Analysis of the payments
147 The payments display a clear pattern. In each case, a debt owed by Austwide, for which the defendant was being pressed for payment, was discharged by the defendant giving directions, in the exercise of his powers as an officer, for payment by Nambucca or Lawnkin. In four of the five cases the defendant arranged for the financial records of the paying company to record the payment as related to something called 'Havendock Loan'.
148 The defendant's explanation of these payments is that Nambucca was indebted to Austwide for fees incurred through the activities of the defendant and Mr Harris pursuant to the management consultancy agreement which, the defendant alleged, had been entered into between Nambucca and Austwide. According to the defendant, the payments were 'third party payments', by which Nambucca reduced its indebtedness to Austwide. The payments made by Lawnkin were, according to the defendant, paid out of Lawnkin's account on the direction of Mr Kearns, and were paid on account of Nambucca's reduction of its indebtedness to Austwide. There were inter-company arrangements between Nambucca and Lawnkin, which was its wholly-owned subsidiary.
149 I find the defendant's explanation implausible for several reasons. First, there is no credible evidence that Austwide submitted invoices to Nambucca in an amount anywhere near $105,000, the total of the five payments challenged by the plaintiff. Only seven invoices were tendered in evidence at the hearing. Mr Harris gave evidence that payments were sought only by invoices, but he gave confusing evidence as to whether he prepared the invoices.
150 Secondly, evidence as to the likely amount of the fees to which Austwide would be entitled (if it were entitled to fees at all) suggests an amount, for the period from September to December 1994, much lower than the benefit received by Austwide through the third party payments.
151 If one adds to the five payments under discussion the Luscombe payment of $35,000, and some other payments of which evidence was given (to Lords of $25,000, to Mr Chow of $16,000, and for payment of invoices of $10,530.75), the total amount received for the benefit of Austwide was $191,530.75.
152 A document entitled 'Austwide Capital Ltd Progress Report' dated 30 March 1995 contains an estimate of the costs to Austwide of its involvement in the Nambucca group from September 1994 to February 1985. The document, which was prepared by the defendant in March 1995, puts the total costs for that period at $47,722. The total costs for the period from September to December 1994 (December being the time of the five payments) were presumably significantly less.
153 There are four invoices for the month of November 1994, rendered weekly, in a total amount of only $8130.75. It is reasonable to infer that the fees for other months would have been comparable to the fees for that month. The defendant criticised the plaintiff for failing to produce any of the financial accounts of Nambucca which could have assisted the Court in considering payments made to or on account of Austwide. The defendant also submitted that the plaintiff had failed to produce the accounts of Austwide, which could also have assisted the Court. Moreover, said the defendant, the plaintiff had not produced the liquidator's report for Nambucca or any audit report for Nambucca or Austwide. I do not accept the defendant's submissions. It seems to me unlikely that such additional evidence would have assisted the Court. The fundamental problem is the absence of any primary records in the form of invoices to support the defendant's case. The plaintiff bears the onus of proving its case, but it is nevertheless appropriate for the Court to draw inferences from the evidence as a whole.
154 The defendant gave evidence that during 1994 and 1995 his hourly rate was $100 and he worked full-time for the Nambucca group (although his evidence at one stage was that he started to work full-time only from 3 January 1995). Mr Harris gave evidence that during 1994 and 1995 his hourly rate was $75 and that he worked for the Nambucca group for 20% of his time. The defendant said that Mr Harris worked 'full-time' for the Nambucca group. Even allowing (though the evidence does not require this) for long working weeks and full-time attendance by both the defendant and Mr Harris, the fees earned by them at their hourly rates from 29 September 1994 to the beginning of December 1994 would be substantially less than the benefit received by Austwide through third party payment of its debts.
155 Thirdly, there is a question as to whether Austwide was entitled to make any charge to Nambucca at all. Mr Phillip Hall and Mr Leslie Hall gave evidence denying that Austwide was appointed as a management consultant to Nambucca or the Nambucca group. The defendant and Mr Harris gave evidence that a management agreement had been entered into between Nambucca and Austwide which appointed Austwide as a management consultant to that company.
156 On balance, I prefer the evidence of Phillip and Leslie Hall to the evidence of the defendant and Harris. As I have already said, I regard the defendant and Mr Harris as unsatisfactory witnesses. Mr Phillip Hall, on the other hand, gave very clear and plausible evidence.
157 The original negotiations between the defendant and Mr Kearns were to the effect that the defendant could expect a share of profits from the acquisition of the Nambucca group, perhaps as much as 50%. Although the evidence on this point is not clear, it does suggest that the reward for the defendant would be a share of profits rather than consulting fees. The transaction of 29 September 1994 was conditional upon a number of events including satisfactory completion of due diligence, and board approval by Equitable Insurance, and it was in the defendant's interest to work to ensure that those conditions were satisfied. That would explain the high level of activity after 29 September 1994.
158 Moreover, although the defendant gave quite specific evidence about the execution of the management agreement, and its destination, no management agreement or any authorised minute was tendered in evidence to confirm Austwide's consultancy retainer. A minute dated 25 October 1994 (exhibit D-21) purports to be a record of a meeting of directors of Nambucca held on 25 October 1994, between Mr Phillip Hall and Mr Leslie Hall by telephone. Amongst other matters, it records a unanimous resolution to appoint Austwide as management consultant to the group of companies. The plaintiff has adduced unchallenged evidence which establishes that this document is a forgery. Further, the minute (if it were genuine) would be inconsistent with the defendant's evidence that the management agreement was executed on 29 September 1994.
159 The plaintiff submits that even if I were satisfied that a management agreement had been entered into between Nambucca and Austwide, that would not serve to authorise payments by Lawnkin. It is unnecessary for me to deal with this submission, since I accept the plaintiff's anterior submission that there was no management agreement between Austwide and Nambucca. However, if there had been an established management agreement between Austwide and Nambucca, and payments had been made by Nambucca's wholly-owned subsidiary in a manner properly documented by reference to the agreement, the fact that the paying company was not Nambucca would not destroy the defendant's case.
160 Fourthly, the contemporary explanations for the five payments were unsatisfactory, in a manner that strongly implies that they were not intended to be referable to the discharge of consultancy fees. Four of the five payments were recorded as relating to the 'Havendock lone'. This recording complied with the defendant's earlier instruction to staff of the Nambucca group that all cheque butts were to be noted with the appropriate loan account. But the annotation was obviously bogus.
161 Havendock was a company that belonged to the defendant, but it had been deregistered on 19 April 1993. At the time of its deregistration, Havendock had given a guarantee. The defendant wrote to the Commission seeking reinstatement of the company, but the application was refused. The defendant gave evidence to the effect that he had given the company to Mr Kearns, even though it had been deregistered, contending that it is not difficult to reinstate a company. He said that he had received instructions from Mr Kearns to have certain payments noted with the words 'Havendock Loan Account', in circumstances where Nambucca's computerised system was with the auditors who had not completed the audit, and Ms Duncan was keeping a Kalamazoo style card system. The defendant speculated that Mr Kearns was using the Havendock loan account as a clearing account in the general ledger to ascertain what expenses he would capitalise and what expenses he would not capitalise.
162 I reject that evidence. One can understand that there might be some holding or suspense account used temporarily before payments could be properly classified: on that point, counsel for the defendant referred me to M J Gordon and G Shillinglaw, Accounting: a Management Approach (4th ed, 1969) p 173 ('suspense for clearing account'); J G Siegal and J K Shim, Barron's Business Guides Dictionary of Accounting Terms (1987), p 417 ('temporary account'); and Yorston, Smith & Brown's Accounting Fundamentals (7th ed, 1977), p 80 ('suspense account'). But why, one might ask, would Havendock be used for that purpose? Havendock would be an entirely inappropriate company for Mr Kearns to use, in light of its guarantee and the fact that it was deregistered. Moreover, there is no documentary evidence supporting the alleged transfer. The contention that a deregistered company was transferred to Mr Kearns and used by him is highly implausible. Mr Kearns was not called by the defendant to give evidence, and I therefore make the usual inference that Mr Kearns' evidence would not have assisted the defendant.
163 There was no 'Havendock Loan' at all, and certainly none that would explain the payments which the defendant made referable to it. There was no attempt to relate the payments to any invoices, or even to the concept of third party payment of indebtedness, for consulting fees payable to Austwide.
164 In my opinion, the defendant's attempt to explain the transactions as third party payments discharging debts to Austwide fails completely. The five payments are what they appear, on the face of the incontestable evidence, to be - payments made at the direction of the defendant, not in satisfaction of any prior obligation, but to discharge his personal debts or the debts of Austwide.
165 In my opinion, by causing those payments to be made, the defendant failed to act honestly in the exercise of his powers as an officer of Nambucca and Lawnkin. He made improper use of his position as such an officer, to gain an advantage for himself and for Austwide to the detriment of Nambucca and Lawnkin. With intent to defraud Nambucca and Lawnkin, the defendant caused transfers of the five sums of money to be made out of property of those two companies. His intent to defraud is to be inferred from the facts that I have set out. Therefore, in my view, he contravened ss 232 (2), 232 (6) and 596 (b) in respect of each of the five payments.
The Schoeller payments