GJB Building Pty Ltd v AI&PB Property Pty Ltd [2023] VSC 782

Analysis - Specific Payments by Category

Payments made to discharge a liability of CornoNero

1. The Special Referee concluded that three of the payments were made to creditors of CornoNero (Impugned Payments No. 65, 67 and 68). The Special Referee concluded that $1,124 of Impugned Payment No. 72 (which was for a total amount of $1,687) was to meet a CornoNero liability. The evidence did not disclose any particular involvement of Breckenridge (or Ascenzo for that matter). The claims in respect of Impugned Payments No. 65, 67, 68 and 72 are not made out (in respect of either Breckenridge or Ascenzo).
2. The Special Referee was unable to determine whether Impugned Payment No. 74 related to a liability of CornoNero. However in any event, the evidence did not disclose any particular involvement of Breckenridge (or Ascenzo for that matter). No breach of duty was established in respect of either Breckenridge or Ascenzo.
3. The Special Referee was unable to determine whether Impugned Payment No. 76 related to a liability of CornoNero. The evidence established that the payment was made for the purpose of paying a debt in order to avoid legal action, and that the threat (including but not limited to the threat of legal action) was relevant to CornoNero and not just Trimont. No breach of duty was established in respect of either Breckenridge or Ascenzo.
4. As set out in Part J above, the Special Referee considered the running balance of the Loan Account Ledger. On the basis of the running balance, the Special Referee said that in those instances where the loan account had a credit balance immediately before a debit entry for an Impugned Payment the debit entry recorded a debt or liability being met. Having analysed the running balance in that way, the Special Referee concluded that 14 entries in the ledger (of the 68 entries in the ledger that related to the Impugned Payments) met the requirement of having a credit balance immediately before the Impugned Payment appeared, with the effect that the balance was switched from a payable (by CornoNero) to a receivable. Those entries could, on that basis, be characterised as being 'recorded in the accounts as meeting a debt or liability'. For the reasons including those set out in Part J, I do not consider that the fact that a particular payment was entered into the ledger so as to 'switch' the running balance in favour of CornoNero, to be relevant to whether or not Breckenridge (or Ascenzo for that matter) could be in breach of their duties owed to CornoNero in respect of those payments. Indeed, the defendants said that this issue went to loss, and did not submit that there could be on liability in respect of those 14 payments. For completeness I note that:

(a) The 14 entries in the ledger that 'switched' the running balance were not otherwise established to record payments that discharged a liability of CornoNero;

(b) The Special Referee did not look behind the accounting records to ascertain the nature of any 'loan' arrangement between Trimont and CornoNero. He was not asked to do that. The Referee did not consider the composition of the opening balance of the ledger, or the basis of the validity of the credit entries apparently in CornoNero's favour. He was not asked to do that. The ledger contained 174 entries in the relevant period, only 68 of which were in respect of the Impugned Payments. There was nothing before the Special Referee concerning the remaining 105 entries. As a result, what could be drawn from the face of the ledger was limited. The Referee's conclusions were limited to what the relevant accounting records showed.

(c) The Special Referee considered the other accounting records before him and was not able to produce a coherent reconciliation of those records and the Loan Account Ledger.

(d) The Ledger itself was not a record to which witnesses said they had access at the time of the events. I have found that the ledger was probably a version of the loan account set up by Thurgood.

(e) The Loan Account Ledger did not sufficiently evidence the existence of a loan or loan agreement between Trimont and CornoNero.

Payments made at the request of Ascenzo without any other basis

1. Certain payments were made at the request of Ascenzo, and Breckenridge did not seek to justify them on any other basis, and the evidence supports the conclusion that they were not justified on some other basis. Those payments were No. 1, 2, 3, 4, 5, 7, 9, 10, 21, 26, 27, 49, 50, 54, 55, 56, 57, 61, 69, 70, 75, 79.
2. In addition, some payments were categorised by Breckenridge as having been made on some other basis, but I have found that the evidence did not support that conclusion. Those payments are of the same character as those within the 'requested by Ascenzo' category, and the same analysis and conclusions apply. They are identified below.[376]
3. I consider that Breckenridge failed to exercise the requisite standard of care and diligence in respect of each of these payments, in discharging his duties. A reasonable director in his position would not have authorised or caused those payments to have been made.
4. Without repeating what is set out above, these matters should be emphasised:

(a) The transactions were not at arm's length. It was put that they were individual 'loans' but were, together, purportedly justified at the time as made pursuant to a lending arrangement that was not at arm's length and was with a related party. What Breckenridge did was contrary to the requirement embodied in the Shareholders Agreement that such transactions were to be the subject of a special resolution of the CornoNero board. The payment of Trimont's debts by CornoNero was contrary to the provisions of the BSA. These things, Breckenridge knew.

(b) Breckenridge made no apparent effort to ensure that the processes stipulated in the BSA to manage debts and receipts referable to Trimont and CornoNero post‑completion, were complied with.

(c) Breckenridge did not have a reasonable belief that it was necessary to make the Impugned Payments in order to discharge CornoNero's indebtedness to Trimont. He took no steps to ensure that any moneys CornoNero paid out were referable or limited to what Trimont had paid. He did not quantify what Trimont had paid or what it was owed.

(d) Breckenridge knew that CornoNero was paying Trimont's creditors, and knew of the extent to which that was occurring. He was warned about the use of CornoNero's money to pay Trimont's bills, by the company's CFO. He knew that Trimont was in financial difficulty and did not in fact take any meaningful steps to ascertain that Trimont could repay the moneys 'lent' to it. He knew at the time that the payments were made, that CornoNero itself was under real financial pressure, yet was content to pay its moneys away to Trimont.

(e) The circumstances of the business at the time (commencing the business, managing the transition of transfer projects, the absence of the Westpac facilities, pressure from creditors, general busy‑ness) did not explain or justify what occurred.

(f) It was apparent that the reports to the Board did not report what Breckenridge in fact knew to be the case in respect of the payment of moneys to or for Trimont or Ascenzo. He failed to make any proper disclosure to the Board. His own evidence was that he worked through the board papers in advance of the Board receiving them.

1. Any reasonable director in Breckenridge's position would have reported the requests for payment to the Board and not authorised them without board approval.
2. The risk of harm to CornoNero was readily foreseeable - that its much needed cash was being paid out to another entity without any reasonable basis to think it would be readily repaid or repaid at all. The risk that the moneys would not be repaid within a very short time, or repaid at all, was substantial. There were no identifiable benefits to CornoNero, from the making of the payments. To the extent that the repayment of moneys owed to Trimont was an obligation, and the fulfilment of that obligation could be understood as a benefit to CornoNero (by ensuring that it managed its financial affairs properly) the evidence did not establish that the payments were made so as to achieve that objective, or with that effect. So much is apparent without the benefit of hindsight.
3. What Breckenridge did in respect of these payments did not involve mere errors of judgment or mistakes. Breckenridge did not invoke the 'business judgment' defence provided under s 180(2) of the Corporations Act, in respect of the Impugned Payments.
4. As to the requirement that a director exercise his powers and discharge his duties in good faith and in the interests of the corporation, the question is whether an intelligent and honest person in the position of a director of the company concerned, could, in the whole of the circumstances, have reasonably believed that the transactions were for the benefit of the company. The test is an objective one, but the subjective beliefs and intentions of the director or officer may still be relevant.[377]
5. I do not consider that an intelligent and honest person in Breckenridge's position could, in all of the circumstances, have reasonably believed that the transactions were for the benefit of the company. The circumstances that inform that assessment have been set out earlier.[378] It ought to have been obvious that making payments for Trimont and Ascenzo was not in CornoNero's interests, particularly in circumstances where CornoNero itself was under financial pressure, and where there was no reasonable basis to conclude that moneys 'lent' would be paid back, in a timely fashion or at all. Moneys paid out were not then available for CornoNero's own use, to state the obvious. As to Breckenridge's subjective state of mind, his positive justifications for these payments[379] was that he believed that Trimont or Ascenzo were owed money. As discussed, he took no steps to quantify what Trimont or Ascenzo were owed. He took no steps to ensure that whatever was paid to Trimont or Ascenzo did not exceed what was owed. The significant 'quantified' item said to have been owed was the asserted entitlement of Trimont, to retention moneys. Breckenridge did not establish that he informed himself in any particular way at all, about that issue, at the time. I found his evidence on that subject to be a self‑serving reconstruction. I could not conclude that Breckenridge acted with an honest belief that authorising these payments was in the company's best interests.
6. As to whether Breckenridge exercised his powers for an improper purpose: Breckenridge was empowered under the Shareholders Agreement to manage the affairs of the company, but not to make loans to related parties or engage in transactions that were not at arm's length or with a related party. The payments within this category were not at arm's length and were purportedly made pursuant to lending arrangement that was not at arm's length and with a related party. I consider that the evidence establishes that each of the payments within this category were made for the substantial purpose of meeting the expenses and liabilities of Trimont or Ascenzo. That was the 'substantial object the accomplishment of which formed the real ground'[380] of Breckenridge's actions. In reaching that view, I have taken into account the evidence of Breckenridge in relation to each payment, and the circumstances relevant to the payments within this grouping, as set out above. That purpose was not a proper purpose, meaning that it was not within the scope of the powers conferred on Breckenridge. I have not accepted Breckenridge's evidence that the payments were made 'in recognition' or repayment of the moneys owed to CornoNero. If that was a purpose for causing or authorising any of the payments, I do not consider that it was the substantial purpose.
7. As to misuse of position (s 182), the test of impropriety is objective, and consists of a breach of the standards that would be expected of a person in the position of director by a reasonable person with knowledge of the duties, powers and authority of the position of director and the circumstances of the case, including the commercial context.[381] A director's appreciation of the relevant circumstances might inform the analysis of propriety of the use the director made of his position in acting as he did.[382] Nevertheless, a director can be held as having acted improperly even without any intention of acting dishonestly or otherwise than in the best interests of the company.[383] For the reasons already discussed and taking into account the factors enumerated earlier,[384] I consider that Breckenridge's conduct in authorising or causing the payments within this category breached the standards that a reasonable person with knowledge of the powers and authority reposed in Breckenridge and of the circumstances, would expect of a director in Breckenridge's position. I have taken into account the evidence of Breckenridge in relation to each payment, and the circumstances relevant to the payments within this grouping, as set out above. Breckenridge used his powers to benefit someone other than the company, without having a reasonable basis to do so. He did that without informing the Board or seeking its authorisation.
8. I am satisfied that, determined on an objective basis, Breckenridge had in mind the purpose of gaining an advantage for Trimont or Ascenzo when he approved or caused the payments to be made. Objectively, the purpose actuating the making of the payments was to meet the expenses and liabilities of Trimont or Ascenzo. I have taken into account the evidence of Breckenridge in relation to each payment, and the circumstances relevant to the payments within this grouping, as set out above. Accordingly I am satisfied that Breckenridge misused his position within the meaning of s 182 when authorising or causing the payments in this grouping.
9. I do not consider that there is any basis on which to excuse Breckenridge from liability in respect of the payments in this grouping, under ss 1317 and 1318 of the Corporations Act. At the least, I am not satisfied that in respect of any of the payments in this group, that Breckenridge's conduct was 'without carelessness or imprudence that negates the performance of the duty in question'.[385] My reasons for reaching that conclusion are sufficiently apparent from the preceding discussion. Also, I consider that Breckenridge's conduct fell short of the statutory standard of conduct of care and diligence to a significant degree, which is relevant in the evaluative judgment that must be made as to whether, having regard to all of the circumstances, the applicant ought fairly to be excused.[386]
10. Some payments were said to have been made in order to ensure that work continued on CornoNero sites, but I have not found them to have been made for that purpose.
11. Impugned Payment No. 36 was made to McIntyre & Cross Architects. I have found that it was made in order to pay long outstanding invoices of Trimont and to avoid interest accruing on those invoices. I have rejected Breckenridge's contention that the invoice was paid in order to prevent work stopping on CornoNero projects, as unsupported by the evidence as a whole. It was made in order to settle old debts of Trimont and avoid interest accruing thereon. Breckenridge's evidence was that he 'agreed with Silvio to take it of the loan account'.
12. Impugned Payment No. 22 was made for the purpose of paying outstanding invoices to Royal Wolf, who had to repossess containers that they had supplied, unless the invoices were paid. There was no evidence identifying the threat as relating to a CornoNero site. It is relevant to note that Trimont retained a number of projects that did not transfer to CornoNero. Without specific evidence addressing the impact of the non‑payment of invoices on CornoNero, it did follow from the fact of an outstanding invoice from a contractor, that a CornoNero project (as opposed to a Trimont project) would be adversely impacted unless CornoNero paid that invoice.
13. Impugned Payment No. 77 was categorised by Breckenridge as being made as a result of the need to address supplier invoicing practices. The evidence did not support that characterisation. It was in fact made in order to pay old Trimont invoices.
14. Impugned Payments No. 45, 48 and 77 were also made only on the basis of a request from Ascenzo, as described in Part K.
15. Those payments then, were not justifiable on any basis other than the 'general' basis that old debts of Trimont could be paid by CornoNero. They warrant the same assessment as those set out above. I conclude that Breckenridge breached his duties in respect of those payments, for the reasons set out above.

Payments said to have been made in order to avoid enforcement action against Ascenzo and protect his builder's licence

1. Breckenridge said that certain payments were made in order to prevent enforcement action against Ascenzo so as to protect against any risk that his builder's licence would become unavailable to CornoNero.
2. In respect of these payments, the general justifications discussed in respect of the preceding category of payments, can be put to one side. They have been rejected for the reasons discussed above, and there is nothing about the payments in this group that changes that analysis. The question is whether, in light of the specific circumstances relevant to these payments, any breaches of duty have been established in respect of any of the payments.
3. Impugned Payments No. 12, 13, 14, 15, 16 and 17 were made to the Australian Taxation Office (ATO) on behalf of Trimont. The purpose of each payment was to pay, in part, debts owed to the ATO by Trimont (as Trustee for the Ascenzo Family Trust) to avoid the threat of enforcement action against Trimont. Breckenridge and Ascenzo together, developed a payment plan for the settling of the ATO debts (which was put to the ATO by Trimont accounts manager Anna Boyko), a necessary element of which was the use of CornoNero's money to make those payments.
4. Breckenridge's evidence concerning Impugned Payments No. 12, 13,14, 15, 16 and 17 was that Ascenzo requested him to organise the payments because the ATO was threatening to commence legal action against Trimont. He said that he understood that CornoNero owed Trimont significant sums for retentions, and that he and Ascenzo had a discussion and 'agreed instead of paying the retentions to him and using those funds to pay the ATO, CornoNero would pay the ATO directly and to offset these payments against the amounts owed to Trimont or related creditors'. He said in addition that he also believed that if Ascenzo was pursued by the ATO 'it would put the building licence at risk and as a result this would have caused issues for CornoNero'. His evidence was that he understood that legal action against Trimont could ultimately affect Ascenzo's licence, because he understood that if an individual was bankrupted they could not act as a director of a company and that would mean that the company could not use their licence. He also believed (although he said he could not identify why) that if a person with a building licence was involved with a company that became insolvent, this could affect his ability to continue holding that licence. He said that part of his belief arose from his experience during the negotiations for the BSA, during which Maddocks Lawyers had sought warranties from Ascenzo, which he understood was in part so that CornoNero could use his licence.
5. As to Breckenridge's first basis for deciding to authorise the payment, I have found that Breckenridge did not inform himself in any particular way at all, about the asserted entitlement of Trimont to retention moneys. Furthermore, in respect of the payments to the ATO, his evidence was that he made a decision by agreement with Ascenzo. Given the quantum of the moneys involved, the terms of the BSA that required a strict financial separation between Trimont and CornoNero, and the lack of any clear documented understanding or recognition at board level that retention moneys were owed to Trimont, Breckenridge proceeding in this way, without seeking authorisation from the Board, involved a failure to exercise the requisite standard of care and diligence in discharging his duties. I say that leaving to one side the second basis for Breckenridge's conduct. The harm and lack of benefit to CornoNero is the same as discussed earlier in respect of the first group of payments. As far as that rationale for the payments was concerned, the actions that Breckenridge took did not involve a mere error of judgment or mistake.
6. However, Breckenridge's second basis for deciding to authorised the payment remains to be considered before determining whether any breach of duty occurred. Both bases were identified as reasons for the conduct. I accept that Breckenridge had the subjective state of mind identified. He believed that if Ascenzo was pursued by the ATO it could put the building licence at risk because if Ascenzo was bankrupted he could not act as a director of a company and that if Trimont became insolvent, Ascenzo's ability to hold his building licence might be affected. As set out earlier, it was essential for CornoNero to hold a building licence, and for that reason it required Ascenzo to hold a licence which it was able to use because he was a director.
7. There is no evidence that Breckenridge sought legal advice about the risks of Ascenzo becoming bankrupt or of Trimont becoming insolvent, before making the decisions to authorise the ATO payments (or indeed any of the impugned payments). There is no evidence as to why he thought Ascenzo could be personally liable for Trimont's tax debt and therefore at risk of bankruptcy. Significantly, there is no evidence about whether he made an assessment of the likelihood that paying particular debts of Trimont would forestall or eliminate the risk of insolvency, and that doing so would not just amount to paying good money after bad. He did not disclose to the Board the fact that he considered that CornoNero should pay the substantial total sum of $558,794 on behalf of Trimont in order to avoid those risks and give it the opportunity to make an informed decision.
8. Some time later, the Board itself formulated an action plan for CornoNero to obtain legal advice about 'the current risks of Silvio Ascenzo going into receivership or administration, and for advice to be given around our course of action to ensure maximum protection for the business and its shareholders'. The documented list of action items assigned to Breckenridge the task of meeting with CornoNero's lawyers to discuss those risks. He was to do that by 11 February 2016. This occurred in the context of the Board's consideration of the CFMEU's difficulties with Ascenzo and Trimont being considered by the Board in February 2016. The risk of Trimont becoming insolvent was a real risk. It was appropriate for Breckenridge, acting diligently, to consider that risk. What was problematic was not that he considered it, but how he sought to deal with it (at least according to his evidence) by paying off Ascenzo's creditors. As CornoNero put it, had the builder's licence issue been a matter of existential necessity (in that a financial threat to Ascenzo may have threatened CornoNero's capacity to continue operating) that would have been a vital matter for the Board to consider and address.
9. I consider that in making payments to Trimont's creditors in order to forestall or avoid the risk that Trimont would not become insolvent, Breckenridge failed to exercise the requisite standard of care and diligence in discharging his duties. The foreseeable risks of harm to CornoNero (by paying away its money) have been discussed. As to the potential benefits, without making any assessment of the nature and extent of the risks, the alternative courses open to CornoNero and of whether paying particular debts of Trimont would forestall or eliminate the risk of insolvency, the benefit of preserving the building licence was ephemeral. There was no demonstrated difficulty in Breckenridge taking the obvious course available to him, namely raising the matter with the Board. A reasonable director in Breckenridge's position would have reported the issue to the Board for its consideration. The actions were not mere errors of judgment or mistakes.
10. As to the requirement that a director exercise his powers and discharge his duties in good faith and in the interests of the corporation, I do not consider that an intelligent and honest person in Breckenridge's position could, in all of the circumstances, have reasonably believed that the transactions were for the benefit of the company. An intelligent and honest person in Breckenridge's position could not have reasonably believed that making the payments was for the benefit of the company, without first making an informed assessment of the nature and extent of the risks, the alternative courses open to CornoNero, and of whether paying particular debts of Trimont would forestall or eliminate the risk of insolvency. Such a person could not reasonably have believed that committing the company to paying Trimont's debts so as to forestall that untested risk without referring the matter to the Board for its consideration, was for the benefit of the company. In the circumstances, I could not conclude that Breckenridge acted with an honest belief that authorising those payments was in the company's best interests. In respect of these payments I conclude that Breckenridge did not exercise his powers and discharge his duties in good faith and in the interests of the company.
11. I have accepted that Breckenridge had the subjective state of mind about which he gave evidence and accordingly, I do not consider that the evidence permits a conclusion that Breckenridge exercised his powers for the substantial purpose of meeting the liabilities of Trimont. I do not find that Breckenridge exercised his powers for an improper purpose or misused his position in respect of these payments.
12. I do not consider that there is any basis on which to excuse Breckenridge from liability in respect of the payments in this grouping, under ss 1317 and 1318 of the Corporations Act. At the least, I am not satisfied that in respect of any of the payments in this group, Breckenridge's conduct was 'without carelessness or imprudence that negates the performance of the duty in question'.[387] My reasons for reaching that conclusion are sufficiently apparent from the preceding discussion. Also, I consider that Breckenridge's conduct fell short of the statutory standard of conduct of care and diligence to a significant degree, which is relevant in the evaluative judgment that must be made as to whether, having regard to all of the circumstances, the applicant ought fairly to be excused.[388]
13. Impugned Payments No. 40, 42, 59, 64[389] and 63 were made in order to avoid suppliers taking legal action against Trimont. Breckenridge's brief evidence was in those terms in substance, for both payments. He did not address the builder's licence issue specifically, but he categorised the payments as falling within the class of payments made for the purpose of avoiding enforcement action. For the reasons set out above, I consider that in authorising those payments that Breckenridge failed to exercise the requisite standard of care and diligence in discharging his duties and did not exercise his powers and discharge his duties in good faith and in the interests of the company. I am unable to conclude that Breckenridge exercised his powers for an improper purpose or misused his position in respect of these payments. I consider that the statutory defence is not made out for the same reasons said out in above.
14. I consider that there was no breach of duty in respect of Impugned Payment No. 76, made to Incolink. For the reasons discussed in Part K, the risks that were sought to be avoided by the making of that payment, concerned CornoNero as well as Trimont. Those risks were the subject of consideration by the Board.

Payments said to have been made in order to avoid contractors ceasing work on CornoNero sites

1. Breckenridge said that certain payments were made in order to avoid contractors ceasing work on CornoNero sites.
2. I have found that some (but not all) of those payments were made for the purpose of avoiding a particular problem occurring on CornoNero projects:

(a) Impugned Payment No. 8 was made for the purpose of avoiding the removal of material from the Lygon Street site and to prevent legal action that would have interfered with further works occurring on that site.

(b) Impugned Payment No. 19 was made for the purpose of paying outstanding invoices of Amis Ceramics at least in part so that it would continue to work on CornoNero sites. The supplier would not complete any further work unless payment was made.

(c) Impugned Payment No. 24 was made for the purpose of paying outstanding invoices to Hardie Plumbing so that it would return to the Newcastle site. It had said that it would not return to the suite until the relevant invoices were paid in full.

(d) Impugned Payment No. 25 was made for the purpose of paying a concreting supplier in order that it would continue work on the Newcastle site. The contractor had said that it would not do any further work until its invoices were paid.

(e) Impugned Payment No. 31 was made for the purpose of paying outstanding invoices of the fire services contractor on the Newcastle site in order to avoid the project being delayed at a critical point, by ensuring that a necessary piece of infrastructure was supplied.

(f) Impugned Payment No. 32 was made for the purpose of paying outstanding invoices to another fire services contractor in order to ensure that work by this contractor (who had said it would do no more work until its invoices were paid) would continue on several CornoNero sites.

(g) Impugned Payment No. 33 was made for the purpose of paying outstanding invoices a roofing contractor on the Newcastle site at least in part in order to ensure that it completed rectification work on that site.

(h) Impugned Payment No. 35 was made for the purpose of paying outstanding invoices of a plaster on the Newcastle in order to ensure that it continued work on that site. The plasterer had said that it required payment of its invoices in order to continue.

(i) Impugned Payment No. 37 was made for the purpose of paying outstanding invoices of Tract Consulting, who were the town planner engaged on three CornoNero projects, in order to ensure that they continued work on those projects. Tract had said that it would not do any more work unless paid.

(j) Impugned Payment No. 44 was made for the purpose of paying outstanding debts owed to a Combined Safety Services, in order to ensure that it would certify work done on the Newcastle site. The contractor had said that it would not give certification until its invoices were paid.

(k) Impugned Payment No. 51 was made for the purpose of paying outstanding moneys to Best Group in order to ensure that it continued work on the East Brunswick project. The contractor would not do any further work until it was paid.

(l) Impugned Payments No. 53 and 60 were made for the purpose of paying the outstanding invoices of contractor Straightline, in order to ensure that it continued work on the Preston and East Brunswick projects. The contractor had said it would not do any further work until its accounts were brought out of arrears.

(m) Impugned Payment No. 66 was made for the purpose of paying the outstanding invoices of Best Group in order to avoid two things: legal action against Trimont, and the removal of signage that had been installed by it at the East Brunswick Hotel project.

(n) Impugned Payment No. 73 was made for the purpose of paying outstanding invoices of Doctor Damp, in order that it would continue to work on the Newcastle site.

1. I consider that Breckenridge made errors of judgment in making those payments without seeking board approval. Including because the terms of the BSA that required a clear separation between CornoNero and Trimont, the more prudent course of action would have been to refer to the Board, the problem that unpaid Trimont debts was causing for CornoNero sites, and not to pay Trimont invoices without board approval. He did not explain why he did not do that. However, I consider that Breckenridge's actions in respect of these payments are properly characterised as poor decision making and erroneous judgment rather than negligence. In each case the payment was made in order to specially avoid a real, present and concrete problem on a CornoNero site, to keep work going or avoid the removal of site materials. The evidence established that contractors threatening to walk off the job was a significant problem placing unrelenting pressure on CornoNero in the relevant period. From the content of the communications set out in Part K, I infer that decisions made to keep work going on site were made under the pressure of time. There is an air of unreality in CornoNero's submission that the Board, if apprised of the situation, would have maintained that contractors should continue to work without being paid for outstanding invoices if Trimont had not made payment. The benefit for CornoNero in making those payments that Breckenridge identified at the time, was the very specific tangible benefit of ensuring that necessary work on its projects continued. I accept that making payments that Trimont ought to have made carried the very real risk of harm to CornoNero in the sense that there was no basis to think that the moneys paid out would be repaid by Trimont. There was a calculus involved. I accept that Breckenridge's evidence on this subject to limited. However, on balance, I am unable to conclude that Breckenridge's weighing of the benefits and risks was negligent.
2. It follows from the above that I am not satisfied that Breckenridge failed to exercise his powers and duties in good faith and in the best interests of the company, or that he exercised his powers for an improper purpose of misused his position, in respect of Impugned Payments No. 8, 19, 24, 25, 31, 32, 33, 35, 37, 44, 51, 53, 60, 66 and 73.
3. If I am wrong about that and Breckenridge in fact failed to exercise the requisite standard of care and diligence, I would conclude that Breckenridge acted honestly (without moral turpitude, judged objectively). If Breckenridge was negligent in his conduct in respect of these payments, his conduct did not exhibit the higher degree of negligence present in respect of certain other payments. He was endeavouring to meet a specific company need in authorising those payments.

Payments said to have been made in order to manage supplier invoicing

1. Breckenridge said that certain payments were made in order to manage supplier invoicing - where invoices were issued covering both entities and payments needed to be split. The implication was that if CornoNero made a payment for both entities it would be reimbursed and that process would be attended to by accounting staff.
2. Impugned Payment No. 67 concerned a Telstra account shared between Trimont and CornoNero. As set out in Part K, I have concluded that the transaction was in substance a routine payment of a bill. Furthermore, there was no evidence to support the involvement of Breckenridge (or for that matter, Ascenzo). No breach was established in respect of that payment.
3. Impugned Payment No. 71 was made as a part payment in respect of the redundancy of Brian Sockalingum, a Trimont employee (an accountant) who was to be transferred to CornoNero. The evidence was that the CornoNero board decided to hire a different accountant and as a result Sockalingum was made redundant. There was some debate as to whether Trimont or CornoNero would be responsible for the payment and he could not recall what was ultimately decided. Evidently, CornoNero made the payment. The evidence was limited, and in the circumstances, there is insufficient evidence to determined that Breckenridge committed any breach of duty.
4. Impugned Payment No. 23 was made to Coates Hire, a supplier who issued invoices with aggregated amounts claimed in respect of multiple jobs. The relevant statement of account concerned the period 3 June to 31 August 2015, thereby covering costs incurred by both entities. This particular payment in fact related to costs of Trimont. Breckenridge's evidence was that he understood that once the account was paid the individual amounts that reflected the costs of Trimont and CornoNero respectively would be allocated to each entity and adjustments made in their accounts accordingly.
5. Impugned Payment No. 52, made to Kilimanjaro, was made in very similar circumstances to Impugned Payment No. 23, and where the invoice included costs relating to both CornoNero and Trimont.
6. Impugned Payment No. 28 was made to NHS Plaster, in circumstances in which CornoNero had used Trimont's account with NHS in its early days when it had not set up its own account. The relevant statement of account included CornoNero costs after 1 August 2015 and an older, carried forward amount that on proper analysis related to Trimont.
7. In respect of Impugned Payments No. 23, 52, 29 and 28, there was insufficient evidence on which to conclude that the payments not made in the way that they were in order to manage the effect of supplier invoicing practices, and on the expectation that relevant adjustments would be made, in keeping with routine bookkeeping practices. There is insufficient evidence to conclude that there was any breach of duty in respect of those payments.
8. Otherwise, the reasons for concluding that particular payments did or did not involve a breach of duty are sufficiently set out in Part K which should be read together with the table at Annexure B.

1. CornoNero submitted that Ascenzo caused, authorised or acquiesced in the making of all of the Impugned Payments.
2. The submission focussed on acquiescence. It was not put that acquiescence, in the sense that it was employed in CornoNero's case, had a particular legal meaning. It was said that acquiescence was intended to embrace 'more than a passive notion.' As CornoNero put it, what Ascenzo did in relation to the Impugned Payments was not mere tacit acceptance. It went beyond knowingly standing by without taking any action in opposition to what occurred, and entailed active agency in causing the payments to occur by requesting that they be made, while taking a personal benefit by receiving them, but not disclosing to the Board that they had been made or received. Ascenzo's own evidence was that he requested that the Impugned Payments be made by CornoNero by asking Bill Thurgood or by having Anna Boyko make a request. He caused the payments to be made in a direct sense, but if that is not considered direct enough, he knew what was occurring (meaning he knew that CornoNero was paying his debts and those of Trimont); he 'wanted it done' and took steps to see that it was done by making requests to the right people.
3. It was put that the documentary evidence indicated Ascenzo's knowledge of and involvement in the transactions. CornoNero identified, in a very brief and unelaborated way,[390] the documents on which it relied. To the extent that they are relevant they are addressed in the payment‑by‑payment analysis that appears later in these Reasons. In addition, it was submitted that certain Impugned Payments were so closely connected to Ascenzo that it would have been inconceivable for Ascenzo not to have had knowledge of them. Two such transactions that CornoNero emphasised, 'by way of example', were payments of a large debt to the ATO and payments made to discharge liabilities of Ascenzo's wife.
4. CornoNero made the following submissions in support of the conclusion that Ascenzo breached his director's duties.
5. Ascenzo knew that it was a term of the BSA that CornoNero was not to be responsible for debts that had been incurred by Trimont prior to 1 August 2015. He knew that because he was a sole director of Trimont and CornoNero at the time of the completion of the BSA. As he well knew, the Impugned Payments were made to discharge Trimont and Ascenzo's own debts or for their personal benefit. That was not in the end, contested, save in respect of a very small handful of payments of limited value. Accordingly, he knew that the payments were not for the benefit of CornoNero but for Trimont and himself personally; he did not say otherwise in his evidence.
6. When seeking payments for Trimont or his entities, Ascenzo did not make any assessment or seek to satisfy himself that the payments were in CornoNero's interests, and not contrary to its interests. He could have done so and ought to have done so. He did not give evidence that he attempted to do so.
7. As a result, in requesting the payments and failing to report them to the Board and seek authorisation of them, he failed to act with due diligence or in good faith, and misused his position to pursue benefits that were personal to himself or others and not related to CornoNero.[391] He did not respect CornoNero's separate financial position and treated its assets as his own.
8. Ascenzo's signing of the Letters of Authority evidenced that he was not acting with due diligence or in good faith, because he was purporting to authorise payments for the benefit of himself and Trimont ‑ seeking to obtain CornoNero's money to his own benefit ‑ without having a proper basis to do so. That was not honest behaviour and was a failure to act in good faith.
9. As to the 'two hats' defence on which Ascenzo heavily relied (that Ascenzo was not acting in his capacity as a director of CornoNero when he requested the payments) CornoNero submitted that Ascenzo could not rely on an artificial distinction that would permit him to act only in his capacity as a director of Trimont and not as a director of CornoNero when he requested the payments. Ascenzo could not permissibly 'remove his CornoNero hat' whilst seeking payment for Trimont. Although Ascenzo sought to have the payments made for Trimont (i.e. for its benefit), while he was doing so he could not absolve himself of his duties to CornoNero by failing to have regard to, and be diligent in respect of its interests. This was not a situation in which Ascenzo resolved the conflict in which he had placed himself by seeking the authorisation of the CornoNero board. He did not disclose his pursuit of the payments to the Board. He did not seek its approval to represent Trimont as it were, in his dealing with CornoNero. He made no attempt whatsoever to make any relevant disclosure to the CornoNero board.

Ascenzo's submissions - did Ascenzo cause or authorise CornoNero to make any of the Impugned Payments or acquiesce in their being made?

(a) It is accepted that he was aware of the existence of the Trimont Loan Accounts and of the fact that CornoNero paid, between September and November 2015, money to creditors of Trimont or for Trimont's benefit - that is, that he acquiesced in their being made.

(b) It is accepted that he 'caused' - in a very broad sense - those payments to be made, insofar as he or his employees requested that many of those payments be made.

1. In writing, Ascenzo submitted that 'this issue required that each payment be separately addressed, however he did not and was not able to, give evidence about each particular payment separately'. The matters he raised (which were directed to whether any breach of duty occurred) applied to each of the payments. It was said that 'Mr Ascenzo will not seek that separate findings be made in respect of any particular payment'. Orally, Ascenzo also submitted that there was a gap in the evidence about whether Ascenzo was aware of each payment and about the extent that he participated in each payment. He did not give evidence about the payments and nor was he cross‑examined on each one. He said that conclusions could not be drawn about the discharge of his duties without considering each payment. There was a degree of tension in the submissions on this issue.
2. Ascenzo did not go on to make submissions about the evidence concerning each payment. That occurred in circumstances in which Breckenridge had addressed each payment in his evidence, documents had been tendered, and Breckenridge had given evidence about the involvement of Ascenzo in discussing with Breckenridge which payments would be made, and about his practice of requesting payments. That evidence is relevant to my assessment of Ascenzo's involvement in the payments. It could not be said that it was not open to Ascenzo to descend, in his case, to addressing such evidence as there was, about each payment.
3. Ascenzo's central submission that although he played a role in 'causing' the payments to be made in a factual sense, what he did was legally irrelevant because he was not exercising any power as a director of CornoNero.
4. He said that the payments were effected in one of two ways, either by Ascenzo requesting a payment from Breckenridge, who would in turn request that Thurgood make the payment, or by Ascenzo requesting a payment from Anna Boyko of Trimont, who would in turn request that Thurgood make the payment. Ascenzo did not have access to CornoNero's banking system and did not himself make those transactions. Ascenzo did not cause those payments in any relevant sense because he had no authority to direct Thurgood that they be made. Although Ascenzo was a director of CornoNero, he had no executive role and did not have authority to direct Thurgood - the CFO of CornoNero - to make any payments. Thurgood reported to Breckenridge and did not deal directly with Ascenzo. Insofar as Thurgood made the payments with authority, that authority was derived from his position as CFO or was conferred on him by Breckenridge. In those circumstances, it could only be Thurgood or Breckenridge who caused the payments to be made, in a relevant sense. Any request to Boyko or Breckenridge was necessarily a request made by Ascenzo in his capacity as a principal of Trimont, not as a director of CornoNero. Any such request was simply that - a request - and Ascenzo could not have issued a binding direction to either Breckenridge or Thurgood to make those payments.
5. That submission was allied to point that Ascenzo was, as he put it, 'a director in name only' and 'was there for the sole purpose of CornoNero using his builders licence':

(a) Ascenzo was a director of CornoNero and a 17 percent shareholder in CornoNero through his 50 percent interest in AI&PB Property Pty Ltd. However, he had almost no actual involvement in CornoNero or its affairs and did not exercise any decision‑making power within CornoNero.

(b) Ascenzo was described in CornoNero's organisational chart as a 'License (sic)/Business Consultant'. Ascenzo's builder's licence was to be utilised by CornoNero for the purposes of CornoNero conducting its construction business. The 'consultant' role was one of title only. He was not an employee of CornoNero and was not paid other than a fee for the use of his builder's licence. He did not receive director's fees. Ascenzo was not in fact actively involved in any of the projects being run by CornoNero.

(c) The only involvement that he had in CornoNero was to attend four or five board meetings in 2015. He did not play an active part in those meetings. He was unwell from late 2015 and did not attend any board meetings after December 2015. When he attempted to resign from CornoNero in December 2015 he was not permitted to do so because CornoNero required his building licence.

(d) It was not put to Ascenzo that he had any substantive involvement in CornoNero or exercised any decision‑making power at CornoNero. No witness gave that evidence.

1. It was submitted that having regard to 'the complete absence of any involvement by Ascenzo in CornoNero', the Court should feel comfortable in 'inferring that [he] was a director of CornoNero solely for the purpose of CornoNero utilising his building licence'.

Ascenzo's submissions ‑ Did any of the payments involve a breach of duty by Ascenzo?

1. Ascenzo submitted that to the extent that he was involved in the making of the payments, he did not breach any of the obligations he owed to CornoNero. Sections 180 to 187 of the Corporations Act are all premised on a director's exercise of power and discharge of duties. It must be established that the director is exercising a power or discharging a duty in their capacity as a director of the company. There is no conduct of Ascenzo as a director of CornoNero that has been established that enlivens those provisions. The exercise of power issue should be considered separately in respect of each allege breach (lack of due diligence, improper purpose, lack of good faith, misuse of position).
2. Ascenzo emphasised the following principles.[392]
3. The scope of a particular director's duty can only be assessed by reference to the particular circumstances of the company in question and by the nature of the particular director's role. The scope of the director's duty will depend on the experience or skills that the director held himself out to have in support of the appointment to the office, as well as on the natural expectations and reliance placed by shareholders on the experience and skill of a particular director.[393]
4. These principles have particular relevance to non‑executive directors who are entitled to rely on the competent management of the company and on the advice of advisers and other directors, save where there was cause for suspicion or further inquiry. There will be circumstances in which a director will be found not to have been negligent by failing to make inquiries or otherwise participating in the decision‑making processes of the company, when that director acts in reliance on assurances from or by the conduct of another director whom he or she has come to trust.[394] Where there is no cause for suspicion or circumstances demanding critical and detailed attention, it is reasonable for an officer to rely on advice without independently verifying the information or scrutinising the data or circumstances upon which that advice is based. The inquiry that is required is what is adequate in the circumstances. It must necessarily take into account whether the officer concerned has been put on inquiry or should have been, as well as the risk involved in the transaction and its nature and the known competence of the officer relied on.[395]
5. The principles were applied by Ascenzo to the facts in the following way:

(a) Ascenzo's evidence was that it was his understanding that Thurgood had established a loan account over which Thurgood had control and oversight over what Trimont and CornoNero paid to one another; because Thurgood was an accountant, he was the person 'keeping track of that ledger'. Thurgood was keeping Anna Boyko, Trimont's accounts manager, up to date about where the ledger stood from time to time.

(b) Ascenzo's understanding was in fact accurate. There was a Trimont loan account which Thurgood created and oversaw, monitoring the payments being made from CornoNero to Trimont's creditors, and Breckenridge and Hartwig were 'involved in keeping track of the loan position and the running account as between CornoNero and Trimont'. Breckenridge said he monitored the running account from time to time when it was reported to him by Thurgood. There was in fact both executive and non‑executive oversight over the loan position as between Trimont and CornoNero by a chartered accountant and CFO, an experienced CEO and an experienced finance broker.

(c) CornoNero's fundamental complaint is that it made more payments to Trimont's creditors than Trimont had paid for CornoNero's benefit. Ascenzo had no direct visibility over Trimont's loan account ledger. He was not present day‑to‑day and could not access the software. He relied on others to 'monitor how much was owed from one company to the other and how the money would be accounted for'. The Court must consider the extent to which that reliance in the particular circumstances was either negligent or a product of bad faith.

(d) As a non‑executive director, Ascenzo was entitled to rely on the carrying out by CornoNero's CFO of his duties, including monitoring a loan account and ensuring that it remained balanced without having to verify those matters himself. If Trimont was going into credit in CornoNero's accounts, that is something Ascenzo could reasonably expect to be told by the CFO and Ascenzo could reasonably expect the CFO to cease making payments for Trimont's benefit. Oversight of financial accounts is an ordinary function of a CFO and one which was not unreasonable to delegate.

(e) Ascenzo would have been under a duty to make further inquiries as to the status of the loan account if he had notice of facts reasonably warning him of an irregularity - for instance, that CornoNero had paid more to Trimont than warranted. There were, however, no such facts brought to his attention and there is no evidence that anyone, including Breckenridge, Hartwig, Thurgood or Boyko, raised with Ascenzo that the loan account had gone into credit.

(f) There was uncertainty and confusion at the time with respect to the date at which CornoNero commenced operations and financial responsibility transitioned from Trimont to CornoNero. Ascenzo 'relies on Breckenridge's witness statement as to those matters'.

(g) Ascenzo did not have a close understanding of financial matters and conceded that he relied on Trimont's internal and external accounts team with respect to such matters. He was not closely involved in the preparation of financial statements. Anna Boyko was in charge of payment matters. Brady, the majority shareholder of CornoNero, was aware of Ascenzo's lack of experience in such matters. Hartwig told him that Ascenzo was not good with money and the reason that Brady was being brought into the business was that they needed professionalism. Brady accepted that he understood the division of labour within the Trimont business, namely that Ascenzo was on the tools and Breckenridge was responsible for the project and business management. It was not reasonable to have expected Ascenzo to be responsible for 'monitoring and checking' the loan account ledger in those circumstances - he employed Thurgood for purposes of that kind'. It was not put to Ascenzo that he ought to have ensured that an accounting took place and he cannot be criticised for not having done so.

(h) CornoNero's CFO and chartered accountant had in place a ledger to monitor whether that was the case and kept Breckenridge and Hartwig up to date. Ascenzo cannot be found to have breached an obligation of care, skill or diligence by relying on the CFO to maintain that ledger and inform him if there were irregularities.

(i) Ascenzo honestly and reasonably believed that Trimont was entitled to be repaid by CornoNero for those payments (as it was in fact at least to some extent).

1. It may be accepted that Ascenzo, as a non‑executive director who had no day‑to‑day role in CornoNero's business operations, had no authority to direct staff employed by CornoNero or to direct its CEO Breckenridge to do anything, including to make payments from its bank account. CornoNero had a CEO and a CFO who managed its accounting system and transacted its bank account, and staff who reported to them. It may also be accepted that Ascenzo's core skill set was, as he put it, being 'on the tools', working on building sites. The other members of the CornoNero board understood as much.
2. It may also be accepted that during the entirety of the relevant period, Ascenzo was a director of Trimont and that when he sought that CornoNero make payments of various creditors, he was seeking to advance Trimont's interests. He was asking 'for Trimont', as it were.
3. It did not follow, however, that Ascenzo in effect ceased to become a director of CornoNero when he did this. That is not literally what was put, but some of Ascenzo's submissions appeared to reduce almost to vanishing point, his role as a director. As he put it, he contended that he was a 'director in name only'.
4. As set out above,[396] all directors, including non‑executive directors, are subject to core, non‑delegable duties that insist, in relation to the requirement to act with care and diligence, that a director exercises ordinary competence and reasonable ability, taking reasonable steps to place themselves in a position to guide and monitor the company's management. Even non‑executive directors with limited skills must monitor generally, the company's affairs, maintain familiarity with the financial status of the company by appropriate means and have a reasonably informed opinion of the company's financial capacity. In discharging that duty they are entitled to rely on others but may be under a duty to inquire. Furthermore, it cannot be correct that the question whether a non‑executive director has discharged his irreducible duty of care can be avoided or answered by deciding that that director had no power to act in relation to the particular area of the company's operations in contention. The question whether the core duty was discharged must be answered by careful attention to the facts - including the director's role and whether it was reasonable to rely on others, and how it was that the director was involved in the company's affairs in respect of the subject matter in issue.
5. To the accepted facts that Ascenzo emphasised, others must be added. Without repeating what is set out in Parts B to K above, the relevant circumstances can be summarised in the following terms.
6. For the purposes of the business sale transaction, Ascenzo was the sole director on both sides of the ledger (i.e., for both Trimont and Trimont Australia (CornoNero)). The transaction was effected with the assistance of lawyers and accountants whose ultimate instructions came from Ascenzo. Ascenzo well knew the terms of the Business Sale Agreement, including that there was to be a complete financial separation between the two entities as at the effective date, and that CornoNero was not to be responsible for Trimont's existing debts or liabilities.
7. Ascenzo conducted much of his business by conversation rather than in writing. I do not accept, however, that he did not read emails or send them, or have someone send emails on his behalf. It was not established that he had no financial literacy or interest in or understanding of financial matters. For example, in respect of Trimont (of which he was the sole director) Ascenzo employed accounts staff who managed that part of Trimont's business, who looked to him for approvals. Breckenridge's evidence was that payments were not made by Trimont, without Ascenzo's approval. He was in very regular receipt of reports by Trimont staff concerning outstanding creditors and demands for payment. His approval was sought very regularly, to pay creditors. In respect of CornoNero, it was he who asked Breckenridge (or Boyko, through Thurgood) to arrange payment of Trimont's invoices. This point goes to his understanding of financial matters generally.
8. Ascenzo promised, under the Business Sale Agreement to maintain his builder's licence. But that undertaking could not be reasonably read as evidencing an agreement between the shareholders or board members that Ascenzo was a director 'for the sole purpose of providing his builder's licence'. The licence might have been the occasion for his being proposed as a director (there was no evidence about it). But he became a director nonetheless. Ascenzo's submissions pointed to the organisational chart that described Ascenzo was a licence holder/consultant. In fact, it separately described him as a director, together with Breckenridge, Hartwig, Brady and McEniry, as was the fact.
9. Ascenzo attended board meetings of CornoNero in the period during which the Impugned Payments were made. He received board papers. It was reported to the Board at that time that CornoNero was under financial pressure including because its finance facilities were not yet in place. That issue was, by all accounts, the subject of much discussion during the period in question. It was reported to the Board that in October 2015 there were rising trade creditors and debtors. Breckenridge's evidence was that he regularly spoke to Ascenzo about the cashflow pressures on CornoNero.
10. Breckenridge's evidence was that in relation to payments for Trimont or Ascenzo if Ascenzo had a request, Breckenridge 'got involved' and that:

...if it was brought to me by Bill I would talk to Silvio, get some direction from him on whether it was going to be a reduction of the money we owed him or some other version, or if there was an issue about who was paying it or if it was an adjustment I would talk to him if it had been escalated.

1. As time went on, and CornoNero started to receive income from the invoices it had sent out, Ascenzo would, as Breckenridge put it, 'sometimes respond and ask me to make a payment for him, and put it on the 'ledger' Bill [Thurgood] had created to track these payments. Other times he would respond that he was already going to pay the creditor, so I would not pay it'. Ascenzo's practice was to ask Breckenridge or Thurgood to make a payment or to ask them to arrange for it to be made and 'put it on the ledger'. Breckenridge set up a system whereby Thurgood was authorised to make payments for Trimont or Ascenzo, including at Ascenzo's request. The payments were recorded in the Trimont Loan Account Ledger (discussed at length above). Paying Trimont's bills with CornoNero's money was, as Breckenridge accepted, 'in the course and practice of the way that the business was operating at the time'. Ascenzo used that system to obtain payment of Trimont's creditors and expenses.
2. Ascenzo's evidence concerning the Impugned Payments was that Trimont was paying expenses for CornoNero ('wages, sub‑contractors, suppliers, whatever needed to be paid') during July and August 2015. As discussed, during July 2015, expenses of the business were the responsibility of Trimont. His evidence was also that he was not aware, at the time, of how much money Trimont had spent on CornoNero expenses. There was no evidence that he endeavoured to find out. There was no evidence that that information would have been unavailable to him or difficult to ascertain.
3. Ascenzo submitted that he was entitled to rely on the executive oversight of Breckenridge and Thurgood of the Trimont Loan Account. In fact, as set out earlier (see under the case against Breckenridge) Breckenridge himself took no steps to quantify the value of moneys paid by Trimont for CornoNero, or to ensure that what was paid for Trimont did not exceed what it had paid. During the period in which the Impugned Payments were made, as Breckenridge accepted, the Trimont Loan Account very quickly became a line of credit extended for Trimont. Even taking into account the inclusion in the ledgers of amounts allocated to 'retentions' in Trimont's favour, the ledger that Thurgood was maintaining showed the balance shifting in CornoNero's favour from early September 2015. There was no evidence that Ascenzo made any inquiries whatsoever, about the state of the ledger. Had he made such inquiries he would have learned the facts of which Breckenridge was aware (as set out in relation to Breckenridge).
4. It must be recalled that the arrangement between Trimont and CornoNero was one privately effected between Breckenridge and Ascenzo, and was one in which Ascenzo was intimately involved, as described. Ascenzo's submissions did not address that reality. Ascenzo's submissions rest in many respects on the premise that monitoring was in place to ensure certain things, about which Ascenzo did not inquire. The notion that Ascenzo operated on the basis that had the loan account involved an 'irregularity' (as Ascenzo's submissions put it) that he would have been told, or that he reasonably believed that that would occur, found no support in the evidence. As I have said, Ascenzo did not ascertain at the time, the value of moneys paid out by Trimont. He knew that he had not done so (to state the obvious). He did not trouble himself to inquire about the status of the loan account. There was nothing in the nature of the dealings between Ascenzo and Breckenridge (or any other person representing CornoNero) that suggested that Ascenzo in fact relied on others for any particular purpose.
5. Ascenzo personally made requests (whether directly or through Boyko) for the payment of Trimont expenses. He had knowledge or means of knowledge of the value of the invoices the subject of requests. He knew that he was asking CornoNero to pay Trimont accounts when it had been reported to him as a CornoNero board member, that CornoNero was under financial pressure. He knew that under the terms of the BSA, CornoNero was not responsible for payment of Trimont's debts. Those circumstances were sufficient to put Ascenzo on inquiry about the propriety and the appropriateness of the 'Trimont Loan Account' and of continuing to press CornoNero to make payments on Trimont's behalf.
6. There was no evidence to suggest that Breckenridge made any report to Ascenzo to assure him that Trimont had not 'gone into credit' on CornoNero's account (as Ascenzo put it in submissions). He gave no evidence at all, to suggest that he sought or received such reports, expected to receive them or made any relevant inquiries, at the time. It was not adequate in the circumstances for Ascenzo to assume that others with executive responsibilities would ensure that CornoNero's interests were looked after.
7. In those circumstances, Ascenzo made requests of CornoNero (or had Boyko do so on his behalf), as CornoNero put it, making requests of the right people, knowing that it would be done and 'wanting it to be done'. Ascenzo did not have the power to direct CornoNero staff, but he was not a mere passive recipient of payments made on Trimont's behalf. He worked side by side with Breckenridge, designating which of Trimont's expenses would be paid.
8. In seeking to advance Trimont's interests by asking for payments, Ascenzo placed himself in a position of conflict. It was evidently in Trimont's interest that CornoNero be prepared to meet its creditors and expenses, and not in CornoNero's interests for moneys to be paid out in an arrangement whereby credit was extended to Trimont, particularly in circumstances in which (as set out earlier) there was no assurance put in place that CornoNero would be repaid and a real risk that it would not be repaid. He did not clear that conflict with the Board, by making disclosure. For the Reasons discussed, he actively pursued his own interests. The case, as conducted, did not turn on Ascenzo merely placing himself in a position of conflict. Ascenzo's conduct was far from the observance of 'special vigilance' that is called for when there is a possibility of a transaction involving a conflict between interest and duty.[397]
9. In that context, it has been established by the evidence discussed in Part K, that Ascenzo requested that CornoNero make certain of the Impugned Payments, in circumstances where the reason for making the payment (as authorised by Breckenridge), as established on the evidence, was that Ascenzo had requested the payment. In some instances the additional reason for making the payment was to avoid legal action against an Ascenzo related entity. The payments meeting that description (as set out in Part K and summarised in Annexure B, were numbered 1, 2, 3, 4, 5, 7, 9, 10, 12, 13, 14, 15, 16, 17, 21, 26, 27, 45, 48, 49, 50, 54, 55, 56, 57, 59, 61, 63, 64, 69, 70, 75 and 77.
10. Those payments were authorised by Breckenridge. They were not justified on any other basis. Ascenzo acquiesced in their being made. Relevantly, I conclude that but for Ascenzo's making the requests in the circumstances described, the payments would not have been made.
11. For the reasons discussed, I consider that Ascenzo failed to exercise the requisite standard of care and diligence in respect of each of these payments, in discharging his duties. A reasonable director in his position would not have sought payment by CornoNero in the circumstances. A reasonable director would have first sought to satisfy himself that for CornoNero to do so was not antithetical to its own interests. Ascenzo did not so satisfy himself and was not excused from doing so by his reliance on others. The foreseeable risk of harm to CornoNero was that its funds would be paid away and not available to its use, where it had pressing need for those funds, and where there was a real risk that funds would not be repaid. Ascenzo was aware, at the time, of Trimont's serious financial difficulties. There was no demonstrable benefit to be gained for CornoNero. The prudent management of CornoNero's financial affairs was not shown to be the object or effect of the transactions. Those things could be determined without the benefit of hindsight.
12. I do not consider that there is any basis on which to excuse Ascenzo from liability in respect of the payments in this grouping, under ss 1317 and 1318 of the Corporations Act. At the least, I am not satisfied that in respect of any of the payments in this group, that Ascenzo's conduct was 'without carelessness or imprudence that negates the performance of the duty in question'.[398] My reasons for reaching that conclusion are sufficiently apparent from the preceding discussion.

Analysis ‑ failure to exercise powers in good faith and for a proper purpose

1. Ascenzo made two fundamental points in defence of the claims that Ascenzo did not exercise his powers as a director in good faith and for a proper purpose.
2. First, that there can be no exercise of a power for an improper purpose or without good faith, unless the power said to have been exercised is identified and examined. The substantial purpose for which the power is exercised must be identified and considered. Only then can it be determined whether the purpose for which the power was exercised was proper. The plaintiffs did not allege which power Ascenzo in fact exercised or what the proper purpose of the exercise of the power was, or identify it in the running of their case. I agree. It is not apposite to apply s 181(1) to a situation in which it is not said that a director has sought to exercise a power. See the discussion to this effect in ASIC v Flugge,[399] set out above.
3. Relatedly, as to the allegation of improper use of position, the plaintiffs must prove that the director used his position for one of the proscribed purposes. In this case it has not been shown that Ascenzo used his position as a director of CornoNero. I agree.
4. I note in this context, that CornoNero's submissions addressed breach of duties in a global fashion, without addressing the elements of statutory provisions relied upon in any detail.
5. Ascenzo's second point was that it was not open to find that Ascenzo failed to act in good faith and for a proper purpose because the substance of the case was not put to him in cross‑examination. It is unnecessary to consider this point.

L5 Case against Hartwig

Submissions

1. CornoNero characterised Hartwig's role in the Impugned Payments as 'a little more nuanced' than that of Breckenridge and Ascenzo. It submitted that it could be inferred from the following facts that Hartwig acquiesced in all of the Impugned Payments:

(a) Hartwig knew the terms of the Business Sale Agreement, including that CornoNero was not responsible for debts that had been incurred by Trimont prior to 1 August 2015.

(b) Hartwig knew of the financial position of Trimont at the relevant time. In particular, Hartwig accepted that he had an extensive knowledge of Trimont's financial history. Around the time of the completion of the BSA he was being assailed by angry sub‑contractors who were chasing payment from Trimont. He was involved in the preparation of applications of the Trimont group of companies for refinance. From August 2015, he was making loans to Trimont and paying its creditors directly. He accepted that he knew that 'Trimont was having financial challenges' at the time of the Impugned Payments.

(c) Hartwig arranged the $1 million loan from Minc Sallon in order for Trimont's creditors to be paid. Hartwig had a vested interest to ensure that Trimont did not fail in the short term and had personal interests in other projects being undertaken by Trimont. If Trimont failed, 'the deception perpetrated on the Bradys by the warranties and representations of the BSA to the effect that Trimont had paid or provided for all its debts would have become apparent, along with the truth.'

(d) Hartwig's evidence was that he knew, through his knowledge of CornoNero's financials, that it was making the Impugned Payments which were being recorded against a Trimont Loan Account.

(e) Hartwig did not cross‑examine Breckenridge or Ascenzo to the effect that Hartwig did not know that the moneys were required to pay off debts of Trimont and the Ascenzo family.

(f) Hartwig 'remained silent' abut the misuse of funds from the CornoNero account to pay off debts of Trimont. Hartwig had no reason to believe that the 'millions of dollars that had been misapplied' would ever be repaid. He did not disclose any of this to the Board.

(g) The Court should find that Hartwig knew of the Impugned Payments and caused many of them to be made by procuring the $1 million deposit of Minc Sallon funds into the newly opened CornoNero account, and that he acquiesced in all of the payments.

1. As to Hartwig's breach of duty CornoNero submitted that:
2. Hartwig has 'attempted to position himself as a non‑executive director' but the distinction between executive and non‑executive directors in this case was 'artificial'. Hartwig 'was a member of the CornoNero board and had intimate knowledge of the financial position of Coonwarra, Trimont and CornoNero' by reason of his ongoing financing of the companies. Hartwig was not ignorant of the dealings of CornoNero and there is no evidence that he simply relied on the management of other officers; in fact, 'it was quite the opposite'.
3. Hartwig did not act with due diligence or in good faith and misused his position as a director in order to pursue benefits that were personal to himself or others not related to CornoNero. He did not respect CornoNero's financial position and treated its assets as available to be used for the benefit of others.
4. Hartwig adopted Breckenridge's submissions to the extent that they were relevant to the case against him, and made the following submissions.
5. Hartwig did not dispute that he caused Minc Sallon (Laverton) Pty Ltd, a company he and Richard Minc owned and controlled, to deposit the sum of $1 million into the CornoNero bank account on 8 September 2015 and caused $500,000 to be deposited on 23 September 2015. The advances must be understood in the context that CornoNero started trading in August 2015 and needed funding to conduct its operations. Breckenridge asked Hartwig in early September, if he could assist by advancing $1 million. The $1 million advance was paid made by Minc Sallon on 8 September 2015. On 16 September 2015, a letter of offer by Westpac Bank had been signed but the facility could not be established without the bank guarantee that Brady was to provide. On 23 September 2015, Hartwig emailed Philip Jones seeking information as to when the guarantee would be put in place, and on the same day Minc Sallon advanced a further $500,000 to CornoNero.
6. Hartwig gave sworn evidence that he had never accessed the Westpac Bank Account, never approved any transactions made on that account, and was not asked to do so. Breckenridge did not give any evidence that Hartwig accessed the account, approved any of the payments or was asked to do so. There is not a single document that would suggest that he had any involvement in processing or authorising a single payment, and he categorically denied that he did so.
7. Hartwig did not have a personal interest in any of the payments.
8. Hartwig's evidence was that he was aware that loan accounts with 'Silvio's interests' had been established from the commencement of CornoNero's operations. Those loans were discussed from time to time in board meeting and were mentioned at around the time of settlement of the BSA, in emails. When cross‑examined, Hartwig said he had no involvement in any of the payments. He was asked whether he knew they were happening at the time. He said, 'not by transaction'. It was then put that he knew CornoNero was paying Trimont's debts, to which he said, 'I knew there was a loan account'. His evidence was that he was aware that a loan account had been established to pay for expenses and that other entities were paying for CornoNero so it could trade. None of that established that he was involved in the Impugned Payments.
9. The evidence shows that although Hartwig was aware of the fact that loans had been made to CornoNero, including $1.5 million by Hartwig and related entities, he was not involved in making any of the payments complained of and had no knowledge of the particular payments being made. In that regard, he was in no different position than Geoff Brady, who was also a non‑executive director of CornoNero with knowledge that loans had been made to fund CornoNero's operations. Given the state of the evidence, the claims cannot succeed.
10. The allegation is a serious one, and concerns a complete lack of financial impropriety. Fundamentally it is alleged that the inference against him should be drawn because he made the loan through Minc Sallon. That ignores the fact that the company was trading and rendering invoices and Brady had not yet made available the finance facilities. The seriousness of the allegation needs to be taken into account when regard is had when the weight of the evidence is assessed. There is no evidence from which the Court can infer that Hartwig caused, directed or acquiesced in making any of the Impugned Payments.

1. I accept that Harwig knew of the terms of the Business Sale Agreement (so much can be inferred from his directorship of BCD which became a shareholder of GJB in the related share acquisition transaction). I accept that Hartwig knew at the relevant time, that Trimont was under serious financial stress, for the reasons submitted by CornoNero. Those facts alone, do not establish the case against Hartwig.
2. As to the loans advanced by Minc Sallon to CornoNero in September 2015, for the reasons set out in detail in Part C.3, the contention that Hartwig arranged the loans in order to ensure that Trimont's creditors could be paid, is not supported by the evidence. CornoNero's submissions to the effect that Hartwig wished to ensure that Trimont would not fail so that the deception perpetrated on the Bradys by the warranties and representations in the BSA would not become apparent, was replete with hyperbole but found no support in the evidence.
3. The evidence was that Hartwig had knowledge that a loan account between Trimont and CornoNero had been established at the commencement of CornoNero's operations. By that evidence he referred to the arrangements on settlement of the BSA, described in the 11 September 2015 email between the parties' solicitors. Hartwig's evidence about that arrangement is described in Part C.2 above. That evidence did not establish that Hartwig knew of any arrangement whereby CornoNero was extending credit to Trimont. It was an arrangement which he understood would be settled by an accounting under the BSA. It was put to Hartwig in cross‑examination that he knew in September, October and November 2015 that CornoNero funds were being used to pay debts of Ascenzo. His answer was, 'No. I knew that CornoNero funds were being used to reimburse Silvio Ascenzo for payments that he had made previously when the business was transferred'. He said that he knew that from the CornoNero financials. He said that the Board discussed the process initiated at settlement that was being 'managed through to completion by the finance officers', although he could not point to any particular discussion. His evidence was that he had no visibility on which amounts or where or how that was being managed. That evidence was not undermined. There was no evidence that Hartwig knew about any of the Impugned Payments at the time at which they were made, or that the Trimont Loan Account was being used in the manner set up between Breckenridge and Ascenzo (as set out in in Part D).
4. I accept that Hartwig did not operate the CornoNero bank account. There is no evidence that he caused or authorised any of the Impugned Payments or that he was asked to do so. It is not to the point that he did not seek to establish his lack of knowledge by cross‑examination of Breckenridge or Ascenzo. They did not impute knowledge of or involvement in the Impugned Payments, to Hartwig.
5. I accept that Hartwig functioned as a non‑executive director. The distinction between executive and non‑executive directors in this context does not meaningfully inform the question whether Hartwig breached the duties he owed to CornoNero. He was not involved in the Impugned Payments and had no knowledge of them. No question of his relying on the advice of others, arises on the facts. CornoNero has not established a basis upon which it could be concluded that Hartwig ought to have made further inquiries but did not.
6. I reject the claims that Hartwig breached his duties as a director of CornoNero, in respect of the Impugned Payments.

1. CornoNero alleges that by reason of the breaches of duty of the director defendants in respect of the Impugned Payments, it suffered loss in the amount of the payments, plus interest.[400] The entitlement to compensation arises under s 1317H of the Corporations Act. CornoNero's case is straightforward: money was taken from its bank account and paid for purposes foreign to the company (not to its creditors) and not returned to it, and that is the measure of its loss.
2. Breckenridge said by way of defence that the Impugned Payments were not the cause of any loss to CornoNero because:

In respect of 99% of the Impugned Payments (by value) as at the date the payment was made CornoNero received a corresponding benefit to reflect the payment, namely an adjustment to the Trimont Loan Account to increase the amount owed by Trimont to CornoNero where at the relevant time, the Trimont Loan Account was at zero or showed Trimont owning an amount to CornoNero, or a decrease in the amount owed by CornoNero were, at the relevant time, the Trimont Loan Account showed CornoNero owing an amount to Trimont.[401]

1. Breckenridge sought to answer the claim that moneys were paid out of CornoNero's bank account, then, by pointing to entries made in the Trimont Loan Account in CornoNero's favour.
2. By way of Reply to that defence CornoNero alleged:

(a) CornoNero received no corresponding benefit in a payment away of its money to an entity (being Trimont) which was not entitled thereto and which had a net asset deficiency and was in fact insolvent;

(b) The payments were made without provision of security, documentation or any obligation to repay or to pay interest;

(c) Where at month end entries in the Trimont Loan Account reduce the balance owing by Trimont to $0 those entries did not reflect payment of pre‑existing indebtedness, but balancing reductions in CornoNero's WIP account made without justification.

1. Paragraph 14(c) of the Reply made reference to a matter considered by the Special Referee, who determined that at the end of September, October and November 2015 (the months during which the Impugned Payments were made) entries were made in the Trimont Loan Account and another CornoNero general ledger account (the Work In Progress (or WIP) Account) which had the effect of reducing the Trimont Loan account to a zero balance. That paragraph of the Reply was drafted elliptically. It assumes, rather than alleges as a fact, entries made in the Trimont Loan Account to reduce its balance to zero at month end. The case, put by this pleading, is that where such entries were made in the Trimont Loan Account they did not reflect repayment of any pre‑existing indebtedness. On its face, the plea is anticipatory or defensive. It was made plain in the course of argument by the plaintiffs that it was not intended to allege improper conduct or accounting errors in respect of CornoNero's accounts.[402]
2. The defendants jointly submitted that CornoNero had not established that any loss arose from the making of the Payments (assuming them to have been made in breach of the director(s) duties), for the following reasons.
3. CornoNero has not suffered any loss because it has suffered no net diminution of assets by reason of the Impugned Payments. The Special Referee found that the Payments did not diminish the recorded dollar amount of the assets of CornoNero because the entries in the accounts of CornoNero that record the Impugned Payments are 'reallocations between balance sheet accounts' which does not change the net asset position of CornoNero. The defendants relied on these passages from the Special Referee's report:
   1. All 79 Impugned Transactions recorded in the accounts are credited against the 'Trading Account' (a balance sheet account), being the bank account. Any Impugned Transaction with a corresponding debit to a balance sheet account will not result in a diminution in the recorded dollar amount of net assets as it represents a reallocation between balance sheet accounts. However, debits to a profit and loss account will result in a diminution of assets as it will have the effect of reducing the profit of CornoNero.
   2. Impugned Transaction 74 diminishes the assets of CornoNero by $163 because the entries in the Accounts include a debit of $163 to expense account 'Adminstrative [Sic] Expenses'. This diminishes the assets of CornoNero as the expense account has the effect of reducing the profit of CornoNero in the period in which the expense is incurred.
   3. The remaining 78 Impugned Transactions do not diminish the recorded dollar amount of the assets of CornoNero because the entries in the Accounts are reallocations between balance sheet accounts which does not change the net asset position of CornoNero.
4. The Special Referee went on to express a tentative opinion that the Impugned Payments 'did appear to result in a reduction in the quality of the net assets of CornoNero' because cash was replaced by unsecured loans. However, CornoNero has never asserted a loss based on a diminution in the value of its assets; it neither pleaded nor ran that case.
5. Furthermore, the true source of any loss was 'month end reversals' in the CornoNero accounts in September, October and November 2015. It is not in dispute that at the end of each of those months, entries were made in the Trimont Loan Account and the WIP Account which had the effect of reducing the Trimont Loan account to a zero balance.
6. The Special Referee's conclusions regarding the end of month transfers proves positively that no loss was suffered. The Special Referee found that subsequent transactions', not the impugned transactions, were the cause of any loss. On the evidence before him the Special Referee could not identify which Impugned Payments fell within those subsequent transactions. He was not briefed to undertake that exercise. The Special Referee did not conclude that the subsequent transactions resulted in an economic loss to CornoNero.
7. While the true cause of loss may have been the month end reversals, 'liability based on these accounting entries' cannot be pursued against the defendants because it was not pleaded and CornoNero did not run that case. In any case there was no credible evidence that demonstrated that any transfers to the WIP account were made incorrectly, or by whom they were made.
8. In the absence of an explanation of the month end reversals, they stand in the way of the plaintiffs' claim for damages. Until the month end entries were made, Trimont was indebted to CornoNero in the amount of the balance of the loan account. The month end entries are prima facie evidence of a discharge of Trimont's debts. Absent an allegation of sham, book entries which evidence the existence of a loan will sufficiently prove that loan. The same reasoning applies with equal force to book entries evidencing discharge of a loan.[403]
9. The analysis focused on the cause of loss. Senior Counsel for Breckenridge described the causal chain of events in these terms: Cash in the bank was paid away. A debt was created as a consequence of the paying away. The authorities establish that a person who pays money at the request of another is entitled to an indemnity from those who made the request to pay. The money paid to the use of the principal debtor may be recovered in an action against him for the money paid.[404] An action in debt is not dependent on the implication of a promise in fact.[405] The debt appears in the Trimont Loan Account. At end of each month something happened which was not exposed in the evidence. A debt in the accounts 'ceased to be a debt in the accounts but there was no net diminution in the assets'. If that means that there was an improper transaction (by the month end reversals) then principles governing intervening events become relevant. If something happened that caused the debt to be discharged in circumstances where it ought not have occurred, that is a causal problem for the plaintiffs. Absent evidence that the month end entries do not represent a discharge of the loans as they purport to do (which would have required an explanation as to how those book entries came to be made), there is insufficient evidence to displace the presumption that they record the discharge Trimont's liability.
10. Further, if it is not accepted that there was a 'discharge of the debt' evidenced by what appears in the accounts, the plaintiffs still face a causation problem, because the plaintiffs 'cannot prove the net position' and show 'what happened to the debt'. Had there been no month end reversals 'the debt' would sit as an asset on the balance sheet. It could have been called upon and if the demand was unmet there would have been proof of a loss. CornoNero focuses merely on the first step in the chain of events, namely the making of the Impugned Payments. This ignores that each payment made by CornoNero merely resulted in one asset (cash) being replaced on the balance sheet with another asset (debt). The Special Referee determined that no loss was caused thereby.
11. Those points aside, the defendants said that from the total sum claimed ($2,508,668 (plus interest)) there must be deducted the value of Impugned Payment No. 34 (which was a duplicate) and the value of each of the payments that the Special Referee found was recorded in the accounts as meeting or partly meeting the debts or liabilities of CornoNero.
12. The plaintiffs submitted that:

(a) It has been established that each of the Impugned Payments was a payment out of CornoNero's bank account. None of it was repaid to CornoNero. CornoNero has lost the use and benefit of that money. That is the measure of its loss (plus interest).

(b) The defendants rely upon entries in the Trimont Loan Account as creating a 'corresponding benefit'. The accounting entries do no such thing. The defendants did not verify the loan ledger or call any witness who was capable of doing that. The credits in favour of Trimont were neither proved nor sought to be proved. What was recorded in the ledger did not conform with what was reported to the CornoNero board. In the circumstances, the loan account ledger has not been shown to be a reliable record of any underlying transaction, or of any consensual dealing.

(c) The month end reversals in September, October and November 2015 were lump sum entries with no supporting documentation or stated rationale. As the Special Referee concluded, the net effect of the transfers reduced the balance of the loan accounts to nil at the end of each month. But the circumstances in which they occurred was unexplained. They do not evidence a discharge of the indebtedness of Trimont to CornoNero.

(d) CornoNero went on to submit that I should find that 'all transfers made from the Trimont Loan Account to the CornoNero WIP account were inappropriately made'. That issue was not before me.

1. It is helpful to recall principles set out earlier in these Reasons concerning book entries.[406]
2. First, as to the forensic significance to be accorded to the company's books and records, the effect of s 1305(1) of the Corporations Act is (as explained in the authorities) that the books of a company are prima facie evidence of the matters stated in them, but the weight of that evidence is to be measured in accordance with the common sense of the tribunal of fact. The provision 'does not elevate an entry in a book of account to the status of prima facie evidence of the transaction(s) which the entry purports to record. The same must be true of an entry purporting to record the existence and value of an asset'.[407] Section 1305(1) applies to books kept by a body corporate under a requirement of the Corporations Act. It is not clear that it has application to the records relied upon, which were extracts from CornoNero's general ledger. In any case, the limits of what may be drawn from a company's books apply to these records, a fortiori.
3. Second, in the absence of any suggestion of sham, there is no reason why a loan cannot be created orally or by conduct, and sufficiently evidenced by book entry.[408] I accept that the same proposition applies to the discharge of a loan or indebtedness. A lender and borrower might reach agreement that repayment of a loan is to be made by way of journal or book entry, rather than cash. But whether they have so agreed is to be determined by reference to the principles that govern the ascertainment of implied or inferred agreements.[409] The authority on which the defendants relied does not stand for the proposition that irrespective of any other relevant evidence from which the parties' intention may be inferred, book entries will establish the existence of a loan (or discharge of indebtedness) unless the party contending for that loan establishes a sham. All relevant evidence that might bear on the parties' intention must be considered.
4. It is necessary to revisit the conclusions set out earlier about the Loan Account Ledger, namely:

(a) The Loan Account Ledger was not a document to which witnesses in this proceeding created or managed at the time of the events. It was extracted from CornoNero's records for the purposes of this proceeding.

(b) Descriptions of entries in the ledger were limited and opaque. Aside from the entries said to relate to retentions, the parties did not rely on any particular descriptions in the ledger. No lay witness gave evidence about its creation or composition.

(c) The evidence did not permit an inference that CornoNero and Trimont agreed that CornoNero would extend credit to Trimont. The book entries in the ledger did not evidence a loan agreement, or a running account, or a line of credit extended by consent.

(d) The Loan Account Ledger contained 174 entries in the period 1 August to 19 November 2015. Sixty‑eight of those entries were in respect of the Impugned Payments, 105 entries were not. There was no evidence in respect of those 105 entries. The fact that the ledger contained unrelated entries meant that what could be drawn from what appeared on the face of it was limited.

(e) No proof of any transactions appearing in the ledger as credits to Trimont was attempted. Such proofs as the defendants embarked upon before me were directed to explanations of the circumstances in which particular Impugned Payments were made, and not what the ledger contained. The one exception was the entries in the ledger said to represent Trimont's entitlement to retention moneys. I have found that there was no such entitlement.

(f) The Special Referee considered the other accounting records before him and was not able to produce a coherent reconciliation of those records and the Loan Account Ledger.

1. Next, it is necessary to consider what the Special Referee did and did not do. To summarise what is set out in Part J above, the Special Referee was appointed to answer questions requiring accounting expertise. As set out earlier, he was asked to determine, on the materials before him, whether the Impugned Payments were recorded in the accounts of CornoNero, whether the records indicated that the payments had in fact been made, whether the accounts recorded the Impugned Payments as meeting a debt or liability of CornoNero and if so, whether there was a document verifying that debt and whether it related to a CornoNero project. He was next asked to determine whether there was evidence of any 'Trimont Loan Account', whether such an account recorded any of the Impugned Payments and if so, whether there were documents that verified the entries. He was then asked, having regard to the findings on those matters, whether the Impugned Transactions diminished the assets of CornoNero and if so, by what reason and to what extent.
2. The Special Referee did not look behind the accounting records to ascertain the nature of any agreement as to a loan between Trimont and CornoNero, or in respect of the underlying transactions to which the accounts might relate. The material before him did not permit that inquiry. The Special Referee's analysis resulted in a conclusion concerning what the relevant accounting records showed.
3. Returning to the passage from the Referee's report upon which the defendants relied, the Referee concluded, by looking at the accounting records, that the Impugned Payments were all credited against CornoNero's 'trading account' (a balance sheet account), being the bank account; and that corresponding debits were made in the Loan Account Ledger. The basis for, and limit of the conclusion that CornoNero's net assets were not diminished, was that there was no diminution because debit and credit entries appeared in the accounts, and for each payment there was a reallocation between balance sheet accounts. The Referee then stated:

Even if the dollar amount of the net assets remains constant, the reallocation of amounts between balance sheet accounts may, however, diminish the quality of the assets of CornoNero to the extent it converts cash to other accounts which are less liquid (i.e. reducing the amount of cash readily available to CornoNero) and/or are unsecured (i.e. diminishing the potential recoverability of the converted asset).

1. It is plain from the Referee's Report, that the answer the Referee gave to the question concerning diminution of assets, was directed to what appeared in the accounts of CornoNero. The Special Referee was not appointed to determine generally whether and to what extent CornoNero had suffered economic loss as a result of the Impugned Payments. He did not make that determination. Insofar as the suffering of loss might be equated with 'diminution of assets' it is apparent that the Special Referee's determination was concerned only with what could be said about diminution of assets from what appeared in the accounts. The defendants' unqualified submission that the Special Referee found that no loss was suffered as a result of the Impugned Payments, cannot be accepted.
2. The Referee went on to say that 'subsequent transactions' related to the loan accounts may have diminished the assets of CornoNero to the extent that they transferred loan balances to the WIP account 'in circumstances where this was not appropriate to allocate to WIP'. The Referee found that the materials before him did not permit the drawing of any conclusions from the transfers between the loan and WIP account. He found that the transfers to and from the WIP account appeared to be lump sum adjustments with no information by which to ascertain the extent that they included the Impugned Payments. Furthermore, the Referee was not provided with workpapers that he said he would have expected to have detailed the work in progress amounts by project, for the journal entries to and from the WIP account. In other words, the Special Referee concluded that he could not draw any conclusions about the actual transactions to which the book entries related - assuming the end of month entries did in fact relate to any real‑world transaction that might be expected to have been recorded in a 'work in progress' account.
3. The defendants' submission that the Special Referee found that 'subsequent transactions', not the impugned transactions, were the cause of any loss, cannot be accepted.
4. The defendants' submission was that each payment made by CornoNero merely resulted in one asset (cash) being replaced on the balance sheet with another asset (debt). That submission addressed only what occurred in the books of CornoNero. Accepting that the Special Referee determined that from an accounting perspective, the Impugned Payments were recorded as reallocations between balance sheet accounts, what implications does that have for the question whether and to what extent CornoNero suffered loss? The task is to weigh the evidence according to common sense. In light of the nature of the evidence about the CornoNero accounts and the circumstances of the case as summarised above, the short answer is that the book entries do not establish that CornoNero received a corresponding benefit to reflect the payments. What was meant by 'corresponding benefit' was not defined other than to say that CornoNero 'received' an asset in the form of an indebtedness recorded in its books. Beyond saying that both sides of the bookkeeping entries appeared, the defendants did not address why the 'benefit' of cash at bank was said to be equivalent to the legal right to bring a claim in debt.
5. The defendants' focus on the right to recover a debt probably reflected the hurdles they faced proving the existence of a loan. It may be accepted that an action in debt does not depend upon an implied promise to repay. For that reason, in an action to recover a debt, the onus of proving payment lies on the defendant.[410]
6. The month end reversals of the loan account through the WIP account did not establish discharge of Trimont's indebtedness to CornoNero. A company's accounts might in particular circumstances evidence an agreement to accept a book entry as repayment (say, in lieu of cash) but those book entries established nothing.
7. Returning to the defendant's causation analysis: having failed to establish the existence of a 'corresponding benefit' by reason of the book entries in the loan ledger, subsequent unexplained adjustments in the accounts were irrelevant. It was not to the point that the 'assets' represented by the entries in the Loan Ledger Account were notionally written down to zero by a series of lump‑sum transfers to a different account.
8. Section 1317H of the Corporations Act provides that a court may order a person to compensate a corporation for damage suffered by the corporation if the person has contravened a civil penalty provision in relation to the corporation and the damage resulted from the contravention. The words, 'resulted from' should be given their ordinary and natural meaning of requiring a connection between the damage and the contravening conduct, free from the strictures of analogy with equitable claims against fiduciaries.[411]
9. The plaintiffs have established that the payments of money out of its bank account caused its loss. No intervening event arose by reason of the accounting treatment of the payments, whether by the loan account entries or the subsequent month end reversals. As discussed in Part L, it has been established that certain of the payments were caused by Breckenridge or Breckenridge and Ascenzo together, acting in breach of their respective duties. The role that each played in the occurrence of the payments is explained there. Where the payments resulted from a breach of director's duty, the loss resulted from the breach of duty, in a factual and a normative sense.
10. Returning to the question of quantum, the defendants submitted that there can be no loss arising from any Payment that the Special Referee found was recorded in the accounts as meeting or partly meeting the debts or liabilities of CornoNero.
11. There were two categories of such payments. In relation to the first, the Special Referee concluded that the source documents, in conjunction with the Business Sale Agreement, established that Impugned Payments 65, 67, 68 and 72 met a debt or liability of CornoNero. The goods and services provided, to which the payments related were for a CornoNero project and appeared to relate to the period after 1 August 2015. CornoNero attempted to re‑argue that point in final submissions. That attempt was impermissible. As the Victorian Court of Appeal said in Wenco Industrial Pty Ltd v WW Industries Pty Ltd, the purpose of rules 50.01 and 50.04 (concerning the appointment of Special Referees) is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation. That purpose would be frustrated if the reference were to be treated as 'some kind of warm‑up for the real contest'. A referee's findings of fact should not, generally, be re‑agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise.[412] CornoNero did not establish a proper basis for the consideration of those factual findings of the Special Referee. In any case, as noted under Part L, there was no breach of duty in respect of those payments.
12. Separately, the Special Referee considered the running balance of the Loan Account Ledger. He observed that, during the period 9 September 2015 to 19 November 2015, the balance of the ledger fluctuated between a debit (asset) and credit (liability). From the ledger itself, it appeared that a debit balance was intended to reflect that Trimont owed moneys to CornoNero and a credit balance was intended to reflect that CornoNero owed moneys to Trimont. On the basis of the running balance of the ledger, the Special Referee said that - in those instances where the loan account had a credit balance immediately before a debit entry for an Impugned Payment - the debit entry recorded a debt or liability being met. Having analysed the running balance in that way, the Special Referee concluded that 14 entries in the ledger (of the 68 entries related to the Impugned Payments) met the requirement of having a credit balance immediately before the Impugned Payment appeared, with the effect that the balance was switched from a payable (by CornoNero) to a receivable. Those entries could, on that basis, be characterised as being 'recorded in the accounts as meeting a debt or liability.' The 14 entries amounted to $514,716.
13. Accepting that finding, it does not have the implication for the loss claim for which the defendants contended. The Special Referee's finding establishes that the entries in the Loan Account Ledger for those payments are recorded as meeting a debt or liability, and nothing more. That they 'switch' the balance of the ledger in favour of CornoNero does not establish that the making of the payment there could be no loss. As noted earlier, the Special Referee was not appointed to determine what economic loss if any, was suffered by CornoNero. He was not appointed to examine or verify the opening balance of the Loan Account Ledger, or indeed any of the entries in the ledger.
14. The Special Referee found that the entries for Impugned Payments that were shown to 'switch' the running balance of the ledger in a way that recorded CornoNero's liability being reduced were not otherwise established to relate to or record payments discharging a debt or liability of CornoNero. The Special Referee found on the facts before him, that there was no documentary evidence that verified that those payment met a debt or liability of CornoNero, and that none of those payments related to a CornoNero project after 1 August 2015. The Special Referee did not consider that the ledger itself was documentary evidence of a liability of CornoNero being met in respect of relevant entries, noting that there was no document before him that established a loan or loan agreement. In those circumstances, taking into account the whole of the Special Referee's findings, I do not consider that in respect of those payments no loss arises.[413]
15. The quantum of loss caused by the breaches of duty of Breckenridge and Ascenzo is the amount of each payment made in breach of duty (as to which, see Parts K and L).

V CornoNero's entry into the Mernda Development and Mernda Loan Agreement

1. On 9 August 2016, CornoNero and Mernda Development Shopping Centre Pty Ltd entered into the Mernda Development Agreement (MDA) and the Mernda Loan Agreement (MLA).
2. The MDA was an agreement for the development of the Mernda Land which, by a contract between MJSC and Coonwarra was acquired by MJSC and Bridgehurst Pty Ltd on 9 August 2016.[414] CornoNero was named as the developer under the MDA. By the MLA, MJSC agreed to advance to CornoNero the amount of $1 million by way of a loan, to be set off against MJSC's obligation to make payment of the first progress claim under the MDA.
3. In connection with the MDA and the MLA, CornoNero brings a series of claims against Breckenridge and Hartwig for breach of their duties owed to CornoNero as its directors and for misleading or deceptive conduct, and against BCD for breach of its obligations under the Shareholders Agreement. In short, CornoNero says that neither agreement was disclosed to or authorised by the CornoNero board - that neither director made the disclosures they ought to have made, and that Breckenridge deliberately concealed the intended entry and fact of entry into the agreements. It says that, to the knowledge of Breckenridge and Hartwig, neither agreement was in CornoNero's interests. The MDA was said to be commercially improvident in a number of respects, with a contract sum significantly below the then expected costs of the works. CornoNero alleged that the real reason that Breckenridge and Hartwig caused CornoNero to enter into the MDA was to facilitate the sale of the Mernda land. Upon the sale, loans secured against the Coonwarra land that had been advanced by BCP, were discharged. It is said that Breckenridge and Hartwig desired to secure the discharge of those loans, and each acted for an improper purpose. The MDA too, was said to be commercially disadvantageous because its effect would be to reduce the profit available under the MDA.
4. All of the allegations were denied. Breckenridge, Hartwig and BCD say that the proposed entry by CornoNero into each agreement was disclosed to CornoNero board and authorised by it, and that each was in CornoNero's interests.
5. The issues are addressed in this order:

(a) Whether the MDA was disclosed to and authorised by the Board (and any associated breaches of obligation by Breckenridge or Hartwig);

(b) Whether Breckenridge and Hartwig causing CornoNero to enter the MDA involved any breach of obligation by Breckenridge or Hartwig (whether there was a sufficient basis to project that the MDA was in CornoNero's interests);

(c) Whether the Mernda Loan Agreement was disclosed and authorised, and whether entry into the MLA involved any breach of obligation.

A2 Was the MDA disclosed to, and authorised by the Board?

Evidence - board meetings generally

1. Breckenridge, Hartwig, Geoff Brady and Rachael Brady each gave evidence describing the manner in which CornoNero's board meetings were conducted.
2. It was not contested that the meetings were relatively informal, but had some structure. An agenda was usually followed, which McEniry controlled as chair. Breckenridge said that he usually provided a CEO report and would update the board on the 'current pipeline of projects'. Initially he gave the project reports himself, but later Pretorius or Hunt would also speak. Written project reports, usually for every project, were prepared by the project managers - a process that was coordinated by Clay. Thurgood was said to give a finance report as part of the board meetings, which involved him reading through the finance report line-by-line.
3. Breckenridge said that Geoff Brady had a particular approach to board meetings, in that he looked at project information at a high level, with his principal concerns regarding contracts being whether the contract was in accordance with the budget and had been seen by a lawyer. He said:

Geoff's approach, as expressed in the meetings was that if the project was a budgeted project, then it was accepted by him, and he did not seek to second guess that. Once things had got underway, the budget was set and approved at Board level. Then it was regularly reviewed at management level and the Board was updated about performance against budget. This approach from Geoff was in line with the Board's usual practice, in that, if expenditure and liabilities were disclosed in the budget which had been presented to the Board, then the project was approved and it did not need approval by Special Resolution.

Breckenridge said that the usual practice of the Board regarding construction contracts, when it came time for execution, was said to be that 'if it was budgeted it would be executed by two directors but if it was not budgeted it would go to the Board and get approved under special resolution'.

1. Hartwig said that McEniry was an experienced chairperson, but that the agenda items were not always followed specifically; 'other things occasionally jumped into the agenda and were discussed ... that weren't even proposed in the agenda. [McEniry] worked as hard as he could to keep things on track'.
2. Geoff Brady said that documents for board meetings were usually distributed the day or evening before the meeting. He usually reviewed the documents briefly upon receipt and each document was usually discussed at the meeting. In his view, the minutes of the meeting were reasonably detailed and provided more than just a summary. In cross-examination, he accepted that for some meetings he could recall 'nothing at all', while for others he could 'recall a bit'.
3. Rachael Brady only became a board member on 23 November 2016. However, prior to that date, she attended board meetings she was asked to attend, including as Geoff Brady's proxy. She usually reviewed the board documents briefly upon receipt and said that each document was usually discussed in some detail at the relevant meeting.
4. She said that on the basis of the meetings that she attended, and in contrast to Breckenridge's description, it was untrue that Geoff Brady did not want to discuss financials or review contracts before the Board, and only looked at project information at a 'high level'. Rather, he asked further questions and specifically requested information about whether contracts had been signed off by lawyers. As to the minutes, she said that they did not merely represent a 'brief summary' of the discussions; rather, they were 'reasonably detailed and provided an accurate record of matters discussed' at the board meetings she attended. As discussed below, Rachael had a very poor recollection of what occurred at the board meetings she attended.
5. As discussed earlier in these Reasons, the minutes of the meetings did not record every substantive matter that was discussed by the Board. They were in large measure records following a pro- forma template that identified the major reports presented. From time to time they mentioned particular issues that were discussed.

1. In July 2015, Ascenzo was the only director of CornoNero. However, an informal meeting took place on 28 July 2015, attended by Geoff Brady, Rachael Brady, Breckenridge, Hartwig, McEniry, Ascenzo and Thurgood.
2. Thurgood emailed Breckenridge early on the morning of 28 July 2015, with the subject 'Board Reports', attaching numerous documents. These included an Agenda, CEO Report, the monthly financial reports, five separate project reports (not encompassing Mernda) and a job summary report. In the body of his email Thurgood stated: 'I couldn't put together a progress report for Plenty Rd as this needs a QS claim breakdown to enter'.
3. Hartwig and Geoff Brady both said that they received a board meeting pack in advance of this meeting, which included the same documents as emailed to Breckenridge. Hartwig specifically referred to the inclusion of a job summary report for each of the building projects comprising the 'written contracts' and the 'unwritten contracts'. No minutes were tendered for this meeting.
4. The CEO Report states that, between board meetings, Breckenridge's focus had been on his 'team's energy on progressing Mernda and South Melbourne to the next stages so [they were] in a position to break ground on the construction'. Breckenridge said that he presented the CEO Report to the board during the meeting.
5. Rachael Brady did not recall the specific matters discussed at this meeting, including the CEO Report said to have been presented by Breckenridge.
6. The Job Summary Report showed two tables: 'jobs under construction' and 'jobs still in planning phase'. Mernda (stage 1) was listed in the latter, with a projected start date of 1 September 2015 and completion date of 1 May 2017. The 'uncontracted estimate' for the project was shown as $13.6 million, which was broken down into a claim of $6,350,000 in the 2016 financial year and $7,250,000 the following year. A project note stated 'Coles Neighbourhood Centre' and a description in the comments column said 'VCATT [sic] hearing booked'. The 'client/investor' was identified as 'AI', which, according to Hartwig, was an abbreviation for 'Ascenzo Industries'.
7. Breckenridge said that he presented a summary of CornoNero's project pipeline, referring to all 'written' and 'unwritten' projects in the Job Summary Report. He also stated that the projects in the Job Summary Report were budgeted projects, 'in that the estimated contract amounts were the amounts which had been budgeted and approved for the projects'.
8. According to Breckenridge, when he was discussing Mernda, Geoff Brady said words to the effect that, alongside Preston, Mernda was a 'key project' and a 'profile project'. Geoff Brady is also said to have asked when Mernda would start and how long it would take. Breckenridge gave evidence that he replied saying that Coles was critical to the timing and although there had been a site specific control providing planning approval, endorsement of the plans was still required.
9. Breckenridge also said that he told the meeting that construction was not going to commence until the project had 'found a home', that is, 'it needed to be sold to the entity that [would] ultimately hold it' and the aim was for that entity to fund the construction cost. There was said to be a significant amount of work in progress (WIP), comprising the value of the work performed by Trimont and CornoNero to get the project to the stage where it could be developed. This was said to include planning approvals, authority approvals, structural and civil designs. According to Breckenridge, the WIP and the need to find the project 'a home' was discussed at this board meeting because around that time, possible fund-through offers were being received. Additionally, the only way the WIP would be paid was via execution of a deal to complete the project.
10. Geoff Brady denied that he asked questions as to Mernda's commencement and commented that it was a key project and profile project. Rather, he said that when the Mernda project was discussed, it was at a high level and only in relation to delivery requirements for construction. When cross-examined, he said that he did not recall Breckenridge presenting a summary of projects to the Board and discussing written or unwritten projects. Further, that he would not have known about Mernda at the time of the meeting, so he would not have said words to the effect, 'Mernda was a key project along with Preston', albeit he might have said that about Preston. He conceded though, that his recollection of the meeting was not terribly good and that he did not know whether he asked about Mernda's commencement. He also could not say whether Breckenridge said that Coles was critical to the timing or that construction was not going to commence until the project found a home. He did not remember if Breckenridge said that the project needed to be sold to an entity and that CornoNero would try to get that entity to fund the construction cost.
11. In light of his difficulties with recollection, he agreed that Breckenridge might have said that there was a need to find the project 'a home' because there was WIP that had been generated, which could only be paid for when a deal was executed. He also accepted that what Breckenridge was referring to was 'commercially orthodox', meaning that some work would be undertaken, and might be paid for by CornoNero, to get the project to a point where it was attractive to an investor.
12. Geoff Brady then denied that Breckenridge asked him at this meeting what the timing was in respect of the bank guarantee, saying that 'it didn't happen'. When asked how he could be so adamant, given his inability to recollect the meeting, he replied 'because Hartwig was the man handling all of the Brady guarantees. I handled none of it'.
13. Rachael Brady could not recall Breckenridge talking about the written and unwritten projects in the Job Summary Report, nor his discussion of Mernda.
14. A Board Report for Plenty Rd, Mernda (dated 28 July 2015), comprised an executive summary, plans submitted for endorsement, plans showing a revised internal layout, a tenancy schedule and a Site Specific Control Planning Permit (August 2014).
15. The executive summary described the physical aspects of the land, its location and the planning zone. It also stated that the permit was received in August 2014 via the Victorian planning minister, that the expected opening was the first quarter of 2017 and that the construction timeframe was 20 months. Additionally, that plans had been submitted for endorsement and stamping, and that endorsement was expected to occur by the end of September. Breckenridge referred to the Board Report in his evidence, stating that it was common for these reports to be spoken about page-by-page during board meetings. He believed that this document was before the Board at the 28 July 2015 meeting. Consistent with the Job Summary Report, within the Financial Reports the projections for the year ended 30 June 2016 showed an income for Mernda of $6,350,000. 'Mernda II' was also listed, with no income showing. Breckenridge said that Thurgood spoke about the 2015/16 budgets and financial reports line-by-line and a general discussion was had about the projects referred to in the financial, which included the Mernda project.

1. The 21 September 2015 board meeting was attended by McEniry, Geoff Brady, Hartwig, Breckenridge, Ascenzo, Thurgood and Rachael Brady. McEniry, Geoff Brady, Hartwig and Breckenridge had been appointed directors of CornoNero six days earlier.
2. Hartwig said that he received a board pack prior to the meeting which he recalled including an extensive and informative board report for each project, including the September Mernda Board Report.
3. On 8 October 2015, Thurgood emailed Hartwig stating 'as requested attached are the reports distributed in the Board Meeting held on 21 September 2015. The documents will be sent in 3 separate emails. I do not have a copy of the CEO report'. Attached to the email were the Board Agenda, Financial Controller Report, monthly report for August 2015, capital expenditure report, Finance Facilities Report and a list of employees.
4. Geoff Brady recalled attending the board meeting on 21 September 2015. Rachael Brady said that she did not recall what was specifically discussed at this meeting.
5. Item 6 of the Agenda, 'Construction Reports', listed the following for discussion: Job Summary, Job Progress Claim Summary, Business Development Reports, and Detailed Job Reporting for: 'Queens Pde, Nth Fitzroy', 'Lygon St, Brunswick', and 'Hunter St, Newcastle'. Mernda was not referred to.
6. The Minutes show that Breckenridge and the Board submitted and discussed the CEO Report. The directors discussed and considered the financial reports submitted by the CEO and Financial Controller. The directors were satisfied with the budget and resolved that the Budget should be revisited quarterly.
7. Breckenridge's evidence was that this was the first meeting that they had very thorough board reports and Project Control Group (PCG) reports, progress reports, for every written and unwritten project. He said that he had the Mernda PCG Board Report with him at the meeting and spoke through it 'pretty much line-by-line'. He recalled having brought A3 plans with him in regards to all projects except for Mernda.
8. The Mernda Board Report, dated September 2015, stated in the executive summary that plans had been submitted for endorsement and that formal endorsement was expected to occur before the end of September. In relation to 'sale of the site' it said:

We have been negotiating with parties and have reached the final stages of negotiation with one group, a private consortium made up of the directors of UBS. The end sale price is $30,800,000 representing a 6.7% yield.

The 'construction time frame and cost' was identified as 20 months and approximately $16 million. As with the July 2015 Mernda Board Report, plans 'submitted for endorsement', the site specific control planning permit and a tenancy schedule were attached. The latter appeared unchanged from the details provided in July.

1. Breckenridge said that, as he was talking to the Board about the Mernda Board Report, there was discussion about issues with the road regarding scope and finalising configuration. The planning issues were also said to be spoken about, including that 'we were in progress to have the plans endorsed in what had been a very slow and difficult planning process with Whittlesea Shire'.
2. Breckenridge also said that he spoke about the structure of what 'it' looked like, and that no construction would be able to commence on the project 'until it found a home', meaning its ultimate owner, because of the 'fund-through' structure of the transaction. He added that he told the Board that CornoNero had interest from several parties but UBS was the frontrunner; they had offered to purchase the finished product at a capitalised value of the rate (6.7 percent), resulting in a purchase price of $30.8 million. He said he told the board that UBS would come in and settle the land, fund-through the costs for construction and then receive a completed project and pay out the last component. Further, that the $30.8 million 'was not money that was going to CornoNero'. He said that he conveyed that the 'construction costs were $16 million plus some fees and the $30.8 million included the landowner's - well, the land cost and the landowner's component of the project for the Mernda borrowers'. He recalled having no response from the Board regarding the structure, which for him, meant 'keep the negotiation moving forward'. There was also no request to stop working on the project.
3. Hartwig recalled that there were two key issues from the meeting:

(a) a large review that was undertaken in a presentation by Breckenridge as to 'all the projects that CornoNero had either under construction or were working on'; and

(b) 'the other most important thing from the day' was that Breckenridge spoke about the UBS investment group negotiating to purchase the Mernda land, and that once that was finalised and settlement occurred, the large contract for CornoNero that was being worked on would be generated'.

1. In relation to the large review, Hartwig said that board reports were issued for each of the jobs, which were sent around to board members for review prior to the meeting. He added that it was common for Breckenridge to take the Board through those reports. He recalled that at this board meeting, Breckenridge reviewed each of the board reports thoroughly, going through each of the project reports, giving an update and providing information additional to that reported as to where the project was at. He gave no evidence that the work was being performed for Trimont or that there was an arrangement with Coonwarra in respect of the Mernda development.
2. Regarding Mernda, Hartwig did not recall any questions or issues being raised about what Breckenridge had conveyed.
3. During cross-examination, Hartwig rejected the proposition that there was no particular discussion of Mernda at the meeting. When it was suggested that as at September 2015 there was nothing happening at Mernda, he said 'I think there were significant matters that were happening at Mernda in relation to preparing it for what ultimately became sale and then commencement of construction'. Counsel then noted that Breckenridge previously gave evidence that no construction would be able to commence on the Mernda project until it found a home, to which Hartwig replied that Breckenridge said that when referring to construction, but not work that was being done and preparation for construction.
4. After referring to evidence that money was not being spent on progressing the project, counsel suggested to Hartwig that as of September 2015, there was nothing to report, particularly about Mernda. Hartwig disagreed, stating that 'there was actually a substantial amount to report about Mernda'. He specifically recalled that Breckenridge referred to 'the introduction of the UBS investors and that a transaction should be concluded shortly for the purchase of the property and then moving on to the development'. When it was put that the only contract with respect to Mernda that was discussed at any time prior to 20 May 2016 involved construction works on the Mernda Land, Hartwig replied: 'it involves planning and construction works'. When counsel then enquired whether that was to a total value of $16 million, Hartwig said 'that was what was forecast, budgeted'.
5. Geoff Brady said that he did not recall Breckenridge discussing the Mernda project at the meeting.
6. He was cross-examined about what the documents recorded and what Breckenridge said had occurred at the meeting. He could not recall Breckenridge giving a presentation that was reflected in the Mernda Board Report to the Board. When asked whether he recalled Breckenridge telling the Board about complications with the road, he replied: 'yes - no, sorry. Not specifically then, but I knew there were complications'. He then clarified that he would have learnt about the complications in 'maybe October, November', late 2015, when he and Breckenridge met a publican at a hotel who was objecting to having to pay for part of the road. When questioned further about what he came to know in late 2015, Geoff corrected himself, stating that it was 2016 when he knew about the road. He did not accept that there was a discussion about a road issue at the September 2015 meeting.
7. He could not recall whether Breckenridge spoke about long drawn out planning issues which were still progressing through council with the plan endorsement process. However, he conceded that it was possible that Breckenridge might have said that, he just could not remember it.
8. Geoff Brady also said that he did not remember seeing a tenancy schedule at this board meeting or Breckenridge saying words to the effect that Mernda was going to be a 20-month build but would not commence until the sale went ahead. He did not recall Breckenridge stating that there were complications with the road and council.
9. He did not recall receiving the Mernda Board Report that was provided at this board meeting. He had no recollection of learning about the site area, construction timeframe and cost, or the final stage of negotiations with the directors of UBS, with an end sale price of $30.8 million and 6.7 percent yield that were set out in the report's executive summary. Although he stated that he had seen the plans for endorsement, he could not say if he saw them or the tenancy schedule at the time of the meeting. He said that he did not remember receiving the site specific control.
10. He did not recall Breckenridge discussing the sale price (the $30 million) or that a portion of it would be payable to the owner of the Mernda Land (Coonwarra). He said that, up to that time, Breckenridge had maintained that CornoNero was the builder for the Mernda Project. He was not aware of any agreement between Martin, Ben and Breckenridge regarding the sale of Coonwarra's land, and was of the understanding that CornoNero would only be engaging in 'building work on conventional terms'.
11. He did not agree that Breckenridge told the board at the meeting that the 'UBS guys' were proposing to buy the site and that there had been an agreement about the appropriate yield being 6.7 percent, giving a sale price of $30.8 million.
12. He did not agree that Breckenridge told the board that the $30.8 million was an amount that included the land and CornoNero's WIP expended in getting the site ready for development and construction. In relation to the latter, when he was asked whether he did not recall it he responded: 'no. I don't recall that because there was nothing there'. His evidence was, 'I can never recall it being discussed, the total thing, so I can't recall that' when responding to the question whether Breckenridge said that CornoNero would get reimbursed for the WIP and there would be fees on top of the $16 million.
13. Geoff Brady also positively denied certain aspects of the discussion as asserted by Breckenridge (as well as saying that he could not recall what was said). When asked whether he accepted that Breckenridge said that part of the $30.8 million was going to go to the 'Mernda boys', he stated 'no not at all'. When asked whether Breckenridge said something to the effect that the arrangement was a fund-through deal and that the incoming purchasers, the UBS guys, would pay for the construction, he said that 'none of this took place so no, I don't remember it'. He also denied that he asked questions about the structure of the deal and future projects.
14. After agreeing that it was likely that the board would have received information about CornoNero's business, he was asked whether that made him reflect on whether something was said about Mernda. He replied: 'nothing was said about Mernda at that stage'.
15. Rachael Brady stated that she did not recall the specific matters discussed at this board meeting. She recalled receiving the Mernda Board Report and agreed that she would have read it at about that time, but could not specifically remember reading the information it contained.
16. She recalled receiving the information in the report that the 'construction timeframe and cost' was 20 months and $16 million. When asked whether she received a briefing and knew at the time that negotiations had reached the final stage with 'a private consortium made up of directors of UBS', she stated 'I didn't understand it, no'. She then clarified that although she did not read that paragraph of the report, she remembered recording the impression that there was a negotiation going on with people from UBS. She also recalled receiving information that the end sale price was $30.8 million, representing a 6.7 percent yield. When asked whether that was told to her in the meeting, she replied 'I don't recall a conversation about it. I'm recalling it from the information you are showing me', before clarifying that she remembered reading it in the report.
17. She said she did not understand the tenancy schedule attached to the report, particularly why CornoNero was involved in the tenancy schedule, and found it unusual that she received it. She explained that she did not raise an issue about it at the meeting because she was a proxy board member and was not across the project's details, so she did not feel appropriately positioned to question it at the time. She recalled a conversation about Coles being involved in the tenancy. Although she did not recall the tenancy schedule being talked about at the meeting, she accepted that that may have happened and that she just could not remember it.
18. Rachael Brady could not recall many aspects of the meeting as asserted by Breckenridge, although she conceded that they may have happened. She did not recall Breckenridge reporting to the Board or discussing the Mernda project, but said that it might have happened.
19. She did not recall Breckenridge briefing the Board on a long and drawn out planning process and progression through the council for endorsement, although she accepted that that might have happened. Nor did she recall Breckenridge advising the Board that Mernda was going to be a '21-month [sic] build', but the build was not going to commence until the site sale went ahead because it would be a fund-through job. She accepted though, that this may have been said.
20. She accepted that Breckenridge may have briefed the board that the 'UBS guys' were proposing to buy the site at a capitalised rate of the rent and that the agreed yield was approximately 6.7 percent, with a sale price of $30.8 million, although she could not specifically recall as much.
21. As to Breckenridge's evidence that he briefed the Board that the amount would include the cost of the land, Rachael Brady only recalled reading that information in the report.
22. Although she did not recall Breckenridge telling the Board that CornoNero would get reimbursed for its WIP and that there would be fees on top of the $16 million - she only recalled reading that, she accepted that it was likely that Breckenridge told that to the Board. She also agreed that Breckenridge could have briefed the Board to the effect that it was going to be a fund-through deal and explained that the 'UBS guys' would pay for construction. When asked whether she recalled questions then being asked about the possibility of CornoNero undertaking projects with those types of deals in future, she responded 'I remember Geoff asking why it wasn't presented to him'. However, she then clarified that it may not have been at that meeting.
23. Breckenridge gave evidence that Thurgood took the Board through the 'August financial set', line-by-line, and talked through the comments notated on the right-hand side of the ledgers. He said that when Thurgood was going through this report, he went through the projected income lines and said how important Preston and Mernda were to the budget. Breckenridge recalled Geoff Brady saying that he agreed with the fact that Mernda was an important project because it was on a busy road.
24. Rachael Brady was taken to the August 2015 monthly reporting document during cross-examination. She accepted that she would have received the document at the time of the meeting, although she could not remember as much.
25. Geoff Brady remembered Thurgood attending this meeting and agreed that he gave a financial report. He could not remember Breckenridge saying that he needed bank guarantees to be in place, but he did not dispute that something like that was probably said.
26. He could not remember being provided the August monthly reports ahead of the meeting, nor could he recall recording the impression that CornoNero needed cash at the time.

1. On 27 November 2015, Thurgood emailed Breckenridge, Hartwig, Geoff Brady, McEniry and Ascenzo, with the subject 'Board Meeting: 2/12 Agenda and documents'. Attachments included an Agenda, the Monthly CEO Report, Finance Reports, Job Report Summary, and the November PCG Monthly Report for Mernda.
2. The meeting was to be attended by directors only, with employees of the company attending at different times throughout. The meeting was attended by McEniry, Geoff Brady, Hartwig, Breckenridge and Ascenzo, as directors. Thurgood (Financial Controller), Hasmukh Vallabh (Finance Manager) and Vince Pretorius (General Manager) also attended.
3. Minutes were recorded for the 2 December 2015 Meeting. They indicated that the CEO report was tabled and discussed by Breckenridge and the Board; that the Finance Reports were tabled and discussed by the Board and Thurgood, and that the finance reports were discussed at length at the monthly finance committee meetings, such that only issues of importance would be raised with the Board. The minutes recorded that the General Manger was invited to provide the Board with an overview of the projects that have commenced and those that are likely to proceed in the future.
4. The CEO Report stated:

On the construction front [Pretorius] has made significant in-roads in the preparation of Mernda, Dandenong Road, South Melbourne and Ringwood and we have appointed all contracts, hired site managers and readied ourselves for a huge launch within the next 90 day period.

1. Breckenridge said that he presented the CEO Report by speaking to it line-by-line. He gave evidence that he told the Board that the Mernda project was very important, there was ongoing liaising with consultants regarding the project, and that 'we hoped that the planning approvals required for the architectural drawings ... would be finalised soon'.
2. Hartwig said that Breckenridge provided his CEO Report to the Board, gave an update in relation to various projects (including Mernda), and said words to the effect that 'the Mernda project was a very important project for the business, and that he hoped that the planning approvals required for the development would be finalised soon'.
3. Geoff Brady said that he did not recall what was specifically discussed at the meeting. During cross-examination, he gave evidence that he did not recall Breckenridge saying that the Mernda project was very important. However, he did recall Breckenridge telling the Board that there was ongoing liaising with consultants by CornoNero associated with the project, and that Breckenridge said he was hoping that planning approvals required for architectural drawings would be finalised sometime soon.
4. Breckenridge's evidence was that Pretorius spoke about all of the pipeline work during the meeting, including Mernda, as part of his presentation of the project status and project report. Hartwig gave the same evidence.
5. Breckenridge's evidence was that Geoff showed particular interest in the Mernda and Preston projects during the meeting and asked Pretorius a number of questions regarding Mernda's progress and how long it would take for the project to be completed. Breckenridge said that at this point, he explained to the Board how the negotiations were going, saying words to the effect that the 'UBS guys' had signed a heads of agreement, so the negotiations are continuing on the basis of formalising those heads, and the lawyers will start preparing the paperwork. Breckenridge stated that he told the Board the proposed agreement was in line with the fund-through arrangement that he spoke about at the September meeting.
6. Geoff Brady did not recall Pretorius giving a report at the meeting, responding when asked about Pretorius's report: 'can you show it to me? I'm sorry, I can't recall it. You will need to show it to me'. He similarly did not recall Pretorius talking about Mernda, or that he asked Pretorius questions about the project. He maintained this position even after he was taken to the PCG Report for Mernda.
7. When he was asked whether he recalled Breckenridge saying that the 'UBS guys' had signed the heads of agreement and negotiations were continuing on the basis of formalising those heads and the lawyers were about to start preparing the paperwork, he responded: 'in late 2015? ... No way'. He also said it was 'not true' that Breckenridge had said that 'the proposed agreement was in line with the fund-through arrangement that had been spoken about at the September board meeting'. He then clarified that he could not remember Breckenridge saying that.
8. The November 2015 PCG Report for Mernda stated:

The sale of end usage of the Mernda site has been negotiated and a contract is to be executed within the next few weeks. This will open the funding program ad [sic] allow Trimont to commence large scale works.

Initial site establishment is complete, test drilling has occurred and site sheds are in place ready to commence works in 2016.

Design meeting have [sic] commenced and Coles will begin to attend as of next week.

1. It also identified a 'Contract Value' (excluding GST) in an estimated amount of $16 million, excluding consultants. The commencement and completion date were shown as 18 January 2016 (estimated) and 28 June 2017 respectively. 'Key Project Issues' were set out, identifying the following:

(a) final plans for endorsement had been lodged in November, initial council feedback was positive and the hope was to receive 'stamped drawings within the next few weeks';

(b) the next challenge was tree and environmental sign off, which would require a $100,000 bond; and

(c) it was hoped that the geotechnical report would be completed in the next few weeks, enabling certification of construction drawings in order to obtain a building permit.

1. Sections of the November 2015 PCG Report also covered 'Design Status' and 'Authority Status' (listing the status of authority applications and council permits). A 'Project Cash Flow' showed: a 'budget per QS' of $16,921,313 (including $921,313 for consultants); a 'revised budget per Trimont' of $15,362,351; zero actual costs to date; and an expected profit on completion of $1,539,440.
2. Geoff Brady did not recall receiving the November 2015 PCG Report for Mernda before the meeting. However, he accepted that he saw it in about November, and also agreed that he received documents that looked like the November 2015 PCG Report periodically.
3. He understood, specifically given the reference to a design meeting with Coles, that at a minimum, Mernda was a 'design and construction contract'. He knew that it was not strictly a construction contract, and obtaining 'authority approvals was 'the kind of work' that he was expecting CornoNero to be doing.
4. When asked whether he recalled reading the paragraph quoted above, commencing: 'The sale of end usage of the Mernda site ...', he replied: 'not really'. When he was asked whether he recalled reading the 'Key project issues', he said: 'that's not right, what you have got there'. He could not recall reading the information but accepted that it was provided to him. He also accepted that the reference to the $100,000 bond was not a construction issue that the Board was being told about (albeit he could not recall being briefed about it), and that he was being updated as to the geotechnical report and structural drawings.
5. In relation to the project cash flow, he agreed that the claims for items such as consultants' fees and tree removal were all still remaining, and that the 'actual costs to date' were zero. Although the project budget showed costs ramping up in January 2016, according to Geoff Brady, there was no discussion as to who the developer was. He found this odd because he had been assured that it was going to be signed by BidCo.
6. The Job Summary Report, dated 27 November 2015, comprised a table listing details for each project. In relation to 'Mernda (stage 1)' it showed a 'Status' of 'Site Preparation'. Site works were noted to have commenced, with the 'Client/Investor' identified as 'Ascenzo Industries'. The estimated contract was recorded as $16 million and a column for 'Project Notes' said 'Coles Centre'.
7. As part of the Finance Reports, the Monthly Reporting - October 2015 report stated, in overall commentary: 'income is still low due to onsite and design delays'. It included a page for 'Monthly Summary Profit & Loss, which showed an 'Oct 15' income $271,456 less than budgeted with the comment: 'construction only revenue, Design fees to be raised in November plus Preston & Mernda'. The next page, 'YTD Summary of Profit & Loss', recorded an income $425,394 less than expected, with the comment: 'due to hold on Armidale, Muswellbrook, Mernda & Preston jobs for TA'.
8. Breckenridge said that Thurgood spoke about the finance reports at the meeting, including the 'Monthly Reporting- October 2015' report.
9. Geoff Brady recalled Thurgood providing a finance report, although he did not remember receiving the monthly finance reports document.

1. On 2 February 2016, Thurgood emailed Breckenridge, Rachael Brady, Hartwig, McEniry and Geoff Brady (copying Hasmukh Vallabh), attaching board papers for the meeting to be held on the following day. Thurgood noted in his email that 'project reports' would be provided in a separate email.
2. The meeting was attended by McEniry, Geoff Brady, Hartwig and Breckenridge. Vallabh also attended as Finance Manager. Although the minutes do not show that Thurgood attended, Breckenridge and Hartwig gave evidence that he spoke about the finance reports.
3. The Minutes of meeting note that the CEO Report was tabled and discussed, with 'particular emphasis on new projects'. Under 'construction reports', the minutes said: 'it was noted that there was not a lot to report ... however the CEO updated the board on the current status of the various projects at hand'.
4. The CEO Report stated that the 'discussion today' would cover in detail the 'current state of play of all jobs commencing construction in Q1 and Q2 of 2016'. It also recorded that over the January period, Breckenridge's key focus had been the preparation of the construction program for 2016. A highlight noted was 'Mernda to be underway within the Q1 period'. Breckenridge said that he presented the CEO Report, speaking about the pipeline of projects including Mernda. He said that he told the Board that he hoped the council would endorse the plans 'very shortly'. He also gave evidence that he spoke about the 'road design which had been prepared by TTM Consulting' and the 'progress of the negotiations with the 'UBS guys' in moving towards structuring the heads of agreement into a contract and settlement of the project', and gave tenancy updates_._ Breckenridge's evidence about his CEO Report was as follows:

Look, there was quite a number of components to that meeting but the bit that sticks out is actually in relation to Mernda. I spoke about and I went through all the projects that were creating a lot of WIP, or there was a lot of cost being expended on those projects and Mernda, because we were commencing construction, was one that I covered off and I said we are expending capital quickly. It had been a flow-on from a conversation that [Hartwig] had had with the board talking about the cash flow issues because of December, January and February.

He recalled that Hartwig had said that in the normal cycle of the building company they were feeling pressure because December and January were not full months, but they still had the full months' overhead. According to Breckenridge, he touched on those issues in his report and spoke about the fact that a lot of capital was being spent, so there was a need to 'explain to the Board when payments were coming on projects where WIP or capital capex was being spent without those contracts being completely finalised'. He added that he did not recall anyone responding to this information.

1. Hartwig said that Breckenridge provided an overview of CornoNero's projects, including the Mernda project. He said that the Board reviewed and discussed the budgeted income for each project, including the Mernda project.
2. Geoff Brady rejected the suggestion that Breckenridge told the Board that he hoped council endorsement of the plans for Mernda would occur shortly, spoke about the road design prepared by TTM Consulting and provided updates on negotiations with the 'UBS guys'. He said that Mernda was not discussed at this level of detail. He added that had Breckenridge mentioned accumulating costs in relation to the Mernda project, this would have 'prompted discussions as to why costs were not being recouped'. He expected that he would recall any such discussion, had it happened.
3. During cross-examination, Geoff Brady said that he could not recall the February board meeting 'at all'. When shown the reference to projects in the minutes to the CEO's update on 'projects', he said that he could not recall any update on the status of Mernda, nor could he recall a presentation given about Mernda.
4. Similarly, when he was shown the 'CEO Report - January 2016', he stated that he could not recall the Mernda project being discussed. Specifically, Breckenridge's hopes as to council endorsement, the road design prepared by TTM consultant nor the update about tenancies. However, he accepted that it was possible that Breckenridge raised the road design prepared by TTM Consulting at the meeting and that the tenancy update 'may have happened'. Regarding the road design, he said that later in the year he and Breckenridge spoke to owner of the hotel 'over the road'.
5. In relation to Breckenridge's evidence that he spoke of the negotiations with UBS, Geoff Brady said that he could 'recall talking about UBS' later in the year, but agreed that was possible that UBS was raised in the February board meeting.
6. As part of the Finance Reports, the 'Monthly Reporting - December 2015' stated in overall commentary: 'income is still low due to onsite & design delays. Further delays had been the result of the lack of Bank Guarantees for Councils at Dorcas St, Mernda & Ringwood'. Breckenridge explained that for Mernda, bank guarantees were required for tree protection zones, roadworks and council infrastructure. A 'discussion chart', showing fluctuations between cashflow, balances and 'net profit after tax' indicated that 'cash balance' and 'cash flow' of approximately negative $2 million in December, from slightly positive values in November. Commentary regarding the 'balance sheet' said that debtors were 'on par with budget', but without the budgeted sales it was still high 'due to delay in collecting on Plenty Road development'.
7. A December 2015 half-yearly sales analysis showed that Mernda generated 'actual income' in November 2015 ($160,000) and December 2015 ($40,000). Geoff Brady accepted those figures at face value, even though the November PCG Report for Mernda showed that income was not anticipated until December. He said that he relied on Breckenridge, supported by Thurgood, to provide him with the documents.

11 March 2016 - Joint board and finance committee meeting

1. The March 2016 joint board and finance committee meeting was attended by McEniry, Geoff Brady, Hartwig and Vallabh. Breckenridge did not attend.
2. The Minutes recorded that the Finance Reports were tabled and discussed by the Board, that the Expenditure Guidelines were reviewed and adopted and that Pretorius and Hunt 'updated the board on the status of the various projects'. The commentary on the Finance Reports said: 'Mernda has slowed due to developer buy-out delays, we are holding back until resolved'. The balance sheet commentary noted that 'a large amount of WIP was held on Retention Claims', which was 'invoiced in February', and 'Balance of WIP is predominantly Preston & Mernda'.
3. Breckenridge said in his evidence that the WIP was attributed predominantly Mernda because of the delayed transaction. A chart of actual grossed margin compared to budgeted gross margin noted with respect to January, that 'WIP increased on Newcastle, Preston and Mernda not being claimed'.
4. The February 2016 PCG Report showed an estimated contract value for Mernda of $16 million (excluding consultants). Under 'Project Team', the superintendent was identified as Breckenridge and beside 'Developer' was 'TBA'. The introduction stated:

The sale of end usage of the Mernda site has been negotiated and a contract is to be executed within the next few weeks. This will open the funding program and allow Trimont to commence large scale works.

Initial site establishment is complete, test drilling has occurred and site sheds are in place ready to commence works in 2016.

$100,000.00 bond has been paid and received by the council. This will enable us to progress with early works.

Geotech report has been received. Design meetings and co-ordination has been progressing rapidly.

Coles and Liquorland internal layouts has been received.

1. Under 'Key Project Issues', it was stated that final plans were lodged for endorsement in 'early November', the hope was to receive stamped plans in the next few weeks, and design development was pushing on to ensure an early 2016 start date. Item '6.0 Construction Progress' referred to the installation of tree protection and 'Geotech' being performed, while photographs were attached at the end of the report showing 'site sheds'. The claim and variation summaries indicated that no claims or variations had been 'submitted to date'. Although the 'project summary' indicated that there were no actual costs to date, the 'project cash flow' showed that income of approximately $606,876 had accumulated to January 2016.
2. Geoff Brady could not remember whether he saw the February PCG Report in relation to the March board meeting. Additionally, he could not recall whether he was briefed on the matters set out under the 'Key Issues' section of the report. When he was asked how costs could be incurred when a developer was yet 'to be appointed' he responded that Breckenridge would 'have started the project because he had someone to sign'. That is, starting the building and the primaries of the site, getting approvals, the clearing of land, and getting engineers in. Geoff Brady did not regard those actions as that of a developer. Rather, a project would be 'on the go' for Coles, which would then be taken to clients and a developer would come in to fund it. At the end of the project the developer and landowner would then share in the profit.
3. He was unable to explain the discrepancy between the costs incurred and the income accrued, as shown in the PCG Report, other than saying that he 'accepted that was the progress of the job', he did not inspect the job and Breckenridge was presenting the figures with Thurgood.
4. The Expenditure Guidelines presented to the meeting provided:

Special Resolution of the Board is required in respect of the following matters (except where they have been included in a Budget and/or Business Plan approved by the Board):

• Incurring any capital expenditure or liability of $500,000 or more for an individual transaction or for a series of transactions in aggregate in any financial year; and
• Execution of any contract or entering into any commitment with a value of $500,000 or more in a financial year.

1. It was Hartwig's understanding that from 11 March 2016, incurring expenditure or liabilities by CornoNero of over $500,000, where such expenditure or liability had been disclosed in the budget or financial accounts, did not require a special resolution.

Finance committee meeting - 22 April 2016

1. Hartwig attended a finance committee meeting on 22 April 2016 with McEniry, Geoff Brady, Rachael Brady, Breckenridge, Thurgood, Vallabh and Pretorius. Hartwig said that the finance committee, 'reviewed the contracts and projects being undertaken by CornoNero, including the Mernda project'. That evidence was unelaborated. I do not construe it as establishing that the MDA was provided to the Finance Committee.

1. Hartwig gave evidence that he attended a finance committee meeting on 17 May 2016 with McEniry, Rachael Brady, Breckenridge, Thurgood and Vallabh. He said that the finance committee, among other things, reviewed the contracts and projects being undertaken by CornoNero, including the Mernda project. The same observations about Hartwig's evidence concerning the April meeting may be made.
2. An aged debtors report that was circulated to the Finance Committee ahead of the meeting showed amounts of $365,953.50 and $220,000 as 'current' and 'three month plus' debts respectively regarding the 'Mernda Joint Venture'. In cross-examination, Geoff Brady agreed that he had seen this document. He said that he did not know why it referred to a Mernda 'joint venture', before volunteering that he would have thought that it was a joint venture between BidCo and Coonwarra. He did not make any enquiries as to why $220,000 was invoiced from before the end of January. As to how the invoices could be issued when there was no developer appointed, he sought to explain:

I said earlier on when those first figures were shown ... that could be from the builder doing preliminary work and putting his invoices in for the preliminary work. At that stage there was no-one to give the invoices to. At this stage they are showing there so when the developer takes over that's what has initially been paid out by the builder.

1. On 27 May 2016, Thurgood emailed the board papers and project reports, including the May 2016 PCG project report for Mernda, to McEniry, Rachael Brady, Geoff Brady, Hartwig, Breckenridge and Vallabh. Geoff Brady recalled receiving, and 'look[ing] at', the board papers for the meeting.
2. Present at the meeting were McEniry, Geoff Brady, Hartwig, Breckenridge, Vallabh, Thurgood and Pretorius.
3. The minutes recorded that the 'CEO presented a verbal report with emphasis on the status of various building projects' and that the Financial Reports, as tabled, were discussed by the board. Under 'Construction Reports' the minutes read: 'the CEO updated the Board on the status of the various building projects'.
4. Breckenridge agreed when cross-examined, that the minutes make no reference to authorising the execution of the Mernda Development Agreement.
5. During cross-examination, Hartwig said that the minutes of the meeting were accurate, but that items four (CEO Report) and six (Construction reports) 'would probably require expanding upon to be specific to what was spoken about at that meeting'. When asked, specifically, whether items four and six included any reference to any development agreement being entered into between CornoNero and any other party, Hartwig responded, saying that they referred to the CEO presenting a verbal report as to the status of various building projects; and Breckenridge's verbal report was said to include reference to Mernda and the MDA. Hartwig also said that he never felt that the minutes were quite up to scratch from what was being discussed. He gave evidence that, at the next meeting, neither he nor any of the other directors sought to have the minutes amended or altered in any way. He accepted that entry into the MDA would have been the most significant contract that CornoNero had entered into in its life to that point.
6. It was put to Hartwig that, given the significance of entry into the MDA and, yet, there was no record in the minutes of any discussion of that topic, or any record of the draft MDA being before the Board, and no attempt by any person to later correct the minutes of the meeting, it was evident that there was no discussion of the MDA at the meeting and no such document was ever distributed to the Board. Hartwig denied that contention. He gave evidence that Breckenridge had what with him what he understood to be three copies of the MDA that he offered to board members to take and review if they liked. Hartwig took a copy after the meeting was over. He did not know whether anyone else took a copy. When asked during cross-examination whether a copy of the MDA (or the $1 million loan document) was distributed at the meeting, Hartwig responded that 'it was available for distribution. It wasn't taken'. Hartwig said that, under the agenda item heading 'Construction Projects', Breckenridge 'spoke to each of the ongoing construction projects'.
7. The Agenda noted that Pretorius was to attend if required.
8. Breckenridge presented a verbal CEO Report with 'emphasis on the status of the various buildings'. He said that he led a long discussion about Mernda, and that the conversation about Mernda during this meeting built on prior conversations about Mernda in the previous board meetings.
9. When asked in cross-examination whether this was the most important agreement that CornoNero had ever entered into, Breckenridge said that 'it was one of the important ones from my point of view, yes'. He also said that he was 'excited about it'.
10. Breckenridge said that he brought two clean copies of the latest version of the development agreement (Draft MDA) to the board meeting, which was the most up-to-date marked up version from Norton Rose solicitors, and that he had his marked up handwritten version with him (the Marked Up Draft MDA). He said that it:

[H]ad been marked up originally by [Hunt] and Norton Rose and then had some hand annotations within it from Vincent from a construction point of view, and then I had written my agenda of what I wanted to cover in the meeting for the Mernda project on the front page of that development agreement.

1. Breckenridge said that when he spoke about the Mernda project he had, in his hands, the marked up Draft MDA. He said that he brought the Draft MDA into the meeting to speak to the Board about the document, but also as a bit of a celebration, because a lot of work had gone into getting to this stage. He said he had these document along with the marked up agenda, his 'CEO report, the financial packages and some of the board reports for the projects'. He added that the Draft MDA was not circulated to the Board prior to the meeting because 'it was hot off the press' but that he took copies in the event others wanted a copy.
2. The marked up Draft was tendered in three parts with consecutively numbered pages, reflecting the likelihood that the original documents had been scanned in three parts. It is clear on the face of those documents that they, at one point, comprised one single document which was marked up. There is no reason to believe that there are any missing pages in the copies that were before the Court, or that pages were subsequently added following the board meeting. Breckenridge was cross-examined about his markings on the document, including about his use of pens of different colours. His evidence was that it was his habit to markup documents in different coloured pens. I accept his evidence that the document produced was the document he spoke to at the meeting, and marked up during the meeting. The items, which included 'leasing and incentives', 'base building', 'tract - DA', 'estimate on road', 'LD's' and 'Vic roads' were those that he said he wanted to discuss with the Board. He ticked off some items as he went.
3. Breckenridge said that he told the Board that he had the Draft MDA with him and that 'we are close to being ready to execute the development agreement with MJSC' and that more particularly, he said that:

(a) the agreement was in line with previous discussions; it was a development agreement or a fund-through of $30.8 million;

(b) there was a rental guarantee, the operation of which he tried to explain;

(c) the base building was all that was included in the contract amount of the $16 million, plus fees. CornoNero would be able to price the tenancy fit out component of those works, and although they would 'have to win it', it was an opportunity that arose out of the agreement; and,

(d) there were incentives that formed part of 'this', which sat outside the agreement.

1. In relation to the discussion regarding the rental guarantee, Breckenridge said that he told the Board:

There's a rental guarantee that's in place but it's a limited guarantee. It forms part of a retention in the residual sum and then it only guarantees shortfall on the smaller tenancies. However, we reserve the right to be able to put our tenants in place.

He gave further evidence that CornoNero had 'previously put together' a list of tenants to fill the tenancies, and that the Board was aware of that.

1. Breckenridge said that as he was discussing the incentives that would sit outside the agreement, he was interrupted by Geoff Brady who is said to have 'asked whether [the agreement] had been checked by a lawyer'. Breckenridge said that he confirmed that it had been, before Geoff Brady then asked 'if it was as per the budget'. Breckenridge said that he replied confirming that is was. He then 'started to talk about the road work', at which point he was 'cut off again' and 'never actually finished his discussion around that point'. His evidence was that Geoff Brady asked again 'is it as per budget? We don't need to go through that detail'.
2. Breckenridge said that at that point, he finished explaining the Draft MDA to the Board and said 'if anyone wants to take a copy with them I'm also happy to sit down and take you through it page-by-page'.
3. Breckenridge said that Hartwig also spoke and asked some specific questions 'around the way the project would work', asking about risks associated with the progress payment and residual sum structure. He wrote, on the front page of the Draft MDA, some 'good points that [Hartwig] brought up in relation to the project'.
4. Breckenridge recalled McEniry jumping in and saying: 'we shouldn't do any more work on this project until it's executed. We shouldn't incur any more costs, we shouldn't rack up any more bills'. Breckenridge said that, in response to that, Hartwig supported McEniry's view, and that he asked when it would be ready to execute and wanted to know 'when we were going to get paid'. Breckenridge said he told the Board he felt CornoNero was in a position to have it signed by the end of June. He said he also wrote on the agenda the words 'Mernda at end of month', so as to 'make sure that that happened'.
5. When asked during cross-examination whether he spoke to the MDA, Breckenridge said 'yes, I did, or tried to'. He agreed that the board members did not have a copy of the draft MDA, or of the MDA in the period up to May and after May 2016, adding that they were offered a version, but 'we never gave out executed versions'. According to Breckenridge, it was not the normal practice of the Board and that the contract for the South Melbourne project was not circulated after execution, either.
6. Hartwig gave evidence that 'Breckenridge presented what was the final draft of the MDA for the MJSC development', which Hartwig described as 'a marked up copy, that [Breckenridge] had key points that he wanted to take people through'. Hartwig said he knew that because he 'sat right next to [Breckenridge]', and Breckenridge also 'had some copies for board members to take away or to review at the time'.
7. When asked what Breckenridge said about the Draft MDA, Hartwig said that Breckenridge:

Took the board through the key facets of that transaction, being a development management agreement versus being just a standard design and construct contract. He spoke about the fact that there were things in the [Draft MDA] that CornoNero were obliged to do but he also spoke at the time that most of those things had been attended to, which was around the design and planning, and also the introduction of tenants to the development.

1. In relation to the things in the Draft MDA 'that CornoNero were obliged to do', Hartwig said that Breckenridge spoke about 'the need to do works that were outside the normal design and construction building contract', such as the 'obligation of CornoNero to provide the tenancy work, do the real estate work'. Hartwig stated further that Breckenridge said that 'CornoNero had already introduced Coles, secured the Coles lease' and secured a number of other tenants that were being presented to MJSC for approval to be 'part of the tenancy mix going forward'.
2. Hartwig said that Geoff Brady asked whether the Draft MDA had been prepared by a lawyer, and that Breckenridge responded that it had been prepared by Norton Rose. Hartwig said, when asked whether there was any other issue raised in the course of the meeting about the MJSC proposed agreement, 'only that there was support for the transaction' and that 'everyone was keen for the transaction to progress. No-one had any negative views or provided any negative views at that meeting'.
3. When shown the Draft MDA, Hartwig identified that document as the same one that Breckenridge had with him at the 30 May 2016 meeting. He believed that to be the case because he 'went through the document'. When asked when he did so, Hartwig responded that he 'took a copy on the day'.
4. Geoff Brady denied that the MDA was discussed at the meeting. When asked whether he recalled such discussion, he replied 'no' without elaborating. In response to the assertion by Breckenridge that there was extensive discussion about the contents of a proposed agreement to be entered into regarding the Mernda development at the meeting he said, 'not true'.
5. During cross-examination, he said that he did not recall Breckenridge giving a report to the Board, but agreed that it could have happened. The following exchange occurred:
   1. What he says happened at the meeting is that he had a copy of the draft development management agreement in respect of Mernda with him and he told the Board that it was nearly ready to sign. Do you recall that happening?

A No.

1. He said that the draft document was in accordance with what had been discussed in the past. Do you remember him saying that?

A Never been discussed in the past and I can't remember it there.

Q You can't remember him saying that?

A No.

1. He also spoke about the structure of the development management agreement to the board. You can't recall that either, I take it?

A Not at all.

1. He spoke to the meeting about the payment structure of the deal that had been negotiated. You recall that or you have no recollection?

2. None of this ever took place, no. That's not how (indistinct) behaved, pardon me.

3. I think you said, Mr Brady, a moment ago that you couldn't recall Mr Breckenridge giving a report at this meeting but you accept that it's likely that he did?

A Yes.

Q You don't have any particular recollection of the meeting; is that right?

1. What was structured in the board minutes, it was - sorry, I can't answer the question. No, I can't remember Mernda being discussed there at all.

2. I am asking you about the meeting in general. Can you remember the meeting at all?

A Not really, I can't.

1. I want to suggest to you that the things I have just put to you could have happened but it's just that you can't remember them. Do you agree with that?

A He could have said all of that.

1. When asked whether he remembered Breckenridge telling the Board that there was approximately $14 million of progress claims which were accounted for in the Draft MDA, but that if CornoNero did not get a final payment on completion (because of defect issues of something to that effect), there could consequently be a shortfall in cash flow, he responded: 'no. I would remember that. No'. As to whether it might have happened but he could not recall it, he said: 'it didn't happen but - and I can't recall it, but it wouldn't have happened'.
2. He did not recall Breckenridge saying to the board that as part of the $30.8 million payable under the MDA, the final payment included an amount for the landowner's payment. He strongly denied that he interrupted Breckenridge and said that he did not want to look at the detail because it was budgeted and the lawyers had reviewed it. He said that he would not have done that as it was not his 'method of operation'.
3. In relation to the Draft MDA, he stated that he did not recall Breckenridge having a copy of that document with him at the meeting and that he never saw a draft copy. When challenged on this, given his recollection admittedly was not good, he said he 'absolutely' had a recollection of that because 'that's come up before'. When counsel then sought to clarify, the following exchanged occurred:
   1. That is you have thought about that before and formed the view that you didn't see it. Is that what you meant by that evidence?-

A I didn't see it, I didn't sign it. I didn't do anything.

Q Yes, but you can't actually remember this meeting there terribly well?

A Well, I could remember if I was going to commit for $30 million.

1. I want to suggest to you again the question was you don't really have a very good recollection of this meeting?

A No, that's right.

1. To summarise his evidence, Geoff Brady did not recall the substance of what the other witness said was discussed at the meeting, when it was put to him.
2. He agreed that it would 'not be commercially unreasonable' that CornoNero 'got the project to a point where it was attractive to an investor, who would then fund the construction cost and pays for the work that has been done to date'.
3. Handwritten notes were on a copy of the meeting agenda in evidence. The first page showed, ticks over each of the eight agenda items, save for item six, 'Construction Reports'. A handwritten bracket extended right from that item to an asterisked list of six handwritten items in the middle of the page, to the right-hand side of which was another handwritten list of four items. At the bottom of the page: 'Mernda' was written beside an asterisk, with an arrow leading to 'EOM'; and, 'Jio Jian' was written beside an asterisk, with an arrow leading to 'settlement EOM'. Breckenridge said that the handwriting on the agenda from the 30 May 2016 meeting was his, and that it was his normal practice to mark up the agenda during a meeting. Breckenridge said that he made the two asterisked items at the bottom of the page during the meeting as well. The text 'EOM' was said to be shorthand for 'sign at the end of the month'. Breckenridge said that by this he meant that the plan was for the MDA to be executed at the end of June (being the following month).
4. The third page of the May 2016 PCG Report showed a contract value of '$14.7 million excluding road works, tenancy fit outs and headworks'. It also showed that town planning drawings were endorsed on 11 February 2016, and that the 'Contract Commencement Date' was '23 March 2016 - Achieved'. The developer was shown as 'AI Property Group' with Breckenridge as project director and Pretorius as construction manager.
5. The introduction to the May 2016 PCG Report read:

The sale of end usage of the Mernda site was being negotiated and a contract was to be executed. First stage building permit based on current endorsed drawings received.

1. Listed within the 'Key Project Issues' was that the cost of changes between the '2014 and 2016 Coles brief' were to be considered. The report also showed progress that had been made with design documents and authority approvals, and under 'Construction Progress' it read: 'tree protection installed, tree removed, site cleared, site sheds installed. Bulk excavation commenced'. A claim summary showed that $200,000 had been claimed and approved to date, with payment 'awaiting'. The project cash flow showed a 'Budget per QS' of $16,921,313 (including $921,313 consultant's fees).
2. Geoff Brady was taken to the May 2016 PCG Report during cross-examination. He said that he did not remember reading the document in about May. However, he recalled receiving a briefing to the effect of the introduction section, that the sale of the end usage of the Mernda site was being negotiated and a contract was being executed. When asked whether he recalled, as a matter of fact that 'the building permit based on the current endorsed drawings had been received' he replied: 'I think there was discussion it was about to be received, from my recollection here'. He could not recall reading the 'Key Project Issues' information, but said that he would have read it at the time if it was presented. He gave similar evidence as to other information in the report concerning the contract sum. As to whether he recalled the information associated with the council, authorities and consultants' costs later in the report, he said 'not at all'. When counsel queried 'it's likely you would have read it, in fact, isn't it, if you read this document when it came in?', he responded: 'quite probably'.
3. Hartwig's evidence was that Breckenridge 'discussed the status of the Mernda project', including 'the contract value and status and cash flow issues at the project'.
4. During cross-examination, Hartwig was taken to the April 2016 Finance Pack. When it was suggested to him that because there was work in progress recorded that meant that there was a construction contract already in place, Hartwig replied 'not necessarily'. Rather, he said that there was a 'committed project'. When asked who would have given the commitment in respect of the Mernda WIP as at 27 May 2016, he initially said, 'it occurred previously'. At a number of board meetings all of the projects were spoken about and all of those projects by the Board were confirmed to go ahead. He was asked who would have committed to the WIP and he replied 'the CornoNero executive'. The following exchange occurred:

Q To carry out work for an owner with respect to that land?

A Yes.

Q To carry out work for Coonwarra in respect of the Mernda Land?

1. Well, at the time it was Coonwarra but about to be - or at the time very soon, as explained, about to be the UBS consortium.

2. You knew that Coonwarra wasn't paying for and hadn't entered into any contract for construction work on the Mernda Land as at 27 May 2016, didn't you?

A I did.

1. Hartwig was taken to the Debtors Ageing Summary which showed that the 'Mernda Joint Venture' was a debtor in respect of $220,000 worth of work that was three months' old. It was put that that indicated there was already a contract in place with whoever the Mernda Joint Venture was. Hartwig disagreed, but agreed that it indicated there was a 'commitment'. It was put that no arrangement had been explained to the Board by Breckenridge about the outstanding debt. Hartwig's answer was:

Only that works were progressing to a settlement and the capacity of the incoming ownership group was strong and that CornoNero was working closely with that group to make sure: one, the settlement would be concluded; and secondly, that the contract would be awarded to CornoNero.

Hartwig clarified that by the contract he meant the contract for future building work, from the point of execution of the contract.

1. When counsel asked Geoff Brady what his understanding was about WIP at Mernda at this time he responded 'we didn't have a signed deal with anybody there but they were doing preparatory work with the likes of engineers, town planners and council and there would be preparatory work going on'.

1. The 8 August 2016 board meeting was attended by McEniry, Rachael Brady, Hartwig, Breckenridge and Vallabh.
2. The Minutes stated that Breckenridge presented his CEO report and that he 'updated the board on the status of the various building projects in his report'.
3. Hartwig said that there was 'substantial' mention of executing the MDA and MLA at the 8 August meeting. When asked why this is not referred to in the meeting minutes, Hartwig said that, 'it was a budgeted job', noting that the 2016/2017 budget was approved at that meeting, and the confirmation that the contract was to be executed was also advised at that meeting, 'and that the advance agreement would be executed or acknowledged at that meeting'. Hartwig otherwise said that he could not account for the MDA or MLA, or the discussion of those documents, not being referred to in the minutes for the meeting.
4. Breckenridge accepted that the minutes did not refer to the execution of the MDA. He explained that he was 'relying on the fact that it was a budgeted project, as per the normal course of the Board'. He denied that as far as the Board was concerned, all that was ever likely to happen at Mernda was that construction works might be undertaken for up to $16 million, stating that 'every package ever sent out showed the $30.8 million, the land value, the capitalisation of the rent. It was explained at most board meetings'.
5. Rachael Brady accepted that the finance reports that went to the Board were first reviewed by the finance committee, of which she was a member. She also agreed that the finance reports that were discussed at the previous finance committee meeting were accepted as presented at the 8 August 2016 meeting. However, she did not recall precisely what was presented at the meeting.
6. Breckenridge said that he prepared his written July 2016 CEO Report shortly before the 8 August 2016 board meeting. A three-page document with that title had handwritten marks on each page, namely, brackets and underlining emphasising particular text, and ticks against certain items. It stated:

The weather coupled with some slow payments on both Brunswick and North Fitzroy, and the slowing of Preston and Mernda as they await property settlement have led to a frustrating month for the Construction Team.

...

With property settlements due for Preston and Mernda in August, we should see these projects ramp up from an income perspective.[415]

1. The June 2016 CEO Report also noted that CornoNero were running expected margins on all projects other than Newcastle, Brunswick and North Fitzroy. The 'August/September' 'Focus' for Mernda was: 'prepare amended town planning application, start structure'. Adjacent to this item was a handwritten tick.
2. Breckenridge said that he presented the June 2016 CEO Report to the Board. He said that as part of the 'income' section of the report, he told the board that the MDA would be signed the next day. He also stated that he spoke about the amended town planning application (which was being discussed with Kelvin Barry), because of the changes in architectural plans. He said that he took notes at meetings because it is how he kept control of what he needed to follow up later.
3. During cross-examination, Breckenridge said that the Mernda project 'found a home' when it was legally executed. He agreed that this was on 8 August 2016. Breckenridge recalled, giving oral evidence, that he said at the September 2015 board meeting that no construction would be able to commence on this project until it had found a home and that at the February 2016 meeting there was a lot of discussion about WIP and projects including Mernda. It was put to Breckenridge that, so far as the Board were concerned, if he said that there was WIP for Mernda as at February or March of 2016, that must mean that there was a construction contract in place. Breckenridge rejected that proposition, saying that:

the Board knew there wasn't a construction contract in place at that time but they also knew we were doing construction work and wanted to continue the project moving forward, based on all the working that we had done with UBS.

by definition of that I meant the deal being done, not necessarily executed, and once we explained the UBS deal to the board. The only time I was told to stop work and not building on the WIP was actually at the May meeting until it was executed when Rob McEniry said to me, 'That's it, we have gone too far. Get it executed and then you can continue working'.

Breckenridge rejected counsel's suggestion that he was making his evidence up as he went along.

1. Breckenridge maintained that he told the Board that the 'residual sum would be going to Coonwarra'. When asked when he told the Board, he responded:

All the board meetings talk about the Mernda boys getting their money from the residual sum and then in the main meeting when we went through the structure it was made clear that the residual sum payment would be $6.5 million that would be going across to the Mernda boys, plus interest.

He later specified that he 'covered the structure of the deal as early as September 2015', and 'talked about the structure again in December and then in May'.

1. Hartwig gave evidence that the main thing discussed at this meeting was that the Mernda project or development agreement was ready for settlement. He said that Breckenridge advised the Board that the land was ready for settlement and that the development management agreement which had been presented previously required execution.
2. Rachael Brady said that she did not remember any disclosures being made to the Board by anyone concerning the Mernda project outside of it being a 'building project that CornoNero had acquired via Schedule 6 of the Business Sale Agreement'. She also said that, at the 8 August 2016 meeting, Breckenridge did not speak about the draft MDA and the contract of sale being executed the next day, and that she was not aware of the MDA until October 2016.
3. Cross-examined, Rachael Brady initially could not recall attending the 8 August 2016 board meeting at all. However, she did so when shown the minutes of the meeting indicating her attendance. She could not specifically recall Breckenridge's CEO report, but accepted that it occurred. She could not recall the content of the report, which was put to her.
4. When it was put to her that Breckenridge might have said those things, but she just could not recall them, she replied that she did not 'ever recall a meeting discussing ... contracts being signed for jobs' and that she could 'confidently say that [she] had no meetings discussing contracts'. She added that she was not in 'authority to do that and it would have been something [she] would have discussed with [her] father'. At the suggestion that she was just saying things to assist her case she said:

No. What I said ... is if you show me a document I should be able to remember that. That was my comment. My other comment was I have never had a conversation about signing a construction contract with anyone at any time. That is not my position.

1. The document that Thurgood emailed Breckenridge, with the file name 'CornoNero - 2016 to 2017 Budget', showed a total construction income for the period ending June 2017 of $63,648,227. It also included a table titled 'Gross Margin Budget'. That table showed, as contributing to the total income of $63,648,227, an income from Mernda for the period ending June 2017 of $12,520,588. It also indicated costs for Mernda for the same period of $10,742,675.
2. Although Geoff Brady was not at this board meeting, he accepted that the document that Thurgood emailed Breckenridge, was the 2017 financial year budget.
3. When specifically taken to the 'Gross Margin Budget' table, Rachael Brady agreed that the document was a budget, but she could not specifically recall it. She did not accept, based upon Thurgood's email, that it was presented at the board meeting. While she accepted that a budget document was approved at the meeting, she could not say that the document that she was shown was the one.
4. Hartwig's evidence was that the board adopted the FY2016-17 budget at that meeting. The budget included approximately $12.9 million in revenue for the Mernda project. He estimated that that figure reflected approximately 75 percent of the works being billed in the 2016-2017 year.
5. Geoff Brady was unable to attend and Rachael attended on his behalf. He said that it was not until late 2016 that he first became aware that CornoNero 'was the developer of the [Mernda] Land, when Rachael brought it to his attention. His position was that 'it was all done without his knowledge'. When asked when he became aware of BidCo's[416] interest in the land he said that it 'was probably October, late October'. His evidence was that in the early stages, he thought Ascenzo owned the land. He was the original 'man on the land' in the paperwork that Geoff Brady saw coming through Trimont. Later in his evidence he said that he had been told that 'there were two groups on the go and that [Breckenridge] had chosen BidCo over the other group'. He first became aware that there were two competing entities in 'June - July'. When he questioned Hartwig as to why the project was not being offered to him, Hartwig was said to respond that Breckenridge preferred to 'get somebody outside and we would just do the construction'. Geoff Brady also gave evidence that:

The first group were half-hearted and the second group were making Breckenridge really work to their requirements, do what they wanted, and that he was being advanced $1 million in the very near future to get the job going along.

Parties' submissions - disclosure of the MDA

1. The CornoNero parties submitted that none of the 'transactional steps' required to sell and develop the Mernda Land into a shopping centre, including securing a special resolution of the Board and executing the MDA, were disclosed to the Board or included in the CornoNero budget. Reliance in this regard was placed upon the evidence of Geoff Brady and Rachael Brady. It was also asserted that there was no reference in any of the board meeting documents or minutes to the MDA being negotiated. This was said to be due Breckenridge and Hartwig having deliberately concealed the MDA from the board, in order to 'pull off the sale of the Mernda Land'.
2. Breckenridge and Hartwig submitted that the MDA was specifically disclosed to the Board in the course of at least two board meetings and that the fact that CornoNero expected to execute a contract with the BidCo consortium was thoroughly discussed over an extended period. On the basis of detailed analysis of the evidence concerning the board meetings, they submitted that their evidence, which was credible and supported by the contemporaneous documents, should be preferred to that of Geoff and Rachael Brady who both had a very poor recollection of events. They said that Rachael Brady gave extravagant and exaggerated evidence about the 8 August 2016 board meeting. They submitted that the general course of evidence corroborated their version of events, and the contemporaneous documents showed that 'finalisation of the Mernda transaction was expected for some time and was a drain on cashflow'. As such, there was every reason to think that Breckenridge would have disclosed resolution of the issue to the Board.

1. The evidence supports findings and conclusions including the following:

(a) In the context of the Business Sale Agreement the Mernda Project was an 'unwritten contract'. From the very beginning of CornoNero's post-sale operations (and even before the sale transaction settled) the Board was made aware that work was occurring to secure a client for that Mernda site, with whom CornoNero would enter a contract for the purposes of developing the site.

(b) The Board was told, on several occasions, that work was occurring on the Mernda site, and as a result, that work in progress or 'WIP' was accruing, with the objective that once the project 'found a home' by becoming the subject of an executed agreement the project would start to earn revenue.

(c) Some of the financial reporting about projected and actual revenue was confused, unexplained and inconsistent. That did not detract from the fact that the Board was told that steps were being taken to secure a contract in respect of the development of the site. That that should be occurring was entirely consistent with the acquisition of Mernda as an 'unwritten contract', for which a contract was required, in order to generate revenue.

(d) The Board was informed, including in written reports, that Breckenridge had been negotiating with the UBS consortium (another name for BidCo, ultimately MJSC) with a view to entering a contract. The Board was told that the structure of the deal would involve a purchase of the Mernda Land by BidCo and that the 'end sale price' would be $30.8 million which represented a 6.7 percent yield. Breckenridge's evidence was that he told the Board at the September 2015 board meeting that UBS was at that stage the frontrunner, that it had offered to come in and settle the land, fund the costs for construction and ultimately receive a completed construction and 'pay out the last component'. Leaving to one side for the moment what was explained in relation to the 'last component', (considered later in these Reasons) Breckenridge's evidence that he had spoken about the structure of the deal is consistent with the written reports to the Board. What he said he explained reflected the structure of the deal in fact agreed in the MDA. Rachael Brady accepted that she was told at that time that negotiations had reached a final stage with UBS and that the 'end sale price' was $30.8 million representing a 6.7 percent yield.

(e) Breckenridge told the Board on 2 December 2015 that a heads of agreement had been signed with UBS and that lawyers would commence preparing paperwork. The November 2015 Report also stated that the sale of the end usage of the Mernda site was to be executed within the next few weeks. It identified a contract value of an estimated $16 million excluding GST.

(f) Geoff Brady understood that the proposed contract was a 'design and construct contract'. He agreed that it was possible that UBS was discussed at the February 2016 board meeting.

(g) Breckenridge brought with him to the May 2016 board meeting, hard copies of the then current MDA contract. He made copies available for any interested board member to take away from the meeting. He discussed the project, and significant elements of the contract (as set out earlier) in detail.

(h) During 2016, the CornoNero board was aware of accruing WIP, which was reported in its financial reports. There was pressure to complete a deal in order to start earning revenue on the project. At the May 2016 board meeting, chairman Rob McEniry said that no more work could occur until a contract was signed. Breckenridge told the Board that he expected the contract would be ready to sign by the end of June 2016.

(i) At the August 2016 board meeting, the written CEO report referred to the anticipated property settlement for Mernda due in August. The 2016-2017 budget was approved at that meeting. It included approximately $12.9 million in revenue for the Mernda project for that period.

(j) The CornoNero board adopted a practice of approving projects by incorporating them into an annual budget which set out projected revenue and which was reviewed periodically. The Board's practice was to treat the approval of a budget as de facto approval for entry into the necessary expenditure for the project. The CornoNero board's approval of the 2016-2017 budget which incorporated the Mernda projection, against a consistent and long history of discussion about the project and anticipated contract, and Breckenridge's discussion of the contract and presentation of draft copies of the document, is a sufficient basis on which to conclude that the CornoNero board approved the entry into the contract, despite the fact that no resolution was made or recorded. The Board was well aware of the proposed entry into the contract, and board members had had the opportunity to consider the proposed terms. The completion of the contract was keenly anticipated. That it was executed in August 2016 was in keeping with that anticipation and expectation.

(k) Breckenridge's evidence on this subject was consistently supported by the contemporaneous documents. I have found Breckenridge's evidence on other subjects very unsatisfactory in certain respects. On this subject he was clear and coherent. Hartwig's evidence was less detailed but also corroborated by the contemporaneous documents.

(l) Geoff Brady had an extremely poor recollection of what was discussed at meetings. His evidence on the subject was confused and unreliable.

(m) Rachael Brady also had an extremely poor recollection of what was discussed at the meetings she attended. I assessed her evidence on this subject as unreliable and inconsistent with the documents. She rigidly adhered to her 'position' as she put it, that the Mernda contract was not discussed at the August 2016 meeting. The other evidence she gave about that meeting disclosed her poor recollection. Her insistence that the contract was not discussed was likely a reconstruction that was consistent with her stated position that she would not have stepped outside of the perceived limits of her authority.

1. It was alleged that Breckenridge and Hartwig breached their duties owed to CornoNero by failing to disclose the entry or proposed entry into the MDA, and that they also engaged misleading deceptive conduct. Because of the factual findings I have made on this issue, it is unnecessary to address those issues. No breach of any obligation was established.

A3 Did Breckenridge fail to ensure that there was adequate basis to project that the MDA would benefit CornoNero, and thereby breach his duties owed to CornoNero?

1. CornoNero's case was that Breckenridge (and Hartwig) did not have an adequate basis for projecting that the contract would be beneficial for CornoNero. The absence of an adequate basis was put by reference to the contention that the contract was improvident because the 'development sum' payable to CornoNero under the contract was $25,408,680, whereas as at August 2016 the cost of effecting the contracted works was 'approximately $31 million'. It was also put that the MDA required CornoNero to assume the role of developer, which was outside of its core business, which was construction.
2. Breckenridge signed the MDA on 9 August 2016. Under the MDA, CornoNero (the developer) was to carry out 'Development Works', which included works to be undertaken in accordance with the plans and specifications disclosed in the Coles Agreement for Lease dated 8 May 2016 between Coonwarra (landlord) and Coles (tenant) (as varied) and construct the 'Development', as defined. The Base Building Works were the works to be undertaken by CornoNero to design, construct and develop the buildings on the Mernda Land in accordance with the Base Building Plans, the Agreements for Lease and the Approvals. Within seven business days after Centre Completion, MJSC was to pay CornoNero as follows:

(a) Progress claims up to a maximum aggregate amount of $15,408,680; and

(b) $25,408,680 (the 'Development Sum') less:

(i) the aggregate of Progress Claims;

(ii) any part of the Finance Cost that has not been previously deducted from Progress Claims;

(iii) the estimate of the Retention Amount under clause 19.1(c); and

(iv) any adjustment under clause 19.2(a).

1. The MDA appointed RLB as independent certifier, and Ewen McDonald was the particular quantity certifier from RLB working on the Mernda project.
2. Breckenridge's evidence was that between late 2015 and through 2016, he always understood the estimated construction costs to be in the 'vicinity of $14,000,000 to $17,000,000 at best, and around $19,000,000 to $22,000,000 at worst', never anywhere near $31,000,000. He negotiated with Barry on the basis of the projected cash flow estimates that he had been provided by his team and in the board reports, with the knowledge that there may be an increased cost due to the Coles design changes and the change of architect. Additionally, that Pretorius would have told him if any estimate was not in line with the budget.
3. Breckenridge's evidence was that he had no reason to believe that the figures were not a true reflection of the estimated construction costs, albeit he recognised that those estimates could fluctuate based on final scope, details and documents. His understanding was that $25,000,000 was the total cost of the project, including the residual sum and building cost. He considered it significant that under the MDA any scope changes were compensable to CornoNero, road works and any land resumption were compensable to CornoNero, and CornoNero had the ability to save costs (and increase margin) by 'value engineering'.
4. Breckenridge said that he had no understanding at the time that he signed the MDA that the development would cost 'anywhere near' $31,000,000. Had that price become apparent, he stated that he would have sought to negotiate with Barry to 'do the project cheaper', rather than stopping work.

Costing assessments before entry into the MDA

1. CornoNero said that the MDA was entered without any independent costing. They submitted that according to the BCP Finance Proposal, and consistent with Breckenridge's evidence that the Estate Master end value was $31 million, the expected cost of the development was approximately $31 million. This figure was also said to be supported by the estimate of RLB in December 2016.
2. The defendants submitted that Breckenridge secured the MDA through lengthy negotiations and had an adequate basis for projecting that it would be beneficial to CornoNero. They said that the costs were estimated by qualified persons, namely Breckenridge, Pretorius and Wong, and also the subject costs estimates prepared by surveyors, Northcroft. Further, when MJSC sought variations to the project works, updated project cash flows were prepared.
3. The evidence was relevantly as follows.
4. In contending that as at the date of the MDA, the cost of effecting the project works was approximately $31 million, CornoNero relied upon a BCP Finance Proposal and an Estate Master Spreadsheet prepared by Breckenridge nominating an end value for the project, of $31 million. The BCP finance proposal was prepared in August 2015, approximately one year before execution of the MDA. It described the Mernda project being a 'residential apartment complex'. The inputs to the document came from Breckenridge or someone on his team. Breckenridge did not see the proposal before it was sent to the bank. Hartwig said that at the time, the document reflected the material drawn from budgets prepared by Trimont. Between preparation of the BCP Finance Proposal and the execution of the MDA, Breckenridge received significant additional material, as discussed below. The Estate Master Spreadsheet was dated 17 December 2014. It included the value of $31,066,207 for 'retail shops'. Breckenridge's evidence was that that number indicated the 'end value' of the development, based on income per square metre. It is distinct from the 'construction costs' ($18,420,875) and 'total costs' ($27,390,869) that were identified on the same page. Neither of the documents upon which CornoNero relied established that at the date of entry into the MDA the reasonably estimated cost of CornoNero carrying out the works required under the contract was $31 million.
5. In very early discussions in 2015, Breckenridge estimated the then costs of the foreshadowed development as approximately $20 million.
6. Exclusive negotiations were occurring with BidCo by October 2015. At that time, contemporaneous documents show that Breckenridge was estimating construction costs at $16.7 million. The November 2015 PCG Report, February 2016 PCG Report and May 2016 PCG Report for Mernda (all provided to the Board) showed estimated costs of $16,921,313 (excluding GST).
7. In March 2016, a cash flow document likely prepared by Wong or Pretorius at the request of Breckenridge identified a project cost of $14,733,535.
8. The scope of proposed contracted works varied throughout the course of negotiations with BidCo. A change of architects was proposed by BidCo in early 2016. Pretorius advised Breckenridge that that was likely to result in increased construction costs.
9. Breckenridge instructed Pretorius to organise a quantity survey to quantify and validate the extra costs, together with any extra costs resulting from a change specified by Coles. Costings for the project were prepared by Northcroft quantity surveyors identifying total costs of $19,770,847 (excluding GST) and $20,127,975 (excluding GST) respectively. There was no evidence about how those costings were assessed.
10. In early June 2016 Pretorius or Wong prepared a revised construction cost estimate of $17,111,428 (excluding GST).
11. In July 2016, Breckenridge and Pretorius discussed the increased costs flowing from the change of architect with RLB. Breckenridge's evidence was that 'no questions were raised at that meeting as to whether the project could be delivered for the estimated costs.' That evidence was unenlightening and the evidence about the significance of the cost changes was unclear.
12. Breckenridge tendered his correspondence with Kelvin Barry of BidCo/MJSC during July 2016, about contract price adjustments. It is evident from that correspondence that detailed negotiations were being held covering a significant number of items, but it is not possible on the evidence as a whole to draw anything meaningful from the exchanges.
13. In calculations sent to Barry on 31 July 2016, Breckenridge showed progress payments of $14,200,000 and an unspecified sum for building cost adjustments.
14. At the point of entry into the MDA, Breckenridge understood (correctly) that the development sum was $26 million, reduced to $25,367,500 after adjustments. An amount of $7,800,000 was to be paid on settlement of the land, with progress payments amounting to $14,200,000, leaving a residual amount of $11,167,500 to be paid at completion. Breckenridge's evidence was that he had always understood the estimated costs of construction to be in the vicinity of $14 million to $17 million at best, and $19 million to $22 million at worst. While he was conducting negotiations with MJSC, he was making assessments on the basis of projection and cashflow estimate prepared by his staff, and had no reason to believe that those figures were not a true reflection of the estimated costs at the time. He said that he estimated costs fluctuated depending on final scope, detail and documents. He understood that the figure of $25,367,500 was for the total cost of the project which comprised the building costs and the residual sum (which he designated 'land and profit').
15. Breckenridge said that he understood at all times that any changes in scope were compensable to CornoNero under the MDA and that CornoNero had the ability to effect savings by 'value engineering' and that roads and any land resumption were compensable to CornoNero. It was not contested that Breckenridge correctly understood the contract.
16. The contemporaneous documents evidence that over a lengthy period and well before he commenced negotiations with BidCo, Breckenridge considered that in assessing the costs and returns available in respect of the development, certain contributions from authorities needed to be taken into account, including those associated with a public road to be built through the land. Breckenridge expected that roadworks to be completed by CornoNero would be fully compensated out of a development scheme maintained by Whittlesea Shire Council. Alongside smaller compensation payments available for land and title works, he anticipated that something in the order of approximately $3.775 million in compensation would be received. He was aware that when those payments would be made was uncertain.
17. Under clause 23 of the MDA it was recognised that CornoNero had lodged or would lodge an application for compensation concerning designated roads that were to be vested in the council upon registration of the plan of subdivision. The application was to be lodged for the aggregate of the value of the area of land acquired and the cost of constructing the road infrastructure, to the extent that it exceeded CornoNero's obligations under Sch 7 to the Development Contribution Overlay in the Whittlesea Planning Scheme. To the extent that CornoNero or MJSC became entitled to compensation, MJSC was entitled to retain an amount sufficient to reimburse for stamp duty, an estimate of tax liability and any holding costs, while CornoNero was entitled to the balance. The City of Whittlesea Mernda Strategy Plan Development Contributions Plan provided in substance that development contributions were payable at the time of subdivision or stages thereof. Contributions were to be negotiated with the council on a case-by-case basis.
18. Separately, Breckenridge's belief was that CornoNero had the ability to 'value engineer' any design so long as it did not affect the look, feel and project finish. Value engineering meant, essentially, building at a cheaper cost while still conforming with the contractual specification.

1. On 5 August 2016 Breckenridge, executed a written guarantee purportedly between Coonwarra and CornoNero, by which Coonwarra was promised the sum of $6.5 million plus interest adjustments, to be paid from the residual payment under the MDA. Coonwarra sought that guarantee and it was the basis upon which it agreed to proceed with the sale of its land to MJSC, without which the development the subject of the MDA could not proceed.[417]
2. Breckenridge agreed that in light of the guarantee, and according to his understanding, from the $26 million payable to CornoNero for its work under the MDA, $6.5 million plus interest (from January 2015) was to go to Coonwarra. He also agreed that the interest was 10 percent, such that after three years - by the time the residual sum was paid - the amount would be around $8 million or $9 million. It was put to Breckenridge in cross-examination that it was 'impossible for CornoNero to make any profit under the MDA', given the payment to be made to Coonwarra. Breckenridge disagreed, saying that the building cost of $16 million plus adjustments included a margin. Breckenridge was asked why MJSC was paying '$10 million above the $16 million construction costs'. His answer was that the residual payment included 'the final payment for Coonwarra under their ADA with Trimont'. It was put that that would involve MJSC paying for the land 'twice', which Breckenridge rejected. As he described it, the residual sum was 'there to compensate the Mernda boys for the land'.
3. Breckenridge's evidence was that he determined that the MDA was in the interests of CornoNero because it meant that CornoNero secured the construction contract for the Mernda Junction Shopping Centre, with a margin sufficient to make the Development Guarantee payments and deliver a profit. His said it was clear to him that the project would not go ahead if there was not a guarantee in place that saw Coonwarra 'get their money out of the residual sum'. He signed the MDA believing that he 'had approval, based on the fact it was endorsed as a budgeted project and the budget had been endorsed by the board'. The question whether any breach of duty occurred in respect of the proposed payment to Coonwarra is separately considered.

Breckenridge's understanding of project returns

1. Breckenridge's evidence was that his understanding of the project costs and returns to CornoNero at the time of entry into the MDA, was reflected in his email to Philip Jones of Maddocks of 14 November 2016. Jones had asked for a 'simple statement' setting out the payments to be received under the MDA set off against the payments to be made. Breckenridge attached the following summary:

1. Breckenridge noted in his email that CornoNero had the ability to 'value engineer and benefit from savings outside the brief agreed in the Development Agreement'; and that if there was an increase in costs caused by a change in design or scope CornoNero would be entitled to compensation under the MDA. The attached projected cash flow showed an updated total cost in the amount of $17,111,428 (excluding GST).

1. Clause 21.1 of the MDA provided that CornoNero must pay to MJSC for the 'Guaranteed Period' an amount by which the actual gross income paid to MJSC for each 'Guaranteed Tenancy' during that period is less than the corresponding Budgeted Gross Income for the relevant Tenancy. Guaranteed Period was defined as 'the 36 month period commencing on Centre Completion', while Guaranteed Tenancy meant the 'Speciality Tenancy Area' (hatched on the attached plans). According to cl 22.4, if there were vacant tenancies at a particular date which were unlikely to be leased, CornoNero could introduce speciality tenants.
2. Breckenridge denied that prior to 9 August 2016, Coles and Liquorland were the only tenancies under discussion. Rather, there were offers from other potential tenants, but Barry of MJSC wanted to finalise the leasing arrangements himself with a view to maximising rents. He disagreed with the suggestion that until the tenants were organised, CornoNero could not know what construction might be needed for the individual tenancies, stating 'we definitely knew' and that the MDA had a 'very specific brief on what was to be delivered for each tenant and then the tenant works would be completed either by the tenant or variation to the contract'.
3. He accepted that an agreement involving a rental guarantee had not been entered into by CornoNero before. He explained the rental guarantee in these terms: for a guarantee of $100,000 a year over three years, a $300,000 amount is withheld from the residual sum. The $300,000 would have been retained from the residual sum (in trust), which would have impacted upon the amount flowing to Coonwarra rather than CornoNero's progress payments. According to Breckenridge, an alternative way of structuring the agreement could have been to adopt the same approach that was used for calculating the development sum. That is, recognising that $100,000 of lost rental income would have resulted in a reduction in the 'development agreement fee' of $1.5 million (where the rental income was assumed to represent 6.7 percent growth).
4. Elements of the contract had been explained to the board at the May 2016 meeting. As set out earlier, Breckenridge had discussed the rental guarantee with the Board.
5. When asked whether he agreed with the statement that under the MDA, CornoNero was required to guarantee to the owner the starting rents for the specialty shops, Breckenridge stated: 'not exactly, no'. The following exchange then occurred:
   1. CornoNero was also obliged to compensate the owner if Coles or Liquorland didn't take the intended areas for their premises; do you agree?

A Not Coles, no.

1. Also once construction was completed and the centre was operating, the owner had the right to retain from the remaining moneys a sufficient amount to cover the rental guarantee. Do you agree?

A With conditions, yes.

1. And to withhold accounting of that amount for three years until the expiration of the rental guarantee period. Do you agree?

A Yes. That's correct.

1. All of those risks were real risks, weren't they, Mr Breckenridge, as at August of 2016, namely that there would be financial consequences to CornoNero if CornoNero couldn't adequately tenant the premises at the starting date and obtain the rental yields that the agreement provided for? All of those were financial risks that CornoNero undertook?

2. They were educated risks because we had already arranged tenants ourselves and the way the rental guarantee worked was if a specialty tenant couldn't be let, CornoNero had its own right to put its own tenant in there. If there was a shortfall it would only guarantee the shortfall, or if Mernda Junction decided to take a rental amount that was less than the budgeted amount then that rental guarantee would fall away for that tenancy.

As I said before, when you capitalise the rental guarantee versus the reduction in the purchase price, or the development agreement amount, $100,000 worth of reduction in rent equates to a $300,000 reduction in the residual sum, versus losing $1.5 million worth of end value if you capitalise the reduced rent with the way the development agreement worked and that was a concept that Ben van der Burgt and I worked through together because it was an impact directly to the residual sum, not to the progress claims of CornoNero.

1. When it was put to Breckenridge that as far as he was concerned CornoNero were taking on obligations under the MDA wider than construction obligations, but was only retaining remuneration for the latter, he responded:

Well, maybe you can explain to me the additional obligations because a lot of it [i.e. the rental guarantee] came out of the residual sum. So the amount that would be paid out to another party [i.e. Coonwarra]. Our progress claims were quarantined and variations under that contract would come from the residual sum and the rental guarantee and some of the other obligations formed part of a reduction in the residual sum if there was an issue after completion of the construction.

1. CornoNero submitted that the proposed tenants apart from Coles were, at best, speculative. Breckenridge submitted that he was cross-examined extensively about the rental guarantees in clauses 21 and 22 of the MDA and gave explanations that were commercially sensible and indicated that the decisions he took were in the interests of CornoNero. In his assessment, the risk associated with the rental guarantee was likely to be less than if the contract price was decreased in the proportionate amount of capitalised value, if the rental had not been achieved. Breckenridge submitted that the evidence established that he was able to explain:

(a) how the rental guarantee worked, as compared to the proportionate loss in capitalised value;

(b) that the rental guarantee only applied to the speciality tenancies, not Coles or Liquorland;

(c) that the progress claims to CornoNero were quarantined;

(d) that the rental guarantee represented an 'educated risk', as CornoNero had already arranged tenants and if a specialty tenant could not be let, CornoNero had its own right to put a tenant in;

(e) that the rental was to be completed by MJSC (with the potential for increased building costs for CornoNero, above those allowed in the MDA);

1. Breckenridge accepted during cross examination that construction drawings were not prepared before the MDA was executed, but said that it was not necessary that that occur. He said that drawings would be formulated as construction commenced. Doing the documentation as the building evolved was said to be the 'best way to value-engineer and get the most efficient cost'. Works were done on a staged basis whereby permits would be obtained at each stage, and, depending upon the type of construction, staged drawings may be done. Building permits for a particular stage could be obtained with planning approval drawings, written briefs referring to the planning drawings and computations from engineers rather than needing detailed drawings. However, a certifier would still need to be satisfied that sufficient detail was provided in the materials.[418]

1. Settlement of the Mernda Land occurred on 26 August 2016.
2. On 12 September 2016, CornoNero submitted its first progress claim.
3. On 29 September 2016, McDonald of RLB emailed Breckenridge, stating that in the process of preparing the first progress claim, RLB had discovered that the formula for the calculation of the amount payable may not represent the parties' intention and that RLB were in the process of reviewing the $15,408,680 provided as the contract sum. It was necessary in order to process the progress claim, to specify the costs to complete.
4. By 6 October 2016, CornoNero had received payments from MJSC totalling $1,333,532.48. On 7 October 2016, Barry of MJSC asked that McDonald prepare a costs estimate for the project so as to progress the claim process.
5. On 29 October 2016, Sean Roberts of Stannards Accountants provided Rachael Brady with a WIP Report, dated 'as at 30 September 2016'. It showed total costs for Mernda of $1,433,807.10, an income of $1,345,770 and a profit of $88,037.10, with the comment 'recoverable'.
6. Breckenridge resigned as a director of CornoNero effective 31 October 2016.
7. On 10 November 2016, Wong emailed McDonald asking what his approximate estimate was for the total cost of the development. McDonald replied by email the following day, stating: 'we need to agree this, but as a headline we would be comfortable at about $18.5m'.
8. By late November 2016, Rachael Brady had been told that RLB had raised a concern that the formula in the contract by which payment was calculated was incorrect, and when applied would never result in a payment owing.
9. On 21 December 2016, McDonald emailed Geoff Brady, Rachael Brady and Barry stating that as Independent Certifier in accordance with the Development Agreement, there were required to undertake a calculation to assess the amount payable by the owner and for that purpose they were required to determine the cost to complete. To ascertain the cost to complete, they first needed to establish the design and construction cost budget to satisfy the scope of works. McDonald then said that:

We do not consider that the current contract sum of $17,249,508 excl GST nominated on the progress claim is sufficient to complete the necessary works.

Please find attached our assessment of the design and construction cost budget including the works outside of the site boundary.

The attached document, titled 'Indicative Budget Estimate No. 1 (December 2016)', showed estimated construction costs of $29,440,000, with the total estimate (after margins and adjustments) being $31,128,000. A provisional sum for works outside the boundary was in the amount of $2,550,000. Rachael forwarded the email to Pretorius, asking him to 'go over their workings and let me know your thoughts'.

1. Rachael and Geoff met with Pretorius and Barry of MJSC, on Christmas Eve 2015. They told Barry that CornoNero would continue with the project.
2. In January 2016, RLB phoned CornoNero saying that claims submitted prior to Christmas could not be processed. According to Rachael she was told that the amount claimed was 'incorrect' and MJSC had advised that they were not going to pay. Rachael added that January 2016 was the first occasion on which she and Geoff discovered that 'the MDA was a turnkey contract for $28 million, with CornoNero as the developers, not the construction cost and builder at $16.2 million'. I reject that evidence, for the reasons set out under the issue of disclosure. Separately, Rachael's evidence was that it was a huge concern that the QS report showed a costing of approximately $31 million whereas the MDA had construction costs at $16.2 million for the build.
3. On 11 January 2017, Rachael Brady emailed Roberts saying:

I have attached the Mernda development agreement. You will find the total pay price to Cornonero of $25,408,680 on page 5. Then on page 40 you will find the total build price they will pay of $14,200,000. The balance will be paid at the finish of the build.

However [Pretorius], our construction manager, priced the full job at approx $28 million and RBI [sic] (the QS) said it would cost approx $31,000,000.

The build price that [Breckenridge] gave didn't include the making of the road which is approx $3 million (approx $500,000,) of that is to relocate services. This price has been allowed for in the QS report from RBL.

[Pretorius] has said that [Breckenridge] and Kelvin Barry had made a deal at the start on some variations and he feels that out of the $25,408,680 there will be about $500,000 - $600,000 taken off that amount.

Please take note on page 5 of the changes if the project isn't completed on time and the 5% interest we already have to pay as the developer.

Out of the 'back end' profit CornoNero was meant to pay the original land owners at 10 per cent interest from the 1st Jan 2015 and then they get half of the remaining profit.

Geoff wanted to do the development so he could pay the original owners $6.5 million - he said he wouldn't cover the interest. The original agreement was between the old Trimont with [Breckenridge] and [Ascenzo] and the original land owners, not CornoNero.

There is meant to be "some" reimbursement from the council on the road works, however the council have no money and can take up to 11 years to pay anything.

1. Rachael said when cross-examined about her reference to the 'original land owners', that 'we said if we ever found out that the Bradys had that money that we would give that back to them, but the money never came to us. It went to BCP'.
2. At 4.02 pm the following day, Roberts emailed Geoff Brady, copying Rachael, Philip Jones and Jason Wall, attaching a short analysis of the financial position of the Mernda project. Roberts said that if CornoNero proceeded with Mernda, the worst case scenario was a loss of $6.3 million while the best case was a loss of $1.5 million. The 'critical factor' was noted to be Pretorius's projected cost to complete. Roberts added that 'the development contract was heavily skewed towards the owner with substantial risk and costs falling to CornoNero', and recommended aborting the development if possible. The one-page analysis attached to Roberts' email set out 'indicative budget estimates' of $31,128,000, $19,770,847 and $28,000,000 attributed to RLB, Northcroft and Pretorius respectively. After adjustments, the figures were $31,728,000, $26,958,845 and $28,600,000, from which the development sum of $25,408,680 was subtracted. The results were losses of $6,319,320 (RLB), $1,550,165 (Northcroft) and $3,191,320 (Pretorius). An alternative position, $1,862,050 as the 'estimated loss to rescind', was calculated by subtracting the claims to date of $1,832,658 from the costs to date of $3,694,708. The 'net potential saving' was set out for each estimate, taking into account estimated losses to be incurred on recission of the contract. On Pretorius' costs the estimated net saving was $1,329,270. Rachael agreed when cross-examined that those figures did not account for any compensation from the council.
3. Seven minutes later, at 4.09 pm on 12 January 2017, Rachael emailed Pretorius, Clay and Jason Sivaraj saying that Geoff had decided not to go ahead with Mernda, that she would speak with Jones and that Barry was not aware of the decision yet.
4. Cross-examined, Rachael agreed that it was a very swift decision. She said that 'it would have been an ongoing discussion' and that all conversations were not in emails. She added that 'it wasn't a decision that would have been made strictly off the cuff of that email'. She said they were having trouble understanding how money was going to be made, Coonwarra's involvement and 'why profit was given up front'.
5. Geoff Brady could not recall whether he looked at the one-page analysis provided by Roberts at the time. He agreed that at that point he decided to terminate the MDA, without doing any other detailed analysis to inform his decision.
6. Neither Rachael Brady nor Geoff Brady could recall ever seeing the Mernda DCP. Geoff Brady did not know that under the terms of the MDA, a Mernda DCP contribution would come back to CornoNero. While he was aware that Breckenridge had discussions with the council about the issue, he did not factor into his decision to terminate the MDA, analysis from Breckenridge about what those discussions might lead to. He accepted that he did not have regard to it. The email that Rachael Brady sent Roberts on 11 January 2017 referred to compensation, stating: 'there is meant to be "some" reimbursement from the council on the road works, however the council have no money and can take up to 11 years to pay anything'. Cross-examined, she agreed that she 'had a sense' that there was capacity in the MDA to receive reimbursement from council for roadworks. However, she valued that at zero as she viewed the council as having no money. When asked whether she could remember why that was her understanding, she said 'no. The only comment I can make ... is that there would have been discussions with either consultants or somebody who was more experienced in that area than me'. She denied that the reference to 11 years was a throwaway line, she said she would have taken advice.
7. After emailing Pretorius, Rachael telephoned Geoff and suggested that they shut down the site until the matter was resolved. As she put it in her evidence, she was 'very inexperienced in the contract' and did not realise that a mediation process was required.
8. On 20 January 2017, Wong emailed Rachael saying 'please find cost to complete as discussed below'. Forwarded below was the email of McDonald dated 11 November 2016, stating that RLB would, as a headline, be comfortable with a total cost to complete of approximately $18.5 million. When asked in cross-examination whether she sought to reconcile that figure with the later RLB 'indicative budget estimate' of $31,128,000, Rachael said that it was 'totally outside [her] sphere of knowledge ... no'. She then clarified that she could not recall taking steps to understand the difference.
9. MJSC's refusal to pay the progress claims came to a head in mid-January. At that time Geoff Brady endeavoured to sort the matter out with Barry. However, when the claims remained unpaid, Geoff, as he put it, 'halted the building project'.
10. Correspondence between the solicitors for MJSC and CornoNero ensued. On 7 February 2017, ABL for MJSC said that there was no amount owing and payable under the MDA (referring to the issue with the formula in the agreement). However, MJSC offered to agree to an amendment, to which they had yet to receive a response. It was their position that CornoNero was not entitled to lock the site and suspend or abandon its obligations under the MDA, which they took to be a breach of the agreement and a repudiation. MJSC demanded that CornoNero unlock and remobilise the site. After further correspondence, MJSC accepted CornoNero's asserted repudiation. CornoNero's lawyers responded, denying repudiation, saying that CornoNero had taken steps to trigger the dispute resolution process under the MDA.
11. Rachael Brady said in her evidence that if CornoNero had been paid it would have continued with the project, adding, 'we are entitled to change our mind'. She agreed that, at least initially until December, CornoNero was prepared to carry out its obligations under the MDA. Rachael agreed that difficulties subsequently arose with the progress payments and she opted to close the site to discuss the situation. Although she expected that negotiations would ensue, MJSC treated the site closure as repudiation.
12. In February 2017, MJSC commenced a proceeding in this Court claiming repudiation by CornoNero. On 16 March 2017, CornoNero made an adjudication application under the Building and Construction Industry Security of Payments Act 2002 (Vic), seeking payment under a progress claim for almost $4 million. It was restrained from progressing that application until determination of the Supreme Court proceeding. On 5 April 2017, CornoNero and MJSC entered into a deed of settlement and release regarding the termination of the MDA.

1. It was not established that the MDA committed CornoNero to work that was outside the understood scope of its business.
2. The defendants were correct to submit that the principal work to be performed under the MDA was construction work. In any event, CornoNero's business did not exclude development work.
3. The documentary evidence was as follows:

(a) The power point presentation presented to Geoff Brady in February 2015, dated January 2015 (the Trimont Business Update/Proposal) said that Trimont had a 'Strong Development "Pipeline" established'.

(b) Stannard's due diligence report dated 1 May 2015, prepared for the Brady interests, stated that Trimont was a 'design, construct and development organization that manages the project process from first building concepts to final handover to clients'. It was said to have two revenue streams including the provision of complete building services from design, planning and construction to final handover.

(c) CornoNero's Business Development Report, dated 24 July 2015, was circulated ahead of the informal board meeting on 28 July 2015. It listed projects alongside a brief description. For 'Iona Toorak' it stated 'five high end apartments lodging into Council', while the description for the Hawthorn project was 'awaiting advertising. Large scale residential development'.

(d) Under the BSA, CornoNero acquired the rights to six written contracts and eight unwritten contracts described in Sch 6 (including Plenty Road, Mernda). The unwritten contracts meant the listed 'proposed and/or current building, development and construction projects', which were not subject to any written terms and conditions. Schedule 2 of the BSA indicated that CornoNero had 18 employees, eight of whom were tradespeople.

(e) The September 2015 Board reports included a report on the South Melbourne project. It referred to CornoNero receiving stamped plans and a permit, needing to seek an amendment to accommodate design changes and the commencement of a pre-marketing sales campaign.

(f) The September 2015 report for Ringwood referred to CornoNero receiving support from the council, the possibility of objections and the anticipated period for endorsement. The report for Kensington said that CornoNero was working with consultants to have the property rezoned, with an anticipated council approval date. Following rezoning, CornoNero was then to submit plans for 'the usual development application process'. Reference was made in the Dandenong Board Report to an amendment being lodged after some design changes were requested. Details of tenants and associated rents and terms were provided.

(g) The September 2015 report for Mernda similarly described development work. It was reported that a permit was received in August 2014, through the Victorian planning minister and that plans had been submitted for endorsement. A copy of those plans were included in the report, with a tenancy schedule. Other reports about Mernda to the Board (to which reference was made earlier) also described design work.

(h) The CornoNero business plan for 2016, prepared 9 September 2016 (after but close to the date of the MDA) described CornoNero's products and services in these terms:

CornoNero is a construction business with the added ability to provide an end-to-end solution for any property development. CornoNero can acquire property, manage all stages of planning and documentation, find commercial tenants and finally construct the project which allows the investor to take a passive position in maximizing the value of their project.

Products/services: At CornoNero we offer the following services. We can be turned 'on' and 'off' as required in any stage of the development process.

Services:

1. Acquisition

2. DA application

3. Council Meetings

4. Lodgement of DA / VCAT management

5. Construction drawings

6. Tenants for commercial properties

7. Sales and marketing management

8. Bank funding assistance

9. Construction

10. Settlement management.

1. Hartwig described the operations of CornoNero as a 'cradle to grave service'. He said in this evidence that 'it took projects from their commencement, assisted developers in obtaining planning permits, development approvals as required, leasing, sales and then positioned itself as the builder'. He said in relation to the Cheltenham Road, Dandenong project, that CornoNero did all of the design and planning work and negotiated agreements for lease with BP and Red Rooster. Similarly, a lot of planning work was done on the West Gosford project before it was 'ready to go' in 2017, in the sense of construction commencing.
2. Geoff Brady was cross-examined on his contention that CornoNero was only a builder. His evidence was relevantly as follows:

(a) When the proposition that Trimont was a development company was put to him, he replied: 'I think if you look at the original presentation, the opportunity was to come into a building [sic] and work with builders, work with developers and financiers. I understood this business to be a building company'. He said that the meaning of 'Strong Development "Pipeline" established' in the Trimont Business Update/Proposal was that Trimont 'had developers looking for builders to build their properties for them'. Although he stated that he did not understand that Trimont was a development company, he acknowledged that Trimont was developing the Preston project (with his money).

(b) When taken to the Stannards due diligence report and its statement that Trimont was a 'design, construct and development organization', he said that he knew Trimont was 'design and construct', but was a developer regarding Preston only. Although he acknowledged that was not reflected in the document, he continued to reject the proposition that Trimont was a design, construct and development organisation overall. When shown the reference to 'building services' in the report, he maintained his position that other than in relation to Preston, Trimont was strictly a construction company.

(c) Geoff agreed that in relation to the BSA, that one or more of the schedule 6 projects could be building 'and/or' development 'and/or' construction projects. As to Mernda, he agreed that it was a development site and that Ascenzo was the developer. He said that '[Ascenzo] couldn't go on with it' and 'they were looking for a developer to take over the property'.

(d) Regarding the report on the Toorak project (a Brady project) he said that he did not like the initial drawings that CornoNero had done, so he engaged someone else. When it was put to him that it was development work, he replied: 'Yes. No, no, it's development work for a person. It's building work for the person who is paying for it'. Upon further questioning, he sought to draw a distinction between work that was 'preparatory to building work' and 'development work'.

(e) Regarding the Hawthorn project (another Brady project), Geoff said that CornoNero had 'set up probably one of the ugliest building designs' he had seen from an architect. He agreed that a description of 'application and planning' in relation to Kensington sounded like development work. He accepted that it was not a surprise that CornoNero was doing that sort of work. Although he initially sought to describe the work referred to in the South Melbourne Board Report as preparatory work, he agreed that receiving permits and stamped plans, being permitted to commence demolition and undertaking sales campaigns was development work.

(f) On the basis of the November 2015 Mernda PCG Report, he accepted that at a minimum, Mernda was a design and construction contract. It did not concern him that CornoNero was involved in the design and development of the project, 'in the early stages ... because [that was] common'.

(g) After being taken to the February 2016 board report for Mernda, he gave evidence that he understood that CornoNero was progressing with works -designs, 'getting people in', looking for tenants, and that he would have been aware of that.

(h) As to the Business Plan 2016, Geoff agreed that the description of products and services was consistent with his understanding. He agreed that CornoNero did things beyond construction like planning and documentation, finding commercial tenants and maximising the value of the project, all of which may be described as development work. He agreed that such work was within his contemplation in 2015 and 2016. He agreed that the list ran from acquisition right through to settlement management, covering things that might be required ahead of construction. He accepted that that was part of what CornoNero did and what Breckenridge and his staff were expected to do.

A4 Did Breckenridge breach his duty of care and diligence by causing CornoNero to enter into the Mernda Development Agreement?

1. CornoNero's case concerning Breckenridge's failure to exercise due care and diligence (as required by s 180 of the Corporations Act) was focused on his failure to ensure that there was an adequate basis for projecting that the Mernda Development Agreement was in CornoNero's interests, before committing CornoNero to it. That point was linked to the contention that in committing CornoNero to the MDA, Breckenridge took CornoNero outside of the understood parameters of its business. It was said that CornoNero was not in the business of developing greenfield sites, and that the Board understood that CornoNero's work was confined to construction. The contention that Breckenridge did exercise due care in ensuring that the MDA was in CornoNero's interests was also allied to the claim that Breckenridge negotiated the MDA for an improper purpose.
2. I have rejected the claim that the work that CornoNero agreed to undertake by its entry into the MDA, would take it outside its core business or understood arena of operation.
3. As absence of due care in relation to the MDA concentrated on the costs to complete and the risks inherent in the structure of the contract.
4. As to the costs and returns to CornoNero, it can be seen from the evidence described above that:

(a) Breckenridge prepared or obtained estimates for the costs of undertaking the work under the MDA to be within the range $16.7 million to $20.17 million. Some of the estimates he prepared himself, others were prepared by Wong (CornoNero's Contract Administrator) or Pretorius (CornoNero's Construction Director) or Northcroft.

(b) Breckenridge's evidence was that costs could vary for a number of reasons. He said that between late and throughout 2016 understood that costs would be in the vicinity of $14-17 million at best, and $19-22 million at worst. He did not elaborate concerning the relationship between that assessment and the costings to which reference was made in the evidence. I read that evidence as Breckenridge's opinion that cost could vary so as to come in below, or above the range of estimates suggested by the prepared costings.

(c) Breckenridge also considered that CornoNero would be entitled to be compensated for roadworks under the development scheme maintained by the Whittlesea Shire Council and for any resumption of land. He expected that total compensation for land and road works would be in the order of about $3.775 million. He did not explain how that assessment was reached. However, that evidence was not substantively challenged. There is no basis on which to conclude that he did not hold that view, and that it was based on his experience. Breckenridge did not know when compensation would likely be received. It was not contested that the Council scheme allowed for compensation and if it was payable. CornoNero was entitled to receive such compensation, under the MDA. The entitlement if any and the quantum of the compensation was subject to negotiation with the Whittlesea Shire Council.

(d) Breckenridge also considered that CornoNero had the ability to save costs by 'value engineering'. No particulars were given of the type or quantum of likely or even possible costs savings. That aspect of Breckenridge's evidence was speculative.

(e) Breckenridge's assessment of the expected outcomes for CornoNero was set out in his email of 14 November 2016. The variables were additional construction costs over expectations (with a variance of $1.88 million in the range of scenarios estimated), land and road compensation (with a variance of approximately $1.812 million in the estimated range) and finance costs (with a variance of about $700,000 in the estimated rate).

(f) After the event, in December 2016, independent surveyors RLB prepared an indicative budget of $3.128 million for estimated total construction costs. RLB had told Wong in November 2016 that they would be comfortable with an estimated cost of about $18.5 million as a 'headline' figure that would need to be agreed. Pretorius was said to have given an estimate of $28 million to Stannards, to which Robers referred in his 11 January 2017 email. There was no further evidence about that estimate. In Roberts' analysis he referred to RLB's estimate, Northcroft's estimate of $19.77m (which had been obtained by Breckenridge in April 2016) and the estimate attributed to Pretorius.

1. I do not consider that it has been established on the evidence that the only reasonable view open to Breckenridge was to assess the likely costs of undertaking the work under the MDA at approximately $31 million. Nor was that proposition established in respect of some other number.
2. Breckenridge's evidence was that he considered a realistic outcome for CornoNero (allowing for a payment to Coonwarra of $6.5 million) to be a profit of $1.483 million. He quantified the 'conservative' estimate at a profit of $1.007 million. A 'disaster' scenario was estimated to have been a loss of $1.676 million. Breckenridge's assessment at the time involved the contemplation that if everything went wrong (meaning costs exceeded his expectations by $1.8m or more, road compensation was less than expected by about $1.8m and finance costs were more than expected by about $700,000) CornoNero would make a loss. His construction cost estimates permitted a wide variation, although he had formed a view about what he thought was 'realistic', 'conservative' and 'disastrous'.
3. Focusing on the risks concerning construction costs, it is plain that that variable was highly relevant to the outcome for CornoNero. Breckenridge committed CornoNero to a contract that he considered could make a loss, but assessed it more likely to make profit in all the circumstances. There was, evidently, risk involved in the contract.
4. However, apart from its submission concerning the $31 million, CornoNero did not (by its evidence or its submissions) address the likelihood of the variables materialising adversely to CornoNero, and did not address how Breckenridge ought to have assessed those risks at the time, consistently with his duties. It did not descend to analysing Breckenridge's numbers.
5. As to the lack of independent costings, it was not established that the only reasonable course available to Breckenridge was to obtain and adopt an independent certifier's assessment, in circumstances where it was the core business of Breckenridge (in which he had many years' experience) and the core business of CornoNero, to assess the financial risks and benefits of prospective projects. No evidence was addressed to that question. Breckenridge had qualified as an electrical engineer but had commenced working for McDonald's during university, in its property division. Throughout the 2000s, he held management positions at McDonald's and was involved in construction, development and land procurement work for the company. In 2007, he became Vice President of Property at McDonald's. He started working for Ascenzo in 2011. His primary role was to identify development sites and commercial development opportunities for the company. In the course of that work he prepared costings and engaged quantity surveyors to prepare costings, engaged architects, inquired about zoning and planning issues and prepared assessments reflecting that due diligence work. Breckenridge's assessments were presented to Ascenzo and his business partner for their decision about whether to pursue the project opportunities that Breckenridge had assessed. If a decision was made to pursue a project, Breckenridge would do the work to get the project ready for construction.
6. Turning to the risks involved in the rental guarantee provision, Breckenridge described them as 'educated risks'. I consider that they were informed risks, which involved the trade off of risks and benefits as explained in Breckenridge's evidence (as set out above). It was not established that it was not reasonably open to Breckenridge to have made that assessment.
7. The principles relevant to the assessment of whether a director has breached his duties are set out earlier in these reasons. In determining whether a director has breached the duty described in s 180(1) of the Corporations Act, the Court must balance the foreseeable risk of harm to the company (including the nature and magnitude of the risk of harm and the degree of probability of its occurrence) against the potential benefits that could reasonably have been expected to have accrued to the company from the conduct in question, along with the expense and difficulty of taking alleviating action. This exercise must be carried out without the benefit of hindsight.[419]
8. Breckenridge contended that a director in the same position, with the same knowledge and experience, would have considered that there was an adequate basis for projecting in August 2016 that the MDA would be beneficial to CornoNero. Potential benefits were the construction income and margin and the intangible benefit of completing a high profile project. Operational risks and managing costs were said to be part of CornoNero's core business. While risk also surrounded tenanting the property and the compensation payments, the former was considered and mitigated, while there was a reasonable basis for thinking that a reasonable compensation could be negotiated with the authorities. Courts are reluctant to intervene in such commercial assessments.
9. As the defendants correctly submitted, Breckenridge was given specific authority to negotiate contracts under the Shareholders Agreement; indeed doing so was his duty. The steps that he took in respect of the MDA must be assessed in that light. The Mernda project was one of the unwritten projects acquired by CornoNero under the BSA. The Shareholders Agreement sets out that CornoNero was to be 'managed on a day-to-day basis by the CEO in accordance with the Business Plan, the Budget and any arrangements entered into in respect of the company'. The duties of the CEO included the management of all contracts relating to the projects and the negotiation of terms and conditions for new projects.
10. CornoNero submitted that the MDA was entered into without adequate consideration of its terms. Breckenridge submitted that his evidence demonstrated a deep understanding of the MDA and explained why he considered that it was to CornoNero's benefit. Further, a wide discretion is allowed to directors to determine what is in the best commercial interests of the company.
11. CornoNero had acquired the Mernda project under the MDA. Taking the project from a mere opportunity to a contract in which CornoNero had the opportunity to earn revenue and make a profit was a tangible benefit to CornoNero, provided the opportunity was one that could be reasonably expected to be profitable. As I have said, the MDA evidently involved risk for CornoNero and the possibility that it might make a loss. However, in all of the circumstances there is insufficient evidence on which to conclude that a reasonable director in Breckenridge's position would have balanced the risks to CornoNero against the benefits by deciding not to execute the contract. The evidence does not permit a conclusion that the foreseeable risk of harm ought to have been weighed differently against the expected benefits. How a reasonable director in Breckenridge's position would have acted differently, was not shown. The MDA was the product of several months of negotiation. Breckenridge might have made errors of judgement in not allowing a greater margin for cost overruns in negotiating the contract price. What margin ought to have been allowed was not established on the evidence. There was no evidence addressed to how the contract might have been negotiated differently.
12. Breckenridge submitted that even if a breach of s 180(1) was found, he exercised his business judgement in accordance with s 180(2). Section 180(2) is only engaged if a director's conduct is found to have been in breach of s 180. Assuming contrary to my earlier conclusion, that Breckenridge's conduct in causing CornoNero to enter the MDA was in breach of his duty, I consider that in the circumstances he has established a defence under s 180(2). The relevant principles are set out earlier in these Reasons.[420]
13. In my assessment:

(a) For reasons that will be sufficiently apparent from the foregoing analysis, it is plain that Breckenridge made a business judgment in respect of entry into the MDA.

(b) For the reasons set out below, the judgment was made in good faith and for a proper purpose.

(c) It was not shown that Breckenridge had a material personal interest in the subject matter of the judgment.

1. In order to establish a defence the director or officer must inform themselves about the subject matter of the judgment 'to the extent they reasonably believe to be appropriate'.[421] The reasonableness of that belief is to be assessed by reference to the importance of the business judgment to be made, the time available for obtaining information, the costs related to obtaining information, the director or officer's confidence in those exploring the matter, the state of the company's business at that time and the nature of competing demands on the board's attention, and whether or not material information is reasonably available to the director.[422] It is not required that a director demonstrate that she or he was, objectively indeed reasonably informed.[423] Breckenridge informed himself by preparing and obtaining costings for the project, drawing on his own established experience, and work prepared by his staff. His evident belief that he was informed appropriately, was reasonable in the circumstances. There was insufficient evidence on which to conclude that that belief was not reasonable.
2. Finally, the director must rationally believe that the judgment is in the best interests of the corporation. The director's belief is taken to be rational unless it is one that no reasonable person in their position would hold. Having regard to the evidence discussed, I cannot conclude that no reasonable person in that position would have believed that entry into the MDA was in the best interests of CornoNero. On the proper construction of s180(2), all that is required is that there be an arguable reasoning process supporting the business judgment that was made.[424] The evidence establishes that process of reasoning.

A5 Did Breckenridge permit CornoNero to enter the MDA for an improper purpose?

1. CornoNero submitted that in entering the MDA, Breckenridge was not motivated to advance CornoNero's interests. Rather, he intended to facilitate the repayment of the Coonwarra loans and conceal the misuse of CornoNero funds. It was also asserted that he sought to prevent discovery of CornoNero's penury and the disruption of projects in which various directors were interested. It was said to be evident, particularly from the lack of disclosure, that no reasonable person in Breckenridge's position would have acted in the same or similar way.
2. Breckenridge contended that the evidence, including that concerning the commercial benefits to CornoNero, showed that he had a proper basis for considering that the MDA was in its interests. The sale of the Mernda Land was a necessary step in the transaction, which required discharge of the mortgages. It was submitted that the evidence showed that from at least the second quarter of 2015, a transaction involving the sale of the land and discharge of the mortgage was contemplated in order to complete the development.
3. Directors must exercise their powers for a proper purpose, and not for a collateral purpose or improper purpose. The principles are set out earlier in these Reasons. In examining whether the purpose for which the power was exercised by the director was improper, the bona fide intention of the director is not the sole determinant of breach. The assessment of whether the purpose was improper is objective.[425] In order to establish a breach of this duty it must be shown that the substantial purpose of the director was improper or collateral to their duties as directors of the company. The Court must determine whether, but for the improper or collateral purpose, the directors would have performed the act impugned.[426] If it is suggested that the director's actions were actuated by more than one purpose, the Court should have regard to 'the substantial object the accomplishment of which formed the real ground of the board's action'.[427] In discerning that substantial object (or substantial purpose), the Court is entitled to look at the situation objectively in order to estimate what would weigh on a director's mind in those circumstances and to what degree.[428] Finally, the Court must reach a conclusion about whether or not that purpose, or substantial purpose, was proper,[429] meaning that the purpose falls within the scope of the relevant power. The appropriate question is to ask whether the power would have been exercised, except in pursuit of some ulterior and illegitimate object. If, objectively, it would not have been, that conduct will amount to a breach of the duty in s 181(1)(b).[430]
4. The evidence established the following circumstances:

(a) CornoNero had acquired the Mernda project under the MDA. Taking the project from a mere opportunity to a contract in which CornoNero had the opportunity to earn revenue and make a profit was a tangible benefit to CornoNero.

(b) The Board as a whole was aware of the growing work in progress recorded for the Mernda project and considered it to be in CornoNero's interests for negotiations with MJSC to be concluded and the contract executed so that CornoNero could start to earn revenue on the project.

(c) The proposed contract, its terms and its rationales were disclosed to the Board and discussed explicitly with the board.

(d) The sale of the Mernda Land was a necessary part of the transaction. A transaction structured that way had been discussed with the Board over several months. A structure of that kind was not shown to have been unorthodox.

(e) It was not contested that the Mernda Land was encumbered by a mortgage that secured loans taken out by Coonwarra. The loans were significant in value and were paid out with nothing remaining, by the payment of the purchase price by MJSC in the sum of $7.8 million.

1. It is unnecessary to refer to the circumstances of the Coonwarra loans. The evidence established that the substantial object the accomplishment of which formed the real grounds of Breckenridge's actions, was to secure a contract for the Mernda project as a commercial opportunity for CornoNero, that he considered would be commercially beneficial to CornoNero. Objectively considered, that was not an improper purpose. It was an exercise of the power conferred by him and required of him under the Shareholders Agreement. CornoNero's submissions that Breckenridge was motivated by a desire to prevent discovery of CornoNero's penury and the disruption of projects in which various directors were interested was made without supporting detail and was speculative.
2. It follows that no breach by Breckenridge of his duties has been established in respect of his causing CornoNero to enter into the MDA.

1. The evidence was that Hartwig had worked in the banking and finance industry for over 40 years. He was a non-executive director of CornoNero between 15 September 2015 and 30 November 2016. As non-executive director, he was not involved in CornoNero's day-to-day management. However, he was a member of CornoNero's finance committee, which reviewed the financial status of the company and reported to the board.
2. Hartwig stated that he believed that Breckenridge, as CEO of Trimont, was competent, as he had 'known him for several years and he had previously held a senior role at McDonalds'.
3. Hartwig read and received the board papers that are described earlier in these Reasons.
4. The Mernda Board Report for September 2015 identified a construction time frame and cost of 20 months and approximately $16 million and said that the final stage of negotiation had been reached with a private consortium made up of the directors of UBS, and that the end sale price was '$30.8 million representing a 6.7 percent yield. Hartwig's evidence was that at that meeting, a 'large review' was undertaken by Breckenridge regarding all the projects which were reviewed thoroughly. Hartwig said that Breckenridge spoke about the 'UBS investment group that was negotiating the purchase of the Mernda land' and once that was completed, that 'it would generate the large contract for CornoNero which they had been working on'.
5. Among other meetings, Hartwig attended the board meeting on 30 May 2016. Hartwig took a copy of the Draft MDA at the end of the meeting and went through it himself.
6. Hartwig's evidence was that Breckenridge presented the final draft of the MDA. Breckenridge took the Board through the key facets of the transaction, being a development management agreement rather than a standard design and construct agreement. On the tenancy obligations, Hartwig was aware that CornoNero had already introduced Coles and had secured a number of other tenants that were being presented to MJSC. Breckenridge's evidence was that Hartwig asked about the $14 million progress payments and risk of defect or delay in payment of the residual sum. The substance of Breckenridge's response was that the risk existed and would be managed. Hartwig supported chairman Robert McEniry's view that CornoNero should not do any more work on the project until the agreement was executed, asking when that would be and when CornoNero would get paid. Hartwig said that there was universal support for the transaction at that meeting - everyone was 'keen for the transaction to progress' and no one provided any negative views. In response to Geoff Brady's question, Breckenridge told the Board that the agreement had been prepared by Norton Rose solicitors.
7. Hartwig said that he was not aware of the Development Guarantee with Coonwarra and did not believe that it was discussed at the May 2016 board meeting. However, he agreed that Breckenridge said in May 2016 that Coonwarra would be paid out of the residual of the development sum.
8. Hartwig attended the CornoNero board meeting on 8 August 2016, at which the Board adopted the FY2016-17 budget. That budget showed a 2016/17 year end income of $12,720,588 for Mernda and a 'cost of design and construction' of $10,914,275. Hartwig recalled that in the budget there was '$12.9 million or thereabouts approved for the Mernda job to be incurred, costs incurred, revenue earned through that period, so it was seen as a very important project for CornoNero'. He estimated that 'about 75 percent' of the works were to be billed in the 2016/2017 year.
9. His evidence was, 'it had been a budgeted and approved job. The structure was approved at the August meeting. The [Draft MDA] was reviewed at the May meeting without any questions and it was approved in the budget in the August meeting'.
10. Hartwig and Breckenridge signed the MDA at the office of BCP on 9 August 2016. Hartwig's evidence was that he signed the MDA for CornoNero 'on the firm belief that [he] had full support of the Board and that it was a contracted and a budgeted job'. He held that belief based upon the discussions that the Board had the previous day. If he had been told by the Board not to execute the MDA he would not have.
11. Hartwig ceased being a CornoNero director on 30 November 2016.
12. CornoNero submitted that Hartwig did not undertake adequate consideration of the MDA terms, in circumstances where he knew that the MDA would be a significant financial undertaking. Further, he failed to see or analyse detailed costings, drawings, quantity surveyor reports, budgets, quotes or rental agreements. As such, it was said to have been impossible to have been satisfied that CornoNero could fund and undertake the works and receive a profit. It was submitted that Hartwig sought to justify executing the MDA on the basis that it was budgeted, not on its merits.
13. Hartwig submitted that he was provided information by Breckenridge, as CornoNero's CEO, from which he could reasonably form the view that the MDA was beneficial. In particular, on the evidence:

(a) the November 2015 PCG Report and February 2016 PCG Report projected $16 million construction costs and $921,313 in fees, and the MDA provided for a 'development sum' of $25,408,680;

(b) he sufficiently participated in the 30 May 2016 board meeting, during which Breckenridge took the Board through the key facets of the transaction. He took a copy of the Draft MDA and asked questions about the project, specifically as to the $14 million progress payments and any defects or delay (with Breckenridge replying that it was a risk that needed to be managed). He also supported McEniry's comment and asked when CornoNero would get paid;

(c) in the 30 May 2016 board meeting, Breckenridge said that NRF had prepared the Draft MDA;

(d) he sufficiently participated in the 8 August 2016 board meeting, during which the MDA was discussed and the CornoNero 2016-2017 budget was approved. The latter showed costs of approximately $12.9 million to be incurred in relation to Mernda. During the meeting, Breckenridge said that upon execution of the MDA $1 million would be advanced, in circumstances where approximately $1.49 million was owing to CornoNero.

1. CornoNero submitted that there were two entries in the 2016-2017 budget concerning Mernda: income of $12,520,588 and $10,742,675 in costs. They said that there was no sensible way that the Board could discern from those that the MDA was about to be executed and was profitable. It was submitted that Hartwig only knew about the MDA through his private discussions with Breckenridge and that what was crucial to him was payout of the BCP loans.
2. As set out earlier in these Reasons,[431] reference to the director's office and responsibilities in s 180(1)(b) requires consideration of the work actually undertaken by that director. As such, it has been accepted that, under s 180(1), non-executive directors are not subject to the same higher standard that is expected of executive directors.[432] The lower standard typically arises in cases of delegation and reliance of directors on advisors: 'while directors are required to take reasonable steps to place themselves in a position to guide and monitor the management of the company, they are entitled to rely upon others',[433] such as internal executives and independent external advisors.[434] A director is not excused from making her or his own inquiries by relying on the judgment of others.[435] For example, where a director's suspicion becomes awakened (or where a suspicion would be awakened in the prudent director), this will activate a duty to inquire.[436] All directors are subject to core, non-derogable duties that requires ordinary competence or reasonable ability[437] and must take reasonable steps to place themselves in a position to guide and monitor the company's management.[438] The minimum standard of diligence imparted by s 180(1) requires that every director or officer (including non-executive directors) become familiar with the fundamentals of the business or businesses of the company; keep informed about the company's activities; monitor, generally, the company's affairs; maintain familiarity with the financial status of the company by appropriate means, including the company's financial statements and board papers; and make further inquiries into matters revealed by those documents where it is appropriate to do so. Directors must have a reasonably informed opinion of the company's financial capacity.[439]
3. Although Hartwig's evidence on this subject was limited, in the circumstances I am not persuaded that his conduct was negligent. Hartwig familiarised himself with the commercial aspects of the contract, including the rental guarantee and relationship between the progress payment and residual sum provisions for payment, and questioned Breckenridge about the latter. He attended and recalled, Breckenridge's detailed presentations to the Board about the agreement. On the question of rental guarantees, the effect of Hartwig's evidence was that he considered the fact that CornoNero would, by the agreement, assume responsibilities in respect of tenancies and that CornoNero had already secured the Coles lease and was presenting other tenants to MJSC for approval. He specifically considered the information in the board papers for the 2016-17 budget reporting projected income and costs. It is evident that Hartwig actively considered the financial benefits to CornoNero, of concluding a contract on the Mernda project, including because of the outstanding unpaid work in progress and the need to generate revenue. It has not been established that he did not also actively consider the risks. On the particular aspect of risk concerning construction costs he was reliant upon Breckenridge. As to the costings and assessment of whether the contract would be profitable, I do not accept the submission that Hartwig could not be satisfied unless he obtained and analysed detailed costings, drawings, quantity surveyor reports, budgets, quotes and rental agreements. Hartwig's skills were in finance, not in construction. He was entitled to rely on Breckenridge having regard to his knowledge of Breckenridge's experience. The evidence did not establish that he was required to investigate the costings for himself. In the circumstances it was not established that he failed to discharge his core duties.
4. Hartwig submitted that even if a breach of s 180(1) was found, he exercised his business judgement in accordance with s 180(2). Assuming contrary to my earlier conclusion that Hartwig's conduct in causing CornoNero to enter the MDA was in breach of his duty, I consider that in the circumstances he has established a defence under s 180(2).
5. The evidence set out earlier makes clear that Hartwig made a business judgment in respect of entry into the MDA. As set out below, the judgment was made in good faith and for a proper purpose. It was not shown that Hartwig had a material personal interest in the subject matter of the judgment. By engaging in the inquiries described above, in my view it is apparent that Harwig informed himself about the proposed entry into the MDA to the extent that he reasonably believed to be appropriate. Hartwig considered the terms of the MDA for himself and raised issues of concern about which he asked Breckenridge, who had responsibility as CEO and as specifically charged under the Shareholders Agreement, for negotiating contracts for CornoNero. His evident belief that he had informed himself to an appropriate extent was reasonable, for the reasons already discussed, having regard to the skills and experience of Breckenridge and his team of employees, and Hartwig's own skills and experience. Having regard to the evidence discussed, I cannot conclude that no reasonable person in Hartwig's position would have believed that entry into the MDA was in the best interests of CornoNero. The evidence establishes that the business judgment was supported by an arguable reasoning process.
6. CornoNero submitted that Hartwig's purpose in permitting CornoNero to enter the MDA was to procure repayment of the Coonwarra loans and prevent discovery that the loans had not progressed the Mernda development. It pointed to evidence that the August 2015 and February 2016 loan agreements were overdue, and from September 2015, Hartwig pressed Breckenridge to bring about repayment of the loans via sale of the Mernda Land. Regarding the latter, they relied upon an email from Hartwig to Breckenridge on 18 September 2015, referring to the ISPT offer and saying that his real concern was transacting something within the next two months so that the $5.2 million loan was ready for repayment. It was submitted that Hartwig was aware that in executing the MDA the loans would be repaid, but he did not disclose that to the Board.
7. Hartwig submitted that the Court could infer he believed entry into the MDA was beneficial to CornoNero, given it involved construction work and the estimated revenue exceed the estimated construction costs. He submitted that there was said to be no basis to infer that he had an ulterior motive in causing CornoNero to enter the MDA. Further, he submitted that even if it were found that Hartwig caused CornoNero to enter the MDA to facilitate the repayment of the loans, a conclusion that he intended to cause detriment to CornoNero does not follow; an act (even if committed for an ulterior purpose) not intended to cause detriment does not breach the duty. Further, he submitted that he did not permit CornoNero to enter the MDA in order to facilitate the sale of the Mernda Land and repayment of the Coonwarra loans. He emphasised that it was not disputed that the contract of sale was executed and the loans repaid, or that he knew that the sale of the land would discharge the loans. However, there was insufficient evidence to conclude that he was motivated by the repayment of the loans and that matter was not put to him directly in cross-examination. He relied on the following as showing that he did not have any ulterior purpose:

(a) evidence of the information before the Board, which was available to him and supported his belief that the MDA would be beneficial to CornoNero;

(b) the lack of evidence that he was concerned about the exposure of the lenders (Bailey Hunter and C & N Hunter Super Pty Ltd), that the lenders were pressing BCP to cause repayment, or that default notices had been served;

(c) the lack of evidence that he was pushing Breckenridge to effect a sale, or was participating in the negotiations with MJSC. Rather, he gave evidence that he was not becoming anxious about the loan repayments;

(d) the evidence of Martin and Ben Van der Burgt, demonstrating that they were keen to repay the loan from the proceeds of the sale of land;

(e) the terms of the MDA, which provided that the MDA could be terminated if MJSC was not registered, or entitled to be registered, as the proprietor of the Mernda Land. Settlement of the Mernda Land was said to be unconditional, and it was entry into that contract (which he had no involvement in) that facilitated repayment of the loans.

1. In my view the evidence did not establish that Hartwig exercised his powers for an improper purpose or without good faith:

(a) As set out in relation to Breckenridge, CornoNero had acquired the Mernda project under the MDA, and taking the project from a mere opportunity to a contract in which CornoNero had the opportunity to earn revenue and make a profit was a tangible benefit to CornoNero. The Board as whole, including Hartwig specifically, was aware of the growing work in progress recorded for the Mernda project and considered it in CornoNero's interests for the negotiations to be concluded and the contract executed so that CornoNero could start to earn revenue on the project. The proposed contract, its terms and its rationales were disclosed to the Board and discussed explicitly with the Board.

(b) The MDA provided that the agreement could be terminated if MJSC was not registered, or entitled to be registered, as the proprietor of the Mernda Land. The sale of the land was necessary in order for the MDA to proceed. A transaction structured that way had been discussed with the Board over several months. A structure of that kind was not shown to have been unorthodox.

(c) Hartwig was a director and shareholder of BCP who was the lender to Coonwarra as agent of disclosed principals. It was not contested that the Mernda Land was encumbered by a mortgage that secured loans taken out by Coonwarra. The loans were significant in value and were paid out with nothing remaining, by the payment of the purchase price by MJSC. However, the evidence did not establish that Hartwig was concerned about the exposure of the lenders to the extent that such a concern was a substantial purpose for the exercise of Hartwig's powers. He did raise with Breckenridge the need to repay the loans, including in September 2015 and urged the completion of the proposed Mernda sale transaction in view of the outstanding debts. However, there was no evidence that the lenders had threatened or were taking enforcement action of any kind. There was also no evidence that Hartwig brought pressure to bear on Breckenridge to complete the transaction in any particular way, so as to affect CornoNero's interests.

(d) It was the fact that the sale of the Mernda Land cleared the outstanding loans. However, that fact did not establish that when Hartwig acted in respect of the MDA, he did so actuated by a desire to clear the loans, at all or to the extent that objectively considered, that was his predominant purpose. I consider that the power Hartwig exercised to commit CornoNero to the MDA, which he did in concert with the other directors, would have been exercised in the same way regardless of BCP's interest in the loans secured against the Mernda Land. The evidence discussed earlier establishes that Hartwig considered the MDA to have been in CornoNero's interests.

1. It follows that it has not been established that Hartwig breached any duty he owed to CornoNero.

A7 Did BCD breach its obligations under the shareholders' agreement by causing or permitting CornoNero to enter the MDA?

1. CornoNero attributed Hartwig's conduct to BCD and alleged that by that conduct BCD breached various obligations under the shareholders agreement, substantially for the same reasons for which it was submitted that Hartwig was in beach of his duties as a director of CornoNero.
2. It follows from my earlier findings and conclusions that CornoNero did not establish its claims for breach of the Shareholders Agreement by BCD. There were no additional matters arising from the obligations assumed by BCD under the Shareholders Agreement that would require a different conclusion.

B1 Background and Issues in contention

1. On 9 August 2016, CornoNero Pty Ltd (as borrower) and Mernda Development Shopping Centre Pty Ltd (as lender) entered the MJSC Loan Agreement (Mernda Loan Agreement or MLA). Under the MLA, MJSC agreed to advance CornoNero, by way of loan, $1 million at an interest rate of 5 percent per annum.
2. CornoNero contends that the MLA was not in its interests and was neither disclosed to nor authorised by the CornoNero board. It alleges that Breckenridge and Hartwig breached their duties as directors, by causing CornoNero to enter into the MLA, by not disclosing it to the Board, and by failing to seek or obtain a special resolution of the Board for entry into the MLA.
3. As to the MLA being contrary to CornoNero's interests, it was said that upon execution CornoNero would incur a liability to repay the $1 million - either by a reduction in the moneys it would otherwise receive in payment of claims submitted and accepted under the MDA or alternatively, immediately upon termination or rescission of the MDA; CornoNero could not repay the loan because it had 'no ability to fund and complete its obligations under the MDA' and that 'CornoNero's profit (to the extent that there would be any profit) would be reduced by reason of the need to make repayments of interest from payment claims'.
4. The MDA and MLA were executed on the same day.
5. Breckenridge and Hartwig say that the loan was in the nature of an advance by MJSC on the payments that CornoNero could be expected to receive under the Mernda Development Agreement and had obvious benefits for CornoNero in assisting with cashflow requirements, and was to be paid back to MJSC by a set-off against the first progress claim raised by CornoNero. They say that the Board was informed of the proposed agreement and no board member objected. They accept that they committed CornoNero to the agreement, and deny that doing so amounted to a breach of any duty. They accept that a special resolution was required and say that it should be inferred that the requirements of the Shareholders Agreement were satisfied but if not, it was a technical breach only and should be excused.
6. The Mernda Development Agreement included the following relevant terms:

(a) The Owner must, subject to clause 19.4, pay to the Developer the Development Sum as follows:

(i) Progress Claims up to a maximum aggregate amount of $15,408,680 (excluding GST) within 5 Business Days of receipt of a Progress Claim Certificate; and

...

24.8 Set off

Without limiting the rights of the parties under this Agreement, a party ("First Party") may deduct from moneys due and payable to the other party ("Second Party") any money due and payable from the Second Party to the First Party under this Agreement or otherwise and any claim to money which the Second Party may have against the First Party, whether for damages or otherwise.

1. The Mernda Loan Agreement relevantly provided that the 'Lender' (MJSC) agreed to advance to the 'Borrower' (CornoNero) the 'Principal Amount' by way of loan on the date of the agreement. The Principal Amount was defined as $1 million. Interest was to accrue daily at the Interest Rate (5 percent per annum) on the outstanding Principal Amount at that time, calculated on a 'straight line simple interest method'. Clause 2.4 stated:

2.4 Repayment by set-off

Subject to clauses 2.5 and 2.6, the Outstanding Amount will be repaid by way of set-off (in full) against:

(a) the Lender's obligation (as set out in the Development Agreement) to make payment to the Borrower in respect of the first Progress Claim; and

(b) to the extent that the amount the Lender is required to pay to the Borrower in respect of the first Progress Claim is less than the Outstanding Amount, each subsequent obligation of the Lender (as set out in the Development Agreement) to make payment to the Borrower in respect of each further Progress Claim.

...

9.4 Set-off

Except as set out in clause 2.4, the Borrower may not (either directly or indirectly) claim, exercise or attempt to exercise a right of set off or counterclaim against the Lender (whether the right is an obligor's or any other person's) or any other right which might have the effect of reducing the Outstanding Amount.

B2 Circumstances relevant to entry into the MLA

1. Circulated to the Board ahead of the 2 December 2015 board meeting was the November 2015 CEO Report. That stated that significant 'in-roads' had been made in preparation for Mernda. The Finance Report for the same meeting said that income was still low due to 'onsite and design delays', and that the majority of the delays were the result of a lack of funding in the business.
2. Breckenridge said that even though the working capital facility was in place, taking some pressure off CornoNero, the relief was short-lived. He explained that that was because of the usual cash flow issues in December, January and February. Additionally, as the jobs started around the same time for CornoNero, it had to pay upfront costs such as deposits on a number of different projects at the same time. That was said to have 'slowed things down'.
3. As will be recalled, in early 2016, the key elements of the agreement with BidCo had been agreed and negotiations were ongoing. Kelvin Barry 'continued to undertake an extensive due diligence process' which Breckenridge said was part of the reason that negotiations did not progress as quickly as he had initially hoped.
4. Breckenridge said that in and around February 2016 to March 2016, the Mernda project works were moving forward because the council had endorsed the architectural designs and that, throughout that period, CornoNero continued to work on the project.
5. Breckenridge emailed Hunt on 20 February 2016, forwarding previous correspondence with Barry and attaching the 'Mernda Draw Down' schedule. Barry had stated in an email sent 20 September 2015:

As discussed, it is very important to us that there is a significant amount of the purchase price not paid until completion to ensure that Trimont has a significant incentive to complete the project on time. Consequently, we would like the total upfront/progressive funding to be $20 million (or close to that amount).

1. Hunt had replied by way of red text two days later saying that the draw down was 'only approved on completion of works and QS approval. At no point [would] money be paid without valuations on the land and work completed and verified by independent qualified consultants'.
2. According to Rachael Brady, the Finance Committee, which typically met in the days before a board meeting, would review the financial status of CornoNero and prepare 'finance packs' for the Board (put together by Thurgood).
3. At the 3 February 2016 board meeting, Breckenridge recalled there being 'a lot of discussion about WIP and projects including Mernda'. He explained that they had been working with UBS and 'the reason it was sitting in WIP was there was no one to invoice for it at that particular time'. When it was suggested to him that there was no work done at Mernda in February 2016, he replied that 'we were starting', 'actively gearing up to establish on site', and that trees had already been cleared and a sewer main installed to the north.
4. Circulated to the Board ahead of the 11 March 2016 joint board meeting and finance committee meeting, was the February 2016 Financial Report. It stated that 'a large amount of WIP was held on Retention Claims, this was invoiced in February. Balance of WIP is predominantly Preston and Mernda'. Further that 'Mernda [had] slowed due to developer buy-out delays' and that the WIP on Mernda was not being claimed.
5. Circulated to the Board for the 30 May 2016 board meeting, was the April 2016 Finance Pack. It said that WIP was predominantly Preston, Newcastle and Mernda, and that the WIP for Mernda was not being claimed.
6. As will be recalled, a board meeting occurred on 30 May 2016. Breckenridge said that during discussion of the MDA, McEniry said 'we shouldn't do any more work on the project until it's executed. We shouldn't incur any more costs, we shouldn't rack up any more bills'. Those comments were supported by Hartwig, who wanted to know when CornoNero would get paid. Breckenridge said that he replied by saying that execution, settlement and payment were expected at the end of the month.
7. Breckenridge's evidence was that on 3 August 2016 he met with Barry about the MDA. He told Barry that he wanted an advance on the development sum in order to get paid and continue work on the project. Barry replied that he 'knew CornoNero had done the work' and that he wanted CornoNero to 'continue to accelerate the program in order to meet the dates on the Coles AFL'. However, he also said that even if CornoNero signed the MDA, 'the preconditions' had not been met concerning drawing down on the claims. Breckenridge pointed out to Barry that MJSC would have the bank guarantees and that he wanted to explore a way to obtain an advance on the development sum. In his view, he had to seek an advance to continue the project. According to Breckenridge, Barry responded by saying that it would have to be by way of a loan agreement, because the preconditions had not been met.
8. On 4 August 2016, Breckenridge emailed Barry with the subject line 'Mernda Misc. Items from last night'. The email commenced by noting the 'very productive conversation last night'. After expressing agreement to certain matters and proposing others, the email stated:

I understand we are planning to sign tomorrow, however I would like you to put some though [sic] to entering into our loan agreement now as it will be secured under a Bank Guarantee. Our end of month payments we were discussing our now past (not my usual practise). I assume this payment/advance will be in the form of a Transfer versus Cheque?

1. Breckenridge said he sent this email to 'try and push the matters referred in it along, which included the $1,000,000 advance'. He said that 'he wanted to get access to some funds to clear the WIP on the Mernda project because [he] knew the Board had expected some payment not long after the 30 May 2016 board meeting, which had not yet eventuated due to the delay in finalising the deal'. He said that, at this point, he understood that the $1 million would be paid back to MJSC out of the first progress payment raised by CornoNero. He explained further that the cash was needed to address short term cash flow issues for CornoNero, which had accumulated 'a significant WIP for the Mernda project including through design, documentation, engaging consultants and early works', as well as deposits for subcontractors.

1. Breckenridge said that when he presented the June 2016 CEO Report he told the Board that 'we had arranged an advance of $1 million against the development agreement to keep the project moving'. He said that he explained that 'although the MDA was being executed the next day, the preconditions of the MDA had not yet been met, which meant that CornoNero was unable to receive a drawdown in accordance with the agreement'. He recalled Hartwig responding 'thank god we are getting paid', in circumstances where, according to Breckenridge, 'we had some average debtors and WIP sitting there at that time, and there was no other objection to what we were trying to achieve by getting the money and continuing the project'. He did not give evidence that he informed the Board that the advance was structured as a loan.
2. As will be recalled, Breckenridge also said that, consistent with the minutes of meeting, the June 2016 Finance Reports were presented and accepted at the meeting.
3. Neither the tabled documents nor the minutes of the 8 August 2016 board meeting make explicit reference to a loan or advance in relation to the Mernda project.
4. Hartwig gave evidence that, as at the 8 August 2016 board meeting, CornoNero had done work for MJSC that had not yet been invoiced to the value of approximately $1.5 million. He said that Breckenridge 'spoke about that in executing the development management agreement that it had been agreed with MJSC to advance $1 million under the agreement'. That is, Breckenridge said that:

in executing the document it had been agreed that MJSC would advance $1 million to CornoNero, pending the completion of the claim process, which, under the contract ... they would be moving to make a claim and at that time and there was about $1.49 million owing to CornoNero.

My understanding was that work had been done on the site. That was done in preparation for the settlement with MJSC with Coonwarra and the execution of the development management agreement. It had been spoken about at board before, about doing work without having it contracted and Peter had arranged that MJSC would advance $1 million whilst the - on the execution of the documentation, whilst the approval - the progress claim approval process was being managed through the system.

In his view, the $1 million would be deducted from the first claim. He did not recall Rachael Brady commenting on those matters and said that he 'knew there was board support for it'.

1. Rachael Brady disputed Hartwig's evidence that the Board approved the MLA.
2. In relation to Breckenridge's evidence that he briefed the Board concerning preconditions for payment in the MDA and the need for a $1 million advance, Rachael Brady's response was similar. She said that she 'absolutely' did not recall Breckenridge saying anything to that effect and rejected the assertion that Hartwig said 'thank God we are getting paid'. She said that, 'there was no discussion of a loan because the first person they would go to for a loan was my father if money was needed. It was absolutely not discussed, not authorised at all'. She again rejected the suggestion that she was reconstructing her evidence in circumstances where she could not remember, saying:

I can certainly tell you, if somebody was going for a loan in our business I would have known about it because it has to be authorised by all board members. I would have spoken to my father, we would have lent the money in. Why would we pay such a high interest when we could get a low interest from Mr Brady? It was never discussed. It was never authorised.

In response to the suggestion that her evidence was difficult to understand in light of her recollection otherwise, she said:

You could ask me about any meeting, [Counsel] about a loan of $1 million and I can tell you with artefact, hand on the bible, it was never discussed, it was never authorised. In fact, I had a conversation with Mr Hartwig who admitted it was never discussed with the Board and that he and [Breckenridge] signed it.

Challenged as to why that evidence was not in her witness statement, she explained that if she had put everything in her witness statement it would have been 'a million pages long'. When it was again put to her that she had could not recall what happened at the meeting she stated:

I can't but what I can tell you again, exactly like the day your child is born ... you can remember certain things and you can't and I can guarantee you that the loan document was not discussed, it was not authorised, again because if the company needed money it would have gone to Geoff Brady for a cheaper percentage than what we were paying Kelvin Barry and the [MJSC] contract was not authorised because we are not a developer construction company.

1. When cross-examined, Rachael Brady accepted that her oral evidence concerning an asserted admission by Hartwig was the first time that she had put forward such a position, and that admission was as to 'a very important matter'. She said that the evidence was not in her witness statement because a 'million things' needed to go in and she had 'missed some things', and denied that she was making her evidence up and that it was false and dishonest evidence. Ultimately, the contention that Hartwig made the admission asserted was not pressed.
2. In relation to her evidence that the Board would not have agreed to borrow funds from MJSC when better rates could be obtained from Geoff Brady, Rachael Brady was taken to the MLA, which showed an interest rate of 5 percent. She accepted that she had been mistaken earlier in recalling the rate as 10 percent. After being shown the supporting documents, she also accepted that GB Autos was charging CornoNero 10 percent interest on the 6 November 2015 loan facility and GBSFT was charging Ascenzo Industries 20 or 25 percent on the mezzanine loan. It was then put to Rachael that her evidence of Geoff Brady making a loan to CornoNero at less than 5 percent was far-fetched. She replied, 'I say Geoff Brady was never given the option of discussing it because we didn't know about the loan'.
3. Geoff Brady said that the MLA was not disclosed to the Board 'before or after the event'.

1. On 9 August 2016, Breckenridge and Hartwig executed the MDA and MLA. Breckenridge described this as executing the MLA 'for the advance of the $1 million'. He said he did not believe that the MLA needed to be approved by special resolution 'because it was a budgeted project and formed part of the $16 million drawdowns as part of the development agreement'.
2. Hartwig gave evidence that he executed the MDA and MLA on the firm belief that he had full support of the Board and that it was a contracted and budgeted job.

1. Breckenridge said that after executing the documents, Barry wanted to leave the meeting and transfer the funds overnight. However, as he had some urgency from Thurgood to try to 'get the money across into the business', he asked Barry how 'CornoNero could get a hand' on the money. He told Barry that he would like the money 'now' and they walked to a bank teller and made the transfer. According to Breckenridge, when they arrived at the bank teller, Barry asked him for CornoNero's bank details. Not knowing those details off the top of his head, he said that he called Thurgood and asked 'where am I putting the money' to which Thurgood is said to have told Breckenridge to put it into his account so the transfers were to an NAB account for speed purposes_._ After the conversation with Thurgood, Breckenridge said he gave his bank details to Barry and the transfer of the $1 million was made into his personal bank account. Breckenridge said the account was his everyday account, which he and his family used 'to pay groceries, fuel and everyday expenses'. He said that 'the payment into that account was unexpected'. Breckenridge said that following the transfer, Barry was in a rush and 'went to his meeting'. He then waited approximately two hours until the money cleared into his account and drove to the NAB in North Melbourne. Once there he said he called Thurgood and asked him for the details of where the funds needed to be transferred. Breckenridge said Thurgood called him back and spoke through a list with him while he was at the teller: 'we spoke through it and I gave the instructions to the teller over the phone with [Thurgood]'. Breckenridge said the teller:

actually withdrew the total funds in one go or in - for the small transfer, from memory, and then made all the transfers - the transfers ended up missing the cut off for the tele-transfer that night and ended up going through the next day but I did the transfers as they were closing on the ninth.

1. A CornoNero Westpac bank statement showed a deposit of $499,930 on 10 August 2016 with the description 'Peter Andrew Brec Payment'. Breckenridge agreed that that was part of the $1 million and said that he was not sure how it happened that that description was used. As to why he did not call the payment 'Mernda loan', he explained:

Because it had been discussed - when we went through the payments on the phone with Bill they had already also sent me a spreadsheet so it was all done very quickly before the bank closed and the transaction and the transaction - the full $1 million was taken out and that's how the description was written up. There was no reason behind it. I thought Bill would have accounted for it when it hit the account.

When asked whether calling the payment 'Peter Andrew Brec Payment' gave the appearance that it was a payment from him to the business, Breckenridge responded: 'Yes. I'm not sure'.

1. Breckenridge also gave evidence that before the meeting at ABL, Vallabh sent him a spreadsheet of a 'general payment list that we ran and it was often communicated with CornoNero of how money would get paid out when it got paid in'. He said that the spreadsheet, a 'creditor payment list', contained reference to 'the payments that were made on top of the [$499,930]'. Breckenridge rejected the proposition that he paid the money through his personal account, and then a balance of it into the CornoNero account under his name, because he wanted to disguise the fact that it was a Mernda loan.
2. According to Rachael Brady, on 13 October 2016, Thurgood told her that there was 'a lot that [she] needed to know' and there was a $1 million loan from MJSC to CornoNero that the Board had not been made aware of. Further, that the money had not been deposited into the CornoNero bank account, but directly into Breckenridge's bank account for him to distribute. She said that she first became aware that CornoNero had borrowed funds from MJSC from this meeting. She said she did not know how or why the MLA was executed. She said that, in relation to both the MLA and the bank guarantees there was no disclosure to the Board or the Finance Committee of the intention to enter into those documents or of the actual execution of those documents. She did 'not recall any discussion, whatsoever, whether at board meetings, Finance Committee meetings, or even informally in day to day discussions' relating to either of the ADA, MDA or MLA.
3. Geoff Brady gave evidence that in around mid-October 2016, he had a conversation with Rachael who informed him that 'there had been a number of transactions and deals made by Peter and Brett without the knowledge of the CornoNero board', including that CornoNero had entered into the MDA and had borrowed $1 million from MJSC. He said that that was when he first became aware of the MLA, and he was unaware of any legitimate basis for entry into the MLA or when it was executed. Additionally, that entry into the MLA and the provision of the guarantees were not matters disclosed to the CornoNero board before or after the event.
4. On 27 October 2016, Rachael Brady sent an email to Breckenridge, copying Jean Brady and Roberts, saying: 'can you please get back to me today with where the $1 million loan from Mernda was deposited and attach advice'.
5. Geoff Brady said that the MLA was repaid with interest in about December 2016 and that he arranged for it to be paid from his own funds following discussions with Barry in around late November 2016.

1. CornoNero said that the evidence established that:

(a) the liability created by the MLA was not identified in any budget or business plans and was not tabled at any board meeting or discussed. It was not referred to in any board documents or minutes of meetings;

(b) the lack of identification of the MLA in such documents was deliberate;

(c) Breckenridge did not adequately explain why he deposited the funds into his personal account. Further, he deposited the $499,930 with the description 'Peter Andrew Brec Payment'. It was asserted that it should consequently be inferred that he was attempting to hide the funds and conceal their origin.

(d) Breckenridge's management had pushed CornoNero to the edge of insolvency such that he needed the loan to continue the 'illusion' that CornoNero was operating normally.

1. CornoNero submitted that Breckenridge's characterisation of the MLA as an advance was not reflective of the terms of the MLA itself; that taking out the loan was not in CornoNero's interests because any profit under the MDA would be reduced; it had not been approved by the Board and was deliberately concealed; the payment was not to be made to CornoNero directly; and that CornoNero could not repay the loan as it had no ability to fund and complete its obligations under the MDA.
2. It also submitted that Hartwig breached his directors duties because he executed the MLA knowing that it was not in CornoNero's interests, had not been approved by the Board and that CornoNero could not repay the sum as it had no ability to fund and complete its obligations under the MDA.
3. Breckenridge submitted that he did not breach his directors duties. In relation to s 180(1), he said that the foreseeable risk of harm was very low (as the MDA was simultaneously entered into) and the $1 million advance had obvious benefits in assisting with CornoNero's short term cash flow requirements. He said that he negotiated an advance on works already completed and it was Barry who sought documentation as a loan. He said that he advised the Board during the 8 August 2016 meeting that a $1 million advance was being sourced from MJSC, four days after he emailed Barry about the issue. He said that the evidence demonstrated that he did not need to obtain approval by special resolution for entry into the MLA because Mernda was a budgeted project and the Board had approved such a budget during the 8 August 2016 board meeting. He also submitted that even if the court was satisfied that there had been a breach, he exercised his business judgment in accordance with s 180(2).
4. Breckenridge submitted that it was in CornoNero's best interests to get paid as soon as possible, as the comments of McEniry on 30 May 2016 indicated. A reasonable person with knowledge of the terms of the MDA, the cash flow position, and that CornoNero had done the work on Mernda, would have agreed to the MLA. He did not act for an improper purpose. The purpose of his actions was to facilitate short term cash flow difficulties and the funds from the MLA were applied for CornoNero's benefit. He did not have a proscribed purpose to cause detriment to CornoNero, as it was effectively an advance (at 5 percent) against works completed. Any detriment was said to be minimal when compared to the short term cash flow assistance provided.
5. Hartwig submitted that there was no basis upon which it could be found that he had breached his duties. The Board was advised of the proposed entry into the MLA and he reasonably believed it to be a mechanism to access funds from MJSC.

1. The evidence establishes the following.
2. The Mernda Loan Agreement was in the nature of an advance by MJSC to CornoNero in respect of work done or to be done under the Mernda Development Agreement, to be offset against its obligation to make payment to CornoNero under the first progress claim to be submitted under the MDA.
3. The commercial purpose of the loan was to provide funds to CornoNero to continue development works in circumstances where, under the MDA, CornoNero was not yet, but would be in the future, entitled to a progress claim under the MDA. The consequential $1 million debt was to be offset against the amount to be that MJSC would owe CornoNero upon approval of the progress development claim - i.e. crystallisation of the contingent liability to pay for pre-contractual works.
4. CornoNero was continuing to work on the Mernda project throughout 2016 and accumulate WIP; circumstances that were known to the Board and the Finance Committee. The Board was concerned about the accumulating WIP and considered it in CornoNero's interests to achieve a position where it was earning revenue (i.e. being paid) for that work, as soon as possible. McEniry said in the 30 May 2015 board meeting that CornoNero should not incur any more costs on Mernda until the MDA was executed.
5. The advance was at the cost of a 5 percent per annum interest charge. That rate of interest was not shown to be uncommercial. It was in fact half of the rate that Brady's interests were charging CornoNero on other loans.
6. Breckenridge and Hartwig caused CornoNero to enter the MLA for the commercial purpose described. Breckenridge made the assessment that the detriment to CornoNero of incurring interest charges was outweighed by the benefit of obtaining immediate cashflow. It can be inferred that Hartwig made the same judgment.
7. Although the evidence about what was said at the August 2016 board meeting was scant, on balance I accept the evidence of Breckenridge and Hartwig and prefer it to that of Rachael Brady and Geoff Brady. That a substantial advance had been arranged to keep the project moving was responsive to the Board's concern that payment for the work incurred be achieved as soon as possible, and there is nothing in the evidence to suggest that it was inherently improbable that the Board was told that an advance had been arranged. Furthermore, for the Reasons set out earlier, Rachael and Geoff were both demonstrated to have had very poor recollections of what occurred at board meetings. Rachael was present at the August 2016 meeting, and Geoff was not. Rachael's evidence about that meeting is set out earlier in these Reasons. Her recollection was extremely poor and unreliable. Her evidence about the loan agreement was strongly suggestive of reconstruction. She emphasised that the reason she took the position that there was no discussion about a loan was that, 'the first person they would go to for a loan' was her father, and that Geoff Brady would have lent money at a lower interest rate. She later accepted that she was mistaken about the interest rate.
8. I accept that the Board was not told of the means by which the advance had been secured. However, it was not established that there was anything uncommercial about the terms of the agreement. It was expressly within the power of the CEO to negotiate contracts in respect of CornoNero's projects.
9. Although the direct payment into Breckenridge's bank account could be described as unprofessional, it was not asserted that he used that money for himself. In fact, it was almost immediately paid out for purposes not shown to be other than CornoNero's purposes. It was not established that the deposit was made in order to disguise the fact that an advance had been obtained.
10. There is no basis on which to find that either Breckenridge or Hartwig breached their duties of care and diligence in causing CornoNero to enter the agreement.
11. If that is incorrect, I would be satisfied that they each made a business judgment in good faith and for a proper purpose, about which each informed himself to the extent he reasonably believed appropriate and that each rationally believed that the judgment was in the best interests of CornoNero. My reasons for so concluding are apparent from the preceding discussion. Each was informed about the need of CornoNero for payment for the Mernda project work as a matter of priority. It can be inferred from the circumstances that each was informed about the terms of the agreement and the risks and benefits to CornoNero and engaged in an adequate path of reasoning in respect of the decision.
12. There was no evidence that either Breckenridge or Hartwig acted in bad faith or for an improper purpose in causing CornoNero to enter the MLA. There was no evidence of an ulterior motive and strong evidence that the loan was procured for a proper purpose.
13. CornoNero submitted that the Mernda Loan Agreement was a liability that required approval by the Board by special resolution (in accordance with the Shareholders Agreement and Expenditure Guidelines) and no such approval was given. The MLA was not identified in any CornoNero budget or business plan, nor was it tabled at any board meeting or discussed.
14. Hartwig and Breckenridge conceded that under the Shareholders Agreement, a special resolution of the Board was required in respect of entry into the MLA.
15. However, they submitted that the fact that the advance had been agreed was disclosed, and not the subject of an objection, meant that despite the lack of a written record of resolution, the special resolution requirement was satisfied.
16. The Shareholders Agreement defined a special resolution (in the case of the Board) as 'a vote or resolution passed by directors who are presently in person or by proxy and entitled to vote and together hold 65% or more of the votes of all directors present in person or by proxy and entitled to vote at a meeting of the Board'.
17. Despite the absence of special resolution, given the conclusions I have reached regarding the entry into the MLA, and in view of the Board's usual practice of approving projects by incorporating them into an annual budget (which occurred in respect of the Mernda project, the day before the MLA was executed), I do not consider that the failure of either Breckenridge or Hartwig to required a special resolution was a breach of their duties of care and diligence. If they were negligent, they would be entitled to be excused under ss 1317 and 1318 of the Corporations Act. It appears sufficiently from the evidence that they each acted honestly i.e. without deceit or conscious impropriety. There was no evidence that they were seeking personal benefit. Their conduct did not exhibit a degree of carelessness or imprudence that negated the performance of their duties. In all the circumstances, particularly having regard to the terms of the MLA and the commercial purpose for which it was obtained, I consider that it they were in breach of their duties they should each be fairly excused.

1. It is unnecessary to consider the allegations as to misleading or deceptive conduct. The factual basis for those allegations has not been established.
2. It is unnecessary to consider the question of loss.

A Non‑disclosure of the Asset Development Agreement with Coonwarra

1. CornoNero's position was that to the extent it was proposed CornoNero assume any obligations under the ADA, Ascenzo, Breckenridge or Hartwig were required to disclose to the Board that Trimont and Coonwarra had entered into the ADA.
2. It submitted that it had no interest in the ADA and unless and until CornoNero either purchased or assumed obligations under the ADA or was about to do so, there was I no need for disclosure.
3. It said that were three situations that would have given rise to an obligation for Ascenzo, Breckenridge or Hartwig to disclose to the CornoNero Board the existence of the ADA:

(a) CornoNero had acquired the ADA under the Business Sale Agreement;

(b) CornoNero (if that was the fact) had assumed obligations under the ADA and as performing works under it; or

(c) CornoNero (if that was the fact) guaranteed payment to be made by Trimont under the ADA.

1. None of the above situations did in fact occur. The ADA was an agreement between Coonwarra and Trimont. CornoNero did not acquire the ADA under the BSA. The obligations under the ADA were at no point in time novated to CornoNero. Finally, CornoNero did not enter into a binding Development Guarantee which guaranteeing to Coonwarra benefits promised by Trimont to Coonwarra.
2. If CornoNero is found at some point to have undertaken to Coonwarra the performance of Trimont obligations of the ADA, it would have been incumbent on Ascenzo, Breckenridge and Hartwig to have made prior disclosure of the existence of the ADA to the CornoNero Board.
3. At this time, it was incumbent on Breckenridge, Hartwig and Ascenzo (all being directors with knowledge of the existence of the ADA) to disclose the true situation. This would have required a disclosure of the ADA. By not disclosing the ADA, and representing that CornoNero was doing work at the Mernda Land, Breckenridge, Hartwig and Ascenzo breached their director's duties pursuant to ss 180-182 of the Corporations Act and engaged in misleading and deceptive conduct, or conduct which was likely to mislead or deceive contrary to section 18 of the ACL.
4. Breckenridge submitted that there was no distinct duty to disclose the existence of the ADA to the board of CornoNero. The arrangements effected by CornoNero for its management gave a wide discretion to Breckenridge as CEO. By clause 8 of the Shareholders Agreement Breckenridge had an obligation to report to the board in respect of the discharge of his duties and 'generally on the activities of' CornoNero. That obligation was discharged. There was no separate obligation to disclose the ADA, provided that the material effect of the ADA on the proposed Mernda transaction was disclosed. That happened when the board was told what would happen with the Residual Payment.
5. Breckenridge submitted that 'Coonwarra's connection' to the proposed Mernda transaction was explained to the board. That disclosure discharged any duties owed by Breckenridge. CornoNero was not the subject of any obligations pursuant to the ADA. Breckenridge did not have any financial interest in Trimont or Coonwarra. There was no separate or distinct duty to disclose the terms of the ADA to the CornoNero board.
6. It was accepted that there was no disclosure of the ADA itself.
7. Breckenridge gave evidence that at no stage did he think he was required to disclose the ADA. The reason he held that belief was because CornoNero was not subject to the obligations pursuant to the ADA. That is, the ADA was an agreement between Trimont and Coonwarra.
8. The evidence of Geoff Brady on the subject of when he became aware of Coonwarra and the ADA was confused, and is set out elsewhere.
9. Hartwig gave evidence that he did not recall the ADA being discussed with Rachael. This is because he understood CornoNero to have no involvement with the ADA and therefore there was no need to discuss it.
10. Ascenzo gave no evidence that he discussed or disclosed the ADA to the Board of CornoNero.
11. Breckenridge did not disclose to the CornoNero board that Coonwarra and Trimont had entered into the ADA.
12. However, he said that the evidence demonstrates that Mernda transaction was discussed repeatedly and in detail at board level, and the commercial impact of the ADA on CornoNero was disclosed. The board was told that 6.5 million (plus interest) of any funds in the Residual Payment under the Mernda Development Contract were to be paid to Coonwarra. That was said at the board meeting on 30 May 2016. This did not disclose the ADA in terms, but it disclosed its material effect, as it concerned CornoNero. The evidence about what was told to the board accumulates by reference to the board meetings between June 2015 and May 2016. The evidence about the 30 May 2016 meeting shows that a detailed explanation of the proposed the Mernda Development Contract was provided. That evidence is perfectly plausible. It is easy to accept that the board would be discussing this major, high‑profile project. Documents from the time corroborate the witness evidence of the defendants.
13. Breckenridge was the only witness to give evidence that he told the board of the substance of the commercial effect of the ADA. His evidence was given in unspecific terms.
14. As discussed earlier in these Reasons, the ADA was novated to CornoNero in July 2015. As a result, CornoNero continued the relationship that Trimont had had with CornoNero, in the ways discussed above.
15. The ADA was in my view a significant agreement for CornoNero because it was the foundation on which CornoNero was developing the Mernda Land, in preparation for and anticipation of the sale to MJSC and execution of the MDA which was, on any account, a significant agreement for CornoNero. Furthermore, Coonwarra's interest in the Land (as its owner) and in the development, given the history of its relationship with Trimont and then CornoNero, led it to request the Development Guarantee, a request that Breckenridge granted after the exercise of some pressure by Ben Van der Burgt, in recognition of the parties' relationship and Coonwarra's entitlements under the ADA.
16. In my view a reasonable director would have disclosed that relationship and more particularly the ADA, to the board, particularly because of the profit sharing mechanism it contained. Without that disclosure the board was not fully informed about a major project that the company was undertaking.
17. Breckenridge was in a position to have done so, as executive director. That he did not do so kept the board uninformed about a significant matter. That is so, notwithstanding that it had vested in Breckenridge general powers to administer contracts.
18. I consider that Breckenridge failed exercise the requisite standard of care by failing to make that disclosure.
19. Hartwig said that CornoNero could have had no reasonable expectation of disclosure being made to it of the existence of the ADA by Hartwig and Hartwig was under no legal duty to make any such disclosure.
20. The real complaint made by CornoNero is that Breckenridge and Ascenzo may have, without authority, committed CornoNero to a liability under the ADA and any such commitment ought to have been disclosed.
21. Against this background, CornoNero was not incorporated until 1 July 2015. Accordingly, the earliest time from which Hartwig could have disclosed the ADA to the board of CornoNero was 1 July 2015. By the time CornoNero was incorporated, the ADA had already been entered into. The parties to the ADA were Coonwarra and Trimont. CornoNero was not a party to the ADA, and was not subject to any contractual obligations under the ADA. Any liability that CornoNero may have had under the ADA arose only (on CornoNero's case) by reason of the conduct of Breckenridge and Ascenzo; not Hartwig. In the result, there was nothing about the ADA, its terms or Hartwig's conduct that gave rise to an obligation on Hartwig to disclose the existence or the terms of the ADA to the board of CornoNero. Hartwig had no interest in Coonwarra or Trimont, and was not an employee of either entity. Further, Hartwig was not involved in any of the negotiations which led to the entry of the ADA. Hartwig was not appointed director of CornoNero until 15 September 2015. At the time of his appointment (or any time thereafter) Hartwig had no material personal interest in the ADA, which would give rise to an obligation to disclose under s 191 of the Corporations Act. Further, no conflict of interest arose by reason of the ADA which would have required disclosure to the Board.
22. It is instructive to ask what, precisely, Hartwig ought to have disclosed. Surely, the mere disclosure of the existence of an agreement between Trimont and Coonwarra would have had no relevance to CornoNero. Given that Hartwig is not alleged to have been involved in causing CornoNero to assume any liability under the ADA, it is difficult to see what he then should have disclosed.
23. I accept those submissions as reflecting the facts discussed earlier.
24. Ascenzo submitted that there was no basis for imposing on Ascenzo, a non-executive director with no involvement in CornoNero's day-to-day affairs, an obligation of disclosure in respect of a project with which he had no ongoing involvement and that was under Breckenridge's control and supervision. Breckenridge, the CEO, provided a CEO's report to the board of CornoNero prior to each meeting. He prepared job summary reports setting out the status of each project under CornoNero's management. He presented a summary of the pipeline of CornoNero's projects and spoke about the projects in the job summary reports. He was familiar with CornoNero's operating and financial position and the decisions to be made by the board at a particular meeting. Any obligation to disclose to the board of CornoNero the existence of the ADA could, it is submitted, have fallen only on Breckenridge.
25. I accept those submissions as reflecting the respective roles of Breckenridge and Ascenzo, as set out earlier.
26. CornoNero submit that it is exposed to loss in relation to:

(a) the determination of Coonwarra's claims in its proceeding against CornoNero in relation to the novation of the ADA, the Letter Guarantee and the Development Guarantee; and

(b) CornoNero's claims against the Defendants in this proceeding in relation to the MDA.

1. The Coonwarra proceeding has exposed CornoNero to the relief claimed by Coonwarra in respect of the alleged novation of the ADA, the Development Guarantee and the Letter Guarantee. The entry into, and termination of, the MDA has caused CornoNero to incur significant costs.
2. CornoNero submits that if it is liable to Coonwarra for any loss, it is entitled to recover this loss from Breckenridge, Hartwig and Ascenzo. That loss will be measured by any amount awarded in the Coonwarra proceeding arising from the novation of the ADA or breaches of the Letter Guarantee and/or the Development Guarantee.
3. On the question of loss, CornoNero did not establish by any evidence, what would have occurred had the ADA been disclosed to it. There no basis on which to conclude that it would have prevented any of the conduct that has led to Coonwarra proceeding against it or recovering against it. There is simply an insufficient evidence basis on which to draw any conclusion. CornoNero's submissions did not address the causal connection required between conduct and loss.
4. It is unnecessary to address the Development Guarantee or the Letter Guarantee, as they did not give rise to any liability in CornoNero.
5. Finally, it was alleged that Breckenridge breached his duties owed to CornoNero by retaining Norton Rose solicitors in the MDA-MJSC transaction. There was no basis to conclude that Breckenridge engaged in any negligent conduct or any failure to disclose. He retained Norton Rose to act as CornoNero's solicitors in that transaction. He also retained them to prepare a contract of sale for Coonwarra's sale of its land. Norton Rose did not advise Coonwarra. No consequence to CornoNero has been shown to have arisen as a result of the retainer of Norton Rose.

1. BCD alleges that it loaned $600,000 to CornoNero and that amount was never repaid.
2. It is alleged that the loan agreement was partly written and partly to be inferred. In a letter dated 14 September 2016, CornoNero wrote to its shareholders to ask for funds (Request Letter). On 20 September 2016, BCD transferred $600,000 to CornoNero's bank account. The loan was recorded on CornoNero's balance sheet thereafter. GJB Building paid a concurrent loan.
3. BCD alleged that it was a term of the agreement that any advance would be repayable on demand. On 23 July 2021, it demanded repayment of the 20 September 2016 advance. By failing to repay the advance, CornoNero was in breach of the loan agreement and indebted to BCD in the amount of $600,000.
4. BCD seeks to set off any of its liability to the plaintiff against the liability of CornoNero under the counterclaim.
5. CornoNero admitted by way of defence that the Request Letter was sent to shareholders on 14 September 2016. Shareholders were requested to make a proportional contribution on a short term basis. It was agreed that BCD made a deposit of $600,000 on 20 September 2016, and that repayment was later demanded on 23 July 2021. It admitted that it had not paid BCD any part of the amount of $600,000.
6. CornoNero otherwise denied that the letter formed part of a loan agreement or that any such agreement was entered into or that it gave rise to any obligation for money to be repayable on demand.
7. CornoNero asserted that the Request Letter proposed an arrangement between shareholders only, and that it was not a party to any such arrangement. Alternatively, it was CornoNero's case that if there was an agreement, it was a term of that agreement that repayment would only be effected once CornoNero had generated a positive cashflow. That had not occurred. Alternatively again, it was a term of that agreement that repayment of BCD's advance would be subordinate to the repayment of moneys owed to the Brady interests which had not occurred.

1. BCD demarcated the issue in dispute for decision to be whether CornoNero is obliged to repay the loan. The parties otherwise agree that $600,00 was paid by BCD to CornoNero in September 2016.
2. BCD submitted that although its advance was not the subject of a written agreement, it can be inferred that BCD and CornoNero entered into a loan agreement. BCD submits that a loan agreement can be inferred by the terms of the Request Letter, the narration of the deposit by BCD into the bank account of CornoNero, and that the funds were recorded as a loan liability in CornoNero's balance sheets for FY2017 and FY2018.
3. It was BCD's submission that there was no evidence that any advance would be repayable only when CornoNero had generated positive cashflow. The term was not made in writing or orally. It was submitted that the term does not pass the threshold set in Codelfa Construction Pty Ltd v State Rail Authority of NSW[440] to be implied to give business efficacy to the agreement.
4. BCD does not plead that the loan was repayable in December 2016, as stated in the Request Letter. It submitted that the language of the letter was too imprecise to give rise to that term. Instead, it was BCD's case that as there was no specific term that dealt with repayment, it was implied that the advance was repayable on demand. BCD relied on authorities that stand for the common law principle that absent an express term, it is implied that a loan is repayable on demand.[441]
5. In response to CornoNero's contention that a subordination agreement arose per Hartwig's email of 31 October 2016, BCD submitted that the email constituted an offer of settlement. It does not give rise to an enforceable agreement as there was no evidence that CornoNero accepted that offer either orally or in writing. There was no evidence that CornoNero intended to be immediately bound by the terms of the offer of settlement or that it performed each of the six elements of the offer.
6. It is not disputed that CornoNero has not repaid the sum of $600,000 to BCD. BCD submitted that by failing to repay the advance upon receiving the demand on 23 July 2021, CornoNero breached the terms of the loan agreement.
7. BCD is therefore entitled to damages in the amount of $600,000. It alternatively seeks damages awarded in the sum of $599,330 as the sum recorded in the financial statements for FY2017 and FY2018. The Hartwig Parties are unable to explain the $660 discrepancy but submitted that the difference is immaterial. If BCD is found liable to CornoNero, BCD submitted that it is entitled to set off the amount awarded in its counterclaim.

1. CornoNero's case is that no loan agreement exists between CornoNero and BCD. The Request Letter does not constitute a loan agreement. CornoNero characterizes the Request Letter as a proposed arrangement between its shareholders. The letter discusses the company's financial difficulties and the need for short term funding. Shareholders were asked to contribute funds in proportion to their interest. The proposed arrangement did not adhere to the process outlined in the Shareholders Agreement which provides for such loans to be made.
2. CornoNero submitted that BCD appreciated that its counterclaim was unviable, as it did not rely on the Shareholders Agreement and had considerably delayed bringing the claim.
3. Alternatively in the case that the Request Letter gave rise to an agreement, CornoNero submitted that it had contemplated that the company would achieve a positive cashflow by December 2016 and that the Request Letter had explicitly stated that loaned moneys would be repaid by that stage. BCD's contention that there was an implied term that any repayment be made on demand is inconsistent with the express statement contained in the Request Letter. It was instead the intention that any advance would be repaid once CornoNero's financial circumstances, as discussed in the letter, had been alleviated and the company had generated a positive cashflow. CornoNero has not reached a positive financial position and so repayment of the BCD advance is not yet due.
4. CornoNero relied on the principle espoused in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd that the construction of a contract should be construed by reference to text alone.[442] In that respect, if an agreement arise on the basis of the Request Letter, CornoNero is only indebted up to $300,000 to BCD.
5. It was submitted that a subordination agreement arose out of an email from Hartwig to Philip Jones on 31 October 2016. Hartwig agreed for the loan to be 'fully subordinated' to the loan from the Brady interests.

1. The evidence comprised correspondence and evidence of Hartwig, the Bradys and Breckenridge.
2. At the heart of BCD's claim is the Request Letter. On 14 September 2016, a letter was sent to the CornoNero shareholders. The author was Breckenridge. He gave evidence that in September 2016, CornoNero was under cash flow pressure. He raised the need for short term funding with Hartwig and Geoff Brady. He met with Geoff Brady at a café in South Yarra to discuss the matter. He said that Geoff had instructed him to prepare the Request Letter. Geoff Brady recalled having a conversation with Breckenridge about funding in or about September 2016, and that Breckenridge had said the funding was needed to allow CornoNero to continue working on its projects. He said that he explained to Breckenridge that he was only willing to put in funds concurrently and in proportion with the other shareholders. He said that he believed at the time that all shareholders were participating in the capital funding call. Brady later could not recall the Request Letter in his oral evidence.
3. The Request Letter read as follows:

14/09/2016

To the CornoNero Shareholders,

Based on the current position of CornoNero Pty Ltd we are requesting from the Shareholders to commit $2m of short term funding. We are proposing to have the debt repaid in December. These funds are required for two reasons:

1. We will be experiencing a large increase in costs with the commencement of Glen Waverley and Dandenong including the continuation of early works at Mernda.

2. We plan to accelerate the projects of Preston, Brunswick, North Fitzroy and South Melbourne to reach our top line projected figures.

We propose that the funds be lent to CornoNero based on the shareholdings.

GJB Building: $1,020,000

AI & PB: $ 680,000

BCD: $ 300,000

Total: $2,000,000

The attached cash flow demonstrates the ability of CornoNero to repay the borrowing in December. This will be completed by two methods:

1. Funds received now will be paying for Creditors we factored paying at a later stage.

2. The following two projects which have impacted our prior cash flow will be largely corrected:

3. East Brunswick: As discussed previously we have been approved $1.6m of variations for this project. $1.05m of these variations are to be paid by Christmas, with the balance of $550k being paid on Practical Completion. Both Napier Blakely (QS) and Westpac (developers' bank) are aware of these variations and will be vetting their process.

4. Mernda: we have to date claimed $1.9m of works completed, and of this we have received $1m. By the end of October the developer will be paying the balance of $900k. We are continuing to incur works onsite and in November we will be reverting to a cost to complete claim cycle as per the contract.

It is imperative that we make a strong headway into our construction projects in the lead up to the Christmas break. As we have previously discussed, with December and January being short months, our claims through these periods drop but with a high revenue base in the lead up will cover us into February.

If you have any questions regarding this matter please contact me.

Yours sincerely

Peter Breckenridge

CEO

1. Thurgood emailed a copy of the Request Letter with an updated CornoNero budget to Geoff Brady, Hartwig and Breckenridge on 14 September 2016.
2. On 16 September 2016, GJB Building transferred $1 million to CornoNero's bank account. The transaction description was 'Deposit Gb Motors Austra Brady short loan'.
3. BCD made payment of the contested advance on 20 September 2016. The amount of $600,000 was deposited into CornoNero's account with the narration 'Pymt Ringwood Propert Bcd Loan. Rachael did not deny that BCD had paid $600,000 to CornoNero. Neither did she deny that the payment constituted a loan.
4. Breckenridge had arranged for AI & PB Property Pty Ltd to contribute $400,000. Breckenridge said he raised the funds through a loan from Ben Johnson. GJB Breckenridge had asked that BCD cover the remainder of $280,000 for AI & PB Property's contribution and a further $20,000 to make up the remainder of the GJB Building contribution. Hartwig agreed and BCD paid, in addition to $300,000 as requested, paid a further $280,000 in place of AI & PB Property and a further $20,000 in place of GJB Building. Hartwig said that neither interest nor a repayment date was discussed.
5. Rachael Brady alleged in her written statement that part of the proceeds of the MJSC Loan Agreement were used by AI & PB Property to meet its capital contribution. She later withdrew that allegation in her supplementary evidence.
6. Breckenridge said that the $2 million was used to reduce CornoNero's trade creditor debt. In an email to Breckenridge on 4 October 2016, Thurgood stated _'..._however, that said this was a minor amount of the reduction of creditors from $8.2m to $4.8m. The bulk of this reduction is attributable to the receipt of progress claims and the $2m injection of funds over the past few weeks...'
7. The subordination agreement is said to have been made by way of an email from Hartwig dated 31 October 2016. Hartwig wrote to Philip Jones (with the Bradys in copy)[443] to outline 'terms of settlement' following his meeting with Geoff Brady that morning. The content of the email is set out below.

Dear Philip,

I met with Geoff Brady this morning in order to discuss the proposed way forward in addressing the Financial issues as currently evident in the CornoNero Business.

As a consequence of this meeting and that as subsequently suggested by me to Geoff, I have detailed below the offered terms of Settlement in this matter, together with that which directly impacts the Ringwood Property, Artarmon Property and East Brunswick Loans as held with Geoff; details remain:-

• I will Resign as a Director of CornoNero Pty Ltd immediately and have no further direct involvement in the Business.

• That Berkeley Capital Developments Pty Ltd retains its Shareholding in the Company and that the $600,000 Shareholder Loan as subscribed earlier in the month remains in place but fully subordinated to that of the Brady interests both current and in the future should they need to exist.

• That the existing Minc / Sallon Loan continues to be off set against the final agreed, Minc / Sallon Dandenong Receivable, The East Brunswick Hotel final agreed Receivable and the Armidale Nominees Pty Ltd, final agreed Receivable. That the balancing amount be paid to Corno Nero by no later than the 15th December 2016.

• That the amounts to be paid by the Brady Group specific to the planned completion of the Newcastle Development are all fully repaid to the Brady Group at the scheduled Settlement of that Property which is due on or around the 15th December 2016. We will require to agree a formal Schedule of these Costs and it will include the Telwin Debt.

• That Kanyon Pty Ltd works with Corno Nero in addressing final "Variation Agreements" for works as completed between now and the end of this Project. The final agreed Varia on will be paid by Kanyon on the Settlement of the Property Sale.

• That the BCP Group will continue to introduce Building opportunities to CornoNero and that in particular the project works for Dorcas Street, South Melbourne, Maroondah Highway Ringwood and Cheltenham Road, Dandenong remain a part of the CornoNero "Building Pipe Line". Further to this it is proposed that BCP continues to expand the relationship that exists with the "White & Partners" Group and that BCD/ W&P retains CornoNero as their preferred Melbourne based Builder.

With regards to the Development Loan positions of Artarmon, Ringwood and East Brunswick it is proposed that the following Loan Restructure be contemplated and Documented accordingly:-

BCP Developments will work directly with the Brady Group in a ending to the following in relation to the current level of outstanding's:-

• The previously proposed bulk Debt reduction of $10.00 million against existing Debt be committed to and a ended to via the Sale and subsequent Settlement of the East Brunswick Hotel Freehold ($6.0M) and the Maroondah Highway Ringwood Site.(Net $4.0 million post 1st Mortgage and current outstanding Fees) It is proposed that this will be finalised prior to the end of December 2016.

• That BCP works with "White & Partners" to deliver a Lease to Quest in relation to the Artarmon Property and then a subsequent "Fund Through" Sale of the completed asset to the Asco Group. BCP together with W&P will handle all Planning Leasing and Building delivery matters. Corno Nero Pty Ltd will be given the first right to Build the Property on behalf of the Development Group. Proceeds from the sale of this asset will be allocated as such:-

• First Mortgage Repayment which BCD will deliver manage and Guarantee throughout the term. (Expected to be circa $15.0 Million)

• Post clearance of the First Mortgage debt that the Brady Group receives a Loan Repayment of $8.0 Million. This represents an amount of $7.00 Million owing post proposed debt Reduc on and a further $1.0 Million of capped Interest on the residual debt.

• Profit post the completion of the Development and the Repayment of the Debt is to be split three ways between The Brady Group, W&P and BCD. (Expected to be circa $4.0 Million)

• The Brady Group will not have to provide any Financial Guarantee support to this Development.

Philip, with in excess of $90.0 Million in committed Projects, we remain confident that under new Stewardship the CornoNero Business will be a success. Whilst I acknowledge and very much apologise that certain of my actions in trying to support the constant Cash Flow Demands of the Business since its inception have not have meet with the satisfaction of the Brady Group and other Directors, I can assure that at all times they were undertaken in order to support the Business and give it a chance to establish itself in the market.

I believe that as Shareholders Cameron Hunter and I can make valuable contributions to the Business in the future via the introduction of a wide range of opportunities. I recognise that the Brady Group are fully extending themselves to rectify the trading issues of the Business and that they should be rewarded for this and repaid prior to the Loan position which presently exists for BCD.

I ask that you and Geoff give this your just consideration in respect of both matters which unfortunately I am left to deal with now in my own right. I will do all in my power to deliver a good result in the further Development of the assets as detailed and associated with this proposal together with the Corno Nero Business.

Thanking you in anticipation.

Yours sincerely,

Brett Hartwig

1. Rachael's recollection of the email was that Hartwig had resigned and said '...something along the lines that he wasn't expecting his $600,000 back until Geoff's money was repaid'. Geoff Brady said that at 31 October 2016, it was clear that GJB would have to make substantial loans to CornoNero in order to pay for its debts. He considered that the $600,000 was 'fully subordinated' to the amounts payable by CornoNero to the Brady interests.
2. Hartwig said that Brady had advised that he wanted Hartwig to resign over a 10 to 15-minute discussion in or about late October. Hartwig said he could not recall why he tendered his resignation effective immediately in the email dated 31 October but did not resign until late November 2016. He said that his resignation may have been 'slowed' because Philip Jones was seeking his assistance with Breckenridge's decision to exit CornoNero. He said 'there wasn't any pressure being brought on me to sign documents or walk away. It was a decision I made myself. Geoff Brady said that he considered it appropriate to allow Hartwig resigned instead of requiring his summary removal.
3. On 23 February 2017, Rachael sent an email to Cameron Hunter with the subject line 'Brett information'. Attached to the email was the Request Letter, a copy of CornoNero's Westpac bank account statement, and payment claims made out to Kanyon Pty Ltd for works completed on the Newcastle Development. Rachael noted in the email that the Request Letter had been sent by Breckenridge to Hartwig and Geoff Brady. She confirmed the following deposits had been made:

I have attached the shareholders letter that Peter Breckinridge sent to both Brett and Geoff. You will see from the attached bank account that Geoff deposited $1,000,000 on the 16th September 2016, Brett deposited $600,000 (Ringwood Property Account) on the 20th September 2016 and Peter deposited $400,000 on the 14th September 2016 (this money was borrowed from an employee who borrowed it from other people, Geoff has paid this back to the employee).

...

1. BCD's advance appeared in both the balance sheets of the CornoNero FY2017 and FY2018 financial statements. It is listed as an unsecured loan under CornoNero's borrowings. In both statements the loan appears in the same of $599,330.
2. BCD demanded repayment of the loan on 23 July 2021. Hartwig, Rachael Brady and Geoff Brady gave evidence that that occurred. Geoff Brady said that no settlement agreement had been reached in relation to BCD's repayment demand. He said 'it comes in line after mine so - and mine has not been settled'.

(a) BCD lent to CornoNero the sum of $600,000 by payment into its bank account on 20 September 2016.

(b) The loan was repayable on demand.

(c) The letter of Hartwig dated 31 October 2016 was not an agreement of any kind in respect of the loan, or a variation of it. It was an offer in respect of the financial relationship between Hartwig and his interests and the Brady interests. There was no evidence that it was supported by any consideration.

(d) The loan has not been repaid despite demand.

(e) BCD is entitled to damages in the sum of $600,000.

ANNEXURE A - Connections between people and entities

Hartwig was briefly referred to in the evidence concerning Impugned Payments No. 12 and 63. That evidence was insufficient to establish that he caused or authorised the payment.

The following table summarises the conclusions concerning Breckenridge and Ascenzo for each of the Impugned Payments.

Special Referee finding that payment to a CornoNero creditor or meeting a debt or liability of CornoNero (loan balance)

Pay wages to newly hired employees of Trimont, who worked in a café before Brunswick East permits were approved.

Pay outstanding amounts to SPL Security on behalf of Trimont in relation to Brunswick East, to respond to requests and maintain relationship for CornoNero.

Pay amount owing to House of Bricks' 4 October 2015 invoice on behalf of Ascenzo Industries.

Pay the amount on behalf of Trimont, in order to avoid the removal of material from a CornoNero project site (Lygon Street) and threatened legal action, which would have caused issues for ongoing works at that site.

Pay outstanding sum to American Express on behalf of Trimont.

To pay Origin's overdue notice on behalf of Trimont in relation to South Melbourne.

To pay, in part, the debt owed to the ATO by Trimont (as trustee for the Ascenzo Family Trust), to avoid the threatened enforcement action against Trimont.

Requested payment on behalf of Trimont and developed payment plan for settling ATO debts which involved using CornoNero money to pay the debts.

To pay, in part, the debt owed to the ATO by Trimont (as trustee for the Ascenzo Family Trust), to avoid the threatened enforcement action against Trimont.

Requested payment on behalf of Trimont and developed payment plan for settling ATO debts which involved using CornoNero money to pay the debts.

To pay, in part, the debt owed to the ATO by Trimont (as trustee for the Ascenzo Family Trust), to avoid the threatened enforcement action against Trimont.

Requested payment on behalf of Trimont and developed payment plan for settling ATO debts which involved using CornoNero money to pay the debts.

To pay, in part, the debt owed to the ATO by Trimont (as trustee for the Ascenzo Family Trust), to avoid the threatened enforcement action against Trimont.

Requested payment on behalf of Trimont and developed payment plan for settling ATO debts which involved using CornoNero money to pay the debts.

To pay, in part, the debt owed to the ATO by Trimont, to avoid the threatened enforcement action against Trimont.

Requested payment on behalf of Trimont and developed payment plan for settling ATO debts which involved using CornoNero money to pay the debts.

To pay, in part, the debt owed to the ATO by Trimont, to avoid the threatened enforcement action against Trimont.

Requested payment on behalf of Trimont and developed payment plan for settling ATO debts which involved using CornoNero money to pay the debts.

Pay Stay Tru amount outstanding in relation to the Newcastle site.

Pay the invoices on behalf of Trimont and at least in part, ensure that work by Amis Ceramics continued on projects acquired by CornoNero (including Heidelberg, Newcastle, Brunswick East).

To pay the amount owed to Breese Pitt Dixon on behalf of Trimont Builders, in circumstances in which if not paid, CornoNero's ability to complete works on its project would be impacted.

To pay the outstanding invoices of DA Signs on behalf of Trimont.

Pay the demand on behalf of Trimont and avoid Royal Wolf repossessing site containers and commencing legal proceedings. However, not linked to a particular CornoNero project.

Pay invoices of Coates Hire that were outstanding 60 days or more on behalf of Trimont.

Pay a Hardie Plumbing invoice on behalf of Trimont to respond, in part, to Hardie Plumbing's threat of not returning to the Newcastle site.

To pay Impact Concrete on behalf of Trimont to ensure that Impact Concrete continued to work at the Newcastle site.

To respond to the demands of A3 Design and pay, in part, the amount outstanding on behalf of Trimont Constructions.

To pay, in part, the outstanding debt to B & B Joinery on behalf of Trimont.

To pay in part, outstanding debt due to NHS Plaster & Timber on behalf of Trimont in relation to the Newcastle site.

To pay, in part, SAS Fire's most overdue invoice on behalf of Trimont, to avoid the Newcastle project timeline being delayed or occupation requirements impacted

At least in part, to pay outstanding Grant Fire Services invoices on behalf of Trimont, so that work could recommence on CornoNero sites (including North Fitzroy, Brunswick and Preston).

Pay part of the outstanding amount on behalf of Trimont and ensure that Zontos Roofing completed rectification work at the Newcastle project site.

To pay, in part, outstanding amounts on behalf of Trimont and ensure that Telwin continued work on the Newcastle site.

To settle Trimont debts to McIntyre and Cross and avoid the imposition of interest charges to Trimont's account.

Clearing outstanding Trimont debts at least in part to ensure that Tract would continue working on CornoNero projects Mernda, Preston and South Melbourne.

Pay the remaining balance owed to Modec on behalf of Trimont in relation to the Brunswick East project.

Pay Trimont's outstanding debt in relation to Anderson Road and avoid the legal action threatened by Acoustic Logic.

To settle an outstanding debt of Trimont and avoid threatened legal action by Omnii regarding Taylor Street, Armidale, where there was no evidence that payment was required to prevent work stopping on the project.

To pay outstanding debt owed to EZ Painting on behalf of Trimont, in relation to painting at McCabe's offices.

Clear outstanding Trimont debts at least in part to ensure that Combined Safety Services would certify work at the Newcastle project.

Pay amount to APOL on behalf of Trimont for items at Darebin Street Heidelberg.

Pay, on behalf of Trimont, an Epping Timber Invoice printed 11 August 2015 in relation to Fitzroy North.

Pay, on behalf of Trimont, the amount demanded by Easy Tower.

Respond to Phoenix Air's demands and pay outstanding invoice on behalf of Trimont.

Pay wages of Trimont employees on behalf of Trimont.

Pay part of the outstanding debt Trimont owed to Best Group at least in part so Best Group would continue to work on the East Brunswick project.

To pay the overdue balance owing to Kilimanjaro on behalf of Trimont. However, $5,841.72 related to services provided to CornoNero.

Respond in part, to the demands of Straightline and pay, in part, Trimont's outstanding debts to ensure that Straightline continued works at Preston and Brunswick.

Pay an invoice of Golden Coating on behalf of Trimont.

Respond to the SRO demand and pay, in part, the outstanding payroll tax on behalf of Trimont.

Pay wages of Trimont employees on behalf of Trimont.

To pay Colin Twisse interest and fees on loans on behalf of Trimont.

Pay Harvey Norman in accordance with payment plan on behalf of Trimont

Avoid legal proceedings being commenced against Trimont.

Pay, in part, outstanding debts that Trimont owed Straightline, at least in part to ensure that Straightline would continue work on the transferred projects.

Pay the remaining balance owed to B & B Joinery on behalf of Trimont.

Pay Lovelight's invoice on behalf of Trimont so that installation could occur at Brunswick

To pay Trimont's outstanding debt and avoid the repossession of goods and enforcement action threatened by Doors n Knobs in relation to Trimont's project at Wodonga.

Avoid legal action by Telstra, against Trimont, in relation to the Newcastle site.

Conceded that authorised. Inference from evidence that caused.

To respond to Australian Access Hire's threat and pay for expenses incurred after 1 August 2015 in relation to the Newcastle project.

Pay the outstanding debt that Trimont owed Best Group to avoid enforcement action against Trimont and removal of signage that had been installed by Best Group at the East Brunswick Hotel.

Pay Trimont's outstanding debt to Telstra. However, the service was shared and costs were split equally between CornoNero and Trimont.

Pay Allianz WorkCover NSW in respect of insurance invoiced after 1 August 2015, for a period commencing 31 August 2015.

Pay the wages of Trimont employees on behalf of Trimont.

Yes - CornoNero creditor (as to $1,124 of the $1,687 invoice total).

Pay City of Darebin the first quarterly instalment of council rates for High Street, Preston. However, only $1,118.42 was in respect of expenses from 1 August 2016.

Clear outstanding debts of Trimont owed to Doctor Damp, in response to its demands, in part to ensure that Doctor Damp would continue to work on the Newcastle site.

Unable to determine if payee was a creditor of CornoNero

Pay Uberglobal in respect of use of the domain name, after 1 August 2015.

Payment made on behalf of Trimont to reduce money owing on credit card.

Unable to determine whether payment to a CornoNero creditor.

To pay, in part, the outstanding debt owed to Incolink and avoid the legal action it threatened, which was relevant to both Trimont and CornoNero.

Authorised, noting that the difficulties with Incolink more broadly were considered by the Board.

Initially told Boyko to make the payments, but this was superseded by Board.

To pay HL Mulllane outstanding invoices dated prior 1 August 2015 on behalf of Trimont.

To make payment for Brian Sockalingum's redundancy.

To respond to the requests of SMS Constructions and pay the outstanding invoice on behalf of Trimont in relation to High Street, Kew.

Pay Australian Environmental Auditors' June 2015 invoice for work done in relation to Preston, in part at least to ensure that work continued.

BERKELEY CAPITAL PARTNERS PTY LTD (ACN 078 247 319)

BERKELEY CAPITAL DEVELOPMENTS PTY LTD (ACN 116 121 665)

[1] This is a broad summary of the claims, which are set our more particularly elsewhere. The claims against each director differ. Not every breach is alleged against each director.

[2] Not all claims are brought against all parties.

[3] Trimont Pty Ltd is described throughout these reasons as 'Trimont'. The separate company, Trimont Australia Pty Ltd is described as 'Trimont Australia', or, for the most part, 'CornoNero', to which Trimont Australia changed its name. For simplicity, the name 'CornoNero' is adopted even in respect of the period before the change of name, unless the context otherwise requires.

[4] I refer to parties and relevant persons throughout these Reasons by their surnames or by first names as the case requires and mean no disrespect by doing so.

[5] Ascenzo held his interest in Kanyon through Ascenzo Investments Pty Ltd.

[6] The interrelated financial positions of these entities not explained in the evidence.

[7] The 6 February meeting is discussed below.

[8] The completion date was the subject of some dispute at trial, but the parties ultimately agreed that the agreement was completed on 11 September 2015.

[9] Michael Carrafa was appointed as joint liquidator.

[10] The parties gave evidence in chief by witness statement, with evidence of significant conversation and contested events given orally.

[11] GJB alleges that Breckenridge, Hartwig and BCP were principal parties in the contravention by making the Trimont Earnings Representations and that Breckenridge, Hartwig and Ascenzo were accessories and involved in the contravention of the principal contraveners.

[12] Ascenzo's evidence was that Trimont had $80 million worth of projects in the pipeline.

[13] The average EBITDA over the financial years for 2013, 2014 and the projected revised EBITDA for financial year 2015, equalled $2,198,436. The agreed multiple was 3.5. Hartwig said that Ascenzo wanted an additional $300,000 to cover plant and equipment in the sale, bringing the total value to $8 million for the business.

[14] Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, 364 [5].

[15] Swiss Re International SE v David Simpson [2018] NSWSC 233; (2018) 354 ALR 607, 611 [35].

[16] The figures in the 10 February Letter as at the date of the 12 and 16 February 2015 emails are different to the figures contained in the final revision provided by email on 17 February 2015 to Brady's advisors. Hartwig revised the equity split after Jones advised that Brady was agreeable to the purchase if he had a controlling interest in the company. The equity contributions and interests were revised.

[17] A better reading of the documents would be that the EBITDA figure had been forecast or predicted. However given the defendants' position I consider it appropriate to treat like representations in other documents in the same way.

[18] Australian Securities and Investments Commission v Narain [2008] FCAFC 120; (2008) 169 FCR 211, 225 [94]-[97].

[19] Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592, 605 [38]-[39]

[20] Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592.

[21] Australian Consumer Law, s 2 (definition of 'involved').

[22] See, e.g. ACCC v IMB Group Pty Ltd [2003] FCAFC 17.

[23] Rural Press Ltd v ACCC [2003] HCA 75; (2003) 216 CLR 53, [48].

[24] Yorke v Lucas (1985) 158 CLR 661, 670.

[25] Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357, 364 [5].

[26] The concession was sensible having regard to s 139B(2) of the Competition and Consumer Act 2010 (Cth). In the 12 and 16 February 2015 emails, Hartwig is identified as the executive director of BCP in his signature and includes BCP's logo and business address. The emails were sent in his capacity as BCP's executive director. BCP, as a corporate entity, can only act through its human agents. Hartwig acted on behalf of his company and therefore BCP engaged in misleading conduct.

[27] The Trimont Budget 1415.xlsx spreadsheet was provided to Westpac as part of Trimont's refinancing proposal.

[28] Gardam v George Wills & Co Ltd [1988] FCA 289; (1988) 82 ALR 415, 428.

[29] Email from Clay on 17 November 2014 and email from Vella on 2 December 2014.

[30] Allergan Australia Pty Ltd v Self Care IP Holdings Pty Ltd [2020] FCA 1530; (2020) 156 IPR 413, 491 [436] and cases there cited.

[31] Cash Bazaar Pty Ltd v RAA Consults Pty Ltd (No 2) [2020] FCA 636; (2020) 381 ALR 668.

[32] The former document represented a net profit of $1,016,684 for the 2015 financial year. The Trimont Budget 1415 document represented a net profit of $2,596,575.

[33] See Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; (2012) 293 ALR 537, 541 [11]; Quinlivan v ACCC (2004) 160 FCR 1, 4-6 [9], [10], [11], [15]; Belconnen Lakeview Pty Ltd v Lloyd [2021] FCAFC 187; (2021) 156 ACSR 273, [157]-[158].

[34] Protec Pacific Pty Lt v Steuler Services GmbH & Co KG [2014] VSCA 338 (Protec Pacific), [281].

[35] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459, 493-495 [106]-[112].

[36] I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109, 128 [57]; Henville v Walker [2001] HCA 52; (2001) 206 CLR 459, 469 [14]; See also Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 356-7.

[37] Smith v Noss [2006] NSWCA 37, [26]-[27].

[38] Jafari v 23 Developments Pty Ltd [2019] VSCA 201, [131]-[132]; Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640, 657.

[39] MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) [2010] VSCA 245; (2010) 31 VR 575, 603 [106].

[40] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 341-2 [102], 351-2 [143].

[41] Jacfun Pty Ltd v Sydney Harbour Foreshore Authority [2012] NSWCA 218, [60].

[42] Jafari v 23 Developments Pty Ltd [2019] VSCA 201, [131].

[43] Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640, 657-8.

[44] Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13 (Cargill), [3158].

[45] Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2005) ATPR 42-058, 42,794-42,795 [13]-[16] (Brownie AJA, with whom Handley and Hodgson JJA Agreed).

[46] Transglobal Capital Pty Ltd v Yolarno Pty Ltd (2005) ATPR 42-058, 42,794-42,795 [13]-[16] (Brownie AJA, with whom Handley and Hodgson JJA Agreed). See also Gould v Vaggelas (1984) 157 CLR 215, 228.2 (Gibbs CJ), 262.6 (Dawson J); Haas Timber & Trading Company Pty Ltd v Wade [1954] HCA 39; (1954) 94 CLR 593, 601.7 (Dixon CJ, Fullagar and Kitto JJ).

[47] Elitegold Pty Ltd v CM Holdings [1995] FCA 447 (Elitegold).

[48] Elitegold [1995] FCA 447, [42]-[43] (Tamberlin and Sackville JJ).

[49] Elitegold [1995] FCA 447, [2] (Jenkinson J).

[50] Lifehealthcare Distribution Pty Limited v Stewart Allen Nicholas [2011] NSWSC 661 (Lifehealthcare).

[51] Lifehealthcare [2011] NSWSC 661, [292].

[52] Lifehealthcare [2011] NSWSC 661, [295].

[53] Lawless v Mackendrick (No 4) [2013] WASC 272.

[54] Protec Pacific [2014] VSCA 338 [540]-[541] (Kyrou JJA).

[55] Cargill [2022] VSC 13, [3153].

[56] Cargill [2022] VSC 13, [3148].

[57] Cargill [2022] VSC 13, [3154].

[58] As trustee for the Ascenzo Family Trust.

[59] The allegation is also made in relation to Ascenzo Industries and Trimont Builders, who are not defendants.

[60] Australian Consumer Law, s 2(2)(a)(i).

[61] Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, [3769]-[3770] (Cargill (No 28)).

[62] Australian Consumer Law, s 2(2)(a)(i).

[63] Cargill (No 28) [2022] VSC 13, [3769].

[64] Cargill (No 28) [2022] VSC 13, [3770] referring to RCR Energy Pty Ltd v WTE Co-Generation Pty Ltd [2017] VSCA 50 (RCR Energy).

[65] Accounting Systems 2000 (Developments) Pty Ltd CCH Australia (1993) 42 FCR 470 (Accounting Systems).

[66] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 (Campbell), 322 [35].

[67] Campbell [2009] HCA 25; (2009) 238 CLR 304, 322 [35].

[68] RCR Energy [2017] VSCA 50, [62].

[69] RCR Energy [2017] VSCA 50, [62],[64]-[65] (emphasis added).

[70] Viterra Malt Pty Ltd v Cargill Australia Ltd [2023] VSCA 157 (Viterra Malt), [714]-[742].

[71] Viterra Malt [2023] VSCA 157, [732], approving MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liq) [2010] VSCA 245; (2010) 31 VR 575 (MWH Australia).

[72] Viterra Malt [2023] VSCA 157, [741].

[73] Cargill (No 28) [2022] VSC 13, [3154].

[74] Cargill (No 28) [2022] VSC 13, [3752]-[3760] (Citations omitted, emphasis added).

[75] Cargill (No 28) [2022] VSC 13, [3750].

[76] This issue is considered notwithstanding my conclusion that GJB did not acquire its shares by reason of the defendants' conduct.

[77] The commencement balance sheet for the then proposed new company which was agreed between the interested parties before the sale and considered "adequate" by GJB's accountants Standards, recorded total assets of $7,792,067 of which $6,760,000 was attributed to goodwill.

[78] As that concept is discussed in HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 (HTW Valuers), 666-668 (Gleeson CJ, McHugh J, Gummow J, Kirby J, Heydon J) (see further below).

[79] The applicable principles are set out below.

[80] Namely the East Brunswick and Fitzroy North Developments.

[81] Namely, Newcastle, Muswellbrook, South Melbourne, West Gosford and Ettamogah.

[82] Namely, Armidale, Dandenong, Ringwood, Preston and Artarmon.

[83] The application for leave was not supported by an affidavit addressing the circumstances in which the evidence was provided at that juncture and not in compliance with the Court-ordered timetable.

[84] Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 (Kizbeau), 291 (Brennan J, Deane J, Dawson J, Gaudron J and McHugh J).

[85] The defendants did not press reliance on the Natoli report.

[86] Keys Consulting Pty Ltd v CAT Enterprises Pty Ltd [2019] VSCA 136 (Keys Consulting), [67]‑[68] (Maxwell ACJ, Niall JA, Macaulay AJA).

[87] Keys Consulting, [69]-[70] (Maxwell ACJ, Niall JA, Macaulay AJA).

[88] Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, [3192] (Elliott J).

[89] [1940] HCA 43; (1940) 64 CLR 282.

[90] HTW Valuers, [35]-[36] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ).

[91] HTW Valuers, [38], citing Potts v Miller [1940] HCA 43; (1940) 64 CLR 282, 299 (Dixon J).

[92] HTW Valuers, [40] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ).

[93] Kizbeau [291] (Brennan, Deane, Dawson, Goudron and McHugh JJ).

[94] HTW Valuers [63]-[65] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ) and the authorities there cited.

[95] Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388, 410 [55] (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ); HTW Valuers 668 [66] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ).

[96] North East Equity Pty Ltd v Proud Nominees Pty Ltd [2010] FCAFC 60; (2010) 269 ALR 262, 295 [178] (Sundberg , Siopis and Greenwood JJ).

[97] HTW Valuers, [65] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ).

[98] Those invoices are considered further below.

[99] Those arrangements are considered in more detail below.

[100] Namely, Pacific Highway Artarmon Property Pty Ltd (registered proprietor of the Artarmon property), East Brunswick Property Pty Ltd (registered proprietor of the land situated under the East Brunswick Hotel), and Ringwood Property Pty Ltd (registered proprietor of the Ringwood property). Kanyon was the registered proprietor of the South Melbourne property.

[101] Namely, Brady Ringwood Pty Ltd, Brady Artarmon Pty Ltd, Brady East Melbourne Pty Ltd, and Brady South Melbourne Pty Ltd.

[102] The documentary evidence (below) indicated that the claim was ultimately declined.

[103] i.e. at the time GJB acquired its shares.

[104] Keys Consulting [2019] VSCA 136, [78] (Maxwell ACJ, Niall JA, Macaulay AJA).

[105] HQ Café Pty Ltd v Melbourne Café Pty Ltd [2023] VSCA 200, [168]-[171] (Niall , Kennedy JJA and J Forrest AJA).

[106] It was accepted that the BSA completed on 11 September 2015 with an effective date of 1 August 2015. The plaintiffs submitted that there was no material difference between the August and September dates for the purposes of insolvency.

[107] See Quin v Vlahos [2021] VSCA 205 (Quin), [43] quoting Queensland Phosphate Pty Ltd v Korda (No 2) [2019] VSCA 215; Quick v Soland Pty Ltd [1998] FCA 1200; (1998) 87 FCR 371, 375 and 376.

[108] The reports were dated 5 May 2017, 5 June 2017 and 10 October 2017 (together, the Carrafa Reports).

[109] The Company for that purpose is Trimont Pty Ltd as trustee for the Ascenzo Family Trust (in liquidation).

[110] A more qualified opinion was expressed in the June 2017 Report.

[111] The parts were identified in a document filed at the direction of the Court.

[112] Corporations Act 2001 (Cth), ss 9, 95A(1),(2); Re Squirrel Limited (in liq) [2021] NSWSC 1658, [46]; Quin, [34].

[113] Queensland Phosphate Pty Ltd v Korda (No 2) [2019] VSCA 215, [97]-[99], [105].

[114] Queensland Phosphate Pty Ltd v Korda (No 2) [2019] VSCA 215, [99].

[115] Quin, [45], citing Quick v Soland Pty Ltd [1998] FCA 1200; (1998) 87 FCR 371, 380.

[116] Southern Cross Interiors Pty Ltd v Deputy Commissioner of Taxation [2001] NSWSC 621; (2001) 53 NSWLR 213, 224-5, [54] cited in Australian Securities & Investments Commission v Plymin [2003] VSC 123; (2003) 175 FLR 124 (Plymin), [378].

[118] Plymin, 213 [386]. Plymin has been consistently adopted - see e.g. Quin, Rexel Electrical Supplies Pty Ltd v Morton [2015] QCA 235; 110 ACSR 341, [30]; Smith v Boné [2015] FCA 319; 104 ACSR 528, 533 [24].

[119] 'A ratio of less than one was an indication that a company would struggle to meet its short‑term commitments as and when they fell due': Plymin, 214 [387].

[120] See Re Bias Boating Pty Limited (recs and mgrs apptd) (in liq) [2018] NSWSC 1977, [7].

[121] Deputy Commissioner of Taxation v Barblance [2010] FCA 1121 (Barblance), [11].

[122] Re Damilock Pty Ltd (in liq) [2008] FCA 1801; (2008) 252 ALR 533, [16]; Barblance [2010] FCA 1121, [13].

[123] Re Damilock Pty Ltd (in liq) [2008] FCA 1801; (2008) 252 ALR 533, [16].

[124] Treloar Constructions Pty Ltd v McMillan [2017] NSWCA 72; (2017) 318 FLR 58, 86 [142], [2017] NSWCA 72.

[125] The Trimont business was incorporated as Trimont Paving & Construction Co Pty Ltd. The name later changed to Trimont Pty Ltd.

[126] Note: there are no headings in this document, these headings have been manufactured for the purpose of the extraction.

[127] This evidence is set out at length because it is also relevant to the claim in respect of the Impugned Payments.

[128] I did not consider the RBA debt, as recorded in the Debt Form, relevant to the determination of insolvency at the alleged date. The deficit began to accrue from November 2015, beyond the period that I consider relevant to a formal finding of insolvency. However, the Debt Form offers assistance in determining whether Trimont had an outstanding liability for unremitted SGCs. The evidence was limited in that encapsulates the entire period between July 2014 to March 2016.

[129] 'Books' is defined in s 9 of the Corporations Act as including each of a register, any other record of information, financial reports or financial records (however compiled, recorded or stored), and 'a document', which is itself broadly defined to include 'any record of information'.

[130] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1 (ASIC v Rich).

[131] ASIC v Rich, 82 [396]-[400].

[132] Quin, [59], [61] and the authorities there cited.

[133] The figure in the Carrafa Report was 13,402,755. It appears to be in error. The figure in the table above is taken from the Management Accounts.

[134] Noting the reservations set out earlier in respect of the 2016 accounts.

[135] Noting the reservations set out earlier in respect of the 2016 accounts.

[136] Noting the reservations set out earlier in respect of the 2016 accounts.

[137] See Lithgow City Council v Jackson [2011] HCA 36; (2011) 244 CLR 352; Lancaster v R [2014] VSCA 333; (2014) 44 VR 820 [67]-[68]; ICM Investments Pty Ltd v Sam Miguel Corporation (Ruling No 1) [2013] VSC 463 [50]-[55]; Thomas v State of Victoria (Ruling No 1) [2019] VSC 276 [14]-[15].

[138] See GJB Building Pty Ltd v AI & PB Building Property Pty Ltd (Ruling No 3) [2022] VSC 62, as discussed further below.

[139] Some of the payment categories appeared to overlap. The payments are addressed individually, later in these Reasons.

[141] As discussed later, Hartwig's defence was largely that he was not involved in the making of the Impugned Payments. For convenience, reference is made here to the director defendants collectively, but the particular case of each defendant is considered individually later in these Reasons.

[142] Hartwig accepted the distinction between the 'loan account' as properly recording the inter partes transaction connected with the settlement process and the extension of credit by CornoNero to Trimont or Ascenzo-related entities. He said that the loan account, in the former sense, was that recorded in the accounts of CornoNero.

[143] One payment included in the plaintiff's particulars of claim (Impugned Payment No. 34) in the amount of $10,890 was found to be a duplication of another payment included in the claim.

[144] See further below under 'Did CornoNero Agree to Finance Trimont?'.

[146] And as Breckenridge ultimately accepted.

[147] There was nothing in evidence as to how that appointment occurred.

[148] Despite dispute at trial, the parties ultimately agreed those dates, which were consistent with contemporaneous documents.

[149] Where a capitalised term is used in the foregoing discussion and is not otherwise defined in these Reasons, the term is taken to have the meaning given to it in the relevant agreement.

[150] As already indicated, the question of the nature of the business acquired is not germane to the Impugned Payments claims.

[151] Subject to any requirement to obtain the consent of the other party/parties to those contracts: cl 11.3.

[152] Trade debts were defined as amounts owing to Trimont from a debtor as at the effective date for goods and services supplied to the debtor by Trimont in conducting the business prior to the effective date.

[153] See the recitals ('Background') to the Shareholders Agreement. The agreement defines 'Business' as the residential and commercial building and construction business purchased by the company from Trimont and states at cl 3.1 that the business of the company is building, and construction and any other business determined by special resolution.

[154] Clauses 6.3 and 6.4 concerned shareholders' resolutions.

[155] The expenditure limit was raised to $500,000 in March 2016 by board resolution.

[156] As noted earlier, Breckenridge began to work in the capacity of CEO during July 2015.

[157] McEniry was not called as a witness. He had died before the trial of these proceedings was heard.

[158] See below under 'Witness Evidence - Disclosure to the Board'.

[159] Ascenzo Industries and Trimont Builders.

[160] The directors' states of mind are addressed because they are capable of informing the question of breach of directors' duties and application of the excuse provisions in ss 1317 and 1318 of the Corporations Act.

[163] In other words, it was the period from 1 August 2015, and not earlier, that was relevant for the purposes of adjustments as between CornoNero and Trimont.

[164] See further below under 'Did CornoNero Agree to Finance Trimont?'.

[165] Breckenridge's evidence to that effect is set out below.

[166] Breckenridge said the plan also 'included retentions'. The subject of retentions is addressed below.

[167] See further below under 'Did CornoNero Agree to Finance Trimont?'.

[168] The advances were said to be loans and no party pursued any point about their characterisation.

[169] CornoNero repaid $1.5 million to GB Autos on 24 February 2016.

[170] See further below under 'Witness Evidence - Disclosure to the Board'.

[171] The correspondence went on to state that 10 percent interest would be charged, as was to be the case for the bank guarantee facility.

[172] See further below under 'Did CornoNero Agree to Finance Trimont?'.

[173] The significance of the arrangements struck in relation to settlement are considered further below, under 'Did CornoNero Agree to Finance Trimont?'.

[174] See further below under 'Did CornoNero Agree to Finance Trimont?'.

[175] In this context, the 'situation' referred to cashflow pressures on CornoNero.

[177] As set out below, I have rejected Breckenridge's evidence that he monitored the balance of the Trimont Loan Account or instructed Thurgood to do so.

[178] See further below under 'Did CornoNero Agree to Finance Trimont?'.

[179] Meaning, I infer, the duration of Trimont's financial accommodation of CornoNero by paying its expenses.

[181] The substance (only) of the defence is set out here. The quoted words appear in the defence.

[182] Hartwig held an interest in East Brunswick Operations Pty Ltd, through his superannuation project. His evidence, which was not challenged, established that expenses said to be connected with that entity were, in fact, for the benefit of Trimont.

[183] The reference to 'wholly' is taken from Thurgood's assessment ('we've got the $1,000,000 now from Minc, and all that is going to be spent on Trimont, without any cash flow left for CornoNero'), further to the 22 September 2015 email, which Breckenridge recounted in his evidence and which Breckenridge did not dispute. That statement by Thurgood is also consistent with the records of CornoNero's bank account which, as set out earlier, commenced with $1 million on 8 September 2015 and, by 22 September, had been reduced to $194,555.

[184] Evidence of that conversation was admitted for non-hearsay purposes pursuant to a ruling made under s 136 of the Evidence Act 2008 (Vic) (Evidence Act).

[185] A reference to Trimont Australia.

[186] Rachael Brady and Breckenridge gave conflicting evidence about whether a meeting occurred on 20 November 2015, at which Rachael again sought information about the payments. Whether the relevant conversation occurred on 20 or 23 November (when it was agreed that a meeting did occur) is not material.

[187] The amounts recorded for the East Brunswick, North Fitzroy and Newcastle (contended to be in respect of retentions) totalled $585,416.91. Breckenridge accepted that these items had not appeared in other spreadsheets in evidence.

[188] As I read it in context, this is a transcription (or speech) error and should, rather, read 'him', meaning Thurgood.

[189] See discussion of the Maddocks 25 November 2015 letter, below.

[190] Conflicting evidence was given about whether Philip Jones of Maddocks, Thurgood and Geoff Brady (by telephone) also attended. Although it is not material, I think it more likely than not that Hartwig and Geoff Brady did attend on the basis that their attendance was recorded in Maddocks' letter of 25 November 2015.

[191] The references to the 'Brady Group' are not material, but relevantly they included Geoff Brady and GJB.

[192] The letter referred to an advice from Pitcher Partners in relation to fringe benefits tax, to which reference had previously been made and asks for a copy of the advice urgently.

[193] CornoNero did not put its case on the basis that separate loss would be identified as flowing from non-disclosures independently of the occurrence of payments.

[194] The case against each director is elaborated upon below.

[195] Statements to that effect were also recorded in the agenda for the CornoNero finance committee meeting held on 16 September 2015.

[196] The board and finance committee also met subsequently to these dates. The proceedings and records are mentioned, where relevant, elsewhere in these Reasons.

[197] The detail is set out earlier in these Reasons.

[198] Including the emails circulated in September 2015 between the solicitors, Thurgood and board members, as set out earlier.

[199] I.e. by the monthly financial report of October 2015, as provided for the December 2015 board meeting.

[200] The amount appearing in the October 2015 summary balance sheet of ($221,067), said to comprise the Trimont Pty Ltd loan and the rental bond for Arden Street, is to be read as comprising $199,617 for the Trimont loan if the amount of $21,450 subsequently recorded in the accounts as the amount of the Arden Street rental bond is deducted. That figure did not, however, tally precisely with the $241,000 recorded in the commentary to the financial reports. It is not possible to infer anything further about the entries in the accounts that might be read as making reference to the items described in the context of the Trimont Loan Account given the state of the evidence.

[201] The paper recorded that it had been prepared in consultation with Hartwig, Brady, Ascenzo, Thurgood, Robert Rigoni of Pitcher Partners and representatives of the CFMEU (including its then secretary). That fact, and the manner in which it was expressed, suggests that it was probably intended for wider circulation but, in any event, it is apparent that the statements in the paper were intended to be accepted as accurate by the board before whom it was placed.

[202] The minutes of this meeting went on to note that Pitcher Partners had provided verbal advice on CornoNero's exposure to Trimont, it was intended to discuss the matter with Maddocks. The reference to 'exposure' in this context connotes the risks discussed in the above-mentioned paper sponsored by Breckenridge. It was further noted in the minutes that 'the Kenyon debt owing by Trimont Pty Ltd (approximately $890,000) may be forgiven in lieu of the disposal of Silvio's interests to the other shareholders'. This reference is not otherwise explained, but it was not submitted by any party that it could be read as a reference to moneys owing to CornoNero by Ascenzo and Trimont as recorded in the Trimont Loan Account ledger. It is reasonable to read the reference to 'Kenyon' as, rather, a reference to Kanyon, which was the developer on a number of projects acquired by CornoNero in the business sale.

[203] The payments to the ATO are discussed further below.

[204] The Stannards email stated that at that point (October 2016), CornoNero had a net asset deficiency of $5.38 million and that the company could not continue in its current form, with the directors needing to consider the solvency of the company and taking action to close the business. Stannards were not called about their work or cross-examined on that email or the instructions they were given.

[205] This element of the proposal was expressed as set out without elaboration as to what interests capable of transfer by Breckenridge as opposed to CornoNero. In context, the interests of Breckenridge may be read as those of AI & PB Property as a shareholder in the business of CornoNero.

[206] The evidence was that AI & PB Property did not make payment for its shares in GJB. The evidence did not otherwise address the nature of this 'contribution'.

[207] The letter did not provide particulars of those loans.

[208] The interests of AI & PB Property were not further defined.

[209] The amounts were attributed to each project as follows: East Brunswick - $55,019, Newcastle - $449,816, North Fitzroy - $85,583 (a total of $590,418).

[210] The defendants jointly made this submission, notwithstanding that it was ultimately directed to Breckenridge's state of mind.

[211] Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 (Hospital Products), 64 (Gibbs CJ).

[212] Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 (Gibbs J); again, his Honour was in dissent, but not in respect of this principle.

[213] See for example, Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402, 411.

[214] Bergl (Australia) Ltd v Moxon Lighterage Co Ltd [1920] HCA 41; (1920) 28 CLR 194, 199.

[215] Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104, 116-17 [46]-[51].

[216] No other notation appeared in the balance sheet.

[217] No party drew the Court's attention to the terms of any such contracts. Contracts were put into evidence late in the trial, but no relevant submissions were made.

[218] Although the pro forma balance sheet classified 'retention moneys' as cash or cash equivalents, it was not submitted that retention moneys should be characterised as 'cash of the business' and counted as an excluded asset on that basis.

[219] See for example, Fryer v Powell [2001] SASC 59; (2001) 159 FLR 433, 442 [62] (Olsson J, Duggan and Williams JJ agreeing); Commonwealth Bank of Australia v Butterell (1994) 35 NSWLR 64, 67-8.

[220] There is an ambiguity in the reference to 'unwritten contracts' in cl 11.2. Read in context, it is possible that it was intended to refer to existing contracts, meaning both written and unwritten. The defendants relied upon the balance sheet in respect of the three written contracts the subject of its retentions argument. The ambiguity is not material to the resolution of the issue.

[221] There was a lack of evidence on the question of retention entitlements. That point is addressed below.

[222] As noted below, a statement made by Hartwig about the Newcastle retention, in unrelated litigation, was in evidence.

[223] The same email, and the context in which it was sent, are discussed earlier in these Reasons, under 'Settlement under the Business Sale Agreement'.

[224] Again, the same email, and the context in which it was sent, are discussed earlier in these Reasons under 'Settlement under the Business Sale Agreement'.

[225] In context, this was a reference to late July 2015, around the time of the informal meeting of the incoming board held on 28 July 2015.

[226] See above under 'Witness Evidence - Disclosure to the Board'.

[227] This expression was used in Breckenridge's defence.

[228] The submission was relevantly in these terms (emphasis added):

At settlement expenses paid by Trimont were treated as amounts loaned by Trimont. The amounts owed at settlement by Trimont to CornoNero ... were also accounted for in the loan account ... [T]he Special Referee's Final Report) ... identifies these entries ... [T]ransactions on the loan account between 1 August 2015 and 9 September 2015, resulted in a maximum balance owed by CornoNero to Trimont of $580,383. This balance reflected in part entries made to account for Trimont's entitlement to retentions under the BSA. From 9 September 2015 payments were made by CornoNero for the benefit of Trimont which were entered in the Trimont Loan Account. These payments also appear [in the Special Referee's Report] ... On 8 September 2015, Minc Sallon ... advanced $1,000,000 to CornoNero. On 23 September 2015, Minc Sallon advanced $500,000 to CornoNero.

[229] The other defendants adopted those submissions.

[230] These principles, together with others, also inform the question of loss, which is considered later.

[231] See for example, Commissioner of Taxation (Cth) v Radilo Enterprises Pty Ltd (1997) 72 FCR 300, 313; Schmierer v Taouk [2004] NSWSC 345; (2004) 207 ALR 301 (Schmierer), 309 [43].

[232] Heydon v Perpetual Executors, Trustees & Agency Co (WA) Ltd [1930] HCA 26; (1930) 45 CLR 111, 113; Joaquin v Hall [1976] VicRp 84; [1976] VR 788 (Joaquin), 789; Schmierer [2004] NSWSC 345; (2004) 207 ALR 301, 312 [59], 313 [63].

[233] See for example, Joaquin [1976] VicRp 84; [1976] VR 788.

[234] See for example, Hylepin Pty Ltd v Doshay Pty Ltd [2020] FCA 1370; (2020) 148 ACSR 30, 47 [55]-[59] (upheld in Hylepin Pty Ltd v Doshay Pty Ltd (2021) FCR 104); and Grego v Copeland [2011] VSC 521.

[235] Shot One Pty Ltd v Day [2017] VSC 741, [257], stating the broader principle explained by Gordon J in Re Day [2017] HCA 2; (2017) 340 ALR 368, 374 [18] (quoting, inter alia, Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 (Bradshaw), 5) that, in the course of fact-finding, 'there must be more than 'conflicting inferences of equal degrees of probability so that the choice between them is [a] mere matter of conjecture''.

[236] Bradshaw (1951) 217 ALR 1; Re Day [2017] HCA 2; (2017) 340 ALR 368.

[237] Grocon Constructors (Victoria) Pty Ltd v APN DF2 Project 2 Pty Ltd [2015] VSCA 190 (Grocon), [176]‑[180].

[238] Uren v Uren [2018] VSCA 141 (Uren).

[239] Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39; (2022) 406 ALR 678 (Hardingham).

[240] Hardingham [2022] HCA 39; (2022) 406 ALR 678, 682 [15]-[16] (per Kiefel CJ and Gageler J).

[241] Hardingham [2022] HCA 39; (2022) 406 ALR 678, 682 [15] (per Kiefel CJ and Gageler J), 689-690 [47]-[50] (per Gordon J), 689-690 [83]-[85] (per Edelman and Steward JJ).

[242] BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shore of Hastings (1977) 180 CLR 266 at 282-3; Hardingham [2022] HCA 39; (2022) 406 ALR 678, 705-6 [113]-[123] (per Edelman and Steward JJ) (cf 690 [50] per Gordon J).

[243] Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Aust) Pty Ltd (1988) 5 BPR 11,110, 11,117, cited in Vroon BV v Foster's Brewing Group Ltd [1994] VicRp 53; [1994] 2 VR 32, 82-3 and Atco Controls Pty Ltd v Newtronics Pty Ltd [2009] VSCA 238; (2009) 25 VR 411, 422.

[244] Hardingham [2022] HCA 39; (2022) 406 ALR 678, 685 [30] (per Kiefel CJ and Gageler J).

[245] Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 (Branir).

[246] Branir (2001) 117 FCR 424, 525 [369] and the authorities there cited.

[247] Barboutis v The Kart Centre Pty Ltd (No 2) [2020] WASCA 41 (Barboutis), [113].

[248] Barboutis [2020] WASCA 41, [110].

[249] Airservices Australia v Ferrier [1996] HCA 54; (1996) 185 CLR 483 (Airservices).

[250] Airservices [1996] HCA 54; (1996) 185 CLR 483, 504-5.

[251] VL Finance Pty Ltd v Legudi [2003] VSC 57; (2003) 54 ATR 221, 226-7 [30] (VL Finance).

[252] See for example, VL Finance [2003] VSC 57; (2003) 54 ATR 221, 226 [29].

[253] 'Books' is defined in s 9 of the Corporations Act as including each of a register, any other record of information, financial reports or financial records (however compiled, recorded or stored), and 'a document', which is itself broadly defined to include 'any record of information'.

[254] Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; [2008] 20 VR 377 (Kliger Partners).

[255] Kliger Partners [2008] VSCA 93; [2008] 20 VR 377, 386 [37] (emphasis added). See also Sole Luna Pty Ltd v Federal Commissioner of Taxation [2019] FCA 1195; (2019) 110 ATR 307.

[256] Those parts of the Special Referee's findings that are specifically relevant to the question of loss are considered below, under 'Loss arising from the Impugned Payments'.

[257] 'Trimont Loan Account' was defined, for the purposes of the Special Referee's questions, as loan accounts established between CornoNero and any of Trimont Pty Ltd, Trimont Builders Pty Ltd, Trimont Construction Pty Ltd, Trimont Concrete Constructions Pty Ltd, The Ascenzo Family Trust, AI Project Developments Pty Ltd, or Ascenzo himself.

[258] For the purposes of the Special Referee's report, CornoNero's 'Accounts' were defined to mean the financial accounts related to the CornoNero business created using MYOB software, including any data files created as a part of that process.

[259] For the purposes of the Special Referee's report, 'records' were defined to mean primary source documents, including agreements, invoices, bank statements, cheque butts, receipts, purchase orders, delivery records and similar documents that record financial transactions.

[260] I.e. the period during which the Impugned Payments were made.

[261] Those findings are considered further below, in the context of loss arising from the Impugned Payments.

[262] The relevant emails were dated 20 August, 7 September and 11 September 2015.

[263] In other words: it was the period from 1 August 2015, and not earlier, that was relevant for the purposes of adjustments as between CornoNero and Trimont.

[264] The particular involvement of the directors in the making of the Impugned Payments is considered further below.

[265] Breckenridge also included one category which overlapped with others, for the two payments that he admitted authorising.

[267] Impugned Payments No. 13 to 17 also concern payments to the ATO, in much more substantial amounts. The same reasoning applies to each of the payments, which are individually addressed below.

[272] Being approximately 34 percent of $1,686.80.

[273] Related party was not defined in the SHA but 'related entity' was defined as having the same meaning as in the Corporations Act.

[274] These submissions were put in respect of the defendants generally, but were, properly understood, to be directed more particularly to Breckenridge and Ascenzo.

[275] Cassimatis v ASIC [2020] FCAFC 52; (2020) 275 FCR 533 (Cassimatis), 639 [450].

[276] Shafron v ASIC (2012) 247 CLR 465 (Shafron), 476 [18]; United Petroleum v Herbert Smith Freehills [2018] VSC 347; (2018) 128 ACSR 324 (United Petroleum v HSF), 443-445 [608]-[610], [612]-[619].

Corporations Act, s 180(1)(a); ASIC v Rich ([2]009) [2009] NSWSC 1229; 236 FLR 1, 141 [7242]; Cassimatis [2020] FCAFC 52; (2020) 275 FCR 533, 545 [27].

[277] Corporations Act, s 180(1)(b); ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 141 [7242]; Shafron (2012) 247 CLR 465, 476 [18] and 533, [455]-[457].

[278] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 141 [7242].

[279] Cassimatis [2020] FCAFC 52; (2020) 275 FCR 533, 640 [456].

[280] ASIC v Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373 (Maxwell), 397 [100]; ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 131 [7201]; ASIC v Mariner Corporation Limited [2015] FCA 589; (2015) 241 FCR 502. See also ASIC v Rich [2003] NSWSC 85; (2003) 174 FLR 128, 137 [35]. See also Deputy Federal Commissioner of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113 (DCOT v Clark), 140 [108]; Australian Securities Commission v Gallagher (1993) 11 WAR 105, 115.

[281] Cassimatis [2020] FCAFC 52; (2020) 275 FCR 533, 640 [457], citing Shafron (2012) 247 CLR 465, 476 [18]; ASIC v King [2020] HCA 4; (2020) 270 CLR 1, [33].

[282] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 133 [7206], citing ASIC v Vines [2003] NSWSC 1116; (2003) 182 FLR 405, 417 [48]; ASIC v Vines [2005] NSWSC 738; (2005) 55 ACSR 617, 856 [1057ff]; Vines v ASIC [2007] NSWCA 75; (2007) 73 NSWLR 451, 460 [67].

[283] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 135 [7213]. See also at [7217]- [7230].

[284] Morley v ASIC [2010] NSWCA 331; (2010) 274 ALR 205, 355 [807].

[285] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 129 [7196].

[286] ASIC v GetSwift Limited (Liability Hearing) [2021] FCA 1384 (GetSwift), [2535].

[287] See, e.g. ASIC v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430 (Healey (No 2)), 437 [47]- [49], 439 [167].

[288] ASIC v Flugge [2016] VSC 779; (2016) 342 ALR 1 (Flugge), 275 [1874].

[289] Flugge [2016] VSC 779; (2016) 342 ALR 1, 275 [1876], citing Daniels v Anderson (1995) 37 NSWLR 438 (Daniels), 502‑3; Maxwell [2006] NSWSC 1052; (2006) 59 ACSR 373, 397 [101]; ASIC v Healey [2011] FCA 717; (2011) 196 FCR 291 (Healey); [2011] FCA 717, [167]-[168], [170]-[174].

[290] DCOT v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113, 140 [108].

[291] Healey [2011] FCA 717; (2011) 196 FCR 291, 320 [121], citing DCOT v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113, 140 [108]-[109].

[292] Healey [2011] FCA 717; (2011) 196 FCR 291, 320 [121], citing DCOT v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113, 140 [108]-[109].

[293] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 132 [7203].

[294] United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324, 443 [608]- [610], 444-5 [612]- [619] and the authorities there cited.

[295] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 141 [7242].

[296] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 128 [7191], 130-1 [7199]-[7200]; Vines v ASIC [2007] NSWCA 75; (2007) 73 NSWLR 451, 459 [63], 472-473 [137], 475 [142], 476 [145], 477 [152] and 554 [587].

[297] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 145 [7253].

[298] ASIC v Adler [2002] NSWSC 171; (2002) 168 FLR 253 (Adler), 346 [372 (13)-(14)].

[299] Flugge [2016] VSC 779; (2016) 342 ALR 1.

[300] Flugge [2016] VSC 779; (2016) 342 ALR 1, 295 [1999]-[2002].

[301] Breen v Williams (1996) 186 CLR 71.

[302] Breen v Williams (1996) 186 CLR 71, 93.

[303] Hospital Products [1984] HCA 64; (1984) 156 CLR 41, 103_; Australia Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd_ [2016] NSWCA 347; (2016) 340 ALR 580, 581 [3], 605 [132].

[304] Adler [2002] NSWSC 171; (2002) 168 FLR 253, 412 [735].

[305] See also Cashflow Finance Pty Ltd (in liq) v Westpac Banking Corp [1999] NSWSC 671.

[306] Agricultural Land Management Ltd v Jackson (No 2) [2014] WASC 102; (2014) 48 WAR 1, 51-3 [263]-[275] (Edelman J).

[307] Re Colorado Products Pty Ltd (in liq) [2014] NSWSC 789; (2014) 101 ACSR 233, 346 [360] (Black J).

[308] See Hylepin Pty Ltd v Doshay Pty Ltd [2021] FCAFC 201; (2021) 288 FCR 104, 116-7 [48]-[49].

[309] ASIC v Jones [2023] WASCA 130, [187], [191]. The Victorian Court of Appeal considered it unnecessary to decide the issue in Parker v Auswild [2022] VSCA 8; (2022) 403 ALR 111.

[310] New Zealand Netherlands Society "Oranje" Inc v Kuys [1973] 1 WLR 1126, 1130.

[311] Links Golf Tasmania Pty Ltd v Sattler [2012] FCA 634; (2012) 213 FCR 1 (Links Golf), 162 [481] (emphasis added).

[312] Links Golf [2012] FCA 634; (2012) 213 FCR 1, 175 [520].

[313] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 141 [7242].

[314] United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324, 446-7 [621].

[315] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 146 [7258]. See also Adler [2002] NSWSC 171; (2002) 168 FLR 253, 349 [372].

[316] United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324, 446 [622].

[317] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 151 [7276].

[318] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 151 [7277].

[319] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 151 [7277].

[320] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 151 [7277], citing Adler [2002] NSWSC 171; (2002) 168 FLR 253, 356 [406].

[321] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 152-3 [7283]- [7284].

[322] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 152 [7283].

[323] United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324, 446 [625].

[324] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 154 [7289].

[325] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 154 [7289].

[326] ASIC v Rich [2009] NSWSC 1229; (2009) 236 FLR 1, 154 [7290].

[327] KQ International Trading Pty Ltd v Yang [2016] VSC 146 (KQ International), [71].

[328] Mernda Developments Pty Ltd v Rambaldi [2011] VSCA 392; (2011) 86 ACSR 277 (Mernda Developments), 286 [32], citing Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] 1 Ch 62 (Charterbridge), 74.

[329] Mernda Developments [2011] VSCA 392; (2011) 86 ACSR 277, 286 [32], citing Charterbridge [1970] 1 Ch 62, 74. See also Flugge [2016] VSC 779; (2016) 342 ALR 1, 291 [1977], 294 [1991].

[330] The objective test has been applied to this issue in at least three first instance decisions of this Court Environinvest Ltd v Pescott & Ors (No 2) [2012] VSC 151, [13], considering s 181(1)(a) of the Corporations Act; Mills Oakley Lawyers Pty Ltd v Huon Property Holdings Pty Ltd [2012] VSC 39, [70], considering ss 181(1) and 182(1); and Roman Heights Developments Pty Ltd [2011] VSC 665, [22], considering s 237(2)(c).

[331] ASIC v Geary (2018) 332 FLR 201, 257 [409] (emphasis added).

[332] VicBeef Holdings Pty Ltd v Chen [2021] VSC 546 (VicBeef), [201].

[333] VicBeef [2021] VSC 546, [203] (footnotes in original).

[334] Excluding factually extreme situations such as where the director's honest belief is the product of a wholly irrational mind.

[335] Australasian Annuities Pty Ltd (in liq) v Rowley Super Fund Pty Ltd [2015] VSCA 9; (2015) 318 ALR 302, 351 [231].

[336] Permanent Building Society (In Liq) v Wheeler (1994) 11 WAR 187, 218; VicBeef [2021] VSC 546, [117]; KQ International [2016] VSC 146, [72].

[337] Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 (Howard Smith), 77; VicBeef [2021] VSC 546, [118].

[338] Howard Smith [1974] 1 NSWLR 68, 77; see also VicBeef [2021] VSC 546, [118].

[339] R v Byrnes [1995] HCA 1; (1995) 183 CLR 501 (Byrnes), 514-5; Howard Smith [1974] 1 NSWLR 68, 77; Flugge [2016] VSC 779; (2016) 342 ALR 1; VicBeef [2021] VSC 546, [251].

[340] Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, 186; see also Howard Smith Ltd [1974] 1 NSWLR 68, 77; VicBeef [2021] VSC 546, [118].

[341] Howard Smith [1974] 1 NSWLR 68, 74.

[342] Howard Smith [1974] 1 NSWLR 68, 77; VicBeef [2021] VSC 546, [118].

[343] Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, 186. See also Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co [1968] HCA 37; (1968) 121 CLR 483, 49.

[344] Byrnes [1995] HCA 1; (1995) 183 CLR 501, 514-15, applied in Adler [2002] NSWSC 171; (2002) 168 FLR 253, 365 [458]; Doyle v ASIC [2005] HCA 78; (2005) 227 CLR 18 (Doyle), 28 [35].

[345] Adler [2002] NSWSC 171; (2002) 168 FLR 253, 365 [458], 413 [736].

[346] Doyle [2005] HCA 78; (2005) 227 CLR 18, 28 [35].

[347] United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324, 450 [645] (citations in original); see also Oliana Foods Pty Ltd v Culinary Co Pty Ltd (in liq) [2020] VSC 693 (Oliana Foods), [373] and Doyle [2005] HCA 78; (2005) 227 CLR 18, 28 [35]; Byrnes [1995] HCA 1; (1995) 183 CLR 501, 512.3, 515.3.

[348] R v Towey (1996) 21 ACSR 46, 61.

[349] See Health Services Union v Jackson (No 4) [2015] FCA 865; (2015) 108 ACSR 156 (HSU v Jackson), 176 [115], citing Chew v R [1992] HCA 18; (1992) 173 CLR 626, 640 and 647.

[350] United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324, 450 [644] citing Byrnes [1995] HCA 1; (1995) 183 CLR 501, 512, 514.

[351] Adler [2002] NSWSC 171; (2002) 168 FLR 253, 365 [458], 413 [736], citing Chew v R [1992] HCA 18; (1992) 173 CLR 626, 633; Byrnes [1995] HCA 1; (1995) 183 CLR 501, 515.

[352] Links Golf [2012] FCA 634; (2012) 213 FCR 1, [708].

[353] R v Donald [1993] 2 Qd R 680, 685.

[354] The civil penalty provisions to which s 1317S of the Corporations Act are directed are defined in s 9 of the Corporations Act to be those set out in s 1317E (3). This includes, among others, ss 180(1), 181(1) and (2), 182(1) and (2) and 183(1) and (2).

[355] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 441 [83].

[356] See Clarke (as trustee of the Clarke Family Trust) v Great Southern Finance Pty Ltd (recs & mgrs apptd) (in liq) [2014] VSC 516 (Clarke), [1958].

[357] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 442 [86].

[358] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 441 [84], 442 [87] cited in Clarke [2014] VSC 516, [1959] (Croft J).

[359] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 442 [87]-[88]. See also Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, 196-8. Adler [2002] NSWSC 171; (2002) 168 FLR 253, 300 [166]; ASIC v Vines [2005] NSWSC 1349; (2005) 65 NSWLR 281, 292 [43]; Vines v ASIC [2007] NSWCA 75; (2007) 73 NSWLR 451, 551 [568], 601 [797]-[800] and 602 [805].

[360] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 442 [88]; ASIC v Macdonald (No 12) (2009) 259 ALR 116 (Macdonald (No 12)), 122 [22]; United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324, 452 [659].

[361] Macdonald (No 12) (2009) 259 ALR 116, 122 [22], cited in Hoy v Ying Mui Pty Ltd [2019] VSCA 203 (Hoy), [251].

[362] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 442 [89].

[363] ASIC v Flugge (No 2) [2017] VSC 117; (2017) 342 ALR 478 (Flugge (No 2)), 490 [62] cited in Hoy [2019] VSCA 203, [251].

[364] Flugge (No 2) [2017] VSC 117; (2017) 342 ALR 478, 490 [63] cited in Hoy [2019] VSCA 203, [251].

[365] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 442 [89].

[366] Powell v Fryer [2000] SASC 97; (2000) 18 ACLC 480 (Powell).

[367] Powell [2000] SASC 97; (2000) 18 ACLC 480, 488 [44].

[368] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 442 [89].

[369] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 442 [89].

[370] Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, 443 [91].

[371] Much emphasis was given in CornoNero's case to the opening of the bank account, however that issue did not take things very far. It was not disputed that CornoNero needed a bank account and it was not established that there was anything unusual in the directors causing the account to be opened or becoming signatories to it.

[373] Daniels (1995) 37 NSWLR 438, 500-501.

[374] The board meeting at which that issue was discussed, in the context of the concerns raised by the CFMEU, is described earlier.

[375] The supporting elements of that submission, addressed to the asserted Trimont Loan Account, are considered elsewhere and taken up in the analysis earlier in these Reasons.

[376] Some payments (No. 20, 29, 43, 58, 62 and 78) were categorised by Breckenridge in his submissions as falling into the category of 'requested by Ascenzo' but there was insufficient evidence to draw relevant conclusions in respect of those payments.

[377] Mernda Developments Pty Ltd (in liq) v Alamanda Property Investments No 2 Pty Ltd [2011] VSCA 392; (2011) 86 ACSR 277, and see the authorities discussed earlier under the heading, 'Exercising powers and duties in good faith'.

[378] See under, 'evidence relevant to impugned payments generally' and also as summarised under this category, above.

[379] Meaning these particular payments that he did not seek to justify on an additional basis.

[380] Mills v Mills [1938] HCA 4; (1938) 60 CLR 150, 186, and see the principles set out earlier under the heading, 'Exercising powers and duties for a proper purpose'.

[381] Doyle v ASIC [2005] HCA 78; (2005) 227 CLR 18, 28 [35], and see the principles set out earlier under the heading, 'Misuse of position'.

[382] United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324, 450 [645].

[383] HSU v Jackson [2015] FCA 865; (2015) 108 ACSR 156, 176 [113]-[115] and the authorities cited under the heading, 'Misuse of position', above.

[384] See under, 'Evidence relevant to impugned payments generally' and also as summarised under this category, above.

[385] ASIC v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, [88] and see the authorities set out under the heading, 'Excusing provisions', above.

[386] Flugge (No 2) [2017] VSC 117; (2017) 342 ALR 478, [62] and see the authorities set out under the heading, 'excusing provisions', above.

[387] ASIC v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, [88] and see the authorities set out under the heading, 'Excusing provisions', above.

[388] Flugge (No 2) [2017] VSC 117; (2017) 342 ALR 478, [62] and see the authorities set out under the heading, 'Excusing provisions', above.

[389] In Part K, I have addressed the contention that payment 64 was partly a cost of CornoNero.

[390] CornoNero's transaction-by-transaction submissions consisted of a table setting out payments and document numbers and asserted abbreviated conclusions.

[391] CornoNero's submissions were put in a rolled-up fashion.

[392] As set out comprehensively in Adler [2002] NSWSC 171; (2002) 168 FLR 253 and United Petroleum v HSF [2018] VSC 347; (2018) 128 ACSR 324.

[393] Daniels (1995) 37 NSWLR 438, 505.

[394] DCOT v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113, 140 [107].

[395] Vines v ASIC [2007] NSWCA 75; (2007) 73 NSWLR 451, 588 [743].

[396] Healey [2011] FCA 717; (2011) 196 FCR 291, 320 [121], citing DCOT v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113, 140 [108]-[109].

[397] Adler [2002] NSWSC 171; (2002) 168 FLR 253, 349 [372].

[398] ASIC v Healey (No 2) [2011] FCA 1003; (2011) 196 FCR 430, [88] and see the authorities set out under the heading, 'excusing provisions', above.

[399] Flugge [2016] VSC 779; (2016) 342 ALR 1, 295 [1999]-[2002].

[401] The other defendants did not make that allegation but adopted it, in effect.

[402] That issue arose in the application to adopt the Special Referee's Report, see GJB Building Pty Ltd v AI&PB Property Pty Ltd [2022] VSC 62.

[403] VL Finance [2003] VSC 57; (2003) 54 ATR 221.

[404] Israel v Foreshore Properties Pty Ltd (1980) 30 ALR 631, 636.