• The impact of this case on ATO policy is discussed in Decision Impact Statement: Howard v Commissioner of Taxation (Published 14 August 2014).

HOWARD v FC of T

Court:

MEDIA NEUTRAL CITATION: [2014] HCA 21

HAYNE AND CRENNAN JJ.

47. In the Supreme Court of Victoria, the appellant taxpayer (and others) sued, and obtained judgment ^[59] Disctronics Ltd v Edmonds [ 2002 ] VSC 454 ; Disctronics Ltd v Edmonds (No 2) [ 2002 ] VSC 534 ; Edmonds v Donovan (2005) 12 VR 513 . , for equitable compensation from Christopher Edmonds and Peter Cahill for breaches of fiduciary duties. Messrs Edmonds and Cahill ( " the defaulting venturers " ) were found to have breached fiduciary duties they owed the appellant and three others (Kevin Donovan, Michael Quinert and Richard Bucknall) in connection with a joint venture the six had agreed to undertake. The plaintiffs alleged that the defaulting venturers had diverted to their own use a business opportunity being pursued by the joint venture.

48. Disctronics Ltd, a company of which the appellant and Messrs Donovan and Quinert were directors and shareholders, was a plaintiff in the Supreme Court proceedings. Its claim that the defaulting venturers owed it fiduciary duties was rejected.

49. The Commissioner of Taxation assessed the appellant to income tax on the basis that the amount the appellant received in satisfaction of the judgment was part of his assessable income for the relevant year (2005). The appellant alleged that he received the amount as trustee for Disctronics and that it was, therefore, incorrectly included ^[60] Income Tax Assessment Act 1936 (Cth), ss 6(1), definition of “ trustee ” , 96 and 97. in his assessable income.

50. The appellant appeals to this Court against orders of the Full Court of the Federal Court of Australia (Middleton, Perram and Dodds Streeton JJ) allowing ^[61] Howard v Federal Commissioner of Taxation (2012) 206 FCR 329 . , in part, the Commissioner ' s appeal against orders of a single judge of the Federal Court (Jessup J). The Full Court held, contrary to the decision ^[62] Howard v Federal Commissioner of Taxation (No 2) (2011) 86 ATR 753 . of the trial judge, that the sum received by the appellant in satisfaction of the judgment of the Supreme Court of Victoria was correctly included in his assessable income. The appeal to this Court should be dismissed.

51. The appellant ' s argument in support of the appeal had two principal strands. First, he submitted that the award of compensation made in his favour was a gain to him arising from a project in which Disctronics sought to invest and that he could not, consistently with his fiduciary duties to the company, retain that gain for himself to the exclusion of the company. Accordingly, so the argument continued, what the appellant received came to him as constructive trustee for Disctronics. Second, he submitted that an assignment agreement ( " the litigation agreement " ) he had made with Disctronics and two of the other plaintiffs at about the time that the Supreme Court proceedings were instituted " operated as confirmation of the constructive trust arising from the directors ' duties " . Alternatively, he submitted that the agreement effected an assignment of the appellant ' s right to receive the amount of equitable compensation rather than the proceeds of that action.

52. The appellant made a third, but subsidiary, submission, namely that if his principal arguments were rejected, the Commissioner ' s assessment was excessive because the appellant should have been, but was not, allowed a deduction for the legal costs incurred in prosecuting the claim for equitable compensation. This submission should be rejected for the reasons given by French CJ and Keane J.

53. As Windeyer J said in
Norman v Federal Commissioner of Taxation ^[63] (1963) 109 CLR 9 at 23 24; [ 1963 ] HCA 21 . , " [ b ] efore examining the transaction [ s ] in detail, it is as well to consider the legal doctrines around which the argument revolved " .

Fiduciary duties

54. A director of a company owes statutory and other duties to the company. At the time of the events and transactions which lie behind the issues in this case, the statutory duties were set out in s 232 of the Corporations Law ^[64] See now Corporations Act 2001 (Cth), Pt 2D.1. . But, as s 232(11) of the Corporations Law made plain, that section had effect ^[65] cf Corporations Act 2001, s 179(1). " in addition to, and not in derogation of, any rule of law relating to the duty or liability " of a director.

55. Those other duties included fiduciary duties. As Dixon J said in
Mills v Mills ^[66] (1938) 60 CLR 150 at 185; [ 1938 ] HCA 4 . , " [ d ] irectors of a company are fiduciary agents " . Because the appellant was a director of Disctronics at all times material to this matter, he owed fiduciary (and other) duties to the company.

56. As a director, the appellant was bound not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. These obligations are peculiar to fiduciaries ^[67] Breen v Williams (1996) 186 CLR 71 at 113 per Gaudron and McHugh JJ; [ 1996 ] HCA 57 . See also Austin, “ Moulding the Content of Fiduciary Duties ” , in Oakley (ed), Trends in Contemporary Trust Law , (1996) 153 at 156 ; Conaglen, Fiduciary Loyalty: Protecting the Due Performance of Non Fiduciary Duties , (2010) at 39 40 . . The obligations are ^[68] Breen v Williams (1996) 186 CLR 71 at 113 per Gaudron and McHugh JJ. proscriptive, not prescriptive. They are not ^[69] Pilmer v Duke Group Ltd (In liq) (2001) 207 CLR 165 at 198 [ 74 ] ; [ 2001 ] HCA 31 . quasi tortious duties to act solely in the best interests of the principal. Nor are they obligations directed only to providing redress for loss or damage proved to have been suffered by the person to whom the duties are owed.

57. Whether there are two distinct obligations, or they are properly to be seen ^[70] Chan v Zacharia (1984) 154 CLR 178 at 198 per Deane J; [ 1984 ] HCA 36 . as " one ' fundamental rule ' [ which ] embodies two themes " , need not be explored. It is convenient, for the purposes of this case, to treat the obligations as if they are distinct, while recognising that both may, and often will, be engaged by the one set of facts.

58. In this case, the appellant did not point to or rely upon any exercise of his powers as a director of Disctronics as being relevant to the arguments he advanced. No question arises in this case, therefore, of the application of the obligation or obligations, often compendiously described as the duty of directors to act in the interests of the company as a whole, examined and applied in
Harlowe ' s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL ^[71] (1968) 121 CLR 483 ; [ 1968 ] HCA 37 . . Rather, the appellant asserted that he was bound in equity to hold the compensation he received for Disctronics either because his duty and his interest conflicted or because the compensation was an unauthorised benefit obtained from the relationship.

Conflict of duties or conflict of duty and interest

59. It is well established ^[72] Bray v Ford [ 1896 ] AC 44 at 51 . that " [ i ] t is an inflexible rule of a Court of Equity that a person in a fiduciary position … is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict " . The majority in
Pilmer v Duke Group Ltd (In liq) said ^[73] (2001) 207 CLR 165 at 199 [ 78 ] . of this obligation that " the fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is ' a conflict or a real or substantial possibility of a conflict ' ^[[74]] Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103 per Mason J; [ 1984 ] HCA 64 . See also Clay v Clay (2001) 202 CLR 410 at 432 433 [ 46 ] [ 47 ] ; [ 2001 ] HCA 9 . between personal interests of the fiduciary and those to whom the duty is owed " or a conflict between competing duties.

60. But, as the majority in Pilmer also pointed out ^[75] (2001) 207 CLR 165 at 199 [ 79 ] . , it is necessary to recognise, and give due weight to the fact, that different minds may reach different conclusions as to the presence or absence of a real possibility of conflict between duty and interest or duty and duty. That is, the doctrine cannot " be inexorably applied and without regard to the particular circumstances of the situation " ^[76] Phelan v Middle States Oil Corporation 220 F 2d 593 at 602 (1955) per Judge Learned Hand, cited by Mason J in Hospital Products (1984) 156 CLR 41 at 104 and the majority in Pilmer (2001) 207 CLR 165 at 199 [ 79 ] . .

61. It follows that the working out of the application of the rule to company directors is not achieved by the bare repetition of its terms. Much closer attention must be given to the duties, interests and alleged manner of conflict than is given by simply observing that directors owe fiduciary duties. It is necessary to identify the duties or interests which are said to conflict or present a real possibility of conflict.

Obtaining an unauthorised benefit

62. It is equally well established that a fiduciary cannot profit from the relationship. A fiduciary must account for a profit or benefit obtained or received by reason or by use of the fiduciary position or by reason or by use of any opportunity or knowledge resulting from the position.

63. This obligation is engaged when a company director diverts a business opportunity of the company to his or her personal advantage. It may be engaged by other circumstances. A director ' s diversion of the company ' s business opportunity will also commonly (perhaps inevitably) engage the director ' s obligation not to be in a position of conflict. But regardless of whether the obligation to avoid conflicts is engaged, a critical question presented for consideration in relation to the obligation not to obtain unauthorised benefits will be whether the director has obtained a benefit by reason or by use of the relationship between that director and the company.

64. That question requires careful attention to how and why it is said that the director obtained a benefit by reason or by use of the relationship. And as
Regal (Hastings) Ltd v Gulliver ^[77] [ 1967 ] 2 AC 134n . See also Warman International Ltd v Dwyer (1995) 182 CLR 544 at 558 per Mason CJ, Brennan, Deane, Dawson and Gaudron JJ; [ 1995 ] HCA 18 . demonstrates, if the opportunity came to the director in the course or as a result of holding office as a director, it is not to the point to establish that the company could not or would not have exploited the opportunity. In Regal (Hastings) , the directors of the company were held bound to account to the company for their profit despite the company ' s inability to raise the capital necessary to undertake the venture from which the directors made their profit.

The facts

65. It is necessary to state, in summary form, the central facts relevant to the appellant ' s arguments. It is convenient to do so by reference to the findings made in the Supreme Court proceedings. Those findings were not challenged by the appellant in his proceedings against the Commissioner.

66. In the Supreme Court proceedings, the appellant and other plaintiffs (including Disctronics) alleged that, in early 1999, Messrs Donovan and Bucknall conceived an investment idea involving buying an underperforming public golf course, leasing it to a financially sound operator and using the rental stream not only to fund the acquisition but also to generate a return on investment.

67. By a series of intermediate steps and discussions, the details of which need not be traced, the appellant, Mr Quinert and the defaulting venturers were informed of, and expressed interest in pursuing, the idea. (The appellant and Messrs Donovan and Quinert were all associated with a firm of Melbourne solicitors.)

68. During the discussions, there was talk about Disctronics participating in the exploitation of the idea. Disctronics was a company used by the appellant and Messrs Donovan and Quinert as an investment vehicle and each was a shareholder and director of the company. During these discussions, it was proposed that Disctronics would provide up to $ 1.5 million equity in the project.

69. In the Supreme Court proceedings, the trial judge (Warren J) found ^[78] [ 2002 ] VSC 454 at [ 43 ] . that on 20 July 1999 " the parties resolved to embark on a joint venture involving Donovan, [ the appellant ] , Quinert, Bucknall [ and the defaulting venturers ] in quite loose terms so as to acquire " the golf course. Her Honour found ^[79] [ 2002 ] VSC 454 at [ 43 ] . that " [ t ] he joint venture did not encompass Disctronics as a member " (emphasis added).

70. The minutes of the meeting at which Warren J found the joint venture to be constituted recorded that the parties intended that the golf course, once bought and let to a tenant, would be sold and the resulting profit divided between the six venturers. This profit became known in the proceedings as a " day one profit " divisible between the venturers.

71. Warren J found ^[80] [ 2002 ] VSC 454 at [ 43 ] , [ 45 ] [ 46 ] . that, at or soon after the making of the joint venture agreement, the venturers agreed upon the identity of the proposed tenant of the golf course and the proposed tenant agreed upon the terms on which it would take a lease (including the amount of rent it would pay). Her Honour found ^[81] [ 2002 ] VSC 454 at [ 47 ] . that the venturers knew that the owner of the golf course was willing to sell the land for a price which the venturers were willing to pay. Her Honour further found ^[82] [ 2002 ] VSC 454 at [ 46 ] . that the venturers had agreed that it would be necessary to raise both debt and equity finance but had not agreed upon who would provide the equity.

72. Thereafter the venturers disagreed about how the project should be implemented. The appellant and others wanted Disctronics to participate, but the defaulting venturers did not agree. At least some of the proposals for Disctronics ' involvement would have reduced the " day one profit " available for division between the participants.

73. The defaulting venturers diverted the venture to their own use by procuring a company which they controlled to buy and then lease the golf course.

74. Warren J ordered ^[83] [ 2002 ] VSC 454 at [ 216 ] - [ 217 ] ; [ 2002 ] VSC 534 . that the defaulting venturers (and the company to which they diverted the venture) pay the plaintiffs, but not Disctronics, equitable compensation in an amount based ^[84] [ 2002 ] VSC 534 at [ 6 ] , [ 42 ] . on the profit arising from the acquisition, management and eventual sale of the golf course.

75. The defaulting venturers appealed to the Court of Appeal against the orders of Warren J. The Court of Appeal did not disturb any of the relevant findings made by Warren J and dismissed the defaulting venturers ' appeal.

76. The Court of Appeal did not disturb her Honour ' s conclusion that Disctronics was not entitled to equitable compensation. The Court accepted ^[85] (2005) 12 VR 513 at 526 – 527 [ 30 ] [ 31 ] , 532 – 533 [ 45 ] per Phillips JA (Winneke P and Charles JA agreeing). that at least Mr Donovan had intended that Disctronics would, if possible, be the ultimate purchaser of the tenanted golf course and that the proposals to bring about that result which were made after the formation of the joint venture were not repudiatory breaches of the joint venture agreement. It is, therefore, convenient to consider the appellant ' s appeal to this Court about his liability to income tax on the footing that Disctronics sought, at all times, to purchase the golf course subject to the tenancy which the joint venture sought to procure.

77. For the purposes of deciding the appellant ' s liability to income tax, it is not necessary to explore why the joint venturers did not agree on Disctronics ' involvement in the project. Further, it is at least convenient, and for the reasons given earlier ^[86] At [ 62 ] [ 64 ] . , it may well be legally necessary ^[87] Regal (Hastings) [ 1967 ] 2 AC 134n . , to ignore whether Disctronics could or would have reached terms for its involvement in the project which would have been commercially acceptable to it or both to it and to all of the participants in the joint venture. That is, it is convenient, and may be legally necessary, to put aside any consideration of some matters on which the Full Court of the Federal Court relied ^[88] (2012) 206 FCR 329 at 336 337 [ 19 ] . in reaching the decision against which the appellant appeals to this Court. In particular, whether the necessary equity investment would have exceeded the sum of $ 1.5 million which Disctronics had available, and whether the conditions which Disctronics put upon its involvement could be or were met, should be treated as irrelevant.

The appellant ' s argument

78. The appellant ' s argument that he received the amount allowed as equitable compensation as constructive trustee for Disctronics proceeded in four steps. First, he submitted that a director has a fiduciary duty not to put his or her own interests in conflict with those of the company of which he or she is a director. Second, he submitted that " any gain which comes to [ the director ] from any venture in which the company has decided to invest is received as constructive trustee for the company " (emphasis added). This constructive trust, the appellant submitted, subsists whether or not the director breaches his or her duty. Third, the appellant submitted that Disctronics " pursued the investment in the golf course until final disposition of the Supreme Court proceedings " and that his duties to Disctronics " subsisted while it continued to pursue the investment " . Fourth, the appellant submitted that the award of equitable compensation made by the Supreme Court was a gain to the appellant arising from the project in which Disctronics sought to invest . The fact that Disctronics could not, or did not, make the investment was said to be irrelevant. It followed, so the appellant argued, that, consistently with his duties to the company, the appellant could not retain the gain for himself to the exclusion of the company and what he received came to him as constructive trustee for the company.

79. As expressed, the appellant ' s argument might be understood as turning on the proposition that the amount received as equitable compensation was a gain arising from a venture or project of Disctronics ' . These reasons will show that this proposition was not established. But as the argument was developed, the appellant placed chief weight upon the proposition that, as a director of Disctronics, he was obliged not to put his own interests in conflict with those of the company. It is necessary, in these circumstances, to consider each of the obligations which were identified at the outset of these reasons: the obligation not to obtain unauthorised benefits and the obligation to avoid conflict of duties or of duty and interest.

80. Before doing so, it is convenient to mention one other aspect of the matter with a view to putting it aside from further consideration.

Gain or profit

81. The gain or profit to which the appellant pointed was the appellant ' s receipt of equitable compensation in satisfaction of the judgment he (with others) had obtained against the defaulting venturers. It is convenient to treat the appellant ' s receipt of his proportionate part of the judgment sum as a gain or profit of a relevant kind without pausing to examine whether or how that is so. Given that the amount of compensation he was awarded was assessed ^[89] [ 2002 ] VSC 454 at [ 216 ] ; [ 2002 ] VSC 534 at [ 6 ] , [ 42 ] . by reference to the profit obtained by the defaulting venturers, it may very well be right to describe it (as these reasons will) as a " gain or profit " , but that need not be decided in this case.

82. As will later appear, it is also convenient to treat that gain or profit as arising ^[90] cf Chan v Zacharia (1984) 154 CLR 178 at 199 per Deane J. when the defaulting venturers diverted the opportunity to pursue the venture to their own use by procuring the purchase of the golf course. Certainly, the gain or profit arose no earlier than then, and it is not necessary to examine whether it is better to treat it as arising only upon the Supreme Court ' s making its award of equitable compensation or upon that judgment ' s being satisfied. Again, these are matters which need not be decided.

Obtaining an unauthorised benefit in this case?

83. The appellant asserted that " the project " was one in which Disctronics sought to invest and, in at least some parts of the argument, the appellant appeared to treat that proposition as sufficient to engage the obligation not to obtain an unauthorised benefit from the relationship constituted by the appellant ' s being a director of Disctronics. The opportunity to invest in the golf course was, the appellant submitted, " a maturing business opportunity " which Disctronics was " actively pursuing " . It was not open to the appellant, the submission continued, " to appropriate for his own benefit " either that opportunity or any benefit which came to him from it.

84. It may be noted that, as expressed, the appellant ' s argument invites several further questions in order to reveal its precise content. So, for example, what exactly was the relevant " opportunity " ? What was meant by saying that the opportunity was " maturing " ^[91] cf Canadian Aero Service Ltd v O ’ Malley [ 1974 ] SCR 592 at 607 per Laskin J; Pacifica Shipping Co Ltd v Andersen [ 1986 ] 2 NZLR 328 at 334, 338 339 per Davison CJ. ? Yet, leaving aside questions of this kind, the underlying proposition upon which this aspect of the appellant ' s argument depended was that for him to obtain and retain the equitable compensation which was awarded would constitute his diverting to his use a business opportunity which was properly described as Disctronics ' .

85. So expressed, the argument might be thought to have depended upon the engagement of some novel fiduciary principle about " diversion of opportunity " or some extension of existing principle. But at no point in the argument did the appellant suggest that his case depended upon engaging or developing any new principle. Rather, to the extent to which the appellant ' s argument depended upon notions of " appropriation " or " diversion " , it sought principally to engage the obligation not to obtain unauthorised benefits. To the extent to which it depended upon the notion of Disctronics " actively pursuing " the opportunity, it sought principally to raise questions about conflict of duties or conflict of duty and interest. (Because the obligations intersect in their application, no more categorical statement can be made.)

86. Asserting that Disctronics " sought " or " desired " to invest in " the project " (whether by becoming purchaser of the tenanted golf course or in some other role) does not demonstrate that the appellant ' s gain or profit was an unauthorised gain or profit which he held on trust for Disctronics. Instead, it is necessary to ask ^[92] Chan v Zacharia (1984) 154 CLR 178 at 198 per Deane J. whether the identified gain or profit was obtained or received by reason or by use of the appellant ' s position as a director of Disctronics or by reason or by use of any opportunity or knowledge resulting from that position. It was not.

87. Unlike Regal (Hastings) , the appellant made no transaction in the course of his management of Disctronics. He did not obtain or receive the gain or profit by using in any way " the position and knowledge possessed by [ him ] in virtue of " his office as director ^[93] Regal (Hastings) [ 1967 ] 2 AC 134n at 153 per Lord Macmillan. . And he did not obtain or receive the gain or profit by reason or by use of any opportunity or knowledge resulting from his office as a director of Disctronics. So much may be taken to have been rightly recognised by the appellant ' s concession in oral argument that " the opportunity did not come to [ him ] by reason of his office " .

88. By suing for and recovering equitable compensation from the defaulting venturers the appellant did not obtain a gain or profit by reason or by use of his position as a director of Disctronics. The award of compensation was for the diversion by the defaulting venturers of the joint venturers ' opportunity to pursue a profitable venture by buying and leasing the golf course. As is explained below, the opportunity thus diverted was the joint venturers ' , not Disctronics ' . The compensation awarded was for the defaulting venturers ' diversion of the joint venturers ' opportunity, not of Disctronics ' . The appellant did not obtain that (or any other) gain or profit by use of any opportunity or knowledge resulting from his position as a director of Disctronics.

89. The obligation not to obtain an unauthorised benefit from the fiduciary relationship was not engaged.

90. Was the gain or profit obtained or received in circumstances where there existed a conflict between the appellant ' s duties or between his duty as a director of Disctronics and his personal interests? Was the gain or profit obtained or received where there was a real possibility of such conflict?

Conflict of duties or conflict of duty and interest in this case?

91. In
Furs Ltd v Tomkies , Rich, Dixon and Evatt JJ said ^[94] (1936) 54 CLR 583 at 592; [ 1936 ] HCA 3 . :

" If, when it is his duty to safeguard and further the interests of the company, [ a director ] uses the occasion as a means of profit to himself, he raises an opposition between the duty he has undertaken and his own self interest, beyond which it is neither wise nor practicable for the law to look for a criterion of liability. "

But as that passage and later judicial ^[95] See, for example, Breen v Williams (1996) 186 CLR 71 at 82 per Brennan CJ, citing Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 409 per Dixon J; [ 1929 ] HCA 24 . and academic ^[96] Finn, Fiduciary Obligations , (1977) at 233 – 234 [ 540 ] - [ 541 ] ; Conaglen, Fiduciary Loyalty: Protecting the Due Performance of Non Fiduciary Duties , (2010) at 179. writing makes plain, it is necessary to identify with care the subject matter over which the fiduciary obligations extend. The duty which a fiduciary owes may not (and usually will not) attach to every aspect of the fiduciary ' s conduct.

92. The venture which the defaulting venturers were found to have wrongly turned to their account was a venture between the six individuals. It was not a venture to which Disctronics was a party. Disctronics had asserted in the Supreme Court that it, too, had been one of the joint venturers and that the defaulting venturers should compensate it as well, but its claim was rejected. The appellant did not contend to the contrary in his proceedings against the Commissioner. And it followed from what was held in the Supreme Court litigation (to which Disctronics was a party) that if the appellant had diverted to Disctronics the business opportunity which the joint venturers sought to pursue, he would have been as much in breach of his fiduciary obligations to his co venturers as the defaulting venturers were when they diverted the opportunity to their own advantage.

93. Having agreed upon a venture with his co venturers, the appellant attempted to have the others agree to Disctronics playing a part in that venture, not as one of the venturers, but as purchaser of the golf course land. If it was his duty to seek to introduce Disctronics to the venture, he performed that duty. But he was not able to have Disctronics play a part in any venture concerning the golf course before the defaulting venturers diverted the opportunity to pursue the venture to their own use by themselves procuring the purchase of the golf course.

94. It may be assumed that, before the defaulting venturers diverted the venture to their own use, the appellant ' s duty as a director of Disctronics was to seek to have the company acquire the golf course at least cost to it. And his interest as a joint venturer was to use the land (whether by sale subject to tenancy, or holding the land as landlord) in whatever way would provide greatest profit at least cost. It may also be assumed that his duty to his co venturers was to do his part in bringing about that result. If the venture had not been diverted by the defaulting venturers, there may have been some conflict between his duty and his interests. If Disctronics had bought the tenanted golf course, there may have been some conflict between his duty and his interests. But the venture was diverted. Disctronics did not buy the golf course. The appellant made no gain or profit before the joint venturers ' opportunity for profit (and any hope which Disctronics may have had for profit) was foreclosed by the defaulting venturers ' conduct. Once the defaulting venturers had diverted the opportunity, there was no conflict thereafter between the appellant ' s duties or between his duty and his interests and there was no real possibility of conflict.

95. It may be accepted that, as the appellant argued, Disctronics did not take " No " for an answer, and continued to pursue its desire to be involved in the venture at all times up to and including both the institution of the Supreme Court proceedings and their prosecution to final judgment. But, as the terms of the litigation agreement (to which later reference will be made) reveal, Disctronics, the appellant and other directors of the company made common cause against the defaulting venturers in the Supreme Court proceedings. By agreement, the plaintiffs in that action (including Disctronics and the appellant) were represented by the same legal representatives (necessarily assuming identity of interest between the plaintiffs in their pursuit of the proceedings). The agreement provided that the plaintiffs would be represented in the proceedings at the cost of Disctronics. The directors of Disctronics agreed that they would pay any sum awarded in their favour to Disctronics. And the claims which the appellant pursued in the suit were not contingent upon Disctronics succeeding in its claims.

96. From the time of the defaulting venturers ' diversion of the venture, up to and including the final determination of the Supreme Court proceedings, the appellant ' s duties to Disctronics, his duties to his co venturers and his personal interests were all aligned. The appellant had no conflict between his duties or his duty and interests and there was no real possibility of conflict.

97. It may be noted, in passing, that to the extent to which the appellant sought to have Disctronics play a part in the venture, his efforts in that regard may have all been authorised by Disctronics, which no doubt recognised that the appellant was to be, or was already, a party to the venture. Negotiation about the terms on which Disctronics would become involved took place with both Disctronics and the other venturers well aware that the appellant was negotiating about the terms on which a company of which he was a director would become involved in the venture. The better view may well be that there was informed consent by all parties to the appellant ' s taking the steps which he did. And the proposal by the appellant and other directors of Disctronics that they would " rebate their entitlements " to Disctronics may have ameliorated, perhaps even eliminated, any substantial possibility of conflict. Similarly, the litigation agreement (made shortly before the commencement of the Supreme Court proceedings) may be taken to show authorisation of any conflict if the gain or profit were taken to have been obtained only when the award was made in those proceedings or later satisfied. But, for the reasons which have been given, it is not necessary to pursue any of these questions about informed consent or the effect of the proposal to " rebate " entitlements.

98. The gain or profit which the appellant received did not arise in circumstances where, at the time he became entitled to or received the gain or profit, he had any unauthorised conflict between his duties to Disctronics and to his co venturers or his duty to Disctronics and his personal interests, or in circumstances where there was a real possibility of conflict. Even if, as has been assumed, the appellant became entitled to a gain or profit once the defaulting venturers diverted the venture to their own use, he made no gain or profit in circumstances where his duties or his duty and interest conflicted or where there was a real possibility of conflict. And, as has been demonstrated, the appellant obtained no gain or profit by reason or by use of his position as a director of Disctronics or by reason or by use of any opportunity or knowledge resulting from that position.

99. That being so, the appellant did not hold the amount he received as equitable compensation on a constructive trust for Disctronics.

The litigation agreement

100. After the defaulting venturers had arranged for the purchase of the golf course (to the exclusion of their co venturers), Disctronics lodged a caveat over the land on which the golf course stood. Disctronics claimed that the land was held subject to a constructive trust in its favour. The purchaser of the land instituted proceedings in the Supreme Court of Victoria for removal of the caveat. Disctronics, the appellant and the three other joint venturers who had been prevented by the steps taken by the defaulting venturers from pursuing the venture instituted the proceedings against the defaulting venturers which were mentioned at the outset of these reasons.

101. Before the Supreme Court proceedings were commenced, Disctronics, the appellant and two of the other three plaintiffs made the litigation agreement. In the agreement, the appellant and those other two plaintiffs were referred to as " the directors " and, as has been noted, each was a director of Disctronics. The agreement recorded that the directors had agreed that the fourth individual plaintiff in the proceedings (Mr Bucknall) would not be liable for any legal costs or disbursements associated with the proceedings or for any damages or costs orders made in favour of the defaulting venturers. The agreement provided that Disctronics would pay all costs and disbursements associated with the prosecution of the proceedings. The agreement further provided that:

" In consideration of [ Disctronics ' ] promises [ to pay all costs and disbursements ] the directors, and each of them, assign absolutely unto and to the sole use of [ Disctronics ] , any award of damages (whether on revenue or capital account), costs or interest made in their favour as a consequence of their participation in the joint venture or arising out of the proceedings and the ultimate outcome thereof " .

Did the appellant thus assign to Disctronics, as the appellant submitted, his right to receive equitable compensation, or did he assign any proceeds of the action, if and when they were received?

102. The appellant rightly ^[97] Norman (1963) 109 CLR 9 at 24 25 per Windeyer J; Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at 450 451 per Barwick CJ, Stephen, Mason and Wilson JJ; [ 1980 ] HCA 6 ; Booth v Federal Commissioner of Taxation (1987) 164 CLR 159 at 165 168 per Mason CJ; [ 1987 ] HCA 61 . accepted that, for him to succeed in this branch of his argument, the litigation agreement must be construed as assigning to Disctronics the right to receive what was ultimately paid to him. If the litigation agreement provided for the present assignment for value of something to be acquired in the future, it must be " construed as an agreement to assign the thing when it is acquired " ^[98] Norman (1963) 109 CLR 9 at 24 per Windeyer J. (emphasis added). If the litigation agreement provided for the assignment of future income, dissociated from the proprietary interest which produced the income, the proceeds of the action, when received in 2005, were income in the hands of the appellant ^[99] Booth (1987) 164 CLR 159 at 167 per Mason CJ. .

103. The appellant identified the subject matter of the assignment as " the rights under the award " made by the Supreme Court in 2002. That is, the appellant identified the subject matter of the assignment as the future judgment debt, not the cause or causes of action which the appellant pursued in the proceedings instituted in the Supreme Court.

104. The better construction of the litigation agreement is that it provided for the assignment of any proceeds of the action, not for the assignment of the appellant ' s rights under any judgment obtained in the proceedings. The reference to " on revenue or capital account " , coupled with the reference to the " ultimate outcome " of the proceedings, more readily fits with understanding the expression " any award of damages … costs or interest made in their favour " as referring to sums received rather than the underlying rights to receive those sums. And although the litigation agreement was made before this Court ' s decision in
Campbells Cash and Carry Pty Ltd v Fostif Pty Ltd ^[100] (2006) 229 CLR 386 ; [ 2006 ] HCA 41 . , adopting this preferred construction would not have presented any question of maintenance or champerty. Disctronics was no mere bystander to the litigation; it was itself a party to that litigation and it agreed to pay the costs of the litigation.

105. This being the preferable construction of the litigation agreement, this branch of the appellant ' s argument must be rejected.

Conclusion and orders

106. For the reasons given, the appellant ' s appeal should be dismissed with costs.