Bergmuller v Auswild & Ors; Parker v Auswild & Ors [2022] HCATrans 152 (9 September 2022)

Last Updated: 9 September 2022

[2022] HCATrans 152

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M13 of 2022

B e t w e e n -

JAMES AUSWILD BERGMULLER

Applicant

and

JAMES RONALD AUSWILD

First Respondent

BARBARA JOAN AUSWILD

Second Respondent

RONALD RAYMOND AUSWILD

Third Respondent

Office of the Registry
Melbourne No M14 of 2022

B e t w e e n -

PETER PARKER

Applicant

and

JAMES RONALD AUSWILD

First Respondent

BARBARA JOAN AUSWILD

Second Respondent

RONALD RAYMOND AUSWILD

Third Respondent

BARONJA INVESTMENTS PTY LIMITED (ACN 071 230 709)

Fourth Respondent

GEORGE KEITH KEARNS

Fifth Respondent

ROSE BAY ESPLANADE PROPERTIES PTY LTD (ACN 000 259 263)

Sixth Respondent

JAMES RONALD AUSWILD (AS EXECUTOR OF THE ESTATE OF RONALD WILLIAM AUSWILD, DECEASED)

Seventh Respondent

BARBARA JOAN AUSWILD (AS EXECUTOR OF THE ESTATE OF RONALD WILLIAM AUSWILD, DECEASED)

Eighth Respondent

JAMES RONALD AUSWILD (AS EXECUTOR OF THE ESTATE OF JOAN PATRICIA AUSWILD, DECEASED)

Ninth Respondent

BARABRA JOAN AUSWILD (AS EXECUTOR OF THE ESTATE OF JOAN PATRICIA AUSWILD, DECEASED)

Tenth Respondent

JAB NOMINEES (AUST) PTY LTD (ACN 603 601 994)

Eleventh Respondent

SIMONE CATHERINE FERRY

Twelfth Respondent

MARTINA CAROLE PARKER

Thirteenth Respondent

KATHLEEN NICOLE ALEKNA

Fourteenth Respondent

JAMES AUSWILD BERGMULLER

Fifteenth Respondent

FINANCE & GUARANTEE COMPANY PTY LTD (ACN 000 032 548)

Sixteenth Respondent

PRESTON MOTORS PTY LTD (ACN 004 082 213)

Seventeenth Respondent

PRESTON MOTORS (PROPERTIES) PTY LTD (ACN 008 467 427)

Eighteenth Respondent

PRESTON MOTORS (PARTS SALES) PTY LTD (ACN 005 142 978)

Nineteenth Respondent

ACN 008 392 505 PTY LTD (ACN 008 392 505) (FORMERLY KNOWN AS COMMONWEALTH MOTORS PTY LIMITED (ACN 008 392 505))

Twentieth Respondent

PRESTON MOTORS (HOLDINGS) PTY LTD (ACN 004 357 279)

Twenty First Respondent

AUSWILD SECURITIES PTY LTD (ACN 000 718 178)

Twenty Second Respondent

FINTEE INVESTMENTS (CANBERRA) PTY LTD (ACN 008 461 818)

Twenty Third Respondent

Applications for special leave to appeal

GORDON J
GLEESON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA AND BY VIDEO CONNECTION

ON FRIDAY, 9 SEPTEMBER 2022, AT 12.30 PM

Copyright in the High Court of Australia

GORDON J: In accordance with the protocol for remote hearings, I will announce the appearances of the parties.

MR P.W. COLLINSON, KC appears with MS F.J. BENTLY for the applicants in both matters. (instructed by Shanahan Tudhope Lawyers)

MR S.V. SHEPHERD appears for the respondents in M13/2022 and the first to 10th respondents in M14/2022. (instructed by Pikes & Verekers Lawyers)

There are submitting appearances for the 11th to 23rd respondents in M14/2022.

GORDON J: Yes, Mr Collinson.

MR COLLINSON: Thank you, your Honours. In relation to the first proposed ground of appeal and related special leave question 1, which I will call the Brickenden point, can we make these six points in oral argument. The first, if I can say by way of introduction, is that the judge’s reasoning on this point is essentially found in paragraph 208 of the judgment where, having found a conflict of interest, the judge posited the counterfactual of an independent director and whether that person would have pursued or issued the company proceeding and found that the judge did not know, but held, nonetheless, for the plaintiffs below, on the basis of a proposition that on causation one:

should not speculate against the interest of the plaintiff.

That was founded upon the Brickenden decision as interpreted by the Victorian Court of Appeal in an earlier decision – Pearce v Australian Tallow Producers.

GORDON J: Before you get to Brickenden, can I just ask one question of substance? You note in your reply the distinction between substitutive and reparative compensation, and as I think you understand – or as I understand your reply to accept – in relation to the first category, questions of causation do not arise. They only arise in relation to reparative. Am I right that the order made by the trial judge for repayment of the costs that were spent – and the only place that I could find it, I think, was set out, for present purposes, in a footnote. That is in application book 286 in footnote 13. Is that the order we are concerned with?

MR COLLINSON: The order, I think, your Honour, that we are concerned with is at application book page 142. In particular, paragraphs 4 to 6.

GORDON J: Yes, as I understand that is the order – that is very helpful. Is it the position that that has two elements to it? It has a substitutive element, which is the element to repay that which was paid out by the company, and a reparative element, being the additional costs?

MR COLLINSON: No. The judge found, and we agree with the judge on this, that the whole of the claim against the applicants, for whom I appear, was reparative.

GORDON J: How can that be, though, when it is reimbursing the plaintiffs? It is a reimbursement order, at least in relation to the payment out of the costs of the running of the litigation. The separate question of their own costs may be a different issue. In other words, is there a confusion here between the two elements? Because one gives rise to causation questions and the other does not.

MR COLLINSON: Well, your Honour, the first point we would make is that although said to be reimbursement, it is, in truth, reparative because it is not – it is essentially claiming a loss attributable to the expenditure on the litigation by the company. The second point, though, we make, is that we would not concede that in the substitutive characterisation that causation is wholly excluded from consideration. Although Re Dawson is commonly cited for that proposition, if one looks at that decision, Justice Street does allow for causation for that kind of claim.

Indeed, in Youyang v Minter Ellison, which might be – although the Court did not use the dichotomy of substitutive and reparative – it is probably more a substitutive claim, and the Court in Youyang – as we read it – although the appellant lost on the facts, does not rule out a causation analysis. But we start from the position that the judge below found the whole of the claim to be reparative, and we endorse that.

GORDON J: Even if you are right in relation to the characterisation and as I said, at the moment, I am not quite clear on that question, is the contention you now put a reversal of onus?

MR COLLINSON: No, we say the onus should not ever move, the onus lies on the plaintiff to make out a causation case for equitable compensation, and so the onus lies on the plaintiff to establish that. That was confirmed in the Foresters Case, although incidentally, really in the judgment of Justice Gageler that the “but for” test for causation needs to be satisfied by an applicant for relief for equitable compensation. But more ‑ ‑ ‑

GLEESON J: Mr Collinson, I do not quite understand that. How does the plaintiff identify the counterfactual? It cannot just be a matter of positing an independent director, surely. There needs to be more flesh on the bones.

MR COLLINSON: That could be, your Honour, but there were two possibilities, in fact, for the counterfactual. The first, and the only relevant one analysed by the courts below was an independent director, the idea presumably being that if all of the directors would be disabled from making a decision due to conflict then someone independent would have to make the decision. But our case is to say that in that scenario, consistently with the decision of Justice Edelman in this area, the plaintiff had to show that no reasonable director – that is, an independent director – would have commenced the company proceeding, their onus ‑ ‑ ‑

GLEESON J: Are you suggesting that they would have – how on earth would they have done that without any evidence from your side about how an independent director would act?

MR COLLINSON: Well, the directors gave evidence. Mr Parker – one of them gave evidence at the trial and Mr Bergmuller gave evidence at the company proceeding. We would resist the idea that we had to do something here. The way in fact the case was really put by the respondents below was to say that everyone would be disabled from voting and therefore there would not have been a company proceeding, because there would be no decision‑making authority within the PMG companies who could decide to do that. But I think in the course of final oral address before the judge, the judge moved the discussion towards the notion of an independent director and what might that person do.

GLEESON J: But, Mr Collinson, the idea or the criticism of Brickenden is not that the plaintiff needs to disprove all possible counterfactuals, it is that the party in your clients’ position should have an opportunity to identify a counterfactual that can then be the subject of the loss assessment.

MR COLLINSON: The way we read Brickenden, it is perhaps only different interpretations, but where it applies – and I will come in a moment to a submission that it does not apply anyway – then the court sets its face against an argument that the non‑disclosed facts would have caused the plaintiff to make a different decision because it says that speculation about that is not relevant and, indeed, in the first sentence, goes further by saying that the defendant fiduciary cannot be heard to maintain that disclosure would not have altered the decision to proceed, seeming to estop or use like language to shut out a causation analysis.

Justice Kirby, who spent the most time in Maguire v Makaronis analysing Brickenden did treat it, as we understand it, as substituting an inquiry about materiality for causation, so that once the court finds that the non‑disclosed fact is material, that is the end of the matter and one does not ask any further what the plaintiff for relief might have done. Can I perhaps just keep slightly on track with my points, and I will make them more briefly now.

The first point we make is to say that the Brickenden dictum or doctrine or rule is both well‑known and very contentious. There is a wealth of academic debate and also debate in the case law – and most of the Australian literature ends with the comment that clarity is likely only to come with resolution of the matter by this Court.

GORDON J: I think there is no doubt that it has been the subject of criticism, Mr Collinson. I think the concern is whether or not it even arises here, first because of the reparative substitutive distinction which we have been raising with you; second, the onus question, which seems to be a difficult issue for you, in the sense that the plaintiff has to address and deal with only – although I think it is – establishing that but for the decision, the cost would not have been incurred. It was left to you to raise whatever counterfactuals or other matters that would have broken that “but for” question. That is not – until those two things are answered . . . . . to Brickenden, do we?

MR COLLINSON: Can I say this about Brickenden – and this is our second point – it only applies when, by its terms, if one looks at the opening words:

When a party, holding a fiduciary relationship, commits a breach of his duty by non‑disclosure of material facts –

This was not a case of non‑disclosure of material facts at all. This was a case of a conflict of interest. The relevant counterfactual – which the judge correctly embarked upon – is to ask what would have happened if the directors had not put themselves in the position of conflict. You do not ask whether or not – what might have happened if the fiduciary had disclosed the conflict.

So, our attack on the reasoning below is to that they – the reliance on the notion of not speculating against the interests of the plaintiff is only enlivened where one has this non‑disclosure of material facts, and by its terms, Brickenden does not apply there.

To answer the point about onus, or hopefully to do so, the point we make is that if one reads, for example, the decision of Justice Edelman in Agricultural Land at paragraph 397, his Honour again was faced in that case with a conflict of interest case involving directors, and he held that the plaintiff could have established a causal link by establishing that no reasonable director would have authorised the company in question to enter into the relevant contract.

So, the reasoning of Justice Edelman assumed that for the plaintiff to make out causation the plaintiff had to rebut, or had to show, that no reasonable director would have caused the decision to be made, and that is exactly the same as the factual situation before the Court here, being what an independent director would have done.

We say that the onus in a claim certainly for reparative relief, undeniably, is on a plaintiff. Where the counterfactual question that is thrown up involves asking, in a conflict situation, what would a substitute decision‑maker have made, the onus lies upon the plaintiff to show that that hypothetical decision‑maker would not have taken the action that led to loss. That is the law. Now, the only way to escape that is by the application of Brickenden, which – if it is correct – allows the do not speculate principle to be imported to favour the plaintiff. But as I say, our submission is that it did not even apply.

We put third the submission that the Brickenden decision – which has never been considered by this Court – ought not to be followed because it effectively substitutes a mechanical device for the fact‑specific causation inquiry that is involved with every claim for equitable compensation. And we would say substitutive as well, if being claimed in equity.

Because what, as Justice Kirby recognised, what it does is it simply say, well, you only ask whether the non-disclosed fact was material and if you satisfy that objective inquiry, that is the end of the matter. I should also mention that in another decision of the Court of Appeal, Watson – which we mentioned in submissions – the decision in Brickenden, again in the context of a conflict of interest case, was distinguished on the basis that it did not involve the non-disclosure of material facts.

What happened in the decision in Australian Tallow Producers, referred to by the judge at paragraph 208, Pearce v Australian Tallow Producers, is that the Brickenden principle was enlisted not in the context of causation, but in the context of the assessment of the quantification of loss. The Chief Justice – as she then was – said that in that scenario the Brickenden principle applies, but we would say plainly that Brickenden is directed only to causation, so ‑ ‑ ‑

GORDON J: Mr Collinson, given the time, do you propose to address grounds 2 and 3?

MR COLLINSON: Yes. I will do those as briefly as I can. On the second ground, we say that if one looks at Mills v Mills and other cases that we have cited in footnote 24, where directors have a proper moving cause for their decision that does not involve an improper purpose or some other wrongful conduct, it is not a conflict of interest for them simply to be conscious of some kind of advantage to them – or one of them, in their capacity as a shareholder. What the courts below have done is to apply a familiar idea of conflict of interest drawn from trustees and solicitors, which is to ask whether there is a reasonable possibility of conflict, but the law appears to be that it is different for company directors – for understandable reasons – because they usually ‑ ‑ ‑

GORDON J: Can I ask this question – sorry to interrupt – is it any more than just a factual question where it is application of established principles to the facts? In other words, someone might come to a different conclusion, but do you challenge the principles that are set out in application book 67 and following?

MR COLLINSON: I have to look that up, and I might do it before I make my reply, but we are happy with the factual findings below, your Honour, because the judge said that the case, based on section 181 which includes improper purpose and not in the best interests of the company all failed, and we say, on that basis, it was not a conflict of interest merely for the directors to be aware of some advantage in the saving of costs with a related shareholder’s proceeding.

On the last matter, your Honour, I am really pretty content to rely on our submissions, but perhaps I will just say that there seems to be different views in appellate cases about whether 233, which is for oppression suits, can be used as the vehicle to make a claim for what is effectively compensation, and we would say that, although the words of 233 could be said to be broad, it has to be read as the whole of the Corporations Act, and 236 is effectively just read out of the equation.

Those are our submissions in‑chief.

GORDON J: Thank you, Mr Collinson. Mr Shepherd.

MR SHEPHERD: Thank you, your Honour. Your Honour, first of all, if I can just deal with the points that you raised with Mr Collinson in relation to substitutive or reparative, that dichotomy as pointed out in Agricultural Land Management. We say that this is clearly a case of substitutive compensation in the sense that, given that it stems from the fiduciary’s obligation to account for the breach of fiduciary duty that it was found to be, that altercation to account deals with . . . . . three categories, either unauthorised expenditure, wilful default or an account of profits.

This case, we say, is a paradigm example of unauthorised expenditure in breach of the fiduciary duties as found by the court below. These directors then expended some $15 million, including GST, on prosecuting the company proceedings, and also at the same time exposed the company to the possibility of adverse costs orders against the successful defendants, which turned out to be the case.

We would say that, without question, the money spent on the company proceedings is substitutive in the sense of being a common account, but equally in relation to the trial judge’s orders that the errant fiduciaries reimburse the company for the cost of the adverse costs orders. That is also substitutive in the sense that the court is entitled to the full benefit of hindsight, and made the decision at the time that it is brought before the court. At the time that the court made those orders, that was the point at which the company was liable to pay the successful defendants’ costs, and therefore it includes that part of the costs as well.

Your Honour, there was one thing that Mr Collinson mentioned before – that causation did not apply in the case of – the question of causation did not apply in the case of substitutive compensation. I would just like to be clear that our position is in relation to this, that the question of causation does not arise in this case. However, if, for some reason ‑ ‑ ‑

GORDON J: Mr Shepherd, may I just clarify that. Does not arise because this is substitutive compensation?

MR SHEPHERD: Yes. It is essentially a common account, your Honour.

GORDON J: Was that argument run and put to the Court below?

MR SHEPHERD: I do not think it was put on that basis, your Honour. It was put on the basis that the directors were acting in breach of their fiduciary duty where they ‑ ‑ ‑

GORDON J: Sorry, I am being more direct, I apologise, Mr Shepherd. Was it put on the basis that there was no issue of causation because it was a substitutive compensation?

MR SHEPHERD: No, I do not think it was, your Honour. Sorry, your Honours, if I can continue – but if it is the case that there is some question of onus to the proof as to a hypothetical or a counterfactual, the applicants still have the remaining difficulties that both counterfactual scenarios involved a changing facts other than the wrongful act and introduced new acts in the form of a series of events.

Secondly, there was no evidence at all from the applicants in support of their contention. Submissions on these points were pure conjecture and speculation, and both hypothetical counterfactuals put forward contravened legal presumptions against further wrongdoing. In relation to the point about no evidence at all being provided by the applicants in the hearing below as to a possible counterfactual, we would rely on this Court’s approval of the comments by Justice Hodgson in the Court of Appeal of New South Wales in Youyang where his Honour said:

if a trustee wishes to assert that a breach of trust caused no damage for the reason that the beneficiary would, if asked, have authorised the very action which constituted the breach of trust, then there is at least an evidentiary onus on the trustee to make good that proposition.

There simply was no evidence. At no time did either of the directors in question seek to call a meeting and there was no evidence if a meeting had been . . . . . how the JFJ shareholders would have voted. But in relation to that point, your Honours, I think it is important to note that, although the JFJ shareholders had 52 per cent of the shares in Preston Motors, it was not a homogenous group or it was not one block of shares.

There was the director Mr James Bergmuller, he held that entity JAB Nominees was the vehicle through which Mr Bergmuller’s shares were held. Then they were his three cousins, referred to in the Courts below as “the Parker Women” ‑ ‑ ‑

GORDON J: I think, Mr Shepherd, we can take it – that contention without the detail, I think, in the circumstances of the time limits, if that is all right.

MR SHEPHERD: Yes, certainly, your Honour. Your Honour, that deals with two issues that we wanted to deal with in relation to causation point by the applicants. In relation to the conflict of interest point raised by the applicants, your Honours, we would say that on the facts of this case, it is an unsuitable vehicle for this Court to deal with questions raised by the applicants. Despite the applicants’ reliance on what Chief Justice Latham said in Mills v Mills that:

it would be ignoring realities and creating impossibilities in the administration of companies to require that directors should not advert to or consider in any way the effect of a particular decision upon their own interests –

That proposition by the applicants ignores the realities in this case. It was, as the primary judge and the Court of Appeal said, a coordinated plan engaged in by the directors. Put simply, if there were a coordinated plan, the directors had to be at least swayed by that plan and that, irrespective of taking into account the admission by Chief Justice Latham in Mills, this is not a place of “rigid and prophylactic” application of the non‑conflict rule, there were two directors.

The difficulty for the applicants is that, even if for the sake of argument and as matter of general principle, the applicants’ contention has merit in how it is applied to the directors, the unchallenged findings of fact in this case, as set out in the primary judge’s judgment at page 69 to page 75, paragraphs 132 to 144, were that the applicants:

had a personal advantage in the filing and maintenance of the Company Proceeding such that a reasonable person would think there was a real or substantial possibility of them being swayed by –

the decision. They had:

a substantial personal interest in the Shareholders Proceeding.

The JFJ Shareholders were “advantaged by . . . the Company Proceeding”:

The Shareholders Proceeding was not in the interests of the Plaintiff Companies –

And the applicants:

knew about the Shareholders Proceeding –

prior to the commencement of the company proceedings. Further relevant on the finding by his Honour were at page 110, paragraphs 234 to 239, on page 112, where – I will not recite those to your Honours, but effectively this was a case – the facts of this case are that parallel proceedings were commenced at effectively the same time, the parallel proceedings were such that there were common conduct allegations from the company proceeding which were relied upon in the shareholders proceeding.

By nature of the relief in the shareholder proceeding, the company would not have received the benefit of its own proceeding. The company spent $15 million – including GST – on its proceeding, and the shareholders in the shareholder proceedings spent about a tenth, as the Court of Appeal identified, or approximately $1 million on their proceeding. That was a fact taken to account in applying the principle, in applying the facts of this case to the principles of whether a director would be swayed by a matter, but they were facts taken into account in determining that the directors were indeed in breach of the no‑conflict rule by reason of being reasonable person . . . . . they would be swayed by these circumstances.

In relation to the third point, your Honours, I think that it is important – your Honours already have been taken to the order of the primary judge at page 137, and that order was for reimbursement of the costs and disbursements incurred by the plaintiff in the company proceedings.

The first thing to note is that the applicants were not ordered to pay compensation, nor was that the nature of the order made. The order was made against the applicants in person and was for them to reimburse – or restore or substitute – the trust property, being Preston Motors’ money, that was dissipated by the applicants when acting in breach of fiduciary duty, and they engaged in the unauthorised expenditure. Justice Riordan’s order at first instance is squarely in accord with the findings involved in the decision in Maguire v Makaronis where the plurality said:

The obligation of a defaulting trustee is essentially one of effecting restitution to the trust estate.

Their Honours in that case quoted Lord Browne-Wilkinson in Target Holdings, the:

Courts of Equity did not award damages but acting in personam, ordered the defaulting trustee to restore the trust estate.

As to whether such relief would be granted under section 233, we would rely, as did the Victoria Court of Appeal in this case, on Fexuto v
Bosnjak Holdings.

GORDON J: Your short point, Mr Shepherd, is that section 233(1)(j), in effect, was not in play.

MR SHEPHERD: I am sorry. I missed that, your Honour.

GORDON J: I understood that your short point on this ground was that the nature of the order made did not engage section 233(1)(j).

MR SHEPHERD: Yes, your Honour. Your Honour, I do not think there is anything further I wish to say on that at this point. Unless I can be of assistance to your Honours, I will sit down.

GORDON J: Thank you very much, Mr Shepherd. Anything in reply, Mr Collinson?

MR COLLINSON: Just these quick points, if your Honour pleases. Number one, on any view of the matter, because part of Justice Riordan’s order was that the directors indemnify the PMG companies for adverse costs orders, it cannot be wholly a substitutive claim, it must, to that degree, be reparative.

The second point is that the central question is onus. We say, plainly on the authorities, the onus is with the plaintiff. That gets knocked out if Brickenden applies, which it does not. The decision of Justice Hodgson about an evidentiary onus is easily satisfied here, particularly if one looks at the alternative scenario, which we argued for but which the judge did not mention, being that the 52 per cent shareholders would have authorised the proceeding. They plainly would have because they authorised – that 52 per cent authorised the shareholders proceeding which was designed to dissolve limitation problems with the company proceeding. So, obviously they would have supported the company proceeding if there had been a conflict.

The test for substitutive compensation, your Honour, is in Elliott and Mitchell Remedies for Dishonest Assistance (2004) 67 MLR 16 at 28, developed of course by those academics, and it assumes that there has been wrongful conduct for a reparative claim and that is what was the case here with the alleged conflict of interest.

GORDON J: Anything else, Mr Collinson?

MR COLLINSON: Perhaps just one other point. The coordinated plan is a furphy because the judge held that there was not an improper purpose with the company proceeding, so the coordinated plan was irrelevant because the company proceeding would have been issued in any event.

GORDON J: Thank you. The Court will retire to consider its position.

AT 1.07 PM SHORT ADJOURNMENT

UPON RESUMING AT 1.11 PM:

GORDON J: The proposed appeal does not enjoy sufficient prospects of success to warrant the grant of special leave to appeal and is otherwise not an appropriate vehicle to consider the question of principle in relation to equitable compensation. The applications are dismissed with costs.

Adjourn the Court, please, to 10.00 am on Tuesday 13 September.

AT 1.12 PM THE MATTER WAS CONCLUDED