Ms Grace Yang, referred to in these prayers for relief, is the elder sister of Mrs Mead.
19 By the time of making this application, Mr Mead had embarked upon an exercise of comparing what was shown in the books and records of HE concerning the state of account between HE and BL with information which he had been able to gather from documents obtained from the Customs Department about importations which HE had made from BL. That comparison exercise, though at that stage incomplete, led him to wish to assert that the true state of account was that BL owed money to HE, rather than the other way around. That was the substance of the cross-claim he wanted to file against BL. The intended cross claim against Mrs Mead was one which alleged breach of her fiduciary duties to HE concerning the transactions between BL and HE. The intended cross claim against Ms Yang was one which alleged knowing participation in those breaches of fiduciary duty.
20 Mr Mead had already filed in the Common Law Proceedings, in his own right, cross claims against Mrs Mead and Ms Yang, making similar allegations.
21 Mr Mead's applications in the Equity Division were heard by Einstein J on 17 August 2001. Judgment in them was delivered on 21 August 2001: BL & GY International Co Ltd v Hypec Electronics Pty Ltd; Colin Anthony Mead v David Patrick Watson & Ors [2001] NSWSC 705; (2001) 164 FLR 268. By that time, the Common Law Proceedings had been fixed for hearing between 5 and 9 November 2001.
22 Einstein J granted Mr Mead the leave he sought, on condition that Mr Mead abandoned the cross claim filed in his own name in the Common Law Proceedings. His Honour noted an undertaking by Mr Mead to the liquidator that Mr Mead would indemnify the liquidator and HE itself in respect of any orders resulting from exercising the leave. On 27 August 2001, at the time of settling Short Minutes of Order to give effect to his reasons for decision, Einstein J stated that Mr Mead was not required to offer any security to support the indemnity, but that this would not prevent an application for security for costs being made.
23 On 19 September 2001 Mr Mead, exercising the leave which had been granted to him to act on behalf of HE, applied to Sully J in the Common Law Division of the Supreme Court of NSW, to set aside the default judgment against HE, and to file a Defence and Cross Claims on behalf of HE. In reasons for judgment delivered on 25 September 2001, Sully J granted the orders which Mr Mead sought: BL & GY International Co Limited v Hypec Electronics Pty Ltd (in liquidation) & Ors [2001] NSWSC 841.
24 On 4 October 2001 McClellan J heard motions brought by BL and Ms Yang seeking to strike out the defences of Mr Mead and of HE in the Common Law Proceedings, and to have HE provide security for the costs of its cross claims. On that same day, 4 October 2001, his Honour dismissed those motions.
25 On 25 and 26 October 2001 Cohen J, in the Family Court, heard Mr Mead's application referred to at paragraph 16 above. His Honour delivered judgment on 2 November 2001, in substance granting the application, so as to permit $375,000 to become available from the proceeds of sale of the Four Properties to pay costs of Mr Mead.
26 On 5 November 2001 the hearing of the Common Law Proceedings commenced, before Mathews AJ. Though the matter had been set down for five hearing days, the hearing in fact extended over 15 hearing days, the last of which was 26 November 2001. There was one week-day in the period 5-26 November 2001 when no hearing occurred, but it is likely that the legal representatives of the parties did work on the case out of court on that day.
27 On 4 December 2001, the liquidator lodged caveats against seven items of real estate held in the joint names of Mr and Mrs Mead. This came to the attention of Mr Mead a few days later. The seven items of real estate included three of the Four Properties. On 11 February 2002 the liquidator lodged a caveat against the title of the fourth of the Four Properties.
28 Following upon the orders of Cohen J, two of the Four Properties, namely 37/3 Reid Avenue, Wentworthville and 102/300 Cortesloe Drive Mermaid Waters, were submitted to sale by auction, and sold. The liquidator and Mr Mead came to an agreement whereby, notwithstanding lodgement of caveats against the titles to those properties, the sales were completed, in January and February 2002, and the proceeds paid into Court. Those proceeds remain there today. The other two of the Four Properties remain unsold.
29 On 14 February 2002 Mathews AJ delivered her judgment: BL & GY International Co Ltd v Hypec Electronics Pty Ltd & 2 Ors [2002] NSWSC 38. She dismissed the claim which BL brought against HE and Mr Mead, and set aside the default judgment which BL had obtained against Mrs Mead and in lieu entered verdict for Mrs Mead on BL's claim. HE failed in its cross claims against BL, Mrs Mead and Ms Yang.
30 Part of the reason why BL's claim failed was because her Honour decided that she could not accept the oral evidence of Mrs Mead and Ms Yang (and a younger sister of Mrs Mead, Ms Chen), and the financial records of both BL and HE were unreliable. Her Honour's judgment said, at [178]:
"In my opinion Lucy Mead and her two sisters, particularly Grace Yang, have shown themselves to be entirely lacking in credibility and plausibility. Lucy Mead has admitted falsifying Hypec's records so as to conceal the misapplication of company funds. There is much to support the conclusion that she and her sisters have similarly falsified BL & GY's records so as to support a false claim against Hypec. A motive for doing this is easy to find, as Mr Fagan has pointed out. Hypec had no funds to meet BL & GY's judgment against it. Had the judgment not been set aside, recourse would almost certainly have been sought against Colin and Lucy Mead as directors. If successful, the properties in their joint names, which are now the subject of a property dispute in the Family Court, would presumably have been sold in order to meet BL & GY's judgment."
31 Her Honour dismissed the cross claims essentially because she was not persuaded that Mr Mead's attempt to re-create the accounts between BL and HE, from customs and shipping documents, was accurate or complete. When HE could not prove that BL owed it money, the allegations that Mrs Mead had breached her fiduciary duty, and that Ms Yang had helped her to do so, also were not made out.
32 On 30 May 2002 the Commissioner of Taxation issued amended assessments of income tax to HE, relating to the years ended 30 June 1989 to 30 June 1994 inclusive. Those amended assessments together created a tax debt of the order of $1.4 million. The primary tax was $776,000, the balance, penalties and interest. The amended assessments arose from the liquidator having written, on 20 December 2000, to the Australian Taxation Office, informing it that his investigations had shown that the directors had improperly used company funds to acquire assets in their personal names, that in consequence the company's profits had been understated and losses overstated, and as well each of Mr Mead and Mrs Mead had understated their personal income. Before that letter was sent to the Australian Taxation Office, the information which the liquidator made known to Mr Mead suggested that the taxation liability of HE was of the order of $200.
33 On 28 June 2002 Mathews AJ delivered a judgment on costs in the Common Law Proceedings: BL & GY International Co Ltd v Hypec Electronics Pty Ltd & 2 Ors [2002] NSWSC 575. She ordered BL and Ms Yang to pay the costs of Mr Mead on an indemnity basis, being the costs incurred for himself and for his conduct of the proceedings in the name of HE, in respect of the entire proceedings, including certain reserved costs.
34 On 26 May 2003 the Full Family Court dismissed an application by Mrs Mead for an extension of time within which to file an application for leave to appeal from the decision of Cohen J made on 2 November 2001.
35 On 27 August 2003 the Court of Appeal gave judgment on an appeal which Ms Yang brought against the costs decision of Mathews AJ: Yang v Hypec Electronics Pty Ltd (in liquidation) & 2 Ors [2003] NSWCA 181. While the formal order of the Court was that the appeal was allowed, it was allowed for the purpose of correctly identifying the source of power to make the order - Mathews AJ had proceeded on the basis that Ms Yang was a non-party, and therefore any costs order against her had to be one which could be justified under Part 52A rule 4(5). The Court of Appeal decided that, by virtue of being a defendant to the cross claim, and the trial of the action and the cross claims not having been separated, she was a party to the proceedings, so a costs order did not need to be one which could be justified under Part 52A rule 4(5). The substance of the costs order of Mathews AJ, requiring both BL and Ms Yang to pay the costs of the entire proceedings on an indemnity basis, was not altered by the Court of Appeal.
The Disputed Properties at Lisarow
36 Lamron is a company of which Mr and Mrs Mead became directors in March 1982. Lamron came to be the registered proprietor of a parcel of land located at Lot 3 Woodview Avenue Lisarow, and another property known as Lot 21 Woodview Avenue Lisarow. Lot 3 had a house constructed on it, and then was sold, with the sale settling on October 1996. Lot 21 had two houses constructed on it, and was subdivided into two lots each of which was then sold. Both those sales settled in February 1995.
37 Lamron is the fifth defendant in these proceedings. It accepts that the money used to pay for the construction of the three houses came from the assets of HE, and that in consequence HE has a proportionate beneficial interest in the proceeds of sale. It does not admit, however, that the purchase price of the land came from assets of HE.
38 Real Property Act transfers show that Lamron came to be the registered proprietor of Lots 3 and 21 at Lisarow pursuant to transfers each of which was dated 9 November 1992. Those transfers show that the price of each Lot was $68,000. A search of the certificates of title shows no mortgage having existed on either Lot, save for a mortgage on Lot 3 which was discharged on 17 November 1992. There is a real possibility that that was a mortgage of a prior registered proprietor, which was discharged upon registration of the transfer to Lamron.
39 There is no documentary evidence which shows from what source the purchase money for the two Lots was provided. The liquidator agreed, in cross-examination by the solicitor for Lamron, Mr Ma, that he had made comprehensive investigations in relation to the acquisitions and improvements to the Lisarow properties and the subsequent disposal of those properties. No explanation is put forward as to why he has not presented any documentary confirmation of the source of the money for the purchase of those properties. Concerning some other properties, the liquidator has put on evidence of asking solicitors who were involved in the purchase of the property to let him see their file relating to the purchase, and being told that the file was so old that it had been destroyed.
40 When the sale by Lamron of Lot 3 settled on 9 October 1996, the net proceeds received were $246,150.16. That amount was deposited into a bank account with the Commonwealth Bank, maintained in the name of "Hypec Technology Group Pty Ltd" ("HTG"). HTG is a different company to HE. HTG was incorporated on 23 July 1992. Mr and Mrs Mead were its directors from 24 July 1992 until 30 June 2002. Mr and Mrs Mead held the shares in it equally.
41 The sale in February 1995 of the two houses constructed on Lot 21 at Lisarow resulted in balances of $119,947.33, and $122,500 being payable upon settlement. Each of those amounts was deposited into the bank account of Lamron. Immediately following those amounts being deposited into the account of Lamron, cheques, in the amount of $88,000, and $110,000 were drawn on the account of Lamron, and paid into the Commonwealth Bank Account of HTG.
42 Mr Mead gave evidence, in an affidavit sworn 26 July 2001 and filed in the winding up proceedings, as follows:
"On 23 July 1992 we caused Hypec Technology Group Pty Ltd to be incorporated. It was my understanding and expectation that from that date Hypec Technology Group Pty Ltd would take over and conduct business.
However after 23 July 1992 Lucy Mead caused the Company [ie HE] to continue to purchase computers and equipment from BL & GY. The products were imported into Australia, consigned by BL & GY to the Company, and invoiced to "Hypec Electronics Pty Ltd T/A Hypec Technology Group".
From 23 July 1992 dealings with Australian purchasers from our business were conducted in the name "Hypec Technology Group Pty Ltd.""
43 In an affidavit sworn in the Family Court proceedings on 12 February 2001, which was also in evidence before me, Mr Mead gave evidence,
"In 1992, we purchased two blocks of land at Lisarow, on the Central Coast, for $140,000. The purchase was in the name of Lamron. All payments were made by Hypec Technology."
44 Mr Watson has given evidence, on which he was not cross-examined, that he had through his investigations verified that Hypec Technology was the trading name of HE. At some stage in 1992 the bank account of HE with the Commonwealth Bank of Australia changed its title, so that it came to be called "Hypec Technology Group Pty Ltd". While there was a company called Hypec Technology Group Pty Ltd, all the transactions entered into by that company were accounted for in the accounts of HE.
45 Mr Mead gave evidence before me, in answer to cross-examination from Mr Greenwood SC, counsel for the liquidator, as follows:
"Q. Some properties were purchased at Lisarow?
A. Yes, that's correct.
Q. And they were purchased in the name of Lamron Pty Ltd?
A. That's correct.
Q. You were aware that all payments in relation to those properties were made by Hypec Technology?
A. Yes that's correct. That was the way it was set up.
Q. The purchase price for those blocks of land actually came from monies of the company?
A. Yes, they did.
Q. And all the payments in terms of the construction of the properties also came from the monies of Hypec?
A. Yes, They did ."
46 After that evidence had been given, Mr Ma, solicitor for Lamron, further cross-examined Mr Mead. He gave evidence as follows:
"Q. And in relation to the answers you gave to Mr Greenwood's questions with respect to the purchase price of the Lisarow property, how would you be certain that those funds would have come from Hypec given the fact that you said earlier in evidence that you were not involved financially with respect to those companies and Lucy was?
A. That's a very easy one to offer. The Commonwealth Bank called us into a meeting to explain why funds were being used to purchase property, particularly in relation to the funds for that particular acquisition.
Q. You also mentioned that there were arrangements with Lamron whereby those funds which you said were paid by Hypec. What arrangements were they?
A. The arrangements were when the properties were sold that the funds would go back to Hypec and then any profit generated through the sale of those properties would be then kept in Lamron. Lamron would then accumulate these profits to go on to develop sufficient capital of its own to carry on building additional properties but as it turned out that never eventuated so the arrangement was that Hypec would fund the initial purchase and payment of the properties, funds returned to Hypec and only the profits kept with Lamron.
Q. Could you elaborate on the meeting with [which] the Commonwealth Bank was involved with respect to assisting the purchase of the property; could you elaborate on that?
A. Lucy and I were called in by the Commonwealth Bank on a please explain what you are doing with the overdraft.
Q. How does that have any connection with the funds used by Hypec?
A. Because the Commonwealth Bank was aware that the firm overdraft facility was not being used in the manner in which it was granted by the bank. The bank did not grant the facility to be used to purchase property and as such, they called us in on a please explain.
Q. Were you a party at that meeting?
A. I was at that particular meeting, yes.
Q. And at that meeting, were you alerted to the fact that the company's overdraft was used specifically for the purchase of the Lisarow properties, not any other properties generally?
A. From that meeting I found that the bank's arrangement for the overdraft was for us to trade in our core business which was computer equipment and for the arrangement for a letter of credit and when they called us in and asked us to explain, I found that the overdraft had been utilised to purchase property because up until that point, I wasn't aware of how the properties were being funded.
Q. Properties I would gather would mean generally the properties and would not specifically refer to Lisarow?
A. Lisarow, only Lisarow, that's all it was referring to because that's where the money was drawn from."
47 I approach this evidence of Mr Mead with some caution, as his evidence suggested that he had only fragmentary scraps of knowledge about other real property acquisitions, but quite good knowledge about the source of funds for the Lisarow acquisition. However, it seems to me that his being called in to the Commonwealth Bank provides an explanation for this difference in extent of knowledge. His explanation, that HE would fund the purchase of the properties, and receive back the money it provided, while Lamron would keep the profit, provides an explanation for the way in which the sale proceeds of the Lisarow Lots were distributed. No possible source of the purchase price of the Lisarow properties, other than proceeds of the trading activities of HE, appeared from the evidence. In these circumstances I accept Mr Mead's evidence concerning the source of funds for the Lisarow land.
48 In his affidavit, Mr Watson gave an opinion that probably all of the funds used to purchase and improve the two properties at Lisarow were funds of Hypec which were taken from the Company improperly by the creation of false book entries in the company's accounting records.
49 The basis of that opinion is, essentially, some extracts from the affidavit of 13 February 2001 which Mr Mead swore in the Family Court proceedings, together with the fact that nothing in his investigation has suggested otherwise. Given the basis of the opinion, I place little weight upon it.
50 Though Mrs Mead had sworn an affidavit in the proceedings, at the hearing Mr Ma elected not to read it. Because she was the person who looked after the financial affairs of HE, she is a person likely to have personal knowledge of the source of the funds used to purchase the two Lots at Lisarow. While Mrs Mead ceased to be a director of Lamron on 7 February 2003, the present directors are members of her family, and there is no reason to believe that she was not a witness readily available to Lamron. She was in court throughout the hearing. The other evidence which I have set out, warrants an inference that the purchase price of the two Lisarow Lots came from funds of HE. Lamron's failure to call Mrs Mead enables me to draw that inference more strongly.
51 I conclude that the purchase price of the two Lots at Lisarow came from the funds of HE. It is not disputed that the cost of constructing improvements on those Lots came from funds of HE, nor is it disputed that, if it were to be established that the purchase price of the land came from funds of HE, then the entire sale price of those Lots should be declared to be held upon trust for HE. To some extent the sale price of those Lots has already been repaid to HE, through the payments set out in paragraphs 40 and 41 above. What the making of the declarations which the liquidator seeks will do, will be to enable the liquidator to collect the part of the sale price not already repaid to HE, and to remove the possibility of a claim that the part of the proceeds of sale already repaid to HE was paid as a loan, rather than by way of a return of HE's own money.
Factual Findings Relevant to the Estoppel/Ex Parte James Submissions
52 Mr Mead submits that the liquidator's conduct disentitles him from laying claim to the Four Properties. That submission requires a closer examination of events in the period May to December 2001.
53 Mr Watson was appointed as liquidator of HE on 7 May 2001. At least by 6 June 2001 he was aware of the Common Law Proceedings - on 6 June 2001 Mr Mead's solicitors, Etheringtons, wrote to Mr Watson, saying that the requirement that Mr Mead file a Defence in those proceedings meant that he needed extra time in which to supply Mr Watson with a Report As To Affairs.
54 On 12 June 2001 Etheringtons wrote to Mr Watson, enclosing a draft Notice of Motion and an unsworn copy of a draft affidavit by Mr Mead. Etheringtons told Mr Watson that they alleged that Mrs Mead and BL had been involved in a fraud against Mr Mead and the companies of which he had been a director and shareholder. Etheringtons sought the opportunity to demonstrate to Mr Watson that HE had never been insolvent, and that the debt resulting from the default judgment of 4 December 1997 was based on a fraud. Etheringtons asked that Mr Watson not take any further steps in the winding up of HE. In the course of the letter they said:
"The costs thus far incurred by Mr Mead have been enormous and will continue to mount in his attempt to unravel the fraud of Mrs Lucy Mead …"
55 On 2 July 2001 Etheringtons wrote to Mr Watson, saying that Mr Mead wanted to have HE make an application for BL's judgment against it to be set aside, for leave to defend the Common Law Proceedings, and for leave to issue a cross-claim against BL. The cross-claim was explained as being, broadly, of the same type as the cross-claim which was eventually actually lodged. The letter enclosed the draft documentation on which that application was proposed to be made. It said that the fact that there was really no debt owing by HE to BL meant that Mr Mead had a basis for setting aside the winding up of the company, but that there would be no point in so doing, because the company would then be in deadlock, as Mr and Mrs Mead were equal shareholders. The letter offered Mr Mead's indemnity to Mr Watson for any costs in the application to set aside the judgment and prosecute the cross-claim. The letter asked, again, that Mr Watson suspend work on the liquidation pending the hearing of the Notice of Motion.
56 A trial balance of HE as at 30 June 1998, produced by the external accountants of HE, showed as an asset a loan to Mr and Mrs Mead in the sum of $2,861,844. On 3 July 2001 Mr Watson wrote to Mr Mead, referring to this loan account, and saying that additional funds had been identified that had been used by the directors which did not appear to have been correctly allocated to the Directors' Loan Account. He continued:
"At this stage and based on the source records reviewed, the debt listed in the balance sheet of $2,861,844 is due and payable. Further requests will be made for payment of the additional amounts in due course once confirmed.
Therefore it is requested that you contact this office on receipt of this letter to discuss repayment of the loan account."
57 On 5 July Mr Mead's solicitor at Etheringtons, Mr Dominello, spoke to Mr Watson's solicitor, Mr Conolly. Mr Dominello told Mr Conolly that proceedings had been started in the Family Court seeking to set aside injunctions against matrimonial properties of Mr and Mrs Mead, to enable the sale of those properties for the purpose of Mr Mead funding the Common Law Proceedings. Mr Conolly wrote to Mr Dominello the next day confirming that telephone conversation, and requesting copies of counsel's opinions which had been obtained by Mr Dominello.
58 On 12 July 2001 Etheringtons wrote to Mr Conolly, saying,
"Our client has an interim property application which is fixed for hearing before the Family Court on 23 and 24 July 2001. It is important to our client's position in these proceedings that he has the position concerning his foreshadowed application finalised.
In light of the impending Family Court proceedings we propose to approach the Duty Judge in Equity next week with a view of hearing our client's foreshadowed application. We will provide this letter and other correspondence to the court when seeking an order to abridge the time for service of our client's foreshadowed motion.
… the proceedings referred to are the interim property proceedings which are fixed for hearing in the Family Court on 23 and 24 July 2001, which seek to, inter alia, set aside the injunction of Justice Rose. The injunction sought by Lucy Mead (the third defendant) was an attempt to restrain the sale of matrimonial property. Our client wishes to sell the matrimonial property to fund his defence and cross claim in these proceedings. At the hearing on 23 and 24 July 2001 our client will be seeking orders to set aside/vary the injunction to enable the funding of legal representation in the Supreme Court proceedings."
59 On 19 July 2001 Etheringtons wrote to Mr Conolly, providing him with an Equity Division court process which was returnable on 30 July 2001. Etheringtons said that they intended to proceed with the hearing on the return date, and asked Mr Conolly to file and serve any material he wanted to rely on prior to the return date. That letter also enclosed an affidavit (of some 133 pages) which Mr Mead had sworn on 12 February 2001 in the Family Court proceedings. This affidavit is the principal affidavit on which Mr Mead relied in his application to Cohen J in October 2001. Etheringtons' failure to provide that affidavit at an earlier time had excited some suspicion in the liquidator.
60 On 20 July 2001 Mr Watson wrote to Mr Mead complaining about various matters, and also saying, "In addition to the above it is requested that you contact this office in order to discuss the repayment of the directors' loan account as detailed to you in my letter dated 3 July 2001."
61 On 26 July 2001 Mr Mead swore an affidavit, in the winding up proceedings. It set out the position in the Family Court proceedings by saying:
"On 9 September 1997 Justice Rose in the Family Court made orders which had the effect of preventing me from selling any of the property in which I have an interest. A copy of the Orders of Justice Rose are annexed hereto and marked "G".
On 13 February 2001 I commenced an application in the Family Court for an interim property order, to enable me to sell some of the property the subject of the injunctions to enable me to fund the costs of the Common Law proceedings and of the Family Court proceedings.
This application was listed for hearing in the Family Court at Sydney on 23 July 2001. Annexed and marked "H" is a copy of the orders sought in an amended application which was served on the wife's solicitors on 20 July 2001 and which it proposed to litigate on 23 July 2001.
On 23 July 2001 my application for interim property orders was one of six matters listed but not reached in the Family Court at Sydney. At 4.30pm on that day, Justice Lawrie directed that it be referred to the Contested Matters List Clerk for allocation of a fresh date, because Judges of the Family Court were all engaged in a Judge's Conference from Wednesday, 25 July 2001 to Friday, 27 July 2001 and would be unable to reach my matter (or any but one of the other matters listed on 23 July 2001) during that week.
My application for an interim property order has now been listed for hearing on 25 and 26 October 2001."
62 Annexure H to that affidavit was the document which I have summarised in paragraph 16 above. That affidavit of Mr Mead's was served on Mr Conolly's firm under cover of a letter dated 7 August 2001.
63 On 27 July 2001 Mr Watson swore an affidavit in the winding up proceedings. It gave a general account on the progress of the liquidation, and included the following matters:
"4. I have not yet finalised my investigations or report into the financial position of Hypec. However, at the date of swearing this affidavit I have identified funds in the sum of $4,907,725 which at this stage in my opinion were funds properly belonging to Hypec but which were used by the Directors of Hypec for their own personal use during the period 1989 to 1997. Annexed hereto and marked with the letter "B" is a schedule of the funds so identified. Notwithstanding this, further investigations are continuing.
5. My investigations to date reveal that the funds referred to in paragraph 4 above were used by the Directors of Hypec for, inter alia , the following purposes;
(a) Payment of deposits on real property purchased in their joint names;
(b) Payment of mortgage instalments in respect of property registered in their joint names;
(c) Payment of invoices for construction of improvements to real property registered in their joint names;
(d) Payment of lease payments in respect of a 40' boat in their joint names;
(e) Purchase of chattels such as furniture and homewares;
(f) Payments into an education fund for the benefit of the children of the directors;
(g) Payment of contributions to a private superannuation fund;
(h) Payments in respect of a personal investment portfolio.
6. It is my opinion as official liquidator of Hypec that the funds referred to in paragraph 4 above were funds properly belonging to Hypec. …
16. I am presently considering the legal avenues open to me as liquidator of Hypec to recover from the directors of Hypec:
(a) The amount of $2,861,844 owed to Hypec in respect of the Directors Loan Account; and
(b) The amount of $2,045,881 in additional Hypec funds which I have identified as being used by the Directors for their own use, together with any further monies (if any) so identified pending completion of my investigations.
17. My examination of the books and records of Hypec has not disclosed any minute or other record of any resolution authorising the Directors of Hypec to establish a Directors Loan Account or to draw the funds in the sum of $2,861,844 referred to in paragraph 16(a) above against such account. My examination of the books and records of Hypec also has not disclosed any minute or other record authorising the Directors of Hypec to utilise for their own purpose the additional Hypec funds in the sum of $2,045,881 referred to in paragraph 16(b) above."
64 Annexure "B" to the affidavit was a document headed "Reconstruction of Directors' Loan Account", which identified various transfers of money from HE totalling $4,907,725.64, stating by reference to each transfer, the date of the transfer, the cheque number (or other means by which the transfer had occurred), the amount, the payee, and an asset related to that transfer. A reader would infer that what the liquidator was setting out was particularisation of assets of Mr and Mrs Mead whose acquisition had been financed by the money of HE, in consequence of which Mr and Mrs Mead owed HE the total amount that had been spent in this way.
65 The process which had been returnable on 30 July 2001 (paragraph 59 above), and a separate summons filed on 2 August 2001 in separate proceedings (summarised in paragraph 18 above) were the applications which came on for hearing before Einstein J on 17 August 2001.
66 At the hearing before Einstein J, Mr Mead's affidavit of 26 July 2001 (paragraph 61 above), and Mr Watson's affidavit of 27 July 2001 (paragraph 63 above) were read. As well, an affidavit of Mr Watson's sworn 13 August 2001, was read. In it, Mr Watson explained that he was still seeking information from Mrs Mead, and from an expert who Mr Mead proposed to engage for the common law proceedings, Mr McEwen. Mr Watson said that until he had the benefit of the input from Mrs Mead and Mr McEwen he was not in a position to assess whether he would be prepared to cause HE to take any further part in the Common Law Proceedings. He asked for the court to give him a further week in which to conclude his investigations and consideration. Mr Watson's affidavit continued:
"7. I can inform the Court that, if I am satisfied that there is a fair prospect on the evidence that Hypec will succeed in the defence and cross-claim proposed by Mr Mead or any other defence - and at this time I have not yet formed that view - provided Mr Mead pays all costs of preparation and conduct, and provides an effective indemnity for me as liquidator against any adverse costs order, I would be prepared to file a motion seeking to set aside judgment against Hypec in the Common Law Proceedings.
8. I take the view however that Mr Mead's proposed provision of an indemnity for costs of the Common Law Proceedings contained in the letter from Etheringtons solicitors to myself dated 2 July 2001 (a true copy of which is annexed hereto and marked "A") is unsatisfactory, at least in light of the matters contained at numbered paragraph 5 of page 2 of the letter from Etheringtons to my instructing solicitors dated 12 July 2001, a true copy of which is annexed hereto and marked "B".
9. As set out in paragraphs 4-6 of My First Affidavit, I have an apprehension that the matrimonial property, which Mr Mead is said in Annexure B to be wishing to sell for the purpose of funding of the Common Law Proceedings may, in whole or in part, comprise assets properly belonging to Hypec. Upon this basis, Mr Mead would be offering to indemnify Hypec with its own monies. In any event, my current view is that I cannot accept as a likelihood that the Family Court will order sale of assets to permit Mr Mead to conduct the Common Law Proceedings.
10. I would not be prepared to take responsibility for the Common Law Proceedings on behalf of Hypec without a satisfactory indemnity for costs. If Mr Mead's position were still as indicated by his solicitors in the letter being annexure B hereto, I would also apply for security for costs to support such indemnity.
11. As a result of the matters raised in My First Affidavit, and upon general principle, my current view is that in the event that I do not conduct the proceedings on behalf of Hypec, it would not be in the interests of Hypec and its members and creditors to allow Mr Mead to bring a defence or cross-claim in the Common Law Proceedings on behalf of Hypec."