Evidence of other witnesses
114 Mr Vinciguerra's evidence: Mr Vinciguerra was the first witness called by MGCC. He explained that he held 30 of the 100 ordinary shares in MGCC.
115 He explained how it came about that he acquired those shares. He said he had worked in the chemical industry for over 30 years. In about 1998, he was working as the operations manager and manager of the chemical cleaning division of a business known as Maxwell Chemicals. In the course of that work he came to know Mr Gilmour and the business MG Corrosion Consultants.
116 In 1998, he resigned from Maxwell Chemicals and then began discussing with Mr Gilmour, whom he had known for about 15 years, the prospects of joining MG Corrosion Consultants.
117 Mr Vinciguerra said that, at that time, the only operation of the MG Corrosion Consultants business he was aware of was the supply of labour for chemical cleaning. From his discussions with Mr Gilmour he understood that if he joined MG Corrosion Consultants, he would start up a water treatment side of the business.
118 Mr Vinciguerra said that at that time he did not know the structure of Mr Gilmour's business but when he joined, the business name was changed from MG Corrosion Consultants to MGCC.
119 Then in July 2000, he was issued with 30 of 100 shares in MGCC. He said that Sola-Kleen was issued the remaining 70 shares. He was then also appointed a director of MGCC along with Mr Gilmour.
120 Mr Vinciguerra said that he also knew that Mr Gilmour was involved with a business known as Sola-Kleen, which manufactured and sold hot water systems. Although he did not know the precise arrangements at the time, he now knows that the Sola-Kleen business was carried on by Sola-Kleen, the second defendant controlled by Mr Gilmour.
121 Nonetheless, he said that when he started at MGCC, the MGCC business and the Sola-Kleen business were both operated from the premises at 24 Bassendean Road, Bayswater, which were owned by Mr Gilmour.
122 Mr Vinciguerra gave evidence about how those premises were set up, including about a workshop, an external shed and external car parking and storage areas.
123 Mr Vinciguerra said that when he started working for MGCC he was the only person working full-time and that Mr Gilmour primarily worked for Sola-Kleen. Ms Stedman undertook administrative work for both Sola-Kleen and MGCC and there were some other people who worked for Sola-Kleen - David Stannard, Ross Gilmour (brother of Mr Gilmour) and Mr Thuy, who apparently worked in the workshop. Other than these workshop staff doing some unloading of deliveries of chemicals for MGCC, he considered they worked exclusively for Sola-Kleen.
124 Mr Vinciguerra said that only a small part of the premises was used by MGCC and that the reception area was shared between MGCC and Sola-Kleen. He said some of the office space was used by MGCC and the storage area was used for storage of chemicals used by MGCC. Also the lunchroom, toilet, computer area and stationery cupboard facilities were used by both businesses. The balance of the office space (areas 3, 4 and 6 on a rough plan of the layout of the premises that he produced) was used by Sola-Kleen as was the workshop (areas 8, 9 and 10 on that rough plan). Mr Vinciguerra said that, over time, MGCC's business expanded so that in about 2000 it employed Mr James Anthony McCarthy to work full-time. Mr McCarthy focussed on commercial water treatment and Mr Vinciguerra dealt with all aspects of the business, but he (Mr Vinciguerra) was the only person who focussed on industrial chemical cleaning.
125 He said that from 2000, Mr Gilmour continued to work primarily for Sola-Kleen, although he did do some work for MGCC on an ad hoc basis when required (for example, on one occasion on a cleaning job in Kalgoorlie that required three men for a week). But Mr Gilmour's day to day activities were for Sola-Kleen. MGCC's day to day operations, he said, were undertaken by him and Mr McCarthy (in relation to commercial water treatment).
126 Mr Vinciguerra said that in about 2003, MGCC employed Ms Michelle Dalton to perform administrative work for the MGCC business, being that previously done by Ms Stedman. He said that prior to Ms Dalton's employment, the extent to which Ms Stedman's time was spent undertaking work for MGCC, as opposed to undertaking work for Sola-Kleen, had gradually increased. He estimated that when he was working from the premises, at the time Ms Dalton was engaged, Ms Stedman was spending less than half of her time doing work for MGCC.
127 Once Ms Dalton was employed he estimates that Ms Stedman did MGCC's banking and made payments on behalf of the company and prepared financial and other reports and budgets for MGCC, but otherwise Ms Dalton undertook the administrative work such as preparing and sending out quotations and invoices and filing.
128 Mr Vinciguerra said MGCC provided vehicles to him, Mr McCarthy and sales people. Mr Gilmour also had a vehicle for personal and/or Sola-Kleen purposes.
129 He said that a couple of years after he was initially employed, MGCC established an operation in Adelaide which was staffed by one full-time employee, John Mitchelmore. Any chemicals used or sold in South Australia were sent direct to customers from Western Australia.
130 He said that as MGCC's business expanded it started utilising more of the premises and by 2000 it used all of the office space in the area marked "2" on the rough plan and came to use much of the area marked "12" for storage of its products.
131 He said MGCC and Sola-Kleen had separate telephone numbers but stationery and other sundry items were used by both.
132 MGCC also had operations in Kalgoorlie involving both chemical sales and industrial chemical cleaning. Mr Vinciguerra said that in the early 2000s he was on average spending every second week in Kalgoorlie and regularly drove there from Perth on a Sunday night and drove home on a Friday night.
133 He also said that although he became a director of MGCC in July 2000, Mr Gilmour routinely made decisions for MGCC without any reference to him. For example, he said Mr Gilmour made decisions about procurement of supplies without discussing the issues with him, and Ms Stedman would report to Mr Gilmour and not to him. He said he had no input or involvement in MGCC's finances (supplier payments and customer receipts) which was undertaken by Ms Stedman at Mr Gilmour's direction.
134 He said he never had the opportunity to inspect MGCC's books during his time as a director and was only ever provided with a few financial statements, balance sheets, tax returns, management reports and customer summaries - which he identified.
135 He further said that he did not fully understand how the figures in the management reports had been derived and recalls one particular matter he was concerned about, being the inclusion of "Management Fees'' as an expense recorded in management reports.
136 In that regard he said he tried to discuss his concerns with Mr Gilmour during the period of around 2004 - 2006. He said that on several occasions he said to Mr Gilmour words to the effect that the numbers in the reports did not make sense and needed to be justified and at least on one occasion said to Mr Gilmour that the books were being "cooked". He said that on each occasion, Mr Gilmour got angry with him and said words to the effect that he was "accusing" him.
137 Mr Vinciguerra said that after a few such occasions, he considered the exercise of receiving reports and discussing their content with Mr Gilmour to be futile and did not continue raising his concerns.
138 He also said that he often asked to look at Sola-Kleen's books but Mr Gilmour said that they had nothing to do with Mr Vinciguerra. In September 2003, Mr Vinciguerra said Mr Gilmour offered to sell his shares in MGCC to him for $2 million, but he did not accept Mr Gilmour's offer.
139 Mr Vinciguerra said that by about 2004, MGCC had enough business in Kalgoorlie to warrant him dealing with that business full-time and he then relocated to Kalgoorlie on a full-time basis and rented a unit there and resided in and worked from the unit.
140 Mr Vinciguerra said he remained in Kalgoorlie until he resigned as a director of MGCC on 22 April 2004. He said he resigned because of the way that Mr Gilmour and Ms Stedman, under Mr Gilmour's direction, made decisions about MGCC's affairs without involving him. He said he was concerned about the potential for him as a director to incur personal liability for decisions he was not party to.
141 Mr Vinciguerra said he ultimately resigned his employment with MGCC on 29 July 2006.
142 After that, he took legal proceedings in this Court to obtain access to MGCC's books.
143 He referred to a report that Mr Gorey prepared for him, which he considered identified expenses which were unnecessarily or not genuinely incurred for the purpose of MGCC's business, and which included but were not limited to management fees which it appeared Mr Gilmour had caused MGCC to pay to Sola-Kleen.
144 He said he never agreed to the payment of such management fees or to otherwise incurring expenses which were not necessary for, and genuinely for the purposes of MGCC's business.
145 He also referred to a notice of Extraordinary General Meeting of members of MGCC dated 20 March 2008 that he had received, which gave notice of resolutions for a rights issue under which 200,000 ordinary shares at a price of $1 per share were to be issued on a pro rata basis to members of MGCC.
146 Mr Vinciguerra was cross-examined about his knowledge of the financial arrangements between MGCC and Sola-Kleen and Mr Gilmour.
147 He said he did not ask Mr Gilmour what the rental arrangements were for the premises when he became a shareholder and director of MGCC in July 2000. He said he did not make any assumptions about the financial records of the two companies and the question of whether MGCC would be using the premises at no cost to it was something that "never entered into the consciousness".
148 When asked why he accepted the 30 shares in MGCC, he said that it was 18 months or two years into establishing the water treatment division and he considered that was a fair thing for the effort that he had put in.
149 He said he would have expected a dividend from the profits of MGCC.
150 He was then asked whether it would not have been important for him to know what the funding of the MGCC business was, how it was paying its rent, how it was paying its employees and so on. He said that at that point in time he did not think of that.
151 From his point of view he was there "to give them [the] water treatment business".
152 He continued to insist that at that point in time he did not consider what made up the costs for MGCC.
153 He said that for 18 months to two years the costs were negligible in the sense that he was providing labour free of charge and was providing a vehicle free of charge and there was "basically myself there for the business to be established". So there were not any costs of significance.
154 He also said he did not receive any wages in the first 12 months between July 2000 to July 2001.
155 Mr Vinciguerra was also cross-examined about the roles that Ms Stedman and Ms Dalton played. He said that Ms Dalton started off working part-time and that he may have told Mr Gorey that when he was preparing his initial report.
156 As to who paid for any stock that the business required in the early period, Mr Vinciguerra said that he assumed, because Mr Gilmour held 70% of the shareholding, that Mr Gilmour covered any costs, but added that they were talking about "low numbers".
157 When pressed about his knowledge of costs incurred in the period 1 July 2000 to 30 June 2001 and between 1 July 2001 and 30 June 2002, Mr Vinciguerra evinced little knowledge of how they were met.
158 Mr Vinciguerra was then asked questions about Mr Harradine, who, on 23 November 2010, had made an affidavit (that was shown to Mr Vinciguerra), stating that he was during the period 1 July 2000 to January 2003, the accountant for Sola-Kleen.
159 Mr Vinciguerra said he was not aware of that and said he had not, not that he recalled, met Mr Harradine before July 2000. Indeed, he considered there was only one occasion on which he had met him, either him or another accountant, Mr Tony Armenti, and that was to talk about the arrangement for his living-away-from-home allowance when he was living and working in Kalgoorlie. He thought this meeting must have been about that time, in 2004 or 2005, at an office in Victoria Park. He recalls meeting in an office but not the person or exactly the time of the year it was.
160 He specifically said he did not recall having the meeting with Mr Harradine referred to in [5] of Mr Harradine's affidavit, in or about November 2002, in the company of Mr Gilmour at the offices of Sola-Kleen.
161 When asked whether the meeting could have happened, he said that it may have happened, but also said, before that, that he did not recall having the meeting.
162 It was then put to Mr Vinciguerra that, in accordance with what was said in [6] of Mr Harradine's affidavit, at such a meeting there was discussion about the fact that Sola-Kleen had paid expenses on behalf of MGCC and had provided management services for which it was entitled to be reimbursed and paid by MGCC, but at that point in time MGCC was not in a financial position to do so. Mr Vinciguerra said he did not recall that discussion or a discussion about that between himself, Mr Gilmour and Mr Harradine.
163 When further asked whether he did not recall it, Mr Vinciguerra said:
It was never had. About management fees, was never had.
164 When counsel said he was not asking that question and was asking was it a meeting in relation to expenses paid by Sola-Kleen for the benefit of MGCC in November 2002, Mr Vinciguerra said he did not recall it "because I wasn't present at that meeting", if it in fact took place.
165 When it was put to him that he had previously indicated that the meeting in November 2002 "may have happened", he answered that he was never involved in discussions with the finances. He added that the recovery of expenses "was never discussed with me". He added that his focus was on getting business.
166 He was further asked whether he recalled Mr Harradine saying words to the effect that since MGCC conducted its accounts on a cash basis, not accruals, management fees should be paid and expenses recouped at such time as MGCC had sufficient funds, and that when paid, they would be entered into the accounts. He said that he could not recall that.
167 He clarified that his position was that he was never present at any such meeting where such a discussion was had. He added that he did not recall being in a meeting with the three of them being there and added that it "didn't happen".
168 Counsel made clear that Mr Harradine and Mr Gilmour would give evidence that there was such a meeting and such a discussion. To that Mr Vinciguerra responded, "That's fine".
169 Mr Vinciguerra was then asked whether at about that time in 2001, 2002, the situation was such that if Mr Gilmour had caused Sola-Kleen to demand immediate repayment of all costs that it had incurred on behalf of MGCC, it was likely the company would have folded. Mr Vinciguerra said that he would have assumed that MGCC had funds to pay its own way.
170 When Mr Gorey's report was put to him that MGCC had a working capital deficiency from 2003 to 2006 and that MGCC did not have funds to pay, he again said he was not sure and did not know and did not recall exactly what things were like and assumed that "It was still reasonably amicable".
171 When counsel further pressed Mr Vinciguerra to, in effect, agree that MGCC did not have the funds to cover expenses being incurred by Sola-Kleen on its behalf, and that it would, in effect, be appropriate for MGCC to agree to make payment of those expenses at a later date when it was in a position to do so, Mr Vinciguerra said that he was always under the belief that the sales that MGCC had made, once it established itself, were covering the costs.
172 He said it was never made clear to him that at some point it would be required to pay costs to Sola-Kleen. He added that he had worked there for two years running his own vehicle and there was never any mention made of covering those costs.
173 He further added that he never thought of the proposition that Sola-Kleen and Mr Gilmour were providing support and would have to be compensated at some point.
174 He said he had never had a discussion with Mr Gilmour about it and never had a discussion with Mr Harradine about it, nor anyone else.
175 Thus, Mr Vinciguerra expressly denied having had a discussion with Mr Harradine and Mr Gilmour regarding the preparation of the MGCC accounts to the effect that, with Mr Gilmour, he directed Mr Harradine to finalise the accounts on such a basis.
176 When he was continually pressed about whether it would be fair and reasonable in a start-up situation to receive financial support of the type suggested but then to repay it later, Mr Vinciguerra said it was never discussed and never thought of.
177 Mr Vinciguerra confirmed, by reference to the financial statements for the years ending 30 June 2001 and 30 June 2002, that no rent was paid by MGCC in respect of the premises. He said he never thought about when rent was going to be paid. He said his brief was to get business in.
178 Mr Vinciguerra was then asked about expenses covered by Sola-Kleen including Ms Stedman and computers being used by MGCC. He accepted when a second computer was introduced that that was so but said the first computer was in fact his. He accepted that Ms Stedman used a Sola-Kleen computer but said he did not recall how much time it would have been used for MGCC's work. He also accepted that there may have been some "basic software programs" that came with the computer but nothing special. He also accepted some small amount of furniture would fit into that category. He was also pressed about telephone handsets; he said the handset was shared.
179 When asked about the financial position of the company in July 2006, and whether by then it had the extra funds to pay for the expenses earlier incurred, Mr Vinciguerra said that the financial position then should have been very good, although he said in July 2006 he had left.
180 When asked when he considered the company commenced making profits, he said that he looked after KCGM at Kalgoorlie from about 2004 and the sales were quite extraordinary, they were very good. So he considered 2005/2006 was an extremely good year and he assumed it was trading profitably for two years or three years before that. In his view it should have been trading quite profitably.
181 Mr Vinciguerra was also asked about the work that Ms Dalton did for MGCC and whether she did any work at all for Sola-Kleen; which he did not recall her doing.
182 There were also questions about the extent to which Ms Dalton was part-time or full-time and he said that she eventually went full-time.
183 He was also questioned about the extent of Ms Stedman's role.
184 There was also some questioning about whether Mr Thuy did any work for MGCC. Mr Vinciguerra said he was in the fabrication area for Sola-Kleen and whatever he (Mr Vinciguerra) told Mr Gorey for the purposes of preparing his initial report was meant to communicate that fact. Mr Thuy was not involved in MGCC in terms of administration or servicing although he conceded Mr Thuy may, on a rare occasion in the early days, have helped unload some chemicals at the premises.
185 He also accepted that Ms Stedman before Ms Dalton arrived may have been involved in ordering chemicals, but not later on.
186 There was also questioning about the extent to which Ms Stedman, and later Ms Dalton, organised travel plans. He conceded that they possibly could have.
187 All this questioning was to try and establish that persons who were on the Sola-Kleen payroll actually performed significant roles for MGCC.
188 Mr Vinciguerra accepted that Ms Stedman was the person who dealt with payment of wages. Similarly, she dealt with reimbursement of expenses.
189 Mr Vinciguerra had earlier told Mr Gorey that he estimated that over the period 2001 to 2007, Ms Stedman would have spent 30% of her time on MGCC business. He was asked whether in light of the evidence he had just given he maintained that view, which he said he did. He confirmed that she did not do everything in the administrative area but she did do the accounts. That is to say the financial side of accounts, but not the reports, checking reports, or quotes.
190 He then said that once Ms Dalton started, Ms Stedman's contributions would have been less than 30%.
191 Mr Vinciguerra was also challenged about his statement that he had never had an opportunity to inspect MGCC's books in his time as a director and was only ever provided with a few financial statements. He was then shown a management report from May 2003 which showed the profit and loss at a glance and budget forecast. He assumed that he had received the document. He was then shown a document headed "Expenses" which included an item for "management fees". This showed estimated management fees in February of $5,000, in March of $625, $625 in April, $625 in May and $625 in June, showing a total of $7,500. When asked if he raised those with Mr Gilmour, he said he did not recall if he mentioned those specifically but did recall mentioning management fees to him, but not the time when he did so.
192 When pressed, he thought that was when he was in Kalgoorlie and came down to Perth and mentioned it, but could not say precisely when, did not take notes and did not write down the date.
193 He insisted that he asked Mr Gilmour, "What are management fees?". He said that that is when the whole relationship soured and he was told that he did not understand business and so from that point it did not really get anywhere.
194 As to the 2003 financial statements which included management fees, Mr Vinciguerra said he had no idea what management fees were about. They just appeared in the reports. He did not have an opportunity to question any of the dollars in there. The couple of times that he did, he said, "The reaction wasn't particularly good".
195 He was asked why the management report of May 2003 was provided to him. He said it was as a summary of how the business was going, which he asked for. He said he asked for the directors to meet but that never eventuated. He said that when he kept getting the management reports he did not go through any of them in detail.
196 He confirmed this was in the period he was busily working in Kalgoorlie.
197 While he said he did not understand what management fees were at that time, he now believes that MGCC was being charged for services provided by Sola-Kleen and for a management fee on top of that.
198 When pressed about what the particular management fees shown in the 2003 report were for, such as the $5,000, he was not able to say how it was calculated.
199 Questions were also asked of Mr Vinciguerra about the extent to which Mr Gilmour did work for MGCC. He indicated, very little. While he was working in Kalgoorlie, Mr McCarthy managed the water treatment in Perth and reported to Mr Gilmour.
200 He accepted there was one occasion when Mr Gilmour and two others attended in Kalgoorlie for about two weeks to do a chemical cleaning job. He was pressed about the extent of his knowledge concerning administration on behalf of MGCC while he was based in Kalgoorlie. He accepted that Mr Gilmour had "top end responsibility" for MGCC's operations but he did not, so far as day to day involvement was concerned.
201 Mr Vinciguerra was then asked questions about a factoring agreement dated 16 August 2001 between Benchmark Debtor Finance and MGCC.
202 He said he was not in total agreement with it and thought there were other options. He considered Ms Stedman, who was handling debt recovery, was not doing a good job and believed that it could be done better and, if it had been, the factoring agreement would not have been required.
203 He said he was not particularly convinced that "the person doing the job" was doing it effectively and efficiently and that was an option that he put forward.
204 He indicated that this was one occasion when he did become involved with the finances of the company. He had a discussion with Mr Gilmour about it.
205 He was then asked whether he was happy for the company to enter into the debt factoring facility and he said that he signed it although he was not happy with it. He considered it was one option though not necessarily the best option, but he accepted that it was an option "he had to take" even though it was not the best option in his view. When asked whether it was in the best interests of the company or not to do it, he said that in terms of managing cashflow it was an option, although he did not think it was the best option.
206 It was pointed out to him that he not only signed the facility as a director of the company but also as a guarantor and must have given some serious thought to it before he signed it. He finished up responding by saying:
I will say it's in the best interests of the company as long as it's accepted that I didn't think that it was the only option, but it was the option that I was given, so I had to take it. As a minority shareholder, I had no say in it. Ultimately, what happened, I had to go - I had to go with it.
207 After further questioning regarding the debt factoring arrangement, he accepted that it provided cashflow benefits at a time when the company had a capital deficiency. Nonetheless he considered that he had to fall in line with the proposal. But he also said that he was not convinced it was in the best interests of the company as the inefficiencies in the existing debt collection system remained. Only one big client did not fall into the category of not being a prompt payer.
208 Ultimately, Mr Vinciguerra accepted that the debt factoring facility was "an option which worked for the business" and he essentially agreed that because it did work for the business he agreed to sign as a director and a guarantor.
209 In re-examination Mr Vinciguerra again indicated he had a limited knowledge of financial matters in MGCC and did not know what money came in from the factoring arrangement.
210 Similarly, he said he did not know that the loan apparently made to the Gilmour Family Trust had increased from $30,429 to $89,783 in the financial year ending 30 June 2002; that is to say, after the factoring agreement was made.
211 He also said he did not know about the overdraft indicated of $79,838.
212 As to the relevance of Mr Vinciguerra's evidence, and the weight it should be given in the light of competing evidence, I will deal with key aspects of it below.
213 Mr McCarthy's evidence: Mr McCarthy then gave evidence called by MGCC. He confirmed he was employed by MGCC from about 1 March 2000 to work in commercial water treatment.
214 He then understood that Mr Gilmour and Mr Vinciguerra owned MGCC with Mr Gilmour as the majority owner, and that Sola-Kleen also operated from the same premises.
215 He gave evidence about the layout of the premises and the areas used by MGCC and Sola-Kleen, which generally corroborated the evidence that Mr Vinciguerra had given.
216 He confirmed that Mr Gilmour was the person who gave directions to Ms Stedman and the person to whom Ms Stedman reported and that she worked as Mr Gilmour's secretary and undertook MGCC's banking and administrative work such as issuing quotations and invoices and doing filing when he was first there.
217 He also confirmed that Mr Stannard worked in the workshop and that on occasions Mr Gilmour and other employees of Sola-Kleen, apart from Ms Stedman, would assist unloading deliveries for MGCC.
218 He said that when Ms Dalton commenced she took over the administrative work of MGCC issuing quotations and invoices and doing filing, but Ms Stedman continued to do the banking.
219 He gave evidence of Mr Gilmour in conversations with Mr Vinciguerra, which, involved Mr Gilmour telling Mr Vinciguerra about the direction the company would take.
220 He also said that when Mr Vinciguerra was located in Kalgoorlie, he visited the premises occasionally. He heard Mr Gilmour telling Mr Vinciguerra that he would make a particular decision notwithstanding Mr Vinciguerra was opposed to it.
221 He observed their relationship deteriorate over time.
222 After Mr Vinciguerra left in about 2006, his relationship with Mr Gilmour also deteriorated and then he resigned and obtained alternative employment.
223 In cross-examination Mr McCarthy indicated that he and Mr Vinciguerra set up a diary to administer the service work and service reports were given on a laptop. He explained the way that system worked.
224 When pressed for information about the extent to which Ms Stedman was involved in all of this, he indicated that she helped out at times, or followed up in areas but that they had the diary and ran the system. He said she also helped out a lot with the invoicing. He did not have a clear recollection of what happened after Ms Dalton arrived but "imagined" that Ms Stedman did a lot of handling of the invoicing.
225 Job cards and other parts of the administration, however, were handled by Ms Dalton. He confirmed that Ms Dalton started off part-time. He confirmed that Ms Stedman filled the gap on occasions when Ms Dalton was not at work but he also had people ring him direct.
226 He confirmed that earlier on Ms Stedman would order chemicals.
227 He confirmed that Ms Stedman would have arranged airfares and travel arrangements when he travelled to places such as Kalgoorlie or Darwin.
228 He thought that Ms Stedman may have been involved in getting trucking companies to take chemicals from Perth to Kalgoorlie, because he did not have any direct involvement in that area.
229 He was less clear about chemical signage responsibilities.
230 He confirmed that Ms Dalton took over on the administration side when she arrived.
231 He confirmed that if there was a question of him having expenses reimbursed, he would deal with Ms Stedman about that.
232 He was asked a number of other questions by which counsel sought to elucidate the sharing of responsibilities between Ms Stedman and Ms Dalton.
233 He was also asked about the extent to which Mr Gilmour was involved in MGCC work.
234 Mr McCarthy's evidence about most of these matters was quite general, reflective of the fact that: prior to Ms Dalton's arrival, Ms Stedman had much to do by way of assisting in administration and the like with MGCC, but that largely changed after Ms Dalton arrived, although Ms Stedman remained in charge of financial matters such as banking; that Mr Gilmour was involved in some matters but not a lot of hands-on matters in the MGCC operation; that other employees in the storage area may have assisted MGCC but only in a minimal way. His evidence was useful to that extent.
235 Mr Thuy's evidence: Mr Thuy said he worked for MGCC and Magil Nominees, which was previously known as Sola-Kleen, from 2002 to 2011 and still works a day a week for the new owner of Sola-Kleen.
236 He said he undertook work for MGCC that involved cleaning chemical drums and as a forklift driver unloading trucks. He said he was storeman for both MGCC and Sola-Kleen.
237 He considered that he worked an average of three to four hours each day for MGCC throughout his employment in the period 2002 to 2007.
238 In cross-examination he said he was paid by both companies, but agreed he did not know how much each company paid him.
239 At Sola-Kleen he said he made a tank and a panel and did chemical work as his main work which involved washing containers, especially when they came down from Kalgoorlie.
240 He was pressed about the extent to which he dealt with small containers but insisted that he did. As to how much unloading of chemicals he did, he said that it was "sometimes one week, sometimes second week, sometimes there was none".
241 When pressed about whether or not he worked through the four hours every day on MGCC work, he said that "three, four hours, sometime more, sometimes from 8 o'clock to 6 o'clock. Some day two or three hours. Some day one hour. Next day none".
242 He said it would probably depend on whether the chemicals came in from Kalgoorlie and the number of containers of about 15 or 20 and then you had to work hard from the start until the finish.
243 Mr Thuy's evidence, like Mr McCarthy's, was not in any great detail, but confirmed the view that he worked, as he said, for both MGCC and Sola-Kleen. It was difficult to make any clear assessment just what the division of labour was between the two companies. Based on his evidence, he did more work for MGCC than Mr Vinciguerra and Mr McCarthy had suggested.
244 Mr Gilmour's evidence: Mr Gilmour's evidence in chief was contained in a witness statement that became exhibit 5, a responsive witness statement that became exhibit 6 and also in an affidavit filed in proceeding WAD256/2010, made 17 November 2011. Objections were taken to portions of exhibit 5 and exhibit 6 as set out in a letter from the solicitors for MGCC to the defendants' solicitors, dated 11 October 2013. It was agreed the Court would later rule on these objections, which primarily raised questions of relevance, proper form and statements not responsive to any particular evidence.
245 In his primary witness statement, exhibit 5, Mr Gilmour, after providing background to the Sola-Kleen business confirmed that in 2000 Mr Vinciguerra commenced working as an employee of MGCC. He said MGCC had been incorporated on 12 October 1998. He said that he had known Mr Vinciguerra for 30 years and "treated him as a member of my family". He said to provide him with an incentive to remain with MGCC long term, he caused MGCC to issue 30 fully paid shares to him, as a result of which they became 70/30% shareholders in the company.
246 While the evidence about gifting the shares to Mr Vinciguerra because he was like family to Mr Gilmour is objected to, in all the circumstances I consider it relevant to the relationship between the parties and of marginal relevance and therefore do not exclude it.
247 However, there is an objection to [11(a)] of the exhibit 5 tender on the basis that it is hearsay as well as irrelevant, which objection I uphold.
248 Mr Gilmour goes on to say that he became concerned about Mr Vinciguerra because he was conducting himself in an arrogant and overbearing manner and verbally abusing staff and did not apply himself diligently to his duties.
249 He said Mr Vinciguerra ceased to be a director in April 2004 because he asked him to resign because of these issues.
250 He further asserted that at the time they were directors he always consulted Mr Vinciguerra before making any management decisions. He said that although Mr Vinciguerra was based in Kalgoorlie and he was in Perth for much of that time, they conferred over the telephone at least every other day and he would also travel up to Kalgoorlie once a month and spend a couple of days there overseeing the business with Mr Vinciguerra and would also visit customers in Kalgoorlie.
251 He said Mr Vinciguerra also made frequent trips to Perth. He said he would never make a major purchase or incur a major expense without consulting Mr Vinciguerra and kept him informed on a monthly basis as to the financial position of MGCC through the provision of monthly management reports.
252 Paragraphs [15]-[20] of the witness statement, exhibit 5, are also objected to on the basis of relevance. These concern the entitlement to a motor vehicle of Mr Vinciguerra. I consider they are irrelevant. None of those issues were raised for example in cross-examination of Mr Vinciguerra, which is probably a good indication of their irrelevance, so those paragraphs are not admitted into evidence.
253 Mr Gilmour said that Mr Vinciguerra also received annual financial statements and had access to all financial matters concerning MGCC.
254 Objection is additionally taken to [23]-[51] of the witness statement, exhibit 5. I have considered those paragraphs and consider them to be irrelevant. None of the matters were the subject of any attempt at cross-examination and, as I indicated above, that is probably a good indication of their irrelevancy. I do not admit them into evidence.
255 Mr Gilmour said that at all times since 2000 there was an agreement that management fees would be paid to Sola-Kleen and expenses recouped when MGCC had the funds to do so and it was not until July 2006 that it did have extra funds to pay them, although even then only in part. There is an objection to this paragraph on the basis that it is conclusory, but I do not uphold that objection. The cross-examination on this issue and the further examination and cross-examination of Mr Gilmour on the topic of such an agreement covers the evidence in any event.
256 Mr Gilmour supports his view as to why there was such an agreement by reference to the fact that in 2000 MGCC did not have any significant debts to third parties, but at the same time was not profitable, and Sola-Kleen and he provided funds to MGCC. He said the financial statements for MGCC for the year ended 30 June 2001 show the company suffered a pre-tax loss of $64,359 and had net liabilities totalling $64,259. He said Mr Vinciguerra did not ever discuss with him or direct any queries to him in relation to any of MGCC's debts.
257 Mr Gilmour said the consultancy fees were paid by MGCC to various external consultants, such as chemistry consultants and said that none of the consultancy fees were paid to any party related to him personally.
258 He said Sola-Kleen charged MGCC for services rendered by it to MGCC, for the use of the premises and services of management and administration personnel of Sola-Kleen (including himself). He said these were always disclosed to Mr Vinciguerra through the management reports and were calculated according to the rates that MGCC was advised by its accountants, Mr Harradine and later Mr Armenti.
259 Mr Gilmour said that he never caused Sola-Kleen to charge management fees based on duplicated expenses or false accounting and that direct expense items such as rent, plant and equipment hire, postage, telephone and printing and stationery related solely to expenses incurred through the use of MGCC's staff, facilities and equipment including at the Kalgoorlie office. He said that where similar categories of expense were incurred by the two companies, Sola-Kleen charged MGCC management fees comprising those expenses, plus a profit mark-up.
260 I uphold the objections to [62]-[64] of the witness statement, exhibit 5, on the grounds of relevance.
261 As to the debt factoring agreement, Mr Gilmour said that at the time it was made, MGCC did not have sufficient working capital to operate and required external funding and he and Mr Vinciguerra agreed that the debt factoring agreement should be entered into.
262 Mr Gilmour also said that Mr Harradine advised that a service agreement should be put in place between Sola-Kleen and MGCC and that was done and he signed the relevant document on behalf of MGCC and Sola-Kleen which appears at trial bundle 21.
263 He also said that in November 2002, he and Mr Vinciguerra met with Mr Harradine at the company's offices during which there was a discussion led by Mr Harradine about the fact that Sola-Kleen had paid expenses on behalf of MGCC and had provided management services for which it was entitled to be reimbursed and paid by MGCC, at a time when MGCC was not in a financial position to meet those expenses. He said Mr Harradine suggested that the management fees be recouped at such time as MGCC had sufficient funds and that when they were paid they would be entered in the accounts.
264 Mr Gilmour said that he and Mr Vinciguerra both said words to the effect that they accepted that advice, that the management fees and expenses would only be paid and recouped from MGCC by Sola-Kleen when MGCC had sufficient funds; that they would not put MGCC under financial pressure to pay such expenses when it could not do so. He said that he and Mr Vinciguerra then directed Mr Harradine to finalise the accounts on that basis.
265 Mr Gilmour in the witness statement, exhibit 5, also addressed the report by Mr Lopez. I uphold the objections to the extent that Mr Gilmour thereby attempts to express an opinion, but receive the evidence to the extent that Mr Gilmour is simply noting and is apparently accepting expressions of opinion made by Mr Lopez that, for example, an amount of $97,166 may be recoverable.
266 In his responsive witness statement, exhibit 6, Mr Gilmour sought to respond to Mr McCarthy's evidence, including about the layout of the premises.
267 I uphold the objection to [5] in which Mr Gilmour endeavours to rely on an appraisal report to support a claim that Sola-Kleen undercharged the rental to MGCC of the premises.
268 Mr Gilmour further said in this statement that he oversaw the entire MGCC operation and was actively involved and would spend at least 80% of his time on MGCC operations, dealing with customer complaints, overseeing quotes, sorting equipment, mixing chemicals, repairs and maintenance, working with suppliers, visiting customers, getting staff trained, buying equipment, making sure accounts were paid, dealing with chemists and training staff in chemical cleaning and many other duties.
269 He also said that Mr Stannard reported to him on a daily basis.
270 He also made comments concerning the extent of Ms Stedman and Ms Dalton's responsibilities in relation to MGCC.
271 In oral evidence, Mr Gilmour adopted the evidence that he had previously set out in an affidavit made 23 November 2010 in proceeding WAD256/2010, concerning the agreement he said was made about management fees in the presence of Mr Vinciguerra with Mr Harradine.
272 In cross-examination, Mr Gilmour was taken to annexure ACV10 of Mr Vinciguerra's affidavit of 9 November 2006 at p 81. Pages 81-85 are identical to pp 452-455A of the trial bundle.
273 Mr Gilmour struggled with the question whether the document at pp 452-455A was given to Mr Vinciguerra not earlier than 8 June 2005.
274 In the event, Mr Gilmour accepted that the document he gave Mr Vinciguerra was not the tax return that was eventually lodged.
275 Counsel took Mr Gilmour through the document that had been given to Mr Vinciguerra concerning management fees as at 30 June 2004 of $236,494. He then put to Mr Gilmour that a copy of the tax return that he gave Mr Vinciguerra showing payment of tax with a cheque number and a date payment of 8 June 2005, in fact concealed from him that payment of management fees to Sola-Kleen for that year. Mr Gilmour disagreed.
276 He accepted, however, that the document Mr Vinciguerra was given did not include management fees. Mr Gilmour said that Mr Vinciguerra separately knew of the management fees because of internal discussion. He insisted that he had disclosed those fees to Mr Vinciguerra.
277 He disputed totally that he gave the document that he did to Mr Vinciguerra, which did not disclose management fees, because he knew Mr Vinciguerra would not accept payment of them to Sola-Kleen.
278 He denied concealment.
279 Counsel then put it to Mr Gilmour that there was no agreement ever made between MGCC and Sola-Kleen prior to the end of the 2004 year about payment of management fees and the preparation of the accounts for it in 2005, to which Mr Vinciguerra was ever a party.
280 Mr Gilmour responded as follows when asked what he had to say to that: "I say you're on drugs … this is ridiculous … Alberto was aware of everything". Mr Gilmour added that he had "tucked him under my wing since he was 17 years old".
281 Counsel then took Mr Gilmour to the financial statements for the year ending 30 June 2005. Mr Gilmour agreed that he gave a copy of them to Mr Vinciguerra.
282 Counsel noted that there was no item for management fees for either 2004 or 2005. Mr Gilmour said that if that was what had been given to Mr Vinciguerra then "there must have been a discussion or something" about the management fees and he was not in a position to explain why they were not in the document at this stage.
283 Counsel then asked him to explain why if management fees had been charged in the previous year 2004, even if they were not going to be charged in 2005, they did not appear in the historical 2004 year column.
284 Mr Gilmour said he could not understand why they were not there because they should have been.
285 When it was put to Mr Gilmour that they did not appear there because he was concealing from Mr Vinciguerra the fact that management fees were being paid, he said he could not agree with that.
286 Counsel then took Mr Gilmour to his affidavit of 13 February 2007 at [13], where Mr Gilmour had said he had received from Mr Armenti copies of the final versions of the financial statements and corresponding tax returns for 2004 and 2005 about the time of lodgement with the Australian Taxation Office and that the final versions included management fees charged by Sola-Kleen. Counsel then noted the affidavit of Mr Armenti of 21 January 2007 which referred to copies of the financial statements for the various years. He pointed out to Mr Gilmour that the financial statements for the year ended 30 June 2005 (at about trial bundle 849) included management fees for the years 2004 and 2005.
287 He then noted by reference to trial bundle 580E, which is part of the document that Mr Gilmour had given Mr Vinciguerra, the total expenses shown there were $301,279 less than the total expenses of $948,291 shown in the document produced by Mr Armenti. It was put by counsel that the difference comprised the full amount of the management fee of $278,460 and some other smaller amounts. Those other amounts would seem to include hire and rent of plant and equipment of $3,663, motor vehicle commercial fuel and oil of $21,957, printing and stationery at $12,739 and rent on land and buildings and repairs and maintenance.
288 It was put to Mr Gilmour that in 2005 he had given Mr Vinciguerrra a set of financial statements which concealed from him the payment of management fees. Mr Gilmour rejected that "one million percent".
289 Mr Gilmour accepted that his salary was used in calculating the management fee at various times. Mr Gilmour sought to justify that on the basis that he was working 100 hours per week for MGCC as well as working for Sola-Kleen too. He gave evidence along the lines set out in his primary evidence above.
290 He accepted that in 2006 and 2007, he was also paid directors' fees by MGCC.
291 In the course of that evidence, Mr Gilmour indicated that Mr Armenti would not be called to give evidence because he was "not available"; it appeared that he could not be located.
292 The financial records showed that Mr Gilmour received directors' fees in 2007 of $129,633 and in the previous year $118,913.
293 Counsel then sought to ascertain just what directors' fees Mr Gilmour had disclosed in his personal income tax returns at material times. Mr Gilmour indicated that he did not disclose receiving $118,913 in 2006 because "I didn't receive that money".
294 Mr Gilmour indicated that at that point Mr Armenti was responsible for preparing financial statements including his personal income tax return, Mr Armenti having acquired the accounting business from Mr Harradine in 2003.
295 He further said that the $129,633 listed in the financial statements as a directors' fee paid by MGCC in the 2007 year was not paid and thus did not appear in his personal income tax returns.
296 Counsel then took Mr Gilmour to his evidence of a meeting in November 2002 attended by himself, Mr Vinciguerra and Mr Harradine concerning the payment or delayed payment of management fees by MGCC to Sola-Kleen.
297 In evidence in chief counsel for Mr Gilmour had referred him to what Mr Harradine said in his affidavit. Counsel for MGCC asked whether Mr Harradine had actually said the words specified in the affidavit. He responded by saying that if it was in Mr Harradine's affidavit then he was sure he said it. He would not dispute what Mr Harradine said.
298 Counsel noted that Mr Harradine said that he had made the suggestion about recouping management fees when MGCC was in a position to pay them "since the plaintiff conducted its accounts on a cash basis (not accruals)". Counsel asked Mr Gilmour whether MGCC ever had accounts prepared on a cash basis, rather than accruals basis. Mr Gilmour did not know and said Mr Harradine would have to deal with that. He said that he just accepted what Mr Harradine advised.
299 Counsel took Mr Gilmour to the financial statements for MGCC for the year ending 30 June 2001 in order to ascertain on what basis the accounts had been prepared. He noted at p 8 of the document, it was stated the financial report "has been prepared on an accruals basis and is based on historic costs". He noted that that appeared to contradict what Mr Harradine was recorded as saying in his earlier affidavit. However, Mr Gilmour would not admit that the accounts were prepared on an accruals basis and not on a cash basis, saying that he would have to defer to Mr Harradine because he did those reports.
300 Counsel put it to Mr Gilmour that Mr Harradine never made a statement to the effect that the plaintiff conducted its accounts on a cash basis because in fact it did not. Mr Gilmour, however, would not accept that. He said he took Mr Harradine's word of what he stated.
301 Mr Gilmour also insisted that Mr Vinciguerra was there at the meeting and there was an agreement made and Mr Vinciguerra "was with us every step of the way".
302 Mr Gilmour said that the accountants were responsible for calculating the management fees, either Mr Harradine or Mr Armenti, and he did not calculate any of them.
303 Mr Gilmour was then cross-examined about an invoice for a management fee dated 31 July 2002. It disclosed management fees in the year 2002 to 2003, charged by the Gilmour Family Trust (for Sola-Kleen) to MGCC. Mr Gilmour explained that Ms Stedman and Mr Harradine would have been responsible for their preparation. He would have looked at them after they were prepared. As to the materials at p 199 and following of the trial bundle he identified a budget forecast for 2002/2003, apparently prepared in May 2003.
304 Mr Gilmour was asked why he was preparing budget estimates to pay management fees if there was an agreement to defer them. He said that one would put them in there so that they can be logged.
305 It was then noted then that the management fees ending 30 June 2003 were $240,142. That, however, compared with a revised budget forecast circulated in late May 2003 (p 202 of the trial bundle) of $10,625. Mr Gilmour said he could not explain how that came to pass. Mr Gilmour said he would be reliant upon the accountant at that point, Mr Harradine, to explain it, or Mr Armenti if he had then taken over.
306 Counsel then took Mr Gilmour to loans shown in the financial statements for MGCC for the year ending 2002, which suggested a loan to the Gilmour Family Trust in 2002 of $89,783, which in 2001 was $30,429. Mr Gilmour said there would have been monies paid back, monies that he had put in, they would have been paid back to him.
307 Counsel then identified a number of amounts dated 30 June with a "J" next to them, all being journal entries, showing an amount drawn down of $136,229.40, which took the loan balance to $166,658.31. Some amounts were then credited back later. Mr Gilmour was asked whether the money to enable the drawdown of $136,229.40 came from the proceeds of entering into the factoring agreement. Mr Gilmour indicated this all happened 11 years ago and he could not answer that question. He said they were "accounting figures".
308 He also said he could not comment on the proposition that the $136,229.40 was advanced to Sola-Kleen because MGCC could afford to advance the money. He said he could not answer because he was not an accountant and he could not recall. He said if the money has been drawn down it had also been paid back.
309 In relation to the factoring agreement, counsel took Mr Gilmour to the 2001/2002 financial year entries noting that the first entry in the loan account where monies had been advanced by MGCC to the Gilmour Family Trust is an increase of the $136,229.40. Mr Gilmour acknowledged that. Again, counsel put it to him that it was as a result of entering into the factoring agreement that the funds were obtained which enabled that loan to be made. Again, Mr Gilmour said he could not comment on that.
310 He said he could also not comment on the proposition that the loan was made at a time when MGCC could afford to advance the money and did not become insolvent in doing so.
311 When counsel pressed Mr Gilmour to say why MGCC made a loan of about $136,000 at that time, Mr Gilmour said he honestly could not recall.
312 He also agreed with counsel's proposition that the amount could also have been paid over as management fees to Sola-Kleen. Again, he could not answer but said he would have taken advice on the transactions.
313 Some of the journal entries earlier referred to appeared to be in respect of legal fees incurred by MGCC.
314 In relation to the opposition by MGCC to the provision of access by Mr Vinciguerra to documents under the Corporations Act, Mr Gilmour denied that he was acting solely in his own interests and not on behalf of the company.
315 Mr Gilmour was further cross-examined as to the relative contributions of Ms Stedman, Mr Thuy, his brother and other persons from time to time and also whether he spent much of his time on a property development at Bakers Hill.
316 In re-examination Mr Gilmour dealt with some of the work he had done with his brother, Ross Gilmour.
317 Mr Gilmour also clarified an entry on Mr Lopez' report at p 1156 of the trial bundle. He was asked by the Court, in the end, whether the passage that had been drawn to his attention suggested that between 1 July 2008 and 30 June 2009 he deposited $168,000 in the company's account and withdrew $17,640 resulting in a net inflow of $150,360 and did he know why that money was deposited. He said that would have been monies that he would have pumped into the business.
318 It was left for submissions to be made, counsel for MGCC noting these entries were about a loan account and counsel for the defendants saying that it was money owed to Mr Gilmour by the company.
319 Mr Gilmour also said that the signature on the document at trial bundle 873, dated 15 May 2005, contained handwriting with figures. The figures were not his but the signature was.
320 He also said that financial statements he was shown for the year ending 30 June 2006 at trial bundle 748 were prepared by a group called TKNP International, which had been called in because Mr Vinciguerra wanted an audited report done on the company and he agreed for that to be done.
321 As in the case of Mr Vinciguerra's evidence, I will weigh Mr Gilmour's evidence below.
322 Ms Dalton's evidence: The defendants then called Ms Dalton. She confirmed that she was employed by MGCC from early 2000 until early December 2006 and that her duties were as a receptionist and providing support to Mr McCarthy. She said she rarely did any work for Sola-Kleen, other than occasionally answering the telephone and taking messages if Ms Stedman was not around.
323 When she gave evidence she could not be sure that she commenced in 2000. She said she was initially permanent part-time and then became full-time after one or two years.
324 In cross-examination she said she had young children at the time she commenced.
325 She said Mr McCarthy was the service manager and he was the main technician and had a person helping him out.
326 She confirmed that all her work was for MGCC.
327 She confirmed that she issued quotations and service reports and "might have" ordered chemicals. She said she did a lot of preparation work for the invoicing and a lot of scheduling, following up on things.
328 She said that Mr Vinciguerra and Mr McCarthy trained her when she arrived.
329 She said that Ms Stedman mostly did invoicing with the accounting package which she did not know how to use and did the banking, paid wages and the like. When asked as a general question what percentage of Ms Stedman's time was spent on MGCC and what percentage was spent on Sola-Kleen, Ms Dalton said that if one was talking about the invoicing part of it, about 10% on MGCC.
330 She also considered that Mr Gilmour did a substantial amount of work on MGCC business.
331 As to Mr Thuy, she did not really recall him doing work for MGCC. She thought he may have assisted with loading but that was about all.
332 In re-examination she confirmed that the 10% that she allocated to Ms Stedman for invoicing, included use of the MYOB package. While she did other things, she said that the 10% she estimated related to "everything" that Ms Stedman did.
333 Mr Harradine's evidence: Mr Harradine was then called by the defendants. His witness statement went into evidence as exhibit 10. There were objections to paragraphs or parts of paras 5, 6-9, 10-13, 17, 21 and 23-25.
334 Mr Harradine indicated he was a chartered accountant who was also a director of MGCC from 15 January 2008 until he resigned on 30 September 2011.
335 He said he did MGCC's external accounting from 1983 to January 2003. He ceased as a director of Magil Nominees (formerly Sola-Kleen) in 1996 and ceased to be a member of Sola-Kleen prior to the incorporation of MGCC. He said he was only a member of Sola-Kleen because of the statutory requirement for two shareholders at the time and held his share on trust for Mr Gilmour.
336 He said MGCC's main business involved the manufacture and supply of chemical cleaning products to the mining industry which were widely used to remove the scale deposits that accumulate on some of the plant and equipment used in the processing of mineral ores.
337 He said in about 2000 he arranged for a service agreement to be prepared between MGCC and Sola-Kleen and purported to deal with the question of mark-ups and the like. There was objection to much of that evidence because it constituted opinion evidence.
338 Mr Harradine said that in about November 2002, he met with Mr Gilmour and Mr Vinciguerra at the offices of Sola-Kleen, which were also used by MGCC, and at the meeting there was discussion that Sola-Kleen had paid expenses on behalf of MGCC and had provided management services for which it was entitled to be reimbursed and paid by MGCC (at that point in time), which was not then in the financial position to do so.
339 He said he suggested that since MGCC conducted its accounts on a cash basis (not accruals) the management fees be paid and expenses recouped at such time as MGCC had sufficient funds and that when paid they would be entered in the accounts.
340 He said Mr Gilmour and Mr Vinciguerra both said words to the effect that they accepted that advice, that the management fees and expenses would only be paid and recouped by MGCC to Sola-Kleen when MGCC had sufficient funds.
341 He said he was then directed by them to finalise the accounts on that basis, and so did not include fees and expenses in MGCC's account, which is the normal manner when accounts are prepared on a cash basis.
342 He said that in about January 2003 he informed Mr Armenti, when Mr Armenti purchased his practice, that the management fees and expenses should be brought to account in due course when MGCC could pay and they discussed the calculation of the management fee at that time. His recollection was that he provided a sample of the Phillips case management fee calculation to Mr Armenti.
343 He said that during the period 1 July 2001 to January 2003, he had calculated the management fees (including expenses) that should be charged by Sola-Kleen to MGCC during that period. He provided that information to Mr Armenti so he could calculate the management fees and expenses for the financial year ending 30 June 2003 and for future years in the same manner "as had previously been agreed between Malcolm Gilmour and Alberto Vinciguerra, as stated above".
344 Mr Harradine also made some comments about the functioning of MGCC without the assistance of Sola-Kleen and the use of facilities, which were objected to.
345 Generally speaking, the objections are well taken.
346 Mr Harradine was cross-examined.
347 Mr Harradine was first challenged about his statement that the accounts were prepared on a cash basis, not accruals.
348 He said it was normal to prepare accounts on a cash basis, when turnover is less than $1 million at the time.
349 Mr Harradine was taken to the financial statements for MGCC for the year ending 30 June 2001 and the note made at p 8 to the effect that the financial report "has been prepared on an accruals basis".
350 Mr Harradine said that that was incorrect and said it occurred because of a computer software error, where the wrong button had been pressed; "That's all".
351 He was then asked why, if the accounts had been prepared on a cash basis, the assets were split into current assets and non-current assets on p 7 of that report and the liabilities were split into current liabilities and non-current liabilities. Mr Harradine said they were called non-current assets but they were actually fixed assets and as to the liabilities, he assumed that the directors or shareholders had loaned the company money and they were not currently payable.
352 He accepted that at that time similarly the management fees were not known.
353 Mr Harradine was asked whether, before he got into the witness box that day, he knew that he was going to be asked questions about whether the accounts were on a cash basis or accruals. He said "Not really", he said that he understood from the legal action that the argument was between 2003 and 2007, which was not the period that he included financial statements for.
354 He indicated that he had not spoken to Mr Gilmour but only to the late Mr Ruthven, who had prepared financial reports in years earlier.
355 He was then taken to financial statements for the year ended 30 June 2002 at trial book p 128. He said was amazed at those documents because they had Mr Armenti's name at the bottom of them, when that was the period he was the accountant.
356 When asked why there was no reference to management fees, he said he did not prepare those documents and so did not know.
357 He said he was in the process of handing over his practice at the time in the year ended 30 June 2002 and Mr Armenti could well have gone back and changed figures or adjusted figures after he had prepared his. He was insistent that he did not prepare the papers with Mr Armenti's name on them.
358 He also said that to his knowledge he did not prepare a set of accounts in that form.
359 He said that he did prepare financial statements for the year ended 30 June 2002, and they were the ones where he had the meeting in November with Mr Vinciguerra and Mr Gilmour and where the company basically did not have any funds and was not able to pay day to day operations and was still being funded by Mr Gilmour at the time.
360 Mr Harradine was then taken to the accounts for the year ended 30 June 2003. Those documents at trial bundle p 234 had the Harradine logo on them, but he said they were not prepared by him either. He said that Mr Armenti had bought the right to use the name. He also noted that on the logo, it mentioned "financial planner" and he was never a financial planner.
361 He indicated that he had about a seven or eight month handover with Mr Armenti, which would have covered much of the calendar year 2003. When asked to explain the reference to financial planners at the foot of p 28 of the 2001 accounts, Mr Harradine said it seemed to him that Mr Armenti had gone back and amended the returns or changed the returns that he originally prepared. He thought that the document had been prepared again with a different form of coversheet and said he was never consulted about the accounts being redone like that and did not approve that being done by Mr Armenti. He said he was as mystified about the document as counsel.
362 The Court observed at that point that p 28 seemed also to carry the words "Registered migration agent" on it. Mr Harradine suggested that Mr Armenti may have put that on the document and that was part of the arrangement they had.
363 Mr Harradine added that he never had the description "Financial planner" on his documents and nor did he do superannuation funds, which was mentioned.
364 It was then noted that at p 234 of the trial bundle, materials clearly prepared by Mr Armenti, there was no reference to migration agent.
365 Mr Harradine accepted, however, that the statement in the earlier reports that he was responsible for, that they had been prepared on an accruals basis was not something done by Mr Armenti, but rather was a "standard printout from the software".
366 Mr Harradine was then taken to a service agreement at trial bundle p 21. He did not immediately recognise the document as he thought the document he recalled had been prepared by the lawyers he instructed. He said he had asked his staff to consult a lawyer to get a service agreement drafted between the two companies, MGCC and Sola-Kleen.
367 He accepted that that was done in February 2000 before Mr Vinciguerra became a shareholder and director of MGCC. When asked why that was done then, he said it was because he was against Mr Vinciguerra being given shares and he wanted to be able to sell them at a capital gain after the business was built up. The alternative was for Mr Vinciguerra to agree to pay 30% of the profit when the business was sold. As things stood, Mr Gilmour was free of capital gains as he had been running the business from the early 1980s. By changing the business over and putting shares to Mr Vinciguerra, the shares owned by Mr Vinciguerra would have been subject to capital gains tax, post 1995.
368 Mr Harradine said that the idea of the service agreement was just to protect Mr Gilmour to ensure that he got the money back that he put into the company, or was about to invest in the company.
369 Mr Harradine was then taken to the 2001 and 2002 accounts showing a loan made by MGCC to the Gilmour Family Trust that went from $30,429 to $89,783.
370 Mr Harradine thought that the documents he was looking at were different accounts and again reflected on the fact that Mr Armenti seems to have prepared them.
371 Counsel then took him to the debit transaction of $136,229.40 as at 30 June 2002 and the journal entries disclosed. Mr Harradine said that the journal entries, if they existed, should provide the explanation.
372 When asked why there were advances by MGCC to the Gilmour Family Trust, Mr Harradine considered they were repayments of expenses paid. When told it was recorded as a loan account, he responded by saying he assumed Mr Gilmour had reclaimed expenses from the company.
373 In the end, he was unable to shed any light on the loan balance of $89,783 at the end of the 2002 year.
374 Counsel then pointed out to Mr Harradine that in his affidavit he said as of November 2002, MGCC was not in a financial position to make any repayment of expenses.
375 He confirmed the view that what he was saying was that the loan account had been substantially increased in the 2002 year on the basis that it would be adjusted and would ultimately be cancelled out by the payment of expenses. Thus, some of the money had already been provided in fact.
376 When it was then put to Mr Harradine that there actually was not any expense at the time because the money had already been set aside by way of a loan advanced to the Gilmour Family Trust, and ultimately the loan would be cancelled and expense reimbursement would satisfy the loan, Mr Harradine said that some of it would be but there was always a shortfall and there was a loss in the financial statements.
377 When pressed as to why he was able to say that in November 2002, MGCC was not in a financial position to make payment, if he did not even know in the 2002 year about the loan transactions recorded at p 127 of the trial bundle, Mr Harradine said that as he was previously advised there would have been draft accounts at the time and there was a deficiency. There were insufficient funds in the bank account to make a payment and the Australian Securities and Investments Commission was chasing people on solvency issues. He said he went to see Mr Gilmour and Mr Vinciguerra primarily to advise them to get a guarantee that they would pay the debts as and when they fell due for the company, because the company was technically insolvent at that time. It had not paid all its expenses. He said that after speaking to them they were quite bullish.
378 When pressed, he could not say exactly what expenses it had not paid, given this was 10 or 12 years ago.
379 As to the mark-up of 10% on outgoings by way of management fees, Mr Harradine confirmed that he calculated these figures later and took into account the Phillips case.
380 He confirmed there was no agreement reached about what the particular mark-ups were to be when he said the meeting took place in November 2002.
381 He was asked whether he was purporting to give evidence of an agreement made in his presence or to his knowledge or just expressing an opinion about something agreed at some other time by other people. He said "Well, I think I say there that's my - my opinion at that time".
382 Mr Harradine then indicated that when he became a director of Sola-Kleen in about 2008-2009, he went through various papers of Mr Armenti and gained some information about the mark-ups in relation to such things as salary. Thus, the knowledge he had was gained after the event.
383 Mr Harradine confirmed that his evidence about what would seem appropriate under Phillips case was all after the event and that he was not a party to any agreements to those ends.
384 Counsel then went directly to Mr Harradine's evidence that there was an agreement about a management agreement and delayed payments reached between Mr Gilmour and Mr Vinciguerra in his presence in November 2002. He was in particular asked about para 25 of his witness statement, exhibit 10, and whether he recalled an express agreement about the use of all the things mentioned there, even postage stamps, for which MGCC was to pay Sola-Kleen when it was able to do so.
385 Mr Harradine asked how it was he came to make that statement with such detail and whether it was just a guess on his part or what he thought might have been discussed in November 2002. He eventually explained that he did not go through and itemise everything. When asked whether he had an independent recollection of the meeting he responded:
Recollection. Albert mumbled 'Yes' - or mumbled most of the time. He didn't actually say much, he never does. That was the first time I had met Albert, so.
386 When asked what happened in his recollection, he said the meeting was short, probably about ten minutes at the Bassendean Road premises in Mr Vinciguerra's office. He sat down, he had paperwork with him to explain a couple of things. He got them to sign the financial return for 2001. He said he could not actually remember the full detail. When asked whether that was as much as he remembered, he murmured assent.
387 When shown accounts signed at Burswood on 17 October 2002, not in November, Mr Harradine said that maybe the meeting was in October not November, but he was insistent that it did happen at their office, not his and remembered driving out for the meeting.
388 To the extent that the 17 October 2002 signed documents falsely indicated they were signed at Burswood, he agreed.
389 Counsel again pressed Mr Harradine and the following exchange took place:
Counsel: … It was actually in November and it was somewhere else and that was the meeting that took place, you got these things signed and you say that's actually when the agreement was made to pay the management fees at some time in the future?---
Mr Harradine: No, that was around the explanations, the management fees were made, not the agreement.
Counsel: Just an - you gave an explanation?---
Mr Harradine: A brief explanation - - -
Counsel: I see. Thank you?
Mr Harradine: … that - the fees or other expenses were being occurred (sic), they're not being recovered.
Counsel: All right?
Mr Harradine: That's all.
Counsel: All right, and there was no agreement made at that time?
Mr Harradine: No.
390 When Mr Harradine was taken to a tax invoice from the Gilmour Family Trust to MGCC dated 31 July 2002 for charges for a management fee and rent, he indicated they were not documents he had seen before and would be internal documentation by their staff in which he did not become involved.
391 He agreed that when he had later calculated management fees for the period 1 July 2001 to January 2003, he had merely done these as a "notional calculation". He never prepared and issued tax invoices.
392 Mr Harradine noted that the document did not charge GST which is something he would have raised if they had been run by him.
393 It was those notes that he passed to Mr Armenti without keeping a copy.
394 Other documents and management reports and the budget forecasts were all shown to Mr Harradine but he did not have any knowledge of those.
395 Re-examination sought to clarify some figures in the financial statements to little effect.
396 Some further cross-examination was allowed, however, to elucidate some calculations.
397 Mr Harradine, in the end, accepted there was no inconsistency between row Q in the tax return and the financial statements for the 2002 financial year.
398 Mr Harradine's evidence was not reliable in a number of key respects, as explained below.