HECRON LTD and ANOR v COUSINS and ORS

Court of Appeal (NSW)|1990-11-02|Before: Cole J, Kirby P, Clarke JA

KIRBY P, CLARKE JA and WADDELL AJA 2 November 1990, 20 December 1990

APPEAL - credibility issue - whether Court of Appeal may disturb conclusions of trial judge (Cole J) - trial judge rejects credibility of witness unless "supported by reliable documentary evidence or other [acceptable] evidence" accepts that witness gave oral undertaking that retiring directors of a family company would be indemnified on personal guarantees earlier given by them - undertaking inconsistent with contemporaneous statement under Part D of the Companies (Acquisition of Shares) (New South Wales) Code and contemporaneous correspondence - held: (1) Having regard to the conduct of the trial, the alleged inconsistencies in the contemporaneous correspondence not having been put to the witnesses, they could not be relied upon in the appeal for to do so would involve a procedural unfairness to the respondents. Coulton v Holcombe (1986) 162 CLR 1,7 applied; (2) As to the statement under Part D, although inconsistent and puzzling, it did not reach the standard of compelling evidence to warrant setting aside the conclusion of the trial judge which relied on demeanour of the appellants ' witness; Voulis vy Kozary (1975) 50 ALJR 59; Brunskill and Anor v Sovereign Marine and General Insurance Co Limited (1985) 59 ALJR 842, 844; Jones v Hyde (1989) 63 ALJR 349, 351; Abalos v Australian Postal Commission, High Court, 15 November 1990, unreported, 15 and Chambers v Jobling (1986) 7 NSWLR 1, 20 applied; (3) Nor did the criticism of the trial judge's statement about the commercial morality of the conduct of the appellant warrant disturbing his conclusion about credibility. Wren v Emmett Contractors Pty Limited (1975) 43 ALJR 213, 224 distinguished; Galea v Galea (1990) 19 NSWLR 263 applied; (4) Appeal, accordingly, dismissed. APPEAL - appellate court - influence of demeanour on credibility - unreliability of - observations by Kirby P on the unreliability of "subtle influences" of demeanour of witnesses on the ascertainment of truth at trial. Soc D 'Avances Commerciales v Merchant Marine Insurance Co (1924) 20 LI L Rep 140, 152; Lek v Matthews (1926) 25 LI L Rep 525, 543; Lend Lease Development Pty Limited v Zemlicka (1985) 3 NSWLR 207, 210 considered. Observations in Jones v Hyde (1989) 63 ALJR 349, 351 discussed. JUDGES - bias - expression of opinion - whether showed preconceived opinion about witness - held: - The expression by a judge of his or her reaction to the propriety of the conduct of a party is not improper but affords that party an opportunity to respond by argument and evidence. Vacauta v Kelly (1989) 63 ALJR 610, 611; Galea v Galea (1990) 19 NSWLR 263, 267 applied. Companies Acquisition of Shares) (New South Wales) Code, s32, Schedule Pt D

Kirby P Scientific evidence and psychological experimentation has cast seriousdoubt on the reliability of assessing credibility from the impression made by witnesses in the artificial environment of the courtroom. See eg Australian Law Reform Commission, Evidence (ALRC 26), AGPS, Canberra, 1985, 452ff; L Re, "Oral versus Written Evidence: The Nyth of the 'Impressive Witness'" (1983) 57 ALJ 679. Good judges have always been circumspect about their capacity to discern truth-telling from lying by the impression which a witness makes on them in court. Thus, in Soc d'Avances Commerciales v Merchants

Marine Insurance Co (1924) 20 LI L Rep 140, 152 (CA) Atkin LJ said: "I think than an ounce of intrinsic merit or demerit in the evidence, that is to say the value of the comparison of evidence with known facts, is worth pounds of demeanour."

In Lec v Matthews (1926) 25 LI L Rep 525, 543, the same distinguished judge declared: "The lynx-eyed Judge who can discern the truth-teller from the liar by looking at him is more often found in fiction or in appellate judgments than on the Bench."

However, the House of Lords was not much impressed by Atkin LJ's observations. See (1927) 29 LI L Rep 141 per Lord Carson at 167. Those observations were ahead of their time. Their time has not yet come for appellate courts in Australia.

The "subtle influence" of demeanour Far from reflecting the unreliability of judicial observations as a weather-vane for assessing credibility, the instruction of the High Court of Australia in recent years has become even more adamant. Appellate judges must be respectful of the "subtle influence" which demeanour may legitimately have upon the decision of the judge of trial. They must be so whether or not the judge refers to that "subtle influence". Such "influence" can affect the decision under appeal and, seemingly, put the case beyond appellate correction unless the most stringent standards laid down in Brunskill v Sovereign Marine and General Insurance +o Limited (1985) 59 ALJR 842 are met.

The instruction on the "subtle influence" of demeanour is to be found in two judgments of the High Court where McHugh J has expressed this highly orthodox viewpoint. See Jones v Hyde (1989) 63 ALJR 349, 351f and Abalos v Australian Postal Commission, High Court of Australia, unreported, 15 November 1990, 15. On each occasion, his Honour expressed the opinion of the Court. It is not revealed whether their Honours had pressed upon them views contrary to those expressed or reference to the material now in abundance which would call for circumspection in that regard. Nor, so far as New South Wales, at least, is concerned, is it easy to reconcile the instruction with the statutory duty imposed on this Court in clear terms by s75A of the Supreme Court Act 1970. Even harder is it to reconcile the new deference to "subtle influences" with the decision of the High Court in Voulis v Kozary (1975) 50 ALJR 59. Although in that case specific reference was made to the fact that the trial judge had not made relevant findings as to the truthfulness of the party before him, it is extremely difficult to suggest that his finding would not have been influenced (in the facts of that case) by the "subtle influence" to which, it is now said, heed must be paid.

Upon this issue, I am an Atkin man. That is not to say that there are not reasons other than the subtle influence of demeanour to justify restraint in an appellate court in disturbing conclusions of a trial judge as to where truth lies in a contest. More potent, in my respectful opinion, than the "subtle influence" of demeanour are the considerations to which I referred in Lend Lease Developments Pty Limited v Zemlicka (1985) 3 NSWLR 207, 209:

"An appeal court is, to some extent, always at a disadvantage in conducting, such a reassessment. It lacks the impression of witnesses, the opportunity to evaluate non-verbal communication and the immediacy and command of detail which is the proper province of the trial judge. It sees the evidence through a curtain, penetrated in selected parts by the reading of evidence, presented, often out of order and in an invariably disjointed and selective way by the parties. This approach carries an inevitable risk of encouraging appellate wisdom after events. Without care, it may result in undue weight being given to words considered without the benefit of the full context."

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Available objective facts do not disturb judge's conclusion In the matters agitated in the present appeal. I am not free to follow Lord Atkin's suggested comparison, weighing the ounce of the facts against the pounds of demeanour which, subtly or not, must be taken to have affected the conclusion of Cole J. I am obliged to follow the unanimous instruction of the High Court. In my opinion, this effectively decides the appeal against the appellants. For, by the stringent test of Brunskill, they cannot overcome the firm conclusion to which Cole J gave voice in his reasons for the judgment under appeal.

If I were at liberty to evaluate the probabilities, it is possible that a different result would follow. As Clarke JA has demonstrated in his reasons, the case is one with many puzzling aspects. There is no doubt that it is difficult to reconcile the assertions of Messrs Weeden Jorgensen and Cousins with the statement signed by each of them and filed pursuant to Part D to the Schedule to the Companies (Acquisition of Shares) (New South Wales) Code. Similarly, it is difficult to reconcile their evidence with the letter which Mr Cousins sent to Mr Lo Guidice quoted by Clarke JA. The inherent improbability of extracting the alleged undertakings from Mr Guidice and of such people being content with oral statements, never confirmed in writing (not even when the occasion arose to do so), casts doubt on the evidence that such undertakings were given as claimed.

But for the reasons which Clarke JA has given, the want of cross-examination about the letters makes it difficult, if not impossible, for the appellants now to rely on that consideration on the appeal. To do so would involve a procedural unfairness to the respondents. Not having been confronted with the asserted inconsistency at the trial, they were never afforded the opportunity to respond to it by evidence and argument. Coulton v Holcombe (1986) 162 CLR 1, 7. The appellants, therefore, cannot rely on it in this Court.

The appellants are thus left with the statements under the Acquisition of Shares Code as the suggested "incontravertible facts" with which to overcome the adverse impression which Mr Lo Guidice made on Cole J. It is enough for me to say that I do not believe that those statements, alone, reach the stringent standard required. There could have been a number of reasons to explain the apparent contradiction. Having regard to the way the issue was focused at the trial, there is little doubt that it was considered by Cole J upon whom the subtle, and not so subtle, influences of the impression of Mr Lo Guidice's demeanour were working.

No judicial bias in the disclosure of early impressions That leaves he disclaimed accusation of bias on the part of Cole J. This is grounded in his Honour's statement of concern, expressed early in the trial about the commercial morality of transferring assets out of a company then left to its creditors to recover their debts from the guarantors who were no longer shareholders.

I find nothing wrong in the expression by Cole J of his concern. As I endeavoured to show in Galea v Galea (1990) 19 NSWLR 263, 267 it is not, as such, a manifestation of bias or any other error for a judge to expose to critical argument and answering evidence the matters which are concerning him or her. On the contrary, a failure to do so may work a grave injustice. So much has been acknowledged by the High Court of Australia in Vacauta v Kelly (1989) 63 ALJIR 610, 611. There, Brennan, Deane and Gaudron JJ departed from Jacobs J's expressed view that "judicial silence is a counsel of perfection". See R v Watson: ex parte Armstrong (1976) 136 CLR 248, 294. Their Honours in Vacauta said:

"We respectfully disagree with the application of that observation to a trial judge sitting without a jury. It seems to us that a trial judge who made necessary rulings but otherwise sat completely silent throughout a non-jury trial with the result that his or her views about the issues, problems and technical difficulties involved in the case remained unknown until they emerged as final conclusions in his or her judgment would not represent a model to be emulated. On the other hand, there is an ill-defined line beyond which the expression by a trial judge of preconceived views about the reliability of particular... witnesses could threaten the appearance of impartial justice."

Although the appellant disclaimed an argument that Cole J was disqualified by ostensible bias, that is, I think, the legal category into which this criticism of Cole J's observation must be placed to provide the relevant answer. By the standards of Vacauta v Kelly his Honour's observations fell well within the "ill-defined line". His concern would have been felt by any judge dealing with the issues presented at the trial. It was more honest and candid to expose them to the criticism of the appellants' counsel and to answer by such evidence as was available. Far from being criticised for doing so, I believe that Cole J's conduct in expressing his concerns was entirely appropriate.

The result is that, within the conduct of this matter at the trial and the strict instruction of the High Court on the role of this Court in reviewing the findings of a trial judge, we are not authorised to intervene.

I therefore agree with Clarke JA that the appeal must be dismissed with costs.

Clarke JA The first three respondents were directors of Dawes Corporation Pty Ltd ("Dawes") and in that capacity, guaranteed the liability of Dawes to the fourth respondent under a lease of premises situated in King Street, Sydney. In 1989 the fourth respondent sued Dawes and the first three respondents claiming $3,000,000. On 2 July 1990 judgment was entered by consent in favour of the fourth respondent against Dawes and the three first named respondents in the said sum of $3,000,000. The first three respondents sought, prior to the entry of judgment, an order that Dawes indemnify them in respect of their liability as guarantors and, in the absence of any substantive opposition, Cole J made the order sought. That order was, however, of little comfort to the first three respondents as Dawes now has few, if any, assets.

The first three respondents also filed a cross-claim pursuant to which they sued the appellants for breaches of representations that the first named appellant ("Hecron") and second named appellant, Sebastiano Lo Guidice ("Lo Guidice'') would "cover the guarantees" which had been given by the first three named appellants.

This cross-claim was based upon a breach of s52 of the Trade Practices Act 1974, as amended. It was this cross-claim which led to the trial before Cole J at the conclusion of which his Honour found in favour of the first three named appellants and made orders, inter alia, that the appellants indemnify the first three named respondents in respect of their liability for the sum of $3,000,000 plus costs under the judgment entered on 2nd July 1990. These orders were made on 13 September 1990 and are the orders from which the appellants appeal.

Before turning to the grounds of appeal it is necessary to outline the factual background to the dispute which appears in detail in the judgment under appeal.

Prior to 1985 Dawes was a wholly owned private company the shares of which were held by Dawes Investments Pty Ltd ("Investments"). The following members of the Jorgensen family, Mr and Mrs Jorgensen Senior, the two

URJ HECRON LTD and ANOR v COUSINS and ORS (Clarke JA) 5

Jorgensen respondents who held shares through family companies, and Mrs Cousins (nee Jorgensen), were the controlling shareholders of "Investments". In 1985 a public company, Dawes Australia Ltd ("Dawes Australia"), was floated to acquire 100 per cent of the shareholding in Investments. After the successful float the Jorgensen family held between 60 and 70 per cent of the shares in the public company. Prior to the incorporation of Dawes Australia each of the three appellants, who were the directors of Dawes had given personal guarantees in respect of a number of liabilities of that company. The guarantee given to the fourth respondent and another given to Westpac Banking Corporation Ltd were the relevant ones for the purposes of the litigation under consideration.

In 1987 the directors of the Dawes group of companies sought the injection of something in excess of $8,000,000 into the companies. Following the efforts of the directors to obtain the additional funds Hecron, through a shelf company, Hecla Trading Pty Ltd, acquired 97 per cent of the shares in Dawes Australia. It was claimed by the first three appellants that in the course of this acquisition Lo Guidice made the representations, on behalf of Hecron and himself, which led to the claim of the three respondents.

Prior to Hecron assuming control of Dawes Australia that company was, as I have indicated, the owner of all the shares in Investments which in turn owned all the shares in Dawes. The latter company had six divisions which were as follows:

(1) Sugar House Division Bridal wear retailers Lessee of premises King Street, Sydney Lease guaranteed by three appellants. (2) ISD Manufacturer of electronic equipment (3) Coonata Unit Trust A shareholder in companies (4) Patten Lion Insurance Broking Partnership (5) Jean Country Jeans retailer (6) Property Development Division Owned and developed property

Following Hecron's successful acquisition of Dawes Australia it reorganised the ownership of the various businesses transferring nearly all the assets held by Dawes to other companies under its control. The full detail of the reorganisation appears in the judgment under appeal and it is unnecessary to say any more than that at the end of the reorganisation Dawes was possessed of the lease, and its concomitant liabilities, which were guaranteed by the three appellants and the equity, if any, in one property. It would appear that that equity would be worth $600,000 at the most. The consequence of this reorganisation was that when the fourth respondent sued in respect of Dawes' liability under the lease that company had far fewer assets to meet the liability than had been the position when the Jorgensen family controlled Dawes and for this reason the first three respondents have found themselves in the position that they will in all likelihood have to bear at least the initial responsibility for payment to the fourth respondent under the judgment.

The critical issue at the trial was whether Lo Guidice had made the representations relied upon. The resolution of this issue depended upon whether his Honour accepted the evidence of the first and second respondents to the effect

that the representations had been made. In the event his Honour accepted the evidence of the two respondents and made the following important findings:

"1. On 18 August 1987 Mr Weeden Jorgensen sought the assurance of Lo Guidice, as Chief Executive of Hecron, that 'the personal guarantees which Richard, Glenn and I gave before the company went broke will be covered by Hecron'. When asked: 'What about our guarantees?', Lo Guidice said: 'Don't worry, we will cover you.'.

On 24 August Mr Weeden Jorgensen said to Lo Guidice: 'I need your personal assurance again... that our personal guarantees will be covered by Hecron'. Lo Guidice replied: "Don't worry, as I said, we will cover you'.

On 24 August 1987 Cousins said to Lo Guidice: 'Our personal guarantees must be replaced by an appropriate guarantee from one of the Hecron companies, either Hecron itself, or Melcorp Securities'. Lo Guidice replied: 'It will be addressed in due course, once the takeover is completed'."

The discussions which culminated in the acquisition of a controlling interest in Dawes Australia by Hecron commenced on 7 August 1987 and it would appear that Hecron's success had been assured by 31 August 1987. On 12 August 1987, during the course of those discussions, Weeden Jorgensen, the second of the first three named respondents, indicated to Lo Guidice that the Jorgensen family intended to sell enough of their shares to give effective control of Dawes Australia to Hecron. It will be observed that the representations relied upon were all made after that date. In this respect evidence was given on behalf of the first three named respondents that unless the representations relied upon had been made the Jorgensen family would not, in fact, have divested itself of control of the company. At first blush this evidence appears credible for while it is understandable that directors would give personal guarantees of the liabilities of a company controlled by them they would be unlikely to be willing to continue those guarantees once the control of the company had passed to others unless they were protected in respect of their liabilities under those guarantees.

The finding by Cole J that those representations had been made led him to accept the substantial case advanced by the first three respondents and to make the orders the subject of the present appeal.

The notice of appeal filed on behalf of the appellants challenged a number of the findings but in their submissions, both written and oral, the appellants have limited their challenge to his Honour's acceptance of the evidence of Weeden Jorgensen and Glenn Cousins in preference to the evidence of Lo Guidice. It is accepted by the appellants that there is a heavy onus on a party seeking to disturb a trial judge's preference for the evidence of witnesses called by one side rather than those called by another, particularly where the determination is based partly upon the impression created by the witnesses in the witness box. But the appellants submit that this is one of those exceptional cases in which the objective evidence surrounding the events in question pointed so strongly in the opposite direction that it would appear clear that his Honour had erred.

The principles which should be applied by an appellate court when an issue of this nature appears are well established. In Brunskill and Anor v Sovereign Marine and General Insurance Co Ltd, 59 ALJR 842, the High Court said (at 844):

"The authorities have made clear the distinction which exists between an appeal on a question of fact which depends upon a view taken of conflicting testimony, and an appeal which depends on inferences from uncontroverted facts. In the former case, to use the well-known words of Lord Sumner of S S

URJ HECRON LTD and ANOR v COUSINS and ORS (Clarke JA) 7

Hontestroom v S S Sagaporack (1927) AC 37, at 47, which was cited in Paterson v Paterson (1953) 89 CLR 212, at 222: '... not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case.' See also Warren v Coombes (1979) 142 CLR 531, at 537 and following:...

The question that then arises is whether the decision of the learned trial judge can be seen to be clearly wrong on grounds which do not depend merely on credibility; for example, on the ground that the evidence which was accepted was inconsistent with established facts or was glaringly improbable."

In Chambers v Jobling, (1986) 7 NSWLR 1, Samuels JA referred to this decision and said (at 20):

"However, that may be, the High Court, in cases which have followed Warren, has made it quite plain that the Court of Appeal is required to defer to the findings of the primary judge where these are based upon his assessment of the credibility of witnesses unless, as was said in Brunskill, such a conclusion is quite inconsistent with established fact, or was glaringly improbable. In such a case, it seems that the appellate court can intervene only if the primary judge's decision can be seen 'to be clearly wrong on grounds which do not depend merely on credibility...'. As Walsh J observed in Edwards loc cit (at 318)" '... Ihave always found much difficulty in distinguishing, in a practical sense, between a conclusion that a trial judge was wrong and a conclusion that he was clearly wrong.' With great respect, I would myself embrace the same difficulty. However, from what follows the use of the phrase 'clearly wrong' in Brunskill (at 844; 57), I assume that that element will be satisfied if there is an inconsistency with established facts or a glaring improbability."

It should also be observed, as McHugh J pointed out in Jones v Hyde (1989) 63 ALJR 349, at 351:

"When a trial judge resolves a conflict of evidence between witnesses, the subtle influence of demeanour on his or her determination cannot be overlooked."

(See also Voulis v Kozary (1975) 50 ALJR 59 and Abalos v Australian Postal Commission, High Court, 15 November 1990, unreported, per McHugh J at 15.)

Mr O'Keefe, senior counsel for the appellants, has founded his attack on the learned judge's findings on credibility on two fundamental bases. First, he submits that the findings are inconsistent with established fact and secondly he asserts that it could be seen that basic errors vitiated the finding under consideration.

The initial submissions of the appellants focused on the acceptance by his Honour of the evidence given by Messrs Jorgensen and Cousins. It was contended that his Honour was in error in accepting their evidence as it was completely inconsistent with a number of contemporary documents. In support of this submission Mr O'Keefe, senior counsel for the appellants, relied on the statement by Kirby ACJ in Galea v Galea, (1990) 19 NSWLR 263, at 267:

"Thus, where a trial judge has apparently failed to take into account contemporaneous correspondence which repeatedly state matters that are wholly at odds with the conclusions reached, the latter will not be immune from appellate review simply because the judge has expressed the conclusion as being based upon an assessment of the credibility of the relevant witnesses. If a

contrary conclusion necessarily flows from incontrovertible facts, the appellate court will be authorised to shoulder the responsibility of reaching a conclusion different from the trial judge:" I have no difficulty accepting the proposition that if a contrary conclusion necessarily flows from incontrovertible facts the appellate court gives effect to those facts. Voulis stands as an example of a case in which a trial judge's conclusion was reversed by an appellate court because it was quite inconsistent with objectively demonstrated facts.

What Mr O' Keefe said in this case was that there were a number of documents, some of which were contemporary, and some of which came into existence shortly after the events in question, which demonstrated a state of affairs quite inconsistent with Lo Guidice having made the representations alleged. It will be necessary to deal with each of these documents individually although it should be borne in mind that the appellants submitted that although each document when viewed in isolation was inconsistent with the making by Lo Guidice of the representations, it was proper for the Court to consider whether the documents, either viewed individually or in conjunction one with the other, made good the appellant's submissions. The first document upon which reliance was placed was a statement made under Pt D of the Companies (Acquisition of Shares) (NSW) Code (32 and Pt D of the Schedule) which had been signed by Weeden Jorgensen and Cousins. This statement was dated on 24 August 1987 and in para 10 the following appeared:

There is no agreement or arrangement made between any director of Dawes and any other person in connection with or conditional upon the outcome of the offers constituted by the take-over announcement."

It was submitted with considerable force that this statement was quite inconsistent with the arrangement which Weeden Jorgensen and Cousins asserted had, in substance, been made when Lo Guidice said that he would cover their responsibilities or liabilities under the guarantees.

As it seems to me the effect of the discussions which his Honour found to have occurred, and which I have earlier set out, was that there was an arrangement between the Jorgensens (and I include Cousins), Lo Guidice and Hecron whereby the latter would indemnify those members of the family who may become liable under the guarantees. If then the representations had been made, and accepted by the Jorgensens, it is clear that para 10 of the Part B statement was quite erroneous. Certainly it would appear to be inconsistent with the existence of any such arrangement as alleged by the Jorgensens. Accordingly, the statement represented a potent reason for rejecting the evidence of the Jorgensens. A similar but less forceful comment could be made about para 11 in the Pt D statement which read: "No director of Dawes has an interest in any contract entered into by Hecla".

His Honour was alive to the critical importance of this document in the context of the factual issue before him. This was not surprising given that counsel for the appellants had cross-examined both Weeden Jorgensen and Cousins on the statement to some effect. In the judgment his Honour observed that: "Mr Jorgensen's response was that whilst the indemnities were important to him and his family group, whilst they had been relied upon, and whilst if they had not been given he would have acted in such a way as to frustrate the take-over, nevertheless, he did not see them as a 'specific benefit' but rather as something which, in the ordinary course of business would be attended to in circumstances where a transfer of control was contemplated."

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Pausing there the explanation given by Weeden Jorgensen may not be regarded by all persons as compelling. Nonetheless his Honour saw the witness give his evidence and was in a position of singular advantage in determining whether to accept this explanation.

The same comments apply in relation to the explanation given by Mr Cousins which was of a different nature. His Honour records this in his judgment: "He (Cousins) stated that the representations were important to him but said that he was not qualified to comment upon whether the matter should have been disclosed in the Pt D statement. The Pt D documentation had been prepared by solicitors and whilst he assumed he had read it carefully, he did not think that it was material to inform the shareholders of the indemnities. The guarantees were personal guarantees given when the company was a private company and before any non family shareholders had taken a position in the company."

His Honour concluded that neither the relevant parts of the Pt D statement nor the cross-examination upon it impeached the credit of the two witnesses in question and went on to say: "Whether they were right or wrong, I have no doubt that Mr Weeden Jorgensen and Mr Cousins did not regard it as necessary to disclose to shareholders the indemnity in respect of their personal guarantees."

In considering the present submissions it is important to reiterate, by way of emphasis, the fact that his Honour was well aware of the significance of the statement and the cross-examination upon it and, having seen the witnesses and given careful consideration to the impact of the statement and the cross-examination upon it, made a finding in their favour on the specific question whether their evidence could stand with the contemporaneous document. His Honour thought it could and, given his position of advantage, I do not think that it is open to this Court to reach a conclusion that his Honour was in error in so doing. In particular I am not prepared to conclude that, viewing the Pt D statement and the cross-examination upon it in isolation, it has been demonstrated that the evidence as to the making of the representations given by Weeden Jorgensen and Cousins was inconsistent with incontrovertible evidence or that the relevant statement dictated that his Honour should have rejected the evidence of those two witnesses.

I would add that it is not at all unusual to find the existence of a document seemingly inconsistent with the evidence of a witness when the issue is whether an oral representation was made. It may not be an everyday occurrence but it is certainly quite a common one. On occasions the written document may be so compelling as to require the rejection of the evidence of a witness which is inconsistent with what appears in that, document on the other hand the document may provide a reason for carefully scrutinising the evidence of the witness but not have such a compelling force as to require the rejection of that evidence.

In circumstances where a written document may appear compelling but not conclusive, in the sense that it dictates that oral evidence to the contrary be rejected, resolution of the question whether the evidence of the witness should be accepted or not depends essentially upon the trial judge's assessment of that witness. In this regard the demeanour of the witness would invariably be of great significance.

Before adverting to the particular issue now under consideration Cole J had dealt with the credibility of Lo Guidice concluding that he would not accept his evidence unless it "was supported by reliable documentary evidence, or other evidence which I was prepared to accept". He then indicated that he had found each of the relevant respondents honest and reliable witnesses. The expression of

that statement necessarily implies that his Honour's conclusion was based in part at least upon the impression created by the witness in the witness box.

The next document relied upon was a letter written by Cousins by Lo Guidice on 16 November 1987:

"T am in receipt of your fax letter of 5th November, 1987 regarding communications with Clayton Utz, solicitors, about Guarantees with respect to the lease of the building occupied by Sugar House at 63 Market Street, Sydney.

For your clarification, I would advise that I have written to some financiers requesting that the personal guarantees given by Weeden Jorgensen, Richard Jorgensen, and myself be uplifted given the change of ownership in Dawes Australia Limited and associated companies. These have been agreed to without any replacement guarantees being requested. I also communicated with the owner of the Market Street building and requested the uplifting of the three personal guarantees as these had been given just prior to the public listing of Dawes in July, 1985. The owner, through his solicitors, Clayton Utz, are considering the application but it is probable they will require a replacement guarantee from Dawes Australia Limited.

Once their communication is to hand I will advise you but I would reiterate that no Dawes guarantees have been executed, or will be executed without your prior approval and that of your fellow board directors."

It was submitted that a letter in these terms would never have been written by Cousins if representations upon which he relied had been made.

However, this letter was one of a number written by Cousins upon which the appellants relied and it is preferable to identify each of the others before considering whether the series of letters, whether each letter be regarded in isolation or together with one or more of the other letters, provided evidence of such a compelling nature as to require the trial judge to reject the oral evidence of Weeden Jorgensen and Cousins.

The next letter from Cousins to Lo Guidice dated 9 December and the relevant portions read: "I mention the above for two reasons. Firstly, it is obviously costing the Group additional interest the longer we take to reorganise our banking facilities. Secondly, I am still a guarantor (as is Weeden Jorgensen, his wife, Jenny, and brother Richard) for our banking facilities and naturally I wish to have that released as soon as possible given the takeover and the fact that I no longer control the Group's finances....

From the above you will appreciate that it is most important for Melcorp Securities Limited, as the vehicle which is to acquire Dawes Corporation Pty Limited to provide a guarantee to Westpac to enable a reduction in the pricing of our facilities. Even if we remain with Westpac for only a short period of time the cost saving in interest would be worthwhile. It will also provide the Group with additional funding options as the Bank have advised that the provision of such a guarantee will enable additional accommodation to be granted if necessary."

Then on 27 January 1988 Cousins wrote again to Lo Guidice. This letter contained the following passage:

"T also take the opportunity of requesting a Letter of Indemnity from Hecron Limited with respect to my outstanding personal guarantees given on behalf of various Dawes Group companies. A number of these guarantees are still operative, particularly that with Westpac Banking Corporation, and I would ask that Hecron Limited indemnify me against any possible call on my guarantee until they are uplifted by the various financial institutions involved."

URJ HECRON LTD and ANOR v COUSINS and ORS (Clarke JA) 11

All of these letter were written within six months of the alleged representations but the appellants relied on other documents which came into existence at a much later time. The first was a letter from Cousins to Lo Guidice dated 20 October 1989 upon which particular reliance was placed.

"ASSISTANCE TO HECRON GROUP AND PERSONAL GUARANTEES

You will be aware that I have expended considerable time this week assisting your Mr Tim Mottin in gathering and collating information to enable your subsidiary company, Dawes Corporation Pty Limited, file a defence against the claim being made by Australian Bridal Centre Pty Limited.

As a result of the default by The Sugar House under its new owner both Dawes Corporation Pty Limited and the original personal guarantors to the lease (including the writer) have been exposed. While I understand what you are trying to achieve with your defence to the claim namely to negotiate a reduced settlement and have the lease terminated - the fact remains that I am still personally exposed when from the legal and ethical viewpoint I shouldn't be. Indeed, it is absolutely ludicrous that two years after I left Dawes I still have a personal exposure to Dawes when I have no shareholding in the company and obviously no say in its management. In addition, The Sugar House business was sold over one year ago and I was not formally advised or consulted on the matter, as I should have been, given that I was still a guarantor to the lease.

Apart from the above situation you will also be aware that I am still a guarantor to Dawes Corporation's banking facilities with Westpac although the guarantee finally lapses at the end of this month with the settlement of the sale of the land at Swansea. Again such a situation is extraordinary given that I formally requested Hecron in writing on 9th December, 1987 to provide a replacement guarantee so that my personal guarantee could be uplifted. Over the past two years I have had to provide written consents, along with Weeden and Richard Jorgensen, to Westpac to enable Dawes to settle various property loans. These consents have been freely given and on numerous occasions I have assisted Steve Roberts and John King in expediting settlement procedures to the advantage of Dawes.

With the above in mind, my written request yesterday to your Mr Tim Mottin for Hecron Limited to indemnify the three personal guarantors to the Dawes lease is more than reasonable and the absolute minimum the Company should do. The whole matter may well be settled within the next couple of months but then again it may well drag on for over a year. On both ethical and moral grounds this indemnity should be given while from a legal viewpoint I would think there would be certain support.

In addition to this I would point out that your Company needs my services in the legal action being brought against George Ward Distributors (1973) Pty Limited in relation to Rockdale which involves over $100,000. To date I have given Dawes my complete support but there is no question that Dawes will have little or no chance of success with the action unless my support on this transaction continues.

In summary, in the two years that I have left Dawes very substantial changes have occurred within the group. My assistance has been requested on numerous occasions from Steve Roberts, John King, Luci Hokin and Alex Hughes in Sydney and from Wally Gugliemi and Vanda Davis in Melbourne. I have always given my assistance freely while being fully aware that my guarantee is supporting Dawes' banking facilities and the lease at Sugar House.

Under the circumstances my request that Hecron sign the Deed of Indemnity which I forwarded yesterday is more than reasonable and under the circumstances should be immediately forthcoming. It would demonstrate your Company's support for me in return for the support that I am presently giving - and have regularly given in the past - to your Company."

This was followed by a facsimile transmission from Cousins to a Mr Mottin at Hecron in which he forwarded a copy of the draft indemnity referred to in the last paragraph of the previous letter.

I will not repeat the recitals in the draft indemnity for they are not of particular importance in the present context although it is pertinent to observe that no mention of the representations relied upon during the trial appears in those recitals. The operative part of the document reads: "In consideration of Cousins, W. Jorgensen and R Jorgensen assisting Dawes in its defence of the claim by Australian, Hecron hereby undertakes to indemnify, and keep indemnified, Cousins, W Jorgensen and R Jorgensen from all causes of action, claims and/or demands whatsoever whether at law or in equity which Australian may have or commence at some future date pursuant to the aforementioned lease agreement and undertakes to meet all reasonable costs which may arise out of or relate in any way whether directly or indirectly with any action, claim or demand which Australian may instigate against Cousins, W Jorgensen and R Jorgensen pursuant to their guarantee under the aforementioned lease."

What was said about these documents, in broad terms, was that it was unthinkable that the person who had written them had previously been the recipient of assurances of critical importance on a subject matter covered in those documents. It was impossible to accept, it was argued, that if the representations for which Cousins contended had been made, as he alleged, he would have failed to mention them in any of these documents. It was then said that his Honour must have failed to appreciate the significance of the letters and other documents for he made no specific mention of them in this context in his judgment and this failure on his part necessarily vitiated his acceptance of Cousins as a witness of truth. Although Mr O' Keefe recognised that it had not been shown that Weeden Jorgensen had seen or knew of any of these documents the consequence of the trial judge's failure properly to consider the issues which arose in determining whether to accept Cousins as a witness of truth necessarily tainted the whole of his findings on credibility. Accordingly, so the argument ran, it was necessary for this Court to set aside the judgment and order a new trial.

There are many puzzling aspects of this case. In the first place it is difficult to understand why the relevant members of the Jorgensen family did not ensure that they were properly indemnified in respect of any liability as guarantors of Dawes and that the indemnification was accurately recorded in writing at the time of the take-over. Indeed the appellants submitted that if any assurances had been given by Lo Guidice it is almost certain they would have appeared in writing. On the other hand it is even more difficult to accept, as Lo Guidice testified, that there was no discussion at all about the guarantees and the possibility of indemnities. It seems almost inconceivable that experienced businessmen would be prepared to hand over control of companies, whose liabilities they had guaranteed, without some form of indemnity.

Mr O'Keefe recognised the force of these considerations but contended that the evidence demonstrated that the Dawes group of companies was in such a parlous financial situation, and the appellants' offer so good, that Weeden Jorgensen and the others were so enthusiastic about the takeover proceeding to

URJ HECRON LTD and ANOR v COUSINS and ORS (Clarke JA) 13

completion that they did not wish to endanger it by raising the matter of the guarantees. That was why, he said, Lo Guidice's evidence to the effect that the topic was never mentioned was almost certainly correct.

During the hearing of the appeal it became apparent that some of the matters upon which Mr O'Keefe relied had not been dealt with in his Honour's judgment and a real question arose whether the issues with which I am presently dealing were litigated before Cole J.

Counsel for the Jorgensen interests submitted that neither cousins nor Weeden Jorgensen was cross-examined upon the contents of the documents I have set out and confronted with the somewhat surprising omission from the letters of any reference to the oral representations. She submits that for that reason this Court should not entertain the challenge to the factual findings which is based upon the documents.

In these circumstances it is necessary to examine the evidentiary material which was placed before his Honour and the cross-examinations of Cousins, in particular, and Weeden Jorgensen in order to ascertain whether the points now sought to be raised were put in issue during the trial in such a manner as to allow Cousins and, where relevant, Jorgensen to furnish explanations as to what may appear to be inconsistencies between the written evidence and the case they were seeking to make. The first relevant piece of evidence to which attention should be directed was the affidavit sworn by Cousins on 3 July 1990. In that he dealt with each of the documents to which I have made reference. In respect of the letter of 16 November 1987 he said, inter alia: "I was under the belief in November 1987 and subsequently, that The Sugar House business would be either sold or transferred into the Hecron Group and I expected that, when that happened, our personal guarantees would be extinguished."

He also gave explanations for the statements appearing in the letters of 9 December 1987, 27 January 1988 and 20 October 1989. Before I turn to consider the cross-examination I should interpose the observation that the Jorgensen guarantors were subsequently released, in 1989, from the Westpac guarantees which are referred to in the correspondence.

Counsel for the appellants cross-examined Cousins, and Weeden Jorgensen, upon the terms of the Pt D statement suggesting that they were quite inconsistent with proposed arrangements. He also directed Cousins attention to the indemnity which has been earlier referred to pointing out that there was no reference to any assurance in it. Upon obtaining the agreement of the witness he then asked this question:

"Q. And I suggest to you the reason for that is nothing like that ever occurred

I take it you disagree with that?

There was simply no cross-examination upon the terms of the letters upon which the appellants now rely. Nor was there any cross-examination upon the explanations furnished by Cousins in his affidavit of 3 July 1990 for the writing of the various letters. Indeed although counsel did confront Cousins in respect of the indemnity he made no attempt to cross-examine Cousins upon the explanation which he had furnished in his affidavit for seeking the indemnity in the terms in which he had prepared it. What Cousins said was that as he was resigning as a director of Dawes Australia (unlike Weeden Jorgensen who had resigned his directorship in September 1987 Cousins had continued on as an active director in Sydney) he was concerned to obtain assurances in writing from

Lo Guidice. He did also point out that he had not received any indication that the oral representations would not be honoured and that: "I was trying to be as diplomatic as I could as I was aware of the emerging problem Weeden was having in trying to have his loan funds to Sugar House repaid."

In summary Cousins was not challenged on his explanations in respect of any of the letters now relied upon and the challenge which was made in respect of the terms of the indemnity document were, in substance, formal. That left the trial judge in the position that he was confronted with some correspondence which did not sit very happily with the claims of oral representations but in respect of which explanations had been given which were not incredible and were not challenged at any relevant stage.

In written submissions furnished by the appellants at the trial, which were, of course, supplemented by oral submissions, there appeared the statement that the "most important contemporaneous records are the Pt C and the Pt D". There was also the statement that "despite a number of written communications on the subject of guarantees not one asserts an entitlement based on the alleged promises".

In the judgment under appeal this concentration upon the Pt C and Pt D statements is reflected in the manner in which his Honour dealt with the question of the credibility of Weeden Jorgensen and Cousins. I have earlier dealt with what his Honour said about their conduct in regard to those documents. There was no specific mention in this context of the letters relied upon although passages from a number of them were set out in the judgment and it is perfectly apparent that his Honour was alive to the terms of those letters.

It is clear that at the trial a major attack had been mounted on the credibility of both Weeden Jorgensen and Cousins. That attack had focused essentially upon their conduct in relation to the Pt C and Pt D statements. Cousins had not been cross-examined upon the terms of the correspondence now relied upon but was confronted directly in respect of the draft indemnity. Further no attack was made upon the explanations which he had furnished for writing the various letters in the terms in which they appeared. The trial judge was left in a position where explanations were furnished for the various apparent inconsistencies and those explanations were neither inherently incredible nor challenged in cross-examination. Although I do not think that this is a case in which what is called the rule in Browne v Dunn, [(1894) 6 The Reports 67] arises it is of critical importance to recognise that where Cousins gave explanations for the important passages which appeared in his letters he was not challenged upon them and where he had failed to give any explanation he was not confronted by the cross-examiner in such a manner as to enable him to explain why he had expressed himself in those particular terms.

It seems to me that all the written documents to which our attention has been directed were important for consideration on the question whether to accept Cousins's evidence. But I see no reason to suppose that his Honour failed to appreciate that fact or failed to recognise the apparent inconsistencies. The terms of his judgment are explicable upon the basis that it reflects the manner in which the case was contested before him. Counsel for the appellants focused essentially on the Pt C and Pt D statements and his failure to confront Cousins on the other documents in cross-examination indicates quite clearly that little, if any, reliance was placed by him upon them except to the extent that they appeared to present as a number of documents which sat somewhat unhappily with the allegations of

URJ HECRON LTD and ANOR v COUSINS and ORS (Clarke JA) 15

oral representations. Perhaps they did but in relevant respects explanations had been given which, at the risk of repetition, I reiterate were not challenged.

This was a case in which all depended upon which version of the relevant facts was accepted. It was critical for his Honour to evaluate the evidence of each of the witnesses in the context of the evidence as a whole and, in particular, of the written material. That evaluation, however, necessarily took into account the manner in which the witness presented in the witness box (demeanour is, perhaps, a convenient expression for this idea). In circumstances where his Honour clearly found Weeden Jorgensen and Cousins as far more reliable witnesses than Lo Guidice it would be quite wrong, in my opinion, for this Court to decide that his Honour erred in his judicial task because of what was said to be the absolutely compelling nature of the documentary material.

The case is clearly to be distinguished from Voulis were the High Court reversed a finding by the trial judge and gave judgment for the party which failed at first instance on the basis that the evidence in favour of the order ultimately made was so compelling his Honour must have failed to appreciate the significance of that evidence. Apart from anything else there was one important observation which appears in the High Court judgment and that is that the trial judge made no finding as to the truthfulness of the person who succeeded at first instance except in respect of a few collateral matters. By contrast in this case his Honour expressly found that the two Jorgensens and Cousins were honest and reliable witnesses.

Counsel also sought to bolster this arm of the attack on the judgment below by submitting that the evidence of the three witnesses to whom I have just made reference was inconsistent with the evidence give by Messrs Lo Guidice, Rainey, Green and Ms Davis. It is quite obvious that Lo Guidice's evidence was quite inconsistent with that given by Weeden Jorgensen and Cousins but it was not accepted by his Honour who had this to say of that witness: "It is apparent I am not prepared to accept the evidence of Mr Lo Guidice. There are numerous reasons why I formed a most unfavourable view of the evidence given by him in the witness box. I found him to be not frank, evasive, and a person of convenient recollection. My impression of him was that he would say that which he thought would assist him, or Hecron."

In these circumstances, subject to one matter with which I will deal in a moment, the fact that the evidence of Cousins and Weeden Jorgensen was in conflict with that of Lo Guidice affords the appellants no assistance whatsoever. Neither does the evidence of Green, Davis or Rainey assist the appellants. That evidence established no more than that although those witnesses might have been expected to hear any representation if it had been given they did not do so. Given the circumstances of the 24 and 25 August 1987 this evidence provides a most unsure foundation upon which to prefer the evidence of Lo Guidice in preference to that of the opposing party. In the appellants' written submissions reliance was also placed on the evidence of Guglielmi who was at the relevant time an employee of Hecron Limited. He said that he did not hear any representation but he was cross-examined in some detail and in his oral submissions Mr O' Keefe did not place any particular reliance upon that evidence. In these circumstances it is sufficient for me to say that I can see no basis in that evidence for determining that his Honour failed properly to evaluate the various witnesses.

I come now to consider what was in many respects the primary ground relied upon by the appellants. That was that his Honour was distracted from the task of analysing the evidence, and the acceptability, of the various witnesses by his

perception that Lo Guidice had behaved dishonourably in stripping the relevant company of assets and leaving it with liabilities guaranteed by the first three respondents and his apprehension that Lo Guidice was seeking to hide behind the various corporate structures. The second submission was put in these words: "The trial judge was influenced in his judgment by his perception that it was dishonourable to use the company structure and the differentiation between companies in order to leave the respondents to bear the burden of the guarantees which they had given and later in refusing to give an effective indemnity."

The trial judge was, therefore, according to his submission, influenced in reaching an adverse conclusion as to Lo Guidice's truthfulness by his view that Lo Guidice had stripped the company of assets and was seeking to hide behind the complex corporate structure he had set up.

In support of these submissions Mr O'Keefe took the court to something that was said by Cole J early in the trial. It was as follows: "My understanding is that Hecla acquired about 97 percent of Dawes and that is Hecla is owned by Hecron. My understanding also is that Dawes is obliged to indemnify the cross-claimants in respect of any guarantees which have been incurred.

I also understand from the evidence that some of the assets particularly operated by Dawes had been sold to other areas of the Hecron Group.

This is a commercial Court and I am sure your clients wouldn't wish to be associated with a suggestion that having transferred assets out of the company which they have acquired they would abandon that company to its creditors via guarantors who are no longer shareholders and material shareholders to pay the responsibility or the liabilities of the company which in truth your client owns and controls. That is not commercial conduct. That is why I have some difficulty understanding why this litigation occurred at all because I would have thought that Dawes Corporation would pay the $3 million or alternatively that Hecla or Hecron, who in truth owns it, would provide the funds to do so, rather than leave that liability to persons who have in truth no association now or responsibility with the company or for the incurring of that debt."

Counsel submitted that the judgment ought be understood in the context of those remarks. The particular passages of the judgment to which our attention was directed appeared under the heading "A stripping of assets" and in the expression of final conclusions. In the first instance his Honour stated that before the takeover Dawes had adequate assets to enable it to meet any of the guarantees and pointed out that various steps had been taken after the takeover the effect of which was to denude Dawes of its assets. The latter passages were those in which his Honour noted that immediately after the takeover Lo Guidice commenced the process of transferring assets from Dawes and that at the time of trial it was not in a position to meet the guarantees because its assets had been transferred to another company. These were the main passages relied upon and it was said that they demonstrated, particularly when it was recalled what his Honour had said earlier in the trial, that his Honour was using the phrase "asset stripping" in a pejorative sense to indicate that Lo Guidice had set about reorganising the corporate structure so that valuable assets were taken out of a company which had liabilities so that it was ultimately left with no, or minimal, assets. As a consequence the only means by which its liabilities could be met were by recourse to the guarantors who at the time of trial had nothing to do with the company.

URJ HECRON LTD and ANOR v COUSINS and ORS (Clarke JA) 17

During the hearing it seemed to me that while Mr O'Keefe did not use the word bias he was, in substance, arguing that Cole J had mistakenly formed a most adverse view of Lo Guidice before he entered the witness box so that he was in a real sense biased against Lo Guidice. In the appellant's written submissions in reply that argument is disavowed. One must, therefore, approach the present submissions upon the basis that they do not assert that at any relevant time his Honour was biased. On the contrary they suggest that his Honour's concentration upon the asset stripping distracted him from a proper evaluation of the evidence of the witnesses.

If the notion of asset stripping did not cause his Honour to be biased it is difficult to understand in what way he would have been distracted by it. Nonetheless it is possible, I suppose, for a judge to form wrong conclusions about matters which were not central to the litigation and become diverted from the task facing him by undue concentration upon those matters. What, as I understand it, Mr O' Keefe was saying was that Cole J took such an adverse view of the denudation of Dawes that he failed properly to direct his attention to his evaluation of the witnesses.

In developing the submission learned Senior Counsel carefully analysed the annual report of Dawes Australia for the year ended 30 June 1987 (which was signed by Lo Guidice and an associate, Goldsworthy) and various documents and company minutes relating to the financial position of Dawes prior to the takeover. The essential thrust of this exercise was to demonstrate to the court that Dawes had been in a parlous financial position prior to the takeover, had not been the valuable cashbox which his Honour seemed to think it had been, and was in desperate need of an injection of funds. Mr O' Keefe submitted that, in the light of those facts, a clear picture emerged that the Jorgensen interests were very glad to receive their $7 million (approximately) prize on the takeover and to leave Dawes and the associated companies in Lo Guidice's hands confident that they had done very well out of the deal. Further, for this reason they were not prepared to jeopardise the takeover by mentioning the uncomfortable matter of their personal guarantees.

The argument was that if this submission was accepted his Honour erred in taking a jaundiced view of Lo Guidice's reorganisation (which was, it was submitted, perfectly proper) and in failing to appreciate that there were very compelling reasons why the Jorgensens and Cousins never mentioned the representations. The analysis also showed, according to Mr O'Keefe, that his Honour was quite wrong to suggest that Dawes had adequate assets to meet its liabilities at the time of the takeover and that this initial error flawed his later reasoning.

There are, in my opinion, many difficulties with these submissions. In the first place there is revealed in his Honour's lengthy judgment a very careful analysis of the issues which were raised and litigated between the parties. Secondly it is clear that his Honour gave very careful attention to the credibility of the various witnesses and he supported his statement that he found Lo Guidice evasive and a person of convenient recollection with a number of examples which certainly bear out that conclusion. Those examples have been supplemented during this appeal with a number of other examples which reinforce that conclusion. Nothing which appears in the judgment would even tend to suggest that his Honour failed to appreciate the task with which he was confronted or that he was distracted in his performance of that task by some erroneous perception of Lo Guidice's conduct.

Furthermore, the submissions proceeded upon the basis that the Jorgensens were putting forward a case that they had sold Lo Guidice and his company a rich cashbox and that he had proceeded to denude it solely, or largely, for the purpose of ensuring that any losses were met by the guarantors and not a company under his control. That is not borne out by an examination of the transcript which reveals that the Jorgensen interests were putting forward a relatively simple case that representations had been made to them; that they relied upon those representations; and upon the failure of Lo Guidice and his company to honour them they suffered loss and damage. It is not surprising to find that in a case so simply based there was no cross-examination either to suggest that the company was in a very parlous financial position prior to the takeover or that the consideration being received was so good that they (Weeden Jorgensen and Cousins) were prepared to take a risk that they would never be called upon to honour the guarantees.

One significant feature of this appeal is that submissions have been based substantially upon aspects of the case which were subjected to little, if any, cross-examination during the trial. Although it might not be completely accurate it is my impression that in the light of the adverse findings regarding the truthfulness of Lo Guidice the appellants have sought on the appeal to move the battleground substantially from that occupied during the trial. Whether that is so or not is probably, in the circumstances of this case, of little moment. What is of much more importance is that the comments made by his Honour both before and in his judgment be seen in the context of the trial which was taking place before him and not given an incorrect interpretation or subjected to undue criticism in the light of the matters now sought to be raised.

The evidence of the precise financial situation of Dawes at the time of the takeover was quite unclear. I do not find that surprising for that was not an issue at the trial. Although it is clear, and could hardly have been gainsaid in the light of the evidentiary material, that Dawes was seeking the injection of cash in order to relieve its liquidity problems it would not be correct for this Court to draw the inference, in the light of the manner in which the issues were litigated at first instance, that the company was in a desperate financial situation such that the vendors were prepared to take the risk I earlier mentioned. Notwithstanding the appellants sought support from their proposition that Lo Guidice was disbelieved largely because his Honour treated Lo Guidice as being identical with Hecron, Hecla and Dawes Corporation, and as a consequence approached the question of credit on the basis that Lo Guidice ought not to be seeking to rely on the existence of separate corporate entities and ought to be standing behind Dawes so that it could indemnify the respondents.

In Wren v Emmett Contractors Pty Ltd, 43 ALJR 213, Owen J took the view that the trial judge had erred because the defendant had relied on a defence which had neither legal nor moral merit. Owen J said (at 224): "A person is not, in my opinion, to be regarded as an untruthful witness if, when sued upon a guarantee, he acts upon the advice of his legal advisers and defends the action on the ground that the amount for which he is being sued is not covered by the guarantee he has given."

Barwick CJ (who was the other majority judge who wrote a judgment), at 216 said:

"The appellant's reliance upon the law which if he made out his facts would discharge him from his liability as surety did not in the least, in my opinion, reflect on his credibility in relation to the evidence he gave in the trial."

URJ HECRON LTD and ANOR v COUSINS and ORS (Waddell AJA) 19

In substance Mr O' Keefe said that what occurred in this case was similar to the factual matrix in Wren. The trial judge made a statement early in the trial in which he expressed some views on commercial conduct, later in the trial he asked some questions relating to asset stripping, and later still he made a statement to the effect that he found certain conduct unacceptable. These statements and questions were said to colour the whole judgment. Clearly the questions and statements made during the trial could not be said to reflect either undue interference by his Honour in the trial or a biased mind. At no stage did counsel for the appellants seek that his Honour disqualify himself or indicate that the statements made and questions asked had been such as to demonstrate that his Honour was unable to approach the credit issue in a proper manner. Nor has Mr O'Keefe suggested that in the appeal. What is said is that the terms of the ultimate judgment reflect a line of thinking said to emerge from those earlier statements and questions which so coloured his Honour's approach that he did not direct attention properly to the real question.

I do not accept these submissions. This is not a case, in my view, in which it could be said that his Honour approached the credit issue upon the basis that Lo Guidice's reliance upon the law in the circumstances reflected adversely on him. Nor do I find in the judgment any indication that any extraneous and improper consideration pervaded his Honour's field of enquiry in determining which witness should be believed. On the contrary it seems to me that his Honour directed careful attention to the evidence actually given by the witnesses in the case and resolved the issue upon his view as to both the content, and the manner of giving, of Lo Guidice's evidence.

In my opinion the appeal should be dismissed with costs.

Waddell AJA I agree that the appeal should be dismissed for the reasons given by Kirby P and Clarke JA.

I agree also with the comments made by Kirby P on "the subtle influence of demeanour" and on "the reliability of assessing credibility from the impression made by witnesses in the artificial environment of the court room".

Counsel for the Appellant: BS O'KEEFE QC, PM DONOHOE and HL DELANEY

Counsel for the Appellant: CORRS AUSTRALIAN SOLICITORS Solicitor for the Respondent: Ms C A NEEDHAM Solicitors for the Respondent: MINTER ELLISON

At a glance

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Before

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Judgment (141 paragraphs)

Parties

Cases Cited (14)

Cited By (2)