There has been a vast amount of oral and documentary evidence as to the composition of Nelson Wheeler Perth at relevant times and it is impracticable to discuss all of that evidence in these reasons. It occupied a substantial part of the trial. I have reached conclusions with conviction based upon this evidence. I have rejected the evidence of the first defendants who gave evidence to the effect that Stokes and Munachen ceased to be partners as alleged by them. In my view, the story told by the documents is clear and is established time and time again by the manner in which the partners conducted their affairs. I hesitated before rejecting the evidence of the first defendants who gave evidence as to this matter because on most other matters I found most of them to be acceptable witnesses. However, on this issue their evidence is not acceptable. Also, I reached the conclusion that those defendants have tried to interpret certain unusual events in a particular way suitable to their case but the totality of the evidence really only admits of the conclusion which I have reached.

The issue of the composition of Nelson Wheeler Perth must be resolved by consideration of all of the relevant facts and circumstances and not merely by reference to purported understandings of the partners.

Nelson Wheeler Perth as it was constituted in 1987 was the result of the merger of various firms of chartered accountants during the 1980's.

Pilmer and Crawford had carried on practice as chartered accountants in Perth since June 1974 under the name of A.C. Pilmer & Co. Martino became a partner of that firm in October 1981 having joined the firm as an employee in April 1980. They also carried on practice under the name of Nelson Wheeler. In July 1972 an association between firms of practising accountants in Melbourne, Sydney, Brisbane and Adelaide came into existence. Pursuant to the arrangement between them, they were each permitted to use the name Nelson Wheeler. Subsequently, A.C. Pilmer & Co joined this association in May 1977. It seems that some of the firms practised exclusively under the name Nelson Wheeler but others did not. Pilmer & Crawford, and later Martino practiced principally under the name of A.C. Pilmer & Co but upon undertaking work on instructions from any of the other participating firms in the national association, performed the work in the name of Nelson Wheeler. It is a matter of contention whether this association between the firms in Sydney, Melbourne, Adelaide, Brisbane and the members of Nelson Wheeler Perth, at relevant times, constituted a partnership and that issue is addressed later in these reasons.

Stokes and Munachen carried on practice in partnership as accountants in Kalgoorlie with a Mr Robinson since the latter part of 1975, and without him since 30th June 1982, from which time the firm was known as Stokes, Munachen & Co. Stokes practiced mainly in Kalgoorlie and Munachen in Perth. They employed Langford who worked in the Kalgoorlie office. In December 1982 Stokes began to live in Perth. He had developed a substantial practice in the mining field and had also developed considerable personal interests in mining and had other extensive interests outside the practice. Munachen also lived in Perth. From that time they carried on practice in Perth and Kalgoorlie.

Pilmer also had clients in Kalgoorlie and he visited that city regularly. He and Stokes were acquainted and discussed merging the two practices which occurred on 1st January 1984, the partners being Pilmer, Crawford, Martino, Stokes and Munachen. They all contributed equally to the capital of the new firm but each firm retained its own creditors and debtors. Stokes and Munachen used the trust account of their former firm, known as Stokes, Munachen & Co Trust Account for this purpose. It was agreed that the new firm would carry on practice under the name of Nelson Wheeler. The names of A.C. Pilmer & Co and Stokes Munachen & Co were no longer used. Bank accounts, including a trust account, were opened in the name of Nelson Wheeler. There was no written partnership agreement. All of the partners became registered as the proprietors of the business name Nelson Wheeler along with Simmons of Nelson Wheeler in Melbourne and Wenham and Mr RWE Arnold of Nelson Wheeler Sydney. Arnold is also one of the fifth defendants. The significance of their involvement in this way is addressed later. Within about one month the firm commenced to practice at the Griffin Centre at 28 The Esplanade, Perth. Pilmer assumed the role of practice manager.

The partners established the Nelson Wheeler Unit Trust in early December 1980. The trustee was Startup Securities Pty Ltd. This trust was a service trust for the partnership and each of the partners was a director of the trustee and had an equal interest in the trustee and the unit trust, either personally or through their respective family trusts. The Nelson Wheeler Unit Trust owned all of the plant and equipment of the practice and employed the non-professional staff. Service fees were paid by Nelson Wheeler Perth to this Trust and profits were distributed each year to the owners of the units.

On 1st July 1985 Mr RJ Lewis joined the practice. He was introduced to the partnership by Stokes. Lewis and Stokes had practiced together as accountants in the early 1970s at Kalgoorlie before Stokes established his own practice. Langford also became a partner at this time. He was not a member of the Institute of Chartered Accountants. At that time Rules of the Institute prevented members from entering into partnership with non-members, so although Langford was a partner of the firm, that fact was not widely published.

On 1st July 1986 Nelson Wheeler Perth merged with a relatively small firm of practising accountants known as Cawley, Troy & Gray. At that time the partners of that firm were Mr ML Troy, the defendant Gray, the defendant Messer and Mr AR Connolly. They had carried on practice at West Perth. In consequence of the merger, there were eleven partners and seventy staff, including professional staff.

As will be seen, there were subsequent changes to the firm in 1987, 1988 and 1989. Lewis, Connolly and Troy left the partnership in 1987 and 1988, and Pilmer in 1989. Mr M Sudbury, Mr P Graus and Mr A Bonavita joined the firm in 1987. Sudbury and Graus joined the firm as salaried partners on 1st March 1987 and Bonavita on 1st July 1987. On 1st July 1988 Nelson Wheeler Perth merged with the firm Robinson Dawes of Kalgoorlie and Mr W Robinson became an equity partner.

The partners continued to carry on practice under the name of Nelson Wheeler until the remaining partners merged with Parkhill BDO on 1st March 1989. Thereafter the name of the firm was Nelson Parkhill BDO. However, it is convenient to refer to the firm as Nelson Wheeler Perth.

The new firm undertook a variety of types of work including general accountancy, taxation, corporate advisory work, corporate administration, audit work and the provisions of services to businesses. The professional work was undertaken in divisions supervised and controlled by a partner or partners. The practice of the new firm was carried on in three locations; at the Griffin Centre in Perth, at the former offices of Cawley, Troy and Gray at 45 Ventnor Avenue, West Perth and at Kalgoorlie. The new partners, with the exception of Langford, and the salaried partners, also became proprietors of the business name Nelson Wheeler.

Prior to the last mentioned merger, the partners of Cawley, Troy and Gray were considering the acquisition of the office premises at Ventnor Avenue and that matter was discussed with all of the partners of the new firm. They decided to purchase the property and did so shortly before the merger. The Platina Unit Trust was formed for that purpose. Platina Pty Ltd was the trustee. Each of the partners, or their respective family trusts, owned a unit in the Platina Unit Trust and all of the partners were directors of Platina Pty Ltd. The cost of the acquisition of the Ventnor Avenue property and fixtures, fittings, plant and equipment was a little in excess of $1.28m. Platina borrowed $1m for this purpose from First National Ltd. The balance was contributed by the partners or their respective family trusts. Nelson Wheeler Perth paid rent for the premises to Platina. The unit holders were to, and did, share equally in any profits or losses.

Upon this last merger the new firm had substantial debts. It is unnecessary to set out these debts in detail but the firm sought a loan facility from Westpac Bank in the sum of $1,600,000 to pay the debts of the two firms, refurbish the Ventnor Avenue property and to provide working capital. Westpac had been the banker of Cawley, Troy and Gray. That facility was granted and serviced by a second mortgage over the Ventnor Avenue property. Each of the partners provided a personal guarantee for that part of the loan granted to the new firm. The details of the financial position of each partner provided to the Bank reveal that Stokes appeared to have considerable wealth through a diversity of financial interests. In the main, the other partners, although not as wealthy, were each in a reasonably sound financial position with some outstanding loans and debts. Throughout the life of the new firm there was constant pressure from Westpac to comply with the terms of the loan arrangements. The requirements of Westpac were of constant concern to the partners and were never met by them.

Generally speaking the partners, except the salaried partners, shared equally in the capital and profits of the partnership. They have been referred to as "equity partners" and I shall adopt that expression. There were no salaried partners at relevant times other than Sudbury, Graus and Bonavita. The equity partners received monthly drawings, which they referred to as salaries, from the profits of the practice. They were also paid benefits in the nature of motor vehicle and telephone expenses and interest on the amounts standing to their credit in their respective capital accounts in the firm. There were periodic meetings of the partners, including the salaried partners, usually at least once a month. Pilmer, when present, was the chairman of such meetings. He was regarded as the managing partner. Minutes of each meeting were prepared and kept. An agenda was prepared prior to the meeting and circulated with a copy of the minutes of the previous meeting and other papers and documents. The practice kept detailed internal financial records including capital and current accounts of the equity partners, and the work in progress and creditors and debtors on a monthly basis.

After each merger the new partners acquired a share in, and became directors of, Startup Securities and a unit in the Nelson Wheeler Unit Trust so that each partner held personally, or through a family trust, an equal number of units in each entity.

Over the years as the activities of the practice expanded various investments were acquired and developed by the Nelson Wheeler Unit Trust, including businesses which became an integral part of its activities, namely Trendline Securities Pty Ltd, Esplanade Computer Services Pty Ltd and Premium Personnel Pty Ltd.

Trendline was a licensed investment adviser and dealer and was, in effect, totally owned by the Nelson Wheeler Unit Trust. Pilmer and Martino, on behalf of the partners, were the directors of the company at relevant times. Its profits were modest and were part of the income of the Nelson Wheeler Unit Trust. In 1989 the company made a loss. The balance sheet as at 30th June 1987 shows the net assets of Trendline to be $25,039.

Esplanade Computer Services was acquired in July 1985. Pilmer and Lewis, and later Graus, when Lewis resigned, were the directors of that company. The shares in the company were held by Startup Securities and Pilmer on behalf of the partners. This company provided computer consultancy services and sold computer hardware equipment to Nelson Wheeler Perth and to others. It made losses in 1987 and 1988.

Premium Personnel conducted an employment agency. At relevant times Nelson Wheeler Unit Trust owned two thirds of the issued capital and the remaining third was owned by a woman who managed the business. Pilmer, Messer and the woman were the directors of the company. The first year of operation of this business was 1987. During the period from 1987 to 1989 there were modest profits before income tax.

After the merger between A.C. Pilmer & Co and Stokes, Munachen & Co, Nelson Wheeler Perth developed a company share registry service. It was under the direction and supervision of Munachen and staff controlled by him. It was known as the Nelson Wheeler Share Registry and during 1986 and 1987 the business grew considerably. Munachen was also actively involved in the provision of administrative services to companies. Stokes worked less and less as a practising accountant and more as an executive or chairman of some public companies. To some extent, Munachen did likewise. Both men had many corporate contacts and clients, particularly in the mining industry and it was largely through them that the share registry developed into a financially successful part of the practice and was a valuable service for certain clients.

did stokes and munachen leave nelson wheeler perth?

During the latter part of 1985 and in 1986, Stokes was seldom in the office of Nelson Wheeler Perth. He did very little work as a practising accountant which earned fees for the practice. However, he did earn director's fees which, in accordance with the policy of the practice, were paid into the firm. He attracted a good deal of work to the firm from the mining industry and, in particular, from the companies in which he was directly involved. In the main, this work was undertaken by other partners of Nelson Wheeler.

This had always been the case since Stokes and Munachen merged with Pilmer, Crawford and Martino. Martino said that Stokes was seldom at the office. He did not regularly attend meetings and was usually busy or away doing other things. Messer said that Stokes' work was not that of a conventional accountant. According to Crawford, Stokes had never played a traditional role in the practice in the sense of undertaking the work of a practising accountant. According to Stokes he was not doing any accounting work at all. Nevertheless he had an office at the premises of the firm and remained a partner. He shared in the profits of the firm on the same basis as the other partners and in the profits of the Nelson Wheeler Unit Trust and Platina, such as they were at the time. He received monthly drawings and other benefits such as the motor vehicle benefits and retained his interest and position in the other entities of the firm.

In about November 1986 Stokes decided to change his arrangements with Nelson Wheeler Perth. The reason for this decision is not clearly established by the evidence. According to Stokes, he decided to resign from the partnership. He gave reasons for this decision in his evidence-in-chief. In brief terms they were that he was totally engrossed in the mining industry and was developing Mawson Pacific. His family had been deprived of his presence for a long time and for family reasons he decided to "get one involvement off my back which was accounting". Even without that evidence being tested, I would not accept it, not only because I did not regard Stokes as a reliable and trustworthy witness, but because this evidence is contradicted by other evidence given by him and his partners. The other evidence is that he was not practising as an accountant. He was seldom in the office. How leaving the practice would have made any difference to his workload and commitments away from his family, is not apparent. When asked to explain, he added that he was not "all that enamoured or impressed with what he was seeing in Nelson Wheeler" and he chose not to be part of it. To the contrary, the documentary evidence suggests that Stokes wished to remain as a partner and to be seen as such.

At this time Stokes was heavily involved with Mawson Pacific, Mrsa Limited and Southern Goldfields. His income taxation return for 1987 shows that he received director's fees or salary from these companies of $20,417, $21,000 and $10,000 respectively. His monthly drawings from Nelson Wheeler, if continued for that year, would have been $48,000. His total personal income for the year was $263,062 which included $22,046 from Nelson Wheeler Perth.

According to Messer, Stokes did not produce time sheets which caused some difficulties for the practice. Troy was a traditional accountant and had difficulty with the way in which Stokes ran his office. Stokes' lack of accountability for what he was doing was raised on occasions but did not become a major issue. The partners were assured that the referral work and other work generated for the firm by Stokes was of value. Pilmer and Martino would assure the partners that Stokes was earning his keep. Gray was aware of Troy's concerns and said that they were shared by Lewis. According to Gray, one of Troy's major concerns was that Stokes was taking drawings but not generating fees. Someone spoke to Stokes and he agreed to withdraw from the practice and his drawings were stopped in late 1986. Crawford also said that Stokes was not billing clients but could not recall any criticism. According to Stokes, his drawings from Nelson Wheeler in the 1986 year exceeded the director's fees ($15,000) which he contributed to the partnership. Although he said he did not get on with Troy, he maintained that no-one ever said he was taking out of the firm more than he was putting in. The other partners regarded him as "the rainmaker". Martino was also aware of the concerns about Stokes expressed by Troy and he, on many occasions, explained to Troy the true worth of Stokes to the practice. Martino also mentioned those matters to Stokes.

It is difficult to say whether this disquiet and criticism by Troy, in particular, had any effect on Stokes. It is likely that it did. By late November 1986 Stokes director's fees exceeded his drawings. He was putting more into the firm than he was receiving although the director's fees from Southern Goldfields were about to stop as that company was taken over by interests adverse to Stokes.

At all events, he decided to alter his position in the firm. It is his case, and that of the other first defendants, that he resigned from the firm as from 30th November 1986 and that he was never again a partner and that Munachen resigned and ceased to be a member of the partnership from 1st July 1987 until 1st July 1989 when he rejoined the firm. It is the plaintiff's case that Munachen never left the firm and Stokes resigned in late 1989, it being agreed that his resignation should be effective from 1st July 1989. The documents which came into existence at relevant times and the records of the firm do not, in the main, support the first defendants' case. They are discussed subsequently and include documents used both internally and externally.

There are some facts and circumstances and documents which, standing alone, tend to suggest that Stokes and Munachen did cease to be members of the firm as they alleged but when considered with the totality of the evidence cannot prevail against the substantial evidence to the contrary.

First I consider the allegation that Stokes resigned from the partnership, although in doing so it is necessary to have regard to the evidence of the resignations of other members of the firm.

In November 1986 Stokes was the Chairman of Mawson Pacific, Ramsgate Resources Ltd, First Australian Resources, Southern Goldfields Ltd, Mrsa Limited (MRSA) and Eltin Pty Ltd. His work for those companies, particularly Mrsa and Eltin, was very extensive and was the principal reason for his absence from Nelson Wheeler Perth during most of that year. He claims that he had been extremely busy earlier in the year in the opposition to the takeover of Southern Goldfields. He was also involved in other personal business activities. In consequence he had neglected the role he should have played in Mawson Pacific and resolved to give more time to that company. He had an office in the Griffin Centre but not within that part of the premises occupied by Nelson Wheeler Perth. The firm occupied the ground floor and the mezzanine floor. Forsayth, Ramsgate and Southern Goldfields had offices on the first floor. Stokes had an office within the suite occupied by Southern Goldfields.

The minutes of the meeting of the directors of MRSA on 16th October 1986 record the following:

"Mr Stokes discussed his future role with Mrsa Limited and advised that for various reasons he was going to resign as a partner of Nelson Wheeler Chartered Accountants and concentrate more on his directorships. He advised the meeting that he would now be putting more time into the Mrsa Group and suggested that it would be appropriate that he be paid a retainer by Mrsa Limited for his services and that the Company could put a facsimile machine into his house for use by Mrsa Limited. It was agreed that the facsimile machine would be installed in Mr Stokes house and that a retainer would be set at a rate to be determined by the chief executives of the Company."

He wrote a letter of resignation to Pilmer on 3rd November 1986. In this letter he gave reasons for his decision which, in brief terms, were his involvement in the companies and which took most of his time and his wish to see more of his family. A few months earlier he had established an office at his home from where he intended to work. In the letter he went on to write:

"In the circumstances, it is neither appropriate or fair to the partners of Nelson Wheeler that I continue in the partnership. I must therefore ask you to tender my resignation from the partnership to take effect from 30th November 1986. As to the terms of the withdrawal, I shall leave it to you to determine what is fair and reasonable and as to how payment is to be made. I would ask that a ruling off of the books be done at that date."

On the same day he wrote to Munachen enclosing a copy of the letter to Pilmer and explaining the reason for his decision. He referred to the letter to Pilmer as "a letter of resignation". Part of the letter to Munachen is as follows :

"I certainly have no desire to sever our relationship/partnership and believe I can expand upon our commercial involvements far more easily by not being tied to the Nelson Wheeler partnership."

There is no reason to conclude that those letters are not genuine even though it is somewhat surprising that none of the first defendants who gave evidence saw them at the time. I think it is likely that Stokes did intend to resign from the partnership and those intentions and some of his reasons are set out in the two letters. It is possible that the trigger for his acting in that way at that time was his learning of the disquiet of some partners at his lack of direct earnings for the firm but Stokes denied that such was the case. It is possible that he had become disenchanted with the lack of progress and development of the firm since the mergers and with the direction of the firm and some of the partners but the evidence does not permit positive findings about those matters. It is possible that with an increase in director's fees during 1987, the likely retainer from Mrsa and the possibility of increased income from Mawson Pacific, Stokes was no longer content to put these earnings into the partnership and draw a lesser amount.

According to Stokes, Pilmer went to see him at his home after receiving the letter sent to him. They discussed the letter and some of the consequences of the decision to retire, including the financial consequences. According to Stokes and other witnesses, he was a wealthy man at that time. He said that he had no immediate need for payment to him of his capital in the firm and was prepared to leave his capital in the firm. According to him, Pilmer agreed to rule off the books of the firm and the Nelson Wheeler Unit Trust so far as Stokes was concerned at 30th November 1986. It was agreed that Stokes would retain his interest in Platina. However, he did say that Pilmer wanted him to reconsider his resignation. According to Stokes, Pilmer told him of Stokes' value to the firm and expressed concern over the potential publicity about the resignation which could diminish the goodwill of the firm. I am unable to make any finding about whether there was a meeting between Stokes and Pilmer at this time and, if so, what they discussed because I cannot accept the evidence of Stokes for the reasons I have mentioned and Pilmer did not give evidence.

I accept the evidence of Messer and Crawford that it was a relatively simple matter to determine the monetary value of Stokes' interest in the practice and also in the Nelson Wheeler Unit Trust and the other activities despite Martino's evidence to the contrary. As far as the practice is concerned, the only matters for consideration were the value of work in progress, and the amount of debtors and liabilities. The evidence of Stokes was to the same effect. The same may be said of the interest of his family trust in the Nelson Wheeler Unit Trust. It would be necessary to determine the value of plant and equipment and any other assets and the extent of liabilities. The value of the interest of his family trust in Platina could also be ascertained without undue difficulty once the market value of the Ventnor Avenue property was ascertained.

I accept that due to the financial position of Nelson Wheeler Perth at this time, the partners may have had difficulty in paying out Stokes' interest in the firm and the other entities but there is no reason why the value of those interests could not be determined. If Stokes was not to be paid at that time, his capital amounts in the various entities could easily be converted into loans due by those entities to him and, if thought appropriate, bear interest. However, no attempt was made to calculate the amounts due to him. The partners were under financial pressure. There was the substantial debt to Westpac and the partners did not always comply with their obligations to the bank. There had to be a cut back in the drawings of the partners at times. There was constant agitation for partners to increase their billings and to reduce the amount of the unbilled work in progress. I accept that Stokes had brought a considerable amount of work to the firm through his involvement in public companies and other interests. It was in the interests of the firm that this work remain in the practice. Lastly, it was in Stokes' interests that the firm prospered. If it failed, his prospects of recovering his capital would have been compromised.

On 1st December 1986 Stokes attended a meeting of the directors of Mawson Pacific. The minutes of the meeting record that he "advised that he had resigned as a salaried partner at Nelson Wheeler" (the underlining is mine). The directors resolved to employ him as managing director of the company as from that date at an annual salary of $36,000 and to install certain office facilities at his home. This minute is signed by Stokes as a correct record of the meeting. These minutes were not discovered by Stokes, even though he previously had possession of a copy, and other minutes of meetings of directors of Mawson Pacific during 1987 which had been discovered and were admitted into evidence. According to Stokes, he tried to get copies of these minutes prior to the trial without success due to changes in management of the company. However, he did see them in May 1996 not long before he gave evidence. It is suggested that the first defendants concealed these minutes from the plaintiff in the discovery process and only produced them at a late stage when they were regarded as favourable to their case. I am not prepared to make that finding. It is surprising that they were not produced at an earlier time but I do not regard them as favourable to the case of the first defendants. I think they are consistent with both a change in arrangements at Nelson Wheeler Perth concerning Stokes and with his remaining in the partnership.

According to Stokes, he told the meeting that he had resigned. He went on to say that some months earlier he had told these directors that he wanted to get out of Nelson Wheeler Perth and that when he ceased to get an income from the firm he would take a salary from Mawson Pacific equivalent to what Dalla-Costa received as exploration manager which was $3,000 per month. The meeting agreed to that salary. Stokes' explanation of this minute in evidence cannot be accepted for the reason previously mentioned. Also, in its entirety, it is an unlikely explanation. The minutes are prima facie evidence of what occurred at the meeting. Langford was the secretary of the Mawson Pacific and did not give evidence. Given the training and qualifications of Langford and his experience as a company secretary and practising accountant, it is likely that if Stokes had announced that he had resigned from the partnership, that is what would have been recorded.

I accept that the minutes record the substance of what Stokes said, that is that he had changed the nature of his involvement in the partnership of Nelson Wheeler Perth and that he was no longer drawing a salary or receiving a regular income from the practice. In his evidence, Stokes said that he could not recall if he had used the expression "salaried partner" but accepted that he must have done so. He went on to speculate about why he might have done so and what he was meaning to convey, namely that he had resigned from Nelson Wheeler Perth. I do not accept that evidence. I think it is likely that by this time Stokes had changed his mind about leaving Nelson Wheeler Perth but had reached an understanding with someone, possibly Pilmer, that he would remain as a partner but not draw a monthly salary. It is likely that such an arrangement was an essential pre-condition to Mawson Pacific paying him a salary. The absence of Pilmer and Langford from the witness box assists in the drawing of those inferences from the evidence.

On the same day Stokes had discussions with representatives of Mrsa. It was agreed that MRSA pay Stokes a salary of $35,000 per annum with expenses of $15,000 per annum. This salary was paid to him from that date. It may be seen that under these arrangements Stokes was much better off financially than had previously been the case when he paid his director's fees into Nelson Wheeler Perth and took monthly drawings. Whilst there is no direct evidence on the matter, it seems unlikely that the directors of the two public companies, MRSA and Mawson Pacific, would authorise relatively high salaries to be paid to Stokes if he remained an equal profit-sharing partner of Nelson Wheeler Perth.

The next meeting of the partners of Nelson Wheeler Perth after the letter of resignation was on 3rd December 1986. Messer wrote the minutes of that meeting. I accept his evidence as to his method of preparing minutes of meeting and of the agenda for each meeting. He claims to have no specific recollection of the meeting on 3rd December 1986 but his practice was to take notes at meetings of the partners and prepare the minutes of the meeting before the next meeting. He would prepare an agenda for the next meeting after consultation with the partners and circulate to them the agenda for the next meeting and the minutes of the previous meeting. I accept that he followed that procedure with the meeting on 3rd December 1986. This was the first meeting at which Messer was the minute secretary. The minutes record that all of the partners, including Stokes, attended the meeting, except Langford. They record that a variety of matters were discussed and, in a general way, which partner raised or reported upon each matter. I accept the evidence of Messer that the minutes are not a verbatim record of what was said at the meeting but that he attempted to prepare minutes which reflected accurately what occurred and was decided. Under general business, the following is recorded:

"G.J. Stokes informed the meeting that due to commitments he had made in respect to Mrsa, he would not be in a position to fully commit himself to the practice. In view of the situation, he offered to give up his salary and remain in the practice as an equity partner only. The partners expressed their gratitude to G.J. Stokes for his contribution to the firm and resolved that he remain an equity partner within the practice."

Stokes claims to have no memory of this meeting. He said that the minutes do not reflect the position as he understood it to be and that he does not believe that the minutes record what happened. He claimed that he could not recall if he even attended the meeting. There is no suggestion that he did not complete his evidence-in-chief on this topic.

The impression I gained from Stokes during his time in the witness box is that he was always eager to take credit for the success of enterprises in which he has been involved. He presented as an articulate man with a good memory and a determination to say, regardless of the question, what he thought might assist his case. He claimed to have had a very clear memory of almost every other event which occurred around this time. He described in detail his involvement in his various business activities and public companies and how the activities of those businesses and companies developed and the role which he played. He claimed to be proud of his development as a practising accountant. He said he could remember many of his clients and that he had acted for most of the prominent people and businesses in Kalgoorlie. He described in detail his involvement in Southern Goldfields and the unsuccessful resistance to the takeover in 1985 and 1986. He was able to recall the development of Mrsa and Eltin and the merger of them through a reverse takeover. The role he played in the development of Mawson Pacific to the point of being a major gold producer was explained by him in detail. He could remember his letter of resignation, the meeting with Pilmer and the meeting of directors of Mawson Pacific on 1st December 1986 and what occurred at these meetings. It is inconceivable that he could not remember whether he was even present at the partners' meeting two days later or, if he was, what occurred at the meeting. From his point of view this was an important milestone in his professional life, the meeting at which he was supposed to have resigned from the firm which he had helped to develop. I reject his evidence about this matter. I find that Stokes did attend the meeting and that the minutes accurately record what occurred. It was resolved that he remain in the partnership but that he not receive a salary in the sense that the partners used that expression, namely the taking of monthly drawings. He was to remain in the firm and continued to bring in work as he had done in the past and was to share in any profits after the other partners had taken their monthly drawings.

Clearly, Stokes had a change of mind between his writing the letter of resignation and this meeting. It is likely that Pilmer persuaded him to stay in the firm which became acceptable to him as he could work from home and because of the financial arrangements which he made with Mrsa and Mawson Pacific.

The failure of Pilmer to give evidence assists in drawing this inference from the evidence. Whilst I am unable to find that Pilmer and Stokes had the meeting about his resignation as Stokes related in his evidence for the reasons mentioned, it is likely that there was some discussion between them. Pilmer was the managing partner and Stokes was a valuable member of the firm. The difference between Stokes' letter and the minute of the partners' meeting suggests such a discussion and a change of mind and intention.

It is likely that there was more than one reason for this decision. Stokes was then a wealthy man which would have been known to the bank. Perhaps there was concern that if Stokes left the partnership, the bank would call in the loans. Perhaps Stokes wanted to be seen in the commercial world as a chartered accountant who was a member of an ostensibly successful firm. It is unnecessary to speculate about the reason in the absence of cross-examination of Stokes and of Pilmer from the witness box. It is sufficient that the decision to remain in the firm was made.

According to both Martino and Messer, Stokes resigned from the partnership as at 30th November 1986 and the minutes of the meeting of the partners on 3rd December 1986 do not accurately reflect what occurred at the meeting. Martino recalled attending the meeting and that Stokes also attended. He said that Stokes did inform the meeting of his commitment to Mrsa along the lines indicated in the minutes and that the partners expressed their gratitude to him for his work in the practice but he could not recall if they did so at the meeting or elsewhere. However, Stokes did not offer to remain in the practice and give up his salary at the meeting or on any other occasion to his knowledge but he did say that he would leave his equity in the practice.

I think Martino was, in many respects, a truthful witness and a person of considerable ability. Much of his evidence I accept without question, but I do not accept his evidence about Stokes or Munachen for that matter, resigning from the practice. He had a very close personal and professional relationship with Stokes and perhaps he has been influenced by Stokes' assertion that he did resign. His evidence about this meeting, unlike much of his other evidence, was not given in a forthright and convincing manner. I do not accept it in preference to the clear documentary evidence to the contrary. Also, he proffered a reason for Stokes appearing to remain as a partner which differs from the reasons advanced by others of the first defendants. According to him, Pilmer did not process the resignation by calculating the amount of money to be paid to Stokes as he was required to do. He never got around to finalising the matter. It was a complicated task to make the calculations. Also, the remaining partners could not afford to pay the amount due to Stokes. Consequently, Stokes appeared in relevant documents as continuing to be a partner. I reject that explanation. As has been mentioned, the calculation of Stokes' interest in the practice was a relatively simple matter. Once completed, the amount could be shown as a debt due by the partnership to Stokes.

Crawford had no recollection of the meeting and the minutes did not refresh his memory, and did not reflect his understanding which is that Stokes did retire from the partnership but left his capital in the firm. Gray's evidence is to similar effect. He said he could not recall Stokes being present at the meeting, but he did recall Pilmer mentioning the matter at a meeting. The evidence of these men does not cause me to doubt the conclusion that Stokes did not resign from the partnership at this time.

According to Messer, the minutes, although drawn by him, do not accurately record what was said and decided at the meeting.

Messer was taken through the minutes of the meeting of 3rd December 1986 and confirmed their accuracy with the exception of that part concerning Stokes' resignation. During the course of his evidence, he was asked about various entries in the minutes which had been admitted into evidence. According to him, the only minutes which did not reflect accurately what had occurred at meetings were those relating to the alleged resignation of Stokes or Munachen.

Messer claims to have a poor recollection of the meeting on 3rd December 1986. He said he could not even recall whether Stokes attended the meeting but he expects that he did attend because the minute records his presence and he would not have made such a mistake when preparing them. However, he did recall that the meeting was informed that Stokes was retiring due to pressures of other work and for family reasons. There was discussion about payment to Stokes of his interest in the firm. According to Messer, of the partners Stokes had the second largest capital account and the remaining partners were not able to pay what was due to him. The meeting was informed that Stokes was willing to wait for payment. It was left to Pilmer to work out a method of payment. Thereafter Stokes was not involved in the partnership. He did not have an office in the firm. He did not receive a salary. He did not undertake any work for the firm. He only attended the office for social purposes.

Messer and Crawford acknowledged that as far as they could recall the minutes of the various partners' meetings accurately recalled the matters discussed and the decisions reached except in relation to the "resignation" of Stokes and Munachen. According to Stokes, there were many inaccuracies in the minutes. I reject that evidence. Messer appeared to me to be a careful man who answered questions with care and precision after due reflection when appropriate. It must be acknowledged that it must be difficult, if not impossible, for any of the witnesses to remember accurately what occurred nearly ten years ago in detail and in sequence. Nevertheless, Messer, and to a lesser extent Crawford, did not dispute the accuracy of the minutes. Messer, in particular, was able to recall many matters which were accurately recorded in the minutes and none which were inaccurately recorded, except the recording of the position of Stokes and Munachen in the partnership.

The alleged resignation of Stokes, and Munachen for that matter, does not appear in any of the minutes of meetings of the partners, including the meeting of 3rd December 1987. Messer offered an explanation as to why this is so. The bank was constantly requesting reduction of the debt. All of the partners had personally guaranteed that debt. Messer said that if the bank insisted upon the debt being repaid, it was likely that the practice would have ceased to exist and that Stokes and Munachen realised that the only way they could get their money out of the practice was if it survived. Consequently, the bank could not be informed of their retirement from the practice. The bank was able to call for any records including minutes and consequently it was decided by Pilmer and Messer not to record the true position in the minutes. According to Messer, the other partners knew about this decision, at least to the extent that they knew that the resignations had not been formally recorded in the minutes. However, later in his evidence he said that he was not aware of this matter when he prepared these minutes. It was not until February 1987 that he was aware of withholding the fact of Stokes' resignation from the Bank. None of the other first defendants who gave evidence were aware of this deception of the Bank. That is a matter of considerable importance. It is unlikely that Pilmer and Messer would embark upon such a course of deceiving the Bank as to the true composition of the firm without the knowledge and consent of the other partners. As has been seen, this explanation is at odds with the evidence of Martino.

Also this explanation suffers considerably by the failure of Pilmer to give evidence. He was a crucial witness about those partnership matters and his unexplained absence may be construed on the basis that his evidence would not have assisted the case of the first defendants. The same must be said about the failure of Munachen to give evidence. He was a close friend and colleague of Stokes. As has been seen, Stokes explained to him his proposal to resign. If there had not been a change of mind, it is likely that Munachen would have known about it. If there was some reason to portray to the Bank and to the world that Stokes and Munachen were partners when they were not, Munachen would have known about it. In my view, his failure to give evidence is also a matter of considerable significance.

Stokes' evidence, untested as it is, does not accord with this explanation. He said nothing about his name remaining in the records of the firm to assuage the Bank. According to him, after a short time he did want his capital. He expected calculations to be made as from 30th November 1986. It had not happened and Pilmer was not responding to him. Stokes went on to say that he did discuss the matter with Munachen who told him that he knew Stokes had not been paid what was due to him and he, Munachen, was going to leave the partnership.

These events are said to have occurred in April or May 1987. He said it was a relief because Munachen had worked out a way of getting his equity out of Nelson Wheeler Perth. If there was any truth in this evidence, it could have been verified by Munachen at the least for the purpose of affording a reason why he left the partnership. It may be accepted that if he had given evidence, it would not have supported the evidence of Stokes, Martino or Messer.

During the first half of 1987 Pilmer remained as the senior partner of the firm but Troy and Lewis assumed most of the task of managing the practice which included supervision of financial aspects of the partnership. There were clashes between Pilmer and Troy, including at meetings of partners. The minutes of the meetings of partners are full of issues of concern about management and the financial position of the firm. Troy exerted a good deal of pressure on the partners to produce adequate billings and cash flow. The level of debt of the practice was very high and substantial earnings were required to service the debt. The substantial overdraft of the firm was usually beyond the limit and there was constant pressure from the Bank to bring the borrowings down to within the agreed limits. The Bank closely supervised the firm and monitored its financial performance. Regular reports had to be sent to the Bank.

Lewis had previously held the position of administration partner which involved responsibility for staff and other office matters. The day after the meeting of 3rd December 1986, he wrote to Pilmer tendering his resignation to be effective from 28th February 1987. The reason which he gave was that he did not want to remain in a large firm. It is unnecessary to consider other evidence as to what may have prompted Lewis to resign. He stated his proposed terms of settlement of his interest, namely that he be paid $65,000, the amount of capital introduced by him when he joined the firm and that he transfer all of his interest in the Nelson Wheeler Unit Trust and the Platina Unit Trust to the partners. The minutes of the meeting on 25th March 1987 record that Crawford was awaiting figures for debtors and work in progress to finalise the February accounts to determine the amount to be paid to Lewis. Subsequent minutes make it plain that it was agreed that Lewis had left the practice as at 28th February 1987.

On 21st April 1987 Connolly wrote a letter of resignation to take effect on 30th June 1987 Troy replied to him on 4th May 1987. It seems that he and Pilmer tried to get Connolly to change his mind but to no avail. In this letter proposals were put to Connolly regarding the calculation of the amount due to him and the terms of his leaving the practice.

No agreement was reached as to the amounts to be paid to Lewis or Connolly for a considerable period of time. However, it is clear that the resignation of each of them was accepted and effected, Connolly as from 31st May 1987. After the retirement of each of them, they were not shown to be partners of the firm in the minutes. Neither was recorded as an apology for non-attendance at meetings. An apology from Stokes was always recorded in the minutes of meetings subsequent to his "resignation". Eventually, the settlement of the amount due to each of them was effected. As has been mentioned, the "resignation" or "retirement" of Stokes was never recorded in the minutes.

Since the merger involving Cawley, Troy, Gray and Messer, the firm had continued to practice in two locations at the Griffin Centre in Perth and at the Ventnor Avenue property. There were concerns about the inefficiencies in running two separate offices. Also, there was insufficient space in the premises at the Griffin Centre. It was considered desirable for the firm to carry on practice in one location, in Perth, except to maintain the office in Kalgoorlie. Forsyth Pty Ltd had offices in the Griffin Centre and proposed to move. This company was controlled by Mr John Morris and Mr Michael Evans who were close friends and business associates of Stokes and Munachen. If the space occupied by Forsyth was taken over by Nelson Wheeler, that section of the firm at Ventnor Avenue could move into the Griffin Centre. This space was eventually taken by the firm.

I now turn to the alleged retirement of Munachen from the practice.

The partners had decided to hold a conference at Bunbury on 28th and 29th May 1987. On 27th May Munachen wrote to the partners enclosing a paper on the management structure of the partnership. This paper was not produced at the trial. According to Martino, it cannot be found. In this letter, Munachen writes:

"You will note that in my proposal, I have made provision for two Non Executive Directors. This has been done purposely to accommodate the role which Geoff Stokes fills at this stage and the direction in which I have elected to head.

It is no doubt more than apparent that my involvement in partnership affairs has virtually been nil since the merger as I have been involved in a number of large corporate plays which has resulted in my being absent from the State on many overseas and interstate trips, or just not available for meetings.

This is not going to change as I have now been appointed to the Board of Wattle Gully Gold Mines N.L. as Executive Chairman which is going to occupy a lot of my time. That Company is about to launch a $10 million cash takeover bid for another public company which if successful will result in my being involved in the management. This bid will be announced within the next 48 hours, but in the intervening period, I have to put together a credit facility of $22 million and an underwriting of $6.5 million together with setting everything in place.

In the event that this bid is successful, I will then be directly involved in a management capacity in Acorn Securities Limited, Wattle Gully Gold Mines N.L., Karonie Gold N.L. [which is probably 3 months off listing] and the above target company.

It is therefore impossible for me to continue as an Executive Partner of Nelson Wheeler and accordingly, I plan to make arrangements to take alternate office space outside the current office, probably in West Perth and set these companies up there with a compliment of staff to run them.

I would also propose that to assist in alleviating the space and location problem within Nelson Wheeler that the Share Registry be relocated to my proposed office where it may be under my supervision. That way there will be sufficient space within the Griffin Centre to house all of the practice on the various levels.

We could sell West Perth, however I would be happy to take over the ground floor and house the Share Registry and the Management Company involved with the public companies. This would give the practice the opportunity to retain the building and capitalise in the future on its potential increase in value.

With respect to the Share Registry, Geoff Stokes and I would be prepared to convert our equity in the partnership to direct equity in the registry, however, this is a matter for further discussion.

This letter may give all concerned the impression that I am unhappy at Nelson Wheeler, this is not correct. The simple fact is that I no longer wish to be a Chartered Accountant in practice and that I have elected to enter the commercial arena. I am more than happy to retain a relationship with Nelson Wheeler in the capacity of a Non executive Director under my proposal attached, but that is up to you people to decide.

As a consequence of the matters outlined above, it is not possible for me to leave Perth during the crucial period of the takeover. Furthermore, for me to be present at a planning meeting for events in which I will not be involved in the future does not make a lot of sense. I will therefore not be present at the meeting in Bunbury.

Due to the tight schedule under which I am operating at present, I cannot sit down and talk to anyone today about the contents of this letter, but will be more than happy to do so next week with everyone present." (The underlining is mine)

This letter is of importance for a number of reasons. It gives an indication of Munachen's attitudes and intentions at the time. He makes no mention of resignation or retirement. He refers to "Non Executive Director", an expression commonly used in relation to corporations. They are directors who participate in the management and affairs of a company as directors but not as executives or administrators. Given Munachen's background and experience, it may be accepted that he well understood the common usage of that expression. He proposed to the partners that there be two Non Executive Directors of the partnership; Stokes who was already fulfilling such a role and himself. There is no suggestion by him that Stokes was not a partner and that he had merely left his equity in the practice as the remaining partners could not pay him out. Quite to the contrary. According to Munachen, Stokes was fulfilling a role in the firm. Munachen refers to the conventional role of a partner who is practising in the firm as an "Executive Partner" and that is the role he proposes to relinquish. He does not propose to end his relationship with the firm but to continue as a "non executive director". Also he makes no mention of calculation of his capital interest in the firm, of payment to him or of any date of retirement. This letter is expressed in clear and unambiguous terms. It cannot be construed as a letter of resignation. It must be understood for what it is, which is plain from its terms, particularly in the absence of any evidence from Munachen.

Neither Stokes nor Munachen attended the Bunbury meeting. After the meeting, according to Messer, Munachen resigned from the practice. No letter of resignation was produced at the trial. As has been mentioned, there is no mention of resignation or retirement of Munachen in any of the minutes or records of Nelson Wheeler Perth.

Munachen wrote to the partners again on 10th June 1987. He advised that 28 Financial Services Pty Ltd had been established to manage Acorn Securities Limited, Karonie Gold NL, Wattle Gully Gold Mines NL and Mt Pleasant Gold Trust. Mention is made of these companies later in these reasons. They are all companies which had been clients of Nelson Wheeler and in respect of which Munachen was responsible and had a direct or indirect interest. 28 Financial Services had leased premises at St George's Centre in Perth and the cost of fit out and furniture was to be borne by that company and Palmvale Nominees Pty Ltd, which held various interests of Stokes and Munachen. In this letter Munachen also made proposals about the Nelson Wheeler Share Registry. In effect, a new corporate structure for the Registry was to be formed, with the partners of Nelson Wheeler Perth owning 40 percent and Stokes and Munachen the remaining 60 percent jointly. It was proposed that St George's Share Registry Services Pty Ltd be established as trustee for the St George's Share Registry Unit Trust which would take over the share registry and the staff. Nelson Wheeler Perth would transfer assets. According to the proposal:

"Munachen and Stokes will gain their equity by maintaining the major client base, arranging and facilitating the new structure and guaranteeing and financing the new Company and converting whatever equity in Nelson Wheeler is necessary to maintain proportional equality.

The major difference will be that it will be under my direct management control and that Nelson Wheeler will be an investor with Board representation. I suppose in much the same way as Premium Personnel.

I have purchased a shelf company Borman Pty Ltd to take over the business name, Nelson Wheeler Share Registry and nominated Angus and Domenic to be Directors, as well as Geoff and myself and I have (sic) am arranging a bank account with Westpac.

28 Financial Services Pty Ltd which will be my management company will sub-lease approximately 200 square metres of office space to the Share Registry. I propose that the Share Registry, except for computer equipment and some furniture, will have all new furniture suitable for an open office plan which will improve efficiency, resulting in staff levels being held and an increase in profitability despite an increase in occupancy costs.

I would hope to move premises by mid to late August which will create the desired space to relocate the West Perth personnel to the Griffin Centre."

"By now you will all be aware of my planned deceleration as an Executive Partner of Nelson Wheeler. In my planning I have had several meetings with Angus to discuss my proposal regarding Share Registry.

As you are well aware, it is part of Nelson Wheeler which has grown rapidly, in the first instance from the efforts of Geoff and myself and more recently from a general contribution from nearly all of the Partners from introductions. However, suffice to say, the major introductions have come from Geoff and myself and that will still continue due to the area in which we move.

You are also aware that I have expressed the view that the Share Registry should be located in close proximity to my intended location, a view which I still maintain.

Some of you are aware that I have thought that I was going to lease space at the St George's Centre, adjoining the Griffin Centre, however, that did not eventuate. I am now negotiating to lease space in the Forrest Centre to house my future corporate activities and to provide for the Share Registry operation.

In my discussions with Angus, I proposed that Geoff and I convert whatever equity is necessary in Nelson Wheeler to give us at least 50 percent interest in the Share Registry. It is difficult to establish what the Share Registry is worth, as it has only become profitable in the last 6 months, but we all know it has an escalating income base.

What I propose is that Geoff and I, through Palmvale Nominees, hold 50 percent and the ongoing Partners hold 50 percent.

The book keeping would record the transfer of all of Share Registry assets etc as a going concern at 30th June and the other side adjusted out through Partners' capital assets and then reflected through loan accounts. Geoff and I would end up with a credit balance, as we each would effectively have 2½ times more than everyone else.

With effect from 1st July, the Share Registry will be operated by a new company, will have its own bank account, be responsible for its own expenses and responsible for collection of its debtors. It, of course, will still be called Nelson Wheeler Share Registry.

Palmvale Nominees (GJS & PLM) will draw a fee of $50,000 per annum to manage and operate the Share Registry which will be indexed by the CPI for the next 5 years. (This will replace part of PLM's & GJS notional salary at Nelson Wheeler)." (The underlining is mine)

After mentioning various companies, interests, arrangements and staff, he went on:

"The above sets out the action that I have initiated to set in motion the smooth and gradual deceleration of my day to day involvement in Nelson Wheeler to allow me to concentrate exclusively on the management and promotion of the share registry and management and control of a group of public listed companies.

Nelson Wheeler will not be required to contribute to any of the costs in setting up the above and will benefit by being able to locate the accounting practice in one building which will have inherent savings as well as other management benefits.

I have set a timetable of two months to implement the above gaols which should result in everything being in place by mid August. This should give Nelson Wheeler sufficient time to organise its relocation into one place.

The establishment of the share registry and my operating place in the same complex as Nelson Wheeler will allow the association and interaction to continue to mutual benefit." (The underlining is mine)

Again, it may be seen that Munachen does not mention retirement or resignation from the partnership. On the contrary he writes of planned deceleration as an executive partner of Nelson Wheeler Perth which, in the absence of any credible evidence to the contrary, particularly from Munachen, discloses an intention to remain as a partner on the basis disclosed in the earlier memorandum of 27th May 1987. The proposal, which eventuated, was that there be a corporate structure for the Nelson Wheeler Share Registry with the partners owning 50 percent and an entity associated with Stokes and Munachen owning the other 50 percent. Their contribution was to come from their equity in the partnership. The reference to the management fee of $50,000 per annum replacing part of the notional salaries of Stokes and Munachen from the practice is hardly consistent with those men retiring or having retired from the partnership.

These memoranda of Munachen are to be contrasted with his letter to the then partners of the firm on 14th May 1992 when he did retire. He commenced that letter with the words "I wish to retire from the accounting partnership BDO Nelson Parkhill" which is the type of language which is to be expected in those circumstances and his letter proceeded to deal with the matters to be considered upon his retirement.

The genesis of this idea of separating the share registry from the practice is probably to be found in an earlier memorandum by Munachen to the partners on 4th May 1987. After Munachen left the partners' meeting on 22nd April 1987, someone expressed concern about members of the share registry staff being paid overtime which was not being paid to other staff. Munachen wrote somewhat tersely:

"I have said it more than once, I will say it again -

The Share Registry is to be viewed as an entirely separate entity from the professional practice and accordingly, it needs to operate under separate arrangements."

He went on to refer to the "raging" sharing boom which he said had been going on for six months and looked like going on for another six months, the pressure under which the staff worked and why payment for overtime was appropriate.

The first defendant's case is that Munachen resigned from the practice at this time and went his own way independently of Nelson Wheeler Perth, except with respect to the share registry. According to Martino, Munachen put forward various proposals as to the basis of his leaving the partnership, the last of which was the letter of 24th June 1987 and that all of the partners treated his letter of 27th May 1987 as a letter of resignation. Crawford said that he regarded this letter in the same way. It is difficult to understand why the letter would have been interpreted in that way. Resignation is not mentioned. The letter does not deal with any matter on the basis of a parting of the ways.

At the partner's meeting on 24th June 1987 it was resolved that as from 1st July 1987 the Nelson Wheeler share registry be transferred into a separate company, that Stokes and Munachen own fifty percent and the other fifty percent be owned by the partners of Nelson Wheeler Perth, that the name of Nelson Wheeler Share Registry continue to be used, that the business of the share registry be valued and that the interest taken by Stokes and Munachen be offset against their capital in the partnership and that the share registry be relocated at premises to be found by Munachen. These minutes record matters concerning the retirement of Lewis and Connolly, but there is no mention of any resignation or retirement of Munachen.

According to Messer, after the Bunbury meeting he heard that Munachen was leaving the firm. Munachen did not say anything to him and what was said to him, presumably by others, did not include formal language such as "resignation" or "retirement". He could not recall who gave him this information or the circumstances in which it was given to him. Nevertheless, Messer says that he understood that Munachen was leaving the firm in the sense of resigning from the partnership. According to Messer, Munachen, at this time, put forward a proposition to try and "corporatise" the practice in order to make it run more efficiently and effectively and was using his experience in running public companies to improve the situation in the practice. He explained that when Munachen referred to the role played by Stokes as a non-executive director, he took that to mean that Munachen intended to be removed from the practice but to leave his capital in the firm, because the partners could not afford to pay him out, and to be somewhat of a mentor available for advice and guidance and to refer clients to the firm as was the case with Stokes.

Stokes' untested evidence is that in May 1987 Munachen told him that he was going to resign from Nelson Wheeler Perth. Munachen put to him the proposal about the share registry which he thought was reasonable because the two of them were the major contributors. As has been mentioned, Stokes claimed that he was expecting to be paid for his interest in the practice but by April and May 1987 he discussed the matter with Munachen and agreed to the proposal about the share registry.

Crawford does not have a good memory of these events. However, he said it was his understanding that Munachen had decided to leave the practice to set up his own business looking after corporate clients and that he wanted to take the share registry with him on the sharing basis which has been mentioned. Gray said that he recalled Munachen saying he was leaving and that something could be done by taking the share registry. His recollection is that he was told at a partners' meeting but, as has been mentioned, there is no reference to resignation or retirement in any of the minutes. Gray did not have any discussion about the matter personally with Munachen. He never heard Munachen say that he was going to resign. He said that his recollection was that Munachen left the practice and did not generate fees for the partnership.

According to Martino, Munachen expressed dissatisfaction at being a chartered accountant. Towards the end of May 1987, just before the Bunbury meeting, he said that he wanted to leave the practice. He had discussions with Martino indicating that he was happy to play a non-executive role but Martino disagreed. He pointed out to Munachen that if he was going to take his fees away, he should not share in the practice. Martino disagreed that Stokes was a non-executive partner. Munachen said he wanted to operate in the commercial world and was dissatisfied with the constraints of an accountancy practice.

I think it is unlikely that if Martino had taken this stand with Munachen that he would have persisted in the concept of taking a "non-executive role" as appears to be the case when he wrote in his letter of 24th June 1987 and referred to his planned deceleration as an executive partner. I have carefully considered the evidence of these witnesses as to how they regarded Munachen's actions at the time and later and as to their understanding that he had retired from the partnership. Even if accepted at face value, it cannot prevail over the position which is revealed in the many documents including those which show that the partners regarded Munachen as a partner.

The matter is complicated for them by the absence of Munachen and Pilmer from the witness box. Munachen could have related first hand what happened and why. The role that Pilmer played could also have been explored. Without them the best evidence is what is to be found in the contemporaneous documents, not the evidence of other partners speaking from memory of events from years ago. I think it is likely that the fact of Munachen, like Stokes, leaving the office and the change in financial arrangements, has been rationalised by the first defendants who did give evidence as an understanding of resignation of both men.

Eventually, Munachen did move out in about early October 1987 along with some staff, including most of those who worked in the share registry. A consequence was that the problem of shortage of office space was solved and the two partners and staff remaining at the West Perth office could be relocated to the main office in the Griffin Centre.

The business of the Nelson Wheeler Share Registry was transferred to St Georges Unit Trust of which Borman Pty Ltd was trustee. The shares in Borman and the units in St Georges Unit Trust were held as to fifty per cent by Nelson Wheeler Perth through Nelac Nominees Pty Ltd as trustee for them and as to fifty percent by Stokes and Munachen through Palmvale Nominees Pty Ltd. However, the half interest of Nelson Wheeler Perth also included Stokes and Munachen. Pilmer and Martino, representing Nelson Wheeler Perth, were directors of Borman, along with Stokes and Munachen.

The name of the share registry continued to be Nelson Wheeler Share Registry. It was agreed that Palmvale be paid a fee to manage and operate the share registry but it seems that this fee was paid to 28 Financial Services. Munachen attended to his own work in the various companies in which he was involved and did not undertake traditional accountancy work within the partnership. However, that had largely been the case in the previous years. He had managed the share registry and, through his own work and staff of Nelson Wheeler, had provided administrative services to various companies in which he had an interest. Usually the fees payable for these administrative services were fixed and paid periodically, so no complicated calculations were necessary to determine the value of fees taken by him. Munachen ceased taking monthly drawings from the partnership.

the indicators of remaining in nelson wheeler perth

Mention has already been made about the reference to Stokes in the minutes of meeting of the partners on 3rd December 1986. There is no mention in the minutes of meetings of the partners of any resignation or retirement of Munachen, even though the agreement with respect to the share registry is recorded in some detail in the minutes of the meeting held on 24th June 1987. The minutes record in some detail the discussions and resolutions about the resignations of Lewis, Connolly and Troy. Indeed, when other partners joined or left the partnership, there is an appropriate record in the minutes as can be seen when Sudbury, Graus and Bonavita became partners. The minutes of 3rd December 1986 refer to discussions with Sudbury and Graus about their joining the partnership. Graus and Sudbury are recorded in minutes of 25th March 1987 and subsequently as having attended partners' meetings. Their admission into the partnership is recorded in the minutes of the meeting of 20th May 1987. Bonavita's admission into the partnership is recorded in the minutes of the meeting on 24th June 1987.

What is also of significance is that whilst there is no mention of Stokes or Munachen having left the partnership, there are many references in the minutes to Munachen and his new office location and the need to make arrangements concerning the transfer of equity in the share registry. This lastmentioned matter was discussed from time to time at and from the meeting on 26th August 1987. At times both Troy and Pilmer were requested to discuss the matter with Munachen but it does not seem to have been resolved. The minutes never refer to this matter in the context of Stokes or Munachen having left the partnership. The discussion is always recorded in the context of the transfer or acquisition of equity in the share registry.

The minutes frequently record that Stokes and Munachen were absent from meetings of partners and their apologies were accepted well after the so-called resignations.

What is perhaps of even greater significance is the minutes of the meeting on 18th December 1987, again well after the so-called resignations. Stokes and Munachen are recorded as apologies. The following appears in the minutes;

The question of the future role to be played in the practice by Mr Munachen and Mr Stokes was raised. It was agreed that as neither Mr Munachen or Mr Stokes now played an active role in the practice that they should retire as soon as possible.

Mr Langford indicated that from discussions he had had with both Mr Munachen and Mr Stokes he believed they were both ready to retire from the practice. Mr Pilmer was requested to hold discussions with Mr Munachen and Mr Stokes as soon as possible and determine a settlement for consideration by the partners.

It was agreed that goodwill should be paid on fees taken out of the practice and for the share registry." (The underlining is mine).

This minute is expressed in clear terms and shows Stokes and Munachen as partners at that time. According to Stokes, he did not have any such discussions with Langford. As neither Munachen nor Langford were called to give evidence by the Nelson Wheeler defendants what they may have said about this matter is not known. In this particular context Langford's absence is significant. It may be inferred that his evidence would not have assisted the Nelson Wheeler defendants. Martino said that this matter was not discussed at this meeting and the minutes do not accord with his recollection. According to Gray, the minutes do not accord with his understanding of the true position relating to Stokes and Munachen at the time as, he said, they had already retired. Crawford's evidence is to similar effect. He had no recollection of Langford saying that he had discussed the matter with Stokes or Munachen. Messer, like Martino, remembered the meeting because there was an incident involving Sudbury and Pilmer which need not be recounted as it reflects poorly on Sudbury. Messer prepared the agenda for the meeting, which makes no reference to Stokes and Munachen, and the minutes. His explanation as to the terms of the minutes is that the words "retire as soon as possible" and "retire" were poorly chosen by him. He could not recall Langford speaking about the matter but he may have done so without prior warning. According to Messer, the minute is not accurate and the discussion was concerned more with Stokes retaining his equity and recommencing practice with the firm. He explained that the minutes were always written to show Stokes and Munachen as partners because of the Bank. Their presence in the partnership was essential to the continuation of the loan arrangements. When asked why he would write minutes in these terms if they were not accurate and truthful, he said that he believed that he did so because Stokes and Munachen were by then wanting to "withdraw" fully from the practice and they wanted the ledgers to be closed and their interests to be settled.

I find the evidence of each of these men on this matter unconvincing and I reject it. If there was a problem with the Bank and the need to show Stokes and Munachen as partners in the minutes, why prepare a minute in these terms in late 1987 which indicates that retirement is something which might happen? Why not wait until it did happen? Indeed, why even mention the matter at all. In my view, the most likely explanation is that the minutes accurately record the true position.

The agenda for the next meeting to be held on 19th January 1988 mentioned for the first time "settlement" for Stokes and Munachen as well as Lewis and Connolly. The minutes of the next meeting of the partners held on 19th January 1988 record that "Pilmer advised that he had yet to meet with Mr Stokes and Mr Munachen to discuss their retirement from the practice". This minute is consistent with the previous minute reflecting the true position.

In the minutes of the meeting of the partners on 21st April 1988, it is recorded that Troy and Bonavita "lodged formal notice of their intention to retire from the practice at 30th June 1988". The evidence establishes that this minute is correctly expressed. These minutes also record that Pilmer had confirmed that he had gone no further with Stokes and Munachen in respect of the settlement of their respective interests in the share registry. No mention is made of their interests in the partnership.

The minutes of the meeting of partners on 19th May 1988 record:

Mr Pilmer advised that Mr Stokes had indicated to him that he wanted to remain a partner in the practice. As a result it would be necessary to look at profit sharing and his responsibilities to the practice. It was agreed that this matter should be considered at the next partners meeting.

Mr Pilmer advised that as Mr Munachen had been appointed to the board of Gemcor there was every likelihood that he would resign from the practice, as Nelson Wheeler were auditors of Gemcor".

It may be seen that these minutes make it plain that Stokes and Munachen were still partners of the firm at that time.

Messer wrote those minutes. He said he has no recollection of this meeting or what occurred at it but that the minutes are not accurate. According to him, what should have been recorded is that Stokes was considering retaining his equity in the practice and recommencing work as a practicing accountant. He explained that Stokes was re-assessing his position following the share market crash which had an adverse effect upon his financial position. According to him, the minute regarding Munachen was also inaccurate. Nelson Wheeler was the auditor of Gemcor Ltd, a company which was controlled by Morris and Evans. Munachen was never appointed to the board of Gemcor and the minute should have recorded the removal of any involvement of Munachen in the practice in any way so that the position of Nelson Wheeler as auditor of Gemcor would not be prejudiced if he was to become a director of that company.

It is difficult to accept these explanations. Messer claimed that there had been discussions between him and Stokes as he was acting secretary of Mawson Pacific. He gave no explanation as to why the minute should record the information as having come from Pilmer or as to why it recorded Stokes and Munachen as being partners. He did not say that he wrote the minutes in this way to give the impression to the Bank that they were still partners.

According to Martino, he had a good memory of that meeting and the minutes do not accurately record what happened, which was that Pilmer said he was trying to bring Stokes back into the partnership. He did not say that Stokes wanted to remain as a partner. He did not recall any discussion about Munachen becoming a director of Gemcor but he did have a recollection that at the same meeting there was mention of his being approached to become a director of Gemcor and about Munachen wanting his capital

Gray said that the minutes did not accord with his understanding of what occurred at the meeting. He said he did not recall any discussion about Stokes or Munachen. Crawford's evidence is to much the same effect.

I do not accept the evidence of Martino, Gray and Crawford about this matter. The minutes expressed in clear and unmistakable terms. They record that both Stokes and Munachen were partners at the time. The reference to Munachen contradicts the suggestion of false minutes to appease the Bank. If the minutes were written in a manner for that reason, it would have been better not to include any reference to Stokes or Munachen at all in such a context. They accord with other indicators at the time that Stokes and Munachen were partners.

It is submitted by the Nelson Wheeler Perth defendants that the minutes do not accurately record the matters discussed and resolved at meetings of the partners. They were written well after the meetings occurred and reflect merely a summary of what occurred based upon recollection. They should not be regarded in any other way.

I reject that submission. The partners who gave evidence were taken through the minutes. With the exception of some of the entries relating to Stokes and Munachen and a few other matters, they regarded the minutes as accurately reflecting the matters discussed and resolved. Martino spoke of more inaccuracies than the others but I expect most of them were not inaccurate but merely different from his memory.

Of course minutes of this nature do not reflect every detail of the business transacted at each meeting but these minutes are extensive and reasonably comprehensive and I accept them as accurately reflecting the matters discussed and resolved concerning Stokes and Munachen. I reject the oral evidence of the first defendants who gave evidence to the contrary. The minutes are important evidence that Stokes and Munachen were partners at relevant times.

Stokes and Munachen maintained their equity in the firm, at all relevant times, and in the case of Stokes until the end of the 1989 financial year, when he resigned. The amount of the equity varied from time to time. When the amount paid to Stokes was calculated, it was based upon his capital account at 30th June 1989 which was affected by the operation of the practice in that year. His capital account at the end of each of the following financial years was 1986 $59,963.00, 1987 $109,817.00, 1988 $115,914.00 and 1989 $112,664.00. In each of these years a share of the net profit or a loss was allocated to Stokes. In 1987 his drawings as salary for five months slightly exceeded his share of the profit and so a small loss was debited to his loan account. In 1988 substantial losses were allocated to Stokes in consequence of the distribution of proceeds from the sale of the Ventnor Avenue property by Platina. This matter is discussed shortly. In 1989 the partnership made a loss and a share of that loss was allocated to Stokes with a consequential reduction in his loan amount. The same happened with respect to Munachen in each of these years.

As has been mention, according to Martino, the interests of these men remained in the firm because Pilmer did not get around to resolving the matter with them and the partners did not have the funds to pay out their interests. Also he said that the practice was in a difficult financial position and the intervening retirements of the others exacerbated the position.

I do not accept this evidence as the explanation for Stokes and Munachen maintaining equity in the practice. Stokes said he was not pressing for immediate payment but that Pilmer was to rule off the books and he wanted the amount due to him calculated. He was aware of the financial position of the firm. As has been mentioned, it was a relatively simple matter to calculate the amount due to Stokes and Munachen and, if it could not be paid, to establish it as the amount due in their respective capital accounts. No-one could offer any plausible reason why that was not done. If there was such a reason Pilmer could have given evidence about it and he chose not to do so.

In my view, the evidence does not reveal any reason why both Stokes and Munachen left their capital in the firm for so long if they had retired. There is not one letter or note of complaint by either man. There is not even a small payment on account.

When considered along with all of the other evidence, the only sensible conclusion is that the equity of these men remained in the firm because they remained as partners.

On 20th March 1987 Troy wrote a memorandum to all partners stressing the need to send bills to clients in order to reduce the high level of work in progress. He set a budget for each partner including Stokes. In the memorandum against the name of each partner is the work in progress balance at 19th March 1987 and the budget billings to be achieved by 25th March 1987. Stokes is shown as a partner and against his name is work in progress of $11,827.26 and a budget of $11,000. The purpose of the memorandum was to require billing of outstanding fees due to the critical cash flow position.

Troy treated and described Stokes as a partner which is inconsistent with his having resigned at 30th November 1986. If he was merely regarding Stokes as a former partner and alerting the partners to the need to bill his outstanding work in progress, he might have said so. His absence from the witness box means that his understanding of Stokes' position must be ascertained from the memorandum and from other documents.

According to Stokes he did not receive this memorandum and knew nothing of it until he saw it when preparing to give evidence. For the reasons mentioned, that evidence may not be accepted, but even if it is true it affords no explanation as to why Troy included Stokes in the memorandum.

By early 1987 Connolly was disenchanted with aspects of Nelson Wheeler Perth and the manner in which the practice was administered and conducted. He was unhappy with the manner in which Pilmer undertook his duties as managing partner. He called a special meeting of the partners. According to Martino no minutes were made of this meeting. Connolly prepared an agenda and documents entitled "Management Problems 1.7.86 to 28.4.87", "Solutions to Fix Mis-Management", 'Timing of Solutions Implementation" and "Planning Weekend".

These documents are instructive. The third item on the agenda was "Absent Partners". It will be remembered that Munachen, as well as Stokes, was heavily involved with corporate work which was not traditional accountancy work. Martino, who attended and remembered the meeting, said he did not know to whom Connolly was referring. Connolly did not give evidence and explain his memorandum but the considerable body of evidence which reveals the workings of the firm does not suggest that any partners other than Stokes and Munachen could be described as absent partners. Clearly Connolly was referring to them as partners and as a matter of concern. According to Martino, Connolly did not raise the matter at the meeting.

Stokes said he did not see the documents at the time and did not and was not asked to attend the meeting. Messer said he had no recollection of these documents or of any meeting at which the matters referred to in them were discussed. Crawford said he could not recall seeing the documents in 1987 but he did recall tension between Pilmer and Connolly and that there was a meeting attended by partners at the Western Australian Club at which Connolly became heated, left abruptly and resigned soon after.

In the document entitled "Management Problems", mention is made of the retirement of Lewis but not of Stokes. In the document entitled "Solutions to Fix Mis-Management", Connolly proposed that Troy be appointed as administrator of the practice, that a planning and engineering committee be established and that the twelve partners determine strategic direction (the underlining is mine). The records of the partnership, minutes and financial statements, reveal that there could only be twelve partners at this time if Stokes was regarded as a partner. Lewis had retired from the partnership on 28th February 1987. Martino attempted to explain the number twelve by including Bonavita but he did not join the partnership until 1st July 1987.

It is reasonable to accept that Connolly was referring to Stokes and Munachen as the "absent partners" and as Stokes as one of the twelve partners.

Also, it is appropriate to draw the inference that the memoranda and the meeting played a part in the decision of Munachen to change his arrangements within the firm as much as Stokes had done late in the previous year. Connolly's documents are evidence of the unrest in the partnership at the time. It was soon after these documents were prepared and the meeting was held that Munachen wrote his first memorandum to the partners.

Before the meeting of partners on 19th January 1988, Pilmer sent a memorandum on 11th January 1988 to all of the partners, including Stokes and Munachen, with respect to reducing the overdraft from $300,000 to $100,000. He called upon each "equity partner" to deposit $10,000 by 18th January 1988. This call was in consequence of pressure from the Bank. According to Stokes, he did not receive this memorandum. He was overseas at the time. Pilmer's failure to give evidence has prevented his explanation for writing such a memorandum to Stokes and Munachen being placed before the Court. Why would he send a memorandum to Stokes and Munachen if he did not regard them as equity partners and why did he require them to each deposit $10,000? As the managing partner he must have regarded them as partners at the time with the same obligations as the other partners. His failure to give evidence assists in reaching this conclusion. A copy of this memorandum was sent to Walters at the Bank by Pilmer. If he included Stokes and Munachen in order to appease the Bank, he could have given evidence to that effect. At the meeting of partners on 19th January 1988, it was decided that the partners need not make that contribution at that time.

On a date subsequent to 25th July 1988, someone in Nelson Wheeler Perth prepared a paper entitled 'Partnership Structure". It is unsigned but bears Pilmer's initials. It is reasonable to conclude that he is the author.

In the paper Pilmer sets out the name of each partner with his area of responsibility and comments about his work. The information provided about Pilmer, Crawford, Martino, Messer, Gray, Langford and Robinson is correct. Stokes and Munachen are referred to as partners but as non-active and their areas of responsibility are shown: Stokes as client relationships, Mawson Pacific and Tectonic, a company to be mentioned later: Munachen as share registry, Acorn Group and Mt Pleasant Group which corporate groups are also mentioned later. A comment about Munachen is that he was "under utilized".

The author makes the observations that the practice "has an interesting, if not unique, partnership structure", that six or seven partners are responsible for earning the fees and the burden falls too heavily on too few. The suggestion is made to promote professional staff.

This paper is an important document. It confirms that Stokes and Munachen continued to be regarded as partners but, it may be inferred, in the unique situation of not being active partners in the sense of earning fees. The description of Stokes being responsible for client relationships conforms with his view that he was the "rain maker". He brought much work to the firm. Mawson Pacific is a good example. Nelson Wheeler undertook a good deal of work for that company.

On 15th June 1989 Munachen wrote a memorandum to Martino who by that time was the managing partner of Nelson Wheeler Perth on the subject of 28 Financial Services. The opening paragraph is instructive:

"As discussed in an effort to create the total team attitude amongst all of the equity partners of Nelson Parkhill BDO, I am willing to merge the consulting practice of 28 Financial Services with Nelson Parkhill BDO with effect from 1st July 1989 ..."

He then set out the basis of the proposed merger which included that 28 Financial Services would continue to:

"... operate in the same manner as it does now providing complete services to corporate mining clients and with the view to attracting more business and 'one off' consulting jobs and being available to provide specialized services to corporate clients of Nelson Parkhill."

Munachen also proposed that he would pay into 28 Financial Services all of his corporate salaries and directors fees and in return would receive a salary. He was not prepared to accept the previously irregular drawings.

It may be seen that this proposal was made in order to create something positive in the attitude of the equity partners. It suggests that Munachen regarded himself as one of those partners at that time. He was prepared to bring this corporate services business which he had developed over the previous four years into the partnership to "create the total team attitude amongst all of the equity partners". Also, it may be seen that the nature of the business of 28 Financial Services was not traditional accountancy work. It would appear from this memorandum that there was dissatisfaction among the partners of Nelson Wheeler Perth because of Munachen's activities and this was his solution to the problem. If he was not a partner, why would the proposal be made? The effect of the evidence of Martino and Gray is that the memorandum was part of the negotiations for the re-entry of Munachen into the partnership. I reject that suggestion. The memorandum deals with the merger of the business conducted by 28 Financial Services and the practice of Nelson Wheeler Perth and other matters, but it is entirely consistent with Munachen having remained a partner of the firm but once again changing the financial arrangements.

On 16th February 1989 Stokes wrote to Wenham about Nelson Wheeler becoming involved in the centenary celebrations of the City of Kalgoorlie-Boulder. This incident is equally consistent with Stokes being a partner or a former partner who still had the interests of the firm at heart. However, on the same day Stokes wrote to Martino and sent him a copy of the letter to Wenham. He asked that his letter be included in the papers for the forthcoming partners' meeting and that his apology for not being able to attend "this evening". Stokes did not give any evidence about this matter.

The partnership operated on the basis that at the end of each year calculations were made as to the profit or loss of the business of the practice, the Nelson Wheeler Unit Trust, the Platina Unit Trust and the other entities operated by Nelson Wheeler Perth.

Each partner received the appropriate share of the profit or loss as the case may be after deduction of all expenses. The calculation of the profit or loss was, generally speaking, a simple matter. Invariably there were profits in the Nelson Wheeler Unit Trust and the Platina Unit Trust. Rather than pay them direct to the unit holders as would normally be expected, there was a complicated process at the end of each year of combining the profits and losses of the practice and the two unit trusts together in order to calculate the share of each partner. These calculations were made in 1987, 1988 and 1989.

The partners were provided with copies of the financial statements for the partnership and all entities in the Nelson Wheeler Perth group for the financial years 1987, 1988 and 1989, and they were adopted. Crawford prepared the statements for the 1987 year. He made detailed calculations as to the profits to which the partners were entitled, including Lewis who had retired. His working papers were admitted into evidence and reveal complicated calculations. It is unnecessary to repeat the considerable evidence which was adduced as to these calculations. A brief summary is sufficient. Crawford set about calculating the share of income due to each partner for income taxation purposes and for the purposes of the accounts of each of them in the practice. There was a difference in the two calculations as not all payments on behalf of partners were deductible for income tax purposes. A simple and accurate method of calculating the amounts due to the partners said to have retired could have been undertaken. Stokes, Lewis and Connolly, those said to have retired during the 1987 financial year, should have been excluded from the profits and expenses of the firm as from the dates of their respective resignations and their capital accounts should have been adjusted appropriately.

Crawford made various adjustments on the following basis. He treated the monthly drawings of the partners described as salaries as deductions. He brought to account the difference between work in progress at the beginning of the financial year and at the end. He also brought to account those expenses which were not tax deductible but which, so far as the partners were concerned, should be regarded as expenses. In the end result he calculated a loss on this adjusted basis.

In the final result it was calculated that there was a taxable income of $163,045 which was distributed to the partners in varying amounts. Stokes received $22,046 and Munachen received $23,480 which they each disclosed in their respective taxation returns. However, Crawford's adjustments for the purposes of the accounts of the partnership resulted in a profit of $31,900 which was allocated to the partners. Stokes received five-twelfths and Lewis eight-twelfths to reflect the dates Stokes ceased drawing profits from the firm on a monthly basis and the date Lewis retired from the partnership even though the calculation was made over the period of the total financial year.

During the 1987 financial year, there were profits in the Nelson Wheeler Unit Trust which were allocated to the unit holders on an equal basis except that the interest of Lewis received eight-twelfths of the shares taken by the others to reflect his retirement from the practice at the end of February 1987. No such reduction was made with respect to Stokes' interest. The shares of profit as allocated were prepared precisely. Lewis received $9,035 and the others received $13,552. If amounts due to the Lewis' interest could be calculated, so could that of Stokes. However, the profit for partnership purposes was less because non-tax deductable items were brought to account. Stokes was given the same share as all of the other partners and his capital account in the Nelson Wheeler Unit Trust increased accordingly.

Esplanade Computer Services made a small loss, Trendline Securities made a small profit and the Platina Unit Trust also made a small profit.

Crawford then proceeded to calculate the capital accounts of the partners of Nelson Wheeler Perth. There was a reduction on account of work in progress written off and a tax adjustment. Those amounts written off were applied equally to all partners, including Stokes and Lewis. Stokes' share of the profits, after the adjustments earlier mentioned were credited to his capital account and they exceeded his drawings for the five months substantially. His drawings were $20,306, and the share of the profit allocated to him was $30,695.

It is suggested that this treatment of Stokes indicates that he had ceased to be a partner of the firm. I do not think that is so. Indeed it indicates the contrary.

Stokes was shown and treated as a partner of Nelson Wheeler Perth for the purpose of those calculations. He was treated differently from Lewis as has been shown even though it is said he retired much later than Stokes. Stokes could only be treated as he was in these accounts and calculations if he was regarded as a partner. There had to be adjustments because of the change in the financial arrangements regarding Stokes in that he ceased to take monthly drawings. The manner in which the calculations were made reveal that he continued as a partner during that year.

In the 1988 year much the same process was undertaken, although it was undertaken by Messer. The extent of the losses of the partnership after the same type of adjustments was $30,176 but substantial losses were allocated to both Stokes and Munachen for the reasons discussed shortly in the context of the Ventnor Avenue property

Mention has been made of the acquisition of the Ventnor Avenue premises at West Perth shortly after the merger with Cawley, Troy and Gray in 1986 and the establishment of the Platina Unit Trust as the owner of the premises with each of the partners of Nelson Wheeler Perth taking units in the Trust on an equal basis either personally or through their family trusts. At that time there were eleven partners.

By August 1987 Munachen was in the process of moving out of the premises of Nelson Wheeler Perth at the Griffin Centre at 28 The Esplanade Perth and the partners and staff at the West Perth office at Ventnor Avenue were soon to move to the Griffin Centre on 30th September 1987. Lewis and Connolly had left the partnership and had taken some staff with them. The Ventnor Avenue offices were no longer required.

At the meeting of the partners on 5th August 1987, the minutes record that the sale of the Ventnor Avenue property was discussed and Troy informed the meeting that he had instructed an agent to sell the property for $2.2m. In fact it was Gray who instructed Raine and Horne, the selling agents on 12th August 1987. By this time Troy had negotiated a lease of the property by a client Ledge Group Limited to commence on 30th September 1987. According to Gray, the value of the Ventnor Avenue premises had increased substantially and there were financial advantages to the partners in selling them.

Raine and Horne offered the property for sale but without publicity at the request of Nelson Wheeler Perth as some of the partners, Pilmer in particular, did not want publicity of a sale to reflect adversely on the practice. An offer was obtained but below the asking price of $2.2m. Gray told Mr P Botsis, the managing director of Ledge Group, that Nelson Wheeler Perth was going to sell the property and that company decided to purchase it at $2.16m. That offer was accepted in October 1987. After discharge of the first mortgage to First National and the payment of some expenses, there was a surplus of $1.1m. At the meeting of partners on 21st October 1987, it was resolved that $300,000 should be paid to the Bank in discharge of the loan obtained when the property was acquired, a further $200,000 be paid to the Bank to reduce the overdraft of the firm and $50,000 be set aside to clear the amounts due to Lewis and Connolly.

At this meeting, Troy reported that he was having some difficulty in negotiating with Connolly on the value of the Ventnor Avenue property. Given the sale of the property, there should not have been any such difficulty as the value was known.

Lewis and Connolly were not given the benefit of the increase in value of the Ventnor Avenue property. It is unnecessary for present purposes to discuss the considerable body of evidence about this matter. It is sufficient to say that calculations of the amounts due to them did not proceed on the basis of the value reflected by the sale price. No criticism is made of anyone. The significance of this matter is that because they did not share in the full extent of the increase in value, there was a greater amount for distribution to the others which included Stokes, despite the present claim that he had retired from the practice before Lewis or Connolly, and Munachen who, it is claimed, retired soon after them and before the sale.

The amount due to the remaining unit holders in the Platina Unit Trust after payments to the Bank was about $65,000 each. Whatever the amount, the usual and appropriate course would be to pay the amount due to the unit holders. There was a potential liability for capital gains tax but that had to be paid by those receiving the capital gain.

What occurred was that Stokes and Munachen, or their family trusts, received the amounts due to them upon the sale of the Ventnor Avenue property but almost corresponding losses were created for them personally in the partnership. The exact basis of these losses is not entirely clear. It may be that they were to represent the amounts which these men did not receive because of the payments to the Bank or it may be that it is their respective shares of the balance due after payment to the Bank. Having considered the evidence, it is likely to be the latter.

The respective family trusts, upon receiving the shares of the proceeds, would have been obliged to allocate the proceeds to beneficiaries and any tax liabilities including capital gains tax would have to be paid by the person or persons attracting the liability. If the share of the proceeds was allocated to Stokes, then he would have been responsible for the tax. The same is to be said of Munachen. It is likely that the amount of tax would have been substantial.

Nelson Wheeler Perth made an operating loss of $30,176 during that year. The partners decided to allocate profits to some of the partners and losses to others, the end result of which was a total negative figure of $30,176. The losses distributed to Stokes and Munachen were $61,396 each which is a little less than the profits allocated to their family trusts through the Platina Unit Trust from the sale of the Ventnor Avenue property.

The 1988 taxation return of the Stokes Family Trust reveals that during that year $77,409 was received from the Platina Unit Trust. There is no breakdown of that figure but it probably includes the share of the proceeds of the sale of the Ventnor Avenue property. No income was allocated to Stokes. In his personal taxation return, he showed a loss from Nelson Wheeler Perth of $27,600 which is the taxable loss distributed to him after adding back non tax deductible expenses of the partnership. He had substantial income from other sources during that financial year.

The taxation returns of Munachen and his family trust tell much the same story. The 1988 return for the family trust shows that a capital gain of $76,880 was received from the Platina Unit Trust, which no doubt included the share of the proceeds of the sale of the Ventnor Avenue property. It does not seem that any income or profit was distributed to him by the family trust. The loss distributed to Munachen by the partners of Nelson Wheeler Perth was $61,396, as with Stokes, and after bringing to account the non-tax deductible expenses of the partnership, the loss distributed to him was $26,301. In his personal taxation return, he claimed that loss.

On any view of the matter, these losses distributed to Stokes and Munachen were artificial and contrived to give them a taxation benefit. Whatever was the true purpose of this activity, it could not have been undertaken unless Stokes and Munachen were regarded as partners.

There is another matter of significance about the distribution of the proceeds of the sale of the Ventnor Avenue property. Each of the other partners or their family trusts received much the same distribution. If Stokes had retired, as is claimed, there were ample funds available to pay out his interest in the firm. It was claimed that the remaining partners could not afford to do that because of capital gains tax obligations and other personal financial needs. Even allowing for capital gains tax, there was more than sufficient to pay out Stokes. The fact that he was not paid out suggests that he remained as a partner.

There is another matter in respect of which Stokes and Munachen were treated as partners. Income was allocated to their family trusts from the Nelson Wheeler Unit Trust in each of the financial years 1987, 1988 and 1989. Mention has already been made of Stokes being treated in the same way as the other partners in the 1987 year although Lewis, who retired much later, was treated differently. In the 1988 and 1989 years the family trusts of Stokes and Munachen were treated in the same way as those of the other partners. There did not appear to have been any difficulty in excluding Lewis, Connolly and Troy from the Nelson Wheeler Unit Trust as and when they retired from the partnership but Stokes and Munachen continued to be included.

Mention has been made of the losses in the partnership created in the 1988 financial year for Stokes and Munachen so as to mitigate the impact of tax. In the 1989 year the share of income of the unit holders in the Nelson Wheeler Unit Trust was $6,952 which included the family trusts of Stokes and Munachen. In that year Nelson Wheeler Perth made a profit over and above the monthly drawings taken by partners which was allocated to the partners in varying amounts. The profit allocated to Munachen was $3,400 even though it is said he was not a partner. A loss of $6,865 was allocated to Stokes which he claimed in his personal income tax return. This loss was designed to nearly offset the income received by his family trust from the Nelson Wheeler Unit Trust. Once again this loss was contrived to assist Stokes. Attempts were made to justify it on the basis that as Stokes had not been paid out following his alleged retirement, it was desirable to offset his profits, through his family trust, from the Nelson Wheeler Unit Trust in this way as he was not a profit sharing partner. However, that was not the approach taken with regard to Munachen.

According to Messer, the purpose of these allocations was to ensure that Stokes and Munachen did not build up capital by the allocation of income in the Trusts which was not drawn and could not be paid out. Messer said he did discuss those matters with Stokes and Munachen. There is no evidence to establish that the relatively modest profits in the two Trusts could not have been paid to the holders of the units, including the family trusts of Stokes and Munachen.

However, as has been mentioned, it was a relatively simple matter to calculate the amounts due to Stokes and Munachen from the partnership, including the practice, the Nelson Wheeler Unit Trust and the Platina Unit Trust. If that had been done, it would be the end of the matter and no further income to them would be allocated or distributed with the consequence that no tax would be incurred.

The arrangements are inconsistent with retirement and consistent with both men remaining partners.

What does emerge from the considerable body of evidence about this matter, some of which is confusing, is that Nelson Wheeler Perth represented to the Commissioner of Taxation that Stokes and Munachen were partners, they regarded them as partners and they received financial benefit to an extent that was possible only if they were regarded as partners.

In my view these matters are compelling evidence that throughout this period neither Stokes or Munachen retired from the firm and both of them remained as partners.

There is another matter of importance. On 28th October 1988 Messer wrote to Pilmer, Martino, Crawford and Gray with regard to the financial results of Nelson Wheeler Perth for the 1988 financial year and matters which required resolution. Attached were schedules setting out the profit for the year before bringing to account the goodwill taken by Munachen with respect to the arrangements about the Nelson Wheeler Share Registry, the sale of the half interest in the share registry to Stokes and Munachen and the profit and interest expense of the interest in the Hong Kong practice which is mentioned shortly. The memorandum proceeded:

(1) There is not sufficient profit to meet partners full salaries therefore:

(a) should full salaries be charged thereby creating a loss; part of which would be borne by PLM (Munachen) and GJS (Stokes)

(b) should partners salaries be pro-rated back to create a nil profit position so that PLM and GJS do not share any loss?, if yes should PLM and GJS bear any portion of adjustment for tax purposes?

Note: There has been an increase in goodwill of $70,000 of which PLM and GJS receive 1/9 each."

The memorandum then sets out matters requiring resolution concerning the value of equipment taken by Munachen, the value of goodwill in the share registry and the calculation of fees taken by Munachen. Messer wrote that he wanted to call a meeting on the following Monday to discuss "our approach to those matters".

It is contended that this memorandum is indicative of Stokes and Munachen not being partners of Nelson Wheeler at the time because they were not to be included in the meeting and the discussions about these matters. In view of the issues, it is not surprising that they would not be included. Obviously it was appropriate for the persons who received the memorandum to discuss these matters among themselves.

On the contrary the memorandum reveals that these men regarded Stokes and Munachen as partners. They were to share in losses unless some special treatment was offered to them. They shared in the increase in goodwill during the 1988 financial year on an equal basis with the other partners.

According to Martino, he discussed this matter with Messer. Martino acknowledged that the problem had arisen because Stokes and Munachen were still being treated as partners. According to Messer, the problem arose because after deducting the monthly drawings, the partnership made a loss and Stokes and Munachen should be given the opportunity to share in that loss to compensate them for not sharing in the money paid to the Bank upon the sale of the Ventnor Avenue property. I have already made observations about that matter. It is sufficient to say that these calculations could not have been implemented unless Stokes and Munachen were regarded as partners during the 1988 financial year. According to Gray, all of the partners, except Stokes and Munachen, discussed the matter at a special meeting and agreed with the approach which was adopted. He also acknowledged that Stokes and Munachen were treated as partners.

Later in these reasons the involvement of Nelson Wheeler firms in Sydney, Melbourne and Perth in the accountancy practice in Hong Kong is discussed. For present purposes, it is necessary to mention a few matters.

In early 1985 the interest of these Nelson Wheeler firms in the Hong Kong firm was increased by 25 percent. Of this portion, Nelson Wheeler Perth acquired 10 percent and the other 15 percent was acquired by others. Nelson Wheeler Perth financed this acquisition by borrowings from the Royal Bank of Canada in Hong Kong.

Thereafter Nelson Wheeler Perth maintained this interest. The borrowings were serviced by the share of profits from the Hong Kong practice. Of course at the time the interests in the Hong Kong practice were acquired, Stokes and Munachen were partners of Nelson Wheeler Perth.

On 20th December 1989 Messer sent a memorandum to the equity partners of Nelson Wheeler Perth and attached calculations of Gray as to the income taxation implications of the share of the firm in the profits of the Hong Kong firm. Gray concluded that the possible taxable income which was $1,830 which, when shared nine ways, was not material. I accept that it is likely that his calculations, if completed, would probably have shown that there was no income.

The significance of this matter is the acceptance that there were nine partners. At 30th June 1989, there could only be nine equity partners if Stokes and Munachen were included. Martino accepted that proposition.

Both Stokes and Munachen declared income of $3,667 from the Hong Kong practice in their taxation returns for the 1988 financial year, after it is alleged they ceased to be partners of Nelson Wheeler Perth as did Messer, Crawford and Gray.

When each of Lewis, Connolly and Troy retired, the amount paid to each of them with respect to their capital in the firm was fixed after negotiation. The combined total paid to them was acknowledged by Messer and Crawford to be less than their entitlement. It is unnecessary for present purposes to trace through the various calculations to establish the amounts to which they were entitled and the amounts paid. It is sufficient to say that the difference was shared by the remaining partners including Stokes and Munachen, even though the benefits fell to them after the dates when they are said to have left the partnership.

Stokes and Munachen attended at the office premises of Nelson Wheeler Perth for social purposes after the respective times when it is said they resigned. It was customary for the partners and others to have a drink on a Friday evening after work and both men attended on occasions. Martino said that he invited Stokes on occasions. Messer said that he saw Stokes at these occasions quite regularly. Crawford said that Munachen would perhaps have attended because he was invited.

On occasions Stokes used the Nelson Wheeler facsimile facilities after he had allegedly retired from the firm. However, the evidence discloses that he only did so on a few occasions.

Munachen remained in the office premises of Nelson Wheeler Perth after his alleged resignation until the end of September 1987.

I do not regard any of these matters as assisting in the resolution of the issue of whether either or both of these men remained in the partnership. It is natural for past members of a firm to maintain social contacts with former partners. Friday night drinks would be a suitable occasion. The use of the facsimile is a matter of no significance. A former firm may well extend that facility even on a constant basis. The period Munachen remained at the office was determined to some extent by the movements of others, including the occupation of the Ventnor Avenue premises by Ledge Group.

Of course each of those matters is also consistent with Stokes and Munachen remaining as partners of Nelson Wheeler Perth.

As has been seen, there was a long-standing professional relationship between Stokes and Langford commencing when they began to practice accountancy together in the early 1980's in Kalgoorlie. After Stokes and Munachen moved to Perth, Langford remained as the resident partner in Kalgoorlie, a position he still held in the early 1990's well after the events relevant to these proceedings had passed.

Nelson Wheeler Perth, through Langford in Kalgoorlie, attended to some of the affairs of a family known as the Duncan family. In about early 1988 it seems that Langford overlooked some task and, in consequence, a fine of some sort was imposed upon a member or members of the Tonkin family which was part of the Duncan family or vice versa. Stokes was annoyed and wrote to Langford on 3rd March 1988 as follows:

It appears you have accepted the second and forgotten the first. If not for my sake, then for Christ's sake

Duncan family are part of the Tonkin family. Tonkin family are part of the Stokes' family like 60 years (John's dad and my dad). They deserve better professional care.

I copped the first fine and attendant notoriety - please don't let it happen again.

Langford appears to have taken the rebuke to heart and he wrote a long personal letter to Stokes on 6th March 1988. He assured Stokes that the work had been done and apologised to him "for being such a professional disappointment". He went on to mention matters relating to "personal gain", some of which are to the contrary to the view apparently held by Stokes and then wrote:

"Unfortunately I have failed to meet the criteria to be your partner and as such I have written to Angus Pilmer advising him of my resignation from the practice of Nelson Wheeler effective from 30th April 1988 or some other date which may be convenient to the firm. As I said earlier, I have always been judged by my peers and should I fail to live up to that judgment, I should not continue to provide embarrassment." (the underlining is mine)

Langford wrote to Pilmer on the same day and sent copies of this correspondence to him. In his letter to Pilmer, Langford wrote:

"I enclose copies of various correspondence between Geoff Stokes and myself. In view of the fact that my personal performance is obviously far below expectations I hereby tender my reignation (sic) as a partner of Nelson Wheeler effective from 30 April or such other date convenient to you. I have always insisted on performance by others and as such must be accountable for my own performance. When a person fails to live up to his partners expectations he should not continue to embarrass by hanging around.

I will not be setting up in opposition to Nelson Wheeler or working for another accounting firm as quite frankly I have lost confidence in my ability. I have also had enough of the behind the back criticisms which have been accumulating over the past year, particularly from Geoff. My friendship with Geoff has obviously terminated and as such it is inappropriate for me to have any business involvement with him.

I will use my best endeavours to promote Nelson Wheeler and offer any assistance you may wish in allowing a successor to take over from me. Angus, I have given this a considerable amount of thought and my decision is final.

I thank you and my other partners for all your assistance in the past. It will be inappropriate for me to attend the Busselton conference or future partners meetings unless it is specifically requested. I do suggest an early announcement of this to stop any stupid rumours which may arise. I am particularly concerned that my own staff are informed at an early date."

Langford did not retire from the firm and continued as a partner.

It may be seen from this correspondence that Langford regarded Stokes as his partner and both of them as partners of Nelson Wheeler Perth. If Stokes had retired from the firm as at 30th November 1986, Langford would have known. The two men were close associates and had many dealings over the years. Langford did not attend the meeting of partners on 3rd December 1986 at which Stokes' position was discussed but he did attend the meeting on 18th December 1987 at which it was reported, according to the minutes, that Stokes and Munachen should retire and that he had had discussions with both of them and believed they were ready to retire from the practice. He was also at the meeting of partners on 19th January 1988 when, according to the minutes, Pilmer reported that he had yet to meet Stokes and Munachen to discuss their retirement from the practice. He was present at the meeting on 19th May 1988 when, according to the minutes, Pilmer advised that Stokes had told him he wanted to remain a partner and there was every likelihood that Munachen would resign.

There is no explanation for the absence of Langford from the witness box. It may be accepted that had he given evidence it would not have been favourable to the case of the first defendants. This correspondence is compelling evidence that Stokes remained as a partner. If Stokes was no longer a member of the firm, why would Langford feel obliged to resign?

After Troy and Bonavita left the firm, solicitors acting for Troy wrote to the partners of Nelson Wheeler Perth on 14th July 1988 enclosing a Deed of Partition of partnership to be executed by them. The minutes of the partners' meeting on 26th June 1988 record that this Deed had been tabled at the meeting. The document first admitted into evidence was treated as a draft and contained handwritten alterations which became part of the final document. The Deed sent by Troy's solicitors must have been the Deed in its final form. It was executed by Pilmer, Crawford, Gray, Stokes, Martino, Messer, Munachen and Langford, Troy and Bonavita. This Deed shows Stokes and Munachen to be partners of Nelson Wheeler Perth at the time and recites that up until 30th June 1988 they and Troy, along with the others, carried on the business of accountants in partnership under the name Nelson Wheeler. The provisions of the Deed are proceeded on that basis.

According to Martino, this Deed was discussed at a meeting of partners which was attended by Troy. He said that at the meeting it was decided to include Stokes and Munachen in the Deed because financial matters concerning them had not been resolved. It was Troy's idea to include them. Crawford said he could not remember anything about the Deed or of the circumstances in which Stokes and Munachen came to sign it. He played no role in giving any instructions. He could not offer any explanation as to why Stokes and Munachen were described as partners. Gray acknowledged that his handwriting appears on one of the drafts of the deed and that he dealt with Troy's solicitors regarding the matter. However, he said he did not turn his mind to why Stokes and Munachen were described in the Deed as partners.

Messer said that he discussed the Deed with Pilmer and Gray and they decided to include Stokes and Munachen because it was acknowledged that Troy was being removed as a guarantor and consequently the Deed would be seen by the Bank.

It is significant that in the Deed Stokes and Munachen, along with the other persons described as partners of Nelson Wheeler Perth, agreed to indemnify and keep indemnified Troy and Bonavita against (inter alia) all claims relating to liabilities under leases and with respect to professional negligence "on any of the files relating to the [Troy] clients arising prior to the Partition Date", which was 30th June 1988. Why Stokes and Munachen, if they were not partners, would give such an indemnity concerning the period after their respective resignations and why they would execute a Deed describing themselves as partners when they were not partners, is not adequately explained. It would be surprising if Stokes and Munachen were prepared to take on such obligations merely to appease the Bank. The likely true explanation is that they were partners at the time and had no choice but to give the indemnity.

As the Deed was prepared on instructions given by Troy and in the absence of any evidence to the contrary from him, it shows that he regarded Stokes and Munachen as not having left the firm by that time. As the other members of Nelson Wheeler executed the Deed in those terms, it is evident that they regarded Stokes and Munachen in the same way.

On 4th October 1989 Stokes wrote to Martino as follows:

This letter serves to confirm my resignation from the partnership of Nelson Parkhill BDO as advised to the equity partners meeting which was held last week.

I accept your advice that it is necessary to incorporate the cash flow and operating expenditure of the Share Registry on a one hundred percent basis with the accounting practice. In the circumstances Kate and myself agree to transfer our twenty five percent shareholding in Borman Pty Ltd over to the partnership.

It is my understanding that you will put a proposal as to terms of settlement to me this Friday. As I shall be in Kalgoorlie on that day would you kindly fax through the details to John Langford and he will pass on same to me.

I shall be back in Perth on Monday and shall contact you on that date.

It may be seen that this letter is in clear and unmistakable terms. It confirms Stokes' resignation from the firm "as advised to the equity partners meeting which was held last week". This letter tends to confirm that Stokes remained a partner of Nelson Wheeler Perth through the years 1986 to 1989 as is indicated by other evidence. No minutes of a meeting of partners in late September or early October 1989 were available at the trial so there is no documentary record of what Stokes said at the meeting. However, this letter was kept in a file kept by Martino entitled "Partnership Retirements - Personal Information" It also contains the letter of Stokes of 3rd November 1986 which has earlier been mentioned and the letters of resignation of Connolly, Lewis and Sudbury. Clearly this letter of 4th October 1989 was regarded as what it is, a letter of resignation.

Stokes wrote to Martino again on 15th November 1989 providing him with information necessary to calculate the amount of his interest in Nelson Wheeler Perth. He concluded the letter as follows:

"It is some time now since our verbal agreement on the terms of settlement following my resignation. I would appreciate the written acceptance of Nelson Parkhill BDO as to those discussions so the matters can be formalised by way of a deed of termination."

Martino responded quickly by writing to Stokes on 20th November 1989 setting out the agreement reached. The letter began:

"I can only reiterate what myself, the other partners and all the team members feel about your contribution to the inevitable success of Nelson Parkhill BDO. Your energy and enthusiasm whilst you were with the firm, and your loyalty and backing for over the past year have been an inspiration to us all."

It mentioned that Stokes was to be paid $150,000 in instalments. His capital and current accounts had been calculated as:

This figure was rounded up to $150,000. These calculations proceeded on 1989, not 1986, figures. They included an adjustment on account of work in progress, the amount of which is different from the end of year figures of 1987, 1988 and less than the 1989 work in progress figure. The accounts standing to his credit in the capital account of the partnership in 1987, 1988 and 1989 are different than the $125,398 shown in the final calculations. The capital amount of the Stokes' family trust in the Nelson Wheeler Unit Trust at 30th June 1989 was $46,393, almost precisely the figure used in the calculations. At 30th June 1987 it was $23,336 and at 30th June 1988 it was $29,772. These matters suggest that the calculations were made having regard to financial performance of the partnership and its entities well after the 30th November 1986.

There was some adjustment to the proposed terms in relation to the time for payment and on 21st December 1989, Martino again wrote to Stokes setting out the terms of settlement as finalised and confirming the verbal agreement that the retirement was to be effective as from 1st July 1989. On the same day Martino wrote a personal letter to Stokes as follows:

"Just a short personal note from myself. I could not let your formal resignation from the partnership go by without putting on record our thanks for your contribution over the years.

Personally you have been instrumental in assisting my career over the years. You have been very generous in freely availing your hard won contacts to myself amongst many other things. This sort of assistance has played a large part in my achievements.

Evidence of your advice and support was obvious at the December 1988 partners meeting when you alone moved for my appointment as Managing Partner. There is no doubt that your support moved the vote to a unanimous one.

Geoff, for this support and friendship I would like to place on record my thanks to you. I know we will continue to have a close relationship in the future and I would still hope that I can continue to use you as a 'mentor' as I have in the past.

Please continue to treat Nelson Parkhill BDO as your firm and feel free to use the firms facilities. For our part we still see you as 'one of the family' and our resources are available to you accordingly."

This correspondence speaks for itself and confirms that Stokes was regarded as a partner until at least 30th June 1989. The precision in the calculations suggests the same.

It may be seen that this correspondence proceeded on the basis that Stokes had remained a partner. This was correspondence between friends and colleagues and is likely to reflect the true position, namely that Stokes did remain a partner until 1989. There is not a word about his waiting for a long overdue settlement which might have been expected if Stokes had in fact retired three years earlier.

The minutes of meetings of partners of Nelson Wheeler Perth available at the trial do not extend beyond the meeting of 20th October 1988 except for one meeting on 25th May 1989. However, there was a meeting in December 1988 at which Martino succeeded Pilmer as the managing partner of the firm. The letter written by Martino to Stokes on 21st December 1989 fixes the date of the meeting at this time and I reject the evidence of recollection of some of the partners that it occurred later. I accept that the partners at the time were dissatisfied with Pilmer's performance as managing partner.

Stokes attended this meeting and advocated that Martino should be the managing partner. The other candidate was Crawford who was proposed by Messer. According to Gray, Munachen may also have attended the meeting. Martino said that Stokes attended this meeting because he had provided security for the firm. I find that explanation to be unlikely. The management of the firm was unsatisfactory and Stokes took a hand in resolving the problem in this way.

The presence of Stokes at this meeting and his active participation in the resolution of who should succeed Pilmer as managing partner is not only consistent with his being a partner at the time and being recognised by the others as such, but suggests that such was the case.

On 10th April 1989 Nelson Wheeler Perth held a "Partners Strategy Meeting" at the Cottesloe Beach Resort which lasted all day. On 5th April 1989 Martino sent a memorandum to Messer, Gray, Crawford, Stokes, Munachen, Langford and Robinson about the meeting and stressed attendance for the full day was necessary. The memorandum concluded:

η to give all the partners the opportunity to communicate their individual goals and objectives

η to create a clear statement of achievable goals and objectives for the firm

η to ascertain how we could achieve these objectives

A Mr J Batty of Windrush & Associates, who claimed to be "executive skill builders", was engaged as the facilitator for the meeting.

At the meeting each partner was obliged to write down his personal objectives. Also each person present, other than Barry, had to contribute to discussions about various matters so that after the meeting a report could be prepared setting out what had been decided. These matters included how to increase team focus, a statement of objectives for the firm and an action plan. It may be seen from these topics that the focus of the meeting was on the future. Both Stokes and Munachen attended and participated in the meeting.

Among the personal objectives listed by Stokes were the formation of an Equity Bank which would result in increased prestige rubbing off on to Nelson Wheeler Perth and clients, the provision of assistance to Martino to really put the firm on the map, the development and promotion of partner relationships, overseeing the development of the financial services division of the firm, addressing the debt of the firm and developing the firm to be number one in Western Australia. Munachen set down objectives which were personal to himself.

The Action Plan which the partners adopted provided for the role to be played by each partner with respect to the objections which had been agreed. Stokes was to develop a draft position paper with respect to the areas of clients, marketing, services and the community by 5.00 pm on 15th May 1989. Also he was to attend to the "culling" of inappropriate personnel by 14th April 1989 and to assist Martino and others in establishing a policy direction for Trendline Securities and for communication with staff by 15th May 1989. Munachen was to assist Gray and others in the preparation of a draft position paper on the areas of management structure, administration and financial matters by 15th May 1989, and the preparation of monthly share registry accounts for the Nelson Wheeler Share Registry.

After the meeting, Batty prepared a report which set out the personal objectives and the action plan as well as other matters and sent it to Martino who, in turn, sent it to those who attended the meeting, including Stokes and Munachen on 17th April 1989. At the same time Martino also sent a memorandum setting out the required standard reporting structures for the action plan.

It is difficult to understand why Stokes and Munachen would participate in this full day meeting and undertake such tasks unless they were partners.

According to Messer, it was logical that Stokes and Munachen would attend this meeting. Munachen had been considering rejoining the partnership and at the meeting when Martino was elected as managing partner, both Munachen and Stokes spoke about what needed to be done to move the firm along and keep it on an even keel. He said that Stokes had indicated that he would like to contribute. Messer said he regarded Stokes as a close ally of the firm who was a strategic thinker.

Stokes said he recalled attending and participating in the meeting. He claimed to have a good recollection of what he did. He denied that he was a partner at the time and said he was giving his ideas of what he would want to do if he came back into the firm. He acknowledged that he agreed to undertake the matters referred to in the action plan but said that a few days after the meeting he decided not to rejoin the partnership and consequently did nothing about it. He said he told Martino he would not rejoin. According to Martino, he was still discussing Stokes' return to the practice with him well into June 1989. It was still not resolved by the end of that month. I do not accept Stokes' explanation. There is no evidence to support Stokes' assertion that he changed his mind in this way. To the contrary, he did not respond to Martino's memorandum of 17th April and say that he was no longer interested. His participation in the meeting and acceptance of the roles assigned to him demonstrates that he was involved in the practice in a manner inconsistent with having retired from the partnership. Stokes was an intelligent man and his explanation of thinking about rejoining the partnership and then changing his mind so quickly was devised to try and explain away this important evidence.

According to Martino, he asked Stokes and Munachen to attend the meeting because he was trying to entice them back into the partnership. He had been discussing that prospect with Stokes over the previous few weeks and he was very interested in rejoining the practice. Martino said that Munachen had decided to rejoin the practice by this time but not to take effect until 1st July 1989.

It is possible that Martino and Stokes were discussing prospects of Stokes returning to active work in the practice at around this time. Stokes' success in the commercial world had suffered in consequence of the share market crash and he may have considered working again as an accountant. However, there is a difference between returning to the practice in that sense and rejoining the partnership. In my view, this evidence of Martino does not establish that Stokes was not a partner.

Crawford remembered that there was a meeting to consider administration and the running of the practice at Cottesloe. He recalled that Batty, Munachen, Martino and Gray were present but he said he could not remember much else. He said he could not remember Stokes being present. He explained that Munachen was asked to attend because he was good at administration and the partners sought his assistance.

Gray said he had no recollection of the meeting, of Stokes or Munachen attending such a meeting and of any action plan or any statement of personal objectives by him or any one else.

Before parting with this meeting and the documents, mention must be made of the collection of draft position papers with appendices which were prepared following the meeting and distributed to, at least, some members of the firm. According to Martino, it was prepared by various people and put together by him following the meeting at Cottesloe. He said the information contained in it relating to the partnership was accurate at the time. Crawford also said that the document was accurate in what it contained regarding the partners. Gray said he had no recollection of seeing the paper entitled "management structure paper" which was attributed to him.

The first draft position paper is entitled "Client, Marketing, Services, Community" and purports to have been prepared by Stokes and Crawford. It is descriptive of the then current position of the firm in terms of general matters and contains a plan of action. It is the type of paper which Stokes agreed to prepare at the meeting at Cottesloe.

It is likely that he prepared it or assisted in its preparation. He was not asked about it during the evidence which he gave. His participation in the preparation of the paper is a reason to doubt his evidence about the Cottesloe meeting and his deciding not to rejoin the practice within a few days. Another draft paper in this bundle is entitled "Team Members, Professional/Technical remuneration" and purports to have been prepared by Langford and Gray. Gray has no memory of it at all and Langford was not called to give evidence. In this draft paper it is recorded that the firm had eight partners, six in Perth and two in Kalgoorlie. An appendix to the paper shows the six partners in Perth as Martino, Pilmer, Gray, Messer, Crawford and Mr R Galton. Another appendix shows the two partners in Kalgoorlie to be Langford and Robinson. Nowhere in any of the papers or appendices is there any reference to Stokes or Munachen.

However, I do not think these documents should be regarded as evidence that Stokes and Munachen were not partners at the time, and that the authors of them did not regard them as partners. The documents were, in effect, an action plan for the future, mainly in terms of strategy, administration and organisation. Neither Stokes nor Munachen were working within the practice at the time. The documents relate to those who were working in the practice. If they were to be regarded otherwise, reference would have been made to at least Munachen because on the evidence it was known he was to rejoin the practice as from 1st July 1989.

Such was the extent of the borrowings at relevant times that Nelson Wheeler Perth was required to furnish to the Bank detailed information on a regular basis about such matters as debtors, work in progress and budgets. In this way the Bank closely monitored the performance of the practice. From time to time the partners were not able to meet deadlines set by the Bank for reduction of indebtedness and experienced financial pressure. By late 1987 the total indebtedness was $1.8m which was secured by personal guarantees of the partners and a bill of sale over the assets of the partnership. Clearly this indebtedness was a burden to the partnership.

On 12th October 1987 a bill of sale in the form of a Deed was executed by the partners in favour of the Bank over the plant and equipment of the practice. Stokes and Munachen were parties to this Deed and are shown as debtors along with the others. At the same time Stokes and Munachen, along with the other partners, executed a guarantee of the debt due to the Bank.

The partners were obliged to repay $250,000 of the debt to the Bank on 30th June 1987 and had insufficient funds for that purpose. At the meeting of the partners on 24th June 1987 each of them, including Munachen, was requested to collect fees from clients amounting to $200,000. According to Messer, the position with the Bank was serious and it was appropriate to protect the position of Lewis and Connolly, both of whom had retired from this debt.

On 1st July 1987, the day after the alleged resignation of Munachen, partners of Nelson Wheeler Perth wrote to Mr Walters of the Bank on the topic of the constitution of the partnership in the following terms:

"We, the partners of Nelson Wheeler, advise and confirm that Messrs R.J. Lewis and A.R. Connolly are no longer responsible for any partnership liabilities to the bank."

No mention was made of Stokes or Munachen having resigned. The copy of the letter admitted into evidence is signed by Pilmer, Crawford, Stokes, Martino, Messer, Sudbury, Langford and Bonavita. There were places on the letter for the signatures of Troy, Munachen, Gray and Graus but none of them signed the copy which is the exhibit. The evidence does not reveal if the original letter sent to the bank was signed by them. The letterhead upon which the letter is typed shows the names of the partners, including Stokes and Munachen, but not Lewis. Connolly's name was still on the letterhead but his resignation had only just became effective. It may be seen that each of them represented to the bank that both Stokes and Munachen were still partners of the firm.

According to Messer the remaining partners had reached an agreement with Lewis and Connolly and they were pressing to be released from the obligation to the Bank. Messer had no personal involvement in this matter. It was resolved by Troy or Pilmer, neither of whom gave evidence. As the Bank was informed of Lewis and Connolly leaving the practice, the question arises as to why the Bank was not informed of the resignation of Stokes and Munachen, if that is what had occurred and also, as to why partners, including Stokes, signed the letter, which indicated that Stokes and Munachen were partners, if that was not the case. Messer's explanation is much the same as in relation to the minutes. Stokes and Munachen had much more personal wealth than any of the others and the reason why the Bank had been accommodating the practice as it had was because of the support of Stokes and Munachen. According to him, the Bank would have regarded it as a matter of importance that Stokes was a partner of the firm.

Documents admitted into evidence reveal the assets and liabilities of Martino, Lewis, Langford, Messer, Troy, Stokes, Munachen, Pilmer and Crawford in mid 1986. These documents are in the form of statements provided to the Bank and included assets held jointly with spouses. Clearly, Stokes had substantially more wealth than any of the others. Nevertheless the combined wealth of the others was considerable.

Walters, Troy and Pilmer did not give evidence. There was no explanation for the absence of any of these men from the witness box. Walters, in particular, could have spoken first hand about the attitude of the Bank to these matters. In the circumstances it may be expected that had he been called, his evidence would not have supported the case of the first defendants.

Stokes said he signed the letter but he did not consider himself to be a partner at the time. When asked if he wanted the Bank to think he was a partner, he said that until the matter of the share registry had been fixed, he was "still in the pot so to speak". He said he had not given it due thought. When the general thrust of Messer's explanation was put to him, he said that some twelve to eighteen months later he became aware that the Bank relied upon his assets and that the Bank saw him as a valued client. Also, he said that it was possible that without him, the Bank may have withdrawn the facility.

This evidence is not only unconvincing but it is at odds with the evidence of Messer. If the partners falsely represented to the Bank the position about Stokes, he would have had to know about it or any contrary indication from him could have brought it undone. If he knew about it, he would surely say so rather than give this explanation. If the position is as Messer said, Stokes would have said so. He must have known that his guarantee had to continue. He signed the Bill of Sale and guarantee of this enormous indebtedness again on 12th October 1987. To say he was not aware of the interest of the Bank in him until twelve to eighteen months later could not be correct.

Also, Messer said that Stokes and Munachen realised that the only way they could get their money out of the practice was for it to survive and they agreed to retain their personal guarantees with the Bank. If that is true, why would not Stokes say so.

Once again, I find this evidence unconvincing. The letter is in clear and unmistakable terms and is a piece of evidence which, along with the other evidence, reflects the true position at the time. Stokes and Munachen remained as partners.

On 17th July 1987 Troy wrote to the Bank and advised of changes in the partnership being the admission of Sudbury, Graus and Bonavita as salaried partners from 1st July 1987 and the retirement of Lewis and Connolly from 30th June 1987, although that date is not strictly correct. Again no mention was made of Stokes or Munachen having retired. On 29th December 1988 Troy informed the Bank of the retirement of Sudbury. He was a salaried partner. The Bank was informed even though Sudbury was not entitled to any payout. Troy informed the Bank that the remaining partners accepted full responsibility for the guarantees and other securities held in support of advances to the partnership. This letter was written on letterhead showing Stokes and Munachen as partners. No mention was made of Stokes or Munachen having retired.

On 20th June 1988 Messer wrote to Walters at the Bank and informed him about various matters concerning the retirement of Troy, the merger with Robinson Dawes and the acquisition of the practice of Peat Marwick Mitchell at Kalgoorlie. He requested that Troy be permitted to withdraw his guarantees. Also he mentioned an earlier meeting between Pilmer, Messer and Walters at which Pilmer and Messer had indicated that Stokes and Munachen "would be retiring from the partnership at 30th June 1988". He then wrote, "At subsequent discussions with Geoff and Peter, both have indicated a desire to remain partners".

According to Messer, he and Pilmer had earlier met with Walters to try and establish what would be the attitude of the Bank if Stokes and Munachen were paid out at the same time as Troy. He explained that Troy was prepared to freeze the accounts if he was not released from his guarantee and paid out promptly. They took this opportunity of gauging the reaction of the Bank to Stokes and Munachen leaving the firm. Walters told them that the Bank would not consider releasing Stokes and Munachen from their guarantees unless suitable substitutes could be found.

This is an important matter. The significance of evidence of Walters cannot be underestimated. Again it may be assumed that his evidence would not have supported the first defendants about such an important matter, had he been called to give evidence. Also it is a matter about which Pilmer could have given direct evidence. His failure to give evidence suggests that any evidence which he gave would not have supported Messer's evidence.

Messer's explanation is at odds with other evidence. If a reason for holding out Stokes and Munachen as partners was to placate the Bank and it was thought that the Bank would obtain copies of the minutes, it is difficult to understand why it would be recorded in the minutes of the meeting on 18th December 1987 that Stokes and Munachen should retire as soon as possible as they did not play an active role in the practice or that it was believed that they were both ready to retire. Furthermore, it is at odds with the minutes of the meeting of the partners on 19th May 1988, shortly before the meeting between Pilmer, Messer and Walters, recording that Munachen would resign. If Messer was genuinely concerned about the attitude of the Bank and wanted to protect the loan facility, it is unlikely that he would have permitted such an error to creep into the minutes.

I do not accept his explanation. The letter to the Bank was written in accurate terms, at least to the extent that Stokes and Munachen were to remain in the partnership. Also, it is not without significance that when Stokes did retire from the partnership in 1989, there was no difficulty in arranging for his guarantees to be withdrawn and the substantial indebtedness of Nelson Wheeler Perth to the Bank to continue. Despite the sale of the Ventnor Avenue property and payment of part of the proceeds of the sale to the Bank in late 1987, the total debt of the partnership in 1989 was $1.75m with similar security.

The evidence of Martino and Crawford is that they understood that the partnership needed the support of Stokes and Munachen in this way. According to Martino he did not give the matter much thought at the time. Crawford said that the Bank was unwilling to let them out of the guarantees. However, as Crawford acknowledged there was no occasion when a retiring partner was not released by the Bank. There is simply no document or other evidence from the Bank which suggests that Stokes or Munachen would not be released.

In my view, the most likely reason why Stokes and Munachen remained responsible for the debt to the Bank is because they continued to be partners of Nelson Wheeler Perth.

On 28th June 1988 Messer wrote to the Bank and enclosed various documents including a summary of movements in the capital accounts of the partnership between 1st July 1987 and 30th April 1988 and an updated schedule of public company directorships "held by the partners of Nelson Wheeler". The only person shown to have withdrawn capital was Connolly. Stokes and Munachen were shown as partners in the schedule of directorships

Some internal records of the Bank show that Stokes and Munachen were partners in November 1987, April 1988 and July 1988.

Throughout the years 1987, 1988 and 1989, Stokes and Munachen were treated as partners of Nelson Wheeler Perth in the taxation returns of the firm even though in the 1987 return it is shown that Lewis and Connolly had retired during that year. The 1988 return shows Sudbury, Graus and Bonavita as partners for the first time and that Lewis and Connolly were not partners. The 1989 returns shows that Troy was no longer a partner and that there were three new partners, although one of them was not an equity partner. In none of the returns for the 1987, 1988 or 1989 years is there any reference to either Stokes or Munachen having retired from the partnership. The partnership made a loss in 1989 and it was shared by all of the equity partners, including Stokes and Munachen. In the 1990 year Stokes did not receive a share of the profit or loss as he was no longer a partner but Munachen, as an equity partner, received a share of the loss.

It is a matter of considerable importance that all of the first defendants represented to the Commissioner of Taxation that Stokes and Munachen were partners.

The letterhead of Nelson Wheeler Perth was printed. At the top appeared, inter alia, the name "Nelson Wheeler" and the description "Chartered Accountants" and at the bottom appeared the name of the partners of the firm and the locations where they practiced, namely Perth, West Perth and Kalgoorlie as and when there were offices in all of these locations.

Stokes and Munachen are shown on the letterhead throughout the relevant period until it was decided to remove the names of partners from the letterhead which was after December 1987. It was the policy of Nelson Wheeler Perth that all letters were signed by a partner. Ethical Rulings AER 4, paragraph 8a(iii), of the Institute of Chartered Accountants in Australia provides that the letterhead of a member describing himself as a Chartered Accountant or an Accountant must not contain the name of any person who is not a member of the Institute. The Rulings provide that they are mandatory and must be followed by members. Each of the partners of Nelson Wheeler Perth, except Langford, were members of the Institute at all relevant times and therefore bound by the Rulings. As has been mentioned, Langford was a partner but could not be described as such because he was not a member of the Institute. Consequently he was described on the letterhead as the Manager at Kalgoorlie which indicates that the other partners regarded their membership of the Institute and the Rulings seriously.

Documents admitted into evidence show that Stokes signed letters on letterheads representing himself as a partner after his alleged retirement from the practice. An example of many such letters is the letter which he and others signed and sent to the Bank dated 1st July 1987.

Likewise Munachen was shown on the letterhead of the firm subsequent to his alleged retirement. Many documents admitted into evidence establish that fact during the second half of 1987 up to and including December.

In contrast, when Lewis retired in February 1987 and Connolly at about the end of June 1987, their names were excluded from the letterhead promptly. This contrast is particularly stark in relation to Connolly and Munachen. It is alleged that Munachen resigned at much the same time as Connolly, but Munachen's name remained on the letterhead. Also, when Sudbury, Graus and Bonavita joined the firm, their names were added to the letterhead, which is also in stark contrast to what occurred with respect to Munachen who is said to have retired from the same date.

In his first affidavit in support of his application to withdraw the admission, Stokes deposed to the following :

"29. At some time after my resignation from Nelson Wheeler, I saw a Nelson Wheeler document which displayed my name as a partner. I raised this with Angus Pilmer and was told that the firm was organizing new letterhead and whilst that was being done, the firm was using up old stock."

Pilmer did not give evidence and Stokes could not be cross-examined. The many documents admitted into evidence in the form of letterhead showing the constant naming of Stokes as a partner, and the deletion and addition of others as they left or joined the firm, demonstrates this explanation by Stokes to be probably untrue. The changes in letterhead from time to time, but the retention of the names of Stokes and Munachen, establishes that it was a deliberate decision to show that they were partners which supports the contention that they remained in the firm. In my view, this matter is a significant indicator that Stokes and Munachen remained in the firm.

It was submitted that there is no evidence that Stokes was consulted about the use of his name or the letterhead or that he condoned or consented to it. The fact of Stokes signing letters or letterhead bearing his name suggests that he was aware of the practice as does the assertion in his affidavit. At all events, the managing partner at the time, Pilmer, could be expected to have relevant evidence to give about the matter. This submission does not detract from the conclusion I have reached.

Palmvale Nominees Pty Ltd was the trustee of the Essemco Unit Trust which was a vehicle through which Stokes and Munachen pursued various interests. These entities are considered later. On 16th January 1987 Palmvale made an application to Western United for a loan of $300,000 which was granted. Stokes and Munachen are shown on the application form as partners of Nelson Wheeler Perth.

This application was prepared internally at Western United but presumably on the basis of information supplied by Stokes, Munachen or someone on their behalf.

After the loan was granted, Stokes wrote to Western United on 21st January 1987 on Nelson Wheeler letterhead which showed him as a partner.

Stokes did not give evidence about this application although he did give evidence about the letter. He said that as he and Munachen were often away, they granted a power of attorney to each other and as Munachen usually looked after Palmvale business, he expected that the letter was brought to him to sign as Munachen was away. However, on the previous day, both Stokes and Munachen signed a letter to T.C. Coombs & Co in Melbourne which was also written on Nelson Wheeler letterhead. Martino gave much the same explanation as Stokes but he was merely speculating. As I have said in relation to other matters, I place no reliance upon Stokes' evidence about any matter in contention. However, Munachen could have explained the circumstances in which the application was made and if he knew why it contained the reference to Stokes and Munachen as partners of Nelson Wheeler Perth. It is reasonable to conclude that Stokes regarded himself as a partner of Nelson Wheeler Perth at the time the application was made.

When the association of the firms of accountants came into existence in July 1972, they caused the registration of the name Nelson Wheeler in each of the mainland states of Australia. The name was registered in Western Australia pursuant to the Business Names Act 1962 (WA) on 27th July 1972 by representatives of those firms. As the firm Nelson Wheeler Perth developed, the partners became registered as the persons carrying on business under that name. Pilmer and Crawford became so registered on 26th September 1977, Martino, Munachen and Stokes as from 1st January 1984, Lewis as from 1st July 1985 and Troy, Gray, Messer and Connolly as from 1st July 1986.

The Business Names Act at the relevant times prevented a person or persons from carrying on business under a business name unless the name was registered under the Act in relation to each person carrying on the business. No doubt it was in obedience to this provision that the name Nelson Wheeler was registered and the new partners from time to time were also registered. Section 12 of that Act provided that in the event of any change in the persons carrying on the business, a statement notifying the Registrar of Companies of such change had to be lodged within 14 days. That section also provided that a person shall not sign or lodge with the Registrar a statement that to his knowledge is false in any material particular.

The registration of the business name had to be renewed each year. On 10th August 1987 Messer, on behalf of Nelson Wheeler Perth signed the appropriate form for that purpose and it was lodged with the Registrar. It purports to represent the position as at 25th June 1987. That statement shows Stokes and Munachen as among those carrying on the business. However, it also showed Lewis and Connolly as such persons even though they had clearly retired from the partnership by that time.

In 1990 Messer signed a statement of change of business name for lodgment with the Registrar which showed that Stokes had ceased to be a member of Nelson Wheeler Perth on 1st July 1989. In 1992 Messer signed a statement of change of particulars which was also lodged with the Registrar. It reveals that the following partners ceased to carry on the business on the following dates. Connolly on 31st May 1987, Troy on 30th June 1988, Lewis on 28th February 1987, Stokes on 1st July 1989, Pilmer on 1st July 1989 and Crawford and Gray on 1st June 1990. This statement was signed by each of these men and also by Martino and Munachen. It will be seen that there is no mention of Munachen having ceased to carry on the business and that the retirement date of Stokes is disclosed as 1st July 1989.

After the name of Nelson Wheeler Perth changed to Nelson Parkhill BDO on 1st March 1989, an application was made to register that name. It was lodged with the Registrar on 7th March 1988 and records that those nominated in an attached schedule commenced to carry on business under that name on 1st March 1989. The persons set out in the schedule were Gray, Messer, Munachen, Martino, Crawford, Stokes, Robinson and Galton. There is an issue raised at the trial as to whether this schedule relates to the application because it contains the heading Nelson Parkhill BDO Associates Schedule of Commencing Proprietors whereas the application is with respect to Nelson Parkhill BDO. When the documents were obtained from the Corporate Affairs Department in Perth, none of the pages were joined together. However, it is reasonable to conclude that the schedule probably does not relate to the application because the item number 5 in the schedule does not appropriately relate to item 5 in the application. Nevertheless the schedule is a formal document for the purposes of registration of a business name, probably Nelson Parkhill BDO Associates and sets out the "commencing proprietors". These men were the members of the firm when the change of name occurred. Probably the business name for associates was registered at the same time, and the partners were the same in both applications. It is of particular significance that each of these men signed the appropriate schedule of the application comprising those matters.

A statement of change in the persons carrying on the business under that name was lodged with the Registrar on a date not revealed by the evidence which shows that Pilmer and Stokes ceased to carry on the business on 1st July 1989. This statement is signed by both of them.

Martino understood that if there was a change in the members of the firm, the Registrar had to be notified. His explanation for Stokes remaining registered to carry on the business of Nelson Wheeler throughout this period is that he was negotiating with him to come back into the practice and he was maintaining the status quo with the registration. He said he could have removed his name but he wanted Stokes and Munachen to remain on the registration. He discussed the matter with them and he made a conscious decision to that effect. However, he said that he did not consider that Stokes, and I assume Munachen, carried on business under the name Nelson Wheeler.

Stokes said that he was aware that he continued to be registered as a proprietor of the business name but he did not discuss the matter with Pilmer. He said he did not consider the matter. He said nothing about having discussed the matter with Martino. There was no other evidence by way of explanation for the continuation of Stokes and Munachen as persons carrying on the business of Nelson Wheeler Perth in the registration of the business name. The continuation of the registration of their names is entirely consistent with their remaining as partners throughout the period until Stokes left as from 1st July 1989 and if that is the case there would be no need to alter the particulars of the registration. This continuation cannot be explained by oversight because both Lewis and Connolly were removed.

Martino offers an explanation with respect to Stokes which I do not accept. If true, it could only relate to that period in around the time of the Cottesloe meeting in early 1989 when Stokes says he was considering returning to the practice and Martino says he was trying to persuade him to do so. It could not explain the continued registration through 1987 and 1988.

The continued registration is evidence that the two men remained partners.

After Mawson Pacific acquired the first half of the Marvel Loch mine from Kia Ora, Stokes wrote to Wenham, the Chairman of the national body of Nelson Wheeler, on 15th February 1987 enclosing a copy of press publicity about the acquisition. In his letter he wrote :

Thought you might find the following pages of interest.

Mawson is a company controlled by myself and friends.

Needless to say, Nelson Wheeler will be picking up all of the mine accounting work - approx 200 people are employed on-site.

Brief mention has already been made of this letter.

If Stokes had retired from the partnership, the question arises as to why he would write to Wenham in these terms and why the company which he, with others, controlled would send all of the mine accounting work to Nelson Wheeler Perth. Stokes' explanation is that he used to see Wenham at the races in Sydney because he was in horse breeding syndicates. It is appropriate to set out in his words what he then went on to say:

"... and whenever I'd go to a social function like that I'd be inundated with people wanting to share tips on what's happening, and I was keeping Paul (Wenham) posted and he knew what I was doing, and at the same time I've referred to Nelson Wheeler picking up the mine accounting work. Well in fact it didn't happen - we employed somebody ourselves, and the only work Nelson Wheeler got, I think, in Mawson was share registry work ..."

When asked why he thought Wenham might be interested in Nelson Wheeler picking up all the mine accounting work, he said:

"... its me probably just letting him know that I haven't forgotten the old firm and I'm still referring work to them - I still do, actually, today, where I can."

When asked again, he said that he thought Wenham would be pleased to hear it because he was the spokes-person for Nelson Wheeler Sydney and he had a genuine interest in what he was doing. When it was pointed out that the mine work would not be done in Sydney, he said he did not know why Wenham would have been interested. However, he went on to say that they, presumably Nelson Wheeler Sydney, were fascinated by the old firm of Stokes, Munachen and Co because they did not have resource clients.

As I have said, reliance cannot be placed upon Stokes' evidence because he was not cross-examined but I would not place any reliance on this evidence in any event because it is unlikely to be true. The more likely explanation for this memorandum is that Stokes was still a member of Nelson Wheeler Perth and wanted to show Wenham that he was proposing to give the work to the firm knowing that Wenham was interested because of the national arrangements and the promotion of Nelson Wheeler as a national firm.

The professional indemnity insurance cover for the various Nelson Wheeler offices around the country was, at relevant times, arranged through the secretariat of the national body of Nelson Wheeler. Mr AF Grellman, one of the fifth defendants, a member of Nelson Wheeler Sydney, was responsible for making the necessary arrangements which involved negotiation with the insurance broker Marsh & McLennan Pty Ltd, forwarding proposal forms, and eventually policy documents, to each Nelson Wheeler office and collecting completed proposal forms and other matters incidental to the insurance arrangements. Nelson Wheeler Perth was included in these arrangements which were usually undertaken towards the end of each year.

On 15th December 1987 Crawford, on behalf of Nelson Wheeler Perth, signed a proposal for professional indemnity insurance for the ensuing year. In the proposal the partners are shown as Crawford, Munachen, Martino, Pilmer, Stokes, Langford, Troy, Gray, Messer, Sudbury and others set out in an attachment which is not in evidence. Presumably they were Graus and Bonavita. It will be noticed that Lewis and Connolly who had left the partnership during the year are not included. The proposal contained familiar provisions about the need for full disclosure and accuracy of factual information.

Crawford said he could not offer any reason why Stokes and Munachen were included in this proposal. He accepted that Lewis and Connolly were not included because they had left the practice. As to Stokes and Munachen, he could not say whether their inclusion was an oversight or an error. He had no recollection of someone having made a decision to exclude Lewis and Connolly but not Stokes and Munachen. When cross-examined, he said that he did not remember signing the proposal but he accepted that he did sign it and that he would have believed the matters set out in the proposal to be correct.

This document is significant. Nelson Wheeler Perth arranged insurance cover for Stokes and Munachen during 1988 even though they now alleged that they were not members of the partnership. This matter is further evidence that Stokes and Munachen remained as partners. Whilst there is no evidence on the matter, it may be expected that the more persons covered by the policy the greater the premium.

On 11th January 1988 Pilmer sent a memorandum to all of the partners, including Stokes and Munachen, on the subject of professional indemnity insurance. He referred to a recent visit to the firm by a representative of Marsh & McLennan and set out many matters concerning practices and procedures of the firm in the context of risk management. Stokes said he did not receive this memorandum but I am unable to accept that evidence for the reasons given.

What is significant is that it was sent to both Stokes and Munachen well after it is said they ceased to be partners and soon after the new professional indemnity insurance cover had been arranged.

The Institute of Chartered Accountants kept a register of its members. The annual lists of members kept by the Institute reveal that in the 1985/1986, 1986/1987 and 1987/1988 years both Stokes and Munachen are listed as members of the Institute and of Nelson Wheeler Perth with the address of the Griffin Centre, 28 The Esplanade, Perth. In the 1988/1989 and 1989/1990 years Stokes is also listed in the same way, except that the name has been changed to Nelson Parkhill BDO. In those years Munachen is listed as of Nelson Wheeler Share Registry Service at 221 St Georges Terrace, Perth.

It may be seen that Stokes maintained to this professional body that he had remained with Nelson Wheeler Perth during the years 1987, 1988 and 1989 which is consistent with other evidence to the same effect. The records show that maintaining this connection was no mere oversight because the name of the firm was changed and someone must have reviewed the entry. These records are inconsistent with Stokes having resigned from Nelson Wheeler Perth in November 1986.

These records do not establish that Munachen had left the partnership, but they do show that someone had caused the entry for him to be changed to show his new address which was not a known address of the accountancy practice of Nelson Wheeler Perth. Why the entry in that particular form was chosen is not known and Munachen has chosen not to give evidence and provide an explanation. In those circumstances it is not appropriate to draw an inference that the change in the entry reflects his leaving the partnership as opposed to leaving the office premises. It may be that purpose of the change in the entry was to show his change of address.

The entries for Stokes and Munachen in the 1989/1990 year cannot be regarded as significant in that Stokes is not shown to have left Nelson Wheeler Perth from 1st July 1989 and Munachen is not shown to have the same address of the firm, because it is not known when such changes had to be notified to the Institute.

Stokes appears to have sought to explain those entries relating to him by saying that up until the 1987 year Nelson Wheeler Perth paid for them but in 1988 the subscription to the Institute was paid by him. He seems to have based that assertion on the fact that he claimed the subscription as a deduction in that year in his personal income taxation return. It appears that the same deduction is claimed in the 1989 year. These matters do no more than reflect an aspect of the financial relationship between Nelson Wheeler Perth and Stokes in those years. He could not be cross-examined about the matter and so the extent of this relationship could not be explored. It may be that once it was agreed that Stokes would retain his earnings from directorship and salaries, he should pay expenses of this nature.

In May 1987 Nelson Wheeler Perth prepared a directory for distribution to clients and the public giving information about the practice, the partners, the offices in Perth, West Perth and Kalgoorlie, the fields of practice of the partners and the names and directory information about the Nelson Wheeler Associates in Western Australia. Stokes is included and described as a partner at the Perth office. His fields of practice are shown as acquisition, mergers and takeovers and the mining industry. The Associates were not members of the partnership but had links with the firm for mutual professional advantage. According to Stokes, he did not see the document before preparing to give evidence. He said he did not work in the fields of practice ascribed to him at Nelson Wheeler Perth after his alleged resignation. However, it seems that the author of this directory regarded Stokes as a partner of Nelson Wheeler Perth at the time.

When the name of Nelson Wheeler Perth was changed to Nelson Parkhill BDO, the firm produced publicity in the form of an announcement in writing and a glossy brochure. In the announcement it was stated that there would be no change to the ownership or address of the Perth and Kalgoorlie practices and that they would remain totally controlled by Western Australian partners. In the brochure the information as to the services offered by the firm and the various offices around Australia and Hong Kong is provided. With respect to the Western Australian firm, there is a page devoted to the structure of the firm and the areas of responsibility of each of the partners. The area of professional management, company directorships and commercial projects is stated to be the responsibility of the partners Munachen and Stokes.

This brochure is evidence that Stokes and Munachen were still partners of Nelson Wheeler Perth at the time.

Both Stokes and Munachen were shown by various public companies to have been partners of Nelson Wheeler Perth at various times subsequent to their alleged retirements from the partnership.

In the annual directors' report of Eltin Pty Ltd for the 1988 year, Stokes is described as a partner in an accounting firm which provided share registry services to Eltin, which is clearly a reference to Nelson Wheeler Perth, although the name of the firm is not used. Stokes signed this report on 11th November 1988. The same reference is made in the directors' report for the year ending 30th June 1989 of Eltin Underground Operations Pty Ltd which was signed by Stokes on 27th September 1989.

Stokes was one of two directors of Hazra Pty Ltd during the financial years 1987, 1988 and 1989. In the directors' report for the 1987 year which was signed by Stokes on 30th September 1987, he is shown as a partner of Nelson Wheeler Perth. The same statement is contained in the directors' report for the 1988 year which was signed by Stokes on 16th November 1988 and again in the directors' report for the 1989 year but the copy of that report admitted into evidence is not signed.

In the annual report of Mawson Pacific for the 1988 financial year, Stokes is shown as Chairman and Managing Director and, inter alia, as an Associate of the Institute of Chartered Accountants. In the section of the directors' report relating to directors' interests and benefits, it is reported that fees were paid to Nelson Wheeler Perth and that Stokes was a partner of that firm. Stokes signed this report on 16th November 1988. In the 1989 annual report of Mawson Pacific, the same statements appear. Stokes signed that report on 10th November 1989.

In the 1987 report of MRSA, he is described as a former partner in the accounting firm which provided accounting and share registry services to the group. According to Stokes, he did not approve the 1987 annual report before it was sent out. It was prepared by the auditors and reviewed by the chief financial officer of the company. He did not prepare that part of the report which described him as a former partner of an accounting firm. However, a possible explanation is to be found in the minutes of the meeting of directors of MRSA on 16th October 1986. As has been seen, it is there recorded that Stokes' future role with the company was discussed and that he advised the meeting he was going to resign as a partner of Nelson Wheeler Perth and concentrate more on his directorships.

It is possible that those responsible for writing the 1987 annual report had regard to this intimation from Stokes. In the 1988 directors' report of Eltin Pty Ltd, which was signed by Stokes on 11th November 1988, he is described as a partner in an accounting firm which provided share registry services to the Eltin Group in the ordinary course of business which is obviously a reference to Nelson Wheeler Perth. The same reference is repeated in the directors' report of Eltin Underground Operations Pty Ltd for the 1989 year.

On 14th September 1987 a facsimile transmission was sent to Mr Paul Fuller enclosing a statement about Munachen to be included in some corporate publication, the purpose of which is not disclosed in the evidence. The document was sent by 28 Financial Services. In that statement Munachen is described as a partner in the "national accounting" firm of Nelson Wheeler. Attached to this document is a document entitled "Directors Profiles" which contains similar information about Munachen but as to the true nature of the document, who prepared it and in what manner it was ever used is not established. I have not used it in an evidential sense.

In the annual directors' report of Acorn Securities for the 1988 year which was signed by Munachen on 4th November 1988, he is described as a Fellow of the Institute of Chartered Accountants in Australia and a partner in the "National Accounting Firm of Nelson Wheeler". In the section relating to directors' benefits, it is reported that professional fees were paid to Nelson Wheeler "of which Mr P Munachen is a partner and 28 Financial Services Pty Ltd of which Mr P Munachen is a director". Much the same statements are made in the annual directors' report of Mount Pleasant Management Limited for the year 1988 which was signed by Munachen on 14th October 1988 and in the annual directors' report for the same year of Wattle Gully Gold Mines NL which was signed by Munachen on 18th November 1988. In the report to unit holders of Mount Pleasant Management for the six months ended 31st December 1987 which was signed by Munachen on 19th April 1988, he is described as a Fellow of the Institute of Chartered Accountants in Australia and a partner in the national accounting firm of Nelson Wheeler. He was also so described in the 1987 directors' report for that company which he signed on 19th November 1987. In that report Stokes is mentioned as a director but there is no reference to his being an accountant or a partner in Nelson Wheeler Perth. Only his position as director in various companies is mentioned.

In my view, these statements are significant. In them Munachen distinguishes between Nelson Wheeler Perth and the national body and says he is a partner of both of them which, in my view, is established by the evidence and, of course, is not contradicted by Munachen.

Three former clients of Nelson Wheeler Perth sued the firm for damages in separate actions in 1991 and 1992. Stokes and Munachen were named as defendants in each action.

Automotive Industrial and Mining Supplies Limited ("AIMS") became a client of Nelson Wheeler Perth in 1987 having been incorporated early in that year. It acquired an electrical, mining equipment, supply and salvage businesses from clients of Nelson Wheeler and by mid 1987 had commenced business in these areas. The circumstances surrounding the establishment of AIMS and the business, is discussed later in another section of these reasons. Nelson Wheeler Perth were involved in various ways.

On 17th September 1991 AIMS commenced an action against Nelson Wheeler Perth for damages for representations alleged to have been made by Nelson Wheeler Perth to it in or about September 1988 and October 1988 alleged to constitute misleading or deceptive conduct contrary to s10 of the Fair Trading Act (WA) in connection with the purchase of shares in another company and for negligence in the advice given by Nelson Wheeler Perth and in the preparation of a feasibility report dated 21st September 1988 and an independent expert's report dated 12th October 1988. This lastmentioned report was prepared by Pilmer. There were further claims alleging breach of contract and breaches of s229 of the Companies Code and breach of fiduciary duty.

Langford was sued individually and there were other defendants. The solicitors for Nelson Wheeler Perth, in the present proceedings, also acted for them and Langford in the action brought by AIMS. An amended statement of claim was filed on 29th June 1994 which was more extensive than the initial pleading. For present purposes, it is unnecessary to mention in any detail the basis of the claim against Nelson Wheeler Perth. It is sufficient to observe that action was brought against both Stokes and Munachen, the subject matter of the action was alleged to have occurred in September and October 1988 well after it is said in the present proceedings that both Stokes and Munachen had retired from the partnership and the damages claimed turned out to be substantial. It was not alleged that either Stokes or Munachen played any part personally in the matters which were the subject of the action. Liability on their part would only arise by reason of the law of partnership.

AIMS informed the Stock Exchange in Perth of these proceedings on 23rd September 1992 and the proceedings received prominent publicity in the local Kalgoorlie newspaper at this time and Martino was aware of those matters.

On 25th September 1992 an appearance was entered on behalf of Pilmer, Crawford, Gray, Messer, Munachen, Stokes and Martino as the first defendants. On 14th July 1995 the Defence of Nelson Wheeler Perth and Langford was filed. In the Defence Nelson Wheeler Perth, ie those for whom the appearance was entered, admitted that they were, at material times, a firm of auditors and chartered accountants engaged in the provision of accounting services and advice. Nowhere in their pleading is it alleged that Stokes and Munachen were not partners of Nelson Wheeler Perth at any time, including at times material to the claim by AIMS, namely in September and October 1988.

All of the first defendants were aware of the proceedings. Martino sent a memorandum to each of them, including Stokes and Munachen, on 3rd July 1995 enclosing a letter from their solicitor Mr Mills, who acts for them in the present proceedings, and advising that Langford had been asked to review the Defence. Mills' letter was not produced at the trial as it was the subject of a claim of legal professional privilege. On 16th October 1995 Martino sent to each of them a copy of the fee account of other solicitors also acting for them in the AIMS proceedings. This account was not produced at the trial and the amount of the fees is not known. Also accompanying this memorandum was a copy of a letter from the solicitors giving some details of the nature of the work undertaken by them which reveals that both Martino and Pilmer were involved with the solicitors presumably in giving instructions and to a lesser extent Gray, but none of the other members of the firm. On 1st November 1995 Martino sent a memorandum to all of the former partners of Nelson Wheeler Perth involved in the AIMS proceedings and in other proceedings, to be discussed shortly, brought by Debono Enterprises Pty Ltd. The memorandum informed them of a meeting on 7th November 1995 to finalise the Debono - Challenge Engineering litigation and the AIMS litigation.

On 10th November 1995 the solicitor acting for AIMS forwarded to the solicitors acting for Nelson Wheeler Perth a copy of a deed of settlement and release with respect to the AIMS litigation and on the same day sent the same documents to Martino. The deed provided, inter alia, that Crawford, Gray, Martino, Messer and Pilmer would pay $150,000 in settlement of the claim and that AIMS would discontinue the action. Stokes and Munachen are not included in the draft deed. The evidence does not disclose if this claim was settled on those terms. The first defendants refused to waive legal professional privilege and disclose what instructions they gave to their solicitors which may have led to the exclusion of the names of Stokes and Munachen from the Deed. There is simply no evidence about that matter. Consequently, I am unable to regard the exclusion of their names as evidence that they were not partners of Nelson Wheeler Perth at relevant times.

The next claim against Nelson Wheeler Perth is referred to as the Craig litigation. Four persons by the name of Craig and a company with which they were associated, Diamond Co Pty Ltd, brought an action for damages against Nelson Wheeler Perth claiming that Troy, when he was a partner of the firm, negligently prepared a feasibility study in January 1988 for the redevelopment of an hotel. Notice of the claim was given on 7th September 1990 by their solicitors to Nelson Wheeler Perth and a copy was sent to both Gray and Stokes. On the same day Martino advised Marsh and McLennan of the claim pursuant to the professional indemnity insurance arrangements and in doing so advised that Troy resigned as a partner on 30th June 1988.

Proceedings were instituted by the plaintiffs in the Craig litigation in the Supreme Court of Western Australia. Troy was the first defendant and the second defendants were Connolly, Messer, Gray, Lewis, Stokes, Munachen, Martino, Pilmer and Crawford. On 24th March 1995 the plaintiffs filed an amended statement of claim. For present purposes a brief description of the basis of the claim will suffice. It was alleged that Troy agreed to undertake the feasibility statement on 29th August 1985 which was before he and Gray joined Nelson Wheeler Perth. It was further alleged that Troy undertook the work both before and after joining Nelson Wheeler Perth, that a further contract of retainer was entered into between the plaintiffs and Nelson Wheeler Perth after about September 1987 and that Troy gave negligent advice on 19th January 1988 in consequence of which Troy and Nelson Wheeler Perth acted in breach of contract and duty owed to the plaintiffs in the AIMS action. There was another claim against Troy and his partner Bonavita with respect to work undertaken by Troy after he left Nelson Wheeler Perth. It may be seen that the claim against Nelson Wheeler Perth was for work undertaken from 19th January 1988, again well after it is claimed in the present proceedings that Stokes and Munachen left the partnership.

On 29th March 1994 Nelson Wheeler Perth issued an amended contribution notice against Troy and Bonavita. It was issued on behalf of Stokes and Munachen as well as the others. A statement of claim in those third party proceedings was filed on 28th April 1994. In that statement of claim it is alleged that during the period from 1st July 1986 to 17th June 1988 Troy was, at all material times, a partner of all of Connolly, Messer, Gray, Lewis, Stokes, Munachen, Martino, Pilmer and Crawford and a member of the firm Nelson Wheeler. These allegations were admitted by Troy and Bonavita in their defence.

The action proceeded to trial and judgment was entered against Troy, Nelson Wheeler Perth and Bonavita in varying amounts. The major proportion of the judgment for a very large amount was against Troy and Bonavita. The plaintiff in the Craig litigation appealed. The major thrust of the appeal was to have the Nelson Wheeler Perth defendants included in liability for the total judgment sum which exceeded $6m. Nelson Wheeler Perth lodged a cross-appeal on 12th April 1996. At no stage of the Craig litigation did Stokes and Munachen allege that they were not partners of Nelson Wheedler Perth at relevant times even though the extent of the claim and indeed the judgment sum was considerable.

The Full Court of Western Australia gave judgment in the appeal on 22nd January 1997. It is unnecessary to set out the reasons given for disposing of the appeal. It is sufficient to say that a substantial award of damages was maintained and that the members of the Court accepted that at relevant times Stokes and Munachen were partners of Nelson Wheeler Perth, well after the dates when, in these proceedings, they alleged they retired from the firm. Of course it cannot be suggested that the reasons of judgment of the Full Court of Western Australia have any status in relation to this issue in the present proceedings, but they are relevant to show that it was not contended in the Craig litigation that Stokes and Munachen had left the partnership before the middle of 1988.

It seems that the proceedings were resolved so far as Nelson Wheeler Perth is concerned on the basis that they were obliged to contribute to the damages awarded in favour of the Craig plaintiffs to the extent of $199,993. They were insured against that liability but there was an excess under the policy of $50,000. Troy claimed that he was obliged to contribute one-tenth of that excess, namely $5,000 which was disputed by Nelson Wheeler Perth on the basis that Troy was not covered by the policy. They claimed that he had to pay one tenth of the judgment sum, ie one tenth of $199,993. There was correspondence between the solicitors about the matter and the solicitors for Nelson Wheeler Perth wrote to Troy's solicitors on 20th October 1995. In this letter the following appears:

"Your client, as you will be aware, retired from our client in June 1988. Your client is liable to contribute to the judgment entered against him and our clients on the basis of his partnership agreement with our clients. There were ten relevant partners at the time the cause of action arose and therefore your client is obliged to contribute 10 percent of the judgment sum.

There was no stay of proceedings and amounts due under the judgment had to be paid. On 27th October 1995 with the insurer paying all but the $50,000 excess which was paid as to $5,000 by Troy, $15,000 by Startup Securities and $30,000 from Nelson Wheeler Perth Trust Account. The contribution of Troy represented 10 percent of the excess which means that Troy and Nelson Wheeler Perth proceeded on the basis that there were ten partners including Stokes and Munachen.

There was correspondence between Munachen and the solicitors for Nelson Wheeler Perth in January 1996 about the Craig litigation but the letter written by Munachen on 23rd January 1996 was not available at the trial and consequently the nature of the direct involvement of Munachen is not known and could not be ascertained as he did not give evidence. In the absence of any contrary evidence from Munachen, it is reasonable to infer that he contributed his share of the excess.

I return to the Debono litigation. Debono was formerly known as Challenge Engineering Pty Ltd. On about 5th June 1987 Debono retained Nelson Wheeler Perth as accountants and financial advisers and Messer and Gray were the partners who handled its affairs. Again it is unnecessary to go into detail but, in brief terms, Debono alleged that it entered into certain transactions and suffered substantial losses by reason of negligent acts and omissions of Nelson Wheeler Perth in June 1987 and incompetent conduct in October and November 1987 and February 1988. It may be seen that the causes of action were alleged to have arisen well after it is said Stokes left Nelson Wheeler Perth.

Debono made a claim for damages against Nelson Wheeler Perth and commenced legal proceedings in the Supreme Court of Western Australia on 21st January 1991. Eventually those proceedings were settled by the insurer of Nelson Wheeler Perth and orders were made by that Court on 23rd October 1995. Nelson Wheeler Perth had to pay to Debono $100,000 plus interest from that date. In these proceedings Stokes and Munachen were regarded as members of Nelson Wheeler Perth at relevant times.

There was some delay in making payment as Nelson Wheeler Perth attempted to negotiate with their insurer different arrangements with respect to the excess under the policy. Proceedings to enforce the judgment were taken in early January 1996 against Martino, Munachen, Messer, Crawford, Gray, Pilmer and Stokes personally. It was stated in an affidavit in support of the enforcement proceedings that the judgment was against a partnership and that by that time $70,000 had been paid. It appears that those acting for Debono had proceeded on the basis that the partners of Nelson Wheeler Perth were as stated in the registration of the business name. By 18th January 1996 the balance due by Nelson Wheeler Perth had been paid and all that remained was to resolve the legal costs due by them. Both Stokes and Munachen contributed $10,000 each to the amount due to discharge the judgment.

By late in the 1996 financial year, Connolly had not paid his share of the money due on the settlement of this litigation and the other contributors retained their solicitors to commence legal proceedings against Connolly to obtain the amount due by him. A litigation retainer agreement was prepared showing each of the clients, including Stokes and Munachen, as parties but the copy admitted into evidence was not signed by any of the parties. According to Gray, advice was sought from the solicitors and in consequence the document was prepared. If Stokes was not a partner at times relevant to the Debono litigation, there would not be any reason for him to become involved in litigation against Connolly.

At no stage in the Debono litigation did either Stokes or Munachen assert that they were not partners of Nelson Wheeler at relevant times and therefore were not liable. Whilst it could be argued that part of the claim arose in June 1987 when Munachen was a partner on his own case, the same could not be said of Stokes. On the case presented in these proceedings by Nelson Wheeler Perth, Stokes was never a partner at times material in the Debono litigation and it was never suggested that he played any part in the acts or omissions which were the subject of the litigation. If he was not a partner, he could not possibly be liable and it is difficult to understand why he did not defend the action by asserting that he was not a partner and why he would personally contribute to the payment of the judgment sum. The most likely explanation is that he was a partner at the relevant times and was well aware of that position. Much the same must be said of Munachen even though he could have been responsible for part of the claim.

Another matter of importance is that all of the other partners appear to have regarded Stokes and Munachen as partners.

I now turn to what has been described at the trial as the Excel litigation. On 16th August 1988 Excel Finance Corporation Limited brought an action in this Court against the persons alleged by them to be the partners of Nelson Wheeler Adelaide, alleging that it entered into a particular transaction in reliance upon advice and conduct of a member of Nelson Wheeler Adelaide in June 1987 and in consequence suffered considerable loss. Excel claimed damages against Nelson Wheeler Adelaide alleging negligence and misrepresentation including fraudulent misrepresentation. The Excel litigation is considered later in the context of the national partnership allegation.

Eventually the action was settled and Nelson Wheeler Adelaide had to pay $175,000 inclusive of costs and interest. The various Nelson Wheeler firms around Australia had agreed the proportions each of them would contribute to the excess under the professional indemnity insurance arrangement under the policy which covered them all. By the time the subject matter of the Excel litigation occurred, it was thought by these various firms that Nelson Wheeler Brisbane was no longer involved.

Martino, acting on behalf of Nelson Wheeler Perth, disputed the assertion by Nelson Wheeler Adelaide that they were obliged to contribute. Nelson Wheeler Sydney did contribute but not Nelson Wheeler Perth or Nelson Wheeler Melbourne. Nelson Wheeler Adelaide insisted and on 6th May 1991 Mr GR Ashby, a partner of Nelson Wheeler Adelaide and one of the fifth defendants, wrote to Martino informing him that Nelson Wheeler Adelaide had decided to send a letter of demand to each individual partner of Nelson Wheeler Perth and Nelson Wheeler Melbourne at the time the subject matter of the Excel litigation occurred, stated in this letter to be 6th June1987, and to institute legal proceedings against each such partner unless payment was made.

On 9th May 1991 solicitors acting for Nelson Wheeler Adelaide wrote to the ten persons whom Ashby believed were the partners of Nelson Wheeler Perth at 16th June 1987 which included Stokes. The letter to Stokes informed him of the claim being made by Nelson Wheeler Adelaide and the basis of it and that they were seeking $21,175 from the partners of Nelson Wheeler. It was stated that they understood that there were ten partners of Nelson Wheeler Perth at the time and each of them had to contribute $2,117.50. The names of the ten partners were set out in an attached schedule which was not available at the trial. Obviously Ashby regarded Stokes and Munachen as partners at the relevant times, including at that time.

Nelson Wheeler Perth did not pay the amount claimed and on 29th October 1991 Nelson Wheeler Adelaide instituted legal proceedings against them in the District Court of Adelaide. Stokes was named as a defendant and in the particulars of claim it was alleged that he and Crawford, Lewis, Munachen, Martino, Pilmer Troy, Connolly, and Langford carried on business in partnership at material times in 1987. According to Ashby he consulted the list of partners of Nelson Wheeler Australia in 1987 in a professional indemnity file which included Stokes' name.

As has been seen, Connolly left Nelson Wheeler Perth at the end of May 1987 and Lewis left at the end of February 1987. On 6th November 1991 Connolly wrote to the solicitors for Nelson Wheeler Adelaide and informed them that he was not a partner of Nelson Wheeler Perth at the relevant time. There is no evidence that Stokes did likewise.

There was correspondence and discussion between Ashby and Martino but the matter was not resolved. Martino informed Ashby that there were three claims against Nelson Wheeler Perth including the Debono litigation which would more than offset the claim in South Australia. In October 1992 Ashby swore an affidavit in the action in the District Court in which he asserted that the Nelson Wheeler Perth defendants, except Lewis, carried on in partnership. It was at this time that the claim against Nelson Wheeler Perth was eventually abandoned.

It may be seen that on no occasion did Stokes defend the claim by Nelson Wheeler Adelaide on the ground of his not being a partner of Nelson Wheeler Perth at the relevant time. At no time did Martino or any of the other partners make that assertion even though it was made by Connolly with the result that he was excluded from the proceedings. It would have been a simple matter to assert that Stokes had left the firm as from 30th November 1986 if that was in fact the case. The apparent acceptance by Stokes in the Excel litigation that he was then a partner at the relevant time is important evidence of that fact.

Stokes and Munachen did not contend that they were not partners of Nelson Wheeler Perth at relevant times in any of those four actions and none of the other members of the firm made any such assertion. These were all cases where there was actual, or at least potential, liability to contribute to the claims personally as in fact did occur with respect to the Debono litigation.

These respective legal actions continued during the course of these proceedings and at times after membership of the Nelson Wheeler Perth partnership by Stokes and Munachen became an issue. All of the first defendants must have been aware of the conflicting positions taken by Stokes and Munachen in those actions and by them in the present proceedings. Initially in the present proceedings they did not disclose those matters, it being said they were not relevant even though they are plainly relevant and significant.

The failure to disclose the four proceedings at least in the discovery process at an early stage is not satisfactorily explained. However, I do not draw any adverse inference from that matter. The facts speak for themselves and it is plain that at no time in any of those cases did the first defendants allege that Stokes and Munachen were not partners as is alleged in the present proceedings even though the two men were at risk personally. In my view, that is a matter of considerable importance.

As has been seen, this action commenced on 19th August 1992. On 23rd November 1992, the Nelson Wheeler Perth defendants made an application to this Court that the action be transferred to the Supreme Court of Western Australia pursuant to the cross-vesting legislation. The application was adjourned to 2nd February 1993 to be heard at the conclusion of the hearing of the application by the plaintiff for summary judgment. Each of the Nelson Wheeler Perth defendants swore and filed an affidavit in support of the cross-vesting application. All of them deposed that at all material times they were partners of Nelson Wheeler Perth, including Stokes and Munachen. Stokes swore his affidavit on 8th January 1993 and Munachen swore his affidavit on 7th December 1993. Munachen specifically turned his mind to when he retired from the firm because in his affidavit he also deposed that he was "no longer a partner with Nelson Wheeler having resigned from its successor Nelson Parkhill BDO as at 30th June 1992".

The evidence discloses that the solicitors for the first defendants sent a draft of the affidavits to Crawford and Gray and asked them to consider the draft and advise of any amendments and additional points thought to be desirable. The solicitors informed each of these men:

"We emphasis (sic) that the affidavit is essentially a first draft, and you should feel free to discuss any aspect of it with us."

As has been mentioned, Stokes could not be cross-examined and Munachen chose not to give evidence. It is reasonable to infer that drafts of their respective affidavits were sent to them for the same purpose and with the same information.

Both of them had been served with the statement of claim of the plaintiff well before their respective affidavits were sworn. In the statement of claim the plaintiff alleged that, at all material times, which included August, September and October 1987, Stokes and Munachen were members of Nelson Wheeler Perth. They were also aware of the nature of the claim and that it was alleged that they were liable to the plaintiff in damages merely because they were members of the partnership.

These men were qualified accountants with considerable experience. Obviously they would have been aware of the significance of liability by reason of a partnership relationship. This is a very large claim. They must have known of the considerable risk facing them, perhaps even of losing all the assets they had developed over the years. If they had left the partnership as is now asserted and, from Stokes' point of view, for the reasons he has given, it is inconceivable that they would not have checked records if they were uncertain and have correctly instructed their solicitors. Furthermore, the proceedings against them involved matters of which they had some knowledge. Stokes had a close relationship with Harold Abbott and Kia Ora and had dealings with Western United. As will be seen, the same may be said about Munachen. They were undoubtedly aware of the takeover of Western United by Kia Ora at the time and of the share market crash. These matters were sign posts in time as to important events which involved them and Nelson Wheeler Perth. If they had left the firm, these events would have called to mind that they had done so before the events occurred. After all, in the case of Stokes, the acquisition of a gold mine for $66m is not an everyday event.

In my view, these affidavits are compelling evidence that both Stokes and Munachen were partners at the times material to these proceedings and that both of them believed that to be the case.

The first defendants filed their defence on 11th March 1993 and they all admitted that they carried on business in partnership as previously mentioned. On 4th February 1994 they filed a further amended defence (document 148) and made the same admission. By that time, at the very latest, they must have known of the risk to them personally in the proceedings. The same observation about the events of 1987 and their relationship with Nelson Wheeler, Kia Ora and Western United and the stock market crash apply equally to the admissions in the Defences. It may be accepted that each of them may not have remembered without assistance the exact date upon which his retirement occurred, but it is unlikely that they would not have understood the importance of the matter and if uncertain made appropriate enquiries.

There was no satisfactory explanation of why the admission was made in these affidavits and in the Defence, the amended Defence and the further Amended Defence. Indeed there was no explanation by Munachen at all. Usually, when an admission is incorrectly made, the circumstances of how and why it was made are revealed voluntarily. Pleas of mea culpa are not uncommon, including by legal advisers. However, no such disclosure occurred in the present proceedings. Not only did Pilmer and Munachen not give any evidence at all but any attempt to explore why the legal representatives prepared the Defence and the affidavits in those terms was met with the claim of legal professional privilege. The claim was justified and those of the first defendants who gave evidence were entitled to make it. However, a consequence is that there is no evidence of the instructions given by these defendants and whether the legal representatives correctly understood them. In the end, this is not a matter which is decisive. Indeed, I have not found it necessary to bring it to account against the first defendants or in any way as the evidence has clearly established the substantive matter to my satisfaction. However, it is fair to say that the withholding of this information from the Court, although justified by legal professional privilege, hardly engenders confidence in the probity of the assertion that these men were not partners and it does raise the suspicion that the disclosure of the instructions would not have assisted them. After all, competent legal practitioners had drafted the affidavits, the Defences and the amended Defence presumably on instructions.

As has been seen, mention is made from time to time about the failure of Pilmer to give evidence. That matter is of considerable importance in this context. However, Pilmer did give some brief evidence about this matter at an examination pursuant to s541 of the Companies Code in June 1992. The following occurred:

"Q Yes, sitting here today, can you think of any other relationships between Nelson Wheeler and the partners of Nelson Wheeler, and either the offerer or the target company, and any of their affiliates, that should have been disclosed.

A Well, in using the aspect of hindsight, there could have been, yes.

A That one of our partners was involved with the acquisition of the gold mining, with the company that was negotiating to buy the gold mining interests from Kia Ora Gold.

Q And a particular director. Was he the managing director.

Q I think another partner of Nelson Wheeler was the company secretary.

Q And he was the company secretary of Mawson Pacific.

Pilmer, of course, was the partner with whom Stokes said he had discussions about his retirement from the partnership and to whom he gave the letter of 3rd November 1986. Pilmer was the managing partner at the time. He was aware of Stokes' position in relation to the firm.

This evidence was volunteered by him. There does not appear to be any uncertainty or confusion. If there was, Pilmer has chosen not to give any explanation in the evidence. Once again on a formal occasion Pilmer acknowledged that Stokes was a partner at the relevant times in 1987 and did not suggest that Munachen had ceased to be a partner.

I now mention those matters not already discussed which are said to be indicators that Stokes and Munachen had retired from the partnership.

It is the case of the first defendants that there was no intention that Stokes should be a partner after 30th November 1986 nor was he recognised as such. The wording of the minute of the meeting of the partners on 3rd December 1986 is simply wrong.

Each of the first defendants who gave evidence all said that Stokes and Munachen had left the partnership. I reject this evidence. The facts must speak for themselves. Without question there were changes in some of the arrangements so far as they affected Stokes and Munachen, but that is very different from leaving the partnership. None of the partners could have regarded Stokes or Munachen as having retired given the matters previously mentioned which strongly indicate the contrary and of which they were aware. I was asked to consider that each of the first defendants who gave evidence was a professional man of some standing who had given evidence on oath. That oath should not be readily cast aside and the fact of their giving evidence is a matter of considerable importance. No court would easily cast the oath of any witness aside and I have not done so. I have given earnest consideration to the evidence of each of them but it is unconvincing. In my view, the most favourable view which may be taken of each of these witnesses is that he has rationalised the effect of certain matters, such as setting up office elsewhere, not drawing a salary and only rarely attending partnership meetings, so as to conclude that Stokes and Munachen had left the partnership and having committed themselves to that position they were not prepared to face up to the force of the documentary evidence. I do not regard their evidence on this matter as of much assistance.

Stokes moved out of the Griffin Centre and established an office at his home. He said that he made the decision to do so in September or October 1987. MRSA Eltin installed a facsimile machine and Stokes acquired and installed necessary furniture and fittings. According to him, Nelson Wheeler Perth did not contribute to the costs and expenses of establishing the home office. This evidence is supported by documentary evidence.

I do not think this event assists in determining whether Stokes resigned from the partnership. The evidence discloses that he spent little of his time at the Nelson Wheeler Perth office in 1985 and 1986. According to him, no less than sixty per cent of his time during 1986 was occupied with the business of MRSA. In addition, he was spending more and more time on the affairs of Mawson Pacific and his other interests. The impression to be gained from his evidence is that during those years prior to his letter of resignation, he was doing very little work at Nelson Wheeler Perth and certainly little traditional accountancy work within the practice. He had set up the office at home which he used before writing the letter. His subsequent use of the office at home was, in a sense, nothing new and is consistent with his remaining in the firm and working away from the offices of Nelson Wheeler Perth which he had been doing for some time.

According to Martino, during 1987 an office in the Griffin Centre was not allocated to Stokes, he did not use one, he did not do any work at the Griffin Centre and staff were not allocated to him. This evidence standing alone is consistent with his having left the firm but also with a mere change of working arrangements.

Ceasing to Take Salary and Contribute Director's Fees

Most of the Nelson Wheeler Perth defendants who gave evidence said that a salary was not fixed for Stokes because he withdrew from the practice. That is true in a limited sense. Stokes withheld his director's fees from the partnership and agreed not to take fixed monthly drawings which have been described as salary like the other capital partners. It is unnecessary to repeat the conclusions which I have reached about this matter. It suited Stokes to alter the financial arrangements in this way and yet remain a member of the firm.

Paying Motor Vehicle Expenses and Membership Subscriptions

Mention has been made of Stokes paying his own membership fees to the Institute of Chartered Accountants in the 1988 financial year.

According to Stokes, during 1986 he had the use of a motor vehicle. Nelson Wheeler Perth paid the lease commitments but some other expenses were paid by Southern Goldfields. He said that when he had discussions with Pilmer about his retirement in November 1986, it was agreed that he would retain the vehicle and Nelson Wheeler Perth would continue to make the lease payments but would debit his capital account. He said that they were debited to his capital account and were not claimed by Nelson Wheeler as a business expense following 1st December 1986. He sold the vehicle in about October 1987 and had to pay a shortfall of $7,000.

Of course Stokes' evidence about these matters could not be tested and Pilmer chose not to give evidence. For these reasons Stokes' evidence cannot be accepted unless supported by other evidence. There is other evidence but it does not support the impression Stokes was trying to convey. During 1987 the capital accounts of all partners were adjusted to reflect the private proportion of motor vehicle expenses for each partner. However, it occurred by adjusting the share of profits of each partner for that reason. The end result, excess or deficit after drawings, was credited or debited to the loan account as the case may be. Although the amounts vary from partner to partner, probably because of the different expenses involved, all partners were treated the same. This evidence again shows that Stokes had motor vehicle expenses paid by the partnership which could only be justified if he was a partner. It was not until the 1988 financial year that these expenses were not paid by Nelson Wheeler Perth and no adjustment had to be made. It is not accurate to say that the lease payments were merely debited to his capital account.

If Stokes' assertion about the membership fees and his income taxation return accurately reflect the true position, this matter indicates no more than an aspect of the change in financial arrangements. Perhaps it is not surprising that there should be such a change in the 1988 year if Stokes was not undertaking accountancy work, or other personal work, within the practice and was retaining his directors' fees.

It is contended that Stokes did not attend meetings of partners and was not invited to attend which is indicative of his having left the partnership. The minutes record Stokes as an apology.

I accept that Stokes did not attend meetings after 3rd December 1986 until late in 1988 when he attended a meeting and supported the appointment of Martino as the managing partner. As has been mentioned, if he, and Munachen for that matter, had retired, it may be expected to find some mention of those matters in the minutes. The failure to attend meetings must be considered in context. Crawford said that after the alleged resignation of Stokes, nothing much changed as far as Stokes was concerned. He had not been around the practice very much in the physical sense. Crawford went on to say:

"He didn't attend a lot of meetings, he didn't - in the sense of what we, as partners, would have expected, the change is that he wouldn't have been expected, or wouldn't have been invited to come to meetings, to participate in the goings on in the practice, and in any decision - making process of the practice, but its not a particular change as such."

Later on in his evidence he was asked to respond to this matter. Crawford had been in partnership with Pilmer since the 1970's. The others had joined at various times. Stokes was regarded as important to the partnership. There had never been a retirement until, it is alleged, Stokes retired and yet it did not seem to be regarded as a significant event. Crawford said:

"A. But, relative to Geoff, I was, he was - it's an unusual situation, because he was there, but not there. He didn't play - from my position, didn't play a major role in any day-to-day activity of the practice, or get involved, or I didn't get involved with him in any shape or form, other than we crossed paths at meetings and occasional drinks and other practice social activities. To me, Geoff was off doing his own thing. We had accepted, when we originally joined Stokes Munachen, that Geoff was in a different capacity and not, in the traditional sense, operating as a chartered accountant. That being the case, he didn't form an integral part of the day to day activity and, in that sense, I think, you know, him going was - well, him saying he was leaving really didn't have an impact.

Q. I think you've told me, haven't you, that from the physical point of view it wasn't any different.

This is important evidence which I accept. This description by Crawford expresses in an accurate way the almost non-existent role played by Stokes in the operation of the partnership before his alleged resignation and that nothing changed, in that sense, thereafter. For this reason, Stokes' lack of involvement in the affairs of the partnership and his non-attendance at partners' meetings after the so-called resignation are not indicators that he was no longer a partner.

Stokes said that from 1984 to 1986 he did not attend meetings of partners often. After the merger of Stokes, Munachen & Co and AC Pilmer & Co, Stokes said that he attended some meetings but he did not remember any and that during those years he attended "very few" meetings. According to Messer, he did not recall consulting with Stokes to see if he was available for meetings and did not send agendas for meetings to him and Stokes did not contact him to make his apology but there was no formal process in that regard.

The failure to attend meetings of partners may suggest that a partner has left a partnership depending upon the circumstances. Here, it seems that Stokes was not accustomed to attending meetings even before his alleged retirement. He was frequently away pursuing his directorships and other interests. In these circumstances his absence from meetings is not of such significance. According to him, he was very busy with those interests after the so-called retirement.

Messer's evidence that he could not recall consulting with Stokes to see if he was available for meetings is curious. If Stokes had retired, there would be no reason to do so. If he had not retired and was absent due to increasing business commitments, there would be no reason to consult with him if it was known that he did not propose to attend. The failure to send agendas to Stokes, if that is what occurred, is probably not surprising if he had little interest in such meetings and was frequently away.

Not Being Consulted on Important Partnership Decisions

It is submitted that there were a number of important matters about which Stokes and Munachen were not consulted and that lack of consultation can only be explained by their not being partners at the time.

The first is the matters raised in the memorandum of Messer to Pilmer, Martino, Crawford and Gray of 28th October 1988 which has already been mentioned. As I have said, I regard that matter as evidence to the contrary.

Then there is the exhortation by Messer to those working within Nelson Wheeler Perth by memorandum of 8th December 1988 about billing work in progress. Stokes and Munachen did not receive this memorandum. There is no reason why it should have been sent to them. They were not undertaking accountancy work within the practice and the billing of work in progress was not a matter for either of them.

On 29th June 1988 partners of Nelson Wheeler Perth executed a memorandum of agreement for the purchase of the accountancy practice of Peat Marwick Hungerfords at Kalgoorlie for the sum of $11,940 for plant and equipment and a sum to be calculated in accordance with the agreement for goodwill payable over three years.

The partners of Nelson Wheeler Perth were shown to be Pilmer, Martino, Messer, Crawford and Gray. Stokes and Munachen were not included. According to Messer, there was no discussion with Stokes and Munachen about this acquisition and no-one suggested that they should be parties to the memorandum of agreement. This matter is, prima facie, an indicator that Stokes and Munachen were no longer partners at the end of the financial year 1988. However, there are two possible explanations to the contrary. Clearly there was some uncertainty in the first half of 1988 about the roles to be played by Stokes and Munachen in the firm in the future. It will be remembered that at the meeting of the partners on 18th December 1987, it was reported that both Stokes and Munachen should retire as soon as possible and that Langford reported that they were both ready to retire. At the meeting on 19th January 1988, Pilmer said that he had yet to meet with Stokes and Munachen to discuss their retirement. There is a further reference to the matter in the minutes of the meeting on 21st April 1988. At the meeting on 19th May Pilmer said that Stokes wanted to remain as a partner and that their was every likelihood that Munachen would resign. Also, it will be remembered that Messer wrote to Walters at the Bank on 20th June 1988 and referred to an earlier conversation when he and Pilmer had indicated that Stokes and Munachen would be retiring from the partnership as at 30th June 1988. This evidence suggests that there was an expectation that Stokes and Munachen were about to retire when the instructions for the memorandum of agreement were given and matters proceeded on that basis. At some stage it was decided that they would not retire but the transaction went ahead regardless.

The other possible explanation is that it was not thought necessary to include Stokes and Munachen in the memorandum of agreement. They were not playing a role in the day to day affairs of the practice and their equity position was unlikely to be affected because, as Messer wrote in his letter to Walters on 20th June 1988, no new partners were to be admitted as a result of the acquisition of this practice. I do not regard the absence of Stokes and Munachen from the memorandum of agreement as a strong indicator that they had left the practice.

According to Stokes, he was not consulted about the arrangements for the sale of the Ventnor Avenue property, including the price although he did know a few months earlier that it was going to be sold. This evidence could not be tested and consequently cannot be accepted. It would be surprising if it is correct or reveals the full story. The Ventnor Avenue property was sold at an enormous profit. Stokes' family trust had an equal interest. Along with the others, he was committed to the Bank. This sale was a matter of great importance to all of those involved. It is incomprehensible that Stokes would have known little about it until, as he says, he heard about it through his secretary after a cheque had been sent to him and she had banked it.

The evidence of all of the members of Nelson Wheeler Perth who gave evidence was that Stokes and Munachen played no part in the operation of the partnership after their respective dates of retirement. According to Crawford, Stokes was not consulted about any of the activities of the practice. According to Messer, he was not consulted about any negotiations with the Bank.

Once again these matters have to be put into perspective. Stokes had never been involved in the day to day operation of the practice which had been left to others. In this regard, there does not seem to be any difference between the period before the alleged resignation and the period after. There is no evidence that Munachen was ever involved in those types of partnership activities.

According to Stokes, he was about when Lewis proposed to resign because Lewis discussed the matter with him but he had nothing to do with any discussion or decision about his retirement or any payment to him. Also he said that he was not involved in any manner with the resignations of Connolly and it seems not with Troy.

Given the lack of involvement of Stokes and Munachen in the day to day affairs of the practice, I do not regard their lack of involvement in the determination of the amounts to be paid to Lewis, Connolly or Troy as of any significance.

As has been seen, Stokes and Munachen, through Palmvale, took a 50 percent interest in the ownership of the share registry after the change in arrangements in 1987. It is said that in doing so, they took the interest in part satisfaction of their equity in the partnership and that there was a clear removal from the partnership of an income producing asset. It is submitted by the first defendants that these matters are consistent with Stokes and Munachen having left the partnership.

As has been mentioned before on occasions, Pilmer, the managing partner at the time, and Munachen, did not give evidence. Stokes could not be cross-examined. It is by no means certain that the full story about the share registry has emerged.

The arrangements relating to the share registry and the establishment of a corporate and trust structure for the ownership of the share registry have been mentioned. If these arrangements are considered in the context of other corporate and trust structures established by Nelson Wheeler for the service trust and the Ventnor Avenue premises, it may be seen that the share registry arrangements, although different in terms of share of ownership, was much along the same lines.

Clearly Munachen was unwilling to continue to conduct the share registry for the benefit of all of the partners in equal shares. He and Stokes had established and developed it. They wanted a greater share of the profits but Nelson Wheeler Perth retained a 50 percent interest. Stokes and Munachen retained their shares in that half interest by reason of being part of Nelson Wheeler Perth.

There were discussions about the value of the 50 percent interest taken by Stokes and Munachen but it is not clear if that matter was ever resolved. Rather than pay cash for that interest, the proposal was that once the amount was calculated, the capital accounts of Stokes and Munachen would be reduced accordingly.

As has been seen, Stokes' capital account was never reduced for this reason and his interest in the share registry, along with that of Munachen, in effect, reverted to the partnership in 1989 when Stokes resigned and Munachen resumed his previous working arrangements with the partnership.

I do not regard the changes in arrangements about the share registry in 1987 as indicating anything about whether Stokes and Munachen remained members of the firm. However, as has been seen, they were equal participants along with the other partners in the 50 percent share held by Nelson Wheeler Perth which is consistent with their remaining as partners.

According to Messer and Crawford, Stokes and Munachen were not consulted about the acquisition of the practice of Robinson Dawes of Kalgoorlie on 1st July 1988. Stokes said he became aware of it after it had occurred and then spoke negatively about it to Nelson Wheeler Perth. However, according to Stokes, Martino told him that he also did not know of the acquisition until after it had taken place and he did not know of the acquisition of the Kalgoorlie practice of Peat Marwick Mitchell until it had been agreed. The acquisition had been undertaken by Pilmer on behalf of Nelson Wheeler Perth.

It is likely that these matters reflect more about Pilmer and his style of running the practice than they do about whether Stokes or Munachen were partners at the time.

It may be accepted that Stokes and Munachen did not undertake accountancy work to earn fees for Nelson Wheeler Perth after the times when it is said they left the partnership. The paper prepared by Pilmer in the latter half of 1988 already mentioned and a memorandum from Messer to Pilmer, Martino, Crawford, Gray, Langford and Robinson on 8th December 1988 confirm this conclusion. In that memorandum Messer referred to the budget for billing of each partner and the memorandum is addressed to "All Partners". In the absence of Munachen from the witness box, it is not known if he received a copy.

For the reasons earlier expressed, the lack of involvement of Stokes, and Munachen for that matter, in the day to day work of the practice is not an indicator of their having retired from the partnership given that the position was much the same before they allegedly retired. As Pilmer wrote in this paper, this partnership was unique, and that uniqueness was the role played by Stokes and Munachen.

Taking Clients Away from Nelson Wheeler Perth and Retaining Fees

It has been established that when Munachen left the Griffin Centre, he took the work undertaken for Acorn Securities, Mount Pleasant Management, Karonie Gold and Wattle Gully Gold mines. In the main, this work was corporate administration services and it had been predominantly undertaken by Munachen or under his direction before he moved. It was not traditional accountancy work and, along with the share registry, it amounted to a considerable portion of Munachen's work.

Munachen had considerable involvement in each of these companies outside the role of a traditional accountant. He was a director and, in effect the manager, of each company and was heavily involved in the activities and development of each of them. According to Martino, it was almost a full-time involvement. In taking these companies with him, he was merely taking most of his work. The fees charged for the administration work were paid to Nelson Wheeler Perth and Munachen received drawings by way of salary prior to the change of arrangements. The work of other companies previously undertaken by Munachen remained with Nelson Wheeler.

After Munachen left the Griffin Centre, he managed the companies through the medium of his company 28 Financial Services which retained the fees paid by them. The fees earned from the companies taken over by Nelson Wheeler Perth were retained by the partnership. Prior to his leaving, all of those fees were received by the partnership.

Stokes, it seems, took no such work with him when he left the Griffin Centre and had not contributed to the fee income of the practice for some time before that time.

Standing alone, the absence of fee sharing may be an indicator of there being no partnership arrangement. However, I do not think the fact that the fees from these sources were not shared is capable of establishing that neither Stokes nor Munachen had retired from the partnership. These were not the fees or profits of the partnership but of a separate entity owned and controlled by Munachen. The situation was unusual but was part of the arrangements made by the partners because of the non-traditional role played by Stokes and Munachen which had existed for some years. Of course, this fact does not stand alone and like some other matters it cannot prevail over the total effect of all of the acceptable evidence. What is of greater significance is that both men shared in profits or losses of Nelson Wheeler after they allegedly retired as has been seen.

It is submitted by the first defendants that an effect of the change in the arrangements with regard to the share registry was to deprive the partnership of income and the benefit of the share registry becoming more profitable. No consideration was paid to the partners by Stokes and Munachen and the share registry was the type of asset the partners would be likely to want to keep for the benefit of all of them. These matters, it is said, necessarily lead to the conclusions that Stokes and Munachen had left the partnership.

As has already been mentioned, this change of arrangement must be considered in context. The share registry had developed mainly through Stokes and Munachen. The other partners benefited even though they contributed little. The change in arrangements was to accommodate mainly what Munachen thought was fair. There had been tensions about overtime for share registry staff. It was not the traditional work of accountants. The change in arrangements did not take income from the partners, it merely altered the manner in which that income was shared. It was proposed that consideration be paid by Stokes and Munachen by adjustment to their capital accounts which was never undertaken over the two years following 1st July 1987. The other partners could not run the share registry without Munachen and his staff and the future profitability depended in large measure upon the referral of companies by Stokes and Munachen.

As late as 10th October 1988, Messer made some calculations as to the book value of assets, including goodwill of the share registry which he discussed with Crawford but the matter was not resolved. I do not regard this matter as an indicator that Munachen, or Stokes for that matter, had left the partnership. Partners may share income and create structures between themselves as they agree and the arrangements about the share registry are no exception.

After Munachen left the Griffin Centre with the share registry and it operated under the new corporate and trust arrangements, it made little by way of net profit.

It is not clear what happened after the change of arrangements as far as profit from the share registry is concerned. The 1988 and 1989 financial statements of the St George's Unit Trust which owned the share registry show that losses were made but those statements do not reveal the items of expenditure. The share registry was still in a developing stage in 1987. The extent of its development thereafter is not revealed by the documents admitted into evidence.

I am unable to say, on the evidence, what, if any, profits were earned by the share registry and paid to whom in the 1988 and 1989 financial years or if there were losses or a diminution of profits associated by any fee or benefit taken by Munachen or Stokes directly or indirectly.

Consequently the question of the profitability of the share registry under the new arrangements does not assist in determining the issue of whether Stokes and Munachen had left the partnership.

It is submitted by the first defendants that the move by Munachen from the Griffin Centre with the share registry at his own expense, his physical disassociation from the offices of Nelson Wheeler Perth is indicative of his having retired from the partnership. I accept that without more this matter could be indicative of cessation of the partnership arrangements. However, once again matters must be put into perspective.

Before the move, Munachen operated as a partner within the Griffin Centre in almost a self contained unit. He looked after the companies which have been mentioned and the share registry with staff utilised for these purposes. When he left that unit moved with him except for one or two members of staff.

Also, it must not be overlooked that this move occurred at about the time of the sale of the Ventnor Avenue property and when the Perth and West Perth offices were merged. There was a shortage of space at the Griffin Centre and if it was necessary for any section to move to make way for the West Perth partners and staff, the unit operated by Munachen would be the most suitable.

However, the fact that Munachen met the costs himself, if he did, and if they were not recouped in any way, is a matter which tends to establish that this venture by him was not part of the partnership business.

After the new corporate and trust structure was established, the share registry staff were employed by Borman and no longer by the Nelson Wheeler Unit Trust. Other staff who went with Munachen and did not work in the share registry were employed by 28 Financial Services and not the Nelson Wheeler Unit Trust. Also, Borman and 28 Financial Services assumed the existing liabilities of these staff.

The employment of staff by these companies was no different in principle than the previous arrangements when they were employed by the Nelson Wheeler Unit Trust except that the partners of Nelson Wheeler Perth, through their family trusts, had less of an interest in Borman than they had in the Nelson Wheeler Unit Trust and none in 28 Financial Services. These arrangements are not inconsistent with Munachen remaining a partner. He had established his own corporate administration business through 28 Financial Services which was separate and distinct from Nelson Wheeler Perth. The operation of a separate business by a partner is not usually inconsistent with that partner being a member of a firm.

In the circumstances I do not think that those matters do establish that Munachen had left Nelson Wheeler Perth and they are consistent with the unique situation within the partnership after the change in arrangements at the initiative of Stokes and Munachen.

After Munachen left the Griffin Centre, he paid, or caused to be paid, his motor vehicle expenses and his subscription to the Institute of Chartered Accountants. These expenses were not paid by Nelson Wheeler Perth.

This matter reflects no more than a feature of the change in the financial arrangements upon his leaving. It is consistent with his having retired from the partnership but is also consistent with his remaining within the partnership under the changed arrangements. If he was not producing direct fee income for the partnership, it may be expected that he would meet expenses of this nature.

Mr John Morris was a close friend and business associate of Stokes over many years. Material aspects of that relationship are discussed later. He gave evidence of a conversation which he said he had with Stokes in late 1986 at the boardroom of the Forsayth Group of companies of which Morris was a director and principal executive. According to him, Stokes came to see him with a bottle of champagne and said that he was free and was happy to be in a position to pursue his interests. Clearly Morris claims to have interpreted this statement by Stokes as an indication that he had resigned from Nelson Wheeler Perth.

As will be seen, I have reservations about the credibility and reliability of Morris and his evidence but for present purposes I am willing to assume that this incident occurred as related by Morris.

Of course even if taken at face value, it says very little about Stokes' relationship with Nelson Wheeler Perth. It is consistent with his having retired from the partnership. It is equally consistent with his remaining in the partnership under altered arrangements which, in turn, is consistent with the many documents previously mentioned. It could have occurred after Stokes wrote his letter of 3rd November 1986 and before a change of mind by him which is reflected in the minutes of the meeting of partners on 3rd December 1986. This evidence is of no assistance in resolving the issue of whether Stokes retired from the partnership.

Morris also gave evidence in support of the case that Munachen had left the partnership. He had also known Munachen for some years. According to Morris, Munachen told him on occasions that he was planning to leave the practice and retain an interest in the share registry. He noticed that Munachen moved from the Griffin Centre to the Forrest Centre where Morris also had an office. He saw Munachen's premises. There was no sign indicating that it was part of Nelson Wheeler, but he said he had not seen any such sign at the Griffin Centre. Munachen told him he was out of the partnership but the partners of Nelson Wheeler Perth retained a percentage interest in the share registry.

This evidence is of limited value. It is also inconsistent with the documents already mentioned. If it is true, there is no way of testing what Munachen meant when he said he was "out of the partnership" due to his failure to give evidence. It could mean no more than the physical moving of offices and the change of financial circumstances. At all events, this statement by Munachen, if made, is of little probative value in the absence of Munachen. It is unnecessary to decide if there is any basis for admissibility of this evidence.

As will be seen, Stokes and Morris were directors of Ramsgate Resources Limited. Stokes was chairman at relevant times. In the 1985 annual report, he is described as a chartered accountant and a partner in Nelson Wheeler Perth. In the 1986 report he is described as a chartered accountant and no reference is made to Nelson Wheeler Perth. Stokes signed that report on 3rd February 1987. According to Stokes, he did not play any role in that change. In the 1987 report, he is again described as a chartered accountant and no reference is made to Nelson Wheeler Perth. The same entry appears in the 1988 annual report.

Mrs JP Smith was the secretary of Ramsgate Resources at the time and of other companies with which Morris was associated, including the Forsayth Group. She was on friendly terms with Munachen who acted as the accountant for Smith and her husband. She also knew Stokes.

Smith prepared the annual reports of Ramsgate and said that she took steps to ensure the accuracy of them. In so far as the description of directors is concerned, it was customary for her to send the proposed description to the particular director for checking. She said she followed that procedure with respect to Stokes. However, she could not say whether the change in the description of Stokes between the 1985 and 1986 reports was made by her or by Stokes. She described an occasion when Stokes told her that he was no longer with Nelson Wheeler Perth. It occurred between February 1986 and February 1987 but she could not be more specific. She had known Stokes for about 12 years. According to her, the conversation was as follows:

"Smith Hello Geoff. How are you? Are you still with Nelson Wheeler?

She said she was surprised and there was no other conversation that she could recall. Smith later explained that nothing prompted her question of Stokes as she usually spoke to people she had not seen for a time in that way.

It is a curious piece of evidence and without her explanation for asking the question would have been difficult to accept. Nonetheless, given the importance of the topic, it remains curious that Smith would address Stokes in this way. It gives the appearance of evidence designed to assist Stokes. I have doubts about it but it may be correct and may afford an explanation for the differences in the descriptions of Stokes in the annual reports. It will be noticed that Stokes is not referred to as a former partner of Nelson Wheeler Perth as is the case in the 1987 annual report of the MRSA Ltd previously mentioned.

However, even if the evidence is true, it is entirely consistent with Stokes having moved offices from Nelson Wheeler to his home and with the change in arrangements as mentioned. It is also consistent with his having retired from the partnership and it must be assessed along with all of the other evidence.

The partners of Nelson Wheeler Perth had a planning meeting in late March 1988. In a memorandum written by Pilmer on 19th April 1988, he mentions one of the matters raised at the meeting, namely that staff of the firm were not aware of "the total composition of the firm and its services, or the responsibilities of various managers and partners". He enclosed a brochure and schedules which he had prepared setting out relevant information to help the staff to explain more fully the ideals of the firm and the extent of the involvement of managers and partners.

The memorandum sets out the objectives and short term goals of the firm and the structure of the practice. This structure showed an executive committee comprised of Pilmer, Troy and Martino and four sections of the practice embracing areas of responsibility entitled "profit", "productivity", "promotion" and "people". A schedule showed the various components of each section and the partners and staff who were responsible for them. Stokes and Munachen, along with Pilmer and Martino, are shown as having responsibility for the share registry which is part of the profit. They were the directors of Borman. Neither Stokes nor Munachen are mentioned in any other section.

Given the arrangements within Nelson Wheeler as have been discussed, I do not think these documents establish that either Stokes or Munachen were not partners of Nelson Wheeler Perth at the time. This was information being supplied to the staff. Stokes and Munachen did not work in the offices of the firm and did not undertake traditional accountancy work. It is to be expected that they would not be shown to be involved in other areas of responsibility.

However, it is significant that they were mentioned in the documents at all. The documents do list the partners by name but not by that description and Stokes and Munachen are mentioned as part of the structure of the firm and in the same way as the others.

It is not a matter of great significance but these documents do suggest that the partners regarded Stokes and Munachen as part of the firm.

On 15th May 1990, Crawford and Gray wrote to Martino regarding the settlement of their interest in Nelson Wheeler Perth and its entities. By this time they had left the firm. In this letter, they refer to Munachen having re-joined the practice and that before he had done so there were seven partners. It is not clear from this letter to whom Crawford and Gray were referring as the seven partners. It is suggested that they were excluding Munachen. Obviously among the seven were Pilmer, Crawford, Gray, Martino and Messer, but they are not mentioned by name. Crawford said that Stokes was not included among the seven partners. Gray said he drafted the letter. In using the expression "rejoining the practice", he was referring to Munachen again sharing in profits. The seven partners were Pilmer, Martino, Langford, Gray, Crawford, Messer and Robinson. Stokes and Munachen were not included.

This letter contains detailed calculations to determine the amount due to Crawford and Gray. The letter reflects the state of mind of those men at the time it was written. Their explanation of that state of mind is given now. I do not think the letter is inconsistent with the change of financial arrangements which occurred when Munachen rejoined the practice in the working sense. The reference to the seven partners suggests that when the letter was written, they did not include Stokes and Munachen as partners as at 30th June 1989. Of course, it was known by then that Stokes had left as from that date. The financial matters in the letter were fees, debtors, work in progress and the like. It may be that when they wrote the letter they had some reason to exclude Munachen from those types of calculations because he had not been contributing fees. The letter is important evidence and I mention these matters to put it in context. Despite its importance and the explanations of Crawford and Gray, I do not think it can prevail against the compelling evidence that Stokes and Munachen were partners until 30th June 1989.

It is the case of the first defendants that despite the many indicators which point to Stokes and Munachen having remained as partners, the fundamental elements of partnership were not present in respect of Stokes after 30th November 1986 and Munachen after 30th June 1987. There was no agreement that they were partners after those times. The remaining partners had no authority to act as agents on behalf of either of them or to bind them in the conduct by the partners of the Nelson Wheeler business and there was no expectation that either of them would be entitled to a share of the profits of the business of the partnership. Even if the members of Nelson Wheeler Perth did describe Stokes and Munachen as partners or perhaps even regard them as partners, it is the true nature of the arrangement which must be assessed to determine whether it has the essential components of a partnership. If upon such an assessment those components are not present, it was not a partnership regardless of how those within the firm regarded their relationship.

For present purposes, it is necessary to only consider well established basic principles which are uncontentious. These principles must be examined a little more closely when considering the issue of whether there was a national partnership involving the first defendants and the fifth defendants.

The starting point for this submission is to be found in the Partnership Act (WA). Section 7 provides:

"(1) Partnership is the relation which subsists between persons carrying on business in common with a view to profit.

(2) In deciding whether a partnership does or does not exist in a particular case, the court shall have regard to the true contract and intention of the partners as appearing from the whole facts of the case."

Section 7(2) effectively adopts the dictum of Sir Montague Smith in Mollwo, March & Co v The Court of Wards [1872] EngR 30; (1872) LR 4 PC 419 at p435:

"It appears to be now established that although a right to participate in the profits of trade is a strong test of partnership, and that there may be cases where, from such perception alone, it may, as a presumption, not of law but of fact, be inferred; yet whether that relation does or does not exist must depend on the real intention and contract of the parties."

In Pooley v Driver [1876] 5 ChD 458, Jessell MR had to consider whether particular circumstances contributed to a partnership. He stated the principles of partnership as, at p472:

"But it is a contract of some kind undoubtedly - a contract, like all contracts, involving the mutual consent of the parties: and it is undoubtedly a contract for the purpose of carrying on a commercial business - that is, a business bringing profit, and dividing the profit in some shape or other between the partners. That certainly partnership is. Whether it is anything more or not has been a question between various authorities, but it is that certainly."

A principle of partnership liability is the relationship of agency. In his judgment in Cox & Anor v Hickman [1860] EngR 1068; (1860) 8 HLC 268 Lord Wensleydale stated the principle to be, at p312:

"So if two or more agree that they should carry on a trade, and share the profits of it, each is a principal, and each is an agent for the other, and each is bound by the other's contract in carrying on the trade, as much as a single principal would be by the act of an agent, who was to give the whole of the profits to his employer. Hence it becomes a test of the liability of one for the contract of another, that he is to receive the whole or a part of the profits arising from that contract by virtue of the agreement made at the time of the employment. I believe this is the true principle of partnership liability."

See also Re English & Irish Church and University Assurance Society (No 2) [1863] EngR 561; [1876] 1 H&M 85 per Wood VC at p106 and Pooley v Driver per Jessell MR at p481.

A partnership has three elements with certain consequences:

The elements must exist by reason of an agreement between the parties and their true intention. A consequence of a partnership relationship is an agency relationship in the conduct of the business of the partnership.

It is the case of the first defendants that the plaintiff must establish that at relevant times, principally in August and September 1987, there was an agreement in place between each of Stokes, Munachen and all of the members of Nelson Wheeler Perth that they act as agents for one another to conduct the business of Nelson Wheeler Perth with the intention of sharing in the profits. It is argued that the evidence falls far short of establishing these matters.

The question of burden of proof may be put aside for the moment. It is in issue because this is an application to withdraw an admission.

This is not a case of merely deciding whether a commercial relationship constitutes a partnership. Clearly, the business of Nelson Wheeler Perth was carried on at relevant times in a partnership arrangement. All of the essential components were present. There was an agreement between the proprietors of the firm, albeit not in writing, but an agreement none the less to carry on the business of practising chartered accountants and to participate in the profits of the business and in circumstances of an agency relationship. Stokes and Munachen were both clearly partners. The issue is whether they left the partnership.

As I have said the evidence establishes that they remained in the partnership and in so far as intention of the partners is critical, they did so with the full knowledge and intention of all concerned. As has been seen, they shared in the profits of the partnership business in a limited but significant way and the evidence does not disclose any intention that they would not do so. Clearly all of the members of Nelson Wheeler Perth regarded Stokes and Munachen as being responsible for the debts and obligations of the partnership and in fact they contributed to those liabilities. There is no evidence to suggest otherwise. On a day to day basis Stokes and Munachen contributed to these debts and obligations because the expenses of the firm were met from the income of the practice and attributed to them when profit or loss was determined after taking into account those expenses. Stokes and Munachen contributed to certain major obligations in a direct manner. Contributing to the debt due to the Bank when the Ventnor Avenue property was sold and contributing to the amount due on settlement of litigation against the firm are examples.

It is submitted by the Nelson Wheeler Perth defendants that there was no intention that Stokes or Munachen should participate in actual profits following their departure from the practice but I think the evidence establishes the contrary for the reasons given. All of the evidence leads to the conclusion that if there had been a surplus of profit after the monthly drawings, Stokes and Munachen would have shared in that profit as occurred on occasions.

It is also submitted that far from acting as an agent of the partners, Munachen effectively became a competitor of the partners by personally undertaking work which was previously that of the partnership. This submission fails to acknowledge the unusual circumstances of Munachen. As has been mentioned in various contexts, his major work was servicing the four companies which he took with him when he left. He was not a competitor. He merely continued to do what he had done before. If he had not done that work, there is no reason to suggest that it would have been undertaken by Nelson Wheeler. If he had not been involved with the companies after he left, the work would have been undertaken by, or at the direction of, whoever controlled them. It is incorrect to say Munachen competed with Nelson Wheeler with respect to that or any other work.

Next it is contended by the Nelson Wheeler defendants that the plaintiff's case is largely advanced on the basis that Stokes and Munachen were sleeping partners in that they were content to leave their equity in the partnership whilst not participating in the profits or management. It is submitted that no such category of partnership exists in law. Reliance is placed upon the observation of Lord Cranworth in Cox v Hickman at p309. He said:

"I can find no case in which a person has been made liable as a dormant or sleeping partner where the trade might not fairly be said to have been carried on for him, together with those ostensibly conducting it, and when, therefore, he would stand in a position of principal towards the ostensible members of the firm as his agents."

In my view, that is not the case of the plaintiffs. It is not suggested that Stokes and Munachen were sleeping or dormant partners. As has been discussed, the position was unique but they supported the partnership. They took an active part in its affairs albeit occasionally. They were providers of work. They wanted to be partners and remained as such with the change in circumstances that they did not draw profits monthly.

However, the principle for which the first defendants contend is too narrowly stated. Depending upon the circumstances, the law does recognise sleeping or dormant partners as is acknowledged by Jessell MR in Pooley v Driver at p473:

"You can have, undoubtedly, according to English law, a dormant partner who puts nothing in - neither capital, nor skill, nor anything else. In fact those who are familiar with partnerships know it is by no means uncommon to give a share to the widow or relative of some former partner who contributes nothing at all, neither name, nor skill, nor anything else. Therefore it is not quite accurate, as Chancellor Kent puts it, that they must contribute labour, skill or money, or some or all of them."

There is nothing in the evidence to suggest that the component of agency did not exist. To the contrary, those undertaking the administration of Nelson Wheeler Perth incurred expense and liabilities and made commitments on a daily basis as did all of the partners which bound them all.

I have mentioned most pieces of evidence which indicate one way or the other as to whether Stokes and Munachen were partners of Nelson Wheeler Perth at relevant times. There are some which I have not mentioned but they add nothing of consequence. In mentioning the evidence, I have made some observations. Of course, each item of evidence is not to be considered in isolation. It is the combined force of all of the facts and circumstances which must be considered. Upon doing so, only one conclusion is open and that is that Stokes and Munachen remained within the partnership.

In my view, the essential elements of a partnership existed at all times, including after Stokes and Munachen changed their arrangements. As has been seen, there are some facts and circumstances which, standing alone, indicate that Stokes and Munachen had left the firm but when put in context and combined with all of the other indications to the contrary, the evidence clearly establishes that neither Stokes nor Munachen resigned or retired from the partnership before the middle of 1989.

I find that Stokes and Munachen were partners of Nelson Wheeler Perth during 1986 and 1987.

Having permitted the first defendants to raise the issue despite their admission of that fact and having decided the matter on the merits, it follows that their initial admission was correctly made. There is no occasion to grant leave to withdraw the admission and I dismiss the application.

I have not found it necessary to embark upon the matters to be considered in the exercise of the discretion to grant leave, such as prejudice to the plaintiff and the consequence of Pilmer and Munachen electing not to give evidence even though they were personally seeking the indulgence of the Court.

Before parting with this part of the case, I mention the substantial argument mounted by the plaintiff with respect to the lack of discovery or late discovery by the first defendants and their lack of disclosure of many documents and facts in the affidavits filed by them in support of the application. Due allowance must be made for difficulties caused by the passage of time and the change of firms and offices by the various defendants. However, there was insufficient discovery and some documents only came to light through the subpoena process and the technique of calling for production of documents. Some of these documents contained information adverse to the case of first defendants. I am satisfied that there can be no valid ground for criticism of the counsel and solicitors acting for the first defendants, and indeed no criticism was made, but it seems to me that those defendants who gave evidence did not fully discharge their obligation of discovery, including their continuing obligation. The evidence does not establish why that is so.

I have not found it necessary to reach conclusions about the reasons for the lack of discovery and as to whether it reflects upon the credit of all or any of these defendants as I have been able to comfortably reach conclusions on the evidence, including the documents, which was available.

It is the plaintiff's case that Nelson Wheeler Perth were not independent persons within the meaning of Listing Rule 3J(3) by reason of associations between partners of the firm Kia Ora, Western United and Harold Abbott, both directly and through the medium of various persons and companies (Para 64A.1 of S of C).

As has been seen, the plaintiff alleges that Nelson Wheeler Perth owed to Kia Ora a duty to be independent and this duty was a term of the contract of retainer, and also was part of the duty of care to Kia Ora in tort. Also, the plaintiff alleges that it was a fiduciary duty arising by reason of the relationship existing between Nelson Wheeler Perth and Kia Ora that Nelson Wheeler be independent and act independently (Paras 18 and 19 of the S of C). It is because of these associations and other matters that it is alleged that Nelson Wheeler Perth acted in conflict of interest in preparation of the Nelson Wheeler report and in breach of their co-existing obligation under the contract of retainer to Kia Ora to be and to be seen to be independent and to act independently in the preparation of the Nelson Wheeler report. The plaintiff claims that Nelson Wheeler Perth are in breach of these duties to be independent and consequently were in breach of the contract of retainer and their duty of care to Kia Ora and in breach of fiduciary duty. These allegations are raised on the pleadings.

In their Defence the first defendants admit that Nelson Wheeler Perth owed Kia Ora a duty to act independently which was an implied term of the contract of retainer and part of the duty of care which Nelson Wheeler then owed to Kia Ora. As will be seen, the first defendants now assert that in tort they did not owe a duty of care to Kia Ora but to the unassociated shareholders of Kia Ora and have sought leave to amend their Defence accordingly. That matter is considered later but for present purposes, it is not necessary to go beyond the pleading as it stands. The first defendants deny that they breached their duty to act independently and allege that if they were in breach of duty in that respect by reason of the alleged association, the plaintiff participated in, or condoned, or permitted such lack of independence and is not entitled in that respect to maintain its actions or to recover damages in respect of such breaches of duty.

The allegations have an additional significance. Some of the allegations, if true, reveal that Nelson Wheeler Perth was aware of the manner in which Western United carried on aspects of its business. Consequently Nelson Wheeler Perth could not competently have ascribed the value to Western United as revealed in the Nelson Wheeler report.

Like the issue of whether Stokes and Munachen were partners of Nelson Wheeler Perth at relevant times, the evidence about these associations and the issues raised by them occupied a considerable amount of time. I have chosen to set down my conclusions about these matters without mentioning all of the evidence and the issues, although all of them and the submissions about them have been considered.

The basis of the part of the plaintiff's case may be seen from the preamble to relevant parts of the Statement of Claim:

"64A.3.1AA In the following paragraphs there is alleged a series or web of events, transactions and circumstances which of their nature are inter-connected either by the effect of one or more of those transactions, events or circumstances on another or others of them, or by virtue of the common participation of certain of the individuals identified in respect of a particular event, transaction or circumstance. The effect of those events, transactions and circumstances, taken severally and/or cumulatively (in one or more combination of them) was that the respective participants in them came to be associated, directly or indirectly, on a business or commercial basis. When reference is made to Nelson Wheeler partners undertaking activities or providing services that reference is intended to embrace both the relevant Nelson Wheeler partner and staff acting at his direction or under his control, particulars of which are not known by Kia Ora in the absence of proper discovery."

It is claimed that each of the first defendants had actual or constructive knowledge of the various associations which are alleged by reason of direct involvement, discussion among the partners of Nelson Wheeler Perth or because they had constructive knowledge of them by operation of partnership law.

This web is alleged to have involved most of the partners of Nelson Wheeler Perth but particularly Stokes, Munachen, Pilmer and, to a lesser extent, Crawford and Martino and also Newton, Morris and his partner Mr Michael Evans and Kia Ora, Western United, Harold Abbott and some other executives of those companies.

The picture painted by the plaintiff is very complex and has been presented largely through documentary evidence. Due to the absence of Pilmer, Munachen and Harold Abbott from the witness box and the inability of Stokes to complete his evidence, this picture is far from complete which is acknowledged by the plaintiff. Also the plaintiff contends that inadequate discovery by the first defendants and others has prevented disclosure of the true picture.

Like many other allegations and claims, this aspect of the case is much in contention. The first defendants not only deny any relevant associations but they contend that the whole issue is of no significance. They say that it cannot add anything to the plaintiff's case. If the Nelson Wheeler report was prepared competently, a failure to act independently can be of no consequence as the report would not be causative of any loss. If the report was prepared incompetently, the failure to act independently does not add to their actual or potential liability. The first defendants contend that there was no fiduciary relationship between Nelson Wheeler Perth and Kia Ora.

Before examining these matters, I mention the applications of the plaintiff to amend the Statement of Claim to raise these matters.

This pleading was introduced during the course of the trial by leave over opposition by the Nelson Wheeler defendants. The director defendants, Harold Abbott, Lee-Steere, Somes, Quilty and Singleton, took no position with regard to the application of the plaintiff for leave to amend the Statement of Claim to raise this matter. After hearing argument, I granted leave to the plaintiff to make the appropriate amendments to the Statement of Claim and indicated that I would give my reasons when giving judgment and I now do so.

It is admitted by the first defendants that Nelson Wheeler Perth held itself out as an "independent qualified person" within the meaning of that expression in the Listing Rule, that the report was to accompany the notice to shareholders of a general meeting of shareholders of Kia Ora to approve the acquisition of the issued capital of Western United, that Nelson Wheeler Perth owed a duty of care to Kia Ora to act independently to carry out their instructions with all reasonable and proper care, skill and diligence and to provide Kia Ora with a report which complied with the requirements of Listing Rule 3J(3). The plaintiff also alleges that Nelson Wheeler Perth knew that unless and until a report from an independent qualified person sufficient to establish that the purchase price offered by Kia Ora for the takeover of Western United was a fair price was provided, no notice of the general meeting could be sent and the meeting could not be held which is part and parcel of its case on causation. In the initial Statement of Claim the plaintiff alleges that Nelson Wheeler Perth were in breach of this duty in various respects in work undertaken for the preparation of the report, in the conclusions reached and in the provision of the report. This alleged breach of duty is the basis of the claim of breach of contract and of negligence. It is unnecessary for present purposes to set out the particulars of the alleged breach of duty. It is denied by the first defendants. It was not alleged in the initial pleading that Nelson Wheeler Perth were not independent or acted in conflict of interest in the preparation and provision of the report and consequently for those reasons were in breach of the contract of retainer or in breach of duty in tort.

The Statement of Claim in its original form comprises 87 pages. Since it was filed, further particulars were provided thereby adding considerably to the plaintiff's allegations and a lengthy Defence and amended Defences and a Reply were filed. All of the material allegations which found the action in contract and in negligence have been denied and put in issue.

As has been mentioned, the trial commenced on 15th June 1994. On 10th October 1994 the plaintiff gave notice of its wish to amend the Statement of Claim. The first defendants did not oppose those proposed amendments. Leave was granted and the amendments were made on 11th October 1994. During the trial counsel for the plaintiff from time to time called for production of documents. This procedure was akin to a request for further and better discovery. The first defendants produced many documents in answer to these calls. By the amendments which were made on 11th October 1994 the plaintiff alleged that Nelson Wheeler Perth were not independent persons within the meaning of Listing Rule 3J(3) and had acted "in conflict" by reason of the associations which have been mentioned. 112 particulars of such associations were given and it was alleged that by reason of the claimed lack of independence Nelson Wheeler Perth was in breach of the contract of retainer. It was further alleged that the holding out of independence was false, Nelson Wheeler Perth failed to comply with a Release 102 of the National Companies and Securities Commission, that they should not have accepted the retainer with the consequence that the takeover of Western United by Kia Ora could not have proceeded and the report was not appropriate to be relied upon by Kia Ora and its shareholders when voting at the extra-ordinary general meeting on 26th October 1987.

When this amendment was made, counsel for the plaintiff made it clear that if documents to be produced by Nelson Wheeler Perth revealed further particulars of lack of independence, an application for leave to make further amendments would be made. The trial proceeded on that basis and indeed documents were admitted into evidence which are said to be capable of proving a lack of independence of Nelson Wheeler Perth in the relevant sense even though the particulars said to be established by those documents had not been pleaded. It was accepted that if further amendments were to be made, they should all be made at the one time, thereby avoiding an application for leave to amend each time a further document relevant to this issue was produced and tendered. The first defendants prepared proposed amendments to their Defence in order to plead to the amendments made on 11th October 1994.

On 31st January 1995 the plaintiff applied to further amend the Statement of Claim in order to incorporate all of its proposed amendments relating to the alleged lack of independence following the discovery and production of additional documents. The amendments were much more extensive than those previously allowed. They allege:

"64A.1 Nelson Wheeler were not independent persons within the meaning of Listing Rule 3J(3)(b) and NCSC Release 102 by reason of the associations between members of the firm of Nelson Wheeler on the one hand and companies in the Kia Ora and/or Western United group of companies and/or the directors of those companies on the other.

64A.2 Further, Nelson Wheeler acted in conflict of interest in and about the preparation of the 3J(3) report by reason of the associations and their coexisting obligation under the retainer to Kia Ora, through its unassociated shareholders, to be and to be seen to be independent in the preparation of the 3J(3) report."

What followed was 379 particulars of these allegations which included the 112 particulars in the previous amendment. It was alleged that each of the members of Nelson Wheeler Perth had knowledge of these associations and that by reason of them, Nelson Wheeler Perth were in breach of the term of the retainer to be independent, the tortious duty to be independent, and the fiduciary duty which they owed to Kia Ora and its shareholders. It was further alleged that the holding out by them as independent qualified persons within the meaning of Listing Rule 3J(3) was false. It is also alleged that Nelson Wheeler Perth should not have accepted the retainer or undertaken the preparation of the report and, had it not done so, the takeover of Western United would not have proceeded and that each of these matters is causative of the loss allegedly suffered by Kia Ora as initially pleaded.

The first defendants opposed the application to further amend and applied to revoke the order made on 11th October 1994 granting leave to amend. In November 1994 they had intimated that they proposed to apply to strike out parts of the earlier amendments but the application to revoke was based upon the ground that the first defendants should have opposed the application for leave to amend for the same reasons they opposed the second application.

In brief terms the reasons advanced by the first defendants are first, that the amendments are not in accordance with R46 of the Supreme Court Rules 1987 in both form and substance in that they are incapable of sustaining the cause of action sought to be made out or are unnecessary, irrelevant or embarrassing; secondly, such extensive amendments are unfair to the first defendants at the stage of the trial when the applications were made and in view of the trial taking place in Adelaide, and thirdly, because the proposed amendments raised new causes of action which were sought to be made out of time without any basis in law or fact for the extension of time pursuant to s48 of the Limitation of Actions Act.

I was greatly assisted by the many days of detailed argument for and against the two applications. I considered all of the arguments, including those in support of striking out parts of the earlier amendments, even though I do not mention all of them in these reasons.

The issues which had to be resolved were as follows:

1. Did the amendments made on 11th October 1994 and the proposed amendments allege new causes of action?

2. Were they incapable of sustaining the new cause or causes of action?

3. Were they statute-barred or otherwise to be made out of time and, if so, may they nevertheless be allowed?

4. Did the amendments conform with the Rules of Court?

5. Should the earlier and proposed amendments be refused in the exercise of discretion?

A party may amend a pleading at any time, including during the trial of an action, by leave: R53.01(c) of the Supreme Court Rules 1987. If the proposed amendment alleges a new cause of action and is to be made after any relevant period of limitation has expired, leave to amend may be granted pursuant to R53.03(c) if the new cause of action arises out of substantially the same facts as the original cause of action. Otherwise, if the proposed amendment does allege a new cause of action out of time, as it has been modified, the rule of practice in Weldon v Neal (1887) 19 QBD 394 applies. This rule is that an amendment should not be allowed which would introduce a cause of action which would be statute barred if a fresh action was taken for it. An amendment pleading a new cause of action out of time is not allowed: see Crafter v Webster (1979) 23 SASR 61, Karasaridis v Kastoria (1984) 37 SASR 345 per King CJ at p352, Brook v Flinders University of South Australia (1988) 47 SASR 119 and Cliff v Quin (1988) 54 SASR 151. Subject to whether the proposed amendment complies with the rules in form and substance and is not statute barred, leave is granted or refused in the exercise of discretion. The Court must also consider R2.05. That rule requires parties "positively to review" the pleadings prior to the pre-trial conference "so as to ensure their adequacy in the light of the issues known to be in contention at the time", that amendments required at that time must be made or leave sought before the pre-trial conference and goes on to provide:

"In the event that any application is made at trial for leave to amend the pleadings the Court may, if the amendment would cause the postponement or adjournment of the trial, refuse such application, if it sees fit, in order to protect the integrity of the Caseflow Management System and to implement the Court's requirement that trials proceed at the time appointed for the trial, notwithstanding that any injustice to the offering party might have been avoided by an order for costs or some other order."

This rule does not deprive the Court of the discretion to allow amendments at trial and should be applied in conformity with the purpose of the Rules of Court as expressed in R2.01 which provides that the Rules are not intended "to defeat a proper claim or defence of a litigant who is genuinely endeavouring to comply with the procedures of the Court ...". If leave is granted the amendment relates back to the time of the initial pleading: Brook v The Flinders University of South Australia (supra) per von Doussa J at p122 and Mullett v Gabriel [1989] SASC 1647; (1989) 52 SASR 330 per O'Loughlin J at pp334-335, although in both cases it was acknowledged that in granting leave there is a discretion to fix a time from which the amendment is to run subsequent to the date of commencement of the action.

I refer to the amendments made in October 1994 and to those made subsequently, together as the "amendments". Do the amendments allege a new cause, or causes, of action? Clearly, the amendments alleging breach of fiduciary duty do allege a new cause of action and I consider that proposed amendment separately.

If the alleged failure to act independently was in breach of contract or in breach of duty in tort that breach occurred in September 1987 and, depending upon whether Nelson Wheeler Perth had any ongoing duty after delivery of the report, in late October 1987 at the latest. In contract, the cause of action accrues at the time of breach. In tort it accrues when damage is suffered which, for present purposes, may be taken to be at the end of 1987. Under relevant limitation law an action in contract or in tort must be commenced within six years of the cause of action having accrued and not after. So, it may be seen that whether or not the proposed amendments raise a new cause or causes of action is of importance.

Often it is no easy task to determine if a proposed amendment raises a new cause of action. As Jacobs J observed in Karasaridis, at p361, the cases which examine this question are legion as may be seen in the article in the Australian Law Journal Vol 54, p643 "Amendments and Limitations: The Rule in Weldon v Neal" and it is difficult to reconcile many of the decisions or "spell out a consistent or coherent test".

In Karasaridis it was necessary to consider whether a proposed amendment offended the rule in Weldon v Neal. King CJ, in considering the threshold question whether the proposed amendment pleaded a new cause of action said, at p349:

"To answer that question it is necessary to compare the proposed amendment with the statement of claim in order to determine whether the amendment goes further than pleading new particulars of the essential facts constituting the cause of action or a new interpretation of those facts, and rather sets up a new claim on a different basis."

In that case an employee, seeking damages in tort from her employer, sought to plead an injury different from that alleged in the statement of claim. King CJ held that it was a different and new cause of action in that it added "a claim in respect of a different injury alleged to have been caused by different facts": p351. Jacobs J applied the same tests but took a different view, concluding that the amendment did no more "than spell out, in medical terms, how the alleged failure of the defendant to install a safe system of work, or comply with its statutory duty, led to the plaintiff's sustaining the injury of which she now complains": p362. In his view that the amendment made a more explicit statement of the injurious consequences of the negligence or breach of statutory duty.

In Brook v The Flinders University of South Australia (supra) von Doussa J also had to consider whether the plaintiff, by proposed amendments, would completely change the cause of action on the writ. He said, at p130:

"There will be a complete change in the cause of action if the statement of claim seeks to 'embark on any quite different set of ideas or on quite a different allegation of fact': Graff Brothers Estates Ltd v Rimrose Brooke Joint Sewerage Board [1953] 2 QB 318 at 328. Do the several claims of the plaintiff pleaded in the statement of claim meet this test?"

I thought it was appropriate to apply these observations as suitable tests. It was necessary to compare the original statement of claim with what is raised by the amendments and I did so as did counsel during the lengthy argument. I do not propose to set out in these reasons the detail of that comparison.

I accepted the argument of Mr Mansfield that it is not enough to say that merely because the amendments come within the same "tag" as alleged in the initial pleading, such as "breach of contract" or "negligence" that there is no new cause of action. It is necessary to look at the substance of the proposed amendments including the legal category alleged and the material facts in order to determine if, in reality, what is proposed is a new cause of action.

Clearly, the question of independence was raised in the initial Statement of Claim. It is fundamental to the task to be undertaken by the qualified person pursuant to the Listing Rule that he or she be independent of any interests of the proponent or object of the takeover in every relevant sense which includes true independence of any persons associated with the proposed takeover. As has been seen, the obligation on the part of Nelson Wheeler Perth to be independent was alleged in appropriate ways in the initial Statement of Claim. Also, it was pleaded that the requirement of independence was fundamental to the relevant takeover procedure. All of those assertions in the Statement of Claim were admitted and there was no issue of the requirement of true independence or the lack of independence raised on the pleadings.

By the time of the applications to make the proposed amendments, the plaintiff wanted to allege that when Nelson Wheeler Perth accepted the retainer and purported to discharge its obligations and in the provision of the Report, they were not independent of Kia Ora and Western United in the relevant sense and that acting without such independence constituted breach of duty to Kia Ora arising in contract and tort. Comparison of the initial Statement of Claim and the proposed amendments revealed that the parties, the contract, the duty and the alleged loss are the same. In the initial Statement of Claim, it was alleged that Nelson Wheeler was in breach of the duty in various respects in the preparation and provision of the report. A shorthand way of categorising the particulars of that breach of duty is lack of competence. It was proposed to allege that they were in breach of the same duty in another respect, namely by not being independent. In my view it is an accurate summary of the initial pleading to say that the plaintiff alleged that Nelson Wheeler Perth had an obligation to prepare and provide a report which complied with the Listing Rule and that they did not do so. The new pleading of alleged lack of independence is another respect in which Nelson Wheeler Perth was allegedly in breach of the obligation to provide a report in accordance with the Listing Rule.

True it is that the particulars contained in the proposed amendments are not directed at the allegation of breach of duty by incompetence as pleaded in the initial Statement of Claim but they do not "set up a new claim on a different basis" or "embark on any quite different set of ideas or on a quite different allegation of fact". The essential features of the claim or set of ideas is that Nelson Wheeler was in breach of its duty to provide a report in accordance with the Listing Rules.

The amendments did pass the tests which I have mentioned and did not constitute a new cause of action and thereby offend the rule in Weldon v Neal. Consequently it was within power to grant leave to make the amendments in the exercise of discretion.

If I was wrong in this conclusion and they do constitute a new cause of action, the amendments could be allowed pursuant to R53.03(c) as they arise "out of the same or substantially the same facts" as the initial pleading of breach of duty. The tests to be applied in the application of that Rule have been discussed in many cases. In Karasaridis King CJ, when discussing the previous Rule to the same effect said, at p351:

"That subrule appears to be designed to permit an amendment raising a new cause of action in the sense of a new legal categorisation of the facts in respect of which relief has already been claimed."

In Preston v Dowell (1987) 45 SASR 111, at p113, von Doussa J repeated the view which he had earlier expressed in Vaccarella v McNichol (1986) 131 LSJS 128 that there is a distinction between a cause of action and the facts which give rise to it.

It is well settled that the test to be applied as to whether the new cause of action arises out of substantially the same facts is as expressed by Cross LJ in Brickfield Properties Limited v Newton [1971] 1 WLR 862 at p880:

"It is no objection to amendment under Ord. 20, e.5(5), that some of the facts out of which the new cause of action arises are peculiar to it and that some of the facts out of which the old cause of action arises are peculiar to it. It is enough if the overlap is so great that the new cause of action can fairly be said to arise out of substantially the same facts as the old cause of action."

See Brook v Flinders University of South Australia at p131 and Swietlik v Central Linen Service (1991) 161 LSJS 191. However, as Cox J observed in Swietlik v Central Linen Service at p193:

"Of course, it is one thing to state the test, it is another thing to apply it correctly in any given instance. To start with, one must identify the respective sets of 'facts' which are to be compared, and this necessarily involves a selection. Obviously there will be borderline cases under par. (c) and room for disagreement."

In consideration of these tests in the instant case, it must be remembered that this is very complex litigation involving a vast amount of evidence concerning many issues raised on the pleadings. The extent of the proposed amendments had to be seen in that light. Also the extent of the proposed particularity was designed to show the true colour of the relevant associations which are said to have resulted in lack of independence. The plaintiff proposed to make out its case by means of documentary evidence and the large volume of allegedly relevant documents necessarily means that particularity must be extensive.

I turn to the comparison which I have considered in detail. As has been seen, two of the first defendants, Stokes and Munachen, had substantial interests in the mining industry at relevant times. On the plaintiff's case they had close associations with some of the directors of Kia Ora and Western United. They were directors of some companies which were associated with Kia Ora or Western United. They had close associations with various persons involved in the mining industry, including directors of companies associated with Kia Ora and Western United. It is alleged that Nelson Wheeler Perth undertook professional work for those persons and companies.

In the initial Statement of Claim the plaintiff not only pleaded the various matters relating to independence on the part of Nelson Wheeler Perth which I have mentioned but it alleged various associations between Nelson Wheeler Perth and Kia Ora, Western United and some of their subsidiaries not in order to establish a lack of independence but as particulars of incompetence in the preparation and provision of the report. These associations were alleged mainly to show that Nelson Wheeler Perth had special knowledge of the affairs of Kia Ora, Western United and subsidiaries and in view of that knowledge could not have reached the opinions contained in the report if they had acted with due care, diligence and skill.

I mention some of those allegations as examples. It is alleged that the valuation by Nelson Wheeler Perth of the business of Porter Western on behalf of Western United at $4,615,000 in April 1987 and, some five months later, in the report, at $41,437,500 or thereabouts constitutes a lack of independence as well as incompetence. The next matter relates to Parry Corporation. In the Statement of Claim it is alleged that Nelson Wheeler Perth was aware of the sale by Parry Corporation of its shares in Western United in August 1987 which, as has been seen, was of importance in assessing the true value of Western United shares in September 1987, an essential task in the preparation of the Nelson Wheeler report. The allegations were made in support of the alleged of breach of duty with respect to competence. In the proposed amendments in support of the allegations of lack of independence, the plaintiff alleged that at all relevant times Parry Corporation was a client of Nelson Wheeler Perth, was a customer of Western United and had representation on the Board of Western United, as well as the matters raised in the initial pleading.

During the course of valuing Western United and its subsidiaries for the purpose of determining whether the takeover price was fair, Nelson Wheeler Perth adopted the maintainable earnings after income taxation method to which it applied price earnings multiples. This process necessarily involved assessment of future maintainable earnings based upon revenue and expense projections. In the initial Statement of Claim the plaintiff alleged, inter alia, that Nelson Wheeler Perth failed to verify, substantiate or make any independent assessment of information as to these matters. Throughout the initial Statement of Claim there are various references to the obligation of Nelson Wheeler Perth to act independently in the valuation exercise. It follows, on the plaintiff's case, that Nelson Wheeler Perth, if acting independently, would have been obliged to check and assess the information provided to them by carrying out their own investigations of the financial records of Kia Ora, Western United and their subsidiaries and making enquiries of appropriate directors and staff. It is alleged that by reason of professional and other associations members of Nelson Wheeler Perth acquired a good deal of information without such investigation and enquiries and were involved directly and indirectly in transactions which could bear upon essential features of the valuation task.

Also, it was alleged in the initial Statement of Claim that the projections of the maintainable earnings of the merchant bank division of Western United were wrong which would have been revealed by competent scrutiny by a suitably qualified expert bringing an independent mind to the task, or at least that is a brief summary of various allegations. The plaintiff alleged that by reason of the associations between Nelson Wheeler Perth and Western United and between some of the subsidiaries of Kia Ora and Western United, they had knowledge which must have led them to the conclusion that fundamental bases of the valuation were unsound and, in particular, that the projections of future maintainable earnings were not sustainable. In the amendments, it was alleged that Nelson Wheeler Perth had relevant associations with 18 companies and 14 of them were depositors with Western United. The circumstances of some of those transactions are said to show that the projected earnings of the merchant banking division were probably wrong.

As has been seen, at relevant times Stokes was the managing director of Mawson Pacific and Munachen was the managing director of Wattle Gully Gold Mines. These companies were, at relevant times, the largest depositors with the merchant bank conducted by Western United. Information about these companies and the future of the deposits was relevant to the assessment of the maintainable earnings of Western United.

These and other matters are relevant to the issue of the alleged competence of Nelson Wheeler in the preparation and provision of the report. Evidence could be led to establish the associations for that purpose. By the amendments the plaintiff wanted to rely upon the same allegations and the same evidence to prove the lack of independence and conflict of interest. True it is that many more particulars of conduct were alleged by the proposed amendments and were not initially pleaded in the Statement of Claim. However, the question is whether there was sufficient overlap of facts out of which the old and new causes of action arise for it to be fairly said that they arise out of substantially the same facts: Brickfield Properties Limited v Newton. The reference to "facts" in that test is undoubtedly a reference to the "material facts" which found a cause of action and which must be pleaded pursuant to R46.04(b). It is not a reference to "particulars". Whilst the distinction between the two is not always obvious, "material facts" are those necessary for the purpose of formulating a complete cause of action. The function of "particulars" is "to fill in the picture of the plaintiff's cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial": Bruce v Odhams Press Ltd [1936] 1 KB 697 per Scott LJ at pp711-713. The distinction is preserved in our Rules: R46.04(b) and R46.04(f).

In my view, the allegations with respect to independence and the failure to act independently in the preparation and provision of the report as contained in the initial Statement of Claim are material facts out of which the causes of action for breach of duty in contract and tort arise. Those material facts were the basis of the proposed claim that Nelson Wheeler Perth were also in breach of duty by reason of not acting independently and in conflict of interest as alleged in the proposed amendments. Consequently, if the amendments did raise a new cause of action, it arose out of substantially the same facts. Whilst it must be acknowledged that the amendments allege a considerable number of new facts which are not alleged in the Statement of Claim, they are, in my view, additional particulars of the material facts upon which the new cause of action arises.

For these reasons the appropriate test is satisfied and leave to amend could be granted pursuant to R53.03(c) if the amendments did raise a new cause of action.

I now turn to the amendment raising the new cause of action of breach of fiduciary duty. The plaintiff alleges that by reason of the alleged lack of independence and conflict of interest of Nelson Wheeler Perth, they were in breach of a fiduciary duty which they owed to Kia Ora. Mr Mansfield contended that in the circumstances such a relationship did not exist and the amendment should be refused.

At this stage I am expressing the reasons for my decision to allow this amendment. Since then the cases of the parties have been fully developed and as will be seen there have been important decisions of the Courts on this question. However, I mention only my reasons at that time. It may be said that the circumstances of the relationship between Kia Ora and Nelson Wheeler Perth at the time of the report and the nature of the duty which Nelson Wheeler Perth owed to Kia Ora did not make it strikingly obvious to me that a relevant fiduciary relationship existed. Mr Gray referred to Hospital Products Limited v United States Surgical Corporation & Anor [1984] HCA 64; (1985) 156 CLR 41 in support of the proposition that Kia Ora has an arguable case that such a relationship existed and Nelson Wheeler was in breach of the duty to Kia Ora imposed by reason of it. It is now unnecessary to mention that case in any detail. It is sufficient to say that the members of the Court acknowledged that there was no comprehensive statement of the criteria by reference to which the existence of a fiduciary relationship may be established and that the categories are not closed: in particular see Gibbs CJ at p68. Mason J expressed similar views at p96. Dawson J, at p137, accepted that no satisfactory single test had emerged which would serve to identify a relationship which is fiduciary.

I was referred to other authority to deny the proposition that a fiduciary relationship between Kia Ora and Nelson Wheeler Perth existed and, if it did, that there was any breach or any remedy in damages, it being suggested that the only remedy was that Nelson Wheeler Perth should account for any benefits it received in consequence of that breach.

In the circumstances of this particular amendment, I did not think it was appropriate to attempt to consider the matter on the merits without all of the evidence being known. Whether a fiduciary relationship exists carrying with it particular fiduciary duties depends upon the particular factual circumstances. In this instance it was preferable to hear the argument on the merits once the evidence had been given, particularly as the evidence to support this cause of action was relevant to other issues in the case.

The cause of action of breach of fiduciary duty arises out of substantially the same facts as the pleading of breach of duty in the initial Statement of Claim in the same way as the proposed amendments alleging breach of duty in contract or tort by reason of the alleged lack of independence. It was unlikely that the trial would be prolonged by permitting the cause of action to be pleaded except in so far as further time would be required in making submissions on that topic.

Mr Mansfield contended that if leave to amend was granted, it should be on terms by fixing the date of the granting of leave or some other date as the time from which the amendments were to operate so as to avoid their being related back to the date the proceedings were commenced. In that event the first defendants could maintain an argument that any causes of action raised by the amendments were out of time. He drew attention to the approach adopted by von Doussa J in Brook v The Flinders University of South Australia. In that case that course was adopted in the unusual circumstances there present, so as to do justice to the parties by preserving to the plaintiff the right to pursue a new cause of action out of time by evoking s48 of the Limitations Act and to enable the defendant to raise the limitation period as a defence. Such an approach was thought to be appropriate by Brandon LJ in Liff v Peasley [1980] 1 WLR 781, at pp803-804, in cases where there is doubt about the date upon which a cause of action arose or uncertainty concerning the suspension of interruption of the relevant period of limitation which demands a full trial, or pleadings following discovery in order to resolve the issue. No such considerations here arose. In my view, the proposed amendments do not raise new causes of action, except in the case with respect to breach of fiduciary duty. Nothing further needs to be known to resolve any issue about limitation. There is no consideration of justice which requires the normal course of "relation back" to be altered.

As has been seen, I considered that the amendments did not raise a new cause or causes of action but if they did the new cause or causes arose out of substantially the same facts. For the purpose of the application, I was satisfied that they were capable of sustaining the cause or causes of action. The test at that stage was whether, upon accepting the factual content of the amendments, it was arguable that a cause of action was established. The plaintiff passed that test. I do not mean to suggest that I formed the view that breach of duty in contract or tort to act independently per se necessarily gives rise to damages. That was a matter to be determined if necessary after full argument on consideration of all of the evidence. As the amendments were justified for other purposes, it was convenient to leave that argument to the end of the trial.

In my view, the proposed amendments were not unnecessary, irrelevant or embarrassing and thereby contrary to the Rules of Court. They are voluminous but necessarily so in view of the subject matter raised by them which is relevant to the causes of action pleaded in the initial Statement of Claim and to the new claim of breach of fiduciary duty. There were matters of form which needed to be addressed and after hearing further argument, they were resolved by further alteration and by explanation of the plaintiff's case which I permitted Mr Gray to give so that the defendants could be certain as to what was alleged against them. Once that explanation was given and the alterations made, it was appropriate to focus upon the resumption of evidence rather than matters of form of pleading.

It remained to consider whether the discretion should be exercised so as to permit the proposed amendments. Mr Mansfield contended that if the proposed amendments were allowed all of the Nelson Wheeler defendants would be prejudiced to such an extent that no steps could be taken to prevent injustice.

As has been seen early during the pre-trial procedures, the first defendants brought an application that the action be transferred to the Supreme Court of Western Australia pursuant to the relevant cross-vesting legislation. It was alleged that the causes of action arose and the first defendants lived and then conducted their practices in that State. Many documents not in the possession of the liquidator of Kia Ora which could be tendered in evidence and many potential witnesses were to be found in Western Australia. Nelson Wheeler Perth abandoned that application well before the commencement of the trial and before it was heard. It is now asserted that if the first defendants had been aware that the issues raised by the amendments would be part of the trial, they would not have abandoned the application and that they were greatly prejudiced because the application could not be renewed.

Of course it was obvious that allowing the amendments would greatly increase the length of the trial. The distance between Perth and Adelaide increases expense and difficulty in preparation of the defence, the collection and presentation of evidence and the giving of instructions. It was said that none of these first defendants could afford to live in Adelaide for extensive periods during the trial and the capacity to protect their interests was greatly compromised by the trial of these issues in Adelaide.

The first defendants had legal representatives acting for them in this matter in Perth who acted in conjunction with their legal representatives in Adelaide. It may be accepted that from the point of view of the first defendants, it would be more convenient, and possibly less expensive, if the trial was conducted in Perth, but it does not follow that the inability to bring a cross-vesting application is prejudice in a real sense. It was always known that this litigation would be complex and take a very long time, including when the cross-vesting application was abandoned. A consequence of allowing the proposed amendments was that the litigation will be more complex and take longer. Mr Mansfield contended that if the proposed amendments had been pleaded before trial, the cross-vesting application would obviously have succeeded in view of the number of transactions raised by them which occurred in Perth and other parts of Western Australia. I was unable to say if that is the case as I did not hear the application and the contrary arguments. No information has been put before me to support that contention. The fact remains that the parties came to trial in this Court well aware that the trial would be long and expensive. In my view, the proposed amendments should not have been denied in the exercise of discretion for that reason. I did not think any other discretionary ground for refusing the amendments was established.

It was unnecessary to consider the argument of Mr Mansfield that the amendments raised new causes of action which were statute barred and as to the choice of the relevant limitation law. I left open to the Nelson Wheeler defendants the right to argue that the claim for breach of fiduciary duty should not be considered due to the considerable delay in bringing that claim but, appropriately in my view, no such submission was made.

I now turn to the case based upon the alleged associations.

The plaintiff contends that it is important in the context of these associations that the true nature of the business of Nelson Wheeler Perth be correctly understood. I mention only those matters alleged by the plaintiff which have been established by the evidence.

Mention has been made of the business activities of Stokes and Munachen, particularly in the field of mining and prospecting companies and of the executive work which both men undertook for some of those companies. As a consequence, they brought to Nelson Wheeler Perth a considerable amount of work which some accountants may not regard as traditional work of that profession.

Nelson Wheeler Perth undertook the share registry which provided an important service for companies. They undertook the administration of companies, including public companies. Partners acted as directors and secretaries of companies, including public companies. On some occasions the partners took shares in companies for their own benefit and on other occasions as trustees for clients. Nelson Wheeler Perth acted in the flotation of new public companies where additional capital was raised. On occasions they took shares in these companies. It is alleged that the firm was entrepreneurial in nature rather than a firm of traditional accountants.

Clearly, Nelson Wheeler Perth did undertake an entrepreneurial approach in some areas in common with the approach taken by Nelson Wheeler nationally, as discussed later, but this approach was adopted mainly in respect of the mining industry and by Stokes, Munachen and Pilmer and to a lesser extent, Martino.

Considerable evidence was adduced to show that the style of practice of Nelson Wheeler Perth inevitably lead to the professional relationship with many clients being compromised by reason of conflicts of interest and lack of objectivity regarding the clients' interests. The evidence discloses such matters on some occasions but it is unnecessary in order to resolve the issues in the present proceedings to pass judgment about the style of accountants taking personal financial interests in, and assuming control of, the affairs of their clients in the interests of sound management or even personal gain. The evidence as to professional standards adopted by chartered accountants establishes that the standards are appropriate but it is for practitioners to decide their style and manner of practice. There is a clear line between the businessman and the true professional. When the two are mixed, difficulties inevitably arise. However, I think it can safely be said that where accountants, and other professional persons for that matter, do take interests in the affairs and assets of their clients, the professional relationship becomes blurred, if not destroyed, and conflicts of interest are very likely to arise.

It is the plaintiff's case that by reason of the style and manner of practice of Stokes, Munachen and Pilmer, and to a lesser extent Martino, and their marketing focus and profit motive, their role as independent experts under the contract of retainer safeguarding the investing public was greatly compromised.

Nelson Wheeler Perth did make money on occasions by taking shares in client companies. They acted in floats of many companies engaged in the mining and other industries. It is submitted by the plaintiff that in doing so they acted initially as promoters and then as accountants for the company after it was floated. The evidence discloses that on occasions they charged what may be described as a success fee. If a float was successful, a substantial fee would be paid. The evidence does not disclose if this practice was rare or common but by adopting it the problems for the true professional are obvious because of conflicts of interest which may arise.

Conflicts may also arise where accountants act as nominee shareholders and directors for clients wanting anonymity because the duty to company and the duty to client may conflict. Partners of Nelson Wheeler Perth acted in these capacities reasonably extensively.

Apart from traditional work of tax, accounting and audit work, Nelson Wheeler Perth had developed and undertook corporate, administration, secretarial, share registry, computer consulting and management advisory services to a significant extent and was developing personal services for clients. All of this happened at a time when, as the evidence discloses, there was a strong competitive attitude among many firms of practising accountants with a perceived need to provide a total service to clients.

In late 1986 and early 1987 Nelson Wheeler nationally held discussions with the Elders Group of companies with a view to entering into a joint venture arrangement. Reports were prepared by Elders extolling the mutual benefits of such an arrangement which were sent to Wenham, Simmons and Pilmer. Nothing came of these discussions but it appears that some members of Nelson Wheeler national were considering further extension into non-traditional areas of work through the medium of a business arrangement with Elders.

Mention has already been made of the type of work undertaken by Stokes and Munachen. Pilmer was also involved in work for companies in the mining industry. As has been seen, it was a significant part of the work of Nelson Wheeler Perth to provide management and administration services for client companies.

According to Newman, Nelson Wheeler was seeking to provide a total business service. A profile for Nelson Wheeler Perth produced after Newman joined the firm stated that the firm "seeks to provide the integrated business solution. Under one corporate umbrella, we have the facility to service every aspect of financial, corporate or personal life".

Nelson Wheeler Perth also took benefits in lieu of fees through partners acting as directors of companies for clients. These benefits were in the form of director's fees which were paid into the practice as income and shares which were taken in companies. On occasions, options would be issued and later exercised. On some occasions, employee shares or options would be issued and allocated to partners who were directors. Shares would be issued and allocated for other reasons.

Nelson Wheeler Hong Kong provided corporate, secretarial and nominee services and established companies which acted as nominees and trustees including for blind trusts for the purpose of hiding the identity of the true beneficiary. These services were established by 1985 and were explained in memoranda sent to Wenham, Simmons and Pilmer at various times as the Australian representatives in the Nelson Wheeler Hong Kong practice management.

The foregoing is but a brief summary of the nature of the business and professional activities and style of Nelson Wheeler Perth.

Of course, the firm also undertook a substantial amount of traditional accounting work. Messer, Crawford and Gray undertook some of this non-traditional type of work, but most of their work was as traditional accountants and was the case with most of the professional staff. Martino was more extensively involved in non-traditional work. He had close ties with Stokes and, to a lesser extent, with Munachen and undertook or controlled work brought by them to the firm. He also undertook traditional work. The full extent of Pilmer's non-traditional work is not revealed by the evidence.

The plaintiff contends that once the true nature and style of the practice of Nelson Wheeler is understood, it may be seen that traditional professional boundaries were crossed which was what happened with respect to Kia Ora, with consequential lack of independence and conflict of interest. These observations about the manner and style of aspects of the practice are not really in contention but the first defendants dispute that any relevant conflicts occurred or that there was any compromise of proper professional standards. They say that none of this evidence is of assistance in resolving the matters in issue in these proceedings.

There is a danger in reasoning to a conclusion based upon propensity evidence and I have not done so. This evidence of the manner and type of practice of Nelson Wheeler Perth is relevant to show the background against which the matters in issue have to be decided, including the relationship between Nelson Wheeler Perth and Kia Ora and Western United.

Stokes and Munachen had close personal, business and professional relationships with Morris and Evans at all relevant times.

Morris and Evans effectively controlled Forsayth Oil & Gas Pty Ltd, First Australia Resources NL, Ramsgate Resources Ltd, Northern Gold NL and Gemcor Limited. Forsayth Group Management Pty Ltd managed this group of companies. Nelson Wheeler Perth were auditors of two of the companies and undertook the taxation work for all of them. As will be seen, there were associations between Nelson Wheeler Perth and other companies in which Morris and Evans held interests.

Morris had known Harold Abbott since at least 1981 when he worked with him for certain public companies. He knew that Harold Abbott and Schneider-Paas were the faces behind Kia Ora and later he was aware that Harold Abbott and Gary Abbott were the faces behind Western United. During the 1980's Morris, and companies with which he was associated, had extensive dealings with Western United involving many millions of dollars in borrowings and deposits but, according to him, he was not always personally involved in these transactions and did not always know of them as, he claimed, Evans attended to many of those types of dealings.

Morris met Stokes in 1982 and presumably Munachen at about the same time. It is to be expected that they in turn met Evans soon thereafter. The four men became close friends and formed the Brothers Four Unit Trust with Brothers Four Pty Ltd as the trustee. They were the directors of the company and owned the shares in the company. Entities controlled by each of them owned the units in the Brothers Four Unit Trust. Brothers Four was a vehicle used by them to acquire shares.

The four men also formed the Prospecting Unit Trust with Avorton Pty Ltd as the trustee. Palmvale Nominees Pty Ltd, as trustee for the Essemco Unit Trust, held the interest of Stokes and Munachen in this venture. It made significant profits.

The relationship between these men and their connection with Western United and Harold Abbott is considered further a little later, however, it is convenient to mention a little more about Palmvale Nominees and the Essemco Unit Trust. The units in the Trust were owned by Kala Nominees Pty Ltd, the trustee of the Munachen Family Trust, Brookman Securities Pty Ltd as the trustees of the Stokes Family Trust, Paa Nominees Pty Ltd as the trustee for the IR Cornelius and NJ Cornelius Family Trust and Shamra Pty Ltd as the trustee of the Shamra Trust, the beneficiaries of which were the family trusts of Munachen, Stokes, Morris and Evans and Sherwood Craft Pty Ltd, a company of Mr Silvers. Stokes, Munachen and Mrs D Munachen were directors of Palmvale at all times. Mr IR Cornelius was a long time associate of Stokes and Munachen and was the executive director of the West Coast Group of companies.

A considerable body of evidence was adduced to establish a type of lending arrangement by Western United which has been described as "back to back" loans. In essence the arrangement is that Western United lent money to a borrower on the condition that the borrower caused another, usually a company, to deposit money with Western United, usually a substantial but slightly smaller amount than the amount of the loan. This arrangement had the consequence of inflating both the asset and income position of Western United. There was a significant margin in the interest rates payable by Western United on the deposit and by the borrower on the loan and so the income position of Western United was enhanced for that reason. The loans produced establishment fees which also increased the income of Western United. Most of the money lent to the borrower was, in effect, the money which the borrower caused to be deposited with Western United. Substantial loans, which were regarded as assets of Western United, could only be made if the almost corresponding deposit was made. The asset position of Western United was also enhanced. These matters had the effect of increasing the value of the merchant bank and hence Western United. The nexus between the loan and the deposit is a matter of importance to a valuer of Western United because it would be relevant to the assessment of the asset position and future maintainable earnings.

Back to back loans which involved a public company so that a director of the company obtained the personal advantage of the loan were likely to be unlawful because the director was obtaining an advantage from the company by reason of his or her position as a director contrary to s229(4) of the Companies Code. In those circumstances the arrangement was in effect a method of obtaining the use of company funds for personal use.

This technique was known to Nelson Wheeler Perth. At a meeting of partners or principals of Nelson Wheeler Hong Kong on 4th April 1986, it was resolved that the back to back loan facilities promoted by Hill Samuel, an international group of accountants with whom Nelson Wheeler Hong Kong was affiliated, should be marketed by writing to all Australian offices of Nelson Wheeler setting out the facilities available and costs if undertaken through the Hong Kong office. That is not to say that the proposal was to deliberately market arrangements which were unlawful as the use of company funds in this way for the benefit of directors may not have been involved.

In about early June 1987 Nelson Wheeler Hong Kong forwarded to Nelson Wheeler Perth a draft of a booklet entitled "The Hong Kong - based multinational - an international tax strategy" which included the back to back arrangement. Martino and Gray were asked to read it and give comments to Pilmer.

It is alleged that Nelson Wheeler Perth also knew of those types of arrangements because some of the partners participated in them on behalf of clients. It is necessary to consider the seven alleged back to back loans disclosed in the evidence.

Chiswick Gold Ltd and Lexham Port Limited were both incorporated in Hong Kong on 4th July 1986 and on 22nd July 1986 respectively with the same corporate directors arranged by Nelson Wheeler Hong Kong and the same registered office being the office premises of Nelson Wheeler Hong Kong. Records of that firm show that those companies were "referred" by Nelson Wheeler Perth in July and August 1987 and at about that time Morris was also referred to the Hong Kong office. The principal activity of both of these companies was share dealing. Pilmer was one of the three Australian partners, the others being Wenham and Simmons, who participated in the management of Nelson Wheeler Hong Kong. According to Messer, Pilmer was a close personal adviser to Evans.

On 9th June 1987 Mr Alan Cheung of Nelson Wheeler Hong Kong spoke by telephone to Green at Western United to arrange a loan of $1.25m to enable Chiswick Gold and Lexham Port each to acquire 625,000 shares in Northern Gold NL in Australia. Someone at Western United, probably Green, made a handwritten note of that telephone conversation upon which he had written "Mates deal". Cheung wrote to Green on the same day requesting the transfer of the funds as a matter of urgency. Documents admitted into evidence reveal that these loan transactions were undertaken as a matter of urgency. The security for the loans was a pledge over 1.25m fully paid shares in Northern Gold NL. The loans were approved by Green, Gary Abbott, Somes and Harold Abbott.

Northern Gold was a gold exploration company. Morris and Evans were two of four directors and Morris was the Chairman. On 25th May 1987 Northern Gold had placed 4m ordinary shares in the company with Rivkin James Capel Limited in Sydney. Cheung had requested the funds to be transferred to Rivkin when he wrote to Green on 9th June 1987.

On the handwritten note probably made by Green, it is also recorded that "Comserv (1663) Pty Ltd - Jeff Cohen will lodge 1.3m with us. 180 days. Possible roll over". Comserv deposited $1.3m with Western United on 10th June 1987. Also on that day Wattle Gully deposited $1.25m with Western United and on 11th June 1987 Western United advanced $1.25m to Chiswick Gold and Lexham Port. On that day Morris and Evans acquired 373,000 shares in Northern Gold at a cost of $373,000. At about that time Chiswick Gold and Lexham Port each acquired 625,000 shares in that company.

Comserv was an investment company of which Mr Geoffrey Michael Cohen, a solicitor in Sydney, was a director. It was a vehicle for Morris and Evans which they used for personal investments. According to Morris, Evans ran Comserv for their joint benefit.

There is some circumstantial evidence which suggests that Western United, Morris, Evans, Cohen and Martino were aware of these transactions. Cheung sent facsimile transmissions to Evans at Nelson Wheeler Perth on 20th and 22nd May 1987. According to Morris' diary, he and Gary Abbott met at Western United on 5th June 1987. Morris said they did meet with Harold Abbott on that occasion but he could not recall if it was to raise finance. He said he had no recollection of the meeting. According to Morris' diary, he met Martino and Mr Patrick Ong, an employee of Nelson Wheeler Perth, immediately before the meeting but Morris said he had no memory of this meeting. Immediately after his meeting with Gary Abbott, Morris met with Evans and another person, the name of whom is indecipherable in his diary.

His diary also records that he, Martino, Cohen and Evans met in Perth on 9th June 1987. Morris mentioned in his evidence that he knew nothing of Chiswick Gold or of Lexham Port at that time and said that they were not companies which held investments for him and were not administered or controlled on his behalf. He knew Cheung but not of any loans to the two companies. In early July Morris was in Hong Kong but, according to him, on holiday with his family. Also, it is significant that the purpose of the loans was to enable Chiswick Gold and Lexham Port to acquire shares in Northern Gold, a company in which Morris and Evans had substantial interests.

Martino said that he knew nothing about the transactions involving Chiswick Gold or Lexham Port or the borrowings from Western United. He acted for Morris and Evans and various of their companies from time to time and, at their request, acted as director, shareholder and trustee on occasions. It follows that around the time of those transactions involving Chiswick Gold and Lexham Port, he could have seen Morris and Evans about other matters.

On 21st August 1987 Evans acquired 1.2m Northern Gold shares for $1.512m. On 8th July 1987 Mr W Hutchinson of Nelson Wheeler Hong Kong, acting on authority of Chiswick Gold, sent various documents to Mr H Christensen of West Coast Securities Limited in Perth relating to this loan transaction involving Western United and requested him to forward them to Western United and Christensen did so. Morris met Christensen for lunch on 24th August 1987. Any relationship between Christensen, Nelson Wheeler Perth and Harold Abbott is not revealed by the evidence.

On 2nd September 1987 Christensen wrote to Gary Abbott confirming that West Coast Securities required a loan of $1m, the security for which was to be shares in Ramsgate Resources and Northern Gold. The credit application contains a note to Green "Kevin contact Morris for $1million deposit".

Morris and Evans borrowed $3m from Western United on 16th October 1987 to assist in the purchase of Northern Gold NL shares and the security for the loan was 4m shares in that company, then valued at $6m.

As has been mentioned, the stock market crash occurred on 20th October 1987 and thereafter. On 26th October 1987 Evans sold 1.2m Northern Gold shares for a little less than $1m. On 6th November 1987, Chiswick Gold and Lexham Port paid a little over $1.5m to Western United and Morris paid $556,800 to Western United. On 13th November 1987 Chiswick Gold paid a little over $1.3m to Western United and a further sum of about $675,000. Lexham Port paid the same amount. These last two mentioned amounts were paid in re-payment of the original loan of $1.3m or thereabouts. On the same day the two companies paid a further sum of a little over $675,000 to Western United. Thereafter there were further deposits by other companies with Western United which it is unnecessary to specify.

The plaintiff's case about those matters is that Morris and Evans wanted to maintain control of Northern Gold and through that company of the Forsayth and Ramsgate group of companies but wanted the manner of that control disguised. They required a suitable technique which was provided by Nelson Wheeler Perth through Nelson Wheeler Hong Kong. Martino was aware of the technique and met with Cohen, Morris and Evans and discussed it with them. They approached Western United because they needed a financier who would adopt this back to back type of arrangement to permit the disguise. The appearance of the matter is that Western United is a financier but, in reality, it is merely providing funds immediately replenished by the deposit from Comserv at a fee and in circumstances which achieved the desired disguise. It is submitted by the plaintiff that this transaction could only occur in this way because of the relationship between Nelson Wheeler Perth and Western United and, in particular, Harold Abbott. The Nelson Wheeler defendants deny this is the case.

Once again it is necessary to mention that Pilmer chose not to give evidence which assists in drawing inferences which are justified by the evidence. Evans did not give evidence but he was overseas for an extended period at the time of the trial and no inferences may be drawn by reason of his absence.

Given the relationship between Morris and Evans, their involvement in Northern Gold and the circumstances of the transaction, I accept that they were the faces behind Chiswick Gold and Lexham Port. I found Morris' evidence unsatisfactory. I do not think he tried to help the Court at all. I appreciate that he was a busy businessman and it is possible that Evans attended to those sorts of investments on their joint behalf at the time. I also accept that they were used to dealing in large sums of money so for them borrowings in excess of $1m may not be unique. However, the circumstances which have been mentioned and the referral to Nelson Wheeler Hong Kong by Nelson Wheeler Perth of Morris and Chiswick Gold and Lexham Port suggest that Morris was aware of the transactions at the time. He was in Hong Kong. Pilmer was an adviser of Evans. It is likely that transactions of this magnitude involving Nelson Wheeler Hong Kong were known to Nelson Wheeler Perth and to Pilmer in particular. These transactions were the subject of an enquiry and legal proceedings by the National Companies and Securities Commission which were resolved without any findings adverse to Morris but nevertheless I do not think Morris was willing to disclose to the Court all that he knew about the matter.

Also, it is clear that Nelson Wheeler Perth played a role in the matter. They referred Morris and, I expect, Evans, to Nelson Wheeler Hong Kong. If Evans handled the matter without the knowledge of Morris, it is unlikely that the Hong Kong office would record Morris as a new client at this time and not Evans. The matter was very likely represented to Cheung as urgent and for friends hence the note on the Western United file "Mates deal" made in consequence of Cheung's telephone conversation with someone at Western United. That matter says something about the relationship between Morris and Evans and Nelson Wheeler Perth which was close because of the relationship between Morris, Evans, Stokes and Munachen.

The manner in which Western United became involved through the telephone conversation, the disclosure of the loan being a "mates deal" and the manner in which Western United was prepared to undertake it, suggests that there was familiarity and a closeness of relationship between Nelson Wheeler Perth and Western United. The evidence permits the conclusion that Pilmer referred the matter to Hong Kong but does not disclose what other role, if any, was played by him.

Lastly, it is reasonable to conclude that Nelson Wheeler Perth, and probably Pilmer and Martino, were aware of the general nature of the transactions and that they involved back to back loans. Further, it may be accepted that Pilmer was aware of this type of lending activity by Western United.

In early 1984 Munachen was secretary of Southern Goldfields. On 4th January 1984 Southern Goldfields deposited $180,000 with Western United and Munachen confirmed by letter that the money may be used to advance to third parties. Western United required amendment to that letter to include that should there be any loss arising as a result of such an advance, the repayment of the deposit could be reduced by a corresponding amount equivalent to the loss. Munachen re-drafted the letter accordingly.

This money was then advanced by Western United by way of loan to Ablyt Pty Ltd to enable that company to acquire shares and options in Forsayth which, in turn, were used as security for the loan. Ablyt was the vehicle for the purchase of those shares and options by Morris, Evans, Stokes and Munachen. Cohen was a director of Ablyt and Munachen arranged for the money to be a cheque payable to the sharebroker Eyres Reed & Co sent to Cohen.

The loan was repayable on 5th March 1984 and was re-paid on 6th March 1984 by a cheque drawn on the trust account of Stokes, Munachen & Co and forwarded by Munachen through Nelson Wheeler Perth.

Sanderson was employed by Western United at the time and handled this transaction.

This was clearly a back to back transaction to enable the four men to acquire a substantial interest in Forsayth. They used the medium of Western United for this purpose although Southern Goldfields provided the money.

This is not a transaction which involved Nelson Wheeler Perth but it is appropriate to mention it at this stage as it is another back to back transaction and it involved Somes and shows that Western United undertook this type of transaction.

Granadilla was an investment company controlled by Somes and his partner Cooke. They carried on practice as chartered accountants at West Perth and, as has been mentioned, Somes was a director of both Kia Ora and Western United. He and Cooke were directors of Granadilla.

On 26th February 1987 Granadilla applied to Western United for a loan of $120,000 to assist in the purchase of a country hotel. The loan was approved by Harold Abbott, Green and Gardiner and was to be re-paid on 1st June 1987. Cupreous Pty Ltd was the trustee for the John Cooke Family Trust No 2. Somes and Cooke were the directors of the company. It had nearly $140,000 on deposit with Western United. Western United required that deposit to be held as security for the loan to Granadilla. Cupreous undertook to maintain its deposit with Western United for the full term of the loan to Granadilla and authorised Western United to apply those monies to meet any default in the loan to Granadilla.

This transaction was, in effect, the use of money deposited by Cupreous for the loan to Granadilla which had the effect of increasing the income and the assets of Western United.

As has been seen, Medif was the trustee of the J.K. Investments Unit Trust, the unitholders of which were the J Cook Family Trust and the K.C. Somes Family Trust. Somes and Cooke undertook investments through the J.K. Investment Trust. Medif was involved in loan transactions with Western United in the nature of back to back transactions. They did not involve Nelson Wheeler Perth and are not evidence of an association between Nelson Wheeler Perth and Western United but once again it is appropriate to mention these matters at this stage as this involved Somes and revealed a feature of the business practice of Western United.

Medif borrowed $50,000 from Western United in November 1987 and that loan was again extended in May 1987. A.W.B. Nominees Pty Ltd was the trustee of the K.C. Somes Family Trust. Security for the loan included a charge over $120,000 which A.W.B. Nominees had deposited with Western United. A.W.B. executed an agreement in writing with Western United presumably at about this time whereby it agreed to lodge a deposit of $50,000 with Western United as security for the loan and that in the event of the loan facility being terminated, Western United may redeem the deposit and apply it to any shortfall in the loan repayment.

On the 25th November 1987 Medif sought another loan of $90,000 from Western United. At some stage it was written on the credit application that repayment was to be made from acceptance of Kia Ora's offer for Western United shares. Security for this loan was shares in various companies.

The first transaction involving the loan of $50,000 has the character of a back to back arrangement but not the second transaction. The second transaction seems to be no more than an arrangement for security of the advance by shares in other companies.

Domenal was the trustee for the D.V. Martino Family Trust which was, as the name suggests, Martino's family trust and he was a director of that company.

The loan transaction involving Domenal occurred in early 1988 well after the preparation of the Nelson Wheeler report. Nevertheless, it is submitted by the plaintiff that the transaction is relevant to establish features of the relationship between Nelson Wheeler Perth and Western United during the previous year and knowledge by Nelson Wheeler Perth of this type of transaction at that time. It is the contention that if those facts existed in early 1988, it is likely that they existed in 1987 at relevant times.

On 5th January 1988 Martino wrote to Mr D Martin of Western United confirming a telephone conversation that afternoon and requesting a loan of $60,000 to Domenal as trustee for his family trust. He offered as security shares in AIMS and in Tectonic Resources Limited. In this letter Martino also wrote that in addition he would arrange for an associated company to deposit $200,000 with Western United.

On the same day Martino prepared the credit application form on behalf of Domenal which included the proposed security arrangements. The loan was granted and continued for some time. It was rolled over until the end of January 1989. Mention is made later of Tectonic which was re-activated in the middle of 1987 and became a minerals prospector. Further mention of AIMS is also made later.

On 8th January 1988 Money Mining NL, of which Martino was a director deposited $200,000 with Western United and requested that the deposit be made in the name of Munda Management Pty Ltd. The letter forwarding a cheque for the money to be deposited and making this request was signed by Martino.

Money Mining was a public mining company that was established by Mr JR Money to develop a number of exploration mining areas. The company was a client of Nelson Wheeler Perth and Martino undertook much of the work for the company of which he was a director and the secretary. Pilmer and Pilfin Securities Pty Ltd, a company with which Pilmer was associated, owned shares in the company. The principal shareholders were Mr RJ Anderson and Mr G Money. Nelson Wheeler Share Registry provided the share registry service. JR Money was the managing director of the company. The registered office was that of Nelson Wheeler Perth.

During the previous year, Money Mining had substantial sums of money on deposit with various banks and institutions but none with Western United.

According to Martino, Domenal borrowed the money because of Martino's commitments to other investments. He had loans from other financial institutions and wanted a financier who would take share script as security rather than real estate. He said that Mr Daryl Robb, a director of Tectonic, suggested that he contact Western United and he did so. He said he also contacted three other financiers. He discussed the matter with Martin of Western United and then wrote the letter to Western United. His explanation for the intimation that he would arrange for an associated company to deposit $200,000 was that Martin told him that in those sorts of transactions, they wanted to get deposits and do a two-way business. Martin told him that he knew of Nelson Wheeler Perth and that they acted for mining companies and he would like to do reciprocal business. Martin mentioned Money Mining to him because the company was trying to get into production in a joint venture and he thought it would be appropriate to start a relationship with Western United. JR Money had asked him to explore finance possibilities. Martino discussed the matter with him who agreed that Money Mining should try to get Western United on board. It was JR Money who made the decision. Martino said he gave advice but that the motivation for that advice was the development of relationships with financiers, in this case Western United.

A little later in his evidence Martino was again asked to relate his conversation with Martin on this occasion and he added that he made it clear to Martin that the deposit by Money Mining was not as security for the loan to Domenal and that Martin agreed that there was no suggestion of that being the case. That evidence was given after Martino was asked if he thought he had a conflict of interest in this transaction which he had denied.

Martino's explanation about this transaction is not convincing. There is no evidence to dispute that JR Money gave his permission for the deposit of the $200,000 with Western United or to suggest that Pilmer was in any way involved, although that could be the case. The fact remains that this loan was arranged quickly with adequate security but nonetheless Martino arranged for the deposit by Money Mining which was also arranged promptly. Given the earlier experience with Questenberg Pty Ltd yet to be mentioned, Chiswick Gold and Lexham Port, it is difficult to accept that Martino had no prior knowledge of Western United doing business in this manner of back to back arrangements and that Western United was barely known to him. His explanation for the reason for Money Mining making the deposit is unlikely and is rejected. The likely explanation is that although the deposit was not to be used as security for the loan to Domenal, that loan would not have been granted unless the deposit was made.

Grumpy Investments Pty Ltd was the trustee of the Tick Tock Unit Trust which was a vehicle for investments by Mr Peter Andrews and his family. He is not the Leslie Andrews involved with Stokes in the LGM Prospecting Syndicate and Mawson Pacific. Grumpy Investments also carried on business under the name of Western Strategic. Peter Andrews and his wife were directors of the company. He was a corporate consultant, geologist and manager of mining companies and was well known to Western United.

On 26th March 1987 Grumpy Investments applied to Western United for a loan of $100,000 to assist in the purchase of shares in Cove Mining NL. Peter Andrews was managing director of Falcona Exploration and Mining NL of which mention is made later. Cove Mining owned a 32 percent interest in Falcona. The loan was granted. The security was a pledge over shares in Cove Mining and in Noble Resources NL and a personal guarantee given by Andrews.

In the application it is recorded that funds raised by a float, noted as $1.3m, were to be placed on deposit with Western United. The float is a reference to the float of Concord Mining NL, a minerals prospecting company. Gardiner and Peter Andrews were two of the three directors of that company. Nelson Wheeler Perth provided the share registry service for the company and acted as auditors. Crawford wrote the investigating accountants' report for this purpose. Ray Porter and Partners acted as underwriters. The float was successful and the company was listed on the Stock Exchange on 30th July 1987. On 30th June 1987 Concord paid various amounts due in consequence of the float by way of expenses and fees and $610,000 to Western United which was placed on deposit. It is alleged that this payment met, in part, the intimation at the time Grumpy Investments obtained the loan that $1.3m would be deposited with Western United. It is the plaintiff's case that these arrangements constituted a back to back arrangement and that Nelson Wheeler Perth must have been aware of it in view of their involvement in the float.

It is likely that this loan to Grumpy Investments was part of a back to back arrangement involving the deposit of Concord Mining but the evidence does not disclose that Nelson Wheeler Perth were aware of the nature of the transaction. Mere involvement in the float and as auditors may have caused them to know of the deposit by Concord with Western United but there is no evidence to suggest that they knew of the other side of the transaction.

There are other alleged back to back loan transactions involving Parry Corporation, Palmvale Nominees, Cullimore Investments Pty Ltd and Questenberg which are discussed shortly as they also involve other features of the alleged associations between Nelson Wheeler Perth and Kia Ora and Western United.

It is likely that this loan to Grumpy Investments was part of a back to back arrangement involving the deposit of Concord Mining.

These various transactions establish the allegations of the plaintiff about back to back loans by Western United with a consequence of inflating the income and asset base of Western United. They also establish that Pilmer, Stokes, Munachen and Martino were aware of this technique. It is also significant that Somes was also aware of these matters because as a director of Kia Ora he had to consider the valuation of Western United by Nelson Wheeler Perth and the Nelson Wheeler report.

Acorn Securities Limited was a mining company and producer of diamonds and gold in Indonesia and Western Australia. In 1986 and 1987 Munachen was a director and share registry services to the company were provided by the Nelson Wheeler Share Registry. Other directors included Mr B Wrixon and Cornelius. Wrixon was an accountant who acted for Mr D Hill and companies associated with him. Karonie Gold NL and Gowners Pty Ltd were wholly owned subsidiaries of Acorn Securities until in 1987 Karonie Gold was floated. Thereafter Acorn Securities had a forty per cent shareholding in Karonie Gold. Munachen, Wrixon and Cornelius were also directors of Gowners, the business of which was share trading.

According to Messer, Munachen and Wrixon had looked after Hill's interests for some time and the effect of his evidence is that Hill had a substantial interest in Acorn. Hill also had substantial interests in Wattle Gully Gold Mines and Mt Pleasant Gold Trust which are mentioned later.

Munachen, Cornelius and Wrixon owned shares in Acorn. By February 1987 Munachen, through a company which he controlled, owned 130,000 shares and 650,000 options in Acorn.

Nelson Wheeler Perth also undertook other work for Acorn. On instructions, they arranged funds for Acorn's share in what was known as the Karonie Gold Project. They provided taxation advice to Acorn. Pilmer, Munachen and Crawford, along with Cornelius, were signatories to a bank account in 1985. In that year, the share registry was, in effect, transferred to Nelson Wheeler Perth. Martino became a signatory in lieu of Crawford in July 1986.

Acorn and Gowners were involved in activities of other companies which feature in the plaintiff's case relating to association between Nelson Wheeler and Kia Ora and Western United.

At a meeting of directors of Acorn on 21st March 1986, a joint venture arrangement with Mawson Pacific regarding tenements in Canada was discussed. Reports about exploration at Mt Pleasant were received.

County Securities acted as broker in the sale by Acorn of shares in various companies in January 1987.

The shares owned by Gowners included substantial shareholding in various companies which are the subject of submissions by the plaintiff about associations between Nelson Wheeler and Kia Ora and Western United. They include Phoenix Oil and Gas Ltd, Geometals NL, Southern Resources, Southern Goldfields, Pact Oil & Gas Ltd, Mt Pleasant Gold Trust, West Coast Holdings, Mawson Pacific, Forsayth NL and Wattle Gully.

Palmvale borrowed $300,000 for this purpose from Western United. The application for the loan was made on 16th January 1987 and was granted on 22nd January 1987.

On 16th January 1987 Munachen, on behalf of Acorn, deposited nearly $280,000 with Western United on 24 hour call. As Harold Abbott and Munachen did not give evidence to the contrary, it is reasonable to conclude that this transaction was a back to back loan for the benefit of the beneficiaries of the Essemco Unit Trust. When Munachen made this deposit, he wrote a letter to Ms Wendy Allen of Western United and addressed her on first name terms which suggests he was known to her.

County Securities undertook share trading at the instruction of Gowners during 1987.

In February 1987 the directors of Acorn ratified the appointment of City of London Public Relations which, it will be remembered, was the firm employed by Kia Ora and Harold Abbott.

On 7th April 1987 Acorn deposited $580,356 with Western United at call to the credit of Gowners. Western United was not the only merchant bank or financial institution with which Acorn deposited substantial funds. Nevertheless, it did deposit funds with Western United at times.

The evidence establishes that Munachen and staff of Nelson Wheeler Perth administered Acorn and Gowners. Munachen was closely associated with Hill who was the promoter and controller of the Mount Pleasant Gold Trust which is discussed later. Acorn and Gowners had financial dealings with Western United as did Palmvale. Stokes and Munachen were involved in those dealings to the extent described and they had a business relationship with Western United. They were involved in the back to back arrangements involving Acorn and Palmvale.

wattle gully gold mines nl and the mount pleasant gold trust

The events concerning Wattle Gully and Mount Pleasant Gold Trust in 1987 are of considerable importance in the plaintiff's case. It is said they disclose a close involvement between Harold Abbott and Pilmer, Stokes and Munachen as well as Nelson Wheeler Perth and Kia Ora and Western United and to such an extent that Nelson Wheeler should not have been offered, and should not have accepted, the retainer to undertake the Nelson Wheeler report because they lacked the necessary independence to undertake that task. Furthermore, it is alleged that with the knowledge, gained by Nelson Wheeler Perth by reason of these events, and the circumstances surrounding them, they could not have expressed the views contained in the Nelson Wheeler report if they were acting diligently and competently. To understand the full impact of these matters, it is necessary to relate these events in some detail.

Wattle Gully was a public company incorporated in Victoria in 1933 as a mining and exploration company. It was moribund for many years. It became active for a time in the early 1980's but its history before 1986 is of little importance to matters in issue in these proceedings. Munachen had professional and business relationships with Hill who had extensive interests in the Golden Kilometre and Mount Pleasant regions in Western Australian through various companies.

Mount Pleasant Management Ltd was a public company incorporated in Western Australia on 4th December 1984. As from 21st December 1984 the registered office of Mount Pleasant Management was the office of Nelson Wheeler Perth. It was listed on the Stock Exchange. In November 1985 Mount Pleasant Management became the manager of the Mount Pleasant Gold Trust. On 13th December 1985 it caused 11m units at 50 cents each to be issued in the Mount Pleasant Gold Trust. Eyers Reed McIntosh acted as brokers for this issue and Mr T Bannerman acted as solicitor for those brokers with respect to the issue. Bannerman was a solicitor who had practiced in Kalgoorlie and was a long time friend and associate of Stokes and Munachen.

The major asset of the Mount Pleasant Gold Trust was mining tenements which were said to have a value of nearly $20m. During the six months to 31st December 1986 the Trust made a loss. Gold mining at that stage was more prospective than actual. In 1987 financial year a further small loss was made.

Munachen was appointed a director of Mount Pleasant Management on 24th June 1987. There were three other directors and Wrixon was the secretary of the company at all material times.

Some time after 25th June 1987 Morris and Chisholm were appointed directors of Mount Pleasant Management in place of two of the existing directors. The date of their appointments is not revealed by the evidence but they were probably both appointed soon after that date as Morris, along with Munachen, signed the 1987 annual directors' report of the company on 3rd November 1987.

During the 1986 financial year Wattle Gully operated modestly. The net assets for the company and subsidiaries was about $1.5m. There were a little over 14m issued shares. In early 1987, Palmvale, as trustee for the Essemco Unit Trust, acquired 2m shares at 12 cents per share and Gowners and Alkane Exploration NL each acquired another 1m shares at the same price. The evidence discloses little about Alkane, however, according to Stokes, he had some association with it. These acquisitions represented nearly fourteen per cent of the company. It will be remembered that the beneficiaries of the Essemco Unit Trust, through other trusts, were Stokes, Munachen, Cornelius, Morris, Evans and, at that time, Silver and that the purchase by Palmvale was financed by a loan of $300,000 from Western United.

By way of security for that loan, Western United took a pledge over the 2m shares in Wattle Gully and 200,000 shares in Mawson Pacific and personal guarantees of Stokes and Munachen. Stokes wrote to Green at Western United on 21st January 1987 seeking most of the loan funds urgently to pay the sharebroker who arranged the purchase. The scrip for the shares pledged as security had not then been issued. According to Stokes, he merely signed the letter in the absence of Munachen. This letter indicates that the arrangement between Stokes and Munachen and Western United permitted the urgent advance of most of the loan even though the scrip for part of the security was not available, which reveals a feature of the relationship between the two men and Western United, namely that they were well known by the company and thought to be trustworthy and reliable.

Between 5th February 1987 and 10th February 1987 Palmvale sold 885,000 shares in Wattle Gully thereby reducing its shareholding to 10.84 percent of the voting shares in the company.

By agreement in writing dated 29th April 1987 Wattle Gully agreed to acquire from Avenger Mining Pty Ltd tenements known as the Kookynie claims in consideration for the allotment of 3m shares in Wattle Gully to Avenger Mining. At that time Cornelius, his wife and another person were directors of that company.

After negotiations commencing in May 1987 Wattle Gully acquired a 47.5 percent interest in the tenements known as Badgebup from Southwest Gold Mines NL, a company controlled by Cornelius with the consequence that Wattle Gully, Glengarry Mining NL, each as to 47.5 percent and South West as to 5 percent were joint owners of the Badgebup project. The consideration paid by Wattle Gully was $2.2 comprising $1.4m in cash and 4m shares and 4m options.

In May 1987 Munachen, on behalf of Wattle Gully, applied to Western United for a secured syndicated loan facility of $22m. The terms of the application were such that the total exposure of Western United was to be $2.4m. Kia Ora was to acquire 19.9 percent of the issued capital of Wattle Gully and inject $2.4m into Wattle Gully. South West and Palmvale were to increase their shareholding in Wattle Gully to 19.9 percent each thereby injecting a further $4.6m into Wattle Gully. Kia Ora, Geometals, Oil Exploration Ltd and Forsayth NL were to provide an indemnity to Western United in the amount of $4.2m each and in case of Geometals and Forsayth each was to deposit $4.2m with Western United to support their respective indemnities. The loan facility was to be used by Wattle Gully to acquire an interest in the Mount Pleasant Gold Trust pursuant to a Part C on market cash offer and also to acquire Mount Pleasant Management. The proposal of Wattle Gully was to acquire the shares in Mount Pleasant Management for $750,000 and to acquire a minimum of 40 percent of the 44m issued units in the Mount Pleasant Gold Trust at a cost of $9m.

There were further conditions of the loan application. Kirke Securities was to underwrite and confirm to Western United a share issue by Wattle Gully to raise capital of $7m. County Securities acted as the principal sub-underwriter which, in turn, had sub-underwriting arrangements with Geometals, Palmvale, Morris and Evans and Resource and Mineral Equities Ltd. These arrangements may be seen from a facsimile transmission sent by Munachen to Newton. Finally, Wattle Gully had to provide security by way of a pledge over 18,153,000 units in the Mount Pleasant Gold Trust and a pledge over the shares in Mount Pleasant Management.

The management of the Mount Pleasant Gold Trust project in the sense of mine management was to be undertaken by Australian Mine Management Pty Ltd which was a company owned by Elders Resources Ltd and Eltin.

The loan was approved on 29th May 1987 and Harold Abbott, Lee-Steere, Somes, Gary Abbott and Green participated in that decision. In his diary for that day, Lee-Steere recorded "Afternoon at Kia Ora for big decision" which he said related to this matter. Lee-Steere acknowledged that he knew nothing about Wattle Gully or who was involved in it when he gave his approval even though it was the largest loan transaction ever undertaken by Western United and Kia Ora was to become the largest shareholder in Wattle Gully. Somes said he did not remember the transaction in detail given the lapse of time but he did recall that the purpose of the loan was to enable a takeover of the Mount Pleasant Gold Trust and that he thought Western United should be involved in such a transaction.

On 22nd June 1987 a general meeting of Southwest approved the sale of the interest in the Badgepup project to Wattle Gully and Glengarry.

At about the beginning of June 1987 the Part C offer for all of the issued units in the Mount Pleasant Gold Trust at fifty cents each was made by Wattle Gully, Kia Ora, Geometals and Forsayth on the basis that Wattle Gully would acquire the first 40 percent of the units, Kia Ora the next 11 percent with the balance being distributed equally amongst Kia Ora, Geometals and Forsayth.

Wattle Gully made a non-renounceable rights issue on 4th June 1987 on the basis of four new shares for every seven existing shares at a price of 25 cents per share. A little over 27.7m shares were issued and about $6.9m was raised. The purpose of the issue was, inter alia, to raise funds for the Part C takeover of the Mount Pleasant Gold Trust. 10m shares of fifty cents each at a price of twenty-five cents were placed with various companies and persons including Kia Ora, 5m shares, and Comserv, 1.5m shares, both of which took up those allocations. Wattle Gully instructed Kirke Securities, the principal underwriter of the rights issue, to deposit with Western United the proceeds of the issue and authorised Western United to apply those moneys against the amount owed from time to time by Wattle Gully under the loan facility.

Wattle Gully acquired all of the issued capital in Mount Pleasant Management for $750,000.

Thereafter the transactions concerning Wattle Gully, Southwest and Associated proceeded. Wattle Gully deposited $1m with Western United on or about 17th June 1987. At about that time Western United advanced that amount to Southwest to enable it to complete its transaction with Associated and eventually the acquisition of a 47.5 percent interest in the Badgebup project by Wattle Gully was completed. Wattle Gully paid $1.4m in cash and allotted 2m shares in Wattle Gully to Southwest. This deposit by Wattle Gully with Western United was another back to back loan arrangement.

Stokes and Cornelius were appointed directors of Wattle Gully effective from 30th June 1987.

The Part C takeover of Mount Pleasant Gold Trust was completed and all of the issued units were held by Wattle Gully (41.21 percent), Kia Ora (26.98 percent), Geometals (15.9 percent) and Forsayth (15.9 percent).

At about 18th August 1987 the directors of Wattle Gully were Stokes, Munachen, Cornelius and a Mr Burton. Munachen, Morris and Chisholm were the directors of Mount Pleasant Management.

It will be seen that familiar names were involved in this very large and complex transaction: Hill, Harold Abbott, Stokes, Munachen, Cornelius, Morris and Evans. This extra-ordinarily large loan of $22m by Western United was approved promptly by Harold Abbott, Lee-Steere, Somes, Gary Abbott and Green. Companies in which Stokes and Munachen had interests became closely involved with Kia Ora and Western United.

It will be remembered that on 21st August 1987 Harold Abbott and others instructed Pilmer to undertake the valuation of Western United. On this day Munachen instructed the R & I Bank of Western Australia to issue a bank cheque to Western United for $2,469,224.20. Also on that day Stokes, Munachen and Morris had lunch together. That amount was received by Western United on 24th August 1987.

A consequence of the deposit was to enhance the financial position of Western United. By making this deposit Wattle Gully became the fifth largest depositor with Western United. The first three largest depositors were Kia Ora, Kia Pacific and Mawson Pacific. Wattle Gully was, at the same time, the largest single borrower from Western United owing nearly $8.5m which represented a little over 50 percent of all borrowings from the bank. As with the deposit, the borrowings also enhanced the financial position of Western United.

Also, it is to be remembered that only a few days before on 19th August Stokes, on behalf of Mawson Pacific, wrote to Harold Abbott and offered to purchase the second half of the Marvel Loch mine for $40m.

The plaintiff contends that given the association between all of these men, they must have known of all of these matters at the time concerning Wattle Gully and Western United. Morris and Stokes could remember little of the lunch. However, these events involving Wattle Gully, Mawson Pacific, Kia Ora, Western United and Stokes, Munachen, Morris and Evans were major events by their own, or any, standards and it is safe to conclude that Harold Abbott, Stokes, Munachen and Morris were aware of them. What Pilmer knew is not certain. However, it is likely that he knew of the involvement of Stokes and Munachen in Mawson Pacific and Wattle Gully, that Nelson Wheeler Perth acted for both companies and that the two companies of Stokes and Munachen had associations with Kia Ora and Western United of the general nature which has been mentioned.

Pilmer gave some brief evidence at the s541 examination where he was asked about partners of Nelson Wheeler Perth having dealings with Western United. He said he believed that Stokes and Munachen had some form of a relationship with Western United but he could not recall when it was. According to him, they were involved with companies borrowing money from Western United in the ordinary course of business. He then mentioned Wattle Gully. He said that Nelson Wheeler Perth provided professional services to Wattle Gully and held shares in the company. He was aware that Kia Ora had shares in Wattle Gully and that Munachen and Kia Ora had an interest in the Mount Pleasant Gold Trust. Also, he said he was aware that Stokes was a director of Mawson Pacific. It is likely that Pilmer was aware of these companies and the role played by Stokes and Munachen. If he did not have any precise information, it would have been but a small step to make appropriate enquiries.

Wattle Gully continued to deposit money with Western United and was the fourth highest depositor during September and October 1987.

As at 30th October 1987 the top twenty shareholders in Wattle Gully included Kia Ora, Southwest, Avenger Mining with which Cornelius was associated, Ramsgate Resources, Palmvale, Bowyang Nominees, Gowners and seven nominee companies.

The extent of the debt owed by Wattle Gully to Western United at 12th November 1987 was $9.7m. The loan was extended for a further twelve months.

The plaintiff contends that the transactions involving Wattle Gully were major matters for Harold Abbott, Stokes, Munachen and Nelson Wheeler Perth during 1987. It is claimed that they were joint venturers. Nelson Wheeler Perth had substantial benefits because of the development of the company and the various transactions which resulted in a considerable amount of profitable work. Stokes and Munachen also benefited personally through the taking of shares. Harold Abbott, Kia Ora and Western United also benefited substantially. Each was dependant upon the others and advanced the interests of the others. Because of the involvement of Stokes, Munachen and Nelson Wheeler Perth, the firm could not have acted as an independent expert when undertaking the Nelson Wheeler report. They depended upon Harold Abbott for the financial support for Wattle Gully to develop as it did.

The first defendants dispute those contentions. They contend that although Munachen commenced to take control of Wattle Gully in January 1987 that did not eventuate until he became a director, a position realised after he resigned from Nelson Wheeler Perth. I have concluded that he did not resign but even if he did leave the firm at the end of June 1987, he had by that time developed Wattle Gully substantially

Also the first defendants contend that the Part C takeover of the Mount Pleasant Gold Trust was a business activity of Wattle Gully and not a matter of which Nelson Wheeler had constructive knowledge. Each of the associations was appropriate. Kia Ora owned half of the Marvel Loch Mine in the same general vicinity. Forsayth was a gold miner and explorer. Geometals was an active participant in the mining industry and Western United was one of four merchant banks in Western Australia. The level of funding by Western United is overrated given the obligations of Kia Ora, Geometals and Forsayth. Western United was an attractive place for Wattle Gully and other companies to deposit funds as it offered higher interest rates than the R & I Bank or the ANZ Bank according to a record of Wattle Gully. Also it is submitted that the evidence does not establish that Wattle Gully was aware of, and implicated in, back to back loans involving Southwest.

The evidence clearly establishes a close relationship between each of these men and companies and financial dependence of Wattle Gully upon Western United. Once it is acknowledged, as is the case that Stokes and Munachen were heavily involved in Wattle Gully and Harold Abbott was the driving force behind Western United, which is also the case, it may be seen that Stokes and Munachen were financially dependent upon Harold Abbott. Also it may be seen that each of the companies taking units in the Mount Pleasant Gold Trust, Wattle Gully, Kia Ora, Geometals and Forsayth were dependent upon each other for the security of their investment. Without each of them, the project would not have succeeded. Kia Ora, Geometals, Oil and Exploration Limited and Forsayth were all committed to Western United and dependent upon each other for the success of the transaction. These matters show the close business connections between Stokes, Munachen, Harold Abbott, Morris, Evans and others and mutual dependence on each other and upon Western United. Given that Stokes and Munachen were partners of Nelson Wheeler Perth at the time of these events, the firm could not possibly have been regarded as independent of Kia Ora or Western United. The extent of Pilmer's knowledge of these matters is not known. There is simply no evidence about that matter. His failure to give evidence does not permit a finding that he had actual knowledge of those matters. However, I reject the contention that he did not have constructive knowledge by reason of Stokes and Munachen being his partners. The work undertaken by Munachen on behalf of Wattle Gully was the type of work he customarily undertook within his role in the practice and the altered arrangements with Nelson Wheeler Perth after 1st July 1987 do not change that position.

The proposed transaction involving Aljalon Pty Ltd and Mount Pleasant Management was to occur in 1988 and did not proceed. Nevertheless the plaintiff contends that it reveals the closeness of the relationship between Harold Abbott and Munachen, as well as others and other matters, which very likely existed in 1987 before Nelson Wheeler Perth entered into the contract of retainer with Kia Ora to undertake the valuation of Western United and the Nelson Wheeler report was drafted. It is fair to say that the absence of Harold Abbott and Munachen from the witness box leaves a good deal of the story untold.

At relevant times the directors of Aljalon were Mr PE Kordic and Mr DJ Williams who were both partners of Talbot and Olivier solicitors in Perth, the firm at which Gardiner had earlier practised and remained as a consultant. Kordic was well known to Western United and in June 1987 had borrowed money from that company. The credit application for that loan noted a business relationship between Talbot and Olivier and Western United with the former providing legal services to the latter and the latter providing finance to the former.

On 18th March 1988 Kordic, as a director of Aljalon, wrote to Wattle Gully offering to purchase all of the issued shares in Mount Pleasant Management for $500,000 on certain conditions. He wrote to Gardiner on the same day. This letter began:

"The letter to Wattle Gully Gold Mines NL was sent today. Enclosed is a copy for your records."

It may be seen that Gardiner must have been aware of the offer prior to this time. This letter to Gardiner enclosed a Deed of Guarantee and Indemnity and sought information about the shareholders, presumably of Mount Pleasant Management and the agreements by parties to provide the funds for the offer. These matters suggest that the proposal was well advanced, and to the knowledge of Gardiner, before the offer was made and that he was giving the instructions to Kordic.

It will be remembered that Munachen was the chairman of directors and executive director of Wattle Gully. Gardiner wrote to Munachen on 6th April 1988 referring to the offer and requesting Munachen and Cornelius to sign a guarantee and indemnity which was enclosed. This guarantee and indemnity was said to be "to the nominee directors who are acting on our behalf in respect of this matter", obviously Kordic and Williams . On 6th April Gardiner wrote to Kordic in response to his letter of 18th March 1988 and informed him that he, Harold Abbott, Gary Abbott and a Mr B Fogarty had signed the guarantee and indemnity and that he was arranging for Munachen to do likewise.

This correspondence establishes that as directors of Aljalon, Kordic and Williams were being indemnified and they were acting on behalf of Harold Abbott, Gary Abbott, Gardiner, Fogarty, Munachen and Cornelius who were attempting to takeover Western United Management.

Munachen wrote on 8th April 1988 to the directors of Aljalon and rejected the offer but advised that $750,000 would be acceptable provided that the office used by him to administer Mount Pleasant Management and his position as manager were retained for a year. He required other terms including that his monthly salary continue.

A short time later on 19th April 1988, Gardiner wrote to Kordic and informed him that the proposed transaction was not proceeding.

The plaintiff makes a number of submissions about this matter to the effect that Munachen was on both sides of the transaction, which appears to be the case, that he was attempting to prefer his personal positions to those of Mount Pleasant Management, that Harold Abbott was exerting pressure on Munachen through Western United and that they were dealing with an asset of Kia Ora because Mount Pleasant Management managed Mount Pleasant Gold Trust in which Kia Ora had a substantial interest.

The first defendants contend that this transaction was apparently driven by Harold Abbott and Munachen was never truly a party to the proposal. It was put to him and rejected by him. They further contend that this transaction does not demonstrate any relevant relationship between Munachen, Kia Ora and Western United or anyone involved in these companies.

I do not agree. The evidence reveals that Munachen, Harold Abbott, Gary Abbott, Gardiner, Fogarty and Cornelius were attempting to acquire Mount Pleasant Management for their own purposes and they used Aljalon and Kordic and Williams as directors of that company to preserve their anonymity. Although the proposal did not proceed, control of Mount Pleasant Management would have enabled them to control Mount Pleasant Gold Trust in which Kia Ora had a substantial interest which Easton quantified at 14.9 percent of that Trust. Wattle Gully Gold Mines owned 41.2 percent of that Trust. By this time Wattle Gully was in financial difficulty and could not repay the balance of the loan due to Western United. Proposals for the reverse takeover were being considered.

Stokes said he knew nothing of the proposed Aljalon transaction which may be so but he could not be cross-examined. The absence of Harold Abbott and Munachen from the witness box probably prevented the full story becoming known to the Court but what is clear is that even at this stage in early 1988, a close business relationship between Harold Abbott, Gary Abbott, Gardiner and Munachen existed. A feature of that relationship was that those men were attempting to gain control of a significant asset in which companies which they in effect controlled had substantial interests. Munachen was on both sides of the transaction with a conflict of interest which was known to the others.

Although those events occurred in early 1988, it is likely that this type of close relationship, particularly between Munachen, Harold Abbott, Gary Abbott and Gardiner, existed during 1987 after Munachen assumed control of Wattle Gully.

AIMS is the result of the amalgamation of three business in Kalgoorlie. It will be remembered that mention of this company was made in the context of the composition of the partnership of Nelson Wheeler Perth because AIMS took legal proceedings against the partners. The company was incorporated on 11th March 1987 in Western Australia and acquired the businesses known as Goldfields Brake Service, Muirhead Electrical and Burketts. Each of the businesses had been conducted by separate companies. By this time Goldfields Brake Service was involved in industrial retailing and had developed a failsafe braking system suitable for use in the underground mining industry. Muirhead Electrical operated in retail and service areas in the automotive electrical industry for mining and industrial companies. It developed an engine protection system used by the mining industry in Australia designed to prevent machinery operating when overheated, deficient of oil or having malfunctioned. Burketts was an industrial retail company operating in the Eastern Goldfields. The proprietors of the three businesses were all clients of Nelson Wheeler Perth in Kalgoorlie and their accountancy work had been undertaken by Langford. They had all been clients of Stokes. Langford's sister was married to a person controlling one of the businesses.

Langford wrote to Stokes on 21st January 1987 setting out facts and figures relating to the proposed amalgamation. Nelson Wheeler Perth provided the registered office and share registry for AIMS and acted as auditors and investigating accountants. AIMS was incorporated as a public company with limited listing on the Stock Exchange. Freehills acted as the solicitors for this purpose on instructions from Langford. The initial directors were Graham Smith, Ivan MRSA, Harken, Kim Gardner and George Botica who were all acquaintances and associates of Stokes. The three businesses were acquired on 20th March 1987. On 14th May 1987 Gardiner and Harken were asked to resign as directors and did resign. On 17th June 1987 AIMS issued a prospectus for the issue of 3.5m ordinary shares of $1 each. By this time there were new directors, two of whom were the persons who had controlled Goldsfields Brake Service and the person who had controlled Muirhead Electrical. The underwriter for the issue was Jacksons Limited of Perth. On 16th June 1987 Jacksons offered to Gowners general sub-underwriting of the issue of 200,000 shares for a fee of 2.5 percent which was accepted by Munachen on behalf of Gowners. Gowners acquired shares in AIMS. Crawford undertook the investigating accountants' report for the purpose of the issue and it was included in the prospectus.

According to Stokes, he had no role in the underwriting arrangements and said that he does not believe he was aware of the role played by Gowners at the time.

The share issue was not immediately successful and Stokes became involved in the placement of shares. He was informed by a representative of Jacksons that he was having trouble placing all of the shares. Stokes spoke to Harold Abbott in consequence of which Kia Ora acquired 700,000 shares in AIMS on 3rd July 1987, which represented 13.22 percent of the issued capital. Kia Ora was the third largest shareholder. The issue was eventually successful and AIMS was able to pay the balance due on the purchase of the three businesses and to pay out various loan accounts.

Nelson Wheeler Perth was closely involved in, and continued to act for, the company. Directors' meetings were held at the Kalgoorlie offices of Nelson Wheeler Perth. Stokes was well aware of the formation and operation of AIMS and played a significant role. The proprietors of the three businesses had all been his clients. He negotiated with Jackson. He arranged for Kia Ora through Harold Abbott to take shares and also for Mawson Pacific and Eltin to take shares. He supported the concept of the merger of the businesses and he said that he thought it was a good investment for Kia Ora.

The plaintiff alleges that it was inappropriate for Crawford to undertake the investigating accountants' report for the share issue and that there are other aspects of the conduct of Nelson Wheeler Perth which are inappropriate. It is unnecessary to consider those matters or to make any findings about them.

The significance of those matters is the close involvement of Nelson Wheeler Perth in the AIMS share issue involving Stokes, Langford, Crawford and Munachen and the involvement of Kia Ora through Harold Abbott. It was obviously important to the clients and to Nelson Wheeler Perth for the share issue to be successful. It was failing and Stokes secured the assistance of Harold Abbott and Kia Ora. This matter demonstrates that the relationship between Nelson Wheeler Perth and Kia Ora and Harold Abbott was sufficiently close to achieve this important assistance. It was only a little over a month later that Kia Ora and Harold Abbott sought the assistance of Nelson Wheeler Perth for the purpose of the Nelson Wheeler report. It is to be expected that the assistance given by Harold Abbott on this occasion could, in the minds of some, create a sense of obligation.

As has been seen County Securities was the sharebroker involved in the sale of the parcel of shares owned by Parry Corporation in Western United on 14th August 1987. Newton was a principal officer of the company and a close friend and associate of Stokes.

As will be seen, County Securities was involved in many of the dealings, promotions and investments undertaken by Stokes and Munachen through various companies during 1986 and 1987 and earlier. Those companies included Mawson Pacific, Wattle Gully, MRSA and Tectonic.

It will be remembered that Muscoda Holdings, with which Newton and Stokes were associated, acquired some of the shares in Western United sold by Parry Corporation on 14th August 1987. Stokes acknowledged an aspect of his relationship with County Securities in the letter which he later wrote to Harold Abbott on 8th February 1988 and which is mentioned later in the context of Mawson Pacific. In that letter he wrote that he had taken positions as requested from time to time in companies supported by County Securities in return "for the great support they have given me in Mawson".

According to Stokes he arranged for Newton to contact Kia Ora in January 1987 to lend credibility to the proposal of Mawson Pacific to purchase the first half of the Marvel Loch mine. There was a transaction in March and June 1987 involving Palmvale and Newton. It is not clear from the records admitted into evidence what was the precise nature of the transaction but it seems that Palmvale acted as a bare trustee for Newton in relation to the purchase and sale of shares in Australian Emeralds Pty Ltd and that Newton owed a substantial sum of money to Palmvale for a time. The absence of Munachen and Newton from the witness box and the inability of the plaintiff to cross-examine Stokes has prevented the explanation of this transaction. These records were made on Nelson Wheeler stationery probably under the control of Munachen. At all events this evidence does disclose a close business relationship between Newton and Munachen and Palmvale and that Newton chose to use Palmvale rather than Bowyang or some other company controlled by him.

It will be remembered that in January 1987 Newton, for County Securities, purchased for an individual purchaser, 30m options in Kia Pacific from Kia Ora. Newton was appointed a director of Mawson Pacific on 18th February 1987. Munachen acquired shares in Acorn Securities from Bowyang Nominees using County Securities as the sharebroker. Also, it will be remembered that in March 1987 County Securities was appointed as the official broker for Kia Ora.

There were many transactions during 1987 which involved County Securities and one or more of Palmvale, Kia Ora, Western United, Parry Corporation and Wattle Gully Gold Mines. As has been seen Stokes and Newton went to London in May 1987. The documentary evidence suggests that they met with Harold Abbott and one of Newton's tasks was to promote Kia Ora. Harold Abbott sent a telex to Schneider-Paas on 23rd March 1987 which wrote that Kia Ora was "working together with Stokes in complete harmony and all looks well for the future". The telex went on:

"It looks as though I may have to be in London for a week or so commencing Monday 27th April and I will confirm these dates to you later. The point of the trip is that both Stokes and his stock broker will be in London at that time and are keen to introduce us to London Brokers and Institutions. They were up at Marvel Loch for four days last week and were very impressed with what they saw. The stock broker believes that Kia Ora should be selling at DLRS.2 per share and his firm, County Securities Limited will become our official brokers from this point onwards."

Stokes denied that Newton undertook that role but his evidence on that matter was not tested and cannot be accepted.

In late March 1987 Mr W Grigor of County Securities prepared a proposal for various companies in the Yilgarn Goldfields in Western Australia with a view to attracting into the area a major gold producer. In the course of preparing this proposal he visited the Marvel Loch mine and premises of other companies in the Southern Cross area, including Mincoa. The proposal involved a number of companies including Kia Ora and Mawson Pacific.

County Securities was involved in the underwriting of a non-renounceable rights issue by Wattle Gully in June 1987. Kirke Securities was the lead underwriter. As has been seen, the proceeds of the issue were to be used to acquire units in the Mount Pleasant Gold Trust. County Securities acted as a sub-underwriter and in turn Comserv and Palmvale, along with another company Resource and Mineral Equities Limited, underwrote part of the commitment of County Securities.

There is one further aspect of the sale of the shares held by Parry Corporation in Western United that should be mentioned. On that day Newton and Stokes attended a meeting of directors of Mawson Pacific. Given the close relationship between Newton and Stokes, it is likely that they would have discussed this transaction at least in general terms.

On 26th October 1987, the day of the extra-ordinary general meeting of Kia Ora to consider the takeover of Western United, Morris, Newton and Stokes had lunch and the annual general meeting of Mawson Pacific was held which was attended by Stokes and Newton. Morris said he could not remember what was discussed at the lunch but it was a lively and talkative lunch. It is likely that the takeover of Western United by Kia Ora and the Marvel Loch mine were discussed.

By 30th October 1987 Bowyang Nominees held over 1m shares in Wattle Gully and was in the top ten shareholders along with Palmvale, Ramsgate Resources, Gowners and Kia Ora. Beechgrove also held 1m shares at that time. It will be remembered that Beechgrove took 200,000 of the shares in Western United sold by Parry Corporation but the evidence does not disclose the directors or shareholders of that company.

After the takeover of Western United by Kia Ora, Hartigan revealed in his report to Reid on 18th February 1988 that Newton was one of the major shareholders in Kia Ora, holding 5m shares. It seems that this shareholding arose through the acceptance of the shares and cash offer by Bowyang Nominees. When the plaintiff went into liquidation in 1989 Bowyang Nominees held only 30,750 shares in the company. The evidence does not disclose when the other shares were sold or the reasons for, or the circumstances of, the sale.

It may be seen from this brief summary of some of the evidence that Newton and County Securities through Palmvale, Mawson Pacific and Muscoda, had close associations with Stokes and Munachen through Acorn and Wattle Gully, and with Harold Abbott and Kia Ora. Newton and County Securities were also linked with Nelson Wheeler Perth through that firm's involvement in various companies including Palmvale, Mawson Pacific, Wattle Gully and, as will be seen, Tectonic and MRSA.

The nature of the relationship between Newton and Stokes may be seen from Newton financially supporting Stokes after the share market crash and his financial losses in a venture in Canada. Newton assisted Stokes to undertake prospecting and acquire tenements which were sold to a public company of which Stokes became managing director.

Cullimore Investments Pty Ltd was the trustee of the Cullimore Family Trust which was a trust for the Stokes family and, according to Stokes, was set up in 1985 or 1986 as the ultimate holding trust for his family. However, it is likely that the Trust was established in March 1987. Stokes and his wife were directors of the company and Christine Wirth was appointed secretary on 6th July 1987 and Martino on about 15th September 1987. There is no evidence to suggest that Cullimore Investments was an entity of Nelson Wheeler Perth.

On 10th September 1987 Stokes applied to Western United for a loan of $1m. The purpose of the loan is described in the credit application as an "Accommodation Facility". The security for the loan was 3m ordinary shares in Mawson Pacific and a commercial bill of exchange. In the application the following remarks appear:

"Geoff Stokes is a partner at the chartered accounting firm of Nelson Wheeler, holds directorships of several public companies and is well known to Western United Limited."

The application was granted to the extent of $950,000 for 30 days in favour of Cullimore on about 15th September 1987 and was approved by Green and others including Harold Abbott. The loan was outstanding until at least May 1988.

It will be remembered that when the application was made and granted, Nelson Wheeler Perth were undertaking the Nelson Wheeler report and Mawson Pacific, in which Stokes had a substantial shareholding and was chairman of directors, was in the process of acquiring the second half of the Marvel Loch mine from Kia Ora for $40m. It was only a little over a month later that Stokes accepted the position of chairman of directors of Kia Pacific upon Harold Abbott's request, which facilitated the Autocure transaction.

This loan, and when it occurred, are matters of significance. The relationship between Stokes and Western United was such that he was able to obtain a loan of nearly $1m on short notice. At this time, as I have found, Stokes was a partner of Nelson Wheeler Perth. Even if that conclusion is wrong, Stokes was held out as a partner and had close links with the firm.

According to Messer, if he had written the Nelson Wheeler report and had known of this loan, he would at least have disclosed it in the report. He would have hesitated about proceeding with the report. He went on to say that because of the magnitude of the loan, he would have been obliged to disqualify himself. Undoubtedly Messer was correct in his assessment of the situation and all the more so as Stokes, on my finding, was a partner.

Also this loan transaction demonstrates the closeness of the relationship between Stokes and Harold Abbott. It is the plaintiff's case that this loan was a pay off by Harold Abbott to Stokes for the latter's assistance to him in the takeover of Western United, but the evidence does not permit such a finding.

Decade Mining Resources NL was a mineral exploration company and a client of Nelson Wheeler Perth. The partner responsible for Decade was Crawford.

In April 1987 Decade issued a prospectus for an issue of shares. Nelson Wheeler Perth undertook the role as investigating accountant and also was the auditor of the company. Porter Western, then known as Ray Porter and Partners, acted as the sponsoring broker to this public issue. West Coast Share Registries Pty Ltd acted as the share registry for the company, not Nelson Wheeler Share Registry. Nelson Wheeler Perth conducted an audit of the cash received by this issue and continued to undertake routine audit work for the company for the 1987 financial year.

On the plaintiff's case, the professional work for this share issue was undertaken by Nelson Wheeler Perth and the use of Porter Western as the broker provides the connection between Nelson Wheeler Perth and Western United.

According to Crawford, Decade was introduced to him by Peter Andrews who shared an office with Mr M Farrell, a director of the company. It will be remembered that Peter Andrews was involved with Grumpy Investments, Cove Mining and Concord Mining. Crawford accepted instructions as investigating accountant and auditor. He said he did not have any dealings with anyone other than Andrews and he did not select Porter Western to act as the sharebroker. He had no role in who took shares on issue and he denied the suggestion that he or Nelson Wheeler Perth were involved in a joint venture with Kia Ora or Western United or anyone else in floating Decade. He said he had no meetings with anyone from Porter Western.

I do not think this public float of Decade establishes any relevant association between Nelson Wheeler Perth and Kia Ora or Western United and there is no reason to reject Crawford's evidence about this matter. Even if there was, there is no evidence to establish anything more than that Nelson Wheeler Perth and Crawford, in particular, undertook professional services of the nature mentioned and Porter Western was the sharebroker. There is no evidence that Nelson Wheeler referred the matter to, or engaged, Porter Western.

Drosma Nominees Pty Ltd was incorporated in Western Australia. On 10th August 1987 Stokes and Chisholm were appointed directors of the company and both resigned on 4th November 1987 when Gary Abbott and Bryan Gardiner were appointed. Cullimore Investments, for Stokes, and Mandu Pty Ltd, for Chisholm, became, in effect, the equal shareholders of Drosma when they became directors.

It will be remembered that Chisholm was a senior executive within the Western United Group. In August 1987 he was the manager of Western United Mining Services. He had been involved with Harold Abbott, Gary Abbott, Gardiner and Thomas in the mining tenements transactions in early 1987. He was an adviser to Kia Ora about mining and exploration matters. He was in London and attended a luncheon hosted by Mawson Pacific on 6th May 1987 and a press luncheon on the following day both of which were also attended by Newton and Stokes. Documents admitted into evidence do not reveal that Harold Abbott attended either of these luncheons although Stokes had informed the directors of Mawson Pacific on 18th January 1987 that he had planned a trip to London with Harold Abbott in May 1987. According to Stokes, he went to London with Newton and did not travel with Harold Abbott as Newton had objections to him. Along with Milligan, Gardiner and Harold Abbott, Chisholm was a director of Mineral Estates NL of which Kia Pacific was a major shareholder. Along with Munachen and Morris, he was a director of the Mount Pleasant Gold Trust. Also during 1987 Chisholm was an adviser to Mawson Pacific and attended a meeting of directors of that company on 26th June 1987.

On 16th September 1987 Western United Mining Services and Chisholm entered into an agreement with respect to his employment. According to Stokes, he had regular contact with Chisholm during 1987.

These matters establish the relationship between Chisholm and Western United and Kia Ora which had existed for some years and the relationship between Stokes and Chisholm.

The story of the Drosma transaction is told only by Stokes. According to him, Chisholm had identified a mining prospect in the south-west of Western Australia and was looking for a financier and Stokes agreed to fulfil that role. The details are immaterial. Stokes and Chisholm used Drosma for this purpose. It was arranged by Chisholm. Stokes undertook the arrangement personally through Cullimore as he did not consider it to be a suitable prospect for Mawson Pacific. Stokes said he thought that Chisholm informed him that he obtained Drosma from Western United or Gardiner. The prospect fizzled out and nothing came of it.

The Drosma matter, standing alone, is of minor significance. It establishes that Stokes was prepared to be financially and commercially involved with a senior officer of the Western United Group and that the relationship between the two men was of such a nature that they were willing to be so involved. All of the evidence shows that the relationship between Stokes and Chisholm was close and they met regularly. It shows the nature of Stokes' relationship with yet another senior officer of the Western United Group of a personal nature not merely because of the relationship between Mawson Pacific and Kia Ora and Western United.

The plaintiff asserts that this is the start of yet another tenement transaction, this time to include Stokes, but the evidence does not permit such a finding. Western United Mining Services, Chisholm and Thomas did sell mining tenements to Kia Pacific on 3rd December 1987 for $451,000 to be paid by $1,000 in cash and 4.5m shares in Kia Pacific. Stokes said he knew nothing of this transaction even though he was a director of Kia Pacific at the time.

This subsequent transaction does assist in resolving any issue as to the nature of the relationship between Stokes and Chisholm.

Falcona Exploration and Mining NL was a client of Nelson Wheeler Perth. It was incorporated on 16th April 1984 to acquire and evaluate exploration and mining opportunities.

At relevant times in 1986 and thereafter the directors of the company were Gardiner, Peter Andrews and three other men. Nelson Wheeler Perth provided the share registry services and was the auditor. Gardiner was the solicitor and Western United Finance was the financial adviser.

In April 1986 Falcona issued a prospectus for subscription for 8m new shares of 20 cents each to raise $1.6m. Crawford undertook the investigating accountant's report. All material contracts referred to in the prospectus were available for inspection at offices of Nelson Wheeler in Perth, Sydney, Adelaide and Brisbane. On 11th August 1987 Falcona had $141,000 on deposit with Western United. Nelson Wheeler Perth continued to act as auditors during the 1987 financial year.

According to Crawford, he was instructed to act as auditor and investigating accountant by Peter Andrews and in doing so he dealt with him. He played no part in the selection of others who played a role in the company, including Gardiner and Western United Finance. He said he played no role in preparing the prospectus, in the appointment of any of the directors or the preparing or lodging of returns of the company. He did not have any dealings with Gardiner or Western United Finance in relation to Falcona.

It is the plaintiff's case that Gardiner and Peter Andrews were involved together in Falcona and in this float and Nelson Wheeler Perth also became involved and associated in this way with Gardiner and Western United.

There is no reason to reject Crawford's evidence about this matter. There was no direct association established on the evidence between Nelson Wheeler Perth and Gardiner or Western United in the context of Falcona. All that is established is that Nelson Wheeler Perth acted in this way in 1986 and 1987 for Falcona on the instructions of Peter Andrews. However, it must be remembered that Crawford was also involved with Gardiner and Peter Andrews in a similar manner in the float of Concord Mining.

As has been mentioned, Ledge Group Limited was a client of Nelson Wheeler Perth and purchased from Platina the Ventnor Avenue property.

The plaintiff's case in relation to Ledge Group is not that there was, through that transaction, an association between Nelson Wheeler Perth and Kia Ora or Western United but that the manner in which Nelson Wheeler Perth discharged its professional responsibilities to Ledge Group reveals that it lacked independence and was prepared to act when there was a conflict of interest and that when valuing Western United it had a closed mind in using Ledge Group as a comparable company for the purpose of selecting an appropriate price earnings multiple. This second matter is discussed later in the context of whether Nelson Wheeler Perth were incompetent in the preparation of the Nelson Wheeler report. The first matter is of no assistance in resolving the issues in these proceedings. It is in the nature of evidence of propensity and whilst in some circumstances propensity evidence may assist in the resolution of facts in issue, such is not the case here. How other members and employees of Nelson Wheeler Perth may have conducted themselves in the discharge of their duties to other clients at different times in different circumstances does not assist in correctly categorising the conduct of Nelson Wheeler Perth in relation to Kia Ora.

None of the evidence about Ledge Group and Nelson Wheeler Perth is capable of establishing any relationship between Nelson Wheeler Perth and Kia Ora or Western United or the character or any feature of the relationship as it existed.

Mention has been made of the close association between Kia Ora and Mawson Pacific during 1987 and between Harold Abbott and Stokes in the context of the Marvel Loch mine and the relationship between Stokes and Newton and County Securities and Kia Ora.

Also, Stokes borrowed substantial sums of money from Western United. Nelson Wheeler Perth undertook administrative and accountancy work and provided share registry services for Mawson Pacific. Accounts admitted into evidence reveal that the fees charged were not insubstantial and that Nelson Wheeler Perth had not undertaken any such work for Mawson Pacific prior to the purchase of the first half of the mine. This work was of considerable importance to Nelson Wheeler Perth. The acquisition of the second half of the mine was important to Stokes. It was also important to Nelson Wheeler Perth for that reason.

It is necessary to say a little more about the history of Mawson Pacific. Stokes, Dalla Costa and Leslie Andrews became substantial shareholders in Mawson Pacific in July 1983 through the sale of their interests in mining tenements to Mawson Pacific in consideration for shares in the company. Langford became a secretary of Mawson Pacific on 27th November 1985 and played an active role in the administration of the company thereafter including throughout the whole of 1987, including in his capacity as a partner of Nelson Wheeler Perth. He and Stokes attended meetings of directors. Nelson Wheeler Perth also provided share registry services for Mawson Pacific at all relevant times. Bowyang Nominees was also a substantial shareholder in Mawson Pacific by July 1986. Munachen attended general meetings of Mawson Pacific and was appointed a secretary of the company on 5th January 1987 and held that position until 18th February 1987. Martino was appointed a secretary on 31st August 1987. Also it will be remembered that County Securities placed the new issue of shares with its clients to raise most of the purchase price for the first half of the Marvel Loch mine. Newton was appointed as a director of Mawson Pacific at that time in February 1987.

Elders Resources Ltd acquired 3.7m shares in Mawson Pacific at the time of the purchase of the first half of the Marvel Loch mine. Also, in consequence of the loan to complete the acquisition of the first half of the Marvel Loch mine and a previous loan to acquire what was called the Randalls Gold Project, Mawson Pacific issued to Elders Resources 2.2m options on 8th April 1987.

In April 1987 Mawson Pacific acquired 5000 shares in Kia Ora through County Securities.

Against this background it is convenient to now mention LUL Corporate Financial Services which was a division of Lease Underwriting Limited. According to Stokes, he first became aware of LUL in 1985 at the time of the acquisition of Mawson Pacific. Mr M Stevens was an adviser to Wallamine and he was an officer of LUL which was a finance company and merchant banker. Stevens advised Morris regarding an attempted takeover of Forsayth by a company called Giant Resources during 1986 or 1987. At least that is how I interpret Stokes' evidence. In the minutes of the meeting of directors of Mawson Pacific on 26th June 1987, it is recorded that Stokes advised that he was currently having discussions with Lease Underwriters regarding the forward sales of gold and that he would keep the directors informed as to the progress of the discussions. At this time Anthony resigned as a director of Mawson Pacific. It will be remembered that he was the only director who was not a member of the LGM Prospecting Syndicate. Stokes said he met Mr W Jurd, of LUL, in 1987.

However, on 4th March 1987 Gardiner, on behalf of Kia Ora, sent a facsimile transmission to Mr A Cook of LUL setting out production figures for the Marvel Loch mine projected to 1992 and Mawson Pacific's figures which formed part of their offer to purchase the first half of the mine. He wrote that he would send reserve figures later in the day. It may be seen from these documents that LUL had information about production at the mine. Stokes said that he knew of Cook and someone from LUL had approached him about a forward sales programme and they had dealt with Gardiner about it but they did not succeed in getting that work.

Thus far it may be seen that LUL had contact with both Kia Ora and Mawson Pacific about gold production figures and had been involved with Forsayth and Morris.

On 23rd July 1987 Jurd sent a letter and a draft paper to Stokes. The letter begins:

This letter is to update you on our thinking regarding the strategy for securing ownership of Marvel Loch gold production and strengthening links between Mawson and Forsayth.

I promised to give you a draft paper summarising the discussion we had in your office with John Morris. Attached is that paper which has now benefitted from being discussed with Warwick Grigor, as you instructed."

It may be seen from these opening paragraphs that Jurd had been discussing the matter with Stokes and Morris and County Securities through Grigor who had also contributed. The letter continues:

"The attached analysis is a 'movable feast' owing to the variations in share prices. Nevertheless, there are some clear messages which will probably pertain within the range of foreseeable price movements, and these are summarised below.

1. A process of acquisition on-market by Mawson is not economic at current relative share prices. Mawson's share price needs to increase relative to Kia Ora, Mincoa, G V Gold and Forsayth. An initial target would be for Mawson's share price to independently move to $4.40.

2. The overall strategy comprises a number of discrete transactions which can be separated, although there is a logical sequence. Consolidation of the Marvel Loch mine ownership is a logical first step and attention is appropriately focussed on achieving this step as effectively as possible. Other transactions are probably best deferred and reviewed once the first step is completed.

3. As a general observation, the holdings of outside or unaligned shareholders remain a large proportion (44 percent) of the combined Mawson, Kia Ora and Mincoa. The implication for framing strategy is that outside shareholdings need to be analysed and absorbed as far as possible in advance of any market moves. A related issue is the determination of attitude and strategy toward large shareholdings of Elders Resources and Giant Resources.

4. Substantial cash costs are likely to be incurred and this reinforces the need to establish a sound base for funding. Mawson's share price and further equity (an issue of options was suggested by Wascovich) are paramount considerations.

The conclusion which we have reached, Geoff, is that we should devote our attention to the first step - ie acquisition of 100 percent of the Marvel Loch mine - and leave the other transactions to a later date. In the process we need to increase Mawson's share price and establish a good base for further funding. It is on this basis that our discussions with Peter Newton and Warwick Grigor are continuing.

On another matter, the floor price plan was established with Macquarie Bank on terms which we believe will be effective. If the need arises, we also believe a gold loan could be quickly implemented once the ore reserves are confirmed.

In the meantime we will work with Peter and Warwick to progress 'Step 1' of the broad strategy."

Jurd sent a copy of the letter to Newton. The enclosed draft paper is lengthy. The detail is unnecessary for present purposes. A brief summary will suffice.

The objectives were stated to be to consolidate gold production at Marvel Loch, to secure control over Marvel Loch producers and to secure control of Forsayth and Mawson Pacific. The first of two stages involved the following tactics which were stated to be:

The relevant shareholders of Mawson Pacific were stated to be Stokes, Elders Resources, County Securities and others. The major shareholder of Kia Ora was stated to be Schneider-Paas. Various considerations were discussed. A negotiated merger and a reverse takeover were considered.

It was stated that in cash, Kia Pacific and Mineral Estates were expected to generate $26m.

It was stated that the cost would be $179m and the owners of the merged companies capital would include Stokes, Elders Resources, County Securities, other Mawson Pacific shareholders, Schneider-Pass, other Kia Ora shareholders, clients of Stokes and a few others.

4 A further tactic was mentioned which involved not acquiring another company.

Mincoa NL was a mining company that had a mine adjacent to the Marvel Loch mine. According to Stokes, the persons behind Mincoa were Mr B Patterson, Graham Smith, Harken and Botica who were the founders of Eltin and associates of Stokes.

The second stage was the consolidation of the merged companies with Forsayth. The name "Giant" is referred to in this stage of the paper and may be a reference to Giant Resources. The main reference to Giant is "Giant remains dominant in Forsayth".

This letter and draft paper contained detailed and carefully reasoned proposals and strategies.

Stokes was dismissive of this letter and the draft paper. He attempted to explain them away by saying that in those days many brokers went to people like him offering deals. He said it would be nothing to see five or six brokers in a week going to Perth from the eastern States wanting to be involved. He could remember Stevens but not Jurd and he could not remember receiving the letter or the paper at the time. LUL were not engaged and nothing came of the matter. He said he did not discuss those matters with Morris or Munachen. He gave no information to Jurd whatever. Eventually he said he did not remember Jurd or even meeting him but then said he might have given him annual reports and some background on Mawson Pacific but he could not remember.

I do not accept this evidence of Stokes, not simply because he was not cross-examined but because I do not think he was being truthful. The letter speaks for itself as does the draft paper. They contain well considered proposals. They are not merely some notion being floated to obtain business. Furthermore, as has been mentioned, Stokes told the directors of Mawson Pacific on 26th June 1987 that he was having discussions with Lease Underwriters although he said on a limited topic. It is inconceivable that Jurd would go to such lengths without Stokes' knowledge and cooperation. The letter refers to a discussion with Stokes and Morris. I reject Stokes' evidence that he did not discuss the matter with Morris in 1987.

Stokes was asked about his strategy in early 1987 for Mawson Pacific in relation to gold production. He said his aim was to take Mawson to 100,000 ounces a year. He explained that the first step was to purchase the first half of the Marvel Loch mine. The second step was to purchase the second half of the mine. The third step was to take control of Mincoa's mining assets.

Stokes denied that he had any ambitions which involved Harold Abbott or that he discussed any of those matters with him. It may be seen that there is some similarity between the proposals in the draft paper sent by Jurd and in Stokes' stated ambitions.

Against the background which has been mentioned, this letter and paper from LUL is important. These documents were admitted for the purpose of establishing that they were written in those terms and sent to Stokes and Newton. They reveal a plan for the development of a substantial mining operation and the acquisition of companies which involved Stokes and his close associates Newton and Morris. The plan also involved Kia Ora. The documents reveal something of Stokes plans and ambitions at the time and it seems that Kia Ora was aware of LUL's involvement because Gardiner provided information. It is impossible to say if Harold Abbott was involved in those plans as he did not give evidence and Stokes could not be cross-examined, but it is likely that he knew something of what LUL was doing. Of course, the documents were sent to Stokes less than a month before Mawson Pacific acquired the remaining half share of Kia Ora's main asset, and shortly before Kia Ora embarked upon the process of the takeover of Western United.

Mawson Pacific used Western United as a banker and Stokes arranged with Western United from time to time during 1987 for funds to be withdrawn from its account with Western United and placed in the joint venture account. Nelson Wheeler Perth continued to provide accounting and administrative services to Mawson Pacific which included financial advice on one occasion by Pilmer. In August 1987 Chisholm, for Western United Mining Services, prepared a proposal for large scale regional mining operations in the Southern Cross and Marvel Loch area which was provided to Mawson Pacific.

It will be remembered that on 19th August 1987 Hayward recorded in his file the suggestion that Stokes be an independent director of Kia Ora for the purpose of the takeover which did not occur and further that Stokes became a director of Kia Pacific at the time of the Autocure transactions.

It is submitted by the plaintiff that, given the Marvel Loch mine transactions and the takeover of Western United, the timing of the general meetings of Kia Ora and Mawson Pacific regarding the sale of the second half is significant. It will be remembered that an offer was made by Mawson Pacific to Kia Ora on 19th August 1987.

Mention has been made earlier of the extra-ordinary general meeting of Kia Ora on 21st September 1987 at which the shareholders approved the sale to Mawson Pacific of the second half of the Marvel Loch mine for $40m. This meeting occurred well after Kia Ora had put in train the process of the takeover of Western United. The extra-ordinary general meeting of shareholders of Kia Ora approved the takeover of Western United on 26th October 1987. As has been mentioned, it is not clear when the shareholders of Mawson Pacific approved the purchase of the second half of the mine but it was on or after 30th October 1987, however, on the 30th October 1987 the directors of Mawson Pacific resolved to execute documentation to enable the company to draw on $32m of a loan from Elders Resources for the purchase of the mine. The minutes of the adjourned meeting on 2nd November 1987 do not contain any mention of the matter. However, settlement was effected on 3rd November 1987. It may be accepted for present purposes that the approval was given by the shareholders at around this time.

The significance of those dates is readily apparent. The takeover of Western United by Kia Ora could only occur with the proceeds of the sale of the second half of the mine. Harold Abbott arranged the extra-ordinary general meeting of Kia Ora to approve the sale of the second half of the Marvel Loch mine before the shareholders of Mawson Pacific had even considered the matter in general meeting. Furthermore, Kia Ora embarked upon the takeover process including the calling and holding of the general meeting on 26th October 1987 again before the shareholders of Mawson Pacific had considered the matter in the general meeting. Those controlling Kia Ora would not have embarked upon those processes unless they were certain, or at least very confident, that the shareholders of Mawson Pacific would approve. Mawson Pacific would not have to go to the trouble of raising substantial finance and committing itself to the proposal unless it was certain that Kia Ora would sell.

It is submitted by the plaintiff that these matters indicate that there was cooperation between those controlling Kia Ora, including Harold Abbott, and those controlling Mawson Pacific, including Stokes and it was likely that they agreed to arrange the meetings in that order to suit themselves. In my view there is some merit in that submission. The only possible uncertainty was whether the shareholders of Kia Ora would agree to the sale and the takeover. The shareholding of Kia Ora was diverse which was not the case with Mawson Pacific. It is likely that Stokes could deliver the necessary resolution of shareholders of Mawson Pacific but Harold Abbott could not be so sure. The Autocure transaction supports this view. In the absence of evidence from Harold Abbott and others involved at the time, there is no reason not to accept this submission and I do so. This matter illustrates a feature of the association between Stokes and Kia Ora and Harold Abbott.

Mawson Pacific did, subsequently in November 1987, take steps to acquire Mincoa and another company which had an interest in Mincoa which accords with both the LUL letter and draft paper and the ambitions of Stokes as mentioned in his evidence.

In early 1988, after the share market crash, Stokes experienced some financial difficulties. On 8th February 1988 he wrote to Harold Abbott in the following terms:

You will be aware of the material benefits I have been instrumental in having endowed upon some of my business partners/associates these past twelve months. Being a 'key player' in the Mawson growth I have been prevented from selling any of my holding and hence missed the opportunity to 'cash in' at the higher levels.

Coupled with this I have taken positions (as requested from time to time) in companies supported by Country Securities in return for the great support they have given me in Mawson. The net effect is that my mates are rich and I am not.

By the time my tax assessments are paid I shall have personal borrowings of $2m million. Needless to say I can sell my Mawson shareholding and square off the debt. To do this I would miss out on future upside plus lose the benefits of future capital gains as the shares are all pre-September 1985.

I hold a portfolio of shares (760,000) in Southern Sea Farms Limited and seek to sell this parcel at cost ($1.25 per share excluding interest on borrowings) to a third party on the basis of a guaranteed buy back at the end of 12 months. Considerable overseas interest is being shown in this company so it is possible the buy back could be satisfied at an earlier date. Its fish farm is well advanced by world standards.

If possible would you please consider Kia Ora/Western United taking up a buy back contract with me on this stock at terms commercial to your group.

P.S. My rich mates don't call me these days so I am loathe to go 'cap in hand' to them."

According to Stokes, the reference to "rich mates" did not include Harold Abbott but was a reference to his longstanding colleagues in Mawson Pacific and the LGM Prospecting Syndicate. That explanation cannot be accepted because it could not be tested and is not supported by other evidence. Nevertheless, the letter is instructive as to the fact and nature of the relationship between Stokes and Harold Abbott which was such that Stokes felt able to seek such an important favour.

All of this evidence establishes that there was a close relationship between Stokes and Harold Abbott and between Mawson Pacific and Kia Ora and Western United and in the context of commercial affairs which were mutually advantageous to all of them. Nelson Wheeler Perth, apart from Stokes, were closely associated with Mawson Pacific through the provisions of services mainly through Langford, Martino and staff.

In my view, because of those matters it was inappropriate for Nelson Wheeler to undertake the Nelson Wheeler report because of this association alone and the view expressed by Pilmer at the s541 examination, earlier referred to, was correct.

The plaintiff contends for more sinister findings. It is submitted that Nelson Wheeler Perth was dependent upon Stokes for work which he provided through Mawson Pacific. He was among the Nelson Wheeler Perth partners. He was in the strongest position financially and was of importance to them in the financial arrangements with their bankers. Stokes and Mawson Pacific deposited substantial sums of money with Western United.

Those matters may be accepted. It is the next submission which causes difficulty.

The plaintiff contends that Harold Abbott played a central, critical and substantial role in the progress of Stokes and Mawson Pacific during 1987. Prior to the acquisition of the first half of the Marvel Loch mine, Mawson Pacific was a very small gold explorer and was not a producer. It had no operating revenue or profits to fund further exploration. There is no evidence that Mawson Pacific was successful in exploration. The acquisition of the first half of the Marvel Loch mine permitted Mawson Pacific to obtain the appearance of both growth and success. It was now a producer and could be seen as a company of substance rather than a merely speculative explorer. The acquisition of all of the Marvel Loch mine was an essential part of Stokes' strategy to become a major gold producer and was achieved with the co-operation of Harold Abbott and the Elders Group. Newton was also an essential contributor to this success. His acquisition of a substantial share of the Western United shares owned by Parry Corporation demonstrates his close involvement in the activities of Harold Abbott and those controlling Kia Ora and Western United at the time. It is submitted that his close friendship and association with Stokes suggests that Stokes was likely to have been involved in that transaction.

If Nelson Wheeler had not provided a favourable Nelson Wheeler report, then the acquisition of the second half of the Marvel Loch mine and the takeover of Western United would not have proceeded. Consequently, both those controlling Kia Ora, principally Harold Abbott, and those controlling Mawson Pacific, particularly Stokes, were dependent upon Pilmer providing the correct type of report.

The price of Mawson Pacific shares had moved from about 30 cents in August 1986 to $5.70 in August 1987. Much of that increase had occurred after the purchase of the first half of the Marvel Loch mine. Most of Stokes' personal fortune occurred for this reason. The sale of the Marvel Loch mine was critical to Harold Abbott's plans. Without the first payment of $26m, the apparent value of Western United could not have been inflated as it was. Without the second payment of $40m, the takeover of Western United and the conversion of substantial shareholding in Western United into cash for the benefit of those controlling Kia Ora and Western United and their associates could not have occurred.

Newton played a significant role in the important transactions. He participated in raising the funds for the payment of the first half of the Marvel Loch mine. He promoted Mawson Pacific to London stockbrokers and probably Kia Ora. He negotiated the purchase of Kia Pacific options by Kia Ora. He played a major role through County Securities in the sale of the Western United shares owned by Parry. He played an active role in the affairs of Mawson Pacific in his capacity as director of that company, including in the acquisition of the second half of the Marvel Loch mine.

The evidence does justify conclusions as to the facts upon which these submissions are based but it is inappropriate to draw adverse conclusions about Newton in the absence of clear and unequivocal evidence. He is not a party to these proceedings and was not called to give evidence. Also, the evidence does not justify the conclusion that Harold Abbott supported Stokes personally and contributed to his wealth in the way that the plaintiff submits. Stokes' development in 1987 may well have been independent of direct assistance from Abbott. The evidence does not justify the conclusion that in giving the Nelson Wheeler report, Pilmer acted dishonestly to advance the interests of Harold Abbott, Stokes and Newton.

However, these relationships explain why Kia Ora could rely upon Mawson Pacific to complete the purchase of the mine and they are very likely the reason for Kia Ora selecting Nelson Wheeler Perth to undertake the work with respect to the takeover. It is appropriate in the absence of Harold Abbott and Pilmer from the witness box to infer from this evidence that those controlling Kia Ora, particularly Harold Abbott, selected Nelson Wheeler Perth because of their connection with Stokes and Munachen. However, this evidence does not justify a finding that they did so because they knew Pilmer would be compliant to their wishes, although it seems that he was.

Mr Zabon Mrsa became a client of Stokes in Kalgoorlie in 1971 when MRSA Limited purchased earthmoving equipment. He continued to act for him until 1974 and commenced to act for him again in about 1980. MRSA carried on business in earthmoving in the mining industry.

Eltin Pty Ltd was formed in about early 1980. It was the trustee for the Eltin Unit Trust. The four founding members of Eltin were former managers of a prominent public mining company, Mr B Patterson, Mr G Botica, Harken and Mr G Smith. They were all well known to Stokes. Each of these men, except Stokes, took units in the Eltin Unit Trust. They and Stokes were all shareholders and directors of Eltin, the trustee company.

Eltin undertook work in mine management. Stokes acted for the company in a professional capacity. Eltin initially traded under the name of Gold Mining Consultants and Contractors and in 1980 entered into an agreement with Kia Ora and Western United, then Uranium and Nickel, to act as consultants to Kia Ora at Marvel Loch mine in consideration, inter alia, of 1m shares in Kia Ora. According to Stokes, he played no part in any discussions or negotiations with Kia Ora. Harken was the mine manager of Kia Ora at the Marvel Loch mine in the 1980 and 1981 financial years. Eltin remained a consultant to Kia Ora and acted in that capacity for other smaller companies.

Stokes claimed that he played no role in the day to day operation of Eltin.

When Mrsa returned to Stokes as a client, his son, Ivan Mrsa, had left school and was becoming involved in the family business. According to Stokes, he undertook the accountancy work for the family. A number of companies and trusts were formed to operate the interests of the Mrsa family and Stokes or Langford were one of two directors of each company and a shareholder in most of them. Langford was the secretary of each of them and Munachen was a secretary of Ivan Mrsa Pty Ltd.

The operations of the Mrsa family became very extensive involving a turnover of millions of dollars each year. In 1985 consideration was given to incorporating the businesses into a public company with a listing on the second board of the Stock Exchange. Stokes discussed the matter with Newton who introduced him to the manager of a public company Proline Holdings Pty Ltd. A receiver had been appointed to this company which was incorporated in South Australia. Under an arrangement involving the Mrsa family and auditors of Proline, businesses of the Mrsa companies were sold to Proline and the name of the company was changed to MRSA. MRSA went on to the main board of the Stock Exchange soon after in 1985.

During this process, there was a public float of MRSA shares which was undertaken by Nelson Wheeler Perth through Stokes and Langford. The fee charged by Nelson Wheeler Perth included a success fee. The basic fee was $100,000 upon the listing of the company and at that time the company had to grant 500,000 options to Nelson Wheeler Perth exercisable upon payment of 20 cents per share. The options could be converted at the rate of 150,000 in each of the first two years after allocation and 200,000 in the third year. It was a further part of the arrangement that should Nelson Wheeler succeed in having the sale of assets to the new company approved on the basis of consideration of 4m shares, 4m options and $4m cash to Mrsa then he would pay to have the options allocated to Nelson Wheeler Perth converted to shares as soon as practical and they would be entitled to dispose of them in accordance with an arrangement which had been reached. Effectively, the fee was $200,000 with further benefits if the options were exercised and the shares had a value greater than 20 cents. Stokes, Ivan Mrsa and Mr R Hardy were appointed directors of the company and Stokes as chairman. Langford was appointed secretary. The share registry of the company was moved to Nelson Wheeler Perth. Stokes, Langford and Martino were involved in the work necessary for the float.

Meetings of shareholders of Proline which approved the acquisition of the businesses of the Mrsa family and the issue of shares to Ivan Mrsa were held on 28th June 1985 and 10th July 1985.

On 1st July 1985 the Secret Seven Unit Trust was formed with Brackendale Securities Pty Ltd as trustee. Each of the then partners of Nelson Wheeler Perth, through their family trusts, held units in equal shares and contributed equally to the capital of the Trust through fees earned for work in the MRSA transaction. At that time the partners were Pilmer, Crawford, Martino, Langford, Munachen, Lewis and Stokes. They were, of course, the brothers seven. The 500,000 options in MRSA were issued to Brackendale.

The memorandum prepared for the listing of MRSA on the main board of the Stock Exchange was signed by Ivan Mrsa and Stokes on 16th July 1985. It advised that no director or expert and no firm in which the director or expert was a partner had any interest in the promotion of the company or had been handed any sum as an inducement to become a director or otherwise for services rendered by him or the firm other than, inter alia, Nelson Wheeler Perth, of which Stokes was a partner being paid professional fees for their services and interests associated with the directors being allotted shares and options as disclosed. The disclosure in the memorandum did not mention the interests taken by Brackendale for the partners of Nelson Wheeler Perth.

Documentary evidence, in the form of file notes of Langford, suggests that from monies paid by Ivan Mrsa, $100,000 was paid into the Nelson Wheeler Trust Account, which was then paid to MRSA for conversion of the 500,000 options, however, the position is not clear from this evidence.

The fee of $100,000 was the subject of an account sent by Nelson Wheeler Perth to Ivan Mrsa on 8th August 1985. Nelac Nominees, the nominee company of Nelson Wheeler Perth, held shares in MRSA for various persons who received shares from Ivan Mrsa.

The shares in MRSA held by Brackendale were sold through County Securities in October 1986 at 85 cents per share for a net return of about $420,000 which was divided between the family trusts of the seven partners which have been mentioned which represented a cash payment to each of them of about $60,000. Also Brackendale had acquired rights which were sold at this time with the consequence that each of those partners through their family trusts received about another $3,500.

It may be seen that Nelson Wheeler Perth were closely involved in MRSA through Stokes as a director and accountant, through Langford and Martino as accountants, and as investors.

MRSA continued to operate a substantial earthmoving business mainly in the mining industry. On 1st May 1986 Kia Ora and MRSA entered into a contract for services to be provided by MRSA at the Marvel Loch mine for a period of two years. Later in that month Gardiner, on behalf of Kia Ora, informed Ivan Mrsa, through Langford, that MRSA had been successful in its tender for further major works at the mine.

In September 1986 MRSA and Eltin effectively merged. MRSA acquired all of the issued capital of Eltin. This transaction was initiated by Stokes. According to him, it was in the interests of MRSA to replace Ivan Mrsa and Hardy as directors. Eltin had parted company with Kia Ora by this time but was active in mining consultancy work. Stokes said he took the view that the expertise of Eltin would assist MRSA. He made the necessary arrangements with Ivan Mrsa. Graham Smith became managing director. Ivan Mrsa remained a director. Stokes remained as chairman and Hardy was dismissed.

Eltin was by this time operating as a private company and not as a trustee for a unit trust. On 2nd September 1986 the shareholders of MRSA in general meeting, in effect, approved the acquisition of Eltin. Shares and options were issued to the shareholders of Eltin at the purchase price.

The price paid for the issued capital of Eltin was $5.5m payable as to $4m in cash to the Eltin shareholders and 3m shares and 3.5m options to shares in MRSA allocated to them. A consequence of this transaction is that the shareholding of Ivan Mrsa was substantially diluted and he no longer had control of MRSA. Nevertheless, according to Stokes, the transaction was in the best interests of MRSA. The financier of the transaction was a member of the Elders Group of companies. Clearly this transaction benefited the four founders of Eltin. Harken and Botica, as well as Smith, were appointed directors and Stokes continued as chairman.

MRSA continued as a contractor for Kia Ora including during 1987. Its debtors as at 16th October 1986 included Kia Ora to an amount of $1,257,204 which was in excess of 25 percent of the total amount owed to the company. This association between MRSA and Kia Ora was obviously regarded as important to Stokes. During the course of negotiations to purchase the first half of the Marvel Loch mine when Stokes wrote to Harold Abbott on 10th February 1987 his letter included the following:

"As you are aware, the writer is Chairman of MRSA Limited which company is currently contracting to Kia Ora Gold Corporation NL and also owns the underground mining contracting specialist Eltin Pty Ltd. This group are operating at approximately 20 mining operations throughout Australia and it gives Mawson access to a great depth of technical and practical expertise.

The original founders of the Eltin Group are represented on the board of MRSA by Mr. Graeme Smith (Managing Director), a highly experienced mining engineer who had total responsibility for the establishment of the $26. million Paringa Project for C.S.R. Ltd. The other Eltin representative is Mr. George Botica (previously Manager of Kalgoorlie Nickel Smelter) who undertakes consultant metallurgical services to approximately 20 gold projects throughout Australia.

Besides their shareholding in MRSA Limited, the Eltin Group have a controlling interest in Mincoa N.L. and this connection in turn would assist with any negotiations we may decide to have with that company in respect to the Jupiter leases.

We believe this relationship of companies and personnel is a decided advantage to Mawson Pacific Limited and such benefits would flow to the Kia Ora/Mawson Joint Venture."

It is unnecessary for present purposes to explore all of the evidence about the matters involving MRSA, Eltin and Brackendale. It is sufficient that they established an intimate involvement of Nelson Wheeler Perth in the affairs of MRSA and Eltin including in the management of MRSA. Both of these companies had a close association with Kia Ora and, as has been seen, this association was an aspect of the relationship between Stokes and Harold Abbott and the companies which he and others controlled.

I have recited the effect of the evidence relating to Nelson Wheeler Perth taking an interest in MRSA through Brackendale in order to draw an aspect of the relationship between Nelson Wheeler Perth and Kia Ora through MRSA. Nelson Wheeler Perth were not merely professional advisers to MRSA but had a direct financial interest in the company until October 1986. These matters reveal an aspect of the method of practice by the firm in that sense. Their involvement is not mentioned in order to make any judgment about the propriety of such an involvement and that is a matter of no relevance to the relationship between Nelson Wheeler Perth and Kia Ora and Western United.

Oil Venturers Pty Ltd was an oil prospector of little moment. From November 1985 and, at all relevant times, the directors of the company were Bannerman, Mr R Raynaud and Munachen. The secretaries of the company were Pilmer and Messer and Bannerman and Munachen. Nelson Wheeler Perth provided the administration for the company as well as accountancy services and some directors and secretaries.

In 1986 and 1987 the principal activity of Oil Venturers was resource exploration within certain exploration permit areas in Western Australia, South Australia, Queensland and the Northern Territory. Mention has been made of Marvel Petroleum and Antarctic Petroleum which were wholly owned subsidiaries of Kia Ora, the directors of which in 1986 were Thomas, Harold Abbott and Somes. It will be remembered that in 1987 Gardiner was also a director. In those years those subsidiaries of Kia Ora also held interests in the same exploration permit areas in Western Australia and the Northern Territory. Oil Venturers and Marvel Petroleum and Antarctic Petroleum were joint ventures with respect to these areas and they met through their officers from time to time at the offices of Nelson Wheeler Perth.

According to Messer, Oil Venturers was not a very active company. It participated in a number of joint ventures but not as the lead operator. Nonetheless it was involved in a joint venture with the two subsidiaries of Kia Ora.

In February 1985 a participation agreement was entered into between a number of exploration companies including Antarctic Petroleum, Forsayth & Oil & Gas NL, in which Morris and Evans had an interest. In about late June 1985 the South Australian Government granted to the parties to that agreement the exploration permit for the area in South Australia. The partners at that time included Antarctic Petroleum, Marvel Petroleum and Forsayth Oil & Gas. The parties to the agreement transferred their interests to some of themselves and others including Oil Ventures in April 1986. This new arrangement continued throughout 1986 and 1987.

I accept the submission of the plaintiff that the failure of Pilmer and Munachen to give evidence means that there has not been any oral evidence from persons who will have been aware of the extent of the association between Oil Ventures and the two subsidiaries of Kia Ora and the personnel from each company who conducted the joint venture. However, this matter cannot permit inferences adverse to the first defendants to be drawn in the absence of a factual basis.

The plaintiff complains of inadequate discovery by Nelson Wheeler Perth about Oil Venturers but again that matter, if true, cannot be a make weight for evidence.

The evidence does disclose the joint venture and some association between those controlling the companies which included partners of Nelson Wheeler who administered Oil Ventures and acted as office bearers. The lack of means of those companies and the detail of the accounts for services rendered by Nelson Wheeler Perth to Oil Venturers, suggest that although the association existed, it did not, in itself, involve frequent and close contact between Nelson Wheeler Perth and Kia Ora. Nevertheless an association as mentioned has been established.

Brief mention has been made of United Nickel. In the 1985 financial year United Nickel became a wholly owned subsidiary of Pact Mining NL which eventually changed its name to Pact Resources NL on 19th June 1986. United Nickel was previously a minerals explorer with limited means. The principal shareholder up until the end of the 1983 financial year was Schneider-Paas. Harold Abbott and Mr J C Martin each had a small shareholding and they were the directors of the company with Somes as an alternate director for Schneider-Paas.

Mention has also been made of the LGM Prospecting Syndicate, the members of which were Andrews, Stokes and Dalla Costa and their involvement in the development of Mawson Pacific. Burhan Pty Ltd was the corporate trustee of that syndicate and was one of a number of companies which the members of the syndicate used as trustee to hold mining tenements for them. In 1983 it was the registered holder of certain mining tenements at Jubilee and Wyawells in the East Coolgardie Goldfield in Western Australia on behalf of Andrews, Stokes and Dalla Costa. During that year it entered into a joint venture arrangement with Stockdale Prospecting Limited with respect to those tenements because there were prospects of finding diamonds. Those tenements were referred to as the Jubilee tenements. In 1983 Stokes played an central role in this joint venture arrangement. In about September 1983 Burhan sold to United Nickel a sixty per cent interest in these tenements for $1.45m. Part of that price was paid by the issue and allocation of 1m shares of 25 cents each in United Nickel to Burhan. The balance was paid in cash. Andrews, a member of the LGM Prospecting Syndicate became a director of United Nickel. Burhan became the principal shareholder of United Nickel. At about this time there was activity in United Nickel. Another 7m shares were issued to provide working capital and to acquire another mining tenement. On 6th December 1983 a further 2m shares were allotted to Burhan in the acquisition of mining tenements. Schneider-Paas and Burhan were the principal shareholders with approximately an equal number of shares.

According to Stokes, United Nickel purchased the interest in these tenements through an agent appointed by Burhan. He said he played no part in the appointment of that agent or in dealing with United Nickel as a purchaser. It may be seen that the members of the LGM Prospecting syndicate profited handsomely by this transaction.

Exploration of the tenements continued. According to Stokes, he played no role in that activity. United Nickel made these arrangements. However, documents submitted into evidence suggest that he played some role.

Both he and Harold Abbott received a report on the Jubilee prospects dated 12th October 1983. On 24th November 1983 Stokes, for Burhan, and United Nickel received a report from Seltrust Mining Corporation Pty Ltd about those prospects with a proposal to enter into an arrangement with Burhan and United Nickel. In reality, the prospects were not successful and Stockdale wrote to both Stokes and Abbott informing them of their withdrawal from the venture.

Stokes appears to have been the contact point for Burhan. However, he said that he could not recall having any dealings with Harold Abbott as to the manner or development of the exploration.

Mention has been made of Bannerman and his longstanding personal and professional relationship with Stokes. In 1985 Bannerman approached Stokes about Pact and United Nickel. According to Stokes, he had shares in United Nickel through one of his companies or trusts. Bannerman said he wanted to control United Nickel and turn it into an industrial processing company but with some exploration interests. Stokes was asked if he would accept an offer for his shares by taking shares in Pact. It seems that he did so. He admitted in the Defence that from about 1983 to 1984 he owned 1.5m shares in Pact until he sold them in 1986. It is not known if there are shares in addition to those acquired upon the transaction when United Nickel became a subsidiary of Pact.

Pact was incorporated on 14th August 1984. It was a public company. Initially the directors were Gary Abbott, Gardiner and Somes. By early May 1985 Harold Abbott, Andrews, Bannerman and Schneider-Pass were also directors. At all material times Pact was a client of Nelson Wheeler Perth.

During the 1985 financial year Pact Resources entered into a scheme of arrangement whereby all the issued capital and options of United Nickel were acquired in consideration of the allocation of shares in Pact and it was then that United Nickel became a wholly owned subsidiary of Pact.

Kia Ora became a substantial shareholder in Pact on 7th November 1984 when that company issued 6.25m shares to Kia Ora.

Pact made a share issue of 16m shares in the first half of the 1986 financial year. Eyres Reed McIntosh acted as sharebroker and possibly as the lead underwriter. Western United acted as a sub-underwriter to the extent of 1.875m shares. The share issue was not entirely successfully and there was a shortfall of 26 percent. Western United had to contribute $39,000.

Kia Ora had supported Pact by contributing $70,000. In discharge of this obligation, Pact, in December 1985, transferred to Kia Ora its interests in various mining tenements. Chisholm was involved in this transaction, probably as an adviser to Kia Ora and he processed the agreement. In correspondence about this transaction, Chisholm described himself as the Manager of Geological Services of Kia Ora.

In January 1987 Bannerman was in Hong Kong. He met Mr Wang Poh Weng and Hutchinson of Nelson Wheeler Hong Kong with Pilmer and had lunch and attended sporting entertainment with Poh Weng and Pilmer. It is the plaintiff's case that this meeting was in the context of Nelson Wheeler Perth, through Pilmer and Nelson Wheeler Hong Kong, acting for Bannerman or Pact or both.

Fleubaix Pty Ltd was the trustee for the Minlex No 2 Trust in which Bannerman had an interest, the nature and extent of which is not disclosed by the evidence. It will be remembered that Nelac Nominees was a nominee company of Nelson Wheeler Perth which provided nominee and trustee services. Nelac Nominees acted in that capacity for Fleubaix but the nature and extent of the arrangement are not disclosed by the evidence.

On about 7th April 1987 Fleubaix obtained a loan of $330,000 from Western United. On 5th June 1987 Fleubaix obtained a further loan of $250,000 from Western United to facilitate the exercise of an option to purchase the 6.25m shares which Kia Ora held in Pact at a cost of 4 cents per share. Bannerman and others guaranteed these loans. These loans, less $80,000, were repaid. The balance remained outstanding in late 1988.

Pact deposited substantial monies with Western United. The first deposit of $400,000 was made during November 1986. On 30th April 1987 the total deposits were $806,000 and remained at about that level until after 31st August 1987 when the total fell to about $705,000. In October and November 1987 the total of the deposits was about $1.2m.

It is the plaintiff's case that Bannerman, through Fleubaix, obtains these loans because of the deposits made by Pact with Western United and whilst not strictly speaking typical back to back loans, the effect of them is the same. The value of Western United was enhanced by these arrangements in the same way. Without evidence from those involved, it is not possible to reach any conclusions about such matters. It may well be the case that Western United advanced the second loan of $250,000 to assist Kia Ora which may have wanted to sell its shares in Pact. However, the evidence does not permit that conclusion.

However, the evidence about LGM Prospecting syndicate, United Nickel and Pact does establish an association between the persons involved in each of those entities: Stokes, Bannerman and Harold Abbott. It reveals other associates: Gary Abbott, Chisholm, Gardiner and Pilmer. It is not possible to be precise about the full extent and nature of those relationships but what is known shows that Nelson Wheeler Perth was also involved in these associations at least to the extent mentioned. The evidence does not disclose if in 1987 Burhan retained any of the shares in United Nickel (Pact) acquired in September 1983.

Paralet was a company of which Stokes and Munachen were two of the four directors and was used by them to acquire a unit at Thredbo Village in the snowfields of Victoria in about April 1987. The families of Stokes, Munachen and a friend and his son each acquired a quarter interest in the unit.

The method of acquisition was an assignment of the interest of the owner in the unit to Paralet. The owner of the complex required, inter alia, character, business and bank references for the assignee. Solicitors acting for the assignor wrote to Nelson Wheeler Perth on 14th April 1987 requiring those references.

On 21st May 1987 Gardiner, as an executive of Western United, gave a written reference for both Munachen and Stokes. He wrote that he had known them for a period of five years and went on:

"I am aware of their personal and other company assets and consider them to be extremely sound financially. I recommend both as persons of good character.

On the basis that they are directors of Paralet Pty Ltd, I hereby recommend Paralet Pty Ltd as a suitable assignee."

According to Stokes, he had nothing to do with the procedures in acquiring the unit or this reference. His part of the transaction was arranged by Munachen. He said he had not known Gardiner for five years at that time, he had never disclosed to him information about his personal or company assets and he did not ask Gardiner for the reference. Stokes said he barely knew Gardiner at this time. He had seen him from time to time socially but usually from a distance. He had not had anything to do with him in business terms. According to Stokes, Gardiner would not have known anything about his financial position or business activities. He went on to add that Gardiner may have been acting for Kia Ora or United Nickel when the LGM Prospecting Syndicate did business with those companies in 1982, but he was not involved and did not believe that he had contact with him until the acquisition of the first half of the Marvel Loch mine.

I do not accept this evidence. It does not accord with what Harold Abbott wrote about Stokes at the time when the first half of the Marvel Loch mine was purchased by Mawson Pacific. It is likely that Stokes had known Gardiner and other senior personnel at Kia Ora and Western United for some years.

The circumstances in which Gardiner came to give the reference in those terms are also significant. On 21st May 1987 Nelson Wheeler Perth sent to Martin of Western United by facsimile transmission a handwritten draft of the reference to be given by Gardiner in substantially the same terms as the final document. After some minor alterations, it was typed and signed by Gardiner.

There is no evidence as to the role played by Munachen, if any, in the selection of Gardiner as the referee and in the preparation of the draft due to Munachen's failure to give evidence.

If Stokes' evidence about his limited association with Gardiner is correct, it is difficult to understand why Gardiner would be willing to sign a reference in those terms. It is significant that of all the social and business acquaintances of Stokes and Munachen at this time, Gardiner should be selected to give the reference.

No evidence other than that of Stokes was led to show the true nature of the association between Stokes and Munachen and Gardiner and Western United at this time and for the previous five years. In my view, the reference is an indicator of the nature of the associations between these men at this time and between Stokes and Munachen and Western United.

Parry Corporation was a long standing client of Nelson Wheeler Perth and Parry was known to Pilmer. It is appropriate to mention the evidence of the nature and extent of the association between Nelson Wheeler national, including Nelson Wheeler Perth, and Parry Corporation. Mention has already been made of the involvement of Parry Corporation and Parry in Western United.

In late 1983 Wenham forwarded a telex to Pilmer and mentioned that he had not seen Parry in Sydney for a long time. He suggested that Pilmer should contact him and tell him that Wenham would be delighted to see him when he was next in Sydney. On 27th January 1986 Wenham, Simmons and Pilmer wrote to Parry Corporation and on behalf of Nelson Wheeler national congratulating the company upon winning the right to defend the America's Cup and forwarded a contribution of $10,000 for that purpose. These matters alone tend to suggest a significant relationship between Nelson Wheeler Perth and nationally with Parry and Parry Corporation.

The minutes of the meeting of the management committee of Nelson Wheeler Hong Kong on 19th December 1986 record that two directors of Parry Corporation attended at Nelson Wheeler Hong Kong having been referred by Pilmer. They were interested in setting up a property trust in Australia for particular purposes. It was expected that Nelson Wheeler in Australia and Hong Kong would be used by Parry Corporation. The minute also records that these directors spoke highly of Pilmer. A copy of these minutes were sent to Wenham, Simmons and Pilmer.

On 30th January 1987 Nelson Wheeler nationally published a full page advertisement in the Financial Review congratulating the Task Force for the defence of the America's Cup and the crew of the defending yacht on their selection as the defenders. The advertisement included that Nelson Wheeler was proud to be in association with Parry Corporation "in pursuit of their sporting and commercial objectives". Every office in Australia and Hong Kong was mentioned with its telephone number.

On 11th March 1987 Newman forwarded a memorandum to Parry Corporation enclosing financial statements and cash flow projections for subsidiaries. The task of Nelson Wheeler Perth was to prepare a financial plan for the Parry Group of companies. On 16th March 1987 Nelson Wheeler Perth prepared a report on the restructuring of Parry Boat Builders Pty Ltd, a member of the Parry Group. In this report Nelson Wheeler Perth noted that their role as a firm of chartered accountants and the company's auditors had not yet been defined, but their work would be useful because of their involvement in the local boat building industry. Also it was mentioned that Newman's experience in his former employment with the Western Australian Railways could be an advantage to Parry Corporation and that Sudbury would be responsible for the assignment. Pilmer was the partner in charge of this work which was envisaged to be substantial as the estimated fee was $100,000.

According to Newman, Parry Corporation had by this time become diverse in its business activities. Each business required funds and Nelson Wheeler Perth was required to provide forecasts for the business and to develop an integrated package. His work for Parry Corporation occupied only about two or three weeks in about March 1987.

The account rendered by Nelson Wheeler Perth on 9th April 1987 to Parry Corporation indicates that a considerable amount of work had been undertaken by the firm during the period from 1st October 1986 to 31st March 1987.

Nelson Wheeler Perth continued to act for Parry and for companies with which he was associated. The evidence does not disclose when all of this work was undertaken, but some work was done in October 1987 and in 1988 and involved Pilmer. One document, a handwritten note, suggests that Nelac Nominees may have been used to hold shares in a holding company in the Parry Group. Another document which is incomplete suggests Pilmer was, or was to be chairman of directors of that company.

Plainly Nelson Wheeler Perth undertook work for Parry Corporation over a considerable period of time. Pilmer was the partner in charge of this work which occurred before Parry Corporation acquired the interest in Western United and after the Nelson Wheeler report was completed. It is to be expected that Pilmer had knowledge of aspects of the structure and financial viability of the Parry Group and Parry Corporation in particular. It is also to be expected that Pilmer would have known of the relationship between Western United and Parry Corporation and of its shareholding in Western United both as to the acquisition of the shares and the sale of them. These are reasonable inferences which may be drawn from the evidence and the absence of Pilmer from the witness box assists in the drawing of them. Newman said he did not learn anything about the relationship between Parry Corporation and Kia Ora or Western United but his work had a particular focus and his lack of knowledge does not assist in deciding the extent of knowledge of Pilmer.

This evidence does not, to my mind, establish a direct association between Nelson Wheeler Perth and Western United through Parry Corporation. However, it does establish two matters of importance. First, that Nelson Wheeler Perth, principally through Pilmer, was aware of the relationship between Parry Corporation and Western United, including the shareholding, the borrowings and the sale of the shares when he signed the Nelson Wheeler report, and secondly that Western United financed Parry Corporation in the purchase of its own shares. The most significant aspect of those matters is the involvement of Parry Corporation in Western United as both an "investor" and a borrower inflated the value of Western United. These matters were important in valuing Western United and Pilmer was, or should have been, aware of them.

In itself, it is not of particular significance that Nelson Wheeler Perth was acting for Parry Corporation at the time they undertook the Nelson Wheeler report provided any confidences of one did not have to be disclosed to the other. The significant matters concerning Parry Corporation which could bear upon the valuation of Western United were known to Western United. The plaintiff sought to make something of the point that Parry Corporation did not put any of its own money into Western United but walked away with a very substantial profit, something like about $5.8m less purchase and sale expenses.

The evidence does not disclose why those controlling Western United enabled this to happen, but it has not been established that this profit is relevant to matters in issue in these proceedings. The plaintiff contends that this profit and the circumstances of it establish that Parry was a collaborator with Harold Abbott in the plan to inflate the value of Western United to increase the benefits to the shareholders of Western United upon the takeover including Harold Abbott and that Pilmer was aware of that matter. In support of this contention, the plaintiff submits that Parry did not complain when the takeover announcement was made to the effect that Kia Ora was to pay $3.90 or $4.40 for shares which a short time earlier Parry Corporation had sold for $1.30 and further that Viner remained a director of Western United. They are intriguing matters but, in my view, the evidence does not go far enough for such a finding about such a serious matter.

The next matter is the information contained in the Nelson Wheeler report as to the sale of the shares owned by Parry Corporation in Western United on 14th August 1987. It will be remember that on that day the shares (6,238,726) were sold through County Securities at $1.30 each. Nelson Wheeler Perth were aware of the correct position at the time of preparing the report as that information is contained in their file. In the Nelson Wheeler report it was reported that this sale occurred in July 1987 and the number of shares was 3,829,045 which is the number initially allocated to Parry Corporation. No price was mentioned. This incorrect information also appeared in second and third drafts of the Nelson Wheeler report. On each occasion Parry Corporation was mentioned by name.

The plaintiff contends that this incorrect information was provided by Pilmer deliberately. If the correct information had been provided as to the date and the number of shares being about 25 percent of the issued capital, and the price of $1.30, a reader of the Nelson Wheeler report would have had a basis to question the accuracy of the valuation and the opinions expressed in it. By moving the date of the transaction another month away from the date of the valuation, by understating the number of the shares and by not mentioning the price, the reader would not understand the true significance of the transaction.

These inaccuracies were significant but do not establish that Pilmer included them deliberately in collaboration with Harold Abbott or otherwise. They do not therefore establish some relevant feature of the association between Pilmer and Harold Abbott or Nelson Wheeler Perth and Western United.

In evidence at the s541 examination, Pilmer acknowledged that correct information about the sale of these shares could be important to readers of the Nelson Wheeler report. According to Newman, the error about the number of shares occurred because he used information which he obtained from the Nelson Wheeler share registry because he believed that information to be correct. He said it was his mistake. He regarded the sale of the shares held by Parry Corporation as significant in determining the market price of Western United shares because he took the view the market had been opened up by that sale. However, this evidence is unconvincing. Newman's subsequent explanations indicate that at the time he gave little thought to the significance of the sale of those shares. He claimed that he regarded the sale as a "stress" sale because of his knowledge of the financial position of the Parry Group but he acknowledged that he did not make any enquiry about it.

It is not established to my satisfaction that there are any similar implications about these errors.

Mention has been made of the employment agency business conducted by Premium Personnel, the majority interest in which was owned by Nelson Wheeler Perth, through Startup Securities. The plaintiff contends that through Premium Personnel, Nelson Wheeler Perth provided personnel and employment services for clients throughout the period from February 1987 to May 1989. Having become directors and secretaries of companies of clients, Nelson Wheeler Perth would use this service to recruit staff for those clients and indeed did so for the MRSA Eltin Group in September and October 1987.

The plaintiff's case, as pleaded, is that through Premium Personnel there was a link between Nelson Wheeler Perth and Kia Ora through the Marvel Loch mine and MRSA and Western United through Gardiner.

Premium Personnel engaged an accountant for the Marvel Loch joint venture. On another occasion in October 1986 Premium Personnel sought an accountant for MRSA.

These matters do no more than establish one of the services provided by Nelson Wheeler Perth. They do not establish the link as pleaded.

It will be remembered that Shamra was the trustee for the Shamra Trust which owned units in the Essemco Unit Trust.

Shamra was incorporated in Western Australia on 24th March 1986 and had its registered office at the offices of Nelson Wheeler Perth. It was administered by the firm under the control of Munachen who was the public officer of the company. It was a unit trust and it will be remembered that the units were owned by the family trusts of Stokes, Munachen, Morris, Evans and Silver. These units were issued on 1st July 1986. Munachen was the chairman. He and Silver ceased to be involved in June 1987 and the unit which was held by the family trust of Silver was transferred to Brothers Four.

Shamra was a vehicle through which Stokes, Munachen, Morris and Evans held shares. It had a substantial shareholding in Southern Goldfields in 1986 and early 1987, the rights and entitlements of which were allocated to the individual unit holders on 1st July 1986. Shamra held 3.3m shares and about 1.9m options in Southern Goldfields. It also held shares from other companies including Acorn and Australian Emerald. Those shares were acquired as part of the strategy to resist the eventually successful takeover of Southern Goldfields. According to Stokes, money was borrowed for that purpose from either Western United or Rothwells, a merchant bank in Perth and he said he did not know which bank. Morris claimed to have known little about that transaction. However, the records of Western United do not disclose either Palmvale or Shamra as a borrower from Western United at times relevant to this transaction.

The evidence does not reveal that Shamra had any dealings with Kia Ora or Western United or any of those persons controlling those companies.

The evidence about Shamra merely establishes an aspect of the relationship between Stokes, Munachen, Morris and Evans and that Nelson Wheeler Perth were closely involved with Shamra through Stokes and Munachen and also by reason of providing secretarial, administrative and accountancy services.

It is the plaintiff's case that through Tectonic Resources there was an association between Nelson Wheeler Perth, through Stokes, Martino and staff and Western United, through Green, the merchant bank, Alecdor Nominees and Western United Insurance Brokers. Although a considerable body of evidence was adduced on this matter, the factual position is clear and may be stated relatively briefly.

Tectonic Systems Pty Ltd was incorporated in Western Australia in October 1985. The directors were Robb and Mr MG Blakiston and they each held one subscribing share. The company was a client of Nelson Wheeler Perth through its Kalgoorlie office. In June 1986 additional shares were issued to Robb. He was introduced to Martino by Stokes. Tectonic Systems entered into the field of mineral exploration. Robb was acquainted with Mr P Wilson, a senior geologist with the CSIRO. He was developing remote sensing techniques from satellites, the details of which are irrelevant for present purposes. Robb introduced Wilson to Stokes who took an interest in this technology for the exploration of tenements owned by Mawson Pacific. Mawson Pacific committed funds to the development of the techniques and Stokes also introduced Robb to Ramsgate Resources Limited which was a company of which Stokes, Morris, Evans and Eddy were directors and substantial shareholders. It also was a client of Nelson Wheeler Perth. Mention is made of this company shortly. Ramsgate also contributed to the project, with the consequence that Tectonic Systems, Mawson Pacific and Ramsgate became joint venturers.

According to Stokes, Robb, representing Tectonic Systems, required financial backing and Stokes introduced him to Newton. Newton acquired shares in Tectonic Systems through Muscoda. As has been seen, Stokes also had shares in Muscoda. Tectonic Systems acquired various mining tenements in Western Australia, South Australia and the Northern Territory.

A procedure was adopted in 1987 which resulted in the establishment of Tectonic Resources and a public float to raise capital. The issued capital in Tectonic Systems was sold to a delisted company Kornblums Furnishings Limited which was then re-listed on the Stock Exchange. Tectonic Systems had its assets revalued at a substantial increase in value and then made a bonus share issue to its shareholders out of the resultant revaluation reserve. Martino became a director of Tectonic Systems and Nelson Wheeler Perth acted for the company in these matters. After the transaction with Kornblums, that company changed its name to Tectonic Resources on 8th July 1987. Its directors resigned and were replaced by Robb, Blackiston and Martino.

On 10th July 1987 Tectonic Resources made a placement of 5m fully paid ordinary shares of 25 cents each to raise capital and did so through County Securities. On 13th July 1987 Tectonic Resources was re-listed on the Stock Exchange. In consequence of the placement, 540,000 shares were allocated to Alecdor Nominees which, it will be remembered, was a nominee company of Western United, 5,000 shares to Somes and his partner Cooke, 1,060,000 shares to Bowyang Nominees, a nominee company of County Securities, 180,000, shares to Domenal Enterprises, the trustee of Martino's family trust, 7,000 shares to Granadilla, a company associated with Somes and Cooke, 5,000 shares to Langford, 5,000 shares to a client of Nelson Wheeler, 5,000 shares to Milligan and 5,000 shares to an associate of Milligan. Alecdor Nominees held the shares as to 296,000 for Robb and 240,000 for Ms G Wilson.

Wilson financed the acquisition of the shares held by Ms Wilson by a loan to him of $60,000 from Western United. Martino and employees of Nelson Wheeler Perth assisted him in arranging that loan. Robb also obtained a loan from Western United to acquire the shares held for him in the sum of $70,000. These loans were obtained on about 30th June 1987. Tectonic Resources arranged its general and worker's compensation insurance cover with Western United Insurance Brokers.

Tectonic Resources continued with the joint venture arrangements and also in a joint venture with Mawson Pacific and Ramsgate. On 8th September 1987 Martino and Blackiston instructed the Rural and Industries Bank at West Perth to transfer $500,000 of the funds held by the Bank for Tectonic Resources by bank cheque to Western United. On that day Martino forwarded the cheque to Ms Wendy Allen, the manager of the Money Market Division of Western United, and he addressed her in first name terms. According to Martino, this deposit was arranged by Robb through a member of staff of Nelson Wheeler Perth, Mr Guille. Martino merely signed the letters which had been prepared by Guille. He did not know Allen. The decision to place the money with Western United was made by Robb in his capacity as managing director of Tectonic Resources and Martino signed the letters because Robb was not available at the time. On 11th September 1987 the Development Manager of Western United Insurance Brokers wrote to Martino for Tectonic Resources as to certain agreements and addressed him by his first name.

Accounts for professional fees rendered by Nelson Wheeler Perth to Tectonic Resources indicate that the firm undertook many tasks for the company, including secretarial and administrative work. Martino was the partner in charge of this client and played an active part in the work. The principal office of the company became that of Nelson Wheeler Perth in September 1986.

The top twenty shareholders of Tectonic Resources as at 14th October 1987 included: Robb about 2.8m, Muscoda about 2.5m, Wilson about 3m, Bowyang Nominees about 1.2m, Alecdor Nominees about 536,000, presumably for Robb and Ms Wilson, Domenal 180,000 and Ivan Mrsa Pty Ltd 76,000. In the 1988 taxation return of Cullimore Family Trust, a trust of the Stokes family, it is shown that the Trust held a substantial fund of shares in Tectonic Resources at a cost of in excess of $250,000 and also that income was received for Tectonic in excess of $106,000.

On 16th October 1987 County Securities agreed to place with clients of the company 1.4m shares in Tectonic Resources at $1.35 per share. After the share market crash, Martino informed the Stock Exchange that the directors had reconsidered the placement and decided it was not in the best interests of the company to proceed with it at that price but at the price of 80 cents per share.

The effect of Martino's evidence is that he acted for Tectonic Systems and then Tectonic Resources in a professional capacity and also was a director at the request of Robb. Nelson Wheeler provided the administrative and secretarial services also at the request of Robb. He was not associated with Kia Ora or Western United when undertaking that work. The executive decisions of the company were made by Robb. There is no evidence to the contrary and no reason not accept Martino's evidence as to the role played by him and Nelson Wheeler Perth excluding Stokes.

The evidence does establish that Mawson Pacific, Ramsgate Resources and Muscoda were heavily involved with Robb and Wilson in the development of the project. That arrangement brought together those two men and Newton, Morris and Evans, Stokes and the other members of the LGM Prospecting Syndicate. When Robb and Wilson required money, Western United provided a loan. When Tectonic Resources required capital Stokes, Morris, Evans and Newton caused companies they controlled to take substantial shareholdings and in the case of Newton to place shares with clients. It is likely that Stokes also took shares personally with Newton through Muscoda. Nelson Wheeler Perth provided the professional assistance and services which have been mentioned and Martino was personally involved as a director and shareholder through Domenal.

I do not think that any relevant association between Nelson Wheeler Perth and Kia Ora or Western United is established through Tectonic Resources. Nelson Wheeler Perth was closely involved with the company. Morris, Evans, Newton and Mawson Pacific were also involved. However, the link with Western United was by way of loans and there is no reason to suggest that any relationship between Nelson Wheeler and Western United played any part in the obtaining of those loans.

The Western United Property Trust did not eventuate but the attempts to establish it reveal an association between Western United and Nelson Wheeler Perth and something about the nature of that association.

Gelorup Nominees Pty Ltd was the trustee of the old Westralian Asset Trust. In October 1986 Mr HR Haselhunt and Munachen were managers of the Trust. At the meeting of directors of the Trust on that day, it was noted that when Haselhunt had prepared a report about a management fee structure for an activity, he, another person and Munachen, would review the matter and report to the directors. Stokes joined the meeting and advised of an enquiry by Western United which was keen to establish a public property trust. It was resolved that Stokes and Munachen would meet with the principal of Western United. According to Stokes, he had met Green in 1986 who at some time had told him that Western United was interested in setting up a property trust which they wanted to list publicly. Stokes told him about the Westralian Asset Trust and said that he told Haselhunt of that conversation.

Cableform Technologies Limited was a subsidiary of Western United and changed its name in November 1986 to Western United Properties Limited. It was proposed that the company be the manager of the Western United Property Trust.

On 4th February 1987 Milligan sent a facsimile transmission to Gary Abbott concerning the Western United Property Trust. He had discussed the matter with County Securities and forwarded five pages of comments to someone at County Securities. These comments are in detail and illustrate matters to be considered by those setting up such a trust. Green replied to Milligan on 6th February 1987 and the detail of this reply indicates that Western United were considering the matter seriously.

Minutes of the meeting of directors of Gelorup on 6th February 1987 record that Haselhunt informed the meeting that he and Munachen had had three meetings with Western United Properties and that Western United, "a public company 25 percent of which is owned by Parry Corporation", had offered to merge with Westralian Asset Trust to establish a public trust. He also reported that upon the listing of the public trust, the managers would no longer be involved in the day to day running of the Trust and that the managers would change from Haselhunt, Stokes and Associates to Western United Properties Ltd, the Trust from Westralian Asset Trust to Western United Property Trust and the Trustee Company from Gelorup to WA Trustees Limited. The then 45 unit holders would receive a bonus issue and with a new issue there would be 23m units of $1. Haselhunt, Munachen and Mr Hunter were empowered to continue negotiations with Western United Properties.

According to Stokes, Nelson Wheeler Perth undertook the administration of the Westralian Asset Trust and the name Haselhunt Stokes and Associates was the business name registered for that purpose. Stokes claimed to have nothing to do with the consideration of the proposed Trust.

By 18th February 1987 Western United had proceeded further with the proposed trust. A draft prospectus was prepared and sent to County Securities and another stockbroker in Sydney to see if either would underwrite the float of the new trust.

This matter reveals that Stokes and Munachen were involved with Western United in 1986 and early 1987 in this way. It shows that County Securities was also involved. Green mentioned Western United's interest to Stokes who took the matter up with Gelorup. Stokes and Munachen were willing to work with Western United in this way.

Mention has been made of the Nelson Wheeler Share Registry which was established and operated by Nelson Wheeler Perth and later by Borman. There was a relationship between Nelson Wheeler Perth and Western United in this context which the plaintiff alleges is significant. It is necessary to examine each aspect of this alleged relationship in order to determine whether it is of significance.

In June 1985 Pilmer met with Harold Abbott and Gary Abbott at the offices of Western United and negotiated the purchase from Western United of used computer equipment for the share registry at a cost of about $73,000.

As from 15th August 1986 Western United transferred its share registry to Nelson Wheeler Perth. At the time Nelson Wheeler Perth estimated the annual fees from Western United at $7,334. They also expected that Kia Ora would transfer its share registry to them as from 1st September 1986 with estimated annual fees of $53,620 but that transfer did not eventuate. On 1st September 1986 the secretary of Kia Ora wrote to Munachen, addressing him on first name terms, informing him that Kia Ora had decided to accept his proposal to provide share registry services for Kia Ora and asking him to make the necessary arrangements to effect the transfer. Ms M Di Lucia was the manager of the Nelson Wheeler Share Registry at relevant times. She had been informed, probably by Munachen, that the share registry of Kia Ora was to be transferred to Nelson Wheeler Perth at about this time and he wrote to the firm that had the registry to effect the transfer but it did not eventuate. She said that Nelson Wheeler Perth did not refuse to accept the share registry of Kia Ora.

A substantial body of evidence was led to establish the function of a share registry of a company, the method of operation of the Nelson Wheeler Share Registry and the type of information which was readily available to Nelson Wheeler Perth, the client companies, shareholders and the public. Munachen supervised the Registry. Di Lucia was a capable and efficient manager. For present purposes it is necessary only to give a brief description of these matters. All share transactions were notified to the Registry and recorded. The transfer documentation was retained. Share scrip was cancelled and issued. All significant information was entered into computer systems and could be retrieved promptly and in a manner suitable for the particular purpose, eg the number of existing shareholders, the top twenty shareholders, the number of shares traded and the like. Of course, in busy times, as in 1987, there were delays in sharebrokers providing information to the Registry and in entering it into the computer. Nevertheless, the Nelson Wheeler Share Registry was run efficiently and effectively. It is appropriate to mention a few transactions as examples of work undertaken by the Registry.

It will be remembered that on 20th October 1986 the shareholders of Western United in general meeting authorised the directors to allot to Parry Corporation the initial parcel of shares and options taken by it. On 5th November 1986 the Registry was requested by Western United to prepare the share certificate. The Registry attended to that task promptly and sent the certificate to Western United on 6th November 1986. On 9th October 1986 Western United requested the Registry to effect a transfer of 740,000 shares in Western United owned by members of the Kordic family to Voteride Limited and then to National Nominees Pty Ltd. It appears that there was some delay due to the need for a particular person, Milligan, to provide authority to sign documents which were provided to the Registry on 28th March 1987. A new certificate was sent by the Registry to National Nominees on that day.

On 5th November 1986 Di Lucia wrote to Western United enclosing Transfer Journals and Issued Capital Control Reports relating to Western United shares. The summary provided in the letter showed the number of transactions, the transfer numbers, the certificate numbers, the quantity of shares and the class of shares. It appears that this information was provided at least twice a month. Each month the Registry provided to the company a Top Spread Report which showed the number of shareholders in categories 1-1000, 1001-5000 and so on, with the number of shares held by the shareholder in each category and the percentage of the total. This document also included the name of the shareholding of each of the top twenty shareholders. These documents were also sent to the Stock Exchange.

New obligations with respect to share certificates were imposed upon listed companies by the Australian Stock Exchange pursuant to Listing Rules to effect speedy transfers of shares. The Adelaide Stock Exchange wrote to Western United advising of these obligations on 30th January 1987. In effect a company had to provide to the transferee the share certificate within ten business days after the transfer was lodged. Western United informed the Nelson Wheeler Share Registry of these obligations on 9th February 1987 and asked that they be discharged.

It follows that the Nelson Wheeler Share Registry had information of the share dealings of the directors of Western United and senior employees in shares and options in the company. Information as to the rise in price of Western United shares in 1987 was also recorded and was available to Pilmer and Newman when the Nelson Wheeler report was undertaken.

It is appropriate to mention another transaction by way of example. Mention has been made of Katinka, a company which held Western United shares for Harold Abbott and Gary Abbott. On 11th March 1987 the Nelson Wheeler Share Registry was informed by Katinka of its intention to exercise 2m options for fully paid ordinary shares of 25 cents each in Western United. That information was provided by a letter under seal affixed in the presence of Harold Abbott and Gary Abbott. The letter also instructed the Registry to deliver the scrip, upon the option being exercised, to Standard Chartered Bank and to send a letter to that Bank in terms of the draft attached. Katinka paid the price on exercising the options, $500,000, to Western United on 12th May 1987 and had borrowed money from the Standard Chartered Bank for that purpose. The share certificate was issued for 2m shares by the Registry on 19th May 1987.

When Nelson Wheeler Perth came to undertake the Nelson Wheeler report, mere enquiry from the Registry would have revealed that Harold Abbott and Gary Abbott, through Katinka, paid $500,000 for shares in which a little over four months later Nelson Wheeler Perth had valued at $6.44m on the basis of $3.22 per share and in respect of which had expressed the opinion that it was fair and reasonable for Kia Ora to pay $7.8m or $8.8m depending upon which offer was accepted. This holding of 2m shares was but part of the holding of Harold Abbott and Gary Abbott. Of course the price for the exercise of the option did not represent the value of the shares at the time, but these matters would have indicated to Nelson Wheeler Perth that Harold Abbott and Gary Abbott stood to gain handsomely from the takeover and consequently there was the need to exercise great care in discharging the responsibilities under the retainer. Similarly a simple enquiry of their own share registry would have indicated to Pilmer and Newman the substantial benefits to be received by the other directors and senior management, including Green, should the takeover succeed, which was yet another reason to use caution in the use to be made of information provided to them. Documents admitted into evidence reveal that the Registry was aware of the shareholding of, and the exercise of options by, each of these men. Also, the Nelson Wheeler Share Registry was informed by Western United on 3rd June 1987 of the bonus issue of the one share for three shares held at 11th June 1987 which increased the shareholding of the directors and others controlling Western United.

The Nelson Wheeler Share Registry was also informed of various other transactions affecting directors and senior management of Western United.

Also, the arrangement between Nelson Wheeler Perth and Western United for the provision of the share registry services necessarily means that Nelson Wheeler Perth were not truly independent of Western United. This arrangement was beneficial to Nelson Wheeler Perth and personally to each of the partners including Pilmer. The continuation of the arrangement necessarily depended upon the goodwill of management of Nelson Wheeler Perth towards Nelson Wheeler Perth and Munachen in particular.

I now turn to another matter. On 15th October 1987 Munachen wrote a memorandum to Di Lucia as follows:

"Re: Kia Ora Gold Corporation N.L. Western United Holdings Ltd

Kia Ora Gold has announced a takeover bid for Western United, which if successful will result in Kia Ora controlling Western United, at which stage, Kia Ora will change its name to Western United. Harold Abbott is adamant that we take over the register when this is effected, which in effect will be the old Kia Ora register, but with a new name and having some 20,000 shareholders. This time we won't refuse. It should be ready early 1988, so I suggest we plan for a January, 1988 takeover. With all of the other changes and new floats, we should plan to recruit sufficient new staff to handle this extra work. We should also plan for additional computer facilities etc. These matters should be given priority when our newest staff member joins."

It will be remembered that the extra-ordinary general meeting of Kia Ora at which the takeover of Western United was authorised did not occur until 26th October 1987 well after this memorandum was written. In the monthly report for the Nelson Wheeler Share Registry for October 1987, the following was reported:

Stokes said he did not have any discussion about this matter with Harold Abbott at about this time which could have precipitated Kia Ora offering to Nelson Wheeler Perth its share registry. However, he said that after he acquired his interest in the Registry in 1987, he would have urged Harold Abbott to give the work to the Registry. He said he could not recall any discussion with Munachen about the matter. He could not explain the statement in the memorandum "This time we won't refuse".

Of course if Munachen had given evidence he could have related what happened and when. His failure to give evidence means that the memorandum is to be understood from its terms. It shows a feature of the relationship between Harold Abbott and Munachen which involved Nelson Wheeler Perth directly and not merely through associated companies. It shows that Harold Abbott's proposal was to be implemented and that Kia Ora was to be a substantial client. It is not known when Harold Abbott mentioned these matters to Munachen. It may have been whilst the Nelson Wheeler report was being undertaken, but there is no evidence as to that matter. It shows that Kia Ora and Nelson Wheeler Perth at this time had a close business relationship, a consequence of which was the share registry work of Kia Ora being given to the Nelson Wheeler Share Registry.

The question may be asked, "Why would Harold Abbott make that proposal at that time?" The evidence does not permit the finding that he was grateful to Nelson Wheeler Perth for a favourable Nelson Wheeler report or that the offer of the work had been made to Pilmer before, or at the time of the contract of retainer, but it does establish that a close association existed which very likely existed before the contract of retainer.

The importance of the share registry of Kia Ora to Nelson Wheeler cannot be underestimated. The Nelson Wheeler Share Registry had grown steadily since 1985 when, according to Di Lucia there were only two registries of two companies. Many of the names of the companies for which Nelson Wheeler Share Registry provided this service in 1987 were introduced by Stokes or Munachen and are companies mentioned in this part of these reasons for judgment.

According to Di Lucia if Kia Ora had been given the work to Nelson Wheeler Perth, it would have almost doubled the size of the Nelson Wheeler Share Registry based upon the number of shareholders in Kia Ora and the number of shareholders of all of the other companies. As has been seen, the calculation in 1986 was that estimate fees from Kia Ora would have been in excess of $53,000 and it is likely that the fees would have been similar in 1987.

The last matter is the request by Western United to the Nelson Wheeler Share Registry on 19th November 1987 to send to Western United the offer documents of Kia Ora for the takeover of Western United which were to be sent to various shareholders so that Western United could deliver them by courier. These shareholders were the companies of the directors, Milligan and Gardiner and National Nominees, ANZ Nominees and Bowyang Nominees. Mention of these nominee companies in this context suggests that they held shares for the directors, senior management or persons associated with them or some of them. This request concluded:

"Also please arrange to send documents to overseas shareholders by express (or priority) mail."

According to Di Lucia, because the Nelson Wheeler Share Registry held the register of Western United shareholders, it prepared the acceptance forms with precise information about shareholding which had to be sent to Kia Ora to be included with the offer document. She was speaking from her recollection of usual practice but the reference to overseas shareholders seems to suggest that her evidence may not be correct. It is a matter of no significance. What is relevant is that this matter is an aspect of the work undertaken by the Nelson Wheeler Share Registry and of the relationship between Nelson Wheeler Perth and Western United.

Questenberg Pty Ltd was the trustee of the Questenberg Unit Trust. Stokes, Munachen and Martino were the directors of Questenberg and the legal owners of the issued shares. It was incorporated on 13th May 1986 as a shelf company and acquired by Nelson Wheeler Perth on 23rd June 1986 at which time Stokes and Martino were appointed directors, the shares were transferred to them and the office of Nelson Wheeler Perth became the registered office of the company. Munachen was appointed a director on 8th July 1986. Martino was also appointed the secretary of the company. There were ten units in the Questenberg Unit Trust, all of which were held by Martino upon trust as to five of the units for Morris and Evans and as to the other five units for Forsayth. At this time, in July 1986, Morris and Evans were directors of Forsayth and controlled 16 percent of the issued capital of that company.

There was a vast amount of evidence adduced at the trial about Questenberg and various transactions in which it was involved. The evidence of Morris was, in the main, unhelpful and, I find, deliberately incomplete. According to him, Questenberg was established to purchase a motor cruiser vessel called "the Angelina" from Singapore at a cost of $150,000. Munachen signed the letter containing the offer and the agreement for sale and purchase. According to Morris, it was a pleasure craft used for the benefit of the mine workers of Forsayth and was purchased on 27th May 1986. Evans undertook the negotiations and as far as he was aware Questenberg was not involved in any activity other than with respect to the Angelina. As will be seen, Questenberg was involved in other financial activities and I do not accept that Morris was unaware of them.

On 25th August 1986 Questenberg applied to Western United for a loan of $1.5m. Three forms with respect to that application were admitted into evidence. One showing Morris and Evans as the applicants, another showing the same information but with their names crossed out and Questenberg Pty Ltd written on the form and the third in the name of Questenberg. It is the third application form which was processed by Western United. Morris and Evans are shown as guarantors of the proposed loan. The security includes a first mortgage over 2.45m shares in Forsayth but this amount is altered to 1m shares. The application also records that it was a condition precedent of the loan that Forsayth would deposit $500,000 with Western United for the duration of the loan and further that Questenberg was a "shell" company being used by Morris and Evans as a vehicle for the transaction of an investment programme.

The loan was approved on 17th October 1987. It was a "drawing and discount" facility for 30 days which enabled all or part of the $1.5m to be drawn down as required. The security was a pledge over 1.45m shares in Forsayth not 2.45m or 1m. No mention is made in the letter of offer setting out the terms of the loan for the deposit by Forsayth. This letter was sent to Questenberg at the office of Nelson Wheeler Perth.

The $1.5m was paid to Questenberg on 17th October 1987. Martino, Morris and Evans each signed three bills of exchange for $500,000 each but not until 17th November 1987. The funds were disbursed as follows: $210,000 to Fosayth Group Management Pty Ltd, $450,000 to First Australian Resources, $500,000 to Eyres Reed McIntosh, $300,000 to Western United and a further $10,000 to Western United. The small surplus was retained by Questenberg. Martino wrote cheques for Questenberg in payment of those amounts. He said he made out the cheques and signed them and did so on the instructions of Evans. He said he could not recall why the payments were made except that he did recall that Evans told him that the payment of $500,000 to Eyres Reed McIntosh was for an investment of Questenberg.

However, the Nelson Wheeler Perth file which was admitted into evidence contains records which assist in explaining the reason for these payments.

The payment of $10,000 to Western United was in payment of the loan fee. The payment of $300,000 was a deposit with Western United by Questenberg which was in the nature of a back to back arrangement. Martino forwarded the $500,000 to Eyres Reed McIntosh on 17th October 1987 with the instruction to hold that amount pending further instructions. That amount was deposited with Western United on 12th November 1986 in the name of Questenberg. The payment to First Australian Resources was in re-payment of a loan and the payment to Forsayth was repayment of loan with respect to the Angelina.

It is necessary to go back in time to understand the reason for payments to First Australian Resources and to see the involvement of Western United. Although a considerable body of oral and documentary evidence was given about these matters and Morris claimed to have little knowledge about them, a reasonably clear picture has emerged.

In 1984 Morris and Evans, as directors of Forsayth and shareholders, were fighting off a takeover of the company by Briggs and interests associated with him. Jarrahmond Holdings Pty Ltd was a company associated with a geologist Dr Longman. It owned 2.5m shares and 2.5m options in Forsayth. At the time of the threatened takeover, those options were exercised so that the shares acquired could carry votes against the takeover. $500,000 was required for that purpose which was advanced to Jarrahmond as a loan by Western United on 23rd March 1984. According to Morris, he, Evans and Longman went to see Harold Abbott who was against Briggs and wanted to see the takeover attempt defeated. He was willing to help but wanted any involvement on his part and that of Western United hidden. The 2.5m shares in Forsayth to be acquired by Jarrahmond exercising the options was a critical number of shares in the takeover battle.

Western United advanced the loan for one day secured by 5m shares in Forsayth. The takeover bid was defeated and Morris and Evans remained in control of Forsayth.

In early 1986 the debt had to be repaid. First Australian Resources was a company with which Morris and Evans were associated. That company advanced $450,000 to Palmvale on 30th May 1986. Of this amount Palmvale deposited $410,871.24 with the merchant banker Kimberley NZI. In the records of Palmvale, there is the note that Evans had given instructions that these monies were on deposit against funds advanced to Longman of $450,000. Records of Palmvale identify the deposit with Kimberley NZI as "Loan No 2 Morris/Evans (NZI)".

First Australian Resources had to be repaid and if that happened during the financial year, the issue of whether the loan was recoverable did not have to be addressed by the auditor which was Nelson Wheeler Perth. Crawford handled that matter.

On the plaintiff's case the need to repay First Australian Resources was the primary reason for the establishment of Questenberg and the loan from Western United of $1.5m. The problem is noted in the file relating to Questenberg. The following note was made much later:

"Really - Mike (Evans) and John (Morris) should put in the money to clear this then Questenberg would have cash at Bank. The point is they used Forsayth money and subsequently Questenberg money and it has never been repaid.

Can't see repayment via journals else P/V in Questenberg books will become M & E which is not acceptable. Should be by cash then and client don't come into it."

I am satisfied that the full story about Questenberg has not been told. Munachen, Evans and Harold Abbott did not give evidence. Stokes could not be cross-examined and Morris was not forthcoming about matters of which, I am satisfied, he was aware.

Nevertheless, the following matters are established. Morris and Evans were assisted by Harold Abbott in 1984 and again in 1986. The Questenberg loan involved a back to back arrangement. Martino claimed to know nothing about this matter but he did write out and sign the cheques and bills of exchange and give some instructions to Eyres, Reed and McIntosh. Of course, no-one could be expected to remember many matters about client affairs ten years later, but I expect he could have remembered more if he had better prepared himself to give evidence. I accept that it is likely that Evans, with the knowledge of Morris, arranged the Questenberg loan and that both men arranged the Jarrahmond loan. They were sufficiently well regarded by Harold Abbott for such large loans to be made. The Questenberg loan included back to back arrangements through the deposits totalling $800,000 which were repaid by Western United in December 1986. Given the close and longstanding relationship between Stokes, Munachen, Morris and Evans and the involvement of Palmvale and the positions of Stokes, Munachen and Martino in Questenberg, Stokes and Munachen would have been aware of these various transactions and I accept that Martino was aware of, at least, in a general way of the loan by Questenberg and its purpose. In the Nelson Wheeler Perth file created for the Nelson Wheeler report, there is written on the liquidity report for Western United as at 17th October 1986 "Forsayth NL 1,500,000" which is in Green's handwriting. At that time, excluding that loan, the total assets of Western United were stated to be $9,894,855. It may be seen that Green regarded the Questenberg loan as a loan to Forsayth. Nelson Wheeler Perth was informed of the loan. It was the largest loan made by Western United until that time. Investigation would have revealed the back to back arrangement.

The plaintiff contends that these transactions were contrary to law to the knowledge of both Nelson Wheeler Perth and Western United. Nelson Wheeler Perth was aware that Western United was willing to be involved in that type of arrangement and to collaborate with Morris and Evans in their corporate conduct. It is unnecessary for present purposes to make any comment about the propriety of the transactions. It is sufficient to have regard to the transactions and the associations which are implicit in them.

As has been seen, some of these associations do not assist in the resolution of issues in these proceedings. I have disregarded them. However, other associations are of importance for various reasons.

Some of them show the manner in which Western United and Harold Abbott undertook business through the back to back arrangements and that Nelson Wheeler Perth, including Pilmer, were aware of these types of arrangements. So too was Somes who participated in some of them. The value of Western United was artificially inflated by those types of loans.

The evidence discloses close relationships between Morris, Evans, Stokes and Munachen and many business dealings. Each of these men had a close relationship with Harold Abbott and with Western United which involved substantial loans which were usually granted urgently. The relationship between Nelson Wheeler Perth, mainly Stokes and Munachen, and Harold Abbott and Kia Ora and Western United enabled substantial assistance and borrowings through Harold Abbott as may be seen from the AIMS, Wattle Gully and Questenberg transactions. Over the years Stokes and Munachen came to know Gardiner.

Newton was also closely involved with all of these men and Kia Ora, Western United and Mawson Pacific which assists in understanding why County Securities became involved in the sale of the shares owned by Parry Corporation in Western United.

Nelson Wheeler Perth benefited significantly from many of these associations through the professional work given to them, the share registry services provided to some of the companies and, on occasions, the interests which the firm took in some of the companies.

At the very time the valuation of Western United and the Nelson Wheeler report was being undertaken by Nelson Wheeler Perth, one of the partners, Stokes, received a loan of nearly $1m from Western United through Harold Abbott. Stokes had a business relationship with Chisholm, a senior executive of Western United.

Stokes benefited substantially from his association with United Nickel, later Pact, through the LGM Prospecting Syndicate and at that time, in 1983, was involved with Harold Abbott in the transactions involving tenements.

Nelson Wheeler Perth, and in particular Pilmer, through the association with Parry Corporation knew, or was in the position to know, relevant information about the relationship between Parry Corporation and Western United which was relevant to the valuation and the Nelson Wheeler report. A question arises whether a duty of confidence to Parry Corporation had existed which would have prevented Nelson Wheeler Perth from disclosing information about Parry Corporation to Kia Ora but that question need not be decided. Much of the significant information would have been known to Western United and could have been sought from that company by Nelson Wheeler Perth or from other sources. Parry Corporation could have consented to the disclosure to Kia Ora of confidential information. However, if there was a duty of confidence which posed an obstacle to the proper performance of the task under the contract of retainer, Nelson Wheeler should have refused the retainer.

Also through the associations between Nelson Wheeler Perth and Western United through the medium of the Nelson Wheeler Share Registry, relevant information was available to Nelson Wheeler for the purpose of the valuation and the report. This does not, in itself, indicate a lack of independence but an opportunity to readily obtain the information.

Also the proposal that Kia Ora would place its share registry with the Nelson Wheeler Share Registry after the takeover of Western United indicates that Nelson Wheeler Perth had an interest in the success of the takeover and consequently could not be regarded as independent of Kia Ora. The fact that this proposal did not eventuate is not to the point.

In my view, all of these matters speak for themselves and establish that Nelson Wheeler Perth were not independent of Kia Ora or Western United and should not have accepted the retainer.

Before parting with these associations, I mention evidence given by Messer. He knew nothing about most of these matters at the time Nelson Wheeler Perth undertook the valuation and the Nelson Wheeler report. However, he was asked what he would have done had he known about them at the time if he had been undertaking the retainer.

He said that he would have regarded the Questenberg transaction as material to the valuation of Western United in September 1987 in the context of whether fees received by Western United were abnormal which could impact upon future maintainable earnings. If he was aware that Nelson Wheeler Perth had been involved in this transaction, he would not have been able to accept the retainer upon his application of the appropriate professional standards.

Messer also said that if he had been aware of the borrowings of Stokes and Munachen and others through Palmvale to acquire shares in Wattle Gully in January 1987, he would not have accepted the retainer because in September 1987 Nelson Wheeler Perth were holding Stokes and Munachen out as partners. If he had been aware that Wattle Gully had obtained the loan of $22m from Western United in May of 1987 and that Kia Ora was, in effect, in a joint venture arrangement with Wattle Gully with respect to the Mount Pleasant Gold Trust, he would not have accepted the retainer.

Also Messer said that if he had known of the loan from Western United to Stokes through Cullimore in September 1987, he would have not have accepted the retainer because he would have been obliged to disqualify himself.

He went on to say that the combined effect of each of those matters indicated to him that Nelson Wheeler should not have accepted the retainer.

In my view, Messer was correct in expressing those opinions. He expressed them on the basis that Stokes and Munachen were not in fact partners of Nelson Wheeler Perth at the time but were held out as such. I have found that they were partners.

The existence of the contract of retainer between Kia Ora and Nelson Wheeler Perth is not in issue. The date of the retainer is not important. It may have been finalised when Harold Abbott spoke to Pilmer prior to the first meeting on 21st August 1987 which has been discussed or subsequently. What is in issue is the scope of the retainer.

It is the plaintiff's case that Kia Ora retained Nelson Wheeler Perth to undertake a valuation of Western United to assist in the formulation of the precise terms of Kia Ora's offer for the takeover of Western United and also a report pursuant to the Listing Rule 3J(3) (para 16 of the Statement of Claim). In their Defence the first defendants admit that at this meeting Harold Abbott requested that Nelson Wheeler Perth provide the directors of Kia Ora with an independent valuation report of Western United (para 16 of the Defence). They also admit that between 7th September and 22nd September 1987 the Nelson Wheeler report was requested by Kia Ora for the purposes of Kia Ora complying with Listing Rule 3J(3) but they deny that the Nelson Wheeler report, or any drafts, were requested to assist in the formulation of the precise terms of the offer.

Without the letter of engagement, the only written record of the retainer is to be found in the Nelson Wheeler report which is addressed to the Directors of Kia Ora and contains the following:

"We report at your request on the value of the company Western United Limited. The valuation has been prepared for the Directors of Kia Ora Gold Corporation N.L. for use in connection with a Stock Exchange Section [sic] 3J(3) notice to shareholders for approval to acquire all of the issued capital of Western United Limited"

"This report has been prepared at the request of the Directors of Kia Ora Gold Corporation N.L. and in accordance with the Stock Exchange Listing Requirement 3J(3) to accompany a notice to shareholders of a meeting to approve the acquisition of the issued capital of Western United Limited.

The report has been prepared solely for the benefit of the Directors and those persons who are entitled to receive notice of the meeting to approve the proposed acquisition and represents Nelson Wheeler's opinion on the value of the issued capital of Western United Limited.

Nelson Wheeler hereby consents to the inclusion of this report with the notice of meeting to shareholders to approve the acquisition."

However, that record must be seen in the context that it is part of the Nelson Wheeler report. It does not deny that Nelson Wheeler Perth had also been instructed to value Western United for the purpose of formulating the price. It will be remembered that Newman was the only person present at the meeting on 21st August 1987, to give evidence. He said that Nelson Wheeler Perth were retained to value Western United for the purpose of the takeover and the terms of the offer were not discussed at that meeting.

Newman's evidence is not precise. It seems that there was no specific instruction at that time as to the purpose of the valuation, namely so that the offer may be formulated.

As has been seen, those controlling Kia Ora had fixed upon the general level of the takeover price by the time of their first meeting with Hayward and before the meeting with Pilmer and Newman. That level was nearly $4.20 and did not alter.

Having considered the pleadings and the evidence about the various drafts of the Nelson Wheeler report, having reached the conclusion that the directors of Kia Ora considered the third draft and that Pilmer and Newman were subsequently informed of the terms of the offer, I am satisfied that the scope of the retainer was that Nelson Wheeler Perth was to undertake a valuation of Western United for Kia Ora in the context of a proposed takeover and then, if required, to prepare a report pursuant to Listing Rule 3J(3), which is what in fact occurred.

The valuation was required to see if the general level of the takeover price already determined was feasible. This is a reasonable inference from the evidence, particularly in the absence from the witness box of Harold Abbott and Pilmer. If it was, then the precise takeover price could be fixed. It is not known what those controlling Kia Ora would have done if the valuation had indicated to the contrary.

Nelson Wheeler undertook both of those tasks and reported to the Directors of Nelson Wheeler on the clear understanding that the final report would be sent to shareholders of Kia Ora.

Pursuant to the terms of the retainer, the first defendants owed a duty of care to Kia Ora to act independently, carry out their instructions with all reasonable and proper care, skill and diligence and to provide Kia Ora with a valuation of Western United and a report which complied with the requirements of Listing Rule 3J(3). As will be seen, although the first defendants admitted in their Defence that they owed such a duty of care to Kia Ora in tort, at the end of the evidence, with the exception of the evidence of Quilty and Singleton, they applied to withdraw that admission and to amend their Defence so as to deny that they owed a duty of care to Kia Ora at all in tort but only to the unassociated shareholders of Kia Ora. The plaintiff opposed the application. This matter is considered later. At all events the first defendants do not deny that such a duty on their part was an implied term of the contract of retainer.

It is unnecessary to consider issues raised on the pleadings as to whether the duty which Nelson Wheeler Perth owed to Kia Ora in contract existed by reason of express or implied terms of the contract of retainer. Leaving aside for the moment to whom Nelson Wheeler Perth owed the duty of care in tort, the scope of the duty in contract and tort was the same and was to be independent and undertake the valuation and the Nelson Wheeler report competently. Given the course which was taken by the Nelson Wheeler defendants at the end of their final address before Quilty and Singleton gave evidence when they conceded that lack of competence in preparing the valuation and the Nelson Wheeler report was no longer in issue and the fact that none of the director defendants contend to the contrary, it is unnecessary to particularise the scope of the duty any further although that is done in the pleadings.

Nelson Wheeler owed a duty of care to Kia Ora to act independently, to perform the retainer competently and to provide a report which complied with requirements of Listing Rule 3J(3). Furthermore, Nelson Wheeler, in discharge of that duty was obliged to make all reasonable and proper enquiries to establish that the purchase price to be offered by Kia Ora for the Western United shares was a fair price. Obviously, they were obliged to exercise all reasonable care, skill and diligence which a reasonably competent qualified person would possess in carrying out the task, given the importance and purpose of that task.

What then of the obligation of independence. There are obvious matters. Clearly the expert could not hold shares in either the vendor or the purchaser or hold office in either. He or she could not be associated with anyone who had such an interest or held office. The expert could not be one of the usual professionals engaged by the company, such as the auditor, or accountant or financial adviser. The expert would not be independent if he or she or an associate stood to gain in some material way from the success of the takeover. It is impossible to list all circumstances which would negate independence. It is a state of fact determined from all of the circumstances and it is to be assessed objectively. The matter was considered in ANZ Nominees Pty Ltd v Wormald International Ltd. Bryson J said at pp706-707:

"In appraising whether they would treat an expert's report as an independent report, and in considering the weight that they would be prepared to give to it, it would, in my view, be quite necessary that shareholders should have the opportunity to see that there had been such revision and that information material to the report had been withheld from them; that is to say, they should be told so by the expert or by the directors. Consideration whether an expert is independent is not always susceptible of an answer in absolute and unqualified terms. A person in a position to give such a report through expertise, for example a merchant banker, is quite likely to have associations with many persons in commerce; an entirely pure absence of earlier association with parties to the transactions of a large public company is probably too much to hope for or insist on. Rather I would think that in appraising a quality which it is only a shorthand expression to refer to as independence and in deciding the weight which they are to give to a report, shareholders ought to have disclosed to them any facts of association between the expert and the parties which could reasonably be regarded as relevant to his independence. The application of such a requirement even in the most undemanding way would, it seems to me, make it imperative that shareholders should be told that they were receiving less than the report as available on 20 January 1988, and that they should be told the nature of the omissions, at least in general terms. They would then be in a position to decide for themselves whether they wanted to insist on there being no omissions if they were to act on the report, or whether they were prepared to act on the report notwithstanding that the material omitted was not made available to them."

It is appropriate to mention Policy Release 102 of the National Companies and Securities Commission which speaks to independence. It was issued to reveal what it took into account in discharging its functions and exercising its powers in relation to s23 and s43(5) of the Acquisition of Shares Code. Section 23 provides for a report of an expert, not being a person associated with the offeror or target company, that the takeover offer is "fair and reasonable" in the circumstances of acquisition embraced by the section. Section 43(5) provides that such a report is to accompany the notice to those shareholders who have not accepted a takeover offer in the compulsory acquisition process where acceptances of not less than 90 percent of the shares have been received. Whilst there is an issue as to whether this Release was binding upon the first defendants at the time, it is beyond dispute that it was widely accepted as an appropriate standard to be adopted by experts when making reports pursuant to Listing Rule 3J(3). Relevant paragraphs of the release are:

"5. Sections 23 and 43(5) of the legislation are predicated on the basis that an expert, seen to be independent, will bring an uncommitted viewpoint to a proposal having potential for conflict of interest, and supply the detachment characteristically missing from such a proposal.

The value of the expert's report will depend substantially on both the motivation of those who engage him and the professionalism and the objectivity which he displays: the expert's performance can be influenced by who engages him and instructs him, at what stage he is engaged, to whom he reports, who pays him and on what basis.

The Commission expects market participants and company managements to encourage the recognition of maximum rather than minimal standards of disclosure and probity in takeovers. The Commission would be concerned if mere technical compliance with the legislation, whether concerning expert's reports or any other matter, were to impair the market system or result in diminishing public expectations of corporate accountability. Either occurrence might prompt recommendations for further legislation or regulation and less flexibility.

6. Whether a person is 'associated with the offeror or the target company' is a question of fact, to be determined by reference to sub-sections 7(5) and (6) of the legislation.

9 The expert should recognise that in discharging his special duty to offerees he is entrusted with public confidence which may be damaged by failure to disclose the existence of any other relationship with the offeror or the target company or any of their affiliates (eg through auditing, superannuation fund management, taxation advisory services or management consultancy services).

The expert should disclose, in his report, details of any relationship between the expert and the offeror or the target company during at least the preceding two years, even though this relationship might not in the view of any of the parties amount to an 'association'. The period of two years is arbitrary: earlier association might be sufficiently significant to warrant disclosure.

In all such cases where professional and other services are or have been rendered by the expert to the offeror or the target company or any of their affiliates an expert will be required to exercise special care to ensure that he furnishes the unbiased report which is the purpose of the provisions: the closer the relationship with the offeror or target company, the heavier becomes the onus which the expert must discharge to establish the absence of relevant association within the intent of the proscription in the legislation."

The first defendants were aware of this Release as a copy of relevant parts of it were contained in their file relating to the Nelson Wheeler report.

These standards should be adopted when considering the meaning and purpose of independence of the expert under the Listing Rule. It may be seen that a true state of independence on the part of the expert is crucial to the efficacy of the process and for the protection of the public generally and the company and its members in particular.

Was Nelson Wheeler Perth in breach of the duty to act independently? They were not associated in the sense that they held shares in Kia Ora or Western United although Stokes had an indirect shareholding of an unspecific nature in Western United through Muscoda. However, I think they were in breach of this duty in three respects; first, by reason of many of the associations which have been discussed; secondly, by reason of the knowledge which members of Nelson Wheeler Perth had as to the method of operation of Western United which was not brought to account when undertaking the valuation and the Nelson Wheeler report or disclosed to Kia Ora and the shareholders, and thirdly by reason of the influence which Green had upon Pilmer and Newman as to the contents of the Nelson Wheeler report which has also been mentioned. There were close relationships between partners of Nelson Wheeler Perth with Harold Abbott, Kia Ora and Western United, directly and through Mawson Pacific, Kia Pacific, Wattle Gully and other companies which have been mentioned.

The friendly relations between Stokes, Munachen, Pilmer and, to a lesser extent, Martino, and Harold Abbott and Kia Ora and Western United, have the consequence that Nelson Wheeler Perth were not independent in fact. Loans had been made and, I think it is fair to say, favours had been granted by Harold Abbott in the granting of loans personally and to companies with which these men were involved and to friends which destroyed any notion of independence. The assistance given in the AIMS matter is an example of another type of benefit. These matters are capable of creating a sense of obligation on the part of those who benefited.

The knowledge of the back to back loans was also sufficient to destroy independence unless brought to account in the valuation process and disclosed. It is enough that Pilmer knew of some of these loans which he disregarded in the valuation process.

The retainer should not have been accepted as was correctly acknowledged by Messer.

The manner in which Pilmer conducted himself with Harold Abbott and Green suggests subservience and lack of objectivity and impartiality. He did not reject improper suggestion and influence. It is possible that because of matters previously discussed, he and others at Nelson Wheeler Perth had a sense of obligation to Harold Abbott, Kia Ora and Western United. That is a serious suggestion but Harold Abbott, Pilmer and Munachen have chosen not to give evidence and explain the true nature of the relationship and Stokes did not complete his evidence. At times Pilmer did as he was told rather than exercise a truly independent professional judgment.

In my view, Nelson Wheeler Perth was in breach of their duty to be independent and to act independently when undertaking the valuation and the Nelson Wheeler report.

A very long time was occupied at the trial on the issue of whether Nelson Wheeler Perth prepared the Nelson Wheeler Report competently. During final addresses Nelson Wheeler defendants conceded that Nelson Wheeler Perth undertook the valuation of Western United and the Nelson Wheeler report incompetently and in breach of the duty of care they owed to Kia Ora pursuant to the contract of retainer and the duty of care owed in tort, leaving aside for the moment to whom that duty was owed.

In my view, the evidence is clear and overwhelming. The concession is properly made albeit at a very late stage of the trial.

Nonetheless the plaintiff contends that in order to fully understand its case of breach of fiduciary duty by Nelson Wheeler Perth, it is necessary to consider the particulars of incompetence in detail despite the concession. Also, the nature of the incompetence is relevant upon consideration of any apportionment of responsibility among the parties. I accept that submission in a general sense but I do not think it is now necessary to make findings about every allegation made by the plaintiff. I have considered all of the allegations and it is sufficient to mention the more substantial aspects of the incompetence of Nelson Wheeler Perth.

Before doing so I make some preliminary observations.

It is nothing to the point that Kia Ora, through Green, put pressure on Nelson Wheeler Perth to have the task completed quickly. There was no sound basis for urgency about the matter. The takeover could occur at any time. It has been suggested that because Kia Ora was in effect a "cash box" after the sale of the second half of the Marvel Loch mine, it was susceptible to takeover and therefore it was necessary to complete the proposed takeover promptly. There is no evidence to support that suggestion. There was no activity on the market which suggested any such interest in Kia Ora. In any event even if it was true, it would be for the shareholders to decide if they wanted to accept or resist a takeover offer. If the stated reason for the takeover as disclosed in the letter of Quilty to the shareholders was reasonable, which I reject, there was no pressing urgency. Even if there was, a competent independent expert undertaking this role under the Listing Rule, he or she could not be deflected from his or her task merely because of perceived urgency. All necessary enquiries and other work had to be undertaken even if the matter was urgent so that the purpose of the report was fulfilled. Urgency may affect the pace at which the tasks were undertaken but not the extent or quality of the work. If undue pressure is applied by the client, the expert may decline to act or to act further.

The second matter is the economy. Observations have already been made about the state of the economy in August and September 1987.

What then was the state of knowledge and belief of Nelson Wheeler Perth about the economy and the share market prior to the crash.

Munachen attended a meeting of directors of Acorn Securities on 19th February 1987 when the "bull" state of the share market was discussed. Newman said that the market was buoyant. He said there were as many commentators saying that there would be a new "bull" run as there were saying that there would be a crash. He accepted that the share market is cyclical and may move up or down with or without warning. In a publication entitled "Management on the Move" in November 1987, Newman wrote, after the share market crash, that prior to the crash "there was a general consensus on the likelihood of a downward correction occurring". He accepted that the article expressed his view at the time.

Pilmer, at his s541 examination, said that the buoyancy of the share market in September 1987 was a matter to be addressed in the valuation process. He said that at that time the share market had reached unprecedented heights. It is plain from his evidence at that examination that he did not have regard to the possibility of a correction to the share market.

Crawford acknowledged the buoyancy of the share market when he prepared the report regarding Ray Porter and Partners in April 1987. In August 1988 Gray wrote to the solicitors acting for Nelson Wheeler Perth in the Debono litigation. In that letter he wrote:

"6. Advice was tendered to our client that the rising market trends prevalent at that time could not be sustained and that stabilisation and some correction, particularly in the speculative stock could be expected.

7. In our opinion correction was likely to occur at the end of 1987 or very early in 1988 based upon various publications and views expressed within the industry."

In a witness statement which Gray prepared in September 1995 for that litigation, he said that a graph which Nelson Wheeler Perth had obtained from the Australian Stock Exchange was shown to Paul Debono which demonstrated the cyclical nature of the market and that he and Messer discussed with him the possibility of a correction taking place in the stock market.

Messer provided a witness statement in the same proceedings. He said that he told Debono that there was a general feeling in the business community that there was going to be a correction in the market which was anticipated in late 1987 or early 1988. In his evidence he said that he was giving that advice to clients. There was a bull market and he confirmed the view that the correction was anticipated in late 1987 or early 1988. He agreed that the economy was overheated.

The third matter is the manner in which Nelson Wheeler approached this task and the justifying of the report at this trial. Pilmer gave Newman the task of undertaking the necessary work and preparing the report in draft. Newman had never undertaken such a task before. He had never prepared a report pursuant to the Listing Rules. He had limited experience or expertise for this type of task. It is unnecessary in view of the concession to recite his qualifications and experience in any detail. At the time he was an Honours graduate in Economics at the University of Western Australia and a qualified accountant with membership of the Australian Society of Certified Practising Accountants. However, before he joined Nelson Wheeler Perth in January 1987 he had very little experience as a practising accountant or as a valuer. Some of his work at times had involved the use of the discounted cash flow method of assessment and valuation with respect to major capital investment but not in the valuation of companies such as Western United.

He joined Nelson Wheeler Perth in January 1987 as manager of the management consultancy division. He was accountable to Pilmer and worked at the Griffin Centre. During most of that year, prior to his undertaking the work for the report, he was involved with a client of the firm which had a transport business related to Westrail. Other duties required him to assist various organisations involved in aquaculture. Also as has been seen he undertook separate planning work for Parry Corporation.

Newman expressed, in his evidence, confidence in his ability to undertake the work. However, his previous experience was of a limited nature. He had never been called upon to value businesses such as merchant banking, stockbroking, insurance broking or mining services. He had never practised as an accountant involved in such businesses. To some extent his expertise may be assessed by the manner in which he undertook the work and the conclusions which he reached.

Having considered all of the evidence, I do not think Newman had sufficient expertise for the task at hand. His background was relatively limited and the conclusions which he reached were so far wide of the mark that they indicate inexperience and lack of expertise.

Nevertheless, he was responsible to Pilmer who undertook the retainer on behalf of the firm and delegated the work, or much of it, to Newman. Pilmer signed the report and adopted it as his own. The judgments made, and the conclusions reached, became those of Pilmer. His experience and expertise are in question. He declined to give evidence. The extent to which he applied his mind to the matters in question is not known. Did he merely adopt the work of Newman or did he exercise his own judgment? Was he influenced by Green, Harold Abbott or anyone else at Kia Ora or Western United and, if so, to what extent? What instructions were given to him? Why did he delegate the task to Newman, a relative newcomer and not to Crawford, an experienced partner who earlier that year, in April 1987, had given the report concerning the acquisition of the remaining half interest in Porter Western and therefore had knowledge of the sharebroking business of Western United? The absence of Pilmer from the witness box prevents an answer to these important questions.

What then is the evidence as to the qualification, training and experience of Pilmer. At the s541 examination he gave some evidence about this matter.