Contract - Existence of contract - Turns on own facts

1 COMMISSIONER JOHNSON QC: This action was commenced by originating summons on 28 November 2000. The plaintiffs seek a declaration that all moneys secured in favour of the defendant pursuant to a mortgage and a debenture, both dated 4 July 1995, have been repaid and also seek consequential orders requiring the discharge of the mortgage and debenture and the release of the real and personal property secured thereby and subject to caveat.

2 As the action involves considerable factual disputes which cannot be effectively disposed of upon affidavit material alone, an originating summons is not, in my view, the appropriate initiating process. However, the Master has already ruled on this issue and allowed the action to proceed on pleadings: Fletcher & Anor v Ould Pty Ltd [2001] WASC 181, per Master Bredmeyer. The hearing was conducted as if the action had been commenced by writ and, consequently, I consider that no prejudice arises to either party from the choice of initiating process.

3 The plaintiffs allege that on or about 30 August 1995 the defendant loaned the first-named plaintiff, Brian Fletcher, the sum of $50,000 secured by way of mortgage over the land comprised in Certificate of Title Volume 1473, Folio 372 and also by a debenture made between the second-named plaintiff, Baysilk Holdings Pty Ltd ("Baysilk"), and the defendant, Ould Pty Ltd ("Ould"), dated 4 July 1995. According to the plaintiffs, that sum was repaid with interest by instalments by 7 June 1996.

4 At the time Baysilk owned a business called BC The Body Club ("the business") which was operated from various locations. It is further alleged that in or about July 1996 Mr Fletcher and the defendant's director, John Hooper, made an oral agreement that in return for the provision of consulting services by the defendant to Baysilk relating to the proposed BC The Body Club in Melville Plaza ("the Melville Plaza Club"), Baysilk would pay the defendant the sum of $200,000. Baysilk made three repayments totalling $150,000 in the second half of 1996.

5 On 31 December 1996 Baysilk sold its interest in the business to Tonesports Pty Ltd ("Tonesports"). The terms of the agreement required Tonesports to indemnify Baysilk from any liabilities and debts subsisting at the date of the agreement. Pursuant to the indemnity, Tonesports paid Ould the $50,000 balance owing for the consultancy services.

6 In its defence and counterclaim, the defendant pleads that it made two loans of $50,000 to Baysilk; one on or about June 1995 and another on or about 3 August 1995. Both loans are said to be secured by the mortgage and the debenture. The defendant further alleges that on or about 26 August 1996 Mr Hooper, as agent for the defendant, and Mr Fletcher, on his own behalf and as agent for Baysilk, orally agreed that in return for the provision of consulting services by the defendant to Baysilk relating to BC The Body Club at Joondalup ("the Joondalup Club"), Mr Fletcher would pay the defendant $50,000 and Baysilk would pay the defendant $150,000. The defendant alleges that the mortgage and debenture also secured the payment of the fees for the consulting services.

7 It is further pleaded on behalf of the defendant that between September 1996 and January 1997 a dispute arose between the plaintiffs and the defendant as to the amounts due and payable to the defendant. In or about January 1997, by way of compromise and settlement of the dispute, Mr Fletcher, on behalf of himself and Baysilk, and Mr Hooper, on behalf of the defendant, agreed that the amount due and owing in respect of the loans, including interest, and in respect of the fee for the consulting services for the Melville Plaza Club was $67,638. It was further agreed that $200,000 remained owing in respect of the Joondalup Club. The defendant alleges that of the $200,000 payable in respect of the Joondalup Club, Tonesports paid the defendant during 1997 sums totalling $150,000.

8 By way of counterclaim, the defendant seeks judgment in the amount of $67,638, together with interest, being the amount of the compromise in relation to the loans and the consultancy fees for the Melville Plaza Club, and $50,000 with interest, being the balance of the consultancy fees for the Joondalup Club.

9 There is almost complete conflict in the account of relevant events given by Mr Fletcher and Mr Hooper. Unfortunately, as counsel for the defendant observed, this case is remarkable for the lack of contemporaneous documents supporting either party's case. In the case of Mr Fletcher, in approximately 1999 he received 40 boxes of Baysilk documents from Tonesports and took them to the tip. In the case of Mr Hooper, the bulk of his records were destroyed in 1996 as a result of a sewer leak in the basement of the house where they were stored. No attempt was made at the time to reconstruct the accounts from other sources.

10 In determining what moneys, if any, are owing by the plaintiffs to the defendant, a useful starting point is to consider the terms of the only available documentation concerning moneys owing to the defendant; the mortgage and the debenture. These documents were acknowledged by both parties to have come into existence to secure a debt owed by one or both of the plaintiffs to the defendant.

11 The mortgage document identifies Mr Fletcher as the mortgagor and Ould as the mortgagee. Mr Hooper is the attesting witness. The mortgage document bears the date 4 July 1995. Prior to execution, the mortgage bore a typed date of June 1995. At some point the day was filled out by inserting "4th" and a line was put through the typed word "June" and "July" was handwritten next to it. The mortgage was date stamped by the Commissioner of State Taxation on 4 July 1995. The principal sum secured is stated to be $50,000. Clause 11.16 provides for additional security in the following terms:

"That as further security for payment of the Principal Sum interest and other monies, costs, damages and fees hereby secured all title and interest which the Mortgagor and/or the Borrower, and/or the Guarantor now have or may hereafter during the term hereof acquire in any freehold or leasehold property in the State of Western Australia shall as from and by force of the terms hereof stand charged by the Mortgagor and/or the Borrower and/or the Guarantor (as beneficial owner) with the payment of the Principal Sum, interest and other monies, costs, damages and fees."

12 The Schedule to the Mortgage identifies Mr Fletcher as the Borrower and Baysilk as the Guarantor: schedule cl 2 and cl 3. The commencement date of the mortgage is 29 June 1995: schedule cl 6. The principal sum "now agreed to be advanced" is stated to be $50,000: schedule cl 8. In the clause identifying the time and manner for payment of instalment of the principal sum and interest, the principal is again stated to be $50,000: schedule cl 9.1. The schedule also refers to collateral securities which are stated to be the "instrument of Debenture dated even date herewith and granted in favour of the Mortgagee by Baysilk Holdings Pty Ltd": schedule cl 14. Consideration is stated to be, inter alia, "certain advances accommodation and credit provided or to be provided by the Mortgagee to the Borrower": schedule cl 1. It is apparent that the terms of this clause cover both moneys already provided and moneys yet to be provided. It is also significant to note that the mortgage contains no reference to securing consultancy fees, although even counsel for the plaintiffs concede that the definition in the mortgage of the term "principal sum" is sufficiently wide in its scope to arguably encompass any form of indebtedness, including outstanding consultancy fees.

13 The State Taxation stamp indicates that the mortgage is security for $50,000. The amount of stamp duty payable is $147.50.

14 The debenture document bears a handwritten date of 4 July 1995. The parties to the debenture are Baysilk and Ould. This document has also been witnessed by Mr Hooper. The second schedule to the debenture identifies Mr Fletcher as the borrower: second schedule cl 1. Clause 3 of the second schedule identifies the consideration as "the Principal Moneys Hereby Secured now advanced or granted" and the execution of the agreements. The term "Agreements" is defined in cl 4 of the second schedule as the mortgage document.

15 The maximum amount of prospective liability as provided for in cl 37 of the debenture is stated to be $100,000: second schedule cl 7. Clause 37.2 provides:

"If the Principal Moneys Hereby Secured exceed the Maximum Amount of Prospective Liability mentioned in Item 7 of the Second Schedule hereto previously fixed or in the Mortgagee's opinion are likely to do so, the Mortgagee may by lodging a notice under Section 268 of the Corporations Act and giving a copy of that notice to the Mortgagor increase the Maximum Amount of Prospective Liability by an amount sufficient to cover the excess or the likely excess."

16 Despite the maximum amount of prospective liability under cl 37 being $100,000, the debenture bears a State Taxation stamp dated 5 July 1995 which identifies the duty payable as $147.50, the same amount payable on the mortgage which secures $50,000. A further stamp appears on the debenture which bears the date of 10 June 2002. It would seem that the debenture has on that date been up-stamped to secure $150,000.

17 The plaintiffs dispute that any money is due and owing to the defendant. The evidence of Mr Fletcher is relied upon to support that position. At the relevant time Mr Fletcher was one of two directors of Baysilk, the other being Shaun McCabe. Although Mr Fletcher is an experienced businessman, he has no accounting experience. In late 1995 Baysilk employed Joseph Ohayon as the company accountant. Before Mr Ohayon was employed, the business relied on bookkeepers to maintain the accounts. In May 1996 James Cowling was employed to take control of the financial affairs of the business. His position title was financial director, but he was not, in fact, a director of the company. After the initial few weeks of Mr Cowling's employment, Mr Fletcher left all the financial affairs of the business to him. Mr Cowling continued with Baysilk until 31 December 1996 when the business was sold to Tonesports, a company of which Mr Ohayon and Mr Cowling were both directors.

18 Mr Fletcher and Mr Hooper had been friends for many years. They met initially in 1983, but had little contact for approximately seven to eight years and then resumed their friendship. Mr Fletcher would visit Mr Hooper and his family every Monday up to late 1996, early 1997. Ould was engaged by Baysilk to provide consultancy services for the development of the Melville Plaza Club. Mr Hooper provided those services on behalf of Ould. He acted as a project manager which involved identifying a suitable site, identifying a potential developer and a builder, and overseeing the building and fitting out of the premises to completion.

19 In his affidavit evidence, Mr Fletcher maintained that there were only two sums owing by Baysilk to Ould and both sums were repaid to Ould by no later than 30 June 1997. The first sum owing to Ould was a loan of $50,000 advanced by Ould to Baysilk on or about 4 July 1995 which was repaid by 7 June 1996. According to Mr Fletcher, in June 1995 Mr Hooper agreed to advance Baysilk $50,000 to enable the company to meet its July 1995 wages bill. At that time Baysilk had a shortfall of income on its membership payments. There was no discussion about security for the loan. On or about 4 July 1995 Mr Hooper attended Baysilk's office with a cheque for $50,000, together with a mortgage and a debenture. The mortgage was for $50,000 and the debenture was for $100,000. When Mr Fletcher queried the difference, he was told that the debenture was for an increased sum to cover Mr Hooper if Mr Fletcher defaulted in repaying the loan and for any additional costs that his company might incur.

20 In a later affidavit Mr Fletcher changed his position in relation to the timing of the payment. He said that he assumed that the money was paid by cheque which was provided on the same day as the mortgage was executed. Having been provided with a copy of a telegraphic transfer from the Commonwealth Bank indicating a transfer on 4 August 1995 of $50,000 from Ould to Baysilk, Mr Fletcher accepted that the payment was made on that date.

21 Mr Fletcher was cross-examined on this conflict in his evidence. Mr Fletcher explained that he incorrectly recalled receiving the $50,000 by way of a cheque. He agreed that he had looked for evidence of the exact date and had referred to the mortgage and assumed that the date of the mortgage was the date of the payment. This assumption was based on a belief that the payment of the money and the execution of the documents occurred around the same time. Ultimately, he stated that he could not recall exactly when the payment was made, but accepted the accuracy of the banking records. It is apparent that Mr Fletcher's evidence on this issue was a reconstruction rather than an actual recollection. The effect of this is to cast some doubt on the accuracy of his recollection.

22 Mr Fletcher denied that the company had any substantial problems with paying debts as they fell due, although he conceded that he had identified (by way of a general cash flow projection) that there might be a potential shortfall of money to pay wages. $50,000 was the amount he identified which would be required to cover the shortfall.

23 In his evidence-in-chief, the cause of the potential shortfall was stated by Mr Fletcher to be the fact that there were three fortnightly wage bills in the one month, something that occurred from time to time. In 1995 this occurred on one occasion only when he asked Mr Hooper for a loan of $50,000. In re-examination, the reason given for the shortfall was that the business had moved from annual fees to monthly fees, resulting in a short-term shortfall. There is not, in my view, necessarily any inconsistency in these accounts. Both factors could operate together to cause the difficulty which led to the request for a loan.

24 On Mr Fletcher's evidence, because the shortfall was anticipated, he requested the loan about a month prior to when the moneys were needed. At another point in his evidence Mr Fletcher stated that the request was made in or about June. Irrespective of the precise date, it was Mr Fletcher's firm recollection that he did not receive the money before signing the documentation. Mr Fletcher's explanation for why the mortgage would show a commencement date of the loan as being 29 June 1995, if the loan had not been made by then, was that the documents must have been drawn up before the money was provided. In my view, that is a reasonable explanation.

25 Mr Fletcher said that he agreed to sign the mortgage and debenture documents presented to him to secure the loan of $50,000. He denied that he said that he was not prepared to sign a mortgage that was stamped for more. I note that Mr Hooper retreated from this proposition in any event.

26 Despite the conflict in his evidence as to the date and manner of payment, it remains the case that at all times, and despite extensive cross-examination, Mr Fletcher maintained his denial that there were two loans. He also maintained that the loan from Ould, together with interest of $12,170 to a total of $62,170, was repaid by Baysilk between 25 September 1995 and 7 June 1996 by regular instalments. He denied asking Tonesports, after the sale was completed, to pay Mr Hooper any part of an alleged $50,000 loan. He stressed that at the time of the sale of the business there was no debt outstanding to Mr Hooper.

27 Mr Fletcher was cross-examined on a meeting he is alleged to have had with Mr Hooper during which he acknowledged the existence of a loan for $100,000. Mr Fletcher stated that he did not recall a meeting with Mr Hooper, said to have taken place after negotiations for the sale of the business had commenced, in which he talked to Mr Hooper about paying interest on a $100,000 loan. Mr Fletcher was shown a document alleged by Mr Hooper to have been written by Mr Fletcher at such a meeting.

" Baysilk BFFT

Income A Income C Income C

Property Development

BF JH

A i. consultancy fee - re Melville Plaza

ii. " " - " Joondalup

iii. " " - " Warwick

iv. " " - " Bently [sic]

B Proceeds from sale of Bulcreek [sic] = 50% over $1.1M

C Baysilk consideration for tax benefits from Redan Pty (meeting with Greg Dunne)

D Interest (consideration for the [?] loan."

29 Mr Fletcher acknowledged that, with the exception of the word "Bently", the document was written by him. He could not recall whether the notes were made in Mr Hooper's company. The amount of the loan in item D is difficult to read. The suggestion put to Mr Fletcher was that it refers to a $100,000 loan. Mr Fletcher initially considered that it looked more like $400,000. He then suggested that it said "$10,000 loan". Mr Fletcher's basis for that suggestion was that he knew there was not a $100,000 loan and he remembered making a $10,000 loan to Mr Hooper. Ultimately, Mr Fletcher said that he was speculating that it might be a reference to the $10,000 loan. He said that he could not read that part of the note and had no recollection of what it referred to.

30 Mr Fletcher explained that the document was written at a time when he and Mr Hooper were considering doing some property development together. At that time Joondalup was no more than an idea, as was Warwick and Bentley. According to Mr Fletcher, the reference to the consultancy fees indicate that at the time they were talking generally about a number of different projects. The reference to the proceeds from the Bull Creek property also gives an indication as to timing since Mr Hooper was asked to look for a buyer for the Bull Creek property well before the sale of the business.

31 At another point in his evidence Mr Fletcher stated that the timing of the creation of the document could be determined by the reference to the meeting with Greg Dunne which was to do with a particular activity which took place after the loan was paid back. He said that the note was definitely made after the sale of the business was completed in December 1996 because the meeting with Greg Dunne was to do with tax and advice on the sale proceeds. However, in re-examination he revised his evidence and said that it was made "much earlier than the sale because Melville Plaza was on track". He acknowledged that he was completely in error as to his earlier assessment of the timing.

32 The second sum owing to Ould, on Mr Fletcher's account, was a consultancy fee of $200,000 in respect of the development of the Melville Plaza Club. In the second half of 1995 Mr Hooper advised Mr Fletcher that the owner of Melville Plaza Shopping Centre was interested in fitting out premises for a health club. Mr Fletcher and Mr Hooper then discussed the terms of a consultancy fee to be paid to Mr Hooper for co-ordinating all aspects of the project of setting up the Melville Plaza Club. There was no standard fee because this was the first time, to Mr Fletcher's knowledge, that a consultant had been employed in the industry. Mr Fletcher had been involved in the development of approximately 12 clubs over a number of years. In his experience, in the month before and the month after opening about $600,000 of fees are collected. The original arrangement with Mr Hooper was that he would receive 30 per cent of the money raised, therefore the fee agreed was $200,000. Mr Fletcher stated that Baysilk engaged Ould to provide the consultancy services for that fee in approximately March or April 1996. This agreement was not reduced to writing.

33 The fee was payable by lump sum on completion. However, in Easter of 1996 there was a major shift in the industry from monthly to up-front annual payments. Mr Hooper essentially confirmed in his evidence that this had occurred. Consequently, there was no lump sum of money available from which to pay the consultancy fee. According to Mr Fletcher, the situation was discussed with Mr Hooper. He was given a choice to have a third of the members and their payments allocated to him or to be paid the $200,000 as the money became available. Mr Hooper elected to be paid by instalments as the money became available. He carried out the consultancy services and the Melville project was completed in around October/November 1996. On Mr Fletcher's evidence this fee was paid; $150,000 by Baysilk and the balance of $50,000 by Tonesports following its acquisition of the business and in accordance with the term of sale requiring it to assume responsibility for liabilities of the business.

34 In cross-examination, Mr Fletcher initially denied that, at the time of the discussion, the expectation was that the club would open before Easter of 1996. However, having been shown some correspondence of 5 August 1996 regarding a dispute with the builder allegedly causing delays in completion, Mr Fletcher was reminded of the fact that the expected opening date of the Melville Plaza Club was April or May of 1996.

35 To Mr Fletcher's recollection, he was first made aware of an allegation that money was outstanding when he was contacted by Mr Hooper in 1999. Mr Hooper asked for the $50,000 which he alleged was owed to him, although he did not say what it was for. Mr Fletcher's impression was that it was the balance of the consultancy fee for the Melville Plaza Club which was supposed to be paid for by Tonesports. It was not until April 2000 that a written notice of demand for payment was made of Mr Fletcher and of Baysilk. No mention of an amount of $50,000 for outstanding consultancy fees for Joondalup was made at that time.

36 At the same time Mr Fletcher and Mr Hooper discussed the consultancy for the Melville Plaza Club, they also discussed the purchase of a boat. Mr Hooper negotiated the purchase of a boat for $390,000 with Martin Box Marine ("Martin Box") providing vendor finance for 12 months. According to Mr Fletcher, Mr Hooper was entirely responsible for the whole financial structure of the boat purchase. Delivery of the boat was taken immediately. Before they were given delivery, approximately $18,000 was paid by Mr Fletcher to Martin Box for matters ancillary to the boat purchase.

37 As to the repayments on the boat, Mr Fletcher gave evidence of a verbal agreement that he would meet the first half of the repayments and Mr Hooper would meet the cost of the second half of the boat payments from his consultancy fees for the Melville Plaza Club.

38 Mr Fletcher said that he paid $65,000 towards the boat from a loan made to him by Baysilk. Financial records based on Baysilk's general ledger indicate that two payments were made on the boat by Mr Fletcher; one of $35,000 on 3 April 1996 and one of $30,000 on 17 April 1996. Baysilk funds were used to make both payment and the amounts added to Mr Fletcher's loan account. Mr Fletcher made no further payments. On Mr Fletcher's evidence, he was due to make a further $60,000 payment in late 1996 in accordance with the agreement to pay the first half of the boat repayments when Mr Cowling protested about the payment on the basis that it was putting too much pressure on the company. Mr Fletcher directed Mr Cowling to cancel the cheque. He also advised Mr Hooper to sell the boat because he did not want to get into conflict with Mr Cowling.

39 Mr Fletcher denied that the cheque for $60,000 represented moneys owed to Mr Hooper or Ould which he subsequently diverted for his own purposes. It would seem that the allegation arises from the fact that the cancelled cheque was made payable to Ould and that, shortly after cancellation, a cheque was drawn for an identical sum payable to a company called "D'Essence" in which Mr Fletcher was investing. Mr Fletcher explained that payments on the boat flowed from Baysilk to Martin Box via Mr Hooper, either personally or through one of his companies, because he was handling the boat transaction. Mr Fletcher took no interest in how the payment was effected as long as the moneys were accounted for within Baysilk.

40 As to why a cheque for $60,000 subsequently issued to D'Essence, Mr Fletcher stated that he was in the United States observing that company with a view to investing at the time he received Mr Cowling's call protesting about the boat payment. Having instructed Mr Cowling to cancel the cheque and having withdrawn from the boat purchase, a few days later he was informed that Mr Cowling and Mr Ohayon had obtained funds to buy Baysilk. On that basis Mr Fletcher commenced negotiations with D'Essence and invested in the company.

41 In his affidavit evidence Mr Fletcher described the conversation with Mr Hooper about the sale of the boat in the following terms:

"I told Mr Hooper of this and asked him to seek a solution with Martin Box Marine whereby Marine Box could retake possession of the boat and I would absorb any loss on resale. I left it in Mr Hooper's hands to attend to this. At this time he had contributed no moneys or consideration towards the purchase of the boat."

42 According to Mr Fletcher, from that point on he was not privy to any negotiations with respect to the boat. He was, however, aware from the records of the business that an amount of approximately $150,000 was paid towards the boat by Baysilk and set off against the consultancy fees owed to Ould for the Melville Plaza Club. Mr Fletcher later became aware that Mr Hooper had taken over the boat, but Mr Hooper never accounted to him for the money Mr Fletcher had put into the boat.

43 According to Mr Fletcher, neither he nor anyone else on behalf of Baysilk entered into an agreement for consultancy services with Mr Hooper or Ould other than in relation to the Melville Plaza Club. He firmly denied entering into any agreement with Mr Hooper for Ould to act as a consultant for the development of a Joondalup Club. However, he readily conceded that between April and October 1996, in general conversation, he and Mr Hooper discussed future projects if the Melville Plaza Club were to work out well. Joondalup was thought to be a good place to go in the future because it was a major redevelopment area. Warwick, Bentley Plaza and a few other places were also discussed.

44 Mr Cowling's arrival in May 1996 brought a new dynamic to the business and he took Mr Fletcher to task on his expenditure. He said to Mr Fletcher that Mr Hooper was being paid far in excess of what Mr Cowling considered to be an appropriate amount for his consultancy services. Consequently, during his discussions with Mr Hooper after Mr Cowling had expressed an interest in purchasing the business, Mr Fletcher told Mr Hooper that, if he ended up working for Mr Cowling, he should not expect to be paid $200,000. Mr Fletcher said that he could possibly negotiate $150,000 for him and "after a little bit of trepidation" he told Mr Hooper that he would put in the extra $50,000. Mr Fletcher said that his motivation was to look after his good friend. This conversation occurred over dinner at Mr Hooper's home months prior to selling the business.

45 There is some conflict in Mr Fletcher's account of this discussion. At one point Mr Fletcher indicates that the reference to paying Mr Hooper $50,000 arose in the context of the possibility of Mr Hooper ending up working for Mr Cowling. However, in cross-examination Mr Fletcher stated that the discussion with Mr Hooper was on the basis that Mr Fletcher would be the owner and ongoing managing director of the business. He explained his motivation for telling Mr Hooper that he would put in the other $50,000 by reference to a desire to appease both parties because he was planning to have an ongoing relationship with both of them. He stated that the discussion took place six months before the sale took place and two or three months before a sale was even discussed.

46 Mr Fletcher firmly denied that, when Tonesports took over the business and engaged Ould as consultant on the Joondalup project for $150,000, he agreed to pay Mr Hooper $50,000. On his evidence, following the sale, he merely gave a strong recommendation to the new owners that Joondalup would prosper and recommended Mr Hooper as consultant.

47 It was suggested to Mr Fletcher that the $50,000 was "in connection with the work he had done for BC The Body Club in Joondalup". Mr Fletcher said that there was no work done of any significance, to his understanding. In cross-examination, Mr Fletcher confirmed his position that in 1996 Joondalup was still a concept.

48 Mr Fletcher's initial position was that when the business was sold to Tonesports, no final decision had been made regarding developing a club at Joondalup; the site for a Joondalup Club had not been identified or developed. However, at a later point in his evidence he qualified that statement by saying that he knew that a couple of sites had been identified, but nothing formal was in place. He said that it was after the sale that he learnt from Mr Hooper that the Joondalup project had commenced.

49 However, in cross-examination Mr Fletcher was shown a number of documents which supported a conclusion that in July 1996 Mr Hooper was involved in identifying a site for a Joondalup club and had discussed specifications with certain builders. Other documents indicate that by October 1996 a site had been agreed upon and by December 1996 a development application submitted to the local council. Mr Fletcher agreed that at the time a development application is made the plans and specifications for the building would usually have been prepared. However, he noted from looking at the development application that it was a proposal for an overall commercial development in which a health club could be included. In those circumstances, the application did not require detailed plans and specifications for a health club.

50 Mr Fletcher did agree that negotiations had taken place for an agreement to lease a site, but expressed the view that the documents indicated that only preliminary discussions with which he would not normally be personally involved had commenced. He further explained that at this time he was on the verge of signing the sale agreement and took little interest in the ongoing activities of the business.

51 It was suggested to Mr Fletcher that, contrary to his earlier evidence, the Joondalup club was more than just a concept and that during 1996 Mr Hooper put a substantial amount of work into the proposed Joondalup club and because of that amount of work, Mr Fletcher had agreed to pay him $50,000. As to the first proposition, Mr Fletcher insisted that, as far as he was concerned, at the time it was a concept, but he conceded that there was more activity going on that he was aware. He firmly denied that Mr Hooper had put a substantial amount of work into the Joondalup Club. Mr Fletcher stated that little work was involved on his part until the lease was agreed to. Mr Fletcher's job was primarily involved in co-ordinating and liaising between the builder and the owner of the building. That stage had not been reached at the time of the sale of the business. Mr Fletcher maintained his denial that he had agreed to pay Mr Hooper $50,000 for his consultancy services on the Joondalup Club.

52 As I have already noted, there is little documentary evidence of the arrangements between Baysilk and Ould. Among the documents relied upon by Ould to support its claim for repayment of a second loan and outstanding consultancy fees are:

1. BC The Body Club Transactions by Account as of June 30 1996 dated June 30, 1996 ("the June Transactions by Account");

2. BC The Body Club Transactions by Account as of June 30, 1996 dated October 17, 1996 ("the October Transactions by Account");

3. Memorandum from Jim Cowling to Brian Fletcher dated 7 November 1996 ("the Cowling memorandum");

4. Annexure to the Cowling memorandum dated 6 November 1996.

53 Mr Fletcher maintained that he played no part in the preparation of these documents. Essentially, Mr Fletcher's position was that the information must have come from Mr Hooper because it certainly did not come from him. Mr Fletcher agreed that it was apparent from the documents that at some point an attempt was made to identify Baysilk's and/or Mr Fletcher's indebtedness to Ould. However, he denied that he was aware of it. He further denied that he ever told Mr Cowling or Mr Ohayon that there were two loans

54 As to the preparation of the Transaction by Account documents, Mr Fletcher described that process as no more than an ongoing activity of the accountant working on the business' books and reports of financial transactions. When questioned on these documents, Mr Fletcher indicated that he had delegated all financial matters to Mr Ohayon and Mr Cowling. The maintenance and keeping of the financial records was left to Mr Ohayon, in association with the external company accountant, Mr Phil Gannon. It was Mr Ohayon's responsibility to give all the financial records to Mr Gannon for the purpose of preparation of financial reports. Mr Ohayon was answerable to Mr Cowling in carrying out those duties. On Mr Fletcher's account, the extent of his involvement in the preparation of these documents was his authorisation for Mr Ohayon and Mr Cowling to deal with all financial matters.

55 The first observation that can be made of the computer-generated June Transactions by Account is that it has an opening entry brought forward from the June 1995 financial statements of a loan in the sum of $50,000. There is then a cash entry for $50,000 from Ould on 3 August 1995, corresponding exactly with the telegraphic transfer from the Commonwealth Bank on behalf of Ould. In his affidavit evidence, Mr Fletcher explained the nature of the opening entry of a $50,000 loan. According to Mr Fletcher, Oakover Holdings Pty Ltd ("Oakover") was the registered proprietor of a computer software company that rented floor space from Baysilk at its Claremont premises. On 30 April 1994 Oakover lent $100,000 to Baysilk. This loan was unsecured and was recorded in Baysilk's annual general ledger. Baysilk's financial statements indicate that the loan had been reduced to $80,000 by 30 June 1994, to $50,000 by 30 June 1995, had increased to $60,000 by 30 June 1996 and was repaid by 30 June 1997. Mr Fletcher was not cross-examined on this evidence. No suggestion was made that his explanation was either fabricated or inaccurate. It is, therefore, open to me to rely on this account unless I find Mr Fletcher's credibility to be so generally wanting as to call into question all aspects of his evidence: Browne v Dunn (1894) 6 R 67.

56 The document contains several notes written by Mr Ohayon which evidence an attempt to identify a number of the entries. The two payments of $35,000 and $30,000 which Mr Fletcher assert were payments made by him towards the purchase of the boat are shown in the computer-generated document as loan repayments to Ould. However, Mr Ohayon identifies them as "repayments for boat", with a further note that they be transferred to Mr Fletcher's journal. The June Transaction by Account also sets out a series of 10 $5000 payments, commencing 25 September 1995 and concluding on 25 January 1996. Mr Ohayon identifies these documents as a refund to Ould of $50,000.

57 Mr Fletcher was questioned on the June Transaction by Account document. He recognised the document as being one of the type produced internally by the business. Notwithstanding the notations made by Mr Ohayon, Mr Fletcher maintained his position that there was only one loan. He also rejected the proposition that the figures of $35,000 and $30,000 were a loan repayment. Despite being described in the computer-generated document as a loan repayment, they were identified by Mr Ohayon as being payments for the boat. Mr Fletcher indicated that this was Mr Ohayon's interpretation, but that he agreed with it. On his evidence, this interpretation arose from discussions with Mr Hooper and not with him. This correct status of the two payments could have been clarified if the plaintiffs were able to produce copies of the directors' loan accounts. If the payments were in relation to Mr Fletcher's purchase of the boat, they would be treated in the loan accounts as loans made by Baysilk to Mr Fletcher. It would seem that those documents were consigned to the tip with the rest of Baysilk's documents.

58 The October Statement of Account is essentially of the same type as that created in June. It too contains a number of notes written by Mr Ohayon. On that document Mr Ohayon identifies two loans of $50,000 and adds notes of repayments and interest. Mr Fletcher again maintained that he had not discussed the handwritten figures with Mr Ohayon.

59 The Cowling memorandum annexes a two-page summary of moneys allegedly owing to Ould and, in its text, refers specifically to two loans. The two-page summary identifies two loans of $50,000 each. The first loan is said to have been received by Baysilk in June 1995. It acknowledges repayment by 10 $5000 instalments paid between September and January 1996. However, interest at 20 per cent, a 50 per cent bonus for rollover and a $5000 penalty for early repayment is charged. Mr Fletcher denies that it was ever suggested to him that he should pay a 50 per cent bonus for rollover or a penalty for early repayment of the $50,000 loan which he acknowledges. The mortgage and debenture documents make no provision for such items. The loan was a short term loan with a commencement date of June 1995 and a final date for payment of December 1995. On Mr Fletcher's evidence, there was no early repayment.

60 The second loan, again for $50,000, is said to have been paid in August 1996. It is identified as being secured. No such statement is made in relation to the first loan. Interest at 15 per cent is claimed. The annexure also contains a claim for outstanding consulting fees for the Melville Plaza Club.

61 There was some conflict in Mr Fletcher's evidence as to whether he had any discussion with Mr Ohayon in relation to Baysilk's alleged indebtedness to Ould. At one point in his evidence he said that he had, or would have, spoken with him and yet at another point he said that he only communicated with Mr Cowling. He was then asked why he said in his affidavit that he had discussed it with Mr Ohayon. His first explanation was that it was because Mr Ohayon, Mr Hooper and Mr Cowling were discussing all the transactions. When pressed further, he said:

"A number of years ago most of the discussions were with Ohayon - with Cowling, I beg your pardon. Occasionally Ohayon would have been there so I saw talking to one as talking to the other so I don't precisely remember who was in the room at the time."

62 I consider this explanation to be unsatisfactory and unpersuasive.

63 When the proposition was put to him, this time in the context of the Cowling memorandum, that there were two loans, each of $50,000, Mr Fletcher again denied that to be the case and denied that he told Mr Cowling and Mr Ohayon that there were. He also denied that in January 1997 he agreed with Mr Hooper that Baysilk would pay Ould $67,638 in satisfaction of the two loans and the consultancy fees for the Melville Plaza Club. Mr Fletcher refuted the suggestion that Mr Hooper met with Mr Cowling and Mr Ohayon, with Mr Fletcher's knowledge, so that an agreement could be reached as to a figure that Mr Hooper would take in satisfaction of what he alleged to be moneys owed to him. Mr Fletcher said that he could see that this was what Mr Hooper was trying to do, but it was not done with his knowledge. Mr Fletcher maintained that the first he became aware of that suggestion was in these proceedings. Mr Fletcher denied that any of the information in the annexure to the Cowling memorandum came from him.

64 Mr Fletcher indicated that he did not recall seeing the Cowling memorandum and its two-page annexure prior to this litigation. In re-examination he actually denied ever seeing it. He considered that the contents were something to which he would immediately have responded by denying its accuracy. He said that he would have made a major issue of it.

65 Mr Fletcher does recall giving instructions to his solicitors in relation to the Cowling memorandum. He initially agreed that if he had been shown the documents, he would have said that he had not seen them before. He was then asked why, if he had never seen the documents before, he did not tell his solicitors and have the fact included in the affidavit material filed on his behalf. Mr Fletcher expressed the view that he would have said something to his solicitors, but it is plainly the case that his affidavits dispute the content of the Cowling memorandum but do not assert that it was never received by him. It is difficult, however, to draw conclusions adverse to Mr Fletcher's credit on this issue when the omission may be the responsibility of Mr Fletcher's solicitors, whom he maintains he informed.

66 Mr Fletcher denied that, in negotiating the sale of the business, he discussed in detail with Mr Cowling and Mr Ohayon the debts they would or would not be taking over. He disputed that the preparation of the document was an integral part of identifying the trade liabilities which Tonesports would take over at sale. He said that in the early days of negotiations with Mr Cowling and Mr Ohayon they were going to buy the company and take over the business in that way. It was only near the end, just prior to the sale in late December 1996, that they decided that they wanted to buy the assets out of the company and would take over the trade debts. Mr Fletcher does not explain why Mr Cowling and Mr Ohayon would be any less interested in the liabilities of the company if they were to acquire it rather than acquire its assets and liabilities. However, as Mr Fletcher points out, it was always his intention to insist on inclusion of a clause to the effect that Tonesports were to take over any trade debts identified in the accounting and the working papers of Baysilk. For that reason, while it might have been of considerable significance to Mr Cowling and Mr Ohayon to identify moneys owed to Mr Hooper, it was not of significance to Mr Fletcher. On Mr Fletcher's evidence, he was happy for them to work it out in a way that suited them, knowing that they would be taking on the liabilities.

67 Mr Fletcher was also questioned on an email transmission that he sent to Mr Hooper on 10 May 2001 in which he sets out, prior to litigation, his account of events. The relevant portions of that document are as follows:

"1. I borrowed $50 k from you back in '94 for which you took out a debenture and a mortgage, which I subsequently paid you back which is on the record.

...

3. Argued your position with Cowling and ensured you received $150,000 for Joondalup which weakened my negotiating position for the sale ... . Couldn't justify our 'friendly' deal to Cowling. Wasn't commercial. I knew it and he knew it.

4. Put in $78,000 for the boat, told you I couldn't take any more out of the club, because of Cowling's howling. Asked you to sell it back to Box and I would cop any shortfall, if there was any, and recoup any excess.

You decided to keep it, and refinance it, which wasn't such a bad idea, but you never told me what you were doing. Looking at your behaviour since then, I had no reason to expect you to tell me of any potential excess.

5. ...

I can see what you did with Cowling, informing him that the outstanding monies owed to you at the time of the sale were in fact loans. Again, a good strategy, because you were no longer going to be working with a 'friend'."

68 As to the reference to borrowing $50,000 in 1994, Mr Fletcher explained that the date was in error.

69 In cross-examination, Mr Fletcher maintained that the conversation with Mr Cowling referred to in the e-mail took place well before there was an agreement in place to sell the business. At that time he was intending to be the ongoing owner and he wanted to appease both parties. The "friendly" deal referred to was in relation to the Melville Plaza Club. In his evidence, Mr Fletcher stated that he knew it was far in excess of what would normally be payable, but it was reached so that Mr Fletcher and Mr Hooper could buy a boat together. The deal was made before Cowling joined Baysilk, although the payments were made after he had joined. According to Mr Fletcher, Mr Cowling thought $200,000 was far too much to pay for consulting fees and considered that the deal jeopardised Baysilk's viability. However, Mr Fletcher made it clear that the balance of the $200,000 for the Melville Plaza Club was a commitment that had already been agreed to and could not be avoided by Mr Cowling.

70 As to the matter raised in par 5 of his e-mail, Mr Fletcher explained that this was the sense he had, based on their working documents, of what was going on. Before the sale there were consultancy fees of $50,000 for the Melville Plaza Club which were still outstanding. Mr Fletcher speculated that Mr Hooper told Mr Cowling that the outstanding consultancy fees were in fact loans because of Mr Hooper's concern that Mr Cowling would not honour the agreement after sale. However, Mr Fletcher had done what he could to ensure that Mr Cowling paid Mr Hooper after the business was sold.

71 Mr Fletcher was also cross-examined as to his credit generally. He was questioned about a statement he made in one of his affidavits to the effect that he did not have any substantial liquid capital to service his loan commitments or living expenses. He maintained this to be an accurate statement at the time the affidavit was sworn. It was put to Mr Fletcher that in early to mid-December 2000 he traded in two motor vehicles and acquired another two. Mr Fletcher stated that he acquired a Mercedes and a Jaguar, but both vehicles were 100 per cent financed and no capital was involved. I consider this to be an adequate explanation.

72 As I have indicated, there are a number of conflicts in the evidence of Mr Fletcher. The first conflict relates to the date and manner of payment of the $50,000. It is clear to me that, perhaps not surprisingly in view of the time lapse, Mr Fletcher has little recollection of the actual date and manner of the payment. It is clear that his initial account was a reconstruction. However, the fundamental components of his account have remained the same. He asked for and received only one loan for $50,000. The money was not advanced prior to the execution of the security documentation. Whilst it is always of concern when a party asserts as fact that which is indeed a reconstruction, I do not consider this discrepancy to be fatal to his credibility. However, I have, as a result, taken considerable care with his account of events.

73 A further example was the conflict as to the timing of the handwritten document alleged by Mr Hooper to be a record of a meeting between them. It is apparent that Mr Fletcher was again reconstructing by linking the reference to Mr Dunne to a particular event. However, he readily admitted his error and I am not persuaded that this error reflects adversely on his credibility.

74 Mr Fletcher was also in error about the expected opening date for the Melville Plaza Club, but conceded the correct position once supporting documentation was provided to him. Similarly, it was necessary to change his position in relation to the commencement of the Joondalup project once he was shown certain documents. He initially stated that, when the business was sold, no final decision had been made regarding the Joondalup Club. He later conceded that preliminary action had been taken, but explained that by this time he was on the verge of signing the sale agreement and took little interest in the ongoing activities of the business. He also disputed that any activities of real significance had commenced. Again, other than to reinforce the need to carefully scrutinise his evidence, I do not consider these errors in recollection to be significant in view of the considerable time lapse.

75 There would also appear to be some conflict in Mr Fletcher's account of his motive behind telling Mr Hooper that he would put in the extra $50,000 for the Joondalup project. He did at one point in his evidence mention that it was in the context of the possibility of Mr Hooper ending up working for Mr Cowling. However, this point was not really taken up and Mr Fletcher repeatedly stated that conversation related to the situation where Mr Fletcher would have an ongoing relationship with both Mr Cowling and Mr Hooper.

76 I did find Mr Fletcher's evidence as to whether or not he spoke to Mr Ohayon in relation to the matters in the annexure to the Cowling memorandum to be unsatisfactory.

77 Mr Fletcher was also criticised for failing to depose in his affidavit evidence that he had never previously seen the Cowling memorandum. As I have indicated, it does not follow because it was not included when the document was prepared by his solicitors that it was not raised by Mr Fletcher.

78 Though I retain some concerns about the evidence of Mr Fletcher, overall I considered him to be a reasonable witness. I do not consider any aspect of his evidence to be inherently improbable.

79 Mr Hooper's version of events differed markedly from that of Mr Fletcher. In the account which Mr Hooper gave in his first affidavit, it was in early 1995 when Mr Fletcher asked him for two loans of $50,000 to enable Mr Fletcher to pay wages for staff. It is not immediately apparent, and was not really explained, why the moneys were sought and advanced in two sums when they were so close in time and covered by the same mortgage and debenture with a fixed commencement and termination date.

80 In cross-examination, Mr Hooper elaborated on his account and explained that Mr Fletcher had told him that he had a cash flow shortage and needed $50,000 for wages or for rent in the next week or so. He denied that Mr Fletcher had said that he would need the money in August and maintained that the loan was needed to pay wages in the first week of July. Mr Hooper gave this evidence by relating a conversation between himself and Mr Fletcher. There was no mention in that account of a request by Mr Fletcher for two loans or a need for a further advance in the future.

81 In any event, according to Mr Hooper, he agreed on behalf of Ould to make the two loans. Mr Hooper gave inconsistent oral evidence in relation to whether there was during that first discussion either a request for a second loan of $50,000 or an agreement to provide one. At one point, he said that he told Mr Fletcher that he would make a second loan to him. At another, he said he would have agreed to another loan if Mr Fletcher had asked for one. He then said that there was an "inference" about a second loan. His final position was that he had a distinct recollection of telling Mr Fletcher that he would make two loans of $50,000 on condition that they were secured by the mortgage and the debenture. His evidence on this important issue was, in my view, entirely unsatisfactory.

82 Mr Hooper also gave evidence of his concern that if Mr Fletcher was having difficulties paying wages, the business might be insolvent and neither the consulting fees owed to Ould or the loans would be repaid. Consequently, Mr Hooper's agreement to the request was conditional on both the loans and the consulting fees owed to Ould being fully secured by mortgage and debenture. Again, in cross-examination, Mr Hooper recounted a conversation with Mr Fletcher which made no reference to the security relating also to the consultancy fees.

83 Mr Hooper stated in his affidavit evidence that Mr Fletcher agreed to Ould being secured by a debenture granted by Baysilk for $100,000. However, he refused to agree to a personal mortgage for a principal sum greater than $50,000. Mr Hooper advised that he would have the documents drawn up and rang his solicitor, Mr Irdi, from Mr Fletcher's home where the discussion had taken place. Both the mortgage and the debenture were prepared by Mr Irdi. Mr Hooper said that he picked the documents up from Mr Irdi and believes that he took them back to him once they were signed.

84 Early in his cross-examination, Mr Hooper resiled from his evidence that Mr Fletcher had refused to agree to a personal mortgage over his property for more than $50,000. Mr Hooper said that they did not discuss the issue because he believed the debenture of $100,000 would cover any other problems that might arise. When reminded of his affidavit evidence to the contrary, Mr Hooper became evasive and gave several unsatisfactory responses in an attempt to reconcile his oral evidence with his affidavit evidence.

85 Mr Hooper continued to respond in an evasive manner when cross-examined as to why provision was made in the debenture for a prospective liability of $100,000 when the only loan that Mr Hooper had agreed to make, and had in fact made, was for $50,000. Mr Hooper's response was to assert that Mr Fletcher had mentioned during their discussion that "it may be possible that he might have another shortfall at a future date". However, at another point in his cross-examination, Mr Hooper agreed that the increased amount was not intended to cover the second advance. A further explanation was that, because he was working on the Melville Plaza Club, he wanted to make sure that he was secured by some form of legal document. Mr Hooper denied that he told Mr Fletcher that the $100,000 was to cover things like interest and other charges.

86 Mr Hooper was then asked why, if he was concerned about Baysilk's solvency and wanted to protect the consultancy fee which would become payable in due course, he did not instruct Mr Irdi to draft the security documents so as to secure the $200,000 consultancy fee and the amount of the loan or loans. His explanation was that the security was only intended to cover a certain extent of the consultancy fees because he had not carried out $200,000 worth of work. I do not accept that explanation. On Mr Hooper's evidence, the clear purpose of obtaining security was to protect himself from events which might happen in the future by which time the a greater amount, if not the entire amount, of the consultancy fee might be due.

87 Mr Hooper's evidence as to what sums the mortgage and debenture were to secure and whether he initially agreed to make two loans of $50,000 was replete with inconsistencies with the affidavit evidence. In his affidavit, Mr Hooper said that he agreed that Ould would advance the loans on condition that the loans and consulting fees owed to Ould were fully secured by both mortgage and debenture. When it was suggested to him that his affidavit was not true, Mr Hooper maintained that it was partly true in the sense that, knowing Mr Fletcher, if he was indicating that there might be another loan, then Mr Hooper believed that there would be another loan. Mr Hooper's final position was that the first loan of $50,000 was secured by mortgage and any further advances would be covered by the debenture.

88 In his second affidavit, Mr Hooper stated that, to the best of his recollection, he believed the first advance to Mr Fletcher of $50,000 was made on or about June 1995. In his oral evidence he said that this payment was made by cheque drawn on Ould's account and was handed over personally by Mr Hooper. That loan was repaid.

89 The second advance of $50,000 was made on or about 3 August 1995 and was discussed with Mr Fletcher the day before it was given. According to Mr Hooper, Mr Fletcher rang him and told him that the bank was not going to lend him any more money and he needed money the next day to cover wages. For that reason the money was advanced by telegraphic transfer. Mr Hooper did not obtain a receipt for the second advance and kept no record of it. He explained that he considered he was covered by the debenture which was an all-monies security. He had reached that conclusion without discussing the matter with his solicitor. However, despite being aware that the debenture was initially stamped only to secure $50,000, he did not arrange for it to be up-stamped until the dispute with Mr Fletcher arose.

90 Mr Hooper was recalled to give evidence on the timing of the execution of the security documents. He did so following evidence from Mr Ohayon to the effect that the only loan made to Baysilk by Ould in the 1996 financial year was on 3 August 1995. It can readily be seen that, in order to establish his claim that Ould made a loan to Baysilk before the one of 3 August 1995, the loan must have been made prior to 30 June 1995. Having already given evidence that he exchanged the cheque for the mortgage document which was dated 4 July 1995, the timing of the execution of the mortgage and debenture becomes critical.

91 Mr Hooper maintained that the handwritten date of 4 July 1995 on the debenture was not in his handwriting. He said that the mortgage document were not dated when received by him. The mortgage document has the month "June" typed in and crossed out and "July" overwritten. Mr Hooper denied crossing the word "June" out. He denied that "June" had been altered to "July" when he signed the mortgage document as a witness. He said that he did not know who wrote the date and he did not stamp the instrument. Mr Hooper stated that, after the documents had been signed, he either sent them by mail or courier to Mr Irdi's office. This evidence was in contradiction to his earlier evidence that he had collected the security documents and taken them back. Mr Hooper said that he did not attend to the registration of the mortgage and he could not recall how long it was between when the mortgage was signed and when it was returned to Mr Irdi. He maintained that he was not particularly keen to get the documents registered as they were signed and he did not think Mr Fletcher would go bankrupt within a week. He further observed that, in view of the date of stamping, the documents certainly did not go back on the same day.

92 Mr Hooper was evasive when questioned on his understanding of the importance of registering security documents. He admitted knowing that, with respect to a house mortgage, the bank would not lend money until the mortgage was registered but suggested that he did not know that the same principle applied in relation to securities for other purposes. I find that explanation difficult to accept.

93 The inconsistencies and evasions contained in Mr Hooper's evidence on this point are, in my view, indicative of a desire to tailor his evidence to the position he was maintaining. Self-evidently, if the security documents were signed before the money was advanced, and if the documents were signed and taken to Mr Irdi's office on the same day, then the first payment had to have been made on or about 4 July 1995. The problem with that scenario is that there is absolutely no record of any loan to Baysilk from Ould in the 1996 financial year other than the one made on 3 August 1995.

94 In my view, Mr Hooper's evidence on these significant issues relating to the number and timing of the loans was quite unsatisfactory. I also consider it to be inherently improbable that someone of Mr Hooper's business experience would take the step of requiring security because of a concern about insolvency and not ensure that the security was adequate to cover all moneys to which he was, or would become, entitled. I also find it improbable that he would not immediately deal with the security documents in a way which ensured that he was fully protected.

95 Mr Hooper said that he could not remember the day of the week on which the money was paid or when the documents were registered. He could not remember the day on which the documents were signed or when he actually paid the cheque over. But he maintained steadfastly that it was prior to July. However, in his affidavit evidence, Mr Hooper was less certain. He said initially that the request for the loan was made "in early 1995". In his next affidavit, Mr Hooper said that he believed the first advance was made on or about June 1995. He could not say why he did not refer specifically to June when he was certain that the transaction took place before 30 June 1995. His explanation was that he said "on or about" because he did not know the exact date. As I have indicated, this greater precision in the timing must be considered in the context of the evidence of Mr Ohayon as to the absence of any record of a loan in the 1996 financial year before that made on 3 August 1995. However, I have reservations about making findings adverse to him on this point when the expression used may be the choice of the person drafting the affidavit rather than the deponent.

96 Mr Hooper maintained in his evidence that since the loans were advanced in 1995 and Baysilk incurred Ould's consultancy fees in 1996, he has had numerous discussions at various times with Mr Fletcher regarding repayment of the loans and consultancy fees. According to Mr Hooper, Mr Fletcher has repeatedly acknowledged that he is liable for the loans, the accrued interest and the consultancy fees, but has failed to pay the moneys outstanding.

97 One such discussion is said to have occurred at a meeting with Mr Fletcher on 26 August 1996. Mr Hooper's note of the meeting is as follows:

"Warwick as per signed agreement $200,000. Joondalup $150,000 from BC $50,000 from Fletcher. Bentley $150,000. Cannington to continue as usual or change to ladies club in future. Once leases are signed payments to start. Bulk of fee to be paid no later than one month after completion."

98 It is apparent from the note that Mr Hooper did not avail himself of this opportunity to ask Mr Fletcher to repay the second $50,000 loan which, on his evidence, remained outstanding at that time and had extended well beyond the term of the loan agreement.

99 Mr Hooper also produced a diary note that he prepared dated 1 June 2000 which is said to reflect a conversation with Mr Fletcher regarding outstanding moneys. The note is in the following terms:

"Rang Fletcher regards monies owed. I raised the question of a meeting with him in '96' as to whether he remembered that he would make up the difference of a fee. BC would pay $150,000 consultancy fee and he would pay $50,000 personally: He said he remembered the meeting and agreeing to pay the $50,000. I then said well are you going to pay it. His answer was no. I said why: He said because I'm not! I don't want to: I just took it he was reneging: This is typical Fletcher."

100 Mr Hooper stated that his note was probably written at the time or very soon after the conversation with Mr Hooper. He described it as a typical note that he writes in his diaries. Mr Hooper maintained that the discussion recorded in the note occurred when Mr Hooper contacted Mr Fletcher after finding the note that he made of the meeting with Mr Fletcher on 26 August about the consultancy fee. Curiously, once again Mr Hooper has made no reference during this conversation to the second $50,000 loan which also remained unpaid.

101 One point on which Mr Hooper agreed with Mr Fletcher was that in 1996 he and Mr Fletcher decided to jointly purchase a boat from Martin Box for approximately $390,000. Mr Hooper confirmed that instead of Ould being paid consultancy fees for the Melville Plaza Club, the fees could be paid to Martin Box as Mr Hooper's contribution to half the purchase price of the boat. Mr Hooper agreed that Mr Fletcher paid approximately $150,000 of Ould's consulting fees to Martin Box on Mr Hooper's behalf. According to Mr Hooper, the payments were made by Baysilk rather than Mr Fletcher and they were reconciled by Baysilk against his consultancy fees.

102 Past this point, their account of events once again conflicted. According to Mr Hooper, Mr Fletcher abandoned the agreement to purchase the boat without notice to or communication with him. He maintains that he was told by Mr Cowling that Mr Fletcher was refusing to make any contribution towards the purchase of the boat and had abandoned the agreement because Mr Fletcher was directing all his money into the purchase of a company called D'Essence. I note that Mr Cowling was not questioned on this issue. Mr Hooper further asserted that Martin Box threatened to repossess the boat if their vendor finance terms were not met. Mr Hooper was told that if he did not refinance the balance of the purchase price of the boat, Martin Box would sell the boat and forfeit the moneys paid on Mr Hooper's behalf. Mr Hooper said that his wife subsequently bought the boat funded by a loan in her name. He alleged that he did not know the total amount paid for the boat.

103 A Martin Box statement of account with a facsimile date of 23 October 2001 was produced to the Court and sets out the payments made for the boat as follows:

104 Also produced were three Baysilk cheques, each for an amount of $50,003.21. The first cheque was payable to Ould and dated 5 September 1996. The second cheque was payable to Martin Box and dated 2 October 1996. The third cheque was also payable to Martin Box and dated 1 November 1996. When the dates and amounts of these cheques is compared with the Martin Box statement of account, they closely correlate with the three payments made by Baysilk and drawn on the St George Bank.

105 Mr Hooper stated that he had no idea how much was actually paid to Martin Box Marine. He did not keep track of the payments and left it to Baysilk's accountant. As far as he knew, the payments were always made by Baysilk cheques direct to Martin Box. He did not deliver those cheques. Mr Hooper does not accept that the payments of $30,000 and $35,000 identified in the transactions by account were made by Baysilk or by Fletcher to Martin Box. He accepts that the $60,000 referred to in the Martin Box statement of account were paid from an Ould account, but maintained that he had his own money in the account.

106 Mr Hooper was shown the three cheques for $50,003.21. He agreed that the dates on the cheques correspond with the dates on the Martin Box Marine statement. It was suggested to Mr Hooper that in September, October and November of 1996 three payments of approximately $50,000 each were made to Martin Box Marine by Baysilk and those three payments totalling $150,000 were, as agreed, credited against the debt or the future debt to be paid to Mr Hooper in respect of the consultancy fees for Melville Plaza. Mr Hooper denied that he knew that to be the case and said that he left it to Mr Ohayon and Mr Cowling to sort out. Mr Hooper denied the proposition that the three payments to Martin Box totalling $150,000 were certainly paid by Baysilk. However, in his affidavit evidence Mr Hooper conceded, based on the Cowling memorandum, that Baysilk paid approximately $150,000 of Ould's consulting fees for the Melville Plaza Club to Martin Box Marine on Mr Hooper's behalf. Mr Hooper's explanation for the inconsistency was that, when he started looking at the cheques, he thought the position in the Cowling memorandum might be incorrect.

107 He would not agree that the two payments of $30,000 referred to in the Martin Box statement came from Baysilk. Despite the close correlation in the dates of the cheques which were drawn on Baysilk's account, Mr Hooper based his reservation on the fact that the amounts did not exactly align. He disputed that it was obvious that the discrepancy can be accounted for by the requirement for interest to be paid on the vendor finance.

108 In response to the suggestion that when Mrs Hooper acquired the boat she was given credit for all of the payments that had been made by Baysilk, Hooper asserted that Martin Box had repossessed the boat when he was told that Mr Fletcher was going to make no more payments and had abandoned the boat. Mr Hooper said that Mrs Hooper agreed to purchase the boat. It was put to him that she had agreed to purchase it for $390,000. Mr Hooper responded by saying that it was for whatever Martin Box wanted. Mr Hooper was somewhat evasive in responding to the question that Mrs Hooper had been credited with all of the payments that had been made up to December 1996. His explanation was that Martin Box was in possession of the boat and that Mrs Hooper was asked to pay $147,000. However, when shown the Martin Box statement, Mr Hooper reluctantly agreed that the purchase price his wife agreed to pay was $390,000 which according to that document was made up of the various payments about which Mr Hooper had already been questioned. Mr Hooper simply would not answer the question whether his wife was credited with all of the payments that had been made towards the boat prior to her purchase of it, despite the obvious effect of the documentation. Mr Hooper became argumentative in manner when pressed on this issue. He agreed that, according to the Martin Box Statement, Ould Pty Ltd paid $100,000 towards the purchase price of the boat, but would not agree that those funds coincided with cheques from Baysilk and, hence, were in fact paid by Baysilk.

109 At times Mr Hooper's answers were not responsive to the questions being asked. But he did ultimately, albeit reluctantly, agree that Baysilk made three payments totalling $150,000. However, he qualified that response on the basis that the conclusion was that he was accepting Martin Box Marine's Accounts. He made a similar qualification with respect to the further $60,000 paid by Baysilk. In my view, Mr Hooper's evidence on this issue was also entirely unsatisfactory.

110 Mr Hooper was directed to the allegation in his points of defence that in 1996 Mr Fletcher undertook to pay the sum of $60,000 in reduction and part-payment of the loans. He explained that this was a reference to the $60,000 cheque to Ould that was cancelled. Mr Hooper denied that the cheque was to go to Martin Box. He said that it was written out to Ould and was a reduction of the fees for Melville Plaza.

111 Mr Hooper also gave evidence of receiving a call from Mr Ohayon in late 1996 asking him what he thought he was owed by Baysilk. Mr Hooper put some notes together and provided to Mr Ohayon the information which is contained in the annexure to the Cowling memorandum. Mr Hooper identified a total sum of $109,322 as due and owing to him. Mr Ohayon inquired about some of the amounts claimed, including the rollover fee. Mr Hooper explained that the rollover fee reflected that he had the money elsewhere and he had to pay early penalty fees to withdraw it for his use. Mr Hooper also explained to Mr Ohayon each of the other amounts claimed, including the claim for interest on the outstanding consultancy fees. According to Mr Hooper, Baysilk was behind in the payments of consultancy fees for Melville Plaza according to the terms of the initial agreements so he included a figure for interest payments. Mr Ohayon asked him if he could produce documentation and Mr Hooper said, "Well, it's really what I want to do. There's no documentation involved, that's what I want, as far as doing other deals with my money." This response does not really address what must have been Mr Ohayon's desire to determine whether such claims were indeed the terms of any agreement reached between Mr Hooper and Baysilk.

112 According to Mr Hooper, having provided the information as to the outstanding moneys, he said to Mr Ohayon that he would accept whatever figure was identified from Baysilk's accounts. Mr Hooper explained that he was receiving very erratic payments without an exact explanation for what they were for, which was one of the reasons why he intended to rely on the figure identified by Baysilk; he did not know exactly how much was owing. It was put to Mr Hooper that he would have had his records at this time. He said he had very few and was unsure whether he had accessed them. In any event, these would only help him identify the moneys advanced and not necessarily the moneys owing,

113 Mr Hooper also maintained in his oral evidence that he told Mr Fletcher that he would agree with the figure in Mr Cowling's memorandum. This is a significant piece of evidence because it is the only evidence of an agreement to a settlement of the outstanding debt being made between Mr Hooper and Mr Fletcher, as opposed to an agreement between Mr Hooper and Mr Cowling or Mr Ohayon. However, Mr Hooper made no mention of this in his affidavit. He could provide no details of the occasion or the discussion and was not firm on the date.

114 Despite his assertion that he told Mr Fletcher that he would agree with Baysilk's figure and despite meeting with Mr Fletcher almost every week, Mr Hooper maintained that he did not speak with him about his discussions with Mr Ohayon concerning moneys owed to Ould by Baysilk. He stated that it was his expectation that Mr Cowling or Mr Ohayon would relay to Mr Hooper the figure they identified as owing to Ould. The account given by Mr Hooper of the "agreement" reached in relation to the outstanding moneys is vague and is not reflected in his earlier affidavit evidence. I am not prepared to accept Mr Hooper's evidence alone that an agreement was reached with Mr Fletcher, nor that Mr Hooper discussed the issue with him.

115 At some later stage Mr Ohayon came back to him with a figure of approximately $67,000 representing moneys owed to Ould by Baysilk. Mr Hooper also maintains that he spoke to Mr Cowling and was told that he had discussed the matter with Mr Fletcher and that there was no objection to him receiving $117,000. According to Mr Hooper, this reflected the monies outstanding on the two loans and an amount of $50,000 outstanding in relation to the Melville Plaza Club. That amount is in fact inconsistent with the figures in the annexure to the Cowling memorandum, produced by Mr Ohayon, which indicates that the Melville Plaza consultancy fee of $200,000 had been repaid in full with a minor surplus which was offset against the amounts owing on the two loans.

116 Mr Hooper considered that the outcome of this process was that by January 1997 the matter of monies owing to him had been concluded and agreed upon and that interest would be charged thereafter at 18 per cent according to the mortgage document.

117 As to the claim for the balance of consultancy fees for the Joondalup Club, Mr Hooper agreed that that conversation about payment of the $50,000 fee for Joondalup happened before the sale of the business. On Mr Hooper's evidence, Joondalup was already in progress at the time of the sale and the completion of the Joondalup club was the first site he worked on for Tonesports. He stated that by 1996 the bulk of pre-negotiations for Joondalup were near completion. Mr Hooper, as agent for Baysilk, had entered into a verbal agreement with two developers who had a number of sites in Joondalup. In addition to finding a site, he oversaw the plans that were being drawn and was negotiating a lease. He had also entered into discussions with respect to the necessary specifications for the Joondalup Club. Mr Hooper further maintained that Mr Fletcher was aware that he had commenced negotiations in relation to the Joondalup project.

118 Having considered the documents and Mr Hooper's evidence on this point, I accept Mr Fletcher's description of these activities as preliminary and of insufficient significance to justify a fee of $50,000.

119 According to Mr Hooper, the agreement he initially reached with Mr Fletcher on behalf of Baysilk was that he would be paid his usual fee of $200,000 for the Joondalup Club. Mr Hooper does not recall precisely when this conversation took place, but it was before he carried out any work in relation to the Joondalup site and hence was well before the sale of the business to Tonesports . However, Mr Hooper also alleges that in approximately January 1997, at about the time the business was sold to Tonesports, he had discussions with Mr Fletcher and Mr Cowling about the consultancy fee for the Joondalup Club. According to Mr Hooper, there was a heated discussion about the split up of the $200,000. Mr Cowling wanted to pay the least amount of fees or assume the least amount of liability as possible. In the result, Tonesports agreed to pay $150,000 and Mr Fletcher agreed to pay $50,000. However, by January 1997 Baysilk had sold its interest in the business to Tonesports. It is difficult to see why Mr Fletcher would enter into such an agreement at a time when it would not benefit him and in view of the minimal amount of work which had been performed by Mr Hooper in regard to the Joondalup Club before the business was sold.

120 In cross-examination, Mr Hooper agreed that the discussion with Mr Fletcher to the effect that he would make up the extra $50,000 beyond what Mr Cowling considered to be reasonable occurred in late 1996 when the business was still owned by Baysilk. However, according to Mr Hooper, the bulk of the work for the Joondalup Club was carried out while Mr Fletcher was still in control of the business. This is a slightly different version to which I have already referred and suggests that the $50,000 was intended to be payment for the work done on the Joondalup Club prior to the sale of the business to Tonesports. As I have already indicated, I consider that the work done to that point in time was preliminary only and it is therefore improbable that any reasonable person would volunteer to pay $50,000 for it.

121 In his evidence, Mr Hooper also referred to the meeting with Mr Fletcher at which Mr Fletcher made the handwritten note already referred to in these reasons. Mr Hooper recalls that the meeting took place in mid to late 1996 at the Trigg Island Café. The purpose of the meeting was said to be "to clear up a few outstanding matters and to plot what they would do in the future". Mr Hooper also stated that the note was written in the context of "a general discussion bringing themselves up-to-date on what was happening and what had happened in past and what may happen in the future". According to Mr Hooper, at the time of the meeting Melville Plaza was under way and Joondalup was a fait accompli with much of the documentation being completed. Warwick and Bentley were "in the wind".

122 Item D is said by Mr Hooper to reflect a very short discussion about the two loans and the interest that would be paid at some stage on those loans. Mr Hooper maintained that the word in front of "loan" in item D is "K100" which is Mr Fletcher's normal way of writing sums of money in the thousands.

123 In cross-examination, Mr Hooper denied that all but Melville Plaza were just ideas about what might happen in the future, assuming that there was no sale to Tonesports. Mr Hooper maintained that they were irrespective of the sale. I do not accept that Mr Fletcher would bind himself to paying for consultancy services which would be of little or no benefit to him.

124 On 3 July 2000, some five years after the mortgage and debenture were entered into, Ould's solicitors, Williams & Co, wrote to the plaintiffs' solicitors claiming payment. The letter refers to the instructions received from Ould in the following terms:

1. this firm's clients previously rendered consulting services your clients namely, Baysilk and Fletcher;

2. the consulting services related to the development and construction supervision of various Gymnasium facilities for business known as 'BC The Body Club' ('Business').

3. the enclosed mortgage secures an advance to your client by this firm's clients (in the form of Consultancy fees) in the sum of $50,000, whilst the enclosed Debenture secures advances to your clients by this firm's up to a maximum of $100,000 (in the form of consultancy fees).

4. the total monies owing pursuant to the Mortgage and Debenture are $150,000 in addition to interest and costs ('the Debt')."

125 It is apparent from the Notices of Demand annexed to the letter that the claim under the debenture is said to be for outstanding consultancy fees of $100,000, plus interest. The claim under the mortgage is for repayment of the "principle sum advanced" of $50,000, plus interest. It is apparent from the letter that, although the debenture and mortgage secured the same advance, the position being put forward is that they were separate and the total sums could be accumulated. It is also significant to note that the letter contains no reference to there having been two loans of $50,000.

126 Mr Hooper was questioned on the demand for $100,000 said to be due for consulting fees. Mr Hooper said that sum represented the $50,000 owed on Melville Plaza and the $50,000 owed on Joondalup. The difficulty with that proposition was that at the time the notice issued the $50,000 from Melville Plaza was not outstanding, having been paid in 1996 and early 1997. There was some disagreement between Mr Fletcher's and Mr Hooper's account of the opening date of the Melville Plaza Club which was resolved in Mr Hooper's favour following the production of correspondence to the management company responsible for the club's premises. The correspondence raised an issue as to a problem with the swimming pool which was delaying the anticipated May 1996 opening. However, ultimately, the Melville Plaza Club was completed in October 1996, shortly before the sale the business. Of the total $200,000 owed, $150,000 was paid by Baysilk by three monthly instalments made in late 1996 and the final payment of $150,000 paid by Tonesports in 1997.

127 Mr Hooper was also questioned on the further notice which is expressed to be under the mortgage and for $50,000. Mr Hooper was reminded that, on his evidence, the second advance was secured by the debenture and not the mortgage. His response was to state that that is what was in his mind, but he may have been legally incorrect. Mr Hooper was again evasive on this point.

128 Mr Hooper maintained that he had tried for the previous years to get the money out of Mr Fletcher by having numerous meetings. It must, therefore, have been apparent to Mr Hooper quite early on that he might have some difficulty extracting the money from Mr Fletcher and might also at some point have to establish that the loan was made. However, Mr Hooper made no written demand for principle and/or interest prior to the notices of demands and never sent Mr Fletcher an account. Neither did he take steps at an early stage to obtain evidence that the cheque had in fact been presented and debited to his account.

129 According to Mr Hooper, in 1995 he used three banks; the Commonwealth, Westpac and BankWest. He could not recall which bank the cheque was drawn upon, but he had no doubt that the cheque was drawn on Ould's bank account. Mr Hooper stated that he inquired of all three banks as to any evidence of a loan of $50,000 made by Ould to Baysilk. He and his solicitors were told that they had destroyed their documents. They also inquired of St George Bank, Baysilk's bankers, and received the same reply. However, he conceded that inquiries were not made immediately. When it was suggested to him that he had delayed for over twelve months in going to the bank to obtain proof of the second loan, Mr Hooper attempted to suggest that an informal approach had been made by his solicitor. However, when pressed, he admitted that this was a mere assumption on his part.

130 The documentary evidence indicates that on 20 August 2001 Mr Hooper's solicitor wrote to the Commonwealth Bank where Ould held an account inquiring about records of the loan transactions. The only documentation supplied related to the payment for $50,000 made on 3 August 1995. Mr Hooper could offer no explanation for why contact was made with only the Commonwealth Bank at this stage. It was not until 22 October 2002 that Mr Hooper's solicitors wrote to BankWest making a similar inquiry. On 28 October the solicitors wrote again to the Commonwealth Bank and contact was also made with the Challenge Bank in late 2002.

131 Mr Hooper could provide no compelling reason for the delay in attempting to obtain evidence of the two loans. Essentially he blamed his solicitors. He admitted that he was aware that, as far as general accounting practices were concerned, records were destroyed after a number of years. He denied that he knew that to be the policy of banks. Again, I have great difficulty in accepting that a businessman of Mr Hooper's experience would be unaware of the constraints on the retention of records by most commercial institutions.

132 While Mr Fletcher agreed that the debts were never the subject of any statement of account or written claim until some four years later, he said that he could recall sending a facsimile to Mr Fletcher, probably at the end of 1997 or the beginning of 1998. He had not retained a copy of it and could not remember the amount asked for. He conceded that this was not something that he had previously mentioned in his affidavits. His explanation was that he did not mention it because he did not have a copy of the facsimile. I do not accept that explanation.

133 In view of the repayment date in the mortgage of 28 December 1995, Mr Hooper was asked why he took no action when the term expired. His explanation was that he and Mr Fletcher were still basically friends at that time and that Mr Fletcher had problems and did not have the money. However, it was clearly the case that in 1997 Mr Fletcher did have the money because he had sold the business. Mr Hooper was aware that he had made the sale because Tonesports took over one of his consultancy arrangements. Mr Hooper simply maintained his position that he made many verbal requests for repayment and the one facsimile request. He received no response and took no action.

134 Mr Ohayon was called to give evidence on behalf of the defendant. He is a qualified accountant and commenced employment with Baysilk in April 1996, reporting to Mr Cowling when he became financial director. As the accountant, he was in charge of properly recording all transactions, organising the payroll and determining when to pay invoices. Mr Ohayon became aware that, prior to his employment there was a spreadsheet prepared for forecasting cash flow. However, he considered it to be an inaccurate forecasting tool. According to Mr Ohayon, Baysilk's financial records were in a very poor state when he commenced and a significant amount of analysis work was required to correct a number of transactions which had been posted to incorrect accounts. Where supporting documentation was available, they would check the accounting entries against that documentation. Implicit in that statement is that there were occasions on which no such supporting documentation was available.

135 Mr Ohayon remained as Baysilk's accountant until January 1997 when Tonesports bought Baysilk's interest in the business. Discussions for the purchase of the building first occurred in August or September 1996. The documents for the sale were drawn up in November for a settlement to occur on 31 December 1996.

136 In his evidence, Mr Ohayon identified the circumstances surrounding the creation of the June and October Transactions by Account, both of which were printed from Baysilk's general ledger, and the annexure to the Cowling memorandum. He also explained his handwritten annotations and, as far as he was able, the source of the information he included in those documents.

137 There was some inconsistency in the evidence of Mr Ohayon as to the source of some of the information contained in the three documents that he prepared. In his affidavit evidence, Mr Ohayon stated that he believed he formed his belief about the loans and consultancy fees from a combination of discussions with Mr Fletcher, other staff at the office and the other director of Baysilk. In his oral evidence he was less clear on this issue. He was, in any event, unable to specifically recall speaking to Mr Fletcher about these issues.

138 When asked whether he had made the handwritten notes on the October Transactions by Account after he had made inquiries of any person, he said that was a difficult question to answer. Basically he had few actual recollections of the people to whom he spoke.

139 Mr Ohayon believed that the June Transactions by Account were prepared around the end of the financial year. He analysed the accounts in order to determine whether the accounting entries were correct and to determine what transactions would have occurred during that financial year. This is what led him to make the notes that he did. At the time it was not clear from the general ledger what the $50,000 loan brought forward was for, so Mr Ohayon had discussions with various people to determine what it represented. He cannot remember whether he spoke to Mr Hooper. Nevertheless, having discussed the matter with others, he ultimately concluded that it represented a loan by Ould to Baysilk. He cannot recall who told him that and he cannot remember the conversations that he had. Neither could he remember when he concluded that it represented a loan from Ould to Baysilk.

140 On the June Transaction by Account document Mr Ohayon circled two payments, one for $35,000 and one for $30,000, stated to be loan repayments to Ould. He then wrote "Payments for boat, transfer to BF journal 18". The notation meant that he would have prepared a journal entry to transfer those two amounts out of other creditors to Mr Fletcher's loan account. Mr Ohayon stated that, according to the information provided to him, the payments were part-payment for consultancy fees due to Ould for the Melville Plaza Club, but which were paid off the boat that Mr Hooper was buying. Mr Ohayon could not remember where that information came from, but agreed that a lot of the information came to him from Mr Hooper.

141 The reference to "Ould 50,000, repaid 5000 times 10" was simply an analysis of the payments of the $5000 so as to allocate them against the loan from Ould. There is a further notation which states: "Ould 50,000 bffwd. loan? - where is money?". Mr Ohayon has also written the name "Judy", but the name has a line through it. Mr Ohayon explained that Judy was Baysilk's bookkeeper. Mr Ohayon explained the notation as a prompt to speak to Judy with a line put through the name when he had done so in accordance with his usual practice. However, he could not actually recall whether he received clarification. The next notation was explained as recording the fact that $73,000 had been repaid leaving a balance of $23,000 for consultancy fees. Mr Ohayon believes that this notation was in relation to Mr Hooper's consultancy fee for the Melville Plaza Club.

142 In cross-examination, Mr Ohayon stated that at the time of attempting to identify the amount of moneys owed to Ould he had checked primary records such as bank statements. He also agreed that he would have done an analysis of the records and looked very closely at them. Consequently, he agreed that, if there were a loan, other than that recorded on 3 August 1995 which was made in the year ended 30 June 1996 by Ould, it would have been identified in the bank statements and appeared in the Transactions by Account. The conclusion which can then be drawn is that his search of the records did not elicit any evidence of a loan made by Ould to Baysilk in July 1995 or at any other time during the financial year. In re-examination, Mr Ohayon confirmed that when he was reviewing the Transactions for Account for 1996, Baysilk's bank statements were available to him. However, he said that he could not remember whether he looked at them for verification. In view of his earlier evidence on this issue, I take this comment to mean that Mr Ohayon now has no specific recollection of checking the bank statements, but accepts that he did do so.

143 Mr Ohayon said that he treated the $50,000 loan brought forward as having been made in the previous financial year by Ould. He believes that he received that information from conversations with Mr McCabe, but did not have any firm documentation to support that conclusion.

144 Mr Ohayon was taken to the Baysilk balance sheets for the 1995 financial year. Mr Ohayon was not working for Baysilk in that year, but he prepared the 1995 financial year accounts after he joined Baysilk in April 1996. He worked with Mr Gannon, the company's external accountant completing the accounts for 30 June 1995. Mr Ohayon cannot specifically remember preparing the draft balance sheet, but agreed that he would have prepared a trial balance for Mr Gannon, and then he would have extracted those figures and put them into a draft accounts format. When he faxed the draft 1995 accounts to Mr Gannon, Mr Ohayon included a note in the following terms:

"Phil, I reconciled bank accounts and raised journals as necessary. I have written off differences to general expenses. Do not transfer BF [Brian Fletcher] account in creditors to BF trust account as expense already in the trust account. Speak to you tomorrow."

145 Mr Ohayon was taken to note 9 of the balance sheet for the 1995 financial year which dealt with creditors and borrowings. It contains a reference to "Unsecured Loan - Oakover Holdings Pty Ltd". The amount of the loan is $50,000. Based on the financial statements he agreed that, contrary to the information he had been told, the $50,000 carried forward is in fact the Oakover unsecured loan. However, based on what he had been told, he believed that was an error.

146 The history of the Oakover Holdings loan is set out in Baysilk's financial statements. The financial statements reveal that in 1994 there was a balance of $80,000 shown as an unsecured loan from Oakover Holdings that was reduced as at 30 June 1995 to $50,000. In the 1996 financial statements the unsecured loan to Oakover Holdings Pty Ltd appears again, but has increased to $60,000. He could not recall the circumstances in which the loan had actually increased. By 30 June 1997 the $60,000 unsecured loan to Oakover Holdings Pty Ltd had been repaid. In re-examination, Mr Ohayon indicated that he could not remember seeing the final version of the financial records.

147 Mr Ohayon was working at the Claremont premises where Oakover was said by Mr Fletcher to be a tenant. He was unfamiliar with the name and said that he was not aware of any tenant of those premises. However, Mr Ohayon's lack of knowledge of Oakover may reflect the fact that the Oakover loan appeared in Baysilk's financial statements in 1994 which was before he commenced with Baysilk. Mr Fletcher was not asked when Oakover vacated the premises.

148 It was put to Mr Ohayon that, taking into account the financial statements for year ending June 1995, 1996 and 1997, the $50,000 brought forward was clearly the loan from Oakover. He responded by saying that he was not aware of any information on Oakover and the information that he had at hand suggested that the loan was from Ould. However, Mr Ohayon agreed that the information that he had on hand was incorporated into the 30 June 1996 accounts and that information included a carried forward loan made to the company by Oakover which existed well before 30 June. He agreed that there was no written record whatever of any other loan by Ould apart from the amount of $50,000 appearing in the first entry in the transactions by account document and dated 3 August. Mr Ohayon also agreed that, based on the final accounts of Baysilk for each year, the carried forward figure of $50,000 was not a loan by Ould, but a loan by Oakover. He also agreed that there were no other documents that indicated to the contrary.

149 Mr Ohayon cannot remember whether, at the time he wrote on the transaction by account documents, he had any regard to the Oakover loan. He agreed that it was possible that he simply overlooked it because of the state of the accounts.

150 He agreed that his conclusion that there were two loans of $50,000 was based on the fact that one such loan was clearly made on 3 August 1995 and he assumed that the loan carried forward was an earlier loan. He cannot recall whether the assumption was based on something said by Mr Hooper, but it was based on conversations that he had about which he can no longer remember the content.

151 Of course, if the evidence is accepted that the security documents were executed prior to the first payment being made and that the documents were in fact executed on 4 July 1995, then the reference to an unsecured loan from Oakover Holdings $50,000 could not possibly be the secured loan to Ould.

152 Mr Ohayon cannot remember whether he checked bank statements so was reluctant to agree that there was no evidence found which supported the proposition that a loan had been made to Baysilk by Ould other than the loan made on 3 August 1995. However, if that were the case, it would be expected that Mr Ohayon would have arranged some alteration to the financial statements to reflect the true position. Mr Ohayon agreed that since the financial statements do not include a reference to a loan from Ould, he must have accepted that there was no documentation supporting such a loan because he would have changed it and raised it with Mr Gannon.

153 To Mr Ohayon's recollection, the October Transaction by Account was produced after he had gone through the process of rectifying Baysilk's accounts.

154 The notations on the October Transactions by Account of loan 1 and loan 2 were made because Mr Ohayon believed that there were two loans from Ould, each in the amount of $50,000. One transaction was on 3 August 1995. The other related to the opening creditor's balance of $50,000. The initial source of the information with respect to the second loan on 3 August 1995 would have been the general ledger. He would have checked that entry against the bank statement.

155 To his recollection, his conclusion that there were two loans from Ould was based on conversations with various people. He could specifically remember conversations with Shaun McCabe, the other Baysilk director. He also stated that the conclusion was reached after having regard to other documents, although he could not remember specifically which documents he had looked at. He believes that he would have looked at bank statements, but he cannot remember specifically. This comment should be viewed in tandem with Mr Ohayon's other evidence to the effect that he would have checked the 3 August 1995 entry against Baysilk's bank statements. Mr Ohayon also mentioned the 1995 financial statements for Baysilk as a source of information for the loans.

156 Mr Ohayon acknowledged that the annexure dated 6 November 1996 attached to the Cowling memorandum was prepared by him. Mr Cowling prepared the memorandum to Mr Fletcher, but Mr Ohayon discussed the contents with him. Mr Ohayon said that he has no recollection of discussing the contents with Mr Fletcher and does not believe that he did. Mr Ohayon stated that he was requested to do some analysis work to determine how much Baysilk owed Ould. He could not recall whether it was Mr Fletcher or Mr Cowling who asked him to speak to Mr Hooper and to perform the analysis. The document was prepared in conjunction with the October Transaction by Account.

157 Mr Ohayon said that he believed he had conversations with Mr Hooper who gave him some of the information in the document. He met with Mr Hooper at the Claremont office and was shown some handwritten notes outlining the terms of the loans, such as the 50 per cent bonus for rollover. Mr Hooper talked Mr Ohayon through his understanding of that loan. Mr Ohayon was clear in his evidence that the references to interest and bonuses for rollover came directly from Mr Hooper. Mr Hooper provided no documentation to support an entitlement to these payments. Nevertheless, even though the claims struck him as odd, Mr Ohayon included them in his summary of moneys owed. In my view, that action illustrates a level of reliance on the word of Mr Hooper which detracts from any suggestion that the documents created by Mr Ohayon are an independent summary based on records available at the time.

158 It is also interesting to note that whereas loan two is described as secured, loan 1 is not. Mr Ohayon believes he was most probably told this by Mr Hooper. Indeed, it is difficult to identify any other source of that information in circumstances where Mr Ohayon believes that he did not speak to Mr Fletcher on the issue. That description of the loans is not consistent with Mr Hooper's account of the events surrounding the two $50,000 advances and the execution of the security documents.

159 As to the reference to consulting fees for Melville Plaza, Mr Ohayon was aware that there was a fee to Mr Hooper of $200,000. He then tried to determine out of the payments made to Mr Hooper which ones applied to those consulting fees. Mr Ohayon believes that the main source of the information for the amounts paid was the general ledger and the banking records because the payments would have been made by cheque.

160 I consider Mr Ohayon to be a truthful witness who did his best to answer the questions put to him, but who understandably had no clear recollection of events due to the significant time lapse. However, it is apparent to me that in attempting to identify the amounts owing by Baysilk to Ould, Mr Ohayon principally relied on Mr Hooper's account of moneys advanced and entitlement to consultancy fees. His approach was to then identify from the records payments made to Ould and offset them against the moneys claimed by Mr Hooper. For that reason, I do not consider that Mr Ohayon's evidence or the records produced by him corroborate Mr Hooper's account of events. Nor does Mr Ohayon's evidence support a conclusion that Mr Fletcher was made aware of Mr Hooper's claims and did not dispute them.

161 Mr Cowling gave evidence and identified his memorandum of 7 November 1996. He said he prepared it in response to a request from either Mr Hooper or Mr Fletcher to clarify what was owed by Baysilk to Mr Hooper. Mr Ohayon met with Mr Hooper to get some details as to what he believed he was owed. Mr Ohayon then looked through the records and came up with a scenario which he put to Mr Cowling, which Mr Cowling then put to Mr Fletcher in the memorandum.

162 He said that his normal practice was to fax memoranda to Mr Fletcher's home and then call him to discuss them. He could not recall whether he did so on this occasion, but did recall some discussions with Mr Fletcher on the matter around the time of the memorandum. He had only a vague recollection of the conversation, but it was to the effect that the memorandum set out the position as they had been able to ascertain it, predominantly from Mr Hooper. Mr Cowling did not get involved in any discussions and merely provided the document to Mr Fletcher. According to Mr Cowling, Mr Fletcher just said he would take it from there or, at least, that was the impression he was left with. Mr Fletcher did not dispute anything in the memo or the annexure, but neither did he agree with it. To Mr Cowling's recollection, there was no discussion regarding whether there was one loan or two.

163 It can be seen that, at best, Mr Cowling's evidence suggests that Mr Fletcher was made aware of the amounts said by Mr Hooper to be owing to him. His evidence does not support a conclusion that Mr Fletcher accepted the information in the Cowling memorandum nor reached an agreement with Mr Hooper.

164 Mr Cowling's evidence must also be considered in light of the fact that there is a considerable level of animosity towards Mr Fletcher arising from the litigation in which they were involved. Mr Fletcher was the successful party in that litigation, leaving Mr Cowling facing a $50,000 bill for legal fees. I have reservations about Mr Cowling's evidence and am not prepared to rely on his evidence as the basis of a finding that the Cowling memorandum was drawn to Mr Fletcher's attention. For that reason, I am not prepared to make such a finding.

165 At the close of the defendant's case, counsel for the defendant was given the opportunity to recall Mr Irdi, the solicitor who drafted the security documents, who could be expected through his records to shed some light on the circumstances surrounding the drafting of the mortgage and debenture, in particular when instructions were received, when the documents were prepared and when they were returned to his office. None of these surrounding facts would fall within the scope of an entitlement to legal professional privilege and no claim of privilege was made to explain the failure to call Mr Irdi. The evidence of Mr Irdi had the potential to confirm Mr Hooper's recollection of events in circumstances where there was a clear dispute as to the accuracy of his recollection. I would have greater confidence in accepting Mr Hooper's version of events if Mr Irdi had been called: Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 308, per Kitto J.

166 On Mr Hooper's behalf it was submitted that the stamping of the security documents on 4 and 5 July 1995 was consistent with a payment prior to 30 June 1995 and return of the document to the solicitor for registration in due course. Whilst it may be consistent, it is clearly the more prudent course to hand over the moneys on execution of the document and arrange for immediate registration. In my view, Mr Hooper's account of the circumstances surrounding the making of two loans to Mr Fletcher secured by mortgage and debenture is contradictory and commercially improbably.

167 It was also submitted that caution had to be exercised in relying on the Baysilk financial records because they are not signed and Mr Gannon was not called as a witness. The response on behalf of the plaintiffs was to note that the financial records were produced in circumstances where they were identified by Mr Fletcher, a director of the company, and the originals had been destroyed.

168 It was also said on behalf of the defendant that Mr Ohayon's evidence should be given more weight than the financial statements because he said that he looked at the financial records and spoke to various people. However, the only people that knew whether there had been an earlier loan were Mr Hooper and Mr Fletcher. Mr Fletcher was not spoken to by Mr Ohayon and Mr Hooper had a clear interest in suggesting that there were two loans. In my view, the evidence of Mr Ohayon does not support a conclusion that he verified the making of a loan by Ould to Baysilk at the end of the 1995 financial year by reference to bank statements.

169 I am also asked to accept that the handwritten note made by Mr Fletcher contains a reference to a $100,000 loan. Not only should I accept that this figure actually appears in the note, I should conclude that the sum in fact represents two sums of $50,000. Personally, I cannot decipher this portion of the note and to accept that it reads $100,000 I would have to rely on the evidence of Mr Hooper. It is, therefore, the case that the document itself does not reinforce Mr Hooper's evidence.

170 It was further submitted on the defendant's behalf that Mr Fletcher was not a reliable witness, as evidenced by his error in relation to whether the Joondalup Club was anything more than a concept at the time the business was sold. I have already indicated my conclusion that Mr Fletcher was indeed in error on this issue and that, for this and other reasons, there is a need to scrutinise Mr Fletcher's evidence quite carefully. However, I do not consider that this error is a sufficient basis to reject the balance of Mr Fletcher s evidence.

171 Counsel for the defendant also raised the point that, in the circumstances of Tonesports buying the business, it made sense to agree on a figure and to accept that figure as representing Baysilk's indebtedness to Ould. The problem with this submission is that it made sense for Mr Cowling, Mr Ohayon and Mr Hooper to identify a figure because Mr Hooper wished to be paid and Mr Cowling and Mr Ohayon had an interest in identifying Baysilk's outstanding debts. It does not follow that it made sense for Mr Fletcher to do so, nor that he actually did.

172 Mr Hooper's failure to precisely identify the occasion of the first loan as occurring in June 1995 was said not to indicate any lack of reliability of veracity on his part. It is said that the phrase "on or about" is one of those expressions commonly used in affidavits and should not be used against Mr Hooper who did not draft the affidavit. I accept that there is some substance in that submission.

173 It was also submitted on behalf of the defendant that the fact that inquiries as to the existence of bank records supporting that two loans were made were conducted a considerable time after it became apparent that enforcement action might be required does not allow the Court to conclude that the documents never existed. For the reasons to which I have already referred, I consider this failure to be of considerable significance and I reject that submission.

174 As to the allegation that Mr Fletcher agreed to pay $50,000 of the fee for Joondalup, it is submitted on behalf of the defendant that Mr Fletcher's own e-mail document supports Mr Hooper's claim. Certainly the e-mail contains a reference to the fact that Mr Fletcher told Mr Hooper that he would put in the $50,000 balance. But this does not resolve the central issue of the timing of this statement and whether it was the basis of a binding legal agreement. It is said that the benefit to Mr Fletcher was the enhanced saleability of the business to Tonesports. However, I am unpersuaded that the saleability would be so advanced as to justify a $50,000 payment.

175 Counsel for the plaintiffs submitted that acceptance of Mr Hooper's evidence of there being two loans results in the curious situation of there being a loan of $50,000 on which no repayments have been made, a second loan for which repayments start within a fairly reasonable period of time and are completed and then no payment thereafter. As counsel observed, one would expect a continuum of these fairly frequent, usually monthly, instalments. This feature is particularly curious when it is remembered that, on the security documentation, the loan was for a short period with a termination date of 28 December 1995. It is also said that there would need to be some reasonable explanation for why, if there were two loans, the mortgage did not cover both of them. In my view, the explanation advanced by Mr Hooper was wholly inadequate.

176 The plaintiffs also emphasise that the evidence of Mr Ohayon, the defendant's own witness, is that the $150,000 paid to Martin Box was in respect of the Melville Plaza Club consultancy fees. I have no difficulty in so finding. It also said that Mr Ohayon's assumption that the $50,000 sum brought forward was the first loan from Ould to Baysilk was not based on documentary evidence. Again, I accept that to be the case. I also accept the submission that the documentary evidence, being the Baysilk financial records, show that the sum was not a secured loan made by Ould to Baysilk in 1995, but an unsecured loan made by Oakover to Baysilk in 1994. Counsel makes the observation, which I accept, that the Oakover entry is a recurring figure and, therefore, there is less likelihood that it is an error because there has been a greater period within which the error could have been identified.

177 It is also submitted that when attempting to determine to whom the $50,000 loan brought forward was owed, Mr Ohayon asked a number of people, but not Mr Fletcher. More significantly, Mr Ohayon agreed that he found no evidence of any deposit of $50,000 during the year ending June 1995, notwithstanding having access to the bank statements. That evidence excludes the possibility that the Oakover loan, carried forward from 1994, was a loan from Ould to Baysilk and seriously undermines the defendant's position.

178 Counsel for the plaintiffs further submits that the Court is entitled to rely on the financial statements because it was not once put to Mr Fletcher that the financial statements were not a correct statement of the affairs of the company at the relevant time and it is not open to counsel for the defendant to suggest to the contrary without doing so. In any event, Mr Ohayon acknowledged that the financial reports would have come back to him in their final form and he would have read them. Further, in circumstances where the accuracy of the financial statements was not put in issue by cross-examination of Mr Fletcher, the plaintiffs were deprived of the opportunity to call Mr Gannon. Again, I consider both those submissions to be well founded. I draw no conclusion adverse to the plaintiffs in not calling Mr Gannon.

179 Counsel for the plaintiffs also submits that it is more likely that any loan advanced by Mr Hooper would be made after registration of the security documents and not before. It is further submitted that, if indeed there had been a second loan, in view of Mr Hooper's concerns as to Baysilk's solvency, one would have expected him to have instructed his solicitor to immediately up-stamp the security documents, a process with which he was familiar. Further, one would expect that Mr Irdi, or someone from his office, would be called to identify when the document was actually received. As I have indicated elsewhere in these reasons, I accept each of these propositions

180 Counsel for the plaintiffs also relies on the inherent improbability of Mr Hooper not issuing a demand for payment sooner than he did. At the very least, a statement of account would be expected and may encourage the recipient to pay the amount owing, particularly where the statement would identify the interest payable and accruing on the loan. The Court is invited to draw a similar conclusion in relation to Mr Hooper's failure to mention the outstanding $50,000 loan on the occasions that Mr Hooper is alleged to have spoken to Mr Fletcher about the outstanding consultancy fees, as well as Mr Hooper's failure to immediately contact the banks to obtain the evidence he would need in order to recover the moneys owed to him. It is said that this combination of factors throws substantial doubt on Mr Hooper's credibility, a submission which I accept.

181 With respect to the second issue, which is whether Mr Fletcher agreed to pay Mr Hooper the $50,000 consultancy fee for the Joondalup Club, counsel for the plaintiffs properly concedes that the evidence shows that some progress was being made towards the Joondalup Club at the end of 1996. However, it is emphasised that Mr Fletcher's evidence, the only evidence on this point, was that he was unaware of it. Counsel also refers to Mr Hooper's note of his conversation with Mr Fletcher about Baysilk paying $150,00 for Mr Hooper's consultancy services on the Joondalup Club and Mr Fletcher saying that he would pay the balance of $50,000. It is submitted that it is entirely clear that Mr Hooper is talking on the basis that the project goes ahead and Baysilk still operates the business. The contrary proposition would mean that Mr Fletcher is paying $50,000 for something that is not of the slightest benefit to him. On Mr Fletcher's version of events, this is no more than a preliminary discussion, not intended to be a binding legal agreement. It is said that the context is the key to evaluating this evidence.

182 Mr Hooper bears the onus of establishing that there were two loans advanced to Mr Fletcher and that Mr Fletcher entered into a binding agreement to contribute $50,000 to Mr Hooper's consultancy fee for the Joondalup Club. In the end result, the primary source of the evidence in support of the allegations against Mr Fletcher is Mr Hooper himself. In my view, Mr Hooper was a most unsatisfactory witness. He has a clear dislike of Mr Fletcher which he is unable to conceal and which appears to have coloured his perception of events. As set out in these reasons, there were numerous internal inconsistencies in his evidence with respect to significant aspects of the claim which he was unable to adequately explain. He was often evasive in circumstances where these inconsistencies were being brought to his attention. Having carefully considered the content of his evidence and his demeanour in the course of giving that evidence, I am not prepared to accept his account of events in the absence of corroborating evidence. I do not consider that the evidence of Mr Ohayon or Mr Cowling falls into that category. Neither does much of the documentary evidence on the financial relationship between the parties being largely sourced from Mr Hooper himself.

183 Even Mr Hooper admits that the agreements he alleges were not properly documented. The fact that this Court is left in the position of having to almost exclusively rely on his evidence of the existence of such loans is a situation entirely of his own making.

184 Whilst the defendant has the onus of establishing that it is owed by the plaintiffs, the sums claimed, the plaintiffs bear the burden of proving that the sums owed have been repaid: Young v Queensland Trustees Ltd [1956] HCA 51; (1956) 99 CLR 560 at 562 and 569 - 590; see also Julong Pty Ltd v Fenn [2003] ANZ ConvR 379. I find, on the evidence, that both the amounts claimed by the defendant have been repaid and, hence, there is no sum owing to the defendant by the plaintiffs.

185 On the evidence available to me, I find that in July 1995 Mr Fletcher indicated to Mr Hooper that he would have a shortfall of funds to pay for staff wages and that Mr Hooper agreed that Ould would advance the sum of $50,000 secured by mortgage and debenture. That loan was repaid with interest between September 1995 and January 1996. Mr Hooper has failed to persuade me that a second loan was made. I am also unpersuaded that in September 1996 an agreement was reached between Mr Hooper and Mr Fletcher to settle Mr Hooper's entitlement to repayment of loans in the sum of $67,638.

186 I also find that the Mr Fletcher on behalf of Baysilk agreed to pay Ould a $200,000 consultancy fee in relation to the Melville Plaza Club due on completion of the Club. I further find that $150,000 of that fee was paid by Baysilk by instalments from September 1996 to December 1996 and the balance of $50,000 paid by Tonesports after its acquisition of the business and in accordance with the sale agreement. I am not persuaded that the discussion between Mr Hooper and Mr Fletcher, which I find occurred prior to the sale of the business, in which Mr Fletcher stated that he would contribute $50,000 to any consultancy fee for the Joondalup Club constituted a binding legal agreement.

187 For these reasons, I find for the plaintiffs in their action against the defendant and dismiss the defendant's counterclaim.