HAYES -v- DORAN [No 2] [2012] WASC 486 (14 December 2012)

3 The plaintiff's action seeks, further or alternatively to invalidating the first and second defendant's appointments, to have the court terminate the DOCA, by an exercise of power pursuant to s 445D of the Act. The DOCA (as varied by a deed of variation of 4 May 2012) specifies the DOCA's due date, which is now, after one extension, 30 September 2012.

4 Had 30 September 2012 passed without a decision from this court upon the merits of the plaintiff's action, there were (potentially) serious negative outcomes for a viable implementation of the DOCA (as varied). The liquidation of Elementree could have resulted. It was important for the parties to have my decision as soon as possible during September 2012, in order for them to consider their respective positions.

5 I proceeded on that basis and delivered a summary of my conclusions and reasons on 14 September 2012. These reasons now expand on those summary reasons and conclusions.

6 The plaintiff, Mr Courtney Hayes, is the managing director of the unlisted public company Elementree, which was incorporated on 16 December 2005. Elementree is a fledgling start up business formed to pursue the planting and nurturing of trees in Western Australia and, to a lesser extent, South Australia. It seeks to be a provider of carbon and renewable biomass plantations on land leased from farmers. Its business plan is to capitalise on the very topical issue of climate change.

7 Administrators were appointed to Elementree pursuant to s 436C of the Act by Mr Fakhre, the third defendant in these proceedings. The administrators are the first and second defendants, Mr Doran and Mr McVeigh. The appointment was made on 12 July 2011.

(1) A person who is entitled to enforce a security interest in the whole, or substantially the whole, of a company's property may by writing appoint an administrator of the company if the security interest has become, and is still, enforceable.

9 As of 12 July 2011, Mr Fakhre held two charges granted to him by Elementree over its assets, namely the registered charges of 17 September 2010 and 29 December 2010.

10 ASIC's historical record for Elementree shows that, at 12 July 2011, Elementree's nonoperative board members included his parents Lynton and Shannon Hayes, who had been appointed to Elementree's board relatively recently on 26 May 2011 (see exhibit 5, pages 33 39).

11 The ASIC record also shows that Mr Gregory Allan Hunt had been a director in the period from 1 July 2008 up to 17 June 2011. So too had Mr Donald Stanley.

12 The ASIC record shows that Mr Hunt and Mr Stanley were reappointed to Elementree's board on Monday 4 July 2011, eight days before the appointment of Messrs Doran and McVeigh as administrators by Mr Fakhre.

13 Although Mr Hunt and Mr Stanley accept that they provided their respective consents to be reappointed as directors, both say that no one from Elementree's then board of three (Mr Hayes and his parents) wrote or told them of their reappointment on or after 4 July 2011. The ASIC record shows that Elementree's secretary in the period from 1 May 2010 up to the time of the appointment of the administrators was Ms Karen Teresa Logan. There is some evidence that Ms Logan resigned as Elementree's secretary on Thursday 7 July 2011 (exhibit 20, page 321) but the ASIC record does not refer to any such resignation.

14 Mr Hayes commenced this litigation by his originating process under the Act on 18 November 2011, following the statutory meetings of Elementree's creditors on 22 July and 18 October 2011.

15 At the October 2011 creditors' meeting there was a resolution passed approving the terms of a proposed DOCA which was promulgated by Mr Fakhre. The proposed DOCA sees Mr Fakhre, on numerous specified terms and conditions, agree to advance over $1 million to Elementree under compromise arrangements, by which:

(a) Elementree's trade creditors would be paid out 100 cents in the dollar (approximately $228,000);

(b) Mr Fakhre would forego his secured debt of $1.3 million plus interest;

(c) another class of Elementree's creditors referred to as 'shareholder creditors', would receive $10 to share between themselves;

(e) a British Virgin Islands' corporation controlled by Mr Fakhre would ultimately receive and hold 100% of the shares in Elementree.

16 At the second creditors' meeting Mr Fakhre's proposed DOCA was approved by the requisite numbers of creditors attending (or represented by proxy) and by the requisite fiscal value of creditors: see Corporations Regulations reg 5.6.21(2)(a) and reg 5.6.21(2)(b). Mr Fakhre voted his asserted $1.3 million debt in favour of his proposed DOCA. Mr Michael Kerkmans, for his corporation Marlingu Pty Ltd (Marlingu), also voted in favour.

17 It was not necessary for Mr Doran, the chair of the meetings, to exercise the chair's casting vote (under reg 5.6.21(4)(a) of the Corporations Regulations) by reference to the numerical amount of the value of debts owed. The $1.3 million amount voted by Mr Fakhre in favour of the approval of the proposed DOCA carried the numerical fiscal value requirement of reg 5.6.21(2)(b). But for the $1.3 million value as a creditor that aspect of the required majority resolution would have been lost, by reason of other creditor value votes cast against the proposed DOCA on the poll: see reg 5.6.21(3)(b).

18 Had the resolution not been carried, then the chairman's casting vote would have been relevant. Mr Doran's evidence is that he then would have exercised the chair's casting vote in favour of the resolution approving Mr Fakhre's proposed DOCA.

19 By Mr Hayes' further amended originating process of 17 February 2012, he asserts:

This application is made under the inherent jurisdiction of this Honourable Court and in the alternative section 445D of the Corporations Act 2011.

1.1 the purported appointment of the defendants as administrators of Elementree Group Ltd;

1.2 the conduct and admissions of the First and Second Defendants in their roles as the joint administrators of the Elementree Group Ltd in providing information in a Report to Creditors;

1.3 the conduct and omissions of the First and Second Defendants constituting matters relevant to the Court's inquiry pursuant to section 445D of the Corporations Act 2001; and

1.4 the terms of the Deed of Company Arrangement.

1. In respect thereof and arising therefrom the Plaintiff claims:

2.1 a declaration that the defendants were not validly appointed pursuant to Section 436C of the Corporations Act as Administrator[s] of Elementree Group Limited;

2.2 alternatively an order terminating the DOCA;

2.3 costs.

20 For reasons which follow I am of the view that the first and second defendants were validly appointed as administrators to Elementree by Mr Fakhre pursuant to s 436C of the Act on 12 July 2011.

21 However, the more problematic issue is whether the 9 November 2011 DOCA should be terminated pursuant to s 445D. Under the DOCA the administrators were appointed as the deed administrators.

22 Mr Hayes seeks declarations pursuant to s 447C of the Act.

23 Conversely, the first and second defendants seek declarations pursuant to s 447C that their appointments, first as administrators, then from 9 November 2011 as deed administrators, were valid.

24 In seeking an order for the termination of the DOCA, Mr Hayes invokes s 445D(1) of the Act, which relevantly provides:

(1) The Court may make an order terminating a deed of company arrangement if satisfied that:

...

(c) there was an omission from such a report or statement [under s 439A(4)] and the omission can reasonably be expected to have been material to such creditors in so deciding [to approve the DOCA]; or

...

(f) the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed to be so done or made would be:

(i) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or

(ii) contrary to the interests of the creditors of the company as a whole.

25 Pursuant to s 445D(2) orders can be made on the application of parties including 'any other interested person'. No challenge is made before this court to Mr Hayes' standing as managing director of Elementree to bring these proceedings.

26 Objection is taken, however, to the amount of time taken for Mr Hayes to commence proceedings, particularly in the aftermath of the 18 October 2011 creditors' meeting he attended where only Mr Fakhre's proposed DOCA was available for consideration by creditors. It is said these proceedings should have been commenced earlier, given the considerable level of funds advanced by Mr Fakhre to the administrators and subsequently to the deed administrators up to August 2012, in order for them to continue Elementree's business. This includes funds expended to plant tree seedlings in 2011 and 2012 (see exhibit 18, pars 6 7 and attachment GPD51).

27 Discretionary considerations also arise under s 445D, even were I to be satisfied that one or more transgressions contrary to s 445D(1) have occurred.

28 Further, the first and second defendants (supported by the third defendant) themselves invoke s 447A of the Act, raising further potential discretionary considerations as regards pt 5.3A of the Act being applied or not. Section 447A provides:

(1) The Court may make such order as it thinks appropriate about how this Part is to operate in relation to a particular company.

29 As to the remedial scope of the provision, see Australasian Memory Pty Ltd v Brien [2000] HCA 30; (2000) 200 CLR 270 [17], [18].

30 Thus, even were I to identify transgressions pursuant to s 445D(1), I must nevertheless consider a potential further exercise of residual discretion not to set aside the DOCA. Many arguments at trial over potential discretionary considerations by reference to the porous nature of this legislation considerably expanded the duration and dimensions of the trial. So also has the fact that the case has proceeded on affidavits, without the discipline of pleadings. The parties instead exchanged statements of facts, matters and contentions, which I summarise for the state of the record, found within a document which became the second amended papers for the judge. The relevant documents setting out the three parties' positions are:

(a) plaintiff's statement of fact and contentions of 13 January 2012 (amended 13 July 2012);

(b) first and second defendants' statement of facts and contentions of 20 January 2012 (amended 24 July 2012);

(c) third defendant's statement of facts and contentions of 20 April 2012;

(d) first and second defendants' s 447A and s 447C application statement of facts and contentions of 23 February 2012; and

(e) plaintiff's second further amended plaintiff's statement of facts and contentions in response to the defendants' s 447A and s 447C application statement of facts and contentions of 2 April 2012.

31 Whilst there are certain factual controversies to resolve, in the main the core underlying facts were not in dispute. Furthermore, there was a staggering quantity of uncontentious contemporary documentation put in evidence, including volumes of emails, from which basic underlying facts can be extracted with minimal controversy.

32 As managing director of Elementree from its inception and as a significant shareholder (13,500,000 shares), Mr Hayes first challenges the validity of the appointment by Mr Fakhre on 12 July 2011 of Messrs Doran and McVeigh as administrators to Elementree. He contends Mr Fakhre held no rights under his two charges to exercise any enforcement rights against Elementree, let alone to appoint administrators pursuant to the two charges. According to Mr Hayes, this is because over four months earlier, on 25 February 2011, Mr Fakhre unequivocally elected, in accordance with the terms of the Convertible Loan Agreement (the CLA) then in existence between Elementree and Mr Fakhre, to convert his loans to Elementree (at principal of $1.3 million in February 2011) into equity, namely 62,628,470 shares (a 53% majority shareholding in Elementree).

33 I mention the terms of the CLA and a subsequent deed of variation of 29 December 2010 shortly. But I should point out immediately that there is no dispute at all that, on 25 February 2011, Mr Fakhre, through his Perth solicitor, Mr Greg Wheatley of Gadens Lawyers, sent this communication (referred to as 'the Conversion Notice') to Elementree, in terms:

Convertible Loan Agreement - Conversion Notice

I refer to the Convertible Loan Agreement between myself as 'Investor' and Elementree Group Limited as 'Borrower' dated 29 September 2010, as varied by a Deed of Variation executed on or around 29 December 2010 (Agreement).

Under clause 8.1 of the Agreement, upon the written election of the Investor given to the Borrower (Conversion Notice), the Loan Amount, or any part of it, (Conversion Amount), must be converted into shares in the capital of the Borrower.

This letter is a Conversion Notice for the whole of the Loan Amount.

Yours faithfully

Danny Fakhre

[Signature]

[25th February 2011]

34 Subsequently, in early April 2011 Mr Fakhre through his Perth solicitors rejected an attempted tender to him by Elementree and Mr Hayes of $1.3 million plus $65,184.11 in interest. In response, Mr Fakhre maintained that he had, on 25 February 2011, validly exercised his right to convert under the CLA as varied. He rejected the attempted tender of the principal and interest on the basis that he had never agreed to forego his right to convert under the CLA (as varied).

35 During March and early April 2011 it was being contended by Mr Hayes that a verbal agreement (between Mr Hayes, Elementree and Mr Fakhre) had been reached on about 24 February 2011. Mr Hayes contended that the agreement (the alleged Tripartite NonConversion Agreement) arose from a telephone conversation that took place on 23 February 2011 between Mr Stanley and Mr Fakhre. Mr Hayes contended that during this conversation Mr Fakhre offered to not exercise his conversion rights in exchange for a payment of $650,000 from Mr Hayes personally, payable by 30 June 2011, and repayment by Elementree of its debt, including interest, to Mr Fakhre. Mr Hayes contended that he accepted Mr Fakhre's offer on 24 February 2011 by an email sent to Mr Fakhre's Perth solicitors, Gadens.

36 Mr Fakhre's position was that he had never made any such offer and that he was fully entitled to exercise the right to convert his loans to shares in Elementree, as he did on 25 February 2011.

37 By 15 April 2011, in the face of Elementree's sustained refusal and continuing failure to issue and allot to Mr Fakhre a 53% shareholding following his election to convert, Mr Fakhre commenced proceedings, namely action CIV 1664 of 2011 in the Supreme Court. In that action, which was case managed by me in the Commercial and Managed Cases List, Mr Fakhre sought orders for specific performance compelling Elementree to issue his conversion shares. By the terms of the CLA to which I will refer shortly, shares issuable to Mr Fakhre in the event of his election to convert are referred to as 'Repayment Shares'.

38 Mr Fakhre's action for specific performance was defended by Elementree. It resisted the claim for the Repayment Shares on the basis of the alleged Tripartite NonConversion Agreement.

39 Mr Fakhre's action for specific performance was afoot, but undetermined as at 12 July 2011. Pleadings were essentially closed.

40 The consequence of a valid appointment of administrators to Elementree on that day, pursuant to s 440D(1) of the Act, was to prevent Mr Fakhre's specific performance action against Elementree proceeding further, except with the administrators' written consent or by the leave of the court.

41 A similar position ensued after the appointment of deed administrators, as a stay of proceedings by an approved DOCA: see s 444E(3)(a) and (c).

42 Independently of the disputes as to validity, Mr Hayes in the alternative seeks orders pursuant to s 445D(1)(a) terminating the DOCA in any event. This is on the basis of what is alleged to be false or misleading information given to creditors in the written report to creditors (RTC) prepared by the first and second defendants and dated 10 October 2011. The RTC was considered by the creditors attending the second creditors' meeting on 18 October 2011, resolved to accept the proposed DOCA then promulgated by Mr Fakhre.

43 Mr Hayes contends that the RTC contains false or misleading information that would have been material to Elementree's creditors on 18 October 2011 in considering and then agreeing to Mr Fakhre's proposed DOCA.

44 Essentially, Mr Hayes asserts that Elementree's creditors were misled first as to Mr Fakhre's creditor status as at 12 July 2011, in circumstances where Mr Fakhre's 25 February 2011 election and Conversion Notice under the CLA, maintained by his action for specific performance against Elementree up to 12 July 2011, meant that Mr Fakhre was not a creditor. He was, says Mr Hayes, at best, someone who was an Elementree shareholder, or a person who had rights to become a shareholder in Elementree. (It will be seen that this is something of a volteface from the resistance between March and 12 July 2011 to providing Mr Fakhre with his shares by reason of the Tripartite NonConversion Agreement.)

45 It is now contended by Mr Hayes that Mr Fakhre's unequivocal 25 February 2011 conversion election, his rejection of the $1.3 million plus interest that was tendered to him in March 2011 on the basis that he had exercised conversion rights, and the commencement and pursuit by Mr Fakhre of the Supreme Court action for specific performance to compel Elementree to issue and allocate to him a 53% majority shareholding in Elementree, was all material information and materially misstated to creditors. They instead were told that Mr Fakhre was a secured creditor for $1.3 million plus interest.

46 Mr Hayes also contends that the RTC misled creditors by describing Mr Fakhre as a creditor of Elementree, rather than as a debtor. Mr Hayes makes this contention on the basis of oral agreements he says were consummated by Elementree (through him) and Mr Fakhre in London in November 2010. Mr Hayes contends that Mr Fakhre was a net debtor to Elementree for over $1 million by reason of:

(a) an oral agreement pursuant to which Mr Fakhre agreed to match, to the extent of $500,000, any further share capital that was raised from Elementree's existing shareholders, during the capital raising rights issue Elementree pursued during December 2010 and January 2011 with its existing shareholders, which closed for subscription on 28 January 2011 (Matching Funds Agreement); and

(b) independently of (a), a second oral agreement also concluded in London in November 2010, pursuant to which Mr Fakhre would secure an investor or, in the event that no external investor was found, would personally advance $1 million to fund the planting of seedlings in 2011 by Elementree on leased farmland, to be nurtured by Elementree and sold at a profit after about 12 months (Tree Agreement). The profits were then to be split, with 40% going to the investor (who may or may not have been Mr Fakhre - no decision had been made on this point by this stage, according to Mr Hayes), 30% going to Mr Fakhre and 30% going to Elementree (exhibit 5, page 18 [4.4.4]).

47 After an investigation and cursory exploration of these alleged oral agreements, Mr Doran, as administrator, dealt with them in the RTC. In essence, the RTC assesses Mr Hayes' claim that Mr Fakhre is a net debtor of Elementree to be unmeritorious. Alternatively, they were assessed as expensive and uneconomic to pursue by litigation against Mr Fakhre (Mr Fakhre, of course, being appointer of the administrators pursuant to his charges, as well their indemnifier and, by October 2011, the promoter of the sole proposed DOCA that had emerged for genuine consideration by Elementree's creditors).

48 Mr Hayes' case is that Mr Fakhre, by reference to the Matching Funds Agreement and the Tree Agreement, ought nevertheless to have been assessed by the administrators in their RTC as a net debtor to the extent of over $1 million.

49 Mr Hayes says, invoking s 445D(1)(c), that these alleged omissions from the RTC can reasonably be expected to have been material to Elementree's creditors on 18 October 2011.

50 Further and alternatively, Mr Hayes seeks, pursuant to s 445D(1)(f)(i), orders that the DOCA be terminated, on the ground that it unfairly discriminates against the shareholder creditors. Elementree owes the shareholder creditors an aggregate debt of $790,163. Under the DOCA, the shareholder creditors receive $10 to share as between themselves. Mr Hayes contends that this ground alone is sufficient to justify the DOCA's termination.

51 Messrs Doran and McVeigh, the first and second defendants, pursue what is effectively a crossclaim by an application advanced within the proceedings seeking to support and uphold the validity of their appointments, first as administrators and then, from 9 November 2011, as deed administrators. They point to the very significant funding now provided by Mr Fakhre to date, including the funding of a further tree planting in 2012.

52 Mr Doran and Mr McVeigh ask the court, in the event that any deficiency is found in their appointments, or with the DOCA, to nevertheless exercise the very wide discretion afforded by s 447A to validate their appointments or the DOCA, if it is necessary to do so.

53 As matters developed at trial, Messrs Doran and McVeigh also ask the court, as a matter of its discretion under s 445D, not to set aside the DOCA even if Mr Hayes' s 445D contentions are established. They refer to the Corporations Regulations reg 5.3A.07(1)(a). This regulation is said to generate the outcome, upon an order being made terminating a DOCA pursuant to s 445D, of thereby bringing about a deemed special resolution by Elementree in favour of voluntary winding up. The administrators say that winding up is plainly not in the best interests of Elementree, its creditors or employees and, further, that this assessment is to be made at the date of judgment, not at the time of the second creditors' meeting (18 October 2011) or of the DOCA (9 November 2011). They also contend that they have acted at all times in good faith and that their bona fides should not be questioned, having acted upon proper advice in accordance with the objectives of pt 5.3A of the Act. They seek that their appointments for the DOCA be validated if that is necessary pursuant to s 447A(4)(c) or (d).

54 Mr Courtney Hayes founded Elementree as a tree nurturing business in December 2005.

55 Elementree's first plantings commenced on rural properties mainly in Western Australia and in South Australia in 2010, across approximately 1,000 ha of farming land. Elementree's business premises were in the Perth suburb of Osborne Park. According to the administrators' RTC, Elementree:

(a) specialised in the design, establishment and management of integrated agroforestry systems for the production of carbon sequestration and renewable biomass (ie tree plantations);

(b) entered into long term leasing arrangements over privately owned farmland for the development of tree plantations; and

(c) sourced investment in its tree plantations from corporations and institutional investors who were seeking to secure a long term supply of high quality carbon credits and/or renewable biomass.

56 Elementree provided a planting and nurturing service for seedlings, particularly mallee trees. It appears that its business operation involved acquiring seeds for particular varieties of trees. It would then enter arrangements to have the seeds propagated by various local nurseries, for a fee. Elementree would then acquire the germinated seedlings from the nurseries and plant them on leased land. Elementree's first substantive tree planting venture was in the winter of 2010 and extended across approximately 1,000 ha of various holdings leased from farmers in Western Australia and South Australia. Part of the initial CLA funds of $1.2 million first obtained from Mr Fakhre in September 2010 had facilitated the expenses of the 2010 planting.

57 In the last quarter of 2010 Mr Hayes had plans for the planting of a further 1,000 ha of seedlings in 2011. But this would require more funds to be obtained in order to meet the expenses of that exercise. In particular, the local nurseries would require a deposit for the seedlings some time around November or December.

58 According to the RTC, Elementree had 490 ha of seedlings planted across 952.7 ha of tree plantations on farming properties with whom there were leasing arrangements. There was a further 588.3 ha of plantings on another rural property owned by a Mr Nicoletti (this is the property referred to as 'Bacopak').

59 As regards the Bacopak planting, there was at the time of the RTC a serious security of tenure issue by reason of Elementree's failure to obtain the consent of the property's first mortgagee, the ANZ Bank. Mortgagee consent was an invariable prerequisite of farming lease arrangements entered by Elementree but, for reasons unexplained, it had not been obtained in respect of the Bacopak planting. This problem, in the opinion of the administrators in the RTC, meant that 'it may be difficult to perfect title and the asset may not be recoverable'. This security of tenure problem also had repercussions in respect of the charged assets which secured Mr Fakhre's $1.3 million loan.

60 On 29 September 2010 Elementree and Mr Fakhre executed the CLA, pursuant to which Elementree was lent $1.2 million on terms. The loan was secured by the fixed and floating charge earlier granted by Elementree over its assets and undertaking of 17 September 2010.

61 By the CLA, Mr Fakhre held the option of exchanging his $1.2 million loan to Elementree for 51% of the shares in Elementree. The CLA's terms provided that the $1.2 million loan was repayable 30 days after Mr Fakhre made a demand for repayment. Mr Fakhre was permitted under the terms of the CLA to make a demand for repayment 90 days after the CLA was entered (ie after 29 December 2010). Thus, the loan would need to be repaid by roughly the end of January 2011, assuming demand was made at the end of December 2010. If Mr Fakhre wished to convert the $1.2 million loan to a 51% majority shareholding in Elementree, he had to elect to do so prior to the expiry of the 90 day period (in other words, by the end of 2010).

62 On 9 December 2010 Mr Fakhre advanced a further $100,000 to Elementree. The purpose of these funds was to enable Elementree to pay a deposit to nurseries for the acquisition of new seedlings for a 1,000 ha planting in the middle of 2011. In the end, the parties agreed to treat the $100,000 as a further advance of funds by Mr Fakhre governed by the terms of the CLA. The $100,000 was advanced on 9 December 2010, and the CLA varied by a deed of variation on 29 December. As a consequence, the total of Mr Fakhre's secured loans now amounted to $1.3 million. By the terms of the CLA as varied, if Mr Fakhre elected to convert his loans to equity, he would receive a 53.01%, rather than 51% shareholding in Elementree. Furthermore, as a result of the variation arrangements, the repayment date for all loan funds was now deferred until 28 February 2011, in the event Mr Fakhre did not elect to convert his $1.3 million in loans made to Elementree to equity. This also meant that 28 February 2011 was the date by which Mr Fakhre had to indicate whether or not he would elect to convert. If he did not elect to convert then Elementree would need to repay him $1.3 million and interest by approximately the end of March 2011.

63 This tight repayment timeline made it important, in the last quarter of 2010, for Mr Hayes and the board of Elementree (which, at that time, included Mr Greg Hunt and Mr Ian Stanley), that Mr Fakhre decide whether he would convert his loans to equity in Elementree before the end of February 2011.

64 The further $100,000 in funds advanced on 9 December 2011, the subject of the deed of variation, also occasioned the granting by Elementree of a second charge to Mr Fakhre, dated 29 December 2010.

65 Mr Fakhre's additional $100,000 advance on 9 December 2010, and its subsequent documentation, gave rise to tension between Mr Hayes and Mr Fakhre. Issues arose as to the need for a second charge, the amount of the charge, and whether the charge unduly fettered Elementree's rights to raise funds elsewhere. An issue also arose over the $100,000 being tied up with the Tree Agreement. There was also an issue over Mr Hayes being difficult to contact in the period between Christmas 2010 and the New Year as regards the deed of variation and second charge.

Key provisions within the CLA and two charges of Mr Fakhre

66 Of particular significance to arguments concerning the disputed status of Mr Fakhre as a secured creditor of Elementree following his election to convert are provisions within the CLA and the charges. As regards the CLA, I refer to the definitions of 'Conversion Notice' and the definition of 'Event of Default'. 'Conversion Percentage' under the CLA 'means 51%, subject to adjustment under clause 9'. See also the definitions of 'Loan Amount', 'Moneys Hereby Secured' and, as regards the payment of interest, the definition of 'Specified Rate'.

67 I also mention 'Repayment Shares', which means 'fully paid ordinary shares in the capital of [Elementree] in an amount determined under clause 8.2(a)'. I refer without quoting to substantive cl 2 concerning conditions precedent, cl 4 as to the purpose of the funds advanced, cl 5 as to draw down of the loan amount, and cl 6 as to the payment of the Moneys Hereby Secured by reference to the 'manner specified in Schedule 3'.

68 By cl 6(a) of the CLA the obligation to 'pay' the Moneys Hereby Secured is qualified by the word 'except', regarding any part of the Loan Amount in respect of 'which the Investor has exercised its rights of conversion under clause 8.1' (my emphasis). See also cl 6(b) of the CLA concerning the obligation to pay interest at periodic rests 'and in the manner specified in Schedule 3'.

Conversion

(a) Subject to clause 8.1(b), upon the written election of the investor given to the Borrower ('Conversion Notice'), the loan amount, or any part of it, ('Conversion Amount'), must be converted into shares in the capital of the borrower by the issue of Repayment Shares to the Investor by the Borrower in accordance with this clause 8.

70 I also mention cl 8.2(a), which applies where the borrower is required to issue Repayment Shares to the Investor under cl 8.1(a):

(i) The Borrower shall issue a number of Repayment Shares to the Investor ...

(ii) The Repayment Shares must be issued and allotted to the Investor or its nominee within two Business Days after the date of a Conversion Notice or within two Business Days after the date of a meeting required under clause 8.3(b).

(iii) The Borrower must:

1. procure that the board of directors of the Borrower resolves to issue the Repayment Shares and to enter the Investor into the register of shareholders of the Borrower;
2. duly execute, issue and deliver to the Investor a share certificate for the Repayment Shares; and

Further Issues

So long as the Loan Amount, or any part of it, remains outstanding and not subject to a Conversion Notice as contemplated in clause 8.1(a) the Borrower shall not issue, allot or grant options over any of its shares or effect any alteration in its capital structure or issue any convertible notes without the consent of the Investor.

10.1 Events of Default

Default under this instrument shall be deemed to have occurred in any one or more of the following circumstances:

(a) If default is made in the due and punctual payment of any of the Moneys Hereby Secured at the time and in the manner prescribed by this instrument, or any other instrument or if default is made in the due and punctual performance or observance of any of the covenants, agreements, conditions or obligations contained or implied by any statute in this instrument, the Fixed and Floating Charge, or any security, guarantee, agreement or other instrument which is supplemental or collateral to or which varies the provisions of this instrument or which was executed by the Borrower in favour of the Investor or which was made between the Borrower and the Investor.

(b) If, prior to conversion of all or any part of the Loan Amount in accordance with clause 8:

...

(xiii) an event occurs whereby the Borrower is deemed, pursuant to subsection 460(2) of the Corporations Act, to be unable to pay its debts;

...

10.2 Cross Default

A default by the Borrower of the Fixed and Floating Charge or this instrument shall be deemed to be a default by the Borrower under each of the Fixed and Floating Charge and this instrument.

10.3 Consequences of an Event of Default

(a) If an Event of Default occurs that is capable of being remedied by the Borrower, the Moneys Hereby Secured shall immediately become due and payable if 7 Business Days after written notice of the Event of Default is given by the Investor to the Borrower, the Borrower has not remedied that default.

(b) If an Event of Default occurs that is not capable of being remedied by the Borrower, the Moneys Hereby Secured shall immediately become due and payable on demand.

73 See also, in cl 13.1 of the CLA, Borrower's Covenants including cl 13.1(f) as regards the Borrower's covenant with the Investor to carry on business in a lawful, proper and efficient manner. See also sch 3 to the CLA entitled 'Repayment'. Somewhat curiously, sch 3 proceeds on the basis of a structure which reads:

The moneys Hereby Secured shall be paid by the Borrower to the Investor as follows

(c) ...

(d) ...

(e) ...

74 There is an obvious error in CLA sch 3. Its three subclauses are identified as (c), (d) and (e). They should obviously read (a), (b) and (c) for it to be coherent. In my view it is easy to make that correction without requiring the instrument to be rectified in the face of an obvious error: see generally Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 426 427.

75 Pursuant to annexure A to the CLA there was a commitment for various amendments to be made to the constitution of Elementree under a special resolution of its members. In particular this carried provisions applicable to Mr Fakhre's position should he convert and thereby become a 'Majority Shareholder'.

76 I note that in the deed of variation of 29 December 2010 as between Mr Fakhre and Elementree, substantive variations to the CLA are found within cl 3.1.

[D]eleting the words 'the date which is 3 calendar months after the date of this instrument' in paragraph (d) of Schedule 3 of the Convertible Loan Agreement and replacing them with the words '28 February 2011'.

78 Each of the charges between Mr Fakhre and Elementree of 17 September 2010 and of 29 December 2010 are in very similar terms as the other. I refer first to cl 1 which contains definitions.

79 Clause 1 defines the term 'Event of Default'. It reads, '"Event of Default" includes any of the circumstances described in Clause 12'. From the body of the charge it is plain that this is also an error, since cl 12 deals with miscellaneous provisions. However cl 14 deals with Events of Default. Clause 14 clearly was the intended reference for the definition of Events of Default. Again it is easy to construe the charge instruments as drawn to correct a minor error, without a formal order for rectification.

80 I also refer to the definition of 'the Moneys Hereby Secured', and 'the Mortgaged Premises'. The 'Primary Instrument', by reference to the schedule to the charge, is identifiable as a 'Convertible Loan Agreement dated on or about the date of this instrument between the Mortgagee and the Mortgagor'. This is to be read as a reference to the CLA of 29 September 2010, notwithstanding that it followed the charge in point of creation.

81 Within the body of the charge I note cl 3 which says:

The Mortgagor covenants with the mortgagee to pay and satisfy the Moneys Hereby Secured at such times and in such manner and including interest at such rate as are prescribed by the Primary Instrument and by this instrument and, insofar as neither the Primary Instrument nor this instrument so provides, then on demand, with interest at the Specified Rate, computed from the date the same become due until payment thereof.

The Parties further agree as follows:

...

(e) That this security is collateral to and secures the same moneys as are secured by any instrument described in the Schedule hereto as 'Collateral Security'.

83 In fact the schedule refers to 'Collateral Security' as meaning 'the Primary Instrument'. As regards default, cl 14 provides:

Default under this security should be deemed to have occurred in any one or more of the following circumstances:

(a) If default is made in the due and punctual payment of any of the Moneys Hereby Secured at the time and in the manner prescribed in this instrument, the Primary Instrument or any other instrument or if default is made in the due and punctual performance or observance of any of the covenants, agreements, conditions or obligations contained or implied by any statute in this instrument, the Primary Instrument or any security, guarantee, agreement or other instrument which is supplemental or collateral to or which varies the provisions of this instrument or if any event shall occur upon the happening of which the time for payment of any moneys payable thereunder or secured thereby may be accelerated or any security thereby created may be enforceable.

(my emphasis)

...

(d) ...

(xi) If the Mortgagor or any Surety is or becomes insolvent within the meaning of that expression in section 95A(2) of the Corporations Act.

84 Of key significance to these proceedings is cl 15 within each charge which is in the following terms.

From and at all times after the occurrence of any Event of Default, notwithstanding the currency of any negotiable instrument, the following provisions shall apply:

(a) The Moneys Hereby Secured shall immediately become due and payable without any demand or notice being required.

(b) This security shall, at the option of the Mortgagee, become enforceable and, at the like option, the right of the Mortgagor to deal with the Mortgaged Premises for any purposes shall forthwith cease.

85 Within the charge provisions I particularly note that, by cl 15(a), the Moneys Hereby Secured immediately become due and payable without the need for any demand or notice after the occurrence of any Event of Default (however defined). Events of Default are defined in very wide terms by cl 14. From cl 14(a) that would manifestly extend to embrace a default in providing Mr Fakhre with his Repayment Shares under the CLA once he had elected to convert and had given a Conversion Notice, in accordance with the Primary Instrument (ie the CLA).

86 The Moneys Hereby Secured, as a term used within the charges, includes all moneys owing or prospectively owing either under the charge or under the CLA (as the Primary Instrument). Under the charges that is the case by cl 15(a), notwithstanding that in order to enforce the charges, the chargee must first exercise the option under 15(b) to make the charge enforceable such as for instance by the appointment of a receiver (see cl 15(c) of the charges).

87 Clause 15(a) of the charges, as regards the Moneys Hereby Secured becoming immediately due and payable without demand or notice being required upon the occurrence of an Event of Default, stands in contrast to cl 10.3 in the CLA, as regards remedial or irremediable Events of Default and the requirement of a written notice of an Event of Default under cl 10.3(a). In that case moneys become payable seven business days after written notice of the Event of Default is given, if the default is not remedied in the meantime. Moneys become repayable 'on demand' under cl 10.3(b) of the CLA if the Event of Default is not capable of being remedied by the Borrower.

88 These provisions are of some consequence to the conclusions I ultimately reach concerning whether or not Mr Fakhre was, or was not, a creditor of Elementree as at 12 July 2011.

Notice of election to enforce by chargee and notice of appointment of administrator by chargee given by Mr Fakhre on 12 July 2011

89 These documents are found as attachments GPD15 and GPD16 to Mr Doran's primary affidavit (exhibit 20, pages 179 181). Before turning to them I mention exhibit 20, pages 162 162A, being advice from Mr Doran's solicitors, Allens Arthur Robinson, provided by Mr Corey Steel on Monday 11 July 2011 at 2.47 pm (copied to Mr Blaxill and confirmed in Mr Doran's evidence as having been received by him as well). This advice was given openly to Mr Fakhre's Perth solicitor, Mr Greg Wheatley of Gadens, the day before the appointments of Mr Doran and Mr McVeigh on 12 July 2011. The advice to Mr Wheatley included these observations:

Your client has, pursuant to cl 8.1(a) of the Loan Deed, elected to convert the entire loan amount into shares in the capital of Elementree. We understand that a Conversion notice has been issued. This election has been disputed on the basis of a telephone discussion in which your client was alleged to have entered into a further commercial agreement in which he waived his rights of conversion.

Your client otherwise has evidence that Elementree is insolvent.

Your client now wishes to appoint Gary Doran as an administrator. At this stage it is proposed that the basis of the appointment will be either the:

1. default under the Loan Deed for failure to repay or convert the Loan Amount; or
2. Elementree's insolvency.

Either or both of the above matters will therefore need to fit within the definition of an Event of Default under either the Loan Deed or the charges. We address this point below.

...

The election to convert the Loan Amount into equity complicates the situation as it may hinder your client's ability to, at the same time, seek repayment of the Loan Amount. In addition the dispute concerning your client's election to convert clouds that particular default. There is a risk that Elementree may raise these matters to question your client's ability to enforce the charges and therefore the validity of an administrator.

90 Earlier, on Friday 8 July 2011 at 10.02 pm, Mr Doran received some direct legal advice by email from Mr Blaxill (see exhibit 34) in which he referred to similar key points:

• the loan appears to have repayable at the end of February [2011] and so there appears to be a breach of a monetary obligation to pay;
• the present litigation, however, appears to be seeking, rather than repayment, equity in the company. That claim appears inconsistent with an allegation that there is money owing. Accordingly, it would seem that the lender will need to rely on a breach of the covenant to convert the shares to be the event of default. That is what is the subject of a court challenge. Accordingly, an appointment of an administrator on that basis will likely to be liable to be similarly challenged;
• we recommend you seek details of the defaults that are intended to be relied upon.

It could therefore be that a default is the failure to repay. However, that default is, as noted above, inconsistent with a claim that the debt should be converted to equity. We therefore also recommend you ask Gadens to identify the event of default which is relied upon. If I understand the matter correctly, the default may be the failure to convert the debt to equity, being a default 'in the due and punctual performance or observance of any of the covenants' in the convertible loan agreement. If that is the case, it gives rise to a risk that your appointment could be challenged on the basis that there was no ground for conversion of the debt and therefore no default. We recommend that you question Gadens on these issues.

92 On 12 July 2011, Mr Wheatley of Gadens, on behalf of Mr Fakhre, issued to Elementree a notice of election to enforce by chargee. It read, relevantly, by reference to both charges:

1. Default has occurred under the Charges in that:

(a) a default has been made in the due and functional payment of the Moneys Hereby Secured referred to in the Charges, in that:

1. the Company did not pay the Moneys Hereby Secured to the Chargee in the manner specified in Schedule 3 of the Primary Instruments; and
2. the Company has not paid interest to the Chargee in the manner specified in Schedule 3 of the Primary Instruments;

(b) a default has been made in the due and punctual performance of the Company's obligations under the Charges and the Primary Instruments referred to in the Charges in that (among other things):

(i) the Company has not issued the Repayment shares (as defined in the Primary Instruments) to the Chargee in accordance with the Primary Instruments; and

(ii) the Company has not carried on and conducted its business in a proper and efficient manner; and

(c) The Company is insolvent within the meaning of that expression in s 95A(2) of the Corporations Act, in that the Company cannot pay its debts as and when they become due and payable.

1. The Chargor hereby gives you notice that it has elected to enforce the Charges pursuant to clause 15(b) of the Charges. The Charges have therefore become enforceable.

93 Thereafter on the same day Mr Fakhre issued, pursuant to s 436C, his notice of appointment of administrator by chargee. The instrument appears to carry Mr Fakhre's signature.

94 Defaults relied upon in the notice of appointment refer to defaults in similar terms to the notice of election to enforce.

95 It is significant, however, that cl 3 of the notice of appointment refers to default under the 'charges'. By its full terms cl 3 provides:

Default has occurred under the Charges in that:

(a) a default has been made in the due and punctual payment of the Moneys Hereby Secured referred to in the Charges;

(b) a default has been made in the due and punctual performance of the Company's obligations under the Charges and the Primary Instruments referred to in the Charges in that (among other things):

1. the Company has not issued the Repayment shares (as defined in the Primary Instrument) to the Chargee; and
2. the Company has not carried on and conducted its business in a proper and efficient manner; and

(c) the Company is insolvent within the meaning of that expression in s 95A(2) of the Corporations Act.

(my emphasis)

1. The Chargee has elected to enforce the Charges pursuant to cl 15(b) of the Charges, and has issued a notice to the Company to that effect. The Charges have therefore become and still are enforceable.

97 The defaults relied upon by Mr Fakhre by reference to his charges include a default as regards due and punctual payment of the moneys referred to in the charges, the failure to issue the Repayment Shares in accordance with the Primary Instruments and as well an allegation that Elementree had not carried on and conducted its business in a proper and efficient manner. As to that latter allegation the action was conducted on the basis that it was not relied upon - see ts 262, where counsel for Mr Fakhre made that clear. Elementree's insolvency was also relied upon by reference to s 95A(2) of the Act.

98 By cl 7 of the notice of appointment Messrs Doran and McVeigh, both registered liquidators, were appointed as joint and several administrators of Elementree.

99 As regards insolvency, the administrators' RTC indicates the administrators' opinion to that effect. Paragraph 6.5 reads:

As detailed above, the Company had trading losses in FY09, FY10 and FY11 and negative working capital throughout these periods. These are both strong indicators of insolvency.

See further indicators of insolvency at page 13 of the RTC.

100 The status of Mr Fakhre's loans of $1.3 million and his position as a secured creditor, alternatively as someone who elected to convert those loans to equity on 25 February 2011 and is therefore no longer a creditor, bears upon any insolvency analysis. The removal of $1.3 million from the current liabilities of Elementree would make a significant difference to Elementree's balance sheet. The balance sheet would be further improved by changing the liability status of shareholder creditor loans in the amount of $603,000 to equity, thereby removing them as liabilities. Likewise if Mr Fakhre were alternatively to be assessed as a debtor by reference to obligations either under the Matching Funds Agreement or the Tree Agreement to the extent of $500,000 or $1 million, then those considerations have the potential to affect the balance sheet of Elementree as at 12 July 2011, viewed from a revised perspective of the RTC at 10 October 2011.

101 Aside from the position of Mr Fakhre in relation to his rights to obtain a 53.01% shareholding via the CLA (as varied), the other shareholdings in Elementree can be seen in par 2.1.1 of the RTC. I will mention the more important holdings.

102 Mr Hayes is listed as being a holder of 13,500,000 shares with a subscription value of $1,405. His parents' corporation, Forrestdale Investments Pty Ltd (Forrestdale), trustee of the Forrestdale Unit Trust, is mentioned as holding 28,468,608 shares.

103 Mr Kerkmans, a director of an associated corporation, Marlingu, and friend of Mr Hayes (see ts 364), is mentioned as a shareholder, both personally and through that corporation. Marlingu is recorded as holding 416,667 shares. The M & DJ Kerkmans Trust as trustee of the Kerkmans Family Trust is mentioned as holding 1,875,000 shares. Mr Max Kerkmans is mentioned as being the holder of 208,333 shares.

104 Mr Ian Stanley is mentioned as holding 1,108,333 shares

105 Our Barnyard Pty Ltd as trustee of the Greg Hunt Family Trust is recorded as holding the same amount of shares.

106 I mention the shareholding of a Mr Andy Cuthill, a professional investor from the UK who was known to Mr Hayes and who, through Citicorp Nominees Pty Ltd, held 833,333 shares with a subscription value of $150,000 (see ts 482 483).

107 Sunquest Pty Ltd, as trustee of the Sunquest Capital Trust, is recorded as holding 66,667 ordinary shares (Sunquest). (This is an entity associated with a Mr Josh Crow: see ts 508.)

108 In aggregate, the administrators' RTC identifies 55,516,163 ordinary shares on Elementree's share register.

109 It does not mention any 53.01% shareholding by Mr Fakhre. That is so notwithstanding that on 15 August 2011, in response to a request from the administrators, Ms Karen Logan, Elementree's company secretary, sent to Mr Doran's assistant Ms Marshall a copy of the 'members' register (see exhibit 20, page 321).

Please note that on 7 July 2011 (subsequent to the passing of the resolution to appoint Ian Stanley and Greg Hunt as director and Chairman of the Board, respectively), I received an instruction from Courtney Hayes to prepare the attached circular resolution, the share certificate and update the members register accordingly.

As previously advised to Gary Doran, I resigned as company secretary on 7 July and handed over all administrative files to Courtney on that day. Consequently, you may wish to confirm with the Company as to whether the circular resolution dated 7 July was passed by the directors.

111 The attached 'members register' sent by Ms Logan shows as the last entry on the 'register' Mr Fakhre holding 62,628,470 shares, with the date of issue as '7 July 2011' and the 'Total Amount Paid' at $1,300,000 (exhibit 20, pages 324 325).

112 I assess this as very curious indeed. I do not accept its accuracy as proven. The total of shares on the register for Elementree is shown by Ms Logan as being 118,144,633 shares but is out of alignment with the shareholding as specified in the RTC at par 2.1.1 (being total Elementree shares of 55,516,163). It is also out of alignment with the total number of shares for Elementree as ascertained from the ASIC historical record, dated 15 November 2011 (exhibit 5, page 36).

113 Ms Logan was not called as a witness at trial. She is not recorded as having resigned as the secretary of Elementree on Thursday 7 July although by her email she says that she had.

114 Ms Logan's email says that she has provided the share register as at Wednesday 6 July 2011, albeit the date of issue to Mr Fakhre is said to be 7 July 2011.

115 She also refers to the resolution to reappoint Mr Hunt as director and chairman of the board. But that circular resolution bears the date 4 July 2011 (exhibit 5, page 235) and it seems clear that neither Mr Hunt nor Mr Stanley were told by Ms Logan that they had been reappointed to Elementree's board.

116 It is clear that it was not until 5.02 pm (exhibit 5, page 233) on 11 July 2011 that Bennett & Co advised Gadens by email of another circular resolution of Elementree's directors, signed (it seems) by the three Hayes family directors, but said to be of Thursday 7 July 2011 (exhibit 5, page 236).

117 This issue is dealt with in the RTC at par 2.4. Figures for the financial years ended 30 June 2009 and 30 June 2010 were taken from Elementree's signed statutory accounts. In brief summary, the position at 30 June 2010 looked tight, but just solvent. The position 12 months later shows a clear deterioration in Elementree's position.

118 Elementree's profit and loss accounts show minimal revenue ($5,000 for the 2010 financial year and only $2,000 for the 2011 financial year). But there are significant expenses ($1,274,000 for 2010 and $1,278,000 for 2011), fairly typical of a start up business.

119 Scrutinising the balance sheets for the same periods, the 30 June 2010 position shows total assets of $1.124 million, total liabilities of $391,000, resulting in a surplus of assets over liabilities amounting to $732,000. However, the balance sheet as at 30 June 2010 indicates that there were current liabilities of $308,000 against current assets of only $5,000. Elementree's liquidity position was, therefore, tight. Its noncurrent asset position was made up of property, plant and equipment which, together with socalled intangible assets, amounted to $1.07 million. Noncurrent liabilities reflected some loans and borrowings to the extent of $83,000.

120 That position may be contrasted to Elementree's 30 June 2011 figures which shows similar (minimal) income, and a similar high annual level of expenses, thereby delivering a similar level of loss ($1.276 million). From the balance sheet figures, Elementree's cash position had deteriorated to a position of negative current assets of $7,000, but with an enhanced noncurrent asset position ($2.217 million).

121 As of 30 June 2011, there was a significant increase in the level of current liabilities, represented by loans and borrowings, which had increased from $15,000 to $1.903 million in that financial year. Elementree's 30 June 2011 financial position showed current liabilities exceeding current assets, to an extent of $2.243 million. There was an overall excess of liabilities over assets in the amount of $93,000.

122 A juxtaposition of the Elementree balance sheets for 30 June 2010 and 2011 shows Elementree's financial position deteriorated in the 2011 financial year, as reflected by its current liabilities and borrowings. According to par 4.2.2 of the administrators' RTC, Elementree's financial difficulties were the result of:

• the company being undercapitalised for a number of years given the extent of the operating costs and capital investment required to establish a sustainable carbon and renewable biomass plantation business
• the delays by the Federal Government in finalising its carbon tax policy
• proceeding to plant 588.3 ha of trees on a property [Bacopak] without first obtaining complete legal rights from the landowner and their respective mortgagee. As a result this significant investment may not be recoverable
• the breakdown in the relationship between the managing director [Mr Courtney Hayes] and secured creditor [Mr Danny Fakhre] and the subsequent failure to recapitalise the Company through converting the secured loan to equity and completing the proposed equity raising

124 It will be remembered that at the end of September 2010 Elementree entered the CLA with Mr Fakhre and obtained from him a short term loan for $1.2 million. That loan from Mr Fakhre was increased by a further $100,000, secured under the CLA arrangements, which were extended in duration beyond the end of December 2010 to the end of February 2011.

125 I mention the position as regards Elementree's creditors as at 30 June 2011. This is significant bearing in mind the fact that the approved DOCA is accepted to discriminate between employees and trade creditors who are paid out in full, and shareholder creditors, who receive virtually nothing. The other significant factor is the treatment by the administrators in the RTC of Mr Fakhre's $1.3 million loan as a secured debt.

126 Creditor information is set out in par 1.4 of the RTC under the heading 'Administrators' Recommendation'. The following appears:

Assuming the actual amount of all proofs of debt accepted by the Administrators approximates $2,598,597 the estimated dividends to creditors under each alternative is as follows:

127 For the composition of the shareholder creditors, I refer first to par 4.4 of the RTC as to related entities and observations concerning Forrestdale and Mr Courtney Hayes.

128 The information in that paragraph is that Forrestdale (Mr Hayes' parents' company) was owed a debt of $510,000 by Elementree, that debt being incurred in the period between 22 July 2009 and 19 May 2011. It is referred to as a 'shareholder loan'.

129 The entry concerning Mr Hayes personally indicates that he was owed $73,942 by Elementree, incurred in the period between 2 November 2009 and 20 May 2011. This debt is also referred to as a 'shareholder loan'.

130 So $583,942 within the Shareholder Loan class of debts relates to loans to Elementree from Mr Hayes or from his parents' company, Forrestdale. There is some elaboration concerning this issue at par 7.4.11 of the RTC showing a breakdown of the total shareholder loan figure of $790,163, subdivided by reference to loans per Elementree's books and records or another subcategory for what are referred to as additional shareholder loans.

131 There are further shareholder loans on Elementree's books referable to the Kerkmans Family Trust, in the amount of $13,000, and Marlingu (a corporation associated with Mr Kerkmans, a witness for the plaintiff at trial, see ts 363 406 and Mr Kerkmans' witness statement, exhibit 4) which was a creditor in the amount of $80,000. Hence, there are recorded shareholder loans to Elementree associated with Mr Kerkmans or his related corporation to the extent of $93,000.

132 By a subcategory, 'Shareholder loans - additional', the report identifies further loans. Two, together comprising $10,000, relate to office rent paid and an invoice met by Forrestdale.

133 Two additional shareholder loans relate to Mr Courtney Hayes himself in the amount of $53,000 (explained at par 7.4.11.2 of the RTC as Mr Hayes' unsecured claim in respect of outstanding employee entitlements calculated in accordance with s 556 of the Act).

134 A further loan in this category is mentioned, in the amount of $50,000, from Mr Cuthill, the UK investor. This is explained at par 7.4.11.1 of the RTC:

On 31 January 2011, Mr Andy Cuthill deposited $50k into the Company's general account and was subsequently to be issued shares. No shares were issued and no resolution was passed. We have therefore treated this amount as a loan to the Company.

135 It is not said why Mr Cuthill's subscription funds for shares were treated as a loan to Elementree. Perhaps this was because his funds were wrongly deposited into Elementree's general account by Mr Hayes. There is no suggestion at all in the evidence that Mr Cuthill, in seeking to subscribe for shares in Elementree, acquiesced in that misconduct. Mr Cuthill's $50,000 subscription funds for shares ought to have been placed in a separate trust account, pending the issue of shares pursuant to Elementree's rights issue which closed at the end of January 2011. In treating Mr Cuthill as an unsecured shareholder creditor, the DOCA effectively sees Mr Cuthill lose all his subscription funds. In the context of discrete arguments by Mr Hayes against the DOCA grounded upon unfair discrimination against Elementree's creditors, the treatment of Mr Cuthill requires particular attention. In that respect, see par 67 of Mr Hayes' first affidavit (exhibit 5), referring to his conversation with a major independent shareholder a professional investor based in London. Mr Hayes explained the reference under crossexamination (ts 465). Mr Hayes explained that Mr Cuthill, by reference to Elementree's share register, had earlier subscribed for 833,333 shares in Elementree, under what was effectively a trustee acquisition scenario, in the name of Citicorp Nominees for $150,000 (see also RTC par 2.1.1). See Mr Hayes' evidence at ts 483, ts 484, ts 510, ts 519 and ts 531.

136 In contradistinction to other subscribers for shares under the Elementree rights issue (closing on 28 January 2011) who were mainly friends, such as Mr Kerkmans, or Mr Hayes' parents through Forrestdale, Mr Cuthill was a professional investor in the UK who was concerned about the $50,000 he had subscribed for further shares, especially given that by 23 February 2011 Mr Cuthill had not received his shares and was querying Mr Hayes about what was happening.

137 According to Mr Hayes, Mr Cuthill was kept apprised and so was 'relaxed' (ts 531). Nothing in the evidence suggests Mr Cuthill, unlike Mr Hayes' parents or Mr Kerkmans, acquiesced in or gave an approval, tacit or otherwise, for his subscription funds being treated as an unsecured loan to be used by Elementree to fund its operations.

138 It is one thing for Mr Cuthill to possibly lose all the value of a shareholding in Elementree he already held (through Citicorp Nominees Pty Ltd). It is quite another for him to be deprived completely of $50,000 in subscription funds, in circumstances where this money was paid over as the consideration for new shares he never received under the Elementree rights issue.

139 The matter proceeded upon the basis of affidavit evidence adduced on behalf of each of the parties as their evidenceinchief. Deponents were then crossexamined on the affidavits.

140 Evidence for the plaintiff was adduced from three witnesses. First is the evidence of the plaintiff himself, Mr Hayes. Most of his evidence is found in his main affidavit sworn 17 November 2011 (exhibit 5). It contains Mr Hayes' evidence across 84 paragraphs accompanied by 43 attachments. Mr Hayes also swore a further affidavit which became exhibit 6. It spans 54 paragraphs and a further eight attachments.

141 I should observe that there were objections to many paragraphs of the affidavits adduced on all sides. Sensibly, most of these were resolved between counsel before the affidavits were admitted into evidence. All admitted affidavit exhibits have been marked, showing excisions or augmentations where made by the deponents. On a few occasions leave was given for further evidenceinchief to be adduced viva voce after successful objection had been made to the content of an affidavit.

142 A distinct section in these reasons deals with the evidence of Mr Hayes. I should state at the outset that in the main I found his evidence to be unsatisfactory and unreliable. As a result I will only accept it in instances where it is independently corroborated by another witness or by an unchallenged document.

143 But as regards the critical issue concerning Mr Fakhre's status as a creditor of Elementree as at 12 July 2011, the basic underlying facts are largely uncontroversial and no issues of credibility arise. Essentially the critical issue hinges upon an exercise in contractual construction and rationalisation concerning the CLA, the deed of variation and Mr Fakhre's two charges. These written instruments speak for themselves. Their meanings raise questions of law. Needless to say, the extensive legal argument that has raged as to different meanings satisfies the required ambiguity threshold for an admission of relevant evidence of surrounding circumstances: McCourt v Cranston [2012] WASCA 60 [13] [26]; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 352; Western Export Services Inc v Jireh International Pty Ltd [2011] HCA 45. The required assessment as to Elementree's insolvency as at 12 July 2011 raises a mixed question of fact and law. In other areas however, particularly concerning the so called Tripartite NonConversion Agreement, the Matching Funds Agreement and the Tree Agreement, my inability to accept Mr Hayes' uncorroborated evidence does not assist his case.

144 The plaintiff adduced the evidence of Mr Michael Kerkmans through an affidavit which became exhibit 4. Mr Kerkmans is a close friend and supporter of Mr Hayes and the corporate objectives of Elementree. In the main I found his evidence credible. Significantly, however, Mr Kerkmans gave some evidence in crossexamination about selling one of his farms and settling on that transaction some time around the middle of 2011. Mr Kerkmans' evidence was intended to suggest that from the perspective of assessing Elementree's solvency, Mr Kerkmans would have been a source of further funding either by way of loans to Elementree or by subscribing for further capital. It seemed to me that the verbal evidence on this point (not in Mr Kerkmans' affidavit) was simply too loose and vague to be counted in an assessment of Elementree's solvency as at 12 July 2011. In par 16 of his affidavit Mr Kerkmans refers to a demand for repayment of subscription funds which he made to Elementree pursuant to its capital raising proposal which closed on 28 January 2011. Attachment MK4 is Mr Kerkmans' letter of 13 June 2011 to Elementree's company secretary, Ms Logan. The letter is sent on behalf of Mr Kerkmans' corporation Marlingu. He and his wife Deborah Kerkmans write to Elementree as directors of Marlingu to Elementree in these terms:

Since making that offer we have deposited a total of $93,000 with the Company and have not received any shares. Since providing these funds we have authorized their use as loan funds in recognition of the Company's urgent need for capital.

We wish to inform the board that we have now withdrawn the offer of providing those funds in exchange for equity, and are requesting their immediate repayment.

145 Evidence emerged at trial that Mr Hayes had actually been the instigator of the demands received by Elementree for repayment of subscription funds which had been consensually used as loan funds thereafter. This consideration applies as well to demands for repayment of funds advanced by his parents' corporation Forrestdale. In Mr Kerkmans' affidavit at par 16 he says:

Despite making the request for the repayment of funds, if I had been informed that doing so would have rendered Elementree insolvent I would have not required immediate payment of the loans and would have agreed a later repayment date so as to enable Elementree to raise equity or other funds. I was passionate about the business and Marlingu was a significant shareholder - I ultimately wanted to do what was in the best interests of Elementree.

146 Notwithstanding the expressed support, the demands for repayment sent to Elementree must, on my assessment, be viewed as meaning what they say. There can be no equivocation about such matters, even though I find the demand was sent at the instigation of Mr Kerkmans' close friend, Mr Hayes. The demands were part of a Hayes' family strategy to manufacture a position which would place more pressure upon Mr Fakhre in the then pending litigation which he had commenced against Elementree seeking an issue and allotment to him of his 53% majority shareholding pursuant to the CLA as varied. Mr Kerkmans' conduct through Marlingu to demand repayment of his loans must bear upon the solvency analysis. Notwithstanding what he says in par 16 there can be no approbating and reprobating on this point. Demand was made. It was a valid demand. The valid demand was not withdrawn at any relevant time. The RTC accepts this debt as legitimate in the category of a loan from a 'Shareholder Creditor'.

147 It also appears that Mr Kerkmans attended the second creditors' meeting of 18 October 2011. At that meeting he, on behalf of himself and Marlingu, voted in favour of accepting the proposed DOCA. This was on the basis that he appreciated that shareholder creditors such as Marlingu would receive a negligible dividend under the DOCA. That is a relevant consideration to be weighed subsequently as regards the s 445D challenge asserting unfairly discriminatory treatment of creditors under the DOCA. It is also a factor going to my discretion under s 447A of the Act to effectively validate a defective DOCA.

148 The last witness for the plaintiff was Mr Hayes' mother, Mrs Shannon Hayes. Her affidavit, sworn 29 March 2012, became exhibit 17 (with excisions).

149 Under crossexamination Mrs Hayes was forced to accept that the demand for repayment which Forrestdale had made upon Elementree requiring repayment of its share subscription funds, which had subsequently been consensually treated as loan funds, was valid. Earlier, she said the Forrestdale demand was a 'ploy' implemented at her son's instigation to apply some pressure to Mr Fakhre in the subsisting litigation.

150 Like the position I reach with Mr Kerkmans I reject any attempt by par 14 of Mrs Hayes' affidavit to suggest that Forrestdale's demand for repayment of funds (amounting to $520,074) was anything less than a valid demand for immediate repayment of those loans. That is so notwithstanding that Mrs Hayes says at par 14:

Despite Forrestdale making the request for repayment of the funds loaned to Elementree, I would not have insisted [on] immediate repayment of the loans made to the Company if I had been informed that doing so would render Elementree insolvent. My willingness to provide ongoing investment to the Company through this difficult period was always intended to prevent the Company from becoming insolvent. I believed in the Company and wanted it to continue to trade. It was my belief, and my preference at the time, that I would convert the amount loaned to the Company as equity in the Company.

151 But Mrs Hayes too cannot approbate and reprobate as regards the funds in respect of which Forrestdale demanded repayment from Elementree. I have not overlooked the fact that Mrs Hayes became a director of Elementree with her husband Lynton and they continued as directors of Elementree at the appointment of the administrators on 12 July 2011 (exhibit 5, page 34). Nevertheless, Forrestdale's demand for repayment speaks for itself.

152 For the first and second defendants the sole witness at trial was the first defendant, Mr Gary Doran. His evidence was adduced within the framework of his affidavit sworn 31 January 2012, which comprised 143 paragraphs and 1,578 pages of material across three volumes. More than 1,000 pages of that material was contained within attachment GPD32, referred to in par 77 of Mr Doran's affidavit. Much of this material was disorganised, repetitious or irrelevant. No real thought seems to have been given to the nature of what was required. GPD32 was essentially a 'document dump'. Any practice of adducing evidence in this fashion should be actively discouraged, albeit this part of the affidavit was not objected to.

153 Mr Doran's primary affidavit and attachments became exhibit 20.

154 There were two further affidavits from Mr Doran introduced into evidence. His affidavit sworn 20 April 2012 (which contains attachments GPD46 and GPD47 comprises annotated transcripts of creditors' meetings, chaired by Mr Doran and held on 22 July and 18 October 2012) was uncontentious and became exhibit 21. In a long crossexamination of Mr Doran by counsel for the plaintiff I did not discern any questions challenging the reliability of the content of exhibit 21.

155 Mr Doran swore a third affidavit of 6 August 2012. It became exhibit 18. This affidavit was said to update financial matters for the purposes of the second phase of this trial, to the time of Mr Doran's crossexamination and particularly concerning the operations of Elementree under the DOCA with Mr Doran and Mr McVeigh in charge of Elementree's affairs. Aspects of it were heavily challenged.

156 Although required on occasion to make some corrections to this affidavit, the corrected deficiencies were on my assessment (essentially matters concerning the annexures to exhibit 18) excusable by reason of time pressures. I draw no sinister inferences. Overall, I found Mr Doran to be open, straightforward and reliable as a witness and to have acted properly and professionally in his tasks concerning Elementree.

157 The third defendant, Mr Fakhre, adduced evidence from a number of witnesses including himself; see his affidavits sworn 23 April 2012 (which became exhibit 41) and 1 May 2012 (which became exhibit 42). Speaking generally, he presented as an intelligent, sophisticated businessman. I found his evidence in the main to be direct and reliable. Where it conflicts with the evidence of Mr Hayes, I prefer Mr Fakhre's version of events, although the occasions for direct clashes between the two witnesses as to their evidence is limited, essentially confined to issues over an oral Tripartite NonConversion Agreement, Matching Funds Agreement and the Tree Agreement.

158 Mr Fakhre as third defendant caused evidence from one of Elementree's nonexecutive directors, Mr Gary Hunt, to be adduced at the trial. Mr Hunt's affidavit became exhibit 1. Mr Hunt was also recalled for further crossexamination in the second phase of the trial. Exhibit 1 includes annexures GH1 to GH3 and was sworn 29 April 2012.

159 Mr Hunt did not support Mr Hayes' evidence concerning the enforceable character of the verbal Matching Funds Agreement and Tree Agreement said to have been concluded by Mr Hayes and Mr Hunt with Mr Fakhre in the lobby of the Pelham Hotel in London on 5 November 2010. Mr Hunt was the chairman of Elementree as well a founder. Mr Hunt was removed from Elementree's board at a general meeting of Elementree shareholders on 17 June 2011. Mr Stanley resigned in sympathy the same day. Mr Hunt was a longstanding friend of Mr Fakhre. He had introduced Mr Fakhre to Elementree's board in 2010. This ultimately led to the execution of the CLA on 29 September 2010 and the loan from Mr Fakhre, which was at that point in the amount of $1.2 million.

160 Mr Hunt and Mr Hayes travelled to London to meet with Mr Fakhre to persuade him to exercise his right under the CLA to convert his loans to shares in early November 2010.

161 During the last fortnight before the appointment of the administrators to Elementree, Mr Hunt and Mr Stanley both signed consents to be reappointed to Elementree's board. An ASIC search shows Mr Hunt and Mr Stanley's restoration to Elementree's board on 4 July 2011 (exhibit 5, page 34).

162 Both Mr Hunt and Mr Stanley said they were not told by anyone at Elementree that they had been reappointed and therefore did not act in the period between 4 July and 12 July as directors of Elementree. I accept that neither Mr Hunt nor Mr Stanley was told that they had been reappointed to Elementree's board and that in that last week they were confused and uncertain as to their positions. In no small measure that confusion was attributable to the inexcusable absence from Elementree's office premises at Perth of Elementree's managing director, Mr Hayes, from about 23 June 2011. From sometime earlier in June 2011 Mr Hayes appears to have cleared out his desk, deleted his emails and left for Merredin, the location of one of the mid west farms where Elementree was planting for 2011. Mr Hayes' conduct, deliberately absenting himself during a very difficult time for Elementree, without unequivocally resigning as managing director, was in my view completely unacceptable. It was an abrogation of responsibility and leadership. It directly caused many of the noncommunication problems which plagued Elementree in this period. In my view, it ill behoves Mr Hayes to criticise Mr Hunt and Mr Stanley for failing to be more proactive as directors in the period from 4 July when Mr Hayes himself displayed a disgraceful lack of leadership.

163 I found Mr Hunt's evidence on both occasions that he attended for crossexamination to mainly be reliable. He was a close friend and ally of Mr Fakhre and forwarded in this period virtually every email he received to Mr Fakhre.

164 Mr Ian Stanley was also called as a witness on behalf of the third defendant, Mr Fakhre. His affidavit became exhibit 100. Mr Stanley was crossexamined concerning issues similar to those put to Mr Hunt. I was impressed by Mr Stanley's evidence in terms of his direct and probative responses.

165 Also adduced on behalf of the third defendant were two affidavits from Mr Fakhre's Perth solicitors, Gadens, made by Mr James Edward Scovell. Mr Scovell's affidavits of 27 January and 24 April 2012 became exhibits 39 and 40. Mr Scovell was not required for crossexamination. His evidence mainly deals with the unsuccessful efforts to compromise the litigation between Mr Fakhre and Elementree in CIV 1664 of 2011.

166 There is no contention that settlement was ever effected although it now seems that at points, using the wisdom of hindsight, the parties were tantalisingly close.

167 Mr Fakhre's settlement offer for the litigation expired at 4.00 pm on 29 June 2011. It was never extended, notwithstanding efforts by the solicitors for Elementree to have Mr Fakhre's offer of settlement extended beyond 29 June 2011. It is also clear from Mr Scovell's evidence that PDF documents emailed to Gadens on 11 July 2011, which included Mr Hayes' conditional resignation as managing director dated 7 July 2011 and an issue and allotment of 62,628,470 fully paid ordinary shares in conversion of Mr Fakhre's $1.3 million loan in accordance with the CLA as varied, were tendered only conditionally by Elementree's solicitors.

168 The emailed PDF documents accompanying the communication from Elementree's solicitors of 11 July 2011 were required to be held in escrow pending the fulfilment of conditions and, if not accepted on that basis, to be returned to Elementree's solicitors. Provision of the documents on that basis on 11 July was rejected.

169 One of the PDF documents sent by Elementree's solicitors on Monday 11 July 2011 was a circular resolution of Elementree's board. It looks to be signed by the three members of the Hayes family. The circular resolution was not signed by Mr Hunt or Mr Stanley; nor had they been asked or told to do so. I find that it was not signed because the circular resolution was never presented to them. Clause 15.11 of Elementree's constitution required written resolutions to be signed by 'all the directors' (exhibit 20, pages 445 446). The resolution itself purports to be a resolution of 7 July 2011. This was well after the expiry of Mr Fakhre's settlement offer.

170 The third defendant also adduced evidence from two senior employees of Elementree, Mr Trevor Tym Duncanson and Mr Robert Michael Ardagh Walter. Mr Duncanson's affidavits of 17 April 2012 and 1 May 2012 became exhibits 102 and 103. Mr Walter's affidavit of 17 April 2012 became exhibit 107.

171 Mr Duncanson and Mr Walter both presented to me as frank and reliable witnesses but their input is minor in the overall issues at large. I find that they were placed essentially in an untenable position as a result of a lack of direction and leadership by Mr Hayes' absence as Elementree's managing director from the period between 23 June 2011 and 12 July 2011, when Mr Hayes cleared out his desk and absented himself from Elementree's offices. He did that after attempting to delete information from his computer and take some information concerning Elementree's creditors with him. From that point he effectively became incommunicado or communicated by email at his whim. The rationale behind this absentee strategy seems to me to be shrouded in mystery. Possibly it was an attempt to set up a basis for an independent appointment of another administrator to Elementree predicated upon its insolvency. At the time, Mr Hayes had been infrequently talking to another insolvency specialist, Mr Bryan Hughes, who appears to have been a family friend.

172 There were close communications in the two weeks before 12 July 2011 between Messrs Hunt, Walter and Duncanson and Mr Fakhre. In all the circumstances I find this to be completely explicable given Mr Hayes' mainly incommunicado status save only for occasional grandiose thank you communications. There is certainly element of irony in these communications bearing in mind my assessment that Mr Hayes' decisionmaking was responsible for an inexcusable failure to provide Mr Fakhre with the 53% shareholding in Elementree he was entitled to, at least from the end of February 2011, and which he was denied on a spurious basis.

173 Significantly, the advancing of the Tripartite NonConversion Agreement so as to prevent Mr Fakhre receiving his Elementree shares was based upon Mr Hayes' subsequent acceptance of an offer supposedly made by Mr Fakhre to Mr Stanley in a conversation on 23 February 2011 over the telephone, with Mr Stanley in Perth and Mr Fakhre in London. Mr Hayes well knew that Mr Stanley had told him that he was uncertain about what had been said in that conversation concerning private arrangements by which Mr Hayes would personally pay $650,000 to Mr Fakhre if Mr Fakhre did not exercise his right to convert. Mr Fakhre always denied that there had been any such agreement and he did subsequently elect to convert. Mr Stanley's evidence was unequivocal about that and I accept it. I also find that this was well known to Mr Hayes from then. Therefore the wholesale deficiencies in advancing the Tripartite NonConversion Agreement were well understood.

174 Mr Hayes must bear full responsibility for the disastrous and illconceived blocking manoeuvre attempted against Mr Fakhre. I find that this manoeuvre was driven by Mr Hayes' ego and a confessed hatred of Mr Fakhre, which crystallised after Mr Hayes received Mr Fakhre's entirely justified criticism of his poor performance as managing director of Elementree in an email sent on 4 February 2011 to Mr Hunt and copied to Mr Hayes (exhibit 5, page 186).

175 In addition there were further documents tendered on an ad hoc basis as the matter proceeded. The last loose exhibit was exhibit 109.

176 For the purposes of these proceedings the parties exchanged detailed chronologies of events. These were reused in their written closing submissions. As I indicated most underlying facts are either uncontentious or are established by reference to a voluminous amount of documentary material placed before the court as attachments to affidavits or as loose exhibits. For instance, in exhibit 20, Mr Doran's primary affidavit, attachment GPD32 spans some 1,000 pages of material. Many of the key documents are repeated within Mr Hayes' primary affidavit, exhibit 5. There are many emails with repeated trails. In the case of Mr Hayes his email communications exhibit a characteristic of 'embedding' within other emails his responses and creating a composite document which needs to be treated with great care in order to avoid a misreading of such a communication.

177 Since, in the main, there is little dispute about most underlying facts, I have been able to proceed by reference to the chronology of events found within the first and second defendants' closing submissions (of some 115 pages) between pars 21 and 192. I have used the written submissions as a template with my adjustments from time to time as appropriate, to render the underlying factual findings concerning events.

178 To the extent that there are factual controversies I will either resolve them along the way within this chronology or deal with them discretely.

179 Elementree is an unlisted public company. It was established by Mr Hayes on 16 December 2005 as a propriety limited company. It became an unlisted public company in mid 2010. Its core business is as a provider of carbon and renewable biomass in Australia (exhibit 20, page 1395).

180 Funding for Elementree during its initial development came primarily from Mr Hayes' parents, Mrs Shannon and Mr Lynton Hayes, through their company Forrestdale (exhibit 5, par 20; ts 728).

181 By May 2010, Elementree's working capital was starting to run low. It was necessary to secure additional external funding in order to plant Elementree's first 1,000 ha of trees. It was in around May 2010 that Mr Fakhre was introduced to Elementree by his longstanding friend, who had become chairman of Elementree, Mr Greg Hunt (exhibit 5, pars 22, 29; exhibit 1, par 4; ts 1084).

182 Mr Fakhre, with the assistance of his financial advisor (Mr Khalil Mustafa) and solicitors at the time, made some initial inquiries about Elementree. Mr Hunt also provided information to Mr Fakhre about Elementree; in particular, Elementree's need for an urgent injection of funds (exhibit 1, par 4; ts 1145 1146).

183 In an indicative term sheet that Mr Hayes provided to Mr Mustafa in May 2010, Mr Hayes deliberately misrepresented the shareholdings of himself and Mr Hunt. Mr Hayes 'moved' one million shares from his name to Mr Hunt's name in an effort to induce Mr Fakhre to invest by portraying Mr Hunt's shareholding as being greater than it really was (ts 492; exhibit 20, page 841 844; exhibit 41, page 21).

184 In light of the need for Elementree to receive funds quickly to enable it to plant trees in 2010, and because of a lack of time to complete proper due diligence, Mr Fakhre made an offer to Elementree on 5 July 2010 to invest $1.2 million by way of a convertible loan. This offer was accepted by Elementree on 8 July 2010 (exhibit 5, pars 36 37; ts 1146).

185 On 29 September 2010, Elementree and Mr Fakhre executed a CLA pursuant to which Mr Fakhre could elect to convert the $1.2 million loan into 51% of the shares of Elementree. If Mr Fakhre made no decision to convert, Elementree would have 30 days (ie by the end of January 2011) to repay the full amount outstanding. The last date on which Mr Fakhre could make a decision to convert was 29 December 2010. The CLA was secured by a fixed and floating charge over the assets of Elementree given earlier (exhibit 20, pages 71 105).

186 On or around 1 November 2010, Mr Hayes and Mr Hunt travelled to London to meet Mr Fakhre and Mr Mustafa in an effort to persuade Mr Fakhre to convert his loan to shares. Several discussions took place between the parties over the next few days concerning the financials of Elementree (ts 279, 431; exhibit 1, par 6). For the purposes of this meeting, Mr Hayes sent a spreadsheet for Mr Fakhre's consideration (exhibit 16).

187 Towards the end of the trip to London, on or around 5 November 2010, the parties met in the lobby of the Pelham Hotel and there discussed issues including the conversion decision of Mr Fakhre and its timing, funding for an additional 1,000 ha of trees to be planted in 2011 (that is, the Tree Agreement), and the possibility of Mr Fakhre matching any sums of shareholders providing working capital (that is, the Matching Funds Agreement). There were no contemporaneous written notes made during the course of this meeting (ts 431 433; exhibit 1, par 6; exhibit 41 pars 12 16).

188 There is dispute about whether verbal agreements were reached at the Pelham Hotel, and if so, what the terms were (ts 1149).

189 Mr Fakhre accepted that he had 'agreed', in principle, that either he or an investor he would introduce would fund 1,000 ha of trees for planting in 2011, with a rate of return for the investment of 40% (whether or not profit was made) and any profits split 50/50 between Elementree and the investor. Mr Hayes' view of the profit split arrangements differs: his view is that the 40% came out of the profit and was not a 'return on investment'. Mr Fakhre's position was that any in principle agreement needed to be documented to deal with key provisions such as security to be provided to the investor, before it could be binding. In addition, the tree proposal would only proceed if Elementree had secured its working capital position for 2011 (ts 735, 1149 1150; exhibit 41, pars 12 14).

190 As to matching funds, Mr Fakhre explained his position to be that his matching depended on him electing to convert the loan to shares. If he did convert, he would match the amount of any capital raised in a subscription for working capital, up to a maximum of $500,000. The purpose for so agreeing was to maintain his majority (51%) shareholding and not be diluted. He would only subscribe to additional shares once he decided to become a shareholder, as a result of being allotted shares under the CLA (exhibit 41, par 6; ts 1157 1158). This conclusion is selfevident in my view. If Mr Fakhre did not elect to convert there was no rationale at all for him to match and to protect any majority shareholding position in Elementree.

191 In the following two weeks, as Messrs Hunt and Hayes returned to Australia, the parties began to flesh out in more detail matters that had been discussed at the Pelham Hotel. It now became apparent to Mr Hayes and Mr Hunt that their respective recollections of the outcome of the meeting at the Pelham Hotel differed. Nonetheless, Mr Hayes had placed an order with nurseries for trees to be propagated for 2011. This meant that a deposit would soon be needed. Elementree did not then have the money for that deposit. Mr Hayes now sought to clarify several aspects of the meeting by emails to Mr Hunt and Mr Fakhre. He also went to considerable lengths to stress, especially to Mr Hunt, that Mr Fakhre had no 'obligations' to do anything whatsoever. In particular, Mr Hayes acknowledged that Mr Fakhre had no obligation to convert, to buy 1,000 ha of trees or to provide further working capital. He acknowledged that the raising of working capital via the Matching Funds Agreement was on the basis of Mr Fakhre having converted his debt to equity (exhibit 1, page 10; exhibit 20, pages 550, 556, 560 561).

192 Mr Fakhre asked Mr Hayes for a draft Forestry Agreement. Mr Fakhre made it clear by email to Mr Hayes that it would be a 'real shame' if the deadline for paying the deposit on the trees was missed because there was as yet no documented Forestry Agreement (ts 1158 1159; exhibit 20, pages 570 and 608).

193 Because of the pressing need to pay the deposit to local nurseries, on 9 December 2010, Mr Hunt prevailed on Mr Fakhre, despite the continuing lack of a Forestry Agreement, to advance $100,000 to cover the deposit on the seedlings for the 2011 trees. Mr Fakhre provided the $100,000 immediately that day. But as no draft Forestry Agreement had yet been produced let alone executed, Mr Fakhre required the sum to be added to the CLA arrangements (exhibit 41, pars 23 26; exhibit 1, pars 10 11).

194 Confirmation of this agreement, along with a deed of variation of the CLA and a draft second charge, was sent by Mr Fakhre's solicitors to Mr Hayes on 15 December 2010 (exhibit 41, par 29; exhibit 20, pages 615 636).

195 The parties also agreed to extend the time for Mr Fakhre to elect to convert under the CLA to 28 February 2011.

196 On 16 December 2010 Mr Hayes emailed Mr Fakhre, drawing his attention to the closing date for a priority placement to existing shareholders of 14 January 2011 and stressing the dependence of Elementree on receiving an investment from him as soon as possible. Mr Fakhre responded saying he was 'now able to commit' to $500,000 to match other shareholders' commitments. But Mr Fakhre's responsive email was premised on the understanding that the commitment was conditional on Mr Fakhre converting to protect his majority shareholding (exhibit 20, page 649; ts 1158).

197 In mid December 2010 Mr Hayes circulated versions of a draft Information Memorandum to various people, but not to Mr Fakhre. Mr Fakhre did not view the draft before it was finalised and then sent out to shareholders (ts 476; exhibit 20, pages 733 735).

198 Around 28 December 2010 the Information Memorandum and covering letter was sent out to shareholders. The covering letter stated that a request as to 2011 trees and a UK Investor Agreement was conditional upon working capital.

199 The subscription offer in the Information Memorandum is explained on the basis that Mr Fakhre would convert. The offer for subscriptions closed on 14 January 2011 (exhibit 20, pages 736 765).

200 On 29 December 2010 the Deed of Variation to the Convertible Loan Agreement and the Deed of Charge was executed by Mr Fakhre and Elementree. The loan amount under the CLA was increased to $1,300,000 plus interest. The repayment date for the increased loan amount was amended to 28 February 2011. Mr Fakhre's conversion percentage was increased from 51% to 53.01% (exhibit 20, pages 679 716).

201 By 14 January 2011, when the share subscription period was due to end, only Sunquest (Mr Josh Crow) had returned a share application form. That was to a value of $2,100. The accompanying cheque was not deposited (ts 479 481).

202 The share subscription cut-off date was then extended to 28 January 2011 (ts 483).

203 By 28 January 2011 Elementree had received share subscription commitments from:

(a) Mr Cuthill by Citicorp Nominees Pty Ltd for $50,000;

(b) Mr Kerkmans (through Marlingu) for $30,000, via email; and

(c) Sunquest Pty Ltd as trustee for Sunquest Capital Trust for $2,100 (ts 481 484; exhibit 6 par 21).

204 But it had only received, in terms of money, the $50,000 from Mr Cuthill. Elementree received the Sunquest cheque but did not bank it.

205 Around this time Mrs Shannon Hayes and Mr Lynton Hayes gave a verbal commitment to Mr Hayes to subscribe for $500,000 of shares in Elementree through Forrestdale. But they paid in instalments only when requested by their son, commencing from 24 February 2011. That day Forrestdale provided $150,000 to Elementree (ts 759 763; exhibit 17, par 6).

206 Mr Hayes' parents for Forrestdale had agreed that this money would be provided as an unsecured loan. The loose understanding within the family seems to have been that the money was there to be used by Elementree as working capital. Forrestdale never filled out an application form to subscribe for shares. The loan arrangements for advanced funds were never documented (ts 758 761).

207 Despite having only received funds of around $80,000, on 31 January Mr Hayes sent an email to Mr Fakhre stating that the placement of shares to existing shareholders of Elementree had raised $607,100 (exhibit 20, page 838; ts 485 486).

208 The same day, Mr Fakhre emailed Mr Hayes informing him that his advisor, Mr Mustafa, had noticed there was a discrepancy as between the shareholding of Mr Hunt in the Information Memorandum compared to what was said in the May 2010 indicative term sheet. He raised the 'delicate point' whether Mr Hayes knew why Mr Hunt had sold his shares (exhibit 20, pages 840 841; ts 489 492). At this time Mr Fakhre had concluded that Mr Hayes had been misleading him (ts 1164).

209 On 4 February 2011 Mr Fakhre sent a crucial email to Mr Hunt, copied to Mr Hayes, stating it was unlikely that he would convert his loan on 28 February 2011. Instead he said it was most likely he would request that his loan of $1.3 million be repaid at the soonest time required by the CLA (ie by end of March 2011). Much of the content of Mr Fakhre's 4 February email was highly critical of Mr Hayes, as Mr Hayes appreciated (exhibit 20, pages 867 870; ts 497 498).

210 The email effectively poisoned the relationship with Mr Fakhre from Mr Hayes' perspective. Mr Hayes knew his days as managing director of Elementree, with Mr Fakhre as the majority shareholder if he converted, were numbered. Mr Hayes now started to look for alternative funding. By 9 February 2011 Mr Hayes had caused Elementree to start using as working capital funds it had received from Mr Cuthill in respect of the share subscription. He did this even though he knew that this money had to go into an escrow account and that he could be in 'serious trouble' (exhibit 20, page 871; ts 500).

211 From 9 February 2011 Mr Hayes now proceeded on the assumption Mr Fakhre was not going to convert and would not fund a 2011 planting of trees. Mr Hayes now did not want Mr Fakhre as a major shareholder of Elementree or for him to have anything more to do with the business (exhibit 20, page 871; ts 503, 506 and 511).

212 On 16 February 2011 Mr Hayes sent an email to Mr John Poynton, a family friend, seeking to borrow money from Mr Poynton to pay out Mr Fakhre, to prevent his conversion. Mr Hayes then sent Mr Poynton the Elementree Information Memorandum (exhibit 20, pages 909 and 912; ts 511).

213 On 17 February 2011 Mr Hayes sent an email to Mr Cuthill stating that '[a]ll parties who applied for shares have committed funds'. At the time, Forrestdale had not paid over any money. Mr Hayes outlined to Mr Cuthill the 'three agreements', acknowledging that there was 'some degree of interdependence' between them. Mr Hayes stated that '[i]f anything at all is not resolved as agreed and communicated to shareholders, or is unreasonably delayed, funds provided by existing shareholders (ie including your $50k) will be returned to shareholders immediately (in full) pending resolution of any prior representations made' (exhibit 20, page 899; ts 509).

214 In mid February 2011 Mr Fakhre was in Perth to see Mr Wheatley and to do a due diligence on Elementree before deciding whether to convert. This included speaking to the competitors in the industry and speaking to KPMG (ts 1168).

215 On 18 February 2011 Mr Fakhre, though his Perth solicitors, informed Elementree of steps he would commit to in the event that he did convert the loan amount into equity under the CLA. These included:

(b) injecting equity funds to preserve Mr Fakhre's majority shareholding; and

(c) arranging an investor for the funding of $1 million for a further 1,000 ha of trees, on the basis that ('as previously agreed'):

(i) the investor would pay $600,000 at the end of March, and $400,000 at the end of September;

(ii) after the investor recovers their initial capital, the first 40% (of original capital) profit received would be for the investor alone;

(iii) any additional profits would be split 50/50 between the investor and Elementree; and

(iv) the above being on the assumption that the trees would be sold within 12 months, and if not, that the investor would have the option to take over ownership of the trees (exhibit 20, page 992).

216 At an Elementree board meeting on 23 February 2011, Mr Hayes advised that after receiving the 4 February 2011 email from Mr Fakhre he had received a guarantee from Mr Poynton of $1.3 million to repay the loan (exhibit 6, pages 27 31; ts 515).

217 At this stage there was no guarantee in writing. Subsequently, a letter offering a commitment to invest $1.3 million from Mr Poynton emerged, dated 3 March 2011. That commitment was expressly limited to the purpose of paying out the debt to Mr Fakhre (exhibit 6, page 32; ts 515 516).

218 At this meeting Mr Hayes also informed the board of the need for ongoing working capital and the immediate need for funds to settle Elementree's liabilities. Mr Hayes explained that Mr Poynton had offered to assist with a 'book build'.

219 At Mr Hayes' urging, the board of directors resolved that it was in the best interests of the shareholders if Mr Fakhre did not convert. Mr Stanley was instructed to telephone Mr Fakhre to communicate the board's decision to Mr Fakhre, and to request he call in the loan.

220 Mr Stanley made that call to Mr Fakhre in London on 23 February 2011 (exhibit 100, pars 8 16).

221 Mr Stanley phoned Mr Hayes the next day and reported to Mr Hayes his recollection of the call (exhibit 100, pars 18 19).

222 On 24 February 2011 Mr Hayes, in a personal capacity, sent an email to Mr Wheatley, Mr Fakhre's legal advisor, purporting to accept an offer Mr Fakhre had made to Mr Stanley during their phone conversation not to convert in exchange for a 'particular sum of money' (exhibit 20, page 1003; ts 533).

223 The next day (25 February 2011) at 12.20 pm Mr Hayes sent an email to Mr Poynton stating that 'the Current Convertible Note holder has gone' and that he had taken 'the opportunity to get rid of [Mr Fakhre] before he did further damage' (exhibit 20, page 1009; ts 536).

224 Later that day, at 4.36 pm, Mr Wheatley responded to Mr Hayes' email of 24 February 2011 by rejecting Mr Hayes acceptance of Mr Fakhre's 'offer', stating that no such offer had been made and that Mr Fakhre would be electing to convert his loan into shares in Elementree (exhibit 20, page 1005; ts 533 534).

225 About thirty minutes later, at 5.05 pm, Mr Fakhre (through Mr Wheatley) issued a Conversion Notice (exhibit 20, pages 1011 1013).

226 At 6.17 pm that day, around an hour after being sent the Conversion Notice, Mr Hayes again attempted to confirm his acceptance of the offer he said had been made on the phone by Mr Fakhre to Mr Stanley (exhibit 20, page 1014).

227 At 8.44 pm Mr Hayes sent an email to Mr Wheatley stating that should Mr Fakhre 'not take up this offer' by 28 February 2011 the following would occur:

(a) all members of staff (with the exception of Mr Duncan Brown to whom Mr Hayes said he had not yet spoken) would resign;

(b) all funds pledged by current shareholders as part of the latest share placement would be returned to shareholders;

(c) Elementree would likely have a zero cash balance and approximately $200,000 in accrued expenses;

(d) Elementree would have trade creditor debts of a little over $600,000; and

(e) the business would be irreparably damaged by the change in ownership (exhibit 20, page 1016).

228 In fact, Mr Hayes had not spoken to Elementree's staff about resigning before he sent this email (ts 539).

229 At this point Mr Hayes and the board were weighing options upon a departure of Elementree's 'cornerstone' investor, Mr Fakhre (exhibit 20, pages 1022 1023).

230 Around this time Mr Stanley indicated to Mr Hayes, in substance, that he (Mr Stanley) would not be willing to give evidence in court in support of Mr Hayes' claim that Mr Fakhre had agreed on 23 February 2011 not to convert (exhibit 20, page 1262; exhibit 100, par 24).

231 On 1 March 2011 at 4.01 pm, Mr Hayes sent another email to Mr Poynton communicating, among other things, that Mr Fakhre 'now holds onto his 53.1%' (exhibit 20, page 1024).

232 At 5.15 pm that same day, Mr Wheatley sent an email to Mr Hayes regarding Mr Fakhre's 25 February 2011 Conversion Notice under the CLA, confirming Mr Fakhre:

(a) would be appointing two directors to Elementree:

(b) would be injecting equity funds to preserve Mr Fakhre's majority shareholding; and

(c) had arranged the funding of $1 million for a further 1,000 ha of trees.

233 Mr Wheatley also informed Mr Hayes that Mr Fakhre was ready, willing and able to transfer the requisite funds, subject to receiving details and confirmation of the capital raising, and agreeing the form of the Forestry Services Agreement (exhibit 20, page 1026).

234 At 5.44 pm the same day, Mr Hayes responded to Mr Wheatley's email by embedding his own text by way of reply in Mr Wheatley's email. As part of his response, Mr Hayes now stated that '[a]llotment of the Repayment Shares to [Mr Fakhre] is underway' (exhibit 20, pages 1028 1029; exhibit 20A, pages 33 34; ts 546). That assertion was falsely made.

235 The next day (2 March 2011), Mr Hayes sent to Ms Logan an email instructing her not to send any correspondence to ASIC, in order to 'buy [Mr Hayes] one more day' (exhibit 20, page 1052).

236 Around this time Mr Hayes first sought advice from Mr Bennett on behalf of himself and his family with a view to preventing Mr Fakhre from converting (exhibit 20, page 1067; ts 592).

237 By 9 March 2011 Elementree only had approximately $3,000 in the bank. It was surviving in an operational sense on money it was receiving from Forrestdale and Mr Kerkmans (exhibit 20, page 1121; ts 595).

238 On 10 March 2011 Forrestdale advanced $50,000 to Elementree (exhibit 17, par 6).

239 In Elementree's board's minutes of 9 March 2011, Mr Hayes is seen to have argued that Elementree should not allot shares to Mr Fakhre and should dispute his right to convert. Elementree's chairman, Mr Hunt, on the other hand, wanted to allot the shares to Mr Fakhre. It was resolved by the majority of the board to get advice on the issue on behalf of Elementree from Bennett & Co who had, until then, been acting for Mr Hayes.

240 On 14 March 2011 Mr Hayes, on behalf of Elementree, authorised Mr Bennett to send a letter to Mr Wheatley of Gadens informing him that the board of Elementree had resolved to repay the convertible loan. No such resolution had been passed, and at this stage the legal advice requested by the board had not been given (exhibit 20, pages 1105 1197; ts 593 599).

241 On 17 March 2011 Forrestdale loaned $200,000 to Elementree. On 29 March 2011 Forrestdale loaned a further $50,000 to Elementree (exhibit 17, par 6).

242 On 30 March 2011 bank cheques tendering repayment of $1.3 million plus $65,184.11 interest were sent by Bennett & Co to Mr Wheatley, on the basis that Mr Fakhre was not entitled to convert his debt to shares. These cheques were received by Mr Wheatley pending instructions. But they were returned on 5 April 2011. The covering letter reiterated that no agreement for repayment and nonconversion existed (exhibit 20, pages 1129 and 1150).

243 On 4 April 2011 Forrestdale advanced a further $50,000 to Elementree (exhibit 17, par 6).

244 On 6 April 2011 Bennett & Co provided advice to the board of Elementree (exhibit 20, pages 1147 1148).

245 On 8 April 2011 Mr Hayes instructed Mr Bennett to write a further letter to Mr Wheatley stating that Mr Bennett had instructions from Elementree to commence proceedings against Mr Fakhre. There had been no board resolution to that effect (exhibit 20, pages 1169 1170; exhibit 6, pages 27 31; ts 598).

246 At this time Mr Hayes was about to go overseas. He appointed Mr Bennett as his alternate director of Elementree (exhibit 8; ts 599 601).

247 On 15 April 2011 Mr Fakhre commenced action CIV 1664 of 2011 by writ in the Supreme Court against Elementree, seeking an order for specific performance requiring Elementree to issue shares to him (exhibit 20, page 1174).

248 On 27 April 2011 Forrestdale advanced a further $10,000 to Elementree (exhibit 17, par 6).

249 By 13 May 2011 Elementree was running low on working capital. Mr Hayes was weighing an out of court settlement of the proceedings (exhibit 20, page 1171; ts 603).

250 On 26 May 2011, Mr Hayes arranged for his parents to be appointed to the board of Elementree (exhibit 5, page 34; ts 604 and 766; exhibit 20, page 1398).

251 On 2 June 2011 Mr Hayes sent to Bennett & Co an email attaching a draft letter to Mr Hayes' fellow directors stating that Elementree was, or was about to become, insolvent, and outlining a settlement offer to be put to Mr Fakhre (exhibit 9; ts 609; exhibit 20, page 1209).

252 Later that day Mr Hayes sent an email to Mr Poynton explaining he had discussed with Mr Bennett an offer to Mr Fakhre whereby Mr Fakhre would convert only part of his shares, with the effect being that Mr Fakhre would not become a majority shareholder. In this email Mr Hayes stated that if Mr Fakhre did not accept the offer to take up a minority shareholder position, Elementree would be declared insolvent on 30 June 2011, and Mr Hayes would 'move on with the rest of the staff' (exhibit 20, pages 1207 1208; ts 606 607).

253 On 3 June 2011 Marlingu advanced $40,000 to Elementree by loan (exhibit 4, par 9).

254 Following an email from Mr Hunt to Mr Bennett on 7 June 2011, Mr Hayes determined that Mr Hunt had to be removed as a director of Elementree within two weeks (exhibit 20, pages 1219 1229; exhibit 20A, pages 48 52; ts 610 611).

255 On 7 June 2011 Bennett & Co sent a draft without prejudice settlement offer to Mr Hayes. The draft foreshadowed a possibility that Elementree could go into administration, with Mr Fakhre left with 'a company with no employees, no contracts and a significant debt burden that would need to be addressed' (exhibit 20, pages 1233 1234A; ts 611 612).

256 That same day Mr Hayes sent two emails to the other directors of Elementree (who at this time were Mrs Shannon Hayes and Mr Lynton Hayes, Mr Stanley and Mr Hunt). The first email indicated that a major funder was growing impatient with the litigation, that Elementree was facing insolvency and that, for that reason, Elementree should settle with Mr Fakhre. In his second email, Mr Hayes stated incorrectly (see ts 613) that should shareholders 'capitulate' to Mr Fakhre's claims, current shareholders' equity would be reduced to 'as little as 10% (or less)', and '[t]erms of conversion for loan of $1.1m have not been determined but it is likely to represent a further 40(+)% ownership of Elementree on a postconversion basis' (exhibit 20, pages 1237 1242).

257 On 8 June 2011, Mr Hayes sent an email to Mr Bennett stating that he had received authorisation from the majority of directors to send out the settlement offer. Those directors were Mr Hayes and his parents, but did not include Mr Hunt and Mr Stanley who had asked for a board meeting to be convened prior to agreeing to the proposed course of action (exhibit 20, pages 1217 and 1243 1249).

258 Later that day, Mr Bennett sent to Mr Fakhre's solicitors an offer of Elementree to settle CIV 1664 of 2011. The offer was in terms:

(a) Mr Fakhre's Conversion Notice be accepted as to 50% of his original loan funds (ie half of $1.3 million);

(b) the balance of the loan funds be repaid with interest, in accordance with the CLA;

(c) Mr Fakhre electing to pay for a 1,000 ha and 2011 tree planting contract by way of progress payments for services rendered where Mr Fakhre take immediate ownership of trees once they are established (ie not as loan funds subject to conversion rights) in accordance with Elementree's chairman's communication to shareholders in December 2010;

(d) Mr Fakhre provide matching funds of approximately $150,000 by the end of the week; and

(e) Mr Fakhre be entitled under Elementree's constitution to nominate one director to the board (exhibit 20, pages 1253 1254).

259 On 10 June 2011 Mr Fakhre rejected this settlement offer by a letter from Mr Wheatley. He requested that his shares be issued to him without further delay (exhibit 20, page 1258).

260 On 13 June 2011, at Mr Hayes' request, Mr Kerkmans signed and sent to Elementree a written demand informing Elementree's board that Marlingu had withdrawn an offer of exchanging $93,000 in loan funds for equity and now demanded immediate repayment of those moneys (exhibit 4, page 60; ts 377 and 380).

261 At that time only $83,000 had been loaned and $30,000 of that amount was actually an application for shares (ts 364, 366 and 377).

262 On or around 15 June 2011 Mr Hayes prepared the draft of a notice of demand on Elementree in the name of his parents' corporation Forrestdale in the amount of $540,000. Mr Hayes met with Mr Bennett to discuss a draft of this document. On 16 June 2011 Mr Hayes sent the notice of demand to Mr Bennett to be checked (exhibit 10; ts 615 and 766).

263 It was Mr Hayes' intent by these actions concerning demands on Elementree by Forrestdale and Marlingu 'to create the circumstances where the business had the right to appoint administrators', as a means of encouraging Mr Fakhre to settle. To do that he accepted on behalf of Elementree that the debts the subject of the demands were immediately due and owing, thereby enhancing the conclusion that Elementree was insolvent (ts 616 618).

264 Mrs Hayes' position was that by authorising the sending of the demands Elementree would understand that Forrestdale required immediate repayment of its debt. She considered this to be a 'ploy' to get Mr Fakhre to pay money to Elementree. On the other hand, if Mr Fakhre became a majority shareholder, Mrs Hayes confirmed she required Forrestdale's money back (ts 769 770).

265 On or around 16 June 2011 Marlingu advanced $10,000 to Elementree by way of further loan (exhibit 4, par 9).

266 On 17 June 2011 Mr Hayes sent an email to the directors of Elementree regarding the notices of demand. By this email Mr Hayes urged the directors to 'consider the question of solvency as a matter of urgency' (exhibit 20, pages 1272 1275; ts 618).

267 At an Elementree shareholders' meeting on 17 June 2011 Mr Hunt was removed from the board of directors. Mr Stanley resigned as a director in consequence (exhibit 5, page 35).

268 Around 20 June 2011 Mr Hayes was receiving informal advice from Mr Bryan Hughes, another family friend, who was a director of an insolvency practice called Pitcher Partners (exhibit 20, pages 1282 1288 and 1298 1299; ts 619 621).

269 On 20 June 2011, in correspondence with Mr Hughes and Mr Bennett, the option of Mr Hayes starting up a 'Newco' was raised. Mr Hayes considered that this was a way of 'having a win' against Mr Fakhre. Mr Hayes also sent a confidential email to Mr Dan Wildy (an Elementree employee) regarding a consortium of investors Mr Hayes asserted could potentially assist Newco (exhibit 20, pages 1289 1293A; ts 621 622).

270 On Monday 20 June 2011 Mr Fakhre's solicitors informed Bennett & Co of a settlement offer from Mr Fakhre in relation to CIV 1664 of 2011, open until 4.00 pm on Wednesday 22 June 2011. The conditions of settlement, in pages 1296 1297 of exhibit 20, were:

1. Our client's notice of conversion is accepted as to the full amount;
2. (As previously confirmed) Our client arranges funding for A$1 million for a planting of a further one thousand hectares of trees in 2011 on the basis that:

(a) the investor does not have a right of conversion with respect to the additional funds;

(b) the investor will take ownership of the trees once they are established; and

(c) on sale of the trees, after the investor has recovered its initial capital, the first 40% (of original capital) profit received will be for the investor alone and any subsequent profit will then be split 50/50 between the investor and Elementree.

1. Our client will 'match' the funds raised in the last share placement so as to preserve our client's percentage shareholding;
2. Our client agrees not to procure an issue of further shares to it other than where the board agrees or all other shareholders to whom disclosure need not be made are offered the same proportionate entitlement to acquire additional shares;
3. Courtney Hayes must resign as CEO; and
4. Courtney Hayes must resign as director and not seek to be reappointed, or accept any appointment as director of the Company in the future.

271 In an email sent by Mr Bryan Hughes to Mr Bennett and Mr Hayes on 22 June 2011, Mr Hughes stated that the offer from Mr Fakhre as put could not be accepted as Elementree was insolvent (exhibit 20, pages 1298 1299).

272 On 23 June 2011 Mr Hayes said he understood that Mr Fakhre's offer (now lapsed) was final and that Mr Fakhre was 'genuinely prepared to take his chances to recover what he can in the event of [voluntary administration]' (exhibit 20, page 1300).

273 On the same day, Mr Hayes gave instructions that all his old emails be downloaded off a server and saved to his laptop. He 'definitely' deleted emails and/or files from Elementree's server. Mr Hayes then left the Perth office of Elementree with a laptop and took with him the invoices and travelled to a rural tree planting location of Elementree about 100 km north of Merredin. He did not return (exhibit 20, page 1310; ts 624 625 and 650).

274 On 23 June 2011 Mr Bennett sought the extension of Mr Fakhre's offer to 4.00 pm on Friday 24 June 2011 (exhibit 39, page 8).

275 Mr Wheatley told Mr Bennett on 23 June 2011 that Mr Fakhre was 'considering whether ... to extend the offer' and sought further information with respect to subscription funds, debts owing and Elementree's 'significant debt burden' (exhibit 39, page 9).

276 On 24 June 2011 Mr Bennett replied to the questions posed by Mr Wheatley. In this letter Mr Bennett stated, among other things, 'I am instructed that the directors of my client will meet with Mr Bryan Hughes on Monday morning to consider the appointment of a voluntary administrator' (exhibit 39, page 10).

277 On 24 June 2011 Mr Hayes sent an email that instructed Bennett & Co to write in terms to Mr Fakhre's solicitors which stated, among other things (exhibit 20, page 1319; ts 626 627):

The timing is such that if a satisfactory offer is not made by the start of business Monday morning WST, the board will be forced to appoint an Administrator ... Time is such that the directors have no further ability to negotiate on the terms of a resolution without breaching their obligations to avoid trading while insolvent.

278 By that same email, Mr Hayes also indicated that the subscription funds previously provided by the prospective shareholders were presently owing as a debt by Elementree, but that prospective shareholders had nevertheless agreed to convert 100% of this debt back to equity, as originally intended, on the condition Mr Fakhre honoured his commitment to provide matching funds (exhibit 20, page 1319).

279 At this time Mrs Hayes (on behalf of Forrestdale) and Mr Kerkmans (on behalf of Marlingu) would have agreed to convert the now due and repayable debts back to equity, if Mr Fakhre had provided the matching funds (ts 386 and 772). There is no evidence of any agreement by Mr Cuthill to that effect.

280 On Monday 27 June 2011 Mr Wheatley sent an email to Mr Bennett which revived and extended Mr Fakhre's offer (being the offer of Monday 20 June 2011) to 4.00 pm on Tuesday 28 June 2011, but added two additional conditions:

(a) all prospective shareholders (who provided subscription funds) agreed that the moneys provided by them would be used to subscribe for equity in Elementree in the original terms and not treated as loan funds; and

(b) the original members of Elementree's board (other than Mr Courtney Hayes) who were members when Mr Fakhre originally gave his Conversion Notice would be reinstated to the board (exhibit 39, page 12).

281 On 27 June 2011 Forrestdale advanced a further $7,174.08 to Elementree by way of loan (exhibit 17, par 6).

282 By 28 June 2011 Mr Hayes' focus had turned to getting Newco up and away. He communicated this to Mr Poynton to gauge his interest in contributing to Newco (ts 727 728, exhibit 20, pages 1328 1330).

283 Mr Poynton was not in a position to invest at the time (exhibit 15).

284 As at 28 June 2011 Forrestdale could not have continued to fund Elementree's operations much longer. Forrestdale had no more than $150,000 cash available, and $200,000 in equity in a house in Augusta (exhibit 20, page 1329; ts 728 730).

285 On Tuesday 28 June 2011 Mr Bennett, in response to Mr Wheatley's email, stated, 'I am instructed that my client will settle the matter on the basis suggested only if the necessary matters take place by no later than 4:00 pm, 29 June 2011' (exhibit 39, page 13).

286 Later that same day Mr Wheatley responded in turn, stating, among other things, that Mr Fakhre had extended his offer 'so that it may be accepted by no later than 4 pm on Wednesday 29 June 2011. He does not propose to extend it any further'. Mr Fakhre's solicitors stated that he would not be transferring any money to Elementree prior to his shares being issued. Mr Fakhre also insisted Mr Hunt and Mr Stanley be reappointed to the board before Mr Fakhre's shares were allotted (exhibit 39, page 15).

287 On about Tuesday 28 June 2011, Mr Hayes determined to accept Mr Fakhre's offer of settlement on behalf of Elementree (exhibit 20, pages 1332 1333).

288 Mr Hayes says he instructed Bennett & Co to accept the offer by the 4.00 pm deadline of Wednesday 29 June 2011 (exhibit 20, pages 1353; ts 631).

289 However, for whatever reason, Mr Fakhre's extended settlement offer was not accepted by the time stipulated. Mr Fakhre's offer to settle CIV 1664 of 2011 on the terms put forward then lapsed (exhibit 39, page 15 par 5).

290 Mr Hayes' expressed intention from the time that he determined to accept Mr Fakhre's offer was that it would only be effected as a 'hostage swap on the bridge'. In other words, the conditions of settlement on both sides needed to be performed and/or take effect simultaneously. In particular, Mr Hayes' resignation as managing director of Elementree would only take effect at the point that Mr Fakhre released the settlement funds. Mr Hayes' intention was that, once Mr Fakhre's funds were received on an irrevocable basis and Mr Hunt and Mr Stanley reinstated as directors, Elementree would issue the Repayment Shares to Mr Fakhre (exhibit 20, pages 1332 and 1356; ts 636 640).

291 Elementree's board resolved on 30 June 2011 to procure the consents of Mr Hunt and Mr Stanley to act as directors of Elementree (exhibit 20, page 1359). Those consents were given (exhibit 58; exhibit 101).

292 On about Monday 4 July 2011 Elementree's board resolved to reappoint Mr Hunt and Mr Stanley as directors of Elementree (exhibit 39, page 18). The relevant documents in that regard were almost immediately lodged with ASIC. That was just 'a little bit of luxury' Mr Hayes afforded Mr Fakhre (ts 637 and 643).

293 On Thursday 7 July 2011, on the express basis that the settlement offer had been accepted, the three Hayes family directors prepared a written resolution 'in accordance with the terms of the Offer' to, relevantly, allot the shares to Mr Fakhre and place the share certificate with Elementree's lawyers 'until such time as the Funds are released to Elementree Group'. It was also resolved to accept Mr Hayes' resignation 'upon settlement of the Offer' (exhibit 39, page 19).

294 A share certificate for Mr Fakhre was prepared (exhibit 39, page 22).

295 Mr Hayes prepared and signed a resignation letter which was conditional upon a transfer of funds by Mr Fakhre to Elementree's cheque account or to his solicitor 'irrevocably' (exhibit 39, page 17).

296 Mr Hayes then forwarded those documents to Mr Bennett for the purpose of holding them pending the 'hostage swap' (ts 641).

297 Mr Hayes says that Bennett & Co informed him on or around Monday 11 July 2011 that the Fakhre offer had lapsed (as it plainly had at 4.00 pm on Wednesday 29 June 2011, some 12 days earlier). Mr Hayes says that if he had known sooner, he would not have taken the steps he had taken to get those documents ready (ts 639, 645 and 647).

298 Between 30 June 2011 and 7 July 2011, Mr Fakhre and his legal advisors had been unclear about whether or not Elementree intended or wished to settle. The settlement offer had not been accepted and had lapsed on 29 June 2011, but Mr Fakhre and his advisors had become aware that Elementree appeared to be purporting to implement certain aspects of the settlement proposal, namely, the procuring of consents to be reappointed as Elementree directors from Mr Hunt and Mr Stanley. Mr Bennett had telephoned Mr Scovell on the evening of Thursday, 30 June 2011 and advised him, in effect, that there would be a substantive response to the lapsed settlement offer the following day (Friday 1 July 2011). That was not forthcoming. Mr Fakhre's lawyers sought to clarify the position with Mr Bennett. They were unsuccessful. There was no further contact until 5.02 pm on Monday 11 July 2011 (exhibit 42, pages 5, 11 12; exhibit 40, page 4 par 3; exhibit 55).

299 From 23 June 2011 Mr Hayes was absent from Elementree's Perth office. As a consequence Elementree's senior employees, Mr Tym Duncanson and Mr Mike Walter, became obliged of necessity to assume some degree of management of Elementree. They were similarly unclear as to whether Elementree intended to proceed with a settlement and sought clarification by email from Mr Hayes about that. They had no response from Mr Hayes prior to Thursday 7 July 2011.

300 In the meantime, they sought to liaise with Mr Fakhre, through Mr Hunt, to obtain funding to 'to keep operations going over the next week'. They were successful to the extent that Mr Fakhre authorised one payment of an invoice for seedlings. But Mr Fakhre was not prepared to fund further debts of Elementree then due, such as salaries and reimbursement of employee expenses (exhibit 42; exhibit 102, pages 53 63; exhibit 103; ts 1105, 1205).

301 Similarly, Mr Hunt and Mr Stanley were unclear whether or not they had in fact been appointed as directors. Although they had signed the consents to act as requested, no one had communicated to them that the board had resolved to appoint them on 4 July 2011. Mr Hunt, from his home state of South Australia, acted to provide some assistance to Mr Duncanson and Mr Walter in attempts to manage Elementree, keep it operating and have urgent bills paid. Mr Hunt acted as a liaison between management and Mr Fakhre to attempt to clarify what was happening in relation to the acceptance of Mr Fakhre's proposed settlement terms (ts 1183 1184, 1194, 1202 1207, 1232, 1246 1250, 1253 1254).

302 By Thursday 7 July 2011, and in light of the continued uncertainty regarding Elementree's position with respect to settlement, an inference was drawn by Mr Hunt and Mr Fakhre's legal advisors that Elementree was unlikely to settle on those earlier terms of Mr Fakhre. That inference was communicated to Mr Fakhre (exhibit 68; exhibit 85).

303 At this time (Thursday 7 July 2011) Mr Fakhre now decided on the advice of his lawyers and Mr Hunt to appoint administrators. The situation was urgent and called for a quick decision by Mr Fakhre. According to what Mr Duncanson and Mr Walter were relaying to Mr Fakhre, Elementree had insufficient funds to meet its immediate liabilities. Mr Bennett had previously told Mr Fakhre's lawyers Elementree's financial position was precarious (exhibit 20, pages 1239 1240; exhibit 83; exhibit 85; exhibit 86; exhibit 102, pages 53 63; ts 1102 1104, 1143, 1218).

304 On Thursday 7 July 2011, once a decision to appoint administrators was made, Mr Fakhre's lawyers afforded Mr Bennett a final opportunity to advise of Elementree's position. There was still no response (exhibit 40, page 5).

305 Between Friday 8 and Monday 11 July 2011, Mr Fakhre put preparatory steps in place for the appointment of administrators. He was overseas and was assisted with those arrangements locally by his legal advisors and Mr Stanley working in a similar time zone to Perth, and by Mr Hunt by telephone and email from South Australia.

306 Mr Doran was approached. An enquiry was made as to whether he would accept the appointment. Mr Fakhre was advised by his lawyers that it would not be a good idea to approach Mr Bryan Hughes to accept the appointment by reason of his previous association with Mr Hayes (exhibit 20, pars 10 29; ts 1102).

307 Mr Hayes sent an email to the staff of Elementree on Friday 8 July 2011 to the effect that he was leaving Elementree. However, Mr Hayes' position still remained that his resignation would not become effective the 'hostage swap' took place, as he explained in an email to Mr Walter on Sunday 10 July 2011 (exhibit 11; ts 641 644).

308 Given the urgency and an absence of communication from Mr Hayes, between 8 and 11 July 2011 Mr Doran took steps to satisfy himself that there was a foundation for his appointment. This included taking legal advice.

309 Mr Doran also acted to inform himself as best he could of matters relevant to determining whether it was appropriate to accept an appointment, the nature of Elementree's business, Elementree's present financial and operational status and the immediate tasks that would need to be attended to should his appointment be confirmed. Mr Doran formed a view, based on what he had been told by Elementree employees, that Elementree was insolvent (exhibit 20, pars 10 29; exhibit 31; exhibit 34; exhibit 35; ts 901 949).

310 As at Sunday 10 July 2011, Mr Hayes' position was still that the reinstatement of Mr Hunt and Mr Stanley as directors of Elementree would not take effect until Mr Fakhre's funds the subject of the settlement offer were transferred to Elementree 'irrevocably' (exhibit 11).

311 As to that aspect he was wrong, but his position also remained that the allotment of shares to Mr Fakhre would not take effect until after Mr Fakhre's funds had been transferred and Mr Hunt and Mr Stanley had been reinstated and approved the allotment of the shares (exhibit 20, pages 1332 and 1356; exhibit 39, page 19; ts 636 640).

312 On Monday 11 July 2011, Bennett & Co sent an email to Mr Fakhre's legal advisors, attaching the documents previously forwarded to him by Mr Hayes. The covering letter said that the documents were to be held in escrow pending confirmation that a settlement agreement could still be accepted, notwithstanding that Mr Fakhre's offer had clearly lapsed already. The covering letter required the documents to be returned if settlement could no longer be effected pursuant to Mr Fakhre's offer (exhibit 39, page 16).

313 The terms of the 11 July Bennett & Co communication advised that if Mr Fakhre would countenance the settlement, he could retain the documents that had been sent and suggest Mr Stanley and Mr Hunt would then sign the written resolution of 7 July 2011 to allot the shares. But if Mr Fakhre did not sanction a revived settlement then the documents would have to be returned and the allotment of shares would not take effect (ts 647 648).

314 Mr Fakhre did not revive or extend his earlier, now lapsed, settlement offer. By that stage, some time after 5.02 pm Monday 11 July 2011 Perth time, he regarded it as too late to change course from a decision to appoint an administrator (ts 1130 1131).

315 Mr Hayes said that the reason for his failure to contact Mr Hunt and Mr Stanley was that, without a settlement, their appointment as directors was not effective. Again, he was wrong about that. He also said Mr Fakhre was not going to be allotted shares without performing the obligations of the proposed settlement (ts 647 648).

316 On 12 July 2011 Mr Fakhre served on Elementree a notice of election to enforce his charges. He then appointed Mr Doran and Mr McVeigh as administrators of Elementree (exhibit 20, par 29, pages 179 181).

317 On 13 July 2011 Mr Doran arranged for copies of the following documents to be sent to each of Mr Hayes, Mrs Shannon Hayes, Mr Lynton Hayes, Mr Hunt, Mr Stanley and Mr Duncanson:

(c) requirement to submit statement about Elementree's business;

(d) a company questionnaire to be completed and returned within 5 days; and

(e) a notice of appointment of administrators (exhibit 20, par 38, pages 284 287).

318 On 14 July 2011 Mr Fakhre loaned $30,000 to Elementree. These funds were used to pay employees' outstanding wages and other associated costs (exhibit 20, par 49; ts 1016).

319 Within a week of the appointment Mr Doran confirmed his view that Elementree was insolvent. He came to this view having determined that:

(a) some employees had been unpaid at the previous payroll and were owed expenses (exhibit 20, par 36(b));

(b) the bank accounts were overdrawn or of minimal balance (exhibit 20, par 36(a), pages 229, 231 and 235A);

(c) if it was to continue to trade, Elementree had cash requirements of over $1million in the period to the end of December 2011 with no source of funds (exhibit 20, par 36(c));

(d) shareholder loans of $603,000 were on demand (exhibit 20, par 36);

(e) trade creditors were owed in excess of $200,000, including about $8,000 which was owed to the landlord of Elementree's office (exhibit 20, pages 227 235).

320 Mr Doran now engaged in negotiations with Mr Fakhre in respect of a funding agreement (Funding Agreement) for up to $850,000. Mr Doran assumed the whole risk of borrowing $415,000 from Mr Fakhre personally, until an order of the court was obtained, in order to fund planting, pay wages and administer Elementree in line with a priority of keeping Elementree going (exhibit 20, par 48; ts 1017, 1021).

321 On 18 July 2011 Mr Doran received a telephone call from Mr Bryan Hughes. Mr Hughes was clearly acting for Mr Hayes (exhibit 39, pages 10 11; exhibit 20, pages 1301 1303). Mr Hughes said, among other things, that:

(a) he was acting as a representative of some of the directors and shareholders in Elementree, being Mr Hayes, and Mrs Shannon Hayes and Mr Lynton Hayes;

(b) Mr Fakhre's net position was that of a debtor; and

(c) Mr Hayes would not be challenging Mr Doran's appointment as administrator (exhibit 20, par 54).

322 On 20 July 2011 Mr Doran instructed that a letter to be sent to Mr Hayes requesting the return of items belonging to Elementree, including a laptop computer (exhibit 20, par 38).

323 On 22 July 2011 the first creditors' meeting was held (exhibit 20, par 56, pages 308 310).

324 On 28 July 2011 Mr Doran received a telephone message from Mr Bryan Hughes who said in the message words to the effect that Mr Hayes and/or some of the directors of Elementree were working up a DOCA proposal (exhibit 20, par 114).

325 On 29 July 2011 Mr Doran and Mr McVeigh applied to the Supreme Court of Western Australia in COR 132 of 2011 seeking, among other orders, an order limiting the administrators' personal liability under the Funding Agreement to the sufficiency of the administrators' right of indemnity under s 443D of the Act (exhibit 20, pars 50 51; ts 1019).

326 On 2 August Master Sanderson made the orders sought (exhibit 20, par 52; ts 1019).

327 On 4 August 2011 Mr Fakhre advised Mr Doran that he was intending to provide a DOCA proposal to Elementree by the end of August, and that he would alter his travel arrangements for that period to ensure he was in Australia to finalise the proposal (exhibit 20, par 112).

328 On 5 August 2011 Elementree and the administrators executed a Funding Agreement (exhibit 20, par 52, pages 294 305).

329 On or around 8 August 2011 Mr Doran instructed Allens Arthur Robinson to file an application to court extending the convening period for the second meeting of creditors of Elementree to 11 October 2011, in part because Mr Doran had not received any complete written DOCA proposals, but expected to do so. In COR 137 of 2011 Master Sanderson made those orders (exhibit 20, pars 116, 118, pages 1367 1389).

330 On 12 August 2011 Mr Doran and his assistant, Ms Marshall, met Mr Hayes in person. During the meeting Mr Doran raised a prospect of an arrangement whereby Mr Fakhre's offer was implemented. Mr Hayes declined. At that meeting Mr Hayes raised allegations against Mr Fakhre in relation to a so called Tree Agreement and a Matching Funds Agreement (exhibit 20, par 68A; ts 1040 1041).

331 From 12 August 2011, Mr Doran undertook investigations into Mr Hayes' allegations and other matters relevant to Elementree's affairs (exhibit 20, pars 69 109).

332 Mr Doran encouraged Mr Hayes to talk to an advisor to make sure he put forward any DOCA proposal so Mr Doran could consider it (ts 1044 1045).

333 On 2 September 2011 Ms Marshall received an email from Mr Hayes which stated that a DOCA proposal was being prepared (exhibit 20, page 1390).

334 On or about 9 September 2011 Mr Doran received from Mr Wheatley a DOCA proposal on behalf of Mr Fakhre. Mr Hayes did not provide an alternative DOCA proposal. Nor did anyone else (exhibit 20, pars 119 121).

335 By 10 October 2011 the only DOCA proposal received by Mr Doran was the one from Mr Fakhre. As such, the administrators' RTC was limited to a consideration of the single DOCA proposal, and a comparison of the outcome of that DOCA proposal as against the only other likely outcome, which was Elementree's liquidation (exhibit 20, par 121, pages 1393 1461).

336 On 14 October 2011 Mr Doran received a letter from Bennett & Co, acting on behalf of Mr Hayes, as well as Mrs Shannon Hayes and Mr Lynton Hayes, seeking, amongst other things, an adjournment of the second creditors' meeting scheduled for 18 October 2011. That letter alleged that the RTC contained material omissions, that any DOCA would be unfair because 100% ownership of Elementree would go to Mr Fakhre, and that the DOCA discriminated between trade creditors and shareholder creditors. The letter referred to s 445D of the Act. It did not allege that the administrators had been invalidly appointed (exhibit 20, par 125, pages 1462 1463).

337 On 18 October 2011 the second creditors' meeting was held, with Mr Doran acting as chairman (exhibit 20, par 126, pages 1464 1476).

338 A resolution to adjourn the meeting was put to the creditors, but it did not carry. Mr Hayes and Forrestdale voted for adjournment (exhibit 20, par 131, pages 1464 1476).

339 The creditors of Elementree then voted and resolved that Elementree enter a DOCA on the terms of the proposal put by Mr Fakhre. The result of the poll was that:

(a) 13 creditors (including Mr Fakhre, and Mr Kerkmans for Marlingu) voted in favour of the resolution, with a total debt value of $1,528,905.36; and

(b) three creditors (including Mr Courtney Hayes and Forrestdale) voted against the resolution, with their debts totalling $700,719.00 (exhibit 20, par 132, pages 1464 1476).

340 On 9 November 2011 Elementree executed the DOCA (exhibit 20, pars 133 134, pages 1477 1501).

341 On 11 November 2011 Mr Doran caused to be sent a letter to all 24 shareholders requesting their written consents to allow the administrators to transfer their shares to Mr Fakhre under s 444GA of the Act in accordance with the terms of the DOCA. At 31 January 2012, Mr Doran had received written consents from 17 of the 24 shareholders of Elementree, representing 71% of the shareholding by number, and 21% of the total shareholding of Elementree (exhibit 20, pars 136 137, pages 1504 1520).

342 During the course of administration, Mr Doran and his staff managed the business of Elementree, including the 2011 planting season activities, which involved:

(a) planting approximately 490 ha on four properties; and

(b) replanting and infilling at various properties (exhibit 20, pars 60 63; ts 904).

343 On 12 April 2012, at a creditors' meeting, the creditors of Elementree resolved to vary the DOCA to amend the definition of 'Due Date' under the DOCA to 30 September 2012 (exhibit 18, par 8).

344 On 3 May 2012 the Funding Agreement was varied to reflect further borrowing to fund the continuing operation of the company (exhibit 18, par 6, pages 19 20).

345 On 4 May 2012 Elementree executed a deed of variation of the DOCA to change the Due Date under the DOCA to 30 September 2012 (exhibit 18, pages 82 88).

346 On 11 June 2012 Elementree entered into a Plantation Services Agreement with Preview Enterprises Pty Ltd. In doing so, Mr Doran defrayed the agricultural risk and market risks from Elementree to Mr Fakhre along with his personal risks as administrator (exhibit 18, pages 33 71; ts 876 878).

347 Mr Doran has continued to operate Elementree's business, including planting 1,151.10 ha of further trees in the 2012 season (exhibit 18, par 7).

348 Mr Hayes' affidavits of 17 November 2011 and 11 April 2012 were received as exhibits 5 and 6 respectively. Mr Hayes was extensively crossexamined by senior counsel for the administrators and by counsel for Mr Fakhre.

349 Generally, I thought that Mr Hayes was a somewhat brash and immature man who would resort to bluster in situations when he was found out of his depth. Those situations were not infrequent. There were numerous unsatisfactory features of Mr Hayes' evidence, particularly his crossexamination, which I will mention.

350 First, at ts 445 446, Mr Hayes was referred to Elementree's letter to shareholders on 28 December 2010 regarding the capital raising. The letter had been signed by Mr Hayes and Mr Hunt. Within that letter it is said:

On 4 November 2010, the Company reached agreement with a UK investor for the establishment of another 1,000 hectare forest conditional upon the Company securing its working capital requirements for the duration of the project.

351 The UK investor and the agreement reached were references to the November 2010 London meeting with Mr Fakhre. The reference to the 1,000 ha forest agreement being 'conditional' upon Elementree securing its working capital requirements clearly links the Tree Agreement to a successful capital raising from existing shareholders. The words undermine Mr Hayes' position that the Tree Agreement was unconditional and independent of any other obligation.

352 Mr Hayes steadfastly contended that the Tree Agreement had no interdependency with the capital raising but that nevertheless the statement in the letter to shareholders was true as at 28 December 2010. Mr Hayes' efforts to bluster around this written material which undermined his position were distinctly unimpressive.

353 Second, at ts 480 481, Mr Hayes was asked about the January 2011 capital raising, subscription commitments and moneys received from shareholders, including from his parents through Forrestdale. Mr Hayes acknowledged the receipt of a cheque from Mr Josh Crow of Sunquest in the amount of $2,100 which was not deposited. Nor did Forrestdale fill out an application form. The position with Mr Kerkmans' company, Marlingu, was also rather loose as regards a commitment to take $30,000 of shares without an application form.

354 Mr Hayes' dealings with these funds was lax to say the least. This is reflected in Mr Hayes' evidence (ts 481):

But they hadn't filled out an application form?---No. These are the - basically the owners and partner of the company. They don't fuss over that stuff.

355 Third, at ts 491 493, Mr Hayes was asked about the circumstances in which he had represented to Mr Fakhre that his fellow director and chairman of Elementree's board, Mr Greg Hunt (Mr Fakhre's friend), held more shares in Elementree than he actually did. Mr Hayes had caused 1 million of the 13,500,000 founder's shares he held to present as if they were owned by Mr Hunt. Mr Hayes' deceit was uncovered by Mr Mustafa in 2011 during due diligence enquiries which were made as part of an exercise leading up to Mr Fakhre's conversion decision as regards his loans. The deceit was the subject of adverse comment by Mr Fakhre concerning the integrity and reliability of Mr Hayes. Mr Hayes had once again been caught out for another probity deficiency. Worse than that, Mr Hayes seemed to manifest an unduly casual attitude towards his clearly unacceptable conduct (ts 491).

356 When asked about his 13,500,000 founder's shares received in 2008, his answers were coy, in my opinion. It is most unlikely that he forgot that he had received 13,500,000 founder's shares in 2008. A feigned lack of understanding when that was put to him did him no credit (ts 491 492). The inaccuracy about removing 4,000,000 shares from his shareholding on the terms sheet provided to Mr Fakhre was also not satisfactorily explained in my assessment (ts 492).

357 Fourth concerned whether the directors of Elementree at the time (Messrs Hayes, Hunt and Stanley) received options or shares or some combination in lieu of directors' fees (see ts 493 494). Asked whether the directors received options in lieu of directors' fees, Mr Hayes' responses were more than usually obtuse. The position as to whether Mr Hunt and Mr Stanley received share options or not seemed to perplex Mr Hayes and his answers became inconsistent.

358 Fifth, in the context of arguments about whether firm commitments (enforceable oral agreements) had been made with Mr Fakhre in London in the lobby of the Pelham Hotel in November 2010, Mr Hayes was asked about the language he had used in an email he sent to Mr Hunt on 9 February 2011 (exhibit 20, page 871), in which he said, 'If he is not going to make those commitments, that's fine, but I need to know this week'. Asked about his use of the word 'fine', Mr Hayes inconsistently responded, 'It wasn't fine. It would put the company in a vice' (ts 499).

359 Sixth, at ts 499 501, Mr Hayes was questioned about the use by Elementree (at his behest) of funds subscribed for shares as loan funds. The questions were put by reference to a statement by Mr Hayes in his email to Mr Hunt of 9 February 2011 (exhibit 20, page 871) in which Mr Hayes observed, 'I could be in serious trouble. Starting to use recently invested shareholders' funds for working capital'. Questioned about this and the fact that Mr Fakhre had not at that time provided matching funds, Mr Hayes was at first very coy in answering and then tried unsuccessfully to minimise his misconduct (ts 500):

And you knew that that wasn't the right thing to do?---I certainly knew that at that particular time that, yes, we had been put in an almost impossible position by effectively the actions that he took and - - -

KENNETH MARTIN J: Answer the question, please. You knew it was the wrong thing to do. Yes or no?---Yes. My advice was that it should have gone into an escrow account. That would be the proper thing to do.

MS CAHILL: And that you could be in serious trouble?---Yes. I was making the other directors aware that this is a serious matter.

360 Under further questioning, Mr Hayes continued to exhibit what I assess to be a feigned inability to comprehend questions put to him about the use of these funds. For example (ts 500 501):

Certainly the situation that had caused us even then to depend on those funds was based on what Mr Fakhre had done, but let's not lose sight of the fact that if all of a sudden the account - I needed to suddenly throw 20 grand in or 100 grand in that night from my family, which is what was their intention, to be a backstop like that, I could have done that. So, yes, best practice would certainly have been to quarantine those funds of those shareholders as and when they were received.

The attempt to rationalise what was clear misconduct was unconvincing.

361 Seventh, at ts 508 509, in relation to the question whether the alleged Tree Agreement and Matching Fund Agreement depended upon Mr Fakhre's decision to convert his loans to shares, Mr Hayes was asked about an email of 17 February 2011 he sent to Mr Cuthill, who was a shareholder in Elementree at the time (exhibit 20, page 899). In that email Mr Hayes, referring to Mr Fakhre, had said:

He is the subject of three agreements (Convertible Loan Agreement with conversion pending, Matching Funds for most recent share placement and, contract for the Purchase of 1,000 hectares), which all have some degree of interdependence.

(my emphasis)

362 Asked about his own emails in reference to 'interdependence', which essentially speaks for itself, Mr Hayes provided a rambling explanation which went nowhere. He was also referred to his statement to Mr Cuthill in that email:

If anything at all is not resolved as agreed and communicated to shareholders, or is unreasonably delayed, funds provided by existing shareholders (i.e. including your 50K) will be returned to shareholders immediately (infull) pending resolution of any prior representations made.

363 This was then put to Mr Hayes in crossexamination (ts 509):

Well, it's probable that you had already started using some of these funds isn't it?---You mean his specific 50?

Yes?---As I have said, we'll have to go and look back at exactly what day it was deposited. It doesn't matter, because when my family had said to me very clearly, 'This is the funds we're committed to, 500. They're on their way' the ability for me to send 50K the second that Mr Fakhre makes it obvious that he is never, ever going to come back to negotiations or honour his commitments, we would give - I wanted Mr Cuthill to know we would give him his 50 immediately.

364 This rambling explanation cannot disguise what I find to be the likelihood that Mr Cuthill's money was being wrongly used as loan funds, when it had been provided for the acquisition of shares in the January 2011 capital raising. The fact that Mr Cuthill today finds himself at risk of losing his $50,000 is squarely attributable to the misuse of those funds by Mr Hayes and Elementree.

365 Eighth, in the phase of crossexamination at ts 510, Mr Hayes presented to me as cavalier, even flippant, concerning his director's obligation under the Act and ASIC requirements, in regard to shareholders' subscription funds received on a conditional basis. He referred to his use of the term 'ASIC requirement' as a 'bit throwaway'. Pressed on this, there ensued this exchange:

A throwaway, did you say?---No. Meaning there's no real great - let me just go through and check the ASIC requirement. It's just acknowledging that we are aware of our responsibilities as directors and to give the guy some peace of mind that, 'Mate, I've got your back. As soon as we can sort this out, I will make sure that you're not hurt in this situation. But it is prolonged. We cannot see where a certain end is. I'm being told by the chairman that he will come round. I'm being told by someone else he - - -

366 In the end, Mr Hayes was bound to recognise the obligation (in the context of the funds received from Mr Cuthill as a subscription for shares) to return funds to persons who subscribed money, if conditions of the capital raising were not met (ts 510). I was left with a firm impression that Mr Hayes had a poor attitude concerning the rigour of those obligations.

367 Ninth, at ts 515, Mr Hayes was questioned over the email received from Mr Greg Wheatley, Mr Fakhre's Perth lawyer, on 18 February 2011 in which, perhaps contrary to earlier expectations, particularly as of 4 February 2011, Mr Wheatley advised that his client would be converting his loans to equity (exhibit 20, page 992). Mr Wheatley also referred to some further commitments offered by Mr Fakhre including committing to tree funding and matching the funds raised by the most recent capital raising.

368 Mr Hayes was dismissive of these statements when asked about them, pointing to what he assessed as ambiguity regarding commitments in what had been written (ts 514).

369 However, Mr Wheatley's email ended, 'In light of previous misunderstandings and for the sake of good order, can you please let us know if you consider that any of the points above are incorrect in any material respect'. Nothing was communicated by Mr Hayes taking issue with the content of Mr Wheatley's very important email.

370 Mr Hayes, as managing director of Elementree, should have been acting in that company's interests and not his own, yet he did not respond to Mr Wheatley with any concerns even though he was then trying to raise funds from Mr Poynton to pay off Elementree's $1.3 million (plus interest) debt and also raise $650,000 personally so he could try to buy off Mr Fakhre from converting his base to equity. In my assessment, the silence was inexcusable bearing in mind that Mr Hayes had now been apprised of the likely conversion of Mr Fakhre's loans to equity and other matters pertinent to Elementree's funding.

371 Tenth, Mr Hayes was asked, at ts 515, about what is attributed to him in the minutes of Elementree's board for their meeting of 23 February 2011 (exhibit 6, pages 27 31). According to the minutes, '[Mr Hayes] confirmed that he had received a guarantee from a third party ... of $1.3 M to be used to repay [Mr Fakhre's] loan'. Mr Hayes confirmed that the third party was Mr Poynton, who he described to as a close family friend of long standing. When it was pointed out that Mr Poynton had not provided a guarantee, Mr Hayes again sought to obfuscate. It was pointed out that Mr Hayes had nothing in writing. Mr Hayes referred to a letter. But it was a letter of 3 March 2011 which, absent time travel, could not have been in existence when Elementree's board met on 23 February 2011. This is yet another illustration of Mr Hayes' sloppy business practices and the lack of precision and probity in what he told the board on 23 February 2011.

372 Eleventh, when asked, at ts 513, about the arrangements he had reached with Mr Poynton to not only repay Elementree's $1.3 million debt to Mr Fakhre, but also to personally buy Mr Fakhre off, Mr Hayes was very shaky in terms of any arrangements concluded with Mr Poynton and what Mr Hayes had told the board:

You have received a commitment of equity from Mr Poynton in the amount of $2-300,000?---Mr Poynton made it very, very clear that he could be trusted on for 1.3, of which 2 or 300, you know, almost immediately and he - - -

No, you told the board in addition. You have got the 1.3 guarantee at the bottom of 27?---Yeah.

And then you say, the second paragraph of 28, in addition - - - ? - - - 'Forrestdale Investments for 500, the third party - - -'.

- - - to the book build, you have got the 2 - 300?---Yep.

So that wasn't accurate, was it? The 2-300 was part of the 1.3, wasn't it?---It was, yeah. As I recall - I certainly don't recall Mr Poynton saying 'I'll give you 1.3 and another 2-300,' correct. So that probably should be tightened up.

373 Mr Hayes' imprecision and lack of care regarding important issues are once again apparent in this exchange.

374 Twelfth, the following exchange related to misuse of subscription funds Mr Hayes was forced to acknowledge (ts 521):

Now, Ms Logan advised that those application moneys must be held in trust until such time as the shares were allotted?---Yeah.

Had that happened Mr Hayes?---No, it didn't. It should have, it didn't.

They had actually been spent, hadn't they, by this stage?---Again you're asking the same question for the fourth time. I will - I can only speculate whether I had or hadn't. The people were depositing funds into the same account as the company's transactions account. If you want a precise answer I'm happy to provide it but I need to go and look at the bank statements.

375 Mr Hayes' stock reply under questioning, suggesting he needed to go and examine Elementree's bank statements to be sure about his answer, was a refuge he frequently sought during his crossexamination. Mr Hayes cannot disguise the fact that the use of the subscription moneys as unsecured loans was totally unsatisfactory. It was more than unsatisfactory for Mr Cuthill who, unlike Mr Hayes' parents (through Forrestdale) and Mr Hayes' friend Mr Kerkmans (through Marlingu), had not agreed to his subscription funds being used in this way. He now stands prejudiced by the fact that his $50,000 was not put into escrow and then returned to him as it should have been.

376 Thirteenth, when asked, at ts 530 531, about another passage in the Elementree board minutes of 23 February 2011 concerning the shareholder placement being completed on the condition that Mr Fakhre provided matching funds in accordance with an agreed timetable, Mr Hayes seemed disoriented. Pressed over whether there was an agreed timetable with Mr Fakhre, he attempted, very weakly I thought, to assert that there was. But, upon being pressed, a so called documentary record relied upon by Mr Hayes appeared to be his own 'courtesy email' that read something along the lines of, 'When it closes, I will need you to respond quickly'.

377 Fourteenth, at ts 535, Mr Hayes was asked about the email he had sent to Mr Poynton on 28 February 2011, concerning the position then being taken by Mr Fakhre and Mr Fakhre's alleged aggressive reaction by 'holding us to ransom for a further $650K (a 50% return on his 1.3M ...)' (exhibit 5, par 62; exhibit 3, page 1009).

378 It was put to Mr Hayes that he had effectively misrepresented to Mr Poynton what a fellow board director, Mr Stanley, had reported to him of Mr Stanley's telephone conversation with Mr Fakhre. Cornered, Mr Hayes sought to obfuscate:

Mr Stanley never said that to you did he?That he would make some changes?

That Mr Fakhre had threatened to convert by Monday and use his majority shareholding to make some changes?---No, they are my words. I haven't quoted Mr Stanley there. They were my words.

But you didn't have a conversation with Mr Fakhre, Mr Hayes?---It is - I am anticipating what the logic is of this man who would have behaved in the way that he had. I wouldn't have done it on an unfounded basis.

You just made that up, didn't you?---I'm talking to a friend and if I say to him and I'm describing someone and I'm obviously angry at the time and under a lot of pressure, and I'm describing the person and what I think they are capable of doing, simple as that. That's what I was relaying to him as a family friend. He could feel that.

379 Again the attempt at a rationalisation of a misrepresentation made to Mr Poynton does Mr Hayes no credit.

380 Fifteenth, Mr Hayes was asked, at ts 536 537, about his reference to Mr Fakhre, in the same email, as a 'litigious prick'. The basis for that comment concerning Mr Fakhre was probed and was eventually exposed as baseless. This unfolded in a context in which Mr Hayes was attempting in my assessment to obtain a further $650,000 commitment from Mr Poynton so that Mr Fakhre could be paid off. Plainly Mr Hayes never had access to $650,000 in his own funds to make that payment to Mr Fakhre. Some documents rather suggest that the $650,000 was going to be paid off by Elementree and not Mr Hayes although Mr Hayes' position was that he was always the person making the commitment to Mr Fakhre in that amount (ts 537).

381 The defence and counterclaim filed on behalf of Elementree in CIV 1664 of 2011, in referring to an oral agreement raised against Mr Fakhre on the basis that he had accepted $650,000 in exchange for not exercising his right to convert, was put on the basis of an agreement with Mr Hayes personally.

382 Sixteenth and last, at ts 546, Mr Hayes was asked about his responsive email of 1 March 2011 to Mr Wheatley, who was acting on behalf of Mr Fakhre at the time (exhibit 20, pages 1032 1033). Mr Wheatley had asked Mr Hayes to '[p]lease let us know how [the allotment of the Repayment Shares] is progressing'. The question to Mr Hayes was:

You tell him that allotment of the repayment shares to the investor is under way?---Yes.

Was the allotment of the shares under way?---It's arguable. Was I considering what things I should do next as far as potentially issuing them? Yes, I was considering them, but I was not - I did not have any legal representation at that time. I was worried that I couldn't afford it and it was only that in a conversation with Mr Poynton that I was introduced to Mr Bennett and I - he said - then I was advised, 'Look, mate, you're in - you need to get advice before you do anything further', and I was worried

Was the allotment of shares under way, Mr Hayes?---It depends what you mean by under way.

Is that your answer?---Yes.

383 The obfuscatory and wholly unsatisfactory nature of the response is again demonstrable. No allotment of shares to Mr Fakhre was under way at this time. Mr Hayes ought to have frankly acknowledged that to be the case. His statement to Mr Fakhre's solicitor that the allotment was under way was deceitful.

384 I found Mr Hayes overall to be an unsatisfactory witness.

Further observations concerning the CLA and Mr Fakhre's two charges

385 Having made the unequivocal election to convert by his written Conversion Notice on 25 February 2011, as contemplated by cl 8.1 of the CLA (as varied by the deed of variation), and then on 15 April 2011 having issued a writ out of this court by action CIV 1664 of 2011 seeking specific performance of the CLA by orders requiring Elementree to provide him with his Repayment Shares, and having proceeded with that action until his appointment of administrators on 12 July 2011, on what basis can Mr Fakhre argue that he was a creditor, let alone a secured creditor for $1.3 million under the CLA as varied?

386 I put aside for the moment the question of any relatively small amount of interest on Mr Fakhre's $1.2 million loan that might have fallen due in the period between 29 September and 31 December 2010 (repayment of interest being due on 31 December each calendar year under the provisions of sch 3 to the CLA). The interest appears to have been largely forgotten as an issue during 2011, save for when Mr Hayes attempted to have Elementree tender bank cheques for $1.3 million plus interest to Mr Fakhre at the end of March 2011. That tender was rightly rejected by Mr Fakhre through his solicitors at the time. The bank cheques were returned to Elementree's solicitors. The first problem was that Mr Fakhre had unequivocally exercised his election to convert under the CLA on 25 February 2011. The second problem was that the tender of the repayment of the loans plus interests by Elementree's solicitors had been tied to Mr Fakhre accepting that there had been a binding threeway agreement between him, Elementree and Mr Hayes made on or about 23 or 24 February 2011 which bound Mr Fakhre to accept repayment of his loans plus $650,000 personally paid by Mr Hayes in exchange for promising not to exercise his right to convert under the CLA. However, Mr Fakhre through his solicitors totally rejected that proposition at all times and I find that the Tripartite NonConversion Agreement was never effected as contended by Mr Hayes.

387 Counsel for Mr Hayes described the apparent stance of Mr Fakhre on 12 July 2011, in seeking to have both his Repayment Shares as well as immediate repayment of his secured debt of $1.3 million plus interest, as a case of Mr Fakhre wanting both 'the money and the box'. On the other hand, counsel for the administrators and counsel for Mr Fakhre say the proper construction of the CLA is that Mr Fakhre continued to be owed his loan of $1.3 million plus interest by Elementree until such point as he had actually 'converted' and received his Repayment Shares. Accordingly, it was contended that Mr Fakhre was a creditor until such time as he actually received his Repayment Shares. This construction was said to follow in a commercial sense notwithstanding the unequivocal election to convert under Mr Fakhre's Conversion Notice of 25 February 2011 and his pursuit since 15 April 2011 in CIV 1664 of 2011 of orders compelling Elementree to issue and allot to him his Repayment Shares.

388 Under the terms of the CLA, 'conversion', I accept, does not occur until Mr Fakhre is issued and allotted shares in Elementree. Until that occurs, Mr Fakhre is not a shareholder. But the question on my assessment is - by reference to the terms of the CLA, particularly cl 8.1, cl 10.3 and sch 3 - what is the effect of Mr Fakhre's unequivocal issue of a Conversion Notice pursuant to cl 8.1(a) of the CLA, as regards Elementree's obligation to repay Mr Fakhre's loan? The answer to this question turns upon the particular words used within the instrument itself and I have already set out the relevant provisions in these reasons. There is no doubt that what I assess to be an ambiguity about this question could have been put beyond any argument by clear words indicating the status of Mr Fakhre in any hiatus period after the issue of a Conversion Notice, but before the actual issue and allocation of his Repayment Shares.

389 As to the law concerning specific performance it is clear that specific performance will be available in respect of an obligation to issue and allot shares upon conversion from a loan: see ANZ Executors & Trustees Ltd v Humes Ltd [1990] VicRp 54; [1990] VR 615 (Brooking J). A person may not obtain an equitable interest in shares until they are issued and allotted (analogous to the position of taking a charge over future property): see Tailby v Official Receiver (1888) 13 App Cas 523, 543. Hence it is not suggested that Mr Fakhre held an equitable interest in 53% of the shares in Elementree after giving his Conversion Notice on 25 February 2011. Nevertheless, under Mr Fakhre's charges a breach of the covenant in the CLA that required Elementree to issue and allot Mr Fakhre his Repayment Shares within two business days of his giving a Conversion Notice was capable of being rectified either by administrators appointed by Mr Fakhre to enforce his charges and cause Elementree to perform that obligation or by the administrators obtaining from this court orders for specific performance to that end.

390 Here Elementree clearly failed, without any justification, to provide Mr Fakhre with his Repayment Shares within two business days of 25 February 2011. That was an Event of Default. It was an Event of Default which continued. Under the terms of cl 10.3 of the CLA, the Moneys Hereby Secured immediately become due and payable seven business days after written notice of the Event of Default is given by the investor to the borrower. It seems that no such notice pursuant to cl 10.3(a) or cl 10.3(b) was issued by or on behalf of Mr Fakhre for the purposes of the CLA. The relevant provision would appear to be cl 10.3(a) since this particular Event of Default was capable of being remedied. Had such a notice been issued then the consequence would have been that the Moneys Hereby Secured immediately became due and payable seven business days after receipt of the notice. In this context I have considered whether it might be said that the indorsement of claim on Mr Fakhre's writ in CIV 1664 of 2011 issued on 15 April 2011 or subsequently Mr Fakhre's statement of claim seeking specific performance would satisfy the requirement in CLA cl 10.3(a) for notice of an Event of Default. Certainly the indorsement of claim and the content of the subsequent statement of claim do provide clear notice to Elementree of Mr Fakhre's assertion concerning an Event of Default by reason of Elementree's failure to issue and allot to him his Repayment Shares after his Conversion Notice of 25 February 2011. Would the writ or the statement of claim be sufficient notice for the purposes of CLA cl 10.3(a)? The argument was not really advanced in the litigation but, if it had been, my view would have been that Mr Fakhre's writ and his pleading sought something other than repayment, namely performance by the issue and allotment of the shares. Had Mr Fakhre sought immediate specific repayment of his loans then the position would have been different. However, that was not the case and at all times the documents filed within the litigation deliver an unequivocal message that Mr Fakhre is seeking his shares in Elementree rather than repayment of his loan. That being the case it is not possible to read the indorsement to the writ or the statement of claim as fulfilling the requirement of notice of an Event of Default for the purposes of cl 10.3(a) of the CLA.

391 During the course of argument concerning Mr Fakhre's status as a creditor of Elementree prior to 12 July 2011, I was referred to Re NIAA Corporation Ltd (in liq) (1993) 33 NSWLR 344, a decision of Santow J in the Supreme Court of New South Wales, in support of an argument that Mr Fakhre could seek specific performance by orders compelling the issue of his Repayment Shares and at the same time be a creditor of Elementree for $1.3 million plus interest. However, my reading of that authority is that it provides no support for this proposition.

392 The passages relied upon by the first and second defendants appear at pages 356 and 361. However, the NIAA case concerned very different circumstances, in which loans had been provided to a corporation in financial distress by certain members. Subsequently the members were told that they could either convert their loans into convertible notes, shares, or fees. Members were free to choose between the three options; as is made clear at pages 352 353, only one member took up the option of subscribing for shares. However, that member never received an allotment of shares. Santow J dealt with that at page 361, holding that the member who had elected to receive shares but had not received them retained the status of an unsecured, unsubordinated creditor. That conclusion is hardly surprising given the failure to issue shares but it provides no assistance by way of analogy to the present circumstances. The other class of defendant considered by Santow J in the NIAA decision had decided to receive a convertible subordinated note. However, the evidence was that no convertible note was ever prepared or drafted. Referring to this category of defendant Santow J made some observations concerning convertible notes at page 355. The passage relied upon then occurs at page 356 where his Honour observed:

Accordingly I am satisfied that a binding contract, if made, remained executory by reason of the Corporation's failure to take any of the necessary steps to issue the notes and that that failure gave rise to the nonfulfilment of a fundamental condition of any such contract or arrangement to exchange the previous loan for subordinated convertible notes. In consequence, the members so electing, remained creditors on the terms of their original loans, that is, as subsisting prior to their applying for notes.

393 With respect, that conclusion reached by his Honour in such circumstances presents as essentially selfevident given the failure to issue convertible notes which effectively delivers the necessary conclusion as to the lender remaining a creditor in such circumstances. However, it provides no assistance as an analogue to the present circumstances, where there manifestly was a convertible loan agreement and the question is whether Mr Fakhre's Conversion Notice deprives him of his former status as a creditor in circumstances where he has not received the shares he elected to take in return for his debt. The answer to that question depends on the proper construction of the CLA itself and, in particular, the clauses to which I have referred.

394 On behalf of the plaintiff I was referred to a recent decision in the New South Wales Supreme Court, Perpetual Trustee Company Ltd v HIH Holdings (NZ) Ltd (in liq) [2012] NSWSC 611 which was delivered on 5 June 2012. On my reading of that decision, it turns very much on its particular facts concerning the somewhat complicated underlying documentation. Stevenson J's end conclusion that the holders of HIH Converting Notes were not creditors of HIH Holdings (NZ) Ltd (in liq) turns, as his Honour says, upon the specific provisions that his Honour was required to construe in that case. Having said that, I would respectfully adopt his Honour's useful summary of the principles of contractual construction set out at [45] [46]. Likewise as to the principles of contractual construction I would respectfully adopt the observations of Beech J in Red Hill Iron Ltd v API Management Pty Ltd [2012] WASC 323 [108] [127]. Axiomatically in the present circumstances, the CLA is susceptible to more than one meaning and therefore any threshold for the reception of evidence of surrounding circumstances when construing the CLA is more than easily surmounted.

395 Within Perpetual Trustee there is perhaps some small measure of support found within his Honour's conclusion about the obligation to 'pay' not being engaged once it was obliged to convert the notes. See in this respect [132], [133], [140], [143] and [144]. But the result reached there depends primarily upon the structure of the particular clauses there construed.

396 As at 12 July 2011 Mr Fakhre's action (CIV 1664 of 2011) pursuing specific performance against Elementree remained on foot. In Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444 their Honours observed (460):

Legal rights are not affected at law by the mere existence of an action for specific performance though they are affected by the election involved in its institution.

397 Mr Fakhre's proceedings, CIV 1664 of 2011, made it plain that he was seeking to compel Elementree by order of the court to provide him with his Repayment Shares and not with the repayment of his loans. That position is logically inconsistent with Mr Fakhre being viewed at the same time as a creditor under the CLA for the liquidated amount of $1.3 million plus interest. Nor is that to say that Mr Fakhre's entitlement to receive his Repayment Shares was not secured under the terms of his two charges. In my view it was, and Mr Fakhre was entitled to enforce all his rights in order to obtain the Repayment Shares. But in my view, to assess him as a creditor under the CLA for $1.3 million plus interest would be inconsistent with the terms of the CLA and, in particular, cl 6(a), cl 8.1 and sch 3, which, on my construction, states explicitly that Elementree's obligation to pay (more correctly, repay) Mr Fakhre was interrupted by the issue of a Conversion Notice under cl 8.1.

398 Nor do I see any particular commercial prejudice accruing to Mr Fakhre by not being viewed as a creditor in circumstances where Elementree did not discharge its obligation to issue the shares. In that circumstance Mr Fakhre held a clear right under cl 10.3(a) of the CLA to give notice of an Event of Default and to render the Moneys Hereby Secured due and payable in seven days. Furthermore, in the face of a sustained and wholly wrongful failure by Elementree after February 2011 to provide Mr Fakhre with his Repayment Shares, Mr Fakhre was fully at liberty to inform Elementree that its intransigent stance was a repudiatory breach of the CLA as a renunciation of Elementree's obligations to perform its conversion covenant thereunder. Mr Fakhre might at that point have put an end to the CLA's obligations of performance to provide him with his Repayment Shares and instead sought damages for repudiatory breach. But Mr Fakhre did not take that course either. Accordingly, the CLA remained on foot and was fully efficacious notwithstanding the existence of an Event of Default as regards Elementree's failure to issue Mr Fakhre with his Repayment Shares.

399 However, it is also necessary to consider the effect of this Event of Default by reference to the terms of Mr Fakhre's two charges, particularly to cl 15(a) of the charges. They, in contradistinction to cl 10.3 of the CLA, stipulate that the Moneys Hereby Secured are immediately due and repayable, without notice, upon the occurrence of an Event of Default. The two charges need to be read in conjunction with the CLA, which is defined as the 'Primary Instrument'. It is also necessary to remember that the CLA was varied under the deed of variation of 29 December 2010, particularly as regards sch 3 which extended the time for Mr Fakhre's conversion decision to the end of February 2011 and, in the event that he decided not to convert, rendered his loans repayable by Elementree one month later, at the end of March 2011.

400 Clause 15(a) must be read with cl 15(b) in the two charges. Pursuant to cl 15(b) it was open to Mr Fakhre to exercise, in the face of an Event of Default, a right to render his charges enforceable. As I will explain, that is precisely the right Mr Fakhre exercised by written notice to Elementree on 12 July 2011. Mr Fakhre took that step prior to appointing the first and second defendants as administrators pursuant to s 436C of the Act.

401 Once Mr Fakhre's two charges became enforceable (as I find they did on 12 July 2011), then the operative terms of cl 15(a) as to the Moneys Hereby Secured becoming immediately due and repayable, in the face of an Event of Default, must be given full force and effect. Whatever might have been the position before 12 July 2011, by reason of the force of the CLA as the Primary Instrument, and the need for notice of an Event of Default to be given pursuant to cl 10.3(a) of the CLA, the operative effect of cl 15(a) in both charges was different.

402 Mr Fakhre, by making it explicit on 12 July 2011 that he was relying upon his charges and making them enforceable, was at least from that time entitled to rely upon the force and effect of cl 15(a) in each charge. In my view, the consequence is that in the face of an Event of Default by reason of the failure to issue Mr Fakhre with his Repayment Shares, the Moneys Hereby Secured became immediately due and payable under Mr Fakhre's charges.

403 The notice of appointment of the first and second defendants pursuant to s 436C of the Act says this in terms. Given the nature of the Event of Default relied upon, the Moneys Hereby Secured as defined became due and payable pursuant to cl 15(a) of Mr Fakhre's charges. Accordingly, it is correct to classify Mr Fakhre as a creditor of Elementree from that point. Correlatively he could not from that point pursue any further claim to the issue and allotment of his Repayment Shares under the CLA. That outcome would be inconsistent with his claim to immediately be repaid his loan plus interest.

404 From that conclusion I can now proceed to some further observations concerning s 445D of the Act before proceeding to deal with the 26 significant issues which arise for determination in the present circumstances.

Section 445D of the Corporations Act

405 There was no real dispute between the parties as to the applicable law. It is set out in the written closing submissions of the first and second defendants at pars 259 313. The third defendant adopted those submissions as to the law for itself as regards s 447A (see third defendant's written closing submissions, par 265). The plaintiff's written closing submissions generally did likewise and said the applicable law was 'helpfully summarised'. I agree.

406 Accordingly I set out that summary of the law which is generally accepted on all sides.

Section 447C

1. Subsection 447C(2) of the Act empowers the court to make an order declaring whether or not a purported appointment of a person as administrator of a company, or of a deed of company arrangement, is valid.
2. An application to the court for such an order may be made if there is doubt, on a specific ground, about whether a purported appointment of a person as administrator of a company, or of a deed of company arrangement, is valid: s 447C(1).
3. The application may be made by the person purported to be appointed as administrator, the company the subject of the purported administration or deed of company arrangement, or any of that company's creditors: s 447C(1).
4. On such an application, it is open to the court to make the order declaring whether or not the purported appointment was valid, either on the grounds specified in the application, or on some other ground: s 447C(2).

1. Subsection 447A(1) of the Act empowers the court to make such order as it thinks appropriate about how Part 5.3A of the Act is to operate in relation to a particular company.
2. The discretion the court has under s 447A(1) is wide. There is nothing on the face of the subsection that suggests that it should be read down: Australasian Memory Pty Ltd v Brien (2000) 200 CLR 270 [17], [20].
3. The reference in the provision to 'this Part' (ie Part 5.3A) is not a reference to the Part as a whole but is to be understood as a reference to each of the provisions within it: Australasian Memory at [18].
4. It is clear from the examples given in s 447A(2) that the orders that may be made by the court under s 447A go beyond a curial determination of what is the effect of existing provisions of Part 5.3A on a particular company and assumes that under s 447A(1) the court may alter the operation of other provisions of the Part. The orders contemplated are orders that alter how a particular provision within Part 5.3A is to operate in relation to a particular company, not how it does operate: Australasian Memory at [18].
5. The power of the court under s 447A(1) to make an order about how Part 5.3A 'is to operate' in relation to a particular company does not preclude the making of an order with future effect, but in respect of past matters or events: Australasian Memory at [26].
6. This includes making an order that Part 5.3A of the Act is to operate in relation to the company as if the original administrators had been validly appointed: Re Wintech Group Ltd [2011] VSC 273 at [9].
7. Section 447A permits the court to make orders to cure defects or to remedy the consequences of some departure from the scheme set out in Part 5.3A: Australasian Memory at [17].
8. There are numerous instances where courts have invoked the section to cure the defective or invalid appointment of an administrator: Re Australian Art Investment Pty Ltd [2012] VSC 18 at [5] per Davies J citing Calabretta v Redpen Developments Pty Ltd (in liq) [2010] FCA 81; (2010) 183 FCR 47, 53 [36] and other decisions.
9. Courts have made orders pursuant to s 447A with respect to the operation of Part 5.3A where an administrator has not been validly appointed under s 436A because the purported appointment was made:

(a) after the death of the sole director of the company on the basis of documents of appointment previously executed: Re Pasdonnay Pty Ltd (ACN 009 131 622) (admins apptd); McDonald [2005] FCA 335; (2005) 53 ACSR 717;

(b) by the apparent sole director of the company at a time when he was an undischarged bankrupt and therefore had ceased to be a director;

(c) by de facto directors of the company who were determined by the court not to be directors for the purposes of s 436A; Xie v Crisp [2011] VSC 154; (2011) 248 FLR 265;

(d) by the sole director of the company when the company's constitution fixed the minimum number of directors as two and, accordingly, the sole director could not pass a resolution under s 436A: Re Australian Art Investment Pty Ltd.

1. It is clear that the court has power to alter how s 436C is to operate in relation to a company by ordering that Part 5.3A is to operate as though the purported (but invalid) appointment of the administrator pursuant to that section was valid: National Australia Bank Ltd v Horne [2011] VSCA 280; (2011) 253 FLR 205 at [33]. In National Australia Bank v Horne, s 436C did not engage because the charge relied upon was not over the whole, or substantially the whole, of the company's property.
2. Section 447A was also invoked in Re Wintech Group Ltd to cure a defective appointment under s 436C of the Act in circumstances where the charge was granted to a group of chargees collectively, not jointly and severally, and therefore it was not open to one of the chargees alone to appoint the administrator.
3. An invalidly appointed administrator who has acted on the basis of the purported appointment has standing to make an application for an order under s 447A(1) because they are an 'interested person' within the meaning of s 447A(4)(f): Re Pasdonnay Pty Ltd at [17].
4. The broad discretion conferred by s 447A(1) is to be exercised having regard to all of the circumstances of the case that have been brought to the court's attention by the applicant for relief and by those who have an interest in the matter and who may be affected by the granting of that relief: Calabretta v Redpen Developments at [37].
5. One relevant consideration is whether the purposes of Part 5.3A would be best served by the making of an order: Re Pasdonnay Pty Ltd at [20]. The apparent purpose and object of Part 5.3A is to provide a constructive approach to corporate insolvency by focussing on the possibility of saving a business (as distinct from the company itself) and preserving employment prospects: see the discussion in Re RiverCity Motorway Pty Ltd v Madden [No 3] (2012) FCR 360 at [42] [44].
6. Another consideration is whether substantial injustice would be caused by effectively validating an otherwise invalid appointment: Calabretta v Redpen Developments at [37].
7. The focus of the court when making an order under s 447A is the position of the company at the time of making the order and what is best for the company in the future: Re Australian Art Investment at [6].
8. Against this background, in previous cases, courts have taken into account in the exercise of the discretion such considerations as:

(a) the likely insolvency of the company: Correa v Whittingham [No 3] [2012] NSWSC 526 at [83]; Re Pasdonnay Pty Ltd at [20]; Re Australian Art Investment at [8];

(b) whether the administrator made inquiries to confirm the validity of his appointment including seeking external legal advice: Correa v Whittingham at [81] - [82];

(c) whether it would be potentially disruptive to the affairs of the company for there to be the capacity to challenge the validity of what has occurred in the administration to date: Re Pasdonnay Pty Ltd at [20];

(d) whether it would be wrong to give the imprimatur of the court to the conduct giving rise to the purported appointment: Re Pasdonnay Pty Ltd at [20];

(e) the fact that the administrator had carried out substantial work and incurred costs in the not unreasonable belief at the time that his appointment as administrator was valid: Calabretta v Redpen Developments at [50];

(f) the effect of an order on the administrator's entitlement to a statutory indemnity and remuneration and the consequences of a change in the relation-back date: Calabretta v Redpen Developments at [38];

(g) whether any creditor opposes the application: Re Australian Art Investment at [9];

(h) whether a creditor challenging the validity of the appointment promptly pursued that challenge. Correa v Whittingham at [87]. There is an inconsistency with the purposes of Part 5.3A for creditors to delay challenging the validity of an administrator's appointment until after he or she had completed his work and steps had been taken on the basis that the administrators and the DOCA were valid;

(i) the acquiescence of the persons who challenged the DOCA in the administration: Correa v Whittingham [87] citing Natarajan v ACIB Accumulus Pty Ltd [2006] VSC 22; (2006) 56 ACSR 356;

(j) whether any person would be subject to any particular prejudice by the validation of the appointment: Re Australian Art Investment at [10];

(k) whether the directors of the company can work together in the future: Xie v Crisp at [224]; and

(l) the stage of the administration, the financial position of the company, whether the business could continue if it was returned to the control of the directors and whether there are any better options available to deal with the company's future: Xie v Crisp at [225].

The power to validate the administrators' appointment on terms

1. On 7 August 2012, the court posed a question as to whether the ambit of the court's powers under s 447A extended to enable the court to make orders on terms, for example, that Mr Cuthill were, in effect, compensated for the amount paid by him as a share subscription but later used by the Company without his authority: T827-828.
2. The court may make an order under s 447A subject to conditions: s 447A(3).
3. Courts have previously been prepared to make orders pursuant to s 447A(1) of the Act amounting to the rectification or variation of a DOCA: Re Derwent Howard Media Pty Ltd [2011] NSWSC 1164; Re Hughes [2007] FCA 498; Brandrill Pty Ltd v Newmont Yandal Operations Pty Ltd (2006) 24 ACLC 1179; Ansett Australia Ltd v Ansett Australia Ground Staff Superannuation Plan Pty Ltd [2002] VSC 114; (2002) 41 ACSR 598; Mulvaney v Rob Wintulich Pty Ltd (1995) 60 FCR 81; Ex parte Vincent Anthony Smith [2001] WASC 182.
4. It should be noted that each of the authorities mentioned above involved an application by one party to amend the terms of the DOCA in question, none involved the making of a s 447A amending order as incidental to other relief that was being sought.
5. It seems that an order amending a DOCA under s 447A is typically expressed in the form that Part 5.3A is to operate in relation to the subject company as if some provision of that company's deed of company arrangement were varied: Re Derwent at [11]; Brandrill at [40] - [41]. The order may be one that amends a deed of company arrangement with future effect or treats that deed as rectified from the time of its execution: Brandrill at [49] - [50].
6. Generally speaking, the courts should be reluctant to exercise the power to vary a DOCA (and thereby deprive creditors of their role under s 445A) except in circumstances that are uncontentious in the sense that no prejudice to creditors is involved: Re Derwent at [12].
7. Where the rights of creditors not before the court stand to be negatively affected by the variation, the variation may nonetheless be ordered if the alternative would be that the company would go into liquidation and returns for those creditors would be even worse than under the varied deed of company arrangement: Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd [2005] WASC 261; (2005) 228 ALR 598 at [16] - [18].
8. The variation contemplated by his Honour, if made, would have the following effects:

(a) Mr Fakhre being required to pay additional funds as proponent of the DOCA; or

(b) the trade creditors receiving less than payment in full; and

(c) in any event, a distinction being drawn between shareholder creditors such that Mr Cuthill is preferred to the other shareholder creditors, namely, Mr Hayes, Forrestdale and Marlingu Farms. However, it appears a distinction can be drawn between Mr Cuthill and the other shareholder creditors as Mr Cuthill is the only shareholder creditor who did not authorise the use of his subscription funds as a loan.

1. The provisions of s 445D(1)(f) as dealt with in [304] - [313] may assist the court in considering these issues.

1. Section 445D of the Act empowers the court to terminate a deed of company arrangement if any of the grounds in s 445D(1) are satisfied.
2. Mr Hayes bears the onus of making out the relevant grounds under s 445D(1) of the Act: Bidald Consulting Pty Ltd v Miles Special Builders Pty Ltd [2005] NSWSC 1235; (2005) 226 ALR 510; Mediterranean Olives Financial Pty Ltd and Others v Loaders Traders Pty Ltd [No 2] [2011] FCA 178; (2011) 82 ACSR 300 at [179].
3. The power of the court to terminate or vary deeds is discretionary. The court's discretion is a wide one and should be exercised having regard to the interests of both creditors as a whole and also the public interest: TNT Building Trades Pty Ltd v Benelong Developments Pty Ltd (Administrators Appointed) [2012] NSWSC 766 at [27] citing Emanuele v Australian Securities Commission [1995] FCA 1762; (1995) 63 FCR 54; Paradox Digital at [57], [65]. In particular, courts must consider not only the assent of creditors and whether what is proposed is for their benefit, but also whether it is conducive or detrimental to commercial reality and the interests of the general public: Emanuele at 69-70.
4. Delay in bringing an application under s 445D is an important discretionary factor: Re Carey Builders Pty Ltd (1997) 23 ACSR 754 at 777.
5. A comparison between the outcome of the DOCA and the likely outcome of a liquidation is relevant to the exercise of the court's discretion. This comparison requires analysis of the present position of the company: TNT Building Trades Pty Ltd at [28].
6. An order terminating a DOCA under s 445D results in the voluntary winding up of the company: Corporations Regulation 5.3A.07.

1. The court may terminate a deed of company arrangement if it is satisfied that there was an omission from a s 439A report or statement and the omission can reasonably be expected to have been material to such creditors in deciding whether to vote in favour of the deed: s 445D(1)(c).
2. The Report to Creditors, being the report alleged by Mr Hayes to have omitted material information, must contain:

(a) information about the company's business, property, affairs and financial circumstances;

(b) a statement setting out the administrators' opinion on each of the three options available to creditors, including whether they are in the creditors' interests (and why);

(c) any other information known to the administrator that will enable the creditor to make an informed decision about the matters above; and

(d) insofar as the report contains a DOCA, the details of the proposed DOCA.

Section 439A(4)(a) - (c) of the Act.

The materiality requirement

1. The test of materiality is an objective one: Re Cufari; Ex parte Commissioner of Taxation v Huppatz [1992] FCA 95; (1992) 34 FCR 544 at 549.
2. In assessing materiality the court's task is to evaluate whether, in the whole context of the matter, the information in question could reasonably be expected to have been material to the creditor's decision to vote in favour of the resolution: Deputy Commissioner of Taxation (Cth) v Comcorp Australia Ltd (1996) 70 FCR 356.
3. A order terminating a deed of company arrangement will not necessarily be made simply because relevant material has been omitted from the report to creditors. In deciding whether to make such an order, the court should form a view as to whether, if the omitted information had been provided this might have had the effect of causing the creditors to vote differently: Deputy Commissioner of Taxation (Cth) v Comcorp Australia Ltd at [60] - [62] per Sundberg J.

1. The investigation is necessarily preliminary, being performed within the time constraints and other typical limitations, including funding: Mediterranean Olives Financial Pty Ltd and Others v Loaders Traders Pty Ltd at [212].
2. The intention of Part 5.3A of the Act is to provide a more expeditious and less expensive way of assisting creditors and members than under the greater formality of a winding up or of the entry into a scheme of arrangement. One result, however, is that an administrator, constrained as he or she is by the time limits imposed by this Part, cannot carry out a detailed investigation of a company in the same way as can a liquidator, and accordingly an administrator's actions must be looked at in the light of that more restricted range of activities which are available to him or her: Hagenvale Pty Ltd v Depela Pty Ltd (1995) 17 ACSR 139 at 145.
3. Failure of the administrator to carry out a sufficiently detailed investigation on matters which could easily affect the views of creditors leaves the deed vulnerable to challenge: Papua New Guinea Dockyard Ltd v Adams [2005] FCA 413; (2005) 215 ALR 742.
4. That said, even if a report to creditors is lacking in sufficient detail or lacks requisite information, the court must still exercise its discretion as to whether to terminate a DOCA under s 445D(1)(c): Deputy Commissioner of Taxation (Cth) v Pddam Pty Ltd (1996) 19 ACSR 498 at [54] - [57].

1. The court may terminate a deed of company arrangement if it is satisfied that the deed or a provision of it is, an act or omission done or made under the deed was, or an act or omission proposed is:

(a) oppressive or unfairly prejudicial to, or unfairly discriminatory against, one or more such creditors; or

(b) contrary to the interests of the creditors of the company as a whole.

1. Part 5.3A assumes that the creditors are best placed to judge their interests so a setting-aside will not be ordered lightly: University of Sydney v Australian Photonics Pty Ltd (2005) 53 ACSR 579 at [34].
2. The mere fact that a creditor is prejudiced by the operation of the deed is not a sufficient reason to terminate a deed; the mere existence of the deed procedure usually means that some creditors will gain something and some creditors will lose something out of the arrangement: Lam Soon Australia Pty Ltd (admin apptd) v Molit (No 55) Pty Ltd (1996) 70 FCR 34 at 48; Fleet Broadband at [57].
3. The fact that the deed discriminates between creditors will not of itself establish that it is unfairly discriminatory or prejudicial. The test under s 445D(1)(f)(i) is not merely discrimination or prejudice, but unfair discrimination or unfair prejudice. Some degree of discrimination is not necessarily unfair. Thus it is clear that a DOCA may provide for differential dividends among creditors. Part 5.3A does not require a pari passu distribution. What is required is a better return to creditors than an immediate winding up. That object is met if some creditors are better off than in a winding up and none are worse off under the DOCA than they would be under a winding up: Fleet Broadband at [62] and cases cited therein.
4. When deciding whether a deed unfairly prejudices or discriminates against a creditor or group of creditors, consideration must be given to what those purportedly prejudiced creditors would receive, or would be likely to receive, on a winding up, and the reasonableness of any conclusions reached by the administrator on that question: Lam Soon Australia Pty Ltd at 50; TNT Building Trades Pty Ltd at [43].

1. There will be circumstances when ordinary commercial commonsense will demand, in the case of priority creditors, a loss of priority and, in the case of unsecured creditors, some degree of discrimination: Commonwealth v Rocklea Spinning Mills Pty Ltd [2005] FCA 902; (2005) 145 FCR 220.
2. Where a deed proposes to preserve the company to achieve the objects of Part 5.3A of the Act there should be no expectation of equal treatment of unsecured creditors where such treatment would defeat that purpose: Commonwealth v Rocklea Spinning Mills Pty Ltd.
3. If there is no prima facie evidence of misfeasance, concealment or a materially inadequate preliminary examination; the DOCA offers both real financial benefits credibly estimated on preliminary investigation to exceed those available on liquidation and indirect or collateral benefits from the survival of the company's business; and no worthwhile avenues for further recovery in liquidation are identified, a major creditor's curiosity or preference for further exploration of speculative claims is unlikely to render termination of the DOCA in the interests of the creditors as a whole: Mediterranean Olives at [195].

1. When deciding what is oppressive or unfairly prejudicial under s 445D, one looks at the background of the general right of a creditor to be paid or to wind the company up, or to have the company administered by the administrator under the deed in a way which keeps the company's business going and will see the creditor paid something out of the property of the company. If a scheme in a deed deviates from that, then the creditor is more easily able to say that it is operating oppressively, than otherwise: Sydney Land Corp Pty Ltd v Kalon Pty Ltd [No 2] (1998) 26 ACSR 427 at 430.
2. It is for the court to decide whether, in balancing the interests of the creditors as a whole against minority creditor interests, the DOCA acts so as to unfairly prejudice the interests of the minority. The court decides this 'according to ordinary standards of reasonableness and fair dealing'. Whether the conduct is unfairly discriminatory will be judged on standards which reasonable commercial persons acting bona fide would think to be fair: Fleet Broadband at [61].

The resolution of the following 26 issues determines the outcomes in this litigation, as I explain.

Issue 1 - The alleged tripartite nonconversion agreement

407 On my analysis, there was no perfected or enforceable (partly written/partly oral) Tripartite NonConversion Agreement ever reached between Elementree, Mr Fakhre and Mr Hayes. This negative conclusion is clear, to my mind, as regards assessing a foundational telephone conversation between Mr Ian Stanley (a nonexecutive director of Elementree) and Mr Danny Fakhre in London on the evening (WST) of 23 February 2011 and my analysis of subsequent communications by email attempting on Mr Hayes' part (and presumably also for Elementree) to establish the acceptance of an offer made by Mr Fakhre in that telephone conversation with Mr Stanley to the effect that on receipt of $650,000, payable in June 2011 by Mr Hayes personally, Mr Fakhre would not exercise his rights to convert under the CLA. This is clear on my analysis first of the evidence of Mr Stanley: see his affidavit exhibit 100, particularly pars 14 and 18 19 concerning his conversation with Mr Fakhre on 23 February 2011. I then refer to the very limited evidence on this issue: see exhibit 5, pars 62 63 and page 190, which is Mr Hayes' email of 24 February 2011 at 11.17 pm. See then exhibit 5, page 191, Mr Wheatley's response of 25 February at 4.36 pm, which was a clear rejection of what Mr Hayes had purported to accept.

408 Next I refer to Mr Fakhre's affidavit, exhibit 41, pars 42 58, which evidence I accept.

409 Mr Hayes' further emails to Mr Wheatley (exhibit 20, page 1,014) sent at 6.17 pm on 25 February 2011 and a subsequent email the same day at 8.44 pm on 25 February 2011 (exhibit 20, page 1,016) do not on my analysis constitute a sufficient basis to contend for an enforceable Tripartite NonConversion Agreement.

410 I also find it curious as to why if there was to be such a proposal for nonconversion that Mr Hayes did not simply deal directly with Mr Fakhre. Instead he chose to work first through Mr Stanley, whose version of what was said in the 23 February 2011 telephone conversation Mr Hayes knew to be shaky (because he was told as much by Mr Stanley), then through email communications to Mr Fakhre's solicitor Mr Wheatley of Gadens.

411 There was no Tripartite NonConversion Agreement ever concluded in February 2011 or at all.

Issue 2 - Elementree's attempted repayment of $1.3 million plus interest

412 Correlatively, I assess Mr Hayes' efforts to have Elementree, through Bennett & Co, tender or attempt to tender a repayment of $1.3 million and interest of $65,184.11 through Gadens, were legitimately declined by Mr Fakhre. The funds tendered were then duly returned by Gadens to Elementree's solicitors.

413 There was not on my analysis an unconditional tendering of repayment to Mr Fakhre of his loans plus interest. Bennett & Co's letter of 30 March 2011 had attempted to tender those funds to Mr Fakhre's solicitors pursuant to the asserted Tripartite NonConversion Agreement, which I have concluded was never reached. That is clear from Bennett & Co's letter to Mr Wheatley of 14 March 2011 (exhibit 20, pages 1,105 1,107). See also Bennett & Co's subsequent letter of 30 March 2011 (exhibit 5, page 198).

414 The premise underlying the tendering of these moneys was that there was a binding Tripartite NonConversion Agreement. That premise was bad. Hence the tender was legitimately declined by Mr Fakhre through his solicitors, Gadens (exhibit 20, page 1150).

415 The alleged Tripartite NonConversion Agreement also was said to envisage Mr Hayes personally paying $650,000 to Mr Fakhre by 30 June 2011, in addition to Elementree's repayment of Mr Fakhre's loan of $1.3 million plus interest. However, Mr Hayes never did tender $650,000 to Mr Fakhre in June 2011 or at all. I also find that Mr Hayes never personally had $650,000 to render such a payment. Nor did he have access to such funds in order to render such a payment to Mr Fakhre any time between March and July 2011.

Issue 4 - Elementree's failure to issue and allot repayment shares

416 Correlatively to issues 1, 2 and 3, I conclude that Elementree's defence against Mr Fakhre's claim for specific performance in CIV 1664 of 2011, grounded upon a subsisting Tripartite NonConversion Agreement, was without merit.

417 Under the CLA, the conversion shares receivable by Mr Fakhre were referred to as the Repayment Shares. I find that Mr Hayes, as managing director of Elementree, caused Elementree to withhold the issue and allocation of the Repayment Shares to Mr Fakhre, in circumstances where they should have been issued and allocated and a share certificate to that effect provided to Mr Fakhre no later than two business days after 25 February 2011, when Mr Fakhre sent his Conversion Notice (CLA cl 8.2(a)(ii)).

418 Failure to issue and allot the Repayment Shares to Mr Fakhre was a breach pursuant to cl 10.1(a) of the CLA, and therefore constituted an Event of Default by reason of failure to observe a covenant, condition or obligation of the CLA, namely the covenant to issue and allocate the shares under cl 8.1(a) following Mr Fakhre's giving of a Conversion Notice on 25 February 2011 (Repayment Shares to be issued and allotted within two business days after the date of the Conversion Notice) and cl 8.2(a)(iii).

419 The CLA's definition of 'Event of Default' refers to cl 8. That is an error and should be corrected to be read as a reference to the Events of Default as specified in cl 10.1 of the CLA. This Event of Default continued throughout March 2011 and into mid April 2011. The default caused Mr Fakhre to commence by writ proceedings CIV 1664 of 2011 on 15 April 2011 in the Supreme Court of Western Australia. Those proceedings came to be case managed in my CMC list. In those proceedings Mr Fakhre sought specific performance of Elementree's obligation to issue and allocate the Repayment Shares to him. But he was resisted by Elementree, under the hand of Mr Hayes, in achieving his objective of converting his loan to equity.

420 Quite wrongly in my view, Mr Hayes caused Elementree to have its solicitors resist Mr Fakhre's claim for specific performance on the meritless basis of the alleged Tripartite NonConversion Agreement.

421 By mid June 2011, Mr Fakhre's Repayment Shares still had not been issued or allocated. Now, however, Mr Hayes through Elementree's solicitors was seeking to have Elementree pull back from the defence of those proceedings and essentially issue shares or some shares at least on terms to Mr Fakhre (exhibit 5, pages 228 229). Part of the compromise terms proposed by Mr Fakhre's Perth solicitors at this time would have seen Mr Fakhre receive his Repayment Shares, and advance about $1.6 million to Elementree, by reference to the alleged Matching Funds Agreement and Tree Agreement, which Mr Fakhre proposed to abide by.

422 Mr Fakhre's offer to settle the litigation on that basis was extended duration the negotiations of June, but finally lapsed at 4.00 pm on Tuesday 29 June 2011 without any acceptance by Elementree or its solicitors. From that point the settlement proposal for CIV 1664 of 2011 was never extended or renewed by Mr Fakhre. It was therefore incapable of ever being accepted at a later time.

Issue 6 - Elementree's purported acceptance of Mr Fakhre's lapsed offer of settlement

423 An issue arises as to whether Mr Fakhre ever did receive the issue and allocation of his Repayment Shares either as of Thursday 7 July 2011 or on Monday 11 July 2011. I find that he did not.

424 At 5.02 pm on Monday 11 July 2011, Bennett & Co sent an email to Gadens as part of an unsuccessful request to revive Mr Fakhre's thenlapsed settlement proposal and to accept Mr Fakhre's former terms with some qualifications as to contemporaneous implementation or the like by Elementree and Mr Hayes.

425 These matters are dealt with in Mr James Scovell's two affidavits, exhibits 39 and 40. His two affidavits went into evidence without challenge, so Mr Scovell was not needed for crossexamination. This evidence is wholly reliable. The materials from Bennett & Co on Monday 11 July 2011 were sent on the basis they be 'held in escrow pending confirmation from you that settlement is effected on the terms otherwise indicated'.

426 Included were two written resolutions purportedly by Elementree's board of directors. The first was a written resolution of directors reappointing Messrs Stanley and Hunt to the board of Elementree and dated 4 July 2011. Mr Hunt was also appointed Elementree's chairman. The resolutions of 4 July 2011 were expressed to be 'with immediate effect'. I find that that reappointment resolution was valid. (See Elementree's constitution, found at page 405 and following of exhibit 20.) I refer to cl 13.3 of the constitution as to the appointment of additional directors and cl 15.9 as to the appointment of a chairman.

427 I find that Messrs Stanley and Hunt were reappointed to Elementree's board as from Monday, 4 July 2011, even though they were not formally notified of their reappointments by Mr Hayes or Ms Logan, Elementree's company secretary. Both Mr Hunt and Mr Stanley had given their signed consents when earlier requested to be reappointed to Elementree's board. The administrators' RTC of 10 October 2011 recognises that as at the time the administrators were appointed by Mr Fakhre to Elementree on 12 July 2011, Elementree then had five board members, namely Mr Courtney Hayes (managing director), Mr Lynton Hayes and Mrs Shannon Hayes (nonexecutive directors) and also Mr Hunt and Mr Stanley. I find that the RTC was correct in this respect.

428 However, the Bennett & Co communication of Monday 11 July 2011 to Gadens also contained a second written resolution of directors, dated Thursday 7 July 2011, and bearing the signatures of only three directors, namely Mr Courtney Hayes and his parents (exhibit 39, page 19). This socalled 'circular resolution' purportedly resolves on behalf of Elementree to accept Mr Fakhre's 'offer' of 28 June 2011. This written resolution clearly begins upon the basis of a false premise that Mr Fakhre's offer was still open for acceptance and so, on that respect, the resolution is misconceived.

429 The operative resolution in this written resolution is signed by only three of Elementree's then five directors. Indeed, I find that Mr Hunt and Mr Stanley were not even told of this written resolution, let alone asked to sign it. It purports to allot 62,628,470 fully paid ordinary shares upon conversion of the $1.3 million loan from Mr Fakhre, 'in accordance with the terms of the Agreements'.

430 The letter from Bennett & Co of 11 July 2011 also had attached to it a copy of a share certificate, also purportedly issued 7 July 2011 and signed by Mr Lynton Hayes and Mrs Shannon Hayes, as to the issue on 7 July 2011 of 62,628,470 shares to Mr Fakhre.

431 Notwithstanding that these documents bear the date of '7 July 2011', the fact is that they only surfaced and were dispatched as PDF email copies to Gadens by Bennett & Co's emailed letter of 5.02 pm on Monday, 11 July 2011. Pursuant to the terms of that letter they were provided to Gadens as copies, to be 'held in escrow'.

432 I conclude that there was no unequivocal issue or allocation of these shares at any time to Mr Fakhre on Thursday 7 July 2011, Monday 11 July 2011, or thereafter. In the context of an attempt on Monday 11 July 2011 to revive a lapsed settlement offer, the issue and allocation of the shares to Mr Fakhre was not unconditional. The 'circular resolution' of directors of 7 July 2011 only contained, at best, the signatures of the three members of the Hayes family who were directors of Elementree. Thus it was not a valid resolution in accordance with cl 15.11, the written resolution provision, of Elementree's constitution. The resolution required the signature of all five of Elementree's then directors. Mr Hunt and Mr Stanley had not even been asked to sign the written resolution.

433 Accordingly there was no valid issue or allotment of the Repayment Shares to Mr Fakhre on 7 July 2011, 11 July 2011, or thereafter.

Issue 7 - Mr Hayes' application to the court to validate the written resolution of 7 July 2011

434 I was asked by the plaintiff, in the event that the written resolution of 7 July 2011 was not valid, as I conclude, to exercise the court's power to excuse an irregularity and validate the written resolution pursuant to s 1322(4) of the Act. Assuming, without deciding, that the court has power to excuse such an irregularity, it would only do so in circumstances where there is no prejudice or injustice arising.

435 I will also assume that it is permissible to consider such an application at the instigation of Mr Hayes and not at the instigation of Elementree.

436 However, even assuming I do have power to validate the written resolution of 7 July 2011, I would not exercise that power to validate the resolution in the present circumstances. It seems to me that to do so would be most unjust given that Mr Hunt and Mr Stanley were not told of nor asked to sign the resolution, which did not emerge until Monday 11 July 2011 at 5.02 pm. Furthermore, in the period between 4 July 2011 to 11 July 2011 there was a strange, unexplained lack of communication from Mr Hayes, who was, at that time, still the managing director of Elementree, and from Elementree's then solicitors, Bennett & Co, to Mr Fakhre or his Perth solicitors, Gadens.

437 It was never explained why Mr Hayes, Elementree's managing director, absented himself from Perth and retreated to Merredin as from about 23 June 2011. It seems to have been a part of some shady tactic of 'going to ground' to apply pressure to Mr Fakhre. It was a rather bizarre tactic which did not work. I do not think noncommunication tactics of this kind should be rewarded, after the event, by an exercise of the court's power under s 1322(4).

438 Accordingly, I conclude that Elementree's failure to issue and allocate Mr Fakhre's Repayment Shares within two business days of 25 February 2011, when Mr Fakhre issued the Conversion Notice, was one Event of Default pursuant to:

(b) cl 14(a) of the default clauses in Mr Fakhre's two charges.

439 There was a second Event of Default, in my assessment, pursuant to both the CLA (as varied) and Mr Fakhre's two charges, by reason of the clear insolvency of Elementree as at 30 June 2011 and at 12 July 2011. As to insolvency being an Event of Default, see CLA cl 10.1(b)(xiii) (referring to s 460(2) of the Act) and, as well, in the two charges, cl 14(d)(xi) (referring to s 95A(2) of the Act).

440 The evidence that Elementree was insolvent on 30 June 2011 and up to 12 July 2011 is, in my view, overwhelming. I refer to the following:

(a) The cash flow position of Elementree was always tight. It needed to raise money for all its tree plantings. It had to borrow money for its 2010 first planting of trees $600,000 was via Mr Fakhre's loan pursuant to the CLA. See CLA cl 4(a) (exhibit 20, page 71).

For the 2011 planting there were no available funds, so approximately $1.1 million needed to be raised to plant about 1,000 hectares of trees. A deposit of about $100,000 was required after Mr Hayes placed an order with local nurseries immediately following his trip to London to meet Mr Fakhre in early November 2010. But Elementree had no funds to pay that deposit. Things then became quite desperate until Mr Fakhre advanced $100,000 to Elementree on 9 December 2010. In due course, the $100,000 advance was documented under a deed of variation of 29 December 2010, as a loan of a further $100,000 to Elementree under the same terms as the original CLA. The conversion amount under the original CLA was then varied from 51% of Elementree's shares to 53.01% of Elementree's shares for Mr Fakhre and a second charge was granted as well to Mr Fakhre on 29 December 2010.

(b) In the last week or so prior to the appointment of the administrators on 12 July 2011, there was an invoice for $32,574.90 due from Elementree to a nursery. The invoice urgently needed to be paid for the 2011 planting to be completed. But Elementree had no funds to pay it. It was ultimately paid by Mr Fakhre out of funds he had placed with his Perth solicitors, Gadens (exhibit 42, par 5). However, that was the limit of the funds Mr Fakhre was prepared to advance to Elementree at that time, namely on 5 July 2011. The need for Mr Fakhre to make that payment for Elementree is an indication of Elementree's lack of funds to meet its debts at this time.

(c) The last monthly rental payment for Elementree's business premises had to be paid by Mrs Shannon Hayes through Forrestdale. It is clear, however, that this largesse from Mr Hayes' parents' company could not go on indefinitely.

(d) According to par 1.4 of the RTC, Elementree had debts to trade creditors of $312,423 plus debts to its employees of $196,011, which debts were unmet at the time of the RTC. This is an indication of the lack of available funds between 30 June 2011 and 12 July 2011.

(e) A payroll for Elementree's employees was falling due for payment around 12 July 2011 (exhibit 107, page 28; exhibit 102, par 28(b) and page 60). But there were no sources of funds in Elementree to meet these payments. The company was also overdrawn at this time on its accounts, another indication of insolvency.

(f) As at 12 July 2011, Mr Hayes was still Elementree's managing director, but he had deliberately absented himself from Elementree's head office, clearing out his desk, deleting his emails and heading off to one of Elementree's rural planting locations about 100 km north of Merredin. He did that on or around 23 June 2011. Mr Hayes headed for the country at a critical time for his company and took with him the company's invoices from creditors. Those employees who remained in Perth, such as Mr Walter and Mr Duncanson, did not then have clear knowledge as to the company's position in terms of its overall debt exposure.

(g) Mr Hayes in this period from 23 June 11 July 2011 seems to have been pursuing some sort of 'small target' incommunicado strategy by lying low in the country. But he had been in contact with a family friend, Mr Hughes of Pitcher Partners, and there had been discussions about an administration from the Hayes family in that quarter which had come to nothing. It is clear that Elementree was floundering at this time through a lack of leadership, with Mr Hayes absent from Perth and only stirring occasionally by email.

(h) Factored into the insolvency scenario must be the demands for repayment of the loans by Forrestdale and Marlingu issued at Mr Hayes' instigation in June 2011. This was another strange backburning tactic by Mr Hayes. There were weak attempts at trial to rationalise these demands for immediate repayment to Elementree as not really seriously intended and rather being more of a scare tactic or 'ploy' to ward off Mr Fakhre. I will not accept that excuse. It is not possible to approbate and reprobate on such demands to Elementree for repayment of about $600,000. The demands to Elementree for repayment were sent in respect of loans from Forrestdale and Marlingu which were short term and repayable on demand. The demands were lawful and effective and they were not withdrawn. This gave rise to a liability in Elementree to repay approximately $600,000, which Elementree clearly could not repay. This contributes to the assessment of insolvency.

(i) I should also say in assessing insolvency that the position as regards Mr Fakhre's secured loan of $1.3 million plus interest possibly having been converted to equity in Elementree and so not repayable as a debt, makes no difference at all to the insolvency analysis at this period. This is because Mr Fakhre's $1.3 million loan had already been fully consumed. Elementree was still desperate for further funds to finish the 2011 tree planting. Taking $1.3 million plus interest out of the equation at the end of June 2011 and reclassifying it as equity does not sufficiently assist Elementree's cash position or the analysis required in terms of whether Elementree was able to meet its debts out of its funds as its debts fell due. In my assessment Elementree could not meet its debts during this period.

(j) Finally, there are the views expressed by the administrators in the RTC as to Elementree's insolvency. Messrs Doran and McVeigh are registered liquidators and insolvency specialists. Their opinions as to an insolvency, in circumstances where there is, as has now been seen, a great deal of underlying material to support their views, is influential. Were there any doubts on the issue (and there are not), the administrators' opinions as to insolvency as expressed in the RTC would carry the day.

441 Accordingly, I find that Elementree was insolvent as at 30 June 2011 and at all times up to and including 12 July 2011.

442 Insolvency provides the existence of a second clear Event of Default for the purposes of the CLA (as varied) and, as well, under Mr Fakhre's two charges as at 12 July 2011.

Issue 10 - Events of default subsisting at 12 July 2011

443 Accordingly, as at 12 July 2011 there were at least two clear Events of Default subsisting under the CLA and Mr Fakhre's two charges, namely:

(a) breach of the performance covenant of the CLA by reason of Elementree's failure to issue and allot to Mr Fakhre his Repayment Shares; and

Issue 11 - Mr Fakhre's written notices to Elementree on 12 July 2011

444 On 12 July 2011 I find that Mr Fakhre caused two crucial written notifications to be given to Elementree based upon these two (and some further asserted) Events of Default by Elementree. The two notices were:

(a) a notice of exercise by Mr Fakhre of his option to enforce his two charges, pursuant to cl 15(b) of each charge; and

(b) a notice of the appointment to Elementree of the first and second defendants as administrators, pursuant to s 436C of the Act and the two charges.

The two written notifications to Elementree both of 12 July 2011 were given in that sequence.

Issue 12 - The basis of Mr Fakhre's election to enforce his charges

445 The two 12 July 2011 written notifications by Mr Fakhre relied upon the two clear Events of Default, namely Elementree's insolvency and its failure to issue and allot the Repayment Shares. They provided a proper and sufficient basis on 12 July 2011 for Mr Fakhre to invoke cl 15(b) and give Elementree notice of the exercise of his option to enforce his two charges. But the notice of enforcement of the charges also relied upon a third alleged Event of Default in respect of an alleged failure to repay the Moneys Hereby Secured pursuant to the CLA and the charges. That ground would, if shown, be a further Event of Default. But its invalidity or nonsubsistence at that time would not affect Mr Fakhre's election to enforce the charges, given by reference to the two established Events of Default.

Issue 13 - Elementree's failure to repay the Moneys Hereby Secured as an Event of Default

446 Whether Mr Fakhre's loan of $1.3 million plus interest (the Moneys Hereby Secured) was due, owing and unpaid, with its nonpayment therefore constituting an Event of Default under the CLA, at the time Mr Fakhre issued notice of his election to enforce his charges, is a different issue. I am not the only person to identify the problems. Mr Doran's legal advisor clearly did (exhibit 34; exhibit 37). I would not reach that conclusion as to the working of the CLA. It seems to me to be inconsistent with Mr Fakhre contemporaneously giving notice that there is an Event of Default by reason of Elementree's failure to issue and allot to Mr Fakhre his Repayment Shares.

Issue 14 - Validity of the exercise of Mr Fakhre's option to enforce his charges

447 Nevertheless, the two clear Events of Default (insolvency and failure to issue and allot the Repayment Shares to Mr Fakhre) in existence as at 12 July 2011 provide in their own right a proper and sufficient basis to sustain Mr Fakhre's exercise of his option to enforce his two charges on 12 July 2011.

Issue 15 - The operation of cl 15(a) of the charges

448 The legal consequence on Tuesday 12 July 2011 of Mr Fakhre's two charges becoming enforceable by reason, first, of two proven Events of Default, then, second, Mr Fakhre's notice of his exercising his option to enforce his charges, is that cl 15(a) in each charge was clearly engaged and that clause became effective, if it was not already. The words of cl 15(a) in each charge must be given operative meaning and effect in a process of construing and sensibly reading the terms of the two charges in operation alongside the CLA (as varied). The CLA is the Primary Instrument and the two charges are collateral thereto. But there are crossdefault provisions as regards common Events of Default as specified in substantially equivalent terms.

449 The wording of cl 10.3(a) and (b) of the CLA requires a demand to be made in respect of a subsisting Event of Default in order to render the Moneys Hereby Secured due and owing under the CLA. But in the two charges, cl 15(a) does not specify the need for a demand or notice concerning an Event of Default in order to render the Moneys Hereby Secured immediately due and owing. There is thus some tension as to the need for a demand between the CLA as varied and the two charges at least, I think, in any period within which the charges have not become enforceable.

450 But on my analysis, once both Mr Fakhre's charges became enforceable after he exercised his option to enforce on 12 July 2011, the position as to the Moneys Hereby Secured being immediately due and repayable by Elementree under the charges was now clear.

451 Consequently, by reason of the operation of cl 15(a) of both charges, Mr Fakhre's exercise of his option to enforce his charges by reference to cl 15(b) rendered the Moneys Hereby Secured due and owing without the need for any demand. As a result on 12 July 2011 the Moneys Hereby Secured were immediately due and repayable.

Issue 16 - The validity of Mr Fakhre's appointment of administrators of Elementree

452 Consequently, the appointment by Mr Fakhre of the first and second defendant on Tuesday 12 July 2011 under his notice of appointment of administrators was valid and efficacious. I would be amenable to declare to that effect pursuant to s 447C of the Act, as I am requested to do by the first and second defendants.

453 I also find that, by reason of cl 15(a) in each enforceable charge of Mr Fakhre being operative when Mr Fakhre appointed the administrators on 12 July 2011, the Moneys Hereby Secured (as defined in the CLA and in the charges and representing $1.3 million plus interest) became immediately due and repayable that day. Hence Mr Fakhre was from that point on 12 July 2011 a creditor of Elementree for $1.3 million plus interest.

Issue 18 - The effect of Mr Fakhre's election to claim repayment of loan funds

454 Mr Fakhre, by asserting on 12 July 2011 a claim for the repayment of his loan funds as debts immediately repayable pursuant to the terms of his two charges, elected as between inconsistent rights (ie debt or equity in Elementree). This was a permissible course pursuant to the terms of cl 15(a) his charges. Mr Fakhre, from 12 July 2011, was now seeking to be repaid his loan in full plus interest. The corollary is that Mr Fakhre, as from that point, could no longer also contend at the same time that he was entitled to the issue and allotment of Repayment Shares under the CLA as varied. Thus, on 12 July 2011, his pending action against Elementree for specific performance would have had to be amended to reflect his change of position if the action was to be pursued. That course would have been permissible.

455 However, on 12 July 2011, CIV 1664 of 2011 became the subject of a statutory stay of proceedings pursuant to s 440D of the Act, on 12 July 2011.

456 Mr Fakhre, on 12 July 2011, was now a creditor of Elementree and still secured by his two charges.

Issue 19 - Accuracy of the statements regarding Mr Fakhre in the administrators' Report to Creditors

457 My conclusion that Mr Fakhre was a creditor of Elementree on 12 July 2011 and thereafter, resolves a major point of controversy in this action. The consequence of this conclusion is that there was, under s 445D(1) of the Act, no material omission or misstatement on this creditor issue within the RTC that could have potentially been material to the vote taken at the second creditors' meeting, at which Mr Fakhre's proposed DOCA was approved.

Issue 20 - Reliability of Mr Hayes' evidence in relation to verbal agreements allegedly reached on 5 November 2010

458 As to Mr Hayes' further arguments invoking s 445D(1), by contending that Mr Fakhre was effectively a net debtor of Elementree because of two verbal agreements reached at the Pelham Hotel in London on 5 November 2010 (the alleged Matching Funds Agreement and Tree Agreement) and that as a result there were material errors in the RTC about those agreements, such questions raise mixed questions of fact and law to be assessed. To the extent that facts are in dispute and I need to assess the reliability of Mr Hayes' evidence I reiterate that I did not find his evidence reliable. Accordingly, I do not accept it save where it is uncontentious, or where it is corroborated by an independent, reliable source.

459 As to the alleged Matching Funds Agreement, it is clear that if any such agreement was reached, it was contingent, at that time, upon Mr Fakhre making an affirmative decision by the end of December 2010 to convert his $1.2 million in loans to equity. Any commitment to 'match' other shareholders, by Mr Fakhre buying shares in Elementree, from a commercial prospective, must have been dependent upon Mr Fakhre, first, deciding to exercise his right to convert and, second, actually converting and receiving his Repayment Shares. The underlying commercial rationale for Mr Fakhre 'matching' the subscriptions of other Elementree shareholders would clearly be so that Mr Fakhre's 51% majority shareholding in Elementree, if he converted, would not become diluted by the late 2010/early 2011 capital raising, thereby potentially seeing Mr Fakhre lose his position as majority shareholder.

460 However, as things turned out, Mr Fakhre was not able to convert, in the sense of receiving his Repayment Shares in Elementree. Even though he unequivocally communicated on 25 February 2011 his decision to convert and gave his Conversion Notice in accordance with cl 8.1 of the CLA, Mr Fakhre was quite wrongly denied his Repayment Shares by Elementree for a period of over four months. That breach of the CLA was a renunciation and clear repudiation of Elementree's obligations under the CLA which continued for over four months.

461 Full responsibility for Elementree's unfathomably stupid decision not to provide Mr Fakhre with the Repayment Shares, on the basis of the socalled Tripartite NonConversion Agreement, must be laid squarely at the door of Elementree's managing director. Notwithstanding the clear terms of the CLA, from February 2011 to July 2011 Mr Hayes pursued his own agenda and resisted conversion. That change of course arose after Mr Hayes' falling out with Mr Fakhre, following Mr Fakhre's frank criticisms of Mr Hayes in his email to Mr Hunt of 4 February 2011.

462 Hence, even if there was a binding legal commitment by Mr Fakhre to match the funds raised during Elementree's capital raising from its existing shareholders in December 2010/January 2011, Mr Fakhre's commitment never became operative. This was because Mr Fakhre was never able to convert, and never received his Repayment Shares. To expect him to match funds in circumstances where Elementree had breached and repudiated its obligations to him under the CLA would be naïve.

463 Furthermore, I doubt whether, from a legal perspective, there can be identified sufficient legal consideration passing from Elementree to Mr Fakhre, Elementree being the promisee, to support an enforceable Matching Funds Agreement. I have no doubt Mr Fakhre would have honoured a commitment to advance up to $500,000 in subscription funds so as to receive further Elementree shares, had he received his Repayment Shares. But on my analysis, Mr Fakhre was receiving nothing at all from Elementree in return for his commitment to match funds. In other words, nothing moved back to Mr Fakhre from Elementree as a legal consideration in return for Mr Fakhre matching the subscription funds put up by other shareholders and buying more shares. Receiving more Elementree shares which he would pay for would not amount, in my view, to legal consideration passing from Elementree to Mr Fakhre. The socalled Matching Funds Agreement is not made out.

464 As to the socalled Tree Agreement, which is also said to have been reached with Mr Fakhre in the lobby of the Pelham Hotel on 5 November 2010, the seedlings for a 1,000 ha 2011 planting had been ordered from Western Australian nurseries by Mr Hayes shortly after that London meeting. It is clear as I have already said that at that time Elementree did not have sufficient money to fund a further tree planting for 2011. It was looking to Mr Fakhre to provide all those funds, including deposit funds of approximately $100,000. Unlike the Matching Funds Agreement, I find that the Tree Agreement could potentially validly subsist in circumstances where Mr Fakhre chose not to convert.

465 As to the alleged Tree Agreement there are at least three fundamental obstacles to finding a binding and enforceable agreement, namely:

(a) Discussions surrounding the 2011 tree planting proposal with Mr Fakhre in London at the Pelham Hotel and by email thereafter were always conducted on the basis that the arrangement might involve an investor other than Mr Fakhre participating. Because of a proposal to attract an investor, the working capital requirements for Elementree for the 2011 calendar year and this planting needed to be secured. The route by which security for Elementree's working capital requirements for 2011 was proposed to arrive was via the capital raising from existing shareholders in Elementree, planned for December 2010/January 2011. However, that capital raising was never finalised or completed at any point.

Accordingly, the working capital requirements of Elementree were not secured for 2011. The 2010/2011 capital raising proposal by Elementree to its shareholders was conditional upon and tied to the Matching Funds Agreement with the UK investor (Mr Fakhre). Because (as I have now explained) the asserted Matching Funds Agreement must fall over, due essentially to Elementree's failure to issue and allocate to Mr Fakhre his 53% Repayment Shares pursuant to the CLA as varied, the 2010/2011 capital raising was never completed. As a consequence, Elementree's working capital position was not secured for 2011. In consequence, any asserted 2011 Tree Agreement, upon that underlying secured capital premise, falls as well by reason of the failure of that condition.

(b) From the evidence and passing communications I find that the 2011 tree proposal was always dependent upon it being documented within a Forestry Services Agreement as required by Mr Fakhre. This was a requirement Mr Fakhre clearly discussed in London, then repeated subsequently by email. It was a requirement that was accepted by Mr Hayes. But it was not fulfilled. Failure to follow through on this documentation condition was again a failure of Mr Hayes. It was a point of detail he let slip after the meeting in London. A FSA for the 2011 tree planting would have clarified the terms, arrangements and basis upon which an investor who may have been introduced by Mr Fakhre would advance funds. A FSA would provide the investor some security as to its position with the planted trees under the arrangement.

The absence of a completed Forestry Services Agreement is a second fatal deficiency in the plaintiff's argument that the alleged Tree Agreement existed and was binding on Mr Fakhre.

(c) Failure to document the 2011 proposed tree planting arrangements with Mr Fakhre throws up another flaw. The evidence from the parties concerned (Mr Fakhre, Mr Hunt and Mr Hayes) shows they disagreed over a fundamental term of their proposed deal, concerning each party's return once the trees were sold off (anticipated to be at profit in a period of about 12 months). Mr Fakhre was of the view that if he or another investor was to advance about $1.1 million to fund the 2011 tree planting, he expected a return on investment of 40% (40% ROI), come what may. Hopefully any ROI would have been paid out of profits after the 2011 nurtured trees had been sold off as more mature seedlings. But Mr Fakhre sought for himself or for his investor a 40% ROI on the funds advanced, irrespective of whether or not the sale of the trees was ultimately profitable. According to Mr Fakhre, if there was profit then, after a 40% ROI, any residual profit would be split 50/50 between Elementree and Mr Fakhre or the investor. However, that was not Mr Hayes' view of the arrangements. From his perspective, the verbal 2011 tree planting deal was that Mr Fakhre, or the investor he introduced, would receive 40% of the profits once the 2011 trees were resold, with the remaining profit split between Mr Fakhre and Elementree. That, of course, is a far cry from a guaranteed 40% ROI.

466 The parties' disagreement over such a fundamental point concerning either a 40% ROI or a 40% cut of profits demonstrates that any agreement of this ilk that the parties may have thought had been consummated in November 2010 or thereafter was far too uncertain to be enforcable at law. The fundamental issue of disagreement over a profit split or a guaranteed ROI shows that the parties were quite wrong if they believed (and the legal test, of course, is not subjective, but objective) that they had reached a legally enforceable agreement. As to the authorities concerning uncertainty see Austman Pty Ltd v Mount Gibson Mining Ltd [2012] WASC 202 [329] [335], where I discussed the authorities including a recent decision in the Court of Appeal of Western Australia in Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191 and the observations of Gleeson CJ in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548.

467 I conclude that there was no binding or enforceable Tree Agreement.

Issue 23 - Accuracy of the administrators' Report to Creditors in relation to the Matching Funds Agreement and the Tree Agreement

468 By reason of the negative conclusions concerning the existence and enforceability of the alleged Matching Funds Agreement and alleged Tree Agreement between Elementree and Mr Fakhre, I correlatively conclude that there was no material omission or misstatement in the RTC in those respects.

469 Accordingly, that further aspect of the plaintiff's s 445D(1) case must also fail.

470 As to Mr Hayes' challenge concerning alleged oppressiveness, unfair prejudice or unfair discrimination by the DOCA as between creditors under s 445D(1), I must say at the outset that irrespective of all else, I would have been most concerned about the position of one socalled shareholder creditor, Mr Cuthill, who advanced $50,000 in subscription funds for further shares in Elementree pursuant to the December 2010/January 2011 capital raising proposals. This is a concern I raised in the trial. It had not been raised by the plaintiff.

471 Unlike the Hayes family (through their family company, Forrestdale) and its rather loose family support to Elementree for a subscription for shares commitment of $500,000 and a similarly loose subscription commitment by Mr Hayes' close friend Mr Kerkmans (through his corporation Marlingu), I find Mr Cuthill had never agreed with Mr Hayes or anyone else at Elementree to permit his $50,000 subscription funds to be used as unsecured loans to Elementree. Nevertheless, that is exactly what happened. What occurred was completely wrong and unacceptable. Mr Cuthill's subscription funds clearly should have been held in escrow pending the issue to him of shares, or their return upon a failure or cancellation of Elementree's 2010/2011 capital raising proposal. Instead, Elementree, under Mr Hayes' guiding hand, used Mr Cuthill's subscription funds to ameliorate its strained financial circumstances. Worse, Mr Hayes knew he was doing the wrong thing by causing Mr Cuthill's funds to be consumed by Elementree. He had been advised that subscription funds should have been kept in escrow. Nevertheless, Mr Hayes knowingly acted to the contrary (exhibit 20, page 871). In the cases of subscription funds promised by his parents' company and by Mr Kerkmans' company, there was permission given for the funds to be used as short term loans to Elementree. But that was never the case with Mr Cuthill's funds. Accordingly, Mr Cuthill has essentially been a victim of a defalcation. It is deeply concerning that Australia's reputation for corporate probity and secure dealing and investment might be damaged by misconduct as regards a UK investor.

472 Pursuant to the DOCA, Mr Cuthill is classed as a shareholder creditor. Under the DOCA, shareholder creditors receive only $10 between them. Effectively, then, Mr Cuthill loses his $50,000 investment, in circumstances where the Elementree 2010/2011 share issue was never implemented. This is unsatisfactory. However, my concerns about this outcome, which would otherwise have been produced on the implementation of the DOCA, have been assuaged by an undertaking offered by the third defendant to repay Mr Cuthill his funds in full. On the basis of my acceptance of that undertaking I can proceed to evaluate the balance of the plaintiff's challenges concerning the treatment of the other shareholder creditors. I reach that view irrespective of me noticing that Mr Cuthill had given his proxy to Mr Doran for the 18 October 2011 creditors meeting, thereby supporting Mr Fakhre's proposed DOCA. He is nevertheless entitled to have his own interests considered at this time.

Issue 25 - Discrimination between creditors under the DOCA

473 As to assertions of oppressiveness, unfair prejudice or unfair discrimination concerning other shareholder creditors (essentially Mr Hayes' parents through their corporation, Forrestdale, and Mr Kerkmans through his corporation, Marlingu) as to the amount of approximately $600,000, I do not consider it appropriate to interfere with the DOCA as it was accepted by Elementree's creditors on 18 October 2011.

474 I accept that there is a demonstrated commercial rationale to support an evident discrimination as between creditors in the DOCA, comparing Elementree's trade creditors and employees (who are paid out 100 cents in the dollar under the DOCA) and the shareholder creditors. The discriminatory rationale centres around an obvious need to continue Elementree's business and reputation and to maintain the commercial goodwill and trust of trade creditors of Elementree in the future conduct of its tree planting and nurturing businesses in rural Western Australia. Clearly that same business goodwill/trading reputation rationale does not apply as regards shareholder creditors. These parties were effectively supportive prospective subscribing shareholders loosely indicating an amenability to take up shares under the capital raising proposal of December 2010/January 2011; in the end, however, they agreed for their funds to be used as short term loans.

475 It is a fact that on 18 October 2011 at the second creditors' meeting Mr Kerkmans voted on behalf of Marlingu to accept the proposed DOCA (exhibit 21, page 31). He did so even though it meant Marlingu, as a shareholder creditor, would effectively receive nothing under the DOCA's implementation. Mr Kerkmans supports the continuance of the Elementree business as a good thing for rural Western Australia. In those circumstances I do not find oppression or unfair prejudice or unfair discrimination concerning Mr Kerkmans' and Marlingu's loans in their position as a shareholder creditors under the DOCA.

476 That effectively leaves the position of Mr Hayes' parents, Mr Lynton Hayes and Mrs Shannon Hayes through Forrestdale, and the approximate $500,000 they advanced to Elementree to assist Elementree and their son throughout 2011. I feel great sympathy concerning the financial position to which Mr Hayes' parents and Forrestdale have been left exposed by the DOCA, receiving virtually nothing. But my conclusion is, in the end, that they and Mr Kerkmans would have been no better off as creditors of Elementree under a pari passu scenario in which a liquidator had been appointed to Elementree by creditors for winding up.

477 Once I factor in Mr Fakhre's position as a secured creditor (concerning his loans of $1.3 million plus interest) as at 12 July 2011, the unenforceability of the asserted Matching Funds Agreement and Tree Agreement, and the most unfortunate situation concerning Elementree's plantings in 2010 on certain Bacopak lands, the problems involved in a pari passu distribution to creditors become obvious.

478 The Bacopak land's questionable value as an Elementree asset arises by reason of a failure to obtain consent to the planting from the land's first mortgagee, the ANZ Bank. That was poor business practice by Elementree's management and this area of planting has been left in jeopardy as an asset.

479 The end conclusion is that the shareholder creditors would have been no better off by a likely nil return on liquidation scenario rather than under the DOCA, pursuant to which they will still effectively receive nothing.

480 Furthermore, it is clear by reference to decided case authority in this court that the mere fact that a DOCA discriminates between creditors does not make it oppressive or unfairly discriminatory or unfairly prejudicial. Provided there is a legitimate business rationale for discrimination between classes of creditor there will be no basis to impugn such arrangements. See the decision of Master Newnes (as he then was) in Fleet Broadband Holdings Pty Ltd v Paradox Digital Pty Ltd (subject to a deed of company arrangement) [2005] WASC 291; (2005) 228 ALR 598 [57] and [62], and the application of those observations more recently by Martin CJ in Weaver v Noble Resources Ltd [2010] WASC 182; (2010) 41 WAR 301 [76] and [79].

481 Accordingly, my conclusion is that the DOCA does not (upon receipt of the undertaking of Mr Fakhre as to a repayment of $50,000 in subscription funds to Mr Cuthill), operate oppressively or in an unfairly discriminatory or unfairly prejudicial way as against shareholder creditors.

482 On that basis, all the plaintiff's s 445D(1) challenges against the DOCA, seeking to have it terminated, fail.

Issue 26 - The court's discretion under s 445D and s 447A

483 Strictly speaking, then, it is unnecessary for me to consider the lengthy arguments put to me about the court's discretion under s 445D, had I ascertained a transgression of those provisions or the even wider discretion as to a potential rehabilitation of a transgression by reason of powers pursuant to s 447A of the Act.

484 Nevertheless, I render some brief observations as to some matters bearing upon discretion. Where an administrator such as Mr Doran is injected into a situation with a failed corporate business and then tries urgently to understand and to untangle what is inevitably a messy situation, a good measure of tolerance for error will generally be extended by a court towards the quick commercial decision making required in that situation. It is sometimes tempting to secondguess such decisions with the benefit of hindsight. That temptation should be resisted. I would have been prepared in the exercise of my discretion to overlook and excuse any ascertained errors made concerning the legal enforceability of alleged oral agreements as asserted with Mr Fakhre such as the Matching Funds Agreement or the Tree Agreement, had I reached contrary conclusions. Of course, I did not, but it is easy to see how errors of judgment might be made by an administrator quickly trying to verify the existence of an allegedly enforceable oral agreement where the documentation is deficient, unsatisfactory or nonexistent. But there were in the end no errors concerning those asserted oral agreements and Mr Fakhre's asserted status as a net debtor.

485 As to the issue of the $1.3 million loan plus interest and Mr Fakhre's status as a creditor as at 12 July 2011, my decision in the end has been that the first and second defendants have proceeded correctly, on what I assess to be a difficult legal issue. Had I reached a different conclusion as to that issue then its repercussions would in my view have been profound for the RTC and the DOCA advanced by Mr Fakhre. Given that the inconsistency between being both a creditor and a putative shareholder by conversion was clearly seen and apprehended by the advisors providing legal advice to Mr Doran throughout July 2011, I would have struggled, particularly given the brief and essentially unreasoned legal advice seen in exhibit 37, to excuse error on this issue in the exercise of a discretion pursuant to s 445D or s 447A, unless it was shown that Mr Doran had acted upon much more reasoned legal advice, such as senior counsel's opinion, on the issue.

486 In the end, however, the advice, perhaps somewhat fortuitously, was correct. So any question of a discretion being exercised to excuse error is academic.

488 I will grant the first and second defendants' crossclaims for declarations as to the validity of their appointments pursuant to s 447C of the Act.

489 As successful parties, the first and second defendants and the third defendant have a prima facie right to receive their taxed costs of this trial. But I will hear argument as to appropriate dispositive orders, including as to costs, if they cannot be agreed in due course after the parties' conferral.

CITATION : HAYES -v- DORAN [No 2] [2012] WASC 486 (S)

HEARD : ON THE PAPERS BY SUBMISSIONS OF 28 JULY 2014

MATTER : ELEMENTREE GROUP LTD (ADMINISTRATORS APPOINTED)

Costs - Defendants' application for indemnity costs - Defendants successful at trial - Indemnity costs ordered - Turns on its own facts

1 KENNETH MARTIN J: I delivered 117 pages of reasons for decision determining this action (see Hayes v Doran [No 2] [2012] WASC 486) on 14 December 2012. At the time I dismissed the plaintiff's action.

As successful parties, the first and second defendants and the third defendant have a prima facie right to receive their taxed costs of this trial. But I will hear argument as to appropriate dispositive orders, including as to costs, if they cannot be agreed in due course after the parties' conferral.

3 The action of the plaintiff against all defendants has been dismissed at the end of 2012. But the question of the defendants' entitlement to costs against Mr Hayes still remains unresolved. That issue has lain dormant since December 2012, only to be recently awoken from its slumbers by the application of the third defendant (Mr Danny Fakhre), who finally moves for costs orders in his favour, given the trial outcome of the action favouring himself as well as the other defendants against Mr Hayes.

4 In the interim since the trial was resolved, the first and second defendants have, on 10 June 2013 (see affidavit of Ms Fei Fei Xue, attachment FX3), assigned the benefit of any costs entitlements they hold against the plaintiff, to the third defendant.

5 Accordingly, Mr Fakhre now moves the Court that Mr Hayes, as the unsuccessful plaintiff, meet the costs of all defendants who were successful against him at the trial. Also, in the meantime, Mr Hayes' trial solicitors obtained leave to remove themselves from the court record, on 2 July 2014.

6 Currently, therefore, Mr Hayes does not have any solicitors of record acting for him. Additionally, it would appear that Mr Hayes has entered bankruptcy at some point during 2014. Correspondence has recently been received via my Associate from Mr Hayes' trustee in bankruptcy. The trustee appears to be Mr Graham Lean of G T Lean & Associates. Mr Lean's recent correspondence to the solicitors for the defendants, as copied to my Associate, dated 22 October 2014, indicates Mr Hayes' trustee in bankruptcy will abide by whatever decisions the Court reaches concerning costs orders relating to this trial. Mr Lean effectively, therefore, does not wish to participate beyond that indication.

7 Having defeated Mr Hayes at the trial, all defendants, as I have indicated at [489] of my original reasons, hold a prima facie entitlement to receive their taxed costs against him. However, the defendants seek to obtain an order for costs even beyond that. They move the Court for exceptional costs orders against Mr Hayes, pressing, in effect, for orders granting them indemnity costs, in respect of their solicitor/client trial expenses, in each instance.

8 An indemnity costs order is, generally speaking, an atypical outcome after a contested trial. But nevertheless, the defendants all seek indemnification for their actual legal costs in this instance (if that is worth anything given Mr Hayes' bankruptcy), and essentially on the basis of the Court applying a costs sanction to its mark of displeasure against Mr Hayes by reason of his institution, conduct of, and then behaviour in the litigation. In effect, the defendants seek to invoke principles concerning the award of indemnity costs by way of sanction against a party as explained in the Court of Appeal's reasons in Swansdale Pty Ltd v Whitcrest Pty Ltd [2010] WASCA 129 (S) [10].

9 Accordingly, the only substantive issue that really arises on this application, in the absence of any degree of participation by or on behalf of Mr Hayes or his trustee in bankruptcy, is whether, above and beyond usual orders for taxed costs, the defendants should, for this case, receive what would be special costs orders in their favour awarding them, in effect, their solicitor/client costs against Mr Hayes?

10 The defendant applications as regards, in effect, indemnity costs are founded from an evidentiary perspective upon two affidavits of a solicitor employed with the solicitors of record for the third defendant, Ms Fei Fei Xue, being sworn respectively on 6 February, then 24 June 2014. I have considered the content of both affidavits of Ms Xue, which stand, effectively, unanswered.

11 In order to facilitate a determination of costs issues on the papers, I have also received an extensive written submission filed on behalf of the defendants of 28 July 2014. Essentially, the written submissions dissect my reasons for decision of December 2012 highlighting numerous instances of recorded criticisms of Mr Hayes under those reasons, leading to the ultimate rejection of most of his trial evidence and ultimately a dismissal of his action against all defendants, as unmeritorious. Helpfully, the written submissions of the defendants contain a schedule of extracts from the lengthy reasons, collecting across some seven pages numerous extracts from the reasons critical of Mr Hayes, and it is put supporting the basis for a cost sanction to be imposed. I accept those submissions.

12 For convenience, I will simply attach the extract document as a schedule to these reasons.

13 The written submissions of the defendants relate that the first and second defendants ultimately incurred solicitor/client trial costs in defending Mr Hayes' action of $1.2 million and that the third defendant, Mr Fakhre, who was joined to the action at a later point before trial, incurred legal expenses of close to $400,000 (submissions, 28 July 2014, par 22). Those levels of fees, it is clear, substantially exceed the recoverable amounts that would be allowed under the uncapped limits of the scale determinations applicable to a taxation scenario for the defendants' costs.

14 It is appropriate, in the rather unique circumstances of the present litigation, that all the defendants receive an award of their costs against Mr Hayes on the indemnification basis, as sought. As case manager of the action from inception and then as the trial Judge, I remain (notwithstanding the time that has passed since December 2012) well aware of the underlying features of what was urgent, complex and ultimately unsuccessful litigation as initiated by Mr Hayes. However, I agree with the core submission of the defendants, in general terms, that the defendants' solicitor/client legal expenses incurred were needlessly and unreasonably suffered by them, due to Mr Hayes - who effectively put them to the high expense of defending his ultimately meritless action. The attached schedule of instances of criticism of Mr Hayes in my reasons, as collected more than amply demonstrates the unreasonable character of Mr Hayes' conduct. Those remarkable circumstances, in my view, do at the end warrant a costs sanction by an indemnity costs order, notwithstanding its exceptional character.

15 In the end, therefore, there will be orders as to the defendants' costs against Mr Hayes favouring each defendant on an indemnity basis and in the terms as set out below.

16 This now resolves all outstanding issues, at least as regards any requirement for further case management on my part. I will therefore remove the matter from the CMC list.

17 I propose then, upon the publication of these reasons, to issue orders in these terms:

1. The plaintiff pay the first, second and third defendants' costs of the proceedings including the costs of the first and second defendants' crossclaims and any reserved costs to be taxed, if not agreed.
2. Such costs are to include all costs except insofar as they are of an unreasonable amount or have been unreasonably incurred so that, subject to the above exceptions, the first, second and third defendants will be completely indemnified by the plaintiff for their costs.
3. The amount of such costs be taxed on rates agreed by the first, second and third defendants with their respective solicitors and without regard to the limits imposed by scale item 11 of the applicable Legal Practitioners (Supreme Court) (Contentious Business) Determination.
4. The matter be removed from the CMC list.