ADDSTEAD P/L & ORS v SIMIONATO HOLDINGS P/L & ORS No. SCGRG 95/1880 Judgment No. 6117 Number of pages - 68 Corporations [1997] SASC 6117 - SASC 1997 case summary

Supreme Court of SA|1997-04-18|Before: Mr J, Lander J

These proceedings were commenced by the plaintiffs on 1 September

The plaintiffs, at that time, were all in liquidation or provisional liquidation. They were all members of the Emanuel Group of companies. The defendants were a group of companies largely under the control of Mr Robert Simionato.

The plaintiffs in their originating proceeding sought the following orders: "1. A declaration that the defendants have had and received the sum of $4.6 million by them to the use of the plaintiffs.

An injunction restraining the defendants and each of them (whether by their servants or agents or otherwise howsoever) from any dealing in or with the said moneys or the balance thereof remaining in their hands or under their control.

An injunction restraining the defendants and each of them (whether by their servants or agents or otherwise howsoever) from any dealing in or with any property of theirs or which is in their possession power or control and which has been acquired or held (directly or indirectly) with the said moneys (including by way of mortgage or other finance provided by one or more of them to any of the others).

A declaration that the defendants and each of them hold the said moneys (or the balance thereof remaining in their hands or under their control) on trust for the plaintiffs.

A declaration that the defendants and each of them hold any property of theirs or which is in their possession power or control and which has been acquired or held (directly or indirectly) with the said moneys (including by way of mortgage or other finance provided by one or more of them to any of the others) on trust for the plaintiffs.

An order that an inquiry be held as to any dealings by the defendants or any of them in or with the said moneys and any property acquired directly or indirectly as aforesaid with the said moneys.

An order that an account be taken of the profits made by the defendants or any of them from the said moneys or any such dealings as aforesaid.

An order that an account be taken of the profits made by the defendants and each of them pay to the plaintiffs the amount of such profits ascertained to be owing on the taking of the account referred to in paragraph 7 hereof together with interest during such period and at such rate as the Court shall fix.

An order that the defendants pay to the plaintiffs the said moneys (or the balance thereof) in their hands or under their control.

An order that the defendants transfer to the plaintiffs any property which it is found has been acquired directly or indirectly out of the said moneys, or such thereof or interest therein as the court shall deem just and equitable having regard to the inquiry and account referred to in paragraphs 6 and 7 hereof.

At the time of the issue of the originating proceedings an application, supported by an affidavit of the liquidator Mr Macks, was made for various injunctions.

An interim injunction was granted by a Master of the Court, Judge Anderson, on 1 September 1995 upon terms which are not important. On 12 September 1995 the order was extended until 6 October 1995 and on that occasion it was extended until 25 October 1995. Meanwhile on 11 October 1995, with some variations including the discharge of the order as against the fourth defendant, the injunction was continued until further order.

The plaintiffs filed their statement of claim on 19 December 1995 and on 16 February 1996 the plaintiffs were given leave to join two further defendants Sardona Pty Ltd and Melbourne Projects Pty Ltd. An amended statement of claim was filed on 27 February 1996 reflecting the joinder of the additional defendants.

An application by the defendants to discharge or vary the injunction was heard by Bollen J and refused on 28 February 1996.

At that time his Honour certified that the matter was fit for an early trial and ordered accordingly.

On 22 March 1996 a Master of the Court, Judge Burley ordered that the defendants, with the exception of the fourth defendant, file their defence on or before 4 April 1996; that discovery be made before 19 April 1996; that the evidence to be adduced on the trial of the action be taken on affidavit; that further affidavits from the plaintiffs be filed before 3 May 1996; that further affidavits from the defendants in response be filed by 17 May 1996 and any further affidavits from the plaintiffs in response be filed before 24 May

Thereafter the defendants made an application for the injunction to be dissolved unless an undertaking was given by the liquidator in relation to damages. An application was also made by the defendants for security for costs on the part of the plaintiff. Both of those applications were dismissed by Judge Burley on 26 April 1996.

On 11 June 1996 Judge Burley dismissed an application by the defendants for further particulars of the statement of claim, extended time for filing and service of a defence to the 25 June 1996, and made consequential orders in relation to the pre-trial conference which ought to have occurred on that occasion.

He made an order that the costs of the pre-trial conference be paid by the defendants' solicitors.

On 21 June 1996 the defendants filed their defence, which does not conform with the pleading rules in a number of respects, but in particular does not conform with Rule 46.12.

An appeal from Judge Burley's decision, refusing the defendant's application to require the liquidator to give an undertaking as to damages and dismissing the application for security for costs, was dismissed by Duggan J on 5 July 1996.

On 15 July 1996 the parties agreed that the injunction be varied to allow for certain payments to be made by the defendants, provided certain notice was given to the plaintiffs.

The pre-trial conference in this matter was resumed on 23 July 1996 when counsel for the defendants foreshadowed an application for leave to join the liquidator as a party to the proceedings in order to pursue a claim for damages relating to alleged wrongful obtaining and maintenance of the interlocutory injunction. The matter was adjourned to allow the defendants to make that application, Judge Burley ordering that the application be made and filed by 5 August 1996. Leave was later given allowing the application to be served on or before 21 August 1996. As a consequence, the pre-trial conference was adjourned yet again.

When the matter resumed before Judge Burley on 23 August 1996 the plaintiffs advised his Honour that they wished to apply for summary judgment. In those circumstances Judge Burley refused to certify the matter as being ready for trial and referred the matter to the listing registrar. On 2 September 1996 the plaintiffs made application for summary judgment.

The defendants then made application to me for the release of funds so that they might make an application to join the liquidator. Thereafter the defendants also made an application for a stay of the plaintiffs proceedings. The second application was dismissed on 10 October 1996.

There have been a multitude of applications made by the defendants since July of 1996 relating to variation of the injunction and other interlocutory matters. Some of those applications have been consented to, some others opposed. Most of the applications have related to the release of funds to pay the defendants' legal advisers.

On 10 October 1996 I gave directions in relation to the application for summary judgment. At that time I ordered that it be heard on 13 and 14 January 1997 and I directed; that the plaintiffs file any further affidavits by 14 October 1996; that the defendants' affidavits in answer be filed by 11 November 1996; that the plaintiffs' affidavits in reply be filed by 25 November 1996; that the parties exchange any objections as to the admissibility of evidence by 2 December 1996, and I adjourned the application for summary judgment to 6 November 1996. I adjourned the application at that stage because the then counsel for the defendants advised that the defendants might seek to apply to vacate the hearing date of 13 January 1997. The matter came on on 6 November 1996 and was adjourned to 8 November 1996 but no application of the kind was made. On that occasion it was suggested by the counsel for the defendants that an application would be made to set aside the plaintiffs' application for summary judgment. I gave the defendants until 18 November 1996 to bring such an application. Again no application of the kind was made.

On 21 November 1996 after hearing the parties in relation to an application for discovery I made certain orders in relation to further and better discovery by the plaintiffs.

On 26 November 1996 I directed that the defendants notify the Court within seven days of any application for an extension of time within which to make an application in relation to the plaintiffs' application for summary judgment. No such notification or application was made.

The application for summary judgment came on for hearing on 13 January

At that time the defendants were represented by Mr O'Doherty and Mr Birrell of counsel and Mr Tropeano. Mr O'Doherty and Mr Birrell usually practice at the Victorian Bar. When the matter was called on Mr Birrell foreshadowed that at the end of the plaintiffs' argument the defendants would seek an adjournment, perhaps to bring in further evidence in opposition to the application made.

On 10 January 1997 the defendants had filed three affidavits in opposition to the plaintiffs' claim. Those affidavits, of course, were not filed in accordance with the directions earlier given but that was not the point of Mr Birrell's application. He recognised that the affidavits, which were filed out of time, did not address the issues in the case and in those circumstances, in many respects, the plaintiffs' allegations were left unanswered. After hearing Mr Birrell for a short time I asked him to advise me where the fault lay for the failure to comply with the directions, and for the failure generally to prepare the defendants' case.

He sought a short adjournment and upon resumption Mr O'Doherty advised me that Mr Birrell's retainer had been withdrawn and that Mr Birrell sought leave to withdraw. Mr O'Doherty then applied for an adjournment upon the grounds that the defendants were not ready. In support of his application he called Mr Birrell who confirmed, on his oath, that he had not applied his mind to the issues in the matter as he should have and that the defendants were free of all blame for their state of unreadiness.

After some argument I allowed the defendants their adjournment but upon terms which included a term that all of the defendants' legal advisers undertake not to seek any costs in relation to the application for summary judgment up to and including that day and the further term that one or all of them would pay the indemnity costs of the plaintiffs fixed at $9,780. I did not then decide who of the defendant's legal advisers ought to be responsible for the plaintiff's indemnity costs but adjourned that discreet question for hearing after the application for summary judgment. I will deal with that matter separately.

I was only prepared of course to adjourn the application for summary judgment upon first being satisfied that no prejudice was caused to the plaintiffs. Of course in a sense the plaintiffs did suffer prejudice. They lost their opportunity of having their application heard on 13 January 1997.

Evidence discloses that the defendants, up until the 13 January 1997, had incurred legal fees in the order of $400,000 on their defence. All they had to show for that was a defence which did not comply with the Supreme Court Rules.

I adjourned the matter until 4 February 1997 and gave directions that the defendants file their answering material by 28 January 1997. The solicitor then on record remained on file but the counsel who appeared on 13 January 1997 ceased to be retained and present counsel were briefed sometime shortly after 13 January 1997.

On 23 January 1997 I varied the injunction to allow payment of the further sum of $50,000 for legal fees solely in relation to the application for summary judgment.

I also varied the previous directions so as to allow the defendants until 31 January 1997 to file their affidavits in answer to the plaintiffs' affidavits and vacated the hearing date for 4 February 1997 in favour of 5 February 1997. The extension of time and the variation in hearing date was to accommodate the defendants' request that they needed as much time as possible to file their evidence. Subsequently, I further varied the injunction to allow for payment of about $20,000 to meet further legal costs in relation to the opposition to this application.

Three affidavits had been filed on 10 January 1997. The deponents to those affidavits were Mr Giuseppe Emanuele (Mr Joe Emanuele), Mr Linton Emanuele and Mr Robert Simionato. Inherent in Mr Birrell's application at that time was an acknowledgment that those affidavits did not sufficiently address the subject matter of the plaintiffs' claim. A number of affidavits were filed by the defendants subsequent to 13 January 1997. Some of those were directed to the question of the liability for the plaintiffs' indemnity costs in relation to the adjournment of that hearing and need not be considered on the application for summary judgment. However they are not irrelevant in relation to other aspects of the hearing.

An affidavit was filed by Mr Robert Simionato and sworn the 17 January
In it he deposed: "5. In March I was asked by Mr Farrugia, a solicitor with Thompsons to become a director of a company which it was proposed would act as a trustee for the Emanuele Family Trust. My understanding at that stage was that the trustee company would administer a family trust for the Emanuele family. My recollection is that the company which was called Simionato Holdings Pty Ltd would receive settlement moneys arising from the dispute between EFG and my (sic) uncle Giuseppe Emanuele.

On the 17th of March 1995 Simionato Holdings Pty Ltd executed a Deed of Agreement which is exhibit 4.35 to the affidavit of the liquidator. The terms of the Deed of Agreement had been negotiated by solicitors for Mr Giuseppe Emanuele and those solicitors were also acting for Simionato Holdings Pty Ltd. After receiving advice from Mr Farrugia the terms of agreement were accepted by Simionato Holdings Pty Ltd.

I have had limited access to financial records that evidenced the flow of funds received pursuant to the terms of the Deed of Agreement. In so far (sic) as I am able to ascertain the liquidator's affidavit outlines the flow of funds and payments made by Simionato Holdings Pty Ltd and the other defendants. However I am not able to confirm or deny all of the payments referred to in the liquidator's reconstruction of the accounts."

That affidavit addressed the plaintiffs' allegations in relation to the tracing of funds which are the subject of these proceedings and indeed, by the admission in paragraph seven of Mr Simionato's affidavit, narrowed those issues significantly. I will return to that matter. The affidavit, like previous affidavits, failed to address the main question in this case, that being whether or not the directors of the plaintiff companies had been guilty of breaches of fiduciary and statutory duties.

At the time that I gave my ex tempore reasons for the adjournment on 13 January 1997 I said this: "The three major issues identified in the affidavit and in the statement of claim are:

Whether the then officers of the plaintiffs were guilty of breaches of statutory and fiduciary duties.

Whether the defendants had notice of those breaches of duty.

Whether the moneys, which the defendants undoubtedly received, are held on constructive trust for the plaintiffs."

None of the affidavits of 10 January 1997 or Mr Simionato's affidavit of 17 January 1997 address those three main issues.

On 31 January 1997 in conformity with my directions an affidavit, sworn by Antonio Tropeano the solicitor for the defendants, was filed. That affidavit sets out the efforts that he and counsel (retained since 13 January

made in relation to this application.

It shows that efforts were made to speak to an employee of the Elders Finance Group (EFG), namely Mr O'Grady, and to solicitors Mr Farrugia of Thomsons and Mr Nigel Winter of Johnson Winter and Slattery. The affidavit shows that upon the advice of counsel, Mr O'Grady would give no information. Mr Farrugia was interviewed and provided the information set out in the affidavit itself but was not himself prepared to give an affidavit. The information given by Mr Farrugia was very basic and was indeed information alleged in the Statement of Claim and clearly expressed in the affidavit supporting this application. Whilst Mr Winter was prepared to be interviewed it was only in circumstances where the solicitors for the plaintiffs were present. Mr Winter had been the solicitor for the plaintiffs. The plaintiffs were thus entitled to claim legal professional privilege in respect of any communication with him. They indicated they would not claim privilege provided they were either present at any interview or had an awareness of the matters of discussion with the legal advisers for the defendants.

Paragraph 22 of the affidavit reads: "For the defence to be properly presented it will be necessary for the evidence of Mr Winter, Mr Farrugia and representatives of Elders Finance Group to be placed before the Court. Those persons can give evidence of the negotiations that led to the settlement which is the subject of this action. On my instructions the evidence of those people will establish that the payment made by Elders Finance Group was for the benefit of Mr Giuseppe Emanuele and it was only intended to be for the benefit of the plaintiff companies to the extent that was specifically provided for. Additionally their evidence will show that the plaintiff companies were separately represented at the relevant stages of the negotiations and there was no breach of any duty by the directors officers or employees of any company. Because those persons are not prepared to provide affidavits it will be necessary to serve them with subpoenas to give oral evidence."

When the matter came on for hearing on 4 February Mr Clayton QC (who appeared with Mr Andrew Martin for the defendant) sought a further adjournment of the matter to enable the evidence of Mr O'Grady and Mr Farrugia to be put before the Court. The affidavit of Mr Tropeano exhibited the evidence given by Mr Winter in his public examination. There was nothing further that Mr Clayton wished to lead from him. The thrust of the application was that the defendants wished to subpoena both Mr O'Grady and Mr Farrugia and lead viva voce evidence from them. The witnesses had not been subpoenaed to appear because the defendants were not sure that the application to call that evidence would be successful. Having regard to the fact that Mr O'Grady is resident in Queensland that attitude was not unreasonable. It was put that this evidence (Messrs O'Grady and Farrugia) had not been reduced to writing because the potential witnesses refused to co-operate.

In the alternative Mr Clayton submitted that the inability of the defendants to bring forward that evidence indicated that this application was not an appropriate procedure to determine the rights between these parties.

He conceded that Mr Joe Emanuele, Mr Linton Emanuele and Mr Robert Simionato were witnesses who were available to him and that he could have presented whatever evidence he wished from those persons. Mr Rocco Emanuele was also in a sense available to the defendants although he is presently overseas.

It seems to me that the applications by the defendants are misconceived. The defendants have not addressed the question of whether or not the directors of the plaintiff companies were guilty of any breach of fiduciary and statutory duties in 1994/1995. No evidence whatsoever has been brought forward in respect of that matter. The primary evidence whether the plaintiffs' directors were in breach of their fiduciary and statutory duties would be led principally from Mr Joe Emanuele, but as well from Mr Rocco Emanuele, Mr Linton Emanuele and Mr Robert Simionato. Not a scintilla of evidence has been led in denial of these matters. Some evidence has been adduced as to Mr Joe Emanuele's resignation as a director from some of the plaintiff companies and that thereafter he did not act as a director. Whilst that is relevant it still overlooks what this case is about. The defendants have simply not addressed the thrust of the plaintiffs' case.

The evidence which the defendants wished to bring forward from Mr O'Grady was to the effect that Elders intended that the money be paid to Mr Joe Emanuele. Whilst Elders intention may not be irrelevant for the purpose of determination of these proceedings, the question is still whether or not the plaintiffs' directors have been guilty of any breach of fiduciary and statutory duties.

In relation to the evidence of Mr Farrugia, of course Mr Farrugia was the solicitor for the defendants and in those circumstances he would have an obligation to co-operate with the defendants. That he has not co-operated with the defendants is a matter between the defendants and Mr Farrugia.

For those reasons I declined to allow the defendants an adjournment so as to call Mr O'Grady and Mr Farrugia on this application.

When I indicated to Mr Clayton that in my view the defendants had continued to avoid the main question in the case, i.e. breaches of fiduciary and statutory duties, he sought a short adjournment and thereafter advised me that Mr Joe Emanuele and Mr Linton Emanuele were prepared to give evidence in relation to this matter. He put to me that "the family" was prepared to give evidence. In those circumstances he applied to call Mr Joe Emanuele and Mr Linton Emanuele on the application for summary judgment. He said he wanted a short adjournment because he did not have a proof from either of those men. It seems to me extraordinary that eighteen months after these proceedings have been brought the defendants have still not obtained a proof from the principal witness in these proceedings, Mr Joe Emanuele.

I declined to allow him to call oral evidence from Mr Emanuele on this application on the basis that the defendants have had every opportunity both before and after 13 January 1997, to obtain whatever evidence they wished from Mr Joe Emanuele and Mr Linton Emanuele in answer to this application. I declined any application for adjournment and required Mr Clayton to present his case upon the evidence which the defendants had brought into Court in conformity with my directions.

After the parties were heard on this application, on 28 February 1997, Mansfield J sitting in the Federal Court in Adelaide made an order winding up the defendant Simionato Holdings Pty Ltd, and appointing Anthony Sims as liquidator of that company. That order necessitated the plaintiffs making application, pursuant to s471B of the Corporations Law, for leave to proceed against the defendant Simionato Holdings Pty Ltd. Although the winding up order had been made by the Federal Court, the application for leave was made to me. I was satisfied that I had jurisdiction to make the order: Acton Engineering Pty Ltd v Campbell and Others [1991] FCA 469; (1991) 103 ALR 437, and I did so on 12 March 1997, giving the plaintiffs leave to proceed against that company upon terms mentioned in that order.

The plaintiffs, all of which are in liquidation, were members of the Emanuel Group. They have a common liquidator, Mr Peter Ivan Macks, a chartered accountant practising in Adelaide. On 9 January 1995 he was appointed liquidator of Emanuel Investments Pty Ltd and between 24 May 1995 and 2 August 1995 he was appointed a provisional liquidator of eight more of the plaintiff companies and liquidator of Establishment Holdings Pty Ltd. On 30 August 1995 he was appointed liquidator of a further sixteen of the plaintiff companies and provisional liquidator of a further thirty-eight of the plaintiff companies.

At the time of Mr Macks's appointment as either liquidator or provisional liquidator of the nine companies in the period between 24 May 1995 and 2 August 1995, Mr Bruce James Carter, also a chartered accountant practising in Adelaide, was acting as administrator of those companies. At the time of Mr Macks's appointment as either liquidator or provisional liquidator to the fifty-four companies on 30 August 1995, Mr Bruce Carter was acting as administrator of all but twenty-one of those companies.

Mr Carter had been appointed, the administrator of fifty-two of the plaintiff companies, on 23 March 1995. I shall return to the significance of that in due course.

The Emanuel Group was structured as follows. Mr Giuseppe Emanuele (hereinafter called Mr Joe Emanuele) and his daughter Ms Linda Emanuele were the shareholders in Giuseppe Nominees Pty Ltd. That company in turn was the holding company of Emanuel Holdings Pty Ltd and Establishment Holdings Pty Ltd and Emanuel Projects Pty Ltd. Establishment Holdings Pty Ltd was in turn the holding company of Hondell Pty Ltd.

Emanuel Holdings Pty Ltd was, with Elders Lendsworth Finance Ltd, the holding company of Emanuel Management Pty Ltd. It in turn was the holding company (inter alia) of Paterson & Co Pty Ltd which was the holding company of the remainder of the plaintiff companies.

It can be seen that the Emanuel Group had as its corporate head Giuseppe Nominees Pty Ltd and below that company, in a series of subsidiaries and sub-subsidiaries, each of the other members of the group.

The group carried on the business of property development and did so predominantly through three of the companies. Of the members of the Group, only Giuseppe Nominees Pty Ltd, Emanuel Management Pty Ltd and Emanuel Constructions Pty Ltd operated bank accounts. Emanuel Management Pty Ltd operated as banker to the group and it built up debit and credit balances by way of inter company loans between itself and other members of the group. The other members of the group were specially incorporated for the purpose of acquisition of property, development of that property and with the aim of sale of that property at a profit.

The acquisition and development was financed by Emanuel Management Pty Ltd which borrowed the money to be used for the purchase of properties by the subsidiaries from financiers. Emanuel Management Pty Ltd would lend sufficient moneys to the subsidiaries for that purpose. On sale of the property the proceeds would be returned to Emanuel Management Pty Ltd and if the project had resulted in a loss the subsidiary would become a net debtor of Emanuel Management Pty Ltd or if the project had resulted in a profit Emanuel Management Pty Ltd would become a net debtor of the subsidiary.

At various times between 27 June 1986 and 23 September 1992 the majority, but not all, of the plaintiffs executed deeds of cross guarantee.

Mr Joe Emanuele acted as the Chairman of Directors and Chief Executive Officer of the Emanuel Group after its formation and up until the relevant time the subject of these proceedings. Clearly enough on the documentation tendered, including letters written to and from Mr Joe Emanuele, he has been the dominant force behind the Group over the time that it operated. His son Rocco Emanuele acted as Director of a number of the plaintiffs and as Secretary of a number of the other plaintiffs after about 1991. Linton Emanuele, also a son of Mr Joe Emanuele, acted as Director of twenty-three of the plaintiffs and secretary of thirty-seven of the other plaintiffs after
The ASC records show that Linda Emanuele has been a director of all sixty-three plaintiffs and secretary of eight of them. She has held the position of Town Planner of the plaintiffs since about January 1990.

Mr Robert Simionato, a nephew of Mr Joe Emanuele, was Secretary of twenty-four of the plaintiffs and accountant to the plaintiffs from about January 1990, until he apparently resigned as secretary of a number of the plaintiff companies on 31 October 1994.

Mr Joe Emanuele became a land agent in 1957 and in 1971 obtained a builder's licence. From the early 1950's onwards he formed the Emanuel Group which was involved in building and property developments, which were financed by large commercial financiers. By 1985 the Emanuel Group was a major property investor in Adelaide with a portfolio of about fifty properties and hundreds of tenancies. In 1986 the Emanuel Group re-positioned itself by acquiring a property portfolio in Queensland from APM Forests Pty Ltd (The APM property portfolio). This property portfolio consisted of 64,000 acres and was located between Brisbane and the Sunshine Coast. The purchase price of the property was $48,000,000. Finance was arranged through a subsidiary of Elders Finance Pty Ltd (EFG) which provided a loan of $43,000,000 to Emanuel Management Pty Ltd. The repayment of the loan was guaranteed by twenty-six of the plaintiffs and Mr Joe Emanuele himself.

In the next three years the Emanuel Group, with the financial support of EFG, purchased numerous other properties in Queensland.

In 1989 the Australian economy went into decline and EFG began to exert pressure on the Emanuel Group to sell down the APM property portfolio. However, between 1989 and 1991 EFG continued to support the Emanuel Group with further advances for the acquisition of property and for the purpose of repayment of capital and interest.

In about 1991 EFG's policy towards the Emanuel Group changed and thereafter it more closely monitored the group in relation to its cash flow and budgets. It refused thereafter to make any further funding available for interest payments.

In 1992, at the request of EFG, twenty-seven of the plaintiffs and Mr Joe Emanuele executed a deed of collateralisation by which the parties agreed that each of the collateral agreements, previously executed by each of the parties with EFG, was declared to be collateral to each other. Under that deed, in any case in which any of the companies, by a collateral agreement, had created a security in favour of EFG such security was declared to be a security to each other member of EFG and security to all of the obligations of any of the plaintiff companies and of each other plaintiff. The twenty-seven plaintiff companies which entered into that deed were: Emanuel Management Pty Ltd Segacious Pty Ltd Meka Securities Pty Ltd Cofordo 251 Pty Ltd (in its own capacity and in its capacity as trustee for the "Earl Hill Unit Trust") Grangeville Pty Ltd Emanuel (No. 14) Pty Ltd P.B.R.S. Pty Ltd Paterson & Co Pty Ltd Giuseppe Nominees Pty Ltd Lonsdale Stage 2 Pty Ltd Emanuel Properties Pty Ltd Emanuel (No. 4) Pty Ltd Emanuel (Rundale (sic) Mall) Pty Ltd Villa Cairns Pty Ltd Addstone Pty Ltd Antlia Pty Ltd Centaurus Pty Ltd Cloudland Investments Pty Ltd Cofordo 260 Pty Ltd Derwentwater Pty Ltd Emanuel (No. 7) Pty Ltd Lascivious Pty Ltd Leominor Pty Ltd Livilla Pty Ltd Saroon Pty Ltd Woodville Industrial Park Pty Ltd Airlie Beach Pty Ltd

Clause 2.1 of the agreement provided: "Each of the Collateral Agreements is declared to be collateral to each other of the Collateral Agreements and in any case in which a Customer by a Collateral Agreement has created or creates a security in favour of any Elders Company each such Security is declared to be a Security to each other Elders Company all of the obligations of that Customer and of each other Customer."

From about early 1991 EFG was prepared only to provide the Group and the individual plaintiffs with working capital according to a budget approved by EFG. From that point onward EFG required details of cash flows and budgets on a regular basis before further finance or capital would be provided. EFG thereafter refused to make funding available for interest payments.

Between 1991 and 1993 a number of conversations took place between Mr Joe Emanuele and Mr Rocco Emanuele on the one hand, and EFG personnel including Mr John Crosby and Mr John O'Grady on the other hand. Mr Joe Emanuele has deposed in an affidavit filed in these proceedings: "The aim of these discussions was to negotiate a more definite arrangement whereby EFG would permit the Emanuel Group to conduct an orderly realisation of all properties which were subject to EFG's securities. The idea was to obtain sufficient time to permit re-zoning and or the development of property holdings. We were looking for a five to ten year work out time from EFG however this was not acceptable and EFG agreed ultimately to a four year work out time."

The APM Property Portfolio had standing timber on it. After 1989, the timber had been harvested by Softwoods Queensland Pty Ltd (Softwoods). The agreement between the Emanuel Group and Softwoods provided that Softwoods was permitted to harvest a portion of the timber on the property in exchange for timber royalties which amounted to somewhere between $200,000 and $400,000 per month. The agreement which commenced in late 1989 bound the parties until the year 2004. The agreement provided income to the Emanuel Group in the order of $3.3 million per year.

On 11 March 1993 EFG on the one hand and twenty-seven of the plaintiff companies on the other hand and Mr Joe Emanuele executed a Deed of Orderly Realisation of Securities (DOOR).

The plaintiff companies which executed the DOOR were: Emanuel Management Pty Ltd Segacious Pty Ltd Meka Securities Pty Ltd Cofordo 251 Pty Ltd (in its own capacity as trustee for the "Earl Hill Unit Trust") Grangeville Pty Ltd Emanuel (No. 14) Pty Ltd P.B.R.S. Pty Ltd Paterson & Co Pty Ltd Giuseppe Nominees Pty Ltd Lonsdale Stage 2 Pty Ltd Emanuel Properties Pty Ltd Emanuel (No. 4) Pty Ltd Emanuel (Rundale Mall) Pty Ltd Villa Cairns Pty Ltd Addstone Pty Ltd Antlia Pty Ltd Centaurus Pty Ltd Cloudland Investments Pty Ltd Cofordo 260 Pty Ltd Derwentwater Pty Ltd Emanuel (No. 7) Pty Ltd Lascivious Pty Ltd Leominor Pty Ltd Livilla Pty Ltd Saroon Pty Ltd Woodville Industrial Park Pty Ltd Airlie Beach Pty Ltd

It can be seen that the parties to the DOOR were the same companies which had been parties to the deed of collateralisation.

The recitals to that deed show an acknowledgment on the part of the Emanuel Group that it was in default in relation to the repayment of moneys advanced to the group by EFG and in default of notices of demand issued by EFG in relation to those defaults. The recitals also show that the Emanuel Group had requested EFG to grant the Group a period of grace during which period the Emanuel Group would proceed with the marketing and realisation of the properties the subject of the securities to EFG. It was acknowledged that EFG had agreed subject to the execution of the DOOR.

Specifically the Emanuel Group acknowledged the debt amount then owing to EFG to be in the sum of $155,144,910.58 and specifically admitted its default under the securities and that the default was continuing.

The deed, after providing for the orderly realisation of securities, further provided: "6.2 The EFG Group shall permit at its absolute discretion the flow of funds from the Softwoods Agreement to the Emanuel Group to assist in the funding of the orderly marketing of the land the subject of the Securities in the terms here of subject always to the Emanuel Group providing satisfactory financial information in accordance with the provisions of Clause 5 hereof. The EFG Group reserves its right to fix the Mortgage Debenture Charge over Emanuel (14) Pty Ltd so far as the Softwoods Agreement is concerned at any time."

EFG undertook, provided the Emanuel Group strictly complied with the terms of the deed, not to enforce the securities as against the Emanuel Group during the moratorium period, which period was fixed at forty months commencing on 1 March 1993 and ending on 30 June 1996 "or such other period as may be determined by the EFG Group from time to time".

In November 1993, a Mr Max Croft brought proceedings against the Emanuel Group and Mr Joe Emanuele and he obtained a judgment against the Group and Mr Emanuele in the sum of $1,000,000.

Prior to obtaining that judgment he either threatened, or did at that stage bring proceedings for bankruptcy against Mr Joe Emanuele, because a letter of 20 October 1993 written by Mr Rocco Emanuele to EFG refers to the following: "Reference is made to the meeting my father and I had with Mr Max Croft held on Monday, 18 October, at 11:00 am. The proposal Max Croft will take in lieu of proceeding with his Bankruptcy Writ is:-

A ten acre block of land at Airlie Beach, valued at $300,000 (however recent past sales and the present state this would be overvalued).

Mr Croft proposed to build in and take to the boundary of the existing title (that is EFG's security) some $500,000 plus worth of infrastructure which will greatly enhance the value of your security and its development potential in a later stage.

Mr Croft has agreed verbally to extend twenty-one (21) days from Monday 18th October (2 weeks plus additional 1 week) to not proceed with any legal proceedings.

If favourable consideration is given to his proposal, he is agreeable to withdraw and relinquish any claims against my father or the Company, Airlie Beach Pty Ltd. I look await (sic) your reply in this matter." (Doc 3.7)

On 21 March 1994 EFG claimed that the Emanuel Group was in breach of a number of terms of the DOOR and as a result was in default. In particular it claimed that the Emanuel Group had failed to carry out the marketing and sales program and failed to diligently market the sale and realisation of the security property.

On 7 April 1994 EFG, pursuant to the terms of clause 6.2 of the DOOR, advised by letter that it had exercised its absolute discretion in respect of the release of funds from the Softwoods Agreement and that from 8 April 1994 it would cease to permit the flow of funds from the Softwoods Agreement to the Emanuel Group.

In response to that action, on 1 July 1994, the twenty-seven plaintiff companies and Mr Joe Emanuele commenced action in the Federal Court against EFG claiming that the termination of the flow of funds was wrongful. The matter came for trial in that Court before Branson J on 11 August 1994 and on 15 November 1994 her Honour delivered her reasons for judgment dismissing the claim by the twenty-seven plaintiff companies and Mr Joe Emanuele against EFG. On 6 December 1994 twenty-six of the twenty-seven companies (Emanuel (No. 4) Pty Ltd was apparently overlooked) lodged an appeal against Branson J's decision.

On 20 December 1994 EFG commenced an action in the Supreme Court of Queensland against those twenty-seven plaintiff companies and Mr Joe Emanuele seeking judgment for an amount of $181,645,881.21 including capitalised interest owing at 1 December 1994 together with compound interest at the rate of 20.5% per annum. On 27 February 1995 Thomas J entered judgment for EFG against the twenty-seven plaintiff companies and Mr Joe Emanuele in the sum of $186,880,302.71 together with costs.

It is clear both from the history of the litigation to which I have referred, and also from the correspondence, that EFG's letter of 7 April advising that it ceased to permit the flow of funds under the Softwoods Agreement precipitated that litigation. However concurrently with the litigation the parties sought to resolve their dispute.

The parties briefed their respective solicitors. EFG instructed two partners at Messrs Clayton Utz, solicitors of Brisbane viz Mr John Elliott and Mr Ross Perrett and the Emanuel Group retained Mr Danny Farrugia and Mr David Purcell, of Thomsons solicitors of Adelaide.

A meeting took place between Danny Farrugia and John O'Grady, the Managing Director of EFG, on 20 May 1994. That meeting was called at the request of Mr Farrugia, who told Mr O'Grady that the Emanuel Group was looking for "a commercial solution with the situation with EFG". Mr O'Grady's notes of the meeting record: (Doc 3.23) "A liquidator getting into the Emanuel Group would be a problem for Joe Emanuele and in Danny's opinion a problem for EFG."

The parties spoke by telephone on 24 May 1994, held a meeting on 3 June 1994, and spoke further by telephone on 7 June 1994 for the sole purpose of attempting to achieve a commercial settlement of the dispute between EFG and the Emanuel Group.

On 8 June 1994 Mr O'Grady, made the following offer. "(a) The Emanuel Group is to transfer ownership of all the Security Properties, except the private residences to EFG at Fair Market Value, which will be used to pay down the EFG loan.

(b) In consideration for the above: A$m (i) EFG will pay out Emanuel's pressing creditors of up to $3 million 3.0

(ii) EFG will pay costs of the Emanuel office for 12 months while it is restructured 0.5

(iii) EFG will discharge the mortgages over the private residences for no consideration: - House - South Australia - Apartment - Cathness, SA - House - Queensland - House - Mt Barker, SA 1.6

(iv) EFG will pay out the leases for the private cars used by the Emanuele family. 0.1

(v) EFG will make a one-off payment in cash or property to the Emanuel Group to a total of $2 million. Any property selected will be at EFG's absolute discretion and at fair market value. 2.0

(vi) EFG will release its mortgage charge over the Emanuel office in Brisbane -

(vii) Emanuele to retain the companies and tax losses - Cash and Property 7.2

(viii) EFG will transfer the Residual Balance of the EFG loans, (say $71 million based on the assumption in the example at Schedule A), to a company to be nominated by Emanuel advisers. 71.0

(ix) EFG will release the personal guarantee of Joe Emanuele and the Emanuel Group of Companies. - Total Offer 78.2 (c) The above settlement Offer is to contain mutual releases by Emanuel Group and EFG Group and is to be subject to documentation to EFG's satisfaction. No concluded agreement shall be in place until the terms of settlement are reduced to writing and executed by all parties.

(d) The above Offer is open until the close of business on 15 June 1994."

There was no immediate response to the letter of 8 June 1994. Mr Farrugia wrote, on 15 June 1994, to Mr O'Grady reiterating that the Emanuel Group desired to achieve a commercial resolution and acknowledging that the offer made went some way toward that objective but claiming the matter needed further discussion. However, the next step taken was on 1 July 1994 when the twenty-seven plaintiffs and Mr Emanuele commenced action in the Federal Court.

On 14 July 1994 (thirteen days after proceedings were brought in the Federal Court) Clayton Utz wrote, in a letter addressed to Mr Farrugia referring to the Emanuel Group: "1. That our client put forward a settlement offer in its letter of 8 June 1994 which has now lapsed.

As you will be aware from our client's letter of 8 June 1994, our client was prepared, at that time, to effect a settlement which resulted in your client obtaining assets to a value of $7.2 million. Our client regarded this as a generous proposal. Under no circumstances is our client prepared to entertain a settlement which results in provision of assets to your client in excess of this amount.

Further, our client has now been put to considerable expense in relation to the legal proceedings, which costs will not be recoverable from your client. Those costs are continuing and in the event your client is minded to make a settlement offer, it should be aware that our client will take into account the costs which have been incurred in conducting the litigation and assessing that offer."

The letter concluded; "This letter has clearly set out the parameters within which our client will give serious consideration to a settlement proposal. Further, if there are to be any negotiations, our client would urge that a proposal be put to it as soon as possible. The more cost that is incurred in preparing for trial and the more advanced that preparation becomes, the less inclined our client will be to entertain a settlement which involves the release of any of its security or the advancing of any money to your client."

On 29 July 1994 Mr Joe Emanuele wrote as "Chairman of the Emanuel Group" to Mr John O'Grady putting forward proposals for "an equitable resolution to this dispute". The letter contained alternative proposals. Proposal "A" involved the Emanuel Group retaining property and trading its way out of its difficulties by 30 June 1996.

Proposal "B" was in the following form: "As was earlier proposed by EFG, the Emanuel Group to receive:

To clear creditors 2,000,000 12 months' assistance 1,000,000 D.C.P. on Parcel 64 1,000,000 10% commission on non-core assets 1,000,000 5,000,000

Adelaide Office 1,000,000 Lonsdale Land 300,000 Cairns, University Blocks 500,000 Cairns, Kurrajong Street 150,000 Mission Beach 1,500,000 3,450,000

Brisbane 300,000 Adelaide 300,000 Cape Jervis 700,000 Mt Barker 200,000 1,500,000 $9,950,000

* The Emanuel Group to purchase by June 30, 1996, the Caloundra property for $6m., including land under option to Harrison. * The Emanuel Group agrees to pay quarterly adjustable interest at a rate of 10% on $6m. with the right to settle at any time. * The Emanuel Group to have a 60 day first right of refusal on part or whole of the balance of the portfolio."

Clearly enough the terms of the offer show that the offer was put forward by the Group and for the benefit of the Group. There is no evidence, at least before me, that there was any response to the offer.

The trial in the Federal Court took place on 11 August 1994. Between 11 August and 15 November 1994 the parties corresponded but mainly in relation to aspects of the DOOR. The parties did not appear, except on one occasion in that period, to address questions of settlement. On 2 November 1994 Clayton Utz advised Thomsons that they had raised the concept of settlement with their client and their instructions were that until such time as judgment was delivered in the Federal Court their client was not prepared to set perimeters for settlement discussion.

On 15 November 1994 Branson J delivered her reasons for dismissing the claim by the twenty-seven plaintiff companies and Mr Joe Emanuele and for giving judgment for EFG. The dismissal of the action left the Emanuel Group and Mr Joe Emanuele himself, as parties to the deed of collateralisation and as parties to the DOOR, directly exposed to action by EFG.

On 24 November 1994 a meeting was held in Melbourne in an endeavour to reach a commercial resolution of the dispute. Mr Joe Emanuele and Mr Linton Emanuele together with their solicitor, Mr Danny Farrugia, attended on behalf of the Emanuel Group. Mr John O'Grady, the Managing Director of EFG and Messrs John Elliott and Ross Perrett, solicitors of Clayton Utz, attended on behalf of EFG. At that meeting Mr Joe Emanuele made an offer of a total value of $10,085,000 to the benefit of the Emanuel Group, which was rejected by EFG. EFG made a counter offer which caused Mr Joe Emanuele to become quite emotional. He described the offer as an insult and he left the meeting.

On 25 November 1994, Mr John O'Grady wrote to Mr G Emanuele, Chairman, Emanuel Group, Emanuel House, in the following terms: "Dear Joe

I refer to our "Without Prejudice" meeting in Melbourne on 24 November 1994 at which we sought to reach a commercial compromise of the matters in issue between EFG Group and Emanuel Group.

I am writing to you to affirm the proposal which I put to you at the conclusion of that meeting as the basis for negotiating a settlement which would be acceptable to EFG Group. That proposal was as follows:

(a) EFG Group will provide to Emanuel Group the sum of $4,800,000 to enable Emanuel Group to deal with claims by its other creditors and for such other purposes as Emanuel Group sees fit.

This provision can be made by cash or a combination of cash and the following Adelaide properties. For the purposes of this proposal, EFG Group has valued the Adelaide properties as follows:

Adelaide Home (Burnside) 350,000 - Cape Jervis - Beach House 760,000 - Mount Barker 190,000 $1,300,000 In the event Emanuel Group wish to retain any or all of the above properties, the value of the properties retained should be deducted from the sum of $4,800,000.

(b) In addition, EFG Group will provide Emanuel Group with the opportunity to match any acceptable offer EFG Group receives for the sale of the Caloundra property (Parcel 52) up to 30 June 1995. Emanuel Group will have this opportunity for a period of 14 days from notification by EFG Group to Emanuel Group of any acceptable offer for that property. This opportunity will lapse as from 30 June 1995, although Emanuel Group can, of course, at any time make a commercial offer for the acquisition of that property.

(c) In consideration of acceptance by Emanuel Group of this proposal, Emanuel Group will release any and all claims which it has in relation to the properties the subject of the Deed of Orderly Realisation and other securities and agrees to transfer these properties to EFG Group at market value in reduction of the debt due by Emanuel Group to EFG Group. Emanuel Group will further permit EFG Group to exercise any and all rights which it has in relation to those properties without interference from the Emanuel Group and, where appropriate, Emanuel Group will provide all reasonable assistance necessary for the purpose of enabling EFG Group to deal with those properties.

(d) In the event this proposal is acceptable to Emanuel Group, it will be necessary for our Solicitors to liaise and agree the precise terms of a formal settlement agreement, as there will be a number of matters of detail to be dealt with to give effect to this proposal. Any final settlement will be subject to formal documentation by our Solicitors of a comprehensive agreement satisfactory to EFG Group and Emanuel Group.

Although you rejected this proposal at the meeting yesterday, I am writing to confirm the proposal and to advise that EFG Group is prepared to leave the opportunity open to Emanuel Group to resume negotiations in accordance with this proposal at any time up to 5.00pm on Friday 16 December 1994, at which time the proposal will lapse.

This proposal is made absolutely without prejudice to all of EFG Group's rights, all of which are reserved. In particular, I wish to make it quite clear that (unless and until a Deed of Settlement is duly executed by EFG Group and Emanuel Group) nothing in this letter involves EFG Group in giving up or deferring any right to take any action whatsoever (whether pursuant to the Deed of Orderly Realisation, the securities, or otherwise) at any time; and your Group ought not to construe this letter as involving a representation that EFG Group will not take such action as it may at any time consider appropriate, including at any time before the proposal lapses."

Clearly enough the letter is addressed as an offer to the Emanuel Group. EFG offered to pay to the Emanuel Group the sum of $4.8 million "to enable Emanuel Group to deal with claims by its other creditors and for such other purposes as the Emanuel Group sees fit." The offer was made in exchange for the matters referred to in paragraph 2(c). In particular the Emanuel Group was to give up all of the properties the subject of the Deed of Orderly Realisation (DOOR).

The motivation for the offer is not expressed in the letter. Some insight for that motivation may be obtained from the file note made by Mr O'Grady in relation to the conference of the preceding day. He recorded this: "I was left with the impression that Joe Emanuele intends to use all avenues available to him to fight legally to frustrate us in the realisation programme

Irrational though this may be."

It seems to me that the offer was an attempt to settle a commercial dispute between two antagonistic parties. No doubt EFG saw it as being commercially worthwhile to pay the Emanuel Group a sum of money in order to have released to it the properties, the subject of securities, so that it could deal with those properties immediately and thereby minimise its own losses.

The offer was made ten days after Branson J had given her judgment in favour of EFG and before a Notice of Appeal had been lodged by the Emanuel Group. Before any response was

received to that offer EFG served 29 notices of demand upon the Emanuel Group. The first response to the offer came from Mr Rocco Emanuele. He telephoned Thomas Booker, an employee of EFG. Mr Booker records the conversation as follows: 'He said:

"You have fired the first shot, and you are in for warfare."

"In all ways my friend, in all ways. You are in for the biggest fight of your life!"'

Mr Booker described the tone of Mr Rocco Emanuele's voice as aggressive, and he considered what was said to be a personal threat.

On 5 December 1994, Mr Joe Emanuele wrote in response to the letter of 25 November 1994 advising that he was prepared to negotiate a commercial settlement of the dispute between the parties. Mr Joe Emanuele then described in some detail the circumstances which gave rise to his entry into the DOOR, which of course was the subject of the proceedings before Branson J.

His letter continued: "By way of compensation I seek an amount of $10,000,000 to enable my family and I to discharge or compromise our creditors and to go forward. Unless I have an amount of this order I will be faced with insolvency or will spend the next 5 years fighting a rear guard action endeavouring to avert insolvency. There is no 'luxury' in this settlement for me. All it does is allow me some peace of mind and a proper basis for starting again from a zero base. I believe this to be fair and equitable in the circumstances."

On the same day on which Mr Joe Emanuele wrote to EFG, his solicitors wrote to him. Mr Farrugia wrote in the following terms: "I refer to our meeting here on Saturday.

The position that we arrived at on Saturday was that you instructed me to prepare a letter to O'Grady setting out your position and reiterating your request for $10 million in compensation.

In relation to these instructions I wish to make the following remarks:

I do not agree with your approach in the sense that I do not believe that there is any prospect of your obtaining compensation of $10 million. I believe there is a reasonable prospect of your obtaining compensation of the order of $6 million but not substantially more. Your request for compensation at the level of $10 million may be perceived as an outrageous "ambit" claim and have the effect of terminating negotiations and result in the appointment of a receiver which would be financially critical and fatal for both you and your Group. - Despite your expressed views to the contrary, you would be able with $5-6 million to deal with virtually all of your creditors and start again, admittedly with no stake but with some basis for going forward. - The approach you are taking is a "Russian roulette" approach which neither I nor any other prudent adviser could condone or support in your circumstances. - Many would say that your approach is foolhardy in the extreme. - Some might even say that especially in so far as your family is concerned your approach is selfish.

You should bear these matters in mind when considering the enclosed draft letter to O'Grady. In preparing this letter I have attempted (in a commercial and non-threatening manner) to reflect your position and why you believe that the amount of compensation sought is reasonable.

I hope that I have been able to accurately reflect your attitude and sentiments.

I have sent a copy of the enclosed letter to Rocco but not this letter for obvious reasons."

The letter shows that Mr Danny Farrugia was concerned about the attitude adopted by Mr Joe Emanuele. He believed the attitude to be unrealistic and to have the potentiality for disaster. Also importantly he brought to Mr Joe Emanuele's attention the fact that the sum of $5-6 million would enable him to deal with all of his creditors and allow him to start again admittedly as he said with no stake. Also importantly Mr Farrugia did not think it appropriate to send the letter to a fellow director of the company Mr Rocco Emanuele.

On 6 December 1994 Thomsons responded to the Notices of Demand which had been given on 1 December 1994 in relation to breaches of the DOOR. Thomsons asserted that the Notices were invalid.

The next day, twenty-six of the plaintiff companies and Mr Joe Emanuele appealed from the decision of Branson J.

On 7 December 1994 Mr O'Grady wrote directly to Mr Joe Emanuele as Chairman of the Emanuel Group advising him that the EFG Group saw the issues very differently to the way Mr Joe Emanuele saw them. He wrote : "Unfortunately we are unable to justify acceptance of your counter offer and the best proposal we can put to you is that set out in my letter dated 25 November 1994 which is open for acceptance until 16 December 1994."

On 8 December 1994 Clayton Utz responded to Thomsons' letter of 6 December 1994 in relation to the matters they raised by way of objection to the Notices of Demand which had been issued on 1 December 1994. They wrote: "We note your request for reconciliation of the amount payable under the Notice of Demand. It is difficult to see the point of this request given Mr Emanuele's admission during the course of his evidence on 17 August 1994 that the Emanuele Group is insolvent, and has been in that condition for some years.

The Emanuel Group Management Accounts prepared by Mr Wales and tendered as an exhibit in the Federal Court Proceedings showed the Emanuel Group indebtedness to EFG Group as at December 1993 was in the sum of $163 million. In his affidavit sworn 8 July 1994 Mr O'Grady deposed that the indebtedness as at 1 July 1994 was approximately $175 million. Neither of these amounts were ever put in issue by your client.

Given that your client has no prospect of paying the amount demanded, or any other amount of money, it is difficult to see what interest your client has in the reconciliation. Nevertheless, if your client (who is able to calculate the indebtedness) contends and explains the basis for the contention that the debt is less than the figure in the notice, we will seek further instructions."

The importance of that letter is the assertion of the insolvency of the Emanuel Group and the assertion that Mr Emanuele had admitted as much during the course of his evidence of 17 August 1994. Those assertions were not subsequently denied by the solicitors acting for the Emanuel Group or Mr Joe Emanuele. It must be assumed that at all material times Mr Joe Emanuele was aware that the Emanuel Group was insolvent. In those circumstances the directors of the companies within the Group were under a duty to the companies of which they were directors to have especial regard to the interests of the creditors of those companies. Because of the intercompany debts, all of the directors had a duty to both the internal creditors and also the external creditors of the Group.

On 8 December 1994 Notices were given to members of the Emanuel Group by EFG claiming that EFG had entered into possession of the land as mortgagee in possession.

On 12 December 1994, Mr Emanuele wrote to Mr O'Grady inter alia: "I was promised $10,000,000 plus, and I fairly and strongly believe that I am entitled to it. If you think that you are in a strong financial position and you have won the first judgment, I can assure that this is just the first battle. You have not won the war. I have not even started fighting. As I said in your office it will be a long time before EFG will be able to do anything with my portfolio."

He wrote later in the letter: "I have gone through hell with the Canberra case for nine years only because I always believed I was right (that appeal was heard on November 21 and all advice is that I will win it) so I suppose I can go through further hell with EFG for as long as it take for a right to prevail.

I am a most determined man when I know I am right. I will never give up."

On 13 December 1994 Mr Joe Emanuele wrote a letter of partial apology in relation to some of the allegations he had made in his letter of 12 December 1994. That drew this response from Mr O'Grady of EFG and I set it out in full: "I refer to your letter of 12 December 1994 and comment as follows:

EFG Group is a subsidiary of a public company, and its duty is to its shareholders; this is a duty of which the Ramco Board is very mindful. EFG Group is under no obligation to make any settlement offer to you as the amount of your debt to EFG far exceeds any realistic assessment of the value of the securities held by EFG Group.

In addition, EFG Group has no obligation to justify its "without prejudice" settlement proposals to you. However as you are well aware that the position has changed significantly since our negotiations in June 1994, principally as a result of the court action which you initiated and which you required be dealt with urgently.

Your letter contains factual inaccuracies. For example, you have never been promised "$10 million plus". Aside from recording that EFG Group does not agree with the accuracy of many of your contentions, I do not propose addressing those matters item by item, as it is unproductive to do so.

It does not and will not advance matters for you to threaten me or EFG Group. Whilst not condoning your remarks at EFG Group's office at the conclusion of our meeting on 24 November 1994, I understood your reaction was impulsive and accepted it as such. However, the persistence since that time of continued threats is unacceptable.

EFG Group's position in relation to resolution of this matter was made clear in EFG's letters to you of 25 November 1994 and 7 December 1994. The settlement proposal was carefully considered and is available for acceptance until close of business this Friday, 16 December 1994, at which time it will be withdrawn.

In view of the tone of your letter of 12 December 1994, I request that all further communications and any future dealings be between our respective solicitors, Messrs Thomsons and Mr J D Elliott of Clayton Utz."

It is clear that as time passed in December the correspondence was becoming more acrimonious as Mr Joe Emanuele became more upset and more desperate.

On 13 December 1994 Mr Purcell wrote to Mr G Emanuele, Emanuel Group of companies regarding the Emanuel Group/EFG Group in the following terms: "As you know the deadline for acceptance of EFG's offer of $4.8m expires on Friday, 16 December 1994.

Notwithstanding that you are upset at the direction taken by EFG to terminate the flow of funds under the timber royalty agreement and to serve notices of default under the Deed of Orderly Realization, I consider that you have no legal options to achieve a better result than the offer that has been put to you by EFG.

I strongly urge you to accept EFG's offer. This is one of those situations where it is far better to survive and live to fight another day than to continue to wage a campaign to defend a worstening (sic) position which unfortunately I fear will result in the collapse of the Emanuel Group and possibly your personal bankruptcy.

It is my assessment that EFG's offer will lapse on Friday and that any offer (if any) put to you after that day will be for a lesser amount. In the meantime your other creditors are threatening and cannot be held at bay for much longer."

That letter, emanating as it does from the solicitors for the plaintiffs and for Mr Joe Emanuele, recognises that the Emanuel Group and Mr Joe Emanuele are both close to insolvency. It further recognises that the creditors of the Group and Mr Joe Emanuele are not prepared to wait to have their claims met.

On 20 December 1994 EFG commenced an action in the Supreme Court of Queensland against the twenty-seven plaintiff companies and Mr Joe Emanuele seeking a judgment in the sum of $181,645,881.21 being the amount owing as at 1 December 1994. The amount claimed as at the date of issue was $182,272,193.97. The writ was specially endorsed setting out the particulars upon which the claim was based. It specifically claimed to be entitled to those moneys upon the basis that the twenty-seven plaintiff companies and Mr Joe Emanuele had defaulted in strict compliance with the terms of the DOOR and gave particulars of those defaults.

On 23 December 1994, Mr Farrugia wrote to Mr John Elliott of Clayton Utz, presumably in response to the issue of that writ.

He wrote: "We have met with our client today in an endeavour to formulate an offer of settlement and to resolve the dispute between our clients.

Our client genuinely wishes to reach a commercial settlement with EFG but not at any cost given our client's other financial obligations and the obstacles our clients must overcome in order to survive.

Enclosed is a document entitled 'Terms Of Settlement' which reflects the terms of an offer which we are instructed to make on our client's behalf to EFG. This offer reflects our client's minimum requirements to settle the dispute in the sense that anything less does not provide our client with any real incentive or comfort in the sense of its survival."

The letter is expressed in the singular but by the use of the word "its" the writer is referring to a corporate entity rather than to a person. So much is made clear by the next paragraph which is in the following terms: "In relation to those Terms we comment as follows:

The amount of cash required is a function of the financial obligations which are required to be met or compromised in order for the Group to survive and to continue to operate. Our position in this regard has been consistent and remains the same. - The properties retained are essentially the residential properties in South Australia. As you know there are serious questions as to the title to the Brisbane office. - As you know the Haul Road liability must be covered quickly as this is a pressing commitment. - Already negotiated settlement arrangements with Croft and previously advised to Elders necessitate the Croft contract being honoured by EFG and proceeding. - The proposed rent free occupation of the Adelaide Office is intended to allow a reasonable period to relocate. - The property and timber contract transfers are intended on a "net" basis to our client so that our client does not have to meet any outstanding financial obligations whether by way of Government charges or otherwise in relation to the land as no provision has been made for any such financial charges to be met. - The mechanics of the proposed release and assignment will require discussion. - Whilst clearly neither party wishes to prejudice its position until the documentation is finalised the cessation of litigation and withdrawal of all outstanding notices by EFG is an essential prerequisite for moving forward. - We believe that it may take until later in January to finalise the documentation and on that basis signing and completion is likely to be simultaneous.
The proposed completion date is the earliest possible which we expect that completion will be practicably achievable. - The arrangements must be kept strictly confidential."

That the issue of the writ had introduced a new sense of urgency in the negotiations is made clear by the last two paragraphs of the letter which are in the following terms: "Could you please obtain instructions and advise the writer today whether the offer is acceptable to your client.

As our office is closed for Christmas celebrations this afternoon you should contact me on 018 080 783."

The terms of settlement referred to in that letter need not be set out in full, but the proposal emanating from Mr Farrugia was for a payment of $5,000,000 in cash and that the Burnside, Cape Jervis and Mount Barker houses and Brisbane Office be retained.

In exchange for payment of that sum and retention of those properties, all properties except those properties mentioned would be transferred to EFG and EFG would be released from all claims in relation to all properties. EFG was to assign the balance of the debts, securities and all rights against "E" and guarantors. The expression guarantors must have been meant to refer to the personal guarantor namely Mr Joe Emanuele and E must refer to the Group.

The terms of settlement included this term: "The fact of and terms of settlement shall be strictly confidential."

Negotiations proceeded over December/January of 1994/995. It is clear from the correspondence that there were a number of telephone conversations between solicitors on 22 and 23 December 1994. It is also clear that Mr Joe Emanuele was very keen to settle the matter but EFG was less keen. No doubt the respective attitudes were, in a way, a reflection of the litigation position of the two antagonists. The Emanuel Group had lost its action in the Federal Court and EFG had issued proceedings against the Emanuel Group and Mr Joe Emanuele for in excess of $180 million.

During this same period Mr Croft was pressing for payment of the judgment debt which he obtained in 1993. That is made clear by a letter of Mr Farrugia to Mr John Elliott of 18 January 1995 referring to EFG's discussions with Mr Croft in relation to the outstanding debt.

In that same letter Mr Farrugia makes these two further points both of which are not without significance: "I believe that it is important that all EFG personnel who are involved in this matter be made aware of the highly confidential nature of the settlement terms between Emanuel and EFG. The terms of settlement between Emanuel and EFG must be kept strictly confidential and every step must be taken to avoid any unintentional breach of confidence.

As discussed with you it is becoming increasingly difficult to deal with Emanuel's creditors without a clear direction. Shortly it will not be just difficult, but impossible. In consequence an early resolution to the present impasse is required in order to avoid an undesirable outcome being determined by intervening events."

ADDSTEAD P/L & ORS v SIMIONATO HOLDINGS P/L & ORS No. SCGRG 95/1880 Judgment No. 6117 Number of pages - 68 Corporations [1997] SASC 6117

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ADDSTEAD P/L & ORS v SIMIONATO HOLDINGS P/L & ORS No. SCGRG 95/1880 Judgment No. 6117 Number of pages - 68 Corporations [1997] SASC 6117 (18 April 1997)