Cassaniti v Ball as liquidator of RCG CBD Pty Limited

Introduction

1. Fifteen appeals were heard together arising from the principal judgment and a supplementary judgment of Ward CJ in Eq concerning proceedings brought by five companies and their liquidator making claims of breach of fiduciary and statutory duty, accessorial liability in equity and under statute for knowing assistance or knowing involvement in those breaches of duty and also claims of unreasonable director-related transactions and uncommercial transactions under Pt 5.7B of the Corporations Act 2001 (Cth). The five proceedings were heard together in the Equity Division over 29 days in February and March 2020.
2. Five of the appeals are brought by Gino Cassaniti, five by the Khalil parties and five by the liquidator. This judgment deals with the appeals by Gino Cassaniti and the Khalil parties (relevantly, Faouzi (Fred) Khalil, Peter Abboud and George Khalil) which raise a single issue in common with ground 1 of a notice of contention by the Borg parties in the liquidator's appeal against the Borg parties. This judgment also deals with the two appeals by George Said which raise a different issue from that raised by the other Khalil parties.
3. The liquidator's five appeals on behalf of the companies against part of the judgment and orders of Ward CJ in Eq are the subject of separate reasons delivered contemporaneously with this judgment: see Bluemine Pty Ltd (in liq) v AKA (Civil) Pty Ltd [2022] NSWCA 160.

Background

1. The facts giving rise to the appeals can be summarised briefly. Earth Civil Australia Pty Ltd (in liq) (Earth Civil), Bluemine Pty Ltd (in liq) (Bluemine), RCG CBD Pty Ltd (in liq) (RCG), Diamondwish Pty Ltd (in liq) (Diamondwish) and Rackforce Pty Ltd (in liq) (Rackforce) were each wound up voluntarily by special resolution of its members in either June or August 2013. Mr Mitchell Ball was appointed liquidator of each company.
2. The liquidator, together with each company, then brought separate proceedings against numerous defendants. The liquidator's elaborate pleadings included an alleged conspiracy by an accounting firm, Banq Accountants and Advisors Pty Ltd (Banq), and principals of or persons employed by that firm, namely Gino Cassaniti, Fred Khalil, Peter Abboud and George Khalil, to promote and recommend a tax scheme to clients of the firm. The alleged conspiracy was only relied upon to establish that the nature of the alleged breaches of fiduciary duty by the relevant director of Earth Civil, Bluemine, RCG, Diamondwish and Rackforce were dishonest. No claim was made by the liquidator based on the tort of conspiracy, nor was it alleged that the defendants said to be liable as accessories to the breaches of duty were parties to a conspiracy.
3. Stripped of their complexity, the pleaded claims alleged that various defendants who were referred to as scheme participants entered into and implemented a series of transactions, by arrangement with Gino Cassaniti, the director of Earth Civil, Bluemine and RCG, or Frank Criniti, the director of Diamondwish and Rackforce, and that those transactions constituted what are known as "carousel" frauds. It was alleged that the transactions involved each of Earth Civil, Bluemine, RCG, Diamondwish and Rackforce (a) without providing consideration, receiving money to which it had no legal entitlement, (b) without receiving consideration, paying money without legal obligation, and (c) being left with no money to satisfy its only legitimate creditor, the Commissioner of Taxation, upon being wound up in a creditors' voluntary winding up within two years of incorporation.
4. The alleged purpose of the carousel payments was for the relevant defendants to obtain improper tax benefits by claiming GST input credits and income tax expense deductions and thereby reduce its taxable income.
5. The case against the scheme participants was based on accessorial liability under the second limb in Barnes v Addy (1874) LR 9 Ch App 244 and the provisions of the Corporations Act. The equitable claims alleged that the respective breaches of fiduciary duty by Gino Cassaniti and Frank Criniti involved a dishonest and fraudulent design, and that the scheme participants knowingly assisted or knowingly participated in the dishonest and fraudulent design of those directors.
6. The statutory claims relevantly alleged that Gino Cassaniti and Frank Criniti breached ss 181 and 182 of the Corporations Act, in the case of Gino Cassaniti, as a director of Earth Civil, Bluemine and RCG, and, in the case of Frank Criniti, as a director of Diamondwish and Rackforce, by failing to exercise his powers and discharge his duties in good faith in the best interests of the company and for a proper purpose (s 181) and by improperly using his position to gain an advantage or to cause the company detriment (s 182).

• Gino Cassaniti was liable in equity and under statute for breach of fiduciary and statutory duty owed to Earth Civil, Bluemine and RCG;
• Frank Criniti was liable in equity and under statute for breach of fiduciary and statutory duty owed to Diamondwish and Rackforce;
• Gino Cassaniti was also liable in equity and under statute as an accessory for knowing assistance and knowing involvement in Frank Criniti's breaches of duty owed to Diamondwish and Rackforce; and
• Fred Khalil, Peter Abboud, George Khalil and George Said (the Khalil parties) were liable in equity and under statute as accessories for knowing assistance and knowing involvement in various breaches of fiduciary and statutory duty, relevantly: 1. Fred Khalil, Peter Abboud and George Khalil were liable for Gino Cassaniti's breaches of duty owed to Earth Civil, Bluemine and RCG, and for Frank Criniti's breaches of duty owed to Diamondwish and Rackforce; and 2. George Said was liable for Gino Cassaniti's breaches of duty owed to RCG and Bluemine.

1. Her Honour also found that the liquidator's claims against several defendants failed, including the accessorial liability claims by RCG against the Borg parties (Borg Family Pty Ltd, Tanya Borg, Borg Civil Australia Pty Ltd and Michael Borg).
2. In a supplementary judgment delivered on 15 September 2021, her Honour granted declaratory relief and entered judgments and made orders in favour of Earth Civil, Bluemine, RCG, Diamondwish and Rackforce against, relevantly, Gino Cassaniti and Fred Khalil, Peter Abboud and George Khalil, and in favour of RCG and Bluemine against, relevantly, George Said. Her Honour dismissed the claims against, relevantly, the Borg parties: In the matters of Earth Civil Australia Pty Ltd, RCG CBD Pty Ltd, Bluemine Pty Ltd, Diamondwish Pty Ltd and Rackforce Pty Ltd (all in liq) (No 2) [2021] NSWSC 1161. It is not necessary to refer to the detail of the relief granted against Gino Cassaniti and the Khalil parties. It is sufficient to observe that monetary judgments in significant sums were entered against those defendants.

The issues raised by the appeals

1. The common issue raised by the appeals by Gino Cassaniti and three of the Khalil parties (Fred Khalil, Peter Abboud and George Khalil) against RCG, Bluemine, Diamondwish and Rackforce, and by the Borg parties' notice of contention (ground 1) in the liquidator's appeal on behalf of RCG against the Borg parties is the "release" defence relied upon by these defendants at trial, which was rejected by her Honour. No other grounds were ultimately pressed by either Gino Cassaniti or the Khalil parties (except George Said). Nor were the appeals by Gino Cassaniti and the Khalil parties against Earth Civil pressed.
2. The two appeals by George Said, as part of the Khalil appeals, raise a different issue. He challenges the finding that he had the requisite knowledge of Gino Cassaniti's breaches of duty to amount to accessorial liability in equity and under statute.

The appeals by Gino Cassaniti, the Khalil parties (except George Said) and the Borg parties' notice of contention

Background and parties' submissions

1. It will suffice for present purposes to summarise the background insofar as it related to the defendant Ms Ivana Cassaniti, although she did not reagitate the "release" defence by way of notice of contention on the appeal to which she was a respondent.
2. Ms Cassaniti was sued on the basis that she was knowingly involved in breaches of fiduciary and statutory duties owed by Mr Frank Criniti to Rackforce and Diamondwish. The primary judge found that Mr Criniti had caused Rackforce and Diamondwish to enter into carousel transactions for the purpose of incurring liabilities to the Commissioner of Taxation which they could never pay, and that this was a dishonest and fraudulent breach of his fiduciary duties as well as a breach of his statutory duties as sole director of both companies. The liquidator sued Ivana on the bases that she was liable in equity for knowingly assisting those breaches of fiduciary duty, and under s 79 of the Corporations Act as a knowing participant in the breaches of statutory duty. However, the liquidator had, in exchange for payment and a promise of assistance, granted a release to Mr Criniti.
3. Ms Cassaniti's senior counsel first raised the following point, towards the end of the trial (apparently, shortly after he was retained). Ms Cassaniti submitted that the liquidator's release of Mr Criniti from liability for breaches of equitable and statutory duties owed by him meant that the liquidator could no longer pursue her for claims that she had knowingly assisted and knowingly participated in the same breaches of those duties
4. Numerous other defendants availed themselves of the same point (the details are succinctly summarised at [2348]-[2351] of her Honour's reasons and need not be reproduced here). This defence had not been pleaded. It needed to be pleaded, turning as it did on the effect of deeds between the liquidator and other parties. The primary judge granted leave to amend, despite the evidence having closed, and no appeal was brought from the decision to grant the amendment.
5. Depending on whether ancillary liability is characterised as primary or secondary, the analysis might in principle be different depending upon whether (a) a knowing assistant or knowing participant sought to take advantage of a release of the person who owed the equitable or statutory duty to the company in liquidation, or (b) the person owing the equitable or statutory duty sought to take advantage of a release of a knowing assistant or knowing participant. Not least because of the use of language such as "accessorial" and "ancillary" and "secondary", it has been thought from time to time that the liability of a knowing assistant or participant may be parasitic upon the liability of the fiduciary (for an account of the debate see J Dietrich and P Ridge, Accessories in Private Law (Cambridge University Press, 2016), pp 12-25). However, in Michael Wilson & Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48 at [106] it was said that "liability to account as a constructive trustee is imposed directly upon a person who knowingly assists in a breach of fiduciary duty", and that the language of "accessorial" does "no more than recognise that the assistant's liability depends upon establishing, among other things, that there has been a breach of fiduciary duty by another". That authoritative recognition that the liability of a knowing assistant is not secondary or parasitic upon that of the fiduciary means that it is sufficient to consider the case where the fiduciary is released and the knowing participant is sued (for it is difficult to see how the position under statute could be more generous to defendants).

Summary of what this judgment determines and does not determine

1. For the reasons which follow, we have concluded that the primary judge reached the correct conclusion on both points. Insofar as there was a rule which had the result that a release of a fiduciary brought about the release of a person who knowingly assisted in that fiduciary's breach of duty, it cannot survive the enactment of s 95 of the Civil Procedure Act. Further, the better view is that there was no such rule in equity.
2. Two observations may be made at the outset concerning the parties' submissions and the way argument was presented on appeal. One derives from the analysis of the primary judge at [2477]-[2478] regarding the finding in Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 holding that the liability of a fiduciary and a third party assistant acting in concert was joint and several. The primary judge pointed to the incongruity of the result that a fiduciary and a third party who acted in concert were jointly and severally liable, such that the release rule applied, while a third party who did not act in concert with the fiduciary was not jointly and severally liable, and therefore would not be released by a release of the fiduciary if the release rule applied. The appellants said that the difficulty arose not from the joint release rule, but from the decision in Grimaldi itself. The liquidator's written submissions challenged reliance on the obiter dicta in Grimaldi to the effect that where the principal and accessory acted in concert for their mutual benefit, their liability was joint and several to compensate for loss. The liquidator said that (a) that proposition was wrong in law and (b) no factual findings had been made sufficient to establish that there was the requisite acting in concert (this reflecting the fact that the point was only raised later in the trial).
3. The second observation is that the liquidator added that there was no challenge to the breach of statutory duties nor the findings of knowing participation for the purposes of s 79 of the Corporations Act, and that it had been held that the statutory duties were owed severally by the directors. In Daniels v Anderson (1995) 37 NSWLR 438 at 505, Clarke and Sheller JJA had said, of the duty at common law owed by directors, that "[t]he duty is a common law duty to take reasonable care owed severally by persons who are fiduciary agents bound not to exercise the powers conferred upon them …" (emphasis added). The liquidator observed that s 185 confirmed that ss 180-184 were in addition to and did not derogate from other duties owed by directors. Hence it was said that there was "clear statutory indication that the statutory duties are stand-alone duties and their force and effect should be construed having regard to the statutory text, and that their effect must not be bound by equity".

Section 95 of the Civil Procedure Act and its antecedents

1. It is convenient, in an area which is far from straightforward, to start with statute. The appellants' submissions focussed on the text of s 95, and the requirement for there to be a judgment in order for the provision to be engaged. No judgment having been entered against or in favour of Frank Criniti, the appellants submitted that the section could not override the rule that the release of a fiduciary must also release a third party knowingly involved in the fiduciary's breach of duty.
2. That submission has the attraction of simplicity, but it cannot suffice to resolve the point. There are two reasons for this. The first is that s 95 was directed to altering or abrogating a pre-existing rule, and its content can only be understood against the rule which was altered or abrogated by the provision. Secondly, it is to be borne in mind that the appellants' argument is not that they fall within the terms of s 95. The appellants say that s 95 was not engaged, and therefore they can continue to take advantage of the pre-existing rule which, according to them, survives the enactment of s 95 and entitles them to a discharge. That is to say, an implicit but essential element of the appellants' submission is that s 95 has no effect on any pre-existing rule of judge-made law applicable in circumstances which do not involve giving or entering a judgment. Thus, it is necessary not merely to analyse the explicit effect of s 95, but also how and to what extent it amends or abolishes the pre-existing rule.
3. Those considerations make it essential to consider not merely the text of s 95, but how the section came to be enacted. The background is not without interest. The essential steps are: 1. Section 95 was a consolidation of s 97 of the Supreme Court Act 1970 (NSW); 2. Section 97 of the Supreme Court Act was introduced as one of the reforms effected following the delayed enactment of judicature legislation in New South Wales and was proposed following consideration by the Law Reform Commission in LRC 7. It derived from the Uniform Joint Obligations Act, model legislation drafted by Samuel Williston acting under the auspices of the Commissioners on Uniform State Laws, although the Law Reform Commission consciously departed from that proposed uniform legislation. 3. Section 97 of the Supreme Court Act (and its modern equivalent, s 95 of the Civil Procedure Act) are explicitly linked to the reforms made by s 5(1)(a) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). As will be seen below, the language is similar and they were directed to the same end but operating in the area of joint liability which was not joint liability in tort. They should be construed in the same way.

The rule that a release of one joint and severally liable obligor releases all

1. A joint obligation was regarded by the common law as a single cause of action. To use Glanville Williams' example, if A and B jointly covenanted to pay £100 to C, there was a single promise, which each of A and B was liable to pay in full. That is quite distinct from several promises by each of A and B to pay £50 to C. Most significantly for present purposes, Glanville Williams explained in his classic work Joint Obligations (Butterworths, 1949) that: "Since there are not two cumulative obligations, it follows not only that performance by one discharges the other but that (in general) whatever else discharges the obligation for the one will discharge it for all. The singleness of the joint promise is emphasised by a number of other rules, which will be considered as we proceed with the subject." (p 34)
2. One of those "other rules" is the rule that an unqualified release of one joint promisee releases all joint promisees. The underlying theory was the "singleness" of the joint promise.
3. Likewise, if two persons are joint tortfeasors (for example, the partners of a firm give negligent advice), then there is a single cause of action. It was stated in State of New South Wales v Loh Min Choo [2012] NSWCA 275 at [72] that: "As their rights are joint, they are in law, for this purpose, one person only. As pointed out in King v Hoare (1844) 13 M&W 494 at 505; 153 ER 206 at 210, in the case of both joint torts and joint contracts there is only one cause of action and whether an action is brought against one or two persons jointly liable, it is in either case for the same cause of action …"
4. The difficulties associated with joint obligations led to the creation of joint and several obligations from a very early period. This was recognised as possible by the language in a deed or a bond, and in various United States jurisdictions statutes were enacted many years ago deeming all joint obligations to be joint and several or otherwise modifying the rule: many are summarised in S Williston, A Treatise on the Law of Contracts (rev ed 1936 by S Williston and G Thompson), vol II, s336. In days when there could only be a single cause of action in a writ, it was more important than it is now that there can be joinder of causes of action in the same proceeding (see UCPR r 6.18) and until such reform was made, the promisee with the benefit of a joint and several promise by A, B and C could sue A, B and C on the one writ, or each of them on a separate writ, but could not sue two of them on the one writ. See the anonymous 16th century case at 3 Dyer 310a; 73 ER 702 and the decisions there mentioned, and Glanville Williams, Joint Obligations, pp 60-61.

Williston's Model Joint Obligations Act

1. Williston's Model Act was adopted in Nevada in 1927 and then, much more importantly, in New York in 1928: see the note by C Eberhart in 13 Cornell Law Quarterly (as the Cornell Law Review was then known) 640 (1928). A detailed analysis of the statute and the mischief to which it was directed may be found in Williston's A Treatise on the Law of Contracts at ss336 and 336A. Former paragraphs 97(2)(a) and (d) of the Supreme Court Act 1970 derive broadly from ss 2 and 3 of Williston's Model Act, which provide: "2. A judgment against one or more of several obligors, or against one or more of joint, or of joint and several obligors shall not discharge a co-obligor who was not a party to the proceeding wherein the judgment was rendered. 3. The amount or value of any consideration received by the obligee from one or more of several obligors, or from one or more of joint, or of joint and several obligors, in whole or in partial satisfaction of their obligations, shall be credited to the extent of the amount received on the obligations of all co-obligors to whom the obligor or obligors giving the consideration did not stand in the relation of a surety."
2. Sections 4 and 5 dealt in terms with releases of joint, or several, or joint and several obligors. Those provisions were not picked up by the Law Reform Commission. No doubt an argument might be made based on the inference that the Law Reform Commission had consciously chosen not to recommend enacting those provisions of the Model Act concerning releases but confined the reforms to those based on the effect of a judgment. As noted above, no such submission was made in this Court, because the appellants did not direct themselves to the Model Act. We return to this below. It is sufficient for the moment to note that the submission would amount in substance to an application of the principles associated with the expressio unius maxim, upon which it is dangerous to rely: see for example Daniels Corporation International Pty Ltd v Australian Competition and Consumer Commission (2002) 213 CLR 543; [2002] HCA 49 at [34].

Earlier legislative reform in New South Wales concerning the entry of judgments

1. The enactment of s 97 of the Supreme Court Act 1970 and s 95 of the Civil Procedure Act 2005 must be seen as an extension of earlier statutory reforms of the effect of a judgment upon a joint obligation. Both sections provide that they do not apply to a judgment to which s 5(1)(a) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) applies. Thus, the provisions were on their face supplementary to earlier, more narrowly confined, legislative reform.
2. Section 5(1)(a) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) provides: "(1) Where damage is suffered by any person as a result of a tort (whether a crime or not): (a) judgment recovered against any tort-feasor liable in respect of that damage shall not be a bar to an action against any other person who would, if sued, have been liable as a joint tort-feasor in respect of the same damage." Thus s 5(1)(a) abrogated the rule in Brinsmead v Harrison (1872) LR 7 CP 547 that obtaining judgment against one joint tort-feasor discharged all other joint tortfeasors.
3. Section 5(1)(c) goes on to provide that a tort-feasor may recover contribution between tort-feasors liable in respect of the same damage. This paragraph overturned the rule that contribution was not available either at law or in equity between tortfeasors: see Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613; [2013] HCA 10 at [12] and [80]. The fact that these paragraphs address different problems was noted in Newcrest Mining Ltd v Thornton (2012) 248 CLR 555; [2012] HCA 60 at [45] (referring to the materially identical Western Australian provision, s 7(1) of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 (WA)): "The impact of s 7(1) on this position was as follows. The mischief dealt with in s 7(1)(a) was the common law prohibition stated in Brinsmead v Harrison against a plaintiff who had recovered against one joint tortfeasor from recovering against another. Section 7(1)(a) improved the position of plaintiffs by abolishing that common law prohibition. The mischief dealt with in s 7(1)(c) was the rule in Merryweather v Nixan, which did not affect plaintiffs but tortfeasors. Section 7(1)(c) dealt with that mischief by abolishing the rule. Those changes to the common law position left the risk that plaintiffs, freed from the ban that Brinsmead v Harrison imposed on any action against joint tortfeasors after one tortfeasor had been sued to judgment, would abuse that new found freedom by pursuing a multiplicity of actions."

Rationale for the rule abrogated by s 5(1)(a) and s 95

1. Although the reforming legislation commenced with tort and then expanded to include joint liability in areas other than tort, the modern reason given by the law for the effect of a judgment given in relation to one joint obligee having the effect of discharging all other joint obligees was the same: the cause of action against the joint tortfeasors or joint obligees was "one and indivisible". Thus, in Duck v Mayeu [1892] 2 QB 511 at 513, A L Smith LJ said: "It is, we think, clear law, that a release granted to one joint tortfeasor, or to one joint debtor, operates as a discharge of the other joint tortfeasor, or the other joint debtor, the reason being that the cause of action, which is one and indivisible, having been released, all persons otherwise liable thereto are consequently released. The case of Cocke v Jennor is distinct upon the point, and there are many subsequent cases to the same effect."
2. This was the approach taken in the Restatement of Contracts. The passage from Duck v Mayeu was reproduced by Morton LJ delivering the leading judgment of the Court of Appeal in Apley Estates Co Ltd v De Bernales [1947] Ch 217 at 220-221, by Taylor J (with whom Kitto J agreed) in Ramsay v Pigram (1968) 118 CLR 271 at 286 who added that "as far as I can see has never been questioned" and by this Court's unanimous judgment in Carr and Purves v Thomas [2009] NSWCA 208 at [14].

The significance of s 5(1)(a) of the Law Reform (Miscellaneous Provisions) Act 1946

1. Section 5(1)(a) of the Law Reform (Miscellaneous Provisions) Act 1946 plays an important part in the analysis in this appeal because of what has been authoritatively decided of its Australian Capital Territory counterpart in Thompson v Australian Capital Television Pty Ltd (1996) 186 CLR 574; [1996] HCA 38. The decision has received a mixed reception in New Zealand (see Robinson v Tait [2002] 2 NZLR 30; [2001] NZCA 217) but the reasoning binds this Court. There the High Court considered the effect of s 11(2) of the Law Reform (Miscellaneous Provisions) Act 1955 (ACT) which provided: "Judgment recovered against a tort-feasor liable in respect of the damage is not a bar to an action against any other person who would, if sued, have been liable as a joint tort-feasor in respect of the same damage."
2. The 1955 ACT legislation was directed to the same end, and was materially identically worded, as s 5(1)(a) of the 1946 NSW statute.
3. The joint judgment of Brennan CJ, Dawson and Toohey JJ said at 582 that "The effect of s 11(2) is that the cause of action against joint tortfeasors is no longer one and indivisible". After dealing with Singaporean, English and Australian authority on counterpart provisions, their Honours explained at 584: "Similarly, under s 11(2) of the ACT Act it is no longer the case that the victim of a tort committed by joint tortfeasors has only one cause of action; the cause of action is no longer one and indivisible. The concept of a single wrong and a single cause of action having gone, the rule that a release given by one joint tortfeasor releases any others must have gone with it, for that rule is nothing more than another aspect of the same thing, namely, that there is only one cause of action against all joint tortfeasors in respect of the one tort. In other words, once the cause of action is by statute no longer one and indivisible, there is no conceptual basis for the rule that the release of one joint tortfeasor releases the others. The rule must therefore be taken to have been impliedly abolished by the statute. It is true that the draftsman of the legislation could have included, as did the draftsman of s 3(3) of the Tortfeasors and Contributory Negligence Act 1954 (Tas), an express provision that the release of one joint tortfeasor does not release the other joint tortfeasors in respect of the same tort, but the absence of such a provision does not affect the necessary implication that the common law rule in relation to releases must have gone at the same time as the cause of action became no longer one and indivisible." (footnote omitted, emphasis added).

The significance of re-enacting the provision

1. That conclusion is reinforced by the fact that the New South Wales Legislature chose to re-enact s 97 as s 95 of the Civil Procedure Act. This was a sensible measure to take, for there is no reason for the entry of judgment in the Supreme Court against a co-obligor to have any different effect from the entry of judgment by the District Court, and yet that would arguably be the effect of the provision as originally enacted (a point observed in Woodgate v Davis (2002) 55 NSWLR 222; [2002] NSWSC 616 at [10]). Similar concerns led to the delayed commencement of the Supreme Court Act and the enactment of the Law Reform (Law and Equity) Act 1972 (NSW).
2. When s 97 was re-enacted as s 95, the words "in proceedings in the Court" were replaced by "in any proceedings", a point to which we shall return at [86] below. But the presently relevant significance of re-enacting s 97 as s 95 of the Civil Procedure Act is that it occurred after the reasoning in Thompson as to the implied abrogation of a broader rule of law. Indeed, it had been noted in the standard commentary. Ritchie's Supreme Court Procedure (loose-leaf, service 197, which dates from 2003) is in materially identical terms as the current annotation to s 95 which is reproduced above.
3. As noted above, the appellants relied on the opening words "The section only refers to the effect of a judgment". This was put as follows: "The commentary in Ritchie's, the opening sentence, in my respectful submission, captures the essence of my submission. That is, the section only refers to the effect of a judgment and then it refers to the historical position regarding consensual releases and covenants not to sue. … [B]ecause of the specific drafting in s 95, the reasoning in Thompson v Australian Capital Television is not automatically imported into s 95. The correct statement of principle is the clear, short, succinct first sentence in Ritchie para 95.15."
4. We cannot accept that submission, which misses the gravamen of the paragraph in the commentary. The authors after giving the background to the rule add (after "However") that the High Court's decision in 1996 treated the ACT counterpart of the provision as having a wider effect, namely, that it "impliedly abrogated the rule that release of one joint tortfeasor released all". The appellants' submission was that "s 95 of the Civil Procedure Act has not impliedly abrogated the joint release rule but rather, only the merger into judgment rule". Fairly read, the authors of Ritchie's commentary were cautioning readers in terms that s 95 was to be construed in light of how the High Court had construed a materially identical provision.

Remaining submissions on s 95

1. Mr Gino Cassaniti, who took the lead on this issue, submitted that Thompson was "distinguishable on account of the materially different statutory text". He submitted that s 95 was materially different from s 5(1)(a) (and s 11(2) of the ACT statute) because s 95 "is drafted in terms of the specific pre-requisite requirement of an existing judgment (which is reinforced by the inclusive definition of that expression in s 3(1)) in 'proceedings' and is, as above, primarily if not exclusively directed to the question of merger". We do not agree. Both s 95 and s 5(1)(a) have as their premise that there is a judgment against one of the persons jointly liable. It is true that the legislation may be said to be directed to the question of merger effected by the entry of judgment. But the reasoning in Thompson was as to the implied abrogation of the common law rule. It is not an answer to the same implication being given effect to the comparably worded s 95 to observe that it does not expressly deal with the indivisibility of causes of action involving joint obligations.
2. Reliance was placed on the explanatory note accompanying the Civil Procedure Bill 2005. But that made it clear that the legislation was of a consolidating nature. Hence if useful recourse were to be had to extrinsic materials, it would be to those accompanying the provision as originally enacted, namely, s 97 of the Supreme Court Act; and what the Law Reform Commission wrote about the provision it proposed has already been addressed.
3. True it is that the Law Reform Commission in 1969 recommended implementing only part of Williston's Model Act and refrained from recommending the enactment of the provisions dealing explicitly with releases. But that does not undercut the force of the reasoning in Thompson as to the effect of the provisions dealing with judgment, nor does it detract from the force of the considerations mentioned above when s 97 was re-enacted as s 95, after Thompson had held that the similarly worded counterpart to s 5(1)(a) had the effect of abrogating the one and indivisible rule for tortious causes of action.
4. Submissions were also made based on the inclusive definition of "liability" in s 95(4). That term as used in s 95 extends to "liability in contract, liability in tort and liability under a statute". Liability in equity is conspicuous by its absence. An ingenious submission was advanced on behalf of the Borg parties to the effect that the provision could not alter the position in equity. It relied on the words "jointly liable for money" in par 25 of Appendix A of LRC 7 (reproduced above) and the word "judgment" in the section. This language was said to suggest the provision did not apply to equitable liability. Damages are foreign to equity, and "judgment" was said to connote common law, rather than a "decree" which, under the pre-Judicature regime, would issue on finalising a suit in equity. We do not accept this submission. Section 97 of the Supreme Court Act was part of the judicature reforms which put in place a common procedure throughout the Supreme Court, one (minor) aspect of which was that decrees in equity were replaced by judgments in all proceedings in the Court. Further, the submission cannot be reconciled with the generality of "in proceedings in the Court" in s 97, still less with "in any proceeding" in s 95.

Was there ever any such rule applicable in equity?

1. If there were a rule in equity, then for the reasons given above it did not survive the enactment of s 97 of the Supreme Court Act and s 95 of the Civil Procedure Act. But was there such a rule? By way of example, Crennan and Kiefel JJ referred in Newcrest Mining Limited v Thornton (2012) 248 CLR 555; [2012] HCA 60 at [55] to the effect of s 5(1)(a) as abrogating "the common law defence of 'release by judgment'". Did any of this apply in equity? There is reason to think that it did not. This may be seen in a number of ways.
2. First, the modern starting point for the effect of releases upon joint liability at law is surely Glanville Williams' work Joint Obligations. The work is justly famed as a work of scholarship. It is directed to the very point in these appeals.
3. Joint Obligations is a work dealing with the common law. The preface commences "This book discusses a difficult and seriously defective part of the common law" and urges legislative reform. Nonetheless, it addresses the liability of trustees in two places. Glanville Williams states in the outline at p 31: "Trustees are jointly and severally liable for breach of trust, and a release of one does not discharge the liability of the other. It is an open question whether all must be sued together."
4. Glanville Williams also writes at p 159: "Notwithstanding that this book is chiefly concerned with the law of contract, it is necessary to say something about the analogous rules in the law of trusts, not only for purposes of comparison but also because a trust relationship may easily arise from a contract relationship and bring about an alteration in the relevant law. Those who are responsible for a breach of trust, whether as express or constructive trustees (including those who deal improperly with trust property), are jointly and severally liable [1]. The result is that the plaintiff can sue any [2] or all for the whole damage, and if all are sued he can enforce the decree against any [3]; a decree against one does not bar the remedy against another [4]; a release of one does not release the other [5] (contrary to the rule for joint and several liability in contract s63); liability extends to the estate of one who has since died [6] and, in the case of partners who are trustees, proof may be made against the separate estate [7]."

Conclusion

1. The appeals by Gino Cassaniti and the Khalil parties (except George Said) must be dismissed.

Overview

1. Involved Recruitment Pty Ltd (Involved Recruitment) was incorporated on 16 May 2012 with George Said, George Khalil and Gino Cassaniti as its directors. Although her Honour observed that George Said and George Khalil both purportedly ceased as directors on that same day (at [292]), George Said's evidence was that he understood that he was a director of that company throughout its time of operation. The registered office and principal place of business of Involved Recruitment was at the offices of Banq, where Gino Cassaniti, George Said's cousin, Fred Khalil, his brother, George Khalil, and their brother-in-law, Peter Abboud, were principals or persons employed by that firm: at [152]-[153]. Banq was also its tax agent: at [197]. Involved Recruitment was wound up in a creditors' voluntary winding up on 28 June 2013 and Mr Ball was appointed as liquidator: at [197].
2. The liquidator's pleaded claims relevantly alleged that George Said was a director of Involved Recruitment appointed and instructed by Gino Cassaniti, that RCG and Bluemine's director, Gino Cassaniti, caused those companies to enter into a series of transactions with Involved Recruitment, and in carrying out Gino Cassaniti's instructions, George Said delivered large sums of cash to Gino Cassaniti from the bank account of Involved Recruitment and caused Involved Recruitment to:

• make 80 payments to RCG totalling $934,399 between September 2012 and May 2013; and
• receive and accept a payment of $55,590 from Bluemine on 26 March 2013 (together the impugned transactions), for which there was no genuine commercial documentation.

1. It was alleged that in carrying out Gino Cassaniti's instructions, George Said knew that he was assisting Gino Cassaniti in his breaches of duty and that what Gino Cassaniti was doing was dishonest, or that he had knowledge of circumstances that would indicate to an honest and reasonable person that Gino Cassaniti was acting dishonestly and fraudulently in instructing him to deliver cash to Gino Cassaniti, transfer $934,399 to RCG and receive $55,590 from Bluemine.
2. There is no challenge to the primary judge's findings that:

• Gino Cassaniti was a director or deemed director of RCG and Bluemine at the relevant time, and also a deemed director of Involved Recruitment at the relevant time: at [1241];

The knowledge issue

1. In proceedings 2021/242648 and 2021/242667, George Said appeals against the finding that he had the requisite knowledge of Gino Cassaniti's breaches of duty. He says that this finding should be set aside because her Honour wrongly applied a test of constructive knowledge in upholding the claim in equity. It is common ground that it is not necessary to consider the liquidator's claim under statute; it was accepted that his claim under statute rose no higher than the claim in equity.
2. The liquidator seeks to uphold her Honour's finding against George Said on the basis that the finding should not be read as a finding of constructive knowledge. Alternatively, the liquidator relied upon a notice of contention in each appeal that if her Honour erred in determining George Said's liability by reference to the fifth category in Baden v Société Générale pour Favoriser le Développement du Commerce et de l'Industrie en France SA [1993] 1 WLR 509 at 575-576, then her Honour should have determined that the conduct of George Said amounted to assistance of Gino Cassaniti's breaches of fiduciary duty within categories one to four in Baden.
3. There is no dispute as to the applicable legal principles for accessorial liability claims in equity. Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2003) 230 CLR 89; [2007] HCA 22 establishes (at [174]-[179]), accepting the view of Stephen J (Barwick CJ agreeing) in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 412; [1975] HCA 8, that knowledge within the categories which were later identified as (i) to (iv) of Baden is sufficient for the purposes of the second limb in Barnes v Addy (1874) LR 9 Ch App 244, but constructive knowledge within category (v) of Baden is insufficient, that is, knowledge of circumstances which would put an honest and reasonable person on inquiry.
4. Thus, for the purposes of the liquidator's second limb claim against George Said, the relevant categories of knowledge are: (i) actual knowledge; (ii) wilfully shutting one's eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make; and (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable person.
5. It is convenient first to address the evidence concerning George Said's state of mind in the period September 2012 to May 2013.

George Said's evidence

1. At trial, George Said gave evidence under compulsion of a subpoena issued by the liquidator. He was examined by senior counsel for the liquidator and, in part, cross-examined with leave granted over the objection of his counsel.
2. Her Honour addressed this evidence in some detail at [824]-[856]. As to the circumstances of his appointment as a director of Involved Recruitment, George Said became a director in 2012 at the request of Gino Cassaniti, who asked him if he wanted to "partake" in a business and told him that it might be a bit of administrative work and he could work via his laptop. At the time, George Said was working fulltime as a real estate agent. A couple of weeks later, George Said began to do some work at the direction of Gino Cassaniti: at [825]. George Said described this work as "just pretty much paying whoever they asked via email. Whoever Gino asked via email". He said that he would receive an email with a timesheet to invoice and he would then get the payment and would pay whoever it needed to be directed to via email: at [827].
3. In performing this role, George Said had access to the bank account of Involved Recruitment, although according to his evidence, he was not sure if he was a signatory on that account. He had the bank account login details and was able to do (internet) transfers on that account. He was "sure" that Gino Cassaniti had access to the bank account because sometimes he logged in and saw that there were other transactions that he had not done: at [828]. Her Honour summarised the effect of George Said's evidence at [829]:

• he received documents from Banq on his laptop, but could not recall what type of documents, and if they were instructions;
• he later said that he could not recall if he received documents from Banq;
• he recalled receiving invoices from clients of Involved Recruitment for labour hire work and he would then invoice that work to clients at Involved Recruitment;
• he would receive such instructions from either the client or Gino Cassaniti; and
• he changed the letterhead on the invoices.

1. As to the cash withdrawals, George Said's evidence was that he would go to the bank and withdraw money from the account of Involved Recruitment. He said that sometimes Gino Cassaniti would tell him to take money from that account or give him cash for his work. He accepted that he would take out large sums and give the money to Gino Cassaniti: at [839].

The primary judge's reasons

1. Her Honour found that George Said's primary role in relation to Involved Recruitment was to undertake minor clerical work in the preparation of invoices, which, on his evidence, was at the direction of Gino Cassaniti, doing this on his laptop from electronic instructions received by email and using software or templates which, on his evidence, were provided to him by Gino Cassaniti; that George Said's evidence as to whether this involved changing letterheads on invoices was more than a little confused; that George Said withdrew money from the bank which, on his evidence, was at the direction of Gino Cassaniti and for the payment of employees, and that he also withdrew large sums and gave them to Gino Cassaniti: at [857]. Her Honour observed that it was abundantly clear that George Said never made any decision himself (as to how much was to be invoiced or paid), and that he did what he was instructed to do when issuing invoices: at [858].
2. Addressing George Said's credit, her Honour found that his evidence must be approached with some caution given the inconsistency between his ATO interview and his evidence in Court and that his identification of Gino Cassaniti as the person whom he was reluctant to identify to the ATO officers (during the ATO interview) was "telling": at [859].
3. Her Honour's dispositive reasons for finding that George Said's involvement in the scheme rendered him liable in equity for knowing assistance are contained at [1655]-[1656]: "I consider that George Said's involvement in the scheme renders him liable for knowing assistance. While there is an argument that he was simply performing an administrative task (giving rise to a question as to whether, by issuing the invoices, he was on notice of facts that rendered the invoices false or suspicious). I consider that the evidence as to the manner in which the invoices were created (confused and inconsistent as that evidence was) must have raised a question in the mind of a reasonable and honest person. That alone might not have been sufficient. However, it must be taken in the context of the circumstances in which he withdrew large sums of cash, at Gino Cassaniti's instructions, that he delivered to him at Banq's offices and from which Gino Cassaniti directed him to take seemingly arbitrary amounts of money. The circumstances in which that occurred surely put him on notice of facts that would put a reasonable and honest person on enquiry. I consider that George Said's role in issuing the invoices, making the payments, withdrawing large sums and delivering them to Gino Cassaniti is sufficient to establish his assistance in Gino Cassaniti's breaches of fiduciary duty to RCG CBD and Bluemine. Accordingly, I find that the claim against George Said for accessorial liability for knowing assistance is made good." (Emphasis added.)

Whether the primary judge applied the wrong test of knowledge?

1. Farah establishes that it is sufficient for George Said to be shown to have actual knowledge of Gino Cassaniti's breach, or to have wilfully shut his eyes to the obvious, or to have wilfully and recklessly failed to make such inquiries as an honest and reasonable person would make, or knowledge of circumstances which would indicate the facts to an honest and reasonable person.
2. Although her Honour correctly stated the test of knowledge at [987], she did not apply that test in terms. George Said submitted that her Honour erred by applying a test of constructive knowledge, pointing to the italicised sentence in [1655] which is extracted at [149] above. The liquidator said that the italicised sentence is no more than one factual finding leading to the ultimate finding of accessorial liability in the last sentence of [1655], which is to be read as referring to the second, third or fourth categories in Baden.
3. It is arguable that when [1655] is read as a whole, her Honour should be taken to have found that although the issuing of invoices viewed alone might not have been sufficient to amount to knowledge such that George Said was liable in equity and under statute for Gino Cassaniti's breaches of duty, viewed in the context of the withdrawal of large sums of cash and the arbitrary amounts Gino Cassaniti instructed George Said to take for himself, George Said's conduct in issuing the invoices, making the payments and withdrawing large sums and delivering them to Gino Cassaniti was sufficient to find that his knowledge was such that he was liable in equity and under statute.
4. The difficulty with reading the judgment this way is the absence of an express finding that George Said's knowledge of Gino Cassaniti's breaches of duty answered one of categories (i) to (iv) in Baden, which the High Court accepted in Farah is sufficient. Given the forensic significance of the subject matter of the constructive knowledge in the italicised sentence in [1655] (the withdrawal of large sums of cash), we are inclined to the view that the finding of liability against George Said was affected by error.
5. Accepting that error has been established, it is necessary to address the liquidator's notice of contention in each appeal seeking a finding of knowledge within categories (i) to (iv) in Baden. It was not submitted on behalf of George Said that this Court was not in a position on a rehearing to determine that issue on the evidence and unchallenged findings below, including the adverse credit finding.

Whether George Said had the requisite knowledge of Gino Cassaniti's breaches of duty?

1. It is convenient to address the issue of knowledge by reference to the fourth category in Baden: knowledge of circumstances which would indicate the facts to an honest and reasonable person. It is to be kept in mind that the "morally obtuse" cannot escape by failing to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons: Farah at [178].
2. George Said submitted that "neither the findings made, nor the evidence of his actions relied upon in support of the [liquidator's] notice of contention, rise above putting an honest person on their enquiry" (supplementary written submissions, par 3). In oral argument, counsel said that whilst George Said may have been negligent or careless as a director or deemed director of Involved Recruitment, including in assisting Gino Cassiniti in his breaches of duty, he did not have knowledge of the circumstances that would indicate the facts to an honest and reasonable person.
3. These submissions were not particularly helpful as they were expressed in conclusionary terms and, with one exception relating to George Said's issuing invoices, the submissions did not engage with the evidence and unchallenged findings below.
4. Addressing George Said's state of mind, his counsel submitted that: 1. George Said was only performing clerical work at the direction of Gino Cassaniti and there was nothing suspect with preparing invoices from timesheets for labour hire in a labour hire business; 2. changing the letterhead from that of a subcontractor to the letterhead of Involved Recruitment before being sent out to a "client", particularly on instructions, is unlikely to have raised any serious concerns; and 3. the liquidator's evidentiary case, taken at its highest, established no more than that "[George] Said's preparation of the invoices should have put him on his enquiry" (supplementary written submissions, pars 7-10).
5. The premise of these submissions is that Involved Recruitment was engaged in a labour hire business supplying labour to its "clients", which had been provided by subcontractors who invoiced Involved Recruitment, which in turn invoiced its clients. However, there is no finding by her Honour to this effect and this premise is not otherwise established on the evidence.

Conclusion and Orders

1. The appeals by Gino Cassaniti and the specified Khalil parties against RCG, Bluemine, Diamondwish and Rackforce and ground 1 of the notice of contention by the Borg parties in the liquidator's appeal have failed on the common issue that was pressed at the hearing. (The balance of the issues raised by the liquidator's appeal against the Borg parties is the subject of the separate judgment referred to at [4] above.) The appeals by Gino Cassaniti and the Khalil parties (except George Said) against Earth Civil were not pressed. All the appeals will be dismissed. There is no reason why costs should not follow the event: UCPR r 42.1.
2. The appeals by George Said against RCG and Bluemine have failed. These appeals will also be dismissed with costs.
3. The liquidator's notices of motion filed 7 April 2022 seeking dismissal of the appeals by the Khalil parties on the ground that the appeals were incompetent as being out of time, should be dismissed. However, the Khalil parties should pay the respondents' costs of those motions, given that the notice of appeal in each matter was filed out of time without leave.

Cassaniti appeals (2021/242905, 242906, 242909, 242910 and 242957)

1. The Court makes the following orders in each appeal: 1. Appeal dismissed. 2. The appellant to pay the respondents' costs in this Court.

Khalil appeals (2021/242618, 242626, 242639, 242648 and 242667)

1. The Court makes the following orders in each appeal: 1. Extend time for the filing of the notice of appeal to the date on which the document was filed. 2. Appeal dismissed. 3. Dismiss the respondents' notice of motion filed 7 April 2022. 4. The appellants to pay the respondents' costs in this Court, including the costs of the respondents' notice of motion filed 7 April 2022.

RCG appeal (2021/289069)

1. In the liquidator's appeal on behalf of RCG against the Borg parties, dismiss ground 1 of the notice of contention.

Amendments 29 August 2022 - Amend "Conaghlen" to read Conaglen. 03 May 2023 - Amendments made and typographical errors corrected. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 May 2023