New South Wales Supreme Court CITATION : Short v Crawley (No. 30) [2007] NSWSC 1322 HEARING DATE(S) : 13/02/06 – 17/02/06, 20/02/06 – 24/02/06, 27/02/06 – 02/03/06, 06/03/06 – 10/03/06, 13/03/06 – 17/03/06, 20/03/06 – 23/03/06, 27/03/06 – 31/03/06, 03/04/06 – 07/04/06, 10/04/06 – 12/04/06, 21/04/06, 01/05/06, 04/05/06, and 08/05/06 – 12/05/06 JUDGMENT DATE : 26 November 2007 JURISDICTION : Equity Division JUDGMENT OF : White J DECISION : Plaintiffs to bring in short minutes of order in accordance with the reasons. CATCHWORDS : CORPORATIONS – Oppression – Numerous instances of oppression by director of companies – Remedies – Winding up – Whether discretion to order winding up should be exercised – Order to wind up a solvent company only as a last resort – Appropriate remedy a compulsory purchase order – Valuation of shares. - EQUITY – Fiduciary duties – Causation – Breach of obligation to act for proper purpose distinguished from failure to disclose improper purpose – Consideration of application of principle in London Loan and Savings Co of Canada v Brickenden [1934] 3 DLR 465 – Director precluded from alleging would have derived profits irrespective of improper purpose – Liable to account for profits derived – No liability to pay equitable compensation where loss would have occurred irrespective of breach of duty. - EQUITY – Breach of fiduciary duty – Remedies – Account of profits – Director and third party company under his control each received benefit from director's breach of duty – Third party company with full knowledge that profits derived by reason of fiduciary's breach – Purpose of account of profits considered – Each liable to account for profits derived by them from fiduciary's breach – Entitlement to claim just allowances for skill, expertise and labour. - EQUITY – Fiduciary duties – Conflict of interest – Director owing concurrent fiduciary duties as solicitor – Duties as director owed in addition to duties owed as solicitor – Onus on fiduciary to show that fully informed consent obtained – What constitutes fully informed consent – Circumstances requiring independent advice. - LIMITATION PERIODS – Application of Limitation Act 1969 (NSW) by analogy – General rule that statutory limitation period applied by analogy only if court satisfied it is just to do so – Where account ordered for breach of fiduciary duty not constituting a breach of trust, analogy prima facie drawn between action to account at law and action to account in equity – Limitation period applicable to account at law applied where reliance on statute of limitations by analogy not unconscionable. - EQUITY – General principles – Equitable defences – Laches and delay – Equitable doctrine of laches applies where Limitation Act does not apply either directly or by analogy. - EQUITY – Fiduciary duties – Directors' duties to shareholders – Consideration of circumstances in which directors may owe fiduciary duties to shareholders. - MEETINGS – Voting – Circumstances in which directors interested in transaction may vote on resolution to enter into transaction – Articles providing that interested director may vote where disclosure in certain manner made – s 231, Corporations Law - s 123, Companies Act 1961 (NSW) – Whether Article applicable where only two directors, both personally interested in transaction – Continuing underlying requirement that directors act in accordance with fiduciary duties when voting notwithstanding that declaration of interest made in accordance with articles. Real Property Act 1900 (NSW) Companies Act 1961 (NSW) Corporations Act 2001 (Cth) Corporations Law 1989 (Cth) Companies (NSW) Code 1981 (NSW) Limitation Act 1969 (NSW) LEGISLATION CITED : Legal Profession Act 1987 (NSW) Legal Profession (Trust Account and Controlled Money) Regulations 1988 (NSW) Legal Profession Reform Act 1993 (NSW) Supreme Court Rules 1970 (NSW) Income Tax Assessment Act 1936 (Cth) Conveyancing Act 1919 (NSW) Company Law Review Act 1998 (Cth) Companies (Qld) Code 1981 (Qld) Short v Crawley (No. 25) [2005] NSWSC 928 Shum Yip Properties Development Ltd v Chatswood Investment & Development Co Pty Ltd (2002) 166 FLR 451; 40 ACSR 619 Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No. 6) (2007) 63 ACSR 1 Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 Wagner v International Health Promotions (admin appointed) (1994) 15 ACSR 419 Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756; 5 ACLC 1,076 Roden v International Gas Applications (1995) 18 ACSR 454 Poliwka & Anor v Heven Holdings Pty Ltd (No. 2) (1992) 8 ACSR 747 Hotien Holdings Pty Ltd v Frits Maré (2007) 25 ACLC 854 Maguire v Makaronis (1997) 188 CLR 449 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 Briginshaw v Briginshaw (1938) 60 CLR 336 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 London Loan and Savings Co of Canada v Brickenden [1934] 3 DLR 465 Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 Commonwealth Bank v Smith (1993) 42 FCR 390 Farrington v Rowe McBride & Partners [1985] 1 NZLR 83 Stewart v Layton (1992) 111 ALR 687 Gemstone Corporation of Australia Ltd v Grasso (1994) 62 SASR 239 Wan v McDonald (1992) 33 FCR 491 Nocton v Lord Ashburton [1914] AC 932 Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1 State Bank of New South Wales v Chia (2000) 50 NSWLR 587 Janesland Holdings Pty Ltd v Simon & Monti [2000] ANZ ConvR 112; [1999] ACTSC 35 Mills v Mills (1938) 60 CLR 150 Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 Henville v Walker (2001) 206 CLR 459 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Riley, New South Wales Solicitors Manual, Trust Account and Controlled Money, Butterworths, March 1992 Stewart v Strevens [1976] 2 NSWLR 321 Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 Hawkins v Clayton (1988) 164 CLR 539 Phipps v Boardman [1965] 1 Ch 992 Law Society of NSW v Harvey [1976] 2 NSWLR 154 O'Reilly v Law Society of NSW (1988) 24 NSWLR 204 Woolworths Ltd v Kelly (1991) 22 NSWLR 189 The Duke Group (in liq) v Alamain Investments Ltd [2003] SASC 415 Barker v Duke Group Ltd (In Liq) (2005) 91 SASR 167; [2005] SASC 81 Hewitt v Henderson [2006] WASCA 233 Brightwell & Ors v RFB Holdings Pty Ltd (2003) 44 ACSR 186 Tyler, Young & Croft, Fisher & Lightwood's Law of Mortgage, 2nd Australian ed (2005) Chatswood, Butterworths Meagher, Heydon & Leeming, Meagher, Gummow & Lehane's Equity, Doctrines & Remedies, 4th ed, (2002) Chatswood, Butterworths Sims v Craig Bell & Bond [1991] 3 NZLR 535 Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 Alati v Kruger (1955) 94 CLR 216 Aberdeen Railway Co v Blaikie Bros (1854) 2 Eq Rep 1281; [1843-60] All ER Rep 249 Devaynes v Noble, Baring v Noble, Clayton's Case (1816) 1 Mev 529; 35 ER 767; [1814-23] All ER Rep 1 Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL 189 Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 Parker v Paton (1941) 41 SR (NSW) 237 Hampton Court Ltd v Crooks (1957) 97 CLR 367 Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation [1985] 1 NSWLR 561 Krstik v Brindley [2006] NSWSC 1414 R v McNeil (1922) 31 CLR 76 Urquhart v McPherson (1880) 6 VLR (E) 17 Tito v Waddell (No 2) [1977] Ch 106 McGee v Yeomans [1977] 1 NSWLR 273 Greater Lithgow City Council v Wolfenden [2007] NSWCA 180 O'Sullivan v Management Agency & Music Ltd [1985] QB 428 Warman International Ltd v Dwyer (1995) 182 CLR 544 Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No. 2) [1984] WAR 32 CASES CITED : Bailey v Namol Pty Ltd (1994) 53 FCR 102 Boardman v Phipps [1967] 2 AC 46 Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440 Guinness plc v Saunders [1990] 2 AC 663 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Cook v Deeks [1916] 1 AC 554 Slatter v Railway Commissioners (NSW) (1931) 45 CLR 68 Boreland v Docker [2007] NSWCA 94 888 Casino & Tavern Pty Ltd v Hurlfobe Pty Ltd (1997) 8 BPR 15,505 Chan v Zacharia (1984) 154 CLR 178 Stern v McArthur (1988) 165 CLR 489 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 DKLR Holding Co. (No. 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 Re Transphere Pty Ltd (1986) 5 NSWLR 309 Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 Dalgety Downs Pastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR 335 Bond Corporation Pty Ltd v White Industries Ltd [1980] 2 NSWLR 351 Kingston v Keprose Pty Ltd (No 3) (1987) 11 NSWLR 404 Percival v Wright [1902] 2 Ch 421 Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 Brunninghausen v Glavanics (1999) 46 NSWLR 538 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Coleman v Myers [1977] 2 NZLR 225 Ngurli Ltd v McCann (1953) 90 CLR 425 Youdan, Equity, Fiduciaries and Trusts (1989) Carswell, Toronto Charlton v Baber (2003) 47 ACSR 31 Re Jarvis (decd); Edge v Jarvis [1958] 2 All ER 336 Clegg v Edmondson (1857) 8 De GM & G 787 Re Hampshire Land Company [1896] 2 Ch 743 J C Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1 Furs Ltd v Tomkies (1936) 54 CLR 583 Centofanti v Eekimitor Pty Ltd (1995) 65 SASR 31; (1995) 15 ACSR 629 Re Bright Pine Mills Pty Ltd [1969] VR 1002 Australian Growth Resources Corporation Pty Ltd (receivers and managers appointed) v Van Reesema & Ors (1988) 13 ACLR 261 R v Byrnes (1995) 183 CLR 501 Toms v Cinema Trust Company Ltd [1915] WN 29 AM Spicer & Son Pty Ltd (in liq) v Spicer (1931) 47 CLR 151 Anaray Pty Ltd v Sydney Futures Exchange Ltd & Ors (1988) 6 ACLC 271 Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18 Adrenalin International Powersports Pty Ltd v John Caines Management Pty Ltd [2004] FCA 206 Short v Crawley [2004] NSWSC 752 University of New South Wales v Moorhouse (1975) 133 CLR 1 Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 Netbush Pty Ltd v Fascine Developments Pty Ltd (2005) 189 FLR 320 Deputy Commissioner of Taxation of the Commonwealth of Australia v Casualife Furniture International Pty Ltd (2004) 9 VR 549 Macquarie Bank Ltd v TM Investments Pty Ltd (2005) 223 ALR 148 Re London School of Electronics Ltd [1986] Ch 211 Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 Profinance Trust SA v Gladstone [2002] 1 WLR 1024 Scottish Co-operative Wholesale Ltd v Meyer [1959] AC 324 Re a Company [1983] 2 All ER 854 Re Bodaibo Pty Ltd (1992) 6 ACSR 509 Bagot Well Pastoral Company Pty Ltd; Shannon v Reid (1992) 9 ACSR 129 Shirim Pty Ltd v Fesena Pty Ltd [2002] NSWSC 10 United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 Re a Company (1986) 2 BCC 99,453 Re a Company (1986) 2 BCC 99,495; also cited as Re Cumana Ltd [1986] BCLC 430 In the Matter of Rankine Bros Pty Ltd (3 April 1998, de Jersey CJ, unreported; BC9801022) In re Bird Precision Bellows Ltd [1986] Ch 658 CVC/Opportunity Equity Partners Ltd v Almeida (Cayman Islands) [2002] UKPC 16 Virdi v Abbey Leisure Ltd; Re Abbey Leisure Ltd [1990] BCLC 342 Roslyn Short as executrix of the estate of the late Warwick Gordon Short PARTIES : v Christopher Crawley & 9 Ors (No. 30) FILE NUMBER(S) : SC 2824/98 Plaintiffs: I M Jackman SC & T M Thawley COUNSEL : 1st-6th Defendants: R Weber SC & M Meek 7th-9th Defendants: L Robberds QC & J V Gooley Plaintiffs: Kemp Strang SOLICITORS : 1st-6th Defendants: Blake Dawson Waldron 7th-9th Defendants: James Tuite & Associates IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WHITE J Monday, 26 November 2007 2824/98 Roslyn Short as executrix of the estate of the late Warwick Gordon Short v Christopher Crawley & 9 Ors (No. 30) JUDGMENT CONTENTS Section 1 Introduction Page 3 Para [1] Section 2 Elizabeth Street Centre Development 66 [193] Section 3 Legal Fees 151 [444] Section 4 Advances at 17.5% Interest 175 [511] Section 5 Deed of Acknowledgement of 30 June 1994 206 [588] Section 6 Accounting and Management Fees to 30 June 1997 238 [668] Section 7 The Australian Youth Hotel 285 [770] Section 8 Racecourse Hotel Partnership 293 [794] Section 9 Springsley Share Purchase and Aldonet Loan 307 [843] Section 10 Account of Profits on Aldonet Loan 358 [973] Annexures 397 Section 11 Fees or Salary for Mr Crawley's Service as Managing Director 402 [1054] Section 12 Accounting and Management Fees After 30 June 1997 428 [1107] Section 13 Provision of Information After 1 July 1997 436 [1122] Section 14 Unpaid Tax on Yurong Street Development 454 [1175] Section 15 The Hotdog Stand 468 [1209] Section 16 Loan from the Short Family Superannuation Fund 471 [1218] Section 17 Appropriate Remedy 472 [1220] Section 18 Conclusions 508 [1301] SECTION 1 - Introduction 1 HIS HONOUR: This is an oppression suit relating to the affairs of J & J O'Brien Pty Ltd and Marsico Pty Ltd. The second plaintiff, Nabatu Pty Ltd, holds one of three issued shares in each of J & J O'Brien and Marsico. It is the trustee of the Short family settlement trust. The directors of Nabatu were Mr Warwick Short and Mrs Roslyn Short. Mr Short died on 14 February 2004. At all material times until 25 July 1997 Mr Short was a director of J & J O'Brien and Marsico. 2 The first defendant, Mr Christopher Crawley holds one share in J & J O'Brien and Marsico. At all material times he has been a director of J & J O'Brien and Marsico. 3 The remaining share in each of J & J O'Brien and Marsico is owned by the eighth defendant, Springsley Holdings Pty Ltd. Springsley purchased those shares from Athann Pty Ltd, a company controlled by Mr Athol Davis. The boards of J & J O'Brien and Marsico approved the transfer of Athann's shares to Springsley on 27 March 1997. Springsley held the shares on trust, initially for Mr Davis and members of his family. On 16 May 1997, Mr Davis and members of his family ceased to be beneficiaries of the trust and were replaced by the sixth defendant, Mrs Judith Crawley, (Mr Crawley's wife), and two of Mr Crawley's daughters. On 16 May 1997, Mrs Crawley was appointed a director of both companies and Mr Davis resigned. Since at least 16 May 1997 Mr Crawley has controlled the affairs of J & J O'Brien and Marsico. 4 Marsico owns a hotel called Jackson's on George situated in a prime location near Circular Quay in Sydney. J & J O'Brien owns the Marlborough Hotel located on the corner of King Street and Missenden Road in Newtown. 5 In closing submissions, the first to sixth defendants accepted that this was an appropriate case for a compulsory buy-out order being made against Mr Crawley. The first to sixth defendants accepted that "on any view of it, the affairs of the companies since May 1997, when the parties effectively commercially disengaged from each other, have been conducted contrary to the interests of the members as a whole". 6 Nabatu seeks an order that J & J O'Brien and Marsico be wound up. If a winding-up order is not made, there is a dispute as to whether Nabatu's shares should be purchased at current values, or at their value as at 16 May 1997 with interest. There is also an issue as to whether in valuing the shares, there should be a discount for the fact that the shares are a minority holding. 7 In addition, the plaintiffs contend that Mr Crawley, Mrs Crawley, and companies controlled by Mr Crawley, are liable to pay damages or equitable compensation to J & J O'Brien and Marsico, and to a subsidiary of Marsico, Trudale Pty Ltd. The plaintiffs also claim that Mr Crawley or companies controlled by him are liable to account for profits derived by him and them from a variety of transactions. 8 The events giving rise to the claims ventilated in these proceedings stretch back to 1982. Mr Crawley and Mr Short had known each other from school days. Mr Short and Mr Davis were publicans. Mr Crawley was and is a solicitor. He is the principal of a practice carried on under the name of Aubrey F Crawley & Co. 9 Until 1 July 2003, the fourth defendant, Vensel Pty Limited, provided accounting and management services to the group of companies and partnerships with which these proceedings are concerned. Mr Crawley is the managing director and principal shareholder of Vensel. 10 The seventh defendant, Aldonet Pty Ltd, was acquired by Mr Crawley as a shelf company in 1995. He and Vensel own the shares in Aldonet. Mr and Mrs Crawley are Aldonet's directors. Mr and Mrs Crawley are also the directors of the ninth defendant, Gladewood Enterprises Pty Ltd. Mr Crawley holds the only share in Gladewood. According to the company search, he does not hold it beneficially. 11 An outline of relevant events is required to understand the nature of the various claims. It will be apparent from this outline that all of the plaintiffs' claims belong to Nabatu and not to Mr Short's estate. Nonetheless, in accordance with the way the case was presented, for the most part, I will describe them as the plaintiffs' claims. Australian Youth Hotel 12 The first business venture between Messrs Crawley, Short and Davis commenced in 1982. On 3 November 1982, Nabatu, Mr Crawley and Athann contracted to purchase the Australian Youth Hotel in Ultimo from Tooth & Co Ltd. The purchase was completed with vendor finance of $262,500. The balance of the purchase price was contributed by Nabatu, Athann and Mr Crawley equally. Each contributed capital of $33,000 (CC1 para 46(b)). From 1983 until 1995, Nabatu, Athann and Mr Crawley carried on the business of the Australian Youth Hotel in partnership. Marlborough Hotel 13 The next business venture between Messrs Crawley, Short and Davis concerned the Marlborough Hotel in Newtown. The hotel was owned by J & J O'Brien. The shareholders in J & J O'Brien were Mr and Mrs O'Brien. On 8 March 1985, Nabatu, Athann and Mr Crawley contracted to purchase Mr & Mrs O'Brien's shares in J & J O'Brien for $560,000. The share purchase was completed on 15 April 1985. One share was transferred to Athann. One share was transferred to Nabatu. A third share was issued to Mr Crawley. The purchase was partly funded by vendor finance but principally by a loan from Westpac of $560,000. The loan was made to Mr Crawley, Mr Short and Mr Davis and was secured by, amongst other things, mortgages over real property owned by Mr Crawley and a second mortgage over the family home of Mr & Mrs Short. Port Jackson Tavern 14 The parties' next business venture concerned the hotel then known as the Port Jackson Tavern which is now Jackson's on George. On 26 February 1986, J & J O'Brien contracted to purchase the business carried on by the then lessee of the Port Jackson Tavern for $285,000. J & J O'Brien took a transfer of the lease. The purchase was fully funded by a loan from Westpac. Money was also borrowed from Westpac to discharge the balance of the vendor finance owed to Tooth & Co for the purchase of the Australian Youth Hotel. The loan from Westpac was secured by mortgages over the Australian Youth Hotel and the Marlborough Hotel and also by mortgages by Mr & Mrs Short, Mr Davis and Mr Crawley over their homes and over other real property owned by Mr Crawley. On 26 March 1986, J & J O'Brien took a three-year lease of the Port Jackson Tavern from Tooth & Co. Yurong Street Development 15 In September 1986, J & J O'Brien entered into a joint venture with Viapro Pty Ltd for the redevelopment of a property in Yurong Street, East Sydney. Viapro was a company associated with a Mr Max Ryan, who was a client of Mr Crawley's. J & J O'Brien had a 40% share in the joint venture. Viapro and J & J O'Brien acquired shares in a company called Sinodun Pty Ltd which owned the land. To fund the venture, Mr Crawley arranged finance of $4,800,000 through Westpac. This covered $3,500,000 for the purchase of the shares in Sinodun and $1,300,000 for construction costs. The loan was secured by, amongst other things, a mortgage given by Sinodun over the Yurong Street property, together with the existing mortgages given by J & J O'Brien over the Marlborough Hotel, and a mortgage by the partners over the Australian Youth Hotel. It also appears from documents of Westpac (TB 483.1-483.17) that the loan was to be secured by existing guarantees by Mr Crawley, Mr Davis and Mr & Mrs Short, and mortgages over their properties, as well as securities to be provided by Mr & Mrs Ryan. 16 The Yurong Street development was profitable. The property was sold on 23 December 1988 for a profit of $4,011,722. J & J O'Brien was entitled to 40% of the profit. In December 1989, it received advice from its accountants as to the tax liability for the profit. Newtown Properties 17 In 1988, J & J O'Brien purchased two properties adjacent to the Marlborough Hotel at 149 King Street and 199 Missenden Road, Newtown. The properties were purchased using the trading profits of J & J O'Brien and its overdraft facility. Freehold Purchase of Jackson's on George 18 In 1989, the opportunity arose to purchase the freehold of Jackson's on George. J & J O'Brien's lease was due to expire in March 1989. On 20 January 1989, Nabatu, Athann and Mr Crawley acquired one share each in Marsico, which was then a shelf company. On 23 February 1989, Marsico exchanged contracts for the purchase of the freehold of Jackson's on George for $14,500,000. The purchase was completed on 27 June 1989. The purchase was funded by three facilities: first, a $10,300,000 bill acceptance facility in favour of Marsico; secondly, the $4,800,000 bill acceptance facility in favour of Sinodun was continued, notwithstanding the sale of the Yurong Street project; and thirdly, an existing $1,430,000 bill acceptance facility in favour of J & J O'Brien was continued. The purchase price was provided from the $10,300,000 facility provided to Marsico with the balance of the funds being provided by Sinodun. Notwithstanding the purchase of the freehold by Marsico, J & J O'Brien continued to carry on the business of Jackson's on George until some time after 1 July 1992. 19 J & J O'Brien's share of the net profit on the sale of the Yurong Street property was $1,604,689. Mr Crawley deposed that that amount was used to pay interest in advance on Marsico's loan from Westpac in the year ended 30 June 1989 (CC1 para 247). Racecourse Hotel 20 Part of the deal negotiated with Tooth & Co for the purchase of the freehold of Jackson's on George was that Tooth & Co would sell the freehold of another hotel cheaply. On 20 February 1989, Marsico exchanged contracts for the purchase of the Racecourse Hotel at Randwick for $1,350,000. The purchase was settled on 23 April 1990. Tooth & Co provided vendor finance of $1,300,000 repayable in three years. 21 Mr Crawley and Mr Short agreed that because Mr Davis had not provided as much security as had they for the group's borrowings, and had not been as actively involved in running the businesses, Mr Davis should not participate in the operating profits or any profit on the sale of the Racecourse Hotel (CC1 para 238; WS1 para 88). Mr Davis accepted this. Although the hotel was purchased by Marsico, separate accounts were kept in respect of the trading of the Racecourse Hotel. These were described as partnership accounts, with Mr Crawley and Nabatu being equal partners. 195 Missenden Road, Newtown 22 In February 1989, J & J O'Brien purchased a property at 195 Missenden Road for $215,000. Completion of Purchase of Racecourse Hotel 23 The purchase of the freehold of the Racecourse Hotel was completed on 23 April 1990. A dispute with the lessee had delayed the completion of the purchase. Financing of Acquisitions 24 Apart from the initial capital injection of $99,000 on the purchase of the Australian Youth Hotel, all of the subsequent acquisitions were financed through borrowings and from the revenues generated from trading at the Australian Youth Hotel, the Marlborough Hotel and Jackson's on George. In addition, renovations had been made to the hotels. The values of those hotels increased, thus supporting new borrowings. Accounting and Management Services 25 Staff employed by Mr Crawley in Aubrey F Crawley & Co, or by his service company, Vensel, provided accounting and management services for the operation of the hotels. The plaintiffs contend that from 1987 to 1997, fees of $2,089,767 were paid to Vensel or Aubrey F Crawley & Co for management and accounting fees. According to Mr Crawley, the amount was $1,677,485. 26 Mr Crawley or his employees arranged for the payments by Marsico, J & J O'Brien, or the Australian Youth Hotel partnership, or the Racecourse Hotel partnership, of expenses, including charges for management and accounting services provided by Vensel and Aubrey F Crawley & Co, and legal services provided by Aubrey F Crawley & Co. Mr Crawley contends that the practice was for Mr Short to sign the cheques. 27 The plaintiffs allege that Mr Crawley had no authority from the directors of the relevant companies, or from the partners of the Australian Youth Hotel partnership and the Racecourse Hotel partnership, to charge and receive such fees. They allege that fees were charged and received without adequate disclosure and were excessive for the services provided. 28 Mr Short also said that there was an express agreement between him, Mr Crawley and Mr Davis at the time the Australian Youth Hotel partnership was established that neither he, Mr Davis nor Mr Crawley would charge for their time or services provided. Mr Short said that it was agreed that Mr Crawley would provide legal services and look after all financing requirements and maintain the accounts, Mr Short and Mr Davis would look after the management of the hotels, and Mrs Short would supervise refurbishments. Elizabeth Street Centre Development 29 In 1989 and 1990, Mr Crawley acted for a company called Trudale Pty Ltd, then controlled by a Mr Harry Londy. Trudale had taken options to purchase land at 439-453 Elizabeth Street, Surry Hills with a view to demolishing the existing buildings on the properties and constructing a mixed commercial and residential development. It had obtained development consent. It had made a number of sales "off the plan" and received a number of deposits. Mr Londy proposed to Mr Crawley that Mr Crawley take over the Elizabeth Street project, provided that Mr Londy's company, R B Foster (Real Estate) Pty Ltd, was appointed as selling agent for the units in the development and was entitled to receive all commissions on past and future sales. Mr Crawley told Mr Londy that J & J O'Brien might be interested. He said that that was a company in which he and Mr Short were involved. Mr Crawley was given a preliminary feasibility study of the project and an "on completion" valuation. He formed the view that the development was feasible and likely to produce a significant profit. 30 On 10 May 1990, Mr Crawley, on behalf of Trudale, made a submission for finance to Bill Acceptance Corporation Ltd ("BAC"). The finance submission stated that Marsico proposed to acquire the undertaking of Trudale subject to development finance being secured from BAC. The submission summarised a feasibility study which had been obtained and projected that the total development cost would be $20,194,000 and the total sales value $25,816,000, yielding a net profit of $5,622,000. The submission proposed that there be an initial advance of $3,700,000 secured by first mortgage over the Elizabeth Street Land to be acquired and a collateral security by way of a second mortgage over the Racecourse Hotel. Mr Crawley said that the Racecourse Hotel was then valued at about $3,500,000. It was subject to a first mortgage in favour of Tooth & Co of $1,300,000 which did not carry interest. The Elizabeth Street site had been valued at $5,500,000. The finance submission also stated that guarantees would be provided by Messrs Short, Crawley and Londy (TB 9/1135). 31 On 26 June 1990, BAC offered Trudale a bill facility for $16,314,000 (TB 10/1163). It required security over the Elizabeth Street land, together with a second mortgage over the Racecourse Hotel and a second registered charge over the liquor licence of the Racecourse Hotel. It also required joint and several guarantees from Mr Short, Mr Crawley, Mr Londy, Marsico and J & J O'Brien. The facility provided for the purchase of the land, the construction of a seven-storey retail, commercial and residential development, a bank guarantee in favour of the vendor of adjoining land, and the capitalisation of interest. A non-refundable establishment fee of $81,470 was payable on acceptance of the offer. On 30 July 1990, Trudale accepted the offer and paid the fee. At this time, Trudale was still owned and controlled by Mr Londy, or persons associated with him. 32 On about 5 September 1990, numerous agreements were executed preparatory to the draw down of the first tranche of the bill acceptance facility. These included a Deed of Guarantee and Indemnity in favour of Bill Acceptance Corporation signed by Mr Short, Mr Crawley and Mr Londy, and by Marsico and J & J O'Brien. The deed was subsequently dated 12 September 1990, being the date upon which moneys were advanced under the facility. The guarantee was of Trudale's obligations to BAC. The affixing of J & J O'Brien's common seal was witnessed by Mr Short as director, and Mr Crawley as secretary. The affixing of Marsico's common seal was witnessed by Mr Crawley as director, and Ms Kuan as secretary. Ms Kuan was employed by Mr Crawley. There is no minute of any board resolution of the directors of Marsico or J & J O'Brien authorising the guarantees of those companies. 33 On 10 September 1990, Mr Londy transferred the two issued shares in Trudale to Marsico. On the same day, two further shares in Trudale were issued to Marsico. Mr Londy and the other directors of Trudale resigned. Mr Short, Ms Kuan and Mr Crawley were appointed as directors of Trudale. 34 On 13 September 1990, Trudale completed the purchase of the Elizabeth Street properties. It drew down $3,942,000 under the facility with BAC (TB 11/1339.36). 35 By late 1991, the market had turned against Trudale. A report of a valuer, Heron Todd White, of 29 August 1991, commented upon a "dramatic downturn" in property values over the preceding two years and projected that little improvement was anticipated over the next eighteen months (TB 17/1851.3 at 1851.5). 36 On 23 January 1992, Trudale entered into a building contract with Sabemo Australia Pty Ltd for the construction of the buildings on the site for a price of $8,091,000. The original facility with BAC provided that the term of the loan would be eighteen months from initial draw down. 37 On 27 March 1992, a new deed of loan and guarantee was entered into between BAC, Trudale, Mr Short, Mr Crawley, Mr Londy, Marsico and J & J O'Brien. Mr Short witnessed the affixing of the common seal of Trudale, Marsico and J & J O'Brien. He, along with the other guarantors, also signed the document personally as a guarantor. This agreement was necessary for the drawing down of further funds to meet construction costs. The new facility was for $17,180,000, an increase of $866,000. 38 BAC was acquired by Westpac. Westpac was concerned about its exposure to Marsico, J & J O'Brien and Trudale. On 30 July 1992, it advised its approval for facilities to the group companies, excluding Trudale, of $17,180,000. The facilities expired on 31 December 1992. Westpac stressed that renewal should not be regarded as a "fait accomplis" but would be dependent on a number of matters including provision of up-to-date audited financial statements and an acceptable schedule for repayment of principal to move to an annual reduction of principal of $850,000. 39 Construction of the Elizabeth Street Centre development was completed in about May 1993. A building certificate for the development was issued on 4 May 1993 (TB 29/2927.1, 2928.1). The strata plan was registered on 18 June 1993. 40 From July or August 1993, Marsico and J & J O'Brien started meeting interest payments on the loan from BAC to Trudale. Elizabeth Street Centre Joint Venture Agreement 41 On 18 November 1993, Trudale, J & J O'Brien, Marsico and Mr Crawley entered into a Joint Venture Agreement in relation to the Elizabeth Street Centre. The agreement provided that the joint venture should be deemed to have commenced from 20 September 1990. The whole of the business of the joint venture was to be under the control of Trudale. However, J & J O'Brien and Marsico were to contribute 100 per cent of all of the costs of the joint venture. Trudale, J & J O'Brien and Marsico were to share any profits of the joint venture in a proportion of fifty per cent to Trudale and fifty per cent to J & J O'Brien and Marsico, or in such other proportions as might be agreed by the joint venturers from time to time. Mr Crawley was appointed as the "manager" of the joint venture until such time as the joint venturers and he might otherwise determine. 42 The principal purpose of the joint venture agreement was to provide a purported basis for Marsico and J & J O'Brien to deduct the losses associated with the Elizabeth Street Centre joint venture from their taxable profits. 43 The audited financial statements of the Elizabeth Street Centre joint venture, and of Marsico, J & J O'Brien and Trudale record that losses were incurred in respect of the Elizabeth Street Centre joint venture up to and including 30 June 2004 of $9,535,648. Plaintiffs' Claims in Respect of the Elizabeth Street Centre Development 44 The plaintiffs claim that Mr Crawley is liable to compensate Marsico, J & J O'Brien and Trudale for losses they sustained in relation to the Elizabeth Street Centre joint venture. Mr Short deposed that Mr Crawley represented to him that the project would be owned equally by Mr Short and Mr Crawley and that none of the hotels would be required to support the project. 45 As a result of rulings I gave during the hearing in relation to the plaintiffs' application to amend the particulars of this claim (Short v Crawley (No. 27) 1 March 2006), the grounds upon which the plaintiffs contend that Mr Crawley is liable to compensate Marsico and J & J O'Brien for their losses are that: (a) Mr Crawley failed to obtain board approval for the guarantees from J & J O'Brien and Marsico, and did not disclose to Mr Short or to Mr Davis that guarantees were required from those companies; (b) Mr Crawley failed to act bona fide in the best interests of J & J O'Brien and Marsico but acted for an improper purpose and preferred his own interest, in that if the Elizabeth Street Centre project was profitable, he intended to assert that either 50% or 80% of the shares were beneficially owned by him; (c) Mr Crawley failed to advise Mr Short and Mr Davis to obtain independent legal and financial advice; and (d) Mr Crawley acted for an improper purpose and not in the best interest of the companies by procuring the companies to enter into the transactions partly for the undisclosed purpose of obtaining excessive legal fees. Advances at 17.5% Interest 46 Between December 1990 and February 1994, J & J O'Brien purchased a further four properties in Newtown in the vicinity of the Marlborough Hotel. At least three of these purchases were substantially funded by loans made by Mr Crawley to J & J O'Brien on mortgage security. There is a dispute as to whether an advance of $168,300, described as such in a mortgage over 197 Missenden Road, Newtown was in fact made by Mr Crawley. 47 The mortgages provided that interest would be payable on the loans at 17.5% per annum. The advances were repayable on demand, but there was no penalty for early repayment. 48 During all of this period, the J & J O'Brien Group was under vigorous pressure from Westpac to reduce the debt owed to Westpac. The Westpac facility put in place at the time of the purchase of the freehold of Jackson's on George in the amount of $16,530,000 expired on 30 June 1992. The loan was extended and the facility increased, but Westpac wanted the facility discharged. This facility was in addition to the Trudale facility guaranteed by J & J O'Brien and Marsico. 49 Between January and April 1993, in May 1994, and in February 1995, Mr Crawley made advances to J & J O'Brien totalling $340,000. He charged interest at the rate of 17.5% on the advances. 50 The plaintiffs contend that there was no board approval for the loans made by Mr Crawley, that the loans were made by him in breach of his fiduciary duty as a director of J & J O'Brien and as a solicitor to it, and that the interest charged was excessive. They contend that Mr Crawley should be required to account for the interest paid or credited to him in respect of those advances. Assertions of Unpaid Legal Fees 51 Mr Crawley maintained that he was owed money for legal services, although he had not rendered accounts. He says the reason for not rendering accounts for all the work done was because the companies did not have the money to pay for his firm's work. On 2 and 17 May 1994, Mr Crawley wrote to Mr Short and Mr Davis, asserting that he was owed approximately $700,000, or in the vicinity of $800,000, for unpaid legal fees and advances. The minutes of a meeting of directors of J & J O'Brien and Marsico of 19 May 1994, prepared by Mr Crawley, record his having reported that he was owed approximately $1,000,000 for unpaid legal costs and advances which had not been repaid. The minutes record a resolution that the indebtedness of the companies to Mr Crawley be secured and fresh security documents be executed if necessary to that end. The minutes also record a purported resolution that Mr Crawley was authorised to transfer moneys as from time to time might be held in the trust account of Aubrey F Crawley & Co to meet the indebtedness, whether or not bills of costs had been rendered. 30 June 1994 Deed 52 The minutes of a meeting of directors of J & J O'Brien of 30 June 1994, also prepared by Mr Crawley, record that on that day he tabled a deed between himself and J & J O'Brien and variations of mortgage together with a notice entitled "Notice of Commercial Benefit to Crawley". 53 As at 30 June 1994, according to the general ledger of J & J O'Brien, J & J O'Brien owed Mr Crawley $305,000 for outstanding advances. 54 On 30 June 1994, a deed was entered into between Mr Crawley and J & J O'Brien (TB 39/4033). Mr Short witnessed the affixing of the common seal of J & J O'Brien to the deed. On its face, the deed contained two schedules. Schedule 1 provided that there were legal costs owing by J & J O'Brien to Aubrey F Crawley & Co totalling $920,000. This figure comprised three amounts described as follows (TB 39/4037): " Legal Costs owing by J & J O'Brien Pty Ltd to Aubrey F Crawley & Co: (a) costs and disbursements in acting for the J & J O'Brien Group of Companies in the 1993/94 refinancing of $32,000,000 of loan facilities with Westpac, at the rate of 1% $320,000 (b) costs and disbursements in acting for Trudale Pty Ltd and J & J O'Brien Pty Limited and Marsico Holdings Pty Ltd in respect of the purchase, development and commercialisation of the property situate at 446-458 Elizabeth Street, Surry Hills and known as Elizabeth Gardens to the date hereof $300,000 (c) costs and disbursements in acting for J & J O'Brien Pty Limited and its Related Companies in numerous matters from time to time, involving liquor licensing, property sales, purchases, leases, corporate and tax structuring, payroll and group tax matters, litigation matters and banking/finance matters, in particular involving dealings and negotiations with Westpac Banking Corporation $300,000 Total Amount of Legal Costs $920,000 " 55 Schedule 2 stated that the total value of outstanding principal sums under the mortgages to date before the addition of legal costs was $305,000. 56 The deed provided that the acknowledged debt for legal costs should be secured by four mortgages held by Mr Crawley notwithstanding that J & J O'Brien had made part-repayment of advances secured by those mortgages. It provided that the principal sums owing under the four mortgages should be increased so that the new principal sum secured under the four mortgages totalled $1,225,000. 57 If valid, the effect of these provisions was also to provide that interest at 17.5% per annum, which was payable on the principal sums (and arguably on all debts) secured by the mortgages, would be payable on the acknowledged debt for legal costs. 58 On the same day, Marsico gave Mr Crawley a guarantee of the obligations of J & J O'Brien to Mr Crawley. Mr Short witnessed the affixing of Marsico's common seal to the guarantee (TB 39/4039). 59 The plaintiffs claim that the deed of 30 June 1994 should be set aside. They dispute that the schedules to the deed were attached to it at the time the deed was signed. The plaintiffs also contend that the deed was entered into without a resolution of the board of directors, without the informed consent of Messrs Davis and Short, and without their having had the benefit of independent advice. The plaintiffs say that as Mr Crawley was in a position of conflict between his own interests and his fiduciary duties as a solicitor to, and director or, J & J O'Brien, the deed should be set aside. They contend that Mr Crawley had no entitlement to charge the amounts which the deed acknowledged was due to him. 60 On 22 September 1994, J & J O'Brien executed a charge over all of its assets to secure outstanding debts owed by it to Mr Crawley. The affixing of the common seal of J & J O'Brien was witnessed by Mr Davis and by Mr Short. They each signed each page of the deed. The deed provided that the company would pay interest at 17.5% per annum. The plaintiffs contend that this security should be set aside also. Engagement of Mr Mark Cohen and Mr Bill Hannan 61 On 22 September 1994, it was resolved that Mr Mark Cohen be engaged as chief executive officer of the group and that he be authorised to commence all necessary works for implementing a plan for financial management for the next five years and that he be responsible for negotiations, under the direction of Mr Crawley, for refinancing the companies' debts. Mr Cohen had had a long experience with Westpac. Although the group had not defaulted in paying interest and principal, it was under severe constraints from Westpac to effect debt reductions. There was a fear that Westpac might appoint a receiver or otherwise enforce its securities on expiry of the facilities or on any default. At that time, the total amount of the debt owed to Westpac was about $30,100,000. According to a contemporaneous file note, apparently prepared either by Mr Crawley or by Mr Cohen for discussion with Westpac, Westpac at that stage valued the group's assets at $38,485,000. 62 Although the minutes recorded that Mr Cohen would be engaged as the chief executive officer, he in fact acted as a consultant to the group. He reported on the group's financial position on 14 December 1994. He concluded that whilst the underlying cash flow from the hotel businesses was strong, the business was not capable of sustaining indefinitely the negative cash flow arising out of the Elizabeth Street Centre property development. He noted that J & J O'Brien faced substantial tax liabilities. No tax returns had been lodged for the financial years 30 June 1985 and following. This was likely to attract penalties. He recommended an injection of capital and discussed the options of selling assets to reduce debt. 63 In January 1995, Mr Davis indicated that he wished to be bought out of the companies. In February 1995, Mr Short engaged the services of Mr Bill Hannan to provide him with financial advice. Mr Hannan was a merchant banker and a friend of Mr Short. 64 Mr Cohen's engagement as a consultant to the Group was terminated by mutual consent on 30 March 1995. Deed of Charge of 27 February 1995 65 On 7 and 16 February 1995, Mr Crawley made further advances to J & J O'Brien. The effect of the deed of charge of 22 September 1994 was that interest at 17.5% per annum would be repayable on those advances. The plaintiffs say that there were no board resolutions approving of these loans before they were made. At a directors' meeting of J & J O'Brien on 27 February 1995, Mr Crawley sought and obtained a resolution that his further advances be the subject of a deed of equitable charge. The plaintiffs say there was no disclosure of the interest rate of 17.5% being charged on the loans. On the same day, that is 27 February 1995, J & J O'Brien executed a further charge and executed variations of the Real Property Act 1900 (NSW) mortgages. The security documents provide for interest at the rate of 17.5% per annum on the advances. The plaintiffs contend that there was no express disclosure of the interest rate and there was no basis upon which Mr Crawley could have thought that the giving of the charges and the variations of mortgage were in the interests of the companies. Offers to Acquire Shares 66 On 2 March 1995, Mr Short wrote to Mr Crawley and said that if Mr Davis decided to sell his shares, and if he decided not to participate equally with Mr Crawley in the purchase, it would be unacceptable for him to remain indefinitely as a one-third shareholder with his guarantee and family home at risk. He said that if no satisfactory arrangement was made for Mr Crawley to buy Mr Short's shares, as well as Mr Davis' shares, Mr Short proposed that the assets of the group be realised without any forced sales and that the group's liabilities, including its liability to Mr Crawley, be paid out, subject to Mr Crawley's substantiating the amount claimed by him, and the balance to be distributed to shareholders (TB 44/4612). 67 From March 1995, following the appointment of Mr Hannan as Mr Short's advisor, Mr Short made various complaints and requested detailed information. By then, the relationship between Mr Crawley and Mr Short, which was already acrimonious, had deteriorated further. On 29 March 1995, Mr Crawley threatened to exercise his powers under the mortgages and equitable charges which he held unless the group ceased to pay directors' fees and paid all of the interest which he claimed was due to him (TB 45/4748 at 4750). 68 On 5 April 1995, Mr Crawley wrote to Mr Short asserting that he was then owed $1,862,765. This included interest at 17.5% from 1991 on amounts for legal costs claimed to have been due to him from that time. 69 In April 1995, Mr Crawley made offers which, if accepted, would have given him the option to purchase Nabatu's shares in Marsico and J & J O'Brien. The offers were not accepted. 70 On 26 April 1995, Mr Short advised Mr Crawley that he and Mr Davis were prepared to accept $3,000,000 for their interest in the group, provided there were mutual releases and they were released or indemnified in relation to their guarantees and other obligations to Westpac and other lenders. That offer was not accepted. Sale of Australian Youth Hotel 71 On 18 May 1995, contracts were exchanged for the sale of the Australian Youth Hotel for $1,745,000. The sale was completed on 3 July 1995. Westpac received either $1,625,000 or $1,620,456. Twenty thousand dollars was paid to Aubrey F Crawley & Co. The balance of $100,000 plus adjustments on settlement was paid to J & J O'Brien. The plaintiffs claim that the partners in the Australian Youth Hotel did not agree to the payment of $20,000 to Mr Crawley. This payment forms part of their claim that Mr Crawley should disgorge moneys received by him in payment of legal fees. He rendered a memorandum of costs on 18 July 1995. No application was made by Nabatu following the rendering of the memorandum of costs for it to be assessed. 72 Mr Crawley gave notice terminating the Australian Youth Hotel partnership on 8 August 1995. The financial statements for the partnership of the Australian Youth Hotel for the year ended 30 June 1996 record that the partnership had a surplus of $1,242,762. This was represented by a receivable being a loan to related entities of $1,757,624 less a liability, being an unsecured loan, to related entities of $514,862. Thus, as would be expected, the application of the proceeds of sale of the Australian Youth Hotel to reduce Marsico's debt to Westpac was accounted for in the books of the Australian Youth Hotel as creating a debt owed by Marsico to the partners. It appears from subsequent financial statements of Marsico that in the financial year ended 30 June 1996 it also treated $1,242,762 as a debt owed by it to "related entities", that is, to the Australian Youth Hotel partnership. 73 According to the 30 June 1996 financial statements, Nabatu's share of the net partnership assets of $1,242,762 was $405,358. It seeks to recover this sum as a debt owed to it by Marsico. The defendants contend that the Australian Youth Hotel had come to be regarded as an asset of "the Group" and not an asset of the partners, and that the partners consented to the proceeds of sale of the Australian Youth Hotel being treated as an asset of Marsico (in which the partners were equal shareholders) rather than belonging to the partners individually. Insurance Claim 74 On 17 October 1995, a fire occurred at Jackson's on George. This gave rise to an insurance claim. Marsico became entitled to $91,000 from its insurers. The fire also had an adverse effect on Marsico's trading from the hotel. Appointment of Hilldean Pty Ltd and Mr Hannan as Company Consultants 75 Following May 1995 at the latest, Mr Crawley found himself in the position that Mr Short and Mr Davis voted together on a number of matters. On 25 October 1995, they proposed that Mr Hannan be appointed as a consultant to the group to act as manager of finance administration. Mr Crawley objected to Mr Hannan's appointment. He threatened to exercise his rights as a secured creditor unless the debt owed to him was paid. Discussion over this and other issues was acrimonious. It does not appear that a formal vote for the appointment of Mr Hannan or his company, Hilldean Pty Ltd, was taken at the meeting. However, from that time until his appointment was terminated in 1997, Hilldean and Mr Hannan provided consultancy services to the group. 76 At the 25 October 1995 board meeting Mr Crawley objected to any discussion in relation to the Racecourse Hotel and objected to the appointment of Mr Hannan as a consultant to the Racecourse Hotel business on the basis that that business was of no concern to the companies but was a partnership matter between him and Mr Short. Sale of Racecourse Hotel 77 There were further negotiations with Westpac for the extension of its facilities. The debt had been reduced by some sales of units in the Elizabeth Street development and by the sale of the property at 199 Missenden Road. Westpac was prepared to extend the facilities to 31 March 1996 on terms which included that the proceeds of sale of the Racecourse Hotel be applied first by the reduction of $3,350,000 of the debt owed by Trudale to BAC, next by the payment of $400,000 to Mr Crawley trading as Aubrey F Crawley & Co, next as to the reduction of $150,000 in unpaid interest owed by Trudale to BAC, and as to the balance by its application in reducing the amount of principal owed by Trudale to BAC. Mr Hannan and Mr Short were prepared to agree to Westpac's terms subject to their confirming their agreement to the payment of $400,000 to Mr Crawley. 78 On 6 December 1995, Marsico obtained a favourable judgment in the Land and Environment Court in relation to its development application for the Racecourse Hotel. 79 A contract for the sale of the Racecourse Hotel was finally exchanged on 7 May 1996 for $4,140,000. The contract for sale described Marsico as bare trustee for Nabatu and Crawley. At a board meeting on 28 September 1996, Mr Short and Mr Davis agreed that the sum of $400,000 could be paid to Mr Crawley provided it was applied in reduction of advances rather than legal costs. 80 On 30 August 1996, the parties entered into a deed which provided for the $400,000 from the sale to be deposited into a trust account on behalf of Marsico as trustee for Nabatu and Mr Crawley, and that that amount could be withdrawn if Mr Crawley gave a written notice to that effect to the solicitors, but that the moneys would be applied towards amounts owing in respect of advances and interest thereon or costs of enforcement in respect of such advances, and not to legal costs or interest on legal costs (TB 61/6664 at 6678). 81 The sale of the Racecourse Hotel was completed on 2 September 1996. The deposit of $415,000 had been released and paid to BAC in reduction of the Trudale debt. Following the completion of the sale, BAC received a further $3,232,561.31. 82 On instructions from Mr Crawley, the proceeds of sale of the Racecourse Hotel and the profit derived from the sale of the Racecourse Hotel were accounted for in Marsico. Initially, the accounts of Marsico recorded a debt owed by it to each of Nabatu and Mr Crawley of $1,321,533 representing their shares of the profit on the sale of the Racecourse Hotel. The entries were subsequently reversed. 83 On 13 September 1996, Mr Crawley gave notice of termination of the Racecourse Hotel partnership. The financial statements for Marsico for the year ended 30 June 1997 treat the proceeds of sale of the Racecourse Hotel as assets of Marsico and recorded as an abnormal gain of $2,643,067 a profit on the sale of the Racecourse Hotel. Mr Crawley's position is that the agreement between him, Mr Davis and Mr Short when the Racecourse Hotel was acquired was that Mr Davis should not participate in the Racecourse Hotel, either by participating in profits derived from trading, or in the capital gain on sale. Originally, this agreement was reflected by describing the arrangements as one where Marsico held the hotel on trust for Nabatu and Mr Crawley as partners. However, later, he concluded that it was more accurate to characterise the arrangement as an agreement as between the shareholders in Marsico. He says that the profits on the sale of the Racecourse Hotel were properly accounted for as profits of Marsico. The proceeds of sale went to reduce the group's indebtedness to BAC. 84 Nabatu contends that Marsico is required to account to it for half of the net profits derived from the sale of the Racecourse Hotel. 85 The contract for sale of the Racecourse Hotel contemplated that the purchaser might permit the vendor to continue to conduct the business after completion. Mr Crawley negotiated a licence from the purchaser to Vensel. It became common ground that the profits derived by Vensel from trading from the hotel were accounted for to Marsico. Nabatu claims that Marsico is obliged to account to it for half of those profits because the opportunity to derive the profits belonged to the alleged partnership. 86 Nabatu also claims that the liquor licence, which is held by Mrs Crawley for Marsico, is held by Marsico on trust for it and Mr Crawley. It seeks an order that Mr Crawley pay to Nabatu half the value of the liquor licence. Messrs Short and Davis Obtain Legal Advice 87 In the latter half of 1996, Messrs Short and Davis, with the assistance of Mr Hannan, prepared a long information memorandum for Gilbert & Tobin, who were retained to advise them on claims they or the companies might have against Mr Crawley. The 33-page memorandum described in detail the concerns and complaints Messrs Short and Davis then had about Mr Crawley, including complaints concerning the Elizabeth Street Centre development; the licence for the Racecourse Hotel; taxation liabilities; Mr Crawley's claimed outstanding legal fees; an alleged debt then recorded as owed to Vensel arising from J & J O'Brien's share of profit from the Yurong Street development; the deed of 30 June 1994; the securities taken by Mr Crawley; undue pressure allegedly applied by Mr Crawley; and his refusal to agree to sales of the Newtown properties (TB 47/4981.13). Purchase of Athann's Shares and Arranging Aldonet Finance 88 During 1996, Mr Crawley made a number of applications to prospective lenders to refinance the Westpac facility. From at least April 1996, Mr Crawley had in mind that the finance would be used to pay out one or both of Athann and Nabatu. On 26 June 1995, Mr Crawley purchased a shelf company, Aldonet Pty Ltd, the seventh defendant. Aldonet purchased some of the units in the Elizabeth Street development. 89 On 8 August 1996, Mr Crawley telephoned Mr Phillip Wiseman, a solicitor then at Rosenblum & Partners. Mr Wiseman had been retained by Mr Davis. There is a dispute as to whether Mr Short was also his client, but it is not necessary to go into that. Mr Crawley told Mr Wiseman that he was prepared to pay $750,000 for Mr Davis' shares in the whole group. Between mid October 1996 and 16 December 1996, Mr Wiseman, acting on behalf of Athann and Mr Davis, negotiated a deal with Mr Crawley for the acquisition of Athann's shares. By 28 October 1996, a price of $1,000,000 had been agreed, split as to $600,000 for the share in Marsico, and $400,000 for the share in J & J O'Brien. 90 On 14 October 1996, QIDC advised that it was willing to consider providing a facility to Aldonet for an amount of up to $17,000,000, subject to the loan not exceeding 65% of the current market value of the security properties, being Jackson's on George and the Marlborough Hotel. Mr Short and Mr Davis had no knowledge of the terms upon which Mr Crawley was negotiating to obtain finance to refinance the group's facilities. Any drawdown of the finance by Aldonet was dependent upon Mr Crawley's obtaining control of J & J O'Brien and Marsico by acquiring Athann's shares. 91 Mr Crawley was concerned about the effect of "pre-emption provisions" in the articles of Marsico and J & J O'Brien, that is, provisions restricting the right of a holder of shares to transfer the shares. Mr Wiseman proposed a structure by which the provisions could be overcome. Springsley was incorporated as a shelf company on 15 October 1996. 92 On 1 November 1996, Mr Crawley sent to Mr Wiseman consent forms for signature by Mr and Mrs Davis for them to become the directors of Springsley. They became directors of Springsley on that day and acquired two shares in it. On 1 November 1996, they each executed a declaration of trust of the shares they held in Springsley in favour of Athann. On the same day, a deed of settlement was entered into between Mr Davis as settlor and Springsley as trustee. The deed provided for the creation of a trust fund and for assets to be accepted by Springsley as an addition to the trust fund. There were various classes of beneficiaries. Primary Beneficiaries were divided into two classes. The first class (in Part 1) was Mr Davis and his wife and children and their spouses. The second class (in Part 2) was Mrs Crawley, and two daughters of Mr Crawley. The definition of "Primary Beneficiary" meant the persons named or described as such in Part 1 until such time as a notice was issued by all of the directors of Springsley nominating alternate Primary Beneficiaries, whereupon the Primary Beneficiaries would mean the persons described in Part 2. 93 On 16 December 1996, the share sale agreement was entered into between Athann and Springsley (TB 65/7143.1). The purchase price was $1,000,000 allocated as to $400,000 for Athann's share in J & J O'Brien and as to $600,000 for its share in Marsico. The agreement provided that Athann would procure a meeting of directors of Marsico and J & J O'Brien to be held within 28 days to vote in favour of certain resolutions required by Mr Crawley. They included the adoption of the group companies' financial statements as tabled by him; authority for the companies to sign and lodge the income tax returns prepared by Glen Neilsen & Co, the group's auditors; approval to the assignment of the future proceeds of the insurance claim on Sun Alliance Insurance to Vensel; and approval to the registration of the transfer of the shares. 94 Clause 4.1(d) of the share sale agreement provided that Athann was required to use its best endeavours to ensure that, without the prior written consent of Springsley, J & J O'Brien and Marsico did not lodge any applications for the funding of or refinancing of their current mortgage loan facilities, nor permit any resolution challenging the validity of the mortgages to Vensel, nor the equitable charge to Mr Crawley, nor authorise any payments to be made to Hilldean or Mr Hannan, nor convene a directors' meeting to remove Mr Crawley as a director. 95 Clause 4.6(b), although badly worded, in substance required that, upon Mr Crawley's convening a directors' meeting, Athann vote in favour of the acceptance and approval of loan facilities to discharge the facilities from Westpac and BAC, and to authorise the execution of all loan documents required. 96 Clause 5.2 dealt with steps to be taken on the completion of the sale. These included procuring meetings of the directors of each of the companies to procure the dismissal of Hilldean Pty Ltd and Mr Hannan as consultants to each of the companies; the appointment of an additional director by a person nominated by the purchaser, and the resignation of Mr Davis as a director; the tabling of all legal opinions obtained by the "Company" in relation to the joint venture with Trudale and the legal fees outstanding to Aubrey F Crawley & Co; and withdrawing any instructions to any solicitors to prepare any advice to the company or to instigate any proceedings in relation to any secured advances or liabilities. It also required the procuring of a resolution approving the release of $400,000 to Aubrey F Crawley & Co in part-payment of costs from moneys with the Australian New Zealand Banking Group Ltd. This was a reference to the $400,000 which was held by the solicitors in a trust account with the ANZ bank from the proceeds of sale from the Racecourse Hotel and which the earlier deed had provided should be released to Mr Crawley not in reduction of the alleged debt for costs, but in reduction of the debt owed to him for advances. 97 The share sale agreement did not deal with who should control Springsley at completion of the purchase or with the beneficiaries of the Springsley trust (TB 65/7143.1). These matters were dealt with in a separate document called a supplementary deed entered into on the same day (TB 65/7246). The supplementary deed provided that upon the passing of the resolutions set forth in clause 4.6 of the share sale agreement, Springsley would procure a loan of $100,000 which it would pay as a deposit to Athann's solicitors to be held as stakeholders. Mr Crawley had provided a cheque for that sum to Mr Wiseman on 12 December 1996. The supplementary deed also provided for more documents to be tabled on completion of the share sale agreement. The documents to be provided included resignations of Mr and Mrs Davis as directors of Springsley and executed transfers of the shares in Springsley and also a signed nomination of the alternate primary beneficiaries pursuant to clause 1(i) of the deed of settlement of the Springsley trust, as well as the resignation of Mr Davis as appointor of the Springsley trust. The supplementary deed also provided that Springsley would be required to provide the balance of the purchase price of $900,000. 98 The share sale agreement provided that its contents were to be kept confidential. Mr Crawley was not a party to the share sale agreement. On the same day, 16 December 1996, he entered into an agreement with Mr and Mrs Davis, Athann and Springsley (TB 65/7253.20). Mr and Mrs Davis, Athann and Springsley undertook to maintain the secrecy of the transaction and also of "information received by [Mr Crawley] in the pursuit of the performance of [his] obligations to its proposed financiers and the documentation to reflect the conclusion of the transaction which by its nature is confidential financial information, and business plans of [Mr Crawley]." They warranted that they had not disclosed any details of the negotiations to Mr or Mrs Short, or any third parties associated with J & J O'Brien and Marsico. 99 Mr Hannan and Mr Short were themselves attempting to obtain finance to pay out the Westpac and BAC facilities. Mr Crawley did his best to prevent Mr Davis or Mr Short from obtaining finance. 100 On 11 February 1997, Gilbert & Tobin, advised the directors of J & J O'Brien and Marsico on various causes of action against Mr Crawley (TB 67/7362.5). They advised that the deed of acknowledgement of 30 June 1994 and subsequent securities were voidable. 101 On 12 February 1997, the ANZ bank made an offer to Mr Crawley to provide facilities totalling $5,600,000 (TB 67/7362.46). The security for the facilities was to be guarantees from the group companies, mortgages over the two Newtown properties still owned by J & J O'Brien and over the unsold units in the Elizabeth Street development and mortgages over various properties owned by Mr Crawley together with second mortgages over Jackson's on George and the Marlborough Hotel with a deed of priority limiting QIDC's mortgage to $15,000,000 plus interest and charges. A fee of $10,000 was payable on acceptance. 102 On the same day, the ANZ Bank made an offer of finance to J & J O'Brien of an overdraft facility in the amount of $400,000 (TB 47/7362.23). Mr Crawley accepted the offer on 25 February 1997. 103 At a directors' meeting on 19 March 1997, Mr Crawley advised Messrs Short, Davis and Hannan that he had applied for finance on his own behalf and not on behalf of the companies. He refused to answer any questions in relation to his finance applications. Mr Crawley demanded to be told what applications Mr Hannan was making on behalf of the companies. Mr Hannan refused to provide that information until Mr Crawley told him what he was doing. There matters rested for the time being. 104 On 25 March 1997, Westpac and BAC agreed to a further extension of their facilities from 31 March 1997 to 30 April 1997 (TB 70/7523, 7524). 105 On 25 March 1997, QIDC made an offer of finance of $15,000,000 to Aldonet (TB 70/7527.16). The facility was split into two components. One was a cash advance facility of $14,000,000 to assist with refinancing of the debt over Jackson's on George and the Marlborough Hotel. The second facility was for $1,000,000 to assist with the payment of licence and gaming fees. The security required by QIDC comprised first mortgages over the hotel properties, charges over Aldonet, Marsico and J & J O'Brien, and joint and several guarantees from Aldonet, Marsico, J & J O'Brien and Mr Crawley. Aldonet had not offered, and QIDC did not require, any guarantee from Mr Short or Mr Davis, or any mortgage over their properties. The letter provided for the payment of an establishment fee of $45,000. It provided that interest would be calculated at QIDC's Cash Advance Rate plus a margin of 2.25%. The default rate would be the Cash Advance Rate plus 5.25% per annum. A condition of draw down of the facility was that QIDC be satisfied with all matters relating to proposals concerning the shareholding of J & J O'Brien and Marsico. Prior to settlement, it was required to be satisfied that Mr Crawley, or interests controlled by him, had a majority shareholding in and unimpeded control of Marsico and J & J O'Brien (at 7527.19-7527.20). 106 On the same day, Mr Crawley forwarded a copy of QIDC's letter of 25 March 1997 to Mr Wiseman of Rosenblum & Partners. He stated that: " We refer to and confirm the prior agreement as to confidentiality. This document is provided upon the further agreement that it is done so on a strictly confidential basis and upon your personal undertaking that: a. the documents, their contents and their nature will not be disclosed; b. neither of the other directors shall be advised of the source of funds. " 107 The information in this correspondence was not disclosed by Mr Wiseman either to Mr Davis or to Mr Short. 108 On 26 March 1997, Mr Crawley, on behalf of Aldonet, sent by facsimile to the company secretary of J & J O'Brien and Marsico, and to Mr and Mrs Short, an offer to provide $19,400,000 of finance to J & J O'Brien, Marsico and Trudale (TB 71/7528). The offer was of three facilities, but they were not offered separately. Facility A was for $15,000,000. Facility B was for $4,000,000 and Facility C was for $400,000. The letter stated that Aldonet would be obtaining the advance of funds from "its Primary Lender". The terms of the offer of Facility A were based upon the terms of QIDC's letter to Aldonet. The facility was for the same amount. Aldonet stipulated the same security as QIDC required but with the addition of joint and several guarantees from Mr and Mrs Short and Mr and Mrs Davis. Aldonet stated that its establishment fee would be $150,000. QIDC's establishment fee was $45,000. The interest rate proposed by Aldonet was stated to be its Primary Lender's cash advance rate plus a margin of 2.75% per annum. QIDC's offer was its cash advance rate plus a margin of 2.25%. Aldonet's offer was for the default interest rate to be half a percent higher than QIDC's default rate. Aldonet's offer did not replicate QIDC's condition that it be satisfied of proposals regarding the shareholdings of J & J O'Brien and Marsico, and in particular, that Mr Crawley or interests controlled by him have a majority shareholding in, and unimpeded control of, the companies. 109 Facility B comprised a fixed rate commercial bill facility for $2,000,000 and a variable rate bill facility for $2,000,000. The facility was based on the ANZ Bank's offer to Mr Crawley. The fee payable on acceptance was $40,000 rather than $10,000. Aldonet's offer included a line fee of 2% per annum on the facility limit compared with the line fee to be charged by the ANZ Bank of 1.75%. 110 Facility C was a $400,000 overdraft facility to be provided by the ANZ Bank. 111 Aldonet's offer was considered at a meeting of directors of J & J O'Brien, Marsico, Trudale and other companies in the group held on 27 March 1997. As well as Messrs Crawley, Short and Davis, Hannan and Wiseman were present. A resolution was passed on the votes of Mr Crawley and Mr Davis, with Mr Short objecting, to accept Aldonet's letter of offer of 26 March 1997 as modified in two respects as notified during the meeting. Those two respects were that personal guarantees of Mrs Short and Mrs Davis would not be required and that the acceptance fee of $150,000 for facility A could be paid in two instalments: $75,000 then and $75,000 on acceptance. 112 Accounts for 30 June 1995 were approved with Mr Short dissenting. A resolution was also passed authorising the auditors, Glen Neilsen & Co, to lodge income tax returns for the years 1990 to 1995. Mr Hannan pointed out that an earlier schedule that had been provided showed that tax returns had not been lodged since 1985. He asked whether tax returns for the five years from 1985 to 1990 had been lodged. Mr Crawley advised that they had not been lodged, but the financiers wanted returns from 1990 to 1996 and it was probably not a good idea to have the earlier income tax returns "floating around". 113 After debate as to the allocation of losses from the joint venture, Mr Crawley proposed a resolution that the income tax returns prepared by Glen Neilsen & Co for the years 1990 to 1995 as before the board be accepted, and that he be authorised to sign the returns on behalf of the company; or, alternatively, that they be signed by the public officer, and the documents thereafter be returned to Glen Neilsen & Co for execution by Mr Leddin, as noted in the returns, and lodged by that firm on each of the group companies' behalf; and that it be noted that the returns disclosed there was no income tax payable by any of the group companies. The resolution was passed by a majority with Mr Short voting against. 114 A resolution was put that each of the share transfers from Springsley to Athann in J & J O'Brien and Marsico be accepted by each of the companies, and that the share transfers, subject to due stamping by the Commission of Stamp Duties, be registered and that two new share certificates for each share be issued immediately in favour of Springsley. The resolution was passed on the votes of Mr Davis and Mr Crawley. Mr Short abstained. 115 Mr Short and Mr Davis had given authority to a finance broker, Balmain NB Commercial Mortgages Ltd, to attempt to arrange suitable non-bank mortgage finance on the security of Jackson's on George, the Marlborough Hotel, Mr Short's residence at Cremorne, and Mr Davis' residence at Vaucluse, together with guarantees from Mr Short and Mr Davis. (TB 69/7411.14). 116 Balmain negotiated with Prudential Portfolio Managers Ltd to obtain an offer of finance. On 27 March 1997, Prudential made an offer of finance to the J & J O'Brien group. It advised that it was prepared to grant a loan of $19,500,000 or 65% of the valuation of properties identified in the letter. The properties identified were Jackson's on George, the Marlborough Hotel, and the residences of Mr Short and Mr Davis at Cremorne and Vaucluse. Interest was to be 13.05% per annum, reduceable to 9.05% per annum if paid on time. The letter provided that the loan was to be guaranteed by Mr Short, Nabatu, Mr Davis, Athann, Trudale and any other directors or shareholders of the borrowing company, that is, of Marsico and J & J O'Brien. The offer remained open for five business days. A commitment fee of $58,500 was payable on acceptance of the offer. This offer of loan was procured by a Mr Mumby. He advised that the interest rate of 9.05% was based on a margin of 1.75% above a three-year swap rate calculated by Prudential at 7.3% per annum. 117 On about 31 March 1997, Mr Short retained Mr Linden of Kemp Strang to act for Nabatu and Mr and Mrs Short. 118 On 1 April 1997, QIDC revised its offer of finance to Mr Crawley. The facility was restructured as a single facility for $15,000,000. The establishment fee was reduced to $30,000. The letter provided for interest on different parts of the facility to be either fixed or floating. The rate of interest was to be QIDC's fixed base rate or its variable rate, plus a margin of 2.25% per annum. The term of the loan was for five years (TB 72/7739.154). 119 On 3 April 1997, Mr Linden sent a letter to Mr Wiseman and Mr Crawley (the letter is dated 2 April 1997) commenting upon the principal differences between the Prudential offer and the Aldonet offer of finance (TB 73/7758). He said that the Prudential offer gave the group an interest rate and fee advantage compared with the Aldonet offer, the security required under the Prudential offer was less than that required under the Aldonet offer and it would not be necessary to grant security to Prudential over the Elizabeth Street Centre assets or the Newtown terraces. He also said that the Prudential offer was superior because it did not require repayment of an amount of $1,000,000 within the first year, and it was a three-year fixed facility rather than being subject to annual review. In relation to the Aldonet offer, he advised that the following matters caused Mr Short extreme concern. The first was that Aldonet was controlled by Mr Crawley and there were provisions in the offer which enabled Mr Crawley to exercise de facto control over the group. Aldonet was required to be satisfied of all matters relating to the structure and operation of the group. Secondly, he said that Mr Short did not understand why the facility could not be entered into directly between the group and the lender to Aldonet. He noted that Aldonet had refused to disclose the terms upon which it had obtained the funds from its lender. Thirdly, he said that the security schedule to the Aldonet offer included a condition entitling Aldonet at its absolute discretion to release any security, or any party before completion of the advance without notice to the other parties. He said: "Our client is not prepared to give consideration to providing any guarantees or security unless it is clear that all of the security listed in the schedule will also be provided. As the offer is presently drafted our client could be the sole guarantor of the facility unbeknownst to him. " 120 Mr Linden also noted that the recent amendments to the articles of the companies had not been filed with the Australian Securities Commission. He advised that he had been instructed that a resolution was passed in 1993 regarding certain pre-emptive rights amongst shareholders. He asked to be provided with a copy of the current memorandum and articles of association of each of the companies in the group. 121 A substantial part of Mr Crawley's defence to the claim that he had engaged in oppressive conduct was based on his allegation that Mr Short had refused to provide security to support the group's operations such that Mr Crawley was left as the only party willing to provide security over his own assets to support the group's borrowings so as to discharge the Westpac facility and provide working capital. He identified the letter from Mr Linden of Kemp Strang & Chippendall of 2 April 1997 as one of the occasions upon which Mr Short had given that refusal. The plaintiffs emphasise that by that letter Mr Short did not refuse to provide his guarantee or a mortgage over the residence of Mr and Mrs Short, but merely refused to do so if it lay in Mr Crawley's discretion to release other providers of security. 122 Mr Crawley replied to Mr Linden's letter on 4 April 1997 (TB 73/7763.8). In relation to the question of guarantees, he said: "Under the Aldonet facility, the securities and guarantees required to be provided by Athol Davis, Warwick Short and Roslyn Short are no longer required. In the circumstances, the expressed refusal of Mr Short to provide any guarantees or security under the Aldonet facility suggests a misconception of the nature and scope of such facility. " 123 The second sentence is mere bombast. However, the first sentence was clear. Aldonet did not require guarantees from Mr and Mrs Short. 124 On 3 April 1997, Mr Crawley advised Mr Wiseman that Springsley, as purchaser under the share sale agreement, required Athann as vendor to act in accordance with the terms and conditions of the agreement and vote at the meeting to be held the next day against the acceptance of the offer of facilities by Prudential (TB 73/7760.2). 125 A directors' meeting was held on 4 April 1997. Messrs Crawley, Short, Davis, Linden, Mumby, Wiseman and Hannan were present. There was discussion about the Prudential offer. Mr Crawley's position was that the Aldonet offer had already been accepted and that the Prudential offer had already expired. He confirmed that, "Mr Short's securities and Mr Davis' securities are no longer required in relation to the [Aldonet] facility." (exhibit BM; Auscript Transcript page 12). Mr Crawley also contended that Aldonet's was the better facility. No resolution was passed in relation to the Prudential facility. 126 Also on 4 April 1997, Mr Crawley accepted the variation of QIDC's offer as conveyed by QIDC's letter of 1 April 1997. 127 On 7 April 1997, Aldonet made a revised loan offer to J & J O'Brien and Marsico (TB 74/7764). Again the facility was for $15,000,000. The change generally reflected the changes made in QIDC's offer to Aldonet. Aldonet's offer provided for an acceptance fee of $190,000 of which $95,000 had already been paid. This can be compared with QIDC's requirement for an establishment fee of $30,000, and ANZ's fee of $10,000. Aldonet's offer also provided that guarantees of Mr and Mrs Short, and Mr and Mrs Davis, and mortgages over their properties were not required. Aldonet's letter was not framed as an offer capable of acceptance or rejection. Rather, it was framed as the exercise of its rights under its earlier loan approval letter as accepted by the borrowers on 26 March 1997, with other amendments being made for the benefit of the borrowers. 128 Aldonet's letter of 7 April 1997 was provided to Messrs Linden, Short and Davis the following day (TB 74/7775.29, 7780.2). On 8 April 1997, Mr Crawley gave a further "instruction" to Mr Wiseman that Springsley required Aldonet's letter to be tabled before the board for acceptance of the terms of variation (TB 7775.29). He required that Athann and Mr Davis vote for the acceptance of the varied approvals and for the rejection of the Prudential loan, and that they also vote against the company seeking to obtain other finance (TB 7775.29). 129 On 10 April 1997, the $400,000, together with interest, received from the sale of the Racecourse Hotel which had been held in an account with the ANZ in the solicitors' name, was paid to Vensel. In the ledgers of J & J O'Brien, the payment of $414,250.74 was credited against the debt of $1,315,990 which the ledger recorded as being the debt owed to Vensel (Kuan schedule 9 to the affidavit of 9/12/05; Exhibit JK28 page 77). In other words, it was not credited merely against the debt for "other moneys". 130 On 15 April 1997, Mr Crawley caused proceedings to be brought in the Supreme Court for Mrs Crawley and for Cassandra and Rebecca Crawley against Springsley and Athann, alleging that Athann was in breach of various provisions of the share sale agreement. The alleged breaches included the continued engagement of Mr Hannan, and of Mr Mumby's company which was seeking to arrange finance through Prudential. 131 On 18 April 1997, Mr Wiseman wrote to Mr Crawley advising that his clients, that is Mr Davis and Athann, were ready willing and able to settle immediately on the discharge in full of the indebtedness to Westpac (TB 75/7794.46). He referred to the possibility of Westpac appointing a receiver if refinancing did not occur when its facility expired on 30 April 1997. He said that Mr Davis had been acting as a director in the interests of both companies to ensure that if for whatever reason the facilities offered by QIDC and the ANZ Bank did not materialise before 30 April 1997, there was at least the basis of alternate finance upon which to approach Westpac for further extension. He assured Mr Crawley that his client did not intend to proceed with Prudential and would rather complete with Mr Crawley. Mr Crawley responded by maintaining that there had been numerous breaches of the Share Sale Deed, and that Westpac had assured him that the bank would not be acting in relation to its accounts as at 30 April 1997 provided they were satisfied that the matter would settle in the short term. 132 On 22 April 1997, Mr Crawley again instructed Mr Wiseman that Springsley required that the offer of Prudential be rejected in accordance with the terms of the Share Sale Agreement. He required that Mr Davis approve resolutions to "acknowledge and accept the variations to the offer of finance of Aldonet Pty Ltd accepted by the Company on 27 March 1997" and to "accept security documents for Aldonet facility to discharge Westpac/BAC facility and authorise execution", and to discharge the Westpac/BAC facilities (TB 75/7808.5; 7808.6). 133 At the directors' meeting held on 24 April 1997, Mr Davis and Mr Crawley voted in favour of the resolution to accept the amended Aldonet offer, subject to an amending letter. Mr Short voted against the resolution. 134 At no time were the terms of the finance provided by QIDC to Aldonet disclosed to Mr Short or those advising him. 135 On 8 and 9 May 1997, ANZ sent to Mr Crawley offers of finance for a number of facilities. It offered a $4,000,000 facility to Mr Crawley. This comprised a fixed rate commercial bill facility of $1,500,000 and a variable rate commercial acceptance/discount bill facility (bridging finance) of $2,500,000. One of the conditions precedent to the facility being available was settlement by Mr Crawley of the purchase of Mr Davis' one-third share in the J & J O'Brien group. On 9 May 1997, the ANZ offered facilities totalling $1,840,000 to Mr Crawley, being a fixed rate commercial bill facility of $1,500,000, an overdraft facility of $150,000, a temporary overdraft facility of $90,000, and a fixed rate fully drawn advance facility of $100,000. A condition precedent to drawing on the facilities was settlement by Mr Crawley of his purchase of Mr Davis' shares (TB 77/7884; 7897.30). 136 These offers were accepted by Mr Crawley. He also accepted the offers as a director on behalf of Trudale, J & J O'Brien and Marsico as those companies were to provide cross-guarantees, J & J O'Brien was to provide mortgages over 197 Missenden Road and 9 Longdown Street, Newtown, and Trudale was to provide mortgages over units in the Elizabeth Street development. The bank was also to receive second registered mortgages over Jackson's on George and the Marlborough Hotel. QIDC was to receive first ranking mortgages over those hotels. There was a deed of priority between the ANZ and QIDC and Mr Crawley limiting QIDC's mortgage to $15,000,000 plus interest and charges. 137 On 15 May 1997, Mr Crawley sent to Mr Short and Mr Davis notice of a directors' meeting to be held the following day. 138 The refinance settled on 16 May 1997. Westpac was paid $19,221,275.68. Not all of this related to debts of J & J O'Brien, Marsico and Trudale. Mr Crawley also had personal facilities with Westpac which were discharged or reduced. As at 13 May 1997, the payout figure for the debts of the group companies to Westpac totalled $18,971,060.81. Westpac and BAC provided releases of the personal and cross-guarantees of 12 September 1990, 27 March 1997 and 15 December 1992. During the settlement, a representative of QIDC said to Mr Crawley that "QIDC wants to see the share certificates for Marsico, J & J O'Brien and Springsley. We want to see you have control." Mr Linden, who was attending the settlement on behalf of Mr Short and Nabatu, asked Mr Wiseman about that. Mr Wiseman said he preferred not to comment at that stage. The representative from QIDC and Mr Crawley left the meeting. On their return, Mr Linden asked what it was all about. The QIDC representative said "We wanted to see that Springsley had control of J & J O'Brien and Marsico. What did you expect? We don't need to see anymore." He refused to discuss the matter further. 139 At the settlement, Westpac handed over the title deeds and discharge of mortgage over Nabatu's property at Mosman and Mr Davis' property. Westpac handed over those documents to Mr Crawley. Mr Linden required Mr Crawley to deliver them to him. Mr Crawley initially asserted that he had an equitable claim to the title deeds and discharge of mortgage, but yielded to Mr Linden's demand that they be handed over to him. 140 An hour after the settlement of the refinance of Westpac's debt concluded, a directors' meeting was held. Mr Linden complained that there had been insufficient notice to deal with the matters on the agenda for that meeting. Notice had been despatched the previous day. No proposed resolutions were included in the agenda. At the meeting of 16 May 1997, Mr Crawley proposed various resolutions which were passed on his vote and that of Mr Davis, with Mr Short either abstaining or voting against the resolutions. Mrs Crawley was appointed as a director. Mr Davis resigned as a director. Mr Linden asked who were the current shareholders of J & J O'Brien and Marsico. Mr Wiseman said that Athann had been replaced by Springsley and that that had been tabled at the previous board meeting. Mr Linden asked whether it was correct that Mr Crawley now controlled Springsley. Mr Wiseman said that at all times up to that day, Springsley was a trust for the benefit of the Davis family controlled by Mr Davis and Mrs Davis, and as of that day, the company and the trust was controlled by Mr Crawley. Mr Crawley declared the meeting closed, although there was some further discussion. 141 The plaintiffs claim that the transfer of Athann's shares to Springsley was a breach of the pre-emption provisions in the Articles of J & J O'Brien and Marsico. However, their claim that Mr Crawley breached his fiduciary duties and acted oppressively does not depend upon the correctness of that contention. Nabatu does not claim damages for breach of the contract contained in the Articles. Nor does it claim damages in deceit. The plaintiffs did not contend, or seek to prove, that had the pre-emption provision of the Articles been complied with, or had Mr Davis, Mr Crawley and Mr Wiseman been truthful, Nabatu or Mr Short would have made an offer to purchase Athann's shares. The plaintiffs' claim is based upon the share transfer constituting oppression or a breach of fiduciary duty. The question whether the transfer constituted a breach of the pre-emption provisions is not decisive of the success of this claim. 142 The plaintiffs submitted that, where oppression is established, the remedial discretion in s 233 of the Corporations Act 2001 (Cth) (or s 260 or s 246AA of the Corporations Law 1989 (Cth) should be exercised to put Nabatu in the position in which it would have been had there been no oppression. The plaintiffs also submitted that the share transfer was procured by a breach by Mr Crawley of a fiduciary duty he owed to Nabatu as shareholder. They submitted that it was not necessary for Nabatu to prove that it would have taken up the opportunity to acquire Athann's shares had that opportunity been provided to it. They submitted that, in any event, Nabatu's ability and willingness to do so was affected by other oppressive conduct on the part of Mr Crawley at the time, in particular, his claims, which the plaintiffs say were largely unjustified, to be a creditor for large sums, and his taking security and threatening to exercise the security for those alleged debts. 143 Nabatu submits that, if an order is made for the winding-up of J & J O'Brien and Marsico, it should be entitled to elect, in the distribution of any surplus to members, between receiving one-third of any surplus reflecting its one-third shareholding in the companies or, upon paying Mr Crawley or Springsley $500,000 plus interest at court rates since 16 May 1997, receiving 50% of any surplus, on the basis that Nabatu is to be treated as a 50% shareholder in J & J O'Brien and Marsico. Alternatively, if an order for compulsory purchase of Nabatu's shareholding is made, Nabatu submits that upon its paying Mr Crawley $500,000 plus interest, there should be an order that Mr Crawley acquire its shares at the price which would be payable if it were a fifty percent shareholder in the companies. 144 Amongst the defences raised by Mr Crawley, and particularly by Springsley, is a defence of laches and acquiescence. The wall of secrecy which Mr Crawley attempted to erect was not leak-proof. The defendants say that Mr and Mrs Short and Mr Hannan knew from Mr Leddin that Mr Davis had agreed to sell his shares to Mr Crawley for $1,000,000. In any event, they were aware from the directors' meeting of 16 May 1997 how the share transfers had been effected. They knew of all the material matters which are now relied upon for the orders now sought. Notwithstanding this, it was not until 31 August 2004 that the amended statement of claim was further amended to include a claim challenging the share transfers, and claiming an order for the removal of Springsley as a shareholder, or an order that it transfer half of its shareholding to Nabatu, or otherwise claiming relief in relation to that shareholding. 145 The plaintiffs allege that, in procuring finance through Aldonet, Mr Crawley breached his fiduciary duty as a director by: (a) pursuing finance for himself rather than the companies in circumstances where he controlled the companies' financial information needed to obtain the finance; (b) hindering the obtaining of finance for the companies by the remaining directors; and (c) requiring Mr Davis to vote in favour of the Aldonet finance and binding him not to pursue finance for the companies. 146 They contend that Mr Crawley breached his fiduciary duties both as a director of the companies and as their solicitor; that he was in a position of conflict, and that he did not obtain the informed consent of the companies to the breaches. 147 The QIDC facility to Aldonet was refinanced through the ANZ in 1998. New margins between Aldonet's cost of funds and the amounts charged to the group companies were established. The margins totalled 1.5%, which increased to 1.65% in July 2002. The plaintiffs contend that the profit derived by Aldonet, being the difference on the line fee and interest margins charged by ANZ to Aldonet and by QIDC to Aldonet, compared with the margins charged by Aldonet to J & J O'Brien and Marsico, totals $2,149,680.88 in respect of advances to Marsico and $226,259.96 in respect of advances to J & J O'Brien. They also say that Aldonet has derived a profit of $150,000 by way of establishment fees. They seek the recovery of these amounts as an account of profits. Mr Short Removed as a Director 148 On 4 July 1997, Mr Short wrote to Mr Agus, the company secretary of the companies in the J & J O'Brien group, requiring him to convene a meeting of directors to discuss various items and noted that he would be away for the week between 5-12 July 1997. 149 On 7 July 1997, Mr Agus and Mr Crawley gave notice of a directors' meeting to be held on 11 July 1997. 150 Mr Short did not attend the meeting. The meeting was attended by Mr and Mrs Crawley. The minutes deal with various matters including the allegedly unauthorised drawing of cheques by Mr Short (which had not been paid). Claims made by Australian Corporate Investments Pty Ltd, Netburg Pty Ltd, Hilldean Pty Ltd and by a firm of solicitors, Ellitt & Law, on the companies, were rejected, and Mr Crawley was retained to deny the claims. Mr Crawley was appointed as a solicitor to take action in relation to the alleged removal of certain assets of the companies by Mr Short. 151 A resolution was also passed approving the entry into a management agreement with Vensel (TB 80/8355-8356). A further resolution was passed for the entry into an agreement with Mr Crawley for him to be appointed as managing director. 152 At an extraordinary general meeting of, inter alia, J & J O'Brien, Trudale and Marsico, held on 25 July 1997, attended by Mr Crawley, Mrs Crawley as proxy for Springsley, and Mr Linden as proxy for Nabatu, Mr Short was removed as a director of all of the J & J O'Brien group companies. Mr Linden voted against the resolution. Mr and Mrs Crawley voted in favour of it. Management and Accounting Fees from 1 July 1997 153 Vensel became entitled to management fees of $254,400 in the first year of its formal management agreement. Those fees were to be increased by 10% each year. The plaintiffs say that Vensel's retainer of those amounts was not bona fide in the interests of J & J O'Brien and Marsico and was oppressive. They say that Vensel's profit margin was far in excess of market benchmarks for the provision of accounting or related services. The total amount paid by J & J O'Brien to Vensel for the financial years ended 30 June 1998 to 30 June 2004 was $794,840. The total of such payments from Marsico for the financial years ended 30 June 1998 to 30 June 2004 was $913,206. The plaintiffs seek an account of profits in relation to those payments, and continuing payments. 154 From the year ended 30 June 2004, payment for the management and accounting services was made to the ninth defendant, Gladewood Enterprises Pty Ltd. On 20 September 2004, Gladewood entered into a management agreement with Marsico and J & J O'Brien. The recitals to that agreement refer to Vensel having assigned the benefit of the 11 July 1997 agreement to Gladewood on 1 July 2003. The plaintiffs contend that Gladewood had no entitlement to be paid for any services prior to 20 September 2004. In the financial years ended 30 June 2004 and 30 June 2005 and for part of the financial year ended 30 June 2006, Gladewood received $327,360 on account of accounting and management fees from J & J O'Brien and $385,050 from Marsico. The plaintiffs seek an account of profits in respect of these payments, and continuing payments. Agreements for the Provision of Mr Crawley's Services 155 Under the agreement of 11 July 1997 for the employment of Mr Crawley as managing director, Mr Crawley was to be paid a salary of $75,000 by each of J & J O'Brien and Marsico. The agreement also contained a clause entitling him to remuneration equal to 7% of the net profits (as defined) of each company up to a ceiling of $100,000, to the extent that the net profits exceeded $200,000. Mr Crawley was paid salary of $150,000. In the course of finalising the 2001 financial statements, Mr Crawley was credited with commissions of $187,922 for the 1997 financial year (to which the agreements did not apply). Aldonet was credited with commissions of $248,317 for the 1998 financial year, even though Mr Crawley's right to commission in the 1998 financial year was capped at $100,000. The plaintiffs say that it was a breach of Mr and Mrs Crawley's duties as directors to have caused the companies to enter into those agreements. They also contend that Mr Crawley and Aldonet were not entitled to the bonus remuneration with which they were credited. 156 The plaintiffs also complain that Mr Crawley received bonus remuneration for the year ended 30 June 1997 before any such agreements had been entered into. They say there was no board resolution authorising the payment of any amounts to Mr Crawley or to Vensel in that financial year (or earlier years). They claim that he was overpaid $337,922 in the year ended 30 June 1997. This claim mistakenly assumed that Mr Crawley was paid $150,000 in respect of that year as well as having been credited with commission of $187,922. 157 On 8 July 1998, a new management agreement was entered into between Aldonet and J & J O'Brien and Marsico, for Aldonet to provide Mr Crawley's services as managing director. Mr Crawley denied that this arrangement was put in place because proceedings had just been commenced against him and Vensel. For each of the years from 30 June 1999, Aldonet was entitled to be paid substantial sums by way of a minimum fee of $75,000 from each of Marsico and J & J O'Brien and was credited with bonus commission. By way of example, in the year ended 30 June 2003, Aldonet received $150,000 as fees for providing Mr Crawley's services as managing director and was credited with commission of $140,322 from Marsico, and $51,764 from J & J O'Brien. Notwithstanding the agreement of 8 July 1998 with Aldonet, fees of $150,000 per year were paid to Mr Crawley up to 30 June 2002. They were paid by being credited to his loan accounts with J & J O'Brien and Marsico from which drawings were made. New agreements with Aldonet were made on 20 September 2004. 158 The plaintiffs contend that the agreements of J & J O'Brien and Marsico with Aldonet were entered into by Mr and Mrs Crawley in breach of their duties as directors of the companies. They contend that no reasonably competent company director acting honestly could have thought that Aldonet was entitled to the amounts of commission with which it has been credited. Interest on Vensel Debt and Other Related Party Payments 159 J & J O'Brien continued to pay interest at 17.5% per annum to Vensel on the debt purportedly owed by it to Mr Crawley which was assigned to Vensel. J & J O'Brien's financial statements for the years ended 30 June 2000 and following disclosed the amounts of interest paid on the debt from 1999. The amounts paid were: 1999 $311,286 2000 $309,922 2001 $309,674 2002 $309,674 2003 $309,674 From the year ended 30 June 2004, the payments were made to Gladewood rather than to Vensel. The payments were: 2004 $309,674 2005 $309,674 160 The plaintiffs dispute the debt, which has its origin in the deed of 30 June 1994, and therefore dispute the validity of the interest payments. They also say that even if the principal debt was owed, it was a breach of the directors' duties to continue to pay interest on the debt at 17.5% per annum to Vensel and Gladewood, rather than repaying the debt or refinancing the debt. A credit memorandum of the ANZ bank of 25 May 2001 recorded that: " Interest paid to Vensel by J & J O'Brien is calculated at 17.5% (total interest remitted to Aldonet by J & J O'Brien $309,000) as determined when the original loan was established. This amount has been adjusted to a rate of 7.5% and the remainder added back to the NPBT figure to reflect the true returns required by Vensel to service its borrowings (sic) (from CWC). " 161 The quantum of related party payments is substantial. According to the financial statements of J & J O'Brien and Marsico for the year ended 30 June 2005, the related party payments in that year included: Interest paid to Gladewood by J & J O'Brien: $309,674 Accounting and clerical services fee paid to Gladewood by J & J O'Brien: $126,720 Management services fee charged by Aldonet to J & J O'Brien: $148,772 Accounting and clerical services fee paid to Gladewood by Marsico: $138,600 Fees charged by Aldonet for providing management services to Marsico: $226,754 Fees charged by Springsley for providing management services: $74,004 Total: $1,024,524 This does not include interest and margin fees on the loans made by Aldonet. In the same year, the difference between the cost of funds to Aldonet and the amounts payable to Aldonet on the loans to J & J O'Brien and Marsico was $14,635 in the case of J & J O'Brien and $288,354 in the case of Marsico. Non-Payment of Dividends 162 Marsico and J & J O'Brien have not paid dividends. The plaintiffs complain that profits which ought to have been available for distribution to shareholders by way of dividend have been paid in interest or management fees of various descriptions. Non-Provision of Information and Provision of Misinformation 163 Various lies were told by Mr Crawley and Mr Wiseman at the meeting of directors of 27 March 1997, at which the transfer of Athann's shares to Springsley was approved by the boards of J & J O'Brien and Marsico on the votes of Mr Davis and Mr Crawley. Mr Crawley's interest in that transaction was not disclosed. 164 An annual general meeting for J & J O'Brien, Marsico and Trudale was convened on 14 August 1998 to consider the financial statements for the year ended 30 June 1997. The plaintiffs complain that, over an extended period, Mr Crawley refused, often on specious grounds, to provide information as to the affairs of the companies. A notice to convene an annual general meeting to consider the financial statements for the year ended 30 June 1998 was given by Nabatu on 9 December 1998. At the meeting convened for that day, Mr Crawley refused to allow Mr Linden to act as proxy for Nabatu on the ground that his proxy had not been delivered at the requisite time before the meetings were convened to be held. In fact, they had been. Mr Crawley promised to convene a further general meeting, but did not ever do so. He did not answer many questions which Mr Linden raised in relation to the financial statements which had been provided. Those financial statements did not include detailed profit and loss statements. At later meetings, Mr Crawley refused to answer any questions about the accounts on the basis that litigation was pending. No general meeting was held since 9 August 2002, notwithstanding service by Mr Linden on behalf of Nabatu of notices pursuant to s 293 of the Corporations Act requiring the convening of such meetings. 165 These allegations were made in support of the ground that the affairs of the companies were being conducted oppressively and not in the interests of the members as a whole. The latter claim is now conceded. Nonetheless, the material is still relevant to determining whether the appropriate remedy is a winding-up order, as the plaintiffs now seek, or an order for the purchase of Nabatu's shares. Late Payment of Tax from the Yurong Street Development 166 J & J O'Brien did not lodge tax returns for the year ended 30 June 1988 and 30 June 1989 until 14 September 2004. The plaintiffs complain that the tax return for 1989 lodged on 14 September 2004 was false in that it did not declare J & J O'Brien's share of the profit from the Yurong Street development of $1,604,689 obtained on 23 December 1988. They also claim that the return was false for falsely claiming a deduction of $1,932,896 by way of interest expenses. 167 The plaintiffs claim that the failure to lodge the tax returns in 1988 and 1989 was the responsibility of Mr Crawley and that if the company is assessed for penalties and interest relating to the unpaid tax he is liable to indemnify J & J O'Brien in respect of that liability. They contend that Mr Hannan and Mr Short endeavoured to obtain a directors resolution in 1997 for the outstanding returns to be lodged but were rebuffed by Mr Crawley. They also contend that the amended tax return lodged on 16 February 2006 was false in that it wrongly claimed a deduction of $1,932,896 in the year ended 30 June 1989. They contend that J & J O'Brien would be liable for further tax penalties and interest as a result of the incorrect amended return. This relief is only sought against Mr Crawley and not against Mrs Crawley. The plaintiffs say that Mrs Crawley relied on Mr Crawley in relation to accounting and financial matters in the same way as did Mr Short and Mr Davis until mid 1997. The Hot Dog Stand 168 The general manager of Jackson's on George, Mr Guderjahn, manages a hot dog stand inside Jackson's on George. The plaintiffs contend that this is a corporate opportunity of Marsico. They contend that Mr Crawley has breached his duties as a director of Marsico since mid 1997 by allowing Mr Guderjahn to receive the profit from operating the hot dog stand. 169 Mr Guderjahn became the manager and licensee of Port Jackson Tavern in about March 1986 and has remained the licensee and general manager of Jackson's on George. In about 1987, Mr Guderjahn and his assistant manager, Mr Turner, set up a hot dog stand and started selling hot dogs outside the front of Jackson's on George. They did so with Mr Short's approval. After Mr Turner stopped working at Jackson's on George and commenced working at the Marlborough Hotel, Mr Guderjahn took over sole conduct of the hot dog business. He paid for the cooking equipment and the food. Employees of the hotel have also worked on the hot dog stand from time to time. There is a dispute as to whether they were all paid in cash for that work by Mr Guderjahn, or whether they were paid by Marsico as part of their wages for working at Jackson's on George. 170 The business operated as a cash business. Mr Guderjahn did not keep records of his profits. The hot dog stand moved inside the hotel in about 2000. Mr Crawley, and before him, Mr Short, regarded the profit derived by Mr Guderjahn as a benefit worth providing to secure the services of a valuable employee. The plaintiffs contend that operation of the hot dog stand was a business opportunity of Marsico, at least from the time the stand was moved inside the premises of Jackson's on George, and that Mr Crawley breached his duties as a director of Marsico in failing either to take advantage for Marsico of the opportunity of operating the hot dog stand, or obtaining a reasonable licence fee from Mr Guderjahn for the area that the hot dog stand occupies within the premises. They claim that Mr Crawley is liable to compensate Marsico for the net profit which Mr Guderjahn has made from operating the hot dog stand. They contend that the net profit received by Mr Guderjahn from the hot dog stand from July 1997 to 2006 was $898,560. The Defendants' Cross-Claim 171 On 16 April 2003, Marsico, J & J O'Brien, Mr Crawley and Trudale filed a cross-claim against Nabatu and Mrs Short as executrix of the estate of Mr Short. They alleged that Mr Short breached an agreement made between him, Nabatu and Mr Crawley, and breached his duty as a director of J & J O'Brien and Marsico, by withdrawing his securities and refusing to offer properties owned by him or Nabatu, as security for borrowings to be made by Marsico and J & J O'Brien. The cross-claim was amended on a number of occasions. In substance, it alleged also that Mr Short breached his fiduciary duty and breached an agreement made with Mr Crawley by offering properties owned by him and by Nabatu as security to raise money for the acquisition of other businesses and properties. Mr Short or members of his family, through various corporate entities, acquired properties or businesses known as Scubar Down Under, the Australian Hotel, the Bridgeview Hotel, the Seabreeze Hotel and Bay Motel, the Cargo Bar and Lounge, Bungalow 8 and The Loft. The defendants also alleged that Mr Short breached an agreement with Mr Crawley and Mr Davis, made in about 1984, where each agreed that if further opportunities to acquire properties arose for any one of them, that person should inform the others so that they could decide whether the opportunity should be taken up together, and that it would only be if that decision were not taken that the person would be free to pursue the opportunity on his own behalf. 172 The cross-claimants claimed damages and an account of profits of the businesses which Mr Short or members of his family had operated after 1997. They also claimed that the businesses were held on a constructive trust for them (see Short v Crawley (No. 25) [2005] NSWSC 928). 173 In final submissions, the cross-claim was abandoned, and rightly so. However, the pendency of the claim from 2003 to 2006 may itself be relevant to the terms on which final relief should be given, and in particular, if an order is made for the compulsory purchase of Nabatu's shares, whether the shares should be valued as at 1997 (when Mr Crawley secured control of the companies), or 1998 (when proceedings were commenced), or at current values. Derivative Actions 174 The plaintiffs submitted that Nabatu was entitled to bring derivative actions on behalf of J & J O'Brien, Marsico and Trudale against Mr and Mrs Crawley and companies controlled by them. Some of the causes of action arose from amendments made after the introduction of Pt 2F.1A of the Corporations Act on 13 March 2000. Part 2F.1A abolished the right of a person at general law to bring proceedings on behalf of a company (s 236(3)), and substituted a procedure whereby the Court must grant leave to an eligible applicant to bring proceedings on behalf of the company if the criteria in s 237(2) of the Corporations Act are satisfied. As a member of each of the companies, Nabatu is such an eligible applicant. 175 The proceedings were commenced on 16 June 1998. Orders for relief against oppression were sought under the then s 260 of the Corporations Law. That section was repealed with effect from 1 July 1998 and substituted by s 246AA of the Corporations Law. The equivalent provisions in the Corporations Act are ss 232 and 233. The provisions are all to the same effect. In Shum Yip Properties Development Ltd v Chatswood Investment & Development Co Pty Ltd (2002) 166 FLR 451; 40 ACSR 619, Austin J explained that the effect of the transitional provisions of the Corporations Act, (relevantly for present purposes s 1383), is that a new proceeding under the Corporations Act equivalent to the proceeding before the commencement of the Act, is taken to have been brought in the Court. By treating the provisions of the Corporations Law as if they were provisions of the Corporations Act the Court exercises federal jurisdiction (at [9]-[12]; see also Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No. 6) (2007) 63 ACSR 1 at [1010]-[1011]). 176 Under subs 260(2) (or s 246AA(2)) of the Corporations Law, the Court can make such order as it thinks fit including an order under s 260(2)(g) or s 246AA(2)(g) authorising a member to institute and prosecute specified proceedings in the name and on behalf of the company, where grounds for making such an order are established under s 260(2)(a) or (b), or s 246AA(2)(a) or (b). Such grounds include the conduct of a company's affairs in a manner which is contrary to the interests of the members as a whole, or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member. Those provisions enable the Court, in an appropriate case, to outflank the rule in Foss v Harbottle (1843) 2 Hare 461; (1843) 67 ER 189, if a member can establish that the affairs of a company are being conducted oppressively, even if the member would not have standing under any of the exceptions in Foss v Harbottle (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672 at 695 [138]). In that case, the Court of Appeal upheld the decision of Young J (as his Honour then was) that in an oppression suit, the Court can "short-circuit" the making of an order authorising a person to institute and prosecute the proceedings where, in the oppression suit, the liability of the defendant to the company is established (at 695-696 [137]-[144], 759-760 [506], 763 [527]-[528], 792-793). 177 Sections 232 and 233 of the Corporations Act are in substantially the same terms as the former ss 260 and 246AA. The plaintiffs submitted that s 233 of the Corporations Act was not affected by the introduction of Pt 2F.1A. The defendants did not make any contrary submission. If that is so in relation to s 233 of the Corporations Act, it must also be so in relation to the predecessors of s 233 to the extent they have a continued operation in existing proceedings as deemed provisions of the Corporations Act. There was no dispute that Nabatu is entitled in the oppression proceedings to enforce whatever causes of action J & J O'Brien, Marsico or Trudale have against the other defendants. It is therefore unnecessary to consider the application for leave under s 237 of the Corporations Act. Had it been necessary to consider such an application, this was clearly a case for the grant of leave to the extent it was necessary. All of the criteria in s 237(2) were satisfied. However, it is not necessary to make any order under s 237. Nor is it necessary to make an order under s 260(2)(g) or s 246AA(2)(g) nunc pro tunc so as retrospectively to authorise Nabatu to institute and prosecute the proceedings on behalf of the companies. Credit of Mr Short and Mr Crawley 178 As noted in para [1] above, Mr Short died on 14 February 2004. He swore affidavits on 7 September 2000, 30 January 2002 and 2 December 2003. Arrangements were made for evidence to be taken on commission before his death. He was cross-examined over six days between 17 December and 24 December 2003. The examination was video recorded. Counsel then appearing for the defendants stressed that they considered they were not ready properly to cross-examine Mr Short. Only a handful of relevant topics was addressed in the cross-examination. Mr Short was cross-examined upon his allegation that there was an agreement that none of Mr Crawley, Mr Short or Mr Davis should charge for services provided by them. He was also cross-examined on his contention that he was unaware of the Yurong Street development and that he was unaware that he had executed guarantees on behalf of J & J O'Brien in respect of the Elizabeth Street development. When giving evidence, he was suffering from terminal cancer. 179 Making full allowance for his medical condition, and the hostility of the cross-examination, Mr Short was not an impressive witness. His evidence was frequently unresponsive to the questions asked, and dogmatic. On occasions, he was unprepared to answer questions in a way which was inconsistent with his view of the case he was propounding, namely, that he did not read documents he was asked to sign and only signed documents because he was told to do so by Mr Crawley. For the reasons which appear in the relevant sections of this judgment, I have not accepted Mr Short's evidence that there was an agreement that Mr Crawley would not charge for his services. Nor have I accepted his evidence that he was unaware of having signed guarantees on behalf of J & J O'Brien. His affidavit and oral evidence on these matters was inconsistent with the objective facts. 180 Whilst I formed the view that Mr Short genuinely believed the matters he asserted, he appeared to have reconstructed events in his own mind. I do not regard him as a reliable witness. 181 Mr Crawley's credit is badly shaken by the proved conduct about which the plaintiffs complain. Some of the more egregious matters are the lies told and the charade carried out at the meeting of 27 March 1997. He pretended to have obtained his primary lender's consent to the payment of an establishment fee of $150,000 in two tranches and pretended to obtain its consent to the release of guarantees from Mrs Short and Mrs Davis. This was a charade. He remained silent in the face of Mr Wiseman's false statement as to the purpose of the transfer of shares from Athann to Springsley. He falsely stated that the consideration for that transfer was $1. 182 Mr Crawley also made false representations as to the amount of advances he had made to J & J O'Brien and Marsico, and as to the amount he was owed for legal fees. He procured for himself a position of strength in negotiations with Mr Short and Mr Davis in 1994 and 1995 by taking security for debts he claimed he was owed, by taking advantage of such misrepresentations. 183 Mr Crawley's affidavits provided an elaborate reconstruction of events. He reconstructed numerous conversations. 184 A number of the directors' meetings from 25 October 1995 were tape-recorded. In some cases, it is clear that Mr Crawley has not had regard to the tape-recording when swearing his affidavit as to what passed at such meetings. In his affidavit of 29 November 2005, Mr Crawley swore that at a directors' meeting held on 4 April 1997 Mr Linden said words to the effect: " If you proceed with the Aldonet facility, the Shorts have instructed me that they are not willing to provide any security. You need to delete it from the loan approval and I want it confirmed in writing. " Mr Crawley went on to say that: " The instructions that the Shorts had given to Mr Linden caused great angst to me, having regard to its timing and the potential consequences. Mr Linden's relaying of his clients' instructions placed me in a position where if I wished to see the QIDC and ANZ facilities being made available to the group through Aldonet, that it would be necessary for me to offer to those financiers more of my own personal securities to make up the shortfall in security created by the Shorts' refusal to contribute their security. I believe that the failure of the Shorts to maintain their securities was contrary to the fundamental basis upon which we all entered into our arrangements from the outset, namely that we would share equally in the fruits of our joint operations but would equally provide security to secure the group's borrowings. ... I felt I had no alternative other than to agree to the amendment of the loan offer to Aldonet to delete the Shorts' securities from the list of personal securities of shareholders to be provided and to substitute therefore more of my own personal securities. This, of course, left me in a position where I became the sole shareholder providing any form of personal security, which, as I indicated was quite contrary to the underlying shareholders agreement between us. Notwithstanding this, I consider it was in the best interests of the group for that to occur for in its absence the very survival of the group, in my opinion, was in jeopardy. " (Affidavit 29 November 2005 para 417). 185 Mr Linden made no such statement. Mr Crawley admitted that the statement was false, and known to him to have been false when he swore his affidavit (T998-999). The entire paragraph was misleading because it was never suggested to QIDC or the ANZ that the Shorts would provide security. Mr Crawley had negotiated the terms of the offers from QIDC and ANZ before Aldonet made its offer of finance to the J & J O'Brien group. No security from the Shorts was required by QIDC or ANZ. It was false to say that the Shorts refused to contribute security to a refinancing of the Westpac facility. It was false to say that Mr Crawley found it necessary to offer the financiers more of his own personal securities because the Shorts had refused to contribute their property as security. The whole paragraph distorted the true position. 186 Other examples of conduct much to Mr Crawley's discredit are dealt with in section 5 dealing with the deed of 30 June 1994 and the calculation of the debt said to be owed as at 30 June 1995 and following as a result of that deed. The deed was grossly improper. The subsequent calculation of the debt allegedly owed by J & J O'Brien to Mr Crawley for outstanding legal fees was also grossly improper. 187 These are not the only examples of Mr Crawley having acted discreditably. Others are dealt with in the course of these reasons. 188 With few exceptions, the minutes of directors' meetings were prepared by Mr Crawley. Care must be taken before accepting the accuracy of those minutes. One example is telling, although the part of the minute in question is trivial in itself. Mr Crawley settled the minutes of the directors' meeting of 16 May 1997 from draft minutes prepared by Mr Tsathas, a solicitor employed by Aubrey F Crawley & Co. Mr Crawley accepted that Mr Tsathas' notes were accurate. The minutes, as corrected by Mr Crawley, omitted its being noted that Mr Short voted against certain of the resolutions passed at the meeting. Mr Tsathas had noted on his draft minutes that at the very end of the meeting, Mr Short had said: " CWC does not have a conscience. Sorry Athol I ever introduced you to him. " 189 That statement was made after the tape transcribing the meeting had been switched off. Mr Crawley did not deny that Mr Short said words to that effect (T890.21). Mr Crawley changed the minute so that it read "Mr Short does not have a conscience. Sorry Athol I ever introduced you to him." This was a distortion. Even though it was a distortion on a trivial matter, it indicates that care must be taken in relying upon minutes prepared by Mr Crawley unless they are corroborated. 190 I have concluded that, unless corroborated by other reliable evidence, neither Mr Short's, nor Mr Crawley's evidence of conversations should be accepted if such evidence is not consistent with the probabilities objectively ascertained. Mr Davis 191 Mr Davis did not give evidence. He was in neither party's camp. On different issues, his evidence could be expected to have helped one or other of the parties, if the case that party put forward was true. Thus, prima facie, Mr Short might have been expected to call Mr Davis to corroborate his claim that there was an agreement which precluded Mr Crawley from charging for his services, or that Mr Crawley did not obtain the assent, either formal or informal, of Mr Short and Mr Davis to the guarantees by J & J O'Brien and Marsico of Trudale's borrowings from BAC. However, Mr Davis was a party to the deception of Mr Short in relation to the share transfer from Springsley to Athann. Mr Crawley, prima facie, might have been expected to call Mr Davis to corroborate his claim that Mr Davis and Mr Short had agreed that Vensel could charge a fee of 1% for negotiating finance for the group (CW Crawley affidavit 13 February 2003 para 199). 192 I do not draw a Jones v Dunkel inference against either party for failing to call Mr Davis. However, his absence, coupled with my conclusions as to the unreliability of the evidence of Mr Short and Mr Crawley, means that in a number of areas, the party with the onus of establishing that an agreement was made, or consent was given, fails to discharge that onus. SECTION 2 – Elizabeth Street Centre Development 193 As indicated in section 1, there are three significant stages of the Elizabeth Street Centre development to be considered. The first stage is the entry into the deed of guarantee and indemnity dated 12 September 1990, to secure Trudale's borrowings from BAC. Immediately after those agreements were made, the two issued shares in Trudale were transferred to Marsico. Mr Short, Ms Kuan and Mr Crawley were appointed as directors of Trudale, and two further shares were issued to Marsico. On 13 September 1990, Trudale completed the purchase of the land. 194 The second significant stage was the entry into the loan for the construction of the development. A new deed of loan and guarantee was entered into on 27 March 1992. Recital C to the Deed of Loan and Guarantee of 27 March 1992 recited that: " The parties have agreed to enter into this Deed in total substitution for the Construction Loan Agreement dated 12 September 1990 to expand the purpose of the Facility to enable the construction of the Building to proceed and to clarify misunderstandings in respect of the Facility. " (TB 23/2350) 195 Clause 18.51 of the deed of 27 March 1992 contained new guarantees by each guarantor of Trudale's punctual payment of all moneys then or in the future owing by it to BAC. No moneys had been paid prior to 27 March 1992 pursuant to the guarantee of 12 September 1990. 196 The third significant stage was the entry by Trudale, J & J O'Brien, Marsico and Mr Crawley into the Joint Venture Agreement in relation to the Elizabeth Street Centre development. That agreement was entered into on 18 November 1993, although the Joint Venture was deemed to have been commenced from 20 September 1990. Under that agreement, J & J O'Brien and Marsico were required to contribute 100% of all of the costs of the Joint Venture. Any profits were to be shared in the proportion of 50% to Trudale and 50% to J & J O'Brien and Marsico, or in such other proportions as the joint venturers might agree from time to time. By 18 November 1993, it was clear that the Elizabeth Street Centre development was facing significant losses. The interest and loan repayments were being met from the cash flow of the hotels. 197 In their statement of claim, the plaintiffs alleged twenty-five instances of oppression and breach of duty. The first instance of alleged oppression and breach of duty concerned the entry by J & J O'Brien and Marsico into the guarantees dated 12 September 1990 (paras 58 – 60), and the entry into the Deed of Loan and Guarantee of 27 March 1992 (paras 61-64A). The second instance of alleged oppression and breach of duty was the entry into the Joint Venture agreement of 18 November 1993. The third instance of alleged oppression and breach of duty was the entry into a Deed of Variation of 12 January 1994 in relation to the loan facility provided by BAC to Trudale. 198 On 12 January 1994, the terms of BAC's loan facility to Trudale were varied. The limit of the loan was changed to reflect the then outstanding balance of $13,046,074.45 plus accrued interest. The term of the loan was extended from 31 December 1993 to 31 March 1994. The guarantors (Mr Short, Mr Crawley, Marsico and J & J O'Brien) acknowledged that the terms of the loan and guarantee remained in full force and effect. The agreement was signed by Mr Short (35/3412.2). 199 The Deed of Variation of 12 January 1994 did not materially alter the parties' existing liabilities. No separate submissions were made concerning that transaction. 200 The plaintiffs' closing submissions focused upon the transactions of 5 to 12 September 1990 and 27 March 1992. The plaintiffs did not submit that Mr Crawley was liable to pay damages or equitable compensation to Marsico and J & J O'Brien in respect of their entry into the Joint Venture Agreement of 18 November 1993. The losses those companies suffered arose as a result of their entry into the guarantees of 27 March 1992, or their guarantees dated 12 September 1990. The effect of the Joint Venture Agreement was to remove the right which J & J O'Brien and Marsico would have had to obtain indemnity from Trudale in respect of payments made under the guarantee. But the right of indemnity would have been worthless. 201 By the time of the hearing, it was common ground that Marsico was the beneficial owner, as well as the legal owner, of the shares in Trudale. So far as the shareholders in J & J O'Brien and Marsico were concerned, the effect of the Joint Venture Agreement was to shift half of the deductible losses from Marsico and Trudale on the one hand to J & J O'Brien on the other. This was, at least arguably, for the benefit of the shareholders. 202 In the course of opening submissions, the plaintiffs sought to attack the September 1990 and March 1992 transactions on a wide variety of grounds. Ultimately, the plaintiffs accepted that they needed leave to amend their particulars if they were to rely upon those grounds. For the reasons I gave during the hearing, I refused leave to the plaintiffs to amend the particulars except in limited respects. As a result of those rulings, the pleaded grounds upon which the plaintiffs attacked the September 1990 transaction were that: " The plaintiffs contend that during the period up to 12 September 1990: (a) Mr Crawley engaged in oppressive conduct: (i) in failing to obtain the approval of the boards of J & J O'Brien and Marsico for entering into the transactions those companies entered into on 12 September 1990; (ii) in not disclosing to Mr Short and Mr Davis that guarantees were required from J & J O'Brien and Marsico in relation to the Elizabeth Street development. (b) Mr Crawley breached his duty of reasonable care and diligence: § as a director of J & J O'Brien and Marsico; and § as the solicitor for J & J O'Brien, Marsico and Mr Short and Nabatu in: (i) the failure to advise each of J & J O'Brien, Marsico and Mr Short and Nabatu to seek independent advice on financial and legal aspects of the project. (c) Mr Crawley breached his fiduciary duty: § to J & J O'Brien and Marsico as a director and the solicitor of those companies not to prefer his own interests to those of the companies and to act bona fide in the best interests of those companies and not for improper purposes; § to Mr Short and Nabatu as their solicitor, not to prefer his own interests over those of his clients and to act bona fide in their best interests in: (i) failing to disclose to the companies or Mr Short the following matters which were material to a proper assessment of the viability of the Elizabeth Street project and a decision whether to participate in the project: Ø the fact that Mr Crawley intended to assert, in the event that the Elizabeth Street project yielded a profit, that: (1) half of the shares in Trudale were owned beneficially by him, and the other half were owned beneficially by either Marsico or Nabatu; alternatively (2) 80% of the shares in Trudale were owned beneficially by him and 20% were owned beneficially by Nabatu. (ii) procuring the companies and Mr Short to enter into those transactions, in part for the undisclosed purpose of obtaining excessive legal fees; (iii) failing properly to advise the companies and Mr Short and failing to advise the companies and Mr Short to seek independent financial and legal advice. " 203 The plaintiffs relied on the same grounds for their allegations that Mr Crawley breached his duties as a director of Marsico, J & J O'Brien and Trudale, and as a solicitor to those companies in relation to the deed of loan and guarantee of 27 March 1992, except that it was also alleged that Mr Crawley failed to disclose that he had paid himself $200,000 in purported legal fees on 19 June 1991, which were not the subject of any invoice or memorandum of fees and could not be supported by time costing records. 204 The plaintiffs also alleged that the deed of loan and guarantee dated 27 March 1992 was procured by presumed undue influence. No submissions were made in support of this ground. 205 The plaintiffs' submissions focused on the four matters identified in para [45], namely that: (a) Mr Crawley failed to disclose to Mr Short or to Mr Davis that guarantees were required from J & J O'Brien and Marsico; (b) he failed to obtain the approval of the boards of J & J O'Brien and Marsico for the transactions; (c) he acted for an improper purpose of preferring his own interest in that he intended to assert that, if the Elizabeth Centre project were profitable, he was beneficially entitled to 50% or 80% of the shares in Trudale; and (d) he acted for an improper purpose of obtaining excessive legal fees, and in relation to the deed of loan and guarantee of 27 March 1992, he breached his fiduciary duty by failing to disclose the fact that he had paid himself $200,000 in purported legal fees on 19 June 1991 which were not the subject of any invoice or memorandum of fees and could not be supported by time-costing records. Mr Short's Knowledge that Guarantees of Trudale's Borrowings were Required from J & J O'Brien and Marsico 206 Mr Short gave evidence that, in about 1989, Mr Crawley told him that he had just sold Yurong Street at a profit and was involved in a development site at Elizabeth Street. Mr Short deposed that Mr Crawley told him that if he, Mr Short, were to become involved, he could make easily $1,000,000 and get a penthouse. According to Mr Short, Mr Crawley proposed that they each own 50% of the project. He said Mr Crawley told him that the project would completely fund itself, that it would be funded by pre-sold units and the pre-selling of units would mean that they could borrow money on the pre-sales. According to Mr Short, Mr Crawley told him that Mr Davis would not be involved and that the hotels would not be required for the project. 207 It was Mr Short's position that he knew almost nothing about the Yurong Street project, except that it was a development being co-ordinated by Mr Crawley and a person whom he said Mr Crawley called Max Raine, that he (Mr Short) was not required to put up any security, and that Mr Crawley said there would be substantial tax benefits for the group. Mr Short said he did not understand what the Yurong Street development was about (exhibit 10 page 514). Mr Short gave evidence that he was unaware that J & J O'Brien had been involved in the joint venture with Sinodun in relation to Yurong Street (WS1, para 114), or was unaware of any material facts relating to the venture (WS1, para 114). He said that he never attended any directors' meetings of Marsico or J & J O'Brien where it was agreed that those companies would be involved in a joint venture in relation to Yurong Street (para 114). I do not accept this evidence. Mr Short was secretary and a director of Sinodun, which owned the property being developed. 208 Mr Short deposed that he later told Mr Crawley that: " Yes, I would like to become involved in the Elizabeth Street project. It sounds like a good deal. But I do not want the hotels as security for the project. The other hotels shouldn't be involved. " He deposed that, in his own mind, he was not prepared to enter into the project if it required support, either in terms of cash flow or security, from the other hotels. 209 Mr Short deposed that after acquiring the freehold of the Racecourse Hotel in partnership with Mr Crawley in 1990, Mr Crawley told him that the Racecourse Hotel would be needed as security for the project. Mr Short said that he agreed to this as the Racecourse Hotel was an asset which he owned jointly in equal shares with Mr Crawley. It was not an asset owned equally between Mr Davis, him and Mr Crawley. 210 Mr Short denied being told that J & J O'Brien and Marsico would give guarantees. He understood that he would be providing his personal guarantee, but he believed from what Mr Crawley told him that the project "was an incredibly strong project" and the only property that needed to be put up as security to support the borrowing was the Racecourse Hotel. He said that he had no knowledge of property development, nor the risks associated with property development, and that no such risks were explained to him. He relied upon Mr Crawley's forecast that the development would be highly profitable. 211 Mr Short's evidence is denied by Mr Crawley. 212 Mr Crawley gave evidence that he was approached by Mr Harry Londy in early 1990 to take over the Elizabeth Street Centre project. Mr Londy and Trudale were then clients of Aubrey F Crawley & Co. Aubrey F Crawley & Co had acted for them in relation to the preliminary stages of the development. Trudale had already paid a deposit of $165,000 for the purchase of the property at 439-453 Elizabeth Street, Surry Hills. It had entered into contracts to sell units off the plan. When Mr Londy approached Mr Crawley, it had not raised the finance for the balance of the purchase price or the building costs. The purchase price for the site was $3,300,000. 213 Mr Londy offered to transfer the rights to the project if his company (R B Foster (Real Estate) Pty Ltd) was appointed as selling agent of the units and received all commissions on past and future sales. Mr Crawley told Mr Londy that J & J O'Brien, (which he described as a company with which he and Mr Short were involved), might be interested in taking over the project. He stipulated that J & J O'Brien would not be interested in taking over the project unless a finance facility were in place. Mr Crawley told Mr Londy that he would not receive reimbursement for the $165,000 deposit that had been paid, and that his guarantee would be required. Mr Londy provided Mr Crawley with a valuation containing an "on-completion" valuation of the development in the sum of $25,500,000, and a conditional market valuation of the vacant site at $5,500,000. 214 Mr Crawley deposed that he formed the view that if Marsico carried out the development at a reasonable profit, it would be in a position to repay the vendor loan from Tooth & Co on the purchase of the Racecourse Hotel which fell due for repayment in April 1993. According to him, he proposed to Mr Short that Marsico acquire the shares in Trudale, and that the development be carried out in the same way as the Yurong Street development was carried out, that is, without any injection of initial equity. The whole of the purchase price, development costs and interest would be borrowed. He said that about $16,000,000 would be needed by way of loans. He said to Mr Short that while there was some risk in the project, as in any development, the risk was reduced by the pre-sales Trudale had made. 215 Mr Crawley deposed that he told Mr Short that whilst the development site would be the primary security, the group and its shareholders and directors would be required to give securities as with the Yurong Street project. According to Mr Crawley, Mr Short queried why Mr Davis should share in the profits of the development as he had not contributed to the development of the business and his assets were tied up with the Great Northern Hotel (which was not an asset of Marsico or J & J O'Brien). Mr Crawley said that he told Mr Short that they needed the strength of the whole group but that, as Mr Davis had relinquished his interest in the Racecourse Hotel, if Mr Short and Mr Crawley gave a personal guarantee, then they could probably persuade Mr Davis not to claim an interest in the project in the same way as the Racecourse Hotel. Mr Crawley deposed that, as events turned out, no arrangements were made to exclude Athann as a shareholder in Marsico from sharing profits made by Marsico from the Elizabeth Street development. 216 Mr Short, Mr Crawley, Mr Londy, Marsico and J & J O'Brien executed guarantees of Trudale's obligations to BAC in a single document dated 12 September 1990 (TB 12/1372). It is clearly headed "Deed of Guarantee and Indemnity" and both the coversheet and the first page name each of the guarantors. The body of the deed contains certain amendments and deletions which were initialled by Mr Crawley and Mr Short. The execution pages to the deed are contained on pages 14, 15 and 16. Mr Short signed the deed at the foot of page 14. His signature was witnessed by Mr Crawley. Mr Crawley signed the deed at the top of page 15. His signature was witnessed by Mr Short. The same page provides for the execution of the document by Mr Londy and by Marsico. It may be that the document was not executed by Mr Londy or by Marsico when Mr Short witnessed Mr Crawley's signature. However, he could not have failed to notice that Marsico was a party to the deed. The affixing of the common seal of Marsico was attested by Mr Crawley and by Ms Kuan as secretary. The common seal of J & J O'Brien was affixed on the top of page 16 of the deed. The affixing of J & J O'Brien's common seal was witnessed by Mr Crawley and by Mr Short. 217 The common seal of J & J O'Brien was affixed immediately above a typewritten certificate given by Mr Crawley and by a Mr McNabb. Mr McNabb was a solicitor employed by Mr Crawley. They certified that they had explained the contents and effect of the guarantee to the "Guarantor". When Mr Short witnessed the affixing of the common seal of J & J O'Brien, he could not have failed to notice the presence of the clause providing for the solicitors to certify that they had explained the guarantee. 218 Pages 17 and 18 of the deed contain certificates under s 230(8) of the Companies (NSW) Code 1981 (NSW) certifying that the corporate guarantors were not prohibited by s 230 of the Companies (NSW) Code from entering into the transaction. The certificate given in respect of Marsico was signed by Mr Crawley and by Ms Kuan. The certificate given in respect of J & J O'Brien was signed by Mr Crawley and by Mr Short. Immediately above their signatures, the transaction entered into by the company was described as follows: "The guaranteeing by the company of the repayment of moneys to the Lender advanced at the request of the Company to Trudale Pty Ltd." 219 The Company was clearly named as J & J O'Brien Pty Ltd. 220 It was impossible for Mr Short to have signed this document without appreciating that J & J O'Brien and Marsico were giving guarantees of Trudale's obligations to BAC pursuant to a loan made, or to be made, to Trudale. Even if Mr Short did not read the document, he could not have failed to notice when he signed the document that that was what it was. 221 Mr Short gave evidence on commission shortly before his death. In cross-examination, he said (at 649) that he appreciated that he was signing the document on behalf of J & J O'Brien at the time. The plaintiffs said that Mr Short had not appreciated when he made the admission that he had done so, and that allowance should be made for his lapse of concentration because he was gravely ill. It was submitted that the cross-examiner had shifted from obtaining his present acceptance that he had signed the document on behalf of J & J O'Brien to obtaining unfairly his acceptance that he appreciated at the time that he was signing the document on behalf of the company. 222 Mr Short subsequently retracted the admission and said (at 653.24) that he did not realise he was signing it on behalf of J & J O'Brien. He said he was in a partnership with Mr Crawley and did not realise that J & J O'Brien and Marsico were in the deal at all (653.27). 223 Mr Short said that his answer was mistaken "because I didn't realise it was part of the Trudale borrowings, and now that I have realised it's part of the Trudale borrowings they should never have been there, that was never explained to me, and I don't know why they were there. I have just gone ahead and obviously signed these papers not understanding at all what it was about or who was being committed to what." (650.44-651.5). 224 I do not accept this evidence. Mr Short's admission that he appreciated he was signing the document on behalf of J & J O'Brien was inevitable. His subsequent retraction of that admission adversely affects his credit. 225 In his affidavit sworn on 11 February 2003, Mr McNabb said that he had no independent recollection of conferring with Mr Short in relation to the deed of guarantee and indemnity of 12 September 1990. He gave evidence as to his practice in explaining such documents to clients. However, in his oral evidence, Mr McNabb said that about two weeks before he gave evidence, he had a "flashback" on certain aspects of the meeting. This occurred after he had been sent documents by the defendants' solicitors, and was going through them. He said that he then remembered parts of the meeting. He gave the following evidence: "I said to Warwick, I said words to the effect: Are you comfortable with giving this guarantee? Words to that effect. And he said he was. I said, I pointed out to him that I was an employee of Mr Crawley, Mr Crawley was involved with Trudale and that J&J O'Brien had no legal connection with Trudale, to my understanding, and he might consider getting some independent legal advice. That is one of the things I said to him. I also - he then said he was comfortable with the situation, he had spoken to - he looked across to Chris and Chris said there was basically no risk involved in J&J O'Brien. I said: Well, I am still a bit wary about signing this document, and they discussed it, they both agreed they should sign it. I also pointed out to Warwick, I went through the five names of the guarantors and I said any one of those could be called upon, him, Chris, the two companies, and the other party was Londy. I also looked at a loan document, or I was given or I was told about the amount, of the facility that was being made available to Trudale, and that figure would have been mentioned to Warwick as well. My role in the meeting took about 10 minutes. When I got to the meeting, which was already going when I got there, Chris had told me that he explained the documents to Warwick. Then I asked Warwick about the documents and he confirmed that. The document were (sic) then put in front of me and I then went over them briefly with Warwick. Then the certificate was signed and the meeting ended cordially." 226 Mr McNabb was not shaken in cross-examination. I accept that he did not recall the meeting when he swore his affidavit, but that he had flashes of memory about it on preparing to give oral evidence. Mr McNabb is no longer employed by Mr Crawley. He had no motive for not giving truthful evidence. He had no personal interest in the proceedings. Moreover, his evidence confirms the conclusions I would draw in any event from Mr Short's signatures on the deed. 227 I do not accept that Mr Short was unaware that guarantees from J & J O'Brien and Marsico were required as security for Trudale's borrowing for the Elizabeth Street Centre development. Mr Crawley must have disclosed that matter to him prior to his signing the deed of loan and guarantee in September 1990. 228 Mr Short also signed the deed of loan and guarantee of 27 March 1992. On this occasion, he witnessed the affixing of the common seals of Trudale, Marsico and J & J O'Brien (TB23/2348 at 2381). The document was plainly described as a "Deed of Loan and Guarantee". On the first page of the document, Trudale was named as the Borrower. The other persons (other than BAC) were described as the "Guarantor". Mr Short could have been in no doubt that J & J O'Brien and Marsico were giving a guarantee of Trudale's obligations to BAC. Mr Short deposed that Mr Crawley did not provide him with any information or advice on the nature or effect of the document he signed, or provide him with any advice that the effect of the document was that assets of Marsico and J & J O'Brien would be exposed to BAC for Trudale's indebtedness to BAC. He deposed that Mr Crawley did not provide him with any information on the terms of the facility agreement between Trudale and BAC which was the subject of the document. Mr Short had earlier been advised by another solicitor, Mr Buntman, in relation to his provision of a personal guarantee. It would be unlikely that any such advice did not extend to telling Mr Short who were the other guarantors. The plaintiffs submitted that Mr Buntman did not advise Mr Short as a director of J & J O'Brien or Marsico. That may be so. But I do not accept that Mr Short was unaware that guarantees were required from J & J O'Brien and Marsico. His signing the deed for J & J O'Brien and Marsico indicates that he was aware that they were guaranteeing the loan to Trudale. No further advice was needed that the giving of a guarantee would expose the assets of Marsico and J & J O'Brien to BAC for Trudale's indebtedness if Trudale did not meet its obligations. 229 I do not accept that Mr Short was unaware that J & J O'Brien and Marsico had guaranteed Trudale's obligations to BAC. Failure to Obtain Approval of the Boards of J & J O'Brien and Marsico to the Guarantees of 12 September 1990 and 27 March 1992 230 There is no minute of any resolution of a meeting of directors of J & J O'Brien or Marsico approving of their giving the guarantees of 12 September 1990. Nor is there any minute of a resolution of directors approving of Marsico's acquiring shares in Trudale. 231 In cross-examination, Mr Crawley accepted that there was no "meeting as such" of directors of J & J O'Brien up to 12 September 1990 which approved the giving of a guarantee of Trudale's indebtedness to BAC (T1635.28). He said that there were discussions with Mr Davis and Mr Short about that matter from May to June 1990. Mr Crawley said that Mr Davis was not interested in providing any personal guarantees after June 1990 and that he was disinterested in the group as a whole at that period of time (T1638.1). When it was put to Mr Crawley that he never told Mr Davis that he was going to have a meeting to discuss whether Marsico should guarantee Trudale's debts to BAC, Mr Crawley said that Mr Davis was not interested. Mr Crawley said "I could have said to Athol, 'this is happening on that date'. I don't know. ... He just didn't have an interest in the companies. He felt that he was out [of] the Racecourse, his guarantees weren't there anymore but he wasn't going to give any personal guarantee from that day forward and that was the end of it, as far as he was concerned." (T1638.50). Mr Crawley said that Mr Davis' stance was that he was not going to be involved; he was not going to put up his personal guarantee and "it was as if, well, you two do whatever you like, that was about his stance on the matter." (T1639). 232 Mr Short deposed that so far as he was aware, no meeting of directors of Marsico and J & J O'Brien was convened by Mr Crawley or was held for the purpose of considering and passing a resolution that each of those companies execute the guarantee (WS1, para 118). Mr Crawley did not give evidence of any meeting having taken place. There is no minute of such a meeting. 233 In a closely held company such as J & J O'Brien or Marsico, there can be a meeting of directors even if they are not physically present, and even though that their concurrence to a particular course of action is conveyed informally. What is important is that there be a meeting of minds rather than a physical meeting of persons (Wagner v International Health Promotions (admin appointed) (1994) 15 ACSR 419 at 421-422). Provided the directors concur in doing things in their capacity as directors in the management of the company's affairs, it does not matter that they communicate and express their concurrence informally (Swiss Screens (Australia) Pty Ltd v Burgess (1987) 11 ACLR 756; 5 ACLC 1,076 at 1077-1078 [758]; Roden v International Gas Applications (1995) 18 ACSR 454 at 456; Poliwka & Anor v Heven Holdings Pty Ltd (No. 2) (1992) 8 ACSR 747 at 785-786; Hotien Holdings Pty Ltd v Frits Maré (2007) 25 ACLC 854 at 860 [65]). 234 The uncontradicted evidence of Mr Short that no meeting of directors occurred, the absence of a minute of any directors' resolution that the companies enter into the guarantees, and Mr Crawley's evidence that, at this time, Mr Davis was disinterested in the affairs of the group, lead me to conclude that there was no resolution of directors, either formal or informal, authorising the entry into the guarantees dated 12 September 1990 by J & J O'Brien and Marsico. 235 Mr Short and Mr Crawley both witnessed the affixing of J & J O'Brien's common seal to the deed of guarantee and indemnity dated 12 September 1990. Prima facie, they would both be liable to indemnify J & J O'Brien for losses suffered by it as a result of the unauthorised entry into the guarantee. Mr Short must have known that Mr Crawley was witnessing the affixing of the common seal of Marsico. Prima facie, he and Mr Crawley are both liable to Marsico for its unauthorised execution of the guarantee of 12 September 1990. 236 For reasons below, however, I do not consider that either is liable because the companies, through themselves and Mr Davis, subsequently acquiesced in the giving of that guarantee. Moreover, the guarantees of 12 September 1990 were replaced by the guarantees of 27 March 1992. For the reasons below, the guarantees of 27 March 1992 were authorised by a meeting of directors. Board Approval for Guarantees of 27 March 1992 237 On 12 August 1991, Mr Crawley wrote to Mr Davis outlining the circumstances in which he said Mr Davis had agreed to relinquish all rights in respect of the Racecourse Hotel (TB 16/1826). In the letter, Mr Crawley wrote (at TB 16/1828): " As I mentioned to you, for the purposes of tax benefits, a joint venture arrangement which will be entered into shall provide tax concessions to J & J O'Brien and Marsico Holdings Pty Limited in respect of trading profits, not that they incur any actual liability in respect of the amounts paid and it is my expectation to retire certain of the debt of the company upon conclusion of that transaction at the end of 1992. " 238 This was a reference to the Elizabeth Street development and Mr Crawley's intention that a joint venture agreement would be entered into to allow J & J O'Brien and Marsico to obtain tax deductions in respect of losses incurred in that venture. 239 Gilbert & Tobin were instructed in 1996 that: "from the time that AD became aware of the Group's involvement with the project, he: ... (b) understood that the Group was not an equity participant or partner but was only involved in order to provide the support required to obtain finance. (c) thought that the venture might be used to shelter hotel profits in some way, but was totally oblivious as to how this might be achieved as tax and legal matters were left entirely to CC, … (e) was aware that equity in the project was to be shared 80/20 between CC/WS." (TB 47/4981.39–4981.40) 240 On 27 March 1992, Mr Crawley sent minutes of directors' meetings of Marsico, J & J O'Brien and Trudale to the solicitors acting for BAC on the renegotiation of Trudale's facilities. The minutes were signed by Mr Crawley as chairman. They recorded Mr Short, Mr Crawley and Ms Kuan as having been present at each meeting. Ms Kuan was not a director of Marsico or J & J O'Brien. She was the secretary of both companies. She was a director of Trudale. The minutes of the meeting of directors of J & J O'Brien and Marsico recorded that it had been reported to the meeting that a deed of loan and guarantee in respect of the advances to Trudale from BAC, together with associated documents, were required to be executed under the common seal of the company. It was resolved that the common seal of the company be authorised to be affixed to the two documents as tabled and that any two of Mr Crawley, Mr Short or Ms Kuan were authorised to sign and countersign the witnessing of the affixing of the common seal of the company in accordance with its Articles of Association. 241 The Articles of Marsico and J & J O'Brien provided that the presence of two directors constituted a quorum (Article 83). If a directors' meeting were held as represented by the minutes, and if notice of the meeting and the business to be conducted at it was given to Mr Davis, the plaintiffs would not make good their contention that Mr Crawley breached his duty as a director by failing to obtain board approval for the guarantees. 242 The plaintiffs submitted that no meetings were held as recorded in the minutes. Further, they submit that there is no record of Mr Davis having been given notice of a directors' meeting, if one were held, and it should be inferred that no such notice was given. 243 Mr Short deposed that he did not attend any meeting of directors of either Trudale, Marsico or J & J O'Brien which considered or resolved entering into the deed of guarantee and indemnity dated 27 March 1992 (para 122(f)). However, he signed the deed of loan and guarantee both personally, for his own personal guarantee, and as a director of Trudale, Marsico and J & J O'Brien. In witnessing the affixing of the common seals of those companies, he represented that the seal had been affixed in accordance with the Articles of Association of each company. Mr Crawley denied that there was no meeting between Marsico and J & J O'Brien in relation to the execution of the documents and denied that Mr Short did not attend the meetings of Marsico, J & J O'Brien or Trudale in relation to the execution of the documents (CC1, paras 344, 349). 244 Mr Short bears the onus of establishing that no meeting of directors was held, (so that the minutes are a fabrication), or alternatively, that Mr Davis was not given notice of the meetings. I do not consider his denial of having attended such a meeting to be reliable. Notwithstanding the reservations I have expressed as to the reliance which can be placed upon minutes prepared by Mr Crawley, the minute cannot be ignored. 245 It was submitted for the plaintiff that Ms Kuan had never attended any formal meeting of directors of Trudale. Whilst Ms Kuan gave evidence that she had not attended a formal meeting of directors of Trudale, she had no specific recollection of the events of 25 March 1992. She said that she may well have been present at an informal meeting (T1980). Given that minutes of such meetings were prepared and sent to the solicitors for BAC, and given also Mr Short's representation when witnessing the affixing of the common seal that that act was done in accordance with the companies' Articles, I am not satisfied that the directors' approval to the transactions was not given at a meeting of directors of which Mr Davis had been given notice. Mr Davis was not called to say whether or not he was given notice of the meeting. Mr Crawley's evidence was inconclusive. It was put to him that Mr Davis was not notified of the meeting. He said: " I can't recall. Athol took little interest in anything that was going on in the group. I could have phoned him, advised him, I don't know. " 246 Given the passage of time, I do not infer from Mr Crawley's absence of recollection of having notified Mr Davis of the meeting that no such notice was given. It is impossible to say one way or the other. The plaintiff has not discharged the onus of showing that notice to Mr Davis was not given. 247 Whilst the subsequent correspondence is not conclusive, it is consistent with this finding. 248 On 14 October 1993, Mr Crawley sent a memorandum to Mr Short and Mr Davis on the subject of, amongst other things, the refinancing of group loans. In the memorandum, he said that the expenditure incurred in relation to the Marlborough Hotel and the Australian Youth Hotel was a severe drain on cash flow, although he said that "we have been able to save otherwise tax dollars with the interest component and deductions achieved through the joint venture with Trudale on the residential units in Elizabeth Street, through that venue we have obviously been able to utilise otherwise tax dollars for maintenance and repair works on the hotels … " 249 On 17 November 1993, Mr Crawley sent to both Mr Short and Mr Davis a draft agenda for a meeting to be held on 18 November 1993. The last item on the agenda was "to discuss in relation to the 1990-91, 1991-92 and 1992-93 audits, the joint venture agreement for tax losses and execute the same." 250 There is no evidence that Mr Davis responded to these documents by saying that he had no idea what Mr Crawley was talking about. Whilst complaints were later made about the Elizabeth Street Centre development, Mr Davis did not assert that Mr Crawley and Mr Short did not have authority to commit Marsico and J & J O'Brien to the guarantees. 251 At a meeting of directors held on 18 November 1993, it was resolved to execute the Joint Venture agreement. Mrs Short was also present at that meeting. She denied that the document was discussed in her presence. She said there was no discussion of any joint venture agreement or of any joint venture arrangement having been in place since 1990. Mrs Short deposed in her first affidavit that she said to Mr Crawley "Mr Leddin told us that the project (or Trudale) needs to be propped up by the hotels. Is that true? Will any of the hotels be needed to support the Elizabeth Street project?", and that Mr Crawley replied "No. Definitely not." I think that is most unlikely. At this stage, J & J O'Brien and Marsico were paying interest on Trudale's loan. Mr Crawley had said that the interest component on the Trudale loan was providing tax deductions for the hotels. Although, as is Mr Crawley's wont, his description of events was opaque, I do not think it likely that he would have said at this stage that the hotels were not needed to support the Elizabeth Street Centre project. 252 The Joint Venture agreement was signed on 18 November 1993. Mrs Short said that only two execution pages were presented to her husband for his signature, and that he signed the documents notwithstanding her having kicked him in the shins to try to warn him against doing so. However, notice had been given before the meeting that it would be proposed to execute the Joint Venture agreement so as to document the basis for claiming tax losses in the 1990-91, 1991-92, and 1992-93 audits. Even if neither Mr Short nor Mr Davis showed any interest in the terms of the document, as I would infer from Mrs Short's evidence, Mr Davis must have been aware that such a document was being executed. He did not raise any issue about it, or about J & J O'Brien's and Marsico's involvement in the Elizabeth Street Centre development. If he were concerned that Marsico and J & J O'Brien had an involvement in the Elizabeth Street Centre development, notwithstanding that he had not approved of any such involvement, or had not been given notice of meetings to resolve that the companies have an involvement with the project, it could be expected that he would have raised such an objection at the meeting. He did not. 253 Between September and December 1996, Mr Hannan, Mr Short and Mr Davis prepared a memorandum for submission to Gilbert & Tobin to obtain legal advice in relation to claims which Mr Short and Mr Davis wished to bring against Mr Crawley (TB 47/4981.13; T510-511). Mr Hannan was not available to be cross-examined because of serious ill-health. The memorandum dealt with, amongst other things, the Elizabeth Street Centre development. The memorandum asserted that Mr Short and Mr Davis were "very much in the dark about virtually everything to do with the Joint Venture until 1995." The document stated (at TB 47/4981.39-4981.40): " 2. From the time that AD became aware of the Group's involvement with the project, he : a) was absolutely certain that he had nothing to do with it and never had and was never intended to have any equity or partnership interest in the project. As advised in WS letter of 3 April 1995 , 'At last week's Board meeting, Athol stated on a number of occasions that he had nothing to do with Trudale and you did not question this.' b) understood that the Group was not an equity participant or partner but was only involved in order to provide the support required to obtain finance . c) thought that the venture might be used to shelter hotel profits in some way, but was totally oblivious as to how this might be achieved as tax and legal matters were left entirely to CC d) has never signed any documents relating to the Joint Venture. He is not a party to the Deed of Loan and Guarantee of 27 March 1992 documenting BAC's loan to Trudale to finance the project, is not a guarantor of that loan and never signed any BAC documents relating to renewals or extensions of the loan e) was aware the equity in the project was to be shared 80/20 between CC/WS 3. AD is not and never has been a director of Trudale 4. CC excluded AD from any involvement with Trudale (with the exception of seeking both his and WS's approval for unit sales for a period in 1995 and early 1996) and has always behaved as if Trudale and its financing had nothing to do with AD other than the support which Marsico and JJOB provided pursuant to the securities given to the Bank. CC was well aware that AD always maintained having no involvement whatsoever in the Trudale project and never disputed this. " (emphasis added) 254 It was not then alleged on behalf of Mr Davis that Mr Davis was not given notice of meetings at which it was resolved that J & J O'Brien and Marsico guarantee Trudale's indebtedness. It is not clear from the document when Mr Davis asserted that he first became aware of the group's involvement with the project. Mr and Mrs Short's evidence was that it was not until they met Mr Leddin on 7 December 1992 that they were aware that J & J O'Brien and Marsico had a financial exposure to the Elizabeth Street project. However, I do not accept that that was Mr Short's understanding for the reasons I have given. 255 The absence of an assertion from Mr Davis that Mr Crawley and Mr Short did not have his authority to sign the deed of loan and guarantee of 27 March 1992 is significant. His assertion was rather that he was not a party to it. In a section of the memorandum dealing with "Defects in Documentation", it was stated that all of the board approvals on which Mr Crawley might rely appeared to be fundamentally flawed for a number of stated reasons. The stated reasons did not include that Mr Davis had not been given notice of directors' meetings at which resolutions to enter into the impugned transactions had been passed, or that he had not authorised such transactions. 256 For these reasons, I conclude that the plaintiffs have not discharged their onus of showing that the directors of J & J O'Brien and Marsico had not approved of the entry into the deed of loan and guarantee of 27 March 1992. 257 No submission was made that the board resolution of 25 March 1992 was invalid because Mr Crawley and Mr Short did not disclose their interest in the transaction in the way prescribed by the Corporations Law as required by Article 81. 258 No submissions were made as to whether any losses would be recoverable on the ground that Mr Crawley and Mr Short did not have the authority of the companies to enter into the guarantee of 12 September 1990 if they did have authority to enter into the deed of loan and guarantee of 27 March 1992, which replaced the earlier guarantee. The companies were already exposed under the guarantee of 12 September 1990. The fact that they had such an exposure was a material reason for entering into the substituted guarantees of 27 March 1992. Hence, the causative effect of the unauthorised entry into the guarantees of 12 September 1990 was not expunged by the entry into the new guarantees of 27 March 1992. Acquiescence 259 The first to sixth defendants submitted that no relief ought to be granted to Nabatu in relation to the Elizabeth Street project as the plaintiffs, and as I understand the submission, J & J O'Brien and Marsico, had acquiesced in the arrangement and benefited from the tax losses which it was always envisaged the project would deliver in its early years. 260 Acquiescence is a defence to an equitable claim. A claim that an agent (Mr Crawley) is liable to compensate his principal (J & J O'Brien and Marsico) for loss suffered because he committed the principal to an unauthorised transaction is not an equitable claim. However, the plaintiffs did not put the claim on this basis, possibly because such a claim, founded either in contract, quasi contract, or tort, would be barred by s 14(1)(a) or (b) of the Limitation Act 1969 (NSW). The plaintiffs pleaded the claim as a claim for breach of fiduciary duty owed by Mr Crawley in his capacity as a director and officer of Marsico and J & J O'Brien and as a solicitor to those companies, and breach of his statutory duties owed under s 229 of the Companies (NSW) Code, s 232 of the Corporations Law and ss 180-183 of the Corporations Law, depending upon the relevant time of the transaction. It would be a defence to both a claim for breach of statutory duty and a claim for breach of fiduciary duty that the company in general meeting had ratified the breach, or that the shareholders unanimously ratified the breach, having been fully informed of the breach. 261 Insofar as the breach consisted of failing to obtain directors' approval to the guarantees, the companies ratified the transactions by entering into the Joint Venture agreement of 18 November 1993. Mr Short could not complain that the giving of the guarantees was unauthorised, because he executed the guarantees. He would be liable for this breach to the same extent as Mr Crawley. 262 Mr Davis also ratified the guarantees by authorising the entry into the Joint Venture agreement and by subsequently approving the accounts of J & J O'Brien and Marsico pursuant to which those companies recognised losses from the joint venture and, ultimately, when the tax returns were lodged, claimed deductions in respect of the tax losses. Mr Davis voted in favour of the resolution to lodge the tax returns. He signed the financial statements of J & J O'Brien for the years ended 30 June 1995 and 30 June 1996 (J & J O'Brien CTB pp 150, 191). He also signed the Marsico financial statements for 30 June 1995 and 30 June 1996 (Marsico CTB pp 97, 110.3). He voted in favour of the resolution to approve those accounts. He acquiesced in, and ratified, J & J O'Brien's and Marsico's guarantee of the obligations of Trudale. 263 The companies are not entitled to recover compensation from Mr Crawley on the ground that the guarantees were not authorised. Accordingly, the claim for contribution against Mr Short does not arise. Intention to Claim Beneficial Ownership of Trudale's Shares 264 The plaintiffs pleaded that on or about and from 10 September 1990, all of the issued shares in Trudale were held by Marsico as to four shares (but not as beneficial owner), and Mr Crawley as to one share (as beneficial owner). The plaintiffs alleged that three of the four shares held by Marsico were held by it on trust for Mr Crawley and the other share was held by it on trust for Nabatu, and that, accordingly, the issued shares in Trudale were held beneficially as to 80% for Mr Crawley and as to 20% for Nabatu. 265 Although Trudale's financial statements recorded it as having five issued shares, and although the annual returns for Trudale lodged with the Australian Securities and Investments Commission showed it as having five issued shares, the register of members recorded the issue of only four shares. Two shares were transferred by Mr Londy to Marsico on 10 September 1990. On the same day, two further shares were issued to Marsico. 266 Mr Crawley denied that Marsico held the shares on trust for him or on trust for Nabatu. He contended that Marsico was the legal and beneficial owner of the shares. In the course of opening, Senior Counsel for the plaintiffs said that the plaintiffs accepted that that was the position. However, the plaintiffs contended that Mr Crawley, who was in control of the company records, intended to claim a beneficial interest in 80% of Trudale's shares if the venture were successful, and that he laid a documentary trail to put himself in a position to do so. The plaintiffs submitted that he breached his fiduciary duty by procuring guarantees of J & J O'Brien and Marsico when he intended to prefer his own interests in the event that the Elizabeth Street project yielded a profit, by claiming that either 50% or 80% of the shares were beneficially owned by him. 267 It must be recognised at once that Mr Short thought that he was the beneficial owner of either 20% or 50% of the shares in Trudale. Although not pleaded in these precise terms, the relevant breach of duty by Mr Crawley must have been that he caused Marsico and J & J O'Brien to give guarantees, and thereby exposed them to the risk of loss if the venture were unsuccessful, when he intended personally to benefit from the development if it were successful, and thereby preferred his own interest to that of the companies. If he intended to claim the beneficial interest in the shares in Trudale if the project were successful, then neither Marsico nor J & J O'Brien derived any commercial benefit from giving the guarantees. The same can equally be said of Mr Short once it is found, as I have, that he was aware that the documents he signed contained guarantees by the companies of the Elizabeth Street Centre project. 268 Mr Short swore that in about 1989, Mr Crawely proposed that Mr Short become involved with him in the development site at Elizabeth Street and that he told Mr Short, "It will be just you and me, we will own the project 50% each." According to Mr Short, he later agreed with Mr Crawley that the Racecourse Hotel would be put in as security for the project. He said that he did so because he believed it was an asset which he jointly owned in equal shares with Mr Crawley. 269 Mrs Short also said that she understood from her husband that they were to have a 50% interest in the project. 270 In his affidavit of 13 February 2003, Mr Crawley deposed (at para 256) to telling Mr Short that Marsico was the logical company to purchase Trudale's shares and that they would need the group shareholders and directors to give securities, as for the Yurong Street project. Mr Crawley said that he told Mr Short that: " Athol has relinquished his interest in the Racecourse [Hotel]. If you and I give personal guarantees, then we can persuade Athol not to claim an interest in this project, in the same way as the Racecourse. " (Para 258). 271 Mr Crawley went on to say that no arrangements were made to exclude Athann, as a shareholder in Marsico, from sharing profits made by Marsico from the Elizabeth Street Centre development. In his oral evidence, Mr Crawley said that in discussions from about June 1990, he was contemplating that Mr Davis would not have an interest in Trudale in the same way as Mr Davis did not have an interest in the Racecourse Hotel. He denied having a conversation with Mr Short, as Mr Short deposed, and said that it would be impossible for he and Mr Short to become "50% partners" in the project unless they were able to obtain finance of the $16,000,000 needed to fund the project which would be impossible (at para 259). 272 Mr Crawley deposed (in para 279) that these were the only shares ever issued and that the annual returns showing Trudale as having five shares on issue were erroneous. 273 Mr Crawley deposed that he told Mr Short before 30 July 1990 that Marsico would be the shareholder of Trudale. He referred to a file note of that conversation, but the note neither supports nor contradicts that evidence. I do not accept that Mr Crawley told Mr Short that Marsico would be the shareholder of Trudale, but if he did, that was not inconsistent with his intending that he and Nabatu would be the beneficial owners of the shares. 274 On 5 September 1990, that is, five days before the transfer of the two issued shares in Trudale to Marsico, Mr Crawley witnessed a statutory declaration of Mr Londy in which Mr Londy declared that the registered shareholders of Trudale were Marsico as to one share, and Mr Crawley as to one share and that they were both the beneficial owners of the shares (TB 11/1284.32). 275 Mr Crawley gave evidence that he filled in the names of the two shareholders as Marsico and himself because, at the time, and as the form required, it was necessary to have two shareholders. The statutory declaration included a statement that the shareholders listed were the beneficial owners of the shares except as specified in item 4. Item 4 was left blank. Mr Crawley said that it was an oversight for him not to have filled in item 4 to show that his share was held for Marsico. The statutory declaration was made by Mr Londy on 5 September 1990 before the shares had been transferred from him to Marsico and Mr Crawley. 276 I do not consider that I should infer from Mr Crawley's completion of part of the statutory declaration and his witnessing the document for Mr Londy that he intended to acquire fifty percent beneficial ownership of the shares of Trudale. The proposal that he and Marsico each hold one share changed prior to settlement where both shares were transferred to Marsico. At the time, if a proprietary company carried on business with fewer than two members, the members could be personally liable for payment of the company's debts (Companies (NSW) Code s 82(1)). This did not apply in relation to a company whose issued shares were held by a holding company (s 82(2)). Nonetheless, this provision is probably the reason for the standard form of statutory declaration which provided for there to be more than one shareholder. 277 Mr Garner of Westpac made a diary note of a meeting with Mr Crawley on 26 July 1991. The discussion concerned Trudale. The diary note said that the principal issues discussed included: " Messrs Short and Crawley are currently the two shareholders, whilst H Londy (previously director/shareholder) will participate in profit sharing (in view of his guarantee). " 278 Mr Crawley denied having told the meeting that he and Mr Short were the shareholders of Trudale. 279 On 20 November 1991, Mr Crawley sent a facsimile to Mr Short headed "Group Structure Chart – Crawley" which showed he and Mr Short owning Trudale (TB 20/2003.7; 47/4981.40). 280 Mr Vaccher, an accountant with Glen Neilsen & Co, who were auditors for the group, gave evidence that, in about 1992 and 1993, Mr Crawley said to him on several occasions that "I own 80% of Trudale and Short owns the other 20%". I accept that evidence. He deposed that he recalled this being recorded on a diagram prepared by Mr Leddin. 281 On 4 June 1992, Mr Crawley told Mr Atkins of Westpac that Mr Leddin had been working on a corporate structure chart which Westpac wanted. Mr Crawley told Mr Atkins that Mr Leddin had written out such a chart 3½ months ago and that he, Mr Crawley, had a copy on the file (TB 2401.29 at 2401.36). On the same day, a corporate chart was sent by facsimile by Glen Neilsen & Co to Westpac (TB 2411.84). The chart was a chart of beneficial shareholdings in the group. It showed Mr Crawley and Nabatu as being beneficially entitled to 80% and 20% respectively of the shares in Trudale. 282 On 18 June 1992, Mr Atkins sent a facsimile to the secretary of J & J O'Brien for the attention of Mr Crawley. He said: " Corporate Structure Chart (a copy follows) Referring to the chart furnished by your auditor ... please advise if the shareholders and the shareholding for Trudale Pty Ltd is precisely correct. " 283 It is clear from the original document produced by Westpac on subpoena (Exhibit AS) that the corporate chart enclosed with Westpac's letter of 18 June 1992 was the chart provided by Glen Neilsen & Co to Westpac on 4 June 1992. That is, it was the chart showing the shares in Trudale being beneficially held as to eighty percent by Mr Crawley and twenty percent by Nabatu. 284 On 24 June 1992, a letter was sent by J & J O'Brien which had been dictated by Mr Crawley responding to Westpac's letter of 18 June 1992. Mr Crawley said that: " The shareholders and shareholdings for Trudale Pty Ltd is correct ." 285 When cross-examined on this matter, Mr Crawley said that two charts went from his office back to Mr Leddin, and that there was no way of identifying whether the chart bearing a facsimile date of 4 June 1992 (enclosed in TB 2411.84) was the chart Mr Atkins was referring to in his letter. 286 In re-examination, Mr Crawley identified the document to which he was referring as a chart which became exhibit 23. It was a hand-written document bearing a date 3 June 1992 marked for the attention of Mr Crawley and marked "Urgent". It bears a facsimile notation from Glen Neilsen & Co of 3 June 1992. It showed the shareholders of Trudale being Mr Crawley, Nabatu and Athann. I infer from the fact that the document was marked for Mr Crawley's attention, and was produced from the possession of the first to sixth defendants, that the document was sent by Mr Leddin to Mr Crawley on 3 June 1992. It was not the chart to which Mr Atkins referred in his facsimile of 18 June 1992. That is clear from the original document produced by Westpac on subpoena. Contrary to Mr Crawley's evidence, the appropriate inference is that after the receipt of Mr Leddin's facsimile of 3 June 1992 (exhibit 23) marked for Mr Crawley's urgent attention, the chart was revised and sent the following day to Mr Atkins at Westpac. I infer that the revision was made on instructions from Mr Crawley. Mr Crawley then confirmed to Westpac the correctness of the chart forwarded to Westpac by Mr Leddin showing him and Nabatu as being the beneficial owners of the shares in Trudale. That is also consistent with Mr Vaccher's evidence. 287 On 22 June 1992, Mr Crawley signed annual returns for Trudale for the years ended 30 June 1991 and 30 June 1992. The annual returns stated that Mr Crawley was a shareholder of Trudale, holding one share beneficially. It also stated that Marsico held four shares in Trudale, but was not the beneficial owner of those shares. This return is consistent with the corporate chart although inconsistent with Trudale's register as there were only ever four shares issued. Mr Crawley's explanation for signing the annual returns was that they were prepared, he said by Mr Vaccher, and signed by him without their being checked. At one point he suggested that they may have been signed in blank. I do not accept this evidence. In my view, Mr Crawley well knew that he was signing annual returns which declared that Marsico was not the beneficial owner of the shares in Trudale. 288 On 19 February 1993, Mr Crawley signed Trudale's 1992 annual return. The return again stated that Mr Crawley held one share in the company beneficially and that Marsico held four shares but was not the beneficial owner of those shares. 289 On 23 February 1993, Mr Crawley sent a long fax to Mr Short setting out his position in relation to a number of complaints Mr Short had made. In relation to Trudale, Mr Crawley said that Trudale had been successfully built and that it had nothing to do with the existing financial difficulties of the group. He added: " You made some comment about 80%/20% split. Have I to remind you that $5,000,000 of my personal property supports J & J O'Brien. That I put in approximately $600,000 cash when the bank would not lend (so we would not have had a bottle shop), that the security I had had to be released to the bank and have put over $300,000 into Trudale and in excess of $200,000 in legal work. " 290 This appears to be Mr Crawley's justification for being entitled to 80% of the shares in Trudale. However, he was not cross-examined on this document. 291 On 16 December 1993, Mr Short's accountant, Mr McGuinness, wrote to Mr Crawley and advised that in finalising Mr Short's 1993 financial statements he had come across two companies associated with J & J O' Brien of whose existence he had previously been unaware, namely, Marsico and Trudale. Mr McGuinness said that "Warwick believes he has equity interests in these companies, either personally or via Nabatu Pty Ltd". Mr McGuinness had not, to that point, reflected any investment in those entities in Mr Short's accounts. He asked to be provided with copies of the 1993 financial statements (TB 35/3392). On 12 January 1994, Mr Crawley told Mr McGuinness that: " Warwick's interest is held by Nabatu Pty Ltd where such interest is a one-third share in J & J O'Brien Pty Ltd and Marsico Holdings Pty Ltd. In relation to Trudale Pty Ltd the interest is one-fifth of the shareholding of Trudale Pty Ltd which is then in joint venture 50% with J & J O'Brien Pty Ltd carrying the costs and expenditures so that it is a free carried interest. " (TB 35/3416) 292 Mr Crawley explained this correspondence by saying that he was referring to Nabatu's interest "under the arrangement that Warwick and I had come to". In essence, he said that he and Mr Short had agreed that shares carrying dividend rights only would be issued in Trudale and that he was referring to this new class of shares. In an affidavit sworn on 29 November 2005, Mr Crawley gave evidence for the first time that, in late 1991 or early 1992, he had had a conversation with Mr Short in which Mr Short had said that the anticipated profit from the Elizabeth Street Centre development could be used to pay Mr Crawley's claims for legal costs for services provided to the group of companies, and for advances, in exchange for Mr Crawley's releasing his claims against the group. According to Mr Crawley, he said that he was not prepared to forego his claims as things then stood, but that he would be prepared to consider an arrangement: "w hereby I am given a first right to a percentage of the joint venture profits in reduction of the debts owing. In other words, once the legal fees and debts are discharged and those amounts have not exceeded the equivalent of whatever percentage we agree of the profits, then the difference shall be retained by Trudale. " (CC aft 29/11/05 para 280) 293 According to Mr Crawley, Mr Short said that as Mr Davis was not contributing any assets for the benefit of the group, he, Mr Short, should be entitled to a proportion of the joint venture profits and proposed that the profits be split 80/20 between Mr Crawley and Nabatu. Mr Crawley then said, according to his evidence, "to structure this, what I have in mind is a new class of shares in Trudale be issued that will only be entitled to dividends whilst this arrangement is in place. I will have 80% of those shares and you will have 20%. Once the debts have been extinguished the rights attaching to the shares will be cancelled and we will revert to the present situation". According to him, Mr Short said that they would consider it. 294 Mr Crawley deposed that Mr Short later said to him that he could go ahead with the 80/20 split, and that in 1992, whilst Mr Leddin was auditing the 1991 group accounts, he gave instructions to Mr Leddin to "sort out this further class of shares and issue the five for Short and me, 80/20 my way". 295 Mr Leddin was not called to corroborate this evidence. No document was tendered which records or refers to such a conversation between Mr Crawley and Mr Short. No document was tendered recording the giving of such instruction to Mr Leddin. Nothing was done to implement the instruction. 296 I consider that Mr Crawley was well aware that, in order for shares to be issued, a directors' resolution of Trudale would have been required. There was no such resolution. I do not accept that such a conversation occurred. 297 Mr Crawley's response of 12 January 1994 to Mr McGuinness' inquiry addressed the interest which Nabatu then had in J & J O'Brien, Marsico and Trudale. He said that Nabatu's interest "is one-fifth of the shareholding of Trudale". He did not say that it was proposed that Nabatu acquire 20% of a class of shares yet to be issued. Mr Crawley's evidence of an intention that such a class of shares be issued was something he made up in an endeavour to explain the documents referring to him and Nabatu as owning the shares in Trudale in the proportions of 80% and 20%. 298 An asset and liability statement of Mr Crawley dated January 1994 (TB 35/3390.53) records his assets as including "shares in private company (includes: Trudale Pty Ltd, Kavia Holdings Pty Ltd, Rocks Catering Pty Ltd, and Logo Hats Australia Pty Ltd)". Mr Crawley was unable to say for what purpose the document was prepared, but said that he would have had some input. 299 On 5 September 1994, Mr Crawley signed the 1993 annual return for Trudale which again showed that he was the beneficial holder of one share and that Marsico four shares but not beneficially. 300 The plaintiffs submitted that from about late 1994, Mr Crawley changed his position in the light of known losses incurred in the Elizabeth Street development. 301 At a meeting of directors of the J & J O'Brien group of companies held on 22 December 1994, Mr Short tabled a detailed list of questions for discussion (TB 42/4311.19). His questions included: " 6. What are the shares in the Trudale Pty Ltd split. If this has changed, when, by whom and who agreed with it. " (TB 42/4311.5) 302 Mr Short's note of the response was "80/20 then 50/50" (TB 42/4311.17) Mr Crawley denied saying that the ownership had been split 80/20 between him and Nabatu but this had changed to 50/50. Mr Crawley's note on the same list of questions was: " 80:20 50:50 " 303 Mr Crawley said this meant that the arrangements were that the share issue discussed with Mr Short was or would be split 80/20, and that the effect of the joint venture agreement was that profits were split 50/50, that is, the profits would be split equally between Trudale on the one hand, and Marsico and J & J O'Brien on the other. 304 According to the minutes of the meeting of 22 December 1994, Mr Crawley said that in the current circumstances he sought a restructure of the equity holdings in the group to reflect his financial support for the trading operations to date. The minutes record Mr Short as having indicated his view that the arrangements relating to the Trudale joint venture, whereby he owned equity equalling 20% of the total joint venture interests, and Mr Davis had no interest whatsoever, represented such an adjustment of aggregate equity holdings as was now raised by Mr Crawley. Further discussion of that matter was deferred. There is no record of Mr Crawley correcting Mr Short's statement that he owned equity equalling 20% of the total joint venture interests. That could not be a reference merely to a 20% right to dividends. It does not appear that Mr Short agreed to the minutes. But assuming their accuracy, it is telling that Mr Crawley did not say that the only equity in Trudale was the shares issued to Marsico and the profit sharing arrangement under the joint venture agreement. 305 On 30 January 1995, Mr Crawley signed the 1994 annual return for Trudale. In this return, Mr Crawley was recorded as not being the beneficial owner of one share said to be held by him. The return stated that Marsico was the beneficial owner of the four shares held by it. In other words, it was the reverse of the earlier returns. 306 On 2 March 1995, Mr Short wrote to Mr Crawley (TB 44/4612). The letter was drafted for him by Mr Hannan. The letter stated that: " Athol does not believe he has any interest whatsoever in the Trudale joint venture and I had always understood it to be 80% you and 20% me. " Mr Crawley replied on 6 March 1995 (TB 44/4622). He said that: " The share structure and ownership of Trudale Pty Ltd is set out in the statutory records since the acquisition of the company by Marsico Holdings Pty Ltd in September 1990 and in the auditor's signed accounts ." 307 He did not specifically address Mr Short's statement that he had always understood that Mr Crawley had had an interest of eighty percent in the Trudale joint venture and Mr Short of twenty percent. As Mr Crawley had told Mr McGuinness fourteen months previously that Mr Short's and Nabatu's interest in Trudale was a one-fifth shareholding, some explanation was called for. 308 On 3 April 1995, Mr Short sent another letter to Mr Crawley (TB 45/4768). Although he signed the letter, it was drafted for him by Mr Hannan. The letter stated (at 4773): " Until recently, both Athol and I understood that he had no involvement in the Trudale development and that you and I owned 80% and 20% respectively. At last week's board meeting, Athol stated on a number of occasions that he had nothing to do with Trudale and you did not question this. However, it appears that the Trudale development maybe beneficially owned by Trudale and the hotel group in a 50/50 joint venture. I also think that you and I own Trudale 80/20 respectively. 50/50 arrangement is consistent with the terms of a joint venture agreement dated 18 November 1993. " Mr Short then went on to say: " Neither Athol, Ros nor I can recall discussing the documents at any meeting around that time (viz 18 November 1993) and certainly none of us was aware until much later that the joint venture interests have been changed from the original 80/20: Crawley/Short to involve the hotel group in the 50/50 joint venture. " 309 Mr Short said he did not appreciate the significance of the joint venture agreement which he had signed. 310 At this stage (3 April 1995), Mr Cohen had assessed the Trudale joint venture losses at $2,300,000. 311 On 5 April 1995, Mr Crawley replied (TB 45/4784 at 4790) to say that Mr Short was well aware that no share transfers or trust declarations had ever been entered into and that the "envisaged split", which I infer was the 80/20 split, had not been fully ventilated by the board other than at a meeting on 18 November 1993, although there were prior discussions from September 1990. There is no record in the minutes of the meeting of 18 November 1993 of any discussion of the "envisaged split", if that was a reference to a split of the beneficial shareholding in Trudale, or a proposed class of shares to be issued in Trudale. It may be that Mr Crawley's reference to the envisaged split was to a split of profits and losses in accordance with the joint venture agreement which they resolved to enter into on that day. Be that as it may, Mr Crawley's position by this time was that, in the absence of appropriate formal documentation or board resolution, Marsico owned the Trudale shares both legally and beneficially. He did not answer responsively Mr Short's contention that he had previously led Mr Short and Mr Davis to understand that he, Mr Crawley, owned 80% of the Joint Venture. 312 I conclude that, contrary to his denials, Mr Crawley did originally intend to claim an eighty percent beneficial interest in the shares in Trudale. I infer that that was his intention not only in 1992 and in 1993, but in 1990 when the shares in Trudale were acquired. He abandoned that intention in the face of demands in 1995 by Mr Short and Mr Davis that, in valuing each party's shares in J & J O'Brien and Marsico, the losses from the Elizabeth Street development should be borne in accordance with the parties' equity stakes in the venture (Short letter to Crawley 3 April 1995, TB 45/4768 at 4773). 313 It was submitted for the first to sixth defendants that: " It is difficult to see on the plaintiffs' view of the world why Mr Crawley would have been so intent to create the so-called paper trail when the project according to the plaintiffs was, to Mr Crawley's knowledge, one that would inevitably fail resulting in loss." 314 This submission was based on a false premise. The plaintiffs opened on the basis that Mr Crawley had committed a large number of breaches of his duty of care and diligence, and of his fiduciary duty. I held that it was not open to the plaintiffs to pursue most of those allegations. The plaintiffs alleged that the venture was speculative and that Mr Crawley breached his duties in exposing the companies to potentially substantial loss. They also alleged that Mr Crawley ought to have disclosed that it was likely that the cash flow from J & J O'Brien would be required to meet the expenses of the Elizabeth Street Centre development. They did not allege that it was inevitable that the Elizabeth Street Centre development would be unprofitable. In any event, it was certainly not Mr Crawley's view that the Elizabeth Street Centre development would probably be unprofitable. To the contrary, he believed it would be profitable. He deposed that he formed the opinion that there were reasonable grounds to believe that the development was feasible and likely to produce a significant profit (CC1, para 254). He deposed that he formed the opinion that if Marsico carried out the development at a reasonable profit it would be able to repay the loan from Tooth & Co in relation to the purchase of the Racecourse Hotel which was due to be repaid in April 1993, and that it was possible that it could present a potential opportunity for releasing the personal assets provided by him, Mr Short and Mr Davis from the securities required to support the Westpac loan. 315 There is a measure of truth in Mr Crawley's evidence that his purpose in proposing the Elizabeth Street Centre development to Mr Short was that the profits from a successful development would enable repayment of the loan Marsico took out to acquire the Racecourse Hotel. I do not accept that he considered that the Elizabeth Street Centre development raised a potential opportunity for the release of personal assets provided by Mr Short, Mr Davis and him to secure the Westpac debt. Although the Racecourse Hotel was acquired by Marsico, and although Marsico borrowed the purchase price from Tooth & Co, it held the Racecourse Hotel for Nabatu and Mr Crawley as partners. They were liable to indemnify Marsico in respect of the debt it incurred to acquire the Racecourse Hotel. In entering into the venture for the purpose of realising profit to be used to repay debt on the Racecourse Hotel, Mr Crawley and Mr Short were seeking to advance their own purposes, not those of Marsico. It is entirely consistent with this purpose, as deposed to by Mr Crawley, that Mr Crawley intended that he and Mr Short should beneficially own the shares in Trudale. 316 Accordingly, I conclude that the plaintiffs are correct in submitting that in procuring the guarantees of Marsico and J & J O'Brien, Mr Crawley acted for an improper purpose in that he intended, if the venture were profitable, to assert a beneficial interest in eighty percent of the shares in Trudale. He preferred his own interest to that of Marsico and J & J O'Brien in exposing them to potential losses from them giving guarantees. 317 Mr Short was in the same position. He regarded himself as beneficially owning half of the shares in Trudale. He preferred his own interests to those of Marsico and J & J O'Brien by causing them to give guarantees which exposed them to potential losses for no potential gain. Acquiescence 318 The first to sixth defendants submitted that the plaintiffs and Mr Davis knew that the hotel companies would be used to support the borrowings for the project and obtain tax benefits as a consequence. They submitted that they affirmed and acquiesced in the transaction. 319 Clearly, that is so in the case of Mr Short. The position is less clear so far as Mr Davis is concerned. Nonetheless, I draw that inference from the 1996 memorandum prepared for Gilbert & Tobin which stated that: " From the time that AD became aware of the Group's involvement with the project, he ... (b) understood that the Group was not an equity participant or partner but was only involved in order to provide the support required to obtain finance; (c) thought that the venture might be used to shelter hotel profits in some way ... [and] ... (e) was aware the equity in the project was to be shared 80/20 between CC/WS " 320 That is to say, Mr Davis acquired knowledge of all of the material facts which give rise to the breach of duty by Mr Crawley and Mr Short. Mr Davis acquiesced in the breach of duty by resolving to enter into the Joint Venture Agreement of 18 November 1993, by subsequently approving the accounts of J & J and Marsico that brought losses from the Joint Venture to account, by resolving that the companies lodge tax returns which he knew would reflect deductions for such losses, and by not taking any step to have the transaction set aside. To the contrary, he negotiated the sale of his shares in Marsico and J & J O'Brien to Mr Crawley taking into account that that would involve a surrender of whatever rights he might otherwise have to challenge Marsico and J & J O'Brien's entry into the guarantees of the Elizabeth Street Centre project. As part of that transaction, he released Mr Crawley from all claims (TB 78/8084.46). 321 For these reasons, whilst this breach of duty is established, the companies are not entitled to equitable relief in respect of those breaches. Likewise, the acquiescence of all shareholders precludes the companies, at the suit of one of the shareholders, from obtaining compensation for breach of the statutory duties. 322 Accordingly, it is unnecessary to consider the claim for contribution against Mr Short. Failure to Procure Independent Advice 323 The plaintiffs submitted that as there was no apparent benefit to J & J O'Brien in giving a guarantee for Trudale's benefit, it was incumbent on Mr Crawley to recommend to Mr Short and to Mr Davis that they and the companies obtain independent advice on the legal and financial aspects of the project. They submitted that it was a breach of Mr Crawley's duties as a director and as solicitor not to recommend that such independent advice be obtained. They submitted that such a recommendation ought to have been given in September 1990 and on 27 March 1992. 324 I do not consider that Mr Crawley had a separate duty to recommend the obtaining of independent advice. I have found that he was in breach of his duty as a director in preferring his own interests to that of the companies. The relevance of the obtaining of independent advice is that the obtaining of such advice may be necessary to demonstrate the principal's informed consent to conduct which would otherwise be a breach by a fiduciary of his fiduciary duty. If such advice were not obtained, as it was not in the case of Mr Davis, the relevant breach is procuring the companies to give the guarantees when there was no apparent benefit for J & J O'Brien, and where there was no benefit for Marsico because, had the venture been profitable, Mr Crawley and Mr Short would have claimed the beneficial interest in the shares held by Marsico in Trudale (Maguire v Makaronis (1997) 188 CLR 449 at 467). 325 In any event, it is not correct to say that Mr Short did not have independent advice in relation to the September 1990 and March 1992 transactions. In relation to the September 1990 guarantee, he was advised by Mr McNabb. Mr McNabb was Mr Crawley's employee. He told Mr Short that Mr Short might consider getting some independent legal advice. But Mr Short said he was comfortable with the situation. Mr Short looked across to Mr Crawley and Mr Crawley said there was basically no risk involved in J & J O'Brien. But Mr Short was told by Mr McNabb that any of the five named guarantors could be called upon. Mr Crawley told Mr McNabb that he had explained the documents to Mr Short. Mr McNabb asked Mr Short about the documents and he confirmed that they had been explained to him. 326 Mr McNabb gave evidence that: " I said that Chris was, I was unhappy to sign a document in relation to giving independent advice where Chris was connected with Trudale, and Chris was my employer, and Trudale was the borrower, and J & J O'Brien was the guarantor. I was, there is a problem about independence. But Warwick had no problem with it. Warwick had no problem at all with it. " 327 I accept that evidence. I conclude that Mr McNabb did recommend to Mr Short that he obtain independent legal advice in relation to the giving of the guarantee, but Mr Short declined to obtain any further advice beyond that which he was given by Mr McNabb and Mr Crawley. 328 Whilst Mr Short was not given independent advice in relation to the signing of the deed of loan and guarantee of 27 March 1992, he had been given independent advice by a solicitor, Mr Buntman, in relation to an earlier version of that deed. That advice was given on 19 December 1991 (TB 20/2087). It is true, as the plaintiffs submit, that Mr Buntman's certificate was given to Mr Short because Mr Short was to sign a guarantee in his personal capacity. Mr Buntman certified that, prior to Mr Short signing that loan agreement and guarantee, he explained to Mr Short that the guarantee was granted for the debts of Trudale to BAC, irrespective of the amount of the debts and whether those debts were owed under the loan agreement, that under the terms of the guarantee BAC could increase or reduce or vary the type of accommodation provided to Trudale without the signatories' consent, and that each party was jointly and severally liable for the debts of Trudale to BAC. It is clear that Marsico and J & J O'Brien were named as guarantors to the document witnessed by Mr Buntman in December 1991. 329 Mr Short denied that Mr Buntman explained to him matters relevant to J & J O'Brien and Marsico being guarantors of the Trudale borrowing (affidavit 2 December 2003, para 163). He did not say what explanation Mr Buntman did give him on that occasion. For the reasons I have given, I do not consider his denial to be reliable. 330 Accordingly, if Mr Crawley owed a duty to recommend to Mr Short that he obtain independent advice, that duty was discharged. In any event, Mr Short was not interested in obtaining any further advice, as he made plain to Mr McNabb. 331 For these reasons, I do not consider that Mr Crawley failed to recommend to Mr Short that he obtain independent advice. Nor is that the relevant duty. He is not liable to pay equitable compensation to Marsico, J & J O'Brien or Trudale because he failed to recommend to Mr Davis that he obtain independent advice. Intention to Charge Excessive Legal Fees 332 The plaintiffs submitted that Mr Crawley's purpose in putting the Trudale proposal to Mr Short included having the opportunity to derive legal fees far in excess of a reasonable fee. The plaintiffs claim that, without rendering an account, Mr Crawley received payment of $200,000 for legal fees on 19 June 1991. Mr Crawley denies having received such fees. He accepted that $200,000 was far in excess of anything he regarded himself as entitled to charge Trudale for legal fees by 19 June 1991. 333 Mr Crawley asserted that Vensel was entitled to a fee of 1% for procuring BAC's loan, but accepted that he had not negotiated any finance fee for Trudale to pay Vensel by June 1991 (T1109.35, T1112.51-1112.56). 334 The plaintiffs say that from before 10 September 1990, Mr Crawley intended charging Trudale an amount of $200,000 by way of purported legal fees in addition to amounts that might be properly chargeable as the conveyancing costs on the transaction. They rely upon a note prepared by Mr Crawley prior to the drawdown of the loan on 12 September 1990 and they contend that $200,000 was paid as legal fees to Aubrey F Crawley & Co on 19 June 1991. The latter contention is based upon Trudale's cashbook which records such a payment to Aubrey F Crawley & Co as an expense for legal fees. 335 The plaintiffs also rely on their submissions concerning the 30 June 1994 deed as showing a propensity on the part of Mr Crawley to charge more by way of legal fees than he regarded himself as properly entitled to. 336 Mr Crawley would have breached the fiduciary duty he owed to Trudale, Marsico and J & J O'Brien as a solicitor and as a director if he exercised his powers as a director for such a purpose, which would be improper and collateral to his duty as a director and solicitor (Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 218). Whether such an improper purpose was causative of the losses suffered by Trudale, Marsico and J & J O'Brien will be considered below. 337 Separate financial statements were prepared for Trudale and for the Elizabeth Street Centre Joint Venture. The financial statements for the year ended 30 June 1991 were not prepared until November 1992. They do not show that $200,000 was paid to A F Crawley & Co as legal fees. They, and a trial balance and ledger, show that as at 30 June 1991, $200,000 was held on deposit with the St George bank. According to the financial statements, the moneys must have been disbursed in some way in the financial year ended 30 June 1992, but it is not possible to identify from the financial statements or other accounting records produced by the first to sixth defendants in what way the moneys were disbursed. 338 There are serious questions as to whether the financial statements are accurate. The auditor, Mr Leddin, was not called, although he had sworn an affidavit for the first to sixth defendants (which was not read). Beyond his denial of having received legal fees of $200,000, Mr Crawley professed himself unable to explain how the moneys were dealt with. 339 The defendants correctly submitted that the allegation that Mr Crawley intended to charge excessive legal fees, and did so, is a serious allegation. The principles in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 apply. Although the allegation need be proved only to the balance of probabilities, the Court must nonetheless be satisfied that the allegation is made out having regard to the gravity of the matters alleged. Such satisfaction must not be produced by "inexact proofs, indefinite testimony or indirect inferences". Mr Crawley's Intention for Charging Fees 340 Mr Crawley deposed that in late 1988 he discussed with Mr Davis and Mr Short the potential purchase of the freehold of Jackson's on George. In that context, he said to Mr Short and Mr Davis that with each of their personal properties as security and with the equity J & J O'Brien had in the Marlborough Hotel, and with the equity in the Australian Youth Hotel, he should be able to arrange a loan from Westpac to finance 100% of the purchase of the freehold of Jackson's on George. He deposed that he said "there is significant work involved in organising this. I am not prepared to do it for nothing. My proposal is that Vensel negotiates the finance for a fee of 1% and that AFC acts on the purchase and charges its usual legal costs." He deposed that each of Mr Short and Mr Davis agreed with that proposal (CC1, para 199). Mr Crawley also deposed (para 257) that when he discussed the Elizabeth Street Centre proposal with Mr Short, he said to Mr Short words to the effect: " My firm can handle the council negotiations and the building applications, organise finance for the whole project and negotiate a contract with a builder, in conjunction with the architects and engineers. There will be usual charges for that work. " He said that Mr Short agreed. 341 Mr Short disputed this evidence. I do not accept that Mr Crawley did reach such an agreement with Mr Short. In cross-examination, Mr Crawley said that he believed that an agreement that Vensel should charge a 1% fee for having arranged the financing through BAC was reached in August 1991. Again, I do not accept that evidence. In my view, Mr Crawley was referring to an assertion he made in correspondence with Mr Davis on 12 August 1991 that if the loan for the hotel group with Westpac were restructured, there would be a cost including procuration fees in respect of a loan to the equivalent of 1% of the total borrowings of approximately $17,000,000. In his oral evidence this assertion was elevated to an agreement. 342 The assertion that Mr Crawley or Vensel was entitled to charge a fee for arranging finance of 1% of the moneys borrowed was made in the deed of 30 June 1994. As will be seen, it was a basis upon which Mr Crawley obtained $160,000 of a drawdown from BAC which provided funds for the making of the $200,000 payment to his firm on 19 June 1991. 343 BAC had charged Trudale a non-refundable loan establishment fee on Trudale's acceptance of its loan offer of 26 June 1990. On 30 July 1990, the directors of Trudale resolved that the acceptance fee be paid, and it was paid on the same day (TB 10/1163 at 1164, 1204.7, 1204.7.1). Mr Crawley deposed that he insisted to Mr Londy that, if he were to commit the group to the project, Mr Londy must pay the costs of the finance application. Mr Crawley deposed that he told Mr Short that Mr Londy would pay the establishment fee for the finance (CC1, paras 252 and 256). Mr Crawley deposed that his discussions with Mr Londy were to the effect that if Mr Londy paid the application fees for the facility, he could keep the sales commissions. 344 As noted in para [31] of section 1, BAC offered Trudale a bill facility for $16,314,000. The first drawdown occurred on 13 September 1990. In August 1990, Mr Crawley made handwritten notes calculating the amounts which would be required on the drawdown of the BAC facility (Exhibit AQ). Part of those notes included a calculation that amounts of $3,260,000 and $75,000 would be needed to pay the vendor, and $184,900 would be required for stamp duty. This made a total of $3,519,000. Another calculation took the figure of $3,519,900 and added to it two amounts of $100,000 and $170,000 for "architect". This would make a total of $3,789,900. Against that, Mr Crawley wrote "+Legal Costs" and amended the total of $3,789,900 to $3,989,900. 345 Mr Crawley denied that this is what he did or that he anticipated receiving $200,000 in legal costs in respect of the venture. I do not accept that denial. I infer from his handwritten notes of August 1990 that at that time he did contemplate receiving $200,000 in legal costs. That is the only explanation I can see for the discernable amendment of the figure of $3,789,900 to $3,989,900 with the notation "+ Legal Costs". 346 It was submitted for Mr Crawley that, without expert handwriting evidence, the Court could not conclude that the figure altered to a 9 was a 7 rather than some other number, such as a 2. The underlying number does not appear to be a 2. But the decisive consideration is that the sum of the three numbers of $3,519,900, $100,000 and $170,000 is $3,789,900. It is only because $200,000 is added for legal costs that the total is shown as $3,989,900. 347 This calculation was only one of a number of calculations of a possible drawdown amount made on the page. Another calculation came to $4,017,000. This included a component for "stamp duty and costs" of $342,000. That sum is the same as a figure contained in a feasibility study dated 12 March 1990 provided to Mr Crawley by Mr Londy (TB 8/1038 at 1044 where the figure is given as one for stamp duty, legal costs and valuation fees, but was not further broken down). In his notes, which are exhibit AQ, Mr Crawley estimated stamp duty to be $184,900. But it is not possible to say what he envisaged would otherwise fall within the description of "costs" making up the figure of $342,000. 348 There was another calculation of an amount which might be required for drawdown totalling $3,689,000, consisting of the amounts to be paid to the vendor, stamp duty and a figure of $170,000, presumably for architects' fees. 349 Thus the reference to legal costs of $200,000 was one of three calculations. The most that can be inferred from the document is that Mr Crawley then had in mind as a possibility that an amount of $200,000 might be claimed for legal costs. It does not follow from the document that he assumed that all of the $200,000 for legal costs would be legal costs payable to his firm, as distinct from legal costs payable to the solicitors for the mortgagee which Trudale would have to pay. However, costs payable to other solicitors involved in the transaction would be nothing like $200,000. 350 The amount actually drawn down on 13 September 1990 was $3,942,000 (TB 11/1339.36). The make up of that figure was as follows: Office of State Revenue $65,242 Office of State Revenue $164,790.50 53-55 Hall Street Pty Ltd (the vendor) $3,269,019.07 Trudale Pty Ltd $416,244.52 Gadens Ridgeway (BAC's solicitors) $23,045.00 Water Board $1,158.91 Dexter Healey & Co (Vendor's solicitors) $2,500.00 Total $3,942,000.00 351 The sum of $416,244.52 was received by Trudale. It was disbursed in a variety of ways, including payment of contributions levied by the South Sydney Council totalling $68,269.48 as contributions to road construction and maintenance costs and open space, payment of architects' fees, valuers' fees, engineers' fees and advertising costs. Payment of $35,000 in Legal Costs 352 The second drawdown of the BAC facility occurred on 21 December 1990 (TB 13/1542.22). BAC paid $276,835.10 to Aubrey F Crawley's trust account (TB 31/3104.4). $77,035.10 was paid to Trudale's St George account. From this amount, $76,835.10 was disbursed to solicitors acting for the Australian Podiatry Association who sold part of the Elizabeth Street site to Trudale (Exhibit BF). There remained an amount of $199,800 in Aubrey F Crawley & Co's trust account. $164,800 was transferred to Trudale's account with St. George (Cashbook exhibit C folio 2: TB 31/3104.4). On 24 December 1990, $20,000 was transferred to Aubrey F Crawley & Co's general account (TB 31/3104.4). $15,000 remained held on trust. According to the trust ledger of Aubrey F Crawley & Co, it was applied in payment of costs on 5 September 1991. It is clear that the two sums of $20,000 and $15,000 were paid to Aubrey F Crawley & Co as legal costs in connection with the acquisition of the Elizabeth Street land. Mr Crawley did not accept that that was the position, but it is clearly established. 353 The general ledger of Trudale (printed on 19 October 1993) shows that an amount of $62,289 originally recorded as professional fees in a trial balance supplied by Trudale to its auditors was reclassified and capitalised by being added to the cost of the Elizabeth Street land. That is to say, the cost of the land as recorded in the client's trial balance of $3,583,023 was increased to $3,785,312 by, amongst other things, the inclusion of conveyancing costs of $62,289 (exhibit AB pages 3 and 9). The conveyancing costs of $62,289 comprised $23,045 paid to Gadens Ridgeway from the drawdown on 13 September 1990 and $2,500 paid to Dexter Healey & Co from that drawdown, together with $1,744 paid to Clapham Robinson & Carbone on 21 December 1990, and the two amounts totalling $35,000 paid to Aubrey F Crawley & Co (TB 11/1339.36; exhibit BF; TB 31/3104.4). (Gadens Ridgeway acted for BAC. Dexter Healey & Co acted for 53-55 Hall Street Pty Ltd, one of the vendors of the Elizabeth Street land, and Clapham Robinson & Carbone acted for the Australian Podiatry Association which was a vendor of part of the Elizabeth Street land.) 354 That the $35,000 was paid to Aubrey F Crawley & Co appears both from the trust ledger which shows the payments, and from the fact that Aubrey F Crawley & Co was not recorded as a creditor of Trudale. The trust ledger records the payment of $20,000 as being for "our C & D" which Mr Crawley accepted stood for "costs and disbursements". That sum was paid on 24 December 1990. $15,000 was in respect of "costs". That sum was paid on 5 September 1991. Mr Crawley accepted that the $20,000 had been paid to his firm as costs and disbursements for the transaction, but said he did not know whether the sum of $15,000 had also been paid in that way (T1947.7). He later disputed that his firm received the amount of $15,000 on the basis that another ledger card showed that sum as going back to Trudale (T1947.55). The ledger to which Mr Crawley was referring was a general ledger recording advances made by him to Trudale. The advances shown included an amount of $15,000 paid on 4 March 1992. If, as I accept, Mr Crawley made advances to Trudale, including an advance of $15,000 on 4 March 1992, it does not follow that his firm did not also receive the amount of $15,000 as payment of legal costs on 5 September 1991. 355 Notwithstanding his receipt of $35,000 in payment for legal costs in relation to the acquisition of the Elizabeth Street land, Mr Crawley maintained that he had not been paid in relation to that work and had not charged for it (T1949). I do not accept that assertion. It is true that Mr Crawley did not render an account. He nonetheless appropriated $35,000 in payment of fees. These payments were not shown in Trudale's cashbook because they were paid from moneys paid directly by BAC to Aubrey F Crawley & Co. Payment of $200,000 on 19 June 1991 356 On 9 April 1991, Mr Crawley wrote to BAC demanding a cheque from BAC for $541,588. That amount was sought to pay the following fees (TB 14/1608.17): Purchase price of laneways $11,000 Architects' fees $1,100 Surveyors' fees $3,350 Stamp Duty on laneway contracts $138 Saivanidis and Micheal re surrender of lease $140,000 Demolition contract $35,000 Class B hoarding and road closure permit $40,000 Engineering fees $10,000 Legal fees, stamp duty and authorised disbursements $42,000 Loan establishment and procreation (sic) fees $160,000 Total $541,588. 357 BAC was reluctant to provide the further requested advance. It sought internal legal advice as to whether it was required to make the further advance. On 10 April 1991, it said, amongst other things, that Trudale needed to provide evidence as to the deposits received for the sale of fourteen units in the development. Mr Crawley responded by advising that exchanges had been effected in respect of twenty-two lots, that rescission notices had been received in respect of the "Hsiao sales" in respect of three units and that there were nineteen residual contracts. He advised that deposits in respect of those matters were lodged either with the St George Bank or were held in his firm's trust accounts. BAC agreed to allow a drawing of $500,000 made up as follows: $11,000 Purchase price of laneways $1,100 Architect fees $140,000 Surrender of lease $35,000 Demolition contract $40,000 Class B hoarding and road closure permit $10,000 Engineering fee $160,000 Loan establishment and formation fee $3,900 Sundries Total $500,000 (TB 14/1616.2) 358 This was described as moneys permitted to be drawn to meet reimbursement of expenditure. 359 By his letter of 9 April 1991, Mr Crawley had sought an amount of $202,000 for loan establishment and procuration fees, together with legal costs, stamp duty and authorised disbursements. As noted in above, in cross-examination, he accepted that at this time neither he nor Vensel had negotiated or was entitled to charge a 1% fee for arranging the BAC finance. Nor did he propose to reimburse Mr Londy for the $81,470 paid to BAC on 30 July 1990 as BAC's establishment fee. The demand for $202,000 for loan establishment and procuration fees, and legal fees and disbursements, is further evidence that Mr Crawley at this time intended to charge fees in the order of $200,000 on the transaction. 360 BAC advanced $500,000 to Trudale on 17 April 1991. The moneys were paid to Trudale's St George account. Various payments were made by Trudale in the months following 17 April 1991, including the $140,000 paid to obtain a surrender of lease. 361 Trudale's cashbook records that on 19 June 1991, $200,000 was paid as follows: "AFC – Legal fees" The payment was recorded in the cashbook under the heading "Professional Fees". Such a payment was consistent with the demands that Mr Crawley had made on BAC that it advance $202,000 for loan establishment and procuration fees, and legal fees, stamp duty and disbursements. 362 It was not disputed that such a payment was made by Trudale. The first to sixth defendants submitted that, on the basis of Trudale's audited financial statements for the year ended 30 June 1991, the money was paid and held on deposit with St George. No record was produced of any such deposit with St George. No trust ledger of Aubrey F Crawley & Co was produced showing it holding the sum of $200,000 on trust for Trudale. 363 The identity of the employee who filled in the cashbook recording the payment of $200,000 as being a payment of legal fees to Aubrey F Crawley & Co was not identified. Ms Kuan is a chartered accountant employed by Vensel. She provided bookkeeping and related services for the hotel businesses. She gave the following evidence in relation to the making of entries in the cashbook (at T2020): " His Honour Q: Are you able to say from what information those entries were obtained? A From a St George book, a St George account. Q What was the procedure under which the member of the staff who was compiling that cashbook would know to which category of expense a payment should be allocated? A Whoever who does the withdrawal would indicate in the book as to what the item represents. Q How would that person know what the item represents? A When a withdrawal is done the instruction will come from Mr Crawley to whoever he has addressed to do the withdrawal or the receipt, which quite often could be the secretary, and they would pull up the book, indicate what the item is for, before it goes to the bank. At times also we've got cheque requisition slips and receipts that would indicate which account number it should go to. " 364 I infer that either Mr Crawley gave an instruction to a member of the accounting staff employed by Vensel as to how the $200,000 should be recorded in the cashbook or there was a cheque requisition slip indicating that it was in payment of legal fees. 365 The accounts for the year ended 30 June 1991 were not completed until November 1992. They were completed at about the same time as the 1992 accounts were prepared. Advances to or Payments on Behalf of Trudale 366 On the same day that Aubrey F Crawley & Co received payment of $200,000, it paid $75,000 to Hunt & Hunt in repayment of the deposit repayable to a Mr Hsiao on a contract for the purchase of an apartment off the plan in the Elizabeth Street Centre development, which Mr Hsiao had rescinded. The trust ledger of Aubrey F Crawley & Co records an advance from Aubrey F Crawley to Trudale on 19 June 1991 in an amount of $75,000 and a payment by Trudale of that amount to Hunt & Hunt as "refund of deposit" (exhibit AK). A general ledger of Aubrey F Crawley & Co for the client "C W Crawley" records as an "advance to Trudale" the payment of $75,000 on 19 June 1991. Notwithstanding these contemporaneous records, Mr Crawley denied that he made any advances to Trudale. I do not accept that denial. 367 On 23 July 1991, Trudale paid Hunt & Hunt $69,200 by way of refund of deposits on two remaining units whose contracts Mr Hsiao had rescinded (exhibit C folio 8). On 3 October 1991, Trudale advanced $35,000 (or $34,800) to Mr Londy's company, R B Foster (Cashbook exhibit C folio 9; TB 19/1959). On 3 October 1991, Trudale, Mr Londy, R B Foster International Pty Ltd, Kobar Pty Ltd, Desepu Pty Ltd and Vaniga Pty Ltd entered into a deed of variation of loan and guarantee. The deed recited that R B Foster International Pty Ltd had negotiated sales on behalf of Trudale in respect of units numbered 1, 12 and 39 in the development. Those were the units the subject of the Hsiao sale (TB 10/1187.3-1187.6). The deed of 3 October 1991 recited that: " (b) The commissions (sic) set out hereunder were appropriated in respect of those sales and the sums set out hereunder on the agreement that those moneys would be refundable in the event of rescission of the agreements for sale:- Unit Commission (sic) 1 $65,000 12 $4,200 39 $75,000 Total $144,200 " (TB 19/1959) 368 The amounts described as commission were deposits paid on the contracts. The effect of the deed of variation was that Mr Londy and his associated companies, (who had appropriated the deposits), agreed to repay the deposits which Trudale had refunded. The refund of $75,000 was shown in the contemporaneous records as having been made by A F Crawley & Co which became a creditor of Trudale for that amount. 369 Aubrey F Crawley & Co maintained a ledger called a "general ledger" in which it recorded advances from Mr Crawley to Trudale between 19 June 1991 and 4 March 1992. According to the ledger (exhibit AH), Mr Crawley made the following advances: GENERAL LEDGER Client C W CRAWLEY Other Party ADVANCE TO TRUDALE Date Debit Credit Amount Balance 19.6.91 75,000.00 75,000.00 23.7.91 16,000.00 91,000.00 29.7.91 36,595.00 127,595.00 21.8.91 24,000.00 151,595.00 30.8.91 36,000.00 187,595.00 5.9.91 6,829.24 194,424.24 14.2.92 30,200.00 224,624.24 25.2.92 27,500.00 197,124.24 4.3.92 15,000.00 212,124.24 370 This ledger accords with Trudale's cashbook, save for the first advance of $75,000 (exhibit C folios 8, 9 and 10). The cashbook also records an advance to Mr Crawley of $70,000 on 8 November 1991 (folios 8 and 13). 371 Mr Crawley adamantly denied making any advances to Trudale. 372 On 6 March 1992, Glen Neilsen & Co faxed to BAC a draft balance sheet and profit and loss account for Trudale as at 30 June 1991. The draft profit and loss account included as an expense professional fees of $514,652. That was the sum of the amount of professional fees recorded in the cashbook for the year ended 30 June 1991 ($452,363.28) and the conveyancing costs of $62,289 which were later capitalised into the cost of land. Thus, the amount of professional fees shown in the draft profit and loss account as at 6 March 1992 included the sum of $200,000 paid to Aubrey F Crawley & Co on 19 June 1991 and recorded as a payment for legal fees. 373 The draft balance sheet as at 6 March 1992 recorded that the company's current assets as at 30 June 1991 consisted of unsecured loans of $195,525 and deposits or bonds of $62,096, a total of $257,621. In other words, the amount of $200,000 was not shown as having been held on deposit at 30 June 1991. The draft balance sheet also recorded a long-term liability to "shareholder" of $112,812. There was no asset for secured loans. 374 In the audited financial statements for Trudale and the Elizabeth Street Centre Joint Venture as at 30 June 1991, the Joint Venture is described as having had cash on deposit as at 30 June 1991 totalling $258,585. Professional fees were $252,363 (i.e. $262,289 less than in the draft financial statements). The only liabilities of the Joint Venture were the liability to BAC of $5,135,107 and a liability to purchasers whose deposits had been released to the Joint Venture totalling $307,200. The only liabilities recognised in Trudale's balance sheet were its share of the Joint Venture's liabilities and a liability recognised to a lender who had advanced $650,000 in return for a profit share. That liability is not relevant. In other words, neither financial statement recognised any liability of Trudale to Mr Crawley or Aubrey F Crawley & Co as at 30 June 1991. 375 The Joint Venture accounts as at 30 June 1992 record Trudale as a creditor of the Joint Venture in a sum of $701,699 (Elizabeth Street Joint Venture CTB page 41; Trudale CTB page 80). The only other liabilities of the Joint Venture were a liability to purchasers whose deposits had been released to the Joint Venture of $307,200, a liability to BAC in the sum of $7,404,640 and a current liability to "other" of $60,000. 376 The amount of cash recorded as having been on deposit as at 30 June 1991 of $258,585 is explained by entries in the general ledger for Trudale and for the Elizabeth Street Centre Joint Venture. Trudale's general ledger records the company as having an asset of $58,585 as moneys held on deposit with the St George Building Society. That asset was transferred to the Elizabeth Street Centre Joint Venture. Trudale's general ledger also records that the sum of $200,000 was "payment to AFC not prof fees but ATF for St G debt". The asset of $200,000 representing moneys held with St George as trustee for Trudale was transferred to the Elizabeth Street Joint Venture (exhibits AB and AC). 377 The difficulties with accepting the accuracy of these entries are that: (a) the auditor who could have explained them was not called; (b) there is no trust ledger or other record of Aubrey F Crawley & Co holding $200,000 as trustee for Trudale; (c) there is no record of such moneys being held with St George; (d) there is no explanation as to why the payment was initially treated as a payment of legal professional fees, although that would be consistent with the correspondence written by Mr Crawley to BAC requesting the payment; and (e) there is no explanation as to how the moneys on deposit were disbursed in the following year. 378 The bank reconciliation in the cashbook as at 30 June 1992 balances with the financial statements as at 30 June 1992. Accordingly, if the payment of $200,000 was not an expense paid to Aubrey F Crawley & Co on 19 June 1991, but was moneys held by Aubrey F Crawley & Co as trustee for Trudale as at 30 June 1991, the question is, how were the moneys subsequently disbursed? The first to sixth defendants called evidence from Mr Paul Carter of PricewaterhouseCoopers. His evidence, and the evidence of Mr Anthony Bell, called by the plaintiffs, was of assistance. However, neither witness' evidence can resolve the issue. They were both limited in the materials to which they had regard. Generally speaking, they were asked only to look at the accounting records made available to them. These did not include such matters as Mr Crawley's request to BAC for the drawdown of funds which provides context for the payment. Nor did they consider transactions with Mr Londy and his company which are relevant to this issue. 379 Mr Carter warned against placing too much reliance upon the cashbook. He explained that it is commonplace for errors to be made in a cashbook and for such errors to be corrected in the preparation of audited financial statements. Hence, the greater credence should be given to the audited financial statements rather than the cashbook or draft financial statements, such as those forwarded by the auditors to BAC in March 1992. There is considerable common sense in that approach. However, the position with respect to these particular accounts is far more complex because there are a large number of transactions that simply do not appear to have been accounted for in the financial statements. Mr Carter, I think, recognised this. He identified three ways in which the disputed amount of $200,000 might have been dealt with in the year ended 30 June 1992, as it must have been in order for the bank reconciliation figure as at 30 June 1992 to agree as between the cashbook and the financial statements. 380 One possibility is that the money may have been applied as expenditure on professional fees in 1992. The expenditure on professional fees in 1992 as recorded in the cashbook was $107,520, whereas, in the financial statements, it was $285,624. It has not been possible to reconcile these two amounts. However, at least a substantial reason for the difference is that professional fees were paid from drawdowns made from BAC without passing through the cashbook. 381 Another possibility to which Mr Carter adverted, and one advanced in submissions by the first to sixth defendants, was that the moneys may have been spent on repaying purchasers' deposits. This is a possibility. But this illustrates the point that the financial statements do not accurately record Trudale's liabilities. It is clear that $75,000 of the $200,000 paid to Aubrey F Crawley & Co was used to repay the deposit on one of the Hsiao contracts on 19 June 1991. However, that transaction was not recorded in Aubrey F Crawley & Co's ledgers as being a payment made by or on behalf of Trudale. If it was made from the $200,000 paid by Aubrey F Crawley & Co, (as it clearly was), there would not have been $200,000 left on deposit as at 30 June 1991. 382 The audited financial statements for Trudale as at 30 June 1991 record an asset described as "secured loans" of $260,749 (exhibit AE, note 5; Trudale CTB p 43). This asset is not shown in the financial statements for the Elizabeth Street Centre Joint Venture (ECJV CTB pp 30, 32). This asset was a debt owed by Mr Londy or his associated companies. It comprised principal of $244,313 and interest of $16,435.17 (exhibit AB p 1). The principal debt of $244,313 consists of debts acknowledged by deeds dated 14 January 1991 ($169,313) (TB 13/1543), 26 April 1991 ($45,000) (TB 14/1611), and 8 May 1991 ($30,000) (TB 14/1728). As at 30 June 1991, Mr Londy's company, RB Foster International, was also liable to repay the $75,000 deposit which Trudale (through Mr Crawley) had refunded on 19 June 1991. That indebtedness was acknowledged in the deed of 3 October 1991 (TB 19/1959) referred to in para [367] above. Yet it was omitted from the financial statements. 383 Further advances were made by Trudale to Mr Londy and his associated companies. The deed of 3 October 1991 (TB 19/1959) acknowledged receipt of a further advance of $34,800 which appears to have been made from a drawdown of $64,000 from the BAC facility on 3 October 1991 (letter of 2 October 1991 (TB 19/1958/11)) from Mr Crawley to BAC requiring "reimbursement" of $63,679.51 and enclosing details of bank drafts and airfares totalling $28,779.51). A deed of 6 December 1991 acknowledged receipt of a further advance of $58,018, (TB 20/2056) and acknowledged an indebtedness of $406,331. The deeds of 14 January 1991, 26 April 1991, 8 May 1991, 3 October 1991 and 6 December 1991 together acknowledge indebtedness of $481,331, that is, exactly $75,000 less than the indebtedness acknowledged in the deed of 6 December 1991. There is no evidence of any repayment to Trudale by Mr Londy or his associated companies. The debt simply disappears. 384 Mr Londy was made bankrupt on 2 July 2002. Trudale was not recorded in his statement of affairs as a creditor (TB 25/2462.10-2462.16). There is no evidence of any attempt of having been made to collect the acknowledged debts from his companies which entered into the deeds and gave security over their land. On the other hand, there was no evidence, and it was not suggested of Mr Crawley, that he was paid directly by Mr Londy or his companies. 385 In Trudale's financial statements for 30 June 1992, the loan to Mr Londy (then recorded as $398,549) was written off (Trudale CTB p 79). The evidence did not show how the debt of $398,549 was calculated. If it was calculated consistently with the 1991 financial statements it would have included interest (which was payable at 18% per annum under the deeds). Whether or not it included interest, it could not have reflected all of Mr Londy's and his companies' liability to Trudale. The figure probably consists of the advance of $244,313 as at 30 June 1991, accumulated interest on that sum to 30 June 1992, the advances of $34,800 and $58,018, and interest on those sums. 386 In other words, it is likely that just as the financial statements do not reflect changes in the deposits held between 30 June 1991 and 30 June 1992, nor do they reflect the liability of Mr Londy and his companies to repay the deposits. All liabilities of Mr Londy and his companies were written off at 30 June 1992. 387 According to Trudale's 1991 financial statements (exhibit AE) the amount of deposits received and released to the company was $233,200 as at 30 June 1990 and $307,200 as at 30 June 1991. The contracts making up these liabilities can be deduced from a schedule entitled "Contracts Exchanged As at 28 June 1991" (TB 15/1755.12). The schedule stated how the deposits had been dealt with. A number were described as "Released to vendor and paid as comm. to RB Foster". It is these deposits which are reflected as liabilities in the balance sheets. The contracts exchanged before 30 June 1991 whose deposits were dealt with in this way were: Hung $74,000 Pin $46,000 Mow $60,000 Chang $37,500 Ai-Yu $28,000 Chin-I $35,500 Chung $30,200 $307,200 388 Notwithstanding that the deposits totalling $144,200 on the Hsiao contracts had been released to RB Foster, the liability in respect of those deposits was not reflected in the financial statements. The stated liability to purchasers for deposits released to the vendor remained unchanged between 30 June 1991 and 30 June 1992 (ESJV CTB p 41). Evidently there were some transactions, e.g. the Hsiao contracts, that were never reflected in the accounts. 389 There are other reflections of this. Some of the deposits were paid into Trudale's account with the St George Bank. This was not a trust account. A page from Trudale's passbook with St George records a deposit of $92,750 into its St George account. This represented deposits on Lots 27, 28 and 38. Although the moneys were not held in a trust account, the cashbook does not record the receipt. The financial statements as at 30 June 1991 neither acknowledge a liability in respect of those deposits, nor record the moneys as cash held. 390 A third possibility to which Mr Carter referred was that, whilst the money may have been on deposit at St George under the name of Aubrey F Crawley as trustee for Trudale, it was paid back to Trudale in amounts which were initially described as loans so that the amount was, in effect, repaid. Mr Carter explained this matter as follows (exhibit 10, para 35(c)): " Within the cashbook, $164,624.24 was shown as being lent to the ESJV by Mr CW Crawley, of which $27,500 appears to have been repaid during the year, giving a net advance by Mr Crawley of $137,124.24. Examination of attached documents 38 and 39 [the AF Crawley & Co general ledger and trust ledger referred to in para [366] above] suggests that a net $75,000 was advanced by Mr Crawley in the 1991 year, the total net advances of $212,124.24 by 30 June 1992. However, examination of the financial statements for both 1991 and 1992 show no loans at all being recorded as payable to Mr Crawley. Again, this amount is of an order of magnitude that raises the possibility that the advances by Mr Crawley might have been offset against the disputed amount, so that they, in effect, became 'repayments'. Again, beyond the rough similarity of amounts, and the absence of an explanation as to why Mr Crawley's loans cannot be identified in the financial statements, I have no basis for suggesting that the disputed amounts and the advances are related. " 391 In my view, the fact that moneys were paid by Mr Crawley to or on behalf of Trudale between 19 June 1991 and 4 March 1992 is significant. I infer that the contemporaneous documents accurately recorded Mr Crawley's intentions at that time. That is to say, he received the payment of $200,000 in his own right and paid moneys on behalf of or lent moneys back to the company. When the financial statements for the 1991 and 1992 financial years were prepared in late 1992, I infer that instructions were given to the auditor to change what had, until at least 6 March 1992, been the accepted position. 392 It was submitted for the first to sixth defendants that there was no record of Mr Crawley or Aubrey F Crawley & Co receiving payment of the $200,000. That is not correct. There is the cashbook record and even the entries in the ledger kept by the auditor show that Aubrey F Crawley & Co received the sum of $200,000, although allegedly on behalf of Trudale. It is more significant that the first to sixth defendants produced no trust record. I would have expected Mr Crawley to prove from his records how the receipt of $200,000 was dealt with. It was submitted for him that Mr Bell's approach was to look at the receipts and the accounting records of Aubrey F Crawley & Co. Counsel submitted that Mr Bell did not find any receipt of the $200,000 by Mr Crawley or Aubrey F Crawley. It does not appear from Mr Bell's report (AFB3 section 2.1, AFB 13, AFB 16 section 2), or his list of reference materials (Affidavit 31 March 2004 annexure B)) that Mr Bell had access to all of the accounting records of Aubrey F Crawley & Co, as distinct from their internal ledger cards recording disbursements and expenses incurred by Aubrey F Crawley & Co on behalf of a client, their trust account ledgers and invoices. In any event, the first to sixth defendants should have led such evidence, if it were available. 393 It is not possible to say from the accounting records produced, and in the absence of evidence from the auditor, how the $200,000 payment was reflected in the accounts. It is possible that the payment, or the difference between the payment received and moneys paid on behalf of Trudale, or repaid to it, were accounted for by being capitalised to the cost of land. No ledger or working paper was produced to show how the sum of $3,785,312 as the cost of land at 30 June 1991 was made up, save that it included the two amounts of $140,000 for surrender of lease referred to in paras [356] and [357], and $62,289 referred to in para [353] above. Nor was there a breakdown of the development costs of $1,339,952 included in Inventories as at 30 June 1992 (ECJV CTB p 51). As I have said, no reconciliation was attempted of the amount of professional fees as at 30 June 1992 with the fees shown in the cashbook and the amounts paid directly from BAC. The evidentiary onus lay on the first to sixth defendants to show how the $200,000 was expended in the year ended 30 June 1992 if it were held on deposit as at 30 June 1991. They did not attempt that task. 394 The question then is, how should the payments made by Mr Crawley to Trudale by way of loan be treated for present purposes when it does not appear that the loans were repaid, but he is not shown as a creditor. 395 As noted in para [370] above, there was a payment of $70,000 to Mr Crawley on 8 November 1991 described in Trudale's cashbook as an advance (exhibit C folios 8 and 13). There is no evidence of repayment of the advance, yet it is not recorded as an asset of Trudale or the Joint Venture as at 30 June 1992. (Trudale's financial statements for the year ended 30 June 1992 included as an asset a current receivable of $50,000. This was a loan to Sinodun Pty Ltd: Elizabeth Street Joint Venture annual trial balance page 8 of exhibit 13. There is no recorded asset representing a $70,000 advance to Mr Crawley.) 396 The first to sixth defendants submitted that the scenario that fitted the financial records in evidence was that: " The amount (viz. $200,000 paid on 19 June 1991) was on deposit at St George under the name of AFC as trustee for Trudale, and that similarly there were loan amounts, such as Mr Carter's identified $212,000, that do not appear anywhere. The possibility might exist of the two being effectively offset in the books of AFC, so that within the trust account the amount owing by and the amount owing to would be offset. " 397 If that were so, I would expect evidence to have been led that that is what happened. The first to sixth defendants could be expected to have led evidence that that happened, and to have explained why records were not available (if they are not available) to show that that was the position. 398 I am not satisfied as to the accuracy of the financial statements or the entries posted by the auditor to the general ledgers and the adjustments made to the trial balances supplied by the client. Mr Leddin was not called to explain those matters. I infer that no evidence he could have provided on the subject would have been of assistance to Mr Crawley. 399 However, the choice is not the simple one propounded by counsel for the plaintiff. They submitted that the issue was simply a factual question as to whether the contemporaneous documents were accepted, or whether documents prepared more than a year later by an auditor on Mr Crawley's instructions should be regarded as showing the contemporaneous documents to be wrong. To an extent, I accept that submission. I prefer the contemporaneous documents to the documents prepared in late 1992 by Mr Leddin on Mr Crawley's instructions. But the contemporaneous documents cannot be accepted only in part. One cannot ignore the entries showing advances (which Mr Crawley accepted meant loans (T1134)) made by Mr Crawley to Trudale, particularly when those very documents are material to the conclusion that the $200,000 was paid to Mr Crawley as professional fees and then a substantial amount was lent by him to Trudale, or paid by him on Trudale's behalf, in repayment of Mr Hsiao's deposit. I cannot say how the receipt of fees and the loans were fully reversed in the financial statements. I cannot say how the advance of $70,000 to Mr Crawley was accounted for. On the available materials, I conclude that $200,000 was paid to Mr Crawley as professional fees on 19 June 1991, $75,000 was paid by him on behalf of Trudale to Mr Hsiao on 19 June 1991, further advances totalling $164,624.24 were paid by him to Trudale between 23 July 1991 and 4 March 1992, and advances of $70,000 and $27,500 were paid by Trudale to him on 8 November 1991 and 25 February 1992. In some way, which is unexplained, none of these transactions is reflected in Trudale's or the Elizabeth Street Joint Venture's financial statements as a separately identifiable expense, asset or liability. This does not mean that money did not change hands. It only means that how the matters were accounted for remains unexplained. 400 On the basis of the contemporaneous documents, I conclude that Mr Crawley was initially paid $200,000 as professional fees, (in addition to the $35,000 referred to in paras [352]-[355]). He made payments to or on behalf of Trudale totalling $239,624.24 (as shown in exhibit AH), and received further payments from Trudale of $70,000 on 8 November 1991 and $27,500 on 25 February 1992. In net terms, he repaid $142,124.24. I infer that he kept the difference of $57,875.76 in addition to the $35,000 referred to in paras [352]-[355]. Thus in net terms, he received fees of $92,876. 401 The receipt of these fees, for which no account was rendered, corroborates the inference I would draw from the document referred to in para [344] and the letter of 9 April 1991 to BAC seeking $160,000 to cover so-called loan establishment and procuration fees, which were not due, that Mr Crawley intended to charge excessive fees on the transaction. Causation of Loss 402 My conclusion that, as at September 1990, Mr Crawley intended to take excessive professional fees does not necessarily lead to the conclusion that the losses suffered by Trudale, J & J O'Brien and Marsico from the Elizabeth Street Centre development should be recouped from Mr Crawley. As a matter of common sense, those losses were not caused by Mr Crawley's intention to take excessive fees, or by his taking such fees as he did. The losses were caused by the downturn in the property market. However, that is not the test. 403 In O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262, Spigelman CJ, with whom Priestley and Meagher JJA agreed, said (at 276-277): " In the case of a trustee dealing with trust property, the law has proceeded beyond the invocation of the formulaic 'common sense' approach to causation, by adopting a stringent test to the selection of those events preceding loss which are to be taken as causing the loss. There is a sufficient connection, irrespective of the identification of a separate and concurrent cause, when the loss would not have occurred if there had been no breach of duty. " 404 The Court of Appeal held that the same stringent approach applied in determining whether the loss for which equitable compensation was sought was caused by a director's breach of his fiduciary duty to the company by dealing with its assets for an improper purpose (at 278). 405 Fiduciary powers and duties may be exercised only for the purposes for which they are conferred and not for any collateral or improper purpose (Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 218). The breach of fiduciary duty was procuring the companies to enter into the September 1990 transactions with the improper and undisclosed purpose of obtaining excessive legal fees. I have found that Mr Crawley had such a purpose which was not disclosed at the time. He intended to take such fees when the financial position of the venture allowed it. However, the transactions would have proceeded even if Mr Crawley had not had that purpose. His primary motivation was to obtain the expected profits from the sale of apartments to be constructed on the site. If he had not had the improper purpose, the loss would still have occurred. In that sense, the "but for" test of causation between the alleged breach and the loss is not established. 406 If the breach were characterised as the failure to disclose his purpose, then the question of causation would be more speculative. I do not know how Mr Short and Mr Davis would have responded had Mr Crawley advised them that he intended to take excessive legal fees up to $200,000, or perhaps more. I infer that they would have objected. I do not know how they would have responded had Mr Crawley insisted on taking such fees. 407 Can Mr Crawley be heard to say that the transaction would have proceeded even if he had not held the improper purpose or had that purpose been disclosed? The plaintiffs relied on the often-cited statement of Lord Thankerton in London Loan and Savings Co of Canada v Brickenden [1934] 3 DLR 465 at 469 that: " When a party holding a fiduciary relationship, commits a breach of his duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered his decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor, such as the valuation by another party of the property proposed to be mortgaged. Once the Court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant. " 408 In that case, the solicitor acted for both the lender and the borrowers. The borrowers had already given their solicitors three mortgages, one of which had been disclosed to the lender and two of which had not. The lender advanced $13,500 "to be applied to pay the arrears of interest on [the lender's] present mortgages of $18,000 and $12,000 respectively and sundry accounts amounting to $7,500, and a second mortgage of $5,000 held by [the solicitor] ... and as security company will receive a new mortgage for $13,500 on the property already mortgaged to Company." (at 467). 409 The security taken by the lender was worthless by reason of prior mortgages, not including the solicitor's $5,000 mortgage, and therefore irrespective of the later mortgages to the solicitor of $2,000 and $1,200 respectively (at 470). The moneys advanced were disbursed in various ways including by repaying $1,400 being the outstanding balances on the two undisclosed mortgages of the solicitor. The Privy Council stated (at 468) that "... the appellant's non-disclosure of these two mortgages was a breach of his duty as solicitor to the Loan Company, particularly in view of his personal interest in them ...". The solicitor was held liable for the loss of the moneys advanced (less anything received from the mortgagor or on realisation of the security) (at 469). 410 In Brickenden, the relevant breach ought to have been categorised as the solicitor acting on the transaction where there was a conflict, or possible conflict, between his duty to the lender and his personal interest in being paid out of the proceeds of the loan. The materiality of the disclosure of those facts was that had the lender known of them, then it may have given its informed consent to the solicitor so acting so as to negate what was otherwise a breach of fiduciary duty (Maguire v Makaronis at 466-467). The effect of the decision was to preclude the solicitor from contending and endeavouring to prove that there was no causal relationship between the breach of fiduciary duty and the making of the loan. 411 In Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 at 14-15, the Privy Council held that a director in a position of conflict between interest and duty who failed to make full disclosure of his interest, and who was liable to account for profits derived from an agreement with his company which released him from liabilities to it, could not be heard to say that he would have derived the same benefit had he discharged his duty by making full disclosure. That was irrelevant speculation. 412 In Maguire v Makaronis, the High Court observed (at 471) that "the reasoning in Brickenden has been applied by intermediate courts of appeal in Australia and by the New Zealand Court of Appeal in cases where the plaintiff has sought to recover loss caused (in most of the cases) by the plaintiff's solicitor having acted in breach of fiduciary duty." In Maguire v Makaronis, the High Court did not have to determine whether the reasoning in Brickenden should be followed in a claim for equitable compensation for breach of fiduciary duty. 413 It is one thing to say, on a claim against a fiduciary to account for profits derived on a transaction entered into in breach of fiduciary duty or to rescind such a transaction, the fiduciary cannot be heard to maintain that the transaction would have proceeded even if the facts giving rise to the breach had been disclosed. It is quite another to say that the fiduciary is liable to compensate the principal for the loss suffered from the transaction even if the loss would have been suffered had no breach of duty occurred. 414 In Commonwealth Bank v Smith (1993) 42 FCR 390, the bank assumed the role of investment advisor and was in a fiduciary relationship with its customer who purchased property from another of the bank's customers. It had conflicting duties. By entering into conflicting engagements without the informed consent of the plaintiff (the plaintiff having been discouraged from seeking independent advice), it was in breach of its fiduciary duty. The Full Court of the Federal Court (Davies, Shepherd and Gummow JJ) applied the passage in Brickenden quoted above in holding that the bank was liable to pay equitable compensation. 415 In Farrington v Rowe McBride & Partners [1985] 1 NZLR 83, a firm of solicitors acting for both parties to a mortgage transaction was held to have breached its fiduciary duties to the investor by failing to disclose that the member of the firm who had proffered advice about the project was acting at the time as solicitor for the other party. The New Zealand Court of Appeal applied Brickenden holding that "once the Court has determined that the non-disclosed facts were material, speculation as to what course the aggrieved party, on disclosure, would have taken is not relevant" (at 99 and to the same effect at 93). 416 The same approach was taken by Foster J in Stewart v Layton (1992) 111 ALR 687 at 713 where his Honour said that: " Once it is held that the principle is applicable to the facts of a case, a Court administering the principles of equity is relieved of the task of unravelling and exposing the strands of causation connecting breach with damage, a tedious and painstaking task which, even if it may be described as 'speculative', is daily undertaken in courts administering the common law. ... The application of the principle prevents the court ... from entering upon inquiry as to whether the applicant, having had the benefit of the full disclosure to which he was entitled, would, nevertheless, have opted to enter into the second mortgage arrangement .... " 417 In Gemstone Corporation of Australia Ltd v Grasso (1994) 62 SASR 239, directors of a company resolved to issue partly paid shares to its directors. One director, Mr Grasso, caused a company to be incorporated for the purposes of taking up the shares, which had no assets available to meet a call. In causing that company to take up the partly paid shares, he put himself in the position where his personal interests and his duty as a director to the company were in conflict. The trial judge held that the breach of fiduciary duty had not caused the company loss. In the Full Court, Matheson and Olsson JJ applied Brickenden in holding that the company was entitled to equitable compensation for loss suffered when the calls on the shares were not met (at 243, 252-253). It is clear that Olsson J was also of the view that the trial judge's finding of fact was in error (at 248-249). Prior J held in effect that the director's duty was to take up the shares personally and accordingly he was liable to pay the amount of the call (at 246). 418 Brickenden has also been applied to claims for equitable compensation for breach of fiduciary duty in other first instance decisions in Australia (Wan v McDonald (1992) 33 FCR 491 at 510, 520-521). 419 However, it would be both surprising and contrary to authorities by which I am bound, to hold that Mr Crawley is liable to pay equitable compensation because he breached his fiduciary duty by procuring the companies to enter into the transactions of September 1990 for an improper purpose if there were no causal relationship between that improper purpose and the losses suffered. As the High Court noted in Maguire v Makaronis (at 472), in Nocton v Lord Ashburton [1914] AC 932, Lord Haldane spoke (at 956-957) of equity's jurisdiction to: " ... order the solicitor to replace property in property acquired from the client, or to make compensation if he had lost it by acting in breach of a duty which arose out of his confidential relationship to the man who had trusted him. " (emphasis added) 420 As previously noted, in O'Halloran v R T Thomas & Family Pty Ltd, the Court of Appeal held that the "but for" test of causation applies to determining a fiduciary's liability to pay equitable compensation for breach of fiduciary duty. 421 In Beach Petroleum NL v Kennedy & Ors (1999) 48 NSWLR 1, the Court of Appeal said (at 90): " [432] The authorities on this matter have recently been reviewed in O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 272-273. The law in Australia was there held to be as stated by Lord Browne-Wilkinson in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 439: '... Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests: to make good a loss in fact suffered by the beneficiaries and which, using hindsight and common­sense, can be seen to have been caused by the breach'; and by McLachlin J in Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163: '… it is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach.'" 422 In Beach Petroleum NL v Kennedy & Ors, the Court of Appeal considered Brickenden and observed (at 92 [440]) that: " [440] It is important to emphasise that the proposition on which reliance is placed refers only to an act of non-disclosure by a fiduciary of 'material facts which his constituent is entitled to know in connection with the transaction'. The central word in the formulation in Brickenden is the word "material". Before applying the principle, it is necessary to identify a fact which is 'material' in the requisite sense. Once a fact is so identified, the principle establishes that the defaulting fiduciary will not succeed in an argument that, even with disclosure of this material fact, the transaction would still have gone ahead. " 423 However, the Court of Appeal also said (at 93 [444]): " [444] Brickenden is not, in our opinion, authority for the general proposition that, in no case involving breach of fiduciary duty, may the Court consider what would have happened if the duty had been performed. The reasoning in Brickenden must now be understood in the light of the House of Lords decision in Target Holdings and the cases which have applied it. " 424 Attempts have been made to avoid or limit the application of Brickenden by defining what are material facts according to whether they are causative of the loss suffered. In Maguire v Makaronis (at 492-493) Kirby J said that: " The rule in Brickenden has survived a long time. It has been frequently applied, especially in recent years. It contains within its formulation words which adequately meet the need for there to be some connection to the breach so as to exclude events which are too remote. Thus it must be shown that any facts not disclosed by the fiduciary were 'material'. What is forbidden is 'speculation'. In my view, the rule in Brickenden can quite comfortably co-exist with the exposition of principle by Street J in Dawson . Facts will not be 'material' if the relevant loss would have happened if there had been no breach. " 425 This passage was applied in State Bank of New South Wales v Chia (2000) 50 NSWLR 587 at 604 and in Janesland Holdings Pty Ltd v Simon & Monti [2000] ANZ ConvR 112; [1999] ACTSC 35 at [118]. 426 I doubt, with respect, that Brickenden can be so easily distinguished. In Brickenden, the solicitor wanted to prove that it would have made no difference to the lender's decision to make the advance had it known that part of the advance would be applied in discharge of his mortgages. In other words, he wished to say that the facts not disclosed were not material because the loss would have happened even if there had been no breach. Although the argument is not set out in the report, it presumably was the solicitor's case that even if the breach were characterised (as it should have been) that he acted where there was a conflict, or a possible conflict between his duty and interest, nonetheless, the transaction would still have proceeded had another solicitor acted for the lender, or had he disclosed his conflict, because, whether his position and the intended disbursement of the proceeds of the loan was disclosed by another solicitor or by himself, the transaction would still have proceeded. 427 In my view, there is a conflict between the reasoning in Brickenden and the requirement that there be a causal relationship in a claim for equitable compensation between the breach of fiduciary duty and the loss for which compensation is sought. Mr J D Heydon QC (as his Honour then was) pointed out that if the principle exists as it is expressed in Brickenden, " its operation without reference to issues of causation supports by analogy the recoverability of damages against trustees independently of a causal link between breach and loss. " (Causal Relationships Between a Fiduciary's Fault and the Principal's Loss (1994) 110 Law Quarterly Review 328 at 331) 428 Authority which binds me establishes that the plaintiffs must establish that, but for the breach of fiduciary duty, the losses would not have been incurred. 429 Where directors exercise fiduciary powers for a collateral improper purpose, whether the transaction is liable to be set aside will depend upon whether, but for that purpose, the directors would have performed the act impugned (Mills v Mills (1938) 60 CLR 150 at 186; Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285 at 292; Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 at 218). A "but for" test of causation between breach of fiduciary duty and loss for which equitable compensation is sought is consistent with the principles upon which a transaction effected by a company by reason of the director's breach of fiduciary duty is liable to be set aside. 430 The plaintiffs relied upon the summation of Santow J (as his Honour then was) of the relevant principles in Re HIH Insurance Ltd (in prov liq) and HIH Casualty and General Insurance Ltd (in prov liq); Australian Securities and Investments Commission v Adler (2002) 41 ACSR 72 at 235-236. His Honour summarised the principles as follows: " (1) in equity, as in common law, liability is fault-based: the defendant is only liable for the consequences of the legal wrong he has done to the plaintiff and to make good the damage caused by such wrong. He is not responsible for damage not caused by his wrong or to pay by way of compensation more than the loss suffered from such wrong: Target Holdings Ltd v Redferns , above per Lord Browne-Wilkinson at 432. Nonetheless, the detailed rules of equity as to causation differ, at least ostensibly, from those applicable at common law; (2) when a fiduciary fails to disclose material facts, speculation as to what course the constituent, on disclosure, would have taken is not relevant: Brickenden v London Loan & Savings , above at 469. That case was concerned with a solicitor acting for both the mortgagor and mortgagee in a land transaction in circumstances in which he had a personal interest in the discharge of existing mortgages, under which the borrower owed him moneys. The existence of these mortgages was not disclosed to the new lender and the trial judge found that the other mortgages in favour of the solicitor, which were not disclosed and which were paid out from the new loans, would not otherwise have been met from the sale of the properties; (3) before applying the Brickenden principle, it is necessary to identify the fact which is 'material' in the requisite sense. For once it is so identified, the defaulting fiduciary will not succeed in an argument that, even with disclosure of this material fact, the transaction would still have gone ahead: Beach Petroleum NL v Kennedy , above, at 89, [423]–[494]; (4) however, the Brickenden principle is not authority for the general proposition that, in no case involving breach of fiduciary duty, may the court consider what would have happened if the duty had been performed: Beach Petroleum NL v Kennedy at 89, [444]; (5) nonetheless, Brickenden's disclosure principle may also apply to delinquent non-trustee fiduciaries: Maguire v Makaronis (1997) 188 CLR 449 at 467–74 ; 144 ALR 729, including directors; (6) even if the immediate cause of loss to the trust estate is the result of the dishonesty or failure of a third party, if specific restitution of the trust property is impossible, then the trustee is liable to make good that loss to the trust estate if, but for the breach, such loss would not have occurred: Target Holdings Ltd v Redferns per Lord Browne-Wilkinson (at 434); (7) just like the trustee of a traditional trust, the director of a company who has the power to dispose of company property and does so for an improper purpose is liable to make 'restitution' to the company: O'Halloran v R T Thomas & Family Pty Ltd , above, at 272–9. That principle is reflected in the statutory civil compensation provisions of s 1317H; ..." 431 In my respectful opinion, when applied to a claim for recovery of equitable compensation for loss suffered, (as distinct from claims for an account of profits or rescission), the principles extracted at paras (1) and (4) are not reconcilable with the principles extracted at paras (2) and (3). In relation to loss flowing from entering into the September 1990 transactions, the relevant principle is that in para (1). Mr Crawley is not responsible for loss not caused by his breach of duty. 432 The plaintiffs submitted that a causal relationship between a breach of duty and loss suffered, whether expressed using the preposition "by" or a phrase "resulting from" or "as a result of", was satisfied by an act which materially contributed to the loss, even if it did not satisfy a "but for" test. In support of this proposition counsel cited Henville v Walker (2001) 206 CLR 459 at 480 [60], 482-483 [69]-[70], 493 [106], 507 [153], and I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 130 [62]. 433 I do not consider that those authorities support the submission. In Henville v Walker, the loss arose from two causes: the combination of both was necessary for the loss to occur. McHugh J stated (at 493 [106]), that: " As long as the breach materially contributed to the damage, a causal connection would ordinarily exist even though the breach without more would not have brought about the damage. " 434 To say that a breach, without more, would not have brought about the damage, is quite different from saying that but for the breach, damage would not have occurred. The former recognises that there may be other materially contributing factors without which the loss would not have occurred. If that is so, then each of those materially contributing factors would satisfy a "but for" test of causation. 435 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd does not support the submission that a breach may materially contribute to the loss even if it does not satisfy a "but for" test. 436 For these reasons, I consider that to make good their claim that Mr Crawley is liable to compensate Trudale, J & J O'Brien and Marsico for losses suffered in relation to the Elizabeth Street Centre development, the plaintiffs must show that, but for his breach of duty, those losses would not have been incurred. The relevant breach of duty in September 1990 was acting as solicitor in the transaction, and procuring the companies to enter into the transactions for an improper and collateral purpose of obtaining excessive fees. However, the transactions would have proceeded even if Mr Crawley had not had that purpose. Neither as a matter of common sense, nor on the "but for" test of causation, was Mr Crawley's improper purpose causative of the losses suffered as a result of entering into the transactions of September 1990. 437 Different considerations may apply to the breach of fiduciary duty in connection with the entering into the deed of loan and guarantee of 27 March 1992. As pleaded by the plaintiffs, the relevant breach then consisted of non-disclosure of the fact that excessive fees had been taken. No submissions were directed to the materiality of such a disclosure prior to the giving of the guarantees of 27 March 1992. The position of Trudale, Marsico and J & J O'Brien was that, by that date, about $6,760,000 was owed to BAC under the loan facility made available in September 1990 (TB 22/2336.34). Trudale had entered into a number of contracts for the sale of units off the plan, but its liabilities under those contracts had not been guaranteed by J & J O'Brien and Marsico. 438 Had the additional facility of March 1992 not been drawn down to permit the building works to occur, the guarantors of Trudale's facility with BAC would undoubtedly have been called on to meet the debt. There is no evidence as to the value of the land in the condition in which it then was in March 1992, but given the downturn in the market, it is highly likely that there would have been a substantial shortfall to be made up by the guarantors. In the meantime, interest would have continued to run. The plaintiffs did not establish whether J & J O'Brien and Marsico would have been better off had the guarantee of 27 March 1992 not been entered into. The financial statements for the Elizabeth Street Joint Venture as at 30 June 1992 recognise a deficiency in the joint venture partners' equity as at that date of $3,257,297. However, had the project come to a halt at that time, the deficiency would have been much greater. That is because the deficiency was arrived at after bringing to account as an asset the cost of the land and the development costs to that date. It is likely that they would have had to have been substantially written off. Interest would have continued to accrue. 439 In the conditions obtaining in March 1992, the question for the directors of Trudale, J & J O'Brien and Marsico was whether to proceed with the venture or try to cut their losses with the inevitable calling up of guarantees provided by Mr Crawley, Nabatu, J & J O'Brien and Marsico. Given the exposure of J & J O'Brien and Marsico to Westpac for the debt from the purchase of the freehold of Jackson's on George, it is likely that a receiver would have been appointed to the hotel assets if the BAC loan had gone into default. These were the principal considerations for deciding whether to enter into the additional loan and the guarantees of 27 March 1992. Disclosure of the facts that Mr Crawley had paid himself $35,000 as legal fees in connection with the conveyancing on the Trudale purchase of the Elizabeth Street property, together with the fact that he had been paid $200,000 as professional fees, of which $142,124 had been repaid, was not material to the decision whether to enter into the further loan and give the further guarantees required by BAC, or to pull the plug on the venture and suffer the losses, including the probable sale by a receiver of the hotel assets. 440 Mr Short did not give evidence as to what he would have done had those matters been disclosed to him. That is not a criticism, because the facts as to the fees taken by Mr Crawley were not discovered, I infer, until after Mr Short's death. 441 Brickenden stands in the way of my finding (or speculating) as to what would have happened had Mr Crawley disclosed the facts he ought to have disclosed in 1992. However, the governing principle in my view is that the plaintiffs must establish that, but for that breach, any additional losses suffered as a result of the giving of the guarantees of 27 March 1992 would not have been incurred. It is possible that, had Mr Crawley disclosed the fees he had received, Mr Short and Mr Davis would have dug in their heels and refused to allow J & J O'Brien and Marsico to give guarantees. But I do not think that would have been likely. It is much more probable that they would have sought to insist on Mr Crawley's repaying the moneys and there would have been a fight about that which, if pressed to a conclusion, would have compelled Mr Crawley to have rendered a bill for legal costs properly due to him which could have been taxed. Later events showed that it was unlikely that matters would have been taken to that point. Be that as it may, I think it unlikely that disclosure of the facts as to the fees which Mr Crawley had taken would have made any difference to the decision to borrow the moneys needed to carry out the development and to give the guarantees necessary for that purpose. 442 For these reasons, I do not consider that the losses suffered by Trudale, Marsico and J & J O'Brien from the Elizabeth Street development were caused by Mr Crawley's breach of duty. 443 Accordingly, I will dismiss the plaintiffs' claim that Mr Crawley pay equitable compensation to Trudale, Marsico and J & J O'Brien in respect of those transactions. SECTION 3 – Legal Fees 444 The plaintiffs made two broad claims in relation to payments made to Mr Crawley for legal fees. The first was that Mr Crawley was not entitled to charge fees which included a profit component. This was said to be so for two reasons. First, because there was no appropriate board resolution, or resolution of partners in the case of the Australian Youth Hotel partnership and the Racecourse Hotel partnership, authorising him to charge fees which included a profit component. The second ground was that there was an agreement between Messrs Crawley, Short and Davis that Mr Crawley could only charge out-of-pocket costs and not the profit element in respect of his own time. 445 Alternatively, the plaintiffs submitted that Mr Crawley was authorised to charge reasonable fees for the legal services provided but he caused himself to be paid more than was reasonable for those services. No attack was made upon the reasonableness of any individual bill. The plaintiffs submitted that the total of the reasonable fees was the amount billed. They contended that Mr Crawley was liable to repay any amounts in excess of what had been billed. 446 Mr Bell produced a schedule based on all of the invoices discovered by Mr Crawley from 1983 in which he compared the amount invoiced and the amounts paid to Aubrey F Crawley & Co for legal fees. The plaintiffs contended that, as at 30 June 1994, Aubrey F Crawley & Co had been paid $665,598.28, but as at that date invoices totalling only $234,581.58 had been rendered (a difference of $431,016.70). They contended that, as at 1 December 2005, the total moneys paid to Aubrey F Crawley & Co for legal costs was $1,357,338.78, whereas the cumulative amount billed for legal fees as at that date was $997,461.52 (a difference of $359,877.26). They contended that Mr Crawley is required to disgorge this sum. Agreement Not to Charge Profit Component 447 The opportunity to acquire the Australian Youth Hotel in 1982 was identified by Mr Short. He invited Mr Crawley to become a partner in the venture. Mr Short deposed that he said to Mr Crawley words to the effect: " Would you like to come into the business as my partner for the Australian Youth Hotel? I will run the day-to-day management and Ros & I will supervise the refurbishments while you could provide the legal advice, legal work, financial planning and arranging of loans. " 448 According to Mr Short, Mr Crawley responded by saying words to the effect: " Yes and I will do the accounts. We can use my in-house accounting staff for the accounts because they have plenty of spare time on their hands. " (WS1 para 15) 449 Mr Short approached Mr Davis to join the partnership. Mr Short deposed that at a later meeting in 1982 between he, Mr Crawley and Mr Davis, the following conversation occurred: " Crawley: 'I will look after the legal aspects of the hotel (referring to the AYH) and all financing requirements. I will also maintain accounting records for the business. You (referring to me) and Mr Davis will look after management and you (again, referring to me) and Ros will look after the refurbishment. None of us will be paid for our time but will share equally in any profits.' Mr Davis and I said: 'Yes. That is the way it will work'" Mr Short deposed that he may also have said words to the effect that: " Athol and I will look after the day-to-day management and Ros and I will supervise the refurbishments. You (referring to Mr Crawley) will look after the legal, accounting and financial aspects. None of us will be paid and the profits will be shared. " 450 Mr Short deposed that each party said that "none of us will receive wages or fees for work which we perform" and that Mr Crawley said "we should not draw wages because we can use the cashflow for repayment of the loan and costs of the refurbishments." 451 Mr Crawley denied this evidence. He deposed that he offered to have his service company manage the day-to-day accounts and cashflow but he stipulated that there would have to be a charge for the services and Mr Short and Mr Davis agreed to that. 452 The position taken by Mr Short in his affidavits and in cross-examination, was that Mr Crawley was not entitled to charge either for legal services or for accounting and management services, provided through his firm or his service company. During cross-examination, he said that he meant that Mr Crawley could recover out-of-pocket expenses, but could not charge for his time. 453 The plaintiffs' case was that the arrangement made in 1982 when the parties established the Australian Youth Hotel remained in place, notwithstanding the vast expansion of the business following the acquisition of the Marlborough Hotel, the lease of the Port Jackson Tavern, the freehold of Jackson's on George, the Racecourse Hotel, and the Elizabeth Street Centre development. The explanation for this was that the expansion of the business meant an increase in duties of all of the partners, not just those of Mr Crawley. 454 I do not accept Mr Short's evidence that an agreement was made that Mr Crawley would not charge for legal services or accounting and management services, or that he would only charge out-of-pocket expenses. Mr Short signed or wrote various documents which are inconsistent with that position. He signed cheques payable to Aubrey F Crawley & Co in payment of their fees. The earliest such cheque produced to him in cross-examination was signed by him on 19 October 1988 for an amount of $4,520 (exhibit V tab 17). That cheque was supported by two memoranda of costs and disbursements in which Mr Crawley charged $4,500 for professional costs in relation to the proposed purchase of a liquor licence and the proposed purchase of another tavern together with $20 disbursements. I do not accept that Mr Short did not appreciate that the cheque was in payment of legal fees which included a profit component. 455 In 1991, Mr Short sent a memorandum to Mr Crawley asking numerous questions about the operation of the hotels. One question was: " What are accounting fees per hotel per year? " Another question was: " What, if any, are our legal fees per year? " Another question was: " How much are we paying Judy C and definition of her job? " (Exhibit V tab 8) 456 Mr Crawley responded in writing on 19 November 1991 (TB 20/1990). He did not directly answer the first two of the questions extracted above. In answer to the question "what are accounting fees per hotel per year" he said they were $35 per hour. In answer to the question of what, if any were the legal fees per year, he said "see balance sheets and profit and loss accounts". He gave a longer answer to the question as to how much Mrs Crawley was being paid and what was the definition of her job. 457 Mr Short prepared some further notes (exhibit V, tab 9). In relation to accounting fees of $35 per hour, he wrote "is that for all members of the accounting section?" and "why are we paying $35 per hour when we can get it for $12 per hour". He also asked "how much a year does it cost all up?" 458 It is quite clear from the first question Mr Short asked, namely, "What are accounting fees per hotel per year", that he knew fees were being charged for the accounting services provided. 459 Mr Short was not happy about Mrs Crawley's involvement in the business. He was not happy with the moneys paid to her. Nor was he happy about Mr Crawley's stating that her remuneration should be increased. In his fax of 19 November 1991, Mr Crawley said that he required reimbursement of current rental rates for a car he was providing to Mrs Crawley for her work. Mr Short's note in response to those matters was as follows: " JC does not need a car ... pay of $600 in the hand nett a week was never discussed and would never have been agreed to. Nobody has ever had a managerial payment. How about Ros contributions ... CWC requires reimbursement of current rates on 5/7th? What is my reimbursement for 9 years of managerial and consultancy fees at say $200,000 per year? It has always been a 3 way split with Chris' taking his costs e.g. legal & accounting. " (Exhibit V tab 9) 460 Mr Short gave numerous unresponsive answers before eventually conceding that by writing "it has always been a three-way split" he was intending to convey that it had been a three-way split since the beginning of the Australian Youth Hotel (exhibit 10 page 359-360). Mr Short, unresponsively, asserted that "costs aren't fees" (exhibit 10 page 358.22). He said that the document was supposed to say, and he read the document as saying, that Mr Crawley "had taken the money out before dividends were paid without us knowing" (page 360.14, 361.40). I do not accept that evidence. It was reconstruction in which Mr Short sought to attribute to words he wrote in 1991 the grievance he felt in 2004. I do not accept that in 1991 Mr Short was making a note for himself that Mr Crawley was taking costs without anyone's knowledge. The natural sense of the document is that Mr Short knew that Mr Crawley would be taking his legal and accounting costs. He made no complaint about the fact that Mr Crawley was charging legal and accounting costs, but he wanted to know the amount of the charge and feared that the hotels were being over-charged. 461 Mr Short gave the following evidence (p 370): " Q What you recall is that there would be a three-way split? A With the dividends. Q But that Mr C would be able to take his legal costs and his accounting costs? A Yes. " 462 In the context in which that evidence was given, Mr Short was distinguishing between costs, in the sense of expenses, as distinct from fees. Nonetheless, whilst that was the position he maintained under cross-examination, I do not accept that that was the sense in which he wrote the document. 463 Mr Short was cross-examined on a number of other documents to which it is not necessary to refer in detail. He sought to explain a number of items in which he made allowance for payment of legal costs by saying that they related to out-of-pocket disbursements. That evidence is not plausible. 464 In his third affidavit, Mr Short deposed that he was aware in around late 1991 that Mr Crawley had been charging the group for legal services. He gave quite implausible oral evidence (having accepted the contrary earlier) that he was referring to disbursement costs, not the costs of Mr Crawley's labour. I do not accept that evidence. I infer that Mr Short gave that explanation partly because he responded with belligerence to a hostile cross-examination, and partly because of the absence of complaint before February 1995 that Mr Crawley was charging profit costs. 465 Mr Short was cross-examined on a letter from his solicitors, Kemp Strang, to the solicitors for the first to sixth defendants, Blake Dawson Waldron, providing particulars of certain allegations concerning legal costs in the statement of claim. The statement of claim, as originally filed, did not allege that Mr Crawley would not be entitled to charge fees for the legal work done. Particulars were sought of what the plaintiffs alleged to have been Mr Crawley's retainers. The particulars given included that it was an implied term of the retainer that he was entitled to a reasonable fee for the professional services rendered to his respective clients. 466 I accept that this was not in accordance with the instructions Mr Short provided. The particulars were added during a conference between his solicitor and senior counsel, who apparently forgot instructions from Mr Short. Those instructions were recorded in a letter from the plaintiffs' solicitors of 16 September 1997 which included Mr Short's having instructed his solicitor that Mr Crawley had said that he could offer "free legal advice and free financial planning. I can also assist in negotiating loans." Mr Short's instructions were that Mr Crawley was to look after the maintaining of proper accounting records of the business without remuneration. However, in my view, this was recent invention on Mr Short's part. 467 In the course of detailed instructions given to Gilbert & Tobin (which is undated, but it can be inferred from its contents that it was brought into existence between 2 September and 31 December 1996) (TB 47/4981.13), instructions were given on behalf of Mr Davis and Mr Short in relation to Mr Crawley's claim for legal fees of $1,315,990 said to be owing at 30 June 1995. Amongst the points made were that Mr Crawley had not produced a bill of costs, despite numerous requests to do so; that he would not and perhaps could not produce time sheets to support the claim; that documentation had not been provided to the auditor; that the charges were excessive; and that no costs agreement was reached. The highest the instructions to Gilbert & Tobin went was that: " The basis on which the 'partnership' of WS, AD and CC was established was that WS and his wife Ros provided the hotel acquisition, design, layout, renovation, business building and operating expertise and CC provided the commercial/property/legal input. Apart from various 'drawings' all meticulously recorded by CC's accounting staff, WS and RS have received nothing for their input over 13 years which has seen 4 hotels acquired and takings increased by 12 to 24 times while CC has: a) charged a fortune in legal fees through his firm, plus b) found his wife full time employment in the Group on a salary of $74,000 pa, plus c) benefited from administration and accounting charges by Vensel that are costing the Group far in excess of the costs to CC and at least $200,000 pa more than it would cost the Group to obtain comparable services. " 468 Had there been an express agreement, as Mr Short later alleged, that Mr Crawley would not charge for legal, administrative and accounting services, then that would have been raised at the time. Rather, the complaint was that whilst Mr and Mrs Short on the one hand, and Mr Crawley on the other, had different areas of expertise, Mr Crawley had taken large and excessive sums in legal fees and for administrative and accounting services, whereas Mr and Mrs Short had received nothing. 469 That was also the gist of an earlier complaint made to Mr Crawley on 12 February 1995. The letter was signed by Mr Short, but prepared by Mr Hannan on Mr and Mrs Short's instructions. He wrote (TB 43/4504/4505): " If the amounts you claim are owing include accumulated professional fees, these must be supported by fully detailed invoice, which the directors will need to review. While I would expect that all your out-of-pocket expenses should be reimbursed, I would have thought that charges for your own time would not be billed, in keeping with the relationship which aimed to firstly build a substantial and profitable hotel business. Neither Ros nor I have ever made any charge on the business for the untold hours we have spent in building it from a $90,000 investment with a turnover of $2,000/week to a business with over $26,000,000 worth of hotels, turning over $250,000/week. Ros and I have never wanted to charge for these services. If you are going to charge for yours, we think it is fair and equitable that we should do so too. " 470 It was not alleged that there was an express agreement that Mr Crawley would not charge for the services provided. Rather, Mr Short was saying that he expected Mr Crawley would not do so, at least until the hotel business was substantial and profitable, just as he and Mrs Short had not charged for their time. Had there been an express agreement that neither would charge for their time, Mr Short could be expected to have said so. 471 Accordingly, I reject this ground for the plaintiffs' contention that Mr Crawley could not charge costs for his services which included a profit element. Absence of Board and Partners' Resolutions Approving Retainer 472 The absence of a formal resolution of directors and partners to retain Mr Crawley does not mean that he was not retained to act as solicitor for the companies and the partnerships. There can be no doubt that Mr Short and Mr Davis agreed to Mr Crawley's providing legal services to the companies and the partnerships. Mr Short's evidence was that that was the role Mr Crawley was expected to perform. As the plaintiffs asserted in their particulars, it was an implied term of Mr Crawley's retainer that he was entitled to charge reasonable fees for the services provided. Prior to 1 July 1994, his obligation to disclose the charges proposed to be made and his right to recover fees was regulated by Pt 11 of the Legal Profession Act 1987 (NSW). He was not disentitled from recovering reasonable fees for the services he provided because of the absence of formal resolutions for his retainer. Mr Bell's Schedule of Payments and Invoices 473 The defendants challenged the correctness of some parts of Mr Bell's schedule. Prior to and during the course of the hearing, Mr Bell made changes to the schedule, partly to reflect further evidence which emerged as to the payment of legal fees, partly to take account of matters raised by Ms Kuan, and partly to respond to criticisms of his schedule made by Mr Carter. He did not accept all of those criticisms and there are still some items in dispute. 474 The first point to be made about his schedule is that it goes back to 1983. The first to sixth defendants rightly submit that one cannot infer from the failure to discover invoices for years long past that no invoices were rendered for the fees paid. Subject to the qualification in the next paragraph, I would not infer from the absence of invoices prior to 1 July 1990 that invoices were not rendered. The proceedings were commenced on 16 June 1998. The proceedings challenged the propriety of Mr Crawley's claim to be entitled to the legal fees acknowledged in the deed of 30 June 1994. Accordingly, I would expect invoices for legal costs which were then in existence to have been retained. There was no evidence of a system for the destruction of such records. Such records should have been kept by the companies for seven years (Corporations Law s 289(2)), and accordingly, it is reasonable to infer that invoices from the financial years ended 30 June 1991 would be available, even if they had not been kept by Aubrey F Crawley & Co. 475 In some cases it can readily be seen that payments for legal services were made without any bills of costs having been rendered. That is so in the case of the payments of $35,000 and $200,000 in respect of the Elizabeth Street Centre development referred to in Section 2. It is also the case in relation to a payment of $50,000 made by Marsico to Aubrey F Crawley & Co on 20 November 1989. That payment is the subject of a specific claim dealt with below. 476 Even after the corrections made by Mr Bell to take account of matters raised by Mr Carter and Ms Kuan, there are errors in the schedule which make it unsafe to rely on it. The schedule consists of hundreds of invoices and payments. I have concluded that, except where Mr Crawley's receipt of moneys for legal services has been the subject of specific attention in the evidence, it would be unsafe to conclude that he received moneys for which no invoice was rendered, and which was not in reimbursement of disbursements paid by his firm. 477 An early entry in Mr Bell's schedule is an amount paid by Trudale in the sum of $3,125. The payment was made on 21 May 1990 (that is, when Trudale was owned by Mr Londy) and there is no record of an invoice. It forms part of the amount claimed by the plaintiffs as the difference between the amounts paid for legal fees and invoices rendered. 478 The documentary reference for the entry is to a general ledger of Aubrey F Crawley & Co (LTB 154) which records a credit for Trudale in relation to the proposed purchase of the Elizabeth Street land in the amount of $3,125 on that day. It is part of a running ledger account which records disbursements by Aubrey F Crawley & Co in relation to transactions for matters such as faxes, payments to the Electricity Commission, payments to the Sydney City Council, photocopying and the like. Before the payment by Trudale, the account was in debit of $1,495.90, and after the payment, was in credit to $1,629.10. That credit was reduced by payment of further disbursements until it was in debit of $603.15 (LTB pp 153-155). Mr Bell's schedule credited Trudale with the payment of $3,125 and, because no invoice was rendered, that sum is part of the amount claimed by the plaintiffs. But the document relied on to show the payment also showed greater expenditure by Aubrey F Crawley & Co, for which Mr Bell gives no credit to Mr Crawley (FS3 – p 90; FS1 – p 4). 479 Mr Bell's schedule includes an amount of $18,000 said to have been paid by Trudale on 14 December 1990 (FS1 – p 5) for legal fees. That is a mistake. It is taken from the entry in Trudale's cashbook for 14 December 1990 where the moneys are shown as a loan to Aubrey F Crawley. This payment was part of an advance to Mr Londy, making up the debt of $169,313 acknowledged by the deed of 14 January 1991 (TB 13/1543, 1557). 480 Further payments for legal fees for which no account was rendered were for work described in Aubrey F Crawley & Co's general ledger as relating to Menzies Hotel. Under that general description, payments were received with a further notation as follows: 28/1/92 Holiday Inn Menzies/Hbberwears P/L $5,000 5/2/97 One hundred and Thirty Seven P/L $1,000 5/2/92 Metropolitan Hotel A/C $2,000 17/2/92 Brooklyn Hotel P/L $2,000 16/3/92 Sids Champagne Bar t/as Johann Bergmuller $2,000 18/11/92 Transfer to general account $9,000 481 Mr Bell asserted these payments were made by Marsico. But Marsico's general ledger discloses payments of only $1,464.85 for legal fees in the year ended 30 June 1992 and $4,260.45 in the year ended 30 June 1993. Mr Bell did not produce the consecutive pages of Aubrey F Crawley & Co's general ledger in relation to this matter (being instruction no. 915218). The first page concludes with a credit balance of $11,878.95. The next page referred to is page 4 of the ledger which has an opening debit balance of $28,026.10. I am not satisfied that the various amounts credited to the account were paid by Marsico or "Jackson's on George". In the absence of any evidence about the matter in question, the entries are consistent with payments being received from a number of different hotels. That would be consistent with Ms Kuan's evidence as to what payments were made by Marsico (and J & J O'Brien) in the periods in question. 482 The way in which Mr Bell's report is prepared does not allow a confident conclusion to be drawn that the group companies paid the amounts in question without invoices having been rendered. Thus the payment of $9,000 on 18 November 1992 referred to above, which is treated as a receipt of legal fees by Aubrey F Crawley & Co, is a transfer from the trust ledger to the general ledger to reduce the debit balance of the general ledger from $24,794.35 to $15,794.35. There is a further credit to the general ledger being a reversal of a costs amount of $18,000 to put the general ledger in credit in the sum of $2,205.65. There were further disbursements including $4,000 to counsel leaving a closing debit balance of $1,835.20. There is no obvious reason for treating the $9,000 credit to the general ledger as being a payment received by Aubrey F Crawley & Co for their profit costs. It appears rather to be a reimbursement of disbursements previously paid by Aubrey F Crawley & Co on behalf of whichever client or clients Mr Crawley was acting for. There may have been an earlier payment of costs reflected in the costs reversal of $18,000, but if so, it is not clear what it was. 483 Mr Bell's schedule records an amount of $20,000 paid to Mr Crawley in respect of J & J O'Brien under the description "Account: AFC Legal Fee 7/92", being a payment said to have been made on 31 December 1992. Ms Kuan's schedule of fees paid by J & J O'Brien does not include any payment in the month of December 1992. Mr Bell's figure is supported by one page taken from the general ledger for the Marlborough Hotel (J & J O'Brien) for the period 1 July 1992 to 30 June 1994 which records a journal adjustment (not a payment) debiting the expense item "professional fees" with $20,000 apparently referable to a charge made by Aubrey F Crawley & Co on 7 August 1992. Nothing more is said about the transaction than that single entry. I do not regard that as a sufficient justification for assuming that no bill was rendered, even though Mr Bell's schedule does not record an invoice in an amount of $20,000 under the column "Billed Amount". There are other invoices (e.g. an invoice dated 23 July 1992 for an amount of $23,826.85) to which the payment may or may not be referable. 484 I do not regard Mr Bell's methodology in preparing the schedule to be sound. As Mr Carter observed (exhibit 14 para 8), Mr Bell brought together data from different entities, and from different parts of the accounting systems of each entity, and there is a considerable risk of double counting. Mr Bell says that he has corrected his schedules for double counting errors identified by Mr Carter, but the iterative changes to his schedule to make concessions as errors were disclosed does not make me confident as to the accuracy of the schedule. More importantly, he has been selective in his use of information in the documents from which the schedule was prepared. An analysis of his schedule is not made any easier by the difficulties in identifying all of the documents which he described as his evidence source. These included reference to defendants' discovered documents by discovery number where I have not been able to identify the documents in the exhibits. There are hundreds of entries in Mr Bell's schedule. He has not attempted to match the invoices against payments so as to identify specifically the payments for which no invoices were rendered. Rather, he draws a comparison between the "paid amount" and the "billed amount". His figures for the billed amounts do not match those provided by Ms Kuan. Additional Payments Drawn Down Under BAC Facility 485 In closing submissions, the plaintiffs identified three additional amounts in relation to legal fees, with which they sought to charge Mr Crawley, which have not previously been identified by Mr Bell. Those amounts were derived from a schedule prepared by BAC identifying the purposes for which funds drawn from the BAC facility had been applied. The three items in question were described as follows: 13 April 1992 "Aubrey F Crawley & Co" $26,100 12 June 1992 "Charge legal costs" $23,854.70 28 May 1993 "Legal costs" $3,732.10 Total $53,686.80 (TB30/2950.12-13) 486 The amount paid to Aubrey F Crawley & Co on 13 April 1992 was $25,100, not $26,100 (TB 30/2950.7). This payment was made on Trudale's request of 9 April 1992 (TB 23/2394.1). It was the amount payable to South Sydney Council for the purchase of a lane (TB 23/2394.1, 2394.7.1). 487 The drawdown of $23,854.70 for legal costs on 12 June 1992 related not to fees payable to Aubrey F Crawley & Co but to Minter Ellison who acted for BAC (TB 24/2411.3). I infer that the drawdown from the loan facility of $3,732.10 on 28 May 1993 was also a drawdown to pay fees claimed by Minter Ellison (TB 29/2942.20). 488 Because of the deficiencies in Mr Bell's schedule, the plaintiffs' claim to recover moneys paid for legal fees for which no accounts were rendered, should be confined to the specific instances which were addressed in evidence where this occurred. Costs Paid by Marsico on Purchase of Freehold of Jackson's on George 489 Paragraph 114L of the further amended statement of claim filed on 31 August 2004 alleged: " ... on or about 21 November 1989, Marsico paid to Aubrey F Crawley an amount of $50,000 and, as at 29 November 1990, an amount of $49,140.87 remained to the credit of Marsico, which amount has not been repaid. " 490 The defence to this allegation is: " 114L As to paragraph 114L of the second further amended statement of claim, Crawley and the third defendant (J & J O'Brien): (a) admit that on or about 21 November 1989 J & J O'Brien paid on behalf of Marsico an agreed sum to AFC & Co of $50,000 as part payment for acting on the purchase of the freehold of Jackson's on George and acting on the securitisation of finance for that purchase and on the refinance of the AYH and J & J O'Brien facilities with Westpac in the sum of $16.3 million; and (b) otherwise deny the allegations contained in the paragraph. " 491 It is clear from Ms Kuan's evidence and from the terms of the defence that Mr Crawley took the benefit of the payment. However, notwithstanding Mr Crawley's denial of the allegation that $49,140.87 remained to the credit of Marsico, Mr Carter reported as follows (exhibit 2 para 141): " I have been provided with a copy of the client ledger account of Aubrey F Crawley which relates to the purchase of the freehold of Jackson's on George by Marsico from Tooth & Co in 1989. The ledger account shows that: (a) on 21 November 1989 an amount of $50,000 was paid to Aubrey F Crawley by Marsico to cover costs and disbursements; (b) in the period to 29 September 1990 various costs were incurred which totalled $859.13; (c) as at 29 September 1990 a credit balance of $49,140.17 remained to the credit of Marsico. " 492 As Mr Carter recorded, the ledger in question is a general ledger, not a trust ledger (LTB 1/123). The moneys were received by Aubrey F Crawley & Co for its own use and in its own books it acknowledged a debt to Marsico until such time as it rendered an account such that it had authority to receive the costs. Moneys paid by a client to its solicitors to cover costs and disbursements were required to be held on trust for the client until the solicitor was authorised to transfer the funds to his or her own account after following the prescribed procedure (Legal Profession Act s 61(1), (2)(a), (3)(b)). The procedure prescribed by cl 8 of the Legal Profession (Trust Account and Controlled Money) Regulations 1988 (NSW) required the delivery of an outline bill of costs and specific authority from the client for withdrawal of the moneys received (cl 8(3)(a)), or alternatively, if that authority was not given, delivery of a notice that, unless the client objected, the solicitor intended to withdraw money and apply it to payment of the bill after one month (cl 8(3)(b)). If objection were made, the solicitor was obliged to prepare a bill of costs in taxable form ((cl 8(3)(c); Riley, New South Wales Solicitors Manual, Trust Account and Controlled Money, Butterworths, March 1992, [7161]). A solicitor has no implied authority to apply funds received from the client in payment of moneys claimed by the solicitor (Stewart v Strevens [1976] 2 NSWLR 321). 493 Contrary to the terms of the defence, there was no agreement by J & J O'Brien, that is, no agreement which had the concurrence of Mr Short and Mr Davis, that Mr Crawley should charge or be paid the $49,140 not spent on recoupment of disbursements. In any event, the prescribed procedure was not followed. 494 The first to sixth defendants submitted that the claim was time-barred. However, the limitation period for the commencement of an action for the recovery of trust property is twelve years running from the date on which the plaintiff, or a person for whom the plaintiff claims, first discovers, or may with reasonable diligence discover, the facts giving rise to the cause of action (Limitation Act s 47(1)). The question of whether the payments were barred by the Limitation Act was not the subject of any detailed submission. The failure to disclose the payment was itself a breach of fiduciary duty and breach of trust. Until the plaintiffs had received discovery and had had the opportunity to analyse the voluminous documentation, they did not and could not reasonably have known of the payments. 495 An action for an account brought by a principal against his or her agent is barred by the statute of limitations either directly or by equity applying the statute by analogy, so that the claim is barred after six years. That does not apply where the agent is not only liable to account for moneys received but is also a trustee of the moneys (Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at 415-416). Mr Crawley was a trustee of the moneys he received and is liable to account as such. The claim is not statute barred. In any event, s 14(1) or s 48 of the Limitation Act would not bar the claim where the defendant's wrongful act itself precluded the institution of proceedings (Hawkins v Clayton (1988) 164 CLR 539 per Deane J at 590 and per Mason CJ and Wilson J at 543). Conveyancing Costs of $35,000 on the Acquisition of the Elizabeth Street Centre 496 The next payments which were examined in the evidence were the payments totalling $35,000 made to Aubrey F Crawley & Co by Trudale from the drawdown of 21 December 1990. Twenty thousand dollars was paid to Aubrey F Crawley & Co on 24 December 1990 and $15,000 was paid on 5 September 1991. It was not until the production of the general ledger of Trudale during the course of the hearing that it was possible to identify these payments as payments for conveyancing costs on the transaction. They were not referred to in the earlier schedules to Mr Bell's reports. The clear inference from other evidence is that no memoranda of fees was rendered in relation to these amounts. On 8 April 1991, an employee of Mr Crawley's, known as "Julie", made a calculation for Mr Crawley of what costs could be charged under the "Real Property" scale in relation to the BAC mortgage of $16,314,000, the purchase of the land, and associated transactions. The amounts she calculated totalled $27,866.02 (TB14/1608.13). It is to be inferred that Mr Crawley asked his conveyancing clerk to make a calculation as to what could be charged, or that she did so on her own initiative. The legal file for the Trudale transaction was tendered. It is clear that no memorandum of fees was prepared. The first payment of $20,000 was withdrawn from the trust account four months before "Julie" prepared her memorandum to calculate what costs could be charged. The balance was taken without any bill of costs being rendered. 497 The claim for the recovery of $35,000 is not barred by the Limitation Act for the same reasons as apply to the recovery of the moneys paid by Marsico in 1989. Additional Professional Fees of $200,000 498 For the reasons in section 2, I have concluded that Mr Crawley received $200,000 by way of professional fees for acting for Trudale, but should be credited with having repaid $142,124. The difference of $57,876 is recoverable for the same reasons as the payments of $35,000 and $50,000 (less disbursements reimbursed of $859.13 which was not the subject of a claim) are recoverable. Just Allowances 499 Mr Crawley would have been entitled to render outline bills of costs to recover proper costs for acting on the transactions. If the companies agreed to the accounts billed, he could have been paid from moneys he held on behalf of Marsico and Trudale. If Messrs Davis and Short objected, he could have prepared a bill of costs which could have been referred to taxation if still objected to. He did not follow these procedures. 500 There is evidence that he could reasonably have charged $27,866 in relation to the Trudale transaction. 501 I do not consider that Mr Crawley is entitled to credit for $27,866 or any other sum by way of just allowance for the legal services he provided in respect of which he is liable to disgorge the payments he appropriated to himself. A fiduciary will not be allowed remuneration or reward by way of just allowances if he has been guilty of any dishonesty, bad faith or surreptitious dealing (Phipps v Boardman [1965] 1 Ch 992 per Lord Denning MR at 1020-1021; and see paras [753], [761] of section 6). 502 The appropriation of moneys for payment of legal fees without rendering an account, without disclosure to the board, and without complying with the regulations was not honest conduct. Mr Crawley is not entitled to a credit by way of just allowances. Memorandum of Fees of 24 May 1994 503 On 24 May 1994, Mr Crawley rendered an invoice to Trudale Pty Ltd for $16,000 described as an interim account in relation to work relating to Trudale from acquisition of the property (TB 39/3926). The invoice was in the sum of $16,000. Initially, Mr Bell said that the invoice was paid the same day (AFB – 16 appendix Cr), but that was corrected in the last version of his schedule (FS-1, p 16). The account was described as follows: " Re: TRUDALE PTY LIMITED – BAC AND GENERALLY PART INTERIM ACCOUNT (Note this account is not representative of the total amount of monies outstanding to our firm in relation to all works relating to Trudale Pty Limited from acquisition of the property, financing all dealings with the builders, negotiating building contracts, all dealings regarding registration of the Strata Plan, partial discharges of mortgages acting on sales, acting in relation to the dispute with Westpac Banking Corporation and Bill Acceptance Corporation Limited in respect of their proposed cancellation of loan facility all of which costs are estimated to be in excess of $350,000) Interim partial account subject to the above notation $16,000.00 " 504 This invoice involved a doubling up of charges as Mr Crawley had already paid $35,000 for part of the work covered by the description in the memorandum. He had also rendered many invoices to Trudale, which were paid, for acting on sales and for other work in relation to the Elizabeth Street Centre development. He rendered invoices of $1,805.88 in relation to three sales made in the financial year ended 30 June 1992 (FS3 – p 90). He rendered invoices totalling $723.00 in relation to three sales in the year ended 30 June 1993. In the year ended 30 June 1994 he rendered over twenty invoices to Trudale up to 27 May 1994 totalling $78,442.60 for acting on sales or leases of units or shops in the Elizabeth Street Centre development. At least part of these charges also related to work described in the memorandum of costs of 24 May 1994. 505 It is not possible to say from Mr Bell's schedule whether or not Mr Crawley was paid for the amount charged in the memorandum of fees rendered on 24 May 1994. It is possible that there are differences between amounts billed and amounts paid over the succeeding eleven years by which he was paid. But the evidence is not in a form in which that can readily be seen. No further amount is recoverable from Mr Crawley by reason of the rendering of the invoice. In any event, on the way the plaintiffs put their case, if Mr Crawley was paid the sum $16,000, the plaintiffs would accept that that was a reasonable charge. Costs of Acting on the Sale of the Australian Youth Hotel 506 Mr Crawley received $20,000 from the proceeds of sale of the Australian Youth Hotel. In relation to that payment, he rendered a memorandum of costs and disbursements to the partners of the Australian Youth Hotel partnership on 18 July 1995. The memorandum is a detailed narrative over nine pages of the work done. Profit costs of $17,875 were charged together with disbursements of $2,652.84, making a total of $20,527.84 (TB 48/5155, 5156 at 5165). 507 It was submitted in opening for the plaintiffs that the memorandum of costs and disbursements was not delivered to Nabatu, notwithstanding a letter dated 18 July 1995 enclosing a memorandum of costs and disbursements said to be dated 10 July 1995. The memorandum of costs and disbursements which was said to have accompanied the letter is dated both 18 July 1995 (on its first page) and 5 July 1995 (on subsequent pages). It is clear from subsequent documents that the memorandum was received by Mr Short. At a meeting of directors of J & J O'Brien and Marsico held on 25 October 1995, Mr Hannan raised a specific concern in relation to the bill. The minutes of that meeting record Mr Hannan stating that the bill was approximately $17,000 but, according to Mr Hannan, independent inquiries indicated that the charge should have been no more than $7,000 to $8,000 (TB 50/5393 at 5423). 508 No application was made by the other partners to the Australian Youth Hotel partnership to have the bill of costs assessed. No claim was made in relation to the payment until the further amended statement of claim was filed on 31 August 2004 (para 114J). No separate submission was made by the plaintiffs in relation to this payment in their closing submissions. As the plaintiffs in their closing submissions did not seek to make a case that the amounts billed in the memoranda of costs and disbursements which were rendered were excessive, there was ultimately no claim to recover all or part of the $20,000 paid. Prima facie, any such claim would now be barred by the Limitation Act. Costs of $2,100 on Conveyance of Lot 545 David Road, Castle Hill 509 The plaintiffs submitted that what they called a prima facie presumption that the fees invoiced were to be taken to be reasonable, did not apply to fees totalling $2,100.03 charged to Trudale for a conveyancing transaction concerning Lot 545 David Road, Castle Hill which had nothing to do with Trudale and should be reimbursed. Aubrey F Crawley & Co rendered invoices on 17 October 1991 in respect of that matter which appeared to involve a sale by a Mr or Ms Chow to a Mr or Ms Beres of Lot 545 David Road, Castle Hill (TB 19/1971-1972). The AFC trust ledger also showed Trudale as being the client. It seems that RB Foster International acted as agent on the sale. The plaintiffs submitted that, on the face of the documents, the transaction had nothing to do with Trudale. However, other correspondence (exhibit 24, tab 5) shows that the land in question was sold by Mr Chow to Trudale. (Mr Chow was to use the proceeds of sale to pay a deposit on the purchase of a lot in the Elizabeth Street Centre.) It would appear that Trudale then onsold the property to Mr or Ms Beres. Accordingly, Mr Crawley should not be required to disgorge these fees. Conclusion on Legal Fees 510 For these reasons, Mr Crawley is liable to repay Marsico $49,140.17 together with interest at the prescribed rates from 29 September 1990. He is liable to repay Trudale $35,000, with interest at the prescribed rates on the sum of $20,000 from 24 December 1990 and $15,000 with interest on that sum from 5 September 1991. He is liable to repay to Trudale the difference between the sum of $200,000 received as professional fees on 19 June 1991 and the repayments of $142,124.24, that is, the sum of $57,875.76, together with interest on that sum at the prescribed rates from 19 June 1991. Otherwise the plaintiffs' claim that Mr Crawley account for the alleged difference between legal fees invoiced and paid should be dismissed. SECTION 4 – Advances at 17.5% Interest 511 The issues in relation to this topic are: (a) what advances were made by Mr Crawley to J & J O'Brien; (b) when, and in what amounts, were repayments of principal made; (c) what amounts of interest were paid; (d) was there board approval for the advances; (e) did Mr Davis and Mr Short give their informed consent to the advances and the interest charged; (f) is the claim barred by laches, including by the application of the Limitation Act 1969 (NSW) by analogy; (g) what are the consequences of the claims not having been fully pleaded although they were litigated without objection at trial; and (h) what is the appropriate remedy. 512 Ms Kuan prepared schedules from the books of J & J O'Brien and Marsico of advances made by Mr Crawley to J & J O'Brien and the repayments of those advances. Set out below is a schedule showing the advances by Mr Crawley to J & J O'Brien and the repayments as reflected in J & J O'Brien's general ledger. In some cases, the explanation is taken from other documents or evidence: Crawley Loan Account with J & J O'Brien Date Amount Paid Amount Repaid Comment Balance 31/01/91 $133,000 Mortgage Advance: Purchase of 9 Longdown St, Newtown. $133,000 17½% interest 30/06/91 $39,895 Journal Adjustment: Purchase of cash registers $172,895 16/08/91 $353,000 Mortgage Advance: Purchase of 151-151A King St, Newtown $525,895 17½% interest 11/11/91 ($100,000) $425,895 12/12/91 ($170,000) $255,895 30/06/92 $255,895 14/12/92 ($229,517) $26,378 22/01/93 $70,000 Loan. No documentation for charging of interest $96,378 31/01/93 ($26,378) $70,000 20/04/93 $40,000 Loan. No documentation for charging of interest $110,000 30/04/93 $40,000 Loan. No documentation for charging of interest $150,000 30/06/93 $150,000 11/08/93 $20,000 Loan. No documentation for charging of interest $170,000 18/08/93 ($20,000) $150,000 29/04/94 $100,000 Mortgage advance: Purchase of 193 Missenden Rd, Newtown 17½% interest compounded monthly $250,000 16/05/94 $55,000 Loan. No documentation re charging interest $305,000 30/06/94 Deed of 30/06/94 provided for debt of $305,000 to be secured by mortgages and that interest be paid on the increased sums (cl 2.1.5 and cl 3.1) (TB 39/4033) $305,000 09/08/94 ($10,000) $295,000 22/09/04 Deed of Equitable Charge imposed interest at 17½% interest p.a. compounded monthly on all outstanding principal sums including future advances (TB 40/4171) 16/11/94 $50,000 Loan CWC. $345,000 07/02/95 $85,000 Loan CWC. $430,000 16/02/95 $50,000 Loan CWC. $480,000 27/02/95 Deed of Equitable Charge required payment of interest on all outstanding principal sums $480,000 (TB 44/4568) 16/06/95 $130,000 Loan $610,000 16/06/95 ($30,000) Omitted from Kuan Sched. 9, but see JK 28-111; AFB 9, p 40 $580,000 30/06/95 $580,000 30/06/96 $580,000 16/05/97 $100,000 $680,000 June 97 ($50,000) Kuan 9/12/05 para 4(b)(iii) $630,000 30/06/97 $630,000 30/06/98 $630,000 30/06/99 ($630,000) Transferred to Vensel account - (I have omitted a deposit of $9,444 on 15/02/95 which, according to Mr Bell, reduced the loan debt of that time to $420,556 (AFB9, p 40). The ledger shows an earlier increase in the debt by the same amount (JK-28, p 118). It is omitted from Ms Kuan's schedule). 513 The table above does not include a sum of $168,300 for which a mortgage was executed in favour of Mr Crawley on 5 April 1993 at the time J & J O'Brien purchased 197 Missenden Road, Newtown. Mr Crawley deposed in his affidavit of 13 February 2003 (para 390) that he lent $110,000 towards the purchase. Neither the loan of $110,000, nor the loan of $168,300, is recorded in J & J O'Brien's general ledger. I deal with that matter further below. 514 Ms Kuan also prepared a schedule showing the alleged "loans" from Vensel and repayments to Vensel. The loan account commences with an opening debt of $1,315,990 owed to Vensel as at 30 June 1995. In section 5, I deal with the basis upon which that debt was said to be owed. It was based upon Mr Crawley's claim for outstanding legal fees as claimed in the deed of 30 June 1994, but calculated with interest from the time the legal fees were allegedly incurred. 515 Set out below is a table showing movements in the principal sums claimed to be owed by J & J O'Brien to Vensel and the repayments in reduction of the debt. (The table omits entries in relation to a purported loan account with Vensel which was reversed as at 30 June 1997, discussed below at paras [589], [648] and [656] of section 5.) Vensel Loan Account with J & J O'Brien Date Principal Repayment Comment Balance 30/06/95 $1,315,990.00 See paras [589], [648], [652] and [656] of section 5 $1,315,990.00 30/06/96 $230,298.25 Capitalised interest: Journal entry posted 28/6/98. Balance sheet at 30/6/96 records debt of $1,315,990. $1,546,288.25 01/04/97 ($414,250.74) Proceeds of sale of Racecourse Hotel $1,132,037.51 15/05/97 ($91,000.00) Proceeds of insurance claim $1,041,037.51 30/06/97 $259,824.29 Capitalised interest. Journal entry posted 28/6/98 $1,300,861.80 14/08/97 ($20,000.00) $1,280,861.80 Nov 97 $95,843.93 Debt unclear. Presumably sum of various payments made by Vensel on behalf of J & J O'Brien. $1,376,705.73 Apr 98 ($277,927.29) Payment for "Becky's unit" – repayment of loan $1,098,778.44 20/09/99 ($1,502.65) $1,097,275.79 30/06/99 $630,000 Transfer of CWC loan $1,727,275.79 30/06/99 $50,000 Kuan Sched. 9 refers to JK 28-32. Ledger shows an opening balance at 01/07/99 of $1,777,215.79. No explanation for increase in debt of $50,000 $1,777,275.79 July 99 ($7,708.00) $1,769,567.79 There were no subsequent changes to the loan balance of $1,769,568. 516 The repayments of $414,250.74 and $91,000 on 1 April and 15 May 1997 came from the proceeds of sale of the Racecourse Hotel and the proceeds of the insurance claim from the fire at Jackson's on George. The deed of 30 August 1996 (referred to in para [80] of section 1) required that the sum of $400,000, to be received from the sale of the Racecourse Hotel, was to be applied in payment of "Other Moneys" and not in payment of "Legal Costs" referred to in the deed of 30 June 1994, or interest on such costs. (Recitals B, E and clause 17(4)(a); TB 61/6664). The proceeds were received on 2 September 1996, but not applied until 1 April 1997. In accordance with the agreement Mr Crawley made with Mr Davis (para [96] of section 1), but without the consent or knowledge of Mr Short, the moneys were applied in reduction of legal costs, being the debt allegedly owed to Vensel. 517 At the board meeting of 27 March 1997, the directors dealt with an item to give authority to the ANZ Bank to release $400,000 received from the proceeds of sale of the Racecourse Hotel to Mr Crawley. Mr Wiseman said: " Phil : I've got one very quick item, which is the charge on the $400,000. Mr Crawley has called for payment … of returns of the charge and the payment is going entirely towards his legal fees. (At this point Mr Crawley interrupted and said 'No'.) Mr Wiseman continued: Sorry entirely towards his debt reduction. I have a letter to that effect if I can find the damn thing and I propose to authorise ANZ to release the money to Mr Crawley. So that is noted Mr Crawley. There is the confirmation letter. It is going entirely towards reduction of debt. " (p 65 of transcript, exhibit BM) 518 There was no resolution on this item. This was information provided to the directors. However, both Mr Crawley and Mr Wiseman knew that under the terms of the Share Sale Agreement, the $400,000 would be released to Aubrey F Crawley & Co in part payment of costs, contrary to the earlier deed. The statement that the $400,000 was "going entirely towards reduction of debt" was false (T65). 519 The first to sixth defendants now accept that the payment should be allocated in reduction of advances (closing submissions, tab 5, para 237). 520 On 6 December 1996, Messrs Ellitt and Law, solicitors acting for Mr Short and Mr Davis, objected to the application of the proceeds of Marsico's insurance claim in reduction of the disputed legal fees claimed by Mr Crawley. They said that their clients would permit the moneys to be used only in reduction of advances made by Mr Crawley (TB 65/7104). 521 By a deed dated 10 February 1997, Marsico granted a charge to Vensel over its claim under the insurance policy. The deed recited that J & J O'Brien and Marsico disputed the amount claimed to be owing under the deed of 30 June 1994 in respect of Legal Costs. The deed also recited that the deed of 30 June 1994 and documents referred to in it, and a guarantee and indemnity given by Marsico on 30 June 1994, secured repayment of other moneys owing in respect of advances and interest thereon together with costs of enforcement ("the Other Moneys"). Clause 3(a) of the deed provided that: " All moneys received in settlement of the insurance claim must be applied only in repayment of the Other Moneys and no part of any moneys received in settlement of the insurance claim may be applied in payment of the Legal Costs or any interest on the Legal Costs unless otherwise agreed. " 522 Notwithstanding this deed, on 15 May 1997, the proceeds of the insurance claim of $91,000 were applied in reduction of the alleged debt for legal costs recorded in Vensel's loan account with J & J O'Brien. 523 The minutes of the meeting of directors of J & J O'Brien held on 16 May 1997 record the following: " 3. COSTS – AUBREY F. CRAWLEY & CO Reported: That the amount outstanding by Companies for AFC costs is as set out in various Deeds and Minutes agreed to by Board being in excess of $900,000.00 excluding interest. CWC proposed a resolution that an amount of $91,000.00, being proceeds of insurance claim in respect of Jacksons on George, be applied in reduction of those costs. Resolved: That the Company's pay Aubrey F. Crawley & Co. the proceeds of the insurance claim in reduction of legal costs. AL wishes it noted that WS not accepts money owing to CWC re legal fees. " (T78/8097) 524 The meeting was a meeting of directors of J & J O'Brien. However, the same persons were the directors of Marsico and they dealt with business of Marsico. But for the fact that the payment had already been applied in that way the previous day, such a resolution, if valid, may well have been a contrary agreement within the terms of clause 3(a) of the deed of 10 February 1997. It is unnecessary to determine whether the resolution was invalid because Mr Davis was acting in accordance with the undisclosed share sale agreement of 16 December 1996 which required him to "approve the assignment of the future proceeds of the insurance claim on Sun Alliance Insurance to Vensel Pty Ltd in part satisfaction of the Group Companies' liability to Vensel Pty Ltd" (Clause 4.6(4); TB 65/7143.1 at 7143.9). 525 It is unnecessary to decide that question because the debt claimed by Vensel of $1,315,990, on which interest was capitalised, arose from the deed of 30 June 1994. For reasons in Section 5, that deed should be rescinded. J & J O'Brien did not owe moneys for legal fees as purportedly acknowledged in the deed and the deed is liable to be set aside on a number of grounds. It follows that the $91,000 ought to be credited against the loan advances of Mr Crawley. 526 If the repayments of $414,250.74 and $91,000 were credited against the principal debts owing on Mr Crawley's loan account then, as at 30 June 1997, J & J O'Brien would have owed him $124,749.26. (As set out below, there was no unpaid interest outstanding, and there was no claim by the plaintiffs to set off excess interest payments against principal.) The payment of $20,000 on 14 August 1997 would have reduced the debt to $104,749.26. It appears from the ledger that J & J O'Brien became indebted to Vensel in an amount of $95,843.93 as at November 1997, but it repaid $277,927.29 in April 1998. That was clearly a payment made on Mr Crawley's direction. The effect of that payment should have been to discharge the debt owed by J & J O'Brien to him. Following that payment, he owed J & J O'Brien $77,334. No claim is made for that sum, which may in any event have been reduced by a net $40,789.35 in June 1999 (see above table). Mr Crawley's Loan Account with Marsico 527 Ms Kuan prepared a schedule showing movements in Mr Crawley's loan account with Marsico. Crawley's Loan Account with Marsico Date Loan Repayment Balance 30/04/91 $22,525 $22,525 11/10/91 ($22,525) - 15/05/95 $100,000 $100,000 Year end 30/06/97 ($50,000) $50,000 11/02/99 $100,000 $150,000 04/05/99 ($100,000) $50,000 30/06/99 ($50,000) - 21/07/99 $200,000 $200,000 15/09/99 ($200,000) - Payment of Interest 528 Ms Kuan prepared a table of interest payments made by J & J O'Brien and Marsico during the financial years ended 30 June 1992 to 30 June 2004 in respect of what she said were sums lent by Mr Crawley to J & J O'Brien and Marsico. The payments were made to Mr Crawley, to Vensel and to Gladewood. (As noted in para [159] in section 1, the debt claimed by Vensel was "transferred" to Gladewood and from the financial year ended 30 June 2004, interest payments were made to Gladewood rather than to Vensel.) Some of the interest payments recorded on the schedule prepared by Ms Kuan are not reflected in the sheets from J & J O'Brien's general ledger which she produced. In her affidavit of 6 December 2005, she deposed that there were five instances in which she had included a figure for an interest payment by J & J O'Brien in the schedule but for which there was no copy of a respective general ledger sheet. Those were instances in November 1991, December 1992, September 1998, November 1998 and September 2002. She said that she would endeavour to check the figures. Ms Kuan did not subsequently say that her schedule was in error and I have adopted her figures. Her evidence was led by Mr Crawley and I can take it that where she has identified the payment of interest for which she could not identify a general ledger sheet, she did so because, from her own knowledge of the accounts, she believed that it was probable that such payments had been made. 529 There is no correlation between the amounts of interest paid and the amounts payable under the mortgages. Some payments of interest were made to Vensel before 30 June 1996. I infer this was because Vensel was treated as a creditor in respect of a debt subsequently reversed. 530 Mr Bell identified payments of interest from the general ledgers made available to him. Generally, Ms Kuan's table of interest payments are in agreement with his. Where there are differences, for the reasons I have given elsewhere concerning the reliability of Ms Kuan's and Mr Bell's figures, I prefer Ms Kuan's table, except in the case of two payments explained in the table which follows. 531 Interest was paid to Mr Crawley in the financial years ended 30 June 1992 to 30 June 1996. Interest was paid to Vensel in the financial years ended 30 June 1992, 30 June 1993, and the financial years ended 30 June 1997 to 30 June 2004. Interest was paid to Gladewood in the financial years ended 30 June 2004, 30 June 2005 and 30 June 2006. The amounts paid up to 30 June 1997 represent interest on the loan advances. Interest on the alleged debt of $1,315,990 which first appears in J & J O'Brien's ledger as at 30 June 1995 was capitalised for the years ended 30 June 1996 and 30 June 1997. Interest paid up to 30 June 1997 was as follows: Interest Paid 01/07/90 – 30/06/97 Financial Year Paid to Crawley Paid to Vensel 1991 - - 1992 $14,175.00 $74,827.05 1993 $27,653.93 $24,175 1994 $31,064.00 1995 $20,000.00 $101,450.74 1996 (per Kuan) plus additional payments of $19,833 and $294.95 identified by Bell and recorded as interest payments to CWC in general ledger JK25-77. I have not included two other sums identified by Mr Bell where the source document was not identified except by discovery number and could not be checked. Total = $121,578.69 1997 $118,999.13 Total interest payments to 30/06/97 were $432,472.80. 532 From 1998, interest was paid on the debt pleaded as being owed to Vensel. Payments to 30 June 2005 were as follows: 533 Financial Year Paid to Vensel Paid to Gladewood 1998 $345,067.19 1999 $311,286.18 2000 $312,138.68 2001 $309,674.28 2002 $309,674.28 2003 $309,674.28 2004 $25,806.19 $283,868.09 2005 $309,674.28 534 No explanation was provided by Mr Crawley as to why, in the 1992 financial year, $89,002.05 was paid as interest which is far in excess of the interest payable under the mortgage to secure the advance of $133,000 on 31 January 1991 and $353,000 on 16 August 1991. As I have said, I infer the interest paid to Vensel was not in respect of the loans made by Mr Crawley. Nor was there any justification provided for the payment of interest of $51,828.93 in the 1993 financial year. The debt of $255,895 at the commencement of that financial year had been reduced to zero on 31 January 1993. The subsequent advances of $150,000 made between 22 January and 30 April 1993 did not attract interest at that time. 535 The total interest payments far exceeded the interest payable on the loans made by Mr Crawley. Agreement to Interest Being Charged 536 The first advance of $133,000 was secured by mortgage over 9 Longdown Street, Newtown dated 1 February 1991 (TB 13/1562). Mr Short and Mr Crawley witnessed the affixing of the common seal of J & J O'Brien to the mortgage. Mr Crawley acted as solicitor for J & J O'Brien on the purchase of the property. He rendered an invoice to J & J O'Brien of $2,701.54 (TB 13/1561). The invoice was partly paid on 13 February 1991. The balance was paid on 2 June 1991. The second page of the mortgage provided that: " The mortgagor will pay interest on the principal sum or on so much thereof as for the time being will remain unpaid ... at the rate of 17½ percent per annum. " 537 The mortgage did not provide for interest to compound monthly. The principal sum was repayable on demand. There was no penalty for early repayment (Clause 7). 538 There is no minute of a directors' meeting of J & J O'Brien authorising it to borrow the funds from Mr Crawley. There is no written board resolution. 539 If Mr Short had turned over the first page of the mortgage when he witnessed the affixing of the common seal of J & J O'Brien, he could not help but have noticed that the interest being charged on the loan of $133,000 was 17.5% per annum. Interest rates in February 1991 were high. The Westpac indicator home loan rate effective 23 January 1991 was 14.5% (exhibit AZ Tab 1A). The "Action Mortgage Rate" of Natwest Australia Bank was 15.95%. Mr Crawley was paying 18.5% on some of his personal accounts with Westpac. 540 In his affidavit of 10 February 2003, Mr Crawley deposed that he had a conversation with Mr Short and Mr Davis in which they agreed to his lending money to J & J O'Brien to enable it to purchase the property at 9 Longdown Street, Newtown and to take a mortgage to support the loan. There is no reason to doubt that that conversation occurred. It is in accordance with the objective facts. Mr Crawley did not depose in his affidavit to having explained the mortgage and the interest rate to be charged to Mr Short or to Mr Davis. I do not think that in 2003 he could have had a genuine memory of such an event, had it occurred. Mr Crawley gave oral evidence that he explained the mortgage to Mr Short and told him what was the amount of the advance, the interest rate and that the advance was repayable on demand (T1039). I do not accept that Mr Crawley had a genuine recollection of saying that to Mr Short. On the other hand I infer from Mr Short's signing the document, which plainly discloses the interest rate, that Mr Short was well aware of the rate being charged. At times, Mr Crawley asserted that he had explained the mortgage to Mr Davis (T1036.2). Mr Crawley accepted that he did not recollect explaining the mortgage to Mr Davis (T1040). I do not think he had any recollection one way or the other. There was no direct evidence from Mr Davis as to whether he knew of the rate of interest charged or not. However, it is significant that when instructions were given to Gilbert & Tobin in 1996 by Mr Short and Mr Davis in which they outlined their complaints against Mr Crawley, no complaint was made that Mr Short and Mr Davis had been unaware of the interest rates provided for in the mortgages to secure Mr Crawley's advances. 541 The next advance was of the sum of $353,000 made on 16 August 1991 for the purchase of 151-151A King Street, Newtown. Again, there was no formal board resolution that J & J O'Brien should borrow the moneys from Mr Crawley. Again, Mr Crawley acted as solicitor for J & J O'Brien on the purchase (TB 14/1589; LTB 606,607). 542 In August 1991, Westpac declined to advance funds to J & J O'Brien to enable it to complete the purchase of the property at 151-151A King Street, Newtown. Mr Crawley deposed that he proposed that each of he, Mr Short and Mr Davis should "chip in about $100,000", but that Mr Davis and Mr Short refused saying they did not have the funds. Mr Crawley deposed that in August 1991, he told Mr Short and Mr Davis that he was prepared to put up the balance of the purchase price of $350,000 and would charge interest of 17.5%. He says he told them that "I will not lend the money unless you agree to a mortgage on commercial terms. Are you prepared to agree to that?" They agreed. Mr Short denied that such a conversation occurred. He deposed that he understood that J & J O'Brien could finance the purchase through its own cash flows and a loan from a "proper lending institution". He deposed that, had Mr Crawley raised with him that Mr Crawley was to contribute the funds for the purchase of the property and the associated interest rate, he would not have agreed to the purchase on those terms (WS affidavit 2 December 2003 para 158(b)). 543 The mortgage over 151-151A King Street, Newtown is dated 16 August 1991 (TB 16/1830). The affixing of the common seal of J & J O'Brien was witnessed by Mr Davis and Mr Short. The mortgage disclosed the mortgage advance of $353,000. 544 The second page of the mortgage plainly showed that the advance was repayable on demand and that interest was payable on the principal sum at the rate of 17.5% per annum. Mr Davis and Mr Short both signed and initialled the annexure to the memorandum of mortgage (consisting of 7 pages) and witnessed the affixing of the common seal to the annexure. It is possible, but not probable, that they turned over the second page of the mortgage without looking. The more probable inference to be drawn from the form of the documents they signed is that Mr Davis and Mr Short saw the interest rate to be charged on the advance of $353,000. There is no evidence of any objection having been made about that interest rate at the time. Whilst I consider there is a large degree of reconstruction in Mr Crawley's evidence that he secured Mr Short's and Mr Davis' agreement to the rate, I am satisfied that they knew what the rate was and did not object. I do not accept Mr Short's evidence that he was unaware that Mr Crawley was contributing funds for the purchase or what the interest rate was. He could not have signed the mortgage and been unaware that Mr Crawley was advancing the money, and it is unlikely that he would not have observed the interest rate being charged. 545 The plaintiffs contend that the interest rate charged of 17.5%, was no longer a commercial rate. The interest rate then being paid by Trudale to BAC was 11.85% per annum (TB 20/1981). The Westpac indicator lending rate, being the benchmark for interest rates charged on overdrafts and term lending, had fallen by 1.25% from the rate effective at 3 January 1991. The rates being charged by Westpac on loans to Mr Crawley, Mr Davis and Mr Short was 14% per annum as at 30 December 1991. (The unarranged loan rate was 17.999%.) Other loans to Aubrey F Crawley & Co and Mr Davis were being charged at 15.25% as at 30 December 1991. In cross-examination, Mr Crawley asserted that he was being charged 18.5% interest and was being generous by only charging 17.5%. His evidence that he was paying 18.5% was wrong. Whilst this was a matter which affects his credit, (although it is a slight matter in comparison with other factors going to his credit), I do not accept that as at 16 August 1991, the rate was excessive. It was contended for the plaintiffs that the rate was excessive because it was a fixed rate for an indefinite period. However, the loan could have been repaid early without penalty. 546 The mortgage advances of 31 January 1991 and 16 August 1991 were fully repaid by 31 January 1993. 547 When the advances totalling $150,000 were made on 22 January 1993, 20 April 1993 and 30 April 1993, they were not secured by the mortgages over the Longdown Street and King Street, Newtown properties. Those mortgages had not been discharged. In closing submissions, it was common ground that the loans of $150,000 "also attracted interest at 17.5%". That was not a concession by the plaintiffs that there was an agreement to pay interest at 17.5%, but rather an assertion that interest at that rate was charged. 548 Mr Crawley deposed that in January 1993, the property at 197 Missenden Road, Newtown came up for sale. J & J O'Brien already owned 195 and 199 Missenden Road. He deposed that he told Mr Short and Mr Davis that J & J O'Brien was in no position to get any money from Westpac, but that if each of them put in about $65,000, it should cover the purchase of the property without further borrowings. Each of them said they did not have any funds to contribute. According to Mr Crawley, he then told them: " The property is a good buy. It fits in with our long-term objectives. Do you want to lose this opportunity to consolidate the properties? I am in a position to lend the money to J & J, but if I do, it will be at 17.5% interest with a mortgage to secure it, and the $70,000 I have just lent the company and any further advances. Are you prepared to agree to that? " 549 According to Mr Crawley, Mr Short and Mr Davis each said that they agreed. It is on this basis that Mr Crawley contends that he was then entitled to charge interest prior to June 1994 on the advances of $70,000 made on 22 January 1993, $40,000 on 21 April 1993 and $40,000 on 30 April 1993. Mr Short denied that such a conversation occurred. Having regard to my conclusion as to the credit of both Mr Crawley and Mr Short, I am not satisfied that such a conversation occurred. Purchase of 197 Missenden Road 550 In his affidavit of 13 February 2003, Mr Crawley deposed that he lent $110,000 to J & J O'Brien to enable it to pay the balance of the purchase price for 197 Missenden Road. Mr Crawley deposed (para 390) that: " On 5 April 1993, Mr Short and Ms Kuan executed a mortgage over the property at 197 Missenden Road on behalf of J & J O'Brien to secure my loans to the company. " 551 The wording is significant. Mr Crawley was not deposing that the mortgage was to secure only an advance made to acquire the property. The common seal of J & J O'Brien was affixed to the front page of the mortgage and to page 8 of the annexure. The other pages of the annexure were not initialled. The front page of the mortgage did not describe the amount of the advance. Page 7 of the annexure (TB 29/2903) provided that the mortgage was given in consideration of $168,300 lent to J & J O'Brien. Clause 2 of the schedule provided for interest to be charged at the "higher rate" or the "lower rate" and to be compounded monthly. The last page of the annexure, immediately above the space where Mr Short signed, provided for the interest rate of 17.5% per annum. This was both the lower and the higher rate. It would not have been possible for Mr Short to have signed the page without seeing the interest rate of 17.5%. Even if he did not read the preceding page to see the amount of the debt secured by the mortgage, he must have appreciated that that was the rate of interest being charged. 552 The plaintiffs submitted that Mr Crawley did not advance $168,300, or $110,000 at this time. No such advance is recorded in the books of J & J O'Brien. On 24 March 1997, Mr Agus prepared a schedule of advances from the accounting records of J & J O'Brien and Marsico. He had regard to the general ledgers and checked carefully the dates and figures on the schedule he prepared. He certified the schedule to be a correct record of advances made by Vensel outstanding as at 24 March 1997, but included in the schedule the advances made by Mr Crawley. His schedule did not include advances of either $168,300 or $110,000. This simply reflects the fact that those advances are not recorded in the accounting records of J & J O'Brien (or Marsico). Counsel for the first to sixth defendants submitted that: " Although it is unusual that the lending of this sum was not recorded in Mr Crawley's loan account with JJOB and for that reason was not picked up by Mr Agus in his schedule, it is possible that the failure to have the sum recorded in the records of JJOB was an oversight. The plaintiffs do not explain where the money for the purchase came from, if it was not from Mr Crawley. " 553 The first to sixth defendants tendered two trust account receipts dated 5 April 1993 from Aubrey F Crawley & Co. One receipt records the receipt into Aubrey F Crawley & Co's trust account of $110,000 from St George Bank Ltd at its Kogarah branch. The other trust receipt records the receipt of $58,342.05 from J & J O'Brien Pty Ltd. The second receipt is inconsistent with Mr Crawley having advanced $58,300 towards the purchase. In his affidavit, he did not depose to having done so. That receipt shows that reliance cannot be placed upon the terms of the mortgage itself as evidence that Mr Crawley had advanced $168,300 towards the purchase of the property. 554 The first to sixth defendants submitted that the moneys received from St George Bank Ltd were advanced by Mr Crawley. They point out that he had a St George bank account and made other advances from his St. George bank account. It does not follow that the $110,000 was paid from Mr Crawley's account with St. George. It is not sufficient to say that there was an oversight in the preparation of the accounts. Neither Ms Kuan, nor Mr Agus said there was an oversight. The financial statements were audited. The payment for the land must have been recorded in the accounts in some way, otherwise they would not balance. As the plaintiffs established that the accounts showed that Mr Crawley did not make an advance of either $110,000 or $168,300, it was for the defendants to show how the transaction had been accounted for, and why the accounting was wrong. 555 Mr Crawley was owed $70,000 as at 5 April 1993 (see table at para [512]). It would not be out of character for Mr Crawley to have prepared a mortgage acknowledging a debt of $168,300. As will be seen below, he frequently asserted that he had made advances or was owed money which he had not made, or which he was not owed. 556 In any event, the alleged debt of $168,300 was never included in either Vensel's loan account or Mr Crawley's loan account. No cross-claim was made by Mr Crawley for the recovery of that sum from J & J O'Brien. If the debt existed, it is now statute barred. Because I am not satisfied that such an advance was made, and because no claim was made by Mr Crawley against J & J O'Brien for the debt, I do not think that credit should be given for the alleged advance. 557 The primary significance of the mortgage is Mr Short's awareness that whatever debt was secured by the mortgage, J & J O'Brien was agreeing to pay 17.5% interest on the debt. Variation of Mortgage over 9 Longdown Street, Newtown 558 On 7 September 1993, J & J O'Brien executed a variation of the mortgage over 9 Longdown Street, Newtown. The mortgage provided that the principal sum secured by the mortgage was increased by $20,000 to $153,000. The common seal of J & J O'Brien was witnessed by Mr Short and Ms Kuan. Mr Crawley deposed that although he did not remember the precise words he used, he said to Mr Short words to the effect: " Here is the original mortgage to me over 9 Longdown Street which J & J O'Brien gave me to secure my advance of $133,000 which I lent for the balance of the purchase price. " He says that Mr Short inspected the document and that he then handed to Mr Short the variation of mortgage and said to him words to the effect: " This is a variation of the mortgage over the 9 Longdown Street property. This variation increases the sum secured by $20,000 bringing it up to $153,000. It is security for the $20,000 I have just made available to J & J O'Brien. Do you understand? " Mr Short said: " Yes. " 559 This was an extraordinary transaction. The original advance of $133,000 had been repaid by 12 December 1991 (see table at para [512]). The $20,000 which Mr Crawley had "just made available to J & J O'Brien" had been repaid a week after it had been advanced. It was repaid on 18 August 1993 by a cheque numbered 401261 paid to "AFC/St George" (J & J O'Brien general ledger JK28-145). This was almost three weeks before the variation of mortgage was executed. Mr Crawley did not tell Mr Short that the debt to be acknowledged by the variation of mortgage had been repaid. 560 Mr Crawley was not cross-examined on why he procured the execution of the variation of mortgage when the debt recorded in it had been repaid. Although the document calls for some explanation, and none was provided, I do not include Mr Crawley's obtaining this variation of mortgage amongst the matters which adversely affect his credit. Mortgage over 193 Missenden Road 561 The next advance was of a sum of $100,000 secured by a mortgage over 193 Missenden Road. The moneys were provided to assist with the purchase. 562 Mr Crawley acted as solicitor for J & J O'Brien on the purchase of 193 Missenden Road (TB 36/3506). He rendered an invoice on 10 May 1994 for $5,640.80 for the purchase of 193 Missenden Road (JK 33-56). The memorandum of costs included costs for preparing and registering the mortgage in favour of Mr Crawley. 563 There is a minute of a directors' meeting of J & J O'Brien of 15 February 1994 attended by Mr Crawley and Mr Short which records that it was resolved that the agreement for purchase be entered into (TB 36/3462.1). Mr Crawley deposed that in early 1994, Mr Short and Mr Davis both agreed to his lending money to J & J O'Brien to allow it to purchase 193 Missenden Road. Mr Crawley said that he told Mr Short and Mr Davis that if he were to lend the money, the loan would be secured by a registered first mortgage over the property and that he would charge an interest rate of 17.5% "to reflect the risk factor because the companies are using all their income to meet the committments to the bank." He said that Mr Short and Mr Davis both agreed to his lending money on those terms (CC1 para 458). Mr Short denied that such a conversation took place in his presence. He said that at no time did Mr Crawley state that he would lend money for the purchase or that he would charge interest at the rate of 17.5%. 564 Minutes were prepared of a further meeting of directors held on 29 April 1994 (TB38/3803). The minutes record that Mr Davis and Ms Kuan were present and that Mr Crawley was present as chairman, but did not vote. Ms Kuan was not a director of J & J O'Brien. Mr Short referrred to those minutes in his affidavit of 30 January 2002. He said that he did not recall attending the meeting. The minutes do not suggest he did. Mr Short did not say that he did not receive notice of the meeting. Ten years after the event, he would not have recalled whether or not notice of the meeting was given to him. On the face of the minutes, a meeting attended by Mr Crawley and Mr Davis was regularly convened. The meeting resolved that the company enter into a mortgage with Mr Crawley to secure the amount of $100,000 in respect of his advance for the purpose of acquiring 193 Missenden Road Newtown. The minutes do not record any disclosure of the interest rate proposed to be charged. 565 Mr Davis and Ms Kuan witnessed the execution by J & J O'Brien of the mortgage on 29 April 1994. Mr Davis signed the schedule which clearly disclosed that the sum advanced was $100,000, that the moneys were repayable on demand and that the interest rate was 17.5% per annum payable monthly. Clause 2(c) of the annexure provided that the mortgage could capitalise interest if it were not paid on time, in other words, that the interest could be capitalised monthly. 566 By April 1994, interest rates had fallen substantially from those prevailing in 1990 and 1991. Westpac indicator rates as at 29 December 1993 varied between 6.95% and 9.75% (compared with 15.5% as at 3 January 1991 and 14.25% as at August 1991). Westpac's indicator rates published on 14 June 1994 varied between 6.95% and 9.75%. The purchase price of 193 Missenden Road, Newtown was $300,000. Mr Crawley had a first mortgage security for an advance of $100,000. It is true that Westpac was unlikely to have lent moneys to J & J O'Brien. It was demanding repayment of its facilities and was only reluctantly extending the existing facilities. Nonetheless, there were at least serious questions as to the appropriateness of the interest rate Mr Crawley then sought to charge. At this time, none of the other loans attracted interest. Although the mortgages over 9 Longdown Street, Newtown and 151-151A King Street, Newtown had not been discharged, no debts were secured by those mortgages. Validity of Mortgages to Secure Advances at 17.5% Simple or Compounded Interest 567 Mr Crawley was in a position of conflict between his interest and his duty, both as a director of J & J O'Brien and as a solicitor to the company. It was not enough that he procure the consent of a quorum of directors, or the agreement of all the directors, that J & J O'Brien borrow moneys from him and pay interest. I accept that both Mr Short and Mr Davis knew that Mr Crawley was to charge 17.5% interest on the moneys he advanced. Nonetheless, unless they gave their informed consent to his acting "with a divided loyalty", Mr Crawley breached his fiduciary duty and the agreements for loan are liable to be rescinded. The consequence of rescission is not, as the plaintiffs would have it, that J & J O'Brien is entitled to the benefit of the moneys advanced by Mr Crawley without any obligation to pay interest (as to the appropriate rate of interest, see Maguire v Makaronis (1997) 188 CLR 449 at 476-477). 568 In Maguire v Makaronis, Brennan CJ, Gaudron, McHugh and Gummow JJ said (at 466) that: " What is required for a fully informed consent is a question of fact in all the circumstances of each case and there is no precise formula which will determine in all cases if fully informed consent has been given. The circumstances of the case may include (as they would have here) the importance of obtaining independent and skilled advice from a third party. " (Citation of authority omitted.) 569 For the consent to be fully informed, the principal must be fully informed of his or her rights and of the material facts and circumstances of the case (Commonwealth Bank v Smith at 393). Independent advice may be necessary for the principal's consent to be fully informed. The onus lies on the fiduciary to show fully informed consent. Whether independent advice is necessary for a consent to be fully informed will depend upon the circumstances, including the capacities of the principal, and the nature and significance of the circumstances that need disclosure. In Law Society of NSW v Harvey [1976] 2 NSWLR 154, the Court of Appeal said (at 170-171): " Where there is any conflict between the interest of the client and that of the solicitor, the duty of the solicitor is to act in perfect good faith and to make full disclosure of his interest. It must be a conscientious disclosure of all material circumstances, and everything known to him relating to the proposed transaction which might influence the conduct of the client or anybody from whom he might seek advice. To disclose less than all that is material may positively mislead. Thus for a solicitor merely to disclose that he has an interest, without identifying the interest, may serve only to mislead the client into an enhanced confidence that the solicitor will be in a position better to protect the client's interest. The conflict of interest may, and usually will, be such that it is not proper, or even possible, for the solicitor to continue to act for and advise his client. A solicitor, who deals with his client while remaining his solicitor, undertakes a heavy burden. Where a solicitor discovers that continuing to act for his client will, or may, bring the interests of his client and his own interests into conflict, it will be a rare case where he should not, at least, advise his client to take independent legal advice. It may well happen that the conflict arises fortuitously, and has not been anticipated when the solicitor undertook to act for the client. This circumstance does not alter the duty of the solicitor already referred to. A conflict of interest which is avoidable, and ought to be avoided, is that which arises from a deliberate proposal of the solicitor that his client deal with him. If, for example, a client seeks aid or advice from a solicitor concerning lending or borrowing, or the acquisition or disposal or dealing with assets, the solicitor will disregard his primary duty as a solicitor referred to so trenchantly by Lord Westbury, if he uses the occasion to become the party who deals with his client. It can make no difference if he is not a party directly, but the transaction is with a company in which he has an interest. Even the tender of advice to his client to have independent legal advice, although of importance, does not really overcome the objection to the solicitor having proposed, invited or encouraged the client to deal with him or his company in the proposed transaction. ... In varying degrees the trust of and reliance upon the solicitor to act fairly and independently arising from the initial preparedness of the solicitor and client to trade may remain as the reason why the client ultimately deals with the solicitor and not somebody else. It is difficult to be sure it does not. In the absence of very special circumstances, a solicitor who promotes himself as the dealer with his client misuses his position. ... The price of being a member of an honourable profession, whose duty to his client ought not to be prejudiced in any degree, is that a solicitor is denied the freedom to take the benefit of any opportunity to deal with persons whom he has accepted as clients. Therefore, he ought neither to promote, suggest nor encourage a client to deal with him, but rather should take all reasonable steps positively to avoid dealing directly, or indirectly, with his client. There are of course exceptional cases where the transaction may be in the special interest of a particular client, but such cases will be isolated and need to be dealt with conscientious regard for the procedures already referred to. " (See also O'Reilly v Law Society of NSW (1988) 24 NSWLR 204 at 209) 570 In none of the transactions was Mr Short and Mr Davis advised to seek independent advice. In relation to the first advance of $133,000, Mr Short knew that the moneys were advanced by Mr Crawley. He knew that Mr Crawley was acting as the solicitor on the transaction. He knew the interest rate. The interest rate was in line with interest rates being charged at the time. The terms of the mortgage were not onerous. The mortgage did not provide for interest to be compounded. The loan could be discharged at any time without penalty. Nonetheless, Mr Short's acquiescence does not establish that J & J O'Brien gave its informed consent, particularly as no independent advice was obtained. Nor did Mr Crawley recommend that independent advice be obtained. Nor did he advise what other terms might be available from other lenders. I have found that Mr Crawley has not discharged the onus of showing that Mr Davis gave his consent to the transaction at the time it was entered into. There was no meeting of directors. For the company to have given its informed consent, the informed consent of Mr Davis and Mr Short was required. 571 Similar considerations apply to the second advance of $353,000 on 16 August 1991, except that in this case, the mortgage was signed by both Mr Davis and Mr Short. They both knew that the moneys were advanced by Mr Crawley. They both knew the interest rates. As at August 1991, the interest rate of 17.5% per annum was not unreasonable. The terms of the mortgage were not onerous. They were businessmen well able to appreciate the prudence or otherwise of borrowing funds at 17.5% per annum to buy a property which had strategic value for the operations of the Marlborough Hotel. Nonetheless, the stringent requirements for a solicitor to obtain the informed consent of a client to a loan in which the solicitor is personally interested were not met. 572 Counsel for the plaintiffs also submitted that there was no board resolution approving the entry into the transaction, and that there was no formal declaration of Mr Crawley's interest in the loan as required by Article 81 of J & J O'Brien's Articles of Association. The Articles provided that: " 81. (In lieu of Regulation 81 Table 'A'). No Director shall be disqualified by his office from holding any office or place of profit under the Company or under any company in which this Company shall be a shareholder or otherwise interested or from contracting with the Company either as vendor purchaser or otherwise nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company in which any Director shall be in any way interested be avoided nor shall any Director be liable to account to the Company for any profit arising from any such office or place of profit or realised by any such contract or arrangement by reason only of such Director holding that office or of the fiduciary relations thereby established but it is declared that the nature of his interest must be disclosed by him in the manner required by the Act. A Director may vote in respect of any contract or arrangement in which he is interested. A Director may be appointed as the Director in whose presence the seal of the Company is to be affixed to any instrument notwithstanding that he is interested in the contract or arrangement to which the instrument relates. " (JJOB CTB at p 8698) 573 The "Act" referred to in the Articles meant the Companies Act 1961 (NSW). Section 123 of the Companies Act required a director to declare the nature of his interest in a contract, or proposed contract, at a meeting of directors of the company as soon as practicable after the relevant facts came to his or her knowledge and required that such declaration be recorded by the secretary in the minutes of meeting. Section 231 of the Corporations Law was to similar effect to s 123 of the Companies Act. It required a director to declare his or her interest in a contract or proposed contract. It did not provide that failure to make the declaration required by the statute rendered the contract in which the director was interested voidable at the option of the company. Nor was that its effect (Roden v International Gas Applications (1995) 18 ACSR 454 at 457; see also Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 196, 209-210). 574 There was no formal meeting of directors. There was no formal disclosure of interest. No minute of disclosure was made. However, both Mr Short and Mr Davis well understood the nature of Mr Crawley's interest in the proposed loan and they assented to it. There was a meeting of minds of directors in their capacity as such, albeit that their agreement was informal and is inferred from their conduct (Roden v International Gas Applications at 456-457). 575 However, the fact that there was board approval for the second loan does not mean that the loan was not voidable at the suit of J & J O'Brien for the failure of Mr Crawley to ensure the directors gave fully informed consent. 576 Both loans were repaid by 31 January 1993. Although the interest payable on both loans was subject to challenge during the hearing, no allegation was pleaded, either in the statement of claim as originally filed or by any amendment, about the loan agreements in any of the mortgages over 9 Longdown Street, Newtown, 151-151A King Street Newtown, or 193 Missenden Road, Newtown. Nor was the mortgage over 197 Missenden Road, Newtown the subject of challenge. 577 The first to sixth defendants did not object to the claims advanced during the hearing to recover the interest paid pursuant to those mortgages (or to recover interest on the other advances) on the ground that such a claim was not pleaded. The issues were certainly fought at the trial. However, the defendants did submit that the claims were barred by limitation defences, laches and acquiescence. 578 Subject to limitation defences, J & J O'Brien should, in any event, be entitled to recover interest paid in excess of 17.5%, even if the validity of the mortgages cannot be attacked. However, no such claim was pleaded and no such relief is sought in the statement of claim. 579 Similar considerations apply to the validity of the mortgage over 193 Missenden Road, Newtown given on 29 April 1994. Although the giving of the mortgage was authorised by a resolution of directors of 29 April 1994, J & J O'Brien did not give its informed consent to the borrowing from Mr Crawley at an interest rate of 17.5% per annum payable at monthly rests and compounded monthly if not paid. By 1994, interest rates had substantially fallen. Moreover, in deciding whether J & J O'Brien should make such a borrowing, it would be material for Mr Short and Mr Davis to know that interest payments had been made on the earlier borrowings and to Vensel substantially in excess of the interest due. It would also be material for them to have been told that, although the advances on the purchase of 9 Longdown Street, Newtown and 151-151A King Street, Newtown had been repaid, the mortgages had not been discharged. For J & J O'Brien to have given informed consent to the mortgage of 29 April 1994, these matters would need to have been disclosed, and independent advice obtained. 580 However, there is the substantial difficulty that the claim to set aside the loan agreement contained in the mortgage over 193 Missenden Road, Newtown and to recover the interest paid under that mortgage, or the interest paid less a reasonable rate of interest, was not pleaded. The claim was opened. Evidence was led about it without objection. Mr Crawley was cross-examined about the transaction without objection. Closing submissions were made by both parties. No point was taken in the closing submissions that the claim was not pleaded. Prima facie, the claim should be entertained. 581 However, in the first to sixth defendants' submissions, they submitted under the heading "Limitation Defences" that "any right of avoidance by the company would be lost by delay in seeking to avoid the arrangement". It was also submitted that insofar as it was alleged that Mr Crawley contravened his statutory duty, the defendants were entitled to rely upon the limitation defences in subss 1317EC, 1317HD(2) of the Corporations Law or 1317K of the Corporations Act. 582 The difficulty is that the limitation defence was not the subject of further detailed submissions. 583 Prima facie, it would appear to me that the claim for breach of fiduciary duty would not be barred by the analogical application of a statute of limitations or by laches, where the defendant is unable to show a fully informed consent to the transaction because of the non-disclosure of excessive interest payments, and non-disclosure of the fact that the mortgage advances of $133,000 and $353,000 had been repaid. Before equity applies a statutory time limit by analogy, the Court must be satisfied that it is just to do so (The Duke Group (in liq) v Alamain Investments Ltd [2003] SASC 415 at [114]; Barker v Duke Group Ltd (In Liq) (2005) 91 SASR 167 at 176 [84]; [2005] SASC 81 at [84]; Hewitt v Henderson [2006] WASCA 233 at [25]; Brightwell & Ors v RFB Holdings Pty Ltd (2003) 44 ACSR 186 at 202 [63]). I infer that some of the matters which prima facie negate an informed consent only became discoverable during the course of the proceedings. However, there were no submissions about these matters, and those last facts were not put to Mr Crawley in cross-examination. I am not critical of counsel for this, having regard to the mass of other detail to be put to Mr Crawley. 584 The unpleaded defence of laches to the unpleaded claim might be defeated by showing that Mr Short and Mr Davis were not informed of material matters which only emerged in the course of discovery, and which only clearly emerged in the schedules prepared by Ms Kuan and Mr Bell in 2005. However, as those matters were not the subject of submissions, I have concluded that it would not be just to allow the plaintiffs to maintain the claim for the recovery of interest paid on the advance of $100,000 made on 29 April 1994, because it is not possible fairly to evaluate the "defence" of laches. The same applies a fortiori to the interest paid on the earlier advances of $133,000 and $353,000 secured by mortgages over 9 Longdown Street, Newtown and 151-151A King Street, Newtown which were repaid by 31 January 1993. (In my view, they were repaid by 14 December 1992, but I need not decide that matter.) 585 Interest was charged on the advances made on 22 January 1993, 20 April 1993, 30 April 1993, and 16 May 1994 pursuant to the deed of 30 June 1994. A resolution of directors of J & J O'Brien was passed on 19 May 1994 acknowledging that J & J O'Brien was indebted to Mr Crawley in the sum of $1,000,000 by way of legal fees and loan, and authorising him to pay that sum from the assets of J & J O'Brien as and when they were available. The deed of 30 June 1994 and the resolutions of 19 May 1994 were attacked in the statement of claim filed on 16 June 1998. (They are the fourth, fifth and sixth incidences of alleged oppression.) They are dealt with in the next section. 586 The plaintiffs submitted that when the advances referred to in the preceding paragraph were made there was no agreement that interest would be payable, whether at 17.5% or otherwise. I accept that submission. The first to sixth defendants contended that Mr Crawley disclosed his intention to charge interest at 17.5% and that Messrs Short and Davis agreed to his doing so in the conversation referred to in paras [548] and [549] above. However, I do not accept that the conversation deposed to by Mr Crawley occurred. Otherwise, the first to sixth defendants submitted that interest on those loans was payable pursuant to the 30 June 1994 deed and subsequent deeds of charge. The defendants did not submit that interest on the advances referred to in the preceding paragraph, or on later advances, was payable pursuant to any of the Real Property Act mortgages. It is arguable that the "all moneys" or "dragnet" clauses in those mortgages, (at least in the later mortgages), would have caught such advances even though the advances were not made for the purpose of acquiring any of the properties over which the mortgages were given. The construction of such clauses is often a matter of debate (Tyler, Young & Croft, Fisher & Lightwood's Law of Mortgage, 2nd Australian ed (2005) Chatswood, Butterworths, at 3.8-3.9). As no submissions were made about this, I do not consider I should take that question further. Although I should deal with issues fought at the trial without objection, notwithstanding the claims were not pleaded, I should not go beyond that. Particularly as the claims were not pleaded, it would be dangerous to speculate what course the trial would have taken had the defendants relied on those mortgages as imposing interest at 17.5% per annum on such advances. 587 Before completing this part of the judgment dealing with the plaintiffs' claims for the recovery by J & J O'Brien of interest paid on advances made by Mr Crawley, it is necessary to deal with the challenges to the validity of the 30 June 1994 deed and later securities. SECTION 5 – Deed of Acknowledgement of 30 June 1994 588 By May 1994, Messrs Crawley, Short and Davis were under increasing pressure from Westpac to refinance the Westpac debt. On 2 May 1994, Mr Crawley sent a long memorandum to Mr Short and Mr Davis in relation to this and the operation for the hotels. He wrote: " Debt due to Crawley The current indebtedness of the J & J O'Brien group to myself in respect of Mortgage Advances, tax losses and costs is approximately $700,000. I have carried these loans and debts for long enough. I have missed other opportunities for investments and the unequal support of the group cannot be permitted to continue. Without limiting my rights to immediate payment after completion of the refinancing, the whole of the indebtedness of J & J O'Brien will be required to be repaid to me. " 589 At that time, the principal amount owing to Mr Crawley for loans made by him was $250,000 (see table at para [512] of section 4). No bill of costs had been rendered which was unpaid. No reference was made to the amounts received for professional fees for which invoices had not been rendered referred to in Section 3 above. The reference to "tax losses" was a reference to the improper sheltering of profits derived by J & J O'Brien from the Sinodun joint venture. J & J O'Brien had not paid tax on those profits. Mr Crawley asserted that he had sheltered the profits from the Yurong St development against tax losses of Vensel by raising a loan in the books of J & J O'Brien payable by J & J O'Brien to Vensel. How it was thought this could be done was never made clear in the evidence. As at 30 June 1994, Vensel was recorded as a creditor of J & J O'Brien in the amount of $1,771,021. The loan was reduced by cheques drawn by J & J O'Brien for Vensel's benefit. The debt was reversed at 30 June 1997 (Vaccher 30/3/04 paras 65-72; AFB 9 page 43). The first to sixth defendants' counsel did not make any submissions in justification of Mr Crawley's assertion that the J & J O'Brien group was indebted to him in respect of tax losses. It was not. 590 On 17 May 1994, Mr Crawley wrote again to Mr Short and Mr Davis concerning the refinancing of the Westpac debt. Mr Crawley wrote (TB 38/3885 at 3886-87): " As you are aware and as I have repeatedly sought from both of you some cash support, that is putting money in behind the interest which you both have in the companies over the last number of years and no support of any meaningful amount has been forthcoming. During that time, I have advanced to the company amounts up to some $600,000, without any equal injection from either partner. The position now is, as I have stated to you that the company requires a capital injection. The present position is that the companies have not paid legal fees in relation to numerous transactions over three years, together with current loans outstanding, the amount is in the vicinity of some $800,000. " 591 Mr Crawley went on to say that unless a deed were entered into, signed by Mr Short and Mr Davis acknowledging the debt and providing to him some guarantees, he was not prepared to put any further money into the group. He said that costs had not been paid over a period of some four years because of cash constraints. He complained that: " The companies have soaked up my capital, have tied up all of my investment properties, whilst there is no equal support being provided by either of you. " 592 Mr Crawley did not identify how the debt of some $800,000 was calculated. Whilst it was true that Mr Crawley had advanced to the company amounts up to some $600,000, indeed he had advanced $873,420 to J & J O'Brien and Marsico, he did not disclose what repayments had been made. The outstanding debt owed to him as at 17 May 1994 was $305,000, subject to J & J O'Brien's right to set off overpaid interest. 593 Mr Crawley deposed (CC1 para 511) that, at a meeting on 5 May 1994, attended by Mr & Mrs Short, Mr Davis, himself and Mrs Crawley, he told Mr Short that "legal costs to date are in excess of $300,000". Mr Crawley's evidence of this meeting was disputed by Mr Short. Nonetheless, it is significant that even on his own case, Mr Crawley was asserting as late as 5 May 1994 that unpaid legal costs were "in excess of $300,000", when he procured Mr Short's signature to the deed of 30 June 1994 which is claimed to acknowledge a debt for legal costs of $920,000. 594 A meeting of directors of J & J O'Brien was held on 19 May 1994. The minutes of the meeting prepared by Mr Crawley record as follows: " It was further reported to the meeting, that the indebtedness by the J & J O'Brien, Marsico, Trudale Group of Companies to Christopher Crawley including the payment for the tax losses in Vensel utilised for a set-off against the profit earned on Yurong Street, the legal costs for the past 3½-4 years on the Trudale matter and J & J O'Brien Marsico particularly in the dealings with Westpac Banking Corporation and loans directly to the company which remain unpaid which were raised in the purchase of the properties: 151-151A King Street, Newtown 9 Longdown Street, Newtown 193 Missenden Road, Newtown 195 Missenden Road, Newtown 197 Missenden Road, Newtown All in total was approximately $1 million. " 595 The minutes record a resolution that J & J O'Brien acknowledge its indebtedness to Mr Crawley and Aubrey F Crawley & Co for "the abovementioned sums", that it authorised the completion of all security documents and fresh documents or variations to existing mortgages to evidence the indebtedness, and that Mr Crawley be authorised to repay the debt and costs when sufficient funds were available. The minutes also record a resolution that Mr Crawley was authorised to transfer moneys that might be held from time to time in Aubrey F Crawley & Co's trust account to meet the indebtedness with or without bills of costs being rendered. Such a transfer would have been in violation of the requirements of s 61(3)(b) of the Legal Profession Act and clause 8 of the Legal Profession (Trust Accounts and Controlled Money) Regulation. 596 Mr Short disputed the accuracy of the minutes of the meeting of 19 May 1994. He asserted that, whenever the issue of legal fees was raised, he said to Mr Crawley words to the effect that there was no way he was going to pay Mr Crawley's legal fees and there was no arrangement for him to be paid his legal fees (WS1 para 161). I do not accept Mr Short's evidence that he made those statements at the meeting of 19 May 1994. Nor do I accept Mr Crawley's evidence as to what was said at the meeting. Mr Crawley deposed that he told the meeting that: " My loans are secured, as you know, by mortgages which you have signed. The legal costs owed to me by the companies for legal work done to date are not secured. At present the legal costs owed to me are approximately $900,000. I require that debt to be secured. I propose that the money owed to me for legal costs be acknowledged by the companies and that the companies execute appropriate security documents, either fresh documents, or variations to the existing mortgage documents. I want the debt to be repaid over the next twelve months. Warwick is leaving for overseas tomorrow so we do not have time to prepare and sign the necessary documents. The appropriate documents can be prepared and then executed on Warwick's return. " 597 Mr Crawley deposed that he formally put that proposal to the meeting and that Mr Short and Mr Davis each voted in favour of the resolution. 598 I do not accept that Mr Crawley advised that legal costs were owed to him in an amount of approximately $900,000. That would be inconsistent with the minute he prepared at about that time recording his having reported that he was owed in total approximately $1,000,000 for legal costs, tax losses, and loans. He was then owed $305,000 for loans to J & J O'Brien. 599 However, I do accept, as appears clearly from the minutes and his correspondence, that at that time Mr Crawley was asserting that he was owed substantial sums for legal costs. In none of the documents did he specifically identify what sum he was owed for legal costs, and I think it likely that he did not specify a particular figure. It would have been false for Mr Crawley to have stated (as he deposed he did state) that he was owed $900,000 for legal costs. He had received substantial moneys for legal work done in connection with the purchase of Jackson's on George and the Elizabeth Street land for which no account had been rendered and which he would have been liable to disgorge if the facts had been known. He was entitled to charge reasonable legal fees, but in the absence of an agreement with the companies as to the amount of fees he was to be paid, he could not have brought any action for costs until he had rendered a bill of costs and the companies had had the opportunity to have the bill taxed. 600 In their statement of claim the plaintiffs challenged the resolutions recorded in the minutes of 19 May 1994. The purported passing of those resolutions was described as the fourth instance of alleged oppression. However, neither party submitted that the resolutions of 19 May 1994 were themselves the source of legal rights or obligations. The position of the first to sixth defendants was that the resolutions of 19 May 1994 were given effect to by the deed of acknowledgement of 30 June 1994 (which was the subject of a further resolution). The reasons for setting aside the deed of 30 June 1994 would apply equally to any legal right or obligation which may arguably have been created by the resolutions recorded in the minutes of 19 May 1994. 601 On 24 June 1994, Mercantile Mutual advanced $400,000 (net $397,439) on first mortgage security over the properties at 9 Longdown Street, 193 Missenden Road and 197 Missenden Road, Newtown. Mr Crawley postponed his mortgages over those properties in favour of Mercantile Mutual. $380,000 of the advance from Mercantile Mutual was used to reduce the debt owed to BAC. 602 The minutes of the meeting of directors of J & J O'Brien held on 30 June 1994 record that the meeting was attended by Messrs Crawley, Short and Davis (TB 39/4025). The minutes record that Mr Crawley tabled a deed between the company and him, three instruments of variation of mortgage, and a "notice of commercial benefit to Crawley". The minutes record: " The documents were discussed and the meeting advised that the purpose of the documents was to increase the amount of the principal sums under the respective mortgages in order to provide Crawley with additional security ... for repayment of previously advanced amounts to the company as well as payment by the company of various legal costs associated with Crawley's legal practice acting for the company and its related companies over the years to the general benefit of the company. " 603 The meeting recorded that it was resolved (with Mr Crawley abstaining) that the company enter into the documents. 604 No "notice of commercial benefit to Crawley" was produced. Instead, notices from Marsico and J & J O'Brien addressed to Mr Crawley were produced asserting that Marsico and J & J O'Brien would each derive a commercial benefit from entering into the documents. 605 There are two relevant deeds of 30 June 1994. There is the deed of acknowledgment between Mr Crawley and J & J O'Brien, and a deed between Marsico and Mr Crawley whereby Marsico guaranteed the debt owed by J & J O'Brien to Mr Crawley. 606 The effect of the deed of acknowledgment of 30 June 1994 was as follows: (a) J & J O'Brien acknowledged a debt of $920,000 for "Legal Costs" as defined, and acknowledged that that amount was immediately due and payable notwithstanding that any part of the Legal Costs was represented by an amount which had not been billed (Clause 2.1.1); (b) the Legal Costs constituted amounts owing under, and secured by the mortgages over, 9 Longdown Street, 193 Missenden Road, 197 Missenden Road and 151-15A King Street, Newtown; (c) the effect of (b) was that interest of 17.5% became payable from 30 June 1994 on the amount of Legal Costs pursuant to the provisions of each mortgage which charged interest on moneys secured by the mortgage; (d) the mortgages were varied to provide for new principal sums to be secured in an amount totalling $1,225,000, representing the total value of outstanding loans of $305,000, and the Legal Costs of $920,000 (schedule 2 and clause 2.1.5); and (e) interest became payable on the increased principal sums both for the acknowledged Legal Costs and for the whole of the outstanding loans of $305,000 (clause 3.1), whereas prior to the deed, interest was only payable on the advance of $100,000 made for the purpose of purchasing 193 Missenden Road, Newtown (the other advances secured by mortgage having been repaid, or not having been made by Mr Crawley). 607 The common seal of J & J O'Brien was affixed to the fourth page of the deed of acknowledgment. Mr Short and Mr Agus (the company secretary and an employee of Vensel) witnessed the affixing of the common seal. No other page of the deed was initialled or signed by them. The two schedules to the deed were unsigned. Schedule 1 set out the legal costs acknowledged to be owing, as quoted in para [54] of Section 1 above. The definition of "Legal Costs" referred to Schedule 1. Schedule 2 set out the amounts by which the existing principal sums secured by three of the four mortgages would be increased so as to total $1,225,000 and showed that that sum was made up of legal costs of $920,000 and what was described as the "Total Value of Outstanding Principal Sums Under the Mortgages to Date" of $305,000. 608 Mr Short deposed that he did not see the document in its entirety until late 1996 and that no copy was given to him before then (WS1 para 168(a)). He deposed that he did not attend any directors' meeting of J & J O'Brien or any other company in the group at which it was agreed that Mr Crawley or his firm would be entitled to legal fees calculated at 1% of the total indebtedness owing to Westpac which was the subject of the refinancing as referred to in para (a) of Schedule 1. He deposed that he had no recollection of signing the deed acknowledging the fees between Mr Crawley and J & J O'Brien or the guarantee between Mr Crawley and Marsico, although he acknowledged that his signature appeared on the documents. According to Mr Short, he was not advised that independent advice ought to be obtained by the companies, or by him, with respect to any alleged indebtedness for legal fees or provision of any security with respect to those legal fees (para 169). The plaintiffs disputed that the schedules were attached to the deed when it was signed. 609 Mr Crawley deposed that, during the meeting of 30 June 1994, he said to Mr Short and Mr Davis words to the effect: " I could have called up the mortgages as they are on demand, and this would have meant that you two would have to contribute some cash to the companies. You have both made it clear that you will not put any moneys into the companies. I now require these variations of mortgage to be signed to cover my legal costs. My costs are set out in the schedule to the Deed of Acknowledgment. " 610 Mr Crawley deposed that he summarised the terms of the Deed of Acknowledgment and that there was a discussion to the following effect: " Crawley: 'As you know, the companies have paid some legal costs but, the bulk of fees remain unpaid from the time of the purchase of the Marlborough and that includes costs arising from the purchase of Jackson's and the Racecourse. There was no point in issuing substantial bills of costs, since 1990 as there were more pressing external creditors, particularly Westpac. Now, I am in the position where not only my costs but my loan advances are unsecured. I want the costs set out in the schedule acknowledged. The costs of negotiating and documenting the loans of $32,000,000 would be calculated at more than 1%, if that work was done by a mortgage broker. But I am prepared to limit those fees to 1%. Are you prepared to agree to that rate? The fee will probably be payable to Vensel.' Davis: ' Yes, I agree that 1% is reasonable.' Short : 'I agree.' Crawley : 'In respect of Trudale, the costs are for the documentation and related work on the acquisition of the company, the purchase of the various blocks of land from the various vendors, the conveyancing work for consolidation of the site, and all the attendances regarding the development consents, the primary applications, the engrossing of the construction contracts and associated documents, the management of the construction contracts, all the attendances for the preparation and registration of the strata plan.' Davis: 'I'm prepared to agree to pay those costs. I consider the costs are reasonable. That is fair, you have done the work.' Short: ' I agree.' Crawley: ' If either of you want to have your advisers look at the documents prior to approving them, you can do so. I am not going to vote upon the resolutions for their acceptance. I will leave it to you two.' Both Mr Short and Mr Davis said: 'No, we are happy with the documents.'" 611 Mr Short denied that such a conversation took place (WS3 para 194). I do not accept that a conversation took place as deposed to by Mr Crawley. I do not accept that Mr Short and Mr Davis expressed oral concurrence to Mr Crawley charging 1% of $32,000,000 for the costs of negotiating and documenting loans of $32,000,000, or that they expressed their agreement to the costs proposed to be charged to Trudale, or that Mr Crawley told them that they could have their advisors look at the documents before approving them if they wished. In my view, the discussion as deposed to by Mr Crawley was reconstructed to accord with what Mr Crawley perceived to be his interests on the issue and is not an accurate reflection of any discussion that took place. 612 If a conversation did occur as Mr Crawley deposed then he seriously misrepresented the position. He did not disclose that he had received $49,000 for acting on the purchase of Jackson's on George although no bill of costs had been rendered. He did not disclose that he had received $35,000 for costs on the acquisition of Trudale and the purchase of the Elizabeth Street property for which no account had been rendered, nor that he had received $200,000 in professional fees for which no account had been rendered, and had repaid only $142,124, nor that he had charged and received almost $100,000 for legal costs in connection with the development in respect of bills which had been rendered and paid. 613 Prior to 1 July 1994, s 195 of the Legal Profession Act 1987 provided that a solicitor and client might make an agreement as to the solicitor's remuneration in respect of the transaction by the solicitor of any non-contentious business. Such an agreement could be inconsistent with the provisions of any determination of the Legal Fees and Costs Board in respect of the business. At that time s 196 provided: " 196 Regulations to provide for related costs (1) The regulations may make provision for or with respect to the following: (a) fixing fair and reasonable costs for legal services provided in any workers compensation matter, (b) fixing the costs payable on obtaining or for enforcing a default judgment; (c) fixing an amount of costs for a matter that is not a legal service but is related to proceedings (for example, expenses for witnesses). (2) A barrister or solicitor is not entitled to be paid or recover for a legal service an amount that exceeds the fair and reasonable cost fixed for the service by the regulations under this section. Note. Amounts fixed for matters that are not legal services may be taken into account by a costs assessor in assessing costs under this Part. " 614 Section 198 provided that proceedings for the recovery of costs incurred by the solicitor in transacting any business could not be commenced or maintained against any person unless at least one month had passed since the person had been given a bill of the costs so incurred (s 198(1)). A bill of costs could be taxed in accordance with the rules of the Supreme Court. No proceedings for the recovery of costs could be commenced whilst taxation of a bill of costs was pending (s 201). Subsection 197(2) provided that if on any taxation of a bill of costs in respect of non-contentious business transacted by a solicitor, the solicitor relied on a non-contentious business agreement which was objected to by the client, the Supreme Court could set aside the agreement if it was of the opinion that the agreement was unfair or unreasonable, or could reduce the amount payable under the agreement. 615 Immediately prior to the signing of the deed of 30 June 1994, there was no written non-contentious business agreement between Mr Crawley and J & J O'Brien, Marsico or Trudale. Nor was there an unwritten agreement as to the remuneration Mr Crawley was entitled to charge for legal services he provided. He was not entitled to bring any action for the recovery of his costs until he had rendered a bill of costs. The companies would have been entitled to have his bills taxed. Mr Short and Mr Davis were not advised that the companies had those rights. 616 Nor were they advised that new legislation regulating legal fees and other costs, requiring disclosure of how costs would be charged and provision of estimates, and providing new procedures for assessment of costs in the event of a dispute, was due to commence the following day (Legal Profession Reform Act 1993 (NSW), Schedule 3). 617 Counsel for the first to sixth defendants submitted that the deed of 30 June 1994 operated as a stated account and that in entering into the deed, J & J O'Brien waived its right to a bill of costs. The plaintiffs disputed that the agreement operated as a stated or settled account. It is certainly not a settled account in the sense in which "settled accounts" may be pleaded as a defence to an equitable suit for an account, as it is not a settlement of mutual debts and credits (Meagher, Heydon & Leeming, Meagher, Gummow & Lehane's Equity, Doctrines & Remedies, 4th ed, (2002) Chatswood, Butterworths at [25-040]). 618 However, assuming that the document was complete when it was executed, it was an agreement between J & J O'Brien and Mr Crawley to pay $920,000 for legal costs "rendered or to be rendered and disbursements incurred or to be incurred" in respect of the matters described in the schedule. If the agreement is valid, counsel for the first to sixth defendants is right in saying that it operated as a waiver of J & J O'Brien's entitlement to a bill of costs. However, that begs the question. Mr Crawley faced a clear conflict between his personal interest and his duty as a solicitor to J& J O'Brien, Marsico and Trudale. He was seeking J & J O'Brien's agreement that it pay interest on advances which hitherto had not attracted interest, that advances be secured which hitherto had not been secured, and that the company acknowledge a debt for legal costs which it was under no liability to pay. Such an agreement could only be upheld if the client gave its fully informed consent to it. Even then, such an agreement would not be enforceable if its terms were not fair and reasonable, as the solicitor must not take advantage of the client's position (Riley, op cit at [2363]). 619 The provision of fully informed consent would have required disclosure of all material circumstances relevant to the company making a decision whether or not to enter into the agreement in the circumstances that then prevailed, this would have included information as to the company's existing legal rights against, and liabilities to, Mr Crawley, and the provision of independent advice. Assuming that the document was complete when it was signed, nonetheless, it is invalid and must be rescinded because the company did not give its informed consent to the agreement. Mr Crawley's procuring an agreement which was so much to his benefit was a serious breach of his fiduciary duty as a solicitor. 620 Mr Crawley also breached his fiduciary duty and statutory duties as a director in procuring the agreement. I cannot conceive how Mr Crawley could honestly have considered, and I do not think that he did consider, that he was then entitled to $920,000 for legal costs in respect of the matters summarised in Schedule 1. Money had been taken from J & J O'Brien and Trudale without rendering accounts and without disclosure at any meeting of directors of the companies. Whilst work was done for which no accounts had been rendered, Mr Crawley must have known that he could not then have insisted on payment of his claim for legal costs without first rendering a bill of costs. He did not act honestly in the exercise of his powers as a director of J & J O'Brien in procuring the resolution of directors of 19 May 1994 and in procuring their resolution to execute the deed of 30 June 1994. He breached his duties under subss 232(2) and 232(6) of the Corporations Law. 621 It is unnecessary to consider how far Article 81 of the Articles of Association of J & J O'Brien might go to preserve a contract between the company and a director from avoidance by reason of the director's being interested in it. The Article required that the nature of the director's interest in the contract be disclosed in the manner required by the Companies Act. There was no such disclosure as required. However, even if there had been, the agreement is liable to be avoided not only because it was entered into in breach of Mr Crawley's duty as a director, but also because Mr Crawley breached his fiduciary duty as a solicitor in entering into the agreement for his benefit without the informed consent of his clients. The obligations of a solicitor to his client are not reduced because there is another concurrent relationship of director and company, and the Articles modify his obligations as director, or modify the consequences of a breach of his duty as director. In Sims v Craig Bell & Bond [1991] 3 NZLR 535, Richardson and Hardie Boys JJ addressed a submission that the solicitors' duties in that case were reduced by the fact that there was a concurrent relationship under which he had different responsibilities. Richardson J said (at 545): " It would be disruptive of the solicitor-client relation, undermining of the principles underlying that fiduciary relationship and contrary to the public interest to allow the solicitor to opt out of that professional duty by pleading that acting in a different capacity he had discharged the different responsibilities attaching to that other relationship. There is every reason to require the solicitor who has two roles to play to discharge the fiduciary responsibilities attaching to each." 622 Hardie Boys J said (at 546): " The distinct, and more stringent, obligations imposed on the solicitor-client relationship cannot be diminished by virtue of another kind of relationship which may exist between the parties; if only for the reason that those obligations are inter alia for the protection of clients with whom there is just such another kind of relationship. The very fact that a solicitor is in a business association with his client imposes particular duties upon him. His obligations are greater, not less, than if there were no such relationship ." 623 My conclusion that the deed of 30 June 1994 is voidable and should be rescinded, even assuming that it was complete when it was executed, renders it strictly unnecessary to decide whether the schedules to the deed were attached to it when it was signed by Mr Short. However, in case the matter goes further, I should express my conclusions on that question. 624 Counsel for the first to sixth defendants submitted that the claim was not open to the plaintiffs because it had not been pleaded. I think this contention is right unless leave were given to the plaintiffs to amend. Paragraph 84 of the third further amended statement of claim pleads that: " On or about 30 June 1994 Crawley caused or allowed, inter alia, each of J & J O'Brien and Marsico to enter into a Deed of Acknowledgment and a Deed of Guarantee and Indemnity respectively with Crawley, and which provided, inter alia, for the payment to Crawley of the sum of $920,000 for legal fees and $305,000 for loans. " 625 The pleading then goes on to say that the deeds were entered into without any resolution of the boards of directors of Marsico and J & J O'Brien, without the benefit of any independent legal or other professional advice, and without the knowledge or consent of Mr Short. The plaintiffs allege that, in causing or allowing each of Marsico and J & J O'Brien to enter into the deeds, Mr Crawley breached his duties as a director and as a solicitor. 626 Paragraph 84 alleges that the deed entered into on or about 30 June 1994 provided for the payment of $920,000 for legal fees and $305,000 for loans. That is only consistent with the plaintiffs alleging that the deed had that effect on or about 30 June 1994. It would not have had that effect at that time if the schedules were not then part of the deed. 627 The plaintiffs did not seek leave to amend the statement of claim. Had that leave been sought, I would have given leave because the question of whether the deed was complete when it was signed was raised in the evidence well before the hearing and was an issue litigated during the trial. As noted above, Mr Short deposed in 2000 that he did not see the document in its entirety until 1996. That assertion was inconsistent with the whole of the deed being before him when he executed it on behalf of J & J O'Brien on 30 June 1994. Mr Crawley deposed that he tabled the entirety of the document at the meeting (CC1 para 575). 628 The plaintiffs submitted that it should be inferred from the physical appearance of the original of the deed that the schedules were added later. The deed, including the schedules, was stapled. There were numerous staple holes on the document. As the document would have been copied and recopied during discovery and preparation for the hearing, nothing turns on the fact that the deed had obviously been unstapled and restapled on many occasions. It was also submitted that the colour of the paper now attached as Schedules 1 and 2 was different from the original pages 1-4. That is true in relation to Schedule 1. The paper appears to be older. However, to the inexpert eye, I can see no difference between the paper which is Schedule 2 and the paper which is pages 1-4 of the deed. Schedule 2 refers to the amount of legal costs of $920,000. There may be a number of explanations as to why Schedule 1 is on different quality, and apparent age, of paper from the other pages. For example, it may be that there was more than one original copy of the deed, and over the course of time, as the deed was photocopied and reassembled, the pages became mixed. I would not draw from the form of the original deed any conclusion adverse to Mr Crawley on this question. Of more significance is Mr Crawley's failure to refer to the debt for legal costs acknowledged by the deed after 30 June 1994 when that would be expected if the Schedule then existed. 629 On 22 September 1994, there was a meeting of directors. The minutes of the meeting, prepared by Mr Crawley, record Mr Crawley's reporting that there was a sum owing to him of approx $1,000,000 which was required to be secured by an equitable charge. The minutes record a resolution that the company (J & J O'Brien) execute an equitable charge in favour of Mr Crawley for the debt owing as loans, costs and disbursements (TB 40/4167). On 22 September 1994, Mr Short and Mr Davis witnessed the affixing of the common seal of J & J O'Brien to the Deed of Equitable Charge. The deed charged all of the companies' undertaking to secure the "principal sum" owed to Mr Crawley. The deed did not quantify the "principal sum" but defined it as all sums of money in which the company was then or thereafter became indebted to him on any account whatever. The deed provided for interest at 17.5% compounded monthly to be payable on the principal sum (TB 40/4171). 630 If the schedules now attached to the deed of 30 June 1994 were then in existence, there is no reason that Mr Crawley would have reported that the debt owed was approximately $1,000,000 when the schedules acknowledged a debt of $1,225,000. The only repayment between June and September had been of an amount of $10,000 on 9 August 1994. 631 On 24 October 1994, Mr Crawley responded to a request from the auditors for information of the amount of any costs and disbursements which, according to his accounting records, were billed by him up to the balance date and remained unpaid and an estimate of the companies' liability to Mr Crawley for services rendered but unbilled as at the balance date. Mr Crawley said: " Fees are outstanding in relation to the Trudale/J & J O'Brien joint venture on Elizabeth Street and in respect of J & J O'Brien group of hotel companies from September 1990 to balance date of approximately $600,000, which have not been billed but is an estimate on records held. " (TB 41/4225.5) It is incomprehensible that Mr Crawley could have made such a statement if the deed dated 30 June 1994 included the schedules which are now attached to it. If the schedules then existed Mr Crawley would have been bound to state, and it would have been in his interest to state, that he was owed $920,000 for legal costs and that that debt was acknowledged in the deed of 30 June 1994. 632 Mr Crawley said that the reason he told the auditors that there was approx $600,000 of unbilled legal fees owed to his firm rather than $920,000 referred to as "legal costs" in the deed, was because he regarded item A of schedule 1 to the deed, providing for payment of $320,000 being 1% of the Westpac financing, as a debt owed to Vensel and not a debt for legal fees in the sense in which the auditors were making their inquiry. That still does not explain why he did not tell the auditors about the 30 June 1994 deed and that alleged debt. Mr Crawley said that the auditors already had the deed at this time. However, I do not accept that evidence. Mr Leddin was not called to corroborate it. Glen Neilsen & Co wrote to Mr Crawley on 2 November 1995 recording that the deed dated 30 June 1994 had been produced to them on 27 October 1995. Mr Vaccher from that firm gave evidence, which I accept, that the deed of 30 June 1994 was not brought to his attention in the audit of the financial statements for the year ended 30 June 1994. 633 The minutes of the meeting of directors of 6 December 1994 record Mr Crawley's having stated that the moneys payable to him "exceeded approximately $1,000,000" (TB 41/4262 at 4263).] 634 On 8 December 1994, Mr Crawley and Mr Short signed the financial statements for J & J O'Brien for the year ended 30 June 1994. The financial statements included a statement that the company had a liability consisting of "unsecured loans from directors" of $357,000. This sum would have included the $305,000 of advances made by Mr Crawley notwithstanding the description of the loan as unsecured. The accounts did not record the liability of $1,225,000 as recorded in the deed of 30 June 1994 as the debt then owed by J & J O'Brien to Mr Crawley. For reasons which were not explained, the deed had not been provided by Mr Crawley to the auditors. 635 On 12 February 1995, following the engagement of Mr Hannan to provide financial advice to Mr Short, Mr Short addressed a series of questions to Mr Crawley in relation to the group's financial position. He said: "Share cover (sic) loans, I frankly have no idea whatsoever how or when the amounts arose, except that you have bounced the figures around for a year or two. One day it is $300,000, another it is $700,000 and another it is $1,200,000. Its (sic) in everyone's interest to clarify and substantiate these claims asap. I suggest that we appoint the Auditor to prepare and certify a full analysis of all advances, repayments, interest etc in respect of all Directors, loans and outstanding indebtedness ... If the amounts you claim are owing include accumulated professional fees, these must be supported by fully detailed invoice (sic), which the Directors will need to review." 636 Mr Crawley responded on the following day. He wrote: " The Company has no 'share cover loans'. Mr Crawley has made secured advances to the company totalling $1,385,000. Of course the amounts vary where there is necessity for capital to be injected from time to time as both Mr Davis and Mr Short have never contributed to any capital or loans to the company other than the initial injection of some $33,000. ... The Company has executed pursuant to a meeting of directors 14 May 1994 and under its common seal as attested by Mr Davis and Mr Short a deed relating to the company's indebtedness to Mr Crawley. ... " 637 The sum of $1,385,000 was explained in Mr Crawley's letter as being further loan advances of $50,000 on 16 November 1994 and $85,000 on 7 February 1995, in addition to a debt of $1,250,000. 638 The assertion of a debt of $1,250,000 is inconsistent with the deed which referred to a debt of $1,225,000, if the schedules which now form part of it were then in fact part of it. 639 On 27 February 1995, Mr Crawley tabled a schedule of loans and indebtedness to a meeting of directors. The minutes of this meeting were taken by Mr Cohen (CC1 para 652), and may therefore be taken with more confidence as accurately reflecting the matters discussed. The schedule tabled by Mr Crawley (TB 44/4561) was headed "Variation of Mortgages". It referred to an existing indebtedness of $1,225,000 to which the extra advances of $185,000 were added. The schedule then provided for the principal sums of mortgages over 9 Longdown Street, 193 Missenden Road, and 197 Missenden Road, Newtown to be increased by $185,000. The "Existing Mortgages" (before the increase in principal sums) were described as follows: 9 Longdown Street, Newtown $293,000 197 Missenden Road, Newtown $289,000 193 Missenden Road, Newtown $290,000 151-151A King Street, Newtown $353,000 640 This schedule is consistent with the schedules to the deed of 30 June 1994. It follows that the schedules attached to the deed of 30 June 1994 were brought into existence by at least 27 February 1995. The plaintiffs contended that the schedules were not attached to the deed when the deed was faxed to Mr Hannan on 20 April 1995. That is consistent with some handwritten comments of Mr Hannan, but he was not available to be cross-examined. 641 The instructions to Gilbert & Tobin in 1996 setting out Mr Short and Mr Davis' complaints against Mr Crawley did not include a contention that the deed of 30 June 1994 did not have Schedules 1 and 2 attached to it when it was signed. 642 I cannot think of a good reason why Mr Crawley would not have sent the deed of 30 June 1994 to the auditors for the purposes of the 1994 audit, or at least advised them of the debts of J & J O'Brien acknowledged by the deed, had the schedules then been attached. The only reason Mr Crawley advanced was inconsistent with the evidence of Mr Vaccher and with the correspondence from Glen Neilsen & Co, and was not corroborated by Mr Leddin. 643 Had it been necessary to decide the point, I would have given leave to the plaintiffs, even at this late stage, to amend to raise the claim and I would hold that the schedules were not attached to the deed when it was signed on 30 June 1994. However, for the reasons I have given, it is not necessary to determine the question. The deed should be rescinded. Such rescission operates ab initio, that is, the parties are treated in equity as if the deed had not been entered into (Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 at 153; Alati v Kruger (1955) 94 CLR 216 at 224). 644 The consequences of rescission are that J & J O'Brien is not indebted to Mr Crawley for $920,000 of legal costs. Other than the deed, there is no basis on which Mr Crawley was entitled to a debt for unpaid legal costs as at 30 June 1994. A further consequence of the rescission is that interest is not payable under the deed of 30 June 1994 on the outstanding advances as at 30 June 1994, other than the advance of $100,000 made on 29 April 1994 secured by the mortgage over 193 Missenden Road, Newtown. Consequential adjustments will flow to the charging of interest on Mr Crawley's loan account with J & J O'Brien and on Vensel's loan account with J & J O'Brien. In particular, as set out in paras [515]-[522] of Section 4, the payments of $414,250.74 and $91,000 on 1 April 1997 and 13 May 1997 should be applied in reduction of the debt for advances made by Mr Crawley to J & J O'Brien. The debts arising from advances made by Mr Crawley were cleared in April 1998 by the payment made from J & J O'Brien, on Mr Crawley's direction, to Vensel, of $277,927.29. Further Securities Taken by Mr Crawley in 1994 and 1995 645 As noted in para [629] above, on 22 September 1994, J & J O'Brien executed a deed of Equitable Charge in favour of Mr Crawley to secure the payment of moneys owed to him and to provide that such debts would incur interest at 17.5% per annum. The resolution of directors of 22 September 1994 that J & J O'Brien execute an equitable charge in favour of Mr Crawley to secure an alleged debt, and the resolution of directors of 27 February 1995 that J & J O'Brien execute a further deed of charge and variations of mortgage, were challenged in the statement of claim filed on 16 June 1998. They are the seventh and eight instances of alleged oppression. The plaintiffs alleged that in causing or allowing J & J O'Brien to pass the resolutions, Mr Crawley breached his duties as a director of and solicitor to J & J O'Brien and exposed J & J O'Brien to substantial loss. I consider this pleading to be a sufficient challenge to the payment of interest at 17.5% on the advances made by Mr Crawley which were otherwise unsecured. For the reasons already given, the deeds are voidable at the option of J & J O'Brien and Marsico unless entered into with the fully informed consent of those companies. Mr Short and Mr Davis evidenced their consent to the deed of 22 September 1994 by witnessing the affixing of J & J O'Brien's common seal to the deed. But their consent was only fully informed if they were aware of all the material circumstances relevant to the company's decision to enter into the deed and had independent advice. The minutes record that: " It was reported that the sum owing of approximately $1,000,000 was required to be secured. It was resolved that the company execute the Equitable Charge documents in favour of Mr Crawley for the debt owing as loans, costs and disbursements. " 646 In order for the companies to give their fully informed consent to the Deed of Equitable Charge which imposed a rate of interest of 17.5% per annum compounded monthly on the debts due, the companies would have needed independent advice as to what rights Mr Crawley had and what steps he could properly have taken to enforce his existing securities if the companies did not agree to pay that rate of interest. On the evidence before me, the directors would properly have been advised that the deed of 30 June 1994 was unenforceable; that Mr Crawley was not entitled to enforce a debt for unpaid legal costs; the mortgage entered into on 5 April 1993 would be liable to be set aside; that unless other advances were caught by the "dragnet" clauses of the mortgages, only his advance of $100,000 on 29 April 1994 was secured and carried interest; and that the agreement to pay 17.5% interest compounded monthly on the advance of $100,000 could be challenged. Those were the material matters to be considered. In a claim for what is in effect, though not in form, rescission of the charge of 22 September 1994, Mr Crawley cannot be heard to say that such matters, if disclosed, would not have affected the decision of Mr Davis and Mr Short to agree to J & J O'Brien's entering into the deed of charge (London Loan and Savings Co of Canada v Brickenden at 469). The equity to a decree of rescission was immediately generated by the breach of fiduciary duty by which Mr Crawley procured the deed in his favour where there was a conflict between his duty and interest (Maguire v Makaronis at 467). 647 At the meeting of directors of J & J O'Brien held on 27 February 1995, it was resolved that a memorandum of mortgage and equitable mortgage securing the further advances of $185,000 be executed by "the relevant companies within the Group" who were registered proprietors of assets to be charged. It is not clear why it was thought such a deed was necessary having regard to the terms of the deed of charge of 22 September 1994 which charged future advances and imposed interest at 17.5% per annum compounded monthly on outstanding principal sums. Nonetheless, a further deed of charge was entered into between J & J O'Brien and Mr Crawley on 27 February 1995 to the same effect as the deed of 22 September 1994. The existing Real Property Act mortgages were also varied by increasing the sums secured (TB 44/4568, 4587, 4589). The same considerations apply to these securities. For the same reasons, there was no informed consent to the transactions, which were occasioned by Mr Crawley's breaching his fiduciary duty owed to the company, as a solicitor and as a director, in entering into the transactions where his interest and duty conflicted. The securities of 22 September 1994 and 27 February 1995 should also be rescinded. Vensel Loan Account Balance as at 30 June 1995 648 In para [515] of Section 4, I set out a table of Vensel's loan account with J & J O'Brien from 30 June 1995. That table is substantially based on the schedule prepared by Ms Kuan. The general ledger of J & J O'Brien for 30 June 1995 showed a loan account with a closing balance of $1,507,039.95. That debt arose from the crediting of the profit derived by J & J O'Brien from the Yurong Street development to Vensel rather than to J & J O'Brien. On 22 February 2006, Mr Leddin wrote to J & J O'Brien advising that the debt of $1,504,148 then shown as a current liability owing to Vensel should properly be shown as a profit share arising from the 1989 sale of the Yurong Street property, and that the amount would be shown as an abnormal credit in the 1995 profit and loss and then transferred to a capital profits reserve (TB 55/5746.11). Mr Crawley did not object to this accounting treatment. Rather, he contended that the auditors had always known that that was how the accounts should have been prepared in the first place. In the general ledger of J & J O'Brien, a credit was entered against the Vensel loan account as at 30 November 1996 of $1,504,377.96 reducing the balance to $1,315,990. For the purposes of determining the debt recorded in the books of J & J O'Brien as owed to Vensel, the debt acknowledged in the general ledger and in J & J O'Brien's financial statements can be taken as being $1,315,990 from 30 June 1995, as Ms Kuan showed in her table (JK Schedule 9). The question is, how was that sum arrived at? 649 On 5 April 1995, Mr Crawley wrote a long letter to Mr Short in response to a letter from Mr Short of 3 April 1995. That letter was drafted by Mr Hannan for Mr Short (TB 45/4784). Mr Crawley wrote (at 4794): " The indebtedness to A F Crawley & Co for unpaid legal work and interest, which accumulates at an alarming rate as is borne out by the documentation enclosed. (sic). The quantum of the indebtedness to Mr Crawley is much greater than had been expressed as the company had overlooked, the accumulation of unpaid interest as provided in the documentation executed by yourself and Mr Davis after lengthy discussions and explanation and confirmed by further documentation confirmatory of earlier documents, executed, stamped and ratified. " 650 Attached to the letter was a schedule misleadingly entitled "C. W. Crawley Loans to J & J O'Brien Group Loan & Interest Schedule". The schedule provided as follows: $ September 1990 – June 1991 300,000 Interest @ 17.5% for 1991 39,375 339,375 June 1991 10,000 349,375 June 1991 80,000 429,375 Interest @17.5% for 1992 75,140 504,515 June 1992 20,000 June 1992 80,000 604,515 Interest @ 17.5% for 1993 105,790 710,305 June 1993 20,000 June 1993 80,000 810,305 Interest @ 17.5% for 1994 141,803 952,108 Less Repayments 263,000 689,108 June 1994 50,000 June 1994 380,000 1,119,108 Interest @ 17.5% to March 1995 146,882 1,265,990 651 The amounts recorded on this schedule were not loans. They were amounts which Mr Crawley purportedly charged as debts owing for legal work. A further schedule set out his claim in respect of advances. He claimed that the amount due to him for advances plus interest was $596,775, giving rise to a total liability of $1,862,765. Interest claimed to be due on advances totalled $46,775. (Mr Crawley claimed that he had made an advance of $70,000 on 16 March 1995, but Ms Kuan and Mr Bell were agreed that no such advance was recorded in the books of J & J O'Brien.) 652 Although Mr Crawley was reluctant to accept that the schedule set out above described claimed legal fees and interest thereon, that is the basis on which it was prepared. On 20 July 1995, Mr Crawley advised the auditors that "there are costs outstanding since January 1990 until March 1995 of $1,265,990 which includes interest upon those costs outstanding termed as outstanding loans." (TB 48/5170.13). That is a reference to the schedule extracted above. The auditors had also asked for an estimate of the liability to Aubrey F Crawley & Co for services rendered but unbilled as at the balance date (TB 48/5138.1). Mr Crawley responded by providing an estimate of $50,000 (TB 48/5170.12). The amount recorded in the balance sheet for J & J O'Brien as at 30 June 1995 was the sum of those two figures, that is, $1,315,990. A note to the balance sheet of J & J O'Brien as at 30 June 1995 describes the debt of $1,315,990 as being a debt for legal fees and interest and says that the amount claimed is disputed (J & J O'Brien CTB page 156). 653 The opening sum of $300,000 on the schedule is the same amount as the amount set out in Schedule 1 to the deed of acknowledgment of 30 June 1994 for Mr Crawley's costs for acting for Trudale. 654 It will be observed that in the schedule at para [650] interest at 17.5% per annum was charged and capitalised at yearly rests on amounts of principal claimed to be due at each balance date. The principal amounts, misleadingly called loans but in fact amounts claimed as legal costs, add up to $1,020,000, rather than $920,000 acknowledged in the deed. There is no explanation for this. Mr Crawley said he did not know what the entries for principal represented. He was asked: " Q. If this schedule does relate to legal fees and interest thereon are you able to explain why it is that the principal amounts add up to anything more than the ($920,000)? A. Probably human error ... " (T1205) 655 Ms Kuan gave evidence of receiving an instruction from Mr Crawley to prepare the schedule (T1984). She gave evidence that Mr Crawley gave her the principal amounts and the dates for the principal amounts that are shown on the schedule. He did not explain to her from where he got the figures for the principal amounts (T1984). 656 The schedule showed repayments of $263,000. Mr Crawley said that he did not know how the repayments of $263,000 were made up. I accept the plaintiffs' submission that that sum is the approximate amount by which Vensel's loan account with J & J O'Brien arising from the crediting of Vensel with J & J O'Brien's share of the profit from the Yurong Street development was reduced in the 1994-1995 year. The balance of that purported debt was $1,771,021 as at 30 June 1994. Mr Bell's comment on this debt was that this was the balance disclosed in the ledger for 30 June 1994 but there was no prior information, or entries disclosed on prior ledgers, about it, and no audit working papers were available. The debt was reduced by $263,653 in the year ended 30 June 1995 by journal adjustments relating to moneys paid by J & J O'Brien on Vensel's behalf during the course of that financial year. It is probable that the repayments of $263,000 shown on the above schedule represented those payments. There is no other source of repayments. 657 Mr Crawley was proceeding on the basis that the deed of 30 June 1994 was valid. However, he had no justification under that deed for charging interest on the outstanding legal costs acknowledged by the deed from the times the work the subject of the acknowledgement was carried out. 658 Thus, the schedule included an additional $100,000 which was not reflected in the deed of 30 June 1994, and charged interest not from 30 June 1994, but from the time debts for legal fees were allegedly incurred from September 1990. Mr Crawley could not honestly have believed that he was entitled as at 31 March 1995 to be paid $1,265,990 for unpaid legal costs and interest. 659 In opening, the plaintiffs contended that the debt recorded in J & J O'Brien's financial statements of $1,315,990 owing for legal fees and interest was derived from the schedule showing a debt of $1,265,990 owing as at the end of March 1995, together with interest at 17.5% per annum on the principal sum of $1,119,108 shown to be owing as at 30 June 1994 for a further three months. That interest would amount to $48,961. It was submitted that that amount for interest had been rounded up to $50,000. 660 I think it more likely that the $50,000 was the amount notified by Mr Crawley to the auditors as the amount of further unbilled fees owing as at 30 June 1995. However, nothing of substance turns on this. Mr Crawley was not entitled to a further $50,000 merely because he provided such an estimate. There was no proper basis for the debt of $1,315,990 recorded in J & J O'Brien's financial statements. 661 J & J O'Brien's financial statements for 30 June 1995 treated the debt of $1,335,990 as payable to Mr Crawley. Mr Crawley said that the debt was assigned to Vensel on 7 June 1996. On that day, the various Real Property Act mortgages were transferred for nominal consideration from Mr Crawley to Vensel (T1255; TB59/6236-6243.1). Accounting Consequences 662 It follows that it should be declared that J & J O'Brien is not, and was not, indebted to Vensel for the amount of $1,315,990 or for interest capitalised on that debt for the years ended 30 June 1996 and 30 June 1997. The payment of the proceeds of sale of the Racecourse Hotel and of the insurance claim should be credited against the loan from Mr Crawley for advances which was transferred to Vensel as at 30 June 1999. That debt was repaid by April 1998. It should also be declared that J & J O'Brien is not indebted to Vensel for the amount of $1,769,567.79 as recorded in its financial statements from 30 June 2000. The interest paid to Vensel and to Gladewood on that alleged debt from 1998 must be repaid with interest. 663 As the plaintiffs challenged the deeds of 30 June 1994, 22 September 1994 and 27 February 1995 pursuant to which interest was charged on advances which otherwise did not bear interest, and as those challenges are successful, the plaintiffs are entitled to an accounting for the interest paid to Mr Crawley in the financial years ended 30 June 1994, 1995 and 1996 and to Vensel in the financial year ended 30 June 1997 on advances made by Mr Crawley. 664 However, he who seeks equity must do equity. Even though the agreement to charge interest at 17.5% under the deeds of 30 June 1994, 22 September 1994 and 27 February 1995 should be set aside, it does not follow that J & J O'Brien should not pay a reasonable rate of interest on the funds obtained from Mr Crawley (Maguire v Makaronis at 476-477). There was considerable evidence as to whether the rate of 17.5% charged by Mr Crawley was a reasonable rate of interest on the finance he provided. The reasonableness of the rate of 17.5% per annum is only relevant to the question of with what rate of interest Mr Crawley should be credited in order for the plaintiffs to do equity. As a general proposition, once it is determined that a fiduciary has breached his fiduciary duty by entering into a transaction with his principal in which his duty and interest conflicts, the reasonableness of the transaction is irrelevant (Aberdeen Railway Co v Blaikie Bros (1854) 2 Eq Rep 1281; [1843-60] All ER Rep 249 at 252). Mr McClintock and Mr Reardon, who gave evidence for the first to sixth defendants, expressed the view that the loan should be characterised as mezzanine debt and the rate of interest of 17.5% was reasonable. Mr Reardon's opinion was expressed in relation to a period from 1997. 665 There was incomplete evidence as to the cost of funds to Mr Crawley. In any event, the interest paid between 22 January 1993 (when the first undocumented advance of $70,000 was made) and when the loans are taken to have been discharged in April 1998, bore no direct relationship to the interest charged on the loans. Whilst an interest rate of 17.5% might be regarded as a reasonable rate of interest for a lender who was proposing to take a reasonable profit margin for the risk assumed, it would not be consistent with principle to allow such a rate to Mr Crawley if he thereby profited from his breach of duty (Maguire v Makaronis at 477). In my view, the appropriate rates to be allowed on the advances (other than the $100,000 advanced on 29 April 1994 on the purchase of 193 Missenden Road, Newtown) are the rates prescribed from time to time under schedule K to the Supreme Court Rules. This was the rate adopted in Maguire v Makaronis. 666 For the reasons given in Section 4, Mr Crawley was entitled to interest at 17.5% per annum compounded monthly on the advance of $100,000 pursuant to the mortgage over 193 Missenden Road, Newtown. The loan secured by that mortgage was not challenged in the statement of claim. 667 There should therefore be an accounting pursuant to which Mr Crawley, Vensel and Gladewood account for the interest paid to them from 22 January 1993, less interest at 17.5% per annum compounded monthly on the debt of $100,000 until it is taken to have been repaid on 1 April 1997 (applying the rule in Clayton's case (Devaynes v Noble, Baring v Noble, Clayton's Case (1816) 1 Mev 529; 35 ER 767; [1814-23] All ER Rep 1) to the reductions on principal of the debt), and less interest at the rates prescribed by Schedule K on the other advances made from 22 January 1993 until they are taken to have been repaid by 30 April 1998. Interest will be payable at the prescribed rates on the amounts payable under that accounting. SECTION 6 – Accounting and Management Fees to 30 June 1997 668 In the statement of claim filed on 16 June 1998, the plaintiffs alleged that, from at least 1994, Vensel had received management fees from J & J O'Brien and Marsico for the management of the Marlborough Hotel and Jackson's on George and, until they ceased trading, the Australian Youth Hotel and the Racecourse Hotel (para 108). In para 109, it was alleged that the fees paid by J & J O'Brien, Marsico, the Australian Youth Hotel partnership and the Racecourse Hotel partnership to Vensel were excessive for the services provided. It was alleged that the payment of fees and the engagement of Vensel by each of J & J O'Brien and Marsico was made without any resolution of their boards of directors, without the benefit of any independent or other professional advice, and without Mr Short's consent. The plaintiffs alleged that Mr Crawley thereby breached his duties as a director and solicitor. This was the eleventh instance of alleged oppression. 669 The allegations were expanded in a further amended statement of claim filed on 31 August 2004. It was then alleged (para 108) that: " From 1982, Vensel ... , Crawley, Judith Crawley, Aldonet, Springsley and ... Gladewood ... have received management fees, accounting fees, purported commissions, purported directors' fees, purported management fees and other payments from Trudale, J & J O'Brien, ESJV and Marsico for the management of, and otherwise purportedly in relation to, the Marlborough Hotel, Jackson's on George and ESJV and until they ceased trading, the Australian Youth Hotel and Racecourse Hotel. " 670 Paragraph 109 was amended to allege that the fees and other payments were unauthorised, made without proper resolutions, made without full disclosure by the recipients of those amounts of their interest in the transaction and/or were excessive for the services provided. It was also alleged that the fees and other payments and the engagement of Vensel, Aldonet, Mr Crawley, Judith Crawley, Springsley and Gladewood by each of Trudale, J & J O'Brien and Marsico was without any resolution of the board of directors, was without the benefit of any independent or other professional advice, and was without the consent of Mr Short. Para 111 was amended to include an allegation that Mr Crawley breached not only his duties as a director and a solicitor, but his duty to Nabatu as a partner in the Australian Youth Hotel partnership and the Racecourse Hotel partnership. 671 The allegations in relation to this alleged instance of oppression were further amended in a second further amended statement of claim filed on 22 March 2005. However, there were no amendments to paras 108-110 or to para 111. 672 The defendants contend that causes of action which arose more than six years before 22 March 2005, or alternatively more than six years before 31 August 2004, are statute barred, or that the plaintiffs are precluded by their delay and laches from maintaining any such cause of action. Questions as to the time from which amendments to the statement of claim should operate were reserved for the trial judge. 673 The plaintiffs pressed a claim for an account of profits for fees paid by J & J O'Brien, Marsico, the Australian Youth Hotel partnership and the Racecourse Hotel partnership, to Aubrey F Crawley & Co and to Vensel from 1987 to 1997. Further claims were made in respect of fees for accounting and management services provided from 1 July 1997 and are dealt with in section 12. Amounts Paid 674 The first difficulty is in identifying the amounts paid. The plaintiffs relied upon the reports of Mr Bell. The first to sixth defendants relied upon a report of Mr McClintock and a summary prepared by Ms Kuan. Based upon analyses of the general ledgers of the companies and partnerships carried out by Mr Bell, the plaintiffs contended that between 1987 and 1997, J & J O'Brien, Marsico, the Australian Youth Hotel and the Racecourse Hotel made the "accounting/retainer" payments to Vensel and Aubrey F Crawley (AFB 10 Appendix C1 as amended by AFB 16 and FS 3 Appendix C1 pp 48 and 49) set out in the table below. I have set out for comparison the figures provided by Ms Kuan: Year Vensel per Bell AFC per Bell Totals Per Bell Totals Per Kuan 1987 - $40,182.75 $40,183 AFC $32,748 1988 - $59,140.00 $59,140 $49,090 1989 - $121,404.32 $121,404 $93,669 1990 $17,100.00 $92,590.80 $109,691 $84,898 1991 $26,100.00 $105,140.00 $131,240 $106,600 1992 $51,300.00 $105,113.25 $156,413 $116,400 1993 $39,600.00 $144,320.00 $183,920 $147,720 1994 $43,200.00 $226,660.00 $269,860 $226,260 1995 $104,369.00 $266,450.00 $370,819 $308,800 1996 $314,344.60 $2,500.00 $316,845 Vensel $254,400 1997 $318,932.00 $11,319.90 $330,252 $256,900 $914,945.60 $1,174,821.02 $2,089,767 $1,677,485 675 Mr McClintock's report was dated 2 July 2003. He analysed the "retainer" paid by J & J O'Brien and Marsico to Vensel and Aubrey F Crawley & Co in the years ended 30 June 1992 to 30 June 2000. There is no detailed analysis in his report as to how his figures were arrived at. His figures do not cover all of the relevant entities. 676 Whereas Mr Bell said that from 1990 to 1997, fees for accounting and management services (described as "accounting/retainer payments") were paid to both Vensel and Aubrey F Crawley, Ms Kuan deposed that all of the payments for those services up to the year ended 30 June 1995 were paid to Aubrey F Crawley & Co and that in the year ended 30 June 1996 and 30 June 1997 all of the payments were made to Vensel. She described the accounting functions carried out by the accounting staff employed by Vensel (and in latter years by Gladewood) as follows (affidavit 23/11/05 paras 12-15): " 12. From July 1985 to the present, the accounting staff employed by Vensel and Gladewood, as well as myself, have performed the following functions in relation to hotels that have been owned and operated by the Group Companies, as well as the AYH and the ECJV: (a) bookkeeping; (b) payroll; (c) preparing cash-flow statements; (d) preparing month-end accounts; (e) entering payments and sales figures into the computer and reconciling these with bank statements; (f) looking after accounts payable (primarily payments to suppliers and tradespeople); (g) preparing Business Activity Statements (BAS) after 2000; (h) liaising with the bank in relation to financial information that it required when the banking was done with ANZ; (i) matching till summaries to banking and all associated steps to effect a process akin to an audit of sales; (j) analysing results for variances or shortages; (k) putting managers on notice if any concerns arose for shortages or possible staff dishonesty; (l) reconciling the amount of cash in each of the hotels' ATMs with the respective float for each ATM on a daily basis; (m) analysing and following up as required weekly sales and expenses for each hotel (or restaurant); (n) making adjustments for merchant card refunds or variations; and (o) submitting any returns that were required to the Liquor Administration Board (LAB) (now within the Department of Gaming and Racing), for licence fees and poker machine revenue, until the introduction of automatic downloading. 13. Similar work was done for each of the restaurants in the hotels when they were operated by a Group Company, but the services required in respect of the restaurants were significantly less than those required for the hotels. 14. In addition, Vensel provided further services in relation to the Elizabeth Centre. Vensel handled such things as collecting the rent from the tenants, effecting strata management for the initial period and arranging for any maintenance to be carried out. For example, tenants used to ring me and advise that maintenance work was required and I would then contact a tradesman or other service provider and arrange for the works to be performed. 15. Work of the kind described in the previous paragraphs was performed both for the Group Companies (including for Jacksons, The Marlborough and The Racecourse Hotel), the AYH and the ECJV and non-Group businesses. " 677 Ms Kuan deposed that, although up to July 1995, J & J O'Brien, Marsico, the Australian Youth Hotel partnership and the Racecourse Hotel business paid Aubrey F Crawley & Co for accounting services, the services were provided by the staff employed by Vensel. Marsico was billed for services provided to Jackson's on George and to the Elizabeth Street Centre. J & J O'Brien was billed for services provided to the Marlborough Hotel and the Elizabeth Street centre. The Australian Youth Hotel partnership was billed for services provided for the Australian Youth Hotel. The Racecourse Hotel partnership (which she described as the Racecourse Hotel business) was billed for services provided in relation to the Racecourse Hotel. Separate charges were made for services provided in relation to the restaurants in the hotels. Ms Kuan deposed that during this period Vensel charged Aubrey F Crawley regular management fees, but the defendants did not say what the management fee was. She deposed that, from 1 July 1995, Vensel was paid directly by the group companies. 678 In the defendants' books, the accounting and management fees were charged to separate "entities" representing different business operations of the companies. Ms Kuan produced a summary prepared by her with the assistance of her staff of payments made for accounting services described in paras 12 and 13 of her affidavit of 23 November 2005. The payments were made by the Australian Youth Hotel partnership, Marsico, the Racecourse Hotel and J & J O'Brien to Aubrey F Crawley (until July 1995), Vensel (until July 2003) and Gladewood (from 1 July 2003). Ms Kuan's schedule was prepared from the general ledgers of the companies. 679 Set out below is a comparison of the amounts Mr Bell claims were paid by way of accounting/retainer payments for the years ended 30 June 1991 to 30 June 1997, compared with the figures produced by Ms Kuan, broken down into the different business entities. Also included in the table are the figures of Mr McClintock. The figures are further broken down as to whether the payments were made to Aubrey F Crawley & Co or to Vensel. Payments to AFC Year Marsico J & J O'Brien Jackson's Prego AYH Pasquales Race course Bell $27,480 $21,840 $16,380 $12,720 - $17,720 $14,000 1991 Kuan $29,160 $21,840 $16,380 $12,720 $12,720 $13,780 1991 Bell $34,371 $26,050 $13,360 $13,360 $17,972 1992 McClintock 1992 - $25,480 Kuan $48,440 $25,480 $13,360 $13,360 $15,760 1992 Bell $38,500 $32,760 $14,640 $21,840 $14,640 $21,940 1993 McClintock 1993 $38,500 $32,760 Kuan $42,000 $32,760 - $14,640 $21,840 $14,640 $21,840 1993 Bell $63,400 $52,380 $22,920 $32,520 $22,920 $32,520 1994 McClintock 1994 $63,000 $52,380 Kuan $63,000 $52,380 $22,920 $32,520 $22,920 $32,520 1994 Bell $84,000 $76,850 - $31,200 - $31,200 $43,200 1995 McClintock 1995 $84,000 $76,000 Kuan $84,000 $76,000 - $31,200 $43,200 $31,200 $43,200 1995 Bell - $2,500 - - - - - 1996 McClintock 1996 - - Kuan - - - - - - - 1996 Bell - $11,139 - - - - - 1997 McClintock 1997 - - Kuan - - - - - - - 1997 Payments to Vensel Year Marsico J & J O'Brien Jackson's Prego AYH Pasquales Race course Bell 1991 $26,100 - - - - - - Kuan - - - - - - - 1991 Bell $51,300 - - - - - - 1992 Kuan - - - - - - - 1992 Bell $36,000 $3,600 1993 Kuan - - - - - - - 1993 Bell - $43,200 - - - - - 1994 Kuan - - - - - - - 1994 Bell $61,169 - - - $43,200 - - 1995 Kuan - - - - - - - 1995 Bell $96,000 $143,945 - $31,200 - - $43,200 1996 McClintock 1996 $88,000 $97,800 Kuan $96,000 $84,000 - $31,200 - - $43,200 1996 Bell $158,032 $84,000 $2,500 $31,200 - - $43,200 1997 McClintock 1997 $128,400 $115,200 Kuan $96,000 $84,000 $2,500 $31,200 - - $43,200 1997 680 The principal reasons for the differences between Mr Bell's figures and Ms Kuan's figures are that Mr Bell's figures include payments made to Vensel for the services of Mrs Crawley, whereas Ms Kuan's figures do not. Ms Kuan provided a separate schedule itemising the payments made to Vensel in respect of Mrs Crawley's services. She explained that from March 1990 to November 1994 either J & J O'Brien or Marsico paid $3,600 per month to Vensel in respect of services performed by Mrs Crawley. They are identified in the general ledgers of J & J O'Brien and Marsico under the category "professional fees" with the narration "Vensel consult". From December 1994 to September 1995 the payments increased to $6,167 per month. From October 1995 to June 1996, Mrs Crawley was employed by J & J O'Brien. From July 1996 to June 2002, she was employed by Marsico. Notwithstanding her employment, payments of $6,167 (less tax) were made to Vensel in respect of her services. They are identified in the general ledgers of J & J O'Brien and Marsico under the category "wages" with the narration "Vensel – JC pay" or similar words. The payments made to Vensel in respect of Mrs Crawley's services were as follows: Payments to Vensel for Mrs Crawley's Services (JK - Schedule 4) Marsico J & J O'Brien 1991 $26,100 1992 $54,900 1993 $39,600 $3,600 1994 $43,200 1995 $61,169 1996 $58,975 (fees $18,501, Wages $40,474) 1997 $62,366.40 (wages) 681 The differences between the schedules of Mr Bell and Ms Kuan are immaterial, except in relation to the 1992 and 1997 years, once adjustments are made to reflect the payments to Vensel for the services of Mrs Crawley. In the 1992 financial year, Ms Kuan deposed that the amounts paid for accounting services, together with the fees paid for Mrs Crawley's services, totalled $171,300, which may be compared with Mr Bell's total of $156,413. The comparative figures are as follows: Comparison between Bell's and Kuan's total figures incorporating JK – Schedule 4 Bell Kuan 1991 $131,240 $132,700 1992 $156,413 $171,300 1993 $183,920 $190,920 1994 $269,860 $269,460 1995 $370,819 $369,969 1996 $316,845 $313,379 1997 $330,252 $319,267 682 In the 1997 financial year, Mr Bell treated a payment of $11,139 to Aubrey F Crawley & Co as being a payment for accountancy and management services. This payment is omitted from Ms Kuan's schedules. The payment is narrated in the general ledger simply as a payment to "Aubrey F Crawley & Co" without any narration that it was for legal fees. Mr Bell took it as not being a payment for legal fees because it did not have such a narration. However, Ms Kuan would have better knowledge as to whether the payment was for accountancy or management services and I accept her schedule which shows that it was not. 683 Having regard to Ms Kuan's intimate knowledge of the bookkeeping of the group, I accept her schedules as an accurate statement of the fees paid. It may be noted that in a number of respects her evidence is more favourable to the plaintiffs than that of Mr Bell. I attribute the differences to her greater knowledge as to how individual items in the ledger should be categorised. 684 So far as the fees paid to Vensel in respect of Mrs Crawley's services were concerned, the position taken by the plaintiffs was that in respect of the years 1997 to 2001, the cost base to Vensel for the provision of Mrs Crawley's services should be assumed to be equal to the amount received for those services. To put it another way, the plaintiffs said it should be assumed that the amount described as wages and paid to Vensel were paid by Vensel to her. For the reasons below at para [736], the plaintiffs' treatment of these payments is correct, although the reasoning on which it was based is not. It is not clear to me why the same concession is not made in respect of $40,474 which Ms Kuan identified as the amount paid by J & J O'Brien to Vensel which was designated as wages in the 1996 financial year. 685 No similar concession was made by the plaintiffs in respect of the fees paid from 1992 to 1996 by Marsico and J & J O'Brien in respect of Mrs Crawley's services. 686 The plaintiffs allege that the payment of these fees to Vensel, a company of which Mr Crawley is a director and shareholder, and the payment to his firm, Aubrey F Crawley & Co, was a breach of Mr Crawley's fiduciary duty as a solicitor for the group companies and as a director. There was a conflict between his personal interest in maximising the fees paid for the services provided and his duty to the companies, which was to procure such services at a minimum reasonable cost. The plaintiffs contend that he had no authority or resolution of the boards of J & J O'Brien or Marsico, or from his partners in the Australian Youth Hotel partnership and the Racecourse Hotel partnership for charging the fees which were charged. They allege that the fees charged were excessive for the services provided. They allege that the charges were made without full disclosure and therefore without the informed consent of the companies. Retainer 687 There was no formal resolution of directors of J & J O'Brien or Marsico authorising the payments for accounting and management services prior to 11 July 1997. No written notice disclosing Mr Crawley's interest in the contracts was made and recorded at any board meeting as required by Article 81 of the Articles of Association of J & J O'Brien, and Article 109 of the Articles of Association of Marsico. 688 Mr Short and Mr Davis both knew that Mr Crawley, through his firm or one of his service companies, was providing accounting and management services to the group. Mr Short contended that it was part of Mr Crawley's intended role that he maintain the accounting records for the businesses. Mr Short contended that it was agreed that Mr Crawley would not be paid for those services or alternatively, in cross-examination, he contended that he would only be entitled to recover out-of-pocket costs of providing the services. However, for the reasons I gave in section 3 dealing with legal fees, and for the additional reasons below, I reject that contention. Mr Short signed cheques without complaint, not only for the provision by Mr Crawley of legal services, but for his retainer to provide accounting, or accounting and management, services. 689 It is not the case that there was no contract between the companies and Mr Crawley or Vensel for the provision of accounting and management services, even though there was no formal board resolution and no formal resolution of the partners of the partnerships for the provision of those services. I do not accept Mr Crawley's evidence that there was an express agreement that he should be paid for his services. However, it was an implied term of the arrangement that he would be entitled to charge reasonable fees for the services provided. That implication is strengthened by the fact that Mr Short and, from time to time, Mr Davis, signed cheques in payment of fees for the provision of those services. However, except as set out below, there was no disclosure of the quantum of fees to be charged or the quantum of fees that had been charged. No Informed Consent to Quantum of Fees Charged 690 In his affidavit, Mr Crawley did not depose to having told Mr Short or Mr Davis the amount of the fees which Vensel would charge for its services or how the charge would be determined. In cross-examination (at T1333) he said that he would have disclosed to Mr Short or Mr Davis how much Vensel proposed to charge for services for the Australian Youth Hotel. He said "I would have said what the current fee was and that was the amount that was going to be charged for the Racecourse Hotel." I do not accept that Mr Crawley told Mr Short or Mr Davis what the current fees were, except on one occasion. Mr Short inquired on a number of occasions as to what the fees were. Except on one occasion, he did not receive an adequate response. I understood Mr Crawley's position to be that Mr Short and Mr Davis knew what the fees were because of the cheques which they signed from 1982 (T1335). 691 Because of the conflict between Mr Crawley's interests and duty, he and Vensel are liable to account for the profits each derived from the payments for the provision of accounting and management services unless the companies gave their fully informed consent to the transaction, that is, to the agreement inferred from the course of conduct that Aubrey F Crawley & Co and Vensel could charge reasonable fees for the provision of those services. 692 What circumstances needed to be disclosed for the companies' consent to be fully informed is a question of fact. The plaintiffs contended that it extended to disclosure of the amount of profit to be derived from the provision of services. I doubt that that is so. But for the consent to be fully informed, Mr Crawley had to declare not only the nature, but also the extent, of his interest. Thus, a director taking a commission on a contract with the company is required to disclose not only the nature of the commission but its amount (Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL 189 at 200, 202). Disclosure must make the director's colleagues "fully informed of the real state of things" (Imperial Mercantile Credit Association at 200). They should know not only what the director's interest is, but how far it goes, (Gray v New Augarita Porcupine Mines Ltd at 14). That does not require Mr Crawley to have calculated his costs to a nicety so as to estimate and disclose the profit on the business. But it did at least require disclosure of the basis upon which fees were charged and the amounts to be charged. As the business was a continuing business extending over many years, the obligation of disclosure required disclosure of the amounts charged from time to time. 693 The first to sixth defendants relied on evidence given by Mr Short in cross-examination (WSE pp 413-414) to the effect that he knew by 1992 that fees in an agreed figure were being charged to the Racecourse Hotel partnership for accounting, buying group and management services. Counsel submitted that where there was an agreed figure, there was no reason to disclose the amount of profit. Mr Crawley and Vensel cannot take this argument too far because they could not contend that the figure Mr Short, for a time, characterised as an agreed figure, was for the provision of all of Vensel's or Aubrey F Crawley & Co's services. If that were their position, they would be limited to recovering the amount Mr Short described as an agreed figure. That is not their position. Mr Short was shown a cheque he signed in 1992 to Aubrey F Crawley & Co for $1,820. He said that he was then aware that an amount was payable in respect of some services being provided by Vensel (T414) and then characterised the monthly payment of $1,820 as an agreed figure. He later changed that evidence to say that the figure was not an agreed figure, but one that was just charged and one which he did not accept (T415). I do not think this evidence is of any assistance on the issue except to show that Mr Short was then aware of the monthly retainer paid by J & J O'Brien. 694 The onus is upon Mr Crawley to show a fully informed consent to the amounts paid for accounting and management services. He sought to discharge that onus by evidence that Mr Short and Mr Davis signed cheques from time to time, including the cheques payable to Aubrey F Crawley & Co for those services. Cheques required two signatures, but required the signature of only one director. Hence, cheques could be drawn on the company account and signed by Mr Crawley and an authorised signatory from his staff. Ms Kuan deposed that the practice for signing cheques was for Mr Short to attend the offices of Aubrey F Crawley & Co once a week where he was provided with a basket of cheques to be signed. From 1986, the majority of cheques were computer generated after details of the relevant invoice had been entered into the computer system. Ms Kuan, or in urgent cases if Ms Kuan was not available, Mr Crawley, would review the cheque and invoice and, if appropriate, approve the payment. If the payment was not the subject of an invoice, for example, if it were a payment of management fees or a monthly service fee, a cheque was prepared by a member of the accounting staff and brought to Ms Kuan for approval, or to Mr Crawley for his signature. Once approved, the cheque would be left for signature by the other approved signatories. Ms Kuan deposed that it was Mr Short's practice to collect the basket of cheques from the front reception and then sit at an unoccupied desk to go through the cheques and invoices which he then left. She deposed that she left copies of the monthly management accounts in the relevant basket which contained documents that needed Mr Short's signature. A remittance advice was attached to the cheque, or the cheque butt provided a narrative of what the cheque was for. 695 The defendants' evidence does not establish that Mr Short signed all of the cheques for payment of fees to Mr Crawley and Vensel for accounting and management services. A handful of cheques signed by Mr Short was put to him in cross-examination. Cross-examining counsel established that Mr Short appreciated that he was signing cheques which provided payment to Aubrey F Crawley & Co for such services and by way of retainer. However, the evidence did not demonstrate that Mr Short knew either of the hourly rates of charge or the total quantum of charges for the management services provided. 696 The highest the evidence goes as to Mr Short's knowledge of the total quantum of fees paid is a note on Mr Crawley's memorandum of 19 November 1991 produced from the plaintiffs' discovery (exhibit 25, tab 8). As noted above (section 3, paras [455]-[458), Mr Short had posed a written question in about November 1991 as to what were the accounting fees per hotel per year. Mr Crawley replied that the accounting fees were $35 per hour, but otherwise did not respond in writing to the question. The document produced on discovery includes a handwritten note, which I infer is Mr Short's writing, which records "$105,000 per year". That was an accurate statement of the annual fees being paid at that time for accounting and management services (not including the payments made for Mrs Crawley's services). In his memorandum of 19 November 1991 (TB 20/1990), Mr Crawley told Mr Short that Mrs Crawley was not paid wages but there was a "managerial payment of gross $600 per week and the tax was being paid by CWC". Mr Crawley said that this needed to be reviewed and that Mrs Crawley should have a remuneration increase to $45,000 per year. As noted at para [459] of section 3, Mr Short's reaction was that the payment of $600 for Mrs Crawley was not a matter that had been discussed or agreed to. Nonetheless, no board meeting was called to deal with the issue. 697 As appears from the tables above, in the financial year ended 30 June 1992, fees totalling $54,900 were paid by Marsico to Vensel in respect of Mrs Crawley's services. That was more than Mr Short was advised was currently being paid and more than he had foreshadowed Mrs Crawley should be paid. 698 Whilst Mr Short was given sufficiently accurate information in relation to accounting and management fees (other than the fees paid for Mrs Crawley's services) in 1991, Mr Crawley has not discharged the onus of showing that Mr Davis gave his informed consent. Nor did Mr Crawley show that he disclosed the quantum of fees charged in the financial years after the financial year ended 30 June 1992. 699 It is not possible to discern from the financial statements for J & J O'Brien and Marsico for the years up to 1997 the amount paid to Vensel or Aubrey F Crawley & Co for accounting and management fees. Whilst the statements of profit and loss include items for "professional fees", these items are not further segregated. It is not possible to say from the financial statements what amounts were paid for accounting and management fees to Vensel and to J & J O'Brien. The financial statements of Marsico (and in 1993 of J & J O'Brien) include an expense of "management fees". However, they were not the fees for the provision of accounting or management services by Vensel or J & J O'Brien. Ms Kuan confirmed that those expenses were identified as professional fees (T1993). She accepted, and it is clearly right, that it is not possible from reading financial statements to identify the amount of management fees paid by the companies to Mr Crawley, to Vensel or to Gladewood (T1997). The item in the financial statements for "professional fees" is not confined to amounts paid for accounting or management services, nor is it confined to amounts paid to Aubrey F Crawley & Co and Vensel. 700 After Mr Hannan's engagement, Mr Short wrote to Mr Crawley about the professional fees paid to his firm, amongst other things. On 12 February 1995, he noted that professional fees of $32,000, or $384,000 per year, were being charged and said that he had no idea what they were (TB 43/4503). Mr Crawley did not respond by identifying the amount of the payments. He said that the quantum of professional fees had been explained in board meetings and that at the last board meeting, professional fees were itemised at that point and did not include any legal fees to Aubrey F Crawley & Co. Mr Crawley asserted that the quantum of professional fees was "clearly established to the satisfaction of the directors at the board meeting on 6 February 1995" (TB 45/4505.6). 701 No formal minutes of the directors' meeting of 6 February 1995 were prepared. Mr Crawley's evidence of the meeting of 6 February 1995 was to the effect that he tabled a cash flow analysis he had sent to Mr Short on 16 January 1995 and that it was discussed line item by line item. (This was a cash flow analysis which projected a cash deficit at 30 June 1995 of approximately $566,000 and which led to Mr Crawley's contending that each of Mr Short, Mr Davis and he should be contributing approximately $200,000 to meet the cash shortfall.) The cash flow forecast includes a line item for professional fees of amounts varying from approximately $35,000 per month to over $60,000 per month and totalling over $600,000 for the financial year. It was not otherwise broken up. I do not accept Mr Crawley's assertion that the quantum of professional fees being paid to Vensel was clearly established to the directors' satisfaction on 6 February 1995. 702 In his notes of 12 February 1995, Mr Short also stated that he needed a "full breakdown of revenue margins and overhead expenses projections by individual hotel, plus full details of J & J O'Brien Pty Ltd head office expenses, staff numbers and individual salaries by department, accounting, stock take, computers, rent and other miscellaneous head office costs." Mr Crawley responded by saying that all the information was available to be inspected at the companies' offices and that Mr Short should liaise with Mr Cohen to discuss those matters. This falls far short of disclosing all material information in relation to the charges for services provided by Vensel or Aubrey F Crawley & Co. 703 On 24 March 1995, Mr Short sent Mr Crawley a letter drafted for him by Mr Hannan (TB 45/4718). After summarising the line item for professional fees for 1992, 1993, 1994 and projected fees to 31 December 1995, Mr Hannan (through Mr Short) wrote: " A quick add of the March cheques showed $31,000 drawn in favour of Aubrey F Crawley & Co of which $25,000 was for accounting/administration fees and $6,000 was for legal fees. Cash flow projections for March show professional fees of $34,000, so presumably another $3,000 was also paid to your firm. It appears that the group is paying your firm at least $25,000 to $30,000 per month or more than $300,000 per annum for accounting, administrative/services which would not cost your firm more than $100,000 per annum to provide after allocating a fair share of the overall cost of such services to your firm, your real estate interests, your hospitality investmnets (Jordan's, Rocks Catering, etc) your private companies and your own personal affairs. " 704 The opinion was then expressed that the work could be done through the employment of two full-time staff at a cost of no more than $100,000 per annum for all accounting and administrative services. Mr Short asked for a full break down of all professional fees together with any other fees paid to Mr Crawley, his firm or any of his associates since 1 July 1991. He also asked for details of all costs incurred in providing those services and the amounts allocated to Mr Crawley's personal interests over that period (TB 45/4718 at 4719). 705 Mr Short wrote a follow-up letter on 3 April 1995 complaining about Mr Crawley's refusal to provide answers to questions which he said were fundamental to the financial position and operations of the business. A directors' meeting had been held on 27 March 1995 but no formal minutes of that meeting were produced. Mr Short wrote on 24 March 1995 contending that a majority of directors had asked that the information be provided. In relation specifically to professional fees, Mr Short wrote as follows (TB 45/4775): " Your statement that matters had been in place for some thirteen years suggests that current arrangements may never have been approved by the board. Is this in fact the case? If so, who authorised them and how is the basis of charging justified, both currently and, if it has changed over some thirteen years, in the past? " 706 Mr Short attached a submission from his accountant, Mr McGuinness, containing an estimate for providing bookkeeping, accounting, secretarial, audit and taxation service for the group of $120,000 per annum. 707 Mr Crawley replied on 5 April 1995. He outlined in detail the management services for which charges were made and observed that they were far wider than the services in respect of which R A McGuinness & Co had provided a quotation. Mr Crawley said there had been no refusal to provide any information and that Mr Short had been invited "on each and every occasion when the matters had been raised by you to immediately view the records which are succinct in detail in every regard and you have refused on each occasion to so do." (TB 45/4785). Mr Crawley attached to his reply of 5 April 1995 a schedule of professional fees for the 1993-1994 and the 1994-1995 financial years. These disclosed administration fees paid to Aubrey F Crawley & Co and to Vensel in 1993-1994 as follows: Marlborough Hotel: AFC: $52,380.00 Vensel: $14,749.80 Jackson's on George: Administration fees to AFC: $63,000.00 Aust Youth Hotel: Administration fees to AFC: $32,520.00 Racecourse Hotel: Administration fees $32,520.00 708 The fees so disclosed totalled $195,170. The schedule omitted the fees allocated in respect of the restaurants at Jackson's on George and to the Australian Youth Hotel (another $45,840). The fees paid in the year ended 30 June 1994 (including fees paid to Vensel for Mrs Crawley's services) totalled $269,460. (See table at para [681] above). 709 The schedule of professional fees provided by Mr Crawley for the 1994-1995 year disclosed the following payments: Marlborough Hotel: Administration fees to AFC $54,000.00 Administration fees to Vensel $34,889.50 Jackson's on George: Administration fees to AFC $63,000.00 Aust Youth Hotel: Administration fees $32,400.00 Racecourse Hotel: Administration fees $32,400.00 710 These fees totalled $216,689.50. The 1994-1995 financial year had still three months to run. It is not clear whether the figures provided were an estimate or reflected costs paid to date. However, the figure of $216,689.50 is far short of the amount actually paid in the year ended 30 June 1995. The amounts paid in that financial year (including fees for Mrs Crawley's services) totalled $369,969; ($308,800 if fees for Mrs Crawley's services are excluded). 711 It was submitted for the defendants that, at this time, Mr Short and Mr Davis were voting as a block against Mr Crawley and that if they had wished to bring an end to the arrangements in place for Vensel to provide accounting and management services it was then easily within their power to do so. Meetings had been held on 27 March and 4 April 1995 at which that could have been done. However, that falls far short of an informed consent to Mr Crawley's engagement at the charges which were in fact levied. Indeed, it is quite apparent that at this time, Mr Short and Mr Davis were not consenting to Mr Crawley's charges. At least Mr Short was protesting against them. No consent to Mr Crawley's charges can be implied from the failure to terminate Mr Crawley's services. At this time, Mr Crawley was asserting his position as a secured creditor of the companies having a charge over their assets and undertakings to secure a debt he claimed in the amount of $1,862,765. On 29 March 1995, he had threatened to exercise his rights under the mortgages and charges by appointing a receiver (TB 45/4750, 4752). Mr Short and Mr Davis faced the prospect that were they to pass a resolution terminating Mr Crawley's services, he would take steps to enforce his securities. In any event, the information provided with the letter of 5 April 1995 as to the quantum of administration fees charged was wrong. 712 Counsel for the first to sixth defendants also submitted that it did not matter that Mr Crawley had not spelt out the authorisation of his arrangements (a contention with which I agree), and that it did not matter that he had not spelt out the basis of the charging (a contention with which I do not agree), because of concessions made by Mr Short in cross-examination. I do not consider that any concession made by Mr Short in cross-examination established Mr Short's informed consent to Mr Crawley's retainer for provision of accounting and management services, nor that it showed that Mr Short was aware of all of the material circumstances relevant to a decision to engage Mr Crawley. 713 Moreover, Mr Crawley needs to establish an informed consent by the companies, not just by Mr Short, to the terms of his retainer that he could charge reasonable fees. There was no evidence to show that Mr Davis knew of the level of charges made, or proposed to be made, or the basis on which they were determined. 714 It follows that, subject to the defences based on laches and the application of the Limitation Act by analogy, Mr Crawley and Vensel are liable to account for the profits derived by them from the payment of fees for the provision of accounting and management services. I will also consider the plaintiffs' claims that the fees charged were excessive. That is relevant both to the claim against Mr Crawley for equitable compensation and the provision of "just allowances". Evidentiary Onus on the Account 715 Where an order has been made for the taking of an account of profits, the onus of proving the costs to be taken into account in determination of the profit lies on the defendant because the facts relevant to the incurring of such costs will lie peculiarly in the defendants' knowledge (Dart Industries Inc v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 118). 716 The defendants disputed the plaintiffs' right to an account. The defendants submitted that until it had been determined that Mr Crawley and Vensel were liable as accounting parties, no onus was cast on them to prove the costs incurred in deriving the accounting and management fees for which the account is sought. 717 Before the matter was set down for hearing, there was debate with counsel as to what issues in the oppression suit should be determined. It was then settled that if an order were made for the compulsory purchase of Nabatu's shares, the question as to the value of the shares would be determined separately and after the resolution of the other issues, although questions of principle in relation to the undertaking of the valuation would be determined in the hearing. At that stage, that was the only issue which potentially was identified as being the subject of a separate hearing. This was confirmed during the course of the opening address of senior counsel for the plaintiffs. As part of their opening address, the plaintiffs' counsel set out what was then the plaintiffs' primary case, based on an order for the purchase of Nabatu's shares at current values and based on financial adjustments which would flow from the various causes of action alleged against Mr Crawley and related entities. Amongst the orders identified as being part of the plaintiffs' primary case was an order that he purchase Nabatu's shares in J & J O'Brien and Marsico at a price equal to one-third of the current value of those companies after making adjustments including: " (a) adding to the assets of the Companies the losses incurred in the Elizabeth Street/Trudale transaction in the amounts set out in Mr Eskdale's affidavits ... ; (b) adding to the assets of the Companies the legal fees paid or credited to AFC to the extent that those fees exceed the costs proved to have been incurred in earning the fees actually invoiced ... ; (c) adding to the assets of the Companies the amounts paid or credited to Mr Crawley, AFC, Vensel, Gladewood or Aldonet for accounting or management services or commissions to the extent that those fees include a profit to any of the recipients ... ; (d) adding to the assets of the Companies the amounts paid or credited to Mr Crawley, AFC, Vensel or Gladewood by way of interest at the rate of 17.5% p.a. ... ; (e) adding to the assets of the Companies the profit by way of margin and line fees made by Aldonet as the lender to the Companies ... ; (f) ... (g) adding to the assets of Marsico the losses to it or the profits to Mr Guderjahn from the operation of the hotdog stand since 25 July 1997 ... ." 718 The following exchange occurred: "His Honour: Do I take it that the parties have proceeded on the basis that the assessment of the quantum of the losses in (a) is a matter to be determined by me? Jackman: Yes. His Honour: And that the quantum of the legal fees in (b) and the extent to which they exceed the costs, is that also to be determined by me as distinct from an inquiry, which would be more usual? Jackman: Yes. As we see it all the evidence is on concerning those matters. His Honour: And, likewise with the quantum for the items in (c)? Jackman: Yes. His Honour: Likewise with quantum in (d), (e) – and what about (g)? Jackman: Yes. The evidence that is on at the moment will be supplemented in due course by cross-examination, but there is sufficient evidence at the moment by way of affidavits which would enable that to be quantified. His Honour: So all the accounting adjustments you say I should quantify, leaving only the valuation of the shares after those quantified adjustments to be determined. Jackman: That's so. His Honour: Is that a common position? Weber: Yes your Honour, although especially 1(b) doesn't strike me as being an appropriate exercise for your Honour. His Honour: If the parties have prepared the case on the basis that I will hear it and the evidence is on, then it is probably better to deal with it. If you are happy to deal with it, if the parties have the common position that those questions of quantum should be resolved, then I will do it. Weber: That's the way the case has been prepared. Most of it is prior to my time, that's the way the matter has proceeded. His Honour: [to Mr Robberds QC] You are in the same position? Robberds: Yes. " 719 Therefore, the hearing proceeded on the basis that not only would I determine whether Mr Crawley, Vensel and Gladewood were liable to account for profits derived by them from the fees paid for the provision of accounting and management services, but I would also determine the amount for which they were liable to account if I found they had such a liability. 720 The question of onus of proof was not raised until the defendants' closing submissions. The principle that a party ordered to account bears the onus of proving what costs should be brought into the equation in determining the amount of profit is at least partly based upon its being the defendants who have knowledge of those costs and can more readily adduce the evidence to prove them. Even if the plaintiffs had an onus to prove the costs, only comparatively slight evidence would be required for them to discharge that onus, given that the facts are peculiarly within the knowledge of the defendants (Parker v Paton (1941) 41 SR (NSW) 237 at 243; Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371-372; Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation [1985] 1 NSWLR 561 at 564-565; Krstik v Brindley [2006] NSWSC 1414 at [26]). I do not know why the defendants chose not to adduce further evidence than they did as to the costs, particularly the costs incurred by Vensel, in providing the relevant services. Some evidence was adduced by them on that question. Ms Kuan gave evidence as to the amount of time spent by the accounting staff of Vensel on the business of the J & J O'Brien group. Mr McClintock gave evidence in relation to the costs incurred in three years in expressing an opinion as to the reasonableness of the fees charged. 721 I do not speculate on the reasons the defendants chose not to adduce further evidence as to the costs incurred in deriving income from those fees. 722 At least initially, the first to sixth defendants' position was that the plaintiffs failed to discharge an onus which lay upon them to prove the quantum of the profits. As an alternative, the first to sixth defendants contended that if Mr Crawley and Vensel were liable to account for profits derived in respect of such fees, then there should be a later inquiry to determine the quantum of those profits. The defendants cannot have it both ways. Under pressure of argument, senior counsel for the first to sixth defendants ultimately submitted that there should be a further hearing or a referral to determine the question of the quantum of profits to be accounted for. I do not accept that submission. As indicated above, that was not the basis upon which the hearing was conducted. It is possible, I put it no more highly than that, that the tender of accounting records of Aubrey F Crawley & Co and of Vensel on the taking of an account of profits would disclose information relevant to other issues. In any event, I see no sufficient reason to depart from the basis upon which the hearing was conducted merely because the first to sixth defendants did not adduce the evidence going to costs which might have been expected. Management Fees Paid Were Excessive 723 Mr McClintock was called by the first to sixth defendants to give expert evidence on a variety of matters, including whether the amounts paid by J & J O'Brien and Marsico for accounting and related services were reasonable. It was his opinion, which the plaintiffs did not challenge, that a "normal margin" for the provision of accounting services was in the order of 33% (exhibit 1 para 137). He agreed in cross-examination that by this he meant that a firm providing accounting or related services of the kind provided by Vensel on an arm's length basis would ordinarily expect to earn 33% above its costs (T2151). This is how he described a "normal margin" in his report (exhibit 1 para 136). However, inconsistently with this, he also said in cross-examination that, as a rule of thumb for an accountancy practice, firms charged on the basis of recovering one-third for wages and salaries and on-costs, one-third for overheads, including professional indemnity insurance, and one-third as profit. He said that was the normal basis upon which charge-out rates were set (T2153). On this basis, a "normal margin" would be thirty-three percent of the fee charged and fifty percent above the firm's costs in providing the service. 724 Mr McClintock made a comparison between the fees paid by J & J O'Brien and Marsico for accounting and related services in 1997, 1998 and 2000, compared with the costs incurred by Vensel. He said that those were the only years on which information was available. This is shown in the table below: "136. The comparison of the accounting retainer paid to Vensel by J & J O'Brien and Marsico and wages, oncosts and rent incurred by Vensel is as follows: Year Accounting Retainer Vensel Wages Vensel on costs¹ Vensel rent costs Total Vensel cost Vensel margin Vensel margin (a) (b) (c) (d) (e) (f) (g) (b)+(c)+(d) (a) – (e) (f) / (e) $ $ $ $ $ $ % 1997 243,000 130,647 18,291 26,473 175,411 67,589 39% 1998 241,000 132,755 18,586 29,274 180,615 60,385 33% 2000 284,080 139,411 20,912 35,372 195,695 88,385 45% Note: ¹ On costs includes payroll tax of 6%, workers' compensation of approximately 2% and superannuation costs of 6% in 1997 and 1998 and 7% in 2000. 725 Mr McClintock assumed certain wages costs, added a percentage for on-costs of payroll tax, workers' compensation and superannuation, and added a rental cost. He compared those costs with the accounting retainers paid in those years. The margin he arrived at was 39% in 1997, 33% in 1998, and 45% in 2000. Mr McClintock attached an appendix setting out the wages paid to identified employees in 1997, 1998 and 2000. He said that "I have assumed that staff of Vensel who provided the services identified ... above are as identified in [the] Appendix." He assumed that the whole of the wages costs for the identified employees were incurred in Vensel's providing the accounting and related services to the J & J O'Brien group. In fact, other evidence established that one of the employees in question (Ms Hardiman) dealt only with the services provided by Vensel to Aubrey F Crawley & Co's legal practice (T2148; Agus para 15). The best, and indeed only, evidence as to the amount of time spent by other members of the accounting staff on business related to the affairs of the J & J O'Brien group was estimates provided by Ms Kuan. She estimated that, as at 2005, about 50% of her time and that of the staff within the accounting department was occupied by staff carrying out the functions described in para 12 of her affidavit which I have quoted above. She estimated that, before the sale of the Australian Youth Hotel, the Racecourse Hotel and the sale of most units in the Elizabeth Street Centre development, up to 70% of their time was spent on the business of the J & J O'Brien group and the remainder on other business (Kuan affidavit 23/11/05 para 16). She gave no evidence as to whether such staff of Vensel who spent seventy percent or fifty percent of their time on the group's affairs included any persons other than those identified in the appendix to Mr McClintock's report. 726 For reasons which are unexplained, Mr McClintock did not include any wages costs for Ms Kuan in his analysis of wage costs incurred by Vensel in the provision of accounting services. I can only assume that his assumption as to who provided accounting services was based on instructions he received prior to completing his report of 2 July 2003. 727 Another flaw in Mr McClintock's analysis is that he used wrong figures as the amount of fees paid as "Accounting retainer". Accepting that this description does not include the moneys paid to Vensel for Mrs Crawley's services, nonetheless the fees paid were $256,900 (not $243,0000) in 1997, $255,200 (not $241,000) in 1998 and $289,440 (not $284,080) in 2000 (JK – Schedule 1). Using Mr McClintock's own methodology and figures, (that is without adjustment for errors in wages' costs), the margins would be 46% (not 39%), 41% (not 33%) and 48% (not 45%), to be compared with what he considered to be a normal margin for the provision of accounting services of 33%. 728 When the wages costs assumed by Mr McClintock are adjusted to reflect the evidence of Mr Agus and Ms Kuan as to how much of those persons' time was taken up in providing services for the J & J O'Brien group, and making consequential adjustments to the on-costs, the margins obtained by Vensel in 1997, 1998 and 2000 varied between 174.4% and 183.3% and averaged 177.5% (exhibit BJ). If the wages costs are adjusted in that way and the correct figures for the fees paid are used, the margin as a percentage of costs is between 179.6% and 199.5%, and averages 190.1%. 729 Mr McClintock observed that there were some other overheads that could be included in assessing margins, such as outgoings and insurance but even if one adjusted for those costs, "you would still have a number at the end that would be in excess of probably 100%" which would be well outside the market benchmark for the provision of accounting or related services (T2153-2154). He confirmed that the rule of thumb for setting fees for the provision of accounting and related services of one-third for wages, salaries and on-costs, one-third for overheads, and one-third for profit, applied to the entire period from 1982 to 2006 (T2154). The defendants did not adduce any evidence as to the nature or quantum of such other overheads. 730 Ms Kuan estimated that, before the sale of the Australian Youth Hotel, the Racecourse Hotel and most of the units in the Elizabeth Street Centre, 70% of the staff's time would have been spent on the affairs of the J & J O'Brien group. The plaintiffs submit that in an accounting for profits, it should be assumed that there was a change from an approximate 70%/30% division of time to 50%/50% with effect from 1 July 1996, that is, in the 1997 financial year. The sale of the Australian Youth Hotel was completed on 3 July 1995. The sale of the Racecourse Hotel was completed on 2 September 1996 but continued to be operated under licence. Sales of units in the Elizabeth Street Centre occurred progressively from 1993. Given that the Racecourse Hotel was still operating, I do not consider that an adjustment to a 50%/50% division of time as at 1 July 1996 would be warranted. For the reasons below, however, there is other support for an assessment of costs for the financial year ended 30 June 1997 on the basis contended for by the plaintiffs, but using a 70%/30% division of time. 731 It was within the defendants' power to adduce evidence as to the costs of providing the services in question and the profits derived by Aubrey F Crawley & Co and Vensel in doing so. Apart from tendering Mr McClintock's report, it did not adduce evidence on these matters. There was some other evidence on the question. KPMG was retained by QIDC to provide a report to QIDC to enable QIDC to assess whether the group would generate sufficient funds to repay an advance that QIDC was contemplating. Its report is dated 22 April 1997. KPMG wrote that Mr Crawley had reviewed a draft version of the report and had confirmed its factual accuracy (TB 75/7808.7, 7808.47). KPMG reported that it understood that management fees totalling $17,000 were drawn each month and that "they represent payment for certain head office staff (including Christopher Crawley, Janet Kuan and certain accounts staff) and costs such as rent. These staff are not otherwise shown on the payroll of the businesses." KPMG said that "whilst we have not attempted to identify these direct costs we estimate they may represent approximately 50% to 60% of the annual management fee." (TB 75/7808.18). KPMG recommended that these payments be "subrogated" behind payments due to QIDC. In fact, the management fees being paid, were in excess of $17,000 per month. However, what is significant is KPMG's assessment that the direct costs of providing the services for which management fees were paid was about 50-60% of the annual management fee, which they must have estimated to be $204,000. That is, they estimated that the costs were about $102,000 to $122,400. If one estimates costs using Mr McClintock's figures, but excludes the wages costs of Ms Hardiman and 30% of the costs of the other employees, and makes appropriate adjustments for on-costs, the total costs incurred by Vensel for providing those services in the financial year ended 30 June 1997 is $109,497. This is in line with KPMG's estimates. The margin, expressed as a percentage of costs, is 135%. This is calculated as shown below: Year Accounting retainer Vensel Wages (b) Vensel on Costs (c) Vensel Rent Costs (d) Total Vensel Cost (e) Vensel Margin (f) (a) – (e) Vensel Margin (g) (f)/(e) (a) (b) + (c) + (d) 1997 $256,900 $72,828¹ $10,196² $26,473 $109,497 $147,403 134.6% 1 ($130,647 less $26,607) x 0.7 = $72,828 ² ($104,040/$130,647) x $18,291) x 0.7 = $10,196 732 Had a "normal margin" of 33% of costs been applied to determine a reasonable fee, such a fee would be $145,631 ($109,497 x 1.33). If a 50% margin over costs were applied (to apply the one-third/one-third/one-third rule of thumb), a reasonable fee would be $164,245. Hence, one can conclude that the group was overcharged in 1997 by an amount between $92,655 and $111,269. It is true that this calculation is based on limited information. But that is all the information the defendants chose to put forward. Taking the mid-point of those figures, it can be seen that a reasonable fee for accounting services for the 1997 financial year would be about 60% of what was in fact charged. 733 A similar analysis can be made in respect of overcharging for previous years. The first step is to take the average margin for the 1997, 1998 and 2000 financial years using Mr McClintock's methodology, but excluding the wages of Ms Hardiman and adjusting for a division of time as to 70%/30%. Such a calculation was made in the plaintiffs' final submissions (attachment 3(c)(i)(2):3), but should be adjusted to reflect the correct quantum of fees. As so corrected, the figures are as follows: Year Accounting Retainer Total Vensel Costs (as per Attachment 3(c)(i)(2):3) Margin Margin as % of Costs 1997 $256,900 $109,497 $147,403 134.6% 1998 $255,200 $110,947 $144,253 130% 2000 $289,440 $130,778 $158,662 121.3% Average margin = 128.6% 734 As the plaintiffs rightly submit, there is no evidence of Vensel's cost base for financial periods prior to 1997. In the absence of such evidence, the data for 1997, 1998 and 2000 used by Mr McClintock is the only material from which to calculate the margin that was earned prior to 1997. As the above calculations show, there was an average margin in the 1997, 1998 and 2000 years of 128.6%. In order to calculate the cost base for preceding years, the total fees paid are to be divided by 2.286. 735 The question then arises how to deal with fees paid for the services provided by Mrs Crawley. As noted above, the plaintiffs treated the amounts paid to Vensel from 1997 as having a cost base of 100%. 736 Where Mrs Crawley was an employee of Marsico and J & J O'Brien, the wages paid to her or at her direction have been treated by the plaintiffs as simply an expense of Marsico or J & J O'Brien and not as a profit derived by Vensel. In my view, the plaintiffs' treatment of those payments is correct. Vensel derived a profit from the payments made to it at Mrs Crawley's direction. It did not pay Mrs Crawley (T2047). As Mrs Crawley was entitled to those wages, Vensel did not derive the profit from Marsico and J & J O'Brien, but from Mrs Crawley. The same approach must be adopted to the payment of wages totalling $40,474 in the 1996 financial year for J & J O'Brien. 737 The position is different where Vensel charged fees for Mrs Crawley's services. There is no evidence of what costs Vensel incurred in doing so. It did not pay her. There is no evidence that it incurred any costs. It lay within the defendants' power to adduce such evidence. In my view, in the absence of better evidence, the same methodology should be used to determine the profits derived by Vensel in relation to the provision of Mrs Crawley's services. 738 Set out below is a table showing the calculation of the cost base for Aubrey F Crawley & Co and Vensel from 1993 to 1996 calculated in the manner indicated above and a calculation of a reasonable fee applying a 42% margin to the cost base (i.e. a margin midway between the two figures provided by Mr McClintock): Year Fees Paid (a) Cost Base (b) (a) ÷ 2.286 Profit (a) – (b) Fees incorporating 42% margin over costs (b) x 1.42 1993 AFC $147,720 $64,619 $83,101 $91,758 Vensel $43,200 $18,898 $24,302 $26,835 1994 AFC $226,260 $98,976 $127,284 $140,546 Vensel $43,200 $18,898 $24,302 $26,835 1995 AFC $308,800 $135,083 $173,717 $191,818 Vensel $61,169 $26,758 $34,411 $37,996 1996 AFC - - Vensel $272,901 $119,379 $153,522 $169,518 ($254,400 + $18,501) In other words, reasonable fees were 62% of the fees actually charged. 739 For the purposes of bringing in short minutes of order, it will be necessary for the plaintiffs to make the appropriate calculations by reference to the fees paid by each relevant company and partnership. Period for Which an Account of Profits Should be Taken 740 There is no statutory limitation period with respect to a claim for breach of fiduciary duty: s 23, Limitation Act. In R v McNeil (1922) 31 CLR 76 at 100 the High Court considered whether a limitation period, contained in a statutory provision conferring the right to bring an action, could be extended in circumstances where the fraudulent conduct of the defendant had prevented the plaintiff from knowing until the limitation period had expired that the defendant had committed a breach of contract. Isaacs J stated: " The position may be shortly stated. Where a Court of equity finds that a legal right, for which it is asked to give a better remedy than is given at law, is barred by an Act of Parliament, it has no more power to remove or lower that bar than has a Court of law. But where equity has created a new right founded on its own doctrines exclusively, and no Act bars that specific right, then equity is free. It usually applied, from a sense of fitness, its own equitable doctrine of laches and adopts the measure of time which Parliament has indicated in analogous cases, but, when a greater equity caused by fraud arises, it modifies the practice it has itself created and gives play to the greater equity. The present case is entirely outside the ambit of that doctrine. " 741 That passage plainly applies to actions barred under the statute of limitations, as well as to actions barred under a limitation contained within the Act or provision conferring the right to bring an action. Analogous application of the statutory limitation period: prima facie application 742 Section 15 of the Limitation Act prescribes a limitation period of six years for an action on a cause of action for an account founded on a liability at law to account. Where the law and equity give concurrent remedies, equity will always apply the statute of limitations by analogy (Meagher, Heydon and Leeming at 1016-1017 [34-075], citing Urquhart v McPherson (1880) 6 VLR (E) 17 and Paragon Finance plc v DB Thakerar & Co [1999] 1 All ER 400 at 415-6). Thus if the claim for an account arises from facts giving rise to an action at law and also in equity, s 15 of the Limitation Act will apply by analogy to the equitable claim. 743 In Paragon Finance, the English Court of Appeal distinguished between the liability of an agent to account and the liability of an agent for funds held as constructive trustee. Meagher, Heydon and Leeming state that "the former, whether it was based in contract or arose from the fiduciary relationship, became statute barred either directly or by analogy; however there was no legal analogy for the latter and so it could not be statute-barred." (at 1017 [34-075]). (In New South Wales, ss 47 and 48 of the Limitation Act apply directly to claims to recover trust property and to causes of action for breach of trust.) 744 In Paragon Finance, Millett LJ stated (at 415-416): " The law on this subject has been settled for more than a hundred years. An action for an account brought by a principal against his agent is barred by the statutes of limitation unless the agent is more than a mere agent but is a trustee of the money which he received: see Burdick v Garrick (1870) LR 5 Ch App 233, Knox v Gye (1872) LR 5 HL 656 and Re Sharpe, Re Bennett, Masonic and General Life Assurance Co v Sharpe [1892] 1 Ch 154. A claim for an account in equity, absent any trust, has no equitable element; it is based on legal, not equitable rights: see How v Earl Winterton [1896] 2 Ch 626 at 639 per Lindley LJ. Where the agent's liability to account was contractual equity acted in obedience to the statute: see Hovenden v Lord Annesley (1806) 2 Sch & Lef 607 at 631 per Lord Redesdale. Where, as in Knox v Gye , there was no contractual relationship between the parties, so that the liability was exclusively equitable, the court acted by analogy with the statute. Its power to do so is implicitly preserved by s 36 of the 1980 Act (re-enacting in simpler terms the tortuous provisions of s 2(2) and (7) which were subjected to critical analysis by Megarry V-C in Tito v Waddell (No 2) , Tito v A-G [1977] 3 All ER 129 at 248–250, [1977] Ch 106 at 250–252). Accordingly, the defendant's liability to account for more than six years before the issue of the writ in Nelson v Rye depended on whether he was, not merely a fiduciary (for every agent owes fiduciary duties to his principal), but a trustee, that is to say, on whether he owed fiduciary duties in relation to the money. " 745 In Hewitt v Henderson [2006] WASCA 233, Buss JA (Steytler P and Pullin JA agreeing) considered whether the limitation period of six years contained in s 38(1)(c)(ii) and (iii) of the Western Australian Limitation Act, in respect of an action for an account for amounts received in breach of contract or fiduciary duty in the context of a joint venture or partnership agreement, would apply. His Honour noted that it was unsettled whether or not the limitation period would apply directly, but concluded that it was unnecessary to decide whether that was so or not, as the limitation period in relation to an action for an account would apply by analogy, citing Tito v Waddell (No 2) [1977] Ch 106 at 250-252 and Paragon Finance at 415-416. Prima facie, an analogy will be drawn between an action to account at law, to which s 15 applies a limitation period of six years, and an to account at equity. 746 In relation to the claim for an account of profits in respect of accounting and management fees, there is no reason not to apply s 15 of the Limitation Act by analogy. Unlike the position in relation to the claim for legal fees, it is not a case in which Mr Crawley and Vensel received property of the companies or partnerships which they were required to hold on trust. Nor would it be unconscionable to apply the statute by analogy. Although I have found that Mr Crawley did not obtain the informed consent of the companies, he did not hide the fact that he was charging such fees. 747 The next question is whether the six-year period should be calculated from the time the proceedings were commenced, or from the date of filing the further amended statement of claim or the second further amended statement of claim. 748 The claims that excessive fees were paid to Vensel for the provision of management services and were paid without the consent of the board, and without the benefit of independent or other professional advice, were raised in the statement of claim filed on 16 June 1998. It was alleged that Vensel received such fees "at least" from 1994. The claim was not confined to fees received from 1994. Whilst the claim did not then extend to fees paid to Aubrey F Crawley & Co, it was alleged that Mr Crawley was in breach of his duty as a director and as a solicitor in procuring or allowing such payments. The work done by staff employed by Vensel for which the fees were paid as described in paras 12 and 14 of Ms Kuan's affidavit quoted in para [676] above shows that the work was for services, some of which would properly be characterised as bookkeeping or clerical services, and some of which was for management services. The latter includes liaising with the bank in relation to financial information, analysing results for variances or shortages, putting managers on notice if concerns arose for shortages or possible staff dishonesty, analysing and following up weekly sales and expenses for each hotel or restaurant, and providing the described services in relation to the Elizabeth Street Centre. 749 Prior to amendments made in August 2004, it was not alleged that Mr Crawley received management fees. But he was a party to the proceedings and it was alleged that he was in breach of his duties in relation to the receipt of such fees by Vensel. I will assume that the amendments made in 2004 and 2005, in so far as they seek an account of profits in respect of fees received by Mr Crawley, raised new causes of action. However, they arise from the same (or substantially the same) facts as those alleged in the statement of claim filed on 16 June 1998. 750 The first to sixth defendants requested particulars of para 109 of the statement of claim. They asked the plaintiffs to state precisely the material facts on which they relied to establish that the fees paid to Vensel were excessive for the services provided, the amount of such contested fees, and the period during which the allegedly excessive fees were paid. The plaintiffs responded by saying that they were unaware of the exact fees paid to Vensel and the proper particulars would be provided following discovery and the return of subpoenas. In other words, the allegations in the statement of claim were not narrowed by particulars prior to the amendments allowed in 2004. 751 In my view, the amendments were allowable under Pt 20 r 4(5) of the Supreme Court Rules 1970 (NSW) and date back to the filing of the statement of claim. In any event, Pt 20 r 1 conferred a general power of amendment which abrogated the practice that amendments would not be allowed to raise a statute barred cause of action. Rather, the Court had a general discretion to allow amendments to raise a statute barred cause of action where justice so required (McGee v Yeomans [1977] 1 NSWLR 273; and see the discussion of the authorities in Greater Lithgow City Council v Wolfenden [2007] NSWCA 180). Justice clearly requires that the plaintiffs be permitted to advance this claim in respect of a period for six years prior to the commencement of proceedings on 16 June 1998. 752 The following payments were made between 16 June 1992 and 30 June 1992: J & J O'Brien: AFC $2,730 Marsico: AFC $3,500 Prego: AFC $1,220 Pasquales: AFC $1,220 Those payments were all made on 25 June 1992. In addition, there was a payment of $1,820 which was concededly made in June 1992 for the Racecourse Hotel. The evidence does not establish that it was made prior to 16 June 1992. The same analysis to determine an account of profits in respect of these payments should be made as indicated in para [738] above. Just Allowances 753 A fiduciary liable to account for profits derived from use of his position without the fully informed consent of his principal will nonetheless be entitled to an allowance for his skill, expertise, and entrepreneurial efforts, as well as expenses. In some cases, an errant fiduciary may be allowed a proportion of the profits of a business venture, notwithstanding his liability to account for profits (O'Sullivan v Management Agency & Music Ltd [1985] QB 428 at 468), although as a general rule, profits will not be apportioned in the absence of an antecedent arrangement for profit-sharing. But the fiduciary will nonetheless be entitled to an allowance for skill, expertise and other expenses (Warman International Ltd v Dwyer (1995) 182 CLR 544 at 562). If the fiduciary has been guilty of dishonesty or bad faith or surreptitious dealing, he may not be entitled to a just allowance, or, the extent of the allowance will be reduced (Phipps v Boardman [1965] Ch 992 at 1020-1021; Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No. 2) [1984] WAR 32 at 38; Bailey v Namol Pty Ltd (1994) 53 FCR 102 at 112). Where the defendant has acted honestly and skilfully, the allowance should be liberal (Boardman v Phipps [1967] 2 AC 46 at 104; Paul A Davies (Australia) Pty Ltd (in liq) v Davies [1983] 1 NSWLR 440 at 448, 451-452, 460). 754 In O'Sullivan v Management Agency & Music Ltd, a young and inexperienced musician entered into contracts with publishing and record companies and an associated company at the behest of a manager, Mr Mills. There was a fiduciary relationship between both the companies and Mr Mills on the one hand, and the musician on the other. The agreements were liable to be set aside for undue influence. The defendants were liable to account for their profits. The Court of Appeal held that the defendants were entitled to credit for not only for their expenses for the work done, but to reasonable remuneration including a profit element. Fox LJ said (at 468-469): " Once it is accepted that the court can make an appropriate allowance to a fiduciary for his skill and labour I do not see why, in principle, it should not be able to give him some part of the profit of the venture if it was thought that justice as between the parties demanded that. To give the fiduciary any allowance for his skill and labour involves some reduction of the profits otherwise payable to the beneficiary. And the business reality may be that the profits could never have been earned at all, as between fully independent persons, except on a profit sharing basis. But be that as it may, it would be one thing to permit a substantial sharing of profits in a case such as Phipps v Boardman [1967] 2 AC 46 where the conduct of the fiduciaries could not be criticised and quite another to permit it in a case such as the present where, though fraud was not alleged, there was an abuse of personal trust and confidence. I am not satisfied that it would be proper to exclude Mr Mills and the MAM companies from all reward for their efforts. I find it impossible to believe that they did not make a significant contribution to Mr O'Sullivan's success. It would be unjust to deny them a recompense for that. I would, therefore, be prepared as was done in Phipps v Boardman , to authorise the payment (over and above out of pocket expenses) of an allowance for the skill and labour of the first five defendants in promoting the compositions and performances and managing the business affairs of Mr O'Sullivan, and that an inquiry (the terms of which would need to be considered with counsel) should be ordered for that purpose. Such an allowance could include a profit element in the way that solicitors' costs do. " 755 Dunn LJ agreed with this (at 459). Waller LJ said (at 472-473): " In my judgment this court is not concerned with punishing the defendants for their behaviour. We are concerned to see that the plaintiff gets the profit to which he is entitled and at the same time see that the defendants receive fair remuneration, but no more, for all the work they have done in pursuance of this joint project. Although the trustee authorities indicate that trustees should retain no profit secretly made and only reasonable remuneration for their work as trustees, and although the present case is a fiduciary situation, it is a case where the defendants, as the plaintiff knew, were doing a considerable amount of work. They are entitled to reasonable remuneration for that work. To apply the words of Lord Wright in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, 154 the defendants here did make some profit with the knowledge and assent of the plaintiff. This the defendants are entitled to keep and would be reasonable remuneration. On the other hand it is clear that the profit which the defendants kept was excessive. The excess profit was retained without the knowledge of the plaintiff. The defendants must account for this profit. It will be for the official referee to decide what would be reasonable remuneration. It must include all expenses and a fair profit." 756 O'Sullivan v Management Agency & Music Ltd was referred to without disapproval in Warman International Ltd v Dwyer, but the High Court said (at 562): " Whether it is appropriate to allow an errant fiduciary a proportion of profits or to make an allowance in respect of skill, expertise and other expenses is a matter of judgment which will depend on the facts of the given case. However, as a general rule, in conformity with the principle that a fiduciary must not profit from a breach of fiduciary duty, a court will not apportion profits in the absence of an antecedent arrangement for profit-sharing but will make allowance for skill, expertise and other expenses. " 757 As Fox LJ observed in O'Sullivan v Management Agency & Music Ltd, an allowance for skill and expertise which goes beyond recoupment of expenses necessarily involves the retention of some amount of profit by the fiduciary. 758 In Guinness plc v Saunders [1990] 2 AC 663, the House of Lords denied to a director who benefited from a contract entered into with the company in breach of his fiduciary duty, any allowance for work performed in carrying out the contract. The committee which had purported to enter into the contract retaining the services of the director had no power under the company's articles of association to enter into such a contract. The agreement was not made by the board and was not binding on the company. The director was not entitled to remuneration on a quantum meruit basis. The director had acted in good faith, believing that his services were rendered under a contract binding on the company. The services may have been of great value to the company, contributing substantially to the enrichment of the shareholders (at 695). Nonetheless, the House of Lords held that the director was not entitled to remuneration by way of an equitable allowance in respect of the services rendered. After referring to Phipps v Boardman, Lord Goff of Chieveley said (at 701): " The decision has to be reconciled with the fundamental principle that a trustee is not entitled to remuneration for services rendered by him to the trust except as expressly provided in the trust deed. Strictly speaking, it is irreconcilable with the rule as so stated. It seems to me therefore that it can only be reconciled with it to the extent that the exercise of the equitable jurisdiction [to permit a just allowance to the defaulting trustee] does not conflict with the policy underlying the rule. And, as I see it, such a conflict will only be avoided if the exercise of the jurisdiction is restricted to those cases where it cannot have the effect of encouraging trustees in any way to put themselves in a position where their interests conflict with their duties as trustees. " His Lordship continued: " Whether any such an allowance might ever be granted by a court of equity in the case of a director of a company, as opposed to a trustee, is a point which has yet to be decided; and I must reserve the question whether the jurisdiction could be exercised in such a case, ... In any event, ... I cannot see any possibility of such jurisdiction being exercised in the present case. I proceed, of course, on the basis that Mr Ward acted throughout in complete good faith. But the simple fact remains that, by agreeing to provide his services in return for a substantial fee the size of which was dependent on the amount of a successful bid by Guinness, Mr Ward was most plainly putting himself in a position in which his interests were in stark conflict with his duty as a director. ... I cannot think that this is a case in which a court of equity (assuming that it has jurisdiction to do so in the case of the director of a company) would order the repayment of the £5·2m by Mr Ward to Guinness subject to a condition that an equitable allowance be made to Mr Ward for his services. " 759 Lord Templeman spoke to the same effect (at 694). 760 In this State, it has been held that a just allowance on the principles of Phipps v Boardman can be made to a director who, in breach of his fiduciary duty to the company, used company moneys to acquire property, and through his own exertions, and the efforts of his family, improved the property which was held on constructive trust for the company (Paul A Davies (Australia) Pty Ltd (In Liq) v Davies). Guinness plc v Saunders may be explained on the basis that to allow remuneration to the errant director was contrary to the articles of association which regulated his right to remuneration (per Lord Templeman at 694). 761 In Warman International Ltd v Dwyer, Mr Dwyer had breached his fiduciary duty as a senior executive officer of Warman by advancing his own interests and those of the other defendants to Warman's disadvantage, by reducing a supplier's confidence in Warman and putting himself in a position, together with that of employees of Warman, to set up in competition with the company for the supplier's business. As a result, the supplier terminated its agency arrangements with Warman earlier than it otherwise would have done and established business relationships with companies set up by Mr Dwyer (at 549-552). The defendants were liable to account for the net profits for the new businesses for the first two years of their operation (at 567-568), but were entitled to "an appropriate allowance for expenses, skill, expertise, effort and resources contributed by them." (at 568). The High Court did not refer to Lord Goff's statement in Guinness plc v Saunders that the jurisdiction to allow an errant fiduciary just allowances is confined to cases where its exercise could not have the effect of encouraging trustees (and therefore presumably other fiduciaries) from putting themselves in a position where their interests conflict with their duties. Having regard to the facts in Warman International Ltd v Dwyer and the order made, the High Court could not have endorsed such a proposition. In Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298, Heydon JA (as his Honour then was) said (at 384 [336]): " It is for the fiduciary to establish that the ordinary rule in relation to an account of profits should not be applied. In England the onus seems to require the establishment of 'exceptional' or 'unusual' circumstances. In Australia the High Court seems to suggest that the onus is lighter, but that it remains on the fiduciary. " 762 Mr Crawley did not act dishonestly in earning accounting and management fees. He was not guilty of grave misconduct or surreptitious conduct, such that he should be deprived of reasonable remuneration for the services provided. I find it difficult to reconcile all of the reasoning in Guinness plc v Saunders with Australian authorities which bind me, in particular, Paul A Davies (Australia) Pty Ltd (In Liq) v Davies and Warman International Ltd v Dwyer. In my view, he is entitled to claim just allowances for the services provided over and above the retention of moneys to cover costs for providing the services. 763 Both Mr Crawley and Vensel are liable to account for the profits derived by them. I do not consider that Mr Crawley is liable to account for the profits derived by Vensel. Whilst he controlled Vensel, the case was not conducted on the basis that Vensel was his agent. There is no basis for piercing the corporate veil (Briggs v James Hardie & Co Pty Ltd (1989) 16 NSWLR 549). The better view is that, where profits are earned by an accessary to the fiduciary's breach of fiduciary duty, it is the accessary who is liable to account for the profits. The liability to account is a personal remedy designed to strip the recipient of profits it is unconscionable for him to retain (Dart Industries Pty Ltd v Decor Corporation Pty Ltd (1993) 179 CLR 101 at 111; Warman International Ltd v Dwyer at 569-570; Meagher, Heydon & Leeming: Equity, Doctrines & Remedies at [5-245]; see also Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 at 139-140, 150-152, 153)). In Regal (Hastings) Ltd v Gulliver, it was only those directors who took advantage of the opportunity to acquire shares in the subsidiary, which opportunity arose by reason of their position, who were required to account for profits they made. The chairman (Gulliver) was not liable to account for profits made by others notwithstanding he was instrumental in urging the directors to take up the opportunity. 764 Mr Crawley is liable to pay equitable compensation for breach of fiduciary duty in relation to the fees paid both to him and to Vensel (and later to Gladewood) because the fees charged were excessive. The measure of equitable compensation is the difference between the fees paid and a reasonable charge. Subject to his entitlement to just allowances, he is required to account for all of the profits derived by him. 765 Vensel is liable to account for the profits derived by it. Through Mr Crawley, it had full knowledge that the profits derived by it arose as a result of a breach of Mr Crawley's fiduciary duty (Cook v Deeks [1916] 1 AC 554 at 565; Warman International Ltd v Dwyer at 552, 569). Warman International Ltd v Dwyer shows that a third party who participates with knowledge in the fiduciary's breach of duty and thereby becomes liable to account for profits derived by it, is entitled to maintain a claim for just allowances. To allow such a claim is to recognise that although the profit is not apportioned as such, some of it is due to the skill, expertise and labour of that party: " A stringent rule requiring a fiduciary to account for profits can be carried to extremes and ... in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff. " ( Warman International Ltd v Dwyer at 561). 766 The question then is how should just allowances be quantified. Had the services in question not been provided by employees of Vensel, the group would have had to pay reasonable fees to another provider of services which would have incorporated a profit component. I have found that no agreement was made such as was suggested by Mr Short that the services should have been provided at cost. I consider that justice would be done by allowing a "normal margin" of between thirty-three percent and fifty percent over and above the costs calculated in the manner described above. I have adopted a margin of forty-two percent over costs. That margin may be high for a claim for just allowances. But there is a compensating factor in that there must have been other costs whose quantum was not proved and which have not been allowed for. 767 The result is that the measure of relief is the same whether it is determined as equitable compensation for the companies and partnerships having been charged more than reasonable fees, or an account of profits after just allowances. 768 The assessment of an account of profits and just allowances is to be made on the same basis for Vensel as for Mr Crawley. As the plaintiffs observed in opening, there is no evidence as to what costs Mr Crawley incurred in relation to the fees derived by his firm as the services in question were carried out by Vensel. As I have said, the defendants did not identify the quantum of the management fee which they said was paid by Aubrey F Crawley & Co to Vensel. Nonetheless, in their closing submissions, the plaintiffs did not seek an account of profits against Mr Crawley on the basis that no costs were to be deducted from the fees received by his firm. The plaintiffs proceeded on the basis that the costs incurred by Vensel should be deducted from the fees paid to Aubrey F Crawley & Co. I have proceeded on the same basis. Conclusion 769 For these reasons, each of J & J O'Brien, Marsico, the Australian Youth Hotel partnership and the Racecourse Hotel partnership are entitled to recover from Mr Crawley and from Vensel as equitable compensation (in the case of Mr Crawley) or as an account of profits after just allowances (in the case of Mr Crawley and Vensel) the difference between the amounts paid for accounting and management services from 16 June 1992 to 30 June 1997 and reasonable fees for those services determined in accordance with these reasons. Vensel is liable to account only for the profits it received less a just allowance, to be calculated in accordance with these reasons. Mr Crawley is liable to account for the profits he received (through Aubrey F Crawley & Co) less a just allowance and to pay equitable compensation in the same amount for which Vensel is required to account. Of course, there can be no double satisfaction of judgments. It will be necessary for a calculation of those amounts to be made, as were made in the plaintiffs' submissions, but adopting the methodology in these reasons. Interest will be payable from each balance date at the prescribed rates. SECTION 7 – The Australian Youth Hotel 770 The plaintiffs contend that Marsico is required to account to Nabatu for one-third of the profits of the Australian Youth Hotel partnership which were paid to Westpac to reduce Marsico's debt to Westpac. The sale of the Australian Youth Hotel was completed on 3 July 1995. On 4 July 1997, Kemp Strang & Chippendall, who acted on behalf of Nabatu, wrote to Mr Crawley. They proposed that a receiver be appointed to the partnership assets of the Australian Youth Hotel partnership to realise its assets, (being the advances owing by related entities), to pay creditors, being advances owing to J & J O'Brien, and to distribute the surplus between the three partners. 771 On 17 February 1995, Westpac stipulated that the full net proceeds from the sale of the Australian Youth Hotel, after allowance for normal expenses, should be paid to it. If the hotel did not sell at auction scheduled for 28 March 1995, the bank was prepared to grant a further thirty days in which contracts were to be exchanged, otherwise it would pursue a sale as mortgagee (TB 43/4525). 772 There was no express agreement at this time between Mr Davis, Mr Crawley and Mr Short as to how the payment to reduce Marsico's debt to Westpac should be treated. Mr Crawley deposed that they did not stop to consider the question of the accounting for the payment to Westpac. He deposed that: " I considered for my own part that by allowing the balance of the purchase price of the AYH to be paid to Westpac in the manner which I have discussed, that I was making a capital contribution to the Group as a shareholder rather than constituting myself a debtor (scil creditor) of the Group at that time. " (CC3 para 8) 773 Mr Crawley said that it was Mr Leddin's decision to treat the transaction as creating a debt rather than as creating a capital injection, and that Mr Leddin took that step without recourse to Mr Crawley, to Mr Davis or to Mr Short. 774 As noted in para [72], the financial statements for the Australian Youth Hotel partnership for the year ended 30 June 1996 record as an asset a loan to related entities of $1,757,624 and a liability being a loan from related entities of $514,862 (a difference of $1,242,762). This was the amount of the profits of the partnership, of which Nabatu's share was $405,358. As the amount of $1,242,762 was treated as a debt owed by Marsico until purportedly released so as to give rise to a capital profit in that amount, the other debts owed to and by the partnership must have been adjusted through Marsico's loan account with J & J O'Brien. 775 There was no resolution by the directors of Marsico or J & J O'Brien to issue shares, or to do anything else, that would constitute the recognition of a capital injection to Marsico or any of the companies in the J & J O'Brien group. Mr Crawley did not depose that he intended to make a gift of his share of the partnership assets to any of the companies in the J & J O'Brien group, let alone that there was any discussion between Mr Davis, Mr Short and himself that the partnership assets would be given to the companies in the Group. 776 Mr Crawley deposed that by early 1997, he was aware of Mr Leddin's treatment of the sale proceeds of the Australian Youth Hotel. He deposed having formed the view that that treatment did not reflect "the reality of what occurred in May 1995". He also said that he formed the view that the increased debt burden on the companies contributed to a balance sheet which encouraged financiers to characterise the companies as being under capitalised. He deposed that: " I accordingly instructed Mr Leddin on or about April 1998 to reverse the accounting treatment for the sale of the Australian Youth Hotel with the intent that the debt of the AYH partnership to the Group (scil the debt of Marsico to the AYH partnership) would be released with a corresponding increase in the capital of the Group. " 777 The financial statements for Marsico for the year ended 30 June 1996 were signed by Mr Crawley and Mr Davis on 1 April 1997. Mr Crawley said that he could not remember whether he was aware before 1 April 1997 that the accounting treatment adopted by Mr Leddin was that the proceeds of the sale of the Australian Youth Hotel were treated as a debt owed by Marsico to the partners of the Australian Youth Hotel. It is not apparent from the face of the financial statements of Marsico for the year ended 30 June 1996 that that is how they had been accounted for in that financial year, although it appears from the later financial statements of Marsico that they must have been so treated. 778 Mr Crawley gave evidence that from the time the partners (that is, Nabatu, Athann and he) had acquired J & J O'Brien and mortgaged everything to Westpac, the Australian Youth Hotel's assets were subsumed into the group and that the partners then agreed that the assets would be treated as being "in the whole of the group" (T1451-1452). 779 In a sense, this was correct. The assets of the Australian Youth Hotel were provided as security for the borrowings of Marsico & J & J O'Brien. The partners had no choice but to agree to the proceeds of sale of the Australian Youth Hotel being paid to Westpac because Westpac had a mortgage over the asset. It does not follow, as the first to sixth defendants would have it, that as a matter of "commercial reality", when the assets of the partnership were applied in reduction of Marsico's debt to Westpac, Marsico did not become an unsecured debtor of the partnership. It is not contended, and the evidence would not support a contention, that the partners intended to make a gift. There was no resolution to increase the share capital of the company. Mr Leddin's treatment of the payment as giving rise to a debt owed by Marsico to the partners was appropriate. Although there was no express agreement for loan, Marsico would be liable to the partners for an action in restitution for money paid at its request and for its benefit. 780 The first to sixth defendants submitted that Mr Crawley's evidence that the Australian Youth Hotel had become subsumed into the group was supported by Mr Davis. They relied on a letter written by Mr Wiseman on 14 July 1997 (TB 80/8365), in which Mr Wiseman asserted that: " I am instructed as follows: 1. There is no currently existing separate partnership in relation to the subject hotel [viz The Australian Youth Hotel]. While it may have been established in 1982 as a separate partnership, in recent times, all of the assets of the J & J O'Brien/Marsico Holdings Group ("the Group") including the offices and flats in Elizabeth Street, Jackson's on George, the Marlborough Hotel and others have been regarded as assets of the Group and the proprietors of the Group in a commercial (but not legal) sense were Messrs Crawley, Short and Davis. 2. That has been my understanding of the situation since I first became involved acting for Athol Davis three years ago, and this has been confirmed at the various meetings of directors that I attended ... " 781 Mr Wiseman said that Mr Davis did not see any point in appointing a receiver to a non-existent partnership with non-existent assets. 782 Mr Wiseman's characterisation of events is not to the point. In any event, I would not regard his characterisation of events as reliable. What neither Mr Wiseman nor Mr Crawley identified was how the assets of the partnership became "subsumed" into the assets of "the Group", in other words, how the Australian Youth Hotel, or the proceeds of sale of the Australian Youth Hotel, became an asset of Marsico. 783 The hotel was not one of Marsico's assets. The proceeds of sale were used for Marsico's benefit. It became liable to the partners for the application of those proceeds to reduce its liability to Westpac. 784 Marsico's 1997 financial statements were signed by Mr and Mrs Crawley on 7 August 1998. According to the 1997 financial statements, there was a capital reserve as at 30 June 1996 of $1,242,762, being "Release of debt on sale of Australian Youth Hotel". No such reserve was recorded in the 1996 financial statements (Marsico CTB pp 47, 129, 134). The 1997 financial statements curiously recorded a liability of $1,242,762 as at 30 June 1997, and no equivalent capital reserve (Marsico CTB pp 133, 134). This was amended in the 1998 financial statements, which purportedly restated liabilities and reserves as at 1997 to reflect the alleged release of debt as a capital reserve (Marsico CTB pp 149, 150). Marsico's financial statements do not accurately record the effect of these transactions. 785 The first to sixth defendants asserted a defence of laches, acquiescence and delay. They submitted that the plaintiffs had clearly acquiesced in the arrangements pursuant to which the net proceeds of sale of the hotel were paid to Westpac, and that, having threatened the appointment of a receiver in 1997, did not move to do so. 786 It is true that Mr Short did not object to the net proceeds of sale being used to pay Westpac. He was in no position to do so, even if he wanted to. Westpac was entitled to the proceeds of sale under its mortgage. But that is not to the point. He did not acquiesce in the purported release of the debt owed by Marsico to the partners of the Australian Youth Hotel arising from that application of the proceeds. 787 The fact that the plaintiffs did not proceed with their threat to appoint a receiver in 1997 does not mean that they acquiesced in Marsico retaining the moneys without accounting to the partnership. 788 In the statement of claim filed on 16 June 1998, the plaintiffs alleged (para 25) that part of the proceeds of sale were paid to Westpac, that the draft financial statements of the partnership as at 30 June 1996 recorded receivables owing to the partnership by related entities of $1,757,624 and a surplus of partners' equity of $1,242,762 (para 41), and that no part of such receivables or surplus of partners' equity had been distributed to Mr Short or Nabatu, and no accounting in relation thereto had been provided by Mr Crawley (para 42). They alleged as the twelfth instance of oppression that Mr Crawley had failed to account for the assets of the Australian Youth Hotel partnership and thereby breached his duties as a director (and as a solicitor) (para 112). They sought an appointment of a receiver to the assets of the Australian Youth Hotel partnership and an order that the receiver be empowered to collect its book debts and they sought an order for an account of all dealings and transactions of the Australian Youth Hotel partnership. These allegations were expanded in the amended statement of claim filed on 31 August 2004 whereby it was alleged that Marsico or Trudale became indebted to the Australian Youth Hotel partnership in the amount of $1,242,762 (para 112A), and that Mr Crawley had purported to record in the books of Marsico a release of the debt owed by Marsico to the Australian Youth Hotel partnership and had procured changes in the shareholders' loan accounts to remove the profit from Nabatu's loan account (para 112C). It was then alleged that this was a breach of Mr Crawley's fiduciary duty as a partner in the Australian Youth Hotel partnership as well as of his duties as a director and as a solicitor. These amendments related to the same transactions as had been the subject of the allegations in the statement of claim filed in 1998. Those amendments take effect from the date of the filing of the statement of claim on 16 June 1998. There is nothing in the defences of laches or acquiescence. 789 Nabatu sought judgment against Marsico in the sum of $405,358 together with interest. Initially, the plaintiffs sought interest only from 30 August 2004, but in the course of closing submissions, senior counsel for the plaintiffs submitted that interest should run from 4 July 1997. That was the date upon which Mr Linden, on behalf of Nabatu, sought Mr Crawley's consent to the appointment of a receiver to the partnership for the purposes of realising the partnership assets and distributing the surplus between the three partners. 790 The first to sixth defendants submitted that in valuing Nabatu's shares in Marsico, there must be a consequential adjustment to Marsico's assets. They submitted that all of the proceeds of sale, if treated as giving rise to a debt owed by Marsico to the partners, should be deducted from a valuation of its assets. They submitted that Mr Crawley and Mr Davis should be entitled to the same distribution. 791 Marsico does not owe separate debts to each of the partners of the Australian Youth Hotel partnership for their shares of the net profits of the partnership. Nabatu is not entitled to judgment against Marsico for $405,358 plus interest, being its share of the partnership assets. It is entitled to the orders sought in the statement of claim that a receiver be appointed without security to the assets of the Australian Youth Hotel partnership. It is entitled to an order that Marsico pay to the receiver the sum of $1,242,762 together with interest. Interest was only sought by the plaintiffs from 4 July 1997 and, as neither Athann nor Mr Crawley have sought to advance the claim, there is no need to consider whether interest should be payable from 1995. Marsico will be liable to pay interest at the prescribed rates on that sum from 4 July 1997. There may be consequential orders to be made in relation to the receivership, including any orders as to how the costs of the receivership should be borne between the individual partners. If necessary, those questions can be addressed on the bringing in of short minutes of order. 792 No question of the Limitation Act applies to the claim for the recovery of the joint debt as the statement of claim filed on 16 June 1998 sought orders that the receiver be appointed to the assets and undertaking of the Australian Youth Hotel partnership and an order that the receiver be empowered to collect the book debts of the partnership and that an account be taken as to all dealings and transactions of the partnership. As explained above, the statement of claim filed in 1998 also alleged a failure to account for the receivables owing to the partnership. 793 It follows that a valuation of Nabatu's share in Marsico must take account of Marsico's liability to the Australian Youth Hotel partnership. SECTION 8 – Racecourse Hotel Partnership 794 A similar issue arises in relation to accounting for the application of the proceeds of the sale of the Racecourse Hotel. The background to the claims in relation to the Racecourse Hotel partnership is set out in paras [77]-[85] of Section 1. Three issues were raised. The first is whether Marsico is liable to pay Nabatu $1,321,533 plus interest, or is liable to account to Nabatu and Mr Crawley for $2,643,067 plus interest, being the profits derived from the sale of the Racecourse Hotel. 795 The second issue is whether Marsico is liable to account to Nabatu for half of the profits derived from the trading from the Racecourse Hotel from 2 September 1996 to November 1997. This claim was conceded by the first to sixth defendants in their closing submissions (tab 8, para 11). 796 The third issue is whether Mr Crawley should pay to Nabatu an amount of $175,000, being fifty percent of what the plaintiffs contend to be the value of the liquor licence for the Racecourse Hotel held by Mrs Crawley. 797 As indicated in para [83] of Section 1, Mr Crawley's position is that it was agreed between Mr Short, Mr Davis and him, that Mr Davis or Athann should not participate in the Racecourse Hotel either by way of profit derived from trading or in capital gains to be made on the sale of the hotel (CC1, para 238). That was common ground. Mr Crawley deposed that initially he considered that the way to implement that arrangement was to create a partnership between himself and Nabatu (or Mr Short) in relation to the operating profits and possible profit on resale of the hotel (CC1, para 243). Later, he formed the view that the better characterisation of the arrangement was that the shareholders of Marsico had reached agreement as to how their rights to dividends attributable to specific profits should be apportioned (CC1, para 244). 798 The Racecourse Hotel was purchased by Marsico from Tooth & Co Ltd. Marsico borrowed $1,340,000 from Tooth & Co Ltd as vendor finance. There was no express written declaration of trust by Marsico that it held the land for Nabatu and Mr Crawley. No separate bank account was opened for Nabatu and Mr Crawley as partners. However, the ownership and business of the hotel was separately accounted for. Financial statements were prepared for the partnership of Mr Crawley and Nabatu trading as Racecourse Hotel. Thus, the partnership financial statements for the financial year ended 30 June 1992 recorded the hotel as being an asset of the partnership. The partners' liabilities included the liability for the loan of $1,340,000. Interest on the loan was treated as a partnership expense. The cash and receivables from trading were treated as partnership assets. In each year, the profit or loss derived from trading of the hotel was allocated between Mr Crawley and Nabatu equally. Financial statements for the partnership were prepared for the years ended 30 June 1991 to 30 June 1996. The financial statements were prepared in order to enable compliance with the requirements of the Income Tax Assessment Act 1936 (Cth). I can infer that Mr Crawley, Mr Short, and Marsico, lodged income tax returns on the basis that the profits and losses derived from the trading of the Racecourse Hotel were derived or incurred by Mr Crawley and Nabatu, and not by Marsico. 799 Mr Crawley deposed that the separate accounts created for the Racecourse Hotel partnership were created "solely as an accounting exercise" (CC3, para 3). He said that: " The rationale for the creation of that separate account was that, on any final accounting between Mr Short, Mr Davis (and their respective companies) and myself, the separate accounting for the operations of the Racecourse Hotel would permit an appropriate adjustment to be made at that time reflecting Mr Davis' non-entitlement to enjoy benefits from the operations of the Racecourse Hotel, emanating from the agreement of 13 June 1990. Any capital profit on resale would also be capable of ready ascertainment, and would not require a separate accounting treatment to isolate and identify it. As a consequence of these arrangements, when the Racecourse Hotel was sold, the profit deriving from that sale was considered a Marsico asset but, in the knowledge that, on a final accounting between Mr Short, Mr Davis and I, Mr Davis (through Athann) would not enjoy a share of that profit. " (CC3, paras 3 and 4). 800 The reference to "the agreement of 13 June 1990" was to an oral agreement Mr Crawley deposed had been made on that day between he, Mr Short and Mr Davis in which Mr Davis agreed to relinquish rights to share in the operating profits from the Racecourse Hotel and any profit on the sale of the hotel. 801 In his defence, Mr Crawley contends that Marsico was the legal and beneficial owner of the land and the business of the Racecourse Hotel and that there was no partnership in respect of the hotel between Mr Crawley and Nabatu (defence paras 36(b) and (c), 44(c), 48(a)). 802 Mr Crawley adopted his present position after Springsley had acquired Athann's shares in Marsico and Mr Short was pressing Nabatu's claims as a partner in the Racecourse Hotel partnership. Notwithstanding his affidavit evidence that there would be a "final accounting" between the shareholders, there was no such accounting. His position as expressed in his verified defence was that Marsico was entitled to the profits from the sale of the Racecourse Hotel. A consequence of that position is that, on a winding-up of Marsico, or on a compulsory purchase of Nabatu's shares in Marsico, Nabatu would be entitled only to one-third, rather than one-half of those profits. In cross-examination, Mr Crawley professed not to have turned his mind to that consequence, but I do not accept that evidence. 803 The evidence that the Racecourse Hotel was an asset of the partnership and that the business was carried on by the partnership was not confined to the financial statements prepared for the Racecourse Hotel partnership. However, those financial statements are important. Mr Crawley signed the accounts for the partnership whose existence he now denies (Racecourse Hotel CTB pp 17, 28, 49). There are numerous other documents itemised in the plaintiffs' submissions in which Mr Crawley recognised or asserted the existence of the partnership. For example, on 15 June 1993, he swore a statutory declaration in relation to a power of attorney given to him by Mr Short to accept an offer from Westpac to increase its facility to permit Marsico to refinance its existing indebtedness in relation to the Racecourse Hotel. In that statutory declaration, he swore that: " I am beneficially interested in property held by Marsico Holdings Pty Ltd as trustee for me and Nabatu Pty Ltd as trustee for the Short Family Settlement. " (TB 30/2970). 804 In his letter of 15 June 1993 to Nabatu, Mr Crawley confirmed that: " The writer ... held a beneficial interest in the Racecourse property as that property is held by Marsico Holdings Pty Ltd as trustee for Nabatu Pty Ltd as trustee for the Short Family Settlement and for myself ." (TB 30/2968) 805 In the mortgage given to Westpac over the Racecourse Hotel on 15 June 1993, Marsico gave the mortgage "acting or purporting to act as trustee of the trust on which the Trustee holds the mortgaged premises for Christopher William Crawley and Nabatu Pty Ltd ..." (TB 30/2980, 2984) 806 On 21 December 1993, Mr Crawley swore a further statutory declaration that Marsico owned the Racecourse Hotel as bare trustee for him and Nabatu (TB 35/3381.2.1). 807 At directors' meetings of J & J O'Brien and Marsico in 1995, Mr Crawley refused to discuss matters relating to the Racecourse Hotel because it was not a company asset but a partnership asset (minutes of 14 July 1995, TB 48/5109 at 5120; minutes of 25 October 1995 TB 50/5393 at 5403). At the meeting of 25 October 1995, Mr Short proposed that Mr Hannan's company, Hilldean Pty Ltd, be appointed as a consultant to Marsico and J & J O'Brien and to the Racecourse Hotel. Mr Crawley said "The Racecourse Hotel has nothing to do with it. ... You can't appoint anybody ... I'm sorry it is out of order. ... It has got nothing to do with this company, it is a partnership." (exhibit BM, transcript of meeting of 25 October 1995 p 84). 808 On 15 December 1995, Mr Crawley forwarded to Westpac a statutory declaration sworn by Mr Short that Marsico "is not the trustee of any trust and all its assets are beneficially owned by it except the bare trust in relation to the Racecourse Hotel business" (TB 52/5654; 53/5688). 809 On 14 March 1996, Mr Crawley responded to a notice of a directors' meeting. He said that an item on the agenda for the Racecourse Hotel should be deleted as it was a partnership asset, and one in respect of which Mr Davis or Athann had no right, title or interest. As he was referring to an agenda for a meeting of Marsico, he must also have been contending that Marsico had no legitimate interest in discussion about the Racecourse Hotel (TB 56/5808 at 5809). 810 The contract for the sale of the Racecourse Hotel was prepared by Aubrey F Crawley & Co. The vendor was described as Marsico as bare trustee for Nabatu and Mr Crawley (TB 57/6023). 811 On 22 May 1996, Mr Crawley wrote to Mr Hannan objecting to an account of Mr Hannan's. Mr Crawley said that: " The only parties who could appoint you to the partnership assets of the Racecourse Hotel are Nabatu Pty Ltd and myself and you are not so appointed. " (TB 58/6117 at 6118). 812 On 26 August 1996, Mr Crawley wrote to Westpac complaining that Westpac had extended its facilities without his consent. At this time, Mr Crawley had been out-voted by Mr Short and Mr Davis on a number of issues. He complained to Westpac that: " The bank induced the writer to continue with the implementation and delivery of a debt reduction program by agreement for the deduction of $400,000 in payment of this firm's costs from the sale proceeds of the Racecourse Hotel. That property is held in Trust for the writer and Nabatu Pty Ltd on equal shares as the bank is aware. " (TB 61/6505). 813 In the deed of 30 August 1996 dealing with the application of the proceeds of sale of the Racecourse Hotel (see para [80] of Section 1), being a deed made between, amongst others, Marsico, Athann, Nabatu and Mr Crawley, it was agreed that interest on the account to be established into which the $400,000 was to be paid would "be the property of Marsico (as trustee for the bare trust on which it entered into the Sale Contract)." (Clause 17(3); TB 61/6664 at 6678). 814 On 13 September 1996, Mr Crawley sent to Nabatu a notice of termination of the partnership which previously conducted the business known as the Racecourse Hotel (TB 62/6748, 6749). 815 These were not the only references by Mr Crawley to the existence of a partnership for the conduct of the business of the Racecourse Hotel, or to the fact that Marsico held the hotel on trust for the partners. 816 It was only after Mr Crawley gave notice of termination of a partnership, and after Vensel entered into an agreement with the purchaser of the Racecourse Hotel to operate the hotel under licence (TB 62/6708) that Mr Crawley changed his position. 817 Although the licence agreement for the operation of the hotel was entered into by Vensel after its purchase of the hotel, by the time of the hearing it was common ground that the profits from the operation of the hotel under that licence were derived by Marsico. It was only in closing submissions that the first to sixth defendants acknowledged that Marsico was liable to account to Nabatu for a half-share of those profits. 818 In final submissions, Mr Crawley's position in relation to accounting for the profits from the sale of the Racecourse Hotel was that: " Accounts styled 'partnership accounts' were prepared in order to quarantine the profit from the trading of the hotel. There was no need to quarantine the capital gain made on its sale, as it would be readily calculable. The partnership accounts were described as an 'accounting exercise' by Crawley. The accounting exercise was designed to be brought to use in the final accounting of the dealings between Crawley, Short, Davis and their companies. At that time an adjustment would have been made to take into account the fact that Marsico's funds included some funds attributable to the profit on trading and sale of the operations of the Racecourse Hotel in which Davis (Athann) was not to share. ... The ultimate accounting between Davis, Short and Crawley never occurred as the buy-out of Davis intervened, which was an event which to some extent overtook the arrangement. ... There were never any nett proceeds of sale of the Racecourse Hotel upon which the Quarantining Arrangements could operate. This was as a result of the agreement of Short, Davis and Crawley that the nett proceeds of the hotel's sale would go to reduce the group's indebtedness to BAC. Consequently the issue as to the correct legal interpretation of the Quarantining Arrangement becomes an academic one, as does the issue as to the accounting treatment originally given to the transaction and its reversal. " 819 I do not accept any of these submissions. In the context in which the expression was used by Mr Crawley and in the first to sixth defendants' submissions, the description of the partnership accounts as a mere "accounting exercise" is intended to convey that the accounts were fictitious; that in truth, no partnership existed; that the assets and the income from the Racecourse Hotel were held and derived beneficially by Marsico; and that the accounts were only prepared to enable the shareholders of Marsico to see how adjustments should be made to returns to shareholders, when and if there was a payment of dividends or return of capital to the shareholders. There is not a hint in any contemporaneous documents that that was the purpose for which the accounts were prepared. There would have been no need to establish a partnership or describe Mr Crawley's and Nabatu's relations in relation to the Racecourse Hotel as a partnership, if that was what was intended. 820 Moreover, Mr Crawley did not act consistently with his profession that Nabatu should only share in the profits from the Racecourse Hotel upon an accounting to shareholders of Marsico. There was no such accounting, and until closing submissions Mr Crawley opposed any order for a compulsory purchase of Nabatu's shares. No dividends were declared. Mr Crawley resisted, and continues to resist, an order for the winding-up of Marsico. He resisted any "final accounting" of the dealings between he, Mr Short, Mr Davis and their companies. 821 Nor does the fact that the net proceeds of the hotel's sale went to reduce the group's indebtedness to BAC make the "correct legal interpretation of the Quarantining Arrangement" academic. The so-called "Quarantining Arrangements" were implemented by the establishment of the partnership and the hotel being held as a partnership asset. When the proceeds of the sale of the hotel were used to reduce "the group's" debt to BAC, the borrowers whose debts were discharged owed a debt to the partners for the use of their moneys. 822 It was submitted for the first to sixth defendants that there was no evidence of Marsico expressing, with the requisite degree of certainty, that it was constituting itself as a trustee of the hotel. It was also submitted that no trust was created because there was no written declaration of trust which complied with s 23C(1)(a) or (b) of the Conveyancing Act 1919 (NSW). 823 I do not agree. The declarations by Marsico in the mortgage to Westpac of 15 June 1993, in the agreement for sale of the Racecourse Hotel of 7 May 1996, and in the deed of 30 August 1996, are declarations of trust respecting the land which are sufficient to comply with the requirements of s 23C(1)(b). In any event, the parties adopted as the conventional basis of their relationship that the hotel was a partnership asset. Mr Crawley and Marsico would be estopped from denying the existence of the trust, and it would be to use s 23C as an instrument of fraud to allow the absence of any additional declaration of trust to defeat Nabatu's interest in the hotel and in the proceeds of sale. 824 On 3 June 1997, that is, shortly after members of Mr Crawley's family acquired the beneficial interest in the shares held by Springsley and Mr Crawley controlled the affairs of the Group, Mr Leddin made a file note recording what I infer to be an instruction given to him that "Racecourse in Marsico and no longer a p'ship" (TB 79/8109.86). 825 On 30 March 1998, Mr Crawley gave instructions to Mr Leddin in relation to the accounting for the sale of the Racecourse Hotel. Mr Leddin's file note reads: "Racecourse: tf to Marsico from partners & raise profit in Marsico plus tax. Money raised by Marsico. Only business in name of Short/CWC land – Marsico." 826 Mr Leddin's note records his having said: "contrary to previous accounts." (TB 79/8478.842.1). 827 On 1 and 2 April 1998 the auditors made a series of journal entries crediting Marsico with an abnormal gain to its profit and loss account in the amount of $2,643,066.72 and debiting the loan accounts of Mr Crawley and Nabatu with the sums of $1,321,533.36 each. The journal entry described this as "being transfer of gain on sale of Racecourse to Marsico as beneficial owner of land" (TB 8478.859.3). 828 It follows that, prior to these entries, the proceeds of sale of the land which had been used either to reduce Marsico's debt or had been on-lent by Marsico to other companies in the group to reduce their debt, were accounted for, inter alia, by acknowledging a debt in favour of Mr Crawley and Nabatu. The journal adjustments effected at 1 April 1998 with effect from 30 June 1997 reversed these debts and credited Marsico with an abnormal gain. The justification advanced by Mr Crawley to the auditors for this was that the hotel had been beneficially owned by Marsico. That was not the fact. 829 Marsico's financial statements for the year ended 30 June 1997 reflected the sale of the Racecourse Hotel as having been a sale of an asset owned by Marsico which gave rise to a capital profit. To achieve this, the comparative figures for 1996 were rewritten. In the financial statements for the Racecourse Hotel partnership as at 30 June 1996 the freehold land and buildings were recorded as an asset at cost of $1,409,741. This asset, together with furniture and fittings and plant and equipment, was brought to account at cost, less accumulated depreciation. In its financial statements for the year ended 30 June 1996, Marsico also brought to account its land and buildings, plant and equipment and furniture and fixtures at cost, less depreciation. Its balance sheet included land and buildings at cost (and before depreciation) in an amount of $15,282,991. 830 In Marsico's 1997 financial statements, its 1996 figures were rewritten. Those financial statements asserted (contrary to the earlier financial statements) that, as at 30 June 1996, it held land and buildings at cost of $16,692,732, that is, $1,409,741 more than had previously been shown. 831 The Racecourse Hotel was sold in the year ended 30 June 1997. The profit on sale was recorded as an abnormal gain in Marsico's profit and loss accounts in the amount of $2,643,067. The accounts stated that no tax provision was required as the company had tax losses available to offset the gain. The gain was carried to a capital profits reserve (Marsico CTB pp 118, 129, 132, 133, 134). 832 Marsico's financial statements were adopted by the board and signed by Mr and Mrs Crawley on 7 August 1998. 833 Insofar as the shareholders had an economic interest in the assets of Marsico, the effect of this accounting was to reduce Nabatu's interest in the profits arising from the sale of the Racecourse Hotel from 50% to 33.3%. When this was put to Mr Crawley in cross-examination, he said that was the first time such a consequence had entered his mind (T1511). He said he did not give it any consideration at the time, and that it was not his intention to dilute Nabatu's interest in the proceeds of sale (T1511). I reject that evidence. 834 There was no dispute as to the orders which should be made if it were held, as I do, that Mr Crawley and Nabatu were beneficially entitled to the proceeds of sale of the Racecourse Hotel. In that event, I understood it to be common ground that Marsico was liable to both Nabatu and Mr Crawley in the amount of $2,643,067. Again, the debt is a joint debt. However, rather than appointing a receiver to the Racecourse Hotel partnership so that the debt could then be distributed equally between Nabatu and Mr Crawley, the parties took the position that Marsico should pay half the debt to Nabatu if I came to the conclusion to which I have come. On a winding-up or on a compulsory purchase of Nabatu's shares, the liability of Marsico to Mr Crawley should also be taken into account. Although Mr Crawley made no claim for the debt, and disputed that such a debt existed, given that the debt is a joint debt, the liability by Marsico to pay the whole debt together with interest must be recognised. Accounting for Profits for Trading Under Licence 835 As I have said, the first to sixth defendants conceded the plaintiffs' claim that Marsico should account to Nabatu for half of the profits derived from the trading of the Racecourse Hotel under licence. That concession was proper, although belated. Liquor Licence 836 The plaintiffs submitted that Mr Crawley must account to Nabatu for Nabatu's "fifty percent share in the hotelier's licence" which was used to operate the business of the Racecourse Hotel. 837 The contract for sale of the Racecourse Hotel included an acknowledgment by the purchaser that "the hotelier's licence ... attaching to the property" was not included in the sale, and that "the vendor shall make application for the removal of the Liquor Licence ... attaching to the property and shall if requested properly execute all such documents as requested by the vendor in the event that such removal is to be effected subsequent to completion." 838 The licence is held by Mrs Crawley. She said that, based on what she was told by Mr Crawley, she understood that she held the licence on behalf of Marsico. 839 An hotelier's licence is not property (Slatter v Railway Commissioners (NSW) (1931) 45 CLR 68; Boreland v Docker [2007] NSWCA 94 at [89]; 888 Casino & Tavern Pty Ltd v Hurlfobe Pty Ltd (1997) 8 BPR 15,505 at 15,509). However, there was evidence from a valuer, Mr Owen, that a hotel licence has value based on its potential for removal to other premises. Its value can range significantly depending on restrictions imposed by current legislation in relation to the removal of the licence, the location of the hotel in respect of which the licence was given, the availability of a suitable alternate property, the obtaining of development consent from the local authority, and the potential to obtain approval for poker machine entitlements to be allocated in respect of the licence. Mr Owen expressed the opinion that: " Subject to measurement by survey, the commercial precinct of Randwick and parts of Kensington are within a one-kilometre radius of the location of the former Racecourse Hotel. There are a number of hotels in both these areas that perform strongly and there is good reason to expect a new hotel to do likewise. There have been few sales of hotel licences in Sydney, without PME (poker machine entitlements), from which to draw comparison, ... whilst there would be numerous hurdles to overcome, given the limitations of obtaining another licence in the Randwick/Kensington area due to the one-kilometre restriction together with the prospect of a significant windfall if successfully removed, we would expect the current market value of the Racecourse Hotel licence to be $300,000 to $400,000. " 840 That value has not been realised. It might never be realised. The licence authorised Mrs Crawley to sell liquor by retail from the then licensed premises at the Racecourse Hotel. Notwithstanding that the licence is not property, the "licence information search" obtained from the Liquor Administration Board showed that Marsico was the "licence owner". 841 If a benefit or gain is derived by Mrs Crawley or Marsico from the hotelier's licence, then such benefit or gain would be held on trust for the partners of the dissolved Racecourse Hotel partnership (Chan v Zacharia (1984) 154 CLR 178 at 197, 199). Whilst the partnership was in existence, Mrs Crawley as the licensee was required to deal with the licence for the benefit of the partners, not for the benefit of Marsico. Her acknowledgment that she held the licence for the benefit of Marsico was based on what she was told by Mr Crawley. I infer that the record of the Liquor Administration Board that the "owner" of the licence was Marsico was also based on information provided by Mr Crawley. That was wrong. Mrs Crawley could not and does not seek to make a personal gain from her holding of the licence. Mr Crawley breached his fiduciary duty as a partner of the Racecourse Hotel partnership in seeking that Marsico derive any benefit or gain which might arise from the holding of the licence. 842 However, there was no evidence that any gain has been made from the holding of the licence and it is by no means clear that any gain will be derived. The plaintiffs did not point to any matter by reason of which it could be said that Mr Crawley or Marsico was required to do whatever might need to be done to realise any such benefit or gain. I see no basis upon which Mr Crawley can be required to account for half of the value attributed to the licence by Mr Owen. Instead, it should be declared that any benefit or gain derived by Mrs Crawley, Marsico or Mr Crawley from the hotelier's licence no. 104863 is held on trust for Nabatu and Mr Crawley as partners of the former Racecourse Hotel partnership. SECTION 9 – Springsley Share Purchase and Aldonet Loan 843 Although different legal issues arise in relation the purchase of Athann's shares by Springsley and the loans made by Aldonet to the group companies, the facts relating to those issues are interwoven. 844 In para [88] of section 1, I said that from at least April 1996, Mr Crawley was seeking to raise finance both to repay the Westpac facility and to buy out one or both of Athann and Nabatu. 845 The information which a prospective financier or valuer needed to assess the financial position of the group was kept at the offices of Aubrey F Crawley & Co. In a letter of 28 March 1996 to Westpac, Mr Crawley reported on the approaches which had been made to other financial institutions to refinance Westpac's debt. He advised that a specialist hotel valuer from the ANZ bank would be attending at Aubrey F Crawley & Co's offices to peruse all financial data relating to the operation of the businesses. 846 At a meeting of directors of J & J O'Brien held on 1 April 1996, Mr Crawley queried what the other directors were doing to refinance the Westpac debt. Mr Crawley advised that Aubrey F Crawley & Co had prepared and submitted applications on behalf of the group to the ANZ, the NAB and the Commonwealth Bank and advised that a representative of the ANZ was coming to Sydney from Melbourne to look at the business with an independent valuer on 3 April 1996 (TB 56/5912.24). 847 One of the approaches for finance made by Mr Crawley was to representatives of Garrisenn Mortgage Corporation Pty Ltd and Walters Gamble & Associates, who were finance brokers. In a facsimile to Garrisenn Mortgage Corporation of 1 April 1996, Mr Crawley advised that: " The purpose of the refinancing is to discharge the Westpac Banking Corporation current facilities but simultaneously for the acquisition by Aldonet ... of the shareholding interest of Athann Pty Ltd and Nabatu Pty Ltd each of those companies holding a 33.3% interest in the group companies. " (TB 56/5912.1) 848 Mr Crawley enclosed with his letter to Garrisenn Mortgage Corporation copies of the management accounts for each of the hotels (TB 56/5912.3). 849 On 10 April 1996, the ANZ bank advised that it required a professional valuation of each hotel to assess the funding proposal that Mr Crawley had placed before it. The valuations were to be commissioned by the bank at a quoted cost of $12,000 (TB 57/5944). The bank instructed Mr Smith to value the hotels (TB 58/6084.10). On 9 May 1996, Mr Crawley provided Mr Smith with various documents and advised that all of the books of account and records and financial statements were held in the offices of Aubrey F Crawley & Co and could be inspected upon his contacting Janet Kuan. 850 Mr Smith's fee was $9,000 (TB 58/6084.13). 851 On 22 May 1996, Mr Crawley wrote to Mr Hannan, whose company Hilldean Pty Ltd had been engaged to act as a consultant for the companies on the votes of Mr Davis and Mr Short. Mr Crawley accused Mr Hannan of conspiring with Mr Short and Mr Davis to defeat Mr Crawley's interest as a minority shareholder and to frustrate the applications for finance (TB 58/6118). However, it was Mr Crawley who sought to frustrate the applications Mr Hannan was making on behalf of Mr Short and Mr Davis for refinance. 852 On 26 June 1996, Mr Hannan wrote to Mr Crawley in relation to refinancing. He said that: " Messrs Short and Davis are extremely concerned by the lack of progress on refinancing. What has happened to the applications you made to National Australia Bank, ANZ and the Commonwealth Bank months ago? If you have had no success with all four major trading banks, any further applications will have to be very much better if they are to have any chance of success. " Mr Hannan went on to complain that his request made to Ms Kuan and to Mr Agus for financial information had not been responded to (TB 59/6273.45a). 853 Mr Hannan's letter was addressed to Mr Crawley as a director of J & J O'Brien. Mr Crawley responded on the following day (TB 59/6273.63). He said: " The applications for finance were lodged by Aubrey F Crawley & Co as you are well aware. The release of any documentation would need to be sought from that firm ." 854 This was pure obstruction. Mr Hannan responded by asking Mr Crawley to ask his firm, Aubrey F Crawley & Co, (that is, himself), to provide a copy of the finance applications made to the NAB, ANZ and Commonwealth banks together with any correspondence and feedback received in relation to the applications (TB 59/6273.75). That information was not supplied. 855 On 10 August 1996, Mr Hannan complained again that copies of the loan applications to the NAB, ANZ and Commonwealth banks had not been provided (TB 60/6396.12). Evidently, Mr Crawley had refused to provide the documents until costs of Aubrey F Crawley & Co were paid. It is not clear from the evidence precisely when that stipulation was made. On 1 August 1996, Mr Short and Mr Davis had complained about the lack of production of the finance applications and noted that Mr Crawley had not submitted a costs agreement in relation to the finance applications (TB 60/6387.3). Mr Crawley's response was far from clear (TB 60/6389.2), but he appears to have asserted that, from 25 June 1996, neither he nor his firm would be involved in pursuing such applications but there were outstanding costs, both in relation to such applications and in relation to other matters. In any event, the information was not provided. 856 Mr Crawley did not at this time disclose that he was seeking finance for himself rather than acting solely on behalf of the companies in the group. 857 In August 1996, JLW Transact valued Jackson's on George as at 13 May 1996 at $19,500,000 (TB 60/6370.20), and the Marlborough Hotel at $6,800,000 (TB 60/6370.52). The fee for the JLW valuations was paid by Marsico on 30 August 1996 (JK 2 page 254). 858 The valuations were used by Mr Crawley in connection with his application through Walters Gamble & Associates to QIDC for a proposed facility of $17,100,000 (Batiste affidavit 14 February 2003 para 3). Notwithstanding that Marsico had paid for the valuation, and that Mr Crawley had made use of the valuation in his application to QIDC as well as his application to ANZ, Mr Crawley refused to make the valuations available to Mr Short or to Mr Hannan. On 8 January 1997, Mr Agus, writing as company secretary of J & J O'Brien and Marsico, wrote that he was unable to locate the invoice and valuation of JLW relating to the cheque dated 30 August 1996 drawn by Marsico. He authorised Mr Short to collect a further copy of the invoice and valuation directly from JLW Pty Ltd (TB 66/7271.65). Mr Crawley was away at that time. On 10 January 1997, Mr Crawley, writing on the letterhead of Aubrey F Crawley & Co, sent an urgent fax to JLW advising that the letter had been signed by Mr Agus in his absence during the Christmas break, and that JLW was to disregard the contents of the letter. Mr Crawley said that the valuations were issued at the instructions of his firm and that JLW was directed not to release any copies of the valuations to any other parties without his express authorisation (TB 66/7271.76). 859 On 17 January 1997, Mr Crawley asked JLW Transact to advise whether any valuation had been provided to Mr Short or any other party (TB 66/7275.27). On 21 January 1997, JLW Transact advised Mr Short that they were unable to provide valuation advice in respect of Jackson's on George and the Marlborough Hotel (TB 66/7275.30). 860 In cross-examination, Mr Crawley defended this conduct, not on the basis that the valuations had been commissioned by his firm, but on the basis that they had been commissioned by the ANZ Bank. In cross-examination, he accepted that if the ANZ Bank had been willing to provide a copy of the valuations to Mr Short, then he did not have any right to stop it. That was not the position he took at the time. He did not inquire whether the ANZ consented to the release of the documents to Mr Short. Nor did the position of the ANZ Bank prevent him from making use of the valuations for his own purposes in the approach to QIDC. 861 On 16 January 1997, Mr Crawley wrote to Mr Hannan demanding full details of all communications which Mr Hannan had with potential financiers in relation to the refinance of the group debt (TB 66/7272). On 24 January 1997, Mr Hannan noted that Mr Crawley had refused to provide any information on the approaches he had made to financiers to refinance group debt. Mr Hannan advised that it would be sensible for there to be a measure of co-operation in the seeking of finance for the benefit of the group and advised that he was prepared to provide full information on finance applications if Mr Crawley did likewise (TB 66/7281.16). Mr Crawley responded on 28 January 1997 with typical belligerence. He said that he was entitled as a director to the information he sought. He said that it was, "abundantly clear that the other directors have full appraisal and full information regarding the applications which you have made and you have deliberately in concert with them concealed that information from me and in respect of which I may have been able to offer assistance." He threatened to bring proceedings to obtain the information he demanded. He threatened to hold Mr Hannan personally responsible if he failed to obtain refinance (TB 66/7286.22). He did not disclose his application for finance to QIDC or his intentions in relation to seeking finance from the ANZ. As noted in para [90] of section 1, QIDC had advised on 14 October 1996 that it was willing to consider providing a facility to Aldonet for up to $17,000,000. 862 On 3 October 1996, Mr Crawley had written to Walters Gamble & Associates stressing that all of the facilities he needed to secure had to be provided in one lump sum, and that no piecemeal settlement could be effected. This was because Mr Short and Mr Davis had no knowledge of the terms upon which Aldonet was negotiating to obtain finance to refinance the group's facilities and that drawing down of any finance provided to Aldonet was dependent upon Mr Crawley obtaining control of the group companies by acquiring Athann's shares. 863 On 28 October 1996, Mr Batiste of QIDC submitted a credit proposal for review by QIDC's credit bureau in relation to the loan application. He noted amongst other things that the "sustainable income" of Jackson's on George and the Marlborough Hotel was considered to be substantially in excess of the earnings before interest and tax as recorded in management accounts. Mr Batiste noted that in conjunction with the proposed refinancing, Mr Davis' shareholding would be purchased by Mr Crawley, giving Mr Crawley a majority shareholding, and that this would occur prior to QIDC's funding being drawn down. He noted that the directorships in the companies would be changed to remove Mr Short and Mr Davis, and to appoint Mrs Crawley as a second director of the companies. He also stated that once Mr Crawley had a majority shareholding he would cause an existing $2,000,000 debt owed to him to be converted to a form of debt which was convertible to equity, and that a sufficient portion of the newly created convertible debt would be converted to ordinary shares so as to give Mr Crawley at least a 90% shareholding in the companies. By a letter dated 19 December 1996 to Mr Batiste, Mr Crawley confirmed that this was his intention (TB 66/7265.8 at 7265.11). 864 As noted in para [89] of section 1, by 28 October 1996, Mr Crawley had agreed with Mr Wiseman on a price of $1,000,000 for Athann's shares in J & J O'Brien and Marsico. On 11 December 1996, Mr Crawley advised Mr Batiste of QIDC that the agreement had been reached with Mr Davis "whereby I shall beneficially acquire his shareholdings for $1,000,000" (TB 65/7115.14). Although the shares were acquired by Springsley, it is clear that Mr Crawley controlled Springsley. He was the only person who acted for Springsley in the transaction. In the same letter, Mr Crawley advised that as Mr Short would "only hold a very minor equity position and have no other involvement, it would not be appropriate for him to continue as a director of the companies involved." (TB 65/7115.14). 865 As noted in section 1, the share sale agreement and supplementary deed were entered into on 16 December 1996. Mr Crawley did not disclose these transactions or his intentions to Mr Short or to Mr Hannan. 866 On 30 January 1997, Mr Crawley wrote to the ANZ Bank. He said: " As you are now aware, rather than proceeding with the original application to the Bank for the substantive funds on the hotels I would wish to proceed with a loan advance secured on the properties, the details of which I have set out later in this letter to be apportioned at your discretion in regard to the facilities. I am seeking an advance in total of $5.9 million to be a full drawn advance of $5.5 million and a $.4 million overdraft. " 867 The security offered for the facility was the properties owned by J & J O'Brien at 197 Missenden Road, Newtown, properties of Trudale at 450 Elizabeth Street, Surry Hills, and various properties owned by Mr Crawley. In his letter to the ANZ Bank, Mr Crawley advised that no directors' guarantees of J & J O'Brien or Marsico would be provided other than his own. The facility sought by Mr Crawley was an advance of $5,500,000 to be made to himself, which he would on-lend to discharge the balance of the debt of J & J O'Brien and Marsico with Westpac (TB 65/7292.11). 868 As noted in para [101] of section 1, the ANZ Bank made an offer on 12 February 1997 to Mr Crawley to provide facilities to him totalling $5,600,000. 869 On 27 February 1997, the General Manager, Credit, of QIDC advised that he was not prepared to support the application for a $17,100,000 facility and would need to feel more comfortable with the cashflows of the businesses (Batiste, annex F). Mr Batiste (the State Manager, Property Finance for QIDC) had contacted Westpac and investigated the history of the Westpac loan facility. He noted that the facility was up to date. 870 On 28 February 1997, Mr Batiste addressed the Credit Manager's concerns. He observed that the financial statements of J & J O'Brien had recorded a loss for the Marlborough Hotel of $229,000 in 1996, but that the figures required careful analysis to ascertain the true trading position of the hotel, as the figures for the company included fees and costs not directly related to the trading of the hotel, and other overheads, predominantly staff costs, which related to the central office operation of the company which provided services to all of the establishments controlled by Mr Crawley (TB 68/7397.5.1). On 4 March 1997, the QIDC credit committee informed Mr Batiste that it would favourably consider the application subject to a report by an investigative accountant and updated valuations of the securities by a panel valuer. The QIDC panel valuer agreed with the valuations by JLW Transact provided with the application. 871 As noted in para [103] of section 1, at a meeting of directors on 19 March 1997, Mr Crawley advised the other directors and Mr Hannan that he had applied for finance on his own behalf and not on behalf of the companies. This was the first occasion upon which they had been told that Mr Crawley was seeking finance on his own behalf. Mr Crawley refused to provide any further information about the finance he was seeking. 872 As set out in para [105] of section 1, on 25 March 1997, QIDC made an offer of finance of $15,000,000 to Aldonet and, on the following day, Mr Crawley on behalf of Aldonet made an offer to provide $19,400,000 of finance to J & J O'Brien, Marsico and Trudale. That offer was considered at a meeting of directors the next day and a resolution was passed on the votes of Mr Crawley and Mr Davis, with Mr Short objecting, to accept Aldonet's offer. At the same meeting, share transfers from Springsley to Athann were accepted for registration and resolutions were passed for the issue of new share certificates in favour of Springsley. The Meeting of 27 March 1997 873 The meeting of directors of Marsico and J & J O'Brien of 27 March 1997 was tape-recorded. As well as Mr Crawley, Mr Short and Mr Davis, Mr Hannan and Mr Wiseman were present. The agenda for the meeting included the following matters of business: approval of the registration of the transfer of the shares from Athann to Springsley; authority for the companies to lodge tax returns "as prepared by Glen Nielsen & Co"; approval of the variation of the mortgages in favour of Vensel over the three remaining Newtown properties; approval of the 1995 and 1996 financial statements; and acceptance of the offers and terms of offers of refinancing proposed by Aldonet to discharge the companies' current financial facilities with Westpac. In his letter to Mr Wiseman of 25 March 1997 (TB 70/7527.49), Mr Crawley stated that resolutions required under clause 4.6(a) and (b) of the share sale agreement were set out in the agenda. Under the share sale agreement, Mr Davis was required to vote in favour of the resolutions. 874 Mr Crawley tabled what he called the "loan approval letters" of 26 March 1997 from Aldonet. He tabled a document declaring his interest in Aldonet and Vensel. He advised that he intended to vote in relation to the resolution. He provided a summary of the terms of the offer from Aldonet and asked whether there were any questions in relation to the terms of the offer. He said that Aldonet was obtaining $6,000,000 from him and the balance was coming from his bankers. The following conversation occurred: " Bill (Hannan): And how confident can we be of the preparedness or the certainty with which the banks will come up with the money, because that's fundamental … Chris (Crawley): It's all approved. Bill: You've got approval? Chris: I have approval yes. Bill: Can we have a copy of that? Chris: No you can't. Bill: The terms and conditions of those approvals will be fundamental to Aldonet's ability to provide these funds. Chris: Naturally, those terms are recanted in there – recounted not recanted. " 875 This was false to Mr Crawley's knowledge. The terms of QIDC's letter of offer to Aldonet were not recounted in Aldonet's letter to J & J O'Brien and Marsico. The interest rate at which QIDC offered to lend to Aldonet, and the establishment fee payable by Aldonet to QIDC, were not recounted. QIDC's insistence that it would only lend upon Mr Crawley obtaining majority control of the group was also not recounted. Nor were the establishment fees and line fees charged by the ANZ Bank to Mr Crawley (Section 1, paras [101], [105], [108] and [109]). 876 Shortly after this statement was made, the following conversation occurred: " Chris: I've just told you the approvals are there. Bill: Who are they from? Chris: I'm under confidential requirements in relation to that. I can't disclose that information to you. Bill: You said you signed a confidentiality agreement Chris: I have. Bill: Are you able to disclose the name of the lender? Chris: No … Chris: I've told you that the terms and conditions of the primary lender were set forth in the letter of offer dated 26 March 1997 comprising 23 pages with additional provisions as required by Aldonet. " 877 This was false to Mr Crawley's knowledge. 878 There was discussion as to the period of time for which the offer was open. There was discussion, some of which was inaudible, about acceptance of the offer. The following conversation then occurred: " Phil (Wiseman): Well why don't we accept it on the basis that it's noted that we don't have the approval yet of all the guarantors, in particular Ros Short and Lee Davis? I mean, everyone else is sort of around this table, but they're not. Bill: That's subject to their approval. " 879 There was then some short discussion in relation to Mrs Davis and Mrs Short. Then Mr Crawley said: " What I propose to do is adjourn the meeting for a short period of time. I'll go and ring the primary lender and I'll find out whether we can get rid of the item ... and remove the wives as the guarantors in the security schedule. Just give me two seconds ." 880 There was then a break and Mr Crawley went out of the room. When he came back in, he said: " The opinion of the lender is that you are no worse off with the security properties in there which are already charged to Westpac. However, they're prepared to release the requirements of the guarantees – the personal guarantees of the two wives of Mrs Short and Mrs Davis and they'll accept the acceptance fee in two payments - $75,000 now and $75,000 to be paid on settlement. " 881 This was a charade and a lie. Neither the primary lender, QIDC, nor the lender to Mr Crawley, ANZ, required the guarantees of Mrs Short or Mrs Davis, or Mr Short and Mr Davis. Mr Crawley did not ring them. They made no stipulation about accepting the acceptance fee in two payments of $75,000 then and $75,000 to be paid on settlement. That was not the amount of their establishment fee. 882 Mr Wiseman had been given a copy of QIDC's letter of offer to Aldonet. He did not say anything to correct Mr Crawley. 883 Mr Crawley then moved a resolution to accept the offer from Aldonet. There was an adjournment during which the tape was stopped. After the tape started, the following occurred: " Phil: Would you like to put into the record, Mr Crawley, that this is about the seven days being a mistake on the acceptance and the letter has to be accepted today. Chris: [after making statements as to when the letter of offer was prepared]: … On seeking instructions from the primary lenders regarding the amendments to the terms of the letter, I advise that the period of time in which acceptance is to be made on the amended terms is today. Bill: The primary lender told you that? Chris: The primary lender's requirement for the amendments that you have sought to make – the company has sought to make in relation to the terms of the letter of offer, being those amendments which were previously put to the board and included in the draft resolution, are available on the basis that the letter of offer is accepted today, and if I didn't make that clear earlier, then I apologise for the oversight ." 884 QIDC made no requirement in relation to the time by which Aldonet's letter of offer should be accepted. It was not consulted. These statements were false. 885 Mr Crawley admitted in cross-examination that his statement that he was under a confidentiality requirement such that he could not disclose the identity of the lender and had signed a confidentiality agreement was false (T974.15). He accepted that he was conveying to the other directors that the external lender's establishment fees for the finance was $150,000 and that he knew that to be false (T975.50). He accepted that he told a lie when he told the meeting that the lenders were prepared to release the requirements of the guarantees of the two wives (T978.45-979.2). He agreed that he told a lie when he said that the lenders would accept the acceptance fees in two payments of $75,000, one to be paid then and the other on settlement (T979.12). He accepted that when he said that the primary lender's requirements were that the letter of offer be accepted that day that he was saying something he knew to be false (T980.7). 886 The resolution was put to the vote and was passed with Mr Davis and Mr Crawley voting in favour. Mr Short objected and complained that he had been ambushed. Mr Hannan said that Mr Short considered that he was oppressed as a minority shareholder. 887 The meeting then moved on to the question of the acceptance of the 1995 financial statements. The matters in dispute included the fact that the accounts as at 30 June 1995 showed a provision for unpaid tax in the sum of $500,000. Mr Hannan said that the auditors advised that the company had a tax liability of $987,000. Mr Short complained that he was owed $75,000 which was not disclosed. The principal dispute concerned the recording of a liability of $1,315,990 to Mr Crawley. As a result of that dispute, a note was included saying that the liability was disputed and that the dispute had not been resolved. A resolution was passed by a majority, with Mr Short dissenting, to pass the accounts. 888 The next item of business was whether income tax returns prepared by the auditors, Glen Neilsen & Co, for the years 1990 to 1995 should be lodged and Mr Crawley authorised to sign them. That resolution was also passed by majority with Mr Short voting against. This matter is dealt with in Section 14. 889 The next item dealt with was the authority to be given to the ANZ bank to release $400,000 received from the proceeds of sale of the Racecourse Hotel to Mr Crawley. That has been dealt with in Section 4. 890 On 18 December 1996, Mr Crawley had forwarded to Mr Wiseman for execution by Mr Wiseman's client share transfers from Athann to Springsley of Athann's shares in Marsico and J & J O'Brien, and also share transfers in blank to be signed by Mr and Mrs Davis of their shares in Springsley. The share transfers from Athann to Springsley forwarded with Mr Crawley's letter of 18 December 1996 are not in evidence. 891 On 25 March 1997, Mr Crawley wrote again to Mr Wiseman enclosing an updated agenda for a meeting of directors to be held the following day. Mr Crawley said that the transfer of share forms which he had sent to Mr Wiseman on 18 December 1996 included the "incorrect consideration". He enclosed amended documents for that purpose. I infer they were the share transfer forms which were tabled at the meeting of 27 March 1997. Those transfers showed that the consideration for the transfer of the shares from Athann to Springsley was $1. This was not the consideration provided for in the share sale agreement. The share sale agreement provided that the price of the shares was $1,000,000. I infer that was the consideration stated in the transfers sent to Mr Wiseman on 18 December 1996. However, had transfers showing that consideration been tabled, it would have been obvious that someone, presumably Mr Crawley, was buying out Athann. 892 Mr Crawley's justification for stating in the share transfer form that the consideration for the transfer of the shares was $1 was that at the time the transfers were executed, there was no change to the beneficial ownership of the shares. The consideration of $1,000,000, he said, was for the changes to be made to the beneficiaries of the Springsley trust and that did not occur until later. 893 In relation to this item, Mr Wiseman said: " Phil: This is transfer of the shares held by Athann to (scil in) J & J O'Brien and Marsico to Springsley. I have spoken to each of the other shareholders separately. Springsley is a company, the directors and shareholders are Athol and Lee Davis. It is trustee of a Athol Davis trust no. 3 or whatever it is called and there is no change in beneficial ownership. It is merely an in house reorganisation consequent upon the sale by Athol of his other hotel interests which are in Athann … (inaudible) just want to clean up this end. I table it for approval and would ask that they be approved subject to due stamping. Bill: So there's no change in … Phil: No change in beneficial ownership. If I can correct it. I forget whether the – the shareholders are either Athol and Lee or Athann, I can't remember. Bill: And there is no … [inaudible] or arrangements whereby those shares can be transferred to anyone else? Phil: Their shares have been transferred … . Bill: No, the ones in Springsley? Phil: No ." 894 These statements were false to the knowledge of Mr Wiseman and Mr Crawley. The transfer of the shares from Athann to Springsley was not merely an in-house reorganisation consequent upon Mr Davis' sale of his other hotel interests. It was a step on the way to Mr Crawley's obtaining control of Athann's shares. It was also false to say that there was no arrangement whereby the shares in Springsley could be transferred to anyone else. The supplementary deed provided for the transfer of those shares in Springsley. Mr Crawley had forwarded to Mr Wiseman transfers of these shares to a transferee to be nominated. 895 Mr Crawley then said: " I table two share transfer documents. One in respect of the shareholding of Athann Pty Ltd in the undertaking of Marsico Holdings Pty Ltd. The transfer is for the consideration of $1. The share transfer is to Springsley Holdings Pty Ltd. I table the other share transfer document from Athann for one share in the undertaking of J & J O'Brien Pty Ltd. Consideration of $1 to Springsley Holdings Pty Ltd. Both share transfers have been executed under the common seals of each of the companies and signed by Mr Davis and Mrs Davis. I propose a resolution that each of the share transfers be accepted by each of the companies and that the share transfers subject to due stamping by the commissioner of stamp duties be registered, and that two new certificates for each share be issued immediately in favour of Springsley Holdings Pty Ltd. " 896 Whilst the instruments of transfer described the consideration for the transfer as being $1, that was not the true consideration. 897 Mr Davis then declared his interest in Athann and Springsley Holdings. Mr Crawley did not declare his interest in the transaction. Plaintiffs' Suspicions of the Share Sale 898 On 19 December 1996, Mr Crawley advised Mr Leddin that he had entered into certain deeds for the sale of Athann's shares in J & J O'Brien and Marsico for $1,000,000. He said that he required a letter of valuation to the Office of State Revenue advising that the consideration being paid was greater than the worth attributed to those shares by the net asset backing of each company. He advised that the consideration was $600,000 for the share in J & J O'Brien and $400,000 for the share in Marsico. He enclosed a "Confidentiality Agreement" for Mr Leddin to sign. He said that the contents of the letter were covered by the terms of the Confidentiality Agreement (TB 66/7270.1.1). 899 On 21 December 1996, Mrs Short made a note in her diary that "Phil Leddin rang me re confidentiality – will not value shares." 900 Mrs Short said that on the Saturday night, Mr Leddin told her that "Chris wants me to value the shares but there's a confidentiality about it". She denied that Mr Leddin mentioned Mr Davis in that context but said that she suspected, through intuition, that there could be a possibility of Mr Crawley's buying out either of them. She said that it was a strange phone call as a result of which she had suspicions. 901 According to a handwritten note of Mr Hannan's of 15 January 1997, he had a telephone conversation with Mr Leddin on that day. The precise meaning of Mr Hannan's notes is open to interpretation. Mr Hannan was not able to give evidence and Mr Leddin was not called. However, it appears that there was discussion about the fact that Mr Crawley was taking Mr Davis' shares. 902 On 10 February 1997, solicitors for Mr Leddin advised Mr Crawley that Mr Leddin was not obliged to sign the confidentiality agreement which had been sent to him and that Mr Crawley had no right to impose a condition of confidentiality. Mr Leddin offered to enter into a confidentiality agreement if it were in an acceptable form only on certain conditions being met, including the provision of a deed of release and payment of outstanding audit fees. 903 A further note of Mr Hannan's of 10 February 1997 refers to ringing his brother Geoffrey Hannan (a solicitor) regarding "AD defection contract" (exhibit 25, tab 2), and his "possible defection". 904 Thus, by the meeting of 27 March 1997, Mr Hannan and Mrs Short, and, it might be inferred, Mr Short, suspected that Mr Davis had agreed to sell or was considering selling his shares to Mr Crawley. Their only source of information about that was from statements apparently made by Mr Leddin. They had no details. Mr Wiseman's and Mr Crawley's statements at the meeting of 27 March 1997 were calculated to deceive Mr Short and Mr Hannan into the belief that the transfer to Springsley was not associated with any proposal to transfer shares to Mr Crawley or his nominee. 905 A note prepared by Mr Hannan on 2 April 1997 reads: " We think AD has agreed to sell to CC for $1 million on basis he is released from guarantees and securities discharged. " 906 As noted in para [120] of section 1, following Mr Linden's retainer to act for Mr Short and Nabatu, he inquired about the current memorandum and articles of association of each of the companies and as to whether the shareholders had pre-emptive rights. The memorandum and articles of each company were supplied to him on 16 April 1997. 907 Mr Linden raised with Mr Wiseman his client's concern that a share sale agreement may have been entered into between Mr Davis and Mr Crawley. He had a telephone conversation with Mr Wiseman which principally concerned the Prudential offer of finance, consideration of which had been adjourned from a meeting of directors held on 1 April 1997 to 4 April 1997. On 3 April 1997, a conversation to the following effect took place, of which Mr Linden took a contemporaneous note: " Linden: We are concerned that there may be a share sale agreement in place between Davis and Crawley. Wiseman: Davis is fed up with the matter and his main concern is to get rid of Westpac. He is sick and wants to make sure there is no further stress. Once Westpac has gone, Davis will reconsider his position. Linden: So there is no share sale agreement in place? Wiseman: At present, Davis is not proposing to transfer any shares in the company. " 908 This relieved or "negatived" Mr Linden's suspicions. Mr Wisemen misled Mr Linden. He avoided answering directly Mr Linden's questions whilst endeavouring to convey the impression that no share sale agreement was in place. Mr Wiseman's statement that Mr Davis would reconsider his position "once Westpac has gone" was false to Mr Wiseman's knowledge. Mr Wiseman knew that once Westpac was gone by being paid out from the finance raised by Mr Crawley, Mr Davis would also be gone. 909 On 14 April 1997, Mr Linden wrote to Mr Crawley at Aubrey F Crawley & Co asking for the up-to-date memorandum and articles of association of J & J O'Brien and Marsico. He reminded Mr Crawley that at the directors' meeting of 4 April 1997 Mr Crawley had indicated to Mr Linden that he would locate those documents. 910 Mr Crawley's response to that facsimile was in character. He replied by saying that Mr Linden should appreciate that he had attended the directors' meeting in his capacity as a director and not as a representative of "our firm" and that the inquiry should be directed to Mr Agus. 911 On 15 April 1997, Mr Linden repeated his request to Mr Agus and to Mr Crawley. According to a file note of Mr Hannan's dated 15 April 1997, Mr Leddin told Mr Hannan when Mr Short was in Mr Leddin's office, (or possibly Mr Short relayed to Mr Hannan what he had learned from Mr Leddin on that day), that on 19 December 1996, Mr Crawley had written to Mr Leddin informing him that Mr Crawley had acquired Athann's shares in J & J O'Brien and Marsico for $1,000,000 broken up as to $600,000 for J & J O'Brien and $400,000 for Marsico, and that someone (I infer Mr Crawley) had asked for confidentiality. 912 Diary notes of Mrs Short at this time also confirm Mr Leddin's having advised Mr Short of the contents of the letter of 19 December 1996 from Mr Crawley to him. 913 Nonetheless, Mr Linden was proceeding on the basis of what he had been told by Mr Wiseman. On 21 April 1997, Mr Linden wrote to Mr Short and Mr Hannan confirming the outcome of a meeting he had had that day with Mr Davis and Mr Wiseman. Mr Linden reported that "if the Aldonet facility proceeds, it is likely that Davis will offer his shares for sale. He did not deny that there was any arrangement concerning the sale of his shares with Crawley. All that he stated was that no sale agreement was presently in existence." (TB 75/7797.20). 914 Mr Hannan made diary notes of 17 April 1997. He and Mr Linden were considering what rights Mr Short would have to oppose a transfer of shares from Athann to Mr Crawley. He made a note "can two directors vote in favour of share transfer if other opposes and they have conflict." As previously noted, Mr Linden received a copy of the memorandum of articles for each company on or about 16 or 17 April 1997. 915 Mr Linden wrote to Mr Agus on 17 April 1997 (TB 74/7794.18). He asked for copies of the minutes of meetings of J & J O'Brien at which special resolutions to amend the articles had been carried. The reason for that is that the restrictions on the transfer of shares were contained in annexure A to the articles of association by way of an amendment to the existing article 20. Mr Linden wanted to ensure that annexure A was indeed part of the articles (T2181). He was supplied with documents showing that the resolution to amend the articles had been duly adopted (TB 75/7820.1-7820.13). 916 The relevant articles are set out below. The articles of both companies placed restrictions on the right of a member in relation to the transfer of shares. In the case of Marsico, the restrictions were contained in subclause (1) of article 48. Subclause (2) provided that the provisions of subclause (1) applied only if all the members had agreed in writing to such provisions and did not apply if all the members had not so agreed. The provisions in J & J O'Brien's articles imposing restrictions on transfer had been introduced on 18 November 1993. On 17 November 93, Mr Crawley wrote to Mr Short advising that pre-emptive provisions already applied to Marsico. 917 In their opening, the plaintiffs assumed that the restrictions on transfer in Marsico's articles had not been implemented. One of their grounds for alleging oppressive conduct on the part of Mr Crawley was his alleged failure to ensure such shareholder protection. At the directors' meeting of 16 May 1997, Mr Wiseman told Mr Linden that, so far as he was aware, there were no pre-emptive rights. Mr Linden replied: " I've got a letter here from Mr Agus. I specifically went through this with the directors with the articles. There are certainly amendments in relation to J & J O'Brien that I haven't been given any articles for Marsico other than what appeared and this is what I've been given (sic) and the only way I can find out what the articles are, and article 48 makes it quite clear that if you have got to sell your shares you have got to give notice. ... " Mr Crawley replied: " Can you go to the bottom of 48 and it says that if it is adopted; it hasn't been adopted. " Mr Linden said: " I see. Well, what are the articles? " Mr Wiseman said: " That had never been adopted. " 918 At the settlement of the refinance and subsequent directors' meeting on 16 May 1997, Mr Linden learned that on the settlement of the refinance Mr Crawley had acquired control of Springsley. The details are set out in paras [138] and [140] of Section 1. Mr Linden gave evidence that the meeting of 16 May 1997 was the first time he became aware of the transfer of shares between Mr Crawley and Mr Davis. I accept that evidence. It was put to Mr Linden that he knew before 16 May 1997 that there was every possibility that Mr Davis had sold his shares to Mr Crawley. Mr Linden rejected that. He said he had made an inquiry of Mr Davis' lawyer and was told that there was no such present intention. I accept that evidence as well. 919 It was put to Mr Linden that the reason that at the meeting of 16 May 1997 he referred to the pre-emptive rights in Marsico and did not draw attention to the pre-emptive rights in the articles of J & J O'Brien was because he had considered the articles of J & J O'Brien and formed the view that they did not apply. Mr Linden neither accepted nor rejected that proposition. He could not recall, and made the valid point that the meeting of 16 May 1997 was both heated and "off the cuff". 920 It was put to Mr Linden that he formed the view that article 20 of the J & J O'Brien articles of association did not apply because he had formed a view that article 20 only operated to restrict a sale or transfer if the other member was prepared to pay fair value for the selling member's shares. Mr Linden said that he did not believe that he focused on the issue of fair value. Mr Linden said that he believed that he formed the view that the articles of J & J O'Brien did not prohibit the transfer because he formed the view that the articles did not prohibit transfers between members and that the transfer from Mr Davis' interests to Mr Crawley's interests was a transfer between members. However, he had no recollection one way or the other as to what he believed or thought at the time. 921 I accept Mr Linden's evidence. I do not draw the inference that the reason Mr Linden referred to the articles of Marsico and not those of J & J O'Brien was because he had instructions that Mr Short was not able to pay, or would not pay, fair value to acquire Athann's share. Indeed, if Mr Linden had had such instructions, it would not have explained why he referred to the articles of Marsico and not those of J & J O'Brien. Article 48 of Marsico's articles of association, assuming it was applicable, would only permit Nabatu to acquire Athann's share if Nabatu were prepared to pay the price which Athann stipulated as the price at which it was prepared to sell. In other words, if Mr Linden had such instructions, and those instructions led to his not referring to the restrictions on transfer contained in the articles of association of J & J O'Brien, then there would have been no reason to refer to the articles of association of Marsico either. 922 Prior to 16 May 1997, the plaintiffs did not know that a binding agreement had been reached between Mr Crawley and Mr Davis for the purchase of Athann's shares. Mr and Mrs Short and Mr Hannan suspected that a deal may have been done between Mr Crawley and Mr Davis as a result of what they had been told by Mr Leddin. However, the defendants did not seek to prove precisely what Mr or Mrs Short or Mr Hannan were told by Mr Leddin. Their suspicions were contradicted by the information Mr Wiseman gave Mr Linden. That information was deliberately misleading. Prior to 16 May 1997 the plaintiffs were in no position to take any action to seek to restrain any transfer of shares from Athann to Mr Crawley or a party associated with him. They did not know that such a transfer had already been effected. They were misled as to the nature of the transfer from Athann to Springsley approved at the directors' meeting of 27 March 1997. 923 However, from 16 May 1997, the plaintiffs did know all of the material facts upon which their present claim to half of the benefits attaching to the shares transferred from Athann to Springsley is based. From 16 May 1997 they were aware that interests associated with Mr Crawley had acquired the beneficial interests in the trusts on which the shares were held. They were aware of the facts which showed that Mr Wiseman and Mr Crawley had lied about the transfer when the transfer was approved at the directors' meeting of 27 March 1997. They were aware that the articles of association of J & J O'Brien had been amended to include the articles restricting the rights of members to transfer shares. They had the same information as to whether the restrictions in article 48 of Marsico's articles of association were applicable as they had at the commencement of the hearing. When proceedings were commenced on 16 June 1998, no claim was made challenging the validity of the transfer of Athann's shares to Springsley, or claiming relief to the effect of that presently sought. No such claim was advanced until amendments to the statement of claim were made in 2004. This was notwithstanding that Springsley's acquisition of Athann's shares was one of the instances of oppressive conduct pleaded in the statement of claim filed in 1998. 924 I infer that the plaintiffs made a considered decision not to challenge the transfer of shares from Athann to Springsley in the statement of claim filed on 16 June 1998. It is clear from a letter written by Mr Short (but drafted for him by Mr Linden) to Mr Crawley on 4 July 1997 that he sought and obtained legal advice in relation to the transfer (TB 80/8312). In that letter Mr Short complained that, although he had been advised that the transfer of shares from Athann to Springsley had been made for personal reasons, it had since transpired that the transfer had been done to ensure that Mr Crawley would control two-thirds of the shareholding in the group in a secret manner. It is quite clear that Mr Short knew of the facts which gave rise to the present claim. A document apparently prepared by Mr Hannan in about May or June 1997 outlining areas of possible action against Mr Crawley included the "ability to dispute Crawley control because of pre-emptive rights/possible misrepresentation re Springsley. QIDC loans are obviously conditional on Crawley control." (exhibit 25,tab 1). 925 Athann and Mr Crawley arranged for the transfer of Athann's shares to Springsley to be conducted in secret to avoid a potential challenge to such a transfer. The plaintiffs have not sued for breach of contract, but it could be material to their claim for relief under s 260 of the Corporations Law if the share transfers were in breach of the Articles. Was the Transfer from Athann to Springsley in Breach of the Articles? 926 Article 20 of the articles of association of J & J O'Brien adopted on 18 November 1993 provided relevantly as follows: " 20.A Subject to these regulations any member may transfer all or any of his shares by instrument in writing in any usual or common form or in any other form which the directors may approve. The instrument shall be executed by or on behalf of both the transferor and the transferee; and the transferor shall remain the holder of the shares transferred until the transfer is registered and the name of the transferee is entered in the register of members in respect thereof. 20.B Subject to article 22 hereof any share may be transferred by a member (or other person entitled to transfer) to any member selected by the transferor (or to any person approved by the directors as one whom it is desirable to admit to membership) but save as aforesaid and save as hereinafter provided no share shall be transferred to any person who is not a member so long as any member (or person approved as aforesaid) is willing to purchase the same at the fair value, which matters shall be ascertained and determined in the mode and manner hereinafter provided. 20.C A share may be transferred by a member or other person entitled to transfer to any member who prior to such proposed transfer holds at least one share of the same class as the share proposed to be transferred. Except as is provided in Article 20.J hereof no share shall be transferred to a person who is not prior to such proposed transfer, the holder of at least one share of the same class as the share proposed to be transferred so long as any member who prior to such proposed transfer holds at least one share of the same class as the share proposed to be transferred is prepared to purchase the share or shares to be transferred on the same terms and conditions as a proposed purchaser thereof. 20.D If the holder of any share in the company receives an offer to purchase any such share (the purchase price of which must be expressed in cash) from any person not at that time the holder of at least one share of the same class as the share offered to be purchased, then the person proposing to transfer such share shall give notice in writing (hereinafter called 'a transfer notice') to all members holding at that time shares of the same class as the share proposed to be transferred and to all members holding at that time shares of any other class than that proposed to be transferred and shall also give such transfer notice to the directors of the company. Such transfer notice shall specify the number and class of shares proposed to be transferred, the proposed transfer price in cash, the manner in which such transfer price is to be paid and the name of the proposed transferor and transferee. 20.E If within the space of twenty eight days after receipt of such transfer notice, a member entitled to receive such notice elects by notice in writing to the proposed transferor and the directors to purchase the shares referred to in such transfer notice on the same terms and conditions as are set out in such transfer notice subject to the provisions provided in Article 20.K then the directors shall register a transfer of such shares in favour of the member so electing. A member entitled to receive such notice being a holder of the class of shares to which the notice relates shall be deemed entitled to the transfer of the shares in priority to any other members being the holders of any other class of shares or persons approved aforesaid. 20.F If no member elects pursuant to Article 20.E hereof, then the proposed transferor may proceed and complete the sale details of which are set out in the said transfer notice, provided that if the transfer to be executed pursuant to such transfer notice is not lodged within thirty one days of the date of such transfer notice or if the said transfer differs from the provisions of the said transfer notice then the proposed transferor shall again be required to comply with the provisions of Articles 20.D and 20.E hereof. ... 20.H If pursuant to Articles 20.D, 20.E, 20.F and 20.G hereof more than one person becomes entitled to a transfer of shares, then the shares to be transferred shall be transferred to such persons in the proportion of their respective shareholdings in the class of shares to be transferred, ... 20.I If the shares to be transferred are incapable of division in the manner specified in Article 20.H hereof, then the directors shall register a transfer thereof in favour of all the members giving notice of election to the directors pursuant to Article 20.E hereof. 20.J (a) Any share may be transferred by a member which is a corporation to any related corporation as defined by the Corporations Law. (b) Any share may be transferred by a member to any corporation in which the transferring member:- (i) Beneficially owns at least half the issued share capital of that corporation; and (ii) Is able to exercise a majority of the voting power of that corporation; and (iii) Is able to control the composition of the Board of Directors (including the right to appoint or remove all or a majority of the directors of that corporation) of that corporation through powers exercisable by virtue of the shares in that corporation beneficially owned by the transferring member or through any other power exercisable by the transferring member. (c) Any share may be transferred by a member to any child or other issue, son-in-law, daughter-in-law, father, mother, brother, sister, nephew, niece, wife or husband of such member, and any share of a deceased member may be transferred by his executors or administrators to any child or other issue, son-in-law, daughter-in-law, father, mother, brother, sister, nephew, niece, widow or widower of such deceased member (to whom such deceased member may have specifically bequeathed the same) and shares standing in the name of the trustees of the will of any deceased member may be transferred upon any change of trustees to the trustees for the time being of such will. (d) The restriction in Article 20.C hereof shall not apply to any transfer authorised by Article 20.J(a), 20.J(b) or 20.J(c) and Article 20.K hereof. 20.K In furnishing a transfer notice referred to in Article 20.D hereof, and in the event that a member elects pursuant to Article 20.E hereof to purchase the shares referred to in such transfer notice, subject only however to an objection in respect of the transfer price, the Auditor for the time being of the company shall upon the application of either the proposing transferor and/or the purchasing member certify in writing the sum which is in his opinion the fair value (as referred to in Article 20.B hereof) and such sum shall be deemed to be the fair value and in so certifying the Auditor shall be considered to be acting as an expert and not as an arbitrator. Notwithstanding the provisions of Article 20.F, the proposing transferor shall after certification of fair value by the Auditor be bound upon payment by the transferee of the sum equivalent to the fair value to transfer the shares to the purchasing member. " (J & J O'Brien CTB pp 23-26). 927 Except as otherwise provided in article 20, Athann was not entitled to transfer its share in J & J O'Brien to any person who was not a member, so long as there was any member who was willing to purchase the same at fair value (article 20B). Athann was required to give notice of an offer for purchase of its share if the offer came from a person who was not also a shareholder (Article 20D). Springsley was not a member of J & J O'Brien. The defendants submitted that these requirements were inapplicable because the transfer was effected in the manner permitted by article 20J. They submitted that Springsley was a related corporation to Athann "as defined by the Corporations Law" on 27 March 1997. 928 Section 50 of the Corporations Law provided that where a body corporate was a subsidiary of another body corporate, the two bodies were related to each other. Section 46 provided: " What is a subsidiary 46. A body corporate (in this section called the "first body") is a subsidiary of another body corporate if, and only if: (a) the other body: (i) controls the composition of the first body's board; (ii) is in a position to cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the first body; or (iii) holds more than one-half of the issued share capital of the first body (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital); or (b) the first body is a subsidiary of a subsidiary of the other body. " 929 The defendants contend that on 27 March 1997 Springsley was a subsidiary of Athann. The shareholders in Springsley were Mr and Mrs Davis. On 1 November 1996, they each declared a trust of the share held by them in Springsley in favour of Athann. The trust was a bare trust. No active duties were imposed on Mr or Mrs Davis in relation to their shareholding (TB 64/6982.4, 6982.5.2). 930 Notwithstanding the resolution of directors of 27 March 1997, the transfer from Athann to Springsley was not registered. At the date of the hearing, Athann was still recorded as a member on J & J O'Brien's register of members (exhibit F, page 286, 296-297). 931 This raises the question as to the time at which Athann's share in J & J O'Brien was "transferred" to Springsley within the meaning of article 20J. As at 27 March 1997, Athann was the legal owner of one share in J & J O'Brien. It had contracted to sell that share to Springsley but the contract had not been completed. The consideration for the transfer had not been paid. It had signed the transfer of the share to Springsley which was a precondition to Springsley's being able to be registered as the member. However, the execution of the transfer did not itself transfer the legal ownership of the share. Nor was there a transfer on 27 March 1997 of the beneficial ownership of the share. Prior to 16 May 1997 Springsley may well have had an equitable interest in the share, falling short of beneficial ownership, to the extent to which it was entitled to equitable relief to protect its rights to acquire the share pursuant to the share sale agreement (Stern v McArthur (1988) 165 CLR 489 at 522-523; Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 252-253). To that extent, Athann's exercise of its rights as legal owner was subject to such rights as Springsley had acquired in the share. However, Springsley's interest operated as an imposition on Athann's legal title, not as a subtraction from it (DKLR Holding Co. (No. 2) Pty Ltd v Commissioner of Stamp Duties [1980] 1 NSWLR 510 at 518-520; Re Transphere Pty Ltd (1986) 5 NSWLR 309 at 311). As at 27 March 1997, and at all times up to 16 May 1997, Athann had not parted with its beneficial ownership of the share in J & J O'Brien. At the time the equitable ownership of the share was transferred Springsley was unquestionably not a subsidiary of Athann. The trust was part of the settlement. Mr and Mrs Davis transferred the shares they held in Springsley to Mrs Crawley and Cassandra Crawley (TB 78/8084.96, 8084.97). In short, it was the completion of the share sale agreement that effected a transfer of the beneficial ownership of Athann's share in J & J O'Brien to Springsley. The legal ownership of the share was not transferred. The beneficial ownership of the share was not transferred by the execution of the instrument of transfer. At the time beneficial ownership of the share was transferred Springsley was not a subsidiary of Athann. 932 Athann breached Article 20D by not giving notice of Springsley's offer of purchase. Article 20B prohibited a transfer to a person who was not a member so long as any member was willing to purchase the share at fair value. The defendants contended that Nabatu was not willing to purchase Athann's shares at fair value. However, Article 20B expressly provided that whether a member was so willing to purchase was to be determined by the mechanism provided by the articles. That involved the giving notice of the offer of purchase (Article 20D) and the proposed transfer price, so that all members could elect to take a transfer on the same terms (Article 20E). If both Mr Crawley and Athann had so elected the directors would have been required to register the transfer in favour of both Athann and Mr Crawley (Article 20I). Athann could have transferred its share in J & J O'Brien to Mr Crawley under Article 20C, but that was not the transaction proposed. 933 Nabatu's willingness to purchase was never put to the test. The plaintiffs do not now propound a case that Nabatu could and would have purchased Athann's shares had the Articles been complied with. But that does not mean the Articles were not breached, even though no claim for damages for breach of the Articles had been brought. Mr Crawley and Springsley were participants in Athann's breach of J & J O'Brien's Articles. 934 Article 48 of Marsico's Articles provided as follows: " (1) Subject to the provisions of Article 45 and clause (2) hereof, any member shall be entitled to sell or transfer any of the shares held by him in the capital of the Company to members of his family (which shall include the wife husband father mother brother sister children and other lineal ancestors and descendants of the seller adopted children nephews and nieces) and also to a company in which the member or any other member of his family or all the members of the family taken collectively holds or hold more than 50% of the voting shares but except as aforesaid no member shall be entitled to sell or transfer any shares otherwise than in accordance with the following provisions:- (a) A member desirous of selling his shares (hereinafter called 'the selling member') shall give notice (hereinafter called 'the notice of sale') to the Secretary of the Company containing an offer to sell the same and stating the number of shares which he desires to sell and the price which he is willing to accept for such shares. Upon receipt of such notice the Secretary shall thereupon send to each of the other members of the Company a circular containing the same particulars and naming the day (being not less than thirty days nor more than sixty days after the receipt by him of the notice of sale) on or before which offers to purchase the same will be received. (b) If on or before the day so named offers to purchase all or any of the shares referred to in the notice of sale at the price named shall be received from members of the Company by the Secretary he shall as agent for the selling member and the proposing purchaser or purchasers declare a contract of sale to be concluded and shall give notice thereof to the selling member and the purchaser or purchasers. (c) If the offers to purchase shall together constitute offers to purchase a greater number of shares than those offered for sale the shares offered for sale shall be divided among the proposing purchasers in the proportion as nearly as possible in which they already hold shares in the Company but no proposing purchasers shall be liable to take more shares than those he shall have offered to purchase. Any shares which cannot be so divided as aforesaid without creating fractions shall be apportioned by ballot among the proposing purchasers. (d) Should the offers to purchase received by the Secretary be for a lessor (sic) number of shares than those offered for sale the Secretary shall give notice to the selling member of the number of shares for which offers to purchase have been received and the selling member may thereupon by notice in writing to the Secretary accept such offers and dispose of the balance of the shares offered by him for sale as hereinafter provided or he may refuse such offers provided that in the event of such refusal he shall not be entitled to sell the shares or any of them as hereinafter provided. (e) The selling member and the members declared to be the purchasers of shares shall give effect to the contract or contracts so made as aforesaid by the execution of proper transfers and the payment of the purchase price. (f) If within six weeks after service of the notice of sale on the Secretary the selling member shall not receive notice that his offer to sell is accepted on behalf of some members or member of the Company he may subject to paragraph (d) hereof within three calendar months from the date of serving the notice of sale sell or dispose of the shares referred to in such notice of sale or so many of them as shall not have been agreed to be purchased by a member of members of the Company to any other person provided that such sale or disposal be at a price not less than that named in the notice of sale. (g) A notice of sale may be renewed from time to time but the offer therein contained shall not be withdrawn until the expiration of two months from the time of service thereof on the Secretary. (2) The provisions of clause (1) hereof shall apply only if all the members have agreed in writing to such provisions and if all the members have not so agreed in writing then such provision shall not apply. " 935 The defendants denied that there was a breach of article 48 of Marsico's articles of association. It was submitted for Springsley that article 48 was inapplicable because there was no agreement in writing by all of the members of Marsico that the article should apply as required by article 48(2). 936 There was no evidence that an agreement in writing had been made by all of Nabatu, Athann and Mr Crawley that the provisions of article 48 should apply. However, I accept the plaintiffs' submission that the shareholders had conducted themselves to their detriment on the common assumption and with the intention that article 48(1) was operative and legally binding, such that it would be unconscionable for Mr Crawley and Athann to be allowed to depart from that assumption. In other words, they are estopped from denying that the provisions of article 48(1) were applicable. That estoppel arises in the following way. On 17 November 1993, Mr Crawley represented to Mr Short that pre-emptive clauses preventing the transfer of shares outside of the existing shareholders to the group were already in place in relation to Marsico (TB 33/3221). That representation was made just before the meeting of 18 November 1993 which amended the articles of J & J O'Brien by introducing the "pre-emptive clauses" in those articles. It is clear that the parties intended that such restrictions on transfer should apply in relation to both J & J O'Brien and Marsico. But for Mr Crawley's representation that such provisions already applied to Marsico, it could be expected that the parties would have made the written agreement contemplated by article 48(2) at the same time as they amended the articles of J & J O'Brien. 937 Mr Crawley gave evidence that: " There was never a resolution passed to adopt them [the pre-emptive clause in article 48] but it was accepted by everybody that it had happened, so, and I accept that as well. " (T941) 938 Mr Crawley went on to say that Mr Short and Mr Davis did not express what their view was, but he, Mr Crawley, accepted that article 48 of Marsico's articles applied (T941-942). When asked whether he had told Mr Davis that the pre-emptive clause in the articles of Marsico already applied, Mr Crawley said that "possibly I would have, yes". It is inherently probable that such a statement was made to Mr Davis at about the same time as it was made to Mr Short. Mr Davis was not called to rebut the inference which can be drawn from Mr Crawley's correspondence to Mr Short and his oral evidence that all three shareholders adopted the common assumption that the provisions of article 48 of Marsico's articles applied. 939 It was submitted for the seventh to ninth defendants that Mr Crawley's evidence was equivocal and failed to establish that an agreement as contemplated by article 48(2) had been made. However, that submission misses the point. The question is not whether an agreement in writing as contemplated by article 48(2) was in fact made, but whether Mr Crawley, Mr Davis and Mr Short were all estopped from denying that article 48(1) applied. By reason of the common assumption which the parties adopted, which assumption was induced by Mr Crawley's representation that such provisions were already in place, Mr Crawley is and was estopped from denying that article 48(1) applied. He represented Springsley in the transaction and Springsley is bound by that estoppel. 940 The sale and transfer of Athann's share in Marsico was a breach of article 48(1) because the procedure contemplated by that article was not followed unless it was a sale or transfer to "a company in which the member ... holds more than 50% of the voting shares". Athann did not hold any of the voting shares in Springsley. The holders of the voting shares in Springsley prior to 16 May 1997 were Mr and Mrs Davis. The transfer of the share held by Athann in Marsico was registered in Marsico's register of members apparently as at 27 March 1997 (exhibit G pp 191, 192). Accordingly, the question is whether, as at that date, Athann held more than fifty percent of the voting shares in Springsley. In the field of company law, a "holder" of shares usually refers to the person who is registered as the holder of the shares and not to the beneficial owner of the shares held by another (Avon Downs Pty Ltd v Federal Commissioner of Taxation (1949) 78 CLR 353 at 363-364; Dalgety Downs Pastoral Co Pty Ltd v Federal Commissioner of Taxation (1952) 86 CLR 335 at 342-343; Bond Corporation Pty Ltd v White Industries Ltd [1980] 2 NSWLR 351 at 363; Kingston v Keprose Pty Ltd (No 3) (1987) 11 NSWLR 404 at 410-412, 419-420). I see no reason to give an extended operation to the expression "hold" in article 48(1) where to do so may allow the intention of the article to be subverted. As Athann was not the holder of shares in Springsley, the transfer of the share on 27 March 1997 from Athann to Springsley was a contravention of the article. 941 It follows that the legal ownership of Athann's share in Marsico and the equitable ownership of Athann's share in J & J O'Brien were transferred to Springsley in contravention of the articles of Marsico and J & J O'Brien. Plaintiff's Claims for Relief in Respect of Shares Transferred to Springsley 942 In their statement of claim, the plaintiffs alleged that the resolutions at the meeting of 27 March 1997 approving the transfer of the shares was invalid and that the transfers were in breach of the articles of association of J & J O'Brien and Marsico, and that in consequence thereof, the registration of the share transferred from Athann to Springsley was invalid and the register of members should be corrected pursuant to s 175 of the Corporations Act so as to remove Springsley as a member and to record that Athann had remained a member of J & J O'Brien and Marsico at all times on and from 27 March 1997. So far as the register of members of J & J O'Brien is concerned, Athann remained a member. Such relief would not assist the plaintiffs because Athann, though a member, would be bound to act on Springsley's directions. The plaintiffs did not press for this relief. Instead, in their closing submissions, they sought an order that in the distribution of any surplus proceeds to members in the winding-up of J & J O'Brien and Marsico, upon Nabatu paying to Mr Crawley and Springsley the sum of $500,000 plus interest at Supreme Court rates from 16 May 1997, Nabatu be entitled to elect to receive half of any surplus payable to members in lieu of its entitlement otherwise to receive one-third of any such surplus and, if Nabatu so elected, that Mr Crawley and Springsley together should be entitled to receive the remaining half of any such surplus. Orders to the same effect are sought if an order is made for the compulsory purchase of Nabatu's shares rather than a winding-up order (see para [143] of Section 1). 943 Notwithstanding my conclusions that the share transfers were made in breach of the articles of Marsico and J & J O'Brien, and that the resolution of 27 March 1997 approving the transfers was passed after deliberate false representations were made by Mr Crawley and Mr Wiseman about the transaction, and Mr Crawley's interest in it was not disclosed, there are two substantial hurdles to the plaintiffs' obtaining any relief in respect of the transaction. The first is the absence of proof that, had the provisions of the articles been complied with, Nabatu could and would have offered to purchase, with Mr Crawley or with Springsley, Athann's shares and paid $500,000 to Athann. The second hurdle is the delay in seeking relief in respect of the transaction. 944 The plaintiffs did not advance a case that, had the articles been complied with, Nabatu would have sought to purchase Athann's shares. The plaintiffs submitted that it was not necessary for Nabatu to prove that if it had been given the opportunity to share equally in the purchase of Athann's shares, it would have taken up such an opportunity. They submitted that Nabatu's ability and willingness to do so would have been affected by the oppression and breaches of duty which had occurred up to that time. In any event, they submitted that the share transfer was procured by a breach of fiduciary duty on the part of Mr Crawley, being a duty he owed to Nabatu as a shareholder. The plaintiffs submitted that Springsley was involved in that breach of fiduciary duty. They submitted that Mr Crawley and Springsley are liable to disgorge the profit obtained by Springsley by reason of its acquisition of Athann's shares. Where a fiduciary is required to account for a profit derived in breach of his fiduciary duty, it is no answer for the fiduciary to say that the principal was unwilling, unlikely, or unable to have made the profits for which the fiduciary is required to account (Warman International Pty Ltd v Dwyer at 558). 945 The plaintiffs did not plead the claim as one for an account of profits for breach of fiduciary duty. However, senior counsel for the seventh to ninth defendants accepted that no such pleading point would be taken. Nor did counsel for the first to sixth defendants take such a pleading point. 946 As a general proposition, a director owes fiduciary duties to the company and not to each shareholder (Percival v Wright [1902] 2 Ch 421; Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 at 680; Brunninghausen v Glavanics (1999) 46 NSWLR 538 at 546-547, 549). However, particular factual circumstances may give rise to a fiduciary relationship between a director and an individual shareholder (Brunninghausen v Glavanics). In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, Mason J said (at 96-97): " The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf Phipps v Boardman [1967] 2 AC 46 at 127), viz, trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions 'for', 'on behalf of' and 'in the interests of' signify that the fiduciary acts in a 'representative' character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal." 947 Thus, in Coleman v Myers [1977] 2 NZLR 225, the New Zealand Court of Appeal held that two directors of a family company owed fiduciary duties to the shareholders in relation to a proposal which the directors instigated to acquire the minority's shares at an undervalue. The shareholders looked to the directors for reliable information and advice. The directors held themselves out as people in whom confidence should be reposed because of their inside knowledge as to the affairs of the company. The directors controlled the contents of a report provided to the shareholders recommending acceptance of a takeover offer made by a company which they controlled. These circumstances together gave rise to a fiduciary duty owed to the shareholders. Cooke J said (at 331): " In short, at all material times the respondent directors had, and emphasised that they had, inside knowledge of all the company's affairs; while the son certainly and the father probably had intimate knowledge of the detailed plan of acquisition and all its advantages and implications. In the light of the history and character of the company and their offices as chairman and managing director and representatives on the wine and spirit company board [(a company in which the company had invested and which had excellent prospects of success)] , they were in a position where confidence had to be placed in them, And in the negotiations and recommendation they invited that confidence. Any suggestion that in the matter of selling shares to the son shareholders were able to negotiate effectively and at arm's length would be unreal. In principle the case falls, in my opinion, within the broad class of fiduciary relationships arising from special facts ... " 948 His Honour found (at 330) that the directors owed a fiduciary duty to the shareholders in that case broadly because of: " ... the family character of this company; the positions of the father and son in the company and the family; their high degree of inside knowledge; and the way in which they went about the take-over and persuasion of shareholders. " 949 Cooke J then went on to consider the then current authorities on the elements of a fiduciary relationship, as to which now see Hospital Products Ltd v United States Surgical Corporation at 96-97 (cited above). 950 Woodhouse J stated (at 325): " ... while it may not be possible to lay down any general test as to when the fiduciary duty will arise for a company director or to prescribe the exact conduct which will always discharge it when it does, there are nevertheless some factors that will usually have an influence upon a decision one way or the other. They include, I think, dependence upon information and advice, the existence of a relationship of confidence, the significance of some particular transaction for the parties and, of course, the extent of any positive action taken by or on behalf of the director or directors to promote it. In the present case each one of those matters had more than ordinary significance and when they are taken together they leave me in no doubt that each of the two directors did owe a fiduciary duty to the individual shareholders. " Casey J reached the same conclusion (at 371). 951 Brunninghausen v Glavanics was another case in which the director used information which he acquired by virtue of his position as a director for his personal advantage in negotiating for the purchase of the shares of the minority shareholder. Because of his position as managing director, he was in negotiations with a third party for the sale of the company's assets. He kept the fact of those negotiations and the price offered for the company's assets secret from the minority shareholder, such that the contract was made with the minority shareholder for the purchase of his shares at an undervalue. Handley JA, with whom Priestley and Stein JJA agreed, discussed a number of circumstances in which directors owe fiduciary duties to shareholders, such as a director's duty to make proper and accurate disclosures to shareholders at a general meeting (at 552-553); a director's duty to issue shares so as to benefit the whole of the corporation, rather than just one or some of the shareholders, and not for the purpose destroying an existing majority or creating a new majority (at 550-552) (citing Ngurli Ltd v McCann (1953) 90 CLR 425 at 441, 447; Mills v Mills (1938) 60 CLR 150 at 185); and a director's duty, inherent in the process of negotiation for a purchase of the shareholder's shares, to disclose to the shareholder information, material to the value of the shares, which the director possesses by virtue of his office (at 555-556). Handley JA held that a director's power to deal with shares is subject to fiduciary duties to the shareholders only to the extent to which those duties do not "compete with any duty owed to the company" (at 550), and "where a director's fiduciary duties are owed to the company this prevents the recognition of concurrent and identical duties to its shareholders covering the same subject matter" (at 549-550 [58]). His Honour concluded that Percival v Wright does not stand for a binding rule that directors can only owe fiduciary duties to the company and never to members. 952 Handley JA concluded that it was open to the Court to hold that the office of director in a proprietary company is for some purposes a fiduciary one in relation to the shareholders, however the question of the existence of such a fiduciary relationship depends upon the facts of the case. His Honour considered the principles to be applied in determining whether a fiduciary relationship exists (including the passage from Hospital Products cited above). The test applied was to ask whether the party's "rights, powers and duties", are to be exercised "to promote his own interests, the joint interest, or the interest of the other party alone. Insofar as it is either of the latter two, the relationship will be fiduciary to that extent." (at 558 citing Professor Finn in Youdan, Equity, Fiduciaries and Trusts (1989) Carswell, Toronto at 34-35). The question is "whether the vulnerable party is 'entitled to expect' a particular standard of conduct." (at 558). 953 His Honour affirmed Bryson J's finding that the active director owed a fiduciary duty to the minority shareholder, and (at 549 [54]) stated the following: " If a fiduciary duty exists here it must arise from the bare facts of the relationship. These include the position of the defendant as the sole effective director, the existence of only one other shareholder, their close family association, the intervention of the mother-in-law to secure a family reconciliation, and the exclusive advantage or opportunity which the defendant's position conferred on him to receive any offers to purchase the company's business from third parties. " 954 In Charlton v Baber (2003) 47 ACSR 31 at [17], Barrett J said that the extent of a fiduciary duty owed to an individual shareholder is limited to actions by the defendant necessary to negate the effect, in the particular circumstances, of his taking advantage in an unconscionable way of the superior position occupied by him as against the plaintiff. 955 It was submitted for the plaintiffs that Mr Crawley was in a peculiar position of advantage by reason of the following matters: "(a) he knew the true financial position of the companies and was in control of the management and financial information. His companies provided all of the accounting services and the financial information was physically located either at or adjacent to his offices; (b) the true financial position of the companies was better than represented in the balance sheets, which recorded a loss for J & J O'Brien when that loss was caused by reason of payments made by J & J O'Brien to related (to Mr Crawley) parties and for the benefit of Mr Crawley's other business interests; (c) he was seeking financial accommodation for himself rather than for the companies and Mr Short and Mr Davis were at considerable disadvantage in seeking to refinance the companies borrowings by reason of their lack of information; (d) Mr Crawley was not pursuing finance for the companies, and for a considerable period was aware that Mr Hannan was not pursuing finance for the companies because he thought Mr Crawley was and Mr Hannan did not want there to be doubling up of applications; (e) Mr Davis had contractually bound himself to sell his shares, to vote in favour of finance offers tabled by Mr Crawley and not to pursue finance for the companies. He did not want further involvement with the companies; (f) Mr Short did not have all of the relevant financial information, did not know that Mr Davis had agreed to sell his shares and did not know that Mr Davis was being required to vote in accordance with Mr Crawley's directions. " 956 The plaintiffs submitted that Mr Crawley's strategy was to put Mr Short in a very invidious position as a minority shareholder. Mr Crawley contemplated that he would be able to acquire Nabatu's shares on terms satisfactory to Mr Crawley (see para [863] above). The plaintiffs submitted that Mr Crawley took advantage of the matters summarised above in arranging for Springsley to acquire Athann's shares and acted in breach of a proper standard of conduct which Nabatu was entitled to expect. 957 I accept each of the factual propositions in the subparas (a)-(f) above which I have quoted from the plaintiffs' submissions. However, it does not follow that Mr Crawley owed a fiduciary duty to Nabatu in relation to his procuring the purchase of Athann's shares. 958 Mr Crawley did use his position as a director of J & J O'Brien and Marsico, and information about the companies which he acquired as a director, in the purchase of Athann's shares. He used his position and the information derived from it to obtain finance for himself and for Aldonet which was used to pay the purchase price of Athann's shares and to secure the release of Mr and Mrs Davis from their guarantees to Westpac. In obtaining that finance, Mr Crawley breached fiduciary duties which he owed to the companies. The pursuit of finance for himself rather than for the companies, where he was in the best position to obtain finance for the companies by reason of his control of the financial information, was itself a breach of fiduciary duty. Mr Crawley further breached his fiduciary duty by seeking to hinder Mr Hannan and Mr Short in pursuing applications for finance. He breached his fiduciary duty by obtaining Mr Davis' contractual promise to vote in favour of the finance facilities offered by Aldonet and against the offer of finance from Prudential. That agreement involved the improper fettering by Mr Davis of his carrying out his functions as a director to decide which was the better proposal in the interests of the companies. The pursuit of the finance for himself and for Aldonet, and the offer of finance made by Aldonet to the companies, placed Mr Crawley in a position of conflict between his duties as a director and his personal interests. 959 However, the breaches of fiduciary duty in relation to the provision of finance were breaches of duties owed to the companies. As Handley JA said in Brunninghausen v Glavanics (at 549-550 [58]): " Where a director's fiduciary duties are owed to the company this prevents the recognition of concurrent and identical duties to its shareholders covering the same subject matter. However this should not preclude the recognition of a fiduciary duty to shareholders in relation to dealings in their shares where this would not compete with any duty owed to the company. " 960 Mr Crawley also misused his position as a director in voting to approve the registration of the transfer of shares from Athann to Springsley without disclosing his interest, without correcting the misrepresentations about the purpose of the transfer made by Mr Wiseman, and by misrepresenting the consideration for the transfer. However, Mr Crawley owed a fiduciary duty to the companies in exercising his functions as a director in deciding whether the transfer should be registered. He was required to act in accordance with what he bona fide considered to be the best interests of the companies. No different duty was owed to Nabatu as a shareholder, and the existence of the duty owed to the company precludes the recognition of a duty of identical content owed to Nabatu as a shareholder. 961 Otherwise, the position of ascendency which Mr Crawley enjoyed arose not from his position as a director but from his procuring the contract between Springsley and Athann for the purchase of Athann's shares. As a shareholder, and de facto director of the purchaser, Mr Crawley did not owe fiduciary duties to Nabatu. 962 Mr Crawley may well have owed fiduciary duties to Athann in the transaction for much of the same reasons as the directors in Coleman v Myers and Brunninghausen v Glavanics owed a fiduciary duty to the vendor shareholder. If Mr Crawley misrepresented or failed to disclose to Athann facts which were material to its decision to sell or to the value of its shares, whereby he acquired its shares at an undervalue, Mr Crawley may have breached his fiduciary duty owed to Athann not to benefit from his position. However, that is of no avail to Nabatu and such a duty was not owed to it. 963 In summary, whilst I accept that Mr Crawley breached fiduciary duties he owed to Marsico and J & J O'Brien in arranging the finance which was used in the acquisition of Athann's shares, and in arranging for the approval of the registration of the transfer of the shares, I do not accept that a separate fiduciary duty of different content was owed to Nabatu. 964 It does not follow that Nabatu would have been without remedy. Had it been in a position to seek to prove that it suffered loss as a result of the breach of the articles or the misrepresentations, it would have been entitled to recover such loss. However, it did not seek to make out such a case. Instead it sought to avail itself of principles designed to ensure the fidelity of a fiduciary to his or her principal by requiring an account of profits made in breach of fiduciary duty whether or not the profits could or would have been earned by the principal. There was no trust or confidence placed in fact upon Mr Crawley by Nabatu. Such a relationship in fact is not a necessary prerequisite for a finding that a fiduciary relationship exists. But I see no reason to stretch the conception of the fiduciary relationship to protect the position of a shareholder who is at risk of having control of the company passed to another shareholder where it would be entitled to relief in contract or in tort if it could establish that it would have taken up the opportunity to acquire Athann's shares (or a half-interest in them) had that opportunity been offered. Relief Under s 260 965 The conduct of the affairs of Marsico and J & J O'Brien in relation to their agreement to borrow moneys from Aldonet, and in relation to the approval of the transfer of shares from Athann to Springsley, was oppressive and unfairly prejudicial to Nabatu. I accept that in relation to those matters Mr Crawley engaged in oppressive conduct; that he deliberately misled Mr Short as to the effect and purpose of the transfer from Athann to Springsley in such a way as to deprive Mr Short of the opportunity to restrain the transaction prior to its completion; that the transfer of the equitable interest in Athann's share in J & J O'Brien and the transfer of its share in Marsico was contrary to the restrictions on transfer contained in their Articles; and that Mr Crawley breached his duties as a director of the companies in failing to disclose his interests in the share sale transactions, in voting on the relevant resolutions without such disclosure, and in procuring Mr Davis to vote on the resolutions without disclosure of Mr Davis' interests in the share sale transaction. 966 In order for the share sale transaction to proceed, Mr Crawley needed to procure the companies' consent to the loans from Aldonet. In procuring that consent, Mr Crawley engaged in oppressive conduct, deliberately misled Mr Short as to the terms upon which the primary lenders to Aldonet were prepared to lend (by representing that the primary lenders had agreed to release the guarantees of Mrs Short and Mrs Davis and by representing that the establishment fee charged by the primary lenders was $150,000), and breached his duties as a director in the ways indicated in para [958] above. 967 The plaintiffs submitted that whether or not a fiduciary duty was owed by Mr Crawley to Nabatu, the Court could and should make the order sought under s 233(1) of the Corporations Act (or s 260(2) of the Corporations Law) to avoid the effects of such oppressive conduct. I do not consider the orders sought are appropriate for two reasons. The first is that the plaintiffs have not demonstrated that they could have taken up the opportunity to acquire Athann's shares, or a half-interest in them, had the shares been offered for sale in accordance with the articles of association of each company. Nor is this merely due to the oppression and breaches of duty which had occurred up to that time. If Athann's shares had been offered for sale in accordance with the articles of association of each company, and Nabatu had taken up the offer as to at least half of the shares, then finance from Prudential would have been required in order to pay out the Westpac debt. Mr Crawley could not have provided the finance through Aldonet because it was a condition of the loans to be made to Aldonet and to Mr Crawley that he obtain control of the group. But in order to borrow from Prudential, Nabatu and Mr Short would have had to provide the Cremorne property as security for the guarantees for Prudential's loan. Although the cash position of the group would have been improved had excessive fees for accounting and management services not been extracted, there would still have been the need to refinance, and the Cremorne property would have been required as security. The plaintiffs did not seek to prove that, in that event, they could have raised another $500,000, or presumably more, had the acts of oppression and breach of duty, which must have had a depressing effect on the price Mr Davis asked for his shares, not been committed. To make the orders now sought in relation to Springsley's shares would go further than to put the parties in the position in which they would have been had there been no oppression. 968 The second reason it is not appropriate to make the orders sought under s 233 or s 260 in relation to Springsley's shares is the plaintiffs' delay in challenging the share purchase transaction. The delay is such as would also disentitle the plaintiffs from equitable relief in respect of the transaction. A conscious decision must have been made in June 1998 not to challenge Springsley's purchase of Athann's shares. In the statement of claim filed on 16 June 1998 the plaintiffs alleged, as the tenth instance of oppression, that Mr Crawley caused Springsley to acquire Athann's shares for the purpose of gaining control of the assets and future income of J & J O'Brien and Marsico to the exclusion of Mr Short and Nabatu. The plaintiffs did not then seek orders setting aside the share purchase. Nor did they seek orders of the kind presently sought which would in effect strip Springsley of half of the difference between the value of its shares and the purchase price plus interest. 969 The fact that no such challenge was made, although the plaintiffs then complained of various acts of oppressive conduct on the part of Mr Crawley, also indicates that, at that time, Nabatu would not have been prepared to purchase a half-interest in Athann's shares even if relief was given against the oppression complained of. 970 A plaintiff "may not stand by and permit the defendant to make profits and then claim entitlement to those profits" (Warman International Ltd v Dwyer at 559; Re Jarvis (decd); Edge v Jarvis [1958] 2 All ER 336 at 341, citing Clegg v Edmondson (1857) 8 De GM & G 787 at 814). Between May 1997 and August 2004 (when the share purchase by Springsley was first challenged), Mr and Mrs Crawley, as the only directors of J & J O'Brien and Marsico, made decisions in relation to the refurbishment and operation of the hotels and in relation to borrowings from Aldonet in the belief that Mr Crawley and Springsley between them had a two-thirds shareholding in the group. Moneys were borrowed by Mr Crawley and by Aldonet from the ANZ Bank from 1998 to fund the continued operation of the hotels. On 9 October 1998, the ANZ Bank offered an increase in facilities to Aldonet of $2,025,000 which was on-lent by Aldonet to the group to allow J & J O'Brien and Marsico to purchase forty-five poker machine entitlements. Whilst this was a highly profitable investment, it involved a commercial risk for the group, and for Aldonet as a lender to the group, and for Mr Crawley as provider of security for the loans. 971 In 1999, building works were carried out to Jackson's on George to construct a new restaurant, bar, kitchen and cool-room facilities. A new bar was constructed on the second floor of the premises. Air-conditioning plant and equipment was replaced throughout the hotel. The works were carried out and paid for using funds generated by trading in the group rather than those funds being used to reduce the group's indebtedness. In about 2000, substantial building work was carried out to the Marlborough Hotel. A new bar on the first floor of the hotel was installed and a separate pool room to accommodate three pool tables was constructed. Simultaneously with that development, new air-conditioning was installed. The costs of the renovations were met from cash flow and from overdraft facilities. In 2001, the overdraft provided by ANZ to J & J O'Brien was increased from $400,000 to $600,000 to assist in the refurbishments. A temporary overdraft facility of $300,000 was provided in December 2001 to assist refurbishments. A new lease facility of $200,000 for air-conditioning, plant and equipment was entered into in 2002 for the Marlborough Hotel. 972 All such decisions involved commercial risk to Mr Crawley who provided the security to support the facilities made available from 1998 by the ANZ Bank to Aldonet for on-lending to the group, or by way of direct facilities to the group. From 16 May 1997, the plaintiffs were aware of the facts which gave them the right to challenge Springsley's purchase of Athann's shares. They took legal advice in relation to their rights. Even if the plaintiffs' claims to have the right to elect to take a half-share of the capital profit derived by Springsley from its share purchase had otherwise been made good, the plaintiffs would be barred by laches. They would also be barred by acquiescence, that is, that Nabatu saw that its rights had been violated and acquiesced in that violation. The same considerations also preclude the relief sought under s 233 of the Corporations Act (or s 260 of the Corporations Law) in relation to that transaction. SECTION 10 – Account of Profits on Aldonet Loans Lack of Informed Consent to 1997 Facility 973 In Section 9, I have held that Mr Crawley breached his fiduciary duty to Marsico and J & J O'Brien in procuring those companies to enter into the loan agreements with Aldonet. The defendants contended that the companies gave their informed consent to the loans. The first to sixth defendants pleaded that the essential terms of the loan between QIDC and Aldonet were contained in a letter of offer from QIDC to Aldonet forwarded to Mr Wiseman on 25 March 1997. They pleaded that, by reason of the disclosure of those terms to Mr Wiseman, Mr Davis knew of the essential terms of the loan between Aldonet and QIDC and knew that Aldonet would charge interest at a higher rate than QIDC would charge Aldonet, and would charge a higher establishment fee than it would be charged by QIDC. They pleaded that the knowledge of Mr Davis and Mr Crawley of those matters was to be attributed to Marsico, J & J O'Brien and Trudale. Mr Davis and Mr Crawley voted in favour of the resolution that J & J O'Brien and Marsico accept Aldonet's offer of finance. The first to sixth defendants submitted that Messrs Crawley and Davis, being a majority of the board, caused the companies to give the companies' knowing consent to what might otherwise be a breach by Mr Crawley of his fiduciary duty. The defendants also submitted that Mr Short and his advisers knew of all of the terms of Aldonet's offer. Moreover, documents provided to Mr Linden on 7 April 1997 disclosed that the lenders to Aldonet were QIDC and the ANZ (TB 74/7769.7). 974 These matters do not establish an informed consent by the companies to Mr Crawley's breaches of fiduciary duty. When the letter from QIDC to Aldonet was forwarded to Mr Wiseman on 25 March 1997, it was sent under cover of a letter from Mr Crawley requiring Mr Wiseman and his firm to keep the document confidential and not to be disclosed to either of the other directors. Mr Wiseman did not disclose the terms of QIDC's letter to Mr Davis or to Mr Short. 975 In any event, even if Mr Davis had known of the terms of QIDC's offer to Aldonet, or had known that Aldonet would be charging a higher rate of interest and a higher establishment fee than it would be charged and thereby would make a profit from the on-lending, such knowledge on the part of Mr Davis, and the knowledge of Mr Crawley, would not be imputed to the companies. Mr Crawley's own knowledge would not be imputed to the companies because it would be knowledge of his own breach of duty (Re Hampshire Land Company [1896] 2 Ch 743 at 749; J C Houghton & Co v Nothard, Lowe & Wills Ltd [1928] AC 1 at 14-15). Mr Davis also breached his fiduciary duty to the companies in dealing with the resolution to accept Aldonet's offer of finance. By the terms of the share sale agreement, he had fettered his discretion as to how to vote on finance proposals for the group. He failed to disclose his interest in the finance approvals, namely, that approval of the Aldonet offer of finance was a prerequisite to the purchase of Athann's shares. He was a knowing participant in Mr Crawley's breach of fiduciary duty. Even if he had known of the terms upon which QIDC had offered to advance funds to Aldonet, or the terms upon which the ANZ had agreed to advance funds to Mr Crawley which Mr Crawley would make available to Aldonet for it to on-lend to the group, such knowledge would not be imputed to the companies. 976 Further, disclosure of such facts to Mr Davis would not be sufficient. What was required was the informed consent of the companies, either by the shareholders in general meeting, or by the board in accordance with the articles. Disclosure of the relevant facts had to be made to the board. It was not so made. Mr Crawley refused to disclose the terms on which Aldonet was obtaining its funds. 977 It is not to the point that Mr Short and his advisers knew of the terms of Aldonet's offer to the group. They did not know that Aldonet was to make a profit on the on-lending of funds, let alone what was the extent of the profit. Without the directors having been told what were Aldonet's costs of borrowing, they were in no position to give an informed consent to Mr Crawley's acting with a divided loyalty. The matters which were required to be disclosed consisted not only of Aldonet's costs of borrowings and hence its profit from the transaction, but also the interests of Mr Crawley and Mr Davis in having Aldonet's offer accepted in order that the share sale agreement could proceed. The disclosure required was of both the nature and the extent of their interests in the transaction. 978 Further, in voting in favour of Aldonet's offer of finance, Mr Crawley and Mr Davis were using their powers as directors of the companies for an ulterior purpose: not for the benefit of the companies as a whole, but for the purpose of advancing their respective personal interests (Ngurli Ltd v McCann (1953) 90 CLR 425 at 438-439). Mr Crawley was determined that the Aldonet offer of finance should be proceeded with, irrespective of whether it was on better or worse terms than the offer provided by Prudential. Although Mr Crawley responded to Mr Linden's comparison of the two offers (see para [119] of Section 1), there was an ulterior purpose behind his acceptance of the Aldonet loan. Likewise, Mr Davis only sought to progress the Prudential offer as a fall-back position in case Mr Crawley's offer to purchase Athann's shares fell through and Westpac sought to appoint receivers. If Mr Crawley completed the purchase of Athann's shares, Mr Davis had no intention of accepting Prudential's offer (para [131] of Section 1 above). Neither Mr Crawley nor Mr Davis considered Prudential's offer on its merits having regard only to the interests of the companies. Accordingly, even had there been disclosure of all of the material matters required for the board to provide an informed consent to Mr Crawley's breach of fiduciary duty, no valid consent could have been provided by the board acting on the votes of Mr Crawley and Mr Davis. 979 Unless they had the informed consent of the companies, Messrs Crawley and Davis breached their fiduciary duties by committing the companies to the borrowings from Aldonet. This was because they had a personal interest in the transaction which conflicted with their duties as directors of the companies. They could only obtain the companies' informed consent if they had the approval of the shareholders, or if the articles permitted the directors to approve of the transaction notwithstanding that a majority of the directors had a personal interest in the transaction and, if so, if the articles were complied with. The relevant articles were Article 81 of the Articles of Association of J & J O'Brien and Article 109 of the Articles of Association of Marsico. I deal with them further below. Assuming that the articles could authorise the directors of the companies to enter into a transaction in which a majority of the directors had a personal interest, nonetheless, the articles required disclosure of both Mr Crawley's interest and Mr Davis' interest in the transaction. This included disclosure of the fact that the loan from Aldonet was a precursor to Springsley's acquisition of Athann's shares and the margins to be made by Aldonet in the transaction. There was no such disclosure as required by the articles. Moreover, assuming that the articles permitted the directors to approve of the transaction, notwithstanding the personal interest that two of the directors had in it, the directors were still required to act bona fide in what they considered to be the best interests of the companies in deciding whether or not the companies should enter into the contract of loan with Aldonet. Messrs Crawley and Davis did not vote having regard only to the interests of the companies. 980 The defendants submitted that there was no realistic prospect of the group being able to borrow the funds necessary to refinance the Westpac debt otherwise than through the facility offered by Aldonet. Westpac was threatening to appoint a receiver if its debt were not repaid. The defendants also submitted that the interest rates charged by Aldonet were reasonable. These are not material considerations. As Lord Cranworth LC said in Aberdeen Railway Co v Blaikie Bros [1843-60] All ER Rep 249 at 252-253: " The directors are a body to whom is delegated the duty of managing the general affairs of the company. A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such an agent has duties to discharge of a fiduciary character towards his principal, and it is a rule of universal application that no-one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect. So strictly is this principle adhered to that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. ... It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interests of those for whom he is a trustee have been as good as could have been obtained for many other persons; they may even at the time have been better. But still so inflexible is the rule that no inquiry on that subject is permitted. " 981 In any event, I am not satisfied that the group could not have borrowed sufficient moneys from Prudential to discharge the Westpac debt. Prudential had offered to advance $19,500,000 or sixty-five percent of the valuation of the properties as carried out by Prudential's appointed valuer (letter of offer of 27 March 1997, TB 71/7580). The properties enumerated were Jackson's on George, the Marlborough Hotel, and the residences of Mr and Mrs Short and Mr and Mrs Davis. It may be observed that the remaining Newtown properties were not available to be offered as security because of the mortgages held by Vensel over those properties which purportedly secured the debts claimed by Mr Crawley to have been owed to him and assigned to Vensel which had been acknowledged in the deed of acknowledgment of 30 June 1994. 982 One of the terms of Prudential's offer was that guarantees be provided by all of the directors or shareholders of the borrowing companies. Mr Crawley gave evidence that, had Mr Davis decided to vote in favour of Prudential's offer of finance and against the Aldonet offer, such that the Prudential offer had been accepted by J & J O'Brien and Marsico, he would have been prepared to provide his personal guarantee or mortgages over his own property in support of Prudential's offer of finance. This would have been subject to "balancing up the equities", by which Mr Crawley meant making some financial adjustment between Mr Short and Mr Davis and himself. He was referring to the value of the properties which each of the shareholders would provide as security for a Prudential loan on this hypothesis (T989). 983 There was no evidence as to whether Prudential had carried out the valuations of the four listed properties; nor were there valuations as at 1997 of Mr and Mrs Short's property in Cremorne or Mr Davis' property in Vaucluse. In 1997 the finance broker, NB Balmain, submitted to Prudential that the Cremorne property was worth $4,000,000. It is not possible to say that a valuation of the four properties (let alone with an additional property of equal value to those proffered by Mr Short and Mr Davis which Mr Crawley would have felt obliged to proffer) would not have totalled at least $30,000,000 so as to support a loan of $19,500,000. 984 I do not accept that, had consideration been given to the interests of the companies as distinct from the interests of Mr Crawley and Mr Davis, the Aldonet offer of finance was the only realistic available means of refinancing the Westpac debt. I do not regard the evidence given by a banker, Mr Reardon, on the likelihood of such a loan from Prudential being available as being of any weight. The evidence was led and cross-examined on without objection, but the question of whether Prudential would not have completed the transaction was not a matter for expert evidence. In any event, Mr Reardon's scepticism that the transaction would have proceeded was based in part upon a wrong assumption that he made that Mr Crawley would not have been willing to provide a guarantee had the companies accepted the Prudential offer. Had the offer from Prudential been accepted, and the commitment fee of $58,500 paid, Prudential would have been bound to have made the loan in accordance with the terms of its letter and on the basis of necessary documentation to secure the loan advance as approved by its solicitors, incorporating the provisions usually adopted by them in mortgages and guarantees of that class of lending. 985 However, as I have said, it would make no difference to Aldonet's liability to account for profits derived by it from its participation in Mr Crawley's breach of fiduciary duty if it had established that its offer was the only available source of finance to the group to discharge the Westpac debt. 986 The defendants also relied upon evidence of Mr Reardon that the margins charged by Aldonet over the margins of the QIDC and ANZ facilities were reasonable and no more than would likely to have been charged by an independent party. They also relied upon Mr Reardon's opinion that the group was better off borrowing from Aldonet than had it borrowed $15,000,000 from a bank, and the balance of the required funds from a mezzanine lender. However, these considerations are not to be inquired into. They also assume that finance on the terms offered by Prudential would not have been available. As I have said, I do not accept the accuracy of that assumption. Lack of Informed Consent to Later Facilities 987 On 11 May 1998, Mr Crawley signed a letter of offer on behalf of Aldonet addressed to the directors of J & J O'Brien, Marsico and Trudale offering a new loan facility to the group. The offer was structured along the lines of the earlier offer of 26 March 1997, including by the payment of a further loan approval fee of $190,000 payable as to $30,000 on acceptance, $80,000 on 31 December 1998 and $80,000 on 31 December 1999 (TB 84/8478.995 at 8478.997). (The plaintiffs did not contend that these further fees were paid.) Mrs Crawley did not sign the letter on behalf of Aldonet. She was a director of Aldonet. 988 A minute of meeting of directors of J & J O'Brien, Marsico and Trudale held on 14 May 1998 records that, on that day, Mr and Mrs Crawley resolved to accept Aldonet's offer of 11 May 1998 (TB 84/8478.1037). The minutes record that it was reported to the meeting that the existing facility required a capital reduction of $1,000,000 at the end of the twelve-month period from the date of granting the advances, but that Aldonet was prepared to alter the terms of that facility as set out in its offer. Both Mr and Mrs Crawley were directly or indirectly interested in the transaction. 989 Article 81 of J & J O'Brien's Articles of Association provides that: " ... No Director shall be disqualified by his office from holding any office or place of profit under the Company or under any company in which this Company shall be a shareholder or otherwise interested or from contracting with the Company either as vendor purchaser or otherwise nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company in which any Director shall be in any way interested be avoided nor shall any Director be liable to account to the Company for any profit arising from any such office or place of profit or realised by any such contract or arrangement by reason only of such Director holding that office or of the fiduciary relations thereby established but it is declared that the nature of his interest must be disclosed by him in the manner required by the Act. A Director may vote in respect of any contract or arrangement in which he is interested. A Director may be appointed as the Director in whose presence the seal of the Company is to be affixed to any instrument notwithstanding that he is interested in the contract or arrangement to which the instrument relates. " (J & J O'Brien CTB 8698) 990 The "Act" referred to was the Companies Act 1961 (NSW). Section 123 of the Companies Act provided: " (1) Subject to this section every director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company shall, as soon as practicable after the relevant facts have come to his knowledge, declare the nature of his interest at a meeting of the directors of the company. (2) The requirements of subsection (1) shall not apply in any case where the interest of the director consists only of being a member or creditor or a corporation which is interested in a contract or proposed contract with the firstmentioned company if the interest of the director may properly be regarded as not being a material interest. ... (4) For purposes of subsection (1), a general notice given to the directors of a company by a director to the effect that he is an officer or a member of a specified corporation or a member of a specified firm and is to be regarded as interested in any contract which may, after the date of the notice, be made with that corporation or firm shall be deemed to be a sufficient declaration of interest in relation to any contract so made or proposed to be made if - (a) the notice states the nature and extent of the interest of the director in the corporation or firm; (b) when the question of confirming or entering into the contract is first taken into consideration, the extent of his interest in the corporation or firm is not greater than is stated in the notice; and (c) the notice is given at a meeting of the directors or the director takes reasonable steps to ensure that it is brought up and read at the next meeting of the directors after it is given. (5) Every director of a company who holds any office or possesses any property whereby whether directly or indirectly duties or interests might be created in conflict with his duties or interests as director shall declare at a meeting of the directors of the company the fact and the nature character and extent of the conflict. (6) The declaration shall be made at the first meeting of the directors held - (a) after he becomes a director; or (b) (if already a director) after he commenced to hold the office or to possess the property, as the case requires. (7) The secretary of the company shall record every declaration under this section in the minutes of the meeting at which it was made. (8) Except as provided in subsection (3), this section shall be in addition to and not in derogation of the operation of any rule of law or any provision in the articles restricting a director from having any interest in contracts with the company or from holding offices or possessing properties involving duties or interests in conflict with his duties or interests as a director. " 991 As at 14 May 1998, s 231 of the Corporations Law was substantially to the same effect as the former s 123 of the Companies Act. 992 Article 109 of Marsico's Articles of Association provide that: " Notwithstanding any rule of law or equity to the contrary a Director of the Company shall not be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise, nor shall any such contract or any contract transaction or arrangement entered into by or on behalf of the Company in which any Director shall be in any way interested be avoided or be rendered voidable nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract transaction or arrangement by reason of such Director holding that office or by reason of the fiduciary relationship thereby established and any such Director notwithstanding his interest and/or such fiduciary relationship may as a Director vote in respect of any such contract, transaction or arrangement and may take part in the actual affixing of the Company's seal to and/or sign any deed document or instrument giving effect to evidencing or in any way relating to any such contract, transaction or arrangement, but disclosure of such interest shall be made and recorded as contemplated by Section 228 of the Companies Code. Failure to make and/or to record such disclosures as aforesaid shall not operate to avoid or render voidable any such contract, transaction or arrangement. " 993 Section 228 of the Companies (NSW) Code was substantially to the same effect as s 123 of the Companies Act and s 231 of the Corporations Law (prior to amendments made to s 231 of the Corporations Law with effect from 1 July 1998). 994 It will be observed that Article 109 of Marsico's Articles of Association contained a provision which Article 81 of J & J O'Brien's Articles did not, that failure by a director to make the required disclosure, and failure of the secretary to record the declaration by which the director disclosed his interest, did not operate to avoid or render voidable the contract, transaction or arrangement in which the director was interested. 995 That provision is of limited application. It confirms what might otherwise be doubtful, namely, that failure to comply with the formal legislative requirements does not itself invalidate the transaction (Roden v International Gas Applications at 457). If the required declaration of interest is not made, the last sentence of Article 109 of Marsico's Articles of Association does not afford protection against the contract being avoided by reason of the director's conflict. The whole effect of the last sentence of Article 109 is that non-disclosure of, or the failure to record, the director's interest does not itself render voidable the contract in which the director is interested. Such non-disclosure of, or failure to record, a director's interest would nonetheless preclude reliance being placed on the Article to preserve the validity of such a contract. The relevant transaction is voidable not by reason of the director's non-disclosure of his interest to the Board in accordance with the Article and the relevant legislative provision, but by reason of the director's position of conflict. If the required disclosure is not made, the Article cannot be relied upon to preserve the transaction from the consequences of invalidity which would otherwise flow. 996 In any event, the last sentence of Article 109 says nothing about protecting the director from being liable to account for profits or to compensate the company for losses arising from the director's breach of fiduciary duty by causing the company to enter into the transaction in which the director has a conflict between interest and duty, or between duty and duty, where the required disclosure is not made. 997 As at 14 May 1998 (that is, before amendments to the Corporations Law made by the Company Law Review Act 1998 (Cth) came into effect), the position in respect of all companies, whether public or proprietary, was that, except insofar as the constitution of a company made other provision, a company was entitled to the unbiased and independent judgment of all of its directors. That cannot be achieved where a director is involved in the transaction either because he or she is personally interested in it, or because the transaction is with another company of which he or she is also a director. Hence, the director's duty is to avoid putting himself or herself in a position where his or her interest and duty, or duty and duty, may possibly conflict. However, a director will not breach his or her fiduciary duty to the company if the company gives its informed consent, either prospectively or retrospectively, to the transaction. Such consent may be given by the shareholders in general meeting (assuming no oppression of minority shareholders), or by the unanimous assent of the shareholders. Where the company's constitution so permits, consent may also be given by the board, notwithstanding that the company will not then have the benefit of the independent judgment of all of its directors. In such a case, there must be strict compliance with the articles pursuant to which the board is asked to approve such a transaction. If the articles permit the interested director to vote in respect of the transaction, the director must nonetheless exercise his or her voting power in good faith in the interests of the company (Furs Ltd v Tomkies (1936) 54 CLR 583 at 592; Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 207, 208-212, 228-229, 232, 234; Centofanti v Eekimitor Pty Ltd (1995) 65 SASR 31 at 32-33; (1995) 15 ACSR 629 at 630-631; Re Bright Pine Mills Pty Ltd [1969] VR 1002 at 1013; Australian Growth Resources Corporation Pty Ltd (receivers and managers appointed) v Van Reesema & Ors (1988) 13 ACLR 261 at 268; R v Byrnes (1995) 183 CLR 501 at 516-517; Toms v Cinema Trust Company Ltd [1915] WN 29 at 30). 998 The first question is whether the articles can be availed of if both directors have a conflict of interest. In many of the cases the relevant article has provided that a director may enter into a transaction with the company in which he or she is personally interested provided that the required disclosure is made to the board, but that the director shall not vote in respect of the transaction. In R v Byrnes, Brennan, Deane, Toohey and Gaudron JJ said (at 516-517): " A company is entitled to the unbiased and independent judgment of each of its directors. A director of a company who is also a director of another company may owe conflicting fiduciary duties. Being a fiduciary, the director of the first company must not exercise his or her powers for the benefit or gain of the second company without clearly disclosing the second company's interests to the first company and obtaining the first company's consent. Nor, of course, can the director exercise those powers for the director's own benefit or gain without clearly disclosing his or her interest and obtaining the company's consent. A fiduciary must not exercise an authority or power for the personal benefit or gain of the fiduciary or a third party to whom a fiduciary duty is owed without the beneficiary's consent. However, the articles of a company may permit - they frequently do permit - a director who is interested in a proposed transaction to take the benefit of the transaction if he discloses his interest to the other members of the board and takes no part in the decision of the board on the transaction. In such a case, the quorum of the board required to deal with the transaction will ordinarily be interpreted as excluding directors whose interests preclude them from voting. If the director makes that disclosure and abstains from taking part in the decision, the validity of the transaction is not impaired. But a director who takes part in a decision to enter into a transaction in which the director or a third party in whom the director has an interest or to whom the director owes a fiduciary duty stands to gain an advantage or benefit but who does not make an adequate disclosure of his interest acts improperly. " 999 Their Honours were speaking of a case in which the company's articles did not permit a director to vote on the transaction in which the director was interested. Where the articles of a company permit a director who is interested in the proposed transaction to vote, the required quorum for a board to deal with the transaction will not be interpreted as excluding the interested director (AM Spicer & Son Pty Ltd (in liq) v Spicer (1931) 47 CLR 151 at 186-187; Anaray Pty Ltd v Sydney Futures Exchange Ltd & Ors (1988) 6 ACLC 271 at 276-277). 1000 In Woolworths Ltd v Kelly, the article in question entitled a director to enter into a contract with the company provided disclosure was made but prohibited the director from voting. Mahoney JA said (at 232) that the general understanding of such provisions was that: " In principle, the board which acts for the company in respect of the contract is, subject to the articles, to be an independent board but for this purpose it need not be a full board comprising all of the directors (including the director with whom the contract is made). Provided there is a board of directors which may, having regard to the requirements of the articles as to quorum and otherwise, act for the company, the contract may be made for the company by the board. " 1001 Does the same principle apply where the articles permit the interested director to vote? In other words, can an otherwise voidable contract only be entered into in compliance with the articles if disclosure is made to, and voted on by, independent directors (albeit that the interested director can also vote)? If so, except with the approval of shareholders, no valid contract could be entered into if all of the directors were interested in the contract, or if the directors not interested in the contract did not form a quorum. There would be reason for so construing the articles if the purpose of the disclosure which the articles require is to provide information about the transaction, and the director interest in it, to independent directors. But if that were the only purpose of the article, why should interested directors be permitted to vote? 1002 In Doyle v Australian Securities and Investments Commission (2005) 227 CLR 18, a director was found to have acted for an improper purpose where he used his position to vote on resolutions relating to matters in which he had a material interest. The relevant article provided that no director would be disqualified by his office from contracting with the company but that the nature of his interest was required to be disclosed at a directors' meeting as soon as practicable after the relevant facts had come to his knowledge. The articles provided that such a director should not vote on any resolution relating to the contract or arrangement in which he had a material interest. The director voted on the resolution in breach of the article and in breach of s 232A of the Corporations Law, which prohibited a director of a public company from voting on the matter in which he had a material personal interest (s 232A(1)(a)). The question was whether the director had breached s 232(6) of the Corporations Law which provided that an officer of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation. The High Court observed (at 28 [37]) that the interrelation between s 232A and the civil penalty provisions including s 232(6) were not explored and could be put to one side. In respect of the director's contention that he had disclosed his interest to the board, the High Court said (at 29 [39]): " The disclosure of the interest of Mr Doyle could provide no answer in the situation where those to whom he made the disclosure were his confederates in the activity generating the interest. " 1003 By parity of reasoning, it could be said that the articles should be construed as validating what would otherwise be voidable transactions only if the director's interest can be disclosed to other directors who are not confederates in the activity generating the director's interest. In Adrenalin International Powersports Pty Ltd v John Caines Management Pty Ltd [2004] FCA 206, Marshall J said (at [210]) that s 194 of the Corporations Act should not be construed so as to permit interested directors to vote and transactions to proceed where a director's disclosure of the nature and extent of his or her interest was not required by s 191 because the other directors were aware of the nature and extent of the interest (s 191(2)(b)) where the other directors were both accused of taking advantage of a conflict and profiting from their position. His Honour said that "it would hardly have been necessary (or sufficient) for [the only two directors] to notify each other of their conflict. Where the only two directors of a company are both accused of taking advantage of the conflict and profiting from their position, it would be perverse that they could authorise their own breach pursuant to powers in the constitution." 1004 These arguments were not developed in the course of submissions. In my view, notwithstanding the force of these considerations, the better construction of the articles is that they apply according to their terms. There is no question that, subject to statute, the extent of a director's fiduciary obligations to his or her company can be modified by the articles. In my view, where the conditions of the articles are complied with, the transaction in which the directors are interested is not invalidated even if all of the directors have a personal interest in the transaction, provided that the directors comply with their obligations to act with due diligence, in good faith in the best interests of the company, and for proper purposes. The articles do not modify those obligations. Rather, when the conditions in the articles are satisfied, they exclude the principle in Aberdeen Railway Co v Blaikie Bros quoted at para [980] above. The requirement for disclosure of a director's personal interests in the way contemplated by s 123 of the Companies Act or s 228 of the Companies (NSW) Code, is not otiose, even if all of the directors have the same or similar interests in the transaction. As Kirby P said in Woolworths Ltd v Kelly (at 197-198) such declarations of interest provide a signal to the directors to consider, independently of their colleagues, whether the transaction is in the interests of the company and its shareholders. 1005 In Woolworths Ltd v Kelly, Samuels JA said (at 207) that to obtain the protection of the article the director must strictly comply with any conditions laid down in it (citing Imperial Mercantile Credit Association (Liquidators) v Coleman (1873) LR 6 HL 189 at 205 and Toms v Cinema Trust Company Ltd). In Imperial Mercantile Credit Association (Liquidators) v Coleman, Lord Cairns said that a director claiming to give validity to a contract which would otherwise be invalid in reliance on such an article must comply with the provisions in letter and in spirit (at 205). He must state what his interest is, which in the circumstances of that case, required disclosure of the quantum of the commission on the placing of debentures. 1006 In Toms v Cinema Trust Company Ltd, the director entered into a contract with the company for the payment of remuneration for his services. The company's articles provided that: " Any director may, notwithstanding his holding the office of director or of his fiduciary relation to the company, enter into ... any contracts or arrangements with ... the company ... and shall be at liberty to retain for his own absolute benefit all profits and benefits which he may derive from any such contracts, arrangements ... and shall not be disqualified as a director on account thereof, but no director shall be entitled to vote at board meetings in respect of any contract, arrangement ... in which he may be so interested aforesaid, unless he shall first disclose the general nature of such interest, and such disclosure and interest shall be entered on the minutes . " (Emphasis added) No minute was drawn up recording the terms upon which the company agreed to employ the plaintiff for more than a year after the meetings were held. Scrutton J held that, as no time was specified within which disclosure of the plaintiff's interest in the minutes was to be recorded, it was to be implied that the entry was to be made within a reasonable time. As the minute was not made within a reasonable time, the plaintiff could not recover unpaid remuneration, and was obliged to disgorge the remuneration paid under the contract in excess of that to which he was entitled dehors the contract. 1007 In Woolworths Ltd v Kelly, Kirby P held that s 123 of the Companies Act required formality in the declaration of the nature of the director's interests and the recording of the declaration in the minutes (at 197-199). His Honour considered that the required formal procedure had not been complied with. 1008 Samuels JA held that s 123 did not require a director to disclose to the other directors facts of which they were plainly wholly aware (at 212). Mahoney JA said that s 123 and similar sections were not to be read down and that they contained provisions relating not only to the substance but also the form in which interests in questions are to be declared and recorded. However, the section did not require use of formal terms such as "I hereby declare", but rather required the making known at the meeting of directors of the existence and nature of the director's interest in such a form that it might be recorded (at 234). Where Mahoney JA differed from Kirby P was that Mahoney JA was of the view that the board members' papers recorded with sufficient particularity the director's interest in the transaction. His Honour concluded that it was apparent from what was said and done at the meeting what the director's interest was (at 234-235). 1009 The declaration of interest required under s 123 of the Companies Act and s 228 of the Companies (NSW) Code required sufficient information to be declared by Mr Crawley so that Mr and Mrs Crawley could give bona fide consideration to whether it was in the interests of the group companies to enter into the loan agreement with Aldonet. Mr Crawley's interest was not only as a director of Aldonet, but also as a shareholder in Aldonet both in his own right and as the majority shareholder of Vensel which is the other shareholder of Aldonet. Full disclosure of his interest required disclosure of what margins Vensel could expect to earn under the arrangement (see by analogy Imperial Mercantile Credit Association v Coleman at 205). In the absence of such disclosure to both directors they could not, using due diligence, give bona fide consideration to the question as to whether it was desirable in the interests of the companies to take up the offer from Aldonet as distinct from, for example, seeking to borrow funds from a different financier, even if it were the ANZ Bank itself, at the lower rates of interest at which Aldonet was borrowing. 1010 Neither Mr nor Mrs Crawley gave evidence in their affidavits as to what disclosure was made to Mrs Crawley as to the terms on which Aldonet was borrowing funds so that she could assess the nature and extent of the benefit which Aldonet would derive from the transaction. The onus lay on the defendants to establish such disclosure. 1011 Mrs Crawley was cross-examined about the financial statements of J & J O'Brien and Marsico for 2005 and the disclosure in those financial statements of the amounts received by Aldonet by way of interest, line and margin fee payments. It was put to her that she did not know how much Aldonet made as a profit from J & J O'Brien or Marsico from charging the fees it did. She said that she was aware that there was a margin of "interest fee" which Aldonet charged but she had not made up any sums as to how much profit that represented year by year (T2030). She gave the following evidence: " Q. Where you aware of what the fee is in terms of a percentage? A. A percentage, yes. Q. What do you think is Aldonet's margin? A. Margin of interest fee is point seven five per cent. " (T2030) 1012 In relation to Marsico's 2005 financial statements, she gave evidence that she did not recall the details of making any inquiry as to how much of the moneys paid to Aldonet by way of interest, line and margin fees represented a profit to Aldonet. She gave the following evidence: " Q. Did you think it a matter of significance from the point of view of Marsico Holdings to know what profit Aldonet was making on the loan that it was making to Marsico? A. I know from the years that we did the best to the companies, its pretty much our life and so I know that whatever fees are charged they are correctly charged. Q. But it is a matter of significance, as you said, from Marsico's point of view to know what profit Aldonet makes on that lending; correct? A. As I said to you, I know the concept and the principles and the percentages. I don't count the actual dollars, so if those fees are in reasonable order I don't see any problem in any of those. Q. But you regard the percentage which is charged as profit by Aldonet as a significant matter from Marsico's point of view; correct? A. But Marsico wouldn't have been able to enjoy any loans apart from the Aldonet loan which has my husband's personal guarantee and his risk, so that was a very reasonable fee that is charged to the companies. Q. That's not what I asked you. Could you please deal with my question. You regarded it as a matter of significance from Marsico's point of view to know the percentage profit margin which Aldonet is charging on that lending which it makes to Marsico; correct? A. Yes. " 1013 I do not accept that Mrs Crawley was told in May 1998 of the difference between the margins Aldonet would charge the group companies and those it would pay to the ANZ Bank. Her evidence did not go so far. Moreover, her evidence that Aldonet's margin on its loans was a margin on the interest fee of 0.75% was only partially accurate. It is true that Aldonet charged a margin on the interest rate of 0.75% which the ANZ Bank did not. But it also charged a line fee margin which was initially 0.75%, but by 2003 was 0.9%. This doubled, or, after 2003, more than doubled, the profit derived from the margin on the interest fee. 1014 The defendants have not established that the directors gave an informed consent to the transaction. The effect of the articles of Marisco and J & J O'Brien was that they were entitled to vote in relation to the contract, notwithstanding the direct conflict between Mr Crawley's duty as a director of those companies and his interest as a shareholder of Aldonet, and the indirect conflict between Mrs Crawley's her duty as a director and her interest arising from her husband's interest. They were not precluded from voting by reason of the conflict between their duties as directors of the companies and their duties as directors of Aldonet. Nonetheless, there had to be full disclosure to both directors of the profits Aldonet would be entitled to receive from the transaction, so that both directors could give a bona fide and informed consideration to whether, consistently with their duties to Marsico and J & J O'Brien, they ought to vote in favour of Aldonet's offer. The defendants have not established that such disclosure was made, and such bona fide consideration of the interests of the group companies given. 1015 Moreover, for Mr or Mrs Crawley, or Aldonet, to be entitled to rely upon articles 81 and 109, the required disclosure under s 123 of the Companies Act and s 228 of the Companies (NSW) Code had to be minuted (Toms v Cinema Trust Company Ltd). Even if there was a sufficient oral declaration of their interests at the meeting of directors, no such declaration was minuted. 1016 For these reasons, the articles do not negate the breach by Mr and Mrs Crawley of their duties as directors in causing the companies to enter into the contract of loan with Aldonet on 14 May 1998 when they were both in a position of conflict. Aldonet was a knowing participant in those breaches of fiduciary duty. Subject to the defence of laches to be next considered, Aldonet is liable to account for the profits it derived by reason of Mr and Mrs Crawley's breach of their fiduciary duties owed to Marsico, J & J O'Brien and Trudale. Laches 1017 Proceedings were not commenced against Aldonet until 31 August 2004. The defendants submit that the plaintiffs were guilty of laches. 1018 There is a significant difference between the claim against Springsley for relief in respect of the share purchase transaction and the claim against Aldonet for an account of profits in respect of the loan transactions. In the case of the Springsley share purchase, the plaintiffs knew of all of the material facts following the directors' meeting of 16 May 1997. However, in the case of the Aldonet loans, the plaintiffs were not told what, if any, profit Aldonet derived from the loans. No claim was or could be made on behalf of the companies seeking rescission of the loan agreements with Aldonet because the plaintiffs were in no position to cause the companies (which they did not control) to refinance the Aldonet loans. Nor were they in a position to seek an account of profits from Aldonet until they knew what, if any, profits Aldonet derived. The onus of showing the plaintiffs' knowledge of Aldonet's profits lay on the defendants. There was no clear evidence as to when the plaintiffs first became aware that Aldonet was making profits, or the amount of profits it was making on its loans. No information about that had been volunteered by the defendants. 1019 There were various loans made by Aldonet to the group. The facility provided by QIDC to Aldonet was discharged in 1998 and replaced with a facility from ANZ to Aldonet. Aldonet in turn made fresh facilities available to J & J O'Brien, Marsico and Trudale. The plaintiffs neither knew the terms on which Aldonet was then advancing moneys to the group, nor the terms upon which Aldonet was borrowing moneys. 1020 On 13 August 1998, Mr Linden, on behalf of Nabatu, asked a number of questions concerning the financial statements for the year ended 30 June 1997 preparatory to the annual general meetings which had been convened to take place on 14 August 1998 (TB 86/9053). He asked for an explanation of the interest paid by J & J O'Brien in that financial year and the reasons for the increase in the interest compared with that paid in 1996. He asked for details of the interest of $2,573,982 paid by Marsico, including the basis upon which it was calculated. He asked what was the interest rate being charged by Aldonet. No answers were provided to any of his questions concerning the financial statements. The facts in relation to this are recounted in more detail in Section 13 below, concerning the provision of financial information after 1997. 1021 The financial statements for the year ended 30 June 1998 were provided to Nabatu on 9 December 1998. On 18 December 1998, Mr Linden sent a fax to Mr and Mrs Crawley requesting detailed information in relation to the 1998 accounts (TB 88/9510). Mr Linden wrote: " The re-financing of the group was undertaken in the 1997 year and expenses were incurred in that regard. Please advise what borrowings were undertaken in the 1998 year and in particular: (i) From whom were the funds borrowed; (ii) For what purpose were they utilised; and (iii) What precisely were the borrowing expenses, who were they paid to and what amount did each recipient receive. " 1022 Again, none of these questions, nor the other questions in relation to the 1998 financial statements, were answered. In circumstances explained in more detail in Section 13, Mr Linden was denied the right to speak at the annual general meeting. 1023 On 27 March 2000, notices of annual general meetings for J & J O'Brien and Marsico to consider the financial statements for the year ended 30 June 1999 were given to Nabatu. The financial statements provided did not include a detailed profit and loss statement. There was no detailed statement of expenses as had been provided in previous years. On 12 April 2000, Mr Linden wrote to Aubrey F Crawley & Co requesting details of items in the accounts (TB 90/10372). Again, Mr Linden asked for explanations in relation to payments of interest, including the basis upon which amounts payable to Aldonet were calculated and the current interest rates on those loans. He asked to be advised what was the difference between the amount of interest, line and other fees Marsico paid to Aldonet and the amount of interest, line and other fees paid by Aldonet in respect of the amounts borrowed by it and on-lent to Marsico (TB 90/10375). Mr Crawley did not provide the information sought. He responded by saying that information in the discovery of documents in the Supreme Court proceedings would enable Nabatu to make a detailed analysis of all of the relevant affairs of the companies and related corporations (TB 90/10384). I do not infer that that assertion was correct or that by 2000 Nabatu had the necessary information to identify that the companies had causes of action against Aldonet for an account of profits in respect of the Aldonet loans. 1024 Documents relating to interest paid by or payable to Aldonet were not amongst the classes of documents which were the subject of orders for discovery made by Hodgson CJ in Eq (as his Honour then was) on 2 September 1999. 1025 It appears from a report of Mr McClintock of 2 July 2003 that an expert retained by the plaintiffs, Mr Michael Potter, had prepared a report dated 30 January 2002 in which Mr Potter listed the interest payments made by J & J O'Brien and Marsico to Aldonet. Mr Potter's report was not tendered at the hearing before me. Mr McClintock's report of 2 July 2003 described in some detail the difference between the charges made by Aldonet and the cost of funds to Aldonet. At some stage, but it is not clear when, discovery of some documents must have been given to enable Mr Potter to prepare his report, which evidently covered at least the interest payments made by Marsico and J & J O'Brien to Aldonet up to the 2000 financial year (but not including the period February 1999 to June 1999 (McClintock, exhibit 1 paras 121, 122)). It is not clear from Mr McClintock's report whether Mr Potter had investigated Aldonet's costs. However, information as to Aldonet's costs for the period from 1997 to 2000 was contained in Mr McClintock's report of 2 July 2003. 1026 In his affidavit of 13 February 2003 Mr Crawley exhibited the final letter of offer from QIDC of 16 April 1997 and the letter of offer from the ANZ Bank to him of 8 May 1997 advising of its approval of a loan of $4,000,000. The copy of ANZ's loan approval which he exhibited omitted the two pages specifying the line fee payable by Mr Crawley to the ANZ Bank (TB 77/7889.1; DB2: 1018; CC2 para 453). 1027 The relevant period of delay in bringing proceedings against Aldonet for an account of its profits is only the period from July 2003 to 31 August 2004, or possibly from February 2003 to 31 August 2004. It is clear that the first to sixth defendants expected a challenge to the margins and line fees charged by Aldonet, as they commissioned Mr McClintock's opinion as to whether they were reasonable (exhibit 1 para 127). 1028 I was told without objection that Mr Short became ill in May or June 2003. This led to the application being made by the plaintiffs that his evidence be taken on commission. His evidence was taken on commission in December 2003. The plaintiffs submitted that a subpoena was issued to Aldonet on 23 January 2004. Aldonet applied to have the subpoena set aside. That application was dismissed on 1 July 2004, but the time for Aldonet to comply with the subpoena was extended to 5 August 2004. The plaintiffs submit that Aldonet's opposition to the subpoena caused a delay of approximately eight months. 1029 These delays do not amount to laches. The delay from 1997 to 2004 was substantially due to Mr Crawley's failure to provide the information as to what profits Aldonet was deriving from the loans made. The claim against Aldonet is a claim for an account of profits derived by it by reason of its participation in Mr Crawley's breach of fiduciary duty. That claim is not confined to the period of six years prior to the commencement of proceedings against Aldonet, by way of analogy to claims under the Limitation Act. There is no relevant analogy. The claim may be barred on principles of laches but to make good that claim, it will be necessary for the defendants to show when the plaintiffs had sufficient information to institute proceedings for an account of profits, and what prejudice they, or third parties, suffered as a result of the delay. The defendants have not established that they suffered prejudice as a result of the plaintiffs' delay in commencing the proceeding after they had such information. In that respect, it is relevant that the further amended statement of claim filed on 31 August 2004 was filed after a contested hearing before Hamilton J (Short v Crawley [2004] NSWSC 752). The application for leave to amend was made on 19 May 2004. Accordingly, the relevant period of delay was less than a year from 2 July 2003 when Mr McClintock's report was served and 19 May 2004 when the application for leave to amend was made. It can be inferred in any event that, from the time of service of Mr Potter's report, to which Mr McClintock responded, the first to sixth defendants were expecting the challenge to Aldonet's margins and line fees. 1030 For these reasons, I do not accept that the claim that Aldonet should be required to account for the profits derived by it as a result of Mr Crawley's breach of fiduciary duty, and its participation in that breach, is barred by laches. Quantification of Aldonet's Profits on the Loans 1031 The first and easiest accounting is of the charges made by Aldonet and the costs incurred by it on the establishment of the facilities. Aldonet's offer of 26 March 1997 was an offer to J & J O'Brien, Marsico and Trudale of three facilities totalling $19,400,000. An establishment fee of $150,000 was payable on the acceptance of facility A of $14,000,000. An establishment fee of $40,000 was payable on the acceptance of facility B of $4,000,000. No separate establishment fee was payable on the acceptance of facility C. Both establishment fees were paid in two instalments. On 27 March 1997, Marsico paid Aldonet $75,000 and $20,000 (Bell appendix C2.4; FS3 page 149). On 31 July 1997, J & J O'Brien paid Aldonet $95,000 as its share of the acceptance fees (JK1 page 159). Aldonet made the following payments summarised in the seventh to ninth defendants' submissions on the establishment of the loans which were used to fund the loans to the group companies: $10,000 payable to ANZ (TB 77/7884 at 7889); $25,000 paid to QIDC on 17 April 1997 for acceptance and establishment fees (TB 74/7775.17.1 and 7794.32.1); $20,000 paid to KPMG on 11 April 1997 (TB 74/7780.53.1); $18,920 paid to Corrs Chambers Westgarth; $60,000 paid to the Office of State Revenue on 16 May 1997 (TB 78/8024.6.1); and $15,000 paid to Walter Gamble & Associates Pty Ltd on 2 June 1997 (TB 79/8109.42.1) 1032 These payments total $148,920. Thus the profits on the establishment of the loans made by Aldonet was $41,080 (not $150,000 as contended by the plaintiffs). Aldonet is liable to account to Marsico for $20,540, being half of that profit with interest from 27 March 1997 and is liable to account to J & J O'Brien for $20,540 with interest from 31 May 1997. 1033 Aldonet's $15,000,000 loan from QIDC drawn down on 16 May 1997 was discharged on 31 May 1998 when Aldonet discharged the facility with refinancing from ANZ. A summary of the fees and interest payable under the facilities provided by QIDC and the ANZ to Aldonet and Mr Crawley in 1997, and by the ANZ to Aldonet on 27 April 1998, together with a summary of the fees and interest payable by J & J O'Brien, Marsico and Trudale on the borrowings from Aldonet of 16 April 1997 and 11 May 1998, prepared by the seventh to ninth defendants, or their legal representatives, is annexure A at end of this section. 1034 The line fee charged by ANZ to Aldonet was reduced from 1.25% to 1.1% on 16 August 2002 (TB 97/13127 at 13138). It appears from the payment made for the quarter of 30 September 2002 that the change took effect shortly after 1 July 2002 (AFB 16 page 158, appendix C2.8 which shows actual payment of $37,262.50 for the quarter representing interest margin (or line fee of 1.113% for the quarter as at 1 July 2002). The ANZ line fee remained at 1.1% thereafter (references at page 54A of tab 3 of the plaintiffs' preferred orders/quantum folder and appendix C2.8 of AFB16). 1035 The general ledgers for Marsico, J & J O'Brien and Trudale show that $19,000,000 borrowed from Aldonet was borrowed as to $15,000,000 by Marsico, $3,000,000 by Trudale (and reflected in the Elizabeth Centre Joint Venture financial statements) and $1,000,000 by J & J O'Brien (AFB9 appendices B3 (page 48), B-11 (page 60), and B-16 (page 67). The general ledgers record movements in principal, both credits and debits, to those loan balances. 1036 The plaintiffs calculated the quantum of profits for which Aldonet should account on two alternative bases. One basis, although not the plaintiffs' preferred basis, involved a calculation of the difference between the interest and margins charged by Aldonet compared with those charged to Aldonet, and the application of those differences to the loan balances of J & J O'Brien and Marsico. The loan balance due to Trudale prior to its being transferred to Marsico was treated for this purpose as a loan balance of Marsico. On this basis, the plaintiff submitted that the expected profits to be derived by Aldonet totalled $113,060.08 in respect of the loan balances of J & J O'Brien (Tab 3, p 52 of plaintiffs' preferred orders/quantum folder) and $2,261,182.77 in respect of the loan balances of Marsico and Trudale (Tab 10, p 102 of plaintiffs preferred orders/quantum folder). (See annexures B & C at end of this section.) 1037 The defendants did not take issue with the methodology or the plaintiffs' calculations of average facility balances for each financial year. They submitted that the flaw with the calculations was that they produced a result which, in some instances, was clearly different from what was actually paid to Aldonet. 1038 Accordingly, it is necessary to consider the evidence as to what payments were in fact paid to or on the direction of Aldonet, and what payments were made by Aldonet to its financiers. The evidence in relation to this was unsatisfactory. Matters which should have been capable of ready determination have been left quite obscure. The plaintiffs, as their preferred method of calculating Aldonet's profits by way of margin and line fees, summarised what they contended to be those profits as follows: Fin. JJOB FS-3: page # Year 1997 2,729.46 138 1998 - 138 1999 124,671.42 138 2000 55,636.87 139/147 2001 11,768.53 141/147 2002 8,254.00 142 2003 12,125.66 141/148 2004 11,074.02 142/148 2005 - n/a 2006 - n/a (part) 226,259.96 Fin. Marsico/Trudale FS-3: page # Year 1997 246,729.68 149 1998 935,143.08 149 1999 131,882.94 150/153/152G 2000 208,198.95 151/153 2001 234,248.34 152/152G 2002 139,077.73 152A 2003 38,553.16 152B 2004 215.847.00 152F 2005 - n/a 2006 - n/a (part) 2,149,680.88 1039 These calculations were prepared from work done by Mr Bell, the accountant retained by the plaintiffs, and reflect certain of the concessions he made in cross-examination, as well as matters raised by Ms Kuan in an affidavit sworn on 28 April 2006. 1040 The defendants did not seek themselves to prove what were the amounts received by Aldonet and the amounts paid by or on behalf of Aldonet by way of interest and line fees on the loans. No general ledger of Aldonet was tendered. It appears from Mr Bell's reports (AFB 13) that no such general ledgers were made available to him. There was no explanation as to why the accounting records which would be expected to have been kept by Aldonet were not made available to Mr Bell and were not tendered. There was included in the Aldonet company tender bundle unaudited financial statements for the year ended 30 June 1998 with comparable 1997 figures, and unaudited financial statements for the year ended 30 June 2004 with comparable 2003 figures. Mr Crawley referred to these financial statements without comment in his second affidavit (CC2 paras 471 and 472), but otherwise no witness, or any party in submissions, made any reference to those financial statements. There was no explanation for the absence of financial statements for the intervening or succeeding years. 1041 Moreover, whilst an initial loan balance of $3,000,000 was reflected in the financial statements of the Elizabeth Centre Joint Venture, and although those financial statements recorded payments of interest, no general ledgers for the Elizabeth Centre Joint Venture for the relevant years were produced. Nor does it appear that any such ledgers were provided to Mr Bell. Mr Bell inspected and referred to general ledgers for Trudale which reflected the loan balances. Although the loan balances were recorded in a general ledger for Trudale, they were not reflected in Trudale's financial statements. So far as appears from Mr Bell's summaries, interest payments were not recorded in Trudale's general ledger. To identify whether such interest expenses were paid in cash from the "Elizabeth Centre Joint Venture", or were paid on its behalf by Marsico and debited as an expense of the Elizabeth Centre Joint Venture, creating a loan balance with Marsico, one would need the Elizabeth Centre Joint Venture general ledger. Trudale's financial statements reflected its interest in the Elizabeth Centre Joint Venture. The loan balances were included in the financial statements for the Elizabeth Centre Joint Venture until the loan balance (then of $1,307,576) was transferred to Marsico as at 30 June 2003 (AFB9 appendix B-16 page 67; Elizabeth Centre Joint Venture CTB pp 115 (note 5), 126 (note 6), 140 (note 6), 154 (note 6), 168 (note 6) and 182 (note 5)). In the absence of evidence of the general ledgers of Aldonet and of the Elizabeth Centre Joint Venture, and in the absence of explanation from the defendants, or any attempt by the defendants to identify the payments received by Aldonet and made by Aldonet, I am not satisfied that the work done by Mr Bell identified all of the relevant payments. 1042 Mr Bell proceeded differently. As shown in the table set out in para [1038], he calculated payments which he attributed as profit to Aldonet over the relevant period which (after correction in final submissions) total $2,149,681 in the case of Marsico and $226,259.96 in the case of J & J O'Brien. However, as Mr Bell acknowledged, there are serious problems with his method of calculation. The first error, which I do not attribute to Mr Bell personally, is that in the statement of profit to Aldonet of $246,729.68 derived from payments made by "Marsico/Trudale" in 1997, there is a doubling up of the payments totalling $95,000 for establishment fees for which the plaintiffs made a separate claim. When that item is removed, the amount paid by Marsico to Aldonet, as reflected in Marsico's general ledger, by way of interest in the year ended 30 June 1997 is $151,729.68. Together with the payment of $2,729.46 paid by J & J O'Brien, the payments by Marsico and J & J O'Brien in that financial year totalled $154,009.14. This was not profit. Mr Bell calculated that in that financial year, $137,551 was payable to QIDC on the $15,000,000 facility (Mr McClintock's calculation was $136,875. The difference is immaterial for present purposes). There is no doubt that QIDC was paid. 1043 Mr Bell's schedule showed payments by Marsico to Aldonet of $935,143.08 in the year ended 30 June 1998. The plaintiffs (and Mr Bell) included those payments as payments made for the benefit of Aldonet. He did not exclude any part of the payments as having not been retained by Aldonet. This was because he did not have evidence as to what payments were made by Aldonet to QIDC. However, he acknowledged that in the 1998 financial year, $818,154.79 was payable to QIDC (AFB 16 pages 22, 155). It is clear that the payments were made. This is clear both from the fact that the QIDC loan was discharged without any apparent difficulty, and because Mr Bell reviewed interest statements from QIDC which recorded the payments (AFB 16 page 155). From the accounting records made available to Mr Bell, he was able to identify payments from J & J O'Brien and Marsico in the 1997 and 1998 financial years (not including establishment fees) which totalled $1,089,152.22. However, over the same period, Aldonet paid interest to QIDC in an amount totalling $955,705.57. That was its interest cost on the $15,000,000 facility. What of the remaining $4,000,000 facility made available by ANZ to Mr Crawley and by him to Aldonet, on which Aldonet charged fees to Marsico, J & J O'Brien and Trudale? There is simply no evidence as to what payments were made by Aldonet to ANZ. Mr Crawley's income tax return for the year ended 30 June 1998 (exhibit AL) shows that interest on the $4,000,000 facility was not paid to him. Nor did he deduct the interest expense for which he was liable to ANZ. 1044 The financial statements of Aldonet recorded that in the two financial years ended 30 June 1997 and 30 June 1998, it received interest totalling $1,270,529, and paid interest totalling $1,315,573 (a loss of $45,044). On the other hand, its profit and loss statement recorded receipt of loan application fees totalling $225,000, which overstated the loan application fees it received by $35,000. The financial statements for the Elizabeth Centre Joint Venture for the year ended 30 June 1998, (that is, after its debt to BAC had been discharged) recorded an expense for "interest and line fees" of $241,078 (Elizabeth Centre Joint Venture CTB 120). It is possible that a substantial part of that payment was made to Aldonet and forms part of the receipt recorded by Aldonet of interest in the 1998 financial year of $1,114,655. However, there is no explanation as to whether that was so. As I have said, no party referred to Aldonet's financial statements. 1045 What Mr Bell's figures for 1997 and 1998 show is that his exercise was not a correct calculation of the profits received by Aldonet in those years. That is because he both included payments which must have been on-paid to QIDC (as he acknowledged) and because the payments he identified as having been made to Aldonet were substantially less than Aldonet's financial statements recorded as having been received. No party explained the interest payments made by the Elizabeth Centre Joint Venture. There was no evidence as to what payments were made to ANZ or by whom. 1046 Although Mr Bell said that from his inspection of Marsico's general ledger it had paid interest or fees to Aldonet in the year ended 30 June 1998 totalling $935,143.08, the general ledger of Marsico which is exhibit JK2 for that financial year (itself incomplete) suggests that the total interest payments made to 31 May 1998 totalled $1,021,172.93 (exhibit JK2 page 313). (Apart from some insignificant payments described as "Tab account" all of the interest payments shown on that part of the ledger had a narration "Aldonet".) Mr Bell may have understated the interest payments reflected in Marsico's ledger. Marsico's statement of loss of on operations for the year ended 30 June 1998 (see Marsico CTB page 156) records interest paid as $1,498,669. This was not a consolidated statement. The defendants proffered no explanation for the difference between the amounts recorded in the audited financial statements and the ledger. 1047 The approach adopted by Mr Bell for the years from 30 June 1999 has greater apparent merit, if his investigations disclosed all of the interest payments made. He excluded interest expenses to ANZ recorded in the general ledgers, and calculated the expected interest amounts on the basis of the applicable yield rates on each rollover. His schedule (exhibit AFB16 appendix C2.7 pp 156-157) showed that the interest payable according to ANZ confirmation letters matched the interest expense recorded in the ledger. He also matched interest payments in relation to ANZ's line fee against the expected liabilities based upon ANZ's facility agreements which showed a match. He then excluded those interest payments from the payments recorded in the general ledgers as having been made to Aldonet and extracted the remaining payments which he then summarised. 1048 The defendants' evidence focused on the remaining payments which Mr Bell had identified as having been paid to Aldonet and which he opined had been retained by Aldonet. Ms Kuan identified a number of payments which Mr Bell had identified as payments retained by Aldonet and demonstrated that a portion of those payments had been made to the ANZ Bank. The effect of her schedule was to reduce by $426,617.94 the payments which Mr Bell had recorded as payments retained by Aldonet. Mr Bell accepted those corrections to the extent of $404,313.59. He did not accept that deductions totalling $22,304.35 should be made. By way of example, Ms Kuan produced a confirmation letter from the ANZ Bank dated 18 August 1999 confirming the purchase of commercial bills with a discount amount of $4,512.92. That amount was paid by Aldonet. In respect of that payment, J & J O'Brien made a payment of $2,233.67 to Aldonet and Marsico paid Aldonet $2,279.25. Mr Bell included the payment by J & J O'Brien of $2,233.67 as a payment to Aldonet retained by Aldonet. The plaintiffs accepted Ms Kuan's correction in respect of this amount. Ms Kuan also proposed that the $2,279.25 paid by Marsico should also be deducted from Mr Bell's calculation of amounts retained by Aldonet. The plaintiffs did not accept that correction because Mr Bell's schedule did not include that payment as a payment retained by Aldonet. The schedules ultimately produced by the plaintiffs and summarised in para [1038] above reflect (with an immaterial exception) corrections made by Ms Kuan and concessions made by Mr Bell in cross-examination in relation to this exercise. 1049 For the years ended 30 June 1999, 30 June 2000 and 30 June 2001, there is a close correlation between the plaintiffs' calculation of the margins Aldonet should expect to receive from the terms of its facility documents and the margins in fact received as identified by Mr Bell following the corrections to which I have referred. As appears from the tables which are annexures B and C, the margins which it can be calculated Aldonet ought to have received in the year ended 30 June 1999 totalled $273,105. As appears from the tables in para [1038], the amounts which Mr Bell calculated were paid to Aldonet and retained by it in that year totalled $256,554.36, a negative variance of $16,551. In the following year, the plaintiffs' calculation of the margins Aldonet should have been expected to make totalled $247,440. Mr Bell's calculation of the payments retained by Aldonet in that year totalled $263,835.82, a positive difference of $16,396. These variances may have been due to timing differences. In the financial year ended 30 June 2001, the difference between the calculation of the margins expected to be derived by Aldonet and Mr Bell's calculation of the amounts retained by it was only $4,838. 1050 During these three years, the financial statements for the Elizabeth Street Centre Joint Venture record amounts of interest paid to "other related company" of $192,680 for 1999, $174,204 in 2000, and $169,228 in 2001 as an expense. Again, it does not appear to which related company such interest was paid. Nor in those years did Mr Bell seek to identify separately all of the interest payments made by Marsico (or J & J O'Brien) to Aldonet. As I have said, there were no financial records of Aldonet tendered for the period. It is quite possible, and indeed likely, that the interest payable to Aldonet was paid by J & J O'Brien and Marsico, but the Elizabeth Centre Joint Venture's share of the liability was expensed in the profit and loss accounts rather than any separate payment having been made to be reflected in a general ledger for the Elizabeth Centre Joint Venture. It may be noted that the consolidated financial statements for Marsico for those years records that all of the interest paid for those years for Marsico and its subsidiaries (which includes Trudale) were paid by the parent. 1051 There is a marked discrepancy between the calculation of the margins expected to be derived by Aldonet and the schedules prepared by Mr Bell recording the amounts retained by Aldonet from the payments made to it by J & J O'Brien and Marsico in the 2002, 2003 and 2004 financial years. As appears from annexures B and C, and the table in para [1038], in the 2002 financial year, the margin expected to be derived by Aldonet was $244,165, and the amounts paid to Aldonet and retained by it totalled $147,331.73. In the 2003 financial year, the margin expected to be derived totalled $283,967 but the amounts retained from moneys paid by J & J O'Brien and Marsico totalled only $50,678.82. In the 2004 financial year, the margin expected to be derived by Aldonet was $287,131, and the amounts Mr Bell's schedule showed had been paid to Aldonet and retained by it totalled $226,921. 1052 The evidence is not in a state that I can conclude that the reason for this discrepancy is that Aldonet was not paid what it was entitled to receive. Rather, I infer it was not paid by Marsico and J & J O'Brien the amounts in total which it was entitled to receive. It does not appear that any of the interest on the Aldonet loans was capitalised (AFB 9 appendix B-3 and B-11). The Elizabeth Street Centre Joint Venture accounts recorded an interest expense of $97,088 in 2002 and $67,131 in 2003. There were no financial statements for the Elizabeth Street Centre Joint Venture in 2004 or subsequently. The Marsico consolidated financial statements for the years ended 30 June 2002, 2003 and 2004 show interest payments as amounts paid to other related companies of $1,073,264 in 2002, $1,009,637 in 2003, and $1,177,538.14 in 2004. Consolidated financial reports were tendered for the years ended 30 June 2002 and 2003. The consolidated statements show the same payment of interest as the financial statements for Marsico itself. The financial statements for J & J O'Brien in this period showed its having paid interest to other related companies (which description included Aldonet as per the Marsico financial statements) of $331,121 in 2002, (J & J O'Brien CTB p 388) $330,466 in 2003, (J & J O'Brien CTB p 413 where the comparative 2002 figure is shown as $0) and $357,422.32 in 2004 (J & J O'Brien CTB p 434). It is not possible to say to whom these payments were made. In the absence of evidence from the defendants, one cannot exclude the possibility of payments being sheltered in other group companies or "entities". Nor, given the way the evidence was presented, is it possible to say whether all of the payments of interest recorded in Marsico and J & J O'Brien's financial statements have been picked up by Mr Bell. Aldonet's unsigned and unaudited financial statements for the 2003 and 2004 financial years recorded interest received of $227,557 in 2003 and $220,666 in 2004, and interest paid of $261,383 in 2003 and $144,917 in 2004. Those figures bear no relationship to Mr Bell's analysis of amounts paid to the ANZ Bank in those years and the amounts paid to Aldonet. 1053 Whilst it would be preferable to calculate the profits derived by Aldonet by comparing the amounts of interest or other fees paid to it or on its direction with the interest or other fees paid by it or by others on its behalf, the financial material tendered does not enable that task to be undertaken with any confidence. The defendants must bear the primary responsibility for that. It lay in their power to demonstrate what profits were derived by Aldonet, but they tendered no accounting records of Aldonet other than the financial statements to which I have referred. In contrast with evidence given by Ms Kuan in relation to other areas of accounting, she did not give evidence of what margins were in fact derived by Aldonet from the loans it made. In the circumstances, I am driven to adopt a calculation of profit based on applying the margins stipulated in the contractual documents to the loan balances from time to time. The only such calculations proffered were those proffered by the plaintiffs set out above. For the reasons I have given, I reject the defendants' contention that the evidence demonstrated that the margins in fact derived were not those to be expected from such a calculation. Aldonet is liable to account to J & J O'Brien and to Marsico for profits in the amounts shown in the tables at annexures B and C to this section, together with interest. ANNEXURE A SCHEDULE 1 Year Primary lender Borrower Amount borrowed Interest rate and margin Establishment fee Line fee Page of tender bundle 16/4/97 QIDC Aldonet $15 million QIDC fixed base rate plus 5.25%pa or QIDC cash advance rate plus 5.25%pa. If the facility is not in arrears then it will be QIDC's fixed base rate or cash advance rate plus 2.25%pa. However this margin was reduced to 1.5% (see Batiste letter 16/5/97 – TB [7767]). $30,000.00 [TB 7794.3] 8/5/97 ANZ Christopher Crawley $1.5 million (fixed) $10,000.00 1.75% [TB 7889.1] [TB 7884] $2.5 million (variable) 26/3/97 Aldonet J & J O'Brien, Marsico Holdings and Trudale Facility "A" $14 million cash advance facility and $1 million revolving cash advance facility Lender's cash advance rate plus 2.75% (interest on overdue amounts lender's cash advance rate plus 5.75%). Note that the 2.75% was reduced to 2.25% in April 1997 [TB 7767]. $150,000.00 [TB 7576.20] Facility "B" $4 million $40,000.00 2% [TB 7576.29] Facility "C" $400,000.00 ANZ Bank reference rate plus margin of 1%. Note that the lender was the ANZ. 1.7% [TB 7576.31] 27/4/98 ANZ Aldonet $15 million $25,000.00 1.25% [TB 8478.1021] 11/5/98 Aldonet J & J O'Brien, Marsico Holdings and Trudale Facility "A" $13 million variable rate/fixed rate commercial bill facility Bank bill rate plus 0.75% $190,000.00 2% [TB 8478.995] Facility "B" $2 million variable rate/fixed rate commercial bill facility Bank bill rate plus 0.75% 2% [TB 8478.1002] Facility "C" $2.5 million variable rate commercial bill bridging facility ANZ Bank bill swap rate plus a margin of 0.75% 2.5% [TB 8478.1004] Facility "D" $1.5 million variable rate commercial bill bridging facility ANZ Bank bill swap rate plus a margin of 0.75% 2% [TB 8478.1006] SECTION 11 – Fees, Salary, or Commission for Mr Crawley's Services as Managing Director 1054 As noted in para [148] of Section 1, Mr Short had advised that he would be away for the week between 5-12 July 1997. During that week, notice was given of a directors' meeting to be held on 11 July 1997. The meeting was attended by Mr and Mrs Crawley. One of the resolutions of the meeting was that agreements be entered into by J & J O'Brien and Marsico with Mr Crawley for the provision of his services as managing director (TB 80/8355). From the 1990 to 1994 financial years, each of Mr Crawley, Mr Davis and Mr Short had drawn directors' fees of $48,000 per annum. In the following financial year, Mr Crawley and Mr Davis were paid $32,000 and Nabatu was paid $36,000 for Mr Short's services. No directors' fees were paid in 1996. For the financial year ended 30 June 1997, payments categorised as directors' fees were paid to Nabatu and to Mr Davis ($44,021 and $44,000 respectively), but not to Mr Crawley (JK Schedule 2). No payments described as directors' fees were made by J & J O'Brien after 1 July 1997 (Kuan 2 para 27). 1055 The agreements with J & J O'Brien and Marsico for the provision of Mr Crawley's services as a managing director were in the same form. Each company was liable to pay $75,000 for his services as a managing director together with further remuneration provided for in clause 7 of the agreements (TB 80/8364.14, 8364.19). Clause 7 of each agreement provided as follows: " (1) By way of further remuneration in respect of every financial year during the continuance of the employment of the director hereunder for which the net profits of the company J & J O'Brien Pty. Limited ACN 001 872 966 [and Marsico Holdings Pty Ltd ACN 003 678 608] shall exceed [$A200,000.00] the company shall (subject as hereinafter provided) pay to the director a commission of seven (7) per centum of the amount of such excess. Provided that (a) the commission payable hereunder in respect of any financial year shall not exceed the sum of [$100,000] [together with any increment or increments therein as hereinafter provided] (which sum [together with increment or increments] is hereinafter called the commission limit); (b) with respect to any period of the said appointment embracing part only of a financial year the company shall pay to the director for each week or part thereof of such period a commission equal to one fifty-second part of the commission which would have been payable hereunder if he had served the company during the whole of such financial year. (2) For the purposes of this clause the expression 'financial year' means a year or other period for which the company's accounts are made up, and the expression 'net profits' means the profits shown by the audited consolidated profit and loss account of the company and its subsidiaries for the relevant financial year with the following adjustments unless already taken into account in such profit and loss account: (a) after deducting all expenses of working and management, directors' remuneration (other than commission payable by the company hereunder or under any other agreement with the director or with any other director of the company), depreciation as charged in the audited accounts, interest on borrowed moneys and any revenue expenses charged directly against reserves; (b) before deducting any taxation on profits (including income tax and any similar or additional or substituted tax) or on capital gains; (c) taking into account profits and losses of a capital nature arising on a disposal of fixed assets, investments, plant or any other property of the company or of any subsidiary of the company; (d) after deducting such part of the profits or adding back such part of the losses (as the case may be) of any subsidiary company as shall be proportionate to such part (if any) of such subsidiary as shall not be in the ownership of the company or of any subsidiary of the company on the last day of such financial year; and (e) after making any further adjustments which the auditors of the company shall consider fair and reasonable or as may be agreed. " (TB 80/8364.16-17) 1056 In the year ended 30 June 1998, Mr Crawley's loan account with J & J O'Brien was credited with his salary of $75,000 (FS2page 41; AFB 9 page 41). Mr Crawley's loan account with Marsico was also credited with salary of $75,000 (FS2 page 57A). No bonus commission was paid or credited to Mr Crawley or anyone on his direction in the financial year ended 30 June 1998. As set out below, such payments of commission were calculated and credited to a loan account of Aldonet with J & J O'Brien and Marsico for the first time in the year ended 30 June 2001. 1057 On 8 July 1998, Mr and Mrs Crawley as directors of J & J O'Brien and Marsico resolved that the companies enter into management agreements with Aldonet and that the earlier agreements of 11 July 1997 with Mr Crawley be terminated (TB 85/8478.1417). The description of duties which Aldonet was to perform was very general but was in the same terms as had been the description of the duties which Mr Crawley was to perform. Each agreement provided for the payment of a minimum management fee to Aldonet of $75,000 per annum, and payment by way of further remuneration of commission of seven percent of the companies' "net profits" as defined. The threshold of net profits of $200,000 before such further remuneration became payable which had been contained in the agreement of 11 July 1997 was deleted. The limit on the amount of commission of $100,000 was also deleted. The definition of "net profits" on which the calculation of commission was to be made was not changed (TB 85/8478.1407, 8478.1412). 1058 Notwithstanding that new agreements had been entered into with Aldonet, and although Ms Kuan said that the fees of $75,000 were paid to Aldonet, in the years ended 30 June 1999, 2000, 2001 and 2002 it appears from AFB9 appendix B-1 and appendix B-8 that the fees of $75,000 per annum were credited to Mr Crawley's loan account. His loan account was reduced by payments to or on his behalf. 1059 In the course of the audit for the year ended 30 June 2001, Glen Neilsen & Co purportedly calculated amounts of commission due under the agreements. In the financial statements of J & J O'Brien and Marsico for the year ended 30 June 2001, J & J O'Brien recorded a commission expense of $385,332 (exhibit JK24). In the same year, Marsico recorded an expense for management fees of $870,803, of which $795,803 represented commission purportedly payable pursuant to those agreements (Kuan 2 para 32 and schedule JK3). 1060 Those commissions were credited to loan accounts of Mr Crawley and Aldonet with J & J O'Brien and Marsico. Ms Kuan deposed that the amounts of commission were calculated by the auditors. The audit working papers indicate that they comprised amounts of commission in the following amounts: J & J O'Brien Marsico Financial year ended 30 June: 1997 $87,922 $100,000 1998 $84,493 $163,824 1999 $84,964 $141,147 2000 $69,326 $201,638 2001 $58,897 $189,294 $385,602¹ $795,903² 1The discrepancy of $270 is due to an arithmetical error in which $84,964 was transposed to $84,694. ² The discrepancy of $100 is an apparent error in transposition from the auditors' working papers to the financial statements. (TB 95/12,448-12,463) 1061 Commissions calculated for the 1997 financial year were credited as at 30 June 2001 to Mr Crawley's loan accounts (FS2 pp 41A; 57; AFB9 – appendix B1 p 41, appendix B8 p 57). Although Ms Kuan deposed that the commission expense brought to account on 30 June 2001 was recorded as a debt owed to Aldonet, the schedules produced by Mr Bell summarising the general ledger show that the commission calculated by the auditors as having been due to Mr Craawley for the year ended 30 June 1997 was credited to his loan account with the companies as at 30 June 2001. 1062 There was no justification for crediting Mr Crawley with commission for the financial year ended 30 June 1997. The agreement of 11 July 1997 did not have a retrospective effect. Nor could it have had, as Mr Crawley had not been appointed as managing director prior to 11 July 1997. There was no board resolution authorising the payment for services prior to 11 July 1997. 1063 The manner of calculation of commission can be illustrated by the auditors' calculation for commission due by Marsico for the financial year ended 30 June 1998. The calculation was as follows: " MARSICO HOLDINGS PL AGREEMENT COMPANY AND ALDONET PTY LIMITED - 1998 1998 (A) PROFIT (LOSS PER ACCOUNTS (152,331) ADD BACK: 1. DEPRECIATION 242,535 2. AMORTISATION 13,648 3. REVENUE EXPENSES CHANGED AGAINST RESERVES - 4. MOTOR VEHICLE, NOTIONAL LEASE 77,800 5. INTEREST 1,498,669 6. MD REMUNERATION 75,000 7. SUBSIDIARY COMPANY PROFIT 90,229 1,997,881 1,845,550 (B) CAPITAL GAINS/LOSSES - ______ ______ 1,845,550 (C) CLAUSE 7(2)(e) ADJUSTMENT 1. JV RESULT, PROFIT (LOSS) (94,789) 2. EBT PAYMENT (400,000) (494,789) (D) ADJUSTED PROFIT (LOSS) $2,340,339 (E) COMMISSION @ 7% $163,824 " 1064 It appears that the auditor mistakenly took the view that the agreement with Mr Crawley of 11 July 1997 which contained a limit on the amount of bonus commission payable applied to the 1997 financial year, and that the agreement of 8 July 1998 with Aldonet applied to the 1998 financial year, notwithstanding that the first agreement provided that it related to Mr Crawley's employment from 11 July 1997, and notwithstanding that the latter agreement provided for the engagement of Aldonet for a period commencing on 1 July 1998. Hence, Aldonet was credited with commission for the year ended 30 June 1998 of $163,824, notwithstanding that, under the relevant agreement, the maximum amount of commission payable was $100,000. 1065 It will be observed that the auditor added back expenses for depreciation, amortisation, notional lease expenses for motor vehicles, interest, managing director remuneration and a subsidiary company profit to the net loss shown in the profit and loss account of the company, before making further adjustments under clause 7(2)(e) so as to calculate commission, not on the audited loss of $152,331, but on a notional profit of $2,340,339. This involved adding back expenses falling within clause 7(2)(a) to the net loss. The defendants contended that this was in accordance with clause 7(2)(a). They submitted that the object of clause 7(2) was to produce a higher figure than shown in the audited profits. To arrive at the audited profits, the expenses referred to in clause 7(2)(a) would have been taken into account. The defendants submitted that the intention of clause 7(2)(a) was that those items should not be treated as expenses when calculating the profit on which commission would be calculated. 1066 However, this construction of clause 7(2) does violence to the words. It involves either reading clause 7(2)(a) as if it provided for the profit and loss account to be adjusted by "adding back" rather than "deducting" the expenses referred to in that paragraph, or by treating the word "after" as if it meant "before". It also required ignoring the words "unless already taken into account in such profit and loss account". 1067 The latter words make it clear that the intention of the clause was not that net profit would necessarily be increased by adding back the expenses referred to, but rather to emphasise that such expenses had to be taken into account in determining profit. In an agreement with Gladewood made on 20 September 2004 referred to below, the clause was amended to substitute the word "before" for "after". The defendants' submissions went to the extent of saying that the clauses in each agreement had the same meaning of allowing the profits to be increased by the amount of expenses referred to in para (a), even though opposite words were used. I do not consider there was any proper basis for the auditors to have calculated the commission due under the agreement of 11 July 1997 by adding back the expenses referred to in clause 7(2)(a). 1068 The result is that the commission credited to Aldonet was overstated by the amounts shown on the table below. When the mistaken inclusion of commission for 1997 is also taken into account (which was flawed not only because no commission was payable in respect of that year but was infected by the same errors which affected the later calculations), the amount credited to Aldonet at 30 June 2001 was overstated by $330,587 in the case of J & J O'Brien and $662,428 in the case of Marsico. Over-Statements of Commission by Misapplication of Clause 7(2)(a) J & J O'Brien Marsico 1998 $47,887 $139,852 1999 $68,211 $139,181 2000 $67,670 $149,613 2001 $58,897 $133,782 $242,655 $562,428 Over-statement of Commission credited to Aldonet at 30 June 2001 J & J O'Brien Marsico $242,655 $562,428 + $87,922 + $100,000 $330,587 $662,428 1069 Notwithstanding the termination of the agreements with Mr Crawley and their substitution with agreements with Aldonet on 8 July 1998, the fees of $75,000 were credited to Mr Crawley's loan account with J & J O'Brien and Marsico. The loan accounts were reduced by various payments including some payments of $75,000. As shown on the plaintiffs' schedule which was attachment 3(c)(i)(1:2), as at 28 February 2006, J & J O'Brien's debt to Mr Crawley had been reduced to $20,475.62. This constituted an unpaid balance of the management fees (or salary) of $75,000 together with the commission of $87,922 calculated as due to him for the year ended 30 June 1997 and credited to the account at 30 June 2001. His loan account with Marsico had an outstanding balance of $88,239.93 but this was struck after overdrawing the loan account in respect of other debts by $42,912.03. The salary or fees of $75,000 had been credited to Mr Crawley's account with Marsico up to the year ended 30 June 2002 and the $100,000 commission calculated as being due to Mr Crawley as at 30 June 1997 was credited to that account as at 30 June 2001. The balance relating to such salary fees and commissions outstanding to Mr Crawley as per the general ledger as at 28 February 2006 was $131,151.96. No debt was due to Mr Crawley for the commission of $88,297 credited to his account with J & J O'Brien or the $100,000 credited to his account with Marsico. 1070 In the year ended 30 June 2002, Aldonet was credited with commission by J & J O'Brien in the amount of $74,352 and by Marsico in the sum of $173,976 (JK Schedule 3; FS-2 pp 52 and 63). This was notwithstanding that the auditors' calculation (which proceeded on the incorrect interpretation of the clause 7(2)(a)) calculated the commission due as $61,680 in the case of J & J O'Brien and $144,102 in the case of Marsico (TB 96/12851.1; 12851.2). Adjusting the auditors' calculation to remove the adding back of expenses under clause 7(2)(a), the commission due to Aldonet on the proper interpretation of the agreement of 8 July 1998 was $7,773 in the case of J & J O'Brien and $18,312 in the case of Marsico (TB 96/12851.1, 12851.2). 1071 In the year ended 30 June 2003, the management fees of $75,000 were paid to Aldonet (exhibit BK page 48C and 93C; Kuan para 31). In that financial year, J & J O'Brien credited Aldonet with commission of $30,000 (AFB 9 page 52; JK- Schedule 3). Aldonet was credited with commission from Marsico of $170,000 (FS-2 page 63; JK schedule 3). The auditors' calculation for that year was that J & J O'Brien was liable to pay commission to Aldonet of $51,764 and Marsico was liable to pay commission of $140,322 (TB 99/13804.1; 13804.2). The calculation was made using the same interpretation of clause 7(2)(a). If corrected for that error, the auditors' calculation of commission due would have been $3,095 in the case of J & J O'Brien, $16,388 in the case of Marsico. Assuming the validity of the agreements, the commission credited to Aldonet was overstated by the differences between these amounts. 1072 There was no explanation for the differences between the amounts credited to Aldonet as commission in the general ledgers of J & J O'Brien and Marsico and the amounts calculated by the auditors. According to Ms Kuan, the amounts of commission were not calculated by her or by her staff, but by the auditors in the course of finalising the accounts (Kuan 2 para 33). There is thus no reason advanced for the discrepancies. 1073 In the year ended 30 June 2004, Aldonet was paid fees of $75,000 by each of Marsico and J & J O'Brien. It was credited with commission of $77,837 payable by J & J O'Brien and $150,020 payable by Marsico. In the same financial year, adjustments were made to the commission credited in earlier years. The general ledger of J & J O'Brien records a debit to Aldonet's commission account of $12,672, being an adjustment in respect of the 2002 financial year. The general ledger of Marsico includes a debit of $59,552 to Aldonet's commission account representing an adjustment to fees credited in 2002 and 2003 (AFB9 page 52; FS-2 page 63). 1074 J & J O'Brien's ledger includes a further credit for the 2003 financial year of $21,764 as an adjustment to the 2003 commission due. There is no explanation as to how these figures were calculated. In other words, the net commission credited to Aldonet by J & J O'Brien in the year ended 30 June 2004 was $86,929, and by Marsico was $90,468 (see also JK-3). No auditors' working papers were referred to as showing how these figures were arrived at. Mr Leddin resigned as auditor on or about 12 August 2004 (see resignations in relation to other companies in the group at TB103/15,464.1-15,464.3). The auditor who succeeded Mr Leddin was Mr Henry of Griffiths, Forrest & Greer. He was not called to explain how the calculations were arrived at. As noted above, Ms Kuan deposed that neither she nor her staff made the calculations. The commission of $77,837 from J & J O'Brien implies an adjusted net profit of $1,111,957. J & J O'Brien's audited profit for the year before tax was a loss of $196,842. It can be presumed that adjustments were made under clause 7(2)(a) in the same manner as they had been made in the previous years, but there is no evidence as to what those adjustments were. In the case of Marsico, the credit of commission of $150,020 implies an adjusted net profit of $2,143,143. The audited accounts for Marsico show a net loss before income tax of $591,963. Again, there is no evidence of what calculations were made to produce the adjustments. Matters are further complicated by the fact that in 2004, there was no detailed statement of income and expenses. 1075 On 20 September 2004, new management agreements were entered into by each of Marsico and J & J O'Brien with Aldonet for the period from 1 July 2004 to 30 June 2010. It can be inferred that the new agreements were entered into because of the disquiet of the new auditors as to the previous calculations of commission. The new management agreements (TB 103/15,549.2, 15,549.7) provided for the engagement of Aldonet to provide the same duties as described in the earlier agreements until 30 June 2010. Otherwise, the relevant amendment to the earlier agreement was that in clause 7(2)(a) the phrase "before deducting all expenses" was substituted for the earlier phrase of "after deducting all expenses". 1076 In the year ended 30 June 2005, Aldonet was credited with commission from J & J O'Brien in the sum of $73,772 (FS2 page 52; exhibit BK pages 15-19). This is simply recorded as the difference between the entry for "Aldonet P/L management fee" in the ledger report for 25 August 2005 of $488,691 and the opening entry for the ledger report for the next period (exhibit BK page 19) of $562,463. The defendants adduced no evidence as to how the commission was calculated. The same is true in relation to the commission to Marsico of $151,754 (exhibit BK pages 68 and 69). 1077 In the 2005 financial year, J & J O'Brien recorded a net profit before tax of $279,882 (J & J O'Brien CTB page 447). Marsico recorded a net profit before tax of $246,375 (Marsico CTB page 315). 1078 A transaction ledger report for J & J O'Brien as at 25 October 2005 recorded a debt due to Aldonet for "management fee" of $562,463 (exhibit BK page 19). The transactional ledger report for Marsico of 25 October 2005 recorded a debt to Aldonet for such management fee (i.e. the commissions) of $1,282,001 (exhibit BK page 69). 1079 The commissions credited to Aldonet give rise to debts to Aldonet totalling $1,844,464 as a reward for the successful performance of the group. The plaintiffs do not only complain that at least for the years up to 30 June 2004 the commissions credited to Aldonet were not payable to it under the terms of the agreements entered into. The plaintiffs also complain that the entry into the agreements with Mr Crawley and Aldonet was a breach by Mr and Mrs Crawley of their duties as directors. 1080 Mrs Crawley regarded the commission payable under the agreement of 11 July 1997 as a bonus which was an incentive for performance (T2056). She could give no plausible explanation as to why she regarded the removal of the threshold in the 1998 agreement with Aldonet for the earning of the bonus as being in the interests of the companies. She said that, as a huge amount of work had been done by 1998, she believed it was no longer necessary to have any "top or bottom arrangement" (T2057). In seeking to justify the removal of the threshold for the earning of the bonus, she referred to the work done by her husband in connection with the refinancing in 1997 and maintenance issues in respect of the hotel, and the stress caused by Mr Short's and Mr Hannan's involvement in the company. But none of these matters is a plausible reason for the removal of the incentive (T2058). 1081 The plaintiffs pointed to the audited financial statements for Marsico and J & J O'Brien for the years from 1997 to 2005. They showed that the sales, profits on gaming machines and sundry income for Marsico over those nine years totalled $83,507,288, and for J & J O'Brien totalled $52,839,988. Over that period, the companies recorded operating profits and losses before tax which amounted to an overall total operating loss of $1,226,713. These figures were extracted from the audited financial statements which included in sales profits on gaming machines. Marsico derived revenue recorded as profit on gaming machines over the nine years of $21,090,073. J & J O'Brien derived poker machine profits of $8,742,262. The audited financial statements record that over the nine-year period the total operating profit for the two companies was a net loss of $1,226,713, which implies a loss on operations other than the gaming machines of $31,059,048 (less any other expenses not taken into account in determining the profit on gaming machines but attributed as general expenses) on non-gaming machine revenue of $106,514,941. Of course, those losses are substantially influenced by the interest paid on the borrowings from Aldonet, as well as the interest paid on the purported debt to Vensel, the accounting and management fees paid to Vensel and Gladewood, and the fees and commission paid and credited under the agreements of 11 July 1997 with Mr Crawley, and of 8 July 1998 and 20 September 2004 with Aldonet. 1082 Mrs Crawley gave evidence that it was her view that the bonus commission was payable as a reward for success (T2059). It was her understanding that the bonus was only payable on profits. She agreed that it was not her understanding that if Marsico had made an operating loss before tax in 1998 of $152,331 (as shown in the audited financial statement) that a bonus would be payable to her husband (T2061). In her affidavit, she deposed that in resolving that the companies enter into the management agreements with Mr Crawley of 11 July 1997 she took into account, amongst other factors, that, in her view, the amount of salary and other benefits seemed very reasonable and less than would be payable if someone were brought in from outside to perform Mr Crawley's role as managing director. She said that the commission seemed an appropriate way to reward success. Another factor she said she took into account was that Mr Crawley had agreed not to have businesses which would compete with J & J O'Brien and Marsico unless agreed to, and that was important because otherwise Mr Crawley could restrict the future opportunities for the businesses of J & J O'Brien and Marsico (affidavit 26 October 2005 para 218). In relation to the agreement of 8 July 1998, she deposed that she regarded the agreements as being in the interests of the companies because the companies were not able to afford to pay the commission that was due under the agreements, but the arrangement could be afforded (when it might otherwise not have been possible to employ a chief executive) because the commission was to accumulate. She took into account that the companies had been operating well under the prior arrangement and this secured the continuing provision of services by Mr Crawley. 1083 I do not accept that Mrs Crawley had any of these matters in mind in 1997 and 1998. Her affidavit and oral evidence was very much the justification she gave in 2005 and 2006 for those agreements. It was clear from her oral evidence that she did not understand the terms of the agreements. She thought that the agreements prevented Mr Crawley from competing with the companies when, in fact, they did not. They expressly provided that Mr Crawley could, without the consent of J & J O'Brien or Marsico, engage or be interested, directly or indirectly, in any other trade, business or occupation whatsoever (TB 80/8364.15, 8364.20; 85/8478.1407, 8478.1412). She also believed that the bonus commission was only payable if the companies recorded a profit (T2060.39, 2061.4, 2061.56-2062.6, 2066.46, 2069.19-2069.28). Although she later sought to qualify her position, (T2070), I am satisfied that she gave no attention to the agreements which provided for the adjustment of net profit for the purpose of calculating commission payable to Mr Crawley. 1084 The agreements were drafted by Mr Crawley. He gave evidence that the word "after" in clause 7(2)(a) should have been "before" (T1383-1384). He denied that he was trying to achieve a definition of net profits that corresponded to what he regarded as an ordinary or normal meaning of the expression (T1384). He said that he regarded the achievement of the adjusted net profit as a target to be achieved (T1386). I cannot conceive that a managing director could properly consider that he should be entitled to a bonus commission to reflect success for operating hotels based on a proportion of profit before tax when all expenses of working and management, directors' remuneration, depreciation and interest are excluded from the calculation of net profit. Particularly is that so given that the auditors made further adjustments as contemplated by clause 7(2)(e) to the consolidated profit and loss account by excluding in the calculation of commission Marsico's and J & J O'Brien's share of losses on the Elizabeth Centre Joint Venture. 1085 Mr Crawley gave evidence that he considered the agreements were in the best interests of the companies because of the level of responsibility he assumed for management of the group, which, in 1997, had debts of some $20,000,000, a turnover of $14,000,000 and underlying assets of over $26,000,000. His work involved his attending the hotels at least twice a week and being accessible as required on a needs basis. During the renovations to the Marlborough Hotel, he attended the property on a daily basis or more frequently. The group had little in the way of "middle management" and he was responsible both for strategic and financially significant decisions and a wide range of other issues relating to the operations of the hotels. He oversaw the accounts for the group companies and was responsible for management of 116 staff as at 1997. He said that from his commercial experience, he would expect that the companies would pay someone in the vicinity of $250,000 to $300,000 per annum plus performance bonuses as at 1997 to fill the position of managing director (CC2 para 330(b)). He added in cross-examination that a reason for entering into new agreements with Aldonet in July 1998 was not only a different incidence of taxation, but because: " ... I had the interests of the companies at heart because I had my facilities, Aldonet providing all the loan facilities, whatever it was, some $20m. So I considered that was reasonable ... " (T1398.20). 1086 In his affidavit, Mr Crawley had not said that one of the reasons he thought the provisions (as he understood them) for the payment of commission as well as salary was recognition of the risks he had assumed to enable Aldonet to provide funding to the group. Aldonet derived its profit from that funding by the interest margins it chose. I cannot see how the risks which Mr Crawley assumed to enable Aldonet to obtain the funds to advance to the companies could be a proper justification for the terms on which his personal services were to be provided to the companies. The fact that Aldonet has to disgorge its profits does not affect this conclusion. 1087 I do not consider that Mr Crawley gave consideration in good faith to the question whether it was in the interests of the companies that he or Aldonet be entitled to receive the commission payments which he understood the agreements provided for. 1088 It was put to Mr Crawley that the reasons that new agreements were made with Aldonet on 8 July 1998 was that proceedings had been commenced against him on 16 June 1998 and against Vensel. Those proceedings of course did not attack the agreements which Mr Crawley had made with the companies for him to be paid salary and bonus commission because the plaintiffs had no knowledge of those agreements. It was put to Mr Crawley that he changed the agreements to substitute Aldonet as the party to receive the moneys for his services because of the proceedings commenced by the plaintiff. Mr Crawley denied this. He said that the reason he decided to terminate the agreements for him to be paid for services as managing director and for those agreements to be replaced by agreements with Aldonet was for tax purposes. He explained this as being that a lower rate of company tax was payable by Aldonet than would be payable by him. I do not accept this explanation. Mr Crawley did not declare any income from the agreement of 11 July 1997 in his 1998 income tax return. He explained this on the basis that the salary had not been paid to him but had been credited to his loan account. Leaving aside the questions as to whether he nonetheless derived the income, which would appear to be the case, particularly as his loan account was subsequently debited with payments made to him or on his behalf, the fact remains that, until 2002, the payments of $75,000 per annum were credited to his loan account with Marsico and J & J O'Brien and not to Aldonet's loan account. That is inconsistent with Aldonet being substituted so as to alter the incidence of taxation. Nor was any commission credited to Aldonet until 2001. I accept the plaintiffs' submission that the 1998 agreement with Aldonet was entered into in response to the commencement of proceedings against Mr Crawley. Whilst this was a defensive strategy against the plaintiffs' claims, I do not take it as an implied admission that there was anything improper in the agreement of 11 July 1997. 1089 The minutes of the directors' meeting of 11 July 1997 record that Mr Crawley tabled the Management Agreement and "declared his interest being a shareholder of the group companies and notwithstanding that interest advised the companies that he would be voting in respect of the proposed resolution." His interest which needed to be declared was his interest in the benefits to be derived by him under the Management Agreement. That was apparent from the face of the document which was tabled. Consistently with Woolworths Ltd v Kelly, the requirements of s 123 of the Companies Act and s 228 of the Companies (NSW) Code was satisfied. Mr Crawley stated and made plain his interest in the agreement and its extent because that was fully set out in the agreement. It was there set out in the form in which it could be recorded in the minutes. The requirements of Article 81 of J & J O'Brien's Articles of Association and of Article 109 of Marsico's Articles were satisfied. The agreement is not liable to be set aside, and Mr Crawley is not liable to account for benefits derived under it, merely because he was personally interested in the transaction. Whether it is liable to be set aside depends rather on whether he and Mrs Crawley breached their duties as directors in causing the companies to enter into the agreement. 1090 The resolutions that J & J O'Brien and Marsico enter into the Management Agreement with Aldonet were passed at a meeting of directors on 8 July 1998. Section 231 of the Corporations Law was amended with effect from 1 July 1998 by the insertion of subs (1A). That subsection inserted as a replaceable rule a provision permitting a director of a proprietary company who had an interest in a contract or proposed contract, and who had disclosed the nature and extent of that interest to vote, and provided that in such a case the director was entitled to retain benefits under the contract, notwithstanding the director's interest. The successor provision (reflecting changes made with effect from 13 March 2000 in respect of the director's duty of disclosure) is s 194 of the Corporations Act. Neither subs 231(1A) of the Corporations Law nor s 194 of the Corporations Act is relevant because the sections do not apply to J & J O'Brien and Marsico. J & J O'Brien and Marsico have not repealed their constitutions after 1 July 1998 (s 135). 1091 The resolution of 8 July 1998 recorded that the Management Agreement to be entered into with each of J & J O'Brien and Marsico was tabled at the meeting of directors. As with the 1997 agreement, the benefits to Aldonet were fully disclosed by the tabling of the agreements. However, what was required to be declared and minuted under s 123 of the Companies Act and s 228 of the Companies (NSW) Code was Mr Crawley's interest and Mrs Crawley's interest in the contract with Aldonet. In Woolworths Ltd v Kelly, Samuels JA held that an interested director did not have to disclose to the other directors matters of which the other directors already had full knowledge (at 212). However, that was not the view of either Kirby P or Mahoney JA. They both were of the view that s 123 required a clear statement of the nature of the director's interest in such a form that it may be recorded, although they differed as to whether such a declaration had been made in that case. There is no evidence that Mr Crawley declared his interest as a shareholder in Aldonet and as a shareholder in Vensel, which was also a shareholder in Aldonet. In any event, no such declaration was minuted (Toms v Cinema Trust Company Ltd). 1092 The consequence is that Articles 81 and 109 were not complied with and the Management Agreement with Aldonet is liable to be avoided because of the position of conflict in which the directors were placed. As Mr and Mrs Crawley were the directors of Aldonet, and caused it to enter into the agreement, Aldonet knowingly participated in their breach of duty in causing Marsico and J & J O'Brien to enter into the agreement where their interest and duty, and duty and duty, conflicted. They were fully aware of the conflict. The agreement is liable to be avoided irrespective of whether or not the directors breached their duties to act with due diligence and in what they considered in good faith to be in the interests of the companies in entering into the agreement with Aldonet. Whilst it may seem harsh that the validity of the agreement should turn upon whether or not a declaration was made and recorded about something which Mr and Mrs Crawley both knew, nonetheless, if they are to take advantage of the articles, the articles have to be strictly complied with. The articles were not complied with in the passing of the resolution of 8 July 1998. 1093 The same principles apply to the resolution of 20 September 2004 authorising entry into the "Managerial Agreements" between Marsico, J & J O'Brien and Aldonet in respect of the services to be provided by Mr Crawley. The minutes record that the directors resolved that the common seals of Marsico and J & J O'Brien be affixed to those agreements and that it was reported that "the managing director continues in the role under the terms of the agreements of 8 July 1998. These deeds ratify and set forth the terms of the reappointment of Aldonet Pty Ltd". There is no evidence of any declaration of Mr and Mrs Crawley's interest in the agreement having been made at the meeting of 20 September 2004. No such declaration was minuted. 1094 The only potentially relevant difference is that on 13 March 2000 the Corporations Law was amended to include new provisions concerning the obligations of directors of proprietary companies to give notice of any material personal interest in a matter that relates to the affairs of the company. Subsection 191(2)(b) provided that the director did not need to give such notice if, in the case of a proprietary company, the other directors were aware of the nature and extent of the interest and its relation to the affairs of the company. Section 193 provided: " 193. Interaction of sections 191 and 192 with other laws etc. Sections 191 and 192 have effect in addition to, and not in derogation of: (a) any general law rule about conflicts of interest; and (b) any provision in a company's constitution (if any) that restricts a director from: (i) having a material personal interest in a matter; or (ii) holding an office or possessing property; involving duties or interests that conflict with their duties or interests as a director. " 1095 The relaxation of the notice requirements effected by s 191(2)(b) did not affect the provisions of Articles 81 and 109 of the Articles of J & J O'Brien and Marsico, whose effect was to restrict a director from having a material personal interest in a matter involving duties or interest that conflicted with the director's duties or interest as a director unless disclosure as required by the Companies Act 1961 or the Companies (NSW) Code was made. Those articles did not cease to have effect on the repeal of the Companies Act and the Companies (NSW) Code. Rather, they required disclosure of the nature of the director's interest in the manner which was required by that legislation when it was in force. Accordingly, in my view, the same considerations apply to the resolution of 20 September 2004 as applied to the resolution of 8 July 1998. Validity of the 1997 Management Agreement 1096 For the reasons I have given, Mr Crawley did not give bona fide consideration to whether it was in the interests of the companies that they be liable to pay commission to him on the basis of the provision for payment of commission as he understood it. Mrs Crawley was in breach of her duty to exercise the degree of care and diligence that a reasonable person in her position would exercise in the companies' circumstances, as she did not understand the provisions of any of the agreements for the payment of commission. Mr Crawley breached his duty to act in good faith in the interests of the companies and not improperly to use his position to obtain advantages for himself or Aldonet. 1097 However, these breaches apply only to the provisions for payment of commission. There was no evidence that payment of $150,000 per annum to Mr Crawley and Aldonet was excessive for the services he provided. Whereas, on their face, the terms for the payment of commission, if construed as Mr Crawley intended them to be, were onerous to the companies, such that there was an evidentiary onus on the defendants to establish why, acting in good faith, the directors believed that such arrangements were in the interests of the companies, the same is not true of the provision for the payment of salary or fees of $75,000 per annum. Both directors had full knowledge of the payment of $75,000 by each of Marsico and J & J O'Brien to Mr Crawley or to Aldonet for Mr Crawley's services. The plaintiffs did not adduce evidence to seek to establish that those were excessive payments for the services Mr Crawley provided. I do not consider that Mr Crawley is required to account for the payments of $75,000 per annum made by Marsico or J & J O'Brien under the agreement of 11 July 1997. 1098 But for the fact that Mr and Mrs Crawley's interest in the agreement with Aldonet was not declared and minuted in the way required by the Articles, the same considerations would apply to the agreements of 8 July 1998 and 20 September 2004. That is to say, Mr Crawley breached his duty to act in good faith in the interests of the companies and not improperly to use his position to obtain advantages for Aldonet by including provisions for the payment of commission which, as he understood them, were not in the interests of the companies. Mrs Crawley breached her duty of care and diligence by not understanding the terms of the agreements to which she committed the companies. The consequence of these findings would be that, not only is Mr Crawley liable to repay the commission wrongly credited to him having been calculated in respect of the 1997 financial year, but Aldonet is not entitled to the commission credited to it. Aldonet, through Mr Crawley, knowingly participated in the breaches of directors' duty by which the directors approved the crediting of commission to Aldonet. 1099 Mr Crawley asserted that none of the commission had been paid to him. That was not true. Commission calculated for the 1997 financial year, to which on no view could he have been entitled, was credited to his loan account as at 30 June 2001. He is liable to repay that commission together with interest from 30 June 2001. 1100 However, the effect of non-compliance with the Articles is that both directors were guilty of more fundamental breaches of duty against which they were not relieved, namely, causing the companies to enter into the contracts with Aldonet in which they were personally interested. The contract of 20 September 2004 is liable to be avoided. As Aldonet knowingly participated in the directors' breach of duty, it is liable to account for all of the profits derived by it under the contracts of 8 July 1998 and 20 September 2004, not merely the amounts of commission paid. There was no evidence that Aldonet incurred any costs in providing the services of Mr Crawley. As well as not being entitled to commission with which it is being credited, Aldonet is liable to disgorge the payments of $150,000 per annum made to it or made to Mr Crawley in respect of his services from 1 July 1998. Mr Crawley is also liable to disgorge the payments made directly to him in respect of the provision of his services from 1 July 1998. Just Allowances 1101 The question then arises whether Mr Crawley or Aldonet is entitled to remuneration by way of just allowances. The companies have had the benefit of Mr Crawley's services from 1997 and, prima facie, it would not be just that they obtain the benefit of those services without having to pay anything for them. As Deane J said in Chan v Zacharia (1984) 154 CLR 178 at 205: " ... one cannot but be conscious of the danger that the over-enthusiastic and unnecessary statement of broad general principles of equity in terms of inflexibility may destroy the vigour which it is intended to promote in that it will exclude the ordinary interplay of the doctrines of equity and the adjustment of general principles to particular facts and changing circumstances and convert equity into an instrument of hardship and injustice in individual cases. There is 'no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them'." (citations omitted). (See also Warman International Ltd v Dyer at 561, quoted at para [765] in Section 6.) 1102 For the reasons in paras [753]-[762] of Section 6 I consider, having regard to the decision of the NSW Court of Appeal in Paul A Davies Australia Pty Ltd (in liq) v Davies that, notwithstanding the House of Lords' decision in Guinness plc v Saunders, there is jurisdiction in this State to award just allowances to a director who has provided services for the benefit of the company of which he or she is a director, notwithstanding that the contract with the company pursuant to which the services were provided is voidable. On the same principles, there is jurisdiction to award just allowances to Aldonet in respect of the provision of Mr Crawley's services. 1103 The difficulty in determining what just allowances should be made to Aldonet for the provision of Mr Crawley's services from 1 July 1998 is one of quantification. Although Mr Crawley gave evidence that he would expect to pay someone in the vicinity of $250,000 to $300,000 plus performance bonuses to fill his position, and although that evidence was not cross-examined on or contradicted, I do not consider that his opinion on that question is reliable. It was not corroborated. Mr Crawley did not explain what comparisons he had used, or on what experience he was drawing, in expressing that opinion. Moreover, Mr Crawley's conduct of the affairs of the company after 30 June 1997 was admittedly contrary to the interests of the members as a whole. It was earmarked by excessive payments from the companies to Mr Crawley, or companies associated with him, to the detriment of the minority shareholder. However, I do not consider that these last matters are a reason for wholly denying payment by way of just allowances to Aldonet, as orders will be made requiring Mr Crawley and the companies associated with him to account for the profits so derived. 1104 Given that I have found that Mr Crawley breached his duty to act in good faith in the interests of the companies in framing what he intended to be his, or Aldonet's, right to commission, it would not be right to allow by way of just allowance more than the payments of $150,000 per year initially designated as Mr Crawley's salary. As the plaintiffs did not seek to attack those payments as in themselves excessive, I consider that they provide the best benchmark of what should be allowed by way of just allowances. 1105 Accordingly, whilst the 1998 and 2004 contracts with Aldonet are liable to be set aside, and Aldonet is liable to account for the profits derived by it under those agreements, and whilst those profits amount to all of the remuneration paid or credited to it or to Mr Crawley by way of annual payments of $150,000 and commission, Aldonet and Mr Crawley should be entitled to keep the payments of $150,000 by way of just allowance for Mr Crawley's services. 1106 The result is that Aldonet is not entitled to the commission credited to its loan account with Marsico and J & J O'Brien. If any such commission has been paid, Aldonet is liable to account for such payments. To the extent the companies are out of pocket by reason of crediting commission to Aldonet, the directors are liable to pay equitable compensation. It should be declared that J & J O'Brien and Marsico are not indebted to Aldonet in the amounts of commission credited to it. If the purported debts owed to Aldonet by J & J O'Brien and Marsico have not been paid, there will be no need for an order for equitable compensation to be made against Mr and Mrs Crawley. For the reasons previously given, Mr Crawley is liable to repay the commission wrongly credited to him as at 30 June 2001 calculated in respect of the 1997 financial year. He is liable to repay that commission with interest from 30 June 2001. SECTION 12 – Accounting and Management Fees After 30 June 1997 1107 At the directors' meeting held on 11 July 1997, (attended by Mr and Mrs Crawley), it was resolved that the companies enter into a management services agreement with Vensel. Mr Crawley declared his interest as a shareholder in Vensel and voted in favour of the resolution. It was noted that the fees currently being paid would be maintained in accordance with the terms of the agreement tabled at the meeting (TB 80/8349 at 8355-8356). The agreement was between Vensel, Marsico and J & J O'Brien (TB 80/8364.4). Vensel was appointed for a term of fifteen years up to and including 30 June 2012. Vensel was to provide services of payroll, poker machines analysis and returns, cashflow analysis, budgets, monthly accounts, office premises and trial balances and preparation for audit of accounts. Separate fees were payable in respect of the businesses of Jackson's ($96,000 per year), Pregos Restaurant in the Marlborough Hotel ($24,000 per year), the Racecourse Hotel ($43,200 per year), the Marlborough Hotel ($91,200 per year). The total amount payable was thus $254,400 in the first year. (It will be recalled that, although the Racecourse Hotel had been sold onto September 1996, it continued to be operated under a licence given to Vensel although the profits were accounted for to Marsico. Vensel, on Marsico's behalf, traded at the Racecourse Hotel until 8 November 1997). 1108 Clause 5 of the agreement provided that in the subsequent years, the parties should agree on the fees to be payable to Vensel for that financial year and in the absence of agreement, the fees payable should be the fees payable in the immediately preceding financial year plus ten percent (TB 80/8364.6-7). Clause 3 provided that if the agreement were terminated without just cause, Marsico and J & J O'Brien would be liable to pay Vensel liquidated damages in the sum of the total fees provided for for the unexpired period of the term. This cannot have been a genuine pre-estimate of loss in the event of termination of the management agreement, but the clause would have acted in terrorem if there were any successful challenge to Mr Crawley's control of the group and attempt to set aside the arrangements with Vensel. Set out below is a table showing the fees paid to Vensel for accounting and management services from 1 July 1997 to 30 June 2003. The table is based Ms Kuan's evidence of those payments. 1109 There are differences between Ms Kuan's figures and Mr Bell's figures for the amounts paid to Vensel for providing accounting and management services from 1998 to 2003. The figures are derived from Ms Kuan's schedule (JK-Schedule 1). I have included in the table below the amounts the plaintiffs contend were paid to Vensel for accounting and management services from 1998 and 2003 based on Mr Bell's investigations, where those figures differ from the figures provided by Ms Kuan. Fees paid to Vensel for Accounting/Management Services 1998-2003: (JK-Schedule 1; Plaintiffs' figures in brackets) Marsico Jackson's J & J O'Brien Pregos Racecourse Hotel Total 1998 96,000 30,000 91,200 24,000 14,400 $255,600 (127,410.30) 1999 96,000 30,000 91,200 24,000 $241,200 (111,098.42) 2000 115,200 36,000 109,440 28,800 $289,440 (118,732) 2001 105,600 33,000 100,320 26,620 $265,540 (112,575) (108,360) 2002 105,600 33,000 100,320 26,400 $265,320 (131,240) (125,960) 2003 105,600 33,000 100,320 26,400 $265,320 1110 The difference of $31,410.30 as fees paid by Marsico in 1998 was described in Mr Bell's schedules which contained extracts from the Marsico general ledger as comprising eleven disparate payments described as "Vensel/photocopies" and "copy" or "Vensel p/l" and "copy". These payments totalled $11,410.30. There was a further amount of $20,000 described as "Vensel Pty Ltd – accrue Sept–April 98" (FS3 page 81). Neither Ms Kuan nor Mr Bell was cross-examined about the difference. In the plaintiffs' submissions, (Plaintiffs Preferred Orders/Quantum folder Tab 10, page 89) the plaintiffs contended that all of the $31,410.30 related to photocopies (Plaintiffs Preferred Orders/Quantum folder Tab 10, page 89). However, that is not so. The plaintiffs referred to page 81 of FS-3 (AFB 10 page 68). However, the description in Mr Bell's exhibit AFB 10 is incomplete. It omits the fact that the narration "Vensel photocopies" in the general ledger is part of the transaction ledger for printing and stationery (e.g. JK2 pages 257, 268), whereas the monthly payments of $8,000 which make up the payment of $96,000 in JK-Schedule 1 are recorded in the general ledger under the description "professional fees". There is no evidence that the payments are for anything other than reimbursement of expenses borne by Vensel for printing and stationery. The remaining $20,000 making up the total of $31,410.30 is narrated in AFB 10 page 68 as "Vensel Pty Ltd – accrue Sept-April 98". I do not know what that means. The plaintiffs have not shown that it should be included within the fees paid for accounting management services. 1111 The difference of $15,098.42 for Marsico in 1999 was said by the plaintiffs to comprise photocopying amounts of $3,169.40 and other payments to Vensel, the purpose of which was not narrated in the general ledger of $11,929.40. I do not accept that the payments of $3,169.40, which are described in the general ledger as relating to printing and stationery (e.g. JK2 page 329), although not so described in Mr Bell's schedule (AFB 10 page 69), are not accounting and management fees. The differences between Mr Bell's figures and Ms Kuan's figures for 1999, 2000 and 2001 are derived from assumptions which Mr Bell or the plaintiffs made that, in the absence of an explanation as to a narration, it should be assumed that payments made to Vensel were for accounting and management services. However, as the plaintiffs did not identify the payments in question by reference to any of the documents produced in evidence, and as the narration of the documents contained in Mr Bell's schedule is evidently incomplete as evidenced by the failure in his narration to identify that photocopies are described in the general ledger as expenses for printing and stationery, I do not accept that any such assumption should be made. Again, I accept Ms Kuan's evidence which is based upon her greater knowledge of the payments. 1112 There is a substantial difference in 2002 between Ms Kuan's figures and the plaintiffs' figures for the fees paid by both Marsico and J & J O'Brien. There is a difference of $25,640 in the case of both Marsico and J & J O'Brien. The payments totalling $25,640 to Vensel were described as parking fees from July 1998 (AFB 10 pages 72 and 54). The plaintiffs submitted that these payments should be added to the fees paid to Vensel for the purpose of taking an account of profits. There was no other evidence about these payments. It is not known whether they were charged as a recovery of costs incurred by Vensel in providing services under the agreement of 11 July 1997. There would have been no basis in the management agreement for making such a charge. It is not known whether the charge was made in respect of some use by employees of Marsico and J & J O'Brien of parking spaces made available to the companies by Vensel. In the absence of any cross-examination of Ms Kuan or Mr Crawley about what these payments were for, I do not think they should be treated as additional payments of fees under the agreement of 11 July 1997. 1113 Accordingly, I accept Ms Kuan's schedules as an accurate statement of the fees paid to Vensel for accounting and management services. 1114 On 1 July 2003, Vensel's employees were transferred to Gladewood (Kuan 2 para 19). Ms Kuan deposed that from 1 July 2003, the payments previously made to Vensel were made instead to Gladewood. The same amounts were paid in 2004 as had been paid in 2003 but to Gladewood rather than to Vensel. The plaintiffs submitted that because Vensel had no staff from 1 July 2003 it was not able to provide, and did not provide the accounting and management services which it contracted to provide under the agreement of 11 July 1997. The plaintiffs contended that Vensel was not entitled to transfer the benefit of the agreement of 11 July 1997 to Gladewood because it was a contract involving personal skill or confidence. The plaintiffs submitted that Gladewood was not entitled to be paid for any services provided to J & J O'Brien and Marsico until it entered into a management agreement with those companies. There is no merit in that contention. Vensel was not obliged itself to employ the staff which provided services under its agreements with J & J O'Brien and Marsico. It was entitled to perform its obligations under those agreements by procuring those services from Gladewood and directing payment of the fees payable to it to Gladewood. 1115 The plaintiffs contend that, in the year ended 30 June 2004, one month's fees were paid by Marsico and J & J O'Brien to Vensel and, thereafter, monthly payments were made to Gladewood. Whilst it appears that one month's fees were paid to Vensel, it is clear from Ms Kuan's evidence that Vensel would have accounted for those moneys to Gladewood. As Mr and Mrs Crawley were in control of all of the companies, there was an informal agreement that Gladewood would be paid the fees which Vensel had previously earned. I accept Ms Kuan's evidence that Gladewood derived the revenue from the management agreement for the year ended 30 June 2004 and following. 1116 The arrangements were formalised on 20 September 2004 when Gladewood, Vensel, Marsico and J & J O'Brien entered into a new management agreement (TB103/15550). The agreement recited that Vensel had assigned the benefit of the agreement of 11 July 1997 to Gladewood on 1 July 2003. The schedules to the agreement provided for payment of fees (inclusive of GST) totalling $291,852, or $265,320 exclusive of GST. That was the amount of fees which had been paid to Vensel in 2002 and 2003. The same monthly amounts were paid to Gladewood in 2005 and 2006. 1117 There was no notice of disclosure of Mr and Mrs Crawley's interests in Gladewood tabled at the meeting of directors of J & J O'Brien and Marsico at which the management agreement of 20 September 2004 was approved. There is no minute recording a declaration of Mr Crawley's interest in the transactions. The requirements of Article 81 of J & J O'Brien's Articles and Article 109 of Marsico's Articles (as to which see discussion in Section 10) were not complied with in respect of the 2004 contract with Gladewood. 1118 More fundamentally, there is no evidence that the extent of the profit Vensel and Gladewood derived from the arrangements was known to Mrs Crawley. She made no inquiries as to what independent parties would charge to provide the services Vensel provided (T2053). She said that it was in the interests of the companies to have the experience of Vensel in providing the services. She did not know what Vensel's or Gladewood's profit margins were (T2054). As noted in Section 6, the defendants adduced no evidence, other than through Mr McClintock, of the costs incurred by Vensel in providing the services under the agreements. The only information Mr McClintock was given was in relation to costs incurred by Vensel in 1997, 1998 and 2000. For the reasons given in Section 6, Vensel's margins were excessive and well outside the market benchmark for the provision of accounting or related services. 1119 Mrs Crawley did not give informed consent to the terms of the management agreements made with Vensel and Gladewood. In the absence of informed consent of J & J O'Brien and Marsico, at least Mr Crawley was in breach of his duties as director of J & J O'Brien and Marsico in causing the agreements to be entered into where he had a conflict between his duty as a director of J & J O'Brien and Marsico and his interest as a director and shareholder of Vensel and Gladewood. Vensel and Gladewood participated in that breach of duty. They are liable to account for profits derived under the agreements. However, for the same reasons as in section 6, they are entitled to a just allowance which includes a reasonable margin over their costs to reflect what would have been reasonable fees to have charged. 1120 Mr and Mrs Crawley breached their duties as directors of J & J O'Brien and Marsico in causing those companies to enter into the agreements which provided for excessive payments to Vensel and to Gladewood. The amount for which compensation is payable is the difference between the fees charged and reasonable fees. To the extent Gladewood and Vensel disgorge the profits received, the liability of Mr and Mrs Crawley to pay equitable compensation will be satisfied. 1121 Given the limited evidence as to costs incurred by Vensel and the absence of evidence as to costs incurred by Gladewood, the amounts for which Vensel and Gladewood are liable to account, and the amounts of compensation which Mr and Mrs Crawley are liable to pay, should be assessed on the same basis as indicated in Section 6. The cost base for Vensel and Gladewood should be determined by dividing the fees paid as indicated in these reasons (and not as contended for by the plaintiffs) by 2.286 to derive the cost base. A reasonable fee is an amount which would apply a forty-two percent margin to that cost base (being the mid-point between the two figures Mr McClintock indicated as the market benchmark for determining such fees). The plaintiffs should bring in short minutes of order to calculate the amounts payable by Vensel and Gladewood to each of Marsico and J & J O'Brien (and to the partners of the Racecourse Hotel partnership in the year ended 30 June 1998) applying the same methodology as in Section 6. It may be necessary to update the calculations by reference to the further fees paid to Gladewood since the commencement of the hearing. SECTION 13 – Provision of Information After 1 July 1997 1122 The articles of Marsico and J & J O'Brien required that annual general meetings be held annually (J & J O'Brien article 43; Marsico article 62). 1123 On 28 July 1998, notices were posted to Nabatu convening annual general meetings to be held for various companies in the group. It appears that the notice convening the annual general meeting of Marsico was not posted, but nothing turns on this. The annual general meetings were convened to be held on 14 August 1998. Financial statements of the companies in the group, except for Marsico, were also despatched at this time. Nabatu appointed Mr Linden as its proxy to vote at the annual general meetings. The meetings were to consider the financial statements for the companies for the year ended 30 June 1997. The financial statements had been adopted by the directors on 28 July 1998 (TB 86/8937-8939). 1124 It appears that the financial statements for Marsico were not received by Nabatu until 9 August 1998 (TB 86/9054). On 13 August 1998, Mr Linden sent a facsimile to Mr and Mrs Crawley raising a number of issues and questions concerning the financial statements of J & J O'Brien, Marsico, Trudale, Megabuck$, and Sinodun. At the meetings held on 14 August 1998, Mr Crawley stated that the issues raised by Mr Linden would be referred to the companies' legal advisors and auditors and an appropriate response made if it were thought fit to do so. He declined to deal with the matters raised by Mr Linden at the meeting. It was resolved to adopt the accounts for the financial year ended 30 June 1997 (TB 86/9064). 1125 A response to Mr Linden's letter was provided on 3 September 1998 (TB 86/9082). The response was not particularly informative. For example, in response to Mr Linden's request that full details of professional fees paid in the year be provided, Mr Crawley said that all such professional fees as had been paid had been the subject of previous disclosure to Mr Short and Nabatu (TB 86/9056-9084). Financial Statements for Year Ended 30 June 1998 and Annual General Meeting 1126 On 9 December 1998, Nabatu received notice of annual general meetings to be held for J & J O'Brien and Marsico on 23 December 1998. The financial statements for those companies were then provided. On 18 December 1998, Mr Linden sent a facsimile to Mr and Mrs Crawley raising detailed questions concerning the financial statements. He queried the release of the debt owed by Marsico to the Australian Youth Hotel partnership. He asked for an explanation for the decline of gross profit margins on sales (from 74% in 1994 to 67.7% in 1998). He asked for copies of the joint venture accounts showing Marsico's share of the Elizabeth Street Centre Joint Venture losses. As noted in Section 10, he asked questions as to the borrowings undertaken by the group, what the borrowing expenses were, and from whom the funds were borrowed. He sought details about a new expense of $400,000 in relation to an employees' benefit trust. As in 1997, he asked for a breakdown of the professional fees paid. Various other questions were raised (TB 88/9510). 1127 In his letter of 18 December 1998, Mr Linden said that he would be the proxy for Nabatu at the annual general meetings to be held on 23 December 1998. On 22 December 1998, Mr Tsathas, a solicitor employed by Aubrey F Crawley & Co, replied to Mr Linden and noted that he would be the proxy for Nabatu at the annual general meetings to be held the next day. 1128 At the annual general meeting held on 23 December 1998, Mr Crawley refused to permit Mr Linden to vote or to speak at the meeting. Mr Crawley asserted that proxies were required to have been received twenty-four hours prior to the meeting and no notices appointing Mr Linden as proxy of Nabatu had been sighted. Mr Linden advised that the notices had been delivered on the Friday of the previous week. Mr Linden went on to say that, although there was a dispute about the matter, as Nabatu was a one-third shareholder, and as he was present as Nabatu's proxy, and as Mr Crawley had received his letter about the issues to be addressed at the meeting, it was appropriate for the meeting to proceed with Mr Linden being entitled to vote and to ask questions. Mr Crawley declined to allow that to happen. Mr Crawley said he would give Mr Linden ten minutes to obtain a copy of the receipt showing that the proxy had been delivered. Mr Linden said that it would not be possible to do so in that time. He said that no issue had been raised about the non-receipt of the proxy form and that a letter had been received from Aubrey F Crawley & Co at 2.20pm on 22 December 1998 noting that he would be attending as a proxy for Nabatu. This was after the time for the delivery of proxies had expired. No issue had been taken by Aubrey F Crawley & Co in their letter of 22 December 1998 about the non-receipt of the proxy form. Mr Crawley then made the extraordinary statement that the letter in question had been sent by Aubrey F Crawley & Co and not by the directors. It was clear that when Mr Tsathas sent his facsimile of 22 December 1998, he was doing so on behalf of the directors, or at least on behalf of the companies. 1129 The meeting proceeded. According to the minutes (TB 88/9524), Mr Crawley referred to Mr Linden's letter of 18 December 1998 and advised that any response to the letter would be dependent upon, and subject to, legal advice the companies received. Mr Crawley took the position at the meeting that such a requirement for information should come from Nabatu and not from Mr Linden and should be addressed to the companies and not to its directors (Linden 1 para 12). This is confirmed by the minutes (TB 88/9525). Mr Crawley was being obstructive. None of the information sought by Mr Linden in his letter of 18 December 1998 was provided. The financial statements were adopted on the votes of a Mr Wearne, as proxy for Springsley, and of Mr Crawley. 1130 Later that day, Mr Linden wrote to Mr Crawley enclosing a statutory declaration from a clerk in the mailroom employed by Kemp Strang. He also enclosed a further document requiring additional information from the directors concerning the accounts (TB 88/9533). The further information required included full details of all benefits received from each company during or since the 1998 financial year by the directors, or any firms of which they were members, or entities associated with them. Mr Linden expressed concern that none of the companies applied all of the accounting standards and reporting requirements applicable to a reporting entity. He noted that no accounts had been provided for the Elizabeth Street Centre Joint Venture, nor for Trudale, Megabuck$ or Sinodun. He noted that none of the information sought in relation to the 1997 accounts for Marsico and J & J O'Brien had been provided. He asked for similar information in relation to the 1998 accounts. 1131 After some further posturing from Aubrey F Crawley & Co (TB 88/9545), that firm responded on 6 January 1999. The letter was written by Mr Tsathas. He confirmed that the proxies had been delivered in proper time before the meeting. He advised that the directors had determined that it was appropriate to hold further general meetings in the near future (TB 88/9610). 1132 On 14 January 1999, Mr Tsathas for Aubrey F Crawley & Co, wrote to Mr Linden stating that Nabatu had no power under the articles to require the provision of the information he had sought and that the directors declined to provide the information in view of the cost, time and inconvenience in doing so. He noted that part of the information appeared to relate directly to allegations raised in the litigation and observed that Nabatu should have regard to discovery and related procedures to obtain information "properly the subject of such procedures" (TB 88/9613). 1133 This response was not satisfactory. It is clear that Mr Crawley was determined to provide as little information about the companies' affairs as he could. In declining to provide information to Nabatu, he was not acting bona fide in the interests of the companies, or acting in the interests of all of the shareholders. The questions Mr Linden asked were proper questions. They could have properly been raised at the annual general meeting had Mr Crawley not wrongly refused to allow Mr Linden to ask questions at the meeting. The fact that Nabatu had instituted proceedings complaining that the affairs of the company were being conducted in a way which was oppressive, or unfairly prejudicial to, or unfairly discriminatory against, the plaintiffs, was no reason for refusing to provide the information sought. 1134 Notwithstanding the assurance given by Aubrey F Crawley & Co on 6 January 1999 that the annual general meetings would be reconvened, that was not done. On 28 January, 25 March and 6 April 1999, Mr Linden pressed Aubrey F Crawley & Co to say when the further annual general meetings of the companies were to be held. No response was received. 1135 On 2 August 1999, Kemp Strang wrote again to Aubrey F Crawley & Co. (TB 89/10056). Amongst other things, they said that Nabatu and Mr Short had not received any meaningful information concerning the operation of the hotels and their financial affairs since Mr Short's removal as a director. They said "in fact, there has been a concerted attempt by your clients to withhold such information". That was a fair and accurate observation. Kemp Strang invited Mr Crawley to make available to Nabatu information concerning the current financial position and operation of the businesses, and in the first instance to make available to Mr Short's accountant such information as the accountant considered reasonable to advise Mr Short or Nabatu on the current financial position and operation of the businesses. That information would include but not be limited to the information sought in Kemp Strang's letters of 13 August and 18 December 1998 concerning the 1997 and 1998 financial statements. 1136 On the following day, Mr Linden sought further information in relation to financing transactions revealed by a company search of J & J O'Brien and Marsico (TB 89/10,060). 1137 On 12 August 1999, Aubrey F Crawley & Co responded to Kemp Strang's letter of 2 August 1999 (TB 89/10,067). Mr Tsathas asserted that the boards of Marsico and J & J O'Brien had "conscientiously discharged their obligations, including those obligations that are arguably owed to shareholders. The allegation that there has been 'a concerted attempt by [our] clients to withhold … meaningful information' is not only contrary to the facts, it is intemperate and far-fetched." 1138 There had been a deliberate and concerted attempt by the directors of J & J O'Brien and Marsico not to provide information to Nabatu concerning the financial position and performance of the companies. The request for information had been refused on a spurious ground. Mr Linden was denied the right to speak at the annual general meetings of the companies, held on 23 December 1998, on spurious grounds. Even if, as Mr Crawley wrongly asserted, the proxies had not been delivered, there was no reason that the requirement for the delivery of the proxies on time should not have been waived so that Nabatu could participate in the meeting. The reason I infer Mr Crawley refused to allow Mr Linden to participate in the meeting was because he did not wish to have to disclose the information which Mr Linden had indicated he would seek, or be seen to have improperly refuse to provide that information. The meeting was not reconvened despite the promise to do so. 1139 In his letter of 12 August 1999, Mr Tsathas suggested that if Nabatu seriously contended that the meeting held on 23 December 1998 was not valid, he institute proceedings in relation to it. He alleged that when Mr Linden attended the offices of Aubrey F Crawley & Co to inspect documents, I assume on discovery, Mr Linden said that "there is little point to having an extraordinary further general meeting", and that Aubrey F Crawley & Co assumed that Nabatu did not require a further meeting. He asked to be advised if that were not correct, and said that in that case a further meeting would be convened. 1140 On 16 August 1999, Mr Linden denied saying words to the effect of those attributed to him. He repeated that his client did require the annual general meeting of Marsico and J & J O'Brien to be convened (TB 89/10,089). Contrary to the statement made by Aubrey F Crawley & Co on 12 August 1999 that such a further meeting would be convened, it was not. That is, the purported annual general meeting held on 23 December 1998 was not reconvened despite promises that it would be, and despite repeated requests from Mr Linden that it be reconvened. This was inexcusable. It showed a blatant disregard by Mr Crawley for his obligations as a director to comply with the requirements of the Corporations Law and of the rights of Nabatu as a shareholder of Marsico and J & J O'Brien to be allowed to speak and vote at meetings of the company. Financial Statements for the Year Ended 30 June 1999 1141 On 8 November 1999, Mr Linden served a direction pursuant to s 293 of the Corporations Law in respect of J & J O'Brien Pty Ltd. Subsection 292(2) of the Corporations Law provided that a small proprietary company had to prepare a financial report and directors' report only if, inter alia, it were directed to do so under s 293 or s 294. Other of the financial reporting requirements found in Part 2M.3 did not apply to small proprietary companies in respect of which a direction had not been given under s 293. Subsection 45A(2) provided that a proprietary company was a small proprietary company for a financial year if it satisfied at least two of the following paragraphs: (a) having gross operating revenue (or if it controls an entity consolidated gross operating revenue) of less than $10,000,000; (b) having gross assets (or consolidated gross assets) of less than $5,000,000; or (c) if the company and the entities it controls had fewer than 50 employees at the end of the financial year. 1142 Given the lack of information which Nabatu had, it is understandable that it would not have been clear whether either of Marsico or J & J O'Brien was a small proprietary company. On 8 November 1999, a direction was given to J & J O'Brien pursuant to s 293 of the Corporations Law that it prepare a financial report and directors' report for the financial year ended 30 June 1999 and send the report to shareholders and that the report be audited. 1143 On the same day, Kemp Strang noted that there had still not been held a properly convened and held annual general meeting to consider the annual accounts for the financial year ended 30 June 1998. 1144 On 27 March 2000, notices were given of annual general meetings of J & J O'Brien and Marsico to receive, consider and adopt the financial statements of those companies for the year ended 30 June 1999. The meetings were to be held on 17 April 2000. Financial statements of Marsico and J & J O'Brien were enclosed with the notices of meeting (TB 89/10236 and following). The financial statements did not include a detailed profit and loss statement. In particular, there was no detailed statement of expenses as had been provided in previous years. 1145 On 12 April 2000, Mr Linden wrote to Aubrey F Crawley & Co and noted that forms of proxy had been delivered to the registered offices of Marsico and J & J O'Brien on 5 April 2000. He enclosed a document setting out issues upon which Nabatu required information arising from the accounts (TB 90/10372). He noted that the information sought in respect of previous years' accounts had not been provided. The document enclosed was a lengthy document requesting many details of items in the accounts. The first general issue raised was that the 1999 accounts had been prepared as general purpose financial reports in accordance with the accounting standards and other mandatory professional reporting requirements and the Corporations Law. It was noted that the previous accounts did not apply all accounting standards and reporting requirements. The plaintiffs asked that the additional information which would need to be provided, by applying the accounting standards and mandatory professional reporting requirements, be provided for the 1997 and 1998 financial years, and that these include all benefits received from the company by directors or any firms of which a director was a member, and any entities in which a director had a substantial financial interest. 1146 Kemp Strang also noted that, for the 1999 financial year, no detailed statement of profit and loss on operation showing details of all expenses had been provided. The point was made that it was obviously essential to understanding the results of the business that this information be provided. In relation to the inquiries in relation to particular figures, the questions raised were of the same kind as had been raised in relation to the previous years. 1147 On 14 April 2000, Mr Crawley wrote to Kemp Strang and refused to provide the information sought. He said that the information in discovery of documents in the Supreme Court proceedings enabled Nabatu to make a detailed analysis of all the relevant affairs of the companies and related corporations. I do not consider that that is an adequate response. It should not have been necessary for Nabatu to obtain discovery of documents in order to obtain adequate information as to the financial position and performance of the companies. 1148 The annual general meetings were held on 17 April 2000. 1149 A transcript of the meeting (TB 86/8929) records that Mr Crawley moved that the accounts be adopted. Mr Linden asked whether the directors were in a position to provide any of the information which he had requested in the memorandum sent the previous week. Mr Crawley responded as follows: " The companies' position, on legal advice, as a result of comments made by a director of a member company, Nabatu Pty Ltd, to third parties, which if true were capable of adversely affecting the trading reputation of the companies and substantially affecting the value of their assets. [sic] Under those circumstances the directors of the companies are seeking further legal advice as to the extent which information can in the future be provided as the provision of such transactional information to Nabatu may not be in the best interests of the companies nor in fact the shareholder Nabatu. The directors have determined to adopt a construction of the memorandum and articles of association of the companies which is favourable to Nabatu but in consideration of the actions of the representative of Nabatu, will require further consideration. The companies note that inspection and discovery of all of the companies' documents and records, particularly of an accounting nature, have been provided to Kemp Strang of which Mr Linden is a partner and a partner responsible for the conduct of the litigation against the companies. Mr Linden has today signed a document headed Marsico Pty Ltd, J & J Pty Ltd Financial Statements ended 30 June 1999 setting forth issues requiring information. It is in respect of those matters of a transactional nature that the directors shall obtain further advice. " 1150 There was then debate about Mr Linden's request for prior information. No information was provided. Mr Crawley then moved the motion for the adoption of the accounts. The motion was seconded by Mr Wearne. The motion was passed with Mr Linden voting against. 1151 Mr Crawley did not say why any information of a non-transactional nature sought by Mr Linden could not have been provided. No particulars of the statements allegedly made by Mr Short were provided. In my view, this professed reason for not providing information sought by Nabatu was a smoke screen designed to provide some plausibility to the repeated failures of Mr Crawley to provide information as to the financial affairs of the companies. 1152 Mr Linden followed up his request on the same day on 19 April 2000 and noted the failure of Mr Crawley to provide any substantive response to the previous requests for information. There was no response to that letter. Financial Statements for the Year Ended 30 June 2000 1153 On 10 November 2000, Kemp Strang on behalf of Nabatu served notices, pursuant to s 293 of the Corporations Law on Marsico and J & J O'Brien, requiring the preparation of audited financial statements (TB 91/10,904, 10,905). On 13 November 2000, Blake Dawson Waldron who by then, acted for the defendants, advised that they had been instructed to inform Kemp Strang that their clients were in the process of preparing the financial directors' reports in relation to the companies and would forward them once they had been audited and approved by the respective boards. 1154 On 30 May 2001, Marsico and J & J O'Brien sent to Nabatu notices of annual general meetings to be held on 22 June 2001. They enclosed Marsico's "consolidated financial report 2000" and a financial report, 2000, of the Elizabeth Street Centre Joint Venture. They also enclosed J & J O'Brien's consolidated financial report 2000 (TB 92/11,366). 1155 Mr Campbell, solicitor, attended the annual general meeting on 22 June 2001 representing Nabatu. He said he would like to ask a number of questions in relation to the preparation of the accounts of both companies. Mr Crawley replied that "we will not be answering any questions that you ask due to the fact that there is currently litigation between Nabatu and the companies." Mr Campbell abstained from voting on the resolutions. The financial statements were adopted on the votes of Mr Wearne and Mr Crawley. Financial Statements for Year Ended 30 June 2001 1156 The 2001 financial statements were sent under cover of letters dated 19 July 2002. The meeting to consider the 2001 financial statements was held on 9 August 2002. At that meeting, Mr Campbell again said that he wished to ask a number of questions in relation to the preparation of the accounts. Mr Crawley said he would not be answering any questions due to the current litigation between Nabatu and the companies. Financial Statements for Year Ended 30 June 2002 1157 On 22 July 2003, Mr Linden wrote to Marsico and J & J O'Brien and stated that the companies were, in his view, obliged to report to members by 31 October 2002. Without admitting that it was necessary to serve a notice under s 293 of the Corporations Act, he served such a notice and asked to be advised as to when the annual general meeting would be called to consider the accounts for the financial period ending 30 June 2002. Directions pursuant to s 293 of the Corporations Law [sic] were enclosed (TB 14,088-14,093). No response to those letters was received. 1158 On 19 August 2003, Mr Linden asked, as a matter of urgency, to be advised whether the financial report and directors' report for the year ended 30 June 2002 had been prepared and when it would be sent to shareholders and when the annual general meeting would be held. By letter dated 15 August 2003, which crossed with Kemp Strang's letter of 19 August 2003, Marsico enclosed audited accounts for J & J O'Brien and Marsico for 2002. They also asserted that the s 293 direction was given out of time and its validity was not recognised. Financial Statements for the Year Ended 30 June 2003 1159 On 10 October 2003, Mr Linden wrote to Marsico and J & J O'Brien. He said that, in his view, the companies were each large proprietary companies and accordingly requested that the companies report to members by 31 October 2003 (TB 100/14,309, 14,311). He contended that J & J O'Brien had consolidated gross assets exceeding $5,000,000 and more than 50 employees and that this was also true of Marsico; it being contended that it had consolidated gross operating revenue which exceeded $10,000,000. Kemp Strang enclosed a notice under s 293 of the Corporations Act without admitting that it was necessary (TB 100/14,309 and 14,311). No response was received to this correspondence until after Kemp Strang had sent a follow-up letter on 4 February 2004 (TB 101/14,683 and 14,686). Kemp Strang asserted that, as a result of the companies' failure to comply with the s 293 direction, it was unable to update and complete its evidence concerning related party transactions in these proceedings. 1160 On 11 February 2004, Mr Crawley responded to that correspondence (although one of his letters was mis-dated 11 February 2003) (TB 101/ 14,692). He did not agree that Marsico and J & J O'Brien were large proprietary companies. He added the following: " We note that you are in agreement having served a notice on the company, being a small proprietary company pursuant to s 293 of the Corporations Act." 1161 This is another example of Mr Crawley's tendency to mis-state matters in his correspondence. The letter of 10 October 2003 clearly stated that Kemp Strang did not consider it necessary to serve a s 293 notice because they were of the view that the companies were large proprietary companies. The notices were served for more abundant caution in case Mr Crawley took a different view, as in fact he did. In his letter of 11 February 2004, Mr Crawley did not say when accounts would be provided or an AGM convened. 1162 On 17 February 2004, Mr Linden wrote to J & J O'Brien and to Marsico (TB 101/14,739, 14,7454). He noted that irrespective of whether the companies were large proprietary companies, they ought to have reported to their members in accordance with s 314 of the Act. If the companies were small proprietary companies, the direction under s 293 ought to have been complied with two months after it was given, that is, by 10 December 2003. If the companies were large proprietary companies, then, pursuant to s 315(4) of the Act, they were required to report to members within four months after the end of the financial year, being 31 October 2003 (TB 101/14,739, 14,745). 1163 On 18 February 2004, Marsico and J & J O'Brien replied to Kemp Strang's letter of 17 February 2004 (TB 101/14,750, 14,751). They advised that the accounts had been sent to the address of the registered office of Nabatu as advised by Lord & Brown, chartered accountants, on 26 June 2001. They advised that there had been no notification to them of any change of registered office. They noted that the accounts had been returned marked "return to sender – not known at this address". They asked to be advised of the change of registered office and said that they would forward the accounts once such advice was received. 1164 This was disgraceful. Marsico and J & J O'Brien had been advised on 30 July 2002 of Nabatu's change of registered office. The companies knew where and how to send information to Nabatu. Kemp Strang had requested that all documents be forwarded to its office. It was another illustration of Mr Crawley's determination to provide as little information to Nabatu and to make things as difficult for Nabatu as he could. 1165 On 19 February 2004, Mr Linden wrote to the companies and asked that the accounts be sent to his offices and to Nabatu's registered office, the address of which he gave (TB 101/14,753 and 14,755). The companies refused to provide copies to Kemp Strang but said that they would send them to the registered office of Nabatu which had then been advised to it. The accounts were sent on that day (TB 101/14,756 and 14,758). 1166 On 20 February 2004, Mr Linden wrote to the secretary of J & J O'Brien and Marsico and complained about the manner in which the accounts had been purportedly served. He listed and annexed a series of correspondence which showed that the companies were at all times aware of Nabatu's address (TB 101/14,760). One of the items of correspondence annexed to it was a letter dated 30 July 2002 from Mr McGuinness notifying Nabatu's change of address (TB 101/14,761 and 14,779). 1167 Mr Linden pointed out that Nabatu required the financial reports urgently for the preparation of its evidence in the proceedings. He also pointed out that the companies had always been aware of Nabatu's current registered address and that it was not the address notified on 26 June 2001, as that had been changed. The companies were also always aware of the engagement of Mr McGuinness as accountant for Nabatu and Kemp Strang as solicitors for Nabatu. He noted that Kemp Strang had previously requested that copies of all documents for Nabatu be sent to its offices. He also noted that no explanation had been provided as to why the s 293 direction had not been complied with. He wrote again to similar effect on 24 February 2004 (TB 102/14,798). 1168 There was no reply to this correspondence. Financial Statements for Year Ended 30 June 2004 1169 On 9 September 2004, Kemp Strang sent letters to J & J O'Brien and Marsico enclosing notices pursuant to s 293 of the Corporations Act (TB 103/15,529-15,534). 1170 On 2 December 2004, Kemp Strang complained that the companies were in breach of their obligations under the Corporations Act to provide the 2004 financial statements by 9 November 2004. They asked when the audited financial statements would be provided (TB 104/15,701). Meanwhile, on 12 October 2004, Kemp Strang gave notice convening a general meeting of Marsico and J & J O'Brien pursuant to s 249D of the Corporations Act (TB 104/15,617). Section 249D requires that the directors of a company must call and arrange to hold a general meeting on the request of members with at least five percent of the votes that may be cast at the general meeting. Pursuant to s 249D(5), the meeting must be called to be held not later than two months after the request is given to the company. 1171 Notwithstanding the notices, no general meeting was convened. The last general meeting was held on 9 August 2002 to consider the 2001 financial statements. 1172 On 4 January 2005, Kemp Strang wrote to Blake Dawson Waldron pressing their request for the 2004 financial statements (TB 101/14,660). No response was received, although I infer that sometime during 2005, the 2004 financial statements were provided. I draw that inference because on 11 November 2005, Kemp Strang contended that J & J O'Brien and Marsico were large proprietary companies and were required to report to members by no later than 31 October 2005 upon their financial statements for the financial period ending 30 June 2005. No complaint was made in that correspondence about the 30 June 2004 financial statements being outstanding (TB 106/16,296-16,299). It does not appear that there was a response to this correspondence. Kemp Strang had asked on 11 November 2005 that if the companies disputed that they were large proprietary companies, they explain precisely the basis for that view. In the absence of a response, Mr Linden wrote again on 17 November 2005 saying that, although Kemp Strang was of the view that a s 293 direction was not necessary, it was enclosed. The documents enclosed were not signed on behalf of Nabatu. On 21 November 2005, fresh directions were given this time with a signed direction. On 29 November 2005, Mr Crawley, writing as a director of both J & J O'Brien and Marsico, stated that he did not agree that either company was a large proprietary company. The basis for that view was not stated. On 21 December 2005, Mr Crawley provided audited financial reports for each company for the financial year ended 30 June 2005. 1173 J & J O'Brien and Marsico's financial statements for 2004 did not include a detailed trading profit and loss statement providing a breakdown of expenses, although the 2005 financial statements did. Conclusion 1174 Mr Crawley made determined efforts until at least about 2004 to reveal as little information about the affairs of the company as he could get away with. None of the requests for information about the financial statements for the period from 1 July 1997 was answered. Annual general meetings which were required to be held were not held. When annual general meetings were held, no questions about the companies' affairs were answered. Financial statements were provided late. In some cases, they did not include detailed profit and loss statements including a breakdown of expenditure. Even when such information was provided, it did not provide all of the information in relation to the affairs of the companies which Nabatu was entitled to expect. Mr Crawley went to some absurd lengths to be obstructive. These were serious instances of oppression. They are material to the defendants' general complaint that the plaintiffs delayed until 2004 in making many of the complaints raised in the further amended statement of claim. The allegation of delay is somewhat hollow given the difficulties the plaintiffs faced in extracting information about the affairs of the company from Mr Crawley. SECTION 14 – Unpaid Tax on Yurong Street Development 1175 In paras [15] and [16] of Section 1, I refer to J & J O'Brien's participation in the development of the property at Yurong Street which yielded a profit to it of $1,604,688. On 11 December 1989, a firm of chartered accountants, Godwin & Co, advised that J & J O'Brien's income tax liability arising from the profit would be either $625,828 in the year ended 30 June 1989 if the development were treated as an income producing exercise, or $503,570 if the profit were taxed as a capital gain (TB 8/995-1002). This assumed that J & J O'Brien did not have prior year losses against which to off set the profits from the Yurong Street development. 1176 From at least 1985 to 1997, J & J O'Brien did not lodge income tax returns. All of the directors must have been aware that income tax returns had not been lodged. As the group faced cash flow difficulties during the 1990s with losses experienced from the Elizabeth Street Centre development, the group's exposure to unpaid tax was drawn to the attention of all directors. So far as the evidence reveals, the first financial statements for J & J O'Brien which were considered and signed by the directors were the financial statements for the year ended 30 June 1991. It contained no provision for liability for income tax and showed an accumulated loss of $573,981. It does not appear either from those financial statements or the other financial statements tendered for earlier years that J & J O'Brien brought to account in its profit and loss account the profit derived from the joint venture for the development of the Yurong Street property. The earlier financial statements are unsigned and there is no evidence of their having been audited. The combined profit and loss statement for the year ended 30 June 1989 (J & J O'Brien CTB page 46) does not bring the profit to account. 1177 The 1992 financial statements, which were signed by Mr Short and Mr Crawley, included a provision for income tax of $170,078 for the 1988 financial year (J & J O'Brien CTB page 94). The same provision was included in the 1993 financial statements. The financial statements for the following years also include provisions for income tax. In 1995, 1996 and 1997, the provision was $500,000. There was nothing in the financial statements which indicated a liability for tax on J & J O'Brien's profits derived from the Yurong Street development. As noted in paras [589] and [648] of Section 5, until 30 November 1996, the profit derived by J & J O'Brien from the Yurong Street development was sheltered by being improperly attributed to Vensel which was recorded as a creditor of J & J O'Brien. 1178 Mr Short knew, or if he did not know, he should have known, that J & J O'Brien had not lodged its tax returns. There is no evidence that, prior to 14 December 1994, Mr Short was aware of J & J O'Brien's liability to income tax in the 1989 financial year for its share of the profit on the Yurong Street development, although as a director of J & J O'Brien and Sinodun, he should have been so aware. As I have said, that profit was not reflected in J & J O'Brien's financial statements. 1179 Mr Short should have been aware of substantial profits earned by J & J O'Brien in 1988 which gave rise to the provision for income tax in the audited financial statements. 1180 From 14 December 1994, Mr Short was fully aware of the fact that returns had not been lodged and that J & J O'Brien was liable both to tax and to potential penalty tax. He, along with Mr Davis and Mr Crawley, was provided with a review prepared by Mr Cohen on 14 December 1994 of the financial position of the group (TB 41/4286). Mr Cohen analysed the group's tax position and concluded that the total liability for prior years was approximately $1,890,000 comprising tax payable, fringe benefits tax and penalty tax. This included liability for the 1988 financial year for tax and penalty tax which Mr Cohen estimated to be $535,089, and for the 1989 financial year which he estimated to be $1,060,076 (TB 41/4290-4291). Mr Cohen observed that the "first tranche" of $1,890,000 would be payable on lodgement of the prior year returns. It would have been clear from his report that tax returns had not been lodged from 1985. Although there is no clear evidence that Mr Short was aware prior to December 1994 that income tax returns had not been lodged, that was a matter of which he ought to have been aware. The provisions in the financial statements for J & J O'Brien for outstanding income tax in the 1988 financial year and the continued provisions in the financial statements for J & J O'Brien's tax liability ought to have put Mr Short on notice that returns were outstanding even if he had not otherwise inquired about their lodgement. The same is true of Mr Davis. 1181 In the complaints made by Mr Short and Mr Davis in 1995 and 1996 about Mr Crawley's conduct, no complaint was made about the companies' failure to lodge income tax returns. 1182 Surprisingly, there was no correspondence from the Commissioner of Taxation about the failure to lodge tax returns. The question arose in 1996 when approaches were made to financiers to refinance the Westpac debt. Prospective financiers asked to see the companies' income tax returns. At a directors' meeting of J & J O'Brien held on 1 April 1996, Mr Crawley advised that Mr Leddin had been requested to prepare tax returns up to 1995 but that these had not been finalised (TB 57/5923 at 5927). It took until 1997 for the tax returns to be prepared. 1183 On 14 August 1996, Mr Crawley wrote to Mr Short and Mr Davis. He asserted that control of the companies was, and had for some considerable time been, in their hands and complained that they were conducting the companies' affairs in a way which placed his assets at risk. He enclosed a summary prepared by the auditors of tax payable. Although the summary showed tax losses available to Marsico and tax losses available to J & J O'Brien from 30 June 1990, it also showed a liability for income tax of J & J O'Brien of $298,298 in 1998 and $588,786 in 1989. These figures were apparently struck without taking into account available tax losses for J & J O'Brien as at 30 June 1987 of $173,746, but nonetheless showed a substantial liability. Mr Crawley wrote: " The primary liability for tax arising in the fiscal year night ending 30/6/88 and 30/6/89 are $298,298 and $588,786 respectively. $887,084. This figure does not include any penalty tax, interest or other charges. The figure provided is a preliminary summary. Penalty interest and late lodgement penalties accrue at 40% per annum compounded, so the debt doubles every 2½ years. Would you kindly advise me as a matter of urgency what proposals you have in relation to the payment of this outstanding tax as you would be fully aware of the fact that any financier would require that there be no outstanding tax liability prior to making any funds available. " (TB 60/6407). 1184 On 28 August 1996, Mr Crawley sent to Mr Short and to Mr Davis income tax returns provided to him by Glen Neilsen & Co in respect of Marsico, J & J O'Brien, Sinodun, Megabuck$, Trudale and the Racecourse Hotel partnership, together with a further summary of tax payable. The covering letter stated that the enclosed tax returns for J & J O'Brien covered the years from 1985 to 1995. He referred again to the companies' liability for penalties for late lodgement of returns. He said that the returns had been prepared in draft form and asked to be advised as a matter of urgency of any matters arising from them (TB 61/6578). The summary included the same figures for the liability of J & J O'Brien for tax as had been shown on the earlier schedule. 1185 No steps were taken to progress the lodgement of tax returns until March 1997. Mr Vaccher gave evidence, which I accept, that on 12 March 1997, he had conversations with Mr Crawley in which, initially, Mr Crawley told him that he wanted all of the tax returns lodged. Those which had been prepared in 1996 were marked "draft". Mr Vaccher said that they had been marked "draft" because Mr Crawley was to advise Glen Neilsen & Co of any changes. Mr Crawley told him that they were fine and the tax returns should be given to him that day. After discussing the matter with Mr Leddin, Mr Vaccher telephoned Mr Crawley again and told him that the tax returns for 1991 and 1990 and earlier years needed to be typed. He also told Mr Crawley that Sinodun had a profit to be brought to account in 1988 or 1989. Mr Crawley told him that if that were the case, they would lodge tax returns from 1990 onwards. 1186 The lodgement of income tax returns was one of the matters dealt with at the directors' meeting of 27 March 1997. A resolution was passed by majority with Mr Short dissenting, that tax returns for the years 1990 to 1995 be signed and lodged. The plaintiffs submit that Mr Short's dissent related to the lodgement of tax returns only for the years from 30 June 1990 and not for the earlier years. They submitted that it was despite Mr Short's and Mr Hannan's efforts that tax returns for J & J O'Brien for 1988 and 1989 were not lodged. I do not accept that this was so. 1187 The item of business for the lodgement of tax returns followed discussion about approval of financial statements for the year ended 30 June 1996. Those statements were approved by a majority vote with Mr Short dissenting. There was the following exchange concerning the income tax returns: " Bill: How far do they go back? Chris: (indecipherable) Bill: 95 is it? I mean 85 Chris: 1990. Bill: The schedule that was provided went back to 1985 before. What's happened to those 5 years? Have we lodged those in the meantime? Chris: No. The financiers want 1990 to 1996. It's probably not a good idea to have 85 and earlier floating around, I wouldn't think. I don't have them and I haven't sighted them. Bill: Have they done 96 thereto, have they? Chris: 95. He's meant to be doing 96 now. Bill: Is there not a risk that the financiers might ask for more than that? Chris: No. Hopefully no. " 1188 There was then some discussion as to what a lender might wish to investigate and the possibility of having the auditors prepare a schedule similar to the one which had already been provided, but showing the tax liability from 1990. 1189 Mr Short asked for a copy of the tax returns. Mr Hannan said that he thought that tax was potentially a very big issue for the company and that Mr Wiseman ought to have a look at the tax returns before they were signed off. Mr Wiseman said there was no time for that, there was no need for it if the auditors had said that it was okay, and the directors ought to go along with it. Mr Wiseman said that there was a question whether the income tax commissioner would disagree with the information Mr Leddin had compiled but, as time went by, the chances of that were remote. He said: " I mean, for something that happened in 1989, how the hell is anyone going to know, including the commissioner? How is he going to know whether a car was disposed of at $10,000 instead of $5,000 showing on ... " 1190 Mr Hannan interrupted him and said: " No. I'm not talking about that. There are some big issues there in terms of the way losses are transferred or distributed to from the joint venture to various companies and the way in which we deal with that. " 1191 There was then discussion in relation to the allocation of losses from the Elizabeth Street Centre Joint Venture to J & J O'Brien and Marsico. 1192 There was further discussion as to what the returns from 1990 showed for each company. Mr Crawley put a resolution that the income tax returns prepared by Glen Neilsen & Co for the years 1990 to 1995 as tabled before the board be accepted and that he be authorised to sign the returns on behalf of the company or, alternatively, that they be signed by the public officer and thereafter be returned to Glen Neilsen & Co for execution by Mr Leddin and lodgement by that firm on each of the group companies' behalf, and that it be noted that the returns disclosed that there was no income tax payable by any of the group companies. Mr Short declined to second the resolution. It was passed on the votes of Mr Davis and Mr Crawley. Mr Short voted against it (exhibit BM, transcript of meeting of 27 March 1997, pp 56-64). 1193 Neither Mr Hannan nor Mr Short proposed a resolution that the earlier tax returns also be lodged. Neither of them asserted that they should be. I do not accept that Mr Short's disagreement with the resolution arose from a concern that the older returns be also lodged. He did not say so. It is more likely that his dissent was based on the fact that the tax returns showed J & J O'Brien and Marsico sharing losses from the Elizabeth Street Centre Joint Venture which he then regarded as Trudale's or Mr Crawley's responsibility. It is equally likely that his disagreement was more visceral. 1194 The failure to lodge income tax returns prior to 1990 was not one of the matters complained of in the statement of claim filed on 16 June 1998. As noted above, it had not been one of the matters complained of by Mr Short and Mr Davis in the instructions given to Gilbert & Tobin. 1195 All of the directors breached their duties to J & J O'Brien in not causing the companies to lodge income tax returns, including those for the 1988 and 1989 financial years. Whilst Mr Crawley was the director who dealt with accounting issues and liaised with the auditors who prepared the returns, all of the directors were responsible for ensuring that the returns were lodged. For a time in 1996, Mr Crawley insisted that Mr Short and Mr Davis arrange for the returns to be lodged. No director did so. They all acquiesced in the non-lodgment of the returns. 1196 Whilst all of the directors were in breach of their duties to the company, in their capacity as shareholders, (or the governing minds of the shareholders), they consented to the breaches. J & J O'Brien was not insolvent. Nor do I consider that it was approaching insolvency. It is true that Westpac threatened to appoint receivers if its debt were not discharged, but the company had not defaulted on making any payment due under the loan to Westpac. In fact the company was in a better financial position than appeared because it did not owe Mr Crawley the debt for legal fees which he asserted and which was recorded as a disputed liability on its balance sheet. 1197 The company cannot complain of the breaches of directors' duties prior to 30 June 1997 because of the unanimous consent by the shareholders (who were, in substance, the same as the directors) to those breaches. To the extent it may be relevant, it is clear that Mrs Short was also aware that income tax returns had not been lodged, yet she did not raise the issue herself or cause her husband to do so. She deposed that at a directors' meeting on 6 February 1995, which she also attended, Mr Cohen reported that the group had a major tax problem and had not filed returns for years and had not been paying their tax. She said that she was taking notes at the meeting and at Mr Crawley's insistence, tore the notes up (RS1 para 38). Although details of this incident are in dispute, it is clear that both Mr and Mrs Short were aware that tax returns had not been lodged. 1198 I consider that Nabatu's acquiescence in the non-lodgment of the income tax returns continued after 30 June 1997 until it raised the issue in 2004. The issue was first raised in the plaintiffs' notice of motion for leave to further amend the statement of claim which was filed on 19 May 2004. From that time, it was clear that Nabatu did not consent to the continued default in lodgement of income tax returns. It brought an application for the appointment of a receiver in 2004. One of the matters it raised in support of that application was the non-lodgment of tax returns. On 14 September 2004, J & J O'Brien lodged tax returns for 1988 and 1989. Because of the consent and acquiescence of the shareholders before 19 May 2004 to earlier tax returns not being lodged, neither Mr Crawley nor any other director is liable for any penalties or interest that J & J O'Brien may incur by reason of such tax returns not having been lodged up to that time, or a reasonable time thereafter. 1199 Income tax returns for the 1988 and 1989 financial years were lodged on 14 September 2004 as a result of the plaintiffs' applying for the appointment of receivers to the group, and raising as one of the grounds of that application the failure to lodge tax returns (T1601). The plaintiffs allege that the income tax return lodged on 14 September 1994 for the 1989 financial year was false in not declaring the capital gain from the Yurong Street development and in claiming a deduction of $1,932,896 by way of interest expense. Assuming this to be so, any additional liability J & J O'Brien incurs to penalties or interest by reason of the alleged false statements in the tax returns would constitute loss and damage suffered by J & J O'Brien (after allowance for interest earned or saved from the late payment of tax), and would be recoverable by J & J O'Brien from Mr and Mrs Crawley if they breached their duties to J & J O'Brien in causing a false return to be lodged. 1200 The plaintiffs did not claim relief from Mrs Crawley. They accepted that she relied on Mr Crawley in relation to accounting and financial matters and it was reasonable for her to have done so. The plaintiffs sought an order that Mr Crawley indemnify J & J O'Brien in respect of any penalties and interest relating to unpaid tax or late payment of tax for the years ended 30 June 1988 and 30 June 1989. For the reasons I have given, the plaintiffs are not entitled to that relief, but it remains to be considered whether they are entitled to an order that Mr Crawley indemnify J & J O'Brien in respect of any penalty or interest relating to unpaid tax arising from any false statements in the return. 1201 An amended tax return for 1989 was lodged on 17 February 2006. The amended return included J & J O'Brien's share of the capital gain from the joint venture with Viapro of $1,593,182. At the same time as the return was lodged, J & J O'Brien paid $581,707 as the tax payable in accordance with the amended return. The amended return included an interest expense of $1,932,896. No assessment had been issued in relation to the return or the amended return at the time of the hearing. 1202 Notwithstanding the lodgement of the amended return, Mr Crawley gave evidence of having received advice from senior counsel that the liability for tax on the capital gain in the Yurong Street development was payable by Sinodun and not by Viapro or by J & J O'Brien. That was not the basis upon which the return was lodged. Mr Crawley also sought advice from counsel in relation to the claiming of a deduction of an interest expense by J & J O'Brien. He also retained the services of Mr Wearne of Borough Mazars, accountants. 1203 On 31 January 2006, Mr Wearne sent to Mr Crawley the amended income tax return for J & J O'Brien which he noted had been amended to include the capital gain realised on the sale of the Yurong Street property in accordance with Mr Crawley's instructions. He referred to advice which had been obtained from Mr Priestley QC. He set out his reasons as to why the interest expense might be claimed as a deduction. The issue arose because, although in 1989 J & J O'Brien was the lessee of the Port Jackson Tavern, the freehold had been acquired by Marsico, and Marsico had borrowed the funds to acquire the freehold. J & J O'Brien prepaid interest on Marsico's borrowing. The parties had common shareholders. One was not the subsidiary of the other. Hence, the plaintiffs point to the difficulty of contending that the interest on Marsico's borrowing was an expense incurred by J & J O'Brien in deriving assessable income from the trading of the hotel. Mr Wearne advanced an argument to the effect that, notwithstanding the acquisition of the property by Marsico, all of the costs and outgoings associated with the holding of the property were met by J & J O'Brien as consideration for its occupancy of the premises from which it derived assessable income. The prepayment of interest was one such expense. 1204 There is a real difficulty in the plaintiffs' contention that Mr Crawley should indemnify J & J O'Brien in respect of any liability it may incur for penalties or interest arising from the contents of the returns lodged on 14 September 2004 or 17 February 2006. Such a declaration is hypothetical. The Court will not make a declaration in relation to circumstances that have not occurred and might never happen (University of New South Wales v Moorhouse (1975) 133 CLR 1 at 10; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 582). It is not known whether J & J O'Brien will incur such a liability. It is not known whether or not the Commissioner will accept the accuracy of the amended return (or the original return). Depending upon what assessment is made, there may be appeals. It will only be by the making of an assessment by the Commissioner and the determination of any appeals that the taxation liability of J & J O'Brien will be determined. 1205 Further, the question is not whether the returns are accurate, but whether Mr Crawley breached his duty as a director in relation to the lodgment of the returns in 2004 and subsequently. That, in turn, depends upon whether he failed to exercise the degree of care and diligence that a reasonable person would exercise if he or she were a director of J & J O'Brien in such circumstances and occupied his office, or whether he exercised his powers in good faith in the best interests of the company and for a proper purpose (Corporations Act, ss 180 and 181). If Mr Crawley made a business judgment in accordance with subs 180(2) of the Corporations Act, he would be taken to have met the requirements of care and diligence unless his belief that the judgment made was in the best interests of the company was one no reasonable person in his position would hold. 1206 It is clear that, in relation to the lodgment of the amended return in 2006, Mr Crawley sought the advice of Queen's counsel and of Mr Wearne. Even if it should be inferred from the notes of conference with Mr Priestley QC that Mr Priestley QC did not consider that the interest expense claimed was deductible (and the notes are not sufficiently clear to show that that was his concluded opinion), it does not follow that Mr Crawley failed to exercise a reasonable degree of care and diligence in relation to the lodgment of the 2006 amended return. 1207 There is no explanation as to why the capital gain was not included in the tax return lodged on 14 September 2004. I infer that at that time Mr Crawley was of the view, which he had expressed to Mr Vaccher in 1996, that the amount of profit share of $1,700,000 on the Yurong Street joint venture should properly be shown as J & J O'Brien's profit (T1582). Mr Crawley referred to having received senior counsel's advice that there was a different view as to how the money should have been treated, but that advice was not received until 2006 and, in any event, was not the advice acted on when the amended return was lodged declaring the capital gain (T1583-1584). The return lodged in 2004 included a deductible expense of $215,880 (TB 103/15543), which was J & J O'Brien's share of the net trading loss on the Yurong Street joint venture (TB 7/961.23), but without bringing into account its share of the capital gain from the joint venture. Mr Crawley did not point to any reasonable basis he had at the time for not including J & J O'Brien's share of the joint venture profit in the 1989 income tax return. By not doing so, he exposed J & J O'Brien to the risk of further penalties and interest. I am satisfied that in doing so, he breached his duty of care and diligence. 1208 If an assessment is raised on the basis that J & J O'Brien's share of the profit on the Yurong Street joint venture ought to have been included in its assessable income, and if J & J O'Brien becomes liable to pay penalties and interest in an amount which is more than it would otherwise have been by reason of the incorrect return filed in 2004, then Mr Crawley would be liable to indemnify the company in respect of that part of its liability to pay penalties and interest. Because the issue may be hypothetical, I will not make a declaration about it. For the reasons given in Section 17, I will make an order in due course that Mr Crawley purchase Nabatu's share in J & J O'Brien at a price to be determined as one-third of the value of the company based on what would be realised on an orderly sale of its assets, and net of its liabilities. In reaching that value, it will be necessary to estimate the value of the company's contingent liability to pay additional tax, penalties and interest, assuming that assessments have not been made or any objections have not been determined. In that event, the valuation of Nabatu's share in J & J O'Brien will take into account Mr Crawley's liability to indemnify the company in respect of that part of its liability for penalties and interest, but only in so far as the liability arises from the non-inclusion of the company's share of the profit on the Yurong Street development in the 2004 return. SECTION 15 – The Hotdog Stand 1209 The nature of this claim is set out in paras [169]-[170] of Section 1. 1210 The claim was first raised in the further amended statement of claim filed on 31 August 2004. The plaintiffs alleged that, since gaining shareholder control of Marsico by virtue of Mr Short's removal from the boards, Mr Crawley permitted the sale of merchandise and food on the premises of Jackson's on George without the revenue from those activities being paid or accounted for to Marsico. They alleged that, in consequence, Marsico sustained loss (paras 107(e) and 107(a) of the further amended statement of claim). 1211 I do not accept that Mr Crawley breached his duty as a director of Marsico in allowing the continuation after 1997 of the arrangement that had been in place from 1987. Mr Short must have considered the arrangement with Mr Guderjahn as an appropriate means of providing additional remuneration for Mr Guderjahn, and securing his continued loyalty. Mr Crawley also considered that it was in Marsico's interests to allow Mr Guderjahn to take advantage of that opportunity as a reward for securing the continued loyalty of a long-term manager (T1748). This is essentially a business judgment for the directors. In my view, it involved no breach of Mr Crawley's duty of care and diligence. Nor, in allowing the continuation of the arrangements for such reasons, did Mr Crawley fail to act in good faith in what he considered to be the best interests of the company. 1212 In any event, the pleaded claim was for damages or equitable compensation for Marsico's lost revenue. That was not the relief sought in closing submissions. In closing submissions, the plaintiffs contended that Mr Crawley was liable to compensate Marsico for the net profit which Mr Guderjahn had made by operating the hotdog stand. The plaintiffs did not contend that Mr Crawley derived any part of the profits which Mr Guderjahn has derived. Even had Mr Crawley breached his duties as a director by permitting Mr Guderjahn to operate the hotdog stand, he would not be liable to account for the profits which he did not derive. (See para [763] of Section 6). 1213 It is not clear what profits Mr Guderjahn has derived as he has kept no records of the business. Weekly tally sheets recording the number of hotdogs sold and the amount received for them were destroyed on a weekly basis (T1354). Mr Guderjahn estimated that his current profit margin was thirty-five to forty percent (T1352). His wages cost of operating the hotdog stand was about $400 per week (T1352). There was evidence from a former employee of Jackson's on George that between 1996 and 1999 on an average Friday and Saturday night, about forty dozen hotdogs were sold, and on other nights between about four and twenty dozen hotdogs were sold. By applying these figures to the evidence as to the prices at which hotdogs have been sold from 1997 and adopting a profit margin of forty percent, the plaintiffs calculated that Mr Guderjahn derived profit from 1 July 1997 to 30 June 2006 totalling $898,560. 1214 This is not a measure of Marsico's loss. No evidence was directed to the question of what expenses, other than those it already incurred, Marsico would have incurred had it operated the hotdog stand. Mr Guderjahn paid suppliers and wages in cash and did not lodge tax returns. Marsico could not lawfully have carried on the business in the same way as Mr Guderjahn. I can infer that its costs would have been higher than his. 1215 Mr Guderjahn was allowed to operate the hotdog stand from 1987 as a supplement to his salary. As Mr Guderjahn is regarded as a valuable employee and an exceptionally good manager, it stands to reason that if Marsico had terminated the arrangements with Mr Guderjahn and operated the hotdog stand itself, it would have had to make a compensating adjustment to Mr Guderjahn's salary if it were to retain his services. 1216 In short, the plaintiffs have not established what profits, if any, Marsico would have derived had it operated the hotdog stand itself. Nor did it ultimately contend that Marsico suffered any quantifiable loss from the use of Marsico's staff at the hotdog stand. Mr Guderjahn's evidence, which I accept, was that payment for work done on the hotdog stand was calculated separately from the payment for work done by staff working on the bars in the hotel. If there were breaches from time to time of that system, the effect is not quantifiable. 1217 For these reasons, the claim to an account of profits (or damages or equitable compensation) should be dismissed. SECTION 16 – Loan from the Short Family Superannuation Fund 1218 On 5 December 1991, Nabatu, as trustee for the Short Family Superannuation fund, lent $75,000 to J & J O'Brien. The loan carried interest until interest ceased to be paid on 31 December 1995. From 20 December 1994, Mr Crawley or Mr Agus asserted that the loan was either from Nabatu in its own right or from Mr Short and set off against the loan expenses paid on behalf of Mr Short or advances made to him. The plaintiffs contended that there was no such right of set-off. 1219 This issue was resolved during the hearing. The defendants conceded that Nabatu was a creditor of J & J O'Brien for $75,000 and did not contest the plaintiffs' claim for interest on that amount at the prescribed rates from 1 January 1996. For their part, the defendants contended that a corresponding adjustment needed to be made to Mr Short's loan account. They contended that advances in the sum of $83,160 had been made by J & J O'Brien to Mr Short and that if those advances were not set off against the loan of $75,000, Mr Short or his estate was indebted in that amount to J & J O'Brien. The plaintiffs accepted that that was so. The short minutes of order should reflect these concessions. SECTION 17 – Appropriate Remedy Winding-Up or Compulsory Purchase 1220 By their statement of claim filed on 16 June 1998, the plaintiffs sought an order for the purchase by Mr Crawley of Nabatu's shares in each of J & J O'Brien and Marsico, or, alternatively, that those companies be wound up. The relevant provisions when proceedings were instituted were ss 260 and 461(e), (f), (g), and (k) of the Corporations Law. There is no doubt that the grounds for making one or more of the orders under s 260(2) was made out. So much was conceded. In Fexuto v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688, Young J (as his Honour then was) said (at 742): " Section 260 subs(2)(c)–(k) set out a smorgasbord of remedies which the court may award in appropriate cases. Although there is no reported authority on the matter, my view is that the section should be applied by first considering whether orders can be made for regulating the company's affairs in the future so that there is no further oppression or unfair conduct, if that cannot be done, to see if there should be a buy-out by one faction of another: Re Enterprise Gold Mines NL (1991) 3 ACSR 531 at 539. The remedy chosen should be the least intrusive: Martin v Australian Squash Club Pty Ltd (1996) 14 ACLC 452 at 475. Only as a last resort is the court to make a winding up order of an otherwise solvent company under the section." 1221 The application for winding-up orders was also made under s 461(e), (f), (g), and (k) of the Corporations Law. Paragraphs (e), (f) and (g) covered the same ground as the grounds upon which orders based on oppressive conduct, including winding-up orders, could be made under s 260. Paragraph (k) was the just and equitable ground. Section 467(4) provided: " 467. Court's powers on hearing application ... (4) Where the application is made by members as contributories on the ground that it is just and equitable that the company should be wound up or that the directors have acted in a manner that appears to be unfair or unjust to other members, the Court, if it is of the opinion that: (a) the applicants are entitled to relief either by winding up the company or by some other means; and (b) in the absence of any other remedy it would be just and equitable that the company should be wound up; shall make a winding up order unless it is also of the opinion that some other remedy is available to the applicants and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. " 1222 In Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247, McPherson J, speaking of s 367(3) of the Companies (Qld) Code (which was the predecessor provision to s 467(4)) said (at 252) that winding-up is to be regarded as a remedy of last resort and one which ought not to be granted if some other less drastic form of relief is available and appropriate. Presumably, if some other less drastic form of relief is available and appropriate, it can then be seen that the applicant for winding-up is acting unreasonably in seeking such an order, even if such an applicant has cogent reasons to advance in support of the application. Given the overlapping areas of operation of ss 260 and 461 (corresponding to ss 232, 233 and 461(1) of the Corporations Act), a construction of s 467(4) which allows the provisions to operate in harmony is obviously sensible. Moreover, where the various parliaments have re-enacted s 367(3) of the Companies Code as s 467(4) of the Corporations Law and then as s 467(4) of the Corporations Act (albeit by amending the phrase "shall make a winding-up order unless" to "must make a winding-up order unless"), it may be taken that the legislatures have adopted the judicial construction of the provision, particularly where the construction is by an acknowledged authority in the field. McPherson J's construction has been repeatedly applied including recently by Simmons J in Netbush Pty Ltd v Fascine Developments Pty Ltd (2005) 189 FLR 320 at 337 [72], and by Barrett J in Turner v Ulicorp Pty Ltd [2007] NSWSC 206 at [23]. 1223 The plaintiffs contended that a winding-up order should be made in respect of each of J & J O'Brien, Marsico and Trudale. Nabatu was not a member of Trudale, but it sought that relief by way of derivative proceedings to be brought by Marsico pursuant to s 260(2)(g) or s 246AA(2)(g) and in reliance on the reasoning in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd referred to in para [176] of Section 1. 1224 The plaintiffs advanced a number of grounds for their contention that a winding-up order should be made rather than an order for the compulsory purchase of Nabatu's shares in J & J O'Brien and Marsico. First, they contended that it was doubtful whether Mr Crawley would have the funds to satisfy a compulsory purchase order in an amount of $10,000,000 or upwards. There has been no determination of the current values of the hotels, but evidence was adduced which valued Jackson's on George at $31,900,000 and the Marlborough Hotel at $19,300,000 as at 30 June 2005 (exhibit TCO 3 page 6, TCO 4 page 6). These valuations have not been tested, but it was common ground that hotel values in Sydney had substantially increased between 1997 and 2005 due, at least in part, to laws allowing poker machines in hotels and the creation of transferable poker machine entitlements. The plaintiffs contended that the external liabilities of Marsico and J & J O'Brien were about $18,700,000, such that it should be assumed that the net assets were in the order of $32,500,000 before adjustments to reflect the orders sought by the plaintiffs in these proceedings. Hence, the plaintiffs submitted that it was likely that Mr Crawley would be required to pay more, and perhaps substantially more, than $10,000,000 to acquire Nabatu's shares, and that the Court ought not make an order for compulsory purchase where Mr Crawley's ability to satisfy the order was doubtful or speculative. 1225 The defendants submitted that the plaintiffs' argument proceeded on the false premise that the shares should be valued at current values rather than at their values in 1997 or 1998, with provision for interest. Even if that were not so, the evidence did not establish that Mr Crawley could not raise the funds necessary to purchase Nabatu's shares. An order for the compulsory purchase of shares should be coupled with the reservation of the proceedings for further consideration so that if Mr Crawley did not have the means with which to purchase the shares, a winding-up order could then be made. But it should only be made as a last resort when and if it were established that Mr Crawley could not effect a purchase. 1226 I deal with the question of the date as at which the share should be purchased later in these reasons. The current values of the hotels have not yet been established. That was the sole issue which was deferred. Mr Owen's opinion as to valuation has not been tested. I make no assumption as to the current values of the hotels or as to the likely amount Mr Crawley would be required to pay if ordered to purchase the shares at current values. I agree with the submission for the defendants that the cross-examination of Mr Crawley did not establish that he would be unable to fund a share purchase in excess of $10,000,000, and that it should not be assumed in advance that he would be unable to do so. I agree with the defendants' submissions that the proceedings could be reserved for further consideration so that a winding-up order could be made if Mr Crawley were unable to effect a purchase. 1227 The plaintiffs also submitted that there would be substantial delays before a hearing as to the valuation of the shares could be concluded. The plaintiffs submitted that it would be unsatisfactory for the Court to attempt to quantify the companies' liabilities for unpaid tax, penalties or interest. The plaintiffs submitted that it was likely the Australian Taxation Office would conduct an extensive audit. The likely areas of inquiry included the failure to lodge J & J O'Brien's tax returns for 1988 and 1989 until September 2004; the false return lodged in September 2004; the allegedly false amended return lodged in February 2006; the claim for deductions by J & J O'Brien in 1995 for alleged legal fees and interest of $1,315,990; the inclusion in Marsico's tax return for 1997 of the capital gain from the sale of the Racecourse Hotel rather than attributing that gain to Mr Crawley and Nabatu; fringe benefits tax for Marsico in relation to the benefit provided to Mr Guderjahn in operating the hotdog stand; and the amount of deductions claimed for accounting and management services provided by entities related to Mr Crawley. 1228 The defendants submitted that this ground for resisting an order for a compulsory purchase of shares was hollow, given the delays which they said should be attributed to the plaintiffs in pursuing the proceedings. The defendants also submitted that, if the Court made a compulsory buy-out order (as they submitted it should), any tax problems of J & J O'Brien or Marsico would be problems which would be Mr and Mrs Crawley's alone and would not concern the plaintiffs. Thus the defendants contend, at least at this stage, that in valuing the shares, no account should be taken of the liabilities which the plaintiffs allege the companies have for unpaid tax, penalties and interest. 1229 The short answer to the plaintiffs' submission is that, if this area is unresolved at the time the valuation is completed, the Court can assess, with the benefit of expert evidence, the amount of such liabilities, if one or other of the parties seeks to raise them. The fact that the assessment may be difficult does not mean that the valuation cannot be made. In any event, the point may be academic. If such assessments have not been raised, it would not be in Nabatu's interest to assert that the value of its shares should be reduced to take account of such liabilities, and the defendants' position, at least in the current hearing, was that the tax problems would lie squarely with Mr and Mrs Crawley. 1230 The plaintiffs also submitted that the conduct of the companies' affairs by Mr Crawley was such that the companies should be wound up on the just and equitable ground on the basis of the public interest and commercial morality (Deputy Commissioner of Taxation of the Commonwealth of Australia v Casualife Furniture International Pty Ltd (2004) 9 VR 549 at 580-582; Macquarie Bank Ltd v TM Investments Pty Ltd (2005) 223 ALR 148 at 151 [11]). The misconduct alleged was said to include: "17. In the present case, the plaintiffs rely on the various matters set out in the sections that follow, as showing misconduct by Mr Crawley in particular, which is likely to continue unless the companies are wound up. That conduct includes: a) disregard for the need for informed consent by the boards of directors for related party transactions to occur; b) excessive payments for interest, legal services and accounting and management services; c) invalid accounting treatment of transactions, especially in the attribution of profits or expenses to the wrong entity; d) disregard of taxation obligations, by way of false (and late) tax returns; e) false (and late) notices to ASIC; f) dishonesty in dealings involving the companies; g) preferring his own interests to those of the companies; h) disregard for the articles, including the requirement under the articles to hold AGMs (J & J O'Brien: Table A, Article 43; Marsico: Article 62) and to provide meaningful information at those general meetings in answer to members' questions." 1231 Whilst I have been critical of much of Mr Crawley's conduct, for the most part his misconduct was in relation to his successful endeavours in 1997 to obtain majority controls of the companies, and the making of excessive payments to related companies to the detriment of Nabatu. Those instances of oppression will be remedied by the orders requiring an account and by an order for the compulsory purchase of shares. Whilst there was a failure to lodge tax returns for J & J O'Brien for years before 1990, that has been remedied in respect of the 1988 and 1989 years and it does not appear from the auditors' summary of tax payable that any tax was payable in relation to earlier years. In any event, these are matters which can presumably be investigated by the Australian Taxation Office. Moreover, whilst it may not be necessary for a plaintiff to show clean hands in order to obtain a winding-up order on the just and equitable grounds, the absence of clean hands is at least relevant to the exercise of a discretion to make a winding-up order on that ground. For the reasons in Section 14, Mr and Mrs Short were also party up to 1997 to the failure to lodge J & J O'Brien's tax returns. There may well be other aspects of the companies' affairs which the Commissioner for Taxation may wish to investigate. However, I do not consider that a winding-up order should be made in order to assist or progress such an investigation in some undefined way, if indeed the Commissioner thought that such an investigation were warranted. 1232 The reference to lodgment of false and late notices with the Australian Securities and Investments Commission is, I take it, a reference to returns lodged in relation to the shareholding in Trudale. That conduct occurred many years ago and, in any event, it was common ground at the hearing that the shares in Trudale are held legally and beneficially by Marsico. Hence, the later notices of shareholdings were not false. In any event, such matters would not warrant the making of a winding-up order, let alone a winding-up order of J & J O'Brien and Marsico. The other conduct exhibiting a disregard of the Articles and the position of Nabatu as a minority shareholder involved acts of oppression which will be remedied by an order for the compulsory purchase of Nabatu's shares. 1233 Similar matters were relied upon in support of the application for a winding-up order on the grounds of oppression. The plaintiffs pointed to: (a) the termination of direct participation in consensus management; (b) the charging of unjustified and unauthorised expenses and directors' fees (c) the failure to hold meetings of directors and members and to provide information; (d) decisions by directors which are for the benefit of a class of shareholders or their families or related companies; and (e) failure to give serious consideration to the payment of dividends because of the policy of the board concerning the charges it was entitled to levy. 1234 All of these complaints are made out. They give rise to the jurisdiction to make orders under s 260(2)(c)-(k), or the other cognate provisions if they apply, including a winding-up order. But it does not follow that a winding-up order is the appropriate remedy to give relief to Nabatu from that oppression. It seems to me that such relief is afforded by a compulsory purchase order on the basis of which Nabatu's shares are valued, having regard to the accounting which will be required. 1235 The plaintiffs referred to Shum Yip Properties Development Ltd v Chatswood Investment & Development Co Pty Ltd (2002) 40 ACSR 619 where Austin J made a winding-up order to relieve against oppressive conduct in circumstances which the plaintiffs submitted were analogous to those of the present. However, cases are infinitely various. The fact that the discretion was exercised in favour of making a winding-up order in that case does not indicate that the discretion should be exercised in the same way in this case. The guiding principle is that an order to wind up a solvent company should only be made as a last resort. 1236 Having to a large extent upheld the plaintiffs' allegations of oppressive conduct, I nonetheless do not consider that it warrants the making of winding-up orders if Nabatu's shares can be purchased at a fair value. The companies are solvent and would be reasonably prosperous if it were not for the diversion of profits to companies related to Mr Crawley. There is a substantial number of employees employed in the businesses. Whilst it could be expected that many of the employees would retain their employment so that the hotels could be sold by a liquidator as a going concern, nonetheless, a winding-up order could potentially affect their livelihoods. In short, I do not consider that such an order is warranted because the oppression can be relieved against by the purchase of Nabatu's shares, coupled with the accounting for profits improperly derived and the payment of compensation. Time at Which Shares Should be Valued 1237 The overriding requirement is that the valuation, and the time at which the valuation is to be carried out, be fair. Fairness depends on the facts of the particular case (Re London School of Electronics Ltd [1986] Ch 211 at 224; Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 144; Profinance Trust SA v Gladstone [2002] 1 WLR 1024 at 1034). The valuation must exclude the depreciating effect on the value of the applicant's shares brought about by the oppressive conduct (Scottish Co-operative Wholesale Ltd v Meyer [1959] AC 324 at 364, 369). 1238 In Profinance Trust SA v Gladstone, the Court of Appeal, having reviewed the English authorities, ventured the following propositions (at 1041-1042 [60]-[61]): " ... The starting point should in our view be the general proposition stated by Nourse J in In re London School of Electronics Ltd [1986] Ch 211,224: ' Prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased.' That is, as Nourse J said, subject to the overriding requirement that the valuation should be fair on the facts of the particular case. The general trend of authority over the last 15 years appears to us to support that as the starting point, while recognising that there are many cases in which fairness (to one side or the other) requires the court to take another date. It would be wrong to try to enumerate all those cases but some of them can be illustrated by the authorities already referred to . (i) Where a company has been deprived of its business, an early valuation date (and compensating adjustments) may be required in fairness to the claimant: see Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324. (ii) Where a company has been reconstructed or its business has changed significantly, so that it has a new economic identity, an early valuation date may be required in fairness to one or both parties: see In re OC (Transport) Services Ltd [1984] BCLC 251, and to a lesser degree In re London School of Electronics Ltd [1986] Ch 211. But an improper alteration in the issued share capital, unaccompanied by any change in the business, will not necessarily have that outcome: see In re DR Chemicals Ltd (1988) 5 BCC 39. (iii) Where a minority shareholder has a petition on foot and there is a general fall in the market, the court may in fairness to the claimant have the shares valued at an early date, especially if it strongly disapproves of the majority shareholder's prejudicial conduct: see In re Cumana Ltd [1986] BCLC 430. (iv) But a claimant is not entitled to what the deputy judge called a one-way bet, and the court will not direct an early valuation date simply to give the claimant the most advantageous exit from the company, especially where severe prejudice has not been made out: see In re Elgindata Ltd [1991] BCLC 959. (v) All these points may be heavily influenced by the parties' conduct in making and accepting or rejecting offers either before or during the course of the proceedings: see In re A Company (No 00709 of 1992) [1999] 1 WLR 1092. " 1239 The defendants submitted that, prima facie, the correct date for valuing the shares is the date on which proceedings are commenced seeking that remedy. In support of this proposition, counsel cited the speeches of Lord Keith of Avonholme (at 364) and Lord Denning (at 369) in Scottish Co-operative Wholesale Ltd v Meyer. Lord Keith said: " Lord Sorn has, in my opinion, approached this matter on a correct principle, by considering what would have been the value of the shares at the commencement of the proceedings had it not been for the effect of the oppressive conduct of which complaint was made ." 1240 Lord Denning spoke to like effect. Counsel also relied upon the observations of Vinelott J in Re a Company [1983] 2 All ER 854 and submitted that authority in Australia showed that the prima facie starting point of valuation is that the valuation be undertaken as at the date proceedings are commenced (citing Dynasty Pty Ltd v Coombs at 143-144; Re Bodaibo Pty Ltd (1992) 6 ACSR 509 at 513; Bagot Well Pastoral Company Pty Ltd; Shannon v Reid (1992) 9 ACSR 129; Shirim Pty Ltd v Fesena Pty Ltd [2002] NSWSC 10 at [14]; and United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 at 520-521). 1241 I do not agree that there is such a prima facie principle. 1242 In Re a Company (1986) 2 BCC 99,453, Vinelott J said (at 99,492-99,493) that he: " ... would at least incline to the view that the date of the petition is the correct starting point, the valuation of course being adjusted to take account of unfair conduct which has depreciated the value of the shares (as in Meyer ), and that a departure from this date must be justified on the ground of some special circumstance. The date of the petition is the date on which the petitioner elects to treat the unfair conduct of the majority as in effect destroying the basis on which he agreed to continue to be a shareholder, and to look to his shares for his proper reward from participation in a joint undertaking. " 1243 That was a case in which the value of the shares declined between the institution of proceedings and the hearing of the petition. It is in that context that Vinelott J continued: " If he succeeds in his petition and establishes that the breakdown in the relationship justifies an order for the compulsory purchase of his shares he has established that the respondents, if they had acted fairly, would have agreed, following the breakdown in their relationship, that his shares should be purchased at fair value. [In that event] it would not have been open to [the petitioner] to have resiled from that bargain if the shares subsequently fell in value, and he should be in no better position as a result of having contested the petition. By contrast, if the respondents to a petition contest the petition and continue in effect to employ the value of the petitioner's investment in the company, justice may require that they account to him for any enhanced value of the company's business at the date of valuation, unless it can be said that the increase in value is solely attributable to their efforts.... That question does not arise for decision and I express no opinion on it ." 1244 The date chosen for the valuation of the company was affirmed on appeal (Re a Company (1986) 2 BCC 99,495; also cited as Re Cumana Ltd [1986] BCLC 430). In Re Cumana, the Court of Appeal emphasised that the choice of the valuation date was very much a matter for the judge's discretion (at 436, 445). 1245 As noted above, in Profinance Trust SA v Gladstone, the English Court of Appeal took as the general starting point the date of the order rather than the date proceedings were commenced. In Re London School of Electronics Ltd, Nourse J did not apply what he took to be the general rule that valuation should be carried out as at the date of the order, where the value of the shares had increased due entirely to the efforts of the respondent directors in a way which was unlikely if the petitioner had remained with the company. On the other hand, in Profinance Trust SA v Gladstone, the Court of Appeal warned against assuming that capital invested by the petitioning creditor had no real connection with healthy profits earned after the commencement of the proceedings and contrasted the facts in that case with "a rearrangement of its structure and business (typically by an increase in issued capital and the injection of a new business) which means that the company is (in the eyes of a businessman or an investor) no longer what it was before." (at [56] 1040). 1246 I do not consider that the authorities cited establish that the date of commencement of proceedings is, prima facie, the date at which valuation is to be effected, although in Shirim Pty Ltd v Fesena Pty Ltd, Davies AJ said that valuations "usually" occur as at the date of commencement of proceedings. However, there are many cases where that is not the case (e.g. In the Matter of Rankine Bros Pty Ltd (3 April 1998, de Jersey CJ, unreported; BC9801022) where the shares had declined in value after the commencement of proceedings, and Dynasty Pty Ltd v Coombs where the Full Court of the Federal Court approved of the statement of Nourse J in Re London School of Electronics Ltd [1985] 3 WLR 474 at 484 that if there were such a thing as a general rule it should be the date of the order rather than the date of presentation of the petition or the occurrence of the acts of oppression (at 144)). I do not accept that there is a "usual starting point" being the date of the filing of the originating process. The question is, simply, what is the fair time to adopt as the time for valuation of the plaintiffs' shares? 1247 This question has particular significance in this case because of the changes in the values of the hotels from 1997 or 1998, and 2005 or 2006. Whilst the precise values of the hotels was not a matter to be decided at the hearing before me, it was common ground that values of hotels in Sydney generally and of the Marlborough Hotel and Jackson's on George in particular, had increased substantially. Evidence was led as to the reason for these increases. A valuer, Mr Tony Owen, deposed that: " During the early 1990s the hotel industry went through a difficult period due in part to random breath testing, the growth in popularity of take-home packaged liquor, increased competition from other forms of entertainment and a decline in popularity of Video Drawer Poker or AADS introduced in 1985. Partially in response to the difficulties hotel businesses were facing the industry received a major boost when in 1997 the NSW Government passed legislation allowing poker machines into hotels. While initially poker machines were viewed with caution by hotel investors it soon became apparent that gaming would be a sustainable source of revenue. Within 2-3 years of the new gaming legislation it was evident that hotel investors viewed gaming as an integral part of hotel trade and demand became strongest for hotels in locations where gaming would perform strongly. The success of gaming has been the catalyst for a particularly robust market over the last 7-8 years resulting in unprecedented growth in hotel capital values. This growth has continued unabated despite the announcement in October 2004 by the then NSW Premier, Bob Carr, of a total smoking ban to take effect in hotels from July 2007 ... " (Valuation report of Tony Owen) 1248 Thus, Mr Owen was of the opinion that the market value of Jackson's on George had increased from $20,220,000 in 1997 to $31,930,000 in 2005. This was so notwithstanding that his assessment of "normalised" earnings before interest, tax, depreciation and amortisation, was largely unchanged over the period. The difference in values reflected his view as to the appropriate capitalisation rates to be applied. In the case of the Marlborough Hotel, he was of the view that its value had increased from $5,640,000 in 1997 to $19,260,000 in 2005, partly as a result of increases in normalised earnings before interest, tax, depreciation and amortisation, partly to changes in what he regarded as the appropriate capitalisation rates, and partly because he considered that there were five to ten poker machine permits which were surplus to current needs and which had a capital value of about $300,000 each. 1249 Whilst not disputing that part of the increase in value of the hotels was attributable to changes affecting the industry generally, the defendants also submitted that the group experienced a "renaissance" under Mr Crawley's stewardship and as a result of his courage in providing his own securities to secure the Aldonet facility which provided the funds necessary for the group to stave off the imminent threat of receivership in 1997. The defendants submitted that the plaintiffs were seeking a "free ride" in seeking a compulsory buy-out at current valuations. The plaintiffs did not challenge the Aldonet/Springsley transaction when it occurred, or at any time until 2004, but were content to allow Mr Crawley to build "a new empire" where his assets were at risk if the group failed, and theirs were not. The defendants submitted that, at the time of what they euphemistically described as the "disengagement", the companies had small value as witnessed by the fact that Mr Davis, an experienced publican, with the benefit of advice, accepted $1,000,000 as a fair price for his company's one-third shareholding. 1250 The defendants also submitted that the plaintiffs themselves enjoyed the benefit of the growth in value of the hotels over the relevant period which enured to the industry generally. Because the plaintiffs' assets were not required as security for the borrowings of the group, they were able to acquire other hotels which enjoyed the same growth in value. 1251 Whilst the defendants accepted that, after May 1997, the affairs of J & J O'Brien and Marsico had been conducted contrary to the interests of the members as a whole, they did not accept that there were any acts of oppression involved in Mr Crawley's moving to a position of control of the group. The defendants submitted that: " In 1997 both Mr Short and Mr Crawley were manoeuvring to buy each other out. It was in fact undoubtedly appropriate that this should occur. The situation had reached a stage where they could not work together. The trust between them had evaporated to the extent that board meetings were so dysfunctional as to require the presence of legal and financial advisors, and the taking of tape recorded transcripts. Decisive action was required and both men had realised what had to be done; there had to be a buy-out. For either to have succeeded in such a course would not have been an act which would justify the description of oppression, but rather it would have been an act which would justify the description of the exercise of what was necessary in harsh commercial reality. The reasonable hypothetical director postulated by the High Court as the touchstone of oppression in Wayde v New South Wales Rugby League Limited (1985) 180 CLR 459 is not such a timorous soul as would not have seen the need for drastic steps to be taken at this time to break the impasse as being ' burdensome, harsh or wrongful' or ' lacking probity or fair dealing' ( Scottish Co-operative Wholesale Society Limited v Meyer [1959] AC 324)." 1252 The defendants also submitted that Mr Short intended to exclude Mr Crawley in the same way as he had been excluded by Mr Crawley. 1253 Of course, there was no buy-out of Nabatu. Even when proceedings were commenced in June 1998 in which an order was sought for the compulsory purchase of Nabatu's shares, no offer was made to purchase Nabatu's shares at valuation. As was said in Profinance Trust SA v Gladstone (at 1042), the time at which a valuation is to be made will be heavily influenced by the parties' conduct in making and accepting or rejecting offers, both before and during the proceedings. 1254 The first to sixth defendants pleaded that the plaintiffs were not entitled to equitable relief in respect of any of the transactions about which they complained because of offers made by Mr Crawley by letters dated 13 April 1995 and 28 April 1995 to purchase Nabatu's shares in Marsico and J & J O'Brien (by means of an option agreement) and to relieve the plaintiffs of security which they had provided to support the liabilities of the group, which offer, it was alleged, Mr Short unreasonably declined (defence para 122(d)). Rejection of Offers of 13 and 28 April 1995 1255 The minutes of the directors' meeting of 27 February 1995 record that Mr Davis indicated his interest in participating in a sell-down of his equity stake to the existing members, and that Mr Short indicated a similar interest, subject to his obtaining independent financial and legal advice. Mr Cohen was asked to prepare a schedule of assets and liabilities of the group which would enable the directors to assess a range of values attributable to the net assets of the group from which further discussions regarding restructuring of equity holdings might flow (TB 44/4566). 1256 On 2 March 1995, Mr Cohen provided his analysis of the group's net assets (TB 44/4614.1). He opined that the value of the group was about $2,500,000. In reaching that figure, he referred to the group's having an unresolved tax liability of about $2,000,000, to its having a severe liquidity shortage requiring $500,000 of working capital and an estimated $2,000,000 required for capital investment in plant and equipment. His assessment was made on the basis of the group owing Mr Crawley $1,400,000. Subsequently, he advised Mr Crawley that, until proceeds of sale from the Australian Youth Hotel were obtained, there would be six to eight weeks of "living on the edge" where the hotels were barely raising sufficient cash to meet recurrent cash flow needs. He advised that the current liquidity problems could be used as the key to forcing Mr Short's hand and that the funds to pay out Mr Davis and Mr Short could be met from future cash flow without too significant a strain on operations. This would be dependent upon asset sales proceeding as planned. 1257 On 2 March 1995, Mr Short wrote to Mr Crawley and said that if Mr Davis decided to sell his shares and he decided not to participate equally with Mr Crawley in the purchase, it would be unacceptable for him to remain indefinitely as a one-third shareholder with his guarantee and family home at risk. If no satisfactory arrangement was made for Mr Crawley to buy Mr Short's shares as well as Mr Davis' shares, Mr Short proposed that the assets of the group be realised without any forced sales and the group's liabilities, including its liability to Mr Crawley, be paid out, subject to Mr Crawley's substantiating the amount claimed by him, and the balance distributed to shareholders (TB 44/4612 at 4613). 1258 On 23 and 24 March 1995, Mr Short wrote to Mr Cohen and to Mr Crawley asking for, amongst other things, a breakdown of costs of the accounting and bookkeeping services, and a breakdown of the fees paid since 1 July 1991 and of the costs incurred. He complained about the variable statements as to how much was owed to Mr Crawley (TB 45/4693, 4718). 1259 The acrimony between Mr Crawley and Mr Short continued undiminished. Mr Crawley made further demands for Mr Short to make capital injections. He asserted that Mr Short had been given the details of the professional fees. On 29 March 1995, he threatened to exercise his powers under the mortgages and equitable charges unless the company ceased to pay directors' fees and paid all interest which was due to him. He said that no interest had been paid to him on "the moneys advanced to the company by way of deferral of legal costs". He demanded that Mr Short contribute funds to provide liquidity. He said: " If you haven't got the money, as I have said to you before tell me what your price is so that maybe you can retrieve something out of the investment because otherwise you're going to have to hoe a very hard road in the future. If there is not a satisfactory resolution this week I must consider my options in relation to my position and exercise my rights under my charges and mortgages as I cannot get any constructive assistance in the operation of the Companies from yourself neither can I obtain an injection of Capital. " (TB 45/4748) 1260 Further correspondence followed between Mr Short and Mr Crawley. As set out in section 5 (paras [649] and following), on 5 April 1995, Mr Crawley wrote to Mr Short asserting that the debt he was owed was much greater than had previously been expressed because "the company" had overlooked the accumulation of unpaid interest, and asserting that he was owed $1,862,765. Mr Crawley was using the cash flow difficulties then experienced by the group and the alleged indebtedness of over $1,800,000 as levers to attempt to obtain favourable terms on which to purchase Nabatu's and Athann's shares. 1261 In his letter of 13 April 1995 to Mr Wiseman (who was then acting for Mr Short and Mr Davis), Mr Crawley rejected an offer which had been made on their behalf for their shares to be sold for $3,500,000. He commented that there was a cash shortfall of $400,000 to meet outstanding accounts. One of the difficulties for the group in raising further funds to meet its cash flow difficulties was that it could not mortgage the Newtown properties without Mr Crawley's consent and that he claimed that the mortgages secured the debt which he alleged was owed to him. Mr Crawley made a counter offer in his letter of 13 April 1995. He proposed that Athann and Nabatu grant to him, or his nominee, for nominal consideration, an option to purchase their shares in the companies for $2,000,000, to be payable over two years from the exercise of the option. The term of the option would be not less than twelve months. The purchase price would be reduced by two-thirds of any additional moneys advanced to the company by Mr Crawley exceeding $496,775. Mr Crawley would have full and unfettered control in the day-to-day management of the companies with power to deal with the assets of the companies subject to providing notice to Athann and Nabatu. Athann, Nabatu and their respective officers and guarantors of the loans to Westpac and BAC would be required to acknowledge the debt of $1,862,765 owed to Mr Crawley by the J & J O'Brien group of companies (TB 46/4848.2). 1262 This offer was rejected. On 26 April 1995, Mr Short advised Mr Crawley, presumably with Mr Davis' consent, that he and Mr Davis were prepared to accept $3,000,000 for their entire interest in the group, provided there were mutual releases and they were released or indemnified in relation to their guarantees and other obligations to Westpac and other lenders. Mr Short stated that the vendors were willing for the arrangements to be implemented on terms which involved not a sale, but the granting of an option to Mr Crawley for nominal consideration to purchase the vendor's interest in the group at a price of $3,000,000. The option would be for a term of ten months expiring on 26 February 1996 and require payment of $1,000,000 on the exercise of the option and $2,000,000 within a year thereafter with interest at twelve percent. Messrs Short and Davis would resign as directors, but be replaced by Mr Hannan who would receive $2,000 per month as director's fees. Mr Crawley would have control of the day-to-day management of the group's operations, except where Mr Hannan reasonably considered that the group was being materially adversely affected by the exercise of such control. Mutual releases and the release of guarantees would be given at settlement. Messrs Short and Davis would receive consultancy fees of $8,000 per month during the currency of the option, but other directors' fees would cease (TB 47/4877). 1263 This offer was rejected by Mr Crawley on 28 April 1995 (TB 46/4857.21). He said that the fundamental issue which the group then faced was the requirement for the injection of capital of at least $500,000. He said that capital should have been contributed in equal shares. He said that a realistic estimate of the group's net asset values would value the group's assets at $37,185,000 and its liabilities at $34,450,000, giving net assets of $2,735,000. The assessment of liabilities included a tax liability of $2,000,000, a debt owed to Mr Crawley of $1,800,000, and the injection of working capital of $500,000. He said that the price which Mr Davis and Mr Short asked for their shares was outside the ambit of any properly commercially-orientated assessment. He said that the companies could not afford to pay consultancy fees of $8,000 per month, which were double the amount then being paid as directors' fees. He said that for there to be an agreement, there needed to be agreement upon the quantum of the outstanding costs which were secured by an equitable charge over the assets of the companies, agreement on the payment of service and managerial fees in the amount of $31,567 per month to Mr Crawley, and director's fees to Mr Crawley of $12,000 per month. Mr Crawley said that if the option were not exercised, he should have the option to require each of Mr Davis and Mr Short to provide further equity, either by way of capital or by further security, or that they would cause their companies to relinquish their shares to the extent of the equity imbalance or consent to the issue of additional shares to Mr Crawley to the full value of the difference in the supporting guarantees. He proposed that separate options be given, and that he should have the discretion to exercise either or both options. One option would be for him to acquire Athann's shares for $1,000,000, and the other to acquire Nabatu's shares for $1,500,000. The options should be for a term of twelve months. Two-thirds of the further advances to be made by Mr Crawley to the companies would be deducted from the purchase price. Whilst Mr Hannan would be appointed as a director in place of Messrs Short and Davis during the term of the option, Mr Crawley should have free and unfettered control of the management of the group's operations and authority to deal with all assets. 1264 Not surprisingly, this offer was not acceptable to Mr Short or Mr Davis. On 2 May 1995, Mr Short advised that the offer was rejected. Amongst other things, Mr Short rejected Mr Crawley's claimed debt of $1,800,000 which formed part of the basis on which he calculated the offered price of $2,500,000. Mr Short took issue with other estimates of the value of assets and liabilities. He also rejected the idea that Mr Crawley might have a discretion to acquire only one party's interest which would leave the other party locked in as a minority shareholder (TB 47/4902). 1265 There was no further progress in relation to the acquisition by Mr Crawley of Nabatu's shares. 1266 Mr Crawley made no offer which, had it been accepted, would have compelled him to purchase Nabatu's shares. All he proposed was that he be given the option to do so on onerous conditions, including that Athann and Nabatu acknowledge his asserted debt. Had his offer been accepted, he could have obtained control of the group by electing to acquire Athann's shares rather than Nabatu's shares. He exerted pressure on Mr Short and Mr Davis to accept his offer by reason of the cash flow difficulties of the group, as it was common ground that the group needed further advances from him to meet its obligations, and/or that it needed to be able to raise funds on security of the Newtown properties. The group's cash flow difficulties were contributed to by the excessive payments for accounting and management fees made to Vensel, as well as by the obstacles to raising funds on the security of the Newtown properties posed by Mr Crawley's assertions as to the amount of the debts secured over those properties. 1267 No reasonable offer was made by Mr Crawley for the purchase of Nabatu's shares. Rather, he obtained majority control of the companies in a deceitful way as described in Section 9. 1268 I do not accept the defendants' contention that the group was an "economic basket case" in 1997, or that receivership was inevitable if Mr Crawley had not provided finance through Aldonet but had complied with his fiduciary obligations. Despite Mr Crawley's efforts to frustrate the raising of finance, an offer of finance (which did not depend upon security being taken over the Newtown properties) had been obtained from Prudential. 1269 The hotels had substantially increased in value by 1997 compared with the values which Mr Crawley and Mr Short ascribed to the hotels in negotiations in 1995. Thus, in explaining the basis of his offers by reference to the net assets of the group companies, Mr Crawley, in April 1995, ascribed a value of $15,500,000 to Jackson's on George and $5,500,000 to the Marlborough Hotel (TB 46/4857.22). Mr Short adopted a value of $16,000,000 for Jackson's on George and $5,500,000 for the Marlborough Hotel (TB 47/4904). The August 1996 valuation of JLW Transact valued Jackson's on George as at 13 May 1996 at $19,500,000, and the Marlborough Hotel at $6,800,000. (Mr Crawley refused to make that valuation available to Mr Short or Mr Davis.) 1270 I do not regard the $1,000,000 price agreed on for the purchase of Athann's shares as being a reliable indicator of the true value of each of the shares in 1997. Moreover, for the reasons in paras [982]-[985] of Section 10, I do not accept that the Aldonet offer of finance was the only means of discharging the Westpac debt and avoiding receivership. 1271 For the reasons in Section 9, I do not accept the defendants' submissions that the manner in which Mr Crawley acquired control of the group did not involve oppressive conduct. There is nothing in Wade v NSW Rugby League Ltd which suggests to the contrary. I accept that the relationship between the shareholders had broken down. Had Mr Crawley proceeded openly and not sought to exploit his position of advantage as a purported secured creditor for in excess of $1,800,000, and had Mr Davis' shares been offered in accordance with the articles of association of each company, and had Mr Crawley not sought to frustrate the other directors' attempts to refinance, the case would have been very different. But it is not correct to say that because both Mr Short and Mr Crawley were manoeuvring to buy each other out, and a buy-out was commercially essential, the means adopted by Mr Crawley to obtain control can be dismissed as merely decisive steps the circumstances called for. 1272 In any event, the steps taken by Mr Crawley did not involve a commercial buy-out of Nabatu's share. It involved obtaining control and excluding Mr Short from further involvement in the businesses of the companies without buying Nabatu's shares. 1273 The defendants submit that Mr Short was manoeuvring to attempt to exclude Mr Crawley from any management role in the group. The defendants referred to the fact that in the mortgage proposal to Prudential, no security of Mr Crawley was offered to Prudential and Prudential was told that Messrs Short and Davis were considering "unwinding their partnership with Mr Crawley" (TB 70/7516.10). At the board meeting held on 1 April 1997, attended by Mr Mumby, Mr Mumby said that Mr Crawley was not amongst the directors and shareholders included in the application for loan. He added "there is no problem including you in the application". Mr Crawley said "good" (TB 72/7710). The defendants referred also to a conversation between Mr Wiseman and Mr Linden on 3 April 1997 in which Mr Linden told Mr Wiseman that Prudential did not require security from Mr Crawley. Mr Linden added that: " If he is not prepared to sign a guarantee, he could be removed as a director. It would be difficult for him to argue that he is being oppressed in circumstances where the remaining directors were prepared to give security ." (Linden 6/2/04 para 5). 1274 It is not profitable to speculate what would have happened had Mr Short and Mr Davis borrowed funds from Prudential to discharge the Westpac debt and had Athann's shares not been sold to Springsley. That has no bearing on what orders should be made to relieve the effects of the oppressive conduct engaged in by Mr Crawley. Even if Mr Crawley had been excluded from the future management of the group, that would not necessarily have been oppressive conduct on the part of Messrs Short and Davis. But if they had engaged in oppressive conduct, Mr Crawley would have been entitled to relief. That possibility is irrelevant to the relief to which Nabatu is entitled in respect of the oppressive conduct which has occurred. 1275 The defendants also referred to evidence that Mr Short would have found Nabatu's position as a minority shareholder after Athann's shares had been purchased as untenable. There is certainly plenty of evidence to that effect. Mr Short said as much, for example, in his letter of 2 March 1995 (TB 44/4612) referred to above. The defendants then submitted that it should be inferred that the plaintiffs would not have been prepared to provide guarantees and to mortgage the Cremorne property had that security been sought by Aldonet. They referred to the fact that in Mr Linden's letter of 3 April 1997 referred to in para [119] of Section 1, Mr Linden did not say that the Shorts would provide security for the Aldonet transaction, but that they were not prepared to consider providing such security if they were exposed to the risk of being the sole guarantor of the facility. They submitted that the Shorts were not prepared to provide security in the circumstances of Athann's shares being bought. 1276 The question never arose because such security was not required. The defendants' submission that the plaintiffs enjoyed a free ride is answered by the fact that this was the result of the means adopted by Mr Crawley to obtain majority control. Nabatu remained a shareholder. No reasonable offer was made to acquire its shares. It was entitled to expect that, as a shareholder, it would share in the profits and increases in asset values of the companies. At least that would be so in the absence of a reasonable offer to acquire its shares. 1277 The defendants submitted that the date of the so-called "disengagement" was the appropriate date for valuation because that was the time the plaintiffs knew of the facts that would have permitted them to commence proceedings to restrain the Aldonet/Springsley transaction if they saw fit to do so. I have found that the plaintiffs' laches and acquiescence in the Aldonet/Springsley transaction precludes them from claiming half of the advantage derived by Springsley from its shareholding. But its acquiescence in Springsley's acquisition of Athann's shares says nothing as to what is a fair basis for valuing Nabatu's shares. 1278 I do not accept that the management of the companies from July 1997 under the stewardship of Mr and Mrs Crawley constituted a "sea-change" in the affairs of the companies which would justify a compulsory acquisition order based upon 1997 or 1998 values. Mr Crawley described in some detail the work which he carried out from July 1997 in relation to the hotels. He said that the businesses were affected by low staff morale arising from disunity of the board of directors, and the hotel buildings were dilapidated. He worked such hours as were required, sometimes early and late, in dealing with all matters concerning the businesses. He met with the managers daily to discuss management and operational issues. He dealt with architects, plumbers, engineers, builders and the like in connection with the building works carried out at the hotels. The accounting staff continued to perform the functions which they had previously in connection with maintaining the books, preparing accounts, dealing with creditors and debtors and like activities. There is no doubt that Mr Crawley had overall responsibility for the management of the hotels and that he performed those functions. He deposed: " 7. From July 1997 in relation to management of the businesses of the hotels: (a) I continue to deal with the representatives of the lenders to Aldonet and to me; (b) I monitored daily banking balances, statements from the bank on all of the accounts, staffing numbers and wage costs as a percentage of turnover, divided into separate profit centres with pertinent revenue and costing details. I perused cash flows daily, monthly balance sheets and profits and loss accounts, liaising with the stock taking personnel, to minimise stock holding and maximise rotation of stock prior to payment. I supervised preparation of budgets. I refined the financial reporting regime and structure to be provided to me. I perused the monthly (now quarterly) BAS statements and Group Tax Remittance returns and signed same. I met, and continue to meet, Janet Kuan usually for a daily weekday meeting to discuss current bank balances, bank statement printouts and any events of the previous day of importance. Each Monday I met, and continue to meet, Ms Kuan to discuss weekend sales revenues and the prior week's performance in respect of revenue as to wage costs. I was, and continue to be, involved in annual consultations with the auditors upon presentation of trial balances and satisfying all audit requirements. (c) Until 2004, I monitored quarterly poker machine returns for the LAB; (d) I discussed with my fellow director, my wife, issues as to marketing and purchasing. I consultation [sic] with my wife I considered and discuss [sic] what competitors to the Businesses were doing and what needed to be done to maintain market share in the face of increasing competition; (e) I maintained and reviewed the long term plans for the Businesses and the buildings from which they operate. The full implementation of those plans has been restricted because of the existence of this litigation; (f) I have developed and established management systems and controls, and with the economies of scale in terms of buying and marketing, maintained and improved the profits derived from the Businesses' operations; and (g) I am informed of available software and upgrading of hardware to accommodate main office access to all rep9orting facilities within the hotel, and am involved in the negotiation and purchase of intelligent cash registers and ensuring that price changes are implemented in line with the competitors' prices in the area. (h) I supervise and communicate with the licensee/manager of each property on matters of property maintenance (covering the buildings, air-conditioning plant & equipment, kitchen equipment, furniture, carpets, painting and television supply agreements), so as to: (i) negotiate maintenance contracts and pricing; and (ii) ensure that the works quoted on are correctly performed. This includes negotiation of all maintenance contracts including the pricing for an employment of electricians, painters, plumbers, carpenters and other general maintenance work performers. 8. I have daily contact with managerial staff in respect of operational matters, covering: (a) The running and operation of the management of the businesses; (b) Maintenance and equipment matters; (c) Staffing levels; (d) Receive and review all final reports (e) Peruse monthly management profti and loss accounts and balance sheets; (f) Day to day overseeing of cash flows of the business; (g) Negotiation of all purchases of plant and equipment, furniture, fixtures and fittings; (h) Supervision of maintenance contracts of plant and equipment; (i) Finalises all contract for purchases of all group buying of stock in bulk buying; (j) Consults upon the calculation of all product margins and profit margins; (k) Ordering guidelines and management principles; (l) Basis of staff training and staff training manuals; (m) Public relation planning; (n) Marketing; (o) Oversees management of stock holdings; and (p) Daily monitoring of overdraft facilities." 1279 This was not a "sea-change" in the affairs of the companies. 1280 Mr Crawley also described the work he did in obtaining poker machine entitlements and the finance for such entitlements and the realisation of profits from the sale of poker machine permits with respect to another hotel, the Railway View Hotel. He also described the building works carried out to Jackson's on George and the Marlborough Hotel. Whilst I do not doubt that this work has increased the values of the hotels, it did not involve moving into new areas of business that would not have been expected to have been embarked upon had Mr Short not been excluded from involvement in the affairs of the companies. In causing the companies to embark upon such works and carrying out the duties he did, Mr Crawley was performing his duty as a director, and as managing director, to act in what he considered to be the best interests of the companies. I do not think he can be heard to complain that the shareholder should not enjoy the benefits of that work. He was obliged to act in the interests of all shareholders. 1281 It may also be observed that Vensel and Gladewood were paid for the management and accounting services which they provided. Whilst they will have to account for a portion of the fees received, being the portion which constitutes excessive fees, they will be entitled to keep what, on the evidence adduced, are reasonable fees for the services provided. Mr Crawley and Aldonet were paid and are entitled to keep fees of $150,000 per annum for his services. In the financial years ended 30 June 1999, 2000, 2002, 2003, 2004, 2005 and for eight months of 2006, Springsley was paid a total of $359,412 in respect of the services provided by Mrs Crawley. No claim was ultimately made by the plaintiffs for the recovery of those payments. In other words, not insubstantial payments were made to Mr Crawley, Aldonet, Vensel, Gladewood and Springsley in respect of services provided by Mr and Mrs Crawley, or their companies, which they are entitled to retain. 1282 The defendants submitted that, because the plaintiffs had no security at risk in relation to the borrowings of Marsico and J & J O'Brien, they were able to build a "hospitality empire" to trade in competition to the J & J O'Brien group and enjoy the benefits of increases in hotel values which applied across the industry generally. 1283 However, the plaintiffs were not able to realise the capital value of Nabatu's shares. On 15 September 1997, Mr and Mrs Short borrowed $1,500,000 from Prudential on security of their property at Shellbank Avenue, Cremorne in order to pay out an existing liability to Westpac of $300,000 and to purchase the leaseholds of the Australian Hotel in The Rocks and the Youth Hostel Tavern. As the plaintiffs correctly submit, the only freehold interest owned by Nabatu at the time was a one-third interest in the Bridgeview Hotel, which it had held since 1991. In the absence of a reasonable offer in 1997 or 1998 to purchase Nabatu's share, it is not just that Nabatu not enjoy the advantages of the increases in the value of the Marlborough Hotel and Jackson's on George when it was unable to realise its investment in the companies in 1997 and hence unable to make the investments in hotels which it could otherwise have done. It is clear from their behaviour in 1997 and subsequently that the Shorts wished to continue their investments in hotels. 1284 Nor was there the complete "disengagement" as the defendants contended for if, by that, was meant the parties going their separate ways with no interference by the one of the other. Not only did the plaintiffs, from 1998, maintain their claims against Mr Crawley including claims for a compulsory purchase of Nabatu's shares, but from 16 April 2003 (by the cross-claim filed on that date) Mr Crawley contended that the properties and businesses acquired by Mr Short, or members of his family through companies they controlled, being the Bridgeview Hotel, the King Street Wharf Bar, the Australian Hotel, and Scubar Down Under, were acquired by reason of breaches by Mr Short of his duty as a director of J & J O'Brien and Marsico. That claim was not abandoned until final submissions. Until then, Mr Crawley was contending that the properties and businesses acquired were held on trust for Marsico and J & J O'Brien. In other words, although the defendants contend that Nabatu's shares in J & J O'Brien and Marsico should be valued as at the "disengagement" in 1997 (with provision for interest thereafter), until final submissions, the defendants were maintaining a claim that they (at least indirectly through their majority shareholding in Marsico & J &J O'Brien) were entitled to the current values of the businesses and properties acquired by the cross-defendants. 1285 For all these reasons, I consider that the fair basis upon which to value Nabatu's shares is at their current value. Discount for Minority Parcel 1286 If Nabatu's share in J & J O'Brien and Marsico were to be offered for sale to any willing purchaser, Nabatu could not expect to obtain a price equal to one-third of the value of the net assets of the companies assessed on the assumption that there was an orderly realisation of assets, nor, (if the value were different), one-third of the value of the companies as going concerns. Any such purchaser would apply a discount to reflect the fact that it was a minority shareholding and that the articles of association of each company placed restrictions on transfer of the share. In part, the discount could be expected to reflect the vulnerability of the minority shareholder to an abuse of the majority shareholders' control of the board as exemplified in this case. Clearly, it would be inappropriate for the price to be paid on a compulsory buy-out to reflect a discount which an outside purchaser would apply for this reason. However, the discount would also reflect the fact that, as a minority shareholder, the purchaser could not control, or necessarily influence, the direction of the company. A discount for these reasons would be made even if it were assumed that those having control of the companies faithfully performed their duties to act in the interests of the companies and the shareholders as a whole and sought no personal advantage. 1287 The cases generally hold that where an oppressed minority shareholder obtains an order for compulsory purchase of shares the price is fixed pro rata according to the value of the shares as a whole without a discount for the fact that the shareholding is a minority shareholding (In re Bird Precision Bellows Ltd [1986] Ch 658 at 667; Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 at 145-146; CVC/Opportunity Equity Partners Ltd v Almeida (Cayman Islands) [2002] UKPC 16 at [40]-[41]). One reason for this is that the minority shareholder seeking a compulsory purchase order as relief against oppression is not truly to be regarded as a willing vendor. In Virdi v Abbey Leisure Ltd; Re Abbey Leisure Ltd [1990] BCLC 342, Balcombe LJ said (at 350) that the cases "show a general inclination towards a pro rata basis for valuation". 1288 In CVC/Opportunity Equity Partners Ltd v Almeida, the Privy Council said (at [41]): " 41 The rationale for denying a discount to reflect the fact that the holding in question is a minority holding lies in the analogy between a quasi-partnership company and a true partnership. On the dissolution of a partnership, the ordinary course is for the court to direct a sale of the partnership business as a going concern with liberty for any of the former partners who wish to bid for the business to do so. But the court has power to ascertain the value of a former partner's interest without a sale if it can be done by valuation, and frequently does so where his interest is relatively small: see Syers v Syers (1876) 1 App Cas 174. But the valuation is not based on a notional sale of the outgoing partner's share to the continuing partners who, being the only possible purchasers, would offer relatively little. It is based on a notional sale of the business as a whole to an outside purchaser." 1289 However, as the other cases show, that is not the only rationale for denying a discount. Nor would it be a sufficient rationale for denying a discount in the present case. Whilst Marsico and J & J O'Brien could be regarded as a "quasi-partnership", their affairs were carried on on the basis that they were corporate entities and not partnerships. 1290 It is also relevant that Nabatu was placed in the position of a minority shareholder, rather than having an equal one-third say in the operation of the companies, by oppressive conduct of Mr Crawley's. To discount the value of its share by virtue of its being a minority parcel would infringe the principle for which Scottish Co-Operative Wholesale Ltd v Meyer is authority, that the valuation must exclude the depreciating effect on the plaintiff's shares of the defendant's oppressive conduct. 1291 The defendants submitted that the cases in which courts have ordered a minority shareholder's shares to be purchased without a discount had involved unwilling vendors, who, absent oppression, would not wish to sell. The defendants submitted that Nabatu was not in that position because it had declined to restrain the transfer of shares from Athann to Springsley and had "gratefully accepted" the opportunity to use their assets to build up hotel businesses in competition with the group. 1292 I do not accept this submission. It is true that Mr and Mrs Short accepted the opportunity to build up other hotel businesses which may have traded in competition with the group after the mortgage to Westpac over their Cremorne house to secure the debts of the group companies had been released. But I do not accept that, in the absence of oppression, Mr and Mrs Short would have wished to sell Nabatu's shares in Marsico and J & J O'Brien. As this case illustrates, oppressive conduct may be engaged in by a shareholder who does not control a majority of the shares. (This is different from the proposition that a minority shareholder cannot oppress a majority shareholder.) Mr Crawley's oppressive conduct was not confined to the events of 1997 whereby Springsley acquired Athann's shares and Aldonet became the secured lender to the companies. As set out earlier in these reasons, it extended to his control of the accounting and management of the company to which excessive fees were charged for accounting and management services and his procuring (in breach of his fiduciary duties) of deeds acknowledging indebtedness which were not due, and securing that alleged indebtedness against the assets of the company. I do not accept the defendants' submission that, in the absence of oppression, Nabatu would still have been a willing shareholder. 1293 In my view, the fair basis for valuing Nabatu's share in J & J O'Brien and Marsico is that it be valued without discount for the fact that Nabatu has a minority shareholding. Conclusion 1294 For these reasons, orders for the winding-up of Marsico and J & J O'Brien should not be made if Mr Crawley is able to purchase Nabatu's shares in those companies on the basis of a valuation carried out in accordance with these reasons. 1295 The valuation should be made on the basis of what would be realised on an orderly sale of the assets of the companies in the current market. As the principal assets are the hotels, I think it unlikely that there would be any difference between a valuation on the basis of an orderly realisation of assets and a valuation of the companies as going concerns. The evidence is that hotels are valued by capitalising their future maintainable earnings. 1296 The valuations would not be on the basis of a forced sale but on the basis of current market values assuming willing but not anxious vendors and purchasers. 1297 There should be no discount for the fact that Nabatu's shares are a minority holding. 1298 In valuing Nabatu's shares, account must be taken of the assets and liabilities of Marsico (and its subsidiary Trudale), and of J & J O'Brien, to reflect the judgments to be entered pursuant to these reasons. 1299 To the extent either party raises it, the valuation will also need to take account of any liabilities for any taxation of the companies for which provision is not otherwise made in their balance sheets. It will need to take account of the tax consequences of the judgments to be entered in accordance with these reasons. 1300 It will be necessary to bring up to date the accounting for excessive accounting and management fees, for interest paid on the alleged debt of $1,769,568, for any payments made or fees credited in respect of the provision of Mr Crawley's services over and above the fees of $150,000 per annum, and for the profits derived in respect of the Aldonet loans. SECTION 18 - Conclusions 1301 For these reasons, I have reached the conclusions summarised below. 1302 Orders should not be made for the winding-up of J & J O'Brien, Marsico or Trudale unless Mr Crawley is unable to pay for the purchase of Nabatu's share in J & J O'Brien and Marsico pursuant to the order for compulsory purchase. 1303 There should be an order requiring Mr Crawley to purchase Nabatu's share in J & J O'Brien and Marsico at a valuation of one-third of the net assets of each company without discount for its being a minority parcel. Each company's assets should be valued not on the basis of a forced sale, but on the basis of current market values assuming willing, but not anxious vendors and purchaser, or purchasers. 1304 In the valuation of Nabatu's shares, the assets and liabilities of Marsico (and its subsidary Trudale) and of J & J O'Brien are to reflect the judgments to be entered pursuant to these reasons. 1305 To the extent either party raises it, the valuation will also need to take account of any liabilities for taxation for which provision is not otherwise made in the balance sheets. It will also need to take account of the tax consequences to the companies of the judgments to be entered pursuant to these reasons. 1306 The plaintiffs' claims that Mr Crawley pay equitable compensation to Trudale, Marsico and J & J O'Brien in respect of losses incurred in the Elizabeth Street Centre development should be dismissed. 1307 There should be judgment for Marsico against Mr Crawley in the sum of $49,140.17 together with interest at the prescribed rates from 29 September 1990 in respect of moneys paid to Aubrey F Crawley & Co which Mr Crawley was not authorised to apply to his own benefit without following the procedures prescribed by clause 8 of the Legal Profession (Trust Account and Controlled Money) Regulations 1988 (NSW). 1308 There should be judgment for Trudale against Mr Crawley for: (a) $20,000 together with interest at the prescribed rates from 24 December 1990; (b) $15,000 with interest at the prescribed rates from 5 September 1991; and (c) $57,875.76 with interest at the prescribed rates from 19 June 1991. 1309 The two payments totalling $35,000 are moneys received by Aubrey F Crawley & Co as conveyancing costs on the purchase of the Elizabeth Street Centre development which Mr Crawley had no authority to receive. The sum of $57,875.76 is the difference between the amount of $200,000 I have concluded was received by Aubrey F Crawley & Co on 19 June 1991 by way of professional fees for acting for Trudale to which Mr Crawley was not entitled, less a credit of $142,124.24 for moneys repaid by Mr Crawley. 1310 Otherwise the plaintiffs' claims that Mr Crawley should account for the amount the plaintiffs contended was the difference between legal fees paid to Aubrey F Crawley & Co and accounts rendered should be dismissed. 1311 The deed of acknowledgement of 30 June 1994, and the deeds of charge of 22 September 1994 and 27 February 1995 should be rescinded ab initio. 1312 It should be declared that J & J O'Brien was not indebted to Vensel for the amount of $1,315,990 as at 30 June 1995 nor for interest purportedly capitalised on that debt for the years ended 30 June 1996 and 30 June 1997. It should be declared that J & J O'Brien was not indebted to Vensel or to Gladewood in the sum of $1,769,567.79 as recorded in J & J O'Brien's financial statements from the year ended 30 June 2000. Vensel and Gladewood should be ordered to repay the amounts of interest received by them in respect of that alleged debt from 1998, such repayments to be made with interest at the prescribed rates from the time such interest payments were received. There should be an order that Mr Crawley pay equitable compensation to J & J O'Brien in respect of the interest payments made on the alleged debt. 1313 It should be declared that the amount of $414,250.74 received by J & J O'Brien from the proceeds of sale of the Racecourse Hotel on 1 April 1997 and the sum of $91,000 received by J & J O'Brien as the proceeds of Marsico's insurance claim on 15 May 1997 should be taken to have been credited against Mr Crawley's loan account with J & J O'Brien for advances, which account was transferred to Vensel as at 30 June 1999. It should be declared that the debt owed by J & J O'Brien in respect of that account was repaid by 30 April 1998. 1314 There should be an order that Mr Crawley and Vensel account to J & J O'Brien for the interest paid to them from 22 January 1993 in the amounts specified in the table in para [531] of these reasons, less: (a) interest at the rate of 17.5% per annum compounded monthly on the advance of $100,000 made on 29 April 1994 until that mortgage is taken to have been discharged on 1 April 1997; and (b) interest at the prescribed rates on advances made by Mr Crawley from 22 January 1993 as set out in the table at para [512] of these reasons until such advances are taken to have been repaid by 30 April 1998, in each case on reducing loan balances as shown in the table at para [512] of these reasons, and by the crediting to such loan balances the credits purportedly applied in reduction of the alleged debt on Vensel's loan account with J & J O'Brien as shown in para [515] of these reasons. 1315 Interest at the prescribed rates will be payable on the amounts of overpaid interest to be accounted for pursuant to the previous paragraph. 1316 Each of J & J O'Brien, Marsico, the Australian Youth Hotel partnership, and the Racecourse Hotel partnership are entitled to recover from Mr Crawley and Vensel as an account of profits after just allowances, the difference between the amounts paid for accounting and management services from 16 June 1992 to 30 June 1997 and reasonable fees for those services as determined in accordance with these reasons. Mr Crawley and Vensel are liable to account only for the profits derived by each of them and not for the profits derived by the other. Mr Crawley is liable to pay equitable compensation in the same amounts, being the difference between the fees paid and reasonable fees for the services provided, as determined in accordance with these reasons. The amount of fees paid in respect of such services (which include fees paid to Vensel in respect of services provided by Mrs Crawley, but not wages paid to Mrs Crawley, and received by Vensel) are as set out at paras [738] and [752]. The amount to be accounted for on an account of profits after the making of just allowances, or as equitable compensation for payment of more than reasonable fees, is 37.88% of the fees charged and received as set out in those paragraphs. 1317 Vensel and Gladewood are liable to account for profits in respect of fees for management and accounting services received by them from 1 July 1997 after just allowances on the same basis. I have found that Ms Kuan's statement of fees charged and received is to be preferred to the evidence of Mr Bell on this topic. Mr Crawley is liable to pay equitable compensation in the same amounts, being the difference between the fees charged and reasonable fees. 1318 Aldonet is liable to account to J & J O'Brien and to Marsico for profits derived on loan facilities provided to the group in the amounts set out in the tables which are annexures B and C to section 10 of these reasons (being the plaintiffs' schedules 3(e)(i)(2):2 and 10(e)(i)(2):1). It is also liable to account for $20,540 to each of Marsico and J & J O'Brien for its profit on the establishment fees for its 1997 facility. 1319 Mr Crawley is liable to repay to J & J O'Brien and Marsico the sums of $88,297 and $100,000 respectively credited to his loan account as alleged bonus commission payable to him pursuant to the agreement for provision of his services of 11 July 1997, together with interest at the prescribed rates from 30 June 2001. It should be declared that Aldonet is not indebted to J & J O'Brien or Marsico in respect of commission credited to it. If any such commission has been paid to Aldonet, there should be an order for repayment with interest at the prescribed rates. Mr and Mrs Crawley are liable to pay equitable compensation to the extent that J & J O'Brien is out of pocket by reason of the crediting of commission to Aldonet and in respect of the commission credited to Mr Crawley. 1320 The plaintiffs' claims that Mr Crawley or Aldonet repay the amounts of $150,000 per annum paid as salary or fees for the provision of Mr Crawley's services should be dismissed. 1321 Unless the parties agree to a different order to give effect to these reasons, a receiver should be appointed without security to the assets of the Australian Youth Hotel partnership and an order made that Marsico pay to the receiver the sum of $1,242,762 together with interest at the prescribed rates from 4 July 1997. It may be necessary to make orders in relation to the receivership, including orders as to how costs of the receivership should be borne between the individual partners. If necessary, those questions can be addressed on the bringing in of short minutes of order. 1322 Marsico should be ordered to pay Nabatu $1,321,533.50 together with interest at the prescribed rates from the time of the completion of the sale of the Racecourse Hotel. 1323 The first to sixth defendants conceded the plaintiffs' claim that Marsico account to Nabatu for half of the profits derived from the trading of the Racecourse Hotel under licence. The orders should provide for the payment to be made with interest at prescribed rates. 1324 It should be declared that any benefit or gain derived, or which hereafter may be derived, by Mrs Crawley, Mr Crawley, or Marsico from the hotelier's licence no. 104863 is held on trust for Nabatu and Mr Crawley as partners of the former Racecourse Hotel partnership. 1325 The plaintiffs' claim that Nabatu be entitled to elect that its shares be purchased at a price equal to one-half of the current value of the companies upon paying Mr Crawley $500,000 with interest from 16 May 1997, should be dismissed. 1326 The plaintiffs' claim that it should be declared that Mr Crawley is liable to indemnify J & J O'Brien in respect of penalties or interest which J & J O'Brien might be or become liable to pay arising from the non-lodgment of income tax returns or the lodgment of incorrect or false returns should be dismissed. If, on a valuation of Nabatu's share in J & J O'Brien, either party contends that the company has a liability or contingent liability to pay penalties or interest, and if that question has not been finally determined as between the Commissioner of Taxation and J & J O'Brien, then in valuing J & J O'Brien's liabilities, it will be necessary to assess the value of its liability to pay additional tax, penalties and interest. In the event that a valuation of J & J O'Brien's liabilities includes a component for penalties and interest payable to the Commissioner of Taxation, then its assets should be valued on the basis that it is entitled to be indemnified by Mr Crawley in respect of that part of any such liability for penalties and interest as arises from the non-inclusion of J & J O'Brien's share of the profit from the Yurong Street development in its income tax return lodged on 14 September 2004, but not otherwise. 1327 The plaintiffs' claim that Mr Crawley is liable to pay equitable compensation or damages, or to account for profits derived by Mr Guderjahn, in respect of the operation of the hotdog stand should be dismissed. 1328 The short minutes will need to include orders to give effect to the parties' agreement on the treatment of the loan from Nabatu as trustee of the Short Family Superannuation Fund, and the liability of the estate of Mr Short for advances of $83,160. 1329 If Marsico and J & J O'Brien have continued to pay or acknowledge a liability for: (a) interest on the alleged debt of $1,769,567.79; (b) interest to Aldonet which includes a margin over the cost of funds to Aldonet: (c) fees for accounting and management services on the same basis as were paid up to 2005; or (d) commission pursuant to the agreement for provision of Mr Crawley's services, it will be necessary to update the accounting in accordance with these reasons to the time the valuation of Nabatu's share is completed and final orders made. 1330 I will stand the proceedings over to a convenient time to deal with questions of costs to date, and to hear submissions as to how the valuation of Nabatu's shares should proceed. On that occasion, the plaintiffs' counsel should bring in short minutes of order in accordance with these reasons. 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.