Capital Investments Corporation Pty Ltd v Classic Trading Pty Ltd

BETWEEN: ALAN FRANCIS CHEERS (and others according to the schedule attached hereto)

AND: EL DAVO PTY LTD (IN LIQUIDATION) (Formerly known as ENTERCORP FINANCE PTY LTD) (ACN 060 214 502) (and others according to the schedule attached hereto)

AND BETWEEN: CAPITAL INVESTMENTS CORPORATION PTY LTD

AND: ALAN FRANCIS CHEERS (and others according to the schedule attached hereto)

AND BETWEEN: CAPITAL INVESTMENTS CORPORATION PTY LTD

The principal proceeding 1 In March 1997 seventy-six applicants who were, in the main, airline pilots commenced this proceeding. It originally bore the title Cheers v Entercorp Finance Pty Ltd (later Cheers v El Davo Pty Ltd (In Liquidation)). There were seventeen respondents though that number soon grew to twenty-one. 2 The twenty-one respondents comprised: (a) Entercorp Finance Pty Ltd ("Entercorp") (now known as El Davo Pty Ltd (In Liquidation)), formerly a member of the Boyle group of companies - the first respondent; (b) Capital Investments Corporation Pty Ltd ("CIC") and its controller, Mr Kerrod Grant Park - the tenth and sixteenth respondents respectively; and (c) Peter Lindsay Boyle, Louis Weingarten, and various persons and companies associated with Boyle (collectively referred to as "the Boyle respondents") - the remaining eighteen respondents. 3 Cross-claims were later brought by CIC, the tenth respondent, against the seventy-six applicants (who thus became cross respondents) and also against Entercorp, Mr Boyle and Mr Weingarten, who were the first, thirteenth and fifteenth respondents respectively. That made a total of seventy-nine cross respondents. 4 The claims made by the applicants were contained in an amended statement of claim filed on 2 October 1997. In that amended statement of claim, the applicants sought to set aside various loan agreements entered into by each of them with Entercorp ("the David Copperfield loan agreements") on the following grounds - · At no time did Entercorp provide any loan funds under the loan agreements for or on behalf of the applicants; · Misrepresentations were made by Sentinel Financial Management Pty Ltd ("Sentinel") (acting as agent of Entercorp and the Boyle respondents) to the applicants which were relied on by them and which induced them to enter into the loan agreements; · There was non-disclosure to the applicants by Sentinel (acting as agent of Entercorp and the Boyle respondents) of certain matters prior to their having entered into the loan agreements; and · The loan agreements formed part of an investment scheme that contravened the prescribed interest provisions of the Corporations Law with the result that those loan agreements were void and unenforceable. 5 Each of the misrepresentations and non-disclosures were said by the applicants to constitute misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). Hence, a federal matter arose in the proceeding. 6 The applicants also contended that in or about February 1996 Entercorp entered into an agreement with CIC (which was incorporated on 22 February 1996 for the sole purpose of acquiring the Entercorp loan books) whereby CIC agreed that it would invest funds in the David Copperfield tour ("the Copperfield tour") and, in so doing, would procure an assignment of the applicants' loan agreements from Entercorp. That assignment was said to have been effected on 1 March 1996. The applicants claimed that the assignment of the loan agreements by Entercorp to CIC was invalid, and that CIC therefore had no right to enforce those loan agreements against them. The relief sought by the applicants in their amended application included a declaration that CIC was not entitled to make any demand against them, pursuant to the loan agreements, for repayment of loan funds or interest instalments. 7 On 24 September 1998 CIC filed an amended defence and further amended cross-claim in response to the applicants' application. The further amended cross-claim was brought against the applicants, Entercorp, and some, but not all, of the Boyle respondents. In that further amended cross-claim, CIC sought to enforce the loan agreements against each of the applicants. It sought judgment against each applicant for the amount outstanding under the loan agreement entered into by that applicant with Entercorp.

CIC's further amended cross-claim against the eightieth to eighty-third cross-respondents 8 On 13 May 1999 CIC filed a cross-claim against the eightieth, eighty-first and eighty-second cross-respondents. The eightieth cross-respondent, Classic Trading Pty Ltd ("Classic Trading"), is a company carrying on business as a provider of finance. The eighty-first cross-respondent, Mr Elliott Davis, was at all relevant times a director of Classic Trading, and is said to have been in effective control of that company. The eighty-second cross-respondent, Mr Frank Crombie, is said to have been, at all relevant times prior to 21 June 1996, a director of, and consultant to, CIC. He was responsible for the assignment to CIC of the loan agreements, and for monitoring the performance of those agreements. 9 CIC was given leave to file its original cross-claim against Mr Crombie, Mr Davis and Classic Trading on 13 May 1999 only because there was evidence that their alleged involvement in the breaches by the applicants of their contractual obligations to CIC had not become apparent until after discovery had been given in the principal proceeding. It seemed desirable that CIC's claims against these cross respondents be dealt with at the same time, and in the same proceeding, as its claims against the applicants and the Boyle cross-respondents. 10 The cross-claim originally filed against the eightieth, eighty-first and eighty-second cross-respondents pleaded that they had induced the applicants to breach their contractual obligations to CIC. In the case of Mr Crombie, the cross-claim pleaded that he had breached his duties to CIC under ss 232(2), (5) and (6) of the Corporations Law, and also that he had breached his fiduciary duty to the company. Classic Trading and Mr Davis were said to have aided and abetted and to have been knowingly concerned in those various breaches of duty. 11 On 23 July 1999 CIC was granted leave to file an amended cross-claim against the eightieth, eighty-first and eighty-second cross-respondents, adding to the causes of action pleaded various allegations of contraventions of s 52 of the Trade Practices Act, and also of s 11 of the Fair Trading Act 1985 (Vic). The claims under the Trade Practices Act appear to have been added as a form of "insurance" given that in Re Wakim; Ex parte McNally (1999) 198 CLR 511 the High Court had determined that an alleged contravention of the Corporations Law could no longer be regarded as falling within the jurisdiction of this Court by virtue of cross-vesting, and had to be brought within its accrued jurisdiction. 12 On 13 September 1999 CIC was granted leave to file yet another further amended cross-claim, and to add to the cross respondents the eighty-third cross-respondent, National Finance Group Pty Ltd ("NFG"), another company controlled by Mr Davis. The tort of inducement of breach of contract, the alleged contraventions of ss 232(2), (5) and (6) of the Corporations Law, and the alleged breach of fiduciary duty, were again pleaded. The claims under the Trade Practices Act and the Fair Trading Act were, however, abandoned. 13 CIC contended as against the eightieth to eighty-third cross respondents in the September 1999 cross-claim that in about May or June 1996 those parties encouraged the applicants (either directly or indirectly through Sentinel): · to terminate the David Copperfield loan agreements; · to purport to assign the burden of those loan agreements to Hemisphere Finance (NZ) Ltd ("Hemisphere"); and · to enter into "switched" investments by taking out equivalent loans with Hemisphere. 14 This conduct on the part of the eightieth to eighty-third cross respondents was said to have given rise to liability for damages for the tort of inducing breach of contract. 15 The remaining causes of action pleaded in the September 1999 cross-claim, namely breach of director's duties, and breach of fiduciary duty, were said to arise from Mr Crombie having, in or about June 1996, induced the applicants to breach the David Copperfield loan agreements. It was also contended that Mr Crombie, at about that time, removed from CIC and turned over to the eightieth, eighty-first and eighty-third cross-respondents (hereafter referred to as "the Davis parties"), certain documents relating to due diligence enquiries. Those enquiries had been conducted by the firm Cornwall Stodart on behalf of CIC. It was further contended that he turned over to the Davis parties documents relating to CIC's monitoring and management of the David Copperfield loans. This conduct on the part of Mr Crombie is said to have been preparatory to the inducement by the Davis parties of the breach of the loan agreements, and the breaches by Mr Crombie of his director's duties, and of his fiduciary duty to CIC. 16 The due diligence documents which Mr Crombie was said to have turned over to the Davis parties noted that there was a problem with a particular clause of the loan agreements. CIC alleged that the Davis parties subsequently encouraged the applicants to assign the David Copperfield loans, exploiting a legal advice given by Cornwall Stodart to CIC, but to CIC's detriment. CIC contended that Mr Crombie's actions in turning over to the Davis parties the due diligence documents should be viewed as an integral part of the conduct of the Davis parties in inducing the applicants to breach their contracts with CIC. 17 The relief sought by CIC against Mr Crombie and the Davis parties at that point included: · damages for loss of the benefit of the David Copperfield loan agreements; and/or · an account of the profits made by those cross respondents as a result of the switched investments.

Settlement of the principal proceeding and the claims remaining 18 The trial of the principal proceeding commenced on 15 February 2000. The applicants opened their case and various witnesses were called on their behalf. The hearing of the matter continued until 24 February 2000, when I was informed that the parties were having discussions with a view to settling various aspects of the proceeding. On 14 March 2000 I was informed that all claims had been settled as between the applicants and the Boyle respondents. I made final orders by consent to give effect to the settlement shortly thereafter. It was foreshadowed, at that stage, that having regard to the fact that the only claims still on foot were those brought by CIC against Mr Crombie and the Davis parties it might be appropriate, at some stage, to amend the title to this proceeding to reflect that fact. On 6 September 2000, I made orders to that effect. The title to this proceeding reflects those orders. 19 Following the settlement of the principal proceeding CIC sought and was granted leave, on 16 March 2000, to file a third further amended cross-claim. The circumstances surrounding the grant of leave to file a further amended cross-claim at such a late stage are set out in Cheers v El Davo Pty Ltd (In Liquidation) [2000] FCA 310. The substance of those amendments can be summarised as follows: · In relation to the allegation that Mr Crombie had acted in breach of his fiduciary duty to CIC, pars 31A to 31E of the cross-claim were added. Those paragraphs were, in substance, particulars of the alleged breach of fiduciary duty which Mr Crombie was said to have owed CIC. · Breaches of the Trade Practices Act were once again pleaded. CIC alleged that NFG engaged in misleading or deceptive conduct in breach of s 52 of the Act and sought to fix NFG with responsibility for Mr Crombie's conduct as set out in the new par 31D, by invoking s 84(2)(b) of the Act. This was done by amending pars 36 to 43 of the cross-claim. · Additionally, CIC alleged that Mr Davis was accessorially liable for NFG's breaches of s 52 of the Trade Practices Act as set out above by invoking s 75B of the Act. This was done by amending par 44 of the cross-claim. · CIC alleged that Mr Crombie had engaged in misleading or deceptive conduct arising out of the matters set out in the proposed new par 31D of the cross-claim, in breach of s 11 of the Fair Trading Act 1985 (Vic). 20 At this stage, the cross-claim pleaded a number of distinct causes of action against Mr Crombie and the Davis parties. These can be summarised as follows: · the tort of inducing breach of contract; · misleading or deceptive conduct in breach of s 52 of the Trade Practices Act on the part of Classic Trading and NFG, as set out at par 19 above; · various breaches of the Corporations Law and of the Fair Trading Act on the part of Mr Crombie; · various breaches of fiduciary duty on the part of Mr Crombie; and · various permutations of ancillary or derivative liability on the part of each of the Davis parties ("the Barnes v Addy claims"). 21 The third further amended cross-claim no longer sought to enforce the David Copperfield loan agreements, as the previous versions had done. 22 The case then continued in relation to the cross-claim by CIC against Mr Crombie and the Davis parties. With the consent of both sides, it was resolved that the issue of liability should be dealt with separately from any question of quantum. A number of witnesses, including Mr Park, Mr Crombie and Mr Davis, gave evidence. That evidence will be considered in detail later in these reasons for judgment. At the conclusion of the evidence given on the issue of liability, I indicated that the proceeding would be adjourned until September 2000, at which time I would hear the parties' final submissions in relation to liability. I also indicated that I would hear any evidence relevant to quantum at that stage. 23 On 27 July 2000 Mr Herskope, who appeared with Mr Evans, as counsel for Mr Crombie and the Davis parties, requested a mention of the matter. At that time I was informed by Mr Herskope that although his clients continued to deny liability, Mr Crombie, at least, was prepared, upon formal proof, to admit quantum, in the event that liability was established. I was also informed by Mr Herskope that he was no longer able to obtain instructions from Mr Davis who, it appeared, had left Australia and could no longer be contacted. 24 The substantive hearing of the matter resumed on 4 September 2000. On that day CIC filed its fourth further amended (and final) cross-claim. The important difference between the September 2000 cross-claim and previous versions was that CIC no longer alleged against Mr Crombie contraventions of the Corporations Law, and consequently it no longer alleged that NFG, Classic Trading and/or Mr Davis had aided and abetted those contraventions. The September 2000 cross-claim maintained the following allegations: · various breaches of fiduciary duty by Mr Crombie (pars 31 and 32); · knowing participation in the breach of fiduciary duty (the Barnes v Addy claims) by Classic Trading and/or Mr Davis and/or NFG (par 34); · misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act by Mr Crombie on behalf of NFG (par 41); · that Mr Davis aided and abetted, counselled or procured, or was knowingly concerned in or a party to the contraventions of s 52 by NFG (par 44); and · misleading or deceptive conduct in contravention of s 11 of the Fair Trading Act by Mr Crombie (par 45). 25 On that day there was some dispute as to the precise terms of the concession which Mr Herskope had made on 27 July 2000 regarding quantum. CIC sought to file witness statements of Mr Park and Mr Mac Healy, a former director of Sentinel, relating to the issue of quantum, and to call them to give evidence. Mr Herskope opposed the filing of these witness statements, despite the fact that he had previously indicated that he was prepared, upon formal proof, to admit quantum. I adjourned the proceedings until the following day to allow Mr Herskope time to prepare cross-examination of Mr Park and Mr Healy. 26 The following day several events occurred which significantly reduced the number of issues to be determined by the Court. Firstly, Mr Magee QC, who appeared with Mr Monichino and Mr Hay, as counsel for CIC, announced that his client no longer wished to proceed with the claims under the Trade Practices Act or under the Fair Trading Act. The only remaining claims, therefore, were the claims against Mr Crombie for breach of fiduciary duty, and the Barnes v Addy claims against the Davis parties. In other words, the case had become an equity case, pure and simple. 27 Mr Magee also announced that agreement had been reached with Mr Herskope that if CIC were to succeed in establishing liability against Mr Crombie and the Davis parties, it would be entitled to recover the entire amount claimed, that is $12,021,586.39. 28 Subsequently, in his closing submissions, Mr Magee clarified the agreement which had been reached with Mr Herskope regarding quantum. He said that it had been agreed that if CIC established a breach of fiduciary duty on the part of Mr Crombie, and ancillary liability on the part of the Davis parties, there would be no issue as to causation of loss or quantum of damages. There would be judgment against each of the eightieth to eighty-third cross respondents for the amount claimed. He said that it had also been agreed that the abandonment by CIC of its other claims against those cross respondents would have no bearing upon any order which might otherwise be made as to costs. 29 In order to avoid any uncertainty about the scope of the agreement reached between the parties, I indicated that it should be reduced to writing and filed with the Court. I also ordered that the September 2000 cross-claim and the various defences to that cross-claim be amended to reflect the terms of the agreement which had been reached. There is no record of either of these things having been done. However, the transcript makes it clear that after September 2000, neither causation nor quantum was any longer in issue in this proceeding.

The allegations of breach of fiduciary duty 30 The allegations made against Mr Crombie concerning breach of fiduciary duty are set out in pars 31C - 31E of the September 2000 cross-claim. Paragraph 32 alleges that by reason of the facts set out in pars 31D and 31E, Mr Crombie breached his fiduciary duty to CIC, and/or his duty owed to CIC to act in good faith and for proper purposes. 31 Paragraphs 31C - 31E are in the following terms: "31C. During the period between May‑June 1996, Crombie, whilst a director, employee and/or consultant of Capital, discovered the following facts and matters - (a) Sentinel intended to get their clients (the borrowers) out of the Copperfield investment; (b) Sentinel had met with Davis in early‑mid May 1996 and had discussed switching the Sentinel clients from the Copperfield investment into an alternative investment; (c) Bernard Marks had advised Sentinel that the Tax Office would probably refuse the Sentinel clients' claims for deductions given the way that the Copperfield transaction had been structured; (d) Sentinel considered that it was imperative to get their clients out of Copperfield; (e) Sentinel were desperate for a new investment product into which they could switch their clients; (f) Sentinel's clients were proposing to enter into the Asian book investment, which investment was promoted by Loftus; (g) Sentinel was proposing to put not only its clients who had invested in the Copperfield tour but also about another 100 of its clients into the Asian book investment; (h) Loftus needed someone to manage the loans to be associated with the Asian book investment; (i) Davis was proposing to establish National Finance as the loan manager of the loans to be associated with the Asian book investment; and/or Davis was proposing that Crombie become a director of National Finance. PARTICULARS Crombie discovered the above facts and matters from discussions with Davis and Healy in the period between May‑June 1996. 31D. Crombie deliberately refrained from disclosing the matters referred to in paragraphs 31C above and 31E below to Capital ("the conduct"). 31E. Further, during the period between May‑June 1996, Crombie ‑ (a) ‑ (c) [deleted] (d) suggested to Healy alternative investments in which Capital was not involved or interested; (e) agreed with Davis to become involved in the loan management of the loans associated with the alternative investments into which Sentinel's clients were to be switched; (f) agreed to become a director of a competitor of Capital, namely National Finance, which was intended to act as loan manager of the alternative loans associated with the alternative investments; (g) took preparatory steps to establish office accommodation and equipment (computers, software and office equipment) for a competing business whilst still a director, employee and/or consultant of Capital; (h) made arrangements, alternatively sought to make arrangements, with other Capital staff (namely Sonia Hall and Tony Shaw) to the effect that they would leave Capital and become employees of National Finance if and when Crombie's plans came to fruition; (i) made a preliminary agreement with Davis to set up a competing business to Capital which would result in Capital losing its major asset, being the interest receivables from Sentinel clients as disclosed in Capital's books of account; and/or (j) exploited a business opportunity, which came to his attention by virtue of his fiduciary position with Capital, for his own personal benefit when there was a conflict of interest between his fiduciary duty owed to Capital and his personal interest." 32 In his closing submissions, Mr Herskope acknowledged that it was clear, on the evidence, that between May and June 1996, Mr Crombie had discovered or learned each of the matters set out in par 31C of the September 2000 cross-claim. Mr Herskope had little choice in that regard because Mr Crombie's knowledge of these matters could be gleaned from his own witness statement filed at the commencement of these proceedings. Nor was it disputed by Mr Herskope that Mr Crombie had refrained from disclosing these matters to CIC, as pleaded in par 31D. What was disputed was that Mr Crombie had discovered or learned of these matters at a time when he still owed a duty to CIC to inform that company of them. This was on the basis that Mr Crombie claimed that he had already resigned as a director of CIC, on 15 or 16 May 1996, that Mr Park knew that he was leaving the company from that date, and that Mr Crombie did not discover or learn of any of these matters until after his resignation had taken effect. 33 The evidence concerning the date of Mr Crombie's resignation as a director of CIC, and the events which followed, is therefore critical to the resolution of the sole remaining issue before the Court. That evidence came largely from Mr Park and Mr Crombie. Before setting out their evidence regarding that issue, I propose to summarise briefly Mr Park's evidence concerning the background to CIC's involvement in the David Copperfield tour. That evidence was, in the main, non contentious.

the background to the copperfield tour 34 The Capital group of companies ("Capital") was established in 1991. Its core business was the provision of finance facilities to corporate and individual investors, and the management of loan portfolio receivables and structured investments. 35 Capital formed part of a competitive finance market which funded, amongst other things, collective investment schemes. These were schemes where a group of investors collectively invested in, for example, a film or theatre production for the perceived investment and/or tax advantages said to be associated with that particular scheme. It was part of the ordinary course of business of the group to provide funds to investors in these types of schemes. The financiers in this market included merchant banks, retail banks, and other lending institutions. 36 In about June 1995 Mr Boyle applied to Capital for finance for investors in the Copperfield tour, and other projects which he and other entities associated with him were marketing. He told Mr Park that he was the promoter of the tour and that it was being marketed by Sentinel. Mr Park said that Capital had never previously been involved in any transaction with Sentinel. He said that neither Capital, nor anyone on its behalf, spoke to Sentinel or to any of the applicants concerning the tour. 37 Mr Park said he had been asked by Mr Boyle for details regarding the terms upon which Capital would provide such finance. Mr Park summarised these terms as follows: · the borrowers would be required to sign loan agreements with Capital; · the loans would be for a fixed term; · the borrowers would pay interest to Capital; · a bank or Capital would provide a letter of credit or guarantee with the borrowers as beneficiaries thereby ensuring repayment of the principal sum to the borrowers at the expiration of the fixed term of the loan; · pursuant to the loan documentation, the letter of credit or guarantee would be mortgaged to Capital by the beneficiary; and · if a borrower defaulted under the loan agreement, Capital could require the borrower to repay the principal sum owing under that agreement, but otherwise, at the conclusion of the loan period, the borrower's obligation to repay principal under the loan agreement was set-off against the letter of credit or guarantee. 38 In about August 1995, Capital made available to Mr Boyle a number of finance kits to give to potential investors. At the same time Capital instructed its lawyers, Cornwall Stodart, to verify that the transaction documents underlying the tour were legally effective to achieve what was intended. Mr Park said that it had always been understood that whether or not the Copperfield tour was a sound investment, or whether it would achieve the anticipated taxation benefits, was a matter for the applicants to determine. Capital gave no advice and offered no opinion on these matters. 39 Mr Park said that between August and late October 1995, Capital continually pressed Mr Boyle regarding whether he intended to proceed with his finance application. Mr Boyle refused to commit himself. 40 In about October or November 1995 Mr Boyle told Mr Park in a telephone conversation that he no longer required any funding from Capital for the Copperfield tour. This was because Mr Boyle had procured funds from wealthy individuals within the Jewish community via his business partner, Mr Weingarten. Mr Park said that he was extremely annoyed because Capital had spent more than $100,000 preparing the finance kits and, as far as Mr Park was concerned, Mr Boyle owed that money to Capital. 41 In January 1996 Mr Boyle again approached Capital for funds which he said Entercorp required both for working capital, and to fund the Copperfield tour. Mr Park told Mr Boyle that, in his view, Capital was already owed more than $100,000 and he was not interested in lending Entercorp any more money. 42 At the same time, however, Mr Park indicated to Mr Boyle that Capital might be prepared to purchase some of the assets of the Boyle group. Mr Boyle offered a commercial property in South Yarra, and a recording studio in Richmond. These were of no interest to Mr Park. Mr Boyle also offered various Entercorp loan books, including the loan book for the Copperfield tour. Mr Park asked for details, including in particular, details of the borrowers and the applicable interest rates. 43 Negotiations concerning the purchase of the Entercorp loan books continued throughout January and February 1996. Mr Park said that he told Mr Boyle that Capital would be prepared to purchase the income stream on the loan books (estimated to be worth $6 million) for $3.75 million, but only if the transaction passed a due diligence carried out by Capital's advisers. 44 Mr Boyle told Mr Park that the loans the subject of the loan books were non-recourse. That meant that Entercorp (as lender) could not recover the principal sum from the borrowers at the end of the term. However, if there were a default under the loan agreements, the principal sum would become due and payable immediately. 45 Mr Park asked Mr Boyle how that principal sum was to be repaid at the end of the loan period. Mr Boyle replied that he had a mechanism in place to ensure repayment to Entercorp without recourse to the borrowers. He told Mr Park that this should not be of concern to Capital because it was simply buying the income stream from the loan books.

The period between February and May 1996 46 Mr Park arranged for a due diligence to be conducted to verify the quality of the income stream that Capital would be buying. He said that Mr Crombie was responsible for coordinating that due diligence. The three advisors engaged by Capital were: · Cornwall Stodart; · Lending Solutions Pty Ltd, a credit reference agency; and · Alexander & Spencer, Chartered Accountants. 47 Each advisor prepared a report in February 1996. These reports satisfied Capital, and Mr Park informed Mr Boyle of this in late February. 48 CIC was incorporated, as indicated earlier, for the specific purpose of purchasing the loan books. Mr Park and Mr Crombie were appointed directors. On 1 March 1996 CIC and Entercorp executed a Deed of Assignment. CIC required an absolute assignment of the loans for three reasons: · in order to call up the principal under the loans in the event of default in the payment of interest by the borrower; · to have the option of on-selling the loan books to the bank if it so desired; · to use the loan books as security to raise funds to pay for the loan books if necessary. 49 In order for Capital to be able to conduct the due diligence and also, as required by cl 2.2(a) of the Deed of Assignment, Entercorp had to provide to CIC all of the loan agreements made between Entercorp and the investors in the Copperfield tour, together with all files, documents and records relating to those loan agreements. Entercorp provided CIC with those documents. 50 After the Deed of Assignment was executed, CIC made a series of payments to Entercorp, or on its behalf. The details of these payments were: · on 4 March 1996 CIC paid to Retrak Pty Ltd ("Retrak"), a company of which Mr Boyle was a director, the sum of $725,000 by telegraphic transfer. · on the same day Entercorp allowed a credit to CIC in the sum of $275,000 in respect of an amount then owing by it to Capital. · also on the same day Entercorp allowed a further credit to CIC in the sum of $100,547 in respect of an amount then owing by it to CIC and/or Capital. · on 20 March 1996 CIC paid to Retrak the sum of $85,555.56. · on 22 March 1996 Mr Park paid to Retrak the sum of $100,000 in cash. · on the same day CIC arranged for the sum of $215,000 to be paid by Classic Trading (from whom it had borrowed funds in order to fund the acquisition of the loan books) to Retrak. · on 29 March 1996 CIC paid to Retrak the sum of $20,000. That sum was paid as part of a larger sum paid to Retrak on that date. · on 16 April 1996 CIC paid to Entercorp Holdings Pty Ltd the sum of $10,000. · on 18 April 1996 CIC paid to Entercorp the sum of $5,000. · on 23 April 1996 CIC paid to Retrak the sum of $60,000. · on 29 April 1996 CIC paid to Retrak the sum of $40,000. 51 It seems, therefore, that during March and April 1996 CIC either paid or allowed credit to Entercorp in the sum of about $1.63 million, pursuant to the Deed of Assignment. As a result of these payments, CIC acquired the income stream from the Copperfield loan book, including the benefit of each of the loan agreements entered into by the applicants with Entercorp relating to the Copperfield tour. 52 Mr Park said that all of the applicants were subsequently sent letters by CIC, or its solicitors, demanding payment of interest in accordance with the loan agreements. He produced a computer generated record containing details of the amounts advanced by Entercorp to each of the applicants in respect of the Copperfield tour, the amount of interest which had been paid in relation to the loans, the date on which each applicant had defaulted under his or her own particular loan agreement, and the amount of interest allegedly owed to CIC under that agreement.

Mr Crombie's role within Capital 53 Mr Park gave a detailed account of Mr Crombie's role within Capital. He said that he first met Mr Crombie in about June 1992 and that he had engaged him as his personal assistant in September 1993. Mr Crombie had been 22 years of age at the time. 54 Mr Park explained the corporate structure within the Capital group. In May 1994 Capital Finance Corporation Pty Ltd ("CFC") had been registered. That company was the loan manager for Capital. On 13 May 1994 CFC engaged Mr Crombie, via his service company Marcrom Holdings Pty Ltd ("Marcrom"), as a consultant to Capital. Mr Crombie was appointed a director of CFC on that date. 55 Mr Park said that he had appointed Mr Crombie as Capital's project manager for the due diligence prior to the execution of the Deed of Assignment on 1 March 1996. In that role, Mr Crombie had engaged each of the three advisors, Cornwall Stodart, Lending Solutions Pty Ltd and Alexander & Spencer to carry out their respective tasks in the due diligence. 56 As project manager for the due diligence it was Mr Crombie's responsibility to receive and deal with all correspondence concerning the purchase of the Entercorp loan books. That correspondence included, in particular, two letters from Cornwall Stodart dated 20 and 22 February 1996 which set out its findings as a result of the due diligence to be conducted by that firm. Accordingly to Mr Park, as part of Mr Crombie's overall supervision of the due diligence process, it was he who gave instructions to those conducting the due diligence, answered any queries that they had, met regularly with their representatives, and arranged for the handover of books and materials by Entercorp to the advisors as and when required. 57 Mr Park said he had played a limited role in overseeing the due diligence as he had every confidence in Mr Crombie and complete trust in him. His main concerns were its cost, accuracy and timing. He said that he authorised Mr Crombie to do everything which he regarded as being necessary in order for the due diligence to be properly carried out, and that he relied upon Mr Crombie to keep him informed of its progress. 58 Mr Park said that the reports provided to him regarding the due diligence were also made available, on a confidential basis, to persons who lent money to CIC for the purpose of funding its acquisition of the loan books. These lenders included Mr Davis, and his company Classic Trading. He said that each of the lenders was also provided with a copy of the Deed of Assignment. 59 Mr Crombie executed the Deed of Assignment for and on behalf of CIC, as one of its two directors. He also executed the Offers to Borrow and the various Australian Securities Commission ("ASC") forms necessary to put in place the security given over the loan books to Classic Trading. 60 From about March 1996, Mr Crombie was solely responsible (with the assistance of two other Capital employees, Mr Tony Shaw and Ms Sonia Hall) for overseeing and monitoring the performance of the loan books. According to Mr Park, Mr Crombie had control over the following Entercorp documents: · the Entercorp database which contained details of each borrower; · the Entercorp file set up for each borrower; and · the Entercorp St George Banking Partnership Limited records for the loan books. 61 Entercorp handed these documents to CIC in late February or early March 1996. They included documents relating to the Entercorp No 4 account into which the borrowers paid interest under the loan agreements. 62 Mr Park gave evidence of the history of his previous business dealings with Mr Davis throughout the period 1993 to 1996. He said that Mr Davis had acted as a lender on a number of Capital's projects. Putting to one side the money that Capital had borrowed from financial institutions, Mr Davis had been Capital's largest private provider of finance. He said that Mr Davis had been a valued provider of funds to Capital, and that he had trusted him. 63 Mr Park said that given Capital's good relationship with Mr Davis, whenever he requested, and time permitted, Capital allowed Mr Crombie to perform various administrative tasks on behalf of Mr Davis and his companies. These included spreadsheet work, writing letters to Mr Davis' clients, personally delivering documents to Mr Davis' home and other similar tasks. Mr Park said: "At no stage, however, did I ever authorise Mr Crombie to act in any way contrary to Capital's interests." 64 According to Mr Park, Mr Davis had suggested, some time in 1995, that Mr Crombie and Mr Park consent to act as directors of NFG, one of Mr Davis' companies. Mr Crombie and Mr Park had signed undated consents to do so. However, Mr Park had never been appointed a director of NFG, and had never acted as such. 65 Mr Park said that he had been unaware, until this proceeding, that Mr Crombie had been formally appointed a director of NFG on 4 October 1996. He said that he initially suspected, in the last quarter of 1996, that Mr Crombie may have had some involvement with that company, and that he had spoken by telephone to both Mr Crombie and Mr Davis seeking information about that matter. He said that he was unable to obtain that information. It was only as a result of the discovery process in this proceeding that he had learned that Mr Crombie had been signing letters on behalf of NFG, in which he described himself as a director of that company, as far back as 27 October 1994, and that he had continued to describe himself in that way throughout 1995.

Mr Crombie's departure from CIC 66 Mr Park said that although he could not recall precisely when, it was in about April or May 1996 that Mr Crombie had told him that his wife was experiencing difficulties with her pregnancy, and that he needed to take some time off to look after her. Mr Park said that he had agreed to that request immediately. Following the birth of Mr Crombie's child he had been told that Mr Crombie's wife was suffering from post-natal depression. Mr Park told Mr Crombie to take time off as paternity leave. 67 According to Mr Park, by late May 1996 Mr Crombie was rarely, if ever, in the office. Mr Crombie said that the situation at home was not improving and asked Mr Park to be patient until things improved. From time to time, members of Capital's staff, including Mr Shaw, were sent to Mr Crombie's home to discuss work related matters. 68 Mr Park said that by late June 1996 Mr Crombie was not attending the office at all. He was not returning calls, and he was not replying to facsimiles sent to him. This was the busiest time of the year for Capital, and his absence made it a very difficult time for everyone. 69 Mr Park said that at about this time, in late June 1996, Mr Crombie visited him at his home in East Malvern to seek counselling in relation to the various problems that he was then experiencing. During the course of that meeting Mr Crombie asked Mr Park whether Capital could provide more flexible work arrangements. They discussed possible options if such arrangements could not be made. According to Mr Park one such option raised by Mr Crombie was the possibility of his buying a 7 Eleven franchise with some money he was thinking of borrowing from his father-in-law. 70 Mr Park said that, unbeknown to him, in about August 1996, Mr Crombie filed a notice of resignation of director with the ASC specifying 21 June 1996 as the date of his resignation as a director of CIC. He said that Mr Crombie had never, at any stage, provided either Capital or CIC with a copy of that notice of resignation. 71 According to Mr Park he made enquires of Capital's landlord in the months after Mr Crombie's departure. He obtained access to elevator records for the building in which Capital had its offices. These records showed that Mr Crombie, using an identifiable access pass, had entered the building, and Capital's offices, on numerous occasions after hours, both before and after 21 June 1996. 72 Mr Park said that Mr Crombie had never provided any explanation to Capital regarding his resignation as a director of CIC, his unauthorised entry into Capital's offices, his appointment as a director of NFG, or why he had conducted himself in the manner in which he had. 73 Mr Park gave the following evidence regarding Mr Crombie's supposed "resignation" from CIC: "Mr Park, at any time in May 1996 did Mr Crombie tell you that he was resigning from CIC?---No, he did not. Did he tell you that he was resigning from any of the Capital companies?---No, he did not. Did he tell you that he intended to leave the employment or his directorships of CIC forthwith?---No, he did not. Did he tell you if he proposed to leave the employment or directorship of any Capital company forthwith?---No, he did not. At any time between March and June 1996 did Mr Crombie tell you that Sentinel were proposing to thinking about pulling the pilots out of the Copperfield loan?---No, he did not. Did he at any time tell you that either he alone or he with Mr Davis proposed to switch the pilots into a different investment?---No, he did not. Had you found out, between March and June of 1996, that Sentinel were proposing to switch the pilots from the Copperfield loan into some other investment because of some dissatisfaction on the part of Sentinel, what would you have done?---I would have attempted to rectify the situation forthwith. What does that mean?---That would have meant in the first instance that I would have communicated with Sentinel and probably with the underlying borrowers, to determine what problem they may have with the transaction. Once I identified that problem I would have obviously sought to come up with appropriate solutions to rectify that problem, which may have meant any number of things depending on the nature of that problem. Had the problem been one of documentation what would you have done?---As an immediate alternative we would have proposed replacing the loan agreements that we had purchased, with more appropriate loan agreements, which may have made the borrowers and also Sentinel happier with that particular transaction. Were there any other tax products available on the last quarter of 1996?---A plethora of them."

The aftermath of Mr Crombie's departure 74 Within a few days of Mr Crombie's departure from CIC, on about 30 June 1996, Ms Hall told Mr Park that she too would be leaving. She said that her departure was the result of personal problems and that she would not be working for the next 12 months. Mr Park said that he had subsequently discovered that Ms Hall had begun working for Mr Crombie and Mr Davis at NFG almost immediately after she left Capital. 75 In November 1996, Capital's other loan portfolio manager, Mr Shaw, told Mr Park that he was leaving Capital in order to join Mr Crombie at NFG, and to pursue two other personal ventures. He also told Mr Park that his wife did not want him to continue working in the city because of his drinking problem. Mr Park said that he asked Mr Shaw to stay at Capital and told him that he would make it worthwhile, but Mr Shaw declined that offer.

the switched investments 76 Mr Park said that on about 3 July 1996 he was contacted by Mr Boyle who told him that he had received a letter from Sentinel giving notice that the applicants were terminating their involvement in the Copperfield tour, and were assigning their rights and obligations under their loan agreements with Entercorp to a third party. Mr Park then, for the first time, contacted Mr Colin Quarrell of Sentinel to find out what was happening. He was told by Mr Quarrell that Capital should not worry because the problem was one between Mr Boyle and Sentinel's clients. Mr Quarrell said that the applicants were continuing to pay interest under their loan agreements. He also said that he would arrange a meeting between his himself, his fellow Sentinel director Mr Healy, and Mr Park to discuss the problems which had arisen between Sentinel and Mr Boyle. Mr Park said that he attempted on several occasions thereafter to contact Mr Quarrell to organise the meeting, but Mr Quarrell had avoided him.

Mr park's dealings with mr davis 77 Mr Park was asked about his dealings with Mr Davis by Mr Magee. His evidence was as follows: "Mr Park how often between March and June 1996 did you speak to Mr Davis?---Frequently, almost daily. During that period did Mr Davis ever say to you that he was proposing to appoint Mr Crombie a loan manager of NFG?---No, he did not. Did he ever say to you that he was proposing to go into business with Mr Crombie via NFG in competition with CIC?---No, he did not. Did he ever say to you that he was proposing to be involved in switching the Copperfield loan book investors into a different investment?---No, sir, he did not. When did you first discover that Mr Crombie had resigned as a director of CIC?---Late November, early December 96. In what circumstances did you find out?---I have previously instructed my solicitors, Cornwall Stodart, to make searches of all the Capital group companies for two purposes: one was simply to check if any resignations had been made, given the absence of any communications from Mr Crombie, and secondly was to convert those companies from dual directorships to single directorships. So it was November 1996?---Late November, early December. I can't recall the exact date."

Mr Park's cross-examination 78 Mr Park was cross-examined at length by Mr Herskope. Much of that cross-examination was directed to the circumstances of Mr Crombie's departure from Capital. Mr Park reiterated that all that Mr Crombie had told him was that his wife was having difficulty with her pregnancy, and that his presence was required at home. After the birth of their child, Mr Crombie's wife had suffered post natal depression and he had requested more flexible working hours. However, never at any stage did Mr Crombie tell Mr Park that he was leaving CIC, let alone that he had resigned or intended to do so. 79 Mr Herskope put to Mr Park that there had been a meeting between himself and Mr Crombie at Mr Park's home, in East Malvern, on either 15 or 16 May 1996. He suggested that as a result of that meeting Mr Park "knew [Mr Crombie] was leaving". Mr Park emphatically rejected that suggestion. He put to Mr Park that there had never been a conversation between Mr Crombie and Mr Park in which Mr Crombie mentioned the possible purchase of a 7 Eleven franchise to be financed by his father-in-law. Mr Park insisted that that the conversation had occurred, some time late in June 1996. However, Mr Park had not regarded Mr Crombie's observation that he might, at some stage, borrow money from his father-in-law to buy such a franchise, as anything more than "musing over possibilities". 80 Mr Herskope also questioned Mr Park about a range of other matters. He challenged Mr Park's claim that there had been a conversation between Mr Park and Mr Crombie in which Mr Crombie was told that he was to be appointed as project manager to oversee the due diligence process. He put to Mr Park that whatever role had been assigned to Mr Crombie was irrelevant to Mr Park's decision to acquire the loan books. Mr Park denied each of these propositions. Mr Herskope put to Mr Park that it was he, rather than Mr Crombie, who had overseen the due diligence. Mr Park accepted that the ultimate decision as to whether the Deed of Assignment would be executed was his, but maintained that Mr Crombie had played a pivotal role in supervising and coordinating the process. 81 Mr Park was asked about the nature of his association with Mr Davis. He said that Capital was "essentially at his [Mr Davis'] beck and call". He said that Mr Davis was a wealthy and powerful individual who had often loaned funds to Capital. He was challenged about the evidence which he gave to the effect that he had resisted overtures from Mr Davis to become a director of NFG. He conceded that in 1995 he had signed documents consenting to act as a director of that company, but insisted that he had done so reluctantly. He said that Mr Crombie had provided administrative services to NFG because Mr Davis did not have a business office, and operated from home. He said that Mr Davis had asked that Capital establish a dedicated telephone line for NFG at its office, and that mail be directed to that office. He said that he understood that Mr Davis was seeking to create the impression for his clients that NFG was a company of substance, and he saw no harm in indulging that aim. He said that he was aware that Mr Crombie was performing general secretarial functions on behalf of NFG, though he denied having previously seen the letters signed by Mr Crombie as a director of that company. 82 Mr Herskope challenged Mr Park regarding evidence which he gave concerning the steps which Capital might have taken to put the applicants into an alternative investment scheme had he been aware of the proposal to switch the investments. He invited Mr Park to identify the other tax products which were available between March and June 1996, and which could have been utilised for that purpose. He also challenged Mr Park to indicate how he would have funded these alternative investments. Mr Park replied that there were a variety of sources of additional funding available at that time, including the banks, and a range of private investors. 83 Mr Herskope put to Mr Park that Mr Crombie would say that in 1995 and 1996, until the time he left CIC, Mr Park was rarely in the office before lunchtime. He would also say that from March 1996 Mr Park was out of the office for significant periods of time. Mr Park agreed that this was so, but insisted nonetheless that he had been able to keep track of Mr Crombie's movements because he had been in regular contact with his office. It was put to Mr Park that his constant unavailability had become a source of friction between himself and Mr Crombie, and that Mr Crombie had frequently complained about the effect which Mr Park's absence from the office was having upon the operation of the business. Mr Park denied that suggestion. 84 It was suggested to Mr Park that Mr Crombie had told him, on a number of occasions between mid-April and mid-May 1996, that he was dissatisfied at Capital, and that he was seriously considering his options for the future. Mr Park denied that any such conversations had taken place. 85 Turning to the meeting which allegedly took place at Mr Park's home on 15 or 16 May 1996, the cross-examination was as follows: "Now, Mr Park, Mr Crombie will say that you and he had a meeting on or about 15 May 1996 at your home at unit 1, 109 Brunel Street, East Malvern. Is that where you lived at the time?---Yes, sir. Mr Crombie will say that he had a lengthy meeting with you which went for something around three hours on that particular evening. Do you dispute that you had such a meeting on that day?--- Sorry, I didn't realise that was a question. All right, I'll put the question. Did you meeting with Mr Crombie on or about 15 May 1996 at your home?---I may have. I have no recollection of it. You may have?---Yes, I may have. I have no recollection of it, I'm sorry, sir. You confirm that you do live at that address?---I do or I did, I beg your pardon. Mr Crombie will say that he had a conversation with you which went as follows, "Grant, we're here again discussing once again the issues that trouble me. I've put you on notice previously that I can't continue if your non-attendance at the office and your drug use and the amount of time you are spending at the casino - - -" … "I can't continue if your non-attendance at the office and your drug use and the amount of time you're spending at the casino and the amount of money you are spending continues. I can't go on. You keep promising me it will change, it doesn't. It had all come to a head regarding the Copperfield transaction. For all these reasons I can't go on." Mr Crombie then will say that he told you, "I'm resigning effective immediately as a director from all companies in the Capital group." You dispute having that conversation with Mr Crombie?---Totally. Now, what Mr Crombie will also say was that he told you he'd be leaving Capital and gave you three weeks' notice. You dispute that?---Totally. Mr Crombie will also say that you said to him that you would complete the necessary documents to remove him as a director of the Capital companies but that you asked him to give you some time to find somebody to replace him as the companies each had only two directors and therefore you needed someone to replace him to comply with the Corporations Law. Do you dispute that?---Totally. Mr Crombie will also say that for the purposes of the outside world you asked him whether he would be willing to tell anybody who asked him why he was leaving Capital to say it was for family reasons associated with the upcoming birth of his child, which could not be worked in with his responsibilities at Capital and that he agreed to that. Do you dispute that as well?---Absolutely. I suggest to you that in fact consistent with those arrangements Mr Crombie continued to sign documents as a director of Capital thereafter when you asked him to do so. Do you dispute that?---Totally." 86 Mr Herskope also questioned Mr Park extensively on matters relating generally to credit. I do not think it necessary to set out the details of his cross-examination in these reasons for judgment. It is sufficient to say that some of the matters put to Mr Park related to his dealings with third party lenders, and the suggestion that Mr Park had deliberately withheld from them matters which were highly relevant and ought to have been disclosed. These included the existence of an opinion from Cornwall Stodart concerning difficulties with the enforceability of the loan agreements. He put to Mr Park that Mr Davis would say he was never shown that opinion. 87 Mr Park insisted that Mr Davis had been fully apprised of all relevant matters throughout the entire transaction. 88 It was put to Mr Park that Mr Crombie would say that he had told him in February 1996 that he was aware that no loan advances had been made to the applicants in relation to the Copperfield transactions as Entercorp had never had the loan funds. This was put as part of the reason why Mr Boyle needed money so badly. Mr Park described that suggestion as "rubbish". 89 It was suggested to Mr Park that at no time prior to the making of the loans was Classic Trading provided with a copy of the Deed of Assignment. His response to that suggestion was that it was "so astonishing it's not funny". 90 Finally, it was suggested to Mr Park that Mr Crombie had been "dead against" the acquisition of the four loan books by Capital and that he had told Mr Park, prior to the execution of the Deed of Assignment, that it should not enter the deal. Mr Park emphatically denied that suggestion.

Mr Park's re-examination 91 Mr Park was asked to elaborate upon the conversation which he claimed had occurred in June or early July 1996 concerning the 7 Eleven franchise. He said that he had been trying to communicate with Mr Crombie and finally they had met. Mr Crombie had asked whether Mr Park would consider some part-time work for him. Mr Park had asked what other options Mr Crombie was considering. It was at that point that Mr Crombie said that he had very few prospects, perhaps a 7 Eleven franchise which he would pay for with the assistance of his father-in-law. The re-examination continued: "During that meeting did Mr Crombie tell you that he'd signed a letter of resignation from each of the Capital companies of which he was a director?---Absolutely not, sir, that came as an astonishment to me when I actually found that out some months later. During that meeting did Mr Crombie say to you that he was involved in a new financing business with NFG?---Absolutely not, sir."

Mr Crombie's account of his role at CIC and the circumstances of his departure 92 Mr Crombie essentially confirmed Mr Park's account of how he had come to work for the Capital group. He said that a company of which he was a shareholder and director, Marcrom, had contracted with CFC in 1994 to provide his services as a consultant to members of the Capital group. He had been appointed a director of CFC and also of several other companies within Capital. 93 Mr Crombie agreed that the main business of Capital had been to source and provide third party loan funding to promoters of tax effective investments, whether through offerings to the public, or private offerings to wealthy individuals, and to manage the loan books which were then created. Between 1993 and early 1996 Capital had been involved in about twenty such investment schemes. 94 Mr Crombie said that from the commencement of business by Capital in late 1993 to about mid-1995 the main lenders to the group were private investors, rather than financial institutions. One of those lenders was Classic Trading. Mr Crombie had had extensive dealings with that company in his capacity as office manager. Between 1993 and 1996, with Mr Park's consent, he regularly performed work for Mr Davis. This included drawing spreadsheets in relation to Classic Trading's investments, writing letters on its behalf and personally delivering documents to Mr Davis' home when required. He said that he had developed a good relationship with Mr Davis. Neither he nor Marcrom received any payments from Mr Davis for the work which he performed. 95 Mr Crombie said that in 1995 both he and Mr Park signed undated forms by which they each consented to be directors of NFG, together with undated letters of resignation. Neither Mr Crombie nor Mr Park was formally appointed a director at that time though Mr Crombie said that he did not know that no appointment had been made until June 1996. He acknowledged that he had written occasional letters at Mr Davis' request on NFG letterhead which he had signed as "manager" or "director". The address for NFG on those letters was the same as the address for Capital. He said that he made no attempt to hide these letters from Mr Park, or anyone else at Capital. 96 Mr Crombie said that he had first heard of the Copperfield tour from Mr Boyle some time in early 1995. In about May 1995 he became aware through conversations with Mr Park that Capital might fund the tour. Mr Crombie saw nothing unusual in that. It was like any other tax effective product - Mr Boyle would introduce the investors and stage the tour while Capital would obtain and provide the funding. 97 In January 1996 Mr Park told Mr Crombie that Mr Boyle had not raised enough money to fund the Copperfield tour. Mr Park said that Mr Boyle was desperate for funds. He claimed that Mr Boyle had been stringing him along, and had not intended to use Capital unless there was no alternative. He told Mr Crombie that Mr Boyle had drawn up loan agreements with Entercorp as the lender instead of Capital. Mr Boyle was now seeking to have Capital advance money against the security of those loan agreements. He told Mr Crombie that the "wheel had turned" and that he could now "screw" Mr Boyle over the funding of the tour. 98 A short time later Mr Park told Mr Crombie that he now proposed that Capital would advance $2 million (which it would source from third parties) to fund the tour, and that it would take as security an assignment from Entercorp of a portfolio of four loan books. He told Mr Crombie that he wanted to structure the transaction in such a way that Capital would have the option of buying the loan books at a substantial discount, and then on-selling them for a large profit. 99 Mr Park told Mr Crombie that in order to satisfy the requirements of third party lenders who would fund the acquisition of the loan books, there would have to be a due diligence. Mr Crombie knew that Capital did not have available to it anything like the sums required to be paid for the loan books and would have to raise funds from outside its usual group of finance providers. Mr Park arranged for the due diligence to be carried out and appointed Mr Crombie to be the main point of contact. 100 Mr Crombie said that he had been present at the offices of Capital with Mr Park when Mr Eric Low of Alexander & Spencer had delivered its draft due diligence report. He said that Mr Park had expressed concern about the fact that the draft report did not cover the issue of whether loan advances had been made to each of the Copperfield borrowers. Mr Low said that he had not seen any documents which would enable him to include such a statement in the report. Mr Park showed Mr Low a number of Entercorp bank statements which indicated the movement of funds out of Entercorp's account. He asked Mr Low to use these statements as the basis for including in the report a finding that the loan advances had been made. Mr Low said the statements were not sufficient for that purpose. Mr Park then suggested that Mr Low might say that he had seen bank statements which "indicated" that loan advances had been made. Mr Low agreed to amend the report to include such a statement. 101 Mr Crombie said that he told Mr Park more than once prior to the execution of the Deed of Assignment on 1 March 1996 that Capital should not go into the deal with Entercorp. Mr Park replied that the deal was potentially too profitable to walk away from. 102 Mr Crombie spoke of the problems which he had with Mr Park in 1995 and 1996. He said that Mr Park generally did not arrive in the office until lunchtime, and did not let anyone know where he was. Clients would arrive for meetings, but Mr Park would be nowhere to be found. 103 Mr Crombie said that in late March or early April 1996 he had been telephoned by Mr Healy. He had had previous dealings with Mr Healy in relation to a tax scheme involving a tour by the Bolshoi Ballet which Mr Park and Mr Boyle had funded. Mr Crombie knew that Mr Healy and Mr Quarrell controlled Sentinel, and that it was the financial advisor to most of the applicants. Mr Crombie said that he was disturbed by various matters raised by Mr Healy regarding Entercorp and that he raised these matters with Mr Park. Mr Park said not to worry. He said that Mr Boyle was just telling lies, as usual. 104 According to Mr Crombie, Mr Healy telephoned again about a week later expressing similar concerns regarding Entercorp. Mr Crombie told Mr Park about this call and was again told not to worry. He said that he then rang Mr Davis and told him of his discussions with Mr Healy. Mr Davis expressed concern that Classic Trading might not be in a position to recover the loans which it had made in relation to the Copperfield tour. Mr Crombie suggested that Mr Davis should consider having a meeting with Mr Healy. 105 Mr Crombie said that by mid-April 1996, he had become very concerned about what was going on at Capital. From what Mr Park had told him, and also from his conversations with Mr Healy, Mr Boyle and Mr Davis, he believed that there could be real problems with the Copperfield loan transactions and with the Entercorp loan books. He said that he was also very worried about Mr Park's lifestyle, and its effect on Mr Crombie's future. 106 Mr Crombie said that he spoke with Mr Park on a number of occasions from mid-April to mid-May 1996 about his concerns. He told Mr Park that he was uncomfortable with what was going on. He said that as he was newly married, and his wife was expecting their first child in May, he was seriously considering his options for the future. He said that Mr Park did little to allay his concerns. He said that by mid-May 1996 he had decided to leave Capital. At that stage, he had no idea what he would do after he left. 107 In his witness statement filed on 7 February 2000 Mr Crombie said at par 85: "Shortly after I had decided to leave Capital, Elliott Davis called me. He said that he had had a meeting with Mac Healy and Colin Quarrell at Sentinel. Davis told that me that he had learnt through the meeting that Entercorp Finance had double pledged some of its loan books to raise funds, even after the assignment of the Entercorp Finance loan book to Capital had taken place. He said that Entercorp Finance had stopped repaying its lenders. Davis also said that Healy and Quarrell had said to him that Sentinel was going to get its clients out of Copperfield. I told Davis that this didn't surprise me. I also told him that I had pretty much made up my mind to leave Capital because of my concerns surrounding the assignment of Entercorp Finance loan portfolio, the Jimmy Goh transaction, and Park's instability. Davis said that he was going to have a second meeting with Healy and Quarrell soon." (emphasis added) 108 However, by the time Mr Crombie came to give evidence in the trial, and was asked to adopt his witness statement, he indicated that he wished to amend the two passages emphasised in par 85. 109 Instead of saying: "Shortly after I had decided to leave Capital, Elliott Davis called me." Mr Crombie wished to say: "Shortly after I had told Park that I had decided to leave Capital, Elliott Davis called me." (emphasis added) 110 Also, instead of saying: "I also told him that I had pretty much made up my mind to leave Capital …". Mr Crombie wished to say: "I also told him that I had told Park that I was leaving Capital …" (emphasis added) 111 Mr Crombie said that he believed that it was in the third week of May 1996 that he told Mr Park that he was leaving Capital, and informed him that he was resigning as a director of all Capital companies of which he was a director, effective immediately. He said the conversation took place at Mr Park's home. He said that he told Mr Park that he could not continue to work for him, given what was happening at Capital and that he would be leaving in three weeks' time. 112 Mr Crombie said that Mr Park told him that he would arrange for the necessary documents to be prepared to have Mr Crombie removed as a director of the Capital companies. However, he asked Mr Crombie to give him time to find a replacement, as each of the companies had only two directors, and at that time it was not possible to have fewer than that number. Mr Park also asked Mr Crombie to tell anyone who asked him why he was leaving Capital that it was for family reasons associated with the upcoming birth of his child. Mr Crombie agreed that he would do so. 113 Mr Crombie said that approximately two weeks later, shortly after the birth of his daughter on 25 May 1996, he had heard nothing further from Mr Park regarding a replacement for himself as director. He said that he asked Mr Davis whether he could arrange for his accountant to carry out a company search with the ASC in order to determine of which companies he was a director. He said he made that request so that when Mr Park eventually came back to him, he could confirm that he had resigned from them all. 114 Mr Crombie said that it was not until 21 June 1996 that he ultimately completed written notices of resignation of his directorships in relation to the Capital group. These notices had been provided to him by Mr Davis. He said that he did not lodge them with the ASC until early August 1996. 115 Mr Crombie said that he had continued to work at the office of Capital until late June 1996. He spent much of his time arranging matters so that other employees could take over his duties once he had gone. He continued to sign documents as a director of Capital as required, or whenever Mr Park asked him to do so. 116 Mr Crombie said that throughout June 1996 he had a number of conversations with Mr Davis, Mr Healy, and other Sentinel personnel, and Mr Michael Loftus, a former tax partner at Minter Ellison who specialised in structuring tax effective investments, regarding the Sentinel clients and their investments in the Copperfield tour. From these conversations, he learned that Sentinel was putting, not only those of its clients who had invested in the Copperfield tour, but also another one hundred or so, into another tax scheme involving what was known as "the Asian book investment". 117 Mr Crombie said that he had no involvement in drafting any of the loan documentation relating to the Asian book investment, and that he had not spoken to any of the Sentinel investors regarding that alternative scheme. He acknowledged that he was involved in making arrangements to enable NFG's loan management business to commence at the beginning of July 1996, but said that he had very little to do with the Asian book investment until July 1996, after he had left Capital. 118 Mr Crombie said that after he had told Mr Park that he was leaving Capital, he spoke with Ms Hall and Mr Shaw, about his plans. He told then that he intended to go to work for NFG. He was aware that they were also unhappy at Capital. He told them that there would probably be work available for them at NFG in the future. Ms Hall asked Mr Crombie some time later, but before he left Capital, whether she could join him at NFG and he agreed. She began working for NFG in early July 1996. After Mr Crombie left Capital he kept in contact with Mr Shaw. In November 1996 Mr Shaw too left Capital and began working for NFG. 119 Mr Crombie said that he disagreed with much of Mr Park's evidence regarding the February 1996 due diligence. He said that he had never provided any of the third party lenders with a copy of the Deed of Assignment. He said that none of the conversations to which Mr Park had referred concerning Mr Crombie's departure had ever occurred. He insisted that Mr Park knew of his resignation from Capital at least from mid-May 1996 onwards.

Mr Crombie's cross-examination 120 Mr Magee challenged Mr Crombie about his belief that Mr Park had deceived the third party lenders by not informing them that there had been no advances made to the borrowers in the Copperfield transaction. Mr Crombie said that he had regarded Mr Park's conduct as "sharp practice". However, he conceded that he had stood by and done nothing about it. 121 Mr Crombie was asked about the payments which had been made by Capital for his services. In his evidence-in-chief he had said that his remuneration had been based upon a monthly retainer, and a performance and profit share agreement. He had said that at the end of each month, Marcrom would be paid an agreed sum and a cheque drawn on one of the companies within the Capital group would be paid into its account. 122 Mr Magee put to Mr Crombie that his evidence regarding these payments had been untrue. He suggested that a number of payments had been made by cheques personally drawn by Mr Crombie to accounts in his own name, and that of his wife. Mr Crombie acknowledged that some payments had been made in this way. He agreed that his wife had never performed any duties on behalf of Marcrom, and had not been entitled to the payments. 123 Mr Crombie was asked why he had not told Mr Park that Sentinel was proposing to switch its clients out of the Copperfield loans, and into the Asian book investment. He said that he had not become aware of the details of that investment until after he had resigned from Capital. By that time, he did not feel under any obligation to say anything about the matter to Mr Park. 124 Mr Crombie was reminded that he had said in his evidence in-chief that Mr Healy had asked him to keep the fact that the Sentinel clients were getting out of the Copperfield loans quiet. He agreed that, save for having told Mr Davis what Mr Healy had told him, he had refrained from telling Mr Park about this conversation. It was put to Mr Crombie that he had been well aware that if Mr Park had found out about the proposed switch, he would have taken steps to prevent it from occurring. Mr Crombie replied that he had by that stage resigned from Capital. He considered that any involvement which he may have had in managing the switched investments after his resignation was of no concern to Mr Park. 125 Mr Crombie was also reminded of his evidence concerning the meeting between himself and Mr Park which had supposedly occurred on either 15 or 16 May 1996. He agreed that he had said that he had been asked to stay on for about three weeks. However, he acknowledged that this may have been his suggestion rather than that of Mr Park. He said that as a result of the meeting he had expected to leave Capital at around the middle of June 1996 but explained that the three weeks to which he had referred had been intended to exclude several days surrounding the birth of his daughter. He acknowledged that the account which he had given of the meeting with Mr Park in his witness statement differed in certain respects from the account which he had subsequently given in Court. 126 Mr Crombie was asked to indicate the last day on which he worked at Capital. He said that he could not recall, but he acknowledged signing letters and documents up until 27 June 1996. He agreed that the work which he had performed for Capital after 15 May 1996 was substantially the same as the work which he had performed prior to that date. He was asked, hypothetically, what steps, if any, he would have taken to protect the interests of Capital upon being told about the switched investments had he not already decided to leave the group. He said that the first port of call would have been Entercorp. He was then asked the following questions: "MR MAGEE: Once you had resigned from CIC and Capital - I mean the Capital group, the resignation that occurred on the 15th - you believed you owed no other duty to Capital after that resignation. Is that correct?---That's correct. HIS HONOUR: From that date? MR MAGEE: From that date?---That's right." 127 Mr Crombie was asked whether he had had any further discussion with Mr Park regarding the date of his departure from Capital after 15 or 16 May 1996. He said that he could not recall. He was asked how it was that he was still working for Capital until at least 27 June 1996. He replied that this was pursuant to an arrangement which he had reached with Mr Park during their earlier conversation. He said that the three week estimate given on that occasion had been "very rough". He agreed that he had signed a number of documents as a director of CIC throughout June 1996. Some of these documents had involved the transfer of funds to various companies within the Capital group. However, he insisted that he had told Mr Park, in clear terms, on either 15 or 16 May 1996, that he was "going to resign" as a director effective immediately. 128 Mr Crombie was asked about the written notices of resignation in relation to the Capital group which he said Mr Davis had provided to him. He said that the reason he had obtained these notices from Mr Davis was because he was concerned about Mr Park's failure to make these arrangements as promised. He said that Mr Davis "had knowledge of [his] resignation in May". 129 Mr Crombie said that his earliest conversation with Mr Davis regarding the subject of his resignation as a director had taken place prior to 25 May 1996, the date of his daughter's birth, and within one or two days of his meeting with Mr Park on 15 or 16 May 1996. He had told Mr Davis that he "had resigned as a director" and was leaving the Capital group. When challenged about earlier evidence which he gave to the effect that the conversation had taken place at the "end of May", Mr Crombie said that he had "rushed" that answer. He insisted repeatedly that he had told Mr Davis that he "had resigned", and denied that he had said that he "had decided to leave Capital" or words to that effect. 130 Mr Crombie said that the various notices of resignation as a director had been prepared by Mr Davis' accountant, Mr Walter Moscatelli. He was shown a notice of resignation from CIC, addressed to the board, and dated 21 June 1996, stating that he resigned effective immediately as a director of that company. He said that he could not recall whether he had read that document before he signed it. Nor could he recall whether he had arranged for it to be sent to the board. He acknowledged that he personally had not delivered the document to Mr Park or to anyone else within Capital. 131 Mr Crombie was asked why he had arranged to have these notices of resignation drawn by Mr Moscatelli. He replied that he had been curious as to whether he was still a director of any of the companies within the Capital group. He was asked why that should be so if he had, as he claimed, resigned a month earlier. He replied that he wanted to make sure that Mr Park had completed the paperwork. He could not recall having asked Mr Park whether he had had done so. He was asked: "Why didn't you ask Mr Park? Why go to Mr Davis?---Because Mr Park had indicated to me that he was going to effect it and I wanted to find out if that had been done." 132 When pressed about that answer, Mr Crombie altered his position and said that it was possible that he had asked Mr Park whether he had completed the necessary formalities, but had not received a satisfactory response. 133 Mr Crombie was then shown a number of resignation notices apparently lodged with the ASC on 2 August 1996. These were what were known as "Form 370 Notices", and included a resignation notice for CIC. Mr Crombie said that Mr Moscatelli had provided him with these notices, each of which recorded the date upon which he ceased to be a director as 21 June 1996. The notices had been signed by Mr Crombie, and certified as containing information which was true. Attached to the notices was a copy of an original letter of resignation said to have been given to the company on 21 June 1996. It was put to Mr Crombie that he had had no basis for making that representation to the ASC. He replied that he could not now recall what he had been thinking on that day. 134 Mr Crombie was shown what was known as a "Form 304 Notice" which he acknowledged had been given to him by Mr Davis. It was put to him that a notice in that form required the insertion of a substitute director. It was suggested that the reason that he had used a Form 370 Notice instead was that this had enabled him to resign without Mr Park having to sign the document, and thereby discover what had occurred. His response was "I don't believe that, no" and "I don't think that's the case, no". It was put to Mr Crombie that the date upon which he resigned from Capital was important because he knew that he was engaging in conduct which, had he remained a director, was inconsistent with his fiduciary duties. His answer to that suggestion was the somewhat surprising "I don't recall". 135 Mr Crombie was shown a Deed for Administrative Services dated 10 May 1996 which provided for NFG to provide such services to Hemisphere (the entity which took over the switched investments). He agreed that had signed that deed on behalf of NFG in the belief that he was, at that stage, a director of that company. He also agreed that after June or July 1996 he had been in charge of the loan portfolio that NFG managed for Hemisphere, and that NFG had administered the Copperfield loans. He could give no explanation as to why the Deed for Administrative Services had been executed. He knew of no business dealings between NFG and Hemisphere as at 10 May 1996. It was put to Mr Crombie that as at that date both he and Mr Davis had already arranged with Hemisphere to switch the Copperfield investment. He denied that suggestion. It was put to Mr Crombie that Mr Davis would say that the Deed had been backdated. He said that he could not recall whether that was so. 136 Mr Crombie was then asked about the circumstances which had led to the preparation of his witness statement. He said that he had given instructions to Mr Herskope and his junior, Mr Evans, and that they had drafted the statement based upon those instructions. He said that he read the statement carefully, and that he had made comments on it where necessary. He said that he had realised that it was an important document and would be relied on in Court as his evidence of what had occurred. 137 Mr Crombie agreed that the statement had been prepared to reflect the way in which events had unfolded throughout 1996 chronologically. 138 He was taken to par 76 in which he had said: "In March or early April I received a telephone call at Capital's offices from Mac Healey." 139 Mr Crombie was then taken to: · par 80 which dealt with events in about the first or second week of April. · par 81 in which he said that he told Mr Park about his conversation with Mr Healy immediately after it occurred. He telephoned Mr Davis on the same day and suggested that he have a meeting with Mr Healy. Mr Davis apparently accepted that suggestion. Three or four days later he rang Mr Crombie back. · par 83 in which he said that by mid-April he was very worried about what was going on. · par 84 in which he said that he had spoken to Mr Park on a number of occasions from mid-April to mid-May. He told Mr Park that he was unhappy and was concerned about his future. By mid-May he made the decision to leave Capital. 140 It was put to Mr Crombie that Mr Davis had told him in April about Mr Healy's concerns regarding Entercorp having double pledged some of its loan books. Mr Crombie denied that suggestion. 141 Mr Magee then questioned Mr Crombie about the differences between par 85, as originally formulated: · "Shortly after I had decided to leave Capital, Elliott Davis called me." and the modified version, as presented by Mr Crombie when he came to give evidence: · "Shortly after I had told Park that I had decided to leave Capital, Elliott Davis called me." and also the original formulation: · "I also told him that I had pretty much made up my mind to leave Capital …" and the modified version: · "I also told him that I had told Park that I was leaving Capital …". 142 Mr Crombie said that he had amended par 85 of his witness statement because he had been asked to scrutinise it carefully and had come to appreciate that, in its original form, it was not entirely accurate. When the witness statement was initially prepared he had not long returned from the United States. He had been experiencing difficulties with the National Crime Authority which was investigating certain transactions with which he had been involved, and he was also in the process of dealing with a number of criminal charges which had been laid against him. It was not until the week before he gave evidence that he gave instructions for par 85 to be amended. 143 It was suggested to Mr Crombie that the changes to par 85 which he had made were in response to his having heard Mr Magee's opening of CIC's case. In the course of that opening, Mr Magee had commented strongly upon the fact that the various matters set out in pars 85 to 91 (which dealt with Mr Crombie's conversations with Mr Davis regarding Sentinel's proposal to switch its clients out of the Copperfield investment, his conversation with Mr Healy regarding Sentinel's difficulties with Mr Boyle, and his further conversations with Mr Davis regarding the Asian book investment) all preceded Mr Crombie's description of his supposed conversation with Mr Park on 15 or 16 May 1996 concerning his resignation from Capital. That conversation was not dealt with until pars 92 to 94. Mr Magee put to Mr Crombie that the amendments which he had made to par 85 were intended to counter Mr Magee's suggestion that, on his own version of events, Mr Crombie was involved in arranging for the switch from the Copperfield investment to the Asian book investment before he spoke to Mr Park about resigning. Were that to be so, it would be extremely damaging to Mr Crombie's case. It was further put to Mr Crombie that he had reconstructed par 85 to make it seem that the conversation with Mr Park had occurred prior to the events described in pars 85 to 91 in an attempt to avoid having his own witness statement used against him. 144 Mr Crombie denied Mr Magee's suggestion that he had tailored his evidence in this way. He insisted that he had a clear recollection of the terms of his conversation with Mr Davis as set out in par 85, as amended. He acknowledged, however, that his recollection of many other conversations was far from perfect. 145 Mr Crombie was then asked why he had not arranged for the relevant company searches to be done himself rather than asking Mr Davis for assistance. He replied "I didn't think about it at the time". When pressed about that answer, he said that he had not thought it appropriate for the staff of Capital to become aware that he was nervous about whether he was still a director of the Capital group. He agreed that he could have carried out a search of the company records himself had he wished to do so. He said this would have required him to go to the desk of the person who normally performed that task, and might therefore have attracted attention. 146 Mr Crombie agreed that throughout the period March to June 1996 Mr Davis had been aware that he was a director of CIC and other companies within Capital. He also agreed that he had telephoned Mr Davis after his conversation with Mr Healy because he had a business relationship with him, and wanted to tell him that Classic Trading's loans might be at risk. He was asked how informing Mr Davis of that fact could possibly have been in the interests of CIC. He replied that Mr Davis was a large lender of funds to the Capital group, and if he were kept well informed, he might lend more money in the future. He was asked why he had not told Mr Park of his discussions with Mr Davis. He replied that he could see no reason why Mr Park should be informed. He was asked whether he had discussed with Mr Davis whether he should tell Mr Park about Mr Davis' proposal that NFG should take over management of the Sentinel loan portfolios. He replied that it had been his decision not to tell Mr Park about that proposal. This was based upon "his feelings" at the time. 147 It was suggested to Mr Crombie that the reason Mr Park was kept in the dark about the Asian book investment was because both Mr Crombie and Mr Davis were concerned that were he to discover Sentinel's plans, he might take steps to thwart them. He replied that nothing could have prevented Sentinel from moving its clients out of the Copperfield investment. However, he acknowledged that, "as a long shot", Mr Park might have been able to do something to prevent the switch from occurring had he known what was happening. 148 Mr Crombie acknowledged that NFG commenced business sometime prior to 26 June 1996. He also acknowledged that, broadly speaking, the Copperfield investors had been switched into the Asian book investment. He was asked how his having facilitated that switch could possibly have been of assistance to Capital. He replied: "Your Honour, the Copperfield and Boyle relationship in my view was a very tenuous relationship and something that Capital Investments should never have embarked upon. It was coming up to the busiest time of the year for CIC and I always felt that the loans should be put back to Entercorp, and we shouldn't have entered into in the first place but at that point after we had, that they should be put back. We should keep focused on our knitting and continue on with the funding arrangements that we had with the Bank of Singapore, and polluting one's book with this was tantamount to disaster. So be refocussing it, not letting the Boyle group into the Bank of Singapore and so forth, I think is a benefit to CIC." 149 Mr Crombie conceded that he had not approached the matter in this way in 1996, and that this answer was a rationalisation for his conduct at the time. 150 Finally, it was put to Mr Crombie that he had indeed had a meeting with Mr Park, but that the meeting had occurred, not in May 1996, but rather at the end of June or early July. It was suggested that he had discussed his future with Mr Park and, in particular, the possibility that he might consider going into a 7 Eleven franchise. Mr Crombie insisted that the meeting had taken place on either 15 or 16 May 1996. He maintained that there had been no discussion about a 7 Eleven franchise.

Mr Davis' dealings with Mr Park and Mr Crombie 151 Mr Davis said that he was a director of both Classic Trading and NFG. Classic Trading had, since 1992, regularly lent money to companies which promoted, marketed or financed tax effective investments. It had never promoted tax schemes as such though Mr Davis had, on occasion, recommended such schemes to acquaintances, and had been paid commissions. He said that between June 1996 and late April 1998 NFG had managed a large number of loan agreements. These related to investments by individuals in partnerships for the production of books and videos. They were promoted by Hemisphere and another company, Asean Film Distributors Ltd. 152 Mr Davis said that he first met Mr Park in June 1992. He met Mr Boyle at the same time. Between June 1992 and March 1993 Mr Park had contacted Mr Davis on a number of occasions regarding the possibility that Classic Trading might lend money against the security of loan book receivables which Mr Park was to manage. It was not until March 1993 that Classic Trading had first made such a loan. There was then a history of dealings between Mr Park and Mr Davis, and Classic Trading had made between ten and twenty such loans. Some of these loans were made to CFC or other members of Capital, while others were made to Mr Boyle and companies associated with him. During this period Mr Davis had frequent contact with Mr Crombie regarding the monthly loan repayments which Capital was making to Classic Trading and any day to day business which Mr Davis had with Capital. 153 Mr Davis said that he first met Mr Loftus in about September 1993 when he was introduced by Mr Park. Mr Park told Mr Davis that Mr Loftus was a genius at structuring tax effective investments. According to Mr Davis, it appeared that Mr Loftus was in financial difficulty. He needed approximately $700,000 to stave off the ANZ Bank which was in the process of repossessing certain land, as mortgagee. Mr Davis expressed interest in the proposal but it did not proceed. 154 Mr Davis said that in 1994 he again met Mr Loftus. At that stage Mr Park had proposed to finance a tour of Australia by the Bolshoi Ballet Company in relation to which Mr Boyle had secured the production rights. NFG made a small loan to one of Mr Boyle's companies, but the major financing proposal did not proceed. Mr Davis said that he was told by Mr Loftus at that time that there were other tax effective investments generally available. These included forest projects, and the production of books and videos in South-East Asia. 155 In mid-February 1996 Mr Park had contacted Mr Davis to see whether Classic Trading would be willing to provide $500,000 to Mr Boyle and Entercorp to fund the Copperfield tour. Mr Park said that Mr Boyle needed money desperately, as he was heavily in debt to the Smorgon family, and that the debt had to be repaid forthwith. Mr Park said that any loan would be secured by a loan book of receivables and would be for 3 or 4 months, at most. Mr Davis told Mr Park that the security offered was inadequate. According to Mr Davis, Mr Park and Mr Boyle contacted him frequently over the next week or so, seeking the loan funds. Eventually, on 23 February 1996, Mr Park faxed Mr Davis a letter regarding the proposed loan of $500,000 from Classic Trading. Mr Davis arranged for that sum to be paid into the Cornwall Stodart trust account on that day. He was subsequently told by Mr Park that the money had been paid to Entercorp. 156 On about 1 March 1996 Capital provided Mr Davis with a document entitled "Offer to Borrow". Annexed to that document were copies the due diligence reports obtained from Cornwall Stodart, Lending Solutions and Alexander & Spencer. Mr Davis said that he was not, at any stage, in February 1996, shown a copy of the proposed Deed of Assignment between Entercorp and CIC. He said that he had not been aware, when Classic Trading lent $500,000 to CIC on 23 February 1996, that CIC had the option of requiring Entercorp to repurchase the loan agreements assigned to it by Entercorp at any time during the four months following the execution of the Deed. 157 Mr Davis said that in about mid-March 1996 Mr Park asked him whether Classic Trading would be willing to lend a further sum of $250,000 to CIC for a period of either seven days or thirty days. If the loan were to be repaid in seven days, Classic Trading would receive a fee of $20,000. If it were to be repaid in thirty days, Classic Trading would receive a fee of $30,000. Mr Park told Mr Davis that CIC was required to pay the money to Mr Boyle under the Deed of Assignment. He told Mr Davis that the loan would have precisely the same security as the initial loan of $500,000 which had been made on 23 February 1996. Mr Davis said that he agreed to Mr Park's proposal. On 22 March 1996 he advanced $215,000 directly to Retrak at Mr Park's direction. Mr Davis was aware that Retrak was one of Mr Boyle's companies, and that Classic Trading was now funding the Copperfield tour. 158 Mr Davis said that Mr Park called him again towards the end of March 1996. He told him that Mr Boyle did not have enough money to pay the deposit owed to Mr Copperfield's company in relation to the staging of the tour. He said that if Retrak could not find the money for the deposit, the tour would not proceed. There were then further discussions and, ultimately, on 29 March 1996, Mr Davis agreed to make available an additional sum of $285,000. 159 Mr Davis said that by the end of April 1996 he still had not been provided with the formal securities which he had earlier indicated he required in return for having agreed to the additional loan of $215,000. He had a number of conversations with Mr Park in which he expressed his concerns. He said that by mid-May the position had not altered. Ultimately, on 17 June 1996, Classic Trading executed a Deed of Variation by which it obtained a third ranking charge over the Entercorp loan book which CIC owned, as security for the repayment of the remainder of the loan of $285,000. 160 In the meantime, according to Mr Davis, he received a telephone call from Mr Crombie. Mr Davis said that the call was made some time around mid-May 1996. Mr Crombie told him that he had learned of certain matters which concerned him regarding the security of Classic Trading's loans in relation to the Copperfield tour. He told Mr Davis that the investors in the Copperfield tour were all clients of Sentinel and suggested that Mr Davis should talk to Mr Healy or Mr Quarrell about the Copperfield loan book. 161 Mr Davis said that he then rang Sentinel and made an appointment to meet Mr Healy. He took with him a spreadsheet of loans which had been attached to the "Offers to Borrow" which Classic Trading had received from Capital before lending money to CIC in February and March 1996. Both Mr Healy and Mr Quarrell were at the meeting. Mr Davis asked Mr Healy whether the Copperfield loan book receivables were secure. Mr Healy in turn asked Mr Davis which of the Copperfield loans were regarded as representing Classic Trading's security. Mr Davis showed him the list of secured loans annexed to the loan agreement between Classic Trading and Entercorp. 162 According to Mr Davis, after looking at the spreadsheet, Mr Healy said "I have clients - not these clients - who have also lent to Boyle, secured against guess what?". Mr Davis said "Don't tell me" and Mr Healy replied "Yes". Mr Davis said that he realised at that moment that Mr Boyle must have pledged the Entercorp loan book before assigning it to CIC. Mr Healy had told Mr Davis that Mr Boyle had stopped repaying his clients, and he now knew why. Mr Healy then said "We've had Bernard Marks [Professor Bernard Marks, an expert in taxation law] in to review the loan documents, and our clients' investments aren't deductible". Mr Healy and Mr Quarrell then said that they had decided to pull their clients out of the Copperfield transactions. Mr Healy said that "Mr Boyle was a crook". He said that 30 June was approaching and asked Mr Davis if he had any idea as to what Sentinel might do. According to Mr Davis, Mr Healy showed him various proposals for alternative tax schemes into which Sentinel's clients might be switched. He asked Mr Davis if he knew of any other tax schemes which might be available. Mr Davis said that he knew that Mr Loftus was regarded as being an expert in tax minimisation, and he suggested that Mr Healy contact him. 163 According to Mr Davis he telephoned Mr Crombie the next day to tell him what had happened at the meeting with Mr Healy. Mr Davis said that he remembered swearing a great deal as he was very upset. He told Mr Crombie that he had $1 million secured against the Copperfield loan book at the same time as Sentinel's clients were withdrawing their investments from the Copperfield tour. Mr Crombie told Mr Davis that this did not surprise him. According to Mr Davis he also told him a number of things about Mr Park, and about Capital's operations, which concerned Mr Davis greatly. 164 In his witness statement Mr Davis said at par 49: "Crombie said that he had decided to leave Capital, and look elsewhere for work. I told Frank that I would look out for something for him." 165 When it came to adopting his witness statement in Court, Mr Davis amended that sentence so that it now read: "Crombie said that he had resigned from Capital, and looked elsewhere for work. 166 Mr Davis said that a few days later, Mr Loftus had telephoned him and told him that he had spoken with Mr Healy. He said that Mr Healy seemed very interested in the Asian book investment which he could make available to Sentinel's clients. Mr Loftus asked Mr Davis what he knew about Sentinel. Mr Davis replied "very little" except that many of its clients were pilots. He told Mr Loftus that if he was thinking of putting Sentinel's clients into the Asian book investment the most important thing was to ensure that the receivables were well managed and coordinated. He told Mr Loftus that Mr Crombie was "in despair" over what was going on at Capital, and was looking to get out and start up on his own, and that he might be interested in doing that sort of work. 167 Mr Davis then spoke to Mr Crombie about managing Mr Loftus' clients' loan books. Mr Crombie said that he would be keen to do so but had no money to start up a business. Mr Davis told him that he would be happy to provide some basic capital to set up a loan management business in return for which he would have an interest in that business. Later, he told Mr Crombie that NFG could be the loan manager. 168 Mr Davis said that after these initial conversations he had a number of meetings with Mr Healy and Mr Quarrell, and also occasionally with Mr Loftus. He estimated there were about eight or nine such meetings from late May to late June 1996. Mr Davis said that Mr Crombie did not attend any of these meetings because he was still working for Capital. According to Mr Davis, Mr Healy and Mr Quarrell did not decide immediately to put their clients into the Asian book investment. They wanted to know whether Mr Loftus' clients would pay them a commission for each client they introduced. Mr Loftus eventually offered to pay a 5% commission, to be paid through one of his companies, and to be described as a "management fee". 169 Mr Davis said that at some stage in June 1996 Hemisphere and NFG executed a Deed for Administrative Services which set out NFG's role in relation to the Asian book investment. He said that although the Deed was dated 10 May 1996, it had not been executed until at least a month after that date. Mr Davis said that he arranged for NFG to lease premises at a townhouse in Glen Iris. He provided funds for computers, software and office equipment. According to Mr Davis, NFG continued to manage Mr Loftus' clients' loan books until late April 1998 when another company took over that role. 170 Mr Davis said that in late May 1996 Mr Crombie asked him if Mr Moscatelli could prepare resignation notices for him in relation to his directorships of companies in Capital. Mr Davis rang Mr Moscatelli and asked him to prepare the notices. On 12 June 1996 he provided Mr Davis with the notices and with sample minutes of meetings confirming each resignation. Mr Davis gave these documents to Mr Crombie. 171 Mr Davis referred to a witness statement prepared by Mr Healy dated 9 December 1999 in which Mr Healy said that Mr Davis told him in May 1996 that "the switch and Crombie's imminent departure from Capital were to be kept quiet and not publicised, particularly not to Boyle or CIC". He agreed that he may have told Mr Healy this, because large sums of money that Classic Trading had lent in relation to the Copperfield tour had not, as yet, been repaid.

Mr Davis' cross-examination 172 Mr Magee commenced his cross-examination of Mr Davis by inviting him to turn to his witness statement signed on 9 February 2000. He asked Mr Davis whether he had discussed with Mr Crombie the evidence which Mr Crombie had already given in the proceedings. Mr Davis replied that he had not. Mr Magee challenged Mr Davis about a comment in his witness statement in which a particular exhibit had been identified as a true copy of a Deed for Administrative Services purportedly signed on 10 May 1996. Mr Davis acknowledged that he had erred in describing the Deed in those terms since the address of NFG contained in the Deed, Level 3, 608 St Kilda Road, Melbourne, had not, in fact, been occupied by NFG in 1996. It was not until 1999 that NFG had occupied premises in St Kilda Road. He agreed that although his signature appeared on the Deed, it could not have been a copy of the original, and must logically have been prepared some years after the event. He also agreed that the document purported to have been signed by Mr Crombie as an officer of NFG notwithstanding the fact that he was not a director of that company as at 10 May 1996. 173 On the following day, Mr Davis sought to explain the evidence which he had previously given regarding the execution of the Deed. He said that the address of NFG, Level 3, 608 St Kilda Road, Melbourne had, in fact, been the address of his former solicitors who had permitted him, at that time, to use that address as a registered office for the company. He had forgotten that fact the previous day. 174 Mr Davis conceded that although the Deed bore the date 10 May 1996 it had not been executed on that date. He said that he did not know who gave instructions for the Deed to be dated 10 May 1996 and he could not recall the circumstances under which it came to be executed. However, he knew that it must have been executed long after that date because there was no arrangement of any kind between NFG and Hemisphere at 10 May. He was pressed about this matter but could provide no explanation as to how, or why, the Deed had been backdated. He insisted that the arrangements between NFG and Hemisphere were not finalised until about mid June 1996, and that the terms of these arrangements were later embodied in the Deed. 175 Mr Davis was then cross-examined about various paragraphs in his witness statement. He accepted, after prompting, that a number of the statements contained in that document were not entirely accurate. He was asked why he had signed the witness statement as true and correct. He replied that he had signed the statement "hurriedly". 176 The circumstances surrounding Mr Davis' alteration to his witness statement to substitute for the expression "Crombie said that he had decided to leave Capital, and look elsewhere for work", the expression "Crombie said that he had resigned from Capital, and lookedelsewhere for work" were, not surprisingly, the subject of extensive cross-examination. Because of the relevance of this cross-examination to Mr Davis' credit I propose to set out in some detail a number of passages from it. "MR MAGEE: Mr Davis, could you look please at paragraph 49 of your witness statement, which is the one you amended?---Yes. Have you spoken to Mr Crombie about any evidence given by either Mr Park or himself since these proceeding began?---No. … I think you said in your evidence yesterday that you realised you wanted to change paragraph 49 about a week ago. Is that correct?---Yes, that's when I read it. Was that the second or third reading of your witness statement that made you reach that conclusion?---It would be the last reading, yes. When the witness statement was originally drawn, paragraph 49 reflected accurately the instructions that you gave at that time, didn't it?---I believe I told my counsel, when instructing him about this statement, that I had used the words "resigned". Well, let me ask you again. When this witness statement was drawn and you read it, it accurately reflected the instructions you had given your counsel, didn't it?---By the reading I had given, perhaps it had, but obviously not on later readings. When drafted and signed by you originally, this witness statement reflected what you told your counsel?---In general terms, yes. It wasn't --- In specific terms in paragraph 48, 49, you said, "Crombie said to me that he had decided to leave Capital and look elsewhere for work." Now, you gave those instructions, didn't you, that, "What Mr Crombie told me was---" … MR MAGEE: The statement, "Crombie said to me that he had decided to leave Capital and look elsewhere for work," reflected accurately the instructions that you had given to the draftsperson of this witness statement, didn't it?---No. You're saying they got it wrong - do you? Your barristers got it wrong? HIS HONOUR: Well, the person who drew the witness statement. MR MAGEE: Who drew the witness statement?---My barrister, my counsel. Which one - or both? --- I don't know if it was both or - I'm sorry. I gave instructions originally to one. Please answer my question. Was it Mr Herskope, was it Mr Evans or both? HIS HONOUR: Or don't you know? --- I don't know who physically drew it. MR MAGEE: Who did you give the instructions to, that, "Mr Crombie said he had decided to leave Capital and look elsewhere for work"? --- I don't know that that's what I said but the main instruction was given to Mr Evans. Do you say that Mr Evans made that up, do you? ---I don't say he made it up. This is not word for word. There were many words spoken. I didn't draw the statement up. I didn't type it up. I didn't put it into terminology. I was asked to explain in a broad sense what happened, what were the circumstances of this matter, which I did. Now, I can't say that I spoke every single word that's in this statement. Obviously one has to be more careful. In a general sense, in a global sense, this is what happened. It's a truthful account of what happened. But whether every single word was the word I spoke, I can't say. I didn't draw it up. But I said a lot of things - voluminous amounts. Have you finished your answer, Mr Davis? --- Sorry, yes. Mr Davis, I will not ask you about precise words because sometimes you can't recall precise words. I'll ask you about the substance of the words. In substance then, the statement, "Crombie said to me that he had decided to leave Capital and look elsewhere for work" ‑ those words in substance reflects the instructions that you had given your counsel? --- No. What I said ‑ that he had resigned from Capital and was looking for work elsewhere. And you didn't pick this up until about the third reading? --- No, I didn't. I had a lot on my plate. I've got a lot of other things --- Yes, well, we're not concerned about those? --- No, I know. You understood at all times, didn't you, the difference between a decision to leave Capital and a resignation? --- I was clearly of the opinion ‑ of the understanding ‑ that he was leaving Capital, he had resigned from Capital, he was going, clearly. So can you say now that you can actually recall what Mr Crombie said? Can you recall the actual words he said? --- Yes, I can recall the words he said. Not the substance now; you can remember the exact words?--- I'm not surprised at anything you've told me and I think you should know that I've resigned from Capital and if there is any work that you know of or anything I could do, I would be interested." I see. So that has been fixed in your mind all the time ‑ a clear recollection of that since the conversation occurred? ---I haven't thought about it a lot. You have a clear recollection of those actual words, you tell us, and you must have had that since the conversation occurred? --- Yes. "I'm not surprised at what you've told me. I've resigned from Capital and I'm looking for work and if there's anything you know of, would you please let me know." But you didn't pick those precise words up when you looked at the paragraph 49. You didn't say, "Look, that doesn't ‑ I remember the precise words." You didn't say that, did you? --- No, it didn't ignite in my mind - I probably read through it ‑ that "I decided to leave" or "I've resigned" is a huge issue, as I read through this. That's the fact, isn't it, that you didn't think resignation was a big issue at that stage. You didn't understand the significance, did you, of the date of resignation when you swore this witness statement, did you? --- I've never thought about it. To me - You - I'm sorry, I interrupted? --- I beg your pardon. I think we're both begging each other's pardon. I'll perhaps start again. HIS HONOUR: Do you want to say something further in answer to that question, Mr Davis, or had you completed your answer? --- I think I was completed, your Honour. MR MAGEE: Mr Davis, do you say that ‑ first of all, you agree with me, do you, that you read paragraph 49 and you signed it ‑ you've told us that ‑ and on at least one other occasion and you thought it accorded with your instructions on both those occasions? --- I signed it as being a reasonable summary of what I had said to my barrister, without going into the detail of every word, every comma, every full stop. The reasonable summary you saw, the words that conveyed the reasonable summary to you, said nothing about resignation, did it? --- Not here, no. "Leaving" was resignation, in my mind, so yes. I'm sorry, "leaving" was resignation? --- It was crystal clear he had resigned. Just answer my question. Do you say "leaving" was resignation or ---? Obviously as I read this, yes. Did you just say that, "Leaving was resignation, in my mind"? --- In reference to reading this, to your last question. So if a person had said they were leaving you would have taken that as meaning, "I was resigning" or "I had resigned"? --- No, he did tell me he had resigned. Why did you say, "Leaving and resignation are the same thing in my mind"? --- It was in answer to your previous question. No, it wasn't, Mr Davis. It was a comment that you made and the transcript will bear that out. Why did you say that? --- Because I was thinking about your previous question. Does "leaving" and "resignation" mean the same thing, in your mind? --- No, it doesn't when you consider it carefully. When you read paragraph 49 on the two occasions did leaving, deciding to leave and resigning mean the same thing in your mind? --- As I read through it, yes, because ‑ yes, as I read through it, it did. If Mr Crombie had said to you, "I've decided to leave", you would have taken that as meaning, "I've decided to resign"? --- No, I wouldn't have. You're quite sure of that? --- Quite sure of that. 177 Mr Davis agreed that he had arranged to meet Mr Healy within a couple of days of receiving Mr Crombie's initial call. He said that he was horrified to learn from Mr Healy that Sentinel was going to withdraw its investors from the Copperfield loan transaction. He saw that as a threat to Classic Trading's security. He said that the conversation with Mr Crombie regarding his "resignation" had occurred the next day, after his meeting with Mr Healy. He was aware, at that stage, that Mr Boyle had double pledged the loan book. He agreed that did not want CIC to know anything about Sentinel's clients' plans to pull out of the Copperfield investment. He also agreed that it had crossed his mind that if CIC discovered that Sentinel was planning to withdraw its investors, CIC or Mr Boyle "might do something" that would further affect Classic Trading's security. 178 Mr Davis insisted that when he met with Mr Healy he had no idea that Mr Crombie wanted to resign. The meeting had taken place the day before there had been any intimation of this by Mr Crombie. He was then asked the following questions: "Mr Davis, if you didn't want CIC to find out and you thought Mr Crombie had not resigned, why did you phone Mr Crombie and tell him what Mr Healy had told you? ---Because he had told me - he was the person that told me that I should go and see Mr Healy, and I rang him back to tell him that the security was defective and in fact it had been double-pledged. But, Mr Davis, you just told us that you wanted all this kept quiet from CIC. Mr Crombie was a director of CIC. Why were you telling a director the very thing you wanted to keep quiet from CIC? --- Because he was a director that had told me that my security could be in jeopardy and if he was me, he would be going to see Mr Healy. So you thought that he was not going to pass the information on? You thought he'd keep it quiet, didn't you - the information you were giving him?---Yes. You understood that he was not going to tell the company of which you then believed he was a director, the information you were giving him?---Look - - - Look, you understood that he was not going to give the information you were giving to him, to the company of which he was a director, didn't you?---No. I felt I owed him a duty to tell him what Mac Healy had told me. You said you didn't want CIC to know, yet you tell a director of CIC and you say you have no reason to believe at that stage he was going to resign. You were telling CIC, weren't you?---No, I was telling Frank Crombie. That's right, because you knew Frank Crombie would not pass that information on, didn't you?---No, I didn't know what he would do. I thought he needed to be armed with the information." 179 Mr Magee then suggested to Mr Davis that his evidence concerning the outcome of his meeting with Mr Healy made no sense. To suggest to Sentinel that it switch its clients into the Asian book investment could only have diminished the security which Classic Trading had over the Copperfield loan book. He was then asked: "When you told Mr Crombie about the meeting with Mr Healy, did you consider that you might be compromising his position as a director of CIC?---I never thought about it. Did you think a director of CIC owed obligations to his company to pass the type of information you've given him onto the company?---It depends what sort of dishonest activities were going on in the company." (emphasis added) 180 Mr Davis agreed with Mr Magee that he had expected, throughout his negotiations with Sentinel, that NFG would receive a fee for managing the Hemisphere loan portfolio. He was then asked what he had thought Mr Crombie would do with the information which Mr Davis had conveyed to him concerning what Mr Healy had said. He replied: "Whatever he wanted to, because he had alerted me to the problem. It was up to him." 181 Mr Davis immediately added that he had thought it likely that Mr Crombie would tell Mr Park what Mr Healy had said. 182 In answer to a question from me, Mr Davis said that when he had previously referred to "dishonest activities" within CIC he had been referring to Mr Park's failure to have kept him informed of various matters which Mr Davis considered he ought to have known about. 183 Mr Magee then asked Mr Davis again whether he had thought that Mr Crombie would tell Mr Park what Mr Healy had said. On this occasion, Mr Davis said that he had not considered that he would do so, but added that it would not have worried him if he had. 184 Mr Davis was asked when he knew for certain that the Copperfield investors were going to take up loans from Hemisphere. He said that by late June 1996 he was aware that they would do so. He was then asked why, having regard to that answer, NFG had opened a Hemisphere Management account on 28 May 1996, at least several weeks before it was known that it would be the loan manager. He explained that he might have been doing some other business with Mr Loftus. That explanation was challenged by Mr Magee who pointed out that Mr Crombie had been designated, on 28 May 1996, as general manager of NFG, and as a signatory to the account. In addition, the Notice of Authority referred to a resolution of a meeting of the directors of NFG having conferred authority upon Mr Crombie, as general manager, to operate the account. Mr Davis acknowledged that, in all likelihood, no such meeting had taken place. He also acknowledged that what was set out in the document of 28 May 1996 was plainly false. He went so far as to agree that the document must have been known to be false on the day that it was executed. 185 There was then extensive cross-examination of Mr Davis directed, in the main, towards impugning his credit. It is unnecessary for present purposes to summarise that cross-examination.

other relevant evidence 186 Three other witnesses gave evidence which was of some significance to the issue to be resolved. They were Mr Shaw and Ms Hall who were called on behalf of CIC, and Mr Moscatelli who was called on behalf of Mr Crombie and the Davis parties. 187 Mr Shaw said that between early to mid 1995 and 22 November 1996 he had acted as a consultant, providing loan management administration services to Capital. On about 25 November 1996 he began to provide similar services to NFG and continued to do so until mid-April 1998. 188 Mr Shaw said that several months after he joined Capital he arranged for Ms Hall to take up employment as a loan administrator and collections officer. Both he and Ms Hall were responsible in the first instance to Mr Crombie who was the office manager. He said that early in 1996 he was aware that due diligence enquiries were being conducted in relation to a proposed acquisition by CIC from Entercorp of some loan books. These included the Copperfield loan book. He was not personally involved in those due diligence enquiries and, from his perspective, Mr Crombie had appeared to be responsible for their conduct. 189 Mr Shaw said that from about mid to late-May 1996 Mr Crombie came into the office less frequently. His attendance fell away to the point where often he did not come to work at all. In early June 1996 Mr Crombie had approached him on several occasions and said that he was setting up another finance business with the support of Mr Davis. He asked Mr Shaw to join him, telling him that Ms Hall had already agreed to do so. Throughout the period July to October 1996 Mr Crombie continued to press Mr Shaw to leave Capital and join him at NFG. Finally, in mid-November 1996 Mr Shaw agreed to do so. At NFG he acted as a loan administrator working on a video documentary project. Ms Hall was responsible for monitoring the Asian book investment. NFG acted as loan manager for Hemisphere in relation to both the that investment and the video deal. 190 Ms Hall said that she had been employed by CFC between August 1995 and 28 June 1996 as a loan administrator and collections officer. During the period March to June 1996 she was responsible for monitoring the performance of loan agreements made between Entercorp and the applicants in this proceeding. She arranged for the collection of payments and ensured that all necessary documentation was in place. 191 Ms Hall said that in about early to mid-June Mr Crombie told her that he was setting up business for himself. He asked her to leave Capital, and to join him. He offered her more money than she was then being paid. On 24 June 1996 she gave a week's notice to Capital. She terminated her employment with CFC on 28 June 1996. 192 From the time she began her employment at NFG Ms Hall was responsible for managing the loan portfolio in relation to the Asian book investment. That deal had over 100 investors who invested in nine partnerships. During July and August 1996 she was in almost daily communication with Ms Naomi Spingall of Sentinel in relation that company's investors and their involvement in the Asian book investment. The interest payable on the switched loans was to commence from 1 July 1996. The total loans over the nine books were in the order of $13 million. The loans had a five year term. Cancellations of existing periodical payment authorities in favour of Entercorp were arranged. The borrowers who had previously invested in the Copperfield tour were not required to pay NFG any upfront application fees or stamp duty. 193 Mr Crombie and the Davis parties called Mr Moscatelli, a principal in the firm Ibbotson & Moscatelli Pty Ltd. Mr Moscatelli is a certified practising accountant. He was engaged by NFG as its accountant in about May 1996. 194 Mr Moscatelli recalled that in May 1996 he had a meeting with Mr Davis. His diary for that year recorded that the meeting took place on 23 May. He said that at the meeting Mr Davis told him that Mr Crombie "either had resigned or was about to resign from the Capital group of companies" - he could not recall which. He had not met Mr Crombie at that time. Mr Davis asked him how a director would notify the ASC of his resignation from a particular company. Mr Moscatelli explained that there were two types of forms available. These were a Form 304, which was used when a director resigned with the consent of, or was removed by, the remaining directors, and a replacement director was appointed, and a Form 370, which was used when a director resigned without a replacement director being appointed, or when the remaining director or directors would not sign a Form 304. 195 Mr Moscatelli said that he spoke to Mr Davis on 10 June 1996. Mr Davis told him that Mr Park had not prepared the relevant paperwork to allow Mr Crombie to resign his directorships in various Capital companies, as promised. He asked Mr Moscatelli to arrange for the appropriate forms to be completed and lodged with the ASC. Mr Moscatelli told Mr Davis that he would prepare a series of Form 304s, but that he required Mr Crombie's personal details. These were faxed through the next day. On 12 June 1996 Mr Moscatelli sent the Form 304s to Mr Davis. 196 Mr Moscatelli was then shown a bundle of nine Form 370s which appeared to be have been signed by Mr Crombie. These were dated 2 August 1996. He recalled that Mr Davis gave him these forms on 7 August 1996. Mr Moscatelli made copies and lodged the originals with the ASC. He produced an assessment receipt from the ASC dated 16 August 1996 recording their lodgement.

the cross-respondents' closing submissions 197 Mr Herskope submitted that the evidence failed to establish that Mr Crombie had acted in breach of any fiduciary duty which he owed to CIC. He also contended that even if Mr Crombie had acted in breach of that duty, the evidence failed to establish any accessorial liability on the part of Classic Trading, Mr Davis or NFG. 198 Mr Herskope submitted that there was really only one issue to be determined so far as the case against Mr Crombie was concerned. There was a clear contest between Mr Crombie and Mr Park as to whether Mr Crombie had told Mr Park that he was leaving Capital, or that he was resigning, on either 15 or 16 May 1996. He submitted that I should accept Mr Crombie's account of what transpired in preference to that of Mr Park. 199 Mr Herskope submitted that CIC's Articles of Association operated to permit Mr Crombie to resign as a director merely by giving oral notice to Mr Park. He referred to Knight v Bulic (1994) 13 ACSR 553 in support of that contention. He submitted that the fact that Mr Crombie had signed some documents on behalf of CIC as a director right through May and June 1996 did not detract from the fact that he had effectively resigned on 15 or 16 May 1996. Mr Crombie had explained that he had continued to sign documents on behalf of CIC as a director because he had been asked to do so by Mr Park. CIC had been required, at that time, to have a second director by reason of the terms of its Articles of Association, if not by the Corporations Law. Mr Herskope acknowledged that the execution by Mr Crombie of documents on behalf of CIC might have affected that company's position as against third parties who had no notice of his earlier resignation. However, the execution of such documents could not confer upon CIC rights against Mr Crombie given that it was fully apprised, through Mr Park, that he had already resigned as a director. 200 Mr Herskope frankly acknowledged that neither Mr Crombie nor Mr Davis had been particularly impressive witnesses. He submitted that the same could be said of Mr Park. He contended that what should incline the Court to prefer the evidence of his clients was the evidence of Mr Moscatelli. That evidence was credible and supported by contemporaneous documents. 201 Mr Herskope mounted a strong attack upon Mr Park's credibility. He submitted that his evidence had been given in an evasive manner, and that some of what Mr Park had said was demonstrably inaccurate. He pointed to a number of examples which, he submitted, bore out that contention. These included: · Mr Park said that he first discovered that Mr Crombie had resigned as a director of CIC in late November, or early December 1996. However CIC had executed a Deed of Assignment of a charge, purportedly on 1 August 1996, but certainly no later than 18 September 1996, that being the date upon which it was lodged with the ASC. Mr Park had signed the execution clause on behalf of CIC as its sole director and secretary. It followed, logically, that by that date he must have known that Mr Crombie had already resigned as a director. · Mr Park denied having ever been employed by Classic Trading. He said that if a document referred to his having been so employed, it did so in error. Exhibit D8 was an affidavit sworn in 1993 in other proceedings in which Mr Park said: "I am employed by Classic …". · Mr Park was questioned about a letter dated 9 May 1996 from Cornwall Stodart (Ex D33) which disclosed that firm's concerns about the Entercorp loans. The following exchange took place: "MR HERSKOPE: Mr Park, I suggest to you that at no time did you disclose to any of the third party lenders either your concerns as disclosed in this letter or the conclusion reached by Cornwall Stodart. Would you dispute that? MR PARK: Yes I would, Mr Herskope and I told various of our lenders we were seeking in fact or contemplating entering into replacement loan agreements and that Entercorp and Sentinel had agreed to rewrite them, and the reason we were doing that is that it fitted the parameters upon which the bank purchase loans from us." However, in his further witness statement, Mr Park had said that he had not spoken to, nor met with, Mr Quarrell or Mr Healy before 3 July 1996. By that date, the applicants (and other Sentinel clients) had already entered into the Asian book investment. So, Mr Herskope contended, either Mr Park's answer in cross-examination was a fabrication, or he had been deceiving the third party lenders regarding the security of their loans, by informing them that Entercorp and Sentinel had agreed that they would be rewritten. · The evidence showed that Mr Park had failed to disclose to third party lenders (including Classic Trading) matters which had been brought to his attention by Cornwall Stodart in letters dated 20 February 1996, 24 April 1996 and 9 May 1996. Mr Park acknowledged that he had not disclosed the contents of the letter dated 20 February 1996 to any of those lenders, though he suggested that Mr Davis had "probably" seen it. Mr Davis had denied that suggestion. In relation to the letters of 24 April and 9 May 1996, Mr Park again conceded that he had "probably not" passed on their contents to the third party lenders. However, he suggested that Mr Davis would, in all likelihood, have been informed of their contents. Mr Davis had denied that suggestion. 202 Mr Herskope also relied upon the evidence given by Mr Davis that Mr Crombie told him within a day or two of 15 or 16 May 1996 that he had told Mr Park that he had resigned from Capital. He submitted that Mr Park's evidence that Mr Crombie "just disappeared one day" and that that "was a source of amusement, aggravation, and so forth to all and sundry" was utterly implausible. He reminded me that no former employees of Capital (other than Mr Shaw and Ms Hall) had been called to support Mr Park's case. He invited me to conclude that their evidence would not have assisted that case. 203 Mr Herskope also attacked the evidence given by Mr Shaw and Ms Hall. Mr Shaw said that Mr Crombie told him in early June 1996 that he was going to set up another business with the support of Mr Davis and asked Mr Shaw to join him. However, Mr Shaw also swore that "in or about late June I realised that Crombie would not be returning to Capital". When asked how he came to that realisation, Mr Shaw conceded that he had "absolutely no idea". He further conceded that, with regard to Mr Crombie's attendance at the office of Capital throughout May and June 1996, the best he could say was that Mr Crombie's path, and his own, had not crossed. 204 Ms Hall's evidence was attacked as having been equivocal. She said that could not recall a conversation with Mr Crombie where he told her that he had resigned from Capital in May 1996. Mr Crombie gave evidence that such a conversation had occurred. Ms Hall's evidence did not detract from Mr Crombie's account. 205 Mr Herskope reminded me that Mr Park had said that by late May 1996 Mr Crombie was rarely in the office. However, the elevator and security access records showed that this was not true. Mr Crombie said that he had continued to work at Capital's offices from the time he told Mr Park that he was resigning until the end of June 1996. The bank authority signed by Mr Crombie and Mr Park on 27 June 1996 was entirely consistent with Mr Crombie's account. 206 Mr Herskope relied heavily upon the evidence of Mr Moscatelli which, he submitted, supported Mr Crombie's account of what had occurred. He pointed out that Mr Moscatelli had given evidence that on 23 May 1996 he had discussed with Mr Davis the possibility of a "new venture" which, he recalled, was the arrangement between Mr Davis and NFG on the one hand, and Mr Crombie on the other. Mr Herskope submitted that Mr Moscatelli's evidence was confirmed by relevant extracts from his diary. He submitted that Mr Moscatelli was perhaps the only witness who gave evidence in this case who could truly be described as independent. He submitted that, whatever view I might take of Mr Davis, Mr Moscatelli's evidence clearly showed that by late May or early June 1996 Mr Davis believed that Mr Crombie had already resigned from CIC. He submitted that if Mr Davis held that belief, neither he nor Classic Trading nor NFG could be liable under the rule in Barnes v Addy. 207 Mr Herskope acknowledged that Mr Magee had mounted a strong attack upon Mr Crombie's credit. Mr Magee had suggested that Mr Crombie had amended his witness statement in order to meet Mr Magee's comment, in his opening address, that the sequence of events set out in the witness statement did not accord with Mr Crombie's account of the events of April to July 1996. Mr Herskope submitted that Mr Crombie had provided a satisfactory explanation as to how he had come to make these amendments. He had not drawn the witness statement himself. It had been drawn on the basis of his instructions and it plainly reflected the language and style of whoever had drawn it, rather than his own. Mr Crombie said that he had been asked to look closely at the document shortly before he was scheduled to give evidence. He had done so and concluded that it was not wholly accurate. It had been entirely reasonable for him, in those circumstances, to amend the statement in the manner which he had done. 208 Mr Herskope acknowledged that it was apparent from the evidence of Mr Crombie and Mr Davis that one or other of them was confused regarding the timing of certain critical events. Mr Crombie said in par 76 of his witness statement that the first telephone call which he received from Mr Healy was in "late March or early April 1996". According to Mr Crombie he received a second telephone call from Mr Healy "about a week later" expressing concern about what was happening with Entercorp. It was after this second telephone call that he rang Mr Davis and told him of his conversations with Mr Healy and suggested to Mr Davis that he should consider having a meeting with Mr Healy. On Mr Crombie's version this second telephone conversation must have occurred no later than mid-April 1996. 209 Mr Davis, on the other hand, said that this second telephone conversation with Mr Crombie took place in mid-May 1996. He said that he met with Mr Healy within a day or so of receiving Mr Crombie's second call. He said that he spoke with Mr Crombie again on the day after that meeting. It was during the course of that conversation that Mr Crombie told him that he had resigned from Capital. 210 Mr Crombie's evidence is impossible to reconcile with that of Mr Davis. Mr Herskope submitted that I should conclude that Mr Crombie was mistaken and that his conversations with Mr Healy must have occurred in May 1996 rather than March or April 1996. He submitted that the evidence of Mr Moscatelli that he met with Mr Davis on 23 May 1996 to discuss NFG as a "new venture" made it plain that Mr Davis' recollection was to be preferred to that of Mr Crombie. 211 Mr Herskope submitted that there was nothing to suggest that the telephone conversations between Mr Crombie and Mr Healy had occurred any earlier than mid-May 1996. There was no other evidence to suggest that any of the matters relied upon by CIC in pars 31C or 31D of the September 2000 cross-claim were known to Mr Crombie prior to that time. The sole exception was the purported execution of the Deed for Administrative Services between Hemisphere and NFG which was dated 10 May 1996. Mr Davis said that the deed had been prepared at the behest of Mr Loftus, and must have been executed in June or July 1996. There was no reason not to accept that evidence. 212 Mr Herskope then turned to the Barnes v Addy claim against Mr Davis. He submitted, correctly, that in order for that claim to succeed, the claim against Mr Crombie must first be accepted. However, an adverse finding against Mr Crombie did not, of itself, mean that Mr Davis would be liable. 213 Mr Herskope drew attention to CIC's pleading against Mr Davis. CIC claimed that Mr Davis had "caused, procured or assisted" Mr Crombie in the breach of his fiduciary duty. It alleged that Mr Davis knew that Mr Crombie was acting in breach of that duty or, alternatively, that he knew of various matters which would have put a reasonable person on notice of that fact. It alleged further that by setting up of the Asian book investment, and "directing, consenting or agreeing" to Mr Crombie failing to disclose his alleged conduct, as set out in pars 31C and 31E of the September 2000 cross-claim, Mr Davis had engaged in conduct which gave rise to liability under Barnes v Addy. 214 Mr Herskope submitted that in order for Mr Davis to be held accountable for Mr Crombie's acts, it was necessary for CIC to establish that he had acted "dishonestly". He referred in that regard to Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at 389; Humphris v Jenshol (1997) 160 ALR 107; and Compaq Computer Australia Pty Ltd v Merry (1998) 157 ALR 1. He submitted that Mr Davis could not be liable for Mr Crombie's conduct unless CIC proved that at the time Mr Davis was arranging for Sentinel's clients to switch their investments to NFG, he considered Mr Crombie to be still a director of CIC. 215 Mr Herskope submitted that I should conclude that Mr Davis, having been told by Mr Crombie shortly after 15 or 16 May 1996 that he had resigned as a director of CIC, had acted upon that assumption. 216 Mr Herskope invited me to reject the attack which had been made upon Mr Davis' credit arising from the amendment made to his witness statement when he came to give evidence. Mr Davis had explained how that amendment had come to be made. It was submitted that his evidence was plausible, and should be accepted. 217 Mr Herskope next submitted that even if I were to reject Mr Davis' evidence entirely and find that he knew that Mr Crombie was still a director of CIC throughout May and June 1996 he would still not be liable under the rule in Barnes v Addy. It was submitted that there was no evidence that Mr Davis had "dishonestly" procured or assisted Mr Crombie in his breach of fiduciary duty. Mr Davis could not be liable to CIC merely because he had not taken steps to ensure that Mr Crombie informed Mr Park (as the other director of CIC) of what Mr Crombie had discovered. Nor, it was submitted, could Mr Davis be liable to CIC even if he had encouraged Mr Crombie not to tell Mr Park about the Asian book investment, or the role that NFG would play in managing that investment. Mr Davis owed no duty of any kind to CIC. 218 Finally, Mr Herskope submitted that even if I were to find that Mr Davis had procured or assisted Mr Crombie in breaching his fiduciary duty, his conduct should not be characterised as "dishonest". He had been entitled to feel aggrieved at the manner in which Mr Park had treated him, and Classic Trading throughout the preceding months. He believed that Mr Park had deceived him. In the circumstances, his conduct was both reasonable and entirely explicable. 219 Mr Herskope next submitted that the only evidence before the Court relating to Classic Trading was of a series of loans which it had made to CIC. He contended that there was no evidence to suggest that Classic Trading had played any other role in the events of May to July 1996. The fact that Mr Davis controlled CIC did not, of itself, render CIC liable for any breach of fiduciary duty on Mr Crombie's part, or any involvement on Mr Davis' part in any such breach of fiduciary duty. He drew attention to a passage from his written submission in which he said: "41. Classic is a company of which Davis is both a director, and a person in effective control …. It is not pleaded that Crombie has or had anything to do with Classic's management or operations, nor is it pleaded that Crombie ever acted on Classic's behalf as its agent. In any case, there is no evidence to support such a finding. There is also no evidence which will support a finding that Davis was acting in his capacity as director or controller of Classic in his involvement with the Asian book investments." 220 Mr Herskope submitted that there was no evidence of any nexus between Mr Crombie's alleged breach of fiduciary duty and Classic Trading which would make it appropriate to fix that company with liability. There was no evidence to support a finding against Classic Trading that it promoted, managed and/or funded the Asian book investment. It had not been suggested to Mr Davis that in his dealings with Sentinel or in his dealings with Mr Loftus he had been acting in his capacity as a director of Classic Trading. Classic Trading had nothing to do with the Asian book investment which was managed by a separate entity, NFG. 221 Lastly, Mr Herskope turned to the question of NFG's accessorial liability, NFG was said to have aided and abetted, or counselled or procured, Mr Crombie's breach of fiduciary duty by being the instrument of the switch to the Asian book investment. Mr Herskope reminded me that Mr Crombie was not appointed a director of NFG until 4 October 1996. 222 Mr Herskope submitted that there was no evidence to suggest that Mr Crombie had, at any time prior to his appointment as a director of NFG, exercised any executive functions on its behalf. By the time that he began to do so, he plainly no longer owed any fiduciary duty to CIC. 223 Finally, Mr Herskope submitted that NFG could not be liable for Mr Crombie's conduct under Barnes v Addy unless Mr Davis was also be held to be liable. 224 Mr Herskope submitted that if I were to find that Mr Crombie had resigned as a director of CIC on either 15 or 16 May 1996, as he claimed, he could not be liable for breach of fiduciary duty. He submitted that the alternative claim put on behalf of CIC that Mr Crombie owed it fiduciary duties throughout May and June 1996 because he remained an employee, and/or consultant, of the company was misconceived. Mr Crombie had never been employed by CIC. He was employed by Marcrom which contracted with CFC (not CIC) to provide his services to members of the Capital group. 225 Finally, Mr Herskope contended that even if Mr Crombie had remained a director of CIC throughout May and June 1996 he was only what was described as a "nominal" director. CIC was clearly at all times subject to the control and domination of Mr Park. Mr Crombie had no equity in the company. Whatever fiduciary duties he might have owed were minimal and were not breached by anything which he did.

CIC's closing submissions 226 Mr Magee commenced his closing submissions by noting that the allegations contained in pars 31C, 31D and 31E of the September 2000 cross-claim were all admitted by Mr Crombie and the Davis parties. So too was the quantum of CIC's claim. 227 He submitted that the effect upon CIC of the conduct which had been admitted was: · Firstly, CIC had taken an assignment of the Entercorp loan books. The Copperfield loan book was one of four of those loans. Part of the switch to the Asian book investment involved the Copperfield clients no longer making payments to Entercorp in respect of the Entercorp loans. This meant that CIC was deprived of its principal asset which it might recover only through litigation. Part of the inducement for the Sentinel clients to switch their investments was that their legal costs would be met by Hemisphere in the event that any such proceedings were instituted against them. Both Mr Crombie and Mr Davis knew this. Therefore the admitted conduct not only diminished the worth of CIC's principal asset, but also placed a significant obstacle in its path in seeking to recover that asset. · Secondly, Mr Davis and Mr Crombie took advantage of the situation that arose. They denied CIC the opportunity of dealing with Sentinel to try and address its concerns or offer its clients alternative investments which CIC would fund. The only defence which had been made to CIC's claims was Mr Crombie's allegation that on either 15 or 16 May 1996 he had told Mr Park that he was resigning "effective immediately". That claim was said to absolve Mr Crombie, after those dates, from any responsibility to CIC for the conduct which had been admitted, and consequently to absolve Classic Trading, Mr Davis and NFG. 228 Mr Magee submitted that I should conclude that Mr Crombie's evidence was a fabrication and that he never, at any stage, told Mr Park that he was resigning from Capital. However, he submitted that even if I were to find that Mr Crombie had said to Mr Park that he was resigning, that would be of no consequence. Mr Crombie had stayed on as a director throughout May and June 1996. He continued to perform his duties exactly as he had in the months leading up to that period. Mr Davis was fully aware that Mr Crombie was still working for Capital throughout this period. Indeed, he was privy to documents which Mr Crombie was still signing as a director of CIC at the same time that arrangements were being made for NFG to take over CIC's business. 229 Mr Magee referred to a number of authorities regarding the scope and ambit of the fiduciary principle. He described the raison d'ętre of that principle as the protection of relationships of trust and confidence. He referred in particular to Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97 per Mason J and Chan v Zacharia (1984) 154 CLR 178 at 198-199 per Deane J. He submitted that equity requires that a person under a fiduciary obligation should not put himself in a position where interest and duty conflict. If conflict is unavoidable it should be resolved in favour of duty and, except by special arrangement, a fiduciary should not make a profit out of that position. 230 Mr Magee submitted that accepted fiduciary relationships include trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners: Breen v Williams (1996) 186 CLR 71 at 92 per Dawson and Toohey JJ and Hospital Products at 96 per Mason J. He submitted that it is trite law that a director stands in a fiduciary relationship to the company of which he is a director: Regal Hastings Ltd v Gulliver [1967] 2 AC 134 at 139 and Hospital Products at 96. The law imposes fiduciary duties on directors to guard against misuse of the power to control and manage the company which is vested in the directors by the company's constitution: Ford's Principles of Corporations Law at par 8.010; Pilmer v Duke Group Ltd (2001) 180 ALR 249. 231 Mr Magee submitted that directors are required to meet high standards of loyalty. They are required to act honestly, and in good faith for the benefit of the company as a whole. They must not misuse their position for their own advantage, or that of a third party, except with the company's fully informed consent. They must account to their company for any gain which they make in connection with their fiduciary office. They must not appropriate the company's property for their own benefit, or that of a third party. 232 Mr Magee submitted that it was clearly established that a person irregularly appointed as a director, or who effectively acts as a director, is subject to the same fiduciary duties as a director who is validly appointed: Avtex Airservices Pty Ltd v Bartsch (1992) 107 ALR 539 at 561-562; Consul Development Pty Ltd v D P C Estates Pty Ltd (1975) 132 CLR 373 per Gibbs J at 394. He submitted that there is no distinction between a director and a "nominal" director for these purposes. All directors owe fiduciary obligations to their companies. 233 Moreover, even if Mr Crombie was no longer formally a director of CIC after he supposedly told Mr Park that he was resigning, he continued to act as a director until the end of June 1996. By his own admission he signed cheques, letters and other documents on behalf of CIC until 27 June 1996. For example on 17 June 1996 he executed a debenture charge and a Deed of Variation. As late as 27 June 1996 he signed letters as a director on behalf of CIC. It followed that he was subject to the same fiduciary duties throughout the time that he was assisting NFG to take over the Sentinel investments, and thereby deprive CIC of its principal asset. 234 Mr Magee submitted that even if Mr Crombie had informed Mr Park that he was resigning from Capital, he remained an employee in a managerial role for some weeks after that had occurred. Employees in managerial positions owe duties of fidelity similar to those owed to a company by a director: Timber Engineering Co Pty Ltd v Anderson [1980] NSWLR 488. 235 Mr Magee submitted that Mr Crombie had been under a duty to disclose to CIC the matters referred to in pars 31C and 31E of the September 2000 cross claim. He submitted that where commercially sensitive information comes to a person in his capacity as a director of a company he is ordinarily bound to ensure that the company is properly made aware of that information: Industrial Development Consultants Ltd v Cooley (1972) 1 WLR 443 at 451. 236 Mr Magee submitted that the matters referred to in par 31C of the September 2000 cross-claim came to Mr Crombie's knowledge in his capacity as a director or at least senior officer of CIC. Mr Crombie had used that knowledge or information. He had, while still a director of CIC, accepted a position with NFG and facilitated the establishment of its business as loan manager of the Asian book investment. He had, while still a director of CIC, offered Ms Hall a position with NFG. He had, while still a director of CIC, arranged for money to be paid into NFG's Hemisphere management account in respect of the Copperfield investment. 237 Mr Magee submitted that the facts in the present case bore some similarity to those considered by the High Court in Warman International Ltd v Dwyer (1994-95) 182 CLR 544. In that case the Queensland manager of an Australian business was held to have acted in breach of his fiduciary duties to his employer in circumstances where the manager resigned and shortly afterwards entered into a joint venture with a manufacturer who supplied products to the former employer. The manufacturer then terminated its agency arrangements with that employer. Negotiations between the manager and the manufacturer had occurred prior to his leaving the business. It was said at 556: "There is no doubt that, before leaving the employment of Warman, Dwyer had made at least a preliminary agreement to set up a joint venture with Bonfiglioli, thus supplanting Warman. Instead of attempting to enhance the relationship between Bonfiglioli and his employer, Dwyer actively sought to reduce Bonfiglioli's confidence in Warman. So much is plain from the correspondence and from the fact that Dwyer caused B.T.A. and E.T.A. to be incorporated months before he resigned in 1988. It is also plain that Dwyer made arrangements with the other staff of Warman's Queensland branch to the effect that they would leave Warman and become the staff of the new distributing agent if and when his plans came to fruition. Hence this is a clear case of a fiduciary breaching his obligations." 238 Mr Magee submitted that it was plain that Mr Crombie had been acting as a director of NFG since at least mid-1995. He had continued to act as a director of that company throughout the period between March and June 1996. By assisting NFG to establish itself as loan manager of the Asian book investment, Mr Crombie may have been acting in its interests, but that was no defence to a claim against him by CIC for breach of fiduciary duty. Where a person is a director of several companies, that person cannot resist a claim for breach of fiduciary duty by one of those companies by asserting that he was acting in the interests of another company. Mr Magee referred to The Queen v Byrnes (1995) 183 CLR 501 at 516-517 per Brennan, Deane, Toohey and Gaudron JJ: "A company is entitled to the unbiased and independent judgment of each of its directors. A director of a company who is also a director of another company may owe conflicting fiduciary duties. Being a fiduciary, the director of the first company must not exercise his or her powers for the benefit or gain of the second company without clearly disclosing the second company's interests to the first company and obtaining the first company's consent. Nor, of course, can the director exercise those powers for the director's own benefit or gain without clearly disclosing his or her interest and obtaining the company's consent." (footnotes omitted) 239 He referred also to Humphris v Jenshol (supra) at 118-120. 240 Mr Magee submitted that each of the Davis parties, was liable to CIC for having assisted Mr Crombie in the breach of his fiduciary duty because those parties had acted dishonestly in facilitating that breach. Mr Davis' defence to the Barnes v Addy claim brought against him was essentially that Mr Crombie had told him shortly after 15 or 16 May 1996 that he had resigned, or was resigning, as a director of CIC. He submitted that Mr Davis's evidence on this point was simply not credible. The evidence was overwhelming that Mr Davis knew that Mr Crombie continued to act as a director of CIC until at least the end of June 1996. Indeed, Mr Davis had virtually acknowledged when he explained why Mr Crombie had not attended meetings regarding the Asian book investment between Sentinel, Mr Loftus and himself. During May and June 1996 Mr Crombie executed a number of documents on behalf of CIC, as a director of that company, some of which had involved Classic Trading. 241 Mr Magee submitted that a person who dishonestly assists or induces a fiduciary to breach his obligations will be liable as a constructive trustee for any resultant losses and accountable for any gains. He referred to Consul Development Pty Ltd v D P C Estates Pty Ltd (supra) at 396-398 and 404-412; Royal Brunei Airlines Sdn Bhd v Tan (supra) as applied in Humphris v Jenshol (supra) and Compaq Computer Australia Pty Ltd v Merry (supra) at 21-22. He also referred to Hancock Family Memorial Foundation Ltd v Porteous (1999) 32 ACSR 124 at 141-142 and Giumelli v Giumelli (1999) 161 ALR 473 at 475. 242 Mr Magee submitted that the requirement under Barnes v Addy that there be dishonesty had both objective and subjective elements. Dishonest conduct was conduct which fell short of the standards expected of ordinary honest persons. However, the conduct must be viewed in the light of what the person actually knew at the time, rather than what a reasonable person would have known: Royal Brunei Airlines (supra). 243 Mr Magee submitted that Mr Davis was a director of both Classic Trading and NFG, and effectively controlled those companies. Each of the Davis parties stood to gain from the establishment of the Asian book investment. Mr Davis had equity in NFG. By assisting Mr Crombie to breach his fiduciary duty, Mr Davis was acting in his own interests, as well as those of NFG. 244 When Mr Davis spoke to Mr Healy he did so in his capacity as "mind and will" of Classic Trading. Plainly he was concerned about that company's security. 245 In assisting Mr Crombie to breach his fiduciary duty, Mr Davis also acted on behalf of Classic Trading. In Warman (supra) it was noted at 559 that ordinarily a person found to have breached his fiduciary duties would be ordered to render an account of the profits made within the scope and ambit of those duties. However, if the loss suffered by the plaintiff exceeded the profits made by the fiduciary, the plaintiff might elect to have a compensatory remedy in equitable damages against the fiduciary. 246 CIC had effectively been precluded from seeking an account of profits because Mr Davis had refused to answer questions about the monies which had passed through NFG's bank accounts. These matters had been the subject of a National Crime Authority investigation. Hence the only practicable remedy available to CIC was the award of equitable damages. 247 Mr Magee accepted that ordinarily CIC would have to prove that Mr Crombie's breach of fiduciary duty had caused the losses which it had sustained: Beach Petroleum NL v Abbott Tout Russell Kennedy [1999] 48 NSWLR 1. However, in the present case causation had been formally (albeit belatedly) admitted, assuming that a breach of fiduciary duty was proved. 248 CIC had sought equitable damages on the basis that it was entitled to the profits that it would have made if the persons who invested in the Copperfield tour had switched their investments into other projects in respect of which Capital had funded investors in 1996 and 1997. In effect, CIC claimed equitable damages arising out of Mr Crombie's breach of fiduciary duty, and the Davis parties' involvement in that breach. This had led to the loss of an opportunity to generate large profits. He submitted that equitable damages could be assessed on such a basis: Colour Control Centre Pty Limited and CCC Enterprises Pty Ltd v Richard Ty & Ors (unreported, Supreme Court of New South Wales, Equity Division, No 1689/93 per Santow J) at pars 65-69. He submitted that the Court's task was relatively simple once liability was established because both causation and quantum had been admitted. 249 Mr Magee submitted that the various defences put forward by Mr Crombie and the Davis parties were extraordinary. Irrespective of whether Mr Crombie's account of his supposed conversation with Mr Park regarding his resignation was accepted, he was liable, on his own admission, for breach of fiduciary duty. 250 Mr Magee submitted that Mr Crombie's position seemed to be that he had resigned from CIC and was therefore free to act immediately against its interests. He had exploited an opportunity which came his way only because he learned from Mr Healy that he was proposing to withdraw his clients from the Copperfield investment. He discovered Mr Healy's plans in his capacity as a director and employee of CIC. His decision to use that information to further his own interests had resulted in severe damage to CIC, and he should be liable to compensate CIC for his conduct. 251 Mr Magee submitted that Mr Crombie's attempt to portray himself as an employee of Marcrom, rather than of CFC should be rejected. He reminded me of the evidence which he submitted showed that Marcrom had been nothing more than a corporate entity interposed between Capital and Mr Crombie, obviously for tax reasons. In effect, he submitted that the arrangement was a sham and should not be the vehicle for Mr Crombie to escape his responsibilities. 252 Mr Magee submitted that neither Mr Crombie nor Mr Davis were witnesses of credit. He referred, in relation to Mr Crombie, to the evidence concerning payments by CFC to Mr Crombie and his wife, and how Marcrom had, in effect, been bypassed. He referred also to Mr Crombie's evidence concerning his supposed conversation of 15 or 16 May 1996 with Mr Park (in which he allegedly said that he would be leaving in three weeks, but was still working at CIC at least five weeks later). He drew attention to Mr Crombie's evidence concerning the resignation notices (which were not lodged until 9 August 1996) and the implausibility of Mr Crombie's explanation as to how Mr Davis had become involved in that process. He strongly criticised Mr Crombie for the explanation which he gave for having made the last minute changes which he did to his statement. He submitted that Mr Crombie had plainly tailored his evidence in an effort to make it seem that the conversation which he claimed to have had with Mr Park had occurred before he began to act on behalf of NFG. 253 Mr Davis' credit too was subjected to a strong attack. If, as Mr Magee submitted, Mr Crombie had not told Mr Park anything about resigning from CIC on 15 or 16 May 1996, Mr Davis must have fabricated his account, in his amended witness statement, of having been told by Mr Crombie that he had resigned. There would be no reason for Mr Crombie to tell Mr Davis that he had resigned if, in truth, he had not done so. 254 Mr Davis was also attacked for having lied when he said in evidence in-chief that he did not recognise the Deed of Assignment, but conceded in cross-examination that he had been given a copy before Classic Trading executed a Deed of Variation on 17 June 1996. Mr Magee drew attention to the inconsistencies in Mr Davis's evidence regarding whether he thought Mr Crombie would tell Mr Park what Mr Healy had told him. He strongly attacked Mr Davis' credit in relation to the circumstances which led to his having amended his witness statement. 255 Mr Magee submitted that if Mr Davis was liable under Barnes v Addy for Mr Crombie's breach of fiduciary duty, it was plain that Classic Trading and NFG were both equally liable. Mr Davis' actions had been carried out in his capacity as a director of each of these companies. Indeed, he was relevantly their "mind and will". Both Classic Trading and NFG stood to gain financially from facilitating the switch to the Asian book investment. Classic Trading was concerned about its security in relation to the Copperfield tour while NFG was to be the loan manager for the Asian book investment. To suggest that Classic Trading played no role in Mr Crombie's breach of fiduciary obligation, but had merely been a lender to CIC, was to distort reality.

The nature and scope of fiduciary obligations 256 A fiduciary is a person who is under an obligation to act in the interests of another to the exclusion of the fiduciary's own interest. A fiduciary cannot use his or her position, knowledge or opportunity to the fiduciary's own advantage, or have a personal interest in, or inconsistent engagement with, a third party, unless fully informed consent is freely given. Directors of companies have various duties arising under common law, and statutory duties arising under the Corporations Act (formerly the Corporations Law). There can be no doubt that they owe fiduciary obligations to their companies. 257 The High Court has commented upon the principles governing fiduciary obligations on a number of occasions in recent years. In Chan v Zacharia (1984) 154 CLR 178 a medical practitioner carried on business at leased premises. In 1979 he entered into partnership with another practitioner, and a new lease of the premises was granted to them. In 1981 the other practitioner dissolved the partnership. Before the affairs of the partnership were wound up, the other practitioner obtained an agreement to grant that practitioner a new lease of the premises. 258 A majority of the High Court held that the agreement for the new lease was held upon constructive trust for those entitled to the property of the dissolved partnership. Deane J noted that the relationship between the partners had been curtailed and altered by the dissolution of the partnership. It had not, however, ceased to exist. Each doctor, by reason of his position as a former partner remained under fiduciary obligations in respect of the partnership property. Notwithstanding the dissolution of the partnership, "the good faith and honourable conduct due" from each partner to the other persisted for the purposes of winding up the affairs of the partnership. Each partner remained under a fiduciary obligation to the other. 259 His Honour said at 198-199: "There is a wide variety of formulations, of the general principle of equity requiring a person in a fiduciary relationship to account for personal benefit or gain. The doctrine is often expressed in the form that a person "is not allowed to put himself in a position where his interest and duty conflict" … or "may conflict" … The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one "fundamental rule" embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage." (footnotes omitted) 260 His Honour went on to note that many of the statements of general principle requiring a fiduciary to account for a personal benefit or gain were framed in absolute terms - "inflexible", "inexorably", "however honest and well intentioned" "universal application". He commented that expressions such as these sounded somewhat strangely in the ears of the student of equity and observed that the principle was not completely unqualified. He said at 204: "The liability to account as a constructive trustee will not arise where the person under the fiduciary duty has been duly authorized, either by the instrument or agreement creating the fiduciary duty or by the circumstances of his appointment or by the informed and effective assent of the person to whom the obligation is owed, to act in the manner in which he has acted. The right to require an account from the fiduciary may be lost by reason of the operation of other doctrines of equity such as laches and equitable estoppel … It may still be arguable in this Court that, notwithstanding general statements and perhaps even decisions to the contrary in cases such as Regal (Hastings) Ltd. V. Gulliver (fn [1962] 2 AC 134) and Phipps v Boardman (fn [1967] 2 AC 46), the liability to account for a personal benefit or gain obtained or received by use or by reason of fiduciary position, opportunity or knowledge will not arise in circumstances where it would be unconscientious to assert it or in which, for example, there is no possible conflict between personal interest and fiduciary duty and it is plainly in the interests of the person to whom the fiduciary duty is owed that the fiduciary obtained for himself rights or benefits which he is absolutely precluded from seeking or obtaining for the person to whom the fiduciary duty is owed: cf. Peso Silver Mines Ltd (NPL) v Cropper (fn (1966) 58 DLR (2d) 1, at p 8). In that regard, one cannot but be conscious of the danger that the over-enthusiastic and unnecessary statement of broad general principles of equity in terms of inflexibility may destroy the vigour which it is intended to promote in that it will exclude the ordinary interplay of the doctrines of equity and the adjustment of general principles to particular facts and changing circumstances and convert equity into an instrument of hardship and injustice in individual cases …" 261 In Hospital Products Limited v United States Surgical Corporation (1984) 156 CLR 41 an American company manufactured and sold in the United States and elsewhere surgical stapling products of its own design which it marketed under the name "Auto Suture". 262 Without the company's knowledge, its New York dealer first came to Australia in August 1978 and found that the products were not patented in this country. He consulted an expert in metallurgy and provided him with samples of the products so that he might determine their composition. He also consulted Sydney solicitors about competing with the company by marketing its demonstration models in Australia (which he had been accumulating in large quantities for some time) and about the registration in this country of the trade mark "Autosuture". 263 On his return to the United States late in 1978 he suggested to the company that he should be appointed the exclusive Australian distributor of its products in place of the present distributor. Among other things, he said that after he had built up the Autosuture business and really got it going, he might take on other non-competing lines, but not so as to interfere with his giving proper attention to the company's products. 264 Meanwhile the Sydney solicitors had lodged an application to register the trade mark "Autosuture" in respect of surgical instruments. The company appointed the dealer its Australian representative. On his arrival in this country he set about developing the distributorship. He acquired from the United States a large quantity of its demonstration products, sterilised them and sold them in competition with or in substitution for the company's products. He later manufactured the products locally. Later still he deferred filling orders from the company's products so as to be able to fill them himself, and then did so with his own products. 265 A majority of the High Court (Gibbs CJ Wilson and Dawson JJ) concluded that there was no fiduciary relationship between the parties. Mason and Deane JJ disagreed. All members of the Court agreed that the company was entitled to a remedy of some kind. The question was whether that remedy should lie in damages for breach of the distribution agreement or whether the company was entitled to equitable relief as well. 266 Gibbs CJ said at 68: "The authorities contain much guidance as to the duties of one who is in a fiduciary relationship with another, but provide no comprehensive statement of the criteria by reference to which the existence of a fiduciary relationship may be established. The archetype of a fiduciary is of course the trustee, but it is recognised by the decisions of the courts that there are other classes of persons who normally stand in a fiduciary relationship to one another - eg, partners, principal and agent, director and company, master and servant, solicitor and client, tenant-for-life and remainderman. There is no reason to suppose that these categories are closed. However, the difficulty is to suggest a test by which it may be determined whether a relationship, not within one of the accepted categories, is a fiduciary one." 267 His Honour went on to consider various matters which might be regarded as relevant indicia in determining whether the Court would recognise the existence of a fiduciary duty. These included the special vulnerability of those whose interests were entrusted to the power of another to the abuse of that power, whether there was a presumption of undue influence arising out of the relationship between the parties, and whether the relationship was one of confidence. His Honour referred also to the circumstance of "inequality of bargaining power" though he said that such inequality alone was not enough to create a fiduciary relationship in every case, and for all purposes. On the other hand the fact that the arrangement between the parties was of a purely commercial kind, and that they had dealt at arm's length, and on an equal footing, had been held consistently to be an important if not decisive factor in indicating that no fiduciary duty arose. 268 Mason J recognised that distributor-manufacturer was not an established fiduciary relationship. His Honour said at 96-97: "The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations … The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position … It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed." 269 His Honour went on to deal with the scope of the fiduciary duty. He observed that the categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship. The rigorous standards appropriate to a trustee would not apply to a fiduciary who was permitted by a contract to pursue his own interests in some respects. He said that the "so called rule" that the fiduciary cannot allow a conflict to arise between duty and interest could not be usefully applied in the absolute terms in which it had been stated. He noted that the fiduciary's duty might be more accurately expressed by saying that he was under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there was a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he was bound to protect. 270 His Honour referred to Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 at 82 in which Dixon and McTiernan JJ observed that it would be misconduct amounting to a ground justifying dismissal for a manager to take steps during his employment to prepare a position to which he could retreat with a large part of his employer's business in the event that it should become necessary or desirable to vacate the managership. He referred also to Maryland Metals Inc v Metzner (1978) 382 A (2d) 564 in which the Court of Appeals of Maryland referred to competition by an employee after termination of his employment as a breach of an "employee's fiduciary duty of loyalty". He said at 105: "The employee's duty of loyalty may involve him in a breach of duty if he secretly makes arrangements during his employment to compete with his employer after termination of the employment." 271 He then set out the various forms of relief for breach of fiduciary duty including the liability to account for a profit or benefit, and the fact that any such profit or benefit is held by the fiduciary as a constructive trust. 272 Deane J observed that the conclusion that the overall relationship between the manufacturer and the distributor was not fiduciary did not preclude the possibility that, within or arising from that relationship, a more restricted fiduciary relationship might exist. 273 Wilson and Dawson JJ agreed with the analysis of Gibbs CJ. Dawson J sought to identify the characteristics of such a relationship recognising that it might not be possible to do so with precision. His Honour said at 141: "To be sure there are relationships which are ordinarily recognized as fiduciary, at least in some of their aspects, and little trouble is experienced with them. They are all relationships which are analogous to that which exists between a trustee and his beneficiary - the clearest of all fiduciary relationships. Without any attempt at classification, obvious examples spring to mind such as the relationship between partners, between employee and employer, between agents and their principals, between solicitors and their clients, between directors and their companies and between wards and their guardians." 274 His Honour went on to say that although it was usual, and perhaps necessary that in a fiduciary relationship one party should repose substantial confidence in another in acting on his behalf or in his interest in some respect it was not in every case where that happened that there was a fiduciary relationship. He spoke also of the notion underlying cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other, and requires the protection of equity acting upon the conscience of that other. 275 Both Chan v Zacharia and Hospital Products Ltd v United States Surgical Corp contain important statements of principle regarding the nature of fiduciary obligations. They are not, however, the last word upon this subject. 276 In Daly v Sydney Stock Exchange Ltd (1986) 160 CLR 371 it was held that there existed a fiduciary relationship between an investor and a firm of stockbrokers. The firm had acted in breach of its fiduciary duty by not disclosing its unsatisfactory financial position to the investor. 277 In Breen v William (1996) 186 CLR 71 the High Court determined that the relationship of doctor and patient did not necessarily, of itself, create a fiduciary relationship. Gaudron and McHugh JJ said at 113: "In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed." (footnote omitted) 278 Their Honours mentioned (at 106-107) that certain relationships would of themselves give rise to fiduciary obligations. They included "trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company and partners". 279 The principles which govern fiduciary obligations were also considered by a Full Court of this Court in News Limited v Australian Rugby Football League Limited (1996) 64 FCR 410. The Court (comprising Lockhart, von Doussa and Sackville JJ) noted that commentators had expressed concern about a tendency on the part of the Courts to use the fiduciary concept in circumstances where it was unnecessary or inappropriate to do so. Their Honours said at 538: "The overreach of the fiduciary principle helps to explain an earlier extra-judicial comment by Sir Anthony Mason, that the "fiduciary relationship is a concept in search of a principle": A F Mason, "Themes and Prospects" in P D Finn (ed), Essay in Equity (1985), p 246. The comment also reflects the difficulty of formulating a comprehensive principle suitable for application to very different relationships, operating in very different circumstances and for different purposes." 280 Their Honours went on to say that it was important to appreciate that the existence of a fiduciary relationship did not determine the content of the duties owed by one fiduciary to another. They also analysed at length, at 539-541, the various indicia of such relationships. 281 Recently in Pilmer v Duke Ltd (2001) 180 ALR 249 the High Court had to determine whether an accountant retained by a company to prepare a report providing a valuation and advice in relation to a take-over owed a fiduciary duty to the company. 282 In a joint judgment, McHugh, Gummow, Hayne and Callinan JJ concluded that the Full Court of the Supreme Court of South Australia had erred in finding that the appellants were in breach of their fiduciary obligations to the company. Their Honours referred to the observation of Frankfurter J in Securities and Exchange Commission v Chenery Corp 318 US 80 (1943) where his Honour said: "But to say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. To whom is he a fiduciary? What obligations does he owe as a fiduciary? In what respect has he failed to discharge these obligations? And what are the consequences of his deviation from duty?"… 283 Their Honours referred with apparent approval to the observations of Mason J in Hospital Products (supra) to which reference was earlier made, and also to a statement by Judge Learned Hand in Phelan v Middle States Oil Corporation 220 F 2d 593 at 602-3 (1955) where his Honour said: "[I]f the doctrine be inexorably applied and without regard to the particular circumstances of the situation, every transaction will be condemned once it be shown that the fiduciary had such a hope or expectation, however unlikely to be realized it may be, and however trifling an inducement it will be, if it is realized … We have found no decisions that have applied this rule inflexibly to every occasion in which the fiduciary has been shown to have had a personal interest that might in fact have conflicted with his loyalty. On the contrary in a number of situations courts have held that the rule does not apply, not only when the putative interest, though in itself strong enough to be an inducement, was too remote, but also when, though not too remote, it was too feeble an inducement to be a determining motive." 284 Their Honours went on to say something about the principles which govern the measure of compensation in respect of losses sustained by reason of breach of fiduciary duty. They observed that these principles did not necessarily reflect the rules for assessment of damages in tort or contract. 285 Kirby J dissented. He noted that the primary judge had withheld relief under the claim for breach of fiduciary duty because he considered that the decision of the High Court in Breen v Williams precluded such relief. His Honour analysed that decision, and concluded that, as a matter of legal authority, it decided only that there was no entitlement by patients, under the common law, to inspect their medical records, save with the agreement of the doctor concerned or where legislation so provided. He noted that there were differences of reasoning in the Court's decision in Breen. He said that in some cases, the relationship itself would be sufficient to make it clear that a fiduciary obligation was owed by one party to the other in respect of related transactions between them during the relationship. He referred to the observations of Gaudron and McHugh JJ in Breen set out earlier in these reasons for judgment. 286 Kirby J went on to note that in Canada courts had been willing to add to the list of fiduciary relationships new and different categories including medical practitioner and patient, parent and child, and the Crown and indigenous peoples. In the United States still further relationships had been included. These included majority and minority shareholders and patients and physicians. He did not regard Breen as obliging Australian courts to ignore Canadian and United States authority on fiduciary obligations but recognised that an expansion of such obligations beyond proprietary interests into the more nebulous field of personal rights could give rise to proprietary remedies affecting the distribution of assets in bankruptcies and insolvencies. 287 Although Kirby J's analysis repays careful attention, particularly his statement of the principles governing fiduciary obligations at pp 286-289, it must be remembered that his Honour's was a minority opinion. 288 The law governing fiduciary obligations in Australia seems to me to reflect the following principles. The term "fiduciary" is used to describe several categories of obligations. Broadly a fiduciary relationship exists, giving rise to obligations prohibiting persons categorised as fiduciaries from making unauthorised profits from their positions or allowing their personal interest to come into actual or potential conflict with their duty, where the relationship is one of confidence. 289 There are established categories of fiduciary relationship. These include those of trustee and beneficiary, solicitor and client, agent and principal, director and company, and partner and partner. There is authority for the proposition that joint venturers may also be included. However, the categories are not closed. An employee may, for some purposes, be a fiduciary; Reading v Attorney-General [1951] AC 507 at 517 per Lord Normand;see generally Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, 3rd ed, 1992 at [525 - 526]; Hospital Products Ltd v United States Surgical Corporation (supra) at 68and 141; and Breen v Williams (supra) 106-107.

Barnes v Addy 290 The second main area of legal principle which requires analysis for present purposes is the operation of the rule in Barnes v Addy (1874) 9 Ch App 244. It will be recalled that although Mr Crombie's liability for breach of fiduciary duty is said to arise directly, by reason of his role as a director and/or employee of CIC, the liability of the Davis parties is said to be derivative, based upon their participation in Mr Crombie's breach of fiduciary obligation, under the ambit of one or other of the two limbs of Barnes v Addy. 291 In Barnes v Addy it was held that a third party who participates with knowledge in a dishonest and fraudulent design on the part of a defaulting fiduciary may himself become accountable as a constructive trustee. Lord Selborne LC said at 251-252: "Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. Those are the principles, as it seems to me, which we must bear in mind in dealing with the facts of this case." 292 Liability to account will attach to such a third party even though no trust property reaches his hands. Nor is it necessary that the defaulting fiduciary be a trustee: Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1. 293 Barnes v Addy was applied by Gummow J in Re Australian Elizabethan Theatre Trust; Lord v Commonwealth Bank of Australia (1991) 30 FCR 491. His Honour held that the respondent bank was not accountable as a constructive trustee by reason of it taking trust monies with notice of the beneficial rights of the applicants. Nor was the bank to be regarded as a constructive trustee within the second limb of Barnes v Addy as an assistant with knowledge in a dishonest and fraudulent design on the part of the trustee. 294 Barnes v Addy was followed recently by Emmett J in Commissioner of Taxation v Macquarie Health Corporation Ltd (1999) 88 FCR 451. His Honour held that the taxpayer had received trust money in the knowledge that it was paid to the taxpayer in breach of fiduciary duty. Accordingly, the taxpayer was a constructive trustee and, under the first limb of Barnes v Addy, held the money paid on trust. 295 There has been considerable debate as to what is required to amount to "notice" of the dishonest or fraudulent design. In Royal Brunei Airlines the plaintiff airline appointed as its agent in a particular area for the sale of passenger and cargo transportation a company of which the defendant was the managing director and principal shareholder. Under the agreement the company was to hold in trust for the airline money received from such sale until it was accounted for by the company to the airline. With the defendant's knowledge and assistance the company paid the money into its current bank account instead of into a separate account. The company then used that money for its own business purposes. 296 The Privy Council held that where a third party dishonestly assisted a trustee to commit a breach of trust, or procured him to do so, the third party would be liable to the beneficiary for the loss occasioned by the breach of trust, even though the third party had received no trust property and irrespective of whether the trustee had been dishonest or fraudulent. 297 The judgment of their Lordships was delivered by Lord Nicholls of Birkenhead. His Lordship referred to the much-quoted dictum of Lord Selborne LC (set out above) and formulated the relevant principle in the following terms (at 382): "In the conventional shorthand, the first of these two circumstances in which third parties (non-trustees) may become liable to account in equity is "knowing receipt," as distinct from the second, where liability arises from "knowing assistance." Stated even more shortly, the first limb of Lord Selborne L.C.'s formulation is concerned with the liability of a person as a recipient of trust property or its traceable proceeds. The second limb is concerned with what, for want of a better compendious description, can be called the liability of an accessory to a trustee's breach of trust. Liability as an accessory is not dependent upon receipt of trust property. It arises even though no trust property has reached the hands of the accessory. It is a form of secondary liability in the sense that it only arises where there has been a breach of trust. In the present case the plaintiff airline relies on the accessory limb. The particular point in issue arises from the expression "a dishonest and fraudulent design on the part of the trustees." 298 After setting out divergent judicial views about what ought to be the touchstone of liability, his Lordship concluded that it was best encapsulated in the notion of "dishonesty". He said at 389: "Whatever may be the position in some criminal or other contexts (see, for instance, Reg. V. Ghosh [1982] Q.B. 1053), in the context of the accessory liability principle acting dishonestly, or with a lack of probity, which is synonymous, means simply not acting as an honest person would in the circumstances. This is an objective standard. At first sight this may seem surprising. Honesty has a connotation of subjectivity, as distinct from the objectivity of negligence. Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart dishonesty are mostly concerned with advertent conduct, not inadvertent conduct. Carelessness is not dishonesty." 299 His Lordship continued at 390-391: "The individual is expected to attain the standard which would be observed by an honest person placed in those circumstances. It is impossible to be more specific. Knox J. captured the flavour of this, in a case with a commercial setting, when he referred to a person who is "guilty of commercially unacceptable conduct in the particular context involved:" see Cowan de Groot Properties Ltd. v. Eagle Trust Plc. [1992] 4 All E.R. 700, 761. Acting in reckless disregard of others' rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risk but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct. Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances known to the third party at the time. The court will also have regard to personal attributes of the third party, such as his experience and intelligence, and the reason why he acted as he did. Before leaving cases where there is real doubt, one further point should be noted. To inquire, in such cases, whether a person dishonestly assisted in what is later held to be a breach of trust is to ask a meaningful question, which is capable of being given a meaningful answer. This is not always so if the question is posed in terms of "knowingly" assisted. Framing the question in the latter form all too often leads one into tortuous convolutions about the "sort" of knowledge required, when the truth is that "knowingly" is inapt as a criterion when applied to the gradually darkening spectrum where the differences are of degree and not kind." 300 He concluded at 392: "Drawing the threads together, their Lordships' overall conclusion is that dishonesty is a necessary ingredient of accessory liability. It is also a sufficient ingredient. A liability in equity to make good resulting loss attaches to a person who dishonestly procures or assists in a breach of trust or fiduciary obligation. It is not necessary that, in addition, the trustee or fiduciary was acting dishonestly, although this will usually be so where the third party who is assisting him is acting dishonestly. "Knowingly" is better avoided, as a defining ingredient of the principle, and in the context of this principle the Baden [1993] 1 W.L.R. 509 scale of knowledge is best forgotten." 301 The decision of the Privy Council in Royal Brunei Airlines was followed by Burchett J in News Limited v Australian Rugby Football League Limited (1995) 58 FCR 447. His Honour found that News Limited and the various Super League Companies had acted in the relevant sense with dishonesty. He said at 547: "They knew the circumstances out of which the relevant legal conclusions arise; and the extraordinary steps taken, culminating in comprehensive indemnities, provide powerful evidence from which full knowledge may be inferred … Bearing in mind the detailed investigations and the meticulous planning undertaken by News Limited, to which I have previously referred, the Court would be shutting its eyes to the obvious if it did not conclude that News Limited and those involved on its behalf, and in association with it, were well aware of all the aspects of the situation which created fiduciary obligations. If anything more were needed, the extreme secrecy preserved even after the plan had been put into execution, and during its execution, extending to unusual confidentiality clauses and the encouragement of players to dissemble their involvement, suggest an awareness that injunctive relief might have stopped everything in its tracks had the true position been made known in time. Among many indications of the knowledge of those involved is the presentation Mr Smith made in February to the League, recognising as it did the organic unity of the League and the clubs, and the heritage they had received from their past joint activities." 302 On appeal the Full Court held that Burchett J had erred in concluding that the circumstances surrounding the League venture gave rise to the existence of fiduciary relationships. Their Honours did not, however, cast any doubt upon his Honour's reliance upon Royal Brunei Airlines as formulating correctly the test for participation in breach of fiduciary duty.

conclusions 303 In my view, CIC is entitled to succeed in its claims against Mr Crombie and each of the Davis parties.

Mr Park's credibility 304 I regard Mr Park as having given essentially truthful evidence regarding the circumstances of Mr Crombie's departure from CIC. The account which he gave was, in my view, credible and accurate. His evidence on this issue was given in a clear and firm manner. He withstood a vigorous and probing cross-examination. 305 That is not to say that I regard Mr Park as being other than an extremely shrewd businessman who has, for many years, been involved in activities which have attracted people of doubtful repute. However, when it came to his account of his dealings with Mr Crombie his evidence seemed to me to be plausible, and to ring true. 306 I should interpolate here that I initially reserved my decision in this matter on 6 September 2000. On 7 May 2001, Mr Crombie filed a notice of motion in which he foreshadowed that leave would be sought to reopen his case. The notice of motion was supported by an affidavit of Mr Michael Kenny, Mr Crombie's solicitor. 307 Mr Kenny deposed that he had been informed by Mr Herskope that on 4 April 2001 he had appeared on behalf of Mr Crombie in a criminal trial in the County Court of Victoria. Mr Herskope had become aware of certain documents which had been produced to the County Court by St George Bank Ltd ("St George"), and which had apparently been prepared by Mr Park, though not discovered by CIC in the proceeding before me. It was claimed that those documents suggested that certain evidence given by Mr Park before me had been untrue. Similarly, Mr Herskope had become aware of documents produced to the Court by Crown Ltd ("Crown") which might have had an adverse affect upon Mr Park's credit. Mr Herskope had told Mr Kenny that he had not been aware of the existence of these documents at any time prior to the criminal trial. 308 It became necessary to deal with this application by Mr Crombie to re-open his case. On 12 June 2001 I heard argument on the motion. It soon became clear that the St George document was said to be relevant only in the sense that it might have been used to establish that Mr Park had made a prior inconsistent statement regarding the circumstances in which he became aware that Mr Crombie had resigned as a director of Capital. In the St George document, which was apparently signed by Mr Park, the bank was told on 7 August 1996 that as at 17 July 1996 Mr Crombie was no longer a director of CFC. That statement by Mr Park was said to be inconsistent with his evidence that he first became aware of Mr Crombie's resignation in November or December 1996. 309 During the course of argument I pointed out to Mr Herskope that the actual date in the document, 17 July 1996, was not of great assistance to Mr Crombie. Had it been 16 May 1996, the document might have had much greater weight. Mr Herskope acknowledged that the document went only to credit but submitted that it was nonetheless significant. 310 Another difficulty with Mr Herskope's submission was that the St George document had been referred to by description as "Notice of retirement or resignation by director or secretary" on 9 August 1996 in Mr Park's witness statement in this proceeding. It appeared that no effort had been made by Mr Crombie's legal advisors to obtain that document prior to the trial, and it could hardly be said that the document could not with reasonable diligence have been obtained. 311 The other document sought to be tendered related to the amount of time spent by Mr Park at Crown Casino in 1996, and the size of the gambling losses which he sustained. This document was said to bolster Mr Crombie's credit when he claimed that Mr Park was spending far too much time away from the office. 312 In the end, I dismissed Mr Crombie's motion and ordered him to pay costs. I said that I would provide my reasons for doing so at a later stage. 313 It is clear that the evidence which Mr Crombie sought to adduce was relevant to credit only. In the case of the Crown document, it was of no real probative value. Mr Park had not disputed Mr Crombie's contention that he had been away from Capital for a good part of the time in 1996 and was often difficult to contact. In the case of the St George document, it was perhaps of greater relevance. Nonetheless, its tender into evidence would have necessitated recalling Mr Park so that he could be further cross-examined. It added little to the evidence already adduced at the trial that Mr Park had previously said that he became aware of Mr Crombie's departure from CIC in September 1996, rather than in November or December 1996. To have permitted Mr Crombie to reopen his case upon such slender material would, in my opinion, have been unjust. I therefore declined, in the exercise of my discretion, to permit that course to be adopted.

Mr Crombie's credibility 314 I regard Mr Crombie as having been an unreliable witness. His memory of many significant events was shown to be poor. He appeared to me to be attempting to reconstruct matters about which he had no real recollection. He was also, on occasion, evasive and unwilling to respond directly to questions put to him in cross-examination. Some of his answers were, as I have indicated in extracts from his cross-examination set out above, quite extraordinary. He seemed to me to be a person who had been quite out of his depth, given the responsibilities which he had assumed. Where his evidence conflicts with that of Mr Park, I prefer the evidence of Mr Park. 315 A particularly telling feature of Mr Crombie's evidence was his belated attempt to change what he had said in his witness statement regarding the conversation which he supposedly had with Mr Park on either 15 or 16 May 1996, and also what he supposedly told Mr Davis about that conversation. I do not accept that Mr Crombie told Mr Park on either of those dates, or at all, that he was leaving CIC, or that he was resigning, or had resigned, from that company. His behaviour in the weeks following this supposed conversation was inconsistent with his having resigned, or foreshadowed his resignation in the manner claimed. He continued to perform all of the duties of a director and manager of CIC which he had previously carried out. His last minute attempt to alter his witness statement was, in my view, a contrived act on his part, and one which in the end did him no credit. 316 I accept that in or about April or May 1996 Mr Crombie was contemplating his future with CIC. He was plainly dissatisfied at Capital and was clearly having difficulties with Mr Park. I also accept that at some point, probably in mid-May 1996, Mr Crombie made it clear to Mr Davis that he was unhappy at CIC and that he might be receptive to an offer from Mr Davis to join him. Mr Moscatelli's evidence supports at least that scenario. It is clear from Mr Moscatelli's diary that there were some discussions in late May 1996 concerning a "new venture" which would involve both Mr Crombie and Mr Davis. 317 The fact that Mr Crombie was unhappy at CIC, and may have been contemplating leaving, does not mean that he told Mr Park what he was planning to do. Mr Park emphatically denied any knowledge of Mr Crombie's plans (apart from a somewhat discursive discussion about a 7 Eleven franchise which Mr Park said took place in late June or early July 1996). I accept Mr Park's evidence that he was never told by Mr Crombie that he was resigning, or that he had resigned. I took particular care to observe Mr Park closely when he gave that evidence. I do not believe that he was dissembling. 318 In my opinion, Mr Crombie and Mr Davis saw an opportunity arising out of Mr Healy's decision to take the Sentinel clients out of the Copperfield investment. They took advantage of that opportunity to further their own interests and, in Mr Davis' case, the interests of Classic Trading and NFG. 319 Mr Crombie had several reasons for not telling Mr Park what Mr Healy had told him. These included not merely his own personal difficulties with Mr Park, but also the opportunity which presented itself to take over the Sentinel clients and to arrange for their investments to be switched into the Asian book investment. Mr Davis too had powerful reasons for not informing Mr Park of what he and Mr Crombie were planning. Mr Davis is plainly an astute businessman, hard-headed, and well aware of the likelihood that were Mr Park to have learned of his plans, he might have taken steps to protect Capital's interests. It was particularly significant, in my view, that Mr Davis conceded that he may have discussed with Mr Healy the need to ensure that neither Mr Boyle nor Mr Park became aware of the proposal that Sentinel withdraw its clients from the Copperfield tour. 320 Mr Crombie's evidence concerning the reasons why his notices of resignation were prepared by Mr Moscatelli was, in my view, unsatisfactory. The use of the Form 370 notice, rather than the Form 304 notice, was particularly telling. 321 Mr Crombie was a director of CIC. He remained a director until at least 21 June 1996. He owed CIC the normal fiduciary duties that all directors owe to their companies. During May and June 1996 he acted consistently in clear disregard of his fiduciary obligations. A particularly telling illustration of his conduct was his involvement in establishing the NFG/Hemisphere account on 28 May 1996. That fact was not controverted. He is accordingly liable to compensate CIC for breach of his fiduciary duty.

Mr Davis' credibility 322 I also regard Mr Davis as an unreliable witness. Some of his evidence seemed to me to be contrived. He contradicted himself on occasion on several significant issues. Where his evidence conflicts with that of Mr Park, I prefer the evidence of Mr Park. 323 I was not impressed with Mr Davis' explanation for having belatedly amended his witness statement. I was also not impressed with a number of the answers which he gave to Mr Magee in response to questions put to him in cross-examination. His evidence concerning the backdating of the Deed of Assignment to 10 May 1996 was unsatisfactory, as was his explanation for having opened the NFG/Hemisphere account on 28 May 1996. I noted his concession that he may have discussed with Mr Healy the need to keep from Mr Boyle and Mr Park Sentinel's plans to withdraw its clients from the Copperfield tour. It is inconceivable that he would not have discussed the same matter with Mr Crombie. 324 Mr Moscatelli's evidence did not, in my opinion, demonstrate that Mr Davis had been told by Mr Crombie that he had resigned from CIC. It was perfectly consistent with Mr Crombie having intimated to Mr Davis that he would be prepared to join him in managing the switched investments, but needing to take steps to resign his directorships with Capital. Mr Davis acted dishonestly in beginning the process of arranging for the switch, with Mr Crombie's participation, before Mr Crombie had actually severed his ties with CIC. Mr Davis knew full well that Mr Crombie was still employed by Capital when he arranged for the secretive process of switching the investments to begin. 325 I have set out earlier in these reasons for judgment lengthy extracts from Mr Davis' cross-examination. I have also set out in considerable detail a number of Mr Magee's criticisms of Mr Davis. I regard most of those criticisms as valid.

The alternative case against Mr Crombie 326 If I am wrong in my conclusion that Mr Crombie remained a director of CIC until at least 21 June 1996, I would nonetheless uphold CIC's claim against him. On any view he was, in reality, a senior employee and manager of CIC. He acted in that capacity throughout the whole of May and almost the whole of June 1996. As such he owed a duty of fidelity and loyalty to his de facto employer which, for present purposes, may be regarded as indistinguishable from a fiduciary obligation. He was not entitled to withhold from CIC or Mr Park information of a critical nature such as that relating to the course proposed to be taken by Mr Healy on behalf of the Sentinel clients. Nor was he entitled in May and June 1996 to become involved in a joint venture with Mr Davis and NFG in relation to the switched investments. 327 The fact that Mr Crombie was, in a formal sense, employed by Marcrom, which provided his services to CFC on a consultancy basis does not, in my opinion, detract from the application of the principles governing the obligations of fidelity and loyalty owed by an employee to his employer. Marcrom was plainly interposed between Mr Crombie and Capital for reasons which suited Mr Crombie. It was in no true sense Mr Crombie's employer. The manner in which he arranged to be remunerated for his services (with some payments being made directly to his wife) suggests that Marcrom was little more than a facade.

Mr Davis' liability 328 Mr Davis is, in my view, plainly liable under the accessorial liability principle adumbrated in Barnes v Addy, and further explained in Royal Brunei Airlines. The evidence makes it plain that he was fully aware of Mr Crombie's position within Capital throughout the entire period that the "new venture" was being planned. Mr Davis knew that Mr Crombie was a director of CIC or, at the very least, that he was, in reality, a senior employee and manager of that company. He knew that Mr Crombie was not entitled to place his own interests ahead of those of CIC. By arranging for Mr Crombie to facilitate the switched investments, Mr Davis dishonestly procured, or assisted in, Mr Crombie's breach of fiduciary duty. He is accordingly liable for that breach.

The liability of Classic Trading and NFG 329 Both Classic Trading and NFG are, in my opinion, equally liable under the second limb of Barnes v Addy for Mr Crombie's breach of fiduciary duty. Mr Davis was at all relevant times the "mind and will" of these companies. Classic Trading had a clear motive to engage in conduct from which it would benefit financially. The switched investments had precisely that effect. NFG too stood to gain by becoming the manager of the Asian book investment. It also dishonestly procured, or assisted in, Mr Crombie's breach of fiduciary duty. Both NFG and Classic Trading are liable to compensate CIC for their conduct.

Orders 330 It was eventually conceded by Mr Herskope on behalf of Mr Crombie and the Davis parties that if Mr Crombie were found to have breached his fiduciary duty to CIC, and the Davis parties were found to be derivatively liable for that breach, CIC would be entitled to recover equitable damages against those parties. As indicated earlier, it was acknowledged that in these circumstances causation and quantum would not be in issue. 331 Mr Park maintained that had CIC been aware of Sentinel's proposal to switch its clients out of the Copperfield investment, it would have arranged for an alternative investment to be found. In those circumstances CIC would not have sustained the losses which it did, and may have generated considerable profits. There is no reason to doubt that proposition. 332 In my view, Mr Crombie and the Davis parties are all, jointly and severally, liable in damages. The sum agreed is $12,021,586.39. 333 There remain two other matters to be considered. The first is the question of interest. Section 51A of the Federal Court of Australia Act 1976 (Cth) makes provision for the Court to order that there be included in the sum for which judgment is given in any proceedings for the recovery of any money (including damages) interest at such rate as the Court thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered. Alternatively, without proceeding to calculate interest, the Court may order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest. 334 There was some discussion regarding interest during the course of the trial. The matter is complicated by reason of the nature of the damages to be awarded, and also by reason of the long delay between the date when the cause of action arose and the date of this judgment. I propose to give the parties an opportunity to make further submissions in relation to the amount of interest, if any, to be paid. 335 The other matter to be addressed is the question of costs. That matter too is somewhat complex having regard to the history of this proceeding. I propose to invite the parties to make submissions in relation to costs.

I certify that the preceding three hundred and thirty-one (335) numbered paragraphs are a true copy of the reasons for judgment herein of the Honourable Justice Weinberg.

Associate: Dated: 28 September 2001 Counsel for the Cross Claimant: Mr N Magee QC, with Mr AA Monichino and Mr RS Hay

Solicitors for the Cross Claimant: Cornwall Stodart

Counsel for the Eightieth, Eighty-First, Eighty-Second and Eighty-Third Cross Respondents: Mr A Herskope with Mr JL Evans

Solicitors for the Eightieth, Eighty-First, Eighty-Second and Eighty-Third Cross Respondents: Kalus Kenny Solicitors

Dates of Hearing: 15, 16, 17, 18, 21, 22, 23, 24 and 28 February 2000, 10, 14, 15, 16, 21, 24, 29, 30 & 31 March 2000, 3, 4, 5, 6, 7, 10, 11, 18 and 19 April 2000, 4, 5 and 6 September 2000 and 12 June 2001

Date of Judgment: 28 September 2001

SCHEDULE OF PARTIES ALLAN FRANCIS CHEERS First Applicant PETER MICHAEL ABRAHAMSON Second Applicant JAMES AYLWARD BOLAND Third Applicant RODNEY JOHN BOND Fourth Applicant MICHAEL THOMAS BODSWORTH Fifth Applicant RICHARD THOMAS BOWDEN Sixth Applicant ALAN NOEL BROWN Seventh Applicant EDWARD BULLOCK Eight Applicant PERRY RAYMOND BURNS Ninth Applicant IAN JAMES CARKEEK Tenth Applicant GREGORY WILLIAM CHISHOLM Eleventh Applicant LAWRENCE RAYMOND COLE Twelfth Applicant RONNIE JOE COLEMAN Thirteenth Applicant ALLAN ARCHIBALD COLLINS Fourteenth Applicant DARRYL ROSS COLLISTER Fifteenth Applicant CHRISTOPHER PAUL COLTON Sixteenth Applicant GARY GORDON COOPER Seventeenth Applicant RUSSELL CRAIG DINNING Eighteenth Applicant ROGER LEE DUNCAN Nineteenth Applicant TREVOR ALLAN DOUGLAS Twentieth Applicant STEPHEN JOHN EATON Twenty First Applicant MALCOLM JOHN ELLIS Twenty Second Applicant

ROBERT GAM Twenty Third Applicant ASHLEY GARLAND Twenty Fourth Applicant ANTHEA ELIZABETH MORGAN GEDGE Twenty Fifth Applicant EDWARD JOHN GODEK Twenty Sixth Applicant STEWART JOHN GOW Twenty Seventh Applicant JASON ANDREW HAMMOND Twenty Eighth Applicant GARY WILLIAM HANRAHAN Twenty Ninth Applicant JOHN GARY HERBERT Thirtieth Applicant VINCENTKEIR HINSCHEN Thirty First Applicant JOHN PETER HOLGATE Thirty Second Applicant ROGER HOPPER Thirty Third Applicant WILLIAM JAMES HUGHES Thirty Fourth Applicant KRISTAN PETER KRAWINKEL Thirty Fifth Applicant TERRENCE ARTHUR LAWSON Thirty Sixth Applicant ADAM EDWARD LEE Thirty Seventh Applicant PETER VERNON LIDDELL Thirty Eighth Applicant GARY MAJOR Thirty Ninth Applicant JUDITH ANNE MARTIN Fortieth Applicant MARK McWHINNIE Forty First Applicant JONATHAN PAUL MERRITT Forty Second Applicant ROBERT LEONARD MILLER Forty Third Applicant JOHN MAXWELL MORRIS Forty Fourth Applicant PETER JOHN MOWSON Forty Fifth Applicant DEREK ANTHONY MURRAY Forty Sixth Applicant PHILIP RAYMOND OAKES Forty Seventh Applicant STEPHEN JOHN O'ROURKE Forty Eighth Applicant IAN ROBERT PAIGE Forty Ninth Applicant PETER PATERSON Fiftieth Applicant CHRISTOPHER JAMES PENNYCUICK Fifty First Applicant DARRYL MARCELLUS PETERSON Fifty Second Applicant PAUL PROSSER Fifty Third Applicant THOMAS JOSEPH RANIERE Fifty Fourth Applicant ANDREW JOHN ROBERTS Fifty Fifth Applicant WAYNE BARRY SANDERSON Fifty Sixth Applicant NOEL MALCOLM SEMLER Fifty Seventh Applicant FELICE SIRIO Fifty Eighth Applicant FRANCESCA SIRIO Fifty Ninth Applicant BRENDAN MURRAY SMITH Sixtieth Applicant THOMAS BRUCE SMITH Sixty First Applicant ROBERT PAUL STEPHENS Sixty Second Applicant ANDREW GORDON STEWART Sixty Third Applicant JAMES DAVID SUTHERLAND Sixty Fourth Applicant JOHN TASHOUNIDIS Sixty Fifth Applicant GORDON CLYDE TERRIL Sixty Sixth Applicant GREGOR JAMES THOMSON Sixty Seventh Applicant CHRISTOPHER DALE THORESEN Sixty Eighth Applicant MAURICE JOSEPH TRAUGOTT Sixty Ninth Applicant GERALD GORDON VENABLES Seventieth Applicant WALTER WAIT Seventy First Applicant TREVOR FREDERICK WARK Seventy Second Applicant PETER ROBERT WATERWORTH Seventy Third Applicant ANTHONY GEORGE WILSON Seventy Fourth Applicant ELIZABETH ANNE WILSON Seventy Fifth Applicant DESMOND ATHOL WRIGHT Seventy Sixth Applicant AND EL DAVO PTY LTD (In liq) (formerly known as ENTERCORP FINANCE PTY LTD (ACN 060 214 502) First Respondent SKH MANAGEMENT PTY LTD (ACN 060 155 688) Second Respondent GRIFFIN ENTERTAINMENT AUSTRALIA PTY LTD (ACN 060 155 679) Third Respondent BOYMAN MANAGEMENT PTY LTD (ACN 063 902 182) Fourth Respondent BARNETT BOYLE CONCERTS PTY LTD (ACN 070 092 376) Fifth Respondent RETRAK PTY LTD (ACN 071 999 481) Sixth Respondent SUMSKERRY HOLDINGS PTY LTD (ACN 007 413 229) Seventh Respondent WEINGARTEN NESVEDA INVESTMENT SERVICES PTY LTD (ACN 063 779 939) Eighth Respondent ENTERCORP HOLDINGS PTY LTD (ACN 030 544 968) Ninth Respondent CAPITAL INVESTMENTS CORPORATION PTY LTD (ACN 072 988 946) Tenth Respondent ROCK EAGLE PTY LTD (ACN 007 298 991) Eleventh Respondent ENTERCORP PTY LTD (ACN 061 212 913) Twelfth Respondent

PETER LINDSAY BOYLE Thirteenth Respondent SALVATORE MANCUSO Fourteenth Respondent LOUIS WEINGARTEN Fifteenth Respondent KERROD GRANT PARK Sixteenth Respondent KERRIE ANNE BOYLE Seventeenth Respondent AND CAPITAL INVESTMENTS CORPORATIONS PTY LTD (ACN 072 988 946) Cross Claimant AND ALLAN FRANCIS CHEERS First Cross Respondent PETER MICHAEL ABRAHAMSON Second Cross Respondent JAMES AYLWARD BOLAND Third Cross Respondent RODNEY JOHN BOND Fourth Cross Respondent MICHAEL THOMAS BODSWORTH Fifth Cross Respondent RICHARD THOMAS BOWDEN Sixth Cross Respondent ALAN NOEL BROWN Seventh Cross Respondent EDWARD BULLOCK Eight Cross Respondent PERRY RAYMOND BURNS Ninth Cross Respondent IAN JAMES CARKEEK Tenth Cross Respondent GREGORY WILLIAM CHISHOLM Eleventh Cross Respondent LAWRENCE RAYMOND COLE Twelfth Cross Respondent RONNIE JOE COLEMAN Thirteenth Cross Respondent ALLAN ARCHIBALD COLLINS Fourteenth Cross Respondent DARRYL ROSS COLLISTER Fifteenth Cross Respondent CHRISTOPHER PAUL COLTON Sixteenth Cross Respondent GARY GORDON COOPER Seventeenth Cross Respondent RUSSELL CRAIG DINNING Eighteenth Cross Respondent ROGER LEE DUNCAN Nineteenth Cross Respondent TREVOR ALLAN DOUGLAS Twentieth Cross Respondent STEPHEN JOHN EATON Twenty First Cross Respondent MALCOLM JOHN ELLIS Twenty Second Cross Respondent ROBERT GAM Twenty Third Cross Respondent ASHLEY GARLAND Twenty Fourth Cross Respondent ANTHEA ELIZABETH MORGAN GEDGE Twenty Fifth Cross Respondent EDWARD JOHN GODEK Twenty Sixth Cross Respondent STEWART JOHN GOW Twenty Seventh Cross Respondent JASON ANDREW HAMMOND Twenty Eighth Cross Respondent GARY WILLIAM HANRAHAN Twenty Ninth Cross Respondent JOHN GARY HERBERT Thirtieth Cross Respondent VINCENTKEIR HINSCHEN Thirty First Cross Respondent JOHN PETER HOLGATE Thirty Second Cross Respondent ROGER HOPPER Thirty Third Cross Respondent WILLIAM JAMES HUGHES Thirty Fourth Cross Respondent KRISTAN PETER KRAWINKEL Thirty Fifth Cross Respondent TERRENCE ARTHUR LAWSON Thirty Sixth Cross Respondent ADAM EDWARD LEE Thirty Seventh Cross Respondent PETER VERNON LIDDELL Thirty Eighth Cross Respondent GARY MAJOR Thirty Ninth Cross Respondent JUDITH ANNE MARTIN Fortieth Cross Respondent MARK McWHINNIE Forty First Cross Respondent JONATHAN PAUL MERRITT Forty Second Cross Respondent ROBERT LEONARD MILLER Forty Third Cross Respondent JOHN MAXWELL MORRIS Forty Fourth Cross Respondent PETER JOHN MOWSON Forty Fifth Cross Respondent DEREK ANTHONY MURRAY Forty Sixth Cross Respondent PHILIP RAYMOND OAKES Forty Seventh Cross Respondent STEPHEN JOHN O'ROURKE Forty Eighth Cross Respondent IAN ROBERT PAIGE Forty Ninth Cross Respondent PETER PATERSON Fiftieth Cross Respondent CHRISTOPHER JAMES PENNYCUICK Fifty First Cross Respondent DARRYL MARCELLUS PETERSON Fifty Second Cross Respondent PAUL PROSSER Fifty Third Cross Respondent THOMAS JOSEPH RANIERE Fifty Fourth Cross Respondent ANDREW JOHN ROBERTS Fifty Fifth Cross Respondent WAYNE BARRY SANDERSON Fifty Sixth Cross Respondent NOEL MALCOLM SEMLER Fifty Seventh Cross Respondent FELICE SIRIO Fifty Eighth Cross Respondent FRANCESCA SIRIO Fifty Ninth Cross Respondent BRENDAN MURRAY SMITH Sixtieth Cross Respondent THOMAS BRUCE SMITH Sixty First Cross Respondent ROBERT PAUL STEPHENS Sixty Second Cross Respondent ANDREW GORDON STEWART Sixty Third Cross Respondent JAMES DAVID SUTHERLAND Sixty Fourth Cross Respondent JOHN TASHOUNIDIS Sixty Fifth Cross Respondent GORDON CLYDE TERRIL Sixty Sixth Cross Respondent GREGOR JAMES THOMSON Sixty Seventh Cross Respondent CHRISTOPHER DALE THORESEN Sixty Eighth Cross Respondent MAURICE JOSEPH TRAUGOTT Sixty Ninth Cross Respondent GERALD GORDON VENABLES Seventieth Cross Respondent WALTER WAIT Seventy First Cross Respondent TREVOR FREDERICK WARK Seventy Second Cross Respondent PETER ROBERT WATERWORTH Seventy Third Cross Respondent ANTHONY GEORGE WILSON Seventy Fourth Cross Respondent ELIZABETH ANNE WILSON Seventy Fifth Cross Respondent DESMOND ATHOL WRIGHT Seventy Sixth Cross Respondent ENTERCORP FINANCE PTY LTD (ACN 060 214 502) Seventy Seventh Cross Respondent PETER LINDSAY BOYLE Seventy Eighth Cross Respondent LOUIS WEINGARTEN Seventy Ninth Cross Respondent CLASSIC TRADING PTY LTD (ACN 006 792 249) Eightieth Cross Respondent ELLIOTT DAVIS Eighty First Cross Respondent FRANK CROMBIE Eighty Second Cross Respondent NATIONAL FINANCE GROUP PTY LTD (ACN 006 372 041) Eighty Third Cross Respondent