MHM Metals Ltd v Rogers - [2014] FCA 1006 - FCA 2014 case summary — Zoe

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MHM Metals Ltd v Rogers

[2014] FCA 1006

Federal Court of Australia|2014-09-18|Before: Mr J, Mr P, Gordon J, Davies J

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At a glance

Source facts

Court

Federal Court of Australia

Decision date

2014-09-18

Before

Mr J, Mr P, Gordon J, Davies J

Source

Original judgment source is linked above.

Judgment (25 paragraphs)

[1]

Introduction 1 The applicant, MHM Metals Ltd ("MHM"), is a publicly listed mining company. The first respondent, Mr Frank Rogers ("Mr Rogers"), is MHM's former managing director. MHM has alleged that Mr Rogers misappropriated company funds and breached his statutory and fiduciary duties to MHM during his tenure as managing director and that the second respondent, Rogers Southern Pty Ltd ("Rogers Southern"), which Mr Rogers controlled, knowingly participated in the misappropriations and breaches of duty. MHM seeks compensation from the respondents under s 1317H of the Corporations Act 2001 (Cth) ("the Act") for the loss that it claims it has suffered. 2 The alleged misappropriations and breaches of duty relate to: (a) the company's purchase and refit of the Ocean Voyager boat ("the Ocean Voyager claim"); and (b) the company's purchase of a tin jig mobile sampling plant ("the Tin Jig claim").

[2]

The parties 3 MHM was formed by Mr Rogers in 2007 to conduct mining exploration and smelter waste extraction in Tasmania. Mr Rogers, who is a mechanical engineer, was a director of MHM between April 2007 and August 2012 and its managing director between April 2007 and July 2012. The company was listed on the Australian Stock Exchange in December 2007. Mr Rogers' friend and business associate is, and has been since the company's inception, Mr Joseph Psereckis ("Mr Psereckis"), who is the third largest shareholder of MHM. 4 Rogers Southern is the trustee of Mr Rogers' family trust ("the trust"), having been appointed in November 2004. The previous trustee was Mr Roger's brother, Graeme Rogers. Mr Rogers is the sole director of Rogers Southern and, since 2006, the sole shareholder. 5 Mr Rogers was also a director of Rogers Engineering Services Pty Ltd ("Rogers Engineering"), from 11 April 2007 until 3 October 2008. Rogers Engineering was established in 2004 and, in 2012, was deregistered. The other directors were Mr Psereckis (30 November 2004 until 4 March 2012) who was also the manager, and Mark Rogers, Mr Roger's son (from 21 July 2008 until 19 April 2010). The shareholders were Mr Psereckis, with 25% of the shares and, from 2010, Rogers Southern with 75% of the shares (previously held by Mark Rogers). 6 Mr Rogers also conducted business under the registered business name Frank Rogers Consulting.

[3]

Subject matter 7 In late May 2008, Mr Rogers on behalf of MHM signed a contract with Tasmanian Adventure Cruises Pty Ltd ("TAC") for TAC to supply MHM with a survey vessel refitted to MHM's specifications for the contract price of $350,000 (exclusive of GST) (with a capped variation of 10%) payable in five instalments ("the TAC contract"). The vessel to be refitted was a pleasure yacht called the Ocean Voyager which, after refitting, was to be used by MHM in mining exploration operations that it intended to conduct in west Tasmania. 8 TAC engaged Rogers Engineering to do the refit on the vessel and MHM paid the contract price in instalments in accordance with the terms of the TAC contract, with the last instalment paid in October 2008. Under the terms of the TAC contract, ownership of the vessel passed to MHM on payment of the full contract price. As well MHM spent further amounts on additional work on the boat and claims to have spent, in total, $548,581 in acquiring and refitting the Ocean Voyager. 9 In short compass, MHM's case (which the respondents dispute) is that the Ocean Voyager was a worthless wooden ketch that was actually owned by Mr Rogers' family trust, and that Mr Rogers, through the TAC contract, procured MHM to purchase the Ocean Voyager, without disclosing the true ownership of the vessel or that Rogers Engineering was to undertake the refit, and that Mr Rogers used the funds paid by MHM to buy a replacement yacht for the family trust called Taurus II. 10 The respondents' case (which MHM disputes) is that the trust was not the owner of the Ocean Voyager at the time that TAC contracted to sell it to MHM. The respondents did not dispute that the trust had owned the Ocean Voyager at an earlier point in time but they claimed that the trust had sold it in 2007 to Mr Pserickis for $150,000. They also claimed that TAC was a company set up by Mr Pserickis' accountant, Mr David Jones ("Mr Jones"), which was acting as Mr Pserickis' agent in relation to the supply and refit of the Ocean Voyager to MHM and that, without the knowledge of Mr Rogers, TAC engaged Rogers Engineering to do the refit on the vessel.

[4]

(i) The claim against Mr Rogers 11 It is alleged that the Ocean Voyager which MHM "purportedly" purchased from TAC: (a) was in fact owned by Mr Roger's brother, Graeme Rogers, and was held, controlled or managed by Mr Rogers as agent or otherwise; (b) was not valued at $350,000 and "was in fact valueless"; and (c) was never transferred to MHM and MHM never became the owner - and that there was a total failure of consideration for the moneys that MHM paid to TAC. 12 It is alleged that by reason of those matters, Mr Rogers misappropriated the moneys that MHM spent on the Ocean Voyager (in the pleading quantified as $583,581 but quantified as $584,581 on the case presented at trial) and that the misappropriation was part of a fraudulent scheme to enrich Mr Rogers at the expense of MHM. The figure of $583,581 was particularised as comprising the sum of $422,180 paid to TAC (the contract price plus an additional amount of $37,180 paid on 2 February 2009) and $116,401 which was expended directly by MGM on the vessel. 13 It is alleged that Mr Rogers did not disclose to the Board of MHM his, or his family's, relationship with the Ocean Voyager and that he acted wrongfully and in breach of his statutory and fiduciary duties in that he: (a) failed to act in good faith for the benefit of [MHM]; (b) failed to secure the return of the [funds transferred by [MHM] to TAC in reference to the purchase of the Ocean Voyager and its improvement]; (c) failed to take all reasonable steps to ensure that his actions benefited [MHM]; (d) failed to account to [MHM] for the improper advantage he or his family obtained by reason of [MHM]'s monies being used to improve his or his family's property; (e) failed to give to [MHM] a just and faithful account of all transactions relating to the boat purchase; (f) used his position to obtain an advantage for himself at the expense of [MHM]; (g) failed to make proper disclosure to [MHM] of any matter, circumstances and/or thing which might have benefited or adversely affected the boat purchase by [MHM]; (h) failed to act honestly in the exercise of his powers, and in the discharge of his duties, as director and/or managing director of [MHM]. 14 It is also alleged that from the moneys that MHM paid to TAC: (a) the sum of $116,171.20 was paid by TAC to Rogers Engineering; and (b) the sum of $14,450.90 was paid by TAC to Rogers Consulting - and further alleged that Mr Rogers did not disclose to the Board of MHM his intention to use, and the use of, MHM's moneys to pay Rogers Consulting, Rogers Engineering and Rogers Southern purportedly to "service and improve the Ocean Voyager". It is alleged that these non-disclosures were in breach of s 208 of the Act. 15 It is further alleged that from the moneys that MHM paid to TAC, $130,000 was used by Mr Rogers to purchase another boat called the Taurus II in June 2008 and that Mr Rogers in breach of his statutory and fiduciary duties misappropriated the sum of $130,000. It is again alleged that the misappropriation was part of a fraudulent scheme to enrich Mr Rogers at the expense of MHM. It is alleged further that the Taurus II has been sold and that Mr Rogers holds the proceeds of sale on trust for MHM.

[7]

The Defence 18 The respondents admitted that the survey vessel purchased by MHM under the TAC contract was the Ocean Voyager but denied that the vessel was owned by Graeme Rogers, or held, controlled or managed by Mr Rogers. They alleged that the Ocean Voyager was owned by Mr Pserickis and held, controlled and managed by him and that at all times, TAC was acting as the agent for Mr Pserickis. They also denied that the vessel was valueless, denied that ownership never passed to MHM and denied that there had been a total failure of consideration. 19 They admitted that MHM paid the contract price and spent additional amounts on the refit of the Ocean Voyager but did not admit that the total sum spent was as high as $538,581. 20 They admitted that Rogers Engineering did work on the refit at Mr Pserickis' request and that Rogers Engineering was paid for that work out of the contract price paid by MHM to TAC, and that MHM spent additional amounts on the vessel "for extras and variations, and subsequently as a result of [MHM's repudiation of the [TAC contract]", but did not admit the total amount alleged to have been spent. They also admitted that TAC paid Mr Rogers (through Rogers Consulting) $14,450.90 in four payments out of the moneys that it received from MHM but alleged that the first payment was for design work for the vessel prepared some years ago by Mr Rogers "needed by Mr Pserickis to complete the works required by the [TAC contract]" and that the other payments were "reimbursement" to Mr Rogers "for items purchased and supplied at the request of Mr Pserickis". 21 They denied that Mr Rogers at any time had any intention to use, or in fact used, MHM's moneys to pay Rogers Consulting, Rogers Engineering and Rogers Southern. They also denied the allegations of misappropriation, non-disclosure and fraudulent design. 22 They admitted that Mr Rogers purchased the Taurus II as agent for his family trust in June 2008 for $130,000 but denied the allegation that the yacht was purchased using the moneys that MHM had paid TAC and denied the allegation of misappropriation and the allegation of fraudulent design. They also denied that Mr Rogers had any obligation to account to MHM for the funds used to purchase the Taurus II or the proceeds from the sale of that boat.

[8]

Overview of the factual matrix 23 In April 2008, MHM was proposing to mine for silica in a remote area of west Tasmania, just inland from Macquarie Harbour, but the area was a classified Conservation Area and there were very tight restrictions on the living and storage facilities that could be built. In a management report that Mr Rogers presented at the meeting of the Board of MHM on 28 April 2008, Mr Rogers put forward four possible options on the most practical method of operating on the west coast of Tasmania. One of the options proposed by Mr Rogers was to use a survey vessel moored in Macquarie Harbour to house geologists and field staff and to be the base from which operations would be conducted. The estimated cost of a survey vessel was said to be "in the vicinity of $300-350,000". The Board minutes record that: After much deliberation it was agreed that perhaps the most cost effective manner might be to purchase a survey vessel capable of transporting fuel and small equipment as well as housing employees whilst working on the West Coast tenements. At that meeting, the Board approved expenditure of $350,000 on the acquisition of a survey vessel and Mr Rogers was given the task of finding a suitable vessel. 24 The vessel that Mr Rogers selected was the Ocean Voyager and, on 27 May 2008, TAC provided a quote and contract terms based on the specifications that Mr Rogers had prepared, which became the TAC contract. On the same day, Mr Rogers accepted the quote and signed the contract. The contract was countersigned by Mr Jones on 28 May 2008. 25 The TAC contract did not identify that the vessel to be refitted was the Ocean Voyager. Rather the quote and contract terms were for the "supply of a Survey Vessel" to the specifications shown. The price quoted was "a budget price of $350,000 with capped variation of 10% supplied ex. Hobart Tasmania" to be paid in five instalments as follows: Payment Terms: 1. $165,000 to secure vessel (plus GST) 2. $50,000 plus GST one month after first payment. 3. $70,000 plus GST two months after first payment. 4. $65,000 plus GST three months after first payment 5. Balance plus GST if any variation paid post sea trials in Hobart. 26 The first payment to secure the vessel was due at the end of May 2008. The contract terms provided: Timing: In order to meet the timeframe specified of completion of the end of October 2008 it will be necessary to receive the first payment by the end of May 2008 and all progress payments received by the due dates noted above. TAC will render invoices noting the due dates one week prior to the payment date. 27 The contract terms provided for ownership to pass upon receipt by TAC of the last payment as follows: Vessel Ownership: Ownership of the vessel will pass upon receipt of the last payment. TAC will notify the Australian Register of Ships and complete the necessary transfer documentation contemporaneously with the receipt of the final payment. 28 The contract terms also relevantly contained a warranty by TAC in the following terms: TAC warrants all workmanship carried out in the refit of the vessel for a period of six (6) months from the delivery of the vessel save for fair wear and tear and damage sustained in the vessel's operation. 29 Although TAC was required under the TAC contract to provide invoices to MHM, only two invoices (in respect of the third and fourth instalments of $77,000 and $71,500 respectively) were produced by TAC and put before the Court. It was not, however, controversial that MHM made progressive payments (GST inclusive) to TAC in accordance with the payment terms under the TAC contract as follows: (a) on 28 May 2008 in the amount of $181,500; (b) on 2 July 2008 in the amount of $55,000; (c) on 4 or 5 August 2008 in the amount of $77,000; (d) on 13 October 2008 in the amount of $71,500 - and paid a total of $385,000 to TAC (though for reasons that were unexplained, the actual amount recorded as paid in MHM's accounts was $383,800). 30 The timeframe specified in the TAC contract for completion of the refit and delivery of "a survey vessel" to MHM was the end of October 2008 but delays prevented the work from being completed. The vessel still had work to be done on it when, in early 2009, the Board of MHM decided not to proceed with the mining exploration operations in west Tasmania because of financial restraints. 31 The Board gave consideration to selling the vessel and had the vessel valued in April 2009 by Mr John Radonic ("Mr Radonic") of Boat Sales Tasmania. Mr Radonic's instructions were to advise MHM on the vessel's then current value and to prepare a marketing submission for the sale of the vessel. Mr Radonic valued the vessel between $395,000 and $450,000 "depending on final inspection when the refit has been completed" but advised the Board that to offer the vessel for sale in its then current state of refit would seriously devalue it, as his experience was that a partly completed boat only realised approximately 25% of its completed valued. Mr Radonic recommended that the refit be completed. In any event, the Board deferred making a decision on whether the vessel should be sold. 32 In or around September 2009 MHM had a successful capital raising and the Board placed mining exploration in west Tasmania back on the agenda, which led to the decision to continue work on the vessel to the original plan, rather than to sell the vessel. The Board was advised by Mr Rogers at the end of September 2009 that the TAC contract had been terminated and that MHM would be managing the completion of the refitting under the supervision of a project manager, with the intention that the vessel would be ready by the end of 2009. 33 Further delays were encountered and the vessel was still not ready in April 2010. The decision was made to place the vessel into storage for the winter months. In September 2010, Mr Radonic was asked by Mr Rogers to provide an updated valuation of the vessel. Mr Radonic reported that the refit continued, and that the workmanship, which was "of a very high standard" and was "reflected in the external appearance of the hull", was "nearing completion". Mr Radonic also stated that internally the boat was "taking shape", that the quality of workmanship was "very evident" and when completed would "provide a very comfortable, well[-]appointed cruising interior". Mr Radonic again "strongly" recommended that the work be completed to maximise the true value of the vessel, stating that: A partially re-fitted boat will only realise a portion of its true completed value as potential buyers only see the task ahead, not the finished item. Mr Radonic concluded: In light of the above, I confirm "Ocean Voyager" has a current market value in the range of $490,000 to $550,000. 34 In MHM's accounts in the 2010/2011 financial year, the value of the vessel was written down by 50% to $274,200. 35 The refit was never completed and the boat was never used by MHM for its intended purpose. In December 2011, MHM announced that it had decided to cease any further exploration activity and in January 2012, the Board of MHM again gave consideration to selling the vessel and decided to get a sworn valuation. A valuation was provided by a certified valuer, Mr Glenn Aylward ("Mr Aylward") in April 2012. Mr Aylward's valuation of the vessel was significantly lower than Mr Radonic's 2011 valuation. Mr Aylward's valuation was $85,000 with a "[p]rojected estimate value (after completed professional refit)" of $225,000 and noted that the vessel was "undergoing a refurbishment & refit when inspected". Based on the valuation, the carrying value of the Ocean Voyager in MHM's accounts for the financial year 2011/2012 was written down to $75,000. 36 The evidence indicates that the Board met in June 2012 and considered that a further valuation needed to be sought "from the boat builder with whom the boat is lodged", who was apparently overseas at the time. The "boat builder" was presumably Mr John Wait ("Mr Wait") at whose premises the boat was stored. At a later meeting in July 2012, there was apparently a further resolution that two valuations were to be obtained: one on an "as is" basis, and the other on a "completed works" basis. Whether any further valuations were in fact obtained was not the subject of evidence, but it may be inferred from the absence of any further valuations in the company's records that they were not. 37 It appears that events overtook as, in July 2012, Mr Rogers resigned as managing director and his role changed to that of technical director. In August 2012, Mr Rogers received an email from Mr Phil Thick, the new managing director of MHM, stating that he had received legal advice that related to concerns about a conflict of interest in Mr Rogers' dealings with the company and that Mr Rogers should think about resigning as a director before an announcement was to be made the following day. Mr Rogers did resign as a director and, in October 2012, the remaining directors of MHM also resigned and were replaced with a new Board. 38 In February 2013, the Chief Financial Officer, Mr Jason Thiele, was asked by Mr Ian Kirkwood, the new chairman of MHM, to examine the accounts of MHM. The review led to questions being raised by the new Board concerning the write down of the carrying value of the Ocean Voyager in MHM's accounts for the financial year 2011/2012 to $75,000 and to an investigation by the new Board into the acquisition and refit of the Ocean Voyager. Amongst other matters, it was discovered that the registration of the vessel had never been transferred to MHM and that the registration of the vessel remains in the name of Graeme Rogers (who was the trustee of Mr Rogers' family trust when the trust purchased the Ocean Voyager). 39 The vessel was written-off in the company's accounts in the 2012/2013 financial year.

[11]

The evidence about the transfer of ownership to Mr Psereckis in 2007 43 In 2007, the boat was still at Mr Wait's boat yard undergoing a refit when, on Mr Rogers' evidence, Mr Psereckis approached him to ask if he was interested in selling the boat to him. Mr Rogers said in evidence that he was "content to agree" to sell the vessel to Mr Psereckis as he was in the process of establishing MHM and was quite busy at the time, provided the Trust "got back what it had expended in terms of time and cost to improve her". Mr Roger's evidence was that he wanted $150,000 for the vessel but that "to assist and encourage" Mr Psereckis he "offered to wait for payment and let him pay for a smaller boat" when Mr Rogers had chosen one. On Mr Rogers' evidence, they "shook … on a deal" and "from that point on [Mr Psereckis] owned the vessel" and that Mr Rogers "went looking for a smaller boat". 44 Mr Psereckis gave similar evidence. His evidence was that he was thinking about buying a boat to go cruising around Tasmania "as a sort of floating holiday home" and that he was familiar with the Ocean Voyager as he had done some work on the boat and "was aware of its potential as a charter yacht or one that [he] could live on". He stated that in 2007 he asked Mr Rogers whether his family trust would consider selling the boat to him and that the deal that they negotiated was that the price would be $150,000, but that instead of him paying that amount immediately, he would pay for a replacement boat that Mr Rogers would choose up to a value of $150,000. Mr Psereckis described the deal as a "gentlemen's agreement" and said that it was his understanding that "from that time" the Ocean Voyager was his boat. 45 The only evidence about the change in ownership was the testimony of Messrs Rogers and Psereckis. There are no documents at all evidencing any change in ownership and it emerged from the evidence that registration of the Ocean Voyager still remained in the name of Graeme Rogers, the former trustee of the trust. Although registration was in Graeme Rogers' name, it was his evidence that when he resigned as trustee of the trust and Rogers Southern became the new trustee in 2004, he "presumed that the change of trustee would change ownership of the boat automatically" and that as far as he "was concerned, the boat still belonged to the Trust after [he] resigned as trustee" and that he did not give any thought to whether a change in trustee was needed. Be that as it may, what is relevant is that registration was not transferred to Mr Psereckis. Mr Psereckis stated he was "too busy" to register the boat in his name and that "it slipped [his] mind". Mr Psereckis also admitted that he did not take delivery of the vessel, but stated that he knew it was on the blocks at Coffs Harbour. Mr Psereckis agreed that he did not take over payment of the storage costs for the boat but deposed that he was not being charged rent by Mr Wait, and agreed that he did not pay for the insurance on the boat but deposed that he did not bother about insuring the boat because he "felt it was too expensive" and "figured that the risk of real damage … was extremely small" because the boat was in the boat yard. He also agreed that he did not pay for any other expenses on the boat and admitted that he never sailed the boat. 46 I deal later with other evidence indicating that ownership never passed to Mr Psereckis but for present purposes, it is noteworthy that the claim of change in ownership is wholly unsupported by any independent objective evidence of the kind that would be expected to exist if there had been a change in ownership.

[12]

The evidence about the selection of the Ocean Voyager as the survey vessel for purchase by MHM 47 Mr Rogers deposed in an affidavit that he could not find a suitable vessel that did not require substantial modification. He further deposed that he considered that the Ocean Voyager could, with some modifications, be made suitable as the survey vessel for MHM's proposed operations and that, in late May 2008, he approached Mr Psereckis with the view to seeing whether Mr Psereckis would consider selling the Ocean Voyager to MHM on terms that he (Mr Psereckis) modify the boat to the specifications required for MHM's operations. Mr Rogers deposed that "after some deliberation and after [Mr Psereckis] had discussed the proposal with his [a]ccountant", Mr Psereckis agreed to the proposition "provided that any contract was done through a company owned by his [a]ccountant called [TAC]". Mr Rogers deposed that Mr Psereckis had "advised that this would allow him [Mr Psereckis] to concentrate on the works on the boat whilst his Accountant did the paperwork". 48 Mr Psereckis deposed that Mr Rogers mentioned to him: … in early May 2008 that MHM was looking for a boat to convert to a marine base for the geologists to work from in Macquarie Harbour when they were doing the survey work on the mineral exploration leases, and asked whether he would be willing to sell the "Ocean Voyager" to MHM for conversion to that purpose. 49 Mr Psereckis' evidence was that he thought about it overnight and agreed to sell the vessel as he was then busy with a number of jobs and "finding that [he] didn't have time for the boat anyway". He deposed in an affidavit: After that [Mr Rogers] and I started talking about the modifications that would have to be done to bring the boat up to MHM's requirements. In the end I suggested that I would get the work done to supply the boat to MHM's specifications in exchange for a payment of $350,000.00 (exclusive of GST), and [Mr Rogers] agreed to that suggestion on behalf of MHM. 50 Initially in cross examination Mr Psereckis denied that he and Mr Rogers discussed that Rogers Engineering would do the refit but he then changed his evidence and agreed that it was understood from the outset between them that Rogers Engineering would do the refit and that they had discussions to that effect one to two weeks before the TAC contract was made. That evidence was in contradiction to Mr Rogers' evidence that he no knowledge at the time that Rogers Engineering was to do the refit. 51 Wholly unexplained in the evidence was how the purchase price of $350,000 was said to have been arrived at and agreed upon. Mr Rogers and Mr Psereckis gave no explanation in their evidence. Nor was there evidence of any costing of the refit to be carried out on the vessel to the specifications required by MHM. Mr Rogers denied that he had the Ocean Voyager in mind when he recommended to the Board in April 2008 that it purchase a survey boat but I do not accept that evidence. If it were the case that Mr Rogers did not have the Ocean Voyager in contemplation when he put the proposal and costing to the Board in April 2008, I would have expected there to be some evidence to explain how the purchase price of $350,000 was arrived at, especially given that the modifications to the vessel were included in the purchase price. In the absence of any such evidence, and given that Mr Rogers had told the Board in April 2008 that a suitable vessel would cost in the region of $300,000 to $350,000, it is reasonable to infer that Mr Rogers knew at the time that he put the proposal to the Board how much it would cost to refit the Ocean Voyager to make it suitable for use as a survey vessel and it is open to find, contrary to his evidence, that Mr Rogers always intended the Ocean Voyager to be the vessel for acquisition, if the proposal went ahead.

[13]

The evidence about the role of TAC 52 Mr Rogers denied knowing Mr Jones before meeting him in relation to the TAC contract. His evidence was that he understood that TAC was Mr Psereckis' agent in relation to the sale and that he and Mr Psereckis had discussed this. 53 Mr Psereckis gave evidence that it was Mr Jones' idea to use TAC. He deposed in an affidavit as follows: I asked my accountant David Jones to handle the deal because paperwork is not my thing at all and I needed him to make sure everything was done correctly and to make it easier for me. David suggested that he use his company Tasmanian Adventure Cruises Pty Ltd (TAC) to run the contract for me and I followed his advice. I communicated with Terri Branson of his office from time to time in relation to managing the money that was coming in from MHM, and going out to various contractors and suppliers for work on the boat. 54 According to Mr Pserickis, TAC was to manage the sale and undertake the paperwork. Mr Psereckis' evidence was that he "assumed that all the paperwork was done by MHM" and that at his end Mr Jones looked after it. He also said that he did not see the TAC contract but knew what was to be done to the vessel because he had discussed this with Mr Rogers. 55 Mr Jones gave evidence that he "offered the services of TAC" because he was interested in providing chartering services. Mr Jones deposed in an affidavit: I believe that it was sometime around April 2008 Joe [Mr Psereckis] discussed with me the idea that Macquarie Harbour Mining Limited (MHM), a company in which he held a substantial shareholding, wanted to get a boat to be a base for exploiting the silica leases on the South side of Macquarie Harbour. The idea was that the boat would act as a depot ship accommodating the geologists who were to do the prospecting. This seemed like a good idea as there are no roads into the area and no facilities ashore for accommodation or work space. I thought it would be an opportunity for TAC to provide skippering services in moving the boat from where it would be converted for this use and also whenever it required moving from its anchorage to Strahan and return. The mining plan was to use dumb barges to take silica to the railhead at Strahan and I thought there would be opportunities in operating the tugs using my nautical qualifications. I was introduced to Frank Rogers (by Joe) who was the CEO of MHM when we had a discussion over the arrangements. It was agreed that a budget of $350,000 would be administered by TAC in order to provide a suitable vessel for MHM to operate. I was to receive funds to pay bills for work done and equipment provided on the boat after they had been approved by either Joe or Frank but mainly Joe as he was to be on site and was responsible to ensure the work was done. Joe was paid for his efforts through his employer, Rogers Engineering Pty Ltd which he managed and had a shareholding in. 56 In a later affidavit, Mr Jones deposed that over the whole duration of the TAC contract he saw Mr Rogers "only twice" that he could recall and "spoke to him only rarely, those occasions being when [he] had to check with [Mr Rogers] about MHM's requirements under the [TAC] contract". His evidence continued: On the other hand, I spoke to [Mr] Psereckis many times about the matter. Whenever any query arose, I sorted it out by speaking with [Mr] Psereckis and following his instructions. That was because to my mind it was essentially his contract and we (that is, myself and Terri Branson on behalf of [TAC]) were just acting as his agents to handle the money in and the money out. 57 Terri Branson was the office manager of Mr Jones' accounting practice. She swore an affidavit in which she deposed that Mr Jones told her on or about 8 June 2008 that TAC was managing a contract to provide a boat to MHM and that she was to handle the money that came in and pay the bills in relation to the contract and that Mr Psereckis "was managing everything" and gave her "direction and authorisation" about paying invoices. She also deposed that Mr Psereckis "authorised everything" and that Mr Rogers "was not involved in giving [her] instructions about the contract". 58 It is telling, however, that Mr Jones admitted that that he did not know what boat was being sold to the company when he signed the TAC agreement (and did not find out that it was the Ocean Voyager boat until about July 2008). As he understood it, the boat was being organised by Mr Rogers on behalf of MHM for that purpose. He gave the following evidence in cross examination: So you committed TAC to sell a boat and to have work done on that boat for a specified price in circumstances where you didn't even have a boat in mind that was capable of being then supplied to MHM?---The way I treated it was an outsourcing of the company to get a boat suitable for doing this purpose. And at the end of the day, the boat was going to be managed by me physically to actually move the boat. Had you made any investigations about a boat which would have the specifications set out in the - in the quotation of 27 May which was capable of being priced at around $350,000?---The - the purchase of the boat was being organised by Frank, as far as I was aware, on behalf of MHM, for this purpose. How did you get the information for the purposes of this quote?---It was an agreement between Frank and myself that that's what we're trying - that - that the - that I would be managing the exercise of taking the boat from what it was to the situation where it was useful, and to be taken down to Macquarie Harbour to do the - the work. 59 In response to further questions he gave the following evidence: So if you go to pages 513 and 14, which is an example of the contract, you see at page 514 under the term, quotation, you don't assemble that information that's provided to you?---Yes. Yes. Who by?---That would have been Frank would have set that up, and I would have - we - we - over - having discussed it, that's what we agreed to do. Yes. 60 The significance of that evidence was that Mr Jones did not understand that Mr Psereckis owned the boat to be supplied to MHM under the TAC contract. Rather it was Mr Jones' understanding that Mr Rogers was to supply the vessel. This part of Mr Jones' evidence can be accepted as credible. Mr Jones sought and obtained an indemnity from Mr Rogers (on behalf of the family trust), but not Mr Psereckis, "against any action …. in respect of the contract to supply a suitable vessel and refit same within the time and price quoted in the [TAC] contract". It makes sense that Mr Jones would have sought that indemnity from Mr Rogers if Mr Rogers was to supply the boat. Furthermore, in the course of events on Mr Jones' testimony, Mr Jones, at Mr Rogers' direction, used the funds received from MHM under the TAC contract to purchase the Taurus II for Rogers Southern, which Mr Jones initially thought was the boat to be refitted and supplied under the TAC contract. I deal in more detail with these matters later in these reasons.

[14]

The TAC contract 61 It was an admitted fact that Mr Rogers wrote the contract terms for the TAC contract and against that fact it becomes material that he put into evidence a different version of the contract to the contract that was actually signed. There were two versions of the TAC contract put into evidence, one by MHM and the other by Mr Rogers. 62 MHM put into evidence a version of the TAC contract on the letterhead of TAC addressed to "Mr F Rogers Managing Director [MHM]" dated 27 May 2008, signed by Mr Rogers on 27 May 2008 and countersigned by Mr Jones on 28 May 2008. Additionally the evidence established that Mr Rogers arranged the first payment by MHM to TAC, which was made on 28 May 2008 in the sum of $185,000. 63 The version put into evidence by Mr Rogers was unexecuted. It also appeared on the letterhead of TAC addressed to "Mr F Rogers Managing Director [MHM]" but it bore the later date of 3 June 2008. Mr Rogers' evidence was that he received a quotation and contract terms document from TAC on 3 June 2008 for the supply of a "Survey Vessel" to the specifications required by MHM, including a picture of the vessel to be refitted and supplied and that he circulated this quotation with a picture of the boat to the Board on the same day and that "due to the urgency of having the boat ready for the 2008-09 summer season [he] approved the contract" and "duly authorised" the first payment for the amount of $181,500 (the initial payment due exclusive of GST). 64 In cross examination it was put to Mr Rogers that his evidence was false. Mr Rogers sought to assert that his evidence was wrong, rather than false but for the reasons that follow, I do not accept that assertion. Contemporaneous documentary evidence bears out that the Board of MHM had a meeting on 30 May 2008 at which Mr Rogers gave an "update" of the "survey vessel". No further particulars are provided. Mr Rogers had deposed in an affidavit that he reported verbally to the Board on 30 May 2008 "on his findings to date" but without deposing to the content of what he told the Board. Mr Rogers in cross examination stated that he could not remember what he told the Board but it appears from an email that Mr Rogers sent to the Board on 6 June 2008 that he must have disclosed to the Board that he had received a quote and contract terms from TAC. However, the terms of the email are not consistent with Mr Rogers having disclosed to the Board that he had already signed the contract, that the boat to be supplied and refitted was the Ocean Voyager and that the first instalment had already been paid. 65 In the email sent on 6 June 2008 to the Board, Mr Rogers wrote: Gentlemen, As requested at the [M]ay Board Meeting please find attached the Survey Vessel specifications and Quotation from Tasmania Adventure Cruises P/L together with a photo of the vessel, obviously prior to the refit. Please note that the "Quotation and contract terms" were written by me when searching for a vessel. To give you some idea of the selected vessel: 1. The engine and gear box weighs 5 tonnes. 2. The displacement bracket (i.e weight) of the vessel is 40 tonnes. 3. It carries enough fuel to enable it to motor from Sydney to New Zealand. 4. It has a sewerage storage and process system. 5. A watermaker that converts sea water into fresh water. 6. A laundry room plus accommodation as specified. 7. Electronics that shows [sic] where you are on a TV like screen, HF and VHF radio communications plus wind speed and direction and a depth sounder. 8. A 240 volt generator with sufficient capacity to run a house. I trust this gives you all sufficient information. Kind regards, Frank Rogers 66 Mr Rogers testified that he circulated the unsigned quotation and contract terms to show the Board members the paperwork but stated that he was unable to recall why he did not provide the executed agreement. He agreed in cross examination that neither the document nor his email indicated that the contract had been executed and he agreed that he never provided the executed TAC agreement to the Board. The explanation he gave was that once the Board approved the purchase, he did not consider it necessary to circulate the executed agreement. This explanation cannot be accepted for the following reasons. 67 Tellingly, the 3 June 2008 version which Mr Rogers sent to the Board did not include the indemnity clause. The version of TAC contract executed by Mr Rogers on 27 May 2008 and countersigned by Mr Jones on 28 May 2008 had an additional page containing an indemnity in the following terms: Mr Frank Rogers, as the responsible individual, on behalf of Rogers Family Trust and [Rogers Engineering] hereby indemnifies David Jones and [TAC] against any action by [the company] in every respect of the contract to supply a suitable vessel and refit same within the time and price quoted in the contract between TAC and [the company]. The indemnity had a separate signing clause and was also signed by Mr Rogers on 27 May 2008 and countersigned by Mr Jones on 28 May 2008. 68 Mr Rogers did not disclose to the Board that both he on behalf of the trust and Rogers Engineering had provided an indemnity to Mr Jones and TAC. Mr Rogers asserted in cross examination that it was his view that the indemnity was not part of the contract and that he did not need to disclose it to the Board. He testified that the indemnity was drafted by Mr Jones whose concern was that TAC in completing the TAC agreement had to hand over "certain papers" and that this was why he was given to understand that Mr Jones wanted that indemnity to make sure it happened. When asked "papers about what?", Mr Rogers stated "the registration of [the] Ocean Voyager, for example". Further on he elaborated on that answer, saying that the registration papers had not been transferred to Mr Psereckis and these papers would need to be transferred to the company as part of the sale of the boat pursuant to the TAC agreement. When asked why an indemnity to the extent of $350,000 would be required in respect of an arrangement to transfer the registration from the trust to Mr Psereckis, Mr Rogers responded that two parties were required to change the registration. Mr Rogers said that he did not turn his mind to why Rogers Engineering was giving the indemnity but did not see any "downside". He speculated that Mr Jones included Rogers Engineering as a "catch-all" due to Mr Psereckis' involvement with Rogers Engineering and maintained his evidence that he did not know in advance of signing the contract that Rogers Engineering would be doing the refit and that he only became aware that Rogers Engineering was doing the refit several months later. He said that he did not see "any downside" in providing the indemnity on behalf of the trust. 69 Mr Jones testified that that he wanted the indemnity because he had provided a warranty in respect of the work on the boat and that Mr Rogers drafted the indemnity in response to his concerns. When it was put to Mr Jones that it was unusual that he had provided a warranty in respect of work on a boat that he could not identify, Mr Jones stated: Well, that's why I had a[n] agreement from Frank that I'm indemnified if things were … a problem … that were beyond my control. 70 Mr Jones stated that he would have checked the wording of the indemnity to make sure that it satisfied his requirements but in response to questioning he did not provide any explanation as to why either the trust or Rogers Engineering were giving the indemnity. Instead, he testified that he had no transactions with the trust and that there were no discussions, to his knowledge, about Rogers Engineering being involved in the project. His evidence went no further than that he understood the indemnity to cover "everything Mr Rogers dealt with". He stated: I suspect I was fairly busy at the time and I just looked at the thing. … I wanted something there, and I was happy that he was prepared to do that. 71 Mr Psereckis testified that Mr Jones told him that he wanted an indemnity and that Mr Psereckis informed Mr Rogers. According to Mr Psereckis, Mr Rogers then told Mr Psereckis to ask Mr Jones to draft the indemnity. Mr Psereckis said that he understood that the purpose of the indemnity was to ensure that Mr Jones "wouldn't be out of pocket". When asked what the indemnity was intended to protect Mr Jones from, Mr Psereckis stated he did not know. 72 I do not accept the evidence of Mr Rogers as to the reason for the indemnity, which I found self-serving and unconvincing. Apart from anything else, the explanation is simply improbable given that Mr Psereckis, the ostensible owner of the vessel on Mr Rogers' version of events, was not required to give an indemnity. More particularly, for reasons that I give later, I have rejected the evidence about the 2007 boat swap arrangement and found that Mr Rogers' trust was and remained the owner of the Ocean Voyager when TAC contracted to sell it to MHM. The giving of the indemnity by Mr Rogers on behalf of the trust is entirely consistent with the trust then owning the vessel. 73 Mr Jones is also not to be believed on his testimony as to why he sought the indemnity. As stated earlier, it makes sense that Mr Jones would have sought that indemnity from Mr Rogers if Mr Rogers was to supply the boat, as Mr Jones understood the position to be. For reasons that I give later, I found this part of his evidence self-serving and not to be accepted.

[15]

The concealment from MHM of the fact that the vessel to be supplied by TAC to MHM was the Ocean Voyager 74 Mr Rogers wrote the TAC contract and in the contract described the vessel to be supplied by TAC to MHM as "a secondhand refitted Survey Vessel LOA 18.3m, LOD 16.5m, Beam 4.88m, Draught 2.0m". The document did not name the vessel as the Ocean Voyager when Mr Rogers knew it to be a fact that the vessel in question was the Ocean Voyager, nor was the registration number of the boat specified. Nor did Mr Rogers in his email to the Board of 6 June 2008 identify the vessel as the Ocean Voyager. In fact there is no contemporaneous document that identifies the vessel as the Ocean Voyager. The earliest record in MHM's records identifying the Ocean Voyager as the vessel that MHM was spending its money on appears in either February or May 2009. 75 There was evidence from Dr Neil Allen, a former Board member, who deposed that: Mr Rogers advised the Board of a vessel with which was previously owned by a Trust associated with his family. The vessel was located in Coffs Harbour. The vessel was then under the control of [TAC] and that company agreed to supply the vessel to the specifications required by [MHM] drafted by Mr Rogers for the consideration of $350,000. A Board decision was made to acquire the [TAC] vessel and payments were commenced in late May 2008. 76 That evidence was not challenged but I do not accept that evidence as sufficient to make a finding that Mr Rogers had disclosed to the Board before he signed the TAC contract on behalf of MHM that the boat in question was the Ocean Voyager. Apart from being highly generalised and lacking specificity it was not supported by any of the contemporaneous documents and specifically the minutes of the Board meeting on 30 May 2009, which make no mention at all that Mr Rogers disclosed to the Board that he had signed a contract on behalf of MHM to purchase a boat which his trust had once owned. Moreover, Mr Rogers' testimony contradicted Dr Allen. He did not say that he told the Board that the vessel was the Ocean Voyager which his trust had once owned. In response to a question in cross examination, he simply said that the Board "always knew" that "he" had owned the Ocean Voyager and that "it was a matter of general knowledge". 77 The pertinent factual matter is that Mr Rogers did not disclose the identity of the vessel to the Board. In view of Mr Rogers' knowledge that the vessel in question was the Ocean Voyager and that the Board, on his evidence, knew that his trust had owned that vessel, it is open to infer and I find that Mr Rogers deliberately concealed the identity of the vessel from the Board.

[16]

The evidence about the purchase of Taurus II 78 The Taurus II was purchased by Rogers Southern on 4 June 2008. On the respondents' case, the Taurus II was the replacement yacht for the Ocean Voyager that Mr Pserickis was to purchase for the Trust under their 2007 "deal". Although not an admitted fact, the evidence clearly established that the purchase price of $130,000 was paid from the $185,000 that MHM had paid to TAC on 28 May 2008 "to secure" the survey vessel to be supplied to it under the TAC agreement. 79 The evidence about the purchase of Taurus II was given by Mr Pserickis and Mr Jones. No evidence was led from Mr Rogers in examination-in-chief. Mr Rogers gave some evidence in relation to the Taurus II in cross-examination when it was put to him that Mr Psereckis had not paid the trust for the Ocean Voyager as at May 2008. Mr Rogers refuted the allegation, stating that Mr Psereckis "had paid the deposit on [the] Taurus [II]", that "we had already arranged to buy [the] Taurus [II] in replacement for [the Ocean Voyager]" and that Mr Psereckis had "started to pay for [the] Taurus, which is part of the purchase consideration" for the Ocean Voyager. He testified that his "recollection was [that] a cheque was issued in April" and this constituted the deposit for the Taurus II. The cross examination continued: Well, by May 2008, by 1 May 2008, Mr Psereckis hasn't paid for the Ocean Voyager, has he?---He started to pay for Taurus, which is part of the purchase consideration. On 1 May?---My recollection was a cheque was issued in April. And you say this is a deposit on Taurus?---Yes. This isn't in your affidavit material, is it?---I can't remember. It isn't?---Isn't it? No. So let's make it April, April 2008. Mr Psereckis hasn't given you any money or anything for Ocean Voyager, has he?---No. And you've decided that Ocean Voyager would be good for MHM in April?---No. No?---No. All right. Why don't you just say to Mr Psereckis, when you decide that Ocean Voyager would be good, why don't you just say, "Listen, nothing has happened with our deal. Just forget it. I'm going to sell the boat straight to MHM." You could have done that, couldn't you, because he was your friend?---But we had already entered into the contract on Taurus. You didn't need to go through this convoluted swap because nothing had happened for nearly 10 months?---Well, that was part of the deal that we had, that he would buy a boat that I selected. The swap was completely unnecessary, except as a vehicle to transfer money to yourself out of MHM, wasn't it?---No. 80 Mr Pserickis gave evidence that in early April 2008 Mr Rogers told him that he had found a yacht at VicSails in Williamstown that he wanted called "Taurus", which he could purchase for $130,000, and that Mr Rogers asked him to meet up to $20,000 of additional cost in refitting the boat "on the basis of our deal". Mr Pserickis said that he agreed and that two or three weeks later at Mr Roger's request he gave him a bank cheque for the holding deposit of $13,000. Mr Pserickis' evidence was that the bank cheque was held by VicSails as surety pending survey and sea trials of the boat, and that the deposit was returned to him once the purchase price had been paid. Mr Pserickis produced a bank statement showing the withdrawal of funds for that bank cheque from his account on 5 May 2008 and the deposit of $13,000 into that account on 6 June 2008. Mr Pserickis also said, upon payment of the first instalment due by MHM under the TAC contract, he arranged for TAC to pay for the Taurus II out of the funds that had come in from MHM, which occurred on 4 June 2008 when TAC paid $130,000 to VicSails. Mr Pserickis also said in evidence that he authorised TAC to pay other accounts in relation to the Taurus II to bring the value of Taurus II up to $150,000. 81 Mr Jones' evidence about the purchase of Taurus II was elicited in cross-examination. Significantly, Mr Jones' evidence did not support, and was inconsistent with, Mr Pserickis' account. He testified that it was Mr Rogers who contacted him about paying for the Taurus II. Mr Jones first testified that TAC received an invoice for the Taurus II from Mr Rogers; he later stated that he could not remember exactly how he received the invoice. He was certain, however, that he became aware of the purchase of the Taurus II through Mr Rogers and that he (Mr Jones) did not select the Taurus II as a vessel for purchase. Mr Jones testified that he arranged for the invoice to be paid using the moneys paid to TAC by MHM as a deposit for the purchase of the survey vessel pursuant to the TAC contract ($165,000). He testified that at the time he thought that the Taurus II was to be the vessel that was to be refitted and supplied to MHM under the TAC contract. Mr Jones testified that he became aware in or around July 2008 that the Taurus II was not the vessel to be refitted and supplied, when he was sent an invoice for work done on a wooden vessel (the Taurus II was a fibreglass vessel). Mr Jones' evidence was that he raised this discrepancy with Mr Rogers and Mr Psereckis who informed him that there had been a boat swap between the two of them and that it was the Ocean Voyager that was being refitted for supply to the company. 82 The only other evidence on this topic came from Mr Terance Oakley, who had been the director of Vicsail at the time. He swore an affidavit in which he deposed that he first met Mr Rogers in April 2008 when Mr Rogers came to purchase a boat. His evidence was that Mr Rogers had certain specifications for the boat and that Mr Oakley sourced the Taurus II, which Mr Rogers agreed to buy. He also deposed that Mr Psereckis also came to Vicsail around this time looking for a new vessel but he was not told by Mr Rogers or Mr Psereckis that their transactions were related and did not discuss the Taurus II transaction with Mr Psereckis. 83 Whilst the evidence did not support a conclusion that the $13,000 deposit paid by Mr Pserickis related to some other transaction, the evidence did not explain why TAC paid the full purchase price for the Taurus II and the deposit was returned to Mr Pserickis. The return of the deposit evidences that Mr Pserickis was never made out of pocket for the Taurus II purchase which was wholly funded using MHM's funds. 84 The Taurus II was sailed to Tasmania and was used by Mr Rogers. In due course, Taurus II was sold and, another yacht purchased from the proceeds. The Court was told, although no specific evidence was led, that that yacht was also sold in 2012 and the proceeds applied, amongst things, to the cost of updating another yacht owned by Mr Roger's family trust.

[17]

The refit works 85 The TAC agreement provided for $185,000 (plus GST) of refit works ($165,000 of the $350,000 (excluding GST) was "to secure the vessel"). These works were largely undertaken by Rogers Engineering. 86 Mr Rogers testified that he did not contemplate, when entering into the TAC agreement, that Rogers Engineering would undertake the refit work and that he did not become aware that Rogers Engineering was working on the Ocean Voyager boat until some months after 30 May 2008, as he thought that Mr Psereckis was undertaking the work in his personal capacity. He conceded that, even when he became aware that Rogers Engineering was working on the refit, he did not disclose this to the Board as, in his view, Rogers Engineering was undertaking the work for TAC. I do not accept this evidence which in view of the indemnity given by Rogers Engineering I find inherently implausible. It is also contradicted by Mr Psereckis who testified that he discussed the works with Mr Rogers prior to the execution of the TAC agreement and that it was understood between them that Rogers Engineering would complete the refit works. 87 Although it was not in controversy that Rogers Engineering was paid by TAC for work on the refitting of the vessel out of the moneys that TAC received from MHM, the quantum was not admitted. I am satisfied however that the evidence sufficiently established that Rogers Engineering received at least $116,171.20. Mr Jones had prepared a TAC summary of payments in relation to the Ocean Voyager boat document ("the TAC payments document"), which listed all payments received and made by TAC in relation to the Ocean Voyager boat. The TAC payments document recorded, amongst other things, the following payments to Rogers Engineering, totalling $116,171.20: (a) 30 June 2008: $17,947.90. (b) 25 July 2008: $21,868.70. (c) 5 September 2008: $25,063.67. (d) 22 October 2008: $13,263.00. (e) 3 November 2008: $11,666.60. (f) 8 December 2008: $13,370.74. (g) 3 February 2008: $173.56. (h) 3 February 2008: $12,817.03. 88 The TAC payments document also recorded payments to Frank Rogers Consulting and Frank Rogers. Mr Rogers conceded that he had rendered invoices and been paid in a personal capacity under the business name Frank Rogers Consulting to the amount of $14, 450.90.

[18]

Other findings on the evidence 89 I did not find Mr Rogers or Mr Psereckis witnesses of truth and found their evidence about the 2007 boat swap deal inherently implausible and not credible. The conclusion that Mr Rogers or Mr Psereckis were not witnesses of truth is reached having regard to the totality of the evidence and the absence of contemporaneous objective evidence supporting their versions of events. 90 Mr Rogers was shown not to be candid to the Board of MHM or candid in his evidence to the Court. Mr Roger's email to the MHM Board on 6 June 2008 was misleading. He knew at the time he sent it to the Board that he had signed a contract on behalf of MHM for the supply and refit of the Ocean Voyager. He did not disclose that fact to the Board. He did not disclose that he had already signed the contract, or that the first payment had been made, nor that the boat in question was the Ocean Voyager and that his family trust had owned the Ocean Voyager. Nor did he disclose that Rogers Engineering was to do the refit, which as I have found, he knew at the time the TAC contract was signed would be the case. Furthermore, he did not disclose that he, on behalf of the trust, and Rogers Engineering had indemnified Mr Jones and TAC against any action by MHM in relation to the supply and refit of the Ocean Voyager under the TAC contract. These are matters that go to his credit. Mr Rogers' explanation as to why he did not inform the Board about that indemnity was self-serving and contrived and generally, I found the explanations provided by Mr Rogers in response to questions in cross-examination entirely unconvincing and unpersuasive. 91 Mr Psereckis' answers were often vague, evasive and not believable. For instance, he is not to be believed that he was "too busy" to have the registration of the boat transferred to him when an examination of the evidence did not present a version of events consistent with his assertion that he became the owner. I do not accept Mr Psereckis' explanations as credible, in the context where the objective contemporaneous evidence supports the conclusion that the trust continued to own the Ocean Voyager, and was the owner, when the TAC contract was entered into. 92 First, there is the indemnity in the TAC contract. No satisfactory explanation was put forward by Mr Rogers, Mr Psereckis or Mr Jones for the indemnity given by Mr Rogers on behalf of Rogers Southern. On the other hand, the fact that Mr Rogers on behalf of his family trust gave the indemnity to Mr Jones is entirely consistent with the trust, at that time, being the owner of the Ocean Voyager and not Mr Psereckis. Tellingly, Mr Jones neither sought, nor obtained, an indemnity from Mr Psereckis. It would be expected that had Mr Psereckis been the owner of the Ocean Voyager at the time, the indemnity would have been sought from Mr Psereckis. It was not, and the fact that it was not, and that the indemnity was given on behalf of the Trust, is compelling evidence that Trust still owned the boat. 93 Secondly, registration remained in the name of Graeme Rogers (in his capacity as trustee for the trust) and was not transferred to Mr Psereckis. 94 Thirdly, on 18 August 2008, Mr Rogers completed and signed an insurance form for MHM in relation to the Ocean Voyager (under the terms of the TAC contract, insurance of the vessel was MHM's responsibility from the date of first payment). The application form stated: Boat name: OCEAN VOYAGER Purchased from: Rogers Southern P/L Date: 1/6/08 Purchase price: $165,000 The document was signed by Mr Rogers on 18 August 2008 and included a declaration as to the truth of its contents and acknowledgment of the duty of disclosure. Mr Rogers was taken to this form in cross-examination and asked whether the document was accurate, to which he responded "[i]t would appear so". He then agreed that the form stated that the vendor of the Ocean Voyager to MHM was the trust. 95 Fourthly, there is an email of 24 April 2012 from Mr Rogers' administrative assistant, Ms Aver, in response to an inquiry from one of the other then directors of MHM following the circulation of the valuation that had been obtained from Mr Radanovic. Ms Aver responded: From Frank's memory [the Ocean Voyager] was purchased from Rogers Southern for about $135,000.00 … 96 In cross examination Mr Rogers stated that he could not remember such a conversation with Ms Aver but asserted that it was "definitely not right". The email, however, is consistent with what Mr Rogers himself had represented in the insurance form and as Mr Rogers did not call Ms Aver, it is open to draw the inference that her evidence would not have assisted him. 97 Fifthly, Mr Psereckis was never out of pocket in relation to the acquisition of the Taurus II, ostensibly the boat that he was purchasing for Mr Rogers' trust in replacement for the Ocean Voyager. The moneys for the purchase of the Taurus II were wholly funded out the moneys that MHM paid TAC under the TAC contract. 98 I reject the evidence of Mr Rogers and Mr Psereckis about the 2007 "deal" and boat swap arrangement. I find that the trust still owned the Ocean Voyager in May 2008 when the TAC contract was signed by Mr Rogers and Mr Jones. 99 The question of credit worthiness does not simply rest there. Mr Rogers cannot be believed on his evidence that he did not know that Rogers Engineering was to do the refit on the Ocean Voyager when he signed the TAC contract on behalf of MHM. In the first place, Mr Rogers was a director of Rogers Engineering, as was Mr Psereckis. In the second place, Mr Rogers was the person who was responsible for the specifications for the refit and the quotation and contract terms. In the third place, Mr Jones had required an indemnity from Rogers Engineering in relation to the supply and refit of the Ocean Voyager, which was given by Mr Rogers on behalf of Rogers Engineering. It is implausible that Mr Rogers, as a director of Rogers Engineering, would not have been aware that Rogers Engineering was undertaking and charging for the refit of the Ocean Voyager for supply under the TAC agreement. In the fourth place, Mr Psereckis admitted that he and Mr Rogers had discussed that Rogers Engineering would do the refit, before the TAC contract was signed. Mr Psereckis was initially evasive in his answers and denied that this was the case but ultimately admitted that there were such discussions. I find that Mr Rogers knew from the outset and before the TAC contract was signed that Rogers Engineering would do the refit. 100 I found Mr Jones' evidence self-serving. I accept his evidence that he did not know what boat was being sold to MHM when he signed the TAC agreement. It was tolerably clear that he simply regarded his role as being to receive money and pay expenses at the direction of Mr Psereckis. I also accept his evidence that, as he understood it, the boat to be supplied and refitted was being organised by Mr Rogers on behalf of MHM for that purpose and that he thought that the Taurus II that TAC paid for out of the first instalment that TAC received from MHM was intended as the boat in question. I reject his evidence however that he believed and understood that TAC was acting as Mr Psereckis' agent. Critically and significantly, he did not seek to obtain any indemnity from Mr Psereckis, but rather he sought the indemnity from Mr Rogers. I found his answers on the issue of the indemnity evasive and most unsatisfactory. I was left with the clear impression that he was covering up for Mr Rogers and, in my view, the evidence that he gave was highly suggestive of collusion with Mr Rogers. In response to questioning Mr Jones conceded that he had discussions with Mr Rogers about the evidence that Mr Rogers had given about the indemnity. 101 I also do not accept that the timing of Mr Rogers' sourcing of the Taurus II as the replacement boat for the Ocean Voyager and his decision to select the Ocean Voyager as the survey vessel for MHM's purposes can be regarded as just mere coincidence. The course of events belies that it was just mere coincidence. The sourcing of the Taurus II was some 12 months after the so called gentlemen's agreement and boat swap arrangement. Coterminous with the sourcing of the Taurus II, Mr Rogers was recommending to the Board of MHM that MHM acquire a survey vessel for use in the proposed mining exploration activities in Macquarie Harbour in Tasmania. He identified the Ocean Voyager as a vessel suitable for modification for that intended purpose. He prepared the specifications and contract terms which became the TAC contract. The terms provided for a purchase price of $350,000, with a down payment of $185,000 by the end of May 2008 "to secure" the vessel, when Mr Roger's contract with VicSail for the purchase of the Taurus II required payment of the balance due by the end of May 2008 and, as the evidence showed, the Taurus II was paid for out of that down payment. Viewed in context having regard to all the evidence, it is inherently unlikely that the sourcing of the Taurus II was coincidental to the selection of the Ocean Voyager by Mr Rogers as the survey vessel for purchase by MHM under the TAC contract.

[19]

Misappropriation and breach of duties claims 102 MHM has alleged that Mr Rogers engaged in a fraudulent scheme to enrich himself at the expense of the company and misused his position as managing director of MHM to obtain private benefits for himself and for the benefit of entities with which he is associated. These claims may be considered together. 103 There is no doubt that Mr Rogers owed the fiduciary and statutory duties as a director of MHM that are alleged in the statement of claim. A fiduciary is under an obligation, without informed consent, not to promote the personal interests of the fiduciary by making or pursuing a gain in circumstances in which there is "a conflict or a real or substantial possibility of a conflict" between personal interests of the fiduciary and those to whom the duty is owed: Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 199 per McHugh, Gummow, Hayne and Callinan JJ. Plainly, the misappropriation of MHM's funds by Mr Rogers would be a breach of his fiduciary and statutory duties as a director of MHM. 104 When considering whether I am satisfied on the balance of probabilities that that the claims of misappropriation have been made out, I must take into account the seriousness of the allegations that have been made. As the High Court cautioned in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 67 ALJR 170; [1992] HCA 66 at [2] per Mason CJ and Brennan, Deane and Gaudron JJ: The ordinary standard of proof required of a party who bears the onus in civil litigation in this party is proof on the balance of probabilities. That remains so even where the matter to be proved involves criminal conduct or fraud. On the other hand, the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what is sought to prove. Thus, authoritative statements have often been made to the effect that clear or cogent or strict proof is necessary, "where so serious a matter as fraud is to be found". Statements to effect should not, however, be understood as directed to the standard of proof. Rather, they should be understood as merely reflecting a conventional perception that members of our society do not ordinarily engage in fraudulent or criminal conduct and a judicial approach that a Court should not lightly make a finding that, on the balance of probabilities, a party to civil litigation has been guilty of such conduct. In this case, there is in my view clear and cogent evidence of misappropriation. 105 TAC was the ostensible vendor of the vessel but for the reasons given, I have rejected the respondents' case that the Ocean Voyager was owned by Mr Psereckis' and that TAC was acting as Mr Psereckis' agent on the sale of the vessel to MHM. I am satisfied that Mr Rogers, by his conduct, brought about the sale of a vessel owned by his family trust to MHM, without disclosure to the Board of his family trust's ownership of the vessel or his interest in the transaction or that Rogers Engineering would be doing the refit. Mr Rogers, in procuring and committing MHM to purchase the Ocean Voyager, thereby improperly used his position as director of MHM to gain benefits for himself and entities with which he was associated. Having rejected the respondents' case, it is open to infer and I find that TAC's role was nothing more than an artifice to disguise Mr Rogers' personal interest in the transaction and I find that Mr Rogers' conduct, and the use of TAC as the contracting party, was deliberate to conceal the true facts from the MHM Board. Accordingly, I find that Mr Roger's conduct was in breach of his duties under s 181, 182 and 183 of the Act and that through the artifice of the TAC contract Mr Rogers misappropriated MHM's funds. 106 The claim against Rogers Southern is based on the second limb of Barnes v Addy (1874) LR 9 Ch App 244. There Lord Selbourne said (at 251): [The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found ... actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps, of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. To succeed under the second limb it must be shown that the person gave assistance to a fiduciary with knowledge of a "dishonest and fraudulent design on the part of the trustee or fiduciary": Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 159 per Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ. 107 The claim against Rogers Southern is also made out. As Mr Rogers was the controlling mind of Rogers Southern, his knowledge of his own dishonest and fraudulent design is to be imputed to Roger Southern.

[20]

Remedy 108 MHM has elected to seek compensation under s 1317H of the Act. Section 1317H relevantly provides that: (1) Compensation for damage suffered. A Court may order a person to compensate a corporation … for damage suffered by the corporation… if: (a) the person has contravened a corporation… civil penalty provision in relation to the corporation … ; and (b) the damage resulted from the contravention. The order must specify the amount of the compensation. 109 Sections 181, 182 and 183 of the Act are civil penalty provisions. Having found that Mr Rogers by his conduct contravened ss 181, 182 and 183 of the Act, it is appropriate that an order for compensation be made against him for the loss sustained by MHM resulting from those contraventions. 110 Section 1317H of the Act authorises a court to order a person to compensate a corporation for damage suffered as a result of a contravention if the damage "resulted" from the identified contraventions. MHM's primary case was that its compensable damage under s 1317H is the whole of the amount that it spent on the Ocean Voyager by reason that it has spent $548,581 on a boat that it does not own, and that it was Mr Rogers' contravening conduct that brought about the situation that it spent that money on acquiring and refitting a vessel in the belief that ownership of the vessel passed to it under the TAC contract, when it has not. 111 I accept the submission that MHM has spent $548,581 on a boat that it does not own. Title in the vessel could not pass to MHM under the TAC contract because the vessel was owned by the trust and, in consequence, MHM did not receive what it contracted to acquire under the TAC agreement: to obtain ownership of the vessel. In consequence I accept the submission for MHM that there has been a total failure of consideration. In Rowland v Divall [1923] 2 KB 500, the buyer of a car successfully recovered the entire purchase price of a car to which the vendor had no title, despite the buyer's use of the car for some months, on the basis that the buyer had not received what he contracted for, namely the property and the right to possession. Atkin, LJ said: ... there can be no sale at all of goods which the seller has no right to sell. The whole object of a sale is to transfer property from one person to another ... Under those circumstances can it make any difference that the buyer has used the car before he found out, there was a breach of the condition? To my mind it makes no difference at all. The buyer accepted the car on the representation of the seller that he had a right to sell it, and inasmuch as the seller had no such right he is not entitled to say that the buyer has enjoyed a benefit under the contract. In fact the buyer has not received any part of that which he contracted to receive - namely, the property and the right to possession - and, that being so, there has been a total failure of consideration. As the cases make clear, the mere fact that MHM may have considered itself to be the owner, and acted upon that basis, does not alter the circumstance that there has been a total failure of consideration. The notion of what constitutes a total failure of consideration looks to the benefit bargained for rather than any benefit which might have been obtained in fact: Baltic Shipping Co v Dillon (1993) 176 CLR 344 at 387. 112 In the present case where the TAC contract was ineffective to transfer ownership to MHM, the question is: what is MHM's compensable damage under s 1317H for Mr Rogers' breach of fiduciary duties? The respondents' argument that MHM has not sought to rescind the TAC contract is not an answer to MHM's primary case for compensation in the circumstance that there has been no transfer of title to MHM. The object of s 1317H is akin to equitable compensation: that is, to give restitution to the victim of the loss that has been suffered as the result of the breach: V-Flow Pty Limited v Holyoake Industries (Vic) Pty Limited [2013] FCAFC 16 at [55]. 113 MHM seeks recovery not just of the amounts that it paid to TAC but all of its expenditure on the boat. It is undoubted on the evidence that MHM considered that it had obtained ownership of the vessel under the TAC contract and on that basis continued to spend money on additional work and storage costs. Thus, in the same way, the damage suffered by MHM that resulted from Mr Rogers' contravening conduct must include the additional expenditure incurred by it as the presumed owner of the vessel. In the present case the damage suffered by MHM that resulted from Mr Rogers' contravening conduct includes the entirety of what it spent on the boat as the presumed owner of the vessel that it never came to own. 114 MHM's total expenditure on the boat was not an admitted fact, though it was admitted that MHM spent additional amounts to the contract price in further work done on the refit. MHM claims to have spent an additional $164,781 on the refit of the Ocean Voyager which it paid to various external suppliers after the termination of the TAC contract. 115 During the course of evidence, objection was taken by senior counsel for the respondents to the admissibility of paragraph 27 to the affidavit of Mr Kirkwood who deposed that Mr Wait has invoiced MHM and been paid approximately $130,000 since August 2008 for services rendered in relation to the Ocean Voyager. The objection was on the basis that the source documents were not in evidence but as senior counsel accepted "it's fixable". Objection was also taken to the admissibility of Exhibit JT 1, a spreadsheet collated by Mr Thiele the Chief Financial Officer of MHM outlining a summary of payments made by MHM in relation to the Ocean Voyager. The evidence was received on the basis that the parties were to confer to determine whether there was any real dispute about the figures and if so, then the source documents would need to be tendered. They did not confer, and senior counsel for the respondents submitted that as no agreement was secured, MHM had not proved its loss. That contention is rejected. Neither paragraph 27 nor Exhibit JT 1 were ruled inadmissible and in any event, the amounts were evidenced in a spreadsheet which was Exhibit JT 2 to the same affidavit of Mr Thiele that was admitted without objection and without challenge as to the content. I am satisfied on the strength of the unchallenged evidence that MHM has proved the additional expenditure. 116 It was submitted for the respondents that once MHM had made the election to seek compensation, the claim against Rogers Southern "falls away". It was put that if the claim was purely for compensation it was difficult to see how the claim against Rogers Southern could be maintained. That submission was not elaborated on and is rejected. I consider that I do have the power to make an order for compensation against Rogers Southern under s 1317H of the Act for the contraventions by Mr Rogers. The finding made that Rogers Southern had knowledge of Mr Rogers' dishonest and fraudulent design is sufficient to support a finding that Rogers Southern was "knowingly concerned" in Mr Rogers' breaches and by s 79(c) of the Act, was therefore was "involved in" Mr Rogers' contraventions for the purposes of s 1317H(1): Chameleon Mining NL v Murchison Metals Limited [2010] FCA 1129 at [1101] -[1104]. 117 I should also refer to two other matters for the sake of completeness. The first matter is that it is unnecessary to consider the claim by MHM that there was a total failure of consideration because the Ocean Voyager was valueless, given the finding that ownership never passed to MHM. Secondly, the separate claim of misappropriation in respect of the purchase of the Taurus II is not a separate head of loss given that the payment for the Taurus II was made out of the monies that MHM paid to TAC.

[23]

Facts and evidence 120 On 25 January 2008, the purchase of a tin jig mobile sampling plant was put to the Board of the company. The Board minutes record that: (a) Mr Mead tabled a letter from Rogers Engineering detailing an offer for them to build the tin jig with a final quotation to be provided. (b) Mr Rogers declared his interest in Rogers Engineering. (c) Mr Mead advised that RCR Tomlinson had agreed to provide a quote but were yet to respond and that he was having difficulties obtaining quotes from other companies that had been contacted. (d) It was agreed that the final quotations would be provided to all directors so that a decision could be made "as soon as possible". 121 Six days later Rogers Engineering provided a quote (dated 31 January 2008) for $183,500, which was accepted and paid by MHM on the same date. 122 Mr Rogers deposed in an affidavit that: The Board of [MHM] agreed to seek expressions of interest from several companies who it was thought at the time had the capability of designing and constructing a mobile sampling plant to the specifications provided by me as Managing Director. Mr Ben Mead Executive Director approached several companies with the specification and found that only two companies had the ability to design and build the plan. A deadline of the 31st January 2008 was given as the date for expressions of interest and only one company, Rogers Engineering Services Pty Ltd met that timeframe. I declared my interest in Rogers Engineering Services to the Board in the Board meeting of the 25th January 2008. In the interests of ensuring that Macquarie Harbour Mining was obtaining a competitive quote I insisted that another company be found that could provide a plant to the specification. Rogers Engineering Services provided a quote of $183,500 for a plant that met the requirements of Macquarie Harbour Mining by the due date and it was agreed by the Board that the contract be awarded to them. Subsequently a quote was received by the then General Manager of Rogers Engineering Services from Gekko Systems (Victoria) for a plant that could process the bulk samples but was not mobile as required under the specifications. Their quote was for $342,394. 123 It was put to Mr Rogers in cross examination, which he denied, that he had a pre-existing intention to get the contract for Rogers Engineering and had no intention of making any genuine attempt to get the best value for the tin jig. 124 Mr Allen, then a director of the company, swore an affidavit on behalf of the respondents. He deposed that in January 2008 it was necessary for the company to purchase a tin jig and that investigations were made by "the Executive Directors" of the company and tenders were called. He recalled receiving a quote from a company called "Gecko" for about $360,000 to $365,000 and a quote from Rogers Engineering. He deposed that Mr Rogers declared his interest in Rogers Engineering and that he considered the quote from Rogers Engineering to be reasonable. 125 Mr Allen accepted in cross examination that six days (being the number of days between the Board meeting and the receipt of a quote and payment to Rogers Engineering) would not be a sufficient amount of time to make a judgment "if you were going into it cold from that time". He testified, however, that the Board was not going into it cold because the tin jig had been talked about for some time. Neither party challenged Mr Allen's credibility.