Finance & Guarantee Company Pty Ltd v Auswild [2019] VSC 664

CONFLICT OF INTERESTS - Principles of liability to account - Whether director obtained an unauthorised benefit.

EQUITY - Limitation of actions in equity claims by analogy - The principles of the equitable exception considered - Whether an analogous limitation period is postponed under the equitable exception where there is a statutory postponement provision - Whether constructive knowledge of fraud is sufficient to commence time to run under the equitable exception - Betjemann v Betjemann [1895] 2 Ch 474 considered.

EQUITY - Whether second limb Barnes v Addy claims are subject to statutory limitation period by analogy - Lewis Securities Ltd (in liq) v Carter [2018] NSWCA 118; (2018) 355 ALR 703 considered.

LIMITATION OF ACTIONS - Whether postponement of limitation period under section 27(b) of Limitation of Actions Act 1958 (Vic) requires proof of common law fraud - Levy v Watt (2014) 308 ALR 748 considered.

CORPORATIONS - Whether a disclosure requirement under an attenuation clause satisfied if conflict known to other directors - Woolworths v Kelly (1991) 22 NSWLR 189 considered.

1 By Originating Process filed 29 August 2014, the plaintiffs claim equitable compensation, damages, an account of profits, declarations and other relief from the defendants arising out of the management of certain corporations between 1985 and 2003.

2 The dispute is in substance between two branches of the Auswild family. The branches emanate from two brothers, being Sir James Auswild and Ronald Auswild.

3 The relevant descendants of each branch of the Auswild family that are referred to in these reasons are:

(a) Sir James Frederick John Auswild, CBE ('Sir James')(dec'd) Husband

Ada Kathleen Margaret Auswild ('Lady Auswild')(dec'd) Wife

(iii) Ronald Raymond Auswild ('Raymond Auswild') Son

4 In summary, the central allegations of the plaintiffs are that JRA and RWA, as directors, caused entities in the Preston Motors Group to enter into the following transactions that were not in the interests of the respective relevant entities or otherwise in breach of their fiduciary and equitable duties:

(a) In the financial year ending 30 June 1990, JRA and RWA caused:

(i) Fintee and/or F&G to borrow the sum of at least $7,800,000 from GMAC; and

(ii) F&G to on-lend the sum of $8,328,447.72 to Carlisle, which was not repaid.

(b) JRA and RWA caused F&G to enter into the Debt Management Agreement dated 14 April 1992 under which F&G became a guarantor for the Webb/Auswild Group.

(c) Alternatively to part (a) and/or part (b) above, if the Carlisle Loan and/or the DMA were in the best interests of F&G because it was already a guarantor of the liabilities of the Webb/Auswild Group to GMAC pursuant to:

(ii) the cross-guarantees dated 25 October 1989; and/or

(iii) the Deed of Acknowledgement;

(together 'the Prior Guarantees')

JRA breached his fiduciary duties to F&G by causing it to enter into each of those deeds.

(d) Between August and October 1994, JRA and RWA caused Preston Motors to purchase 22 Seascape Apartments at 53 Bay Street, Tweed Heads, New South Wales and 18 car parking spaces for a total consideration of $8,062,000 from the Webb/Auswild vendors.

(i) $2.9 million to Telasava on or about 17 August 1993;

(ii) $3,748,048 to Telasava between 8 June 1994 and 30 June 1994; and

(iii) $5.1 million to Rossfield on or about 8 June 1994;

(f) On or about 26 October 1994, JRA and RWA caused Auswild Securities to transfer the Sutton Farm to Joan Auswild, being RWA's wife and JRA's mother for no consideration.

(g) In July 1998, JRA caused Preston Motors and/or F&G to pay $944,363.98 towards the purchase of the Regency Unit for Baronja Pty Ltd.

(h) In about the period from February 1991 to June 1991, JRA caused F&G to pay:

(i) $222,289 for 6,000 E Group ordinary shares in Esplanade Properties which entitled Raymond Auswild to have exclusive possession of Unit 5 of the Beresford Road Property; and

(ii) $259,670.60 for 8,000 G Group ordinary shares in Esplanade Properties which entitled JRA to have exclusive possession of Unit 7 of the Beresford Road property.

(i) JRA and RWA caused F&G, Preston Motors, Commonwealth Motors and Preston Motors (Holdings) to pay wages to:

(i) Barbara Auswild for the period 1987 to July 2000;

(j) During the period from March 1998 to the end of 2003, JRA caused Preston Motors and the fourth plaintiff, Parts Sales, to incur expenses for the benefit of him or his family.

5 I have found that each of these claims should be dismissed because:

(a) to the extent that the claims were subject to limitation periods, applied in equity by analogy to statutory limitation periods, they were filed outside such periods; and the periods were not postponed by either s 27 of the Limitation of Actions Act 1958 ('the LAA') or the equitable exception; or alternatively

(b) the plaintiffs are prevented from bringing each of the claims by application of the doctrine of laches.

(a) JRA breached his duty not to allow his interests to conflict with his duties as a director of Auswild Securities, F&G and Preston Motors by the transfer of Sutton Farm, the purchase of the Regency Unit by Baronja and the purchase of the Beresford Units respectively. However, I also found that the plaintiffs failed to prove that:

(i) Auswild Securities, F&G or Preston Motors suffered any loss; or

from the relevant transactions as a result of the conflict.

(b) Except for (a), the plaintiffs failed to prove with respect to each of the transactions that the defendants breached their fiduciary and equitable duties, or knowingly assisted in such breaches.

7 Sir James commenced his practice as an accountant in 1928 in Temora, New South Wales. His younger brother, RWA, entered into partnership with Sir James in 1945.

8 After the Second World War, Sir James and RWA established very successful businesses principally in the motor industry, under the name of Preston Motors; and substantial investments in properties.

9 From 1945, businesses and assets of the Auswild family operated through a complicated network of corporations - a plan of which is Schedule A to these reasons ('the Preston Motors Group').

10 Critically, the first plaintiff, Finance & Guarantee Company Pty Ltd ('F&G') was the corporation which substantially controlled the Preston Motors Group and the shareholding in that company was held:

(a) 52.186% by Sir James' branch of the family; and

11 On 29 May 1985, Sir James died. In summary, he left his estate including his controlling interest in the Preston Motors Group to his wife and two daughters.

12 As the executor of Sir James' estate, RWA held Sir James' shares on trust until they were transferred to Sir James' daughters, Geraldine Bergmuller and Margaret Parker between 4 December 2003 and 6 November 2006.

13 The claims made in this proceeding substantially relate to the period in which RWA held Sir James' shares between 1985 and 2006. During this time, RWA and his son JRA were directors of the companies in the Preston Motors Group.

14 The Auswild family moved to Sydney in the early 1960s, and invested in hotels and motor vehicle dealerships. A number of the investments in Sydney were joint ventures between the Auswild family and Bernard Webb and his family ('the Webb family'). The joint venture activities were conducted through a number of corporate entities including:

15 As noted in Preston Motors 100: A Celebration of Life and Achievement:

As for the Auswilds' automotive interests in Sydney, specifically Rossfield House, Boyded Holden (later Heartland Holden) and Boyded Parts, these were jointly owned by the Auswild and Webb families. The Auswilds had a 50 per cent share in these operations, with Ron Auswild and Sir James's family each accounting for 25 per cent. The portfolio also extended to country hotels and commercial properties.[1]

16 In the late 1970s, the Auswilds gained full control of Preston Motors.[2]

17 By 1979, the business interests of the Auswild family had extended beyond 'the highly regarded and remarkably successful professional firm of James FJ Auswild & Co, chartered accountants' ('Auswild & Co') to extensive business interests including:

Real Estate, Shares in Finance & Guarantee Co. Pty. Limited (100%), Preston Motors (Holdings) Pty. Limited (98%), wholly owned Businesses, Statesman and Ambassador Hotels in Canberra, six Holden Dealerships, and Equities in Partnerships and Associated Companies.[3]

18 In 1983, a joint property venture between the Auswilds and the Webbs completed a 24 storey condominium at Tweed Heads known as Seascape. The Preston Motors Group purchased several floors in the building for the use of family members and senior company executives.[4]

19 On 15 February 1983, RWA's son, JRA, became a director of F&G and the eighth plaintiff, Fintee Investments (Canberra) Pty Ltd ('Fintee'). By October 1983, JRA had become a director of the second plaintiff ('Preston Motors'), the fourth plaintiff ('Parts Sales'), the fifth plaintiff ('Commonwealth Motors') and the sixth plaintiff ('Preston Motors (Holdings)').

20 In March 1984, Sir James had an incapacitating stroke and died on 29 May 1985.

21 Under Sir James' will dated 18 February 1983, RWA was appointed as sole executor and trustee of his estate. The will directed that RWA would hold his estate upon trust to divide the same into three equal portions and:

(a) to hold one of such parts upon trust for his wife Lady Auswild for life and then to his daughters; and

(b) to hold the other two parts upon trust for his daughters Margaret Parker and Geraldine Bergmuller equally.

22 Between 1978 and 1990, a number of guarantees were entered into by Auswild companies, Webb companies and the joint venture companies as follows:

(a) By deed dated 28 August 1978, the indebtedness of Calabar to Industrial Acceptance Corporation Ltd was guaranteed by:

(iii) numerous corporate entities including Carlisle (which was known as Fair Deal Car Sales (Merchandising) Pty Ltd until 27 September 1981).

(b) F&G and R W Auswild (Holdings) Pty Ltd ('RW Auswild Holdings') may have been parties to 'Principal Deeds' dated 30 December 1981 ('1981 Deed') and 27 September 1985 ('1985 Deed'), and related security and ancillary documentation. These documents cannot be located, and we only know of their existence because they are referred to in the following documents:

(i) The letter dated 1 June 1981 from General Motors Acceptance Corporation Australia ('GMACA') to Mr Webb of Rossfield, which:

1. refers to the required guarantees for the proposed facility from GMACA;

B. notes Fintee as being a borrower under the Inventory Loan; and

1. states that 'each parent company ... will enter a Global Guarantee relative to that group's liability'.

(ii) The letter dated 2 January 1992 from Blake Dawson Waldron (the solicitors for General Motors Acceptance Corporation ('GMAC') being the USA parent company of GMACA) to Abbott Tout Russell Kennedy (the solicitors for 'Rossfield House Group'), which refers to F&G and RW Auswild Holdings as parties to 'the Principal Deeds dated 30 December 1981 and 27 September 1985 and related security and ancillary documentation'. Blake Dawson Waldron required ratification and confirmation by the relevant shareholders of each of F&G and RW Auswild Holdings of its execution of the 1981 and 1985 Deeds and related security and ancillary documentation.

(iii) The letter dated 9 October 1990 from Blake Dawson Waldron to GMACA, where the 1981 Deed is referred to as the 'First Principal Deed' and the 1985 Deed is referred to as the 'Second Principal Deed'.

(iv) The Guarantee and Indemnity dated 30 April 1990 between RWA and GMACA, and the Notice of Extraordinary General Meeting dated 30 January 1992, where:

A. the 1981 Deed is referred to as the Old Deed; and

B. the 1985 Deed is referred to as the New Deed;

both between GMACA, Carlisle and 'the other parties named therein'.

(v) The Cross-Guarantees of 25 October 1989 and the Deed of Acknowledgement of Indebtedness dated 10 December 1990 ('Deed of Acknowledgement'), which are referred to below.

(c) By Cross Guarantee undated (but made on 25 October 1989 according to the letter dated 9 October 1990 from Blake Dawson Waldron to GMACA), numerous companies (but not F&G or RW Auswild Holdings) guaranteed the indebtedness of Calabar, Carlisle and Alkanna Pty Ltd ('Alkanna') among others with respect to (what was described as) Rossfield Property Advances, Bernley Property Advances and Carlisle Property Advances to GMACA in consideration of the continuance of certain advances under the 1981 Deed.

(d) By Cross Guarantee dated 25 October 1989, numerous companies (including F&G and RW Auswild Holdings) guaranteed the indebtedness of Calabar, Carlisle, Alkanna and Beron with respect to (what was described as) Rossfield Property Advances, Bernley Property Advances, Carlisle Property Advances and Beron Property Advances to GMACA in consideration of the continuance of certain advances under the 1985 Deed.

(e) On 26 October 1989, the directors of F&G approved the Cross Guarantee between F&G as a 'Property Guarantor' and other guarantors, and GMACA as the 'Beneficiary', as 'further security for the continuance of certain advances and accommodation already provided and for the provision of further advances and accommodation under an Agreement dated 27 September, 1985 to various borrowers'.

(f) The Deed of Acknowledgement dated 10 December 1990 ('the Deed of Acknowledgment') records, in cl 2.3.1, that the parties included F&G as one of the 'Property Guarantors', which:

[A]cknowledges and agrees that it is liable to GMACA as guarantor on the terms in the Loan Documentation [defined as the 1981 Deed, the 1985 Deed and the 25 October 1989 Cross-Guarantees] in respect of the Development Loans and that, accordingly, as at the Effective Date it has a contingent liability to GMACA as guarantor in respect of the Development Loans of $201,623,575.83.

(g) By a Guarantee and Indemnity dated 30 April 1990, RWA guaranteed to GMACA what was described as 'moneys which constitute New Property Advances and Existing Property Advances Interest from time to time'.

23 By the late 1980s economic conditions resulted in financial issues for the Preston Motors Group and the Auswild/Webb Group. By letter dated 29 August 1989 to GMAC, Mr Webb confirmed that GMAC were uncomfortable with the 'largeness of the advance required on Investment Properties' but a 'temporary limit of $200m has been approved'.

24 As a result of these concerns, it was proposed to assign a substantial amount of the debt owed offshore to GMAC. By letter dated 9 October 1990 to GMACA, Blake Dawson Waldron confirmed their instructions from GMAC to draw up documentation necessary to assign the amounts outstanding as Carlisle Property Advances and Beron Property Advances from GMACA to GMAC. It sought confirmation that the securities for these advances were as follows:

(i) A deed dated 30 December 1981 between Calabar, Alkanna, Fintee and Carlisle, as borrowers, and GMACA;

(ii) A deed dated 27 September 1985 between the parties set out in (i) above and Beron as borrowers, and GMACA;

(iii) A cross-guarantee dated 25 October 1989 executed in respect of the 1981 Deed;

(iv) A cross-guarantee dated 25 October 1989 executed in respect of the 1985 Deed;

(v) Deeds of amendment dated 22 December 1989 in respect of the cross-guarantees in (iii) and (iv) above;

(vi) Two guarantees by Beeu Pty Ltd to GMACA with respect to both Principal Deeds;

(vii) A guarantee by Dulcie Webb to GMACA of the borrowers under both Principal Deeds;

(viii) A guarantee by RWA to GMACA of Carlisle under both Principal Deeds;

(ix) A further guarantee by RWA to GMAC for amounts under either Principal Deed in excess of $150,000,000 that do not relate Automotive Advances; and

25 By extraordinary general meetings on 6 December 1990, the holders of all of the issued shares in Fintee, Preston Motors, Preston Motors (Essendon) Pty Ltd, and Preston Motors (Wholesale) Pty Ltd, resolved to ratify the loan documentation ('the Loan Documentation') listed in Annexure B to the respective extracts of minutes which consisted of the following documents:

(a) The Deed of 30 December 1981 (defined as 'Old Deed') between Calabar, Alkanna, Carlisle, Fintee, the Rossfield Guarantors, the Bernley Guarantors, the Carlisle Guarantors, the Fintee Guarantors, the Schedule M Mortgagors and GMACA.

(b) Cross-guarantee of 25 October 1989 in reference to the Old Deed between the property guarantors listed therein, the schedule M Mortgagors listed therein and GMAC.

(c) The Deed of Amendment of 22 December 1989 amending the above cross-guarantee.

(d) The Deed of 27 September 1985 (defined as 'New Deed') between Calabar, Alkanna, Carlisle, Fintee, the Rossfield Guarantors, the Bernley Guarantors, the Carlisle Guarantors, the Fintee Guarantors, the schedule M Mortgagors, Beron Investments and the Beron Guarantors and GMACA.

(e) Cross-guarantee of 25 October 1989 (or 22 December 1989) with respect to the New Deed.

(f) The Deed of Amendment of 22 December 1989 amending the above cross-guarantee.

26 By Deed of Acknowledgment dated 10 December 1990:

(a) Carlisle acknowledged a debt to GMACA of $188,046,391.72;

(b) Beron acknowledged a debt to GMACA of $13,577,184.78;

(c) Each of Calabar, Alkanna, Fintee, RWA and each of the Property Guarantors (which included F&G, Preston Motors and RW Auswild Holdings) acknowledged it was liable to GMACA as guarantors of $201,623,575.83 under the Loan Documentation.

27 By Deed of Assignment of Debts dated 10 December 1990, GMACA assigned to GMAC (with the consent of the guarantors including the Property Guarantors referred to in the Deed of Acknowledgement) the debts of Carlisle and Beron in consideration of the payment of $201,623,575.83.

28 On 28 February 1991, 6,000 E class shares in Rose Bay Esplanade Properties Pty Ltd ('Esplanade Properties') were transferred to Raymond Auswild, which entitled him to exclusive possession of unit 5, 1A Beresford Road, Rose Bay ('Unit 5'), in consideration of a payment of $222,289.

29 On 18 February 1992, 8,000 G group shares in Esplanade Properties were transferred to JRA, which entitled him to exclusive possession of unit 7, 1A Beresford Road, Rose Bay ('Unit 7'), in consideration of a payment of $259,670.

30 By letter dated 2 January 1992 to Abbott Tout Russell Kennedy, Blake Dawson Waldron set out preconditions to the entry into the DMA which included the inclusion of attenuation clauses in the articles of association of corporations including F&G, RW Auswild Holdings and Parts Sales.

31 On 11 April 1992, at extraordinary general meetings of F&G, RW Auswild Holdings and Parts Sales, the holders of all issued shares in each company voted to amend the respective articles of association by the substitution of a new attenuation clause. The extraordinary general meeting of F&G also ratified the company's execution of the Loan Documentation.

32 On 14 April 1992, the DMA was executed by Calabar, Alkanna, Carlisle, Beron, the Cross Guarantors listed in schedule 1 (including F&G), the Rossfield owners listed in schedule 3, the Preston Business Companies as defined and the Limited Guarantors listed in schedule 2 (together 'the Obligors'), together with GMACA and GMAC. The DMA contained recitals and acknowledgements, in summary, as follows:

(a) Calabar, Alkanna, Carlisle and Beron ('the Borrowers') had borrowed money under the Loan Documentation for the purpose of on lending to the Cross Guarantors and various other parties.

(b) GMACA had assigned certain non-performing loans to GMAC.

(c) The Borrowers had defaulted under the terms of the Loan Documentation.

(i) the Calabar Indebtedness to GMACA was $36,660,800;

(ii) the Alkanna Indebtedness to GMACA was $3,088,000; and

(iv) the Carlisle Development Loan indebtedness was $188,046,391.05; and

(v) the Beron Development Loan indebtedness was $13,577,184.78.

(i) the payment of the proceeds of sale of all of the Rossfield Assets to GMACA and all proceeds of sale of the Development Properties (as defined) to GMAC (cl 4.1);

(ii) the payment of the profits from Rossfield businesses to GMACA (cl 6.1);

(iii) RWA paying his entitlement to the profits of Preston Business Companies being 27.9% of the aggregate operating profits (cl 8.1); and

(iv) RWA and Mr Webb limiting any fees, salary or distributions payable (cl 7);

(b) GMAC and GMACA will release the On-Shore Indebtedness and the Off-Shore Indebtedness (cl 16).

34 By Deed dated 14 April 1992, specified persons associated with the Webb Group, and specified persons associated with the Auswild Group and F&G agreed in substance that, arising out of the financing through GMACA and GMAC of the joint business enterprises and property development between the Auswild Group and the Webb Group, the Auswild Group and the Webb Group were morally but not legally obliged to repay $10,000,000 to F&G ('the Moral Obligation Deed').

Debt Reduction Agreement, Telasava and Rossfield Loans and transfer of the Seascape Apartments

35 By memo faxed on 22 May 1993, Mr Webb proposed a plan ('the Plan'), to restructure the DMA. He refers to a proposed loan of $8 million from Hatmax Mortgage Management Ltd ('Hatmax') as being a component of the offer of $38 million to GMAC and the Commonwealth Bank of Australia ('CBA').

36 By letter dated 21 December 1993 to GMACA, Mr Webb explained his understanding of the Plan, in summary as follows:

(b) Rossfield procures the release of GMACA from its guarantee to CBA, which secured CBA's advances to Rossfield.

(c) Mr Webb and RWA undertake to pay GMACA $7,000,000 by instalments.

(d) All Obligors, except Mr Webb and RWA, would be released from the DMA.

(e) All property securities would be released except for specified exceptions.

(a) borrowed $5.1 million and $2.9 million from Hatmax and PT Ltd secured by Deed of Mortgage dated 16 August 1993 on units in the Seascape apartments;‑‑‑‑‑‑ and

(i) $2,900,000 to Telasava on or about 17 August 1993;

(ii) $3,748,048 to Telasava between 8 June 1994 and 30 June 1994; and

(iii) $5,100,000 to Rossfield on or about 8 June 1994.

38 On or about 23 December 1993, Mr Webb presented to RWA and Ms Nola Hancock a memorandum entitled 'GMACA - Purchase of Businesses', which noted in summary:

(a) Repayment of the moral debt as contemplated by the terms of the Moral Obligation Deed is unlikely to occur or 'may take years to complete', under the buy-out of GMACA 'as it is now unfolding'.

(b) To 'finalise the matter in one hit. It is proposed that the beneficial ownership in twenty-two condominiums at Seascape held by Rossfield and Webb companies be passed to F&G on the basis the units will be available to RWA/BGW for mortgage purposes (to allow borrowings of $5,000,000 thereon.) ... The transfer of the units will allow F&G to recoup an amount approximately equal to the written off loans and thus restore its shareholder funds'.

39 On or about 23 December 1993, Mr Webb further presented to RWA and Ms Hancock a memorandum entitled 'Finance of & Repayment of the "Plan"', which proposed as follows:

(a) $35,500,000 required to finance the plan being $32,000,000 to GMAC and $3,500,000 to the CBA plus a contingency of $5,500,000.

(b) A further sum of $6,700,000 as GMAC security repayable at $60,000 per month by Webb.

40 In a memorandum of 28 December 1993 presented to Ms Hancock entitled 'Appreciation Needed' (after meeting with RWA on 25 December 1993), Mr Webb noted as follows:

(a) Rossfield is owned 50% by the Auswild Family and 50% by the Webb Family.

(b) Therefore the $10,000,000 moral debt owed by Rossfield would be satisfied by a $5,000,000 payment by the Webb Family to the Auswild Family.

(c) Telasava's equity in the three hotels is $6,000,000 and was held as to $3,520,000 by the Webb Family and $2,480,000 by the Auswild Family. As the hotel ownership is now 50/50, the Webb Family has transferred $520,000 to the Auswild Family.

(d) The Webb Family's interests in the Seascape units are valued at $5,417,000.

(e) Accordingly, if the Webb Family's interests in the Seascape units are transferred, together with the transfer of the hotel interest, the Auswild Family would receive $5,937,000 which 'considerably exceeds the figure of $5,000,000 for any moral obligation under the deed ... The debt between Webb Pty and Rossfield will be settled thereby with the residue bookwise handled by a capital distribution'.

(f) The Moral Obligation Deed released the inter-organisation loans but further provided that as businesses are disposed of under the DMA, $10,000,000 will be paid from the profits of any such businesses to F&G.

(g) As a result of the proposed buy-out of GMACA, there will be no businesses from which the $10,000,000 can be repaid. Therefore '[a]ny concession to F&G such as the transfer of the units at Seascape is done for moral not legal reasons'.

41 In a memorandum by Mr Webb dated 7 February 1994, he 'expands on the benefits to F&G', which he states were 'obviously not completely understood or appreciated'.

42 On 20 May 1994, the directors of Preston Motors ratified the decision to borrow $2.9 million from PT Ltd; and on the same date the directors of Boyded Canberra (Wholesale) Pty Ltd ratified the decision to borrow a total amount of $8 million (being $2.9 million drawn on 16 August 1993 and $5.1 million to be drawn on a date soon to be arranged).

43 By deed dated 8 June 1994, Preston Motors agreed to advance $5.1 million to Rossfield House for a maximum period of 10 years at an interest rate of 8.6%, which was disbursed as follows:

44 By deed dated 8 June 1994, Preston Motors agreed to loan $2.9 million to Telasava which in effect indemnified Preston Motors under the deed of mortgage dated 16 August 1993.

45 By Debt Reduction Agreement dated 8 June 1994 ('the DRA'), GMACA and GMAC agreed, in summary, to release the On-Shore Indebtedness (other than specified exceptions) and to release specified guarantors (including F&G) from any further liability under the DMA and the Loan Documentation - in consideration of:

(a) Calabar, Mr Webb and RWA agreeing to pay GMACA and GMAC the sum of $7 million;

(b) Rossfield procuring a release of GMACA's guarantee to CBA; and

(c) Rossfield paying GMACA the sum of $30,731,640.99.

46 A document entitled "Documents Required by 'The Plan'" dated 11 June 1994, included the following entries:

47 By transfers dated 31 August 1994 to Preston Motors; Rossfield House, BG Webb Pty Ltd and Resdev Pty Ltd respectively transferred a total of 22 Seascape units and 18 car parking spaces in consideration of the payment of $8,044,000 by way of three transfers of $3,470,000, $2,788,000 and $1,786,000 respectively.

48 By deed of release dated 5 January 1998 between Mr Webb, RWA, Calabar, GMACA and GMAC; GMACA and GMAC accepted a payment of $3,703,900 in satisfaction of all liabilities under the DMA.

49 By transfer dated 26 October 1994, Auswild Securities Pty Ltd ('Auswild Securities') transferred Sutton Farm to Joan Auswild in consideration of $540,000.

50 By a faxed email of 3 July 1998 to JRA, Mr Farrelly gave instructions for a Preston Motors cheque payable to the National Australia Bank to be used to purchase the bank cheques required at the settlement of the purchase of unit 1702 and car park 161 at the Hyde Park Regency located at 281-283 Elizabeth St, Sydney being Lots 106 and 161 respectively in Strata Plan S5P55468 ('the Regency Unit'). The precise sums referred to in the memo setting out the required cheques are recorded as being debited to the Preston Motors inter-company account in July 1998.

51 By transfer dated 6 July 1998, the Regency Unit was transferred to Baronja Investments Pty Ltd ('Baronja') for consideration of $1,000,000.

Was the Carlisle loan not in the interests of F&G or Fintee?

52 Counsel for the plaintiffs submitted that the loan was not in the interests of F&G or Fintee for the following reasons:

(a) Carlisle was in deep financial stress at the time the loan was made.

(b) F&G and Fintee were themselves obliged to borrow money to fund the Carlisle loan.

(c) The terms of the Carlisle loan were not favourable or commercial to F&G and/or Fintee in that:

(iii) there was no provision for interest or security; and

(iv) it only gave rise to a 'moral' obligation to be repaid by the Rossfield group.

(d) The Auswild interests held only a 50% interest in Carlisle with the co-investors being the Webb family.

In substance the allegation was that the Carlisle loan was made to support the group in which the Auswild family held only a 50% interest.

53 Counsel for the first defendant and counsel for the second to fifth defendants submitted that the Carlisle loan was in the interests of F&G and Fintee for the following reasons:

(a) F&G was the ultimate holding company of the Auswild group and was the guarantor of debts in excess of $201 million owed to GMACA under:

(iii) clause 2 of the 25 October 1989 cross-guarantee; and

(b) By 1990 there was a real risk that GMACA (or other creditors, such as the CBA or the Australian Guarantee Corporation ('AGC')) would take enforcement action under their securities.

(c) F&G and Fintee had an interest in supporting the viability of the Auswild/Webb Group because the ultimate shareholders of Fintee and F&G (ie both sides of the Auswild family) had a 50% interest in the Auswild/Webb Group.[5]

(d) The purpose of the Carlisle loan was to 'buy time' so that RWA and Mr Webb could work with GMAC and other creditors to avoid the risk of enforcement action being taken that would jeopardise the interests of Fintee and F&G.

(e) Although there is no formal loan agreement, the agreement was subsequently recorded in a deed dated 10 April 1992 in which the parties recognised a 'moral obligation' on the part of the Webb interests to repay $10 million to F&G; and in the events that followed, $8,062,000 was repaid to F&G in 1994 by way of the transfer of 22 Seascape Apartments to Preston Motors.

54 The plaintiffs respond that, if F&G and/or Fintee were liable to GMAC under:

it was not in the interests of F&G and Fintee to enter into each of these agreements.

55 The question of whether it was in the interests of F&G or Fintee to enter into the Carlisle loan requires determination of the following anterior questions:

(a) Was F&G or Fintee liable under the 1981 Deed?

(b) Was F&G or Fintee liable under the 1985 Deed?

(c) Was F&G or Fintee liable under the 1989 cross-guarantees?

(d) Was the loan made to Carlisle?

(e) Was the Carlisle loan repaid?

Was F&G or Fintee liable under the 1981 Deed?

56 The 1981 Deed is not available. It may be that the 1981 Deed substantially reflected the terms of the GMACA letter dated 1 June 1981 setting out the offer 'should your proposed change of finance arrangements [from Industrial Acceptance Corporation Ltd] to GMAC come to fruition'. Relevantly, those terms included the following:

(a) A property loan with an initial limit of $30 million with security being '[r]eal estate properties of the group' with unlimited guarantees from Rossfield and Bernley as the parent companies of Calabar and Alkanna together with:

All organisations in each group giving a charge over freehold (except those with outside shareholding), as well as each parent company, will enter a Global Guarantee relative to that group's liability. However, I confirm the guarantee of natural persons is not required.

(b) An inventory loan with an initial limit of $18 million 'to meet the group's full stocking of new, used and demo requirements for all entities'. The borrowers would be the same as for the property loan with the addition of Fintee, with additional security being:

All organisations in each group giving a charge over vehicle stock, as well as each parent company, will enter a Global Guarantee relative to that group's liability.

(c) A leasing loan totalling $8 million, being a liability of Rossfield to Citicorp will be taken over by GMAC.

57 The following evidence supports the proposition that F&G or Fintee was liable under the 1981 Deed:

(a) The 1 June 1981 letter of offer from GMACA to Mr Webb identifies Fintee as a guarantor of the inventory loan and that 'additional security' would be required from 'parent companies' in respect of the Property Loan and the Inventory Loan. F&G was the ultimate holding company of Fintee.

(b) The 1981 Deed was tabled by the Chairman at a meeting of directors of 6 December 1990 and was expressed to be between GMACA and certain parties including the Fintee Guarantors.

(c) By letter dated 2 January 1992 to Abbott Tout Russell Kennedy, Blake Dawson Waldron states that:

As Finance and Guarantee Company Pty Ltd and RW Auswild (Holdings) Pty Ltd are parties to the Principal Deeds dated 30 December 1981 and 27 September 1985 and related security and ancillary documentation (the "Security Documents") we require ratification and confirmation by the relevant shareholders of the respective company's execution of the Security Documents.

(c) The F&G balance sheet for the year ending 30 June 1984 records under 'contingent liabilities':

Joint guarantee for General Motors

Acceptance Corporation, Australia $10,605,050.

It is notable that at the end of the financial year 1986/87 this contingent liability had reduced to $4,188,000.

(d) The DMA included, in the definition of 'Loan Documentation':

[T]he Deed made 30th December 1981 between Calabar, Alkanna, Carlisle, Fintee, the Rossfield Guarantors, the Bernley Guarantors, the Carlisle Guarantors, the Fintee Guarantors (as therein defined) and GMACA as amended by various certificates of amendment in accordance with its terms pursuant to which GMAC agreed to provide certain financial accommodation to Calabar, Alkanna, Carlisle and Fintee.

A similar definition of 'Loan Documentation' was included in:

(i) the Deed of Acknowledgement;

(ii) the Notice of Extraordinary General Meeting of R W Auswild Holdings to be held on 30 January 1992; and

(iii) the Minutes of Extraordinary General Meeting of F&G held on 11 April 1992 ('11 April 1992 Minutes').

(e) According to the 11 April 1992 Minutes, an extraordinary general meeting of F&G ratified the company's execution of the Loan Documentation which specifically included the 1981 Deed.

(f) By letter dated 2 January 1992 to Abbott Tout Russell Kennedy, Blake Dawson Waldron stated that F&G and RW Auswild were parties to the 1981 Deed and the 1985 Deed.

58 The proposition that F&G was not a party to the 1981 Deed is supported by reference to the two 1989 cross-guarantees. The undated cross-guarantee lists corporations as guarantors of advances made by GMACA under the 'Agreement', which is defined as the 1981 Deed. None of F&G, Fintee or RW Auswild Holdings is a party to this cross-guarantee. This is to be contrasted with the cross-guarantee dated 25 October 1989, which includes F&G and RW Auswild Holdings as being guarantors of advances made by GMACA under the 1985 Deed.

59 In the absence of the 1981 Deed and the 'various certificates of amendment' (referred to in the definitions of 'Loan Documentation'); and in the face of the contradictory evidence, I am unable to be satisfied that F&G or Fintee was not liable for at least some of the facilities of GMACA. I do not feel an 'actual persuasion' that F&G or Fintee was, or was not, liable under the 1981 Deed; and I do not consider it appropriate to speculate based on 'mere mechanical comparison of probabilities independently of any belief in its reality'.[6]

Was F&G or Fintee liable under the 1985 Deed?

60 I find that F&G and Fintee were parties to the 1985 Deed. Although the 1985 Deed is also unavailable, in the documents referred to in paragraph [57](d) above, the 1985 Deed is described in identical terms to the 1981 Deed except for the addition of Beron and 'Beron Guarantors' as parties. A reference to the cross-guarantee dated 25 October 1989 confirms this finding.

Was F&G liable under the 1989 cross-guarantee?

61 I find that F&G was liable to GMACA under a cross-guarantee dated 25 October 1989. As noted above, in October 1989 two cross-guarantees were executed in favour of GMACA:

(a) one of which secured advances under the 1981 Deed; and

(b) one of which secured advances under the 1985 Deed.

62 By October 1989 the Australian economy was experiencing a downturn. The minutes of the meeting of F&G's directors being RWA, Mr Dove and JRA on 26 October 1989 record that the purpose of the execution of the cross-guarantee was for:

... further security for the continuance of certain advances and accommodation already provided and for the provision of further advances and accommodation under an Agreement dated 27 September 1985 to various borrowers.

63 Mr Stone, the expert engaged by the plaintiffs, and Mr Silvia, the expert engaged by the second to fifth defendants, agree in the joint expert report that the relevant accounting entries show that the Carlisle transaction was effected as follows.

64 Between April and June 1990, the Fintee General Journal borrowed $7.8 million from GMAC which it received as follows:

The first three payments were paid by GMAC to Auswild & Co; but the recipient of the payment on 12 June 1990 is unknown.

65 Fintee on-lent these amounts to F&G, which on-lent $8,328,447.72 to Carlisle. After the addition of accrued interest, as at 30 June 1990, the liability of Carlisle to F&G was recorded at $8,547,485.61.

66 As noted above, Auswild & Co recorded receipt of $5.8 million of the GMAC advances to Fintee. Except for a payment of $200,000 to Carlisle, there was no payment direct to Carlisle; but journal entries record cash payments made on behalf of Carlisle to the following entities:

67 The source of the $528,448 balance of funds (being $8,328,447.72 minus $7.8 million) was the transfer of a debt, which was owed by Auswild & Co to Midlands Finance Co, to Carlisle.

68 Between April 1990 and September 2004, F&G and Fintee made the following payments to GMAC:

69 The GMAC advances were added to the existing single GMAC debt and were not attributed to any particular advance. The joint expert report states as follows:

The Experts agree that the GMAC advances to Fintee added to existing GMAC debt in which repayments were made against a single running balance rather than being attributable to a particular advance or existing debt.

70 I reject the plaintiffs' submission that the Carlisle loan was not repaid. In my opinion, the following evidence establishes that the Carlisle loan was repaid by the transfer of 22 Seascape Apartments and 18 car spaces.

71 In or about late December 1993, it was specifically proposed that 22 Seascape units be transferred to F&G by the Rossfield and Webb companies as part of an arrangement to satisfy 'the moral obligation' to recompense F&G for a debt of approximately $10 million. This proposal was part of the 'Plan' put forward by Mr Webb; and '[a]ny concession to F&G such as the transfer of the units at Seascape is done for moral not legal reasons'. The fact that it was part of 'the Plan' is confirmed by a spreadsheet produced from business records entitled 'Documents required by "the Plan"', which included the following entry:

72 According to F&G journal entries, Carlisle satisfied the principal, and accrued interest of $553,552.28, when its loan was discharged on the transfer of the 22 Seascape Apartments to Preston Motors.

73 With respect to other interest sums, the experts agreed as follows:

(a) A sum of $481,887.50 being interest received by Fintee was not paid by F&G and 'might relate to payments of interest from Carlisle'.

(b) They could not determine who paid accrued interest; but F&G did not pay that interest and it might have been Carlisle making those payments.

74 With respect to the repayment of the Carlisle loan, the experts agreed that:

1. The balance of the Carlisle debt due to Finance & Guarantee is recorded as having been reduced by $1 million in the Balance Sheets of Carlisle and Finance & Guarantee in FY91 and FY92 respectively. Source documents explaining that reduction have not been available for the Experts' review.

2. The Carlisle Loan Provision raised in FY92 was reversed in FY95, resulting in the reinstatement of the Loan Receivable from Carlisle in Finance & Guarantee's Balance Sheet and reversal of the bad debt expense previously recognized and posted to Finance & Guarantee's Profit and Loss Appropriation Account.[7]

3. The Carlisle Loan was discharged with the Seascape Apartments listed in the 11 August 1994 Board Minutes used as consideration.

75 The conclusion of the experts that Carlisle repaid the loan and accrued interest by the transfer of the 22 Seascape Apartments and 18 car spaces is supported by the following entries in F&G's general ledger of 31 May 1995:

(b) credit Cooma Investments Pty Ltd with $180,000;

(d) credit loan to Carlisle Investments Pty Ltd with $7,328,447.72.

The entry crediting $7,328,447.72 to 'loan to Carlisle Investments Pty Ltd' includes a notation which reads:

Satisfaction of loans by issue of Seascape units to Preston Motors Pty Ltd.

76 Minutes of meeting of directors at Preston Motors on 11 August 1994 record the execution of contracts for the sale and transfer of the Seascape Apartments to the value of $8,062,000 made up as follows:

77 No expert was able to identify any payment by Preston Motors or F&G by way of cash consideration for the Seascape Apartments.

78 The Preston Motors balance sheet for financial year 1995 reflects the acquisition of the 22 Seascape Apartments and 18 car spaces for the sum of $8,062,000.

79 The fact that the consideration for the purchase of the Seascape Apartments was the release of the liability for the Carlisle loan is consistent with the following statement in the Preston Motors 100: A Celebration of Life and Achievement book, which was published in 2012:

Preston Motors ... ended up with most of the other units [in Seascape] when one of the developers handed over his stake in the property as a way of resolving business debts on another project.[8]

Conclusion on whether the Carlisle Loan was in the interests of F&G and Fintee

80 I am not satisfied that the Carlisle loan was not in the interests of Fintee or F&G for the following reasons:

(a) At the relevant time, the borrowings of the Webb/Auswild Group were substantial. The report from Deloitte Ross Tohmatsu of 6 March 1991 estimated the total debt, as at 31 December 1990, at $440,000,000 which included the following major debts:

(b) The fact that these creditors were considering enforcement action is demonstrated by the following:

(i) A letter of demand from AGC to RWA dated 17 September 1990.

(ii) The minutes of meeting of 30 October 1990 between representatives of AGC, Mr Pritchard of Zenith, RWA and Mr Webb. The minutes record that there were discussions with GMAC and CBA regarding a moratorium. AGC notes that GMAC was far better secured than AGC and discussed the prospect of precipitous action 'against the natural person guarantor resulting in publicity and ... the unravelling of the entire group'.

(iii) On 30 November 1990, Mr Webb sent a copy of the minutes to GMAC which discussed repayment proposals and asked that GMAC 'treat the memo details as a request from us for this further assistance pending discussions between the group when your man arrives in Australia'.

(iv) GMAC's 'man' was Mr Nelson who was transferred to Sydney in January 1991 by GMAC to negotiate an orderly realisation of assets and maximise the return on GMAC's debt which was around $250 million. Mr Nelson gave evidence that it was crucial for an orderly negotiation that GMAC secured the co-operation of CBA and AGC; and the DMA would not have been signed without an agreement with the CBA and AGC.

(v) Within six months of the Carlisle loan, F&G would acknowledge its liability for $201 million as a guarantor of the GMAC facility in the Deed of Acknowledgement.

(c) Fintee, which was ultimately wholly owned by F&G, was liable for some or all of these amounts under the 1981 Deed, the 1985 Deed and the two 1989 cross-guarantees.

(d) F&G was liable for some or all of these amounts pursuant to at least the 25 October 1989 cross-guarantee and the 1985 Deed. As stated above, I am unable to find that F&G was not also liable under the 1981 Deed.

(e) The recitals to the Deed of Acknowledgment and the DMA both include reference to the fact that the borrowers from GMAC had on-lent moneys to other companies within the group. This presumably would have resulted in intercompany liability by companies in the Preston Motors Group to the borrowing entities.

81 Of course prima facie, there is at least some force in the submission about the uncommerciality of lending nearly $8 million to an insolvent company without documentation or security; and apparently with the promise for it to be repaid by others only being a 'moral obligation'.

82 However, the bona fide assessment of directors of a company after taking into account:

(a) the prospect of the financial ruin of a company and its subsidiaries;

(b) the futility of obtaining security from other companies in the group; and

(c) the character and trustworthiness of the person undertaking the moral obligation;

may result in the directors considering that it is in the best interests of the company to enter into an unusual transaction such as this.

83 Generally courts are reluctant to substitute their own views for the commercial decision making of directors.[9] In my opinion, any such reluctance becomes more advisable when the Court is not satisfied that it is fully aware of all the material considerations that bore on the decision under scrutiny. Of course, sometimes inferences may be drawn by a party's failure to lead evidence of the material considerations. This is not such a case. The relevant events happened nearly 30 years ago and many key witnesses have since died. Under these circumstances, I am not prepared to criticise any party for the failure to bring forward missing documentation nor am I prepared to criticise JRA for his limited memory of material facts.

84 Neither can any inference be drawn from subsequent events. As events unfolded, the Carlisle loan was repaid and following the DMA and the DRA the assets held by the ultimate subsidiaries of F&G were substantially retained. However, the issue of whether the directors breached their fiduciary duty by failing to act bona fide and in the interests of the company must be determined at the time the action was taken and not with hindsight. As Austin J said in ASIC v Vines:

The statutory standard, like the general law, permits the court to take into account the circumstances of the particular case, and requires the standard to be applied to those circumstances as they existed at the relevant time, without the benefit of hindsight.[10]

85 This caution is normally applied to courts considering whether directors have breached their fiduciary duties in circumstances where the impugned action has caused detriment to the corporation. That is not this case. The impugned action under consideration resulted in no loss because the loan was repaid with interest; and ultimately played a part in the execution of 'the Plan' which resulted in Preston Motors and others in the Preston Motors Group avoiding substantial liabilities to external lenders.

86 However, as the plaintiffs submit, the fact that the impugned action resulted in a benefit to the company does not, of itself, determine the question of whether the directors in undertaking such action breached their fiduciary duties to the corporation. Plainly, a director placing a $1 million bet on a horse race with company funds may be in breach of his or her fiduciary duties even if the racehorse was to win. Nonetheless, where the impugned action has resulted in a benefit to the corporation, the Court should be even more reluctant to infer too readily that the directors undertook the action otherwise than in good faith and in the interests of the company.

87 The Court does not have evidence of all the material facts, which if it did, would enable it to second guess the directors' decision, even if it were otherwise appropriate to do so. Certainly, I am not satisfied that the directors of F&G and Fintee entered into the Carlisle loan otherwise than on a bona fide basis believing it to be in the best interests of the companies and for a proper purpose. On the basis of the above findings, the allegations of breaches on the grounds of improper purpose and failure to accord due diligence must also fail.

If F&G had pre-existing liability for the Webb/Auswild GMAC debt pursuant to:

(b) the cross-guarantees dated 25 October 1989; and

(c) the Deed of Acknowledgement dated 10 December 1990;

(together the 'Previous Agreements') was it not in the best interests of F&G to enter into the Previous Agreements?

88 For similar reasons, I am unable to conclude that the directors, in entering into the 1985 Deed, acted other than in good faith in the best interests of F&G. This conclusion is based on the following:

(a) The evidence does not disclose the purpose of the 1985 Deed and not even its terms are available, much less whether it was part of a broader transaction or what material events may have borne on the directors in making a decision.

(b) As noted above, F&G may already have been liable to GMAC under the 1981 Deed.

89 In the absence of any real evidence about the surrounding circumstances, the proposition that, by entering into the 1985 Deed, F&G:

(a) assumed obligations to GMAC beyond its existing obligations; and

(b) received no consideration or corresponding benefit under the 1985 Deed or its associated transaction;

amounts to no more than pure speculation. In the circumstances, I cannot feel 'an actual persuasion' of the occurrence of a breach of fiduciary duty by the directors in entering into the 1985 Deed, even disregarding matters such as the seriousness of the allegations, the inherent unlikelihood of the occurrence of such a breach and the gravity of the consequences of a positive finding.[11]

90 For the same reasons, I am not satisfied that the plaintiffs have established that RWA or JRA, in entering into the 25 October 1989 cross-guarantee or the 1990 Deed of Acknowledgement, acted other than bona fide in the best interests of F&G and for a proper purpose.

Did JRA obtain any and, if so, what unauthorised benefit as a result of any, and, if so, what breach of the Duties by JRA in relation to the Carlisle Loan?

91 On behalf of the plaintiffs, it was submitted as follows:

(a) At the time of the Carlisle Loan, JRA was in a position of conflict of interest as a result of:

(i) his position as a director of Fintee and F&G; and

(b) His interest in Carlisle at the time of the loan was alleged to arise from the following:

(i) of Carlisle's 12 issued shares, 4 were owned by Chatswood; and

(ii) of the 104 shares in Chatswood, 101 shares were owned by Raymond Auswild, and one each by 1 JRA, 1 RWA and Joan Auswild.

(c) It is not necessary for the plaintiffs to establish any actual loss on the part of F&G or Fintee. All that is needed is to show a benefit or advantage to the fiduciary.

(d) With respect to the attenuation clause in Fintee's and F&G's Articles of Association, JRA is not entitled to the benefit of the protection because:

(i) there is no evidence at all that the directors knew of JRA's economic interest in Carlisle;

(ii) there is case law suggesting that formal disclosure is generally required;[12] and

(iii) the onus of establishing that relevant knowledge existed lies on the defendants.

92 On behalf of the first defendant, it was submitted as follows:

(a) The plaintiffs were obliged to identify the profit derived by JRA and there was:

(i) no evidence of any profit or entitlement that JRA received from Chatswood as a result of the Carlisle Loan; and

(ii) no evidence from which it could be inferred that JRA received any such unauthorised benefit.

On the contrary, the evidence was that each side of the Auswild family had an equal 25% interest in Carlisle.

(b) Both Fintee and F&G had attenuation clauses in their Articles of Association which absolved directors from liability to account for profits arising from a conflict of interest. Although each attenuation clause required disclosure, formal disclosure is not required if the relevant interest is already known to the other directors.

93 The fundamental rule of equity requiring a person in a fiduciary relationship to account for personal benefit was explained by Deane J in Chan v Zacharia as being:

concerned not so much with the mere existence of a conflict between personal interest and fiduciary duty as with the pursuit of personal interest by, for example, actually entering into a transaction or engagement 'in which he has, or can have, a personal interest conflicting ... with the interest of those whom he is bound to protect' ... or the actual receipt of personal benefit or gain in circumstances where such conflict exists or has existed.[13]

94 His Honour continued to state that this fundamental rule has two themes, as follows:

Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain:

(i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain[14] or

(ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it.[15]

95 The circumstances in which the possibility of a conflict of interest might arise was considered by Lord Upjohn in Boardman v Phipps, who concluded:

In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not yet contemplated as real sensible possibilities by any reasonable person, result in a conflict.[16]

96 In Hospital Products Limited v United Surgical Corporation,[17] Mason J quoted with approval the statement of Judge Learned Hand, in Phelan v Middle States Oil Corporation,[18] that a real and sensible possibility of conflict did not arise when the putative interest:

1. though in itself strong enough to be an inducement, was too remote; or
2. though, not too remote, it was too feeble an inducement to be a determining motive.[19]

97 The concept of the underlying purpose of the fundamental rule being to preclude the fiduciary from being swayed by his or her own personal interest was identified by the High Court in Warman International Ltd v Dwyer as follows:

The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage.[20]

98 In The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9),[21] Owen J formulated the test for an interest, which is sufficient to create a conflict, as being 'whether the interest is such that a reasonable person would think there was a real or substantial possibility of the fiduciary being swayed by it'.[22] As he explained, 'in this way, tests for the identification of the "interest" and for the "possibility of a conflict" would be applied bearing in mind a similar rationale'.[23]

99 In my opinion, JRA's interest in Carlisle was not such that a reasonable person would think there was a real possibility of him, as a fiduciary, being swayed by it - for the following reasons:

(a) By the Deed of 19 June 2009, Chatswood (as a company controlled by the RWA family) and Auswild Secretarial Services Pty Ltd (as a company controlled by Sir James Auswild family) acknowledged that each held a 25% beneficial interest in Carlisle. There is no evidence that it was ever held on any other basis.[24]

(b) Accordingly, any benefit conferred by JRA on Carlisle:

(i) would result in a lesser benefit to JRA than if the benefit was retained in F&G; and

(ii) would be shared equally between the RWA family and the Sir James family. In fact, there is no evidence that any benefit from the impugned transaction would be received on anything other than substantially the same basis as the shareholding in F&G.

In these circumstances, I do not consider that JRA's interest in Carlisle was such as could sway him to misuse his position as a director.

(c) There was no evidence that this interest in Carlisle was financially significant. On the contrary, it was the plaintiffs' submission that, at the time of the Carlisle Loan, Carlisle 'was in considerable financial difficulty, if not insolvent'.

(d) The substantial assets of the Preston Motors Group were held by its holding company F&G; and the real purpose of the Carlisle Loan was the first step in what was to become known as the 'Plan' - the purpose of which was to save the substantial assets of the group.

(e) The fact that the real beneficiary of the Carlisle Loan was not intended to be Carlisle but, rather, the Carlisle Loan was part of a broader plan is demonstrated by the following:

(i) Only $200,000 of the $7.8 million in loan funds were actually received by Carlisle. The balance was applied in reduction of debts owed to external lenders by companies in the broader Preston Motors Group, including F&G and Fintee, and others. There is no evidence as to how the $200,000 was applied.

(ii) The Carlisle Loan was repaid, not by Carlisle; but by the transfer of the Seascape units by Rossfield House Pty Ltd, B G Webb Pty Ltd and Resdev Pty Ltd.

(f) Consistent with the real purpose of the Carlisle Loan being for the general benefit of the Preston Motors Group, there is no evidence that JRA, RWA or Raymond Auswild received any benefit arising out of the loan to Carlisle by way of dividend, capital gain or otherwise.

(f) The surprising fact that, of the $7.8 million borrowed by Fintee from GMAC, the sum of $3.2 million was redirected back to GMAC, is unexplained. This is another aspect where, in the absence of evidence of the circumstances (caused by effluxion of time), I do not consider it appropriate to draw an adverse inference that JRA breached his fiduciary duties.

100 On behalf of the first defendant, it was submitted that JRA could be relieved of liability to account for any profit arising from a conflict of interests on the basis of attenuation clauses in the Articles of Associations of the relevant plaintiffs. To the extent that the clauses required a declaration of the nature and extent of interest, it was not contended that there was evidence that JRA had made such an express declaration. However, it was submitted that the requirement for such a declaration can be satisfied impliedly in circumstances where the interest in the transaction is known to the other directors, on the authority of Woolworths v Kelly.[25] Specifically it was submitted that:

Woolworths v Kelly has since been referred to as authority for the proposition that formal disclosure of an interest in a transaction is not required under an attenuation clause if what is to be disclosed is already known to other directors.[26] Put another way, consent can be implied. It need not be given expressly.[27]

101 On behalf of the plaintiffs, it was submitted that the Court should adopt the dissenting judgment of Kirby P in Woolworths v Kelly and find that only an express disclosure can satisfy the requirement of the attenuation clause.

102 The attenuation clauses in the articles of association of the relevant companies were as set out in Schedule B to these reasons. For example, clause 96 of F&G's Articles of Association prior to 11 April 1992, the attenuation clause at the time of the Carlisle Loan, included the following:

(c) It shall be the duty of a Director who is in any way directly interested in any contract or arrangement or proposed contract or arrangement with the Company to declare the nature of his interest at the meeting of the Directors at which the contract or arrangement is first taken into consideration if his interest then exists or in any other case at the first meeting of the Directors held after the acquisition of his interest provided that a general notice by a Director that he is a member of any specified company or firm and is to be regarded as interested in any contract which may after the date of such notice be made with or concern that company or firm shall be deemed to be a sufficient declaration of interest in relation to any contract so made ...

...

(f) It shall be the duty of the Secretary to record in minutes of the meeting any declaration made or notices given by a Director as aforesaid.

103 The proposition that a fiduciary may be absolved from liability for a breach of fiduciary duty by informed and effective assent of the person to whom the obligation is owed,[28] and that such consent can be express or implied, is not doubted. A company may give its informed consent, either prospectively or retrospectively, to the relevant transaction.[29]

104 It is not suggested in this case that fully informed consent to the particular transaction was given by the shareholders of F&G or Fintee. JRA relied upon the attenuation clauses in the Articles of Association of the relevant plaintiff companies. In determining whether a breach of fiduciary duty is excused by an attenuation clause, what is required is a determination of whether the director has strictly satisfied the requirements of the terms of the relevant attenuation clause in the Articles of Association.[30]

105 Assuming, but not deciding,[31] that relief under cl 96 of F&G's Articles of Association was:

(a) conditional on the requisite declaration of interest; but

(b) not conditional on the minuting of such declaration,[32]

I would be satisfied that each of the directors of the plaintiff companies, at the time of the Carlisle loan, would have been fully aware of the fact that the Auswilds generally, and JRA and RWA in particular, had interests in related companies and the companies in the Webb Group. However, my preliminary view is that Woolworths v Kelly[33] does not stand for the proposition that 'disclosure of an interest in a transaction is not ... required under an attenuation clause if what is to be disclosed is already known to other directors'.[34]

106 In Woolworths v Kelly,[35] the New South Wales Court of Appeal considered whether a decision to grant a pension to a long standing director, which was approved by the board of directors, was voidable by reason of that director's failure to 'declare' the nature of his interest at the relevant meeting. The Articles, by incorporating the requirement of s 123 of the Corporations Act 1989 (Cth), required not only that the interested director 'declare the nature of his interest'; but also that the secretary of the company 'record every declaration under this section in the minutes of the meeting at which it was made'.

107 There was no evidence that the director verbalized his interest at the meeting. Despite holding that:

(a) the duty on the fiduciary to disclose the extent of his or her interest was strict; and

(b) the onus of proving compliance was on the fiduciary;

the majority (Samuels and Mahoney JJA; Kirby P dissenting) held that there had been sufficient compliance with the attenuation clause.

108 Samuels JA found that the fact that the director's interest was obvious and known to the other directors meant that the director was not required to formally disclose facts 'to those who [were] plainly wholly aware of them'.[36]

109 Kirby P, on the other hand, considered that the obligation to formally declare the personal interest was supported by the following considerations:

(a) It obliges the director to formally acknowledge his or her involvement in the transaction, which may be inimical to the interests of the company, so as to require such interest to be considered by the Board.

(b) It is a signal to the other directors of their duty to consider the interests of the company separately from those of their colleague.

(c) Too substantial or too frequent a declaration of conflict will raise for consideration whether the director should remain as a director.

(d) The formal declaration is more likely to be minuted.

(e) The formal declaration will repair defects in the knowledge of directors.

(f) It will remind the director not to vote.[37]

110 Mahoney JA did not state that mere knowledge of the interest by the directors is sufficient to satisfy the obligation to make the declaration of interest under consideration in that case. His finding was that there must be something done at the meeting, which makes known the existence of the relevant interest and the nature of it, such that it can be recorded. He found that the obligation was satisfied because of the information recorded in the meeting papers.[38] On that reasoning, a declaration of interest, although the interest was blindingly obvious to each of the directors, would still be necessary unless there was a reference to such interest in the meeting (or in the meeting papers) such that it could be recorded in the minutes.

111 If the relevant attenuation clause requires the declaration to be minuted, as it does in F&G's Articles, I consider, with respect, that there is power in Mahoney JA's reasoning.

112 However, as the matter was not argued before me and I have already determined that the claim based on a conflict of interest should be dismissed on the basis that there was no such material conflict (and this claim was brought outside the statutory limitation period and the doctrine of laches applies), I do not think it is appropriate that I make any final determination of this issue.

113 Consideration of this question of a declaration of interest underlines the importance of the need to give notice and file proceedings with expedition after a claim is in consideration. For example, cl 96 of the Articles of Association of F&G, at the time of the Carlisle Loan, provided that 'a general notice by a Director that he is a member of any specified company or firm and is to be regarded as interested in any contract which may after the date of such notice be made with or concern that company or firm shall be deemed to be a sufficient declaration of interest ...'. Due to the effluxion of time, I would be most uncomfortable in concluding that notices of interests in the Webb companies had not been given to the relevant plaintiff companies in accordance with the Articles of Association. This is a question in respect of which the evidence of Doug Farrelly, Nola Hancock and certainly RWA may have cast a different complexion on the matters.

114 By extraordinary general meetings on 6 December 1990, the holders of all of the issued shares in Fintee, Preston Motors, Preston Motors (Essendon) Pty Ltd, and Preston Motors (Wholesale) Pty Ltd resolved to ratify the Loan Documentation.

115 Further, by extraordinary general meeting of the members of F&G on 11 April 1992, the shareholders resolved to ratify the Loan Documentation including the Previous Agreements in the following terms:

WE, BEING ALL THE SHAREHOLDERS OF THE COMPANY, HEREBY CONFIRM THAT the Board of Directors of the Company had entered into the Loan Documentation to which the Company is expressed to be a party by virtue of it being in the best interests of the Company as a whole, and (notwithstanding any conflict of interest, want of power or other irregularity at the time thereof) the members hereby confirm and ratify the Company's entry into the Loan Documentation and all transactions completed by the Board of Directors pursuant to the Loan Documentation including all acts, matters or things within or outside their power in connection with or ancillary to the Loan Documentation or the transactions completed by them to ensure that the obligations of the Company under the Loan Documentation to which it is a party are valid and binding.

116 In final submissions, counsel for the plaintiffs contended that the above ratification resolution was invalid because Lady Auswild's proxy, which the minutes indicate was held by RWA, was invalid. The proxy was challenged on the basis of a contemporaneous file note of Nola Hancock to the effect that Lady Auswild 'did not fully comprehend' the nature of the extraordinary general meeting.

117 I reject the plaintiffs' submission for the following reasons:

(a) The conclusion of Ms Hancock as recorded in the note is an opinion and there is no evidence as to the basis of the opinion, even if it were otherwise admissible.

(b) Counsel for the plaintiffs made no submission as to whether an undefined lack of understanding would invalidate a proxy or whether an invalid proxy would invalidate the resolution.

(c) The plaintiffs did not plead that the ratification resolution was invalid and no question of invalidity was raised during the course of evidence. Accordingly, the plaintiffs should not be permitted to rely on the assertion in final submissions.

118 Accordingly, F&G cannot now assert that the directors acted in breach of their duties as directors in entering into the Previous Agreements.[39]

Was entering into the DMA not in the interests of F&G?

119 Under the DMA, obligations were imposed on F&G, Preston Motors, Preston Motors (Properties) Pty Ltd ('Properties') (at the time known as Boyded Canberra (Wholesale) Pty Ltd), Parts Sales, Auswild Secretarial Services Pty Ltd, Preston Motors Wholesale 1966 Pty Ltd, Preston Motors (Essendon) Pty Ltd and Preston Motors (South Melbourne) Pty Ltd (together 'the Preston DMA Parties'). These obligations included the following:

(a) F&G was required to give an irrevocable guarantee in respect of the debts of the Webb/Auswild borrowers (cl 13).

(b) F&G was obliged, if requested by GMAC, to give a fixed and floating charge over all of its assets (cl 18.2).

(c) Preston Motors, Properties, Parts Sales and others were prohibited from taking any action to reduce the operating profits of their businesses (thereby preventing them from making investments to expand their businesses, etc)

(d) All Preston DMA Parties were required to subordinate their interests in receiving repayment of any loan owed by another Obligor (this included the subordination of the loan extended to Carlisle by F&G/Fintee) (cl 9.1).

(e) F&G gave a negative pledge that it would not sell, spend money on, or otherwise dispose of any assets until the "Rossfield Assets" has been sold (cl 9.2).

(f) All Preston DMA Parties were, unless permitted by GMAC, not permitted to distribute funds to their shareholders (cl 9.3 and 9.4) and were obliged to provide monthly cash-flow reports to GMAC (cl 10).

120 On behalf of the plaintiffs it was submitted that, even if the Preston DMA Parties were already liable for the Webb/Auswild borrowers' obligations, entering into the DMA renewed, maintained or fortified such obligations. Further, the Court should find that the entry into the DMA was a continuation of a course of conduct by JRA and RWA in which they encumbered the assets of the Preston DMA Parties to guarantee debts owed by non-Preston Motors entities.

121 On behalf of the first defendant, it was submitted that the effect of the DMA was that it saved both the Rossfield House group and the Auswild group from liquidation. Further, by saving the Rossfield House group, the shareholders of the plaintiffs received approximately $50 million in 2009 when the Auswild interests were separated from the Webb interests.

122 Counsel for the second to fifth defendants submitted that the DMA was in the interests of F&G for the following reasons:

(a) It provided the opportunity to be released from more than $200 million in contingent liability to GMACA at no cost to itself.

(b) F&G was the only one of the Preston DMA Parties who was a guarantor under the DMA. Preston Motors, Properties and Parts Sales were 'obligors' and did not have any liability under the guarantee in clause 13.1 of the DMA. If Preston Motors, Properties and Parts Sales, as obligors, breached their obligations under the DMA (as noted in the plaintiffs' submissions) the effect would have been that F&G was liable to indemnify GMACA not the defaulting obligor.

(c) The DMA gave rise to the Plan which led to the negotiation of the DRA. The DRA amended clause 13.1 of the DMA so that F&G no longer gave any guarantee and all obligations under the DMA affecting F&G, Preston Motors, Properties and Parts Sales came to an end in June 1994.

123 I accept the submissions of the defendants that the interests of F&G in entering into the DMA are apparent on the face of the DMA. In essence, the DMA provided that F&G would be released from its liability under guarantees to GMACA of an amount exceeding $200 million in consideration of the sale of the Rossfield assets listed in schedule 3. Given that F&G had acknowledged its liability as a guarantor under the 1990 Deed of Acknowledgement, it provided little consideration for this opportunity.

124 The plaintiffs contended that '[w]hile the subsequent entry into the [DRA] delivered benefits to F&G, this is beside the point'.[40] I respectfully disagree. The evidence of the Plan and the extraction of F&G through the DRA leads to the conclusion that the Carlisle loan, the DMA and the DRA were all part of a skilfully negotiated program of debt reduction, which was designed to save the assets of F&G and other related companies.

125 In these circumstances, I consider that the evidence does not support the proposition that the directors, in deciding to enter into the DMA, acted otherwise than in good faith, in the interests of F&G and for a proper purpose. On the basis of the above findings, the allegations of breaches on the grounds of improper purpose and failure to accord due diligence must also fail.

126 The DMA did provide for certain restrictions on 'Preston Business Companies' which included Preston Motors, Parts Sales, and Properties. However, in my opinion, the evidence does not sustain the proposition that entering into the DMA was not in the interests of these companies for the following reasons:

(a) Preston Motors and Properties were, together with F&G and Fintee, property guarantors under the 1990 Deed of Acknowledgement and therefore had a contingent liability to GMACA as guarantors in respect of the Development Loans of $201,623,575.83.

(b) Parts Sales was a wholly owned subsidiary of Preston Motors and may well have had substantial interests in supporting its parent. For example, the DMA and the 1990 Deed of Acknowledgement both refer to the fact that the GMACA facility was applied by the borrowers for on-lending to other companies in the group. Parts Sales may have had substantial financial support from its parent, which would mean that it would not be in its interests for the parent to be wound up. It is well recognised that, although directors need to consider the interests of the subject corporation as a separate legal entity, a transaction that benefits 'one company in a group may have derivative benefits for another company in the group'.[41] I do not speculate as to whether or not this was the case. However, it demonstrates again why, unless the Court is satisfied that it is aware of all material facts that were available to the directors at the time of the relevant decision, it should be reluctant to conclude that the directors had acted otherwise than in good faith, in the interests of the company and for a proper purpose.

(c) The obligations imposed on the Preston Motors companies may, on the other hand, have been considered by the directors to be of little consequence. There is no evidence that any of the companies would have been adversely affected by not taking action to reduce its profits, not distributing funds to shareholders or whether there were any loans owed to it by another obligor. Further, under cl 13.1 of the DMA, if Preston Motors, Properties and Parts Sales, as obligors, breached their obligations under the DMA, the effect was that F&G was liable to indemnify GMACA.

Did JRA and/or RWA obtain any and, if so, what unauthorised benefit as a result of any and, if so what, breach of the Duties by JRA in relation to entry into the DMA and the Previous Agreements?

127 On behalf of the plaintiffs, it was submitted that JRA used his position as a director of F&G to effect an advantage for himself and others by permitting F&G to enter into the DMA.

128 The submissions were principally based on the premise that the DMA was not in the best interests of F&G, a proposition which I have already rejected. However, it was submitted that:

The Webb/Auswild Borrowers, which included companies in which JRA and RWA had a direct financial interest (as referred to above), obtained the benefit of having their indebtedness to GMAC reduced, managed and released without the risk of being made insolvent, subject to compliance with the DMA.

As a result of these agreements the Webb/Auswild Borrowers were, in effect, permitted to delay repaying any loan owing to any other obligor, and the repayment risk was shared with F&G.

129 It was submitted that JRA had the following financial interests in the Webb/Auswild Borrowers:

(b) Calabar, which was held as to 50% by Jenola which was itself owned by RWA who held 1 share on his own behalf and the other share as trustee of the estate of Sir James Auswild.

(c) Beron, which was owned 50% by RW Auswild Pty Ltd of which RWA and each of his three children, JRA, Barbara and Raymond, each held 25% of the ordinary shares.

130 On behalf of the first defendant, it was submitted that the plaintiffs had not identified any financial benefit received by RW Auswild Holdings, Chatswood or Jenola consequential on the alleged advantage to Carlisle, Beron or Calabar obtained under the DMA. In fact, the only evidence on the issue was in the joint experts report in which it was said that:

The Experts do not have sufficient information to assess the extent, if any, of the benefits that flowed to the Webb/Auswild Borrowers, Ronald Auswild and/or James Auswild as a result of the Preston DMA Parties entering into the Debt Management Agreement.

131 Accordingly, having failed to discharge their onus of proving any unauthorised profit or benefit, the plaintiffs are not entitled to make an election between damages or an account of profits.[42]

132 On behalf of the second to fifth defendants, it was submitted as follows:

The way the Plaintiffs articulate the claim for unauthorised benefits is the pleading in FASOC [98.2], namely, JRA is liable to account for "benefits or profits resulting from entry into the DMA", which are in turn said to be, "the financial benefit received by RW [Auswild] Holdings, Chatswood and or Jenola consequential on the advantage to Carlisle, Beron or Calabar, obtained by the Debt Management Agreement" but there is no evidence of what any such "benefit" may be, let alone its value.

133 The plaintiffs have not established that JRA or RWA had a sufficient interest in Carlisle, Calabar or Beron such that a reasonable person would think there was a real possibility of him, as a fiduciary, being swayed by it - for similar reasons as those stated with respect to the Carlisle Loan.

134 Further, I accept the defendants' submissions and am not satisfied that JRA or RWA received any unauthorised benefit by reason of the entry into the DMA or the Previous Agreements. In particular:

(a) The counterparty to each of these agreements was GMAC and/or GMACA.

(b) For the reasons set out above, I am not satisfied that the decisions to enter into any of the DMA or the Previous Agreements were made other than in good faith and in the best interests of F&G. I have insufficient evidence as to whether the complex commercial arrangements between the parties were such that the entry by F&G into the agreements benefited the other parties (other than GMAC and GMACA) any more than vice versa.

(c) As submitted by the defendants, there is simply no evidence that either JRA or RWA received any benefit through the Auswild/Webb companies by reason of the entry into any of the agreements.

Was the transfer of the Seascape Apartments in the interests of F&G?

135 It was submitted on behalf of the plaintiff that the transfer of the Seascape Apartments was not in the interest of F&G or Preston Motors for the following reasons:

(a) At the time the Seascape Apartments were acquired in 1994, Preston Motors Group companies were indebted to external financiers in an amount of in excess of $31 million.

(b) It was in the best interests of Preston Motors to reduce its debt levels rather than purchase luxury apartments.

(c) It was not in the best interests of Preston Motors to purchase the Seascape Apartments given their substantial holding costs.

(d) JRA and RWA held shares in two of the Webb/Auswild vendors, being Rossfield and ResDev.

136 It was submitted on behalf of the first defendant that the purchase of the Seascape Apartments was in the interests of Preston Motors for the following reasons:

(a) Preston Motors did not pay cash consideration for the Seascape Apartments.

(b) Preston Motors was already owner of a number of other Seascape apartments.

(c) The transfers were connected to the Plan and the DRA, which released the Auswild Group's indebtedness and obligations to GMAC.

(d) To the extent JRA was involved in the transaction, it can be inferred that he discharged his duties by reasonably relying upon RWA and senior Auswild Group executives.

(e) To the extent necessary, the attenuation provisions in the Articles of Association of Preston Motors relieved JRA and/or RWA from liability in respect of any alleged conflict or any advantage obtained.

137 On behalf of the second to fifth defendants, it was submitted that the claim for breach of fiduciary duty with respect to the purchase of the Seascape Apartments must fail once it is found that the units were transferred to Preston Motors in satisfaction of the Carlisle loan. The bases for this submission were as follows:

(a) There was no claim that RWA or JRA were in breach of duty by causing F&G to accept the transfer of the Seascape Apartments in satisfaction of the Carlisle loan.

(b) It is not part of the plaintiffs' case that the transfer of the Seascape Apartments was at overvalue.

(c) It is not part of the plaintiffs' case that JRA and RWA breached any duty they owed to Preston Motors by not putting the units on the market for sale.

138 I accept the defendants' submissions. I have already found that Preston Motors accepted the 22 Seascape Apartments in satisfaction of the Carlisle loan.

139 The plaintiffs' case that the purchase of the 22 Seascape Apartments was not in the interests of Preston Motors must fail, in particular, for the following reasons:

(a) The plaintiffs' pleaded case was that it was not in the interests of Preston Motors to purchase the units because it should have used the $8,062,000 to pay down the Preston Motors Group indebtedness. There is no allegation that Preston Motors had an option of receiving a cash repayment of the Carlisle loan and no allegation that it was not in its interests to accept the units in satisfaction of the Carlisle loan.

(b) At the time the contracts for the Seascape Apartments were executed on 11 August 1994, the DRA had already been executed. There is no evidence or reason to infer that the Preston Motors Group were not in a financial position to hold the 22 Seascape Apartments and, in fact, Preston Motors did hold the apartments for a substantial period.

Did JRA obtain any and, if so, what unauthorised benefit as a result of any and, if so, what breach of the Duties by JRA in relation to the transfer of the Seascape apartments?

140 The plaintiffs alleged that JRA obtained an unauthorised benefit from the purchase of the 22 Seascape apartments and car park from which he was liable to account by reason of his conflict of interests between his position as a director of Preston Motors and his interests in the vendors, Rossfield and ResDev.

141 This claim must fail - for the following reasons:

(a) It is premised on the allegation that the vendors received the cash purchase price, of over $8 million, which increased their ability to meet their obligations. I have found that the vendors received no cash consideration; but rather the transfer was in satisfaction of the 'moral obligation' accepted by the Webb family as part of the Plan.

(b) There is no evidence of any benefit being received by JRA through any interests he held in Rossfield or ResDev.

Were the Telasava and Rossfield loans not in the interests of Preston Motors?

142 On behalf of the plaintiffs it was submitted that it was not in the interests of Preston Motors to:

(a) advance $6,648,048 to Telasava ('the Telasava Loan') in the following tranches:

(i) an advance of $2,900,000 on or about 17 August 1993; and

(ii) an advance of $4,748,048 between 8 June 1994 and 30 June 1994; and

(b) advance $5,100,000 to Rossfield ('the Rossfield Loan') on 8 June 1994.

(a) In order to make these loans, Preston Motors borrowed money on security of the Seascape Apartments paying ordinary commercial interest rates.

(b) The loans to Telasava and Rossfield were made at a time when the former had no assets and had only recently been incorporated, and the latter had a net asset deficiency and extensive liabilities.

(c) The companies provided no security to Preston Motors in return for the loans nor did they pay fees.

(d) The transactions encumbered Preston Motors' assets to an external financier to enable it to make the loans.

(e) Telasava and Rossfield did not repay the respective loans nor did they pay interest on the sums advanced.

144 On behalf of the first defendant it was submitted that the Telasava Loan was in the interests of Preston Motors for the following reasons:

(a) The Telasava Loan was connected to the Plan to raise money to repay GMAC pursuant to the DRA.

(b) The Telasava Loan was made on appropriate terms with the interest rate payable at 9.4%.

(c) The ultimate shareholders of Preston Motors, being Sir James' and RWA's families, both had a 25% interest in Telasava respectively; and Telasava formed part of the operations of the Auswild Group. Telasava operated three hotels in Sydney and, when those businesses were sold in 2007, Sir James' and RWA's families shared equally in the proceeds of the sale.

145 Similarly, the Rossfield Loan was in the interests of Preston Motors and Properties for the following reasons:

(a) The Rossfield Loan was connected to the Plan and the connection is demonstrated by the use of the money advanced as follows:

(b) The Rossfield Loan was made on appropriate terms including interest payable at the rate of 8.6% and the loan was ultimately repaid with interest.

(c) The ultimate shareholders of Preston Motors, being Sir James' and RWA's families, both held a 25% interest in Rossfield respectively through Jenola Holdings Pty Ltd; and Rossfield (and its subsidiaries) formed part of the operations of the Auswild Group.

146 On behalf of the second to fifth defendants, it was submitted that the claims with respect to the Telasava and Rossfield Loans must fail because the loans have in fact been repaid. Further:

(a) the Telasava and Rossfield Loans were brought into existence for the purpose of funding the DRA, which was in the interests of RWA, JRA, Preston Motors and all sureties under the DMA; and

(b) the benefit did not flow to Telasava and Rossfield, but Preston Motors, which obtained relief from its $250 million liability and guarantees by implementation of the Plan.

147 Preston Motors did borrow $2.9 million and $5.1 million from PT Ltd (with Hatmax as the mortgage manager) and the loans were secured by a Deed of Mortgage dated 16 August 1993 from Preston motors and a Deed of Mortgage dated 7 June 1994 from Properties respectively on units in the Seascape apartments.

(a) Preston Motors loaned $2,439,055.75 to Telasava on or about 16 August 1993 (being the balance of the $2.9 million loan after Preston Motors retained $460,944.25).

(b) $4,551,992.00 is recorded as a loan from Preston Motors to Telasava on or about 8 June 1994 (being the balance of the $5.1 million loan after Preston Motors retained $548,008.00).

(c) By 30 June 1994, these loans were recorded as a total liability of $6,648,048.01 of Telasava to Preston Motors, after allowances for interest and 'Loan Account movement (per worksheet)'.

(d) However, whether because the entry in part (b) was a mistreatment of the $5.1 million Rossfield loan or some other arrangement, in the balance sheets of both Preston Motors and Telasava for financial year 1995, a liability of $5.1 million to Preston Motors is recorded as transferred from Telasava to Rossfield.

149 In the Joint Expert Report, Mr Stone and Mr Silvia agree that the Preston Motors intercompany loan accounts with respect to the Telasava Loan for the financial years 1994 to 1998, including total repayments of $4,123,783, are summarised as follows:

150 The experts agree that the repayment of the loan of $6,648,048.01, as it was at 30 June 1994, was effected by:

(a) the transfer of the $5.1 million liability to Rossfield in the financial year 1995; and

(b) part of the 'Repayments' totalling $4,123,783 referred to in the table above.

151 The experts also agreed that the Preston Motors intercompany loan accounts and the available Telasava and Rossfield general ledger extracts confirm that Telasava had been charged interest at 9.4% as prescribed by the Telasava Loan deed.

152 The Rossfield General Ledger Extract for financial year 1997 records a payment of $5.1 million on 23 April 1997 by cheque 2328*1 to Preston Motors Holdings, which reduced the Rossfield Loan to nil. Mr Stone and Mr Silvia agreed as follows:

While it appears the Rossfield Loan was reduced to nil from a payment by cheque (i.e. cash), in the absence of cheque books and bank statements we are unable to verify that the payment was made.

The absence of such documents does not indicate the payment was not made. The Experts have not seen anything to suggest the Rossfield Loan was not so discharged however.

153 The interest rate chargeable under the Rossfield Loan deed was 8.6%. The experts agreed that the Preston Motors intercompany loan account worksheets for 1996 and 1997 showed interest payments of $403,752.01 in financial year 1996 and $401,350 in financial year 1997.

154 The Rossfield General Ledger recorded receipt of cheques totalling $218,699.19 for the financial year 1996 and $356,889.24 for the financial year 1997. However, the experts concluded that the records indicated that interest of $403,752.01 and $401,350 was paid in financial year 1996 and financial year 1997 respectively, stating:

Although we have not been able to trace all of the interest payments for FY96 and FY97 to cheque numbers, we note that there are pages missing from the Rossfield General Ledger Extracts for FY96 and FY97 which would assist in explaining how the balance of interest payments were remitted, if not by a cheque solely related to the Rossfield Loan, then as part of a consolidated transaction.

155 The experts noted some disparities in the accounts which they attributed to the fact that some General Ledger Extracts were not available. However, the absence of these documents did not affect their agreed conclusion. Apart from the challenge to the admissibility of Mr Silvia's reports and the Joint Expert Report, which I deal with elsewhere, the above conclusions were not contradicted or challenged.

156 I am not satisfied that the entry of Preston Motors into the Hatmax loans and the on-lending to Telasava and Rossfield were not in the interests of Preston Motors - for the following reasons:

(a) The evidence referred to in paragraphs [35]-[48] under the heading 'Debt Reduction Agreement, Telasava and Rossfield Loans and transfer of Seascape Apartments' demonstrates that these impugned transactions were part of the Plan to restructure the DMA. For reasons set out in paragraph [80] it was in the interests of Preston Motors, Properties together with other members of the Preston Motors Group, to be finally released from liability to GMACA.

(b) Both the Telasava Loan and the Rossfield Loan were documented and provided for commercial rates of interest to be paid to Preston Motors. The Court does not have evidence as to all of the circumstances that may have impacted on the directors in deciding not to require security from Telasava and Rossfield. However, there may well have been circumstances, of which the directors were aware, that would have made the provision of security unnecessary, pointless or impossible. In my opinion, this transaction presents another example where it is not appropriate for the Court to second guess the decisions of the directors, particularly in circumstances in which, contrary to the allegations of the plaintiffs, I have found that both loans were repaid with interest.

On the basis of the above findings, the allegations of breaches on the grounds of improper purpose and failure to accord due diligence must also fail.

157 I do not accept the submission of the second to fifth defendants that the fact the loans were repaid with interest means, of itself, that the allegation that it was not in the interests of Preston Motors is 'fatally flawed'.[43] The issue of whether the directors breached their fiduciary duty by failing to act bona fide and in the interests of the company must be determined at the time the action was taken and not with hindsight. However, as referred to above,[44] where the impugned action has resulted in a benefit to the corporation, the Court should be even more reluctant to infer too readily that the directors undertook the action otherwise than in good faith and in the interests of the company.

Did JRA obtain any, and, if so, what unauthorised benefit as a result of any and, if so, what breach of duty by JRA in relation to the making of the Telasava or Rossfield Loans?

158 On behalf of the plaintiffs it was submitted that the Telasava and Rossfield Loans were not in the best interests of Preston Motors and that JRA had a conflict of interests because he was a director of Preston Motors, a director of Telasava, and a director of Jenola which held 50% of the issued shares in Rossfield.

159 On behalf of the defendants it was submitted that the plaintiffs did not adduce any evidence of any entitlement of JRA to financial benefits received by Telasava or Rossfield arising out of the loans.

160 I reject the plaintiffs' submissions for the following reasons:

(a) The plaintiffs have not established that JRA had a sufficient interest in Telasava or Rossfield such that a reasonable person would think there was a real possibility of him, as a fiduciary, being swayed by it - for similar reasons as those stated with respect to the Carlisle Loan. In particular, the Telasava Loan and the Rossfield Loan were part of the Plan and for reasons set out above, I am not satisfied that the decision for Preston Motors and Properties to enter into the loan transactions were made otherwise than in good faith and in the best interests of the companies.

(b) Contrary to the allegations in the statement of claim, the Telasava Loan and Rossfield Loan were both repaid with interest.

(c) There was no evidence that JRA received any benefit through any interest he held in Telasava or Rossfield as a result of the decision to enter into the Telasava Loan Agreement or the Rossfield Loan Agreement.

Was JRA's conduct in approving the Plan Transactions fraudulent?

161 The plaintiffs contended that JRA's conduct in approving transactions with respect to each of:

162 Counsel for the plaintiffs submitted as follows:

(a) The evidence established that JRA, as a director of F&G and Fintee, attended board meetings, signed documents without reading them or comprehending their content and signed off on financial statements which authorised and put into effect the Carlisle Loan. In particular, he was unaware of the detail of the Carlisle Loan transaction and that when he signed the documents putting it into effect he was not aware of what he was signing.

(b) In the circumstances:

(i) JRA was wilfully blind or recklessly indifferent to the matters about which he was approving and the transaction about which he was putting into effect and, thereby, acted fraudulently; and

(ii) the Court should infer that JRA did have knowledge (in the sense of wilful blindness, recklessness or knowledge of the circumstances which would indicate to an honest and reasonable person that each of the transactions was not in the best interests of the relevant companies) that the effect of these transactions was that they would benefit RWA family entities outside of the Preston Motors Group whilst knowing at the same time that the transaction was not in the interests of the Preston Motors Group entities (namely F&G and Fintee).

163 On behalf of the first defendant it was submitted that JRA's evidence as to his practice as a director was generally as follows:

(a) he took advice from trusted advisers and experts, including solicitors, accountants, auditors, Ted Dove (who was an 'outstanding man'), Doug Farrelly (who was a 'very honourable man'), Nola Hancock, Fay Tickell (who 'was a good person' and 'very reliable'), Joe Hart, Vince Choy and Geoff Thoroughgood;

(b) in executing documents he was presented with, he relied on the fact that they had been prepared, reviewed or vetted by one or more of Ms Hancock, Mr Dove, Mr Farrelly, his father and, in relation to legal documents, usually his lawyers. JRA took comfort from the involvement and guidance of these people. He considered Ms Hancock, Mr Dove, Mr Farrelly and his father to be honest and honourable people who acted in the best interests of the family as a whole. There was nothing reckless or willfully blind about relying on these well-qualified people;

(c) when his father asked him to do something, his father (or Mr Dove or Ms Hancock) would give reasons. His father was not a dictator. His father was also accepting that JRA might ask/check with others such as Mr Dove and Mr Farrelly before signing a document;

(d) it wasn't the case that he always agreed to sign documents that his father asked him to, he gave an example where he would not agree to buy a golf course even though his father wanted to do so;

(e) it was his practice to read documents '[b]ecause you would want to make sure it was what you were signing' and further 'I would have read the document because Nola would say, What did you sign there?' and she 'was a pretty hard taskmaster too'. He also said 'I think it was a good idea to read what you signed';

(f) he 'often had to go and see solicitors', which he would organise himself;

(g) he 'signed various documents that had been vetted by paid solicitors, administrators'. He took comfort from the fact that documents he was asked to sign were drafted up qualified solicitors;

(h) Ms Hancock would have explained what was happening in respect of meetings;

(i) Mr Farrelly, Mr Dove and his father were accountants and he would listen to discussions in meetings between them;

(j) when he was asked to pass a resolution, he 'would with the support of the executive chief staff of the company we're talking about'; and

(k) he knew that Ms Hancock was responsible for recording benefits received by family members and ensuring equality between the two sides of the family.

164 It was submitted that the evidence of JRA disclosed no consciousness of wrongdoing and his conduct could not amount to dishonesty, recklessness or wilful blindness.

165 I do not consider that the plaintiffs have established dishonesty, recklessness or wilful blindness or knowledge of circumstances which would indicate the fact of dishonesty to an honest and reasonable person with respect to any of the Plan Transactions.

166 I accept the evidence of JRA that he is unable to recall the details of any of the Plan Transactions or the extent of his knowledge at the time of the transactions. These transactions took place more than 20 years prior to the filing of proceedings; and I consider it unremarkable that his memory of the particular transactions would have faded. He did give evidence about his memory of his practice during the relevant period and speculated as to what may have happened. In none of the transactions am I actually persuaded that the Court could be satisfied about the details of JRA's involvement. I consider that the plaintiffs' submissions about JRA's state of knowledge with respect to each of the Plan Transactions, based as they were on JRA's evidence about his general practice at the time, cannot provide a sufficient basis for a finding of the requisite dishonesty or knowledge.

167 The plaintiffs rely on the fact that JRA conceded that as a director, he relied heavily on his father and other directors and advisers. JRA did give evidence, on a number of occasions, that he trusted his father and other advisers and believed that following their advice would be in the best interests of the companies. Without more, I do not consider that the bona fide reliance on the advice of others, whom it is believed are more competent, could support a finding of reckless dishonesty or willful blindness.[45] Proof of mere negligence is not sufficient to establish reckless dishonesty or wilful blindness.[46]

168 The above point was made in Pyramid Building Society (in liq) v Scorpion Hotels Pty Ltd,[47] in which Hayne JA said:

The expressions 'reckless indifference' and 'wilful blindness' are useful shorthand expressions to describe some kinds of cases of fraud. As the classical exposition by Lord Herschell in Derry v Peek ... shows, fraud can be proved by showing that a false statement has been made without belief in its truth or, 'recklessly, careless whether it be true or false'. But as was said in the Assets Co Ltd case, the mere fact that a person might have found out fraud if further enquiries had been made does not of itself prove fraud. The enquiry is an enquiry for actual dishonesty not for want of due care.

...

In my view the evidence went no further than to show, at most, that had Pyramid made further enquiries (enquiries which it should have made) it would have discovered that the mortgage had not been properly executed. That is not fraud.

...

The judge accepted that the solicitor for Pyramid was an honest witness. There was no evidence that might suggest that he had been dishonest whether in the witness box or in his conduct of the transaction. It was suggested that he should have made more enquiries than he did but it was never put to him in the course of his evidence that he refrained from making those enquiries for fear of what he might find out. This is not a case in which there has been shown to be any want of probity or 'moral obtuseness' of the kinds discussed in cases such as Royal Brunei Airlines Sdn Bhd v Tan Kok Ming ...; Sixty-Fourth Throne or International Alpaca Management Pty Ltd v Ensor ... .[48]

Similarly, it was not put to JRA that the reason why he refrained from making further inquiries was for fear of what he might find out.

Knowing assistance with respect to the Plan Transactions

169 The plaintiffs allege that JRA is liable as an accessory for RWA's breaches of fiduciary duty, under the second limb of Barnes v Addy,[49] with respect to each of the Plan Transactions.

170 In each case it is alleged that JRA knowingly participated in the breaches by RWA of his fiduciary duties and therefore the same equitable remedies are available against him as against RWA, the errant fiduciary.

171 The necessary elements of liability under the second limb are as follows:

(a) The existence of a fiduciary duty owed by the fiduciary.

(b) A dishonest and fraudulent design on the part of the fiduciary (RWA) to engage in the conduct that is in breach of fiduciary duty. The fiduciary's conduct will be found to be 'dishonest and fraudulent' if it transgresses ordinary standards of honest behaviour.[50]

(c) Knowing assistance by the participant (JRA) in that dishonest and fraudulent design. The requisite element of knowledge on the part of the participant is met where the participant has knowledge of circumstances which would indicate the fact of the dishonesty on the part of the fiduciary to an honest and reasonable person.[51]

There is no issue that RWA owed fiduciary duties to the relevant plaintiff companies.

Did RWA's conduct in relation to each of these transactions involve transgressions of the ordinary standards of honest behaviour?

172 The evidence establishes that RWA was instrumental, as a director of the relevant plaintiff companies, in each of the Plan Transactions.

173 The plaintiffs' submission is that the Court should infer, from RWA's significant experience as a businessman and company director, that he transgressed the ordinary standards of honest behaviour because he either knew or was sufficiently reckless in causing the relevant plaintiff companies to enter into the respective transactions, which were not in the interests of those entities.

174 This allegation cannot withstand my finding that I am not satisfied that the directors, in entering into the transactions, acted otherwise than in good faith and in the best interests of the respective companies. To infer RWA had acted with dishonest and fraudulent design in circumstances where each of the transactions resulted in significant benefits to the respective companies and the Preston Motors Group would be a grave step. The facts do not justify such an inference.

Did JRA have the requisite knowledge of the dishonest and fraudulent design?

175 I am not satisfied that JRA had knowledge of circumstances which would indicate dishonesty on the part of RWA to an honest and reasonable person for the same reasons that I have not found that JRA was himself guilty of dishonesty, recklessness or wilful blindness.

Was the transfer of Sutton Farm not in the interests of Auswild Securities?

176 On behalf of the plaintiffs, it was submitted that the transfer of Sutton Farm was not in the interests of Auswild Securities - for the following reasons:

(a) On 26 October 1994, Auswild Securities transferred Sutton Farm to Joan Auswild (the wife of RWA and the mother of JRA) for a purported consideration of $540,000. However, Joan Auswild did not actually pay $540,000 to Auswild Securities and such a transfer of a valuable asset for no consideration was not in the interests of Auswild Securities.

(b) Even if the defendants' case that Joan Auswild's loan account was debited to pay for the farm was established, there is no evidence that Joan Auswild agreed to repay this loan amount, so Auswild Securities would have been transferring a valuable property in circumstances where it was not clear that it would ever actually receive cash consideration for the property.

(c) There is no evidence that Auswild Securities ever caused Joan Auswild to pay the loan account.

177 On behalf of the first defendant, it was submitted that the transfer of Sutton Farm was in the interests of Auswild Securities for the following reasons:

(a) Auswild Securities received valuable consideration.

(b) Sutton Farm was a lifestyle asset and its transfer was consistent with the long standing objectives of the Auswild Group and the Auswild Accounting Practice.

(c) The transfer to an Auswild family member was properly recorded and accounted for.

(d) Prior to the transfer the members of RWA's family were in the habit of spending time at Sutton Farm but the members of Sir James' family were not.

178 On behalf of the second to fifth defendants, it was submitted that the transfer of Sutton Farm was in the interest of Auswild Securities because:

(b) it took place in circumstances in which Geraldine Bergmuller effectively required the property to be sold.

179 In support of the second proposition, counsel referred to the following unchallenged evidence of Barbara Auswild.

Sutton Farm had been part of a larger subdivision dad and uncle Jim did many years ago near Canberra. After the subdivision had been sold I remember that the worst one or two blocks that could not be sold and were left over. That block or those blocks are what is now referred to as Sutton Farm. The blocks were vacant and a house was built in about the early 1990's.

Mum, dad and particularly my brother Ronald Raymond liked to spend time at Sutton Farm as a sort of a weekender. My brother James and I visited occasionally but not very often.

I recall in around the mid 1990s dad told me that Geraldine was unhappy that we were using Sutton Farm as it belonged to Auswild Securities. I remember because it was about this time Margaret had bought a couple of places at Mittagong.

As best I can recall what dad explained to me was that Geraldine said that if we wanted to use Sutton Farm so much we should buy it. Dad told me he agreed with her and that he had arranged to have it valued so we could buy it.

Subsequently I was at a meeting at the Rose Bay Hotel after dad had received the valuations for Sutton Farm and the board decided to sell Sutton Farm.

Geraldine was present and I remember that she was happy with the arrangement.

180 The issue with respect to the payment of the consideration of $540,000 for Sutton Farm requires consideration of what was referred to as the 'Auswild Accounting Practice', the 'Hancock Ledger' and the role of Midland Finance Co.

181 The expert accountants, Mr Stone (engaged by the plaintiffs), Ms Hennessy (engaged by the first defendant) and Mr Silvia (engaged by the second to fifth defendants) agree in relation to the 'Auswild Accounting Practice' as follows:

The Experts observe that "The Auswild Accounting Practice" was a standard double entry book keeping process, whereby transactions of companies and family members were recorded; this is normal accounting practice.

The Experts observe that for most, if not all years, there was a document produced described as 'Auswild Family Rose Bay Financial Statements' dated 30 June of each year (e.g. AUS.001.001.0435). Those statements included separate summaries of individual family members' assets, liabilities and tax reconciliations. Also included was an aggregate statement of family members assets and liabilities. The Experts would expect this document to be extracted from prime books and records, such as ledgers and working papers.

The description of the Hancock ledger in the Witness Statements of James Ronald Auswild and Barbara Joan Auswild, is consistent with the sort of ledgers and working papers the Experts expect were produced in the recording of transactions.

182 The same experts also agreed, with respect to the Hancock Ledger as follows:

The Experts have not seen a document which matches the description of the Hancock Ledger and henceforth cannot comment on whether or not such a document existed.

However, the Experts agree that ledgers and or working papers would have been necessary for the preparation of the "Auswild Family Rose Bay Financial Statements".

183 The role of the Midland Finance Co and the method implemented for distributing profits and lending back for investment purposes was explained by Ms Hancock (a partner in Auswild & Co) in the Auswild Organisation Report, which appears to have been completed after the death of Sir James in 1985, as follows:

In this context surplus funds were usually lent into Midlands Finance Co. Midlands started off as a motor vehicle hire purchase business, but competition in this field phased out this activity. Midlands then moved into being a 'Family Finance Company' surplus funds being put in or borrowed to be lent out to individuals, companies, trusts - any financial structure needing finance for a business venture or an investment.

184 The 'Family Finance Company' appears to have been formalised by Memorandum of Agreement made on 28 June 1954, which created a partnership known as 'Midlands Finance Co' ('Midlands') between Lady Auswild, Joan Auswild, Geraldine Auswild, Barbara Auswild and Alice Mackrell (personal private secretary to Sir James) both on her own behalf and as trustee for Margaret Auswild.

185 By 1985, Ms Hancock explained that the use of Midlands had changed as follows:

In more recent times Midlands surplus funds have been utilised for more 'personal' reasons rather than business expansion - private residences, personal drawings - a private banking system whereby I have kept track of what funds were channelled in, and who or what has taken them out. As companies accumulated funds, and in some cases terminated operations, its funds were lent to Midlands and family members have had the benefit of that money.

186 It was Ms Hancock's record of what funds 'were channelled in, and who or what has taken them out' that, in this proceeding, was referred to as the Hancock Ledger.

Was Auswild Securities paid for the Sutton Farm?

187 The Auswild Securities General Ledger shows, in summary, the following entries for 26 October 1994:

188 The joint experts' report interpreted these entries as follows:

Joan Auswild did not make a direct payment to Auswild Securities for Sutton Farm.

The sale price of $540,000 appears to have been paid to Auswild Securities on 26 October 1994 by Midlands Finance by way of:

1. $40,000 reduction in a loan from Midlands Finance to Auswild Securities; and
2. $500,000 payment from Midlands Finance directly to Holdings/Preston Motors. The narration on 26 October 1994 reads "Proceeds from above lent to Prestons".

We do not have access to the Preston Motors', Holdings' or Midlands Finance' Cashbooks, General Journal, General Ledger or Bank Statements for October 1994 and we are therefore unable to verify that the benefit received by Preston Motors Holdings was a cash receipt of $500,000 (per the narration to the Journal Entry).

189 The experts did not have documents to enable them to verify a payment by Joan Auswild to Midlands Finance but they noted that she did have drawings of $583,365 for financial year 1995 (which reduced her balance to $113,072) as at 30 June 1995. The experts conclude that 'it may be that Joan Auswild's FY95 drawings included the payment of $540,000 to settle for Sutton Farm'.

190 In my opinion, on the basis of the accounting entries, it is probable that Auswild Securities was paid the stipulated consideration of $540,000 as follows:

(a) the sum of $40,000 by reduction of the amount owed by Auswild Securities to Midlands Finance Co; and

(b) the sum of $500,000, by a cash payment which Auswild Securities then loaned to Preston Motors Holdings.[52]

191 I am not satisfied that the decision to transfer Sutton Farm to Joan Auswild was made other than in good faith and in the best interests of Auswild Securities - for the following reasons:

(a) The farm was transferred for a consideration of $540,000 being the value between two 'Certificates of Valuation' which assessed the value of the property at $525,000 and $560,000 respectively. The plaintiffs have not alleged or adduced evidence to the effect that the farm was sold at undervalue.

(b) The uncontested evidence is that Sutton Farm was the residue of a larger piece of land from which other lots had been subdivided and presumably sold. The farm was being used as a lifestyle asset and the evidence does not indicate that it had any business purpose in the Preston Motors Group. In fact, the uncontested evidence is that it was sold in accordance with a request by Geraldine Bergmuller.

192 Contrary to the plaintiffs' submission, I am not satisfied that Auswild Securities was not paid $500,000 in cash. This submission is inconsistent with the Auswild Securities General Ledger. The fact that Auswild Securities on-lent the $500,000 to Preston Motors Holdings is not the subject of any complaint. In any event, Auswild Securities appears to have either received a cash payment of $500,000 from Midlands Finance Co on behalf of Joan Auswild or otherwise its debt to Midlands Finance Co was reduced by that sum. Either form of payment would be valuable consideration.

193 On the basis of the above findings, the allegations of breaches on the grounds of improper purpose and failure to accord due diligence must also fail.

Was Joan Auswild liable as a volunteer to account for the value of Sutton Farm?

194 Similarly, the finding that Joan Auswild paid proper consideration for the transfer of Sutton Farm defeats any claim that she received the property as a volunteer.

Did JRA's conduct in connection with Sutton Farm involve 'transgressions of the ordinary standards of honest behaviour'?

195 The plaintiffs submitted that the Court should find that JRA's conduct was fraudulent because:

(a) executing the Sutton Farm transfer was not in the interests of Auswild Securities;

(b) JRA caused or permitted the Sutton Farm transfer; and

(c) in doing so, JRA breached his fiduciary and equitable duties owed to Auswild Securities.

196 On behalf of the first defendant, it was submitted that allegations of dishonesty against JRA were untenable because there is no reason to doubt that Joan Auswild paid for the farm and it was properly accounted for and recorded.

197 I do not consider the plaintiffs have established dishonesty, recklessness, wilful blindness or knowledge of circumstances which would indicate the fact of dishonesty to an honest and reasonable person with respect to the transfer of Sutton Farm substantially for the same reasons that I am unable to find that the decision to transfer the farm was made otherwise than in good faith and in the best interests of Auswild Securities.

Are each of Barbara Auswild, James Auswild and Raymond Auswild liable to account for their interest in Sutton Farm as beneficiaries of the estate of Joan Auswild notwithstanding s 42 of the Real Property Act 1900 (NSW) or at all?

198 On behalf of the second to fifth defendants, it was submitted that none of Barbara Auswild, Raymond Auswild or JRA was liable to account for their interest in Sutton Farm as beneficiaries of the estate of Joan Auswild - for the following reasons:

(a) The titles of Barbara Auswild, JRA and Raymond Auswild are indefeasible under s 42 of the Real Property Act 1900 (NSW), which provides:

Notwithstanding the existence in any other person of any estate or interest which but for this Act might be held to be paramount or to have priority, the registered proprietor for the time being of any estate or interest in land recorded in a folio of the Register shall, except in case of fraud, hold the same, subject to such other estates and interests and such entries, if any, as are recorded in that folio, but absolutely free from all other estates and interests that are not so recorded except :... [53]

(b) The plaintiffs did not plead that the fraud exception under s 42(1) applied.

(c) The fraud exception has no application if a volunteer is only put on notice of true ownership after registration of his or her interest in land.[54]

199 It was further submitted that the plaintiffs do not allege that Joan Auswild, Barbara Auswild, Raymond Auswild or JRA were put on notice that Auswild Securities was the true owner of Sutton Farm at any time before the commencement of these proceedings, let alone before 1994 when Joan Auswild became the registered proprietor, or 2004, when Barbara, Raymond and JRA became the registered proprietors of their respective one third shares.

200 On behalf of the plaintiffs, it was submitted that s 42 of the Real Property Act 1900 (NSW) will not defeat the claim of Auswild Securities if there is fraud.

201 It was conceded that Sze Tu v Lowe[55] stands for the proposition that a constructive trust will not be imposed on real property if the registered proprietor of it only becomes aware of the fraud after registration and that 'the Court may consider that it is relevant with respect to the claims against Barbara Auswild and Raymond Auswild'.

202 However, because it is alleged that JRA's misconduct in relation to the transfer of Sutton Farm was fraudulent, he was aware of the relevant circumstances prior to becoming a registered proprietor of Sutton Farm.

203 I accept the submissions of the second to fifth defendants. In particular, in my opinion, given my findings that:

(a) I am not satisfied that the decision to transfer of Sutton Farm was made other than in good faith and in the best interests of Auswild Securities;

(b) JRA's conduct in relation to the transfer of Sutton Farm was not fraudulent; and

(c) Joan Auswild was not liable as a volunteer to account for the value of Sutton Farm;

the claims against Barbara Auswild, Raymond Auswild and JRA to account for their respective interests in Sutton Farm as beneficiaries of the estate of Joan Auswild do not fall within the fraud exception to indefeasibility provided by s 42 of the Real Property Act 1900 (NSW).

Was JRA's conduct in relation to the transfer of Sutton Farm in breach of the 'no conflicts' and 'no profits' fiduciary duties?

204 On behalf of the plaintiffs, it was submitted that JRA was in breach of the 'no conflicts' fiduciary duty for the following reasons:

1. JRA participated in the transfer of the Sutton Farm to his mother from whom he eventually inherited a share in the property. Thus it was in his interests for Joan Auswild to receive the farm on favourable terms.
2. Transferring the farm to Joan Auswild was not in the interests of Auswild Securities for the reasons outlined above ...

1. Consequently, in causing or permitting the purchase of the apartments by Preston Motors, JRA breached the 'no conflicts' duty he owed to Preston Motors by reason of the direct conflict between the interests of his mother/himself and the interests of Auswild Securities.

205 It was further submitted that JRA breached the 'no profits' fiduciary duty for the following reasons:

1. Enabling Joan Auswild to purchase the Sutton Farm (either for no consideration or for consideration in the form of a loan account which may not have been repayable) was of considerable benefit to her.
2. By reason of effecting this advantage for Joan Auswild, JRA breached his duty not to use his position to effect an advantage for himself or for third parties.

206 On behalf of the second to fifth defendants, it was submitted that JRA's conduct in relation to the transfer was not in breach of the 'no conflicts rule' or the 'no profits rule' - for the following reasons:

(a) As to the 'Conflicts Breach' alleged in FASOC [183]-[184], JRA was not in a position of real and sensible conflict, or any conflict at all, when the board of Auswild Securities resolved to transfer the farm to Joan Auswild for $540,000.

The board had two valuations in hand. The particulars in FASOC [180(A)] accept that the resolution to transfer the farm to Joan Auswild was "based on the median value" between those two valuations and, as earlier noted, it is no part of the plaintiffs' case that the farm was sold at under value.

(b) As to the "Profits Breach" alleged in FASOC [185]-[186], no benefit to Joan Auswild was "self-evident" as alleged in the particulars, nor has the provision of expert reports exposed the existence of any such benefit. The valuations before the board support a finding that $540,000 was a fair price. The valuation of Sutton Farm, by Mr Anthony Looby, served on behalf of the plaintiffs, gives a fair market value of $1,950,000, as at 13 June 2018 (some 23 years after the event). Mr Looby did not express an opinion about value in 1994, let alone impugn the integrity of the valuations relied on by the board. No profit has been identified, much less proved.

207 On behalf of the first defendant, it was submitted that JRA's conduct in relation to the transfer was not a breach of his duties including the 'no conflicts rule' and the 'no profits rule' - for the following reasons:

(a) the transfer was effected for the asset's market price and was properly recorded and accounted for;

(b) it can be inferred the purpose of the transfer was to remove a lifestyle asset from the books of Auswild Securities;

(c) to the extent JRA was involved in the transaction, he reasonably relied on RWA and Ms Hancock and thereby discharged his duty to act with reasonable care and diligence;

(d) because the transfer was being effected at market price, there was no real and sensible possibility of a conflict; and

(e) even if there was any conflict, the attenuation provisions in the articles of association of Auswild Securities relieved JRA from liability in respect of any alleged conflict or any advantage obtained by himself or a third party.

208 I reject the submission that JRA breached the 'no conflicts rule', as alleged by the plaintiffs, based on the premise that his conflict of interests arose from the fact that 'he eventually inherited a share in the property' - for the following reasons:

(a) The question of whether a fiduciary has breached a fiduciary duty is assessed at the time of the relevant conduct. JRA inherited a one third share of Sutton Farm under his mother's Will following her death 10 years after the transfer. There was no evidence, and it was not put to JRA, that he was motivated by the prospect, or had reason to expect, that his mother would devise or otherwise transfer a share of Sutton Farm to him.

(b) As I have found that Joan Auswild paid market value for Sutton Farm, there is no evidence that JRA was advantaged by receiving one third of Sutton Farm rather than the one third of the amount of the purchase price, which presumably he would have received, if Joan Auswild had not purchased the farm.

209 I also reject the submission that JRA breached the 'no profits rule', as alleged by the plaintiffs, based on the premise that the purchase of Sutton Farm was 'for no consideration or for consideration in the form of a loan account which may not have been repayable'. As I have already found, Auswild Securities received valuable consideration either in the form of a cash payment (together with reduction of its debt to Midlands Finance Co by $40,000) or at least by reduction in its debt to Midlands Finance Co in the sum of $540,000. The evidence does not support the plaintiffs' contention that Auswild Securities may have transferred the farm in consideration of a loan of the purchase price to Joan Auswild.

(a) Auswild Securities suffered no loss because the transfer was at market value; and

(b) JRA obtained no advantage, referable to the transaction, by the receipt of the one third share 10 years after the transfer, as a result of a devise under his mother's Will;

in my opinion, JRA's conduct in approving the sale of the farm to his mother gave rise to a conflict between his fiduciary duty as a director to Auswild Securities and his personal interest in benefiting his family member. The transfer of company property to a family member is a situation where 'a reasonable person would think there was a real or substantial possibility of the fiduciary being swayed by it'.[56]

211 A breach of a fiduciary duty is committed immediately upon the fiduciary entering into a transaction which is inconsistent with the fiduciary relationship. It is not necessary to prove subsequent causative profit or damage of the transaction to establish the cause of action. As Black J said in Vanguard Financial Planners Pty Ltd v Ale:

The no conflict rule has a strict application when it applies in the sense that, if a transaction has occurred in conflict of interest, a company director cannot avoid a breach of that rule by asserting the fairness of the transaction or that it was in the company's best interests or that the director was not acting with subjective dishonesty.[57]

212 Of course if the company has suffered no loss and the director has received no advantage, no relief can be claimed from the fiduciary; but the transaction may still be voidable at the company's option.[58] This is of no significance in this case because the plaintiffs have not sought to avoid the transaction.

Were the alleged breaches of the duties authorised by the attenuation clauses in the Articles of Association of Auswild Securities?

213 On behalf of the plaintiffs, it was submitted that JRA was not absolved from any liability to account under the attenuation clause in Auswild Securities Articles of Association because it required that the director's interest be disclosed to other directors; and there was no evidence of such a disclosure.

214 On behalf of the first defendant, it was submitted that JRA was absolved from any liability to account on the basis of the attenuation clause in the Articles. In particular, it was submitted that the majority in Woolworths Ltd v Kelly,[59] had accepted that there was sufficient compliance with s 123 of the Companies Act by the fact that the other directors(s) were plainly aware of the relevant interest and no formality was required.

215 Article 100 of the Articles of Association of Auswild Securities provided as follows:

Notwithstanding any rule of law or equity to the contrary no Director shall become disqualified by his office from contracting with the Company either as vendor purchaser or otherwise or from being employed or acting in any capacity professional or otherwise by or on behalf of the Company nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company with any company corporation or partnership of or in which any Director shall be a Director member partner or otherwise interested be liable to be impeached, affected or avoided by reason of such Director being a party thereto or interested therein nor shall such Director be liable to account to the Company for any profit realised by or in respect of such contract or arrangement but he shall be bound to disclose the nature of his interest as required by section 123 of the Companies Act. A Director may vote in respect of any contract or arrangement in which he is interested as aforesaid.

216 Section 123 of the Companies Act (1961) relevantly provided:

(1) Subject to this section every director of a company who is in any way, whether directly or indirectly, interested in a contract or a proposed contract with the company shall, as soon as practicable after the relevant facts have come to his knowledge, declare the nature of his interest at a meeting of the directors of the company.

...

(7) The secretary of the company shall record every declaration under this section in the minutes of the meeting at which it was made.

217 There could be no doubt that the other director, RWA, would have been fully aware of JRA's interest as a result of the relationship with his mother. However, as I referred to above, in my opinion, the proper understanding of Mahoney JA's reasoning, in Woolworths Ltd v Kelly, is that a declaration of interest would not be sufficient if there was no reference to it in the meeting (or in the meeting papers) such that it could be recorded in the minutes. One might expect that, at the meeting, there would have been some reference to the fact that the transfer would have been to JRA's mother. Such a conversation together with:

(a) the fact that their respective relationships with Joan Auswild was so well known by RWA and JRA; and

(b) the fact she was noted as the transferee in the transfer referred to in the minutes;

may have been sufficient to satisfy the requirements of Article 100, according to the test applied by Mahoney JA. He concluded that, despite there being no verbalised declaration or minute:

The details of the original pension scheme had been before the board. The variations to be effected were detailed and the justification of them, in money terms, was discussed and these matters were, I think, sufficiently recorded in the papers which the board members had. Whatever be the degree of particularity of disclosure required by [s 123 of the Companies Act], it was in my opinion complied with in this case.

In the present case, it was apparent from what was said and done at the relevant board meeting what the interest of Sir Theo Kelly was. In my opinion the section was complied with.[60]

218 Of course, JRA gave no evidence of any memory of any such conversation at the meeting and this is another example of:

(a) the unfairness faced by a party defending an historical claim; and

(b) a question in respect of which the evidence of Doug Farrelly, Nola Hancock and certainly RWA may have cast a different complexion.

However, these matters are not argued before me and given my findings with respect to the statutory limitation period and laches, it is not appropriate that I make any final determination.

219 Similarly, an issue could arise as to whether a declaration by JRA to RWA could be sufficient. In Adrenalin International Powersports Pty Ltd v John Caines Management Pty Ltd,[61] Marshall J held that a director's disclosure to another director who was being accused of taking advantage of a conflict could not satisfy the relevant disclosure requirements under s 194 of the Corporations Act 2001 (Cth). His Honour said:

[I]t would hardly have been necessary, or sufficient, for [the only two directors] to notify each other of their conflict. Where the only two directors of a company are both accused of taking advantage of the conflict and profiting from their position, it would be perverse that they could authorise their own breach pursuant to powers in the constitution.[62]

220 In Short v Crawley (No 30),[63] White J noted the force of this argument but concluded that 'the better construction of the articles is that they apply according to their terms'. His Honour opined:

In my view, where the conditions of the articles are complied with, the transaction in which the directors are interested is not invalidated even if all of the directors have a personal interest in the transaction, provided that the directors comply with their obligations to act with due diligence, in good faith in the best interests of the company, and for proper purposes. The articles do not modify those obligations.[64]

221 Again, as this matter was not argued, I do not consider it appropriate or necessary for me to express a concluded view.

222 Since on or about 15 July 1998, Baronja has been a registered proprietor of the Baronja Regency Unit.

223 Baronja's purchase of the Regency Units was pursuant to a contract exchanged on 28 May 1998 with the vendors Sutomo and Anggraini, which provided for a price of $1 million.

224 The acquisition cost of the purchase of the Regency Units was $1,044,363.98 ('the Regency Amount') calculated, according to a handwritten Baronja working document, as follows:

225 The settlement cheques totalling $901,353.53 were purchased from the National Australia Bank by JRA with cheques drawn on Preston Motors. The stamp duty and legal costs, being $43,010.45, were also paid by cheques drawn on Preston Motors. Accordingly Preston Motors paid the sum of $944,363 at settlement.

226 The Preston Motors intercompany loan ledger records that it reduced its loan from F&G, in the sum of $944,363, by each of the above sums it paid at settlement.

227 The balance sheet of Baronja as at 30 June 1999 records a loan from F&G as $1,044,364 being the amount reimbursed to Preston Motors plus the deposit. The relevant entries are as follows:

228 In the joint expert report, the experts agree that the records of Baronja and F&G record the following:

(a) The loan from F&G to Baronja with respect to the acquisition of the Regency Units was included in the sum of $3,853,462 shown as 'Loan Payable to F&G'. This conclusion arises principally from the fact that the loan account did not exist before financial year 1999.

(b) Baronja recorded an interest expense in respect of its liability to F&G:

(i) from March 2000 to 30 June 2001 at 8% or an average of $23,211 per month;[65] and

(ii) for financial years 2002 to 2005 an amount of $30,000 per month.

These amounts were capitalised and allocated to F&G's account 3182, which was entitled 'Loan to Baronja'.

(c) In financial year 2005, the loan from F&G to Baronja was reduced to $153,671, as at 30 June 2005 (by a payment of $6,038,533 on 20 June 2005).

229 In fact, a further 14 monthly payments, totalling $420,000, were made over financial years 2006 and 2007, which took the Baronja loan account with F&G into credit of $272,097 (after interest adjustments) as at 30 September 2007. Geraldine Bergmuller repaid this credit by cheque enclosed in a letter dated 25 February 2008.

Was the loan of the Regency Amount not in the best interests of Preston Motors and/or F&G?

230 It was submitted on behalf of the plaintiffs that the loan to Baronja was not in the interests of Preston Motors or F&G because Baronja:

(c) did not provide any interest, equitable or otherwise, in the Regency Units; and

(d) did not otherwise compensate or give sufficient consideration to Preston Motors or F&G.

231 Further, it was submitted that the loan was provided to Baronja on very favourable terms, which would most likely not have been available from an external financier.

232 On behalf of the first defendant, it was submitted that the loan of the Regency Amount made by F&G to Baronja was in the interests of F&G because it was a loan made on commercial terms that was repaid by Baronja. Further, it was submitted that the acquisition was the consolidation of existing investments in the Regency development held by Baronja; and the transaction was consistent with the Auswild accounting practice in that it involved the acquisition of benefits by family members using company funds.

233 The second to fifth defendants also submitted that the loan of the Regency Amount was in the interests of Preston Motors and F&G. In particular, it submitted, in response to the plaintiffs' submissions, as follows:

(a) The complaint about the failure to provide any interest in the Regency Units is inconsistent with the allegation that the Regency Amount was a loan.

(b) The allegation of no compensation overlooks the fact that interest was paid.

(c) The loan agreement was sufficiently recorded in inter-company loan accounts and there was no pleaded case or evidence to support a finding that the 8% was not 'sufficient consideration'.

234 On behalf of the plaintiffs, it was submitted that the records of Baronja and F&G did not show that the loan was repaid by Baronja, and if it was repaid at all, it was repaid by Auswild Securities. In particular, the plaintiffs relied upon the fact that the Electronic Payment Receipt for the payment of $6,038,533.45 made on 20 June 2005 records the payer as 'Auswild Securities - 130614'.

235 I am satisfied that the Regency Amount was fully repaid, with interest, to F&G ‑ - for the following reasons:

(a) The fact that the repayment was effected through the accounts of Auswild Securities does not affect the fact that F&G was repaid the Baronja loan of the Regency Amount together with interest.

(b) In this proceeding, there is no allegation that the payment by Auswild Securities was made in breach of fiduciary duties or otherwise. In any event, I would not be prepared to infer any impropriety in circumstances where the records of inter-company arrangements are now quite incomplete.

(c) I accept the evidence of Ms Hennessy, Mr Silvia and Mr Stone with respect to the repayment of the loan for the Regency Amount.

236 In summary, the evidence identified by the experts in their joint report supports a finding that the Regency Unit was purchased by Baronja through the following transactions:

(a) The payments made at settlement were paid by Preston Motors.

(b) F&G reimbursed Preston Motors for the settlement payments by reducing the amount owed by Preston Motors under its loan account.

(c) F&G loaned the Regency Unit acquisition costs to Baronja at an interest rate of 8% per annum.

(d) Baronja repaid the principal and capitalised interest by a payment through Auswild Securities in 2005.

(e) The arrangements between Baronja and Auswild Securities are unknown.

237 I am not satisfied that the loan to Baronja of the Regency Amount was not in the interests of Preston Motors or F&G, in substance, for the reasons contended for by the defendants.

(a) Preston Motors was reimbursed for the settlement payments by a reduction in its loan account with F&G;

(b) there is no evidence to support the proposition that the loan of the Regency Amount by F&G was on favourable terms; and

(c) the evidence is that F&G was repaid the Regency Amount with interest at 8%.

239 On the basis of the above findings, I consider that the plaintiffs' allegations of breaches of the diligence duty, improper purpose allegation and fraud must also fail.

(a) is JRA liable to account or pay equitable compensation?

(b) is Baronja liable to account for the Baronja Regency Units?

240 Baronja, during the relevant period, was owned as to 50% by JRA and 50% by RWA. In approving the loan, JRA allowed his duty as a director of F&G to conflict with his interest as a shareholder in Baronja.

241 However, the plaintiffs' case was based on the allegation that Baronja did not repay the Regency Amount. No pleading or submission was directed to how a profit to Baronja or JRA could be identified, if the Regency Amount was repaid with interest.

242 Given my findings that the Regency Amount was loaned by F&G with an obligation to pay interest at 8%; and that the full amount of the loan plus interest was repaid, the plaintiffs have not proved any advantage obtained by JRA or Baronja; or any damage to Preston Motors or F&G arising out of the loan of the Regency Amount.

243 With respect to the attenuation clause, I repeat my comments made in relation to the Carlisle loan.

Was the purchase of Unit 5 of the Beresford property in the best interests of F&G?

244 By Transfer of Shares dated 28 February 1991, Beatrice Nethery transferred 6,000 'E' class shares in Rosebay Esplanade Properties Pty Ltd, which related to occupation rights to Unit 5, to Raymond Auswild in consideration of the sum of $215,000.

245 By letter dated 27 February 1991 to Raymond Auswild, his solicitors, Gordon & Johnstone, enclosed a 'settlement sheet', which set out the following instructions with respect to the settlement of the purchase:

Levy for year $2,400 (paid) Purchaser allows 122 days $ 802.19

246 F&G's cash payments ledger records the fact that it made the following relevant payments with respect to the acquisition of Unit 5 :

247 The F&G/Midlands loan account ledger shows F&G making the following payments, totalling $222,289 ('the Unit 5 acquisition costs'), in reduction of its debt owed to Midlands Finance:

248 Raymond Auswild's individual statement of assets for financial year ending 30 June 1991 adds Unit 5 at a value of $222,289. There are no obvious corresponding liability or loan account movements noted in his individual statement for that year to account for the Unit 5 acquisition, but in the same period, Raymond Auswild's reconciliation in the Auswild family financial statements shows that RWA made a gift to him of $200,827, which substantially accounts for the increase of Raymond Auswild's assets in financial year ending 30 June 1991 of $227,610.

249 The plaintiffs submit that the payment made by F&G for the purchase of the shares with respect to Unit 5 was not in the interests of F&G because Raymond Auswild did not pay F&G for the Unit 5 acquisition costs.

250 I am not satisfied that F&G did not receive consideration for the acquisition costs of Unit 5.

251 The records with respect to the transaction are not complete, which is unsurprising since the transaction took place 23 years prior to this proceeding being filed. However, the evidence points clearly to the Unit 5 acquisition costs paid by F&G as being set off in reduction of the amount due by F&G to Midlands Finance. In the joint expert report, Mr Stone and Mr Silvia agree stating:

The payment of the Unit 5 acquisition costs by Finance & Guarantee was offset against Finance & Guarantee's liability to Midlands Finance, thereby reducing the amount it owed to Midlands Finance.

252 Although it cannot be established with certainty how Raymond Auswild paid for the Unit 5 acquisition costs, Mr Stone and Mr Silvia agree as follows:

In considering the change in Raymond Auswild's net wealth from FY90 to FY91, it is apparent that he received a gift of $200,827 from RWA. The Experts infer that the gift together with his net income (per tax return) might have been used to repay Midlands Finance's Unit 5 Acquisition Costs, however we do not have access to records which provide the specific details.

On the available evidence, I consider the inference drawn by the experts is reasonable.

253 The experts were unable to determine how the reduction in the F&G/Midlands loan account was accounted for in Midlands' financial statements; but that is not in issue in this proceeding. The claims made in this proceeding are, inter alia, on the basis that the transaction was not in F&G's interests because it was not repaid. I am satisfied that F&G reduced its loan account with Midlands Finance, which was in the interests of F&G.

254 In summary, the evidence identified by the experts in their joint report supports a finding that the Unit 5 was purchased by Raymond Auswild through the following transactions:

(b) F&G was reimbursed by a reduction in its loan account to Midlands Finance by the amount of the Unit 5 acquisition costs.

(c) The Unit 5 acquisition costs were most likely accounted for, in Midlands Finance's accounts, through a gift from RWA.

255 The plaintiffs' claims against JRA alleging fraud and breach of his fiduciary and equitable duties were all based on the allegation that F&G was not paid for the sale of Unit 5. As a result of the finding in the previous paragraph, the plaintiffs' claims against JRA alleging breaches of his duties to F&G; and the restitution claim against Raymond Auswild must all fail.

256 With respect to the claim based on a conflict of interests, for the reasons explained with respect to Sutton Farm:

(a) it may not have been necessary for the plaintiffs to base their claim on the non-payment of the Unit 5 Acquisition Costs;

(b) the approval by JRA of F&G funds being applied initially for the payment of the Unit 5 Acquisition could give rise to a conflict of interests; but

(c) in the circumstances, the plaintiffs have failed to prove that F&G suffered any loss or JRA obtained any benefit; and the plaintiffs have made no claim to set aside the transaction.

Was the purchase of Unit 7 of the Beresford property in the best interests of F&G?

257 By transfer of shares dated 18 February 1992, Miss Keitha McClure transferred 8,000 'G' class shares in Rosebay Esplanade Properties Pty Ltd, which related to occupation rights for Unit 7 to JRA in consideration of the sum of $250,000.

258 The purchase price of $250,000 was paid by F&G, which it funded by borrowing the money back from Ms McClure with interest payable monthly at the rate of 10% per annum.

259 The F&G cash payments ledger records the following payments totalling $8,216 with respect to Unit 7:

260 The following payments made by F&G with respect to Unit 7 ('the Unit 7 acquisition costs') are reflected in the F&G/Midlands loan account ledger as being payments in reduction of the debt by F&G to Midlands Finance:

261 On behalf of the plaintiffs it was submitted that the payments made by F&G with respect to Unit 7 were not in the interests of F&G because JRA did not repay the Unit 7 acquisition costs to F&G.

262 I reject this submission. I am satisfied that the payments by F&G, including the debt to Ms McClure, were in partial satisfaction of the debt due by F&G to Midlands Finance. Ms Hennessy, Mr Stone and Mr Silvia agreed as follows:

(a) The acquisition of Unit 7 was recorded in the records of F&G as follows:

1. A decrease (debit) to the existing liability to Midlands Finance Co; and
2. Creation of a liability (credit) to Hazel McClure due from Finance & Guarantee.

(b) The payment of the Unit 7 acquisition costs by F&G was offset against F&G's liability to Midlands Finance Co, thereby reducing the amount it owed to Midlands Finance Co.

263 The liability of JRA, arising from this transaction, was to Midlands Finance - not F&G. Accordingly, although it is not necessary, for the purposes of dealing with the allegations of breaches of duty to F&G, I also consider it probable that the Unit 7 acquisition costs were accounted for in the books of Midlands Finance by the movement in JRA's loan account from a credit of $33,495.13 to a debt of $234,708.13 during financial year 1992.

264 The Midlands Finance statements for financial year ending 30 June 1992 record that, during the period of the year, JRA's loan account had gone from a credit of $33,495.13 to a debt of $234,708.13, indicating total net drawings during the year of $268,203.26. For the financial years ending 1991 to 1994, the net movements in JRA's loan account with Midlands Finance were as follows:

Accordingly, JRA's drawings in financial year 1992 were approximately $260,000 more than his average drawings during the financial years 1991, 1993 and 1994. On the basis of the fact that the increase in the loan account of $268,203 occurred in the same year he acquired Unit 7, I accept the evidence of Mr Stone and Mr Silvia that '[t]he purchase of Unit 7 in FY92 appears to have been allocated to his loan account with Midlands Finance'.

265 In summary, the evidence identified by the experts in their joint report supports a finding that Unit 7 was purchased by JRA through the following transactions:

(b) F&G was reimbursed by a reduction in its loan account to Midlands Finance by the amount of the Unit 7 acquisition costs.

(c) The Unit 7 acquisition costs were most likely accounted for, in Midlands Finance's accounts, through an increase in JRA's loan account with Midlands Finance.

266 The plaintiffs' claims against JRA alleging fraud and breach of his fiduciary and equitable duties were all based on the allegation that F&G was not paid for the sale of Unit 7. As a result of the finding in the previous paragraph, the plaintiffs' claims against JRA alleging breaches of his duties to F&G; and the restitution claim against JRA must all fail.

267 With respect to the claim based on a conflict of interests, I repeat the comments I made in relation to Unit 5.

Were the payments of wages to Raymond Auswild, Barbara Auswild and Keith Kearns not in the interests of F&G, Preston Motors, Commonwealth Motors and/or Holdings (together, 'the Payment Companies')?

268 The plaintiffs allege that RWA and JRA caused the following employment payments to be made to the following persons:

(a) Barbara Auswild in the period 1987 to July 2000 received Employment Payments of the following sums:

(i) $340,648 styled as salary or wages from Preston Motors;

(ii) $37,500 styled as salary or wages from Preston Motors Holdings;

(iii) $18,683 styled as reportable fringe benefits, from Commonwealth Motors;

(b) Keith Kearns in the period 1988 to 2006 received Employment Payments of the following sums:

(i) $596,094 styled as salary or wages from Commonwealth Motors; and

(ii) $62,979 styled as reportable fringe benefits from Commonwealth Motors;

(c) Raymond Auswild in the period 1985 to 2002 received Employment Payments of the following sums:

(ii) $42,808 styled as reportable fringe benefits from Preston Motors.

269 It is further alleged that by causing or permitting the Employment Payments:

(a) JRA breached the 'no conflicts rule' and the 'no profits rule';

(b) JRA breached his fiduciary duties as a director to act in the best interests of the respective companies;

(c) JRA breached his duties as a director to act for a proper purpose;

(d) JRA's conduct involved a transgression of the ordinary standards of honest behavior;

(e) Barbara Auswild, Raymond Auswild and Keith Kearns were liable as volunteers to account for the value or traceable proceeds of the employment payments. All are obliged to make restitution or pay damages to the respective companies in the sum of such payments;

(f) JRA knowingly assisted RWA in similar breaches to those alleged above against JRA; and

(g) Barbara Auswild and Keith Kearns are liable as recipients of the employment payments knowing that they were made in breach of the above fiduciary duties owed by JRA and RWA.

270 On behalf of the plaintiffs it was submitted that the employment payments were made to the recipients when:

(a) none of them were employed by the Payment Companies; and

(b) none of them provided services to the Payment Companies.

271 On behalf of the first defendant it was submitted as follows:

(a) It was a long standing practice of the Auswild Group to employ and pay wages to both sides of the family. So much was conceded by James Bergmuller but this claim was pursued by the plaintiffs because of the 'unproven and unsubstantiated suspicion' that members of the RWA Family received more benefits than the JFJ Family.

(b) Until the policy of paying benefits to the family members by wages changed in 2003, the directors considered that paying wages to family members was in the interests of the Payment Companies. The Court should not second guess such a judgment in circumstances where:

(i) the companies were owned by and operated for the benefit of family members;

(ii) members of both sides of the family received wages and there is no allegation or evidence that those payments were unequal as between the two families; and

(iii) the practice had been in place for many years and benefitted all shareholders and both sides of the family.

272 There was evidence that Mr Kearns and Barbara Auswild did perform services to the Payment Companies. In particular:

(a) Mr Kearns acted as a general representative of the Auswild family in Canberra where the Auswild Group owned and operated a car dealership. That role was general in nature but included marketing of the car businesses to friends and contacts, inspecting and looking after properties in the region, and driving Sir James, RWA and other family members when they travelled to Canberra.

(b) Barbara Auswild worked at least part time as RWA's personal assistant. She ran errands, undertook administrative work for RWA (and Sir James when he was alive), prepared correspondence, accompanied RWA on interstate trips, and acted as his driver.

273 On behalf of the second to fifth defendants, it was submitted that the making of the payments were in the interest of the Payment Companies for the following reasons:

(a) The plaintiffs do not allege that any one of Barbara Auswild, Keith Kearns or Raymond Auswild was not employed by the Payment Companies. References, in the particulars to the statement of claim, to group certificates, tax returns and tax assessments, prove that each were in fact employees. As employees, the Payment Companies were obliged to make the employment payments and whether or not each were called upon to provide services was irrelevant.[66]

(b) As the plaintiffs make no allegation against JRA or RWA for causing or permitting the Payment Companies to employ the payees, the making of the Employment Payments were an obligation of, and in the interests of, each of the Payment Companies.

274 In my opinion, the plaintiffs have failed to establish that the Employment Payments were not made in good faith and in the interests of the Payment Companies, for the following reasons.

275 I am satisfied that the Employment Payments were part of the system of the distribution of the profits from Preston Motors Group to the RWA Auswild Family and the Sir James Auswild Family. This conclusion is based on the following evidence:

My mother received payments styled as employment payments for the period she was a director of Preston Motors Group companies from August 2001, as well as for the years 1998, 1999 and 2000. Additionally, after I finished school and started my tertiary studies, I received a regular sum whilst I was studying, that was styled as a traineeship payment (and I started at Essendon Holden as a 'dealer principal' in 2005).

His Employment Payments, made in 1997 to 2001, totalled $77,231; and Geraldine Bergmuller received $140,924 as Employment Payments in the same period.

(b) By email of 5 January 2004 to Geraldine Bergmuller, Joe Hart attached an email recording salary payments and dividends paid to members of the Sir James Auswild Family. The salary payments included the following:

(c) By email dated 16 September 2003 to Angela Tenace and Jo Hart, Doug Farrelly gave the instructions that, effective 30 September 2003, all payments should cease to the 'employees' being Barbara Auswild, Elisabeth Auswild, James Bergmuller, Simone Ferry (Hunt), Nikki Alekna and Martina Ganley (Parker). It also noted the new pay rate for JRA and Geraldine Bergmuller as from 1 October 2003 was $100,000 per annum.

(d) By letter dated 11 September 2003 to RWA, Doug Farrelly confirmed the agreement of the directors on 5 August 2003 to change profit distribution to shareholders by way of salaries and expense allowance to the payment of dividends. The full content of the letter is as follows:

At the Directors meeting held in Rose Bay on the 5 August your directors agreed that the current method of profit distribution to shareholders by way of salaries and expense allowances would be discontinued as at 30 September and would be replaced by the payment of fully franked dividends on a quarterly basis.

The only family members receiving salaries will be James Auswild and Geraldine Bergmuller who will both receive Directors Fees as they are required to give their personal guarantees in respect of the Group's activities and are both actively involved in the operations of the group.

Dividends payments have been calculated so as to ensure that you still receive the same amount net of tax as you were receiving under the previous system and the first of these dividends will be paid in January 2004 and quarterly from that date forward.

These dividends will be fully franked in your hands and Preston Motors will retain an amount equal to the balance of tax (calculated at your individual personal income tax rate) to be paid to the Tax Office as and when you receive your assessments. Thus you will not have to worry about taxation implications for these dividends at all.

There is a substantial cost saving to Preston Motors as these dividend payments are not subject to payroll tax, work cover insurance or fringe benefits tax.

If you have any further questions about this change please do not hesitate to contact Joe Hart or myself and we can provide any explanations that are necessary.

A copy of this letter was sent to Martina Parker, Simone Ferry, Nikki Alekna, Geraldine Bergmuller, Joe Hart, Vince Choy (a partner of Auswild & Co) and JRA.

276 It was not submitted on behalf of the plaintiffs that 'profit distribution to shareholders by way of salaries and expense allowances' was not in the interests of the Payment Companies. Further, no claim was made by the Payment Companies in this proceeding to recover salaries paid by way of profit distribution to members of the Sir James Auswild family. It appears the real concern was, as James Bergmuller said in evidence, 'My understanding is that both sides did get a benefit. The concern in issue for us was that one side got more than the other'.[67]

277 In this proceeding, the plaintiffs do not allege that RWA or JRA caused profit distributions to shareholders to be made otherwise than in accordance with their respective entitlements. In any event, there is no evidence in support of that proposition. The evidence establishes that there was in existence a system for the tracking of benefits paid to the family and that Nola Hancock was responsible for maintaining that ledger. JRA gave evidence of the existence of the Hancock ledger and that its 'objective was to ensure that over time, all members of the Auswild Family benefitted equally'. Barbara Auswild referred to the Hancock ledger as the 'even up book'.

278 The agenda for the meeting of 5 August 2003 noted that the directors 'In Attendance' were JRA, RWA, Geraldine Bergmuller and Doug Farrelly, with Joe Hart in attendance as the secretary. The letter of 11 September 2003 confirms, in terms, that the salaries were 'the current method of profit distribution to shareholders' and does not suggest there was any issue about the way in which the 'profit distribution' was effected.

279 The inability of the defendants to prove that the profit distributions to shareholders were properly distributed is unsurprising after the passage of many years and the absence of critical evidence such as the Hancock ledger. However, this inability does not prove the contrary proposition.

280 In the circumstances, I am not satisfied that the Employment Payments were made other than in good faith and in the best interests of the Payment Companies.

281 Further, I accept the submissions of the second to fifth defendants that it was not alleged that Barbara Auswild, Keith Kearns and Raymond Auswild were not employed by the Payment Companies; and there was no evidence that they were not entitled as employees to the wages paid. Neither was there any evidence proving any overpayment or any basis for calculating an overpayment.

282 As a result, the plaintiffs' claims of breaches of duties to the Payment Companies and fraud by RWA and JRA and the claims based on restitution and recipient liability against the payees must also fail.

283 On behalf of the first defendant it was submitted as follows:

(a) The plaintiffs' claims against JRA on the basis of breaches of his fiduciary duties as a director and knowing assistance of breaches by his father are subject to a 6 year statutory time bar,[68] applied by analogy.

(b) A court will apply a statutory time bar by analogy unless doing so would be unconscionable or unjust ('the Equitable Exception').

(c) In determining whether the Equitable Exception applies, the Court focusses on whether the plaintiff was prevented from commencing an action within the time by reason of:

(i) fraudulent conduct on the part of the defendant in the right of action; or

(ii) fraudulent concealment of the cause of action.

In both cases, there must be a consciousness on the part of the defendant that what is being done is wrong or that to take advantage of a particular situation involves wrongdoing.

(d) Insofar as Levy v Watt[69] expresses the obiter opinion that s 27(b) does not require 'moral turpitude', that view is unsound and contrary to other intermediate Court of Appeal authority.

284 On behalf of the second to fifth defendants, it was submitted as follows:

(a) The plaintiffs' claims are subject to the statutory time bar of 6 years by analogy unless the defendants' reliance on the statute would be unconscionable.

(b) The grounds upon which equity declines to permit a defendant to rely upon a statutory bar by analogy requires a consciousness on the part of a defendant that what is being done is wrong or that to take advantage of a particular situation involves wrongdoing. Accordingly, if a defendant has 'no inkling' of any breach of duty, equity will follow the law and apply a time bar.

285 In the present case, the Court should find that JRA had no inkling that he had acted in any way that was wrong - for the following reasons:

(a) It was not put to JRA in cross-examination that he was conscious of his wrongdoing at the time of any of his alleged breaches or that he became aware of any wrongdoing subsequently.

(b) There was no evidence of any complaint or suggestion of wrongdoing being made to JRA in the decade or more after Geraldine Bergmuller became a director of the plaintiff companies.

(c) It was not put to JRA that he had any knowledge of, or was in any way responsible for, any paucity in the provision of information by Auswild & Co or others during the course of Geraldine Bergmuller's investigation of past transactions after she became a director in 2003.

(d) The Bergmuller/Parker side of the family made a deliberate decision to stand by and not disclose the fact that there might be a claim during negotiations between the Webb and Auswild family interests. At no point did Geraldine Bergmuller, James Bergmuller, Chris Stoneman or anyone pose questions to JRA or RWA about the subject transactions.

(e) A quarter of a century or more elapsed between the date of the Previous Guarantees and the amendment of the plaintiffs' claim to complain about those transactions. Such claims were first made during the opening of the plaintiffs' case. In the meantime, 20 years or more were allowed to lapse between the dates of the Carlisle Loan, the DMA, the Telasava and Rossfield Loans and the transfers of the Seascape Units, Sutton Farm and the Regency Unit and Beresford apartments. The youngest of the Wages and Expenses payments took place in 2006. That is almost eight years before the Company Proceedings were commenced on 29 August 2014.

286 Counsel for the plaintiffs conceded that the claims pleaded against JRA for breach of fiduciary duties or for knowing assistance in RWA's breaches of fiduciary duty seeking equitable damages or account of profits are sufficiently similar to common law claims that the statutory 6 year limitation period would apply by analogy.

287 Counsel for the plaintiffs submitted as follows:

(a) To avoid the statutory time bar, the plaintiffs relied upon s 27 of the LAA which required the plaintiffs to establish either:

(i) fraudulent conduct as an element of the cause of action; or

(ii) conduct consisting of active concealment of the right of action; and the conduct must be engaged in with a consciousness that what was being done was wrong or that to take advantage of a particular situation involved wrongdoing.

(b) Any reliance on a time bar by the defendants would be unconscionable in the circumstances of this case because the conduct of JRA and RWA has been dishonest; and the defendants had obstructed the plaintiffs' attempts to obtain the necessary information to file proceedings.

288 It was further submitted that it would be unconscionable for the defendants to rely upon the statutory time bar for the following reasons:

(a) Each of the fiduciary breaches, knowing assistance and knowing recipient claims are based on knowing involvement by the defendants and constituted consciousness of wrongdoing by that defendant.

(b) JRA's conduct in participating in the fraudulent design of his father was a transgression of ordinary standards of honest behaviour.

(c) The Sir James family was in a position of special disadvantage at the time of the breaches because its members had no control over the plaintiff entities at the relevant times.

289 Although s 27(a) requires that fraud be an element of the cause of action, the provision includes both claims at law and in equity that were based on fraud.[70]

290 It is well established that, as an application of the maxim that equity follows the law, where equity provides a remedy that is analogous to a remedy at law (which is subject to a limitation period), a court of equity acts by analogy to the statute and imposes the same limitation period on its remedy. The classic exposition of this principle was by Lord Westbury in Knox v Gye:

For where the remedy in Equity is correspondent to the remedy at Law, and the latter is subject to a limit in point of time by the Statute of Limitations, a Court of Equity acts by analogy to the statute, and imposes on the remedy it affords the same limitation. This is the meaning of the common phrase, that a Court of Equity acts by analogy to the Statute of Limitations, the meaning being, that where the suit in Equity corresponds with an action at Law which is included in the words of the statute, a Court of Equity adopts the enactment of the statute as its own rule of procedure.[71]

291 As a court of conscience, equity would apply the statutes by analogy unless the defendant, by its unconscionable conduct, denied the plaintiff the opportunity to sue in time ('the Equitable Exception').[72] In Bulli Coal Mining Co v Patrick L Osborne,[73] the Privy Council explained that a statutory limitation should be imposed in the Chancery Division 'unless there was some equitable ground for repelling the application of the statute'.[74]

292 More recently, in Sheldon v RHM Outhwaite Ltd,[75] Sir Thomas Bingham MR explained the Equitable Exception as follows:

The equitable exception to the old and unqualified statutory limitation rule rested on the principle that a defendant whose unconscionable conduct had denied the plaintiff the opportunity to sue in time should not in conscience be permitted to plead the statute to defeat the plaintiff's claim provided the claim were brought timeously once the plaintiff learned or should have learned of it.

293 As Meagher JA explained in Gerace v Auzhair Supplies Pty Ltd (in liq),[76] equity will prevent a defendant from relying on the statutory limitation if it would be unconscionable for the defendant to do so. He added:

The description of such a ground, or the conduct giving rise to or constituting it, as unconscionable or unconscientious leaves to be identified the principles according to which equity justifies that conclusion.[77]

294 The two main categories in which equity will not permit a defendant to plead a statutory limitation by analogy are:

(a) when the action is one alleging fraud, or when fraud is an element in the cause of action, in which case time does not run until the discovery of the fraud; and

(b) when the cause of action is one which did not involve fraud, but its existence was fraudulently concealed by the defendant, in which case time does not begin to run until both the concealment is discovered and the cause of action ascertained.[78]

Section 27 of the Limitation of Actions Act 1958 ('LAA')

295 Sub-sections 5(1)(a) and (8) of the LAA relevantly provide as follows:

(1) The following actions shall not be brought after the expiration of six years from the date on which the cause of action accrued -

(a) Subject to subsections (1AAA), (1AA) and (1A), actions founded on simple contract (including contract implied in law) or actions founded on tort including actions for damages for breach of a statutory duty;

...

(8) This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the Court by analogy in like manner as the enactment corresponding to that provision was applied before the repeal of that enactment by the Limitation of Actions Act 1955.

296 It should be noted that s 5(8) expressly acknowledges the legislative lacuna with respect to limitation periods for claims in equity; but preserves equity's application of such limitation periods by analogy.[79]

27 Postponement of limitation periods in case of fraud or mistake

Where, in the case of any action for which a period of limitation is prescribed by this Act -

(a) the action is based upon the fraud of the defendant or his agent or of any person through whom he claims or his agent; or

(b) the right of action is concealed by the fraud of any such person as aforesaid; or

(c) the action is for relief from the consequences of a mistake -

the period of limitation shall not begin to run until the plaintiff has discovered the fraud or the mistake, as the case may be, or could with reasonable diligence have discovered it: ...

298 In Levy v Watt,[80] Santamaria JA concluded that the principles which developed the Equitable Exception inform the proper interpretation of s 27(b) of the LAA.[81] In summary, his Honour's statutory construction analysis proceeded as follows:

(a) With the merger of law and equity in the 1870s, a question arose as to how the equitable principles in relation to fraud and fraudulent concealment applied to actions at law.

(b) This uncertainty continued up until the 1930s and resulted in a number of inconsistent decisions, which were cited by Santamaria JA.[82]

(c) In the Law Revision Committee Report published in 1936, under the heading 'The Effect of Concealed Fraud', the Committee stated that '[i]t is obviously unjust that a defendant should be permitted to rely upon a lapse of time created by his own misconduct'; and recommended as follows:

[T]hat in all cases to which the Statutes of Limitation apply or are applied by analogy, where a cause of action is founded on fraud, committed by the defendant or his agent, or some person through whom he claims, or where a cause of action unconnected with fraud is fraudulently concealed from the plaintiff by the defendant or his agent, or someone through whom he claims, the right of the plaintiff to sue shall be deemed to have first accrued at the time when he discovered such fraud or could with reasonable diligence have discovered it ...[83]

(d) Following the report of the Law Revision Committee, the Limitation Act 1939 (Eng) ('the 1939 Act') was enacted. The 1939 Act included s 26, which provided for the postponement of the limitation period where:

(i) the action was based upon the fraud of the defendant; or

(ii) the right of action was concealed by the fraud of the defendant.

(e) In 1949, the English Court of Appeal, in Beaman v ARTS Limited,[84] interpreted s 26 of the 1939 Act and determined that:

(i) s 26(a) applied only where fraud was an essential element in the cause of action; and

(ii) the interpretation of 'fraudulent concealment', in s 26(b) was informed by the authorities, which had considered the Equitable Exception. Lord Greene MR said:

It is not, I think a right construction of the statute to confine 'fraudulent concealment' to what [counsel for the defendants] described as 'fraud in the ordinary sense'. This, as far as I understood him, meant fraud which, in its nature, is sufficient to give rise to an independent cause of action. This definition would exclude the wide range of conduct which before the statute was regarded in equity as so dishonest as to prevent the Statute of Limitations (or its analogous application in equity) from coming into operation.[85]

Similarly, Somervell LJ considered that s 26(b) should be interpreted consistently with the Equitable Exception, stating:

I think 'fraud' in this sub-section should have the same meaning as 'fraud' in the Real Property Limitation Act, 1833, and in the general equitable principles on which this section of the Act is based and which it extends. Where a word has been construed judicially in a certain legal area, it is, I think, right to give it the same meaning if it occurs in a statute dealing with the same general subject-matter unless the context makes it clear that the word must have a different construction. ... In considering what 'concealment' has to be established under para. (b), assistance is for the same reason obtainable from a case, such as Bulli Coal Mining Co v Osborne where general equitable principles on this topic were considered by the Privy Council.[86]

(f) In 1955, the Victorian Parliament enacted s 27 of the LAA largely in the same form as s 26 of the 1939 Act. Santamaria JA observed that, by that time, s 26 of the 1939 Act 'had already been authoritatively construed by the Court of Appeal (Eng) in Beaman. It seems reasonable to presume that [Victorian] Parliament also intended to accept that construction'.[87]

299 Santamaria JA concluded that Beaman 'provided authoritative guidance on the interpretation of the concept of fraudulent concealment in s 27(b)';[88] and referred to the following description by Brightman J in Bartlett v Barclays Bank Trust Co Ltd (No 1):

'Fraud', in the context of section 26(b), does not mean common law fraud or deceit. But it does seem to envisage conduct which, if not fraudulent in the more usual sense, is unconscionable having regard to the relationship between the parties ... 'Fraud' is used in the equitable sense to denote conduct by the defendant or his agent such that it would be against conscience for him to avail himself of the lapse of time.[89]

300 In support of this conclusion, Santamaria JA referred to a number of authorities dealing with s 26(b) of the 1939 Act including the following:

(a) Kitchen v Royal Air Force Association, in which Lord Evershed MR adopted the interpretation that the subsection would operate if reliance on the statutory limitation was unconscionable, stating:

But it is now clear that the word 'fraud' in the section which I have read, is by no means limited to common law fraud or deceit. Equally, it is clear, having regard to the decision in Beaman v ARTS Ltd that no degree of moral turpitude is necessary to establish fraud within the section. What is covered by equitable fraud is a matter which Lord Hardwicke did not attempt to define 200 years ago, and I certainly shall not attempt to do so now, but it is, I think, clear that the phrase covers conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the other.[90]

(b) In Tito v Waddell, Megarry VC considered that unconscionability was the touchstone for the operation of the subsection, stating:

As I have indicated, the word 'fraud' is here used in a sense which embraces conduct or inactivity which falls far short of fraud at common law ... Indeed, as the authorities stand, it can be said that in the ordinary use of language not only does 'fraud' not mean 'fraud' but also 'concealed' does not mean 'concealed', since any unconscionable failure to reveal is enough.[91]

301 It remains well settled in England that fraudulent concealment under s 26(b) of the 1939 Act does not require common law fraud and is satisfied if it would be against conscience for the defendant to rely on the time bar.

(a) In Applegate v Moss,[92] Lord Denning MR (with whom Edmund Davies and Megaw LJJ agreed) said:

It has long been settled that 'fraud' in this context does not necessarily involve any moral turpitude: see Beaman v. A. R. T. S. Ltd. It is sufficient if what was done was unconscionable: see Kitchen v. Royal Air Force Association: a test which was applied in the case of a building contract in Clark v. Woor [1965] 1 WLR 650. Those cases show that 'fraud' is not used in the common law sense. It is used in the equitable sense to denote conduct by the defendant or his agent such that it would be 'against conscience' for him to avail himself of the lapse of time. The section applies whenever the conduct of the defendant or his agent has been such as to hide from the plaintiff the existence of his right of action, in such circumstances that it would be inequitable to allow the defendant to rely on the lapse of time as a bar to the claim.[93]

(b) In Cave v Robinson Jarvis & Rolf,[94] Lord Millett stated that Lord Denning MR explained the meaning of the expression 'concealed by the fraud of [the defendant or his agent]' in s 26(b) of the 1939 English Act, prior to the 1980 amendment, in King v Victor Parsons & Co[95] as follows:

The word 'fraud' here is not used in the common law sense. It is used in the equitable sense to denote conduct by the defendant or his agent such that it would be 'against conscience' for him to avail himself of the lapse of time.[96]

302 In Hamilton v Kaljo,[97] McLelland J refused to follow the English authority stating:

For my own part, I would regard it as a misuse of language, and unsound, to apply the statutory expression 'fraudulently' in s 55 to any conduct which did not involve some form of dishonesty or moral turpitude. I see no reason to think that that expression does not carry the same limited connotation as the expression 'fraud' where used in the Real Property Act 1900, s 42 and s 43, and equivalent legislation ...[98]

303 In Graham v Deming No 440 Pty Ltd,[99] Williams J followed the English authorities and adopted the unconscionability test as set out in Applegate v Moss[100] in interpreting the equivalent provision in s 38 of the Limitation of Actions Act 1974 (Qld), stating:

It has been held by the Court of Appeal in England in Applegate v Moss [1971] 1 QB 406 that fraud in the context of s 38 does not even necessarily import moral turpitude. It is enough if the conduct of the defendant is so unconscionable that it would be inequitable to allow him to rely on the Act to bar the plaintiff's claim.

304 In Seymour v Seymour,[101] the New South Wales Court of Appeal decided that the subsection was not confined to common law fraud but was not as wide as conduct that would fall within the description of equitable fraud. Mahoney A-CJ, with whom Meagher JA and Abadee A-JA agreed, said:

In my opinion, the section is not confined to simple common law fraud. It extends to conduct beyond that. On the other hand, it is not, I think, sufficient merely that for the defendant to take advantage of the statute of limitations would be unconscionable or inequitable in the wide sense of these terms. Terms such as unconscionable and inequitable now are used to describe conduct which, in previous times, would not have fallen within them: see Baumgartner v Baumgartner [1987] HCA 59; (1987) 164 CLR 137, 147 and Hibberson v George (1989) 12 Fam LR 725, 731.

Nor, in my opinion, is 'fraudulently' wide enough to include everything which would fall within the description of 'equitable fraud'. Equitable fraud is a doctrine which depends, for this purpose, too much upon nice distinctions which have been drawn in other times: see Snell's Equity , 29th ed (1990) at 550 et seq; Meagher, Gummow & Lehane, Equity: Doctrines and Remedies, 3rd ed (1992) at par 1208; and see the discussion in Logue v Shoalhaven Shire Council [1979] 1 NSWLR 537 at 553. The history of the English legislation was recently reviewed in Sheldon v RHM Outhwaite (Underwriting Agencies) [1996] 1 AC 102: see, eg, at 144, 153.

In my opinion, there must be in what is involved a consciousness that what is being done is wrong or that to take advantage of the relevant situation involves wrongdoing. At least, this is so in the generality of cases. (There is in this as in many things, the problem of dealing with the person who 'closes his eyes to wrong' or is so lacking in conscience that he is not conscious of his own lack of proper standards).[102]

305 In Grahame Allen & Sons Pty Ltd v Water Resources Commission[103] Wilson J referred to both the above statement of Williams J in Graham v Deming No 440 Pty Ltd and the above statement Mahoney ACJ in Seymour v Seymour and noted no difference, stating:

I accept the submission that if it can be inferred that the defendant knew that its conduct was beyond power or that it acted with reckless indifference, then there was ''fraud'' within the meaning of s 38(1) as that provision was interpreted in Applegate v Moss and Seymour v Seymour.[104]

306 In Di Sante v Camando Nominees Pty Ltd,[105] Warren J noted the view of Mahoney ACJ in Seymour v Seymour and said a similar view was expressed in Grahame Allen & Sons Pty Ltd v Water Resources Commission.[106]

307 In my opinion, the weight of authorities referred to above demonstrate that, contrary to Hamilton v Kaljo,[107] fraudulent concealment under s 27(b) does not require proof of common law fraud, constituted as it is by 'actual fraud, personal dishonesty or moral turpitude'.[108]

308 In those circumstances, any divergence in approaches to the interpretation of s 27(b) of the LAA is between fraudulent concealment being constituted by:

(a) conduct by the defendant such that it would be against conscience for it to avail itself of the lapse of time;[109] or

(b) conduct involved with a consciousness of what is being done is wrong; or the taking of advantage of the relevant situation involving wrongdoing.[110]

(a) It can be inferred from the reasons of Wilson J in Grahame Allen & Sons Pty Ltd v Water Resources Commission[111] and Warren J in Di Sante v Camando Nominees Pty Ltd,[112] the difference between these approaches is more apparent than real;[113] and

(b) The observations of Mahoney A-CJ in Seymour v Seymour,[114] requiring consciousness of the wrongdoing, identifies what the Court considered to be a necessary component of the conduct of the defendant for its conduct to be 'so unconscionable that it would be inequitable to allow him to rely on the Act to bar the plaintiffs' claim'.[115] Certainly, it would not be unusual for equity to require findings of knowledge and the taking of advantage, as a condition of equitable relief.[116] In Bartlett v Barclays Bank Trust Co (Nos 1 and 2),[117] Brightman J declined to apply the equivalent section to s 27 of the LAA because he found that the defaulting trustee 'had no inkling that it was acting in breach of trust'.[118]

310 If, in fact, the two identified approaches do represent a divergence, I prefer the detailed statutory construction analysis undertaken by the Court of Appeal in Levy v Watt. As a matter of statutory construction, given the history behind the introduction of s 27 of the LAA, it is difficult to construe the legislative intent in s 27(b) as being other than:

(a) incorporating equitable fraud as recognized in the courts of Chancery in the form of the Equitable Exception; or

(b) an amendment requiring common law fraud.

If the principles, in Seymour v Seymour,[119] are different from the Equitable Exception and represent a middle ground, it is unclear how such a legislative intent can be discerned on the application of the principles of statutory construction.

311 In my opinion, the Equitable Exception will apply, and equity will not permit reliance on a limitation period by analogy, in circumstances where the conduct of the defendant is such that it would be against conscience for it to avail itself of the lapse of time. For it to be unconscientious to so avail itself, the defendant's conduct must involve a consciousness of what is being done is wrong; or the taking of advantage of the relevant situation involving wrongdoing.

312 Accordingly, the meaning of fraud under s 27 of the LAA, will be informed by the above test.[120]

313 Section 27 of the LAA also requires the Court to be satisfied of when the plaintiff:

(b) could with reasonable diligence have discovered it.

314 The plaintiffs conceded that, under the Equitable Exception, time would commence when the plaintiffs had constructive knowledge of the fraud. In my opinion, it was a concession rightly made. In Sheldon v RHM Outhwaite Ltd, Sir Thomas Bingham MR stated that under the Equitable Exception time would run from when 'the plaintiff learned or should have learned of it'.[121] This passage was quoted with approval by Meagher JA, in Gerace,[122] who also observed that, if concealed fraud had been argued, 'it would have been necessary to consider when Auzhair Supplies was first to be taken to have acquired knowledge of the facts giving rise to a right to sue its directors for breaches of duty'.[123]

315 It has been suggested that this is not a requirement for the application of the Equitable Exception. The learned authors of Meagher, Gummow & Lehane's Equity: Doctrines & Remedies state that:

[T]he doctrine of constructive knowledge applied only to a limited extent. For a plaintiff to "discover" such an action, the plaintiff must have either actual knowledge that a 'fraud' has been committed or actual knowledge of facts which give rise to such an action. The possessing of means of knowledge is not enough.[124]

316 The authors cite Betjemann v Betjemann[125] in support of this proposition. In that case, the English Court of Appeal considered that the plaintiff could rely on the concealed fraud of his partner despite the fact that he had the means of discovering the fraud. Lindley LJ acknowledged that in some circumstances 'the statute shall apply if [the claimant] has means of knowledge and has not used them';[126] but held it did not apply between partners because the claimant, although having the means of discovering the fraud, trusted his partner and had no reason to suspect fraud. He stated:

It appears to me that that is the principle which is applicable to a case of this kind of means of knowledge; unless suspicion is proved, and unless the person complaining not only has means of knowledge, but does not choose to avail himself of that means when his suspicion is aroused, it is not ad rem.[127]

317 In my opinion, on a proper reading, Betjemann v Betjemann is consistent with the proposition only that a plaintiff will not be found to have failed to exercise reasonable diligence, where although having the means, he or she has no suspicion of fraud and no reason to make enquiries. In other words, in the circumstances, it could not be said that the claimant 'should have learned of' the fraud at an earlier time.

318 On 9 August 2001, Geraldine Bergmuller was appointed as a director of Preston Motors, Preston Motors (Holdings), Properties and Parts Sales.

319 The minutes of the directors meeting of Preston Motors (Holdings) on 6 August 2002 record the following discussion about the respective branches of the Auswild family's representation on the board:

The composition of the Board was discussed at length and concerns were raised about the family of the Estate of JFJ Auswild not being adequately represented. Lengthy discussions took place on this issue and also in respect of the obligations of directors personal guarantee of the debts of the Company.

It was finally agreed that the Board remain as it currently is and that on the departure from the Board by Mr RW Auswild that no replacement would be made to fill that vacancy and that Mr James R Auswild would become Chairman of the Company.

It was also agreed since both RW Auswild and JR Auswild had given personal guarantees on behalf of Preston Motors, that James R Auswild be released from his guarantees and that Mrs Geraldine Bergmuller replace him with her personal guarantee ...

320 The minutes of the directors meeting of Preston Motors (Holdings) on 1 May 2003 record that RWA stood down as chairman due to ill-health and JRA was appointed as chairman.

321 By undated letter to Geraldine Bergmuller, Tress Cocks & Maddox Lawyers replied to a letter dated 1 June 2003 to advise with respect to a number of matters including the estate of Sir James Auswild. In particular, they advised with respect to the surrender of Lady Auswild's life interest and that there was no impediment to the shares held in the Auswild Group being transferred in accordance with the provisions of Sir James' will.

322 On 6 August 2003, Geraldine Bergmuller was appointed a director of Commonwealth Motors Pty Ltd and County and Building & Investment Co Pty Ltd.

323 By letter dated 11 September 2003 to RWA, Doug Farrelly recorded a resolution of directors on 5 August 2003 with respect to profit distribution to shareholders as follows:

At the Directors' meeting held in Rose Bay on the 5 August your directors agreed that the current method of profit distribution to shareholders by way of salaries and expense allowances would be discontinued as at 30 September and would be replaced by the payment of fully franked dividends on a quarterly basis.

The only family members receiving salaries will be James Auswild and Geraldine Bergmuller who will both receive Directors' Fees as they are required to give their personal guarantees in respect of the Group's activities and are both actively involved in the operations of the group.

Dividends payments have been calculated so as to ensure that you still receive the same amount net of tax as you were receiving under the previous system and the first of these dividends will be paid in January 2004 and quarterly from that date forward.

These dividends will be fully franked in your hands and Preston Motors will retain an amount equal to the balance of tax (calculated at your individual personal income tax rate) to be paid to the Tax Office as and when you receive your assessments. Thus you will not have to worry about taxation implications for these dividends at all.

There is a substantial cost saving to Preston Motors as these dividend payments are not subject to payroll tax, work cover insurance or fringe benefits tax.

If you have any further questions about this change please do not hesitate to contact Joe Hart or myself and we can provide any explanations that are necessary.

324 By memo dated 16 September 2003, Doug Farrelly gave the following instruction:

Effective 30 September 2003 would you stop all payments to the following 'employees'.

Barbara Auswild Simone Ferry (Hunt)

Elisabeth Auswild Nikki Alekna

James Bergmuller Martina Ganley (Parker)

Since some of these are paid through the payroll system and others by bank transfer you will need to coordinate to ensure all payments are stopped.

Also the new pay rates for James R Auswild and Geraldine Bergmuller are to be $100,000 per annum from 1 October 2003.

325 On 3 November 2003, Geraldine Bergmuller was appointed a director of F&G, Auswild Corporation, Auswild Securities, Auswild Secretarial, and Fintee.

326 The minutes of a directors meeting of Austwide Corporation Pty Ltd on 4 December 2003 record the transfer of 9,333 shares in the company from RWA as trustee of the estate of Sir James to Geraldine Bergmuller.

327 On 27 February 2004, Joan Auswild died and left Sutton Farm to Barbara Auswild, JRA and Raymond Auswild.

328 On 1 March 2004, Geraldine Bergmuller was appointed as a director of Rossfield.

329 By email of 15 January 2005 to Doug Farrelly, Geraldine Bergmuller asked questions about how 'we ended up with all the units' in Seascape after 'trouble started with Rossfield'.

330 By email of 17 January 2005, Doug Farrelly replied to Geraldine Bergmuller stating that no money was paid to Rossfield by Preston Motors for the units and providing other answers.

331 By email of 30 March 2005 to Doug Farrelly, Geraldine Bergmuller wrote:

I have received the updated packages today, thank you. James Auswild and myself would now like more information on this matter.

I would like as of the end of business Monday 4th April, NO EXCUSES a photocopy of all signed contracts of employment for yourself, Joe hart and all senior managers and any staff members who are not on a workplace agreement. Included in this their signed commission structures and job descriptions. This should all be on file and easily accessible.

I would also like to see the limits of all amex cards, mobile cards and mobile phones. This should also be in their employment contracts and clearly outlined and agreed to the date of signing of these contracts.

On another note James and myself would like all agendas, figures and any other additional information for upcoming Board meetings to be emailed to us at least 2 weeks prior to the meetings, so we may have time to digest the information and request any further information we may require.

332 On the same day, Doug Farrelly replied as follows:

I have requested the information that you are seeking from our HR department.

Neither Joe nor I have a 'contract' or letter of offer and neither of us receives any commissions etc.

Re Amex and fuel cards and mobile phones, there are no set limits on any of these other than they are to be used for business purposes only and tax invoices must be provided for every purchase.

Will send information as soon as it is to hand.

333 On 20 April 2005, James Bergmuller made a presentation to James Auswild and by email of 21 April 2005 to Geraldine Bergmuller, attached a copy and recapped the meeting as follows:

James A agreed to remove Doug Farrelly as managing director of PM

He agreed to replace him with myself and Chris Stoneman at (sic) joint Managing Directors

He also agreed and signed off on Transocean being used as our advisors

334 On 20 April 2005, James Bergmuller and Chris Stoneman were appointed joint managing directors of the Preston Motors Group.

335 By terms executed on 20 April 2005 by Geraldine Bergmuller, Transocean Securities Pty Ltd were requested to provide corporate advisory services to the Preston Motors Group over a six months period or until the following services have been completed:

• Termination of Doug Farrelly through the use of Bartier Perry
• Develop and Implement 'Preston Improvement Program'
• Communicate to all Preston Staff and engage them in the Preston Improvement Process
• Preston Improvement Program - provisions of recommendations for implementation
• Detailed Performance Review including the Use of Car Industry Experts (LSA Partners, Grant Thornton or Horwath and Horwath) and Recommendations
• Strategic Review of all Assets including Return on Investment and Recommendations
• Review of Corporate Structure and Recommendations
• Marketing Review and Recommendations
• Provision of the following resources on an 'as need' basis
  1. Chris Stoneman - Qualified CPA with significant experience in General Management and Human Resources
  2. Anita Isola - Accountant providing support and detailed analysis
  3. Jamie Henderson - Providing Corporate Structure and Advisory Services
  4. Grant Freeman - Providing Corporate Structure and Advisory Services
  5. Mark Suhr - Ex Partner of LSA that specialized in services to the Car Industry
  6. Mark Paul - Partner Bartier Perry
  7. Car Industry Experts will be charged at cost in addition to the retainer.

336 By email of 27 April 2005 to Geraldine and James Bergmuller, Chris Stoneman said '[a]ttached are two letters that we need to send to the accountants and lawyers so we can begin to get the information we require to get our review done'.

337 By emailed letter of 2 May 2005 to Mr Jepson, Mr Stoneman confirmed that Transocean had been appointed by the shareholders to do a review of the Group investments and asked, '[a]s a starting point, would it be possible to have a copy of all Management Letters for the 2004 financial years Audit of the Group'.

338 By email exchange of 16 May 2005 between Chris Stoneman and Phillip McGilvray, McGilvray explained aspects of the Commonwealth Motors accounts including the distribution of family expenses and Fringe Benefits Tax on wages.

339 By a draft letter of 30 May 2005 prepared by Chris Stoneman, Geraldine Bergmuller and James Bergmuller noted that 'the Group will cease payments of all personal expenses from the 1st June 2005'.

340 By email of 20 June 2005 to Kieran Turner (grandson of Bernard Webb), Jo Richards and Greg Jepsen (cc Geraldine Bergmuller), Geoff Thoroughgood (a partner of Auswild & Co) advised that the shares in Carlisle were held 50/50 between the Webb and Auswild families.

341 By email of 6 July 2005, Geraldine Bergmuller instructed Chris Stoneman to cease all payments to Raymond Auswild.

342 By email of 14 July 2005 to Geraldine Bergmuller, Chris Stoneman stated:

I am getting Joe to do a full General ledger print out of the Expenses we need to look at.

It is strange that after all the years of knowing [t]he lopsidedness of the distributions that the Auswild & Co people actually tell you.

343 By email exchange of 8 August 2005 between Geraldine Bergmuller and Chris Stoneman, Stoneman says that the Hatmax loan for $6.5 million is the loan Preston Motors owes with respect to Seascape.

344 By email of 16 August 2005 to Geraldine Bergmuller, Chris Stoneman attached 11 questions which he recommended should be asked of Mr Choy of Auswild & Co, Chartered Accountants. He writes:

What we are doing is asking him questions that may be loaded but they are broad enough to give us all the information we need at this stage.

345 By email of 1 September 2005 to Geraldine Bergmuller, Mr Stoneman attached a memorandum entitled 'Key Issues of Mismanagement found at Preston Motors Group'. The memorandum identified 16 areas of mismanagement and provided the following summary:

There are many more instances that will come to the surface over the coming months and years.

There seems no doubt that if action had not been taken, the losses would have continued at an increasing rate and the Banks would have made an appointment which would have had a devastating effect on the business and perhaps a wholesale sale of the assets of the group to meet the calls of the Banks.

The Board are now fully in control of the Preston Motors Group.

The Group has the full support of Management, the Banks, Financiers, Franchises and key suppliers and Customers.

Despite the short term pain, there is much work to do to right the business but the rot has stopped and the investors can look forward to the future with confidence and security.[128]

346 By emailed letter dated 15 September 2005 to Mr Choy of Auswild & Co, Chartered Accountants, the director of Transocean requested certain information with respect to Beron Investments Pty Ltd, Auswild Securities Pty Ltd and other related entities. Arrangements were made for Mr Choy to meet with Chris Stoneman the next day to prepare for a meeting with James and Geraldine Bergmuller the following week.

347 By emailed letter dated 22 September 2005 to James and Geraldine Bergmuller, Chris Stoneman recommended that the payment of non-business expenses through the group companies should cease and payments should be made out of after-tax monies by franked distribution to the family. He further recommended that directors' salaries be increased to a gross package of $200,000 per annum plus business-related expenses such as personal mobile telephones and other expenses by making an allowance of $2,500 per annum. Expenses would be paid from Preston Motors, Commonwealth Motors, F & G and Preston Motors (Properties) Pty Ltd.

348 By email of 6 November 2005 to Joe Hart, Chris Stoneman wrote:

Gerry has asked me to look through the accounts for 2005 which I am doing at the moment.

Just a couple of initial things:-

1. Where have the expenses gone for the Boat, Club Mamberships [sic] etc; and private family expenses that we identified some months ago.
2. Do we have a detailled [sic] consolidated P & L for all motor vehicle entities, eliminating out the non MV stuff.

If we do not have 2 above could we get one into a spreadsheet ASAP. I would like us to have detailed 2005 P & L's so we can monitor these to what we are achieving at the moment. I think it is pretty important to show the Board how far we have come from the low point which will be 2005 Accounts.

If we could get it done and if you present this at the next Board Meeting that would be great.

349 On 7 November 2005, Joe Hart replied as follows:

Bank balance this morning. $ Credit $334,469.09. I owe St George a fair bit for Essendon Holden.

I will look at the accounts this week.

The NSW costs have been included in the accounts in the parts group as per previous years. I will check if the auditors have treated them any different I don't believe they have.

I will put a spread sheet together with the non MV stuff out as per the accounts.

(a) forwarded Joe Hart's email to Geraldine Bergmuller, writing 'Pretty poor reply !!!! Joe will not be the only one checking with the Auditors'; and

I spoke to Greg Jepsen and he did not make any adjustments for the 'NSW' expenses in the 2005 Parts Sales accounts.

I think it is important that these be adjusted so as to reduce the risk of these being uncovered in a Tax Audit.

Can you do a listing of these and we will have to back them out to a loan account and make the necessary adjustments to the JA or RA loan accounts.

In relation to excel consolidated accounts for the MV Division for Preston and Commonwealth, Greg thinks that you may be able to do it with your "In the Know" package. If not Greg may be able to give you a dump of the information required.

It will be interesting to see how far we have come from in the past 6 months.

351 By email of 13 November 2005 to Geraldine Bergmuller, Chris Stoneman attached Phil McGilvray's replies to questions asked with respect to Commonwealth Motors.

352 By email of 18 November 2005 to Joe Hart, Chris Stoneman said that he wanted to get family expenses out of operational expenses to reduce the tax risk. He added:

It is not a witch hunt. What's done is done, and under no circumstances would I support going back and relodging accounts and returns. If there happens to be an in equity (sic), then it just needs to be fixed above the Preston Group in some way and we all move on.

353 By email of 19 December 2005 to Chris Stoneman, Paul Bard Lawyers advised on how Geraldine Bergmuller may be able to exercise her power of attorney for the purpose of purchasing her mother's life interest.

354 By emailed letter of 27 January 2006 to JRA, Paul Bard Lawyers stated that they acted for Geraldine Bergmuller, Simone Ferry, Nicki (Kathleen) Alekna and Martina Parker. The letter stated that those clients were concerned that the fact that Rossfield has advanced about $8 million to Beron, a company in which it has no interest, may constitute a breach of fiduciary duties by Rossfield's directors. The clients requested urgent access to the books and records of Rossfield and Beron.

355 By faxed letter of 30 January 2006 to JRA, Paul Bard demanded inspection of the records of Rossfield and Beron and said as follows:

(a) He acted for Geraldine Bergmuller, Simone Ferry, Nicki (Kathleen) Alekna and Martina Parker.

(b) Until recently, his clients had understood that Beron was a Rossfield company.

(c) His clients were aware that Rossfield had advanced over $8 million to Beron over the past 20 years.

(d) Beron is wholly owned by the Webb family and RWA and his family through R W Auswild (Holdings).

(e) His clients were concerned that the incorporation of Beron was to exclude the descendants of Sir James' family and may constitute a breach of fiduciary duty.

(f) By letter dated 22 February 2006 to Paul Bard Lawyers, Minter Ellison advised that they acted for Beron and refused the demand for records. The stated reason was that Geraldine Bergmuller, Simone Ferry, Nicki (Kathleen) Alekna and Martina Parker were neither shareholders nor directors of Beron.

(g) By letter dated 6 April 2006 to Paul Bard Lawyers, Abbott Tout, who acted on behalf of Rossfield, stated that Geraldine Bergmuller could inspect the financial records of Rossfield for the financial years 2000 to 2006. However the letter further stated; 'our client is not presently under any legal obligation to make copies of these financial records available to Ms Bergmuller or allow Ms Bergmuller's professional advisers to inspect these financial records, and it chooses not to do so.'

356 By email exchange on 2 February 2006 between Chris Stoneman, Greg Jepsen of Auswild & Co Chartered Accountants and Joe Hart of Preston Motors, arrangements were made for six boxes of F&G records to be couriered from Melbourne to Geraldine Bergmuller's address in Sydney.

357 By email of 15 February 2006 to Alison Hale, Geraldine Bergmuller sought title searches of the Beresford units. She requested details of price paid and date of purchase.

358 By note of 28 February 2006, Geraldine Bergmuller recorded a meeting at Rossfield at which JRA said that 'he had legal advice to say that James B would not be an alternated [director] because the board was not to change while I was accusing his father and himself and the Webb family and Bernie, of the wrong doings in the company'.

359 By email of 12 March 2006 to Chris Stoneman, Geraldine Bergmuller identified the 'Rose Bay Esplanades' and that JRA had bought the unit from HM McClure. She said

Just checking where the money she has invested in Preston came from if it was from the sale of the unit in Rose Bay if James A actually paid the money or was it just in Preston like John Downs money for the units at Seascape.

360 By emails of 18 and 19 April 2006 to Geraldine Bergmuller and JRA, Chris Stoneman reported that Ms McClure's niece thought the loan to Ms McClure, made as part of the Beresford property purchase, was for life at a generous interest rate. He said a 'decision just needs to be made whether you want to keep subsidising Mrs McClure or do we pay back the capital and they can get 6% on the money at a Bank'.

361 By email of 8 May 2006 to Mr Choy of Auswild Chartered Accountants, Geraldine Bergmuller asked him to 'explain the transaction for the sale of the two units at Admiral North [the Beresford property] made in June/July 1998. Just want to make sure the settlement of $760,000 was paid to Beresford Investments by James and Ronald Auswild.' By email of 22 May 2006, Mr Choy replied:

Unit 40 was transferred to James for $375,000 and Unit 41 was transferred to Ronald for $380,000 on or about 1 September 1988. The transfers were registered by Abbott Tout (Gail Howard) through their agent in Queensland, Drake Walker & Leahy. The financial side of the transfer was done by journal in the books of Midlands Finance and James's & Ronald's loan accounts were charged with the respective amounts including stamp duty & legal fees paid. Hope this clarifies the situation.

(I had forgotten that I had asked Kerrie to chase this up when I received your e-mail. As it turned out, Kerrie went to Rose Bay last week whilst I was away, not knowing that I had planned to meet you there this week!).

362 Geraldine Bergmuller replied to this email on 4 August 2006 (see below).

363 By letter dated 18 May 2006 to RWA, Geraldine Bergmuller offered the RWA family the opportunity to buy the Sir James family's shares in the Rossfield House Group. By fax of 30 May 2006 to Geraldine Bergmuller, RWA replied that they are happy to consider her proposal to sell.

364 By letter of 22 May 2006 to Geraldine Bergmuller, Truman Hoyle Solicitors stated:

The information contained in Alison's email in respect of Lots 40 and 41 was incorrect. The correct situation is that Lot 40 was transferred from Beresford Investments Pty Limited to James Ronald Auswild by Transfer dated 15 July 1998 for a consideration of $380,000.00 and Lot 41 was transferred by Beresford Investments Pty Limited to Ronald Raymond Auswild by transfer of the same dated for the same consideration of $380,000.00.

With regard to the farm, Alison's advice was correct in that it was transferred to Barbara Joan Auswild, James Ronald Auswild and Ronald Raymond Auswild by Transmission Application following the death of Joan Patricia Auswild. We have searched the title further back and ascertained that it was transferred by Auswild Securities Pty Limited to Joan Patricia Auswild by transfer dated 26 October 1994 for a consideration of $540,000.00.

Copies of the relevant transfers are enclosed for your records.

365 By letter dated 31 May 2006 to Geraldine Bergmuller, JRA stated that he was concerned that Chris Stoneman had a 'patently obvious' conflict of interest in that he was a consultant to the Preston Motors/Commonwealth Motors Group and also advising Geraldine Bergmuller's family on issues such as the Beron shareholding.

366 In the period May to July 2006, Geraldine Bergmuller accessed the Rose Bay office and obtained copies of documents. The Rose Bay office stored records relating to F&G, Austwide Corporation, Auswild Securities and Auswild Secretarial.

367 By email of 6 July 2006 to Geraldine Bergmuller, Chris Stoneman stated as follows:

I think where the biggest issue arises within past dealings are those relation to the "Disaster".

None of us have an understanding of what the Disaster was, all [that] is known that there were significant transactions that took place to protect/move/hide assets.

From my very limited understanding this was relating to property developments carried on by Companies that you were not a holder of equity in, but when funds were required to meet borrowers calls, your assets were pledged for no commercial consideration.

So when you are talking to Geoff, you need to get as much as you can out of him. In the future you may have to see other. Abbott Tout and Auswilds were all involved. They should have been protecting your interest, but that as we know was probably secondary to the receipt of fees.

Things I would be asking are as follows:-

1. What gave rise to the Banks/GMAC taking action against Rossfield.

2. Were the borrowings in the name of Rossfield or other companies.

3. Which Developments were they.

4. Did Rossfield or Preston have any guarantees.

5. Did Bernie or Ron have any Personal Guarantees

1. Why did Rossfield and Preston step in and assist, as they were not part of those groups.

7. What would have happen if they did not step in.

8. Did Rossfield or Preston receive commercial benefit for assistance.

1. Did transactions that took place put assets out of company names to individual names.
2. Did transactions that took place make the pre CGT assets transferred subject to CGT.
3. Where would you get a copy of the documentation and deeds of release.

368 By email of 7 July 2006 to Joe Hart, Geraldine Bergmuller asked:

I am doing some work with James on the after tax value of the properties of Seascape. Can I get a list of the dates we acquired each of the remaining properties, and who we acquired them from. I know there were a number from Rossfield and the Webbs.

When we acquired these did we pay cash or did the Webbs or Rossfield owe us money. I think this was around 1994.

369 By email of 8 July 2006 Joe Hart replied stating 'as you would appreciate Doug Farrelly looked after the Seascape purchases. I have listed below what I have been able to put together at the moment' and attached the dates and purchase prices of the Seascape units.

370 By email of 10 July 2006 Geraldine Bergmuller asked Joe Hart '[h]ow we paid for the units we have from Rossfield, which would have been September 1994. Also why do Preston Motors owe F&G around 12 million dollars'.

371 By email of 22 July 2006 to Chris Stoneman, Geraldine Bergmuller attached a memorandum entitled 'Project Fluffy' ('the Project Fluffy report') and requested his advice. By email of 4 August 2006 to Chris Stoneman, Geraldine Bergmuller sent an amended version of the Project Fluffy report.

372 The amended Project Fluffy report included notes of the discussion with Geoff Thoroughgood about 'the disaster of Rossfield'. In summary, it relevantly notes the following:

(a) After Sir James had a stroke, Bernard Webb and RWA used the assets of Rossfield to go into certain developments. 'The main point is that they used our investments for their own high risk ventures, without our knowledge or approval ...'.

(b) Bernard Webb and RWA undertook developments financed through GMAC in 1987/88. The bottom fell out of the market and all the Rossfield properties were put up as security.

(c) Rossfield had guaranteed GMAC and, if Rossfield and Preston did not assist, Rossfield would have gone under. The commercial benefit for Rossfield and Preston was that Rossfield was kept afloat. The properties were brought back from GMAC and Preston put in $4 million, which was borrowed from GMAC. It was paid back in 1993. Preston paid another $8 million for the Seascape units in 1994 to pay off an $8 million debt that Rossfield owed to GMAC.

(d) With respect to the employment of RWA's family, it was noted as follows:

Barbara Auswild on books since 1987 F & G MLC 1993;

Joined Preston 1998 MLC;

James Auswild F & G Employer 1991;

Ronald Junior employer 1985, joined plan 1992

None of Sir James family on books until I was put on in 1998 only after I complained that the others were all on the books, and as Nola put it Ron only put me on to shut me up. I said what about my sister and he said we'll fix her up some other way, but of course nothing happened.

373 Other relevant comments, which were referenced to purportedly attached documents, in the Project Fluffy report were as follows:

(a) Beron was registered on 9 January 1986 and Geraldine Bergmuller observed:

After JAFA died, BW and RWA then put Carlisle, Destination Resorts and Beron and Geologics in their own names but ran it all through Rossfield. RWA had huge borrowing power with telling everyone he owned or controlled all of Preston Motors and Commonwealth Motors, and Rossfield with BW, so they could do what ever they liked.

As they were the Directors and we had no say and saw no accounts or anything on any of the companies. But the only problem was that my family owned 25% Rossfield through Jenola and 52% Preston and 50% Commonwealth Motors, and our companies were used to service and pay for the Company's or entities above, but we had no shares in them.

(b) Serenade the boat. Earlier this boat was not on the books anywhere, it now appears in the 1993 Statement to be James Auswild boat valued at $30,000.00 which means he should pay all the bills for this at least dating back to then. I do not have the family statements from between 81-93 and after 2000.

(c) 11th August 1994, Minutes Preston Directors, James A. Ron A. to Purchase units from Rossfield, B G Webb etc, and documents attached. Would like to know if we paid the $8 million or how were these paid for or were we given them to pay for debts in rossfield, and just paid the stamp duty, can't see $8 million coming out of Preston anywhere. Asked Geoff the above he said we paid for these and we would have had the $8million don't know where from.

(d) 26th October, 1994, Joan Auswild bought the Sutton Farm out of Auswild Securities for $540,000. It was on the books in 1990 for $683,083 and in 1994 $847,423.

Why this was in the financials as a loss, as shareholders shouldn't buy properties for a loss and gain a wonderful asset and the other partners have a loss in the company.

I don't know who approved the sale below way below cost let alone evaluation, as RWA and JA would have been Directors of Auswild Securities then. Would also like to see if Joan Auswild actually paid for the farm into Auswild Securities and where the cheque came from.

(e) 6th July, 1998, Joan Auswild and Baronja purchased units in Elizabeth Street Hyde Park, Units 1701, 1705 in Joan's name and 1702 in Baronja. The 1702, was paid for out of Preston Motors, was this accounted for or in the loan Baronja has with us. The purchase price for the 3 would have been around $2 million. I would like this checked where this money came from if it was from F & G or Preston.

(f) 20/8/1998. Admiral North Units in the Gold Coast.

These units were in the name of Beresford Investments, they were bought out of this company by JA and his brother Ronald Auswild for total price of $755,000 then the company Beresford investments was wound up.

It should be checked if the JA and Ronald Auswild paid cash for these and the dividends distributed to the share holders on wind up as the only assets in the company were these 2 units.

In Folder 2 1996 Beresford Investments supposedly had assets of $436,291, and I would like to make sure that we all received a dividend from Beresford Investments for the sale to JA and Ronald Auswild of the units he paid the above.

(g) Rossfield house Pty Ltd. Salaries of Directors, and Car allowances.

As you can see JFJA family hasn't received any car allowances. And the salaries were definitely not fairly distributed. Over the years the answer to that will be that Ron and James A was Chairman and entitled to the extra cars etc, my argument would be that they had huge wages and the cars should have been shared with the JFJA family.

(h) Beron: in around June 2005 I found out that JFJA family was not a share holder of Beron which has approx 11 million worth of property, we discovered this as Auswild Accounting wanted to flow some of the pub money through this e.g. RW Auswild Holdings which JFJA family don't have a share.[129]

374 The Project Fluffy report refers to the Auswild Organisation Report and states:

This was written by Nola Hancock, a partner in Auswild's Accountancy Practice, notice the sarcasm at the beginning 'anxiously waiting' we had to beg for this and no one wanted to show us what we had, it took me 2 years to receive a copy of JFJA's will, you must remember in those days I was young naive and had a small son to bring up, and had always been spoilt by JFJA.

375 The reference to the Auswild Organisation Report is a reference to a report by Ms Hancock, which it is likely was given to Geraldine Bergmuller sometime after 1985.[130] The report provides a history of the financial growth of the Auswild family and the financial structure. Notably she explained the following:

Midlands started out as a motor vehicle hire purchase business... then 'moved into being a 'Family Finance Company' surplus funds being put in or borrowed to be lent out to individuals, companies, trusts -- any financial structure needing finance for a business venture or an investment'. ... In more recent times Midlands surplus funds have been utilised for more 'personal' reasons rather than business expansion - private residences, personal drawings - A private banking system whereby I have kept track of what funds were channelled in, and who or what has taken them out. As companies accumulated funds, and in some cases terminated operations, its funds were lent to Midlands and family members have had the benefit of that money.

376 By email of 1 August 2006 to Geraldine Bergmuller, Chris Stoneman provides his analysis of the records with respect to the sale of Sutton Farm. He concluded his email stating 'I am sure that each of the transactions during the period post your fathers death would have had issues'.

377 By email of 4 August 2006 to Vince Choy, Geraldine Bergmuller replied to his email of 22 May 2006 (see above) stating:

Hi Vince, thank you for your email, I was wondering why in looking at my financial statements in 1998 and 1999, that in 1998, mum Margie and I had shares in Beresford worth approx 89000 each and then in 1999, Beresford has gone off our financials and we have not received a dividend for these shares especially when the only asset in Beresford was Admiral North units and James and Ronald end up with two very valuable assets, with a journal entry, and my family end up with no shares and no dividend which should have been worth approx $380,000 to us as these properties were, pre capital gains and as far as I know Beresford had no debt. We would like to be paid for this transaction with real money not a journal entry plus interest.

Beresford Investments was 50% RWA/ 50% JFJ.

On another topic, looking into Auswild securities, the Sutton farm was in Auswild Securities, in 1990 value of $683.083. In 1994, $847,423 and in 1995, no farm, I found out only recently that Joan bought this for $540,000 giving Auswild Securities a loss of $307423, I would like to know how a company we own 50% of can sell asseits [sic] to other shareholders at a loss without our approval, and acquire a very valuable asset which I am sure was certainly worth a lot more then (sic) $847,000 as Commonwealth Motors paid for the house etc on this farm before Joan supposedly purchased, it, also has this also been a journal entry and once again RWA's family receive huge assets and my family nothing.

Can you also provide me with the movements in these loan accounts where asset sales are effected. I do not understand how they work. How did the RWA's get these massive loan accounts.

By email of 17 August 2006 to Vince Choy, Geraldine Bergmuller followed up the email seeking a reply.

378 I infer that, in early September 2006, Kerrie Kent of Auswild & Co (whom Choy had said in his 22 May 2006 email that he had asked 'to chase this up') had promised Geraldine Bergmuller a response to the email of 17 August 2016 because by email of 11 September 2006 at 1.53pm to Kerrie Kent of Auswild & Co, Geraldine Bergmuller said:

Good Morning Kerrie, I was wondering when you will have the answers to the questions for me on Admiral North and Sutton farm. I thought you were going to get back to me last week.

379 By email of 11 September 2006 to Geraldine Bergmuller, Kerrie Kent of Auswild & Co responded within an hour explaining the delay in responding to the questions regarding Admiral North and Sutton Farm and stating:

I haven't forgotten about you.

I will (sic) going through the old work-papers on Thursday to see if I can find all your answers. I will let you know the progress on Thursday afternoon.

380 By email of 11 September 2006 at 12.18pm to Greg Jepson of Auswilds, Geraldine Bergmuller asked for 'movements on the [Baronja] loan account since it came into existence as well as the interest rate and where the interest rate was agreed'.

381 By email of 14 September 2006 to Geraldine Bergmuller, Kerrie Kent of Auswild & Co explained that the sale of Sutton Farm to Joan Auswild was paid for by offsetting $500,000 against RWA's loan account in Preston Motors and $40,000 against Joan Auswild's loan account with F&G. By email of 15 September 2006, Geraldine Bergmuller forwarded this email to Chris Stoneman describing the explanation as 'another cope (sic) out answer' and noting that she had not seen a valuation for the farm.

382 By email of 15 September 2006 to Kerrie Kent, Geraldine Bergmuller replied complaining about the transfer of Sutton Farm, stating that 'very valuable assets appear just to [be] transferred out of my companies to the RWA's and I was never consulted and my interests were ignored'. She also asked about her queries concerning the Baronja loan.

383 By email of 19 September 2006 to Geraldine Bergmuller, Lee Payne of Auswild & Co replied to a request by email of 11 September 2006 at 12.18pm, attaching a summary of the F&G loan with Baronja which showed the balance payable to Baronja of $272,097.

384 By email of 21 September 2006 to Geraldine Bergmuller, Chris Stoneman advised that he picked up some old ledgers which he was sending to her by express post. Between 22 September and 24 September 2006, there is an email exchange in which Joe Hart explains to Geraldine Bergmuller how to read the ledgers.

385 By letter dated 16 October 2006 to Geraldine Bergmuller, RWA stated:

Since my brother, your father, died, I have been doing my best to look after his wishes as executor of his will in particular with respect to your mother's life interest in his estate. I am saddened that she has been removed from the family circle in Sydney.

Obviously the life interest was created for a particular purpose but if it is your wish and that of your son and Margaret's daughters to bring the life interest to an end I will not stand in the way.

It is unfortunate that it has reached the stage, and disappointing to me, that you have brought in lawyers rather than trying to solve it face to face.

The Auswild family arrangements have been in place for a long time but it now seems that you want to unwind those arrangements so everyone can go their own way. That being the case it is probably best Preston Motors is sold to maximise the benefits for all concerned, and we should move towards that outcome.

386 By faxed letter of 24 October 2006 to JRA, Geraldine Bergmuller complained about a recent Rossfield board meeting and, with respect to the separation of interests, states:

There is a transaction that can be done that would allow you and your family to own and control the Jenola/Rossfield interests and me and my family to own and control the Preston and Commonwealth interests.

It will be only then that we can be solely responsible for our actions to our respective families.

387 By tax invoice dated 26 October 2006, Auswild & Co charged $4,246 to Geraldine Bergmuller for professional services relating to various matters relevantly including the following:

(a) Attendance at Rose Bay office to gather information and prior year workpapers from 1988 onwards to attend to your queries regarding Auswild Family Group.

(b) Researching prior workpapers regarding the sale of 'Sutton Farm' to Mrs JP Auswild in 1995.

(c) Summarising the movements in the individual loan accounts within Auswild Securities Pty Ltd from 1 July 2002 through to 30 June 2005.

388 By email of 5 December 2006 to Paul Bard Lawyers (cc Chris Stoneman), Geraldine Bergmuller attached the updated Project Fluffy report.

389 On 21 December 2006, James Bergmuller was appointed as a director of Rossfield.

390 By email exchange of 1 February 2007, Geraldine Bergmuller and Chris Stoneman speculated about the transactions surrounding the issues with GMACA, the purchase of the Seascape Apartments and other transactions in the early 1990s. Chris Stoneman stated:

There is no doubt that PM, F&G and Rossfield were used to bail out Bernie and Ron, we just need to find out exactly how.

We have to get the Group accounts from 91 to say 95 for all the companies in the group and all that were parties to the deeds, and that will not be easy, that will be the only way that we can begin to paint the correct picture and piece the fluffy stuff together for this with hard evidence which is what we will need.

391 By email of 5 February 2007 to Geraldine Bergmuller, Chris Stoneman suggested questions that she should ask Joe Hart with respect to the DMA, the Debt Reduction Agreement, the loan of $2.9 million from PT Ltd to Preston Motors which was on-lent to Telasava, and the loan of $5.1 million by Preston Motors to Rossfield.

392 By letter dated 6 February 2007 to C Lucas of Hatmax Finance Ltd, Geraldine Bergmuller (in her capacity as director of Preston Motors Group) and Joe Hart (in his capacity as Financial Controller of Preston Motors Group) requested documentary proof with respect to the Hatmax mortgages of $2,690,000, $5,100,000 and $2,000,000.

393 By email of 14 February 2007 to Geraldine Bergmuller, Chris Stoneman said that '[w]e should be able to get to first base without alerting anyone'; and reports that he had been unable to find what he describes as the 'GMAC document'.

394 By letter dated 19 April 2007, Bartier Perry Solicitors confirmed instructions from Jenola Holdings to:

(a) advise on Jenola's rights as a shareholder in Rossfield House Pty Ltd; and

(b) negotiate and prepare a shareholders agreement for Rossfield House Pty Ltd with the Webb interests.

395 By letter dated 18 May 2007 to Geraldine Bergmuller, JRA and James Bergmuller, Bartier Perry advised with respect to Jenola seeking 'a resolution of its interest in the Rossfield House Group'. In particular, the letter noted that Jenola wished to:

• obtain an appropriate level of control commensurate with its 50% interest in the Group;

• determine what the financial and business position of the Group is and,

if the first two points cannot be achieved to separate Jenola's interest from that of BG Webb Pty Ltd by:

• selling Jenola's interest in the Group; or

• buying the Webb interest in the Group; or

• undertaking an in specie distribution of assets in the Group; or

• if all those fails, by application to the Court.

396 By email of 30 May 2007 to Bartier Perry and BDO Kendalls ('BDO'), Chris Stoneman stated with respect to financial due diligence requirements:

It is my understanding when you look at this you will have to request the documents of the 'GMAC' debt compromise, that effectively saw Preston Motors, Rossfield House, F&G and other companies, pay debts on behalf of the 'Non Rossfield Group Companies' (Chatswood, Destination Resorts, Geo Logics and others). Here you will dig further to see if these loans have been repaid, or whether the value of the Rossfield Companies are in any way effected/eroded by meeting costs and expenses, previous and ongoing as a result of these events. There is a Debt Management Agreement that we do not have, that will give full details of this, and this will have to be requested at some stage after you uncover these transactions.

397 By letter dated 1 June 2007 to Jenola Holdings Pty Ltd c/- Bartier Perry, BDO agreed to provide financial and tax due diligence and valuation services with respect to Project Statesman, which related to the separation of the Auswild and Webb interests in Rossfield.

398 By email of 10 July 2007 to Geraldine Bergmuller, Chris Stoneman stated:

On the meeting this morning with Geoff [Thoroughgood], these are some of things you should try to ask: ... have you any documents or recollections of what happened when Preston rescued Rossfield? Why did Rossfield continue to fund Geo Logics ...

399 By letter dated 31 July 2007 to Bartier Perry, BDO provided an update with respect to its engagement to advise on Project Statesman. The letter noted that Russell Ware, CEO of the Rossfield Boyded Heartland Group had been requested to provide lists of information and stated:

Despite repeated requests following up information requests lists we have not been provided with a large amount of the information that we have requested in order to progress the DD Report and Tax Memo. What information we have received has arrived haphazardly and often incomplete.

400 By letter of 10 August 2007 to Geraldine Bergmuller, JRA and James Bergmuller, Bartier Perry 'summarises recent developments and options for moving forward' with respect to 'the invitation to make an offer to sell the Auswild interests in the Rossfield House Group ... to the Webbs'. Relevantly it is noted that there are difficulties assessing inter-company loans in the Rossfield Group because the Webbs are refusing to give further information. It recommended the replacement of the CEO and set out a range of legal avenues including:

Have Preston Motors issue a demand for the loan monies of $5.1 million plus interest. On my estimates the total of principal plus interest on this loan would be approximately $15 million.

The loan is clearly identified in the 1996 accounts for the Group. I understand that there is no record of Preston having had that loan repaid.

401 By email of 14 August 2007 to Greg Jepsen, JRA, Geraldine Bergmuller and others, BDO confirmed the scope of instructions after the previous day's meeting:

To determine the net tax position of Jenola Holdings Pty Limited shareholders' interest after taking into consideration all external & related party loan positions in the event of a sale of their interest in the Rossfield Boyded Heartland Group.

402 By faxed letter of 16 August 2007 to Greg Blewitt of Bartier Perry, Chris Stoneman attached the letter of 2 January 1992 from Blake Dawson Waldron to Abbott Tout Russell Kennedy with respect to the DMA and asked whether he looked at it in the review of the files.

403 By email exchange of 9 and 23 August 2007 between Chris Stoneman, Joe Hart and Greg Jepsen of Auswild & Co, Chris Stoneman asked Joe Hart:

I have been doing a review of the Preston Motors Pty Limited Balance Sheet and attach the view from 1993 to 1997.

This is the period where we were looking at the Rossfield and Telesava Loans ... I was wondering if we have General Ledger Cards or other records to trace these amounts.

Joe Hart forwarded the email to Greg Jepsen who responded advising that the loans from Prestons to Rossfield and Telasava were repaid as follows:

and requested Hart confirm receipt of these amounts into Preston's books.

By email of 30 August 2007, Joe Hart forwarded the above email chain to Geraldine Bergmuller.

404 By email of 23 August 2007 at 9:30am (prior to the Jepson response referred to above) to Geraldine Bergmuller, Chris Stoneman stated:

I am thinking about the Auswilds thing, it is really crunch time for them. They now need to disclose to our lawyers about what happened to the Telasava and Rossfield money. $8 mil, pretty hard to hide, so they will be naval gazing. We know that Preston did not use it to repay Hatmax, so it had to go somewhere !!!!!

Interesting time, we just need to hold the fire for a time, as this will now start to unravel. Gavaljk will help us get to the end game as will Auswilds, probably kicking and screaming.

405 By email of 24 August 2007 to Greg Blewitt of Bartier Perry (cc Chris Stoneman and James Bergmuller), Geraldine Bergmuller referred to a conversation she had with Greg Jepson, after James Bergmuller requested a Special Report being 'general purpose accounts for the Rossfield Group, the Carlisle Group, the Wingroll Group and the Telesava Group for the financial year ending 30 June 2007 and in all future financial years'. She wrote:

Greg Jepson just rang me to ask why we wanted a Special Purpose report, I answered because of the lack of information.

He said that we have pushed the right buttons to the Webb's Russell and Neil Duggan Apparently, if we give them a list Greg is sure they will now be very quick in giving us the info. He also explained to the other side that we have everyright to do this and that only 5% of shareholders could go to ASIC and insist on this information.. Russell was heard to say he doesn't understand how we can say he is holding dealing up. Greg also said that he is quite willing to sit down with Gavljax, Neil Duggan and himself to work out what we want and any info we need.

Greg said that to do the report would cost us all a lot of money and what we are after is probably not in this report, we would find a lot more by asking the right questions.

Preston Motors Loan, he has also looked this up and found that it was paid back in April 97, and interest was paid this information has been sent to Joe Hart and he is apparently checking this.

406 By email exchange of 30 August 2007, Geraldine Bergmuller said to Greg Blewitt (cc Chris Stoneman) that the Rossfield loan repayment 'never went into Preston Coffers'; and Chris Stoneman replied that Greg Jepsen will be able to find out where the money went. He added 'Interesting times ahead, but it will be a nut to crack straight just after we get resolution on Rossfield'.

407 By letter dated 5 October 2007 to Jenola, Greg Jepsen of Auswild & Co advised with respect to the sale of Jenola's interests in Rossfield and specifically advised with respect to the Rossfield and Telasava loans as follows:

We have reviewed our client files and copies of General Ledger reports of Rossfield House and Telasava for the years 1996 to 1998, specifically with regard to transactions with the Preston Motors group.

Our review revealed that the loan from Preston Motors to Rossfield House for $5.1 million was repaid on 23 April 1997, with interest paid monthly throughout the life of the loan.

The loan from Preston Motors to Telasava for $2.9 million had been paid down during the life of the loan and the balance of $2,400,476 was paid out, together with accrued interest in two payments of $519,412 on 14 July 1997 and $1,881,064 on 24 July 1997.

408 By email exchange of 7, 8 and 9 October 2007, Chris Stoneman and Geraldine Bergmuller discussed what they would do with the DMA now that they had a copy. Stoneman said that he would send it to Joe Hart on a confidential basis and that it was time to ask some questions about it. Stoneman said that '[t]he hard thing is getting all the info, and there will still be a wall of silence'.

409 By email exchange of 11 and 12 October 2007, Greg Jepsen provided the documents with respect to Preston's loans to Rossfield and Telasava to Geraldine Bergmuller who forwarded them to Chris Stoneman. Geraldine Bergmuller then forwarded them to Joe Hart and asked him to check them.

410 By email of 15 October 2007 to Geraldine Bergmuller, Chris Stoneman attached a spreadsheet which showed that Fintee borrowed $7,800,000 and a similar amount was paid back by Preston, Commonwealth and Summit.

411 By email of 15 October 2007 to Geraldine Bergmuller at 11:43 am, Chris Stoneman referred to the email to Greg Jepson in the next paragraph, and said:

I have shot through the Greg Jepsen e-mail. I hope it make sense, I have tempered it a bit from what I was going to say, but it really says what we need and says that you want information.

In relation to the Fintee Canberra stuff. I do not know where the money went, but as I have said to you, that it would have taken years to get to the Debt Management agreement, so if they were short of cash it would have happened well before the Agreement.

Unless you can tell me what Fintee did with $7,800,000, then we need to know whether the money went to the bad developments.

412 By email of 15 October 2007 to Greg Jepsen, Geraldine Bergmuller stated as follows:

As you know I have just finally received a copy of the debt management agreement that mysteriously appeared after all this time. This is the first time I have ever been made privy to how my assets were used to stop GMAC from taking action for bad loans of others. My issue at the moment is not this, but to make sure that we received back all monies and interest from Rossfield and any other party that we lent money to.

I need to do the following things as a matter of urgency:-

1. The removal and return of all files for PM and F & G or any of my family's companies from Eastern Creek. We do not have access to that facility and the Webb family have unfettered access and this is inappropriate.
2. For you to write to Abbott Tout and get all the files relating to the Hatmax Loans borrowed by Preston Motors. Can you also advise who acted for Preston in the matter leading up to the signing of the Debt Management Agreement. If it was Abbott Tout, I will want copies of these files as well.
3. Details on what and where the monies advanced to Rossfield, Telasava or any other entity were repaid. I need to know the accounts that the monies were paid into as the cash did not go back to Hatmax.
4. On the 2/4/90 and the 7/5/1990, Fintee Canberra borrowed $2,000,000 and $1,800,000 from GMAC and lent this to JFJ Auswild & Co. I need to know from your end where this money went and how it was treated in the accounts of the family companies.
5. On the 6/6/1990 and the 12/6/1990 we borrowed $4,000,000 from GMAC on security of the Embassy. I need to know where this money went as well and how it was accounted for.

I understand that you were not around when 4 and 5 happened, but Vince and Geoff were, and I am sure that such large transactions would be known from them. It is essential I know this as it may well be critical with our final and confidential negotiations with the Webb family. If there are any issues I will come and meet with you.

Jepsen replied 'Re Pt 1: No PM or F&G files are stored at Eastern Creek. We only storage historical Rossfield group files there'. Geraldine Bergmuller responded:

when will you have my information, as I need it for the lawyers urgently. Re Pt 1 You told me that you were at Eastern creek to look up personal information for the Auswild Family.

413 Geraldine Bergmuller recorded a note of a conversation with Greg Blewitt on 15 October 2007, in which he said that:

(a) there were no papers at Eastern Creek relating to Preston or F&G;

(b) they did not have any papers as far back as the Fintee loans because 'Nola did all the books and she only brought out the papers and the girls typed them up and Nola took back the working papers';

(c) they did not have papers going back as far as the loans to JFJ Auswild and Co 'but would ask Geoff Thoroughood (sic)'.

414 By email of 22 October 2007 to Greg Jepsen, Geraldine Bergmuller asked how he was going with the Fintee Canberra information. He replied on 24 October 2007 attaching the answers of Geoff Thoroughgood to the questions in bold as follows:

On the 2/4/90 and the 7/5/1990 Fintee Canberra borrowed $2,000,000 and $1,800,000 from GMAC and lent this to JFJ Auswild & Co. I need to know from your end where this money went and how it was treated in the accounts of the family companies. "JFJ Auswild & Co" was a bank account of the Auswild Family and had nothing to do with the accounting practice of "Auswild & Co". To find these transactions you would probably need to look at accounts/ledger of JFJ Auswild & Co, Midlands Finance Co or Finance & Guarantee.

On the 6/6/1990 and the 12/6/1990 we borrowed $4,000,000 from GMAC on security of the Embassy. I need to know where this money went as well and how it was accounted for. The same answer basically as above. I think that this money found its way back to GMAC as part of the Rossfield/Carlisle/Destinations Resort disaster.

415 By email of 25 October 2007 at 10:00am to Dennis Bluth, Greg Jepsen stated with respect to the Telasava and Rossfield loans:

As per our discussion earlier today, I act as accountant/tax agent for the Auswild family and been charged with the task to determining how two old inter-entity debts were repaid:

I really appreciate any help you can provide on this matter as I have exhausted all other avenues.

In the early 1990's Preston Motors borrowed funds via Hatmax Finance for $2.9 mill (17/8/93) & $5.1 mill (16/6/94) and on-lent the money to Telasava & Rossfield House respectively - see attached.

Our records indicate that these loans were repaid by Telasava & Rossfield in 1997 - see attached.

As Prestons did not repay the original lenders at the time it would suggest that the funds were not received by Prestons, but instead were directed elsewhere.

One of the directors/owners of these entities, Mrs Geraldine Bergmuller is trying to establish how these inter­entity debts were extinguished i.e. if the money wasn't received by Prestons, to whom was it directed. Please contact me if you need anything further.