Emery v Hashimoto [1996] SBCA 7; [1996] 2 LRC 644 (9 May 1996)

[1996] 2 LRC 644

COURT OF APPEAL OF SOLOMON ISLANDS

EMERY AND OTHERS

v

HASHIMOTO AND ANOTHER

Court of Appeal
Kirby P, Kapi and Williams JJA
22 January, 9 May 1996

(1) Practice and Procedure - Maintenance of action - Champerty - Assignment of right of action - Estate of deceased shareholder wrongly divested of shares - Deed of release compromising administrators’ claim against directors for fraudulent misrepresentation - Equitable assignment to administrators akin to assignment of benefit of causes of action - Whether assignment champertous - Whether assignee administrators possessing genuine and substantial interest in litigation.

(2) Equity - Remedies - Fiduciary duty - Breach - Directors in breach of duty making d substantial profit on sale of company business - Account of profits - Calculation of compensation based on profit or gain resulting from breach - Whether directors entitled to set – off representing allowance for contribution of time and skill.

(3) Company law - Shares - Register - Rectification - Purported transfer of deceased’s shares - Application by administrators of deceased shareholder for e rectification of register – Whether genuine commercial interest.

(4) Contract - Fraud - Fraudulent misrepresentation - Fraudulent concealment - Directors negotiating to obtain release off floating charge - Directors failing to mention purported transfer of shares - Directors failing to mention earlier agreement to dispose of assets of company - Whether fraudulent.

(5) Company law - Shares - Directors - Fiduciary duty - Purported transfer of deceased’s shares concealed - Director knowingly facilitating fellow director obtaining priority in respect of payment for company assets - Whether directors owing fiduciary duty to administrators as shareholders.

(6) Remedies - Restitution - Unjust enrichment - Equitable assignment of company’s claim for breach of fiduciary duty against directors - Commercial settlement with administrators - Estate entitled to enhanced value of property subject of litigation - Directors in default granted allowance by court for time and effort expended - Whether estate unjustly enriched by enhanced value of property.

The first respondent was at all material times a director and a holder of 80% of the shareholding of T Ltd, the second respondent became a director of T Ltd in 1989. The remaining 20% shareholding in T Ltd was held by the deceased, who died intestate on 2 February 1991. There was a floating charge over all of T Ltd's assets in favour of a bank and the deceased had been a personal guarantor thereof. On 14 February 1991 the second respondent transferred the deceased’s shares in T to himself in breach of the company's articles of association. On 19 February 1991 the respondents entered into an agreement (the W agreement) with W Ltd, a company in which the first respondent owned 80% of the shares, whereby W Ltd purchased T Ltd's plant and equipment for $SB1.8m, W Ltd taking possession of the property but providing no consideration at the time. On 22 February the appellants were appointed administrators of the deceased's estate. On 27 February 1991 the respondents met their bank manager to discuss the release of the floating charge over T Ltd's assets. Notwithstanding that the W agreement had already been executed, the first respondent told the bank manager that the proceeds of the W agreement would be applied first in paying off the floating charge. The bank manager indicated that the consent of the administrators to the release would be required. On 25 March the administrators were induced to give their consent to enable the sale to W Ltd on the basis that the proceeds of sale would be applied first to pay off the floating charge: the respondents failed to mention the purported transfer of the deceased’s shares or that the W agreement had been executed. The bank formally released the charge. In August 1992 the purported _d transfer of the 20% of the shares was entered in the share register, back dated to February, and the respondents entered into an agreement (the K agreement) to sell all of the shares in T Ltd and W Ltd to K Ltd for $US1.75m, the first respondent receiving the bulk of the payment. In November 1992 the administrators first became aware of the K agreement and learnt of the purported transfer of the deceased's shareholding to the second respondent. The administrators brought an action seeking damages for fraud against the respondents in relation to the transfer of shares and the transfer of plant and equipment from T Ltd to K Ltd. Meanwhile, in July 1993 the administrators compromised their claim against K for $US17,241, the deed of release (the parties to which were the administrators, T Ltd and K Ltd) reserving the administrators' right to proceed against the respondents. In September 1993 T Ltd became a plaintiff in the administrators' action against the respondents and a further claim for relief for breach of fiduciary duty was added. The administrators also sought rectification of the share register of T Ltd to show the deceased as the holder of the shares in T Ltd until the deed of release on 30 July. The trial judge granted rectification of the register and ordered equitable compensation for breach of fiduciary duty in the sum of $US45,829 (calculated at 20% of the total assessment ($US229, 146) in accordance with the percentage of the shares held in T Ltd by the administrators) and damages for fraud in the sums of $SB45,75750 and $SB35,69750 in favour of the administrators. The appellants appealed to the Court of Appeal claiming that the trial Judge erred in allowing only 20% of the total assessment in his award of equitable compensation. The respondents cross - appealed, contending that (a) the administrators had no interest in having the register rectified, (b) relief should be refused since the claim was necessarily based on a champertous agreement, (c) there was no evidence to support a finding that anything said or omitted to be said by them was done with a fraudulent intent, (d) they owed no fiduciary duty to the administrators as shareholders in T Ltd, (e) the trial judge erred in finding that they derived any profit or gain from either or both the W or K agreements for which they were liable to account in equity either to T Ltd or the administrators and in finding that the administrators suffered any damage as a result of any fraudulent misrepresentation or concealment and (f) a grant of relief as sought by the appellants would constitute unjust enrichment.

HELD: Appeal allowed. Cross-appeal dismissed.

(1) The courts have taken an increasingly more liberal view of the practice of the supporting of litigation by a third party. Recent English authorities established that the prohibition against assigning a bare right to litigate should be confined to cases where the assignee had no genuine commercial interest in enforcing the claim. In the instant case, the administrators had a legitimate commercial interest in T Ltds cause of action for breach of fiduciary duty against the respondents and they dearly had justification and excuse for wishing to pursue that cause of action: the estate had been wrongly divested of its shares; the breach of fiduciary duty had divested T Ltd, in which company the estate had an interest, of its assets; and all the shares, including those lawfully held by the administrators, had been sold at a profit. Given the express terms of the deed of release of 30 July 1993 whereby the position as between the administrators, T Ltd and K Ltd was compromised and bearing in mind that where an equitable assignment was involved any action had to be brought in the d name of the assignor, the principal claim had to be that of T Ltd, but the administrators would have the benefit of any judgment T Ltd recovered. The effect of the deed was akin to the assignment of the 'fruits of the action': the administrators accepted in fill and final settlement of the claims the estate might have, with respect to the assets of T Ltd and against T Ltd, W Ltd and K Ltd, an assignment of the benefits of the causes of action T Ltd might have had e against the respondents. The fact that the estate might profit from the litigation did not render the assignment invalid on the ground that it was champertous. Potential profit had to be regarded as a practical matter in relation to the facts of the particular case and not by way of theory. The amounts recovered by the administrators respectively for damages reflected expenditure and losses each had incurred in his capacity as an administrator consequent upon the fraudulent f misrepresentation and fraudulent concealment by the respondents. The trial judge was entitled to take the view that the administration of the estate had involved greater expense because of the fraud. In the circumstances the prosecution of T Ltd's claim against the respondents was not tainted with champerty (see pp 660 - 662, 664, post). Glegg v Bromley [1912] UKLawRpKQB 55; [1911-13] All ER Rep 1138, Brownton Ltd v Edward Mom Inbucon Ltd [1985] 3 All ER 499, Trendtex Trading Corp v Credit Suisse [1981] 3 All ER 520, Giles v Thompson [1993] UKHL 2; [1993] 3 All ER 321 and South Australian Management Corp v Sheahan (1995) 16 ACSR 45 considered.

(2) Where a profit or gain had been made in consequence of a breach of fiduciary duty then in equity, on established principles, the party in breach had to account for that profit. The compensation which the defaulting party had to provide was restitution to the beneficiary of the assets of which the latter had been deprived. The taking of a formal account in equity was not necessary: the court could order payment of the amount of the profit or gain by way of equitable compensation. Can the facts, the respondents had in breach of fiduciary duty created a business from T Ltd's assets and W Ltd's timber licence which it had developed in order to sell it to K Ltd at a very substantial profit, in respect of which the defaulting fiduciaries were accountable to T Ltd in equity. Although the broad approach of the trial judge to the quantification of the relevant profit or gain was one which, on the evidence, it was clearly open to him to adopt, the evidence did not, however, enable an exact arithmetical calculation to be made. However, the relevant breach of fiduciary duty was that owed by the respondent to T Ltd and in equity each was obliged to account to T Ltd for the profit or gain resulting from such breach. It followed that the starting point for calculation of equitable compensation was $US229,146, the hill loss caused to T Ltd, and not 20% thereof. However, the respondents were entitled to an allowance for the time, energy, skill and other contributions made. It was therefore reasonable to set off approximately 25% of the figure so calculated as representing such allowance. In the circumstances, the benefit so gained for which the respondents were accountable to T Ltd was determined as $US175,000 (see pp 659, 660, 664, post). Dicta of Mason CJ, Brennan, Deane, Dawson and Gaudron JJ in Wannan International Ltd v Dwyer (1995)182 CLR 544 at 558 applied.

(3) Where a party clearly had a genuine commercial interest in having its name restored to the share register the register would be rectified so that it showed the true position at law. On the facts, the administration clearly had such a genuine interest in amending the share register so that it did not reflect a situation derived from a purported transaction which was a nullity and contrary to the articles of the company (see pp 654,664, post)

(4) The respondents clearly appreciated that had the bank or administrators e known of the terms of the W agreement, consent to release of the floating charge would not have been forthcoming. On the facts, the evidence was overwhelming that the bank and the administrators had discussed the question of release only on the basis that the bank be paid in priority from the sale proceeds. Yet, contrary to any proposition that the bank be paid in priority, the respondents had at the time of the meeting already signed a contract by which f the shares of the deceased were purportedly transferred to the second respondent. Hence the statements of the first respondent to the administrators and his conduct in concealing the W agreement amounted to fraudulent misrepresentation and fraudulent concealment. Similarly, the second respondent as a signatory to the W agreement clearly acquiesced in misleading the administrators as it was certainly his intention to adhere to that agreement. 9 Furthermore, as an experienced businessman and a director of T Ltd he was under a clear duty to correct the first respondent’s misstatement and his failure to do so implicated him in the fraud. Accordingly the findings of fraudulent misrepresentation and fraudulent concealment against both respondents should stand (see pp 655 - 656, 664, post). Derry v Peek (1889) LR 14 App Cas 337, Oakes v Turquand [1867] UKLawRpHL 18; (1867) LR 2 HL 325 and Peek v Gurney [1873] UKLawRpHL 19; (1873) LR 6 HL 377 applied.

(5) In particular circumstances a fiduciary relationship could exist between directors and shareholders. On the facts it could not be doubted that the respondents as directors owed fiduciary duties to T Ltd. There was no basis for distinguishing between the two respondents: the second was a signatory to the W agreement and therefore knew of the first respondent’s interest there under and knew or ought to have known that the first respondent was the principal shareholder of W Ltd. Further he knowingly facilitated the first respondent’s obtaining a priority with respect to payment and was a signatory to the K agreement. Accordingly, the trial judge correctly concluded on the facts that a fiduciary relationship existed between the respondents and the administrators and shareholders of T Ltd (see pp 656 - 657, 664, post).

(6) Once it was accepted that there was in effect an equitable assignment of T Ltd's claim for breach of fiduciary duty against the respondents as part of a commercial settlement with the administrators, the foundation for the b respondents’ submission that the administrators had been unjustly enriched was removed Furthermore, once an allowance for the time and effort put in by the respondents enhancing the value of the subject property was made, there was no substance in the contention that the estate would be unjustly enriched (see p 664, post).

Cases referred to in judgment

A-G for Hong Kong v Reid [1993] 3 LRC 548[1993] UKPC 2; , [1994] 1 All ER 1, [1994] 1 AC 324, HK PC
British Cash and Parcel Conveyors Ltd v Lamson Store Service Co Ltd [1908] UKLawRpKQB 46; [1908] 1 KB 1006, [1908-10] All ER Rep 146, UK CA
Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499, UK CA
Dawson, Re [1966] 2 NSWLR 211, Aus SC
Demerara Bauxite Co v Hubbard [1923] AC 673, British Guiana PC
Derry v Peek (1889) LR 14 App Cas 337, 58 LJ Ch 864, UK HL
Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd Rep 1, Qd SC
Furs Ltd v Tomkins [1936] HCA 3; (1936) 54 CLR 583, Aus HC
Giles v Thampson [1993] UKHL 2; [1993] 3 All ER 321, [1994] 1 AC 142, [1993] 2 WLR 908, UK HL
Glegg v Bromley [1912] UKLawRpKQB 55; [1912] 3 KB 474, [1911-13] All ER Rep 1138, UK CA
Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; [1985] LRC (Comm) 411, (1984) 156 CLR 41, Aus HC
Jarvis (decd), Re [1958] 2 All ER 336, [1958] 1 WLR 815
Martell v Consett Iron Co Ltd [1955] 1 All ER 481, [1955] Ch 363, [1955] 2 WLR 463, UK CA
Oakes v Turquand [1867] UKLawRpHL 18; (1867) LR 2 HL 325, UK HL
Peek v Gurney [1873] UKLawRpHL 19; (1873) LR 6 HL 377, UK HL
Phipps v Boardman [1966] UKHL 2; [1966] 3 All ER 721, [1967] 2 AC 46, [1966] 3 WLR 1009, UK HL
Regal (Hastings) Ltd v Gulliver [1942] UKHL 1; [1942] 1 All ER 378, [1967] 2 AC 134n, UK HL
South Australian Management Corp v Sheahan (1995) 16 ACSR 45, Aus SC
Target Holdings Ltd v Redferns (a firm) [1994] 2 All ER 337, [1994] 1 WLR 1089, UK CA; rvsd [1995] 3 LRC 162[1995] UKHL 10; , [1995] 3 All ER 785, [1995] 3 WLR 352, UK HL
Trendtex Trading Corp v Credit Suisse [1981] 3 All ER 520, [1982] AC 679, UK HL
Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544, (1995) 128 ALR 201, Aus HC

Other source referred to in judgment
Gower's Principles of Modern Company Law (4^th edn, 1979) p 573

Appeal and cross - appeal

Robert Victor Emery and John Sullivan (in their capacity of administrators of the estate of Sunny Wun San Tong, deceased) (the administrators) and Taisol Investment Corp (SI) Ltd (T Ltd) appealed against the decision of Palmer J in the High Court ([1995] 2 LRC 674) on 26 May 1995 on the ground that his award of equitable compensation to them with regard to their shareholding in T Ltd had been incorrectly calculated. Toshio Hashimoto and David Hayward (the first and second respondents) cross - appealed from the decision of Palmer J whereby rectification of the register of members of T Ltd was granted on the application of the administrators and ordered the respondents to pay equitable compensation for breach of fiduciary duty in the sum of $US45, 829 and damages for fraud in the sums of $SB45,757.50 and $SB35,697.50 in favour of the administrators. The facts are set out in the judgment of the court.

R Gotterson QC and T I Kama for the appellants.
I Molloy for the respondents.

9 May 1996. The following judgment of the court was delivered.

WILLIAMS J.A. Appeals were heard together from the decisions of Palmer J in these associated matters ([1995] 2 LRC 674). It is more convenient to set out the background facts before identifying the issues for determination by this court.

Taisol Investment Corp (SI) Ltd (Taisol) carried on the business of logger and sawmiller during the period 1984 to February 1991. At all material times Hashimoto was a director and a holder of 80% of the shareholding of Taisol. The remaining 20% shareholding was held by Sunny Wun San Tong who died on 2 February 1991. From August 1989 Hayward was a director of Taisol.

In September 1984 Taisol created a floating charge over all its assets in favour of Hong Kong and Shanghai Bank (now Westpac) in order to secure financial accommodation. That accommodation was further serviced by a personal guarantee from Tong originally given in July 1986 limited to $SB210,000. As at February 1991 Taisol's account with Westpac had a debit balance of approximately $SB286,000.

On 14 February 1991 Hayward, purporting to act in accordance with the articles of Taisol, signed a transfer of Tong’s shares to himself. The transfer was stamped on 13 March 1991 but was never signed by anyone on behalf of Tong.

Tong died intestate and in accordance with Solomon Islands law his estate vested on his death in the Chief Justice. Then on 22 February 1991 Emery and Sullivan were appointed administrators of Tong’s estate.

On 19 February 1991 Hashimoto and Hayward as directors of Taisol executed the Waibona agreement. Hashimoto in his personal capacity was also a party to that agreement. By its terms Waibona Sawmilling and Logging Co Ltd purchased the heavy plant and equipment of Taisol itemised in the schedule (being in effect a substantial part of the assets of Taisol) for $SB 1.8m. At the time Hashimoto was the owner of 80% of the shares in Waibona and also one of its directors. Relevantly that agreement provided:

'4. The consideration will be repaid within two years and interest of 12% P.A. to be charged on the reducing balance ...

8. Taisol and Hashimoto agree that the said consideration owed by Waibona to Taisol ... shall be assigned by Taisol to Hashimoto. In consideration of this assignment Hashimoto agrees that an amount equal to the said consideration shall be debited [sic] to his shareholder loan a account with Taisol and shall be deemed to be a partial repayment of the amount owing by Taisol to Hashimoto.'

Ownership of the property passed to Waibona who took possession of all the equipment, but none of the consideration was ever paid. Waibona had no other assets than a logging licence in Central Malaita. There was an issue at the trial as to whether Waibona expended money on improving the plant and equipment acquired from Taisol. In his reasons the trial judge said ([1995) 2 LRC 674 at 712):

'No evidence too has been adduced apart from the submissions of Mr Molloy in para 9.2.3 of the defendant’s submission that the plant and equipment had been substantially improved at the expense of Waibona.'

That finding was challenged on appeal, but it was one which was clearly open to the trial judge on the evidence. There was material suggesting that estimates were given for repairing the equipment but no real evidence that such work was carried out, and, if so, at what cost. That finding should not be disturbed.

For the property in that plant and equipment to be transferred to Waibona it was necessary for the floating charge in favour of Westpac to be released. On 27 February 1991 Hashimoto met with Taylor, manager of Westpac, and discussed the proposal. The finding of the trial judge, based on overwhelming evidence, is that Hashimoto informed Taylor that the proceeds of the Waibona agreement would be applied first in paying out the Westpac indebtedness. Notwithstanding that the Waibona agreement had been executed, Hashimoto did not show it to Taylor nor did he indicate that an agreement had ever been concluded. If Taylor had been shown the agreement questions would undoubtedly have been raised about dl 4 and 8. Taylor indicated that because of Tong's guarantee the consent of the administrators to the release of the floating charge would be required.

On 25 March 1991 a meeting took place between Hashimoto, Hayward, Sullivan and Emery with respect to the releasing of the floating charge to enable Taisol to sell the plant and equipment. Again neither Hashimoto nor Hayward stated that an agreement with Waibona had in fact been executed, and in consequence the terms of that agreement (in particular dl 4 and 8) were not disclosed to Sullivan and Emery. Further, Hashimoto did not disclose his interest in Waibona. There was a conflict of evidence as to what was said at that meeting but on the critical point the trial judge preferred the evidence of Sullivan and Emery, and relevantly found that Hashimoto represented that the sale proceeds would first be applied in paying out the Westpac debt and any balance would be applied in paying other trade creditors.

Induced by that representation the administrators gave the bank the letter of h 25 March 1991 as amended, consenting to the release of the floating charge.

The bank formally released the charge on 8 April 1991 enabling the property in the plant and equipment to be transferred to Waibona.

It should also be noted that as at the meeting of 25 March 1991 the administrators believed that Tong was the owner 4 20% of the shares in Taisol. Nothing was said by either Hashimoto or Hayward at the meeting on that date indicating that Hayward, purportedly acting under the articles, had transferred those shares to himself.

The next critical events occurred in August 1992. In that month the purported transfer of the 20% of the shares previously registered in the name of Tong to Hayward was recorded in the share register.

Then on 12 August 1992 the Kayuken agreement was executed. The parties to it were Hashimoto, Hayward and Dorio Development Co Ltd of the one part and Kayuken Pacific Ltd of the other. Therein Hashimoto and Hayward were recited to be the owners of all the shares in Taisol, and Hashimoto and Dorio were recited as the owners of all the shares in Waibona. By its terms the agreement provided that all the shares in Taisol and Waibona should be sold to Kayuken for $US1.75m. The agreement apportioned $US100, 000 as the value of the shares, and $US1.65m to be the consideration 'for the settlement of outstanding liabilities and purchase of the assets described in Schedule 3'. The plant and equipment described in Sch. 3 was identical with that transferred by Taisol to Waibona pursuant to the Waibona agreement.

The Kayuken agreement provided that $US120,000 of the $US200,000 d deposit should be paid directly to Hashimoto, and that on settlement a further $US100,000 should be paid directly to Hashimoto. That agreement was completed and further moneys were paid to Hashimoto thereunder. The trial judge found that Hashimoto received in all $US1,323,048.86 and that was not challenged on appeal by his counsel.

Counsel for Sullivan, Emery and Taisol did submit that there should have e been a finding that Hashimoto received a further $US50,000 being the amount referred to in d I(f)(iii). The evidence does suggest that such sum ultimately was paid to Hashimoto but given the unclear relationship between Ekky Budijono and Hashimoto there is good reason for not treating that $US50,000 as a payment received by Hashimoto pursuant to the Kayuken agreement.

The administrators did not become aware of the Kayuken agreement until on or about 18 November 1992. That was the first occasion on which they became aware that Hayward claimed a right to deal with the shares originally registered in the name of Tong. It is convenient to record here that the administrators did not become aware of the terms of the Waibona agreement until May 1993. It was also at that time that they inspected the share register of Taisol and noted the transfer of Tong’s shares to Hayward had been registered and back dated to 14 February 1990.

Before considering the actions the administrators then took in court, the terms of the deed of release between the administrators, Taisol and Kayuken should be noted. That deed was executed on 30 July 1993 by which time Taisol was under the control of Kayuken.

If the administrators proved breach of fiduciary duty by Hashimoto (with or without similar breach by Hayward) with respect to Taisol and/or the administrators as minority shareholders then, unless Kayuken could show it was a bona fide purchaser for value without notice, the plant and equipment could probably be recovered for the benefit of Taisol and/or its shareholders. Kayuken stood to suffer considerable losses if such litigation were successful and legal costs associated with such litigation would be likely to be not inconsiderable. It was undoubtedly against that background that the deed of 30 July 1993 was executed. The parties to it were Sullivan, Emery, Taisol and Kayuken.

The relevant part of the deed is in the following terms:

'Whereas:

(A) By agreement dated 12 August 1992 Kayuken agreed to purchase 250,000 ordinary shares in the company and certain other shares in plant in equipment from Toshio Hashimoto and David Hayward as part of the consideration under that agreement.

(B) The Administrators have claimed that 50,000 shares ("the Shares") purported to be sold under the sale agreement were not under the ownership of the vendors at the date of the agreement and that as they were owned by the estate of Sunny Wun San Tong (deceased) no title to the shares passed under that agreement.

(C) As a result of negotiations had between the parties and their respective advisers it has been agreed to compromise and settle all matters in dispute between the parties whereby the Administrators have agreed to transfer the shares for the consideration more fully set out hereafter and that all possible claims against Kayuken and others in respect of the agreement shall be abandoned save against Toshio Hashimoto and David Hayward.

(D) The Company agreed to permit the Administrators to bring any claims they may have against Toshio Hashimoto and David Hayward arising out of or connected with the agreement referred to in recital (A) by e way of an action in the name of the company on the terms and conditions herein contained.

NOW THIS DEED WITNESSES:-

1. Kayuken has paid to the Administrators in consideration of these presents the sum of $US 17,241 the receipt of which is acknowledged by the Administrators.

2. The Administrators warrant that the shares are the only shares in the Company in which they claim an interest and agree to transfer to Kayuken all of the shares whether or not the same are registered in the name of Sunny Wun San Tong free of any encumbrances provided that any stamp duty payable on the transfer shall be paid by Kayuken.

3. The Administrators agree to abandon, discontinue, discharge and forever hold harmless Kayuken its directors present and past its shareholders and related or associated entities from and against any and all causes of actions, claims, demands, suits or proceedings o£ whatsoever nature (including but without limiting the extent of this release, breach of contract, negligence, tort, fraud or breach of statutory duty or any other duty whatsoever) which the Administrators may have now or at anytime previously may have had or at any time subsequently may have or but for this agreement could have against Kayuken or its directors, shareholders or related or associated entities arising out of or associated with the said agreement Provided Always that nothing in this agreement is to be construed as releasing any claims that the Administrators may have against Toshio Hashimoto or David Hayward ...

5.(A) The Company agrees to permit the Administrators to bring if so advised, in the name of the Company an action against Toshio Hashimoto and David Hayward in respect or connected with any interest which the Estate of Sunny Wun San Tong has or may have had in the subject matter of the agreement referred in recital (A);

(B) The Administrators shall be entitled as against the company to the proceeds of any judgment in any action.

(C) The Administrators shall bear all the costs of any such action and shall indemnify and keep indemnified the Company against any judgment or order for costs which may be given or made against the Company in any such action and agree that any costs payable by the Company during the action or afterwards shall be first paid by the Administrators.'

(Throughout that quotation the term 'Company' refers to Taisol).

That agreement was carried into effect. The administrators transferred Tongs 20% shareholding in Taisol to Kayuken for the consideration stated in the agreement, the equivalent being $SB54,000.

It should be briefly noted that the administrators consented to the sale of the Tavioa Ridge property owned by Taisol. Settlement was effected and on 29 June 1992 part of the sale proceeds (namely $SB114,989.21) was paid to Westpac to dear the indebtedness of Taisol. The administrators had also consented to the sale of other property the proceeds of which had been used to reduce the bank debt.

On 6 May 1993 the administrators commenced action 119 of 1993 in its original form. They were the only plaintiffs and Hashimoto and Hayward were named as defendants. The relief sought was damages for fraud in relation to the transfer of shares and plant and equipment from Taisol to Kayuken. Then on 30 September 1993 Taisol was added as a plaintiff to that action. Thereafter that action included a claim for relief on the ground that the defendants were in breach of fiduciary duty.

By originating summons filed on 20 August 1993 the administrators sought rectification of the share register of Taisol. In particular they sought to have Hayward's name deleted as the holder of 50,000 shares so that Tong would be shown as the registered holder of those shares until the administrators transferred them to Kayuken pursuant to the deed of release of 30 July 1993.

As noted above, the action and the summons were heard together. In accordance with detailed and carefully reasoned judgments Palmer J granted rectification of Taisol’s share register, awarded the administrators equitable compensation with respect to breach of fiduciary duty by Hashimoto and Hayward in the sum of $US45,829, and further awarded each of the administrators damages for fraud in the sums of $SB45,757.50 and $SB35,697.50. The equitable compensation awarded was 20% of the total assessment because h the administrators relevantly held 20% of the shares in Taisol.

Hashimoto and Hayward have appealed against all of those orders. With respect to rectification of the share register the principal submission advanced on the hearing of the appeal was that relief should be refused because the administrators had no interest in having the register rectified and the proceeding was necessarily based on a champertous agreement. Their attack on the judgment in the action was based on a number of grounds which will need to be considered in some more detail, but the ultimate submission was that the action should be dismissed. The administrators and Taisol also appealed in the action claiming that the award of equitable compensation should have been for a much larger figure; in particular it was contended the trial judge erred in only allowing 20% of the total assessment. All appeals included attacks on the findings of fact made by the trial judge.

It is convenient to deal with the appeal in the rectification proceedings first. The purported transfer of Tong’s shares to Hayward was based on incorrect advice given at the time by an accountant advising Taisol and Hashimoto. Given the provisions of the articles of Taisol the purported transfer was a nullity and the reasons of Palmer J amply demonstrate why that is so.

Upon Tong's death the shares vested in the Chief Justice and then on their appointment in the administrators. At all material times the administrators C were entitled to be shown in the share register as the holder of the 50,000 shares. That was strictly necessary in order to support the transfer of those shares to Kayuken in accordance with the deed of release of 30 July 1993.

At trial Hashimoto and Hayward raised numerous arguments as to why the relief sought should be refused Palmer j addressed each of those in turn and gave cogent reasons why each should be rejected. This court is only now concerned with the argument that the application was founded on a champertous agreement and that in this exercise of its discretion the court should refuse relief because of that fact.

As Palmer J pointed out, the claim for rectification did not arise or originate from the deed of discharge. The administrators had stated the intention of _e seeking such relief before the deed was executed. But apart from that, the trial judge considered the submissions based on champerty and after a careful analysis rejected them. There is little that can usefully be added to what was said in the judgment appealed from on this point. Palmer J was dearly correct. The administrators dearly had a genuine commercial interest in having their names restored to the share register and the principles discussed in the cases to which I refer later are well and truly satisfied.

Both Taisol and the administrators had, in the circumstances, a right to have the share register rectified so that it showed the true position at law and did not reflect a situation derived from a purported transaction, which, to say the least, was a nullity and contrary to the articles of the company.

The orders on the summons made by the trial judge are sufficient to put the register in order. The effect will be that the administrators are shown as the holders of the shares until they transferred them to Kayuken.

The appeal with respect to the summons for rectification of the share register should be dismissed with costs.

The principal grounds on which Hashimoto and Hayward attacked the judgment in the action can be listed as follows.

(I) The findings that Hashimoto and Hayward were guilty of fraudulent misrepresentation and/or fraudulent concealment were not supported by the evidence; in particular the evidence did not support a finding that anything said or omitted to be said was done with a fraudulent intent. As a subsidiary argument it was submitted that there was no basis for any such finding against Hayward.

(II) The trial judge was wrong in fact and in law in holding that Hashimoto and Hayward, as directors of Taisol, owed a fiduciary duty to the administrators as shareholders in Taisol.

(III) That the trial judge erred in finding that Hashimoto and/or Hayward derived any profit or gain from either or both the Waibona and Kayuken transactions for which they were liable to account in equity either to Taisol or the administrators.

(IV) The trial judge should have found that the claim for equitable relief by Taisol was tainted with champerty and maintenance and therefore such relief should have been refused in the exercise of the court’s discretion.

(V) On the evidence the trial judge should not have found that Sullivan and Emery suffered any damage as a result of any fraudulent misrepresentation or fraudulent concealment.

(VI) That to grant relief as sought by Taisol and the administrators in the appeal would constitute unjust enrichment such as should cause the court in the exercise of its discretion to refuse relief.

The fraudulent misrepresentation and fraudulent concealment found by the trial judge related to the meeting between Sullivan, Emery, Hashimoto and Hayward on 25 March 1991, which resulted in Sullivan and Emery consenting to the release of the floating charge in favour of Westpac over the assets of Taisol. That, as indicated above, allowed the transfer of plant and equipment to Waibona to proceed.

The principal submission by counsel for Hashimoto and Hayward was that the finding of the trial judge that in substance Hashimoto represented that the sale proceeds (if the charge was released) would first be applied in discharging the Westpac debt was not supported by evidence given by Sullivan and Emery. The submission was primarily based on the summary of the evidence of Sullivan and Emery contained in the judge's reasons. If that summary was taken in isolation and construed literally then there may be some support for the submission. But when the notes of the evidence of Sullivan and Emery made by the trial judge are considered, it is abundantly dear that there was ample evidence to support the ultimate findings made. The representation found to have been made was substantially that pleaded and particularised. The fact that a further pleaded representation was held not to have been fraudulently made is beside the point.

Indeed, speaking for myself, I can hardly conceive of a clearer case of fraudulent misrepresentation and fraudulent concealment. As at the date of the meeting in question Westpac was a secured creditor, and Tong's estate as a guarantor of that debt was thereby protected to a large extent. If the security was released without the bank being paid, Tong's position was adversely affected. That was clearly appreciated by Taylor, the bank manager, and the administrators. The evidence that Taylor and the administrators discussed with Hashimoto and Hayward the question of release only on the basis that the bank be paid in priority from the sale proceeds is overwhelming. Hashimoto and Hayward gave lip service to that consideration by what they said at the meeting, but clearly they did not intend to act in that way. Indeed they had already signed a contract, which they concealed from the administrators and Taylor, which was contrary to any proposition that the bank be paid in priority. They clearly appreciated that if either the bank or the administrators knew of the terms of the Waibona agreement consent to the release of the charge would not be forthcoming. So far as Hashimoto is concerned his oral statements to Sullivan and Emery and his conduct in concealing the Waibona agreement amounted to fraudulent misrepresentation and fraudulent concealment. Hayward was present throughout the meeting on 25 March but there was no evidence he made any specific statement to the effect that the bank would be paid in priority. But he was an experienced businessman, a director of Taisol and signatory to the Waibona agreement. It was clearly his intention that the terms of the Waibona agreement be adhered to, and he acquiesced in the administrators being misled into believing that the bank would be paid in priority so that they should consent to the release of the charge. The trial judge did not expressly refer to Hayward in making the findings of fraudulent misrepresentation and fraudulent concealment, but it is dear from reading his reasons relating to the meeting of 25 March 1991 as a whole that his findings were intended to apply to both. Hayward was under a dear duty to correct the misstatement of Hashimoto and his failure to do so implicated him in the fraud. In the course of his reasoning the trial judge referred to the relevant principles derived from the well - known authorities Derry v Peek (1889) LR 14 App Cas 337, 58 LJ Ch 864, Oakes v Turquand [1867] UKLawRpHL 18; (1867) LR 2 HL 325 and Peek v Gurney [1873] UKLawRpHL 19; (1873) LR 6 HL 377. The findings of fraudulent misrepresentation and fraudulent concealment against both Hashimoto and Hayward should stand. The judge has given ample reasons justifying his conclusion in that regard.

I turn now to the question of breach of fiduciary duty. Hashimoto and Hayward were both directors of Taisol and as such dearly owed fiduciary duties to that company. Here the trial judge, after citing with approval the observations of Lord Parmoor in delivering the opinion of the Privy Council in Demerara Bauxite Co v Hubbard [1923] AC 673 at 681 - 682, concluded that in the circumstances of this case Hashimoto and Hayward could not cause the heavy plant and equipment of Taisol to be sold to Waibona, given Hashimoto’s interests therein, without Hashimoto and Hayward making full disclosure, without reservation, of all relevant circumstances. Further, in accordance with the statement of principle by Lord Parmoor, there would be an onus on Hashimoto and Hayward to establish that the transaction was fair in all the circumstances before a court of equity would conclude that its implementation did not constitute a breach of fiduciary obligations owed. (If other authority is needed reference can be made to Furs Ltd v Tomkies [1936] HCA 3; (1936) 54 CLR 583, Regal (Hastings) v Gulliver [[1942] UKHL 1; 1942] 1 All ER 378, [1967] 2 AC 134n and Phipps v Boardman [1966] UKHL 2; [1966] 3 All ER 721, [1967] 2 AC 46.)

Again the analysis of relevant authority by the trial judge is thorough and unobjectionable. There is no basis for distinguishing between Hashimoto and Hayward. The latter was a signatory to the Waibona agreement and in h consequence he knew of Hashimoto’s interest thereunder. Further, he either knew or ought to have known that Hashimoto was the principal shareholder of Waibona,

It is sufficient to found breach of fiduciary duty by Hayward towards Taisol that he knowingly facilitated Hashimoto obtaining a priority with respect to payment. Of that he was aware because of his signature appearing on the agreement. He was also a signatory to the Kayuken agreement and was a party to the ongoing preferment of Hashimoto over other shareholders of Taisol. His role in purporting to deal with Tong’s shares is not irrelevant in this regard.

In my view, there could be no clearer breach of fiduciary duty towards a company than is established here by the evidence against Hashimoto and Hayward.

The trial judge recognised that fiduciary duties are not ordinarily owed to shareholders but, relying on a passage from Gower's Principles of Modern Company Law (4th edn, 1979) p 573, he correctly concluded that in particular circumstances a fiduciary relationship could exist between directors and shareholders. After careful examination of relevant evidence he went on to conclude that the facts here were such as to bring Hashimoto and Hayward into a fiduciary relationship with the administrators as shareholders of Taisol.

Though in my view this conclusion was dearly open to the trial judge it has been strenuously attacked on appeal. For reasons which emerge later it is not necessary to finally decide that question, but in so saying I should not be taken as doubting the correctness of the conclusion reached below.

Where there has been a profit or gain made in consequence of a breach of fiduciary duty then in equity the party in breach must account for that profit. The compensation which the defaulting fiduciary must provide is restitution to the beneficiary of the assets of which he has been deprived; the value of the assets is the value as at the date of restoration. (Re Dawson [1966] 2 NSWLR 211, Target Holdings Ltd v Redferns (a firm) [1994] 1 WLR 1089 at 1102, [1994] 2 All ER 337 at 349 and A-G for Hong Kong v Reid [1993] 3 LRC 548 at 552[1993] UKPC 2; , [1994] 1 AC 324 at 331-332.) The court of equity may in an appropriate case order payment of the amount of the profit or gain by way of equitable compensation; the taking of a formal account in equity is not necessary (cf Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd Rep 1). Here, for significant reasons which he gave, the trial judge concluded that there was a profit or gain made as a result of the breach of judiciary duty owed by Hashimoto and Hayward and that each should be ordered to make redress by paying equitable compensation to the administrators. For reasons which I will elaborate I have concluded that his Lordship was correct in concluding that a profit or gain was made from the breach of fiduciary duty Hashimoto and Hayward owed to Taisol, and that an accounting of that profit or gain can be effected by ordering payment of equitable compensation.

It is often difficult to determine the extent of profit or gain which flows from a breach of fiduciary duty such as this. The problem is not so much in concluding that there has been a profit or gain, but rather in defining, or delineating, or calculating, that profit or gain. That difficulty is more acute when the transaction which constitutes the breach of fiduciary duty is part of a complex series of commercial dealings. In such a situation there may be universal agreement that the breach has resulted in a relevant profit or gain, but significant dissension as to the quantum thereof. There may well be a variety of ways of viewing the situation, each of which would result in a different assessment which is arguably the proper one. The difference in approach to the quantification adopted by the trial judge and counsel for the administrators and Taisol on appeal is a good illustration.

The authorities indicate a difference in approach between cases in which a specific asset is acquired and cases in which a business is acquired and operated. (Re Jarvis (decd) [1958] 2 All ER 336 at 340, [1958] 1 WLR 815 at 820, Hospital Products Ltd v United States Surgical Corp [1985] LRC (Conun) 411 at 468-469[1984] HCA 64; , (1984) 156 CLR 41 at 110, and Warman International Ltd v Dwyer [1995] HCA 18; (1995) 182 CLR 544 at 560-562.) In Jarvis Upjohn J concluded that the errant fiduciary should be accountable for the whole business and its profits, making allowances for the time, energy and skill that the fiduciary had expended. Mason J approved of that approach in the Hospital Products case, but observed (as did Upjohn J) that no one approach is universally correct. He concluded that in-

'each case the form of inquiry to be directed is that which will reflect as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty.' (See [1985] LRC (Comm) 411 at 465[1984] HCA 64; , (1984) 156 CLR 41 at 107.)

That approach was later confirmed in Warman; the following critical passages for present purposes appear in the joint judgment of Mason CJ, Brennan, Deane, Dawson and Gaudron JJ ((1995) [1995] HCA 18; 182 CLR 544 at 561-562):

'In the case of a business it may well be inappropriate and inequitable to compel the errant fiduciary to account for the whole of the profit of his conduct of the business or his exploitation of the principal’s goodwill over an indefinite period of time. In such a case, it may be appropriate to allow the fiduciary a proportion of the profits depending upon the particular circumstances. That may well be the case when it appears that a significant proportion of an increase in profits has been generated by the skill, efforts, property and resources of the fiduciary, the capital which he has introduced and the risks he has taken, so long as they are not risks to which the principal’s property has been exposed. Then it may be said that the relevant proportion of the increased profits is not the product or consequence of the plaintiff’s property but the product of the fiduciary’s skill, efforts, property and resources. This is not to say that the liability of a fiduciary to account should be governed by the doctrine of unjust enrichment, though that doctrine may well have a useful part to play; it is simply to say that the stringent rule requiring a fiduciary to account for profits can be carried to extremes and that in cases outside the realm of specific assets, the liability of the fiduciary should not be transformed into a vehicle for the unjust enrichment of the plaintiff ..... 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 intercedent agreement for profit sharing but will make allowance for skill, expertise and other expenses.'

What Hashimoto and Hayward did here was in substance to create a business in breach of fiduciary duty and then on - sell it. They put together Taisol’s assets and Waibona’s timber licence and developed that business to the extent that it could be sold to Kayuken at a very substantial profit. The problem confronting the trial judge was the quantification of the profit for which the defaulting fiduciaries were accountable to Taisol.

I cannot conclude that the broad approach of the trial judge to the quantification of the relevant profit or gain was wrong. It was an approach clearly open on the evidence and he was entitled to adopt it. As this is an assessment of equitable compensation the quasi - discretionary approach of the trial judge should be accepted unless it is shown to be clearly wrong. It follows that the approach of the trial judge here should be adopted. I have already indicated that the submission by counsel for the administrators that the $US50,000 paid under cl 1(f)(iii) of the Kayuken agreement should be included as part of Hashimoto’s profit or gain should be rejected.

The trial judge brought into account, in favour of Hashimoto, liability to Hashimoto and Van Yu (another company under the control of Hashimoto). Counsel for the administrators and Taisol conceded that the proper quantum of that liability should be brought into account, but there was a dispute as to the quantum. I am satisfied that there was evidence on which the trial judge could arrive at the figure of $US454,487 for the Van Yu liability. Counsel for the administrators and Taisol submitted that if that figure were accepted the set - off should not be for a total of $US766,351 as allowed by the trial judge, but should be capped at $US680,000 because of the operation of d 2(e)(vi) of the Kayuken agreement. That clause was not addressed by the trial judge on this issue, but I am not convinced that it should be given the effect of capping the amount to be set off in taking the account in equity. In the circumstances the full amount as found by the trial judge, namely $US766,351, should be brought into account.

On that basis the total amount of the profit or gain made by Hashimoto in consequence of the breach of duty by Hashimoto and Hayward is $US229,146. The actual calculation of that amount is fully set out in his Lordship’s reasons. But as noted above, his Lordship concluded that the accounting should be in favour of the administrators as shareholders and because of that he be allowed by way of equitable compensation only 20% of the total profit or gain. That is how he arrived at the figure of $US45,829.

However, for reasons which will become apparent, the relevant breach of fiduciary duty was that owed by Hashimoto and Hayward to Taisol. In equity each of them was obliged to account to Taisol for the profit or gain resulting from that breach. It follows that the starting point in the final accounting, given the approach adopted by the trial judge, must be the sum of $US229,146. Counsel for Hashimoto and Hayward further submitted that, if that broad approach were adopted, an allowance should be made for the time, energy, skill and other contribution made by Hashimoto (in particular) and Hayward which enhanced the value of the subject property and was therefore reflected in the h trial judge's assessment of the profit or gain which had to be brought into account. In support of that he relied heavily on the passages in Warman quoted above.

Here it was Hashimoto and Hayward who were responsible for putting the package together, i e putting together Taisol's logging plant and equipment and Waibona's logging licence. Their knowledge and expertise of the logging industry enabled them to put together and enhance the package which ultimately comprised all of the property sold to Kayuken. Unfortunately there is no precise evidence from either Hashimoto or Hayward dealing with these issues; everything was left in generalities. The trial judge made no specific finding as to the extent of the relevant contribution, but at the conclusion of the hearing of the appeal counsel for Sullivan, Emery and Taisol conceded that some allowance should be made for the time and skill put in by Hashimoto and Hayward in the way indicated. The real difficulty is in quantifying that particular allowance. The evidence does not enable an arithmetical calculation to be made but that is a common problem in this area of the law. Again it is worth quoting from Warman [1995] HCA 18; (1995) 182 CLR 544 at 558:

'The assessment of the profit will often be extremely difficult in practice; accordingly it has been said that "what will be required on the inquiry ... will not be mathematical exactness but only a reasonable approximation". What is necessary however is to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty.'

Bearing in mind all of the components which went into the trial judge’s calculation of the total profit or gain and the other matters referred to above, it is reasonable to set off approximately 25% of the figure so calculated as representing the allowance that should be made for the input of Hashimoto and Hayward. In the circumstances I would determine the benefit gained by Hashimoto and Hayward for which they are accountable to Taisol as being $US175,000.

That amount should (for reasons given later) be recoverable by Taisol unless, in accordance with the argument advanced on behalf of Hashimoto and Hayward, the claim thereto was tainted with champerty and maintenance so that the relief should be refused.

As outlined when dealing with the facts, as at July 1993 Sullivan and Emery were in a position to make substantial claims against Kayuken, Waibona, Taisol, Hashimoto and Hayward. If the administrators were completely successful Kayuken could have incurred very significant losses. The deed of 30 July 1993 compromised the position as between Sullivan, Emery, Taisol and Kayuken. Part of the consideration which passed to Sullivan and Emery pursuant to that deed was, in effect, an equitable assignment of any rights which Taisol then had against Hashimoto and Hayward for breach of fiduciary duty. At that time Taisol was wholly owned and controlled by Kayuken. Sullivan and Emery took the chance that they would be successful in an action claiming breach of fiduciary duty in the name of Taisol. If that action failed then Tongs estate would have recovered very little pursuant to the deed of 30 July 1993. If the action were successful then the estate would be entitled to the benefits of the judgment. The effect of the deed was akin to the assignment of the 'fruits of the h action'; cf. Glegg v Bromley [1912] UKLawRpKQB 55; [1912] 3 KB 474, [1911-13] All ER Rep 1138. It is also of relevance to note that the estate in the first instance had to bear the costs of the proceedings seeking relief in equity for the breach of fiduciary duty.

The deed of release was a commercial transaction reached after arm's length negotiations. The administrators accepted in full and final settlement of the claims the estate may have with respect to the assets of Taisol, and against Taisol, Waibona, and Kayuken an assignment of the benefits of the causes of action Taisol may have had against Hashimoto and Hayward.

Given the express terms of the deed, and bearing in mind that where an equitable assignment is involved any action must be brought in the name of the assignor, the principal claim here must be that of Taisol. It is the appropriate plaintiff but the administrators have the benefit of any judgment it recovers. For that reason it is not necessary to consider whether the administrators had any independent cause of action for breach of fiduciary duty. If there is any breach it is appropriate to give judgment in favour of Taisol.

The law with respect to champerty has been considered at some length in a number of recent English decisions. The history of the law with respect to maintenance and champerty is carefully expounded by Danckwerts J (at first instance) and by the Court of Appeal Jenkins and Hodson LJJ and Vaisey J) in Martell v Consett Iron Co Ltd [1955] 1 All ER 481, [1955] Ch 363. The analysis therein dearly establishes that the courts have taken an increasingly more liberal view of the practice of the supporting of litigation by a third party. The analysis made in the judgments in Martell was accepted by the House of Lords in Trendtex Trading Corp v Credit Suisse [1981] 3 All ER 520, [1982] AC 679. There were two assignments of the cause of action in issue there, and ultimately the decision centred on the second. The Lords held that the second assignment involved a third party who had no genuine and substantial interest in the success of the litigation; the only interest that third party had was the possibility of a profit being made out of the cause of action. In consequence the second assignment 'savoured of champerty' as involving trafficking in litigation and the assignment was therefore void. But in the course of their reasoning their Lordships made it clear that the first assignment was not void because the assignee had a genuine and substantial interest in the success of the litigation. I would refer in particular to passages in the judgments of Lord Wilberforce and Lord Roskill ([1981] 3 All ER 520 at 524 and at 530, [1982] AC 679 at 694 and at 703). In the latter reference is made to the circumstance that the assignment to Credit Suisse was for the purpose of enabling it to recoup itself for its own substantial losses arising out of the repudiation of the letter of credit.

That reasoning was applied by the Court of Appeal in Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499. The judgment of Lloyd LJ ([1985] 3 All ER 499 at 509) is helpful because he summarised the modern principles relevant to champerty. In his reasoning he stated the following proposition, derived from the reasoning in Trendtex, which is relevant for present purposes ([1985] 3 All ER 499 at 507):

'The House of Lords, on the other hand, held that not every cause of action for breach of contract is assignable. Such a cause of action can only be assigned if the assignee has a genuine commercial interest in enforcing the claim. The prohibition against assigning a bare right to litigate should therefore be confined to cases where there is no such genuine commercial interest.'

The most recent English case dealing with champerty is the decision of the House of Lords in Giles v Thompson [1993] UKHL 2; [1993] 3 All ER 321, [1994] 1 AC 142. Lord Mustill noted that 'the law on maintenance and champerty has not stood still, but has accommodated itself to changing times'. (See [1993] UKHL 2; [1993] 3 All ER 321 at 360[1993] UKHL 2; , [1994] 1 AC 142 at 164.) He went on to say:

'Meanwhile, I believe that the law on maintenance and champerty can best be kept in forward motion by looking at its origins as a principle of public policy designed to protect the purity of justice and the interests of vulnerable litigants. For this purpose the issue should not be broken down into steps. Ratter, all aspects of the transaction should be taken together for the purpose of considering the single question whether, in the terms expressed by Fletcher Moulton LJ in the passage already quoted from in British Cash and Parcel Conveyors Ltd v Lamson Store Services [1908] UKLawRpKQB 46; [1908] 1 KB 1006 at 1014[1908] UKLawRpKQB 46; , [1908-10] All ER Rep 146 at 150, there is wanton and officious intermeddling whatever, and where the assistance he renders to one or the other party is without justification or excuse.'

I should also record that I have been greatly assisted in considering the recent English authorities by the detailed analysis thereof made by Debelle J of the South Australian Supreme Court in South Australian Management Corp v Sheahan (1995) 16 ACSR 45.

When the facts of this case are considered in the light of the principles established in those authorities it is dear, in my view, that the administrators had a genuine commercial interest in the cause of action for breach of fiduciary duty which Taisol had against Hashimoto and Hayward and they also dearly had justification and excuse for wishing to pursue that cause of action. The estate had been wrongly divested of its shares. The company Taisol in which the estate had an interest was by virtue of the breach of fiduciary duty divested of its assets. All the shares, including the shares lawfully held by the administrators, were sold at a profit. Each of those matters gave the estate a legitimate commercial interest in the outcome of any action brought by Taisol for breach of fiduciary duty.

Counsel for Hashimoto and Hayward submitted that nevertheless the action was tainted with champerty because the administrators and Taisol stood to make a windfall profit. It was submitted that, particularly if there was recovery on the basis of Taisol’s loss, the estate would recover to more than the estate’s legitimate share of the proceeds of the cause of action.

That is a matter which has been addressed in some of the authorities to which reference has been made. Sir John Megaw in delivering his judgment in Brownton said ([1985] 3 All ER 499 at 506):

'The judge also supported his decision by reference to the submission for Cossor [the second defendant] that the assignment "contemplates the making of a profit". What is meant by contemplation of making a profit in this context? When an agreement to assign a cause of action is made, the ordinary contemplation of the assignor and of the assignee is that it will be to the advantage of each of them: they will be better off, in some way, as a result of the assignment than they would be if the assignment were not made. Usually the “better off’ can be expressed as financial benefit, even though the amount in money may be incapable of assessment. If this were to be treated as "contemplation of making a profit" and if the consequence in law were to be that the agreement to assign would be champertous and illegal, few assignments would stand. That cannot be the law. An agreement to assign is not champertous merely because the assignee, or the assignor, or both has as part of his genuine commercial interest the contemplation that he will be better off as a result. If, however, "contemplation of making a profit" is confined to such situations as existed in Trendtex where the assignee’s intention was, not himself to pursue the action, but to sell the cause of action to a stranger for a higher price than he had paid for the assignment to him, there is obvious good reason why such a transaction may be regarded as champertous. That is of no relevance to the present case. Again, if there were a prospect of some excessive profit, that might properly be a factor in deciding whether the commercial interest was genuine. That does not apply here. So far as potential profit may be relevant it must be looked at as a practical matter in relation to the facts of the particular case, not by way of theory.’

Lloyd LJ reasoned to similar effect, but with particular reference to relevant passages in the judgments in Trendtex. He rejected counsel’s argument that an assignment was bad if the assignee is enabled to make a profit out of it by, inter alia, saying ([1985] 3 All ER 499 at 509):

'Secondly, counsel's submission, if correct, would be unworkable in practice. The validity of the assignment must be capable of being judged at the time of the assignment. But in many, perhaps most, cases it would be difficult to tell at that stage whether the assignment would be likely to result in a profit, and if so, how great; and, even in those cases where the size of profit could be foretold with certainty, there would arise the question, necessarily uncertain, whether the profit was out of all proportion to the interest. These uncertainties should be avoided if they can. For these reasons I would reject counsel’s alternative submission.'

That reasoning is supported by what Lord Wilberforce said in Trendtex [1981] 3 All ER 520 at 524, [1982] AC 679 at 694; he concluded that the possibility that the assignee might recover more than was sufficient to recoup losses 'could not invalidate the agreement'.

That approach is, in my opinion, correct in principle; in consequence the mere fact that the estate might profit from the litigation does not render the assignment invalid on the ground that it is champertous.

In the circumstances the prosecution of Taisol's claim against Hashimoto and Hayward is not tainted with champerty. That defence therefore fails.

The amounts recovered by Sullivan and Emery respectively for damages for fraudulent misrepresentation reflected expenditure and losses each had incurred in his capacity as an administrator consequent upon the fraudulent misrepresentation and fraudulent concealment by Hashimoto and Hayward. The trial judge was entitled to take the view that the administration of the estate had involved greater expense because of the fraud. In the circumstances there is no proper basis for interfering with his conclusions.

The only other point raised by counsel for Hashimoto and Hayward was that a consequence of the orders sought by Emery, Sullivan and Taisol on the appeal would be that the estate would be unjustly enriched and that such circumstance should cause the court in the exercise of its discretion to refuse relief.

Once it is accepted that there was in effect an equitable assignment of Taisol's claim for breach of fiduciary duty against Hashimoto and Hayward as part of a commercial settlement the foundation for the submission of unjust enrichment is removed. Further, once an allowance for the time and effort put in by Hashimoto and Hayward enhancing the value of the subject property is made, it is difficult to see that there is any substance in the contention that the estate would be unjustly enriched.

In dealing with issues raised by Hashimoto and I - Hayward on their appeal I have already covered a number of the points raised by the administrators and Taisol on their appeal. On Taisol’s claim for equitable compensation it is entitled to recover the sum of $US 175,000 I have referred to. It was submitted that there were other errors in calculation made by the trial judge which would entitle the administrators or Taisol to a much greater sum (some of those points have been specifically dealt with above) but in my view none of the contentions raised shows that the trial judge was dearly wrong in the assessment he made. The appeal should be allowed to the extent that the judgment in favour of the administrators for $US45,829 should be set aside, and in lieu thereof it should be ordered that Taisol should recover $US175,000 equitable compensation.

In the circumstances the appeal by Hashimoto and Hayward should be dismissed with costs. The appeal by Emery, Sullivan and Taisol should be allowed, the judgment in favour of the first plaintiffs in the sum of $US345,829 should be set aside and in lieu thereof it should be ordered that Taisol Investment Corp (SI) Ltd recover from the defendants $US175,000. Otherwise the orders of the trial judge should stand. I would further order that Hashimoto and Hayward pay the costs of the appeal by Emery, Sullivan and Taisol to be taxed.

With respect to all of the appeals I would certify for overseas counsel.

Solicitors:

T I Kama. for the appellants.
A Redclyffe for the respondents.