Charafeddine v Morgan

(a) Issue estoppel

1. Mr Lakis submits that Black J made factual findings in the 2012 proceedings that were binding on the parties to the effect that "there was a misdescription in the company records of some of the payments made or of the personal expenses of Mr Lardis" (T217).
2. The relevant extracts of Black J's judgment are as follows: [9] Mr Lakis gave evidence, which was admitted as evidence of his understanding only, that various personal expenses of Mr Lardis had been paid from the Company's accounts totalling $76,370.49 and that there had been no reconciliation of those expenditures. On the other hand, Mr Lardis gave evidence that all payments for personal expenses were fully disclosed to the Company's accountants. I cannot accept that evidence, given the extent to which such expenses were misdescribed as disclosed by the evidence to which I will refer below. Mr Lardis also gave evidence of his understanding that the Company's accountants have reconciled all personal expenses. Again, it is clear from Mr Lardis' cross-examination that that is not the case. [10] Mr Lardis accepted in cross-examination that, for an honest and open reconciliation to be undertaken, the Company's accountants would have to be given sufficient information to understand which payments were actually made for personal expenses, and that the accountants could not otherwise undertake that task. Mr Lardis also accepted that it would not be appropriate to put misleading entries into the Company's books to disguise personal payments. However, there are numerous examples of personal expenses incurred by Mr Lardis which are misdescribed in the Company's financial records. For example, the Company made payments to Mr Lardis' personal credit card account that were recorded in its accounting system as relating to "expenses-materials", suggesting that they were a corporate expenditure. Mr Lardis' evidence on cross-examination was that he did not instruct the bookkeeper to record that expense in that way. Another cheque in payment of Mr Lardis' personal credit card is recorded in the Company's books as for a training course. A cheque was drawn by the Company for Mr Lardis' daughter's school fees in a substantial amount and described in the Company's accounts as for "pesticides". Mr Lardis accepted that that was not a proper expenditure of the Company. His explanation was that he would have told the Company's bookkeeper that it was a personal expense and "she's probably tried to allocate it somewhere where it's of benefit to the Company". Another cheque for Mr Lardis' daughter's school fees is described in the Company's accounts as advertising. Mr Lardis offered an explanation, in cross-examination, that this may have been because the bookkeeper was Mr Lakis' cousin's girlfriend, apparently implying an elaborate attempt to establish a case for the winding up orchestrated by Mr Lakis. I do not accept that evidence. A payment in respect of Mr Lardis' son's school fees is described in the Company's accounts as advertising. A cheque in payment of fees for Mr Lardis' childrens' orthodontist is shown in Amazon's general ledger as referable to "website" and Mr Lardis' explanation for that matter is that the bookkeeper "tries to allocate it where she thinks fit". A further payment to Mr Lardis' childrens' orthodontist is described as "medical expense - work related" and Mr Lardis accepted in cross-examination that the Company was not incurring work-related medical expenses for an orthodontist. [11] Mr Lardis' submission that he and Mr Lakis "regularly accounted for these expenses to [the Company's] bookkeeper, by providing receipts, and then the bookkeeper would reconcile these expenses to the Company accounts" is undermined by the incorrect descriptions of those expenses. It is ultimately not necessary to determine whether Mr Lardis authorised the Company's bookkeeper to misdescribe personal expenditures in the Company's financial records, or whether she did so of her own initiative, because in either case the Company's financial records would not permit the reconciliation of personal expenditures by the accountants, unless they were to go back to verify cheque butts so as to identify the incorrect descriptions contained in the Company's accounting system. Mr Lardis' evidence in cross-examination was that the accountants would, each year, review every transaction and go through the cheque butts in order to identify personal expenses. I am unable to accept that evidence, both because it is apparent that the last reconciliation was undertaken in 2010, and because there is no evidence that the accountants in fact engaged in a process of reviewing cheque butts so as to identify systematic misdescriptions of expenditures in the Company's financial records. A schedule prepared by the accountants to reconcile expenditures identified a number of items which the accountants were then unable to allocate without further information, and it appears that no further information was provided to them to permit such an allocation to be completed. The reconciliations undertaken by the Company's accountant, to the extent they have been undertaken in the period to 2010, were incomplete because they have not adjusted for those incorrect descriptions. … [21] In my view, the extent of payment of personal expenses from the Company and the misdescription of those expenses in the Company's financial records are matters that frustrate the commercially sensible operations of the Company and would also warrant a lack of confidence in the conduct and management of its affairs. It may well be the case, as Mr Lardis contends, that the Company is still able to perform pest control work, since Mr Lakis has had only a limited involvement in that work for some years by reason of his involvement in the gyms and his subsequent depression. However, the matters to which I have referred above mean that there can be no expectation that Mr Lakis will receive dividends from the Company proportionate to his investment in it, since the Company's profitability would necessarily be affected by the disguised personal expenditures that Mr Lardis has been paying from the Company. … [25] Mr Lardis' evidence is that he would be content for Mr Lakis to remain as a 50% shareholder and receive distributions of Company profits. However, the difficulty with that proposition is that the evidence before the Court indicates that those profits have not, in the past, reflected the Company's true position because personal expenses have been paid by Mr Lardis and misdescribed in the Company's records as business expenses, and there is no basis on which the Court can be satisfied that that will not continue to occur. Mr Lardis also gives evidence that he has performed a much larger number of pest control jobs than Mr Lakis, and that proposition appears to be consistent with job allocation records of the Company and with the evidence as to Mr Lakis' illness. However, I do not consider that the fact that Mr Lardis was making a substantial contribution to the Company's business provides an answer to, or justification of, the payment of personal expenses from the Company, disguised as business expenses, in a manner which could not be reconciled as between the shareholders in accordance with the agreement which Mr Lardis himself asserts. (emphasis added)
3. Mr Lardis emphasises Black J's remarks at [11] which I have set out in bold type and submits that Black J found it unnecessary to decide whether the personal expenses were misdescribed for the purposes of determining the ultimate issue in those proceedings - namely, that Mr Lardis and Mr Lakis were unable to conduct their business. Mr Lardis' case is that he properly described the disputed expenses in the cheque butts.
4. What Black J found unnecessary to decide at [11] was whether Mr Lardis was the person who authorised the misdescriptions of personal expenses in the company's records. As is made clear by his Honour at [9], Black J found that the expenses were misdescribed and rejected Mr Lardis' evidence that the accountants properly reconciled all personal expenses. Therefore, Mr Lardis is estopped from contending that those expenses, i.e. the cheques the subject of the misdescribed expenses, were properly recorded.
5. Mr Lardis then submits that there is evidence in the present proceedings that was not before Black J - namely, additional cheque butts. It is submitted that, in accordance with the remarks of Lord Diplock in Mills v Cooper [1967] 2 QB 459; 2 All ER 103, there is an exception to issue estoppel because "further material which is relevant to the correctness or incorrectness of the assertion and could not by reasonable diligence have been adduced by that party in the previous proceedings has since become available to him". Whether that is correct in this jurisdiction is open to doubt: Charafeddine v Morgan [2014] NSWCA 74.
6. Regardless of whether Black J was of the view that Mr Lardis was responsible for the misdescribed entries and not the bookkeeper, as will subsequently appear, I have reached the view that Mr Lardis was to a material extent in control of the company's books and was responsible for the misdescriptions.

(b) Anshun estoppel

1. Mr Lardis submits that Mr Lakis is estopped from claiming that about $217,000 was received in cash for personal expenses because Mr Lakis failed to provide a reasonable explanation as to why the issue was not raised in the 2012 proceedings.
2. In cross-examination, Mr Lakis gave evidence that became aware "well before" the 2012 proceedings that Mr Lardis might have misappropriated cash. When questioned as to why he did not raise this in the 2012 proceedings, Mr Lakis gave evidence that "time constraints" meant he would not have been able to gather evidence with respect to the "cash component of what was happening" and his focus was on the cheques.
3. I do not consider this submission helpful. In my view one cannot sue for damages or equitable compensation in the same suit as a public law application to wind up a company on the just and equitable ground.

(c) Standing

1. Mr Lardis submits that Mr Lakis does not have standing to bring the proceedings against Mr Lardis and PestHelp because (1) the Notice of Assignment is dated 6 May 2014 and was served on Mr Lardis on 14 May 2014 and so was not signed and served on the Effective Date (26 March 2014) in accordance with cl 3 of the Deed of Assignment; and (2) the Deed of Assignment does not extend to claims against PestHelp.
2. The relevant provisions of the Deed are as follows: … RECITALS … C. Edward alleges that Mr Michael Victor Lardis, current shareholder and previous director of the Company, breached certain directors' obligations under the Corporations Act, all or any obligations and duties under the Common Law and/or in Equity, including duties of good faith and/or care and skill, and/or fiduciary duties during his appointment as director of the Company ("Alleged Director's Breaches") D. In accordance with the Corporations Act, and/or the Common Law and/or in Equity the Company has standing to commence proceedings in respect of the Alleged Director's Breaches ("Company's Rights"). … 1. INTERPRETATION 1.1 DEFINITIONS These meanings apply unless the contrary intention appears. … Effective Date means 26 March 2014. … 3. ASSIGNMENT (a) Subject to clause 3(b), the Company assigns to Edward, from and including the Effective Date, the Company's Rights subject to the following terms: (i) Any claim to enforce the Company's Rights must be filed within 12 months of the Effective Date, failing which the Company's Rights will be extinguished; and (ii) The process of any judgment or order for any other financial compensation in favour of Edward or any sum paid to him on account of any compromise (in all cases for damages, an account of profits, compensation or otherwise, but not including any costs orders) shall be paid to the Company to be distributed according to law. (b) On the Effective Date, the Company will execute and serve the Notice of Assignment. …
3. Mr Lakis submits that the construction of cl 3 put forward by Mr Lardis cannot be correct because the Deed and Notice of Assignment were both executed on 6 May 2014. Instead, Mr Lakis submits that the proper construction of cl 3 is that the Notice of Assignment and Deed must be served concurrently "so that the legal assignment is perfected without delay". It submits that the stipulation of the Effective Date as 26 March 2014 is explained by evidence that the execution of the Deed was "held up" while the assignment to Mr Lardis was arranged.
4. It should be noted at this point that if Mr Lakis lacks standing, Mr Lardis will also lack standing as the Effective Date with respect to the Deed of assignment to Lardis is also 26 March 2014 and that Deed and Notice of Assignment were executed on 8 April 2014.
5. It cannot have been the parties' intention to enter into a Deed of assignment that would, from the outset, be ineffective to assign the claims identified therein. I accept Mr Lakis' submission that the stipulation of the Effective Date as 26 March 2014 was somewhat of an oversight.
6. With respect to Mr Lardis' assertion that the Deed of Assignment does not extend to claims against PestHelp, Mr Lakis submits that the definition of "Company's Rights" in Recital D in terms of claims "in respect of" alleged director's breaches extends to the claims against PestHelp as they are "in respect of" such breaches. However, Counsel for Mr Lakis concedes the evidence in this case is insufficient to establish conduct that would give rise to a right to compensation under the Corporations Act 2001 (Cth) or a monetary remedy with respect to breaches of fiduciary duties. Accordingly, it is not necessary for me to determine whether, on proper construction, claims against PestHelp fall within the provisions of the Deed.

(d) The relevant equitable and statutory principles

1. The result of this case will turn on my findings of fact. Thus, there is no need to set out the applicable principles of law in any detail.
2. The respective claims are based on the equitable duty of a fiduciary and on ss 180-183 of the Corporations Act 2001 (Cth).
3. A fiduciary (a term for the present purposes which includes company directors) owes a duty in equity to act faithfully and loyally to the company and his or her quasi-partner.
4. The statutory provisions to which I have referred require a company director to act as such in the interests of the company in the same way as he or she would act in his or her own interests, to act in good faith, not to use the position to his or her own advantage or cause detriment to the company and to keep the company's confidential information confidential.
5. There is no doubt that a person who causes false entries to be made in the company's books which misdescribe personal payments as legitimate company expenses or who fails to account to the company for cash received or who pays out the company's money in bribes or for personal purposes breaches the fiduciary duty and at least one of the statutory duties.

A2 Assessment of witnesses

1. This case has to be decided on questions of fact rather than questions of law. This is difficult because as will appear I found some difficulty in working out which of the two combatants I should prefer. Each of the former directors told diametrically opposing versions of who was in charge of the administration of the company, neither were much affected by cross examination and each was, at least to some extent, supported by some of the employees.
2. Both parties blamed the other as being in charge of the accounts and accordingly alleged that the mistakes and irregularities were to be put at the feet of the other or the bookkeeper.
3. Apart from the two combatants the other key witnesses were Ms Vernon, an officer of the Sydney Harbour Foreshore Authority, the bookkeeper and the administrative assistant.
4. Ms Vernon was in a very awkward position because, as she admitted, she received some $30,000 from Mr Lakis. She acknowledged in the witness box that she was "in trouble". Nonetheless it seemed to me that she gave truthful evidence and that I could rely on that evidence. This assists me no end because it does allow me to say that on the balance of probabilities that Mr Lakis was the one who was involved with the alleged bribes which I will consider later and, reading the whole of the evidence on the matter, the likelihood is that Mr Lardis was not involved.
5. Ms Dertadian is a bookkeeper by occupation. She attended the company's premises each Friday and wrote up the books. She gave evidence that she worked with Mr Lardis reconciling bank and company records, preparing cheques, etc. She was cross examined, gave her evidence clearly and had no motive to lie. I accept her evidence.
6. Ms Stella Kyriacou was an office assistant who also gave useful evidence which I could accept.
7. As often happens when one has conflicting oral evidence, the documentary evidence enables a clear finding to be made. Despite Mr Lardis' denials, the computer records (the SmartTrack vehicle tracking records) show that his car was regularly at the company's premises on Fridays when Ms Dertadian was at work so that he was in the best position to give instructions as to how the cheques being written were to be recorded.
8. This plus the evidence of the bookkeeper makes me more confident in finding that it was Mr Lardis who was responsible for the misdescribed entries in the accounts showing that personal expenses were supposedly legitimate expenses such as conference fees.
9. I should note, however, that the misconduct of the parties falls into two principal categories, (a) "irregularities" with the company's cheques, credit cards, etc. and (b) mishandling and non-recording of cash.
10. However, this must be put in its proper background. The relevant company was a two man company with equal shareholders. It had a cash business up to a certain point and early on the parties agreed that they could have resort to the cash though it would seem to me that was on the condition that their drawings were properly recorded and that there would be a settlement at the end of each week to make sure that there was equal extraction of cash.
11. As time went by, things became more and more lax and the two men were helping themselves to money, not always reconciling their accounts each week and added to that is the misdescription of amounts which were extracted from the business by Mr Lardis.
12. It also must be said that as things have turned out, no one other than one of the parties has suffered loss. The outside creditors have been paid in full and the taxation department satisfied. Accordingly, with perhaps one or two glitches, including the payment of costs of these proceedings, any compensation will be paid back to the liquidator and then the money in the company will virtually be divided between the two of them.
13. I will now approach the actual facts of the extraction of monies from the company.

B3, B4, C6, C7 Unauthorised drawings and use of funds

1. I now need to consider the allegations and counter allegations whose general nature is that one or both of the directors of Amazon received unauthorised benefits from the company.
2. The first question to consider is whether in a solvent company if the sole directors and shareholders of a company agree to dispose of the cash monies of the company whether either of them breach any statutory or fiduciary duty to the company. As I noted in Mesenberg v Cord Industrial Recruiters (1996) 39 NSWLR 128 at 137, in a two person company where each shareholder-director has different interests, it is hard to see how there can be any duty to the company as a corporate whole. However, apart from payments made or benefits received by consent, there are allegations that each director received some money of the company unknown to the other.
3. Each party also alleges that the other was the director primarily involved in Amazon's financial management as evidence that the other was able to receive such monies. As noted in A2, the reality is that both combatants mishandled finances as opportunity presented itself.
4. Mr Lakis submits that SmartTrack vehicle tracking records show that Mr Lardis was in the office on Fridays when the bookkeeper was at the office, supporting the inference that Mr Lardis was the person dealing with the bookkeeper. Mr Lakis also relies on the evidence of the bookkeeper of Amazon from 2009 to 2011 one day per week, Ms Elizabeth Dertadian, that Mr Lakis was "hardly there" on Fridays and "took no active role in the management or administration of the accounts, financials or business".
5. Mr Lakis further relies on the evidence of Ms Stella Kyriacou, an employee of Amazon from 2007 to 2010, that Mr Lardis was the person responsible for the finances of Amazon and for entering or supervising the entry of data into the computer accounting system. Ms Kyriacou's evidence is that cash payments handed over by Simon May and Jason Fewell during their respective employments at Amazon were received by either herself, Tammy Chrysostomou or Mr Lardis. Ms Kyriacou and Ms Dertadian also state that Mr Lardis mostly signed the cheques and Ms Kyriacou refers to Mr Lardis making the overtime payments. Mr Lakis claims that inspection of the cash receipts reveals that the two persons who predominantly signed the cash slips were Mr Lardis and Tammy Chrysostomou. He also claims that from about October 2009 to October 2010, he wasn't at Amazon because of his involvement in running the gyms.
6. Mr Lardis relies on the evidence of Mr May and Mr Fewell that while employed at Amazon, they would hand cash payments either to the administrative staff or to Mr Lakis. Mr May, who was employed at Amazon from mid-2009 through to January 2013, states that Mr Lakis "was primarily in the office and was the Director who attended to administrative matters" whereas Mr Lardis "was generally on the road". Anastasios Zissis, also an employee of Amazon, gave similar evidence in her affidavit and stated that she would direct questions about pay or overtime to Mr Lakis. The evidence of Stavros Lakis, the cousin of Mr Lakis, is also that Mr Lakis was primarily in the office and was in charge of payment of overtime.
7. The only finding I can make is that both men were in charge of finances from time to time, Mr Lardis was in control of the company's books and, in particular, over the cheques, and Mr Lakis was primarily in control of cash receipts and payments.
8. I now turn to the relevant allegations.

B Lakis proceedings

1. Mr Lakis alleges that Mr Lardis: (i) used company cheques, credit cards, debit cards, eftpos and internet banking transfers to pay for personal expenses to a total of about $362,000 including: payments to his personal credit card account, his children's school fees, his personal household bills, repairs for a Mercedes Benz owned by his wife, his parking fines, etc. (ii) transferred ownership of a company mobile phone number to his own name (iii) took the company computer with company information (iv) took company cash (v) procured payment by the Kensington Gym of $55,000 directly to himself
2. I will deal with each of the other allegations separately.

(i) Payment of personal expenses

1. With respect to the first allegation, Mr Lakis tendered two schedules of disputed expenses upon inspection of Amazon's financial records that are alleged to have been used by Mr Lardis for personal expenses - "Schedule 1 (Cheques - Personal expenses)" and "Schedule 2 (Personal Expenses - Credit cards, eftpos, etc)". Mr Lardis submits that he was not cross-examined on the use of credit cards however his own evidentiary material did canvass these issues.
2. As I noted above, I am of the view that Black J clearly found that certain cheques were misdescribed in the MYOB accounts. In any event, I would have come to the same conclusion. Notable examples include the description of school fees paid to MLC School and Newington College as "advertising" and "pesticides".
3. As to who was responsible for the misdescriptions, Ms Dertadian's evidence is that Mr Lardis signed cheques and would instruct her as to the description of the cheque if there was no description on the cheque butt. Mr Lardis' evidence is that he never instructed Ms Dertadian as to the purpose of cheques because that was written on the cheque butts.
4. I am of the view that Ms Dertadian's evidence should be accepted over that of Mr Lardis. As I noted above, the SmartTrack vehicle tracking records appear to indicate that Mr Lardis was in fact, at least from late 2008, frequently in the office on Fridays for periods of time that were not insubstantial. I do not accept that Ms Dertadian would have invented or fabricated the descriptions or that Mr Lakis would have directed her to make those entries.
5. Mr Lardis contends that the expenses in the schedule fall into 10 categories, the first nine of which are company expenses: i. Company car expenses ii. Company car lease payments iii. Company sponsorships of junior sporting teams iv. Company charity donations and benefit nights v. Company office/staff equipment, supplies, expenses and training vi. Company staff parking fines/infringements vii. Cash withdrawals given to Mr Lakis, later disclosed as money given to government officials as bribes viii. Work related injuries/therapy ix. Approved health fund x. Personal expenses as part of his salary package or expenses that went through his loan account
6. The "company car" referred to is a Mercedes Benz registered in the name of Amazon, although Mr Lakis' case is that expenses relating to the vehicle were not properly company expenses because the car was used by Mr Lardis and his wife for non-company purposes.
7. As to payment of personal expenses as part of a salary package, Mr Lardis alleges that in about 2006, he told Mr Lakis that his wages were not adequate for the work he was doing and Mr Lakis responded with words to the effect that "you should pay some of your personal expenses from the company accounts". Mr Lardis further alleges that at a meeting in late 2011 or early 2012, Mr Lakis said that he wanted to change the arrangement so that Mr Lardis' wages were increased to $150,000 net per year instead of personal expenses being paid out of the company accounts. What Mr Lardis afterwards realised was that he was not receiving additional payments as wages, but instead as draw downs on his director's loan. Mr Lardis claims that the arrangement was transparent and that the cheque butts accurately recorded the details of the payments.
8. Mr Lakis denies there was any arrangement for Mr Lardis to pay personal expenses out of company accounts. He alleges that the only agreement was that, if Mr Lardis wanted to use company funds for personal expenses, they would have to agree first and Mr Lakis was to receive a distribution to an equal value.
9. I have already noted that I have taken the view that misdescription of entries in the company's books was not because of the bookkeeper but rather the misdescriptions were directed by Mr Lardis. As Mr Lardis was content to go to that amount of effort ensuring that the books contained misinformation which would hide the true nature of payments made to him, it makes it very unlikely that a court would accept his uncorroborated explanations as to an agreement for additional payments of personal expenses.
10. So far as the "company car" is concerned it is impossible to segregate various payments made as to whether they were made for the company or for Mr Lardis and accordingly no order is made with respect to them.
11. The payments in (iii)-(ix) again could be legitimate payments and there is just not sufficient material to show otherwise. Indeed, handwritten notes on Schedule 1 in the Court Book appear to indicate that Mr Lakis accepts that two payments - one to the Helenic Emergency Relief Fund and another to Office Works - were "acceptable" expenditures on a donation and office supplies.
12. The exception is (vii) which is dealt with later. So far as (x) is concerned, the material is not there, when I take the view of Mr Lardis' evidence that I do, that the personal expenses which were paid to him out of the company were justified or agreed to by Mr Lakis and accordingly they will need to be refunded. I have a problem as to quantum as I will note later.

(ii) Mobile phone number ownership

1. Mr Lardis' case is that the mobile was his own phone from his previous business (Strikeback Pest control) and that the number was not advertised (except in a Greek newspaper) but was used to divert calls. Mr Lardis claims that it was placed under the name of Amazon later "as a convenience". Mr Lardis has tendered affidavits sworn by Frank Lagudi, Anthony Cavallaro, Michael Smith, John Kritikos and John Spinos in which the deponents all state that they first contacted Mr Lardis using that number at his previous business Strikeback.
2. In cross-examination, Mr Lakis accepted that the mobile number was used by Mr Lardis before Amazon was incorporated but disagreed that the mobile number was not advertised. He stated that it was used on business cards and that they are in evidence. In re-examination, Mr Lakis stated that the phone number was advertised in invoice books, fridge magnets, letter drops and correspondence with property managers and business suppliers.
3. As it is not disputed that the mobile number was previously that of Mr Lardis, it appears that the real issue here is not whether Mr Lardis "stole" the number from the company but rather whether Mr Lardis is liable to account for using the number to divert business. That issue is addressed below under B5.

(iii) Company computer with company information

1. Mr Lakis asserts that in mid-2012, Mr Lardis took the company computer with all its information intending to use it other than for company purposes. In cross-examination, Mr Lardis accepted that he took the computer in mid-2012. He stated that he did so because "I couldn't go to the office due to the animosity between Ted and I" and that he took it for the purpose of using it as evidence in the 2012 proceedings. Mr Lardis denied that a reason he took the computer was to have access to the records of customers.
2. I accept that one reason Mr Lardis took the computer was the reason he gave. However, the principal complaint concerning the computer is that he was using it to abstract business from the company to his own advantage.
3. I do not consider that there is sufficient evidence for me to make an adverse finding against Mr Lardis on this matter. However, the computer is the property of the company - Mr Lardis must return it. As Mr Lakis was assigned the company's assets, it should be handed over to Mr Lakis. An order to that effect can be made if needed.

(iv) Taking of company cash

1. This allegation is comprised of series of allegations - namely, that Mr Lardis: i. from 2008 to sometime in 2012, kept cash from jobs recorded in ServicePro and closed the jobs off without bringing the cash to the office, and asserted that cash had been banked when that did not occur ii. from at least July 2012, stopped using ServicePro to record jobs and took cash bookings via the mobile that he completed himself or distributed to Mr May or Mr Fewell and for which he did not account to Amazon
2. As to the first allegation, Mr Lakis relies on the evidence of Ms Stella Kyriacou that, from her review of cash receipts, Mr Lardis collected $251,062 in cash in 2008 to 2012. Mr Lakis alleges that of this sum, $234,061 was never brought to the office by Mr Lardis via cash slip. Ms Kyriacou's evidence is that Mr Lardis deposited cash "on very few occasions" and that when Mr Lardis received cash from Amazon technicians, he would keep the cash and close the job off. Mr Lakis claims that, contrary to Mr Lardis' case under cross-examination, there was no cash paid into Amazon's accounts that might account for the missing cash, as demonstrated by records of Amazon's bank, credit card and MYOB accounts.
3. As to the second allegation, Mr Lardis concedes that jobs stopped being recorded in ServicePro but claims that the jobs were not recorded because "there was no office staff". He further claims that he was locked out of the office at one point from around June 2012. Mr Lardis submits that as a consequence, "he was entitled to effectively trade as a sole person provided he did not purport to do so on behalf of the company and that even if he was doing that, he was entitled to make a living out of it".
4. In response to the emails dated July and August 2012 tendered by Mr Lakis containing requests for Mr Lardis to leave his diary at the office to enable the jobs to be recorded from July to August 2012, Mr Lardis claims that he was too busy to get to the office and lost the diary at some point.
5. Mr Lakis submits that the amount of cash taken by Mr Lardis should be quantified at $861,076.55. This figure is the total of the cash receipts from 2008-2012 on the analysis of Ms Kyriacou in her affidavit dated 1 March 2016. On Mr Lakis' case, any overtime payments made out of this sum should be offset by Mr Lardis' alleged receipt of cash outside the ServicePro system in 2012. Mr Lakis submits that no reduction should be made on account of cash sums paid to Mr Lakis - some $230,000 or so - because he has repaid Amazon and because Mr Lardis was in breach of the arrangement between the two to equally distribute cash profits on a weekly basis.
6. Mr Lardis claims that these allegations amount to "ambush" in the sense that the abovementioned sum was not put to Mr Lardis nor pleaded. Mr Lardis submits that this is contrary to UPCR 15.3 which states: "A pleading must give particulars of any fraud, misrepresentation, breach of trust, wilful default or undue influence on which the party relies". Counsel for Mr Lakis submits that it was put to Mr Lardis in cross-examination that he had taken cash from the safe (T141-4). Mr Lardis also submits that there is simply no evidence to support these allegations.
7. I am not particularly impressed with the objection to the pleadings because this is a case where the pleadings were not particularly exhaustive and the material which had to be assessed was, during the long trial, adequately brought into play.
8. It seems to me here that there is sufficient evidence to show on the balance of probabilities that Mr Lardis did collect a large amount of cash and that Ms Kyriacou's affidavit should be accepted as setting out the amount of $861,076.55. The receipt being established and Mr Lakis' own receipt of monies being the subject of an account from him to the company either because he has already paid some monies or because of what I say later in these reasons means that no discounts would be made for that. Thus on the balance of the material, Mr Lardis should account for the company for that $861,076.55.

(v) Payment of $55,000 from Kensington Gym

1. It is common ground between the parties that Amazon purchased shares in Kensington Gym that were initially registered in the name of Mr Lakis, and that this was later rectified and the shares were registered in the name of Amazon.
2. Mr Lakis alleges that the money advanced to Kensington Gym came directly from Amazon's bank account and was company money. Mr Lardis alleges that he lent $121,000 to Amazon to fund its investment in the Kensington gym and therefore did not breach any duty to the company in receiving a direct repayment of $55,000 from Kensington Gym. Mr Lakis concedes that Mr Lardis lent this sum to Amazon but submits that he was not aware that Mr Lardis lent it specifically for the purpose of this investment. Mr Lakis submits that, by receiving the payment, Mr Lardis put himself in a position of conflict of interest and took what was a distribution back to Amazon.
3. The evidence of Danny Nelan and Murat Analin, directors and owners of the Coogee Gym, in their (essentially identical) affidavits sworn 1 September 2015 is that, in early 2012, there was a meeting between themselves, Mr Lakis, Mr Lakis' wife, Mr Lardis and Mr Nelan's brother at which it was agreed that Mr Lakis would receive $20,000 and that instalments payments to a total of $55,000 would be made to Mr Lardis to replace the monies advanced in relation to the Kensington gym. Mr Lakis' evidence in cross-examination is that he signed a document containing an agreement that Mr Lardis would be paid back $100,000 only as a witness and did not find out that it contained that agreement until later.
4. In my view the evidence before me is insufficient to find any liability on behalf of Mr Lakis with respect to the Kensington Gym.

C Lardis proceedings

1. Mr Lardis alleges that Mr Lakis: (i) incurred an unrecorded debt of $273,692 to Amazon (ii) used company funds for his own purchases in connection with the gyms and received benefits as director and/or shareholder of the gyms for which he must account to the company (iii) used company funds to bribe a government official.
2. The last of these allegations is dealt with separately below. With respect to the first two, Mr Lardis seeks repayment of the amount equal to Mr Lakis' alleged debt and an account of profits with respect to the Kensington gym monies.

(i) Unrecorded debt

1. The Liquidator's report identified that Mr Lakis had drawn a sum of $273,692 from Amazon. On Mr Lakis' case, that sum was comprised of about $219,000 cash and $54,000 for wages that were paid to Mr Lakis when he was not in fact working at Amazon. The report indicates that Mr Lakis repaid $117,330. Mr Lakis' case is that that figure represents the amount of $273,692 reduced by the amount of Mr Lakis' director's loan of about $156,000.
2. While Mr Lakis' affidavit deposed that he received about $230,000 in cash, it is submitted that the precise amount is about $219,000, i.e. the amount referred to in the liquidator's report. His evidence in cross-examination was that, if he did use Amazon funds for personal expenses, Mr Lardis would have been aware of that and they would have reconciled.
3. In this situation, I start with the liquidator's report. $273,692 was drawn, $117,330 repaid. This leaves a liability of $156,362. It would seem, however, that this amount was set off against Mr Lakis' loan account with the company. Unless there is agreement on the point, this matter will need to be clarified when accounts are taken.

(ii) Benefits and use of company funds in connection with the gyms

1. Mr Lardis alleges that Mr Lakis received some benefit while registered (instead of Amazon) as the shareholder of the Kensington gym from about 2008 to 2011 and received payment as a director of the Kensington gym and/or Coogee gym.
2. Mr Lakis alleges that he told Mr Lardis that he was going to be appointed as director of the gyms. Mr Lakis submits that his appointment as a director of Kensington gym "was a natural means by which the Company could supervise its investment". Mr Lakis also submits that there is no evidence that Mr Lakis received any payments as director or whilst shareholder of the Kensington gym. Mr Lakis further submits that the investment in Coogee gym was a personal investment for which he used his own funds and that there is no evidence to suggest he used company funds to acquire the interest.
3. There is insufficient material for me to make a finding against Mr Lakis in relation to the allegation that he wrongfully received some benefit while registered as shareholder of the Kensington gym instead of Amazon or in his position as director of the gyms. The issue as to whether Mr Lakis used company funds for his own purchases in connection with the gyms was not considered as a significant matter at the hearing.

C8 Is Mr Lakis liable to account to Amazon for bribes paid to Ms Vernon?

1. Mr Lardis claims that $30,000 of Amazon funds was paid to Ms Vernon on three separate occasions for an unauthorised purpose - namely, as a bribe - and Mr Lakis should account for this sum.
2. Ms Vernon's evidence is that in 2000, she took up employment with the Authority and part of her role was to arrange tenders for cleaning and pest control for The Rocks, Circular Quay and later Darling Harbour. Ms Vernon's evidence is that in 2005, Arcadia put in a successful tender for a cleaning contract at Darling Habour, and that she came to know Mr Lakis through his involvement with Arcadia. She states that she did not receive any payments from Mr Lakis prior to Amazon being awarded pest control jobs around The Rocks area.
3. Ms Vernon admits that Mr Lakis handed her a bag containing $10,000 at a meeting at Paradiso Café in The Rocks. Her evidence is that Mr Lakis said words to the effect that "Steve said you have got to look after your customers and add 10% … It's fine, you've been a great help to us. We really appreciate it". She "cannot say with 100% certainty" whether Mr Lardis was present when this was handed over and suggests that he might have been ordering coffee or gone to the toilet. Ms Vernon's evidence is that she received two further gifts of $10,000 each at the Observer Hotel and later at her office when Mr Lakis visited her. She states that Mr Lardis was not present in her office when Mr Lakis handed over the third sum. Her evidence is that these payments were made after the contracts were awarded to Amazon and that Amazon won the pest control contracts on the merits.
4. Under cross-examination, Mr Lakis denied these cash payments to Ms Vernon. Mr Lakis submits that Ms Vernon's evidence is inherently improbable because she states that the first payment of $10,000 was handed over in a normal envelope as opposed to an A4 or larger envelope.
5. As already noted, I accept Mrs Vernon's evidence. There was no reason at all for her to confess to receiving $30,000 if she did not.
6. Ms Vernon's evidence was that the contracts were awarded prior to the alleged corrupt payments and that the company won the tender "on the merits".
7. At the hearing of this matter, I raised the question as to how a bribe is to be accounted for if the bribe results in a benefit to the company - namely, that the company is awarded lucrative contracts.
8. Counsel drew my attention to the decision in Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6 and submitted that the Court has "considerable flexibility as to fashioning the appropriate equitable relief and it does so depending on the facts of each case": see e.g. Grimaldi at [503]ff.
9. Some very interesting questions can arise with respect to bribes. If the facts of a particular case are that as a result of the bribe the company got a contract which on the balance of probabilities it would not otherwise have obtained and made a profit out of that contract then it might be said that there had been no loss suffered as a result of the bribe. That however is not this case.
10. As I have accepted Ms Vernon's evidence that the company won its contracts on their merits and not as a result of the bribes, the payment of the bribes of $30,000 out of the company's money benefit the company not one whit.
11. It is curious, if Ms Vernon's evidence is correct, that Mr Lakis continued to pay the bribes. Why would one continue to pay the bribes when one is not getting any "value for money"? The answers to this may be that Mr Lakis thought he was getting value for his bribes or it may be that he thought that continued priming of the well might result in further contracts. However, that is pure speculation. Because the payments were made for no value, they must be refunded to the company.
12. In some pieces of litigation to recover bribes the plaintiff is defeated because of the ex turpi causa rule, see eg Nayyar v Denton Wilde Sapte Pty Ltd [2009] EWHC 3218 (QB); [2010] Lloyd's Reports PN 139 noted in (2011) 127 LQR at 355. However that matter was not argued at all in this case and I will merely content myself with noting that I have not overlooked it.
13. The simple solution to this head of claim is that Mr Lakis clearly took $30,000 of the company's money to use as bribes for Ms Vernon. Mr Lardis had nothing to do with this escapade. The onus of showing that some value was gotten from the bribe was upon Mr Lakis and he has failed to discharge that onus. Therefore he must account for the $30,000 for the company.

B5 Did Mr Lardis divert business to himself or PestHelp in circumstances under which he is liable to account to the companies?

1. Interlinked with the allegations that Mr Lardis transferred ownership of the mobile phone number to his own name and took the company computer, Mr Lakis claims that Mr Lardis diverted customers from Amazon to himself or his new business, PestHelp. There also appear to be allegations that Mr Lardis poached staff from Amazon.
2. Mr Lardis' evidence is that if, after leaving Amazon, he received calls on the mobile from persons he did not know prior to 2000, he would say words to the effect that "I no longer work at Amazon you can call Amazon on 1300Amazon". His case is that he did not divert business from Amazon and that his new business, PestHelp, operates in a different geographical area and does more residential work whereas Amazon does commercial/government work. Counsel for Mr Lardis also submits that Mr Lardis was not cross-examined on this matter, there was no restraint of trade, and that Mr Lardis employed former Amazon staff only after they had left Amazon. The evidence of Mr Fewell, a former employee of Amazon who became a pest control technician at PestHelp, is that he had a conversation with Mr Lardis in August 2012 after he resigned from Amazon during which Mr Lardis recommended he view a Gumtree advertisement and that subsequently Mr Fewell took up work at PestHelp. In the alternative, Mr Lardis submits that there is no loss to Amazon because Amazon's goodwill was sold by the liquidator to Mr Lakis at a fixed price.
3. There are also allegations against Mr Lakis with respect to his conduct after he was granted a licence by the liquidator of Amazon. Mr Lakis was cross-examined on work done pursuant to an Amazon contract with the Sydney Harbour Foreshore Authority between February and April 2013. Mr Lakis' case is that he did not breach any duty in taking the benefit of the Amazon performance bond or requiring invoices to be issued to his new company (Amazon Pest Control Services) under that contract because he was entitled to do so under the licence agreement.
4. I do not consider there is sufficient material for me to find that Mr Lardis diverted business to PestHelp. True it is, that some of Mr Lardis' activities such as the Gumtree advertisement being recommended to Mr Fewell look shady but one could say that that is just really part of Mr Lardis' general character and it is not enough in my view to make out this serious allegation.

D9 The result of the litigation

1. For the reasons which I have already given, both Mr Lardis and Mr Lakis are liable to refund monies to the company. Provided that there is sufficient monies in the company to pay the liquidator's costs and expenses there is no objection to there being some sort of set off and the balance being paid into the company which, after expenses are paid, will be split fifty-fifty to Messers Lardis and Lakis.
2. The costs of the litigation have not been argued. My feeling is that as each has been found liable yet each has gained some benefit that the sensible solution might be that there be no order as to costs. However, it might be argued that the person who ended up with the bigger verdict should get the whole or some part of his costs. Unless the parties can agree, that matter will have to be dealt with in due course.
3. Unfortunately, in one sense, I will not be in Australia after this weekend until 28 August 2016. Accordingly, any application or sanctioning of short minutes will need to be dealt with either after that date or by a judge or referee as authorised by the Chief Judge or a Duty Judge.
4. Short minutes should be brought in but I would imagine that it will take some time for the parties to digest these reasons and to work out just what amount should be paid by one party to the other.
5. Questions of interest also have not yet been argued.
6. It seems to me that now that these reasons have been published, the parties need to confer as to the quantum of the judgment sum. If they cannot agree, then there will have to be a reference out to an accountant who can prepare a report for the court.
7. I regret that these reasons are not as fully detailed as I would have hoped. My staff and myself have spent a large amount of time on their preparation and I thought it best to concentrate on the essential matters so that the reasons could be published before I left Australia.
8. I thus publish these reasons. I will stand the matter over to 10am on 1 September 2016 before me for short minutes to be brought in. If the parties wish some earlier hearing they should approach the Associate to the Chief Judge.

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: 12 May 2016