The HCA disallowed a joint venturer’s claim to have derived a lump sum as constructive trustee. Alleged fiduciary duties owed to a non-venturer were not accepted. Alternatively, the venturer’s purported equitable assignment of his rights to the lump sum was not tax-effective.
Howard and five other individuals established a joint venture to acquire and lease out the Kingston Links golf course in Melbourne. Before the golf course was acquired, the parties disagreed about the project’s source of capital. Howard and two other venturers (“the Howard venturers”) wanted to use the funds of Disctronics Ltd – a company of which they were each directors. The other two venturers (“the dissentient venturers”) wanted to use the funds of a different company that they controlled. Secretly, the dissentient venturers arranged for their company to purchase the golf course thereby diverting the venture opportunity to their own vehicle and excluding the Howard venturers.
The Howard venturers successfully sued the dissentient venturers in the Supreme Court of Victoria: see  VSC 454 per Warren J; confirmed by the Court of Appeal: (2005) 12 VR 513. The dissentient venturers were ordered to pay equitable compensation to the Howard venturers equal to four-sixths of the project’s anticipated profit. Prima facie, this meant that large tax liabilities for the Howard venturers arose in the year that the judgment was awarded. Attempts to divert these tax liabilities were disallowed in the Federal Court of Australia. See (2011) 86 ATR 753 affirmed (2012) 206 FCR 329. The High Court of Australia gave leave to appeal for Howard to argue only non-tax issues (even if tax was what was ultimately at stake). First, whether Howard entered the Supreme Court litigation in his capacity as director of Disctronics and as a consequence held the judgment sum on constructive trust for Disctronics. Secondly, whether, at the outset of the litigation, Howard had enforceably assigned the damages award to Disctronics.
The Howard was unsuccessful in both claims. Three concurring High Court judgments were handed down.
(1) The constructive trust argument:
Howard argued that his fiduciary duties to Disctronics prohibited:
- conflict between his director’s duty to Disctronics and his personal interests; and
- pursuit of personal gain in connection with a business opportunity in which the company had decided to invest.
Hayne and Crennan JJ in their judgment made a close examination of what Howard’s fiduciary duties were in the transaction. Relative to the first argument, their Honours found at - that at the relevant time there was no possibility of conflict between Howard’s interests and his duties to the company. The alleged conflict was said to exist in the Howard’s seeking to maximize personal damages awarded to him in the Supreme Court action, whilst being under a duty to promote the company’s interest in the Kingston Links project. However, the venture had come to an end by the time that the conflict was said to arise. Disctronics’ profitable opportunity relating to the golf course had been diverted to another company. No constructive trust arose. No actual or potential wrongdoing could be averted.
French CJ and Keane J at - reasoned similarly. At  their Honours said: “[O]nce it becomes clear that [the dissentient venturers] would not agree to Discrtronics as the ultimate purchaser, the potential for Disctronics to derive any benefit from the joint venture was at an end.”
Relative to the second argument, Hayne and Crennan JJ held that the relevant business opportunity did not belong to Disctronics. It was the joint venture’s opportunity. Disctronics was not a venturer. No wrong was done to Disctronics through Howard exploiting the opportunity for himself.
At - Gaegler J came to the same conclusion by another route. His Honour’s judgment was based in an obiter dictum expressed by the Full Court of the Federal Court in its lengthy fiduciaries judgment handed down in Gramaldi v Chamelon Mining NL (N 2) (20120 200 FCR 296 at . Howard’s enjoyment of the fruits of the profitable Supreme Court litigation was outside the scope of any fiduciary duty that he owed to Disctronics, his Honour said. No fault of Howard caused Disctronics’ profitable opportunity to fail.
(2) The assignment argument
Shortly prior to the Supreme Court hearing, the Howard venturers purported to assign to Disctronics “any award of damages” which the Court might order.
Was this tax-effective? “Did [Howard] thus assign to Disctronics . . . his right to receive equitable compensation, or did he assign any proceeds of the action, if and when they were received?, as Hayne and Crennan JJ asked at . Their Honours’ judgment substantially agreed with that of French CJ and Keane J. Doctrinally, it was noted, if one agrees for value to assign an asset, dissociated from property wherefrom it derives, the asset is assigned as and when it is acquired.
The subject matter of Howard’s assignment was a judgment debt, which might contingently arise from his prosecution the Supreme Court action. The cause of action was not assigned. This was fatal. At the time of acquisition, the judgment debt was taxable in the hands of the assignor (citing Booth v FCT (1987) 164 CLR 159 at 167 per Mason CJ).