MSPR Pty Ltd v Advanced Braking Technology Ltd

Court of Appeal (NSW)|2013-11-18|Before: Macfarlan JA, Ward JA, Gleeson JA, MacFarlan JA

Judgment 1MACFARLAN JA: In 2002 there was a public float of Advanced Braking Technology Ltd ("ABT"), then known as Safe Effect Technologies Ltd, a company which had devised an advanced motor vehicle braking technology. Through his company Fingora Pty Ltd, Mr Roger Cowan subscribed for, and was issued, 3.5 million shares in ABT at a cost of 10 cents each. In 2003, ABT made a rights issue to its shareholders. It was underwritten by Hood Group Holdings Ltd ("Hood Group") of which Mr Stanley Holmes was the principal. The issue was substantially under-subscribed. As Hood Group did not have sufficient funds to pay for the shortfall shares, those shares were issued to it subject to its undertaking not to deal with them before the proceeds of their resale were paid to ABT. 2Mr Cowan gave evidence in the present proceedings that, following discussions with Mr Holmes and with Dr Dorota Kieronska of ABT, his company Phyro Holdings Pty Ltd, the parent company of Fingora, lent a total of $300,000 to ABT. In the proceedings, MSPR Pty Ltd, the first appellant and assignee of Phyro's rights, sued ABT for repayment of the loan. Phyro was joined as a co-plaintiff in case MSPR's rights as assignee were questioned. However, the validity of the assignment is now accepted and Phyro's role as a co-plaintiff and co-appellant can be disregarded (except on the question of costs). 3In answer to the claim, ABT contended that the payment to it of $300,000 was not by way of loan but constituted the purchase price of some of the rights issue shortfall shares held by Hood Group and that any rights Phyro had in connection with the transaction were against Hood Group, not ABT. In the alternative, ABT contended that if it had agreed with Phyro that the payment of $300,000 would be by way of loan, nevertheless, Mr Cowan and ABT subsequently agreed that repayment would be effected by ABT causing Hood Group to transfer to Mr Cowan's interests out of the rights issue shortfall shares, three million shares (that is, at a price of 10 cents per share), together with one million bonus shares. 4On 20 April 2004 Hood Group transferred 3,969,228 of the ABT rights issue shortfall shares to Fingora. Mr Cowan denied that this transfer effected a discharge of ABT's obligation to repay the $300,000. He alleged that Fingora received the shares, not on its own behalf, but simply for the purpose of passing them on to certain investors associated with Mr Cowan (the "New Investors") who were entitled to 3.9 million of the shares in return for $195,000 that they paid to ABT (that is, at 5 cents per share). 5The proceedings were heard in the District Court by Knox DCJ who found that Phyro had not established that its payment of $300,000 was by way of loan and that, in any event, the transfer of 3,969,228 shares to Fingora discharged any rights to repayment that Phyro had. Accordingly, judgment was entered in favour of ABT. 6For reasons given below, I consider that MSPR's appeal against the judgment should be dismissed.

MSPR'S EVIDENCE 7Mr Cowan gave evidence that in early June 2003 Mr Holmes asked him to lend $250,000 to ABT and that this request was repeated by Dr Kieronska. Mr Cowan then caused Phyro to pay $100,000 to ABT in two tranches, with a further $150,000 being paid on 1 July 2003. 8Mr Cowan also deposed that in late July 2003 Mr Holmes and Dr Kieronska asked him whether he would encourage friends and associates of his to purchase ABT rights issue shortfall shares from Hood Group, on the basis that if the shares were not repurchased at a guaranteed price by October 2003, further shares would be issued to bring these investors' overall costs down to 5 cents per share. In consequence, Mr Cowan arranged for such persons (the New Investors) to pay $195,000 to ABT. In September 2003, Phyro paid a further $50,000 to ABT, according to Mr Cowan, as a further loan requested by Dr Kieronska. Mr Cowan said he made it clear to Dr Kieronska that the New Investors were to be given priority over his interests if those investors asked for repayment. 9Mr Cowan went on to say that in December 2003 Dr Kieronska "outlined a proposal" for the conversion into shares of the $300,000 debt to Phyro. On 6 February 2004, Mr Cowan faxed a letter to Dr Kieronska purporting to summarise the effect of the financial dealings between himself and ABT. It referred to transactions additional to those which I have described above. However, after referring to a loan to ABT of $300,000, the letter included the following presently relevant statements: "The other investors included a group contributing $195,000 on the understanding that, in certain circumstances (that have occurred), they would be issued with shares at 5 cents each. At about that time I thought there was agreement that my unsecured loan would be converted to shares at the same price as these investors. However, there was no firm agreement and subsequently I was asked to accept a bonus issue of 1 million shares plus conversion of the loan into shares at 10 cents each. Although the other investors were given an undertaking in writing that they would be issued shares at 5 cents each, it was eventually necessary to take more than half of them as shares in escrow. In order to honour the deal I promised those investors, I will transfer my shares to them. The position now seems to be as follows: 1. I am due to receive 3 million shares to convert the loan of $300,000 at 10 cents per share. 2. I will receive an additional 1 million shares as a bonus issue. 3. The other investors will receive a total of 1,625,000 share[s] at 12 cents per share plus additional 2,275,000 shares so that the average price per share is reduced from 12 cents to 5 cents. ... Stan Holmes has effected the issue of 1,625,000 share[s] to the other investors although there seems to have been a problem that Stan is now overcoming. All the other matters are somewhat in the air and I would very much appreciate the following: ● A written confirmation that these matters are outstanding, or any amendment you suggest would be in order. ● A proposed schedule for completion" (emphasis added). 10Mr Cowan said that shortly before 25 March 2004 he received a telephone call from Mr Holmes in which the following exchange occurred: "SH 'You have been chasing the shares for your mates and I am now able to make the transfers ... You may now know it but I have no control over the issue of shares. I cannot do anything without approval of Vin [a Vincent Sweeney] and Dorota and they are making it difficult ... I might have to transfer all the shares in one parcel to Fingora and then get Fingora to transfer them to individuals. Dorota says they cannot have a number of small investors getting off market transfers at that price. They are also saying that shares issued at such a low price will have to be escrowed and your mates won't be able to sell them until they are released from escrow. You will have enough shares in Fingora to satisfy the new investors. The only sensible solution is for the shares to be issued to Fingora and for Fingora to hold the escrowed shares.' RC 'Stan I would not care if they were delivered by carrier pigeon as long as my friends and family can get their shares soon. Some of them are getting very worried. I don't want to have shares in escrow but if there is no other way I will cooperate. I am getting desperate about the delay in getting shares to these investors'" (emphasis added). 11On 20 April 2004 Hood Group transferred 3,969,228 shares to Fingora. The share transfer form referred to the number of shares and stated the consideration to be $3,960,600 (that is, 10 cents per share). Mr Cowan and his wife signed the form, but Mr Cowan denied that the number of shares and the consideration were stated on it at the time they signed it. Having received the shares, Fingora transferred 3.8 million of them to the New Investors at a stated consideration of 5 cents per share. Oversight appears to have been the reason for the remaining 100,000 shares to which the New Investors were entitled not being transferred. 12As noted above, Mr Cowan contends that the transfer to Fingora of 3,969,228 shares was simply for the purpose of Fingora passing them on to the New Investors and was not intended to be in discharge of any obligation ABT owed to his interests. In this connection, he gave the following evidence in cross-examination: "Q. What I was putting to you before was that your evidence is, is it not, that the reason that was given to you as to why the shares could not be transferred directly by Hood Group to the other investors was that Vin and Dorota were concerned about a number of small investors getting off-market transfers at that price? A. Yes. Q. What I'm suggesting to you is the very thing that you did when you got the shares was to transfer them out to the other investors at the 5 cent price. A. Yes, that's what I had to do, and besides that I didn't see how that would have affected the records of - [Safe Effect]. I didn't care anyway if it did. It was no business of mine. ... Q. So the very concern that you say that was given to you by Mr Holmes was inevitably going to occur once you got the shares. A. I couldn't care less about their concerns, I was worried about my concerns, and my concerns were to make sure those people I talked into investing got their shares. ... Q. So the records of the defendant show two sets of off-market transfers, firstly, 10 cents and then, secondly, to the other investors at 5 cents. A. Yeah, I think - I'm not sure if that's right, but I think that probably is right. ... Q. What did you do? A. I got shares, 3.965 million shares, from Hood, which I shouldn't have got but I took them because he convinced me to take them, and then I issued them to the small investors at 5 cents a share, which was they had an agreement [sic], a signed agreement, that they were entitled to get shares at 5 cents a share, and I made sure that happened. Q. I want to suggest to you again is the shares that you got on or about 20 April 2004 were shares which you knew were yours and not the other investors. A. I can't even believe you can say that. Q. And that you transferred them out because you felt you had an obligation to the other investors. A. I felt I had an obligation to the other investors to make sure I got their shares that they'd been promised with a signed document, yeah" (emphasis added). 13Phyro also tendered an email of 4 December 2004 from Dr Kieronska to Mr Cowan which included the following: "Your shares in summary (the sheet I gave you in Perth did not include 1,750,000 shares from first tranche of seed shares issued in May '02) are: 1 Seed capital 3,500,000 2 Already issued 4,635,895 3 from London Partners 3,950,000 4 3D Capital 1,577,323 5 New shares to be issued 1,670,115 15,333,333

1&2 should have already been issued; London Partners - we are still dealing with their administrator; Vin actually met with London Partners' principal trying to bring this to a closure as quickly as possible. Point (2) includes the shares that I would have expected Stan to transfer from his allotment. The new shares will have to be issued at AGM/EGM". 14The "Seed capital" referred to is that acquired on the public float in 2002. The shares listed as "Already issued" comprised 666,667 shares not of present relevance and the 3,969,228 shares transferred by Hood Group to Fingora on 20 April 2004. Items 4 and 5 do not appear to have been of present relevance. Whether item 3 related to the New Investors' shares is referred to at [45] below. London Partners were the underwriters of the 2002 public float. 15MSPR did not tender any other documentary evidence suggesting that the $300,000 payment was a loan. In particular, it did not tender any financial records of Phyro, Fingora or Mr Cowan evidencing the making of the alleged loan.

ABT'S EVIDENCE 16ABT did not call Dr Kieronska as a witness as she died before the hearing at first instance. Nor did it call Mr Holmes. The primary judge's view that no Jones v Dunkel (Jones v Dunkel [1959] HCA 8; 101 CLR 298) inference should be drawn against ABT in relation to it not calling Mr Holmes is not challenged on appeal. 17ABT did call Mr Claude Solitario, a former company secretary of ABT, to give evidence. Mr Solitario was not present during any of the alleged conversations between Mr Cowan, Mr Holmes, and Dr Kieronska. He gave evidence that, based upon instructions from Dr Kieronska and documents available to him, he prepared a spreadsheet ("the Reconciliation") in late 2003/early 2004 concerning the 2003 rights issue. This showed the payments totalling $300,000 received from Mr Cowan's interests as being referable to the purchase of rights issue shortfall shares. Mr Solitario also deposed that the company's financial statements and general ledgers made no reference to the alleged loan of $300,000 and that he had no knowledge of any such loan. 18ABT's present Chief Executive Officer, Mr Kenneth Johnsen, gave evidence on behalf of ABT of the absence of reference to the alleged $300,000 loan in ABT's financial statements. 19Documents tendered by ABT included the following: (a)A letter dated 24 March 2003 from Mr Holmes to Dr Kieronska. This letter referred to an anticipated payment by Fingora to ABT as referable to the purchase of rights issue shortfall shares. (b)An email of 26 June 2003 from Mr Holmes to Dr Kieronska. This attached a list of payments treating the two amounts of $50,000, received to that date as referable to the shortfall shares. A letter of 24 April 2003 and an email of 19 October 2003, both from Mr Holmes, were to the same effect. (c)A document prepared by Mr Cowan in July 2003 for circulation to the New Investors. In this document, Mr Cowan stated under the heading "Financial Position" that ABT "has no debt". (d)An email of 19 October 2003 from Mr Holmes to Dr Kieronska. This treated the payments from Mr Cowan's interests totalling $300,000 as referable to the purchase of shortfall shares. It treated the $195,000 received from the New Investors similarly. To the same effect was Mr Holmes' response of 7 January 2004 to the Reconciliation prepared by Mr Solitario. Dr Kieronska's approval of the Reconciliation is apparent from her email of 15 January 2004 to a Mr Michael Thomason of ABT's auditors. (e)ABT's general ledgers to 30 June 2003 and to 30 June 2004. These show the relevant receipts from Mr Cowan's interests as referable to the acquisition of shortfall shares.

THE JUDGMENT AT FIRST INSTANCE 20The primary judge was critical of Mr Cowan's evidence. He found that in some respects it was in clear conflict with the contemporaneous documentation and that he had given unconvincing explanations for conflicts between his two affidavits. 21On the other hand, his Honour was impressed by the evidence of Mr Johnsen and Mr Solitario. He rejected MSPR's proposition that they had engaged in "a systematic and calculated drafting and circulation of a set of corporate records and documents to retrospectively fit the prior situation" (Judgment [180]). He found that their evidence was supported by contemporaneous documentation and that the evidence of Mr Cowan was inconsistent with it. 22His Honour's conclusions included the following: "190 I find that the conversations between Mr Cowan and Dr Kieronska in early June 2003 were to the effect that there would be an investment by Mr Cowan in the Defendant through a purchase of shares through Hood Group on a cash for equity basis in the sum of $250,000. I find that that amount was increased by a further $50,000 in the conversation of 19 September, 2003. 191 I find that that arrangement was a continuation or part of the share subscription arrangement then being underwritten by Mr Holmes through Hood Group ... ... 194 Absent any evidence to the contrary, evidence as to any such agreement [as alleged by the Plaintiffs] could have been called by the Plaintiffs and was not. Mr Cowan had and has been in frequent contact with Mr Holmes. The Defendant and Hood Group had been in litigation. Mr Cowan opposed the litigation against Mr Holmes ... 195 In the circumstances I infer that any such evidence which could have been given by Mr Holmes or Hood Group would have been adverse to the Plaintiff. Absent Dr Kieronska, Mr Cowan's evidence would need to have been supported by Mr Holmes. 196 The Defendant's evidence is also consistent with the exchange of emails from Mr Holmes and internally within the Defendant company in June 2003 which record the basis on which the monies advanced were to be treated and the shares allocated ... 197 Mr Lynch [counsel for MSPR] has referred me to a number of documents - for example, the email from Mr Cowan to Dr Kieronska of February 2004. Not only was that communication after the date of the advance of the monies, it does not record Dr Kieronska's response which, in any event, must be viewed against the background of the rest of the correspondence and records. 198 Those were inconsistent with the company and its officers regarding the monies advanced as a loan". 23Earlier in his judgment, the primary judge concluded that a Jones v Dunkel inference should be drawn against MSPR, stating: "155 Here, there is on the evidence, a good and continuing relationship between Mr Cowan and Mr Holmes. Mr Cowan has maintained contact with Mr Holmes and last spoke to him about a week prior to the hearing. His practice in about 2006 was to speak to Mr Holmes very frequently, sometimes daily (transcript pp 81-83). Mr Cowan was aware of litigation between the Defendant and Mr Holmes in the Federal Court from March 2006. There was a falling out between the Defendant and Mr Holmes as far back as 2003 (Transcript p 81). There is no reason advanced why Mr Holmes was not called in the Plaintiff's case other than the Plaintiff's loss of a right to cross-examine him. ... 157 On the evidence I find that Mr Holmes could be expected to have given a relevant and accurate complexion on the relevant facts. I infer that Mr Holmes' evidence would not have assisted the Plaintiff, in particular, as to whether the monies advanced were a loan or not" (emphasis added). 24At the end of his judgment, the primary judge said: "216 I do not accept the evidence of Mr Cowan that these particular monies were advanced as a loan rather than an equity investment. ... 217 I do not accept the evidence advanced by the Plaintiffs and, where there is a conflict, I prefer that of the Defendant. I find that the $300,000 advanced was on the basis that it was to be an investment in the Defendant for the consideration of the issue of shares. That issue has substantially occurred ... "

RESOLUTION OF THE APPEAL 25As the primary judge's decision was based to a significant extent upon his findings as to the credibility of witnesses, the principles stated in Fox v Percy [2003] HCA 22; 214 CLR 118 are applicable to the appeal. These require that, for an appeal in such a case to succeed, the appellant demonstrate that the primary judge's conclusions are contrary to incontrovertible facts or uncontested testimony, or are glaringly improbable or contrary to compelling inferences (at [28] - [29]). 26I turn now to deal, in the order in which they were advanced, with such of MSPR's grounds of appeal as were pressed at the hearing.

GROUND 1: THE AGREEMENT FOUND WAS NOT PLEADED 27The primary judge found that the $300,000 payment was made to ABT "on the basis that it was to be an investment in [ABT] for the consideration of the issue of shares" (Judgment [217] quoted in [24] above). His Honour did not attach any significance to which entity amongst Mr Cowan's interests (Mr Cowan, Phyro and Fingora) made the agreement with ABT. MSPR complained that this undifferentiated finding therefore differed from the agreement pleaded by ABT in its Further Amended Defence which was one between Hood Group and Fingora under which Hood Group agreed to transfer shares to Fingora as consideration for the $300,000 payment being made to ABT for and on behalf of Hood Group. His Honour's finding, MSPR said, related to the issue of shares by ABT rather than their transfer by Hood Group, and was not (at least not specifically) related to an agreement with Fingora. 28Three points need to be made in response to these submissions. 29First, Mr Cowan's letter of 6 February 2004, upon which MSPR placed much reliance, commenced by stating: "Where reference is made in the first person I am also referring to any of the private companies in which I have a controlling interest and in particular Fingora Pty Ltd". 30This reflected Mr Cowan's evidence generally. Contrary to MSPR's contention, distinctions between entities forming part of Mr Cowan's interests were not, and are not, of significance. 31Secondly, the primary judge well understood that after the closure of the unsuccessful rights issue, ABT issued the shortfall shares to Hood Group and that thereafter that company and ABT attempted to find persons to buy the shares from Hood Group, with their purchase prices to be passed on to ABT. Without such sales, ABT would not be paid for the shares as Hood Group had insufficient funds to pay for them. Thus, the primary judge's reference to the arrangement for "the issue of shares" is to be understood as a reference to the transfer of rights issue shortfall shares by Hood Group. 32Thirdly, the crucial issue in the proceedings was whether MSPR proved that ABT agreed with Mr Cowan that his interests' payment of $300,000 was to be by way of a loan. MSPR was held not to have discharged that onus because the primary judge concluded that the parties agreed that the payment was to be attributed to the transfer of shares. The details of the agreement so found were not of significance. All that mattered for present purposes was that the payment had not been found to be by way of loan. 33For these reasons, I do not consider that there was any material departure of the primary judge's finding from the issues raised by the pleadings. Accordingly, this ground of appeal should be rejected.

GROUND 8: THE COWAN/KIERONSKA CONVERSATIONS 34MSPR submitted that it was not open to the primary judge to reject Mr Cowan's evidence of conversations with Dr Kieronska and to find that the conversations occurred between them in different terms. It submitted that there was no evidence of those different conversations. 35This ground of appeal should be rejected. The absence of evidence from the late Dr Kieronska did not preclude the primary judge from finding that the arrangements between her and Mr Cowan were different from Mr Cowan's versions of those arrangements. There was ample documentary and other evidence, including written communications of Dr Kieronska, to enable his Honour to make findings about the effect of the communications between the two of them (see [17] and [19] above). Contrary to MSPR's submission, the primary judge did not treat his disbelief of Mr Cowan as constituting positive evidence of the contrary of what Mr Cowan said (see Gauci v Commissioner of Taxation [1975] HCA 54; 135 CLR 81 at 87).

GROUNDS 4 AND 5: THE COMMUNICATIONS OF JULY 2003, 6 FEBRUARY 2004 AND 4 DECEMBER 2004

Mr Cowan's July 2003 letter 36This was a letter that Mr Cowan wrote at Dr Kieronska's request "To Whom It May Concern" stating that on 30 June 2003 he arranged for $250,000 to be paid to ABT and that he understood that it would be paid on that date. Mr Cowan said that Ms Kieronska wanted to show the letter to the Australian Stock Exchange as $150,000 of this amount was not in fact received until 1 July 2003. The other $100,000 had been paid earlier in June. 37MSPR submitted that the primary judge treated the letter as an implied admission by Mr Cowan that the payments totalling $250,000 (which formed part of the total of $300,000) were not by way of loan. I do not consider that his Honour did this. The point his Honour made was that Dr Kieronska's request and Mr Cowan's response provided an opportunity, which Mr Cowan did not take, to have the nature of the arrangement concerning the payment evidenced in writing (Judgment [140]). Mr Cowan said that he had earlier sought confirmation from Dr Kieronska of the nature of the arrangement but had not received it. In my view, his Honour's approach was fully justified. 38MSPR also submitted that, in referring to payment of the sum of $250,000, the letter provided some evidence that the payment was by way of loan. I do not agree. The language used did not expressly or impliedly indicate the basis of the payment. 39MSPR also submitted that, as the letter was signed by Mr Cowan as a director of Phyro, it constituted evidence that the subsequent transfer of 3,969,228 shares to Fingora did not relate to the payment of $300,000 to ABT. I reject this submission for the reasons given in relation to Ground 1. Mr Cowan did not distinguish between the entities constituting his interests. That the arrangement for payment of $300,000 may have been made by Phyro and the shares transferred, not to it, but to its subsidiary company Fingora does not assist MSPR's contention that the payment was by way of loan.

Mr Cowan's 6 February 2004 letter 40MSPR correctly pointed out that the primary judge's comment that this letter (see [9] above) "does not constitute an agreement that the monies advanced constituted a debt" was inapt because MSPR had not submitted that it did (Judgment [145]). However the comment did not lead his Honour to ignore the letter as he went on to consider whether it constituted evidence requiring acceptance of Mr Cowan's evidence. He concluded that it did not as it post-dated the advance of the monies, was not responded to by Dr Kieronska and needed to be assessed in the context of the remainder of the correspondence and records (Judgment [146] and [197]). 41Although the letter provided some evidence in favour of MSPR that the original arrangement was that the payment would be a loan, it provided evidence against MSPR that Mr Cowan subsequently agreed to accept 4,000,000 shares in discharge of the repayment obligation. Although the letter cast doubt on the finality of that further agreement, the subsequent transfer to Mr Cowan's interests of shares of that approximate number gave a firm basis for concluding that the transfer was intended to discharge the repayment obligation. Indeed, at first instance MSPR accepted that Phyro was prepared to accept 4 million shares in satisfaction of the alleged loan (Outline Submission dated 20 May 2012, [13]). 42The letter also provided a basis for concluding that the later transfer of shares was referable to Mr Cowan's interests' entitlement and was not, as Mr Cowan effectively said in his evidence, simply for the purpose of Fingora acting as the New Investors' agent or trustee in receiving the shares on their behalf and passing the shares on to them. The letter suggested that there was a problem with all of the shares to which those investors were entitled being transferred to them, in relation to which Mr Cowan says in the letter that "[i]n order to honour the deal I promised those investors, I will transfer my shares to them" (emphasis added). This statement supports the view that what later occurred was that Mr Cowan's interests received their entitlement and then transferred them to the New Investors because Mr Cowan felt responsible for having persuaded them to invest. It is important in this respect that Mr Cowan referred to these shares as his own shares. 43The primary judge was correct in not regarding the letter as conclusive on the nature of the original arrangement. It needed to be assessed in the context of the documentation as a whole, particularly because there was no response to it. Accordingly, I do not consider that the primary judge erred in his treatment of the letter in a way that disadvantaged MSPR. If anything, his Honour could have used the letter to support his findings against MSPR in relation to the transfer of the 3,969,228 shares by Hood Group.

Dr Kieronska's email of 4 December 2004 44Contrary to MSPR's submission, this email (see [13] above) does not support MSPR's case. At best for MSPR, it is neutral. As noted earlier (see [14]), the second item referred to in the letter included the 3,969,228 shares transferred to Fingora. This was consistent with ABT's case that those shares were received in discharge of Mr Cowan's interests' alleged loan repayment entitlement. However it was equally consistent with MSPR's case that the shares were transferred to Fingora for the purpose of them being passed on to the New Investors and that in reality they were transferred in satisfaction of the New Investors' rights. 45MSPR submitted that the reference in Item 3 to 3,950,000 from London Partners was to Mr Cowan's interests' entitlements but there is nothing in the letter to indicate that that was so and there was earlier documentary evidence (an email from Dr Kieronska to Mr Herceg of 1 August 2003) suggesting that more than half of the New Investors' shares might have to come from London Partners. This suggestion makes sense in the context of what occurred because Hood Group acquired shares at 10 cent per share and would not have had enough shares to make transfers to the New Investors in respect of their $195,000 payment at the rate of 5 cents per share. 46In these circumstances, this ground of appeal should be rejected.

The Holmes/Kieronska payment lists 47MSPR contended at first instance that these documents (see [19(b) and (d)] above) did not qualify for admission into evidence as business records. This contention was not pursued on appeal although MSPR did submit that undue weight was given to them. In my view that submission should be rejected. Although Mr Cowan was not a party to the communications by which these lists were conveyed, they provided strong contemporaneous evidence that Mr Holmes and Dr Kieronska regarded the payments that Mr Cowan arranged as referable to the acquisition of rights issue shortfall shares, and therefore not to a loan to ABT. 48Contrary to MSPR's submission, the primary judge was not unduly influenced by the fact that prior dealings between Mr Cowan and ABT had been in respect of shares, not loans. Clearly, his Honour focussed on the particular transactions in issue and relied heavily on what the available documentation said about them.

ABT's internal business records 49On appeal MSPR did not contend that Mr Saltiero's Reconciliation and ABT's general ledgers were not admissible but did contend that the primary judge ought to have concluded that they were not accurate and reliable. 50The primary judge recognised that the records were inaccurate in some respects but concluded that those inaccuracies were not material and rejected MSPR's submissions that the records were deliberately falsified. 51Whilst MSPR was able on appeal to identify apparent errors in the documents, it did not in my view provide any adequate basis for interfering with his Honour's conclusions that the errors were not deliberate and were not of present materiality. Certainly the paucity of original records and Mr Saltiero's necessary reliance upon instructions from Dr Kieronska needed to be taken into account in assessing the weight to be given to the records. However there is no basis for concluding that the primary judge did not do so. Accordingly, this aspect of Ground 6 should also be rejected.

GROUND 7: THE JONES v DUNKEL INFERENCE AGAINST MSPR 52MSPR submitted that the primary judge erred in drawing a Jones v Dunkel inference against it by reason of it not calling Mr Holmes to give evidence. It submitted that his Honour erred, first, in drawing such an inference at all and, secondly, as to the nature of the inference he drew. 53A Jones v Dunkel inference may be drawn against a party where the party would be expected to, but does not, call a witness who could give evidence on a relevant matter and that failure is unexplained (Payne v Parker [1976] 1 NSWLR 191 at 201). The inference to be drawn in these circumstances is not that the witnesses' evidence would have been adverse to the party, but simply that it would not have assisted the party's case (Kuhl v Zurich Financial Services [2011] HCA 11; 243 CLR 361 at [64]; ASIC v Hellicar [2012] HCA 17; 247 CLR 345 at [168] and [232]). The inference permits the Court to make a finding unfavourable to the party with greater confidence (Hellicar at [232]). For example, in G v H [1994] HCA 48; 181 CLR 387, a mother gave evidence suggesting that the defendant was the father of her child. A conclusion as to the defendant's paternity was able to be reached with greater confidence in light of his failure to give evidence and to deny paternity (at 391). As that case illustrates, for a Jones v Dunkel inference to be drawn, there must be evidence that the party against whom it is to be drawn is required to explain or contradict (Schellenberg v Tunnel Holdings Pty Limited [2000] HCA 18; 200 CLR 121 at [51]). This evidence is available to found a judgment against the party. Otherwise, to base a judgment against a party simply upon his or her failure to call evidence would involve the erroneous drawing of an inference that the party's evidence would have been positively adverse to his or her interests. 54The High Court has described the foundation of the Jones v Dunkel principle as that "the party or his advisers are presumed to know the content of the absent witness's evidence, otherwise he would not be a witness whom 'that party might reasonably be expected to call'" (Brandi v Mingot (1976) 12 ALR 551 at 560). As Glass JA observed in Payne v Parker, the condition that the missing witness would be expected to be called by one party rather than the other has been described in different terms (at 201). These include descriptions of it being "natural for one party to produce the witness" and the witness being "in the camp of one party, so as to make it unrealistic for the other party to call him" (ibid). 55I do not consider that the primary judge erred in concluding that a Jones v Dunkel inference should be drawn against MSPR. The matters to which he referred in [155] and [194] of his judgment (see [23] and [22] above) were in my view sufficient to raise an expectation that MSPR would have called Mr Holmes to give evidence. These matters justify conclusions that it would have been "natural" for MSPR to produce Mr Holmes as a witness and that Mr Holmes was effectively in the "camp" of MSPR, so as to make it unrealistic for ABT to call him. Mr Cowan had a good, long-standing and continuing relationship with Mr Holmes. Put in terms of the underlying rationale of the Jones v Dunkel principle, the matters to which the primary judge referred rendered it highly likely that MSPR knew what evidence Mr Holmes would give, if called. 56As noted above, MSPR also challenged the nature of the Jones v Dunkel inference that the primary judge drew against it. When the primary judge first and principally addressed the issue, he said that he inferred that Mr Holmes' evidence "would not have assisted ABT" (Judgment [157] quoted in [23] above). MSPR could not, and did not, complain about this formulation. It did however complain of the primary judge's later statement that he inferred that Mr Holmes' evidence would have been "adverse" to MSPR ([195] quoted in [22] above). 57For the reasons given above, this second formulation was objectionable. However, as the primary judge described the appropriate inference correctly when principally addressing the issue, I do not consider that any significance can be attached to his later error which in my view should be regarded as a slip. Moreover, that apparently linguistic error did not lead to any erroneous application of the principle. There was in fact a wealth of evidence from which his Honour was entitled to draw an inference that the amount of $300,000 was not paid as a loan. He was rightly fortified in drawing that inference by MSPR's failure to call Mr Holmes. His Honour did not erroneously use that failure to fill a gap in ABT's case. 58Further, contrary to MSPR's submission, its failure to call Mr Holmes was not adequately explained by the fact that there were documents of Mr Holmes in evidence that were inconsistent with what MSPR would have wanted him to say. The Court was entitled to take those documents at face value unless Mr Holmes gave evidence explaining them away. Because of Mr Cowan's relationship with Mr Holmes, MSPR was the party in a position to ascertain whether Mr Holmes was able to do that and, if he was, to call him to give the relevant evidence. 59In conclusion I add that I do not consider that there is any substance in MSPR's submission that the judge was in error in referring to an expectation that Mr Holmes could have put "a relevant and accurate complexion on the relevant facts" (Judgment [157] quoted in [23] above). In my view his Honour was simply saying that, by reason of his involvement in the relevant events, Mr Holmes was in a position to give direct evidence of what occurred.

GROUND 9: MR COWAN'S CREDIT 60In its written submissions, MSPR submitted that there were four errors in the primary judge's conclusions concerning Mr Cowan's credit. 61The first submission was not accompanied by sufficient references to determine its efficacy. It was to the effect that the primary judge unfairly criticised Mr Cowan for his conduct in 2006, when he was a director of ABT, in approving ABT documents that were inconsistent with his claim. MSPR said that the approval was in fact justifiable because the majority of ABT's board (not, of course, including Mr Cowan) had rejected the claim. That the primary judge made this criticism is not apparent on the face of his judgment although it may be embodied in his reference to some conflicts between Mr Cowan's two affidavits (Judgment [175]). 62Even if MSPR's complaint is justified, MSPR has not established that the primary judge's error was a material one which may have affected his overall conclusion concerning Mr Cowan's evidence. 63The second and third points do not add to MSPR's submissions under the earlier grounds of appeal. 64The fourth point appears to be a contention that the evidence of Mr Johnsen and Mr Solitario should not have been accorded weight because, in the case of Mr Johnsen, he was not employed by ABT at the relevant time and, in the case of Mr Solitario, he was not involved in the relevant transactions. These facts did not render the limited evidence that these persons gave of no weight. As persons who came to have responsibility for relevant records of ABT, they were entitled to give the evidence that they did (as to which see [17] and [18] above).

MSPR'S ORAL SUBMISSIONS 65With one exception, MSPR's oral submissions on the appeal are sufficiently addressed by my conclusions above concerning its grounds of appeal. I should however refer to a broad submission that was put orally. 66MSPR contended that the course of events found by the primary judge was implausible. It said that the effect of his Honour's findings was that ABT obtained a windfall because the one transaction (the transfer of 3,960,228 shares by Hood Group to Fingora) satisfied two obligations: the supposed obligation to repay or provide shares in response to Mr Cowan's $300,000 payment and the obligation to provide shares in response to the New Investors' payment of $195,000. 67I do not accept that this is an appropriate way to look at the events as found. What in fact happened was effectively as follows: (1)Mr Cowan paid $300,000 to ABT. He agreed, either at the outset or subsequently, that that payment was to be consideration for Hood Group transferring 4 million shares to his interests. (2)In the same period Mr Cowan persuaded friends and family members (the New Investors) to pay $195,000 to ABT for shares. As events transpired these were to number 3.9 million (that is, 5 cents per share). (3)There was a problem in Hood Group transferring to the New Investors the shares to which they were entitled (see [8]-[10] and [12] above), probably because Hood Group acquired its shares (subject to its undertaking) at 10 cents per share whilst the New Investors were entitled to $195,000 worth of shares calculated at the price of 5 cents per share. (4)Hood Group was able to and did satisfy Mr Cowan's entitlement. (5)Because he had induced them to invest, Mr Cowan transferred his shares to the New Investors so they received the consideration for their investment. He regarded himself as under a moral obligation to ensure that they received their shares (see [9], [10] and [12] above). (6)The New Investors may still have rights against Hood Group as it was with it that they contracted and Hood Group did not transfer to them the shares to which they were entitled. Whether such rights exist and whether Mr Cowan's interests would have any claim to any shares or damages obtained by the New Investors from Hood Group are not issues that arise in these proceedings. 68I do not regard the events so described as implausible. I accordingly reject MSPR's broadly based submission. 69I add in conclusion that the present is a prime example of a case to which the oft-quoted words of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 318-9 are applicable. Mr Cowan's first affidavit was sworn on 1 February 2012, over eight years after the principal events in issue occurred. As McLelland CJ in Eq pointed out in Watson v Foxman, the degree of fallibility of memory of conversations increases with the passage of time, particularly where disputes or litigation intervene and self-interest has intruded. Here, the primary judge rightly gave much greater weight to the documents in evidence than to the oral evidence of Mr Cowan which was given about conversations occurring over eight years earlier. 70In my opinion MSPR did not demonstrate any error in his Honour's approach, and certainly none that would satisfy the principles in Fox v Percy referred to in [25] above.

ORDERS 71As MSPR has not succeeded in making good any of its challenges to the primary judge's decision, the appeal should be dismissed with costs. 72WARD JA: I agree with Macfarlan JA. 73GLEESON JA: I agree with Macfarlan JA.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 December 2013

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