares, were KDG, Hopper No 1 Pty Limited (of which Steven Papadopoulos (a director of Macquarie Bank) was a director, and Macquarie Bank was a shareholder), and Kingscliff South Pty Limited (of which Brian Ray of the Ray Group was a director and shareholder). This second joint venture has been referred to as the Macquarie Joint Venture. 6 The plaintiffs have amended their Summons on four occasions, the last amendment having been made on the fourth day of the trial. The claims the plaintiffs finally maintained are conveniently summarised in the plaintiffs' final submissions as: (1) COTC claims that KNG breached its fiduciary duty to it by selling the Land to SKD. It is claimed that there was a conflict between KNG's duty to the participants in the Joint Venture and KNG's private interests arising from the participation of "a Stamoulis company" in the Macquarie Bank Joint Venture (COTC claim against Stamoulis for breach of fiduciary duty); (2) KCOTC claims that Stamoulis, as a director of KCOTC, breached his fiduciary duty to KCOTC by causing KCOTC to nominate KNG to exercise the Put and Call Option whereby KCOTC transferred a valuable asset, the Land, to KNG for no consideration (KCOTC claim against KNG for breach of fiduciary duty); (3) COTC claims that KNG has breached its contract with COTC by reason of: (a) its failure to share the profits from the sale of the Land on a pari passu basis; and (b) the sale of the Land to SKD at an undervalue (COTC claim against KNG for breach of contract); (4) COTC and KCOTC claim that KNG has breached its contract in failing to honour contractual undertakings to indemnify KCOTC in relation to debts incurred (COTC and KCOTC debt claims against KNG); and (5) COTC makes claims against various parties for assisting KNG and Stamoulis in breaches of fiduciary duties (Accessorial claims). 7 The defendants deny, on various bases referred to later in this judgment, the plaintiffs' entitlement to any relief and claim that KNG had an irrevocable right to deal with the Land, that there have been no breaches of fiduciary duties and that the plaintiffs have not suffered any loss or damage. The defendants deny that KNG is obliged to pay any proportion of KCOTC's unpaid debts. The defendants also make a claim that COTC is estopped from making the various claims and/or asserting that one of the agreements in the Joint Venture pursuant to which KNG purported to sell the Land is invalid, illegal or of no effect on the basis that it consented to that agreement. THE FACTS Background to COTC concept 8 In the late 1970s and in the 1980s Dalglish developed and applied a development methodology through a company, Trifleska Pty Limited (Trifleska), whereby the Hyatt Regency Resort at Coolum (the Coolum Resort) was developed, marketed and sold. Dalglish claimed that Trifleska was renamed COTC in 1997 when he developed a marketing plan that targeted the registered clubs market to determine how best to source investment funds and secure pre-sale expressions of interest. On a number of occasions in the late 1990s, in the course of carrying out research into the development of the COTC methodology, Dalglish met with David Nott and other partners of KPMG. KPMG expressed interest in becoming involved in the COTC development concept. 9 In 1992 Dalglish met Chris Shannon (Shannon) through their involvement with the Coolum Resort development when Shannon was selling time shares and residences in the Coolum Resort through his real estate business, Jandawn Pty Limited, trading as Megatron Marketing (Qld) (Jandawn). In 1998 Dalglish decided that he would like to involve Shannon in the marketing side of the COTC development concept. At that stage Dalglish and Shannon agreed that they would work together as "50% partners" on the "next development" specifically to locate a new site and construct a new resort development. 10 Dalglish had been working with KPMG in relation to the possible development of land at Barwon Heads in Victoria and other sites in Hobart in Tasmania and Northern New South Wales. Dalglish suggested that KPMG might be interested in becoming involved in the development of the Land and discussion ensued in relation to that suggestion. Introduction to Lenen Pty Ltd 11 In 1998 Dalglish and Shannon embarked on a search for a new site for a development. Bob Andersen of Macquarie Bank informed them that the Bank had "an option to develop a site at South Kingscliff" and that the "Barclay brothers" were having some difficulties with the zoning of the site. In late 1998 a meeting was set up at the Macquarie Bank's Brisbane offices between Dalglish, Shannon, Ian and Don Barclay, Mr Andersen and his colleague Dale Evans. Ian Barclay advised that Macquarie Bank had an option to form a syndicate to purchase the Land that was due to expire in April 1999. Mr Barclay also advised that development consents had been granted by Tweed Heads Shire Council but that the allowed population density was "insufficient". Dalglish suggested he would be surprised if he could not do something about that and arranged a site inspection of the Land with Mr Barclay. The Executive Summary 12 On 20 January 1999 Dalglish presented what has been referred to in the litigation as the COTC Executive Summary and Marketing Concept (the Executive Summary) to the Barclays. COTC was described in the Executive Summary as a special purpose vehicle formed for the purpose of sponsoring and taking an interest in an unlisted public company to be incorporated as KCOTC that was to be the "Single Responsible Entity 'KingsHeath' ". The Executive Summary claimed that Dalglish and Mrs Dalglish were the owners of intellectual property of the model contained in the Executive Summary that was in turn based on the intellectual property to the Coolum Resort that was also resident in their intellectual property. The Executive Summary also included a statement that $2.5 million had been expended in the process of market research; searching out and taking steps to acquire suitable sites; developing the concept; compiling a design brief and preliminary costings in conjunction with project managers and consultants up to "ready to construct state" to commence during 1999; and adapting the Hyatt Coolum Sales, Marketing and Corporate Structure to the requirements of the relevant present day legislation. It also recorded that the $2.5m had been provided by Dalglish and Mrs Dalglish and would be reflected in the accounts of COTC as its subscription of foundation capital to KingsHeath for a 25% shareholding in KCOTC when incorporated. 13 The Executive Summary described the "Club of the Clubs theme" as "understated elegance, least grandiose construction, simplest possible architectural design, brilliant landscaping architecture for topographical absorption of building in order to create KingsHeath as a themed variation of the Hyatt Coolum, suited to the Clubs' market, as a Clubs' Club and Club Members Residential Club" (par (9)). It also referred to the Land and COTC's wish to be involved in Lenen's fresh Development Application to the Tweed Shire Council. It suggested that as a condition precedent to COTC receiving a "sponsor and general counsellor" for the KCOTC project, it wished to enter into a purchase option agreement with Lenen "which at the appropriate time will be assigned to Kingsheath" (par (4)). 14 The Executive Summary recorded the following in relation to class V members: foundation members/financial partners/stakeholders, rights attached to interests owners of the KingsHeath CLUB of the CLUBS Limited are not entitled to exercise voting rights on their own account in an election of nominated persons to the Board of Governors, but by their own ballot, elect the Board of Directors of the KingsHeath CLUB of the CLUBS Limited (in compliance with the Managed Investments Act). This Single Responsible Entity will exercise its administration and management rights of and to the location, as Trustee/Manager for all classes of membership, and will appoint custodian(s) as and if necessary. Introduction to Mancuso/Arts 15 In January 1999 Dalglish and Shannon were introduced to Salvatore Mancuso (Mancuso) who was associated with or controlled Arts Investments Pty Limited (Arts). Mancuso advised that he had a wide range of contacts in the business community in Melbourne and that he had a "come and go facility" with the St George Bank. Mancuso advised Dalglish and Shannon that he may be able to help them in their search for investors in "several sites for a clubs style resort". In late January 1999 Dalglish, Shannon and David Nott from KPMG made a presentation to Mancuso at a meeting in KPMG's offices in Sydney. At this meeting Dalglish advised Mancuso that he would be prepared to consider recommending that Mancuso receive a 2.5% interest in any subsequent joint venture if he were to find an equity investor. Lenen agrees to sell the Land 16 In April 1999 Lenen agreed in principle to sell the Land to COTC for $22.5 million. Concept and Development Agreement 17 COTC and Jandawn (referred to together in this agreement as COTC) and KPMG executed the Concept and Development Agreement dated 12 May 1999 (the C & D Agreement) which set out the relationship between the parties and the role each of them was to play in identifying potential sites, joint-venture owners and operators, and consummating a property development scheme or schemes to be known as Club of the Clubs (Recitals). The parties acknowledged that "the intellectual property rights pertaining to each Joint Venture contemplated" by the C & D Agreement were owned by Dalglish and Mrs Dalglish (Operative Provisions). KPMG's role was to assist and advise COTC, including undertaking a market demand study and testing the level of interest with key Clubs in New South Wales and Queensland that were KPMG clients (cl 5). KPMG was entitled to fees assessed in accordance with Schedule 1 to the Agreement which provided as follows: SCHEDULE 1 – PHASE 1 FEES KINGSCLIFF – LENEN NORTH LAND KPMG's fees for all aspects of its involvement in Phase 1, including coordination, legal input, prefeasibility and market testing, shall be $400,000 payable within 30 days of rendering an account. An account for the balance shall not be rendered until prefeasibility and market testing has been completed and Development Approval obtained. KPMG's fees are to be met by the Joint Venture participants in the Club of the Clubs project, having regard to the terms of equity participation or other involvement agreed between Club of the Clubs and the Joint Venture participants, and in consultation with KPMG. It is agreed between CotC and KPMG that CotC will at all times in its negotiations with Joint Venture Partners make it a condition precedent of any such agreement that KPMG's fees shall be met by the Joint Venture partners and/or equity participants in the project and that this Agreement shall form part of any Joint Venture Agreement entered into. Should for any reason the owner of the Kingscliff land (Lenen Pty Ltd) fail to fulfil its obligations with respect to obtaining Development Approval for the land, CotC agrees that KPMG shall be first to be reimbursed for its costs incurred in respect of this phase of development pursuant to the terms of the Heads of Agreement between CotC and Lenen Pty Ltd wherein Lenen Pty Ltd undertakes to guarantee CotC's costs in the event Development Approval is not obtained within the designated time. 18 This Schedule was amended on 4 August 1999 so that the first sentence then provided: KPMG's fees for all aspects of its involvement in Phase 1, including coordination, legal input, prefeasibility and market testing, shall be $400,000 of which $225,000 shall be payable within 7 days of formalisation of the Joint Venture Agreement for the purchase of the land. Heads of Agreement for sale of the Land 19 On 22 June 1999 Lenen, COTC and Jandawn signed Heads of Agreement which recited that Lenen was prepared to enter into an option agreement for the sale of the Land for $22.5 million. Clause 3 provided that Lenen was to forthwith commence preparation of a Development Application (DA) generally in accordance with plans that had been prepared and to lodge the DA with the Tweed Shire Council within three months or such later date as agreed between the parties. That clause also provided that the final format of the DA was to be advanced with the assistance of the COTC Joint Venture. Joint Venture Agreement – 4 August 1999 20 In late June 1999 Mancuso introduced Dalglish to Stamoulis and S Stamoulis. On 4 August 1999 COTC, Jandawn, Arts and AWD Springwater Pty Limited (AWD) a company associated with Stamoulis and S Stamoulis (later replaced by KNG), executed a Joint Venture Agreement. 21 The Joint Venture Agreement provided relevantly: RECITALS A COTC and Jandawn hold an option to acquire the Site at Kingscliff in the State of New South Wales, and certain intellectual property rights relating to the development of that land as a tourism and leisure precinct. COTC and Jandawn wish to form a joint venture to be known as 'KingsHeath Club of the Clubs Syndicated Joint Venture' to undertake and oversee the development of the Site under the auspices of the Project. B Each of AWD and Arts Investments wish to invest and participate in that joint venture. C The Participants have agreed that the joint venture will proceed in the form of an unincorporated joint venture, but that they will incorporate a public company to hold any interest in the Site necessary to carry out the Project. D The Participants in this agreement wish to set out the principal terms and conditions upon which the joint venture will be conducted. AGREEMENT 1. Interpretation 1.1 Definitions … Intellectual Property Rights means: (a) the know-how in relation to the Project and the marketing and sale of the properties and interests created as a result of the Project; and (b) the rights to use the name "Club of the Clubs". Joint Venture means the joint venture established under this Agreement and known as the "KingsHeath Club of the Clubs Syndicated Joint Venture". Manager means the company appointed by the Steering Committee to fulfil the role of manager of the Project under a management agreement. Participants means each of COTC, AWD and Arts Investments. Project means the development of the Site, and the subsequent sale of properties or interests in properties on the Site once the development is completed, in the manner described in the document entitled "Club of the Clubs - Executive Summary and Marketing Concept", a copy of which is annexed as Schedule 2. … Property Rights means the rights of COTC under the option referred to in Recital A of this Agreement. … Steering Committee means the committee consisting of a representative of each of the Participants, with the powers and functions specified in clause 6. … 2 Formation and Structure of the Syndicate 2.1 Formation of Joint Venture The Participants hereby agree to form the Joint Venture for the purpose of carrying out the Project including: (a) application for development consent for the Project, which incorporates a plan of subdivision that will optimise income and minimize costs to the Joint Venture; (b) the appointment of the Manager under a management agreement acceptable to the Participants; (c) negotiation of a development contract which will include a Trust Agreement and Trust Management Agreement with the Company which will be empowered to act as the Single Responsible Entity for the Project; (d) the compilation and registration of a printed and electronic prospectus for the sale of properties and/or interests in sections of the Site, once the Project is completed; (e) the organisation of an appropriately trained sales force; and (f) to oversee the development of the Project and all aspects and requirements necessary in the completion of the Project. 2.2 Structure of Joint Venture The Participants agree that each of them will be tenants in common holding a share in the undivided assets and interests of the Joint Venture, the size of that share being determined in accordance with clause 2.3. 2.3 Interests in the Joint Venture (a) The Participants agree that in consideration of: (i) COTC and Jandawn agreeing to exercise, or deal with, the Property Rights in a manner that procures that the Company will own the Site; and (ii) COTC agreeing to grant a licence to use its Intellectual Property Rights to the Joint Venture, and in consideration of moneys expended by COTC and Jandawn to acquire the Property Rights and Intellectual Property Rights, COTC and Jandawn will each be granted a twenty-five per cent (25%) share in the assets and interests of the Joint Venture. (b) The Participants agree that in consideration of them performing their respective obligations under clause 3.1, each of AWD and Arts Investments will be granted their respective Agreed Shares in the Joint Venture. (c) The Participants agree that if additional funding is required by the Joint Venture in order to complete the Project, (which may also include any funding required in order to acquire the Additional Land), the nature of the additional funding and their respective obligations with respect to that additional funding will be determined at a meeting of Participants convened under clause 13. (d) The Participants will procure that the Manager obtains quotations from consultants it proposes to retain for the purposes of the Project, and uses its best endeavours to include a provision in each engagement of such a consultant that, any fees charged by that consultant which are in excess of its quotation will be due only after the Project is completed. … 3 Obligations of Participants 3.1 Obligations of AWD and Arts Investments (a) AWD agrees that it will: (i) deposit in the KPMG Legal Melbourne Trust Account, the sum of five hundred thousand dollars ($500,000), on behalf of Ray William and Maja Dalglish, within three Business Days of the execution of this Agreement, provided that it receives from Ray William and Maja Dalglish a research and development invoice for that sum; and (ii) subject to Arts Investments complying with its obligations under paragraph 3.1(b), on or before 13 August 1999 (or such later date as is agreed by the Participants), procure or provide a standby letter of credit (or comparable instrument), in favour of, and exercisable by, the Company, upon terms acceptable to the other Participants for the amount of two million dollars ($2,000,000). The Participants agree that they will procure that the Company does not exercise its rights under, or otherwise enforce, such standby letter of credit (or comparable instrument) for a period of two (2) years commencing on the date of that this Agreement is executed. (b) Arts Investments agrees that, on or before 13 August 1999 (or such later date as is agreed by the Participants), it will procure a financial guarantee, upon terms acceptable to the other Participants, in favour of, and exercisable by, the Company, for a minimum amount of four million dollars ($4,000,000) and up to such maximum amount as the Participants consider appropriate. (c) The Participants agree that no distributions of any property, whether in the form of cash or assets, may be made to the Participants by or on behalf of the Joint Venture, until all amounts invested or committed by AWD under paragraph 3.1(a) have been returned or reimbursed to AWD. To the extent that the Joint Venture has property available to be distributed to the Participants, that property must first be applied for the purposes of returning or reimbursing such amounts to AWD. 3.2 Obligations of COTC (a) Once each of AWD and Arts Investments has complied with their obligations under clause 3.1, COTC will grant to the Company (as the nominee and trustee for the Participants) a non-exclusive licence to use, commercialise and exploit all of the Intellectual Property Rights and will provide to the Company a copy of all the documentation and information in the possession, custody or control of COTC relating to those Intellectual Property Rights. The licence granted under this clause will continue until this Agreement is terminated. (b) COTC will procure that, at the time at which the Property Rights must be exercised, those rights are exercised so that the Company purchases the interest in the Site. 3.3 Application of Funds The Participants agree that the amount invested pursuant to paragraph 3.1(a) may be drawn down by, and used for the sole benefit of, Ray and Maja Dalglish in partial recognition of amounts expended for the purposes of the Project. The Participants further agree to procure that Ray and Maja Dalglish will pay the sum of five hundred thousand dollars ($500,000) to AWD when a contract is entered into for the construction of the Project. 4 Conduct of Joint Venture (a) The Participants agree that, unless specified or provided otherwise in this Agreement, the principles upon which the Project is to proceed, and those concerning the relationship of each Participant to the others, will be those specified in the Statement of Principles. (b) The Participants agree that the management and overseeing of the Project will be conducted by the Joint Venture, and that the decisions of the Steering Committee in relation to the Joint Venture will, subject to clause 13, bind each of them. The Participants acknowledge that certain property and other interests may, from time to time, be held by the Company, and they agree that they will procure that the Board will implement and follow all decisions made by the Steering Committee in respect of the Project. (c) Each participant covenants and agrees with each other Participant: (i) to diligently observe and perform its obligations and commitments pursuant to this Agreement; (ii) not to engage (whether alone or in association with others) in any activity in respect of the Project except as provided or authorised by this agreement or as agreed by a majority of the Participants; and (iii) each Participant hereby commits to use its best endeavours to ensure the Project is carried out successfully and agrees to do all things necessary to enable the Project to be carried out. … 6 Steering Committee (a) The Participants agree to establish the Steering Committee, whose function will be to: (i) procure and ensure that the Joint Venture pursues and achieves its purposes as stated in clause 2.1; (ii) oversee the conduct and progress of the Project; (iii) make decisions on behalf of the Participants regarding all matters arising in the course of the Project; (iv) procure the preparation of the accounts and financial statements recording the revenue, expenditure and activities of the Project; (v) liaise with the Manager, and receive progress reports in relation to the Project; (vi) determine all business and other policies relating to the conduct of the Project and dealings with the Site after the Project is completed; and (vii) such other functions as the Participants may delegate to the Steering Committee from time to time. (b) The Steering Committee will, unless otherwise agreed, consist of five (5) persons. Each of the Participants will be entitled to nominate one representative to the Steering Committee, and the fifth representative will be a person nominated by KPMG Corporate Finance (Australia) Pty Ltd ( KPMG) . The person so nominated by KPMG will be the Chairman of the Steering Committee. Each member of the Steering Committee appointed by the respective Participants will hold office until such time as the Participant that appointed him or her removes his or her nomination to the Steering Committee. (c) If a particular member of the Steering Committee retires, is removed or is unable to attend meetings of the Steering Committee, a person nominated by the Participant who originally nominated that member will replace him or her. (d) Each member of the Steering Committee, save for the person nominated by KPMG, will be entitled to cast one vote in relation to any resolution put to the Steering Committee. In the event that there is an equality of votes in relation to a given resolution put to the Steering Committee, the person nominated by KPMG will have a casting vote, and the Participants agree to be bound by the casting vote of that person. 7 Conduct of Meetings of Steering Committee (a) Each member of the Steering Committee will be entitled to one vote at a meeting of the Steering Committee, and in the event that there is an equality of votes in relation to a resolution or matter being considered by the Steering Committee, no Steering Committee member will have a casting vote. (b) The Participants agree that a meeting of the Steering Committee may not proceed unless a quorum of members is present in person or by means of a telephone conference or other appropriate means of communication technology recognised as being appropriate for the conduct of such meetings. For the purposes of this Agreement, the presence of at least three members of the Steering Committee, of which at least one must be a representative nominated by either COTC or Jandawn, on the one hand, at least one must be a representative of either AWD or Arts Investments, will constitute a quorum. (c) An agenda of each meeting of the Steering Committee must be circulated to each committee member at least two Business Days before the date on which the meeting is to take place. Such agenda will list all the matters to be considered and determined by the Steering Committee, and must be accompanied by such documents as are necessary to enable each committee member to make an informed decision as to each matter being considered by the Steering Committee. … 11 KingsHeath Limited 11.1 Incorporation of the Company The Participants agree that, as soon as practicable after the execution of this Agreement, they will procure the incorporation of the Company. The Participants agree that the Company will fulfil the role(s) outlined the document annexed in Schedule 2 and the Statement of Principles. 11.2 Board of the Company (a) Upon incorporation the members of the Steering Committee will be appointed as the first Board. From that time onwards, until the prospectus (referred to in paragraph 2.1(d)) is registered (or this Agreement is terminated, whichever occurs first), any person nominated to the Steering Committee will, by virtue of that nomination, be appointed as a director of the Company. A person who ceases to be a member of the Steering Committee, for any reason, must resign or may be removed by the Shareholders. (b) The Participants agree that if a member of the Steering Committee is ineligible under the Corporations Law to be appointed as a director of the Company, that person's nomination to the Steering Committee must be revoked, and he must be replaced by a person who is so eligible. 11.3 Shareholding in the Company As soon as practicable after the Company is incorporated, the Participants will procure that the Board meets and issues Shares to each of the Participants. The percentage shareholding to which each Participant is entitled will be the same as their percentage interest in the Joint Venture. 11.4 Relationship of Joint Venture and Company For the avoidance of doubt, the Participants agree that, in their respective capacities as Shareholders, they must exercise their rights as Shareholders in a manner that is consistent with the objectives of the Project and the Joint Venture, and consistent with any decisions or resolutions made by the Steering Committee or a meeting of Participants, as the case may be. … 13 Meetings of Participants 13.1 Convening Meetings The Participants will meet monthly to discuss and review the Project and to receive a report from the Steering Committee. Any two Participants may, by notice to the other Participants, convene a meeting of Participants on occasions other than the monthly meetings. Any such notice must state the nature of business, and any resolutions, to be discussed at such meetings. 13.2 Powers of Participant Meetings The Participants agree that the management and control of the Project and the Joint Venture will vest with the Steering Committee, save for the following matters, in respect of which a determination by a meeting of all Participants under this clause will be final and binding: (a) any proposals regarding the raising of additional equity or capital for the purposes of the Project or the Joint Venture; (b) any decision regarding the acquisition of the Additional Land; (c) any proposals regarding the raising of any funding for the purposes of the Project (including the acquisition of the Additional Land) which require the provision of any form of security or encumbrance over any Joint Venture assets; (d) any decision, resolution or action relating to the undertakings or guarantees given pursuant to paragraph 3.1(b), including any calls, any reduction of the amount of the undertaking or guarantee or the release of parties from those undertakings or guarantees as the case may be; (e) approval of the prospectus to be issued by the Company; (f) determination of the timing of the sale of, and approval of the selling campaigns for, each of the stages of the Project; (g) any amendment to this Agreement; (h) the admission of a new Participant to the Joint Venture; (i) the sale or disposal of the Joint Venture's entire interest in the Project, prior to the completion of that Project; and (j) the termination of the Project or this Agreement. 13.3 Resolutions at Participants' Meetings All matters and resolutions put before a meeting of Participants will be deemed to have been approved or passed by the Participants if Participants representing more than fifty per cent (50%) of the total interests in the Joint Venture present and voting at that meeting, vote in favour of it. Notwithstanding the previous sentence, a resolution in relation to the matters listed in clause 13.2 will be deemed to have been passed only if Participants representing more than seventy-five per cent (75%) of the total interests in the Joint Venture (whether or not present) vote in favour of it. … 15 Default (a) A participant will be in default under this agreement if: (i) the Participant transfers the whole or part of its interest in the Joint Venture otherwise than in accordance with this agreement; (ii) the Participant continues to breach any obligation under this agreement (other than an irremediable breach) for seven (7) days after receiving notice from the other Participants or the Manager specifying the breach and requiring it to be remedied; (iii) the Participant repeats a breach after having received notice from the other Participants or the Manager warning that repetition of the breach will, or is likely to result, in the other Participants or the Manager regarding that Participant as being in default under this clause 15(a). (iv) an order is made for the winding up or dissolution of the Participant; (v) a receiver, receiver and manager, voluntary administrator, trustee, provisional liquidator or similar officer is appointed for all or any part of the assets or undertaking of the Participant; (vi) the Participant enters into, or resolves to enter into, an arrangement, composition or compromise, or assignment for, the benefit of its creditors generally, or any class of creditors, or proceedings are commenced to sanction such an arrangement or compromise; (vii) the Participant stops payment of or is unable to pay its debts as and when they fall due; or (viii) the Participant ceases to carry on business. (b) If a Participant is in default ( the defaulting Participant ) the other Participants may give: (i) a notice in writing setting out the default ( default notice ) to the defaulting Participant; and (ii) a copy of the default notice to the Auditor together with an instruction to determine within thirty (30) days of the Auditor's receipt of the copy of the default notice: (1) the value of the default Participant's interest in the Joint Venture as at the date of the default notice; and (2) the damages sustained by the other Participants ( the non-defaulting Participants ) resulting from the default by the defaulting Participant ( the damages ). (c) In making a valuation of the interest in the Joint Venture of the defaulting Participant the Auditor must: (i) assume that a reasonable time is available in which to obtain a sale of that interest in the open market and for that purpose sixty (60) days will be deemed a reasonable time; (ii) have regard to such factors as the Auditor in his sole discretion believes should properly be taken into account based on the best information available at the time; (iii) act as an expert and not as an arbitrator. (d) The non-defaulting Participants will have an option to acquire the interest of the defaulting Participant on a pro-rata basis. (e) The option shall be exercisable by the non-defaulting Participants: (i) by serving written notice of exercise on the defaulting Participant with a cheque for the purchase price for the interest in the Joint Venture being purchased by each non-defaulting Participant; (ii) within (30) days of receipt of the Auditor's valuation; (iii) at a purchase price for the interest in the Joint Venture equal to the Auditor's valuation less: (1) any payments incurred by the non-defaulting Participants for and on account of the defaulting Participant (2) the damages assessed by the Auditor; (3) the costs of the Auditor in making the valuations. (f) If the non-defaulting Participants purchase the interest in the Joint Venture of the defaulting party pursuant to the foregoing option the defaulting Participant must immediately deliver to the non-defaulting Participants such instruments of assignment or conveyance as are reasonably necessary to transfer such Shareholding to the non-defaulting Participants. Statement of Principles 22 Pursuant to clause 4(a) COTC, Jandawn, AWD and Arts agreed that their relationship to each other and the principles upon which the Project was to proceed were governed by sections 1 to 6 of the Statement of Principles. Section 1 provided relevantly: ON ASSET OWNERSHIP : They are to be owned as tenants in common with other venture syndicates. Each syndicate and its participants own a specific and undivided share of each asset. ON RIGHTS TO INCOME It is received separately by venture syndicates. Each syndicate participant determines its income independently of the other syndicate participants by including in its income the proceeds derived from the sale of its share of the product or resources produced by the venture. ON LIABILITIES INCURRED Syndicates and therefore syndicate participants are responsible only for the share of liabilities incurred by way of activities undertaken within the terms of this agreement in order to produce the sales product and resources. ON AGENCY STATUS Any syndicate or syndicate participants is not automatically agent for other participants and does therefore not have the authority to bind the other participants except as specified in this agreement. 23 Section 4 of the Principles provided as follows: OBJECTIVES OF THE KINGSHEATH SYNDICATED JV 1. Form a Steering Committee on which all participants in the KingsHeath JV are represented and to appoint a Manager, then as the owner of the land comprising the KingsHeath development site located at South Kingscliff and fronting the South Pacific Ocean, and taking into account its historical background, to bring into effect contemporaneously the following objectives: a. Make application for Development Consent (through Lenen Pty Ltd) incorporating a Plan of Subdivision which will optimize income and minimize costs to the joint venture participants. b. Steer the majority of the land subdivided into a development contract with an unlisted public company which the KingsHeath JV Steering Committee Manager will have incorporated, and to be known as KingsHeath Club of the Clubs Limited "KingsHeath Ltd". The development contract will also contain a Trust Agreement and a Trustee Management Agreement between the parties. Thus, KingsHeath Ltd will be empowered to act as the Single Responsible Entity (SRE), that is both trustee and manager for all stakeholders in the development, including residential and other classes of members. The shareholdings in KingsHeath Ltd are to be held by the KingsHeath Syndicated JV participants in the same proportions as their joint venture participation. The purpose being that the Syndicated JV participants will: - share the income of the KingsHeath CotC development as it materializes after payment of costs; - gain unfettered control of the proportionate interests which will materialize when appropriate in the form of residential allotment entitlements which in themselves arise from permission in the development consent for quality medium density residential development as ancillary and incidental to the primary intent for the zone of tourism development. 2. Proceed with the compilation and registration of a printed and electronic Prospectus, timely with the issue of development consent, for the sale of residential memberships. 3. Set up and train a sales force in terms of the residential memberships marketing plan, as well as to other principle of mutuality organizations. Works Agreement 24 On 18 August 1999 COTC, Jandawn, AWD and Arts executed an agreement with Richtech Pty Limited (Richtech) setting out the obligations of the parties for the "Works" (the Works Agreement). "Works" were defined in the Agreement as "the infrastructure works external to the Land comprising water, sewer, electricity, telecom and a made road to the Land as are required by the Local Authority to enable the Land to be further subdivided in accordance with and consistent with the purposes and concept of the Project". Although "Project" was not defined, the word "Projects" was defined to mean "the development of the Land into an integrated tourist facility incorporating a five star hotel, 18 hole golf course, residential developments, retail areas and other associated uses". The "Works Price" was $2,500,000. "Land Contract" was defined as "the Contract for the purchase of Lots 1 and 2 on the VGF Land between Lenen Pty Limited as Vendor and COTCJV [each of COTC, Jandawn, AWD and Arts] or its nominee as Purchaser". 25 Clause 2 of the Works Agreement provided as follows: 2 Engagement 2.1 Subject to and upon the execution of the Land Contract COTCJV engages Richtech to carry out the Works to a standard acceptable to the Local Authority and to bring it to Completion as promptly as possible after the date hereof. 26 The draft Land Contract attached to the Works Agreement for Lots 1 and 2 recorded a purchase price of $8 million. Put and Call Option 27 On 18 August 1999 COTC, Jandawn, AWD and Arts (referred to together as COTCJV) and Lenen entered into a Put and Call Option in relation to the sale and purchase of the land. It is clear that at least at this time the parties anticipated a novation of the Put and Call Option as they anticipated the incorporation of KCOTC. Clause 1.4 provided as follows: 1.4 COTCJV to nominate Lenen acknowledges that COTCJV has entered into this Agreement in anticipation of the incorporation of KingsHeath Club of the Clubs Limited. Lenen agrees that upon such incorporation it will agree to enter into a new agreement with KingsHeath Club of the Clubs Limited in terms identical with this Agreement as if KingsHeath Club of the Clubs Limited was the party in place of COTCJV provided that:- (1) COTCJV shall pay to Lenen its reasonable legal costs incurred in entering into such agreement; and (2) COTCJV shall jointly and severally guarantee the obligations of KingsHeath Club of the Clubs Limited under such agreement in such form as Lenen may reasonably require. 28 The Put and Call Option also included the following: 3 Condition Precedent 3.1 COTCJV shall within seven days of the date hereof provide to Lenen an irrevocable bank guarantee for an amount of $4,000,000 (the "Bank Guarantee") in such form as Lenen shall reasonably require as security for its obligations under this Agreement and the Contracts. 3.2 In lieu of the Bank Guarantee Lenen may in its discretion accept a Letter of Credit Facility. 3.3 If the Bank Guarantee or such Letter of Credit Facility reasonably acceptable to Lenen is not provided within the said period of seven days or such further period as Lenen may agree, then Lenen may by notice in writing to COTCJV terminate this Agreement in which event neither party will have any rights against the other. 4 Grant of Call Options 4.1 Upon the signing of this Agreement COTCJV shall pay the Call Option Fee to Lenen (the receipt of which is hereby acknowledged). 4.2 In consideration of the Call Option Fee, Lenen grants to COTCJV options to purchase the Properties on the terms set out in the Contracts. 4.3 Each Call Option is an irrevocable offer by Lenen to sell the Properties under the relevant Contract which may be accepted by COTCJV as set out in Clause 5. 5. Exercise of Call Option 5.1 The Call Option in respect of Lots 1 and 2 ("Call Option A") can only be exercised by COTCJV after the expiration of three months from the date hereof but must be exercised by either the Approval Date or within 14 days of receipt by COTCJV from Lenen of the earlier of: (1) the Development Approval on reasonable terms and conditions; or (2) the decision of the Court granting approval to the said Development Application Whichever is the earlier 5.2 The Call Option in respect of Lots 3, 4, 5 and 6 ("Call Option B") must be exercised: (1) after the expiration of three months from the date hereof but before the 22nd May 2002. (2) after COTCJV has received: (a) the Development Approval on reasonable terms and conditions; or (b) the decision of the Court granting approval to the Development Application. PROVIDED HOWEVER that if Call Option A has been exercised then this condition 5.2(2) shall be deemed to have been satisfied. … 6. Nominee 6.1 COTCJV may appoint a nominee to exercise the Call Option. The nominee may be one ore more persons including COTCJV. 6.2 COTCJV may only appoint the same Purchaser or a related entity within the meaning of the Corporations Law as its nominee for all Contacts. 6.3 If a nominee is appointed, COTCJV guarantees to Lenen the performance by the Purchaser of the Purchaser's obligations under each Contract as set out in Clause 21. 7 Grant of Put Option 7.1 Upon the signing of this Agreement Lenen shall pay the Put Option Fee to COTCJV (the receipt whereof is hereby acknowledged). 7.2 In consideration of the Put Option fee, COTCJV grants to Lenen an option to require COTCJV to purchase Lots 1 and 2 on the terms set out in the Contract for such Lots ("Put Option A"). 7.3 In consideration of a Put Option Fee, COTCJV grants to Lenen a further option to require COTCJV to purchase Lots 3, 4, 5 and 6 on the terms set out in the Contracts for such Lots ("Put Option B"). 7.4 Put Options A and B if exercised are irrevocable offers by COTCJV to purchase the Properties under the Contracts, which may be accepted by Lenen as set out in Clauses 8 and 9 of this Agreement. Incorporation of KCOTC 29 KCOTC was incorporated on 24 August 1999. The original directors were Dalglish, Shannon and Stamoulis. The original shareholders were Arts (125 shares), Jandawn (250 shares), KNG (375 shares) and COTC (250 shares). Funding problems 30 Although under the Joint Venture Agreement, Arts agreed that it would procure a guarantee for a minimum amount of $4 million on or before 13 August 1999, it did not do so. AWD was only required to procure or provide a standby letter of credit in the amount of $2 million once Arts procured the guarantee. Clause 3.1 of the Put and Call Option dated 18 August 1999 required "COTCJV" (being COTC, Jandawn, AWD and Arts) to provide within seven days of the date of the Put and Call Option an irrevocable Bank Guarantee for $4 million in a form required by Lenen. Lenen had the discretion to accept a Letter of Credit Facility in lieu of the Bank Guarantee. On 30 August 1999 Lenen's solicitor, David Beattie advised KPMG that Lenen would not accept a Letter of Credit from any insurance company and that it required a Bank Guarantee. It is apparent that the Joint Venturers, through KPMG, were making enquiries with HIH Insurance for the provision of a guarantee. Mr Beattie advised that Lenen was willing to extend the time within which to provide a guarantee but that it would not accept a guarantee from HIH Insurance because it did not meet its criteria. 31 On 23 September 1999 KPMG wrote to Dalglish, Shannon, Mancuso and Stamoulis and advised that various consultants had been engaged on the assumption that the financial arrangements agreed to by Stamoulis for a $2 million operating account "are in place pursuant to an ANZ Bank Guarantee". This appears to be a reference to AWD's obligation under clause 3.1(a)(ii) of the Joint Venture Agreement. At this stage of course, Arts had not complied with its obligation to procure a $4 million bank guarantee and AWD's obligation was only triggered after Arts provided its guarantee. The condition precedent under the Put and Call option was that the Joint Venture would provide the $4 million guarantee within 7 days of 18 August 2000 (cl 3.1). KPMG noted that no Bank Guarantee was in place and that it was "critical" to focus on putting the necessary financial arrangements in place before committing further to the Project. KPMG advised that unless Stamoulis was willing to commit funds immediately, they could not recommend that any consultants be formally engaged or committed to by KCOTC. 32 On 6 October 1999 Lenen agreed to an extension of time until 18 October 1999 for the provision of the guarantee. On 14 October 1999 KPMG wrote to Stamoulis advising that it understood, from discussions with Dalglish, that Stamoulis would be willing to authorise the release of the Guarantee obtained from ANZ Bank for the purpose of funding the Project upon receipt of confirmation from Lenen that it was willing to release title upon payment of $8 million. Stamoulis wrote back on 15 October 1999 suggesting that Dalglish had misunderstood his comments regarding his obligations to the Joint Venture. He advised that once Lenen was satisfied as per the terms of the Put and Call Option Agreement he would then provide the Bank Guarantee required. 33 On 14 October 1999 KPMG also wrote to Lenen advising of the plans to put in place security pursuant to the Put and Call Option Agreement. Lenen responded on 18 October 1999 with complaints about its directors' inability to make contact with Dalglish and Mancuso. That letter included the following: The agreement between our companies requires as a condition precedent the lodgement of a bank guarantee acceptable to us and this was due to be lodged by the 25 August, 1999. We have previously advised you of a standard bank guarantee format that is acceptable to us and that we require such a guarantee to be issued by a recognised Australian bank. Our company's position on this matter remains unchanged. Should the option for lots 1 and 2 be exercised, the agreement between us also requires payment of an interim amount of $4,000,000 cash within 3 months of development approval. Payment of a further amount of $4,000,000 for the land and in addition a further amount of $2,500,000 cash for services to the land is payable at settlement for lots 1 and 2. We do not wish to vary this agreement … We note that we are presently agreed to extend the time for the lodgement of the guarantee until the close of business today. If you are unable to comply with the submission of the appropriate guarantee today, we request that you advise us immediately if you wish to extend this time and to what date you seek an extension to a time. This of course is when you can realistically comply with the requirements of the agreement or an alternative which we may approve. 34 On 20 October 1999 Mr Beattie advised KPMG that Lenen would extend the date to 29 October 1999 and that it should not be expected that any further extensions would be granted. Numerous meetings occurred in the following weeks with prospective financiers and also with Lenen. On 4 November 1999 KPMG wrote to the directors of KCOTC reporting upon these meetings and in particular advising that Ian Barclay had outlined two possible options for KCOTC to consider, as follows: 1 they [Lenen] will agree to proceed with DA in consultation with KHCotC - but you should assume that this will not be with total co-operation if the $4.0m guarantee is not in place soon. If KHCotC have not complied with the terms of the Put & Call Option Agreement by the date DA is lodged (read 19 or 22 November at the latest) then they will terminate the agreement. 2 KHCotC pays a 10% deposit on the purchase of the whole of the land (ie., $2.25m) and Lenen will waive the requirement of the $4.0m guarantee. Lenen may agree to arrange for the contracts such that the $2.25m is attributed to the Works Agreement to make this both more tax effective and perhaps to minimise any stamp duty liability. The rest of the contract would remain as is albeit that it might be possible to arrange for the first instalment of $4.0m to be rolled out into the second $4.0m to make total payments of $8.0m nine months after DA, but you should not rely on this being achieved. 35 On 29 November 1999 Lenen wrote to Mancuso and suggested that it was important to arrange for their respective legal representatives to finalise a new Put and Call Option and Works Agreement in the name of KCOTC. This was not done. KPMG letter - 8 December 1999 36 On 8 December 1999 KPMG wrote to Dalglish, Shannon, Stamoulis and Mancuso in relation to a meeting between them that day at KPMG's offices. That letter referred to the recommendation for a revised shareholding structure to reflect, amongst other things, the need to put in place sufficient funding to enable the Project to proceed over the next three months and beyond and to ensure that those equity participants, by virtue of any revised structure, were adequately compensated for the risk/exposure they had to the Project in the "two different circumstances contemplated going forward". The letter included the following: Two revised structures are proposed. Both assume that the Stamoulis interest will pay $2.25m (10% of the purchase price) to Lenen this Friday to "secure" the Agreement with Lenen and hence give KHCotC control over the Project. It is a requirement that the Joint Venture shall have the right to exchange "deposit monies" for the $4.0m Guarantee at any time in the course of the next 3 months, ie., on or before 10 March 2000, in the event that an appropriate equity participant can be secured to underwrite the Financial Guarantee to be provided through HIH and St George Bank with Capital Finance, or other interests such as a builder. Structure 1 - Assume Bank Guarantee is in place by 10 March 2000 § Stamoulis pays $2.25m to Lenen (subject only to the right to substitute with a Guarantee). § The respective Director's companies or their interests (Dalglish/Shannon/Mancuso) shall each contribute $100,000 to fund the Project over the course of the next 3 months. These funds are to be paid into the company operating account by Friday 17 December 1999. § Upon acceptance of the Guarantee by Lenen, Stamoulis shall release its $2.0m Guarantee to enable funding of the Project. Stamoulis shall be granted the rights to an option for an additional 15% shareholding in the Project in the event that the Guarantee is not put in place by 10 March 2000. Structure 2 – Bank Guarantee not provided by 10 March 2000 § Stamoulis pays $2.25m to Lenen. § As the Guarantee has not been provided, Stamoulis will have a greater exposure to the Project and the liability to release $2.0m to fund the Project by 10 March 2000. § In these circumstances, the equity shareholding will change as follows: - Stamoulis interest 52.5% - Dalglish interest 15% - Shannon interest 12.5% - Mancuso interest 10% - KPMG interest 10% § If this structure arises and the Dalglish/Shannon and Mancuso interests have not contributed $100,000 respectively, then Stamoulis shall be entitled to an increased shareholding of 2.5% from each of the non-contributing entities, in which case, in the event no one interest has contributed and Stamoulis has had to fund all of the Project Costs until March 2000 (including KPMG's costs) the shareholdings would be revised as follows: - Stamoulis interest 60% - Dalglish interest 12.5% - Shannon interest 10% - Mancuso interest 7.5% - KPMG interest 10% In this instance there will be no Guarantee and Stamoulis will have the major exposure and hence the right to deal with the property in one of the three following ways: 1. Proceed with the Project with the current Joint Venture Company. 2. Proceed with the Project, but sell down its equity. 3. Deal with the property as a real estate transaction only – sell and realise any gains pari passu to the then existing shareholdings net of all costs. I trust the above accurately reflects what was proposed in the meeting. In my view it fairly reflects the risk to Stamoulis if the Guarantee is not put in place. It appears likely that the Guarantee will be in place in the near future. The proposed structure has the advantage of giving KHCotC leverage over other parties seeking an equity participation and should reduce the shareholding they may seek with a resultant increase in all existing shareholders interests over what is currently contemplated by Capital Finance taking a 40% stake. If, as contemplated by Lenen, the Development Application looks like being approved in the next 6-8 weeks, this gives great commercial advantage to the Project to enable a better negotiating position with other equity participants, be they Capital Finance or for that matter the builders in the near future. 37 This KPMG letter appears to be the first time that the option for Stamoulis/KNG to deal with the Land as a "real estate transaction only" was recorded. On 9 December 1999, Dalglish responded to KPMG's letter of 8 December 1999 in the following terms: In response to your letter of 08 December - In each scenario, including the third one – Harry's offer is impeccable. - Grant Park has not yet had the opportunity to discuss risk and reward. - Sam and Chris – as does KPMG – have moneysworth roles to play. - The best security for Harry – pending HIH – Capital Finance being put in place would seem to be first registered mortgage debenture over CotC JV – KHCotC Limited assets. - The most pressing need we have to get the RMIT design platform up to date. Allow $150,000. Then pre-selling can begin. 38 On 9 December 1999 KPMG wrote again to the directors of KCOTC with a revised basis of financial arrangements for the Joint Venture. On this occasion KPMG advised that both structures now contemplated that the Stamoulis interest would pay $2 million (10% of the purchase price, excluding any amounts under the Works Agreement) to Lenen by 10 December 1999. KPMG advised that on this basis KCOTC would have control over the Project. It was noted that the Stamoulis interests would concurrently provide a cheque to KCOTC for $250,000 to enable funding of the Project. This revised structure anticipated a new equity shareholder and KPMG advised that if that new shareholder required more than 15% but less than 20%, the additional 5% would be contributed pari passu from the Dalglish/Shannon and Mancuso interests. If the new participant required greater than 20% shareholding then the share in excess of 20% would be provided pari passu by all shareholders. Structure 2 referred to in the 8 December 1999 letter changed to accommodate the payment of $2 million to Lenen with a change in shareholding to Stamoulis at 75%, Dalglish at 12.5%, Shannon at 7.5% and Mancuso at 5%. The letter continued: The one proviso to the Stamoulis interests having the sole right to deal with the property as a real estate transaction only, shall only be triggered in the circumstances where firm commitments to pre-sales equivalent to 40% of the cost to construct have not been achieved by 1 July 2000. This cost base is to be estimated by Rider Hunt pursuant to the final Development Approval issued by the Tweed Shire. § KPMG will agree to cap its total fees recoverable from the Joint Venture at $500,000 subject only to it having first charge over the net assets of KingsHeath Club of the Clubs Limited, after satisfying the vendor (Lenen), in the event the Stamoulis interests proceed under Point 3 above [the real estate transaction]. 39 On 10 December 1999 KPMG advised that it would draft a new agreement to reflect the changes to the structure of the Joint Venture. There had been continuing debate about the need to pay creditors and KPMG strongly recommended that $250,000 be paid into the account promptly to facilitate the early payment to outstanding creditors "utilising the structure and methods for authorisation of payment already in place". There was also continuing debate about the payment of KPMG's fees. At the meeting of KCOTC directors on 13 December 1999 the matter of KPMG's fees was clarified. It was noted that KPMG had agreed to cap their fees at $500,000 in the event that the Project did not proceed and became a "land sell off/wind up of the company". $2 million paid 40 KNG paid $2 million to Lenen by 10 December 1999. On 15 December 1999 Mr Beattie confirmed that he had arranged for the sum of $2 million to be placed on fixed deposit with the ANZ Bank for the period of one month and that KCOTC had the right to substitute that cash deposit with a $4 million Bank Guarantee at any time prior to 10 March 2000 or 7 business days after the granting of development approval, whichever was the later. Mr Beattie confirmed that if the substitution did not occur and if the Put and Call Option was exercised the $2 million would be applied as a deposit equal to 10% of the purchase price under each Contract. Mr Beattie also advised that in view of the new arrangements Lenen required new agreements rather than assigning or novating the existing agreements. KPMG advised that the directors of KCOTC objected to the drafting of new agreements as an unnecessary incursion of costs. Supplemental Joint Venture Agreement – 10 February 2000 41 KPMG drafted a "Supplemental Agreement Kingsheath, Club of the Clubs Joint Venture" (the Supplemental Agreement) for execution by the directors of KCOTC, COTC, Jandawn, KNG (replacing AWD) and Arts. The Minutes of a meeting of directors of KCOTC on 17 January 2000 record that Mr Holland from KPMG requested a motion to adopt the Supplemental Agreement so that it could be used in discussions with builders and hoteliers. The Minutes record that Dalglish moved that the Supplemental Agreement be adopted. After Mancuso suggested some changes to the proposed clauses, Shannon seconded the Motion moved by Dalglish. The Minutes do not record a resolution adopting the Supplemental Agreement but it is apparent that each of COTC, Jandawn, KNG and Arts signed the Agreement that is dated 17 January 2000. For reasons that are a mystery, the parties signed the Supplemental Agreement again on 10 February 2000. The Minutes of the meeting of directors of KCOTC on 10 February 2000 record that the Supplemental Agreement was "tabled for agreement/signing/sealing" and that "all copies were signed". I will refer to the Supplemental Agreement as having the date of 10 February 2000. 42 The Supplemental Agreement provided relevantly: RECITALS A . On 4 August 1999, the Joint Venturers entered into the Joint Venture Agreement under which they agreed to form the Joint Venture and to incorporate the Company. B . The percentage interests in the Joint Venture that each of the Joint Venturers agreed to acquire was specified in Schedule 1 of the Joint Venture Agreement, and the Joint Venturers agreed that their respective shareholdings in the Company would be the same as their percentage interests in the Joint Venture. C. The Joint Venturers have agreed revised structures for the shareholding in the Joint Venture and the Company in order to facilitate the Joint Venture introducing an appropriate equity participant to underwrite a Financial Guarantee to be provided by the Joint Venture pursuant to the provisions of the Put & Call Option Agreement between the Joint Venturers and Lenen Pty Ltd ACN 001 045 816. … 2 Performance of Obligations of KNG 2.1 KNG shall pay the sum of Two Million Australian Dollars (AUD$2,000,000.00) to Lenen Pty Ltd by Friday, 10 December 1999. This sum shall be payable by bank cheque and deposited into the trust account of Lenen Pty Ltd's solicitor, David J Beattie of Level 3, 22 Clarendon Street, Sydney, New South Wales, 2000. This payment will be made subject to the Joint Venturers' right to substitute the sum paid for a $4 million bank guarantee in accordance with the provisions of the Put & Call Option Agreement. 2.2 KNG shall pay a further amount in the sum of Two Hundred and Fifty Thousand Australian Dollars (AUD$250,000) into the Company operating account at Westpac Banking Corporation by Friday, 17 December 1999 which moneys shall be applied to fund the Project in accordance with the terms of the Joint Venture Agreement. 2.3 The Joint Venture shall within three business days of provision by KNG and acceptance of the $4 million bank guarantee by Lenen Pty Ltd, pay into the operating account of the Company referred to in clause 2.2, the AUD$2,000,000 which it shall receive as a disgorgement from the trust account of David J Beattie in accordance with the terms of the Put & Call Option Agreement. These moneys shall be applied to fund the Project in accordance with the terms of the Joint Venture Agreement. On receipt of these funds by the Company, it shall immediately pay all debts owed by the Company properly relating to the Project including KPMG's Phase One Fees as defined in Schedule One of the Joint Venture Agreement. 2.4 In consideration of KNG providing the $2.25 million payments and providing a $4 million Bank Guarantee provided for in clause 2.1 of this Agreement, KNG is hereby granted an option to receive a transfer of shares in the Joint Venture and the Company of a further 15% shareholding in addition to its existing interests. This option is conditional upon the $4 million bank guarantee not being provided by NewCo to Lenen Pty Ltd by the later of 10 March 2000 or the date of issue of Development Consent. 3 Obligations of Participants 3.1 Transfers of Interests in Joint Venture In further consideration of KNG's payment under clause 2.1 of this Agreement, the Joint Venturers agree to make transfers of their respective interests in the Joint Venture necessary to effect the following revised interests in the Company: (a) KNG 52.5% (b) Jandawn 12.5% (c) COTC 15% (d) Arts Investments 10%; and (e) KPMG 10% … 5 No Bank Guarantee 5.1 Where the $4 million bank guarantee is not provided to Lenen Pty Ltd by the later of 10 March 2000 or the date of issue of Development Consent as provided in the Put & Call Option Agreement and the Project does not proceed as provided for in clause 5.4, then the following provisions shall apply: (a) KNG shall pay the AUD$2 million held by D J Beattie & Co on trust for the Company to Lenen Pty Ltd as provided in clause 2 of this Agreement. (b) KNG shall be entitled to elect to proceed as follows: (i) complete the Project with the Company; (ii) complete the Project but dispose of its equity in the Joint Venture and the Company; or (iii) complete the Purchase Contract as a Real Estate Transaction only, and meet any losses or share any gains on a pari passu basis with the then Joint Venturers after payment of all approved Project costs. 5.2 For the purposes of this clause 5, the shareholding shall be adjusted as follows: (a) KNG 75% (b) Jandawn 7.5% (c) COTC 12.5%; and (d) Arts Investments 5% 5.3 If KNG elects to complete the Real Estate Transaction only, then KPMG will cap its total recoverable fees from the Joint Venture and the Company at AUD$625,000 subject only to KPMG being granted and holding a first registered Fixed and Floating Charge over the net assets of the Joint Venture and the Company. 5.4 KNG's right to complete the Real Estate Transaction only is dependent on the Joint Venture and the Company failing to achieve committed pre-sales of trust units in the Project equivalent to 40% of the total construction costs by 1 August 2000. The cost of construction is to be estimated by Rider Hunt pursuant to the final Development Approval to be issued by Tweed Shire Council. 5.5 In any event, the Company must pay KPMG its Phase One Fees and Disbursements by 31 March 2000. 6 Confirmation of Joint Venture Agreement For the avoidance of any doubt, but subject to the provisions of this Agreement, the parties to this Agreement acknowledge and confirm the continuance of the Joint Venture Agreement and all rights accruing to, and obligations binding, the Joint Venturers under the Joint Venture Agreement. 43 On 24 January 2000 COTC, Jandawn, AWD and Arts lodged a caveat over the Land in which the nature of the estate or interest in the Land was described as an equitable interest pursuant to the Put and Call Option Agreement dated 18 August 1999. Problems encountered - February to May 2000 44 Between 10 February 2000 and 27 May 2000 a number of problems were encountered. Although negotiations with builders and hoteliers proceeded, it was clear that Baulderstone Hornibrook Pty Limited (BHE) wanted to know what the level of interest from the Clubs was before it committed to appointment as the builder for the Project. There were problems in respect of the Development Approval in that Lenen had applied for a subdivision of the land into six Precincts. The directors of KCOTC thought that such plan may be beneficial to the Joint Venture and that in the circumstances the Directors may wish to change the structure of the payments in relation to the new subdivision. It is apparent that the Council provided Draft Consent Conditions on 13 March 2000 but it was not clear when the Council would formally approve the DA. 45 KPMG were also negotiating with Mr Beattie in respect of amendments to the Put and Call Option. On 10 April 2000 the Directors of KCOTC met for a lengthy meeting that was adjourned to 11 April 2000. The Minutes of the meeting of 11 April 2000 noted Dalglish's objection to proceeding without Stamoulis. Dalglish requested the Board to address the issue of funding the Project. The Minutes record "no funding – no project". KPMG and Dalglish worked on the tax implications in respect of the Project and a document entitled "Information Memorandum" was prepared for the purposes of providing due diligence material to the proposed builder and hotelier. 46 By late May 2000 neither a builder nor a hotelier had been appointed and it is clear that some of the Directors, in particular Stamoulis, were expressing concern about that delay. At meetings of the Directors of KCOTC on 22 and 23 May 2000 these concerns were discussed. At the meeting on 22 May 2000 Stamoulis stated that he had areas of concern in relation to putting forward the $4m guarantee. His areas of concern included not knowing the level of interest in the Project from the Clubs; the lack of commitment from BHE; and the fact that an hotelier had not been appointed. Stamoulis informed the meeting that he would particularly like to see the market testing done, however Shannon observed that if KCOTC did not have Stamoulis' financial backing the Joint Venture could not go forward, and in particular, "market test" without funds. Stamoulis advised the meeting that "there will not be a Bank Guarantee provided within 7 days" but he did not think that the Project would "fall over". 47 At this meeting Mr Holland referred to the outstanding invoices and in particular the amount owed to KPMG which was in excess of $750,000. Mr Holland advised that unless KPMG's invoice for $400,000 was paid, together with those of other consultants, KPMG would not be involved in the Project any further. Stamoulis advised that he felt that the whole process of the appointment of an hotelier and a builder had dragged on for too long. The Minutes record the following: He [Stamoulis] further explained that he is not walking away from the project but he (and his family) would like a greater level of comfort before committing further. RD [Dalglish] stated that the agreement with Baulderstones could have been made prior to Easter and Baulderstones are still willing to commit on the following terms: a) Building Contract; b) certain level of sales are achieved prior to construction commencing; and c) design and construct contract. The JV partners agreed to adjourn the meeting and continue discussions on how the project should move forward tomorrow. 48 The Minutes of the meeting of 23 May 2000 record that Stamoulis felt that KPMG were being obstructive and unhelpful in response to which Mr Holland reiterated that unless the Joint Venturers stated how they were going to fulfil their obligations to the Project and make payments to all consultants, KPMG would be left with no choice but to disassociate itself from the Project. Dalglish advised that working capital was always going to be a problem and that it was not Stamoulis' job to fund costs. He observed that S Stamoulis' level of comfort would be raised considerably if the BHE situation was finalised. 49 On 23 May 2000 KPMG wrote to the directors of KCOTC stressing their deep concern that KNG was reluctant to provide the guarantee to Lenen as provided for in the Supplemental Joint Venture Agreement. Development Approval 50 On 23 May 2000 the determination of 18 May 2000 by the Deputy Premier and Minister for Urban Affairs and Planning of the Development Application lodged by Lenen was provided to the Directors of KCOTC. May Agreement 51 On 27 May 2000 Stamoulis, Shannon, Dalglish and Mancuso (by telephone) met as the Steering Committee of the Joint Venture and passed the following resolutions, referred to in the proceedings as "the May Agreement": Resolution 1. That the Information Memorandum, dated 01 May 2000 for KingsHeath Club of the Clubs be adopted as the Master Plan for compilation of: - The Offering Memorandum - The Registered Prospectus as it is from time to time amended. Resolution 2. That the following amendments and additions to the Information Memorandum and to the KingsHeath Club of the Clubs Joint Venture Agreement, Supplemental Joint Venture Agreement and other Joint Venture Documentation be adopted and executed by KPMG and KPMG Legal. These amendments are: KingsHeath Club of the Clubs Joint Venture – (See 'Relational Development Structure', Page 1 of 1, Information Memorandum, 01 May 2000) 1. Club of the Clubs Pty Ltd ACN 078 792 391, 15% share: · Will provide intellectual property development rights owned by Ray and Maja Dalglish on a non-exclusive license basis to the KH CotC Joint Venture in return for a Research and Development payment, payable at commencement of construction, of $2.5 Mio. · The non-exclusive license is conditional upon payment being received from the JV (KingsHeath CotC account) for its account rendered for start up and out of pocket expenses in the sum of $317,500, dated 10 April 2000, as minuted. · Will receive redeemable, convertible notes issued by KH CotC Joint Venture with a face value of $3,791,000, redeemable or convertible at commencement of construction. · Is responsible for 15% of all debt. 2. King Network Group Pty Ltd ACN 089 340 670. 70.00% share: · Has provided $250,000 for pre-sales and marketing expenses. · Has provided $500,000 Research and Development expenses to Dalglish, repayable by Dalglish at commencement of construction from its Research and Development payment. · Will provide $4,000,000 guarantee to Lenen in the terms of the 'Supplemental JV Agreement'. · Will receive redeemable, convertible notes with a face value of $13,738,500 issued by KH CotC Joint Venture, redeemable or convertible at commencement of construction. · Responsible for 70.00% of all debt. 3. KPMG Corporate Finance Pty Ltd ACN 007 363 215: · Provides expertise as defined in the Concept and Development Agreement. · Receives payment from the JV (KH CotC account) for its Phase 1 fees, now due in the sum of $393,348 as minuted on 10 April 2000. · Will receive premium fees to be negotiated with all Joint Venture partners in accordance with the terms of the Concept and Development Agreement. These negotiations are to be conducted in good faith and will include proper costs, mark-ups, fees, charges, and disbursements of all parties, and the payment thereof relative to each other. · $1,832,500 of redeemable, convertible notes offered to KPMG will form part of these negotiations also. These Notes will be accepted by King Network Group P/L in good faith on the understanding by the joint venturers that the first tranche of the premium fee shall be $1,832,500 payable to KPMG upon the redemption of the convertible notes. 4. Jandawn Pty Ltd ACN 010 854 887, 7.5% share: · Provides expertise to be detailed. · Will receive payment from the JV (KH CotC account) of start up expenses of $87,500 as minuted, inclusive of amounts drawn, plus moneys worth expenses estimated at $90,000. · Will receive redeemable, convertible notes with a face value of $1,388,000 issued by KH CotC Joint Venture, redeemable or convertible at commencement of construction. · Is responsible for 7.5% of all debt. 5. Arts Investments Pty Ltd ACN 078 937 729, 7.5% share: · Provides marketing and sales expertise as detailed. · Will receive payment from the JV (KH CotC account) for fees and out of pockets totalling $167,515 as at 28 March 2000, as minuted. · Will receive redeemable and convertible notes with a face value of $1,084,500 issued by KH CotC Joint Venture, redeemable or convertible at commencement of construction. · Is responsible for 7.5% of all debt. NOTE: The total value of redeemable and convertible notes issued by KH CotC Joint Venture is $20,000,000 made up of: Dalglish $3,791,000 KNG $13,740,500 Shannon $1,386,000 Mancuso $1,082,500 ACTION PLAN It is the responsibility of each JV partner to meet their % share of all further funding requirements by utilising the resources at their disposal. STEP 1 · KNG to fulfil obligations to KH CotC Joint Venture to pay $4.0 Mio. guarantee to David Beattie Trust Account on behalf of Lenen Pty Ltd by Wednesday, 31 May 2000. · This will ensure the release of $2.0 Mio. from the David Beattie Trust Account and to be paid into KingsHeath CotC Limited bank account at Westpac Sydney. SEE NOTE 1. STEP 2 · Attendees at Lenen meeting, 30 May 2000: Mark Holland, Genevieve Overell, Sam Mancuso. They are, at the appropriate time, to: a Seek Lenen's consent to substitute the obligation to pay $4.0 Mio. on or about 01 August 2000, plus a further $4.0 Mio. on or about 01 March 2001, (together with the obligation to pay $2.5 Mio. to Richtec Pty Ltd pursuant to the Works Agreement), with a $10.5 Mio. Bank Guarantee, payable on or around 01 April 2001. b Seek the right of substitution of a $10.5 Mio. Bank Guarantee by KingsHeath Club of the Clubs Limited to Lenen Pty Ltd at any time up until the first payment of $4.0 Mio. is due (i.e., 01 August 2000). · Seek formal valuations for the land in five (5) separate allotments, in accordance with the Conditions of Development Consent and the CotC Design Brief pursuant to known subdivisional costs currently estimated at $1.75 Mio., currently being formalized by Baulderstone Hornibrook and Rider Hunt. The five separate allotments for valuation purposes are 1 & 2, 3 & 5, and 4 & 6. STEP 3 Arrange Heads of Agreement involving equity by Baulderstone Hornibrook, and underwriting by a hotelier as soon as possible. When this is done, the following payments shall be released: $ Club of the Clubs P/L 317,500 King Network Group P/L 250,000 Jandawn P/L 177,500 Arts Investments P/L 167,515 912,515 STEP 4 · For KPMG to continue market testing with the Clubs which will enable KPMG to complete its work within the terms of the Concept and Development Agreement. · KH CotC Joint Venture in conjunction with KPMG to concurrently complete the Marketing and Sales Training Program; the production of a first class audio visual presentation; and the preparation of the Offering Memorandum to be followed by the issuing of the Prospectus. · Then, following completion of the previous bullet points in Step 4, full scale selling to the terms of the Offering Memorandum shall begin. NOTE 1 · $4,000,000 Bank Guarantee provided to Lenen, as per agreement, will be transferred to be held on deposit by the Insurer, as support of the issuance of a bankable $10.5 Mio. as outlined. · It is necessary to arrange funding for the land payment as detailed: $10,500,000 then the title transfers – by arrangement to be negotiated with Lenen $12,000,000 guarantee to Lenen on remaining payment by utilising $4,000,000 Bank Guarantee recovered from Lenen as a deposit. This will entitle the insurance/guarantee arranger to a 5% equity in the Joint Venture. COSTS OF ACTION PLAN Imperative payments which cannot be deferred $ $ Bank account opening credit 2,000,000 1. Bligh Voller Nield Architects 200,000 2. Rider Hunt Quantity Surveyors 60,000 3. RMIT 61,500 4. Thomson Wolveridge Golf Course Designers 40,000 5. Gallagher Jeffs 5,283 6. John Hay Marketing 45,000 7. Tribal Productions 50,000 8. KPMG 393,348 855,101 Bank account closing credit 1,144,899 Tweed Coast Development Joint Venture See Relational Development Structure, Page 1 of 1, Information Memorandum, 01 May 2000, who will act as the Developer by arrangement with KH CotC Joint Venture Once the Prospectus is fully subscribed or sufficiently so to enable funding for construction to be obtained, then the following steps will occur: (a) The title for the land in full shall pass to KingsHeath Club of the Clubs Limited as Trustee/Manager in accordance with the trust deed. (b) The $20,000,000 redeemable, convertible notes, shall be redeemed or converted. (c) Constitution shall commence and be completed on Lots 1, 2, 3, 5, and 4 & 6. The Tweed Development Joint Venture Proportional Interests shall be as follows: % King Network Group 35.00 Baulderstone Hornibrook (up to 15.00% depending on terms and conditions of Heads of Agreement) 15.00 Hotelier (up to 15% depending on terms and conditions of Heads of Agreement) 15.00 Club of the Clubs P/L 15.00 Jandawn P/L 12.50 Arts Investments P/L (up to 10% depending on the percentages negotiated with Baulderstone Hornibrook and the Hotelier using our best endeavours on Arts Investments' behalf) 7.50 100.00 In the event of the sale of the land due to circumstances as detailed in the Supplemental Joint Venture Agreement, then the proportional interests of the Joint Venture partners in KingsHeath Club of the Clubs Joint Venture shall be as follows: % King Network Group P/L 80.00 Club of the Clubs P/L 15.00 Jandawn P/L 2.50 Arts Investments P/L 2.50 100.00 Variation to Put and Call Option 52 On 15 June 2000 a Deed of Variation in relation to the Put and Call Option was executed. It provided that the Call Option in respect of Lots 1 and 2 (Call Option A) had to be exercised by 15 June 2000. It also provided for changes to the purchase prices of Lots 3 to 6 (Option B). Option A exercised 53 On 15 June 2000 the Call Option in relation to Lots 1 & 2 of the Land (Option A) was exerecised and COTC, Jandawn, KNG and Arts entered into a contract with Lenen for purchase of that part of the Land. Ryssal-One Pty Ltd (described as a Stamoulis company) provided to Lenen a $4 million bank guarantee on behalf of the Joint Venture and the $2 million deposit was released into the KCOTC account. The purchase price in the contract was $8 million and the completion date was in accordance with Special Condition 3 which provided: 3. Completion 3.1 Completion of this Contract shall take place at the expiration of 14 days notice in writing by the Vendor to the Purchaser of the registration of a Plan of Subdivision in registrable form (generally in accordance with the VGF Plan) as a Deposited Plan at the Land Titles Office. 3.2 The Purchaser shall pay an instalment of $4,000,000 by way of Bank Cheque to the Vendor within three (3) months of the development approval defined in Clause 1.1 of the Option Agreement under which this Contract arose. 3.3 The Vendor shall not be obliged to complete this Contract unless all amounts owing to Richtech Pty Ltd by the Grantee under the Works Contract have been paid. Extension of time 54 On 25 August 2000 Lenen wrote to Mancuso confirming its offer and acceptance by Mancuso and the Joint Venture partners for an extension of the date for the provision $4 million instalment payment referred to in clause 3.2 of the Special Conditions of the Contract for the sale of the Land which was due on 1 September 2000. Lenen granted an extension to Friday 29 September 2000 on the terms and conditions set out in that letter as follows: 1. As a consideration for this extension of time Lenen will require the purchase price in respect of lots 1 & 2 to be increased from $8.0 million to $8.2 million with the increase in price of $200,000 payable on 1st April 2001. 2. The $4.0 million payment due on 1st September 2000 to be varied by CotCJV, providing an unconditional and unlimited in time Bank Guarantee acceptable to Lenen for $10.7 million and on receipt of same Lenen will return the existing $4.0 million bank guarantee previously provided by CotCJV. 3. On 1st April 2001 CotCJV to pay to Lenen $8.2 million in cash as settlement for lots 1 and 2 and $2.5 million in cash to Richtech Pty Ltd in settlement of the works agreement. If these payments in cash have not been received by both Lenen and Richtech, Lenen will be entitled to cash the $10.7 million bank guarantee. 4. On 1st April 2001 CotCJV to provide bank guarantee/s to the value of $12 million as security for the settlement on or before 22/08/2002 of contracts for the remaining lots 3, 4, 5 and 6 and on receipt of those bank guarantees Lenen will hand over title to lots 1 and 2 if available. 5. As an alternative to 4 above CotCJV to settle all remaining contracts for lots 3, 4, 5 and 6 by paying a further $11.5 million in cash to Lenen Pty Ltd on 1 April 2001. Lenen then will hand over all titles and return any bank guarantees to CotCJV held by it as security. Based on phone acceptance by yourself and your joint venture partners of the foregoing variations to the existing agreements between us, we will now instruct our solicitor David Beattie to amend his existing draft Deed of Variation as forwarded to Genevieve Overell on 18/08/2000 with appropriate amendments to include the foregoing to enable signing by all parties on or before 1st September 2000. Clubs commitment unlikely 55 On 5 September 2000 KPMG wrote to the directors of KCOTC in relation to "market testing" of the Club of the Clubs Concept undertaken by it in conjunction of the Joint Venture participants on 22 and 23 August 2000 at KPMG's offices in Parramatta. KPMG reported that it had made its own inquiries with the Clubs represented in the market testing presentation and advised that it wished to detail its concerns and recommendations to the Joint Venture with respect to a strategy for proceeding with the development of the Land. KPMG advised that its seemed "unlikely" that Clubs would commit to Foundation Membership to the value of $27.5 million, through 55 clubs subscribing a minimum of $500,000, in the short term or at all. KPMG made the following recommendation: In view of the above, we recommend the JV give very careful consideration to formulating alternative strategies for the development of the land, either in whole or in parts given the uncertainty of the CotC Project being realised in the short to medium term. We cannot recommend progressing with the preparation of an Offering Memorandum nor a Prospectus until these issues are resolved. Black appointed as CEO 56 Adrian Black (Black) had provided project management services to Dalglish in previous developments. In August 2000, after a period of providing consultancy services to KCOTC, Black was appointed as Chief Executive Officer of KCOTC and Chairman of the Development Manager Panel. Black's role included: the management of the design and construction process; providing a central point of contact with BHE as a traditional "Development Manager" function; operating and coordinating directly in the engagement of an hotelier; and coordinating the project financing process, marketing and sales and consultants. Further variation to Put and Call Option 57 On 6 September 2000 a Deed of Variation was entered into with Lenen which amended the Put and Call Option to include the following; 9A COTCJV agrees to lodge with Lenen on or before the 1 April 2001 an unconditional Bank Guarantee in favour of Lenen in an amount of $12,000,000.00 from an Australian Trading Bank approved by Lenen and otherwise in such form as Lenen shall approve as security for the obligations of COTCJV under the Contract or Contracts to arise from the exercise by COTCJV of Call Option B or the exercise by Lenen of Put Option B (as the case may be). KNG elects for "Real Estate Transaction Only" (Land Play) 58 On 8 September 2000, Stamoulis as a director of KNG wrote to the directors of KCOTC, referring to KPMG's letters of 5 September 2000 as a damning report on the marketing and funding strategies of the project. That letter also included the following: At our last Meeting it was noted that there was insufficient funds to cover the next stage of the project and it was suggested that each participant be requested to inject further funds and that such injection of further funds be treated by way of a capitalisation of debt. It appears that the Board is digressing from the decisions made at the Meeting held in May of this year where it was clearly stipulated that the funds owed to the shareholders (treated as moneysworth interest) would be attended to as soon as the builder and hotelier had been appointed. This is clearly set out in the Minutes of the Steering Committee held on 27 May 2000. It would however be my view that our first priority is to ensure that the payment to the landowners is met on 29 September 2000 and it would be my recommendation that priority should be given to this and that we should determine a strategy in which we maximise our opportunity of proceeding with the project as soon as possible notwithstanding the shift by KPMG in its position vis-à-vis their letter of the 5 September 2000. I take exception to the Recommendation Clause in the said letter as it lacks any substance and appears to skirt around the issues and one would have thought that more substantial recommendations would have been put forward given the purported knowledge that the project director has in relation to the overall project. Further KPMG appears to be preoccupied with its self vested interest in relation to "our involvement and the responsibilities and the basis for our remuneration ." In view of the apparent delays that have now occurred it would appear that there is little option but for the Board to consider the "land play" option being exercised. This is a matter that I am presently giving serious consideration and respectfully suggest that all members should give due consideration given the time constraints. I therefore request that an urgent meeting of all participants be convened as soon possible to discuss the future strategies. 59 A meeting of the directors of KCOTC was scheduled for the afternoon of 18 September 2000. On that day Stamoulis as director of KNG wrote to the directors of KCOTC in the following terms: I wish to submit to the board a number of items for discussion which I have given serious consideration to in the last week. In view of the fact that the project has been delayed, I hereby give notice to the following: 1. In view of the fact that we have been unable to achieve committed pre-sales of units in the project by 1 August 2000, I, pursuant to clause 5 of the Supplemental Agreement, elect to proceed to complete the project as a real estate transaction only. I note that as a consequence of this election I rely on the Supplemental Agreement and also on the decision of the steering committee made on 27 May 2000. 2. Bank Guarantee As you are aware we are required to provide a bank guarantee to Lenen by no later than 29 September 2000. It is imperative that we comply with this time table and as a consequence I would be seeking that all participants contribute in their respective proportions to the bank guarantee that is due at the end of this month. In the event that a participant fails to contribute its proportional share, then it is my view that the participants' share should be purchased. In view of the matters raised above, it is crucial that each participant makes a prompt decision no later than tomorrow. Meeting – 18 September 2000 60 The meeting of the board of directors of KCOTC occurred on 18 September 2000. The Minutes of that meeting included the following: 4 Ongoing Project Funding Obligations 4.1 KNG Letter dated 18 September 2000 – Land Play. KNG's letter dated 18 September 2000 tabled. HS [Stamoulis] advised that he had spoken with his father over the weekend and come to the decision that they would not accept any further delays or inject further funds. HS advised that the project is dragging on and he and his family were not prepared to fund it alone and unless another equity participant was brought on board they see the project becoming a land play. MH [Mark Holland] asked HS whether a Club of the Clubs concept would be contemplated at all – Answer No. He further asked whether it should be KPMG's expectation that their fees be capped at $625,000 and relationships severed – Answer Yes. MH advised that if this was the case it was his view that KPMG would have no choice but to cease work on the project. RD [Dalglish] advised that his position was clear and it had been previously stated in his letter of 27 May 2000 and in his motion currently in front of the Board for resolution (refer to Agenda Item 4.2 adjourned from the Board Meeting held on 4 September). He further advised that he does not agree with KPMG's interpretation of the level of interest from Clubs as per their letter of 5 September 2000. HS stated that he agrees with RD in relation to KPMG's position. SM [Mancuso] asked if the land play was executed what payment is suggested for KPMG under the JV Supplementary Agreement. MH stated that the JV needs to understand that if a land play is accepted the distribution split will come into play; KNG 80% Club of Clubs 15%, Jandawn 2.5% and Arts 2.5%. COTC/Dalglish request for a meeting 61 On 20 September 2000 Dalglish and Mrs Dalglish wrote to the directors of KCOTC in relation to KNG's letter of 18 September 2000. That letter also referred to the "adjourned Motion". That was a reference to a motion proposed by Dalglish at the board meeting of 4 September 2000 that had been proposed and seconded, but deferred. That motion was in the following terms: That the shareholders of this company, KingsHeath Club of the Clubs Limited, ABN 48 089 214 648, be requested to proportionally contribute $2,000,000 to current assets on an interim basis. That the shareholders' proportional contribution be comprised of: a. cash, contributed on an interim basis, in order to increase current assets; and/or b. conversion of existing debt (current liabilities) owed by the company to its executive shareholders, in order to reduce current liabilities; c. this conversion to also be on an interim basis from current liabilities to non-current liabilities; That the shareholders' proportion or contribution be based on percentage amounting as follows: % $ 1. Club of the Clubs P/L 15.00 300,000 2. King Network Group P/L 70.00 1,400,000 3. Jandawn P/L 7.50 150,000 4. Arts Investment P/L 7.50 150,000 100.00 2,000,000 And That the interim period extend until further equity is contributed as proposed. Or That satisfactory funding arrangements as proposed including purchase of the lands, have been made, And That all executive shareholder contracts cease of this date. 62 The letter claimed that the delay in the Project had been caused by a variety of factors and suggested that the blame could be attributed to the directors pursuing their own personal ends rather than the Project. The letter suggested a "way forward" including that the board "must meet" to do a number of things including: 7. To resolve further the already clear strategy for committed pre-sales to the 13 major clubs whose principal executives attended the very successful presentations made in the KPMG Parramatta Boardroom on 22-23 August 2000, at which all the Joint Venturers and Board of Directors were present. … For the purposes, as outlined above, I propose: - a meeting on Monday, 25 September, in Melbourne, at KPMG, at a time to be arranged. Proposal for Overriding Supplementary Joint Venture Agreement 63 On Thursday 21 September 2000 Mancuso wrote to Dalglish by email with an attachment identified as "Overriding Supplementary Joint Venture Agreement" (OSJVA). The subject of the email was "Draft go forward document". Mancuso advised that over the past few days he had endeavoured to find a middle ground to go forward and that he had tried to "protect us all in my construction of this draft". Mancuso also advised that Mr Holland and Shannon had some input into the document and concluded by saying "I hope it meets your approval and if not I'm sure you will respond with your comments and changes". 64 Dalglish made notes on that email and on the draft agreement enclosed with the email and sent it to Mancuso on 22 September 2000 (tr 122). Those notes dealt with a number of topics within the proposed OSJVA but commenced with the comment "why re-invent the wheel?" Dalglish noted that KNG was "temporarily stepping into [BHE]'s shoes until [BHE] subscribes". He suggested that BHE and an hotelier be signed and secured as fast as possible and that "either one takes out KNG immediately". He concluded the note with the suggestion, "concentrate your intellectual horsepower on selling the product to clubs". 65 On 22 September 2000 Dalglish wrote to Stamoulis by facsimile (with copies to Mr Holland at KPMG, Shannon, Mancuso and Black) noting that he had elected to proceed to complete the project as "a real estate transaction only". It was also noted that Stamoulis relied upon the "Supplemental Agreement". This letter raised a number of issues relating to the May Agreement and suggested that the adjourned Motion required resolution. The letter stated that COTC's "obligation to meet the proportional share of debt, has to have a known basis". The letter continued: Further Comment: CotC Pty Ltd is prepared to hereby grant its vote to you, thus giving you as the major proportional shareholder, the power to instruct KPMG as follows: 1. to prepare a Completion of Documentation as instructed by the letter and the resolutions to and by the Information Memorandum, 2. an accounting of transactions to date, on behalf of the JV and the Trustee/Manager, 3. an Auditing of the KingsHeath Club of the Clubs JV accounts, 4. an Auditing of the Trustee/Manager KingsHeath Club of the Clubs Limited accounts. This work will obviously detail the proportional share of debt owing, and the proportional share of assets due to the joint venturers/shareholders which will assist in a judgmental evaluation of their position. Upon receipt of the: - Completion of Accounting for all transactions as outlined; - Completion of an Audit Report on the accounts of the Joint Venture - Completion of an Audit Report on the accounts of the Trustee/Manager. CotC Pty Ltd expects to meet 15% of any liabilities accruing to it. We accept your assurance given by yourself and Sam Mancuso to the meeting with Ian Barclay, Peter McGregor, Frank Wilson and Bruce Barclay in the writer's presence, that the conditions of the land purchase will be met on 29 September 2000. Naturally, an accounting of the beneficial cost savings to the JV Company should KNG need to do this, rather than the payment of fees and commissions to others, MUST result in a like amount of benefit to KNG. Will you please let us know if the Steering Committee and Board Meeting has been convened for Monday, 25 September 2000, as requested in our letter of 20 September 2000. KNG/Stamoulis letter – 23 September 2000 66 Stamoulis/KNG sent a letter to the directors of KCOTC, dated 23 September 2000 referring to his previous letter of 18 September 2000 and the draft OSJVA. That letter included the following: This agreement amongst other things requires King Network Group (KNG) to provide the additional $6.7 million Bank Guarantee with no contribution from the other JV partners. As you are aware my obligation is to provide 70% (or in a land transaction 80%) of any required funds for the project to move forward. Subsequent to my letter of September 18 the JV partners have made it quite clear that they are unable to meet their obligations in funding the project moving forward and are again relying on KNG. In view of the fact that the land purchase from Lenen will be jeopardised if the September 29 deadline is not met KNG is prepared to provide the Bank Guarantee under the terms provided in the amended Overriding Supplementary Joint Venture Agreement attached to this letter. KNG requires the JV to sign this agreement no later than Monday 25th September 2000. In the event that JV does not sign this agreement then KNG will continue the project as a land transaction and will require each partner to meet their obligation in providing for their proportion of the Bank Guarantee on September 29. 25 September 2000 Meeting 67 A meeting was held on 25 September 2000 at KPMG offices in Melbourne. Present at that meeting were Stamoulis, Shannon and Mancuso. The Minutes of the meeting record the following: 1. Meeting scheduled time of 1.00pm delayed in the expectation that Ray Dalglish may have been running late. A phone call was made to Ray Dalglish to determine his whereabouts. The call resulted in hearing from Ray that he would not be attending the meeting, (proposed by Ray). The meeting instructed Ray that it intended to take a vote on the OSJVA and that the meeting invited RWD's input. RWD stated that he would phone back in 20 minutes. RWD's call did not eventuate. 2. Notice of Motion 2.1 Sam Mancuso tabled as a motion the Overriding Supplementary Joint Venture Agreement dated 25-09-00 and that it be accepted and signed by all parties, a copy of which be forwarded to RWD for signing Seconded: Chris Shannon 68 The Minutes also record that Mancuso tabled "as a motion" the OSJVA for the acceptance and signature by all parties with a copy to be forwarded to Dalglish for signing. The Minutes record that the motion was adjourned "pending the Dalglish response". The Minutes also record that the Meeting was adjourned at 3.50pm waiting for Dalglish's response and input to the adgenda. The Minutes include: Meeting re convened at 4.15pm Meeting attempted to call Ray at 4.25pm and 4.26pm on both home and mobile, on which a message read 'line was engaged' and a message was left to imply that reasonable time had passed in order for Ray to respond. Ray was again called at 5.00pm, the same message was received that the line was engaged. Note: the motion 2.1 was carried and the Overriding Supplementary Joint Venture Agreement was signed by the parties present. The OSJVA 69 The parties to the OSJVA were identified as KNG (First Part) COTC (Second Part), Jandawn (Third Part) and Arts (Fourth Part). The terms of the OSJVA included the following: KHCotCJV shall be interpreted and mean all of the aforementioned Parties INTRODUCTION 1. That pursuant to clause 5 of the Supplemental Agreement made the 10 day of February, 2000, KNG has elected to complete the real estate transaction only, in view of the fact that the Joint Venture parties and the company incorporated on behalf of the Joint Venture parties failed to achieve committed pre-sales of trust units in the project equivalent to 40% of the total construction costs by 1 August 2000 (as set out in clause 5.3 of the Supplemental Agreement). 2. The steering committee of the Joint Venture parties confirmed on the 27 day of May, 2000 that the land transaction only can be proceeded with in accordance with details set out in the Supplemental Joint Venture Agreement. 3. KNG has notified the other Joint Venture parties of its intent to proceed with the land transaction only by way of letter dated 18 September 2000. 4. KNG states that it reserves its rights to proceed with the land transaction however if it elects to proceed with the Joint Venture Agreement, it will do so taking into account the following - (A) KHCotCJV has entered into a Put and Call Option agreement originally dated 18th August 1999 and subsequent variations with Lenen Pty. Ltd. and Richtech Pty. Ltd. (B) The current variations dated 6th September 2000 to the Put & Call Option Agreement require that the KHCotCJV - (i) provide an Irrevocable Bank Guarantee totalling $10,700,000 on or before 29 September 2000 that shall have a maturity date of 1 April, 2001; (ii) provide an Irrevocable Bank Guarantee totalling $12,000,000 on or before the 1 April, 2001 that shall have a maturity date of the 1 June 2002 and take Title to all of the said land on the 1 April, 2001; (C) Lenen shall release to the KHCotCJV its current security of $4,000,000 in the form of an unconditional irrevocable bank guarantee issued by the National Australia Bank upon receipt of the payment set out in Clause 4(B)(i) to KHCotCJV. IT IS AGREED - (D) That the First Part KNG shall commit to underwriting the payment to Lenen Pty. Ltd./Richtech Pty. Ltd., as set out in Clause (B) (i); (E) KHCotCJV shall release the payment set out in Clause (C) to First Part KNG upon First Part KNG completing its commitment as set out in clause (D); (F) The Second Part CotC, Third Part JD, and Fourth Part ARTS Parties accept and acknowledge the payments made by First Part KNG are subject to the completion of the Special Conditions set out therein. SPECIAL CONDITIONS (G) An agreement in writing has been submitted by the Construction Company Baulderstone Hornibrook subject to: (i) a payment of $6,250,000 to KHCotCJV to secure an exclusive DC&F contract. Upon payment of the said $6,250,000 and execution of the Exclusive Contract the construction company Baulderstone Hornibrook will be entitled to an equity entitlement of 15%. Such payment must be made by no later than 5.00 p.m. on 10 November, 2000; (ii) all the parties to this agreement hereby agree to vary the minutes and decision made at the steering committee meeting on the 27th May 2000, That upon the successful completion of Clause G (i) herein the payments under step three of the minutes dated 27th May 2000 will be released. (H) KHCotCJV has made a decision to engage a Hotelier Group on the condition that: (i) the Hotelier enter into an unconditional commitment to contribute a payment of $2,500,000 or such sum that is acceptable to KHCotCJV in order to secure an exclusive sub-management contract of the entire resort accommodation and golf/beach housing. (ii) the Hotelier will provide an unconditional commitment to underwrite 5% of all the TKA stock equal to 1,300 residential memberships or such other alternative arrangement acceptable to KHCotCJV no later than 5.00 p.m. on 10 November, 2000; (I) KHCotCJV acknowledge and accept the following equity positions upon the successful achievement of both Clause (G) and Clause (H); First Part (KNG) - 47.5% Second Part (CotC) - 15.0% Third Part (JD) - 12.5% Fourth Part (ARTS) - 10.0% Baulderstone Hornibrook - 15.0% 100% (J) It is hereby acknowledged that the equity holders as set out in Clause (I) may elect to dispose of the said land in accord with the current development consent and or any other subsequent consents or approvals, however such decision must be made by no later than 31 March 2001. (K) In the event that Clauses (G) and (H) are not jointly achieved the First Part KNG shall have the irrevocable right to - (i) deal at its sole discretion with the said land in accordance with the Put and Call Option Agreement and any other subsequent Variation Agreements as executed by KHC of CJV; (ii) the Second Part CotC, Third Part JD and Fourth ARTS Parties shall transfer all of their respective rights, interest and equity in the KHCotCJV at the direction of the First Part KNG; (L) The First Part KNG warrants and indemnifies the Second Part CotC Third Part JD and Fourth ARTS Parties in the event that Clause (K) is invoked that - (i) it shall not continue with the original CotC concept as delineated in the Joint Venture Agreement executed by all the parties on the day of ; and (ii) it shall meet all the payment schedules to Lenen Pty. Ltd., and Richtech Pty. Ltd., as set out in the Put and Call Option Agreement and any subsequent Variation Agreements executed by KHCotCJV. Outstanding Creditors (M) All parties agree to meet proportionately as to the share holding as at the 15 September, 2000 payments owing to all agreed creditors. KPMG letter to KNG/Stamoulis – 26 September 2000 70 On 26 September 200 KPMG wrote to KNG/Stamoulis with a view to reaching a resolution for presentation to a proposed meeting of the Board of KCOTC on 2 October 2000. That letter included the following: In King Network Group's (KNG) letter of 18 September 2000 it sought to elect to proceed to complete the project as a land play only pursuant to the Supplemental Joint Venture Agreement (SJVA) and the decision of the Joint Venture Steering Committee Meeting (JVSCM) of the 27 and 29 May 2000. On 20 September 2000 KNG advised it expected to be in a position to formally advise KPMG of its intentions no later than Monday 25 September 2000. Presumably because agreement between the JV participants cannot be reached, no such advice has been received. At 3:30pm on Monday 25 September 2000 we received a draft "Over-riding Supplemental Joint Venture Agreement" (OSJVA) which outlines, amongst other things, a revised basis of shareholding (Clause I) which is different to that contemplated in the SJVA and in the Information Memorandum dated 1 May 2000 adopted in the JVSCM. This draft OSJVA is totally different to that which KNG stated that it proposed to rely upon in its letter of 18 September 2000, a matter initially flagged by one of the JV participants, Ray Dalglish, in a hand written fax dated 23 September 2000, a copy of which KPMG received yesterday. We understand from Ray Dalglish that his response was given to an earlier draft version of the OSJVA which we have not sighted. In a facsimile letter dated 22 September 2000, addressed to KNG, Ray Dalglish sought clarification of certain issues and raised questions as to the status of KPMG work. With respect to our work, we note the following which is relevant: § KPMG is to prepare an Agreement which reflects the intentions of the decision of the JV Steering Committee Meeting of 27 and 29 May 2000; address concerns it has about the perceptions of its role as an equity participant, amongst other things, (see draft Second Supplemental Agreement dated 15 August 2000); and issue Debentures in the manner contemplated in the Minutes of the JVSCM. § This documentation has not been completed because: - some JV participants argue that the equity distribution in the event of a "real estate transaction" is inequitable; - agreement by all JV participants could not be reached with respect to the issue of Debentures in the event of a "real estate transaction". Furthermore, the question of the JV participants joint responsibilities to meet their obligations to existing consultants (including KPMG), as well as the funding of the project going forward, has still not been formally addressed, as Ray Dalglish has again pointed out in his letter of 22 September 2000. Whilst we note your verbal undertaking that all consultants shall be paid, this has not been formally recorded and, as yet, neither has KPMG's role going forward been agreed. It would appear to us that the best way forward is for the JV to proceed as originally contemplated in the Concept and Development Agreement, the SJVA and the Information Memorandum with a view to endeavouring to obtain assistance in funding the project from the Clubs, the Builder, and a Hotelier at the earliest opportunity. Clearly, a realistic timeframe within which to achieve this needs to be adopted. As previously expressed, it is our view that this process should be able to run in parallel with the opportunity/need to subdivide the land. If the Club of the Clubs Project cannot be funded either in whole or part through everybody's best endeavours in a reasonable timeframe (say by February 2001) then the decision may then be made to proceed with the sale or other development of subdivided allotments. Assuming that it is the JV's and KNG's joint intention to proceed in the manner contemplated in the Agreements reached to date, then all that remains is for the basis of funding of the project going forward to be determined. This of course assumes KNG has secured the necessary guarantee for the land, as agreed with Lenen Pty Limited, by 29 September 2000. As stated in our letter of 19 September 2000, we would be pleased to assist you and the JV in reaching a resolution on these issues, as well as KPMG's role going forward, as required. KPMG letter to COTC/Dalglish (Shannon) – 29 September 2000 71 On 29 September 2000 KPMG wrote to Dalglish (with a copy to Shannon) in relation to the OSJVA in terms that included the following: We note that this document is purported to be executed by King Network Group, Jandawn and Arts Investments but not by Club of the Clubs Pty Ltd. We seek your urgent instructions in relation to the following issues arising from this document: 1. Does Ray Dalglish intend to execute this document on behalf of Club of the Clubs? 2. Does each joint venturer have the individual capacity to meet the obligations contained in this document and, in particular, those to outstanding creditors referred to in paragraph (M)? 3. In view of the significant legal and commercial materiality of this purported agreement, we advise that Baulderstone Hornibrook should be informed of the contents of this document. In view of the forthcoming boardroom meeting at the offices of KPMG in Melbourne next Monday 2 October at 2:30pm, we request provision of your urgent instructions after formal ratification by the board at that meeting. KNG/Stamoulis response to KPMG letter of 26 September 2000 72 On 27 September 2000 KNG/Stamoulis responded to KPMG's letter of 26 September 2000 in terms that included the following: In paragraph 4 page 1 you have referred to the Overriding Supplementary Joint Venture Agreement (OSJVA) as a draft. This statement is incorrect as the Agreement was signed subsequent to a resolution of the Joint Venture (JV) on Monday 25 September 2000. You were also advised of this by telephone. In paragraph 3 page 1 you state that you were not advised by KNG of its position. As the JV has sent you an executed Agreement which clearly explains the position of all participants KNG felt that this document adequately reflected its position. I am not to sure what you mean in paragraph 1 page 2. KNG's position has been made quite clear to you in previous correspondence in that the JV requested time to respond to my letter of September 18. They did so through a proposal that was tabled at the JV meeting of September 25 where KNG agreed to the terms set out in the OSJVA as referred to above. Ray Dalglish proposed a meeting for Monday 25 September in his letter dated 20 September with various matters he wished raised. An agenda was sent out to him including his letters however he did not attend the meeting. In regards to bullet point one page 2 KPMG was required to prepare an Agreement based on resolutions of the JV on the 27 and 29 May 2000. KPMG decided to disregard the instructions of the JV in not preparing that Agreement. The obligations and responsibilities you refer to in bullet point two page 2 have been addressed in the minutes of the meeting of the 25 September which includes the JV's formal response to KPMG regarding its performance and fees. Your final comments are in principal agreed to however it should be noted that the OSJVA is the primary document of reference in conjunction with the other relevant documents. KCOTC Directors Meeting – 2 October 2000 73 A meeting of the KCOTC directors was held on 2 October 2000 in KPMG offices in Melbourne. Present at the meeting were Dalglish, Stamoulis, Mr Holland, Shannon, Mancuso and Black. The Minutes of the meeting of 2 October 2000 include the following: 1. Adoption of Minutes The minutes of the meeting held on 18 September 2000 were adopted by CS [Shannon], seconded by HS and signed by RD. Minutes of the JV Participants held on 25 September 2000 were also adopted. Moved by CS, seconded by HS. It was noted that Mark Holland (Chairman) was not in attendance at the meeting held 25 September 2000. MH invited discussion. RD advised that he had seen the Minutes, but did not attend the meeting. No discussion was recorded. 74 The Minutes also record Dalglish's report on his meetings with the Executive Committee of the South Tweed Heads Leagues Club's solicitors and auditors and include the following: RD advised, so that there is no conflict of interest, that he wished to table his hand-written letter of resignation as a Director of KHCotC addressed to the Chairman of KHCotC, and to offer his services to the Board on a consulting basis. 75 The "hand-written letter" referred to in the Minutes was a letter dated 3 October 2000 and included the following: Gentlemen, Thank you for forwarding to me the agenda for the special board meeting to be held at Arts Finance 349 Collins St Melbourne at 1pm Monday 25th September 2000. The agenda was received by me – faxed by Chris Shannon – at 5.10pm on 1 October 2000. Obviously I was not at the meeting! Will you please remove my name from those "present"? Was Adrian Black present as a guest? In order to pave the way for the issue of an offering memorandum and a registered prospectus by KHCotC Limited as Trustee, it is important that the Board of Directors be re-constituted, so that representatives of the land owning & development joint ventures constitute a minority. I hereby resign from the Board of Directors. I offer my services to the Board as a consultant, in accord with the attached relational diagrams entitled "Trust and Management Organisational Chart" and "Purchase and Control of Development". 76 The "relational diagrams" attached to Dalglish's letter included what is probably best described as conceptual plans for the development. There was mention of the "Tweed Coast Development Consortium" said to be an unincorporated joint venture, entering into a Design, Construct and Fund Contract with KCOTC. It also referred to mezzanine underwriting of $25 million at the close of a Prospectus. It was noted that the commencement of the construction would be on the close of the Prospectus but was assumed to be March 2001 with a "soft opening" in June 2003. Shannon/KCOTC responds to KPMG letter of 29 September 2000 77 On 5 October 2000 Shannon, as a director of KCOTC, wrote to KPMG in response to its letter to KCOTC dated 29 September 2000 in terms that included the following: 1. Ray Dalglish has a copy of the Agreement but has not confirmed whether or not it is to be signed by CotC. 2. The answer is Yes. 3. Baulderstone will be advised by the Joint Venture, following a commitment from CotC that it has signed the OSJVA or not. We will notify you immediately on receipt of CotC's decision. Notice of Meeting on 12 October 2000 78 On 5 October 2000 Stamoulis and Mancuso wrote to Dalglish in response to his letter of 3 October 2000 in terms that included the following: As you are aware your letter of September 20, 2000 proposed that a meeting be convened on September 25, 2000. Following that letter members of the Joint Venture spoke to you confirming that the meeting was to take place and you were advised of the time. Your wife Maja was also advised by Chris Shannon. At the time of the meeting you [where] not present and accordingly this was recorded. Adrian Black was aware of the meeting however was advised that he was not required to be present. At the meeting the board briefly spoke to you by telephone and asked for your comments regarding the Overriding Supplementary Joint Venture Agreement at which time you advised us that you would contact us in 20 minutes to give us your comments. You were from that moment uncontactable for the remainder of the afternoon. Since the meeting the board has received no comments from you in regards to the resolutions passed at the meeting of September 25, 2000. In view of your claim that you were not advised of the meeting of September 25, 2000 we hereby give you notice (under section 13.1 of the Joint Venture Agreement) that a meeting of participants will be held at the ARTS office on Thursday October 12, 2000. At this meeting we would suggest that the items for discussion raised in your letter dated 3 October 2000 be included on the Agenda for Discussion. Therefore at this meeting it is proposed to ratify the minutes of September 25, 2000 and give you an opportunity to discuss same and the other items raised by you. $10.7 million guarantees provided – 6 October 2000 79 On 6 October 2000 Ryssal One wrote to Lenen in the following terms: Ryssal One Pty Ltd (ACN 000 196 667) hereby acknowledges that the Bank Guarantees totalling Ten million Seven Hundred Thousand Dollars dated 6th October 2000 provided by National Australia Bank is being provided on behalf of the Joint Venture Partners being King Network Group Pty Ltd, Jandawn Pty Ltd, Club of the Clubs Pty Ltd and ARTS Investments Pty Ltd; in compliance with their obligations under the Put and Call Option Agreement dated 18th August 1999 and that Ryssal One Pty Ltd will not deny that Lenen Pty Ltd is in any way prevented in calling up the Bank Guarantee. KNG/Stamoulis letter to KPMG – 6 October 2000 80 On 6 October 2000 KNG/Stamoulis wrote to KPMG in the following terms: Prior to our meeting today I thought it would be appropriate to convey to you in brief my concerns of the current impasse. As you are aware the project has reached a watershed. To move forward, the Club of the Clubs concept requires the financial support of a builder and an hotelier and the participation of the targeted clubs. Without this the development will have to take a different course. In my view several matters are making it far more difficult than it could be to achieve the commitment of the builder, hotelier and participating clubs, and I am particularly concerned at the continuing delay in KPMG completing and issuing an information memorandum. I know you recognise the vital importance of this document and I am sure that you will acknowledge that KPMG's mandated role includes the commitment to complete it. For my part I recognise that there are several gaps in the feasibility such as the adverse financial impact of the gaming machine moratorium, the lack of a firm building price and no precommitment from an hotelier or the clubs to the hotel/apartment component. However, I think that it is reasonable for me to rely on KPMG and the team of project consultants to use their collective professional knowledge to deal with these issues. You will be aware that I have asked Victor Feros to provide advice to me by 22 October regarding the opportunity to take a different approach to the development of the land. My reasons for doing this are obvious. I need to know what my options are in the event the Club of the Clubs concept is unsuccessful and I have to pursue a different development strategy. I am determined to push forward with either the Club concept or pursue a different development strategy in the interests of the KNG Group, and my joint venture partners, but I am being frustrated by KPMG's delay in issuing the information memorandum. I therefore request you to advise me of a date by which I can expect to receive this report. I would appreciate your reply by 12 noon Tuesday 10 October 2000. Agendas for 12 October 2000 Meeting 81 On 8 October 2000 Shannon sent to the KCOTC directors the Agendas for the Meetings of the Shareholder/Participants of KCOTC and the Directors of KCOTC to be held on 12 October 2000. The Agenda for the "Shareholders/Participants" meeting included the following: 1. Overriding Supplementary Joint Venture Agreement In the absence of RW Dalglish from the meeting of the 25th September, a meeting of shareholders is positioned at the time stated to discuss any issues pertaining to this document and to invite support to any changes that may require a Board resolution to amendments (if any) or other. Black Report to the Board of KCTOC – 8 October 2000 82 Black produced a detailed report for the Board to consider at its meeting on 12 October 2000. That report emphasised the need for market testing and the "essential" requirement for funding to "establish the next preferred form of development through to the point of financial closure". Shareholders Meeting – 12 October 2000 83 The Minutes of the meeting of shareholders of KCOTC on 12 October 2000 at 1.20 pm included the following: 1. Adoption of Minutes A motion was put by HS to accept the minutes of the 25 September 2000 and to include the Over-Riding Supplemental Joint Venture Agreement (ORSJVA) as signed by three of the Directors. Motion was seconded by CS. The matter was opened for discussion. RD requested that the title of the meeting be such that it can be legally constituted. Discussion ensued as to which entity the motion is being put to. … At 1.55pm all voted in favour of convening a Joint Venture Steering Committee Meeting to consider the Minutes of a Joint Venturer's Meeting held on 25 September 2000. It was resolved that the Meeting held on 25 September 2000 was a Joint Venturer's (shareholders) Meeting. RD stated that each member of the JV has an equal vote and that the Chairman has the casting vote. MH and SM both stated that they thought that 75% majority was required. … At this point HS made it known that this was NOT a Joint Venture Steering Committee Meeting. The JV has called a Joint Venture/Shareholders Meeting and should continue with this meeting prior to the Directors Board Meeting. HS said to MH that there was no need to convene a Joint Venture Steering Committee Meeting and that the Joint Venture Steering Committee Meeting does not tell the Joint Venture/Shareholders what to do. … It was then decided that the Joint Venture Steering Committee Meeting would not proceed and that the meeting be reconvened as a Joint Venture/Shareholders Meeting. … CS asked whether the ORSJVA could be adopted. RD suggested that the document should be re-written. SM responded that if any of the shareholders wished to make amendments they can, however, he is in favour of the document in its current form. RD asked HS what his intentions were in relation to the ORSJVA. HS replied that he does not have any intentions at this stage, he is just looking to lock in the commitments from a hotelier and builder and has put a date on the commitment do so to try and emphasis the importance of the matter. … [ Item k ] [referring to clause (K) of the OSJVA] – no discussion [ Item k2 ] [referring to clause (K)(ii) of the OSJVA] – RD stated that it is totally unacceptable to him to expect him to sign away his intellectual property. … A vote was called to adopt the document – Over Riding Supplemental Joint Venture Agreement. … CS – HS has stated that if the JV gets to a Heads of Agreement situation with a hotelier by this time they will accept and likely change the date. HS – agreed with this, stating, if we come to 10 November 2000 and the situation remains as it is currently then he will do whatever he needs to. If anyone wants to stay in the project then they will need to put up the same money. The only rights RD has is the Club of the Clubs concept. RD – argued that the reason the land was purchased (sold by Lenen) and DA achieved was because of his concept. … RD – voiced his strong objection. He stated that ORSJVA was without validity or legality and is outside the scope of all other Agreements made. He further stated that (it was prepared) at an illegal meeting. He stated that the ORSJVA was an agreement between some of the joint venturer's splitting up their share. He further stated that he was violently opposed to the Minutes stating it any other way. MH – suggested that perhaps one way the ORSJVA could have any weight or acceptance was if it was redrafted to state that the parties to the Agreement were KNG, Arts and Jandawn. Not Club of the Clubs. The only issue at stake would then be Club of the Clubs interests. HS – replied that they would not be redrawing the Agreement. The Agreement has been tabled, resolved, approved and adopted. Vote on whether it is agreed. RD – stated that he would abstain from any vote as it is an illegal motion. … Vote was taken on the adoption of minutes including the ORSJVA. 3 in favour – CS, SM and HS. 1 abstainer – RD because it is an improper motion and not legal in his view. Directors' Meeting – 12 October 2000 84 The Minutes of the meeting of directors of KCOTC on 12 October 2000 at 4.09 pm record the following: 2. Notice of Motion (Stamoulis) Motion that the Over Riding Supplementary Joint Venture Agreement, with or without amendments, be adopted, with amendments (if any) put by CS. Seconded by HS. CS voted in favour. RD opposed. Chairman not required to cast vote as 2-1. Motion adopted. KCOTC Solvency issues 85 By the end of October 2000 KPMG had indicated its unwillingness to be further involved in the Project unless its fees were paid. Black provided an "Urgency Report" to the directors of KCOTC in which he analysed the Company's financial position. He advised that it was "necessary" not to incur any further liabilities because "the capacity to pay is uncertain at best". He also advised that it was appropriate for him to tender his resignation as CEO and that it would be matter for the joint venture participants as to how best to use his services in the future. Meeting 13 November 2000 – KNG nominated as purchaser 86 A meeting took place on 13 November 2000 at which were present Stamoulis, Shannon and Mancuso. The Minutes record that it was a meeting of the "Joint Venture Participants (Shareholders)" of KCOTC and Dalglish is recorded as an apology. Those Minutes include the following: 4 Motion Harry Stamoulis moved Shareholders to agree to nominate as per clause 6 of the put and Call Option Agreement, KNG as the purchaser of the land and that the shareholders authorise the Directors of KingsHeath Club of the Clubs Limited to approve and sign all documents necessary to achieve the above. Seconded Sam Mancuso – Motion carried Sam stated his disappointment at the lack of interaction between the shareholders in finding a solution to the difficulties the Joint Venture is facing and suggested that the worst is yet to come. … General Business 6 KNG notifies the shareholders of KingsHeath Club of the Clubs Limited that it intends to exercise its right under the Over Riding Supplemental Joint Venture Agreement. KNG has offered to hold discussions with each and every member (shareholder) of the Joint Venture Group as a sign of good faith in order to seek positive solutions to the development or sale of the land going forward. Sam Mancuso stated that he intended to withdraw from the project should the position of debt to the company not be resolved. KNG makes another election for Land Play 87 On 21 November 2000 KNG wrote to the Joint Venture Participants in the following terms: RE: JOINT VENTURE On behalf of KNG I hereby give notice pursuant to paragraph 5.3 of the Joint Venture Supplementary Agreement dated 10 February 2000 and paragraph 4K of the Overriding Supplementary Joint Venture Agreement dated 25 September 2000 KNG elects to complete the joint venture project as a real estate transaction only. KNG's right to complete the joint venture project as a real estate transaction only is invoked by virtue of the joint venture parties and the company failing to achieve the pre-committed sale of units as set out in clause 5.4 of the said Supplementary Agreement and Clause 4K of the Overriding Supplementary Joint Venture Agreement. 88 On 29 November 2000 Stamoulis wrote to the Joint Venturer participants in the following terms: You will recall that in May this year an agreement was entered into whereby each partner's entitlement was adjusted as a result of King Network Group Pty Ltd arranging for the appropriate bank guarantee to be provided. Please find enclosed herewith Transfer of Share form that is required to be executed by you in accordance with the agreement reached at the meeting held on 27 May 2000. It would be appreciated if you could sign the attached Transfer of Share form so that that the records can be brought up to date. Upon return of the Transfer of Share form I shall arrange for new Share Certificates to be issued reflecting the shareholding in Kingsheath Club of the Clubs Limited. 89 Although Jandawn and Arts completed the Share Transfers, COTC did not transfer its shares. Subsequent negotiations 90 On 5 December 2000 Mancuso met with Ian Barclay and apparently suggested that he was speaking on behalf of the Stamoulis family. He asked whether Lenen or the Barclay Group would be interested in a joint venture to develop the Land with Stamoulis and himself. Mancuso apparently suggested that Stamoulis would be interested in selling out for a profit that would also cover his expenditure of approximately $3.5 million "excluding R Dalglish's claim if in fact he has a claim". In a record of the meeting with Mancuso, Mr Barclay noted that the site had been valued at $48 million by Brian Cox at CB Richard Ellis. Mr Barclay also noted that if the Club of the Clubs concept was maintained "as a principle for development" Dalglish would "have to be tied down or tied up somehow". Mancuso advised Mr Barclay that the KCOTC Joint Venture terminated on 10 November 2000 by a further deed of agreement signed by all the Joint Venture partners with the exception of Dalglish. 91 On 6 December 2000, Stamoulis, as a director of KCOTC wrote to Mr Barclay referring to his meeting with Mancuso the previous day. He advised Mr Barclay that the various agreements that had been executed had given KNG control of the Joint Venture. That letter included the following: The Joint Venture Partners are conscious of due process occurring in accordance with the Put and Call Option Agreement however, as a result of recent resolutions passed by the Joint Venture Partners it has been resolved as follows: 1. That Kingsheath Club of the Clubs Limited immediately enter into a new Put and Call Option Agreement with Lenen Pty Ltd in terms identical with the original Agreement dated 19 August 1999 as if Kingsheath Club of the Clubs Limited was the party in place of the Joint Venture Partners; and 2. It has been resolved by both the Joint Venture Partners and the Directors of Kingsheath Club of the Clubs Limited that it wishes to invoke the provisions of Condition 6 of the Put and Call Option Agreement whereby the King Network Group Pty Ltd … is to be appointed the Nominee to exercise the Call Option. 92 Stamoulis then requested that the new agreement be entered into "forthwith" and that KNG be appointed as nominee simultaneously with the entry into the new agreement. There was evidence that at the meeting of participants on 13 November 2000 the matter in paragraph 2 was the subject of resolution in Dalglish's absence. There was no resolution at either the meeting of participants or the meeting of directors of KCOTC on 13 November 2000 in relation to the matter in paragraph 1 of that letter. Mr Barclay requested proof of the current status of the Joint Venture and on 13 December 2000 Stamoulis sent to Mr Barclay copies of various documents including the Joint Venture Agreement; the Supplemental Agreement; the May Agreement; the OSJVA; and various Minutes of Meetings of the Directors of KCOTC. 93 At about this time Shannon was dealing with the Ray Group seeking to interest it, with Macquarie Bank, in a new Joint Venture. On 15 December 2000 Shannon wrote to Brian Ray of the Ray Group in terms that included the following: An important feature of the Club of the Clubs (CotC) concept sits within its marketing and sales strategy which is unique to CotC and is demonstrated in the formal documentation, which details how the entire project can be funded on little more than the cost of the land and the cost of the super precinct subdivision and planning and marketing costs, much of which is Bank Guarantee funded. 94 Shannon suggested the following: A newly formed entity (including part or whole of the original owning group) express their interest in remaining with the Club of the Clubs concept and with all future Club of the Clubs projects. The CotC entity would wish to pursue the development of the Clubs Services Plan (in conjunction with Macquarie) to the formation of a 'smart (credit) card' facility, as a development plan proposal by CotC. 95 Shannon obviously spoke with Stamoulis about his interest in selling KNG's interest in the Land and on 11 January 2001 Stamoulis advised Shannon that KNG was prepared to consider selling its interest in the land for an amount not less than $16.5 million. Shannon advised Dalglish of this information on the same day with a breakdown of that figure as $2.25 million cash, $10.7 million land, $500,000 loan and $3.050 million costs. 96 On 21 January 2001 Shannon wrote to KPMG (Mark Holland) advising that Stamoulis had nominated a Land Play and had indicated that he would sell his interest for $16.5 million on terms to be negotiated. Shannon advised Mr Holland that Dalglish and he wished to take 15% each and put a proposal to him based on an Offering Memorandum synopsis for a 70% equity participation at $37 million. 97 In late January 2001 Stamoulis made contact with a representative of Lenen, Frank Wilson (Mr Wilson), and suggested that termination of the existing Put and Call Option and contract of sale arrangements on the Land would "best suit the interests of the parties". On 25 January 2001 Mr Wilson wrote to the Barclay Brothers in the following terms: Following our meeting in Sydney, I received a telephone call from Harry Stamoulis. He advised that following discussions with his solicitor Nick Zervos and his father, he considers that termination of the existing put and call option and contract of sale arrangements on the property would best suit the interests of the parties. Arrangements as per the attached outline are proposed. 98 On 16 February 2001 Stamoulis advised Shannon that Lenen had indicated that they believed the Joint Venture was in "disarray". He informed Shannon that he had assured Lenen that resolutions had been passed by the Joint Venture parties/shareholders to enable the purchase to proceed in accordance with the Put and Call Option Agreement. This communication with Shannon seems a little at odds with Stamoulis having advised Lenen that it should terminate the agreements in the "best interests" of the parties. 99 On 21 February 2001 Lenen signed a Put and Call Option between it and KCOTC for the purchase and sale of the Land at $20.2 million. Clause 5 of that Agreement provided that KCOTC could appoint a nominee to exercise the Call Option and that if a nominee was appointed KCOTC would guarantee the performance by the nominee purchaser. That agreement was conditional upon the valid termination or rescission by Lenen of the Put and Call Option dated 18 August 1999 and the Contract for sale dated 15 June 2000. Lenen agreed that it would "as quickly as possible" take the necessary steps to rescind or terminate those agreements. Also on 21 February 2001 KNG entered into a Guarantee and an Indemnity Deed with Lenen guaranteeing payment of the purchase price to Lenen. The Recitals to the Indemnity Deed (the Guarantee) included the following: A. By a Put and Call Option ("the First Put and Call Option") dated 18 August 1999 as varied by Deeds of Variation dated 15 June 2000 and 6 September 2000 certain options were granted by Lenen in favour of Clubs of the Clubs Pty Limited A C N 078 792 391, Jandawn Pty Limited A C N 010 854 887, Arts Investments Pty Limited A C N 078 937 729 and KNG (hereinafter together referred to as COTCJV) in respect of the Land described in Folio Identifiers 194, 301 and 312/755701 ("the Land"). B. By a Contract hereunder called the ("the First Contract") dated 15 June 2000 as varied by Deed of Variation dated 6 September 2000 Lenen agreed to sell to COTCJV Lots 1 and 2 on the Plan attached to the First Contract upon the terms and conditions therein contained. C. KNG has requested Lenen to enter into a new Put and Call Option (the Second Put and Call Option) with Kingsheath Club of the Clubs Limited ("Kingsheath") in respect of the Land upon the due exercise of which Lenen would enter into a Contract ("the Second Contract") for the sale of the Land to Kingsheath or its nominee upon the terms of the Contract annexed to the Second Put and Call Option. Notice of Rescission of Land Contract 100 Lenen issued to COTC, Jandawn, KNG and Arts a Notice of Rescission dated 28th February 2001 in the following terms: In the matter of a Contract ("the Contract") dated 15th day of June 2000 as varied by a Deed of Variation dated 6 September 2000 made between you as Purchaser and Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Queensland ("Lenen") as Vendor relating to Lots 1 and 2 on the Plan attached to the Contract and being part of Folio Identifiers hundred 194, 301 and 312/755701 ("the Land"). TAKE NOTICE that you are in default under the Contract in the following respect: You are in default under Clause 2.3 of the Contract for failing to obtain all necessary approvals from Tweed Shire Council ("the Council") and within 6 months of the date thereof comply with all the conditions of those approvals and the Development Application and in particular to provide all the services within the Land which are required by the Council in accordance with the requirements of the Council. TAKE NOTICE that unless the above default is remedied by the 18th day of April 2001 the Contract will be terminated by Lenen. 15 March 2001 Meeting 101 On 9 March 2001 Stamoulis wrote to Mancuso, Shannon and Dalglish advising that there was to be a meeting of the participants to the Put and Call Option Agreement to be held on 15 March 2001 at 11 am in the Arts Group offices in Melbourne. The Notice advised that the purpose of the meeting was to discuss the Rescission Notice issued by Lenen, the obligation to provide Lenen with a Bank Guarantee and other general business. The Minutes of the Meeting on 15 March 2001 record that Stamoulis, Dalglish, Shannon and Mancuso were present and record the following: RD & CS do not think that the Rescission Notice is valid and believe the Bank guarantee for 12m is not due until June 2002. CS advised that David Beattie has misquoted clause 2.3. SM offered to pay his share of the Bank Guaranteed being 1.2m and told the others to pay their share. His view was that Lenen would be happy if it received the 12m and that there would not be any problems. He asked if everybody else could meet their obligations pay. HS advised SM that there was no need to put up any money, as it was not SM or anyone else's problem. As far as HS was concerned he owns 100% of the land as per the Overriding Supplementary Joint Venture Agreement (OSJVA) and other resolutions. SM said he was happy not to come up with any money as long as there was no claim against him. RD believes Lenen will not cash the 10.7m Bank Guarantee. SM again stressed that if Lenen were paid there would not be a problem. He also advised that he felt insulted that accusations were made against him regarding Tribal and that no apology was forthcoming. CS advised that the Tribal account was above board. RD again emphasised that the 12m Bank Guarantee should be paid in June 2002. SM asked what happens in the meantime. RD said it's up to HS. SM asked what position did the JV have if any to which RD had no comment. RD suggested that a reply to Lenen was required and that HS should be the one to reply. SM advised that the Rescission notice was not his problem; it is KNG's problem and the OVSJV covers this. CS also stated that he felt it was HS problem however he would help because HS has called a Land Play. CS touched on people buying the land from HS but nothing has been received in writing. HS re-iterated that the other participants had their opportunity to remain in the land however they could not meet their obligations therefore the various resolutions and agreements were passed. HS against stressed that he had put up 13.5m whereas the others had put up nothing. HS stated that if the Ray, Sam or Chris wished to have an interest in the land then they were welcome to put up money towards the acquisition of the land and avoid Lenen rescinding the contract. He advised if they were not prepared to do so he would make every effort to purchase the land as per previous resolutions. RD felt that we should advise Lenen that the JV had novated its rights in the land to Kingsheath Limited and that the Rescission Notice should be directed to Kingsheath. He also felt that each person should get their own legal advice. RD advised HS that he would send him his advice once he has it. 102 It is apparent that Dalglish was pursuing other parties to interest them in becoming involved in a Joint Venture to develop the Land. A further strategy adopted by Shannon and Dalglish was to purport to convene a meeting of KCOTC and the Joint Venture. This met with a rebuff by Stamoulis who once again claimed that he had assumed 100% control of the "Joint Venture" and of KCOTC. In his letter of 28 March 2001 to COTC and Jandawn, Stamoulis said: In accordance with the resolutions carried last year it is KNG's intent to ensure that Kingsheath Club of the Clubs Ltd will assume obligations to Lenen Pty Ltd and Richtech equivalent to those of the Joint Venture. I expect that the Notice of rescission has been issued by Lenen Pty Ltd to facilitate this occurring and it is not likely to result in the Joint Venture parties being exposed to a large claim by Lenen because the land transaction will still be proceeding. 103 On 30 March 2001 Shannon, with Dalglish's endorsement, wrote to Mr Beattie advising that he was surprised to receive on 9 March 2001 the Notice of Rescission dated 28 February 2001. That letter continued: When consideration is given to the history of this transaction, the conduct of the parties and the knowledge of the vendor, I don't believe the vendor can rely on Clause 2.3 of the contract. The purchasers have complied in all respects with the contract, to the extent that it can be complied with, and will continue to do so. The representations and conduct of the vendor have resulted in delays in compliance with the contract terms. The purchasers have, with the vendor's approval, authority and assistance, been attempting to resolve the location of the western boundary of the land purchased. The documents signed demonstrate that the vendor may not have realised the significance of this issue at the time they were signed. The vendor and the purchasers have over the past months been acting with the knowledge that, until this issue is resolved, Clause 2.3 and the remaining terms of the contract cannot be satisfied. Time is not of the essence. Please withdraw the Rescission Notice immediately to avoid the same causing any unnecessary conflict and friction between the parties. The parties need to work together to align the contract terms with the intent and conduct of the parties and the reality of the reasons for the delays in the approval process. Notice of Rescission of Put and Call Option 104 Lenen issued a Notice of Rescission dated 3 April 2001 to COTC, Jandawn, KNG and Arts in the following terms: In the matter of a Put and Call Option ("the Put and Call Option") dated the 18th day of August 1999 between Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Queensland ("Lenen") said Club of the Clubs Pty Ltd, Jandawn Pty Ltd, Arts Investments Pty Ltd and AWD Spring Water Pty Limited as varied by Deeds of Variation dated the 15th day of June 2000 and the 6th September 2000 between Lenen and you relating to the land described in Certificates of Title Folio Identifiers 194, 301 and 312/755701 ("the Land"). TAKE NOTICE you are in default under the Put and Call Option in the following respect: You have failed to lodge with Lenen on or before the 1st April 2001 an unconditional Bank Guarantee in favour of Lenen in the amount of $12,000,000.00 as required by the Deed of Variation dated the 6th September 2000. TAKE NOTICE that unless the default is remedied by the 19th April 2001 Put and Call Option will be terminated by Lenen. 105 On 8 April 2001 Dalglish wrote to Mr Beattie (with a copy to Stamoulis, Shannon and Mancuso) and signed by him as a director of COTC and its "nominee KCOTC" in the following terms: We are in receipt of a document purporting to be a "Notice of Rescission" issued on your behalf by your solicitor and agent David Beattie, dated 28th day of February 2001. And a further document also purporting to be a "Notice of Rescission", dated 3rd April 2001. The Agreements between the KingsHeath Club of the Clubs Joint Venture and Lenen … are crystal clear. That is: An unconditional Bank Guarantee of payment of $8,200,000 (read eight million two hundred thousand Australian dollars) was lodged with Lenen on 29 September 2000 for the settlement of the land in accord with those Agreements. This settlement was to take place on the first business day after 31 March 2001. In the terms of our Agreements, you are entitled to call up from, and receive from the issuing Bank of the Unconditional Guarantee, clear payment of the sum owing. You are hereby instructed so to do. On or before 31 May 2002, you will be paid a further $12,000,000 (read twelve million Australian dollars). Upon that payment, transfer of title of the land shall take place. That is Title for Lot 1 and 2, and 3 and 4 and 5 and 6 as described on the VGF Plan attached to the Agreements. These lots being all of the lands in Folio Identifiers 194, 301 and 312/755701. 106 On 9 April 2001 Mr Beattie wrote two letters, one to Dalglish and another to Shannon. The letter to Dalglish was in the following terms: I acknowledge receipt of your fax of 8 April. Because of the Purchasers' default under Clause 2.3 of the Contract, no separate lots have been created and accordingly, the Contract could not have been completed on the first business day after 31 March 2001. 107 The letter to Shannon was in the following terms: I am instructed to advise you that my client regards the Purchasers as clearly in default in their obligations under Clause 2.3 of the Contract and that no conduct on the part of my client has caused or contributed to this default. I am further instructed to point out that it was never a condition of the Contract that the location of the Western boundary be changed. My client had asked to be kept informed on this matter at all times but has never been involved in the negotiations with the authorities. Accordingly the Purchasers can not use this issue as a reason why they have not complied with their obligations under Clause 2.3 of the Contract. Time has been made of the essence of the Contract and my client is not prepared to withdraw the Notice of Rescission. Notices of Termination 108 Lenen issued two Notices of Termination to COTC, Jandawn, KNG and Arts both dated 23 April 2001. The first was in relation to Land Contract in the following terms: In the matter of a Contract ("the Contract") dated 15th day of June 2000 as varied by a Deed of Variation dated 6 September 2000 made between you as Purchaser and Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Queensland ("Lenen") as Vendor relating to Lots 1 and 2 on the Plan attached to the Contract and being part of Folio Identifiers 194, 301 and 312/755701 ("the Land"). TAKE NOTICE that as you have not remedied the default under Clause 2.3 of the Contract by 18 April 2001 the Contract is hereby terminated by Lenen. 109 The other Notice of Termination was in relation to the Put and Call Option in the following terms: In the matter of a Put and Call Option ("the Put and Call Option") dated the 18th day of August 1999 between Lenen Pty Limited ACN 001 045 816 of 6/1990 Logan Road, Mt Gravatt, Brisbane ("Lenen") the said Club of the Clubs Pty Ltd, Jandawn Pty Ltd, Arts Investments Pty Ltd and AWD Spring Water Pty Limited as varied by Deeds of Variation dated the 15th day of June 2000 and the 6th September 2000 between Lenen and you relating to the land described in Certificates of Title Folio Identifiers 194, 301 and 312/755701 ("the Land"). TAKE NOTICE that as you have not lodged with Lenen the Bank Guarantee in the amount of $12,000,000.00 by the 19 April 2001 the Put and Call Option is hereby terminated. Dalglish seeks to acquire land 110 On 17 May 2001 the solicitors instructed by Dalglish, Klooger Phillips Scott (KPS), wrote to Stamoulis, Mancuso and Shannon in terms that included the following: Ray Dalglish has instructed us as to his current finance negotiations in Singapore. You would also be aware of these. He has indicated that he will require from yourselves written confirmation of the amount that you are willing to sell your 100% interest in KingsHeath Club of the Clubs joint venture and the land at Kingscliff, to a party to be nominated by Ray Dalglish. 111 A further letter from KPS to Stamoulis' solicitors, GPZ Lawyers (GPZ), dated 22 May 2001 included the following: Our client's financiers in Singapore are awaiting confirmation of the exact amount that is required for our client to assume 100% ownership of the land at Kings Heath and it is imperative that we receive correspondence from you as requested, without delay. 112 GPZ wrote to KPS on 22 May 2001 in terms that included the following: In relation to the proposed offer to purchase the land we are instructed on a without prejudice basis to advise that King Network Group Pty Ltd is agreeable to selling the land at Kingscliff, New South Wales for the sum of $37.5 million. If this offer is accepted our client will agree to indemnify your client against any claims, which may be brought by Arts Investments Pty Ltd and Jandawn Pty Ltd and furthermore will agree to deal with the liabilities owing by Kingsheath Club of the Clubs Ltd. 113 On 23 May 2001 KPS wrote to GPZ asking for the details of the liabilities that KNG was willing to pay. Communications between the solicitors broke down and on 8 June 2001 KNG lodged a caveat over the Land. Macquarie Joint Venture 114 On 9 July 2001 KNG, entered into a Memorandum of Understanding (MOU) with Macquarie Bank and the Ray Group in which it was agreed that the three parties would undertake certain due diligence investigations. The MOU recorded the fact that on 21 June 2001 the Ray Group had presented a proposal for the joint development of the Land and other land known as Koala Beach, of which the Ray Group was joint venture partner and equitable owner with a company, Cinereus Beach Pty Limited. The MOU also recorded that KNG had proposed that each of the parties should contribute $11 million to the proposed joint venture as initial capital and that the Land be acquired for $25 million on entering into the proposed joint venture or 30 June 2002. The MOU also recorded that the parties had not agreed to these proposals. However it was agreed that KNG would not during the due diligence investigation period grant to any other party a legal or equitable interest in the Land or undertake any negotiations with any other party to grant such an interest in the Land. 115 On 23 January 2002 a Joint Venture Deed was executed by South Kingscliff Developments (SKD) the new joint venture vehicle, Hopper No 1 Pty Limited, Kingscliff South Pty Limited, a company associated with Brian Ray, King Development Group (KDG), KNG, Macquarie Bank, Brian Ray and various Ray Group companies, S Stamoulis and Ryssal-One Pty Limited. The Recitals to that Joint Venture Deed recorded that KNG was the owner of the Land and that it had funded the acquisition of the Land and paid all holding costs using funds lent to it by interests related to it. The Recitals also recorded that Hopper, Kingscliff South and KDG intended to constitute themselves as joint venturers to facilitate the development of the Project on the Land. KNG was not to be a party in the joint venture but was a party to the Deed for the purpose of the promise to enter into the put and call option in relation to the Land. "Project" was defined as "the proposed development known as 'Kingscliff South' (or such other name as the Joint Venturers may from time to time agree) comprising a resort apartment hotel and a mixture of medium density and residential lots as shown in the Master Plan in the form of the New Scheme or the Old Scheme as the case may be". The New and Old Scheme provided respectively for 1105 dwellings or 799 dwellings. 116 On the same day KNG granted to those Joint Venturers a Call Option to purchase the Land. That Option was granted pursuant to a Call Option Deed, clause 2.3 of which provided that upon the exercise of the Call Option KNG and the Joint Venture nominee would be immediately bound as vendor and purchaser respectively on the terms of the Contract that was annexed to the Deed. The Contract annexed to the Deed was between KNG and SKD at a price of $25 million. 117 There were various other agreements and deeds signed on the same day with provision for the Ray Group to become the manager of the new development and for Macquarie to become the financier of the development. KNG also executed a Power of Attorney in favour of SKD operative from the date of the Joint Venture Deed to the Termination Date, which was defined to mean the date that KNG's obligations to SKD and the Joint Venture under the Macquarie Joint Venture Deed ceased. 118 The Macquarie Joint Venture proceeded to develop the Land and on 11 November 2003 a Deed was executed whereby KDG and Macquarie Bank agreed to transfer their interests in the Joint Venture to the Ray Group. The consideration for the sale of the interests was $20 million. Assignment of Causes of Action to IMF 119 On 16 August 2001 KCOTC was placed into liquidation and Mr Keith Sutherland was appointed liquidator. 120 On 17 September 2004, Mr Sutherland as liquidator of KCOTC, entered into a Purchase Agreement with Insolvency Litigation Fund Pty Limited (ILF) and IMF (Australia) Limited. Recitals to that Purchase Agreement were as follows: A. By the Invitation to Tender the Liquidator invited tenders to purchase the Causes of Action. B. IMF, through its wholly owned subsidiary ILF, submitted a tender to the Liquidator for the purchase of the Causes of Action. C. In exercise of his powers under Section 477(2)(c) of the Corporations Act 2001, the Liquidator wishes to sell the Causes of Action to IMF and IMF wishes to purchase the Causes of Action on the terms and conditions set out in this Agreement. 121 The "Causes of Action" were defined as: all causes of action of the Company described in the Invitation to Tender, which for the avoidance of doubt includes any claim for loss or damage with respect to the costs and expenses of and associated with the liquidation of the Company, resulting from any breach of any promise or undertaking to indemnify the Company for any liabilities incurred in the conduct of the Joint Venture (as defined in Schedule 1 to Annexure A) by any one or more of (1) King Network Group Pty Ltd; (2) Art Investments Pty Ltd; (3) Jandawn Pty Ltd; and (4) Club of the Clubs Pty Ltd 122 Clause 2 of the Purchase Agreement was in the following terms: 2. ASSIGNMENT 2.1 The Company hereby assigns all of the Causes of Action to IMF absolutely ("the Assignment"). 2.2 As consideration for the Assignment, IMF agrees to pay the liquidator $180,000.00, plus any GST payable thereon, ("the Consideration") on execution of this Purchase Agreement. 2.3 As further consideration for the Assignment, IMF and ILF, both jointly and severally, undertake not to claim from the Company or the Liquidator reimbursement or payment, as an expense of the liquidation of the Company or otherwise, of any payments made by IMF or ILF pursuant to any indemnity given for any liability, remuneration or expense of the Liquidator or the Company from any monies paid to or for the benefit of the Liquidator or the Company prior to the date of this Agreement or monies paid under any indemnity given by IMF or ILF. Caveats 123 Stamoulis was cross-examined in relation to the Withdrawal of Caveat on the Land that had been lodged by COTC, Jandawn, AWD and Arts. That Withdrawal was signed by Stamoulis with the words "authorised agent on behalf of all four parties". It was suggested to Stamoulis that he did not seek the express consent of COTC to execute the Withdrawal on its behalf. Stamoulis claimed that he did seek the express consent by speaking to Dalglish. The following evidence was given in respect of that claim (tr 289): Q. Is it your evidence that prior to executing this document, you had a discussion with Mr Dalglish in which you indicated to him your intention to remove a caveat, is that the case? A. Yes. Q. And what do you say was Mr Dalglish's response to that indication? A. At the end of the discussion, he said it was fine. Q. Do you refer to that conversation in any of your affidavits, Mr Stamoulis? A. I think I do. Q. Can you recall where in your affidavits you make reference to that? A. It would have been a discussion we had in late March. … Q. I see it is at paragraph 188 of your first affidavit. A. Yes. Q. I suggest to you, Mr Stamoulis, that that never occurred, the conversation you refer to in paragraph 188. It never occurred, did it, Mr Stamoulis? A. It did occur. Q. I suggest to you that paragraph 188 is just a fabrication, Mr Stamoulis? A. Not at all. 124 Stamoulis claimed in paragraph 188 of his statement that he had telephoned Dalglish in March 2001 and the following conversation took place: Stamoulis: Ray, I intend to remove the caveats on the land which are in all our names. Dalglish: The caveats are stopping Lenen from selling the land elsewhere. Stamoulis: As I am intending on settling the land myself it is necessary to remove them. Dalglish: That is fine. 125 The claim that this was fabricated evidence has to be looked at in the light of Dalglish's evidence that he did not give his consent to this withdrawal. It is appropriate at this stage to review some of the cross-examination of Dalglish, in addition to that to which I have referred later, to demonstrate the difficulty I have had in accepting the evidence of Dalglish. The analysis of the evidence of Stamoulis later in this judgment demonstrates how difficult I found it to accept the evidence of Stamoulis. 126 One example of the deficiencies of Dalglish's evidence was as follows. He agreed that he was keen to persuade Stamoulis to provide the $4 million guarantee that was required to continue performing the contract with Lenen (tr 104). He also agreed that at the meeting at which the May agreement was reached he had stated that working capital was always going to be a problem and that it was not Stamoulis' job to fund the costs (tr 105). He also agreed that he had said that S Stamoulis' comfort would be raised considerably if the BHE situation was finalised and gave the following evidence (tr 105): Q. Up to this time you did not regard the Stamoulis' as having reneged on any obligations? A. No, I did not. Q. And you did not regard Mr Stamoulis as holding the project to ransom, did you? A. No. 127 It was at this stage that Mr Jackman took Dalglish to paragraph 152 of his witness statement which recorded the following: 152. At the conclusion of the meeting on 23 May 2000 Chris Shannon said to me words to the effect: Chris Shannon: "I have to return to Coolum tonight. Will you represent me as well as yourself at the meetings with Harry?" Ray Dalglish: "I am very unhappy about this. I do not trust the Stamoulis'. They have reneged on their obligations and now they are effectively holding the Project to ransom in order to get an increased share in the Project. Chris Shannon: "I agree." Ray Dalglish: "I would like to hold the 10% interest of KPMG in trust. If I manage to negotiate a solution to this impasse, I want to make sure that the Stamoulis' do this time what they have agreed to do before there is any transfer of interest." Chris Shannon: "That's a good idea. I will transfer the 5% interest I hold in trust to you as well." 128 Dalglish then gave the following evidence (tr 105-107): Q. Do you honestly say to her Honour that you actually said "at the conclusion of the meeting on 23 May 2000 that the Stamoulis' had reneged on their obligations and now they are effectively holding the project to ransom"? A. I don't have any recollection of that to be perfectly honest. Q. If you had said that it would not have been a truthful statement, would it, Mr Dalglish? A. I don't - no, I don't agree with that statement. Q. A moment ago you said that you did not have the view at this time, that is 22 and 23 May 2000, that the Stamoulis' had reneged on their obligations, do you recall saying that? Do you recall saying that about five or ten minutes ago, Mr Dalglish? A. But on the 23rd May the obligations hadn't been set. … Q. Do you recall agreeing five or ten minutes ago that you did not have the view on 22 and 23 May 2000 that the Stamoulis' had reneged on their obligations? A. No, I am just wondering how on earth it got into that-- … … HER HONOUR: Q. We will start again. Now what Mr Jackman is asking you about is your evidence a little while ago. Can you just stop reading that for a minute? What you said to me a little while ago was that as of 23 May you did not regard the Stamoulis' as having reneged on the deal, alright, do you remember saying that? A. Yes. Q. And you also told me that you did not regard the Stamoulis' as holding the project to ransom, do you remember you telling me that? A. Yes. … [MR JACKMAN] Q. And you adhere to that evidence, don't you? A. I agree with that statement. Q. And looking at paragraph 152 in your witness statement the words on the page, paragraph 152 is utterly false, correct? A. No, that was correct. That was how Shannon - my worry was with KPMG and Shannon held five percent. So I certainly - when he said he had to return to Coolum, I said "I would like you to give to me your five percent that you were holding for KPMG until we settle that." Q. I want you to focus on the moment at the words you claim you spoke on 23 May 2000 to the effect the Stamoulis' have reneged on their obligations and now they are effectively holding the project to ransom in order to get an increased share in the project. The proposition that you said those words is utterly false, correct? A. Yes. Q. And you will say anything at all in these proceedings if you think it is to your advantage and to the disadvantage of the Stamoulis', correct? A. No. Q. And you have no regard for the truth of what you say in these proceedings, correct? A. No, I have every regard for the truth. Q. What explanation if any can you give her Honour as to how those words ended up in paragraph 152? A. I just don't know. Q. They were a lie, weren't they? A. They were not a lie. Well, they were attributed to me, I said this. I don't know how that got in there. That is the only part of it that is incorrect. 129 Another example was when Mr Jackman tested Dalglish in respect of evidence given in his statement dated 12 June 2006 in which he claimed that in early September 2000 Stamoulis and he met with Ian Barclay of Lenen in Brisbane and Stamoulis said "We are running a bit late. Give me until 29 September and I guarantee to provide you with a $10.7 million guarantee". In cross-examination it was suggested to Dalglish that Stamoulis did not say "we are running a bit late". Dalglish admitted that "the phraseology is wrong" (tr 115). 130 Another example is as follows. Dalglish was asked whether he received a copy of a letter attaching an agenda for a meeting on 13 November 2000. He denied receiving a copy of the letter on 7 November 2000 (tr 138). His evidence included the following (tr 138-139): Q. When do you say you received a copy of that letter? A. I'm uncertain, but I think it was somewhere round about, if I saw it, and I'm uncertain whether I did, because as far as I know I don't have any record of it, and I notice that the fax on top of it was on the seventh of the eleventh. Q. And the 7th November is the day you received a copy of this letter, isn't it? A. No. … Q. Are you absolutely adamant that you did not receive a copy of this letter on the 7th November? A. It was on the 7th November that Mr Stamoulis picked me up at the airport, we held the meeting in Melbourne, he took me back to the airport, and at some later stage I put it together that they must have taken that trip, "they" being whoever issued this. My trip to Melbourne produced this letter. I never received it at that time. Q. You are absolutely adamant about that, are you? A. Yes. 131 Dalglish swore an affidavit in other Equity proceedings on 27 June 2001 in which he stated that he had received an agenda on 7 November 2000 for a meeting that was to occur on 13 November 2000. His evidence in cross-examination in relation to that affidavit included the following (tr 141-142): Q. Did you receive that document on the 7th November 2000? A. I don't believe so, your Honour, but now I'm perplexed. Q. You definitely received an agenda on the 7th November for a joint venture participants meeting to be held on the 13th November, didn't you? A. I'm trying - I can't explain it. I only know that I was in Melbourne that day and I was with the Stamoulises for most of that day and they didn't mention it to me. That's all I know. … HER HONOUR: Q. I'm sorry, Mr Dalglish, I'm having a little trouble following this. Let me clarify something. You have said in an affidavit that Mr Jackman took you to, the affidavit that he showed you in that folder-- A. Yes, your Honour. Q. That you received the agenda on the 7th November. Do you remember saying that in the affidavit? A. Yes. Q. And Mr Jackman is suggesting that that is the agenda, that is, that is the agenda, not the minutes, the agenda for the planned meeting on the 13th November that was sent to you on the 7th. Now do you agree that that is the document that you received on the 7th November for the meeting on the 13th as mentioned in your affidavit at the back of the folder? A. I have to, your Honour. … [MR JACKMAN] Q. And the position that you wanted to take in this litigation to the effect that you were not notified of the meeting to take place on 13 November 2000 is something that you have just made up. Correct? A. No, that is incorrect. It is totally wrong. Q. You certainly accept, don't you, that it is contrary to the affidavit that you swore on the 27th June 2001? A. I have to say yes, but it's against my better judgment. 132 COTC lodged a number of caveats after this time and there were negotiations between the respective solicitors for COTC and KNG in relation to COTC removing those caveats. At this time it knew that KNG was the registered proprietor. Although it is difficult, on this aspect of the matter, on balance, I prefer the evidence of Stamoulis. Although I have found later that COTC's conduct did not amount to a consent to KNG pursuing the OSJVA Land Play, the same conduct can be taken into account for the purposes of assessing whether this conversation occurred between Stamoulis and Dalglish. I am satisfied that this conversation probably occurred. 133 On 23 July 2001 COTC lodged a caveat over the Land. The "Nature of Interest" referred to in that Caveat was the "Put and Call Option Agreement" dated 18 August 1999 and the "Deed of Variation" dated 6 September 2000. In the section in relation to "Parties", COTC was referred to as "one of four purchasers" with each of Jandawn, KNG and Arts. 134 On 24 September 2001 COTC lodged a second caveat over the Land that lapsed on 31 October 2001. The "Nature of the estate or interest in the land" claimed by COTC was in the following terms: Beneficial interest as co-tenant in respect of an undivided 15% share in the land by virtue of a constructive trust arising under the instruments referred to and various oral and written amendments thereto. Pursuant to the instruments (as amended) the registered proprietor owed a fiduciary duty to the caveator (and other joint venture parties) to obtain and hold title to the land for the benefit of the caveator (and other joint venture parties) for interests in proportion as specified in the instruments. Proceedings commenced 135 The plaintiffs commenced these proceedings on 17 September 2004. They were heard on 13, 14, 15, 19, 20, 21 and 22 June 2006 when Mr BAJ Coles QC leading Mr HWD Stowe, of counsel, appeared for the plaintiffs and Mr IM Jackman SC leading Mr IG Waller, of counsel, appeared for the defendants. On 22 June 2006 the parties were granted leave to file supplementary written submissions, the last of which were filed on 31 July 2006. Although Mr Coles indicated on the last day of the hearing that the plaintiffs wished to tie up the final "loose end" of making the election between a claim for damages or an account of profits, the search of the final written submissions revealed at paragraphs 380 and 394 that no such election has been made. 136 At the core of this litigation is the issue of the validity of the OSJVA. If it is not a valid and binding contract then there is no real issue that the only provisions governing the "real estate transaction only" are in the Supplemental Agreement (read with the Joint Venture Agreement) and any relevant provisions of the May Agreement and the Put and Call Option and the variations thereto. There have been a number of expressions used in the various Agreements and resolutions that are appropriate to clarify for the purpose of the following analysis. 137 Clause 2 of the Joint Venture Agreement is headed "Formation and Structure of the Syndicate". The word "Syndicate" is not defined however the expression "Joint Venture" is defined in a somewhat circular fashion as "the joint venture" established under the Joint Venture Agreement and known as "KingsHeath Club of the Clubs Syndicated Joint Venture". The term "syndicate" is used in the Statement of Principles by which the participants agreed that their relationship with each other and the Project were to be governed. 138 The "participants" defined as COTC, AWD (replaced later by KNG) and Arts agreed, "to form the Joint Venture for the purpose of carrying out the Project" (cl 2.1). "Project" was defined in the Joint Venture Agreement as the development of the Site (defined as the Land) and the subsequent sale of the properties or interests in the properties after completion of the development of the Land in the manner described in the Executive Summary. The participants agreed to hold their interests in the "Joint Venture" as tenants in common (cl 2.2). 139 The participants were later to be referred to together as "COTCJV" in the Put and Call Option of 18 August 1999. The "Project" was defined in this Agreement as "the development of the Properties [effectively the Land] into an integrated tourist facility incorporating a four star hotel, 18 hole golf course, residential developments, retail areas and other associated uses". In the Supplemental Agreement COTC, Jandawn, KNG and Arts were no longer defined as the participants but as the "Joint Venturers" and the term "Project" was the subject of yet another definition, this time as "the development of KingsHeath Village Development as defined in the Development Approval". The OSJVA provided that the term "KHCotCJV" was to be "interpreted as all of" KNG, COTC, Jandawn and Arts but also referred to the "Joint Venture parties", a term not defined in the OSJVA. 140 In the following analysis I will use the term "participants" to mean COTC, Jandawn, Arts and KNG and I will use the terms "Project" and "Joint Venture" as those terms are defined in the Joint Venture Agreement. The Land Play 141 By January 2000 the participants had found it necessary to agree on adjusting the shareholding in the Joint Venture and KCOTC to facilitate the funding of the Project. From the time of the obligation to provide the $4 million guarantee to Lenen (25 August 1999) to September 2000, funding had not been secured. It is apparent that the only participant with the capacity to provide the funding was KNG, with the assistance of S Stamoulis. The Supplemental Agreement recorded the adjustment of the shareholding in consideration of KNG paying $2 million to Lenen on 10 December 1999 and $250,000 into KCOTC's bank account on 17 December 1999. 142 KNG had certain rights pursuant to the Supplemental Agreement if the Joint Venture and KCOTC failed to achieve committed pre-sales of trust units in the Project equivalent to 40% of the total construction cost by 1 August 2000. Once that pre-requisite had been satisfied KNG was entitled to elect to: (i) complete the Project with KCOTC; or (ii) complete the Project but dispose of its equity in the Joint Venture and KCOTC; or (iii) complete the "Purchase Contract as a Real Estate Transaction only" and meet any losses or share any gains on a pari passu basis with the participants after payment of all approved Project costs (the Land Play). If KNG elected to pursue the Land Play, KPMG was to cap its costs at $625,000 subject to it being granted a first registered fixed and floating charge over the net assets of the Joint Venture and KCOTC. 143 By 1 August 2000 the Joint Venture and KCOTC had failed to achieve the committed pre-sales of trust units in the Project equivalent to 40% of the total construction cost. On 18 September 2000 KNG elected to complete the Land Play. At that time the "Purchase Contract" that had been entered into with Lenen was for Lots 1 and 2, being Call Option A under the Put and Call Option. When KNG notified the participants of its election on 18 September 2000, it stated that it had elected to "proceed to complete the Project as a real estate transaction only" (emphasis added). That election of course contemplated completing not only the Purchase Contract that had already been entered into for Lots 1 and 2 but also moving into the next phase in respect of Option B under the Put and Call Option to complete the purchase of the balance of the Land. When KNG purported to proceed under the OSJVA and to elect to complete the Land Play on 21 November 2000 (the OSJVA Land Play) it notified the other participants that it was electing to "complete the joint venture project as a real estate transaction only" (emphasis added). 144 One of the problems with any analysis of the participants' rights in this case is the looseness of the language in the various agreements and the numerous changes of position mainly brought about by a lack of funding. A further problem is the lack of any provision(s) setting out what the parties expressly intended should happen in respect of the "real estate transaction only". At the time the Supplemental Agreement was entered into the Project included the Club of the Clubs concept that had been developed by Dalglish and COTC as described in the Executive Summary. The participants had proceeded on the basis of the inclusion of that concept from August 1999 until the time that KNG made its election under the Supplemental Agreement on 18 September 2000. The right to complete the OSJVA Land Play excluded any right to sell the Land with the Club of the Clubs concept attaching to it. 145 Although clause 5 of the Supplemental Agreement referred to the completion of the "Purchase Contract" rather than the "Project" as a "real estate transaction only", I am of the view that the parties intended that if KNG were to elect to proceed with the "real estate transaction only", it was to include the whole of the Land and not just that portion of the Land that was the subject of the Contract entered into on 15 June 2000 in respect of Lots 1 and 2, Option A under the Put and Call Option. The other elections available to KNG under clause 5 of the Supplemental Agreement envisaged the whole of the Project being completed and I am of the view that the participants would not have intended that only part of the Land would be the subject of the election under clause 5(b)(iii). Consent 146 Before turning to the issue of the validity of the OSJVA I should first deal with the claim made by the defendants that COTC/Dalglish consented to the OSJVA and is thus estopped from making the claims in these proceedings. There are three aspects to COTC/Dalglish's conduct relied upon in this regard. The first is an alleged failure to complain about the OSJVA for some weeks; the second is the alleged implicit acceptance that KNG was entitled to a 100% interest in the Land and the Joint Venture; and the third is Dalglish's conduct at the meeting on 15 March 2001 and the inferences to be drawn from his evidence in relation to the Minutes of that meeting. Failure to complain 147 In final submissions Mr Jackman submitted that for a period of at least two weeks the OSJVA did not give Dalglish any concern. It was submitted that he only "started voicing concerns" after he had learnt that the $10.7 million guarantee had been provided by Ryssal One on 6 October 2000. Mr Jackman submitted that between at least 23 or 25 September 2000 and 12 October 2000 Dalglish did not voice any concerns. 148 Dalglish accepted in his cross-examination that he attended a meeting of directors of KCOTC on 2 October 2000 and that he expressed no objection at all to the OSJVA (tr 130). He also accepted that in his letter of 3 October 2000 to Stamoulis, Shannon and Mancuso he expressed no objection to the OSJVA (tr 130). His evidence was that he did not have any objection to it as an agreement between Stamoulis, Shannon and Mancuso because they could meet every day of the week and make whatever agreements they wanted (tr 131). He agreed that he resigned as a director of KCOTC to avoid a conflict of interest in respect of his work for the South Tweed Heads Leagues Club (tr 132) and when it was suggested to him that he did not resign as a director because of any concerns about the OSJVA, he said "I was still making up my mind on that" (tr 132). 149 Dalglish accepted that the first time he complained about the illegality of the OSJVA was at the meeting on 12 October 2000. He gave evidence that the OSJVA could not be binding on him and that he had contributed nearly $3 million to the Joint Venture and no-one could alter that (tr 135). He also said that his belief was that his share of the Land could not be sold without his consent (tr 135). He said that he abstained from voting on the motion to adopt the OSJVA on 12 October because "it was invalid" (tr 136). 150 The evidence of Stamoulis was that even prior to the meeting of 25 September 2000 Dalglish did express some concern. Stamoulis' witness statement of 26 October 2005 refers to a telephone conversation with Dalglish on 23 September 2000. In that statement Stamoulis gave evidence that Dalglish said, "I am not happy with this agreement. I am not happy because the deadline for the builder and hotelier is too soon". It appears to me therefore that Dalglish was voicing concerns even prior to the meeting of 25 September 2000 and his concerns and his lack of happiness with the agreement did not change. Indeed by 12 October 2000 Dalglish expressed his view in even stronger terms claiming that the agreement was without validity or legality and was outside the scope of all other agreements between the parties. I am not satisfied that Dalglish's failure to complain in strong terms about the OSJVA until 12 October 2000 amounted to a consent by COTC to the OSJVA or to a consent that KNG could proceed under clause 4(K) of the OSJVA. Implicit acceptance 151 The next matter relates to an alleged implicit acceptance that KNG owned 100% of the Land. This is said to arise out of the letters Dalglish's/COTC's solicitors, KPS, wrote to Stamoulis/KNG and their solicitors when Dalglish was seeking to acquire the Land in mid 2001. 152 Mr Jackman suggested to Dalglish in cross-examination that in May 2001 he held the view that KNG had a 100% interest in the Land and a 100% interest in the Joint Venture. Dalglish claimed that "under no circumstances" did he hold that view (tr 144). On 17 May 2001 KPS wrote to Stamoulis, Mancuso and Shannon in terms that included the following: Ray Dalglish has instructed us as to his current finance negotiations in Singapore. You would also be aware of these. He has indicated that he will require from yourselves written confirmation of the amount that you are willing to sell your 100% interest in KingsHeath Club of the Clubs joint venture and the land at Kingscliff, to a party to be nominated by Ray Dalglish. 153 In cross-examination Dalglish accepted that KPS' letter used the term "your 100% interest" but said that what was meant was 100% of "your interest" (tr 145). He gave the following evidence in cross-examination (tr 145-147): Q. You wanted to buy the land at Kingscliff and all the interests in the joint venture for a party nominated by yourself, correct? A. Yes, or they could have an interest in it which was also offered. … Q. What you were negotiating, as you understood it, was the acquisition from King Network Group of one hundred percent of the interest in the land at Kingscliff, correct? A. No, that is wrong. Q. Then can you explain to her Honour why the last paragraph on page 369 is expressed in the way it is? A. Because I was in Singapore and I wished one hundred percent ownership of the land and I only had 15 per cent of it and Stamoulis, the Messrs Stamoulis had told me that I could go and seek finance and that's what I was doing. … Q. And you regarded King Network Group as owning the entire interest in the land at Kingscliff and you were trying to buy that from King Network Group, weren't you? A. No. Q. You made no offer to pay money to the other joint venturers as part of these negotiations, did you? A. No. Q. And you didn't regard the other joint venturers, that is Jandawn and Arts Investment, as having any interest in the land at Kingscliff, did you? A. I didn't know what it was because of their negotiations with Stamoulis. Q. You regarded it --. A. I didn't know whether they had an interest or they did not, I did not know. Q. You regarded them as being bound by the overriding supplementary joint venture agreement, didn't you? A. I had no idea whether they were or they weren't, that was a shareholders agreement between them. Q. Is there any other explanation you can give for not making an offer to them in respect of any interest they might have had? A. Just that, that I believed the three of them had made an agreement between themselves and I didn't know what it was. 154 It is true that the solicitors' letter was addressed to KNG/Stamoulis but it is also the fact that it was copied to the other participants. Dalglish, as well as others, had been attempting to interest third parties to become involved in the Joint Venture in whatever form it might ultimately take. The attempts to raise finance and the solicitors' communications with KNG/Stamoulis reflected the reality that KNG was purporting to assert a 100% interest in the Land and the Joint Venture, however I am not persuaded that the use of the expression "your 100% interest" by Dalglish's solicitors amounted to an implicit acceptance that KNG was entitled to the 100% ownership of the Land and the Joint Venture. Dalglish had made his position very clear in October 2000 that he (and COTC) regarded the OSJVA as invalid, indeed as illegal. 15 March 2001 Meeting 155 The Minutes of the meeting on 15 March 2001 are set out in full earlier in this judgment but the parts relied upon that are relevant to this submission are repeated here for ease of reference: HS advised SM that there was no need to put up any money, as it was not SM or anyone else's problem. As far as HS was concerned he owns 100% of the land as per the Overriding Supplementary Joint Venture Agreement (OSJVA) and other resolutions. SM said he was happy not to come up with any money as long as there was no claim against him. RD believes Lenen will not cash the 10.7m Bank Guarantee …. RD gain emphasised that the 12m Bank Guarantee should be paid in June 2002. SM asked what position did the JV have if any to which RD have no comment. RD suggested that a reply to Lenen was required and that HS should be the one to reply. SM advised that the Rescission notice was not his problem; it is KNG's problem and the OVSJV covers this. CS also stated that he felt it was HS problem however he would help because HS has called a Land Play. CS touched on people buying the land from HS but nothing has been received in writing. HS re-iterated that the other participants had their opportunity to remain in the land however they could not meet their obligations therefore the various resolutions and agreements were passed. HS against stressed that he had put up 13.5m whereas the others had put up nothing. HS stated that if the Ray, Sam or Chris wished to have an interest in the land then they were welcome to put up money towards the acquisition of the land and avoid Lenen rescinding the contract. He advised if they were not prepared to do so he would make every effort to purchase the land as per previous resolutions. RD felt that we should advise Lenen that the JV had novated its rights in the land to Kingsheath Limited and that the Rescission Notice should be directed to Kingsheath. He also felt that each person should get their own legal advice. RD advised HS that he would send him his advice once he has it. 156 Dalglish claimed in cross-examination that these Minutes were "spurious" (tr 143) and gave the following evidence (tr 148): Q. The truth of the matter is that you simply don't have a recollection of this meeting, isn't that right? A. No, that is not correct. It did not take place. Q. So you deny, do you, that the truth of the matter is that you do not have a recollection of this meeting? A. The truth of the matter is that I do not. Q. You do not have a recollection of the meeting, you accept that? A. That's correct. Q. You simply don't recall one way or the other whether this meeting took place and you attended it, correct? A. I didn't attend it, of that I am quite positive. 157 In paragraph 21 of his statement of 4 April 2006 Dalglish stated that he had "no recollection of attending that meeting in person or by telephone". In cross-examination he gave the following further evidence (tr 149-150): Q. Just read to yourself paragraph 21 if you would. At the time that you made this statement, Mr Dalglish, your memory did not allow you to go so far as to deny that you were present at the meeting on 15 March, correct? A. I deny that I was at a meeting that discussed these subjects on that day. Q. Well, that seems to be your present position in the witness box now but I am asking you about the time when you prepared this witness statement which is dated 4 April 2006 and my question to you is this; at the time that you prepared this witness statement your memory did not permit you to actually deny that you were present at that meeting on 15 March 2001, do you agree with that? A. I don't agree with that at all. I was not at that meeting. [HER HONOUR] Q No, Mr Dalglish. What you are being asked about is paragraph 21 in your statement there and Mr Jackman suggested in that statement you don't say I deny attending the meeting. You actually say in that statement in paragraph 21 "I believe I was in Melbourne and I don't have a recollection". That is the difference, you see. One is no recollection, today you are saying deny. Mr Jackman puts to you that at the time you wrote that statement you weren't in a position to deny it. What do you say to that, do you agree with that? A. Yes, your Honour. [MR JACKMAN] Q. You certainly don't go so far as to say in paragraph 21 that the minutes of the meeting were spurious or fabricated, do you? A. I don't say that. Q. And you would not have been able to say it is truthful in making this statement in April 2006, do you agree? A. No, I can't agree with that. Q. What explanation, if any, can you give her Honour as to why you did not go so far in paragraph 21 to say that in your view the minutes were spurious or fabricated? A. Right. On those two days I was in Melbourne, on another matter and I wouldn't be surprised if I spoke to Sam Mancuso over the phone. But I have no recollection of attending his office at all and the subjects of the meeting I would not have discussed. Q. Can you tell us what the other matter was that you claim to have been in Melbourne for? A. I beg your pardon? Q. Can you tell the Court what matter it was that you claim you were in Melbourne to deal with? A. It had nothing to do with this case. Q. What was it Mr Dalglish? A. It was regarding a property. Q. What was it? A. It was a house that my wife and I had elected to purchase in Melbourne. Q. What was the address of that house? A. I can't remember the address. Q. You had no other business in Melbourne on 15 and 16 March 2001 but your attendance at this meeting to discuss the Kingscliff joint venture, correct? A. No, that is not correct. Q. You are embarrassed by the minutes of the meeting at page 305 because they attribute to you certain things that you now appreciate are inconsistent with the case that you want to bring, correct? A. No, that is not correct. 158 The Minutes of the meeting are not in quite the same form that the Minutes of meetings of the participants had taken up to that date. These Minutes were entitled, "Meeting of Participants to the Put and Call Option Agreement" and were signed by Stamoulis as "a true and correct record". One telling factor against Dalglish's claim that the Minutes were "spurious" is the fact that although Stamoulis was subjected to a lengthy cross-examination it was not suggested to him that he had falsified or even embellished the Minutes of this meeting. 159 I have no doubt that Dalglish's claim in his cross-examination that the Minutes were "spurious" was intended to suggest that the Minutes were concocted. This was the first time such a claim was made notwithstanding Dalglish having addressed the Minutes in his written statement just two months before he was cross-examined. I was most unimpressed by this evidence. If Dalglish was able to deny in his evidence that the meeting took place, I would have expected such a claim to have been made when he referred to the Minutes at the time he made his written statement. I prefer Dalglish's evidence that he did not have a recollection of attending the Meeting. His claim that the Minutes are "spurious" is not accepted. However that does not mean that I am of the view that Dalglish's conduct as recorded at the Meeting amounted to consent for KNG to complete the OSJVA Land Play. 160 Much had happened between the first election on 18 September 2000 to complete the Land Play and the meeting on 15 March 2001. Attempts had been made to obtain additional funding and Stamoulis/KNG had indicated that it would be willing to sell its interests in the Land and the Joint Venture for $16.5 million. The Rescission Notice in relation to the Contract for Lots 1 and 2 had issued and the participants were attempting to deal with this new development. Stamoulis well knew at this meeting that he had persuaded Lenen to sign (and Lenen had signed) a new Put and Call Option over part of the Land that was the subject of the Put and Call Option between the participants and Lenen. That was not disclosed to the participants at this meeting. Dalglish's evidence in his written statement that he was not informed of these agreements (par 250: Statement 26/08/05) was not challenged. Little did he know that Stamoulis/KNG had been instrumental in the steps that Lenen was taking in issuing the Rescission Notice. That finding is made for the purpose of describing what was happening at this meeting and for no other purpose because I am conscious that the plaintiffs have abandoned the claims that KNG/Stamoulis and S Stamoulis procured the Rescission Notices and Termination Notices as referred to later in this judgment 161 The recording in the Minutes of Dalglish's suggestion that Lenen should be advised that the Joint Venture had novated its rights to KCOTC is rich in irony having regard to what Stamoulis had secretly, at least so far as COTC was concerned, achieved. Of course at this stage Dalglish did not know that the KCOTC Put and Call Option had been entered into at that time and the suggestion made by him does not amount to COTC's consent to KNG to complete the OSJVA Land Play. However it was an exquisite opportunity for Stamoulis to advise the participants that the Put and Call Option between KCTOC and Lenen and the Guarantee between KNG and Lenen had already been signed. No such disclosure was made. 162 I am not satisfied that COTC/Dalglish consented to or authorised KNG/Stamoulis to proceed with the Land Play pursuant to the OSJVA. Validity of the OSJVA 163 The OSJVA must be considered and construed in the context of relevant provisions of the Joint Venture Agreement, the Supplemental Agreement, the May Agreement, the Put and Call Option and the Deeds of Variation to the Put and Call Option. In this regard the following provisions of the Joint Venture Agreement are of relevance: 4 Conduct of Joint Venture ... (b) The Participants agree that the management and overseeing of the Project will be conducted by the Joint Venture, and that the decisions of the Steering Committee in relation to the Joint Venture will, subject to clause 13, bind each of them. The Participants acknowledge that certain property and other interests may, from time to time, be held by the Company, and they agree that they will procure that the Board will implement and follow all decisions made by the Steering Committee in respect of the Project. … 13 Meetings of Participants 13.1 Convening Meetings The Participants will meet monthly to discuss and review the Project and to receive a report from the Steering Committee. Any two Participants may, by notice to the other Participants, convene a meeting of Participants on occasions other than the monthly meetings. Any such notice must state the nature of business, and any resolutions, to be discussed at such meetings. 13.2 Powers of Participant Meetings The Participants agree that the management and control of the Project and the Joint Venture will vest with the Steering Committee, save for the following matters, in respect of which a determination by a meeting of all participants under this clause will be final and binding: (a) any proposals regarding the raising of additional equity or capital for the purposes of the Project or the Joint Venture; … (d) any decision, resolution or action relating to the undertakings or guarantees given pursuant to paragraph 3.1(b), including any calls, any reduction of the amount of the undertaking or guarantee or the release of parties from those undertakings or guarantees as the case may be; … (g) any amendment to this Agreement; (h) the admission of a new Participant to the Joint Venture; (i) the sale or disposal of the Joint Venture's entire interest in the Project, prior to the completion of that Project; (j) the termination of the project of this agreement. 13.3 Resolutions at Participants' Meetings All matters and resolutions put before a meeting of Participants will be deemed to have been approved or passed by the Participants if Participants representing more than fifty per cent (50%) of the total interests in the Joint Venture present and voting at that meeting, vote in favour of it. Notwithstanding the previous sentence, a resolution in relation to the matters listed in clause 13.2 will be deemed to have been passed only if Participants representing more than seventy-five per cent (75%) of the total interests in the Joint Venture (whether or not present) vote in favour of it. 164 Irrespective of what may or may not be the position in relation to the meeting of 25 September 2000, the plaintiffs do not dispute that following the meeting on 12 October 2000 the OSJVA was approved by more than a 75% majority (75+% majority) at a properly convened meeting of all participants. However, the plaintiffs submitted that clause 13.2 of the Joint Venture Agreement should not be construed as authorising a 75+% majority to authorise the OSJVA Land Play or to authorise it unfettered by fiduciary duty. 165 The defendants claim that the resolutions passed at the 25 September 2000 meeting (the September resolution) and the 12 October 2000 meeting (the October resolution) were resolutions of the kind described in clause 13.3 of the Joint Venture Agreement that were deemed to be passed by 75+% majority approval. It was not suggested, indeed it was disavowed, that the September and October resolutions could be passed by 50+% majority (tr 389). The September and October resolutions 166 Clause 13.2 provided for a meeting of "all" participants. Mr Coles submitted that the September resolution was approved at a meeting that was not a meeting of "all" participants because Dalglish/COTC was not present. Although Mr Coles took the point, it did not seem to me to be a major plank in the plaintiffs' case, probably because it is conceded that the 12 October 2000 meeting was a meeting of "all" participants. The inclusion of the words "(whether or not present)" in clause 13.3 of the Joint Venture Agreement reveals that the parties intended that the 75+% majority could approve or pass the resolution, whether or not the participants voting in favour of it were "present" at the meeting. This accommodated participation by telephone and perhaps by proxy. There is no conflict or tension between the expression "(whether or not present)" in clause 13.2 and the provisions of clause 13.3. A meeting convened for the purposes of approving resolutions in relation to matters in clause 13.2 must be a meeting of "all" participants, however those participants may be involved in the meeting in a manner other than by being present at the meeting. 167 The events surrounding the 25 September 2000 meeting are controversial in that Dalglish claimed that he was "not properly informed about the meeting" (par 210: Statement 26/08/05). He claimed in cross-examination that he did not receive the "required" three days notice of the meeting (tr 120). The evidence in relation to the necessity for three days notice for the meeting was not explored in cross-examination. Clause 13.1 of the Joint Venture Agreement enabled two participants to convene a meeting of participants by a notice stating the nature of the business and any resolutions to be discussed at such meeting. The clause was silent as to the period of notice. The Joint Venture Agreement provided that "at least two Business Days" notice was required for a meeting of the Steering Committee (cl 7(c)) but such a requirement was not stipulated in relation to meetings of participants (cl 13). It may be that in giving his evidence about the necessity for three days notice of the 25 September 2000 meeting Dalglish had in mind the provisions in relation to the Steering Committee, however it appears to me that he was mistaken in relation to that necessity. On the other hand, he may have had in mind that his request for a meeting on 20 September 2000 gave the other participants three business days notice that he wished to have a meeting. In any event, as I have said, I am of the view that Dalglish was under a misapprehension. 168 In his letter of 20 September 2000 to the directors of KCOTC, Dalglish requested that a meeting be convened on 25 September 2000 to consider the matters referred to in that letter. In his letter of 22 September 2000 to Stamoulis (with copies to Shannon, Mancuso, and Messrs Holland and Black) Dalglish inquired whether the Steering Committee or a Board Meeting had been convened for 25 September 2000. Dalglish claimed in cross-examination that he received no response to his inquiry and therefore travelled to Queensland to attend another meeting (tr 120). 169 In re-examination Dalglish said, "If I had known it [the meeting] was on, I wouldn't have been there because I had asked for the proper three days' notice to be informed a week before and I wasn't informed" (tr 164). There are a number of problems with that evidence. Firstly, Dalglish did know, at least on the morning of 25 September 2000, that the meeting was to take place that afternoon for the purpose of considering the OSJVA (tr 120-121). Secondly, there was no express requirement for three days' notice of the meeting. Thirdly, Dalglish did not specifically ask for the "proper three days' notice" of the meeting. His letter of 20 September 2000 simply asked that a meeting be convened on 25 September 2000 and his letter of 22 September 2000 inquired as to whether the meeting had been convened. I do not accept the suggestion in this evidence in re-examination that Dalglish did not know the meeting was on. 170 There are further unsatisfactory aspects to Dalglish's evidence in relation to the events of 25 September 2000. He agreed in cross-examination that: (a) he received the telephone call that was made to him from the meeting on 25 September 2000; (b) he advised the caller that he would not be attending the meeting; (c) he advised the caller that he would call back in twenty minutes; and (d) he decided not to phone back (tr 127). Dalglish gave evidence in cross-examination that he received the phone call at 2.45pm on 25 September 2000 (tr 127). He claimed in re-examination that at the time he received the phone call he was on his way to a meeting of the committee of the South Tweed Rugby League Football Club (the Football Club) that he thought was due to start at 3.30 or 4pm and he "had to get out there at that time" (tr 162-163). 171 That evidence is inconsistent with Dalglish's affidavit evidence in which he claimed that the meeting at the Football Club was on the following day, 26 September 2000 (par 211: Statement 26/08/05). The Minutes of the meeting of the Board of the Football Club are in evidence and record that the meeting commenced at 4.10pm on 26 September 2000. There was no suggestion in the evidence that Dalglish attended two meetings at the Football Club during that week and I am satisfied that the meeting to which he was referring in his re-examination occurred on 26 September 2000 and not, as he claimed, on 25 September 2000. This inconsistency exemplifies one of the problems of conducting litigation at a time so far removed from the relevant events. To try to remember things with precision six years after the relevant events is by any measure tremendously difficult and to do so in the intense circumstances after cross-examination that spanned three days seems to me to compound that difficulty. However, Dalglish was invited in re-examination to give the explanation of what he was doing at the time he received the call and was not assisted by reference to the Minutes of the meeting of the Football Club at the time he gave that evidence. Although it may appear to be a relatively minor matter, it demonstrates the need for caution in accepting Dalglish's evidence. 172 Dalglish gave further evidence in re-examination that he elected not to return the call as he said he would because "the meeting had not been properly called" and it was "not a joint venturers meeting" (tr 164). This evidence has to be considered with his evidence in cross-examination that he had "every opportunity to participate in the meeting" but that it did not concern him because it was not a meeting on his terms (tr 127). The letters of 20 and 22 September 2000 set out a number of matters that Dalglish wanted the Board of KCOTC to resolve. They included the suggested appointment of the builder and the hotelier, the adoption of a strategy to "take title" to the Land "now, rather than March 2001" and the resolution of the concerns in relation to KCOTC's solvency. It was these matters that Dalglish wished to debate at a meeting on his terms, whereas the other participants wished to debate the OSJVA at the 25 September 2000 meeting. 173 I am satisfied that Dalglish was aware on the morning of 25 September 2000 that the meeting of participants was being held that afternoon to consider the OSJVA. I do not accept that the reason he did not return the telephone call was because he was going to a meeting at the Football Club. I am satisfied that the reason he did not make the call as he promised he would was that he wanted to discuss the matters that he had listed in his letters of 20 and 22 September 2000 and did not wish to discuss the OSJVA. However there is nothing in the evidence to contradict Dalglish's evidence that no one responded to his request to be informed as to whether a meeting was to be convened on 25 September 2000. Even though Dalglish became aware of the meeting on the day it occurred, he was not given proper notice of the kind referred to in clause 13.1, i.e., a notice stating the nature of business and any resolutions to be discussed at the meeting. I am of the view that the meeting on 25 September 2000 was not properly convened pursuant to clause 13.1 of the Joint Venture Agreement. In those circumstances the September resolution was not a valid resolution and certainly not a resolution binding on COTC. 174 The October meeting was a properly convened meeting of the participants and the plaintiffs accept that the 75+% majority approved the resolution. Notwithstanding my finding in relation to the September resolution I will consider both the September and October resolutions (the Resolutions) together in relation to the powers given to the participants pursuant to clause 13 of the Joint Venture Agreement. It was submitted that the Resolutions were "in relation to a matter listed in clause 13.2" of the Joint Venture Agreement and thus capable of being approved by the 75+% majority. There were, of course, a number of matters listed in clause 13.2, however the defendants relied on the "matters" in subparagraphs (a), (d), (g), (h), (i) and (j). "in relation to a matter listed in clause 13.2" 175 The Joint Venture Agreement is a commercial agreement and should be given a businesslike interpretation: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579 per Gleeson CJ at 589, par [22]. In clause 13.3, the expression "in relation to a matter listed in clause 13.2" which qualifies the resolution for the 75+% majority approval is to be construed in its context having regard to the commercial purpose of the agreement and to the commercial purpose of that part of the agreement. The commercial purpose of the agreement was to facilitate the Project, the subject of the Joint Venture. The commercial purpose of the regime set up under clauses 4(b), 6 and 13 of the Joint Venture Agreement was, in part, to avoid delay in the implementation of the steps to be taken in the Project which otherwise may have been caused if more formal meetings were required. In this regard, the participants agreed that for the "management and overseeing of the Project" (cl 4(b)) and the "management and control of the Project and the Joint Venture" (cl 13.2) the Steering Committee could make decisions that would bind each of the participants but that certain of those latter decisions had to be made "at a meeting of all participants", as opposed to the Steering Committee, and had to be approved by the 75+% majority. 176 The participants were required to meet monthly "to discuss and review the Project and to receive a report from the Steering Committee". At these monthly meetings of the participants or at any other meeting of the participants convened pursuant to clause 13.1, all matters and resolutions, other than those listed in clause 13.2 (which required the 75+% majority), could be approved or passed by a 50+% majority. By this regime the participants identified what may reasonably be described as the more important matters that they kept for their own decision by 75+% majority. 177 The "matters" in clause 13.2 covered various aspects of the Project and the Joint Venture including in particular the matters relied upon by the defendants, being the raising of capital or equity and/or funding (13.2(a) & (c)), decisions relating to the undertakings and guarantees given pursuant to the Joint Venture Agreement (13.2(d)), the amendment to the Joint Venture Agreement (13.2(g)), the admission of a new participant to the Joint Venture (13.2(h)), the sale or disposal of the Joint Venture's entire interest in the Project prior to completion of the Project (13.2(i)) and the termination of the Project or the Joint Venture Agreement (13.2(j)). The participants agreed that resolutions "in relation to" these matters could be passed or approved by the 75+% majority. 178 The defendants claim that the Resolutions were "in relation to" one or more of these matters. To decide whether a resolution is "in relation to" any one of these matters it is necessary to decide the true purpose or character of the Resolutions. The expression "in relation to" is a broad expression that, in this Joint Venture Agreement, takes its colour from the context in which it is found. The true connection to or relationship with the "matter" is to be assessed having regard to the true nature of the resolution in question. 179 Take, for example, a joint venture of participants that own in equal shares a large parcel of land worth $40 million to be developed into apartments, who resolve that as a result of a failure of a particular participant to provide funding for the project in the amount of $2,000 for local council fees, it would have to transfer all its rights in the Land and all its interests in the project to another participant without compensation. Such a resolution does have within it a reference to a participant providing money (or funding) for the Project however, in my view, it would not be appropriate to characterise the resolution as one "in relation to" funding. The real character or purpose of such a resolution is to change the basis of the structure of the joint venture because of an alleged default of one of the participants. Thus, although it may refer to funding it is not "in relation to" funding or in connection with funding, having regard to its true purpose. 180 I am satisfied that where, as here, there are very significant matters to be decided by a 75+% majority it is important to identify the true purpose of the resolution in question by looking at it as a whole rather than dissecting it to see whether some parts of it refer to funding or raising equity or the like. Once the true purpose or character of the resolution in question is identified it is then appropriate, having regard to that purpose or character, to decide whether the resolution is "in relation to" any of the matters in clause 13.2 that have been relied upon. 181 It is necessary then, as a first step, to identify the true purpose or character of the Resolutions. The Minutes recorded the September resolution as: "The motion 2.1 was carried and the overriding Supplementary Joint Venture Agreement was signed by the parties present". Motion 2.1 was that the OSJVA be "accepted and signed by all parties" and that a copy be forwarded to Dalglish. Although rather infelicitously worded, the October resolution "adopted" the OSJVA. 182 The "Introduction" to the OSJVA refers to the election made by KNG to "complete the real estate transaction only" pursuant to clause 5 of the Supplemental Agreement (cl 1). It also refers to the May Agreement and the letter of 18 September 2000 in which KNG notified the other participants of its election (cl 2 and 3). The Introduction then refers to KNG's reservation of its "rights" to proceed with the "land transaction" with the apparent option that if it "elects to proceed with the Joint Venture Agreement" it would do so taking into account certain matters (cl 4). The OSJVA also recorded that KNG would underwrite the Joint Venture's obligation to provide the $10.7 million guarantee that was required pursuant to the Put and Call Option as varied on 6 September 2000 (cl 4(D)). 183 The OSJVA provided for the builder, BHE, to make a payment of $6.25 million to the Joint Venture by 10 November 2000 and for the hotelier to enter into an unconditional commitment to contribute $2.5 million to the Joint Venture by the same date (cl 4(G) & (H)). These were not new aspects to the Project or the Joint Venture but rather the imposition of time frames within which the payments or commitments to payment had to be made. A most significant matter in the OSJVA was KNG's purported irrevocable right, if BHE and the hotelier did not make or commit to the payments by the imposed date, to deal "at its sole discretion" with the Land in accordance with the Put and Call Option and the variations thereto, and its purported right to direct COTC, Jandawn and Arts to transfer "all of their respective rights, interest and equity" in the Joint Venture at the direction of KNG (cl 4(K)). There was also the imposition of obligations to meet the payments to agreed creditors (cl 4(M)). 184 For the purpose of identifying the true purpose or character of the Resolutions, the terms of the OSJVA and the Resolutions have to be analysed in the context of the surrounding circumstances at the time of the Resolutions. KNG had already elected to complete the Land Play pursuant to the Supplemental Agreement and thus it had effectively committed itself to fund that process. I am of the view that properly characterised, the true purpose of the Resolutions was to have all parties accept (or agree to) and sign an agreement whereby: (1) if the imposed time frames were not complied with, KNG would be given the right to deal with the Land at its sole discretion but in accordance with the Put and Call Option and the variations thereto, and to require the other participants to transfer their interests at its direction; and (2) there would be a change in the nature of the benefit to be delivered to KNG in the Land Play from one in which it was required to share any profits on a pari passu basis with the other participants to one in which it did not have to share any profits. Having identified the true purpose of the Resolutions I will now consider whether they were "in relation to" any of the matters listed in clause 13.2 as relied upon by the defendants. Raising additional equity or capital 185 The first "matter" relied upon was: (a) any proposals regarding the raising of additional equity or capital for the purposes of the Project or the Joint Venture. 186 It was submitted that the Resolutions were in relation to a "proposal regarding the raising of additional equity or capital". In my view the presence of the provisions in the OSJVA in relation to the timeframes for the payments by the builder and hotelier and other provisions dealing with KNG's agreement to underwrite the $10.7 million guarantee due to Lenen do not justify characterising the Resolutions as resolutions in relation to the raising of additional capital or equity as that expression is to be understood in clause 13.2(a) of the Joint Venture Agreement. The expression the "raising of additional capital or equity" in the Joint Venture Agreement has the meaning well understood by commercial parties, and these participants in particular, of going to the market and/or banks and/or financial institutions with various forms of security to raise that capital or equity additional to that already in place. The purpose of these Resolutions was not to raise additional equity or capital for the purposes of the project or the Joint Venture. Their true purpose was as I have described above. 187 I am satisfied that the Resolutions were not resolutions in relation to the "matter" in clause 13.2(a) of the Joint Venture Agreement. Any decision etc relating to the $4 million guarantee 188 The next "matter" relied upon was: (d) any decision, resolution or action relating to the undertakings or guarantees given pursuant to paragraph 3.1(b), including any calls, any reduction of the amount of the undertaking or guarantee or the release of parties from those undertakings or guarantees as the case may be. Clause 3.1(b) of the Joint Venture Agreement is set out again for ease of reference: (b) Arts Investments agrees that, on or before 13 August 1999 (or such later date as is agreed by the Participants), it will procure a financial guarantee, upon terms acceptable to the other Participants, in favour of, and exercisable by, the Company, for a minimum amount of four million dollars ($4,000,000) and up to such maximum amount as the Participants consider appropriate. 189 Clause 3.1(b) set out Arts' obligation at the time the Joint Venture Agreement was entered into on 4 August 1999. Arts did not comply with this obligation. Even if the defendants were otherwise able to avoid the characterisation of the Resolutions that I have identified above, the fact that the OSJVA included a provision referring to Lenen releasing a $4 million guarantee to the Joint Venture on the happening of certain events has nothing to do with the matter in clause 13.2(d) of the Joint Venture Agreement. The guarantee that was provided to Lenen by KNG was not provided "pursuant to clause 3.1(b)" of the Joint Venture Agreement. 190 I am satisfied that the Resolutions were not resolutions in relation to the "matter" in clause 13.2(d) of the Joint Venture Agreement. Amendment to agreement 191 The next "matter" relied upon was: (g) any amendment to this Agreement. The Joint Venture Agreement made no provision for a Land Play. There is no suggestion that the parties contemplated or intended that the provisions of clauses 13.2 and 13.3 were to apply to amendments to agreements other than the Joint Venture Agreement. This much is clear from the words "amendment to this Agreement". Clause 6 of the Supplemental Agreement contains an acknowledgment and confirmation by the parties of "the continuance of the Joint Venture Agreement and all rights accruing to and obligations binding, the Joint Venturers under the Joint Venture Agreement". There was no "right" that had accrued to the participants under the Joint Venture Agreement to amend the Supplemental Agreement by a 75+% majority. It was a right to amend the Joint Venture Agreement by such a majority. Clause 6 of the Supplemental Agreement provided that the continuance of the Joint Venture Agreement and the Joint Venturers' rights and obligations under it were "subject to the provisions of" the Supplemental Agreement. It did not provide for the "amendment" to the Joint Venture Agreement. The Joint Venture Agreement continued and was "subject to", and had to be read with, the Supplemental Agreement. 192 The Introduction to the OSJVA refers to the Joint Venture Agreement. It provides that if KNG "elects to proceed with the Joint Venture Agreement" it would do so taking certain matters into account. The OSJVA did not purport to amend the Joint Venture Agreement. It expressly recognised its existence and, it appears to me, kept it as an alternative option for KNG to pursue if it did not proceed with the OSJVA Land Play. If valid, the "overriding" nature of the OSJVA was limited to overriding the Land Play in the Supplemental Agreement. I am satisfied KNG wanted to proceed with the Land Play on better terms than those under the Supplemental Agreement in which the other participants were still entitled to share any profits on a pari passu basis. It was intended that the OSJVA would allow KNG to obtain the other participants' interests in the Joint Venture and free it from sharing any profits on a pari passu basis. Even if clause 6 of the Supplemental Agreement was overridden by the OSJVA it did not "amend" the Joint Venture Agreement. 193 I am satisfied that the Resolutions were not in relation to the "matter" listed in clause 13.2(g) of the Joint Venture Agreement. Admission of a new participant 194 The next "matter" relied upon was: (h) the admission of a new Participant to the Joint Venture. The OSJVA provided that BHE was to have 15% equity "upon the successful achievement of both Clause (G) and Clause (H)", (cl 4(I)). BHE would only obtain that equity if it paid $6.25 million and the hotelier gave the unconditional commitment to contribute a payment of $2.5 million by 10 November 2000. The defendants submitted that clause 4(I) effected the "admission of a new Participant to the Joint Venture" as described in clause 13.2(h) of the Joint Venture Agreement. 195 For the purposes of this analysis I will assume that the clause providing equity to BHE in the circumstances outlined in the OSJVA is a clause dealing with the admission of a new participant to the Joint Venture. This is akin to the example I utilised earlier in identifying the true purpose of the Resolutions. In my view the presence of a provision in the OSJVA for a contingent grant of equity to BHE does not mean that the Resolutions were "in relation to the matter listed" in clause 13.2(h) of the Joint Venture Agreement. As I have said, it is the resolution as a whole, rather than some part of the agreement it purports to adopt, that is the focus for deciding whether it is a "resolution in relation to" a matter in clause 13.2 of the Joint Venture Agreement. 196 The Resolutions were not in relation to the admission of a new Participant to the Joint Venture. They were not in relation to the "matter" in clause 13.2(h) of the Joint Venture Agreement. Sale prior to completion 197 The next "matter" relied upon was: (i) the sale or disposal of the Joint Venture's entire interest in the Project, prior to the completion of that Project. The OSJVA was not an agreement whereby the "Joint Venture's entire interest in the Project" was being sold or disposed of. The Joint Venture had an interest in the Land and in its development. The OSJVA specifically provided for options for KNG to proceed with the Land Play or to elect to proceed with the Joint Venture Agreement. At best, if valid, the OSJVA might be described in part as three of the four participants agreeing to transfer their interests to another participant in certain circumstances. 198 I am of the view that the Resolutions were not in relation to the "matter" in clause 13.2(i) of the Joint Venture Agreement. Termination 199 The final "matter" relied upon was: (j) the termination of the Project or this Agreement. The OSJVA was certainly not a termination of the Joint Venture Agreement. As I have already said, the OSJVA specifically acknowledged its existence and provided the option to KNG to proceed with it. However the OSJVA did include a warranty and indemnification by KNG of the other participants if KNG proceeded with the OSJVA Land Play and directed the other participants to transfer their respective rights, interest and equity at its direction. That warranty was that KNG would not continue with "the original CotC concept as delineated in the Joint Venture Agreement" and the indemnity was that KNG would meet all the payment schedules to Lenen and Richtech under the Put and Call Option and the variations thereto. 200 These Resolutions provided a series of options to KNG and their real purpose was as I have described above. They were not in relation to the termination of the Project or the Joint Venture Agreement. They provided for an agreement to be signed which kept the option for KNG to proceed with the Project under the Joint Venture Agreement. 201 I am satisfied that the Resolutions were not in relation to the "matter" in clause 13.2(j) of the Joint Venture Agreement. Conclusion on validity of the OSJVA 202 It was submitted for the defendants that the purpose of the OSJVA was for KNG to take on 100% of the liabilities to Lenen and to indemnify the other participants against any liability they might have. It was submitted that in return for 100% of the liabilities, KNG would "take" 100% interest in the Project if the hotelier and the builder did not make the payment and the commitment to payment by 10 November 2000. It was further submitted that what happened in May 2000 in relation to the May Agreement was that KNG had a 70% share for a 70% liability and in September/October it moved to a 100% share in certain circumstances in return for 100% liability. In those circumstances it was submitted that as a matter of principle there is no difference between the way in which clause 13.2 was utilised in the May agreement and the way in which it was applied in September and/or October 2000 in approval of the OSJVA. 203 Mr Jackman emphasised the fact that the source of the May Agreement was a series of resolutions and not a contract. It was submitted that a series of resolutions were passed (as opposed to a contract being made) in May 2000 for KNG to take a greater percentage interest at the expense of other participants. It was further submitted that there is not any doubt that clause 13.2 of the Joint Venture Agreement authorised amendment to the Joint Venture Agreement whereby one or more of the participants takes an increased share at the expense of other participants. 204 It is true that there has been no challenge to the validity of the resolutions in May 2000. However the Resolutions and the OSJVA are quite different to the May resolution. The May resolution 2 provided for amendment to the Joint Venture Agreement, the Supplemental Joint Venture Agreement and what was referred to as "other Joint Venture documentation". Those amendments were by agreement of all parties and were stated to be amendments to, at least the Joint Venture Agreement. The question of the 75+% majority approval did not and does not arise in respect of the May Agreement. There was no issue at that stage or at any stage of these proceedings that those amendments were anything other than unanimously made. I am not satisfied that the analysis and comparison of the May Agreement assists the defendants. They are to my mind totally distinguishable. As I have found, the Resolutions were not "in relation to" any of the matters in clause 13.2 of the Joint Venture Agreement that were relied upon by the defendants. 205 The September and/or October resolutions were not resolutions in relation to a matter in clause 13.2. Accordingly, the OSJVA is not a valid or binding agreement. Fraud on the power 206 Having regard to my finding that the OSJVA is not a valid or binding agreement it is not strictly necessary to decide whether the equitable doctrine of fraud on the power is applicable. That doctrine was succinctly defined by Hely J in Cachia v Westpac Financial Services Ltd (2000) 170 ALR 65 at 83: 74. The equitable doctrine of "fraud on the power" requires that a power, including an amendment power, reserved in a trust must not be exercised for a purpose, or with an intention beyond the scope of or not justified by the instrument creating the power: Vatcher v Paull [1915] AC 372 at 378. The same principle applies to the exercise of a statutory power. In each case, the power has to be exercised bona fide, for the purpose for which it is given: Lancedale Holdings Pty Ltd v Heath Group Australasia Pty Ltd [1999] NSWSC 609 (per Bryson J); [1999] NSWCA 460 (on appeal). It may be that an amendment to a trust deed enabling the majority unitholders to expropriate the minority's units for the sole purpose of aggrandising the majority might fail for want of good faith, or because it would be beyond the scope of the enabling power. 207 It was submitted that the amendment power in clause 13.2 of the Joint Venture Agreement would not authorise an amendment to the whole substratum of the Joint Venture. In this regard reliance was placed upon the following passage of Hely J's judgment: 68. The power of variation conferred by this clause is apparently unconfined. There are, however, some authorities which suggest that a power to vary a trust deed may be held not to extend to a variation which would alter the substratum of the trust: see, eg, Re Dyer ; Dyer v Trustees Executors & Agency Co [1935] VR 273; Re Ball's Settlement Trusts; Ball v Ball [1968] 1 WLR 899; Re Blocksidge [1997] 1 Qd R 234; Kearns v Hill (1990) 21 NSWLR 107; Lock v Westpac Banking Corporation (1991) 25 NSWLR 593 at 602. This may be no more than an application of the equitable doctrine of fraud on the power, referred to in [74] of these reasons. 208 The defendants submitted that there is no basis for the argument that clause 13.2 could not authorise the disposal of the interest in the Land, or could not authorise such a disposal or adjustment of interests in the Land in favour of one or more of the participants at the expense of the others. It was submitted that subparagraphs (a), (i) and (j) of clause 13.2 are expressed with absolute generality and subparagraph (h) necessarily involves the disposal in favour of any new participant of at least some of the interests held by the existing participants. It was further submitted that to construe clause 13.2 as precluding the participants from voting in their own self-interest in relation to amendments to the agreement would completely stultify the operation of the Joint Venture Agreement. 209 The plaintiffs submitted that although Hely J was dealing with unit trusts, the doctrine is equally applicable to this Joint Venture. It was submitted that by the application of the fraud on the power doctrine, there is an unqualified prohibition on the exercise of majority power under clause 13.2 of the Joint Venture Agreement to effect appropriation of any participant's interest. It was further submitted that the mere fact that clause 13.2 is in some respects expressed in broad terms does not preclude the operation of the doctrine. In this regard the plaintiffs relied upon clause 15 of the Joint Venture Agreement which provided a regime whereby a participant could "acquire the interest" of a defaulting participant "on a pro-rata basis". That regime included a process for the valuation of the defaulting participant's interest in the Joint Venture by the auditor. The purchase price of the interest of the defaulting participant was to be fixed by reference to the auditor's valuation less certain amounts (cl 15(e)(iii)). The plaintiffs submitted that in the light of the provisions of clause 15 of the Joint Venture Agreement the parties could scarcely have contemplated that the powers in clause 13.2 would be used to appropriate the interests of minorities who were not "pulling their weight" in the Joint Venture in a manner so inconsistent with clause 15. 210 In my view that analysis has a great deal of force. However it may be more relevant to the construction of clause 13.2 and the OSJVA and the extent to which amendment was authorised rather than a basis for the application of the doctrine of fraud on the power. As I have said earlier the Supplemental Agreement specifically acknowledged and confirmed the continuation of the Joint Venture Agreement. The OSJVA also acknowledged that continuation in giving KNG an option to "proceed with the Joint Venture Agreement". Accordingly the Joint Venture Agreement had to be read with the Put and Call Option and the variations thereto, the Supplemental Agreement, the May Agreement and/or, if valid, the OSJVA. Having regard to clause 15 of the Joint Venture Agreement, any valid agreement that purported to require the transfer of a participant's interest in the Joint Venture to another participant would include the process under clause 15. However that is a different matter to the submissions in respect of the applicability of the equitable doctrine. 211 The plaintiffs claimed the Resolutions were void as a fraud on the power conferred by clause 13.2 of the Joint Venture Agreement by reason of the following matters: (1) the interest in the Land arising from the Put and Call Option as amended by the Contract for the purchase of Lots 1 and 2 of the Land were assets of the Joint Venture held for the benefit of all participants; (2) clause 4(K) of the OSJVA purported to confer upon KNG the right to appropriate the Land for its own benefit; (3) COTC did not consent to the appropriation either as a participant in the Joint Venture or as a shareholder of KCOTC; (4) the authorisation of KNG to appropriate the Land for its own benefit was not necessary to secure any benefit for the Joint Venture or otherwise fulfil any proper purpose of the Joint Venture; (5) the OSJVA did not provide for the provision by KNG of adequate (or any) compensation to the participants of the Joint Venture in respect of the appropriation of the Land; and (6) the purported authorisation of KNG to appropriate the Land for its own benefit would, if effective, permit KNG to obtain a windfall benefit at the expense of the other participants in the Joint Venture. 212 Matters (1) to (3) are, in my view, uncontroversial. As to matter (4); although the defendants argued that KNG took on the 100% liability in return for 100% interest, it was not "necessary" to fulfil any proper purpose of the Joint Venture. This was merely protecting KNG's interest. Matter (5) and (6) also have force. 213 The defendants submitted that the plaintiffs' reliance on these matters fundamentally misconceives the effect of clause 4(K) of the OSJVA and what it achieved in the circumstances. It was submitted that the following matters establish that misconception: (1) KNG was relieving the other participants of liabilities to Lenen under the contract ($8 million) and the Put and Call Option and to Richtech under the Works Agreement ($2.5 million); (2) KNG was the only participant with the ability and willingness to meet those liabilities, and to provide the guarantees and the purchase money necessary to acquire the Land; (3) the "Club of the Clubs" concept was no longer feasible or realistic; (4) the call option to acquire the Land was about to lapse and thus be worthless to the Joint Venture; (5) KNG undertook not to continue with the original "Club of the Clubs" concept notwithstanding there was a lack of any basis to COTC's claim for so-called "intellectual property"; (6) KNG did not on its own constitute the 75+% majority required to effect the amendment to the Joint Venture Agreement and the position taken by Jandawn and Arts demonstrates the commercial fairness and reasonableness of clause 4(K); and (7) KNG continued to offer to the other participants the opportunity to share in the acquisition and on-sale of the Land, in return for some financial contribution. In that context it was submitted that the suggestion by COTC that KNG was seeking to obtain a windfall was particularly ironic. The defendants submitted that there was no improper purpose and no lack of bona fides in making the amendments, even if the amendments effected a fundamental restructuring of the participants' rights. 214 Matter (1) is really a euphemism for KNG's takeover of all of the participants' interest in the Land and the Joint Venture in circumstances where COTC did not consent to such takeover and the original option to purchase the Land was obtained by COTC (and to a lesser extent Jandawn) and made available to the Joint Venture. Matter (2) seems to reflect the reality as at September/October 2000. Matter (3) is not clear. Although in early September 2000 KPMG expressed the view that the Clubs' commitment to Foundation Membership to the value of $27.5 million was "unlikely", Dalglish did not agree with KPMG's interpretation of the level of interest and advised the other participants of that view at the meeting on 18 September 2000. The Minutes of that meeting record that Stamoulis agreed with Dalglish "in relation to KPMG's position". As to matter (4), it is true that the deadline was imminent but worthlessness is not certain. The capacity to sell the Option A portion of the Land with the prospect of the Option B Land being made available to a willing purchaser may have had some worth, in that the price of the Option A Land may have been enhanced by such capacity. Matters (5) and (7) are uncontroversial. As to matter (6); it is true that KNG did not on its own constitute the 75+% majority, however the submission that Arts' and Jandawn's willingness to sign the OSJVA justifies a conclusion that clause 4(K) of the OSJVA was commercially fair and reasonable needs further consideration. 215 On one aspect of matter (6), in particular, on the question of Arts' willingness to agree to and sign the OSJVA, the plaintiffs relied on the absence of any evidence from Mancuso, an invoice from Arts to KDG for $1.5 million and Stamoulis' evidence in relation to that invoice. Stamoulis was cross-examined about an entry in the profit and loss statement of KDG for the year ending 30 June 2004 that recorded an expense of $1.5 million as consultants' fees to Arts. He accepted that the payment was in fact made to Arts by KDG. He denied that he was a party to any agreement pursuant to which the payment was made to Arts and said that his father, S Stamoulis, was the person on behalf of KDG who reached agreement with Arts in relation to that payment (tr 292-293). Stamoulis said he believed his father used Arts or Mancuso to help him with entry into the Macquarie Joint Venture. The Invoice, dated 22 February 2004 was addressed to Stamoulis at KDG and was in the following terms: To our cost herein comprising introduction to project, commissions, provision of office facilities, assisting in negotiations for the acquisition of land at Kingscliff, providing advice in relation to proposed promotional material, administration and taking into account consideration care, skill and responsibility. SAY $1,500,000 Fees subject to GST $1,500,000 GST Applied $150,000 Total fees including GST $1,650,000 216 Stamoulis was cross-examined about his view of the propriety of such a payment to Arts in the circumstances. It included the following (tr 296-297): Q. I am asking you about specific items in the invoice, Mr Stamoulis. Did you turn your mind to whether there was any justification for Mancuso claiming any amount for introduction to project? A. Look, I don't recall thinking about it. Q. You don't recall turning your mind to that fact at all? A. I don't recall thinking about that, no. Q. If you turned your mind to it, Mr Stamoulis, you would have thought, wouldn't you, that it would be quite absurd for Mancuso to make any claim in relation to introducing KDG to the project, wouldn't you? A. If the invoice was based on that, then I would say that he was right. Q. It would be absurd? A. If the invoice was based on that alone, I would say yes. Q. The next one is commissions, do you see that? A. Yes. Q. Did you turn your mind to what commissions referred to? A. No. Q. Did you ask? A. I don't think so. Q. Did you ask Mancuso what commissions referred to? A. I didn't discuss the wording of this letter with Mr Mancuso. Q. If you turned your mind to whether there was any basis for claiming in respect of commissions, you would have formed the view that it was absurd, wouldn't you? A. Well, no I don't know what that means, commissions. Q. Is there any possible service that you can think of that Mancuso might have provided to KDG for which it was conceivably entitled to a commission? A. I don't know. Q. KDG was a special purpose vehicle, wasn't it, Mr Stamoulis? A. Yes. Q. Its sole purpose was to acquire the land, to acquire an interest in the new joint venture, wasn't it? A. Yes. Q. If there was to be any commission payable it could only really relate to participation in the new joint venture, couldn't it? A. Most likely, yes. Q. And it would be absurd for Mancuso to claim any commission in relation to KDG's participation in the new joint venture, wouldn't it? A. I don't know what he did there, so I can't comment if it,s absurd or not. 217 Mr Stowe took Stamoulis through the balance of the invoice relating to the "provision of office facilities" and "assisting in negotiations" of the acquisition of land at Kingscliff. Stamoulis suggested that he could not recall whether he formed a view as to whether Mancuso was entitled to claim payments for these items and gave the following further evidence (tr 299-300): Q. Thinking about it now Mr Stamoulis, it would be absurd for Mancuso to claim anything in respect of assisting in negotiations for the acquisition of land at Kingscliff, wouldn't it? A. Well, the wording seems unusual, I know he helped him with his exit of the projects, I don't know how he helped him, but. Q. It refers to the negotiations for the acquisition of land, Mr Stamoulis. In your affidavit you give evidence of the negotiations in respect to the acquisition of land, don't you? A. Yes. Q. You make no reference at all to the presence of Mancuso in those negotiations, do you? A. No. Q. Mancuso is not involved in the negotiations? A. That's right. Q. So in light of that you would agree, wouldn't you, that it would be absurd for KDG to agree to provide Mancuso with any payment in relation to the negotiations for acquisition of land, wouldn't you? A. Well I wouldn't have thought he would be paid for acquisition of land. Q. What about the negotiations in relation to the acquisition of land? A. He wasn't part of that. Q. In fact KDG didn't acquire any land, did it? A. KDG acquired an interest in a joint venture. Q. So, would you agree that makes it even more absurd that KDG would agree to provide payment to Mancuso in relation to assistance in negotiations for the acquisition of land at Kingscliff? A. Well, he wasn't involved in the negotiations. Q. So it would be absurd for KDG to agree to pay him for that? A. It wasn't involved. Q. Don't you think it would be absurd to pay that sort of money to someone who didn't do the things he said he was doing? A. I don't know why he put that there, to be honest with you. Q. It would be absurd for KDG to make an agreement to that? A. I will say yes. 218 There was further cross-examination on this invoice and Stamoulis sought to suggest that because he was not involved in the arrangement there may be some proper commercial basis to it (tr 302). Stamoulis maintained that he was not involved in the Macquarie Joint Venture and that he was a mere "conduit" to pass on information from the other parties in the Macquarie Joint Venture to his father. He sought to distance himself from both the discussions of the Macquarie Joint Venturers and the contents of the Arts Invoice. Mr Stowe challenged Stamoulis' claim that he was a mere conduit. In support of this challenge a bundle of documents (Ex H) was relied upon. Those documents, on their face, lead to an irresistible conclusion that Stamoulis attended those meetings of the Macquarie Joint Venturers and was something more than the claimed conduit. One of those documents is a memorandum from Brian Ray of the Ray Group addressed to Stamoulis, S Stamoulis and Mr Papadopoulous (Macquarie Bank) dated 5 July 2002. That memorandum refers to "our discussions of last Friday". Stamoulis gave the following evidence in relation to this document (tr 330-331): HER HONOUR: Q: Can I just understand? A. Yes. Q. At the beginning of that document it refers to some discussions. Did you also have discussions with Mr Ray's group? A. You are referring to the discussions this is referring to? Q. Yes? A. Look, I honestly can't remember. STOWE: Q. So with respect of the discussions referred to [on page] 25 you have no recollection one way or the other whether those discussions occurred. Is that what you are saying? A. That's right HER HONOUR: Q: Tell me who Stephen Papadopoulos is again? A. He was a representative from Macquarie Bank. Q. Let me indicate to you if I read this, if it becomes an exhibit, it looks like Mr Ray was writing to you referring to discussions he had with you. Do you agree with that? A. No. Q. I see. And what is the reason you say no to that? A. It says "Following our discussions last Friday" and he, they had many, many discussions. Now I receive many, many emails, faxes or correspondence which I wasn't a part of the discussions. Q. But you told me earlier you couldn't remember if these discussions took place or not? A. Well, I can't remember. But what I'm saying is the way I read it and following from what I said about my understanding about passing on correspondence, I can't recall these discussions. 219 I do not accept that Stamoulis was a mere conduit for his father. To suggest, as he did, that he did not think about the invoice for $1.5 million plus GST from Arts is simply unbelievable. The Arts invoice was clearly a device to facilitate a payment to Arts after the completion of the Land Play. The absence of any evidence from Mancuso and/or S Stamoulis assists the plaintiffs' submission slightly. However it is the evidence of Stamoulis generally and that referred to above and later in this judgment that convinces me that KNG allowed Arts a share of $1.5 million plus GST in the gains of the Land Play. However on this aspect of the matter, that is the defendants' claim that the fairness and reasonableness of clause 4(K) of the OSJVA is demonstrated by Arts' willingness to sign the OSJVA, this evidence supports the conclusion that Arts'/Mancuso's willingness was probably coloured by at least a promise of $1.5 million (or some amount) at some later time. In any event, irrespective of this conclusion I am not otherwise satisfied that simply because Arts and Jandawn, who each held smaller interests than COTC, were willing to agree to the OSJVA, fairness and reasonableness of clause 4(K) is established. Ultimately Mr Jackman abandoned any reliance upon the Arts invoice in the defendants' case (tr 442). That is most understandable. 220 The plaintiffs also relied upon Stamoulis' admission that the purpose of the OSJVA was "simply to protect KNG's interest" because it was "safer" to provide the $10 million with the protection of the OSJVA (tr 234-235). The plaintiffs submitted that this was "naked majority aggrandisement". In this regard the plaintiffs relied upon Gambotto v WCP Limited (1995) 182 CLR 432 in which Mason CJ, Brennan, Deane and Dawson JJ, with reference to what Dixon J said in Peters' American Delicacy Co v Heath (1939) 61 CLR 457 at 507, referred to the problem of identifying some element, the presence of which would always vitiate a resolution for the alteration of articles of association. Their Honours said at 445: The exercise of a power conferred by a company's constitution enabling the majority shareholders to expropriate the minority's shareholding for the purpose of aggrandising the majority is valid if and only to the extent that the relevant provisions of the company's constitution so provide. The inclusion of such a power in a company's constitution at its incorporation is one thing. But it is another thing when a company's constitution is sought to be amended by an alteration of articles of association so as to confer upon the majority power to expropriate the shares of a minority. Such a power could not be taken or exercised simply for the purpose of aggrandising the majority. In our view, such a power can be taken only if (i) it is exercisable for a proper purpose and (ii) its exercise will not operate oppressively in relation to minority shareholders. In other words, an expropriation may be justified where it is reasonably apprehended that the continued shareholding of the minority is detrimental to the company, its undertaking or the conduct of its affairs – resulting in detriment to the interests of the existing shareholders generally – and expropriation is a reasonable means of eliminating or mitigating that detriment. 221 The defendants submitted that the company law principles identified in Gambotto are not applicable to the circumstances of this Joint Venture. In this regard reliance was placed on Cachia v Westpac Financial Services. In that case Hely J considered a resolution for the merger of two unit trusts. The applicant objected and argued that the amendments brought about an unfair expropriation of his units in one of the unit trusts. He made a number of complaints including that the amendments were not made for a proper purpose. In rejecting the applicant's arguments Hely J said: 85. Gambotto was concerned with expropriation by a majority, of the minority's shares in a company. The court held that a company's articles of association could not be amended to confer such a power simply for the purpose of aggrandising the majority. Such a power can be taken only if: • it is exercisable for a proper purpose; • its exercise will not operate oppressively in relation to minority shareholders. 86. While in a commercial sense, ownership of units in a trust may be similar to ownership of shares in a company, in a legal sense there is a fundamental difference between a unit held under a trust deed such as the present and a share in a company: Charles v FCT (1954) 90 CLR 598 at 609. 87. Gambotto was a case concerning company law, and company law principles, particularly oppression and fraud on the minority, although there was some exposition of the general principles as to fraud on a power. The present is a trust case in which company law principles such as fraud on the minority play no part: see Jacobs' Law of Trusts in Australia , 6th ed, at para 316. The rights and obligations of the trustee, the manager and unitholders are not to be determined by reference to company law principles, but rather by the terms of the trust deed, and the law of trusts. 88. The law of trusts includes the equitable doctrine of fraud on the power and I have already held that the restructuring of the unit trust, by the adoption of provisions applicable to all unitholders in response to external circumstances, was not outside the scope of the enabling powers, nor was it a fraud on the power. As earlier indicated, there was no expropriation by the majority of the minority's units. 89. In those circumstances, it seems to me that Gambotto has nothing further to say on the issue of the validity of the amendments to the trust deed. 222 I respectfully agree with Hely J and I have had regard to what Austin J said in Arakella Pty Ltd v Paton (2004) 60 NSWLR 334 at 364, [127]. These principles of company law may have had some applicability if KCOTC had been a proposed party to the OSJVA or had an interest in the Land. The events at the 12 October 2000 meeting are not free from confusion. The participants firstly attempted to convene a meeting of the Joint Venture Steering Committee. They then decided to abandon that idea and convened what was referred to as a "Joint Venture/Shareholders Meeting". It was at this meeting that the vote was "taken on the adoption of Minutes including the [OSJVA]". At a meeting later in the day of directors of KCOTC Stamoulis moved the motion to adopt the OSJVA. This was a curious step in light of the fact that KCOTC was not a party to the OSJVA. 223 Clause 11.4 of the Joint Venture Agreement provided that "for the avoidance of doubt" the participants agreed that as "Shareholders" of the "Company", later to become KCOTC, they would "exercise their rights" consistently with the objectives of the Project and the Joint Venture and any decisions or resolutions of the Steering Committee or meetings of participants. KCOTC's status, albeit at one stage a prospective party to the Put and Call Option, was always subservient to the participants. In any event it is not clear what the directors were seeking to achieve. It seems to me that the principles outlined in Gambotto have no application to the determination of whether the OSJVA is valid. As for the equitable doctrine of fraud on the power, although Hely J was dealing with unit trusts, it seems to me, on balance, that the doctrine is applicable to the analysis of the Resolutions. 224 The plaintiffs submitted that despite the fact that the Joint Venture was in difficult financial circumstances there was no basis to conclude that the appropriation was necessary to prevent default under, and termination of, the contracts with Lenen and Richtech. It was submitted that there was no basis for a finding that the participants to the Joint Venture could not have renegotiated terms with Lenen as they had done on numerous occasions in the past. Indeed it was submitted there was no evidence of any attempt to negotiate further terms with Lenen. The submission as to the capacity of the Joint Venture to renegotiate to obtain more time seems to me to defy the reality: there had been numerous extensions of time for the provision of funding; KPMG had all but walked away from the Project because of the precarious financial position that it could see the Joint Venture was in; Black had seen fit to resign his position because of the precarious financial position in which the Joint Venture had been placed; Dalglish had raised questions of the solvency position; no new equity participant could be found, notwithstanding efforts being made by, at the very least, KPMG and, it seems, by Dalglish and Shannon; although Mr Barclay had previously granted an extension of time within which to effectively find the money, it appeared that instructions were given to Mr Beattie that no further extensions would be entertained. 225 The evidence established that Stamoulis approached Lenen prior to any Notices of Rescission being issued and that he suggested that there should be new agreements signed to reflect KNG's alleged new status as being in total control of the Joint Venture. Indeed on 21 February 2001, Lenen signed the Put and Call Option with KCOTC and on the same day KNG executed a guarantee and indemnity with Lenen recording that KNG had requested Lenen to enter into the new Put and Call Option with KCOTC. Those documents were executed prior to Lenen issuing Notices of Rescission of the Contract for the sale of Lots 1 and 2 of the Land and of the Put and Call Option as varied. 226 At the commencement of the trial the plaintiffs claimed that KNG, Stamoulis and/or S Stamoulis induced or procured Lenen to issue the Notices of Rescission and the Notice of Termination. These claims were made in paragraphs 40, 42 and 45 of the Second Further Amended Summons filed on 9 December 2005. On the fourth day of the trial, 19 June 2006, the plaintiffs were granted leave to file in Court a Third Further Amended Summons in which they withdrew those claims. Notwithstanding that withdrawal, the conduct of Stamoulis and/or KNG in respect of the Put and Call Option and the Guarantee entered into with Lenen on 21 February 2001 may still be considered in relation to the submission that further negotiations with Lenen for an extension of time may have been possible. On one view of the evidence such negotiations were prevented by Stamoulis/KNG's conduct in requesting Lenen to enter into the new agreement with KCOTC. The fact that Lenen was willing to enter into those new agreements may support the conclusion that Lenen was open to further negotiations. 227 The amendment power under the Joint Venture Agreement had to be exercised for a proper purpose. Clause 13.2 provided for the power to be exercised for the "management and control of the Project and the Joint Venture". At the time of the exercise of the power in September and October 2000, KNG had already elected to complete the Land Play under the Supplemental Agreement. The participants had agreed that in certain circumstances, KNG would be entitled to elect to complete the Land Play but only on the condition that each of the participants were to share in any gains on a pari passu basis. 228 At that time, 18 September 2000, KNG had decided to complete the Land Play and therefore to fund that process. That Land Play was with the agreement or consent of the other participants by reason of clause 5 of the Supplemental Agreement. As I have held earlier that Land Play was to complete not only the Purchase Contract entered into on 15 June 2000 but also to purchase the balance of the Land under what was then Option B in the Put and Call Option and its variations. KNG/Stamoulis and S Stamoulis were obviously going to have to fund the purchase of the Land from Lenen, albeit that there were invitations to the other participants to provide funds in that process. It seems to me that it would have been extremely obvious to KNG and to Stamoulis (and S Stamoulis) that the other participants were not in a position to provide the funding for the Land Play. 229 The admission made by Stamoulis that the reason KNG entered into the OSJVA was simply to protect the interests of KNG and his father's money (tr 234) is important in this consideration. Stamoulis was dependant upon his father for funding. As I have said, the purpose of the Resolutions was to provide to KNG with a better deal than it had already elected for in the Land Play on 18 September 2000. Nothing had changed between 18 September 2000 and 25 September 2000 when the September resolution was purportedly approved or between 18 September 2000 and 12 October 2000 at the time of the October resolution. In my view the better deal KNG was pursuing was to remove its obligations to share in any gains on a pari passu basis with the other participants. 230 The matters raised by Mr Jackman in support of his submission that the plaintiffs' misconceived the effect of clause 4(K) are matters that do not detract from the factual finding that the real purpose of the Resolutions and the OSJVA was to protect KNG and to provide to it a better deal than it had already elected to take on 18 September 2000. It is true that KNG was relieving the other participants of the liabilities to Lenen, but that is what it agreed to do by reason of its election on 18 September 2000 for the Land Play. The fact that KNG was the only participant with the funding was a fact extant on the date of the first election. Even if the "Club of the Clubs" concept was no longer feasible or realistic, at least in connection with this Land and Project, it did not mean that KNG was entitled to do what it did. All of the matters relied upon by Mr Jackman were matters present at the time KNG made its first election for the Land Play on 18 September 2000. The OSJVA was for the protection of KNG and to give it a better deal to the exclusion of the other participants. 231 As I have said, it was not strictly necessary for me to decide whether the equitable doctrine of fraud on the power is applicable. However as I have said earlier, I regard it as applicable and had it been necessary to decide this issue I would have concluded that the September resolution and/or the October resolution were not for a proper purpose and therefore void. Applicability of the Supplemental Agreement 232 Having regard to my findings that the OSJVA is not a valid or binding agreement, clause 5 of the Supplemental Agreement governed the completion of any Land Play. It was submitted by the defendants that if the Supplemental Agreement applies, the plaintiffs' interests are not advanced because Lenen terminated the Put and Call Option and the Purchase Contract on 23 April 2001. It was submitted that once this occurred any lingering interest COTC had was lost. I am not satisfied that this is the appropriate way to approach the events of 2001. Whatever arrangements KNG entered into with Lenen in respect of the Land Play, irrespective of the withdrawal of the claims in respect of the procuring of the termination of the Contract and the Put and Call Option, KNG had an obligation to COTC to provide its share in any gains of the Land Play whether it was completed pursuant to the contracts then in place or pursuant to some other arrangements subsequently entered into with Lenen. 233 It seems fairly obvious that Lenen went through the formalities of terminating the Put and Call Option and the Purchase Contract between it and the participants when it had already executed the new Put and Call Option with KCOTC on 21 February 2001 and KNG had executed the Guarantee and Indemnity on the same day. KNG's responsibilities to COTC under the Supplemental Agreement were not relieved by this process and COTC's rights to share in any gains of the Land Play on a pari passu basis were not extinguished by this process. Breach of fiduciary duty owed by KNG to COTC 234 The plaintiffs claim that KNG breached its duty to COTC by selling the Land and failing to account to COTC for its share of the gains made from that sale. This claim is not limited to the gains from the actual sale of the Land. COTC claims a share in the profit made from KDG's involvement in the Macquarie Joint Venture. 235 In Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 Tobias JA summarised the relevant legal principles concerning the scope of fiduciary duties [150-168]. The scope of the fiduciary obligations of the participants to the Joint Venture is defined by the various agreements into which they entered for the purpose of the Joint Venture, their roles as directors of KCOTC and the course of dealing with each other during the period of the Joint Venture; otherwise, they retained their individual economic liberty: Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 per Bryson J, as his Honour then was, at 15; see also Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 per Dixon J at 408, referred to by Tobias JA at [156], citing Bryson J's reference in Noranda. Tobias JA observed in Say-Dee that in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, Lockhart, von Doussa and Sackville JJ "recognised that it was the obligation to act in the interests of another that was the foundation of the fiduciary relationship" [160]. 236 In Warman International Ltd v Dwyer (1995) 182 CLR 544, the Court said, at 557-558 (footnote omitted): A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves "at a level higher than that trodden by the crowd". The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage. 237 The plaintiffs claim that KNG was in a fiduciary relationship with the participants in the Joint Venture with respect to all dealings affecting the Land. COTC relies upon the following uncontroversial facts in support of that submission: (1) COTC and KNG were each participants in the Joint Venture; (2) each of the participants covenanted and agreed not to engage in any activity in respect of the Project (that is, the development of the Land in the manner described in the Executive Summary and subsequent sale of the Land as developed) except as provided by the Joint Venture Agreement or agreed to by the majority of the Participants; (3) each participant covenanted and agreed to use its best endeavours to ensure the Project was carried out successfully; (4) the participants were to share the profits from the Joint Venture in accordance with percentage interests prescribed by the terms of the Joint Venture Agreement; (5) the participants held the interests and assets of the Joint Venture (including the Land) as tenants in common; (6) the policy and management of the Joint Venture was a matter of joint decision; and (7) the participants contemplated that the venture would be conducted through a single corporate entity in which each participant held shares. 238 The plaintiffs submitted that each participant was vulnerable to significant loss in terms of wasted contribution to the Project (in terms of money, know-how and/or time) if any other participant was able to pursue the Project and any interest in the Land in a manner that excluded the interests of the other participants. It was also submitted that COTC was further vulnerable to the exploitation by other participants of the know-how that COTC disclosed to the other parties for the purposes of the Project. The plaintiffs submitted that the Joint Venture gave rise to a quintessential fiduciary relationship, representing a collaborative endeavour for the exploitation of the Land for mutual advantage. 239 The term "joint venture" as a matter of ordinary language, has been held to connote "an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill": United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 10. In UDC v Brian Mason, Brennan and Deane JJ identified various features of the joint venture in that case that created a fiduciary relationship (at 11). Those features included that: the participants were joint venturers in a commercial enterprise with a view to profit; the profits were to be shared; the policy of the joint enterprise was a matter for joint decision; and the relationship exhibited the indicia of a partnership. In that case the entry into a mortgage with a "collateralization clause" of which one of the joint venturers was unaware was in breach of fiduciary duty to that joint venturer because the other joint venturers obtained a collateral advantage that was destructive of the other joint venturer's interest (per Mason, Brennan and Deane JJ at 13). 240 It has been said that a joint venture is an example of a "horizontal" relationship, in which a fiduciary duty is recognised to reflect a mutual "collaborative" undertaking by the parties to act for mutual advantage, as distinct from acting for individual self-interest: News Ltd v Australian Rugby Football League Ltd at 539. 241 The Supplemental Agreement required that at the conclusion of the Land Play the participants were to share on a pari passu basis in the losses or the gains. As I have already said there was nothing within the Supplemental Agreement, or indeed in the other agreements, setting out precisely how the Land Play was to be completed. KNG could be nominated by the participants under clause 6 of the Put and Call Option, but that was a nomination to complete the contracts on behalf of the participants. What KNG did after it was nominated was to effect the execution of a Put and Call Option in KCOTC's name. The lack of specificity as to how the Land Play was to be achieved means that by whatever route the Land Play was completed KNG was obliged to share the "gains" of that Land Play with the other participants. 242 KNG was expressly authorised to complete the Land Play pursuant to clause 5 of the Supplemental Agreement. In that regard, the other participants were dependent upon KNG and were vulnerable to losses if KNG did not act in accordance with its fiduciary duty to the other participants. I am satisfied that KNG owed a fiduciary duty to COTC to ensure that in the Land Play pursuant to the Supplemental Agreement it protected COTC's interests and shared any gains from that Land Play with COTC. The duty that KNG owed to COTC in the Land Play was to do its best to ensure that as few "losses" as possible were incurred and as many "gains" as possible were achieved as it endeavoured to sell the Land at fair or market value. 243 The plaintiffs claimed that the term "gains" in clause 5.1(b)(iii) of the Supplemental Agreement takes on the ordinary meaning as defined in the Macquarie Dictionary as "profit; advantage" or "profits; or winnings". It was submitted that the expression "gains" is broader in meaning than just the monetary proceeds from the sale of the Land. It was submitted that the use of this expression in clause 5(b)(iii) means that KNG has an obligation to "share" not just monetary proceeds of the sale of the Land but also any other collateral commercial advantages derived from the sale. It was submitted that one of the commercial advantages derived from the sale of the Land was the opportunity to participate in the Macquarie Joint Venture and therefore KNG is liable to distribute the value of the commercial advantages derived from the opportunity to participate in the Macquarie Joint Venture. It was submitted that those are "gains" and they are equivalent to the KDG profit, the net amount actually received from such participation being $14,310,914.80. 244 The plaintiffs submitted that it was not the case that KNG and/or Stamoulis' conduct generated a profit that would otherwise have been unobtainable by COTC and the participants. The evidence does not support that submission. Stamoulis and S Stamoulis made every effort to convince the other participants to fund the Joint Venture and fund the acquisition of the Land. Those efforts were in vain. It was not the intention of the parties at the commencement of the Joint Venture that KNG would fund the whole of the process. As it turned out it was just not possible to obtain external funding. Even BHE was reticent about commitment because of the lack of evidence of support from the Clubs for the Club of the Clubs concept. There was a real risk that the participants would be in further and perhaps severe financial distress if KNG did not provide further funding. COTC and Dalglish were committed to the Club of the Clubs concept and it was that so-called intellectual property that enabled them to claim they had made a money's worth contribution to the Joint Venture. The Macquarie Joint Venture was not based on that concept and the evidence does not support a finding that COTC/Dalglish would have been willing, let alone able, to put the required capital into the Macquarie Joint Venture. 245 The term "gains" is to be construed in its context in clause 5(b)(iii). It is used in contrast to "losses". I agree that its ordinary usage is "profits" and I am satisfied that is what it means in this clause. I am also satisfied that its use was not intended to enable the other participants to reach into profits from sources other than the sale of the Land. Although there was no express mechanism in the Supplemental Agreement by which the Land Play was to be completed, clause 5(b)(iii) used the expression "Real Estate Transaction only". That expression was used to contrast the Land Play to the other options then available to KNG of the various ways to complete the Project. This was a far more limited option, thus the use of the word "only". It was the losses or gains from that "Transaction" that the other participants were to share in on a pari passu basis. 246 The plaintiffs submitted that KNG should be deprived of its "antecedent share" consistently with the principles outlined in Williamson v Hine [1891] 1 Ch 390; O'Sullivan v Management Agency and Music Ltd [1985] QB 428; and Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd (1988) 2 Qd R 1 at 13. It was submitted that depriving KNG of its antecedent share in the Joint Venture, meaning its share of any profit from the Land Play, is essential to give effect to the deterrent purpose of fiduciary law. It was also submitted that looked at another way, permitting a defaulting partner or Joint Venturer to attain the antecedent share of ill-gotten gains is dramatically inconsistent with that underlying purpose. It was submitted that if such discretion was not exercised the fiduciary would not be exposed to any risk of being materially worse off by reason of the breach of fiduciary duty creating a very considerable incentive to breach fiduciary duties that is clearly antithetical to the body of strict principles that regulate this area of the law. It was also submitted that a discretion should not be exercised in favour of KNG to recognise the commercial risk it took and it should not be granted a due allowance for time, energy, skill and financial contribution expended by it. 247 The cases relied upon in support of this submission are distinguishable from the facts of this case. The first case, Williamson v Hine, does not seem to me to support the proposition upon which the submission is made. The second case, O'Sullivan v Management Agency and Music Ltd is more on point and seems to me to support the retention by KNG an "element" of its gains. The third case, Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd, is quite distinguishable in that there was no consent to the defendant obtaining the lease, whereas in this case the participants agreed to KNG completing the Land Play pursuant to the Supplemental Agreement. 248 Williamson v Hine was a case in which Williamson, the plaintiff, was a co-owner with Messrs Hine Brothers, the defendants, of a ship, the Castle Holme. The defendants were the managing owners of the ship and their remuneration of £130 per annum was fixed by resolution of a meeting of the co-owners. The plaintiff sought a declaration that the defendants were not entitled to retain for their own benefit alleged secret profits obtained during the performance of their role as managing owners. The plaintiff sought an account or alternatively damages. The defendants were held liable to account to the plaintiff for only certain of the claimed categories of payments they had received, being commissions on freights and charters. Kekewich J held that if the defendants received such commission "it belongs to the shipowner as the principal, and cannot properly be received by them for their own benefit" (at 395). Of course the owner was both the plaintiff and the defendants and there is no suggestion in the report of this case that the defendants were not entitled to their share of the commission as owner. 249 O'Sullivan v Management Agency and Music Ltd was a case in which the contracts between a manager/producer (personally and through a number of companies) and the plaintiff, a composer and performer of popular music, were held to be in restraint of trade and, because the parties were in a fiduciary relationship, were also held to have been obtained by undue influence. Although the contracts had been performed and had lapsed by the time the matter came on for trial it was held that the court had jurisdiction to make such orders as were "practically just": per Fox LJ at 466. In that case, although undue influence had been applied by the defendants, the Court of Appeal held that the defendants were entitled to not only an allowance for skill and labour but also a "profit element": per Dunn LJ at 459 and Fox LJ at 468-469. This seems to have been in recognition of the "significant contribution" the defendants made to the plaintiff's success. 250 In Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd there was no concluded partnership agreement but Williams J held that the parties were in a fiduciary relationship. The plaintiff conducted a business retailing sunglasses from a leased shop in a shopping centre. The landlord had offered the plaintiff a lease on new/additional premises in the centre on advantageous terms by reason of the plaintiff's good leasing history. After discussions between the plaintiff and the defendants with a view to conducting the business together from the new premises, the defendants decided to "go it alone" (at 7) but his Honour found that the plaintiff was not advised of this decision and that the obtaining of the lease was in breach of fiduciary duty. Williams J held that there had to be just allowances for the defendants' time, energy and skill in building up "the value of the property subject to the trust" (at 12) but because of the nature of the breaches of trust a "stricter approach" should be adopted in fixing such allowance (at 13). Although the defendants were held liable to pay the plaintiff equitable damages the Court ordered that the business be sold and the net proceeds be shared between the plaintiff and the second defendant. 251 This is not a case, as is so often seen, in which a fiduciary proceeds to obtain a commercial advantage by reason of the fiduciary position resulting from unauthorised conduct. In those cases the defaulting fiduciary is liable to account for the profits or advantages obtained by reason of that unauthorised conduct. In this case the other participants expressly authorised KNG to complete the Land Play and they did so in a manner that I am satisfied gave KNG a large amount of freedom as to the mechanism(s) it could use to complete the Land Play. 252 It was not KNG's obligation to take the other participants into the Macquarie Joint Venture. This was not the completion of the Project as that term is defined in Joint Venture Agreement. It was a different project and contained no aspect of the Club of the Clubs concept. The contractual documents (excluding the OSJVA) and the dealings between the parties made clear that if certain pre-requisites were satisfied KNG had three options. The first two options involved the completion of the Project. If KNG had elected for either of those options and entered into agreements with the Macquarie Joint Venture parties as a means of completing the Project, then KNG's fiduciary obligations to COTC would have been more complex. However the Land Play option was different and KNG's fiduciary obligation to COTC was to look after its interest (as well as the other participants' interests) in the Land Play and not to prefer KNG's interest in the Land Play. It was a more limited obligation. KNG certainly had to complete the Land Play in accordance with its fiduciary duty to the participants but it was not prohibited from taking part, with others, in a different joint venture in respect of the Land after it was sold. Indeed any of the other participants could have taken part in a new joint venture in relation to the development of the Land after the Land Play had been completed. KNG utilised the Macquarie Joint Venture to sell the Land and in doing so compromised its duty to COTC by preferring the interests of S Stamoulis and KDG and settling for a figure on the basis that KDG (of which he was a shareholder) obtained an interest in the Macquarie Joint Venture. 253 KNG was a party to the Macquarie Joint Venture Deed but was not a participant in the Project that was the subject of the Macquarie Joint Venture. It was a party to that deed for the purpose of selling the Land. That was a mechanism that could have been used consistently with its obligations to the participants in the present Joint Venture so long as it had used its best endeavours to obtain the fair or market value for the Land. However KNG did not achieve fair or market value for the Land because it preferred the interests of S Stamoulis, who wished to take a role in the Macquarie Joint Venture, to the interests of COTC. It compromised its duty and accepted $3 million less than the asking price because S Stamoulis said he was "comfortable" with $25 million and Mr Ray persuaded Stamoulis that the balance of the asking price, $3 million, would be recouped from the Macquarie Joint Venture. The acceptance of that lesser price was in clear breach of KNG's fiduciary duty to COTC. 254 The expert accountants agreed that KNG's net accounting loss for the 4 years ending 30 June 2003 was $586,565 (Ex PD1). It was submitted on the defendants' behalf that the capital loss written off by KNG in its accounts of $2.5 million should be added to that figure. I am not persuaded that should occur. I accept the plaintiffs' submissions on this aspect of the matter that the $2.5 million represents capital that was sunk into the Joint Venture in return for its increased equity. The loss of $586,565 should be adjusted by at least the figure of $3 million between the asking price and the compromised price, resulting in a "gain" or profit on the Land Play of $2,413,435. 255 There are a number of matters that need to be taken into account in considering the plaintiffs' claim that KNG should be deprived of its antecedent share of the gains from the Land Play. There is no doubt that KNG was in many respects the only hope for the participants to realise their vision for the Project. It, with S Stamoulis, had the necessary funds or the capacity to obtain the necessary funds. I am satisfied that it was willing to step into the breach when the other participants proved either unable or unwilling to contribute or obtain any additional funds. It is true that it received additional equity for that willingness and its conduct was, in my view, quite open and appropriately consultative until it tried to complete the OSJVA Land Play. It remained collaborative until then in that it suggested that the other participants might contribute to either the Land Play or the continuation of the Project. 256 I am satisfied that by the middle of September 2000 Lenen's patience had worn thin and the Joint Venture was in a most precarious financial position. KNG obviously took the financial risk in the Land Play and it should have an allowance for that risk as well as its skill and labour in completing the Land Play. However there are aspects to KNG's conduct that warrant a more stringent approach to what it should be allowed to retain from the Land Play. That brings me back to the Arts invoice dated 22 February 2004 for $1.5 million plus GST. I am satisfied that KNG with the assistance of KDG, decided to allow Arts to share in the "gains" from the Land Play and that is why it was paid $1.5 million plus GST and that is why it was paid after the Land Play had been completed. 257 If KNG was willing to pay Arts $1.5 million when it was entitled to 7.5% of the gains in the Land Play then one approach may be that COTC may well be entitled to $3 million plus GST as compensation in respect of this breach by KNG. That figure may reflect a fair and just result and KNG's entitlements would be adjusted accordingly. COTC is yet to make its election as to what it wishes to do in respect of its claim for relief in relation to KNG's breach of fiduciary duty. Thus any quantification or assessment must await that election. KNG's primary liability for breach of fiduciary duty to COTC having been established, it is now appropriate to consider the claims against Stamoulis, S Stamoulis and KDG for participation in KNG's breach of fiduciary duty owed to COTC. Accessorial liability - Stamoulis 258 The parties have approached this aspect of the case on the basis that the plaintiffs must prove knowledge in Stamoulis and S Stamoulis and KDG of KNG's breach of fiduciary duty: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 per Stephen J at 408-412; approved in Yeshiva Properties No 1 Pty Ltd v Marshall (2005) 219 ALR 112; Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378; Twinsectra Ltd v Yardley [2002] 2 AC 164; Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333 (PC). In Barlow Clowes Lord Hoffman clarified what was referred to as "an element of ambiguity" in Lord Hutton's remarks in Twinsectra (at 174) in relation to liability. Lord Hutton's remarks were as follows: [35] There is, in my opinion, a further consideration which supports the view that for liability as an accessory to arise the defendant must himself appreciate that what he was doing was dishonest by the standards of honest and reasonable men. A finding by a judge that a defendant has been dishonest is a grave finding, and it is particularly grave against a professional man, such as a solicitor. Notwithstanding that the issue arises in equity law and not in a criminal context, I think that it would be less than just for the law to permit a finding that a defendant had been "dishonest" in assisting in a breach of trust where he knew of the facts which created the trust and its breach but had not been aware that what he was doing would be regarded by honest men as being dishonest. [36] … I consider that the courts should continue to apply that test and that your Lordships should state that dishonesty requires knowledge by the defendant that what he was doing would be regarded as dishonest by honest people, although he should not escape a finding of dishonesty because he sets his own standards of honesty and does not regard as dishonest what he knows would offend the normally accepted standards of honest conduct. 259 Lord Hoffmann said (at 338): [15] Their Lordships accept that there is an element of ambiguity in these remarks which may have encouraged a belief, expressed in some academic writing, that the Twinsectra case had departed from the law as previously understood and invited inquiry not merely into the defendant's mental state about the nature of the transaction in which he was participating but also into his views about generally acceptable standards of honesty. But they do not consider that this is what Lord Hutton meant. The reference to 'what he knows would offend normally accepted standards of honest conduct' meant only that his knowledge of the transaction had to be such as to render his participation contrary to normally acceptable standards of honest conduct. It did not require that he should have had reflections about what those normally acceptable standards were. 260 The primary liability of KNG is its breach of fiduciary duty in the completion of the Land Play pursuant to the Supplemental Agreement in failing to achieve the best price for the Land in discharge of its obligations to the other participants, in particular COTC. The analysis of Stamoulis' accessorial liability is limited to that primary liability. The analysis is a little artificial because it is clear that Stamoulis proceeded on the basis that KNG was completing the OSJVA Land Play. The OSJVA has been successfully challenged on the grounds referred to earlier. Much of the cross-examination of Stamoulis focused upon the claim that he regarded KNG as entitled to complete the OSJVA Land Play rather than proof of the knowledge of KNG's primary liability in respect of the Land Play under the Supplemental Agreement, however that does not, of itself, preclude a finding that Stamoulis had the requisite knowledge at the time of the sale of the Land. 261 Stamoulis continued to resist any suggestion that he understood that COTC did not regard itself as bound by the OSJVA until the meeting of 12 October 2000. He accepted that in October 2000 KNG's total financial exposure under the Joint Venture was $6.75 million and that if the $10.7 million guarantee was not provided, Lenen would be entitled to call on the $4 million guarantee (tr 229-230). He gave further evidence that as at 6 October 2000 he believed that the majority resolution at the meeting of 25 September 2000 was sufficient to give legal effect to the OSJVA even though COTC did not consent (tr 230). He agreed that COTC's position would not have made a difference to his perception of the legal validity of the OSJVA (tr 231). He also agreed that on 6 October 2000 KNG (through Rysall One) provided Lenen with two guarantees totalling $10.7 million. 262 Stamoulis agreed that in his statement dated 3 May 2006 he had claimed that one basis upon which KNG provided those guarantees was that "(c) no Joint Venture participant had raised any issue as to the validity or legality" of the OSJVA. The following evidence was given in cross-examination in relation to this claim (tr 231-234): Q. In paragraph 11, you describe the basis upon which KNG provided the guarantee, don't you? A. Yes. Q. And the words in the first line of paragraph 11, "on the basis" mean, don't they, "in reliance upon"; that is what you meant, wasn't it? A. No, I don't think I meant that I relied on it. Q. Well, what did you mean, Mr Stamoulis, when you said that KNG put up two guarantees "on the basis" of the matters specified in paragraph 11? A. Well, in specifically to (c), I am just stating a fact. Q. What did you mean by the words in the first part of paragraph 11 that KNG provided those guarantees "on the basis" of the specified factors? My question is directed to the words "on the basis"? A. Right. Well, I'm basically saying that as a result of the following. Q. And when you say "as a result of", you mean "in reliance upon", is that what you meant? A. Well, I certainly relied on (a) and (b). Q. Well, you signed a statement saying that you relied on (c) as well, didn't you? A. Well, it says based on those three things. Q. But your evidence in this Court is that you did not rely on COTC's position in respect of this matter, isn't it? A. Well, as it stood I didn't have to rely on COTC's because they didn't do anything. Q. Your evidence to this Court is you did not rely on COTC's position in respect of the validity of the OSJVA, isn't it? A. My evidence is that I didn't rely on COTC because they didn't make any comment. Q. Mr Stamoulis, your evidence to this Court was COTC's position in relation to the OSJVA would not have made a difference to KNG's decision to provide the guarantee. Do you recall that evidence? A. Yes. Q. And do you agree that means COTC's position in relation to the OSJVA was irrelevant to your decision to provide the guarantee? A. That's right. Q. And if COTC's position was irrelevant to KNG's decision to provide the guarantee, you would agree, wouldn't you, that KNG did not provide the guarantee on the basis of any assumption as to COTC's position? A. That's right, we didn't provide the guarantee on any - on any assumption on their position. Q. And yet, Mr Stamoulis, in paragraph 11(c), that is exactly what you state, isn't it? A. I am saying that no-one raised any issue. Q. Mr Stamoulis, you are saying you do not rely upon the fact that nobody made any issue. Do you understand that is what your paragraph 11 does? A. What are you saying paragraph 11 does? Q. You tell me, Mr Stamoulis. What did you mean in paragraph 11 when you said KNG put up two guarantees totalling 10.7 million "on the basis" of those specified factors? What did you mean by the words "on the basis of"? A. Well, I thought I was just stating circumstances of fact. Q. Are you seriously suggesting that you did not understand paragraph 11 to be specifying the matters you relied upon when providing the guarantee? A. In terms of using the word relied upon, I did rely upon the overriding agreement. Q. Mr Stamoulis, in paragraph 11, it is the case, isn't it, you set out the matters you relied upon in entering into providing the guarantee, didn't you? A. Well, certainly with (a) and (b) I relied upon. Q. My question to you is this, Mr Stamoulis, in paragraph 11 you purported to set out the matters you relied upon in providing the guarantee, that was the purpose of paragraph 11, wasn't it? A. I think the purpose of 11 was to state the provision of the guarantees followed those things happening there in terms of the overriding agreement and I stated that as a matter of fact, that no-one had objected or raised any issue to it. Q. Are you now suggesting that you don't mean to convey by 11 (c) that you relied upon that fact in providing the guarantee? A. No, I didn't rely on that to provide the guarantee. Q. You didn't understand paragraph 11 as suggesting that you did, is that what you are saying? A. That's right. Q. Mr Stamoulis, you are fully aware, aren't you, that paragraph 11 purports to set out the matters relied upon by KNG in providing the guarantee, that's correct, isn't it? A. It just states that I provided the guarantees and states that it was done following those three statements of fact there. Q. Mr Stamoulis, you know that paragraph 11 (c) is entirely false, don't you? A. No, no joint venture[rer] did raise any issue to the validity or legality, that's true. Q. Your suggestion that you did not understand paragraph 11 to be stating the matters you relied upon is false, Mr Stamoulis, you fully understood that paragraph 11 sets out the matter you relied upon? A. It doesn't say I relied upon. HER HONOUR: Q But that is what is being suggested to you, Mr Stowe says--? A. No, I didn't rely. Q. Just a moment, Mr Stowe is putting to you that when you say it is on the basis that, he suggested to you that you recall telling the Court that you did it in reliance upon those things, that is what Mr Stowe is saying. What do you say to that suggestion? A. No, I am not saying that, I don't mean that, I'm sorry. MR STOWE: Q. I suggest to you, Mr Stamoulis, that your inclusion of the paragraph 11 (c) is simply an attempt to fabricate a claim based on estoppel which you knew didn't exist? A. I am not fabricating anything. 263 This cross-examination exposed in Stamoulis a willingness to ignore the reality of what was stated in paragraph 11(c) of his statement. It seems to me abundantly clear that when he made his witness Statement dated 3 May 2006 he put forward evidence that KNG provided the $10.7 million guarantees on a number of bases, including a basis that no Joint Venture participant had raised any issues as to the validity or legality of the OSJVA. However I do not accept that there was a proper foundation for the suggestion that was made to Stamoulis that he had included paragraph 11(c) to fabricate an estoppel claim. To properly ground such a suggestion there would have to have been some evidence that at the time the guarantee was provided on 6 October 2000 a participant had "raised an issue as to the validity or legality of" the OSJVA. No one had raised such an issue. All that had happened was that Dalglish had voiced his concerns about the deadlines for BHE and the hotelier to pay and to commit to underwrite the relevant amounts. Dalglish did not claim the OSJVA was invalid and/or illegal until the meeting of 12 October 2000 some days after the provision of the guarantee. 264 Stamoulis gave evidence that once the conditions for the Land Play had been triggered he was of the view that the other participants could not claim an interest in the Joint Venture that he had financed through KNG (tr 235). He accepted that he was aware of the compulsory buyout provisions in clause 15 of the Joint Venture Agreement and the provision for purchase of the defaulting party's interest to be determined at market value. He agreed that he was aware of those provisions at the time that the OSJVA was signed (tr 235). He was cross-examined about the default of the participants as follows (tr 236-237): Q. Of course at this stage there was no formal default by any of the participants under the joint venture agreement, was there? A. I don't know if there was any default. Q. You are not aware of there being any default by any participants under the joint venture agreement at the time? A. I think the joint venture agreement default clause does say if a participant can't pay they are in default, but that was put to me, the overriding agreement was put to me. Q. As at the time of the overriding supplementary joint venture agreement there had been no resolution by the joint venturers requiring each joint venturer to provide their share of the 10.7 million dollar guarantee, had there? A. At what time, I'm sorry? Q. At the time the overriding supplementary joint venture agreement was signed? A. No, they couldn't. Q. There had been no resolution to that effect, had there? A. There were discussions and they couldn't and there was no resolution, no. Q. You of course are familiar with the supplemental agreement? A. Yes. Q. And you were aware of the fact that it has a land play provision as well? A. Yes. Q. You are aware that the supplemental agreement did not provide for the confiscation of the other parties' interests in the event the land play was exercised, aren't you? A. No, it doesn't have any words about confiscation, no. Q. Interests weren't to be transferred to KNG under the supplemental agreement if the land play were exercised? A. That's right. Q. Indeed it was contemplated under the land play and the supplemental agreement that KNG would bear the costs of the land play and then the other joint venturers would share the costs and any profits on a pari passu basis, that's correct, isn't it? A. No the supplemental agreement was amended in May and each party had to put in their proportional share to the costs. Q. Under the terms of the supplemental agreement it provided that KNG would effectively acquire the land and then there would be a distribution of the costs and profits associated with that on a pari passu basis, that's the case isn't it? A. That's what the clause says but I never exercised that clause in isolation. … Q. Do you agree with that proposition? A. Yes. Q. Did you ever turn your mind to whether it was appropriate for KNG to conduct the land play under the terms of the supplemental agreement as an alternative to the OSJVA? A. Well, I was relying on the supplemental and the May amendments. Q. But in circumstances where COTC had not consented to the procedure did you ever turn your mind whether it might have been appropriate for KNG simply to utilise the supplemental land play provisions instead of the OSJVA provisions? A. You are saying without the May amendments? Q. With or without them did you turn your mind to whether in the absence of COTC's consent it was appropriate for KNG to rely upon the supplemental agreement land play rather than the OSJVA provisions? A. No, when the overriding agreement was put to me that was what I was focused on. 265 Mr Stowe attempted to obtain an admission from Stamoulis that at the time he decided to complete the OSJVA Land Play he believed that COTC had a valid claim against KNG in respect of the Land Play. This attempt included the testing of a privilege claim in respect of advice obtained by Stamoulis and/or KNG from Mallesons Stephen Jaques (Mallesons) in respect of such a claim. Ultimately the letter over which privilege was claimed was ordered to be produced but was not tendered by the plaintiffs. It was tendered by the defendants and admitted (Ex 6). 266 Stamoulis was cross-examined as follows (tr 259-267): Q. I am wondering about your thoughts, you understood that they [Lenen] thought there might be a claim arising out of the OSJVA? A. I can't recall what my exact thoughts were, whether it was the OSJVA. However, I know because there was a shift in who was actually purchasing the land, they merely wanted to, for the sake of their own completeness, be covered by myself or my company. Q. Again, you are aware that under the Macquarie Bank Joint Venture there was similar indemnity provisions deal with the probability that there might be claims against KNG in respect of its land dealings? A. I think so. Q. You are aware that through the course of late 2000 and 2001, Club of the Clubs continued to assert in its correspondence that it retained an interest in the land, aren't you? A. Well, depending on the timing but at times they did, at times they wanted to buy the land outright from me. Q. But you have no doubt that in the course of 2001 there were occasions in which COTC strongly asserted it had an interest in the land? A. There was some correspondence where they indicated that. Q. So, the issue of the validity of the OSJVA was raised certainly by Club of the Clubs, you agree with that? A. In 2001 there was the odd correspondence that suggested that. Q. They were threatening to take action in court during 2001, there is no doubt that Club of the Clubs was asserting a claim at points during 2001, is there? A. Yeah, I just can't remember the claim that's all. Q. But I suggest to you in light of the claims being made by COTC and the conduct of Lenen and the Macquarie Bank joint venturers acknowledging the risk of a claim, you are aware during 2001 at least of the possibility that COTC may have some sort of claim arising from the OSJVA? A. I was aware that they were making some sort of claim. Q. But you were aware of at least the possibility there might be some reasonable basis for that claim? A. No, I didn't think there was any basis for it. Q. You are not prepared to concede that you believe there was even the vaguest, remotest possibility that Club of the Clubs had a claim? A. Oh, what is remote? I mean there is always a very very minute chance. I mean what can I say? I am not saying it was 100% sure, I mean if someone makes a claim who knows what will happen. Q. I am not asking you to give evidence as to whether they will make a claim or not. I am asking you what your view was as to the basis for that claim. Is it your evidence that you did not consider that there was even the remote possibility that there would be a valid claim by Club of the Clubs? A. I didn't think they had a valid claim. Q. But you thought at the very least, Mr Stamoulis, that there was at least a possibility that they might have such a claim, even if you didn't think it was likely, that's the case, isn't it? A. No I didn't think so. … Q. So do you have a recollection at all as to receiving legal advice in any capacity from Mallesons Stephen Jaques concerning the validity of the OSJVA? A. I recall receiving advice. … Q. So I take it that you now have no recollection of what advice you received, if any, concerning the question of the validity of the OSJVA? A. The Mallesons' advice that I received, its just a vague recollection that it was favourable in terms of the actions I had taken but I – I don't remember what it actually said. … Q. Mr Stamoulis, you have given evidence as to your belief as to whether the overriding supplementary joint venture agreement was binding on Club of the Clubs and your evidence was to the effect that … it was binding on Club of the Clubs. Do you recall that evidence? A. That it was binding, yes. … Q. And you held that belief, you say, from the time of 25 September 2000 until the time that you caused KNG to transfer the land to SKD, is that your position? A. Yes. Q. And with respect to that belief between 25 September 2000 and January 2000 when you transferred the land to SKD, is it your position that your belief was reliant upon advice, legal advice you received concerning the legal validity of the OSJVA? A. No. Q. Are you saying that you formed your belief as to whether the OSJVA was binding upon Club of the Clubs without regard to legal advice you received concerning the validity of the OSJVA? A. Well that – that advice came sometime after but that merely gave me some comfort. I always believed that it was valid and binding. 267 The advice from Mallesons was dated 23 March 2001 and recorded that KNG's solicitors had asked the firm to review documents relating to the Joint Venture because of KNG's "concern that one or more of the parties to the original" Joint Venture might: (a) seek to stop KNG proceeding to acquire the land in its own right; or (b) more likely, make some claim in the future that KNG, Mr Stamoulis or both, have (in proceeding with the Land Transaction) in a way which results in KNG becoming the sole owner of the site) engaged in conduct which: (i) is a breach of duty to the other original KingsHeath JV parties; or (ii) otherwise gives rise to liability, giving grounds for claiming that KNG, Mr Stamoulis or both should account to the original KingsHeath JV parties for any profits realised as a consequence of its acquisition of the land or be liable in damages. 268 It is obvious from Mallesons' letter that they were provided with numerous documents relating to the Joint Venture. However, the letter dated 18 September 2000 in which KNG elected to complete the Land Play under the Supplemental Agreement was not provided to them. Accordingly, the advice does not deal with the fact that KNG elected to complete the Land Play pursuant to the Supplemental Agreement nor does it deal with the fact that it notified the other participants of that election prior to meetings relating to the purported adoption of the OSJVA. However, Mallesons did have Dalglish's letter in which he had responded to KNG's letter of 18 September 2000 in which he referred to Stamoulis' intention to complete the project as a land transaction. 269 It is obvious that Mallesons were under a misapprehension as to what COTC had actually done and/or said in relation to the OSJVA. That much is clear from the following part of the letter: Whilst a representative of Club of the Clubs Pty Ltd did not vote in favour of approving the OSJVA on 25 September 2000, he was aware of its contents and, although the document was not executed by Club of the Clubs Pty Ltd, it does not appear that any action has been taken by Club of the Clubs Pty Ltd to object to the arrangements under the OSJVA. In this context, even though not properly completed and executed, it is still arguable that the OSJVA can be used to provide evidence of how the joint venture parties (with the possible exception of the Club of the Clubs Pty Ltd) intended the arrangements between them to proceed after 25 September 2000. 270 When Stamoulis read this section of the letter he must have known that Mallesons had not appreciated what Dalglish had said at the Meeting on 12 October 2000, i.e., that the OSJVA was neither valid nor legal. It appears that Mallesons had the Minutes of the Meeting at which this was said, but they failed to appreciate Dalglish's statements recorded in the Minutes. Mallesons were clearly under the impression that COTC had not taken any action to "object" to the arrangements under the OSJVA. Stamoulis was not cross-examined in relation to this rather glaring oversight, but he must have known that this was a misapprehension of some significance. 271 It would also appear that Mallesons were not provided with the information that Stamoulis had approached Lenen with the suggestion that new agreements should be entered into between KCOTC and Lenen. All that is noted in the advice is that a new Put and Call Option Agreement had been entered into between KCOTC and Lenen. There is no mention of the Guarantee and Indemnity signed by KNG on 21 February 2001 and it would appear that such document may not have been provided to Mallesons. Of course, had that document been provided to Mallesons they would have been able to observe that it was KNG/Stamoulis that had requested the new Put and Call Option between KCOTC and Lenen. 272 Although Mallesons observed that Dalglish failed to attend the meeting on 25 September 2000, there is no analysis of whether such a meeting was properly convened under clause 13 of the Joint Venture Agreement. Mallesons observed that the "precise meaning of clause 4(K) was difficult to interpret" but suggested that it did provide "a basis for contending that the parties intended" KNG to be able to complete the OSJVA Land Play in certain circumstances. Mallesons also emphasised that it was difficult to provide definitive advice because the OSJVA as a whole, which was regarded as a key document, was difficult to interpret. 273 Mallesons also advised that it was "impossible to give definitive advice" on whether or not KNG was at risk of action being successfully taken by one or more of the Joint Venture parties. However, an opinion was expressed that if an action was taken the risk of it being successful was "relatively small". The advice concluded: Accordingly, whilst proceeding in the manner proposed by KNG is not free of risk, in the circumstances, it is reasonable for KNG to do so and, in any case, we doubt that: (a) there are any further steps that could be taken by KNG to further minimise the risk; or (b) as a practical matter, KNG has any other option but to proceed given the financial commitment it has already made in relation to the acquisition of the land and the liability it would incur to Lenen Pty Ltd if the acquisition of the land is not completed. 274 This last matter in paragraph (b) of Mallesons letter was of course focused on KNG's interests rather than the interests of the participants. In an event by the time this letter issued KNG/Stamoulis had already requested and persuaded Lenen to enter into the Put and Call Option with KCOTC and the meeting of 15 March 2001 had occurred. 275 In cross-examination Stamoulis sought to convey that the KCOTC Put and Call Option with Lenen dated 21 February 2001 was really Lenen's idea. Stamoulis agreed that he had discussions with Lenen in relation to what was to be done in relation to the agreements that were in the names of the COTC, Jandawn, KNG and Arts. His evidence was that when he and/or his solicitors spoke to Lenen between November 2000 and February 2001 "we didn't ask them to terminate the original agreement" (tr 274). He said he could not recall informing Mr Wilson (Lenen's adviser) in January 2001 "specifically" that the termination of the Put and Call Options and the Land Contract would best suit KNG's interests (tr 275). He gave the following evidence (tr 276-280): Q. You certainly had discussions with Lenen in relation to what was to be done, didn't you? A. Yes. Q. In those discussions it was agreed that what was to be done was in fact the termination of the old land agreement and the replacement of those with new ones, that's right isn't it? A. Yes, at some point that was discussed. Q. It was discussed and you expressed your agreement to that course, didn't you? A. Yes. Q. In the context of those discussions you would have agreed that the basis to be used for termination of the old contracts was the failure to comply with certain development and approval conditions, wouldn't you? A. Yes. … Q. Whatever the reason for Lenen you certainly agreed to that course of action because it was the best way forward to protect KNG's interest in your mind, wasn't it? A. Yes. Q. That was for two reasons, wasn't it Mr Stamoulis; firstly, you considered that it reinforced the position that the previous joint venture interests in the land were extinguished? A. Yes. Q. And secondly, following from that you thought the strategy of terminating the old land contracts would untangle the land dealings with Lenen from the previous joint venture arrangements? A. Well, this was the only way that they wanted to do it. Q. You mean Lenen. A. Lenen, yeah. Q. I am not asking your attitude as to why Lenen thought it was a good idea, I am asking questions as to your belief, Mr Stamoulis. One of the reasons why you thought it was the best way to move forward was because you thought the strategy of terminating the old land contracts would untangle the land dealings from the previous joint venture? A. Well, the way it was structured here it seemed that that would be the case. Q. And that was a good thing from your point of view? A. At the end of the day it would have been. Q. That is one of the reasons why you were prepared to agree to that course, wasn't it? A. Yes. Q. Another aspect of the strategy that you discussed with Lenen was the issuing of fresh contracts in the name of KCOTC, wasn't it? A. I don't remember the discussions that took place regarding that. Q. It was the case, wasn't it, that contracts were issued in the name of KCOTC? A. Yes, I think so. Q. The issuing of fresh contracts was part of the strategy of terminating the old ones, wasn't it? A. Well, when we entered into those agreements there wasn't a specific strategy to terminate anything, it was just to. It was put in place because Lenen felt that if the original put and call option was not to proceed because of defaults then they had the new one to move into its shoes. … Q. And you were content for contracts to be in the name of KCOTC because your position was that you had a one hundred percent control and ownership of KCOTC, is that right? A. That's right. Q. Your position is that because you had a hundred per cent of the shares in KCOTC you owned and controlled all of KCOTC's assets? A. Yes. … Q. What I put to you is this; at the time that you caused KCOTC to enter into that call option with Lenen in respect of the land, you thought there was no risk from KNG's perspective because you believed KCOTC, because you believed that KNG effectively owned the interests arising from that contract because of KNG's hundred per cent shareholding in KCOTC? A. Yes. Q. Your position therefore is that you caused land to be transferred whichever way you pleased from KCOTC? A. Yes. Q. So that you don't deny that in January you had discussions with Lenen concerning the implementation of that strategy? A. I did have discussions. Q. It concerned those two aspects, firstly the termination of the old arrangements, yes? A. Well, there were a number of discussions starting in December. Q. And the effect of these discussions was that there was agreement reached that firstly there would be a termination of the old contractual arrangements with the joint venturers? A. That may have been discussed a bit later in the piece. Q. But that is at some stage prior to the issuing of notices of termination under the old arrangements? So, to clarify that, some time prior to the termination of the old contractual arrangements between the joint venture and Lenen you agree that you had discussions with Lenen, you agree with that? A. Yes. Q. And you agree that the strategy that was agreed had two components; firstly, the termination of the contractual dealings between the joint venturers and Lenen? A. Only if the original put and call was in default and couldn't remedy that default. Q. But Mr Stamoulis, part of your agreement was, wasn't it, that there would be notices of termination issued for the purposes of triggering the termination of the old contracts, that's the case, isn't it? A. Well, they couldn't just issue notices without the notices being valid. Q. But Mr Stamoulis it was part of your strategy discussions with Lenen you discussed and agreed that notices of termination would be issued in relation to the old joint venturers' contracts, didn't you? A. After the rescission notices were issued and it was obvious that the first put and call option agreement wouldn't be finalised, at the time that was agreed to. Q. Mr Stamoulis, I am saying prior to the issuing of any notice with respect to default, there was a discussion with Lenen in which you agreed that those notices of default would be issued, you agree with that don't you? A. I don't remember. Q. You are saying you seriously don't recall there being any discussions with Lenen in which you discussed the proposed strategy of issuing default notices in respect of the old joint venture contracts? A. There may have been a discussion whereby they flagged that they would issue the default notices if the participants of the original put and call was in default but I don't recollect at the moment the substance of that conversation. 276 Mr Stowe took Stamoulis to Mr Wilson's file note in which it was recorded that Stamoulis considered the termination of the existing Put and Call Option and contract of sale arrangements would "best suit the interests of the parties". The following evidence was then given (tr 280): Q. Are you seriously denying that you were involved in strategy discussions with Lenen in which that strategy was expressly agreed to by KNG as a way of protecting KNG's interests? A. They raised with me the fact that the put and call option was in default, they had issued the rescission notices and they wanted to terminate and I had the other put and call option agreement in place which if the original couldn't be satisfactorily met then the one that KNG was in would effectively fit into the shoes of the first. 277 Stamoulis' failure to disclose to COTC the existence of the Put and Call Option between KCOTC and Lenen and the Guarantee between KNG and Lenen of 21 February 2001 is in my view of some significance in deciding this aspect of the matter. If Stamoulis was of the view that his actions and those of KNG were above board and not in breach of duty to COTC it is more probable that he would have informed COTC that he had made the approach to Lenen. Stamoulis' letter of 28 March 2001 in which he claimed that he 'expected' the Notice of rescission had issued to facilitate KCOTC assuming the Joint Venture obligations to Lenen lacked any candour. He knew very well that KCOTC had already entered into the Put and Call Option with Lenen and that Lenen had promised to terminate the relevant agreements "as quickly as possible". I am of the view that his conduct in this regard and his rather disingenuous discussion with the other participants at the meeting of 15 March 2001 when he had already negotiated the new agreements with Lenen support a finding that Stamoulis believed at the time that KNG was acting in breach of its duty to COTC. Although Stamoulis suggested that he received some "comfort" from Mallesons' letter I do not accept that he believed that what KNG was doing was in accordance with its duty to COTC. It is all very well for Stamoulis to give evidence that he believed KNG was entitled to complete the OSJVA Land Play but the contemporaneous documents and events suggest otherwise. 278 I am satisfied that Stamoulis knew there were difficulties with the September resolution. That is why he sought to have the Minutes of the 25 September 2000 meeting "ratified". His evidence in relation to this matter was illuminating. He agreed in cross-examination that KPMG wrote to the participants after the meeting of 25 September 2000 asking whether Dalglish intended to execute the OSJVA on behalf of COTC. He said that he "may" have turned his mind as to why KPMG asked that question and suggested it may have been "as a matter of completeness". He claimed that he did not think there was anything wrong with the OSJVA (tr 221) and that he did not think it was necessary to take any further steps to ensure that COTC was bound by the OSJVA (tr 222). 279 He gave the following evidence in cross-examination in relation to the suggestion in his (and Mancuso's) letter of 5 October 2000 to Dalglish that, at the meeting on 12 October 2000, the Minutes of the meeting of 25 September 2000 at which the participants, other than COTC, signed the OSJVA, would be ratified (tr 224-226): Q. And Mr Stamoulis, the only purpose in ratifying that agreement was because you thought there was some doubt as to whether it was binding on Club of the Clubs without that ratification? A. Not at all. Q. Well, Mr Stamoulis, why on earth would you bother proposing it be ratified if you had no doubts whatsoever about its binding effect at the time you wrote that letter? A. Ratification was due process with the joint venture on all meetings. Q. Due process for what purpose Mr Stamoulis? A. Well, what do you mean by what purpose? … Q. Mr Stamoulis, I will ask you this question: Why did you propose in your letter of 5 October 2000 that, at the meeting on 12 October, it is "proposed to ratify the minutes of September 25"? A. We called the meeting so we can ratify the 25th of September minutes and cover any other issues. … Q. My question to you is why did you propose that? A. Why did we propose it? Q. Why did you propose it, Mr Stamoulis? A. It wasn't just myself. I had discussions with the others and it was-- Q. No, but why did you for your part propose that the minutes were going to be ratified? A. I proposed that on my part for them to be ratified as a matter of completeness. Q. Why as a matter of completeness did they need to be ratified, in your view? A. Because I felt that due process required ratification so that those minutes can - can be used to move forward. Q. Why did you think due process required ratification? A. Because that's what I thought was required in order to have the minutes move forward and the issues on them. Q. Why did you think that was necessary to have the minutes move forward? A. Because as a matter of course, when meetings are conducted, it was my understanding that ratification would follow at the consequent meeting. Q. Mr Stamoulis, there had already been a purported ratification on the 2nd of October meeting; do you recall that? A. I don't think that was a participants meeting. Q. Mr Stamoulis, I put it to you that the reason why, and the only reason why, you proposed ratification was because you assumed at that stage that, one, Club of the Clubs did not regard itself as being bound; that's correct, isn't it? A. On the 12th of October I realised that. Q. It is not the question I asked you, Mr Stamoulis. At the time you wrote this letter on 5 October, you regarded it as desirable to ratify the overriding supplementary joint venture agreement for two reasons: Firstly, you believed the Club of the Clubs didn't regard itself as being bound; that's correct, isn't it? A. No. Q. And, secondly, you yourself had doubts as to whether Club of the Clubs was in fact bound; that's correct, isn't it? A. I had no doubt at all that they were bound. 280 Stamoulis also gave the following evidence in relation to the meeting of 2 October 2000 and whether he regarded COTC as bound by the OSJVA at the time the guarantee of $10.7 million was provided (tr 227-229): Q. So you didn't make any inquiry at all as to whether Ray, Mr Dalglish, regarded himself as bound by that agreement? A. Well, I - I thought he was bound so-- Q. My question was, you didn't make any inquiries whatsoever at this meeting as to whether Mr Dalglish regarded himself as bound? A. No. Q. Mr Stamoulis, at the very least at this meeting, you were aware of the very distinct possibility that Mr Dalglish did not regard himself as bound by what occurred on 25 September, didn't you? A. Not at all. Q. Mr Stamoulis, before the 6th of October, were there ever any occasions on which Mr Dalglish expressly indicated that he regarded the overriding supplementary as binding on him? A. As binding - no, he never made any comment. Q. Was there ever any single occasion on which you expressly inquired of Mr Dalglish whether Club of the Clubs regarded itself as bound by the overriding supplementary? A. No. Q. I just want to recap where things stood as of the end of 5 October. Firstly, on drafts prior to 25 September, Mr Dalglish had made comments critical of the concept of the overriding supplementary agreement; you agree with that? A. That he had made comments on the draft? Q. Had made comments critical of the overriding supplementary joint venture. We have been through this, Mr Stamoulis. You agree with that, don't you? A. I agree he made comments. I am not sure how critical they were. Q. He had expressed opposition to the concept of the overriding supplementary joint venture agreement, hadn't he? A. No. Q. Do we need to go back to the letter in which he talked about reinventing the wheel, Mr Stamoulis? A. I think I answered that. I didn't know what he meant by that. Q. Mr Stamoulis, you gave evidence in your affidavit that he said that he was not happy with aspects of the joint venture agreement; you recall that? A. Yes, specifically the builder and hoteliers' deadline. Q. And those deadlines remained in the agreement that was signed, didn't they? A. Yes. Q. And, secondly, at a meeting on 2 October, he specifically made reference to the fact that he had not attended the meeting on 25 September; you agree with that? A. Yes. Q. Thirdly, he never expressly indicated that he regarded the overriding supplementary agreement as binding on Club of the Clubs; you agree with that? A. That's right. Q. Fourthly, you had never made inquiries of Mr Dalglish and asked whether he regarded it as binding on Club of the Clubs, had you? A. Only because he never objected. Q. Please answer the question? A. Yes. Q. Fifthly, KPMG had expressly raised the question of whether Club of the Clubs had signed and consented; that's right, isn't it? A. Yes. Q. Sixthly, on 5 October, you convened a meeting for the express purpose of ratifying the minutes of 25 September, didn't you? A. On what date, I am sorry? Q. On the 5th of October? A. That's the letter, yes. Q. And you caused the guarantee to be provided of $10.7 million on the 6th of October, didn't you? A. I think that was the date. Q. In light of those six circumstances I have just referred to, you don't seriously suggest that you were certain as at 6 October that COTC considered itself bound, do you? A. I am sorry, can you repeat the question? Q. You don't seriously suggest that, on 6 October, you considered that you were certain that COTC considered itself bound? A. Yes, I was. Q. Mr Stamoulis, you believed at the very least there was a real possibility that COTC's position was that it was not binding on COTC because it didn't sign and it didn't consent? A. He never objected or commented. Q. My question to you is, you believed that there was a real possibility that COTC did not regard itself as bound? A. No, I didn't think that. Q. In fact, Mr Stamoulis, you thought it was extremely likely that COTC's position was that it did not regard itself as bound, didn't you? A. No, I didn't think that at all. Q. Mr Stamoulis, that evidence is fanciful, isn't it? A. What, my last comment? Q. Correct? A. Look, I don't know how much more clear I can make it. I at no stage thought that Club of the Clubs or Mr Dalglish thought that he wasn't bound by the agreement. 281 Mr Stowe cross-examined Stamoulis in relation to whether the deadlines in the OSJVA for appointment of the builder and hotelier were realistic. It was suggested to Stamoulis that the imposition of these dates was merely to disguise the inevitable confiscation of minority interests in the Joint Venture. Stamoulis denied that this (tr 242) and gave the following evidence (tr 257-258): Q. I ask you outright Mr Stamoulis, why do you think the majority in this case was able to authorise the transfer of COTC's interest to you? A. Well, for one the joint venture agreement allowed it, Mr Dalglish's interest and Mr Shannon's interests were predicated on the clubs concept. They hadn't, wasn't predicated on any monetary contribution and I was offering them the opportunity, an extension of time to make that concept work. If it didn't work and the concept effectively vanished there was merely a situation of acquiring the land and if I was putting a hundred per cent of the money in and taking a hundred per cent of the risk I fail to see how Mr Dalglish can have a 15 per cent interest without putting a dollar in. … Q. You are aware, of course Mr Stamoulis, that if the land play was exercised under the OSJVA it would affect the transfer of COTC's interest from it to you? A. Yes. Q. And because COTC had not signed the OSJVA that transfer would occur without COTC's consent? A. Yes. Q. And I am putting to you, Mr Stamoulis, that you were aware at the time that it was signed at least of the possibility that the transfer of COTC's interest to you without COTC's consent was wrong? A. Not at all. Q. I put it to you that you were aware of at least the possibility that that was a fraud on the minority with respect to COTC's interest? A. No. 282 The answer above in which Stamoulis said that he "at no stage thought that Club of the Clubs or Mr Dalglish thought that he wasn't bound by the agreement" was very robust and I have no doubt was intended to strongly convey Stamoulis alleged mindset at the relevant times. There is no doubt that Stamoulis is an intelligent man. He gave evidence that he is a director of close to ten companies although he said he was not "too sure" of the actual number (tr 242). He also gave evidence of his qualifications which include what he referred to as "a degree in business administration and a corporate management degree as well" (tr 242). He agreed that he was generally aware of the nature of directors' duties and was aware of the notion of fiduciary duties and that joint venturers may owe each other such duties (tr 243). Sometimes when witnesses put on a performance of bravado in the witness box, which I am satisfied this was, they compromise their position. I am afraid that this answer is simply not a true reflection of what Stamoulis actually thought in 2000. Indeed Stamoulis' own evidence indicates that the answer could not be true. It included the following (tr 217-218): Q. Even if you didn't tell him [S Stamoulis] immediately after the meetings, it is the case, isn't it, that some time in the following year you would have advised your father at some stage, firstly COTC did not sign, and secondly COTC did not approve the agreement in the meeting, and thirdly COTC did not regard itself as bound, you would agree with that, wouldn't you? A. At some stage after November 10 I probably would have made him aware of it. Q. There is no doubt about it is there Mr Stamoulis? A. I'm sorry? Q. There is no doubt at all about that, is there? A. No, I would have told him. Q. Once you told him that COTC had neither signed nor approved the agreement and COTC did not regard itself as bound you never told him that COTC expressed a contrary view thereafter? A. I don't recall exactly what I told him, however I did tell him that COTC had not signed. 283 Stamoulis was at the meeting of 12 October 2000 in which Dalglish said in no uncertain terms that the OSJVA was not valid or legal and that the meeting of 25 September 2000 was an "illegal" meeting. I do not accept Stamoulis' evidence that "at no stage" did he think that COTC/Dalglish regarded itself as not bound by the OSJVA. 284 The whole of the evidence extracted above may be read as a fairly robust approach to KNG's perceived rights but I have no doubt that Stamoulis was very concerned at the time of these events that KNG was not acting in accordance with its fiduciary duty to COTC. His secrecy or furtiveness about the KCOTC Put and Call Option, his disingenuous performance at the 15 March 2001 meeting and his claims in his letter of 28 March 2001 evidence his mindset at that time. Additionally his statement to Mr Ray on 25 January 2001, referred to later, that he wanted to wait until the "contractual situation" was resolved is a clear indication that he was aware that a "situation" existed and that it needed resolution. I have no doubt that the "situation" that he was referring to when he spoke to Mr Ray was the fact that COTC did not consent to the OSJVA and did not consent to KNG pursuing the OSJVA Land Play and that he knew that COTC did not regard itself as bound by the OSJVA. The payment of $1.5 million plus GST to Arts/Mancuso is also evidence that Stamoulis knew that KNG owed a duty to share the gains from the Land Play with the other participants. 285 I am satisfied that Stamoulis knew at the time the Land was sold that KNG was in breach of its fiduciary duty to COTC. He knew that KNG was accepting less than the asking price for the Land specifically to facilitate his father's entrée to the Macquarie Joint Venture. He caused KNG to compromise its fiduciary duty to COTC. Accessorial liability – S Stamoulis and KDG 286 The plaintiffs rely upon a number of matters to establish S Stamoulis' and KDG's involvement in the breach of fiduciary duty by KNG. There is little doubt that S Stamoulis played an active role in relation to the funding of the Joint Venture and that he played an active role in the events that led KNG to sell the Land. The evidence establishes that S Stamoulis indicated that he was "comfortable" with $25 million and happy to look at the proposed venture (tr 244-5). S Stamoulis was the director and at least one of the directing minds and will of KDG. He caused KDG to enter into and become a party to the Macquarie Joint Venture and to provide funds to SKD to purchase the Land from KNG. 287 It was submitted that S Stamoulis was obviously aware that KNG was part of the Joint Venture with COTC and that KNG had caused the Land to be sold to SKD. It was further submitted that those facts would communicate to a reasonable person a general understanding that there was a breach of fiduciary duty, unless there was a reasonable basis for inferring that the sale was authorised and consented to by COTC. Stamoulis gave evidence that he informed his father that COTC did not sign the OSJVA and did not approve the OSJVA in writing. As I have said earlier he also informed his father that COTC did not regard itself as bound by the OSJVA. 288 There were a number of other features relied upon by the plaintiffs in support of their submission that S Stamoulis had the requisite knowledge for accessorial liability. In particular it was submitted that there was no basis for any inference that S Stamoulis was aware of the contents of the advice from Mallesons. That is true. It was also submitted that there was no basis for an inference that S Stamoulis was aware of any other matter which may have militated against the reasonable inference that the sale of the Land by KNG to SKD without allowing COTC to share in that sale was a breach of fiduciary duty. 289 The plaintiffs submitted that the absence of any evidence from S Stamoulis is a "classic case" for the operation of an adverse inference pursuant to Jones v Dunkel (1959) 101 CLR 298 at 312. It was submitted that S Stamoulis was unquestionably required to explain the objective inference that he knowingly participated in KNG's pleaded breach of fiduciary duty. There was medical evidence from Dr Sullivan of S Stamoulis' inability to attend Court to give evidence. The plaintiffs submitted that the report from Dr Sullivan makes no mention of any medical condition at a time when the matter was the subject of case management with orders in respect of the serving of evidence. It is true that no statement by S Stamoulis was provided to the plaintiffs. The plaintiffs also submitted that notwithstanding S Stamoulis' medical condition he could have given evidence by videolink or telephone or other mechanism. It was submitted that S Stamoulis' evidence would obviously have been of profound materiality to address whether he was aware that the sale of the Land by KNG to SKD was a breach of fiduciary duty and whether he was aware of any other matters, relevant to whether a reasonable person would draw the inference that the sale of the land was a breach of duty. 290 Stamoulis was cross-examined about his father's knowledge of the various Agreements between the participants. He claimed that his father was not given a copy of those various agreements (tr 209). He also gave the following evidence in cross-examination (tr 333): Q. Mr Stamoulis, if it were the case that you were simply being a conduit of your father's opinion in respect of this matter, can you think of any possible reason why your father was not in a position to communicate his personal views and relied upon you as his conduit? A. Well, to explain that you would have to understand my father, I guess. But I believe he is not, he is not your average businessman. He, his grasp for writing in the English language is not great, he is a, his grasp for speaking is not great and he, he keeps to himself in many respects because of that. And his business methods are, in my view, different to other business people which may be seen by others to be unusual because it is not normal, the way he goes about things at times. 291 This evidence needs to be compared to Stamoulis' evidence that he was a mere conduit for his father in passing on letters and emails from the other participants in the Macquarie Joint Venture. If it were true that S Stamoulis did not grasp writing or speaking English all that well there would appear to have been little utility in passing on those documents to him. Although my understanding of S Stamoulis is informed by the evidence about him and from the contemporaneous documents I am still able to form a view about his knowledge at the time from that evidence, notwithstanding his absence from the witness box and notwithstanding any direct evidence from him by way of a witness statement. However such a process is more cautious when the person whose accessorial liability is being assessed is absent from the witness box. 292 S Stamoulis was the person with the funding for the Joint Venture. This was the first project that Stamoulis had done on his own albeit that his father was funding it. Stamoulis admitted that he kept his father informed of matters to enable him to make a decision to continue to provide the funds. It is clear that he was provided with enough information by Stamoulis to persuade him to provide funding. I do not accept the picture Stamoulis sought to paint of his father as a linguistically challenged loner with at the very least a quirky approach to business methods and perhaps even a rather weird approach to such matters. The evidence establishes that he was a man keen to take up commercial opportunities firstly in becoming involved in the Joint Venture and then making a tidy net profit of some $14 million in the Macquarie Joint Venture. He was the one who called the shots at the time of the negotiations as to the price for the sale of the Land. He said "we are comfortable with $25 million". I am satisfied that this evidence and the Arts invoice and the lack of explanation in relation to it, is evidence and circumstances from which I am entitled to find that S Stamoulis knew at the time the Land was sold that the participants to the Joint Venture were entitled to share in the proceeds and that KNG was in breach of its fiduciary duty to COTC. S Stamoulis was pivotal to KNG's breach of fiduciary duty in accepting less than fair value for the Land. S Stamoulis and KDG ensured that Arts/Mancuso was paid $1.5 million plus GST utilizing the device of an invoice for purported services. S Stamoulis' knowledge is also the knowledge of KDG. 293 I am satisfied that the plaintiffs have established that S Stamoulis and KDG are liable as accessories for the breach by KNG of its fiduciary duty to COTC. Once again the plaintiffs are yet to elect on the relief sought. Breach of fiduciary duty owed to KCOTC by Stamoulis 294 The plaintiffs claim that Stamoulis breached his fiduciary duty to KCOTC by causing KCOTC to nominate KNG to exercise the Put and Call Option dated 21 February 2001 between KCOTC and Lenen, whereby KCOTC transferred a valuable asset to KNG for no consideration. 295 As I have said earlier there was no particular method or mechanism spelt out in any of the Agreements between the participants as to how the Land Play was to be achieved. The Purchase Contract dated 15 June 2000 for the Option A portion of the Land was in the names of the participants. The Put and Call Option was in the names of the participants as were the Deeds of Variation to the Put and Call Option. Although the Put and Call Option anticipated that there would be a novation once KCOTC was incorporated the participants clearly eschewed such novation notwithstanding every opportunity to have KCOTC as a party to the transactions. The participants decided to keep the Put and Call Option and the Purchase Contract in their names. 296 Dalglish was cross-examined in relation to his understanding of KCOTC's position in relation to the purchase of the Land pursuant to the contract dated 15 June 2000. His evidence included the following (tr 67-68): Q. It was your understanding, wasn't it, that the four joint venture participants were in fact the purchasers of the land under that contract of sale? A. I am unable to offer a comment on that. Q. It's obvious, isn't it? A. Why is that? Q. I see, you don't think it obvious? A. There was an unincorporated joint venture and incorporated joint venture. Q. It certainly wasn't true to say, was it, that the company KCOTC to your understanding was the purchaser of this piece of land under the contract of 15 June 2000, correct? A. No, that's not correct. What is correct is that KCOTC was the purchaser. 297 Dalglish was referred to his statement of evidence in which he claimed that KCOTC exercised the option A sale contract with Lenen to purchase Lots 1 and 2 of the Land. In respect of this claim, Dalglish gave the following evidence (tr 68-69): Q. What you really meant to say was that the four joint venture participants exercised the option, correct? A. No. Q. Are you seriously saying to the Court that your understanding was that the company KCOTC exercised the option? A. That's what I'm saying. Q. But the company wasn't a party to the put and call option agreement, was it? A. No, it was not. Q. And it is nonsense to suggest that the company KCOTC exercised an option to which it was not a party, correct? A. No. Q. Do you agree with what I am saying? A. No. Q. Why not? A. Not the last statement. Q. Why not Mr Dalglish? A. Because on the, early in October, I think it was the 3rd or the 5th 1999 KPMG Legal took steps and you will find it in this documentation somewhere. Q. To do what Mr Dalglish? Took steps to do what Mr Dalglish? A. To make KCOTC the incorporated joint venture, the party from then on. Q. But KCOTC was not a party to any put and call option agreement in the year 1999 or the first half of the year 2000, was it? A. Yes it was, it was made a party on, I think it was the 3rd or the 5th of, early in October. 298 Confronted with these rather curious answers Mr Jackman took Dalglish to the Put and Call Option of 18 August 1999 and the Deeds of Variation of 15 June 2000 and 16 September 2000. Dalglish gave the following evidence (tr 69-70): Q. Mr Dalglish, do you agree that KCOTC to your understanding was not a party to the put and call option agreement at this time, that is 15 June 2000? A. I think it's, it is obvious that you're wrong. … Q. Why do you say it is wrong for me to suggest to you that KCOTC was not a party to the put and call option agreement as at 15 June 2000? A. Well, I can't understand why you say that because it was. Q. What explanation, if any, can you give to the Court as to why we do not find KCOTC listed as a party to the put and call option agreement as varied on 15 June 2000? A. This was prepared by Lenen. … Q. You were aware at the time, weren't you, that KCOTC was not referred to as a party to this deed of variation, correct? A. I thought a deed of variation was a variation to a document made before, between certain parties but perhaps I'm wrong. That's what I was under the impression of at that time. Q. Is that the best answer you can give to my question? A. Yes. Q. Turn if you would to page 368 in that bundle? Do you see there a further deed of variation to the put and call option dated 6 September 2000? A. Yes. Q. And the parties to it are the four joint venture participants, correct? A. That's correct. Q. And KCOTC was not a party to the put and call option agreement at that time, correct? A. No, it is not correct. Q. What explanation, if any, can you give her Honour as to why KCOTC is not referred to as a party to the put and call option in this deed of variation? A. Well, this deed of variation has been being negotiated for some time and it was a very simple variation as I remember it. Q. Is that the best answer you can give? A. Yes. 299 Mr Jackman then took Dalglish to two caveats that had been lodged on behalf of COTC. The first of those caveats was dated 23 July 2001 which relied upon the Put and Call Option dated 18 August 1999 and the variation to it of 6 September 2000. The caveat referred to COTC as "one of four purchasers" of the Land with Jandawn, KNG and Arts. Dalglish gave the following evidence (tr 73-74): Q. KCOTC is not referred to as one of the parties to either of those option agreements, correct? A. That is correct but what you are saying is not a complete statement. That is correct. Q. Are you saying that you believed it was false to refer to the four joint venture participants as the parties to the put and call option agreement at the time this caveat was lodged? A. This caveat? Q. Correct? A. Absolutely. Q. I see, so on your instructions a caveat was lodged that you now tell her Honour was false to your belief? A. No. Q. Is that right? A. No, that is absolutely incorrect. Q. Did you believe that the description of the parties to the option agreement in this document was correct at the time it was lodged? A. It was correct as of the time it was speaking of, but I did not know that the caveat had been lifted. Q. You accept, don't you, that when you gave instructions for this caveat to be lodged on about 23 July 2001 you understood the parties to the original option agreement and the variation of 6 September were the four joint venture participants, correct? A. Well, of course they always were. Q. And KCOTC-- A. But at that time I didn't know that that caveat had been lifted by an agreement made on 21 February of that year, I didn't know. 300 Dalglish was also cross-examined in relation to the caveat lodged on behalf of COTC on 24 September 2001 which claimed that COTC had a "beneficial interest" in respect of an undivided 15% share in the land by virtue of a constructive trust arising under the Joint Venture Agreement dated 4 August 1999, the Supplemental Agreement dated 17 January 2000 "and various oral and written amendments thereto". He gave the following evidence (tr 72): Q. As you understood it at the time the COTC, you were claiming, had an interest in the land at Kingscliff, correct? A. Well, I did. Q. And similarly if your claim was correct then as you understood it, Jandawn, Arts and King Network Group also had similar claims over the land, correct? A. Yes. Q. As you saw it KCOTC did not have any beneficial interest in the land at Kingscliff at this time, correct? A. No, that's not correct. Q. What interest, if any, did you believe KCOTC had in the land at this time? A. KCOTC? Q. Yes? A. What it had at this time was a full beneficial interest but I couldn't claim that in this document because my caveat had been illegally and unlawfully lifted without my knowledge. Q. Do you now tell her Honour that you thought in September 2001 that KCOTC had the full beneficial interest in this land? A. Absolutely. Q. I see, and if that were right as you understood it COTC did not have a beneficial interest in the land, correct? A. COTC was a shareholder in KCOTC. Q. That's as you saw it, was it? A. I didn't think, I knew. Q. Wasn't it your understanding that if KCOTC held the full beneficial interest in the land then COTC could not have held any beneficial interest in the land? A. That would be true if the matter were true. The matter is not true. 301 This evidence was clearly inconsistent with the documents produced at the relevant time. That inconsistency was compounded by Dalglish's further evidence as follows (tr 83-85): Q. Given your answers to those questions, can you explain to her Honour exactly what you understand your intellectual property to consist of? A. Yes. Its exercise in this particular project was purely and simply to know that a subdivision application should be lodged instead of a development application. Stop. Every - the then owners of the land had been struggling for ten years to try and get a workable consent from the council for development to go ahead. Q. And a subdivision application is a well-known concept in property development? A. It was indeed. Why didn't they do it? Q. And it struck you as an obvious thing to do, didn't it? A. No. It was obvious only because that was the way to do it, bearing in mind that I had been a consultant to thirty-five of the major councils in Australia in the reforming of their operations. So therefore I know how - or knew how a town plan ought to work. … Q. … You accept, don't you, that the idea of lodging a subdivision application to your understanding didn't give you any proprietary right? A. I didn't need any. I owned it. The land was in my name. Q. Sorry, you are talking now about the land at Kingscliff, are you? A. Yes. Q. When was that land in the name of Ray William Dalglish? A. It was in the name - had it been capable of being registered it would have been in the names of Kingsheath Club of the Clubs Limited and it would have been in the name of Kingsheath Club of the Clubs Limited from early October 1999. And what I owned of it is what Kingsheath Club of the Clubs owned of it, which was all of it. Q. Mr Dalglish, the property was never in your name, was it? A. Beg your pardon? Q. The property was never in your name, the name Ray William Dalglish? A. No. How could it be? Q. During 1999 and 2000 none of the contracts relating to the property were in the name of Kingsheath Club of the Clubs Limited. Correct? A. Well, why did they need to be? Q. Do you accept my proposition, Mr Dalglish? A. I don't think that you have a proposition at all. This - none of this was relative after the 21st February which I didn't know about. The 21st February 2001. 302 In contrast to the suggestion that the contract could have been in KCOTC's name was Dalglish's evidence in relation to a letter from Lenen to Mancuso dated 29 November 1999. In that letter Lenen advised Mancuso that no lien was available on any of Lenen's property "until purchase by Kingsheath has been settled". The letter went on to suggest that arrangements should be made "to finalise a Put and Call and Works Agreement" in the name of Kingsheath as had been previously discussed. Dalglish wrote "no, it needs to stay in COTC JV" next to that suggestion. He was cross-examined in relation to this matter as follows (tr 93): Q. And you insisted in your response that the put and call option and the works agreement needed to stay in the name of Club of the Clubs joint venture, correct? A. At that time. Q. And that was after the month of October 1999 that you were talking about in your evidence earlier this morning, correct? A. This was on the 29th of November 99. Q. And it remained the case, didn't it, in 1999 and right through 2000 that you understood the put and call option agreement and the works agreement were in the names of the four joint venture participants rather than in the name of KCOTC, correct? A. That's the way its documented. 303 The evidence extracted in the above paragraphs borders on the bizarre. There was absolutely no proper basis for Dalglish to claim that KCOTC was the purchaser of the Land having regard to the history between these participants and Dalglish's own evidence in cross-examination. 304 The fact of the matter was that KCOTC had no interest in the Land up to the time that Stamoulis persuaded Lenen to enter into the Put and Call Option with KCOTC dated 21 February 2001. Stamoulis took this step in purported pursuance of the OSJVA Land Play. As such it was not authorised. The Put and Call Option between KCOTC and Lenen dated 21 February 2001 was conditional upon the "valid termination or rescission" of the Put and Call Option between the participants and Lenen and the Purchase Contract between the participants and Lenen (cl 2.1). Lenen agreed to act "as quickly as possible" to terminate or rescind those agreements (cl 2.2). 305 The defendants submitted that KCOTC's acquisition of an interest in the Land under the 21 February 2001 Put and Call Option is properly characterised as the mere implementation of the Land Play under the Supplemental Agreement. The plaintiffs submitted that such proposition is erroneous because at no stage after KNG's election on 21 November 2000 to complete the OSJVA Land Play did Stamoulis or KNG evince an intention to act in accordance with the Land Play provisions of the Supplemental Agreement. It was submitted that such Land Play effectively involved the transformation of the Joint Venture from one concerned with the development of the Land, to one concerned only with its sale. It was further submitted that although the Supplemental Agreement Land Play contemplated that the Land would be sold, the sale was unquestionably within the rubric of the Joint Venture and for the benefit of all participants, evidenced by the fact that they were to share in the gains "pari passu". I agree with this latter submission. 306 It is true that KNG purported to act in accordance with the OSJVA, however as a result of the findings I have made in relation to the September and October resolutions KNG was only authorised to complete the Land Play pursuant to its election of 18 September 2000, that is, pursuant to clause 5 of the Supplemental Agreement. The lack of specificity as to how such Land Play was to be completed allowed KNG to complete the Land Play in the most effective and efficient way it thought fit, so long as it sold the Land for fair or market value and did its best for the other participants in ensuring as many "gains" as possible were achieved and as few "losses" were incurred in which they were to share on a pari passu basis. 307 I am of the view that in the rather complex and unsatisfactory circumstances of this case and as a consequence of my finding that the OSJVA is not a valid or binding agreement, it is appropriate to characterise KCOTC's acquisition of an interest in the Land under the 21 February 2001 Put and Call Option as the mere implementation of the Land Play under the Supplemental Agreement. It was a mechanism that was open to KNG in the absence of any express agreement as to how the authorised Land Play was to be achieved. The participants agreed that KNG could complete the Land Play and it seems to me that clause 11.4 of the Joint Venture Agreement meant that KCOTC would do whatever it could to assist KNG with the completion of the Land Play in accordance with its obligations to the other participants. 308 The proper characterisation of the process is that KCOTC was the participants' nominee to enable KNG to complete the Land Play on the participant's behalf as it was required to do pursuant to clause 5.1(b)(iii) of the Supplemental Agreement. Stamoulis utilised KCOTC in the OSJVA Land Play that I have found was not authorised and such steps were in breach of his duties as a director and in breach of fiduciary duty to KCOTC not to involve it in unauthorised transactions. However I am not satisfied that Stamoulis would have been in breach of his fiduciary duty to KCOTC in utilising it in the process to complete the Land Play under the Supplemental Agreement. 309 Stamoulis' breach in this regard probably entitles KCOTC to nominal damages to be assessed in due course. 310 Although there were accessorial claims against S Stamoulis and KDG in respect of this breach I am not satisfied that the plaintiff has established the requisite knowledge of this breach. This was a process adopted by Stamoulis and there is nothing in the evidence that establishes S Stamoulis' requisite knowledge of this process and/or breach. Breach of Contract by KNG 311 There are two claims made by COTC against KNG for breach of contract. The first is the alleged breach of clause 5 of the Supplemental Agreement in failing to share the profits of the Land Play with COTC on a pari passu basis. The second is an alleged breach of an implied obligation in the Land Play pursuant to the Supplemental Agreement to use its best endeavours to sell the Land at no less than market value. Failure to share profits 312 There does not seem to be any defence to the claim that KNG failed to comply with its obligations under clause 5 of the Supplemental Agreement. I am satisfied that the plaintiffs have established this breach. Implied term - Market Value 313 It appears from the defendants' submissions that there was little resistance to the claim that an implication arose from the terms of the Supplemental Agreement that if KNG made an election to complete the Land Play it would use its best endeavours to sell the Land for no less than fair or market value. However the defendants claim that the plaintiffs have not established that the Land was sold at an under-value. 314 Stamoulis was asked in cross-examination about his opinion of the value of the Land at the time of the sale. He denied that he thought the Land was worth at least $28 million in mid 2001 (tr 237). He was then taken to paragraph 197 of his first witness statement dated 25 October 2005 that referred to a conversation he had on 23 April 2001 with a Mr Sahba Abedian in which Stamoulis stated: "I received your letter. To enable us to consider your proposal we need to agree on a price for the land. I believe its value is 28 million". The following cross-examination then took place (tr 238): Q. At the time you had this conversation Mr Stamoulis did you believe the land was worth 28 million? A. No. Q. Just to make it clear, the question I asked you was at the time of this conversation with Mr Abedian on 23 April 2001 did you believe that the value of the land was 28 million? A. In April 2001, no. Q. Then why did you say it Mr Stamoulis? A. That's what I was trying to recoup, 28 million and that's what I told him I thought it was worth so I can try and entice him to pay that money. Q. What opinion at all did you have as to the value of the land at this stage Mr Stamoulis? A. Well, I didn't think it was much over 20. 315 The available conclusions from this evidence include that Stamoulis gave false evidence when he denied that he believed that the value was $28 million or he made a false representation to Mr Abedian to entice him into a transaction. In any event, Stamoulis gave evidence in his statement of the efforts undertaken by KNG to sell the Land. This included meetings with Consolidated Properties in March 2001, Colliers International at about the same time, Mr Sahba Abedian of Sunland Limited in Melbourne in April 2001 and the Ray Group in mid 2001. The asking price for the Land was $28 million and Stamoulis gave evidence that Mr Ray advised him that he had discussed this price with Consolidated Properties and Macquarie Bank but that they did not believe the asking price of $28 million was representative of the market. Mr Ray argued that the property next door, Casuarina Beach, was two and a half times the size of the Land and that Casuarina Beach did not get much more than $30 million. 316 Stamoulis gave evidence that when Mr Ray put to him that the Macquarie Bank's interest in a Joint Venture would be at a price of $22.5 million, he said that the proposal sounded "great" but said that "we need $28 million". In response to this statement Mr Ray said: "the money you want for the land will be recouped in the project. This is an opportunity. Harry look at the players we have ready to do a deal". It was during this discussion with Mr Ray and the representative of the Macquarie Bank that the price of $25 million was agreed to as a compromise between the two amounts $28 million and $22.5 million. S Stamoulis said, "we are comfortable with $25 million and happy to look at the proposed joint venture". 317 The defendants submitted that Stamoulis' detailed evidence of KNG's attempts to sell the Land were not challenged. That is true. There is no evidence of any higher offer from any other party. The price was agreed in principle on 21 June 2001 and there is no expert evidence in the case directed to a valuation at that time. However the plaintiffs claimed that Stamoulis frustrated negotiations in relation to the sale of the Land. In this regard reliance was placed on a file note made by Mr Barclay recording the contents of a telephone conversation with Mr Ray on 25 January 2001. That note included a statement by Stamoulis that he wished to await the resolution of what was referred to as the "contractual situation" before proceeding to negotiate for the sale of the Land. The plaintiffs submitted that this evidence supports a finding that Stamoulis was seeking to "shut out" the other participants from dealing with the Ray Group. I disagree. By January 2001 the relationship between the participants was less than satisfactory. The Joint Venture was in financial distress. The only certain way that funding could be obtained was through KNG and the "contractual situation" was obviously complicated. It is obvious that KNG was seeking advice from Mallesons and although I have found that KNG acted in breach of its fiduciary duty I have no doubt that at least in January 2001 Stamoulis was hoping that the "contractual situation" could be resolved and indeed should be resolved before the sale of the Land was finalised. 318 It seems to me that Stamoulis stumbled badly in February 2001 when he made what I have referred to earlier as the "secret" arrangements with Lenen in respect of the new Put and Call Option between KCOTC and Lenen and the guarantee between KNG and Lenen. I do not believe that what he said in January 2001 was for the purposes of frustrating negotiations for the sale of the Land by other participants. Indeed it has to be remembered that in January 2001 Stamoulis advised Shannon that KNG was willing to divest itself of its interests in the Project and the Joint Venture for $16.5 million. COTC and/or Jandawn were unable to raise such funding to buy KNG out. 319 An additional matter that convinces me that the plaintiffs' submission in this regard lacks foundation is the history recounted earlier in relation to the approaches made by Dalglish's/COTC's solicitors to KNG in relation to the possible purchase of KNG's interest in the Land and the Joint Venture. That correspondence is dealt with elsewhere but it does not seem to me to be consistent with an attempt to frustrate the sale of the Land. 320 The plaintiffs submitted that the Land was sold by KNG at a discount to facilitate S Stamoulis' entry into the Macquarie Joint Venture. The defendants submitted that this claim has to be balanced with the fact that KDG was required to put capital into the Macquarie Joint Venture. Even accepting that to be the case I am satisfied that Stamoulis/KNG accepted $25 million because S Stamoulis wanted entrée to the Macquarie Joint Venture and because S Stamoulis was "comfortable" with $25 million. I am also satisfied that the suggested prospect of recouping the balance of the asking price ($3 million) from the Macquarie Joint Venture caused Stamoulis/KNG to accept $25 million. Valuation evidence 321 The plaintiffs relied on the evidence of Brian Cox, a registered valuer carrying on practice in Queensland. There are two reports from Mr Cox, the first dated 25 October 2005 (first report) and the second dated 12 June 2006 (second report). The defendants relied upon the evidence of Garrie Raymond Love, a senior director of C B Richard Ellis (C) Pty Ltd and valuer, also carrying on practice in Queensland. 322 The two valuers approached the task of valuing the land using different methods. Mr Cox used the comparative sales method and Mr Love used the discounted cash flow method that utilised comparative sales relative to the various products that were to be developed. Both valuers referred to the development south of the subject land known as Casuarina Beach Estate. Brian Cox 323 Mr Cox was involved in valuing the Land during the Joint Venture. His valuation dated 31 August 2000 (the 2000 Valuation) valued the Land at $20 million with a gross realisation value of $48.686 million. In the 2000 Valuation Mr Cox referred to the traditional methods of valuation of a property of the nature of the Land as consisting of two "basic" methods: the direct comparison method; and the residual cash flow analysis. The 2000 Valuation included the following in relation to the valuation rationale: The direct comparison method is used as the basic valuation method, particularly given the nature of the subject property, in addition to its scope for development alternatives and assumptions. The resultant value is then tested by way of the residual cash flow analysis. This is a preferred approach utilised by sophisticated land developers, however is more relevant with a specific development scheme in place. 324 In his first report Mr Cox said this in relation to the 2000 Valuation: Those valuations were made based on a development plan prepared by Bligh Voller Neild Architects representing an interpretation of initial concept plans devised by Victor G Feros Town Planning Consultant, which accorded with the May 2000 approval. These initial concept plans conformed with the previous 1987 LEP but were specific to a particular "Club of the Clubs" concept as envisaged by the developer. This development provided for an 18 hole golf course occupying a significant proportion of the site, at the expense of developing saleable real estate product on that area. While the May 2000 approval comprised 600 twin keyed condominiums, hotel units or attached houses, the valuation adopted 1110 entitlements largely represented by the number of rooms produced by this product. The applied rate per entitlement (approximately $18,000) reflected the increased numbers of less valuable entitlements. An LEP dated May 2000 had been issued at the date of the August valuation, which permitted similar density but a variation to allowable product type. This variation permitted, with consent, dwelling houses, providing their number did not exceed the total number of units/rooms for tourist accommodation. However on instructions the valuation was made on the basic assumption which ignored this beneficial deviation from both the old LEP, and from the specific Club of the Clubs concept. 325 It was suggested to Mr Cox in cross-examination that the 2000 Valuation did take into account the new LEP. Mr Cox resisted that suggestion and gave evidence that the 2000 valuation was based on the Club of the Clubs concept that in turn was based on the 1987 LEP (tr 189). He suggested that the 2000 Valuation was a hybrid of the Club of the Clubs product but not including a premium that attached to the timeshare sales (tr 191). He suggested that such concept was an inferior product to that which was ultimately redesigned and subsequently sold (tr 192). 326 The 2000 Valuation reached a value per entitlement of $18,000. For the purposes of his first report Mr Cox was asked to assess the market value of the site as at 23 January 2002 and 25 June 2002. He was also requested to assess the "Put and Call Price" of the Land as at 23 January 2002. Mr Cox valued a rate per entitlement of $30,000 as at 23 January 2002. That translated into a market value at that date of $33 million. He then valued the rate per entitlement at 25 June 2002 at $35,000 which translated into a market value of of $37 million. He assessed the market value as at the date of the Put and Call option of 23 January 2002 at $35 million. 327 In cross-examination Mr Cox accepted the validity of the discounted cash flow analysis but indicated that he did not have the time to produce such an analysis. In re-examination he said that such a process would "span weeks" (tr 204). It is not clear to me why such a process could not have been embarked upon prior to trial because Mr Cox was provided with Mr Love's analysis as long ago as October 2005. It is apparent that he was simply not asked to provide such an analysis. The defendants submitted that Mr Cox's reports were flawed because he failed to provide such an analysis. In this regard the defendants relied upon Mr Cox's endorsement of the method in the 2000 Valuation as the "preferred approach". That statement in the 2000 Valuation has to be read in context. The context was the utilization of that approach to "test" the value resulting from the direct comparison method. Garrie Raymond Love 328 As I have already said Mr Love embarked upon a different analysis and provided a series of valuations of the site. Those valuations were: (1) "As is" site value of $28.5 million; (2) Stage 1A land value with Development Approval at $15 million; (3) Stage 1B land value with Development Approval at $1.9 million; (4) Residual en globo value after development of stages 1A and 1B without Development Approval at $27 million; (5) Stage 1A gross realisations at $61.455 million; and (6) Stage 1B gross realisations of resort units at $52 million and commercial premises at $11.69 million. 329 Mr Love described Stage 1A as comprising 27 beachfront blocks, 6 of which were larger signature lots and 21 being standard sites. In applying a value to the beachfront lots reference was made to sales within Casuarina Beach Estate and also to sales of beachfront property within other Tweed Coast localities. Mr Love expressed the view that the most comparable evidence was in the Casuarina Beach Estate because it shared a similar locality and similar but slightly inferior land with inferior ocean views. Stage 1A also had a number of beach side blocks within it. The blocks at the Casuarina Beach Estate were narrower parcels of land. That was a matter that Mr Love took into account in his valuation. 330 Mr Love described Stage 1B as the built product in the Outrigger Resort. The subject units comprise a mixture of one and two bedroom self-contained units. The smallest unit was 70.5 square metres including a balcony and all are of a size suitable for most financiers for end-retail financing. Some of the units in this Stage have views over the ocean and towards the hinterland. Nearly all have some form of view whether it is hinterland or ocean or ocean glimpses over the roofs of adjoining houses. 331 Mr Love used comparable sales in the analysis of both Stages. One of the factors built into Mr Love's valuation was the unknown outcome of an application to the local council to adjust or amend the approval. Mr Love expressed the view that in the overall context of the valuation, a 5% discount was a minor matter (tr 372). He accepted that if one were to take out the possible double counting of infrastructure included in the two stages, the overall valuation would be higher but would need to be discounted for the sheer size of the development. He accepted that the repetition or double counting of the infrastructure costs meant that the valuation should be higher (tr 375). Value 332 The plaintiffs final submissions did not contest the valuation made by Mr Love of $27.1 million (being the $28.5 million less the 5% discount of $1.4 million) subject to three qualifications. The first qualification related to the amount of discount for the "town planning risk". The plaintiffs accepted that any quantum of reduction is difficult and endorsed Mr Love's suggestion that it is very much "opinion based". Both experts agreed that some discount should be applied. The plaintiffs submitted that an appropriate risk would be no more than half of what was allowed by Mr Love being $1.5 million resulting in a figure of $750,000. That seems to me to be an appropriate figure by which to adjust the amount. 333 The second qualification related to the alleged erroneous assumptions by Mr Love in relation to projected sales rates. Mr Love assumed a sales rate of 8 per month and agreed that if such rate were doubled, it would have a very significant impact on the overall discounted value. Mr Cox reviewed the Casuarina sales schedules and concluded that the rates of sale within the relevant periods were in the order of 16-20 per month. The plaintiffs claim that there could be no reasonable criticism directed at them for not reproducing Mr Love's discounted cash flow analysis. I am not so sure about that. As I have said earlier, Mr Cox had Mr Love's report in October 2005 and gave evidence that such an analysis could be produced within "weeks". Be that as it may, the plaintiffs' submission was that a reasonable adjustment would be in the order of $1 million. I am of the view that some adjustment should be made and that a reasonable amount in the circumstances is $850,000. 334 The third qualification was that there should be an adjustment to the value of $27.1 million to reflect the "Put and Call Price". I am satisfied that there should be an adjustment in this regard and that an appropriate premium is 5%. The valuation with the adjustments of $750,000 and $850,000 results in a figure of $28,700,000. Adjusting that figure by 5%, $1,435,000, results in a final figure of $30,135,000. Under-value 335 I am satisfied that KNG's best endeavours were compromised by the desire to facilitate S Stamoulis' entrée into the Macquarie Joint Venture. The prospective joint venturers who were keen to enter into the Memorandum of Understanding in June 2001 were certainly companies of financial substance and if the factor of trying to facilitate his father's entrée into the Macquarie Joint Venture had been removed I have little doubt that the asking price could have been achieved. The value of the Land in January 2002 was $30.135 million. 336 KNG did not use its best endeavours to sell the Land at fair or market value. It knew that the Ray Group was interested as early as January 2001. It was steered on a course by its director who, I am sure, felt constrained in the way that he marketed the Land because of his concern over the "contractual situation". KNG promised in the MOU that it would not seek to negotiate with any other parties once the figure of $25 million was struck in June 2001. It ceased any further efforts to market the Land in July 2001. KNG/Stamoulis had little difficulty persuading the prospective Macquarie Joint Venturers to pay $25 million and I have little doubt that if S Stamoulis had not stepped in and ended the negotiations by stating that he was comfortable with $25 million and a part of the Joint Venture, the market value could have been achieved. 337 I am satisfied that KNG breached clause 5 of the Supplemental Agreement by failing to sell at fair or market value of $30.135 million and failing to share the gains on a pari passu basis with COTC. Damages will be assessed in due course. Inducing breaches of contract 338 COTC claims that Stamoulis, S Stamoulis and KDG induced or procured KNG to breach the Supplemental Agreement. The plaintiffs relied upon the following statement in C Thomson & Co Ltd v Deakin [1952] Ch 646 at 694 per Jenkins LJ: … there seems to be no doubt that if a third party, with knowledge of a contract between the contract breaker and another, has dealings with the contract breaker which the third party knows to be inconsistent with the contract, he has committed an actionable interference. 339 Reliance was also placed on the following passage from Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 in which the Court said at 512: 171. The position may be stated, we think, as follows. The plaintiff must prove that the defendant intentionally procured the breach. The requirement that the defendant have sufficient knowledge of the contract is a requirement that he have sufficient knowledge to ground an intention to interfere with contractual rights. Ignorance of the existence of the contract or of its terms born of inadvertence or negligence is not enough. On the other hand, reckless indifference or wilful blindness to the truth may lead to a finding of the necessary intention. 340 For the reasons given earlier in relation to the breach of fiduciary duty, I have no doubt that Stamoulis knew that KNG was obliged to achieve fair or market value in the Land Play and that in allowing his father to "call the shots" in the negotiations and accept the $25 million on the basis that KDG, KDG, of which he was a shareholder, would have an interest in the Macquarie Joint Venture, KNG was in breach of its contract with COTC. I am satisfied that he induced KNG to breach its contract with COTC. 341 It was claimed that S Stamoulis/KDG knew that KNG had not advertised the Land; that KNG had failed to obtain a valuation of the Land; that KNG had failed to sell by public auction; and that the sale between KNG and SKD was a transaction in which KNG had interests which conflicted with the obligation to obtain the best price reasonably possible in relation to the Land; namely the interest of procuring for KDG an opportunity to participate in the Macquarie Joint Venture. 342 I have referred earlier to Stamoulis' evidence in relation to the information that he provided to S Stamoulis. Once again, in the absence of any evidence from S Stamoulis caution is needed in this assessment. It is obvious from Stamoulis' evidence that S Stamoulis took over the negotiations when it reached a point when S Stamoulis decided that he would be "comfortable" with $25 million with an entrée to the Macquarie Joint Venture. I have already dealt with the Arts invoice. That evidence and the absence of any evidence from S Stamoulis viewed in the surrounding circumstances referred to earlier convince me that S Stamoulis knew that the participants were entitled to a share of the proceeds of the sale of the Land and I have no doubt that he knew that the figure reached was to suit him and not them. He was intervening in the affairs of KNG albeit that his son was allowing him to do so in these negotiations. I am satisfied that he induced KNG to breach its contract with COTC. Based on the same reasoning, KDG is also liable in this respect. COTC and IMF/KCOTC debts claims against KNG 343 The total unpaid debts of KCOTC amount to $1,200,420.24. The debts claimed in the Third Further Amended Summons are set out in annexure A as follows: Annexure "A" Date Creditor Quantum 28 July 2000 Bligh Voller Nield $132,288.43 October 2000 Bridges Project Consultants $6,270 11 August 2000 7 September 2000 12 October 2000 Cardno MBK $109,147.50 10 November 2000 6 December 2000 March 2003 CB Richard Ellis $2,500 May 2003 Geoff Provest of the Tweed Heads Bowling Club $8,242.50 King Network Group $250,000 Soundhouse Studios $4,339 Structured Risk Alternatives $11,838.01 Thomson Wolveridge & Perrett Pty Ltd $7,920 31 August 2000 Tribal Pty Limited (SMS Management & Technology) $46,274.80 Arts Finance Pty Limited $117,100.00 Jandawn Pty Limited $157,000 Club of the Clubs Pty Limited $347,500 TOTAL $1,200,420.24 70% $840,294.17 344 The claim in the Third Further Amended Summons is that by reason of the May Agreement KNG is contractually liable, at the suit of COTC, to indemnify KCOTC in the amount of $840,294.17, being 70% of the total unpaid debts incurred by KCOTC. 345 The May Agreement included "Step 3" of the "Action Plan". There is no issue between the parties that such Step made clear that the obligations to pay the related party creditors arose only when both the Heads of Agreement with BHE and the underwriting by a hotelier had been arranged. There is also no issue that such precondition was not fulfilled. In those circumstances the amount should exclude the amounts in relation to the related parties being KNG ($250,000), Arts ($117,100), Jandawn ($157,000) and CTOC ($347,500). That reduces the claim to $328,820.24 of which 70% is $230,174.17. 346 The plaintiffs agreed that COTC has not fulfilled its obligation under the May Agreement to pay 15% of all debt. The defendants claimed that in order to obtain relief in equity, COTC is obliged to do equity, by fulfilling its own obligations. This was on the basis that the way in which the plaintiffs' claim is framed is for a decree of specific performance of the kind approved in Beswick v Beswick [1968] AC 58. The plaintiffs concede that COTC is obliged to fulfil its own obligations and they consent to the orders sought in KNG's cross-claim seeking indemnity from COTC on the same basis. 347 The defendants submitted that the May Agreement was clarified and amended by the OSJVA. Having regard to my findings in respect of the OSJVA I am not satisfied that the adjustment to the May Agreement was approved and accordingly the position is that KNG is liable to pay $230,174.17. 348 There was an alternative claim by IMF that it is the beneficiary of a trust of promises made in the May Agreement. I agree with the defendants' submissions in this regard that there is no evidence of any intention to create such a trust and that it would have been contrary to the intention of the Joint Venture Agreement for the participants to confer on KCOTC paramount rights against themselves. I also agree with the submission that KCOTC was intended to act as a trustee for the relevant stakeholders, not the other way around. In any event I am satisfied that the claim at the suit of COTC succeeds. Conclusion 349 COTC has established that: (1) the OSJVA is not a valid and/or binding agreement on COTC; (2) that KNG breached its fiduciary duty to COTC in selling the Land at an under-value and failing to share the gains from the sale of the Land with it; (3) that Stamoulis, S Stamoulis and KDG are liable as accessories for KNG's breach of fiduciary duty to COTC; (4) that KNG breached the terms of the Supplemental Agreement; and (5) that S Stamoulis and KDG induced KNG to breach the Supplemental Agreement. KCOTC has established that Stamoulis breached his fiduciary duty by involving KCOTC in an unauthorised transaction. COTC also succeeds against KNG in respect of its proportion of KCOTC's unpaid debts. KNG is entitled to an order on its cross-claim against COTC for its proportion of KCOTC's unpaid debts. 350 Damages are yet to be assessed. Draft Short Minutes of Order may be prepared to reflect these findings and any agreed orders in respect of damages or any other aspect of the matter. The matter will have to be re-listed for further directions in relation to the finalisation of the matter. The parties should make contact with my Associate by no later than 8 December 2006 to re-list the matter. ******************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.