- Ahrkalimpa Pty Ltd v Schmidt

Supreme Court of NSW|2019-09-27|Before: Black J

[2019] NSWSC 1279 - Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 - Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324; (2014) 101 ACSR 415 - Re Central Management (NSW) Pty Ltd (in liq) [2017] NSWSC 1258 - Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 - Re Galtari Pty Ltd (in liq) [2018] NSWSC 2037 - Re Waterfront Investments Group Pty Ltd (in liq) [2015] NSWSC 18 - Southern Real Estate Pty Ltd v Dellow [2003] SASC 318; (2003) 87 SASR 1 - Vanguard Financial Planners Pty Ltd v Ale [2018] NSWSC 314 - Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1 - Yorke v Lucas (1985) 158 CLR 661 - Young Investments Group Pty Ltd v Mann (2012) 91 ACSR 89 Category: Principal judgment Parties: Australian Worldwide Pty Ltd (in liq) (First Plaintiff) Australian Worldwide Exports Pty Ltd (in liq) (Second Plaintiff) AW Exports Pty Ltd (First Defendant) Hugh Jones (Second Defendant) Mozammil Bhojani (Third Defendant) Warwick Broxom (Fourth Defendant) Jonathan Kaufman (Fifth Defendant) Representation: Counsel: G Lucarelli (Plaintiffs) T M Faulkner SC/M R Davis (First, Fourth, Fifth Defendants) B DeBuse (Third Defendant)

Solicitors: Taylor David Lawyers (Plaintiffs) Bartier Perry (First, Fourth, Fifth Defendants) Dormer Stanhope (Third Defendant) File Number(s): 2017/40926

The Plaintiffs' claims and parties

By Further Amended Statement of Claim filed on 27 September 2019 ("FASC"), by leave, the Plaintiffs, Australian Worldwide Pty Ltd (in liq) ("AWW") and its wholly owned subsidiary, Australian Worldwide Exports Pty Ltd (in liq) ("AWE") seek orders and declarations under ss 181, 182 and 183 of the Corporations Act 2001 (Cth), damages under s 1317H of the Act, an account of profits or alternatively, a declaration of trust or equitable compensation. They also seek interest calculated under s 100 of the Civil Procedure Act 2005 (NSW) and costs.
Until 23 December 2013, AWW and AWE carried on a business involving the wholesale of grocery products and fast moving consumable goods, primarily bottled water, bottled juices, other bottled beverages and nappies to Australian and overseas grocery stores. Its main customers were a company incorporated in Nauru, Eigigu Holdings Corporation Ltd ("Eigigu"), which was owned or controlled by the Nauru Government, which acquired goods for a supermarket it operated in Nauru, and another company which supplied regional grocery retail outlets in Australia. AWE held a number of export licenses required for AWW to trade and export products overseas, including, an export licence necessary for transporting such goods by sea freight to Nauru. AWW was placed in receivership in December 2013 and subsequently placed in voluntary administration and then in liquidation.
The First Defendant, AW Exports Pty Ltd ("AW Exports"), entered into supply arrangements with Eigigu after AWW was placed in receivership and ceased to carry on its supply business. The Second Defendant, Mr Jones, was the sole director of both AWW and AWE. Mr Jones is now bankrupt. The Third Defendant, Mr Bhojani, was a director of AW Exports from 19 November 2014 to 16 December 2014 and again since 20 February 2015. A company associated with Mr Bhojani now holds half of the issued shares in AW Exports. The Fourth Defendant, Mr Broxom was, jointly with his wife, a shareholder of AWW; was a director of AW Exports from 24 December 2013 to 20 February 2015; a company associated with him, Broxom Investments Pty Ltd, was previously a shareholder of AW Exports; and he was also a shareholder of AW Exports in his own right. The Fifth Defendant, Mr Kaufman, was a director and the secretary of AW Exports since 24 December 2014; and a company associated with him, Busaco Pty Ltd ("Busaco"), holds half of the ordinary shares in AW Exports.

Affidavit evidence

The Plaintiffs relied on the affidavits dated 9 January 2017, 20 June 2017 and 21 February 2018 of Mr Christopher Palmer, who is the liquidator of AWW and AWE. Mr Palmer's first affidavit dated 9 January 2017 referred to his appointment, initially as voluntary administrator of AWW and AWE and subsequently as liquidator of the companies. He also referred to the appointment of receivers to AWW, initially by Dynamesh Hong Kong Pte Ltd ("Dynamesh") on 18 December 2013 and then by TCA Global Credit Master Fund ("TCA") on 23 December 2013. Importantly, his evidence was that, prior to his appointment, AWW had ceased trading as a result of the appointment of the receivers, although certain staff members had been retained by the receivers in the expectation that, at some stage, AWW may recommence trading (Palmer 9.1.17 [15]-[16]). He referred to the nature of AWW's business and to its main trading accounts, in terms consistent with the Plaintiffs' pleaded case.
By his second affidavit dated 20 June 2017, Mr Palmer referred to the terms of facilities provided by TCA and Dynamesh to AWW, to the nature of AWW's business, and to the supply contract between AWW and Eigigu. That affidavit also set out the matters which were said to constitute the alleged "Scheme" pleaded by the Plaintiffs, to which I refer below. Mr Palmer referred to communications prior to Eigigu's termination of the Master Supply Agreement dated 26 April 2013 between AWW and Eigigu ("MSA"), which I will address in setting out the chronology of events below; to some communications between Mr Jones and third parties; to the subsequent resignation of a senior employee, Mr Serhan, from AWW; and to steps taken in respect of the shipment due to be made to Eigigu in January 2014 ("January shipment"). Mr Palmer's affidavit dated 20 June 2017 also referred to profits made by AW Exports, based on a review of its 2014 and 2015 financial statements. By his third affidavit dated 21 February 2018, Mr Palmer responded to aspects of Mr Kaufman's and Mr Bhojani's affidavits. Mr Bhojani's evidence was ultimately not read in the proceedings. The Plaintiffs also relied on an expert report of Ms Louise Thomson, which I will address below.
The First, Fourth and Fifth Defendants relied on an affidavit of Mr Broxom dated 27 September 2017. Mr Broxom was a cautious witness, who was likely conscious of the risk of damaging his defence in cross-examination. However, I do not disbelieve his evidence, which was consistent with the objective probabilities. Mr Broxom referred to his and his wife's initial investment in AWW in October 2013 and to a further loan which he made to AWW in late November 2013; to issues which had arisen between Dynamesh and AWW; and to Mr Broxom becoming more involved with AWW's business in early December 2013. Mr Broxom referred to concerns which he had developed as to Mr Jones' behaviour by mid-December 2013, and also noted the extent of pressure which had been placed by Dynamesh upon Mr Jones. I will refer to other aspects of Mr Broxom's evidence in the chronology of events below.
The First, Fourth and Fifth Defendants also relied on Mr Kaufman's affidavit dated 12 October 2017. Mr Kaufman was also a cautious witness, and presented as conscious of the risks that he faced in the case in cross-examination. However, I do not disbelieve the evidence that he gave, which was largely consistent with the objective probabilities. Mr Kaufman made his first investment with AWW in June 2012 when he purchased $90,000 worth of shares, through a company, Busaco which acted as trustee for the Kaufman Family Trust. In August 2012, Busaco lent a further $100,000 to AWW. Mr Kaufman refers to having developed concerns about the performance of AWW, at least by October 2013, and to him being introduced to Mr Broxom in December 2013, who had indicated that he had lent $300,000 to AWW and also had concerns about the manner in which Mr Jones was managing its finances. Mr Kaufman refers to a view which he formed, on several visits to AWW's business premises in early and mid-December 2013 that AWW did not have sufficient funds and needed further finance or capital. Mr Kaufman also refers to his knowledge of a further shipment to Nauru due to be dispatched by AWW in late December 2013 or early January 2014 and to his concern that AWW did not have sufficient funds to purchase the stock required to fulfil that order.
Mr Kaufman also referred to difficulties in Mr Jones' dealings with Dynamesh, including Mr Jones' claim that his personal safety had been threatened by Dynamesh. Mr Kaufman also outlined events following the appointment of a receiver by Dynamesh and to a suggestion made by Mr Jones (Kaufman 12.10.17 [30]) that, if Eigigu terminated the MSA, Mr Bhojani would be able to influence the award of a new contract by Eigigu, and that Mr Kaufman and Mr Broxom could make an arrangement with Mr Bhojani to set up a new company to acquire that new contract. Mr Kaufman's evidence (Kaufman 12.10.17 [32]) was that there were then more immediate concerns with AWW and he paid little attention to that matter. He also referred to work undertaken by Mr Jones, Mr Broxom and others in the period to 20 December 2013, seeking to remove the receiver appointed by Dynamesh, address TCA's demands and to obtain further funding for AWW (Kaufman 12.10.17 [33]), including Mr Broxom's payment of $26,000 to Dynamesh to allow the removal of its receiver, although that objective was not achieved (Kaufman 12.10.17 [34]-[35]). I will refer to other aspects of Mr Kaufman's evidence in dealing with the chronology of events below.
The First, Fourth and Fifth Defendants also relied on the expert report of Mr John McGuiness, which I will address in dealing with expert evidence below.

Chronology

I now turn to a chronology of events. By 27 February 2013, AWW and Eigigu had reached an arrangement in respect of the supply of products to a supermarket operated or to be operated by Eigigu in Nauru (FASC [21]-[23]; Palmer 20.6.17 [77]). That arrangement was subsequently documented by the MSA which recorded (cl 2.1) AWW's objective in entering into that contract, namely: "The principal objectives of [AWW] in entering into this agreement are to secure a long term relationship with a reliable customer that will purchase significant quantities of products from [AWW] on a continuing basis." Clause 2.2 of that contract also recorded Eigigu's objectives in entering into that agreement, namely "to secure a long term relationship with a reliable supplier of the Products that is able to supply the Products on a large commercial scale". That agreement provided, inter alia, that Eigigu must purchase, exclusively, relevant products from AWW; the contract term, initially, was three years, with AWW, at its sole discretion, being able to extend that term; Eigigu would pay AWW for the supply of products within 30 days of invoice date, regardless of whether the goods supplied were sold; and, until Eigigu paid AWW in full for the products supplied, title in those products would remain with AWW. Also on 26 April 2013 (FASC [24]-[25]), AWW and Eigigu entered into an agreement that provided for AWW to fund certain costs for the fit-out of Eigigu's supermarket. The Plaintiffs plead (FASC [26]) that, on 15 October 2013, AWW and Eigigu agreed to vary several terms of the MSA including to change the contracting entity from AWW to AWE, increase Eigigu's credit limit and extend the term of the agreement to five years. However, there is no evidence that that variation took effect.
AWW and AWE were reliant on third party loan funding. By a Loan Agreement dated 27 March 2013, Dynamesh advanced funds to AWW, secured by a general security agreement ("Dynamesh Loan"); by the end of May 2013, Dynamesh advanced AWW additional funding; and, on or around 20 June 2013, Dynamesh converted the majority of its debt to equity in AWW (FASC [27]-[28]). By a Secured Loan Agreement dated 27 May 2013 ("TCA Loan"), TCA also issued a revolving note to AWW for financial accommodation also secured by way of a general security agreement; and the TCA Loan and security were then varied several times, including to grant TCA first ranking security over AWW's assets (FASC [30]-[31]).
The Plaintiffs plead (FASC [32]) that, from no later than August 2013, AWW was suffering from a shortage in working capital as a result of several factors, and, inter alia, that sources of third party funding including Dynamesh under the Dynamesh Loan and TCA under the TCA Loan were no longer willing to provide further financial accommodation to AWW. The Plaintiffs also plead (FASC [33]) that, from around November 2013, Mr Jones, on behalf of AWW, conducted a capital raising in an attempt to improve working capital and to meet increasing debt servicing obligations, attributable to, predominantly, high debt servicing costs under the various short term financing arrangements. They plead (FASC [35]-[36]) that Messrs Broxom and Kaufman assisted in that regard, although it is not necessary to reach a finding in that regard, and that the capital raising was unsuccessful.
Difficulties appear to have arisen in the relationship between Mr Bhojani, Eigigu and AWW by October 2013, when Mr Jones expressed concern that Mr Bhojani would call in a debt and "take the contract away from AW[W]" (Ex J1, 157). The chairman of Eigigu, Mr Aingimea, subsequently raised concerns as to whether AWW had solvency and money integrity issues, and noted that AWW claimed to have spent $2 million on the supply of goods to Eigigu and that only $800,000 of stock was sent with another $200,000-$300,000 due in the next shipment, totalling $1.1 million, with equipment of $250,000 (Ex J1, 159) and Mr Bhojani also complained about payments not made by AWW (Ex J1, 159). By an email dated 31 October 2013 (Ex J1, 211) Mr Aingimea also raised concerns as to freight charges by AWW and stated that: "I have also received reports on the financial viability of AW[W]. I hope that this is not true as it would mean the crash of our arrangement. Please shed light on this so there are no jitters this side of the arrangement."
By a further email dated 21 November 2013, Mr Aingimea complained of, and Mr Jones acknowledged, difficulties in the packing of containers for the most recent shipment and Mr Aingimea also claimed that up to $250,000 of damaged stock was delivered by AWW (Ex J1, 243). In early December 2013, Eigigu was purchasing goods from supplier(s) in addition to AWW, in apparent breach of the exclusivity provisions contained in the MSA, although Mr Aingimea advised Mr Jones that the purchases were "small in value" and would "only augment" purchases from AWE (Ex J1, 253).
The Plaintiffs plead (FASC [40]-[42]) that, around the beginning of December 2013, Eigigu placed an order with AWW under the MSA for the supply of products; AWW took steps to fulfil that order from the beginning of December 2013, including placing orders with suppliers; otherwise, sourcing and procuring products and goods; liaising with shipping lines and logistics providers and liaising with Eigigu; and the January shipment was scheduled to be shipped from Brisbane on or around mid-January 2014.
By email dated 12 December 2013, AWW's solicitors recorded Mr Jones' advice that AWW would be unable to meet TCA's requirements that would enable an extension of its loan agreement term to 31 January 2014; AWW had no confidence that TCA would comply with its obligations under a "locked box" arrangement between them and expected that TCA would trigger further disputes prior to 31 January 2014; AWW had prospective funding opportunities that would enable the TCA Loan to be repaid in full, which would not be in place prior to 19 December 2013; and that TCA had issued a default notice dated 10 December 2013 requiring its loan to be repaid in full by 19 December 2013 (Ex J1, 297). AWW's solicitors advised it as to its rights in respect of TCA on that basis.
On 18 December 2013, Dynamesh appointed receivers to AWW, who later retired on 30 January 2014. On 18 December 2013, Mr Jones authorised Mr Broxom and Mr Kaufman to speak to solicitors acting for AWW in relation to the issues with TCA (Ex J1, 286). Also by email dated 18 December 2013 (Ex J1, 287), TCA's solicitors advised AWW's solicitors that USD 500,000 must be deposited into their account by 24 December 2013 as required by a signed but undated extension amendment and that, if AWW wanted to adjust the terms of the amendment, it would need to put a proposal to TCA with full details of its financial position, account statements, orders, receivables etc; and advised that TCA would appoint a receiver after 19 December 2013 unless AWW agreed and complied with that position. It appears from Mr Broxom's affidavit evidence that, by 18 December 2013, he had become aware of issues as between TCA and AWW, although he was not particularly forthcoming as to his knowledge of those issues in cross-examination. Also by email dated 18 December 2013 (Ex J1, 289), Mr Jones advised Mr Bhojani that that would be his "last day as Director of the company" and that he was "handing it all over" to Messrs Kaufman and Broxom, although he does not appear to have formally resigned as a director, nor did AWW accept such a resignation.
On 20 December 2013, Mr Broxom obtained a bank cheque for $28,000 to fund a payment to Dynamesh, on the basis of legal advice which had raised the prospect that Dynamesh would, if paid that amount, be required to remove its receiver. By email dated 20 December 2013 to AWW's solicitors, with a copy to Mr Broxom, Mr Jones noted Mr Broxom's assistance with the payment to Dynamesh's solicitors but also noted that AWW's accounts had been frozen and expressed confidence that TCA would respond well to AWW being proactive in removing Dynamesh's receivers (Ex J1, 315). In the event, Dynamesh did not remove the receiver it had appointed.
By a further email dated 20 December 2013, Mr Jones also sought to persuade Mr Bhojani (Ex P11, 1767) that "we can still save" AWW, if Mr Bhojani committed to Dynamesh to buy its shares in AWW and assisted with convincing TCA to allow until 25 February 2014 to pay down its loan, and suggested that: "If you were prepared to do this then the other shareholders would put in the money to fund Nauru." Mr Jones also there pointed to the reasons for Dynamesh's and TCA's lack of confidence in him and observed that AWW: "is a good company, we have a bright future ahead of us but we need time to get the funding in place to take out the debt that is crippling the company's balance sheet." At that point, Mr Jones appeared to have been acting in AWW's interests in seeking to avoid its failure, although he also advised Mr Bhojani that if AWW "goes down tomorrow", he would then be bankrupt, as was ultimately the case.
By email dated 21 December 2013, Mr Kaufman suggested that Mr Jones stop a transfer of $100,000 to TCA if it would place AWW into receivership in any case and also suggested that, if TCA were going to appoint a receiver, then AWW should repay Mr Broxom the $24,000 he had paid on 20 December 2013 to avoid that situation (Ex J1, 318). Mr Kaufman also gives evidence of a telephone conversation with Mr Jones on 22 December 2013 (Kaufman 12.10.17 [38]-[41]) which contemplated the possibility that the MSA would be terminated. That is not, in my view, inconsistent with Mr Jones intending to promote the termination of that agreement and the entry into an agreement between Eigigu and a new company, at least if issues with TCA and Dynamesh were not resolved, but tends against any finding that conversation would have communicated that intent to Mr Kaufman.
By email sent at 12.33pm (or 1.33pm) on 22 December 2013 (Ex J1, 326) from his personal email account, Mr Jones advised Mr Bhojani of several bases on which Eigigu might terminate the MSA. The Plaintiffs emphasise the fact that several of Mr Jones' emails at this time were sent from a personal email address. Although the use of a personal email account may be wholly innocent in many circumstances, the use of such an account may well have been directed to concealing Mr Jones' communications with Mr Bhojani from the receivers appointed to AWW, given the recognition in several of his emails of his duties to AWW and that he could not be seen to take steps which he was in fact taking in respect of the new arrangements. I also note, for completeness, that there are inconsistent time details in several of the emails sent on this day, possibly reflecting daylight saving time in Australia, which does not appear to be material to the sequence of emails.
That email, although sent from Mr Jones' personal email account, was signed "David Barkley", and it is not clear whether that was another name used by Mr Jones. That email stated that: "Bottom line though you are completely free to cancel the Nauru contract with AW[W] effective immediately due to their current statement of receivership. You would then be free to award it to someone else." That email appeared to contemplate that Mr Bhojani would at least have substantial influence over Eigigu's decision whether to cancel the Nauru contract with AWW, or to award it to a third party. I will find below that the suggestion by a current director of AWW that that contract be cancelled, whatever the merit of that course from Eigigu's perspective, involved a breach of duty by Mr Jones.
By email sent at 8.45pm on 22 December 2013 (Ex J1, 327), Mr Jones advised Mr Bhojani that he would send information to Mr Kaufman and Mr Broxom, he had rung Mr Kaufman who was "across the situation" and inquired as to the percentage of a new company that Mr Bhojani would expect. By his response (Ex J1, 346), Mr Bhojani contemplated that he would hold a third interest in the new company and noted that "if I do the contract myself I will own it 100%". By email sent at 9.07pm on 22 December 2013 to Messrs Kaufman and Broxom (Ex J1, 330-331), Mr Jones then set out a proposal for the Nauru contract to be restructured into a separate private company, introduced by the statement: "This email is extremely confidential and only to be considered if AW[W] cannot resolve it's [sic] current receivership issues with TCA & Dynamesh." That email proposed that Mr Serhan would be the general manager of the new entity, Messrs Broxom and Kaufman would be its directors, and that an entity associated with Mr Bhojani would hold 34%, Busaco would hold 33% and the Broxom Superfund would hold 33%. It also contemplated a "package" for Mr Bhojani and the entity associated with him, including 5% of revenue on each order as commission for managing the Nauru relationship and $50,000 paid to Mr Bhojani on trust as security on the contract. It appears the arrangements in respect of Mr Bhojani were not implemented.
A further email sent at 9.10pm on 22 December 2013 from Mr Jones to Mr Bhojani (Ex J1, 345) referred to his having sent "the proposal" to Mr Kaufman and Mr Broxom "quickly to run their eyes over". By email sent at 9.13pm on 22 December 2013, Mr Kaufman advised Mr Jones, with a copy to Mr Broxom, that he had not been able to get through to Mr Broxom by phone, text or email and Mr Broxom would need to consider the proposal before any form of confirmation was provided to Mr Bhojani. By email sent at 9.28pm (Ex J1, 333), Mr Kaufman asked Mr Broxom to call him as soon as possible. By a further email dated 22 December 2013 at 9.35pm (Ex J1, 336), Mr Jones advised Mr Bhojani that he expected TCA would say that Mr Jones had "fraudulently moved funds out of the lock box" and that receivables were too low; suggested that Mr Bhojani tell TCA that Mr Jones was having health problems and had been dealing with "this very greedy shareholder Dynamesh" which "has placed him under extreme pressure and stress" and advise TCA that "good people are going to [lose] lots of money if TCA calls in the receiver"; and foreshadowed that shareholders would invest more capital if TCA did not place AWW into receivership.
By email sent at 9.47pm on 22 December 2013 (Ex J1, 334), Mr Kaufman advised Mr Broxom that he had provided feedback to Mr Jones with regard to the proposal in Mr Jones' email sent at 9.07pm, including that no confirmation could be provided to Mr Bhojani without Mr Broxom first reviewing and agreeing terms; indicating that an acceptable shareholding for Mr Bhojani's company would be 10%, with structuring of the remaining 90% still to be determined; and that a 5% commission to Mr Bhojani for managing the Nauru relationship would be "ok" provided it was consistent with the current arrangement and on another condition; and addressing the other proposed terms.
By email sent at 9:49pm on 22 December 2013 (Ex J1, 341) to Mr Bhojani, Mr Jones appeared to suggest that Mr Kaufman and Mr Broxom were happy with proposed terms for the new investment, apart from the allocation of a one-third share in the new company to Mr Bhojani and that "[t]hey are ready to fund now and can do the next shipment to Nauru on time". In fact, it appears that Mr Broxom had not seen those terms although Mr Kaufman had, as I noted above, offered "feedback" on them. Mr Jones noted that Mr Bhojani could assume the entire relationship with Eigigu himself but noted that the course Mr Jones was suggesting involved no financial risk for Mr Bhojani and offered a regular income from a 5% commission arrangement (which, I interpolate, does not seem to have been implemented). Further correspondence followed between Mr Jones and Mr Bhojani as to the terms of the proposed new arrangement.
By an email sent at 10:34pm on 22 December 2013 from Mr Jones to Mr Bhojani (Ex J1, 339), he recorded concern that "David", presumably Eigigu's chairman, Mr David Aingimea, was "getting calls from Australia" that "[t]hey are trying to validate the receivables and trying to check the contract"; observed "[t]hat's very dangerous" and that it could be TCA, Dynamesh or the receivers who were making the calls. Mr Jones also requested that "David" (presumably Mr Aingimea) not say that Mr Jones told him to pay an amount directly to Mr Bhojani or a company associated with him, although the nature of that transaction was not explained by evidence, and referred to an apprehension of conflict with TCA and the risk that Mr Jones would "end up in jail".
By email sent at 10.34pm on 22 December 2013 to Mr Jones (Ex J1, 337), Mr Bhojani advised Mr Jones of the interest he required in a new company and sought to have Mr Jones confirm Mr Broxom's and Mr Kaufman's agreement "if they want to move forward". By his reply sent at 10.05pm (or 11:05pm) on 22 December 2013 (Ex J1, 337), Mr Jones advised Mr Bhojani that: "Noted Mozu and understood. But Eigigu must cancel the contract with AW[W] first. I cannot ask them too and I certainly cannot be involved in that process." Plainly, Mr Jones' prior actions on that day were inconsistent with his recognition that he could not be involved in Eigigu's cancellation of the contract with AWW.
By email sent at 11.14pm on 22 December 2013 (Ex J1, 344), Mr Bhojani advised Mr Jones that Mr Jones could send Mr Aingimea an email, and requested that Mr Bhojani and his brother be copied on that email. By email sent at 11.15pm on 22 December 2013, Mr Bhojani advised Mr Jones that he had already told "him" (presumably Mr Aingimea) who "will cancel the contract as soon as he receives your notification" and requested information as to a 5% commission to prepare an invoice. Mr Jones then advised Mr Bhojani (Ex J1, 344),: "Ok understood Mozu. I cannot ask or invite him to cancel it though. He will need to make that decision based on the facts at hand."
Mr Broxom's evidence is that he did not see the emails sent by Mr Jones and Mr Kaufman on the weekend of 21 and 22 December 2013 since he had decided to arrange a meeting for 23 December 2013 to explore the possible refinancing of AWW and otherwise to "forget about AWW for the weekend". While that approach may have been idiosyncratic, it seemed to me that Mr Broxom's evidence as to that approach was honest, and it is supported by the contemporaneous email from Mr Kaufman to Mr Jones (to which I referred above) which recorded his inability to contact Mr Broxom over that period. That matter is significant, since those emails include emails on which the Plaintiffs rely to seek to establish Mr Broxom's knowledge of the alleged "Scheme" which was central to their pleaded case. Mr Broxom's evidence, (Broxom 27.9.17 [70]), which it seems to me was not falsified in cross-examination, was also that: "The plaintiffs in these proceedings allege that Jones and Bhojani had a scheme to cause Eigigu to terminate the contract with AWW and award a new contract to a company controlled by Bhojani, Kaufman and me. I knew nothing about that. I have been shown a lot of emails between Jones and Bhojani over the weekend of 21-22 December 2013. I knew nothing about those emails. At no time did I think that Jones was acting contrary to his duties to AWW. At all times up until the end of the meeting on 23 December 2013 I thought Jones was working with me and Kaufman and others to save AWW."
It seems to me that there is nothing implausible about Mr Broxom's evidence in that respect. There is no evidence, on the face of the emails exchanged between Mr Jones and Mr Bhojani, that they were copied to either Mr Broxom or Mr Kaufman. On the assumption that Mr Jones was engaged in a breach of his statutory and general law duties to AWW, and Mr Bhojani was seeking to cause Eigigu to terminate the MSA and award a new contract to a new company at a time of his choosing, in the hope of acquiring an interest in the new company and commission payments from it, there is no particular reason that either of them would need or wish to disclose that conduct to Mr Broxom (who had only been involved with AWW for a short period) or Mr Kaufman, both of whom had no previous involvement with Mr Bhojani.
Mr Kaufman also addressed, in his affidavit evidence, his telephone communications and correspondence with Mr Jones over the weekend, 21 and 22 December 2013, including a conversation on 22 December 2013 directed to the position if Eigigu terminated its contact with AWW and subsequent emails. Mr Kaufman's evidence (Kaufman 12.10.17 [45]) was that: "It did not occur to me that it was Jones's purpose that AWW lose the contract. I did not see anything in my discussions with Jones which made me think that he was working against AWW's interests. I thought Jones was simply addressing a situation which might arise if AWW lost the Nauru contract. I was also aware as at 22 December 2013 that Jones was working towards getting the Dynamesh receiver removed so that TCA could be addressed and AWW continue with its business, including performance of the Nauru contract."
Mr Kaufman's evidence (Kaufman 12.10.17 [64]) is also that: "I have seen from documents subsequently produced that there were a lot of emails exchanged between Jones and Bhojani on 22 December 2013 about Eigigu terminating the Nauru contract. I was not aware of any of these communications. In these proceedings, the Plaintiffs allege that Jones and Bhojani had a scheme which included them inducing or otherwise effecting the termination of AWW's contract with Eigigu so that a new contract could be awarded to a new company. I knew nothing about this. When I learnt that Eigigu had terminated the contract I thought it was a legitimate exercise of right by Eigigu especially given the appointment of the Dynamesh and TCA receivers and AWW's imminent failure to deliver the January shipment."
Mr Kaufman's evidence in that respect bears some similarity to Mr Broxom's evidence, although Mr Kaufman had greater involvement with Mr Jones over the weekend of 21 and 22 December 2013. I do not consider that there is anything implausible in Mr Kaufman's analysis of likely developments, which did not require any knowledge of the communications between Mr Jones and Mr Bhojani, and I have pointed above to the fact that there is no particular reason why Mr Jones or Mr Bhojani should have shared those communications with Mr Kaufman or Mr Broxom.
Mr Bhojani sent an email at 5.26am on 23 December 2013 (Ex J1, 344) to Mr Jones and to Mr Bhojani's brother, Imran, stating: "Imran as soon as David [Aingimea] is notified please request David [Aingimea] to cancel the contract and move to the new Entity. Hugh [Jones] Please keep Imran [Bhojani] and me in the loop of emails that you sent to David [Aingimea]."
Also on 23 December 2013, TCA appointed receivers to AWW, who remained in office until 3 February 2014. The notice of appointment of TCA's receivers pursuant to s 429(2) of the Corporations Act stated that: "[T]he Receivers and Managers will take full responsibility for the management and operations of the company and the control of its assets. The director's power to enter into contracts or to sell, pledge or otherwise deal with the company's assets and liabilities is suspended."
After this point, only the receivers and managers could cause AWW to comply with its obligations under the MSA or make the January shipment and, as will emerge below, they did not do so. Mr Faulkner, with whom Mr Davis appears for the First, Fourth and Fifth Defendants, submits that the appointment of receivers by TCA on 23 December 2013 had the result that there was no prospect of AWW continuing to supply the Nauru supermarket when it could not then make the January shipment to Eigigu. Mr Faulkner and Mr Davis also submit that, once TCA had appointed a receiver to AWW, the "writing was on the wall" that AWW would lose the MSA and Eigigu may need a new supplier, and an opportunity may arise for Messrs Broxom, Kaufman and other shareholders in AWW to join together as that supplier. I pause to note that those shareholders, as distinct from Mr Jones as a director in AWW, owed no obligation to AWW not to take that course. I will address this issue further below.
On 23 December 2013, Messrs Broxom and Kaufman attended a meeting with Mr Jones and a finance broker to explore options to refinance AWW, which had been arranged by Mr Broxom (Broxom 27.9.17 [52]-[57]; Kaufman 12.10.17 [46]-[51]). There was discussion at that meeting about the steps which were being taken to have the receiver appointed by Dynamesh removed. That discussion was not necessarily inconsistent with their alleged involvement in a Scheme to bring about the termination of the MSA prior to that date, since they could have been involved (and Mr Jones was involved) in pursuing two alternative courses at the same time. Advice was received, in the course of that meeting, that TCA had also appointed a receiver to AWW; the finance broker advised that made refinancing impossible; and steps were then taken, without success, to seek to pay the finance broker his fee and to repay the amount that Mr Broxom had paid to Dynamesh.
Mr Broxom and Mr Kaufman had a conversation later on 23 December (Broxom 27.9.17 [61]) in which Mr Kaufman pointed to the opportunity for a new supplier to obtain a contract with Eigigu, if AWW failed, and observed that a new supplier would need to be in a position to act quickly, where that contract may come up at any time. Mr Kaufman also refers (Kaufman 12.10.17 [56]) to his view, after TCA had appointed its receiver, that AWW would not be able to perform the January shipment, because it did not have the funds to do so; that it would shortly lose the MSA; and that any new supplier to Eigigu would need to be in a position to perform immediately. It seems to me that there was nothing surprising in Mr Kaufman's assessment of that matter, where AWW's failure would likely leave Eigigu without a source of supply for the next month, January 2014. It was put to Mr Kaufman in cross-examination that Mr Jones had told him on 23 December 2013 that AWW's contract "would be coming up at any time", and Mr Kaufman's evidence was that he did not recall being told that (T133-134). Even if Mr Jones had expressed that view, it would have been consistent with the objective probabilities, rather than disclosing any intent of Mr Jones to orchestrate that result.
On the afternoon of 23 December 2013, Messrs Kaufman and Broxom met with a representative of Mr Broxom's bank to discuss the possibility of obtaining finance for a new company that would deal with Eigigu. Following that meeting, late on 23 December 2013 (Ex J1, 342), a representative of Mr Broxom's bank sought information to support a trade finance application, including written confirmation of support from Export Finance Australia ("EFIC") (which was not in fact in place); financials for the current trading entity; projections for the next 12 months under the newly formed company; their business plan clearly specifying strategies to control cashflow; and a copy of the existing contract and, if available, a draft new contract. Mr Lucarelli, who appears for the Plaintiffs, submits that meeting and the content of the bank's request for information supports an inference that Messrs Broxom and Kaufman knew of the Scheme and the imminent termination of the MSA. Mr Faulkner and Mr Davis respond, and I accept, that the more plausible explanation for their activities on that afternoon was to address the obvious possibility that Eigigu may terminate the MSA of its own accord, given AWW's position and the poor prospects for AWW's future dealings with Eigigu.
At 5.34pm (or 6:34pm) on 23 December 2013 (Ex J1, 375), Mr Jones advised Mr Aingimea (who, as I noted above was the chairman of Eigigu) with a copy to Mr Bhojani that: "It is with a very heavy heart that I advise you of [AWW] being in receivership as of 12 noon today. [AWW] was placed into receivership by our hedge fund, [TCA], who we have been not on good terms with now for around 2 months. … this receivership will no doubt place you in a difficult situation with regards supply of your next order. I am not permitted to comment on this as I am no longer the Director of [AWW] … and will leave it to you to discuss with the receiver directly. Whether they decide to allow the company to trade through or be wound up is at their discretion entirely …" The statement that Mr Jones was not a director of AWW was not correct, since the appointment of a receiver did not terminate his office as a director, although he no longer had the ability to exercise management powers in a manner that was inconsistent with the receiver's role.
By email sent at 7.54pm on 23 December 2013 (Ex J1, 378), Mr Jones advised Messrs Bhojani, Broxom and Kaufman that AWW had been placed into receivership by TCA on that day, although that was known at least to Messrs Broxom and Kaufman from the meeting that morning; that Mr Jones had spoken to the receiver and manager and confirmed that position; that he had advised Eigigu of that situation and copied in Mr Bhojani and Mr Bhojani's brother and that: "Gentlemen the terms now need to be finalized and agreed so things can progress. [Mr Serhan] is ready to move forward as [general manager] and I stand ready to assist you with the sourcing of products for the next shipment and loading of the containers. Please keep me informed of your progress together, I am here to help in anyway I can I but must be distanced from this new arrangement so far as my duties in [AWW] go." The last sentence, in its context, plainly deals with matters of appearance rather than matters of substance, given Mr Jones' involvement in the previous correspondence and discussions with Mr Bhojani as to the termination of the MSA and the suggested new arrangement. I note, for completeness, that the text of that email noted that Mr Bhojani was then in Iraq and that Mr Jones did not know when he would be back online.
Mr Broxom's evidence (Broxom 27.9.17 [65]-[66]) is that he did not recall seeing this email, although he accepted that he would have seen it at some time, and that he had not met Mr Bhojani at that time although he had formed the impression, from comments made by Mr Jones, that Mr Bhojani was a financier or trader who had influence in Nauru. Mr Broxom's evidence was that he also did not recall seeing other emails between Mr Kaufman and Mr Jones late on 23 December 2013 and early on 24 December 2013 (Broxom 27.9.17 [68]). Mr Broxom's evidence is that he found out, after Christmas Day, that Eigigu had terminated the contract with AWW (Broxom 27.9.17 [69]).
By email sent at 8:31pm on 23 December 2013, Mr Aingimea advised Mr Jones, with a copy to Mr Bhojani (Ex J1, 545), of the termination of the MSA, adopting the grounds of termination which had previously been identified by Mr Jones, as follows: "Thank you Hugh [Jones] for being honest and upfront. It is indeed very very sad news. As you can appreciate, the news means I have to protect [Eigigu] in the process. I am therefore cancelling the contract between [AWE] and [Eigigu]. I exercise that right as per clause 9.1 a. - As a receivership is insolvency. … There may be other clauses that gives justification to our cancellation but the above two are sufficient legally for us to consider the contract at an end …"
By that time, AWW was plainly no longer able to meet Eigigu's objectives as set out in the MSA, where it was no longer a reliable supplier of the products, nor was it able to supply the products on a large commercial scale, where it was apparently insolvent, receivers had been appointed to its business and those receivers did not continue to conduct that business.
By an email dated 23 December 2013 at 8:34pm (Ex J1, 377), Mr Kaufman advised Mr Jones, with copies to Mr Bhojani and Mr Broxom, that: "This afternoon [Mr Broxom] and I instructed Cornerstone Advisory, our Corporate Advisor, to go ahead and establish a new Australian Company, Aussie Worldwide Exports Pty Ltd. We also instructed Bartier Perry, our Legal Advisors, to commence drafting a replacement Master Supply Agreement and Security Agreement. Both of these tasks should be completed by early-mid tomorrow AEST. We also met with St George Bank today to discuss the establishment of line of credit facility … Now that David at Eigigu has been notified of [AWW]'s position, we will need to move quickly to demonstrate that we have the capability, in terms of people, infrastructure and funding to assume responsibility for the supply side of this agreement."
The Plaintiffs rely on this email to seek to demonstrate Mr Kaufman's and Mr Broxom's knowledge of the pleaded Scheme, and particularly the steps taken by Mr Jones and Mr Bhojani to bring about the termination of the MSA by Eigigu and the allocation of the contract to the new company. It seems to me that that email does not support that inference, and indeed suggests the contrary, namely that Mr Kaufman's understanding was that the new company needed to demonstrate its capacity to meet Eigigu's supply needs, rather than the allocation of the contract to that new company had any element of fait accompli about it.
By email sent at 4.34am on 24 December 2013 (Ex J1, 380) Mr Kaufman requested Mr Jones, with a copy to Mr Broxom, to send some of the information requested by the bank that he and Mr Broxom had approached, namely a written confirmation of support from EFIC, financials for AWW and projections for the new company over the next 12 months, including cashflow projections. While the provision or use of that information may have involved a breach of duty by Mr Jones, or breach of confidentiality, the Plaintiffs did not put their case on that narrow basis. By email sent at 6.25am on 24 December 2013 (Ex D1.3, 1534, admitted subject to a limiting order under s 136 of the Evidence Act 1995 (NSW) that it was not probative of any issue of breach of confidentiality, where the Plaintiffs abandoned that claim), Mr Jones advised that a term sheet with EFIC was in another company's name and a new application would need to be made to EFIC after the new company did "3 turns" of Nauru stock; that he would need to prepare new financials based on a new business plan, and that the previous company's profit and loss could not be used for the new company; and he requested that Mr Kaufman maintain confidentiality on the origin of the documents. That email did not attach copies of those documents.
Mr Kaufman refers in his affidavit evidence to his first contact with Mr Bhojani on 24 December 2013 and to subsequent dealings with Mr Bhojani, Mr Broxom and other persons who might have contributed funds to a new company. Mr Kaufman also addresses the steps taken after 24 December 2013 to seek to place the new company in a position to deliver the January shipment to Eigigu. It is not necessary for me to address that evidence, since the Plaintiffs' pleaded case turns upon the existence of the Scheme, which requires that it establish Mr Kaufman's (and Mr Broxom's) involvement with events prior to the termination of the MSA. While it may have been open to the Plaintiffs to seek to rely on steps taken after the termination of the MSA, in a manner that did not depend upon the allegation that Mr Kaufman and Mr Broxom was each an accessory to or knowingly involved in the pleaded Scheme, they do not seek to do so, perhaps because that narrower claim would not have supported the relief claimed.
On 27 December 2013, Messrs Broxom and Kaufman met with Mr Broxom's wife to discuss whether they were interested in the opportunity in respect of Eigigu and whether they wanted to do business together (Broxom 27.9.17 [71]). That meeting suggests that the new arrangements of which the Plaintiffs complain had not been concluded by that date. Following that meeting, Mr Broxom requested information from Mr Jones "to progress our thoughts on the viability of the terms" offered by Mr Bhojani. The information sought by Mr Broxom included a copy of AWW's current contract with Mr Bhojani's company; confirmation of amounts outstanding to that company; an explanation of how money had been spent to maintain the relationship with Eigigu; copies of employment contracts of two persons; copies of all correspondence that Mr Jones had had with Mr Aingimea, Mr Bhojani and the receiver regarding the contract; and a range of other information. By email dated 28 December 2013 (Ex D1.3, 1539-1541), Mr Jones responded to Mr Broxom's request, by marking comments on Mr Broxom's email. In particular, Mr Jones responded to Mr Broxom's request for a copy of all correspondence he had had with Mr Aingimea, Mr Bhojani and the receiver regarding the contract with a significantly incomplete account of that correspondence as follows: "Warwick [Broxom] there has been no correspondence between myself and the receiver regarding Nauru. There was an email sent by me to David [Aingimea] at Eigigu, he responded and sent his response also to the solicitors of the receiver's, which confirmed he was cancelling the contract."
Mr Broxom's request for that information from Mr Jones does not support an inference that he had previous knowledge of the correspondence between Mr Jones and Mr Bhojani comprising the pleaded Scheme since, if he previously knew of that correspondence, he would scarcely have requested copies of it which would likely have shown its impropriety. Mr Jones' failure to disclose the extent of the correspondence to Mr Broxom, or to respond that Mr Broxom already knew of it, indicates an unsurprising preference not to disclose the extent of that correspondence to Messrs Broxom and Kaufman. That response did not place Messrs Broxom and Kaufman on notice of the existence or impropriety of the correspondence to which only Messrs Jones and Bhojani were party.
Mr Jones also stated in that email that: "I have to stress again Warwick [Broxom] and Jay [Kaufman] that this information you are getting, you should not be getting. I am giving you an unfair competitive advantage over other shareholders because I believe it is the right thing to do by you, the shareholders who are benefiting and also [Mr Bhojani]. All of this information is extremely privileged and not to be shared or discussed with other shareholders in any way. I am only doing this to make sure that good people do not loose [sic] their money. I am going to loose [sic] my equity and my $200,000 loan to the company, I cannot benefit long term on this new arrangement and have asked for nothing from either of you for what I am doing now to assist you. I am doing this all in good faith, and would be very disappointed to hear that I had been sold out or used as a scape goat [sic] in front of [Mr Bhojani] or [his brother]. This opportunity exists because of my relationship with [Mr Bhojani] and [his brother] and I would ask that you respect that." It is by no means apparent that Mr Jones' claim for the sensitivity of this information was correct and the Plaintiffs did not pursue any claim as to its confidentiality, or any separate claim based on breach of duty arising from its provision or any advantage to one group of shareholders over another.
Mr Broxom addresses this email in his affidavit evidence. His evidence (Broxom 27.9.17 [72]) is that he knew, at that point, that Eigigu had terminated the contract with AWW (as it had); he thought that AWW no longer had any interest in the supply of goods to the Nauru supermarket; and he considered there was no reason why he could not ask Jones for that information. Mr Broxom's evidence, admitted as evidence of his understanding only, was that he treated a reference in Mr Jones' response to giving "information we should not be getting" as exaggerating the significance of Mr Jones' role.
The proposal for a new company to take up the contract was discussed at a meeting with other shareholders of AWW on 30 December 2013 (Kaufman 12.10.17 [68]). That approach also does not suggest a recognition of impropriety in Mr Jones' conduct to that point by Messrs Broxom and Kaufman.
On 2 January 2014, Messrs Broxom, Kaufman and Bhojani came to an agreement in respect of a proposed new contract with Eigigu. Following a dinner meeting that evening with representatives of Eigigu, agreement was reached on 3 January 2014 concerning a new supply agreement between Eigigu and the new company (Broxom 27.9.17 [73]; Kaufman 12.10.17 [69]-[70]). The January shipment was dispatched to Nauru on 9 January 2014.
By an email dated 10 February 2014 (Ex J1, 750), admitted without objection by the Plaintiffs, Mr Bhojani advised the then administrator of his perception of the circumstances leading to the administration of AWW. He contended that Dynamesh had played "dirty tricks to risk the viability of AWW" and that: "Nauru/Eigigu Contract is now signed with [AW Exports], which cannot be moved to any other organization. It is a government contract that involves a cabinet process to approve any major contracts. It is not under my power to move this contract wherever I please. I did have an influence in recommending who gets the contract because Government of Nauru has certain level of trust in Radiance [a company associated with Mr Bhojani]. When the Nauru/Eigigu cancelled the contract with AWW on grounds of receivership, I had approached TCA for funding and many knew about the cancellation of this contract including the receivers. Nauru/Eigigu were not offered any consolation or assurance by any shareholders or receiver that their supply chain won't be impacted. [Mr Kaufman and Mr Broxom] were the only guys that came on board and took the risk of funding the contract. They worked extremely hard to fulfil the order and within a week had the products on boat. I am very grateful to them for saving my credibility in front of Nauru Government. Everything said and done it is also in our best interest to see AWW trade and eventually turn into a profit making entity. We will extend our full support to buy AWW's core product and any other product that they can source to match our target price."
After Mr Palmer was appointed as administrator, there was a proposal that AWW might continue business as, inter alia, a supplier to AW Exports. The administrator's report dated 20 May 2014 (Ex J1, 926) noted that, following expressions of support from TCA and AW Exports, the administrator had determined to trade AWW's business following his appointment, and that TCA had agreed to fund the ongoing operation of the business, albeit that TCA wished to review AWW's ongoing trade activity for a period of 2-3 months. The administrator's report identified the reasons for AWW's insolvency (Ex J1, 936) as including that its business was severely undercapitalised and it became dependant on high interest bridging finance; its management was distracted by side products, including the construction of the supermarket in Nauru and other matters; sales failed to meet required levels to meet the costs of the business; and poor logistics management led to increasing storage and transport costs which resulted in net losses on sales. That report also noted that TCA provided funding to facilitate ongoing trading during the course of the administration (Ex J1, 943).
The administrator's report also referred to the difficulties with continued trading by AWW (Ex J1, 946) as follows: "The recommencement of trading of the business of [AWW] was always going to be problematic. The TCA Receivers had advised TCA that [AWW] could not continue to trade without significant capital injections, and without a new business strategy being put into place. They recommended against going down this path. I later formed the same views, and advised both TCA and the Committee accordingly.
The administrator also noted that, although the Company had traded during the administration, on a limited basis with TCA's support, that had "primarily been no more than the realisation of stock on hand." Importantly, the administrator's report also noted that: "The business of [AWW] effectively ceased to trade upon the appointment of the Dynamesh Receivers and the subsequent appointment of the TCA Receivers, who assumed control of the business of [AWW] on 23 December 2013. The TCA Receivers maintained [AWW] throughout the period of their appointment, without actively trading its business. [emphasis added]
The administrator also referred to steps taken by the TCA receivers and noted that: "… TCA Receivers did not meet any of the orders put forward by the customers of [AWW], which was consistent with their recommendation that unless significant capital was made available to the business, then the business of [AWW] could not continue to trade."
The administrator also indicated (Ex J1, 947) that: "I confirmed the opinion put forward by the TCA Receivers that [AWW] could not trade without a significant capital injection. Specifically, I determined that a full resumption of trade would require a capital injection in excess of $1.0M, but that limited trade could resume on the provision of a lesser amount."
These observations would likely have been of considerable significance to a determination of the value of AWW's business, had the Plaintiffs otherwise led adequate expert evidence directed to that question.
AWW and AWE passed into voluntary liquidation on 24 June 2014.

The alleged Scheme

The Plaintiffs plead (FASC [43]) that, from about mid-December 2013 to mid-January 2014: "Jones and Bhojani devised and managed a scheme whereby they would induce or otherwise effect the termination of the [MSA] by [Eigigu] and have a new contract awarded by [Eigigu] to a new company controlled by Bhojani, Broxom and Kaufman, including that all future income streams from sales revenue under the [MSA] be diverted or transferred to the new company (the Scheme)."
The Plaintiffs in turn plead (FASC [44]) that the purpose of the Scheme was to establish a new company free of the debts of AWW; retain the benefit (through the new company) of the MSA; make the January shipment through the new company; facilitate Messrs Bhojani, Broxom and Kaufman, or entities related to them, recouping their investments and/or debts owed to them by AWW or AWE or both; and allow certain commission rights to continue through the new contract to be held by the new company. That purpose could not have been, and was not, achieved in the terms pleaded, since a termination of the MSA necessarily had the consequence that a new company would not have its benefit.
The Plaintiffs also plead (FASC [45]) that the Scheme was calculated to and did involve, among other things: "(a) Jones assisting with the negotiation of the terms of the new company as between each Bhojani, Broxom and Kaufman; (b) Jones, together with the assistance of Bhojani and [his brother], inducing [Eigigu] to terminate the [MSA] and for the immediate award of a fresh contract to the new company; (c) giving the appearance to AWW's customers that the Business was trading as usual, at least until after the [January shipment] was made; (d) giving the appearance to AWW's suppliers that the Business was trading as usual, at least until after the [January shipment] was made; (e) AW Exports paying certain invoices issued to AWW in respect of the [January shipment] to retain relationships built by AWW; (f) Over a period of time, AW Exports executing fresh supplier trade agreements under the new company, retaining the relationships and trade channels established by AWW; and (g) transferring the employment of Serhan from AWW to the new company."
The Plaintiffs plead (FASC [46]) that, between 18 December and 23 December 2013, Mr Jones conveyed the core elements of the Scheme to each of Mr Bhojani, Mr Broxom and Mr Kaufman. The Plaintiffs in turn plead (FASC [50]-[55]) aspects of Mr Jones' conduct in implementing the Scheme; that Messrs Broxom and Kaufman took steps on 23 December 2013 to incorporate a new company; instructed solicitors to prepare a new supply agreement and security documentation between the new company and Eigigu and approached Mr Broxom's bank to open banking facilities in the name of the new company; and that Australasian Worldwide Exports Pty Ltd, now known as AW Exports, was incorporated on 24 December 2014 and a banking facility opened for it on that date.
The Plaintiffs also plead (FASC [59]) that, pursuant to the Scheme, Messrs Jones, Bhojani and Mr Bhojani's brother "orchestrated" the termination by Eigigu of the MSA, on the basis, I interpolate, of its entitlement to terminate that agreement on the appointment of a receiver. The Plaintiffs plead (FASC [60]) that, pursuant to the Scheme, on 23 December 2013, Mr Jones, without the knowledge, authorisation or consent of receivers appointed by TCA, notified Eigigu of the appointment of the receivers to AWW. I pause to note that I do not accept the implied premise of that contention, namely that AWW, the receivers or Mr Jones could properly have concealed that matter from or not disclosed it to Eigigu. The Plaintiffs also plead that, pursuant to the Scheme, Eigigu shortly afterwards terminated the MSA.
The Plaintiffs plead (FASC [62]) that, from at least 24 December 2013 to 6 January 2014, Mr Serhan was at the same time engaged by and/or employed by AW Exports. They also plead (FASC [67]-[72]) that, pursuant to the Scheme, and prior to the appointment of Mr Palmer as voluntary administrator of AWW and AWE on 24 January 2014, Messrs Jones, Bhojani, Kaufman and Broxom caused the January shipment to be made; pursuant to the Scheme, Messrs Jones, Broxom and Kaufman coordinated that shipment; AW Exports used AWE's export licence to make that shipment; and, on 10 January 2015, AW Exports invoiced Eigigu in respect of that shipment. The Plaintiffs also plead (FASC [73]) that, again pursuant to the Scheme, on 4 February 2014, AW Exports and Eigigu entered into a new supply agreement with Eigigu in substantially identical terms to the MSA.
In opening submissions, Mr Lucarelli put the Plaintiffs' case in terms consistent with the pleaded allegation of the Scheme and in a manner that involved allegations of a significant degree of impropriety. He contended that Mr Jones, "acting in concert" with Messrs Bhojani, Broxom and Kaufman: "orchestrated the termination of the plaintiffs Nauru supermarket supply contract for the purposes of acquiring and exploiting the rights under that contract in another entity, [AW Exports], a company incorporated for the purpose and controlled by Messrs Bhojani, Broxom and Kaufman. The commercial motivation of each of Messrs Bhojani, Broxom and Kaufman was to salvage their investments in the plaintiffs by taking for themselves the plaintiffs' Nauru supermarket supply business, to the exclusion of the plaintiffs' secured, preferential and ordinary unsecured creditors. The immolation of the plaintiffs Nauru supermarket supply contract and its re-birth in AW Exports had three broad components." Those components were in turn identified as an orchestrated termination of the MSA and the award of a new and identical contract to a new company to be controlled by Messrs Bhojani, Broxom and Kaufman; agreement as to the terms on which the new entity was created; and the employment of the Plaintiffs' operations manager, Mr Serhan, by that new entity.
There is a substantial overreach in the Plaintiffs' formulation of this claim. It involves a contention that Mr Jones acted in concert not only with Mr Bhojani, but also with Messrs Broxom and Kaufman, to "orchestrate" the termination of the MSA, which was not established for the reasons noted below. The proposition that the new company was controlled by Messrs Bhojani, Broxom and Kaufman disregarded the fact that Mr Bhojani only later acquired shares in AW Exports, and the allegation that the MSA and the new contract awarded to AW Exports were identical was not correct. The claim also has no regard to the decision made by the receivers appointed by TCA not to continue to trade AWW's business or perform its obligations under the MSA, or to Eigigu's interest in obtaining continuing supply for its supermarket and those who acquired products from it. The allegations made against Mr Serhan, the Plaintiffs' operations manager, were abandoned at the commencement of the hearing. Mr Lucarelli also made clear that the Plaintiffs contended that each of the Defendants "knew full well the overall plan" including that there would be "an orchestrated termination" of the MSA. That proposition was also not established.

Claim against Mr Jones Claim for breach of statutory duties

The Plaintiffs plead (FASC [76]) that, in his capacity as an officer of AWW, AWE, or both, Mr Jones owed several statutory duties to AWW, AWE, or both, namely under s 181(1) of the Corporations Act to exercise his powers and discharge his duties in good faith and in the best interests of AWW, AWE, or both, and for a proper purpose; under s 182(1) of the Corporations Act not to improperly use his position to gain an advantage for himself or someone else, or cause detriment to AWW, AWE, or both; and under s 183(1) of the Corporations Act not to improperly use information obtained by him as an officer of AWW, AWE, or both to gain an advantage for himself or someone else, or to cause detriment to AWW, AWE, or both. The Plaintiffs then plead (FASC [78]-[79]) that, by reason of specified matters, Mr Jones breached the duties owed by him to AWW or AWE or both and contravened ss 181, 182 and 183 of the Corporations Act.
In closing submissions, Mr Lucarelli referred to authority as to the scope of director's duties under ss 181 and 182 of the Corporations Act, including Southern Real Estate Pty Ltd v Dellow [2003] SASC 318; (2003) 87 SASR 1; Re Colorado Products Pty Ltd (in prov liq) [2014] NSWSC 789; (2014) 101 ACSR 233 at [419]-[421], [432]-[433]; Hart Security Australia Pty Ltd v Boucousis [2016] NSWCA 307 at [73]-[75] and Re Central Management (NSW) Pty Ltd (in liq) [2017] NSWSC 1258 at [44]. Broadly, s 181 of the Corporations Act requires a director or officer of a corporation to exercise his or her powers and discharge his or her duties in good faith in the best interests of the corporation and for a proper purpose, and that section overlaps with a director's general law duties to act for proper purposes and in good faith and in the company's interests. There are differing views as to whether any part of that duty is to be assessed by a subjective standard, which it is not necessary to address in this case: Re Colorado Products Pty Ltd (in prov liq) above at [421]; Australian Securities and Investments Commission v Drake (No 2) [2016] FCA 1552; (2016) 340 ALR 75; 118 ACSR 189 at [494]; Hart Security Australia Pty Ltd v Boucousis above at [75]; Australian Securities and Investments Commission v Flugge [2016] VSC 779; (2016) 342 ALR 1 at [1980]ff; Vanguard Financial Planners Pty Ltd v Ale [2018] NSWSC 314 at [133].
Section 182 of the Corporations Act in turn prohibits a director, secretary, officer or employee of a corporation from improperly using his or her position to gain an advantage for himself or herself or someone else or cause detriment to the corporation, and that section reflects the fiduciary obligation of a director under the general law. Section 183 of the Corporations Act in turn prohibits a director or officer or employee of a corporation from improperly using information to gain an advantage for themselves or someone else or cause detriment to the corporation.
In opening submissions, Mr Lucarelli submitted, inter alia, that Mr Jones acted contrary to his statutory duties in "orchestrating the termination" of the MSA and its "reinstatement" in AW Exports. In closing submissions, Mr Lucarelli similarly put Mr Jones' breach of duty as "orchestrating the termination of the [MSA] for the purposes of diverting that contractual relationship to an entity to be owned and controlled by Messrs Bhojani, Broxom and Kaufman, being AW Exports, a shelf company incorporated by Messrs Kaufman and Broxom for that purpose".
I am satisfied that the pleaded breach of statutory duties is established against Mr Jones, where he was at least acting against AWW's interests in assisting Eigigu to formulate the terms of and bring about a termination of the MSA, notwithstanding that assistance was likely wholly unnecessary and that termination would likely have occurred without it. That breach of duty arises because, at the time that it was in AWW's and AWE's interests to make (admittedly, likely hopeless) efforts to preserve the MSA, Mr Jones actively facilitated Eigigu's termination of it. It is plain enough from his emails that he was also conscious of the impropriety of that course. It is not necessary for the Plaintiffs also to establish that the MSA was in fact reinstated in AW Exports in order to establish its claim for breach of duty against Mr Jones. It is also not necessary for the Plaintiffs to establish other aspects of breach of duty on which the Plaintiffs' opened, some of which were not pressed in respect of Mr Serhan, to establish that breach of duty by Mr Jones. I will address the relief sought against Mr Jones and other Defendants below. Claim for breach of fiduciary duties
The Plaintiffs also plead (FASC [76]) that Mr Jones owed a duty in equity as a fiduciary, requiring him to act honestly, in furtherance of and to advance the interests of AWW, AWE, or both, and not to depreciate the value of any part of AWW's Business (as defined) or assets. This duty is pleaded in positive terms, and there is an open question whether such a duty would be a fiduciary duty, capable of giving rise to a knowing assistance claim in equity. I referred to that question in Vanguard Financial Planners Pty Ltd v Ale above at [130] and noted that: "In Westpac Banking Corporation v The Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1, the majority in the Court of Appeal of the Supreme Court of Western Australia held (at [918]-[933] per Lee AJA, at [1956] and [1978] per Drummond AJA) that a director's duties to act in good faith and in the company's interests and for proper purposes, although imposing positive obligations, can nonetheless be characterised as fiduciary, and Carr AJA took substantially the same view. On the other hand, in Netglory Pty Ltd v Caratti [2013] WASC 364 at [345]ff, Edelman J observed that it may be incorrect, on the current state of Australian authorities, to characterise a breach of positive duties by a director, such as duties to act in good faith and in a company's interests and for proper purposes, as a breach of fiduciary duty. His Honour nonetheless noted (at [347]-[349]) that the High Court "appears also to have recognised that there may be a fiduciary prescriptive liability to account, when that liability is associated with a proscriptive fiduciary duty"; that it may be possible to describe the "proper purposes" duty in negative terms, as a duty not to act for collateral purposes; and that the duty or duties to act in good faith in the interests of the company could alternatively be characterised as prescriptive conditions upon the exercise of a fiduciary power."
It is not necessary to resolve that question here. I will assume (having regard to the pleaded breach to which I refer below) that the Plaintiffs also seek to invoke the established rules against undisclosed conflicts of interest and undisclosed profits. The no conflict and no profit rules are applicable to a director as a status-based fiduciary and, as I observed (by reference to authority) in Re Colorado Products Pty Ltd (in prov liq) above at [351]: "Broadly, the no conflict rule prohibits conduct where a fiduciary has a personal interest or duty owed to a third party which gives rise to a real and sensible possibility of a conflict. That rule and the no profit rule, which provides that a fiduciary cannot obtain a profit from its fiduciary position without the principal's consent, may overlap."
In Coope v LCM Litigation Fund Pty Ltd [2016] NSWCA 37; (2016) 333 ALR 524, Payne JA (with whom Gleeson and Leeming JJA agreed) summarised the no conflict and no profit rules as follows (at [105]): "A fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is a conflict, or a real or substantial possibility of a conflict, between the personal interest of the fiduciary and those to whom the duty is owed … A conflict arises if there is a real and sensible possibility that the personal interests of the fiduciary divide the loyalty of the fiduciary with the result that he or she could not properly discharge their duties to the beneficiary. …" [citations omitted]
The no conflict rule has a strict application when it applies in the sense that, if a transaction has occurred in conflict of interest, a company director cannot avoid a breach of that rule by asserting the fairness of the transaction or that it was in the company's best interests or that the director was not acting with subjective dishonesty.
The Plaintiffs plead (FASC [77]) that, by reason of his role in the Scheme, Mr Jones did not act in good faith and in the best interest of AWW, AWE, or both, or for a proper purpose; improperly used his position as an officer of AWW, AWE, or both, to gain an advantage for each or all of AW Exports, Mr Bhojani, Mr Broxom and Mr Kaufman; improperly used his position to cause detriment to AWW, AWE, or both; improperly used information obtained in his capacity as an officer of AWW, AWE, or both, to cause detriment to AWW, AWE, or both; did not act honestly, in furtherance of and to advance the interests of AWW, AWE, or both, and depreciated the value of the Business (as defined); and did not act in the interests of AWW, AWE, or both, and the general body of creditors, including TCA.
I am satisfied that the pleaded breach of fiduciary duties is established against Mr Jones, where he was at least acting against AWW's interests in assisting Eigigu to formulate the terms of and bring about a termination of the MSA, notwithstanding, as I noted above, that assistance was likely unnecessary and that termination would likely have occurred without it. I will address the relief sought against Mr Jones and other Defendants below.

Claim for accessorial liability for breach of statutory duties and knowing involvement in breach of fiduciary duty against Mr Bhojani

I have referred above to the pleading of the elements of the "Scheme". The Plaintiffs plead (FASC [47]) that, from at least 22 December 2013, Mr Bhojani was aware that, by his involvement in the Scheme, Mr Jones was breaching his duties owed to AWW or AWE, or both; AWW was incapable of repaying its debt to a company associated with Mr Bhojani; TCA was not willing to extend further credit to AWW; AWW's "creditors [were] being subordinated" to those of Mr Bhojani or entities with which he was associated; AWW or AWE, or both, were incapable of continuing to trade without the MSA; and that participation in AW Exports was motivated by a desire to recover his, or entities related and/or controlled by him, losses from AWW, which by implication, would see him obtain a benefit not available to all creditors of AWW or AWE, or both.
The Plaintiffs plead (FASC [91]-[97]) that, by reason of Mr Bhojani's role in the Scheme as pleaded in specified paragraphs, he had, within the meaning of s 79 of the Corporations Act, aided and abetted the contraventions of the Act alleged against Mr Jones, or been knowingly concerned in or party to those contraventions, or conspired with others to effect those contraventions; he had actual knowledge of the essential matters comprising Mr Jones' breach of duties; and he thereby contravened ss 181-183 of the Act, and is liable to compensate AWW or AWE or both under s 1317H of the Act.
Turning now to the applicable legal principles as to accessorial liability for a breach of statutory director's duties, the words "aided" and "abetted" in paragraph (a) of the definition of "involved in a contravention" in s 79 of the Corporations Act have the same effect and refer to a person who takes some part in the contravention, and requires that that person had knowledge of the essential matters which made up the contravention, whether or not he or she knew that those matters were in law a contravention: Yorke v Lucas (1985) 158 CLR 661 at 668; Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2) [2005] NSWSC 267; (2005) 53 ACSR 305 at [115]. A person will be knowingly concerned in or party to a contravention within the meaning of paragraph (c) of this definition if he or she is an intentional participant in the contravention, and this also requires that he or she have knowledge of the essential elements of the contravention which must exist at the time of the alleged contravention: Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2), above at [108]-[118]; Digital Cinema Network Pty Ltd v Omnilab Media Pty Ltd (No 2) [2011] FCA 509 at [170]-[171]; and see also the summary of the relevant principles in Australian Securities and Investments Commission v Gallop International Group Pty Ltd [2019] FCA 1514 at [254]. Knowledge of the essential elements of the contravention may be inferred from the fact that the person is exposed to the obvious, but constructive knowledge is not sufficient: Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No 2), above at [112].
The Plaintiffs also plead (FASC [119]) that, together with Mr Jones, Mr Bhojani designed and "project managed" the carrying out of the Scheme. I accept that Mr Bhojani was involved, with Mr Jones, in procuring the prompt termination of the MSA so that a new contract could be issued to AW Exports in which he then hoped to have an interest, although he ultimately did not acquire that interest until some months later. The Plaintiffs plead (FASC [120]-[121]) that, by reason of specified matters, Mr Bhojani had actual knowledge of, or at least was wilfully blind to, the Scheme and the breaches of fiduciary duty by Mr Jones that were and would be occasioned by the carrying out of the Scheme. The Plaintiffs also plead that Mr Bhojani's knowledge of the Scheme is established (FASC [122]-[123]) to lesser standards. The Plaintiffs plead (FASC [124(a)]) that Mr Bhojani is liable to AWW or AWE, or both, to compensate it for the loss and damage suffered by AWW or AWE, or both, as a result of the implementation of the Scheme. The Plaintiffs also plead (FASC [124(b)]) that Mr Bhojani is liable to disgorge all benefits received by him from his participation in the dishonest and fraudulent design. The Plaintiffs also plead (FASC [124(c)]) that Mr Bhojani is liable to disgorge all benefits received by each or all of AW Exports, Mr Broxom and Mr Kaufman from his participation in the dishonest and fraudulent design.
A third party may be held liable under the second limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244 if he or she knowingly assists a director in a transaction which is in breach of duty to the company. In Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, the High Court emphasised (at [179], [183]) that its earlier decision in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; 5 ALR 231 established a requirement that any breach of trust or breach of fiduciary duty relied on to establish liability for knowing assistance must be dishonest and fraudulent, so that the impugned conduct must involve circumstances attracting a degree of opprobrium beyond an innocent breach of trust or duty. In Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324; (2014) 101 ACSR 415 at [30], Macfarlan JA (with whom McColl and Gleeson JJA generally agreed) referred, without disapproval, to the trial judge's treatment of Farah Constructions Pty Ltd above as authority that the elements of a knowing assistance claim were (1) a dishonest and fraudulent breach of duty by the fiduciary; (2) knowledge of that dishonest and fraudulent breach by a third party; and (3) assistance in that breach by that third party, and also referred to Consul Developments above as authority that conduct may be "dishonest and fraudulent" for the purposes of liability for knowing assistance where it can be described, in ordinary language, as morally reprehensible. In Hasler v Singtel Optus Pty Ltd [2014] NSWCA 266; (2014) 87 NSWLR 609; 101 ACSR 167, Leeming JA held (at [124], Barrett and Gleeson JJA agreeing) that, in order to establish knowing assistance, a breach of trust must be dishonest as well as fraudulent, with dishonesty amounting to "a transgression of ordinary standards of honest behaviour", although it is not necessary to demonstrate that the relevant individual "thought about what those standards were".
Mr Lucarelli opened the Plaintiffs' knowing assistance claim on the basis that the "overall scheme" was a fraudulent and dishonest design by Mr Jones to defraud the Plaintiffs' creditors, and in particular its secured creditors, of the Plaintiffs' core business, and that each other Defendant had the requisite degree of knowledge and participation in that design to be liable to equitable relief. The Plaintiffs submit, and I accept, that the breaches of duty found against Mr Jones had a dishonest character, and, as I noted above, Mr Jones' emails indicate a consciousness of wrongdoing in that respect. The relevant conduct can fairly be described as conduct that is "morally reprehensible" "morally culpable" or as transgressing "ordinary standards of honest behaviour": Ramsay v BigTinCan Pty Ltd above; Re Waterfront Investments Group Pty Ltd (in liq) [2015] NSWSC 18 at [126]; Hasler v Singtel Optus Pty Ltd above at [124]; Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd [2018] HCA 43; (2018) 360 ALR 1; (2018) 130 ACSR 359 at [71].
Mr Lucarelli submits that Mr Bhojani had actual knowledge and "practical involvement in the acts or omissions constituting the contravention", so as to give rise to liability under s 79 of the Corporations Act: Re Waterfront Investments Group Pty Ltd (in liq) above at [125]. Mr Lucarelli also submits that Mr Bhojani had "actual knowledge" of the relevant facts and knowingly participated in Mr Jones' contraventions, so as to give rise to knowing involvement under s 79 of the Corporations Act. He submits that, to the extent that accessorial liability required a "link in purpose" or an "intention to participate", that was supplied by Mr Bhojani's knowledge of and respective contributions towards the Scheme. He submits, and I accept, that, where Mr Bhojani did not give evidence, the Court may infer that his evidence would not have assisted him, and more readily draw inferences as to his knowledge and involvement in events that arise from the other evidence.
Mr DeBuse, who appeared for Mr Bhojani, made submissions in opening as to the state of Mr Bhojani's knowledge of issues with AWW and his concerns with AWW which depended on evidence that was ultimately not led from Mr Bhojani. I disregard those submissions. Mr DeBuse also submitted, and I accept, that it would have been obvious to anyone with an interest in AWW's future that the appointment of a receiver to AWW would give Eigigu the right to terminate the MSA and that steps to continue that contract were not available to AWW without funding from the receivers or their appointors. Mr DeBuse submits that there is no evidence that the receivers had any intention of carrying on the MSA or making the January shipment; in fact, as I have noted above, there is evidence that they determined not to do so.
Mr DeBuse submits that the decision to terminate the MSA was Eigigu's and that Eigigu was free to assess whether it saw a commercial benefit in such a termination. It is plain that Eigigu had the right to terminate the MSA and that it would likely be in its commercial interests to do so at some point. However, the evidence to which I have referred indicates that Mr Jones and Mr Bhojani together procured termination of the MSA, at the time and in the manner that it was terminated. Mr Bhojani did not give evidence to the contrary, nor seek to lead evidence from Eigigu to the contrary. Mr DeBuse also submits that there is no allegation that Mr Bhojani's alleged inducement of the termination of the MSA was "illegal or for some reason impermissible". That is not to the point, since it is alleged that Mr Bhojani associated himself, with knowledge, with Mr Jones' breach of his duties to AWW, and the evidence to which I have referred above establishes that allegation.
In closing submissions, Mr DeBuse submits that nothing was devised and managed by Messrs Jones and Bhojani together as they did not act together or in the same interest, and the Court should conclude that Mr Jones acted for his own purposes, and saw a benefit to AWW and AWE in doing so, and Mr Bhojani acted in the hope of an opportunity which was evidently going to arise, because of the receivership and Eigigu's existing contractual rights as to termination. While that proposition is plausible, and Messrs Jones and Bhojani may well have had different motivations, I find that they acted together in promoting the termination of the MSA, in the light of the correspondence coordinating their respective actions, and where neither of them gave evidence to seek to displace that inference.
In closing submissions, Mr DeBuse also submits that the termination of the MSA was the decision of Eigigu, a company owned by the Nauru Government, and that the influence of Mr Bhojani established by the evidence was not more than that of a "well placed and trusted advisor". It is ultimately not necessary to reach a finding as to that proposition, where the case against Mr Bhojani is that he was an accessory to or knowingly involved in Mr Jones' breach of duty to AWW in that regard. Where his involvement had that character, it does not matter whether he directed or merely influenced the steps taken by Eigigu. Mr DeBuse also submits that, assuming that some part of Mr Jones' conduct was in breach of duty, he did nothing and conveyed nothing and implemented nothing that Mr Bhojani was not entitled to do on his own behalf. That submission does not seem to me to be to the point, where the allegation is not that Mr Bhojani breached a duty that he owed to AWW and AWE, but instead that he was an accessory to Mr Jones' breach of such a duty. It is not to the point that, had Mr Bhojani acted differently, he may not have been exposed to liability.
I am satisfied, on the basis of the factual findings that I reached above, that Mr Bhojani's knowing involvement in Mr Jones' breach of statutory director's duties and his knowing assistance to Mr Jones' breach of his fiduciary duties has been established. However, the claim for compensation, an account of profits or other relief against Mr Bhojani must fail where the Plaintiffs have not established the pleaded loss, damage and benefits to AW Exports or other Defendants, for the reasons noted below.

Claims against Messrs Kaufman and Broxom Claim for accessorial liability for breach of statutory duties against Messrs Kaufman and Broxom

I now turn to the claims against Messrs Broxom and Kaufman. The Plaintiffs plead (FASC [48]) that, from at least 22 December 2013, Mr Broxom was aware that, by his involvement in the pleaded Scheme, Mr Jones was breaching his duties owed to AWW or AWE, or both; AWW was incapable of repaying its debt to Broxom Investments Pty Ltd; TCA was not willing to extend further credit to AWW; AWW or AWE, or both, were incapable of continuing to trade without the MSA; and that participation in AW Exports was motivated by a desire to recover his losses from AWW, which by implication, would see him obtain a benefit not available to all creditors of AWW or AWE, or both. The Plaintiffs plead (FASC [49]) the same matters against Mr Kaufman, omitting the reference to Broxom Investments Pty Ltd.
The Plaintiffs then plead (FASC [98]-[104]) that, by reason of Mr Broxom's role in the Scheme as pleaded in specified paragraphs, he had, within the meaning of s 79 of the Corporations Act, aided and abetted the contraventions of the Act alleged against Mr Jones, or been knowingly concerned in or party to those contraventions, or conspired with others to effect those contraventions; he had actual knowledge of the essential matters comprising Jones' breach of duties; and he thereby contravened ss 181-183 of the Act and is liable to compensate AWW or AWE or both under s 1317H of the Act. The Plaintiffs plead (FASC [105]-[111]) essentially the same matters against Mr Kaufman. I have referred to the applicable principles in dealing with the corresponding claim against Mr Bhojani above.
Mr Lucarelli submitted that Messrs Kaufman and Broxom had actual knowledge of the relevant facts and knowingly participated in Mr Jones' contraventions, so as to give rise to knowing involvement under s 79 of the Corporations Act. He submitted that, to the extent that accessorial liability required a "link in purpose" or an "intention to participate", that was supplied by their knowledge of and respective contributions towards the Scheme. Mr Faulkner and Mr Davis respond and I accept, that regard must be made to the gravity of the matters alleged against Messrs Kaufman and Broxom in determining whether those matters are proved to the civil standard, under s 140 of the Evidence Act, reflecting the principle in Briginshaw v Briginshaw (1938) 60 CLR 336 at 362; see also Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170 at 170-171. They also submit, and I accept, that in order to establish accessorial liability for breach of a director's statutory duties, the accessory must be shown to have had actual knowledge of the elements essential to the breach of duty: Giorgianni v R (1985) 156 CLR 473 at 506-507. They also submit, and I accept, that the forms of statutory involvement specified in s 79 of the Corporations Act each require that a defendant have knowledge of all elements necessary to constitute a contravention by a primary wrongdoer: Yorke v Lucas above at 667-670; Young Investments Group Pty Ltd v Mann (2012) 91 ACSR 89 at [11]. They submit, and I accept, that the essential elements of the pleaded contravention by Mr Jones, in his involvement in the pleaded Scheme, included orchestrating the termination of the MSA.
I now turn to the factual matters on which the Plaintiffs rely in respect of this claim and their claim that Messrs Kaufman and Broxom were knowingly involved in Mr Jones' breach of fiduciary duty, which I will address together. Mr Lucarelli submits that Messrs Kaufman's and Broxom's conduct, after their meeting on 23 December 2013, to set up another company is such as to "defy any rational explanation unless both knew the MSA was about to be cancelled and awarded to the 'separate private company' the subject of multiple emails the day before". I also do not accept that submission. It seems to me that, without such knowledge, Mr Kaufman could readily infer, as he claims to have inferred, that AWW's likely failure to make the January shipment would cause Eigigu to terminate the MSA, and another company that was then in a position to provide such supply would be well placed to acquire a new contract. All of the subsequent steps to which Mr Lucarelli refers are readily explicable on that basis.
Mr Lucarelli points out that Mr Kaufman received, read and responded to several emails from Mr Jones on 21-23 December 2013 and was aware of the suggestion that a new entity could be established to take up a new contract with Eigigu, if the MSA was terminated. Mr Lucarelli contends that Mr Kaufman's claim that he did not know of Messrs Jones' and Bhojani's steps to cause the termination of the MSA "does not withstand scrutiny". First, Mr Lucarelli submits that Mr Kaufman must have known of that conduct, because his actions to set up a new company were only explicable by a belief that the MSA was to be cancelled "imminently". I do not accept that submission, and note those actions were readily explicable by a belief that the MSA would likely be terminated in the near future, by reason of AWW's failure to perform its requirements. I have pointed to the commercial logic that supports such a belief above. Mr Lucarelli also points to Mr Kaufman's acknowledgement that he knew that Mr Jones would advise Eigigu of the appointment of a receiver by TCA. It does not seem to me that that knowledge can support an inference of knowledge of any impropriety, where it cannot be contended that AWW should have concealed the appointment of a receiver from Eigigu. Alternatively, Mr Lucarelli submits that Mr Kaufman had sufficient knowledge to establish accessorial liability, falling short of actual knowledge. I do not accept that submission, where the commercial likelihood of termination of the MSA provided sufficient explanation for Mr Kaufman's conduct, and would not put him to inquiry as to existence of some parallel scheme to "orchestrate" the termination of the MSA.
Mr Lucarelli also submitted, in closing, that Mr Broxom had actual knowledge of Mr Jones' breach, namely that Messrs Jones and Bhojani had "orchestrated the termination" of the MSA to divert that contractual relationship to AW Exports. Mr Lucarelli submits that Mr Kaufman told Mr Broxom all about the "Scheme" at their meeting on 23 December 2013. I do not accept that submission, where it has not been established that Mr Kaufman had actually become aware of the details of the Scheme. Mr Lucarelli submitted that Mr Broxom's evidence on cross-examination, including his denial of various matters, would give the Court cause to doubt the reliability of his affidavit evidence. I do not accept that submission, where Mr Broxom's evidence that he did not read particular emails over the weekend and his explanation of that course is plausible. In any event, the Plaintiffs have not established Mr Broxom's knowledge of relevant matters, and it is not necessary to accept Mr Broxom's denial of those matters in order to reach that conclusion. Alternatively, Mr Lucarelli submitted that Mr Broxom had maintained a calculated abstention from inquiry concerning how the diversion of the MSA into a new entity would be carried out. l also do not accept that submission, for the same reasons I did not accept that submission in respect of Mr Kaufman.
In summary, these claims must fail because the findings of fact that I have reached above do not support a finding, still less to the Briginshaw standard reflected in s 140 of the Evidence Act, that Messrs Broxom and Kaufman had actual knowledge of the essential features of the pleaded Scheme, which at least include the orchestrated termination of the MSA, or had associated themselves with that conduct. The Plaintiffs did not establish that Messrs Jones and Bhojani had disclosed the communications between them or their intent to Messrs Kaufman and Broxom, and there is no reason to expect they would have done so. As I noted above, the conduct of Messrs Kaufman and Broxom in setting up a new company is at least equally consistent with an anticipation that Eigigu would likely terminate the MSA when AWW failed to deliver the January shipment, as it was evident would occur. These claims must also fail where the Plaintiffs have not established the pleaded loss, damage and benefits to AW Exports or other Defendants, for the reasons noted below. Claim for knowing assistance in a dishonest and fraudulent design against Messrs Broxom and Kaufman
The Plaintiffs plead (FASC [125]-[128]) that, by reason of specified matters, Mr Broxom had actual knowledge of, or alternatively was wilfully blind to, or wilfully and recklessly failed to make inquiries as to, the Scheme and the breaches of fiduciary duty by Jones that were and would be occasioned by the carrying out of the Scheme; or had knowledge of the facts that would indicate to an honest and reasonable person in Mr Broxom's position that the carrying out of the Scheme would involve Mr Jones breaching his fiduciary duties to AWW or AWE, or both. The Plaintiffs plead the same matters against Mr Kaufman (FASC [130]-[133]). The Plaintiffs plead that Messrs Broxom (FASC [129(a)]) and Kaufman (FASC [134(a)]) are liable to AWW or AWE, or both, to compensate it or them for the loss and damage suffered by AWW or AWE, or both, as a result of the implementation of the Scheme. The Plaintiffs also plead that each of Messrs Broxom (FASC [129(b)]) and Kaufman (FASC [134(b)]) are liable to disgorge all benefits received by them from their participation in the dishonest and fraudulent design. The Plaintiffs also plead that Mr Broxom is liable to disgorge all benefits received by each or all AW Exports, Mr Bhojani and Mr Kaufman from his participation in the dishonest and fraudulent design (FASC [129(c)]) and that Mr Kaufman is liable to disgorge all benefits received by each or all of AW Exports, Mr Bhojani and Mr Broxom from his participation in the dishonest and fraudulent design (FASC [134(c)]). I have addressed the applicable legal principles in respect of this claim, and the nature of Mr Jones' breach of duty, in dealing with the corresponding claim against Mr Bhojani above.
I have referred to the matters on which Mr Lucarelli relied to establish Messrs Kaufman's and Broxom's knowledge of Mr Jones' conduct in dealing with the Plaintiffs' claim for accessorial liability in respect of a breach of statutory director's duties above. In closing submissions, Mr Lucarelli also referred to the recognition of the several levels of knowledge that may support liability under Barnes v Addy above, as summarised by the Full Court of the Federal Court in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 at [261]. Mr Faulkner and Mr Davis respond, and I accept, that liability for knowing assistance under Barnes v Addy above requires that the Plaintiffs prove that Messrs Broxom and Kaufman knew the elements necessary to establish the alleged dishonest and fraudulent design on the part of Mr Jones: Consul Development Pty Ltd v DPC Estates Pty Ltd above. Mr Faulkner and Mr Davis submit that the evidence does not support the necessary finding of fact that Messrs Broxom and Kaufman knew of an essential element of the Scheme, the orchestration of the termination of the MSA. Mr Faulkner and Mr Davis also point out that a claim for knowing assistance also requires that a defendant intended that his or her assistance would further a fiduciary's fraudulent and dishonest design: Digital Cinema Network Pty Ltd v Omnilab Media Pty Ltd (No 2) above at [177]. They submit that the more plausible analysis in this case is that, while there was some overlap between Mr Broxom's and Mr Kaufman's activities and the proposals put by Mr Jones, they were not assisting with the alleged Scheme or with Mr Jones' breach of duty, where they had not been informed of the essential element involving the orchestrated termination of the MSA.
I have addressed the evidence dealing with these claims in the chronology of events set out above and in respect of the claim against Messrs Broxom and Kaufman for accessorial liability to a breach of statutory director's duties. The claims for knowing involvement in a breach of fiduciary duty must also fail against Messrs Broxom and Kaufman, because they are not shown to have the requisite knowledge of the essential features of the Scheme, at any of the levels contemplated by the case law to which I have referred above. These claims must also fail where the Plaintiffs have not established the pleaded loss, damage and benefits to AW Exports or other Defendants, for the reasons noted below.

Claim against AW Exports Claim for accessorial liability for breach of statutory duties against AW Exports

The Plaintiffs plead (FASC [84]-[90]) that, by reason of AW Exports' role in the Scheme as pleaded in specified paragraphs, AW Exports has, within the meaning of s 79(a) of the Corporations Act, aided and abetted the contraventions of the Act alleged against Mr Jones, or been knowingly concerned in or party to those contraventions, or conspired with others to effect those contraventions; had actual knowledge of the essential matters comprising Mr Jones' breach of duties; was involved in Mr Jones' breach of duties and thereby itself contravened ss 181-183 of the Act; and is liable to compensate AWW or AWE or both under s 1317H of the Act.
Mr Faulkner and Mr Davis respond that the case against AW Exports can rise no higher than the case against Messrs Broxom and Kaufman, since they were the only directors of AW Exports during the relevant period, up to early 2015. They submit that the failure of claims for accessorial liability against Messrs Broxom and Kaufman has the consequence they must also fail against AW Exports.
I have referred to the applicable principles in dealing with the corresponding claims against Mr Bhojani and Messrs Broxom and Kaufman above. While this allegation could have been put in various ways, or limited to involvement in acts taken by AW Exports which took the benefit of AWW's or AWE's resources, it was put in a way that depended on establishing AW Exports' knowledge of each of the essential matters comprising the Scheme which is alleged to have given rise to Mr Jones' breach of duty. Put in that way, the claim must fail because the Plaintiffs did not establish that Messrs Kaufman and Broxom and, through them, AW Exports, had knowledge of the essential aspects of the Scheme. Claim for knowing receipt against AW Exports
The Plaintiffs then plead (FASC [112A]) that, as a result of the implementation of the Scheme, by no later than 4 February 2014 (being the date of a new supply agreement with Eigigu), AW Exports had the benefit of the trading account with Eigigu, being the trading account previously enjoyed by AWW; AW Exports had the use and benefit of so much of the Plaintiffs' Intellectual Property and Confidential Information (as defined) as AW Exports needed to service the Eigigu trading account; and, at all material times up to and including 4 February 2014, AW Exports was owned and controlled by Messrs Bhojani, Kaufman and Broxom; its knowledge of the Scheme was the knowledge of its directors, Messrs Kaufman and Broxom; and it was the corporate vehicle through which Messrs Jones, Bhojani, Broxom and Kaufman facilitated the implementation of the Scheme.
The Plaintiffs also plead (FASC [112B]) that, by no later than 4 February 2014, AW Exports had received and had the use and benefits of the MSA previously enjoyed by the Plaintiffs, and knew that such benefits had been received as the result of the Scheme and of Mr Jones' breaches of his fiduciary obligations to the Plaintiffs. The Plaintiffs plead (FASC [112C]) that AW Exports has received the benefit of the new supply agreement with Eigigu in circumstances where it and each of its directors had knowledge that such benefits were being bestowed on AW Exports as a result of Mr Jones' breaches of his fiduciary obligations to the Plaintiffs, within the first limb of Barnes v Addy above. They also plead (FASC [112D] that, as the corporate vehicle through which Messrs Jones, Bhojani, Broxom and Kaufman facilitated the implementation of the Scheme, each of Messrs Bhojani, Broxom and Kaufman have, as the promoters, owners and controllers of AW Exports, themselves constructively received the benefit of the new supply agreement with Eigigu in circumstances where each had knowledge that such benefits were being bestowed on AW Exports as a result of Mr Jones' breaches of his fiduciary obligations to the Plaintiffs, within the first limb of Barnes v Addy above.
Under the first limb of the rule in Barnes v Addy above, a person who receives company property from a director will hold it on trust for the company if he or she knows, or the circumstances are such that he or she ought to know, that the director is acting in breach of duty in respect of the relevant transaction. In Kalls Enterprises Pty Ltd (in liq) v Baloglow [2007] NSWCA 191; (2007) 63 ACSR 557 at [152]-[159], the Court of Appeal examined the case law in which the first limb of Barnes v Addy above had been applied to a breach of fiduciary duty by a company director and held that line of authority was to be followed until the High Court said otherwise. In order to succeed in a claim for knowing receipt, the Plaintiffs must establish the relevant breach of fiduciary duty by Mr Jones, as they have; and that AW Exports received the relevant property by reason of the breach of duty and, at the time of receiving that property, knew of the "trust" (or duty) and of the misapplication of the relevant property: Farah Constructions Pty Ltd v Say-Dee Pty Ltd above; Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; (2012) 44 WAR 1; Grimaldi v Chameleon Mining NL (No 2) above; Gordon in his capacity as liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) [2015] NSWSC 397 at [61].
Mr Lucarelli opened the Plaintiffs' knowing receipt case against AW Exports on the basis that AW Exports "received" the MSA and took the benefits of other aspects of AWW's business. He also submitted that the receipt or use by AW Exports of the MSA and other aspects of the business was in substance the "constructive" receipt or use of that property by each of Messrs Bhojani, Broxom and Kaufman, although no allegation of knowing receipt was pleaded against them. He also submitted, without reference to authority, that equity would go behind the "corporate veil" of AW Exports in that respect. In closing submissions, Mr Lucarelli submits that the receipt of a new supply agreement by AW Exports constitutes a constructive receipt of property by Messrs Broxom and Kaufman because AW Exports was their "alter ego". That submission does not assist the Plaintiffs, because AW Exports did not receive property of AWW in the relevant circumstances. Mr Lucarelli also submits that Messrs Kaufman and Broxom's knowledge of the Scheme is imputed to AW Exports such that it became a knowing recipient of the MSA within the first limb of Barnes v Addy. That submission must fail, first, because AW Exports did not receive the MSA and, second, because the Plaintiffs have not established the requisite knowledge of Messrs Kaufman and Broxom of the alleged Scheme.
Mr Faulkner and Mr Davis submit that the Plaintiffs' claim for knowing receipt must fail, because it depends on AW Exports having received some part of AWW's property, relevantly the MSA. Mr Faulkner and Mr Davis point out that did not occur because that agreement was terminated on 23 December 2013, and any accrued rights and obligations of AWW remained with AWW, including any liability of Eigigu in respect of unpaid charges, and AW Exports entered into a new contract with Eigigu rather than receiving any of AWW's property.
The Plaintiffs did not establish the essential elements of this claim. The evidence does not establish the matters pleaded in paragraph 112A, parts of which reflected a confidentiality claim that the Plaintiffs abandoned. AW Exports was owned and controlled only by Messrs Kaufman and Broxom in the relevant period and, so far as it is alleged to have their knowledge, is not shown to have known of all the elements of the alleged "Scheme". AW Exports did not receive or use or benefit from the MSA, which was terminated, and entered a new agreement on different terms. It was not established that AW Exports or its directors knew that the new supply agreement between AW Exports and Eigigu was bestowed on AW Exports as a result of Mr Jones' breach of duty, where the more likely inference was that it was made available to AW Exports by reason of AWW's and AWE's insolvency and the fact that the receivers appointed by TCA had taken no steps towards the continued supply of goods to Eigigu, including in respect of the January shipment. AW Exports is not properly characterised as the corporate vehicle through which Messrs Jones, Bhojani, Broxom and Kaufman "facilitated the implementation of the Scheme", where Messrs Jones and Bhojani had no interest in it at the relevant time and Messrs Broxom and Kaufman have not been shown to have known of the essential elements of the Scheme. Claim for knowing assistance in a dishonest and fraudulent design against AW Exports
The Plaintiffs also plead, as I noted above, that the Scheme comprised a dishonest and fraudulent design of each, or all, of Messrs Jones, Serhan, Bhojani, Broxom and Kaufman, to wrongfully procure the termination of the MSA and secondly, the award of a new supply contract to AW Exports, within the meaning of the second limb of Barnes v Addy above. The reference to Mr Serhan here reflects a case the Plaintiffs abandoned and the allegation in respect of involvement in the Scheme has been established only against Messrs Jones and Bhojani. The Plaintiffs pursue a claim for knowing assistance against AW Exports on this basis. The Plaintiffs also plead (FASC [113]) that AW Exports was the corporate vehicle through which Messrs Jones, Bhojani, Broxom and Kaufman facilitated the implementation of the Scheme. That allegation invokes authority that a third party which is the corporate creature or alter ego of a fiduciary who acted in breach of duty can also be held to be knowingly involved in that breach without the need to separately establish dishonesty on its part: Grimaldi v Chameleon Mining NL (No 2) above at [243]. That principle does not apply where AW Exports was plainly not the corporate creature or alter ego of Mr Jones, the defaulting fiduciary, who had no interest in it. Other pleaded aspects of that allegation have also not been established where it has not been shown that Mr Bhojani had an interest in AW Exports at the relevant time or that Messrs Broxom or Kaufman were either defaulting fiduciaries or party to the essential elements of the Scheme.
The Plaintiffs also allege (FASC [114]-[117]) knowing involvement on the basis that, by reason of specified matters, AW Exports had actual knowledge of, or alternatively was wilfully blind to, or wilfully and recklessly failed to make inquiries as to, the Scheme and the breaches of fiduciary duty by Mr Jones that were and would be occasioned by the carrying out of the Scheme; or had knowledge of the facts that would indicate to an honest and reasonable person in AW Exports' position that the carrying out of the Scheme would involve Mr Jones breaching his fiduciary duties to AWW or AWE, or both. I do not accept that AW Exports has been shown to be knowingly involved in Mr Jones' breach given the limits of the knowledge of AW Exports' then directors and shareholders, Messrs Broxom and Kaufman, and the fact that a reasonable person would not have had cause for inquiry where the termination of the MSA was an obvious and likely consequence of AWW's and AWE's insolvency and its receivers then not taking steps to make the January shipment. I will address the relief sought against AW Exports and other Defendants below.

Relief sought by the Plaintiffs Quantification of the Plaintiffs' claims

I first address the parties' submissions and the evidence as to the quantification of the Plaintiffs' claims generally and then turn to the claims against the several Defendants. Mr Lucarelli refers to applicable causation principles, including the recent review of those principles by Stevenson J in Kerr v Australian Executor Trustees (SA) Ltd [2019] NSWSC 1279 and the observations of Gageler J in Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd above at [88] and of Elliott J in Ahrkalimpa Pty Ltd v Schmidt (No 3) [2019] VSC 197. It is not necessary to address the question of causation in detail, given the findings I reach below on other grounds. I accept that, but for the breach of duty by Mr Jones, the MSA would not have been terminated in the particular manner in which it was terminated, although it would likely have been terminated shortly thereafter, by reason of AWW's failure to make the January shipment.
In opening, Mr Lucarelli indicated that the primary relief claimed by the Plaintiff was equitable compensation, by reference to: "[T]he loss of the gross profit the plaintiffs would have received in carrying on the Nauru supermarket supply business. The term 'gross profit' means gross sales revenue less costs of goods sold, before all other expenses."
Mr Lucarelli also submitted that: "If there had been no breach the plaintiffs would have continued their business of selling goods into Nauru at a gross profit (i.e., for more than the plaintiffs paid for the goods)."
Mr Faulkner and Mr Davis respond that, even apart from the difficulties with AWW's financial ability to perform the MSA, including making the January shipment, the evidence led by the Plaintiffs established that AWW had ceased trading as a result of the appointment of the TCA receivers (Palmer 9.1.17 [15]; Ex J1, 946-947 [5.2]). Mr Faulkner and Mr Davis submit that the inevitable termination of the MSA may be inferred from those matters.
It seems to me that this aspect of the Plaintiffs' case is undermined by the fact that, as I noted above, the receivers appointed by TCA elected not to continue AWW's trading business with Eigigu (although they maintained a more limited business for a period) or progress the January shipment or otherwise comply with its obligations under the MSA from the date of their appointment, apparently by reason of AWW's lack of capital to conduct that business and its insolvency. Any assessment of compensation claimed by the Plaintiffs would have had to take account of the likelihood, or certainty, that Eigigu would have terminated the MSA where AWW (by its receivers) did not propose to perform those obligations. The Plaintiffs' case appears to make the highly implausible assumption that, but for any conduct by Mr Jones, Eigigu would have accepted AWW's failure to make the January shipment, and the consequential impact on its supermarket and customers, without exercising its contractual rights to terminate that contract and obtain another supplier or supplies.
Mr Kaufman's evidence, in his first affidavit, was that the contract between AW Exports and Eigigu was a loss making contract for AW Exports (Kaufman 12.10.17 [83]ff) and he referred to the profit and loss statements of AW Exports for the period of the contract. He also referred (Kaufman 12.10.17 [86]) to the poor financial performance of the supply agreement between Eigigu and AW Exports, resulting from non-payment by Eigigu of invoices issued by AW Exports, and addressed the performance of that supply agreement in each of the relevant financial years, and the write-off of the bad debts in respect of unpaid invoices issued to Eigigu over the period. Mr Kaufman also referred to the issue by AW Exports of a notice of dispute under its supply agreement with Eigigu in respect of unpaid invoices in excess of $2.5 million for the period up to and including August 2017 and interest in excess of $1.4 million up to and including 31 August 2017.
By a further affidavit dated 5 September 2019, Mr Kaufman updated the position in respect of the dispute between AW Exports and Eigigu and referred to the entry into a Deed of Settlement dated 22 March 2018, which required Eigigu to pay an amount exceeding $3.2 million to AW Exports in settlement of the dispute, in monthly instalments with a first instalment to be paid on 1 April 2018. Mr Kaufman noted that, by October 2018, Eigigu had paid only one monthly instalment payable under that deed of settlement, and had not paid several invoices issued by AW Exports for shipments since March 2018, and to adverse tax implications for AW Exports arising from the structure of that Deed, if it was taxable on amounts that Eigigu did not pay under that arrangement. Mr Kaufman also referred to a second deed entered into between AW Exports and Eigigu on 27 November 2018, which required Eigigu to pay an amount of approximately $1.147 million to AW Exports, allowing a set-off of approximately $2.21 million to Eigigu in respect of matters that did not relate to the supply agreement between AW Exports and Eigigu.
Mr Kaufman also undertook an updated analysis of the performance of the supply agreement between Eigigu and AW Exports for the July 2016 to June 2017 period, on the basis that approximately 50% of the total operating expenses of AW Exports was to be allocated to the performance of the supply agreement with Eigigu, and referred to the write-back of bad debts by AW Exports in the financial year ended 30 June 2019 in the amount of $1,300,445, accounting for the settlement reached with Eigigu as recorded in the second deed. Mr Kaufman noted that, by the date of that affidavit, Eigigu had again fallen behind in payments under the second deed. Mr Kaufman's analysis, on the basis set out in that affidavit, was that the supply agreement between Eigigu and AW Exports had generated a loss of $913,687 after tax for AW Exports in the financial years 2014 to 2019. I address an alternative analysis developed by the Plaintiffs in cross-examination of Mr Kaufman and in closing submissions below.
The accounting expert retained by the Plaintiffs, Ms Thomson, noted that she was instructed by the Plaintiffs' solicitors to give particular attention to invoices issued by AW Exports to Eigigu and sums of money paid by Eigigu into AW Exports' bank account. Her report sought to assess the "economic benefit" gained by the Defendants as (Ex P2, [3.1.3]): "… measured by the gross profits, representing the revenue reduced by costs of sales, generated by AW Exports and the funds received by the other Defendants as a result of the Scheme and evidenced by invoices and bank accounts". There are at least two difficulties with that approach. First, it adopts a definition of profit which allows only for AW Exports' cost of sales and not for other costs incurred in its business, and, second, it measures the "benefits" gained by other Defendants by reference to the benefit gained by AW Exports.
Ms Thomson did not separately assess any loss suffered by AWW and AWE and expressed the view (Ex P2, [3.1.4]) that: "For the purpose of the Engagement, given the economic benefit gained by the Defendants as a result of the Scheme is the consequence of the termination of the MSA, the quantum of damages suffered by the Plaintiffs is virtually the economic benefit gained by the Defendants as a result of the Scheme." That proposition is plainly not correct. First, the loss suffered by the Plaintiffs must have regard to the value of the MSA, at a point they were insolvent, the receivers had not continued the conduct of their business, and it was very likely that Eigigu would terminate the MSA in the ordinary course, particularly after the Plaintiffs had failed to deliver the January shipment. Second, the benefit gained by the Defendants and the loss suffered by the Plaintiffs would not be the same, even if their respective incomes would have been the same, if their cost structures differed. That erroneous approach had the consequence that there was no expert evidence of substance led by the Plaintiffs as to the extent of any loss they had suffered.
Ms Thomson also made clear (Ex P2, [3.2.1]) that she had not taken "operating expenses" into account in her report, apparently on the basis that she was unable to ascertain whether they were incurred "as a result of the Scheme". Ms Thomson also assumed, apparently contrary to the fact, that sale transactions were completed when invoices were issued, because the bills of lading, airway bills or delivery notes that were made available to her were incomplete. She noted that the invoices she had reviewed were not consecutive, and that that may indicate missing invoices. She assumed that all invoices issued from AW Exports to entities situated in Nauru were related to the alleged "Scheme" and noted that the economic benefit gained by the Defendants may decrease if any of those invoices were not related to the "Scheme". That assumption was not established by evidence. Ms Thomson also expressly assumed (Ex P2, [3.2.12]) that delivery and inspection fees and service charges were passed on by suppliers to customers, and noted that the economic benefit gained by the Defendants may vary if those charges were not passed on or a mark-up not charged. There was also no evidence to establish that assumption.
Ms Thomson in turn calculated the "economic benefit" obtained by the Defendants, in the sense noted above, on three bases. The first scenario quantified by Ms Thomson refers to the "economic benefit" derived from invoices from AW Exports to Eigigu; the second refers to the "economic benefit" derived from invoices from AW Exports to Eigigu and also to other entities in Nauru, including the regional processing centre; and the third includes a bank account which is also identified as an account of AW Exports. Ms Thomson calculated the cost of sale and the gross profit on the relevant invoices, treating those as a measure of the economic benefit gained by the Defendants collectively, as distinct from AW Exports. Ms Thomson concluded her report by identifying a number of deficiencies or irregularities which needed to be addressed and limitations which needed to be resolved, and noted that the economic benefit gained by the Defendants may also vary upon those matters. Those issues were not addressed or resolved.
The First, Fourth and Fifth Defendants in turn relied on the report dated 14 May 2019 of Mr John McGuiness (Ex D1.2). Mr McGuiness notes, inter alia, that Ms Thomson's report does not provide a reasonable explanation of the concept of "economic benefit" that she adopts; does not account for inputs that are generally accepted in measures of economic benefits such as indirect costs, changes in working capital, capital expenditures, and income tax; does not provide an estimate of the net present value, discounted by the cost of capital, of the "economic benefit" of the new supply agreement as at 3 January 2014; and does not account for indirect costs attributable to the MSA (Ex D1.2, [2.3.9]). Mr McGuiness also points to inconsistencies in Ms Thomson's results, so far as she assesses a substantial "economic benefit" from the contract between AW Exports and Eigigu, while at the same time AW Exports' financial statements for each of the years 2014 to 2017 shows a loss before income tax, and that she does not seek to assess whether her estimates of that "economic benefit" are reasonable having regard to the actual financial performance of AW Exports. Mr McGuiness also points out, obviously enough, that the assumption underlying Ms Thomson's treatment of the gains to AW Exports and the loss to AWW and AWE as identical is implausible, since it is most unlikely that two entities would have the same cost structure attributable to a particular project, where that would depend upon the population of projects of an entity (Ex D1.2, [2.3.20]). Mr McGuiness also rightly notes that Ms Thomson's report identifies many express limitations, and Mr McGuiness expresses the view, which I accept, that the effect of those limitations is so pervasive that that report does not provide an unbiased estimate of the "economic benefit" of the new supply agreement or, I interpolate, of AWW's or AWE's or AW Exports' business generally. It seems to me that Mr McGuiness' criticisms of Ms Thomson's methodology are compelling, quite apart from the obvious difficulties of unproven assumptions and unresolved difficulties in Ms Thomson's analysis. I give no weight to Ms Thomson's calculation of the "economic benefit" derived by AW Exports, and I have noted above that her view that AWW's and AWE's loss is identical to the "economic benefit" obtained by AW Exports is plainly incorrect.
In closing submissions, Mr Faulkner and Mr Davis submit that the Plaintiffs cannot establish a claim for equitable compensation, or an account of profits, where there is no evidence that AWW or AWE made a profit from the MSA contract before it was terminated at the end of December 2013 and AW Exports made a loss on the new contract thereafter. Mr Faulkner and Mr Davis also submit that there is no basis for quantifying AW Exports' profit as "gross profit", in the manner undertaken by Ms Thomson, by reference to revenue less some but not all of the costs incurred to earn that revenue.
Mr Lucarelli in turn submits that AW Exports' dealings with Eigigu and other customers in Nauru were very profitable for AW Exports and its shareholders and that: "accepting the self-evident proposition that each business [h]as its own costs structures, the trading results of AW Exports nevertheless offer the Court a realistic approximation of the likely profitability of the MSA had it remained with the plaintiffs."
I do not accept that submission, where, at the point of termination of the MSA, the Plaintiffs were substantially undercapitalised and insolvent, and their ability to perform or profit from the MSA would plainly have been constrained by those matters. The Plaintiffs did not seek to lead evidence that, for example, TCA would have subscribed sufficient capital to AWW or AWE to properly capitalise them or restore their solvency, but for the termination of the MSA.
In closing submissions, Mr Lucarelli also sought to take Mr Kaufman's affidavit evidence showing that dealings with Eigigu had not been profitable for AW Exports to reach the contrary result by allocating total operating expenses by reference to the revenue attributable to particular customers, rather than by reference to management time. Mr Lucarelli also relied on a schedule, unsupported by expert evidence, purportedly allocating total operating expenses in the same proportion as the revenue from the new supply agreement bears to total revenue of AW Exports, so as to establish that servicing Eigigu was profitable for AW Exports. Mr Lucarelli noted that Mr McGuiness had accepted in cross-examination that this was a "possible" means of allocating such expenses, although, I interpolate, he did not accept that it was shown to be an appropriate method in this case. There is no evidence, whether from Mr Kaufman, Ms Thomson or Mr McGuiness, that this is an appropriate means to allocate such expenses in this case. A calculation of loss on that basis has not been established and, even if Mr Kaufman's allocation was not accepted, the Plaintiffs have not established any alternative to it.
I recognise that the Plaintiffs also advance submissions that their loss should be assessed by reference to other aspects of AW Exports' profit in dealing in Nauru in addition to its gross profit derived from dealing with Eigigu in respect of the supermarket. Mr Faulkner and Mr Davis point out that that wider claim is not open on the pleadings, inter alia, because no material facts as to any further business obtained by the Defendants from such other matters were pleaded. The Court could not entertain such a claim, where the Defendants have not been allowed a fair opportunity to respond to it, including leading evidence as to the unidentified facts on which the claim might be based. The profit or loss arising from that wider claim has also not been established, for the same reasons that it was not established in respect of any narrower claim.
Mr Lucarelli also submitted, in closing, that the Plaintiffs seek to wait until judgment before making an election between equitable compensation or an account of profits. There is no occasion for such an election, where liability was not established in the claims against Messrs Kaufman, Broxom and AW Exports, Mr Jones is bankrupt and neither a basis for compensation nor a basis for an account of profits was established against any Defendant. Relief sought against AW Exports
The Plaintiffs plead (FASC [118]) that AW Exports is liable to AWW or AWE, or both, to compensate it for the loss and damage suffered by AWW or AWE, or both, as a result of the implementation of the Scheme; to disgorge all benefits received by AW Exports from "its participation in the dishonest and fraudulent design; the Scheme"; and to disgorge all benefits received by each or all of AW Exports, Messrs Bhojani, Broxom and Kaufman from "its participation in the dishonest and fraudulent design; the Scheme". The claim to compensation or an account of profits against AW Exports is not established where it has not been shown to be knowingly involved in the Scheme. That claim would also fail because the Plaintiffs have not established such loss as a result of implementation of the Scheme, and the Plaintiffs have failed to establish the amount of the benefits received by AW Exports. The third claim, that AW Exports is liable to disgorge benefits received by other parties must fail both because, even if joint liability of that kind is open as a matter of principle, the Plaintiffs did not seek to establish the amount of the benefits received by such other parties.
As against AW Exports, the Plaintiffs also seek (FASC [136]) declarations and orders that it account and/or disgorge any benefits received by it, Messrs Jones, Bhojani, Broxom and/or Kaufman; further or alternatively, an order for equitable compensation to AWW or AWE, or both. The Plaintiffs have not established a basis for that relief for the reasons set out above. The Plaintiffs also repeated their claim for compensation for damage suffered by AWW or AWE, or both, as a result of Mr Jones' contraventions of the civil penalty provisions of ss 181(1), 182(1) and 183(1) of the Corporations Act, including any profits made by either AW Exports, Messrs Jones, Bhojani, Broxom or Kaufman within the meaning of s 1317H(2) of the Corporations Act. The Plaintiffs have not established the amount of any compensation to which they would be entitled for the reasons set out above. Relief sought against Mr Jones
A preliminary issue arose as to whether the Plaintiffs could maintain claims against Mr Jones who is bankrupt. By a supplementary note dated 30 September 2019, Mr Lucarelli accepted the possibility that the proceedings were stayed against Mr Jones pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth), but sought to reserve the possibility that the Court would grant declaratory relief that Mr Jones was liable to compensate the Plaintiffs in a specified amount. By a further submission made by leave on 8 October 2019, Mr Lucarelli rightly pointed out that whether enforcement of a remedy for the commencement of legal proceedings against Mr Jones was stayed under s 58(3) of the Bankruptcy Act depended upon whether a claim against him for breach of fiduciary and corresponding statutory duties was in respect of a "provable debt" in Mr Jones' bankruptcy under s 82(2) of the Bankruptcy Act. Mr Lucarelli also submitted that the weight of authority supported the proposition that the Plaintiffs' claims against Mr Jones were provable debts in his bankruptcy, such that leave under s 58(3) of the Bankruptcy Act would be required to pursue them. On that basis, an application for that leave would need to be made in the Federal Court of Australia, rather than in this Court, and it appears that no such application was made. Mr Lucarelli repeated his earlier submission that the Court had a discretion to grant declaratory relief to the effect that Mr Jones was liable to compensate the Plaintiffs in a specified amount, despite the absence of that leave.
Mr Lucarelli did not address the possibility that the claims against Mr Jones might properly be characterised as claims for unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust that are not provable in his bankruptcy under s 82(2) of the Bankruptcy Act: Auto Group Ltd v England [2008] NSWSC 402; Gordon in his capacity as liquidator of Lyon Form Pty Ltd (in liq) above; Re Galtari Pty Ltd (in liq) [2018] NSWSC 2037. It is not necessary to address this question where the Plaintiffs have not established the amount of compensation or the basis for any account of profits against Mr Jones in any event. There would be no reason to give declaratory relief in that situation, even if it were open to the Court to do so where Mr Jones is bankrupt.
The Plaintiffs sought (FASC [135]), as against Mr Jones, declarations and orders that he account and/or disgorge any benefits received by either him, AW Exports, Messrs Bhojani, Broxom and/or Kaufman; and further or alternatively, an order for equitable compensation to AWW or AWE, or both. That claim must fail, even apart from his bankruptcy, because the Plaintiffs did not establish the amount of any benefits obtained by AW Exports; did not seek to establish the amount of any benefits obtained by Messrs Bhojani, Broxom and/or Kaufman; and also did not establish the amount of any loss suffered by AWW or AWE. The Plaintiffs initially sought declarations that Mr Jones contravened the civil penalty provisions in ss 181(1), 182(1) and 183(1) of the Corporations Act, but ultimately did not press that claim. Those declarations cannot be made, since such a declaration is only available in proceedings for a contravention of a civil penalty provision brought by the Australian Securities and Investments Commission.
The Plaintiffs also sought, as against Mr Jones, compensation for damage suffered by AWW or AWE, or both, as a result of Mr Jones' contraventions of the civil penalty provisions in ss 181(1), 182(1) and 183(1) of the Corporations Act, including any profits made by him, AW Exports, Messrs Bhojani, Broxom or Kaufman within the meaning of s 1317H(2) of the Corporations Act. Even apart from Mr Jones' bankruptcy, the basis for that relief is not established, because the Plaintiffs did not establish the amount of any loss they had suffered, or the amount of any gain that AW Exports had made, and did not seek to establish the amount of any gain made by Messrs Jones, Bhojani, Broxom or Kaufman. Relief sought against Mr Bhojani
The Plaintiffs similarly sought, as against Mr Bhojani (FASC [137]), declarations and orders that he account and/or disgorge any benefits received by him, AW Exports, Messrs Jones, Broxom and/or Kaufman and further or alternatively, an order for equitable compensation to AWW or AWE, or both. The Plaintiffs also seek compensation for damage suffered by AWW or AWE, or both, as a result of Mr Jones' contraventions of the civil penalty provisions of ss 181(1), 182(1) and 183(1) of the Corporations Act, including any profits made by either him, AW Exports, Messrs Jones, Broxom or Kaufman within the meaning of s 1317H(2) of the Corporations Act. The Plaintiffs have not established a basis for that relief or for compensation for the reasons set out above in respect of other Defendants. Relief sought against Messrs Broxom and Kaufman
As against each of Messrs Broxom (FASC [138]) and Kaufman (FASC [139]), the Plaintiffs seek declarations and orders that he account and/or disgorge any benefits received by him, AW Exports, Messrs Jones, Bhojani and/or Kaufman (or Broxom, as the case may be) and further or alternatively, an order for equitable compensation to AWW or AWE, or both. The Plaintiffs have not established a basis for that relief for the reasons set out above. The Plaintiffs also seek compensation for damage suffered by AWW or AWE, or both, as a result of Mr Jones' contraventions of the civil penalty provisions in ss 181(1), 182(1) and 183(1) of the Corporations Act, including any profits made by either AW Exports or Messrs Jones, Bhojani, or Kaufman (or Broxom, as the case may be) within the meaning of s 1317H(2) of the Corporations Act. The Plaintiffs have not established the amount of any compensation to which they would be entitled for the reasons set out above.

Orders

For these reasons, the proceedings are dismissed with costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 October 2019

Corporations Act 2001(Cth)ss 79, 79(a), 181, 181(1), 182, 182(1), 183, 183(1), 1317H, 1317H(2)

Bankruptcy Act 1966(Cth)ss 58(3), 82(2)

Evidence Act 1995(NSW)ss 136, 140

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