Alford & Ors v Ebbage & Ors [2003] QSC 294

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - AGREEMENT CONTEMPLATING EXECUTION OF FORMAL DOCUMENT - WHETHER CONCLUDED CONTRACT - where no executed written agreement - where evidence of oral agreement given only by the plaintiff - where the plaintiff was unreliable witness - where documentary evidence equivocal - whether contractual agreement entered into

CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - MATTERS NOT GIVING RISE TO BINDING CONTRACT - STATEMENTS OF INTENTION, NEGOTIATIONS AND INVITATIONS TO TREAT - INFORMAL CONTRACT - where alleged joint venture agreement - where numerous proposed agreements drafted - where evidence as to alleged oral agreements unreliable and not supported by independent evidence - where written agreements executed - where plaintiff not a party to the written agreements - where plaintiff alleges written agreements executed secretly with intention to deprive him of his interest - where evidence the plaintiff knew of the executed agreements to which he was not a party and in which he did not have an interest - whether alleged joint venture agreement existed

EQUITY - FIDUCIARY OBLIGATIONS - GENERAL PRINCIPLES - JOINT VENTURE AGREEMENT - where plaintiff alleges property of alleged joint venture held on trust in respect of his interest - whether property of joint venture vehicle dealt with in breach of fiduciary obligations

CONTRACT - GENERAL CONTRACTUAL PRINCIPLES - OFFER AND ACCEPTANCE - CONTRACT IMPLIED FROM CONDUCT OF PARTIES - where no executed written agreement - where alleged payments made by the plaintiffs' interests to the defendants' interests as loans - where alleged accountancy services provided by the plaintiffs' interests for the defendants' interests in respect of which fees were owing - where plaintiffs' version of events uncorroborated - where allegation accountancy fees remained owing not supported by documentary and independent evidence - where an accounting required to reconcile loan payments made - where no such accounting sought in the proceedings

Allcard v Skinner [1886-90] All ER 90, cited

Australian Broadcasting Commission v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, cited

Geroff & Ors v CAPD Enterprises Pty Ltd & Ors [2003] QCA 187, cited

G Scammell and Nephew Ltd v H C and J G Ouston [1941] AC 251, cited

Natural Extracts Pty Ltd v Stotter; G G Jay Investments Pty Ltd v Doveka Pty Ltd [1997] FCA 471; (1997) 24 ACSR 110, NG 3192 and 3238 of 1992, 16 May 1997, cited

Nelson v Larholt [1948] 1 KB 339, cited

Orr v Ford [1989] HCA 4; (1989) 167 CLR 316, cited

Summergreene v Parker (1950) CLR 304, cited

Thorby & Ors v Goldberg & Ors [1964] HCA 41; (1964) 112 CLR 597, cited

W Sofronoff QC, with D A Savage SC and M Hoch, for the plaintiffs

E Goodwin (sol) for the first, second and ninth defendants

J A Griffin QC, with J H Bryson for the third, fourth, tenth and twelfth defendants

J F Connors & Associates (Southport) for the plaintiffs

Minter Ellison Lawyers (Brisbane) for the first, second and ninth defendants

Johnston Lawyers (Burleigh Heads) for the third, fourth, tenth and twelfth defendants

Rostron Carlyle Solicitors (Brisbane) for the eleventh defendant

[1] Anthony James Alford, the first plaintiff, commonly known as Tony Alford and Paul Gerrard Ebbage were both accountants who practised at the Gold Coast. Steven Charles Manthey, the fourth defendant, was a motor mechanic and inventor who also lived and worked on the Gold Coast. This matter involves the determination of the legal relationships and liabilities which existed between these three men and the many companies under the control of one or more of them in the years from 1993 until Mr Ebbage's unexpected death on 2 December 1998 and the present consequences of any such relationship.

[2] Mr Alford, the first plaintiff, was represented at trial by Mr Sofronoff QC, Mr Savage SC, and Ms Hoch, instructed by a solicitor, Mr J F Connors. That team of lawyers also represented the second to seventh plaintiffs, Dario Pty Ltd ("Dario"), A E Holdings Pty Ltd ("AEH"), A E Finance Co Pty Ltd ("AEF"), IPA (Qld) Pty Ltd ("IPA"), Alford Ebbage Services Pty Ltd ("AES") and A E Group Pty Ltd ("AEG"), which were all companies associated with or under the control of Mr Alford.

[3] At the commencement of the trial, the plaintiffs' action was against twelve defendants. The first defendant was Raymond Joseph Ebbage ("Mr Ebbage Snr") who was a party to the action in his own right and as executor of the estate of his son, Paul Ebbage. Mr Ebbage Snr was represented by Mr Goodwin, a solicitor from Minter Ellison. Minter Ellison also acted for the second defendant, HPM Investments Pty Ltd ("HPM"), and the ninth defendant, Macro Management Group Inc ("Macro Management"). Mr Griffin QC, with Mr Bryson, (instructed by a solicitor, M Johnston) acted for the fourth defendant, Steven Charles Manthey, the tenth defendant, Mr Manthey's wife, Brenda Mary Manthey, and companies under Mr Manthey's control, the third defendant, Advanced Engine Technology Pty Ltd ("AET") and the twelfth defendant, Motor City Inc ("Motor City"). Mr Egan of counsel instructed by a solicitor, Mr Rostron, acted for the eleventh defendant, Green Fit NZ Limited ("Green Fit"). The thirteenth defendant, Ebbco Office Services Pty Ltd ("EOS"), whose directors were Mr Alford, Mr Ebbage's ex-wife, Susan Ebbage, and Mr Ebbage Snr, was unable to give effective instructions and was joined so that it was bound by the judgment.

[4] From time to time, it will be convenient to refer to the plaintiffs as the Alford interests, the first, second and ninth defendants as the Ebbage interests, the third, fourth, tenth and twelfth defendants as the Manthey interests, and the eleventh defendant as Green Fit.

[5] At the commencement of the trial, the plaintiffs identified three claims which they made against the defendants. Against the Ebbage interests, they claimed $170,000 as a debt owing by Mr Ebbage to Mr Alford in respect of the agreement they entered into when they formed an accountancy partnership together. In the fifth amended statement of claim (which, unless otherwise indicated, will be referred to as the "statement of claim"), the plaintiffs claimed that the debt with interest was in fact $416,714.47. The second claim was for the repayment of moneys advanced by one or more of the plaintiff companies to AET. The third claim involved an accounting for and a tracing of what was asserted by the plaintiffs to be a 25 per cent interest in a joint venture entered into between the Alford, Ebbage and Manthey interests. If the third claim were to be successful, then the plaintiffs asserted an interest in the assets and profits of the joint venture wherever they might be traced. It can been seen that the first claim involved the accountancy partnership between Mr Alford and Mr Ebbage, while the latter claims involved a business carried on in partnership between Mr Ebbage and Mr Manthey in which Mr Alford said he had an interest and to which he said he, or companies associated with him, had lent money.

[6] As this was a managed case, much of the evidence-in-chief was in the form of affidavits with the opportunity for the other parties to orally cross-examine each deponent.[1] In addition, a bundle of documents initially containing some 64 volumes of documents was tendered by the plaintiff at the commencement of the trial. During the trial, many other documents and a videotape were tendered, some of the documents being added to the bundle.

[7] Within the bundle of documents were depositions taken from a number of persons in the course of litigation in New Mexico in the United States involving some of the parties to this action, particularly those which represented the Ebbage interests and those that represented the Manthey interests, about cognate subject matter ("the New Mexico litigation"). The New Mexico litigation was eventually settled prior to the trial of this action on terms acceptable to the parties. Also in evidence were transcripts and tapes of a telephone call between Mr Manthey and Mr Alford on 2 September 1999, which was secretly taped by Mr Alford, and of a meeting in July 2000 in the boardroom of Mr Alford's Southport practice which was secretly videotaped by Mr Alford. At the end of the trial, any document in the bundle which was not referred to during the evidence or submissions, was, pursuant to an intimation given at the commencement of the trial and a ruling made at the end of the trial, removed from the bundle by the parties. A number of other documents which might have been useful were not retained or were destroyed before the litigation commenced.

[8] Although a large number of documents were referred to at trial, two significant features made determination of the matters in dispute more difficult. The first was the death of Mr Ebbage in December 1998. His oral evidence as to the course of events would have been of great assistance in determining the history of the matter and the precise nature of the legal relationship between the parties. The second, and necessarily related, difficulty arose from the fact that the plaintiffs were unable to point to important contractual arrangements being made in writing, but rather relied on agreements said to have been made orally, often with or in the presence of Mr Ebbage.

The accountancy partnership between Tony Alford and Paul Ebbage

[9] The business, professional and personal relationship between Mr Alford and Mr Ebbage commenced in the early 1980s. Because of the death of Mr Ebbage, inevitably the source of much of the evidence about their relationship was Mr Alford. Some of his evidence about these matters was uncontentious. Other evidence required a careful assessment of his credibility.

[10] Mr Alford is an accountant and a member of the Australian Society of Certified Practising Accountants and the Taxation Institute of Australia. At the time of trial, he was a director of A E Operations Pty Ltd ("AEO") trading under the firm name or style of "Alfords Accountants & Business Advisers".

[11] Mr Alford commenced employment on the Gold Coast in 1984 at an accounting firm in which Mr Ebbage held a 10 per cent interest as a partner. Until 1 January 1987, Mr Alford did not have a practising certificate and was not a registered accountant.

[12] In 1986, Mr Ebbage purchased an accountancy practice at Beaudesert ("the Beaudesert practice") and established an accountancy practice at 17 Short Street, Southport ("the Southport practice") known as PG Ebbage & Co. Mr Alford was employed at the Southport practice on a salary together with a 40 per cent profit share. Susan Ebbage, who was married to Mr Ebbage, worked as a receptionist at the Southport practice although she separated from her husband towards the end of 1986. There were subsequent reconciliations and separations.

[13] In March 1987, Mr Alford purchased a 40 per cent interest in the Southport practice for which he said he paid $30,000 plus moneys owing to him. Although a draft partnership deed was drawn up by a firm of solicitors, no written partnership agreement was ever executed. The service entity established for the Southport practice was a trustee company, Whitewell Pty Ltd ("Whitewell") as trustee of the unit trust, PG Ebbage & Co Management Trust ("PGEMT"). Whitewell was subsequently renamed AEH. The unit holders of PGEMT were Ashtead Trust No 1 (controlled by Mr Ebbage) which held 60 per cent of the units and Highgain Trust No 1 (controlled by Mr Alford) which held 40 per cent of the units. The partnership was dissolved on 28 February 1989 after various disagreements between Mr Alford and Mr Ebbage. A draft deed of dissolution prepared by solicitors was, once again, never executed.

[14] This pattern by Mr Alford of not executing written agreements about important practice matters has apparently continued to this day. Alicia Atkinson gave evidence that the contractual arrangements showing the equity of herself and others in the present accountancy practice of Mr Alford, Alford's Accountants and Business Advisers, have not been reduced to writing. There are a number of possible explanations for, and consequences of, this state of affairs. Perhaps, as Mrs Atkinson asserted, there is a high degree of mutual trust meaning that it is not necessary to record agreements in writing. On the other hand, the omission to record agreements in writing apparently removes the requirement which would apply to a written contract to pay stamp duty. If there is a dispute as to the terms of the contract, each party may assert what it says are the terms of the contract. This uncertainty may suit those who are less scrupulous with the truth. It was, according to Mr Alford's evidence, rare for an important business agreement with a third party not to be reduced to writing, if not immediately by formal written agreement, at least by note or letter confirming the agreement.

[15] On 10 February 1988, Cravdon Pty Ltd, which was equally owned by entities controlled by Mr Alford and Mr Ebbage, purchased an investment property at Woodroffe Avenue, Main Beach ("the Woodroffe Avenue property"). Mr Alford asserted that Mr Ebbage failed to honour his obligations and so in April 1991, Mr Alford arranged to purchase the Woodroffe Avenue property. However, the property was sold at a loss before that agreement was finalised. Mr Alford asserted that no formal documentation or agreement was contemplated or prepared between himself and Mr Ebbage in respect of the Woodroffe Avenue property.

[16] Mr Alford agreed to pay Mr Ebbage $30,000 to purchase his interest in the Southport practice. The client fee base of the Southport practice was then, according to Mr Alford, in excess of $420,000. In February 1989, Mr Alford borrowed money from Esanda Finance Corporation Ltd ("Esanda Finance") to finance his purchase of the Southport practice and to run the practice. This was Esanda Finance Professional Equity Facility account no 464037864 in favour of Mr Alford (the "Esanda Finance Facility"). Esanda Finance required the production of a partnership dissolution agreement as a condition of providing finance. Mr Alford agreed with Mr Ebbage that Mr Alford would instruct solicitors to draw up a formal partnership dissolution agreement, but as I have already noted, it was never executed. Esanda Finance was, however, prepared to accept a written confirmation and acknowledgment from Mr Ebbage that the unencumbered ownership in the Southport practice had been transferred to Mr Alford.

[17] From 1 March 1989, Mr Alford owned and operated the Southport practice as a sole trader under the business name, "Alfords". Cranot Pty Ltd ("Cranot") acted as the service provider to the Southport practice, as trustee of the Cranot Trust No 3, a trust under Mr Alford's control. Mr Ebbage retained certain clients whom he had introduced to the Southport practice and was provided with an office and telephone at the offices of the Southport practice. The business name, PG Ebbage & Co, was transferred to Mr Alford. Mr Alford deposed that the fee base of the Southport practice increased substantially over the following three years and that in March 1992, it was his intention to reduce the number of clients and increase the services offered to the remaining clients. By this time, he said, Mr Ebbage was no longer using his office at the Southport practice. Mr Ebbage had in the meantime invested in a trawling venture through a company called Exocal Pty Ltd ("Exocal"). He borrowed $1,075,626.80 from Esanda Finance on 3 December 1990 for that purpose. That debt was paid in full by 22 September 1998.

[18] On 28 July 1992, Crayfield Pty Ltd ("Crayfield"), a company associated with Mr Ebbage's parents, loaned $155,000 to Tunleigh Pty Ltd ("Tunleigh"), a company associated with Mr Ebbage. On 5 October 1992, Crayfield lent a further $300,000 to Tunleigh.

[19] In October 1992, Bronzebay Pty Ltd, a company controlled by Mr Alford, purchased property at Hicks Street, Southport and he relocated the Southport practice to that address. In the same month, Mr Alford commenced using office space rented by Stephen Diamond ("Mr Stephen Diamond"), a solicitor trading as Diamonds Solicitors at Nerang. In January 1993, Mr Alford formally opened an accountancy practice at 30 Price Street, Nerang, trading as Alfords ("the Nerang practice") and engaged staff. The office was in a partitioned area of Mr Diamond's office.

[20] During February and March 1993, Mr Alford and Mr Ebbage negotiated to renew their partnership in the various accountancy practices. Mr Alford gave evidence that an oral agreement was reached whereby they intended to avoid any "adverse capital gains tax or stamp duty consequences". They agreed to conduct the practices under the business name Alford Ebbage (the "AE practice"). The individual practices would trade as Alford Ebbage Beaudesert (the "Beaudesert practice"), Alford Ebbage Southport (the "Southport practice") and Alford Ebbage Nerang (the "Nerang practice"). The ownership of the Southport practice would remain with Mr Alford; ownership of the Beaudesert practice would remain with Mr Ebbage; and the Nerang practice would be owned by AEH, a company jointly owned by Mr Alford and Mr Ebbage or entities controlled by or associated with them. AEH was to own the Nerang practice as trustee for the AE Holdings Trust No 3 ("AEH Trust No 3"). It was further agreed that only new clients of the Nerang practice would be considered part of the goodwill of the Nerang practice. Clients who transferred from the Southport practice or the Beaudesert practice would not be considered part of the goodwill of the Nerang practice. As part of the agreement, Mr Ebbage paid Mr Alford to reimburse him for his costs in setting up the Nerang practice. The agreement was to operate with regard to the Nerang practice from 1 April 1993 and with regard to the Southport and Beaudesert practices from 1 July 1993. As partners they had fiduciary duties to each other.

[21] The trading company which conducted the Southport practice was AEG; the trading company which conducted the Nerang practice was AEO formerly known as AE Nerang Pty Ltd; and the trading company which conducted the Beaudesert practice was AE Beaudesert Pty Ltd ("AEB").

[22] Mr Alford and Mr Ebbage agreed to share equally in the expenses and profits of the three practices. A complex business structure was to be put in place where separate operating companies would be set up to operate each practice, a service company structure would be set up, and another company would purchase any new plant, equipment, furniture and fittings for the practice. The structure would be implemented by discretionary trusts. Mrs Atkinson, who had commenced working for Mr Alford as a bookkeeper in 1991, was instructed to draw up the necessary trust deeds.

[23] AEH was a trustee of six trusts. The shareholders of AEH were Dario, as trustee of the Dario Management Trust which represented Mr Alford's interest, and EOS, as trustee of the Ebbco Holdings Trust, which represented Mr Ebbage's interest. Mr Alford and Mr Ebbage were the sole directors.

[24] AE Holdings Trust No 1 ("AEH Trust No 1") was to receive operators' fees in respect of the Southport practice. According to Mrs Atkinson, whose evidence on these matters was uncontroversial, those fees were to be paid by the practice trading entity, Alford Ebbage Pty Ltd ("AE"). The trust would then distribute the operators fees received by it to Mr Alford and/or specified beneficiaries nominated under the trust. The income assessable in the hands of Mr Alford as beneficiary was to be set off against the expense of the interest payments made to Esanda Finance giving rise potentially to a tax neutral position.

[25] The second trust was AE Holdings Trust No 2 ("AEH Trust No 2") which was to receive operators' fees in respect of the Nerang practice. Those fees were to be paid by the practice trading entity, AE. However, the expenses of the Nerang practice exceeded the fees generated by it and a decision was made by Mr Alford and Mr Ebbage to cease operations at the Nerang practice in mid-1994.

[26] The third trust was to be AEH Trust No 3 which was to receive operators' fees in respect of the Beaudesert practice. Those fees were again to be paid by the practice trading entity, AE. The trust would then distribute the operators fees received to Mr Ebbage and/or specified beneficiaries nominated under the trust. The income which was assessable in the hands of Mr Ebbage as beneficiary was to be set off against the expense of interest payments to Esanda Finance and Crayfield giving rise potentially to a tax neutral position.

[27] AE Holdings Trust No 4 ("AEH Trust No 4") was to receive fees from AE for that company's hire of equipment used in the operation of the respective practices. It was intended that the trust remit hire fees received by it to Cranot, the owner of the business equipment used at the Southport practice (prior to 1 March 1993) and to EOS (the owner of the equipment used at the Beaudesert practice prior to 1 March 1993). AEH Trust No 4 purchased all unencumbered assets acquired by the AE practice after 1 March 1993.

[28] Mrs Atkinson says that although she was the settlor of the AE Holdings Trust No 5 ("AEH Trust No 5"), she was not aware of its intended purpose at the time the trust was settled. Mr Alford, however, deposed that a principal purpose of the AEH Trust No 5 was to own assets of the AE practice and any other assets acquired jointly between Mr Ebbage and himself or entities associated with their respective families. As was admitted in the pleadings, AEH Trust No 5 was a discretionary trust of which the beneficiaries were Dario and EOS both for themselves and as trustees respectively of the Dario Practice Trust and the Ebbco Trust. Dario was related to Mr Alford (as that term is used in the Corporations Law) in that Mr Alford was, and Mr Alford's father is, a director and shareholder of Dario. Beneficiaries of the Dario Practice Trust included corporations related to Mr Alford and members of his family. EOS was related to Mr Ebbage (as that term is used in the Corporations Law) in that Mrs Ebbage and Mr Ebbage Snr were the directors and shareholders of that company. Beneficiaries of the Ebbco Trust included Mr Ebbage, corporations related to Mr Ebbage and members of Mr Ebbage's family. It was controlled by Mr Ebbage. Mr Alford and Mr Ebbage jointly held the power to remove and appoint the trustee.

[29] Mrs Atkinson gave evidence that AE Holdings Trust No 6 ("AEH Trust No 6") was established to accommodate joint share trading by Mr Alford and Mr Ebbage, both in their own right and for and on behalf of clients of the AE practice.

[30] In spite of the structure that was set up, Mrs Atkinson says that AEH Trust No 4 was the only trust to receive operators' fees based on financial accounts prepared by Mr Ebbage.

[31] Other trusts which were established included the AE Service Trust, the trustee of which was AES. This trust was settled for the express purpose of providing staff and facilities to each of the trading entities generating fees from the Southport, Nerang and Beaudesert practices.

[32] EOS was the trustee for two trusts: the Ebbco Trust and the Ebbco Holdings Trust. Mrs Atkinson said that the Ebbco Trust was settled by her on instructions from Mr Ebbage for the express purpose of distributing surplus income received by each of the AEH trusts between Mr Ebbage and Mr Alford through companies and/or trusts associated with them. It was for this express purpose, Mrs Atkinson says, that Dario, in its own right and in its capacity as trustee, was nominated as a specified primary beneficiary under the trust in addition to Professional Practice Group Pty Ltd ("PPG") again, in its own right and in its capacity as trustee. The Ebbco Trust was, however, a discretionary trust.

[33] Mrs Atkinson also gave evidence that the Ebbco Holdings Trust was settled by her on instructions from Mr Ebbage for the express purpose of holding shares in joint corporate structures as between Mr Ebbage and Mr Alford or companies and/or trusts associated with each of them. Mrs Atkinson says that she recalls that the trust was used by Mr Ebbage to acquire shares in Split Cycle Technology Ltd ("SCT Ltd"). However, this was Mr Ebbage's own interest in SCT Ltd and not one he shared with Mr Alford. In cross-examination, Mrs Atkinson conceded that at time of creation of the Ebbco Trust and the Ebbco Holdings Trust, she was unaware of the differences between them. The purpose of both of them was to hold assets and distribute income to Mr Ebbage and persons and companies associated with him.

[34] The PPG Trust was settled by Mrs Atkinson, again on instructions from Mr Ebbage, for the express purpose of sharing (on behalf of Mr Ebbage) the joint exploitation of the fee base generated by the AE practice with the Dario Practice Trust, the trust established for the benefit of Mr Alford and his family.

[35] The instructions were given to Mrs Atkinson by Mr Ebbage on 2 April 1993. He instructed her to establish the Ebbco Trust and the Ebbco Holdings Trust with EOS as their trustee and the PPG Trust with PPG as the trustee. The appointee was to be Tunleigh. The specified beneficiaries were to be Mr Ebbage, Mrs Ebbage, Mr and Mrs Ebbage Snr, Gordon Rolinson, Gladys Rolinson and each of the children of the above, as well as Harcroft No 3 Pty Ltd as trustee of the PGE Trust, Greyvil Pty Ltd, Greyvil Pty Ltd as trustee for the Greyvil Trust No 1, Ashtead Pty Ltd, Exocal, Adleigh Contractors Pty Ltd, PPG as trustee for the PPG Trust, EOS as trustee for the Ebbco Trust, EOS as trustee for Ebbco Holdings Trust, Dario as trustee for the Dario Practice Trust; in addition there was a general clause.

[36] The directors of AES, the service company for the AE practice, were Mr Alford and Mr Ebbage. Its shareholders were EOS and Dario to represent the interests of Mr Ebbage and Mr Alford respectively. Its first annual return for the financial year ended 30 June 1993 was filed with the Australian Securities Commission (now "ASIC") by Mr Ebbage. The annual return for the year ended 30 June 1995 was filed by Mr Alford.

[37] Both Mr Alford and Mrs Atkinson gave evidence that Mr Ebbage was responsible for the administration of the AE practice. Those responsibilities included, but were not limited to, the co-ordination and authorisation of all payments to creditors, the preparation of all compliance matters, all communications with the Australian Taxation Office and financiers of the AE practice, and the preparation of all associated financial reports and/or statements. Mrs Atkinson said that he was assisted by the practice administrator, Julianne Kliese, until September 1993. Working under Mr Ebbage's supervision with regard to the administration of the AE practice were Michelle North, Shannon White, Michelle Leeming, Amanda Alford, Mrs Ebbage and Geoff Hayes. Damien Peters was, from his employment in early 1994, under the supervision of Karl Farmer but was directed by Mr Ebbage in respect of matters involving or concerning AET. Mrs Atkinson says that Mr Alford was not involved in the administration of the AE practice, being responsible for the provision of advices to clients and the development of the AE practice and its client base.

[38] On 31 August 1993, Crayfield lent $25,000 to AES. On 7 July 1994, AEF repaid $10,000 to Crayfield. AEF was the internal and external finance company of the AE practice. On 25 August 1994, Crayfield lent AEF $49,700.32. Bobray Pty Ltd ("Bobray"), a company associated with Mr Ebbage Snr, lent a further $20,299.68 to AEF. Subsequently, the debt owed by AEF to Bobray was transferred to Crayfield so that Crayfield became the creditor. On 28 October 1994, Crayfield lent $30,000 to AEF. The total amount of money lent by Crayfield to Alford Ebbage entities was $125,000 of which $10,000 had been repaid. On 30 June 1995, Mr Ebbage consolidated all moneys owed to Crayfield as being owed by him.

[39] One of the matters in dispute in these proceedings was who was responsible for repaying Mr Alford's Esanda Finance Facility. Mr Alford's liability under the Esanda Finance Facility had increased to $199,819 by 22 March 1993. Mrs Atkinson gave evidence, to which I have already referred, that the payments to Esanda Finance were to be offset against Mr Alford's income from the Southport practice after he recommenced his partnership with Mr Ebbage. Mr Ebbage had his own liability to Esanda Finance under another facility.

[40] In the affidavit evidence on which Mr Alford relied at trial, he said that Mr Ebbage told him that the Beaudesert practice generated fees of approximately $500,000 per annum in March 1993. Mr Alford deposed that the Southport practice generated fees in excess of $1,000,000 per year. Mr Alford said they discussed and agreed upon a position which would recognise and compensate for the disparate quantum of fees between the Southport practice and the Beaudesert practice as at the inception of the AE practice. However it appeared that Mr Alford's sworn assertion that the Southport practice generated fees in excess of $1,000,000 a year as at March 1993 was incorrect. Mr Alford's tax return for the financial year ending 30 June 1993 included a trading and profit and loss statement which shows professional fees received of $486,638.39. When expenses are deducted it appeared that he operated at a loss for the year of $10,173.37. The fees received for the previous financial year, ending 30 June 1992, were shown as $502,265.57. In that year, his operating loss was even greater, at $144,104.55.

[41] In attempting to explain his sworn assertion that the "Southport practice generated fees in excess of $1,000,000 per year" as at March 1993, Mr Alford pointed to a reconciliation of income to 30 June 1993 which revealed net profit of $317,053.11. This was calculated on an accruals basis including debtors and work in progress but did not show gross fees of $1,000,000 per year. He said in evidence that he had not disclosed any document which showed that the fees received by the Southport practice in the year to March 1993 were $1,000,000. He then asserted under cross-examination that he said that the fees were $1,000,000 because that was the agreement between Mr Ebbage and himself. Mr Alford's sworn statement about the fees generated by the Southport practice is, in my view, not true. It reflects very poorly on his credit as a witness. When asked by me why he said it, if it was not true, he then asserted that if he said it was $1,000,000, then it was $1,000,000. His attempted explanations put him in an even poorer light as a witness.

[42] Mrs Atkinson was recalled by the plaintiffs to support Mr Alford's assertion that the Southport practice generated fees in excess of $1,000,000 per year as at March 1993. Mrs Atkinson annexed as Exhibit 5 to an affidavit sworn 14 November 2002, what was said to be a debtors' listing for the accountancy practice operated by Mr Alford as at 31 March 1993, totalling $561,891.61. This exhibit in fact included debts dated April, May, June, July, August, September, November, December 1993 and July 1994. The debtors' listing was prepared by her in late 1994 to determine, she said, the payments received by the AE practice in respect of the debtors of Alfords. She asserted that the debtors' listing showed that the total debtors for the Alfords practice as at 31 March 1993 were $561,891.61. In her affidavit, she said that the date listed next to each debtor was the last date on which a payment was received on the debtor file according to the office costing records. In her oral evidence, however, she said that the date column featured the date the last entry on that file was made, whether that be when the bill was raised or a payment received or any other entry on the file.

[43] There was, as Mrs Atkinson conceded in cross-examination, no way of determining when the debts accrued, whether in 1989, 1990, 1991, 1992 or 1993. All that Exhibit 5 revealed was that a particular debt accrued at some time prior to the date appearing beside the debt. A number of the entries had dates prior to 1992 so could not support a contention that they showed the fees generated in the year to March 1993. Others may well have accrued, in whole or in part, prior to the year before March 1993. There was no way of telling.

[44] Only $184,357.23 was estimated not to be doubtful debts.

[45] Even if it could be said that AE practice had generated unpaid debt of $561,891.61 prior to March 1993, this figure could not simply be added to any other figure which was produced to say that the Southport practice generated fees in excess of $1,000,000 per year as at March 1993.

[46] In spite of Mrs Atkinson's further evidence, Mr Alford's evidence to that effect remained untrue.

[47] Mr Alford gave evidence that Mr Ebbage agreed that Mr Alford's indebtedness to Esanda Finance in the sum of $200,000 would be paid by Mr Ebbage from his profit share of the AE practice. Mr Alford said the manner in which the repayment was to be effected needed to achieve the following:-

(1) The Esanda Finance indebtedness was to be funded from Mr Ebbage's profit share from the AE practice, which would, except for this arrangement, be to Mr Ebbage's benefit;

(2) There was to be no disparity between the profit share entitlements payable to Mr Ebbage or to Mr Alford solely as a consequence of the payments to be made by Mr Ebbage to Esanda Finance;

(3) The profit sharing entitlement was to be, from inception, formalised as an equal entitlement as between Mr Ebbage and Mr Alford obviating the requirement to make some future adjustment to profit share entitlements upon full payment of the Esanda Finance debt by Mr Ebbage;

(4) Any arrangement should leave neither Mr Ebbage nor Mr Alford in a position different from that which would have prevailed had Mr Ebbage simply made a cash payment to Mr Alford;

(5) Mr Ebbage was to pay interest at a rate equivalent to the interest charged on Mr Alford's Esanda Finance Facility, thus ensuring that Mr Alford was not placed in a financially disadvantageous position compared to an immediate cash settlement.

[48] Mr Alford said that ultimately it was agreed between Mr Ebbage and himself that the profit share entitlement would be equal as between themselves except to the extent that the first $400,000 of profit share entitlements and benefits owing to Mr Ebbage would be paid to Mr Alford, thus resulting in an approximate after tax net payment to Esanda Finance of $200,000. Mr Alford could not, when first asked about it in cross-examination, remember the date on which that agreement was reached, although he later said that it was around 20 to 24 March 1993, at the conclusion of that year's Indy Car Race. The agreement was never documented whether by written contract or minutes of meeting. Some undated notes were made by Mr Alford which said in part, "take on 400,000 or $200,000". This note was by itself equivocal.

[49] Mr Alford said it was agreed that interest payable on the Esanda Finance Facility would be paid from Mr Ebbage's entitlement to profits from the AE practice. If Mr Ebbage's profit share did not reach $400,000, then he was not liable to make the payment to Esanda Finance of Mr Alford's debt. He said in cross-examination that Mr Ebbage's liability was absolutely contingent on his profit share reaching $400,000. As the profit and loss statements for their partnership has not been finalised, Mr Alford was unable to say whether Mr Ebbage's profit share had reached $400,000. Later, Mr Alford asserted that the repayment was not absolutely conditional on Mr Ebbage receiving $400,000 profit share. If Mr Ebbage received only $300,000 profit share, then according to this later evidence, he was to use that to repay Mr Alford's Esanda Finance Facility.

[50] Another reason for Mrs Atkinson being recalled by the plaintiffs was in an endeavour to show that Mr Ebbage had in fact received a profit share in excess of $400,000. There were a number of problems with that evidence. Firstly, Mrs Atkinson gave evidence as to payments made or attributed by Mr Ebbage or companies associated with him in the 1993/1994, 1994/1995, 1995/1996 financial years. These, she said, amounted to $863,008.31. It could not be said, however, that this figure represented Mr Ebbage's profit share from the partnership. They were simply payments or liabilities attributed to Mr Ebbage rather than profit share.

[51] Secondly, a number of the payments attributed to Mr Ebbage were controversial. For example, Mrs Atkinson attributed the interest of $60,521.92 paid on Mr Alford's Esanda Finance Facility as a benefit received by Mr Ebbage. She did this on Mr Alford's instructions. She gave evidence that half the fees billed to AET to 29 February 1996 were attributed to Mr Ebbage. This was said to be an amount of $43,572.52. The reconciliation statement on which she relied did not mention the division by 50 per cent under this item. As will be seen later in the discussion under the claim made as Schedule B to the Statement of Claim, $87,145.04 (being $43,572.52 x 2) was not in fact the amount of billed fees which had not been paid. A further problem in regarding this amount as Mr Ebbage's profit share was that not only were the moneys said not to have been received, but also that no allowance had been made for what expenses, if any, would be taken out of them.

[52] Mrs Atkinson included as part of Mr Ebbage's profit share $109,000.30 which was said to be a consultancy to Morecabs. Apart from asserting that Morecabs was a business operated as a joint venture between Mr Alford and Mr Ebbage, Mrs Atkinson said that she did not know the content of the joint venture and was "not aware of the arrangements with Morecabs". This was 50 per cent of a payment apparently made to Morecabs for what is described as a consultancy by Morecabs. On what basis that payment could be regarded as Mr Ebbage's profit share, Mrs Atkinson was unable to explain.

[53] $68,702.03 was attributed as a benefit received by Mr Ebbage from 1993 to 1996. This was said to be "operators fees (Kent Lyon)". Mrs Atkinson explained that Kent Lyon Shields was a former name of the Beaudesert practice and these were an expense of the Beaudesert practice. It was difficult to see how this could be regarded as profit share.

[54] Wages paid to Mr and Mrs Ebbage were undifferentiated in the schedule provided by Mrs Atkinson. Mrs Ebbage was in fact actually employed at the practice and did work for the benefit of the partnership for which she received remuneration. This was not a profit share of Mr Ebbage. Neither were wages paid to Mr Ebbage which were an expense of the practice and would, therefore, according to Mrs Atkinson's oral evidence have been deducted from gross income before profit share was calculated. Superannuation was in the same category. The total attributed to wages and superannuation was $214,407.80.

[55] With regard to consultancy fees, $86,688.40 was attributed as a benefit to Mr Ebbage in 1994/1995. The first item listed under that total in the Profit and Loss Adjustments for that year[2] is $12,500 paid to Esanda Finance by AES (on behalf of Cranot) on 2 May 1995. That was, Mrs Atkinson said, a payment of capital on Mr Alford's loan to Esanda. $25,300 paid by Cranot to Esanda on 15 March 1995 was also attributed as a consultancy paid to the benefit of Mr Ebbage. In fact, that was also a payment made by a company associated with Mr Alford towards the principal owing on Mr Alford's Esanda Finance Facility. Their attribution as a benefit to Mr Ebbage by Mrs Atkinson when these statements were drawn up in November 2002 was therefore, based on a controversial assumption which depended on a finding by this court that there was the arrangement with regard to the repayment of Mr Alford's Esanda Finance Facility by Mr Ebbage which was contended for the statement of claim. An additional problem was that Mrs Atkinson was unable to say why that payment appeared under the heading "Consultancy - Ebbage". She said that was "just where it's landed, basically". That was clearly an inaccurate description of these items. If they had in fact been consultancy fees, they would have been an expense which was to be deducted from the gross profit. She explained that these were draft profit and loss statements but nevertheless she could not explain why, as a person accustomed to preparing profit and loss statements, she has placed these items under consultancy fees. At first it appeared that the explanation probably lay in the haste with which these profit and loss statements were prepared but Mrs Atkinson's evidence revealed that the explanation in fact lay in the forensic use intended to be made of them by the plaintiffs. The attribution to Mr Ebbage was based solely on what Mr Alford told Mrs Atkinson. He told her that it was a consultancy. She entered it as such. The effect was to falsely inflate what was said to be Mr Ebbage's profit share.

[56] A number of other entries under the heading "Consultancy - Ebbage" were entitled "MR2 Lease", "Fuel" and "M2 Rego". These payments were for a car used by Mrs Ebbage partly for work and partly for personal purposes. To the extent that the use was work related, those payments would be an expense deducted from the gross income before profit was determined. It was not possible for Mrs Atkinson to say how much of the $9,185.40 attributed to the MR2 motor vehicle was for business and how much was personal use and therefore how much would be a business expense which would not form part of Mr Ebbage's profit share.

[57] The same problems applied in relation to other years and to the vehicle used by Mr Ebbage for both business and personal purposes. In 1993/1994, $9,523.21 was attributed to the vehicle used by Mr Ebbage. That others in the business appeared to use it is suggested by a number of entries for fuel put in by other employees. Indeed under another heading of "Associated - Consultancy (Ebbage)", $26.59 was attributed to a payment of fuel by Mr Alford on an Amex card. Mrs Atkinson was not "100 per cent sure" what that related to. In 1994/1995, $18,372.48 was attributed to Mr Ebbage's vehicle. In 1995/1996, $73,916.96 was attributed to "Associated - Consultancy (Ebbage)", most of which appeared to be payment for Mr Ebbage's vehicle or payment of Mr Alford's Esanda Finance Facility by companies associated with Mr Alford.

[58] Mrs Atkinson also attributed $1,330.66 in 1993/1994 and $1,450 in 1994/1995 in advertising to the benefit of Mr Ebbage although this was a fully deductible expense of the practice.

[59] A number of movements in loans were noted and added or subtracted but Mrs Atkinson conceded in cross-examination that none of the loan entries would have been taken into account in calculating profit and loss.

[60] It was simply not possible for me to be satisfied on the balance of probabilities that Mr Ebbage had in fact received a profit share of in excess of $400,000. This was an elaborate construction designed solely, and unsuccessfully, to bolster Mr Alford's credibility.

[61] Mr Alford asserted that, given their previous lax attendance upon formal documentation of agreements between them, it was agreed that the structure adopted for the AE practice would be formally documented with all the associated agreements, companies, trusts and the like being attended to. Mr Alford said Mr Ebbage was charged with the responsibility of documenting the AE practice arrangements as well as incorporating the necessary companies, amending existing company shareholdings, directorships, settling trusts, attending to minutes, consents, authorities, bank records and the like. He said that Mr Ebbage completed this task in late April 1993 and completed the necessary company and trust requirements. A meeting of Mr Alford and Mr Ebbage as directors of AE on 5 April 1993 noted the completion of the PPG Trust, associated, as Mr Alford said in his evidence, with him, and the Ebbco Trust and Ebbco Holdings Trust, associated with Mr Ebbage.

[62] Solicitors were engaged to finalise draft agreements prepared by Mr Ebbage. Mr Alford said that he gave instructions himself to Michael King, who was at that time a partner of McLaughlins, the law firm that they then used.

[63] Mr Alford said the agreement with Mr Ebbage that Mr Ebbage would pay Mr Alford's Esanda Finance Facility was recorded in notes which are no longer in Mr Alford's possession. There was, as I have said, no executed written agreement.

[64] Minutes of a management meeting of AE Pty Ltd held at the Southport practice on 30 March 1993 refer to a number of matters including the $200,000 owing on the Esanda Finance Facility for the Southport practice and $200,000 owing to Crayfield in respect of the Beaudesert practice. No mention is made of Mr Ebbage's having responsibility for the repayment of the Esanda Finance Facility.

[65] Mr Alford asserted that, at the time of the inception of the AE practice, his Esanda Finance Facility was being serviced on an interest-only basis. Discussions had been held with officers of Esanda Finance and Mr Alford with a view to formalising a debt reduction programme. Mr Alford said that his relationship with Esanda Finance was excellent. Mr Alford also said that Mr Ebbage had an outstanding loan facility with Esanda Finance in the amount of $100,000, and that Mr Ebbage's relationship with Esanda Finance was very strained. Mr Alford said his own relationship with Esanda Finance became difficult after November 1993 when various arrangements and undertakings to repay principal amounts of the Esanda Finance Facility were made but not honoured. Mr Alford said that Esanda Finance placed pressure on him to repay the Esanda Finance Facility "after forming the view that the earnings or profits of the Southport practice were being shared with [Mr Ebbage]".

[66] Mr Alford said that his indebtedness to Esanda Finance was never fully discharged by Mr Ebbage. Mr Alford gave evidence that Mr Ebbage endeavoured to sell the Beaudesert practice in late 1995 and agreed to use the proceeds from the sale of the Beaudesert practice to settle, wholly or substantially, the Esanda Finance Facility. Mr Alford said that Mr Ebbage did not honour this commitment and that the balance of the outstanding liability under the Esanda Finance Facility was paid by Mr Alford. He said that all payments to Esanda Finance were made by Cranot or other companies associated with Mr Alford's family and funded from the AE practice, except for one payment of $30,000 made by Mr Ebbage immediately after the sale of the Beaudesert practice in January 1996.

[67] Mr Ebbage sold the Beaudesert practice by contract dated 15 December 1995 to Karric Pty Ltd ("Karric") and Alise Pty Ltd ("Alise") ("the Beaudesert sale contract"). Karric was a company under the control of Richard Gillow who had been an employee of AE at the Beaudesert practice from the time the AE practice commenced in 1993 and of AES from 1 July 1994. Alise was controlled by Alan Teese. The sale price was $348,000, made up of $30,000 for plant and equipment and $318,000 for goodwill. The sale settled on 2 January 1996. The negotiations for the sale of the Beaudesert practice took place from early 1995. Mr Gillow and Mr Teese retained a Brisbane firm of solicitors who drew up a draft contract. Further negotiations ensued and towards the end of 1995 Mr Alford negotiated with Mr Gillow and Mr Teese over the terms of the contract. A new contract was drawn up by another firm of solicitors.

[68] On 3 January 1996, Mr Ebbage received into his bank account the proceeds of the sale of the Beaudesert practice. On 8 January 1996, Mr Ebbage paid $300,000 to Crayfield and $30,000 to Cranot. On 11 January 1996, Mr Ebbage paid a further $17,500 to Cranot. Both payments to Cranot were recorded as a loan.

[69] The accountancy partnership between Mr Alford and Mr Ebbage was severed in January 1996 with the sale of the Beaudesert practice. Mr Alford asserted in cross-examination that it was then that $400,000 became immediately payable by Mr Ebbage in respect of the Esanda Finance Facility even though that had not been a term of the original agreement but was, Mr Alford said, agreed by Mr Ebbage in mid-1995 when he decided to sell the Beaudesert practice.

[70] Thereafter Mr Ebbage received $600 per week which was subsequently reduced to $346 per week until about June 1998. In addition, $3,000 per month was paid on the mortgage on Mr Ebbage's principal place of residence at Monaro Drive, Bonogin and sundry debts were paid. Mr Alford said these moneys were paid from the income generated by the Southport practice. He said he agreed to pay these moneys because of what he described as his equal interest in AET and his understanding that Mr Ebbage would act in his best interests in relation to his management of AET. This agreement was not verified in writing. Another, more likely explanation was that this was part of the financial settlement between them at the termination of the partnership, the responsibility for run-off matters, the maintenance of goodwill of the Southport practice and the payments received by the Beaudesert practice for work in progress which had not been purchased by the new owners.

[71] Mr Alford said that Mr Ebbage told him the reason that he did not pay more to discharge the Esanda Finance Facility was that he was obliged to repay debts owed to his father, Mr Ebbage Snr. Yet it appears from the affidavit filed by Mr Alford in these proceedings that he had a power of attorney to act on behalf of Mr Ebbage during the negotiations and anticipated settlement of the transaction and so had the capacity to direct payment of moneys received. Mr Alford executed the sale contract of the Beaudesert practice for Mr Ebbage under his power of attorney. Mr Alford's role in the sale of the Beaudesert practice was confirmed by Mr Gillow.

[72] Mr Alford asserted that the failure by Mr Ebbage to discharge undertakings to make partial repayments of the principal under Mr Alford's Esanda Finance Facility as well as Mr Ebbage's failure to discharge undertakings with respect to his own finance facility with Esanda Finance, irretrievably damaged Mr Alford's relationship with Esanda Finance. However, that is a self-serving version of the true reasons for the deterioration in Mr Alford's relationship with Esanda Finance.

[73] Esanda Finance was clearly increasingly unhappy that its debtor, Mr Alford, was not making repayments of capital owed by him. He had not assigned the debt and its repayment so of course he remained personally liable for repayment of the debt. Mr Alford said in his affidavit that he was outraged that Mr Ebbage put his own financial needs and that of his estranged wife above the need to repay Mr Alford's debt to Esanda Finance. Mr Alford asserted that Mr Ebbage took far in excess of 50 per cent of the profits from the AE practice and "did not sacrifice any or very little of his profit share to accommodate the $400,000 profit share payment to which [he] was entitled".

[74] Mrs Atkinson gave evidence as to her reconstruction of the Esanda Finance Facility and its repayment history as well as by whom the debt was to be paid. Her affidavit showed that she did not discuss the liability for repayment of the Esanda Finance Facility at the time. It appeared that the only source of her information, other than contemporaneous documents, which speak for themselves, was Mr Alford and so her evidence on that matter added nothing to his. For example, she said that she was told by Mr Alford that Mr Ebbage had assumed liability for repayment of the loan and had agreed that the principal would be repaid from the sale of the Beaudesert practice in 1996. But it appeared from cross-examination that she was not told this information at that time, but rather subsequently, once this litigation had commenced. As such, her evidence was no more than a repetition of the self-serving statements made to her by Mr Alford and cannot make his case any stronger.

[75] This matter points to a difficulty in relying on Mrs Atkinson's evidence. She was first employed by Mr Alford as a young book-keeper in 1991. He effectively took her into partnership with him and two others before she was even a qualified accountant. She only graduated with a Bachelor of Business in April 2001 and at the time of trial had not yet achieved her professional qualification as an accountant. She was, perhaps understandably, very loyal to him and accepted what he told her in the preparation for this litigation without question. Her trust in him was shown by the fact that the joint venture in the accountancy practice in which she believes herself or her corporate vehicle to be a party remains undocumented. She was unable to say which entity held Mr Alford's interest in this joint venture. During her evidence, she appeared reasonably intelligent but somewhat naïve and relatively unsophisticated compared, in particular, to Mr Alford and his associates such as Mr Diamond. Her lack of concern about being a party to such an oral agreement where she does not even know the identity of one of the joint venturers was, in the context of this litigation, indicative of her trusting, loyal but unsophisticated and naïve nature. The lack of objectivity in her evidence often undermined its utility.

[76] Mrs Atkinson conceded that she did not distinguish in her affidavit, which constituted her evidence-in-chief at the trial, between what she knew at the time of events or transactions she described and what she was told by Mr Alford after the death of Mr Ebbage or in preparation for the trial of this matter.

[77] The contemporaneous documents in evidence showed that Mr Alford borrowed money from Esanda Finance. The account number was 464037864. The loan was secured by a Bill of Sale 01009/89 which was renewed as 780/94 in respect of property described as "leases, personal property, goods, chattels, effects, furniture, fittings, plant and equipment, goodwill, bookdebts and all assets and undertakings of the business known as `Alfords' ". The loan was also secured by a company charge BC891617 (renewed as 276345) over the same property. It was due for repayment on 11 October 1993.

[78] The records of the AE practice showed that Grant Ferguson ("Mr Ferguson") from Esanda Finance phoned on 18 October 1993 about the debt which was by then due for repayment. On 19 January 1994, Mr Alford wrote to Mr White, the State Manager, Commercial Finance of Esanda Finance, complaining that he had been given verbal assurances by employees of Esanda Finance that his expired Finance Facility would be extended without further security, but that this had later been contradicted by a letter of 24 November 1993 from Mr Kling of Esanda Finance. Mr Alford said that he had asked Mr Ferguson if he could extend the interest-only loan for 12 months and thereafter convert to a principal and interest loan for seven years. Mr Ferguson said he was not confident that another period of interest-only loan would be approved. Mr Alford said that nonetheless he assumed that approval had been granted. However, he was contacted by another employee of Esanda Finance, Ms Jenkins, who told him that additional security would be required if Esanda Finance was to consider extending the loan at all. Mr Alford told her that he had assumed that the loan had been renewed because of the length of time in which he had not been told anything to the contrary.

[79] Mr Alford said in the letter that subsequently, on 2 November 1993, he received advice from Mr Kling confirming that the advance had been extended for a further six months on an interest-only basis, and that upon expiry of the six months, a further extension would be on a principal and interest basis for which freehold security might be required. However, Mr Alford said he received a letter from Mr Kling dated 24 November 1993 which in no way correlated with his interim advice of 2 November 1993. Mr Alford went on to assure Esanda Finance that his association with Mr Ebbage had no effect on his income or upon the security that Esanda Finance had. He said that:

"It appears Esanda has some concern with Mr Ebbage, however, I fail to see what this concern has to do with my facility. As previously stated my conduct should be under review not that of a person who in real terms has no authority over the practice known as Alfords which is Esanda's prime security."

These representations to Esanda Finance as to his relationship with Mr Ebbage make no mention at all of the agreement that he asserted in this matter that he had made with Mr Ebbage that Mr Ebbage was in fact responsible for the repayment of Mr Alford's Esanda Finance Facility. His contemporaneous statements to Esanda Finance were inconsistent with what his assertions were during the trial of this matter.

[80] In order to further convince Esanda Finance of his capacity to repay moneys owing to Esanda, Mr Alford asserted that "Gross Fees for the years ended 30/6/92 and 30/6/93 were approximately $700,000 and $600,000 respectively". He said that his maintainable fee base could be assumed to be $500,000. This of course contradicts the evidence which he gave in this court that as at March 1993 the Southport practice generated fees in excess of $1,000,000 per year. As I have said previously, that evidence was patently untrue. When faced with this further contradiction of his evidence, Mr Alford said that what he and Mr Ebbage did was sit down with a list of clients and place against each of those clients the estimated fee base that would be generated in a year. However, he said the document evidencing that had not been discovered as it was "totally irrelevant".

[81] On 26 May 1994, Craig Camm, Manager, Professional Equity Finance from Esanda Finance, wrote to Mr Alford saying that the Finance Facility had expired on 11 October 1993 and the subsequent delay in renegotiating the facility was unsatisfactory and that Mr Alford's reluctance to return his numerous telephone calls was most disappointing. Mr Camm called for certain information to be provided by 3 June 1994 including up-to-date trading results to 31 March 1994 for the practice and its service company; an updated statement of position; latest cash flow forecast or budget for the practice to 30 June 1995; the signed Privacy Act agreement; and his intended repayment arrangement with regard to the facility.

[82] Everything within the AE practice was not going smoothly. In June/July 1994, the Nerang practice of the AE practice was closed down. Both Mr Alford and Mr Ebbage were concerned with other matters. Mr Alford was considering a move to the United Kingdom. Mr Ebbage was preoccupied with AET.

[83] On 4 October 1994, a Notice of Exercise of Power of Sale under the Bill of Sale was given to Mr Alford because of his default in repaying the principal of $199,819 which was due on 11 October 1993, together with interest. The total sum owing as at 29 September 1994 was $202,674.74. On 6 October 1994, Esanda Finance served a Notice of Exercise of Power of Sale on AEH, formerly Whitewell, pursuant to the company charge. On 10 October 1994, Mr Alford and Mr Ebbage considered the debts owed by each of them and the AE practice and a debt reduction programme. A note prepared showed that Mr Ebbage personally owed $1,155,000 and Mr Alford owed $970,000. In addition, they jointly owed $2,897,000. The $200,000 owed under the Esanda Finance Facility was part of Mr Alford's personal liabilities. There was no suggestion that that liability had been taken on by Mr Ebbage or was a joint liability. The method proposed for repayment of the Esanda Finance Facility was the sale of SCT Ltd shares.

[84] On 4 January 1995, Mr Alford wrote to Mr Camm at Esanda Finance submitting a repayment proposal showing an immediate payment of $25,000, further payments of $25,000 at the end of January, February and March with payments of $50,000 at the end of June 1995 and December 1995. In that letter he says, "I confirm that the above repayments will be sourced from the sale of public company shares". That statement does not tend to support his claim in these proceedings that the repayments were to be made by Mr Ebbage. On the same date, Mr Alford sent a cheque to Esanda Finance for $25,000; while it is signed by him the cheque is from Cranot as trustee for Cranot Trust No 3. In evidence, Mr Alford said that, contrary to the representation in his letter to Esanda Finance, those funds came from AEF or AES but not from the sale of SCT Ltd shares. He was unable to say what the ultimate source of that money was.

[85] There were file notes of various telephone calls between Mr Alford and Mr Camm with regard to the Esanda Finance Facility in January, February, and August 1995. A file note on 30 January 1995 recorded:-

"1. AJA rang Rick Mayne and instructed him to sell $150,000 worth of SC shares at any cost.

2. Sell Charter Pacific shares and options prior to 28/2/95.

3. Get $25,000 of [sic] Reid for 30 days - AJA to put funds in Cranot name and draw Esanda cheque from Cranot P/L 1/2/95."

That file note appears to be in Mr Ebbage's handwriting. Mrs Atkinson asserted that the SCT Ltd shares belonged to Mr Ebbage but provided no basis for this assumption. The fact that Mr Alford instructed their sale suggests that, on the contrary, they belonged to him. She said that the Charter Pacific shares belonged to both Mr Alford and Mr Ebbage, but, even if that were true, and there was no objective evidence as to its truth, it is equivocal as to whether Mr Ebbage had taken on the responsibility for repayment of Mr Alford's Esanda Finance Facility.

[86] The balance sheet and the annual trial balance for Mr Alford drawn up on 16 July 1996 for the financial year ending 30 June 1996 showed the Esanda Finance Facility of $200,000 as a liability of Mr Alford's. It made no mention of the $400,000 or any other figure said to be owing to Mr Alford from Mr Ebbage.

[87] A file note apparently in Mr Ebbage's handwriting on 3 August 1995 recorded:-

- he had been given unconditional promises on numerous occasions for financial statements and letters

- sure that PE had nothing to do with S/port practice

- fees had deteriorated in '94 and they were concerned with their security.

There was no way Esanda wanted the loan or any part of it on their books. IT MUST BE PAID OUT.

CC had copped a lot of flack internally about how AJA loan had been conducted.

AJA to ring CC by 11th August to discuss payout. Esanda may give extra time eg. 2 weeks to 1 month to pay out loan."

[88] A long file note dated 15 August 1995, apparently in Mr Alford's handwriting, of a telephone conversation with Mr Camm did say, inter alia, "association with PGE is still basically the problem". It is possible that that comment by Mr Alford may suggest some support for his assertions that the Esanda Finance Facility was repayable by Mr Ebbage and that his association with Mr Ebbage was the source of his problems with Esanda Finance. However, it is more consistent with his asserting to Esanda Finance that the source of his problem with repayment of the loan was his association with Mr Ebbage. His failure to repay moneys well overdue would, of course, require him to give some explanation. His behaviour before and after this date showed that Mr Alford made various promises and representations about repayment which he did not keep.

[89] Nothing in the documentary evidence suggests that he informed Esanda Finance what he now asserts, that Mr Ebbage was contractually bound, by an agreement he made with Mr Alford, to repay Mr Alford's Esanda Finance Facility.

[90] On 17 August 1995, Mr Alford on behalf of Cranot, wrote to Mr Camm at Esanda Finance with a repayment proposal which would result in a balance at 30 December 1995 of $50,000 which would be paid on 31 December 1995. He confirmed that the progressive payments which were outlined would be primarily funded from practice cash flow and that the final payment on 31 December 1995 would, to a large extent, be reliant on proceeds from asset disposal. On 25 October 1995, Terry Simpson of Esanda Finance telephoned and Mr Alford told him that he still expected to be able to pay the remainder owing on 31 December 1995.

[91] On 21 December 1995, Mr Alford told Esanda Finance that settlement of the sale of the AE practice would occur on 30 January 1996, that an amount of $30,000 would be paid by 3 January 1996 with the balance on 31 January 1996. On 8 January 1996, Mr Alford sent a cheque for $30,000 in repayment of the Esanda Finance Facility to Esanda Finance. Cranot had on that day received $30,000 by cheque from Mr Ebbage. As previously noted, Mr Ebbage paid $30,000 to Cranot on 8 January 1996 and $17,500 on 11 January 1996 both of which are recorded as loans to Cranot. There were numerous phone calls in February 1996 from Esanda Finance with regard to the settlement on 31 January 1996 which Mr Alford said had not gone ahead.

[92] On 11 March 1996, Esanda Finance wrote to Mr Alford referring to the fact that the loan agreement expired in October 1993 and that despite various agreements and indulgences an amount of $74,827.61 was owing on the Finance Facility as at 14 March 1996. Esanda Finance said in the letter, "We understand that some problems have been incurred in respect to the proposed sale of part of your practise [sic] which has again caused delay to the conclusion of this lending". The "proposed sale" of the Beaudesert practice had in fact occurred by then. Mr Alford said in evidence that this in fact referred to his sale of part of the Southport practice to Garry Best, Alicia Atkinson and Karl Farmer. If so, then it was money which he was to receive and not Mr Ebbage's funds that were to be used to repay the Esanda Finance Facility. Mr Alford was informed in the letter that if Esanda Finance had not received payment by 15 March 1996 they would refer the matter to their solicitors.

[93] The liability was finally discharged on 12 February 1997.

[94] In the statement of claim, the plaintiffs claimed $400,000 as the sum in which Mr Ebbage was indebted to Mr Alford as well as expenses incurred of $76,714.47. Mr Alford said in cross-examination that the figure pleaded of $400,000 was incorrect as $30,000 of that sum had been paid.

[95] Apart from his assertions, the only objective factor which might support Mr Alford's case that Mr Ebbage was responsible for the repayment of Mr Alford's Esanda Finance Facility was the actual payment of $30,000 by Mr Ebbage to Cranot upon the sale of the Beaudesert practice. Like so much of the other evidence, however, this payment was equivocal. It was the price set out in the Beaudesert sale contract for plant and equipment. I did not, for reasons previously set out, find Mr Alford to be a reliable witness on controversial matters and I am therefore unable to rely on Mr Alford's assertions. There was insufficient evidence to persuade me on the balance of probabilities that Mr Ebbage, or any entity associated with him, had agreed to repay Mr Alford's Esanda Finance Facility and that Mr Ebbage still owes $170,000 or any other amount to Mr Alford, or any entity associated with him, in respect of Mr Alford's Esanda Finance Facility.

[96] In February and March 1993 when Mr Ebbage and Mr Alford were discussing the renewal of their partnership and formation of the AE practice, Mr Alford told Mr Ebbage about SCT Ltd. This was an unlisted public company incorporated in New South Wales in March 1988 to research, develop and commercially exploit a patented adaptation of the internal combustion engine invented by Rickard Mayne. Mr Alford took a substantial investment in SCT Ltd himself when he became aware of it after having advised clients of his accountancy practice as to their potential tax liability from their investment in SCT Ltd. Mr Alford did not reveal to Mr Ebbage the names of those shareholders, who were Bretton and Francis Hawker, but told Mr Ebbage that there were many SCT Ltd shareholders who stood to make significant capital profits as a result of share and option purchases in SCT Ltd and that Mr Alford, his family, and other clients, including Colin Diamond, had procured shares or options in SCT Ltd.

[97] After Mr Ebbage expressed some interest in an investment in SCT Ltd, Mr Alford invited him to the Gold Coast Indy car race in March 1993 as a guest in the SCT Ltd corporate box. Mr Alford introduced Mr Ebbage to a number of people involved in SCT Ltd including Mr Mayne, the inventor of the engine known as the split cycle engine and managing director of SCT Ltd.

[98] Mr Alford said in evidence that he and Mr Ebbage attended a meeting with Mr Mayne at 6.00 am on 24 March 1993 at the premises of SCT Ltd at Arundel on the Gold Coast where Mr Mayne demonstrated the principles of his technology and the prototypes. On 26 March 1993, Mr Ebbage purchased an initial shareholding and option holding in SCT Ltd for $40,000. That investment was substantially increased by Mr Ebbage directly with Mr Mayne or through Mr Alford. Mr Alford, however, rather curiously denied under cross-examination that he invited Mr Ebbage to invest in SCT Ltd.

[99] Mr Alford said that Mr Diamond, and his clients and associates, acquired a significant shareholding and option holding in SCT Ltd through Chancetest Ltd ("Chancetest") a company which had been incorporated in the United Kingdom in 1991 specifically to invest in SCT Ltd. Mr Diamond said that Chancetest invested in SCT Ltd shares on Mr Alford's recommendation. It appears that Dario sold 145,000 shares to Mr Diamond for $149,350 on 14 December 1993. Mr Alford told Mr Diamond that he and Mr Ebbage had, independently of each other, each substantially invested in SCT Ltd.

Mr Manthey's invention and the initial agreement

[100] The third important character in the events that unfolded was Steven Manthey. Mr Manthey invented and developed new ideas for internal combustion engines whilst working as a mechanic on the Gold Coast. He had left school in the mid-1970s at the age of 13. While he has great difficulty with literacy, Mr Manthey is an intelligent person with an obvious inventive insight with regard to machinery. His literacy problems could be seen in the obvious difficulty he had reading documents put to him while he was giving evidence, moving his lips as he read to himself. After leaving school, he started rebuilding car engines and thinking about ways in which they could be improved. Although he had no formal training, he obtained work with a light engineering firm, and then in the late 1980s, he opened a car repair and panel workshop known as Exotic Autos. At around the same time, he met Mr Ebbage who was a car enthusiast. Mr Manthey spent many years working from time to time on rebuilding a Pantera DeTomaso motor vehicle owned by Mr Ebbage. For various reasons, including his lack of skill and interest in that area, Mr Manthey's financial and business affairs were poorly recorded or managed. He has always relied on the advice of others in his financial and business affairs.

[101] During 1992, Mr Ebbage asked Mr Manthey about the organisation of his business. An informal arrangement was made for Mr Ebbage to gather together Mr Manthey's financial records and help Mr Manthey to organise his financial affairs. No cash payment was made by Mr Manthey for this. Instead, Mr Manthey assisted Mr Ebbage by, for example, inspecting a boat on the Sunshine Coast that Mr Ebbage was thinking of purchasing. Mr Ebbage had therefore gratuitously taken on responsibilities to Mr Manthey as his accountant.

Mr Alford's account of two agreements with Mr Ebbage and Mr Manthey

[102] Mr Alford gave evidence by affidavit sworn on 20 March 2002 that he had met Mr Manthey in Mr Ebbage's presence on a number of occasions. He said that in April 1993, Mr Ebbage told him that he had discussed SCT Ltd and its engine technology with Mr Manthey. Mr Ebbage said that Mr Manthey was scathing in his criticism of both the SCT Ltd technology and its inventor, Mr Mayne. Mr Alford said he knew from previous discussions with Mr Ebbage and Mr Manthey that Mr Manthey had many ideas regarding mechanical apparatus including some relating to purported significant improvements on the traditional internal combustion engine.

[103] Mr Alford said that in April or May 1993, Mr Manthey flippantly told Mr Alford and Mr Ebbage at Mr Manthey's workshop that rather than waste their money investing in SCT Ltd shares, they should fund him to develop his ideas. He gave reasons why the split cycle technology would not, and could not, be commercially exploited. Mr Alford said that he and Mr Ebbage disregarded Mr Manthey's criticisms but nevertheless became interested in funding the development of Mr Manthey's ideas.

[104] Mr Alford said that one weekend in late May or early June 1993, he visited Mr Manthey's workshop with Mr Ebbage and again discussed the split cycle technology and Mr Manthey's ideas for the development of an alternative engine technology for "a fraction of the cost" spent by SCT Ltd. He said that at the conclusion of that meeting it was resolved between the three of them that Mr Ebbage would continue discussions with Mr Manthey. Mr Alford said that after returning from Mr Manthey's workshop, he made a file note of those criticisms made by Mr Manthey that he could recall. That file note was not produced at the trial of this action.

[105] Mr Alford said that a week after his meeting with Mr Ebbage and Mr Manthey at Mr Manthey's workshop, an investor and shareholder in SCT Ltd, Gordon Bird, was at the office of the Southport practice for a meeting on a matter unrelated to SCT Ltd. Mr Alford said that Mr Bird had an engineering background and had invested in SCT Ltd in 1992, having inspected the split cycle engine technology in 1991. Mr Alford said he told Mr Bird of the criticisms made by Mr Manthey of the split cycle engine. Mr Bird was, he said, dismissive of some of the criticisms but agreed that others had merit and had been raised by Mr Bird himself when he initially investigated the technology. Mr Bird did not give evidence at the trial of this matter.

[106] Mr Alford said that immediately after that meeting he told Mr Ebbage of Mr Bird's comments and that he and Mr Ebbage agreed that Mr Alford would discuss Mr Manthey's criticisms with Mr Mayne. Mr Alford said he also told Mr Hawker of Mr Manthey's criticisms. Mr Hawker gave evidence by affidavit and was cross-examined by telephone as he was in New Zealand at the time of the trial. Mr Hawker's evidence confirmed that Mr Alford told him that an associate of Mr Ebbage was critical of Mr Mayne's engine.

[107] Mr Alford gave evidence that on 16 June 1993 he met with Mr Mayne at the SCT Ltd premises and discussed the issues in the file note which he had made and told Mr Mayne that the criticisms had been made by an engineering associate of Mr Ebbage's (that is, Mr Manthey). Mr Mayne gave evidence by affidavit and was cross-examined. He did not recall whether Mr Alford met him on this date. He said that Mr Alford used to visit the factory regularly. Mr Mayne had no recollection of Mr Alford's mentioning the name Steven Manthey, or showing Mr Mayne a list of criticisms in mid-1993.

[108] Mr Alford said that Mr Mayne satisfied his queries. He said that Mr Mayne said he welcomed any inspection or meeting to discuss his technology.

[109] Mr Alford said that he met with Mr Ebbage on the evening of 16 June 1993 and that they agreed they would arrange for Mr Manthey to visit the SCT Ltd factory and inspect the latest version of the split cycle engine. He said that Mr Ebbage obtained Mr Manthey's agreement to inspect the split cycle engine prototypes and that he arranged with Mr Hawker and Mr Mayne for Mr Manthey and Mr Ebbage to attend the SCT Ltd factory. Mr Hawker gave evidence that he arranged for Mr Ebbage and Mr Manthey to meet and speak with Mr Mayne. He said that "from recollection" that occurred in or about mid-July 1993. Mr Hawker was not however himself present at any such meeting and has no independent knowledge of the date. His evidence was consequently of little assistance in determining the date of the visit by Mr Manthey and Mr Ebbage to the SCT Ltd factory.

[110] Mr Alford said that an inspection by Mr Ebbage and Mr Manthey of the engine took place at the SCT Ltd factory on 14 July 1993. Mr Alford said that he met with Mr Ebbage earlier that day and arranged to meet with Mr Ebbage and Mr Manthey after the inspection. Mr Alford said that he received a call from Mr Ebbage at about 12.35 pm advising that he was delayed and would arrive with Mr Manthey in approximately half an hour. Mr Alford said the meeting in fact took place at the Southport practice at about 2.00 pm and lasted for two hours and 45 minutes, and that as a result he was obliged to rearrange a meeting he had previously scheduled with clients at the Nerang practice for 4.00 pm that day.

[111] Mr Alford said that Mr Manthey was steadfast in his criticism of the split cycle technology. Mr Alford said that during the meeting on 14 July 1993 he wrote a three page prompt itemising some 28 criticisms and comments made by Mr Manthey during that meeting. There is a file note on AE practice letterhead in Mr Alford's handwriting which he said was the prompt that he wrote during the meeting on 14 July 1993. However the file note was undated. Mr Alford said that he was nevertheless able to date the meeting from the telephone message recorded by a member of staff advising that "Steve" and Mr Ebbage would arrive in half an hour.

[112] There is a telephone message which Mr Alford referred to as supporting this version. It is to "Tony" from "Paul" dated 14 July 1993 at 12.35 pm and says, "Will be here in ½ hour with Steve". In the plaintiffs' submissions it was argued that what happened was that "Ebbage leaves message for Alford that he and Manthey would be at Alford Ebbage Southport office in half hour". The message does not refer in terms to Mr Manthey but rather to "Steve". As submitted by the defendants, it is equally likely that the message referred to any other client of the accountancy firm or indeed any other person called Steve.

[113] Mr Mayne was adamant, however, that no inspection by Mr Manthey took place on 14 July 1993. Mr Mayne's clear recollection was that Mr Manthey did not inspect his invention until about the last week of October 1993. In an affidavit filed in reply on 2 October 2002, Mr Alford denied the correctness of this statement. He asserted that Mr Mayne's recollection of events was coloured by demands he made on Mr Alford for the repayment of $80,000. A letter seeking repayment was annexed to the affidavit. Mr Alford asserted in his affidavit of 2 October 2002 that the loan was made by Mr Mayne to Mr Ebbage. Mr Mayne's letter suggests that the loan was made to Mr Alford and that Mr Alford was then asserting that he borrowed the money for Mr Ebbage. These matters were not put to Mr Mayne by Mr Alford's legal representatives who rather suggested to him when he was cross-examined by Mr Sofronoff QC that he was mistaken. I do not accept Mr Alford's assertion that Mr Mayne's evidence was coloured. He gave the impression of being an entirely honest, disinterested witness.

[114] Mr Alford said that during the meeting on 14 July, Mr Manthey elaborated on his own technology and said that he had ideas for at least three variations or adaptations of the internal combustion engine which he believed were both unique and of greater merit than the split cycle technology. Mr Alford said it was clear to him that Mr Manthey was no longer pretending to be a disinterested party merely assisting Mr Ebbage and Mr Alford in relation to the split cycle engine. Mr Manthey was instead promoting his own ideas and testing their interest in investing in his ideas. Mr Manthey stressed, according to Mr Alford, that his ideas could be developed at a minimum of cost and time.

[115] Mr Alford said that rather than taking detailed file notes he had previously agreed with Mr Ebbage that Mr Ebbage would attend on Mr Manthey after the meeting and prepare a comprehensive memorandum, both of Mr Manthey's criticisms of the technology and Mr Mayne's responses to those criticisms. He said that he recalled seeing such a file note which was discussed between himself and Mr Ebbage at considerable length but this document was not produced at the trial of this action. Mr Alford wished to sheet home blame for the loss or destruction of many documents which he said existed, to Mr Manthey but I do accept that is an explanation of the failure of Mr Alford to produce a number of significant documents.

[116] Mr Alford said that it was agreed at the end of that meeting that Mr Ebbage would meet with Mr Manthey not only to prepare a detailed file note of Mr Manthey's criticisms of the split cycle engine, but also to discuss Mr Ebbage's and Mr Alford's ability and willingness to offer financial support for the development of his ideas. Mr Alford said he was unable to take further part in any immediate discussion and that Mr Ebbage, in any event, had advised him that Mr Manthey would feel more comfortable discussing his ideas with Mr Ebbage only. Mr Alford deposed that the topic was the subject of an in-depth conversation between himself and Mr Ebbage on the next day.

[117] Mr Alford said that he was contacted by Mr Ebbage sometime during the next fortnight between 16 and 26 July 1993 when he was interstate. Mr Ebbage said that Mr Manthey was keen for Mr Ebbage and Mr Alford to fund the development of a prototype.

[118] In his affidavit, Mr Alford deposed that in the week commencing 2 August 1993, a meeting was held between himself, Mr Ebbage and Mr Manthey in the offices of the Nerang practice. He said that at that meeting, it was agreed that Mr Ebbage and Mr Alford would financially support Mr Manthey; that Mr Manthey would develop a prototype engine on behalf of a joint venture between the three of them; that Mr Ebbage and Mr Alford would attend to all other matters associated with the joint venture including providing accounting and legal advice, developing patent applications and the like; and that they would share equally, as between Mr Ebbage and Mr Alford on the one part, and Mr Manthey on the other, in relation to any benefit derived from the exploitation of Mr Manthey's technology. Mr Alford then referred to that agreement as the "AET joint venture". Mr Alford said that he and Mr Ebbage made a financial commitment to Mr Manthey on the basis of his estimate that a working prototype would cost no more than $10,000. This alleged agreement will be referred to as the 2 August 1993 agreement. Under cross-examination by Mr Goodwin, Mr Alford said that the agreement was to develop a prototype for an engine for $10,000 that would take no longer than three months to construct. Later he said the agreement was to own the technology rather than just to develop the prototype.

[119] During cross-examination by Mr Griffin QC, Mr Alford said that what was agreed at the August 1993 meeting was that he and Mr Ebbage would accept Mr Manthey's estimate of costs to develop the first prototype in an amount of $10,000; that Mr Manthey would build the first prototype for an amount less than $10,000 and in the time frame of approximately three months; that Mr Alford and Mr Ebbage would fund the $10,000; that there would be an agreement that the technology would be 50 per cent owned by Mr Manthey, 25 per cent owned by Mr Alford and 25 per cent by Mr Ebbage.

[120] Mr Alford said that, subsequently, he and Mr Ebbage discussed their respective interests in the AET joint venture and its funding. They agreed that he and Mr Ebbage, or companies associated with them respectively, would share equally in 50 per cent of the technology developed and any income or benefits derived from the exploitation of that technology, and that the AE practice would fund the venture in the initial stage. Mr Alford says that these agreements that were reached were never formally documented. Under cross-examination, Mr Alford said that he and Mr Ebbage agreed that the company which owned the invention would do so as a bare trustee for, at that time, unidentified beneficiaries. He later said that there was never any decision made as to how Mr Alford and Mr Ebbage would hold their interests.

[121] Mr Alford, however, deposed in his affidavit that he agreed with Mr Ebbage that Mr Alford's interest in the joint venture company to be incorporated for that purpose, would be held by Dario as trustee for the Dario Practice Trust. He said that Mr Ebbage told him that it was his wish that his interest in the joint venture would be held by PPG as trustee for the PPG Trust.

[122] Mr Alford says that Mr Manthey told him, at a time not specified by Mr Alford, that he was not prepared to reduce his interest in the engine technology below that of 50 per cent.

[123] Mr Alford then swore in the affidavit on which he relied in this matter that a second meeting took place on the morning of 27 October 1993 between himself, Mr Manthey and Mr Ebbage at the offices of the Nerang practice. He referred to a handwritten memo on AE practice letterhead, dated 27 October 1993, in Mr Ebbage's handwriting, which refers to "Meeting with Steve Manthey". Mr Alford says that the file note was prepared by Mr Ebbage prior to the meeting on 27 October 1993 and reflected matters discussed between the three of them during that meeting. Mr Alford deposed that on the morning of 27 October, he attended upon two clients at their business premises, the first of which was at Molendinar, and the second of which was at Olson Avenue, Labrador. He said he then travelled from Labrador to the Nerang practice where he met with Mr Manthey and Mr Ebbage.

[124] Mr Alford said that one of the matters discussed was that the estimated cost to produce the first prototype engine had increased from $10,000 to $25,000, although Mr Manthey still prevaricated as to that sum, and could not guarantee that the engine could be produced for that amount of money. It was agreed that a detailed estimate of the funds required to develop the prototype would be undertaken and that Mr Ebbage was to obtain an estimate from a patent attorney in relation to the likely cost that would be incurred in undertaking searches, and in due course, lodging a provisional patent. Mr Alford said that the cost estimate had increased substantially as a direct consequence of Mr Manthey's need for payment of a wage during the development stage of the prototype engine. Notwithstanding Mr Manthey's original advice that he had concepts for at least three engines, Mr Alford said that the development of only one engine prototype was discussed.

[125] During the second meeting, Mr Alford said that he undertook to contact Thomas Ahearn, a patent attorney with whom he had a business association, to make arrangements for the three of them to attend on Mr Ahearn.

[126] Mr Alford said that Mr Manthey confirmed during the meeting that he had told Mr Ebbage that if Mr Alford and Mr Ebbage funded the development of the prototype engine, then they would also share in the rights to any other concepts, designs or ideas that Mr Manthey had in the past or which he might develop in the future during his association with them. The further agreement allegedly reached on that day will be referred to as the 27 October 1993 agreement.

[127] During cross-examination by Mr Griffin, Mr Alford said that the 27 October 1993 agreement varied the August 1993 agreement in the following ways: the price had increased from $10,000 to $25,000; that the moneys would be repayable; that Mr Manthey would receive a wage for the work he had put in; that they would immediately move to have patent attorneys appointed to further investigate the novelty of the technology; that Mr Alford would make contact with Mr Ahearn; that the time frame for the development of the engine had extended from three months to four to six months; that Mr Manthey was not prepared to provide a guarantee as to the costs; that the name Advanced Engine Technology Pty Ltd was proposed to be the name of the company; that drawings and a written précis of how the engine worked needed to be prepared; and that Mr Ebbage was to attend upon Mr Manthey for the purpose of writing a précis of how the engine worked.

[128] Mr Alford said a number of steps were undertaken between 22 October and 3 November 1993 to implement the 2 August 1993 agreement. These included patent inquiries being undertaken; lengthy discussions between Mr Ebbage and Mr Manthey in relation to the proposed operation of the engine prototype and the need to prepare documents and drawings in anticipation of a meeting with patent attorneys; discussions between Mr Ebbage and Mr Alford in relation to the results of patent searches that were undertaken; Mr Manthey's preparing draft drawings in relation to the technology; the preparation of a written statement by Mr Manthey and Mr Ebbage in relation to the mechanical advantages of the technology sufficient for him to attend at the offices of the patent attorney to discuss the matter further; and reviews by Mr Ebbage of drawings and documents prepared by Mr Manthey.

[129] Mr Alford said that development of the technology progressed and a considerable amount of time and energy were expended by the three of them in preparing documentation for a provisional patent application and subsequently for patents.

Mr Manthey's account of the business agreement in 1993

[130] Mr Manthey's version of events during 1993 was rather different. He said that in mid-1993, he gave serious consideration to ideas for engine design which he thought would work. He had little time or money to devote to developing his ideas and was uncertain whom to trust to tell about his ideas. He discussed his ideas with a friend and customer, Paul Lingard, and another potential investor, Robert Sterling. He was not, as alleged in the statement of claim, engaged in research on variations and adaptations of the internal combustion engine from 1992.

[131] In late October 1993, Mr Ebbage visited Mr Manthey at his workshop and asked him to inspect a split cycle engine in which Mr Ebbage had invested as Mr Ebbage was considering increasing his investment. Mr Manthey went with Mr Ebbage to the SCT Ltd factory where the engine's inventor, Mr Mayne, showed them the engine and a video about its operation.

[132] Mr Mayne also recalled this meeting. Mr Mayne recalled receiving a telephone call from Mr Ebbage in the last week of October 1993. Mr Ebbage asked him if he could bring a mechanic friend, named Steven Manthey, to look at the split cycle engine running. As Mr Ebbage was a substantial shareholder, Mr Mayne agreed. It was his usual practice to hold demonstrations only on Saturdays except for substantial shareholders.