Bluemine Pty Ltd (in liq) v AKA

Introduction

1. Five companies and their liquidator appeal against part of the orders made by Ward CJ in Eq on 15 September 2020 dismissing accessorial liability claims in equity and under statute against several defendants.
2. The first and second appeals concern the dismissal of the claims brought by Bluemine Pty Ltd (in liq) (Bluemine) and Earth Civil Australia Pty Ltd (in liq) (Earth Civil) against AKA (Civil) Pty Ltd (AKA Civil) and AKA (NSW) Pty Ltd (AKA NSW) (together the AKA companies). The third and fourth appeals concern the dismissal of the claims brought by Diamonwish Pty Ltd (in liq) (Diamondwish) and Rackforce Pty Ltd (in liq) (Rackforce) against Ms Ivana Cassaniti. The fifth appeal concerns the dismissal of the claims brought by RCG CBD Pty Ltd (in liq) (RCG) against Borg Family Pty Ltd (Borg Family), Tanya Borg, Borg Civil Australia Pty Ltd (Borg Civil), and Michael Borg (together the Borg parties).
3. The liquidator's appeals were heard together with ten other appeals, five by Gino Cassaniti and five by the Khalil parties. Those appeals, and a common issue raised by the Borg parties by way of notice of contention (ground 1) in the RCG appeal, are the subject of a separate judgment delivered contemporaneously with this judgment: Cassaniti v RCG CBD Pty Ltd (in liq) and related matters [2022] NSWCA 161.
4. Although the background to the proceedings below has been summarised in the separate judgment, an understanding of the liquidator's appeals is assisted by a similar summary here.
5. Earth Civil, Bluemine, Diamondwish, Rackforce and RCG were each wound up voluntarily by special resolution of its members in either June or August 2013. Mr Mitchell Ball was appointed liquidator of each company. The liquidator, together with each company, then brought separate proceedings against multiple defendants alleging breach of fiduciary and statutory duty, accessorial liability for knowing assistance or involvement in those breaches of duty and claims of unreasonable director-related transactions and uncommercial transactions under Pt 5.7B of the Corporations Act 2001 (Cth).
6. The liquidator's elaborate pleadings included an alleged conspiracy by an accounting firm, Banq Accountants and Advisors Pty Ltd (Banq), and principals of or persons employed by that firm, namely Gino Cassaniti, Faouzi (Fred) Khalil, Peter Abboud and George Khalil, to promote and recommend a tax scheme to clients of the firm. The alleged conspiracy was only relied upon to establish that the nature of the alleged breaches of fiduciary duty by the relevant director of Earth Civil, Bluemine, RCG, Diamondwish and Rackforce were dishonest. No claim was made based on the tort of conspiracy, nor was it alleged that the defendants said to be liable as accessories were parties to a conspiracy.
7. Stripped of their complexity, the pleaded claims alleged that various defendants who were referred to as scheme participants entered into and implemented a series of transactions, by arrangement with Gino Cassaniti, the director of Earth Civil, Bluemine and RCG, or Frank Criniti, the director of Diamondwish and Rackforce, and that those transactions constituted what are known as "carousel" frauds. It was alleged that the transactions involved Earth Civil, Bluemine, RCG, Diamondwish and Rackforce (a) without providing consideration, receiving money to which it had no legal entitlement, (b) without receiving consideration, paying money without legal obligation, and (c) were left with no money to satisfy its only legitimate creditor, the Commissioner of Taxation, upon being wound up in a creditors' voluntary winding up within two years of incorporation.
8. The alleged purpose of the carousel payments was for the relevant defendants to obtain improper tax benefits by claiming GST input credits and income tax expense deductions and thereby reduce its taxable income.
9. The case against the scheme participants was based on accessorial liability under the second limb in Barnes v Addy (1874) LR 9 Ch App 244 and the provisions of the Corporations Act. The equitable claims alleged that the respective breaches of fiduciary duty by Gino Cassaniti and Frank Criniti involved a dishonest and fraudulent design, and that the alleged scheme participants knowingly assisted or knowingly participated in the dishonest and fraudulent design of those directors.
10. The statutory claims relevantly alleged that Gino Cassaniti and Frank Criniti breached ss 181 and 182 of the Corporations Act, in the case of Gino Cassaniti, as a director of Earth Civil, Bluemine and RCG, and, in the case of Frank Criniti, as a director of Diamondwish and Rackforce, by failing to exercise his powers and discharge his duties in good faith in the best interests of the company and for a proper purpose (s 181) and by improperly using his position to gain an advantage or to cause the company detriment (s 182).
11. Sections 181 and 182 are civil penalty provisions: Corporations Act, s 1317E. By s 1317H(1), a court may order compensation to be paid for "damage suffered by the corporation" if the person has contravened a civil penalty provision and "damage resulted from the contravention". The damage claimed to be suffered by Earth Civil, Bluemine, RCG, Diamondwish and Rackforce was the amount of taxation liabilities incurred by those companies by reason of payments received from the relevant defendants, and the amounts which were paid away by Earth Civil, Bluemine, RCG, Diamondwish and Rackforce for no corporate purpose or benefit.
12. A person who is involved in a contravention of s 181(1) and s 182(1) also contravenes those provisions: ss 181(2) and 182(2). By s 79 of the Corporations Act, a person is involved in a contravention if, and only if, the person was relevantly, in this case, "in any way, by an act or omission, directly or indirectly, knowingly concerned in or party to the contravention": s 79(c). Section 79 is a definitional provision.

The judgments below

1. The five proceedings were heard together in the Equity Division over 29 days in February and March 2020. In her principal judgment the primary judge, relevantly, found that Gino Cassaniti and Frank Criniti each breached his fiduciary and statutory duties owed respectively to Earth Civil, Bluemine and RCG, Diamondwish and Rackforce, that those breaches of duty involved a dishonest and fraudulent design, and that various defendants were liable in equity and under statute for knowing assistance and knowing involvement in those breaches of duty. Her Honour found that some of the accessorial liability claims failed, relevantly, the claims against the AKA companies, Ivana Cassaniti and the Borg parties: In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liquidation) [2021] NSWSC 966. The claims against these defendants were dismissed when the primary judge delivered her supplementary judgment on 15 September 2021 dealing with costs and making final orders: In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liquidation) (No 2) [2021] NSWSC 1161.
2. It is convenient to deal with the liquidator's appeals in the following order: Ivana Cassaniti (Ivana), the Borg parties and the AKA companies.

Overview

1. The liquidator's appeals insofar as they were directed against Ivana were in narrow compass. There was no challenge to the dismissal of claims based on her alleged involvement in payments involving Discobell Pty Ltd, which her Honour rejected at [1780]. What remained in issue were claims based on carousel payments involving Frank Criniti and two companies of which he was the sole director, Rackforce and Diamondwish.
2. There were unchallenged findings that the Rackforce and Diamondwish payments were part of a dishonest and fraudulent design involving breach of Frank Criniti's duties to those companies by which the companies would incur liabilities, including to the Commissioner of Taxation, which they would never pay. The liquidator said that Ivana was knowingly involved in Frank Criniti's breaches, both in equity and under statute, and therefore liable for the losses suffered by Rackforce and Diamondwish by reason of the carousel payments.
3. All the payments were made to a NAB bank account in the name of Givana Prestige. Ivana was the sole signatory of that account. The payments from Rackforce were deposits into that account of $653,933 on 16 December 2011 and $499,950 on 30 December 2011. There was a single payment from Diamondwish of $316,185 on 28 December 2011.
4. It was not suggested that Ivana played any role in the deposits from Rackforce and Diamondwish into the account. The assistance alleged to have been provided by Ivana was in authorising transfers of funds from the Givana Prestige account to other companies, including Auswide Auto Wholesalers Pty Ltd, a company associated with Mr Criniti.
5. The primary judge rejected the liquidator's claims against Ivana on the basis that her Honour was not satisfied that Ivana had the requisite knowledge of Frank Criniti's dishonest and fraudulent design. The liquidator maintained that that finding should be set aside, and that this Court should find that Ivana's knowledge was such that she was liable in equity and under statute for Mr Criniti's breaches of duty. Accordingly, it is necessary to address the documentary and testimonial evidence bearing upon Ivana's state of mind in December 2011 and January 2012.

The NAB bank statement for Givana Prestige

1. The liquidator tendered the NAB bank statement for the Givana Prestige account. It was opened on 6 December 2011. All funds were withdrawn from it some nine weeks later, on 7 February 2012. Ivana was the sole signatory of the account. There was ultimately no dispute that Gino had caused that account to be opened (although this may only have been disclosed in the documents which became Exhibit 16, to which we shall in due course turn).
2. The bank statement was brought into existence in March 2012, and the liquidator invited the Court to infer that the information it contained had been available through an online portal at around the time of the individual transactions. That is a plausible, although not inevitable, inference, which was not challenged by Ivana. We proceed on that basis. The bank statement showed, relevantly: 1. The account being opened on 6 December 2011 with a nil balance; 2. Two deposits on 12 and 15 December 2011 of $100,000 and $99,000; 3. On 16 December 2011, a deposit described as "Funds From Rackforce Pty Ltd" of $653,933; 4. There were two withdrawals on 19 December 2011, in the amounts of $68,964.60 and $130,070.40. The first was described as "Tfr To Auswide Auto Wholesalers", the second "RTGS to CBFC". 5. On 20 December 2011, a withdrawal described as "Tfr To Auswide Auto Wholesalers" of $653,898; 6. The balance on 20 December 2011 was zero (in fact there is a missing $70, but it may be that bank fees of $35 for some of the transactions account for this). 7. On 28 December 2011, a deposit of $316,185 was made, and it was accepted that this comprised funds from Diamondwish, although that was not apparent on the face of the bank statement; 8. On 30 December 2011, there was a further deposit described as "Funds From Rackforce Pty Ltd" in the amount of $499,950. 9. On 6 January 2012 there was a withdrawal of $363,000 described as "Tfr To Auswide Aut W Holesalers"; 10. On 9 January 2012 there were two withdrawals: one described as "Tfr To Auswide Auto Wholesalers Pty Ltd" in the amount of $122,943.29, and the other as "Tfr To Diamondwish" in the amount of $330,056.71. 11. There was one further deposit of $165,000, and seven further withdrawals. The latter comprised five "Internet Transfers" of $3,295, $20,000, $50,000, $1,558 and $30,000, one described as "RTGS to Gr Munoz" on 17 January 2012 in the amount of $60,035, and what appears to be the presentation of cheque 000001 in the amount of $226.50.

Ivana's three affidavits

1. Ivana's first affidavit, made on 11 April 2019 explained that after meeting Gino in 2005 and marrying him in 2007, she worked at Banq Accountants between 2008 and April 2010. At that stage she met Frank Criniti. She said that Givana Prestige was "set up by me in around 2009/10 to hold a car dealership licence. At the time the company was dormant. This did not happen and no business was undertaken whilst I was a director of Givana Prestige Pty Ltd". She said that from around April 2010 she was not involved in transactions or work done by Banq Accountants and that her focus at that time was her first child (a later affidavit stated that her first child was born in April 2010, her second in October 2012 and her third in May 2014). She described in 2011 being involved in forming Banq Accountants and Advisers Pty Ltd: "In 2011, I ceased trying to do any accounting work when Banq Accountants and Advisors Pty Ltd was set up. This is why I was never a director as I had no control. When I was working with Banq Accountants and Advisers Pty Ltd, I was doing administrative work only. I engaged in employment one or two days a week when I could, which was infrequently, otherwise I would leave all the work to others. I had my second child in 2012 and the third in 2014."
2. Ivana then said: "In around late 2011, Gino requested that I transfer Givana Prestige Pty Ltd with the dealership licence to Frank Criniti. Gino told me 'Frank wants to run a luxury car dealership, so I thought he could have Givana Prestige'. I agreed. As the company had no worth, no income and no money in it, I gave the shares in it to Frank Criniti for nothing."
3. Ivana said that from some time in late 2011 she had not had anything to do with Givana Prestige. The thrust of her affidavit was that she had not had anything to do with Givana Prestige, she was "not aware of any of the transactions that are alleged in the … proceedings" and "[o]n my view of the transactions, it was apparent that they were made without my authority, knowledge or involvement".
4. In her second affidavit, made on 28 June 2019, Ivana said: "I did not operate the Banq Accountants office accounts or trust account during the period 2010 to 2015. I could not physically be at work as I had 3 children and I was taking care of them at that time."
5. In her third affidavit, made on 3 March 2020, a week before her cross-examination, Ivana referred to the NAB bank account and said "I was not aware that this account existed until these proceedings commenced". She also corrected a statement in her earlier affidavits, saying that when she had referred to herself doing accounting work, she had meant "I was doing basic bookkeeping work".

Ivana's cross-examination

1. Her cross-examination commenced with the proposition that when she said she was a bookkeeper and not an accountant, that was false evidence, and it was further put to her that "you wish to say anything, even if it is false, if you think it will enhance your defence in these proceedings". No foundation was laid in the cross-examination for those propositions, which Ivana, unsurprisingly, denied.
2. Ivana accepted that Banq Accountants went into liquidation in December 2011, because it owed a tax debt, but she denied she knew how that came about because she had stopped working in 2010 when she had her first child.
3. Ivana was cross-examined in detail about the deposits and withdrawals appearing on the NAB bank statement. She denied being involved in the transfers of money out of the account, although she acceded to the proposition that she was the only signatory to it. Typical of her evidence was the following: "Q. How could a bank account transaction by payment out occur without your authorisation? A. I don't know how, I have no explanation to it, but I know that I couldn't, there is no chance that I could have transferred this amount of money."
4. Subsequently, she said that she had a $20,000 daily limit to do transfers and "anything over $20,000 I would have to get permission from the bank to do".
5. Ivana also denied being aware of the deposits into the account when they came into that account.
6. She gave this evidence: "Q. You were aware in December 2011 and January 2012 that you were a director of Givana Prestige Pty Ltd, weren't you? A. I remember Gino incorporating the company saying, can you sign to be a director/shareholder. I remember that the company just sat there, did nothing, and then he said to me, Frank wants this company, can we just give it to him because we've done nothing with it anyway. That's all I remember."
7. After the conclusion of Ivana's cross-examination by senior counsel for the liquidator, a solicitor for Mr Abboud cross-examined Ivana, on a hostile basis, and to much greater effect. After it was put to her that all three of her affidavits contained lies, she was handed a bundle of documents which became Exhibit 15. On their face, they appear to be extracts of emails, principally between ivanac@banq.com.au and . Each email had a signature block at its conclusion, with the details of the firm of accountants or the bank respectively. It seems that those documents had never been produced in the proceedings (as much was common ground between the liquidator and Ivana when the appeal was heard). No objection was made to the cross-examination continuing. On their face, they appear to record requests by Ivana to the bank to effect each of the large transfers out of the NAB account, with confirmations from Ms Iaquinto that they were effected.

Ivana's re-examination

1. On the following day, in re-examination, Ivana was shown the documents and she confirmed that she had had time overnight to look at those documents more carefully. She then gave this evidence: "Q. Ms Cassaniti yesterday you told her Honour that you didn't recall sending these emails? A. That's right. Q. Having had the night to look at the documents that's still the position that you don't recall sending these emails? A. No that's not the position now. Q. Well what is the position? A. The position is that it looks like it's come from my email, this is my email address. Q. Mm-hmm? A. But I just don't remember sending them. Q. All right but is it possible that you sent these emails? A. It is possible."
2. Ivana confirmed that she did not know the company CBFC, but did know that Auswide Auto Wholesalers was Frank Criniti's company, and there followed this exchange: "Q. All right now again on the assumption that you sent this email do you have any idea why those two transfers were being made on 19 December? A. It could only be that somebody had directed me to do it. Q. Are you able to tell her Honour any reason why you would want to be transferring $130,000 to CBFC or $68,000 to Auswide Auto Wholesalers? A. Somebody must have told me to do it."
3. The first passage of transcript was reproduced in Ivana's submissions, but not the second.
4. Ivana thereafter also denied any knowledge of the company called Diamondwish or Mr Munoz, but she was familiar with the Fina Foods Group Pty Ltd. These answers added little to her evidence. Nonetheless, the passage of transcript was reproduced at length in the liquidator's written submissions, and read verbatim to this Court when the appeal was heard, in support of the submission that her Honour erred in not having regard to it. For that reason, it should as a matter of transparency be reproduced in these reasons. The transcript records the following, immediately after Ivana's answer "Somebody must have told me to do it": "FAULKNER: Well I object to this. It's just speculation. COOK Q. So apart from speculating you cannot tell her Honour any reason why those were done? A. No I don't know. Q. All right now could you turn forward to page 4? You'll see there's a transfer proposed on 20 December from Givana Prestige for $653,898 to Auswide Auto Wholesalers? A. Yes. Q. Again apart from speculating do you know any reason why this payment was required to be made on 20 December? A. No. Q. And if you had to speculate what would it be? FAULKNER: I object your Honour. HER HONOUR: How am I assisted with speculation? COOK: Okay. Yes. Q. Could you then also turn to page 7 of these documents? And you'll see that there's a proposed transfer of $122,943.29 to Auswide, do you see that? A. Yes. Q. And then there's a transfer for $330,056.71 to a company called Diamondwish? A. Yes. Q. Before these proceedings commenced had you ever heard of a company called Diamondwish? A. No. Q. Again apart from speculating is there - do you have any idea as to why if you made these transfers they were required to be made on that day? A. No. Q. Page 10 you'll see that there's a transfer proposed to someone by the name of GR Munoz M-U-N-O-Z. Do you know who that is? A. No. Q. And do you have any idea why apart from speculating why an amount of $60,000 had to be transferred on that day to his or her account? A. No."

Exhibit 16

1. The provenance of the emails tendered by Mr Abboud was never ascertained. Ivana served a broadly drafted notice to produce on Mr Abboud, and part of what was produced was tendered and became Exhibit 16.
2. Those documents included an email exchange between Gino and Lorraine on 7 December 2011. Gino provided the details of Givana Prestige Pty Ltd and an application form for an account with a single signatory, namely, Ivana. Lorraine responded to Gino later that day with the account details and a signature card. She added: "I could not find Ivana's Internet ID can you please ask her and email it to me so that I can add the account on for you. I have ordered the cheque and deposit books so you will have them within the next 5-10 working days."
3. Ivana does not appear to have been included in any of those emails.
4. There was also an email from Frank Criniti to Fred Khalil and Gino with the subject "send me givana details" and an email the following day, this time copied to Ivana, with the subject "givana logo" which appears to have attached a logo.
5. There were also two emails from Gino directing transfers from two NAB accounts. The first was for a withdrawal from a different account (in the name of the firm). It was copied to Fred Khalil but not to Ivana, and was dated 22 December 2011, as follows: "Hi Ourania, We are having trouble with our internet banking at the moment. Are you able to transfer funds for me today please. [the email then contained details for a transfer of $110,000 to Auswide Auto Wholesalers Pty Ltd for the stated purpose of "Payment/settlement of Mercedes motor vehicle"] Should you have any queries, please do not hesitate to contact either myself or fred. Regards Gino".
6. The second was dated 6 January 2012. This was an instruction to transfer from the Givana Prestige account, and this time Ivana was copied in as well as the two NAB officers and Fred Khalil. It required a transfer of $363,000 to Auswide Auto Wholesalers Pty Ltd for the purpose "Balance for car purchase" from the Givana Prestige account, and two other transfers.
7. The emails in Exhibit 16 suggest that the Givana Prestige account was opened by Gino without the involvement of Ivana, and that Gino was able without Ivana's involvement to cause substantial withdrawals to be made from the account.

The reasons of the primary judge

1. The primary judge summarised the evidence (both affidavit and in the witness box) at [665]-[692]. No criticism was addressed to any aspect of that comprehensive summary. Her Honour summarised the parties' submissions as to Ivana's credit at [693]-[711] and concluded with the following finding, which was the subject of detailed criticism and is best reproduced in full. 712 I considered Ivana Cassaniti to be a credible witness. Her account of events (particularly that her role in Banq was only an administrative one) is consistent with her lack of professional qualifications as an accountant; and with the recollection of Frank Criniti that she did not have an office but sat, in effect, 'with the office girls'. It is quite plausible that Ivana Cassaniti held the roles that she did, as director or shareholder of companies associated with Banq, at the direction of Gino Cassaniti (whether, at the outset, for the purpose of asset protection on his part or, later, because he was a bankrupt). It is in my opinion significant that none of the Banq clients has suggested that Ivana Cassaniti gave any tax or business advice as to the structuring of companies or the like; her role being consistently described in terms of administrative tasks (such as chasing debtors or reconciling accounts) and even the evidence as to authorisation of transactions appears to have been to facilitate the transactions rather than to approve entry into the transactions. It seems to me to be telling that Ivana Cassaniti (as per her evidence in relation to "handing over" Givana Prestige) was apparently content to act on her husband's instructions or directions as to what was to be done in relation to one or more of the companies with which she was associated. 713 I do not accept that Ivana Cassaniti was lying in the witness box as to her role in the relevant companies. It is plausible that she did not recall the email communications in relation to banking directions; that she did not recall all of the bank accounts on which she was a signatory; and that she did not recall the signing of a licence renewal application in relation to a company in respect of which it is not suggested she personally carried on any motor vehicle dealership transactions. Ivana Cassaniti's evidence in the witness box (and it is not insignificant that, unlike her husband, she made herself available to be cross-examined) was given in a calm and unflustered way - even when she was shown documents inconsistent with her recollection of events; and I accept that Ivana Cassaniti made appropriate concessions. Moreover, her evidence is significant in that it squarely points to Gino Cassaniti having a more significant role in Banq than he accepts he did - and hence, ultimately, she did not seek to shield him in that regard. I considered Ivana Cassaniti to be a truthful witness, albeit with an imperfect recollection of events (which would not be surprising if she was mainly acting on the direction of her husband).

The liquidator's appeals

1. In proceedings 2021/289067 and 2021/289068, the liquidator of Diamondwish and Rackforce appeals against the dismissal of his claims against Ivana based on her knowing participation in Frank Criniti's breaches of duty to each of Rackforce and Diamondwish. In each case the grounds are identical and in what follows will be addressed collectively.
2. Grounds 3 and 4 alleged error in finding that Ivana was a credible and truthful witness; these grounds impugned the first part of her Honour's reasoning as to Ivana's credit. Ground 2 alleged error in failing to find that Ivana had sufficient knowledge of Frank Criniti's breaches of equitable and statutory duties. Ground 1(b) asserted error in finding at [1781] that Ivana lacked knowledge of the impugned transactions and had an imperfect recollection of events, and ground 1(c) alleged a failure to provide sufficient reasons for that finding and for dismissing the claims against Ivana. Grounds 1(a), 1(d) and 5 were conclusionary.
3. It should be said at the outset that her Honour's findings expressly drew upon her observations of Ivana giving evidence in cross-examination and re-examination over two days. Insufficient attention was given in the liquidator's written or oral submissions to the threshold difficulties to be overcome in setting aside those findings on appeal. Further, the liquidator did not seek a re-hearing but asked this Court to make findings tantamount to dishonesty without having seen Ivana give evidence. These things are mentioned because at the conclusion of the submissions for Ivana, senior counsel sought an order that the Diamondwish appeal be dismissed with costs on the indemnity basis, because it was based on a single transaction and was hopeless.
4. The principal difficulties confronting the liquidator are twofold. The first is that the primary judge's assessment of Ivana's knowledge was explicitly and understandably made by a consideration of factors extending to her demeanour in the witness box. The liquidator made this submission in writing: "Her Honour's findings of credit in favour of Ivana Cassaniti were wrong. A sub-issue of that is that the extent to which her Honour relied upon Ivana Cassaniti's demeanour was excessive in the face of documentary and other evidence raising compelling inferences to the contrary."
5. That submission does not alter the fact that the liquidator asks this Court to make findings against Ivana which are tantamount to dishonesty, without having seen her cross-examination, and to overturn the favourable finding of the primary judge who did see her cross-examination. An appellate court, while it must conduct a "real review" of the trial and give effect to the appropriate findings which should be made, is not in the same position as the judge at first instance. The appellate court "must, of necessity, observe the 'natural limitations' that exist in the case of any appellate court proceeding wholly or substantially on the record. These limitations include the disadvantage that the appellate court has when compared with the trial judge in respect of the evaluation of witnesses' credibility and of the 'feeling' of a case which an appellate court, reading the transcript, cannot always fully share": Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [23]. The joint judgment identified at [29] the "quite rare" cases when a demeanour-based finding may be overturned when the finding is "glaringly improbable" or "contrary to compelling inferences", as opposed to those cases where the finding is demonstrably falsified by incontrovertible facts. More recently, the joint judgment in Lee v Lee (2019) 266 CLR 129; [2019] HCA 28 at [55] confirmed that: "Appellate restraint with respect to interference with a trial judge's findings unless they are "glaringly improbable" or "contrary to compelling inferences" is as to factual findings which are likely to have been affected by impressions about the credibility and reliability of witnesses formed by the trial judge as a result of seeing and hearing them give their evidence. It includes findings of secondary facts which are based on a combination of these impressions and other inferences from primary facts. Thereafter, "in general an appellate court is in as good a position as the trial judge to decide on the proper inference to be drawn from facts which are undisputed or which, having been disputed, are established by the findings of the trial judge"." In this appeal the liquidator failed to engage with those natural limitations to appellate review of credibility-based findings.

Failure to have regard to all of the re-examination

1. The liquidator's written and oral submissions gave particular attention to the re-examination reproduced above, emphasising that only part was included in Ivana's written submissions. It was said that the omission of the balance of the re-examination was important: "This is important because her Honour may have acted on Ivana Cassaniti's written submissions and not the transcript evidence because (in error) her Honour does not refer to that evidence of speculation and says nothing about Ivana Cassaniti's evidence being mere speculation."
2. This complaint is without proper foundation. The testimonial evidence in this trial over some 6 weeks was completed at approximately the time of the onset of the Covid-19 pandemic. Extensive written submissions were filed in accordance with a timetable, and there were no oral submissions. (Indeed, one reason for the extensive recitation of the written submissions may have been the absence of oral submissions.) The liquidator supplied written submissions in reply occupying 98 pages and dated 13 October 2020. The claim against Ivana Cassaniti was addressed at paragraphs 392-416 on pages 84-92. No criticism was made of the portion of the re-examination reproduced in Ivana's submissions. Nor was the primary judge directed to the questions and answers which followed. There is no sound basis for a submission that her Honour erred in a case of this nature in not having regard to half a dozen questions and answers on page 1202 of the transcript to which no party drew her attention at any stage.
3. Further, it is plain from other aspects of the reasons that her Honour was astute to distinguish speculation from actual evidence. Her Honour's reasons in this respect were sometimes favourable to the liquidator and sometimes favourable to Ivana. For example, the primary judge observed that Ivana was merely speculating when she said that Gino may have asked her to close the account (at [685]) but that she was unpersuaded that Ivana had noticed particular transactions occurring on the same day in and out of the account, which was an inference which involved too much speculation (at [1691]).
4. Still further, there is nothing of substance in any event in the omitted passage. The liquidator's complaint is that the omitted portion of her questions and answers disclose that Ivana was merely speculating as to the reasons for making the transactions, if indeed she made those transactions. As much is obvious from the portion of transcript on which her Honour relied and which is reproduced, and in addition it is inherently plausible. Why should Ivana have a recollection of authorising particular withdrawals from an account which was closed more than eight years earlier, which never contained any money to which she or her husband had any beneficial entitlement, and which was owned by a company in the process of being transferred to Frank Criniti? These submissions on behalf of the liquidator cannot be accepted.

Error in finding a concession by Ivana

1. Next, the liquidator complained that her Honour erred in stating, at [713] and [1778], that Ivana made appropriate concessions as to the Exhibit 15 emails after they were drawn to her attention in cross-examination. It was said by the liquidator: "It is submitted that her Honour erred. There were no concessions, no concession. Nowhere does her Honour identify what the supposed concessions were. She was obliged to do that."
2. These submissions are wrong. The concession is, with respect, plain. Ivana had formerly denied any knowledge of the transactions and in particular had denied authorising them. When confronted with the emails, she conceded that, contrary to her earlier evidence, it was possible that she had authorised the transactions. The impact of this about-face could well have been more obvious when Ivana gave her evidence than appears from the transcript, but even so, her words "that's not the position now" make it plain that she regarded herself as acknowledging that her evidence given the previous day was wrong.
3. The liquidator submitted that Ivana's acceptance of the possibility that she had sent the emails was not a concession, and further he submitted that "no forthright and frank witness in her position could fail to concede that he had sent them. [The emails] were incontrovertible evidence that she did so". He sought to characterise the earlier evidence that Ivana had given, that it was possible someone else had sent the emails, as "an unfounded juvenile outburst" which was "false to her knowledge and should have weighed against her credit". The liquidator contended that "her Honour erred in not so applying it".
4. That submission cannot be accepted. In the court below, the liquidator did not address the possibility that somebody other than Ivana had used her email account to send the authorisations in writing; and he had no answer to the possibility when it was raised during the hearing of the appeal. Nor did the liquidator put to Ivana that she was telling a conscious untruth (it will be recalled that the liquidator did not cross-examine Ivana on the emails at all, and the solicitor who did, did not confront her with the proposition that she was perjuring herself). The primary judge would have erred if she had found that Ivana had been giving evidence which was false to her knowledge without that having been put to her during cross-examination.

The renewal of the motor dealer's licence

1. A separate issue concerns an application to renew a motor dealer's licence which the liquidator contends was signed by Ivana Cassaniti as a director of the company on 7 February 2012. The signature on its face resembles the signature on her affidavit. Ivana denied that she signed it. The date underneath the signature appears to have been written in another hand. Her Honour did not resolve the dispute whether the signature was genuine or forged. The liquidator's submission was that if the signature were Ivana's, she was declaring that Givana Prestige had operated a motor dealer's business in the previous 12 months, which was untrue, because Ivana's evidence was that the company had not traded.
2. The liquidator asked this Court to find, based merely on a comparison between the photocopy of the licence application and the photocopy of other signatures of Ivana in the appeal books, that the former signature was hers. We decline to do so. The fact that the signatures resemble each other, which they do, is an insufficient basis for drawing that conclusion.
3. At [283] her Honour recorded that on 7 February 2012 Ivana had signed a declaration purportedly as a director of Givana Prestige for the renewal of the licence. The liquidator maintained that this was a finding. On a fair reading of her Honour's reasons, it was merely a recitation of the documentary context which did not engage with the issue as to the authenticity of the signature. The reasons are to be read as a whole, and the fact that her Honour made reference in the following paragraph, [284], that "a lay comparison of the signatures on the 2010 application and the 2012 licence renewal suggests they are very similar" makes it plain that her Honour was alive to the issue.
4. The premise of this aspect of the liquidator's submissions is that her Honour actually found that Ivana signed the licence renewal. That premise is not made out. There was no error in her Honour not doing so. It is not necessary for a judge to resolve every contested issue of fact.

Acting at the direction of Gino?

1. The liquidator challenged the reasoning at [712] that it "is quite plausible that Ivana Cassaniti held the roles that she did, as director or shareholder of companies associated with Banq, at the direction of Gino Cassaniti (whether, at the outset, for the purpose of asset protection on his part or, later, because he was a bankrupt)". The liquidator says there was no such evidence or contention, and that "this finding on inference was not open". It was said, correctly, that this was not part of Ivana's evidence and that this was not put before her. It is then said, incorrectly, that it was an error.
2. We do not accept the liquidator's submission, for these reasons.
3. First, there is no obligation on a Court to confine its evaluation of the entirety of the evidence by reference to the particular propositions which the parties, not all of whom may be assiduous in exploring all permutations, choose to propound. It is true, of course, that serious adverse findings may not be made against a party or, indeed, a witness, without appropriate opportunities being given for that person to respond.
4. Secondly, the passage impugned by the liquidator is not a finding. It is one component, falling short of a finding, going to the plausibility of Ivana holding office at the direction of her husband, as part of the overall assessment of her credibility. There is nothing wrong with that. It accords with orthodox judicial approaches to the evaluation of evidence, weighing the various strands in the balance.
5. Thirdly, it is inherently plausible that Ivana held those roles at the direction of her husband. She no longer was as actively engaged in the business as she had been before the birth of her oldest child. Moreover, a liquidator was appointed to the first Banq company (Banq Accounting Pty Ltd) in December 2011. At that time, it is far from implausible that Gino was taking steps to distance himself from the successor company and its assets. To this must be added the matters established by Exhibit 16, with which Ivana was never confronted, namely that (a) Gino created the bank account independently of her, (b) Gino caused $110,000 to be transferred from another account on 22 December 2011 to Mr Criniti's company Auswide Auto Wholesalers with the description "Payment/settlement of Mercedes motor vehicle", being a similar description to some of those given to the Givana Prestige withdrawals, and (c) Gino caused $363,000 to be transferred from the Givana Prestige account on 6 January 2012 without Ivana's involvement.

Conclusion

1. The large majority of the liquidator's written and oral submissions were directed at the credit of Ivana. For the reasons given above, these submissions cannot be accepted.
2. The liquidator's submissions tended to put to one side the magnitude of the findings required to be made by this Court in order to render Ivana liable under the second limb of Barnes v Addy, or through s 79 of the Corporations Act.
3. The liquidator's case was that Ivana knowingly assisted in Frank Criniti's dishonest breaches of the fiduciary duties owed by him as director of Rackforce and Diamondwish. The critical circumstance is that Givana Prestige was in fact transferred to the control of Frank Criniti no later than February 2012 (initially, via Mr Criniti's assistant Mr Rizk). There is no reason not to accept Ivana's evidence that she believed the company was going to be transferred to Frank Criniti before that in fact occurred. Causing withdrawals of funds from the Givana Prestige bank account to be made to Auswide Auto Wholesalers, another of Mr Criniti's companies, in the days or weeks prior to Givana Prestige itself being transferred to Mr Criniti, would not indicate to an honest and reasonable person a dishonest breach of fiduciary duty by Mr Criniti. The liquidator submitted, repeatedly, that it would put an honest and reasonable person on inquiry. That may be so. But that falls short of the knowledge required in equity to render Ivana equally liable to Rackforce and Diamondwish as Mr Criniti is. It was accepted that the liquidator's claim under statute rose no higher than his claim in equity.
4. For those reasons, these appeals should be dismissed. Although aspects of the liquidator's submissions fell short of the standard expected by this Court, the Rackforce and Diamondwish appeals were addressed concurrently, and we are not minded to make a special costs order.

Overview

1. The liquidator's appeal directed against the Borg parties' concerns transactions which the liquidator says were entered into and performed by two Borg companies with RCG, by arrangement with RCG's director, Gino Cassaniti, comprising: 1. three sets of payments involving Borg Family being: 1. payments by Borg Family to RCG of $185,000 on 25 September 2012, $180,000 on 28 September 2012 and $220,000 on 5 October 2012, totalling $585,000; and, 2. payments by RCG to Borg Family of $185,000 on 25 September 2012, $75,000 on 3 October 2012 and $320,000 on 10 October 2012, totalling $580,000;

• (these payments were referred to by her Honour collectively as the "Borg Family Payments" and it is convenient to adopt that description: at [2767]); and 1. a single payment by Borg Civil to RCG of $33,000 on 23 May 2013.

1. The liquidator said that these transactions constituted carousel payments. In oral argument the liquidator described the cheque for $33,000 as the "cut" paid by the Borg parties to RCG for engaging in the earlier transactions in September/October 2012.
2. It is not in dispute that Tanya caused Borg Family to make three payments totalling $585,000 to RCG in September/October 2012 and that RCG paid $580,000 back to Borg Family at about that time. The Borg parties say that the payments to RCG were made on the advice of Fred Khalil as part of a corporate restructuring of the Borg companies which included the transfer of equipment from one Borg entity to another.
3. Nor is it in dispute that Tanya gave Fred Kahlil a Borg Civil cheque for $33,000 in May 2013 with the payee left blank at the request of Fred Khalil. The Borg parties say that this cheque was in payment of accounting fees for services provided by Banq and Tanya was unaware that RCG received the cheque.
4. The liquidator's case was that by entering into and performing the transactions with RCG, the Borg parties knowingly assisted and were knowingly involved in Gino Cassaniti's breaches of duty, both in equity and under statute, as a director of RCG. Relevantly, it was pleaded in par 231 of the third further amended statement of claim that the "Scheme Participants", which included the Borg parties, knew the following matters: … (b) the documentation (if any) prepared in respect of the transactions was intended to create an appearance, which was false, to the effect that the transactions involved genuine commercial transactions between RCG and the respective Scheme Participants or entities associated with them; (c) the transactions, if revealed, would operate to the detriment of RCG, including that the Commissioner would or may conduct a tax audit on RCG's accounts (as occurred) and would or may assess all payments received as deductible expenses (as occurred), a liability to pay income tax for which it would not otherwise have any liability, a liability to pay a penalty on any assessments or amended assessments issued by the Commissioner and a liability to pay general interest charges on any assessments or amended assessments issued by the Commissioner; (d) the appointment of a liquidator to RCG would further burden RCG with the costs of liquidation, including the costs and expenses incurred by the liquidators and lawyers engaged by them in properly investigating the facts and circumstances relating to the transactions. (e) as a result of the transactions that RCG would be left without funds to pay its taxation liabilities.

Tanya Borg's evidence

1. Tanya Borg gave two affidavits and was cross-examined. In her first affidavit, Tanya described the history of the Borg companies commencing in 2008 when her husband, Michael, started his own business and a company was incorporated called Borg Civil Pty Ltd, which later changed its name to Excavation Pty Ltd (Excavation) in 2012. That company conducted a transport and excavation business.
2. In around mid-2012, the Borgs were referred to Banq. Tanya and Michael attended their first meeting with Fred Khalil at Banq's offices in mid-2012, at which he asked questions about the business and its structure. They had a subsequent meeting with Fred Khalil in mid-2012 at which he advised that the Borgs' business structure was wrong, and that they should not have assets in their operating structure. Rather, the assets should be held in one company, the business operations in another and the employees in another company, and that he would set that up for them.
3. Tanya understood from Fred Khalil's advice that the assets should be in a separate company. Her evidence was that she did not understand the taxation or other consequences of the proposed structure or how it would occur, and those matters were not explained to her at the time. She also said that she was not directly involved in all discussions with Fred Khalil and Banq, and that some were with Michael.
4. In about May 2012, Fred Khalil came to the Borgs' office and said to Tanya: "We will set up a company called Borg Civil Australia Pty Ltd. That company will operate the business going forward. All assets will be transferred to a new company as trustee; we will call that Borg Family. The employees will be put in a company called Borg (NSW). Tanya, you will be the director of Borg Family, I will take care of it all."
5. After that discussion, Tanya signed a number of documents at the request of Fred Khalil, which she understood were for the purpose of facilitating the new corporate structure. On 21 May 2012, Borg Civil and Borg Family were incorporated with Tanya as a director of Borg Family and Michael as a director of Borg Civil. Tanya did not ask for written advice from Fred Khalil.
6. Tanya gave evidence of her understanding that most of the equipment recorded in the books and records of Excavation was either owned by or paid for by Michael personally. She said that Fred Khalil told her that the Borgs' accountant had recorded the equipment as being owned by the company not Michael, and that he would work out the best way to transfer the property to the new company. Tanya said that at some stage Fred Khalil said to her: "Before it is transferred, you need a valuation. I will organise that for you, but it will cost around $10,000". Tanya was not cross-examined on these conversations with Fred Khalil.

Borg Family Payments

1. After he had obtained the Hymans report, Fred Khalil told Tanya: "I have the valuation, I can structure those payments, I have a company called RCG, I can use that to make the payments to the old company."
2. Although Tanya's evidence was that she did not completely understand what was being proposed by Fred Khalil, she understood that money would be paid by Borg Family to RCG, that money was to be held by RCG and paid to Excavation and the money would be returned to pay monies owed to Michael. In cross-examination, Tanya said that she understood RCG was a "conduit", but otherwise did not know what business it was in. She was not challenged on this answer.
3. On 24 September 2012, Fred Khalil caused the name of Borg Civil Pty Ltd to be changed to "Excavation Pty Ltd". As the primary judge observed, Tanya was not cross-examined about the reasons for the name change: at [317].
4. Tanya's evidence was that invoices in the form of recipient created tax invoices were arranged by Fred Khalil in respect of the sale of equipment by Excavation to Borg Family. She annexed to her affidavit three such invoices in respect of the first payment of $185,000 on 25 September 2012. In her second affidavit, Tanya said that at the time of the first payment by Borg Family to RCG on 25 September 2012, Fred Khalil said to her words to the following effect: "Please make a payment, so that I can pay it over to Excavation for the equipment". This evidence was admitted as evidence of the fact of the communication, not for the truth of it, and was not challenged in cross-examination.
5. Tanya gave unchallenged evidence that after the three transfers were made by Borg Family to RCG, Fred Khalil said to her: "I think we need to do something else regarding the payment for the old Borg [C]ivil assets. I will think about it and get back to you."
6. Tanya said that on Fred Khalil's recommendation, a further series of payments were made by Borg Family to Excavation. These payments did not involve RCG. The contemporaneous documentary evidence established that Borg Family paid $1,360,000 directly to Excavation by seven payments between November and December 2012, and Borg Family refinanced a loan of $220,186 from NAB secured over three items of equipment owned by Excavation by entering into a sale/hire back arrangement with NAB dated 8 October 2012 in respect of that equipment.

$33,000 cheque

1. Tanya's evidence was that the $33,000 cheque drawn by Borg Civil was in payment to Banq for assisting with the restructuring of "our companies' affairs". She annexed to her first affidavit a copy of the remittance advice for Borg Civil which she prepared, containing the typed words "Payment number 418". Although Tanya was unable to locate any invoice issued by Banq, she annexed to her second affidavit a copy of the cheque butt for cheque no. 418 containing the words "Banq Accountants". She said that these words were written by her and recorded her understanding that the cheque was drawn to pay Banq Accountants. The relevant page of the general ledger of Borg Civil was in evidence and recorded the payment of $33,000 as a payment to Banq Accountants.
2. Tanya was challenged on her evidence that she did not know why the cheque was banked into RCG's account. She was adamant that this was a truthful answer. Tanya gave evidence in her second affidavit (par 9), which was admitted as evidence of the fact of communication, not its truth, that she left the payee of the cheque blank as Fred Khalil said to her when she was drawing the cheque: "Just leave the payee details blank, I will fill it out".
3. The cross-examiner put to Tanya that her evidence concerning this conversation with Fred Khalil was "nonsense". Tanya disagreed. She said that she did not know why the cheque was paid to RCG and adhered to her affidavit evidence.
4. The cross-examiner put to Tanya that she had no expectation that if she paid the $33,000 to RCG it would pay $3,000 to the Commissioner (for GST). Tanya responded that she "didn't know RCG's expectation or what it's going to be doing".
5. The cross-examiner also put to Tanya that she did not have an RCG invoice in relation to that amount. Tanya responded that she assumed that it was for Banq, "and that's what my cheque butt says as well". When asked whether she had any explanation as to why Borg Civil accounts recorded the $33,000 cheque as a cash disbursement from Borg Civil to Banq Accountants, when the cheque was paid to RCG, Tanya replied that she did not know.

The reasons of the primary judge

1. Her Honour's findings in relation to background matters included: 1. RCG was incorporated on 16 May 2012. Its directors and shareholders on incorporation were recorded as Gino Cassaniti and George Khalil (though George Khalil ceased as a director the same day): at [291]; 2. in 2012, Michael was aged 23 years and had been carrying on an excavation and demolition business for a few years through several companies, including Borg Civil Pty Ltd which was subsequently renamed Excavation on 24 September 2012. His wife, Tanya, was 20 years old; she was then working three jobs (at Doctors' surgeries and at a sports store), taking care of their children and studying Commerce and Business: at [293]; 3. there was evidence of a loan agreement dated 3 July 2008 which recorded that Michael intended to advance $2 million to Excavation, and her Honour found that, by 2012, various items of equipment had been purchased for use in the business of Excavation and recorded in the books of Excavation as assets of Excavation, although Tanya's understanding was that the items of equipment were in fact owned or had been paid for by Michael Borg personally: at [294]. There was no challenge to this finding; and 4. RCG was wound up on 28 June 2013 by way of a creditors' voluntary winding up commenced by resolution of Gino Cassaniti: at [413]
2. Her Honour addressed in detail Tanya's evidence which has been referred to above concerning the meetings Tanya and Michael attended with Fred Khalil and the restructuring advice given by Fred Khalil (at [295]-[296]). Importantly, her Honour noted that, on Tanya's evidence, no advice was given by Fred Khalil (or anyone else) to Tanya or Michael as to any tax benefits from the restructure that was proposed: at [297].
3. After referring to the steps taken by the Borg parties pursuant to the advice given by Fred Khalil referred to above, her Honour noted that: 1. the value ascribed to the items of equipment in the three recipient created tax invoices dated 25 September 2012, issued by Borg Family and directed to Excavation, was consistent with the value set out in the Hymans report (at [324]); 2. the transaction was recorded in the Borg Family's general ledger as a purchase from "BORG CIVIL", and that "BORG CIVIL" was listed as a trade creditor in relation to that item (at [326]), and 3. recipient created tax invoices for the purchase of equipment were made out in the name of Excavation and the entries in the Borg Family general ledger recorded the payments to RCG in September/October 2012 as being for the purchase of equipment, and the payments from RCG to Borg Family as loans: at [337]-[345].

The liquidator's appeal

1. In proceeding 2021/289069, the liquidator of RCG appeals against the dismissal of RCG's claims against the Borg parties based on their alleged knowing assistance and knowing involvement in Gino Cassaniti's breach of duty to RCG.
2. Ground 1 contends that the primary judge failed to give sufficient reasons in dismissing the claims against the Borg parties.
3. Grounds 3 and 4 concern Tanya. It is contended that the primary judge erred in finding that (a) Tanya relied upon a professional accountant to trust that the impugned transactions were being properly implemented, and (b) she did not have the requisite knowledge of a dishonest and fraudulent design on the part of RCG's director, Gino Cassaniti.
4. Grounds 2, 5 and 6 concern Michael. It is contended that the primary judge erred in finding that (a) Michael relied upon the advice of Fred Khalil in the absence of evidence from Michael and compelling inferences to the contrary, (b) based on Tanya's evidence, no inference arose that Michael's knowledge was any greater than Tanya's knowledge as to the reasons for the transactions being effected, and (c) Michael did not have the requisite knowledge of a dishonest and fraudulent design on the part of RCG's director, Gino Cassaniti.
5. Ground 7 contends that the primary judge erred in not considering whether Borg Civil and Borg Family were imputed respectively with Michael and Tanya's knowledge of Gino Cassaniti's dishonest and fraudulent design as a director of RCG.

Notice of contention

1. By notice of contention the Borg parties sought to uphold the dismissal of the claims against them. Ground 1 asserted that the Borg parties were released from liability by reason of RCG giving releases in favour of other accessories to Gino Cassaniti's breach of fiduciary and statutory duty owed to RCG. That contention cannot be accepted for the reasons given in the separate judgment dealing with the joint release defence: see [4] above.
2. Ground 2 of the notice of contention asserted that the primary judge erred in concluding that the transactions involving the Borg parties were part of the scheme and involved a dishonest and fraudulent design. The Borg parties say that the evidence did not establish - with reference to the Borg parties - the existence of the alleged scheme.

Insufficient reasons

1. In written submissions the liquidator said that her Honour was required (but failed) to address and provide reasons regarding Tanya and Michael's understanding of the transactions and reliance on advice in undertaking the transactions by reference to three matters: (a) all of the established facts of and surrounding the impugned payments; (b) Tanya's explanation of her understanding for the payments; and (c) what was the actual advice on which Tanya and Michael relied.
2. The submission continued that, in the absence of reasons addressing these matters, it is not possible to understand if her Honour considered those matters and, if she did, why she found in Tanya's favour. In reply submissions, the liquidator said that her Honour failed to consider objective evidence of facts making Tanya's explanation glaringly improbable.
3. This ground was not at the forefront of the liquidator's oral argument. Except for a passing reference in counsel's formulaic statement that "we continue to rely on our opening written submissions and submissions in reply", this ground was not mentioned in argument. The appropriate relief if this ground was established would have been a retrial, as the alleged errors would not entitle this Court to make any factual findings of its own, given that the credibility of Tanya's evidence was in issue: Goodrich Aerospace Pty Ltd v Arsic (2006) 66 NSWLR 186; [2006] NSWCA 187 at [119] (Ipp JA, Mason P and Tobias JA agreeing). Since the liquidator did not seek a retrial, this ground should be taken not to have been pressed.

Challenge to factual findings

1. The liquidator challenged three factual findings: 1. that Tanya and Michael relied upon advice from Fred Khalil as to how the Borg companies should be structured and, insofar as that involved accounting for the equipment recorded in the books of Excavation, as to how that was to be effected: at [1961]; 2. that Tanya did not have the requisite knowledge that would put an honest and reasonable person on enquiry as to the honesty of the transactions, and more specifically, of a dishonest and fraudulent design of Gino Cassaniti, the director of RCG and Bluemine, whom she did not know: at [1961]; and 3. that, based on Tanya's evidence, it could not be inferred that Michael's knowledge was any greater than hers as to the reasons for the transactions being effected as they were: at [1962].
2. It is convenient to address these challenges in the context of the grounds to which they relate. The first two challenges concerning Tanya relate to grounds 3 and 4. The remaining challenge concerning Michael relates to ground 5.
3. In addressing these factual challenges, the Court was not assisted by the liquidator's narrative statement in purported compliance with Uniform Civil Procedure Rules 2005 (NSW) (UCPR) r 51.36(2). This statement was inadequate in circumstances where the alleged knowledge of Tanya and Michael of the dishonest and fraudulent scheme of Gino Cassaniti was central to the liquidator's pleaded claim (see [103] above). The narrative statement failed to indicate the factual findings for which the liquidator contended and supporting references to the transcript and the evidence below and instead described the findings contended for in terms of the declaratory and monetary relief sought by the liquidator. This omission is not a matter of mere form. As Leeming JA observed in South-Western Sydney Local Health District v Gould (2018) 97 NSWLR 513; [2018] NSWCA 69 at [135]: … It is not for this Court, in order to resolve a factual challenge advanced by an appellant, to trawl through the entirety of the record in order to collect and then evaluate the relevant evidence. See also Massoud v Nationwide News Pty Ltd; Massoud v Fox Sports Australia Pty Ltd [2022] NSWCA 150 at [139]-[140].

Reliance on Fred Khalil's advice

1. The liquidator said that there was insufficient evidence from which her Honour could find that Tanya acted on advice because (a) there was a paucity of evidence to determine the nature and extent of such advice, and (b) Tanya should not be believed in her evidence that she received advice from Fred Khalil, and she acted upon such advice.
2. As to (a), the liquidator described Tanya's evidence of the advice as "fragile at best". This is a mischaracterisation of her evidence, which her Honour accepted. Fred Khalil advised Tanya about the transfer of assets and employees to separate Borg companies upon the establishment of Borg Civil, being to run the business; he told her that the structure he recommended was "industry standard" and referred to other businesses, well-known to Tanya as reputable, that had a similar structure, and he initially advised to use RCG as a conduit for the payments to Excavation in respect of the equipment transferred to Borg Family. Tanya understood that the repayments back to Borg Family had been directed by Michael to pay loans owed to Michael by Excavation.
3. As her Honour found (at [1342]-[1343]), it was clear that what was being put in place was a means to record the transfer of the equipment from Excavation and the repayment of monies that it was said were initially advanced to Excavation by Michael, and the fact that Tanya did not fully understand the effect of the advice did not mean that there was not a reasonable basis for her to assume that this was an appropriate means of accounting for the transaction.
4. Contrary to the liquidator's submissions, the implementation of the advice given by Fred Khalil was consistent with Tanya's evidence. As her Honour found, Fred Khalil arranged the incorporation of the new Borg companies on 21 May 2012; he obtained a valuation of the equipment from an independent valuer in August 2012; he arranged the recipient created tax invoices to record the transfer of the equipment from Excavation to Borg Family; Tanya made the first three payments to RCG, which she understood from Fred Khalil was a conduit for the payments to Excavation; and Fred Khalil caused the accounting entries to be made in the books of Borg Family and Excavation.
5. The liquidator said that it is irrelevant that there was the change in advice by Fred Khalil in October 2012 and there is no claim by the liquidator that the November/December 2012 transactions were dishonest or part of a scheme which operated to the detriment of RCG. That submission ignored the circumstances of Tanya's acceptance of the change in advice from Fred Khalil. Importantly, it was not put to Tanya or suggested in submissions that she understood or was aware of facts which indicated that the change in advice in October 2012 was a recognition by Fred Khalil that the September/October 2012 transactions were dishonest or part of a scheme which operated to the detriment of RCG.

Whether Tanya Borg had the requisite knowledge

1. It is not in dispute that her Honour correctly stated by reference to Farah at [174]-[179], the test of knowledge for the purposes of a claim in equity under the second limb in Barnes v Addy (at [987]).

Borg Family Payments

1. The liquidator contended that her Honour addressed the wrong issue in finding (at [1961]) that Tanya did not have "the requisite knowledge that would put an honest and reasonable person on enquiry as to the honesty of the transactions". That submission misunderstands her Honour's reasons. Her Honour's point was that Tanya did not have constructive knowledge of Gino Cassaniti's impropriety in causing RCG to enter into the transactions and incur tax liabilities which it could never pay, and thus did not have requisite knowledge for an accessorial liability claim, which required more than constructive knowledge.
2. Alternatively, the liquidator said that her Honour failed to address whether Tanya's knowledge amounted to knowledge within categories (ii), (iii) or (iv) in Baden. That submission misreads her Honour's reasons. Having found (at [1961]) that Tanya did not have constructive knowledge of Gino Cassaniti's dishonest and fraudulent design, her Honour went on to find that Tanya did not have knowledge "… more specifically, of a dishonest and fraudulent design on the part of the director of RCG CBD and Bluemine whom she did not know". Plainly, that finding was a rejection of the liquidator's claim at trial that Tanya's knowledge was within any of categories (i), (ii), (iii) or (iv) in Baden.
3. Next, the liquidator said that her Honour's finding (at [1961]) that Tanya's "inability to explain why it was that the transactions were effected in the way that they were simply reinforces that conclusion", being the absence of knowledge of Gino Cassaniti's impropriety, did not equate to an absence of knowledge within categories (i), (ii), (iii) and (iv) in Baden.
4. The reference to actual knowledge within category (i) in Baden was not part of the liquidator's case in oral argument in this Court. In any event, there is no basis in the evidence for finding that Tanya had actual knowledge of Gino Cassaniti's impropriety.
5. The reference to categories (ii), (iii) and (iv) in Baden misses the point her Honour was making. The significance of Tanya's inability to explain why the payments from Borg Family to Excavation were made to RCG was that Tanya's lack of understanding of the effect of using RCG as a conduit was found by her Honour to be genuine. Thus, her Honour found that Tanya's inability to explain the use of RCG as a conduit was inconsistent with her having knowledge of Gino Cassaniti's impropriety in causing RCG to enter into the transactions with Borg Family and receive the payment from Borg Civil, and thereby expose RCG to tax liabilities which it could never pay.

Borg Civil $33,000 cheque

1. Seventh, that Tanya handed the Borg Civil cheque for $33,000 to Fred Khalil without an invoice, is not a circumstance suggesting impropriety by RCG, as the liquidator submitted. When this matter was put to Tanya in cross-examination, she readily agreed that she did not have an invoice from RCG. That was explicable as on Tanya's evidence the cheque was not requested by nor intended for RCG. Consistently with her other evidence, Tanya assumed that the cheque was for Banq.
2. In this Court, the liquidator relied upon the absence of an invoice from Banq. That was not a circumstance indicating the impropriety of Gino Cassaniti in causing or approving RCG to enter into the transactions which exposed RCG to tax liabilities which it could never pay. There was unchallenged evidence from Tanya of the accounting work undertaken by Fred Khalil and Banq for the Borg companies. That the cheque was paid into the account of RCG was matter over which Tanya, Michael and Borg Civil had no knowledge or control.
3. It was not put to Tanya in cross-examination that she knew that the cheque would be paid to RCG, that she contrived the remittance advice she prepared for Borg Civil, or that the name "Banq Accountants" on the Borg Civil cheque butt did not reflect her understanding of the intended payee of the cheque. Nor was it put to Tanya that she knew that the cheque was intended to be applied by Fred Khalil as RCG's "cut" for engaging in the earlier transactions, as counsel for the liquidator asserted in this Court.
4. For these reasons, the liquidator's submission that Tanya had knowledge that the Borg Civil cheque involved a dishonest transaction within either category (ii), (iii) or (iv) in Baden cannot be accepted.

Conclusion in relation to Tanya

1. The liquidator has failed to establish that Tanya's knowledge of the transactions between the Borg companies and RCG amounted to knowledge in equity or under statute of Gino Cassaniti's breach of duty in causing or approving RCG to enter into the transactions with Borg Family which exposed RCG to tax liabilities which it could never pay. There was no error by her Honour in rejecting the accessorial liability claim against Tanya.

Whether Michael Borg had the requisite knowledge

1. The liquidator's case against Michael and Borg Civil was limited to the Borg Civil cheque for $33,000. The liquidator said that:

• RCG received the cheque without any genuine documentation;
• the book entries in the accounts of Borg Civil were false in recording this payment as a payment to Banq Accountants;
• Tanya's evidence of her understanding that the payment was for accounting fees to Banq was unacceptable in the absence of an invoice from Banq; and
• as Michael did not give evidence, an inference should be drawn that his evidence would not have assisted his defence or Borg Civil, and "it is to be inferred that Michael was well aware of the true basis of this transaction".

Significance of Tanya's evidence

1. At trial, no case was pleaded or advanced by the liquidator against Borg Civil based on attribution of Tanya's knowledge. However, in this Court, the liquidator's submissions seemed to attribute Tanya's knowledge to Borg Civil as agent for Borg Civil. The liquidator said that Tanya either "wilfully closed her eyes to being involved in a dishonest transaction" or "was recklessly indifferent as to whose name was inserted in [the cheque as payee]".
2. Putting aside the difficulty confronting the liquidator in seeking to rely upon a new case on appeal, the liquidator's challenge to Tanya's evidence of her understanding that the cheque was for payment of accounting fees has already been rejected at [193]-[194] above. In short, the absence of a Banq invoice did not render Tanya's evidence glaringly improbable and there was contemporaneous documentary evidence supporting her Honour's acceptance of Tanya's evidence.
3. The liquidator's case against Michael was that he was liable as an accessory to Gino Cassaniti's breach of duty because as director of Borg Civil he authorised the cheque, and it is to be inferred, in the absence of evidence from Michael, that he knew the "true" basis of the transaction. For the reasons that follow, there was no error by her Honour in rejecting the claim against Michael.

Book entries

1. The submission that the book entries in the accounts of Borg Civil were false cannot be accepted. The book entries accorded with the contemporaneous remittance advice prepared by Tanya that the cheque was a payment to Banq Accountants for accounting services. As noted, the authenticity of the remittance advice and the cheque stub was not challenged. Nor was there any challenge to Tanya's evidence of the various accounting services provided by Fred Khalil and Banq to the Borg companies.

Significance of absence of evidence from Michael

1. A Jones v Dunkel inference from the failure to give evidence does not permit the drawing of an inference that, if called, a witness would have exposed facts unfavourable to the party who failed to call the witness: Manly Council v Byrne [2004] NSWCA 123 at [50] (Campbell J). Yet this is what the liquidator sought at trial, and again in this Court.
2. Counsel for the liquidator said in argument that "we are unable to know what Michael Borg's purpose was in providing that cheque or authorising that provision of the cheque, because Michael Borg did not come before the Court to give evidence in his defence". That submission both sought to reverse the onus of proof and ignored that the way in which the absence of evidence may be taken to account are confined by well-known and accepted principles: ASIC v Hellicar [2012] 247 CLR 345; [2012] HCA 17 at [165].
3. As Campbell J said in Manly Council v Byrne at [51]: Thus, if a witness is not called two different types of result might follow. The first is that the tribunal of fact might infer that the evidence of the absent witness, if called, would not have assisted the party who failed to call that witness. The second is that the tribunal of fact might draw with greater confidence any inference unfavourable to the party who failed to call the witness, if that witness seems to be in a position to cast light on whether that inference should properly be drawn.
4. The inference which the liquidator submitted should be drawn from the failure of Michael to give evidence - that Michael was well aware of the "true" basis of this transaction, being RCG's "cut" for participating in the earlier transactions with Borg Family - went well beyond the inferences permitted by Jones v Dunkel.
5. The liquidator said that since Tanya was not a party to all discussions between Michael and Fred Khalil "it was within the [Borg parties'] ability to provide evidence of that content, and they did not". That submission ignored the fact that nothing was put to Tanya as to any matters discussed between Michael and Fred Khalil that required Michael to explain or contradict.
6. Tanya's evidence was not that Michael was separately advised by Fred Khalil; it was that she was not involved in all the discussions between Fred Khalil/Banq and "BC/BCA", being a reference to Borg Civil Pty Ltd which was renamed Excavation and the newly formed Borg Civil Australia and referred in cross-examination to Michael asking Fred Khalil to organise the finance with NAB.

Conclusion in relation to Michael

1. The liquidator has failed to establish that Michael's knowledge of the Borg Civil cheque amounted to knowledge in equity or under statute of Gino Cassaniti's breach of duty in causing or approving RCG to receive the Borg Civil cheque which exposed RCG to tax liabilities which it could never pay. There was no error by her Honour in rejecting the accessorial liability claim against Michael.

Claims against Borg Family and Borg Civil

1. Given that the appeal against Tanya and Michael has failed, the derivative appeals involving the claims against Borg Family and Borg Civil based on the attribution of their knowledge must also fail.
2. In these circumstances it is not necessary to address ground 2 of the notice of contention: see [157] above.

Conclusion

1. The liquidator's appeal against the Borg parties should be dismissed with costs.

Overview

1. The liquidator's appeal against the AKA companies concerns transactions which the liquidator says were entered into and performed, by arrangement with Earth Civil and Bluemine's director, Gino Cassaniti. These transactions are said to constitute carousel transactions. The transactions were:

• the payment of $400,000 by AKA Civil to Earth Civil between September and October 2012, which amount was then paid by Earth Civil to Andre Abou-Antoun and Michael Abou-Antoun;
• the payment of $586,000 by AKA NSW to Earth Civil between February and May 2013, of which an amount of $565,000 was paid by Earth Civil to Michael Abou-Antoun;
• the payment of amounts totalling $3,851,818 by AKA Civil and AKA NSW to Bluemine between December 2012 and May 2013 ($1,571,500 by AKA Civil and $2,280,318.21 by AKA NSW); and
• the payment of $3,800,719 by Bluemine to several companies related to or associated with the AKA parties during the same period, MAL Land Group Pty Limited, LAM Haulage Pty Limited and The Great Brothers Pty Limited (together the impugned transactions).

1. The case against the AKA companies was based on accessorial liability under the second limb in Barnes v Addy and on the provisions of the Corporations Act. By their defences in each proceeding, the AKA companies either did not admit or denied the plaintiffs' allegation that Michael Abou-Anton was the directing mind and will of the AKA companies.
2. In her principal judgment, the primary judge found that Michael Abou-Antoun, the sole director of the AKA companies, was liable as an accessory in Gino Cassaniti's breach of fiduciary and statutory duties owed to Earth Civil and Bluemine, however the accessorial liability claims against AKA NSW and AKA Civil should be dismissed because Michael Abou-Antoun's knowledge of Gino Cassaniti's impropriety could not be attributed to the AKA companies as Michael Abou-Antoun was acting in fraud of the AKA companies.
3. In her supplementary judgment, the primary judge dismissed the proceedings brought by Bluemine and Earth Civil against the AKA companies and made costs orders against the liquidator and Earth Civil and Bluemine (at [122]) in the following terms: Earth Civil Proceeding (2016/00194955) (1) ... (2) Order that AKA Civil (7th defendant) and AKA NSW (9th defendant) bear their own costs of the causation and joint release defences and pay the plaintiffs' costs referable to those defences. (3) Other than as ordered in Order 2 above, order that the plaintiffs otherwise pay the costs of AKA Civil (7th defendant) and AKA NSW (9th defendant) limited to the costs specifically and separately referable to those defendants (and in any event capped at no more than 2/7ths of the overall costs incurred by the AKA Parties excluding the costs of the causation and joint release defendants). Bluemine Proceeding (2016/00256135) (1) ... (2) Order that AKA Civil (24th defendant), AKA NSW (23rd defendant), … bear their own costs of the causation and joint release defences and pay the plaintiffs' costs referable to those defences. (3) Other than as ordered in Order 2 above, order that the plaintiffs pay the costs of AKA Civil (24th defendant) and AKA NSW (23th defendant) limited to the costs specifically and separately referable to those defendants (and in any event capped at no more than 2/7ths of the costs incurred by the AKA Parties excluding the costs of the causation and joint release defences).

The reasons of the primary judge

1. There are unchallenged findings that: 1. Gino Cassaniti breached his fiduciary and statutory duties to Earth Civil and Bluemine by his conduct, relevantly, in assisting in the implementation of the scheme by the AKA parties which exposed Earth Civil and Bluemine to the risk of tax losses and insolvency: at [1252]; 2. the breaches of duty by Gino Cassaniti were dishonest and fraudulent in that, by recommending and implementing the scheme resulting in the breaches of duty, Gino Cassaniti sought to deprive Earth Civil and Bluemine of their ability to meet their tax liabilities in order to secure tax benefits (for other entities) and that this is a clear transgression of the ordinary standards of honest behaviour: at [1253]; and 3. Michael Abou-Antoun was liable as an accessory within the second limb in Barnes v Addy as he had knowledge of the circumstances that would indicate the facts to an honest and reasonable person, and he assisted in Gino Cassaniti's dishonest and fraudulent design: at [1628] and [1631].
2. The finding of knowledge with respect to Michael Abou-Antoun answered the fourth category referred to in Baden, which the High Court accepted in Farah at [176]-[178] was sufficient for the requirement of knowledge in the second limb in Barnes v Addy.
3. At [988]-[989], her Honour referred to the ordinary rule of attribution of corporate knowledge where a director is acting within the scope of his or her authority and there is a duty to communicate knowledge to the company citing various authorities including Beach Petroleum NL v Johnson (1993) 115 ALR 411 at 569, 574 (von Doussa J), and noted that there was an exception where a corporation is the victim of fraud or other wrongdoing, such as breach of fiduciary duty, citing Beach Petroleum NR v Johnson (1993) 115 ALR 411 at 571-572 (see also (1993) 43 FCR 1 at 31-32); Bilta at [7] (Lord Neuberger); Permanent Trustee Co Ltd v O'Donnell [2009] NSWSC 902; (2009) 15 BPR 28,101 at [369]-[371] (Price J).
4. Addressing the fraud exception, her Honour set out at [989] the summary of principles by the authors of Halsbury's Laws of Australia, which included: … the knowledge of the person (such as a director) will not be attributed to a corporation, if the person was acting totally in fraud of it in respect of the transaction: that is, where all the person's activities were directed against the interests of the corporation, and not partly for its benefit.

The liquidator's appeals

1. In proceedings 2021/289065 and 2021/289066, the liquidator of Bluemine and Earth Civil appeals against the dismissal of his accessorial liability claims against AKA NSW and AKA Civil. There is a consequential challenge to the cost orders in each proceeding. The single ground in each appeal contained several complaints in identical terms and in what follows will be addressed collectively.
2. Earth Civil and Bluemine essentially contend that the primary judge erred in three respects: 1. pleading point: the fraud exception had not been pleaded or contended for by the AKA companies; 2. procedural unfairness: the primary judge addressed the corporate attribution issue without affording Earth Civil and Bluemine the opportunity to lead further evidence and make submissions on the point. 3. attribution: the rules on attribution of corporate knowledge, specifically the fraud exception, were misstated and misapplied.

Pleading point and procedural fairness

1. The pleading point and the procedural fairness complaint are related and can be dealt with together.
2. Although the AKA companies did not specifically plead the "fraud" exception as the basis for precluding the attribution of Michael Abou-Antoun's knowledge to those companies, we consider that the attribution issue was sufficiently put in issue by the non-admission/ denial in the defences filed by the AKA companies that Michael Abou-Antoun was the directing mind and will of the AKA companies.
3. Moreover, the procedural fairness complaint goes nowhere. In this Court, senior counsel for the liquidator did not identify any further evidence which would have been led at trial, if afforded the opportunity to do so. Nor did counsel submit that there was a substantial miscarriage because the liquidator was not afforded that opportunity (UCPR, r 51.53). In any event, counsel disclaimed seeking a new trial against the AKA companies.
4. Nor was the liquidator denied the opportunity to make submissions on the attribution issue. On the contrary, by reference to authorities such as Beach Petroleum, the liquidator's closing written submissions specifically addressed the rules on corporate attribution. Beach Petroleum was one of the authorities referred to in her Honour's judgment. Given the dispute on the face of the pleadings as to the attribution of Michael Abou-Antoun's knowledge to the AKA companies and the submissions made by the liquidator, it was not procedurally unfair for her Honour to address this issue.

Attribution of corporate knowledge

1. The rules on attribution of corporate knowledge, to which her Honour referred (at [988]), are well-established. In Beach Petroleum at FCR 31-32 (at [22.34]), Von Doussa J stated the exception to the rule in these terms: … Provided that the director is acting within the scope of his or her authority, in civil proceedings the state of mind of a director ordinarily will be attributed to the company where there is a duty on that director to communicate his or her knowledge to the company. The exception to this rule is where the director is acting totally in fraud of the company, that is, where all the director's activities are directed against the interests of the company, and not partly for the benefit of the company. If the director is guilty of fraudulent conduct which is not totally in fraud of the corporation, and by design or result the fraud partly benefits the company, the knowledge of the director in the transaction will be attributed to the company.
2. Nor did the liquidator dispute what her Honour said of the fraud exception (at [989]): However, where a corporation is the victim of fraud or other wrongdoing such as breach of fiduciary duty, the ordinary rule of attribution does not apply (Beach Petroleum at [ALR] 571-572; Bilta at [7] per Lord Neuberger P; Permanent Trustee Co Ltd v O'Donnell (2009) 15 BR 28,1010; [2009] NSWSC 902 at [369]-[371] per Price J). The authors of Halsbury' Laws of Australia distil the relevant principles as follows: In a claim by a corporation against a person, such as a director, in respect to a transaction, the knowledge of the person will not be attributed to the corporation, if the person was acting totally in fraud of it in respect to the transaction; that is, where all the person's activities were directed against the interests of the corporation, and not partly for its benefit. 'Fraud' may take a variety of forms and is incapable of precise definition. However, it ordinarily implies some base conduct and moral turpitude and, in this context, might include equitable fraud arising out of a breach of a fiduciary duty, at least where the fiduciary's conduct is morally reprehensible. If the person is guilty of fraudulent conduct which is not totally in fraud of the corporation, and by design or result the fraud partly benefits the corporation, the knowledge of the person in the relevant transaction may be attributed to the corporation. (footnotes omitted in original) (Emphasis added)

Taxation benefits

1. The liquidator says that the AKA companies obtained taxation benefits in the form of the GST input credits claimed in their Business Activity Statements (BAS) lodged with the Commissioner, which reduced their liability to remit GST received from third parties and/or gave rise to a refund by the ATO for the net GST amount (GST received less GST paid).
2. The amount of the asserted taxation benefits is not insignificant and, if established, would justify a finding that Michael Abou-Antoun was not acting totally in fraud of the AKA companies because his activities were partly for the benefit of those companies. As will appear, the evidentiary position in relation to income tax deductions is less clear because the 2013 income tax returns of the AKA companies were not in evidence below.

GST credits

1. A review of the documentary evidence establishes that the AKA companies obtained the following GST input credits in relation to the impugned transactions involving Earth Civil and Bluemine.

Earth Civil - AKA NSW benefits

1. AKA NSW's general ledger recorded GST paid to Earth Civil totalling $35,090.91 on purchases from Earth Civil, comprising GST of $6,000 on 4 February 2013 and $29,090.91 on 15 March 2013.
2. AKA NSW lodged its BAS for the period January 2013 to March 2013 recording non-capital purchases of $1,589,578 and GST on purchases of $144,500, which may be taken to include the GST of $35,090.91 paid to Earth Civil for that quarter as shown in the AKA NSW general ledger.

Earth Civil - AKA Civil benefits

1. AKA Civil's general ledger recorded GST paid to Earth Civil totalling $36,363.64 on purchases from Earth Civil in September and October 2012 comprising GST of $9,090.91 on 25 September 2012, $9,090.91 on 27 September 2012 and $18,181.82 on 31 October 2012.
2. AKA Civil lodged its BAS for the period July to September 2012 which recorded non-capital purchases of $3,655,326 and GST on purchases of $331,068 which may be taken to include the GST of $18,181.82 paid to Earth Civil for that quarter as shown in the AKA Civil general ledger. AKA lodged its BAS for the period October to December 2012 which recorded non-capital purchases of $4,985,190 and GST on purchases of $451,510, which may be taken to include the GST of $18,181.82 paid to Earth Civil for that quarter as shown in the AKA Civil general ledger.
3. It can be inferred that AKA NSW obtained GST input credits totalling $35,090.91 and AKA Civil obtained GST input credits totalling $36,363.64 in relation to the payments to Earth Civil for purchases.

Bluemine - AKA NSW benefits

1. AKA NSW's general ledger recorded GST paid to Bluemine totalling $192,342.74 on purchases from Bluemine recorded as management expenses totalling $1,923,427.47 (excl GST) in the period July to December 2012 comprising GST of $177,301.65 (July to September 2012) and $15,041.09 (October to November 2012).
2. AKA NSW lodged its BAS for the period July to September 2012 which recorded non-capital purchases of $6,026,395 and GST on purchases of $547,847, which may be taken to include GST of $177,301.65 paid to Bluemine for that quarter as shown the AKA NSW general ledger.
3. AKA NSW lodged its BAS for the period October to December 2012 which recorded non-capital purchases of $3,267,348 and GST on purchases of $297,018, which may be taken to include the GST of $15,041.09 paid to Bluemine for that quarter as shown in the AKA Civil general ledger.
4. It can be inferred that AKA NSW obtained GST input credits totalling $192,342.74 in relation to the payments to Bluemine for purchases.

Bluemine - AKA Civil benefits

1. AKA Civil's general ledger recorded GST paid to Bluemine totalling $100,363.63 on purchases from Bluemine recorded as management fees in the period October to December 2012 comprising $31,136.36 on 31 October 2012, $30,318.18 on 30 November 2012 and $38,909.09 on 31 December 2012.
2. AKA Civil lodged its BAS for the period October to December 2012 which recorded non-capital purchases of $4,985,190 and GST on purchases of $451,510, which may be taken to include GST of $100,363.63 paid to Bluemine for that quarter as shown in the general ledger of AKA Civil.
3. It can be inferred that AKA Civil obtained GST input tax credits totalling $100,363.63 in relation to payments made to Bluemine for management fees.

Deductions for expenses

1. Although not necessary for decision, we will also address the liquidator's submissions in relation to the benefits obtained by AKA Civil and AKA NSW in the form of income tax deductions for management expenses. This submission only concerned payments made by (a) AKA Civil to Earth Civil and Bluemine and (b) AKA NSW to Bluemine, which are recorded in the general ledger of the AKA companies as purchases and accounted for as management fees.
2. As indicated, the 2013 income tax returns for the AKA companies were not in evidence in circumstances where the AKA companies failed to produce the 2013 tax returns in response to notices to produce served by the liquidator. The 2012 tax returns for AKA Civil and 2012 and 2014 tax returns for AKA NSW were in evidence. Nonetheless, the liquidator submitted that an inference should be drawn that a deduction for management fees was claimed as an expense in the 2013 income tax returns of the AKA companies.
3. The drawing of such an inference is supported by the evidence of Andrew Abou-Antoun, the general manager of the AKA companies in 2012-2013. He was examined by senior counsel for the liquidator and, in part, cross-examined with leave granted. He agreed in cross-examination that his brother, Michael Abou-Antoun, told him what Fred Kahlil, one of the promotors of the tax scheme had told Michael about the invoicing scheme: I've had a talk to Fred. He's got an idea to save us tax. Fred has suggested that Banq set up a company to issue invoices to Civil or New South Wales. The idea is that they issue invoices and we pay those invoices then their company will pay our money to a third company, which we own, less a commission. Fred suggested that the third company should be paid in cash, but I said no. We need the money back in our accounts for current and future investments and other projects. There's nothing we can do with the cash.
4. Andre Abou-Antoun also agreed in cross-examination that his answers at his ATO interview on 31 May 2018 were truthful, relevantly, that the attraction of what Fred Khalil and Peter Abboud were promoting to the AKA companies was that Bluemine provided an opportunity for AKA Civil and AKA NSW to make payments to claim deductions. He said that Fred Khalil and Peter Abboud indicated that the AKA companies had the ability to drastically reduce their taxable income by using Bluemine, that it was "a tax saving exercise", and that Fred Khalil and Peter Abboud told him that the tax benefits that the AKA companies stood to gain were "basically saving tax - the primary tax and … the GST". The reference to the "primary tax" can be taken to be a reference to income tax payable by AKA Civil and AKA NSW. In further cross-examination, Andre Abou-Antoun agreed that the AKA companies were trying to achieve tax benefits for both income tax deductions and the GST credit.

AKA Civil

1. The profit and loss statement for AKA Civil for the year ended 30 June 2013 recorded as expenses management expenses in the amount of $3,190,757.90. The payments made by AKA Civil to Earth Civil and Bluemine which are recorded in the general ledger as "management" expenses total $363,636.36 (excl GST) paid to Earth Civil (comprising $90,909.09, $90,909.09 and $181,818.18 and $1,003,636.37 (excl GST)) paid to Bluemine (comprising $311,363.64, $303,181.82 and $389,090.91).

AKA NSW

1. The profit and loss statement for AKA NSW for the year ended 30 June 2013 recorded total management expenses of $2,411,718.30. The payments made by AKA NSW to Bluemine which are recorded in the general ledger as management expenses total $1,923,427.47 (excl GST) (comprising $593,478.03, $697,964.54, $481,573.99 and $150,410.91).
2. It should be inferred that AKA NSW and AKA Civil each obtained the benefit of income tax deductions in relation to management fees in the 2013 tax year in the amounts referred to above as recorded in their respective general ledger.

Conclusion on liability

1. A finding should be made that the activities of the AKA companies' sole director, Michael Abou-Antoun, in entering into the impugned transactions with Earth Civil and Bluemine were not in total fraud of the AKA companies and were partly for the benefit of those companies insofar as they obtained the not insignificant benefit of GST input credits and, if it was necessary to decide, income tax deductions for management expenses paid by AKA Civil to Earth Civil and Bluemine and by AKA NSW to Bluemine.
2. It follows that Michael Abou-Antoun's knowledge of the dishonest and fraudulent design of Gino Cassaniti in causing Earth Civil and Bluemine to enter into the impugned transactions with the AKA companies, is to be attributed to each of the AKA companies. Given the primary judge's finding that Michael Abou-Antoun's knowledge answered the fourth category of knowledge in Baden, a finding should be made that AKA NSW and AKA Civil are also liable as accessories to Gino Cassaniti's breaches of his fiduciary and statutory duties owed to Earth Civil and Bluemine.

Quantum

1. One issue arises in relation to the quantum of the judgments sought by the liquidator against the AKA companies. In each proceeding, the liquidator claims against the AKA companies the total of the costs and expenses of the winding up; in the case of Earth Civil this is $82,652.38 and in the case of Bluemine this is $235,611.62.
2. The liquidator says that, notwithstanding that there are other accessories to Gino Cassaniti's breach of his fiduciary and statutory duties, the AKA companies were a cause of the liquidation of each company and as such the AKA companies are both liable for the whole of the liquidation costs, subject to the liquidator not being entitled to double recovery in each proceeding.
3. In the alternative, the liquidator limited his claims against the AKA companies for liquidation costs to an amount proportionate to the AKA companies' percentage contribution to the claims made by the liquidator against all defendants in each proceeding. The liquidator provided a schedule which indicated the proportion of the claimed liability of the AKA companies to the total money claims against all defendants, and the consequent proportion of the winding up costs claimed by the liquidator as follows:

Bluemine

• AKA Civil - 10.53 per cent of the winding up costs of $235,611.82, being $24,804.19
• AKA NSW - 11.93 per cent of the winding up costs of $235,611.82, being $28,100.12

Earth Civil

• AKA Civil - 11.24 per cent of the winding up costs of $82,652.39, being $9,288.66
• AKA NSW - 16.46 per cent of the winding up costs of $82,652.39, being $13,607.89

1. The liquidator's alternative approach to assessing the quantum of equitable compensation or statutory damages against the AKA companies by reference to the proportion of the claimed liability of the AKA companies to the total money claims against all defendants in relation to the costs and expenses of the winding up is to be preferred.
2. As to causation in equity, given that the conduct of other defendants was also a cause of the taxation liabilities which led to the insolvency of Earth Civil and Bluemine, it would be unjust to order the AKA companies to compensate Earth Civil and Bluemine for the total of the costs and expenses of the winding up in each case. The preferable course is to tailor the relief awarded in equity insofar as part of the claimed loss is in respect of the winding up costs and expenses by ordering that the AKA companies pay a proportionate share of that loss in the manner proposed by the liquidator.
3. The same approach should be taken in relation to the claim for damages under s 1317H of the Corporations Act given that in assessing what damage has "resulted from the contravention" of ss 181(1) and 182(1) by the AKA companies as persons "involved" in the contravention of the statutory duties owed by Gino Cassaniti to Earth Civil and Bluemine, "only the damage which, as a matter of fact, was caused by the contravention can be the subject of an order for compensation" (Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 46 ACSR 504 at [709] (Giles JA, Mason P and Beazley JA agreeing)) and, the Court has a discretion as to the amount of compensation it orders a particular defendant to pay under the statute: Australian Securities and Investments Commission v Loiterton [2004] NSWSC 897; (2004) 50 ACSR 693 at [110] (Bergin J); Australian Securities and Investments Commission v Vines (2006) 58 ACSR 298; [2006] NSWSC 760 at [244] (Austin J).
4. Subject to the matter referred to above, judgments should be entered in favour of Earth Civil and Bluemine against AKA Civil and AKA NSW in the amounts sought by the liquidator in his note on quantum which was provided to the Court on the hearing of the appeals.

Diamondwish, Rackforce and RCG appeals

1. In each of the Diamondwish appeal (2021/289067), the Rackforce appeal (2021/289068) and the RCG appeal (2021/289069), the Court makes the following orders: 1. Appeal dismissed. 2. The appellants to pay the respondent's costs.

Bluemine appeal

1. In the Bluemine appeal (2021/289065) the Court makes the following orders: 1. Appeal allowed. 2. Set aside order 13 of the final orders made by the primary judge on 15 September 2021, as contained in the Schedule to that judgment insofar as the orders concern AKA (NSW) Pty Ltd (23rd defendant) and AKA (Civil) Pty Ltd (24th defendant), and in lieu, make the following orders: 1. Judgment for Bluemine Pty Ltd (in liq) (Bluemine) in the sum of $1,376,481.40 against AKA (NSW) Pty Ltd (the 23rd defendant) for equitable compensation and/or compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) comprising: 1. $1,348,381.28 for the proportion of the tax liability for the payment into Bluemine of $1,780,318.21; and 2. $28,100.12 for the proportion of the costs and expenses of the winding up. 1. Judgment for Bluemine in the sum of $1,215,030.28 against AKA (Civil) Pty Ltd (the 24th defendant) for equitable compensation and/or compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) comprising: 1. $1,190,226.09 for the proportion of the tax liability for the payment into Bluemine of $1,571,500; and 2. $24,804.19 for the proportion of the costs and expenses of the winding up. 1. Set aside costs orders (2) and (3) made by the primary judge on 15 September 2021 insofar as those orders concern AKA (NSW) Pty Ltd (23rd defendant) and AKA (Civil) Pty Ltd (24th defendant), and in lieu, order that AKA (NSW) Pty Ltd and AKA (Civil) Pty Ltd pay the plaintiffs' costs of the proceeding, including any reserved costs. 2. The respondents to pay the appellants' costs in this Court.

Earth Civil appeal

1. In the Earth Civil appeal (2021/289066) the Court makes the following orders: 1. Appeal allowed. 2. Set aside order 6 of the final orders made by the primary judge on 15 September 2021 as contained in the Schedule to that judgment, and in lieu, make the following orders: 1. Judgment for Earth Civil Australia Pty Ltd (in liq) (Earth Civil) in the sum of $294,614.83 against AKA (Civil) Pty Ltd (the 6th defendant) for equitable compensation and/or compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) comprising: 1. $285,326.17 for the proportion of the tax liability for the payment into Earth Civil of $400,000; and 2. $9,288.66 for the proportion of the costs and expenses of the winding up. 1. Judgment for Earth Civil in the sum of $431,610.72 against AKA (NSW) Pty Ltd (the 7th defendant) for equitable compensation and/or compensation pursuant to s 1317H of the Corporations Act 2001 (Cth) comprising: 1. $418,002.83 for the proportion of the tax liability for the payment into Earth Civil of $586,000; and 2. $13,607.89 for the proportion of the costs and expenses of the winding up. 1. Set aside costs orders 2 and 3 made by the primary judge on 15 September 2021, and in lieu order that AKA (Civil) Pty Ltd (6th defendant) and AKA (NSW) Pty Ltd (7th defendant) pay the plaintiffs' costs of the proceeding, including any reserved costs. 2. The respondents to pay the appellants' costs in this Court.

Amendments 31 August 2022 - Add file numbers to "File Number(s)"/Coversheet. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 August 2022