Cadwallader v Bajco Pty Ltd & Ors - [2002] NSWCA 328 - NSWCA 2002 case summary — Zoe

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Cadwallader v Bajco Pty Ltd & Ors

[2002] NSWCA 328

Court of Appeal (NSW)|2002-08-29|Before: Heydon JA, Santow JA, Gzell J, Austin J, Mr J

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At a glance

Source facts

Court

Court of Appeal (NSW)

Decision date

2002-08-29

Before

Heydon JA, Santow JA, Gzell J, Austin J, Mr J

Source

Original judgment source is linked above.

Judgment (130 paragraphs)

[1]

Background 3 Mr Eric Cadwallader formed a company in 1967. It was then called Cadwallader Engineering Pty Ltd. Since 1979 it has been called Bajco Pty Ltd. Until 1979 that company made electrical transformers at an industrial site in Concord West. In that year the business was sold to a new company, Cadwallader Engineering (NSW) Pty Ltd. Thereafter the latter company carried on the business, and leased the Concord West premises from Bajco Pty Ltd. Cadwallader Engineering (NSW) Pty Ltd also carried on a business at Gosford. From 1994 Mr Alan Cadwallader, who was not on good terms with Mr Bruce Cadwallader, ran the Gosford business while Mr Bruce Cadwallader ran the Concord West business. 4 Until 1996 Mr Alan Cadwallader was a director of Bajco Pty Ltd: in that year he was replaced by Mr David Cadwallader. Until 1997 Mr Bruce Cadwallader was the other director: in that year he was replaced by Mrs Marilyn Wintzloff. 5 In the 1990s there were disputes between Mr Alan Cadwallader and Mr Bruce Cadwallader. There were also disputes between them on the one hand and Mr David Cadwallader and Mrs Marilyn Wintzloff on the other hand. The latter contended, inter alia, that the 1979 transaction had unduly favoured Mr Alan Cadwallader and Mr Bruce Cadwallader, that the rent of $3,000 per month paid by Cadwallader Engineering (NSW) Pty Ltd to Bajco Pty Ltd was too low and that the lease was too informal. 6 These disputes led to the following events. 7 On 29 April 1997, after a directors' resolution by Mr David Cadwallader and Mrs Marilyn Wintzloff to that effect, Bajco Pty Ltd filed a Summons commencing proceedings in the Equity Division, Supreme Court of New South Wales, against Mr Alan Cadwallader, Mr Bruce Cadwallader and Cadwallader Engineering (NSW) Pty Ltd. In those proceedings it was alleged that the personal defendants had effected the 1979 transfer of the business from Bajco Pty Ltd to Cadwallader Engineering (NSW) Pty Ltd in breach of their fiduciary duties. 8 On 17 July 1997 Mr David Cadwallader and Mrs Marilyn Wintzloff as directors of Bajco Pty Ltd resolved to offer the Concord West premises for sale. 9 On 20 October 1997 Mr David Cadwallader and Mrs Marilyn Wintzloff as directors of Bajco Pty Ltd resolved to pay themselves directors' fees of $2,000 per quarter, backdated to July 1997. These fees were higher than before, and the trial judge held them to have been "excessive" in view of the limited amount of work involved in being a director of Bajco Pty Ltd. Shortly before the company was placed in administration in late November 1997, as described below, the directors drew cheques for their fees up to 27 November 1997 even though they were not then due and payable. 10 On or about 24 October 1997 Mr Alan Cadwallader and Mr Bruce Cadwallader, despite the fact that they were not on good terms, served a requisition for a meeting of the members of Bajco Pty Ltd "to be held as soon as practicable". The object of the meeting was to consider the removal of Mr David Cadwallader and Mrs Marilyn Wintzloff as directors, and their replacement by Mr Alan Cadwallader and Mr Bruce Cadwallader. This had been foreshadowed as early as 18 September 1997. The 932 issued shares in Bajco Pty Ltd were held as to 366 by Mr Alan Cadwallader (100 of which he regarded as being held in trust for Mrs Jeanine Hatton beneficially), as to 266 by Mr Bruce Cadwallader, as to 100 by Mr David Cadwallader, as to 100 by Mrs Marilyn Wintzloff and as to 100 by Mr Glynn Cadwallader. It followed that the two requisitionists had the voting power to pass the resolutions referred to in the requisition. 11 Mr David Cadwallader and Mrs Marilyn Wintzloff, who had prior knowledge of the plan to requisition the meeting, viewed it so seriously that they engaged the services of a firm of solicitors, McCabes, who in turn engaged counsel; counsel advised that the directors were obliged to convene the meeting. Accordingly, on 31 October 1997 Mr David Cadwallader, as director and secretary of Bajco Pty Ltd, responded to the requisition by giving notice of an extraordinary general meeting of Bajco Pty Ltd to be held in Goulburn at 9.30am on 11 December 1997 to consider the resolutions referred to in the notice of requisition. 12 On 27 November 1997 at 9.15am Mr David Cadwallader met Mr Ronald Cardwell, a senior insolvency manager of Deloitte Touche Tohmatsu, who had had earlier dealings with the Cadwallader family, including Mr David Cadwallader and Mrs Marilyn Wintzloff. At 11am he and Mrs Marilyn Wintzloff conducted a meeting of directors by telephone in which they resolved that: "(a) in the opinion of the directors voting for the resolution, the company was insolvent, or was likely to become insolvent at some future time; and (b) an administrator of the company should be appointed."

[4]

The judgment 21 After a trial conducted on 1, 5-7 and 12 December 2000 and 4-7 and 25 June 2001, Austin J delivered a careful, lengthy and detailed judgment on 24 December 2001. He found that Mr Alan Cadwallader's principal allegation against the directors was established. The main contention advanced against it by Mr David Cadwallader and Mrs Marilyn Wintzloff was that before their decision to place Bajco Pty Ltd into administration they had learned that Mr Bruce Cadwallader had changed his mind and had decided not to support Mr Alan Cadwallader in the plan of removing Mr David Cadwallader and Mrs Marilyn Wintzloff as directors at the requisitioned meeting on 11 December 1997. The significance of that change of mind was that if it had occurred and been communicated, it would have made it unnecessary for the directors to seek to prevent the meeting on 11 December 1997 from proceeding to business. Despite the fact that this contention found some support in the evidence of Mr Bruce Cadwallader, Mr David Cadwallader, Mrs Marilyn Wintzloff and Mr Cardwell, was confirmed by apparently contemporaneous diary notes in Mr David Cadwallader's handwriting, and was not contradicted by any witness called by the plaintiff or by any other party, the trial judge rejected the contention, concluding that neither Mr Cardwell nor anyone else believed that Mr Bruce Cadwallader had decided to vote against the removal resolution. Further, the trial judge found that as at 27 November 1997 Bajco Pty Ltd was neither insolvent nor likely to become insolvent at some future time. He found that Mr David Cadwallader and Mrs Marilyn Wintzloff were aware of this. He found that in purportedly forming the opinions about insolvency recorded in the 27 November 1997 resolution they acted in bad faith. He found that the dominant, and probably the sole, purpose of their decision to appoint administrators was to preserve themselves in office, and this was a misuse of the fiduciary power of directors whose resolution in terms of s 436A(1) of the Corporations Law was a prerequisite to the exercise of the power to appoint an administrator. Hence the resolutions were voidable unless, according to the trial judge, a third party had acquired rights without notice of the impropriety. The trial judge found that Mr Cardwell, though ignorant of the directors' bad faith, knew or ought to have known what their purpose was. He was thus on notice of the impropriety, and the resolutions were voidable against his employers, the administrators. 22 The trial judge next found that the second creditors' meeting was convened one day late, but made an order pursuant to s 1322 of the Corporations Law curing that defect. He also found that the notice of the meeting was defective because it was not accompanied by any statement of the "details" of the proposed deed of company arrangement, contrary to s 439A(4)(c). The trial judge declined to make any curative order. He also found that the administrators' report which accompanied the notice of meeting had other serious deficiencies. 23 The trial judge concluded by deciding and ordering not only that the deed of company arrangement should be terminated, but there should be the additional consequence that pursuant to s 447A of the Corporations Law Bajco Pty Ltd be taken to have resolved to go into voluntary liquidation, the administrators becoming the liquidators. He also made orders declaring that the administrators were entitled to their fees and expenses from 27 November 1997 to 19 December 1997, and were entitled to a lien on and an indemnity out of the assets of Bajco Pty Ltd.

[14]

The position of the administrators on the appeal 28 The trial judge said: "While the proper contradictor in proceedings for termination of a deed of company arrangement is the company under administration, acting through the administrator, it is sometimes appropriate for the plaintiff to join the administrators personally as defendants… . In the present case it was appropriate to join the second defendants as parties because the plaintiff sought to restrain them from acting as administrators of the first defendant and from proceeding with the sale of the company's property." 29 At the trial counsel and solicitors appearing for the administrators (the second defendants) also appeared for Bajco Pty Ltd (the first defendant). On the appeal they did not appear for Bajco Pty Ltd, only for the administrators. 30 At the trial the administrators did not have to face any pleaded allegation of participation by Mr Cardwell in the conduct of Mr David Cadwallader and Mrs Marilyn Wintzloff, and did not themselves advance any pleaded allegation of non-participation. However, the administrators had a legitimate interest in defending their employee against various attacks which Mr Alan Cadwallader made on him and various other attacks which the directors made on him. They also had a legitimate interest in defending the validity of their conduct in relation to the notice summoning the second creditors' meeting and in defending the enclosed report from the numerous criticisms advanced in the Further Amended Statement of Claim. The Defence of the first and second defendants pleaded that Mr Alan Cadwallader lacked clean hands and had waived his rights. This was legitimate in relation to the first defendant, but for the second defendants to have intervened directly in the dispute between the plaintiff and the third defendants in this way was perhaps of more questionable legitimacy. 31 At the trial the second defendants relied on an Amended Cross-Claim which sought to vindicate the validity of all relevant transactions for which they were responsible in the December 1997-January 1998 period, sought s 1322 orders so far as there was any invalidity, and sought a declaration of entitlement to indemnity in respect of their services, together with a lien. The orders sought, as orders, were reasonable. Mr David Cadwallader and Mrs Marilyn Wintzloff sought relief against the administrators on a cross-claim: it rested on the contention that Mr Cardwell was in breach of duty in advising Mr David Cadwallader and Mrs Marilyn Wintzloff to appoint administrators, and it was legitimate for the administrators to resist that contention, which they succeeded in doing. 32 The administrators also proceeded on a cross-claim against Mr David Cadwallader and Mrs Marilyn Wintzloff. That cross-claim rested on the proposition that those directors had breached their duties not to appoint the administrators for an improper purpose. It failed because of the trial judge's findings about Mr Cardwell's notice of the directors' improper purpose. 33 Neither in that Cross-Claim nor in the Amended Cross-Claim did the administrators contend that Bajco Pty Ltd was or should be put into liquidation on the grounds stated by the trial judge. The Amended Cross-Claim, in paragraphs 3 and 4 of the prayers for relief, sought orders based on the theory that the deed of company arrangement had not been properly executed, that Bajco Pty Ltd had therefore not executed it within the twenty-one day period contemplated by s 444B(2)(b) of the Corporations Law and hence that Bajco Pty Ltd was taken to have passed a special winding up resolution pursuant to s 446A(2)(b), with the result that the administrators were liquidators. But the trial judge recorded in his reasons for judgment the proposition that that contention was not pressed. The written submissions of the administrators to the trial judge contended that the plaintiff's claim should fail, which would leave the administrators in office as administrators. They did very briefly suggest that the company should be wound up on the just and equitable ground, but the point was wholly undeveloped by argument and it was not the basis on which the trial judge acted. On appeal the issues for consideration are narrower than those which had to be determined by the trial judge. So far as it was relevant to do so in view of the narrower range of issues on appeal, the administrators maintained on appeal the positions they were adopting at the close of the trial. But in addition they took a new tack: to contend with vigour and in detail that the company should remain in liquidation and that they should remain the liquidators. There were faint foreshadowings of this in the administrators' written submissions on appeal. Paragraph 1(d) said: "the order for winding up was and is … appropriate". Paragraph 47 said: "This was … an appropriate case for the Company to go into liquidation … ." Paragraph 43(b) even suggested that this had been a goal of the administrators at the trial, since it said: " … the Administrators succeeded substantially: … (b) they are liquidators."

[22]

It follows that I reject Bruce's evidence that he told David on about 17 November that he did not intend to vote to remove the directors. Further, the cumulative effect of the correspondence, when compared with Bruce's evidence, is to suggest that Bruce never did change his mind and decide to vote against the proposed resolutions, and never informed David that he had changed his mind in this way. David's evidence about his conversation with Bruce is also unsatisfactory. He did not mention any such conversation in his first affidavit in this case, notwithstanding the obvious importance of such evidence. [It was not correct to say that the conversation was not mentioned in the first affidavit. The source of the error was a submission of counsel for Mr Alan Cadwallader in his written submissions to the trial judge, as that counsel frankly conceded on the appeal.] In his second affidavit he gave evidence of the conversation but did not annex any supporting documentation. His notebook, said to corroborate his and Bruce's evidence of their conversation, was produced at the hearing. The question arises whether the entries in the notebook should be regarded as credible corroborative evidence. The notes of the phone conversations with Bruce and Bajco's solicitor on 17 November were added at a later time, according to David's evidence, and in a different pen. When he referred to the conversation with Bruce in his affidavit, he said that the conversation was in 'early November', as did Marilyn. David appeared in the witness box as a meticulous person who made the notes of a great many conversations with estimates of the time taken in them, presumably to substantiate claims against Bajco for fees and disbursements. If he had a note of his conversation with Bruce in the notebook, one would have expected him to identify the date of the conversation with more precision in his affidavit. 17 November is not 'early November'. In cross-examination he was confused as to whether he mentioned his conversation with Bruce in the first or second conversation he had with his solicitor at that time, and he conceded that the note of his first telephone conversation with his solicitor might have been inserted outside the temporal sequence of the calls. He did not make a note of passing on to Marilyn the information about Bruce's intention when he spoke to her that day. David denied that his entries in the notebook concerning his conversation with Bruce and with his solicitor were made well after 17 November. I have decided not to accept this denial. I found David to be an unsatisfactory witness in various ways. Overall, he seemed defensive and reluctant to concede obvious points, and he tended to prevaricate. In light of his oral evidence, his affidavit evidence to the effect that Alan would not sign the lease for the Property was misleading. He did not give a satisfactory explanation for terminating McCabes' retainer. He was not convincing when explaining why he had used the words 'early November' in his affidavit, when his notebook recorded that the conversation with Bruce was on 17 November. My opinion, based on my assessment of David in the witness box and the matters going to the reliability of the notebook to which I have referred, is that, notwithstanding David's denial, the entries in the notebook concerning David's conversation with Bruce and with his solicitor on 17 November were made well after that date and are unreliable evidence.

[26]

Mr Cardwell's evidence of the conversation is that it concluded with him saying, 'we need to do things as soon as possible', and 'we can only run with what we've got'. If he had been told that Bruce would vote against the proposed resolutions, it is hard to see why he would conclude a conversation about the forthcoming meeting with those words. In their context, the words were not directed to the need to commence administration for reasons to do with solvency. In summary, the evidence relied on by the defendants to support the claim by David and Marilyn that Bruce had told David, on 17 November or at some other time before 27 November, that he would vote in favour of the existing directors at the proposed meeting on 11 December, is quite unconvincing. I find that no such conversation occurred. In my opinion David and Marilyn were well aware, prior to 27 November, that if Bruce voted with Alan at the meeting of members, they would be removed from office. The fact that Bruce was one of the parties who requisitioned the meeting provided a basis for them to believe that he would vote for their removal, even though they both realised that Bruce was prone to change his mind. I find they regarded it as at least possible, and in fact likely, that they would be removed as directors if the meeting of members went ahead. I also find that David and Marilyn were determined to prevent their removal from the Bajco board. The evidence as a whole strongly points to the view that they regarded the prosecution of the 1997 proceeding as a matter of great importance, to rectify what they saw as an injustice that they had deeply resented for a long time. In my opinion Marilyn's observation to Mr Cardwell, in her letter of 29 March 1998, that 'we intend to win - losing isn't in the picture' was an accurate reflection of her state of mind and the state of mind of her brother some four months earlier, when the decision to appoint the administrators was taken. I find that Mr Cardwell was aware that David and Marilyn regarded prosecution of the 1997 proceeding as a matter of great importance, and that they wished to avoid being removed as directors. His own advice to them led to their belief that if they resolved in favour of voluntary administration, the requisitioned meeting of 11 December 1997 would not be held. As to the evidence of Bruce's change of mind, I find for the reasons I have given that Mr Cardwell did not believe (notwithstanding his evidence to the contrary) that Bruce had decided to vote against the removal resolution." 37 The trial judge eventually concluded in the light of those findings that the directors' purpose of blocking their removal by appointing administrators was "primary", "central" and "dominant", and that any other purposes were "peripheral".

[32]

The re-examination then began. 44 In re-examination he said: "Q. Now are you able to say when in relation to the time that negotiations between you and Alan broke down you decided not to sign the deed? A. There seemed to be a flurry of documents around the 17th, now that I've looked at all of these, so I would say probably a few days before this. Q. When you say 'this' you mean a few days before 21 November 1997? A. Yes, Mmm. … Q. Are you able to say when in relation to the time that negotiations between you and Alan broke down that you decided not to vote with Alan in favour of the resolutions proposed for 11 December 1997? A. Despite what Mr Manning has put in here, I would have said that it would have been around that time. Q. What do you mean by 'that time'? A. Well, around 21 November obviously. Q. Are you able to say when in relation to the time that negotiations between you and Alan broke down you communicated to David your decision not to vote with Alan? A. I don't remember. It's three years ago, I have difficulty remembering exact dates. I'm sort of not a - you know, I don't have perfect recall." 45 It was submitted that despite this vagueness it could be inferred that the conversation in which Mr Bruce Cadwallader told Mr David Cadwallader of his change of mind was a few days before 21 November. 46 Much of the argument, and much of the trial judge's reasoning, turned on correspondence in which Mr Bruce Cadwallader's solicitor, Mr Brendan Manning of Mills & Associates, kept stating or assuming that the directors would be removed at the 11 December 1997 meeting even after 17 November 1997. In understanding this correspondence, it is necessary to bear in mind that from May 1997 on Mr Alan Cadwallader and Mr Bruce Cadwallader were negotiating with a view to executing a deed settling disputes between them. These efforts became intense in October. Thus on 14 October 1997 Mr Alan Cadwallader's solicitors sent a letter to Mr Bruce Cadwallader's solicitors enclosing a draft deed dealing with the sale of Cadwallader Engineering (NSW) Pty Ltd's business (clause 1), the requisitioning of a members' meeting of Bajco Pty Ltd to remove the existing directors and replace them by Messrs Alan Cadwallader and Bruce Cadwallader (clause 6), the possible discontinuance of the proceedings relating to the 1979 transactions (clause 7), and the possible sale of the Concord West premises (clause 11). Clauses 7, 8, 10 and 11 contemplated the appointment of Mr Alan Cadwallader and Mr Bruce Cadwallader as directors of Bajco Pty Ltd, an outcome which was only achievable if they both voted in favour of the resolutions presented at the meeting eventually arranged for 11 December 1997. To some extent events overtook the draft Deed: thus the contemplated clause 6 became unnecessary once the requisitioning of a members' meeting on or about 24 October 1997 and the calling of it on 31 October 1997 for 11 December 1997 took place. However, the negotiations continued up to 21 November 1997 and, on one view, up to 1 December 1997. They were conducted, and various other aspects of the disputes between the four siblings and their companies were dealt with, in part through solicitors. Throughout the relevant period Mr Manning of J E Mills & Associates acted for Mr Bruce Cadwallader. He was dealing with Mr Stephen Moss at McCabes, the solicitors for Mr David Cadwallader and Mrs Marilyn Wintzloff. Mr Alan Cadwallader was represented by A R Conolly & Co. Mr Bruce Cadwallader terminated Mr Manning's retainer on 26 November 1997, and replaced him with Hunt & Hunt. 47 Mr Bruce Cadwallader contended that the negotiations between himself and Mr Alan Cadwallader broke down around 21 November 1997, though on one view they were revived on 1 December 1997 by Mr Bruce Cadwallader. It is clear that relations between Mr Bruce Cadwallader and his solicitor Mr Manning broke down by 26 November 1997, when the retainer was terminated by Mr Bruce Cadwallader. But it is less clear whether those latter relations had broken down earlier. 48 It was submitted for Mr Bruce Cadwallader that while on their face the letters of November revealed a belief by Mr Manning that the requisitionists would vote together on 11 December 1997 to remove the directors, that was a belief of Mr Manning which did not reflect either Mr Bruce Cadwallader's state of mind or his instructions to Mr Manning. Because of the disharmony between Messrs Manning and Bruce Cadwallader, the latter did not inform the former of his change of heart in time to influence the terms of the letters. The trial judge was said to have erred in failing to give sufficient weight to Mr Bruce Cadwallader's explanations along these lines. 49 Mr Bruce Cadwallader said that the period 17-18 November was "probably the time when everything fell over with Mr Manning, I told him to get lost." He was asked about a letter of 17 November 1997 from Mr Manning to McCabes which was copied to him and which threatened an application for urgent injunctions to prevent the sale of the Concord West property by Bajco Pty Ltd - a stance incompatible with Mr Bruce Cadwallader's having changed his mind about the 11 December 1997 meeting. His evidence was: "Q. That was your attitude at the time, wasn't it? A. That may have been Mr Manning's attitude, I don't know if it was mine. Q. It was copied to you? A. I don't know what my response was but I know about - obviously you've pinpointed the date when Mr Manning and I ceased dealing with each other, so -"

[41]

Certain changes were then set out, including the deletion of clause 6. But the letter did not propose changes to those parts of the draft deed which contemplated both Messrs Alan Cadwallader and Bruce Cadwallader becoming directors (particularly clauses 7, 8, 10 and 11). Further, the letter did not seem consistent with Mr Bruce Cadwallader's evidence that negotiations with Mr Alan Cadwallader had broken down by 21 November 1997, since it concluded: "We trust the above clearly sets out the amendments to be made in order to finally resolve the dispute between our client and your client. We request your client's urgent response by close of business on 2 December 1997 , failing which as previously foreshadowed, we are instructed to commence the appropriate proceedings to have these disputes finally resolved." 56 It was submitted that Mr Bruce Cadwallader "probably" only told Mr Manning of his change of mind after 21 November 1997. The evidence was: "Q. You see, Mr Cadwallader, up to and including at least 21 November 1997 it was your intention still to go and vote at the meeting at Goulburn and to replace David and Bruce as directors of Bajco, wasn't it? A. David and Marilyn you mean? Q. I am sorry, David and Marilyn. I do beg your pardon. A. I don't believe so, but anyway. Q. Certainly the correspondence I've taken you through -- A. Yes, the correspondence suggests that, yes. Q. And you would have told Mr Manning if you'd changed your views on that subject, wouldn't you? A. I think I eventually did. Q. Will you agree with me from what's been written in those letters, it would appear that if you did tell him that, you told him after 21 November? A. Yes, I probably did. Q. And you wouldn't have waited around for a long time before you told Mr Manning, would you, after you'd made up your mind? A. Don't know, I think that's - Q. I am sorry? A. I wouldn't think so but possibly I could have. Q. Because, as you told his Honour a few moments ago, at this particular stage in this unfortunate dispute, communications with the solicitors were taking place on a pretty regular basis, weren't they, I mean so far as you were concerned? A. They were in a bit of a flurry, yes."

[44]

Finally, he said: "Q. You will agree with me, would you, that with that [one] exception, the amendments suggested in the letter of 17 November by Mills and Co and the letter of 1 December by Hunt and Hunt are pretty much identical? A. Yes, I'd accept. Q. And there is no suggestion in the Hunt and Hunt letter of 1 December that any clauses about what you and your brother Alan might do if you were elected as directors of Bajco be deleted from the deed, is there? A. If we were elected directors, there's no reference in this letter, you mean? Q. Yes? A. No, there isn't, but obviously we'd cease the proceedings against us? Q. I would like to suggest to you that might well be because you still intended, even on 1 December, that if you were elected as a director of Bajco, you personally would do what was suggested in the deed that was going to be executed between you and Alan if the amendments were agreed to? A. I would suggest that what I said before about this letter from Hunt and Hunt was just to confirm that Connellys and Alan Cadwallader wouldn't have been in agreement and I already thought it was a fait accompli. It was just to get a confirmation but with a new solicitor. Q. But it was also possible, wasn't it, that there might have been a change on the other side and they might have said, 'Yes, we agree to all of those changes'? A. Well, I suppose if there's, you know, one chance in a million, there's a chance. Q. If you didn't regard it as a genuine possibility, then really your protestations to his Honour that you were always trying to settle the dispute weren't really genuine, were they? A. I think they'd already rejected it anyway, so - Q. How do you know that? A. Don't know, I can't actually say that. Q. Because here you have new solicitors acting for you? A. Mmm. Q. You weren't instructing them to write letters that were not genuine letters, were you? A. No. Obviously if there's any last chance that something might happen - I mean I expected the proposal would have brought a counterproposal and then we would be back in negotiations again. Q. So in that respect it was a genuine letter intended to elicit a response? A. Oh certainly. Q. And your solicitors set out on your instructions in this letter the changes you wanted? A. Well, they set out the changes that Brendan Manning from Mills and Associates had already - because we'd already agreed that that was identical, didn't we? Q. When you appointed Messrs Hunt and Hunt as your solicitors did you go into their offices here in the city and have a conference? A. Probably, yes. Q. And that would have been, I suggest to you, before this letter was written, wouldn't it, this letter on page 192? A. Yes, I'd suggest it would be. Q. So you would have told them face to face what your position was, wouldn't you? A. Yes, I guess so. Q. And what you said to them was, 'These are the changes I want'? A. No, I asked Brendan Manning to send all of the documents over which obviously he didn't because you've got it all, but - Q. At the meeting at Hunt and Hunt you said to them, 'These are the changes I want', didn't you? A. I guess so, yep. Q. You are not seriously suggesting to his Honour that they would have -- A. No, I'm not. Q. - put changes that you didn't want? A. No. Q. And you would agree with me that the changes that are requested in this letter, none of them suggest any change to the provisions of the draft deed about what you and your brother Alan would do if you were elected as directors of Bajco? A. No, but it was always our intention to cease the proceedings against us. Q. That would only happen if you were elected -- A. Yes, it would have. Q. - could only happen if you were elected? A. Yes. Q. I want to suggest to you that even as late as 1 December 1997 it was still your intention to be elected as a director of Bajco at the meeting of 11 December 1997? A. I could suggest that but I don't think that was the actual intent." 58 There is a strong inference that as at 1 December 1997 Mr Bruce Cadwallader still expected to become a director on 11 December 1997 and, if he ever changed his mind, had not done so by 1 December 1997. Whatever the force of Mr Bruce Cadwallader's evidence about Mr Manning writing letters without or contrary to instructions, he did not explain away the terms of the 1 December 1997 letter from Hunt & Hunt, to whom he had a full opportunity to give instructions. 59 The final submission about Mr Bruce Cadwallader was that the trial judge did not base his conclusions on any expressly stated adverse view of his credibility or his demeanour. Given that he had no motive to make the evidence up, there was no reason to conclude that he had. This submission is considered below.

[46]

The two question marks at the end of item 11 are important. 62 Neither the affidavit nor the corresponding part of the notes records in words any statement by Mr David Cadwallader that Mr Bruce Cadwallader had changed his mind. Nor did Mr Cardwell give evidence of any such statement in chief. 63 When cross-examined by counsel for the directors, Mr Cardwell gave the following evidence: "Q. Do you recall there being any discussion at this meeting on 27 November 1997 about a general meeting of Bajco which was scheduled to be held on 11 December 1997? A. Yes. … Q. Did David tell you what was on the agenda at the meeting of 11 December? A. Yes. Q. What did he tell you? A. It was a special meeting which was to seek to have removed as directors of the company David and Marilyn. Q. To be replaced by, according to the proposed resolution, Allan and Bruce? A. Correct. … Q. David said to you, didn't he, that he wasn't concerned about that meeting or its likely outcome? A. I don't recall. Q. Do you recall the likely outcome of that meeting as playing any role in the discussion you had with David on 27 November 1997? A. No, not really. … Q. Do you mean there was no discussion about it or you can't recall? A. It had no consequence on my discussions that day. … Q. Did you have any discussions with David as to what was likely to happen that day? A. No, not really. Q. What does that mean? A. No. Q. You don't recall whether David expressed any view about any concern he might have or not about that meeting? A. I don't recall." 64 By the end of that cross-examination Mr Cardwell had not given any evidence of any conversation with Mr David Cadwallader about Bruce Cadwallader's change of mind. 65 When counsel for Mr Alan Cadwallader cross-examined Mr Cardwell, the following evidence was given: "Q. … There was also discussion, wasn't there, between you and Mr David Cadwallader about the fact there was going to be a meeting on 11 December to be held in Goulburn, that is, a meeting of the company, he told you that, didn't he? A. He did, yes. Q. He said to you that that meeting had before it four motions, namely, two to replace the existing directors, himself and Mrs Wintzloff and to replace them with Mr Bruce and Mr Alan Cadwallader? A. That's right, yes. … Q. At paragraph 8 of your affidavit, page 5 of it, Mr Cadwallader told you there is a meeting - and he said, in fact something else I need to tell you. 'There is a meeting of members to be held in Goulburn in about two week's time.' Do you see that? A. Yes. Q. You then said, 'How can you honestly get involved if the company's insolvent?' referring to Mr David Cadwallader and Mrs Wintzloff? A. That's right. Q. You have taken that phrase, haven't you from your notes that you made at the time where you record yourself saying something to that, using those words then you said, 'What do they wish to achieve?' and then David Cadwallader said, 'To stop further action by Bajco in relation to Court proceedings.' Do you see that? A. Yes. Q. And you answer, 'We need to do things as soon as possible. We can only run with what we've got'? A. Yes. Q. That affidavit was made by you on 19 February 1998? A. Yes. Q. It was made by you and you were cross-examined in the witness box about some of these matters, not this particular matter before Windeyer J? A. If you say so. Q. If you accept that hearing was on 10 February? A. I accept what you say. Q. At that time matters were much fresher in your mind than they are now? A. Yes. Q. A matter of a few months previously rather than a few years previously, is that right? A. Yes. Q. Your reply to Mr Cadwallader was specifically given in relation to his statement that he understood that what they, meaning David [sic: scil Alan] and Bruce, wished to achieve was to stop further action. You said, 'We must do things as soon as possible'? A. It was not in relation to that. Q. Are you saying your statement was not responsive to Mr Cadwallader's statement about stopping further action by Bajco? A. No, it was in relation to concluding our discussions, finalise our 9.15 meeting, and requesting having a directors' meeting, doing it as soon as possible and running with what we've got. Q. Why did you use the phrase 'running with what we've got'? A. This is - I used to play sport. It is a term I use. Q. Why did you think it applicable in this case? A. It is something I use fairly regularly. It is a term I use. Q. What you actually record yourself in your notes as saying is this at page 164. You record 'What do they wish to achieve?' stop further, is that word 'action' or what word is it? A. I am not sure, but it may be 'action' with a question mark, two question marks. Q. That would indicate, wouldn't it, Mr Cadwallader put it to you in terms he thought that is what they wanted to do? A. Probably. Q. You would not put a question mark about something if it was a definite statement, would you? A. No, I would not. Q. Then you noted 'need to be done ASAP and run with what we have', is that right? A. Yes. Q. You were saying that in relation to the previous statement Mr Cadwallader had made to you? A. No, I wasn't. Q. You said Mr Cadwallader had made it plain to you, hadn't he, that he and his sister were concerned that the meeting might occur and that they might be replaced as directors? A. No. Q. Are you sure about that? A. Yes. Q. He made plain to you he was concerned that at that meeting Bruce and Alan might vote together to put him and Marilyn out as directors? A. Not exactly. Q. He told you, hadn't he, that Bruce and Alan between them had the majority of shares in the company? A. Yes. Q. So that if they voted together --? A. Yes. Q. - that would be the logical result of that, the resolutions would be passed? You knew that when you had this conversation with him? A. No. Q. You didn't? * A. No, because -- Q. I am just asking you, you knew those facts they are majority shareholders? A. Yes, I know that. Q. And if they voted together, the resolutions would be passed? A. Yes. OBJECTION BY MR HAMMERSCHLAG; ANSWER MARKED WITH AN * INCOMPLETE. HIS HONOUR: Q. Did you have something else to say? A. Yes. WHITTLE: Q. I did not notice, sorry. A. David Cadwallader had said to me that Bruce had spoken to him, and despite having signed the requisition for the meeting, was not going to vote for the removal of Marilyn and David at that meeting in Goulburn. Q. Where is that recorded in your notes? A. I don't know if it is there or not. Q. You kept detailed notes, didn't you, of what you were told? A. I think it is referred to in relation to two question marks I have got at point 11 line 34. Q. You think the two question marks indicate that matter where you have just made a note what do they want to achieve and to stop further action? A. Yes. Q. Mr Cardwell, I suggest to you that is an explanation you have invented for the fact that that matter is not recorded, indeed [in] words in your notes, is that right? A. No, not at all. Q. Because you kept detailed notes [of] what you were told using words not marks? A. I use marks as well. Q. What you were told was a quite important matter? A. What is an important matter? Q. That Mr David Cadwallader had told you that Bruce had said he would vote in favour of them? A. Yes. Q. Why isn't it that in your affidavit? A. Because it is a question mark in relation to the point I have got there. Q. If your question marks were meant to represent that being told you, why isn't it recorded in your affidavit? A. I can't recall why it is not. Q. The fact that is not recorded in your affidavit made in February 1998, when the matter were fresh in your mind was, in fact, not what … David Cadwallader told you at all? A. No that's wrong. Q. If you had remembered that at the time, the logical place to put it was in the affidavit immediately preceding your remark of 'We need to do things as soon as possible'? A. Perhaps, I don't know. Q. Because that is, according to you, where it would have occurred? A. I can't answer that. Q. But there is no answer to it, is there, Mr Cardwell? A. I can't answer that I said. Q. Mr Cardwell, you purported to record in this affidavit the rest of the conversation? A. Sorry? Q. You purported to record the rest of that part of the conversation in paragraph 8 of your affidavit? A. Yes. Q. And for some reason which you cannot answer, you left out this statement that Mr David Cadwallader had made to you about Mr Bruce Cadwallader's voting intentions? A. Not for any particular reason. Q. You cannot explain to his Honour why it was left out? A. No, I can't at this stage. Q. You remembered at the time? A. I remembered it now. Q. You remembered it at the time? A. I am remembering it now as well. Q. You remembered it at the time when things were much fresher in your memory? A. Not necessarily. Q. So, now it has come back to you after three years, has it? A. Yes, it has. Q. It is suggested to you by two little question marks? A. Yes, it is. Q. Mr Cardwell, I put to you that evidence you have just given is untrue? A. Well, I refute that." 66 It was submitted that the trial judge failed to have regard to Mr Cardwell's evidence that the words "We need to do things as soon as possible. We can only run with what we've got." was a concluding comment, made as an introduction to the directors' meeting, and as a spur towards the conducting of that meeting, which was to consider putting Bajco Pty Ltd into administration because of insolvency, promptly. It was submitted that the words in question did not evidence any apprehension that the requisitionists' resolution needed to be blocked in order to keep the existing directors in place. However, the trial judge does appear to have had regard to that construction, although he decided to reject it. 67 It was also submitted that Mr Cardwell's evidence of his conversation with Mr David Cadwallader: "was directly responsive to a question asked of him in cross-examination (by counsel for the Appellant) and given after he was interrupted in the course of attempting to give the answer … . When asked where, in his notes, there was a reference to the conversation, he gave evidence that he did not know whether there was a reference there or not. He did not 'eventually' make the suggestion … but, immediately, and somewhat tentatively, suggested that 'I think it is referred to' at a point he indicated … ."

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It was also submitted that Mr Cardwell "gave this evidence in a highly plausible manner. It was plainly unrehearsed. There was no reason not to accept it." 68 Finally, counsel for the directors submitted that Mr Cardwell, an experienced professional person, had no connection with Mr David Cadwallader and Mrs Marilyn Wintzloff other than a professional one and had no reason to give false evidence about the matter. 69 There are several problems about Mr Cardwell's evidence. 70 First, in examination in chief he did not remember Mr David Cadwallader saying he was not concerned about the 11 December 1997 meeting. It is strange that he remembered much more detailed evidence about why Mr David Cadwallader was not concerned in cross-examination. Yet he said he remembered the statement at the time of his affidavit and at the time of giving oral evidence in cross-examination. 71 Secondly, the supposed disclosure by Mr David Cadwallader of Mr Bruce Cadwallader's change of mind would appear to have been a piece of important information (as Mr Cardwell conceded) - sufficiently important to write down and sufficiently brief to have been capable of being written down easily, like several other important things discussed at the 9.15am meeting. 72 Thirdly, the evidence in cross-examination was, contrary to the directors' submissions, thrust on the cross-examiner. Mr Cardwell was asked whether he "didn't" know that the resolutions could pass. He said, "No, because - … ." "No" was a full and complete answer. The objection by counsel for the administrators was ill-founded, and the trial judge's intervention in favour of the witness was one to which the cross-examiner could validly have taken exception. Thus, contrary to counsel's submission to this Court, the answer was not "directly responsive", nor was Mr Cardwell "interrupted in the course of attempting to give the answer". Rather he was interrupted when he was volunteering material about which he had not been asked. The trial judge's use of the word "eventually" in his judgment to describe the emergence of the evidence is not in all the circumstances inappropriate. Further, the submission that Mr Cardwell "immediately" suggested that Mr David Cadwallader's statement was referred to in the notes must face the difficulty that he said first he did not know if it was recorded in the notes, and only in answer to a further question did he refer to the question marks. It is not readily open to this Court to accede to the contention that the evidence was given in "a highly plausible manner", since the trial judge heard it and this Court did not. Nor is it easy for this Court to depart from the trial judge's characterisation of the evidence as "implausible". If that was a reference to matters of demeanour and manner, there is no reason for this Court to intervene. If it was a reference to the intrinsic validity of the underlying reasoning, the trial judge was right to treat the evidence as "implausible", ie as intrinsically unconvincing. As recorded in the affidavit, Mr Cardwell said of the requisitionists' meeting "What do they wish to achieve?" The use of the pronoun "they" was inconsistent with Mr Cardwell having been told that Mr Bruce Cadwallader would not support Mr Alan Cadwallader. Hence there would have been only one malcontent whose wishes had to be taken into account, not two. And there would have been no point in noting the question if the double question marks truly recorded a disclosure of Mr Bruce Cadwallader's change of mind immediately after the question was asked. 73 Fourthly, Mr Cardwell received no support from Mr David Cadwallader, who gave evidence (at a time well before Mr Cardwell said in cross-examination he had received the news of Mr Bruce Cadwallader's change of mind) that he did not convey that news to Mr Cardwell at the 27 November 1997 meeting. Yet if Mr Bruce Cadwallader had told Mr David Cadwallader of his change of mind on 17 November 1997, it is very likely that the latter would have told Mr Cardwell on 27 November 1997. That Mr David Cadwallader did not give evidence that he did tell Mr Cardwell points against the proposition that Mr Bruce Cadwallader told Mr David Cadwallader of his change of mind on 17 November 1997.

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The directors' arguments: Mr David Cadwallader 74 Mr David Cadwallader's evidence was as follows. In his affidavit of 18 February 1998 he said that in early November 1997 Mr Bruce Cadwallader had told him of his change of mind. In his second affidavit, dated 10 April 1998 and filed by his own solicitors, he repeated that evidence. In chief he gave evidence about a log book which had been discovered (but not annexed to or exhibited to or referred to in either of his affidavits, even though he conceded that the entries shortly to be discussed were particularly important). He said the log book was "the log book that I keep on daily transactions with telephone calls, faxes and mileages that I do doing things for [Bajco Pty Ltd], so I do that on a daily basis." Its purpose was to enable him to recover legitimate expenses from Bajco Pty Ltd. It recorded thirteen calls for 17 November 1997. The fourth of these was to Mr Bruce Cadwallader. He said that at the time he wrote "17/11/97 B Cad .25". This signified that on that day he rang Mr Bruce Cadwallader and that the cost of the call was 25 cents. Later that day he wrote against the entry: "re Requisition - Voting at meeting (Would vote in favour)." The next call was to Mr Cardwell. There were then three calls to Mr Manning, one to Mrs Wintzloff, and one to Mr Moss. After another call, the next entry, as written at the time, was: "17/11/97 McCabes. 25". Later in the day he added to that entry "Confirming Bruce would vote in favour of directors". The final call that day was to Mrs Wintzloff. Mr David Cadwallader said that in the first call to Mrs Wintzloff he said that "I rang Bruce regarding the meeting of 11 December and he said, 'It doesn't matter any more, I'm going to vote in favour of retaining the directors of Bajco, the current directors at that meeting'." 75 In cross-examination Mr David Cadwallader conceded that the date given in his affidavits for the conversation with Mr Bruce Cadwallader of early November could not be correct; that there were no other calls recorded with Mr Bruce Cadwallader in November; and that no other entry for October or November 1997 had anything like the detail of the two 17 November 1997 entries. He denied that the note about Mr Bruce Cadwallader could have indicated that Mr Cadwallader said he would vote in favour of the resolution. He agreed that the note did not say that Mr Bruce Cadwallader would vote in Mr David Cadwallader's favour. He also accepted that the note appearing against McCabes may have been mistakenly placed there instead of against "S Moss", since Mr Moss was the relevant solicitor at McCabes. 76 It was submitted that: "One would be hard put to point to an error by his Honour accepting the document and what appeared on the face of it. However, there is clear evidence that he had a conversation with Bruce on that day. It was not put to him ever that there was no conversation at all with Bruce that day. Cross-examination was to the effect that the relevant conversation occurred on another day and, indeed, some questions put to David were put on the assumption that there was a conversation with Bruce."

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That proceeds on the assumption that the change in directors was a real possibility. It could not have been written with any sincerity if Mr David Cadwallader had told McCabes on 17 November 1997 of any change of mind by Mr Bruce Cadwallader. Further, on 18 November 1997 Mr Manning wrote to Mr Moss saying that the latter's clients would be replaced as directors on 11 December 1997. The reply on 19 November 1997 did not dispute that proposition: yet if McCabes had been told of Mr Bruce Cadwallader's change of mind on 17 November 1997, the proposition would not have been true, and counsel for the directors accepted that this did present an opportunity to dispute it. 79 Secondly, apart from the lateness of Mr David Cadwallader's reference to the log book, and apart from his uncertainty as to whether he had made the entry against McCabes correctly, there were other problems with it. Counsel for the directors did not dispute that the later entries appear to have been made in different pens and that this would be unusual if they were made on the same day as the earlier entries, as Mr David Cadwallader contended. There is no entry in the log book, which runs from 11 April 1996 to 21 June 1998, and contains hundreds of entries relating to conversations of which some must have been on important subjects, in anything like the detail of the two entries allegedly added on 17 November 1997. On being pressed to identify any entry which was as full in October or November 1997, Mr David Cadwallader pointed to the following entry: "3/11 M Wintzloff ($20 monthly Rental) 1.69". That highlights the uniqueness of the two entries on 17 November 1997. Mr David Cadwallader did not explain how, if he had access to the log book, he came to state in two separate affidavits that the call was in "early November" instead of on 17 November 1997. Further, if the call was important enough to justify its noting twice on 17 November, first against Mr Cadwallader's name and later against the name of McCabes, it is surprising that no note was made of it against Mrs Wintzloff's name, since Mr David Cadwallader said he passed the news onto her. In the circumstances it is understandable that counsel for the directors did not launch a frontal attack on the trial judge's reasoning about the log book. 80 Thirdly, the trial judge made numerous adverse findings about Mr David Cadwallader as a witness which were based on a judgment of his demeanour and a judgment of him as a man. The trial judge also said of the debts of $15,000 which Mr David Cadwallader and Mrs Marilyn Wintzloff alleged were owed to them by Bajco Pty Ltd: "The debts owed by David and Marilyn appeared to be in broadly the same category as one another, although there is a singular lack of particularity about them. They appear not to be claims for the directors' fees approved by them in the board resolution of 20 October 1997, because the evidence indicates that those directors' fees were paid to them. In cross-examination Marilyn admitted that her claim to be owed $15,000 was dishonest. She said that she discussed the claim with her brother David over the telephone, and when she told him the claim for $15,000 was exorbitant he said not to worry. This evidence was given against her interest and I accept it. It implies that David participated in Marilyn's conduct in putting forward a false claim. David gave evidence that his claim was only an estimate, and in cross-examination he could not recall how he came to that estimate. Given his participation in his sister's false claim, the lack of particularity of his evidence, and his unconvincing response to questions on the subject in cross-examination, it seems to me probable that his claim, like his sister's, was false."

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Mrs Marilyn Wintzloff 81 In Mrs Wintzloff's first affidavit, dated 18 February 1998, paragraph 9, she said that in early November 1997 Mr David Cadwallader said to her: "I've spoken to Bruce about the meeting on 11 December and he's agreed to vote to keep us in as directors." Her evidence was that she said: "You have to remember David, that Bruce will say one thing right up to the last moment and then change his mind. He might change his mind at the meeting." 82 In her second affidavit, dated 13 April 2000 and filed by her own solicitors, she said that on 17 November 1997 Mr David Cadwallader rang her and said: "Bruce rang me and informed that he will support us in re-electing us both as directors." The affidavit then said: "Exhibited to me at the time of swearing this affidavit and marked 'MAW 32-34' is a copy of Bruce's affidavit dated 18th February 1998 which supports this statement." Of course Mr Bruce Cadwallader's affidavit did not support what she said. It supported only the proposition that he had changed his mind. 83 In her cross-examination the following passage appears: "Q. And you see it says there in paragraph 9 you, after David had spoken to you and told you what Bruce had said, you added the words there 'You have to remember David that Bruce will say one thing right up to the last moment and then change his mind. He might change his mind at the meeting', do you see that? A. Yes. Q. You didn't put that in your second affidavit, did you? A. Because that earlier November conversation is different from the 17 November. Q. I see you had an earlier conversation? A. I did. Q. And so this is a different conversation where David tells you the same thing twice, is that right? A. Yes. Q. And when was that earlier conversation? A. The exact day? Q. Why don't you mention the fact in either of your affidavit that you had two conversations? A. Because when I did the affidavit of the 18 February I did not have time to consider all the facts or my notes or anything. I was just asked to come in by the administrator's solicitors and fill out an affidavit. I had no idea, I was not prepared to know what was required for the affidavit. We were snowballed. Q. Why didn't you say at that stage 'Look I'm sorry, I am not prepared to do an affidavit yet. I need to collect my papers and my thoughts'? A. Because I wasn't advised as such."

[53]

She fixed the date of the second conversation by reference to the fact that 17 November 1997 was a day on which the proceedings about the 1979 transaction were before the court. 84 Later Mrs Wintzloff said she had a conversation with Mr Bruce Cadwallader: "Q. You hadn't been speaking to him? A. I had had a conversation between the 11 and the 17 with him, yes. Q. Did he say it to you? A. Yes, he did. Q. Why isn't that in your affidavit? A. I just remembered it, that's all, because I thought the 11th and the 17th was the most important. Q. This was the time when Mr Bruce Cadwallader, you say, told you personally that he was going to support you and David at the meeting? A. Yes. Q. And you didn't bother to put that in your affidavit? A. No, I didn't. Q. You had time to prepare this affidavit? A. Yes. Q. You had your notes? A. Yes. Q. It was the one time he told you he was going to support you? A. Yes. Q. You appreciated that was important? A. Well, I didn't think it was necessary seeing it was, I had already sworn an affidavit saying that. Q. You appreciated it was important that you give evidence of that? A. (No verbal response). Q. Answer my question please? A. I don't wish to answer it. WHITTLE: I ask for a direction that the witness answer the question. HIS HONOUR: The witness ought to understand when she gives evidence by affidavit and is called to the witness box she is expected to answer the questions that are put to her. If she doesn't then it's open to the Court to draw adverse inferences from what she says and therefore it is not normally necessary for the Court to give any directions as to witnesses responding to questions. In the light of what I have said I invite you to consider whether to answer the question that has been asked. WHITTLE: I will put this question again. PREVIOUS QUESTION READ. WITHDRAWN. Q. You appreciated that it was important that you give evidence of that conversation that you had had with Bruce Cadwallader? A. No, I didn't think it was important because he's already conveyed those same, that same message to David Cadwallader a number of times and I didn't feel that it was important to put it in my affidavit as well." 85 Counsel for the directors was not able to say much in criticism of the trial judge's handling of Mrs Wintzloff, save to say that it was wrong to give her evidence no weight in assessing the probability of whether or not the critical conversation occurred. 86 The trial judge's conclusions about Mrs Wintzloff were correct. Her evidence underwent several changes, never adequately explained. The trial judge's finding about the falsity of her claim to be owed $15,000 by Bajco Pty Ltd was not controverted by her counsel on appeal. She admitted that making the demand she did on the administrators for $15,000 was a dishonest act. She said, but not convincingly, that she only did it on Mr Cardwell's instructions; but even if he had given those instructions it would not reduce her dishonesty. She maintained the claim in order to obtain a right to vote by proxy (Mr Cardwell) at the second creditors' meeting. She admitted that filling in that statement of claim for that purpose was a dishonest act.

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The 17 November 1997 controversy as a whole 87 One curious feature of the controversy is that eight or nine days after the proceedings started, the solicitors for the administrators prepared affidavits for Mr Bruce Cadwallader, Mr David Cadwallader, Mrs Marilyn Wintzloff and Mr Cardwell. In his affidavit of 19 February 1998, Mr Bruce Cadwallader referred to his change of mind, but not to any conversation about it with Mr David Cadwallader. In his affidavit of 18 February 1998, Mr David Cadwallader referred to a conversation with Mr Bruce Cadwallader in early November 1997, but not to any conversation in which he passed on the news of Mr Bruce Cadwallader's change of mind to Mr Cardwell, although he included a page on the 27 November 1997 meeting with Mr Cardwell. In her affidavit of 18 February 1998, Mrs Marilyn Wintzloff said that Mr David Cadwallader told her in early November 1997 that Mr Bruce Cadwallader had changed his mind. In his affidavit of 18 February 1998, Mr Cardwell did not refer to any conversation about a change of mind on the part of Mr Bruce Cadwallader, though he set out detailed material on what was said at the 9am meeting on 27 November 1997. 88 These differences might not matter if they stood alone: some deponents might have remembered some things, while other deponents remembered other things. The solicitors evidently thought that issues about the change of mind were sufficiently relevant to justify the inclusion of the material which was in fact included. What is disturbing is what happened after the affidavits prepared by the solicitors for the administrators had been filed and served. 89 In her second affidavit, prepared by the solicitors for the directors, Mrs Marilyn Wintzloff changed the date of the call from Mr David Cadwallader from early November to 17 November. In her oral evidence she referred to a direct communication from Mr Bruce Cadwallader never revealed before. Mr Cardwell revealed in cross-examination, not examination in chief, a conversation on 27 November 1997 never disclosed before. Mr Bruce Cadwallader gave evidence of a call from him to Mr David Cadwallader which he had not revealed before. Mr David Cadwallader changed his evidence as to the date of the call from early November to 17 November. In oral evidence he said he could not recall telling Mr Cadwallader of the change of mind at the 27 November 1997 meeting, but "I may have spoken to him about that before. He was aware that Bruce would vote in our favour but it was, it was not discussed at that meeting there and then." Mr Bruce Cadwallader did not support Mrs Marilyn Wintzloff's oral evidence of a conversation with her. 90 Hence although counsel for the directors was correct to say that the case was not one of oath against oath in the sense that competing witnesses called by different parties gave different versions, the witnesses called by the directors contradicted not only each other but also Mr Cardwell, who was called by the administrators. 91 It is necessary to return to counsel's submission based on Mr Bruce Cadwallader's lack of motive to lie. The trial judge did not find that he lied, though he did reject his evidence of a conversation with Mr David Cadwallader on 17 November 1997, concluded that he did not change his mind, and said that he did not ever tell Mr David Cadwallader of any change of mind. 92 One possibility is that Mr David Cadwallader did change his mind, but only after the directors resolved to put Bajco Pty Ltd into administration on 27 November 1997. 93 Another possibility flows from the extreme vagueness of his evidence as to dates and as to what he said to solicitors and when: that is, that he has somehow convinced himself that he changed his mind before 27 November 1997 and that he told his brother about it, even though he neither changed his mind nor told his brother. 94 But whatever the explanation, the trial judge's rejection of Mr Bruce Cadwallader's evidence is understandable in view of its internal weaknesses and its inconsistencies with contemporary correspondence - Mr Manning's, Mr Moss's, and Hunt & Hunt's. The fact that it is inconsistent with Mr Manning's suggests that Mr Bruce Cadwallader never changed his mind. The fact that it is inconsistent with Mr Moss's suggests that Mr David Cadwallader never told Mr Moss of any news about Mr Bruce Cadwallader having changed his mind, and that Mr Bruce Cadwallader never told Mr David Cadwallader or anyone else of that either. The fact that it is inconsistent with Hunt & Hunt's 1 December 1997 letter suggests that the explanation for the inconsistency of Mr Bruce Cadwallader's evidence with Mr Manning's letters is that Mr Bruce Cadwallader had not changed his mind before 26 November 1997. Nothing adverse to any of the three solicitors is demonstrated by the evidence or was urged on the court by any party. There is a circumstantial inference available that those solicitors would have done nothing in the wars within the Cadwallader family without instructions. 95 This Court was not taken to any evidence that any of the solicitors was unavailable to give evidence. It is true that Jones v Dunkel (1959) 101 CLR 298 does not apply where the uncalled witness is a solicitor, where the untendered evidence is privileged, and where the privilege has not been waived: Wentworth v Lloyd (1864) 33 LJ (Eq) NS 688. But no contention was advanced that client legal privilege prevented the solicitors from being called. In each case client legal privilege, at least in relation to whatever instructions were given to Mr Manning and to Hunt & Hunt and in relation to what Mr Moss was told on 17 November 1997, had been waived. A Jones v Dunkel inference operates against the directors in relation to Mr Bruce Cadwallader's instructions to Hunt & Hunt, and against the directors in relation to Mr David Cadwallader's conversations with Mr Moss on 17 November 1997. The inference is that if either solicitor had been called, his evidence would not have helped the client of that solicitor. That is, the terms of the 1 December 1997 letter together with Mr Bruce Cadwallader's concessions about his opportunities to give instructions to Hunt & Hunt and his non-hostility to that firm, support an inference that the letter was written in accordance with his instructions. And the language of McCabes' post 17 November 1997 letters supports an inference that Mr Moss was not told of any conversation between Mr Bruce Cadwallader and Mr David Cadwallader indicating that Mr Bruce Cadwallader had changed his mind. The unexplained failure of the directors to call the relevant solicitors enables the court to draw those inferences more strongly. 96 It does not matter whether a legal onus lay on the plaintiff, Mr Alan Cadwallader, to prove that the crucial conversation did not take place, or whether a legal onus lay on the third defendants, the directors, to prove that it did take place. Jones v Dunkel applies in favour of and against parties on both sides of the record: Steele v Mirror Newspapers Ltd [1974] 2 NSWLR 348 at 367 per Hutley JA. As Hodgson JA said in Ho v Powell (2001) 51 NSWLR 572 at [16], Jones v Dunkel: "itself related to a situation where there was evidence supporting an inference against a party, and that party did not give or call evidence, which that party was plainly in a position to have given or called, in order to explain or contradict the material presented. In my opinion, a similar principle applies where a person bearing the onus of proof does not give or call evidence which that person is plainly in a position to give or call; and unless some explanation is given of this failure, the tribunal of fact is entitled to infer that this evidence would not have assisted that person's case … ." 97 Though Jones v Dunkel applies in relation to Hunt & Hunt and Mr Moss, it may be more debatable whether it applies against the directors in relation to Mr Manning's dealings with Mr Bruce Cadwallader. Jones v Dunkel does not operate where the failure of a party to call a witness is explained. An explanation can be found in the close blood relationship between the potential witness and the opponent of the party who did not call the witness (eg that the witness not called by one party is the son of the other: Smith v Samuels (1976) 12 SASR 573 at 581). Another explanation can be found in the hostility of the potential witness to the party whose failure to call the potential witness is under consideration (Smith v Samuels (1976) 12 SASR 573 at 581). Yet another explanation can be found in the fact that the potential witness's relationship with the party criticised for not calling the potential witness has ceased, and the potential witness has entered into a relationship with that party's opponent (Shum Yip Properties Development Pty Ltd v Chatswood Investment and Development Co Pty Ltd (2002) 40 ACSR 619 at [64]). 98 In his classic judgment in Payne v Parker [1976] 1 NSWLR 191 at 201-202 Glass JA said that the first condition for the operation of Jones v Dunkel was that "the missing witness would be expected to be called by one party rather than the other". He continued: "The first condition is also described as existing where it would be natural for one party to produce the witness: Wigmore , par 286, or the witness would be expected to be available to one party rather than the other: … , or where the circumstances excuse one party from calling the witness, but require the other party to call him …, or where he might be regarded as in the camp of one party, so as to make it unrealistic for the other party to call him … , or where the witness' knowledge may be regarded as the knowledge of one party rather than the other … , or where his absence should be regarded as adverse to the case of one party rather than the other … . It has been observed that the higher the missing witness stands in the confidence of one party, the more reason there will be for thinking that his knowledge is available to that party rather than to his adversary … . If the witness is equally available to both parties, for example, a police officer, the condition, generally speaking, stands unsatisfied. There is, however, some judicial opinion that this is not necessarily so … . Evidence capable of satisfying this condition has been held to exist in relation to a party's foreman …; his safety officer …; his accountant …; his treating doctor … ." 99 If, as Hutley JA said in Steele v Mirror Newspapers Ltd [1974] 2 NSWLR 348 at 366 and as Glass JA agreed in Payne v Parker [1976] 1 NSWLR 191 at 202, a party's accountant is an example of a witness whom that party is expected to call on pain of an adverse inference, a solicitor, where privilege has been waived or does not apply for some other reason, is an even stronger example. The latter relationship may be even more confidential, since communications within it are protected by client legal privilege, while there is no corresponding privilege for accountants. The point is that the significance of a Jones v Dunkel inference depends on the closeness of the relationship of the absent witness with the party who did not call that witness: Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) ATPR 41-831 at [64] per Hill and Finkelstein JJ. The relationship of client and solicitor is extremely close, and solicitors have duties to their clients, even after the relationship has ended and even after it is ended acrimoniously, to maintain that closeness. 100 According to Mr Bruce Cadwallader, he terminated his retainer of Mr Manning in circumstances of some acrimony. However, that factor does not operate as an explanation for the failure of the directors to call Mr Manning. In particular, as a solicitor Mr Manning had a duty over and above that of most potential witnesses to assist his former client by searching his files and his recollection. Some of his files were made available. He had a high duty, had the directors called him, to tell the court fully and truthfully what the result of the search of his recollection with the aid of those files was. 101 Accordingly Jones v Dunkel also operates in relation to Mr Bruce Cadwallader so far as the directors' failure to call Mr Manning is concerned. An inference arises from the terms of Mr Manning's letters and the bitter atmosphere of the disputes between Mr Bruce Cadwallader, Mr Alan Cadwallader and the directors that Mr Manning would have been careful not to go beyond his instructions. The failure of the directors to call Mr Manning permits that inference to be drawn the more strongly. If that inference is drawn on the balance of probabilities, it is fatal to the directors' contention that there was a conversation in which Mr Bruce Cadwallader communicated his change of mind on 17 November 1997. 102 The trial judge reached his conclusions about the occurrence or otherwise of the 17 November 1997 conversation after a trial in which, though most of the evidence in chief was given on affidavit, the principal deponents were extensively cross-examined in such a way as to give him a more than normal advantage over an appellate court. "Trial by transcript can seldom be an adequate representation of an oral trial before a judge … .": Rosenberg v Percival (2001) 205 CLR 434 at [41] per McHugh J, Gummow J concurring at [92]. It would be unusual to set aside the trial judge's findings, founded as they are on the demeanour-based credibility of at least three of the witnesses, unless it could be concluded that the trial judge failed to use or palpably misused the advantage he had of hearing and seeing the witnesses, or that the trial judge relied on evidence which was inconsistent with facts incontrovertibly established by the evidence, or that the trial judge acted on evidence which was glaringly improbable, or that the trial judge fell into some error of principle, or that the trial judge mistook or misapprehended the facts, or if the overall effect of the evidence was such that it was not reasonably open to make the findings he did: Abalos v Australian Postal Commission (1990) 171 CLR 167; Devries v Australian National Railways Commission (1993) 177 CLR 472; Rosenberg v Percival (2001) 205 CLR 434 at [37]-[42] and [92] per McHugh J and Gummow J. 103 However, it is possible to set aside, or order a new trial on the ground of, credibility-based findings in other circumstances, because "no short exhaustive formula" of the above kinds can meet every case: State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1999) 160 ALR 588 at [3] per Gaudron, Gummow and Hayne JJ, quoting Devries v Australian National Railways Commission (1993) 177 CLR 472 at 480 per Deane and Dawson JJ. Another instance where this appellate intervention can take place is "where in a complex pattern of events incontrovertible evidence can only be fitted into the pattern if a different view of the credibility of a witness is taken by the court on appeal": Agbaba v Witter (1977) 51 ALJR 503 at 508 per Jacobs J, approved in State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1999) 160 ALR 588 at [4] by Gaudron, Gummow and Hayne JJ. 104 Despite the trial judge having fallen or been led into a few peripheral errors of detail, a perusal of the transcript and of the reasons for judgment reveals that he followed the testimony closely and that he had very good opportunities to observe the key witnesses over lengthy periods of hostile cross-examination. It cannot be said that he failed to use or misused those advantages. He did not err in principle or mistake any significant fact. It cannot be said that it was not reasonably open to him to make the challenged findings. They were not inconsistent with facts incontrovertibly established by the evidence. They were not glaringly improbable. There is no incontrovertible evidence inconsistent with the judge's findings to be fitted into the overall complex pattern of events. There is no other basis on which to reject the trial judge's conclusions. 105 Hence the arguments advanced on behalf of the directors in relation to the 17 November 1997 conversation fail. 106 Even if, contrary to the trial judge's findings and the above reasoning, the conversation did take place, it must be remembered that the trial judge accepted Mrs Marilyn Wintzloff's evidence about having warned Mr David Cadwallader about Mr Bruce Cadwallader's unreliability, untrustworthiness and propensity to change his mind, despite his general conclusions about her credibility. That evidence meant that she and Mr David Cadwallader could have no assurance that Mr Bruce Cadwallader would not change his mind again and vote against them. The trial judge's understandable acceptance of that part of Mrs Wintzloff's evidence would support his conclusions on purpose even if the balance of his conclusions about the 17 November conversation fell away.

[55]

The directors' alternative argument 107 The directors contended that even if this Court declined to interfere with the trial judge's conclusion about the 17 November 1997 conversation which Mr Bruce Cadwallader alleged he had with Mr David Cadwallader, and even though the trial judge's conclusion that in fact Bajco Pty Ltd was not insolvent on 27 November 1997 nor likely to become insolvent in future must stand, the conclusion that the directors had an improper purpose should not stand. It did not follow from the fact that Bajco Pty Ltd was solvent that the directors believed in its solvency. The directors feared that if Bajco Pty Ltd were insolvent they would be personally liable for its debts. The directors' evidence was that their motivation in seeking the appointment of administrators was their fear that Bajco Pty Ltd was or was likely to become insolvent. That fear was based on apprehension about Bajco Pty Ltd's inability to meet the costs of its own lawyers and costs orders in relation to the defendants' lawyers arising out of the proceedings challenging the 1979 transaction. Even if the proceedings were discontinued, the directors feared that there would be costs orders in favour of the defendants. The belief that Bajco Pty Ltd was or was likely to become insolvent was based not only on the directors' personal perceptions, but on Mr Cardwell's advice to that effect. In cross-examination it was not suggested that the directors did not believe Bajco Pty Ltd to be insolvent, and they had a reasonable basis for that belief because of the costs of the legal proceedings in relation to the 1979 transaction and because Bajco Pty Ltd had only $2,872 in the bank, owed Madgwick Partners $10,852, had its attempts to sell the Concord West site under a cloud by reason of threats from Mr Bruce Cadwallader to stop the sale by injunction, conveyed by letters from J E Mills & Associates on 17 and 18 November 1997, could not borrow because of an inability to service the borrowings, and could not obtain the proceeds of any sale for some months even if the sale were not obstructed by an injunction. It was submitted that the sincerity of the directors' beliefs was supported by the amount of time devoted to the subject of solvency at the meeting between Mr David Cadwallader and Mr Cardwell at 9.15 on 27 November 1997. 108 This alternative argument of the directors was advanced at trial. The trial judge's reasoning for rejecting it was put thus: "My reasoning for the view that Bajco was clearly solvent on 27 November 1997, and not likely to become insolvent at some future time, implies that at that date, David and Marilyn were aware of the company's solvency. All the facts that have led me to my conclusion on solvency were known to David and Marilyn at that time. Indeed, some of the facts were peculiarly within their own knowledge, such as the facts concerning the claims by themselves and Bruce, and the facts concerning their attitude to the debt claimed by Cadwallader Engineering (NSW). As to their assessment that the company was likely to become insolvent at some future time, it is striking that there is no evidence to indicate any rigorous exploration of the likely costs of the litigation, nor any convincing evidence that they properly balanced their view of the desirability of pursuing the litigation against the methodical and thorough assessment of funding available to the company that one would expect conscientious and prudent directors to make.

[56]

In making their decision on 27 November 1997, David and Marilyn acted on the advice of Mr Cardwell. But it is important to bear in mind that Mr Cardwell depended almost entirely on David and Marilyn for his information about the financial state of the company. He explained to them the meaning of the legal concept of solvency, and there is nothing to suggest that his explanation was deficient at a general level. He was informed by David about the company's debts, and he appears to have taken that information at its face value. It is true that he might have made further investigations. But decisions about the appointment of administrators are typically taken in circumstances of some considerable urgency, given (amongst other things) the potential liability of the directors if the company continues to trade in insolvent circumstances. Moreover, in this case the largest debts (those claimed by David and Marilyn, and the debt claimed by Cadwallader Engineering (NSW) but disputed by David and Marilyn) were not the kinds of debts that would be illuminated by external investigation. Therefore the advice given by Mr Cardwell was based squarely on information provided by David and Marilyn, and David and Marilyn must have known in the circumstances that this was the case. These considerations lead me to the conclusion that, in resolving on 27 November 1997 that the company was insolvent or likely to become insolvent at some future time, David and Marilyn were adopting a resolution that they knew, on the basis of Mr Cardwell's advice as to the nature of solvency, was untrue. In my view, the only plausible explanation for their doing so was to provide the 'jurisdictional' basis for administration intended to achieve some purpose other than to deal with the insolvency of the company. They were acting in bad faith." 109 So far as the trial judge in this passage relied on the reasoning which supported his conclusion that Bajco Pty Ltd was solvent and not likely to become insolvent, that reasoning proceeded as follows. Of the debts listed in the directors' Report as to Affairs, a debt of $1,000 owing to Mr Smyth was put out of account because Mr Smyth gave evidence that no amount was outstanding. The Report did not list a debt of $29,136 said to be owing to Cadwallader Engineering (NSW) Pty Ltd, but the directors did not regard it as true debt, the creditor had never pressed for payment, and the creditor was not likely to so long as it was allowed to stay at the Concord West site. There was a debt of $10,852 owed to Madgwick Partners, but that firm was not pressing for payment and would not do so unless the Concord West site was sold. There was a genuine debt of $1,250 owed to a barrister, but it was less than the contents of Bajco Pty Ltd's bank account. For reasons set out in [80] above, the trial judge rejected the existence of the $30,000 in debts said to be owing to the directors. A debt of $4,000 allegedly owed to Mr Bruce Cadwallader was not convincingly supported by him or Mr David Cadwallader; and even if that debt existed, it was more than matched by a debt of $5,746 owed by Mr Bruce Cadwallader to Bajco Pty Ltd. 110 Thus the trial judge concluded that Bajco Pty Ltd was solvent. He also found that it was not likely to become insolvent at some future time. Future outgoings in relation to the Concord West site were capable of being covered in the future as in the past out of rental income. "There were also the likely future costs of the 1997 proceeding. However, those costs were not certain or even likely to be incurred, unless the directors decided to continue the 1997 proceeding. In making their decision on that question, it would be necessary for them to consider the company's resources, and all reasonably available means of funding of litigation. Until that exercise had been carried out, it would be premature for the directors to come to the immediate conclusion that the company was likely to become insolvent in the future, on the basis of the costs of litigation. And there is no evidence that a rigorous assessment of the amount of costs to be incurred and the availability of funds to meet those costs, was ever carried out by David and Marilyn."

[63]

(f) the termination of the retainer of McCabes as solicitors for Bajco Pty Ltd on 21 November 1997, which had the intended effect that the company had no lawyer available to answer any request for information about its status which Mr Alan Cadwallader might make. 112 Of these findings, the directors in this appeal only challenged (b). For the reasons given above, that challenge has failed, and the directors accept the consequences of that failure for the purposes of the present alternative argument. The administrators did briefly say orally of finding (d) that the selection of Goulburn for the 11 December 1997 meeting was defensible since Mr Wintzloff, who was suffering from cancer, lived there and was being cared for there by Mrs Wintzloff. But the administrators took no stand either way in the argument between Mr Alan Cadwallader and the directors about the directors' purposes. Since the point was not taken up by the directors it is unnecessary to decide it and it can be left out of account. 113 The trial judge then said: "David and Marilyn had other considerations in mind as well. Some of them were considerations which, if they had become the purposes for which a fiduciary power was exercised, would arguably be proper purposes. Thus, it was important to David and Marilyn to ensure that the 1997 proceeding moved forward, and they appear to have genuinely believed that the pursuit of the 1997 proceeding was in the interests of the shareholders of Bajco as a whole. They were aware that substantial funds would be needed for legal costs. They wanted to sell the Property to provide funds for the litigation, and their attempts to do so had been made difficult by the lack of co-operation by Alan and Bruce in the sale process. For reasons not made plain in the evidence, they seem to have believed, genuinely, that the sale process would be easier and less open to obstruction if it were conducted by administrators. At one stage Bruce seems to have had a similar view. David and Marilyn were concerned about cash flow and the difficulty they were experiencing in obtaining Alan's agreement to an increase in rent (although it seems that agreement would have been forthcoming if they had responded to Alan's eventual offer to sign the lease). In my opinion, however, none of these considerations should be elevated to the status of an intention or purpose of the appointment of the administrators. Specifically, if David and Marilyn's purpose, or one of their purposes, was to provide funds for the litigation, one would have expected evidence of a reasonably businesslike investigation of alternative methods of funding, such as through borrowings. There is a suggestion in the evidence that David and Marilyn believed they would be required to give personal guarantees to support such a borrowing, but nothing to indicate that their fear was objectively based. The Property was, after all, entirely unsecured and there was a steady flow of rental income, and the prospect of increasing the rent.

[65]

The statement enclosed with the letter was headed 'Reasons for Putting Bajco Pty Ltd into Administration'. The statement is a catalogue of her complaints about Alan's conduct across a range of matters comprising the family dispute about the affairs of the two companies. Her list of reasons includes allegations as follows: · Alan's refusal to the buy out the shares of other shareholders or settle on any agreement or proposal; · illegal purchase of Jeanine Hatton's shares; · Alan's refusal to allow an independent audit of Cadwallader Engineering (NSW)'s books to determine transfers of funds from Bajco; · Alan's refusal to settle on an outcome in light of the Howarth Report; · misappropriation by Alan due to lost income arising from the absence of a formal lease agreement; · devaluation of shares in Bajco in the period from 1979 to 1998, from $3,000 to $20 per share; · continuous oppression of minority shareholders by Alan preventing resolutions being put forward; · unresolved conflict between Alan and Bruce as majority shareholders, and David and Marilyn as directors representing the minority shareholders; · transfer of business assets in 1979 without proper and fair consideration being paid to Bajco, and without the informed consent of the shareholders; · 'morally and ethically incorrect' disclosure of information about the affairs of Bajco by its accountant, Mr Smyth, to Alan. She reinforced and elaborated on these matters in cross-examination. Of course, when the question for the directors is whether the company should move into voluntary administration, considerations of these kinds are irrelevant considerations except to the extent that they bear on the question of solvency. At the end of the statement she asserts, relevantly, that the company was by November 1997 'no longer a viable concern', and had not been so for the previous three years. She briefly reviews the creditors of the company and notes that there was only about $2,000 in the bank. The statement concludes by urging Mr Cardwell and the administrators and their lawyers to take the matter very seriously because 'we intend to win - losing isn't in the picture'." 115 The trial judge, in stating his conclusions about the directors' purposes, then said: "However, the considerations set out in her list were improper as well as irrelevant to the directors' task. It would be improper, for example, to appoint administrators in response to Alan's refusal to buy out the shares of the others, or his so-called 'illegal' purchase of Jeanine's shares, or because Bajco had transferred its business to Cadwallader Engineering (NSW) for an alleged inadequate consideration while Alan and Bruce were directors. If such considerations had been the dominant or driving purposes for the directors' decision to appoint administrators, the decision would be invalid and liable to be set aside. David denied that the matters listed in Marilyn's letter of 29 March 1998 (other than matters relating to solvency) influenced his decision with respect to the appointment of administrators. However, there is some evidence to suggest that David and Marilyn, with the assistance of Mr Cardwell, developed plans for voluntary administration with a view to addressing all or some of the range of problems enumerated in Marilyn's letter. I refer to the meeting of 2 April 1997, of which Tracey Case took notes. Voluntary administration appears, according to those notes, to have been seen as a 'choice' or solution to a number of problems of the kind identified in Marilyn's letter, not limited to the allegedly unlawful transfer of the business in 1979, which was shortly to become the subject of the 1997 proceeding.

[66]

In my view, however, the desire to address a wide range of problems beyond the scope of the 1997 proceeding became peripheral after Alan's solicitor proposed a meeting for the removal of David and Marilyn as directors on 18 September 1997, and later a notice of requisition was served. By then, the central issue for David and Marilyn seems to have been to respond to the threat to their positions and the 1997 proceeding posed by the requisitioned meeting. The central importance of this issue in their minds explains Mr Cardwell's observations that it was necessary 'to do things as soon as possible' and that 'we can only run with what we've got'. I conclude that by far the dominant consideration, and the only one properly described as the purpose or motivation or intention of David and Marilyn when they made their decision on 27 November 1997, was their desire to preserve themselves in office and ensure the continuation of the 1997 proceeding." 116 In part the alternative argument of the directors under consideration depends on a challenge to credit-based findings - for a judgment as to the subjective purposes of directors who have given extensive oral evidence will very often turn on credit issues, and this judgment of the trial judge certainly did. The difficulties in that type of challenge were noted in relation to the trial judge's reasoning about the alleged 17 November 1997 conversation. In part the alternative argument depends on a challenge to the trial judge's inferences. The difficulty it faces in that respect was put thus by Beaumont and Lee JJ in Minister for Immigration, Local Government and Ethnic Affairs v Hamsher (1992) 35 FCR 359 at 369: "The court must be satisfied that the judgment of the trial judge is erroneous and it may be so satisfied if it reaches the conclusion that the trial judge failed to draw inferences that should have been drawn from the facts established by the evidence. The court is unlikely to be satisfied if all that is shown is that the trial judge made a choice between competing inferences, being a choice the court may not have been inclined to make but not a choice the trial judge should not have made." 117 That difficulty arises against a complex factual background. From that background Mr Alan Cadwallader sought to contend that the circumstances suggested that what he alleged went beyond competing inferences of an equal degree of probability, a choice between which was a mere matter of conjecture, but were more probable inferences of a reasonably definite character, to use the language of a passage in Bradshaw v McEwans Pty Ltd, an unreported case, quoted by Dixon, Fullagar and Taylor JJ in Luxton v Vines (1952) 85 CLR 352 at 358. In particular, the evaluation of the mental states of directors calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of their mental capacities, processes and idiosyncrasies, to borrow the words of Dixon CJ, McTiernan and Kitto JJ from the field of undue influence and apply them to the present context: see Jenyns v Public Curator (Q) (1953) 90 CLR 113 at 118-119. 118 To some degree the directors' submissions to this Court invited this Court to sit, as it were, as a second trial court and consider, as if presented for the first time, the arguments advanced by counsel for the directors. That is not an invitation which is capable of acceptance. The directors' task is to identify error on the part of the trial judge in failing to draw a particular inference or in drawing a particular inference. So far as the trial judge's conclusions were credit based, none of the relatively limited types of material error have been established. So far as the trial judge's reasoning turned on circumstantial inference, it has not been demonstrated that he erroneously failed to draw a particular inference, or should have drawn a particular inference. While some minds might have drawn the inferences which the directors urge, the trial judge cannot be said to have erred in drawing contrary inferences. 119 The trial judge did not employ any novel or illegitimate form of analysis in deciding that the reasoning which led him to the conclusion that Bajco Pty Ltd was solvent on 27 November 1997 implied that at that date the directors were aware of the company's solvency. In Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 at 832, Lord Wilberforce said in the course of giving the advice of the Board (which also included Lords Diplock, Simon of Glaisdale, Cross of Chelsea and Kilbrandon): "when a dispute arises whether directors of a company made a particular decision for one purpose or for another, or whether, there being more than one purpose, one or another purpose was the substantial or primary purpose, the court, in their Lordships' opinion, is entitled to look at the situation objectively in order to estimate how critical or pressing, or substantial or, per contra, insubstantial an alleged requirement may have been. If it finds that a particular requirement, though real, was not urgent, or critical, at the relevant time, it may have reason to doubt, or discount, the assertions of individuals that they acted solely in order to deal with it, particularly when the action they took was unusual or even extreme." 120 The trial judge's conclusion in favour of solvency here was so strong, and the reasons for reaching it included reasoning so adverse to the probity of the directors in relation to the debts supposedly owed by Bajco Pty Ltd to them, that it was natural not merely to doubt or discount the directors' assertions that they acted solely to deal with perceived insolvency, but to disbelieve those assertions. 121 The argument that the directors honestly believed that Bajco Pty Ltd was insolvent because of Mr Cardwell's advice ignores the fact that whatever the deficiencies of that advice and the unwiseness of Mr Cardwell in giving it, it was in part based on the claim of each director that Bajco Pty Ltd owed a $15,000 debt; the trial judge found that those claims were false in the sense of dishonest. In consequence any "reliance" by the directors on advice obtained from Mr Cardwell after they had knowingly misled him was not true reliance at all. 122 Though for the purposes of the alternative argument under consideration the directors necessarily accepted that the trial judge correctly rejected the evidence of the four witnesses going to the 17 November 1997 conversation, there is a particular difficulty for the directors flowing from the trial judge's reasoning. Had the evidence been accepted, it would have been easier for the directors to contend that the legitimate purposes which they urged should be inferred from the evidence should in fact be inferred, and harder for Mr Alan Cadwallader to contend that the inferences he contends for should be drawn from other evidence. But once the 17 November 1997 conversation as a relevant circumstance is removed from the picture by reason of the trial judge's rejection of the evidence favouring it, it becomes much harder for the inferences supported by the directors to be drawn, and the inferences urged by Mr Alan Cadwallader become much more readily available. 123 Moreover, the dishonest claims of each director to be owed $15,000 constitute admissions by conduct. Mrs Marilyn Wintzloff's admittedly dishonest claim for a debt of $15,000 was important because it tended to conceal the solvency of Bajco Pty Ltd. It was also important because it gave her standing at the second creditors' meeting and enabled her to appoint Mr Cardwell as her proxy with a view to keeping Bajco Pty Ltd in administration. 124 The trial judge also found that Mr David Cadwallader's claim for a debt of $15,000 was false, and knowingly false. Like the equivalent finding against his sister, that finding was not challenged on the appeal. Mr David Cadwallader's claim, like the claim of his sister, concealed the solvency of Bajco Pty Ltd and gave Mr David Cadwallader a false entitlement to attend the second creditors' meeting and vote for a continuation of the administration. 125 The supposedly genuine belief of the directors in Bajco Pty Ltd's insolvency was undercut by these claims. If each director genuinely believed that Bajco Pty Ltd was or might become insolvent because of the costs of the proceedings about the 1979 transaction, why put in dishonest claims to personal debts? 126 The fact that these false claims were made supports both the conclusion that the directors thought that without them the proposition that the company was insolvent or might become so could not be maintained and the conclusion that their true purpose had nothing to do with a fear of insolvency arising from the need to fund the legal proceedings about the 1979 transaction. 127 Even if the directors' submission that no cross-examination was directed to them in which it was suggested that they did not believe that Bajco Pty Ltd was insolvent is in terms correct, in the sense that general questions of that kind were not put, there is no doubt that they were closely questioned about matters going to solvency. Those questions, if answered favourably to a conclusion of solvency, necessarily also bore on the issue of the directors' knowledge of that solvency. This is particularly so in relation to the false claims that Bajco Pty Ltd owed each director $15,000 and in relation to the fact that just before Bajco Pty Ltd was put into administration two cheques were drawn in favour of the directors for their fees in the period 1 October-27 November 1997, which fees were not due and payable, thereby cutting the cash reserves of Bajco Pty Ltd almost in half. Further, on some issues it was quite unnecessary to cross-examine the directors. For example, there is the question whether Mr David Cadwallader knew that Madgwick Partners were "prepared to wait". In a questionnaire he was asked by the administrators to fill in, which he did on 6 December 1997, in answer to the question "When did creditors begin pressing the company for payment?", he said: "They are prepared to wait until the company is wound up". The trial judge found that that referred not to liquidation but to the winding up of Bajco Pty Ltd's affairs by sale of the Concord West site, but the admission relieved counsel for Mr Alan Cadwallader of any duty to cross-examine on the point. Accordingly it has not been shown that the trial judge's rejection of the directors' alternative argument was erroneous.

[67]

Should the trial judge have upheld the "waiver" defence? 128 On this point the primary argument was advanced by the administrators and adopted by the directors, with some embellishments. 129 In their Further Amended Defence, the first and second defendants alleged: "In further answer to the whole of the Statement of Claim the First and Second Defendants say that the Plaintiff is not entitled to relief because with knowledge: (i) of the matters set out in paragraph 25, 30 and 32 of his affidavit of 6 February 1998; (ii) the contents of the Administrator's Report of 19 December 1997 and with legal advice, he joined in the resolution of 29 December 1997 that Bajco should execute the Deed of Company Agreement." 130 Paragraph 25 of that affidavit was: "On 29 November 1997, at about 11.00am, I attended the Premises and observed that auction signs were attached to the building, which were visible from the railway line and from the main road. I took some photographs of the signs. The signs did not state any date for the auction, but named the agent, J A Gilmour & Sons of 819 Victoria Road, Ryde." 131 Paragraph 30 of that affidavit was: "Later on the same day, 10 December 1997, I spoke by telephone to Mr Price and had with him a conversation to the effect: Price: 'Mr Hilliard of Tress Cocks & Maddox [the solicitors for the Administrators] told me that David and Marilyn are owed $15,000.00 each, Bruce is owed $4,000.00 and Madgwicks are owed $10,552.00 by Bajco. There is also a debt of $2,000.00 to Tim Smyth and a small debt to a man called Gollotta, but I don't know who he is. He may be a barrister retained by Madgwicks. The total of the debts is $46,802.00.' Me: 'Do you know what the debts of David and Marilyn are for? I don't understand them. They couldn't be directors' fees. What's Bruce's debt for?' Price: 'I don't know. I asked the solicitor for details of the debts and he said he didn't know about them but was getting the details and would tell me soon.'" 132 Paragraph 32 of that affidavit was: "On 11 December 1997, at 9.20am, I attended the Goulburn RSL Club, at which time no other shareholders of Bajco were there. I waited in the Club until after 10.00am and no shareholders of Bajco arrived. I then spoke to an officer of the Club who said to me words to the effect: 'Marilyn Wintzloff rang yesterday at 9.50am and cancelled the meeting room.'" 133 The administrators' Report of 19 December 1997 was considered at the second creditors' meeting on 29 December 1997. 134 The administrators' submissions to the trial judge on the pleaded defence were: "Finally, there is, it is submitted, an unanswerable plea of waiver (see paragraph 27 of the Further Amended Defence of the first and second Defendants). On the 29th December 1997 Allan Cadwallader present with his solicitor Mr Price, formally representing Cadwallader Engineering and claiming to be a creditor for $29,136 (see Exhibit D2-12 p122-127) not only voted in favour of the Deed of Company Arrangement proposed, but after taking advice, voted that the Administrators should be appointed Administrators of the Deed of Company Arrangement and moved a motion for their remuneration to be fixed. It is submitted that there could be no clearer example of election or waiver; Sargent v ASL Developments Limited (1974) (131 CLR 634) Commonwealth v Verwayen (1990) 170 CLR 394 at 406-7; 451 and 471-2. … He attended the second meeting of creditors and voted in favour of the administration when in full knowledge of all matters. He voted in favour of the Deed of Company Arrangement when its intended content was fully on the table. He proposed the Administrators' remuneration (T95) (Price T10 7.3) and sought to prove a debt to Circle-C Transformers. His conduct can be characterised as waiver, acquiescence, unconscionable, election or delay (T90.1; 94; 96). When he voted in favour of the resolution for the approval of the Administrators' remuneration during the period of the administration he understood the requirement for the appointment, namely that Bajco be or be likely to be insolvent (Exhibit D2-12 54B; T73.10-74.4: T77). He told his solicitor he wanted to proceed with the administration (T 109.10; 112.8). Having originally indicated formal support - he changed his mind. He thought the administrators were bluffing about selling the property - but 'I realised that it was not a bluff towards the end of January 1998 and that is when I did something about it.' (T95.10)." 135 The administrators' written submissions to this Court were: "It is submitted that his Honour erred … in finding that the resolution was voidable at the instance of Alan: … (b) … his Honour failed to deal with waiver which was pleaded in paragraph 27 of the further amended defence of the Administrators. … On 29 December 1997 Alan Cadwallader, present with his solicitor, Mr Price, formally representing Cadwallader Engineering and claiming to be a creditor for $29,136, not only voted in favour of the Deed of Company Arrangement proposed, but after taking advice, voted that the Administrators should be appointed Administrators of the Deed of Company Arrangement and moved a motion for their remuneration to be fixed. This was a clear case of waiver with which his Honour did not deal. Sargent v ASL Developments Limited (1974) 131 CLR 634 Commonwealth v Verwayen (1990) 170 CLR 394 at 406-7; 451 and 471-2." 136 In oral argument counsel for the administrators took the court to the minutes of the 29 December 1997 meeting. He read the following passages: "Mr Cardwell indicated that he would not read the report but would take creditors through the main areas. In going through the report, Mr Cardwell indicated details concerning background of the company, statutory information pertaining to it and carefully took creditors through the summary Report as to Affairs which had been signed by Mr D A Cadwallader. Mr Cardwell indicated that the main asset namely the real estate located at 3 King Street, Concord West has been put up for auction prior to the appointment of the Administrators and would be continuing with the property to be auctioned sometime during the middle of February. Details were given as to the debtors of the company and in response to a question from Mr Alan Cadwallader, he indicated that Mrs Marilyn Wintzloff did owe money to the company and that she would be in a position to pay it at sometime in the near future. If she was unable to pay it the money would be offset against what was owed to her as a shareholder in the company. … In relation to the legal proceedings and the contingent asset, Mr Cardwell advised that advice would be sought should creditors agree to the Deed of Company Arrangement today from a Barrister as to the standing of those proceedings and as to the course to be adopted for them. … Mr Cardwell indicated that a letter had been received from the directors of the company requesting that a Deed of Company Arrangement be entered into and it was the view of the Administrators that this should in fact be the case. After a discussion concerning the terms of the Deed of Company Arrangement and what was involved the suggested preamble to the proposed Deed of Company Arrangement was tabled and passed round to all creditors present and the recitals were read by Mr Cardwell. At this time, Mr Alan Cadwallader requested that the meeting be adjourned so that he could discuss the matter with his fellow director of Cadwallader Engineering (NSW) Pty Ltd, Mr Bruce Cadwallader and his solicitor Mr C Price." 137 Counsel for the administrators then read the following recitals to the draft Deed of Company Arrangement: "B. Prior to the appointment of the Administrators, the Company had two major assets being the land and buildings located at 3 King Street, Concord West ('the property') and a chose in action being a claim by the Company against Alan Norman Cadwallader, Bruce Eric Cadwallader and Cadwallader Engineering (NSW) Pty Limited in the Supreme Court of New South Wales Plaint No 2230 in respect of the disposal of the Company's assets to Cadwallader Engineering (NSW) Pty Limited in or about June 1979 ('the Proceedings'). C. The Company got into financial difficulties when the tenant of the Property, Cadwallader Engineering (NSW) Pty Limited failed to account for rent due to the Company for its occupation of the Property and the Company became unable to meet the legal costs associated with the Proceedings. D. Prior to the appointment of the Administrators, the Company commenced the process for the sale of the Property. E. The Administrators have determined to proceed with the sale of the Property and to place the net proceeds of sale into the Deed Fund established by this Deed. F. After establishment of Admitted Creditors pursuant to the proving procedure established by this Deed (and after payment of Exempt Creditors being preferential creditors and employees for their entitlements (if any) as at the Fixed Date), Creditors shall be paid in full from the Deed Fund. G. The balance of the Deed Fund shall be retained by the Administrators and invested in an approved trustee investment pending resolution of the Proceedings by Court Order (after exhausting the appeal process) or by agreement between the parties to the Proceedings, and thereafter shall be distributed to the Members provided that, on the terms of this Deed, Alan Norman Cadwallader and Bruce Eric Cadwallader shall only be entitled to receive a net distribution after deducting from their entitlement any amounts found to be due and owing by them to the Company pursuant to the Proceedings." 138 Counsel then submitted: "this is at a meeting of creditors at which the very plaintiff is present with a solicitor but your Honours will bear in mind this is a company that has a business in real property of which the company controlled by the plaintiff is the tenant. There is a claim by that company. The creditors are his brothers and sisters. The solicitors of the company have about $10,000, the barrister about $1,250 and there is a debt for an accountant for about $1,000 which was not pressed. At this meeting the plaintiff votes in favour of the deed of administration after seeing the recitals. The cross-examination about this is in the black book volume 1 starting at page 88 letter M (read). He had previously said that he thought the whole thing was a bluff. On page 89 letter N and letter R (read). What we say about that was pleaded in the red book page 24." 139 Counsel for the administrators then read the following parts of the plaintiff's cross-examination: "Q. Then there was handed out some draft recitals or a preamble to a proposed deed of arrangement, is that right? A. Yes. Q. You had a look at that document and you read it? A. I had a look at the document, didn't really read it. Q. You didn't read it? A. No. Q. Did you ignore it? A. I didn't read it at that time, no. Q. Why not? A. I don't remember why. … Q. And you say to his Honour you didn't read it; is that correct? A. That's correct. Q. If you had read it you would have read that the administrator had determined to proceed with the sale of the property, right? A. Yes. Q. And you would have thought that's a bluff? A. I felt it was a bluff at that point in time, yes. Q. Notwithstanding that it was proposed to be recorded in a deed of company arrangement you thought it was still a bluff, did you? A. I didn't understand what a deed of company arrangement was. Q. Did you ask your solicitors? A. No, I didn't. Q. He was there? A. I know he was there. Q. Did you tell him you didn't understand what a deed of company arrangement was? A. No. Q. Why not? A. I don't know. I felt intimidated at the meeting -- … Q. You ignored the recitals, is that what you are saying? A. I didn't read it. Q. If you had read it you would have seen that after the sale of the property creditors were going to be paid in full from the deed except yourself and Bruce? A. If I had read it I would have seen that. Q. It is perfectly clear, isn't it, as you read the document now? A. Yes, it is, yes. Q. If you had read it at the time you would have understood that the property was going to be sold, all creditors [who approved] would be paid except for you and Bruce. You were only going to receive a net distribution after deducting any amount which was found to be due and owing by you to Bajco pursuant to the proceedings which were on foot; correct? A. If I had read it, yes. Q. You have read it subsequently? A. Yes. Q. You have no difficulty understanding it subsequently have you? A. No." 140 Counsel then said that waiver had been pleaded and that submissions had been put about it below. He then repeated the contention advanced twice in the written submissions to this Court that the submissions his clients had advanced at trial had not been dealt with by the trial judge. This much re-iterated accusation that a crucial defence, destructive of the claim if made out, had not been dealt with, was a serious one: for a trial containing that flaw would not have been a genuine trial of the issues. 141 The court then drew attention to the following passage in paragraph 281 of the reasons for judgment (as paragraph 22 of the written submissions of the appellant, filed on 20 August 2002, eight days before the appeal, had already done): "The defendants made much of the decision by Alan at the second meeting of creditors to vote in favour of the deed of company arrangement. In my view, however, that decision did not give rise to any waiver or election, estoppel, lack of clean hands or other equitable ground for denial of relief, even if I were otherwise disposed to grant relief under the general law. The reason is that Alan's decision, as he explained it, was taken on behalf of Cadwallader Engineering (NSW) and not in his private capacity, on the ground that he regarded it as pointless to take any other view. It was not a decision which bound him personally or operated on his conscience." 142 Whatever else may be said about that passage, it cannot be said that it "failed to deal with waiver". Counsel for the administrators said "Perhaps I was fatigued by the time I got to paragraph 281." The submission that the trial judge failed to deal with waiver is rejected. 143 Counsel for the administrators then submitted that the trial judge "doesn't say why" he reached his conclusions. That submission too is rejected. There is no ground of cross-appeal relating to it and it is wholly baseless. 144 Counsel for the administrators conceded that the Notice of Cross-Appeal did not expressly state the point which he wished to raise. That difficulty may be put aside. Counsel for the administrators then contended that even though the Minutes of the meeting described Mr Alan Cadwallader as "Representing Cadwallader Engineering (NSW) Pty Ltd", in contrast to Messrs Bruce Cadwallader and David Cadwallader who were each described as "Representing himself", and even though, the meeting being a creditors' meeting, Mr Alan Cadwallader was not a creditor, he was there in his capacity as member. No other person was there in the capacity of a member. That capacity alone would not entitle attendance. The other two Cadwalladers were purportedly there as being owed debts by the company, though the trial judge has since held that those debts were fraudulently claimed. In the circumstances it is scarcely surprising that the trial judge found that Mr Alan Cadwallader was there in the capacity of a representative of Cadwallader Engineering (NSW) Pty Ltd, particularly since the administrators' written submissions to the trial judge said he was "formally representing Cadwallader Engineering". Counsel said: "the distinction that he was there in one capacity and voted while somehow reserving internally a different position is something your Honours won't accept." 145 In relation to that argument, counsel took the court to the advice which Mr Price of A R Conolly & Co gave to Mr Bruce Cadwallader and Mr Alan Cadwallader during a short adjournment of the meeting just before the vote: "Me: 'Bruce, what do you want Cadwallader Engineering to vote?' Bruce: 'I've already made up my mind.' Me: 'Yes, and what is that?' Bruce: 'I know what I want to do.' Me: 'Am I right in thinking that you want Cadwallader Engineering to vote in favour of the Deed of Administration? It is not what you want yourself, but what you want as a director or Cadwallader Engineering. Allan can't vote on behalf of Cadwallader Engineering if you do not agree, as its other director, with the vote.' Bruce: 'Yes." Me: 'What do you propose to do Allan?' Alan: 'I want to proceed with the Administration.'" 146 He also drew attention to what Mr Alan Cadwallader said in his affidavit of 6 February 1998: "I refer to paragraph 49 of Mr Price's Affidavit. I agreed to vote in favour of the Administration because I thought it was the only thing to do. I was aware that David, Marilyn and Bruce intended to vote for the Deed and Mr Cardwell had said earlier that Marilyn had given David her proxy. He had also said that Madgwicks had given Keith Skinner their proxy. I thought it would not achieve anything if I opposed the Administration. I was aware that I could not vote against the Administration as the proxy of Cadwallader Engineering if its other director, Bruce, disagreed with that. I also thought that if Cadwallader Engineering voted against the Administration, its vote would be ignored because its debt had been marked by Mr Cardwell. To some extent this influenced me. I took it into account and concluded that if Cadwallader Engineering voted against the Deed its vote would be ignored. I also thought it was possible that the Administrators would be helpful to me in view of the dispute with Bajco and my difficulties with Bajco."

[68]

At that stage counsel for the administrators reserved liberty to refer to further evidence overnight, but did not in fact refer to any the following day. Counsel for the directors said that the trial judge overlooked the words "me" and "my" in the last sentence quoted and also the following cross-examination of Mr Alan Cadwallader on the matter: "Q. I want to suggest to you, going back to where we were at the meeting, that one of the reasons you voted in favour of the administration was that you thought it would be helpful to you in view of the dispute with Bajco and the difficulties you were having with Bruce; is that true? A. Mr Cardwell indicated that it may - yes." 147 There are the following difficulties about the particular argument under consideration. 148 First, the trial judge's reasoning appears to rest on an acceptance of the plaintiff's evidence on the point. If there was some evidence given by the plaintiff to support it, the trial judge was entitled to prefer it to other evidence, including other evidence from the plaintiff, unless one of the avenues for overturning credit-based findings exists. None was pointed to. 149 Secondly, counsel for the administrators did not refer the trial judge to the affidavit evidence most recently quoted above. Counsel for the directors, however, did. It cannot be inferred that the trial judge overlooked it. 150 Thirdly, it was open to the trial judge to have concluded that the primary, dominant and probably only real motive for the plaintiff's vote was that he perceived it to be inevitable, since he was there as proxy for Cadwallader Engineering (NSW) Pty Ltd, and Mr Bruce Cadwallader, the other director, disagreed with that company voting against the resolutions and since Mr Cardwell had said to the plaintiff, in a passage to which the court was not taken: "Strictly, Cadwallader Engineering doesn't have the right to vote." The only other motive rested on the "possible" helpfulness of the administrators. If Mr Alan Cadwallader paid attention to that and if that were taking a personal interest into account while exercising a fiduciary power and contrary to the fiduciary obligation attending its exercise, it would have been wrong of him to have done so. But the fact remains that the only capacity in which the vote could be exercised was representative, not personal. In any event, any fiduciary power he was exercising by so causing Cadwallader Engineering (NSW) Pty Ltd to vote, was in his capacity as a director of Cadwallader Engineering (NSW) Pty Ltd. He was not a trustee of his vote. Qua director of Cadwallader Engineering (NSW) Pty Ltd he owed no duty to Bajco Pty Ltd. And he was no longer a director of Bajco Pty Ltd. 151 Fourthly, the cross-examination lastly referred to continued: "Q. Is that true? A. He indicated that he may be able to help in that situation. Q. The question is: Was part of the reason you voted in favour of the administration on 29 December 1997 is that you thought it was possible that the administrators would be helpful to you in view of the dispute with Bajco and your difficulties with Bruce? A. Yes. Q. You didn't vote because you were intimidated, you voted because you thought it was to your advantage, didn't you? A. No. I basically voted because my brother wanted - my brother - my co-director wanted the company to vote that way."

[69]

That evidence reinforces the view that the only real motive for the plaintiff's vote was compliance with Mr Bruce Cadwallader's wishes, in circumstances where, unknown to the plaintiff quite probably, Mr Bruce Cadwallader had never convincingly supported the debt said to be owed to him. 152 Fifthly, if the sole director of a company of which he is not the only member attends a creditors' meeting in his personal capacity, votes in that capacity could not operate as a waiver of the company's rights. Similarly, a vote as representative of a company cannot operate as a waiver of personal rights. In Cousins v International Brick Co Ltd [1931] 2 Ch 90 at 100 Lord Hanworth MR defined a proxy as "A person representative of the shareholder who may be described as his agent to carry out a course which the shareholder himself has decided upon." The fact that the plaintiff's principal had on an earlier occasion decided upon a particular course in relation to the principal's affairs and directed him to follow that course in those affairs would not oblige the plaintiff to adhere to that course in his personal affairs and prevent him from following a different course in his personal affairs. In the same case at 102 Lawrence LJ said: "The proxy is merely the agent of the shareholder, and as between himself and his principal is not entitled to act contrary to the instructions of the latter". Thus if the plaintiff was not entitled to act contrary to the instructions of the principal (ie Mr Bruce Cadwallader, whose wishes he could not depart from), the fact that he did not cannot amount to an election or choice between two courses; it was not open to him on that occasion to adopt the course which he later, in a different capacity and free from the constraint of his co-director's wishes, chose to adopt. 153 Even if the trial judge was wrong on this matter for the reasons advanced by the administrators and the directors, the doctrines on which the administrators and the directors rely - "election", "waiver", "acquiescence", "delay" and "unconscionable" conduct - call for an examination of the mental state of the person against whom they are invoked. This is rightly acknowledged in the passages in the pleadings referring to "knowledge", and in the directors' statement in their Notice of Contention that the appellant was "aware of all material facts". Thus in one of the authorities relied on by counsel for the administrators, Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 642 Stephen J (McTiernan ACJ concurring) said: "The nature of the knowledge which an elector must possess is a matter upon which the authorities are somewhat at variance. An elector must at least know of the facts which give rise to those legal rights, as between which an election must be made; without that knowledge the doctrine of election will not be available to make irrecoverable his choice of one particular right, although in appropriate circumstances an estoppel may still arise which produces that very consequence and this without any such requirement of knowledge on the part of the party who is estopped. The extent of knowledge of relevant facts necessary for the doctrine of election to apply has been described as 'full knowledge of the material facts' ( Bennett v L & W Whitehead Ltd [[1926] 2 KB 380 at p 410]. In Elder's Trustee & Executor Co Ltd v Commonwealth Homes & Investment Co Ltd [(1941) 65 CLR 603] a knowledge of circumstances such as will provide information from which the decisive fact giving rise to the legal right is 'a clear if not a necessary inference' was held to be sufficient [(1941) 65 CLR at p 617]." 154 Mr Alan Cadwallader voted to continue the administration and voted for the execution of the Deed of Company Arrangement. He seconded a motion that the administrators be appointed administrators of the Deed of Company Arrangement, which was carried unanimously. He could have voted against these motions. One matter "material" to the decision to vote either way was the extent of Bajco's indebtedness. The administrators' Report considered at the meeting stated that among the unsecured creditors, said to total $47,102, were debts owed to the directors of $30,000. As the trial judge has found and as no party now denies, the fact is that no such debts existed. Though the administrators did not know this, their statement that such debts existed rested on fraudulent misrepresentations to them. The Report also referred to the Madgwick Partners debt of $10,852 without revealing what special characteristics it had, as found by the trial judge, which made it of very limited significance in supporting a conclusion of insolvency. Those characteristics were as follows. Mrs Marilyn Wintzloff gave evidence that Madgwick Partners had agreed to wait for payment until the Concord West site was sold. The administrators may well not have been aware of that agreement. But the trial judge also found that Mr David Cadwallader's answer to the administrators in response to a questionnaire from them to him was that Madgwick Partners were prepared to wait until Bajco Pty Ltd's affairs were wound up by having the Concord West site sold: the administrators were thus on notice of the matter. Further, the Report did not reveal what the trial judge eventually found to be the fact about the $5,000 indebtedness (the sum of the $1,000 supposedly owed to Mr Smyth and the $4,000 supposedly owed to Mr Bruce Cadwallader) - namely, that the first was not outstanding and that the second did not exist. That left an indebtedness of $1,250, less than the company's credit balance in its bank account. It is very far from clear that had Mr Alan Cadwallader - and indeed his co-director of Cadwallader Engineering (NSW) Pty Ltd, Mr Bruce Cadwallader - known the truth about the creditors, the vote said to constitute an election would have been cast the same way. 155 It follows that one flaw in the oral argument advanced to this Court by counsel for the administrators is that his account of the debts owed by Bajco Pty Ltd at the time of the meeting is not the account which his clients gave in their Report which was considered at the meeting. His account was accurate in following some of the trial judge's findings; the account in that Report was not accurate. 156 The first time that Mr Alan Cadwallader heard of the debts claimed by the directors and Mr Bruce Cadwallader was on 10 December 1997. On that day his solicitor, Mr Price, told him that the solicitor for the administrators had told him, Mr Price, about them. Mr Alan Cadwallader said: "Do you know what the debts of David and Marilyn are for? I don't understand them. They couldn't be directors' fees. What's Bruce's debt for?"

[73]

Should the trial judge have upheld the unclean hands defence? 165 In the directors' Defence to Further Amended Statement of Claim, they alleged: "In answer to the whole of the Statement of Claim the Third Defendants say: a) The Plaintiff knew the nature of the allegations made in proceedings 2230 of 1997 ('the 1997 Proceedings') (in which proceedings the Plaintiff was named as a Defendant); b) The plaintiff knew that in the 1997 Proceedings there would be an enquiry into the circumstances in which Cadwallader Engineering (NSW) Pty Limited came to acquire the business formerly conducted by the First Defendant; c) The plaintiff was incurring and likely to continue to incur costs in respect of the defence of the 1997 Proceedings; d) The Plaintiff was aware that there may be difficulties associated with adducing documentary evidence in support of the case in the 1997 Proceedings. PARTICULARS Letter A R Connolly to J E Mills 1 September 1997 e) The Plaintiff had instructed his solicitors to take steps to seek to negotiate a settlement of the 1997 proceedings; f) The plaintiff had reached an agreement with Bruce Cadwallader (who was also named as a Defendant in the 1997 Proceedings) that an offer of settlement was to be made to the solicitors for the First Defendant (as Plaintiff in the 1997 Proceedings) but that if that offer was not accepted, the Plaintiff and Bruce Cadwallader would requisition an Extraordinary General Meeting of the First Defendant for the purpose of removing the Third Defendants as directors of the First Defendant, to be replaced by the Plaintiff and Bruce Cadwallader, who would then cause the First Defendant to dismiss the First Defendant's then solicitors and to discontinue the 1997 Proceedings. PARTICULARS Letter J E Mills to A R Connolly 4 September 1997 Letter A R Connolly to J E Mills 17 September 1997 Letter A R Connolly to J E Mills 18 September 1997 g) The plaintiff requisitioned the Extraordinary General Meeting to be held on 11 December 1997 with the intention that the proposed new Board (namely the Plaintiff and Bruce Cadwallader) dismiss the solicitors then acting for the First Defendant (as Plaintiff) in and cause the 1997 Proceedings to be discontinued; h) In these circumstances, the Plaintiff's object in requisitioning that Extraordinary General Meeting was self interested and improper and was to achieve a benefit for himself, namely discontinuance of the 1997 Proceedings. In these circumstances, the Plaintiff is not entitled to relief because he does not have clean hands."

[74]

There was a similar allegation in the administrators' Defence. 166 At the trial the directors submitted: "Alan ceased to be a director of the Company on 10 April 1996. He raised no objection to the resolution removing him as director · Defendants' Bundle ('DB') 59 · T49.20. He only sought to be re-elected as a director after the commencement of the 1997 Proceedings (T49.30). He knew: · The nature of the allegations made in the 1997 proceedings (T27.52, T34.35, T35.15). · That in the 1997 proceedings his conduct would be subjected to careful scrutiny (T35.15, T37.46). · That there was no documentary material available to him with which to defend his actions (T35.5ff, T36.30, T39.57ff and Conolly letter 1 September 1997 (DB-20B)). He was incurring costs (T44.40). In 1997 Alan was negotiating with Bruce. An element in the negotiations was the suggestion that a general meeting of the Company be called to remove David and Marilyn as directors and to discontinue the 1997 proceedings. · Mills letter 4 September 1997 DB-35A · Conolly letter 17 September 1997 (DB35D). That element was then 'sanitised' to one where the proposal was that the directors would 'consider' discontinuance of the 1997 proceedings. · Conolly letter 18 September 1997 (DB-35J). · Proposed deed between Bruce and Alan (paragraph 7) Plaintiff's Bundle ('PB') 87. · Conolly letter 25 November 1997 (DB-41A). But Alan's true intention remained to cause the 1997 proceedings to be discontinued: · He agreed that otherwise there was no point getting on the Board (T51.35). · Alan was certain he would get on the Board (T115.15). · Although he asserted he would get 'independent advice' about the future of the 1997 proceedings, he claimed he never thought about what would happen if that advice was to continue proceedings against him (T155.25ff). Bruce was more candid about his real intentions, if elected. He said that 'obviously' the proceedings would be discontinued (T176.20) and that that was 'always our intention' (T177.41). It is likely that this was Alan's real state of mind. It follows that Alan's object in requisitioning the extraordinary general meeting to be held on 11 December 1997 was self interested and improper. It was designed to achieve a benefit for himself, namely discontinuance of the 1997 proceedings. For that reason, he ought be denied relief in these proceedings." 167 At the trial the administrators limited themselves to the following submissions about Mr Alan Cadwallader: " … he comes to Court with unclean hands. His true purpose is to avoid the assets going to the shareholders and placing a hurdle in the way [of] the proceedings against Cadwallader Engineering (NSW) Pty Ltd." 168 The trial judge rejected these arguments: "The defendants contended that Alan requisitioned the meeting of members to be held on 11 December 1997 with the intention that the new board would dismiss Bajco's solicitors and cause the 1997 proceeding to be discontinued. In my opinion, that contention is not supported by the evidence. The correspondence indicates on its face that Alan was prepared to act in accordance with legal advice in the event that he became a director." 169 In this Court the administrators advanced no express ground of cross-appeal on this point, and no argument, written or oral. 170 The directors, however, repeated their written submissions. They laid stress on a draft letter of 17 September 1997 in which A R Conolly & Co stated: "We also advise you that it is the intent of the new Board to dismiss your firm as solicitors for the Plaintiff and to discontinue the action of the Plaintiff."

[78]

The directors' submissions described this as "the published line, sanitised after the first draft." 173 Counsel for the directors then drew attention to the following cross-examination: "Q. Do you not recall having Mr Connolly write to Madgwicks requesting the board convene a general meeting of shareholders? A. I don't remember that, no. Q. I want to suggest to you that your true state of mind was as reflected in paragraph 7 of the document at page 139, that's right, isn't it? A. I don't remember that. Q. That's what you were out to do, out to get on the board, dismiss Bajco's directors and cause the proceedings to be discontinued? A. No, I don't believe so. You know, we were given advice. I know it was later on but, I mean, I didn't intend that at all, no. I intended to get on the board, yes. Q. And what? [And vote] in favour of the continuation of the proceedings against yourself? A. At that point of time I wasn't sure of what to do. As I say, I was advised later that - at that point of time that I believe we were going to do that, but I was advised later that was the wrong thing to do. … Q. You were told that it wasn't - I am asking, were you told that it wasn't appropriate for you to, in advance and before you were elected as a director, to say that if you became a director you would discontinue proceedings brought by the company against yourself? A. I am not sure what the question really is. I'm a little bit confused about it. Q. You agree with me that your intention was that when you were on the board you would vote in favour of a resolution causing the proceedings to be discontinued? A. It appeared that way, yes. Q. Otherwise there was no point in getting on the board? A. That's correct, yes." 174 Counsel for the directors then referred to the following cross-examination: "Q. Could I ask you this. Before 11 December 1998 you considered that there was a possibility that you would become a director of Bajco, didn't you? A. Yes. Q. And you considered there was a possibility that Bruce would be your co-director? A. Yes. Q. You thought in November 1997 that was certain to occur, didn't you? A. Yes. Q. You knew as directors of Bajco, you and Bruce had to consider what might be done about the then pending proceedings against you and Bruce? A. That's correct. Q. Did you think about this idea - if you became a director of Bajco who did you imagine would be giving instructions to Bajco solicitors about what Bajco should do in the 1997 proceedings? A. I really didn't think anything about it. Q. It would not be David, would it? A. I didn't even think about it to tell you the truth. Q. I will press you on that. Late November 1997 you thought it was a lay down misere didn't you, that you become a director of Bajco on 11 December 1997? A. Yes. Q. And Bruce would be a co-director? A. Yes. Q. And you would discuss something that should happen to the 1997 proceedings? A. Well, yes. I did. Q. You tell his Honour, don't you, at some stage you got some advice that you should get independent advice about what you should do as a director? A. Yes. Q. With the 1997 proceedings. You must have thought, I suggest to you, what you would do if that independent advice was that you should continue? A. Yes. Q. You must have thought, can I suggest to you, in these circumstances it is necessary for somebody to get instructions to Bajco solicitors about the conduct of the 1997 proceedings? A. I really didn't think. Q. Really? A. Yes. Q. You would not have nominated David or Marilyn as people to give instructions to Bajco solicitors in those circumstances, would you? A. I could not tell you. I did not even think about it. Q. Did it occur [to] you that you would be the person who gives instruction to Bajco solicitors in those circumstances? A. Well, I did not think about it. Q. You can see how ludicrous it would be if you, as a director of Bajco, were giving Bajco solicitors instructions about what Bajco should do in a case it had brought against you? A. Well, I think if I asked for independent advice on that matter, I am sure they would probably give me advice on what to do. Q. That is my point. If the advice that you got was, Mr Cadwallader, you cause Bajco to continue these proceedings, take them to hearing and have a court decide them on their merits, assume that is the advice you got, it would place you in an impossible position? A. I did not say I liked the decision, but I agreed to do that. Q. But it was obvious to you if you got advice the proceedings should be continued it would place you in a impossible position? A. In respect to what? A. Because you would have to be the person to give instructions to Bajco solicitors about what to do about the case that Bajco had brought against you? A. I really hadn't thought. Q. You did not apply your mind to that? A. That is right."

[79]

It was contended that this was "incredible evidence" and that it was "preposterous … for Alan to suggest this was not his motivation." 175 Counsel for the directors also drew attention to evidence by Mr Bruce Cadwallader that it was always the intention of himself and Mr Alan Cadwallader to cease the proceedings against themselves on becoming directors of Bajco Pty Ltd. 176 In a nutshell, then, the position is as follows. The 17 September 1997 draft letter contained the proposition that Mr Alan Cadwallader and Mr Bruce Cadwallader intended to dismiss Madgwick Partners and discontinue Bajco Pty Ltd's action. The actual letter sent on 18 September 1997 said that the intention of the new board was to "consider at its first meeting the discontinuance of the action". When on 18 November 1997 the new solicitors for Bajco Pty Ltd, McCabes, asked whether Mr Alan Cadwallader intended to discontinue the proceedings, the answer on 25 November 1997 was that his intention was to seek legal advice about the proceedings and about his duty to administer the company, and to act in accordance with that advice. The intention expressed in the documents which were published after legal advice had been taken evolved from a statement of intention to "consider" discontinuance of the proceedings to a statement of intention "to seek legal advice on that question, and to act in accordance with it." Neither of these positions evidences unclean hands. There is no reason to infer that either of them was incorrectly stated. Mr Alan Cadwallader in passages of cross-examination to which the directors did not refer denied any intention to discontinue the proceedings, whatever the advice, "by hook or by crook". He said that he, as director, would not seek the advice of Mr Conolly because he was not independent, and the advice would have to come from someone who was independent. He also said that if he received advice to continue the proceedings he would vote in accordance with it. The trial judge evidently accepted that evidence in concluding that what the correspondence indicated on its face was to be preferred to the directors' contentions. 177 The admissions of Mr Bruce Cadwallader in cross-examination cannot bind Mr Alan Cadwallader. They were not on good terms, and relations had apparently broken down completely by 21 November 1997, before the last relevant letter of 25 November 1997. Whether or not Mr Bruce Cadwallader might have had unclean hands if he had been a plaintiff, he was not the plaintiff, and the only plaintiff was Mr Alan Cadwallader. 178 It has not been demonstrated that the trial judge erred in finding that the evidence did not support the proposition that Mr Alan Cadwallader requisitioned the members' meeting of 11 December 1997 with the intention of having the proceedings discontinued. 179 There may be a further difficulty in the directors' unclean hands argument, in that it may be vulnerable to criticism along the following lines. The defence of "unclean hands" applies where the actual conduct of a plaintiff has been improper. It applies where, for example, a plaintiff makes misrepresentations (Kettles and Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108) or fails in breach of contract to keep accounts (Harrigan v Brown [1967] 1 NSWR 342) or otherwise breaches a contract. Arguably the defence does not apply where a plaintiff prepares to do these things, or intends to. Arguably the future intentions of plaintiffs in equity are only contingently material to the principles expounded in the authorities on the maxim "he who seeks equity must do equity", so that this contingency must be fulfilled by those intentions being manifested in acts. Arguably the unclean hands maxim depends on past unclean conduct, not future unclean intentions. Counsel for the defendants did not cite any case supporting the proposition that a mere intention to act in breach of the duties of a director was unlawful or constituted unclean hands. 180 It would be strange if it were, the contention might continue, for "the Court declines to take the view that because the plaintiff's hands were once dirty they can never be washed": Kettles and Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108 at 129. That is, unclean hands can cease to be material if the conduct constituting them has ceased. It must equally be the case that unclean hands are immaterial even if, though there was once an intention to engage in conduct which would amount to unclean hands, that conduct was never carried out. It is true that it need not be completely carried out. Thus where the unclean hands consisted of conduct facilitating a fraud on the revenue authorities by making out a false receipt, the making out of the receipt with knowledge of its falsity and a motive of deceiving sufficed, even though the receipt was never in fact applied to the intended purpose: Mason v Clarke [1954] 1 QB 460 at 469 and 471. But unclean hands could not have been found merely in a plan to defraud the revenue authorities by making out a false receipt which was in no respect ever implemented. To prepare to commit a crime or tort or breach of contract is not to commit it, and is not itself unlawful. To intend to commit a crime or tort or breach of contract is not to commit, and is not itself unlawful. And to prepare or intend to commit a breach of statute is not, in the absence of exceptional statutory language, unlawful. A plaintiff is thus allowed a locus poenitentiae, and may repent of intended misconduct before any step in it is carried out. Thus even if the trial judge's reasoning was wrong because of some appellable factual error, the directors would still not have made out the defence. 181 The contention under discussion would point out that it must be borne in mind that when members requisition a meeting of members in order to remove directors, the requisitioning members are not exercising a fiduciary power and are at liberty to pursue their own self-interest. On the other hand, if those requisitionists succeed at the requisitioned meeting in removing the existing directors and electing themselves as directors, thereafter they have a fiduciary duty to act bona fide in the best interests of the company, and may not pursue their personal interests where they would conflict with that paramount obligation. The relevant illegality which could constitute unclean hands would not have begun in the present factual circumstances until the new directors were in office and so pursued their self-interest - namely, discontinuance of the proceedings about the 1979 transaction not because it was bona fide in the best interests of the company to do so, but because to do so removed a source of cost and potential peril from their own lives. However, it is not necessary to examine the merits of the possible contention summarised in this and the preceding two paragraphs in view of the trial judge's factual findings and the failure of the directors to disturb them in this appeal. 182 There is also a question whether the unclean hands of a plaintiff suing under the fifth exception to the role in Foss v Harbottle can amount to a discretionary reason for dismissing the suit. The suit is not brought solely in the interests of the plaintiff, but is rather brought because the relationships of those who control the company have disabled it from suing. It is not clear why the misconduct of a representative plaintiff should operate adversely to the interests of the person or persons represented. However, it is not necessary to consider that question either in this case.

[80]

The trial judge's findings 183 Apart from the trial judge's conclusions about whether Mr David Cadwallader told Mr Cardwell about Mr Bruce Cadwallader's change of mind at the meeting held at 9.15am on 27 November 1997, the trial judge made the following findings about the role of Mr Cardwell in relation to the directors' decision at their meeting at 11am on 27 November 1997 to appoint the administrators: "However, Mr Cardwell had no basis for treating the information he was given about the company's financial circumstances as untrue, and therefore he did not participate in or assist their decision, to the extent that it was taken in bad faith. As I shall point out, he was aware that their decision would be used by them to stop the requisitioned general meeting of 11 December 1997. For reasons I shall give, he ought to have realised that the purpose of stopping the requisitioned meeting was the purpose but for which the decision would not have been taken on 27 November 1997, and therefore David and Marilyn took their decision for an improper purpose. But that does not implicate him in their bad faith, based upon their adopting a resolution that they knew to be false. … I find that Mr Cardwell was aware that David and Marilyn regarded prosecution of the 1997 proceeding as a matter of great importance, and that they wished to avoid being removed as directors. His own advice to them led to their belief that if they resolved in favour of voluntary administration, the requisitioned meeting of 11 December 1997 would not be held. As to the evidence of Bruce's change of mind, I find for the reasons I have given that Mr Cardwell did not believe (notwithstanding his evidence to the contrary) that Bruce had decided to vote against the removal resolution. … I have found that David and Marilyn acted in bad faith in forming their opinion about solvency, but that Mr Cardwell did not participate in their conduct to the extent that it was conduct in bad faith. … [The] resolutions for the appointment of administrators and consequential matters were voidable and liable to be set aside in properly constituted proceedings: Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285, 294-5 per Mason, Deane and Dawson JJ, unless a third party (such as an allottee, in some of the cases) has acquired rights without notice of the impropriety. In the present case, the administrators acquired rights, namely the rights of their statutory office, in consequence of David and Marilyn's decision of 27 November 1997. However, my findings as to Mr Cardwell's state of knowledge with respect to the requisitioned meeting, its likely impact on David's and Marilyn's positions as directors of Bajco, their belief that voluntary administration would stop the meeting, and the importance to them of achieving that outcome so that they could continue with the 1997 proceeding, imply that he was aware, or ought to have been aware, that their dominant purpose in resolving in favour of voluntary administration, and the purpose but for which they would not have taken the decision they did on 27 November 1997, was to stop the requisitioned meeting so that they could ensure the continuation of the 1997 proceeding. Those facts were sufficient to put him on notice of the impropriety of their purpose. It is true that in cross-examination the matter was not put to him squarely in the fashion just described. However, in my view what was put to him in cross-examination gave him ample opportunity to deny his awareness of the facts in circumstances constituting the impropriety of David and Marilyn's primary purpose. It is open to me to find, and I do find, that he was on notice of the impropriety. Therefore the resolution is voidable as against his employers, the administrators." 184 In short, the trial judge acquitted Mr Cardwell of any notice of the directors' bad faith as to the solvency of Bajco Pty Ltd, but found that he knew or ought to have known that the directors' purpose in appointing the administrators was improper.

[82]

That would appear to suggest that Mr Cardwell's mental state was also irrelevant. However, later the submissions of the first and second defendants contained the following passages: "It is submitted in limine that even if the Plaintiff establishes improper purpose on the part of the directors, the Plaintiff must fail in relation to any prayer for relief based on impeaching either the Administrators' appointment ab initio or their position as Administrators under the Deed. The juridical act of appointment here is bilateral and synallagmatic. It was effected by means of a resolution coupled with execution of a Deed of Appointment. The resolution and Deed of Appointment results not only in duties devolving upon but also in rights vesting in the Administrators. The attack on the substantive validity of the appointment is based solely on an assertion of improper motive. It is not based on the absence of any necessary jurisdictional fact. The only jurisdictional fact required by section 436A(1) is the existence of a resolution to the effect required by the wording of that section. The existence of an improper purpose which is substantial does not render the act of the directors void but, at best, voidable. It is valid at common law. This is consistent with section 435C(3) and with the course taken by Burchett J in Aloridge Pty Ltd v Christianos (1994) 13 ACSR 99 at 102. See Ford's Principles of Corporations Law - loose leaf edition para 8.270. There is no assertion in the pleadings, and it was not put, that the Administrators were party to any improper purpose. The setting aside, in equity, of the transaction brought about by the appointment of the Administrators and their acceptance of that appointment, requires not only an assertion of knowledge on the part of the Administrators but for that matter to be made out. Neither the Administrators nor Cardwell were cross examined on their affidavits on that subject. Accordingly, it may be open to the Court to make an order terminating the administration, but it is not, in the absence of an assertion of knowledge and participation on the part of the Administrators in an improper act, open to set aside the Resolution and appointment."

[85]

The High Court declined to interfere with the trial judge's conclusion that the directors lacked any improper purpose. The court concluded at 500: "What has been said is enough to dispose of the appeal. If we had been of the contrary opinion a serious question would have remained, namely whether proof of the Woodside directors' breach of duty would have entitled Harlowe to have the allotment set aside as against Burmah. We need not discuss this question; but we must make it clear that we are not to be taken as denying that Burmah's legal title to the shares would have provided an effective answer to a claim for the relief that Harlowe seeks, in the absence of a finding that at the time of the allotment Burmah had notice of the breach of duty." 195 A similar defence was contemplated where debentures securing debts were issued. In Richard Brady Franks Ltd v Price (1937) 58 CLR 112 at 142, Dixon J said: "Directors are fiduciary agents and their powers must be exercised honestly in furtherance of the purposes for which they are given. Under the general law of agency it is a breach of duty for an agent to exercise his authority for the purpose of conferring a benefit on himself or upon some other person to the detriment of his principal. But, at the same time, if his act is otherwise within the scope of his authority it binds the principal in favour of third parties who dealt with him bona fide and without notice of his fraud … . The rule, no doubt, is the same with respect to the acts of directors." 196 The defence also applies where the agent of an insurer acts in breach of duty in issuing an insurance policy so long as the insured takes the policy "in good faith and for valuable consideration": Hambro v Burnand [1904] 2 KB 10 at 23 per Romer J. 197 If the administrators had wished to characterise their position as analogous to the position of persons who acquire property rights as a result of breaches of duty by company directors or other agents, they needed to establish, or to point out that the plaintiff failed to negate, the elements of a defence of bona fide purchase of a legal estate to property without notice of a prior equitable interest or equity to avoid. After a lengthy analysis of the authorities, Meagher Gummow & Lehane: Equity: Doctrines and Remedies (3rd ed, 1992) concluded at paragraph [860] that the doctrine of bona fide purchaser for value without notice is a defence to be pleaded and proved by the party relying on it. The English Court of Appeal recently referred with approval to the cases supporting that conclusion and described the discussion of this topic in that work as "valuable": Barclays Bank plc v Boulter [1997] 2 All ER 1002 at 1008. It was thus incumbent upon the administrators to plead and prove the defence. 198 However, though the trial judge limited his reasoning to an analogy with allotments of shares in which a defence of bona fide purchaser without notice applies, the administrators in their submissions went further. They cited four cases. One was Yorke v Lucas (1985) 158 CLR 661. That was a decision construing the secondary participation provisions in s 75B of the Trade Practices Act 1974 (Cth), and is quite remote from the present field, not only in the sense that it turns on a specific statute, but also in the sense that the case contemplates particular forms of positive relief, not merely the raising of matters in defeasance of a plaintiff's claim to relief. The second was Giorgianni v R (1985) 156 CLR 473, which involved the construction of the secondary participation provisions in s 351 of the Crimes Act 1900 (NSW), and which is even more remote from the present field. The third was the Privy Council decision in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, and the fourth was the House of Lords decision in Twinsectra Ltd v Yardley [2002] 2 AC 164. Those were cases on the rule in Barnes v Addy (1874) LR 9 Ch App 444, concerning the extent to which a person can be liable as an accessory to a fiduciary in breach of duty. The former case, as explained by the latter, establishes a quite rigorous test for liability - realisation by the defendant that his conduct was dishonest by the ordinary standards of reasonable and honest people. 199 This Court is not bound by decisions of either the Privy Council or the House of Lords, at least since 1986: Cook v Cook (1986) 162 CLR 376 at 390. A more appropriate starting point for an assessment of the tests for secondary liability would be the decisions of this Court in and since DPC Estates Pty Ltd v Grey and Consul Developments Pty Ltd [1974] 1 NSWLR 443 and of the High Court in that case: Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373. They may not be easy to analyse, but they propound less rigorous tests. However, let that consideration be put on one side. If the capacity of a court to set aside the 27 November 1997 resolutions depends on whether Mr Cardwell had a mental state analogous to a Barnes v Addy defendant, that raises an important factual issue which would surprise other parties unless the party who wished to rely on it pleaded it or otherwise brought it to attention at an early stage. Part 15 rule 13(2) of the Supreme Court Rules provides: "In a defence or subsequent pleading the party pleading shall plead specifically any matter … - (a) which he alleges makes any claim, defence or other case of the opposite party not maintainable; (b) which, if not pleaded specifically, may take the opposite party by surprise; or (c) which raises mattes of fact not arising out of the preceding pleading."

[86]

Paragraph 23 of the Further Amended Statement of Claim alleged that the November resolutions were voidable at the instance of Bajco Pty Ltd. It was for the administrators in their Defence to plead Mr Cardwell's state of mind if they wished to contend that that fact made the plaintiff's claim or case that the resolutions were voidable not maintainable by reason of some analogy with Barnes v Addy . 200 If a complex and controversial factual issue like Mr Cardwell's mental state was material, normally the issue cannot be raised on appeal if evidence could have been given at the trial which "by any possibility could have prevented the point from succeeding": Coulton v Holcombe (1986) 162 CLR 1 at 7-8. Nor can it be raised at the trial after the evidence has closed. Counsel for the plaintiff conducted much cross-examination which was relevant to Mr Cardwell's mental state, but the contention of counsel to this Court, that if he had known what the trial judge was going to say, he would have conducted more, is convincing. The plaintiff evidently failed to protest about the contents of the administrators' written submissions to the trial judge. It seems that no opportunity was given to the plaintiff to reply in writing, and this Court was told that the time allowed for oral submissions was extremely brief. 201 In short, if the administrators wished to raise Mr Cardwell's mental state as a ground on which the court should refuse relief avoiding the November resolutions, they should have pleaded it or otherwise put the plaintiff on notice of it. If, on reflection while preparing their written address, the administrators decided they wanted to rely on it, an opportunity should have been given for further cross-examination of Mr Cardwell. If the judge thought it necessary to consider Mr Cardwell's mental state, a possible approach would have been to advise the parties so that consideration could have been given to the further cross-examination of Mr Cardwell. However, even if the trial judge thought the matter relevant, a more convenient course in practice would simply have been to have declined to decide the issue of what Mr Cardwell knew or ought to have known of the directors' improper purpose, since the issue had not been raised at the right time and in the right way. To the extent that the administrators characterised the resolutions as bilateral and analogous to a contract only to be avoided if the administrators shared the directors' improper purpose, the Defence of the first and second defendants did not identify that as an issue, and that failure of identification must have caused surprise to the plaintiff. Nor did the first and second defendants move to strike out the Further Amended Statement of Claim on the ground that the allegations and claims failed to state a cause of action by reason of the plaintiff's having failed to allege that the administrators knew of the directors' improper purposes. 202 One of the administrators' criticisms of the trial judge was "there was no assertion in the pleadings that the Administrators were party to an improper purpose. This was not dealt with by his Honour in the Judgment". Since responsibility for the gap in the pleadings must be laid at the administrators' door, this criticism is rejected.

[87]

In law, was Mr Cardwell's lack of notice a bar to an order avoiding the resolutions? 203 The trial judge contemplated that it might be, because the administrators "acquired rights, namely the rights of their statutory office". At one point the administrators advanced more extreme reasoning in saying that the appointment of the administrators "is a conveyance of the right to occupy the office of an administrator". The only rights the administrators acquired were rights to receive remuneration and be indemnified for expenses in relation to the carrying out of any tasks they deemed appropriate while carrying out the administration efficiently. The office was statutory, but it could be terminated by a variety of events quite quickly: s 435C(3). The office was in no way alienable. It was wholly distinct from the kinds of office created when Sir Robert Walpole and his predecessors ruled. In this case the court received hints of arguments which might have been addressed acceptably to the Court of King's Bench in the time of George I. They should be rejected now. The doctrine of bona fide purchaser of a legal estate for value without notice is not capable of applying to the putting of a company into administration or to the appointment of specific administrators. No right in real or personal or even statutory "property" was thereby created. What is more, the administrators were not purchasers. They supplied no consideration for their appointment. Any work they did would generate a contingent entitlement to fees but that compensation for their labours related to their labours, not to their appointment to carry out those labours. And that consideration flowed the wrong way. If the administrators were to be seen as purchasers of their office, they had to supply consideration, and they did not. They merely accepted that if the office called for particular tasks to be carried out, they would carry them out for the usual fees. 204 Another line of argument advanced by the administrators was that the appointment of the administrators was bilateral and synallagmatic. It was a "transaction" dependent on the consent of the administrators as much as of the company. It was "analogous to a company resolution to enter a contract". The position of the other parties to the contract - the administrators - was thus relevant in determining whether the "contract" should be set aside. This characterisation is wholly erroneous. The resolutions of the directors that in their opinion Bajco Pty Ltd was insolvent or likely to become insolvent and that an administrator should be appointed was entirely unilateral. The appointment of the administrators by Bajco Pty Ltd under its common seal was unilateral. It is true that the administrators consented to their appointment - indeed they consented one day before they were appointed - but that was only necessary because the company had no power of conscription over them. The decision to appoint an administrator was not conditional on Messrs Lombe and Skinner consenting, and no bargaining took place between Bajco Pty Ltd and Messrs Lombe and Skinner to that end. And again, any contractual character in the relevant events was nullified by the fact that consideration did not flow from the administrators to Bajco Pty Ld as the price of appointment. 205 So far as the administrators relied on an analogy with Barnes v Addy, while participation by administrators in a breach of fiduciary duty by directors might well attract relief against them for equitable compensation or for the imposition of a constructive trust, subject to satisfaction of the rules relating to Barnes v Addy, that is not the present issue. The present issue is whether resolutions passed and other acts done in consequence of those resolutions can be set aside ab initio in equity where the administrators are ignorant of the breach of fiduciary duty. Nothing in the long line of authorities on Barnes v Addy, and nothing in any other authorities, suggests that they cannot.

[88]

In law, could Mr Cardwell's mental state before the appointment bind the administrators? 206 The administrators contended that the answer to that question should be "no". They complained that the trial judge did not deal with the point. This is correct. However, the material on the point below was very brief: "Cardwell's state of mind and knowledge cannot, pre-appointment, be attributed to the Administrator who accepted a statutory appointment". In view of the lack of supporting reasoning, the trial judge might be excused for either overlooking the passage or treating it as a slogan to be passed by rather than as a submission requiring to be dealt with. For the reasons given above, the question need not be decided: the setting aside of the November resolutions did not depend upon the mental state of either Mr Cardwell or the administrators. But if, contrary to the above reasoning, it was relevant to inquire whether the administrators had notice, that notice could either be acquired by them personally and expressly, or it could be imputed to them by reason of what their employee had notice of. He was a senior manager at Deloitte Touche Tohmatsu. He was experienced and hard working. He gave detailed advice to Mr David Cadwallader at the 9.15am meeting on 27 November 1997. He was actually present throughout the 11am meeting, and was present when the directors "agreed that David Cadwallader attend to the necessary execution of documents appointing the appropriate people from Deloitte Touche Tohmatsu" as administrators, according to minutes which Mr Cardwell drafted and typed from his handwritten notes. It has not been suggested that his conduct was not completely within the authority which his employers had conferred upon him. They appear to have left both the pre-administration of activity of Deloittes and the activity of Deloittes during the administration entirely to him, save for occasions when he needed to get their signatures on documents and for such public events as creditors' meetings.

[90]

If actual knowledge or awareness is necessary, did Mr Cardwell have it? 208 The administrators submit, in effect, that the trial judge did not make findings of actual knowledge or awareness. That submission is sound. He did say several times that Mr Cardwell "was aware, or ought to have been aware" of the directors' purpose. But that leaves it uncertain whether he actually was aware. The language of the trial judge, when put beside his finding about Mr Cardwell's lack of knowledge of the directors' bad faith in relation to solvency, may suggest that he was making a finding of awareness of the directors' purposes. But a finding of that character is too serious a matter to be allowed to rest on a process of uncertain construction. It is not satisfactory to read the reasons for judgment as containing findings of awareness: the trial judge's language is to be read rather as meaning "he may have been aware, but if he was not, he certainly ought to have been aware." If the trial judge had been making findings of actual awareness, there would have been no point in simultaneously finding that Mr Cardwell ought to have been aware. 209 From this point of view the plaintiff's arguments to this Court which attempt to justify a conclusion that Mr Cardwell was actually aware are not supported by distinct factual findings of the trial judge which, had they been made, would have raised before the administrators substantial difficulties of appellate challenge. Where the trial judge, who saw and heard Mr Cardwell, declined to make distinct factual findings of awareness, this Court is not well-placed to do so. It is, however, convenient to consider the parties' arguments in this regard, because the outcome is to demonstrate how well-founded the trial judge's conclusion of constructive notice is. The administrators submitted that though the directors met Mr Cardwell on 2 April 1997, the directors did not take any of his advice at that time, and they had no further dealings with him until 27 November 1997. "Numerous things happened between the protagonists to the dispute from April 1997 until October 1997 … . Cardwell was a party to none of it." 210 Is this true? 211 Even before the 2 April 1997 meeting, Mr Cardwell rang Mr L S Kalmier, Mr Bruce Cadwallader's then solicitor, on 7 March 1997. Around this time Mr Cardwell met Mr Bruce Cadwallader. A conference was arranged for 12 March 1997 in the chambers of counsel for Bajco Pty Ltd attended by Mr and Mrs Bruce Cadwallader and Mr Kalmier. At that meeting there was discussion about the 1979 transaction, and the possibility of proceedings being brought by Bajco Pty Ltd. On 26 March 1997 Mr Cardwell called Mr Manning, Mr Bruce Cadwallader's new solicitor, twice, and spoke to him. At a 2 April 1997 meeting attended by Mr David Cadwallader, Mrs Marilyn Wintzloff, her daughter and Mr Cardwell at Mr Cardwell's office there was discussion of Bajco Pty Ltd's solvency, the appointment of administrators, the holding of a creditors' meeting, the holding of a shareholders' meeting, the entry into a deed of company arrangement, the realisation of assets the end result of which "may be a pot of money", followed by liquidation. 212 On 13 October 1997 Mr Bruce Cadwallader wrote to Mr Manning to discuss the sale of the Cadwallader Engineering (NSW) Pty Ltd business and the possible involvement of Mr Cardwell in that sale. Mr Cardwell said that at that time he had a number of conversations with J E Mills & Associates about the valuing of that business. On 29 October 1997 Mr Cardwell rang Mr Manning to say that the Cadwalladers had gone back to him to take his advice and that he needed to speak to Mr Manning. Mr Cardwell recommended to Mr Bruce Cadwallader that he use Hunt & Hunt. 213 On 31 October 1997 a letter from counsel indicated that Mr Cardwell had spoken to him and indicated that Mr Bruce Cadwallader would be "initiating action next week". 214 On 6 November 1997 Mr Cardwell rang Mr Bruce Cadwallader and left a message. 215 On 10 November 1997 Mr Cardwell and Mr Manning discussed the attendance of Mr Cardwell at a meeting to resolve issues about the valuation and sale of the Cadwallader Engineering (NSW) Pty Ltd business and the appointment of a receiver to it. 216 On 11 November 1997 a letter from Mr Bruce Cadwallader to Mr Manning which was copied to Mr Cardwell set out various amendments to the draft deed between himself and Mr Alan Cadwallader. It referred to the fact that the 11 December 1997 meeting had been called. It ended: "I feel it would be in my best interests if the appointment of Ronald Cardwell as Administrator for both Cadwallader Engineering (NSW) Pty Ltd and Bajco Pty Ltd formed an essential part of the final negotiations at the proposed round table meeting. I would like Ronald's work as Administrator to determine who owes how much and to whom." 217 On 12 November 1997 McCabes, who were acting for Bajco Pty Ltd, referred to a meeting which Mr Manning was hoping to arrange at 2pm on 18 November 1997 at Deloittes, to be attended by Mr David Cadwallader. 218 On 13 November 1997 Mr Manning recorded a telephone call with Mr Bruce Cadwallader. The record contains, among others, the following entries: "R Cardwell to be there", "A & B Cadwallader" and "Full Accounting". 219 On 13 November 1997 a facsimile from Mr Manning to Mr Bruce Cadwallader foreshadowed a meeting with Mr Cardwell at Deloittes at the city at noon on 14 November 1997. That meeting took place, attended by Mr and Mrs Bruce Cadwallader, Mr Manning and Mr Cardwell. Among Mr Manning's notes are entries referring to the removal of directors at the 11 December 1997 meeting (twice), the selling of the Concord West site (twice) and settling with shareholders. 220 On 14 November 1997 Mr Cardwell also drafted clause 2A to be inserted into the draft deed under discussion between Mr Conolly, solicitor for Mr Alan Cadwallader and Mr Manning, the solicitor for Mr Bruce Cadwallader. 221 On 17 November 1997 a letter from Mr Manning to Mr Mills threatening an injunction to prevent the sale of the Concord West site was copied to Mr Cardwell. 222 It was in the week commencing 17 November 1997 that Mr David Cadwallader and Mrs Marilyn Wintzloff decided to appoint an administrator to Bajco Pty Ltd, and Mr David Cadwallader contacted Mr Cardwell. The trial judge summarised Mr David Cadwallader's evidence thus: "In the week commencing 17 November 1997 he telephoned Mr Cardwell, saying that the company would not be able to fund the ongoing litigation after the present week and that he and Marilyn wanted to discuss whether they should place the company into administration. Mr Cardwell told him that it would be necessary to have a meeting of directors to pass a resolution that the company was insolvent or likely to become insolvent and that an administrator should be appointed. David and Mr Cardwell arranged to meet on 27 November at the offices of Deloittes in Parramatta." 223 It is desirable to remove one issue from consideration. Mrs Marilyn Wintzloff gave evidence that Mr Cardwell suggested to her that she make the false claim about Bajco Pty Ltd owing her $15,000. If that evidence were correct, it would cast considerable doubt on the trial judge's conclusion that Mr Cardwell did not appreciate that the company was solvent. The trial judge made no finding about Mrs Wintzloff's evidence on this point. It would not be right for this Court to reach a conclusion adverse to Mr Cardwell on the matter. Mrs Marilyn Wintzloff's allegation was not inherently probable. On the trial judge's findings she was a witness of no credibility at all except where she made admissions. The passages of cross-examination to which she was exposed on this issue both by counsel for the appellant and by counsel for the administrators were among the most damaging of the many damaging passages of cross-examination to which she was subjected. Counsel for Mrs Wintzloff did not put to Mr Cardwell that he had made the suggestion to her. An evaluation of Mr Cardwell's position must thus proceed on the basis that Mrs Marilyn Wintzloff's allegation that he suggested she make the false claim is not correct. 224 However, even if that allegation is left out of account, the history just set out reveals:

[94]

The last three lines summarised many of Mrs Wintzloff's complaints. 225 Contrary to the administrators' submissions, on 27 November 1998 Mr Cardwell knew that proceedings had been launched by the directors against Messrs Alan and Bruce Cadwallader relating to the 1979 transaction, knew that there were numerous complaints which the directors made against Messrs Alan and Bruce Cadwallader concerning events going back over many years, knew that Messrs Alan and Bruce Cadwallader as holders of a majority of the shares in Bajco Pty Ltd had requisitioned the meeting of which the only business was the removal of the directors, knew that if Messrs Alan and Bruce Cadwallader voted together the directors would be removed, and believed the removal would occur at the meeting on 11 December 1997. At the 27 November 1997 meeting, before the resolutions were passed, Mr Cardwell advised both directors that once the company was placed into administration he would contact the shareholders of Bajco Pty Ltd to tell them that the 11 December 1997 meeting would not go ahead. He said at the end of his meeting with Mr David Cadwallader "we need to do things as soon as possible" and "we can only run with what we've got", meaning, as the trial judge found, not "we must commence administration quickly because Bajco Pty Ltd is insolvent", but "administrators must be appointed quickly to stop the 11 December 1997 meeting from being held." From this point of view the trial judge's rejection of Mr Cardwell's evidence that he was told at the meeting by Mr David Cadwallader of Mr Bruce Cadwallader's change of mind removes a significant barrier to a conclusion that he at least ought to have been aware of the directors' improper purpose. 226 There are other relevant findings by the trial judge adverse to the proposition that Mr Cardwell lacked awareness of the directors' improper purpose: "Mr Cardwell communicated his view about the proposed meeting in a telephone conversation that he had with Alan's solicitor on 10 December 1997. Mr Cardwell began the conversation by saying that his call was 'off the record', but it is clear that Alan's solicitor did not accept that condition of the call, whatever 'off the record' might mean in this context. Mr Cardwell proceeded to say that he had been appointed administrator by the directors of Bajco and that the purpose of his call was to say that the shareholders' meeting was not proceeding. According to a letter by Alan's solicitor to Mr Cardwell on 10 December 1997, Mr Cardwell said in the telephone conversation that he was not aware that the proceeding instituted by Bajco was currently before the Court and had been adjourned until after the shareholders' meeting, that he had not seen the agenda for the shareholders' meeting, that he was not aware of the purpose of the meeting, and that he had not seen the letter from Alan's solicitor to McCabes dated 25 November 1997, to which no response had been received. It seems to me likely that Mr Cardwell said all of these things to the solicitor. I find the claims made in these statements about his state of mind to be implausible, except for the last one." 227 There is ample material in the findings of the trial judge and in the history of events from March 1997 to December 1997 to justify a conclusion that Mr Cardwell may well have been aware and certainly ought to have been aware what the directors' improper purpose was, even if he did not appreciate that Bajco Pty Ltd was in fact solvent. He was not explicitly asked general questions of a rolled-up kind often asked with a view to literal compliance with the rule in Browne v Dunn (1893) 6 R 67, which almost always receive indignant denials. The administrators submitted that this stood in the way of a finding of awareness of the directors' improper purpose. But he was asked detailed questions about the specific factual matters described above. The administrators also submitted that since Mr Cardwell believed Bajco Pty Ltd to be insolvent but the directors did not, his entire mental state had to be viewed differently from theirs. The trial judge's findings about their view of the company's insolvency was central to his findings of improper purpose. Mr Cardwell was in a quite different position. However, that does not weaken the above evidence and findings which lay a basis for concluding at least that he ought to have been aware of the directors' purpose. 228 If it were necessary for this Court to make a finding of actual awareness, it would be possible to do so. However, just as the administrators' approach to the pleadings left the plaintiff unaware that the notice point was going to be a central issue, so too it no doubt left Mr Cardwell unaware. It is not necessary for the resolution of the case that findings of actual awareness be made. In those circumstances they should not be made.

[100]

Section 447A allows the Court to make such order as it thinks appropriate about how Part 5.3A is to operate in relation to a particular company, including that an administration should end because the company is solvent. I believe it would be appropriate for me, in the exercise of my discretion under that section, to order that, having regard to the solvency of the company and the directors' impropriety of purpose, the deed of company arrangement should come to an end. Section 447A does not permit an order to be made with retrospective effect (see the summary of the case law in Deputy Commissioner of Taxation v Portinex Pty Ltd (1999) 34 ACSR 371, 398-9). However, under s 445G (2) I am able to make an order, because of the doubt arising out of the impropriety of purpose as to whether the deed of company arrangement was validly entered into, declaring the deed of company arrangement to be void, in circumstances where the order does not affect the previous operation of the deed: s 445H. The general law remedy provided by an order setting aside a decision of directors vitiated by improper purpose, is a discretionary remedy. I believe it is appropriate for me to decline to make an order setting aside the resolution ab initio and thereby removing the jurisdictional pre-requisite for a valid administration, taking into account that the deed of company arrangement will come to an end now. Under s 435C (3) (b) the administration of a company comes to an end if the convening period ends without a meeting being convened in accordance with s 439A. I have found that this occurred in the present case. It is striking, however, that this section does not prescribe that the company is taken to be in voluntary liquidation in such an event (compare s 446A and Regulation 5.3A .07). It would be undesirable for the law to achieve, ex post facto, a result which might put in peril the validity of transactions involving third parties, as would occur in many cases if the Court were to make orders having the effect contemplated by s 435C (3) (b). The solution, in my view, is that I should make an order under s 447A with future effect in respect of the past failure to comply with s 439A (4) (c), an outcome specifically contemplated by the High Court in Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270. The order will be to the effect that the deed of company arrangement will be treated as having come to an end at the time of making the order.

[102]

The appellant's submissions 236 Counsel for Mr Alan Cadwallader attacked that reasoning and its outcome. 237 First, he said that the primary relief sought below was general law relief avoiding the resolutions of 27 and 28 November 1997 resolving to appoint an administrator, the deed of 28 November 1997 purportedly appointing the administrators, and the deed of company arrangement made on 12 January 1998. Relief under the Corporations Law was of a much lower order of preference. It appeared in the prayers for relief in the Further Amended Statement of Claim, but only after other prayers for relief on equitable grounds. The trial judge made it plain that the appellant wanted the general law relief as its primary position, and made his appreciation of that fact clear, when he said: "If Alan is successful in the present proceeding, there will be no valid deed of company arrangement and the affairs of Bajco will be returned to its directors, David and Marilyn. Therefore success by Alan in this proceeding will not resolve the family feud." 238 Secondly, counsel for the appellant submitted that the appropriate outcome was to move Bajco Pty Ltd back to the position it was in just before the directors carried out their misconduct on 27 November 1997, namely, a position in which they as directors ran the company, not the administrators, whether as administrators or as liquidators. 239 Thirdly, though there might be superficial attractions in the idea of the company being liquidated because it was just and equitable to do so in view of the conflicts between and among its directors and members, the trial judge's conclusions could not be defended on that basis. Apart from a voluntary winding up (Pt 5.5 of the Corporations Law), a company could only be wound up because of internal discord if there were conduct in the nature of oppression or it was otherwise just and equitable to do so: Corporations Law s 461(1)(d)-(g) and (k). Those provisions compelled particular types of factual inquiry, to be prosecuted after particular types of detailed pleading had been filed and other steps taken, including public advertisement: Supreme Court Rules Pt 80A r 10. In this case the administrators at trial had argued for liquidation on one ground, which they abandoned before the end of the trial, and they briefly submitted: "this is a company which clearly should be wound up on the just and equitable ground. The Deed of Company Arrangement achieves at least the objects of a winding up." However, no party had pleaded matters of fact which would justify the winding up of the company on the ground that it was just and equitable to do so. The trial judge's summary of issues did not identify any question of that kind. The trial judge's narration of the pre-November 1997 events was for that reason neutral and not inculpatory. No party had sought liquidation of the company on this ground at the trial. It was thus not possible to justify a winding up order which could not otherwise be justified by contending that if the appropriate procedures had been followed they would have revealed that the company ought to have been wound up on the just and equitable ground. It was said to be an essential principle of company law that if a company was solvent and trading satisfactorily, it should not be wound up unless there was a voluntary winding up or one of the other exceptional cases in s 461 based on or related to the just and equitable ground applied. 240 Fourthly, it was said that the trial judge had erred in taking into account the provisions of Pt 5.3A. Section 435A provided: "The object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a way that: (a) maximises the chances of the company, or as much as possible of its business, continuing in existence; or (b) if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from an immediate winding up of the company." 241 Part 5.3A was intended to provide for the affairs of insolvent companies, not companies like Bajco Pty Ltd which were in truth at all material times solvent. A similar conclusion flowed from the Explanatory Memorandum to the Corporate Law Reform Bill 1992, which introduced Pt 5.3A into the Corporations Law. Attention was also drawn to Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1, particularly at [50]-[51]. 242 Fifthly, it was said that the trial judge erred in deciding that in principle it would be undesirable to make orders setting aside the transactions which put Bajco Pty Ltd into administration, because those orders would have a retrospective operation. He referred to s 445H, which provided: "The termination or avoidance, in whole or in part, of a deed of company arrangement does not affect the previous operation of the deed."

[103]

But the appellant contended that there were other sections contemplating a retrospective operation. And even if Pt 5.3A embodied a policy against retroactive orders, there would be nothing retroactive in the general law orders sought in the sense that they would have no adverse impact on third party rights. The proceedings were commenced soon after the deed of company arrangement was executed on 12 January 1998, ie on 10 February 1998. The administrators cannot have acted in reliance on the validity of their appointment. Even if the administrators were third parties whose interests were relevant to the remedy selected, their position was outweighed by the solvency of the company. There was no evidence of any relevant injury to any other third parties. The company had an extremely simple and limited role in commercial life, receiving rent cheques from Cadwallader Engineering (NSW) Pty Ltd and drawing only a handful of cheques per annum. The proposed sale of the Concord West site had been restrained by Windeyer J on 10 February 1998, and so had the carrying out of the deed of company arrangement. There were very few ways in which the administration could have affected third parties, and it had not done so. 243 Sixthly, the appellant alleged that notice of the second creditors' meeting did not comply with the Corporations Law, and hence that the administration ended on 18 December 1997. The appellant then advanced a group of arguments based on the detail of various provisions in Pt 5.3A protesting about the trial judge's failure to make orders which would have taken the company out of administration and about the making of orders which put it into liquidation. It is not necessary to set out the detail of these contentions, since the appellant's primary position was that the preferable approach lay in applying the general law. 244 In short, if the trial judge's discretionary decision on remedies was a decision to which House v R (1936) 55 CLR 449 applied, on the appellant's submissions there were legal errors, there was a taking into account of irrelevant considerations (Pt 5.3A and the impact on third parties) and there was a failure to take into account relevant considerations (the solvency of the company).

[104]

The administrators' submissions 245 The administrators admitted that they did not have "as strong an interest" in resisting the appeal by opposing the appellant's arguments on relief as they did in furthering their cross-appeal relating to equitable defences, the conduct of Mr Cardwell, and other matters specifically related to the administrators. They said it did not matter to them, apart from costs questions, whether they were administrators, or liquidators, or held no office in the company. But they submitted that as liquidators they had a right and duty to assist the court in opposing the appellant's argument. It was suggested above that this may have been a questionable stance for the administrators to take. 246 The directors gave the position of the administrators brief support: they said only that because of Mr Alan Cadwallader's "unclean hands" he ought not to be granted any relief, and a way of not granting him relief would be to abstain from interfering with the trial judge's orders. That is a stance of questionable validity for a different reason: for if Mr Alan Cadwallader had unclean hands, contrary to the reasoning above, that would debar him from any relief and lead to the dismissal of the Further Amended Statement of Claim. That in turn would require the setting aside of the trial judge's orders. 247 The primary submission of the administrators was that the trial judge's judgment on relief was a discretionary judgment, only to be interfered with if the discretion contravened the principles laid out in House v R. They said there were two errors in the trial judge's reasoning. The first error was his conclusion that the deficiencies in the materials intended to accompany the notice summoning the second meeting of creditors were such as to make that meeting a nullity. The second error was that but for a contrary judicial order, the fact that the second meeting was a nullity meant that the administration came to an end. The discretion, it was said, had not miscarried because though the trial judge "has made two errors, … he has come back to the same point as if he had not made an error". The administrators said that the appellant could not point to anything that the trial judge should have taken into account but did not, or took into account but should not have. 248 It is convenient to deal with this particular submission immediately. If the principles in House v R apply to the type of discretion which is involved in the administration of equitable remedies, which may be assumed but need not be decided, they are principles not based solely on the importance of achieving a correct result, whether by accident or not. Those principles prevent excessive appellate interference with the discretionary decisions of primary judges by giving some immunity to the discretionary component of the decisions. But they seek to increase the prospects of a just outcome, and to ensure that primary judges behave in such a way as to give litigants confidence in the justice of the outcome, by ensuring that primary judges proceed in a factually and legally correct way. That is, primary judges must avoid errors of law and fact, must ensure that the relevant is considered and the irrelevant ignored, and must avoid outcomes so unreasonable that they must rest on factual error, legal error, inattention to the relevant or attention to the irrelevant. In that way appellate courts can ensure that primary judges have established the correct legal framework, avoided factual error and taken account of the correct factual materials before exercising their discretion, substantially inviolate from appellate review though that last stage may be. It is no answer to a decision which is allegedly flawed by an error of law that in fact there were two errors of law which cancelled each other out. If there are two errors of law, there are simply two reasons, not one, to set the result of the discretion aside and either re-exercise it or remit it. The existence of two errors creates twice as much reason to conclude that the discretion miscarried even if the result of the two errors is an available result which reasoning conforming to the principles in House v R might independently arrive at. The occurrence of two errors rather than one in a given case is likely to shake the confidence of litigants rather than restore it. Further, it is not correct to say, as the administrators did, that the appellant had failed to point to relevant matters that were ignored or irrelevant matters that were taken into account. Independently of the merits of the particular factors discussed, which are considered below, the appellant unquestionably endeavoured to structure his attack on the trial judge along the lines sanctioned by House v R. 249 It is convenient merely to note the reversal of positions which the appellant and the administrators adopted at this stage of the argument. The appellant, whose interest it was to detect error in the trial judge's reasoning, did not agree with the administrators that the two errors relied on by the administrators had been committed. They relied on other errors, which the administrators said were not errors at all. 250 The balance of the arguments which the administrators advanced in defence of the trial judge's orders so far as they placed the company into liquidation were merely that it was an appropriate outcome in view of the extent of family discord, and that if the appellant now wished to have the company taken out of liquidation because it was solvent he could apply for this to be done.

[105]

Conclusion on relief 251 In the circumstances of this case, once the appellant had established an entitlement on the part of Bajco Pty Ltd to set aside the transactions of 27 and 28 November 1997 under the general law, there was no material factor pointing against the grant of that relief, which was the primary relief sought. Part 5.3A, which deals with insolvent companies, rested on no contrary policy which was relevant to a solvent company. No innocent third party interests were affected. The administrators' continued interest in fees to be earned from being administrators and perhaps in due course liquidators is not a relevant interest. Neither administrators nor the directors pleaded this or any other third party interest as a bar to general law relief, and they made no attempt to prove any facts that might constitute such a bar. Even if the disputes between the human beings associated with the company have been unsatisfactory, no attempt to achieve liquidation on a just and equitable ground has been pursued in these proceedings by correct procedural, evidentiary or substantive means. Hence the administrators' submission that this "was still an appropriate case for [Bajco Pty Ltd] to go into liquidation", even though they conceded that, apart from the briefest passing reference, this was not a remedy they sought at trial, must be rejected. While in some cases the remedy of avoiding the offending transactions ab initio may be dangerous, and some other remedy should be employed, it was not inappropriate in the perhaps unusual circumstances of this case, where the plaintiff commenced the proceedings very soon after the conduct complained of had taken place, where no relevant third party interests intervened, and where the company was not engaged in significant business activity. It is also necessary to reject the administrators' submissions that the trial judge's orders should stand since if the appellant wanted to contend that the company was solvent he could apply to have the company taken out of liquidation. After much disputation the trial judge has found that the company was solvent and was likely to remain so. Where there is no suggestion that the company's position has changed since November 1997, it is wrong that the questions of solvency should be unnecessarily traversed in fresh proceedings, and it is more economical to give effect to the trial judge's answer to it now. 252 It is accordingly not necessary to decide questions to which much attention was devoted in argument, such as the following. Were adequate "details" of the draft deed of company arrangement sent out with the notice to creditors, or was s 439A(4)(c) breached in that respect? Did the report accompanying the notice contain information which was false or misleading within the meaning of s 445D(1)(a)(i)? Did non-compliance with s 439A(4) render the meeting a nullity and bring the administration to an end automatically, or merely leave an avenue for the court to make a s 445D order if the statutory criteria were satisfied? What was the true construction of s 445D(1)(a)(ii)? So far as these questions are questions of law, or questions turning on the application of the law to facts, they are important questions, and it is undesirable to decide them unless it is necessary for the resolution of a particular case to do so. It is not necessary to do so for the resolution of this case.

[109]

It follows that the prayers for relief with respect to indemnity, lien and remuneration in the amended cross-claim had been made out in respect of the period from 27 November to 19 December 1997, but not later." 254 In the second judgment, which was specifically directed to the costs of the litigation, he said: "Nevertheless, the second defendants have been substantially unsuccessful on some major areas of factual dispute. I note the following findings adverse to the second defendants' position: (i) Mr Cardwell was aware, or ought to have been aware, that the third defendants' dominant purpose in resolving in favour of voluntary administration was to stop the requisitioned meeting so that they could ensure the continuation of the company's 1997 proceeding, and therefore Mr Cardwell and the second defendants were on notice of the impropriety of the third defendants' purpose (paragraph 227); (ii) the second defendants failed to comply with s 439A (4) (c), an important provision under which they were required to supply creditors with a statement setting out details of the proposed deed of company arrangement, and their failure to do so was misleading (paragraphs 257-260); (iii) the second defendants' report to creditors was seriously and materially deficient with respect to the prospects of a substantial distribution to creditors, the use of substantial funds for the purposes of litigation, failure to indicate when the deed administration would be terminated, and failure adequately to consider the question of solvency (paragraphs 262-264). Counsel for the second defendants seeks to minimise the significance of my findings in paragraphs (ii) and (iii) by submitting that there was a finding of bad faith on the part of the third defendants which pre-dated the report, and consequently the plaintiff's success on these two matters had no effect on the outcome of the case. In my opinion, however, my findings with respect to the inadequacies of the administrators' report were important components of the remedial conclusions to which I was led, and they are important factors in my consideration of the question of costs. Counsel for the second defendants also emphasises that I made no finding of misconduct on the part of the second defendants, whom I have held to be appropriate to continue as liquidators of the company. It is true that there were no findings of misconduct by the second defendants, but there was a finding that they had notice of the third defendants' improper purpose at an early stage, prior to preparing and distributing their report, as well as findings about the inadequacy of their report and unfavourable findings about Mr Cardwell's evidence. My findings with respect to Mr Cardwell are relevant to my conclusion as to costs. The day-to-day conduct of the administration of the company on behalf of the second defendants was undertaken by Mr Cardwell. I found that Mr Cardwell's evidence was unsatisfactory in various ways. Thus, I rejected the evidence of Mr Cardwell that Bruce Cadwallader had told him that he had changed his mind as to voting for the removal of the directors (paragraphs 204-205). I found, contrary to his evidence, that Mr Cardwell did not believe that Bruce Cadwallader would change his vote (paragraph 209). I found that, although Mr Cardwell was not implicated in the bad faith of the third defendants, who had adopted a resolution about the solvency of the company that they knew to be false (paragraph 189), his advice to them about the solvency of the company (paragraph 89) was wrong (paragraph 181). His advice that the appointment of voluntary administrators would mean that the requisitioned meeting would not be held (paragraph 91) was also wrong (paragraph 107). Counsel for the second defendants submits that although the Court found that Mr Cardwell's advice on this point was wrong in principle, in fact the meeting was held but there was no quorum, and so the incorrect opinion ultimately had no effect. In my view the principal significance of Mr Cardwell's incorrect advice is that it provided part of the basis for the third defendants' decision, improperly motivated, to appoint voluntary administrators. I have found that Mr Cardwell knew, or ought to have known, of their improper purpose.

[113]

Counsel for the plaintiff submits that my finding, that the second defendants' were on notice of the third defendants' improper purpose, ought to have led to the second defendants immediately calling a halt to the administration. He contends that to continue with the administration when they were on notice of the improper purpose, and to deny the existence of the improper purpose and notice up to the conclusion of the hearing, amounted to impropriety on the part of the second defendants. He says that to put forward a report to creditors which was seriously deficient was to compound the unsatisfactory conduct. His contention is that the Court's refusal to grant an indemnity and lien to the second defendants for remuneration and expenses beyond 19 December 1997 should be coupled with refusal to recognise an equitable right to indemnity or an equitable lien over the company's assets for their own costs as well as the costs of any party whose costs they are ordered to pay. I agree with the plaintiff that the second defendants ought not to have continued with the administration, and ought to have taken appropriate steps to cease to be voluntary administrators of the company, once they had notice of the third defendants' improper purpose. That point was reached, at the very latest, on 19 December 1997 when they distributed their defective report. The present proceeding did not begin until February 1998. To a significant degree, the commencement of this proceeding was a consequence of the conduct of the second defendants, who have endeavoured unsuccessfully to defend their earlier conduct as administrators on a factual basis that I have substantially rejected (compare City & Suburban Pty Ltd v Smith (unreported, Federal Court of Australia, Merkel J, 31 July 1998, considered in Cresvale (No 2) especially at paragraph [90]). In my opinion, the second defendants' conduct has excluded them from asserting any equitable right to an indemnity and lien against the first defendants with respect to any part of the plaintiff's costs payable by them pursuant to my orders, and with respect to their own costs and disbursements, except to the extent that any preparatory costs may have been incurred up to 19 December 1997 (provided that they are properly recoverable as costs of the present proceeding)."

[115]

Conclusion 256 In order to decide this issue of fees and expenses, it is not necessary to decide whether the trial judge erred in relation to the documents accompanying the notice of the second creditors' meeting. If his reasoning on that subject is put on one side, the question is whether the balance of his reasoning supports his orders. There is something to be said for the view that the trial judge was unduly generous to the administrators in relation to their fees and expenses and the lien and indemnity which the trial judge granted them. That view would rest on the trial judge's findings that Mr Cardwell ought to have known of the directors' improper purposes in putting the company into liquidation. But since the appellant did not urge that view, its merits need not be considered. 257 Nothing whatever in the trial judge's reasoning suggests that he arrived at the orders relating to fees and expenses with a punitive motive. The fact is that the administrators did not proceed satisfactorily after 18 December 2001. It was conceded that notice of the second creditors' meeting was issued one day late, and had to be saved by a s 1322 order. The trial judge concluded that inadequate details of the deed of company arrangement had been supplied with the notice of meeting and in that he appears to have been right even if the administrators' criticisms of some of his conclusions from that finding had arguable force. The trial judge made numerous findings adverse to the employee of the administrators, Mr Cardwell, who had the carriage not only of the administration but also of the activities of Deloittes in the period leading up to the administration. His evidence about Mr David Cadwallader telling him of Mr Bruce Cadwallader's change of mind was rejected. He gave the directors of Bajco Pty Ltd erroneous advice about the insolvency of the company, a matter which he could have overcome by pressing the directors for more details of their "debts" and of the company's affairs generally. Whether or not he had time to do that before 28 November, he certainly had ample time by 19 December. He gave erroneous advice about whether the appointment of administrators prevented the holding of the requisitioned meeting. If he had performed his duties properly, he would have appreciated the directors' improper purpose and he would not have advised them that the administration would have prevented the requisitioned meeting. In either event the administration may have been prevented. 258 In all the circumstances the administrators have not pointed to any error in the trial judge's reasoning which led him to the orders he made in relation to fees and expenses.

[116]

Costs 259 The trial judge made the following costs orders: "1. The Second and Third Defendants to pay the Plaintiff's costs of the proceedings except, in the case of the Second Defendants, costs relating to the evidence of Mr Watson and, in the case of the Third Defendants, costs relating to the evidence of Mr Watson and Mr Love. 2. The Third Defendants to pay the Second Defendant's costs of the proceedings, including costs of the Plaintiff ordered to be paid by the Second Defendants but excluding costs relating to the evidence of Mr Watson and Mr Love. 3. The First Defendant to pay costs of the Second Defendants (Cross Claimants) of the First Cross Claim. 4. The Third Defendants (Cross Claimants on the Second Cross Claim) to pay the costs of the Cross Defendants of the Second Cross Claim. 5. The Second Defendants (Cross Claimants on the Third Cross Claim) to pay the costs of the Third Defendants (Cross Defendants) of the Third Cross Claim. 6. Subject to order (3) and except for costs incurred up to 19 December 1997, costs payable by the Second Defendants in any capacity under these orders, and the costs incurred by the Second Defendants in these proceedings (including all Cross Claims) are not recoverable from the assets or funds of the First Defendant on any basis." 260 The administrators submitted that these costs orders were motivated by an impermissible desire to punish them. They pointed out that the appellant had failed in getting the affairs of the company returned to the pre 27 November 1997 position, and this was signified by his status as appellant. He had failed to obtain any monetary relief. He had failed in what were described as "all the technical grounds relied upon" except those to do with the materials accompanying the notice for the second creditors' meeting. Even that had no effect on the outcome because the bad faith of the directors was the central issue in the case and it preceded the Report in time. The trial judge ordered the injunction obtained by the appellant from Windeyer J to be dissolved. There had been no findings of misconduct against the administrators, and they had been found fit to be liquidators. Finally, three submissions were advanced in conclusion. The first was "the Company is in liquidation which is precisely the outcome prayed in the Amended Cross-Claim". The second was that the "Administrators succeeded substantially" because "their lien (albeit only for a limited period) was upheld". The third was that they "succeeded substantially" because "they are Liquidators". 261 In short, the administrators submitted that even if all their substantive submissions failed, the trial judge's costs orders were wrong; and to the extent that their substantive submissions succeeded, that success was further justification for different and more favourable costs orders. 262 The primary answer to the administrators' arguments is that even if the appellant had only limited success at the trial, he did have very substantial success in establishing that the appointment of the administrators arose because of the directors' improper purpose and failure to act in good faith, of which Mr Cardwell ought to have known. The appellant also enjoyed success in the form of the numerous factual findings adverse to Mr Cardwell which were set out above. The findings of the trial judge in relation to the materials sent out with the notice of the second creditors' meeting, assuming them to be correct, were scarcely of a "technical" character. And even if those findings were not correct, the other findings of the trial judge sustain the costs orders. Further, there is nothing punitive in the costs orders. 263 It is convenient to turn to the three specific concluding complaints, which are of a remarkable character. 264 First, it is true but misleading to say that "liquidation" is "precisely the outcome prayed in the Amended Cross-Claim". It was prayed as part of an argument based on s 446A described in [33] above, but that claim for relief was abandoned during the trial, as the trial judge noted. 265 Secondly, to refer to the degree of success achieved by the administrators in obtaining a lien as "substantial" is to ignore the very critical observations of the trial judge set out above. 266 Thirdly, for the administrators to claim "substantial success" on the ground that they have become liquidators is to misconceive the nature of both offices. Counsel for the administrators in the course of oral argument more than once professed an indifference on the part of his clients for whether they were administrators, liquidators or not office-holders in the company at all, and also offered argument to the court of a supposedly non-adversarial kind in order to assist it. That stand is contradicted by the third of the administrators' concluding arguments on costs. 267 The administrators have not demonstrated any error by the trial judge in the task of arriving at just costs orders in this case, difficult as that case was.

[118]

Orders 269 The appellant is entitled to orders of the type set out in paragraphs 1-6 of the orders proposed below. The orders relating to the avoiding of the transactions of 27 and 28 November 1997 flow from the directors' improper purpose or failure to act in good faith. The orders relating to the avoiding of the Deed of Company Arrangement of 12 January 1998 follow from the voidability of the transactions of 27 and 28 November 1997: the Deed was consequential upon and equally tainted by the directors' improper purpose and lack of good faith. If the acts leading to the administration are voidable, acts done during the administration, such as the Deed of Company Arrangement, are equally voidable. Those orders do not follow precisely either the orders in the First Amended Statement of Claim or the orders in the Notice of Appeal, and to some extent their form is difficult to formulate in view of the lack of precision in the resolutions and other activities of the directors on 27 and 28 November 1997. It is proposed to grant liberty to apply to any party who desires to argue that the orders do not conform on formal grounds to the reasoning set out above. 270 The orders dismissing the cross-appeals flow from the reasoning set out above. 271 Since the main issue in the appeal was between the appellant and the administrators, they should pay the appellant's costs. In view of the support, brief though it was, which the directors gave to the position of the administrators, there should be no costs order in favour of the directors in relation to the appeal. 272 The main issue in the first cross-appeal was between the administrators and the appellant, but the directors are entitled to costs occasioned by the administrators having joined them. Similarly the main issue on the second cross-appeal was between the directors and the appellant, but the administrators are entitled to costs occasioned by the directors having joined them. 273 It is desirable that there be an order for the costs of the appeal corresponding to order 6 made by the trial judge for the costs of the trial. Though his reasons for that order were correct, that type of order is appropriate in relation to the appeal for different reasons. The administrators brought their cross-appeal and opposed the appeal in order to defend their interests. Had they desired not to defend their interests, but been content to accept the reasoning and orders of the trial judge, they could have filed a submitting appearance and, by not participating actively in the hearing of the appeal and of the third defendants' cross-appeal, reduced their costs exposure to the minimum, as the first defendant, which was under their control, did. Since they have adopted a different course, their personal exposure to conventional costs orders, and their inability to recover solicitor-own client costs from the assets of the first defendant, should be recognised in the orders (see proposed order 11). It would not be right to permit the second defendants to have played the role they did in this appeal entirely harmless as to the risk of costs payments - protected by a costs order against the appellant if they succeeded, and protected by recourse to the company's assets if they failed. The first outcome, in itself a just one, would have caused one shareholder to be the funder of the administrators/liquidators; the second would cause all shareholders to play that role. The latter role is more justly played by the administrators/liquidators personally. 274 The following orders and declarations are proposed. The court:

Parties

Applicant/Plaintiff:

Cadwallader

Respondent/Defendant:

Bajco Pty Ltd & Ors

Legislation Cited (3)

Corporations Law Trade Practices Act 1974(Cth)

Trade Practices Act 1974(Cth)

Crimes Act 1900(NSW)

Cases Cited (28)

CITATION : Cadwallader v Bajco Pty Ltd & Ors [2002] NSWCA 328 revised - 14/10/2002 FILE NUMBER(S) : CA 40190/02 HEARING DATE(S) : 28, 29 August 2002 JUDGMENT DATE : 26 September 2002

Mr J B Whittle SC/Mr J T Svehla (Appellant) COUNSEL : Mr D J Hammerschlag SC/Mr C R C Newlinds (Second Respondents) Mr J W J Stevenson (Third Respondent) A R Conolly & Company (Appellant) SOLICITORS : Tress Cocks & Maddox (First and Second Respondents) Watson & Watson (Third Respondent) CATCHWORDS : Corporations - directors' duties - breach - company placed in administration - whether directors' purpose in so doing improper - propriety of directors' resolution to pay themselves increased fees - Corporations - administration - meetings - notice - whether valid - Corporations - administrators - whether administrators knew of directors' improper purpose in seeking to place company in administration - accessorial liability - relevance - Remedies - general law and statutory remedies - setting aside of company resolutions - whether appropriate in circumstances - whether company should be taken to have entered voluntary administration - Corporations Law s 447A - Evidence - drawing of inferences - rule in Jones v Dunkel - application - requirements - Equity - waiver - Equity - discretionary defences - unclean hands - D LEGISLATION CITED : Corporations Law Trade Practices Act 1974 (Cth) Abalos v Australian Postal Commission (1990) 171 CLR 167 Barnes v Addy (1874) LR 9 Ch App 444 Barclays Bank plc v Boulter [1997] 2 All ER 1002 Bradshaw v McEwans Pty Ltd (High Court of Australia unreported 1951) Browne v Dunn (1893) 6 R 67 Commonwealth v Verwayen (1990) 170 CLR 394 Cook v Cook (1986) 162 CLR 376 Consul Developments Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Coulton v Holcombe (1986) 162 CLR 1 Cousins v International Brick Co Ltd [1931] 2 Ch 90 Devries v Australian National Railways Commission (1993) 177 CLR 472 DPC Estates Pty Ltd v Grey and Consul Developments Pty Ltd [1974] 1 NSWLR 443 Giorgianni v R (1985) 156 CLR 473 Hambro v Burnand [1904] 2 KB 10 Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 Harrigan v Brown [1967] 1 NSWR 342 Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) ATPR 41-831 House v R (1936) 55 CLR 449 Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821 CASES CITED: Jenyns v Public Curator (Q) (1953) 90 CLR 113 Jones v Dunkel (1959) 101 CLR 298 Kettles and Gas Appliances Ltd v Anthony Hordern & Sons Ltd (1934) 35 SR (NSW) 108 Luxton v Vines (1952) 85 CLR 352 Mason v Clarke [1954] 1 QB 460 Minister v Immigration, Local Government and Ethnic Affairs v Hamsher (1992) 35 FCR 359 Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 Payne v Parker [1976] 1 NSWLR 191 Richard Brady Franks Pty Ltd v Price (1937) 58 CLR 112 Rosenberg v Percival (2001) 205 CLR 434 Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Shum Yip Properties Development Pty Ltd v Chatswood Investment and Development Co Pty Ltd (2002) 40 ACSR 619 Smith v Samuels (1976) 12 SASR 573 State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (In Liq) (1999) 160 ALR 588 Steele v Mirror Newspapers Ltd [1974] 2 NSWLR 348 Tame v New South Wales; Annets v Australian Stations Pty Ltd [2002] HCA 35 Twinsectra Ltd v Yardley [2002] 2 AC 164 Yorke v Lucas (1985) 158 CLR 661 Wentworth v Lloyd (1864) 33 LJ (Eq) NS 688 DECISION : See paragraph 274

(1990) 171 CLR 167

(1990) 170 CLR 394

(1986) 162 CLR 376

(1975) 132 CLR 373

(1986) 162 CLR 1

(1993) 177 CLR 472

(1985) 156 CLR 473

(1968) 121 CLR 483

(1936) 55 CLR 449

(1953) 90 CLR 113

(1959) 101 CLR 298

(1952) 85 CLR 352

(1992) 35 FCR 359

(1998) 195 CLR 1

(1937) 58 CLR 112

(2001) 205 CLR 434

(1974) 131 CLR 634

(1976) 12 SASR 573

(1999) 160 ALR 588

(1985) 158 CLR 661

(2001) 51 NSWLR 572

(1977) 51 ALJR 503

(1941) 65 CLR 603

(1987) 162 CLR 285

(2000) 200 CLR 270

[2002] HCA 35