Fitzgerald, in the matter of Tempo Holidays Pty Ltd (in liq) v Tully

Division: General Division

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Date of hearing: 26 February - 1 March 2024

Counsel for the Plaintiffs: Dr O Bigos KC and Ms V Bell

Solicitor for the Plaintiffs: Norton Rose Fulbright Australia

Counsel for the Second Defendant: Ms V Whittaker SC and Mr K Horsley

Solicitor for the Second Defendant: Holman Webb Lawyers

BETWEEN: LAURENCE ANDREW FITZGERALD IN HIS CAPACITY AS LIQUIDATOR OF TEMPO First Plaintiff

TEMPO HOLIDAYS PTY LTD (IN LIQUIDATION) ACN 007 331 213 Second Plaintiff

AND: PATRICK HENRY TULLY First Defendant

BERKLEY INSURANCE COMPANY (ACN 126 559 706) Second Defendant

order made by: MCELWAINE J DATE OF ORDER: 19 aPRIL 2024

1. The proceeding is dismissed.
2. Any application for costs is to be made in writing, with supporting submissions not exceeding 3 pages, within 14 days of the publication of these reasons and any such application if made is to be responded to within 14 days thereafter limited to a submission not exceeding 3 pages.
3. Subject to any further order of the Court, the question of costs will be determined on the papers. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MCELWAINE J: 1 Tempo Holidays Pty Ltd (in liquidation) was part of the international corporate travel Group known as Cox & Kings which traced its origins to 1758 when Richard Cox was appointed as a military agent. In more recent times, the ultimate holding company for the worldwide Group was Cox & Kings Ltd, a company registered in and listed on the National Stock Exchange of India. It was considered as the longest established travel brand in the world. Cox & Kings became insolvent and, with effect from 22 October 2019, subject to external administration pursuant to the Insolvency and Bankruptcy Code, 2016 (India). The trademarks and intellectual property were subsequently sold. 2 Tempo was incorporated on 8 December 1989. It carried on business as a wholesaler of travel agency services. Cox & Kings acquired the shares in Tempo in November 2008. Mr Ajay Ajit Peter Kerkar was the CEO of Cox & Kings, based in the United Kingdom. He is also the brother-in-law of Mr Patrick Tully. In late 2008, Mr Kerkar approached Mr Tully and requested that he accept appointment as a director of Tempo. Mr Tully agreed and was appointed as a director on 7 November 2008, which office he held until 19 August 2019, when he resigned. Mr Kerkar was also appointed as a director of Tempo on 7 November 2008. He did not resign prior to its liquidation. Between 7 November 2008 and 18 May 2012, Mr Khalid Mahmood Malik was also a director of Tempo. For present purposes it is significant that Mr Tully was the only Australian based director of Tempo during the period of the events relevant to this proceeding. 3 The Group corporate structure was: 4 It will be noticed that Tempo was a direct subsidiary of Prometheon Australia Pty Ltd (Prometheon AU) of which Mr Tully was also a director between 5 October 2015 and 19 August 2019. Mr Kerkar was a director of Prometheon AU for a brief period in October 2015. Another key player in this proceeding, Mr Sudarshan Madan was also a director of Prometheon AU between 8 October 2015 and 1 July 2019. Mr Madan, a resident of Melbourne, was the CFO of Tempo. 5 Mr Laurence Andrew Fitzgerald was appointed as voluntary administrator of Tempo on 20 September 2019, and subsequently as liquidator on 28 October 2019. Mr Fitzgerald as the first plaintiff and Tempo as the second, initially (on 10 December 2021), commenced this proceeding only against Mr Tully for compensation for breach of Mr Tully's duties as a director and for his liability for debts incurred during the period of Tempo's insolvency. Later, on 5 April 2022, Berkley Insurance Company, (which is a registered foreign company) was joined as the second defendant. Tempo was named as one of the companies, and was therefore an insured, pursuant to a Management Liability Insurance Policy for the period from 4 pm on 31 March 2019 to 4 pm on 31 March 2020. The Policy definition of Insured Person included any director of Tempo. In these reasons I follow the nomenclature of the Policy that capital letters are employed for terms defined in the Policy. 6 Broadly, Mr Fitzgerald formulated two claims against Mr Tully. One, that he breached his statutory and fiduciary duties as a director by failing to monitor the inter-group transfer of funds by Tempo pursuant to an informal debtor/creditor arrangement, known as the Global Treasury Arrangement (GTA). Amounts totalling $5,862,429, in five instalments, were paid to Group companies between 16 April and 19 June 2019 (I note that all figures in this judgment are in Australian Dollars unless indicated otherwise). The debt was unsecured and became unrecoverable. If, as alleged, Mr Tully had monitored the GTA, the plaintiffs contend that he failed to take steps to prevent the first and each subsequent payment. Had he done so Tempo would not have suffered damage equivalent to the amounts paid. I refer to this as the breach of director's duty claim. 7 The other, that he is liable for the consequences of insolvent trading by Tempo from 31 March 2019, for third party creditor debts of $26,069,536.90 and for failing to take steps to prevent Tempo from incurring each liability pursuant to s 588M of the Corporations Act 2001 (Cth). I refer to this as the insolvent trading claim. 8 Berkley declined to indemnify Mr Tully for the breach of director's duty claim, which Mr Fitzgerald did not accept, which explains its joinder on application of the plaintiffs to claim declaratory relief to the effect that Berkley is liable to indemnify Mr Tully pursuant to the Policy: cf CGU Insurance Limited v Blakeley [2016] HCA 2; 259 CLR 339. It is not in issue that Berkley has no obligation to indemnify Mr Tully for the insolvent trading claim. 9 Shortly prior to commencement of the trial, the plaintiffs settled the proceeding against Mr Tully in the terms of a Settlement Deed dated 11 December 2023. Mr Tully consented to judgment in the amount of $5,862,429 on the breach of director's duty claim and in the amount of $24,223,940.89 on the insolvent trading claim, each inclusive of interest and costs. Judgment was accordingly entered on 21 December 2023, following approval of the settlement pursuant to s 477(2B) of the Corporations Act. The effect of the Settlement Deed is that, despite Mr Tully's liability pursuant to the judgment, in consideration of the payment of $500,000 (Security Sum) by instalments, the plaintiffs agree to enforce the judgment first against any proceeds recovered pursuant to the Policy, and once exhausted only against the Security Sum. 10 In consequence of the settlement reached with Mr Tully, the plaintiffs contend that Berkley is liable to indemnify Mr Tully for the full amount of the breach of director's duty claim on two bases. First, that the settlement is a reasonable compromise of the claim, for which Mr Tully is entitled to be indemnified: Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd [1998] HCA 38; 192 CLR 603. 11 Second, in any event by proving the breach of director's duty claim for which Berkley is liable to indemnify Mr Tully as a Claim for a Wrongful Act within the indemnity at cl 1.1 of the Policy: Enterprise Oil Ltd v Strand Insurance Co Ltd [2006] 1 Lloyd's Rep 500 at [167]-[173] (Aikens J). 12 The pleadings raised multiple issues for determination, roving across a court book of almost 6,000 pages, mostly peripheral to the real questions for determination. By way of example, hundreds of pages are consumed by invoices and travel confirmations. None of this material was directly referred to: it was unnecessary to do so because of the synthesised analyses in the accounting expert reports. Fortunately, by the point of closing addresses, counsel agreed a list of 14 issues for determination and very considerably culled the relevant documents in the form of the joint tender list. It is very frequently the case that this Court receives excessively lengthy electronic court books, packed with every conceivable document that has been generated by or exchanged between the parties to a dispute, rapidly compiled and indexed at the click of a mouse. Proper attention to the overarching purpose at ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth), at the time of preparation of the court book for trial, should have resulted in a work of much less volume and thus greater utility from the outset. Solicitors by training and experience are well skilled to sift and evaluate material to isolate the documents that are centrally relevant to the real issues in dispute. Adherence to the core goal of efficiency as required by the overarching purpose is readily achieved by reference to the design philosophy usually attributed to the notable German architect Ludwig Mies van der Rohe: Less is More. 13 There are in my view three determinative issues in this case: (1) whether a claim was made within the Policy period; (2) if so, have the plaintiffs established a claim for loss within the meaning of the Policy, of which there are two sub-parts: was the settlement reached with Mr Tully reasonable or, if not, whether in any event, have the plaintiffs proven the breach of director's duty claim; and (3) if so, has Berkley succeeded in proving breach of the duty of disclosure at s 21 of the Insurance Contracts Act 1984 (Cth) (IC Act) with the result that it is entitled to reduce its liability to nil. 14 For the reasons that follow, I have concluded that the plaintiffs succeed on issue (1) but fail on issue (2) with the consequence that the proceeding must be dismissed. Although that conclusion makes it unnecessary to decide issue (3), it is one that occupied considerable time in the evidence and submissions, and it is desirable that I determine it as well. I find that there was a breach of the duty of disclosure and that Berkley would otherwise have been entitled to reduce its liability to nil. 15 The parties agreed certain facts and all relevant documents. There are areas of factual dispute largely concerning whether Mr Tully breached his director's duties, what facts were known to Tempo to engage the duty of disclosure and whether Berkley would not have written the Policy if certain information had been disclosed. There is also a large dispute about the date when Tempo became insolvent about which I have the benefit of expert evidence from Mr Fitzgerald and Mr Damien Beven together with their joint expert report. My findings comprise a mixture of agreed and determined facts based on resolving conflicts in the evidence. Where I refer to evidence without critical analysis, I find according to it.

THE COX & KINGS GROUP 16 As noted, Cox & Kings was the ultimate holding company of the Group. It was a very substantial corporation. In the annual report for 2017-2018 (the reporting period for each financial year was to 31 March) it reported total transactions to a value of USD2.3 billion, more than 6,000 employees and an enterprise value of approximately USD1.2 billion. Net revenue, expressed in lakhs increased from INR41,872 in 2014 to INR73,370 in 2018. A lakh is a unit of measurement in the Indian system of numbering equal to 100,000. Thus, for the purposes of comparison, as Mr Fitzgerald explained, a rough conversion rate is $2,000 for INR1 lakh, which results in a net revenue figure for the 2018 year of approximately $146 million. 17 The group accounts were audited. In the 2018 year (as expressed in lakhs), the consolidated group profit before tax was INR69,138, non-current assets were INR487,330, net debt was INR234,369, long term debt was INR228,584, short-term debt was INR162,110 and net assets INR10,76,994. Separately, the holding company reported revenue of INR274,193 and profit before tax of INR28,001. The audit report dated 28 May 2018 certifies that having completed the audit task, the auditor was satisfied that he had a reasonable basis to conclude that Cox & Kings had during the audit period, prima facie complied with a number of statutory provisions relevant to the conduct of the business and had in place "proper Board-processes and compliance mechanisms". 18 Staying with the 2018 annual report, the Group chair was Mr ABM Good, who was first appointed to the board in 1971. He has substantial experience in corporate management. There were five other directors, including Mr Kerkar for whom this summary was provided: Mr. Peter Kerkar has been intimately involved in the growth of the C & K Group and was responsible for its transformation from a business travel and shipping and forwarding agency to one of the leading leisure players in the industry. He is the driving force behind the Company's initiatives in the geographies in which it operates today. He is based in the UK and is responsible for the Company's overall leadership, strategy, global centralised buying and international growth. In this role, he has been actively involved in the identification of new opportunities. Under his leadership, the Company is now positioned as the premier travel company in India as well as a brand leader in the premium market segment in the UK, US and Japan. He is a graduate in Arts (B.A.) with distinction in Economics and Anthropology from Stanford University, US. 19 Within the directors' report to the shareholders, signed by Mr Good on 28 May 2018, the following statements are made, amongst many others: There have been no material changes and commitments affecting the financial position of the Company between the end of the financial year and the date of this report. There has been no change in the nature of the business of the Company. … In FY 2017-18, we focused on growth and managed to grow all our businesses faster than in FY 2016-2017 in constant currency terms. This is testament to our resilience which is achieved by being dynamic and adaptive to changes. Brexit continued to pose a challenge to our UK operations while India business saw receivables increase due to the confusion emanating from the implementation of Goods and Services Tax (GST). In this backdrop, Cox & Kings' consolidated net revenues grew by 9.9% yoy in FY 2017-18 more than double the growth of 4.4% in FY 2016-17 as nearly all businesses kept up the momentum. … Credit analysis & Research Ltd (CARE), the Rating Agency, has reaffirmed and enhanced the Commercial Paper issue carved out of sanctioned working capital limit of the company… The Rating has been reaffirmed as CARE A1+ (A One Plus). Instruments with this rating indicate very strong capacity for timely payment of financial obligations and carry lowest credit risk. [The directors state that]: (a) In the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures; (b) The directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit and loss of the Company for that period; (c) The directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of [Companies Act 2013 (India)] for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; (d) The directors had prepared the annual accounts on a going concern basis; and (e) The directors, had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively. (f) The directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively. … The Company has in place Internal Financial Control system, commensurate with size & complexity of its operations to ensure proper recording of financial and operational information & compliance of various internal controls & other regulatory & statutory compliances. During the year under review, no material or serious observation has been received from the Internal Auditors of the Company for inefficiency or inadequacy of such controls. 20 The consolidated Group accounts for 2019 were tangentially adduced into evidence as an attachment to email correspondence from Mr Anil Khandelwal of 9 July 2019. Those accounts are incomplete. They comprise accounts for Cox and Kings as a standalone entity (revenue, expenses, profit, and a balance sheet) and a consolidated balance sheet only for the Group. These accounts were not addressed in submissions and there are some material differences between amounts in those accounts and the summary of the Group accounts that Mr Fitzgerald sets out in his expert report. No questions were asked about the differences. Mr Fitzgerald's report was admitted into evidence without objection. Having not received assistance about the missing Group revenue accounts, I proceed by reference to the summary of Mr Fitzgerald. Expressed in lakhs revenue was INR578,598, expenses INR543,580, net profit INR35,018, current assets INR654,939, non-current assets INR272,402, total assets INR 927,341, total liabilities INR454,117 and net equity INR473,224. 21 In the concurrent expert evidence given by Mr Fitzgerald and Mr Beven, each accepted that the Group accounts for 2018 and 2019 presented a "healthy financial position" (balance sheet and financial performance) which plainly was the case for any person concerned to understand the Group financial position in those years. 22 As I have noted, Cox & Kings was placed into external administration on 22 October 2019. There is in evidence a statement of unaudited standalone financial accounts for the company to 31 March 2020 which records (in lakhs) total revenue of INR78,756, total expenses of INR174,478, exceptional items (INR939,880) a loss of (INR1,035,602) and negative equity of (INR729,312). Further, cash on hand declined to INR2,666, current assets declined to INR29,547 and current liabilities (borrowings) increased from INR170,440 in 2019 to INR553,216 in 2020. 23 The cause of the financial collapse of the Cox & Kings Group was not specifically addressed in evidence. Insight, however, may be gleaned from the following. On 19 July 2019, an officer of the Ministry of Corporate Affairs of India sent correspondence to Cox & Kings. Default in the payment of certain fees was noted and, upon the author's examination of filed financial statements and "and other relevant documents", 22 questions were put to the company. Information was required about secured and unsecured loans, trade debtors and creditors, details of the largest 20 lenders, with particulars of the loans payable on the terms of each loan, together with an explanation of why the "company's cash flow from operations continues to remain negative". The author required the correspondence to be treated "as most urgent" and that the response was required to be verified by affidavit. 24 If there was a response, it is not in evidence. However, on 12 August 2019, Cox & Kings advised the National Stock Exchange of India that 70% of its lenders had signed an inter-creditor agreement with the State Bank of India, the effect of which was to obtain a "standstill for 180 days" to enable the company to implement a resolution plan acceptable to its lenders. The substance of that arrangement is set out in a minute of meeting held between Cox & Kings and its lenders on 20 August 2019. The purpose of the "standstill" was to "assist the company in its monetisation/equity raise plan in the next 180 days" to enable it to pay its debts and "transact as normal". A lender, Stellite Finance Ltd was clearly not a party to that arrangement because on 21 August 2019, it issued a notice of default to one of the Group companies and demanded repayment of its debt in full. 25 Another lender, Rattan India Finance Pvt Ltd commenced a proceeding against Cox & Kings in the National Company Law Tribunal at Mumbai based on default in the repayment of loan agreements entered into in May and June 2019. The Tribunal upheld the complaint and made orders for initiation of the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (India).

The GTA 26 Whilst the Group operated as a viable entity, each member utilised an informal arrangement known as the GTA. The parties agree the following facts about it: (1) Companies within the Group, including Tempo, paid funds to Cox & Kings (Singapore) or other entities in the Group from time to time at the request of Cox & Kings; (2) there was no monetary limit on the funds paid by Tempo to Cox & Kings (Singapore); (3) the funds paid by Tempo to Cox & Kings (Singapore) or other entities in the Group, net of the funds paid by Cox & Kings (Singapore) or other entities in the Group back to Tempo, were accounted for as a receivable in the accounts of Tempo; (4) there was no documentation providing a contractual right of repayment of the funds paid under the GTA; (5) the funds paid under the GTA were unsecured; and (6) if Tempo needed funds to be repaid from the GTA it would request a repayment from Cox & Kings. 27 Dr Bigos KC for the plaintiffs does not contend impropriety in the fact that Tempo participated in the GTA. It is common ground that arrangements of that type are implemented in global businesses for the purpose of regulating cash flow within groups. In the global travel industry, there is a high and low season. For Tempo in the Southern hemisphere the high season in each year was March to September (corresponding with the warmer months in the Northern hemisphere) and the low season ran from October to February. 28 Mr Tully gave uncontradicted evidence, which I accept, that Tempo participated in the GTA to alleviate seasonal cash flow pressure, which is an inherent risk in the travel industry. The arrangement was beneficial to Tempo on many occasions and provided Mr Tully with comfort in the knowledge that Tempo would always be able to access funds from the GTA in order to address short-term difficulties with cash flow. Mr Madan as CFO was responsible for managing the finances of Tempo and with it, participation in the GTA. The GTA was in place well before Mr Tully accepted appointment as a director of Tempo. He stated that although he was not directly involved in the management of seasonal cash flows, nonetheless it made sense to him for Tempo to participate in the GTA. 29 Each of Mr Fitzgerald and Mr Beven accepted that arrangements of this type were orthodox within global businesses, particularly those engaged in the travel industry. They differed in their views as to when Tempo could no longer rely upon receiving funds pursuant to the GTA. Mr Beven undertook a forensic analysis of the available historic accounts of Tempo and produced a spreadsheet, which in evidence was referred to as his aide memoire. It records the ebb and flow of cash as: 30 What this discloses is that substantial receivables were owing to Tempo throughout the period from March 2015 and, despite the receipt of substantial monies sometimes in amounts up to $7 million, the total indebtedness grew substantially over time. The benefits received were substantially outweighed by the amounts paid. Despite that fact, the plaintiffs do not contend that Tempo should have ceased participation in the GTA before April 2019. On their case until 31 March 2019, there remained a prospect that the total debt, then exceeding $32 million, would at least be reduced by the receipt of further payments. That contention is expressed succinctly in the plaintiffs' written outline of closing submissions at [135] as follows: Tully's breaches of duties were to allow substantial payments to be made under the Global Treasury Arrangement without monitoring or considering recoverability, in circumstances where there was some doubt as to the recoverability of the loans (for the first 4 payments), and the 5th payment was irrecoverable (because C&K India had gone into a standstill so it was unable to repay Tempo Holidays). The breaches occurred between 16 April and 19 June 2019. They did not occur earlier, because at earlier points in time when payments were made under the Global Treasury Arrangement (the most recent previous payment was in September 2018), there was no doubt as to the recoverability of the loans. (Footnote omitted.) 31 I return to this contention in more detail in these reasons as it is fundamental to the plaintiffs' case. 32 The difference in the opinions of Mr Fitzgerald and Mr Beven were drawn into sharp focus in their joint expert report. Mr Fitzgerald's evidence is that: [T]he operation of the [GTA] is not an uncommon process in large multinational groups. The Company's audited reports as at 31 March 2018 and 31 March 2019 disclose a healthy financial position of the Company and the Group. The Loan Accounts, although increasing during this period, did not affect the trading and performance of the Company. Mr Fitzgerald agrees that the future solvency of the Company was reliant on repayment of the Loan Accounts, however in Mr Fitzgerald's opinion the Company was able to rely on the [GTA] until 7 June 2019. 33 The reference to 7 June 2019 is to the agreed fact that Cox & Kings signed an inter-creditor agreement with 70% of its lenders on that day. However, when one looks more carefully at the documentary evidence what becomes clear is that 7 June 2019 is the day on which Cox & Kings issued a circular with the heading: "Prudential Framework for Resolution of Stressed Assets" which stated to the effect that an inter-creditor agreement was intended to be entered into with 75% by value, or 60% by number, of its lenders. The primary lender, the State Bank of India, did not resolve to enter into that agreement until 15 July 2019. These facts are recorded in the decision of the Tribunal published on 22 October 2019 at paragraph [11]. The inter-creditor agreement is not in evidence. If that difference had been noticed earlier, it may well have been material to the expert opinions of Mr Fitzgerald and Mr Beven, each of whom was instructed to proceed by reference to the date of 7 June 2019. However, as this matter was not explored at the trial, I consider that I should proceed by reference to the erroneous date that is recorded in the statement of agreed facts. 34 In contrast, the evidence of Mr Beven in the joint expert report is: [T]here was mounting reason to suspect the loan accounts were not recoverable from May 2018. Mr Beven considers that escalating levels of debt to related parties over multiple periods with little or no repayments is an indicator that a business has poor cash management, lack of strategic direction and inadequate collection protocols. Mr Beven understands that the purpose of the [GTA] was to alleviate seasonal cash flow pressures. However, requests for funding during the Company's low season in 2018 went answered, and as a result, it is Mr Beven's opinion the [GTA] was not working how it was intended and the Company did not enjoy the benefits of being a member of this arrangement. In Mr Beven's view, as the recoverability of the related party loans grew uncertain from May 2018, it is likely that the Company became insolvent around this time. 35 Later in these reasons I return to the insolvency question in detail. What emerges from this evidence, and the contention that Mr Tully did not breach his director's duties before 31 March 2019, is that the plaintiffs have not established an evidentiary basis to support several of their pleaded contentions that Mr Tully breached his duties as a director relating to the GTA by: (1) allowing Tempo to participate in the GTA; (2) allowing Tempo to make payments to group companies under the GTA without contractual documentation providing full repayment and on an unsecured basis; and (3) failing to prevent Tempo from making payments to group companies under the GTA, without contractual documentation providing full repayment, and on an unsecured basis. 36 In the preceding paragraph the first proposition is common ground between the experts. On the second and third, the plaintiffs' submissions and Mr Fitzgerald's evidence dates the failures at some time between 31 March and 16 April 2019. On Mr Beven's evidence the date is from May 2018. This exposes a difficulty with the plaintiffs' pleaded case in that these allegations are not tied to a point in time. As such, they cannot be reconciled with the evidence and for that reason accepted. 37 Additionally and to the contrary, on this evidence I find that there was nothing unusual, improper or inappropriate in permitting Tempo to participate in the GTA. The arrangement was of benefit to Tempo, its participation was a necessary incident of being a member of the Group, and there was no requirement for the terms of the arrangement to be documented or for security to be provided in relation to advances. Indeed, the latter contention of the plaintiffs fails to grapple with the obvious question of mutual security as between Tempo and each Group company, or perhaps more specifically Cox & Kings (Singapore) for all inter-company advances. What is plain is that Cox & Kings determined the terms and operational requirements of the GTA, and the plaintiffs have failed to lead any evidence to the effect that Mr Tully, as one of the directors of Tempo as a Group subsidiary was able to decide that Tempo would not participate in the GTA or only do so on terms other than those determined by Cox & Kings from time to time.

The financial position of Tempo 38 As a director, Mr Tully was responsible for reviewing and approving the annual externally audited accounts of Tempo. The audit firm was RSM Australia Partners. The auditor in 2018 and 2019 was Mr P Sexton. At trial considerable attention was paid to the accounts to 31 March 2018 which Mr Tully signed on 17 May 2018. As is customary, the accounts provide a comparison with the results for the 2017 year. 39 The profit and loss statement provides: 40 Note (2) records the most substantial source of revenue is the sale of travel services in the amount of $66,298,617 for the 2018 year, an increase from $50,454,779 in the 2017 year. The statement of financial position provides: 41 Several of the notes require elaboration. Note (5) records cash at bank in the amount of $3,521,625, an increase from $1,419,885 in the 2017 year. Note (6) is concerned with trade receivables, including advances to suppliers. The total of $8,694,157 includes a marketing contribution receivable from Prometheon Enterprise Ltd, UK (Prometheon UK) in the amount of $4,840,183. Note (7) provides: 42 The cross reference to note (1) includes subparagraph (e) which provides: Trade receivables are carried at amounts due, less provision for impairment of receivables. Receivables from related parties are recognised and carried at the nominal amount due. Collectability of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectable are written off. A provision for impairment of receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables. 43 Note (12) states that the amount of $11,400,964 comprised trade creditor amounts of $10,196,897, an increase from $7,855,314 in the 2017 year and the balance being accrued employee entitlements and sundry amounts payable, including accrued expenses. Note (13)(a) simply states that the $5,116,024 is an unsecured advance from related entities, an increase from the previous year of $3,460,577. 44 In signing the audited accounts Mr Tully declared, on behalf of the directors, their joint opinion that the accounts complied with relevant accounting standards and "give a true and fair view of the company's financial position as at 31 March 2017 [sic] and of its performance for the year ended on that date in accordance with the accounting policies described in Note 1 to the financial statements" and that "there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable". No point was taken at the trial about the obvious error in the date in the statement made by Mr Tully. 45 Relatedly, Mr Sexton in his audit report dated 17 May 2018, recorded his independence, the fact of the audit, his opinion that the accounts give a true and fair view of the financial position on 31 March 2018, and comply with the relevant Australian accounting standards. Amongst other things, Mr Sexton stated: The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view and have determined that the basis of preparation described in Note 1 to the financial report is appropriate to meet the requirements of the Corporations Act 2001 and is appropriate to meet the needs of the members. The directors' responsibility also includes such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In preparing the financial report, the directors are responsible for assessing the ability of the Company to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. … Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of this financial report. 46 A matter of significance in this proceeding is that the plaintiffs do not contend that there was a material error or omission in the 2018 accounts of Tempo. To 31 March 2019, their case is that there remained a realistic prospect that the accumulated debt of almost $32 million would be repaid and the GTA would continue to function. 47 Mr Tully did not give direct evidence as to how he came to make the declarations in support of the 2018 accounts in his affidavit made on 10 February 2023, although he does for the corresponding declarations in the 2019 accounts. In his oral evidence he was questioned in general terms about his investigations, if any, which caused him to be satisfied that it was appropriate to approve the 2018 figures. He said that it was not his responsibility to engage or deal with the auditors, as this was attended to by Mr Madan. He confirmed that he read the financial accounts before signing the declaration. He confirmed his understanding that the trading position had significantly improved, in terms of net profit, from the 2017 financial year. He understood that the assets of Tempo included as a receivable amount payable to it pursuant to the GTA. He was aware that Cox & Kings had provided an assurance to the auditors in the form of a letter of support for its subsidiaries, which he considered to be a form of guarantee. Overall, he relied upon the audited accounts as being accurate and he did not make independent enquiries as to the information contained therein. 48 By 2019, there is indirect evidence that the auditor was concerned about the recoverability of the inter-company advances made by Tempo pursuant to the GTA and other related amounts receivable. Mr Madan sent an email to head office on 26 March 2019, stating that he had met earlier in the day with the audit signing partner who had raised the following issues, and on which Mr Madan sought clarification (the solecisms are not corrected): 1. Marketing contribution of USD 3.710 mill outstanding since 2013 -14. We cant show it any more in receivables. It needs to be either moved to related party with a separate interest-bearing loan arrangement and a classification as "non-current assets" OR to write off. The write off will attract the deemed dividend provisioning and taxation thereof. Please let us know how you want to proceed on this? 2. Goodwill: we need to have a policy to write-off of goodwill is treating the same for perpetuity is not acceptable principle. 3. Intercompany funding: they are uncomfortable on the situation as the receivable from related parties has grown in a big way with one sided movement with no return in sight and questioning the recoverability of the same. Looking for justification and HO stand on the same. 4. Revenue split: till now we are showing gross revenue is a single line item. Going forward need to show revenue split on some criteria and need guidance from HO on "basis to split". 5. Time lines for getting final go ahead on the figures AND signed financials. Not clear on dates as UK office is asking for 15th April, UK auditor is asking for mid-May. 49 Two responses are relevant to this proceeding. On 26 March 2019, Mr Khandelwal from Cox & Kings responded. He questioned whether the marketing contribution could be written off and sought clarification as to the quantum of the intercompany loans at 2018 when compared with 2019. Mr Madan promptly responded that writing off the marketing contribution (again without corrections): [I]s not possible as it will bring [Tempo] in negative net worth, making It as insolvent entity resulting in all sort of legal and compliance. In couple of years' time, it may be possible if Tempo makes sufficient profit and accumulate reserve. Hence the option is to move the same and the related entities section and create loan documentation and charge interest on the same. 50 In response to the question about the inter-company loans, Mr Madan went no further than providing advice as to the figures. 51 On 24 April 2019, Prometheon UK sent correspondence to the auditor concerning the marketing contribution and stated: We hereby confirm that an amount of USD 3,710,000 is payable to Tempo Holidays Pty Ltd Australia on account of Share of Supplier Overrides and Other Support Contributions pertains to financial year 2013 -14. We further confirm that we are OK to classify this amount as "Non-current Other Receivables" which is/will be adjusted against the various services CNK UK and/or CNK India will provide to Tempo Holidays in the past as well as going forward. 52 Despite the cryptic nature of that correspondence, it must have satisfied this query raised by the auditor because the marketing contribution is disclosed as "other receivable" in the amount of $4,890,646 from Prometheon UK at note (8) to the audited accounts for the 2019 year. 53 As to the amount receivable by Tempo pursuant to the GTA, Prometheon UK, in separate correspondence to the auditor dated 11 April 2019, stated: This letter's purpose is to confirm that Cox & Kings Limited (an Indian public company) will continue to provide ongoing financial support to its subsidiaries listed below (in so far, they trade with one another): … Cox & Kings Limited will ensure that there is a provision of funds sufficient to meet the working capital requirements for a period of not less than twelve (12) months from the date the directors approve the financial report of Cox & Kings (Australia) Pty Ltd., Prometheon Australia Pty Ltd & controlled entities consolidated financial statements and the date from which each individual company's domestic financial statements are adopted. We also confirm that should any company within the wholly owned group of Cox & Kings Limited not be able to meet the inter-entity trading loans or payable commitments with another wholly owned subsidiary, we will provide sufficient resources to fund the financial commitment on that subsidiary's behalf or arrange alternative settlement means so not to financially disadvantage the said entity to the detriment of all other creditors of the Group subsidiaries listed above. 54 The list of subsidiaries included Tempo. Thereafter, the audited accounts of Tempo for the 2019 year, which Mr Tully signed on 24 June 2019, recorded the quantum of the inter-company indebtedness as a current asset and with the qualification at note (7) in the same terms as that note to the accounts for 2018. Similar letters of comfort had been provided to the auditors on 26 April 2016, 18 April 2017 and 5 April 2018. 55 Mr Tully did give direct evidence in his affidavit as to the steps that he took in satisfying himself that it was appropriate to make the declarations contained in the 2019 accounts. He was aware that the auditors had been paid $40,000 for their services and assumed that the audit had been thorough and comprehensive and undertaken in accordance with appropriate professional standards. He noted the opinion of the auditors, to the effect that the accounts disclosed a true and fair view of the financial position of Tempo as at 31 March 2019. He noted that total revenue was approximately $75 million, an increase of approximately $8 million from the previous financial year. In his view this was the largest amount of revenue ever recorded in the trading history of Tempo, for the period that he had been a director. He noted that Tempo had traded profitably and had derived a net operating profit after tax of $3,110,742. Similarly, he noted that this was the largest profit ever recorded by Tempo during his tenure as a director. He specifically noted that this was the second consecutive year of profitable trading by Tempo, that it had net assets of $3,518,272 and had significant cash reserves exceeding $4 million. 56 Mr Tully formed the view that the growth in revenue and profits was consistent with the information provided to him by Mr Madan in the weekly sales reports and his general opinion that the travel industry was experiencing significant growth. 57 Mr Tully was aware that there was a significant loan to related entities exceeding $32 million. He was also aware that the loans were guaranteed by the parent company, were at call and were unsecured. These matters did not concern him. Why is revealed in this statement: I had assumed that Tempo's auditors had been in contact directly with the related entities and/or the auditors of the related entities in respect to these loans and would have made notes on the audited financial accounts 2019 if there were any increased risks or difficulties had arisen in accessing these funds should they be required by Tempo. In the absence of any such notes or advices from any other person I did not see any reason to make any enquiries or investigations in addition to what had already been undertaken by the auditors. In any event I did not have the skills or expertise to conduct such investigations or access to the relevant information of the related entities. I had been a director of Tempo for over a decade at the time I signed the 2019 audited financial accounts and I had become aware that the amount of loans between related entities would always fluctuate. It was my understanding that the whole function of the [GTA] was to alleviate seasonal cash flow pressures inherent in the travel industry by sharing funds amongst members of the Cox & Kings Group which were subject to different high and low seasons due to their different geographic locations. The [GTA] had been a benefit to Tempo on many occasions and it was comforting for me to know that Tempo would always have access to the benefits of the [GTA] in the future. 58 This affidavit was tendered in evidence by Berkley. The plaintiffs separately tendered a transcript of the public examination of Mr Tully conducted on 4 March 2021 pursuant to s 596A of the Corporations Act. Mr Tully stated that he was not aware at the time of the query raised by the auditors in March 2019 about recoverability of the inter-company loans. Specifically, Mr Madan did not draw the relevant correspondence to his attention and the auditors did not otherwise make it known to him. Otherwise, Mr Tully did not give evidence during his examination inconsistent with his affidavit. 59 In oral evidence before me, concerning the 2019 financial accounts, Mr Tully reconfirmed that when he made the declarations he believed that Tempo would be able to pay its debts as and when they became due and payable, that no concerns about financial viability had been raised with him by Mr Madan or Mr Kerkar and that he was not otherwise then aware of any information contrary to the financial position as stated in the accounts. When asked specifically about the GTA and his state of mind in June 2019, he confirmed that he had "no reason to doubt" that the loans would be repaid. 60 Mr Tully presented as a straightforward, honest and therefore credible witness. His evidence does not conflict with any contemporaneous documents. I have no reason to doubt the accuracy of his evidence.

The GTA payments in issue 61 Mr Beven's aide memoire records five transfers by Tempo pursuant to the GTA between 16 April and 19 June 2019 amounting to $5,862,429. They are central to this proceeding. To recap, the amounts transferred to Cox & Kings were $976,000 on 16 April, $1 million on 30 April, $2 million on 20 May and $955,280 on 19 June 2019. An amount of $931,149 was transferred to the Group company Avilia Tourism on 2 May 2019. 62 Mr Tully's evidence is that he was not made aware of requests for the payments at the time and was not consulted as to whether the payments should be made. It was Mr Madan who was responsible. That evidence is confirmed in a contemporaneous document, being Mr Tully's letter of resignation as a director of Tempo and Prometheon AU dated 19 August 2019 wherein, after submitting his "immediate resignation" he continued: It has been brought to my notice that there have been several payments made towards our own group companies from our advances received and I was not previously aware of this. Having become aware I wish to resign with immediate effect. 63 In his public examination, Mr Tully was questioned as to whether his acquisition of knowledge of these payments prompted his resignation. He denied that it was the only reason, stating that there were others. When permitted to expand on that answer he said: …there were many reasons: the parent company was clearly in trouble, the situation in Australia was difficult and I had absolutely no control over it. So I was very stressed by the situation. I had personal - you know, it was causing me a great deal of personal distress. I didn't know you had to write a list of reasons in a resignation letter. 64 Mr Madan was not called as a witness. He was also publicly examined on 4 March 2021, but no transcript of that examination was tendered in evidence. There is however a good deal of documentary evidence (and the agreed facts) which explains the circumstances in which requests were made for payments and the transfers were effected by him accordingly. The transfers must be understood in the context of requests made by Mr Madan for funds from Cox & Kings, commencing in mid-2018. In what follows, I largely reproduce (save for the emails of 27 March 2019) paragraphs from the statement of agreed facts, with minor edits. On 29 August 2018, [Mr Madan] emailed Abhishek Goenka and [Mr Khandelwal] of [Cox & Kings] and stated: As you are aware that we are moving into our lean season for inflow, it is necessary to have funds back. Can you please return below funds, if not possible in one trench (sic), may be in two/three trenches (sic) on regular monthly intervals: USD 5,330,750 remitted in April 18 2. USD 2,000,000 remitted on 15 August. On 9 October 2018, Madan emailed Goenka and Khandelwal and stated: As you are aware that, we are already in our lean season inflow is not large enough to manage the situation satisfactorily. The net position on related entity outflow is now standing at around +$23million impacting our commitments to suppliers. We have on average 2 mil per month payable to our GSA partner "Hurtigruten" this month and next two months. Amounts due to other suppliers also piling up. I am sure you are working on arranging the same, but we can't wait any longer and need some ASAP. I am not asking for all, but please give us back the funds remitted this year (US$7.5 mill), in two/three monthly instalments starting this week. At about 1.18 pm on 29 October 2018, Madan sent a WhatsApp message to Khandelwal that read, "Sir, funds please". At about 7.31 pm on 29 October 2018, Khandelwal sent a WhatsApp message to Madan that read, "Can I call you later?" At about 7.31 pm on 29 October 2018, Madan sent a WhatsApp message to Khandelwal that read, " Yes sir any time. I need 2.5 million urgently. I don't want to default on my corporate cc card also with 800k outstanding". On 1 November 2018, Madan emailed Khandelwal and stated: In continuation with my earlier communication on our fund position, not sure what the plan/situation is, but today one of our suppliers credit card facilities and put us on immediate credit card payment failing which they will cancel all bookings we have with them. Secondly, I mentioned other day about not having enough funds to pay to HURTIGRUTEN's due of 1 million plus GBP and credit card dues along with other long overdue Foreign a d [sic] payment including overrides to agency chains and marketing spend. I somehow managed to paying HURTIGRUTEN's above overdue but not in a position to stop Tempo defaulting on credit card liabilities of $780+ k and other 2 mil + long overdue liabilities. Per our last telecom, I am supposed to get funds last week or latest by last Monday, which gone without any news of funds. Request you to please arrange urgently to reach Tempo by Monday (5th Nov) morning. On 20 November 2018, Madan emailed Khandelwal and stated: Not sure if my earlier emails on the subject reached you or not as haven't got any reply / response on these, nor on my calls. Writing again as the long overdues are growing day by day and reached at $6 million mark which includes 2 million of Hurtigruten, 850k to Amex card and around 400k to local suppliers and retail distribution networks commission. I tried my best even on personal level and stopped the default last months credit card dues but am not in a position to do it more. On 14 December 2018, Madan emailed Khandelwal and stated: I understand the current issues and am aware that you are trying your best to manage the situation, but please be aware of the coming festive season, wherein everyone needs funds. Having two/three months overdues with suppliers, support services here are becoming major issue and are now not manageable. Request you to please arrange whatever funds you can manage ASAP to pay at least in parts to all these creditors before Christmas. On 18 December 2018, Madan emailed Khandelwal and stated: I am sure, you are trying your best to arrange the funds, but now we are a situation [sic], where suppliers with large long overdues can't be managed any longer. Festive season makes things worse as every one wants full amount. Looking at around AUD 1.5 mill on top urgent basis. On 16 January 2019, Kashmira Commissariat, Tempo Holidays' chief executive officer, emailed Khandelwal and stated: This is to inform you that currently our AUS & NZ unit is facing immense cash flow problem which in turn is affecting our payments to our suppliers. We are no longer in the position to stall our suppliers any further which in turn affecting our credibility in the marker. Request you to please remove some time from your busy schedule and please help to resolve this problem … On 6 February 2019, Tempo Holidays received USD 485,000 [AUD678,037] under the Global Treasury Arrangement from Prometheon. These were the only funds received from Tempo Holidays in the period from 29 August 2018 to the Appointment Date. At about 2.28 pm, on 12 February 2019 Madan sent a WhatsApp message to Khandelwal that read, "Sir, I am sure you must be trying your best to manage this, but we are now in extreme position as the supplier started changing customers and also stopping confirming new business as the delays are too much. Can something be done urgently, say, this week with 100% surety. Thanks. Sudarshan". At about 2.28 pm on 12 February 2019 Khandelwal sent a WhatsApp message to Madan that read, "How much is required bare … minimum". At about 2.28 pm, on 12 February 2019 Madan sent a WhatsApp message to Khandelwal that read in part, "… what max can you manage?" At about 2.28 pm on 12 February 2019 Khandelwal sent a WhatsApp message to Madan that read, "Let me come back by 12 noon India time. All I can tell you is I am trying my level best". At about 11.10 pm, on 12 February 2019 Madan sent a WhatsApp message to Khandelwal that read in part, "Sir, any possibility?" At about 11.10 pm, on 12 February 2019 Khandelwal sent a WhatsApp message to Madan that read in part, "Trying Sudarshan. Still no success". 65 There is one email from Mr Madan that belies the clear inference from this correspondence that Tempo was experiencing financial difficulty from at least 9 October 2018. On 27 March 2019, Mr Madan emailed Mr Malik and Mr Kashimina at Cox & Kings and stated: SBI Account: I am not sure what do you mean here by willing to oblige. They agreed to look into our request for financing, subject to complete documentation including guarantees from ultimate holding company. I can't say that these are the reasons, but one has to follow the procedure and fulfil the documentation requirement as defined by SBI, and we are working on. It is an Indian bank, and South Asian psyche is still prevalent. They need all documents (to my surprise, even the application form and supported originals) to be by attested by a competent authority, which is the major issue. Having two directors in different locations, getting the basic original documents signed takes its own time. Secondly I have to start the process again as functional Board doesn't want "Ryan Bennett" as an authorised signatory for the bank, requiring the re-initiation of basic account opening documents. We are doing our best to get the base documents ready for account opening. Per my discussion with SBI Sydney, "for security arrangements, SBI Sydney is in contact with their counter part in SBI India, who in turn will contact CnK India". Cash Position: The current period being a peak travel season, currently we are in a safe position when it comes to cash and supplier payments and working toward clearing all the outstanding supplier dues (barring related entities). This position will remain comfortable for another 4 / 5 months till the lean season for travel and high season for booking start. Hurtigruten has also been paid on time this month and will continue to pay on time in coming couple of months 66 The reference to SBI is to the state Bank of India and Hurtigruten was a substantial customer to whom Tempo was indebted in an amount exceeding GBP1 million, according to an email of 1 November 2018. Mr Malik responded that day: I have been dealing with SBI and other Indian banks for a long time and I know how they operate. However, they do not take so long when it comes to opening accounts. Changing a bank mandate (change Ryan as authorised signatory...) does not take over 2 weeks to open an account. Can you please let us have a detailed note on what needs to be done with regards to a) opening the bank account and b) arrange a facility. Have you sent them a proposal? If so let us have the details. As far as "willing to oblige" statement is concerned, reading the emails below and my conversations with SBIUK, they have shown interest and are keen to start a relationship with Cox & Kings. Australia. All such matters are always subject to them getting comfort, which I am sure they will. As stated above what has been presented to them. As far as cash-flows are concerned, please send us your cash-flow projections for the next 6 to 8 months. We may be ok for now but we need to look ahead and ensure that the facility is in place well before the low season starts. Please ensure that you have this as top priority and KEEP US POSTED on a regular basis instead of us chasing you for an update. 67 The evidence does not disclose if Mr Madan provided the requested cash flow projections. The next series of emails concerned the queries raised by the auditor as notified by Mr Madan on 26 March 2019 and the letter of financial support from Prometheon UK of 11 April 2019. 68 Returning to payment requests pursuant to the GTA as set out in the statement of agreed facts: On 15 April 2019, [Mr Malik] emailed Mr Madan and stated, "Further to our conversation, can you please transfer US$600k to Cox & Kings, India. Peter has asked if you could check and see if you can transfer any amount above the $600k. Kindly note that there will be delay in remitting funds back to Australia". On 29 April 2019, Sagar Deshpande of [Cox & Kings] emailed Mr Madan and stated, "As discussed with Anil Sir, please transfer funds to India. Please remit in INR. Please ensure its Value Date tomorrow." Mr Kerkar sent a follow up email on 30 April 2019 which stated, "Sudarshan please remit urgently". On 1 May 2019, Mr Kerkar emailed Mr Madan and stated, "Please send all available funds to india (sic) urgently discuss the amount with Anil now." On 17 May 2019, Mr Khandelwal emailed Mr Madan and stated, "Further to our telecon, kindly transfer 2 Million AUD for a very important funds requirement. Sagar will send you the bank account details vide a separate email. I will organise to refund the funds back to Australia early June." Later, on 17 May 2019, Mr Madan emailed Mr Khandelwal and stated, "I can manage around AUD1.5 mil." Mr Khandelwal replied, "Can you help with more? Monday is very very important and the last bit of the rollover that needs to be managed before we get fresh funding next week." 69 It will be recalled that Cox & Kings publicly announced on 7 June 2019, that it intended to enter into an inter-creditor agreement with its primary lenders. It did and quickly thereafter it substantially defaulted, which leads to the next issue.

The Demise of Tempo 70 An understanding of the reasons for the financial collapse of Tempo begins with a decision of the directors to guarantee a group liability under a facility agreement with Yes Bank Ltd. A minute of meeting dated 18 June 2018, attended by Mr Kerkar and Mr Tully, records a decision that Tempo agreed to be one of the guarantors to a facility agreement in the amount of USD187,000,000 between Prometheon UK (and other group members) and Yes Bank. The minutes contain a note that the directors considered the transaction to be in the best interests of and for the benefit of Tempo as a subsidiary of the principal borrower. On the same day, Mr Tully and Mr Madan as the directors of Prometheon AU signed a resolution in its capacity as the shareholder of Tempo, approving of the decision to provide a guarantee. The accession instrument was also signed by Mr Kerkar and Mr Tully on 18 June 2018. 71 Despite what is recorded in these documents, Mr Tully, when publicly examined, did not recall the transaction, did not understand that Yes Bank was an Indian banking institution and did not know what was meant by accession to the transaction. He did, however, recollect receiving correspondence from Yes Bank dated 27 September 2019 which demanded payment of USD187 million. That demand followed default by Prometheon UK in its obligations under the facility agreement at some time prior to 12 July 2019, which is the date of the first letter of demand from Yes Bank to Prometheon UK. On 2 August 2019, Yes Bank made a separate demand upon Tempo as guarantor of the facility for USD187 million. That letter of demand states that Prometheon UK failed to make a payment of USD7,042,788.17 that was due on 17 June 2019. 72 Earlier, on 3 July 2019, the Australian Federation of Travel Agents (AFTA) suspended Tempo's accreditation. Tempo responded to that decision by letter of 26 July 2019, and provided a short analysis of its financial position which disclosed a shortfall between cash at bank of $3,904,647 and net customer advances of $19,577,866. As explained by Mr Fitzgerald in the joint expert report, customer advances represent un-earned revenue and amounts paid by customers to Tempo for advance tour bookings. The funds were not treated as held on trust in the accounts. When a customer completes a booked tour, the unearned revenue is allocated to actual revenue. At the same time a liability is created to the tour supplier, which is reflected in the trade creditors ledger. Mr Beven did not disagree with how Tempo treated these funds, but in his opinion they ought to have been regarded as advances classified as due and payable as a debt, because ultimately the funds represent the amount payable to suppliers, less amounts paid in advance on behalf of prepaid customers or an amount refundable to customers in the event of cancelled bookings. For present purposes, that difference in opinion as to how the funds should have been treated does not affect the fact that Tempo disclosed a shortfall to AFTA as at 26 July 2019. 73 AFTA was not satisfied with Tempo's response. On 29 July 2019, it gave notice of termination of a Sales Agency Agreement with effect from 31 August 2019. Relevant to these events is the evidence of Mr Tully as set out in his affidavit. He became aware in late July 2019, from media reports, that AFTA had suspended Tempo's accreditation. He had a conversation with Mr Madan, who explained that the suspension did not have anything to do with a default by Tempo in that it was "trading strongly" and the default related to one of the subsidiary companies in the Group. Mr Madan assured Mr Tully that he was dealing with the issue and Mr Tully did not take further action to address it. 74 Separately, American Express with effect from 3 July 2019, advised Tempo that it had suspended payments pending a review into the financial capacity of Tempo. The suspension resulted in $789,000 in customer payments made using the American Express credit system being withheld. The suspension was due to Cox & Kings' default. 75 On 2 July 2019, Mr Kerkar sent email correspondence to Mr Madan, amongst others, stating that: The working capital situation at Cox & Kings stretched in the last few months and was further impacted due to its inability to replace the short-term loans with long-term loans/regular working capital lines. The Company is taking all required measures to resolve the temporary cash flow mismatch. For the benefit of all its stakeholders, the Company asserts that C&K has robust operating businesses. It has a thriving and highly valuable Hybrid hotels business in Meininger. It has a niche business in Leisure International. C&K is also an emerging player in the visa processing services business. Each of these businesses carry high intrinsic value. To make it clear all our foreign operations are ring-fenced with their own cash flows and businesses and are able to trade independently. 76 Mr Tully was not a recipient to that email. On 3 July 2019, Maridza Riccioni, described as the marketing manager for the Australian operation, sent an email to Mr Bruce Piper, from the trade publication Travel Daily. It was sent in response to several emails from Mr Piper in which he foreshadowed publishing an article referencing the financial position of the Cox & Kings global business. The Riccioni email attached a statement from Cox & Kings "regarding recent press" under the heading "Defaults triggered by temporary mis-match in liquidity and the measures being taken to addressed [sic] the situation" which provided (without corrections): The working capital situation at Cox & Kings stretched in the last few months and was further impacted due to its inability to replace the short term loans with long term loans / regular working capital lines. None of the foreign operations has any impact of this situations and are able to trade independently. The Company is taking all required measures to resolve the temporary cash flow mismatch. It is evaluating each business and identifying ways to improve operational performance. The Company is focusing on cash flow generation from each business and working at the highest priority to free working capital. The company will also be approaching its lenders to work out some time bound program to meet this emergency. For the benefit of all its stakeholders, the Company asserts that C&K has robust operating businesses. It has a thriving and highly valuable Hybrid hotels business in Meininger. It has a niche business in Leisure International. C&K is also an emerging player in the visa processing services business. Each of these businesses carries high intrinsic value. In the circumstances above, the company requests the co-operation and understanding of all its stakeholders, including employees, franchisees, shareholders, lenders, vendors and other partners, as we work tirelessly to restore the unblemished value in the legacy brand. 77 Mr Piper responded on 3 July 2019 stating: "[n]o problem, we'll put this in tomorrow", expressed concerns about the financial capacity of the Australian business and sought clarification as to whether client funds were held in a trust account. If there was a response to those queries, it is not in evidence. 78 There was considerable correspondence between Tempo and its suppliers in July 2019, concerning late payment of accounts or questioning the financial viability of Tempo. As an example, Iceland Travel sought urgent attention to an overdue payment on 8 July 2019 in the amount of EUR327,426.64. The amount was not paid. 79 An internal management cash flow for Tempo prepared on 8 July 2019, projected receipts and payments from July 2019 to March 2020. It forecast a deficit commencing in the amount of $6,119,485 in September 2019, increasing to $14,140,305 in March 2020. A note to the projections provides (again without corrections): The cash flow is prepared based on the current confirmed business volume. Media reports about CNK India, IATA, ATAS & AFTA news has already started impacting the business and the actual future inflow on confirm business may not flow as projected. Secondly the new business will also be impacted heavily and may not bring any cash going forward. It is now very important that, The board of directors should take the stock with an urgency and arrange returning the funds back to Tempo to enable us to manage the operation without any interuption and further damage to the business 80 There were staff resignations in July 2019, in particular Mr Darren Wakefield resigned his position as Tempo's Inside Sales, Reservations and Retail Manager. A reason that he recorded is that Tempo had been blocked from issuing tickets for air travel, which had caused significant stress within the office. Despite Tempo's deteriorating financial position, on 8 August 2019, it granted a general security deed in favour of Stellite Finance Ltd, to secure monies borrowed by Prometheon UK. Shortly thereafter, on 21 August 2019, Stellite Finance issued a notice of default to Prometheon UK. Of this arrangement, Mr Tully stated in his affidavit that in late July 2019 he was requested to sign the security deeds, which he understood were required to secure the obligations of Prometheon UK. He discussed the proposal with Mr Madan, who told him that Mr Kerkar was responsible for it and was assured that he would not incur personal liability thereunder. When asked in the course of his public examination whether he considered the granting of this security interest to be the "right thing to do for the business", he answered: "I don't know the answer to that, I'm afraid." He was pressed further as to whether he considered the granting of the interest to be an important matter for Tempo and answered: "I suppose it depends on the assets". He was not further pressed on that issue. This transaction was not explored in Mr Tully's oral evidence before me. 81 As I have noted, Mr Tully provided his letter of resignation to Mr Madan on 19 August 2019. In his affidavit he described the circumstances which led to that decision. He considered suspension of the ATAS accreditation and the fact of granting the Stellite security as troubling events, but not sufficiently alarming to trigger his decision. He believed, in consequence of what he had been told by Mr Madan, and his confidence in the management ability of Mr Kerkar, that the liquidity problems were caused by other Group members and steps were being taken to address the issue. In late July 2019, he was still of the opinion that Tempo was a successful and profitable business. 82 Mr Tully travelled to India in August 2019, for business and personal reasons. Whilst there he noticed several media reports concerning the distressed financial position of Cox & Kings. This caused him to telephone Mr Kerkar on 19 August 2019, which conversation he recalls as follows: Me: "Peter I am in Delhi visiting my father. There are stories in the local press about Cox & Kings being under a lot of financial pressure and employees not being paid and I am very concerned." Peter: "Yes I know we still have some liquidity issues but we will get them resolved." Me: "It seems to me the problems are more than just normal liquidity problems and you are urgently selling assets to pay off debts and stay afloat and not paying salaries. I was totally unaware things were so bad over here and I concerned [sic] about the funds owed to Tempo." Peter: "We are facing problems and I am also currently trying to get my head around what has happened. There have been major changes to the banking system in India which is not help the situation. However these problems are temporary and will be resolved." Me: "I am no longer comfortable with the situation and I think the best option is for me to immediately resign." Peter: "Ok I understand and agree it will be best for you to resign. Can you please inform Sudarshan." 83 The effect of the resignation of Mr Tully is that Mr Kerkar became the sole non-resident director of Tempo from 19 August 2019. Mr Tully also resigned from Prometheon AU with effect from 19 August 2019. Mr Madan had earlier resigned from Prometheon AU with effect from 1 July 2019, which left it without a director. 84 On 18 September 2019, Mr Madan emailed Mr Kerkar, amongst others, requesting advice as to the status of the Australian operations. Amongst other things he stated: …As mentioned on multiple times, we are practically trading insolvent as we are continuously telling to trade, our customers & our suppliers that, we have no impact on us due to Cox & Kings situation and for us business is as usual based on communications, information and updates, we are getting from Board and yourself since July 3rd 2019, which the Board surely knows was/is not the case as they are well aware of the whole cashflow and funding situation. … Staffs are practically crying in front of me since morning as they can't cope with the constant barrage of calls from agents asking for real situation… Please decide the fate of this operation by today before close of business our time. It is already late, but every passing hour making things worst. 85 Mr Kerkar responded to the effect that he would "immediately look for a safe harbour situation", but if not found by 30 September 2019 would declare voluntary administration. On 20 September 2019, Mr Fitzgerald and his business partner Mr Michael Humphris were appointed as joint and several administrators of Tempo. 86 On 17 October 2019, Mr Fitzgerald provided the second report of the administrators to Tempo's creditors. In Pt 5 of the report, Mr Fitzgerald stated that in his opinion: [T]he primary reason for the Company's difficulties are attributable to the drain on its cash resources through Cox & Kings Group and its inability to recover loans receivable from related entities within the Group, which had increased by c$17.26m in the 18 months prior to our appointment. That is, the Company's financial resources had been applied to its parent and related companies of some c$17m over the past 18 months. The Company was unable to meet its own financial obligations as a result.

ISSUE 1: A CLAIM IS MADE ON MR TULLY 87 It will be recalled that the Policy period commenced at 4 pm on 31 March 2019 and expired at 4 pm on 31 March 2020. At 2.49 pm on 31 March 2020, Mr Fitzgerald sent email correspondence to Mr Tully in the form of a Demand for payment in the sum of $5,297,133 for breach of director's duties and/or insolvent trading. Berkley denies this Demand amounted to a Claim within the meaning of the director and officer liability indemnity at cl 1.1 of the Policy. The Policy adopts the familiar format in that indemnity is provided on a claims made and notified basis. Although Mr Tully did not notify Berkley of the demand until 1 April 2020, Berkley makes no complaint about that. 88 Clause 1.1 of the Policy provides: We shall pay to or on behalf of any Insured Person Loss arising from any Claim for a Wrongful Act which is first made against the Insured Person during the Period of Insurance and notified to Us in accordance with the terms of this Policy, except when and to the extent that the Company has indemnified the Insured Person. 89 It is not in issue that Tempo is a Company as defined in the Policy, that Mr Tully as a former director is an Insured Person and that each of Mr Tully and Tempo are within the Policy definition of an Insured. What is in issue is whether the Demand was a Claim which corresponds with the claims subsequently made against Mr Tully in this proceeding. The Policy defines Claim for the purpose of cover for any Insured Person exhaustively at cl 3.5. Relevant to this proceeding is subparagraph (i) where Claim means: [A] written demand by a third party against an Insured Person for compensation, damages or for non-monetary relief. 90 In short, Berkley's argument is that properly construed the demand was confined to loss caused by insolvent trading, which is not the loss claimed to have been suffered by reason of the breach of director's duty claim relating to the GTA payments made between April and June 2019. To understand that submission, I set out the Demand in full (omitting formal parts): I refer to my appointment as Joint and Several Liquidator of the Company. Background I have undertaken investigations into the pre appointment affairs of the Company, and advise the following: • The Company was part of a corporate group which included entities including but not limited to Cox & Kings Limited ("CKL"), Prometheon Enterprises Limited ("PEL") and Cox & Kings Singapore Pty Ltd ("CKLS"). • The Balance Sheet of the Company as at 20 September 2019 showed significant related party debtors the major amounts owing were CKLS at c$25.1m, PEL at c$5m and CKL at $4.9m. • As part of this group, the Company had access to a Global Treasury Function ("Treasury Function"). The Treasury Function, as you are aware, acted as a means of which, subject to seasonal cashflow pressures, allowed the Company to access financial support from other entities within the group, as well as provide funding and support to the group. • The final amount the Company received from the Treasury Function was on 4 February 2019 of c$607k. • Historically the Company had provided funds to the Treasury Function however was able to sources [sic] funds from time to time to meet its ongoing requirements. • The final amount advanced by the Company to the Treasury Function was on 20 June 2019 of $955,280. • On 26 June 2019, CKL defaulted on a commercial paper worth approximately AUD$31m and between this date and 15 July 2019, defaulted on 3 other financer obligations. I have been advised by the Company's former CFO that it was at this date (26 June 2019) that he became aware no further funds would be received from the Treasury Function. • By 26 June 2019 CKL and its subsidiaries were not in a position to provide any financial assistance to the Company due to the defaults suffered in Europe and India, with an announcement on the Bombay Stock Exchange dated 1 July 2019 disclosing the revision of CKL credit ratings as a result. • The Company's revenue and cash flow had a traditional seasonal fluctuation, with comparatively low receipts from customers in the period 1 June to 30 September. It was during this time that related party assistance through the Treasury Function was most required. • The Company continued to trade until 19 September 2019, where the Company's sole remaining Director Mr Kerkar addressed the Company's employees via teleconference and confirmed the Company had insufficient funds to continue trading and subsequently, on 20 September 2019, I was appointed as Voluntary Administrator of the Company. Breach of Director's Duties The Corporations Act 2001 ("the Act") imposes specific duties on officers of companies (i.e. directors). Pursuant to the Act, you were at all times subject to obligations and duties, including, but not limited to: • A duty to exercise your powers and discharge your duties with a degree of care and diligence; and • A duty to exercise your powers and discharge your duties: • In good faith; and • For a proper purpose. The default by CKL on 26 June irretrievably affected the financial capacity of the Company to continue. Thereafter the situation continued to deteriorate. Once CKL defaulted on 26 June 2019 the financial affairs of the Group were permanently disaffected. As a consequence the Company, which was reliant both on a balance sheet and cashflow basis on the loans it had extended to related parties, was not able to continue that reliance and was not financially viable thereafter. Between 26 June 2019 and 20 September 2019, the following events confirm the Company's financial concerns during this period: • On 3 July 2019, American Express (AMEX) commenced withholding certain customer payments from the Company, with approximately $789k being withheld from this date (further straining the Company's cashflow). • On 3 July 2019, Australian Federation of Travel Agents ("AFTA") suspended the Company's ATAS accreditation and issued a show cause notice for submissions as to why the accreditation shouldn't be cancelled. • The Company was a Guarantor on a finance facility between Prometheon Enterprise Limited ("PEL") and Yes Bank Limited in the amount of c$USD187m. PEL defaulted on payment of c$USD7m which was [sic] as a result a demand was made on the Company as guarantor of the facility on 2 August 2019. The Company had insufficient funds to meet this demand. • On 6 August 2019, Flight Centre Travel Group also withheld certain customer payments from the Company. Approximately $1.9m was withheld from this date to our appointment. • On 22 August 2019 the ATAS accreditation of the Company was cancelled by the Australian Federation of Travel Agents ("AFTA"). AFTA cited the Company's failure to demonstrate solvency as required under the ATAS Charter as the reason for the cancellation. Due to your failure to act on the solvency concerns faced by the Company and continue to allow the Company to trade with limited cash flow, I estimate that the Company incurred a minimum of $5,297,133 in debt that it was unable to pay. A listing of these debts is provided at Annexure A. I note that total value of debts incurred after 26 June 2019 which were never met is likely to be much higher, however based on the records I have, this is the minimum amount I am able to quantify. Your failure caused detriment to the Company and resulted in a breach of your duties as director of the Company. I am also aware that the Company made assertions to its customers after the cancellation of ATAS accreditation by AFTA that all deposits received will be secure with the funds received being held in a newly established trust account. My investigations did not identify any trust account, and it is my opinion this was a deliberate act of dishonesty to mislead customers to continue trading with the Company at a time when the Company was experiencing significant solvency issues. On the bases of the above, you failed to exercise the level of care and diligence expected of an officer and to exercise your powers and discharge your duties in good faith and in the best interests of the Company. It is therefore evident that the Company maintains a claim for damages in respect to the breaches of your duties as a director. The quantum of the claim relates to the detriment caused to the Company as a result of your conduct which has been calculated at a minimum amount of $5,297,133. Resignation as director I am aware of an email you sent to Mr Sudarshan Madan, the Company's CFO on 19 August 2019 wherein you advised of your resignation as the Company's co-director. It is my opinion that there is insufficient evidence at this stage to reduce your claim for the debts incurred from 26 June 2019 to 19 August 2019. I advise that should you be able to establish that it was a legitimate resignation it may mitigate the quantum of the claim against you, however it does not absolve you of having allowed the Company to incur debts whilst insolvent. In the Alternative - Insolvent Trading I note that a company is insolvent when it is unable to pay its debts as and when they become due and payable. A director has a duty to prevent a company from trading whilst insolvent pursuant to Section 588G(2) of the Act. In accordance with Section 588M of the Act, where it is found that a company traded whilst insolvent a director failed to prevent the company from incurring debt whilst insolvent, the liquidator may recover from the director an amount equal to the loss or damage suffered. Please note that Section 588H of the Act provides defences which a director can rely on in proving that he/she is not liable for the Company's debts incurred whilst the Company was trading whilst insolvent. As evidenced above, I am aware that subsequent to CKL's default on 26 June 2019 and during your appointment as director of the Company, you continued to allow the business to trade knowing that the inability to draw funds from the Treasury Function would cause major cash flow concerns for the Company. Accordingly, I am of the opinion that you allowed the Company to trade whilst insolvent since 26 June 2019, being the date that senior management of the Company recognised no further funding could be relied on from the Treasury Function. I advise that I have completed a review of the largest creditor claims received in the liquidation and where available completed an analysis on all supporting documentation and quantified a minimum amount of $5,297,133 which was incurred during the period 26 June 2019 to 20 September 2019. As such, please be advised that, subject to any defences available, it is my opinion you are personally liable for the total claim of at least $5,297,133 in respect to insolvent trading. Demand for Payment In light of the above hereby demand payment of the amount of $5,297,133 under these provisions in relation to damages for breach of director's duties and/or Insolvent trading of the Company. I have also made this claim against Mr Kerkar as co-director of the Company. I request you remit the amount of $5,297,133 to this office within 21 days by cheque made payable to "Tempo Holidays Pty Ltd (In Liquidation)". Should you have any evidence establishing grounds entitling you not to pay the amount within the abovementioned timeframe, please advise of same as a matter of urgency. In the absence of same I reserve the right to I [sic] commence legal proceedings against you without further notice. You may wish to seek your own legal advice in relation to the above issues and I suggest that you put your insurers on notice of this claim immediately. (Original emphasis.) 91 Annexure A is a list of quantified debts incurred whilst insolvent, particularised by reference to 21 creditors. 92 Berkley accepts that courts "allow some leeway" in requiring correlation between an original demand and the way in which a claim is ultimately pleaded: Smart v AAI Ltd [2015] NSWSC 392 at [178] (Beech-Jones J); Aquagenics Pty Ltd (in liq) v Certain Underwriters at Lloyd's Subscribing to Contract Number NCP106108663 [2017] FCA 634 (Davies J) and on appeal Certain Underwriters at Lloyd's Subscribing to Contract Number NCP106108663 v Aquagenics Pty Ltd (in liq) [2018] FCAFC 9; 352 ALR 131 (Allsop CJ, Dowsett and Kerr JJ). It submits, however, that the specific breach of director's duty claim relates to a different period to that referenced in the Demand, is of a different legal and factual character and that I should conclude that it sits beyond the scope of the claims in the Demand. 93 I reject Berkley's submission. For there to be a claim within the meaning of the Policy, no more is required than a written demand against an insured person for compensation or damages. The Policy does not require a particular form of demand and the link between the obligation to indemnify when a Claim is made and notified is broadly expressed at cl 1.1: Loss arising from any Claim. There is also a broad definition of Loss at cl 3.37 as including: "[m]eans any amount which an Insured is legally obligated to pay on account of any covered Claim". The Demand refers to the GTA and Mr Tully's obligations pursuant to the Corporations Act to exercise his powers and discharge his duties with a degree of care and diligence. Read fairly and objectively, the Demand is in four parts. First, it commences with the general background to the demise of Tempo. That part is relevant to each claim that follows. 94 Second, the breach of director's duties claim, which has two components. One, a failure "to act on the solvency concerns" faced by Tempo and the other, by continuing "to allow the Company to trade with limited cash flow". Each is framed by reference to the duties of Mr Tully as a director pursuant to Pt 2D.1 of the Corporations Act. There is no mention in this part of Mr Tully's separate liability for insolvent trading at Pt 5.7B of the Corporations Act. Mr Fitzgerald's estimate that the company incurred a minimum of $5,297,133 in debts that it was not able to pay (as referred to in the annexure) is formulated without discriminating between the two components. When read with the background, there is a direct link between related party debt by operation of the GTA and the inadequacy of available cash for Tempo to meet its liabilities. The contention is that Mr Tully's breach of director's duties caused the company damage of at least $5,297,133. 95 Third, in the latter half of the Demand, and under the separate heading "In the Alternative - Insolvent Trading", a claim is made for damage suffered again in the minimum amount of $5,297,133, for Mr Tully's liability for insolvent trading under Pt 5.7B of the Corporations Act. 96 Fourth, there is the general demand "in light of the above" framed as one for breach of director's duties and or insolvent trading. 97 The Policy definition of Claim corresponds with the ordinary meaning. In West Wake Price & Co v Ching [1957] 1 WLR 45 at 55, Devlin J observed: I think that the primary meaning of the word "claim" - whether used in a popular sense or in a strict legal sense - is such as to attach it to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the grounds on which it may be based. In the Oxford Dictionary "claim" is defined as first: "a demand for something as due; an assertion of a right to something"… 98 Further, as explained by Allsop J in McCarthy v St Paul International Insurance Co Ltd [2007] FCAFC 28; 157 FCR 402 at [76], a claim: [M]ay be inarticulately expressed as a general assertion of the insured's responsibility for a disadvantageous position of the claimant. By the time of attempted vindication in court, the claim may be the subject of sophisticated alternative or cumulative foundation and expression in pleadings drafted by learned and skilled lawyers. 99 What amounts to a claim is a question of fact: "there is no magic formula": Reid Crowther & Partners Ltd v Simcoe & Erie General Insurance Co (1993) 99 DLR (4th) 741 at 756 (McLachlin J). So too is the later question whether what is framed in a pleaded claim is within the scope of the claim as made: Thorman v New Hampshire Insurance Co (UK) Ltd [1988] 1 Lloyd's Rep 7 at 11-12 (Donaldson MR). 100 As I have explained the Demand was broadly expressed as one for compensation by reason of, inter alia, breach of Mr Tully's duties at Pt 2D.1 of the Corporations Act and the quantification at that early stage was the minimum amount then claimed. The later articulation of the breach of director's duty claim concerned with the payments made pursuant to the GTA between April and June 2019 is sufficiently factually connected to the Demand when read as a whole. 101 For these reasons, Berkley fails on the first issue.

ISSUE 2: HAVE THE PLAINTIFFS ESTABLISHED A CLAIM FOR LOSS WITHIN THE MEANING OF THE POLICY? 102 Two issues require resolution. First, whether the Settlement Deed is sufficient to establish Mr Tully's liability for Loss for a Wrongful Act within the meaning of the Policy. Second, as an alternative, whether Mr Tully breached his duties as a director amounting to a Wrongful Act that caused Tempo to suffer Loss within the meaning of the Policy.

The Settlement Deed 103 This claim is simply expressed in the pleadings. Clause 1.1 of the Policy obliges Berkley to indemnify Mr Tully as an Insured Person and an Insured for Loss, which includes an amount that he is legally obligated to pay on account of any covered Claim pursuant to a judgment of a court. By the Settlement Deed, Mr Tully consented to the entry of judgment against him in the judgment sum of $30,086,369.89, apportioned as to $24,223,940.89 payable pursuant to the insolvent trading claim and $5,862,429 payable pursuant to s 1317H of the Corporations Act as compensation for damage suffered by reason of his breach of his director's duties. Judgment was entered by consent on 21 December 2023 as provided for in the Settlement Deed, with no order as to costs. 104 On this claim, the only issue that divides the parties is whether the terms of the Settlement Deed were reasonable. 105 The Settlement Deed relevantly provides as follows. The Judgment Sum is the total amount that I have referred to, apportioned between the separate claims: cl 1.1. Mr Fitzgerald agreed to confine the insolvent trading claim to the loss and damage suffered by the creditors of Tempo: cl 3.1(a). Mr Tully consented to judgment being entered against him in the amount of the Judgment Sum: cl 3.1(b). Clause 3.2 is concerned with enforcement of the judgment and provides: (a) Mr Tully remains, and shall remain liable, to the Plaintiffs for the Judgment Sum. (b) In consideration of the deposit of the Security Sum in accordance with clause 3.3, the Plaintiffs agree to enforce the judgment in the Proceeding and payment of the Judgment Sum: (i) First, against any proceeds of the Policy; and (ii) Second, as against Mr Tully once the claim on the Policy been [sic] exhausted, only against the Security Sum. (c) The Plaintiffs agree not to take any other steps to enforce judgment in the Proceeding and payment of the Judgment Sum against Mr Tully. (d) Mr Tully hereby assigns to the Plaintiffs any and all amounts recovered under the Policy in relation to the Insolvent Trading Claim and Director Duties Claim and he will take all steps reasonably requested by the Plaintiffs in order to recover such amounts. To the extent that further proceedings are required in order to recover under the Policy, Mr Tully will conduct such proceedings with assistance from solicitors nominated by the Plaintiffs and the Plaintiffs will indemnify Mr Tully in respect of liability for legal costs and any disbursements and expenses reasonably incurred by him and in respect of any and all costs orders made against him in such proceedings, including costs and expenses that he is ordered to pay to any party in such proceedings. 106 Clause 3.3 provides for a Security Sum payable in instalments and in the total amount of $500,000 for Mr Tully's liability under cl 3.2(b)(ii), to be deposited into Mr Fitzgerald's trust account. Separately, Mrs Tully who was also a party to the Settlement Deed guaranteed payment of the Security Sum by Mr Tully and charged her real property in favour of the plaintiffs as security: cl 3.4. By cl 4, Mr Tully agreed to provide reasonable assistance to Mr Fitzgerald in the prosecution of the proceeding against Berkley. 107 Although the liability of Mr Tully pursuant to the Settlement Deed is capped in the amount of the Security Sum, Berkley does not contend that its liability to indemnify is so limited. That position was appropriate: Blakeley, Ryan & Olde (as liquidators of Akron Roads Pty Ltd (in liq)) v Insurance Australia Ltd [2017] VSCA 378; 53 VR 733 at [183]-[199] (Ferguson CJ, Whelan and McLeish JJA). 108 The plaintiffs' written submission on the reasonableness question is briefly expressed: Reasonableness is assessed from the perspective of Mr Tully, not the insurer. The relevant question is whether the settlement was based on a reasonable assessment of the risk he faced if the Plaintiffs were to proceed to trial and judgment, in light of the strength of his negotiating position at the time of the settlement. It is determined on the basis of the information that was available to Mr Tully at the time of settlement. The Court may take into account the likely cost of conducting a trial, the likelihood of success or in this case loss at a trial, and the possibility of an order for costs. (Footnotes omitted. Original emphasis.) 109 Berkley does not dispute that summary at the level of principle. Mr Tully gave oral evidence that he had received advice that his likely legal fees in defending the proceeding were estimated at $160,000. He also stated that he was advised by his barrister there was a 70% likelihood that he would lose the proceeding, if taken to trial. He also verified a statement of his assets and liabilities dated 11 December 2023, which disclosed that his liabilities exceeded his assets to the extent of $863,161. Some questions arose during his evidence as to why he disclosed a liability in the form of a mortgage over a residence but did not include any interest of his in that residence. He stated that the family home had been transferred into the name of his wife, and it was the subject of the mortgage for which he had joint liability. The transfer of the property was effected in August 2021. When questioned further, he stated that he was aware that the transfer is susceptible to being set aside by a trustee in bankruptcy, if he were to be made bankrupt. The residence was purchased for approximately $3.3 million. 110 The plaintiffs submit that I should reach the "overwhelming conclusion" that the Settlement Deed was reasonable having regard to the likely cost of proceeding to trial, the advice from the barrister that Mr Tully would most likely fail and that the 70% advice was likely "optimistic". It is further submitted that I should conclude that the likely quantum of judgment, if the claim had proceeded to trial, would be at least as much as the amount payable under the settlement: Lumberman's Mutual Casualty Co v Bovis Lend Lease [2005] 1 Lloyd's Rep 494 at [44] (Colman J); Re Akron Roads Pty Ltd (in liq) (No 3) [2016] VSC 657; 348 ALR 704 at [237] (Robson J). The specific passage from Lumberman's emphasised by the plaintiffs is: [A]s a matter of law an assured who relies on a settlement as a means of ascertainment has to prove by extrinsic evidence that he was in truth under a liability insured by the policy and secondly that what he paid by way of settlement of that liability was reasonable having regard to the amount of damages that he would have to pay if the matter had gone to trial. The latter requirement of reasonableness is normally satisfied by proof that such amount of damage would be at least as much as the amount paid under the settlement… (Citation omitted.) 111 With respect, whether "in truth" requires an insured to prove, despite a settlement, that there was an actual liability to a third party, rather than a risk of liability, is unclear form this reasoning. If the former was meant, one may question the utility of employing a settlement as a means of proving the obligation to indemnify, at least in cases where an insurer has denied liability: see Vero Insurance Limited v Baycorp Advantage Limited [2004] NSWCA 390 at [47]-[52] (Tobias JA, Giles and McColl JA agreeing) and the comprehensive discussion of settlements by Derrington DK and Ashton RS, The Law of Liability Insurance (3rd ed, LexisNexis, 2013) (Derrington and Ashton) at [8-510]-[8-522]. There are other aspects of the reasoning of Colman J in Lumberman's, concerning difficulties presented by global settlements and the ascertainment of the reasonableness of individual components at [54]-[55], which has not met with approval: see AIG Europe (Ireland) Ltd v Faraday Capital Ltd [2007] 1 Lloyd's Rep IR 267 at [69]-[70] (Morison J) and the discussion by Cannon M and McGurk B, Professional Indemnity Insurance (2nd ed, Oxford University Press, 2015) at [9.127]-[9.132]. 112 It is curious that the plaintiffs emphasise the passage in Lumberman's, rather than authorities concerned with the prospect of liability to a third party and the overall reasonableness of a settlement upon a claim for indemnity where, as here, the party liable to indemnify has wrongfully declined to do so: for example GRE Insurance Ltd v QBE Insurance Ltd [1985] VR 83 at 102 (McGarvie J); Edwards v Insurance Office of Australia Ltd (1934) 34 SR (NSW) 88 at 98 (Halse Rogers J); AMP Financial Planning Pty Ltd v CGU Insurance Ltd [2005] FCAFC 185; 146 FCR 447 at [70] (Emmett J), [157]-[163] (Gyles J); Distillers Company Biochemicals (Australia) Pty Limited v AJAX Insurance Company Limited (1974) 130 CLR 1 at 9-10 (Menzies J) and, although not an indemnity claim case, Unity Insurance particularly at [59]-[64] (Gummow J), [128]-[135] (Hayne J). 113 The plaintiffs do not rely on s 41 of the IC Act, which applies if an insured compromises a claim without the consent of the insurer, having given notice of intention to do so. Notice was not given doubtless because the provision only applies where an insurer has not wrongly denied indemnity: Drayton v Martin (1996) 67 FCR 1 at 36-37 (Sackville J). 114 In GRE Insurance, McGarvie J succinctly stated the principle at 102: A right to recover from another in respect of payment of a liability usually includes the right to recover for an amount not proved to have been due, but reasonably and honestly paid where doubt existed as to the liability for its extent… (Citations omitted.) 115 Contextually understood, Gummow J endorsed that statement in Unity Insurance. Commencing with a reference to Edwards, his Honour at [63] stated: [A]s between the insurer and the insured, the latter was obliged to mitigate its damages and to pursue a reasonable opportunity of compromise of the third party claims in respect of which the insurer had refused indemnity. It was with such situations in mind that, in [Biggin & Co Ltd v Permanite Ltd; Berry Wiggins & Co Ltd (Third Parties) [1951] 1 KB 422], Sommerville J said that "the law … encourages reasonable settlements". As between the parties to the settlement in question, no doubt this is so. 116 At [64], his Honour quoted the principle as expressed by McGarvie J and continued by reference to: ...the more specific proposition that the liability of an insurer to the insured may be established by a reasonable settlement between the insured and the third party, as well as by arbitration or judgment. (Footnote omitted.) 117 Justice Hayne in Unity Insurance comprehensively considered the question of reasonableness at [128]-[137]. What his Honour said at [129]-[132] is of particular relevance to this proceeding: Whether the compromise of a claim was reasonable must be judged objectively, not subjectively. Thus whether a party to litigation has received advice to settle may be important in deciding whether that person's conduct in settling the case was reasonable but, standing alone, the fact that a litigant was advised to settle at a particular figure reveals little or nothing about whether the settlement reached was reasonable. This is not to say that evidence may not be led that such advice was given and adopted; it may. But evidence of that kind does not conclude the issue. What will usually be much more important is the reasoning that supported the advice that was given for that will ordinarily reveal why it was thought reasonable to compromise the claim as it was. Next, the question whether the settlement was reasonable must be judged by reference to the material the parties had available to them at the time the compromise was reached. It is not to be judged according to whether material which was obtained later shows that the opposite party could or could not have prosecuted or defended the claim successfully but according to the assessment which could properly be made at the time of settlement of the chances of success or failure. Often that will require consideration of whether the party that later seeks to say that the settlement was reasonable had made sufficient inquiries and had sufficient information available to it to warrant reaching a compromise. In turn that may invite attention to whether the cost of seeking further information would outweigh the benefit that it was reasonable to expect may be obtained from doing so, but it does not assume knowledge of the opposite party's brief to counsel. All of these, and no doubt other, considerations may bear upon the question whether the settlement arrived at was reasonable. And it is inevitable that there will be no single answer to the question "for what amount was it reasonable to compromise this claim" - there will be a range of answers. What is a reasonable compromise of the claim will almost always require consideration of the chances of the parties succeeding in their respective claims or defences and that prediction of likely outcomes must always be imperfect and imprecise. To state the obvious, that is why the compromise of a claim, which is a monetary claim that will succeed entirely or fail entirely, will usually fasten upon a figure that is less than would be recovered if the claim were to succeed and why it is that there will be a range of figures within which the reasonable observer may conclude that settlement of the claim would be reasonable. 118 Additionally, as to the importance of exposing legal advice that was relied on when considering a settlement proposal see Unity Insurance Brennan CJ at [6], McHugh J at [35] and the recent analysis of Anderson J in PC Case Gear Pty Ltd v Instrat Insurance Brokers Pty Ltd (in liq) [2020] FCA 137 at [151]-[168]. 119 The plaintiffs' evidence to establish the reasonableness of the settlement is in my view insufficient to prove this aspect of their claim. It is limited and quite vague: the oral evidence is that Mr Tully had legal representation in defence of the claim brought against him, was appraised that the costs of defence would be in the order of $160,000 and received oral advice from an unnamed barrister that there was a 70% prospect that he would lose. The documentary evidence is limited to the terms of the Settlement Deed and the statement of assets and liabilities of Mr Tully. The factual basis on which the barrister expressed the opinion was not disclosed. Any assumptions made were not disclosed. The reasoning in support of the prospects of success conclusion was not disclosed. 120 The plaintiffs have chosen not to expose for forensic analysis why it was thought reasonable for Mr Tully to compromise on the terms of the Settlement Deed. No attempt was made to discriminate between the breach of director's duty claim and the insolvent trading claim as bearing upon the 70% estimate. The material that was available to Mr Tully and his lawyers at the point in time at which the advice was given was not identified. The basis upon which the assessment was undertaken, if at all, was not disclosed. The cost estimate appears to have been given on the basis that each claim brought against Mr Tully would be defended. It does not assist in making a judgment about the costs of defending the breach of director's duty claim. No evidence was adduced as to how the prospects of success or failure were assessed or weighed in the balance, to reach the 70% conclusion. The commercial considerations that may have influenced the settlement were not disclosed beyond the assets and liabilities of Mr Tully and, by inference, his capacity to continue to fund the defence of the claim. An inference that is open, and which I draw, is that one reason which informed Mr Tully's decision-making was to put beyond challenge any equitable interest that he may have in the family home, in the event that he was to be made a bankrupt in consequence of the entry of judgment against him in the proceeding for an amount far exceeding his ultimate liability as capped pursuant to the Settlement Deed. That personal consideration is not relevant to the objective reasonableness of the settlement from the indemnity perspective. 121 The plaintiffs need not establish that Mr Tully would have been found liable on the breach of director's duty claim, had it proceeded to conclusion at trial. However, as explained by Derrington and Ashton at [8-521], page 1469 an insured: [M]ay recover only such part as is reasonable, and the test is what a reasonably prudent person in his position would have settled for on the merits of the claimant's case. If the merits of a defence are strong, a small discount of the claim would not be reasonable. The finding must be directed to the sum specifically agreed to and not to a range within which it is found. Factors bearing on this issue include an assessment of his potential proportionate liability based on an informed assessment of the nature and viability of the claimant's case, the estimated cost of a defence and paying the claim, discounted by any reasonable likelihood that the claimant will not succeed, the amount of the overall settlement in the light of the value of the case, the facts known to the insured at the time of settling, the presence of any covenant not to execute as part of the settlement, and his failure to consider viable defences. The potential outcome of the litigation relating to the claim is only one consideration. The settlement must be evaluated in terms of what the parties knew at the time about the insured's potential exposure… 122 The plaintiffs' evidence failed to grapple with these fundamental issues to establish the reasonableness of the settlement. Mr Tully consented to judgment in the full amount of the breach of director's duty claim, save for interest and costs. On the face of it, Mr Tully capitulated by consenting to judgment for the principal amount of the claim in circumstances where there is no evidence of any attempt by him to negotiate a discount, reflecting a compromise, having regard to assessed risks and the usual uncertainty of outcome that attends litigation. 123 For these reasons, I conclude that the plaintiffs have failed to discharge their onus of proving the reasonableness of the settlement, as the basis to establish the claim against Berkley in reliance upon the Settlement Deed.

Pleaded duties of Mr Tully 124 The plaintiffs plead the duties of Mr Tully as: (a) under section 180(1) of the [Corporations Act] and at general law, to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would exercise if they: (i) were a director of Tempo Holidays in Tempo Holidays' circumstances; and (ii) occupied the office held by, and had the same responsibilities within Tempo Holidays, as Mr Tully. (b) under section 181 of the Act and in equity, to exercise his powers and discharge his duties: (i) in good faith in the best interests of Tempo Holidays; and (ii) only for proper purposes. 125 In submissions the plaintiffs did not contend that the common law or equitable duties were broader, more comprehensive than or operated differently to the statutory duties on the facts. If breach of the statutory duties is established, then the plaintiffs must also prove that damage resulted from the contraventions to attract the compensation consequence at s 1317H of the Corporations Act. Section 1317H engages common sense factual causation considerations and does not "import the more stringent test in equity for breach of fiduciary duty": Re IW4U Pty Ltd (in liq) (2021) 150 ASCR 146; [2021] NSWSC 40 at [47] (Gleeson J). 126 There is no difference between the parties, at the level of principle, as to what is required by the statutory duties at ss 180 and 181 of the Corporations Act. As to s 180, see in particular Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52; 275 FCR 533 (Greenwood, Rares and Thawley JJ); Australian Securities and Investments Commission v Healey [2011] FCAFC 717; 196 FCR 291 (Middleton J); Shafron v Australian Securities and Investments Commission [2012] HCA 18; 247 CLR 465 (French CJ, Gummow, Hayne, Heydon, Crennan, Kiefel and Bell JJ) and Australian Securities and Investments Commission v GetSwift Limited (Liability Hearing) [2021] FCA 1384 where Lee J pellucidly summarised the principles at [2526]-[2535] which I gratefully adopt: As s 180(1) makes clear, for the section to be engaged, a director or officer must "exercise their powers" or "discharge their duties". Accordingly, the power or the duty being exercised or discharged must be identified along with the source of the power or duty: Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52; (2020) 275 FCR 533 (at 545 [25] per Greenwood J, at 639 [450]-[452] per Thawley J). The section imposes an obligation to meet a statutory standard of care and diligence applicable to the exercise of all of the powers and the discharge of all of the duties of a director or officer, whatever the source: Cassimatis (at 639 [450] per Thawley J). If the required degree of care and diligence is not met, then the section will have been contravened: Cassimatis (at 639 [450] per Thawley J). Once the section is engaged, the test under s 180(1) is an objective one and is measured by what an ordinary person, with the knowledge and experience of the relevant director, would have done: United Petroleum Australia Pty Ltd v Herbert Smith Freehills (a firm) [2018] VSC 347; (2018) 128 ACSR 324 (at 443 [609] per Elliot J). The ordinary person is a director of the corporation "in the corporation's circumstances" and occupying the particular office held by the director, and having the same "responsibilities within the corporation" as the director whose conduct is impugned: Cassimatis (at 545-546 [27] per Greenwood J, and at 640 [455]-[457] per Thawley J). In determining whether a director has breached the duty imposed by s 180(1), it is necessary to balance the foreseeable risk of harm to the company (including the nature and magnitude of the risk of harm and the degree of probability of its occurrence) against the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question, along with the expense and difficulty of taking alleviating action: Vrisakis v Australian Securities Commission (1993) 9 WAR 395 (at 449-450 per Ipp J); Australian Securities and Investments Commission (ASIC) v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 (at 397-398 [102] per Brereton J). Importantly, this is a forward-looking exercise to determine what a reasonable person would have done. It is not a backward-looking exercise to understand what steps would have avoided the relevant harm: Cassimatis (at 556 [87] per Greenwood J). The balancing exercise not only takes into account commercial considerations and monetary consequences, but extends to "all of the interests of the corporation": Cassimatis (at 640-641 [459] per Thawley J). While commercial activity necessarily permits a company to take risks that individuals may themselves not be willing to assume, the company fiction does not facilitate unlawful risky activity without personal responsibility: Cassimatis (at 640-641 [459] per Thawley J). There are two elements as to the content of the duty of reasonable care and diligence under s 180(1) of the Corporations Act, namely: (a) the circumstances of the company; and (b) the position and responsibilities of the director. As to the circumstances of the company, this includes: the type of company, the provisions of its constitution; the size and nature of the company's business; the composition of the board, the director's position and responsibilities within the company; the particular function the director is performing; the experience or skills of the particular director; the terms on which he or she has undertaken to act as a director; the manner in which responsibility for the business of the company is distributed between its directors and its employees; and the circumstances of the specific case: Maxwell (at 397 [100] per Brereton J). The "responsibilities" referred to by s 180(1) do not just refer to statutory responsibilities that the Corporations Act imposes upon the director, but include whatever responsibilities the director has "within the corporation, regardless of how or why those responsibilities came to be imposed on that [director]": Cassimatis (at 545-546 [27] per Greenwood J, and at 640 [457] per Thawley J); citing Shafron v Australian Securities and Investments Commission (ASIC) [2012] HCA 18; (2012) 247 CLR 465 (at 476 [18] per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ). In this sense, it refers to "factual arrangements operating within the company and affecting the director or officer in question": ASIC v Rich (at 131-132 [7202] per Austin J). Section 180 does not impose a standard of perfection. As such, making a mistake does not in itself demonstrate a lack of due care and diligence: Australian Securities and Investments Commission (ASIC) v Lindberg [2012] VSC 332; (2012) 91 ACSR 640 (at 654 [72] per Robson J). In Rich, Austin J (at 141 [7242]) said: The statute requires the court to apply a standard defined in terms of the degree of care and diligence that a reasonable person would exercise, taking into account the corporation's circumstances, the offices occupied by the defendants and their responsibilities within the corporation. That requires the defendants' conduct to be assessed with close regard to the circumstances existing at the relevant time, without the benefit of hindsight, and with the distinction between negligence and mistakes or errors of judgment firmly in mind. If the impugned conduct is found to be a mere error of judgment, then the statutory standard under s 180(1) is not contravened… Further, s 180(1) of the Corporations Act does not require the conduct to have caused loss for a contravention to have occurred: Cassimatis (at 639 [449] per Thawley J). Finally, while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company, they are entitled to rely upon others; however, an exception exists where the director knows, or by the exercise of ordinary care should now, facts that would deny reliance: Australian Securities and Investments Commission (ASIC) v Healey [2011] FCA 717; (2011) 196 FCR 291 (at 330 [167] per Middleton J); Australian Prudential Regulation Authority v Kelaher [2019] FCA 1521; (2019) 138 ACSR 459 (at 476 [41] per Jagot J). A non-executive director may rely on management and other officers to a greater extent than an executive director, but beyond this no general statement can be made: Morley v Australian Securities and Investments Commission (ASIC) [2010] NSWCA 331; (2010) 274 ALR 205 (at 355 [807] per Spigelman CJ, Beazley and Giles JJA). 127 Although the plaintiffs plead breaches by Mr Tully of his obligation to act in good faith in the best interests of Tempo and for a proper purpose as required by s 181, their submissions make scant reference to these separate obligations beyond footnoting three cases: Australian Securities and Investments Commission v Maxwell [2006] NSWSC 1052; 59 ACSR 373 (Brereton J), Australian Securities and Investments Commission v Adler [2002] NSWSC 171; 168 FLR 253 at [738] (Santow J) and Bell Group (in liq) v Westpac Banking Corporation (No 9) [2008] WASC 239; 39 WAR 1. The reference to Bell Group is to the distillation of the principles by Owen J at [4619] and bears repeating: I will try now to summarise what I see as the relevant legal principles that must be brought to bear in deciding these questions: (1) The test whether directors acted bona fide in the interests of the company as a whole is largely (though by no means entirely) subjective. It is a factual question that focuses on the state of mind of the directors. The question is whether the directors (not the court) consider that the exercise of power is in the best interests of the company. (2) Similar principles apply in ascertaining the real purpose for which a power has been exercised. (3) It is the directors who make business decisions and courts have traditionally not pronounced on the commercial justification for those decisions. The courts do not substitute their own views about the commercial merits for the views of the directors on that subject. (4) Statements by the directors about their subjective intention or belief are relevant but not conclusive of the bona fides of the directors. (5) In ascertaining the state of mind of the directors the court is entitled to look at the surrounding circumstances and other materials that genuinely throw light upon the directors' state of mind so as to show whether they were honestly acting in discharge of their powers in the interests of the company and the real purpose primarily motivating their actions. (6) The directors must give real and actual consideration to the interests of the company. The degree of consideration that must be given will depend on the individual circumstances. But the consideration must be more than a mere token: it must actually occur. (7) The court can look objectively at the surrounding circumstances and at the impugned transaction or exercise of power. But it does so not for the purpose of deciding whether or not the there was commercial justification for the decision. Rather, the objective enquiry is done to assist the court in deciding whether to accept or discount the assertions that the directors make about their subjective intentions and beliefs. (8) In that event a court may intervene if the decision is such that no reasonable board of directors could think the decision to be in the interests of the company. 128 Each limb of s 181 creates a separate duty, though "it may be difficult to separate considerations that go to each": Bell Group at [4456]. 129 The plaintiffs do not address the controversy whether the duty at s 181(1)(a), to act in the best interests of a company, is determined objectively or subjectively and nor do they advert to the conceptual difference between good faith and best interests - as to each see Re Colorado Products Pty Ltd (in liq) [2014] NSWSC 789; 101 ACSR 233 at [420] (Black J) and Hanwood Pastoral Co Pty Limited v Kelly (No 2) [2022] FCA 850 at [140]-[143] (Halley J). 130 Less controversial is the question whether a director has in fact acted for a proper purpose which is a matter of objective inquiry: Hanwood Pastoral at [144]. 131 There is imprecision in how the plaintiffs put the s 181 case. The terms of the statute are pleaded, followed by the transactions in issue (including the impugned payments), the contention that Mr Tully knew or ought to have known of those factual matters followed by the assertion that he breached each of his duties by reference to eleven failures to act, two apparently positive acts ("allowed" Tempo to participate in the GTA and make payments pursuant to it) and one exposure to the risks associated with the GTA. There is no gradation or attempt to nuance the contended contraventions of Mr Tully separately by reference to the duty at s 180, with the two limbs of the obligation at s 181. The separate duties and the separate elements of s 181 are conflated, which begs the question, what is the plaintiffs' case on s 181? 132 The plaintiffs' closing submissions do not shed much further light on the conceptual differences between these statutory duties. There is only one substantive reference to s 181 in the plaintiffs' written closing submissions that appears in a footnote, in support of the proposition that "by being asleep at the wheel" Mr Tully failed to act in good faith in the best interests of Tempo. There is no reference to breach of the separate duty to act for a proper purpose. In the footnote one sees the apparent concession that sMr Tully may have acted honestly in believing that what he did (more precisely in this case what he failed to do) was in the best interests of Tempo but, the submission proceeds, that was insufficient on objective inquiry. The footnote continues: No reasonable board could think that it was appropriate for the only Australian-based director who was tasked with signing the financial statements to completely ignore the operation of the [GTA] and to allow over $5 million to be paid to overseas entities in circumstances where it was becoming increasingly obvious as time went on that the group's liquidity issues were more than a temporary issue. 133 In oral closing submissions, Dr Bigos did not mention or expand this point and did not otherwise advert as to how the s 181 case is made out. 134 The footnote departs from the pleaded case. The pleading is that Mr Tully owed the s 181 duty to exercise his powers and to discharge his duties in good faith in the best interests of Tempo. The case is not about what a hypothetical board would have thought of the conduct of Mr Tully. 135 Drawing these amorphous threads of the case together, I proceed on the basis that: (1) the subjective honesty of Mr Tully is not an issue; (2) the case does not rest on the proper purpose limb of s 181(1)(b); and (3) the contention is that by failing to act in the manner contended, objectively considered, Mr Tully breached the obligation to exercise his powers and discharge his duties in good faith in the best interests of Tempo.

The breach of duty case 136 The case commences with a statement of the operative features of the GTA, the net amounts receivable by Tempo pursuant to it as at March 2017 and March 2018 and the sequence of email correspondence between 29 August 2018 and March 2019, that I have set out above. Next there is pleaded the five requests for payment, and the payments made between 16 April and 19 June 2019, and the fact that by making these payments the receivable amount owed to Tempo was $32,264,843 at 19 June 2019. On these facts, the plaintiffs, by the device of a rolled-up plea, contend that Mr Tully breached each of his duties as a director in various ways, three of which I have already concluded are not made out on the evidence. The remaining contentions are that he: (1) failed to oversee and monitor the management and operations of Tempo; (2) failed to keep informed about the activities of Tempo; (3) failed to maintain a system of internal control over the financial management of Tempo; (4) failed to understand the operation of the GTA; (5) failed to ascertain the risks associated with Tempo participating in the GTA; (6) exposed Tempo to the risks associated with participation in the GTA, including the risk that it will not be repaid funds that it had paid to other Group companies; (7) failed to monitor the operation of the GTA and/or Tempo's intercompany receivable position; (8) failed to take any steps to ascertain the financial position of the Group members participating in the GTA; (9) failed to obtain any legal or accounting advice in relation to participation in the GTA by Tempo; (10) failed to consider the ability of Tempo to recover any payments it made as part of the GTA; and (11) failed to prevent Tempo from making the Cox & Kings transfers and the Avila transfer. 137 At a high level of analysis, it may be said that as a non-executive director, Mr Tully was not required to be involved at the operational level of the business of Tempo, but as explained in the extensive analysis of Middleton J in Healy (a case about the duties of non-executive directors) that provides no relief from the objective standard of care: [169]-[173]. What is required is a detailed consideration of all the relevant circumstances. 138 I commence with the appointment of Mr Tully as a director. When Mr Tully was approached by Mr Kerkar to accept appointment in late 2008, he had acquired business experience as a partner in an international marketing consultancy firm. He was aware that Mr Kerkar was the CEO of the Group and in that role was responsible for the overall leadership and strategy of the Group. Mr Kerkar would act as the managing director of Tempo, and Mr Tully would be a non-executive director, and the only director of Tempo resident in Australia. Mr Tully would not be remunerated for performing his role. The appointment was offered on the express basis that Mr Tully would not be required to be involved in the day-to-day management of Tempo. 139 There is no instrument of appointment of Mr Tully as a director of Tempo, no contract and no written statement of his duties and responsibilities as a director. Tempo had an old fashioned Memorandum and Articles of Association adopted on the date of incorporation - 9 November 1989. Clause 66 provides that the business of Tempo: [S]hall be managed by the directors, who may pay all expenses incurred in promoting and forming the Company, and may exercise all such powers of the Company as are not, by the Code or by these regulations, required to be exercised by the Company in general meeting. 140 Clause 68 provides that all cheques, promissory notes and bills of exchange and other forms of negotiable instruments and all receipts for money paid to the company should be signed, drawn or otherwise endorsed by any two directors or in such manner as the directors determine. Clause 79 provides for a managing director: The directors may from time to time appoint one or more of their number to the office of managing director for such period and on such terms as they think fit, and, subject to the terms of any agreement entered into a particular case, [sic], may revoke any such appointment. 141 The plaintiffs have not adduced any evidence as to the express terms of appointment of Mr Kerkar as the managing director of Tempo. I find in accordance with the evidence of Mr Tully that Mr Kerkar assumed and exercised the powers of managing director of Tempo, that he did so with the knowledge and consent of Mr Tully and that he was responsible for the management of the business of Tempo, which function he performed in conjunction with his overall management of the Group. He was the primary individual in control of the Group. 142 Mr Tully was not made a signatory to any of Tempo's bank accounts. Conformably with the express basis on which he accepted appointment, he was not involved in the day-to-day management, was not made aware when debts were incurred or paid and nor was he consulted about the day-to-day management of the operations. There were no regular board meetings. On occasions, when Mr Tully travelled to Melbourne, he would visit Tempo's office and meet with Mr Madan and other staff. 143 Mr Tully understood that Mr Madan was a qualified and experienced accountant and that he led a substantial team at the Melbourne office, comprising approximately 40 employees including accountants, finance and human resources personnel. Mr Tully understood that a component of Mr Madan's responsibilities concerned the preparation of taxation returns and engagement with the appointed external auditor. He further understood that Mr Madan consulted with Mr Kerkar about the operations of the business and took directions from him. 144 That which may be understood about Mr Madan from the evidence, is that between 2009 and 2016 he was employed as the financial controller and from 2016 as the chief financial officer of Tempo until it was placed into administration. Between 9 and 10 employees reported directly to him. In relation to the management of Tempo he had primary responsibility for the accounting functions. He would attend board meetings. He prepared and lodged taxation returns and dealt with the external auditor. He had full authority to request and make payments pursuant to the GTA. He primarily dealt with Mr Kerkar in the operation of the GTA. He was a signatory to the overdraft account with the State Bank of India. He dealt with the debtors and the creditors, prepared the internal management accounts and the weekly sales reports. He had responsibility for human resources. He is recorded as the author of a plethora of emails in the joint tender list. He sent external emails on behalf of "Cox & Kings Group - Australia". He prepared and signed, as the key contact person, the management liability insurance proposal form dated 15 November 2017 and as the authorised individual on the proposal form dated 18 March 2019. With Mr Tully, he was a director, as well as the secretary, of Prometheon AU. Tempo was run as a subsidiary by the head office in India and Mr Madan was the primary contact between it and the head office. He did not require authority from Mr Tully to perform any of his functions nor was he supervised by him. 145 Mr Tully's consistent evidence throughout his public examination and before me is that Mr Madan was responsible for the day-to-day management of the financial operations of Tempo and took direction from Mr Kerkar at Cox & Kings head office. 146 Returning to the role actually performed by Mr Tully, he would attend irregularly held board meetings, usually held by remote technology. Agendas and board papers were uncommon, save if Mr Kerkar and or Mr Good (the Group chair) were present in Melbourne. Minutes were usually kept. Occasionally he would visit the business premises in Melbourne and hold discussions with staff, including Mr Madan. Those visits occurred on no more than three occasions in each year. 147 Mr Tully would receive weekly sales reports and monthly management accounts. There are a few examples of each in evidence. There is a weekly sales report sent by email on 14 February 2017. Mr Madan and Mr Tully are recorded as recipients. The summary part of the report states gross revenue for the year to date and for the week 5 February to 11 February 2017. There is a column which records the variance from budget. There is attached a more detailed spreadsheet which divides the gross revenue between each of the Australian entities, records the variance from budget and predicts the expected sales based on booking trends for the previous year. The document does not list expenses or actual or predicted profit. There is a further weekly sales report in the same format for the period 14 April until 20 April 2019, that was copied to Mr Madan and Mr Tully. This document contains more detail about gross sales, net gross operating profit with a comparison to the budgeted and actual figures and there is a listing of sales targets. There is no statement of actual or budgeted expenditure or profit. 148 There is only one management report in evidence for December 2016 that was sent by email on 12 January 2017. Mr Madan is recorded as a recipient as is Mr Tully. The management accounts provide more information by reference to gross sales for the year to date, cost of sales, the gross margin amount and expressed as a percentage of sales, the expenses and the profit before depreciation and income tax expenses. For the period in issue a net loss of $107,188 is disclosed. 149 Although Mr Tully was asked whether he reviewed the management reports when sent to him and confirmed that he did "but I didn't review them in detail", he was not pressed in his public examination as to the detail of the sales reports or the management accounts and indeed he was not even taken to examples of those documents. In the evidence before me there is scant mention of these reports in the affidavit of Mr Tully. In cross-examination, Mr Tully confirmed his affidavit evidence, that he reviewed each report when received and that his assessment was that for the reports provided in 2018 and 2019 "the weekly sales reports were very positive". He stated further that his review of the management accounts was consistent with the proposition that Tempo did not have liquidity issues that were adverted to in these reports. 150 Mr Tully was aware from the outset of his appointment that the Group had in place the GTA, the purpose of which was to manage seasonal cash flows as between the various business entities. The arrangement had historically been of benefit to Tempo. Mr Tully did not concern himself with the details of the operation of the GTA, as he considered that this was a matter for others, in particular Mr Kerkar and Mr Madan. He was not made aware of the day-to-day operation of the GTA: for Tempo this was the responsibility of Mr Madan. The cash flow difficulties faced by Tempo between late 2018 and June 2019 were not drawn to his attention. He was not made aware of the urgent requests made by Mr Madan for funds, that I have set out in detail. 151 The extent of his knowledge as to the operation of the GTA was limited to his review of the annual accounts as prepared by the external auditor. He read and understood the annual accounts. He was not concerned in the process of the undertaking of the audit, it being the responsibility of Mr Madan to instruct and liaise with the auditors. He relied on the accuracy of the annual audited accounts. He had no reason to doubt that the auditors had properly discharged the audit function. As I have found, the queries raised by the auditors in relation to the GTA receivable in March 2019 were not drawn to his attention, and nor was he aware of the letter of 11 April 2019 from Cox & Kings to the auditor. 152 Mr Tully was aware from the audited accounts that there were substantial monies owing from related entities. In the 2018 accounts the intercompany amount receivable was $25,716,579 and in the 2019 accounts was $32,552,130. He was aware that these amounts were at call, but despite the large quantum of each receivable amount he was not concerned about the prospect of default because his state of mind was that Cox & Kings was a profitable business with very substantial assets. He acquired this knowledge from the annual report for 2017, and that state of mind did not alter until July 2019. When asked about his state of mind in June 2019 as to whether Cox & Kings was "good for" the amount receivable he answered: "I had no reason to doubt it". 153 His state of mind until July 2019, was that Tempo as a standalone business was trading profitably, had significant sales revenue and there was no aspect of the financial accounts disclosed to him which caused him to think otherwise. He was not advised to the contrary by Mr Madan. 154 Mr Tully was not made aware that Cox & Kings had proposed the inter-creditor agreement with its lenders in June 2019 when he signed the 2019 financial statements on 24 June 2019.

Have the plaintiffs made out the breach of duties case? 155 There are three primary difficulties with the plaintiffs' case: (1) a failure to identify Mr Tully's powers or duties with precision coupled with insufficient evidence to establish his contended obligations in the circumstances of this case; (2) a failure to identify and prove why it should be accepted that Mr Tully breached his duties in allowing the five payments in issue to be made under the GTA between 16 April and 19 June 2019, when he was not earlier in breach of the same duties concerning the operation of the GTA; and (3) a failure to establish that the breaches of duty caused Tempo to suffer loss totalling $5,862,429 for which he became liable to compensate Tempo pursuant to s 1317H of the Corporations Act. 156 I address these matters seriatim.

Identification and proof of the powers and duties of Mr Tully 157 In Cassimatis, Thawley J at [452] observed that in determining whether the standard required by s 180 of the Corporations Act has been met "it is desirable to identify the power or duty with precision." See also Greenwood J at [25]. At the outset the plaintiffs' pleading fails to do so. And the position had not improved by the time of closing submissions. 158 Although the inquiry at s 180 of the Corporations Act is objective, it is tied to how a reasonable person would exercise powers and discharge duties with care and diligence if a director of Tempo and in its circumstances occupying the same office as Mr Tully and with the same responsibilities. Similarly, putting to one side the debate whether the duty at s 181(1)(a) is determined objectively or subjectively, the provision requires identification of the particular circumstances of Tempo and analysis of what was in its best interests at the time. 159 I return to the precision point. 160 The Second Further Amended Statement of Claim from [5] to [19] pleads the fact of the GTA and its operative terms, the amounts receivable by Tempo as at 31 March 2017, 31 March 2018, the requests made of Tempo to transfer funds between 29 August 2019 and 16 January 2019 and the corresponding amounts paid by it, the reservations expressed by the auditor on 26 March 2019 about the recoverability of the receivable by Tempo, the amount receivable as at 31 March 2019 and the fact that at $26,402,414 it represented 69% of the total assets of Tempo, the five transfers in issue and the increase in the receivable to $32,264,843 in consequence of those payments. It is then pleaded by way of a conclusion that Mr Tully "knew or ought to have known" of those matters. The actual knowledge case fails: Mr Tully was not at the time aware of these matters, save for the audited balance of the receivable amount in each financial year. The constructive knowledge case is inextricably linked to the various contentions of failure, primarily to oversee, monitor and be informed about the management and operations of Tempo and in particular the GTA. I have set out above how what is left of that case as pleaded. 161 In closing submissions, the plaintiffs contend that "it was incumbent on the directors of Tempo to exercise a very high degree of care and diligence in relation to the company generally and the operation of the [GTA] specifically." To make good that proposition, the plaintiffs rely on the following matters. 162 As at March 2019, Tempo was a sizeable business with revenue of approximately $75 million and liabilities exceeding $42 million. Despite this it only had two directors and did not hold regular board meetings. These matters are established, but why the failure to have more directors in this corporate group and or that board meetings were not regularly held was a breach of Mr Tully's duties was not addressed in the evidence. 163 The plaintiffs submit whilst it "is not unusual" for a company to participate in a GTA, and by logical extension it was not unusual for Tempo to participate in the GTA, it "tended to rely on the [GTA] during the lean season since at least 2015." That is so. Correspondingly that was the very purpose of the GTA which was of material benefit to Tempo. 164 Mr Tully is an educated businessman with tertiary qualifications and broad experience, none of which is in issue. As the non-executive director with responsibility for reviewing, approving and signing the annual audited accounts, he was required as observed by Ormiston J in Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405 at 412-413 (a case concerning insolvent trading) to: [I]nform himself …as to the financial affairs of the company to the extent necessary to form each year the opinion required for the directors' statements. Although that is only an annual obligation, it presupposes sufficient knowledge and understanding of the company's affairs and its financial records to permit the opinion of solvency to be formed. 165 In Healy at [116], Middleton J referenced that statement with approval and drew attention to what his Honour said at 431 relevant to the entitlement of the directors to delegate the day-to-day management of the company to others. Of particular relevance to the present case, Ormiston J stated at 431: [D]irectors are not required to have omniscience. It is not yet assumed that directors shall apply themselves full-time to the company's business. There is still a place for part-time and advisory directors. Directors are entitled to delegate to others the preparation of books and accounts and the carrying on of the day-to-day affairs of the company. What each director is expected to do is take a diligent and intelligent interest in the information either available to him or which he might with fairness demand from the executives or other employees and agents of the company. 166 Later in these reasons I return to the delegation question more generally. Staying with Mr Tully's annual account review and approval of the financial statements, Middleton J in Healy at [124], following an extensive review of the case law and the requirement for the directors at s 295(4) of the Corporations Act to express the opinion that there are reasonable grounds for believing that a company will be able to pay its debts and that the financial statements are in accordance with the statutory provisions, observed: In my view, the objective duty of competence requires that the directors have the ability to read and understand the financial statements, including the understanding that financial statements classify assets and liabilities as current and non-current, and what those concepts mean. This classification is relevant to the assessment of solvency and liquidity. Equally, a director should have an understanding of the need to disclose certain events post balance sheet date. It would not be possible for a director to form the opinion required by s 295(4)(d) without such an understanding. It is not suggested that a director could vote in favour of a resolution in support of the required directors' statements when he did not hold the opinions referred to at all. 167 Mr Tully read the relevant annual accounts for 2017 and 2018 before he made the required declarations. He understood the accounts. In those years there is no question that Tempo was profitable, was able to pay its debts and had substantial assets exceeding its liabilities. Nor was there any question about the financial health, profitability and asset strength of the Group. The plaintiffs' case is concerned with one class of asset being the amount receivable pursuant to the GTA. Mr Tully was satisfied that the amounts shown as receivables were accurately reflected in the audited accounts. He was satisfied as to the accuracy of the report provided by the auditor in each year. No matter was disclosed in the accounts or that report which caused him to consider that further enquiries should be made, before providing the directors declarations. He was aware that the receivables were held "at call". He was aware that Cox & Kings had provided, in effect, a guarantee of repayment. Mr Tully relied upon the expertise and independence of the auditor. He was not aware of any fact which caused him to doubt the accuracy of the audit opinion. All of the financial information as presented in those annual accounts caused him to believe, plainly on reasonable grounds, that the business of Tempo was profitable, healthy and there was no question that it would continue as a viable going concern. 168 It was not a function of Mr Tully to liaise with, provide information to or otherwise deal with the auditor. This task had been delegated to Mr Madan. 169 These are the circumstances of Tempo and the responsibilities of Mr Tully that are established on the evidence. Beyond these general matters, there is no precision in the evidence as to the particular duties and responsibilities of Mr Tully, Mr Kerkar and Mr Madan nor the division of functions and responsibilities between them. They findings do not prove the plaintiffs' case that Mr Tully failed to read and understand the audited accounts in each year before providing the director's declaration, did not have sufficient knowledge and understanding of the affairs of Tempo in order to review and approve of the annual accounts or that he failed to be sufficiently appraised of the affairs of Tempo in order to take action to address the increases in the amounts receivable under the GTA in the 2017, 2018 or 2019 financial years. 170 Another matter that the plaintiffs rely on is that Mr Tully failed to consider in detail or forensically the information contained in the weekly sales reports and the monthly management reports. Mr Tully accepted that he received weekly sales reports and less regularly the management accounts. He said that the sales reports "were very positive" in that they disclosed that Tempo was trading profitably and did not have liquidity issues. He said that the management accounts were consistent with the information contained in the sales reports. His review of each, when it occurred, did not cause him to consider whether the business of Tempo was in financial difficulty or to ask more detailed questions of Mr Madan. At the time that money was transferred to and received from other group entities to assist with working capital requirements within the Group. The plaintiffs latch onto this evidence to assert that "Multiple millions of dollars were transferred out of the company without his knowledge - right under his nose". Whilst that is literally true, it overlooks the Group structure, the purpose of the GTA, the plaintiffs' concession that it is not "unusual" for corporate entities within a global group to operate a GTA (or equivalent) and Mr Tully's evidence that the GTA had historically been of benefit to Tempo. 171 Something more should be said about the Group and the position of Mr Tully as one of the directors of a wholly owned subsidiary, despite the plaintiffs' silence on this issue. In Walker v Wimborne (1976) 137 CLR 1, Mason J at 6-7 stated that despite membership of a group of companies, that fact must not "obscure the fundamental principles that each of the companies was a separate and independent legal entity, and that it was the duty of the directors of [the subsidiary] to consult its interests and its interests alone in deciding whether payments should be made to other companies." However, that does not mean that intercompany payments may not be in the individual interests of group companies, as his Honour explained at 6: To speak of the companies as being members of a group is something of a misnomer which may well have led his Honour into error. The word "group" is generally applied to a number of companies which are associated by common or interlocking shareholdings, allied to unified control or capacity to control. In such a case the payment of money by company A to company B to enable company B to carry on its business may have derivative benefits for company A as a shareholder in company B if that company is enabled to trade profitably or realize its assets to advantage. Even so, the transaction is one which must be viewed from the standpoint of company A and judged according to the criterion of the interests of that company. 172 Whether taking commercial decisions within a group of companies permits consideration of the interests of the group members as a whole is controversial in Australia: see the discussion by Bryson J in Maronis Holdings Ltd v Nippon Credit Australia Pty Ltd [2001] NSWSC 448; 38 ACSR 404 at [173]-[192]. Not having the benefit of any argument on the point, this is not the occasion to embark upon a detailed analysis and I am content to adopt the analysis in Nippon Credit where Bryson J reconciled the "essential principle" that powers may only be exercised for the purpose of each company with group transactions at [190] as follows: This essential principle does not preclude exercise of a power with a view to an advantage to be received by another company if the transaction is one for the benefit of a company entering into it. The benefit foreseen need not be direct and immediate; it may arise indirectly. The concept of benefit for a group of companies often claims consideration, but is difficult to use in a clear way because many different relationships among companies may be thought to make it appropriate to speak of them as a group. 173 In this case the evidence (indeed the plaintiffs' case) is that the GTA was not in itself an unusual transaction, Tempo had received the benefit of it over a substantial period, Tempo was entitled to rely upon the ability of Group companies to repay the receivable until 7 June 2019, there was no doubt about the recoverability of the receivable at an unidentified point in time prior to 16 April 2019, the operation of the GTA did not affect the trading performance of Tempo and that until early in 2019, Tempo and the Group were each in a healthy financial position. The plaintiffs have failed to address why in the circumstances of this case continuing participation by Tempo in the GTA was not in its interests being those of its shareholders and creditors. 174 Further, the plaintiffs ignore the division of responsibility within Tempo in that Mr Kerkar was the managing director, Mr Madan was the financial controller and CFO, the limited duties and responsibilities accepted by, and in fact undertaken by Mr Tully, the absence of evidence to the effect that the appointed managers of Tempo lacked the necessary skills and experience to run the business operations and the specific circumstances in which Mr Tully assumed the responsibility of reading, approving and signing the annual accounts. The plaintiffs make no claim that the weekly sales reports or the management accounts were inadequate or objectively misleading or contained information that would have put a reasonable director in the position of Mr Tully on inquiry. 175 The plaintiffs then focus attention on the reliance that Mr Tully placed on Mr Kerkar and Mr Madan. The plaintiffs correctly accept that directors, and particularly non-executive directors, are entitled to rely on others but contended that there are certain non-delegable duties that bound Mr Tully and required him to proceed differently. The plaintiffs identified these non-delegable duties as including: (a) the irreducible requirement to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor its affairs: Healy at [16]; (b) to understand and focus upon the content of financial statements and if necessary to make further enquiries: Healy at [16]-[17] and [20]; (c) that directors cannot substitute reliance upon the advice of management for their own attention and examination of an important matter that falls specifically within the responsibilities of the Board of Directors: Healy at [175]; and (d) reliance by directors on others must be reasonable: blind delegation is never acceptable: Adler at [372]; GetSwift at [2599] and Daniels v Anderson (1995) 37 NSWLR 438. 176 Those principles are not in dispute in this case. Rather it is how they operate on the facts established by the plaintiffs. The plaintiffs did not adduce evidence as to the division of duties and responsibilities between Mr Tully and Mr Kerkar as the managing director, save for the evidence that Mr Kerkar was responsible for the overall management of the Group. There is no evidence as to when and on what terms Mr Kerkar was appointed as the managing director of Tempo in accordance with cl 79 of the Articles. There is no evidence as to the particular duties and responsibilities of Mr Kerkar within the Group from which findings may be able to be made as to whether it was unreasonable for Mr Tully to place reliance on Mr Kerkar as the managing director of Tempo and to accept that he carried far greater responsibility for the business operations. 177 The terms of appointment of Mr Madan as the CFO were not produced, no evidence addressed about the duties and responsibilities of employees who reported to Mr Madan and there is no evidence on which findings may be made as to whether it was reasonable for Mr Tully to permit Mr Madan to be responsible for the financial operations of Tempo, to report directly to Mr Kerkar or to be the point of all contact with the auditors of Tempo. 178 With Mr Kerkar as the Group CEO and managing director of Tempo, the plaintiffs have not adduced evidence establishing that Mr Tully, as the non-executive director, was required to take identified steps to be in a position to guide and to monitor the business of Tempo, as a core irreducible obligation. The plaintiffs frame that part of the case on what Middleton J said in Healy at [16], but which his Honour qualified at [20]: Nothing I decide in this case should indicate that directors are required to have infinite knowledge or ability. Directors are entitled to delegate to others the preparation of books and accounts and the carrying on of the day-to-day affairs of the company. What each director is expected to do is to take a diligent and intelligent interest in the information available to him or her, to understand that information, and apply an inquiring mind to the responsibilities placed upon him or her. Such a responsibility arises in this proceeding in adopting and approving the financial statements. Because of their nature and importance, the directors must understand and focus upon the content of financial statements, and if necessary, make further inquiries if matters revealed in these financial statements call for such inquiries. 179 To the same effect see Cassimatis at [31], [136], [147] and [165]-[166] (Greenwood J). 180 Mr Tully did take interest in the information that was available to him: the sales reports, the management accounts, the audited annual accounts, and the annual reports of the Group. Of the latter Mr Tully said that Tempo was effectively being run as part of a group, and he understood from reading the consolidated audited group accounts for 2018 and 2019 that it was a very substantial and profitable enterprise. In accordance with my earlier findings, Mr Tully plainly had reasonable grounds for holding those views. 181 There was nothing in the sales reports or the management accounts that would have alerted a person in Mr Tully's position to any matter of concern about the recoverability of money pursuant to the GTA before April 2019. The annual accounts, as I have explained did not contain information that would have put a reasonable director in the position of Mr Tully on notice to make further inquiries as to the operation of the GTA. 182 The concept that Mr Tully was bound to take reasonable steps to guide and monitor Tempo must have as its foundation some evidence that required him to proceed in that way. That is to step beyond his limited function as a non-executive, non-remunerated director and to monitor the work of Mr Kerkar as the managing director or the work of Mr Madan as the CFO. The evidence does not address what step was required and when and because of which fact or circumstance. The plaintiffs' assertion that Mr Tully was obliged to take reasonable steps to monitor or to be able to monitor is not put as one to monitor the entire business operation. Rather, as expressed in the closing submissions: In this case, the [GTA] demanded critical and detailed attention. It was not something that could be blindly delegated to Mr Madan or any other person. Even if Mr Tully was entitled to rely on the auditors, at least to some degree, insofar as the company's accounts are concerned, that has no bearing on his obligation to monitor the [GTA]. 183 That submission does not explain where the evidence permits those findings, or findings not different in effect, to be made. If the GTA demanded critical and detailed attention, then it must follow it was required from the outset of Mr Tully's appointment as a director in November 2008. As I explain in greater detail in addressing the next issue, that cannot be reconciled with a pivotal aspect of the plaintiffs' case that Mr Tully did not breach his duties as a director before 16 April 2019. 184 No finding is open of blind delegation, connoting abdication, in face of the evidence that the GTA was not per se improper, that Mr Kerkar was ultimately responsible for the operation of the GTA throughout the Group and that within Tempo, it was Mr Madan who was tasked with the responsibility of operating the GTA. Why it was not open to Mr Tully to entrust the operation and monitoring of the GTA to his fellow managing director Mr Kerkar, is not explained in the evidence. The fact that Mr Tully was aware that Tempo participated in the GTA and that large receivables were reported in the annual accounts of Tempo as attributable to the GTA does not establish why he was obliged to monitor its operation. 185 Further, the evidence does not establish what Mr Tully was required to do by way of monitoring the GTA. As explained by Greenwood J in Cassimatis at [25]-[27] the inquiry is fact intensive, the source of the contended power or duty must be identified and the inquiry must focus on the what a reasonable person would do in the circumstances of Mr Tully having "the same 'responsibilities within the corporation' as the director whose conduct is impugned", which responsibilities exist in a combination of statutory requirements, the memorandum and articles of association, the general powers and duties of governments entrusted to the directors and the particular responsibilities of each director within the corporation. Whilst it is true that he said in his public examination that he could not express a definitive view as to who had authority to transfer funds pursuant to the GTA, he believed that each of Mr Khandelwal and Mr Madan had authority. His evidence before me was more precise. It was Mr Madan who had authority for dealings between Tempo and Cox & Kings, who reported directly to the finance director in India and there was no reporting requirement to Mr Tully. That evidence simply does not establish the source of the asserted duty of Mr Tully to monitor the GTA or the content of that obligation. 186 The plaintiffs next formulate eight propositions that they contend should be found in their favour as to what a reasonable director in the position of Mr Tully would have done in the circumstances. Expressed as abstract propositions (the hypothetical director would have behaved differently) reveals little about the content of the asserted duties anchored by evidence focused on the circumstances of Tempo at the time and the responsibilities of Mr Tully (s 180) or what was it about those circumstances which would have caused a reasonable director to consider it not in the best interests of Tempo to continue to participate in the GTA (s 181). Each proposition commences with the contention that a reasonable director in Mr Tully's position "would have" had certain knowledge or acted in a particular way. 187 The first proposition is that a reasonable director would have a proper understanding of the operation of the GTA. What is meant by "proper" in that proposition is not explained. Mr Tully did have an understanding of the GTA, that it was a common arrangement in group travel companies, was implemented to assist group members with seasonal cash flow, that advances were secured, and that the arrangement was not documented. He was also aware that the arrangement had been historically beneficial to Tempo. The plaintiffs have not established what greater understanding would have been acquired by a reasonable director of Tempo. 188 Second, have in place a process to monitor the operation of the GTA. The evidence did not address what that process might have looked like, how it would have monitored the GTA or with what effect on either of the ss 180 or 181 cases. 189 Third, would have realised that during the lean season between October 2018 and February 2019, Tempo had only received one payment of USD485,000 on 6 February 2019. As an abstract proposition that fact tells one nothing about the consequences of its realisation. And why simply focus on that time and ignore the broader pattern of receipts and payments from say the start of the 2018 year when approximately $1.5 million was received in January, $5.1 million was paid out in March, $5 million was received and 7 million was paid out in April and a further approximately $3 million was paid out in August and September. The overall effect of those transactions was to increase the receivable amount from approximately $21.5 million to approximately $31.3 million. If the reasonable director monitoring obligation was to notice the receipt of funds in February 2019, that obligation must also have included one to notice the receipts and payments in at least the 12-month period preceding it. But, in the plaintiffs' case, there was no breach by Mr Tully before April 2019: i.e. a reasonable director in the position of Mr Tully would not be in breach in the earlier period. That reasoning applies equally to the s 181 case in that the plaintiffs have failed to establish how a reasonable director would have acted differently. 190 Fourth, would have engaged with the finance team to ascertain why only one payment had been received in the period from October 2018 to February 2019. Assuming an inquiry of that type would have been made, it follows that the hypothetical director would have asked Mr Madan that question. Logically a responsive answer could only have been given at the conclusion of that period. What is known from the evidence is that despite numerous requests for payment from late 2018 through February 2019, by 27 March 2019, Mr Madan's stated that Tempo was in a "safe position", was clearing its outstanding debts and that its financial position remained "comfortable" for the next 4-5 months. If the hypothetical director had inquired of Mr Madan in late March 2019, then I find that he/she would have received advice to that effect and would most likely have been satisfied with Mr Madan's explanation. There is no basis to infer, on the s 181 case, that an inquiry by a hypothetical director would have elicited different information or that if it had, that the course of Tempo's participation in the GTA would have altered. 191 Fifth, that upon inquiry, the hypothetical director would have discovered the true extent of Cox & Kings various failures to respond to requests made by Mr Madan for the transfer of funds. That proposition can only be sustained if each of the propositions before it are made out. They are not for the reasons that I have explained. Further, this proposition is entirely speculative. It assumes that the hypothetical director, upon inquiry from the finance team (presumably Mr Madan, but exactly who is unstated) would have been told something materially at variance from what Mr Madan had informed head office in the email of 27 March 2019. And on the s 181 case, the plaintiffs have not established that if the hypothetical director had become aware of these matters, it would have acted differently. The hypothetical director does not exist in abstract and with the benefit of hindsight. He or she needs to be placed into the position of Tempo at the time and in the circumstances that I have addressed in detail. The plaintiffs do not explain how the director would have formed the view that it was inappropriate to ignore the operation of the GTA and to allow the payments to be made. 192 Sixth, that the hypothetical director would have discovered that on 15 April 2019, Cox & Kings foreshadowed a delay in remitting funds to Australia and on 1 May 2019 requested Mr Madan to "send all available funds to india [sic] urgently". That proposition only holds if the inquiry to the finance team was made after 15 April 2019. And if made in March 2019 would likely have received the satisfactory response that I have addressed in dealing with the fourth proposition. More critically, this proposition assumes that some fact would have alerted the hypothetical director to ask questions after 15 April 2019. The plaintiffs' evidence fails to identify that fact. In contrast, the Cox & Kings annual report released on 28 May 2018, disclosed as headline numbers, a total transaction value of USD2.3 billion, more than 7 million customers, net revenue of INR239,930 (lakhs) and profit before tax of INR69,138 (lakhs). On 11 April 2019, Cox & Kings provided the letter of assurance to the auditor of Tempo to the effect that it would ensure provision of sufficient funds to meet the working capital requirements of Tempo for a period of not less than 12 months from the date on which the directors approved the consolidated annual group accounts. That correspondence satisfied the concerns of the auditor, who then certified the accounts of Tempo to 31 March 2019. If the inquiry had been made later then it is likely that the correspondence between Mr Madan and Cox & Kings of 17 May 2019 would have been disclosed. That is, despite the request for an urgent transfer of funds by Tempo, it was anticipated that the funds would be returned in early June 2019 and that there were steps in place for Cox & Kings to refinance its debt obligations. It was not until 7 June 2019, that Cox & Kings publicly announced that in principle agreement had been reached with 70% of its lenders to provide for a moratorium of 180 days. By then four of the five impugned payments had been made by Tempo. 193 The same reasoning applies to the s 181 case- i.e. the plaintiffs fail to identify what fact or circumstance would have put a director on notice of the request of 15 April 2019 and in circumstances where the individual must also be taken to be aware of the letter of assurance and the solid financial position of the Group as disclosed in the 2018 annual report. 194 Seventh, the hypothetical director would then have engaged with Cox & Kings to "ascertain its financial position". The evidence did not address what that engagement would entail, how it would be undertaken or with what result and over what time frame. And the hypothetical result very much depends upon the point in time when the engagement would have occurred. On the preceding propositions, not earlier than 1 May 2019. No attempt is made by the plaintiffs to logically connect this proposition to the inquiring hypothetical director under whose watch, three of the impugned payments were by then matters of historic fact. That analysis applies equally to the ss 180 and 181 cases. 195 Eighth, the hypothetical director would have "stopped or not allowed" the five payments to be made. That proposition intrudes into the separate question of causation that I address in more detail below. To the extent relevant to what a reasonable director would have done at the time, the evidence adduced does not found the necessary findings of fact involved in this proposition. For example, what power or right would have authorised the hypothetical director to take this action? Mr Tully had no role or function in the day-to-day management of the operations of Tempo and had no function in relation to the operation of the GTA. Clauses 69 to 78 of the Articles regulates the proceedings of the directors of Tempo. Decisions are made by majority and the chair has a casting or deliberative vote. The plaintiffs do not identify any actual or apparent authority authorising Mr Tully to respond as contended: see generally Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146, particularly Dawson J at 202-205. 196 The plaintiffs do not explain how or in what circumstances the hypothetical director could act unilaterally as asserted. Nor do they explain what would have been the outcome if the hypothetical director had first raised with the other director, Mr Kerkar or his hypothetical equivalent, that Tempo should not make the payments that Cox & Kings was demanding. The obvious inference is that at the time Mr Kerkar would not have agreed: i.e. the overwhelming inference is that he would have determined that it was in the interests of the Group that funds be transferred as required by Cox & Kings, as the ultimate holding company The deadlock between the actual or hypothetical directors may have been resolved by the chair exercising a deliberative vote, but it is pure speculation that the outcome would have been one that the payments be withheld. A hypothetical director might then have resigned, consistently with the duties that the plaintiffs frame, but that would not have resulted in avoidance of the loss claimed to have been suffered by Tempo. The loss may have been the result of decisions made by persons other than Mr Tully or his hypothetical equivalent. 197 It is difficult to reconcile the s 181 case with these matters and the plaintiffs made no attempt to do so. The proposition is that the hypothetical director in the shoes of Mr Tully would not think it appropriate to completely ignore the operation of the GTA and allow the payments to be made when it had become increasingly obvious that there were serious liquidity issues within the Group. That case does not engage with how, when and in what circumstances the director would have acquired knowledge to so conclude by 16 April 2019 (but not before on the plaintiffs' case), which is a matter I address in greater detail in the next section. 198 The overall concluding submission is that Mr Tully "was asleep at the wheel in allowing the five payments to be made". Pejorative contentions of that type must have an evidential foundation, which the plaintiffs have failed to lay. 199 At this point, something more should be said about the s 181 case. To the extent that the plaintiffs' eight propositions assert breach by Mr Tully in failing to act in a particular way, it was not explained how an omission to act amounts to a failure to exercise a power or the discharge of a duty and I was not referred to any authority which addresses that question. On one view, the provision is confined to decisions that are made and action that is taken rather than a failure to act. Put another way, the provision is concerned with consciously acting contrary to the best interests of the corporation and as such is concerned with deliberate conduct. See generally, Ramsay I, Company Directors Principles of Law and Corporate Practice (2nd ed, LexisNexis, 2023) at [7.15]-[7.16] where the comprehensive review is of decided cases concerned with decisions made and actions taken. One of the cases is Strategic Management Australia AFL Pty Ltd v Precision Sports & Entertainment Group Pty Ltd [2016] VSC 303; 114 ACSR 1 at [87] where Sifris J observed that most cases under this provision concern positive acts or decisions. This is not to say that omissions may not amount to a contravention when incidental to a decision or an action, as that case illustrates, where there was a failure to secure an income stream when the company agent negotiated player contracts. In any event, I do not decide this issue. Rather, it is another difficulty that the plaintiffs have failed to address.

The point in time breach issue 200 I have mentioned this in addressing the first issue. It requires more careful attention. The basal difficulty is the inherent tension in the case: that Mr Tully was not in breach of his director's duties before the five payments were made but was in breach when the payments were made between April and June 2019. 201 The plaintiffs' case is most explicitly put in the written closing submission at [135] that I have extracted in the introductory part of these reasons. To recap, there was no breach by Mr Tully in permitting substantial payments to be made pursuant to the GTA before April 2019 because there was no doubt that the funds would be repaid. After April 2019, there was some doubt about repayment, particularly by reference to the large amount then owing of approximately $32 million. 202 In oral closing submissions, I invited Dr Bigos to explain this proposition in more detail and the significance on the plaintiffs' case in drawing the distinction on the breach of duty contention before and after April 2019. The exchange commenced with acceptance that when Mr Tully, in June 2018, reviewed the financial accounts for Tempo to 31 March 2018, the accounts revealed a profitable entity with a healthy balance sheet. Dr Bigos submitted that it was not enough for Mr Tully to be aware that there was a GTA and then simply rely on the information in those accounts, adding that it was incumbent on Mr Tully to be more concerned with the GTA. Dr Bigos accepted that Cox & Kings was a very large global business with a healthy balance sheet which on its face did not raise an issue about its ability to repay money advanced under the GTA. The exchange then proceeded as follows: HIS HONOUR: Well, what is it that should have made him think, "I've got the audited accounts, but now I think there's something untoward happening." What is it? DR BIGOS: Not necessarily the audited accounts. It's the fact that he simply blindly delegated to Mr Madan without considering the size of the intercompany loan; what payments were being made under it; what, if any, payments were being received under intercompany loan; and the recoverability of amounts owed to the company. And what we focus on is the five large payments that were made under his nose between April and June 2019. Those payments were made where there was doubt about the recoverability of the loans, and it's - - - HIS HONOUR: But on your case, the doubt did not exist prior to 31 March. DR BIGOS: There were no payments that were made before the series of five payments. There were no payments made in circumstances where there was doubt. The last - - - HIS HONOUR: So when did the doubt arise, on your case? DR BIGOS: Well, let's just look at when the last payments were made. The last payments were made in September '18. At that point in time, there was no doubt about the ability of the intercompany loan to be recovered. HIS HONOUR: So on your case, he should have been alert between September '18 and - I think it was 5 or 6 April - whatever the date of the first payment is in 2019 - that something was wrong. DR BIGOS: We don't need to go as far back as September '18. What we need to say - what we say is, after September '18, there were no more payments. We focus on the payments between April and June 2019. At that point, had he monitored, he would have seen the issues. We don't need to pinpoint a precise date beforehand when he should have started monitoring, because the breach case we are running is from April to June 2019. That's the breach that caused loss to the company. HIS HONOUR: So let's just pick a date: January '18 - January 2019. What should he have done? DR BIGOS: Well, in our submission, whether there was a failure to monitor, say, in March or February 2019, that isn't - that is not the breach we're alleging. The breach we're alleging is if the payments that were made - allowing those five payments to be made between April and June 2019, in circumstances where there was doubt about the recoverability and the failure to monitor at that point, and - - - HIS HONOUR: But monitor what? DR BIGOS: Well, to monitor the ability of the company to recover the payments. In January or March or February 2019, there were no payments going out at that point in time. HIS HONOUR: So, see, just tell me what you say he should have done by way of monitoring. DR BIGOS: Well, we say that if he had monitored, he would have discovered some basic matters about the dire financial situation of the parent company. So if he had monitored in April - - - … HIS HONOUR: Does the critical failure to monitor only arise in April? DR BIGOS: Yes. That is the breach case we're alleging against Mr Tully, and we say that when the payments were made, between April and June 2019, the circumstances were different to the previous times when payments had been made under the GTA. The last time payments were made under the GTA in September '18, I think it was a payment of 264,000. Before then, there was a payment of 2.75 million in August '18. At that time, the company was in its high season. It had received substantial receipts during the previous lean season, and at that time there was no evidence from C&K India that it was struggling, and they're matters that were different between April and June 2019. Now, our friends say, well, in late 2018, there were - there was correspondence from C&K India to say, "We're struggling and experiencing cash flow difficulties," but, in our submission, there was a reasonable basis at that point to think that those difficulties would only be short term, particularly because there was an impending sale, at that point, of the - of a large education business, the [Holidaybreak] education business, for a substantial sum. And the vice of making the - allowing the payments to be made between April and June '19 was - at that point, there was a less than even prospect of recovery of the loans, which had, by then, amounted to around $32 million, but by then the lean season had ended, and only one payment had been received during it on 6 February. And also, by then it was odd for a company that had just completed a substantial sale to then be requesting money to come back to it, and at that point we say directors who are prudent would not have allowed the payments to be made. 203 Although lengthy, I consider it necessary to set out that exchange to fairly understand first, how the plaintiffs put their case at the conclusion of the trial and second, why I reject it as implausible for several reasons. 204 First, if the content of the duty obliged Mr Tully to monitor the operation of the GTA, then it was one owed to Tempo from the outset of his appointment as a director, a proposition that is implicitly accepted in the framing of the duty. However, there was no breach of the duty prior to April 2019 because there was not then doubt about the ability of the Group companies to repay the amounts to Tempo. That proposition is expressed in the submissions in several ways. One, the pattern of payments and receipts was historic and in the global business money was distributed as needed within the Group. The pattern of payments continued until 31 March 2019 up to which point, despite an accumulated debt of approximately $32 million, "there remained a prospect that further payments would be received in the future." Drilling down a little further that prospect is said to have been "less likely than not", but not one leading "to a positive conclusion that it would not be repaid." A different form of expression in the plaintiffs' submissions is that between 16 April and 19 June 2019 "there was a less than even prospect of recovery of the loans, which by then had amounted to a balance of around $32 million." A further variation of the theme is that from April 2019 the circumstances were such that "there was some doubt as to the recoverability of the loans (for the first four payments) and the fifth payment was irrecoverable (because C&K India had gone into a standstill, so it was unable to pay Tempo Holidays)." 205 Summarising the plaintiffs' propositions in those ways overlooks that the pleaded breaches of duty do not identify doubt in the ability of the Group companies to advance funds to Tempo as a component of the breach case. In any event, what does doubt, or the prospect of recovery mean in this case? There was no doubt about the financial capacity of the Group members to make advances to Tempo on the face of the consolidated audited group accounts of Cox & Kings that were available before the first payment. When Tempo received the last payment on 6 February 2019, the receivable was approximately $30.6 million, which had ebbed and flowed from an amount of $11.8 million on 31 March 2015. Within that period, on the plaintiffs' case the doubt did not exist, despite the receivable bring unsecured, undocumented, and having steadily increased. 206 In one submission the reference to doubt is footnoted to a paragraph in the joint expert report where Mr Fitzgerald states: "It was clear there was some doubt as to the recoverability of the loans after 31 March 2019 with no chance of recovery from 7 June 2019 onwards." The basis for that opinion is his assessment that Tempo could rely on the receivable amounts being paid based on the healthy financial position of the Cox & Kings Group as disclosed in the audited accounts to 31 March 2018, in particular the net profit before tax and exceptional items of approximately $142.4 million, net assets of $857.2 million and cash and cash equivalents of $238 million. Mr Fitzgerald also references, as a basis for his opinion, the Cox & Kings Group audited accounts to 31 March 2019. The difficulty with that evidence as noted earlier is that the accounts in evidence are incomplete but were apparently provided to Mr Fitzgerald for the purpose of preparing his expert report dated 18 November 2022, within which there is extracted summary financial data for the Cox & Kings Group as at 31 March 2019. Mr Fitzgerald's report does not state the date on which those accounts were published. Historically, the Group accounts were prepared and published within the annual report, which for the 2018 financial year was published on an undisclosed date, but clearly after 28 May 2018, which is the date Mr Good signed the directors' report and made the statutory declarations in support. That conclusion is supported by the incomplete Group accounts that were certified by the auditor on 30 May 2019. It is inherently improbable therefore that the hypothetical director in the position of Mr Tully in March 2019, would have concluded that there was no or little doubt that the receivable amount, then approximately $31.7 million, would be repaid based on an assessment of the consolidated Group accounts to 31 March 2019. 207 Another fact referenced by Mr Fitzgerald is the query raised by the auditor of Tempo as summarised in the email from Mr Madan to Mr Khandelwal and Mr Goenka on 26 March 2019 together with the requests for funds made by Mr Madan, which commenced on 29 August 2018 and continued until 12 February 2019. As Mr Fitzgerald correctly observes, the receivable amount had "built up significantly" in the two years prior to his appointment as administrator. From these facts, Mr Fitzgerald states that in his opinion "there were increasing doubts" about the recoverability of the receivable amount. This evidence is not consistent with the plaintiffs' case which is to the effect that the circumstances which prevailed when the payments were made between 16 April and 19 June 2019 "were different from the previous times" when payments were made under the GTA. The plaintiffs acknowledge the force of the correspondence from Cox & Kings "that may have indicated that it was experiencing cash flow difficulties in late-2018", but nonetheless submit that "there was a reasonable basis to conclude that these difficulties would only be short term given the impending sale of the Holidaybreak Education business." From those propositions the plaintiffs submit that at the time the payments were made "there was a less than even prospect of recovery of the loans", having regard to the total amount outstanding, the fact that the last payment received was on 6 February 2019 and that "it was odd for a company that had just completed a substantial sale of part of its business to be requesting the remittance of funds" and in those circumstances "a prudent director would not have made the payments and allowed the debt to increase further". 208 That submission cannot easily be reconciled with the opinion of Mr Fitzgerald that the prospect that the receivable amount would not or would not likely be recovered arises from what occurred from August 2018 and the substantial increase in the quantum of the receivable in the two years prior to his appointment; i.e. September 2017 to September 2019; approximately $22 million to $37 million or more relevantly for the purposes of this submission, $30.6 million as at 6 February 2019. 209 Another matter relied on by the plaintiffs in support of this submission is that prior to the impugned payments, the last payment that Tempo had made under the GTA was $264,257 on 24 September 2018. That payment was made at the end of the high season. Tempo had received substantial payments of $1.257 million and $300,000 in January 2018, which was during the low season. Those facts do not advance the plaintiffs' case: rather, they confirm that within that period the GTA was functioning normally. 210 The fixation of the plaintiffs' case with an unidentified point in time in early 2019, but not before 31 March, exposes for critical analysis what it was about the business of Tempo and/or that of the Group, which materially altered within a period of 16 days, that so affected the prospect of recovery of the receivables, that a prudent director in the position of Mr Tully would have taken steps to prevent the first payment of 16 April 2019, during Tempo's high season when historically it would transfer funds pursuant to the GTA? 211 The plaintiffs' answer to that question in their case appears in a separate section of their written submissions which address the question of when Tempo was insolvent when addressing the non-disclosure defence of Berkley. The plaintiffs submit the number of external facts "point against" a finding of insolvency as at 31 March 2019. Relevant to this aspect of the case, is acceptance by the plaintiffs that the pattern of high and low seasons and the corresponding transfer and receipt of funds pursuant to the GTA, in substantial amounts, "was continuing as at 31 March 2019", which is a reference to evidence given by Mr Beven and Mr Fitzgerald in answer to questions during their concurrent evidence. Building on that evidence, and recognising the difficulty that the last payment received was on 6 February 2019, the submission is: … But as at 31 March 2019 there remained a prospect that further payments would be received in future. Although the prospect that the accumulated debt (by then, around $32 million) would be repaid was less likely than not, it would not lead to a positive conclusion that it would not be repaid, or at least partly repaid. And Tempo Holidays did not require immediate payments under the [GTA], given the CFO's assessment that in the upcoming high season Tempo Holidays had sufficient funds for 4/5 months… (Footnotes omitted.) 212 In my view the distinction that the plaintiffs' draw is artificial and lacks an evidential foundation. If Mr Tully owed a combination of the asserted duties to oversee and monitor the GTA, to assess the risks of participation in it by Tempo, to not expose Tempo to the risks that substantial funds transferred pursuant to the GTA might not be repaid, to monitor the intercompany receivable position and to monitor the financial position of other members of the Group, then each of those duties were owed by him for the entire period that he was a director. 213 On the plaintiffs' case, there was no material concern about the recoverability of substantial amounts owing to Tempo as at 31 March 2019. There was a concern 16 days later when Mr Tully first breached those various duties. Explicitly, the plaintiffs disavow any contention that Mr Tully was in breach of those very same duties before either 31 March or 16 April 2019 (which date is not clear on the plaintiffs' case) because there was "no doubt as to the recoverability" of the amounts advanced. That distinction is objectively implausible and as I have explained, the doubt/ no doubt contention, is not established on the evidence.

Conclusion on the breach of director's duties claims 214 For these reasons I have concluded that whether one concentrates on the content of Mr Tully's duties said to have been breached as pleaded or on the more expansive framing of the claim in the plaintiffs' closing submissions, the evidence is insufficient to make good the either of breach of duty cases pursuant to ss 180 or 181. 215 However, even if I am incorrect in that conclusion, establishing that damage was suffered in consequence is another hurdle for the plaintiffs.

The causation issue 216 The plaintiffs plead that by reason of Mr Tully's breach of director duties, Tempo suffered loss and damage being the amounts paid under the GTA between 16 April and 19 June 2019 in the total amount of $5,862,429, for which it is said that Mr Tully must compensate Tempo pursuant to s 1317H of the Corporations Act. The plaintiffs do not plead a lost opportunity case, in that if Mr Tully had acted differently there was a substantial prospect of a better outcome: cf Badenach v Calvert [2016] HCA 18; 257 CLR 440 at [34]-[41] (French CJ, Kiefel and Keane JJ). Rather, it is a no transaction case: see in particular Termite Resources NL (in liq) v Meadows (in liq) (No 2) [2019] FCA 354; 370 ALR 191 at [658]-[673] (White J) which discusses the no transaction principle in a case involving breach of directors' duties. 217 During oral submissions, Dr Bigos accepted that there is no direct evidence that Mr Tully would have acted to prevent the impugned payments from being made. The case invites the drawing of an inference that Mr Tully would have taken action to that end. If that inference is drawn then it leads to another - it is likely the action would have been effective. I invited Dr Bigos to consider whether that submission goes far enough in order to answer the causation question: i.e. why does it follow that unilateral action by Mr Tully would have been effective? What, for example, would have been the likely reaction of Mr Kerkar, the fellow director of Mr Tully, the managing director of Tempo and the CEO of the Group? Dr Bigos eschewed that the plaintiffs need to go that far, submitting that the plaintiffs need only prove that breach of duty by Mr Tully was a cause of the damage suffered by Tempo. With respect that submission skips over causation and I do not accept it. 218 It is perfectly correct that factual causation does not require proof by a plaintiff that the act, error or omission of the defendant was the sole cause of damage suffered in consequence. It is enough to prove that the damage was a cause: Lewis v Australian Capital Territory [2020] HCA 26; 271 CLR 192 at [151] (Edelman J). However, and with respect, the breach of director's duty case necessarily requires analysis of a past hypothetical: what would have been the likely outcome if a prudent director in the position of Mr Tully had appreciated that there were doubts about recoverability of the receivable amounts immediately before 16 April 2019? In more detail, Edelman J explained why in Lewis at [151]: Causation is a concept that establishes a link between a physical event and a physical outcome. Where a claim is brought for compensation for loss, the causal question asks whether the defendant's wrongful act was necessary for the loss: "did the defendant's act make a difference" to that outcome? That question is posed as a counterfactual: would the loss have lawfully occurred without the defendant's wrongful act? In other words, would the plaintiff have suffered the same loss but without a violation of their rights? If the loss would not otherwise have occurred then, subject to other legal issues including remoteness of damage, it is easy to see why the defendant should be responsible for the loss. Conversely, if the defendant's act made no difference to the outcome, because "but for" the act of the defendant the loss would have occurred lawfully, then the defendant's act was not a cause of the loss and the defendant's responsibility for that loss becomes more difficult to justify. (Footnotes omitted.) 219 Assuming favourably to the plaintiffs' case that an inference is open that a director in the same position as Mr Tully would have taken some action in an attempt to prevent the first payment, is of itself insufficient to establish the causal link. The plaintiffs contend, without elaboration, that a prudent director would have "stopped, or not allowed" the making of the payments. The difficulty is that the plaintiffs do not explain what a prudent director would have done to achieve that outcome. Buried within what is (in reality) a conclusion about the outcome of taking unidentified action are several unanswered questions. 220 What power would have allowed the director to exercise a right to prevent Mr Madan from making the payments at the request of Cox & Kings? As I have noted, the Articles of Tempo required collective decision-making by the directors in the management of the business of the company. The plaintiffs did not lead any evidence to the effect that Mr Tully could act unilaterally in taking the action which they contended a prudent director would have taken. That difficulty is accentuated by the fact that Mr Kerkar was the managing director of Tempo in accordance with art 79, presumably with powers to act within the scope of his authority as a managing director, but where the plaintiffs have failed to lead evidence as to the scope of his authority. 221 No inference is open on the evidence that if Mr Tully directed Mr Madan not to make the first, or any subsequent payment then his decision would have been accepted by Mr Kerkar. It is an admitted fact that companies within the Group paid funds to Cox & Kings Singapore or other entities in the Group from time to time at the request of Cox & Kings. These were clearly on demand and on call amounts. The GTA was controlled by the head office in India and Mr Kerkar was the CEO of the Group. It is implausible that, given the repeated requests by Cox & Kings to Tempo commencing on 16 January 2019 and ending on shortly before the final transfer or 19 June 2019, that Mr Kerkar would simply have accepted the decision of Mr Tully, to deny the urgent requests for funds. The plaintiffs do not grapple with what would have been the likely outcome of that impasse. On the evidence an inference that is open is that Mr Tully would have resigned his position as a director in consequence of any insistence by Mr Kerkar that the payments be made. That inference flows from the terms of Mr Tully's subsequent letter of resignation of 19 August 2019. Had that occurred, it would simply have been open to Mr Kerkar to act as the sole director of Tempo. In all likelihood, he would have authorised the payments. 222 The difficulties posed by the last consideration are compounded by the fact that Tempo was the wholly owned direct subsidiary of Prometheon AU which held all of its shares. In turn, Prometheon AU was wholly owned by Prometheon UK, and in turn was wholly owned by Cox & Kings. It is clearly the case that Cox & Kings was in urgent need of funding between April and June 2019, and the inference that is open is that the shareholder of Tempo may have quickly resolved to remove Mr Tully as a director in order to displace any impediment to Tempo making the requested payments. 223 No separate submissions were put by the plaintiffs that the causation question on the s 181 case is to be analysed differently or results in a different outcome. A rolled-up plea of factual causation is relied on: that by reason of breach of each of Mr Tully's director's duties, Tempo suffered loss and damage. I proceed on that basis. 224 As I have noted, s 1317H does not engage the more stringent test in equity for breach of s 181: IW4U at [47]. Accordingly, the analysis is the same. For completeness I note the plaintiffs' submission at the outset that, despite pleading common law and equitable duties, they do not contend that the outcome differs on the facts which explains why no different submissions were put on the causation question. 225 These matters demonstrate why the plaintiffs have failed to discharge their causation onus on the no transaction case because they have not led evidence directly, or identified inferences able to be drawn from their evidence as a whole, in answer to the counterfactual: would the damage have been suffered in any event? 226 For these reasons, the plaintiffs have failed to prove that Mr Tully's contraventions resulted in damage being suffered by Tempo. On this additional basis, the proceeding must be dismissed.

ISSUE 3: THE POLICY AND BREACH OF THE DUTY OF DISCLOSURE 227 As explained at the commencement of these reasons, I address this issue despite my conclusion that the plaintiffs' case fails. That said, I consider it appropriate to employ the technique of a short form judgment in deciding this issue. 228 Berkley carries the onus of establishing that Tempo failed to comply with its duty of disclosure at s 21 of the IC Act and that in consequence Berkley may contend that its Policy liability is reduced to nil: s 28(3). The material issues that require determination by reference to the agreed list are: (1) Whether as at 31 March 2019, any one or more of the following: (a) existed as a fact, (b) was known to a person whose knowledge is imputed to the Company: (a) that it was insolvent (D2 Defence, [47A], [47B], [47C], [47D], [48]), (b) that it had a Liquidity Crisis (D2 Defence, [49A], [49A1], [49B]), (c) that it had provided the Yes Bank Guarantee (D2 Defence, [49F], [49G]); and (d) hat Mr Tully was in breach as pleaded by the plaintiffs (SOC [5]-[15], [20]; D2 Defence, [54]). (2) If so, whether the Company breached its duty of disclosure under s 21 of the Insurance Contracts Act by not informing the insurer [of] that matter? (D2 Defence, [49], [49C], [49G]) (3) Whether, if any one or more of the above had been disclosed, Berkley would have gone on risk (D2 Defence, [49], [49C], [49E], [49G]). (4) Whether the insurer is entitled pursuant to s 28(3) of the Insurance Contracts Act to reduce its liability under the Policy, and if so, by how much (D2 Defence, [50], [51]) 229 Before turning to these issues, some preliminary points should be made. For some time, the plaintiffs denied that Tempo was a contracting insured with the duty of disclosure, which evaporated when Ms Whittaker drew attention to the Insurance Schedule, which includes the ABN of Tempo within the reference to the Company which brings it within the Policy definition of the Insured. 230 The plaintiffs also contended that Mr Tully as a beneficiary of, but not a contracting party to, the policy was not subject to the duty of disclosure. There is no merit in that point because Berkley frames the non-disclosure case by reference to what Mr Madan knew or ought reasonably to have known and, in any event, the effect of s 48(3) of the IC Act is that Berkley has the same defences in any proceeding brought by Mr Tully as a third-party beneficiary, as it would have had if the Insured was the claimant. That is the clear textual meaning in context. It accords with the clear intent of the amendments made by the Insurance Contracts Amendment Act 2013 (Cth): Explanatory Memorandum, Insurance Contracts Amendments Bill 2013 (Cth), cll 1.145-1.147. 231 Relatedly to the last point, this case does not raise for consideration the entire corporate knowledge of each company listed on the Policy Schedule. By the point of closing submissions, Berkley confined its s 21 IC Act case to the actual or statutorily imputed knowledge of Mr Madan as an officer of Tempo.

Issue (1)(i) 232 Considerable resources were directed to whether Tempo was technically insolvent as at the inception date, including expert reports from Mr Fitzgerald and Mr Beven, a joint expert report, concurrent expert evidence from each and the submissions of counsel. By s 95A of the Corporations Act: "a person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable". If not, the person is insolvent. It is settled that solvency is a mixed question of law and fact, consideration must be given to the financial position of a company as a whole (including the commercial realities), a cash flow test is to be applied, a balance sheet analysis may be useful in providing context and a temporary lack of liquidity is of itself an insufficient indicator: Sandell v Porter (1966) 115 CLR 666 at 670 (Barwick CJ); Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; 53 NSWLR 213 at [54] (Palmer J); Re Custom Bus Australia Pty Ltd (in liq) [2021] NSWSC 1036 at [33]-[37] (Black J); Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; 318 FLR 58 at [76]-[83] (Beazley P, Gleeson JA and Emmett AJA). 233 Expert evidence is frequently adduced to assist in determining solvency. A qualified accountant upon examination of the records may express an opinion that a company was insolvent at a point in time to assist in determining that question: Quick v Stoland Pty Ltd (1998) 87 FCR 371 at 375 (Branson J), 379 (Emmett J) and 382-383 (Finkelstein J). 234 Mr Fitzgerald is not disqualified from expressing opinion evidence on the question of insolvency by reason of his status as a party and appointment as liquidator of Tempo, though questions of independence and weight may arise: Re Alsafe Security Products Pty Ltd [2016] NSWSC 377 at [7] (Black J); Hussain v CSR Building Products Limited [2016] FCA 392; 246 FCR 62 at [111] (Edelman J). 235 The most useful insolvency evidence is contained in the joint expert report of Mr Fitzgerald and Mr Beven together with their concurrent expert evidence. It should be emphasised that the difference of opinion between the experts comes down to one material matter, being their respective assessment of when in time Tempo could no longer rely on recovery of the amount owing pursuant to the GTA to fund its working capital requirements. That point of difference relieves me of the task of examining the minutiae of the evidence, assisted by the expert opinions, to determine when Tempo was insolvent. 236 Why that is so may be shortly explained. They do not disagree on the methodology to be applied. Each examined the indicators of insolvency identified by Mandie J in Australian Securities and Investments Commission v Plymin [2003] VSC 123; 175 FLR 124 at [386]. They referenced substantially the same material. Each concluded that Tempo was insolvent, but differed from when. They agree that Tempo was insolvent as at 7 June 2019, which is the date that Cox & Kings publicly announced that it had reached agreement with its major lenders to a moratorium. They agree that Tempo was exhibiting indicators of insolvency for the whole of the period from 31 March 2019 and that solvency was dependent on the continued functioning of the GTA. 237 The point of difference is the period to 31 March 2019, and the basis on which they disagree is straightforward. In summary, Mr Fitzgerald's opinion is that Tempo was likely insolvent from 31 March 2019, but in his opinion, there is not sufficient evidence to conclude that the company was insolvent as at that date. Mr Fitzgerald references the ability of Tempo to rely on the likelihood of repayment of monies advanced pursuant to the GTA until 7 June 2019. He emphasises the financial strength of Cox & Kings as disclosed in the consolidated Group accounts to 31 March 2018 and 2019. He also draws attention to the audited accounts of Tempo to 31 March 2018 which in his opinion "reported strong net profits indicating it was a profitable business". What was occurring is that Tempo was advancing its profits by the transfer of funds pursuant to the GTA and in doing so did not retain cash reserves to cover it for lean trading periods or disruptions to its business. 238 In Mr Beven's opinion, there were sufficient concerns about the recoverability of the receivables amount owing under the GTA to conclude that the amounts were not recoverable on and from 31 March 2019. Tempo consistently transferred funds to other companies in the Group without receiving regular payments in return. That adversely impacted on Tempo's ability to pay its creditors. Overall, there was a significant over contribution by Tempo to the Group compared with the funds transferred to it. In Mr Beven's opinion, the operation of the GTA placed considerable financial strain on Tempo from at least May 2018. Specifically, he relies on the following: (a) the advances had no repayment terms or regular payments; (b) the movement of funds were outside the control of Tempo; (c) despite regular and urgent requests for funding, Tempo was unable to recover sufficient funds to meet its working capital needs, which detrimentally impacted on its financial position; (d) there is evidence that Tempo deferred payments to creditors, faced threats of service cancellation and risk potential repercussions to the global operations; (e) despite a purpose of the GTA being to provide financial support to Tempo during its lean period requests for funding that were made on 8 November 2018 were not met; (f) Tempo appears to have relied on advances from customers to address its short-term working capital needs and as of March 2018 had not retained adequate reserves from customer advances to cover associated supplier costs or allow for refunds in the event that customers did not proceed with the bookings; and (g) the difficulties in accessing funds from the Group substantially jeopardised Tempo's financial security. 239 The factual basis for those conclusions by Mr Beven is set out in detail in his expert report at [5.3.1], [5.4.6], [5.4.9], [5.4.12]-[5.4.14], [5.5], [8.2], [8.4] and [10.4]. A considerable amount of that material is summarised by Mr Beven in the joint expert report at [11], which Mr Fitzgerald does not dispute. Indeed, part of that evidence is set out in the statement of agreed facts, commencing with the email of 9 October 2018 from Mr Madan to Mr Goenka. I am satisfied that this evidence supports each of those conclusions. 240 That finding is not simply an expression of preference for the evidence of Mr Beven where it differs from Mr Fitzgerald. There are four additional reasons why I prefer the evidence of Mr Beven where there is a material conflict with the evidence of Mr Fitzgerald. Mr Fitzgerald was not engaged to express an open opinion on the insolvency issue. His letter of instruction of 15 November 2022 requested his opinion as to whether Tempo was "insolvent for all or part of the period from 31 March 2019 to 20 September 2019" within the meaning of s 95A of the Corporations Act. During the concurrent evidence session, Mr Fitzgerald confirmed that he did not interrogate to the same level of detail as Mr Beven in examining the financial affairs of Tempo from early 2017, (but did have regard to these earlier financial accounts) because, in his words, he "looked at it differently". In contrast, Mr Beven was instructed to provide several opinions including the date when Tempo became insolvent. Mr Beven's analysis responds to that, less constrained, instruction. 241 Prior to reaching a settlement with Mr Tully, the plaintiffs contended that he was liable for the insolvent trading of Tempo from 31 March 2019. To that end the plaintiffs pleaded: "as at 31 March 2019 [Tempo] was, and at all material times since has been, insolvent". Mr Fitzgerald confirmed that he provided instructions to make that assertion because he was sufficiently satisfied that the receivable amount pursuant to the GTA was not likely to be recovered from 31 March 2019. He was then taken to the particulars subjoined to this pleading, which include that as at 31 March 2018 Tempo had unsecured advances to related entities exceeding $25 million, between 29 August 2018 on 16 January 2019 had made each of the requests for a transfer of funds that I have recorded earlier in these reasons, as at 31 March 2019 the unsecured advances had increased to approximately $32.5 million, its total current liabilities were $42.2 million, total current assets were $41.5 million, representing receivables owing pursuant to the GTA. Mr Fitzgerald confirmed that these matters in part were reasons why he gave that instruction. 242 Mr Fitzgerald's opinion rests on his assessment that prior to 31 March 2019 there was not sufficient doubt that the receivable would be repaid, which I have rejected as implausible. 243 Finally, although I am in no doubt that Mr Fitzgerald is well qualified to express forensic accounting opinions about the insolvency of corporations, and that he presented as a credible witness who understood that his role was to assist me in making findings of fact on matters within his expertise, in contrast to Mr Beven he was not a truly independent witness. 244 Accordingly, I am satisfied that Tempo was insolvent as at 31 March 2019.

Issue 1(ii) 245 The Liquidity crises (sic) is a term referenced in the fourth further amended defence at [49A] which sets out four facts and employs the conjunctive: Tempo's inability to pay its debts as and when due, the ability to pay its debts in the immediate future was entirely dependent upon the receipt of funds from the GTA, Tempo was owed more than $32 million and urgent requests for payment made by Tempo had been ineffective, leading to a reasonable inference that the monies may not be repaid. These matters are collectively labelled as the "Liquidity crises". Dr Bigos makes the preliminary submission that if Berkley fails to establish one of those facts, then it cannot make out the contention. I reject that submission, it reads too much into the label applied by the pleading, which in my view is one of convenience only, fails to give effect to deployment of the collective definition which uses the plural noun, overlooks that the evidence of Berkley which treated each of the four matters as separate considerations was not objected to (affidavits of Matthew McPhee made on 16 February 2023 at [34] and 1 December 2023 at [27]) and where this evidence was the subject of direct cross-examination where it was put to Mr McPhee that "none of the matters you list (i.e. paragraph [27] of the December affidavit) would have caused you to decline the risk". In other words, the case was not run on the basis that the Liquidity crises could only be made out if each of the four factual elements were established. 246 I accept however the plaintiffs' submission that Berkley must be confined to its pleaded case on this issue and that it is not open to rely on other matters that are referenced, though not entirely clearly, in Berkley's closing submissions as falling within this defence. 247 Each contention is framed as applicable at the date of inception. 248 The first contention of the pleading is that Tempo was not able to pay its debts as they fell due which, of course, differs from the statutory definition of insolvency which speaks to the ability to pay all debts as and when they become due and payable. There were documented occasions between October 2018 and 12 February 2019 when Tempo clearly had difficulty in making timely payments to its creditors. Within this period, it is the case that Tempo was not paying some of its debts when due: the Hurtigruten debt position on 1 November 2018 is a notable example, as is the fact that Tempo was then in default on accumulated credit card liabilities exceeding $780,000. None of that is in issue. 249 In submissions, Berkley takes this point further, specifically by reference to tables in the expert reports of Mr Fitzgerald and Mr Beven. Each undertook an analysis of the shortfall in resources available to Tempo. Mr Fitzgerald makes the point that as at 31 March 2019, Tempo had total debts payable of $13,498,934 and total resources available of $5,082,201 leading to a shortfall of $8,416,733. What needs to be understood is that this analysis focuses upon whether Tempo had sufficient liquid (that is to say current) assets available to meet debts that were due and payable at that time. It takes no account of the receivable amount pursuant to the GTA. 250 Mr Beven undertook a wider ranging analysis commencing in March 2018 and concluding in May 2019. He calculates the shortfall in resources, by adoption of the same methodology, of $15,224,153. On his analysis Tempo would sustain a shortfall of approximately $6 million, or greater, a month after March 2018 and 2 September 2019. He notes that within this period Tempo did not have access to alternative finance or equity to meet the shortfalls and could not rely on transfers pursuant to the GTA, evidenced by the pattern of non-payment. 251 However, by 27 March 2019, the evidence is that Tempo was then managing to clear its outstanding debts and had sufficient cash to continue trading for between four and five months. There is insufficient evidence for me to find whether the clearance of debts then underway was pursuant to creditor indulgence or to what extent all of Tempo's debts were then being addressed and in what order. The confidence expressed by Mr Madan on 27 March 2019 is undermined by the significant shortfall in resources as calculated by the expert accountants and in circumstances where I have found that Tempo was insolvent within the technical meaning of s 95A of the Corporations Act. 252 Hence, I am satisfied that as at 31 March 2019, Tempo could not pay its debts as then due and payable from its own resources absent the receipt of funds from other Group members. 253 The second contention is that the ability of Tempo to pay its debts in the immediate future was entirely dependent upon the receipt of funds pursuant to the GTA. It follows from my earlier findings that this fact is established. 254 The third contention is uncontroversial: the amount receivable pursuant to the GTA was $32,552,130 which is the balance sheet figure in the audited accounts. However, as explained by Mr Beven this figure should be placed in context by offsetting the current liability of unsecured advances from Group members of $6,149,716 so that the effective current asset amount was $26,402,414. 255 The fourth contention, in part, also uncontroversial, is that urgent requests for repayment had been made by Tempo, without effect between 29 August 2018 and 12 February 2019. The reasonable inference that is open (and which I draw) is that the funds, or a substantial portion thereof, advanced by Tempo pursuant to the GTA may not be repaid: the GTA was not functioning to the benefit of Tempo within that period.

Issue (iii) 256 It is uncontroversial that Tempo provided a letter of accession to the Yes Bank Guarantee on 18 June 2018 and thereby exposed itself to a contingent liability of up to USD187 million, an amount far exceeding the net assets of Tempo: $407,530 as shown in the audited accounts or ($10,726,795) as adjusted in accordance with the analysis of Mr Beven.

Issue (iv) 257 Conformably with my earlier findings, Mr Tully was not in breach of his director's duties and this fact is not made out.

Knowledge of facts 258 The next issue is whether the established facts were known to an individual as at the inception date, whose knowledge is imputed to Tempo. In closing submissions, Ms Whittaker confined the knowledge case to what Mr Madan knew and further accepted that the evidence that he knew Tempo was insolvent, as distinct from knowledge of various facts from which a conclusion of insolvency may be made, is insufficient. 259 It follows from my earlier detailed findings that as at 31 March 2019, Mr Madan was personally involved in and therefore aware that Tempo had experienced difficulty in paying some of its debts from its own resources between 9 October 2018 and 12 February 2019 but that by 27 March 2019, he was confident that the financial position of Tempo was then safe, it was managing to clear outstanding creditor invoices and that it had sufficient working capital for the next four to five months. He was most certainly aware that the ability of Tempo to pay its debts in the immediate future was entirely dependent upon the receipt of funds from other Group companies pursuant to the GTA. He must also have been aware that the amount then owed to Tempo as a receivable was very significant. He was after all the CFO with access to the accounts and was the person who managed Tempo's role in the GTA. He must have at least known that the receivable was not less than the amount recorded in the audited accounts for 2018 - $25,716,579, a substantial increase from the previous year of $17,657,605. He must have known about the receipts and payments made by Tempo between 23 April 2018 and 31 March 2019 amounting to approximately $5.7 million in receipts and $10 million in payments. 260 I also find that by reason of his access to the accounts and management of the GTA he was aware that the current unsecured advances from other group members was approximately $6.1 million. I therefore find that Mr Madan was aware that the net amount of unsecured advances made by Tempo pursuant to the GTA was approximately $25 million. Finally, he was aware that urgent requests for funds had been made commencing on 9 October 2018 and concluding on 12 February 2019. 261 He was aware that Tempo had provided a letter of accession to the Yes Bank Guarantee by reason of the fact that in his capacity as a director of Prometheon AU, as the shareholder of Tempo, he voted to approve the transaction as evidenced by the director resolution of 18 June 2018. 262 Mr Madan is the officer of Tempo who filled in, signed, and submitted the Insurance Renewal Declaration on 18 March 2019. He did so with the authority of Tempo and signed the declaration of truthfulness as the authorised individual. The plaintiffs submit that his knowledge is not to be imputed to Tempo because he was not then the directing mind and will of it, or its embodiment. They further submit that attribution of Mr Madan's knowledge pursuant to the general agency principles is not settled, but in any event the payments made pursuant to the GTA were contrary to or an abandonment of the interests of Tempo, such that knowledge is not to be imputed. 263 I need not essay the debate in the authorities concerning the majority and minority views about the applicability of general agency principles to s 21(1)(a) of the IC Act: Permanent Trustee Australia Ltd v FAI General Insurance Company Limited (in liq) [2003] HCA 25; 214 CLR 514 at [30] (McHugh, Kirby and Callinan JJ) and contra [86]-[88] (Gummow and Hayne JJ). I take the same course as Gyles J in Tosich v Tasman Investment Management Limited [2008] FCA 377; 250 ALR 274 at [93(6)]: …Pending further clarification by the High Court, the wider view should be taken following Macquarie Bank Ltd v National Mutual Life Association of Australasia Ltd (1996) 40 NSWLR 543 per Powell JA at 610-11 (agreed with by Priestley JA and Clarke JA). 264 See also Igloo Homes Pty Ltd v Sammut Constructions Pty Ltd [2005] NSWCA 280 at [78]-[80] (Ipp JA, with whom Santow JA agreed) and Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets v Icon Co (NSW) Pty Ltd [2021] FCAFC 126: 396 ALR 193 at [189] (Allsop CJ, Besanko and Middleton JJ). I proceed on the basis that the general principles apply. 265 Late in the case and absent any reference to the pleadings, the plaintiffs contended for the first time that Mr Madan's knowledge is not to be imputed under the agency fraud exception, which itself is controversial: All Class Insurance Brokers Pty Ltd (In liq) v Chubb Insurance Australia Ltd (No 2) [2021] FCA 782 at [164]-[179] (Allsop CJ). I reject this contention. It is not pleaded, and Berkley was not otherwise given fair notice of the point. 266 Mr Madan's knowledge of these facts is imputed to Tempo for the purposes of determining every matter that is known to the insured: s 21(1) IC Act.

Issue (2): Breach of the duty of disclosure 267 Section 21 of the ICA required Tempo to disclose that which was known to it prior to inception of the Policy and that which it knew was relevant to the decision of Berkley to accept the risk and if so, on what terms; or, what a reasonable person in the circumstances could be expected to know to be a matter so relevant having regard to, but not limited to, the nature and extent of the insurance cover to be provided in the Policy and the class of persons who would ordinarily be expected to apply for management liability insurance of the kind provided in the Policy. 268 The evidence does not support any finding about the first limb; i.e. that Mr Madan knew that facts were relevant to the decision of Berkley. As to the second, the issue is whether a reasonable person in the position of Tempo could be expected to know the five facts, that I have found were known to Mr Madan, were relevant to the decision of Berkley whether to accept the risk under the Policy and if so on what terms. To recap: (1) that Tempo had experienced difficulties in paying some of its debts from its own resources between 9 October 2018 and 12 February 2019, but that by 27 March 2019, it had, or anticipated having, sufficient funds for its working capital requirements for between four and five months; (2) the ability of Tempo to pay its debts in the immediate future was entirely dependent on the receipt of funds from other Group members pursuant to the GTA; (3) Tempo had a current asset, being the amount receivable pursuant to the GTA, which was in the order of $25 million; (4) Tempo had made urgent requests for funds between 9 October 2018 and 12 February 2019, which requests were not met save for one payment on 6 February 2019; and (5) Tempo had provided a letter of accession to the Yes Bank Guarantee on 18 June 2019, which then exposed it to a potential liability of up to USD187 million. 269 The ambit of the inquiry required by s 21(1) of the IC Act was stated in CGU Insurance Limited v Porthouse [2008] HCA 30: 235 CLR 103 at [52]-[53] (Gummow, Kirby, Heydon, Crennan and Kiefel JJ): The statutory test for disclosure now to be found in s 21 of the Insurance Contracts Act focuses on the "reasonable insured", not the "prudent insurer", and operates, first, by reference to the actual knowledge of the insured (s 21(1)(a)), and secondly, by reference to what "a reasonable person in the circumstances could be expected to know" (s 21(1)(b)). That latter statutory phrase has been interpreted as meaning that one should take into account only factors which are "extrinsic" to the insured, such as the circumstances in which the policy was entered into, rather than "intrinsic" factors such as the individual idiosyncrasies of the insured. Whilst it is possible to take into account the circumstances of the insured, the ultimate question under s 21(1)(b) turns on consideration of a reasonable person's state of mind, not the insured's state of mind. A test of disclosure, which operates by reference to both the insured's actual knowledge and the knowledge of a reasonable person in the same circumstances, is calculated to balance the insured's duty to disclose and the insurer's right to information. The insurer is protected against claims where the insured's disclosure is inadequate because the insured is unreasonable, idiosyncratic or obtuse and the insured is protected from exclusion from cover, provided he or she does not fall below the standard of a reasonable person in the same position. (Footnotes omitted.) 270 The proposal is in the form of a renewal declaration. It begins by misstating the duty of disclosure by conflating the actual knowledge and disclosure questions. The plaintiffs initially submitted that Berkley's failure to inform Tempo clearly of the general nature and effect of the duty, precluded it from relying upon breach: s 21(1) and (5) of the IC Act. That point was not pressed by the time of closing submissions. 271 The form is divided into sections. The first is concerned with general information, such as the name of the company, its address and the number of employees. Within that section the proposer is required to state its most recent annual gross turnover, which Mr Madan correctly answered at $71,852,986. Immediately following that there appears: Please note: the policy contains an insolvency exclusion. Please supply a copy of the company's latest annual financial statements if you would like us to consider removing this exclusion. 272 That invitation was not taken up. This note is a reference to cl 4.9 of the Policy which relevantly provides that Berkley is not liable for loss arising directly or indirectly from or in connection with or as a consequence of, inter alia: "in any way whatsoever relating to the solvency or insolvency of the Company". Berkley did not seek any other information from Tempo relating to its financial position, such as a copy of the latest financial statements. The plaintiffs submit that by limiting the extent of the financial inquiry to the single question about annual gross turnover, Berkley thereby "indicated that it had no interest in the information which would otherwise be material but which fell outside the scope of the questions". For that proposition the plaintiffs rely on a passage in Enright WIB and Merkin M, Sutton on Insurance Law (4th ed, Thomson Reuters, 2015) at [7.510] which is concerned with the common law and where waiver may operate to limit or narrow the disclosure duty. The position is now governed by s 21(2)(d) of the IC Act in that the duty of disclosure does not require the disclosure of the matter "as to which compliance with the duty of disclosure is waived by the insurer". 273 Once again, the discrete issue of waiver was not pleaded by the plaintiffs and only raised in closing submissions. In any event, Ms Whittaker dealt with it. The issue is whether objectively reading the proposal it may fairly be concluded that Berkley waived any duty of Tempo to disclose its financial affairs, and in particular the five matters known to Mr Madan. Contrary to the submissions of Dr Bigos, the fact that Berkley did not at the time routinely request financial statements in assessing management liability proposals is not to the point. We are concerned with the insured's duty to disclose matters. The proposal form does not bear the construction that Berkley implicitly waived the disclosure obligation in relation to the financial position of Tempo in general terms or as to the five matters known by Mr Madan. So much is clear on a cursory examination of the width of the indemnity, the extensions and exclusions. 274 The Policy provides indemnity, subject to the exclusions, for Directors and Officers Liability, Company Reimbursement and Company Liability, each for a Wrongful Act defined to include any actual or alleged wrongful act or omission on the part of an Insured Person committed in that actual or deemed capacity and any actual or alleged Wrongful Act or omission on the part of the Company. There are extension clauses which include fines and penalties, workplace health and safety costs, reputation protection expenses, discrimination or sexual harassment claims, taxation audit costs and employee theft claims. The exclusions are very numerous including product liability and product recall, professional services, public securities offering, warranties and guarantees and, as noted, loss directly or indirectly arising from insolvency. The five identified matters are clearly relevant to the risk decision under a management liability policy which included indemnity for the acts, errors and omissions of directors and officers in that capacity. The policy responds to the financial consequences of management decisions or omissions. Tempo did not seek a policy of fire insurance for a yacht. Financial information is relevant to risk assessments for this commercial Management Liability Policy. 275 Although factually specific, I am of the view that what was said by Goddard LJ in Zurich General Accident and Liability Insurance Company Ltd v Morrison [1942] 2 KB 53 at 64-65 succinctly answers the point: I am well aware that if a fact is material and so ought to be disclosed it is no answer to say that the assured did not think it was material. Nor is it of itself a good answer to say "if it was material why did you not ask". Underwriters cannot frame their questions so as to include everything that may affect any particular proposer, and the fact which ought to be disclosed may well be something peculiar to an individual case. 276 The same reasoning applies to the note about the insolvency exclusion. That Berkley may have considered its removal or modification, in the event that Tempo did supply copies of its financial statements, hardly absolves Tempo from its duty to disclose matters relevant to the indemnity which it sought. That indemnity, subject to the various exclusions, concerned acts, errors or omissions of Directors, Officers or Employees acting in their respective capacities of any of the Insured Persons: an indemnity extending well beyond liability for loss arising from or a consequence of Insolvency, as excluded by cl 4.9 of the Policy. 277 Turning to the five matters known to Mr Madan, I do not accept that a reasonable person in the circumstances could be expected to know that a matter relevant to the decision of Berkley was that between 9 October 2018 and 12 February 2019, Tempo had experienced difficulties in paying some of its creditors from its own funds for debts due within that period. It is notorious that sometimes viable businesses do not make timely payments to satisfy creditors. The hypothetical reasonable person would also have known that Tempo was profitable, was in a strong sales position in that it was heading into its high season and, in any event, must be taken to have known what was known to Mr Madan as set out in his correspondence of 27 March 2019, to the effect that the business was then comfortable and had sufficient working capital to fund its operations for the next four to five months. In all of those circumstances, the hypothetical reasonable person could not be expected to know that the by then historic difficulties that had been faced by Tempo in satisfying some of its creditors was a matter relevant to Berkley in deciding to accept the risk and if so on what terms. 278 However, as to the other four matters, I accept the submission of Berkley that these facts, individually or collectively, were "fundamental to the operation and continued viability of the business which is integral to the risk insured". Tempo at inception of the Policy was carrying a very large book receivable of which the running balance between 31 March 2016 and 31 March 2019 was tens of millions of dollars. It had steadily increased over that period from $11.8 million to $32 million (before setting off amounts payable by it). Within the period 9 October 2018 until 6 February 2019, Mr Madan had made numerous urgent requests for the receipt of funds pursuant to the GTA and the only amount received in that period was $678,037 on 6 February 2019. Before then, the last receipt was on 23 April 2018 in the sum of $5 million, which was a round robin transaction in that later that day Tempo paid out $7 million and a further $2.7 million on 15 August 2018. 279 The circumstances also included that the auditor had raised with Mr Madan as a matter of concern that the receivable was then substantial, had increased significantly and that materially the flow of funds had been from Tempo to other Group members. The high point of the concern was that there appeared to be "no return in sight", which caused the auditor to question the recoverability of the receivable amount. It will be recalled that the assurance from Cox & Kings was not provided until 11 April 2019, well past the date of inception. 280 The hypothetical person in those circumstances could, in my view, be expected to know that a matter relevant to the assessment of the risk by Berkley was the operation of the GTA and the fact that it was not then operating to the material benefit of Tempo. Further, that the ability of Tempo to continue to operate its business was dependent upon the future receipt of funds from other Group companies, which necessarily includes that Tempo's ability to pay its debts in the immediate future (post 31 March 2019) was entirely dependent on the receipt of funds pursuant to the GTA. Those matters extend to the relevance of the very substantial receivable amounts of approximately $25 million and that since 9 October 2018, there had been a documented history of requests for payment having been made by Tempo to Cox & Kings, without success save for one relatively modest payment (in the scheme of the GTA) that had been received 6 February 2019. 281 I am also of the view that a reasonable person in the circumstances of Tempo at the time could be expected to know that another matter relevant to the assessment by Berkley of the risk, and if undertaken its terms, is that on 18 June 2019, Tempo by letter of accession became one of the Group guarantors to the Yes Bank facility and which then exposed it to a potential liability of up to USD187 million, a staggeringly large contingent liability when one considers that the net asset position of Tempo as at 31 March 2018 was $407,530 and as at 31 March 2019 was $3,518,272. To put that in context, the prudence of that transaction and whether the directors and officers of Tempo acted conformably with their statutory and equitable obligations is directly related to the Directors and Officers liability indemnity provision in the policy. 282 For these reasons, Tempo breached the s 21 ICA duty of disclosure when the proposal form was submitted and remained in breach at the inception date.

Issue (3): Would Berkley have accepted the risk 283 Section 28 of the ICA applies and is relied on by Berkley. On its case, if the five matters were disclosed, it would have declined the risk, not issued the Policy and in consequence its liability is reduced to nil. I have clear evidence from Mr McPhee who has been employed as the national underwriting manager of Berkley for more than 10 years. He has extensive experience in the insurance industry, commencing in 1987, including as an underwriter specialising in financial indemnity policies since 1992. He holds relevant tertiary qualifications in commerce. He is the author of the Berkley Underwriting Guidelines, the relevant version of which became effective on 20 October 2017. 284 The particular underwriter who assessed the proposal and decided to accept the risk on the terms of the policy was Mr Bradley Bain. He provided two affidavits in chief but was not called as a witness. The plaintiffs submit the failure to do so is fatal to success on this defence. I do not agree - Mr McPhee explained that Mr Bain had limited underwriting authority, relevantly that if a proponent company had a negative equity exceeding $50,000, then any proposal was required to be referred to Mr McPhee. Routinely, unsecured and undocumented inter-company receivables are classed as intangible assets and assigned a nil value. Thus, if the fact of the amounts receivable pursuant to the GTA had been disclosed, it is Mr McPhee who would have been responsible for assessing the proposal. 285 Mr McPhee's evidence in chief, across three affidavits, was that if he had been made aware that Tempo was involved in the GTA with substantial receivables owing by offshore entities in an undocumented and unsecured arrangement, then he would have concluded that these funds were not recoverable. That fact alone would have caused him to reject the proposal and Berkley would not have accepted the risk pursuant to the Policy. Indeed, his evidence was that Berkley would not even have quoted on the risk of insuring Tempo pursuant to the policy. 286 His evidence went further. Berkley would have declined to accept the risk if he had been made aware that amounts receivable pursuant to the GTA were classified in the accounts of Tempo as current assets (in that event he would have excluded them resulting in a negative equity), if he had been informed by Mr Madan that the Group was in financial distress or that Tempo was insolvent. He further stated that if he had been informed that Tempo had provided a letter of accession to the Yes Bank guarantee, that fact would have raised concern which would then have caused him to request Tempo to provide its financial statements and further information relating to its potential liability as guarantor. If such information had been provided, and if that information did not address the concern that a demand pursuant to the guarantee may cause Tempo to become insolvent, then he would have declined to renew the risk pursuant to the policy. 287 Mr McPhee was briskly cross-examined, by reference to similarities between the wording of certain paragraphs in his affidavit and those of Mr Bain, a contention that he exaggerated aspects of his evidence, that the Guidelines do not elide with his evidence, the circumstances in which Berkley accepts insurance risk for financially distressed corporations and that Berkley was in any event keen to write the business of Tempo which was the motivating consideration. 288 I reject the submission that I should reject, or place little weight on, the evidence of Mr McPhee because of the identity or substantial similarity of paragraphs in the affidavit material. As Mr McPhee explained, and I accept, the process of preparation of the affidavits was that he provided information to the solicitors who in turn produced the affidavit in a form that he was requested to review before making. The criticism of Dr Bigos is not infrequently made: it reflects the relative skill of the solicitors. In this case I am satisfied that the impugned passages truthfully recorded the substance of the evidence of Mr McPhee, even though they did not employ his precise form of words. 289 It was put that Mr McPhee exaggerated his evidence as to the number of occasions, by reference to a spreadsheet, that Berkley had declined to accept proposals for entities in financial distress. Of the more than 1300 entries on the spreadsheet, there were only seven examples of declination. In contrast, his evidence was that proposals by poor financial corporations were habitually declined. That difference is no reason to reject his evidence as to what he would have done in the particular circumstances of this case, which does not turn on the generality of "poor financial health" of proposing corporations. As Mr McPhee readily accepted, if he had asked for financial statements at the time (the audited accounts for 2018), the financials stated that Tempo was in a strong financial position, and on that basis alone would not have caused Mr McPhee to decline the risk. What that overlooks is the other evidence of Mr McPhee that if he had been made aware of the fact that the intercompany receivable was dependent upon performance and the GTA, then he would have reduced its value to nil with the consequence that Tempo would then have been in negative equity to the extent of approximately $25.3 million. 290 As to Mr McPhee's evidence when cross-examined about the Guidelines, the document simply speaks for itself. The list of automatic declinatures does not include insolvency or poor financial trading, does provide that the insolvency exclusion is to be maintained if a proposing company is in a poor financial position and is otherwise silent on when and if a policy may be written for financially distressed corporations. None of that addresses the fact that the Guidelines are just that: they do not operate to displace assessments of risk in individual cases based on disclosed information. 291 It is the fact that in individual cases, Berkley has accepted the risk of companies with a poor financial record and that, perhaps more particularly, Mr McPhee was aware that companies habitually would not disclose their financial information (commercial in confidence material) unless specifically requested to do so and that in the majority of cases, such requests would not be answered. An aspect of this line of questioning was that Berkley was keen to write underwriting business, and not lose customers to its competitors by asking for or insisting that financial information be provided, with which Mr McPhee agreed. That generalised fact distracts attention from the issue in this case: if the four categories of information had been disclosed, then, in accordance with the assessment that Mr McPhee would have undertaken, the risk would not have been accepted. 292 I make the same finding concerning the evidence that Berkley was keen to write the policy, it having been referred by a reliable and supportive broker, in order to maintain Tempo as a customer. The fact that Mr McPhee accepted that he was keen to maintain Tempo as a customer, does not address the issue of what would have been done if Tempo had discharged its duty of disclosure. 293 Despite these and other matters on which Mr McPhee was pressed in cross-examination, I was favourably impressed by his evidence given without equivocation, concessions were appropriately made and I have no reason to doubt his credibility. The substantial evidence that he gave was that if a number of matters, relevantly for present purposes those which were required to be disclosed by Tempo, had been disclosed at the time then Berkley would not have accepted the risk. The cross-examination did not undermine that evidence. 294 I am satisfied therefore that Berkley has established that Tempo was aware of five relevant matters as at the inception date, four of which were matters that a reasonable person in the circumstances could be expected to know to be relevant to the decision of Berkley to accept the risk and if so on what terms. Therefore, Tempo breached the s 21 IC Act duty of disclosure. I am further satisfied for those matters, that Berkley has established that its liability pursuant to the Policy must be reduced to nil, so as to place it in the position in which it would have been if Tempo had not breached its duty of disclosure.

CONCLUSION AND ORDERS 295 For the above reasons, the plaintiffs have failed to establish the liability of Berkley pursuant to the Policy and it follows that the proceeding should be dismissed. If I am wrong in that conclusion, I am satisfied that Berkley has established that it was entitled to reduce its liability pursuant to the Policy to nil in any event. 296 I order as follows:

1. The proceeding is dismissed.
2. Any application for costs is to be made in writing, with supporting submissions not exceeding 3 pages, within 14 days of the publication of these reasons and any such application if made is to be responded to within 14 days thereafter limited to a submission not exceeding 3 pages.
3. Subject to any further order of the Court, the question of costs will be determined on the papers. I certify that the preceding two hundred and ninety-six (296) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.