2316/00 NCR AUSTRALIA PTY LTD V CREDIT CONNECTION PTY LTD (IN LIQ) & ORS
2460/00 NCR AUSTRALIA PTY LTD V CREDIT CONNECTION PTY LTD (IN LIQ) & ORS
JUDGMENT (revised for typographical errors 30 January 2004)
1 HIS HONOUR: The plaintiff ("NCR") is an Australian subsidiary of a large international corporate group. Its principal activity is the sale of automatic teller machines, computer hardware and systems throughout Australia. Some but not all of its customers are large financial institutions.
2 The first defendant ("CC") carried on business as a credit collection agency and was, during a period from about December 1996 to 1998, retained by NCR to collect debts owed to NCR by its customers. As CC is now in liquidation, the proceeding against it cannot continue without the leave of the Court, which NCR does not presently seek.
3 The second and third defendants, Mr and Mrs Naumoski, were at all material times the sole directors and shareholders of CC. The fourth defendant, Mr Cannon, was employed by NCR as credit manager during 1998 and early 1999. He has not appeared at the hearing. I shall deal with his position at the end of these reasons for judgment. The contest at the hearing was between NCR and Mr and Mrs Naumoski.
4 NCR commenced the proceeding in the District Court of New South Wales, but by summons filed on 5 May 2000 in proceeding No 2316 of 2000, it sought and subsequently obtained orders transferring the proceeding to this Court. The transferred proceeding is No 2460 of 2000.
5 NCR's claim against Mr and Mrs Naumoski is now made in its Second Further Amended Statement of Claim ("SFASC"), filed in court during the final hearing on 3 September 2003. The current defences of Mr and Mrs Naumoski are their Further Amended Defences to the Further Amended Statement of Claim, accompanied in each case by a verifying affidavit (their respective "Verified Defences"), each filed on 22 May 2001. On 28 June 2001, NCR filed a Reply ("the Reply") to earlier pleadings by Mr and Mrs Naumoski. For present purposes it will be convenient and accurate enough to treat the Verified Defences as defences to the SFASC, and the Reply as a reply to the Verified Defences.
6 In summary, NCR alleges that:
· from about January 1997 CC acted as its agent and received money from third parties (customers of NCR) which CC then held in trust for NCR;
· during the period from October 1998 to March 1999 CC misappropriated money held in trust for it under these arrangements;
· Mr Naumoski knowingly assisted in the misappropriation of the money;
· Mrs Naumoski, though less active in the affairs of CC, was aware or ought to have been aware of the misappropriation;
· therefore Mr and Mrs Naumoski are accountable to NCR for the misappropriated money as constructive trustees, according to the principle commonly referred to as the second limb of Barnes v Addy (1874) 9 Ch App 244.
7 Thus, by relying on principles of equity and the law of trusts, NCR seeks to pierce the corporate veil, so as to recover the money it claims from the people standing behind the corporate entity with which it contracted.
8 NCR identifies three categories of misappropriation of funds collected by CC on its behalf, namely:
· CC's deduction from the funds of "litigation costs";
· CC's charging of commissions, deducted from the funds, in respect of payments received by NCR directly from its customers;
· CC's charging of commissions, deducted from the funds, in excess of the agreed commission rate of 12%.
NCR says that these deductions from the funds held by CC were not authorised by it and amounted to misappropriations in breach of trust. NCR's total claim, particularised in a document handed to me by counsel on 3 September 2003 (subsequently replaced by a document that cross-refers the claims to the evidentiary materials) is for $671,644.42.
9 Mr and Mrs Naumoski each say, by way of defence, that the deductions in these three categories were authorised pursuant to the provisions of two deeds made between NCR and CC and dated 11 August 1998 and 18 November 1998 respectively. NCR replies by denying the validity of these deeds and asserting that the making and execution of such deeds were never authorised by it.
10 On 14 October 1999, in the District Court proceeding now transferred to this Court, CC filed a cross-claim against NCR claiming damages of $750,000 for breach of a term of the deed dated 11 August 1998 to the effect that NCR would refer all of its debts to CC. The determination of that cross-claim, made only by CC (now in liquidation), is not a matter before the Court at this time. However the cross-claim is relevant to the matters in issue between NCR and Mr and Mrs Naumoski, because they have raised a defence to NCR's claim against them, to the effect that each of them has a set-off against NCR in an amount greater than NCR's claim against each of them, as set out in CC's cross-claim. Since the cross-claim depends upon the validity and efficacy of the deed dated 11 August 1998, the defences of Mr and Mrs Naumoski relying on the cross-claim will fall away if the deed is invalid or ineffective.
The organisational structure of NCR
11 An important issue in this case is whether Mr Cannon had actual or ostensible authority to bind NCR by entering into the two deeds. The answer depends, in part, on a proper understanding of the arrangements in place at NCR in 1998 for delegation of authority to bind the company to contracts.
12 As a wholly owned subsidiary of a multinational corporate organisation, NCR is not managed as an autonomous entity, but as part of the South Pacific regional operations of the parent.
13 Gail Edwards was employed by NCR in Sydney from about January 1995 to June 2000, initially as tax and treasury manager but from about January 1999, as financial controller, reporting to the region controller (at the relevant times Bruce Miller, who was based overseas). Her responsibility was to oversee local country finance functions, including accounts receivable and payable, tax and treasury and employee services such as payroll, but excluding tasks performed by the "Financial Shared Service Centre" (FSSC).
14 In 1998 NCR had embarked on a process of centralising the accounting function and the FSSC was where the central accounting reporting functions were performed. Thus, there was a division between financial functions at a country level and the centralised reporting functions. Ms Edwards' position was a country position, the country being Australia. Her immediate predecessor as financial controller for Australia, Andrew Kinninmont, moved from that position to become financial controller for FSSC, based in Sydney, and later left the company. Guy Guerzoni, Mr Cannon's immediate predecessor as national credit manager, was transferred to a position in FSSC, in the accounts receivable area, and remains with the company.
15 Each of the Australian business units or departments in the financial area (such as, for example, the accounts receivable department) was headed by a team leader who reported to Ms Edwards. Others within the relevant team reported to the team leader.
16 The team leader of the Australasian accounts receivable department, at the time when Ms Edwards became the financial controller in January 1999, was Mr Cannon. He commenced employment with NCR as an accounts receivable manager on 16 March 1998, and was promoted to accounts receivable and credit team leader on 1 May 1998. His responsibility in that position was to manage the collection of debts owed to NCR within Australia and New Zealand. He was given more than one title in the evidence, but "national credit manager" was the title most often used. When Mr Cannon resigned on 22 January 1999, his position was filled by Mr Di Sano.
17 The national credit manager who occupied the position from 1995 to February or March 1998 was Steve Bear. However, when the position was held by Mr Bear, prior to the commencement of the restructuring process by the establishment of the FSSC, it was a larger position than in the hands of Mr Cannon, because in Mr Bear's time it extended to accounts receivable for the South Pacific area, not merely Australasia. After Mr Bear left NCR he was a director and shareholder of Infinity Consulting Pty Ltd, which was engaged to replace CC as NCR's debt collection agency in August 1998, in circumstances that I shall describe. Mr Bear was also a contractor to NCR during 1998, to assist in the establishment of the FSSC.
18 Mr Guerzoni, who had previously worked for Mr Bear as an accounts receivable manager, replaced Mr Bear as national credit manager in about February 1998. Mr Cannon took over from Mr Guerzoni, apparently as from 1 May 1998. Mr Guerzoni was promoted to the FSSC.
19 During Mr Cannon's time as national credit manager, there were two accounts receivable managers reporting to him, located in Sydney and Melbourne respectively. Ed Budlong, who remains with the company, was the accounts receivable manager located in Sydney. While Mr Bear was national credit manager, Mr Guerzoni worked in the accounts receivable department as a third accounts receivable manager. Mr Counsel gave evidence that there were two other people in the department in Sydney and one in Melbourne, and Ms Fulton gave evidence naming two other persons with whom she dealt at NCR (Jay Cooper and Tony Edmonds). But Ms Edwards explained that when Mr Bear left, the position of national credit manager was restructured and involved less responsibility, and the functions of the country accounts receivable department were reduced upon the establishment of FSSC, and therefore it was unnecessary for the company to have additional staff. I accept Ms Edwards' explanation, and therefore I do not infer that in the second part of 1998 the accounts receivable department was understaffed and overworked.
20 NCR had in place some policies and specific limitations of authority, governing the engagement of external contractors. Ms Edwards gave affidavit and oral evidence of the arrangements. She annexed to her affidavit a document headed "Worldwide Field Operations - Signature Authorisations", according to which, for the South Pacific region, she had authority as controller for "operational commitments" up to $171,000, and various other individuals whom she identified as the team leaders who reported to her, including Mr Cannon, had authority up to $2000. The document stipulated that in the case of the team leaders including Mr Cannon, the authority excluded, inter alia, recruitment of contractors.
21 The document is undated and appears to have been prepared after 14 April 1999, but it is Ms Edwards' evidence, at least by implication, that the document governed the actual authority of the named individuals to bind NCR contractually in August and November 1998. Consistently with the document, Ms Edwards said that while Mr Cannon had no authority to enter into a contract for the engagement of a debt collection agency, she had the authority to do so. She said, however, that she "would have had to go through legal", explaining that any contracts had to be approved by the in-house legal department.
22 Ms Edwards gave evidence that NCR strictly controlled expenditure. She annexed to her affidavit a policy document and an extract from another document, both issued by NCR's US corporate office. She gave evidence that these documents were applicable to NCR's accounts receivable practices in Australia during 1998. The first document, headed "NCR Corporate Finance & Accounting Policy", stated the company's policy that all decisions to commit the company financially would require the appropriate level of approval within pre-established and documented authorisations, and that each NCR organisation would be required to have a specific and documented signature authorisation policy in place. I infer that the signature authorisation policy for Australia was reflected in the "Worldwide Field Operations - Signature Authorisations" document to which I have referred.
23 The second document, extracts of which were annexed to her affidavit, was entitled "Global Process Documentation Accounts Receivable". A copy of the entire document was identified by Mr Budlong and tendered in evidence. Mr Budlong confirmed that the document was in operation in that form in 1998.
24 The purpose of the document was to define a standard global process for NCR's management of accounts receivable. The document required all accounts receivable to be classified as either "target" or "non-target" accounts. A target account was defined as a strategic or key account. The document set out suggested collection processes for target and non-target accounts, the process being somewhat more elastic and tolerant in the former case. In both cases, the process envisaged that a point would be reached at which the account might be referred to a collection agency for a limited period, but in the case of a target account this should not occur without consultation with the business unit manager. It appears that the "business unit manager" was the person at NCR responsible for managing the sales relationship with the customer.
The establishment of the business relationship between NCR and CC
25 CC was incorporated in 1989. Mr Naumoski was a director from the outset. Mrs Naumoski became a director in January 1993. From at least 23 December 1996 CC purported to carry on the business of a debt collection agency.
26 Although Mr and Mrs Naumoski were both directors of CC, it is clear that Mr Naumoski was much more active in the business and affairs of CC than his wife. I shall consider the position of Mrs Naumoski separately, later in these reasons for judgment.
27 As a director of CC, Mr Naumoski's job was generally to manage CC and to secure business for it. He occasionally had lunches or meetings with clients whom he considered to be valuable customers for CC. He regarded NCR as a customer in that category. He therefore came to know Mr Cannon, Mr Bear and Mr Budlong. However, he left the day-to-day dealings between NCR and CC to John Counsel and Jenny Fulton. Mr Counsel was employed by CC as its marketing manager from about December 1996 until the company went into liquidation in 2000. Ms Fulton was employed by CC in 1995 and then again from May 1996. She was promoted to collection manager in August 1997 and continued in that position until May 2000, just before an administrator was appointed.
28 Mr Counsel's role as marketing manager required him to seek to obtain new business for CC from companies which needed assistance in collecting outstanding debts. During the previous nine years he had worked as a marketing manager for other debt collection agencies, and he had developed a fairly extensive knowledge of the companies that use collection services to collect outstanding debts, and the names of contacts at those companies. He used that knowledge and those contacts to develop the business of CC.
29 In her capacity as collection supervisor, Ms Fulton was responsible for collecting debts on behalf of many customers of CC in various industries, and for supervising all employees of CC. The number of staff employed varied from year to year depending on the volume of work the company had on its books and the income that was being generated. She gave evidence that between May 1996 and May 2000, the number of full-time employees of CC varied between 5 and 8, and there were also two part-time casual employees employed from time to time. In November 1999 Ms Fulton became a licensed commercial agent and private inquiry agent.
30 When Mr Counsel commenced work with CC, NCR was not a customer of CC. Mr Counsel had obtained business from NCR in previous employment, and had developed a business connection with Mr Bear, whom he understood (correctly) to be the national credit manager for NCR. Mr Counsel gave uncontroverted evidence that when he commenced employment with CC, he telephoned Mr Bear to say that he had commenced to work for CC and was seeking NCR's business for his new employer. Mr Bear invited him to call by to discuss the matter. Mr Counsel visited Mr Bear at his office and had a conversation in which Mr Bear agreed that NCR's work would assigned to CC at a commission rate of 7%.
31 On 23 December 1996 Mr Counsel, as "General Manager" of CC, wrote to Mr Bear as "National Credit Controller" of NCR, to submit a proposal for CC to provide debt recovery services to NCR. The letter offered to charge a 7% commission on monies recovered to a maximum of $2000 on any account, and to provide various services free of charge. There were to be weekly statements and reporting in the format desired by NCR, and Mr Counsel offered to meet personally with Mr Bear on a weekly basis to report to him on matters relating to the accounts. The letter enclosed an example of the kind of reporting that CC would provide, which displayed matters including costs incurred and the amount paid to date, but nothing was said in the letter or the example report as to how monies recovered would be held pending payment to NCR, or as to whether CC would be authorised to make deductions for costs and disbursements from the amounts recovered before payment to NCR. Nor did the letter make any provision for CC to incur expenses such as legal expenses on NCR's behalf in the absence of a specific authority to do so.
32 There being no conferral of authority upon CC to deduct its commissions and expenses from monies held in trust, no such authority existed. Further, the terms of the letter of 23 December 1996 seem to have envisaged specific referrals of invoices for collection rather than any general transfer of NCR's debtors' ledger to CC for collection, and there was no express or implied obligation on NCR's part to transfer any particular quantity or category of invoices to CC for action. Consequently CC's entitlement to recover commission or expenses in respect of an account, and take any action in respect of the account, depended upon its receiving specific instructions in respect of the account. Moreover, any recovery by CC in respect of the account was to be accounted for the NCR without deduction, and commission and any legitimate expenses were to be billed to NCR separately.
33 The evidence does not establish that anyone on behalf of NCR replied in writing to CC's letter of 23 December 1996, or otherwise accepted CC's offer to provide services on the terms set out in the letter. However, there is evidence that during the period from January 1997 to August 1998 accounts were referred from time to time by NCR to CC for collection, CC rendered invoices to NCR, and NCR drew cheques in favour of CC for payment of invoice amounts. There is also evidence that CC provided extensive reports to NCR on regular basis during 1997 (some 41 reports varying in length from 8 to 21 pages, according to Ms Fulton's evidence), and that Mr Counsel met regularly (either weekly or fortnightly) with Mr Bear and Mr Budlong, and later with Mr Guerzoni and Mr Budlong, and later still with Mr Cannon, to review progress on collection of debts, at meetings where Mr Counsel usually received a cheque for reimbursement of commission and further invoices for collection.
34 It is appropriate to infer, and I do infer, that NCR in fact engaged CC, shortly after 23 December 1996, to provide debt collection services on the terms set out in CC's letter of that date. The evidence does not permit me to say who at NCR made the decision to engage CC, and specifically, whether Mr Bear made the decision and if so, whether he sought approval for the engagement of CC from others within NCR. I am therefore not in a position to make a finding that the engagement of CC to provide debt collection services early 1997 is an example of departure by NCR from its own procedures for authorisation of contracts.
35 At the hearing there was evidence, not challenged by NCR, that on two occasions prior to mid-1998 NCR agreed with CC to change the rate of commission. First, the rate of commission was changed from 7% to 8% according to Mr Counsel's evidence, not challenged on this point, a few months after the business relationship commenced. Secondly, the rate was changed from 8% to 12%, apparently (according to Mr Counsel) on about 9 February 1998. Mr Counsel said that on each of those two occasions he proposed a rate increase and Mr Bear orally agreed to it. I have found Mr Counsel's evidence to be unreliable in other respects, noted below, and I am not prepared to rely on it to make a finding of fact that Mr Bear immediately agreed to the two rate increases during the conversations in which Mr Counsel first proposed them. But I accept that Mr Bear informed Mr Counsel that NCR agreed to the rate increases at some time after they were proposed. This evidence does not enable me to find that the agreements for increases in commissions represented departures from NCR's internal authorisation procedures. It is consistent with the evidence that Mr Bear might have obtained approval for the increases before they were implemented. Indeed, there is some evidence that the increase to 12% was accepted by both Mr Kinninmont, the financial controller, and by his superior Mr Miller.
36 The evidence does not show that, prior to the purported making of the two deeds in August and November 1998, there was any other change in the terms of the arrangements between NCR and CC. It appears that, even after the commission rate had been raised to 12%, the other terms of the letter of 23 December 1996 continued to apply, including the limitation of commission to $2000 on any single account. According to Mr Counsel's evidence, Mr Bear specifically reiterated the $2000 limit when agreeing to increase the rate of commission to 12%.
CC's debt collection services and invoicing, January 1997 to August 1998
37 The evidence includes invoices rendered by CC to NCR in the period from January 1997 to March 1999, although the documentation seems to be incomplete. There is a marked difference between the content and formatting of invoices up to August 1998, and statements rendered in respect of the period September 1998 and following months.
38 CC's invoices during the period from January 1997 to August 1998 specified the debtor's name, the payment received, the commission charged in respect of that debtor, and the accumulating balance of commissions payable by NCR. The invoices were marked to the attention of Mr Bear up to an invoice dated 30 April 1998, but an invoice dated 3 July 1998 and subsequent invoices were marked to the attention of Mr Cannon.
39 The balance outstanding on the invoices in evidence was, in each case, a relatively small amount in the order of one or two thousand dollars or less. The commission rate was not stated on the invoices, though it was generally under 10% for the 1997 invoices. However, the rate of commission appears to have been 12% on the invoices from April 1998.
NCR's engagement of Infinity
40 By an agreement executed on behalf of NCR on 27 August 1998, and on behalf of Infinity Consulting Pty Ltd on 2 September 1998, NCR engaged Infinity to furnish specified debt collection services for a fee of $4500 per month for the first 20 invoices and a 10% commission on invoices in excess of that number. According to Mr Budlong's evidence, Mr Cannon told him that NCR would no longer be using CC as its mercantile agent, and that NCR had entered into an agreement with Infinity. Mr Budlong said this occurred in 1997, but his evidence as to timing cannot be correct, and the conversation probably took place no earlier than August 1998. Ms Edwards gave evidence that, shortly after she was appointed financial controller, she instructed Mr Cannon that he was not to provide any further work to CC.
41 The contract does not expressly provided for exclusivity, but it appears from the e-mail evidence mentioned below that the pricing structure had the practical effect of encouraging NCR to send all of its collection work to Infinity. The contract does not authorise recoupment of commissions and expenses out of recoveries by Infinity, and contemplates that work will be identified by the referral of specific invoices.
42 The engagement of Infinity appears to have arisen out of Mr Bear's decision to become involved with Infinity when he left NCR early 1998. He made a study which identified NCR's debt collection practices and the cost of them, and on 1 July 1998, acting as a director of Infinity, he made a written proposal to Mr Kinninmont (then financial controller of NCR) for the provision of collection services.
43 Mr Guerzoni responded to the proposal by writing a report to Mr Kinninmont dated 14 July 1998, comparing the proposal with what was on offer from other collection agencies, and with what was currently being provided by CC. He concluded that Infinity would be considerably cheaper than the other collection agents including CC. He said that NCR was obtaining an extremely competitive rate and good service from CC, but the commission rate had recently increased to 12% without new ideas or services being offered, and that it was time to try another agent. He observed that Mr Bear's experience of NCR's business gave Infinity knowledge of the existing customer database, company structure, credit terms and corporate policies, which would enable it "to approach NCR customers that we have been hesitant to place in the control of a third party in the past due to issues of sensitivity that may translate into lost sales in the future". He sent another e-mail to Mr Kinninmont on 10 August 1998 saying that on his calculations, NCR could hand over 35 invoices to Infinity for collection each month at a cost of approximately USD50,000 (presumably per annum).
44 Mr Kinninmont forwarded a copy of Mr Guerzoni's report to Bruce Miller in Singapore, drawing attention to the fact that Mr Bear was a director of Infinity. Mr Miller followed up the matter by sending internal e-mails inquiring as to whether it would be possible to engage Infinity in light of Mr Bear's position and NCR's conflict of interest policies. After receiving responses to his inquiries, Mr Miller sent an e-mail to Mr Kinninmont on 6 August 1998, saying that if appropriate procedures could be implemented to prevent confidential information from being shared, then Infinity could be engaged. He set out some procedural requirements to that end, broadly designed to ensure that Mr Bear did not personally work on NCR accounts. Mr Miller said that he had the signing authority to approve the arrangements. After debate in further e-mails as to the proper interpretation of NCR's conflict of interest policies, Mr Miller confirmed the position to Mr Kinninmont on 11 August 1998. Mr Kinninmont wrote again to Mr Miller seeking approval of the arrangements on 13 August 1998 and Mr Miller formally gave his approval on 19 August 1998, on the understanding that he would review and sign off on the "full set of documentation". The evidence does not directly establish Mr Miller's sign-off, but it is a reasonable inference that he did so.
45 Mr Counsel gave oral evidence that he had heard of Infinity. He said Mr Bear told him that he would use that company to take over the outsourced debt collection for NCR, and that there was "an arrangement from above" that would allow him to earn extra money. Mr Counsel did not give the date of that conversation, but I infer that it was around August 1998, when Mr Miller approved the arrangements between NCR and Infinity. Mr Counsel also gave evidence that he ceased to take invoices to NCR at North Sydney (presumably for the Friday meetings) shortly after Infinity was appointed as the outsourced entity for collection of NCR's debts.
46 Mr Counsel agreed with the cross-examiner that he passed on this information to Mr Naumoski, telling him that Mr Bear had been promoted, and that he was "getting some collection process through his organisation on an outsourcing basis". Mr Naumoski agreed in cross-examination that Mr Counsel told him about Infinity, and that he was aware (evidently in August 1998) that there was talk of Infinity being the agency to which NCR would outsource its collection work, although he did not know that anything final had been agreed. Ms Fulton also gave evidence, rather vaguely, that she had heard of Infinity and knew that there was talk that Infinity might take over external collection services on behalf of NCR. It was put her that CC's reports to NCR ceased about the time Infinity became NCR's mercantile agent, and she was not able to accept or deny that proposition.
CC's altered accounting practices, September 1998 to March 1999
47 CC's statement for the month ending 30 September 1998 is in a different format from its invoices for services rendered up to August 1998. It shows an opening balance of $23,299. Ms Edwards acknowledged in evidence that this constituted a claim by CC that $23,299 was at that point owing to it by NCR. Then there are various credits for commission in respect of named debtors, increasing the balance, but (in a departure from the formatting of the invoices) the recoveries from the debtors are not given adjacent to the amounts of commission claimed, and therefore the means of calculating the commission rate is not readily available. Debits appear for four payments, apparently payments made directly by NCR to CC. The net balance owing by NCR to CC, according to the statement, was $11,720.12. Some of the debtors identified in the statement are companies regarded by NCR as target accounts, such as Suncorp-Metway. There are three separate pages, formatted in the same way as the rest of the statement but headed "Monies Held in Trust", showing dates, debtor names and amounts. These appear to show recoveries from debtors. The total is $64,648.98.
48 CC's statement for the month ending 30 October 1998 is partly in the same format as the September account, but there are two entries for each debtor, one showing an amount that appears to be the amount recovered, and the other showing the commission, which is then credited to the balance column. Correspondingly, there is no separate statement of "Monies Held in Trust". At the end of the statement a figure appears in the third column, which appears to be the total of the recoveries, in the sum of $115,001.30. At least one of the debtors, Brambles, was a target account of NCR.
49 In the case of the debtor VJF Electronics there are four entries - the first two correspond with entries for other debtors, showing a recovery and a 12% commission, and then there is an entry described as "pay" in the sum of $6535.54 followed by a commission which is 12% of that figure. The "pay" amount of $6535.54 is debited so as to reduce the balance column, and the 12% commission is then credited to the balance column. In the case of the debtor Hoyts Corporation, there are only two entries, the first showing "pay" of $9168.96 debited so as to reduce the balance column, and the second showing a 12% commission on that sum, credited to the balance column.
50 It appears that the second pair of entries for VJF Electronics, and the pair of entries for Hoyts Corporation, are intended to show that CC has applied recoveries from those two debtors, in the respective sums of $6535.54 and $9168.96, to reduce NCR's commission debt to CC, and has then charged the commission on those recoveries to the balance outstanding by NCR. The October account does not disclose any payment made directly by NCR. The net balance outstanding is shown to be $11,653.48, a slight reduction on the balance owing at the end of September. On 27 November 1998 Ms Fulton of CC wrote to Mr Budlong of NCR breaking down the payment amounts of $6535.54 and $9168.96 received from VJF Electronics and Hoyts Corporation respectively into various invoice amounts.
51 CC's statement for the period ending 20 November 1998 is in the same format as the October statement. There are some target accounts identified as debtors, namely Brambles and Franklins. Total recoveries are down to $18,645.65. However, this time there are eight "pay" entries debited to the balance column (in the same fashion as the debits for VJF Electronics and Hoyts Corporation in the October statement), giving a negative figure of $7143.48 in the balance column, eliminated by a final entry in the statement showing a refund of that amount to NCR on 20 November 1998, and consequently a nil balance for the statement.
52 The evidence includes various letters from Ms Fulton of CC to Mr Cannon at NCR in October/November 1998, seeking instructions with respect to disputed accounts, principally in cases where the debtor has written, evidently in response to demands for payment by CC, to explain that it has cancelled its maintenance contract with NCR. On 4 November 1998 Ms Fulton wrote to Mr Cannon saying that CC awaited further instructions in respect of 73 enumerated matters. On 16 November 1998 she wrote again to Mr Cannon setting out a brief report on disputed matters, listing 102 matters under various categories.
53 There is a statement expressed to be for the month ending 1 December 1998, though in fact it appears to begin on 23 November 1998. In some cases the format of the October and November statements is followed, with two entries for the debtor, one showing the recovery which is not debited to the balance owing column, and the other showing the commission on the recovery which is credited to the balance owing column. In this statement, however, there are also some entries where the debtor's name is followed by the words "preparation of legals", coded "LIT CSTS", where the amount shown is credited to the balance owing column. There are two "pay" items debited to the balance owing column, namely St George Bank for $110,175.74 and Advance Bank for $19,809.48. Both of these, and several other debtors identified in the statement, are target accounts. The statement shows a net balance owing of $6.76.
54 The next CC statement appears to be the statement for the month ending 31 December 1998. It shows a nil opening balance. There are only two pairs of entries relating to recoveries. In the case of the Franklins, the statement shows a recovery of $30,706.28 as a "pay" entry debited to the balance column, and commission of $3684.75 is then credited. In the case of Brambles Security the statement shows a recovery of $193,318.74 as a "pay" entry debited to the balance column, with commission of $23,198.25 credited to the balance column. The remainder of the statement, comprising over six pages, is a list of dates, debtor names accompanied by the words "preparation of legals", and amounts entered for the code "LIT CSTS" and credited to the balance column. The total of these entries exceeds the two amounts debited to NCR by $40.98, and that amount is shown as the balance owing at a 31 December 1998.
55 There is some evidence which indicates that Mr Cannon probably did purport to instruct CC to take legal proceedings for recovery of debts. On 18 November 1998, the date of execution of the second deed, Ms Fulton wrote to Mr Cannon enclosing an estimate of costs that would be incurred in respect of listed matters. The list comprised over 100 names of customers (evidently all customers of NCR, including some target accounts), adjacent to each of which there was a dollar amount. Although the amounts were not added up, the total appears to be more than $300,000. Ms Fulton asked Mr Cannon to sign each page of the estimate, and also to sign the Deed for Reimbursement of Legal Fees. On the copy of the estimate that is in evidence there is a signature on each page, which appears to be Mr Cannon's signature.
56 It appears, however, that the items charged for costs were merely estimates rather than legal costs incurred. Mr Naumoski gave evidence to that effect in cross-examination. He said that the estimates attached to the letter of 18 November 1998 were prepared by him, based on the size of the debt, its age and the perceived difficulty in recovery. He said that once he received Mr Cannon's authority by signature of the estimates, he entered those estimates in NCR's account. He agreed with the cross-examiner that none of the estimates for legal costs were ever the subject of a refund, in circumstances where the litigation did not proceed.
57 Counsel for NCR submitted that Mr Naumoski plucked his "estimates" out of the air. That may put the matter a little harshly, but I agree that Mr Naumoski did not convey the impression by his evidence that his estimates had any firm scientific basis. He admitted that he had not been involved in litigation matters in the Supreme Court or the District Court. His claim to have based his estimates, in part, on perceived difficulty in recovery of debts is undermined by the lack of any reference to primary facts on that issue. His estimates do not appear to have been based on the nature of the work to be performed, who was to perform it, how long it would take or which court would be used.
58 On 31 December 1998 Ms Fulton wrote to Mr Cannon listing the invoices relating to the payments received from Franklins and Brambles Security to which the December statement referred. She also provided brief reports on 53 matters being handled by CC where action had been withheld pending further instructions.
59 CC produced another statement for NCR, dated 19 February 1999, with respect to a period beginning on 4 January 1999. The debtors listed in the statement include target accounts of NCR such as Brambles, Suncorp-Metway and Franklins. The statement begins with a nil balance. It follows the earlier format with respect to some of the entries, by showing a "pay" amount with respect to a debtor, debited to the balance column, and then a commission with respect to that recovery, which appears in each case to be at the rate of 12%, which is credited to the balance column. In all there are 13 "pay" entries producing debits to the balance column in the total amount of $154,713.49. The rest of the statement departs from the earlier format. There is a column of dollar amounts headed "Received at NCR", and adjacent to each there is a commission shown, apparently at the rate of 12%, which is credited to the balance column. On its face, the statement appears to be a claim for a 12% commission by CC in respect of listed amounts said to have been received directly by NCR in the period from 4 January to 19 February 1999. The total amount of commission claimed in the statement (including the commission on recoveries received by CC and debited to the accounts) is $101,336.83. The statement claims that on 19 February 1999 CC made a refund to NCR of the surplus of its recoveries over commission, of $53,376.66.
60 There is evidence that CC embarked upon collection activities about this time even though the accounts in question were not presenting difficulties for NCR. Mr Budlong gave evidence, which I accept, that before Mr Cannon resigned in January 1999, he was contacted by a number of the account holders for which he was responsible. They informed him that a mercantile agent had been to see them, to collect cheques for debts owing. Mr Budlong complained to Mr Cannon, who contended that he had been instructed by Ms Edwards to send the mercantile agent more work. That claim is inconsistent with Ms Edwards' evidence, which I accept. Mr Budlong said it was not proper to send a mercantile agent out to collect cheques when he was managing the accounts in question.
61 CC's final statement to NCR, produced under cover of Ms Fulton's letter to Mr Di Sano dated 8 June 1999, was the statement for the month ending 31 March 1999. Once again, the debtors listed in the statement include some target accounts, such as Colonial State Bank and Brambles. The statement begins with a nil balance. Most of the entries are similar to the entries in the October and November 1998 statements, in that there are two entries for each debtor, one showing the recovery which is not treated as a debit to the balance column, and the other showing commission (apparently at the rate of 12%) which is credited to the balance column. There is, however, one recovery treated as a "pay" item and debited to the balance column. This is a recovery from Suncorp-Metway in the sum of $79,274.20. In contrast with the October and November statements, the March 1999 statement does not tally up the recoveries that have not been debited to the balance column. The total amount would be very large. It is not clear from the statement whether these are recoveries paid direct to NCR, or recoveries paid to CC and still held by it at the statement date. The statement claims that a refund of $13,233.93 was made to NCR on 31 March 1999, being in effect the surplus of the Suncorp-Metway recovery over the commissions claimed in the statement.
62 In summary, one can see that:
· during the whole period from September 1998 to March 1999, CC purported to handle recoveries for debtors including the some of NCR's target accounts;
· CC began to deduct its claimed commissions from the recoveries that it made, as from October 1998 and continuing through the November, December and February statements;
· in December 1998 CC invoiced NCR for a comparatively enormous amount of claimed legal expenses, set off against comparatively large recoveries made in that month from two debtors, Franklins and Brambles;
· in February 1999 CC invoiced NCR for another comparatively enormous amount set off against recoveries that it received, being its claim for commissions on recoveries paid directly by debtors to NCR;
· the March 1999 statement shows a substantial volume of recoveries that were not set off against CC's claimed commissions, but it is not clear whether the recoveries were received by CC or directly by NCR.
NCR's investigations after Mr Cannon's resignation
63 Mr Cannon tendered his resignation by letter to Ms Edwards dated 5 January 1999, to take effect on 22 January 1999. He was replaced by Eddie Di Sano.
64 In February 1999, Mr Di Sano became concerned that a number of large customers of NCR including Brambles appeared to owe it substantial overdue debts. He contacted Brambles and was informed that its debt had been paid to CC. He telephoned Mr Counsel in March 1999 and was told that the Brambles payment was covered in CC's December statement. Mr Di Sano was unable to find a copy of the December statement, and Mr Budlong told him that Mr Cannon would have kept all records.
65 This led Mr Di Sano conducted an internal investigation of NCR's debtors' ledger and its records concerning outstanding accounts previously handled by Mr Cannon. In March 1999 Mr Di Sano reported to NCR's legal counsel that he had searched NCR's books and records in relation to outstanding debt and recovery matters being handled by Mr Cannon, and had collected a bundle of statements, invoices, correspondence and forms from NCR's files in relation to such matters. The materials identified by Mr Di Sano included some but not all of the invoices and statements summarised above. When a reconciliation was prepared, it appeared to Mr Di Sano that in the period from September 1998 onwards, very substantial deductions had been made by CC from monies collected on behalf of NCR, purportedly for commissions and recoupment of expenses.
66 During the period from 22 March 1999 to September 1999 NCR made various attempts to obtain information and documents in relation to CC's debt collection services. On 22 March 1999 Mr Di Sano wrote to Mr Counsel to set up a meeting regarding all outstanding accounts, observing that CC had deducted commissions from payments contrary to NCR's policy. Evidently a meeting was arranged for 24 March 1999. Mr Di Sano wrote again to Mr Counsel on 23 March 1999 asking various questions about CC's statement dated 19 February 1999, including any correspondence giving CC the right to "contra" its commissions. Ms Fulton provided some information, including a list of referrals, in March 1999, and two boxes of files in May 1999. On 14 May 1999, Mr Di Sano wrote to Ms Fulton noting certain matters agreed at a meeting - including that all customer follow-up by CC would immediately stop; that CC would supply a statement to the end of March, with "no contras allowed"; and that CC would supply copies of all correspondence, notes and invoices in relation to litigation costs.
67 It is noteworthy that, while these discussions and meetings gave Mr Naumoski, Mr Counsel and Ms Fulton the opportunity to refer to the two deeds as authority for the way they had prepared their financial statements, none of them did so.
68 Mr Di Sano wrote to Mr Naumoski at CC on 7 June 1999, expressing his disappointment that all the matters agreed at the meeting had not been fulfilled by CC, including supply of invoices from external legal consultants, a current statement of account, and a copy of CC's agreement with NCR. The letter threatened legal action. Ms Fulton replied on 8 June 1999, enclosing a statement for the month of March 1999 with two further boxes of files. As to litigation costs, she said a breakdown was provided on each debtor's ledger, and that fees from solicitors and other consultants were bulk billed to CC each month or fortnight and then allocated to individual accounts. She said that Mr Cannon had arranged with CC that new referrals would be accepted on the basis that commissions and litigation expenses would be offset against trust moneys received. On 28 June 1999 Ms Fulton wrote again to Mr Di Sano saying that all physical records held by CC in respect of NCR had been returned.
69 On 3 August 1999 NCR's solicitors wrote to CC seeking "full details" of billings from solicitors and other consultants, and inquiring as to the basis for deducting commission payments from trust money collected on NCR's behalf. The letter sought a full accounting by CC of moneys received on behalf of NCR. In the absence of any reply, the solicitors wrote again on 6 September 1999 demanding payment of $544,951.20, comprising money improperly deducted for commissions and legal expenses from trust moneys received on behalf of NCR, and an amount of $129,985.22 alleged to have been collected on behalf of NCR but not paid to it.
70 On 14 September 1999 Ms Fulton of CC wrote to NCR's solicitors, attaching a copy of the deed dated 11 August 1998. Mr Di Sano gave evidence that this was the first time he had seen the document, which was not in NCR's files when he conducted his internal investigation in March 1999. Ms Fulton said in her letter that CC had acted pursuant to the deed, and she purported to reserve CC's right to seek compensation under it. Eventually NCR instituted the present proceeding, originally in the District Court.
CC's receivership, administration and winding up
71 Reuters Australia Pty Ltd brought a proceeding against CC in this Court, being proceeding No 1432 of 2000. On its application, made under s 39B of the Act, the Court appointed Anthony McGrath as receiver of certain specified property of CC, by order made on 28 February 2000. On 13 March 2000 the Court extended the order to all of CC's property, but the order was stayed to give the company time to appeal. On 10 May 2000, when the company appointed a voluntary administrator, Mr McGrath's appointment as receiver became effective. On 22 May 2000 the Court ordered the administrator to provide to Mr McGrath books and records in his possession. On 29 May 2000 the Court ordered that the administration end and it ordered that CC be wound up and that a liquidator be appointed.
72 Mr McGrath has made four reports in respect of his receivership. In his first report, dated to 6 March 2000, referring to a period in 1999, he noted that CC did not operate individual trust accounts for each of its clients. Rather, it had one account into which all client monies were paid. It was not possible for Mr McGrath to identify individual clients' funds in the account. He also observed that CC's practice was to withdraw its commission in round sum cheques, without specific withdrawals from the client account which could be matched as commission payments for specific collections. He said Ms Fulton had advised that the trust account could be reconciled for each client, but that he had not been provided with any such reconciliation. He said that he had not been provided with CC's cashbook nor copies of trust account bank statements, despite requests.
73 In his second report, dated 25 May 2000, Mr McGrath said that he was satisfied that CC was insolvent, with an overall deficiency to creditors estimated to be in excess of $1.6 million, and negligible assets. He said there was no prospect of the business being sold as a going concern, and that most of the company's clients had taken their business elsewhere. He said Mr Naumoski did not intend to propose a deed of company arrangement.
74 In his third report dated 29 May 2000, he gave details of lack of co-operation by Mr Naumoski. On 5 October 2000 he made a further report in the form a circular to creditors, in which he noted the present dispute between CC and NCR, and indicated that he was seeking funds to conduct public examinations into a number of matters including the operation of CC's various trust accounts. The evidence does not indicate whether any such examinations took place and if they did, what outcome they had.
Statutory licensing requirements for commercial agents
75 The Commercial Agents and Private Inquiry Agents Act, 1963 (NSW) ("the Act") sets up a statutory regime for registration and licensing of commercial agents and the regulation of their activities. Section 4 defines "commercial agent" to mean, inter alia, "any person … who exercises or carries on any of the following functions, namely: … (c) collecting, or requesting or demanding payment of, debts". It is clear that during 1997 and 1998, CC was a commercial agent within that definition. "Licence" is defined in the same section to mean, relevantly, a commercial agent's licence, in turn defined to mean a valid and unexpired commercial agent's licence or renewed licence issued under the Act.
76 Section 6, which is headed "Unlicensed persons prohibited from acting as commercial agents …", provides, in subsection (1), that "no person shall: (a) exercise or carry on … the business or any of the functions: (i) of a commercial agent, unless the person is the holder of a commercial agent's licence …". Subsection (2) provides for a penalty of a fine or imprisonment for any person who contravenes subsection (1), and there is a general provision in s 41 to the effect that if a body corporate is convicted of an offence against the Act, every director and officer of the body corporate is deemed to have committed the like offence. Section 15 provides for the Commissioner of Police to keep a register of licences. Mr Naumoski conceded at the hearing that CC was never registered and never held a licence under the Act, although he maintained that he personally had held a licence for 10 years.
77 Section 26 provides:
"Subject to this Act no person shall be entitled to bring any proceeding in any court to recover any commission, fee, gain or reward for any service done or performed by the person as a commercial agent, … unless the person was the holder of a commercial agent's licence … at the time of doing or performing such service."
78 Section 28 allows the client of a commercial agent to take proceedings for the court to reopen a transaction in which commission has been charged if it appears to the court that the amount charged is excessive. NCR seeks relief, in its Reply, under that section but this claim to relief is peripheral to the main thrust of its case.
79 Section 29 prohibits any person who carries on any of the functions of a commercial agent from charging or recovering from any debtor or creditor any sum on account of costs or expenses in connection with collection of a debt, and states that any person who so charges or recovers or attempts to do so is guilty of an offence. There are several exceptions, including one which permits recovery of legal costs.
80 Part 3 of the Act deals with financial transactions of licensees. Division 1 (ss 31-32A) governs the accounts of licence commercial agents. Division 2 (ss 33-34) regulates records of transactions by licensees. Division 3 makes other financial provisions including provisions with respect to fidelity bonds.
81 The provision most worthy of note in the present context is s 31(1), which states:
"All money received for on behalf of any person by any licensed commercial agent shall be held by such commercial agent exclusively for such person, to be paid to such person, or to be disbursed as such person directs, and until so paid or disbursed the money shall be paid into a bank, building society or credit union in New South Wales to a trust account, whether general or separate, in the name of such commercial agent and retained therein.
"The words 'Trust Account' shall appear in the name of the trust account and in the description of the trust account in the books and records of the licensee and all cheques drawn on the trust account."
82 A commercial agent who neglects or fails to comply with subsection (1) is liable to a fine or imprisonment under s 31(4).
83 Section 33A obliges a licensed commercial agent to furnish a statement to a person on whose behalf money is held in a trust account, at prescribed times, and s 34 obliges a licensed commercial agent to keep written records and make them available to members of the police force at all reasonable times.
84 The obligations imposed on a licensed commercial agent under Part 3, including those prescribed by ss 31, 33A and 34, would have applied to CC if it had complied with s 6 by applying for and obtaining a licence to permit it to carry on its business lawfully as a commercial agent. Since, however, it did not do so and was therefore not a licensed commercial agent, none of these provisions directly applied. Nevertheless, the business carried on by CC in 1997 and 1998 was the kind of business that the Act purported to regulate. That being so, the circumstances readily give rise to the inference that the common intention of NCR and CC was that the funds would be held by CC separately from its own money, for the benefit of NCR until paid over to NCR. Indeed, there is some evidence that CC established a trust account and it may be inferred that money collected on behalf of NCR was paid into the account. Thus, upon the application of principles of law of trusts stated in Burdick v Garrick (1870) LR 5 Ch 233 and Henry v Hammond [1913] 2 KB 515 at 521, and further expounded in such Australian cases as Cohen v Cohen (1929) 42 CLR 91, Palette Shoes Pty Ltd (in liq) v Krohn (1937) 58 CLR 1 at 30, Walker v Corboy (1990) 19 NSWLR 382 and Mercantile Mutual Insurance (Australia) Ltd v Farrington (1996) 44 NSWLR 634 at 641, all moneys collected by CC on behalf of NCR from NCR's debtors were received by CC as trustee and held by it in trust for NCR absolutely.
85 Mr and Mrs Naumoski challenged NCR's submission that CC and NCR were in the relationship of trustee and beneficiary. As I understood the argument, they did not deny that CC held moneys recovered on behalf of NCR in trust for it. Instead they said that the trust did not govern the entire relationship between CC and NCR (citing Breen v Williams (1997) 186 CLR 71 at 92), and that their relationship in respect of commissions and litigation costs was contractual. I agree that a relationship of trustee and beneficiary may co-exist with a contractual relationship (see, for example, Reuters Australia Pty Ltd v The Credit Connection Pty Ltd [2000] NSWSC 221 at paragraph [21]), and that a contract may be superimposed on a trust relationship to modify the extent and nature of the trustee's duties (see, for example, Henderson v Merritt Syndicates Ltd [1995] 2 AC 145 at 206). But here the starting point is that the moneys recovered are held in trust, and the terms of the trust are qualified only to the extent that an express agreement to do so is established.
86 Nothing in the arrangements set out in the letter of 23 December 1996 purported to qualify NCR's absolute entitlement as beneficiary to recovery of those monies from CC, without deduction. The only evidence suggesting any qualification to NCR's absolute rights as beneficiary arises out of the making of the deeds of 11 August and 18 November 1998, to which I shall now turn.
The two deeds
87 I shall first describe the format and contents of the two deeds, then consider the evidence concerning the execution of the two deeds, and then the question whether NCR is bound by the provisions of the two deeds.
88 Each deed is expressed to be between NCR and CC. As I have said, the first deed is dated 11 August 1998 and the second is dated 18 November 1998. Both are expressed to be deeds and to be under seal. The first deed is expressed to be signed by Mr Cannon as "National Credit Manager, for and on behalf of" NCR, and by Mr Naumoski for and on behalf of CC. Signatures, which I shall assume to be the signatures of Mr Cannon and Mr Naumoski, appear at the end of the deed. There is no signature or anything else to indicate that the signatures of Mr Cannon and Mr Naumoski were witnessed.
89 In the case of the second deed, execution on behalf of CC is expressed to be under the company's seal, affixed by authority of its board. A stamp which appears to be CC's company seal appears on the document. A signature which I assume to be Mr Naumoski's appears above the word "Director", and a signature which appears to be Ms Fulton's appears as witness to the affixing of the seal, though her capacity is not stated. Ms Fulton was not a director or secretary of CC at any relevant time. As to execution on behalf of NCR, a signature which I assume to be Mr Cannon's appears above the name "John Cannon", adjacent to the words "SIGNED by …… For and on behalf of NCR Australia Pty Ltd in the presence of", and under those words there is a signature which appears to be Ms Fulton's.
90 In neither case does the deed purport to be signed on behalf of NCR in accordance with s 127 of the Corporations Act 2001 (Cth) (and its predecessor provision in the Corporations Law), and therefore the assumptions authorised by ss 129(5) and 129(6) of the Corporations Act and the Corporations Law do not apply.
Contents of the first deed
91 The deed is headed "Deed to Appoint Mercantile Agent". A recital asserts, incorrectly, that CC is a mercantile agent registered under the Act. In the operative part of the deed, clause 1 states that NCR agrees to appoint CC "as its mercantile agent for the collection of debts on behalf of NCR". Clause 2 provides that the agreed rate of commission is 12% of the amount of each debt CC is instructed by NCR to collect. There is no provision authorising CC to charge commission at a higher rate.
92 Clause 2 also states that the commission is payable when the debt or part of it is recovered, or if NCR withdraws its instructions, or if NCR enters into an arrangement with the debtor or CC for the crediting, set-off or write-off of the debt. As a matter of construction of these provisions, commission is not payable unless the debt is one that NCR has instructed CC to collect on its behalf. If, however, the debt is in this category, commission becomes payable, inter alia, if the whole or part of the debt is recovered, regardless of whether the recovery is made directly to NCR or to CC on its behalf, and regardless of whether CC has in fact undertaken any work or incurred any expenditure towards recovery of the debt.
93 Clause 3 of the deed might appear to be inconsistent with these provisions of clause 2. Clause 3 says that the commission referred to in clause 2 is to be due and payable on the earlier of (i) recovery of the debt or any part of it by CC from the third party (my emphasis), or (ii) 7 days after CC renders an account to NCR. It appears to me that, while clause 3 makes provision for specific circumstances in which commission becomes payable by NCR to CC, clause 3 is not meant to be exhaustive and commission may become payable under clause 2 in other circumstances. One of these circumstances is where the debt or part of it is directly recovered by NCR.
94 Clause 9 is relevant to the determination of whether commission is payable when debts are paid directly to NCR. It says that NCR agrees that it shall refer all of its debts to CC at the time they become sixty days overdue, and that the commission payable to CC in respect of "these debts" (that is, all debts that have become sixty days overdue) is to be in accordance with clause 2. As a matter of construction, the effect of clause 9 appears to be that, for the purpose of determining whether commission is payable, any debt to NCR that has become sixty days overdue is to be treated as a debt that NCR has instructed CC to collect on its behalf, regardless of whether such an instruction has in fact been given. If, therefore, a debt that is 60 or more days overdue is paid wholly or in part, direct to NCR without any action being undertaken by CC, 12% commission is payable under the deed on the whole of the debt. As a matter of construction, this would appear to be so even if CC was not aware of the existence of the debt prior to the payment. It was not contended at the hearing that the provisions having this effect were unlawful under Part IV of the Trade Practices Act 1974 (Cth) or on any other basis. Whether such an arrangement with a mercantile agent makes commercial sense is, of course, another matter.
95 Clause 4 obliges NCR to pay to CC its solicitors' costs, court filing fees and other litigation disbursements in respect of debt recovery proceedings within seven days of an account being rendered. As a matter of construction of clause 4, NCR's payment obligation does not arise until the disbursements are incurred, and an account for those incurred disbursements is rendered by CC to NCR, and when those two conditions are satisfied, the obligation is to pay within seven days. Clause 4 does not require NCR to pay in advance on account of disbursements to be incurred, and it does not authorise CC to render accounts on any such anticipatory basis.
96 Clause 5 and 6 provide for CC to furnish a statement upon collection of the debt and for NCR to raise objections to the statement within a specified time.
97 Clause 7 provides that "where Credit Connection receives monies of trust being a debt which Credit Connection has been instructed to recover by NCR, and Credit Connection holds such monies on account, NCR authorises Credit Connection to apply such monies in trust for payment of Credit Connection's commission and disbursements." Clause 7 does not authorise CC to apply trust money for payment of commission and disbursements until the commission or disbursements, as the case may be, become due and payable pursuant to the provisions of the deed. Thus, clause 7 does not permit commission to be deducted from trust money except where commission has become payable either under clause 2 or clause 3, and it does not authorise litigation disbursements to be deducted from trust money unless NCR has become liable to make reimbursement upon receipt of an account under clause 4.
98 There are provisions for the term of the agreement and its termination, which are not relevant in the present circumstances.
Contents of the second deed
99 The deed is headed "Deed for Reimbursement of Legal Fees". As with the first deed, there is a recital asserting incorrectly that CC is a mercantile agent registered pursuant to the Act. Another recital asserts that NCR has authorised CC "to, in its discretion, commence legal proceedings to recover" the debts that it has been appointed to collect under a separate agreement (presumably, the first deed).
100 By clause 1, NCR agrees to reimburse CC for solicitors' costs and disbursements incurred by CC for conducting legal proceedings to recover the debts that it has been appointed to collect. Clause 2 obliges CC to provide NCR with an estimate of solicitors' costs and disbursements before incurring any such expenses. Clause 3 sets out certain matters for which a fixed fee will be charged, and clause 4 makes provision for estimates and revised estimates to be made for costs and disbursements that are not easily ascertained, while stating that the actual amount of the solicitors' costs will depend on the time spent by a solicitor and the work performed.
101 Clause 5 says that NCR agrees to reimburse CC for its solicitors' disbursements, an estimate of which will be provided by CC, and clause 6 says that NCR shall reimburse CC for other charges and expenses incidental to its matters such as expert reports and barristers' fees, but that CC must obtain NCR's consent before its solicitors incur such expenses.
102 The NCR's payment obligations under the second deed, generated by clauses 1, 5 and 6, are obligations to reimburse CC. They are not obligations for NCR to make any advance payment prior to CC incurring the relevant expenses. In this respect the second deed is consistent with clause 4 of the first deed. Indeed, as far as I can see there is no inconsistency between the deeds. They complement one another with respect to solicitors' costs and disbursements, the second deed adding to the first by providing for such matters as fixed fees, the provision of estimates and revised estimates, and the obtaining of NCR's consent to certain expenses. The source of the authority to make deductions from funds held on behalf of NCR is in clause 7 of the first deed, and as regards solicitors' costs and disbursements there is no such authority until NCR's payment obligation arises after the relevant expense has been incurred, an account has been rendered and the seven-day time period has elapsed.
Evidence concerning the two deeds
103 It will be seen that, if the two deeds were entered into on the dates that they bear and were valid and binding upon NCR, then they would, to a degree, authorise the accounting processes that were adopted by CC in its statements from September 1998 onwards. They would not completely do so, because in its December statement CC purported to make deductions for legal expenses, without (so far as the evidence shows) complying with the procedure for rendering accounts for legal expenses contemplated by the two deeds. But clause 4 of the first deed would authorise the deduction of commission and properly incurred expenses from moneys recovered, and clauses 2 and 9 would arguably authorise the charging and deduction of commissions in respect of recoveries of any 60-day debts (whether referred or not) received directly by NCR.
104 NCR's evidence is that, after Mr Cannon resigned and Mr Di Sano conducted his internal investigation of Mr Cannon's dealings with CC, Mr Di Sano did not find a copy of either document on NCR's files, nor any documentary evidence of negotiations for entry into either deed. Mr Di Sano said that he became aware of the first deed only in September 1999, presumably when a copy of it was sent to NCR by Ms Fulton. Ms Edwards and Mr Budlong both gave evidence that at no stage did Mr Cannon inform them that he had entered into either deed.
105 Mr Counsel gave evidence that in about August 1998, Mr Cannon said to him at a Friday meeting that he would start to give CC a lot more work, and if legal proceedings were necessary to collect the debts, then he would want CC to undertake those proceedings. Mr Counsel said that he replied that if this was to happen, the arrangement should be formalised. He said Mr Cannon told him that he would give CC all debts 60 days and over and the commission would continue at 12%, and that NCR would pay the legal costs for any debts that had to be collected by legal proceedings. Mr Counsel said he gave Mr Cannon a copy of CC's scale of fees and charges for the local court, and said he would have an agreement drawn up.
106 Mr Counsel gave evidence that he informed Mr Naumoski of the proposed agreement, and provided information to Mr Naumoski, with the request that an agreement be "formalised". He said that a short time later Ms Fulton handed him a formalised document, which he assumed had been drafted by CC's solicitors. He took the document to Mr Cannon, who approved and signed it, and handed it back to him immediately, without referring it to anyone else at NCR for approval. He then took the document back to Mr Naumoski, who also signed it, and within a day or two he gave Mr Cannon a copy of the signed agreement. Mr Counsel said he was not involved in the preparation of the second deed, but it was mentioned him by Ms Fulton who said it was important to make sure of the arrangements for reimbursement of legal costs.
107 In cross-examination Mr Counsel insisted that the first deed was signed in August 1998. He specifically disagreed with the proposition that the deed was not prepared at that time but only in December 1998.
108 Ms Fulton gave evidence that she prepared the first deed in August 1998. She said she typed it, from a document prepared by solicitors, probably Warren McKeon Dickson, who acted for CC. She said that the firm was paid a monthly retainer and CC was entitled to prepare documents and letters bearing the firm's name, for checking and signature by the solicitors.
109 Ms Fulton said that on 17 November 1998, she received a facsimile transmission from NCR (sent by Mr Cannon) which said:
"Given the fact that all possible formal demands have been made on any current outstanding account you have on your system, please proceed with legal action or whatever other action you deem appropriate to affect recovery of the debts outstanding as soon as possible."
110 According to Ms Fulton, as a result of CC receiving that facsimile, which she showed to Mr Naumoski, she typed the second deed, from a document provided to her by Mr Naumoski and perhaps prepared by Warren McKeon Dickson. Mr Naumoski gave a different account. He said that Ms Fulton told him in about October or November 1998 that Mr Cannon had indicated to her that CC should secure its position on fees, costs and retainers on any files where CC had to resort to legal proceedings, because NCR was having a cash flow problem. I prefer Ms Fulton's evidence of this point. It is consistent with the overall thrust of her evidence, which I found plausible, to the effect that her job was essentially ministerial and that the driving force of the business was Mr Naumoski.
111 Material was produced by Warren McKeon Dickson on subpoena, and tendered in evidence by NCR, which included a memorandum of costs and disbursements rendered by Warren McKeon Dickson to Ms Fulton at CC on 20 January 1999. The account itemised work which included preparing terms of an agreement after a conference with the clients, and "typing and checking Deed to Appoint Mercantile Agent", all said to have been carried out on 16 December 1998. An entry for 18 December 1998 records "dictating amendments to deed". Warren McKeon Dickson also produced various drafts of the deed, and a letter by them to the manager of CC, addressed "Dear Jenny", enclosing the draft deed for review and saying:
"We noted your instructions to prepare same on the basis that it will not be executed under seal and advise that any such Deed may not be binding on NCR Pty Ltd if John Cannon is without authority to sign the document on behalf of and bind the company."
112 On 21 April 1999 Ms Fulton wrote to Warren McKeon Dickson enclosing a cheque for an amount that included payment of the firm's fees for the mercantile agency agreement. This suggests that Mr Naumoski and Ms Fulton did not have any reason to deny that the firm provided the services set out in its statement of fees in the manner and at the times represented in the statement.
113 In my opinion the inescapable conclusion from this evidence is that the first deed was not prepared or entered into until the second half of December 1998 at the earliest.
114 Mr Naumoski said in oral evidence in chief adduced by leave (but not in his affidavit) that he had three telephone conversations with Mr Cannon about the terms of the proposed first deed. In the first, in September 1998, they agreed that the terms of what had been discussed between Mr Cannon and Mr Counsel would be drawn up by CC's solicitors for perusal. In the second, in November, they discussed a particular provision of the proposed arrangement and Mr Cannon agreed with Mr Naumoski's point of view. According to Mr Naumoski, in the third conversation, in December, he told Mr Cannon that the draft deed had been prepared and his solicitors had suggested that it be signed under seal, but Mr Cannon responded that it would be difficult for NCR to sign under seal because of the problem of finding a director with appropriate authority at North Sydney. Mr Naumoski also said that he suggested to Mr Cannon that the document be dated at the time when the terms were agreed upon between him and Mr Counsel, and that his solicitor has advised that there would be no problem in doing so.
115 It is odd that this evidence was given orally but not in Mr Naumoski's affidavit, and the evidence is inconsistent with parts of the evidence of Mr Counsel and Ms Fulton. It is inconsistent with the Verified Defences, which rely on the deeds rather than prior agreements that were later to be reflected in deeds. Mr Naumoski gave his evidence only after the documents produced by Warren McKeon Dickson were tendered which proved that the deeds were not made until late December 1998, and after he had listened to Ms Fulton struggle with the consequences of that evidence. I formed the strong impression that the evidence was an invention to deal with those circumstances. I have therefore decided to reject Mr Naumoski's evidence of his three conversations with Mr Cannon.
116 By mid-December 1998 CC had purported to deduct commissions from moneys recovered on behalf of NCR, in the manner and to the extent shown in the October and November statements. Even if the deeds became operative and binding in December 1998, they would not on their proper construction have authorised CC to make the deduction of legal expenses made in the December statement, because accounts for those expenses had not been rendered in the manner required by clause 4 of the first deed.
117 If, however, Mr Cannon was authorised to entry into the deeds on behalf of NCR, or otherwise to make the arrangements reflected in the deeds, then arguably the deductions from moneys received made in the February and March 1999 statements were properly authorised. I shall therefore turn to the question of Mr Cannon's authority.
Mr Cannon's actual authority to bind NCR
118 The facts give rise to several questions about Mr Cannon's authority:
(1) Did he have authority, on behalf of NCR, to enter into the agreements represented by the two deeds?
(2) Did he have authority to execute the deeds on behalf of NCR?
(3) Did he have NCR's authority to authorise CC to recover debts owing on target accounts?
(4) Did he have NCR's authority, otherwise than under or in respect of the two deeds, to
(a) undertake to refer debts to CC when they were 60 days overdue;
(b) authorise CC to take legal proceedings for recovery of debts and incur expenses in doing so without complying with NCR's internal procedures for authorisation of legal proceedings;
(c) authorise CC to deduct commissions and expenses from monies it recovered on behalf of NCR?
119 I shall deal with each of these questions, first considering whether Mr Cannon had actual authority, and then whether he had ostensible authority.
120 As to actual authority with respect to questions (1) and (2), I have described the organisational structure of NCR and the documented arrangements for delegation of authority to contract on behalf of the company. Under the delegation of authority arrangements reflected in the documents, Mr Cannon was not authorised to engage a debt collection agency, and therefore he had no actual authority to execute the "Deed to Appoint Mercantile Agent" dated 11 August 1998 on behalf of NCR, if the documented arrangements reflected the operational reality. Nor, if the documents were adhered to in practice, did he have any actual authority to authorise a debt collection agency to commence legal proceedings without reference to the in-house legal department, or to incur expenses in that respect, and consequently he had no actual authority to execute on behalf of NCR the "Deed for Reimbursement of Legal Fees" dated 18 November 1998.
121 I turn to the question whether the documented arrangements were in fact adhered to by NCR in 1998. Mr Counsel gave evidence that in June or July 1998 Mr Cannon told him he was under enormous pressure to get debts in, and was not allowed to have temporary staff, and so he would be giving CC much more work than they had previously received. Mr Counsel said he noticed that when Mr Cannon took over as national credit manager, instead of getting 8 to 10 accounts per week for recovery, he usually received 30 or 40 accounts per week. Mr Counsel said that at a Friday meeting in August 1998, Mr Cannon made similar remarks and told him that if legal proceedings were necessary to collect the debts, then he wanted CC to do it, adding "we need the money badly". He gave oral evidence (not reflected by anything in his affidavit) of a luncheon meeting in June or July 1998, attended by Mr Cannon, Mr Budlong and himself, at which Mr Cannon gave him a large volume of invoices, which he estimated to amount to close to $1 million worth of accounts, with instructions to take collection action.
122 In their cross-examination Ms Edwards and Mr Budlong did not accept that staff at NCR were under acute pressure to get in unpaid debts in the latter half of 1998, or that the volume of work outsourced to CC, and also to Infinity, was unusually large. Ms Edwards agreed that, after she commenced her position as financial controller in January 1999, she instructed Mr Cannon that it was necessary to close the accounts with CC, since Infinity had replaced it as NCR's collection agency. But Mr Budlong denied that there was any particularly strong pressure applied during 1998. He said that he was told by Mr Cannon that CC complained that NCR was not paying them, but that conversation was not until the end of 1998. He gave evidence that he recollected a long luncheon with Mr Cannon and Mr Counsel in June or July 1998, but he denied that any invoices were handed over. I prefer their evidence to the evidence of Mr Counsel, having regard to the discrepancy in his evidence to which I have referred. As far as evidence of the luncheon is concerned, it is significant that the event was not mentioned by Mr Counsel in his affidavit but only in his oral evidence, and there is no evidence that he purported to rely on or even referred to the luncheon at his meetings in February and March 1999 with Mr Di Sano.
123 On 16 November 1998 Ms Fulton of CC wrote to Mr Cannon at NCR providing a brief report on the files held by CC, assembling the debtors into four categories depending upon the debtor's claim and NCR's attitude to it. The report identified 102 files. In cross-examination counsel put it to Ms Edwards that this report indicated Mr Cannon had found it necessary to rely more and more heavily on CC as an external collection agency because of inadequate staffing in the accounts receivable department. She did not agree. She said it was unusual that such a large number of queries had been raised by a collection agency and said the report suggested to her that Mr Cannon was not doing his job properly. She expressed the opinion that the accounts receivable department was not under-resourced.
124 In cross-examination, Mr Budlong would not accept the proposition that after Mr Cannon took over from Mr Guerzoni, a lot more accounts were given to CC for collection. He agreed, however, that under Mr Cannon's predecessors more work was done in-house, and when his attention was drawn to Ms Fulton's report dated 16 November 1998, he said it indicated that debts were being outsourced to CC at a time much earlier than under previous administrations.
125 Ms Edwards gave evidence that when she was the financial controller, the procedure to be followed for commencement of legal proceedings against debtors was that this should be done through the in-house legal department at NCR. Mr Budlong said that when Mr Bear was national credit manager, he and Mr Bear had regular meetings, approximately fortnightly, with John Counsel of CC (Mr Counsel said that the meetings occurred on a weekly basis, but nothing turns on that). Mr Budlong said that at the meetings, Mr Bear was in charge and had responsibility to decide what accounts would go to CC for collection. In his affidavit Mr Budlong said:
"We would also discuss what accounts required court action, and Steve Bear would then determine in which matters he would instruct John Counsel for the purpose of commencing court proceedings. To my knowledge neither the first defendant nor any other mercantile agent was authorised on its own to institute any court process unless NCR had agreed or discussed such process at our regular meetings."
126 In cross-examination Mr Budlong explained that his reference to "commencing court proceedings" was a reference to sending a letter of demand which would refer to commencement of proceedings if the debt was not paid. He said that as far as he could recall, at the fortnightly meetings neither Mr Bear, nor Mr Guerzoni, had ever instructed CC to initiate court proceedings on NCR's behalf.
127 I see no reason to reject the evidence of Ms Edwards and Mr Budlong on these matters. That being so, there is no basis for a finding that the arrangements for delegation of authority that were reflected in the documents to which I have referred were departed from under pressure of work or otherwise during 1998. It follows that the answer to questions (1) and (2), as far as actual authority is concerned, is "no" in each case.
128 As to questions (3) and (4), the evidence does not establish that Ms Edwards or anyone else in NCR conferred on Mr Cannon any specific authority to do something that he would not otherwise be authorised to do, by way of giving instructions for recovery of target accounts, or undertaking to refer all 60-day debts to CC, or authorising the institution of legal proceedings and the incurring of legal expenses without reference to internal procedures, or authorising the set-off of commissions and expenses against moneys recovered.
129 My conclusion is that Mr Cannon had no actual authority from NCR to do any of the things identified in my four questions.
Mr Cannon's ostensible authority
130 I turn to consider whether Mr Cannon had ostensible authority to do any of the things identified in my four questions. NCR would be bound to Mr Cannon's acts by ostensible authority if it had, by representation or other conduct, or acquiescence in a state of affairs, held Mr Cannon out to have the authority so to act on its behalf, notwithstanding the absence of actual authority. However, in my opinion the evidence does not point to any such representation, conduct or acquiescence, except in one respect.
131 Two steps must be taken in considering ostensible authority in a case such as the present. The first is to examine whether the agent possessed usual authority by virtue of the office he held, or assumed to occupy with the acquiescence of the principal, and whether any limitations imposed by the principal upon the scope of the office were communicated to the third party with whom the agent dealt; and the second is to consider whether there was, on the part of the principal, any specific representation, other conduct or acquiescence in a state of affairs having the effect of clothing the agent with the appearance of authority going beyond the usual authority of person holding the office occupied by the agent. I shall consider, first, the question of usual authority, and then the question of apparent authority conferred on the facts.
132 Mr Cannon was, from 1 May 1998, the Australasian team leader of the accounts receivable department of NCR, with the title "national credit manager". He used that title in the first deed, and Mr Counsel gave evidence that he understood that Mr Cannon's predecessor, Mr Bear, was the national credit manager of NCR. Mr Counsel's letter to Mr Bear setting out CC's proposal for debt recovery services was addressed him as "National Credit Controller", a title not materially distinguishable from "national credit manager". In my opinion this evidence supports the inference, which I make, that Mr Cannon used the title "national credit manager" with the knowledge and approval of the person to whom the reported, who was Mr Kinninmont during 1998. Consequently NCR held Mr Cannon out as having the usual authority of a national credit manager of such an organisation.
133 According to s 129(3) of the Corporations Act 2001 (Cth) (and its corresponding provision under the Corporations Law), a person may assume that anyone who is held out by the company to be an officer or agent of a company has been duly appointed, and "has authority to exercise the powers and perform the duties customarily exercised or performed by that kind of officer or agent of a similar company".
134 There was no specific evidence at the hearing indicating that in 1998 the position of "national credit manager" carried with it any particular usual authority to enter into and execute deeds such as the two deeds in question here, or to do any of the other things identified in my four questions. The matter must be assessed by inference from the established facts and the nature of the office of national credit manager of a large company such as NCR.
135 The expression "national credit manager" (in such a context as the present) signifies, in my opinion, that the holder of the office has authority to manage the company's accounts receivable function and to that extent, the credit extended to the company's debtors, and to pursue recovery from debtors who exceed available credit terms. There is implied authority, accordingly, to make demands for payment and probably also to enter into arrangements on the company's behalf for deferral of payment or payment by instalments, and also to instruct a mercantile agent to pursue recovery of a particular accounts under pre-existing arrangements between the company and that agent. The holding of the office, taken in isolation, does not imply any authority to commit the company to the institution of legal proceedings without reference to internal authority procedures, nor any authority to bind the company to a formal written agreement or deed with a supplier of services such as a debt collection agency.
136 A person negotiating with a "national credit manager" of a large company for appointment by deed to a position as service provider is not entitled to assume, without further inquiry, that the holder of the office has, ipso facto, authority to bind the company to the arrangement or to execute the deed on the company's behalf. Mr Counsel gave evidence that over the time he did business with NCR, he never met a director of the company, and at no time did the persons with whom he dealt (Messrs Bear, Guerzoni and Cannon) ever tell him that they did not have authority to make agreements to collect debts. But in the law of ostensible authority, the question is not whether the agent with whom the third party dealt made any representation about his or her authority to bind the principal, but whether a person with actual authority to bind the principal did so: Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, 493 per Diplock LJ; Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72; Northside Developments Pty Ltd v Registrar-General (1990) 170 CLR 146; generally, see Ford's Principles of Corporations Law (looseleaf), paragraph [13.140].
137 As regards questions (1) and (2), my conclusion is that the office of "national credit manager" did not confer usual authority on Mr Cannon to execute the two deeds. That conclusion is reinforced by two other considerations. The first is the size of NCR. Mr Counsel frequently visited NCR's premises in North Sydney. He was aware that it was a substantial company and the local subsidiary of large multinational organisation. Mr Naumoski must also have been aware of these things. They should have expected that such an organisation would have procedures in place for the proper authorisation of agreements such as those reflected in the two deeds, and for the execution of instruments recording such agreements. The second consideration relates to the content of the first deed. In its terms, it was not simply a deed to appoint CC as mercantile agent. It contained a provision purporting to bind NCR to refer to CC all its debts 60 days overdue, and another provision purporting to authorise CC to deduct commissions and disbursements from monies received by it on trust for NCR. Mr Counsel and Mr Naumoski ought to have realised that it would be unlikely that a national credit manager of a company such as NCR would, ipso facto, have authority to bind his employer to such provisions.
138 As regards question (4), my observations about the usual authority of a national credit manager imply that a national credit manager of a company such as NCR does not have usual authority to commit the company to refer all 60-day debts to a particular mercantile agent, or to authorise the agent to commence legal proceedings and incur legal expenses for recoveries without reference to internal authorisation procedures, or to authorise the agent to deduct commissions and expenses from moneys recovered.
139 However, as regards question (3), it seems to me that the usual authority of a national credit manager includes authority to refer particular accounts to the mercantile agent that the company has retained, and unless an express limitation (such as NCR's policy limiting its national credit manager from referring target accounts to a mercantile agent) is communicated to the mercantile agent, the latter is entitled to assume that there is no such restriction on the manager's authority. NCR held out Mr Cannon as its national credit manager. There is no evidence that anyone with NCR's authority to do so expressly communicated to CC that Mr Cannon had no authority to refer target accounts to it for collection. It follows, in my view, that by appointing him and allowing him to act in the office of national credit manager, NCR clothed Mr Cannon with ostensible authority to refer particular accounts to CC regardless of whether they were target or non-target accounts.
140 I turn from the question of usual authority to consider whether Mr Cannon acquired apparent authority by virtue of some representation, other conduct or acquiescence by NCR. My view is that, apart from holding Mr Counsel out as having the usual authority of its national credit manager, NCR did not engage in any representation or other conduct of a kind sufficient to confer ostensible authority on Mr Cannon to do any of the things referred to in my questions (1), (2) and (4).
141 CC was engaged after Mr Counsel sent a written proposal to Mr Bear in his position as "National Credit Controller". As far as the evidence goes, it does not appear that anyone at CC was informed that Mr Bear sought or obtained approval from his superiors to retain CC. But there is no evidence that he did not do so. The evidence is consistent with Mr Bear having followed a procedure like the one in place in 1998, by seeking and obtaining the approval of the financial controller to his dealing with CC. The evidence does not point to any conduct or acquiescence on the part of Mr Bear's superiors, or NCR generally, that would encourage CC to believe that Mr Bear had authority to retain a mercantile agent, or to undertake to refer all 60 day debts to the agent, or to authorise it to take legal proceedings and incur legal expenses for recoveries without compliance with internal authorisation procedures, or to authorise it to deduct commissions and expenses from moneys recovered.
142 The same analysis applies to Mr Counsel's evidence that Mr Bear approved the two rate increases, to 8% and 12% respectively - the evidence is consistent with Mr Bear seeking and obtaining authority to do so in accordance with NCR's applicable internal procedures.
143 Mr Bear, and his successors Mr Guerzoni and Mr Cannon, dealt with Mr Counsel (and to a lesser extent, Mr Naumoski) in the usual course of conducting the accounts receivable business. Nothing about those dealings points to any conduct or acquiescence on the part of superiors of those individuals within NCR that would give rise to any reasonable inference that those individuals had any authority to bind NCR, other than the usual authority of a national credit manager, as I have described it.
144 My conclusion is that the evidence does not provide any basis for me to hold that Mr Cannon had ostensible authority to do any of the things identified in my questions (1), (2) and (4), although he had ostensible authority to give instructions in respect of target accounts as referred to in my question (3).
145 It has not been suggested that NCR ratified any of Mr Cannon's unauthorised conduct. As far as the deeds are concerned, the evidence indicates that the company denied being bound by them when it became aware of their existence. I hold, therefore, that NCR was not bound by either of the two deeds, or by any other conduct of Mr Cannon by which he may have supported to bind NCR to refer all 60 day debts to CC, or to permit CC to take legal proceedings for recoveries and incur expenses in so doing, or to permit CC to deduct commissions and expenses from moneys recovered.
146 These conclusions mean that, even if the deeds had been executed on the dates which they bear, they would not have authorised CC to depart from its pre-September 1998 accounting practices by deducting any commissions (whether in respect of moneys recovered by CC or moneys paid directly to NCR) or any legal expenses (whether actually incurred or estimated) from moneys recovered on behalf of NCR and held by CC. Consequently, by purporting to make such deductions in the October 1998, November, December, February 1999 and March statements, CC acted in breach of the trusts under which it held moneys recovered by it for NCR as beneficiary.
NCR's failure to call Mr Kinninmont and Mr Guerzoni
147 Mr and Mrs Naumoski submitted that NCR's case had been severely circumscribed by its failure to call Mr Kinninmont and Mr Guerzoni, witnesses who could be expected to have cast light upon the practices and the policy of NCR during the second half of 1998.
148 I disagree with the submission. It was not contended by Mr and Mrs Naumoski that either of these individuals made any representations or engaged in conduct directly affecting the question of actual or ostensible authority. The contention seems to have been that they were in a better position than NCR's witnesses to give evidence about the general practices and policy of NCR in the second half of 1998. But Mr Budlong gave evidence based upon his experience throughout the period from 1996 to 1999. Although Ms Edwards was not appointed financial controller until January 1999, she was able to give evidence about the status of NCR's relevant policies in that period.
149 As far as NCR's general policies and practices during the relevant time are concerned, I am not persuaded that in these circumstances, failure to call Mr Kinninmont or Mr Guerzoni gives rise to a natural inference that NCR feared to do so or feared that their evidence would expose facts unfavourable to NCR (cf Jones v Dunkel (1959) 101 CLR 298, at 320-1 per Windeyer J).
Quantification of NCR's claim for breach of trust
150 It is appropriate to quantify the claim for breach of trust before considering the accessory liability of Mr and Mrs Naumoski. It seems to me that in this case, the amount that NCR would be entitled to recover from Mr and Mrs Naumoski, jointly and severally, is likely to be the same as the amount misappropriated by CC in breach of trust, if NCR succeeds in making out its case against them under the second limb of Barnes v Addy.
151 In a document headed "Quantum of Plaintiff's Claim" handed out at the hearing, NCR claimed recovery in three categories, namely "Litigation Costs", "Commission charged on payments received by NCR at 12%" and "Commissions in excess of 12%".
152 As to litigation costs, the evidence of their deduction from moneys recovered by CC on behalf of NCR is found in the statements for the "months" ending 1 December and 31 December 1998. Whatever was deducted for litigation costs in those statements was wrongfully deducted in breach of trust. NCR has calculated that the total amount deducted for litigation costs in the statement to 1 December 1998 was $80,724, and the total deducted for litigation costs in the statement to 31 December 1998 was $197,183. I shall ask both sides to check those calculations so that agreement can be reached on the figure. It is simply a matter of adding up all the entries on the two statements which appear adjacent to the code "LIT CSTS".
153 As to commissions, every amount deducted for commissions from moneys recovered by CC on behalf of NCR was wrongfully deducted in breach of trust. CC was not authorised to make "contras" for commissions against moneys collected. To the extent that payments were received directly by NCR from debtors that had not been referred to CC, CC had no entitlement to claim commissions in any event. The evidence showing that commissions were deducted from moneys recovered is found in several statements. The statements which show deductions of commission from collections are set out below, and in each case I have also set out in brackets NCR's calculation of the amount of the wrongful deduction:
· statement for the month ending 30 October 1998 ($13,800.15)
· statement for the month ending 20 November 1998 ($2,237.47)
· statement for the month ending 1 December 1998 ($41,109.71)
· statement for the month ending 19 February 1999 ($82,771.15)
· statement for the month ending 31 March 1999 ($56,525.40).
154 To this list one should add, I think, the statement for the month ending 31 December 1998, because that statement shows that commissions of $3684.75 and $23,198.25 were deducted, wrongfully in breach of trust, in respect of the Franklins and Brambles Security recoveries respectively. Once again, I shall ask the parties to check the calculations and endeavour to agree upon a figure.
155 The third category, commissions in excess of 12%, is more problematic. In paragraph 11 of their respective Verified Defences, Mr and Mrs Naumoski each say that from October 1998 to March 1999, moneys were paid into CC's trust account and accounted to NCR. Then they set out summary monthly figures for each month from October to March, indicating for each month an opening balance, "debits" (commission and charges) and "credits" (money received in trust account), in some cases a remittance, and a closing balance.
156 NCR has seized upon subparagraphs 11(c) and 11(d), dealing with December 1998 and January 1999 respectively. For each subparagraph, NCR has subtracted 12% of the figure stated for "money received in trust account" from the figure for "Commission and charges", and it claims that the net amount so calculated is a recoverable commission in excess of 12%. I think NCR's reasoning is faulty, though I am not sure and I would welcome further submissions on the point. It seems to me that the figures given in paragraph 11 of the Verified Defences are no more than summary figures based upon the various statements that are in evidence. It is not easy to match the statements with paragraph 11 because the statements are often not for exact calendar months, whereas paragraph 11 seems to be divided precisely into calendar months. If it is right, however, that paragraph 11 is simply a summary of the statements, NCR would be "double dipping" if it were permitted to recover amounts calculated on the basis of paragraph 11 in addition to amounts recovered on the basis of the statements. The explanation for the fact that the debit figures in subparagraphs 11 (c) and (d) are substantially in excess of 12% of the credit figures for moneys received in the trust account is probably that the debit figures refer to "charges" as well as commissions.
157 Subject to any further clarifying submissions, my view is that NCR would not be entitled to any recovery in its third category, which wrongly relies on paragraph 11.
158 CC is contractually entitled to be paid commissions by NCR in respect of recoveries on accounts referred to it by NCR, under the terms of the agreement reflected in Mr Counsel's letter of 23 December 1996 as modified by increase of the commission rate to 12% capped at $2000. Mr Konig made an attempt to calculate the commission properly recoverable, but it is desirable for the calculation to be done again in light of the principles stated in this judgment.
159 There is a question, not considered in submissions, as to whether that contractual entitlement should be set off against NCR's equitable right as beneficiary to require its trustee to replenish the trust fund by restoring amounts misappropriated in breach of trust. Set-off would leave NCR with an entitlement to recover only the net amount from CC, and consequently from those who have assisted CC to breach its trust, namely Mr and Mrs Naumoski.
160 Before making final orders, I would appreciate any submissions that the parties may wish to make on the questions I have raised with respect to quantification of NCR's recovery. I shall make directions for submissions accordingly.
Liability for assistance in a breach of trust
161 In Barnes v Addy (1874) LR 9 Ch App 244 Lord Selborne LC observed (at 251-2) that:
"strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their 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."
162 The doctrine was reiterated in Soar v Ashwell [1893] 2 QB 390, where Lord Esher MR spoke of the doctrine in Barnes v Addy as making a stranger liable as a trustee if he had "knowingly assisted a nominated trustee in a fraudulent and dishonest disposition of the trust property" (at 394-5), and Bowen LJ referred to a constructive trustee as a stranger who becomes "bound in good faith and in conscience by the trust in consequence of his conduct and behaviour", and one who "participates in the fraud of a trustee" (at 396).
163 In the present case the evidence does not show that Mr and Mrs Naumoski received any of the property held by CC in trust for NCR. Their liability arises, if at all, under the so-called "second limb" of Lord Selborne's remarks, assistance "with knowledge in a dishonest and fraudulent design on the part of the trustees". A critically important issue is whether the word "knowledge" in Lord Selborne's dictum is confined actual knowledge of the trustee's fraudulent design, or extends to various degrees of constructive notice of facts that would have been discovered if inquiries were made.
164 I have been referred to a substantial number of authorities, including the important decision of the Privy Council in Royal Brunei Airlines v Tan [1995] 2 AC 378. It is appropriate to remark, without intending any disrespect to those very able judges who have endeavoured to sort out a difficult chapter of equity, that Australian law is in need of further rationalisation and restatement. However, it is not necessary in the present case to embark on any such project, and undesirable for a judge at first instance to do so otherwise than in extremis. The current Australian law is found in the High Court's decision in Consul Development Pty Ltd v DPC Estates Pty Ltd (1995) 132 CLR 373, and it is sufficient for me to be guided by the judgments in that case.
165 Stephen J, with whom Barwick CJ agreed, noted (at 407-8) that the plaintiff had not only failed to establish actual knowledge against the relevant defendant, but had also failed to establish that the defendant wilfully shut his eyes to the truth for fear that he should learn of the fiduciary's dishonesty, so that both actual knowledge and "calculated an abstension from enquiry" were missing. He rejected the view (at 412) that liability for knowing assistance would arise in cases of "that species of constructive notice which serves to expose a party to liability because of negligence in failing to make inquiry". He added:
"If the defendant knows of facts which themselves would, to a reasonable man, tell of fraud or breach of trust the case may well be different, as it clearly will be if the defendant has consciously refrained from inquiry for fear lest he learn of fraud. But to go further is, I think, to disregard equity's concern for the state of conscience of the defendant."
166 Later (at 413) he observed that the defendant was in a situation in which a reasonable and honest man would not have had knowledge of circumstances telling of a breach of duty. That, he said, was the furthest extent to which any possible doctrine of constructive notice may go in such a case.
167 Gibbs J, the only other judge forming the majority, while observing that it was unnecessary to express a concluded view, said (at 398):
"It may be that it is going too far to say that a stranger will be liable if the circumstances would have put an honest and reasonable man on inquiry, when the stranger's failure to inquire has been innocent and he has not wilfully shut his eyes to the obvious. On the other hand, it does not seem to me to be necessary to prove that a stranger who participates in a breach of trust or fiduciary duty with knowledge of all the circumstances did so actually knowing that what he was doing was improper. It would not be just that a person who had full knowledge of all the facts could escape liability because his own moral obtuseness prevented him from recognising an impropriety that would have been apparent to an ordinary man."
168 What seems to emerge from these observations is that liability arises where the defendant has assisted in the trustee's dishonest and fraudulent design and:
· has actual knowledge of the dishonest and fraudulent design; or
· has deliberately shut his or her eyes to such a design; or
· has abstained in a calculated way from making such inquiries as an honest and reasonable person would make, where such inquiries would have led to discovery of the dishonest and fraudulent design; or
· has actual knowledge of facts which to a reasonable person would suggest a dishonest and fraudulent design.
169 But there is no liability if the defendant merely knows facts that would have been investigated by a reasonable person acting diligently, thereby discovering the truth, where the defendant has innocently but carelessly failed to make the appropriate investigations.
170 I turn to consider the liability of Mr and Mrs Naumoski in light of these principles.
Mr Naumoski
171 Mr Naumoski was the director of CC who was its effective operator and controller. Although both Mr Counsel and Ms Fulton said in part of their evidence that they "prepared" one or other of the deeds, it became clear during their oral evidence that their roles were subsidiary, and that the preparation of the two deeds was guided by Mr Naumoski. Mr Counsel had a marketing role, and the effect of Ms Fulton's evidence as a whole was that in respect of the deeds, she was little more than an amanuensis, who also passed on Mr Naumoski's instructions to the solicitors when told by him to do so.
172 Mr Naumoski said in his oral evidence that it was he who prepared the fee estimates attached to the letter of 18 November 1998. He caused entries of fee estimates to be made in the accounts, and he gave instructions to Ms Fulton which led to her preparing and despatching the statements in the period from October 1998 to March 1999, in which "contras" were claimed for commissions and estimated legal expenses, and commissions were charged for recoveries received directly by NCR, in breach of trust.
173 Counsel for NCR submitted that the Court should find that the deeds were nothing more than a device designed by Mr Naumoski, to permit CC to appropriate moneys recovered on behalf of NCR. That is a serious finding to make, but I have decided that it is the appropriate finding on the facts.
174 The evidence establishes that Infinity was engaged to provide external collection services in August 1998. Effectively Infinity was to replace CC as NCR's external collection agency. Mr Naumoski was aware, in about August 1998, that there was at least a proposal for that engagement to take place. He must have realised that implementation of the proposal would deprive CC of a substantial volume of business at a 12% commission rate.
175 He embarked upon arrangements which first involved claiming "contras" for commissions against moneys recovered, apparently with the approval of Mr Cannon, who nevertheless had no authority to give any such approval. It appears that Mr Budlong was sent the accounts for the month ended 30 October 1998, and so the implementation of the plan was not confined to Mr Cannon. But Mr Budlong reported to Mr Cannon, and Ms Edwards agreed in cross-examination that contras or offsets were not unusual arrangements.
176 It appears that Mr Cannon, acting without authority, purported to authorise CC to embark upon legal proceedings for recoveries in about November 1998. If (as the evidence of Mr Naumoski implies) the initiative for this step was Mr Cannon's, nevertheless Mr Naumoski seized the opportunity to obtain Mr Cannon's signature to some "estimates" of legal costs, which were (as I have said) not formed on any scientific basis. Having received Mr Cannon's signature, he transferred information into the relevant accounts, and then caused Ms Fulton, in the statements for the periods to 1 and 31 December 1998, to deduct the estimated costs from moneys recovered by CC for NCR.
177 It was only on 16 December 1998 that the first steps were taken for preparation of the first deed. I have rejected Mr Naumoski's evidence of his three conversations with Mr Cannon in the period from September to December 1998. In all the circumstances, the preparation of the first Deed appears, as counsel for NCR submitted, to be a device designed by Mr Naumoski to justify, partly ex post facto, deductions for commissions and costs that were not permitted by CC's existing contractual relationship with NCR.
178 The backdating of the deed to 11 August 1998, just before the engagement of Infinity and the introduction of the new financial statement procedure for CC, tends to reinforce the view that Mr Naumoski caused the deed to be prepared with such objectives in mind. My conclusion is also reinforced by the sheer scale of the deductions claimed for legal expenses, and (in the statement to 19 February 1999) for commissions on recoveries received directly by NCR. And it is reinforced by the failure of Mr Naumoski, Mr Counsel and Ms Fulton to bring forward and rely on the deeds to justify their accounting procedures during their discussions and meetings with Mr Di Sano and Ms Edwards in March 1999 and subsequently.
179 These facts enable me to reach two conclusions. The first is that Mr Naumoski assisted CC, the trustee, to breach its trust, and indeed was CC's controller which caused it to do so, in circumstances where he had actual knowledge that the accounting steps taken by the issue of the statements in the period from October 1998 to March 1999 involved breach of trust. The second is that the breach of trust was undoubtedly in this case a "dishonest and fraudulent design" for the purposes of Lord Selborne's dictum, whatever might be the precise scope of that expression.
Mrs Naumoski
180 Mrs Naumoski qualified as an accountant after completing a course of university study. She has worked as an accountant since 1988, except for breaks totalling about five years to care for her three children in their early years. Although her practice has predominantly involved preparation of tax returns for individuals and small companies, she has also prepared profit and loss statements, balance sheets and annual returns for small companies.
181 She became a director of CC in 1993, because her husband's co-director was about to resign and two directors were required for a proprietary company at that time. Her evidence is that, although she knew she was a director of CC, she did not study company law as part of her accounting studies as a major subject, and that she did not have a full understanding of the responsibilities of company directors. She said that at no time did she have any involvement in CC's affairs, by way of participation in business plans or directors' or shareholders' meetings or client meetings. She said that the only times she ever visited the company's office were when she happened to be in the area shopping, and that was infrequently, and she did not attend the office to review the company's books or records.
182 She said that she did not recall ever signing company accounts or even seeing annual accounts of the company, or its income tax returns or books or records. She said that at no time until the commencement of the present proceeding by NCR was she aware that NCR was a client of CC, and that she had no knowledge of any contractual arrangements or other legal relationship between NCR and CC. She said she did not know that the Commercial Agents and Private Inquiry Agents Act applied to the business of CC, and was not aware (if it were so) that CC held money in trust for NCR or failed properly to account to NCR for moneys held in trust. She said that at no time was she ever aware of any circumstances causing her to suspect that the company was in any financial difficulty, until NCR commenced this proceeding.
183 Mrs Naumoski has known, at all times from 1993 until the present time, that her husband carried on a business of debt collection through CC, until its administration and winding up. She participated in a debt refinancing in 1996, which included provision of a business loan for CC secured over the home jointly owned by herself and Mr Naumoski. She was asked in cross-examination whether she understood that CC collected money on behalf of third parties, and she replied that she did not have very detailed understanding of how the business was run, other than that her husband worked in a company which collected debts.
184 Her evidence that she could not recall signing any financial statements of CC was challenged in cross-examination. She was taken to a copy of CC's financial statements for the year ended 30 June 1998, that had been provided by CC to St George Partnership Banking Limited. Accompanying the financial statements were a directors' report and a statement by directors each dated 15 January 1999. On their face, those documents appear to have been signed by Mr and Mrs Naumoski. However, in her oral evidence Mrs Naumoski denied that the signature appearing above her typed name was her signature. She also denied having signed the financial statements for the year ended 30 June 1997, even though the copy of the directors' report and statement attached is to those accounts represent that she signed the originals. In each case the directors' report and statement asserted that they had been signed in accordance with a resolution of the board of directors, and expressed various opinions attributed to the directors. Mrs Naumoski denied any participation in that process. She admitted, however, that as an accountant she had prepared similar documents and realised that directors were expected to sign them.
185 Mr Counsel and Ms Fulton gave evidence generally supporting the proposition that Mrs Naumoski had no active involvement in the business or affairs of CC. Mr Counsel said that he saw Mrs Naumoski at CC's office only at Christmas time when she came in to have a drink with the staff, as the manager's wife would normally do. He may have seen her at the office at another time to drop off some shopping, but not for any business purpose. He said he was unaware that she was an accountant.
186 Ms Fulton gave evidence that she was aware that Mrs Naumoski was an accountant, but as far as she was aware, Mrs Naumoski did not do any accounting work for CC, although she attended the business from time to time.
187 I was unimpressed by Mrs Naumoski as a witness. Her answers were sometimes evasive - for example, in a series of answers she prevaricated before finally admitting that she knew her husband carried on a debt collection business through CC. From time to time she made speeches about the demands of her job and her domestic life as a mother, which went well beyond answering questions put to her. She was aware that one of the issues in the case was the extent to which she had any involvement in the activities of CC, and she seems to me to have been determined to persuade the court by her evidence that she had no involvement and indeed no significant knowledge of CC's activities.
188 Although she denied being aware that CC received money in trust for clients, her answers implied that she was aware that CC collected money from its clients' debtors, on the clients' behalf. Her statement that she did not have a full understanding of the responsibilities of company directors was implausible, since she was a practising accountant, and was partially negated by her acknowledgement to the effect that she understood the responsibilities of directors with respect to the company's financial statements and the right of an individual director to access to the company's books and records.
189 While I am not able to find that the signatures on the directors' report and statement of directors of CC for the year ending 30 June 1998 are the signatures of Mrs Naumoski, I found her evidence that the signatures were not hers to be implausible. She conveyed no sense of alarm or concern that on her evidence, the signatures must have been forged, and she could offer no explanation for what had evidently occurred (although Mr Naumoski later speculated, under cross-examination, that he may have instructed someone in his office to sign on behalf of his wife and urgently send the documents to the bank).
190 Her assertion of lack of involvement in the business and affairs of CC was at odds with her affidavit verifying her defence. In her affidavit she expressed her belief that the allegations of fact which were denied in the defence were untrue. One of the allegations denied in the defence was NCR's allegation of the terms of the agreement between itself and CC. The defence denied that the agreement alleged by NCR was the only operative agreement, and went on to plead that on 11 August and 18 November 1998 NCR and CC entered into further agreements the terms of which were fully set out in the defence.
191 My conclusions are that Mrs Naumoski was aware, during the whole of 1998, that CC collected money from debtors of its clients and was under an obligation to account to the clients for that money. As an accountant, she was aware that CC had an obligation to keep those client moneys separate from its own funds, and not to apply client moneys to meet commissions or expenses without express authority to do so. She was therefore aware of the characteristic of the arrangement which gave rise to a trust of those funds in CC's hands. It has not been established that she was aware in 1998/99 that NCR was a client of CC or that CC collected money specifically on behalf of NCR. However as a director of CC she had an obligation to satisfy herself that the financial statements of CC for the financial years ending 30 June 1997, 30 June 1998 and 30 June 1999 gave a true and fair view of the profit and loss and state of affairs of the company in respect of those financial years, and she had a right of access to the books and records of the company for that purpose.
192 She did not, on her own evidence, take any steps to satisfy herself of the veracity of the financial statements or, more specifically, that the company was discharging its obligation to keep client moneys separate from its own. If she had made inquiries after October 1998, in respect of the company's financial practices concerning money collected on behalf of clients, she would have discovered the October statement which clearly showed that the company purported to deduct commissions from moneys recovered. If she had made inquiry after the December and February statements, respectively, had become available, she would have discovered that the company purported to deduct very large amounts of legal expenses from recoveries, and very large amounts of commissions in respect of recoveries paid directly to NCR. Inquiries about those matters would have led her to conclude either that CC was not authorised to make any of these deductions, or to investigate the validity and efficacy of the two deeds. Inquiries into the company's books and records concerning the deeds would have led her to the letter by Warren McKeon Dickson dated 17 December 1998, where doubt was expressed as the Mr Cannon's authority to bind NCR to the first deed. This chain of inquiry would have led her, quite inexorably, to discover that the company was acting in breach of trust in purporting to make such deductions from its recoveries.
193 I do not regard this as a case of merely negligent failure by a sleeping director to act with proper attention to the affairs of the company. The facts are quite different from the facts of, for example, Deputy Commissioner of Taxation v Clark (2003) 45 ACSR 332. Mrs Naumoski was aware, as an accountant, of the responsibilities of directors with respect to financial statements (and, I think, their responsibilities generally, notwithstanding her evidence). She appeared to me, from her evidence, to be determined to turn her back on the discharge of her duties and indeed, on the making of any inquiries whatever as to the company's financial practices and position, for the purpose of avoiding liability. This is a case of deliberate shutting of the eyes, tantamount to actual knowledge of what would have been known had the eyes been kept open. It falls within the concept of dishonesty underlying the second limb of Barnes v Addy, as described by the Privy Council in Royal Brunei Airlines v Tan. My conclusion, therefore, is that Mrs Naumoski, as a director of CC, assisted with knowledge of the company's breach of trust and is liable as a constructive trustee accordingly.
Mr Cannon
194 In its final pleading, the SFASC, NCR contended (paragraphs 13 and 14) that it was an implied term of the contract of employment between it and Mr Cannon that Mr Cannon would serve NCR in his capacity as a credit manager with good faith and fidelity, or in the alternative, that Mr Cannon as an employee of NCR was under a duty to act with good faith and fidelity in his employment. NCR contended (paragraph 33) that Mr Cannon breached that implied term and that duty in various ways. It said (paragraph 34) that as a consequence of his conduct it failed to discover various matters until about August 1999 and has suffered loss and damage, particulars of which would be provided closer to the hearing. The final relief sought in the SFASC includes an inquiry as to the application of money and property due to NCR and received by (inter alios) Mr Cannon, and a declaration that property held by (inter alios) Mr Cannon, into which NCR's property has been converted, is held by him on trust for NCR. Damages and equitable compensation are generally sought.
195 I have decided not to determine the claims against Mr Cannon without further assistance by way of submissions from NCR. NCR's outline of submissions and its final submissions and submissions in reply did not at any stage to develop a case against Mr Cannon, seeking only a verdict and judgment against Mr and Mrs Naumoski. The evidence before me would provide a basis for finding that Mr Cannon was under a duty of good faith and fidelity, which he breached in some but not all of the ways pleaded. But (not having seen its particulars of loss and damage) I am far from sure, in the absence of further submissions, that NCR has established by evidence any specific loss and damage to it flowing from any such breach. Some of the claims for relief seem to be inappropriate, in the case of Mr Cannon, having regard to the case pleaded against him.
196 In the circumstances I shall make provision for NCR to propose orders to deal with its claims against Mr Cannon, and to make supplementary submissions to support those proposed orders.
Conclusions
197 NCR has succeeded in establishing that Mr and Mrs Naumoski are liable as constructive trustees under the second limb of Barnes v Addy. Before I make orders in their favour, however, I need to have further assistance with respect to the quantum of recovery, in the areas that I have identified in these reasons for judgment. I also need assistance with respect to the case against Mr Cannon. And I shall give the parties the opportunity to make submissions with respect to costs.
198 I shall therefore give directions for the preparation of written submissions on these matters, and stand the proceedings over for further brief hearing when those submissions have been made.
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