BL & GY International Co Ltd v Hypec Electronics Pty Limited and 2 others [2002] NSWSC 38 | Case summary

BL & GY International Co Ltd v Hypec Electronics Pty Limited and 2 others [2002] NSWSC 38 | Case summary | Zoe

1 Her Honour: The plaintiff in this case (BL & GY) seeks payment of a large amount of money which it says is the price of computer goods which it supplied to the first defendant (Hypec) over a number of years. 2 Described thus, this case would appear to involve little more than an analysis of the commercial dealings between these two corporations. However, the surface simplicity of the case belies the complex issues which lie beneath. At the heart of the case are allegations of deception, fraud, collusion, and forgery. The unscrambling of these issues has proved a time consuming and difficult task. The story which emerges is a disturbing one. 3 An appropriate starting point is to describe the background of the major participants and the history of their relationship. 4 Lucy Mead (nee Yang) and her sisters, Grace Yang and Josephine Chen, were born and brought up in Taiwan. They had three other siblings who do not feature in this case. On 21 May 1976, BL & GY was incorporated in Taiwan. The shareholding was initially divided equally between Lucy Yang (as she then was) and her mother, Lee Chin Lien. Lucy was registered as the "person in charge" of the company. In 1982 the shareholding was altered so as to comply with newly imposed legislative requirements. Lucy's and her mother's shareholding was reduced to 44%, with 4% being held by each of Grace Yang, Josephine Chen, and their father Yang Mei Chen. No amendment was made to the name of the person in charge of the company, which remained Lucy Yang. 5 BL & GY conducted the business of exporting PVC products such as raincoats, suitcases, umbrellas and other travel goods, primarily to the United States, but also to other countries including Australia. It conducted its business from Rooms 1201 and 1207, 375 Hsin Yi Road, Taipei, which was large enough to provide office space for the company and living space for Grace, Lucy, Josephine and their parents. 6 In about 1978 Lucy first visited Australia. Her sister Grace first came here 2 or 3 years later. In 1980 they purchased a shelf company, Lamron Pty Limited ("Lamron") of which Lucy and Grace were sole directors and shareholders. Lamron was involved in the export of sheepskin products, although this was not a major business enterprise, and did not last beyond the early 1980's. 7 In early 1982, Lucy Yang first met Colin Mead. At that time Colin was working as a service engineer, at a salary of about $23,000 per year. He lived in rented accommodation with his mother. Lucy by that time had already purchased three properties in Australia, two in her own name and one through Lamron. She said in evidence that these properties were bought with money sent by her parents from Taiwan. Her principal residence remained in Taipei. 8 An attachment developed between Colin Mead and Lucy Yang. Colin was interested in and knowledgeable about computers. He had a friend who operated a computer company, to whom he arranged to sell computer boards imported from Taiwan. On 27 March 1982, Colin wrote to Lucy, who was then in Taiwan, with a view to organising the purchase of computer boards in Taiwan, for resale to his friend in Australia. The letter indicated that, in addition to the 10% profit which he had quoted to his friend, he and Lucy would be able to make a further 35% undisclosed profit on each transaction. 9 In December 1982 Colin Mead and Lucy Yang were married. Since then Lucy has resided in Australia. She became an Australian citizen in 1985. They have two children, born in 1986 and 1989 respectively. 10 In January 1983 Colin and Lucy Mead visited Taiwan for approximately 2 weeks. They stayed a little out of Taipei, in a house owned by Lucy's family, and made regular visits to the premises in Hsin Yi Road. According to Lucy Mead and Grace Yang, it was during this visit that arrangements were first made for BL & GY to export computer parts to Colin and Lucy Mead in Australia. Lucy said that they visited a number of manufacturers and obtained samples and catalogues of their products. Both she and Grace described Colin Mead as saying that they, meaning the Taiwanese company, would be able to make a profit of at least 35% on the export of computer products, compared to the 15 or 20% they were making on the export of PVC items. Colin Mead denied that there was any such conversation. He said that the visit to Taiwan was primarily a holiday. However, he said that whilst he and Lucy were in Taipei he came across some multi-meters which he realised could be imported into Australia at a profit. After their return to Australia he set about organising the importation of these products. 11 In about April 1983 Colin Mead gave up his job as a service engineer and devoted his business efforts to the sale of electronics. Lucy Mead was then working as secretary in a shoe factory, a position she relinquished a year or so later in order to join him in the electronics business. At that stage they were living in a house in Stamford Avenue Ermington, which they had purchased shortly before their marriage. Later the business operated from premises at Ryedale Road Ryde, and later again from premises at 34 Herbert Street West Ryde. 12 According to Colin Mead, the business started with the importation and sale of multi-meters and later moved into the purchase and sale of other electronic products, particularly computer parts. BL & GY was by no means its sole supplier. The business also purchased goods locally and imported them from other countries such as the USA, Hong Kong and Singapore. 13 The electronics business was initially conducted through Lamron. Colin Mead became a director of that company, but the shareholding remained jointly held by Lucy and Grace. On 5 March 1985 Hypec was incorporated. Colin and Lucy Mead were the sole directors and shareholders. From then on the business was conducted through Hypec. As the business expanded, so did the range of products which were bought and sold. From late 1984 the business started dealing in whole computers. In 1988 it secured a contract with the NSW Department of Education to sell computers to schools. This contract provided a great deal of business to Hypec. By about 1991 it employed approximately 20 people and had a turnover of many millions of dollars each year. However, those heady days were not to continue. With a decline in the price of computers and computer products there was a decline in Hypec's business. By 1996 it was reduced to a small operation. It ceased operating entirely in November of that year, when Colin and Lucy Mead separated. 14 Turning to BL & GY in Taiwan: there were a number of changes in the management of the company over the years, in operation if not on paper. The evidence indicates that Taiwanese companies bind themselves contractually by the affixing of two stamps. The larger stamp is the company stamp, and the smaller stamp is the personal stamp of the authorised officer, who is the person registered as being in charge of the company. In the case of BL & GY, the personal stamp has always been that of Lucy Mead, who still remains registered as the person in charge of the company. Lucy was the original manager of the company, at least until late 1982 when she married Colin Mead and came to Australia. After this time, the management of the company was effectively taken over by her sister, Grace Yang. However, Grace continued to use Lucy's stamp when completing documentation on behalf of BL & GY. In 1989 Mr and Mrs Yang, Lucy's and Grace's parents, moved to Australia. In 1995 Grace also took up residency in Australia. When she did so, the management of BL & GY was taken over by their younger sister, Josephine Chen. However, no change was made in the documentation, and Josephine continued to use Lucy's personal seal when completing documents on behalf of the company. 15 The last shipment of computer goods from BL & GY in Taiwan to Hypec in Australia was in March or April 1996. In October 1996, BL & GY vacated the premises at Hsin Yi Road. Josephine Chen thereafter managed the affairs of the company from her home. At the time of the move she threw away most of the company's accumulated documents. Virtually the only documents which she kept, as relevant to this case, were photocopies of what were said to be the unpaid invoices relating to goods supplied by BL & GY to Hypec between 1987 and 1996. 16 It is beyond dispute that BL & GY supplied a large number of computers and computer parts to Lamron, and later to Hypec, during the course of the defendants' computer business. The available records commence in 1987. On Colin Mead's calculations (which must be taken to produce the minimum possible figure) goods to the value of over four million dollars were supplied by BL & GY to Hypec between 1987 and 1996. BL & GY says that the figure is much greater: its invoices over that period claim a total of $9,390,185.51. 17 The precise quantity, description and price of goods provided by BL & GY to Hypec is very much in dispute in these proceedings. Indeed it is one of the central issues in the case, and I will be discussing it later. Similarly, the amount of payments made by Hypec to BL & GY is disputed, and will be discussed later. 18 It seems that Colin and Lucy Mead had well defined roles in the Hypec business. Colin was the computer expert and was involved in services and sales. Lucy effectively managed the company. She was in charge of its financial affairs, and was responsible for paying trade creditors and staff wages. Both Colin and Lucy were authorised to sign cheques on behalf of the company, but it appears that they were almost invariably signed by Lucy alone. All Hypec's dealings with BL & GY were conducted by Lucy, presumably in Mandarin. Colin Mead would tell her the products that he wanted Hypec to buy. She would make enquiries from BL & GY, and tell him the prices at which they could be bought. If these were acceptable to him, she would proceed to order the goods in the quantities he stipulated. It was she who would then deal with all documentation between Hypec and BL and GY. 19 Colin Mead said that until mid 1996 he thought that the business was running at a reasonable profit. Notwithstanding that the company was carrying a fairly large overdraft, he believed that it was under control. The first intimation he had that Hypec was in financial difficulties was in June 1996 when the Commonwealth Bank complained that the company was operating beyond its overdraft arrangements. At that stage, and for the first time, he set about ascertaining the financial position of the company. He obtained the figures from Lucy and put them into a computer program, which indicated that the company was running at a substantial loss. By September or October 1996 Colin Mead described things as "starting to get a bit out of hand." The bank was seeking further information and requiring repayment of the company's overdraft. In addition, Colin and Lucy Mead's relationship had deteriorated. At that stage they were living separately but under the same roof. Eventually, in November 1996, Colin Mead left both the business and the matrimonial home. Hypec has not operated since. It was Grace Yang, Lucy Mead's sister, who paid the $1.1m which was owed by Hypec to the Commonwealth Bank. In exchange she received a mortgage over a property at Lot 2, Singleton Road, Laughtondale which was jointly owned by Colin and Lucy Mead but which had been paid for by Hypec money. 20 The property at Lot 2 Singleton Road, Laughtondale was by no means the only property purchased in the names of Colin and Lucy Mead and paid for by Hypec. In all, some ten properties were purchased in their joint names between 1988 and 1995, using Hypec funds. Eight of these remained unsold at the end of 1996. Moreover Hypec money had been used to build and furnish a lavish house on at least one of those properties. An expensive boat had been bought, and both Colin and Lucy were driving top range BMW motor cars. It was hardly surprising therefore that by late 1996 Hypec was lacking in available funds. HISTORY OF THESE PROCEEDINGS 21 On 17 September 1997 BL & GY filed a Statement of Claim in these proceedings, seeking $4,844,466 together with interest and costs. The Statement of Claim alleged that this amount was owing pursuant to loans made by BL & GY to Hypec between 30 June 1992 and 30 June 1996. Both Colin and Lucy Mead were also joined as defendants on a number of alternative bases, which included negligence and a breach of s 232 of the Corporations Law. Colin Mead defended the proceedings. However, no defence was entered by either Hypec or Lucy Mead. On 4 December 1997 judgment was entered against Hypec for an amount in excess of $7.6m, together with costs. On 6 January 1998 judgment on liability was entered against Lucy Mead with damages to be assessed. 22 In the meantime, in March 1997, Colin Mead had commenced proceedings in the Family Court, seeking division of his and Lucy's matrimonial property. An attempt was made in 1999 to cross-vest the present proceedings to the Family Court. However, following the decision in Re Wakim (1999) 198 CLR 511, the Family Court found it had no jurisdiction to proceed with the matter and remitted it back to the Supreme Court. 23 BL & GY, having obtained judgment against Hypec, proceeded to make a demand for payment of the judgment debt. In due course it petitioned for the winding up of Hypec. On 7 May 2001, an order was made for the winding up of Hypec upon BL & GY's petition. David Watson was appointed liquidator of the company. Shortly afterwards, Colin Mead applied to the Equity Division of the Court (proceedings number 1933/01 and 3832/01) pursuant to s 237 of the Corporations Act 2001 seeking that leave be granted for him to intervene in the present proceedings for the purpose of taking responsibility for the proceedings on behalf of Hypec. On 21 August 2001 Einstein J made orders as sought. 24 On 7 September 2001 Colin Mead, on behalf of Hypec, filed a notice of motion seeking that the judgment entered against it on 4 December 1997 be set aside. On 25 September 2001 Sully J ordered that the judgment be set aside and that Hypec have leave to file a defence and a cross-claim against Lucy Mead and Grace Yang in terms of drafts which were before his Honour. Leave to file the cross-claim was given on Colin Mead's undertaking that a cross-claim earlier filed in his own name, also against Lucy Mead and Grace Yang, be permanently stayed. 25 Thus it is that in the current proceedings the interests of Hypec have been represented by Colin Mead rather than by the liquidator. The pleadings have been amended on numerous occasions. Under the most recently filed "further amended Statement of Claim", BL & GY claims $7,484,466 from Hypec, which is said to be the price of computer parts supplied by BL & GY to Hypec between about 1988 and 1996. BL and GY's claim against Colin Mead is based on s 232 of the Corporations Law. Its claim against Lucy Mead is also based on s 232 of the Corporations Law as well as containing a negligence count. Hypec has cross-claimed against BL & GY, claiming that Hypec overpaid BL & GY by an amount in excess of $1.3m. Its cross-claim against Lucy Mead alleges a breach of fiduciary duty. The cross-claim against Grace Yang claims that she participated in Lucy Mead's breach of fiduciary duty. 26 The position of Lucy Mead in these proceedings is, to say the least, ambiguous. She remains registered as the person in charge of BL & GY and holds a 44% shareholding in the company. Her sisters and parents hold the remaining 56%. She has allowed judgment to be signed against her, and says that she and Hypec are indebted to BL & GY in substantial amounts. Accordingly, although she is nominally a defendant in the proceedings, her interests are clearly identified with those of the plaintiff. Indeed, she was a principal witness in the plaintiff's case. Moreover, it is Colin Mead's contention that these proceedings were fraudulently and collusively commenced under the direction of Lucy Mead in order to divert funds from Hypec and its directors (Colin and Lucy Mead) to the Taiwanese company, thus subverting the Family Court proceedings which were pending between them.

THE BASIS OF BL & GY'S CLAIM AND HYPEC'S CROSS-CLAIM 27 BL & GY's claim is based on the general ledger of BL & GY (Exhibit K). This document starts in January 1991 with an opening debit balance of over $44m New Taiwanese Dollars (approximately AUD$2.2m) and ends on 25 September 1996 with a closing balance of AUD$4,884,466, being the amount initially claimed in these proceedings. The ledger is separated according to financial years, which in Taiwan run from 1 January to 31 December. It lists BL & GY invoices according to their date, invoice number and the amounts claimed, which are recorded in Australian dollars. It also records payments received by BL & GY from Hypec. However, except in 1994, these payments were relatively sparse: $150,000 in two payments in 1991, $44,818.10 in one payment in 1992, $40,000 in two payments in 1993, none in 1995 and a single payment of $47,500 in 1996. In contrast, the 1994 entries show more credits than debits. Eleven credits were recorded between 21 January and 6 September 1994, totalling $2.63m. It is BL & GY's contention that these credits were recorded in response to Lucy Mead's promise to transfer the property at 2 Singleton Road, Laughtondale to BL & GY. The property was never in fact transferred, and therefore it is claimed that the credits were erroneously made, and that this amount should be added to the plaintiff's claim. The amount presently sought by BL & GY is thus $7,484,466, being the original claim of $4,884,466 together with this $2.63m. 28 As I have indicated, BL & GY's ledger, Exhibit K, is based on invoices said to have been sent by BL & GY to Hypec between January 1991 and September 1996 as well as payments said to have been made during that period. Photocopies of all these invoices, together with earlier invoices going back to 1987, were tendered into evidence (Exhibit L). These invoices were photocopies of other photocopied invoices (Exhibit X). The photocopies in Exhibit X were produced by BL & GY. They constitute the only surviving record of the invoices upon which BL & GY seeks to mount its claim. The originals, of course, were sent to Hypec. Lucy Mead said that she had a flood at her premises in January this year which caused a great deal of damage and, amongst other things, destroyed original invoices and other documentary material relating to this case. 29 Colin Mead said that according to his recollection, the total amount of goods which Hypec purchased from BL & GY during the period covered by the invoices was approximately $2 to $3 million. He thought that the amounts shown on the invoices were "exceedingly high". In 1998 he sought from the Australian Customs Service (ACS) details of importations from BL & GY to Hypec. He compared the resultant data, as best he could, with the invoices in Exhibit L, these being the invoices which BL & GY relied upon as establishing its claim. Where the invoices were accompanied by shipping documents, such as bills of lading or airway bills, he was able to compare the weights on those documents with the gross weights on the customs data. He also compared freight charges, the mode of transport (sea, air or post) and the dates of dispatch and arrival. Where reasonable matches were obtained, he was able to compare the information in the customs data (which included price and tariff classification) with that contained in the invoices. On no occasion did the prices in the customs data match those on the invoices. On a few occasions the invoice prices were lower, but in the great majority of cases the invoice prices exceeded the customs prices, in most cases by very significant amounts. In many cases the invoice price was more than double the customs value. There were also a number of invoices which, according to Colin Mead's analysis, were not matched by any customs entry. In other cases there were customs entries with no corresponding invoice from BL & GY. Colin Mead prepared a number of documents which set out the results of his analysis. They indicate that according to the information contained in the customs data, the value of all goods imported by Hypec from BL & GY between March 1987 and September 1996, totalled $4,101,419.81. By contrast, the amounts claimed in the BL & GY invoices during that period was $9,390,185.51. 30 Colin Mead also prepared a schedule of payments apparently made by Hypec to BL & GY between November 1986 and January 1996. His source documents were the Hypec cheque butts and cash books. Evidence had been given that a number of the cheques which were noted in the butts and the cash books as representing payments to BL & GY, had in fact been used for other purposes, principally the purchase and improvement of properties in the names of Colin and Lucy Mead. Deducting the cheques which were known to have been used for extraneous purposes, Colin Mead concluded that a total of $7,635,866.17 was paid by Hypec to BL & GY between 1986 and 1996. Hypec's cross-claim seeks repayment of the difference between that amount and the customs value of the imported goods. 31 BL & GY's witnesses, namely Lucy Mead and her two sisters, say that there is a good explanation for the discrepancy between the amounts claimed in the invoices and the prices contained in the customs data. Back in 1983, they say, Colin Mead requested that they undervalue the prices of their products in their official documentation, in order to minimise customs duty payable in Australia. Accordingly, they wrote two separate invoices for each consignment of goods. The first invoice, which they called the "declaration invoice", undervalued the goods which were being sent. This invoice was sent to Hypec in Australia together with the shipping documents, and was then used by Hypec's customs broker to clear the goods through customs. Subsequently, a "commercial invoice" would be sent to Hypec, setting out the actual price of the goods. No copies of any of the declaration invoices were kept either by BL & GY or by Hypec. According to Grace Yang and Josephine Chen, they were invariably discarded at the Taiwanese end as they did not set out the actual prices to be charged. Similarly, Lucy Mead said that she routinely threw away the declaration invoices when they arrived at Hypec's offices, and treated the later commercial invoices as representing the true transaction. It is the commercial invoices which are reproduced in Exhibits X and L. It is therefore no surprise, according to Lucy Mead and her sisters, that there is a significant discrepancy between the amounts claimed in those invoices and the prices recorded in the customs entries. The invoices, they say, represent the agreed transactions between the companies. 32 It is Hypec's case that the ledger, Exhibit K, is a fraudulent document, and that the commercial invoices upon which it is based are not bona fide records of the goods actually sold or the prices payable. Hypec submits that the bona fide sales documents were the declaration invoices which accompanied the shipping documents. These have all been destroyed, but the amounts they claimed have been recorded in the customs data. Accordingly, Hypec's case is that the customs data should be taken to represent the true transactions between the parties. 33 It is accepted that BL & GY's case will stand or fall according to the genuineness and reliability of Exhibit K. Much of the evidence in the case was directed to that issue. However, before I turn to the evidence on that matter, it will be helpful to discuss a separate but interrelated matter, namely the validity and reliability of Colin Mead's attempts to match the BL & GY invoices with the data received from the ACS.

COLIN MEAD'S ANALYSIS OF INVOICES AND CUSTOMS DATA 34 In about October 1998 Colin Mead approached Mr Edward Raithel of the ACS seeking information about importations from BL & GY to Hypec. Mr Raithel was the supervisor of that part of the Customs Service which maintains data relating to the entry of goods into Australia. In order to gain access to this data, as Mr Raithel explained, it is necessary to provide the number of the customs code for both the supplier (in this case BL & GY) and the owner (in this case Hypec). Colin Mead provided Mr Raithel with two codes for BL & GY and three for Hypec. As a result, Mr Raithel was able to supply him with import data relating to those codes. Colin Mead then set about matching the invoices in Exhibit L with the customs data obtained from Mr Raithel. How he did this will be described in detail shortly. The result of his analysis is contained in a table, Exhibit 16B, which achieved some significance during the hearing. Rather than attempting to describe it, I am attaching a copy of it to this judgment. It will be seen that, accepting the accuracy of Mr Mead's match, the great majority of invoices claimed amounts which considerably exceeded the customs declared value. In numerous other cases, no customs entry could be found to match BL & GY's invoices. Mr Mead assumed that in those cases there were no importations and that the invoices were false. In a few cases the customs value exceeded the amount claimed in the invoices. In some cases customs entries were located with no corresponding invoice from BL & GY. 35 This document is significant to Hypec's cross-claim against BL & GY. Hypec relies upon the fact that, according to the customs data, goods to the value of a little over $4.1m were imported from BL & GY between 1987 and 1996. Its cross-claim against BL & GY seeks recoupment of payments in excess of that amount which it says were made by Hypec to BL & GY during this period. 36 BL & GY, through its counsel, was highly critical of Colin Mead's analysis as contained in Exhibit 16B. It was suggested that it was based on insufficient data and that there might well have been other customs codes used by Hypec. A considerable amount of evidence was directed to this issue, and it also received prominence during submissions. I propose to discuss it relatively briefly. Colin Mead's analysis, as contained in Exhibit 16B, is relevant to a number of issues in the case, but, on its own, is decisive to none of them. Accordingly I do not propose to deal with this issue in the type of detail which it received during submissions. 37 Colin Mead's analysis was criticised on two main grounds. The first related to the process by which he purported to match the invoices with the customs data, and the second to the possible inadequacy of the owners' codes which were available to him. I shall deal with each of these in turn.

Colin Mead's Matching Process 38 Before describing the process by which Mr Mead sought to match BL & GY invoices with the customs data, I should say, by way of background, something about the procedures which are normally followed when goods are imported into Australia. This was described by Richard Liu, a tariffs and customs consultant and a customs broker, who gave evidence for Hypec. 39 Once goods have been loaded onto a vessel, Mr Liu told us, a bill of lading will be issued by the shipping company, or, if the goods are sent by air, an airway bill will issue. The supplier will issue an invoice and there might also be a packing declaration. All these documents will be posted to the consignee in Australia who will normally pass them on to its customs broker. The broker will determine the appropriate tariff classification from the information on the invoice. He or she will then determine the duty payable. The broker will usually arrange for the customer to pay the duty while the goods are still in transit, so that they can be cleared immediately on arrival. 40 The process by which Colin Mead attempted to match the various BL & GY invoices with the customs data was a lengthy and laborious one. The steps which he undertook in making this analysis were set out in a spreadsheet which became known as the "tablecloth" because of its size. His counsel sought to tender this spreadsheet, in response to cross-examination which had queried Mr Mead's sources. However this was strenuously objected to by BL & GY, and the tender was in due course withdrawn. 41 In essence, Mr Mead said that he compared the freight charges, as shown on the invoices, with the freight charges as deduced from the customs entries. (The latter can be obtained by deducting the FOB amount from the CIF amount set out in the customs entries. There being no insurance component, the difference can be taken to represent freight charges). In addition, many of the invoices were accompanied by shipping documents. These routinely specified the weight of the shipment, which enabled a comparison to be drawn with the gross weight as shown on the customs data. A comparison of weights could not be undertaken in relation to invoices which were not accompanied by shipping documents. The final factor taken into account by Mr Mead was the date of shipment and arrival, coupled with the mode of transport. A difference of a few days between the date of invoice and the arrival of the goods into Australia would be appropriate in relation to goods sent by air, but longer periods were required for goods sent by ship. 42 Counsel for both BL & GY and for Hypec and Mr Mead have made supplementary submissions to the Court in which they have discussed Mr Mead's matching process in very considerable detail, even going so far as to explore the particular features of many individual importations. As indicated, I do not propose to delve into this issue in this type of detail 43 BL & GY submits that unless there was an exact correlation between the freight charges and, where available, the weight of any particular consignment, Mr Mead's match must be taken to be invalid. This is because the Australian broker can only have obtained this information from the shipping documents, and would than have inserted it into the customs entries. Accordingly, unless both sets of data are identical, a reliable match cannot be made between the two. 44 I am unable to find any evidence to show that this is how the customs entries were in fact drawn up. In theory it seems to be a likely scenario. However, I do not think it can be correct. For there are a number of cases where the freight charges are identical but where there is a variation between the weights, and vice versa. It would, for example, be too much of a coincidence that invoice number BL & GY 88023, which charged freight at $2,856, was not the same consignment as one which arrived in Australia by air six days later with a customs entry indicating a freight charge of $2,856. Yet the weight specified on the shipping documents was 594.5 kg and the weight noted for customs purposes was 612 kg. 45 There are numerous similar illustrations, where the freight charges are identical but the weight is different, or the weight is identical but the freight charges are different. Accordingly, this submission cannot be sustained. 46 In a number of cases, Mr Mead was unable to obtain a precise match of either freight charges or weight, in which case he took dates, combined with the method of transport, as his guide. In some of these cases the match is very likely to be correct, because there were no other similar importations in the same time frame. In other cases the matches may well be questionable. This is hardly surprising, given the inadequacy of the source information. 47 There are some aspects of this case in which Mr Mead, in his researches, has shown himself to be over-zealous, to express it neutrally. However, in relation to the matching of BL & GY's invoices with the customs data, I am satisfied that he has made a genuine attempt to find the best possible match and that the results are likely to be predominantly accurate. To the extent that there are inaccuracies, as there inevitably must be, I do not think that they in any way affect the course of this case.

The Customs Codes 48 As indicated earlier, it is necessary to obtain the customs codes of the supplier and the owner (the importer) in order to access the ACS data relating to importations involving those parties. Mr Mead gave Mr Raithel two customs codes belonging to BL & GY and three codes belonging to Hypec which enabled him to obtain the information which he then analysed into Exhibit 16B. 49 It is not suggested that the information relating to the BL & GY customs codes was incomplete. However, it is strongly submitted, on behalf of BL & GY, that there were likely to be further Hypec codes other than those obtained by Mr Mead. If this were so, it would mean that there were additional importations which were not noted on Exhibit 16B. This in turn would fundamentally undermine Hypec's cross-claim against BL & GY, for it would throw into doubt the customs value of goods received by Hypec from BL & GY, even assuming the customs value to be the appropriate starting point. It would also, if there were other Hypec codes, provide an explanation for the numerous cases where Exhibit 16B shows BL & GY invoices to be unmatched by customs data. 50 Because of the importance of this issue it will be necessary to go into it in a little more detail. 51 It is clear that having the relevant owner code is necessary in order to obtain customs data in relation to any particular importer. Mr Raithel said that it is not possible to search by name, at least in the systems operated by him. Searches can only be conducted by reference to supplier and owner codes. 52 Somewhat surprisingly, the evidence indicates that individual importers can have a large number of owner codes. Mr Raithel said there can be a "proliferation" of owner codes for individual importers. There were a number of ways in which this could occur, he said. Probably the most common would be when a broker went to clear goods for an importer whose owner code he did not have with him. The broker could apply for a new code, and unless the nomenclature he gave was identical to that under which there was an existing owner code, then a new code would issue. 53 Mr Liu said that the usual practice would be for a broker to attempt to ascertain an importer's existing code rather than to generate a new one. However, he agreed that there might be situations where a broker, not knowing the owner's existing code, would apply for a new one. Mr Robert Crabtree, who is a qualified customs broker, said that individual importers could have anything from one to a dozen owner codes. In particular, he said that if a company used a number of different customs brokers, there would be a high chance that it could have more than one owner code. 54 With this background I turn to the steps which Colin Mead took in order to obtain Hypec's owner codes. Mr Mead said that Rainers was the predominant customs broker used by Hypec. In addition, Hypec sometimes used TNT, Rudders, and Morrison Express. Mr Mead tried to approach each of these companies. He was unable to get any information from TNT or Rudders. Rudders had gone out of business, as had the branch of TNT with which Hypec had previously dealt. Three codes were obtained from Rainers and Morrison, and these were passed on to Mr Raithel. 55 It was suggested to Mr Mead in cross-examination that there may have been other customs brokers used by Hypec. The Hypec cash books showed that payments had been made to Sota Customs, IBC Customs and Danzas Customs. Mr Mead conceded that these brokers must have been used by Hypec. He also conceded the possibility that one of the brokers who had gone out of business, or one of the other brokers used by Hypec, might have had another owner code for Hypec. However he said he thought it unlikely. 56 BL & GY relies upon a Family Court affidavit sworn by Colin Mead in which he said that, having analysed a schedule of imports, he had concluded that there were five different customer codes relating to imports made by Hypec. If this is meant to suggest that Mr Mead deliberately withheld two codes from Mr Raithel, or that he turned a blind eye to the possible existence of others, then I do not agree with this conclusion. In my assessment, Mr Mead did all he could in an attempt to locate all of Hypec's owner codes. Those which he did locate he passed on to Mr Raithel. 57 However this is by no means the end of the matter. For, as Mr Mead himself conceded, there is a possibility that there might have been other owner codes which were used by one of the brokers who had gone out of business. Mr Mead did not know about Sota, ICB or Danzas until the cash books were shown to him during his cross-examination. There was no evidence to indicate whether these brokers had been approached by BL & GY in an attempt to obtain additional owner codes. As their existence was patently known to BL & GY's representatives, whose interests would have been served by locating additional codes, I think I can safely infer that these organisations would have been approached, but were unable to provide any additional codes. However this does not really take the matter any further, given that some of Hypec's brokers, having gone out of business, could not be approached by either party. 58 It would have strongly suggested that there were other owner codes, additional to the ones located by Mr Mead, if any of the invoices which were not matched by customs entries had had shipping documents attached to them. As indicated earlier, some but by no means all of the invoices contained in Exhibit L are accompanied by shipping documents. I therefore asked counsel to undertake an exercise which involved assessing whether any of the invoices which were accompanied by shipping documents were noted in Exhibit 16B as having no corresponding customs entry. This exercise revealed that there were eight such cases. However they were all in 1987, during periods when Mr Raithel said that customs data was unavailable. Accordingly, no inferences can be drawn from the absence of customs entries in relation to those invoices. Between 1988 and 1996, Mr Mead noted a customs match for every invoice which was accompanied by a shipping document. 59 Hypec's counsel has pointed out that many of the invoices noted in Exhibit 16B for which no corresponding customs entry could be found appear to be out of sequence from the main body of invoices. A good illustration of this can be found by looking at the 1990 invoices on the copy of Exhibit 16B which is attached to this judgment. The invoices for which there is no corresponding customs entry have been highlighted in grey. It can be seen that a large number of these invoices, although bearing 1990 dates, have 1989 invoice numbers. (The first two digits of any invoice number indicates the year of issue. Hence BL & GY-9002 is a 1990 invoice, whereas BL & GY-89104 is a 1989 invoice.) Similarly in 1991, some of the invoices for which there is no corresponding customs entry are out of synchronisation from the main body of invoices, although they still bear a 1991 number. Hypec and Mr Mead rely upon this phenomenon as supporting the proposition that the invoices for which there is no corresponding customs entries were entirely concocted documents. Therefore, they submit, one would not expect to find any customs entries relating to them. Accordingly, the data in Exhibit 16B can be taken to be complete. This, they say, supports the inference that there were no other owner codes. 60 It is quite correct that the numbers of many of the invoices for which there is no corresponding customs entry are out of synchronisation with the main body of invoice numbers. This is a matter which might legitimately be viewed with suspicion. However there are other invoices which maintain the normal sequence of numbering, notwithstanding that there are no corresponding customs entries. The same criticism cannot apply to them. 61 In the result, I am simply not in a position to know whether or not there were other Hypec owner codes, now lost, which would have indicated that there were additional importations. The evidence is insufficient to satisfy me either way. 62 I shall discuss later the implications of this finding. In the meantime it is appropriate to turn to discuss the centrepiece of BL & GY's claim against Hypec, namely the BL & GY ledger, Exhibit K.

[1]

The Pleadings and Particulars 65 Hypec places considerable reliance on the fact that the original Statement of Claim pleaded BL & GY's case against Hypec as one for money owing under a loan. There was no indication of any trading relationship between the parties. This factor acquires particular significance because both Hypec's general ledger and the cash books upon which the ledger was based, recorded the transactions with BL & GY as being loan transactions rather than trading transactions. 66 BL & GY's Statement of Claim was filed on 17 September, 1997. Omitting formal matters, it pleaded its case in the following terms: "3. At the times set out hereunder the Second and Third Defendants were directors of and represented themselves as being directors of the First Defendant. 4. From 30 June 1992 to 30 June 1996 the Second and third defendants represented to the Plaintiff that in consideration of the advance of monies by the Plaintiff to the First Defendant, those monies would be used in the development of its business and for working capital and that those monies would be repaid to the Plaintiff from sales of goods by the First Defendant to third parties. 5. Acting upon the said representations and induced thereby the Plaintiff loaned sums in excess of $4,884,466 to the First Defendant. PARTICULARS OF LOANS 30 June 1996 - Balance of loan account between the Plaintiff and the First Defendant - $4,884,466. 6. The said representations were false in that the said monies were not nor were ever intended to be used by the First Defendant in or about the development of its business or for its working capital and $4,884,466 of the said monies remain unpaid due and owing to the Plaintiff. 7. As a consequence of the matters aforesaid the said sums constituted either a loan to the First Defendant or alternatively are monies had and received by the First Defendant for the use of the Plaintiff. 8. The Plaintiff has made demand on the First Defendant for repayment of the said sums totalling $4,884,466 and the First Defendant has failed or neglected to repay the said sums." 67 The remainder of the Statement of Claim alleged various breaches against the second and third defendants, Colin and Lucy Mead, as directors of the first defendant. 68 Before discussing the manner in which the case was later particularised by BL & GY, I should mention here that both Grace Yang and Lucy Mead provided some sort of explanation for considering the money owing by Hypec to BL & GY as being under a loan, notwithstanding that it represented the price of goods sold by BL & GY to Hypec. Lucy Mead said that when Hypec obtained the Department of Education contract in 1988, the company needed additional finance. She suggested to Grace and Josephine that, as family members, they should provide her company with financial support, and that Hypec should defer paying the price of the goods purchased, "until they need the money and then we return." (T 235). Grace Yang said that in about 1989 Lucy said that she wanted BL & GY to support Hypec by providing finance "so BL & GY they are banker, like a bank." She said that she responded "Its ok, but when we need the money, you must return the money to us, at any time." Lucy said "Ok, no problem." (T 40). 69 With this background I turn to the manner in which BL & GY's case has been particularised. 70 On 1 October 1997 Hypec's solicitors sought further and better particulars of the Statement of Claim. These were provided in a letter from BL & GY's solicitor, Ian B Mitchell, on 27 October, 1997. As relevant here, the letter provided the following particulars of paragraph 4 of the Statement of Claim: (Exhibit 4) "(ix) The second defendant requested the plaintiff (by requesting its directors Grace Yang and Josephine Chen) to lend money to the first defendant and to ship goods to the first defendant on credit until the first defendant had adequate capital and earnings from computer sales to repay the said monies so lent and the price of the goods so sent to the plaintiff to the extent and to the amounts set out in the Statement of Claim as he had no money to finance the business or activities of the first defendant. (x) The first defendant repaid only part of the monies lent by the plaintiff to it (which part has been allowed for in the Statement of Claim) and refuses and neglects to pay the balance thereof. 71 The second defendant, it is to be noted, is Colin Mead. There is no evidence that he participated in any such conversation. Nor was this ever suggested to him in cross-examination. 72 The plaintiff's DCM document, which was dated 6 April, 1998, described BL & GY's case against Colin Mead, who was then the only outstanding defendant, in terms which were very similar to the original Statement of Claim. It said as follows: "(b) The second defendant (inter alia) represented to the plaintiff that in consideration of the plaintiff lending certain monies to the first defendant that the first defendant would utilise such monies in the development of the business of the first defendant for working capital of the first defendant and would repay the said monies to the plaintiff from sales of goods by the first defendant. (c) In reliance upon the said representations and induced thereby the plaintiff lent to the first defendant the said monies." 73 On 3 July 1998, BL & GY's amended list of discovered documents was verified by Grace Yang. It listed a large number of documents, including the invoices in Exhibit L, but did not mention Exhibit K, notwithstanding that this was the document which later constituted the centrepiece of BL & GY's case, and from which the amount claimed in the proceedings had, we were told at the hearing, apparently been derived. 74 On 24 November, 1998 Hypec's solicitor wrote to BL & GY's solicitor seeking particulars of the loans alleged to have been made by the plaintiff and the goods which were alleged to have been shipped on credit, with particular reference to the discovered invoices (now Exhibit L). 75 On 2 December, 1998 BL & GY's solicitor responded, relevantly, in the following terms: "1. The plaintiff alleges that as at 1 January 1991 the first defendant was indebted to the plaintiff in the sum of New Taiwanese Dollars 44,339,475 and that during the period 1 January 1991 to 31 December 1996 the plaintiff sent to the first defendant goods (computers and related products) to the values respectively set out in the attached copies of the general ledger of the plaintiff and received from the first defendant the sums set out therein and only those sums. These goods are as set out in the invoices already discovered and inspected by you or your agents. The plaintiff alleges a running account upon which the first defendant has made partial payments from time to time as set out in the said general ledger extracts. 2. The plaintiff says that the first defendant has paid to the plaintiff the sums set out in the said copies of extracts from the general ledger, and only those sums, on account of its indebtedness to the plaintiff for supply of the goods referred to therein." 76 This was the first time that Exhibit K was either mentioned or produced on behalf of BL & GY. 77 It was Grace Yang who verified the original Statement of Claim in September 1997. She was cross-examined by Mr Fagan SC, who appeared for Hypec and Colin Mead, about the terms in which the statement of claim was couched. She denied that BL & GY's claim related to a loan. She said: "Not loaned to them. It is the shipment already delivered to them. This money is not the loan to them." (T 125).

She suggested that her solicitor might have used the wrong terminology. Having been shown the Statement of Claim, she said: "There should be an amendment after this statement. You had better look through the file." (T 125 ). 78 Ms Yang was correct. There was a further amendment to BL & GY's pleadings. In its "further amended Statement of Claim" dated 30 October 2001, it pleaded its case against Hypec, relevantly, in the following terms: "20C At all material times the Plaintiff carried on an export business in Taiwan specialising in leather goods and computer parts. 20D At all material times the first defendant carried on business in Australia as an importer, fabricator and supplier of computers. 20E It was agreed by and between the Plaintiff and the First defendant that the Plaintiff would supply computer parts to the First Defendant and the First Defendant would pay the price thereof to the Plaintiff. 20F It was a term and condition of the said agreement that the purchase price for the said computer parts would be paid by the First Defendant to the Plaintiff on demand. 20G Between about 1988 and 1996 the Plaintiff supplied computer parts to the Plaintiff. PARTICULARS Particulars have already been supplied 20H The Plaintiff demanded payment of the price of the said computer parts from the First Defendant. 20I In breach of the said agreement the First Defendant neglected and failed to pay the price of the said computer parts to the Plaintiff when demanded. PARTICULARS Particulars have already been supplied 20J In the alternative, to 20F, 20H and 20I it was a term and condition of the said agreement that the First Defendant would pay the Plaintiff the purchase price for the said computer parts in accordance with normal commercial terms. 20K Thereupon it was further agreed by and between the Plaintiff and the First Defendant that in consideration of the Plaintiff lending the balance of the purchase price outstanding from time to time to the First Defendant, the First Defendant promised to pay the amount of the said loan to the Plaintiff on demand. 20L The Plaintiff has demanded the payment of the amount of the said loan. 20M In breach of the said agreement for loan the First Defendant has neglected and failed to pay the amount thereof to the Plaintiff." 79 Mr Graham QC, who appeared for both BL & GY and for Grace Yang, relied upon the fact that the shipment of goods was particularised by the plaintiff's solicitor as early as October 1997. This being the case, he urged, little could be made of the fact that it took some time for the plaintiff to put its pleadings into proper form. On the other hand, Hypec urges that this sequence of events indicates the unlikelihood that Exhibit K existed when the proceedings were commenced; or, if it did, that it was regarded as being a genuine record of the transactions between BL & GY and Hypec. If Exhibit K had been available for consideration at that time, Hypec urges, the claim would have been for goods sold and delivered, and the relevant dates would have been given as between 1990 and September 1996, rather than between June 1992 and June 1996. 80 In my view, the manner in which the plaintiff framed its case and the gradual emergence of Exhibit K as the basis for the claim would not, on its own, have been sufficient to throw any real doubt upon Exhibit K and the invoices it represents. However, when added to other matters which I shall be discussing shortly, it adds strength to the conclusion that the plaintiff's case, and the documents which are said to support it, are overwhelmingly unreliable.

89 Lucy Mead's version was similar to that of Grace Yang. She said that in 1993 and 1994 her sisters repeatedly asked her to repay Hypec's debt to BL & GY. She knew that Colin hated the Laughtondale house, so she offered to transfer it to BL & GY for $2.63m. However she did nothing to advance the transaction. In particular, she did not ask Colin Mead to sign any transfer documents. In cross-examination, Lucy Mead said that she had telephone conversations with Josephine and Grace about the transfer when they were in Taiwan. They then came to Australia, and there was a further conversation which included their parents. She also discussed it with Colin, she said. Colin Mead denied hearing anything about this arrangement. 90 It is not suggested by Hypec that the credits of $2.63m recorded in Exhibit K represent payments actually made. This is not supported by other material in the case, particularly BL & GY's 1994 bank statements. However, it is suggested that Grace Yang's and Lucy Mead's evidence relating to this transaction is not to be believed, and that this undermines the veracity of Exhibit K. Hypec's counsel relies upon the fact that it was only in 2001 that an attempt was made to increase the plaintiff's claim so as to include this amount. Yet, as Grace Yang conceded, it was obvious by 1997 that no transfer of the Laughtondale property would be forthcoming from Colin and Lucy Mead. Indeed, by that time Grace Yang herself had a mortgage over the property for $1.1m. It is difficult to understand in these circumstances why the amount originally claimed against Hypec in September 1997 should have given credit for this amount. Similarly, it is very difficult to see how the agreement now described by Grace Yang and Lucy Mead came to have been recorded in the company's books as a series of apparently disconnected credits over a nine month period. 91 My findings in relation to this matter are essentially adverse to the plaintiff. Given all these circumstances, I cannot accept Grace Yang's and Lucy Mead's explanation as to why the credits of $2.63m were raised in Exhibit K, nor why they were sought to be reversed when these proceedings were already on foot. This matter reflects adversely upon the credibility of both Grace Yang and Lucy Mead and also upon the reliability of Exhibit K. On its own, I do not think it would be sufficient to support a finding for the defendant in these proceedings. However, the cumulative weight of this and other matters yet to be discussed certainly does so.

She said that the price of $425,000 was based on the shares being worth $3.50 each. She conceded that no inquiry had been made to ascertain the current value of the shares, or even whether BL & GY was solvent. 96 It is submitted on behalf of Hypec that the explanations given by Grace Yang and Lucy Mead for this supposed transaction were inconsistent and implausible. Even if there had been such a transaction, Hypec submits, it is difficult to see how it explains the absence of the invoices from Exhibit K. Exhibit K was supposedly prepared by a Taipei accountant external to BL & GY. An accountant would be expected to record the six invoices but show a corresponding credit, if the transaction described by Grace Yang and Lucy Mead had in fact taken place. 97 As it transpires, there were four further invoices in Exhibit L which were not listed in Exhibit K: one in 1992 and three in 1995. Between them they claimed a little over $200,000. No explanation was given for their omission from Exhibit K. It would appear from the evidence that it was Colin Mead who discovered this omission when he was preparing for the hearing. One hypothesis is that Grace Yang and Lucy Mead knew that the liquidator had found the six invoices totalling $425,000, and they set about providing an explanation for their omission from Exhibit K. They did not know about the other four invoices, which had apparently not been picked up by the liquidator. Therefore there was no attempt to explain their omission from Exhibit K. This hypothesis gains credence from answers given by Grace Yang when she was cross-examined about the six invoices totalling $425,000. She said that the liquidator had noticed these invoices. In fact, Mr Hodgson had not yet given his evidence at that time, so Grace Yang must have acquired her information from another source, presumably from Lucy Mead. 98 Hypec's counsel points out that, had these ten further invoices been brought into account in Exhibit K, the balance at the end of each year would not have corresponded with the balances shown in Hypec's balance sheets for "BL & GY loan account" from 1992 on. (See later, paragraphs 106 to 124). He submits that the true explanation for the omission of all ten invoices from the general ledger is that Exhibit K is a "fraudulent and concocted document which has been carelessly prepared in an attempt to corroborate a claim."

[5]

A Comparison Between Exhibit K and Hypec Records 106 A number of Hypec records were available in these proceedings. These included the Hypec cash books between March 1989 and 30 June 1996 (Exhibit 2). These were largely written by Lucy Mead, although a number of entries were made by Grace Yang. Grace's evidence was less than consistent on this matter. At first she denied ever working at Hypec or writing entries in Hypec's books. She was then shown the Hypec cash books which contained a large number of entries in her handwriting. She responded by saying that she was only helping out when she wrote up these books, and that she received no wages for her work. She said that she had forgotten about doing this work when she gave her earlier answers. This is an unlikely explanation, given the number of entries in her handwriting. 107 The Hypec cash books recorded all transactions with BL & GY as being loan transactions. There was no indication whatsoever of any trading relationship between the companies. A large number of items were recorded as being credits to BL & GY's loan account. These tended to be in round figures, and bore no resemblance to the amounts claimed in the BL & GY invoices, as recorded in Exhibit K. In many cases, the company name did not appear in the cash book, but the loan was recorded as having been made by an individual, frequently "L Yang" or "L Young". Indeed Mr Lloyd, who had been Lucy Mead's and Hypec's accountant since about 1980, was under the impression that the loan account was in the name of "BL & GY and L Yang" being three members of the Yang family. It was only after Hypec had ceased its operations, namely after 1996, that he first heard of the existence of the company BL & GY International Co. Limited. 108 A further feature of the cash books, Exhibit 2, which is worth recording here, is that in many cases the entries have been altered. The amounts involved were initially entered in the column headed "Sales Customers' Accounts" and were particularised as "Banking". This was the manner in which receipts from sales were generally recorded in the cash books. However, some time later the entry in the "Sales Customers' Accounts" column was whited out, and the same amount was placed in another column under the heading "Loan". Similarly, the word "Banking" in the "Particulars" column was whited out and replaced by the word "Loan - L Yang". It was Lucy Mead who made these alterations. She said that she did so at the instigation of her accountant, Mr Lloyd, who told her that it was wrong to particularise these receipts as "Banking", and that the books should record the person from whom the money had been received. Mr Lloyd in his evidence did not support this explanation. 109 Mr Lloyd prepared Hypec's tax returns each year. In order to do so he was given the company's bank statements and the cash book which had been written up by Lucy Mead. In addition, she gave him information about the accounts receivable, the amounts owing to trade creditors, and the value of stock on hand. The returns for the years ended 30 June 1993, 1994, 1995 and 1996 were tendered into evidence. In each of those years, the Hypec balance sheets which accompanied the tax returns noted the balance owing under the loan account of "BL & GY and L Yang". The amount shown was precisely the same as Exhibit K claimed to be owing as at 31 December of the same year. By way of illustration, the BL & GY loan account as at 30 June 1993 was shown in Hypec's balance sheet to be $5,917,471. This was precisely the amount that Exhibit K showed to be owing by Hypec on 31 December 1993, notwithstanding that Exhibit K listed eight invoices, claiming a total of $760,000, which were dated between July and December 1993, and which were therefore purportedly taken into account in reaching that figure. 110 A similar pattern was revealed each year. The 1994 Hypec balance sheet showed the amount owing to BL & GY as at 30 June, to be $3,831,332, which was precisely the same amount as was shown in Exhibit K to be the balance owing on 31 December that year. Finally, Hypec's 1996 balance sheet showed the balance under the BL & GY loan account to be $4,884,466 as at 30 June, this being the amount which Exhibit K recorded as being the balance reached in September 1996 after several further transactions. This is also the amount which was initially claimed in these proceedings. 111 Mr Lloyd had printed out ledger accounts from information contained in his computer, which recorded a series of debits and credits in Hypec's loan account for BL & GY and L Yang. A document was put into evidence which contained the ledger for most of the years between 30 June 1991 and 30 June 1996. On each occasion the balance of the loan account as at 30 June was precisely the same amount as was shown in Exhibit K to be the balance owing by Hypec to BL and GY as at 31 December of the same year. It is unnecessary for present purposes to detail Mr Lloyd's evidence as to how this ledger was prepared. In some cases credits to the loan account were said to derive from cash payments. In other cases the information was taken from bank statements. In every case the balance of the account as at 30 June was achieved by making a journal entry. In some cases the journal entries were in very large amounts. For instance, on 30 June 1992 a debit of over $2.9m was recorded. Mr Lloyd said that he no longer had the journals which would indicate why these entries were made. 112 Mr Lloyd said that it was never suggested to him, either in conversation with Lucy Mead, or in any of the documents that she provided, that any of the debits or credits in BL & GY's accounts had anything to do with the sale of goods. He commented that if Exhibit K accurately showed how the balance of BL & GY's account had been arrived at, then that company should have been shown as a trade creditor, rather than as a creditor under a loan account. Similarly, one would have expected to see the Hypec accounts as mirroring the information in Exhibit K. This they patently did not do. Mr Lloyd was unable to find any explanation for the fact that the BL & GY loan account figures, as recorded in Hypec's books as at 30 June each year, coincided exactly with the balance shown in Exhibit K precisely six months later. 113 Hypec's counsel submits that if Exhibit K were a genuine record of the transactions between the two companies, Hypec's general ledger, Exhibit 23, would mirror the entries in it. In fact there is no correspondence whatsoever between the entries in Exhibit K and Hypec's general ledger. The only inference to be drawn, Hypec urges, is that Lucy Mead gave Grace Yang or Josephine Chen the balance shown in Hypec's books each year so that BL & GY's records could be drawn up to reflect the same balance, albeit that this was at the end of the Taiwanese financial year and was therefore six months later. This scenario was put to Lucy Mead in cross-examination. Not surprisingly she rejected it. 114 Lucy Mead was asked why the BL & GY transactions were consistently recorded in Hypec's cash books as loan transactions. Her answers, to say the least, were unconvincing: "Q. If there was a debt to BL & GY on extended credit for goods supplied why would you put it down as a loan other than in the trade creditors? A. You can either call loan or trade creditor but you have two different - local creditor, overseas creditor. Q. When it's an overseas creditor for trade goods, why do you call it a loan and not a trade creditor? A. Because the money loan you have to return and the trade creditor he normally have to sign a personal guarantee with all the, you know, company regulation." [Transcript at 312-314] . 115 Lucy Mead was asked whether it was a coincidence that the amounts shown in Hypec's books as the balance of the loan from BL & GY as at 30 June 1993 was exactly the same as the amount shown in Exhibit K on 31 December of the same year. She said it was not. The following exchange then ensued: - "Q. Just look at the other figures down there in the loan from BL & GY column. You see for every year what you have recorded at 30 June '93, 4, 5, 6 as a loan to Hypec from BL & GY seems to be exactly the figure that is shown six months later in the balance on the BL & GY account, isn't it? A. Because like any other trade creditor, by the end of the year, they send the letter you have to agree your amount my amount, you have to agree reconciliation. No different in Australia, we receive such a letter with other company too. Q. Did you receive such letters from BL & GY at the end of their financial year? A. Yes. Q. The end of their financial year was 31 December this year? A. Yes. Q. Do you say that you received letters at or about 31 December every year? A. No, the following June we - before the following year, June, you receive the year before." [Transcript at p 315]. 116 There followed some confusion in Lucy Mead's evidence as to when these letters were sent or received. As it transpired, Mr Fagan already had copies of the letters to which she was referring, as they were amongst BL & GY's discovered documents. These were shown to Ms Mead, who confirmed they were the documents that she was describing. They were then tendered into evidence (Exhibit 10). 117 These letters cannot, on any way of looking at it, have been genuinely written for the purposes described by Lucy Mead. There are seven letters, each of them on BL & GY's letterhead, and each of them bearing date 30 June. The first is dated 30 June 1990, and the last 30 June 1996. They are all in essentially identical terms. The first, dated 30 June 1990 is as follows: - "Dear Dealer, We have enclosed your account statement, for the period ended 30 June, 1990 showing A$2,216,973.75. Our auditors will be reviewing all debtors accounts at the end of our financial year 30 Dec, 1990. To assist with the audit process, we ask that you kindly review the enclosed statement and report any inaccuracies to us prior to 30 Sept 1990. Josephine Chen may be contacted with any queries on: TEL… Please do not be concerned if money paid to us on the last day of the month do not appear on this statement, they will appear on your next month statement. Finally, we would appreciate your cooperation in setting (sic) promptly all amounts due and payable, as this will simplify our audit considerably. Sincerely yours, Josephine Chen" 118 The amount of $2,216,973.75 which was specified as being the amount owing as at 30 June 1990, was shown in Exhibit K to be the outstanding balance on 31 December 1990. 119 Each of the subsequent letters were in identical terms, except for the year and the amount, and all of them were signed by Josephine Chen. On each occasion, the amount said to be owing as at 30 June in the relevant year was the amount shown on Exhibit K as the balance outstanding as at 31 December of the same year. Three of the copy letters had an imprint of the Hypec common seal. Lucy Mead said that after she received these letters, she put the Hypec seal on them and posted them back to BL & GY. Mr Fagan called for the originals of these letters, as only copies had thus far been made available. Mr Graham said that they should be available some time later. However, they were never produced. Mr Fagan asked Lucy Mead, on a number of occasions, how it could happen that the balance claimed on a demand from BL & GY as at 30 June was exactly the same as noted on Exhibit K six months later. Not surprisingly, Ms Mead was unable to provide any convincing explanation. In essence, she said that no company completes its tax returns on time, and that the delay enabled the companies to co- ordinate their figures. 120 Mr Graham conceded that Lucy Mead's evidence concerning the 30 June letters was not convincing. However, he submitted that the letters cannot be relied upon by Hypec or Colin Mead as evidence against BL & GY, as no questions were put to their author, Josephine Chen, as to how she came to write them, or when they were signed. Mr Graham relied upon Browne v Dunn (1894) The Reports 67 and Allied Pastoral Holdings Pty Limited v Commissioner of Taxation [1983] 1 NSWLR 1 at 16, as authority for the proposition that the author of these letters not having been cross-examined about them, no adverse inferences can be drawn from them. 121 It is true that Mr Fagan did not cross-examine Josephine Chen about the 30 June letters. But it by no means follows that no use can be made of them. When Josephine Chen gave her evidence, none of Hypec's records had yet been placed before the Court. It was not until Mr Fagan cross-examined Lucy Mead about the difference between the Hypec records and Exhibit K that she first referred to these letters. Certainly, they had previously been discovered by BL & GY, so Mr Fagan had had access to them. He could have cross-examined Josephine Chen on these letters, and it would have been preferable had he done so. But it by no means follows that no use can be made of them. After all, they were relied upon by Lucy Mead as somehow providing an explanation for the fact that the records of the two companies showed identical balances six months apart. Lucy Mead was then cross-examined on the letters and, as Mr Graham concedes, her evidence was "by no means convincing". Mr Graham submits that I should regard this as irrelevant, as the author of the letters was not cross-examined. But in a case where the credibility of the principal witnesses is a decisive matter, Lucy Mead's reliance upon these letters, and her implausible attempts to explain the difficulties the letters presented, are clearly relevant to her general credibility and to the reliability of the plaintiff's case. Similarly, the fact that these letters, which emanated from BL & GY, are patently designed to shore up a difficulty which was perceived in the plaintiff's case, is relevant to the strength of that case. For it cannot be suggested that the letters were forgeries. After all, it was Lucy Mead who first mentioned them. Accordingly, contrary to Mr Graham's submission, I consider that both the letters, and Lucy Mead's evidence about them, are relevant material for consideration. Neither of them do any credit to BL & GY's case. 122 It will be remembered that the letters of 30 June came into the case when Lucy Mead sought to explain why the Hypec records showed the same balance in the BL & GY loan accounts at 30 June each year as Exhibit K did on 31 December of the same year. Hypec's counsel submits that this shows that the figures in Exhibit K, and the documents on which it purports to be based, were simply made up in order to reach the same figures as were shown in the Hypec books at the end of the Australian financial year. Mr Graham submits that the more probable situation is that Exhibit K, and the invoices upon which it is based, are genuine documents which represent the true situation, and that Hypec's books were made up to match the balance in Exhibit K. Although the Australian financial year pre-dates the Taiwanese financial year by six months, nevertheless, Mr Graham submits, the delay in preparing Hypec's records was so great that, by the time they were written up, BL & GY's records had already been completed. The large journal entry in Hypec's ledger which produced the balance shown in "BL & GY and L. Yang's" loan account each year was, according to this submission, designed to produce a balance which accorded with that in Exhibit K. 123 The problem with this submission is that it is not supported by BL & GY's own witnesses. If Lucy Mead had conceded that this was what she sought to do, then her evidence might have acquired more credibility. Instead, she sought to rely upon the 30 June letters, which were patently spurious. 124 It is not to be known whether Exhibit K was devised so as to reflect the balance in Hypec's books, or whether Hypec's balances were devised so as to reflect Exhibit K. The fact that the figures in Hypec's records preceded the balance in Exhibit K by six months, would tend to suggest that the latter followed the former. However, as Mr Graham points out, this does not necessarily follow. But in any event, if Exhibit K was a genuine running record of the transactions between the parties, one must ask why Hypec's books did not mirror it. If the invoices upon which Exhibit K is based were genuine invoices, why were they not documented in Hypec's records? No answers have been given to these questions. In the result, I must conclude that both Exhibit K and the Hypec records are inherently unreliable.

(a) Exhibit K 127 According to Exhibit K, only $234,818 was paid by Hypec to BL & GY over the six year period between 1 January 1991 and 31 December 1996. This is putting aside the $2.63m which appears as credits in the 1994 records, but which BL & GY now says should be ignored. (See earlier, paragraphs 81 to 91.) 128 There are a number of difficulties with Exhibit K in so far as it purports to record payments made by Hypec. According to the particulars provided by BL & GY's solicitors, the payments recorded in Exhibit K were the only payments made by Hypec during that period. (See letters from Ian B Mitchell, dated 10 December 1999 and 17 October 2001 [quoted later in paragraphs 141 and 142]). However, during the one year for which BL & GY's bank statements are available, namely 1994, it is apparent that at least $248,000 was paid by Hypec to BL & GY. This figure is obtained by correlating Hypec's cheque butts with BL & GY's bank statements. I will be discussing it shortly. In addition, as Hypec's counsel points out, it is difficult to conceive how BL & GY could have continued in business if the figures shown in Exhibit K were correct. Putting aside for the moment the $2.63m credits recorded in 1994, Exhibit K indicates that goods to the value of approximately $7.5m were sold to Hypec during the six years between 1991 and 1996, whereas only $234,818 was received by way of payment during that period. Grace Yang and Josephine Chen both said that BL & GY paid its suppliers in full. If this was the case, BL & GY must have had very substantial funds from sources other than Hypec. Grace Yang was cross-examined about this, and her answers were less than satisfactory. At first she said that she borrowed the money from friends. Then she said it was her own money. She refused to say where she obtained it. Later she said that the company ran at a profit and had the money to pay all its suppliers. 129 I shall be summarising my conclusions relating to Hypec payments after discussing the other sources of information on this subject. Suffice it to say here that Exhibit K must be regarded as a very unreliable indicator of payments made by Hypec to BL & GY.

(c) BL & GY's 1994 Bank Statements 134 Hypec and Colin Mead have attempted, over a considerable period, to obtain access to BL & GY's banking records. A large folder, Exhibit 29, was tendered into evidence which documented these attempts. I do not propose to detail its contents here. Suffice it to say that no adequate explanation has been provided for BL & GY's failure to produce these documents in time for the hearing. I must therefore infer that these records would not have assisted the plaintiff's case. But there was one year's bank statements which it was in BL & GY's interests to produce. These were the 1994 statements, which BL & GY relied upon to show that the $2.63m shown as credits in Exhibit K was not in fact received. Accordingly, the 1994 bank statements were tendered through Grace Yang. When combined with Hypec's records, they reveal an interesting picture. 135 It was Colin Mead who analysed BL & GY's bank statements and compared them with Hypec's cash statements and cheque butts. He compiled a table, Exhibit 17, which showed that fourteen Hypec cheques, totalling $254,567, made their way into BL & GY's bank accounts in Taiwan. Thirteen of these, totalling $248,067, were conceded by Mr Graham to have been correctly matched. 136 This presents a substantial problem in BL & GY's case, for none of these payments was recorded in BL & GY's ledger, Exhibit K. They therefore appear to give the lie to Exhibit K, which is the foundation upon which BL & GY's case will stand or fall. However, Mr Graham says that there is a complete answer to this, namely that the $248,000 paid to BL & GY in 1994 related to invoices other than those contained in Exhibit L and listed in Exhibit K. These other invoices, having been paid in full, were then discarded, and no record was kept either of the invoices or of the payments which related to them. Mr Graham relied upon what he described as Colin Mead's "concession" that there were other invoices, not included in Exhibits L and K, which had been paid in full and then discarded by BL & GY. However, it is difficult to see how Mr Mead was in a position to concede anything of this nature. He knew little of Hypec's financial affairs, and nothing of BL & GY's. Moreover, the evidence relied upon by Mr Graham in this respect does not convey any such concession. The passage relied upon occurred when Mr Mead was being cross-examined about his attempts to match the invoices in Exhibit L with the customs data obtained from the ACS. His attention was drawn to a number of customs entries which had no corresponding invoices from BL & GY. The cross-examination proceeded as follows: - "Q. In the case which you present, you have found - I forget the number - 60, 70 or 80 entries for home consumption where there is no commercial invoice claimed at all, haven't you? A. Yes, I have. Q. How do you explain in your methodology the cases where there have been entires for home consumption which you discern have occurred and there is not even a claim made for anything? A. Well, the BL & GY case is made up of the invoices they supplied and that there was where every effort was made to match those. Where I couldn't find a match and I found a Customs entry from them, I assumed that the invoice hadn't been included because it quite possibly had been paid and discarded by BL & GY. Their claim was made up of the invoices they provided to me. Q. Do I understand what you are basically saying is that where the invoices have been paid in full, they had been discarded and not made the subject of a claim in this case? A. That's the only assumption I could make, there was no invoices provided by BL & GY. I didn't know what to do with them, so they are there to be seen. Q. What you would say is there may well be many instances where they have been payments to BL & GY for goods which have been supplied but which simply aren't part of this case? A. Well, I don't know. I have no answer to it because I only tried to respond to the invoices provided. Q. And the explanation that you offer for all those entries you found which you are unable to match is that they must relate to goods which have been separately invoiced and separately paid for? A. It is just one conclusion that can be drawn. I just don't know what the right one is. Q. That is the one that appeals to you? A. It is just one possibility." [T. 715-716] 137 In my view Colin Mead's evidence on this matter can in no way be regarded as a "concession" that there were other invoices and payments which did not appear in Exhibit K. 138 Mr Graham also relied on a passage in Josephine Chen's evidence where she said that Exhibit K was a record of payments "that should be received, but not received yet". In my view, it cannot be inferred from this evidence that there were other invoices which had been paid and which were then omitted from Exhibit L and Exhibit K. 139 Mr Graham sought to reinforce his suggestion that the 1994 payments related to separate invoices which were then discarded, by reference to Colin Mead's matching of BL & GY's invoices with Australian customs data. He pointed out that in 1994 there were, according to Colin Mead's analysis, customs entries in relation to twelve importations which had no corresponding invoices in Exhibits L or K. The total customs value of those importations was $246,420.65. This, as Mr Graham pointed out, is very close to the $248,000 which was shown to have been paid by Hypec to BL & GY during that year. Mr Graham submitted that, taking into account fluctuations in exchange rates etc, there was a strong inference that the payments of $248,000 related to those importations. 140 At first sight this argument appears to be a persuasive one. However, it suffers from a serious flaw, namely that it is inconsistent with BL & GY's case in two fundamental respects. 141 The first difficulty is that this explanation runs contrary to the manner in which BL & GY has particularised its case. On 10 December 1999 BL & GY's solicitor wrote to Colin Mead's solicitor providing further particulars of the plaintiff's claim. As relevant here, the letter said as follows: - "…The plaintiff says that no payments were made by the first defendant to the plaintiff during 1990 and thereafter (covered by invoices numbered 124-215 to 25 September 1996) all invoices and credits were as set out in the extract from the general ledger of the plaintiff already provided to you. The total of the opening balance figure referred to therein and the subsequent invoices (124-215) less payments made as detailed therein is $NT97,689,320 (A$4,884,466) - the amount of the plaintiff's claim." (part of Exhibit 4)

142 I take this to mean that the general ledger, Exhibit K, is a record of all invoices and payments between 1991 and 1996. And if there were any doubt about this matter, it was put to rest by a letter dated 17 October 2001 from BL & GY's solicitor. This related to Hypec's attempts to obtain BL & GY's bank statements. As relevant here, it said: "In relation to your enquires regarding payments received by BL & GY. Your own examination of Hypec's books and records will show that the situation is as previously related to you, namely that no payments were made to BL & GY other than those evidenced by the documents produced in response to the earlier Notice to Produce (17 January 1993, 12 April 1993 and 19 January 1996) and those for which the documents no longer exist due to the passage of time (15 January 1991, 1 December 1991 and 27 January 1992)." (part of Exhibit 29) 143 The six payments referred to in that letter (putting aside the credits for $2.63m) constitute the six credits shown in Exhibit K. (See the chart in para 51 of this judgment). 144 This on its own would provide a sufficient basis for rejecting BL & GY's purported explanation for the fact that payments are shown to have been made in 1994 which were not recorded in Exhibit K. There is, in any event, a further difficulty with Ms Graham's suggestion that these payments related to other importations which were paid in full and for which no claim was therefore made. For this hypothesis assumes that there was an exact correlation between the customs values and the amounts payable to BL & GY, and this is entirely inconsistent with the way BL & GY has presented its case. 145 It is fundamental to BL & GY's case that the customs documentation did not set out the true value of the products to which it related. The true prices, it is claimed, were contained in the commercial invoices which were later sent to Hypec. This is BL & GY's explanation for the fact that there is a complete absence of correlation between prices claimed in the invoices listed in Exhibit K and the customs values of the imported goods. Accordingly, it is inconsistent, to say the least, for BL & GY to suggest that because there was a correlation between amounts shown to have been paid by Hypec and the customs value of a group of importations, a link should be inferred between the two.

Conclusion in Relation to Payments 146 There is, in my view, no reliable indicator before the Court as to the extent of payments made by Hypec to BL & GY during the course of those companies' business dealings. BL & GY's bank statements for 1994 give the lie to Exhibit K in so far as it relates to payments during that year. Nor can I accept the payments noted in Hypec's records as in any way representing the true position. Lucy Mead has lost all credibility in this case. I do not necessarily accept her evidence that 90% of the entries she made in Hypec's books as being payments to BL & GY were false, and that the money was in fact applied for other purposes. But I do accept Mr Hodgson's assessment that any payment which was recorded by Lucy Mead as having been made to BL & GY must be treated with caution. 147 Had BL & GY produced its bank statements, then some reliable assessment might have been possible, as occurred in relation to 1994. In this regard, it is interesting to note the following comparison between Hypec's 1994 records and the amounts which BL & GY's bank statements show to have been received. According to Hypec's cash books and cheque butts, a total of 37 payments were made to BL & GY in 1994, amounting to over $540,000. Of these, BL & GY's bank statements show that thirteen payments, amounting to approximately $248,000, were in fact received. We are not to know what happened to the other 23 payments totalling approximately $290,000. It must be inferred that some if not all of them were misapplied in the manner described by Lucy Mead. 148 The fact that the Hypec cheque butts and cash books must be regarded as an unreliable indicator of payments made to BL & GY is fatal to Hypec's cross-claim, as will be discussed shortly. On the other hand, the evidence relating to payments made to BL & GY in 1994 has assisted Hypec in its defence of BL & GY's claim, for it has presented yet another respect in which Exhibit K has been shown to be inaccurate and unreliable.

(i) The "duty" explanation is unlikely 152 Hypec's counsel submits that the explanation given for under-valuing the declaration invoices, namely that it was to reduce customs duty payable by Hypec, is at best unlikely. 153 Evidence on this matter was first given by Grace Yang who said, in her evidence in chief, that in 1983 Colin and Lucy Mead had a conversation with her about undervaluing their products. It was Colin who was doing the talking, she said. He told her that they (Colin and Lucy) wanted to save import duty. He asked BL & GY to undervalue its goods in the official documentation. It was left to BL & GY to determine the extent of the undervaluation, she said. Subsequently all goods which were sent by BL & GY to Hypec were undervalued by various amounts, usually 50 to 60%. 154 Grace Yang said that the only reason for adopting the practice of undervaluing Hypec's purchases was Colin Mead's request relating to customs duty. She was cross-examined that this was inconsistent with what she had said in an earlier statement, in which she had explained these undervaluations by reference to what she described as a common commercial practice in Taiwan to conceal the true cost of goods from shipping agents. This was also the explanation Josephine Chen gave for the undervaluations. However it was not mentioned by Lucy Mead, who said that Colin asked her to have the goods undervalued. Later she spoke to Grace and Josephine in Taiwan and asked them to undervalue the goods they were sending to Australia. 155 This was the first of a number of inconsistencies in the plaintiff's evidence about the undervaluing of goods sent to Hypec. 156 A further inconsistency arises from the fact that a number of the products sent by BL & GY were not in any event subject to Australian customs duty. This was clearly known to Grace Yang and Lucy Mead. For they both gave evidence that they altered the description of goods in the shipping documents in order to make them non-dutiable. For example, power supplies were described as computer cases, because computer cases were not subject to duty. Both Grace Yang and Lucy Mead were cross-examined as to why they then proceeded to undervalue goods, having already described them in a manner which would make them non-dutiable. They had no ready explanation for this. 157 It would appear from the evidence that, at least from 1990, the great majority of products imported by Hypec from BL & GY were not subject to Australian customs duty. Mr Liu said that the goods that were listed on the various BL & GY invoices which he saw were generally duty free. Lucy Mead conceded that after 1990 there was no duty on computer parts. However, she said, "no one bothered to tell BL & GY". 158 This is a startling statement, given that it was Lucy Mead herself who invariable dealt with BL & GY on behalf of Hypec during this time. If her evidence on this were to be accepted, it would mean that, during the six years between 1990 and 1996, she allowed the charade involving undervalued declaration invoices to continue, knowing all the time that there was no longer any reason for this practice, and yet never telling her sisters in Taiwan that it was no longer necessary. 159 Colin Mead denied having any conversation with Grace Yang about the undervaluing of goods purchased by Hypec. In his evidence in chief he appeared to say that he had a discussion with Lucy Mead about undervaluing, and told her that it would not be necessary as their profit margins were already very high. Later he said that he did not recall talking to Lucy about it, but the fact was that it was not necessary for Lamron or Hypec to undervalue their goods. Only some of them were dutiable and the companies were already making a substantial profit. 160 To conclude this aspect of the matter, I find it very difficult to accept the explanation given by the plaintiff's witnesses as to why this practice developed, and particularly why it continued until 1996. 161 I turn to the next basis upon which Hypec urges that the correct prices are those noted in the customs entries rather than those specified in BL & GY's invoices.

According to Colin Mead, these amounts greatly exceeded the value of any individual consignment ordered by Hypec. To his recollection, no individual orders exceeded $200,000 in value during the whole time Hypec was trading with BL & GY. 166 In order to support his contentions on this matter, Colin Mead obtained copies of some of Hypec's invoices to its own customers. He prepared schedules setting out the prices specified in a number of the BL & GY invoices and comparing them with the prices which Hypec had charged its own customers for the same products. These showed that, in virtually every case, the prices specified in BL & GY's invoices exceeded the prices which Hypec charged its customers for the same products. 167 Mr Graham cross-examined Mr Mead at considerable length about these schedules. He questioned whether they were in fact the same products that were referred to in the two sets of documents. In this regard I am satisfied that Mr Mead has, in general, correctly categorised these products. It is not possible to say that the goods sold by Hypec in any individual transaction were precisely the same goods as set out in any particular BL & GY invoice. But this is not of any great significance so long as the products were the same. 168 Mr Graham also pointed out that in some cases there was a significant time lapse between Hypec's purchase of goods from BL & GY and its sales to its own customers. In general, as Mr Mead conceded, the price of computer parts goes down with time. Accordingly, some of the lower prices charged to Hypec's customers might well have been partially attributable to this delay factor. However this can provide only a partial explanation for the difference between the prices charged by BL & GY and those charged by Hypec. And in some cases, this explanation is not available to the plaintiff. It is inconceivable, for example, that in November and December 1992, Hypec would have paid $380 or $390 to BL & GY for products which it was selling to its own customers during the same period for amounts between $123 and $190. 169 According to Colin Mead, the invoices in Exhibit L not only inflated the prices of the goods to which they referred, but also the quantities. There was substantial evidence to support this proposition. However I do not think it necessary to discuss it here. It is, after all, the acceptance of the amounts claimed in the invoices which is fundamental to BL & GY's case. And I consider that sufficient bases have already been established to reject the plaintiff's evidence on this matter.

Conclusion About Commercial and Declaration Invoices 173 BL & GY's counsel urges that its witnesses should be accepted when they say that the commercial invoices represented the true value of the goods sold to Hypec. Mr Graham points out that no complaint was ever made by Hypec that any of the prices charged by BL & GY were in excess of the agreed price. But it is difficult to attach any significance to this fact. Colin Mead never saw BL & GY's invoices. He approved the prices which Lucy Mead obtained from BL & GY before the goods were ordered. Thereafter it was Lucy Mead who took charge of the transactions. It was she who submitted the orders to BL & GY and who later received the shipping documents and BL & GY's invoices. It is Hypec's contention that the invoices in Exhibit L, as listed in Exhibit K, are false documents. However neither Colin Mead nor Hypec's representatives are in a position to specify when the falsifications took place. In this regard, Hypec submits that there are two possible scenarios. The first is that the invoices were concocted after Hypec had ceased its operations. The alternative scenario is that, at least from 1990, Lucy Mead was embarking upon a deliberate process of falsifying the records between Hypec and BL & GY, including falsifying the amounts charged for purchases. According to this scenario, the invoices in Exhibit L were being fabricated concurrently with the deliveries. The prices which Colin Mead approved were never the prices specified in the commercial invoices. But he did not know that, as he did not see the invoices. Lucy Mead knew it, but as she was the author of this deception she was hardly going to complain about it. 174 Mr Graham also relied upon the fact that in some cases, the amount charged in the BL & GY invoices was less than the value specified in the customs entries, if one is to accept Colin Mead's matching in Exhibit 16B. Mr Graham relied upon this in two respects: first, because he said it undermined the validity of Mr Mead's matching process; and second, because it refuted the proposition that BL & GY had embarked on a consistent process of cheating Hypec by inflating its invoice prices. 175 No real explanation has been presented by Hypec or Colin Mead for this phenomenon. Mr Mead, when asked about it, surmised that when BL & GY was falsifying its records it might simply have got it wrong. 176 Exhibit 16B shows ten cases in which the customs value exceeded the amount specified in BL & GY invoices. Most of these occurred in 1987 and 1988. In most cases the amounts involved were small: in seven cases the understatement was less than $1000, and in three of those it was less than $100. It is difficult to find any explanation for these understatements. I accept Mr Graham's comment that it does not sit easily with Hypec's case that BL & GY was systematically overcharging it. But it similarly does not sit easily with the evidence of BL & GY's witnesses that the declaration invoices invariably understated the value of the goods. As a result, I am unable to draw any conclusions favourable or unfavourable to either party as a result of this evidence. 177 It is not possible to reach any firm conclusion about the reliability of the prices specified in the customs data, and apparently reproduced in the declaration invoices. But I can safely conclude that the prices charged in the commercial invoices are very unlikely to represent the amounts which Hypec in fact agreed to pay. This is more than sufficient to support a verdict for the defendants in the principal proceedings.

CONCLUSION 178 It will be abundantly clear from the discussion thus far, that I have formed an extremely adverse view of the case sought to be presented by BL & GY. In my opinion Lucy Mead and her two sisters, particularly Grace Yang, have shown themselves to be entirely lacking in credibility and plausibility. Lucy Mead has admitted falsifying Hypec's records so as to conceal the misapplication of company funds. There is much to support the conclusion that she and her sisters have similarly falsified BL & GY's records so as to support a false claim against Hypec. A motive for doing this is easy to find, as Mr Fagan has pointed out. Hypec had no funds to meet BL & GY's judgment against it. Had the judgment not been set aside, recourse would almost certainly have been sought against Colin and Lucy Mead as directors. If successful, the properties in their joint names, which are now the subject of a property dispute in the Family Court, would presumably have been sold in order to meet BL & GY's judgment. 179 It was suggested in BL & GY's closing submissions that the onus of proving that the invoices contained in Exhibit L are shams rests upon the first and second defendants. It was further submitted that, given the gravity of the allegations, a Briginshaw v Briginshaw (1938) 60 CLR approach should be adopted. However, this cannot be correct. It is for the plaintiff to establish on the balance of probabilities that the defendants are indebted to it in the amounts which it claims. The mere fact that the defence raised by Hypec and Colin Mead involves forgery and deception does not result in a reversal of the onus of proof. 180 For reasons amply ventilated during the course of this judgment, I cannot be satisfied on the balance of probabilities that Exhibit K is a genuine document, or that its entries reflect the actual dealings between BL & GY and Hypec. Correspondingly I cannot accept that the amounts shown in the invoices in Exhibit L represent amounts actually owing by Hypec. 181 Lucy Mead has never suggested that, as agent for Hypec, she agreed with BL & GY to pay inflated prices for its products. Rather, her case has always been that the prices claimed in the BL & GY invoices represented the prices which she and Colin Mead agreed to pay. These were the amounts BL & GY paid to its own suppliers, together with a mark-up of 35%. Colin Mead disputes that BL & GY was ever entitled to such a mark-up, but I do not need to discuss that issue here. All I am concerned with at this point is to dispel any possible suggestion that the difference between the customs values and the invoice prices represented BL & GY's agreed profits on these transactions. This was never suggested by BL & GY, and it would have been very difficult to sustain, given that the invoice prices are on average more than double the customs valuations. 182 The result of all this is that I cannot be satisfied on the balance of probabilities that Hypec is indebted to BL & GY for the amount claimed, or for any smaller amount. There will be a verdict for Hypec on BL & GY's claim. 183 BL & GY's claim against Colin and Lucy Mead is dependent upon its succeeding in its primary claim against Hypec. That claim having failed, the claim against Colin and Lucy Mead must also fail. Accordingly I propose to enter verdict for the defendant in the case against Colin Mead. I propose to order that the judgment entered against Lucy Mead be set aside and that verdict be entered for her in the principal proceedings. 184 This finally brings me to the cross-claim. As indicated earlier, Hypec seeks repayment of the amount by which it is says it over-paid BL & GY between 1987 and 1996. The cross-claim is dependent upon reliable assessments being able to be made, first, as to the amounts paid by Hypec to BL & GY and second, as to the value of the goods Hypec purchased during this period. There are problems with both these matters. 185 Colin Mead prepared a schedule of payments which he said Hypec made to BL & GY during the relevant period. However, this cannot be regarded as a reliable guide. Mr Mead was clearly over zealous in the compilation of this document, and it includes payments which might well not have gone to BL & GY. Much more important is the fact that this schedule assumes that the Hypec records, as written up by Lucy Mead, were accurate except when proved otherwise. This issue was discussed under the heading of "Payments by Hypec to BL & GY" (see paras 125 to 148). I concluded there that no reliable assessment can be made as to the extent of payments made by Hypec to BL & GY over the relevant years. It is possible that Hypec's payments exceeded the value of goods purchased, but it is also possible that there was a shortfall. Accordingly, one of the two principal bases for Hypec's cross-claim cannot be substantiated. 186 This is sufficient on its own to dispose of the cross-claim. In addition, one cannot discount the possibility that there might have been further consignments of goods from BL & GY to Hypec which were not included in the customs data obtained by Colin Mead. As I discussed earlier, it is not possible to know whether there were other owner codes in Hypec's name. Hypec's cross-claim is dependent upon the proposition that there were no other owner codes and that the customs entries noted in Exhibit 16B represent a complete record of Hypec's importations from BL & GY. I cannot be affirmatively satisfied of this matter. 187 It follows that Hypec's cross-claim against BL & GY, Lucy Mead and Grace Yang must fail.

BL & GY International Co Ltd v Hypec Electronics Pty Limited and 2 others

At a glance

Court

Decision date

Before

Source

Judgment (52 paragraphs)

Parties

Cases Cited (1)

Cited By (5)