Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSC 1

Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSC 1 - VSC 2007 case summary — Zoe

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Introduction

1 These reasons for judgment involve a detailed consideration of a number of contractual entitlements claimed by the plaintiff, Orrong Strategies Pty Ltd ("Orrong"), against the defendant, Village Roadshow Limited ("VRL") pursuant to an agreement made in November 1995 (or, as pleaded by VRL, pursuant to an agreement made in May 1993 as varied by the agreement made in November 1995) whereby Orrong agreed to provide certain consultancy services to VRL for a five year period from 1 July 1996 to 30 June 2001, and pursuant to further agreements, or variations of the agreement made in November 1995, respectively made in September 1997 and June 2000. Orrong is a company owned by the second defendant to VRL's counterclaim, Mr Peter Ziegler, and his wife. VRL is a public company listed on the Australian Stock Exchange.

2 When this proceeding commenced on 23 September 2003, Orrong, in its statement of claim, sought payment by VRL of an amount in excess of $148 million. In addition, Orrong sought declarations that it was entitled "in perpetuity" to "a 7.5% share of the net profits" of Village Roadshow Pictures ("VRP"), a division of VRL, and "a 7.5% share in the assets of VRP." The amount of $148.682 million consisted of a termination bonus of $139.047 million, a performance bonus of $3.75 million for raising a $75 million "non/limited recourse" finance facility for the Roadshow Distributors Group, performance bonuses totalling $530,900 for "taxes saved" in the financial years ended 30 June 2001 and 30 June 2002 and the 7.5% share of VRP's profit in each of the financial years ended 30 June 2000 to 30 June 2003 which, after allowing for a payment by VRL of $283,000 in respect of the 2000 financial year, was said to total $5.354 million.

3 At the time the hearing commenced on 30 March 2005, Orrong amended its claim to increase the amount sought for the termination bonus to over $208 million. This, together with earlier amendments brought the total amount claimed in the third further amended statement of claim to nearly $220 million. This figure consisted of a termination bonus of $208.427 million, the Roadshow Distributors Group performance bonus of $3.724 million, the "taxes saved" performance bonuses totalling $530,900 and the unpaid balance of the 7.5% profit share for the financial years ended 30 June 2000 to 30 June 2004 said to total $7.089 million. In addition, Orrong had included an alternative claim that if, by reason of the defences raised by VRL, the claims relating to the 7.5% share of VRP failed then it was entitled to performance bonuses totalling $65.567 million for "non/limited recourse" finance raising which in turn resulted in a termination bonus of $44.792 million being payable, a total of $110.359 million.

4 By its defence and counterclaim, delivered on 23 December 2003, VRL raised numerous defences including defences under the relevant corporations legislation from time to time and the Legal Practice Act 1996 and sought repayment from one or more of Orrong and the other two defendants to the counterclaim, Mr Ziegler and Remut Pty Ltd ("Remut"), of the sum of approximately $25.68 million, which it alleged it had paid to one or other of the three defendants to the counterclaim over the six years between 1 July 1996 and 30 June 2002.

5 The stakes were, therefore, very high and accordingly both sides devoted considerable resources to this litigation. VRL pleaded a raft of defences to each of Orrong's claims, which raised a multitude of both factual and legal questions. The hearing lasted for 71 sitting days with virtually every possible issue explored in detail.

6 Although in final submissions both parties reduced the sums claimed by them, the amounts in dispute were still significant. The final principal monetary figure sought by Orrong was approximately $85.09 million, consisting of a termination bonus of $76.814 million, the Roadshow Distributors Group performance bonus of $3.724 million, the "taxes saved" performance bonuses totalling $530,900 and the outstanding amount of the 7.5% profit share for the financial years ended 30 June 2000 to 30 June 2002 and the financial year ended 30 June 2004 said to total $4.024 million. The reduction was largely due to the lower amount sought for the termination bonus - $76.814 million compared with the original claim of $139.047 million and the amended claim of $208.427 million. By now the alternative claim had been reduced to $59.719 million for the performance bonuses and $42.598 million for the termination bonus, a total of $102.317 million.

7 Depending on which, if any, of VRL's many defences and counterclaims might be found to be successful and depending on the manner of calculating the various claims for loss and damage or statutory entitlements to repayment, the maximum final figure sought by VRL in its counterclaim came to approximately $18.28 million.

The Parties and Their Witnesses

Orrong, Mr Zielger and Remut

8 As previously stated, Orrong was Mr Ziegler's private family company. He purchased the recently incorporated shelf company, then known as Commercial and Taxation Services Pty Ltd, in May or June 1993. Shortly thereafter the company changed its name to Peter Ziegler & Co Pty Ltd. On 27 November 2002 it changed its name to Orrong Strategies Pty Ltd. Mr Ziegler and his wife, Andrea Ziegler, became and have remained the only directors and shareholders of Orrong.

9 Mr Ziegler obtained honours degrees in Commerce and Law from the University of Queensland in 1982 and 1983, respectively, and a Masters degree in Financial Management from the same University in 1983. His studies focused on accounting, corporate finance and law. From 1984 to 1988 Mr Ziegler was a lecturer and then senior lecturer in the Department of Commerce at the University of Queensland. He lectured in commercial law, taxation law and corporate finance to both undergraduate and post-graduate students.

10 In December 1988, Mr Ziegler joined Ernst & Whinney in Melbourne. He became a partner in the tax division of that firm's successor, Ernst & Young, in 1992. He had been a Certified Practising Accountant since 1986. He became a Fellow of the Taxation Institute of Australia and an Affiliate of the Securities Institute of Australia in 1990 and a Chartered Accountant in 1992.

11 Mr Ziegler was admitted to legal practice in Queensland in 1984 and in Victoria on 3 September 1990. Since that date he has held a Victorian corporate practising certificate.

12 VRL was already a major client of the tax division of Ernst & Whinney when Mr Ziegler joined that firm. He said that through his work on VRL's tax affairs he "came to know most of the senior executives of VRL well and to understand intimately VRL's business operations and imperatives." He worked extremely hard on VRL's tax matters whilst he was with Ernst & Young and its predecessor. In 1993 he left Ernst & Whinney and commenced working full time for VRL. The circumstances in which that arrangement came about will be examined in the next part.

13 Remut is the trustee of the Remuneration Unit Trust which in 1995 became the vehicle for the payment by VRL of personalised employee share plan subscriptions. Mr Ziegler and certain other VRL executives had entered into such arrangements with VRL. Pursuant to the arrangement between Orrong and VRL, the payment for some of the services provided by Orrong was made to Remut as trustee for the Remuneration Unit Trust. Mr Ziegler agreed that this had "beneficial tax consequences."

The Village Roadshow Group

14 The history of the Village Roadshow Group started in 1954 when Mr Roc Kirby became the proprietor of a drive-in cinema in Croydon, an outer suburb of Melbourne. Mr Roc Kirby's two sons, John and Robert, are both executive directors of the public company, VRL, and they have alternated as Chairman and Deputy Chairman of the Board of Directors for a number of years. The managing director, Mr Graham Burke, has been with the Village Roadshow Group since the late 1950s. (As Mr Robert Kirby played a greater role in these events and was called as a witness, any reference hereafter to "Mr Kirby" means Mr Robert Kirby. Mr John Kirby, who was not called as a witness, is always referred to hereafter as "Mr John Kirby".)

15 VRL listed on the Australian Stock Exchange in 1988. It appeared to be common ground that at all material times the Kirby family and Mr Burke, through their ownership of Village Roadshow Corporation Limited ("VRC"), controlled VRL. VRC owned around 60% of VRL's ordinary shares. The Village Roadshow Group has five main divisions - a cinema or exhibition division; a film distribution division; a film production division; a theme park division; and a radio division. It operates in 13 countries through numerous subsidiary companies, partnerships, joint ventures and trusts.

16 The film production division is VRP. It operated as though it were a separate business, with its own Board of Directors and management accounts. Since VRL's Annual Report for the financial year ended 30 June 1998, VRP's results have been reported separately in the Segment Reporting section. VRP was made up by a large number of companies, partnerships, trusts and other entities, not all of which were wholly owned by VRL.

17 Mr Robert Kirby, Mr John Kirby and Mr Burke effectively acted as the joint Chief Executive Officers of VRL. Mr Burke said that he had the primary executive responsibility for the film production division or VRP.

18 Mr Peter Foo joined the VRL Group in the finance area in 1978. He was appointed Group General Manager in 1992, an alternate director of VRL in 1995 and the Finance Director of VRL in 1998. Between 1991 and 2000 he was also a Company Secretary of VRL.

The Witnesses

19 Not surprisingly Mr Ziegler was the principal witness called by Orrong and many of its claims depended virtually entirely on his evidence being accepted.

20 At first blush, Mr Ziegler appeared to be a reliable witness with an impressive recall of events and conversations. His initial witness statement dated 11 March 2005 was 153 pages and 829 paragraphs in length. However, closer examination revealed that this first impression was not necessarily correct. As will be seen, Mr Ziegler added important pieces of evidence in the witness box which had not been mentioned in his lengthy witness statement served only five or six weeks before. Further, at times, his oral evidence contradicted that witness statement. Finally, it turned out that his memory was not that good as he was unable to recall details of conversations with Orrong's expert valuer, Mr Paul Lom, only days before he gave evidence. This was a significant contrast to his purported ability to remember in great detail conversations occurring up to ten or more years before. Thus, Mr Ziegler's memory was not as good as represented or he was deliberately pretending inability to recall the detail of his discussions with Mr Lom.

21 In its closing written submissions VRL mounted a most forceful attack on Mr Ziegler's credibility. For example, it was submitted that:

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22 The tone of the submissions by VRL is illustrative, in my opinion, of the depth of ill-feeling manifested between the parties during the hearing. Clearly Mr Ziegler believed that his work had brought great benefit to VRL and he was greatly aggrieved that Orrong had not received what he perceived to be its just rewards. On the other hand, those executive directors of VRL who gave evidence were obviously upset at what they saw to be the unjustified claims by Orrong, when it had been very generously remunerated for the work done by Mr Ziegler, and at what they perceived to be manipulative attempts by Mr Ziegler to embarrass VRL and its directors in the public arena through the litigation.

23 I do not accept that Mr Ziegler has been as devious, manipulative or far sighted as VRL submitted. Nevertheless, as will be seen, on many occasions his evidence conflicted with that of the principal factual witnesses called by VRL - Mr Kirby, Mr Burke and Mr Foo. Whilst criticisms can be made of aspects of these witnesses' evidence, I have concluded that, with respect to quite a number of issues, some critical, others less so, I should accept the evidence of Messrs Kirby, Burke and Foo in preference to that of Mr Ziegler.

24 Apart from Mr Ziegler, Orrong called only two witnesses. One was Mr Lom, Orrong's expert valuer, who gave evidence about the value of Orrong's claimed termination bonus. The remaining witness was Mr Darryn Hugo, a former employee of Roadshow Distributors Pty Ltd, who gave evidence about Orrong's claim for a performance bonus in respect of a Roadshow Distributors Group facility of $75 million arranged in June 2001. The reliability of each of those witnesses will be considered when I deal with the respective topics on which they gave evidence.

25 Apart from Messrs Kirby, Burke and Foo, VRL called factual evidence from another nine witnesses. They were Mr William Conn, a non-executive director of VRL and former investment banker with Potter Warburg Limited and McIntosh Securities Limited; Mr Brian Wilson, an investment banker formerly and relevantly with Salomon Smith Barney Australia Limited; Mr Anton Le Rutte, who at the relevant time was an Executive Director in Australia of the Canadian Imperial Bank of Commerce; Mr Peter Buzzard, a Chartered Accountant and a partner in the firm of Ernst & Young, the auditors of VRL; Ms Julie Raffe, the Chief Financial Officer of VRL and a member of its Executive Committee; Mr Philip Leggo, the Group Company Secretary of VRL; Mr Shaun Driscoll, the co-Company Secretary of VRL; Mr Leigh Butterworth, the senior business analyst for the production division of VRL; and Mr Bryce Wolfe, the finance director of the production division of VRL; Mr Richard Mereine, a partner in the firm of Clayton Utz, Mr Ziegler's former solicitors; and Mr Dane McLeod, a former employee solicitor with Clayton Utz. It also called evidence from five expert witnesses. They were Mr Cullimore Gower, a Chartered Accountant and director of GCA Gower & Co Pty Ltd; Mr Gregory Meredith, a Chartered Accountant and partner in the firm of Ferrier Hodgson; Mr Christopher Costello, the Chairman and Managing Director of Remuneration Planning Corporation Pty Ltd and then of RPC Group Pty Ltd; Mr Roy Salter, the Principal of the Salter Group, LLC, an American financial and strategic advisory firm to the entertainment and media industry; and Mr Richard Williams, an Associate Director of Pricewaterhouse Coopers' Computer Investigations and Forensic Services group. The reliability of each of these witnesses will be considered when I deal with the respective topics on which they gave evidence.

26 Orrong submitted that VRL had failed to call, without explanation, evidence from a number of relevant witnesses. They included Mr John Kirby, who at some relevant times was Chairman of VRL and Mr Greg Basser, a partner with Herbert Geer & Rundle, a firm of solicitors acting for VRL, and who later joined VRL as its senior legal officer. Orrong submitted that the failure to call these witnesses or explain their absence was an additional basis for rejecting the attack on Mr Ziegler's credibility.[1] Where I have considered it relevant, I have taken into account this submission when dealing with the respective topics on which these witnesses might have given evidence.

Standard of Proof

27 Before embarking on any findings of fact it is necessary that I say something about the standard of proof applicable in this proceeding. As with a multitude of other issues, the parties had conflicting positions even on this question.

28 Counsel for Orrong submitted that, given the serious nature of the many contraventions of the corporations legislation and of the Legal Practice Act 1996 and other misconduct alleged against Orrong and/or Mr Ziegler, the question of whether there should be any adverse findings against Orrong and/or Mr Ziegler in respect of such allegations were serious matters which required proof by VRL at least to the higher level of satisfaction required by Briginshaw v Briginshaw[2]. Reliance was frequently placed by Orrong on the following statement by Dixon J (as his Honour then was) in that case:

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30 Part of Orrong's argument relied on the fact that some of the provisions of the corporations legislation which were said to have been contravened by Orrong and/or Mr Ziegler involved civil penalty provisions. These were described in Orrong's submissions as "quasi-criminal" in nature. Whether or not that is an appropriate description does not matter because the situation in this case is that there are no claims by a regulatory authority for the recovery of a pecuniary penalty or for disqualification orders, and even in those cases where such orders have been sought, it has been held that the standard of proof was the civil standard on the balance of probabilities, although the seriousness of the allegations and the consequences thereof in terms of the orders sought were matters that "should be taken into account in deciding whether there has been proof on the balance of probabilities.[5]

31 As I have said, this proceeding was not one brought by a regulatory authority. It is simply an ordinary civil proceeding in which VRL seeks in its counterclaim declarations that corporations law provisions have been contravened, and orders for damages and compensation. Therefore, insofar as VRL's case against Orrong and Mr Ziegler alleged breaches of the corporations legislation and other instances of misconduct, it is, in my opinion, a proceeding in which the civil standard of proof, on the balance of probabilities, is applicable. However, both common sense and authority such as Briginshaw, as explained by Neat Holdings, dictate that findings of serious misconduct should not be made lightly.

32 As the argument about the standard of proof in respect of alleged breaches of the Legal Practice Act 1996 had its own special issues, I will deal with it separately when I come to consider that topic.

The Factual Background

33 In order to understand the many legal issues discussed in this judgment, it is necessary to set out in some detail the factual background to this litigation.

The 1993 Agreement

34 Mr Ziegler said in his witness statement that in March 1993 Mr Kirby asked him at a lunch whether he would be interested in joining VRL in some capacity. Mr Ziegler expressed interest. He then had several conversations with Mr Foo. Mr Ziegler said that Mr Foo suggested that he should resign from Ernst & Young and provide taxation advice to VRL through a consultancy company. Mr Foo mentioned a $300,000 per annum retainer plus certain performance bonuses which would provide explicit incentives to achieve what VRL wanted. Mr Ziegler gave evidence that Mr Foo said that the provision of consulting services to VRL through an incorporated entity would limit liability, help VRL capitalise the expenditure incurred and provide flexibility in the way in which the remuneration arrangements could be entered into. Mr Foo disputed much of the detail of this evidence.

35 What is clear is that following the discussions between them, Mr Foo wrote to Mr Ziegler a letter dated 4 May 1993 which relevantly read as follows:

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37 The reference to a " 'Menzies' arrangement" was to the term in one of two agreements (an Employment Agreement and a Profit Share Agreement) between a number of VRL and Warner Bros subsidiaries and Mr John Menzies, the chief executive officer of VRL's theme park businesses on the Gold Coast. A term of the Profit Share Agreement provided for payment of "Employee Profit Shares" by way of share subscription by the VRL entities in an entity controlled by Mr Menzies and for payment of an "Employee Termination Profit Share" upon termination. Mr Ziegler said that this was one of the matters which Mr Foo and he had discussed. Mr Ziegler knew about the arrangement because he had advised on certain income tax aspects associated with them in mid 1992.

38 Mr Ziegler said that shortly after 13 May 1993, Mr Foo told him that the letter was fine and that they were agreed. I refer to this agreement hereafter as "the 1993 Agreement." Mr Ziegler then purchased the company Orrong as his corporate vehicle to perform the 1993 Agreement.

The May 1993 Letters

39 As previously mentioned, there was a dispute about whether Mr Ziegler had replied to Mr Foo's letter by a letter dated 12 May 1993, which had been discovered by both Orrong and VRL, or one dated 13 May 1993, which had been discovered only by VRL. The differences in the wording of the two letters were very minor. This otherwise unimportant dispute deserves consideration only because of the impact it has on the credibility of Mr Ziegler and Mr Foo.

40 Orrong did not refer to the 1993 Agreement in any of its numerous amended statements of claim. It simply pleaded an agreement made in November 1995 ("the 1995 Agreement"). VRL in its defence and counterclaim pleaded the 1993 Agreement and the 1995 Agreement as a variation or extension of the earlier Agreement. Originally VRL pleaded that the 1993 Agreement had been made "on or about 13 May 1993." In its reply and defence to counterclaim Orrong asserted that the 1993 Agreement was made "on or about 12 May 1993." Subsequently, VRL amended its plea to substitute the date "12 May 1993."

41 In his witness statement Mr Ziegler referred to his letter of 13 May 1993. In cross-examination he denied any knowledge of the letter of 12 May:

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VRL submitted that whilst the difference in the letters was marginal, the words in brackets had a subtle purpose as they supported the argument, that as long ago as 1993 it was contemplated that Mr Ziegler would move beyond tax based fundraising. VRL argued that by about 1995 or 1996 when Mr Ziegler probably produced the 13 May version he was undoubtedly thinking in terms of earning massive bonuses from insurance backed film financing and that perhaps he wished to show that such activity had been contemplated as early as 1993.

47 I am not persuaded by this Machiavellian interpretation. In my opinion, it is far more likely that there is some innocent explanation, such as that Mr Ziegler also could not find his final version of the 12 May letter and that he attempted to reconstruct it from an earlier draft. Whatever the reason, Mr Ziegler stoutly denied forwarding the 12 May version of the letter. That was evidence I could not accept and was evidence which, as far as I am concerned, damaged his credibility.

Service under the 1993 Agreement

48 When the 1993 Agreement commenced in July 1993, Mr Ziegler's initial focus was, he said, primarily on completing the taxation assignments he had been undertaking for VRL whilst at Ernst & Young. The services he performed for VRL involved income tax and other tax minimisation and planning strategies, recovery of taxes previously overpaid by VRL and other entities in the Village Roadshow Group, and the raising of finance for the production of films. Mr Ziegler was first appointed to the position of Chief Tax Counsel and later of Group Counsel of VRL "responsible for fiscal and legal affairs and advising on group strategies" according to VRL's 1995 Annual Report.

49 Mr Ziegler explained that at this time VRP was operating on a business model of producing predominantly Australian low-budget films. These films were usually pre-sold to film distributors prior to completion of production in an attempt to cover the financial risk. But in return for providing a guaranteed minimum financial return, the film distributors charged high distribution fees. According to Mr Ziegler, in the 1990s the film distributors reduced the amounts they were prepared to advance by way of their minimum guarantee with the result that VRP was increasingly exposed to the risk of a loss on a film unless it was a box office hit.

50 At this time the Australian taxation system provided specific tax incentives for certain types of investment in film production pursuant to Division 10B and Division 10BA of the Income Tax Assessment Act 1936 ("the ITAA") in addition to the ordinary allowable deductions for losses or outgoings incurred in the gaining of assessable income.

51 Mr Ziegler played an important role in obtaining significant funding from third party investors in a tax effective way. Mr Ziegler said that a typical VRP film-related investment was structured so that the third party investor only contributed 20% of the investment from its own money with 80% borrowed from a VRL subsidiary. The terms of the loan were such that it was only repayable out of any proceeds received by the investor from the exploitation of the film. The investor was able to claim a deduction for 100% of the investment, whilst the consequent increase in VRL's assessable income could be offset against VRL's tax losses. If the film was unsuccessful then any losses would be added to VRL's tax losses. Mr Ziegler described this funding as "non-recourse" or "limited recourse" funding.

52 However, according to Mr Ziegler, by the mid-1990s this type of limited recourse investment financing was becoming unpopular with the Australian Tax Office ("the ATO"). It started disallowing a deduction for the borrowed 80% of the investment unless the investor was at full legal and economic risk of repaying the principal and interest. This meant that the tax benefit of the investment was reduced by 80% or that the risk of the investment was substantially increased if the loan became full recourse. As a consequence, this form of tax advantaged film financing was drying up.

The 1995 Agreement

53 According to Mr Ziegler, on 26 September 1995 Mr Kirby and Mr Burke approached Mr Ziegler about renewing the existing consultancy agreement, some nine months prior to the end of its three year term. Mr Kirby told Mr Ziegler that he wanted him to agree to a new five year consultancy commencing after the expiration of the existing agreement. Mr Kirby said that he wanted Mr Ziegler to take a more commercial role in VRL's affairs than previously and not to concentrate as heavily on tax planning and structuring. He wanted Mr Ziegler to become more directly involved in the development of overall VRL strategy and to explore new ways of raising non/limited recourse financing for VRL's businesses. Mr Zeigler said that Mr Burke said that he agreed with what Mr Kirby had said.

54 Mr Ziegler said in his witness statement that he replied that he would be interested in exploring new ways of raising finance and that he would expect to have his company paid performance bonuses in relation to raising that finance. Mr Ziegler also said that he rejected the suggestion of a five year contract saying that five years was a long time and that he did not know what the future might hold. He explained that his daughters were then still very young and that he wanted to be able to enjoy being with them when they were growing up and reaching school age.

55 Mr Ziegler said that in response to Mr Kirby saying that he wanted to be sure that Mr Ziegler would be there for "the long haul", he then said that, as an inducement for him to enter into a five year agreement, rather than his preferred three year agreement, he would require VRL to agree to a termination bonus to be paid at the end of that five year period so that he would have a concrete incentive to be available and to provide consulting services through his company to VRL for the longer term. He referred to the termination bonus in the Menzies contract and said to Mr Kirby and Mr Burke that that was an example of VRL having agreed to pay that type of bonus. He said to both Mr Kirby and Mr Burke that if VRL agreed to pay a termination bonus at the end of the period, he would be prepared to commit to a new five year term commencing on 1 July 1996. He said, further, that a termination bonus would "incentivise" him to remain fully committed to VRL for that longer five year term period which is what they both said they wanted.

56 According to Mr Ziegler, Mr Kirby then asked him how the termination bonus would be calculated, and he replied that he wanted to ensure that any termination bonus would be "performance" rather than "profit_"_ based. Mr Ziegler said that the termination bonus should be a five times multiple of the average performance bonus of the three preceding financial years and that Mr Kirby replied, without hesitation, that that would be fine and that Mr Burke said that he agreed.

57 According to Mr Ziegler, Mr Kirby then asked in what circumstances the termination bonus would be payable prior to 30 June, 2001. Mr Ziegler replied in words to the effect that:

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58 For emphasis, Mr Ziegler said that he added that "you could all decide to retire or you could get shot: anything is possible." Mr Burke commented that the traditional example was being run over by a bus.

59 According to Mr Ziegler, Mr Kirby then said that he thought that early termination was remote and that he thought that a termination bonus seemed reasonable overall if Mr Ziegler was prepared to give a five year commitment to VRL. Mr Ziegler then said that obviously the termination bonus would not be payable if the new five year agreement had to be terminated by VRL because of his company's or his "gross misconduct" and that Mr Kirby replied that "Naturally this would be the case."

60 Both Mr Kirby and Mr Burke disputed Mr Ziegler's evidence that they had agreed that the termination bonus would be payable at the end of the five year period. Mr Kirby said that "there was no discussion about what might happen at the end of the five year period." Mr Burke said that Mr Ziegler "never said that he was seeking a payment upon the expiration of his agreement." I examine this dispute further when I come to deal with the question of whether a termination bonus is payable.

61 According to Mr Ziegler, Mr Kirby then concluded the discussion, saying that he looked forward to a continuation of his long and happy association with him, that "VRL and Mr Ziegler both stood to gain a lot through this new arrangement" and that he recognised what a significant commitment Mr Ziegler was prepared to make. Mr Ziegler replied that "Hopefully this will be the case." Mr Kirby then again said that, because of that commitment, the termination bonus which they had just agreed to was "fair, reasonable and appropriate."

62 Mr Ziegler said that the meeting concluded with handshakes all round and the customary "brotherly" hug from Mr Burke who then asked Mr Ziegler to send him, as VRL's Managing Director, a memorandum outlining what had been agreed and that he copy it to Mr Kirby.

63 As requested, Mr Ziegler wrote to Mr Burke (with a copy to Mr Kirby) the following letter dated 2 October 1995:

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I refer to our meeting of September 26, 1995 with Robert Kirby in connection with the continuation of my consultancy arrangements with VRL post-June 30, 1996.

As requested, by this memo I outline my understanding of the revised arrangements, and confirm my acceptance of the same for a five year period to commence on July 1, 1996 and ending June 30, 2001, and subject to the terms of this letter.

Before doing so, I would like to say how pleased I am with my offer of appointment as an Alternate Director of VRL. This appointment should enable me to better represent the VRL Group in seeking to achieve its objectives. At the same time, it demonstrates career progression from a personal perspective - an attribute to which I accord high priority.

Secondly, I am still exploring for a new job title more reflective of the increasing commercial/strategic role envisaged for me within VRL, with less emphasis on straight tax/legal matters. I will revert back to you in this regard.

In terms of the discussed remuneration arrangements, please come back to me if any of the following points are not in keeping with what is envisaged, or cause any concerns.

Consultancy Fee Retainer

Initial $400,000 basic package for the financial year July 1, 1996 to June 30, 1997 (able to be taken by cash, employee share scheme arrangement, motor vehicle, superannuation etc.) by way of retainer to my consultancy company, with this fee to be formally reviewed at the expiration of each 12 months period in light of my performance, then prevailing conditions within VRL, and the broader market place.

Ability for PAZ to request reconsideration of retainer (and other aspects of total package) if material change in present circumstances, with parties to discuss any proposal in good faith to determine a fair and reasonable outcome.

The agreed per annum retainer to be payable in monthly instalments, and (subject to increase in line with the above terms) adjusted annually for inflation over the previous 12 months period.

Four weeks holiday per annum plus declared public holidays, sick leave, etc. with the same able to be accumulated and taken as circumstances permit/require.

Allocation of Share Options

All future allocations of VRL share options to PAZ to be determined by applying PAZ's existing VRL option holding as a percentage of the average number of options presently held by RGK, JRK, and GWB in VRL, with these options to be issued to PAZ on the same terms (in all respects including financing) and at the same time as further VRL option issues are made to RGK, JRK, and GWB.

The parties acknowledge that for this purpose PAZ has a proportionate interest of 40% of the average number of VRL options issued to RGK, JRK, GWB (calculated and ignoring past exercise of options, as 800,000 VRL options issued to PAZ divided by 2 million VRL options, being the average number of options issued to RGK, JRK, and GWB.)

Likewise in the event of any allocation/issue of share options in companies other than VRL (e.g., Austereo, etc) a similar percentage proportion of options (40% of the average number of options allocated to RGK, JRK, GWB) would be issued to PAZ, and so forth. (In other words, 'we are all of the same bus', albeit in different proportions.)

Performance Bonus

Performance bonus elements (a) (b) and (c) below are the same as within my existing contract with VRL, and are restated for completeness. Element (d) is a new provision reflecting our discussion of September 26 (and the change in emphasis in finance raising to remove any residual tax risk from VRL).

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(a) 5% of tax savings made for the Village Roadshow Group in terms of income tax, customs duty, sales tax, payroll tax, stamp duty, etc. with negotiation in good faith to determine a fair and reasonable outcome given the somewhat subjective nature of these savings.

(b) 5% of tax refunds (income tax, customs duty, sales tax, payroll tax, stamp duty, etc.) obtained for the Village Roadshow Group.

(c) 5% of 'non/limited recourse' financing raised by the Village Roadshow Group in the event that existing Village Roadshow Group tax losses are utilised (permanently or temporarily) in the raising of the finance.

For example, the previous Clipsal and ASQA Partnership, and Perth Pay TV, transactions, fall within this category.

The parties acknowledge that these transactions, as presently structured, are now unlikely to occur in the future as third party tax losses, or off-shore structures, are expected to be utilised in the raising of finance (covered by (d) below).

The quantum of the bonus payable under scenario (c) reflects the fact that the balance of any taxation risk associated with this type of transaction resides with the Village Roadshow Group.

(d) An agreed percentage of 'non/limited recourse' financing raised by the Village Roadshow Group where existing Village Roadshow Group tax losses are not utilised in the finance raising.

An example of this type of transaction would be Austrian equipment financing, where no VRL tax losses are utilised as the profit component within the transaction does not give rise to Australian (or other) assessable income.

It is understood that all parties agree that this basis is now the desired approach for fund raising as there will be either no taxation liability resulting for the Village Roadshow Group as a consequence of the finance raised, or any residual tax risks will reside with non-Village Roadshow Group entities.

Left unresolved at our meeting of September 26 is the exact percentage performance bonus applicable in the circumstances covered by scenario (d). What percentage do you have in mind?

I believe that the percentage bonus figure for scenario (d) should reflect the fact that the financing benefit raised for the Village Roadshow Group will not rely on the use of the Group's taxation attributes, or risk capital. Rather, the Village Group is a beneficiary of the finance raised in much the same way that Michael Lake produces profit for the Studios as a result of his creative endeavours with VRP Production Services without the further commitment of VRL capital, resources, etc..

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64 Just what entitlements paragraphs (c) and (d) of the performance bonus provision gave rise to, will be examined when I come to deal with the meaning of the term "non/limited recourse" financing.

65 Mr Ziegler said that he did not receive any immediate response from either Mr Burke or Mr Kirby, no doubt because they both went away shortly after 2 October 1995. He was, however, appointed an alternate director of VRL on 3 October 1995. Mr Ziegler said that eventually he met with Mr Kirby on either 23 or 24 November 1995. According to Mr Ziegler, at that meeting Mr Kirby said that the letter of 2 October 1995 fully recorded what they had discussed and agreed at their earlier meeting, but that having thought about it further he wanted to change the agreed termination bonus multiple from five times to three times the average performance bonus of the preceding three years, because five times would be too much and "could be a large amount of money payable on termination." Mr Ziegler said that Mr Kirby told him that he should bear in mind all of the agreed performance bonuses together with the entitlement to be issued options. Mr Kirby added that as he wanted Mr Ziegler to agree to reduce the multiple payable on termination he would throw in death and disability insurance. Mr Ziegler agreed to the reduction of the multiplier from five to three.

66 Mr Ziegler stated that at this meeting Mr Kirby also said that with all of the incentives already provided, a 5% fee for finance falling within scenario (d) was adequate compensation. Mr Ziegler agreed with that percentage figure. He said that he then told Mr Kirby that he wanted his new job title to be "Director, Fiscal, Legal and Strategic Objective", to which Mr Kirby agreed and Mr Ziegler was subsequently given that title.

67 In his witness statement, Mr Kirby said that Mr Burke also attended the meeting with Mr Ziegler after the letter of 2 October 1995 was received. Mr Kirby said that Mr Ziegler did not point out the differences in the wording of the performance bonuses between the 1993 and the 1995 letters. He said that he did not notice them at the time. He believed that performance bonuses (c) and (d) continued to refer to the tax based financing arrangements Mr Ziegler was putting in place. Mr Kirby said that he recalled saying something about being happy to share creative new sources of profit for the Group.

68 At the request of Mr Kirby, Mr Ziegler then sent to Mr Burke (with a copy to Mr Kirby) the following letter dated 27 November 1995:

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I refer to my letter of October 2, 1995 and subsequent discussions, following our meeting of September 26, 1995 with Robert Kirby, in connection with the continuation of my consultancy arrangements with VRL post-June 30, 1996.

As requested, this memo updates my letter of October 2 in three significant aspects, and thereby confirms the agreed arrangements between us. (Subject to this letter, all other provisions are as specified in my letter of October 2, 1995.)

As discussed with Robert and you, I am pleased to be going forward on the basis of being truly, to quote your words, 'one of us.' This gives me both personal and financial comfort for my future.

1. Performance Bonus

Element (d) to be fixed as to 5% of 'non/limited recourse' financing raised by the Village Roadshow Group (where existing Village Roadshow Group tax losses are not utilised in the finance raising.) Accordingly, elements (a) (b) (c) and (d) are all fixed at the 5% level.

2. Termination Bonus

PAZ's contract termination bonus to be 3 times his average performance bonus, rather than 5 times as specified in my letter of October 2.

3. Death & Disability Insurance

PAZ to be provided with $5 million death and $5 million disability insurance - a similar policy to that of GWB/RGK/JRK.

Other Details

Having had an opportunity to consider my letter of October 2, 1995, the following refinements/clarifications (which do not impact the agreed commercial deal) have suggested themselves.

Issue of Options

In the event that, for whatever reason, further issues of options, as outlined in my October 2 letter, cannot be easily accommodated for me bearing in mind Corporations Law approvals, perceptions, etc., I am just as happy with a 'notional' allocation of options in the agreed percentage, with the profit arising paid to me on the relevant option exercise dates. (This is, in effect, what presently happens with our existing VRL options.)

Village Roadshow Creative Trust

My letter of October 2 omitted to confirm my present entitlement to 4% of the net profit of the Village Roadshow Creative Trust (i.e., 1% of VRP's net profit) and I mention this for the avoidance of doubt.

Job Title

Finally, in terms of the required new job title, I confirm the following:

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Project Ballarat

75 In his witness statement Mr Ziegler said that he outlined his proposed new financing model for VRP at a meeting of the VRP Board on the Gold Coast on 18 and 19 November 1995. Present were the two Kirbys, Mr Burke, Mr Foo and a number of other senior executives including Ms Raffe. Mr Ziegler suggested that VRP should consider undertaking a Hollywood style film business in conjunction with studio partners (most likely Warner Bros., but also other film studios) utilising a film portfolio - rather than a film-by-film approach - in order to gain film industry average financial returns, and to mirror film industry economics, with a non/limited recourse financing facility to be established to cater for this business model. This would avoid VRP having to pre-sell its films in order to finance them.

76 Mr Ziegler said that Mr Kirby said at the meeting that it was essential that any financing facility should be on terms that limited the lender's right of recourse to VRL. He said that VRL could not continue funding VRP productions on a full recourse basis. Mr Ziegler said that he explained that structures could be adopted to make the proposal attractive to lenders whilst at the same time limiting recourse to VRL. Mr Ziegler said that at the meeting the VRP Board decided to pursue the new business model as an adjunct to its existing film presale business model. He gave evidence that Mr Kirby asked him to explore this non/limited recourse financing alternative as a matter of urgency.

77 Mr Ziegler said that on 20 November 1995 this proposal was also discussed at meetings of the VRL Executive Committee and the VRL Board on the Gold Coast. At Mr Burke's suggestion the new VRP financing model and business plan was given the name "Project Ballarat."

78 Mr Ziegler thus embarked on a task which over the next 20 or so months took him overseas for approximately a third of his time. He travelled the world negotiating with insurance brokers, insurance companies, bankers, other financial institutions and eventually lawyers.

79 By a memorandum dated 24 January 1996 Mr Burke invited Mr Ziegler to become the Chairman of VRP and "the Executive in charge of Village Roadshow production from the Home Office."

80 Mr Ziegler said that, as a first step in implementing Project Ballarat, he contacted Mr Stephen Streeter, then at Ernest & Young in Los Angeles and subsequently a principal at his own firm, Montecito Investments Inc. Mr Ziegler said Mr Streeter and he had previously discussed the usefulness of film revenue insurance policies in the financing of films. They formulated a financial model that was able to demonstrate to insurance companies that, on the basis of a sufficiently large portfolio of films, the risks involved could be readily quantified on a portfolio, rather than a film-by-film, basis. The model demonstrated that the probability and severity of loss could be priced so that it was a risk that could prudently be underwritten by insurance companies. Mr Ziegler agreed in cross-examination that the idea for the model was in fact Mr Streeter's.

81 Mr Ziegler then approached insurance brokers to place the risk in the insurance markets. The brokers identified multiline insurance companies that might be interested in writing this type of insurance cover in conjunction with others. Mr Ziegler approached many multiline insurance companies in all major insurance centres - London, New York, Los Angeles, Zurich and Sydney - to provide film revenue insurance to partially cover a portfolio of Hollywood films' production and releasing costs. Ultimately, on 27 May 1997 an insurance policy known as "Ballarat I" was placed on behalf of Village Roadshow Films (BVI) Limited ("VRF"). It had a limit of indemnity of US$55 million. Subsequently, other film revenue insurance policies with increased limits of indemnity were also placed on behalf of VRF.

82 The Ballarat I insurance policy provided that five "qualifying films" had to be produced or acquired and then released in accordance with pre-agreed criteria before the insurer was "on risk" for payment of a claim. The criteria included a total budget per film of between US$15 million and US$50 million; release by a major studio in the US and Canada on a minimum number of screens; a certain minimum level of prints and advertising expenditure in the international territories based on box office results achieved in the US and Canada; and release in a minimum number of international territories within a specified time period. If five qualifying films were not acquired and released in the agreed time period, the insurer was not at risk for any claim.

83 At the same time as he was seeking the insurance support for the new VRP business model, Mr Ziegler sought out lenders that might be interested in funding the film sector through a non/limited recourse facility of the type he had in mind. According to Mr Ziegler he had to contact many banks and lenders because it was very difficult to find a financial institution prepared to provide limited recourse funding for films. Often the response was that the lender was only interested in providing financing provided an unconditional guarantee of repayment was provided by VRL.

84 Eventually on 22 October 1996, Mr Ziegler made contact with the Canadian Imperial Bank of Commerce ("CIBC"). He then met with Mr Britt Fletcher, who was a Director (and is now a Managing Director) in CIBC's Securitisation Group in its New York office. Mr Fletcher responded positively to the idea of providing the finance on the terms sought. These were that recourse for repayment of the bank's debt was limited to net film proceeds providing certain structural protections, designed to ensure that a portfolio of marketable films could be acquired, could be achieved. He said that a non/limited recourse financing transaction for VRP was possible in the event that a AAA-rated monoline insurer provided an irrevocable guarantee of the bank's debt position (principal and interest). This would be in addition to the multiline insurer revenue insurance policies referred to previously.

85 CIBC did its own modelling, relying on its own data, together with data provided by VRP and third parties, as a result of which it indicated that further equity support, in addition to a US$4 million equity investment that VRL was prepared to make in the borrower, would also need to be obtained. CIBC undertook to help Mr Ziegler identify a willing monoline insurer and identify likely sources of additional equity. The borrowing entity was to be VRF.

86 On 9 May 1997, VRL accepted the terms of a letter from CIBC dated 5 May 1997 and mandated CIBC to provide a US$200 million revolving debt facility for VRF, and to source the required US$16 million in third party equity for that company.

87 The Project Ballarat financing was completed on 31 October 1997. VRF became a party to a US$200 million revolving debt facility. It issued US$16 million of equity to third parties with a further US$4 million equity investment being made by VRL. With the introduction of the third party equity, VRL held only 19.9% of the issued capital of VRF. This enabled VRL to treat the VRP borrowings as off-balance sheet so far as VRL was concerned. From an accounting perspective, VRL's investment in VRF was treated purely as an investment, rather than VRF being consolidated or equity accounted in VRL's financial accounts. The terms of the equity issued to the shareholders in VRF provided for a 12% per annum cash paid coupon. In addition, the third party equity holders were entitled to receive an effectively capped profit participation in the event of film portfolio financial success, with the balance of profits going to VRP/VRL after repayment of third party debt and interest.

88 The world's second largest monoline insurer, Ambac Assurance Corporation ("Ambac"), provided the required monoline guarantee of CIBC's US$2000 million debt facility (and interest). A monoline insurer is an insurance company whose sole business is the provision of financial guarantees. There are only five or six monoline insurers throughout the world. They are supervised by the Insurance Commission of the State of New York and are regulated under the laws of the State of New York. Monoline insurers are permitted to issue surety bonds guaranteeing the payment of principal and interest on bonds and other similar types of financial obligations. The monoline insurer is bound by its irrevocable, primary, absolute and unconditional promise to pay timely principal and interest in connection with the financial obligation in the event of a borrower's default free and clear of any deduction or set off. Monoline insurers are also effectively regulated by the credit rating agencies because they determine how much capital a monoline insurer needs to reserve in its accounts in order to provide its surety bond.

89 The insurance agreement entered into by Ambac in favour of the financing parties provided that as a condition precedent to the issue of the surety bond, Ambac "shall have received written confirmation from Standard & Poor and Moody's that, as of the date hereof, the transaction contemplated by the Transaction Documents, without giving effect to the Surety Bond, would be rated at least 'BBB-' by Standard & Poor and at least 'Baa3' by Moody's."

90 In summary, the monoline insurer, through the use of its balance sheet, "wraps" a borrower's existing creditworthiness to a AAA level, and ensures that it will remain at that level through the term of the guaranteed financial obligation and until it is discharged. The advantage of having Ambac wrap the Project Ballarat financing was that the borrower, VRF, having the benefit of the Ambac AAA credit rating behind it, could then access the United States Commercial Paper market for its borrowings. This resulted in a much lower cost of funds (interest rate including the Ambac insurance premium of 75 basis points per annum) and a greater debt-to-equity ratio than would otherwise have been possible if VRF's creditworthiness had been assessed on a stand alone basis. As a result of Ambac's surety bond, VRF was treated by the financial markets as a "AAA" borrower, whereas VRL was considered only an investment grade borrower (being rated "BBB-" by Standard & Poor and "Baa3" by Moody's).

Board and Executive Approval of Project Ballarat

91 Mr Ziegler said that the VRP and VRL Boards and the VRL Executive Committee approached the decision to borrow US$200 million with great care. He said that Mr Burke reported on progress to the Board of VRL on many occasions. Mr Ziegler also frequently reported in detail on his progress to the VRL Executive Committee. Mr Kirby, Mr Burke and Mr Foo all said that they relied heavily on what Mr Ziegler told them about the transaction.

92 In Mr Ziegler's report to the VRL Executive Committee dated 17 February 1997 there was a reference to his efforts to obtain "relatively low cost funding with limitation of recourse to VRL." In his 7 April 1997 report, Mr Ziegler stated that the remaining task was "to obtain limited recourse, off-balance sheet financing to enable production of the films."

93 On 23 April 1997, as the transaction was taking shape, CIBC and Ambac prepared a briefing document for potential debt investors. That document was scrutinised by Mr Greg Basser, who was then a partner at Herbert Geer & Rundle, VRL's solicitors. Mr Basser subsequently left Herbert Geer & Rundle and joined VRL. He became "Director - Commercial and Legal" and "VRL Group Executive in Charge of Production." In conjunction with Mr Burke, he was responsible for dealing with Warner Bros. in connection with matters pertaining to the VRL/Warner Bros. co-production and co-financing arrangements.

94 On 5 May 1997, Mr Ziegler wrote a report to the Executive Committee updating the then position with respect to the proposed Project Ballarat fundraising. The report was headed "VRP - Limited Recourse, Off Balance Sheet, Funding." It read as follows:

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95 VRL's Executive Committee discussed Mr Ziegler's report dated 5 May 1997 at a meeting held on the same day. Mr Ziegler said that he explained to the Executive Committee that VRL's risk was limited to its US$4 million equity investment, to its net film profits from exploitation and to the 10% to 15% contingent liability for foreign prints and advertising expenditure. Ambac took the lender's residual risk in the event that those amounts, together with the third party's US$16 million equity investment, were insufficient to allow for timely payment of principal and interest. The VRL Executive Committee approved the proposal for submission to the VRL Board and recommended its adoption. The Executive Committee considered that this was a worthwhile business model for VRP to further pursue as it was not reliant on Australian tax based financing which could not be certain as a long term means of funding for VRP's business going forward.

96 At the conclusion of the meeting, Mr Kirby asked Mr Ziegler to refresh his report to the Executive Committee and to abbreviate it where possible and, as a matter of urgency, to give him that redrafted report so that he could circulate it amongst the VRL Board. Mr Ziegler prepared a very similar report dated 5 May 1997 for submission to the Board. One significant deletion was the reference to what would happen if the insurers failed to renew VRF's insurance policy after the first slate of five films.

97 Mr Kirby sent Mr Ziegler's further report to the VRL Board members under cover of a memorandum also dated 5 May 1997. In his memorandum Mr Kirby told the Board that VRL was pursuing Project Ballarat in an endeavour to "lay off" film risk. Mr Kirby said that the proposed transaction was intended to provide for off-balance sheet funding with "zero net recourse to VRL." Mr Kirby endorsed the proposal and went on to say that "it will assist Village Roadshow Pictures to maintain significant upside in the films it produces, whilst at the same time eliminating our risk."

98 According to Mr Ziegler, at the VRL Board meeting Mr Kirby was asked to explain what he had said in his memorandum. Mr Kirby said that he had "netted off" the certainty that VRL would receive Executive Producer and Overhead fee income of at least US$2.5 million per film against the possibility that VRL might be called upon to disgorge a roughly similar amount under its foreign releasing costs contingent liability if VRF had insufficient funds to be able to make its scheduled debt servicing and amortisation payments. He said that, accordingly, this justified his conclusion that there would be "zero net recourse" and that the transaction would maintain VRL upside whilst "eliminating our risk." He also said that any other amounts repayable by VRL would be amounts previously received by VRL as a result of the financing transaction undertaken.

99 At that Board meeting, and at Mr Kirby's request, Mr Ziegler explained in detail the Project Ballarat concept, the objectives sought to be achieved, where the negotiations were up to with the relevant parties, the perceived financial risks and benefits to VRL, together with overviewing outstanding issues. After the VRL Board meeting finished, Mr Kirby wrote to all Board members seeking any dissent from the decision to go forward with Project Ballarat. Nobody dissented and, accordingly, on 9 May 1997 Mr Foo on behalf of VRL accepted and agreed to engage CIBC by signing a letter of mandate. In his memorandum dated 9 May 1997 to the Kirbys, Mr Burke and Mr Foo seeking the execution of the mandate letter Mr Ziegler stated that "the total fees payable" would be US$5.41 million or 2.5% of the funds raised and that he thought that this was "very reasonable in all of the circumstances." He also pointed out that of the US$5.41 million, Mr Streeter's consulting company was to receive a US$1 million success fee for "the valuable services" he rendered "throughout the 18 month period of this task."

100 In his witness statement, Mr Kirby said that he relied very much on Mr Ziegler's professional expertise and the overview by Mr Foo. He said that in light of the documents he saw and the discussions he had his understanding was that there was no significant financial risk and that there was potentially significant upside. Mr Kirby said that at no stage prior to the events of September 1997 did Mr Ziegler disclose to him that he expected to be paid 5% of whatever funding was raised. It was never factored into any of Mr Ziegler's calculations or projections. Mr Kirby said that he would have approached his review of the Ballarat transaction differently if he had been aware Mr Ziegler was anticipating such a large bonus.

101 Following VRL's execution of the mandate letter, on 22 May 1997 Mr Skip Stern from Sidley & Austin, CIBC's lawyers, sent Mr Basser a list of envisaged documents required to be negotiated and executed in order to implement the Project Ballarat transaction. Mr Stern's document was faxed by Mr Basser to Mr Foo for his review. Mr Foo gave Mr Ziegler a copy and requested a meeting with him to discuss what was envisaged to be covered by the various agreements mentioned in Sidley & Austin's list. According to Mr Ziegler, Mr Foo focussed on any document that identified any issue that might be likely to cause recourse to or liability for VRL and was concerned to ensure that he understood the likely structure of the transaction as early as possible. Mr Foo said to Mr Ziegler that he should be aware that VRL could make no commitment to the Project Ballarat transaction until all transaction documents were negotiated and ready for execution. He said that until that time, VRL was prepared to expend necessary legal fees and the like in getting the transaction to that point, but ultimately, only on a consideration of the totality of the documents would a decision be made on whether or not to proceed with the financing. Mr Ziegler agreed. Mr Foo reminded Mr Ziegler that the VRL Board decision authorising him to sign the CIBC mandate letter did not authorise the expenditure of VRL funds on films - it merely provided for the execution of the mandate letter and the go-ahead to more formally pursue the transaction. This meeting with Mr Foo occurred in the week commencing 28 May 1997. During the course of the meeting, Mr Foo went through each of the items in Mr Stern's list and made handwritten comments (mainly ticks) on a copy of that list which he had in front of him.

102 The Project Ballarat transaction was raised and discussed at almost every meeting of the Boards of VRP and VRL, and at the weekly or fortnightly meetings of the Executive Committee between November 1995 and the completion of the transaction in October 1997. According to Mr Ziegler, he was repeatedly asked in these meetings to report on the progress of the deal, the structure of the deal, emerging issues, and (by Mr Burke in particular) "when will the money be available?" Mr Ziegler said that he also had many individual meetings with Mr Burke, Mr Kirby and Mr Foo. In addition, he gave briefings to VRL's independent directors, Mr Conn and Mr Terry Jackman. At these meetings, he discussed the progress of the Project Ballarat transaction, the then structure of the deal, circumstances of recourse to VRL, and the likely time period within which the financing would be available for draw-down.

103 VRL's auditors were Ernst & Young. Mr Peter Buzzard, was the audit partner of that firm. He attended meetings of VRL's audit committee during the period that Project Ballarat was being developed and finalised. According to Mr Ziegler, during this period he explained the Project Ballarat transaction in depth to Mr Buzzard, and had numerous meetings with him as it progressed from idea to drafted reality. During these meetings Mr Buzzard approved the treatment of the US$200 million loan to VRF as being an off-balance sheet transaction so far as the VRL group was concerned. Mr Ziegler said that Mr Buzzard said to him that only if the contingent liability was expected to be realised (rather than, at best, being a "remote possibility") would its existence need to be reported in the notes to the financial accounts of VRL. He said if this situation arose it would, depending on its timing and quantum, most likely then be a liability that would need to be stated on the face of VRL's accounts, rather than merely in the notes to the accounts. Mr Buzzard said to Mr Ziegler that the issue of disclosure of the contingent liability was a function of how certain VRL could be about the probability of the contingent liability "coming home" to VRL and its quantification.

104 According to Mr Ziegler, Mr Basser was involved in scrutinising the transaction documents on VRL's behalf from an Australian legal perspective. He had input in their review and, to some limited extent, their development. The firm of Debevoise & Plimpton was engaged by VRL to do the same from a U.S. legal perspective given that the Project Ballarat documents were governed by New York State law.

105 Mr Ziegler said that as a result of the Project Ballarat transaction, VRP obtained funding to acquire and release a large portfolio of films to enable it to replicate Hollywood film industry economics and strictly limit its downside exposure should the films prove commercially unsuccessful. This was to be contrasted with VRL's financing approach under its pre-existing film pre-sale business model where all the assets of VRL were at risk for the repayment of the relevant film production loan plus interest and where the interest rate charged was substantially in excess of that payable by VRF. In addition, as a result of the film pre-sale model that had to be pursued in an attempt to lower VRL's financial risk profile, high distribution fees were charged by film distributors prior to VRL/VRP achieving any film exploitation proceeds in excess of the advance minimum guarantee that was contracted for.

106 Contrary to this position, Mr Ziegler said, under the Project Ballarat financing arrangements, VRP could obtain fees from each and every qualifying film acquired and released by VRF, with these fees exceeding any VRL contingent liability in a failure scenario based on the envisaged required 20 films being released. At the same time, VRL had a real prospect for commercial success if the portfolio of films released were financially successful due to the reduced film distribution fee payable to third party film distributors.

107 According to Mr Ziegler, completion of the Project Ballarat transaction directly paved the way for the finalisation of the negotiation of the co-production/co-financing agreement with Warner Bros. which had been discussed from mid-1997 (and which was finalised as to material terms in December 1997), and the subsequent production of films in partnership with Warner Bros. VRP also subsequently entered into similar types of co-production/co-financing arrangements with other Hollywood studios on similar terms.

108 The arrangement with Warner Bros provided in essence that VRP and Warner Bros. would equally share the cost of production of the co-produced films. In return for this expenditure VRF would acquire the film copyright in the "international" world (that is, outside of the USA and Canada) and Warner Bros. would own the film copyright in the "domestic" territories (the USA and Canada). VRP would then provide funds to satisfy prints and advertising costs for the film's release in the international territories. Warner Bros. was appointed as the distributor of the films in perpetuity in all international territories excluding Australia, New Zealand, Singapore and Greece where distribution was to be handled by the Village Roadshow Group.

109 The co-production/co-financing agreement reached with Warner Bros. provided a "crossing" on the pool of films co-produced intended to approximately "true up" the financial results between domestic and international releases. Any liability for a crossing payment to be made was a responsibility of VRL rather than that of the off-balance sheet company, VRF. So far as VRF was concerned it was only participating in the international profits (and losses) of films released, with any crossing payment or receipt being solely to VRL's account. (In other words, any crossing payment to be made by VRP would have to be funded by VRL from sources other than VRF's limited recourse facility provided by Project Ballarat. On the other hand, any payment received by VRL would not form part of VRF's collateral pledged pursuant to the Project Ballarat financing arrangements).

110 Mr Ziegler said that the agreement for a Warner Bros. crossing payment was proposed by Mr Burke in his presence to Mr Jim Miller, then President of Business Affairs at Warner Bros. The meeting occurred at Warner Bros. Studios in Burbank, California on 17 October 1997. Mr Miller immediately agreed with Mr Burke's crossing proposal. According to Mr Ziegler, after the meeting, Mr Ziegler asked Mr Burke why he had been so quick to offer the crossing payment. He told him that he thought that it was very imprudent (and that that was why Mr Miller had accepted the offer so quickly). Mr Burke replied that he considered that a crossing between international and domestic territories would make a better alignment of interests between VRP and Warner Bros., albeit that any results of this approach would be to VRL's account and not to VRF's. This was a risk that he said he was prepared to bear on VRL's behalf as he considered that domestic and international film performance would even out in the longer term. Mr Ziegler told Mr Burke that he thought he would ultimately regret his decision but Mr Burke told Mr Ziegler that he thought he was right.

111 Mr Burke denied this post-meeting conversation. He said that Mr Ziegler was all in favour of the crossing and that as he, Mr Burke, relied on Mr Ziegler, he went ahead with the proposal. It is unnecessary to attempt to resolve this factual dispute between Mr Ziegler and Mr Burke.

112 According to Mr Ziegler, having a film studio invest in approximately 50% of the budget of a film ensured that the studio had sufficient incentive to market the film in the USA to the best of its ability in terms of such matters as film promotion and scheduling against competing film releases. In addition, by VRF providing the funding for the foreign prints and advertising expenditure for the territories outside of the USA and Canada, this provided the co-financing partner with the incentive to fully exploit the film in the foreign world (i.e. outside US and Canada). It enabled the negotiation of film distribution fees significantly lower than if the studio co-financier had to risk this foreign prints and advertising expenditure on its own account.

113 Mr Ziegler gave evidence that the decision to enter into the crossing payment agreement had had the impact of directly increasing VRL's financial risks in two ways. First, from a commercial upside perspective, it reduced VRP's profit-making potential because revenues in the international world were in excess of revenues in the domestic territories with the split of revenues of 55% international and 45% domestic likely to increase in subsequent years as penetration of Hollywood films in countries such as China and India and in the former Soviet Republics increased, together with the increasing affluence of consumers in those countries. As a result, it was more likely that in any crossing payment, VRP would end up owing its studio co-financing/co-producing partner a net amount. Secondly, this obligation for a crossing payment was a VRL/VRP obligation only. It was not an expense borne by, let alone financed by, VRF. Accordingly, this decision to agree to a crossing payment had resulted in a risk to VRL in addition to its 15% of foreign prints and advertising contingent liability and net film proceeds received. This risk was not envisaged by Project Ballarat or the business model for VRP. The total crossing payment owing by VRL (already paid and still payable) to its studio partners (principally Warner Bros.) was in excess of US$150 million.

The 1997 Agreement

114 By the end of August 1997 the negotiations concerning Project Ballarat were approaching completion. In his managing director's report included in the papers for the VRL Board meeting on 4 September 1997, Mr Burke referred to "Ballarat Films" as being "the pseudonym for our insurance based financing" and stated:

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Mr Ziegler said that by this stage: "We were aiming for an October 31 close."

115 Mr Kirby said that he was in the United States of America in early September 1997 to sign documents which would, if not in total execute the deal, put it virtually on a committed basis and that he thought the Project Ballarat transaction would happen in a very short time, perhaps even in the week following his trip.

116 According to Mr Kirby and Mr Foo, whilst the former was in New York he was contacted by Mr Foo to tell him that he thought Mr Ziegler might be expecting a performance bonus of 5% of the US$200 million finance raised for Project Ballarat. At Mr Kirby's request, Mr Foo faxed him a copy of Mr Ziegler's contract (the letter of 2 October 1995) with the relevant clause highlighted by the addition of a handwritten "*RGK" alongside it and the subsequently agreed "5%" written in the margin on the following page.

117 Mr Foo said that at some stage, he thought it was following a Board meeting, Mr Ziegler had come into his office and started talking about his aspirations in terms of generating wealth. Mr Foo said that as a result of this conversation he became concerned that Mr Ziegler might be intending to claim a performance bonus of US$10 million for Project Ballarat. Rather surprisingly, Mr Foo did not immediately raise this issue with Mr Kirby or anyone else at VRL. It was only subsequently that he thought it appropriate to communicate his concerns to Mr Kirby in New York. I find this delay in raising the issue rather strange, although I accept Mr Foo's evidence that he made the additions on the copy of the letter of 2 October 1995 at the time prior to faxing it to Mr Kirby. It seems to me that this evidence is more credible than the convoluted attempt by Mr Ziegler to explain how these additions came to be on the copy of the letter. The fact that Mr Ziegler had a copy of the alleged September 1997 form of the letter prior to discovery was satisfactorily explained by VRL. It was said that this form of the letter was circulated to the Board on a number of occasions. Also, I am not persuaded by the absence of any relevant facsimile records to reject Mr Foo's evidence. These could easily have been thrown out after use.

118 In any event, it was common ground that Mr Kirby and Mr Ziegler met in New York in the lobby of the Four Seasons Hotel on 4 September 1997 and in Mr Kirby's suite at the Four Seasons Hotel in Los Angeles on 8 September 1997 at which times they discussed the issue of a performance bonus in respect of Project Ballarat.

119 Mr Kirby said that, following the telephone call from Mr Foo warning him that Mr Ziegler might be expecting a performance bonus of 5% of the US$200 million finance raised for Project Ballarat, he decided to find out what Mr Ziegler's intentions were, "from his mouth." He said that in the meeting on 4 September 1997, after discussing Project Ballarat generally, he introduced the topic of the performance bonus by saying that VRL respected the extraordinary contribution that Mr Ziegler had made in creating the opportunity for VRL to play in the "big league" of film production without risk or substantial investment and that he told Mr Ziegler that prior to leaving for New York he had discussed with Mr John Kirby and Mr Burke giving Mr Ziegler a percentage of the new production company and a share of the profits. Mr Kirby gave evidence that Mr Ziegler responded by referring to his percentage, the percentage he had under his contract.

120 Mr Ziegler said in his witness statement that at the meeting with Mr Kirby on 4 September 1997, after discussing the Project Ballarat transaction Mr Kirby said, without any prior notice to Mr Ziegler, that he did not believe that Mr Ziegler's company was entitled to a 5% performance bonus on the Project Ballarat transaction because that transaction was not within the scope of the consultancy agreement. Mr Ziegler said that, in addition, Mr Kirby said that the performance bonus would be "unacceptably large by any measure" and that it was far in excess of what he had envisaged would be payable when he agreed on that consultancy agreement in September 1995. Mr Kirby agreed that he did say words to the effect that the performance bonus would be "unacceptably large by any measure" but denied making the second statement. Mr Ziegler said that he responded by saying that he would not have embarked on this sizeable endeavour if he thought the result would not have been included in the 5% of finance-raised performance bonus for non/limited recourse funding. Mr Ziegler alleged that Mr Kirby further said that he was surprised that there had been no reference to Mr Ziegler's expectation of a 5% performance bonus payable by VRL for the Project Ballarat transaction until "comparatively recently." Given that there had been no disclosure at all by Mr Ziegler about his claim to a US$10 million fee, this last phrase seems unlikely.

121 Mr Ziegler gave evidence that he said to Mr Kirby that it was not at all surprising that the performance bonus had not been mentioned, given that this non/limited recourse finance raising was as problematical as any other non/limited recourse finance raising attempted by him, be it tax based or otherwise, and that "given the limitation on recourse to VRL" this was the most difficult transaction that Mr Ziegler had ever "attempted to execute on VRL's behalf." Mr Ziegler said that he explained to Mr Kirby that the difficulties were immense due to the many players involved in the financing - multiline insurers, monoline insurers, bankers and third party equity providers - and all of the lawyers participating in the drafting of the financing documents transaction. This made the task almost impossible. Mr Ziegler said that he told Mr Kirby that whilst he remained hopeful of a successful completion of the Project Ballarat transaction, prior to late August 1997 he was not confident that a transaction would, in fact, be consummated in spite of everyone's best efforts and that prior to having a degree of certainty he thought it was academic to discuss the 5% performance bonus payable as a result of the Project Ballarat transaction. Mr Kirby denied that Mr Ziegler expressed any doubt about the successful completion of Project Ballarat. He said that Mr Ziegler said words to the effect that he was highly confident that the Ballarat transaction would proceed.

122 According to Mr Ziegler's oral evidence, in January 1997 he had discussed Project Ballarat with Mr Kirby and told him that they would both be "financially pleased" if the transaction was successful and that Mr Kirby had replied that he had given Mr Ziegler "every incentive to do just this type of transaction and it could be a transformational one for Village Roadshow." Mr Ziegler said that he reminded Mr Kirby of this conversation in the meeting on 4 September 1997 and that Mr Kirby said he remembered it. There was no mention of any of this in Mr Ziegler's witness statements. Mr Kirby denied that any such discussion had occurred in January 1997 or that Mr Ziegler referred to it in their meeting in New York.

123 Mr Ziegler said that he told Mr Kirby that he regarded the performance bonus as constituting part of VRL's ordinary corporate overheads just as any fee/profit-share/performance bonus was payable to other executives who were successful in achieving the specific goals and objectives that VRL had set for them. Mr Kirby said that given the size of the performance bonus, this should have been explicitly brought to his attention. Mr Ziegler replied that, given the size of the financing and the advantageous terms to VRL, the fee was more than reasonable.

124 Mr Kirby gave evidence that he had said that he was "staggered" (rather than surprised) that there had been no reference to Mr Ziegler's claim to such a fee payable by VRL for the Project Ballarat transaction and that in reply, Mr Ziegler said words to the effect that _"_you don't highlight your salary entitlement or cost in any VRL business deal." Mr Kirby's evidence was that in reply to this statement, he said that this was entirely different because of the magnitude of the fee and how VRL would have assessed the whole very complex transaction. Mr Kirby also gave evidence that he said to Mr Ziegler words to the effect that an upfront cash bonus incentive of the magnitude he was claiming was at an unprecedented level, not just in VRL but anywhere elsewhere in business.

125 It was common ground that no agreement was reached on any issue during the discussion on 4 September 1997.

126 Mr Ziegler said that he met Mr Kirby again over breakfast at his request at the Four Seasons Hotel in New York on 7 September 1997. According to Mr Ziegler, Mr Kirby again said that he did not want VRL to pay the 5% fee on Project Ballarat. Mr Ziegler told him again that he was not prepared to waive it. In a spirit of compromise, he offered to take the 5% fee as part of each draw down under the Project Ballarat facility on a per picture basis rather than all up-front. Mr Kirby said that the 5% fee was still too large in the aggregate and that he did not believe it was covered by Mr Ziegler's company's consultancy agreement. He said that he was disappointed that Mr Ziegler was seeking a performance bonus for this finance raising. Mr Ziegler told him that he was disappointed that VRL was not prepared to pay it as it was obliged to do so. Mr Ziegler said that this meeting ended without further discussion but with a bad feeling between the participants. This conversation was mentioned for the first time in Mr Ziegler's witness statement. It was not referred to in any of the versions of the particulars of this Agreement pleaded by Orrong before then. Mr Kirby said that he recalled having breakfast with Mr Ziegler on 7 September 1997. He said that he also recalled that they organised to meet in Los Angeles, but did not believe that they otherwise discussed the issue of Orrong's claim to a 5% fee at that breakfast.

127 On 8 September 1997, Mr Ziegler again met with Mr Kirby, this time in his suite at the Four Seasons Hotel in Los Angeles. Mr Ziegler had arrived in Los Angeles from New York late that evening and found a recorded message at his hotel from Mr Kirby asking him to come at once to his hotel "to discuss your fee for Project Ballarat." Mr Ziegler immediately went to meet Mr Kirby.

128 Mr Ziegler said that they again discussed aspects of Project Ballarat. When the conversation turned to the question of the performance bonus, Mr Ziegler said that he told Mr Kirby that the claimed US$10 million definitely fell within the terms of that agreement and that he remained surprised that Mr Kirby still thought otherwise. Mr Kirby queried why Mr Ziegler had not referred to his fee in his memorandum dated 5 May 1997. Mr Ziegler said that this memorandum did not intend to imply that the performance bonus was part of the 3% fees that were mentioned or that it was otherwise to be waived. He said that he reminded Mr Kirby that the 3% fees and their makeup were discussed at the VRL Board meeting on 6 May 1997. He told Mr Kirby that he believed that all VRL's Board members understood, or should have understood, that the fee under the consultancy agreement was not, and was not intended to be, included within that 3% figure.

129 Mr Kirby gave slightly different evidence. He said that he said to Mr Ziegler that Mr Ziegler had previously told the VRL Board that the total fees to be paid out of the proceeds received should not exceed 3% of the total financing raised and that Mr Ziegler had responded in the above terms. Mr Kirby said that he then queried how the VRL Board could know that Mr Ziegler's fee was not included in the 3% when they did not even know the fee was being claimed. Given the total lack of any evidence that Mr Ziegler had disclosed his claim to US$10 million before those meetings with Mr Kirby in early September 1997, it seems to me that Mr Kirby's account of this part of the conversation makes more sense than Mr Ziegler's recollection.

130 Mr Ziegler said that he said to Mr Kirby that the fees payable under the consultancy agreement had never previously been regarded by VRL as third party and that he was surprised that Mr Kirby would suggest otherwise.

131 Mr Kirby gave evidence that Mr Ziegler said that his incentives were part of normal overheads and not included or normally highlighted in such business transactions. Mr Kirby said that he responded by saying that irrespective of what might be normal, a fee of the magnitude of US$10 million was so significant that it represented an entirely different situation. Mr Kirby further said that the upfront nature of the fee would have totally changed the way VRL would have assessed Project Ballarat and that Mr Ziegler either knew that or should have realised that.

132 Mr Ziegler said that, without further discussion, Mr Kirby then said words to the effect that "VRL will not pay the fee and in lieu you must accept a 5.25% in perpetuity, indefeasibly vested, equity interest in VRP." Mr Kirby said that unless he was prepared to accept that offer "VRL will not go ahead with the deal and all parties can go home."

133 Mr Kirby said that he told Mr Ziegler that:

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Mr Ziegler disputed much of this evidence and gave varying evidence in respect of his use of the phrase "shadow equity." This will be examined in more detail in a later part.

135 Mr Ziegler said that given the amount of effort and resources that had been expended by him, by VRL and by third parties in getting the Project Ballarat transaction to that point, and the loss of his personal and VRL's corporate credibility if the transaction did not proceed, he told Mr Kirby that he left him with few choices. Mr Kirby once again said that the "in lieu" offer was "final and not negotiable." He then said that the equity interest would remain vested in Mr Ziegler's company whether or not VRL used part or all of the Project Ballarat facility.

136 Mr Kirby gave evidence that he used words to the effect of "final and not negotiable" but denied that he used the terms "in perpetuity" and "indefeasibly vested." He said in cross-examination: "They are not my words."

137 Mr Ziegler said that he then asked Mr Kirby "why 5.25?" to which Mr Kirby said words to the effect that "as far as profit sharing is concerned, 5.25% is one quarter of what you, John, Graham and I get under the Creative Trust." Mr Ziegler then said to Mr Kirby "But we are not just talking about profit" and he replied, "No, we are talking about equity." Mr Ziegler said that he asked Mr Kirby if he envisaged imposing any restriction on any dealing with that equity and he said not. Mr Kirby denied that he said, "No, we are talking about equity."

138 Mr Ziegler said that Mr Kirby then said words to the effect that "this equity is going to generate capital and income value to you for a long time into the future and if Project Ballarat works and your business model is a success, this equity is going to be worth much more than a fee of 5% on the $200 million you are going to raise." Mr Kirby denied using the words "capital" and "income" in addition to the word "value."

139 Mr Ziegler said that he said to Mr Kirby that "You give me no choice but to accept your proposition." He also said to Mr Kirby that he regarded this "in lieu of" arrangement as being "a one-off" and as having no impact on the terms of his company's ongoing consultancy agreement with VRL and, in particular, on any other bonus payable under it. Mr Ziegler said that Mr Kirby said that he agreed on this being "a one-off" deal. Mr Kirby denied that this statement had been made by Mr Ziegler or that he had replied in the manner alleged by Mr Ziegler. During cross-examination Mr Ziegler agreed that he had not expressly said that the 5.25% interest would be included in the calculation of the termination bonus. In fact he later agreed that "an issue left outstanding was the impact of this revised arrangement on the termination bonus."

140 Mr Kirby gave evidence that at the 8 September 1997 meeting, Mr Ziegler also said there was something else that was important, which was being a director of VRL and that it would assist greatly if he could present himself to banks throughout the world as a director of VRL. Mr Kirby said that he indicated to Mr Ziegler that he would support him in relation to a directorship of VRL and that he also said to Mr Ziegler that he would have a prime responsibility for achieving the financial success of the new VRP. Mr Ziegler denied that he told Mr Kirby that there was something else important which was him becoming a director of VRL for the reason set out above although he agreed that such an appointment was in fact "absolutely helpful" for this purpose. It was common ground that the meeting ended with Mr Ziegler and Mr Kirby shaking hands on the agreement reached. Mr Ziegler said that he went back to his hotel "feeling a little battered and bruised for the experience." Just what entitlements the agreement gave rise to will be examined below. I refer to this agreement hereafter as "the 1997 Agreement."

141 Contrary to what appeared to be Mr Ziegler's standard practice of confirming in writing the details of agreements "for the avoidance of doubt", the agreement about Orrong's interest in VRP was never documented. Mr Ziegler said in his witness statement that he had Mr Kirby's word "that it was agreed" and that he considered Mr Kirby's "word sufficient for my purposes." He said that despite Mr Kirby's "take it or leave it" ultimatum in what had been a very difficult meeting, he had no reason to doubt Mr Kirby's word and that he considered him not just a colleague and a boss but also a friend. I find this view more than a little surprising given that, according to Mr Ziegler, Mr Kirby had just broken his earlier agreement about Orrong's entitlement to receive a performance bonus for him raising non/limited recourse financing.

142 Meanwhile, by a letter dated 9 December 1997 Mr Burke wrote to Mr Greg Coote, the then Chief Executive Officer of VRP, emphasising "how critical the VRP situation really is." Mr Burke continued:

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"This note outlines the possibility of increasing the recently completed $US 200 million limited recourse, off-balance sheet funding available for VRP's film production and acquisition activities through Village Roadshow Films BVI Ltd (VRF) to enable the production/acquisition of larger budget films in the $US 50 million to $US 80 million range per film: 'Project Bendigo.' ...

Based on discussions to date ... it should be possible to increase the size of VRF's facility by $US 500 million up to $US 700 million.

Terms

In a nutshell, it is proposed for VRF's expanded facility to be available over a seven year (five year revolving) period drawn down as and when required, to enable the acquisition of all foreign rights (and funding of foreign P&A in connection therewith) for the previously contemplated 20 films in the $US 15 to $US 50 million budget range (Project Ballarat) with funding for a further 20 films in the $US 50 million to $US 80 million budget range with these films to be obtained from either VRP or third party producers/distributors. An agreement to increase the VRF debt facility should be able to be finalised by March/April 1998.

Total third party structuring, placement, and risk management fees, etc., to be satisfied by VRF out of proceeds received, should not exceed 3% of additional funding obtained.

Qualifying Bendigo Films

Each bigger budget film to be acquired by VRF would need to comply with qualifying criteria which will be stipulated in the film insurance policy to be acquired by VRF from third party insurers.

I have had detailed discussions and meetings with our Ballarat insurers in Australia and Europe and believe that the required insurance coverage for Bendigo can be obtained.

Each Bendigo insurance policy would specify that 5 qualifying films must be released within 3 years of the initial foreign theatrical release of the first qualifying film of that slate. There would be a need for 4 such policies to enable the funding of the envisaged 20 Bendigo films.

The Bendigo insurance policy would largely mirror the Project Ballarat policy with the major differences being that each film must contain within it an 'A' list director, producer or actor (see the attached lists). In addition, distribution in the US and/or Canada would be required on a minimum of 1000 screens for Bendigo films, rather than the 700 screen minimum for Ballarat films.

...

Up to an Additional $US 10 Million VRL Investment May Be Required

VRL may be required to invest up to an additional $US 10 million in VRF in order to maintain its 19.99% of its then issued share capital, with third party equity investors holding 80.01% of VRF's issued capital in return for up to an additional $US 40 million equity investment.

As presently exists, VRL would continue to have a call option to acquire the third party equity held in VRF based on a formula intended to provide the external investors with an approx. 35% p.a. return over the term of their investment.

The exact quantum of further equity required to be invested by VRL in VRF (above the present $US 4 million invested) is not known at this time, and is the subject of further negotiation with CIBC and AMBAC Indemnity Corporation Inc as the insurer of the commercial paper facility.

As presently exists, VRL could reborrow any additional equity contribution together with the equity subscribed by third parties so long as it was not in default under the facility.

Limited Recourse to VRL

As it has under the original Ballarat financing, in order for VRF to obtain the aforementioned $U5 500 million additional debt funding (and additional third party equity, if required), VRL would be required in the event that VRF fails to satisfy its scheduled debt amortisation payments and equity return to:

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154 In early February 1999 Mr Ziegler responded to 14 detailed questions about Project Bendigo from Mr Tim Newman, Group Treasurer of United News and Media, one of the largest shareholders in VRL at that time. It was represented on the Board by Mr Charles Stern and Mr Charles Gregson. Mr Newman was seeking to understand the merits and risks of Project Bendigo so he could advise Messrs Stern and Gregson. Mr Ziegler circulated the questions and answers to the VRL Executive Committee and the Board.

155 At a meeting on 9 February 1999, the VRL Board endorsed the Project Bendigo transaction in principle subject to examination of the documentation. Mr Ziegler was asked to leave the meeting while the directors discussed the implications of Orrong's Agreement on the decision whether to proceed with Project Bendigo.

156 Following that meeting, a VRL director, Mr Terry Jackman, wrote to the Chairman, Mr John Kirby, by letter dated 11 February 1999 querying the merits of proceeding with Project Bendigo. Mr Burke gave Mr Ziegler a copy of Mr Jackman's letter. Mr Ziegler sent a memorandum dated 16 February 1999 responding to Mr Jackman's concerns.

157 According to Mr Ziegler, extensive testing of the Project Bendigo model was carried out by VRL staff, in particular Mr Stuart Boxer, the finance director of VRP. Mr Boxer's work indicated a possible mismatch between cash inflows and the amortisation of VRF's debt facility. By a memorandum dated 22 February 1999 Mr Foo asked Mr Burke to obtain further statistics from Warner Bros. to assist in the analysis of the viability of Project Bendigo, "based on extrapolating Ballarat actuals." According to Mr Foo they were "all working feverishly" on this task. Without the further information Mr Foo said that he could not "recommend anything to anybody."

158 The requested information was provided by Warner Bros. On 24 May 1999 Mr Boxer and other VRL accounting and finance personnel produced a 375 page detailed analysis of the potential risks and benefits of Project Bendigo.

159 Much of this further information was provided to Mr Wilson at Salomon Smith Barney in order for him to prepare an updated report on Project Bendigo. That report was dated 13 August 1999. It concluded that:

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Other points worth noting were that it was stated that these fees and bonuses were cumulative, "with no cap on total remuneration, etc. payable", that Herbert Geer & Rundle were to "draft long form agreement within 21 days" and that Mr Ziegler would "meet with Remuneration Committee if required/desirable."

164 At a meeting on 2 March 1998 Mr Kirby told Mr Ziegler that the memorandum was not acceptable. On 3 March 1998 Mr Ziegler sent Mr Kirby a revised memorandum. It contained very few changes. One of them, in respect of the $10 million non-recourse loan to purchase VRL preference shares was to add after the words "or economic equivalent of this loan" the words "if unwilling to seek shareholder approval." Mr Ziegler said in evidence that the addition reflected Mr Kirby's wishes, which perhaps gains some support from Mr Kirby's handwritten note alongside this sentence on the memorandum of 1 March 1998 of the words "if not to shareholders." Then, at the request of Mr Kirby, Mr Ziegler sent him "a one pager" dated 4 March 1998 summarising the "Existing PAZ Remuneration Arrangements" as at 1 July 1997.

165 On 4 March 1998 Mr Ziegler met with Mr Kirby, Mr Burke and Mr Foo. Concern was expressed by Mr Burke at the level of remuneration paid to Mr Ziegler. He said that it was inappropriate for an executive to be paid more than the chief executive officer. For his part, Mr Ziegler justified his level of compensation as "largely performance driven" and he was "performing." He also requested a reconsideration of the base retainer which had not been increased since the commencement of the consultancy agreement, contrary to the provision for annual review.

166 On 7 March 1998 Mr Ziegler sent Mr Robert Kirby, Mr John Kirby, Mr Burke and Mr Foo yet another memorandum on the same topic. This proposed a yearly consultancy fee of $500,000 from 1 July 1997 with annual increases "equal to the average increase in RGK/JRK/GWB/PEF base salary." The only other change worth noting was that under the sub-heading "Securitisation" the following appeared:

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"I have been delegated by the Chairman and the Executive Committee to put to the Remuneration Committee the renegotiated consultancy agreement with Peter Ziegler.

Attached is the current agreement signed in 1995 (including Peter's memo in November '95 clarifying certain points).

We are all aware of the extraordinary work ethic and sheer productivity of Peter's years with Village Roadshow. Simply stated, no-one in the group has contributed more to the financial substance and success of VRL than Peter Ziegler.

The degree of compensation reflected this extraordinary contribution.

The one area of some debate was the applicability of Peter's 5% of 'non/limited recourse funding' covered under clause C on page 2. The debate of course centred around the finance raised by Ballarat/Bendigo and Popcorn.

In good faith and recognition of his commitment to our group and the future we share together, Peter agreed to forego his claim for a 5% commission on such production finance in return for a 5.25% profit participation in VRP. This fairly reflected the unique value of Peter's innovative finance (in tandem with new Bruce Berman management and the Warner Bros. deal) in resurrecting future viability of VRP.

With Popcorn, Graham and I reached an agreement with Peter to a reduced contractual commission of 2.5%. In this instance it was not possible to easily define 'profit' derived from the financing transactions as most likely existing operating assets would be involved.

Popcorn financing has the potential to transform the entire financial landscape for VRL. It can provide funding of billions of dollars for our cinema exhibition (and potentially our other businesses) without extraordinary complication of new equity raisings or re-structuring (per the Murdoch initiative with Fox Entertainment, etc.).

Apart from the sheer magnitude of the Popcorn financing, the effective cost of the money, i.e. the interest rate, will be significantly below market comparable finance. The savings in interest costs (i.e. profits) to the VRL bottom line will be in the order of 10's of millions of dollars year after year.

This negotiated agreement with Peter was subject to Remuneration Committee/Board approval, which the Executive Committee now seeks with its full endorsement."

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1. The magnitude of the potential payments to Peter Ziegler are outside of the ability of shareholders, the Board and the marketplace to accept as reasonable compensation for an executive of VRL. If I am interpreting it correctly, you are asking the Board to approve, potentially, a 2.5% fee on Popcorn finances. On a $1,000 million raising, this would mean a fee of $25 million. This is an extremely generous figure by any benchmark and especially for someone employed by the company and raising the funds without risk.

Peter is a full-time executive of the company, irrespective of the legal niceties. He is on the main Board, a member of the Executive Committee and has all the appearances of a full-time employee. He receives a salary, holiday pay, long-service leave entitlements and pays fringe benefit taxes. Furthermore, I understand that Peter spends the overwhelming majority of his time on VRL matters. The company is underwriting his costs. At no point is Peter at risk.

Given Peter's position as a Director of VRL and the size of the potential payments, the Board will have no alternative than to provide full disclosure to shareholders. The public criticism of both Ross Wilson and TABCORP will be mild in comparison to the outcry we are likely to experience when Peter's arrangements are disclosed to shareholders. This will result in great harm to the company.

2. The proposal is for Peter to be paid on the gross amount to be raised and payment made at the time of raising rather than when the benefits are received by VRL. The structure of the raisings through Ballarat, Bendigo or Popcorn, has been developed by Peter. If for some reason this structure proves difficult to either implement or to continue with after some time, the full benefit of the raising will not flow to VRL. However payment will be made to Peter irrespective of the outcome to VRL. While it might not be in Peter's character to do so, there is the potential for Peter to collect his fees and then resign, leaving the company with all the problems of implementation.

3. Over the past 12 months, the resolution of the corporate governance issues concerning Roc Kirby Theatres Pty Ltd, the Creative Trust and Roadshow Home Video was confrontational and traumatic for all associated with these issues. The non-Executive Directors insisted that these matters be wound up because they created a conflict for the relevant Executive Directors. Also, the non-Executive Directors were upset because the existence of some of these arrangements had not been disclosed to the Board.

Peter's contract has a similar inherent conflict and the problem of non-disclosure.

Peter's compensation is so geared towards fundraising that it has the potential to divert his time and energy from discharging his responsibilities to the wider VRL group as a member of the Executive Committee and Board.

Against the background of the corporate governance issues, it is of real concern that the nature of Peter's contract was not disclosed at the time Popcorn and Bendigo were considered by the Board. How can Peter objectively present the Bendigo or Popcorn proposals to the Board if he is secretly, and enormously incentivised to get approval and raise the funds. This non-disclosure is likely to widen the gulf that presently exists between the Executive Directors and non-Executive Directors.

4. There is a requirement of the Australian Stock Exchange listing rules (Section 10.17) that 'an executive director's salary or director's fees must not include a commission on, or percentage of, operating revenue.'

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172 In March 1998, Orrong claimed payment of a number of performance bonuses totalling $2,022,924, including a 5% performance bonus of $1,203,008 for the US $16 million (or A$24,060,150) third party equity raised from John Hancock Mutual Life Insurance and Ambac as part of Project Ballarat. VRL paid $2 million on account in April 1998, but disputed its liability for the fee on the US$16 million. Mr Kirby told Mr Ziegler that this fee was covered by the agreement made in September 1997 and that the 5.25% equity interest in VRP was also intended to cover any other fee for non/limited recourse finance raised for VRP in connection with Project Ballarat. Mr Ziegler disagreed, telling Mr Kirby that the 1997 agreement was a "one off" and that he had reserved all rights to claim a fee on all non/limited recourse finance raisings for VRP or otherwise. Ms Raffe subsequently deducted the amount of the fee, $1,203,008, from the payment for Orrong's July 1998 invoice of $1,792,117 for a performance bonus for raising non/limited recourse film finance of $35,842,345 net. Mr Ziegler pressed Mr Kirby, Mr Foo and Ms Raffe for payment and he and Mr Kirby continued to debate whether or not a performance bonus was payable for the US$16 million equity raising. Eventually, on 10 September 1998 Mr Ziegler accepted Mr Kirby's proposal that they split the claimed fee down the middle. The reduced fee of $601,504 was paid by VRL on 15 September 1998.

173 In November 1998, Orrong submitted an invoice to VRL for $612,937, which was said to be a 5.25% share of VRP's profit for the financial year ended 30 June 1998. This invoice was approved by Mr Foo and paid on 10 December 1998 to the Remuneration Unit Trust without query. A handwritten note by Ms Raffe on the invoice read: "Per RGK [Mr Kirby] in March 1998, this represents PAZ profit share."

The 1999 Negotiations

174 In late 1998 and early 1999 Mr Conn took over the negotiations on VRL's behalf with Mr Ziegler on behalf of Orrong. Mr Conn gave evidence that he proposed to Mr Ziegler that Orrong receive a further 2.25% equity interest in VRP as its performance bonus for Project Bendigo. The 2.25% equity interest was to be of the same nature and quality as the 5.25% equity interest already held by Orrong. The Board of VRL was informed of this proposal by Mr Conn in February 1999. In the absence of Mr Ziegler, the Board resolved to accept Mr Conn's recommendation to grant Orrong a further 2.25% equity interest in VRP to bring Orrong's equity in VRP to 7.5%. Although the Board's resolution to this effect was contained in both of Mr Leggo's handwritten versions of the minutes, it was omitted from the typed form of the minutes. This was apparently done on the basis of legal advice given by Mr Basser. Nevertheless, despite this rather unusual omission, Mr Conn said that he subsequently met with Mr Ziegler and "outlined in detail ... what had taken place during the Board meeting", including that the Board "had approved the proposed in principle commission/bonus arrangement in respect of the Bendigo transaction."

175 On 26 April 1999, Mr Burke wrote a memorandum to Mr Ziegler, copied to the Kirbys and Mr Foo, in which he reported on a "long and very frustrating meeting" that he and Mr Robert Kirby had held with Mr Conn at Mr Kirby's home concerning the 2.5% performance bonus proposed by Mr Kirby in respect of Project Popcorn limited recourse cinema financing. Mr Burke reported that Mr Conn was adamantly opposed to such a bonus and had said that he would resign from the VRL Board if it were approved. Mr Burke proposed a further discussion with Mr Ziegler and Mr Kirby concerning the amount of the Project Popcorn fee.

176 However, the performance bonus in respect of Project Bendigo seems to have been agreed, because on the same day, 26 April 1999, the VRL Remuneration Committee wrote a memorandum to the Board advising it of the negotiations taking place over the Project Popcorn fee. Part of the memorandum read as follows:

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Proposals for the Sale of VRP

189 In December 1999 Mr Ziegler discussed with representatives of the Deutsche Genossenschaftsbank AG ("the DG Bank") the possibility of a float of VRP in the Neuer Market in Germany. According to Mr Ziegler, the Neuer Market was the high growth section of the Frankfurt Stock Exchange where many film and media companies had listed and the DG Bank was the leading underwriter on the Neuer Market.

190 On 14 January 2000 Mr Burke sent to Mr Berman and a number of senior VRL executives a paper entitled "Re-direction Village Roadshow Pictures", in which he stated that: "Now is the time to aggressively pursue our trade sale or IPO [Initial Public Offering.]" Mr Burke listed a number of options, German IPO, US IPO and private sale, to be explored "urgently." On the same day Mr Burke sent another memorandum to Mr Berman advising that "we have delegated Peter Ziegler as responsible to co-ordinate the sale of equity in V.R.P."

191 In April 2000 Mr Barry Reardon, a non-executive director of VRL, Mr Berman and Mr Ziegler met with representatives of the Telemunchen Group. According to a facsimile from Mr Berman to the Kirbys and Mr Burke dated 17 April 2000, the VRL representatives had valued VRP at US$1 billion and Dr Herbert Kloiber, the Chairman of the Telemunchen Group, had agreed to take a 20-25% minority stake, subject to Telemunchen gaining the German pay and free television rights from Warner Bros. By a letter dated 11 May 2000 Dr Kloiber wrote to Mr Berman offering to purchase either 20% or 25% of VRP which he valued at US$750 million, subject to the same condition about distribution rights. Mr Berman responded with a counter proposal which valued VRP at US$937.5 million. According to Mr Burke, Warner Bros. was not prepared to relinquish the German TV rights for VRP pictures which were very valuable at that time. Telemunchen therefore did not pursue the proposal.

192 Mr John Kirby sent a memorandum to Mr Burke on 19 April 2000 expressing some concerns about the sale of equity in VRP. One concern was that:

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Mr Foo told Mr Wilson that he was not being asked to give a ruling but "more as an independent person" to give both parties "a reality check on our different perspectives."

208 On 18 May 2000 Mr Ziegler sent Mr Wilson a note outlining his position under the consultancy agreement which "PZ&Co [Orrong] entered into ... on 12 May 1993 ... as extended in October/November 1995."

209 On 20 May 2000 Mr Ziegler, Mr Foo and Mr Wilson participated in a telephone conference call. According to Mr Ziegler, Mr Wilson said that an overall fee of US$3 million (being 1% of US$300 million), with a further fee of US$2 million if no further funding was required to complete the envisaged 40 films, or in the event that additional financing above US$500 million was required an additional fee of 1% of any extra financing on the next draw down of the facility, and an additional 2.25% equity interest in VRP, but with no further equity component in the event of the need for further upsizing of the facility, was market based and appropriate in all the circumstances and that it would be considered an arm's length fee in the Salomon Smith Barney world in light of the features of the financing and the limitation on recourse to VRL. Mr Ziegler said that Mr Foo said that he agreed with this view.

210 In respect of the termination bonus calculation, Mr Ziegler said that Mr Wilson stated that both the cash component and the equity component of the Project Bendigo performance bonus should be taken into account, as they were "both of the same character." Mr Wilson said that it was the value of the equity in VRP rather than the income earned from that equity that should enter into the termination bonus calculation. Mr Ziegler said that Mr Foo agreed and gave an example involving AMP shares.

211 According to Mr Ziegler, Mr Wilson also said that another issue was what was meant by "3 preceding financial years" in the termination bonus provision. He suggested that on one view the 5.25% equity interest would not have to be taken into account. Mr Ziegler said that he immediately told Mr Wilson and Mr Foo that the termination bonus provision had been deliberately worded by him to cover the financial years "preceding" the financial year ending 30 June 2001 and that the 5.25% equity interest would have to be taken into account. Mr Ziegler said that Mr Foo said that this issue would have to be resolved later.

212 Following the telephone call, Mr Foo wrote to Mr Ziegler a memorandum dated 23 May 2000 setting out his understanding of what had been agreed. It was headed "Re: Clarification of Changes to Your Contract." On the same day Mr Foo sent Mr Ziegler a document which he described as a "sideletter." That read as follows:

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"Para 1: Given the chequered history of your contractual arrangement I think it best we have a letter that we both sign off on that represents the meeting of the minds that we came to on Saturday May 20 and your subsequent letter (attached) dated May 30. This letter represents a hybrid of that letter and our meeting. I confirm that I do not wish to entertain issues of your contract that are currently not in dispute only those that are, and it is not my intention in any way for this letter to supersede it. Further, I confirm I act with authority to bind the company.

Para 2: You had previously had an albeit conditional compromise agreement with Bill Conn for Bendigo. Our new agreement supersedes this for what we now call Castlemaine. You will be entitled to your 21/4 % of VRP immediately. However, the previously agreed up front US$5m fee is to be replaced. You will now be entitled to a US$3m fee up front and to the extent the current US$500m (ie: US$200m Ballarat/US$300m Part Bendigo) facility is capable of completing the 40 pictures, upon completion you will then become entitled to the additional US$2m. As an either/or, however, to the extent that additional facilities are required to finish the 40 movies, that you will receive 1% for each increase or part thereof per US$100m obtained. To the extent that this represents an additional US$200m, then you would receive the US$2m at that time. However, you would not also be entitled to the extra US$2m upon completion of the 40 movies. This 'either/or' may be best expressed by way of an example. Let's say the current US$500m facility is inadequate. You will then organise for an extra US$100m facility. You would receive US$1m upon the draw down of the facility (now totalling US$600m) and upon completion of the 40 movies a further US$1m. We also agreed that you would be entitled to sell your interest in VRP on a pro rata basis or if you wish a lesser amount, however, in the event that Village wishes to sell 100% of its interests you will not withhold your share capriciously to hinder a bona fide sale by VRL.

Para 3: In the event of the termination bonus being triggered upon termination (refer to letter attached dated June 2 2000 as to agreement on definition of termination), it was agreed that the granting of the VRP profit share percentage should be included in the bonus calculation and not the ongoing annuity that arises from it. The example we used was if we were to have settled your bonus with AMP shares it would be the granting of the shares and the value of those shares at that time that would be the bonus and not the ongoing dividend stream that flowed from it. We both agreed that this would give rise to a valuation issue given the difficulties in valuing the worth of VRP. We both agreed that Brian Wilson will do a valuation based on mutually agreed instructions for both 5.25% and 2.25% and that both parties will be bound by his valuation.

Para 4: In relation to your base retainer, you stated that you had not had an increase for the last four years and that in a Jam Factory meeting several years ago we agreed that this would be increased by A$100,000. Now that the foregoing matters have been essentially agreed, Village Roadshow agrees that with effect for the 1997/1998 year that your salary be increased by A$100,000 and thereafter each year by 10% per annum to June 30 2000. The review for 2000/2001 still needs to take place and be agreed.

...

Para 8: Loan facilities in relation to Bendigo type facilities up to and beyond the US$500-700m level would be at 1% and it was agreed that this would be on the facility increase as opposed to the rolling of the facility balance.

...

Para 10: In relation to the taxes saved component and due to the complexity of calculating and attributing both the amount and responsibility, we have agreed that the existing practice of equating this to 0.5% (1/2 of one percent) of the net profit after tax and abnormals as the basis for calculation both retrospectively and prospectively."

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In his witness statement, Mr Ziegler said that he returned a copy of Mr Burke's memorandum to him with a handwritten note on it saying that he saw no connection between the termination bonus and any fee for Project Popcorn and asking Mr Burke to instruct Mr Wilson to proceed. Mr Burke immediately came to see Mr Ziegler and, according to Mr Ziegler, said that he did not want to consider the termination bonus at that time and that Mr Wilson had been instructed to do nothing further on this matter. Mr Ziegler queried why this had been done but received no response.

220 On 26 September 2000, Mr Burke told Mr Ziegler that VRL had decided to put Project Popcorn on hold. Mr Ziegler sent Mr Burke a memorandum on that day saying that this decision left the way clear for resolution of the termination bonus issue. Mr Burke replied by a memorandum dated 28 September 2000 saying that he was happy to let Mr Wilson "referee on the quantum", but that they first needed to clarify the meaning of "termination", as agreed between them "when the Kloiber consideration was on the table."

221 In September 2000 Orrong submitted an invoice to VRL for $283,000, being 6.375% of VRP's operating profit for the financial year ended 30 June 2000. After discussion between Mr Ziegler and Ms Raffe, VRL paid the Remuneration Unit Trust the sum of $283,000. Mr Ziegler said that this was only a payment on account, whereas Ms Raffe maintained that it was made in full and final settlement of Orrong's claim for the profit share in that year. Mr Ziegler sought 7.5% of the profits because that had become Orrong's entitlement by 30 June 2000. On the other hand, Mr Foo had said that only half of the extra 2.25% should be counted for this year as it was only payable from 31 December 1999 when Project Bendigo was completed. I examine the dispute about whether the $283,000 was paid in full and final settlement below.

222 VRL's Annual Report for the financial year ended 30 June 2000 contained the following statement about VRP:

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1. Our key directors remuneration is appropriate to market forces. It is benchmarked by a number of external consultants and determined by our Remuneration Committee.

2. The Roadshow Unit Trust revenue received by Graham Burke relates to his ownership in this vehicle that goes back to the 70's. Graham Burke as Founder of Roadshow sold his then shares to Village Roadshow Corporation but the deal included that he retain a part equity ownership in television. This, of course, pre-dated the public listing and was fully detailed at that time. In summary, Graham Burke's revenue from the Roadshow Unit Trust relates solely to his equity as a founder of this business in the 70's.

The management fees are a device to pay his equity share of television distribution funds earned out of New Zealand.

3. Peter Ziegler has always been a consultant to the Village Group and worked on the basis of an agreed incentive package to develop and implement non-recourse funding package of a substantial scale for our film production business. At the time of negotiation Village Roadshow Pictures was worth zero. This negotiation included 71/2% of profit and fees on monies raised. Peter Ziegler Pty Ltd put together a package of $1,000m in funding and I say without reservation that no one else in the world would have been able to arrange such attractive financing which is a mixture of off balance sheet debt and equity. If, and I emphasise, if, one of the financial houses would have been able to put this financial package together it would have cost us significantly more. And the real point is that to the best of our knowledge, such a valuable package is not available anywhere else in the world. It is unique and tailored to our prudent risk portfolio.

Again, we have been in film production since the early 70's, and the hard lessons of experience remain with us today. Production is an entity that will in the medium haul, I believe, have a value greater than our existing total equity capitalisation. Last year we had two expressions of interest from third parties to buy a minority share that give credence to this statement. We truly believe, accordingly, that the arrangements with Peter Ziegler Pty Ltd are sound and commercial.

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The Roadshow Distributors Facility

230 The details of this transaction will be examined later when considering Orrong's claim for a $3.724 million fee for arranging the $75 million facility. It is sufficient at this stage to note that in his witness statement Mr Ziegler said that on 19 January 2001 Mr Burke asked him to begin work on establishing a new limited recourse debt facility for Roadshow Distributors Pty Ltd. That company is 50% owned by VRL and 50% owned by a wholly owned subsidiary of Amalgamated Holdings Ltd. At Mr Ziegler's suggestion, CIBC were approached. In late June 2001, the financing was completed.

231 Mr Ziegler said in his witness statement that on 23 April 2001 he met with Mr Kirby and Mr Burke where the issue of the fees for future non/limited recourse finance raisings for the Village Roadshow Group was discussed. They both told Mr Ziegler that his company should forgo all fees on future finance raisings due to the large amount that had already been paid by way of performance bonuses in the past, and the continuing scrutiny of these payments by VRL shareholders and market analysts. Mr Ziegler said that he replied that he was not prepared for his company to waive any fees or performance bonuses for services performed or to be performed. The specific parts of this conversation which were said to refer to the Roadshow Distributors financing will be examined later when dealing with this particular topic. Mr Ziegler said that he asked whether Mr Kirby and Mr Burke wanted him to stop working on his various tasks. They said no, but asked him to reconsider his stance on performance bonuses. They said that he was being unreasonable, that he was one of the highest paid executives in Australia and that VRL was as a result coming under unwelcome scrutiny. Mr Ziegler reiterated that as the major part of his compensation was performance based, the only reason for the high remuneration was his successful performance which had benefited the Village Roadshow Group.

232 Mr Ziegler and Mr Burke had a similar conversation on the following day. Mr Ziegler refused to waive any entitlement to future performance bonuses for VRL finance raisings.

233 On 6 August 2001, Orrong submitted an invoice to VRL for $3.75 million for its performance bonus of 5% of the limited recourse financing of $75 million arranged for Roadshow Distributors Pty Ltd. Mr Foo rejected the claim. Later in that month Mr Ziegler spoke with Mr Burke about payment of the invoice. Again, the details will be examined later when considering this particular topic.

The 2001 Agreement

234 In his managing director's report for the VRL Board meeting to be held on 29 May 2001, Mr Burke stated:

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245 According to Mr Ziegler, the final breakdown occurred at a meeting with Mr Burke on 25 March 2003 at VRL's head office in Bourke Street, Melbourne. Mr Burke told Mr Ziegler that there would be no payment to his company on any account whatsoever because it was not entitled to any payment, including the termination bonus. He said that several VRL directors believed that Mr Ziegler had been negligent in the performance of his assignments and that he should be required to arrange a refund to VRL of all performance bonuses and fees that had been received over the nine year period of the engagement. Mr Burke said to Mr Ziegler "I do not share this view. However, it is something that you should be aware of." He produced what he said were two draft "invoices" that had been prepared by VRL to be sent to Mr Ziegler if he intended to pursue any of the outstanding claims. He showed these invoices to Mr Ziegler for a very brief moment and then took them back without him being able to read them in detail.

246 As previously stated, this proceeding was commenced by Orrong on 23 September 2003.

Summary of Payments to Orrong and Remut

247 My analysis of the relevant invoices and other accounting records, including reference to the list of payments under the 1995 and later Agreements exhibited to Ms Raffe's witness statement, reveals the following situation.

248 In the 1996 financial year all invoices were issued by Peter Ziegler & Co Pty Ltd, as Orrong was then called, and all payments, totalling $1,494,953, were made to Orrong. In the 1997 financial year all invoices were issued by Orrong and all payments, totalling $1,617,692, both by way of monthly retainer instalments ($333,330) and performance bonuses ($1,284,362) were made to Orrong.

249 In the 1998 financial year the monthly retainer instalments, which totalled $433,333, were invoiced by and paid to Orrong. The performance bonuses, which totalled $3,093,064,were invoiced by and paid to either the "Remuneration Unit Trust" or "Remut Pty Ltd as trustee for the Remuneration Unit Trust." Included in the figure for performance bonuses was an amount of $300,000 for the 1997 "Annual Bonus ... in connection with Advice on Tax Issues" and for other tax related film finance raisings. The total amount paid to Orrong or at its direction in the 1998 financial year was therefore $3,526,397.

250 In the 1999 financial year the monthly retainer instalments, which totalled $400,000, were invoiced by and paid to Orrong. The other payments, which totalled $2,176,804, were invoiced by and paid to the "Remuneration Unit Trust." Included in the latter figure was a performance bonus of $350,330 for the 1998 "Annual Bonus ... in connection with Advice on Tax Issues", a performance bonus of $601,504 for the raising of the US$16 million equity in Project Ballarat and performance bonuses for other tax related film finance raisings and a payment of $612,937 for a 5.25% share of VRP's profit in the previous financial year. The total amount paid to Orrong or at its direction in the 1999 financial year was therefore $2,576,804.

251 In the 2000 financial year the monthly retainer instalments, which totalled $399,996, and the retrospective increase in the retainer for the 1998, 1999 and 2000 financial years, totalling $455,000, were invoiced by and paid to Orrong. The other payments, which totalled $1,694,693, were invoiced by and paid to the "Remuneration Unit Trust." Included in the latter figure was a performance bonus of $135,850 for the 1999 "Annual Bonus ... in connection with Advice on Tax Issues" and performance bonuses for other tax related film finance raising and a payment of $1,137,038 for a 5.25% share of VRP's profit in the previous financial year. The total amount paid to Orrong or at its direction in the 2000 financial year was therefore $2,549,689.

252 In the 2001 financial year only three monthly retainer instalments, totalling $175,000 not counting reimbursement of expenses, were invoiced by and paid to Orrong. The remaining monthly retainer instalments of $466,667, not counting reimbursement of expenses, and other payments of $11,246,053, were invoiced by and paid to either the "Remuneration Unit Trust" or "Remut Pty Ltd as trustee for the Remuneration Unit Trust." Included in the other payments figure was a performance bonus of $377,585 for the 2000 "Annual Bonus ... in connection with advice provided to the Company, its Subsidiaries, Affiliates & Related Entities", a performance bonus of $5,055,626.99 being 1% of Project Bendigo's US$300 million, a performance bonus of $5,215,247.49 being 1% of Project Castlemaine's US$250 million and performance bonuses for other tax related film finance raising and a payment of $283,000 for a 6.375% share of VRP's profit in the previous financial year. The total amount paid to Orrong or at its direction in the 2001 financial year was therefore $11,887,720.

253 In the 2002 financial year only two monthly retainer instalments, totalling $166,667, apart from reimbursement of expenses, were invoiced by and paid to Orrong. The remaining monthly retainer instalments of $808,333, not counting reimbursement of expenses, and a performance bonus of $55,000 for a tax related film finance raising were paid to the "Remuneration Unit Trust" although actually billed by "Remut Pty Ltd as trustee for the Remuneration Unit Trust." The total amount paid to Orrong or at its direction in the 2002 financial year was therefore $1,030,000.

254 In the 2003 financial year two amounts were invoiced by and paid to "Remut Pty Ltd as trustee for the Remuneration Unit Trust." I have assumed that the first was a payment of the final monthly retainer instalment of $83,333.33, apart from reimbursement of expenses. The second was a payment of $275,000 for "accrued but untaken leave entitlement." The total amount paid to Orrong or at its direction in the 2003 financial year was therefore $358,333.

255 The above information can be summarised in the following table.

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260 Mr Ziegler's evidence was that he conferred with Mr Forsyth QC on 24 June 1993 in relation to his employee share acquisition scheme. Orrong therefore submitted that this diary entry provided a contemporaneous link to the 1993 Employment Agreement which was executed six days later.

261 It was a matter of heated disagreement between the parties whether this Agreement was prepared in 1993, as Mr Ziegler maintained, or much later and backdated, as VRL contended.

262 The existence of the 1993 Employment Agreement only came to light shortly before the hearing commenced, following an ASIC search of Orrong by VRL's solicitors which revealed that two securities registrable as a charge had been created on 3 November 2004 and registered on 17 December 2004. The first was an assignment by Orrong to Mr Ziegler of its interest in this proceeding. The second was a fixed and floating charge granted by Orrong to Mr Ziegler over the proceeds of this litigation. Both documents provided that the security was granted to better secure obligations owing by Orrong to Mr Ziegler under the 1993 Employment Agreement.

263 Despite requests by VRL's solicitors, Orrong refused to discover either the original or a copy of the 1993 Employment Agreement. On 16 March 2005, I ruled that the 1993 Employment Agreement was discoverable. It was relevant to issues such as the identity of the party with whom VRL had contracted and the defences raised under the Legal Practice Act 1996.

264 On the following day Orrong produced an unsigned copy of the 1993 Employment Agreement. When pressed as to what had happened to the original, Mr Ziegler swore in an affidavit that the original of the 1993 Employment Agreement had been taken by the ATO on 6 August 2002, when it had seized documents from VRL and Mr Ziegler, and never returned. VRL asserted that this evidence was false. It pointed out that subsequently, when asked in cross-examination how he knew this Mr Ziegler's answer was: "Because I can't find it now." Further, VRL submitted that a review by an independent firm of solicitors, Coadys, of the contemporaneous record of the documents removed by the ATO revealed that the 1993 Employment Agreement was not referred to in that list.

265 Mr Ziegler's evidence about what had happened to the original of the 1993 Employment Agreement gained some support from the evidence given by Mr Richard Mereine, a partner of Clayton Utz, the solicitors acting for Mr Ziegler at the time of the ATO access visit. Mr Mereine, who was called by VRL, said that the ATO seized 54 boxes of documents and other material from Mr Ziegler's home. The boxes, which contained birthday cards and children's toys as well as documents, were in a "total state of disarray." According to Mr Mereine, it looked as though drawers had been pulled out of desks and the contents just "thrown into boxes." He said that the ATO did not provide any list or inventory of the documents it had seized or of the documents delivered to the offices of Clayton Utz pursuant to the protocol put in place following the seizure. Mr Mereine also said that the ATO did not provide any list or inventory of the documents it had photocopied or scanned and he was not aware of which documents had been photocopied or scanned. The only lists which were prepared were of the documents in respect of which legal professional privilege had been claimed. Mr Mereine further said that the documents returned by the ATO to Clayton Utz were in the same state of disarray and were not listed. Clayton Utz returned them to Mr Ziegler in the same state of disarray.

266 Mr Mereine's evidence, which I accept, also undermined VRL's reliance on the review by Coadys. If the only lists prepared were of the documents in respect of which legal professional privilege had been claimed, then it was not correct for VRL to submit that there was "a contemporaneous record of the documents removed by the ATO." Further, as Orrong submitted, it is apparent from exhibit 32 that Coadys did not review all of the documents seized by the ATO and there was no evidence that the contents of Mr Ziegler's personal computer were included in the electronic media such as floppy disks, zip drives and compact disks searched by Coadys.

267 I therefore reject VRL's submission that Mr Ziegler's explanation for his inability to produce the signed original of the 1993 Employment Agreement was false.

268 On 18 April 2005, after further disputation, I ordered that VRL be given access to the electronic copy of the 1993 Employment Agreement, together with any drafts or copies of it. VRL engaged Mr Richard Williams, an Associate Director of Pricewaterhouse Coopers' Computer Investigations and Forensic Services group to examine the contents of Mr Ziegler's personal computer and its electronic files. Mr Williams produced a number of reports, the final one of which was dated 31 May 2005.

269 Mr Williams' conclusion was as follows:

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270 One of the reasons Mr Williams was not able to be more definitive was that the internal clock on Mr Ziegler's computer was faulty. Indeed, Mr Williams said in evidence that in his experience he had not seen a clock so incorrect as the one on Mr Ziegler's computer. Therefore, it was not possible to identify the date of documents by reference to time data.

271 However, Mr Williams was able to ascertain significant information about the creation of the document named "Employ.doc" from its position in the file directory table and the position of the file in "clusters" of information on the hard drive of the computer. Mr Williams said that, with certain exceptions where files were randomly written to a pre-existing earlier gap on the hard drive, files were allocated to the file directory and to clusters on the hard drive in the order they were created. The files in the directory on Mr Ziegler's computer were generally in chronological order, according to their "hard coded date" or the date written in the text of the document itself, with occasional seemingly random exceptions. This was not the case, however, with the 1993 Employment Agreement and other related documents in the nature of employment agreements. Employ.doc appeared late in the file directory (at position 434 of 566) together with other employment agreements with hard coded dates in 1993 or 2002. The surrounding documents were all dated in late 2003. The employment agreements sat exactly where documents created in late 2003 would be expected to sit within the broad overall pattern of dates from 1991 to 2004. On the other hand, without exception, all documents dated 1993 which were neither privileged nor in the nature of employment agreements appeared in the position in the file directory and hard drive clusters that would be expected of a document created in 1993, having regard to the general trend in the hard coded dates of the documents on the computer.

272 Mr Williams agreed in cross-examination that the operating system on Mr Ziegler's computer, and in particular the FAT 16 file system, only recorded one time and date value, being the time and date that the file was last written to, which could be the date that the file was last modified and not the date that it was created. The FAT 16 file system on Mr Ziegler's computer did not distinguish between those two dates. Mr Williams therefore conceded that he had incorrectly stated in his report that:

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273 The suggestion that a later modification of Employ.doc may have accidentally caused it to be moved in the directory was one of the possibilities put to Mr Williams in cross-examination. Mr Ziegler had given evidence that in recent years he had cut and pasted from Employ.doc "at least a couple of times" while creating other documents. Mr Williams agreed that the process of cutting and pasting could lead to modification of the file. He also agreed that it would be possible for Employ.doc to be "modified" many years after it had been created in a variety of ways which did not result in any visible change to the text of the document. Although his evidence on the point was rather confusing, it seemed to me that Mr Williams accepted that modifying a document could lead to it changing its position in the directory.

274 VRL submitted that Orrong's hypothesis was unlikely because the cutting and pasting would probably have been done in 2002 or earlier and not 2003 because there were no employment agreements dated 2003. Further, all of the employment agreements, Mr Ziegler's 1993 and 2002 contracts and Mrs Ziegler's 1993 and 2002 contracts, were located together in file positions surrounded by documents with hard coded dates in late 2003. VRL submitted that it was implausible that all of these agreements would have been used as a source template for drafting in 2003. One would have been sufficient.

275 Another suggestion put to Mr Williams in cross-examination was that the files happened to land in that space as a quirk of replacing the hard drive and copying over the files. Mr Williams gave evidence that the hard drive he found on Mr Ziegler's computer had been manufactured after 1995, so it could not have been the original. Mr Ziegler had given evidence that the hard drive may have been replaced three or four times. Mr Williams agreed that there were many ways of copying a disk, that he did not know the way or ways Mr Ziegler's files were copied from one hard drive to another, that there was a certain unpredictability in the way in which files were copied and that it was possible that the resulting position on the new hard drive of Employ.doc could be just a quirk of the copying process from one hard drive to another.

276 VRL pointed out that Mr Williams had also said that generally the copying was done in a structured manner, reproducing the data in the way it appeared on the disk, copying it cluster for cluster. It therefore submitted that it was implausible that a copying quirk could explain the order of the documents on Mr Ziegler's computer.

277 A third suggestion put to Mr Williams in cross-examination was that the computer allocated a position in an available space in the hard drive clusters away from the other 1993 files on a random basis. Mr Williams agreed that where a file was deleted from the hard drive, the operating system not only freed the directory table entry previously allocated to that file, it also freed up all of the clusters on the hard drive disk which contained parts of that file, that where an existing file was modified and it was written to the disk recently freed up clusters on the hard drive were available to hold the newly saved file and that this operated in a manner analogous to using the directory slot in the directory table. He also said that there was "no rhyme or reason" why the computer would sometimes fill in spaces and sometimes not.

278 VRL submitted that Mr Williams had given evidence that while files could be randomly slotted into earlier gaps on a hard drive, the computer would not skip over empty space to randomly occupy a much later position. I agree that Mr Williams gave this evidence. However, I do not agree with the conclusion which VRL sought to draw from it, which was that this hypothesis could not explain the presence of the 1993 and 2002 employment agreements existing among files dated 2003 and that it would only explain their position if they were among files dated prior to 1993. This conclusion is only correct if the hypothesis about later modification and replacement of the hard drive are completely ignored. Otherwise, one or both of those suggestions could give credence to the random misallocation into available space suggestion.

279 I agree with VRL's submission that notwithstanding the concessions Mr Williams made in cross-examination about possibilities, the cross-examiner never challenged his conclusion, nor asked Mr Williams whether, in the light of the possibilities which he conceded, he had changed or in any way varied his opinion. Mr Williams was clearly both honest and expert in giving his opinion evidence. Orrong accepted in its final submissions that his evidence was "generally presented in a balanced and measured fashion." All in all, Mr Williams was an impressive witness. Nevertheless, I am not satisfied to the appropriate standard of proof that Employ.doc was not created in 1993 and that Mr Ziegler was accordingly giving false evidence when he said that this was when he prepared the 1993 Employment Agreement. Mr Williams failed to persuade me that one or more of the three suggested explanations for the location of Employ.doc was not more likely than not to be correct.

280 I am strengthened in this conclusion by the lack of any apparent motive for Mr Ziegler to belatedly prepare an employment agreement between Orrong and himself and to back date it. In its final written submissions VRL suggested that Employ.doc may have been created "in an attempt to bolster Orrong's case against VRL or to bolster Orrong's and Ziegler's case in relation to disputes with the ATO."

281 Orrong described this contention as "fanciful." As Orrong pointed out, if the document was created in order to bolster Orrong's case against VRL, why did Orrong not discover it rather than waiting on the off chance that VRL would learn of its existence and demand its production? And why did Orrong so doggedly resist its production? If the document was created for use against the ATO, then as Orrong also pointed out, how could Mr Ziegler explain to the ATO the sudden appearance of a 1993 agreement when the ATO had, as VRL maintained, seized every document in Mr Ziegler's possession in August 2002. Neither reason strikes me as a likely explanation and I am therefore left in the situation that Mr Ziegler had no apparent motive to produce this false document.

282 One final matter must be noted. As VRL pointed out, whenever it was prepared, it was significant that the agreement between his company and himself which Mr Ziegler drafted was far more detailed and precisely expressed than the exchange of correspondence between Mr Foo and Mr Ziegler constituting the 1993 Agreement. The same observation applies to the 1995 Agreement.

283 Following this lengthy introduction I now turn to consider the various legal issues arising out of Orrong's claim and VRL's defence and counterclaim.

The Contracting Parties

284 In its defence and counterclaim, VRL pleaded that the 1993 Agreement and what it called "the 1995 Extension Agreement" were made by it with Orrong "and/or" Mr Ziegler. In its reply and defence to counterclaim, Orrong pleaded that these references were "vague and embarrassing" and "ought to be struck out." No such application was ever made and VRL has maintained throughout the proceeding that it is a real issue whether Orrong was the proper plaintiff. Obviously, if the pleaded causes of action belong to Mr Ziegler and not Orrong, then Orrong's claim, as presently framed, must fail.

285 Thus, the first legal issue to be decided is who were the contracting parties to the 1995 Agreement and subsequent Agreements. In its closing submissions VRL submitted that there were a number of possibilities in respect of this issue. The 1995 Agreement could be between VRL and Orrong, or between VRL and Mr Ziegler, or between VRL and both Orrong and Mr Ziegler jointly or between VRL and Orrong with the agreement providing for some benefits payable to Orrong and some payable to Mr Ziegler.

286 VRL's primary position was that both the 1993 Agreement and the 1995 Agreement were between it and Mr Ziegler. It submitted that the 1993 and 1995 correspondence bore the hallmarks characteristic of a relationship between VRL and Mr Ziegler personally, rather than VRL and Orrong. VRL pointed to provisions in both agreements such as holiday pay, reimbursement of all out of pocket expenses including travelling costs and entertainment expenses and reimbursement of all motor vehicle running costs as indicative of the personal relationship. It also pointed to the requirements in the 1993 Agreement for provision of "a personal computer" and for payment of "annual professional subscriptions and attendance at conferences and educational courses" as appropriate only for Mr Ziegler. Even the retainer to "my consultancy company" was in the form of a package to be taken in the case of the 1993 Agreement "by cash, 'Menzies' arrangement, motor vehicle, superannuation etc" and in the case of the 1995 Agreement "by cash, employee share scheme arrangement, motor vehicle, superannuation, etc." VRL submitted that these were personal matters. The "Menzies" arrangement was a "personalised share plan", according to Mr Ziegler.

287 VRL also emphasised the personal language used by Mr Ziegler in that correspondence. In the letter of 12 May 1993 Mr Ziegler said that he confirmed "my acceptance of the proposed arrangements" (emphasis added). In the letter of 2 October 1995 he used language such as "the continuation of my consultancy arrangements with VRL post-June 30, 1996", "all future allocations of VRL share options to PAZ to be determined by applying PAZ's existing VRL option holding", "these options to be issued to PAZ", "for this purpose PAZ has a proportionate interest" and "PAZ to receive a termination bonus" (emphasis added). In the letter of 27 November 1995 he again referred to "the continuation of my consultancy arrangements with VRL" and talked about "PAZ's contract termination bonus", "PAZ to be provided with $5 million death and $5 million disability insurance", the profit arising from any "notional" allocation of options to be "paid to me on the relevant option exercise dates" and confirmed "my present entitlement to 4% of the net profit of the Village Roadshow Creative Trust" (emphasis added). VRL also relied on such statements as "I regard this move as a major career opportunity to join an exciting organisation ..." in his letter of 12 May 1993 and "I would like to say how pleased I am with my offer of appointment as an Alternate Director of VRL. This appointment should enable me to better represent the VRL Group in seeking to achieve its objectives. At the same time, it demonstrates career progression from a personal perspective - an attribute to which I accord high priority" in his letter of 2 October 1995 and "I am pleased to be going forward on the basis of being truly, to quote your words 'one of us.' This gives me both personal and financial comfort for my future" in his letter of 27 November 1995.

288 VRL also relied on the language used by Mr Ziegler when giving evidence. For example, it was said that during cross-examination Mr Ziegler used the phrase "my contract" on 18 occasions and "my consultancy" on three occasions. In evidence in chief, when referring to the September 1997 negotiations with Mr Kirby, Mr Ziegler stated that he said to Mr Kirby that the 5% performance bonus was "definitely covered by my agreement" (emphasis added), and that in response to a challenge by Mr Kirby about non-disclosure Mr Ziegler drew the distinction between the "arm's length fees to third parties" and "my performance bonuses" (emphasis added).

289 Subsequent correspondence between the parties was also relied on by VRL in support of its contention that the 1993 and 1995 Agreements were between VRL and Mr Ziegler. It drew attention to three memoranda written by Mr Ziegler in the course of the March 1998 negotiations. The first two, dated 1 March 1998 and 3 March 1998 were headed "Amendment to PAZ Remuneration Arrangements." The proposed remuneration arrangement included "purchase of motor vehicle of PAZ choice", and made reference to "other benefits contained in PAZ's consultancy agreement." The 4 March 1998 memorandum was entitled "Summary of Existing PAZ Remuneration Arrangements." None of the documents made any reference to Orrong.

290 VRL also emphasised that when it came to the 2000 Agreement the language employed again referred to Mr Ziegler in his personal capacity. For instance, the heading to the letter dated 21 June 2000 from Mr Foo to Mr Ziegler referred to "Your Contract"; in paragraph 1 of the letter Mr Foo said "given the chequered history of your contractual arrangement" and subsequently used the phrase "your contract"; in paragraph 2 of the letter Mr Foo said "you will be entitled to your 2.25% of VRP immediately" and used the phrase "you will be entitled" later in the same paragraph; and in paragraph 4 of the letter Mr Foo used the phrases "your base retainer" and "your salary." VRL pointed out that Peter Ziegler & Co Pty Ltd, ("PZ&Co"), as Orrong was then known, was referred to in only one of the ten paragraphs contained in the letter, and that Mr Ziegler signed the agreement in his personal capacity. However, this submission ignores the fact that in Mr Ziegler's letter of 30 May 2000, the consultancy agreement is constantly referred to as one between "VRL" and "PZ & Co" (at least 15 times) with at least another 18 references to "PZ & Co."

291 Finally, VRL submitted that two other agreements executed by Mr Ziegler contradicted his assertion that Orrong was the contracting party with VRL in the 1993 and 1995 Agreements. The first, which was prepared by Mr Ziegler, was an "Employment Agreement" between VRC as "the Company", Mr Ziegler as "the Consultant" and VRL as "the Principal" dated 7 April 1994, but said to have effect from 19 November 1993 ("the VRC Employment Agreement"). Recital B stated that VRC "wished to secure the services" of Mr Ziegler as an employee for VRC for the purposes of its business. By the agreement VRC undertook to employ Mr Ziegler as an executive of VRC "for the remainder of the period of his current consultancy agreement with" VRL and thereafter until such consultancy was "determined", Mr Ziegler accepted such employment and VRL consented to the arrangement. The purpose of this agreement may be gleaned from the statement recorded in Recital D that "as a condition" of the agreement Mr Ziegler had at or prior to the date of effect of the agreement transferred to VRC all his interest in the VRL options issued to him pursuant to the 1993 VRL Executive and Employee's Option Plan and from the method of calculating the amount of Mr Ziegler's remuneration which centred around option exercise prices and which was payable within 30 days of each option exercise date. Mr Ziegler said that he was paid all of this remuneration in cash.

292 The second agreement, which was prepared by VRL's then solicitors, Herbert Geer & Rundle, was executed on an unknown date, but was said to have effect from 6 May 1995. It was between Mr Ziegler as "the Employee", VRC as "the Company" and VRL as "the Present Employer." This agreement ("the VRL Employment Agreement") was said to be made:

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In addition, VRL submitted that this provision suggested that the performance bonuses were also payable to Mr Ziegler and not Orrong, given the reference to "his average performance bonus."

304 I consider that the frequent references to "PAZ" and to personal pronouns are no more than sloppy drafting or careless use of language. Given the obvious reasons behind the introduction of Orrong as the contracting party, it would have been quite illogical then to provide that any performance bonuses or termination bonus would be paid not to Orrong but to Mr Ziegler. It seems to me that in using this language Mr Ziegler fell into an error commonly made by non-lawyers of failing to distinguish between himself and his corporate alter ego. As a lawyer Mr Ziegler should have been more precise. The employee share options were an exception to the rule that the benefits were to be received by Orrong, no doubt because the eligibility for the same was said to arise "as if an employee of VRL."

305 VRL also drew attention to the manner in which it was invoiced for performance bonuses. It referred, by way of example, to the various ways in which the "taxes saved" component of the performance bonus was billed using Mr Ziegler's name:

(a) the invoices for the financial years ending 30 June 1994 and 30 June 1995 were issued by "Peter Ziegler (Peter Ziegler & Co Pty Ltd)";

(b) the invoices for the financial years ending 30 June 1997, 30 June 1998, 30 June 1999 and 30 June 2000 were issued by "Remuneration Unit Trust (Peter A Ziegler)"; and

(c) the invoices for the annual bonus for the financial years ending 30 June 2001 and 30 June 2002 were issued by "Remut Pty Ltd as Trustee for the Remuneration Unit Trust (Peter A Ziegler)."

306 However, I do not consider that the fee billing and payment arrangements really assists resolution of this question. The inclusion of Mr Ziegler's name on the invoices was, in my opinion, no more than a form of identification for VRL's internal purposes. Further, as the above analysis of the relevant invoices and other accounting records under the 1995 and later Agreements indicates, prior to 30 June 1997 all invoices were issued by, and all payments were made to, Peter Ziegler & Co Pty Ltd, as Orrong was then known. (With two possible exceptions, this was also the situation under the 1993 Agreement. The first possible exception was the payment of the February 1995 invoice from "Peter Ziegler (Peter Ziegler & Co Pty Ltd)" for $378,440, for three performance bonuses including the annual bonus for "taxes saved" in the 1994 financial year, which in accordance with the request on the invoice was possibly made to Pierce Bay Pty Ltd, which was another of Mr Ziegler's companies and which was the predecessor of Remut as the recipient of the personalised employee share plan subscriptions. The second possible exception was the payment of the August 1995 invoice from "Peter Ziegler (Peter Ziegler & Co Pty Ltd)" for $253,750, for five performance bonuses, which in accordance with the request on the invoice was to be made to Mr Ziegler personally. However, VRL's records would suggest that it was in fact paid to Orrong.) It was not until the 1998 financial year that any payments were made to the "Remuneration Unit Trust" or to "Remut Pty Ltd as trustee for the Remuneration Unit Trust."

307 It seems to me, therefore, that insofar as one can gain any relevant assistance from this history, it shows that initially the parties treated the monthly retainers and performance bonuses as payable to Orrong, thus indicating that it was the party entitled to receive them under the 1995 Agreement, and that subsequently although these amounts were all payable to Orrong, at the request of Mr Ziegler, acting on behalf of Orrong, they were paid by VRL and other companies in the Village Roadshow Group to the Remuneration Unit Trust or Remut Pty Ltd as trustee for that Trust.

308 Therefore, in my opinion, the performance bonuses and any termination bonus were all payable to Orrong and not Mr Ziegler.

The Termination Bonus

309 It is clear that the construction of the termination bonus term of the 1995 Agreement is one of the most important issues in this dispute. Not surprisingly the provision received considerable attention. Orrong's position was that the 1995 Agreement terminated on 30 June 2001, because it came to an end or expired by the effluxion of time on that date. VRL disputed that the term applied in this circumstance. It submitted that the termination bonus was only payable when the contract was terminated early "for any reason" including death but excluding gross misconduct.

310 Before dealing with the question of construction of the written term it is necessary to consider whether there was any oral agreement or discussion concerning the termination bonus being payable on the expiration of the 1995 Agreement. In his witness statement Mr Ziegler said that he had specifically discussed with Mr Kirby and Mr Burke in the 26 September 1995 conversation that he required a termination bonus payable on the expiration of the term of the contract. He said that he introduced the requirement as the price to be paid by VRL for him agreeing to a five year term rather than his preferred three year term. Mr Ziegler said that Mr Kirby and Mr Burke agreed with this requirement.

311 This evidence was disputed by both Mr Kirby and Mr Burke. They denied that there had been any discussion about the termination bonus being payable at the end of the five year term. They said that the termination bonus was raised by Mr Ziegler in the context of him expressing concern that if he committed himself to VRL, one of them might get shot or the company be taken over and he would find himself out of a job before the end of the agreed five year term. Both Mr Kirby and Mr Burke stated that it was their understanding and intention that the termination bonus would only be payable if Mr Ziegler died or VRL terminated the agreement before the expiration of its term. However, Mr Kirby conceded that he said that he wanted to ensure that Mr Ziegler would be there for the "long haul".

312 The evidence of Mr Kirby and Mr Burke was that the object of the termination bonus provision was to protect Mr Ziegler in the unlikely event that he was sacked or fired during the course of the agreement. Mr Kirby's evidence was that Mr Ziegler repeatedly emphasised that the clause was designed to give Mr Ziegler "protection for me and my family" in the event of an "early severance." Mr Kirby and Mr Burke both said that Mr Ziegler described the termination bonus provision as a "standard" clause. Further, they both said that they would not have agreed to the termination bonus provision had Mr Ziegler suggested at the time that it was payable upon expiry. Mr Kirby said "at no stage during the meeting did Ziegler say that the termination bonus was payable when the agreement expired naturally, and I did not believe it had such an effect; nor did I intend it to do so." Mr Burke expressed a view that "it would not have made commercial sense to pay him a bonus just on the expiry of his agreement, and I would not have agreed to it."

313 VRL pointed out that if Mr Ziegler had said the words alleged and received the assent of Mr Kirby and Mr Burke, one would have certainly expected, given Mr Ziegler's history of recording the details of conversations, to have seen this clearly spelt out in his letter of 2 October 1995. But it was not. Instead, there was the potentially ambiguous reference to payment of the bonus "upon the termination of this contract".

314 It is difficult to think of a more critical conversation from the plaintiff's perspective, because if Mr Ziegler was correct in saying that Mr Kirby and Mr Burke had specifically agreed to payment of the termination bonus on the expiration of the five year period then the construction question disappears and the termination bonus is clearly payable. Mr Ziegler agreed that it was a "critical meeting". However, it was not until the first version of Mr Ziegler's witness statement was served on 11 March 2005 that there was any reference made in any document to this alleged part of the conversation.

315 VRL emphasised the absence of any such reference in the pleadings in this proceeding. The 1995 Agreement was pleaded in paragraph 3 of the original statement of claim. The particulars given were that the 1995 Agreement was partly in writing and partly oral. The letters dated 2 October and 27 November 1995 were referred to as was a conversation between Mr Ziegler and Mr Kirby and Mr Burke on 26 September 1995, the material substance of which "was to the same effect as the letter of 2 October 1995", and conversations between Mr Ziegler and Mr Kirby on or about 23 or 24 November 1995 and 27 November 1995, the material substance of which "was to the same effect as the letter of 27 November 1995."

316 When asked for the usual further and better particulars of these conversations, Orrong responded on 11 November 2003 by simply repeating the particulars already given.

317 VRL served its defence and counterclaim on 15 December 2003. Paragraph 4(1)(c) of the defence pleaded that it was a term of the 1995 Agreement that the termination bonus would be paid "in the event of early termination of the agreement prior to the expiry of its term." The particulars given were the letters of 2 October 1995 and 27 and 30 November 1995.

318 Paragraph 42 of VRL's counterclaim pleaded that there was a common intention that the termination bonus "would only be paid where the agreement was terminated before the expiration of its term and that it would not be payable" in circumstances where the agreement came to an end by reason of the effluxion of time. The particulars given referred to the conversations between Mr Ziegler, Mr Kirby and Mr Burke in about October 1995 and to "the absence of any suggestion" by Mr Ziegler at or before the time of entering into the 1995 Agreement that the termination bonus was or might be payable upon the expiration of the agreement by the effluxion of time. Paragraph 45 of the counterclaim pleaded representations by Orrong and Mr Ziegler about the termination bonus to the above effect and paragraph 52 pleaded that those representations constituted conduct that was misleading and deceptive.

319 Orrong, in its reply and defence to counterclaim dated 23 December 2003, and Mr Ziegler, in his defence to counterclaim dated 11 February 2004, simply denied the above allegations. That is, there was no positive response by Orrong or Mr Ziegler to the allegation that prior to the making of the 1995 Agreement there had been no "suggestion" that the termination bonus would or might be payable upon the expiration of the agreement by the effluxion of time.

320 I cannot accept that the pleaders would not have expressly referred to this alleged discussion about the termination bonus rather than simply denying VRL's allegations if such information had been contained in their instructions. While Mr Ziegler several times said that he was "guided by my lawyers as to what went into those documents", it seemed to me that he carefully refrained from saying that he had told his lawyers about the alleged conversation at the time the pleadings were drawn. This suggests to me that Mr Ziegler had yet to give any instructions about his agreement with Mr Kirby and Mr Burke concerning payment of the termination bonus on the expiration of the agreement by the effluxion of time.

321 Despite various amendments to the pleadings throughout 2004 and despite VRL giving further and better particulars of its defence and counterclaim on 23 April 2004 which made it quite clear that VRL was alleging that Mr Ziegler did not state or suggest to Mr Kirby and Mr Burke prior to the making of the 1995 Agreement that the termination bonus was payable upon the expiration of the agreement by the effluxion of time, neither Orrong nor Mr Ziegler amended their defences to VRL's counterclaim to specifically plead that such a statement was made at the time by Mr Ziegler.

322 I have set out the relevant parts of the pleadings in some detail because I consider that the omission of any mention of the alleged discussion to be quite significant. I agree with Orrong's submission that it should be remembered that the omission was only from pleadings and not some earlier statement by Mr Ziegler. Nevertheless, I do find that it is troubling that the first reference to this issue did not occur until March 2005.

323 In cross-examination Mr Ziegler was challenged to point to any contemporaneous document where he had referred to his alleged discussion. He identified two documents. The first was his memorandum to Mr Kirby dated 4 March 1998 headed "Summary of Existing PAZ Remuneration Arrangements." In my opinion, there was nothing in this document which provided any support for Mr Ziegler's evidence. Indeed, the document actually drew a distinction between "Expiry Date" and "Termination Bonus."

324 The second document identified by Mr Ziegler was his memorandum to Mr Wilson dated 5 September 2000. The particular passage relied on by Mr Ziegler was as follows:

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328 It was common ground between the parties that in construing the termination bonus, regard could be had to the relevant surrounding circumstances.[7]

329 The construction issue is whether "termination for any reason" includes termination by expiry or effluxion of time, as maintained by Orrong. VRL submitted that Orrong's construction was wrong. First, it was submitted that the letter did not say that the bonus was payable "upon termination"; it said "upon termination for any reason." Thus a "reason" is required. It was not sufficient that the 1995 Agreement merely ran its course. VRL submitted that effluxion of time was not "a reason."

330 Secondly, VRL submitted that the expression "the termination of this contract for any reason (including death) and other than, of course, gross misconduct resulting in termination" referred to two "reasons." One "reason" ("death") was included and another "reason" ("gross misconduct resulting in termination") was excluded. Both were "events." The effluxion of time was not an event. Furthermore, VRL submitted, both of the reasons referred to were reasons that relevantly occurred before the expiration of the term of the agreement. The termination bonus would not be payable if Mr Ziegler died after the expiration of the agreement. Equally termination for gross misconduct involved termination during the term of the agreement. Therefore, the "termination" with which the clause was concerned was termination before the due date for expiry.

331 One of the reasons why I consider that the termination bonus was not payable on the expiration of the agreement by the effluxion of time is that the agreement refers to the five year contractual period "ending June 30, 2001" as well as referring to "termination for any reason." In accordance with the principle that where the parties have used different words in the one agreement it is presumed that they intended to refer to different things, the difference in terminology suggests to me that the draftsman, Mr Ziegler, saw a distinction between a contract ending or expiring at the end of an agreed period and "termination." It is interesting to note, however, that in his memorandum to the proposed arbitrator, Mr Wilson, dated 18 May 2000, explaining the disagreements between Orrong and VRL, Mr Ziegler referred to the termination bonus:

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346 Thus, VRL submitted that the word 'termination' was used in the termination provision to mean "to bring to an end" not "to come to an end automatically or by the effluxion of time." VRL pointed out that the word "termination" was defined in the Macquarie Dictionary to mean "the act of terminating" (emphasis added). A similar definition was to be found in the Oxford Dictionary, which defined termination first as "the action of determining ..." and secondly as "the action of ending ..." VRL submitted that inherent within each of these definitions was the concept of an "act", or some positive action being taken, or an active step which leads to termination.

347 On the other hand, Orrong submitted that there was no doubt that the words "terminate" or "termination" could apply to the conclusion of a contract by the expiry of the period for which it was provided that it would operate. It submitted that in this context the phrase "termination by effluxion of time" was often used. Such a termination was an example of termination by (prior) agreement.[22] For example, a lease which had reached the end of its period was one which "terminates by effluxion of time." [23]

348 In support of its argument, VRL pointed to what it called the commercially absurd results of Orrong's desired construction. For example, it would mean that the termination bonus, constituted by a second payment of the last three years' bonuses, would be paid even if the "expired" or "terminated" agreement was replaced by one or more agreements under which Mr Ziegler was engaged for a further term or for successive terms for his whole working life. VRL emphasised that in fact Mr Ziegler did keep working for VRL subsequent to 30 June 2001, all the while demanding payment of Orrong's "termination" bonus.

349 Another absurd result put forward by VRL was that if the termination bonus operated as Orrong maintained and it was payable upon expiry of the 1995 Agreement then Orrong would be entitled to receive any performance bonuses falling within the preceding three years twice. Thus, just in respect of Project Ballarat alone, Orrong would have been entitled to receive US$10 million as a performance bonus (5% of US$200 million finance raised) and another US$10 million as part of the termination bonus. However, it must be remembered that if there were no performance bonuses paid in the three preceding financial years then the termination bonus would also be nil.

350 VRL also submitted that, by way of contrast, it was commercially sensible for a termination bonus to be payable if VRL terminated the agreement early, because VRL might well have had a liability in damages. In that case, the termination bonus could be regarded as a form of liquidated damages. Equally, it was commercially sensible for a termination bonus to be payable if the agreement was terminated as a result of Mr Ziegler's death. Nevertheless, in both situations, there was still an element of risk in the calculation of the termination bonus. It could be nil or it could be quite substantial depending on how many performance bonuses had been paid in the three preceding financial years.

351 In all the circumstances, I have concluded that the better view is that the meaning of the termination bonus clause is that it is payable if the Agreement is prematurely brought to an end by some positive act on the part of VRL or by some other event such as the death of Mr Ziegler. The result is, therefore, that in my opinion no termination bonus was payable on the expiration of the 1995 Agreement by the effluxion of time and Orrong's claim for payment of $76.955 million or any other sum accordingly fails.

352 However, in case I am wrong in that conclusion it is appropriate that I continue to deal with all of the issues relating to the termination bonus, in particular the components to be included in its calculation and its amount. Thus, the next issue to address is the period over which the termination bonus is to be calculated.

The Meaning of "Three Preceding Financial Years"

353 Orrong submitted that because termination of the 1995 Agreement by effluxion of time occurred at the last moment on the last day of the five year term, namely 30 June 2001, the expression "three preceding financial years" meant those ending 30 June 1998, 30 June 1999 and 30 June 2000. VRL, on the other hand, contended that the three relevant financial years were those ending on 30 June 1999, 30 June 2000 and 30 June 2001. This is potentially an important issue because if Orrong is correct, then the value of Orrong's 5.25% interest in VRP (or its alternative claim of US$10 million) and other performance bonuses paid in the 1997-1998 financial year would be included in the calculation of the termination bonus and any performance bonuses, including the Roadshow Distribution fee of $3.724 million, payable in the 2000-2001 financial year would be excluded.

354 Mr Ziegler said that he "deliberately worded" his memorandum of 2 October 1995 to exclude performance bonuses earned during the year ending 30 June 2001. VRL submitted that this was not a credible assertion. It submitted that it was plain that Mr Ziegler had subsequently contrived this argument because he wanted his 5.25% interest in VRP agreed during the year ending 30 June 1998 (or the alternative claim of US$10 million) to be included in the calculation of the termination bonus.

355 In his witness statement, Mr Ziegler said that he "distinctly specified" the three preceding years point in the 26 September 1995 conversation:

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358 Mr Wilson did not recall that Mr Ziegler said this, nor any discussion of an assumption that termination would take place on 30 June 2001 or at any other particular date. Mr Wilson was not cross-examined about his evidence in this respect. Further, Mr Ziegler's later memorandum to Mr Wilson dated 5 September 2000, which purported to summarise the areas in dispute over the termination bonus clause, made no reference to Mr Ziegler saying this. Mr Foo did not have a recollection of the meeting, except to say that the outcome was recorded in his memorandum dated 23 May 2000**,** which did not include any reference to Mr Ziegler so telling Mr Foo. Mr Foo also was not cross examined about this point.

359 Therefore, there has to be real doubt, in my opinion, about Mr Ziegler's evidence on this point.

360 Further, the supposed rationale for excluding the year ending 30 June 2001 does not bear close scrutiny. Assuming the contract expired at midnight on 30 June 2001 and a termination bonus was then payable, Mr Ziegler would have had bonuses for the last full year to include in any such calculation. It is not credible that, in October 1995, Mr Ziegler deliberately excluded the bonuses he expected to earn during the last full year of his contract from his termination bonus.

361 Apart from the evidence referred to above, Mr Ziegler did not suggest that he reached agreement with Mr Kirby and Mr Burke in October 1995 that the "three preceding financial years" were to be those ending 30 June 1998, 1999 and 2000 in the event that the contract went its full term. The question therefore is what meaning would be given to that expression by an objective reading of the termination bonus provision.

362 Orrong submitted that its contention was supported by the decision of Warrington J in English v Cliff[24]. In that case a settlement required the trustees to hold property on trust for 21 years and at the expiry of that period to sell the trust property and hold the proceeds on different trusts. The question arose as to whether the trust was void for perpetuity on the ground that the interest would not vest for more than 21 years. Warrington J held that the trust was valid. He said:

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369 This passage was quoted with approval by Barwick CJ in Associated Beauty Aids[34]. Applying this principle to the facts of this proceeding, it seems to me that "the purpose for which the computation is to be made" was to have a termination bonus calculated on the basis of the most recent performance bonuses, which in the normal course could be expected to grow from year to year. I regard it as quite implausible that Mr Ziegler would have deliberately chosen to have his company's termination bonus calculated on the basis of the performance bonuses earned during years 2, 3 and 4 of the five year term. The justification given by Mr Ziegler for this alleged decision was that he did not want to have any dispute about the quantum of the performance bonuses to be used in the calculation of the termination bonus and that if he chose years 2, 3 and 4 then they would all be known. This does not ring true to me. I see no reason why he would have been concerned about the delay in calculating and agreeing on the quantum of the termination bonus when that would also be the case with respect to the performance bonuses earned in year 5. This is particularly the case where, on Mr Ziegler's construction of the 1995 Agreement, the entitlement to the termination bonus arose even though Orrong continued to provide Mr Ziegler's services to VRL beyond 30 June 2001.

370 I therefore conclude that if the termination bonus was payable the "three preceding financial years" to be taken into account in calculating the amount of the termination bonus were those ending 30 June 1999, 30 June 2000 and 30 June 2001, which means that the 5.25% interest in VRP is not a relevant performance bonus.

What Constituted a Performance Bonus?

371 VRL advanced other arguments why the 5.25% interest in VRP should not be taken into account in the calculation of the amount of the termination bonus. First, it submitted that neither Project Ballarat nor Project Bendigo satisfied the relevant requirement for payment of a performance bonus, namely the raising of non/limited recourse financing.

372 Secondly, VRL submitted that the 1997 Agreement was a negotiated settlement of Orrong's disputed claim for a US$10 million performance bonus, so that the resultant 5.25% interest in VRP was outside the terms of the 1995 Agreement and not a performance bonus. Orrong disputed this interpretation. It submitted that the 1997 Agreement encompassed the grant of the 5.25% interest in VRP as a performance bonus in lieu of payment of the performance bonus of US$10 million and that otherwise the terms of the 1995 Agreement remained the same. I favour this construction. In my view, the 1997 Agreement was to the effect that one form of performance bonus was to be made in lieu of another.

373 In any event, I consider that, under the terms of the 2000 Agreement, VRL and Orrong agreed that both the 5.25% interest and the 2.25% interest should be treated as performance bonuses for the purposes of any relevant calculation of the termination bonus. What was not agreed, however, was which years were meant by "three preceding financial years."

374 Moreover, at the end of the day, it seemed to me that VRL accepted that if the financial year ended 30 June 1998 is relevant to the calculation of the termination bonus, then the 5.25% interest should be taken into account. In due course, I will consider the question of the valuation of the 5.25% interest and the 2.25% interest.

The Meaning of "Non/Limited Recourse Financing"

375 The next issue for consideration is what was meant by the term " 'non/limited recourse' financing" in paragraphs (c) and (d) of the performance bonus provision in Mr Ziegler's letter of 2 October 1995. This also involves consideration of the term " 'non-recourse' financing" in paragraph (b) of the performance bonus provision in Mr Ziegler's letter of 12 May 1993.

376 It was common ground between the parties that the meaning of the term " 'non/limited recourse' financing" was not relevant to Orrong's claim to a 7.5% equity interest in VRP, as this was based as to 5.25% on the 1997 Agreement and as to 2.25% on the 2000 Agreement. However, the phrase in question was still relevant to three other issues:

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VRL submitted that these definitions were in fact consistent with the evidence as to what was intended.

385 According to Mr Ziegler, the reference to the "Austrian equipment financing" in the letter of 2 October 1995 was to a limited recourse financing transaction which had been successfully undertaken prior to the September 1995 negotiations. Under the Austrian equipment transaction, the Austrian investors obtained a geared investment in VRL's theme park rides and leisure centre games with the debt component funded by VRL on a limited recourse basis. They were responsible for the equity component of their investment. In essence, the Austrian investors acquired the legal rights to these items and immediately disposed of them back to VRL. In return, VRL contracted to provide them with a royalty stream. This royalty was calculated by reference to VRL's operation of the financed items, or the location in which they were situated. VRL then immediately effectively defeased its liability to pay this royalty stream to the Austrian investors. In return for the release of VRL from its royalty obligation, VRL procured the effective discharge of the limited recourse debt owing to it by the Austrian investors.

386 As a result of the structure of the transaction and the nature of the underlying businesses, VRL received the Austrian investors' equity component, not just as a form of limited recourse financing, but also as profit because the investors' equity was never returnable to them. Due to the then operation of the Controlled Foreign Corporation provisions of the ITAA, this profit did not give rise to an Australian tax liability for VRL for Australian income tax purposes. As a result, there was no permanent or temporary use of VRL's Australian income tax losses in connection with the financing raised. From the Austrian investors' perspective, they obtained an immediate deduction of the purchase price of the equipment acquired for Austrian income tax purposes, both the equity component provided by the investor and the limited recourse debt component provided by VRL.

387 Mr Ziegler said that the example which he gave in paragraph (d) of his letter, and which Mr Kirby, Mr Burke and he had discussed on 26 September 1995, was given in relation only to identifying a transaction where the profit component did not create assessable income which would have to be offset against or absorbed by VRL's then accrued losses. He said that the example was never given in relation to the unique (and additional) result of the Austrian equipment transaction producing non assessable profit.

388 Mr Ziegler also said that the reference in paragraph (d) of his letter to "Michael Lake" was not a reference to, or an example of, financing (full recourse, limited recourse, non-recourse or otherwise) at all. Rather, it was a reference to the fact that Mr Lake, VRL's Australian, Los Angeles based executive received a 25% share of profits from Village Roadshow Production Services, the VRL business which was responsible for providing services to foreign film producers which utilised the 50% VRL owned Warner Roadshow Studios on the Gold Coast in Queensland. Mr Ziegler said that he had told Mr Kirby and Mr Burke that he thought that Mr Lake's 25% interest in the VRL Production Services business provided a good numerical template for the percentage performance bonus which he should be paid by VRL for transactions falling within scenario (d) of his letter. By way of comparison, he said to Mr Kirby and Mr Burke that he considered that these types of advantageous transactions for VRL should be rewarded with a higher fee than the 5% performance bonus provided for by scenarios (a) to (c) in his letter relating to the 1993 Agreement.

389 Messrs Kirby, Burke and Foo all agreed in their evidence that they now understood that in their ordinary usage:

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Mr Kirby agreed that he had chaired the meeting and signed the minutes as being a true and correct record of the meeting. Rather surprisingly, he said that he could not recall his understanding of the term _"_non-recourse" at that time. However, in response to a question from me, agreed that it would be fair for the Court to conclude that if Mr Foo had used the term "non-recourse" in the meeting and Mr Kirby had not understood it, he would have queried him, and similarly he would have queried the meaning of the term before signing the minutes.

392 Another example of Mr Kirby seeing the term being used in its ordinary meaning was a memorandum from Mr Ziegler to him in October 1994 reporting on his "recent trip to Singapore in search of non-recourse film production finance." Mr Kirby said that he did not recall receiving that memorandum.

393 An example of Mr Kirby himself using the term "non-recourse" in its ordinary meaning was found in the terminology used in the agreement which Mr Kirby negotiated with a Mr Charles Wesoky in November 1995. Mr Kirby eventually agreed that the agreement ultimately executed by a VRL entity and Mr Wesoky in October 1996 provided for Mr Wesoky's company, ICFC, LLC, to be given a "non-recourse" loan to enable it to acquire an equity interest in certain assets within the VRL Group. Mr Kirby said that he had one understanding of "non-recourse" in his dealings with Mr Wesoky in November 1995 and a different understanding of _"_non-recourse" in his dealings with Mr Ziegler at the same time. He said that the use of the expression "non-recourse" in the Wesoky agreement accorded with his present understanding of the meaning of that term, namely, where the finance itself was not repayable except out of the value and receipts of the assets involved in the transaction.

394 I note in passing that Mr Kirby's evidence of his purported inability to recall the details of his negotiations with Mr Wesoky was one of the more unsatisfactory aspects of his performance as a witness. Mr Kirby agreed that these negotiations had been conducted by him in the first instance as to all major issues and that he had executed the agreement on behalf of the VRL entity. He also agreed that he had been a witness in the proceeding brought by Mr Wesoky's company in the Federal Court of Australia in December 2000. Despite this, Mr Kirby maintained that it was only during the proceeding in this Court that he learned of the fact that the agreement with ICFC, LLC had provided for the "non-recourse" loan. I find this claim to be quite extraordinary.

395 In his evidence, Mr Burke stated that:

[297]

410 I do not accept VRL's argument that the "non/limited recourse" financing had to be substantially similar in effect to the Austrian equipment financing transaction or the Michael Lake transactions. Given the diverse nature of those arrangements, neither of which involved funding film production, such a construction is nonsensical in my opinion. I accept Mr Ziegler's evidence that he referred to the Austrian equipment financing simply as an example of a transaction where existing Village Roadshow Group tax losses were not utilised and that he referred to Michael Lake as an example of someone receiving a higher than 5% fee in support of his claim for a higher than 5% performance bonus in paragraph (d).

411 I also do not accept VRL's argument that it was very significant that while Mr Ziegler's pre-1993 Agreement activities involved tax advantaged financing, the activities did not involve the provision of finance to any part of the Village Group from third parties. Rather, the finance was provided from the Village Group to private investors who then obtained a larger tax deduction through the gearing. That is, VRL submitted, by investing $20 of their own money, and borrowing $80 from VRL, the investors received a tax deduction in respect of $100. The finance was 'non-recourse' because it was always intended that the private investors would not repay the loans, which VRL would write off as bad debts. VRL further submitted that when Mr Ziegler came to draft the 1995 Agreement (and indeed when he had drafted the 1993 Agreement) the only experience that the parties had of "non-recourse" finance was this type of "non-recourse" finance. It involved no recourse to the private investors because they were not required to repay the finance. It involved no recourse to VRL, because it was a lender, not a borrower.

412 As Orrong submitted, in advancing this argument VRL was focusing on the wrong aspect of the transaction. In the case of tax-based financing the 5% performance bonus was only payable in respect of the finance raised from investors (that is, the $20 component). Such finance was non/limited recourse because VRL only had to repay the finance out of proceeds arising from the exploitation of the underlying asset acquired or funded by the investor. The investor would only be repaid the $20 component where sufficient money was raised from such exploitation, and only after the $80 had first been repaid to VRL. Under the 1995 Agreement, Orrong would only be paid a 5% performance bonus in respect of finance raised by VRL, not in respect of finance provided by VRL to investors. That was what the Agreement expressly provided.

413 It will be necessary to return to this expression " 'non/limited recourse' financing" when considering Orrong's Roadshow Distributors Group facility performance bonus claim and its alternative performance bonus cash claims and VRL's misleading conduct and negligence counterclaims.

Rectification

414 Although rectification was raised as an issue by VRL's counterclaim (which is dealt with separately below, having considered the questions of the meaning of the termination bonus provision and the meaning of the term " 'non/limited recourse' financing", it is convenient to deal now with the topic of rectification.

415 VRL pleaded in paragraph 42 of its defence and counterclaim that Mr Ziegler, Orrong and VRL entered into the 1995 Agreement relevantly "with the common intention" that:

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(i) raising the funds did not use or rely on the Group's taxation benefits or attributes, or risk the Group's capital or other resources; and

(ii) resulted from transactions substantially similar in effect to the Australian Equipment Financing transaction or the Michael Lake transaction.

416 VRL further pleaded that if the 1995 Agreement did not have these meanings, then the parties entered into the 1995 Agreement under material and common mistakes of fact, alternatively under unilateral mistakes of fact which were known to, or ought to have been known to, Mr Ziegler and Orrong, alternatively were induced by Mr Ziegler and Orrong, and that VRL was entitled to have the 1995 Agreement rectified to embody the appropriate terms and to accord with the common intention and understanding, alternatively the intention and understanding of VRL.

417 Orrong submitted that rectification was available to correct instruments which did not accurately reflect the continuing common intention of the parties. What was rectified was not a mistake in the transaction itself, but a mistake in the way in which that transaction had been expressed in writing.[35] A contract cannot be rectified on the ground that it did not represent the common intention of the parties unless it appeared clearly what their common intention was and that that intention existed at the time of the execution of the instrument sought to be rectified.[36] Orrong further submitted that the party seeking rectification must establish "by convincing proof" that the instrument ought to be rectified[37] and that since the alleged intention of the parties contradicted the written instrument signed by them, a high degree of proof was required.[38] Orrong further submitted that in a case of unilateral mistake a party seeking rectification must establish that it made an agreement under a misapprehension that the agreement contained a particular provision which it in fact did not and that the other party knew of the omission and of the mistake on the part of the first party and allowed that party to remain under the misapprehension and conclude the agreement on the mistaken basis. Orrong argued that on the evidence VRL had not made out a case of either common or unilateral mistake of fact.

418 Orrong also pointed out that VRL sought rectification of the 1995 Agreement more than eight years after it was entered into and only after Orrong sought to enforce that agreement. VRL had been aware for almost all that time that Orrong claimed an entitlement to a termination bonus where the agreement came to an end by effluxion of time and to performance bonuses for finance raisings. Orrong submitted that despite that awareness, VRL had only sought rectification of the agreement as a defensive ploy after this proceeding was commenced

419 It is, however, unnecessary to consider these contentions further because in considering the termination bonus provision, I have concluded that it means what VRL said it means, and that that construction accorded with the common intention of the parties at the time. There is, therefore, no need for VRL to seek rectification of that part of the 1995 Agreement. However, if I am found to be wrong in my construction of the termination bonus provision, then I consider that VRL would be entitled to rectification of that part of the 1995 Agreement because, in my opinion, the contrary construction would not reflect what I find to have been the common intention of the parties at the time they entered into that Agreement. I do not accept that Mr Ziegler had an intention or understanding, never communicated to either Mr Kirby or Mr Burke, that the termination bonus provision was to be read as entitling Orrong to the payment where the Agreement came to an end by the effluxion of time.

420 Further, in considering the meaning of the expression " 'non/limited recourse' financing" in the 1995 Agreement I have concluded that it did not mean what VRL said it meant, and that Mr Kirby, Mr Burke and Mr Foo understood it in the same way as Mr Ziegler said he used the term. There is, therefore, no room for an argument by VRL that the 1995 Agreement failed to reflect the common intention of the parties and that there should be rectification of those parts of the 1995 Agreement. This also involves rejection of any argument for rectification based on unilateral mistake. If I am wrong in these conclusions then the performance bonus provisions mean what VRL says they mean and there is no need for VRL to seek rectification.

The Equity Interests

421 Another matter which engendered considerable debate was the nature of the 5.25% interest in VRP which Orrong received under the 1997 Agreement and the nature of the 2.25% interest which it received under the 2000 Agreement. Together they constituted Orrong's claim to a 7.5% equity interest in VRP.

422 In the prayer for relief in the fifth further amended statement of claim, Orrong sought a declaration that upon the proper construction of the 1997 Agreement and the 2000 Agreement it was entitled to an equity interest in VPP, consisting of:

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(b) (i) a beneficial interest in, and the right to a transfer from VRL of, 7.5% of the shares held by VRL in the wholly owned companies in VRP;

(ii) the right to compel VRL to take all necessary steps to cause each VRP company (other than a wholly owned company) to transfer to Orrong 7.5% of the shares it held in any other VRP company; and

(iii) the right to receive from VRL 7.5% of the profit derived by VRL through VRP.

Under the alternative declaration, consequential orders were also sought in respect of the transfers.

423 VRL admitted in its defence and counterclaim that by the 1997 Agreement Orrong and/or Mr Ziegler and VRL "purportedly agreed" that Mr Ziegler, alternatively Orrong, would receive "a 5.25% interest in relation to" VRP, and that by the 2000 Agreement Mr Ziegler, alternatively Orrong, and VRL agreed, in part, that Mr Ziegler, alternatively Orrong, would received "a further 2.25% interest in relation to VRP." However, VRL then pleaded that each of the 1997 Agreement and the 2000 Agreement was void or unenforceable for uncertainty. In its final submissions VRL maintained this position. Alternatively, it submitted that Orrong's entitlement under the 1997 Agreement was limited to 5.25% of the profits and that any entitlement beyond that was void or unenforceable for uncertainty. In the further alternative, VRL submitted that Orrong's rights, apart from a profit share, were limited to participation in any capital gain resulting from a sale or float of VRP.

The 5.25% Interest

424 VRL submitted that the 1997 Agreement was legally uncertain, primarily because Mr Kirby and Mr Ziegler never reached any consensus as to what the "equity interest" would be. It submitted that this uncertainty was reflected in the fact that the nature of the interest was still being debated between Mr Ziegler and Mr Foo years later in the exchange of memoranda in May, June and October 2000. The uncertainty was further reflected, it was submitted, in the numerous varied and often contradictory attempts to articulate the nature of this interest in Orrong's pleadings and submissions.

425 I am satisfied that both Mr Kirby and Mr Ziegler intended to enter into a binding agreement on 8 September 1997, when they concluded their difficult negotiation. Both of them said that they shook hands when agreement was reached. Nevertheless, the question remains whether sufficient elements of that negotiation had been agreed.

426 One clear difference between the evidence of Mr Ziegler and Mr Kirby concerning the agreement reached on 8 September 1997 in Los Angeles was the size of the interest in VRP to be given to Orrong. Mr Ziegler said that Mr Kirby offered 5.25% whilst Mr Kirby maintained that it was only 5%, although he agreed that it was later increased to 5.25%. VRL submitted that the 5% figure was consistent with the claim for a 5% performance bonus.

427 However, I find that the figure initially offered by Mr Kirby was 5.25%. The most credible explanation for this rather strange figure is that it was calculated by Mr Kirby in the way in which Mr Ziegler said Mr Kirby explained it to him, when he said, in response to Mr Ziegler's query about the future, that as far as profit sharing was concerned, 5.25% was one quarter of what Mr Ziegler, Mr Burke, Mr John Kirby and Mr Robert Kirby received under the Village Roadshow Creative Trust ("the Creative Trust").

428 In fact, the Creative Trust, which Mr Ziegler had drafted in January 1994, did not include Mr John Kirby as one of its beneficiaries. Of the Creative Trust's 25% interest in the profits of VRP, Mr Robert Kirby and Mr Burke were each entitled to 40% of the Creative Trust's interest, or 10% overall and Mr Coote to 20% or 5% overall. Subsequently, 1% of Mr Coote's 5% was transferred to Orrong/Mr Zeigler. (A further 1% of Mr Coote's 5% was offered to Mr Foo but he refused). According to VRL's 1998 Annual Report the Creative Trust ceased operations on 1 July 1997. The beneficiaries were said to be Mr Robert Kirby, Mr Burke and Mr Coote. The agreement with VRL was "for the purpose of producing motion pictures."

429 Nevertheless, it seems to me that the Village Roadshow Group treated Mr John Kirby as a participant in the Creative Trust. For example, when the Board of VRL decided in July 1998 to terminate the Creative Trust it resolved "to compensate" both of the Kirby brothers and Mr Burke "for their interest in the Creative Trust" by retrospectively increasing their salaries.

430 Thus, if Mr John Kirby did share in some way in his brother's 10% and Mr Burke's 10%, there were four people, including Orrong/Mr Ziegler and its/his 1%, sharing 21% of the profits of VRP, and one quarter of 21% is 5.25%. Orrong was therefore to be rewarded by Mr Ziegler's work on Project Ballarat by increasing its share of the profits of VRP from 1% to 5.25%.

431 This explanation also gains some support, in my opinion, from the following statement by Mr Burke in his facsimile to Mr Kirby dated 8 September 1997:

[315]

Consistent with Mr Kirby's evidence of his offer to Mr Ziegler in the 8 September 1997 meeting, there was no reference in Mr Ziegler's account in this memorandum to a "5.25% in perpetuity, indefeasibly vested, equity interest in VRP." It is quite surprising, in my opinion, for these words not to have been repeated in the memorandum to Mr Wilson, if in fact they had been said by Mr Kirby.

444 Nevertheless, although Mr Kirby may not have said that he was offering an "in perpetuity, indefeasibly vested" interest in VRP, he did say that he offered a "5% ownership of the business" Mr Ziegler was "helping to create", the new VRP, which would "give value over time". In the light of this evidence, I reject VRL's argument that the equity interest should be restricted to a profit share entitlement. "Ownership" carries with it something more than a right to share in the profits. It involves something in the nature of capital, not just income.

445 VRL placed great reliance on the repeated references to "profit share" in Mr Ziegler's letter to Mr Jackman dated 16 February 1999. Orrong submitted that this was in no way a concession that the 5.25% equity interest was confined to a profit share. It was not relevant for Mr Ziegler to mention the ownership (or capital) aspect of Orrong's 5.25% equity interest in that letter, which dealt with the profit to be earned by VRL under Project Bendigo. I agree with this reading of Mr Ziegler's letter to Mr Jackman. It is made even clearer when the preceding letter is read.

446 Next, it is clear, in my opinion, that the 5.25% ownership or equity interest in VRP did not mean an actual shareholding by Orrong. As VRL submitted, the payment of a profit share to or at the direction of Orrong since 1998 was entirely inconsistent with a shareholding, which carries with it the right to the payment of a dividend. "Profit share" and "dividend" are quite distinct concepts.

447 Moreover, giving effect to the alternative declaration sought by Orrong of a 7.5% (or 5.25%) shareholding in all of the wholly owned subsidiaries and in all of the other VRP companies would mean, in practice, that Orrong would end up with more than a 7.5% (or 5.25%) interest in the shares of many of the companies in VRP because of the interlocking nature of the existing shareholdings. I therefore reject the argument that Orrong gained any shareholdings under the 1997 Agreement.

448 If the ownership or equity interest could not be represented by a shareholding, then I consider that it must have been intended to be an informal holding. I accept Mr Kirby's evidence that Mr Ziegler said that he may want flexibility to have his interest in the form of "shadow equity". However, I do not accept Mr Kirby's denial that he did not understand what Mr Ziegler meant by "shadow equity". It seems to me that in the context of this fiercely fought negotiation it is most unlikely that Mr Kirby would agree to something said by Mr Ziegler which he did not understand. Moreover, as one would expect of an experienced company director, it appeared from other correspondence that Mr Kirby well understood the concept. Thus, despite Mr Ziegler's varying evidence concerning taking the ownership interest in the form of shadow equity, I consider that this was what was agreed with Mr Kirby. In cross-examination, Mr Ziegler conceded in relation to the phrase "shadow equity" that he "might have said that" and that while he "really can't recall ... it would be something that I might say." Mr Ziegler later reversed his evidence on this point, saying "we didn't have the shadow equity conversation at all." Mr Ziegler later changed his position once more and gave evidence that "I don't think" that the phrase "shadow equity" was used. Mr Ziegler conceded that there were important benefits of shadow equity. He said: "It is more flexible to have shadow equity than actually shares, and it is easier to deal with in terms of minimisation of taxation impost, be they income tax or stamp duty." A desire by Mr Ziegler to take the interest as "shadow equity" would also be consistent with a reference to "a 'notional' allocation of options" in Mr Ziegler's letter of 27 November 1995 regarding the 1995 Agreement and his later references to his willingness to accept "economic equivalents" in relation to other matters in his memoranda dated 1 March 1998 and 3 March 1998. There was sense in such an arrangement. VRL could not afford to issue Orrong with 5.25% of the shares of the relevant VRP companies because this would mean that they were no longer wholly owned subsidiaries. Orrong did not need to hold the shares in order to receive dividends because it was already entitled to 5.25% of the profits of VRP, not merely 5.25% of any dividends. In my opinion, what Mr Ziegler was interested in was receiving 5.25% of the proceeds of any sale or float of VRP. This could be achieved by VRL paying Orrong that amount at the appropriate time in recognition of Orrong's 5.25% "ownership" interest.

449 Thus, I have concluded that under the 1997 Agreement, Orrong's rights, apart from a profit share, were limited to receiving 5.25% of the proceeds of any sale or float of VRP. I reach this conclusion because it seems to me that, even accepting Mr Kirby's version of the terms of the 1997 Agreement, he intended and agreed that Orrong would receive something more than simply a 5.25% share of VRP's profits.

450 Certainly this seems to be how Orrong's interest was treated thereafter within VRL. For example, in a memorandum dated 24 November 1999 from Mr Foo to Mr Ziegler concerning the 2000 Agreement negotiations Mr Foo referred to the "equity" which Mr Ziegler was "originally promised" and to Mr Ziegler having "71/2% of the go-forward benefit of the business." Further, in a memorandum dated 28 March 2000 again from Mr Foo to Mr Ziegler the former stated:

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456 As VRL pointed out, this document was the first time that there is any written record of Mr Ziegler claiming on behalf of Orrong an entitlement to shares in VRP. It was not stated in his memorandum to Mr Jackman dated 16 January 1999, nor in his communications with Mr Wilson, nor in the 21 June 2000 signed agreement. Yet this was more than three years after the conversation with Mr Kirby on 8 September 1997. Thus, I cannot accept this part of Mr Ziegler's version of what had been agreed. But equally, as I have already said, just because this dispute arose subsequently does not mean that agreement had not been reached in June 2000.

The Declarations Sought by Orrong

457 As discussed above, there is considerable difficulty with the wording of the declarations sought by Orrong with respect to its claim to a 7.5% interest in VRP. With this in mind, VRL made the sensible suggestion that submissions concerning the formulation of any such declarations should be considered by the parties after they have had an opportunity to consider these reasons for judgment.

The Profit Share Claims

458 I turn then to consider the question of the profit shares claimed by Orrong, in particular the dispute over the calculation of the amount of those claims. As previously stated, VRL had paid Orrong its share of VRP's profit in respect of the 1998 and 1999 financial years and had paid a further $283,000 in respect of the profit share for the 2000 financial year, but nothing thereafter. Moreover, there was a dispute over whether the $283,000 was a part payment only or whether it had been paid "in full and final settlement" of the claim in respect of that year, as pleaded by VRL in paragraph 39 of its defence and counterclaim.

459 Thus, at the time the hearing commenced, Orrong sought payment of the balance of the 7.5% profit share for the 2000 financial year and the 7.5% profit share for each of the 2001 to 2004 financial years, with the amounts for the latter two years adjusted by Orrong for an alleged excessive rate of interest charged by VRL to VRP on capital invested (by way of equity or loan) in VRP (see paragraph 30A of the fifth further amended statement of claim). The actual amounts sought were as follows:

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Each of these issues will be considered in turn.

466 Further, Orrong eventually accepted that no profit share was payable in respect of the 2003 financial year because there was no profit made by VRP in that year. It acknowledged that this would still be the case even if the disputed adjustment for interest was decided in Orrong's favour. Thus, no issue remained in respect of the year ended 30 June 2003.

The Berman Profit Share

467 The issue here is whether the profit share payable to Mr Berman should be added back to VRP's profit figure before calculating Orrong's 7.5% share.

468 Mr Meredith was instructed by VRL's solicitors that VRL conceded that in calculating Orrong's profit share, Orrong's profit share accrual as shown in VRP segment reporting should be added back, but no such instruction was given in respect of the Berman profit shares. Orrong submitted that VRL should also have conceded that in order to properly calculate Orrong's profit share, Mr Berman's profit share accruals should have been added back.

469 Mr Meredith did not inquire into this matter, or query his instructions from VRL's solicitors, which he simply accepted. Orrong submitted that Mr Meredith provided no reason for not adding back Mr Berman's profit share. It submitted that self evidently, if there were two recipients of shares of profit, unless there was some agreement to the contrary (and there was none here), each recipient's share was to be calculated by reference to 100% of the profit. Mr Raffe confirmed that VRL accounting staff followed this approach in calculating Orrong's profit share for 2000. Orrong pointed out that Mr Gower also regarded Mr Berman's profit share as indistinguishable from Orrong's profit share for the purpose of adjusting his December 1999 projection.

470 However, VRL submitted that the two profit shares were not the same. It submitted that a review of the profit share calculation in Mr Berman's employment contract revealed that it was based upon part only of the VRP business, namely that funded by Project Ballarat. This profit share payment to Mr Berman formed part of his remuneration as an employee and was simply an additional cost of the VRP division. The profit share payable to Mr Berman was not a "splitting" between VRL and Mr Berman of the overall profit of VRP.

471 I consider that, for the reasons advanced by it, VRL was correct in characterising the payment to Mr Berman as an additional cost which had to be deducted in order to arrive at the true VRP profit figure.

472 If I am wrong in concluding that the Berman profit share should not be added back, the parties were agreed that the outcome would be that VRP's profits would be improved by $1,982,000 for the 2000 financial year and by $879,000 for the 2002 financial year, being the amounts of Mr Berman's profit share in those respective years.

The VRL Corporate Allocation

473 This issue arose out of an adjustment made by Mr Meredith in reducing the profits of VRP by allocating certain corporate overheads to VRP in respect of each of the 2000 to 2002 financial years.

474 VRL submitted that in calculating the profits of VRP, and consequently any profit share of Orrong, account should be taken of overheads of VRL properly attributable to VRP. As Ms Raffe explained, allocation of central overhead expenses in the management accounts (red folder) commenced in the year ended 30 June 2000 (although not in the segment results because the Accounting Standards required that they be excluded). Prior to that, central overhead expenses were not allocated because VRP was very small and it had not been treated as a separate entity. Thus, Ms Raffe agreed that Orrong's profit share in the 1998 and 1999 financial years had been calculated and paid "on the basis of the company's [VRL's] published accounts." However, she made the point that in those years the figures in the segment reports and the management accounts would have been the same.

475 Although Ms Raffe said that allocation of central overhead expenses in the management accounts commenced in the 2000 financial year, she also said that they were not included in the segment reporting for the 2000 to 2002 financial years. Ms Raffe said that:

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476 Corporate overheads were charged to VRP in the 2003 and 2004 financial years and this was not disputed by Orrong. Accordingly, Ms Raffe said that there should be an allocation of corporate overheads before calculating Orrong's share of VRP profits for the preceding three years. Ms Raffe denied that the motivation behind the raising of this issue was to decrease the amount payable to Orrong for its profit share. She said that overheads should always have been charged.

477 Mr Meredith expressed the view that having allocated expenses for the 2003 and 2004 financial years it was appropriate that "an allocation should also be made for FY 2000 to FY 2002 for overhead charges from VRL to VRP."

478 Mr Meredith referred to the change to AASB 1005 Segment Expenses which applied from 1 July 2001. He said that this justified allocating such expenses in the 2002 financial year. He suggested that the later version was "narrower" or "more restrictive" and therefore that this justified the overhead allocation also being made for the 2000 and 2001 financial years.

479 Orrong submitted that there should be no adjustment for corporate overheads. It pointed out that the published accounts of VRL for the 2000 to 2002 financial years, which had all been approved by VRL management, the VRL Board and VRL's external auditors, did not include these additional charges to VRP.

480 Orrong submitted that Mr Meredith's suggestion that a change to the accounting standard concerning segment reporting was a basis for adding overheads for the 2000 to 2002 financial years was plainly contrived and unsupportable. The revised accounting standard applied from 1 July 2001 not 1 July 1999, and in any event it was not "narrower."

481 VRL argued that the fact that the audited financial statements for the 2000 to 2002 financial years did not include overhead allocations was of little or no weight. The question for the Court was whether the proper calculation of VRP's profit, within the meaning of the 1997 and 2000 Agreements, required that such overheads be allocated in the financial years in question. VRL made the obvious point that to calculate the profits of VRP without allowance for such overheads would overstate the profits and thus Orrong's share.

482 VRL further argued that the expert evidence of Mr Meredith was that the overheads should be allocated. No expert evidence was led by the plaintiff contradicting this opinion.

483 I have reached the view that, notwithstanding that the published accounts of VRL for the 2000 to 2002 financial years do not contain any allocation of corporate overheads to VRP, this is an item which VRL would be entitled to take into account when calculating Orrong's profit share in those years. The question must always be what was VRP's profit in the relevant year and whilst the published accounts are the starting point they may not be conclusive. If they were, Orrong would not be able to challenge the alleged excessive interest charge in the 2004 financial year.

484 The next question is the amount of corporate overheads which should be used in the calculations of the profit share for each of the 2000 to 2002 financial years. VRL submitted that they should be $2.3 million, $2.602 million and $3.406 million respectively. These figures were based on Mr Meredith's report, which in turn was based on a document given to him in his instructions (Appendix Z to his report). This document was subsequently identified by Ms Raffe as "information prepared by Stuart Boxer in November 2002 being prior to the commencement of this proceeding and for unrelated reasons." Mr Boxer was the chief financial officer of VRP at the time. Ms Raffe later agreed that the Boxer document was produced in January 2002. It was not produced for any accounting purpose. She "guessed" that it was produced in response to a request from Ambac. She was not provided with a copy of the document at the time but only "as part of this proceeding." She was not "entirely sure" what VRL did with the document at the time. She did not believe it was acted on.

485 Orrong submitted that the Boxer document was effectively the unsubstantiated and unsourced opinion of a VRL employee who was not called as a witness. No explanation was given for not calling Mr Boxer. There was no evidence provided of the method of compilation or basis of assessment. No evidence was led from witnesses concerning their view as to the reasonableness of the allocation of their time spent on VRP matters in the 2000 to 2002 financial years. VRL pointed out that Ms Raffe had said that the document reflected a reasonable allocation of the time and charges incurred and reasonably expected to be incurred.

486 VRL also sought to rely on Mr Meredith's evidence that it was "a reasonable document to use" in making these calculations. Mr Meredith had said in his report that he "assessed the overhead expenses incurred by VRL in FY 2000 to FY 2002 that should be allocated to VRP on the basis of the Overheads Summary Sheet ..." and on the basis that he had "no other documentation on which to make such an allocation." He had "assumed that the allocation to VRP in the Overheads Summary" represented "a fair and reasonable allocation of VRL overheads costs attributable to VRP." But, as Orrong submitted, Mr Meredith did not make any assessment of the reasonableness of the information contained in the document. He simply accepted the document at face value:

[332]

His opinion was therefore, in my opinion, totally unsubstantiated.

487 I am not persuaded that I can place any reliance on this document. In the absence of any evidence from Mr Boxer himself as to the purpose of the document, how he went about compiling the figures, what role he played in assessing the reasonableness of the figures, and whether the document was final or only a draft, and in the absence of any evidence from the senior executives who were in fact called as to whether the allocation of their time to VRP matters was reasonable, I do not consider that VRL has discharged the onus on it of establishing the amount of overhead expenses which should be deducted from VRL's previously published figures of VRP's profits in each of the 2000 to 2002 financial years. Ms Raffe's evidence was not sufficient to overcome all of the above omissions, in my opinion.

488 It therefore seems to me that the deductions of $2.3 million, $2.602 million and $3.406 million respectively made by VRL for corporate overhead expenses in its calculation of VRP's profits for the financial years 2000 to 2002 were not correct. There should be no adjustments to VRP's profits for this item.

The Internal Rate of the Interest Charged by VRL

489 It goes without saying that in calculating VRP's profits for the purpose of ascertaining the amount of Orrong's profit share VRL cannot introduce baseless or fictitious internal charges simply to reduce the amount of VRP's profits and thus the amount payable by VRL to Orrong. It was submitted by Orrong that VRL's charging of interest at the rate of 18% per annum compounding monthly on the amount allegedly owed by VRP to VRL in respect of film financing in the 2003 and 2004 financial years was an example of such an improper charge. Orrong accepted that interest on capital invested by VRL (by way of equity or loan) in VRP could be charged, but submitted that it should only be 6.25% per annum, which was said to be the average rate charged by VRL to other of its business divisions in the 2004 financial year (the loss making 2003 financial year no longer being relevant). Orrong submitted that this change would result in an improvement of $14.175 million in VRP's results for the 2004 financial year.

490 Ms Raffe explained in her witness statement that as part of the restructure of the film financing facility in February 2003, VRL made, amongst other things, an inter-company loan to VRP of US$100 million by way of subordinated debt akin to equity and in addition made available the sum of US$70 million as funds on deposit. These arrangements were not the subject of documentation, but were nonetheless agreed between the companies. She said that the interest on the inter-company loan was charged at the rate of 18% compounding monthly (that is, 19.08% per annum in 2003 and 19.56% per annum in 2004) for the period 11 February 2003 to 30 June 2003 and for the subsequent year ended 30 June 2004. She also noted that there was an overcharge for interest in the 2004 financial year and that this was corrected in the segment results for the six months ending December 2004.

491 Mr Foo said that the decision to charge an interest rate on the lending of 18% was made by him in about April or May 2003 "as part of his responsibilities as Finance Director" after investigations of sourcing third party funding at that time revealed the fact that they would be seeking a return of between 19 and 23%. Documents were produced which supported this assertion.

492 Mr Foo gave evidence in respect of using a different interest rate than the one regularly employed in inter-company loans from VRL:

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498 Orrong further submitted that the opinion evidence of Mr Meredith concerning the alleged "reasonableness" of the 18% compounding interest charge was irrelevant and should be disregarded. Mr Meredith made no inquires about the actual cost of funds to VRL, or "opportunity cost" to VRL. The "cost of debt" stated in the VRL calculations Mr Meredith used was 6.15% for June 2004. His evidence was that he had not considered mark ups or margins in recording expenses in the segment reporting process. He had not considered the interest charge spreadsheets for 2001-2004.

499 Orrong submitted that there was simply no basis for imposing an interest charge of 18% compounding for funds provided by VRL not to an external partner, or third party, but to one of its own divisions for use in VRL's own business when that rate was completely unrelated to any actual cost or expense incurred by VRL. To put it another way, there was no basis for creating some notional expense for VRP to incur when VRL in fact incurred no such expense.

500 Orrong accordingly submitted that the 2004 VRP profit calculated by VRL should be adjusted to reflect the interest rate used for other divisions.

501 In response, VRL submitted that the basis upon which Orrong disputed the higher interest charge was quite unclear. It argued that Orrong did not allege any contractual or other right to limit the interest rate and that it was not alleged that the charge was not in fact made. VRL also referred to the unproductive cross-examination as to whether the charge was permitted by the applicable accounting standards.

502 VRL rejected the criticism of Mr Meredith's independent opinion, based on the fact that he himself was not involved in the transactions or had not separately sourced market statistics from the relevant time. VRL submitted that it would be an absurd result if VRL was only able to charge the other entities within the Group the cost of the debt actually incurred by it, when it was able to reduce the cost of debt by lending the money itself (providing it had the funds available) at slightly below market price so as to produce a win-win situation for VRL and the borrowing entity.

503 VRL further submitted that there was no evidence cited by Orrong for the proposition that VRL charged interest on capital invested by it (by way of equity or loan) in its other divisions at an average rate of 6.25% per annum. It pointed out that previously Orrong had alleged that the figure was 7%. VRL's documents showed that there had been a range of interest rates charged by it, some well in excess of 6.25%.

504 In my opinion, the evidence given by Mr Foo and Ms Raffe showed that this high interest rate was not arbitrary. It was based on what VRP would have had to pay if the money had been borrowed from outside sources. In the circumstances, it seems to me to be reasonable to charge a higher than normal rate for the funds invested by VRL in VRP. This was what had occurred previously, although the differential was never that great. I therefore reject the submission that the interest charged by VRL was improper.

505 If I had reached the opposite conclusion, then other uncertainties remained because I agree with VRL's submission that Orrong had not made out any justification for using an interest rate of 6.25%.

506 If the interest of $14.175 million is not added back, then VRP has made a loss in the 2004 financial year and no profit share is payable to Orrong for that year.

Incorrectly Calculated Interest

507 Mr Meredith gave evidence that although VRL may have thought that it was charging interest at 19.56% per annum during the 2004 financial year, in fact the amount of interest charged worked out to be an effective rate of interest for that year of 15.12%. VRL therefore sought to charge a further expense of $6.889 million representing the amount of the difference between interest at 19.56% and interest at 15.12%

508 In my opinion, it follows from my finding that VRL was justified in charging interest at 19.56% that this extra amount could legitimately be taken into account. VRL's calculation of VRP's profit in the 2004 financial year having been challenged by Orrong, I see no reason why VRL should not now be entitled to correct its earlier arithmetic error.

509 However, this issue is no longer relevant given that the result of my finding in favour of VRL on the charging of the higher rate of interest was that VRP made a small loss of $51,000 in the 2004 financial year. Whether that small loss should be increased by the extra $6.889 million is not to the point once VRP is shown to have made a loss in the 2004 financial year.

Summary

510 The result of the above analysis of the four disputed issues is that, after adding back the amounts of the corporate overheads, the amounts of Orrong's 7.5% profit shares would be as follows:

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518 The question that then arises is what flows from this finding. As previously stated, Orrong rejected that there was any such agreement which meant that given its new profit figure for that year it had to concede that there was a credit of $25,525 due to VRL. On my findings, this would now become a credit of $174,175. On the other hand, VRL played down its previous suggestion that there had been full and final settlement and was apparently content to accept the amount of any credit conceded by Orrong.

519 In my opinion, there was a compromise reached between VRL and Orrong in respect of the quantum of the profit share payable in respect of the 2000 financial year. The $283,000 was paid and accepted in full and final settlement which meant that Orrong could not claim anything more for that year, but equally VRL could not claim any of it back, regardless of what later calculations of VRP's profit might reveal.

Conclusion

520 Therefore, the 2000 financial year becomes irrelevant and the amount of the 7.5% profit shares which, subject to the defences discussed below, would be payable to Orrong are $927,750 for the 2001 financial year and $1,996,650 for the 2002 financial year, a total of $2,924,400.

The Roadshow Distributors Group Facility Performance Bonus Claim

521 Orrong claimed that it was entitled to receive a 5% performance bonus of $3.724 million in respect of the $75 million Roadshow Distributors Group facility provided by CIBC in June 2001 ("the RDG facility"). The amount of the fee claimed was reduced from $3.75 million after deducting the legal costs and establishment fees from the amount of the facility for the purposes of calculating the fee. Orrong submitted that the RDG facility was a " 'non/limited recourse' financing" raised by the Village Roadshow Group within the meaning of performance bonus (d) in the 1995 Agreement.

522 The background to this dispute is that in late 2000 Westpac unexpectedly decided to terminate its relationship with the Roadshow Distributors Group which had existed for more than 30 years. That decision by Westpac, together with its conduct in the interim of charging a significantly higher interest rate and requiring substantial reductions in the outstanding debt as well as additional shareholder guarantees, placed the Roadshow Distributors Group in a very difficult position. It was required to arrange alternative finance at very short notice. Because of this, it would appear Mr Burke approached Mr Ziegler in late 2000 or early 2001 and asked him to become involved in the efforts to raise a new facility for the Roadshow Distributors Group. Mr Ziegler said that Mr Burke asked him to establish a new "limited recourse debt facility", which was denied by Mr Burke. Given the existing disputes about Orrong's claims for significant bonuses, in particular for " 'non/limited recourse' financing", it is inherently improbable, in my opinion, that Mr Burke would have made such a request.

523 In his witness statement Mr Ziegler said that in a meeting with Mr Kirby and Mr Burke on 23 April 2001 the issue of fees payable to Orrong for future non/limited recourse finance raisings for the VRL Group was discussed. According to Mr Ziegler, Mr Kirby said that Orrong should forego all future fees on finance raising due to the large amount that had already been paid by way of performance bonuses and the continuing scrutiny of these payments by shareholders and market analysts. Mr Ziegler told Mr Kirby and Mr Burke that Orrong was not prepared to waive any fees for services performed or to be performed and that he expected Orrong to be paid a 5% fee on the Roadshow Distributors financing that was then being negotiated, if it was successful. Mr Ziegler asked Mr Kirby and Mr Burke if they wanted him to discontinue providing services which would be remunerated in accordance with the 1995 Agreement and both Mr Burke and Mr Kirby said that Mr Ziegler should continue to work on the various tasks that had been assigned to him. Mr Ziegler said that on the next day, 24 April 2001 he had another conversation with Mr Burke. According to Mr Ziegler, Mr Burke said that Mr Ziegler should waive all future performance bonuses for VRL finance raisings due to the large amount of compensation that Orrong had already received in the 2001 financial year but that he refused.

524 Both Mr Kirby and Mr Burke denied that there was any specific reference to the Roadshow Distributors fee in their conversation on 23 April 2001.

525 In his oral evidence Mr Ziegler was far less specific about the Roadshow Distributors fee. He said that Mr Kirby and Mr Burke said:

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This rather contradicted Mr Foo's evidence about an earlier discussion.

527 Mr Burke said that he did not hear about Orrong's claim for a performance bonus on the RDG facility until August 2001, probably when he received Mr Ziegler's email of 20 August 2001 seeking Mr Burke's assistance in arranging for Mr Foo to pay the invoice. Mr Burke said that he then had a discussion with Mr Ziegler during which Mr Ziegler agreed that Orrong had no entitlement to a performance fee in relation to the RDG financing and that Mr Ziegler said that "he withdrew his request for the fee". Mr Burke said that he told Mr Ziegler that "he had restored my faith in him" and the two of them shook hands.

528 On 21 August 2001, following this meeting, Mr Burke wrote to Mr Ziegler. Despite purportedly having reached such an agreement, Mr Burke made no mention of it. Instead, he set out a number of reasons why a performance bonus was not payable and "confirmed" what he had said that morning that he "saw this transaction as part of the retainer that we pay you from Village and is just a service VRL did for the Roadshow group." There was also no mention by Mr Burke of this "agreement" in his further memorandum to Mr Ziegler on 16 November 2001. Nor did Mr Foo make any mention of Orrong having agreed to withdraw its claim for a performance bonus in respect of the RDG facility when he wrote to Mr Ziegler rejecting his claim for such a bonus on 30 October 2001. I agree with Orrong's submission that, if such an agreement had been reached, it is extraordinary that Mr Burke and Mr Foo would not have referred to it in their memoranda to Mr Ziegler between August and November 2001. Therefore, I do not accept Mr Burke's evidence about having reached an agreement with Mr Ziegler that the claim would be withdrawn. In any event, VRL did not rely on any such agreement as preventing or defeating Orrong's claim. It relied on other defences to which I now turn.

529 Apart from its general defences, VRL specifically pleaded that Orrong was not entitled to receive a performance bonus in respect of the RDG facility because it was:

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530 Each of these contentions will be examined in turn.

The Meaning of "The Village Roadshow Group"

531 Orrong submitted that at all material times VRL treated Roadshow Distributors and its subsidiaries, the Roadshow Distributors Group, as part of the Village Roadshow Group, in particular, as part of the Distribution Division. The corporate structure charts reflected this approach. So did the Annual Reports of VRL. At all material times the Roadshow Distributors Group had the same corporate logo as the Village Roadshow Group. The Roadshow Distributors Group offices were located within offices of the Village Roadshow Group.

532 On the other hand, VRL pointed out that Roadshow Distributors was in fact 50% owned by VRL and 50% owned by Amalgamated Holdings Ltd, both through wholly owned subsidiaries. Roadshow Distributors had its own Board of Directors with an equal number of representatives from both parent companies, and its own management team. VRL emphasised that its Annual Reports described Roadshow Distributors as an "Associated Entity" of VRL and not a controlled entity. Thus, VRL submitted that although Roadshow Distributors was a company in which VRL had a significant investment, it was not an investment which gave it a controlling interest. As Mr Foo explained, although VRL sometimes invoiced Roadshow Distributors for expenses incurred on its behalf, Roadshow Distributors did not always agree with the invoice or pay it.

533 In my opinion, a partial explanation for some of the close involvement of VRL personnel, such as Mr Foo and Mr Philip Leggo, the Group Company Secretary of VRL, in management of the Roadshow Distributors Group lay in the fact that by agreement with Amalgamated Holdings Ltd, VRL managed the Roadshow Distributors Group on behalf of both parent companies. This also explained why VRL personnel were involved in the negotiation of the RDG facility. The Management Agreement would also explain why the moneys advanced under the RDG facility in June 2001 were paid directly to a VRL subsidiary, Village Roadshow Treasury Pty Ltd.

534 Thus, it appears to me that none of the above matters could be considered conclusive. Further, it must be remembered that it is not a question of whether as a matter of strict definition in accounting or legal terms the Roadshow Distributors Group of companies was part of the Village Roadshow Group, but what was the meaning of the expression "the Village Roadshow Group" when used in the relevant correspondence.

535 In this regard, Orrong drew attention to an undated account from Orrong in respect of its performance bonus for taxes saved in the financial year ended 30 June 1995. One of the items listed in the calculation of the amount of the performance bonus was:

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Mr Foo agreed in cross-examination that his handwritten note alongside that item indicated that the relevant amount was to be recharged to Roadshow Distributors. Mr Foo subsequently authorised payment of the agreed amount of this account, $250,000, in full when it was re-submitted by an invoice dated January 1996.

536 Thus, Orrong submitted that one of the extrinsic facts known to the parties at the time of the making of the 1995 Agreement was that under the 1993 Agreement taxes saved on behalf of the Roadshow Distributors Group were subsumed under, or accepted as coming within, the expression "the Village Roadshow Group" for the purpose of calculating Orrong's performance bonuses.

537 Further, even though it was after the making of the 1995 Agreement, it is interesting to observe that in March 1998 a claim for a performance bonus of $89,683 in respect of "the refund of overpaid stamp duty on film hire from the Victorian and Tasmanian State Revenue Offices" was paid by VRL to Remut and then recharged to Roadshow Distributors. Orrong emphasised that at no time had VRL asserted that the performance bonus was not payable because the tax refunds were obtained for the Roadshow Distributors Group and not "the Village Roadshow Group."

538 More importantly, in his witness statement Mr Foo referred to a conversation he had with Mr Ziegler prior to Mr Foo writing his letter of 4 May 1993 to Mr Ziegler. Mr Foo said that in that conversation they discussed the terms of the incentives payable in respect of tax savings for the Village Roadshow Group. Mr Ziegler gave as an example "the stamp duty refunds he had been working on for the Roadshow Group of companies." Mr Foo did not dispute this suggestion that a stamp duty refund for the Roadshow Distributors Group would be an example of a tax saving for the Village Roadshow Group in respect of which a performance bonus would be payable. Instead, he said that he agreed with Mr Ziegler's proposal.

539 This suggests to me that at the time of the making of the 1993 Agreement Mr Foo accepted and understood that the Roadshow Distributors Group was to be considered part of the Village Roadshow Group. This view is borne out by Mr Foo's conduct in 1995 referred to above (prior to the making of the 1995 Agreement) in accepting that taxes saved on behalf of the Roadshow Distributors Group came within the expression "the Village Roadshow Group."

540 I am therefore satisfied that at the time of the making of the 1995 Agreement the parties intended that the Roadshow Distributors Group was to be treated as coming within the meaning of the expression "the Village Roadshow Group."

Mr Ziegler's Efforts

541 The second reason advanced by VRL in support of the contention that no fee was payable in respect of the RDG facility was that the finance was not raised "as a direct result of the efforts" of either Mr Ziegler or Orrong. In fact, these words do not appear in the 1995 Agreement. Nothing is said as to precisely what Orrong had to do to earn the performance bonuses. However, the words "as a direct result of my efforts" do appear in respect of performance bonus (b) in the 1993 Agreement, which became performance bonus (c) in the 1995 Agreement. Thus, in the 1993 Agreement a distinction was drawn between Mr Ziegler's role in respect of "tax savings made" and "tax refunds ... obtained", on the one hand, and " 'non-recourse' financing raised ... as a direct result of my efforts", on the other. This could well have been because the former would undoubtedly result from Mr Ziegler's efforts in his role as VRL's taxation adviser, whereas many people would probably be involved in the raising of finance. In my opinion, the use of the expression "as a direct result of my efforts" in the 1993 Agreement was intended to allow a performance bonus to be claimed for the raising of finance only where Mr Ziegler had played such a primary or dominant role that it could be said to have resulted in the raising of the finance. Mere participation in the transaction along with many others was not sufficient.

542 VRL submitted that this distinction was picked up for the 1995 Agreement by the introductory words "performance bonus elements (a), (b) and (c) below are the same as within my existing contract with VRL." But, as Orrong pointed out, performance bonus (d) was new in the 1995 Agreement. I consider, however, that an appropriate reading of performance bonus (d) was to import into it the concept that the particular finance raised had to be "as a direct result of [his] efforts."

543 VRL drew attention to the Oxford and Macquarie Dictionary definitions of "direct" which both gave as one of its meanings "without intervening factors or intermediaries." However, I reject any suggestion that in order for Orrong to claim a performance bonus in respect of the RDG facility, Mr Ziegler must have brought about the raising of the finance without any other persons intervening, or being involved in, the process. Such a scenario is rather unrealistic, in my opinion. Moreover, as Orrong pointed out, any such submission by VRL would be inconsistent with their abandonment of the same argument in relation to the fees claimed in respect of Projects Ballarat, Bendigo and Castlemaine, when clearly many others apart from Mr Zeigler were involved in those transactions.

544 Nevertheless, Orrong accepted, as was clearly correct, that there had to be some causal nexus between Mr Ziegler and the raising of the finance for any performance bonus to be payable. It submitted that there had to be some substantial involvement by Orrong, through Mr Ziegler, in the initiating or conceiving of the transaction and in progressing it to completion. The test suggested by Orrong was stated to be: Can it be said that without the involvement of Orrong (through Mr Ziegler) the finance would not have been raised? Alternatively, the test was expressed as follows: But for the involvement of Orrong (through Mr Zeigler) would this finance have been raised? The "but for" test in the other contexts has been the subject of criticism in that it does not really advance consideration of the matter. I prefer to approach the question in a commonsense way by asking whether Mr Ziegler's involvement in the transaction was so substantial that it caused or brought about or resulted in the finance being raised. Alternatively, was Mr Zeigler's role in the transaction such a primary or dominant one that it caused or brought about or resulted in the finance being raised?

545 I turn then to consider Mr Ziegler's role in the successful raising of the $75 million RDG facility. Orrong submitted that Mr Ziegler (acting on its behalf) was able, over a period of several months, to arrange alternative finance for Roadshow Distributors utilising his close relationship with CIBC. It pointed out that Mr Ziegler introduced Mr Darryn Hugo of Roadshow Distributors to Mr Anton Le Rutte of CIBC's Sydney office. It submitted that thereafter, Mr Ziegler was intimately involved in the transaction from late 2000 until June 2001 when the facility was executed. He had numerous direct communications with Mr Le Rutte. Further, Mr Hugo felt it appropriate to keep Mr Ziegler apprised of all developments in relation to the negotiation, copying Mr Ziegler on all relevant communications with CIBC. He said that he kept Mr Ziegler informed of his discussions with Mr Le Rutte because "from Peter's point of view he had been running with the introduction and the process of generating that funding." Mr Hugo also said that in January 2001 he understood that Mr Ziegler "obviously had a relationship with CIBC that he was trying to foster and drive a deal for Roadshow." Mr Ziegler attended several meetings with CIBC representatives. Mr Le Rutte sent CIBC's draft presentation document to Mr Ziegler for his review. Mr Ziegler made numerous hand-written amendments to the document, all of which were subsequently incorporated by CIBC into its final presentation documents. Similarly, Mr Le Rutte sent CIBC's slide presentation to Mr Ziegler in advance of formally presenting it to Roadshow Distributors.

546 Orrong submitted that VRL had deliberately chosen not to call Mr Hugo, even though he was a critical witness in relation to this issue, and that VRL had offered no explanation for its failure to call Mr Hugo. Orrong therefore submitted it should be inferred that VRL knew that Mr Hugo would not support its case in relation to the RDG facility. As a result of VRL's failure to call Mr Hugo, Orrong was forced to subpoena him to give evidence. Mr Hugo explained that, because his wife was currently employed by VRL, he did not wish to voluntarily give evidence for Orrong. He said that he was prepared to give evidence voluntarily if requested to do so by VRL. He said that he had in fact conferred with VRL's solicitors prior to trial and expected to be provided with a draft witness statement, but that none was provided.

547 Mr Hugo said that the proposed funding to be provided by CIBC was "something quite different to what Roadshow had been engaged in previously and not something I had been exposed to." Mr Hugo rejected the suggestion (made in Mr Le Rutte's original witness statement) that "essentially, Mr Ziegler interposed himself in the initial stages before the transaction went ahead." That statement was later deleted in Mr Le Rutte's amended witness statement. Mr Hugo said that, from his point of view, Mr Ziegler was "the key person on the deal_."_

548 Orrong submitted that Mr Le Rutte, in his witness statement, sought to downplay Mr Ziegler's involvement in arranging the RDG facility with CIBC. In cross-examination of Mr Le Rutte, however, it became clear that he had made his witness statement while overseas after being shown only part of Mr Ziegler's witness statement and only selected documents. Mr Le Rutte agreed that in preparing his witness statement he had not been given all of the contemporaneous correspondence or documents surrounding the arrangement of the RDG facility. He conceded that in expressing opinions in his witness statement about Mr Ziegler's role in relation to the transaction he did not have the benefit of seeing all of the communications with Mr Ziegler. Mr Le Rutte agreed that, with the benefit of looking at all the documents and seeing all of his own communications with Mr Ziegler and communications that Mr Ziegler had with others, Mr Ziegler was, from beginning to end, very much involved in the transaction.

549 Mr Le Rutte further said that:

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554 VRL submitted that there was a team of people involved in establishing the RDG facility. Mr Ziegler made the initial contact. Mr Hugo did most of the day-to-day legwork in providing CIBC with all the information it required. Mr Leggo negotiated the price and instructed the lawyers in respect of documentation. Others, including Mr Burke, attended meetings and presentations. The individuals kept each other informed of progress to ensure, as Mr Hugo put it, that they were all _"_singing from the same hymn book." Yet Mr Ziegler alone sought to take a level of credit that simply did not reflect his involvement. VRL submitted that his claim of $3,724,000, for the introductory call, a few meetings, some telephone calls, and minor reviewing of documentation, effort that could be counted in the hours over a six month period, lacked reality. No-one else received (or claimed) a bonus in respect of the establishment of the facility.

555 VRL argued that Mr Le Rutte did not think Mr Ziegler had done anything of substance in respect of the RDG facility. He thought Mr Ziegler's primary role was introducing the Roadshow Distributors Group to CIBC and his evidence was that he was primarily dealing with Mr Hugo and Mr Leggo. During cross examination he was shown some documents that demonstrated that Mr Ziegler had been in contact more often than Mr Le Rutte could recall, but it did not alter his opinion about the substance of Mr Ziegler's involvement. VRL pointed out that Mr Le Rutte was, for instance, shown an email from his secretary to Mr Ziegler dated 24 April 2001 which showed that Mr Ziegler had inquired about pricing and asked Mr Le Rutte to confirm the inquiry in writing. Mr Le Rutte could not even recall the conversation (though he had said in his witness statement that he may have spoken to Mr Ziegler about pricing issues). Further, and interestingly, there was no evidence from Mr Ziegler that he actually informed anyone of his conversation with Mr Le Rutte, nor that he even bothered to pass on the email he received. Nevertheless, Mr Ziegler kept a copy of the email for his own use.

556 VRL submitted that the evidence of both Mr Leggo and Mr Le Rutte was that Mr Ziegler's involvement was peripheral and that an examination of his role confirmed this. It asked the rhetorical question, what was it, of substance, that Mr Ziegler did? Beyond making the initial contact, Mr Ziegler forwarded presentations prepared by others to CIBC. He amended a presentation that CIBC were proposing to make to VRL. Mr Le Rutte said these amendments were matters of form and not substance. VRL submitted that it was notable that Mr Ziegler even went to the effort of removing relevant experience from the curriculum vitaes of relevant CIBC personnel. He also amended the title of the presentation from "Presentation to Village Roadshow Corporation on the Trade Receivables" to "Presentation to the Roadshow Distributors Group Limited Recourse funding of their Film Receivables" and made corresponding amendments to the text. Mr Ziegler telephoned Mr Le Rutte from exotic locations to be briefed on the status of negotiations that others were undertaking. He inquired about, but did not negotiate, pricing. There was no evidence that Mr Ziegler was involved in the legal negotiations in respect of the transaction documents. Mr Le Rutte maintained throughout his cross examination that Mr Ziegler's role was in shepherding the transaction through, but not "in its construction or design." He also thought much of Mr Ziegler's involvement was form over substance.

557 Ultimately, once the transaction documents were signed, Mr Leggo sent an email to various VRL personnel dated 26 June 2001 in which he thanked Mr Hugo for the "fantastic job" he had done "in putting together all the detail for this very complex transaction and it would not have been completed in the timeframe achieved without his tireless efforts." Mr Hugo modestly acknowledged that this statement was "not untrue". VRL agreed that Mr Hugo's evidence was that Mr Ziegler was the "key person on the deal." However, it submitted that Mr Hugo's understanding that Mr Ziegler had "been running with the introduction" influenced his attitude to Mr Ziegler.

558 In respect of pricing, however, Mr Hugo candidly acknowledged Mr Leggo's specialist role. He said that Mr Leggo was "ultimately involved" in negotiating the fine points of the commercial terms, not necessarily the structure, but the percentage, rates, the limit. Mr Hugo said that Mr Leggo was an expert in that field.

559 In my view, there is substance in VRL's submission that once Mr Ziegler had performed the important task of making the initial contact with CIBC, his subsequent involvement was less important and was largely limited to following how matters developed as a result of the work performed by others, such as Mr Hugo and Mr Leggo, on behalf of the Roadshow Distributors Group. In my opinion, what Mr Ziegler did means that, in terms of my tests, his involvement in the transaction was not so substantial that it caused or brought about or resulted in the finance being raised, or that his role in the transaction was not such a primary or dominant one that it caused or brought about or resulted in the finance being raised. Mr Ziegler's own description of the part he played supports this conclusion.

560 Moreover, even if one accepted Orrong's argument that Mr Ziegler was "intimately involved in the transaction from late 2000 until June 2001 when the facility was executed" and agreed with Mr Hugo's assessment of Mr Ziegler as being "the key person on the deal", I still do not consider that my tests would be met. Unlike the Ballarat and Bendigo film financing projects, Mr Ziegler's role in this transaction was not so substantial or primary or dominant that it could be considered to have caused or brought about or resulted in the finance being raised. Others played an equally important role.

"Non/Limited Recourse" Finance

561 The next reason pleaded by VRL as to why Orrong was not entitled to a performance bonus in respect of the RDG facility was that it was not "non/limited recourse" finance within the meaning of performance bonus (d) in the 1995 Agreement. This discussion proceeds on the assumption that "non/limited recourse" finance has the meaning attributed to it in the above part dealing with the meaning of that term. Even so, VRL submitted that the RDG facility was not "non/limited recourse" finance.

562 Much of the documentation prepared by CIBC in relation to the RDG facility described the facility as "limited recourse." In his evidence, Mr Le Rutte described it in the following terms:

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565 Fortunately, it is not necessary to spend too long examining the terms of each of these documents because, in the end, the parties essentially agreed about what they provided. Where they differed was in how they characterised the final arrangement in terms of whether or not the facility was "limited recourse".

566 There was no limit in the Loan Facility Agreement on the ability of the lender to enforce against the borrower (Roadshow Distributors) in event of default. Clauses 4.3 and 5.4 of the Loan Facility Agreement required repayment of each advance by Roadshow Distributors. There was no limitation on this obligation other than time. Clause 9.1 of the Loan Facility Agreement provided that upon an event of default, the lender might cancel the facility and the borrower (Roadshow Distributors) would pay each outstanding advance immediately. Thus, there was nothing under the Loan Facility Agreement which limited the lender's ability to recover the entirety of the outstanding monies from Roadshow Distributors. There was full recourse to Roadshow Distributors.

567 The Debenture Trust Deed was between Roadshow Distributors and Guardian Trust Australia Limited ("Guardian"). It established a trust settled by Roadshow Distributors of which Guardian was the trustee in favour of debenture holders, such debentures to be issued under the terms of the Deed. Clause 1.5(a) contained a covenant to pay by Roadshow Distributors to Guardian all amounts due to the debenture holders in respect of or arising in connection with the transaction documents and the debentures. The transaction documents include the Loan Facility Agreement. Further, as at the time of a draw of funds under the facility, a debenture was issued by Roadshow Distributors to ASBC, it obtained, as a debenture holder, the benefit of the security that Guardian held.

568 Third party security was given over certain assets by four subsidiaries of Roadshow Distributors, effectively as guarantors of the loan. The Debenture Holders Charge was between Guardian (as chargee) and the four subsidiary companies of Roadshow Distributors (as chargors). Those subsidiaries were Roadshow Home Entertainment Pty Ltd, Roadshow Film Distributors Pty Ltd, Roadshow Television Pty Ltd (in its own capacity and in its capacity as trustee of the Roadshow Unit Trust) and Roadshow Entertainment Pty Ltd. The "Secured Property" was charged to the chargee for the purpose of securing to the chargee payment of the "Secured Money." The "Secured Property" was effectively the current and future receivables of the four chargor companies. "Secured Money" meant all amounts that were payable; that were owing but not currently payable; that were contingently owing; or that remained unpaid. Under clause 1.4 of the Debenture Holders Charge, there was an obligation on the chargee to pay on demand the Secured Money.

569 The effect of these documents was that the lender could take any action it chose to enforce the repayment of the loan against Roadshow Distributors. The lender could also take action as a secured creditor under the charges and if the security (the receivables of the four subsidiaries) was insufficient to meet the amount owing by Roadshow Distributors under the Loan Facility Agreement or the Debenture Trust Deed, the lender could enforce against Roadshow Distributors as an unsecured creditor and get access via this method to the remaining assets of Roadshow Distributors.

570 The Debenture Holders Charge established that the security provided by the four subsidiary companies was limited. Clause 2.3 provided that:

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571 However, this limitation on recourse only applied to the four subsidiary companies and did not apply to Roadshow Distributors' obligations under the Loan Facility Agreement. It was this Charge that Mr Ziegler said contained "the limitation on recourse." However, this limitation was not directed at the obligations of Roadshow Distributors, but those of its four subsidiary companies. Roadshow Distributors remained fully liable to repay the loans.

572 The Future Property Charge was to the same effect but related to future receivables.

573 Under the Cross Guarantee, Roadshow Distributors and its four subsidiaries provided a cross guarantee and indemnity to Guardian, as trustee of the Debenture Trust Deed. The Cross Guarantee was in respect of each Roadshow company's obligations of all of their mutual obligations to the trustee. It covered all moneys due to the lender.

574 Ultimately, therefore, the only limitation of the RDG facility was in respect of the security provided. VRL submitted that having "security" over assets in the event of default was a matter of importance to lenders because they were not usually satisfied by the prospect of having to undertake the tedious task of suing companies, obtaining judgment and then attempting to enforce that judgment against the general assets of the company (potentially competing for the spoils with all the other creditors the company might have). It was not hard to understand, VRL argued, why people such as Mr Le Rutte and Mr Leggo had the issue of security at the front of their minds when negotiating the facility. It was apparent from their evidence that when they referred to the "limited recourse" nature of the facility they were referring to the limited nature of the securities given. This was, however, not necessarily the same limitation as the one Orrong had to make out to prove its case.

575 As previously discussed, I have held that the meaning of " 'non/limited recourse' financing" in the 1995 Agreement was finance raised where the recourse obtained by the lender was of a limited nature, being limited to certain assets of the borrower, such as a particular class of assets or assets acquired with the funds provided by the financing.

576 Orrong submitted that the RDG facility was "limited recourse" finance because:

[380]

Orrong submitted that this meant that under the RDG facility, the lender had no recourse to the most valuable assets within the Roadshow Distributors Group, namely the pre-paid film rights (that is, the film library) in the event of default under the facility.

577 In the context of a borrowing by the Roadshow Distributors Group, I do not consider that the fact that there was no recourse to VRL is significant when the liability of Roadshow Distributors, the principal company in the Group in question, was unlimited. Orrong's argument was based on the fact that the security was limited, with the result, it was claimed, that there was no recourse to the valuable film library held by the four subsidiaries of Roadshow Distributors. But, in my opinion, that so-called limitation was in fact illusory when there was full recourse against the owner of the subsidiaries, which in the event of default could be wound up and its assets, including the shares in the subsidiaries, sold. Thus, the film library was not safe from the lender. Moreover, by letter dated 5 June 2001 from Mr Le Rutte and Mr McIntosh to Mr Leggo, it was "confirmed" that CIBC had provided credit approval for the $75 million facility "subject to the additional condition that the disposal/sale of the film library, without the prior approval of CIBC/ASBC, will be an Event of Default." That is, Roadshow Distributors had to retain the film library in case the lender needed it to enable its loan to be recovered.

578 A limitation on security is not in these circumstances, in my opinion, enough to constitute the RDG facility as "non/limited recourse" finance within the meaning of performance bonus (d) in the 1995 Agreement.

New Finance

579 VRL submitted that the $75 million RDG facility provided by CIBC was not new finance, in that it replaced an existing facility that the Roadshow Distributors Group had with Westpac. Although this was pleaded as a further reason why no performance bonus was payable, it was never really explained why the RDG facility was not new finance.

580 Orrong submitted that the RDG facility was, in every sense, a new financing facility. It further submitted that, in any event, there was no provision in the 1995 Agreement that resulted in no performance bonus being payable where the "non/limited recourse" finance raised was in replacement of an existing financing facility.

581 In my opinion, there is no substance in VRL's submission. As a result of Westpac's unexpected decision to terminate its facility, a new facility had to be arranged. It seems to me to be quite clear that where there is a new lender and new terms and conditions of the facility including a new limit of $75 million, the facility comes within the expression "financing raised" in the wording of performance bonus (d) in the 1995 Agreement.

Not Fully Drawn Down

582 The final reason pleaded by VRL in answer to the claim for a 5% performance bonus in respect of the $75 million RDG facility was that the finance was not fully drawn down. VRL submitted that Mr Ziegler initially tried to make the facility limit larger, but that it was reduced at the insistence of others within the Roadshow Distributors Group. This emphasis on Mr Ziegler's involvement is to some extent inconsistent with VRL's submissions seeking to downplay his role, in my opinion. Nevertheless, it is clear that $75 million was the smallest limit that CIBC would consider in respect of the facility. The reduction in the facility caused other changes in the pricing and almost caused the deal to founder.

583 VRL submitted that $75 million was not "raised" in any meaningful sense because everybody in the Roadshow Distributors Group understood that the funding request was only about $40 million. Nevertheless, the fact is that Roadshow Distributors entered into a facility with a limit of $75 million, not $40 million. The Westpac facility had been between $34 and $38 million. Although it was not entirely clear, it appears that during the life of the facility, the maximum level of the drawdown did not exceed $40 million. Presumably, therefore, VRL would have to accept that if the other criteria for the performance bonus were met, Orrong would be entitled to a performance bonus calculated on the $40 million drawn down rather than on the $75 million limit.

584 However, I do not accept that any performance bonus would be properly calculated under the 1995 Agreement by reference to the amount drawn down. The wording was "financing raised" and it is not to the point, in my opinion, that the Roadshow Distributors Group did not draw down all of the available $75 million. That was the amount of the "financing raised" by the Roadshow Distributors Group when the facility was accepted. Further, if one is to read in a reference to the amount drawn down, the question arises whether this is to be the maximum amount ever drawn down during the life of the facility or, if the facility is a revolving facility, the total amount drawn down from time to time during the life of the facility. Therefore, in my opinion, if a performance bonus had been payable the amount would be calculated on the basis that the amount of the "financing raised" was $75 million, being the limit of the facility.

Conclusion

585 For the two reasons discussed above, namely that the RDG facility was not raised as a direct result of the efforts of Mr Ziegler on behalf of Orrong and that it was not "non/limited recourse" finance within the meaning the 1995 Agreement, I have concluded that Orrong's claim for a performance bonus of $3.724 million fails.

Other Performance Bonus Claims

586 The only other performance bonus claims made by Orrong are under the "taxes saved" clause. They are as follows:

[382]

587 There was no dispute by VRL that the 5% of "taxes saved" performance bonus in the 1995 Agreement had been varied to a "taxes saved" performance bonus of 0.5% of VRL's net profit, after tax and abnormals, first as a "proxy" as agreed by Mr Ziegler and Mr Foo in early 1996 and then permanently as set out in Mr Foo's memorandum of 21 June 2000 to Mr Ziegler. There was also no dispute that by Mr Zeigler's memorandum dated 27 June 2001 to Mr Burke it was agreed that the consultancy would continue for a further term of one year on virtually the same terms as the 1995 Agreement, but specifically excluding any termination bonus. Further, VRL agreed with the relevant profit figures for VRL and the 0.5% calculation.

588 However, VRL denied that these two amounts were payable to Orrong because of the defences raised under the corporations legislation and the Legal Practice Act 1996, which are considered below, and the issue of whether Orrong was the correct person entitled to make this claim, which has been considered above. Alternatively, VRL submitted that if anything was held to be payable to Orrong for these two claims, then VRL was entitled to set them off against any amount found to be owing under its counterclaims against Orrong and that such set-off extinguished the two claims totalling $530,900.

589 I will return to the issues of the claim for unpaid profit shares and the claim for the unpaid "taxes saved" performance bonuses when considering VRL's further defences and counterclaim.

Misleading Conduct and Negligence

590 In its defence and counterclaim VRL pleaded that Orrong and Mr Ziegler engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s.52 of the Trade Practices Act 1974 (Cth) ("the TPA") and equivalent provision in s.11 of the Fair Trading Act 1985 ("the 1985 FTA") and in s.9 of the Fair Trading Act 1999 ("the 1999 FTA"). VRL also relied on the same conduct as constituting negligent misstatement by Orrong and Mr Ziegler.

591 VRL alleged three different categories of representations said to constitute the misleading conduct and negligence. They related to:

[386]

594 In dealing with the 1997 Agreement I have found that it encompassed the grant of the 5.25% interest in VRP as a performance bonus in lieu of payment of the performance bonus of US$10 million and that otherwise the terms of the 1995 Agreement remained the same. However, apart from the question of whether or not the 5.25% interest in VRP is to be taken into account in the calculation of the termination bonus, nothing turns on this distinction sought to be made by VRL.

595 As I have said, in my opinion the 5.25% interest in VRP was agreed by Mr Kirby and Mr Ziegler to be a substituted form of performance bonus in lieu of the US$10 million and that it could be taken into account, if appropriate, if the amount of the termination bonus had to be calculated. That has not occurred, because no termination bonus was payable and even if it were, I have concluded that the "three preceding financial years" in the formula did not include the financial year ended 30 June 1998, which means that the 5.25% interest in VRP is not a relevant performance bonus. Moreover, I have also held that under the terms of the 2000 Agreement VRL and Orrong agreed that the 5.25% interest should be treated as a performance bonus for the purpose of any relevant calculation of the termination bonus.

596 That leaves the second category of misleading conduct and negligence. VRL in effect pleaded 12 separate representations in respect of Project Ballarat ("the Ballarat representations") and 15 separate representations in respect of Project Bendigo ("the Bendigo representations"). Of the 15 Bendigo representations, eight repeated Ballarat representations, four were similar to Ballarat representations and three were separate misrepresentations. Alternatively, VRL said that Mr Ziegler and Orrong were negligent in respect of their advice about the Ballarat and Bendigo facilities.

597 The twelve common or similar representations alleged by VRL were said to have been made, in respect of the Project Ballarat, on about 5 May 1997 and continuing and, in respect of Project Bendigo, in about December 1997 and continuing. The eight common representations were that:

[399]

Again, these separate Bendigo representations related to the likely financial results or profit and loss outcomes of Project Bendigo.

601 VRL pleaded that relying upon the Ballarat representations, it entered into and undertook the Project Ballarat transaction, raised the Project Ballarat finance, made certain payments to Mr Ziegler, Orrong and/or Remut, and entered into the 1997 and 2000 Agreements. It further pleaded that relying upon the Bendigo representations it entered into and undertook the Project Bendigo transaction, raised the Project Bendigo finance, made certain payments to Mr Ziegler, Orrong and/or Remut, and entered into the 2000 Agreement. VRL then pleaded that insofar as the Ballarat and Bendigo representations related to future matters, it relied upon s.51A of the TPA and/or s.10A of the 1985 FTA and s.4 of the 1999 FTA, and that insofar as the Ballarat and Bendigo representations related to existing matter of fact they were false and untrue.

602 Damages were sought by VRL for the alleged misleading conduct and for negligence. The loss and damage said to have been suffered by VRL included amounts paid in connection with the 1997 Agreement and the 2000 Agreement, any further amounts for which it may be held liable under the 1995, 1997 and 2000 Agreements, costs and expenses associated with this proceeding and the payment of certain other amounts.

603 In my opinion, VRL cannot succeed in its claim for damages for misleading conduct or negligence even if the other parts of the respective causes of action were made out. This is because VRL made no attempt to establish that it had in fact suffered loss and damage apart from referring to certain payments it had made, or might have to make, as a result of entering into the 1997 and 2000 Agreements in reliance on the Ballarat and Bendigo representations. But VRL also alleged that in reliance on the same representations it entered into the Project Ballarat and Project Bendigo transactions. There was simply no evidence concerning what was the overall financial outcome of these transactions. Unless it was demonstrated, on the balance of probabilities, that VRL was worse off as a result of these transactions, including in those calculations the amount of the payments it now complained about, no loss was proved.

604 The closest VRL got to addressing this issue was the following comment by Mr Foo during cross-examination, when it was put to him that VRL had made hundreds of millions of dollars of profit from the two projects which produced films such as "The Matrix" Mr Foo said:

[401]

That vague claim by Mr Foo, which was never supported by a detailed, or even any, analysis of the financial results to VRP and VRL flowing from the Project Ballarat and Project Bendigo transactions goes nowhere near proving that any loss was suffered.

605 Although VRL sought other relief in respect of the alleged misleading conduct such as orders under s.87 of the TPA and/or s.41 of the 1985 FTA and/or s.158 of the 1999 FTA setting aside the 1997 Agreement and the 2000 Agreement wholly or to the extent that they respectively entitled Orrong to the 5.25% interest and the 2.25% interest or varying those Agreements to that extent, these claims must also fail as they presuppose that the party seeking such relief has proved that it has suffered or is likely to suffer, loss and damage. The lack of proof of loss and damage means that the claim in negligence must also fail.

606 Although it is, therefore, not strictly necessary to examine other disputed issues involved in these causes of action, I will briefly consider some of them in case I am wrong about the loss and damage point.

607 First, it seems to me that VRL did, in any event, fail to make out the misleading conduct and negligence causes of action because it was not established to my satisfaction that VRL relied on one or more of the Ballarat representations in deciding to enter into the Project Ballarat transaction or the 1997 or 2000 Agreements or that it relied on one or more of the Bendigo representations in deciding to enter into the Project Bendigo transaction or the 2000 Agreement.

608 Particulars were given of the Ballarat representations in VRL's defence and counterclaim. Insofar as the representations were in writing they were said to be "evidenced by, inter alia, memoranda from Ziegler and/or the plaintiff dated 5 May 1997, 17 December 1997, 12 March 1998 and 1 February 1999." As Orrong pointed out, given that the Project Ballarat transaction was finalised on 31 October 1997, the later memoranda referred to by VRL are irrelevant. Further, whilst I find that many of the statements contained in the Ballarat representations were to be found in Mr Ziegler's memorandum of 5 May 1997, despite Orrong's non-specific assertions to the contrary, a further six months of investigation, scrutiny, consideration and refinement of the proposal by VRL's own accounting and finance staff and its external advisers such as Ernst & Young, Ambac, CIBC, Herbert Geer & Rundle and various lawyers in the USA took place before it was finally decided to proceed. In the circumstances, it seems extraordinary to me for experienced businessmen such as Messrs Kirby, Burke and Foo to maintain that their decision to agree to enter the Project Ballarat transaction was in any way dependent on what had been said by Mr Ziegler six months earlier rather than on their own understanding of what the proposal meant for VRL based on their own and others' consideration of all of the issues in the intervening six months. VRL's case would require me to conclude, for example, that if the representation that the Project Ballarat finance was "non-recourse" or "limited recourse" finance was false, that this statement in the memorandum of 5 May 1997 was to some extent relied on by Mr Kirby, Mr Burke or Mr Foo when deciding, nearly six months later, to commit VRL to proceeding with the Project Ballarat transaction, rather than on their own consideration of what the transaction entailed for VRL in terms of financial obligations and downside risks. I do not accept that this was the case. This lack of reliance, in my opinion, destroys any argument that there was a "causal connection between the contravention and loss and damage."[47] VRL has not even demonstrated that one or more of the representations was "a cause of the loss or damage sustained."[48] Given the work done on Project Ballarat by Mr Basser of Herbert Geer & Rundle, I agree with Orrong's submission that the failure by VRL to call him as a witness enables me to more readily reach the conclusion that there was no such reliance.

609 VRL strongly disputed the submission that there was no reliance on, and thus no causal connection between, Mr Ziegler's representations and VRL's decision to enter into the Project Ballarat and Project Bendigo transactions. It submitted that while other advisers were engaged in relation to the arrangements, most if not all of the advice came to the Board via Mr Ziegler. VRL also submitted that, notwithstanding partial reliance on people other than Mr Ziegler, VRL still materially relied on his representations. For example, Mr Foo said:

[403]

Although Mr Foo withdrew during cross-examination some of his sillier allegations about the failure by Mr Ziegler to tell him about various features of the structure of the Project Ballarat transaction, the main thrust of his complaints remained. Moreover, Mr Ziegler agreed that he was the major adviser to the Board in relation to the Project Ballarat transaction. He also agreed that he was the man doing all the negotiating with the insurance companies, the banks, the lenders.

610 Nevertheless, it does not follow, in my opinion, that I should find that the Board was misled by anything said by Mr Ziegler. For example, although Mr Conn said in his witness statement that Mr Ziegler "consistently referred to the financing as being without risk to VRL", he did not go on to say that he took that statement literally and relied on it. On the contrary, Mr Conn said that he "preferred to accept the views of Foo that there was risk but that it was manageable." Mr Conn also said that "in deciding to approve the Ballarat transaction" he relied upon "the various briefings by Ziegler, Burke and ... Foo."

611 Further, the majority of VRL's Board of Directors were not called to give evidence, so it is not known whether they would also have said that they relied on Mr Ziegler's representations when they decided that VRL should enter into the Project Ballarat and Project Bendigo transactions. Project Ballarat was finalised on 31 October 1997. According to VRL's 1998 Annual Report, of the directors at that time Mr John Kirby had been a director since August 1988, Mr Alan Rydge since August 1988, Lord Puttman since June 1989, Mr Terence Jackman since July 1993, Lord Hollick since February 1997 and Mr John O'Neill had only joined the Board in October 1997. None of these gentlemen gave evidence. A similar situation existed with respect to the Project Bendigo transaction, which was finalised in December 1999. According to VRL's 2000 Annual Report Mr John Kirby was still a director, Lord Puttman ceased to be a director in November 1999, Mr Jackman ceased to be a director in December 1999, Mr Charles Stern had been a director since December 1998 and Mr Barry Reardon a director since March 1999. None of these five gentlemen gave evidence.

612 Insofar as the Ballarat representations were said in the particulars to be oral, they were limited to statements made by Mr Ziegler to Mr Kirby and Mr Burke the material substance of which was said to be to the effect referred to in sub-paragraphs (d), (e) and (f) of the Ballarat representations referred to above. Essentially, these were an allegation that Mr Ziegler represented that the Project Ballarat transaction would make money and was risk free for VRL. Again, I find it extraordinary that Mr Kirby and Mr Burke would say that their decision was based, even if only partly, on Mr Ziegler's statements rather than on their own considered opinion of the possible advantages and potential risks of the proposed transaction based on all of the information provided to them. That is, their decision in favour of proceeding with the Project Ballarat transaction relied not on Mr Ziegler's statements to them but on their own considered opinion.

613 Insofar as the Ballarat representations were said in the particulars to be implied, they were "to be implied from, inter alia, the terms of the said documents and by Ziegler's silence in relation to any other risks that did or may exist ..." In my opinion, this does not add anything to what was actually said in the 5 May 1997 memorandum.

614 It was also said that the representations referred to in sub-paragraphs (g) and (h) of the Ballarat representations were to be implied from Mr Ziegler's silence in relation to these matters. These two alleged representations related not to the likely financial results or profit and loss outcomes of Project Ballarat and Project Bendigo but to the relationship between Orrong's and/or Mr Ziegler's entitlements under the 1995 and 1997 Agreements and the two Projects.

615 With respect to the first of these representations (sub-paragraph (g)), it was common ground that Mr Ziegler never mentioned to the VRL Executive Committee or the Board that he was expecting to receive a US$10 million performance bonus in respect of the Project Ballarat transaction until it was raised in his meeting with Mr Kirby in New York on 4 September 1997. The only indirect reference was Mr Ziegler's claim, when giving evidence, that in January 1997 he had told Mr Kirby that they would both be "financially pleased" if the Project Ballarat transaction was successful and that Mr Kirby had replied that he had given Mr Ziegler "every incentive to do just this type of transaction and it could be a transformational one for Village Roadshow." Mr Kirby denied that this conversation had taken place. Given that this evidence was not referred to in Mr Ziegler's lengthy witness statements and given his evidence that on 4 September 1997 he had told Mr Kirby that he thought it was academic to discuss the 5% performance bonus payable on a successful completion of the Project Ballarat transaction until he felt certain that this very difficult transaction could be consummated, I do not accept Mr Ziegler's evidence about the January 1997 conversation. Nevertheless, I am also not persuaded that the claim of the 5% performance bonus was as unexpected as Messrs Kirby, Burke and Foo maintained. They were aware of the terms of the 1995 Agreement. Mr Foo conceded that he suspected that Mr Ziegler was of the view that the 1995 Agreement gave rise to an entitlement in respect of Project Ballarat. That was why he faxed the document to Mr Kirby in New York.

616 However, this is all past history. The claim that Orrong was entitled to a 5% performance bonus in respect of Project Ballarat was disclosed to Mr Kirby before the transaction in question was finalised. Mr Kirby agreed that he said that Project Ballarat would not go ahead unless Mr Ziegler gave up the claim. It was agreed in Los Angeles on 8 September 1997 between Mr Kirby and Mr Ziegler acting on behalf of their respective companies that in lieu of the US$10 million performance bonus, Orrong would receive a 5.25% equity interest in VRP, meaning a 5.25% ownership interest in, and a right to 5.25% of the profits of, VRP. I have found that the agreement was that the disputed performance bonus would be replaced by this new form of performance bonus and that otherwise the 1995 Agreement remained the same. Thus, in my opinion, the allegation that VRL entered into and undertook the Project Ballarat transaction, raised the Project Ballarat finance, made any payments or entered into any 1997 or 2000 Agreements in reliance on the representation by silence on the part of Mr Ziegler that no fee or performance bonus was payable under the 1995 Agreement fails on the facts.

617 With respect to the second of these representations (sub-paragraph (h)), that concerning the termination bonus, the findings of fact I have already made concerning the 1997 and 2000 Agreements, mean that this claim also fails.

618 Similar particulars were given of the Bendigo representations. Insofar as they were in writing they were said to be "evidenced by, inter alia, the memoranda from Ziegler and/or the plaintiff dated 17 December 1997, 12 March 1998 and 1 February 1999." Yet the Project Bendigo transaction was not finalised until November 1999 nearly two years after the earliest of these documents . This transaction was clearly subjected to greater scrutiny and discussion than Project Ballarat. Three reports were obtained from Mr Wilson of Salamon Smith Barney in June 1998, August 1999 and November 1999, for example, I therefore do not see any reason not to conclude that VRL did not rely on Mr Ziegler's alleged representations when deciding to enter into the Project Bendigo transaction.

619 Insofar as the Bendigo representations were said in the particulars to be oral, they were limited to the same statements made by Mr Ziegler to Mr Kirby and Mr Burke as was considered above in respect of the Ballarat representation. Again, I consider the same conclusion should be reached in respect of these representations.

620 With respect to the allegation of general implied Bendigo representations, the documents and conversations speak for themselves.

621 Finally, with respect to the Bendigo representations said to have been made by silence on the part of Mr Ziegler concerning the performance bonus (sub-paragraph (g)) and the termination bonus (sub-paragraph (h)) the same result must follow. As the above discussion of the protracted negotiations leading up to the 2000 Agreement shows, VRL was well aware that Mr Ziegler was claiming that Orrong was entitled to a performance bonus of 5% of the finance raised on the successful completion of the Project Bendigo transaction. The parties eventually negotiated a compromise of that claim. The termination bonus representation also fails on the facts.

622 Given the failure by VRL to prove that it has suffered any loss or damage as a result of the alleged misrepresentations, there seems to be no point in examining whether VRL was correct in asserting that the Ballarat and Bendigo representations relating to the likely financial results or profit and loss outcomes of the respective Projects were false. I do propose, however, to consider whether it was accurate to describe the Project Ballarat finance and the Project Bendigo as "non-recourse" or "limited recourse" finance. As with the RDG facility documentation, it seemed to me that, in the end, the parties were not disputing what the complex Project Ballarat and Project Bendigo documentation provided. Where they differed was in how they characterised the arrangements in terms of whether or not the finance raised was "non-recourse" or "limited recourse."

623 VRL submitted that the Project Ballarat and Project Bendigo transactions involved full recourse to VRL and therefore that they were neither "non-recourse" or "limited recourse". VRL illustrated its point by referring to the Undertaking and Guaranty dated 31 October 1997, being one of the documents in the Project Ballarat transaction. Mr Ziegler signed the document on behalf of VRL. It was an unconditional and irrevocable guarantee by VRL of the punctual payment and performance when due of all obligations of Village Roadshow Pictures (BVI) Limited ("VRPB") and Village Roadshow Distribution (BVI) Limited ("VRD")[49] in favour of VRF and other Indemnified Parties, including the Lenders and the Equity Holders. The guarantee was "absolute"[50] and was enforceable against VRL.[51] The Guaranteed Obligations included those of VRD under the Master Agreement.[52] As it was these obligations of VRD which, VRL submitted, exposed VRL to potential full recourse, it is necessary to look briefly at them.

624 Under section 5 of the Master Agreement VRD, as the Master Distributor, had numerous obligations including obligations:

[415]

The Applicable Legislation

630 There was considerable debate between the parties as to the time at which the application of the corporations legislation provisions should be considered. This was important because of changes in the form of the legislation over time. Orrong submitted that in each case the relevant time was the making of the particular Agreement whereas VRL submitted that in respect of the "retirement from office" provisions the relevant time was when the payment was made or it fell due and in respect of the "related party financial benefits" provisions the relevant time was either the making of particular Agreements or the times when payments were made or fell due under the Agreement in question. It is therefore necessary to look at what the corporations legislation was from time to time.

631 In late 1995 the applicable corporations legislation was the Victorian Corporations Law. That law, the text of which was set out in s.82 of the Corporations Act 1989 (Cth), as in force for time being, was applied in Victoria by s.7 of the Corporations (Victoria) Act 1990.[53] I refer hereafter to this statutory regime as the "Corporations Law 1995-1999."

632 On 13 March 2000 the Corporate Law Economic Reform Program Act 1999 (Cth) ("CLERP") came into force. CLERP amended the Corporations Act 1989 (Cth) and, by operation of s.7 of the Corporations (Victoria) Act 1990, the amendments made to the Corporations Act 1989 (Cth) operated as amendments of the Victorian Corporations Law.[54] I refer hereafter to this statutory regime as the "Corporations Law 2000". On 15 July 2001 the current regime, the Corporations Act 2001 (Cth), came into force.

633 Certain transitional provisions of the corporations legislations apply. I note that although s.1470 of the Corporations Law 2000 stated that the related party provisions in the old law (the Corporations Law 1995-1999) continued to apply in certain circumstances including if "(c) the benefit is given under a contract made before commencement", there was no specific preservation of the retirement from office provisions.

634 Part 10.1 of the Corporations Act 2001 contains further relevant transitional provisions. Section 1370 of the Corporations Act 2001 states that the object of this Part is to provide for a smooth transition from the old cooperative scheme to the new Commonwealth regime, so that all persons are placed by the new legislation, to the greatest extent possible, in the same position they would have been under the old legislation.

635 Section 1400 of the Corporations Act 2001 is an important provision. It provides that, where a right or liability was acquired, accrued or incurred under a "carried over provision" immediately in force before the commencement of the Corporations Act 2001 (such as section 208 of the Corporations Law 2000 in force from 13 March 2000 until midnight on 14 July 2001), a person acquires, accrues or incurs a right or liability equivalent to the pre-commencement right or liability under the corresponding provision of the Corporations Act 2001, "as if that provision applied to the conduct or circumstances that gave rise to the pre-commencement right or liability."

636 Section 1401 provides that where a right or liability was acquired, accrued or incurred under a pre-commencement provision which had been repealed prior to commencement of the Corporations Act 2001 on 15 July 2001 where the right or liability continued to exist immediately before the commencement of the Corporations Act (that is the Corporations Law as it relevantly operated between 1995 and 1999), the Corporations Act 2001 is taken to include the repealed provision under which the pre-commencement right or liability was acquired, accrued or incurred and any other repealed provisions which applied in relation to the pre-commencement liability.

637 In summary, pursuant to ss.1400 and 1401 of the Corporations Act 2001, the rights and liabilities arising under the Corporations Law 1995-1999 and Corporations Law 2000 are preserved. However, different sections will apply depending on the time when the right or liability was acquired, accrued or incurred. This means that reference will need to be made to obligations and entitlements which arise pursuant to the Corporations Law 1995-1999, the Corporations Law 2000 or the Corporations Act 2001.

The Purpose of the Relevant Statutory Provisions

638 VRL submitted that the purpose behind relevant statutory provisions was clear. They were enacted to protect the interests of minority shareholders. It was submitted that the "retirement from office" provisions and the "related party financial benefits" provisions were directed towards preventing the dilution of company resources without the prior approval of shareholders. VRL further submitted that it was also clear that these provisions were specifically designed to protect the interests of shareholders as a whole (which includes not only existing members, but also future interests and the continuing enterprise). This was particularly true for a public company which is listed on the stock exchange.

639 When speaking of the "retirement from office" provisions in the Corporations Law 2000 Walton J observed in Fox v GIO Australia Ltd[55]:

[463]

668 In Re New World Alliance Pty Ltd; Sycotex Pty Ltd v Baseler (No 2)[62] one of the issues involved in an application under s.592 of the Corporations Law was whether the company secretary was a person who "took part in the management of the company, at the time when the debt was incurred." The trial judge, Gummow J, held that taking part in the management of a company required "that the person have some decision-making role in the company."[63] Thus, the company secretary who, it was held, was a mere employee who took orders from those who actually made the management decisions and whose role at most involved the making of suggestions of an accounting nature which might or might not be acted upon by the directors, was held not to be a person who "took part in the management of the company."

669 VRL submitted that what these and other authorities made clear was that taking part in management was not confined to matters performed by the board of directors or a managing director although it involved more than carrying out day to day routine functions in accordance with pre-determined policies. As Orrong submitted, the term "manage" is suggestive of control and means taking an active part in running the operations of a business, being responsible for decision making and the direction of a business. Further, as Austin, Ford and Ramsey[64] point out, some guidance was to be found in s.206A which specified the circumstances when a person who was disqualified for managing corporations under Part 2D.6 committed an offence. These included making, or participating in making, "decisions that affect the whole, or a substantial part, of the business of the corporation" or exercising "the capacity to affect significantly the corporation's financial standing."

670 VRL submitted that Mr Ziegler's conduct clearly satisfied these requirements. It argued that Mr Ziegler, whilst carrying out his duties under the 1995 Agreement, was involved in the management of VRL. He effectively ran VRP, a division of VRL. His own evidence, and that of VRL's witnesses, clearly established his "management" role. His new job title of "Director, Fiscal, Legal & Strategic Objectives", which he sought, was descriptive of such a role. VRL pointed to the fact that Mr Ziegler was appointed Chairman of VRP in January 1996; he was a director (alternate or actual) of VRL from 3 October 1995 to 22 December 1999; and was a director of the related body corporate, VRC, from 22 December 1999 to 30 June 2001.

671 In my view, a number of contemporaneous documentary references support the conclusion that Mr Ziegler was involved in the management of VRL. His appointment as Chairman of VRP and Executive in charge of "Village Roadshow production from the Home Office" was made in a memorandum from Mr Burke to Mr Ziegler on 24 January 1996. In this memorandum Mr Burke said that "there is no-one in our Group who is better at 'sculpturing' and strategising deals. This is the core of the success of the business" and referred to it being "very good for you to have a business to run." In the managing director's report of Mr Burke for the Board Meeting in March 1996 Mr Burke referred to the Production division and said that in order to ensure breadth and spread of management, "senior cabinet minister Peter Ziegler has taken on the Chairmanship [of VRP] and will be Executive Director's (Greg Coote's) running mate in building this business."

672 In VRL's 1996 Annual Report Mr Ziegler was described as "Director, Fiscal, Legal and Strategic Objectives" and as the "Alternate Director to Gregory Coote." He was said to be responsible for fiscal and legal affairs and advising on group strategies. He was described as the Chairman of VRP and an Executive Committee Member. The terms of reference of the Executive Committee set out in the 1996 Annual Report included:

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673 Similar descriptions of Mr Ziegler's role were contained in VRL's Annual Report for the next two years. In VRL's 1999 Annual Report Mr Ziegler was similarly described and it was also said of him that he had "responsibility for the formulation and implementation of strategies for the Group with emphasis on film production and exhibition divisions."

674 On the day Mr Ziegler ceased to be a director of VRL with effect from 22 December 1999 and a member of the Executive Committee, his appointment as a director of VRC was announced. The press release noted that Mr Ziegler would "continue in his role as a consultant to VRL in a number of areas, including Film Production, Exhibition of special projects" and stated that he "has led Village's move into becoming a major international film production company, including a co-venture with Warner Bros."

675 In a memorandum dated 14 January 2000 from Mr Burke to Mr Ziegler, Mr Burke confirmed Mr Ziegler's "on-going role" as including "VRP Management - to be the point person for VRP as to all issues. Bruce Berman will effectively report to you except as to creative decisions ..." In an undated document entitled "Re-direction Village Roadshow Pictures", which Mr Burke circulated to Mr Berman and a number of senior VRL executives, it was said: "So that within Village Roadshow Limited VRP has a champion, it has been agreed that as part of his consultancy Peter Ziegler will be our point person as to all aspects of running the business except creative ..." On 18 February 2000 a confidential memorandum from Mr Burke to numerous persons (including a copy to Mr Ziegler) noted that in relation to "the forthcoming IPO" of VRP the "buck will stop" with Mr Ziegler. Mr Ziegler himself referred to his _"_ongoing role as the person responsible for the funding of VRP's operations" in a note to Mr Burke on 16 May 2001.

676 I therefore consider that up until 30 June 2001 Mr Ziegler was holding a managerial office with VRL and a board and managerial office with VRC, a related body corporate to VRL.

In Connection With Retirement

677 The next question is whether Mr Ziegler retired from those board or managerial offices at that time, and if so, whether the termination bonus claimed by Orrong was one made "in connection with" his retirement from such an office. Although the 1995 Agreement ended on 30 June 2001 Mr Ziegler continued to work for the Village Roadshow Group for another year pursuant to the 2001 Agreement. Thus, Orrong submitted that there was no relevant retirement bringing s.200B of the Corporations Law 2000 into play. Orrong further submitted that none of the managerial roles or positions relied on by VRL both commenced on 1 July 1996 and concluded on 30 June 2001.

678 VRL maintained that there was a significant change in Mr Ziegler's role after 30 June 2001 with the result that he had retired from his managerial office with VRL on that date. It pointed out that Mr Ziegler resigned as a director of VRC on that date. Further, it submitted that the 2001 Agreement made on or about 27 June 2001 provided clear evidence of a contemplated change to Mr Ziegler's role within VRL in that it provided that Mr Ziegler would resign from the Board of VRC, would resign from the Board of VRF with effect from 1 January 2002 and would take on new job titles, namely "Financial Advisor to the Board - Village Roadshow Pictures" and "Financial Advisor to the Board - Village Roadshow Limited". VRL argued that the change to an advisory role indicated that Mr Ziegler was no longer in a managerial role.

679 I do not consider that Mr Ziegler retired from his managerial role with VRL on 30 June 2001. He in fact continued as a director of VRF, obviously an important company within the Village Roadshow Group, until 30 June 2002. The word "retirement" means a cessation or "withdrawal from an office or occupation".[65] Mr Ziegler's services continued to be provided by Orrong to VRL, this time pursuant to the 2001 Agreement, until 30 June 2002.

680 Nevertheless, Mr Ziegler did retire from a board or managerial office with VRC on 30 June 2001. The question therefore is whether the termination bonus was payable "in connection with" this retirement from his managerial role with VRC, or from his managerial role with VRL if I am wrong on my view of him continuing to occupy a managerial office with that company.

681 VRL submitted that there was the necessary connection between Mr Ziegler's retirement from his managerial office and the giving of the benefit. It pointed out that the benefit was called a "termination bonus" in the agreement. This was the word expressly used in the heading by the legislation. VRL argued that Orrong's case was that the right to a "termination bonus" arose because the engagement under the 1995 Agreement had expired. Unless Mr Ziegler's "office" was terminated, Orrong was not entitled to the bonus. It was the fact of this "retirement" which activated the clause pursuant to which the termination bonus was payable.

682 I do not agree. The termination bonus was purportedly payable because the 1995 Agreement came to an end with the effluxion of time. It had nothing to do with whether or not Mr Ziegler retired from a managerial office. I have found that Mr Ziegler continued to perform such a role after 30 June 2001, but under a different Agreement, not the 1995 Agreement. The 2001 Agreement was not, according to its terms, a variation or extension of the 1995 Agreement. It was an entirely new Agreement.

683 In Whitlam v Insurance Australia Group Limited[66] Einstein J considered the operation of the very similar provisions of ss.200B to 200G of the Corporations Act 2001 in the context of whether a particular superannuation payment was made "in connection with" a person's retirement as a director. His Honour quoted the statement by Hudson J in Lincoln Mills (Aust) Ltd v Gough[67] that "the nature and circumstances of the payment must be looked at with a view to determining its true character" and reiterated that "mere contemporaneity will not establish a sufficient connection." Einstein J said that "to put it colloquially, there will be a connection where the superannuation payment 'had [something] to do with' Mr Whitlam's resignation."[68]

684 I consider that the termination bonus, if it had been payable on 1 July 2001 because the 1995 Agreement terminated on that date, would not have been a payment made "in connection with" Mr Ziegler's retirement from his board or managerial position with VRC. There was no relevant connection between any retirement from office and the payment of the termination bonus. As Orrong pointed out there was nothing in the 1995 Agreement which required or pre-supposed, or was contingent upon, Mr Ziegler holding any particular "office." Orrong's right to receive the termination bonus and VRL's obligation to pay it "was in no way dependent upon" Mr Ziegler's loss of or retirement from any office held by him.[69] There was no causal nexus between them. My conclusion would, however, have been different if I had held that Mr Ziegler had retired from his managerial position, and ceased all involvement, with VRL on 30 June 2001. In that case, there would have been a connection, in my opinion, between Mr Ziegler's change of role and the termination bonus becoming payable as they would both have resulted from the 1995 Agreement coming to an end. The claimed payment would "have had something to do with" his retirement.

Possible Exceptions

685 Although it is not strictly necessary, given the conclusion I have just reached, I briefly consider two responses by Orrong to VRL's reliance on the "retirement from office" provisions. Orrong pleaded in its reply that in any event the payment of the termination bonus came within a relevant statutory exception. Section 200F(a)(iii) stated:

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686 However, it was submitted by VRL that before the agreement was made on 27 November 1995, Mr Ziegler had already assumed managerial functions pursuant to the 1993 Agreement. It was argued that this was evidenced by the fact that VRL's 1995 Annual Report described Mr Ziegler as an "executive committee member" and also as "Group Counsel responsible for fiscal and legal affairs and advising on group strategies." Further, Mr Ziegler was appointed as an alternate director of VRL on 3 October 1995. VRL referred to the evidence which showed that Mr Ziegler had attended the VRL board meetings held on 10 August and 3 October 1995 by invitation and that he attended the VRL board meeting held on 20 November 1995 as alternate for Mr Coote. Thus, Mr Ziegler already held an "office" at the time of entering the 1995 Agreement. Accordingly, VRL submitted that s.200F(a)(iii) had no application, as it applied only to benefits given under an agreement before the person became the holder of the office in question. In any event, the "person" with whom the agreement was made was Orrong, not Mr Ziegler. Orrong never held an "office" from which it could retire. Thus, s.200F(a)(iii) was irrelevant.

687 On the other hand, Orrong submitted that the office in question was not held by Mr Ziegler until he was appointed a director of VRL on 12 March 1998. Orrong's alternative submission was that even though Mr Ziegler might have acted as a director of VRL, he was not such on 27 November 1995. Orrong further submitted that the words "person" and "prescribed person" were used interchangeably so that s.200F(a)(iii) could still apply to Orrong.

688 It is sufficient to note that I consider that s.200F(a)(iii) would not have assisted Orrong for the reasons advanced by VRL.

689 Orrong also sought to rely on s.200G which was concerned with a payment by way of pension or lump sum payment in respect of "past services" rendered by the person. Again, I consider that this argument fails because it is Orrong and not Mr Ziegler who has provided the contractual services. Section 200G(5) talked of the "eligible employee" being "a genuine full-time employee of the company" which was neither Orrong's nor Mr Ziegler's situation.

The Position Under the Corporations Law 1995-1999

690 Given my conclusion that, in the circumstances, s.200B of the Corporations Law 2000 would not have been breached by the payment of the termination bonus on the expiration of the 1995 Agreement, if that was what was required, it is not really necessary to examine the position with respect to the payment of the termination bonus under the Corporations Law 1995-1999, which was the legislation which Orrong maintained was applicable. It is sufficient simply to note that, in my opinion, the result would have been the same because there was no relevant difference between the provisions of the two statutory regimes, in particular the meaning of "prescribed office" in s.237(1)(a) of the Corporations Law 1995-1999 and "board or managerial office" in s.200B of the Corporations Law 2000. Both were concerned to prohibit the payment of an unapproved benefit "in connection with" the retirement of a person from that office.

The Related Party Financial Benefit Provisions

691 The next topic is what effect the "related party financial benefits" provisions in the corporations legislation had on a number of performance bonus and profit share payments and claims, including the termination bonus claim. Again, for present purposes I am proceeding on the assumption that I am wrong in my conclusion that no termination bonus was payable on 1 July 2001.

692 Once again there was disagreement between the parties concerning which was the applicable legislation for the issue of related party transactions. Orrong submitted that it was the corporations law in force in November 1995, when the 1995 Agreement was made, which was applicable, whereas VRL contended that it was that form of the corporations legislation which was in force at the dates of both the various Agreements and payments. VRL submitted that there was no inconsistency or contradiction between its position on this point in respect of the "retirement from office" provisions and in respect of the "related party financial benefits" provisions. It argued that the definitions were different and that the wording of the same had to be carefully scrutinised. It submitted that the phrase "giving a financial benefit" in s.229 of the Corporations Law 2000 was defined more broadly than the phrase "giving a benefit" in s.200A(1)(b) of that Law and that the same applied with respect to the definitions in the Corporations Law 1995-1999. I agree that with respect to "related party financial benefits" one has to look at the corporations legislation both at the time an Agreement was entered into and at the time a payment was made or fell due.

693 The principal dates would seem to be as follows:

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(a) 27 November 1995, when the 1995 Agreement was made;

(b) 8 September 1997 or 31 October 1997 when the 5.25% interest in VRP was agreed or took effect pursuant to the 1997 Agreement;

(c) March 1998, when Orrong rendered its invoice for a number of performance bonuses including the 5% fee on US$16 million equity; $601,504 was paid on 15 September 1998;

(d) 1 July 1998, the first date on which the 5.25% profit share for the financial year ended 30 June 1998 could have been due; $612,937 was paid on 10 December 1998;

(e) 1 July 1999, the first date on which the 5.25% profit share for the financial year ended 30 June 1999 could have been due; $1,137,038 was paid on 22 October 1999;

(f) 21 June 2000, when the 2.25% interest in VRP was agreed pursuant to the 2000 Agreement;

(g) 1 July 2000, the first date on which the 5.25%, 6.375% or 7.5% profit share payable for the financial year ended 30 June 2000 could have been due; $283,000 was paid on 17 October 2000;

(h) 5 July 2000, when the Project Bendigo performance bonus of $5,055,626 was paid;

(i) 8 March 2001, when the Project Castlemaine performance bonus of $5,215,247 was paid;

(j) 26 June 2001, the first date on which the 5% Roadshow Distributors' performance bonus of $3,724,000 could have been due; or 6 August 2001, when the invoice was sent;

(k) 1 July 2001, when (according to Orrong) the termination payment became payable; and the first date on which the 7.5% profit share for the financial year ended 30 June 2001 and the "taxes saved" performance bonus of $275,395 could have been due;

(l) 1 July 2002, the first date on which the 7.5% profit share for the financial year ended 30 June 2002 and the "taxes saved" performance bonus of $225,505 could have been due;

(m) 1 July 2003, the first date on which the 7.5% profit share for the financial year ended 30 June 2003 could have been due;

(n) 1 July 2004, the first date on which the 7.5% profit share for the financial year ended 30 June 2004 could have been due.

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I reject VRL's submission that s.60(1)(b) was also relevant because Mr Ziegler was "a person in accordance with whose directions or instructions the directors of the body [were] accustomed to act." That is not a correct characterisation of Mr Ziegler's role, in my opinion. VRL's argument really came down to the assertion that the directors routinely acted in accordance with his advice. Even if this were factually correct, it is not the same concept as the directors acting in accordance with someone else's "directions or instructions". See also s.60(2) which specifically excluded the situation of the directors acting on advice given by a person acting in that person's "professional capacity."

701 Nevertheless, it seems to me that for the purposes of the "related party financial benefits" provisions, once Mr Ziegler started to attend Board meetings as an alternate director then he was "acting in the position of director" of VRL and was therefore a "related party" from 20 November 1995. It would be a nonsensical approach, in my opinion, to hold that after this date Mr Ziegler was a related party only on the days he attended Board meetings as an alternate director and not otherwise. Because of the different factual situations, I do not consider decisions such as Anaray Pty Ltd v Sydney Futures Exchange Ltd[70], Markwell Bros Pty Ltd v CPN Diesels (Qld) Pty Ltd[71] and Playcorp Pty Ltd v Shaw[72] to be of assistance on this point. Nor do I consider s.238 of the Corporations Law 1995-1999 to be relevant.

702 Mr Ziegler was also a related party when the 1995 Agreement was entered into by virtue of s.243F(3). I agree with VRL's submission that given that Mr Ziegler had recently been appointed an alternate director, that he was a member of VRL's Executive Committee, that he had sought the title "Director, Fiscal, Legal & Strategic objectives" and that he had referred in his letter of 2 October 1995 to "the increasing commercial/strategic role envisaged for me within VRL", that Mr Ziegler believed, or had reasonable grounds to believe, that he would become a director of VRL "at some time in the future." He was a star on the rise and the logical progression was for him to become a director of VRL, a position which he sought and obtained in March 1998.

703 The argument that Mr Ziegler was a related party by virtue of his appointment as an acting director is stronger when one considers the situation at the time of the making of the 1997 Agreement. Since the 20 November 1995 Board meeting, Mr Ziegler had attended a meeting on 7 August 1996, had attended as an alternate for Mr Coote on 11 September 1996 and 6 May 1997, had joined the meeting although not listed as an attendee on 27 May 1997, was listed as an apology although Mr Coote was in attendance on 1 July 1997 and was listed as an apology together with Mr Coote on 12 August 1997.

704 It is clear that what was a "financial benefit" was to be defined broadly. It included the concept of "giving" and encompassed indirect giving or the making of or giving effect to a relevant agreement. Thus, both the making and the implementation of the 1995 and 1997 Agreements constituted "giving." Accordingly, both entering into these two Agreements and making all the payments referred to above pursuant thereto constitute the "giving" of a financial benefit within the meaning of s.243H. Further, as the economic and commercial substance and effect of what an entity has done is to prevail over legal form it cannot be argued that the making of the Agreement with Orrong could prevent the receipt of payments by Mr Ziegler and/or third parties nominated by him from being caught by s.243H(1) of the Corporations Law 1995-1999.

The Provisions After 13 March 2000

705 The relevant prohibition on "related party financial benefits" after 13 March 2000 was found in Part 2E.1 of the Corporations Law 2000. Section 208 provided:

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712 Both of these sections used similar terminology. For example, they both refer to the public company "dealing" with the related party "at arm's length." Although the wording is not quite so similar, I consider, and the parties seemed content to proceed on the basis, that the concept of "terms and conditions no more favourable to the related party ... in the same circumstances" in s.243N(1) was equivalent to "terms that ... would be reasonable in the circumstances" in s.210. I therefore propose to deal with these two sections together.

Onus of Proof

713 VRL submitted that the onus of establishing the exceptions rested squarely on Orrong. It argued that in accordance with normal practice, it was for the party making the allegation to satisfy the court that the statutory exceptions applied. It submitted that support for this contention was to be found in the New South Wales Court of Appeal decision in Forge v Australian Securities and Investments Commission[73]. In that case it was held, in the context of the "related party financial benefits" provisions, that it was for the party seeking to rely on the arm's length exceptions to elicit evidence in order to establish the applicability of the statutory exception.

714 Orrong submitted that in accordance with normal principles of statutory construction the onus was on VRL to show that the breach of the section was established and that part of this task involved countering any statutory exception. It relied on the decision by Einstein J in Randall v Aristocrat Leisure Ltd[74] that the onus was on a party relying on s.208(1) "to establish that that section, and none of its exemptions, apply." Orrong also relied on the decision of Master Bredmeyer, albeit on a pleading summons, in Westchester Pty Ltd v Triton Resources Ltd[75] that it was "fair to impose the burden on the defendant because s.243H is not a simple prohibition that 'a public company must not give a financial benefit to a related party'." Rather it was a prohibition "except as permitted" by certain provisions.

715 In Avel Pty Ltd v Multicoin Amusements Pty Ltd[76] McHugh J said:

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724 VRL submitted that these authorities established that the relationship between the parties does not determine the issue. Whether they be strangers or not, and whether they bargain or not, the question remains, have they reached a result which could be described as, to use the words of s.210, "reasonable in the circumstances."

725 VRL in effect conceded that the relevant Agreements all resulted from "hard negotiations", that is hard bargaining. But it maintained that such a situation did not determine whether the financial benefits which resulted from those negotiations were "reasonable in the circumstances." It submitted that the termination bonus provisions and the performance bonus provisions, in particular the finance raising performance bonus provisions and the substituted percentage equity interests in VRP, to be found in one or more of the 1995 Agreement, the 1997 Agreement and the 2000 Agreement meant that all of those Agreements failed the test of reasonableness. VRL contended that it was not to the point that senior executives agreed to confer these benefits. If they had not done so, the need to submit a proposal for the approval of shareholders would not have arisen. Nor was the matter determined by the fact that agreement was reached. That would result in the sections having an entirely subjective field of operation.

726 In my opinion, there clearly was hard bargaining between Mr Ziegler and the various representatives of VRL. Thus, it may be accepted that the parties were acting "at arm's length."

727 VRL submitted that the important question whether the remuneration arrangements made were "reasonable in the circumstances" depended on findings as to those circumstances, as to which the evidence of Mr Christopher Costello was clearly of importance. That evidence was led subject to objection as to its admissibility and it will be necessary to consider the issues raised by Mr Costello's evidence in due course.

728 However, apart altogether from any reliance on Mr Costello's evidence, I consider that there were certain aspects of the 1995 Agreement, the 1997 Agreement and the 2000 Agreement, or perhaps more accurately the 1995 Agreement as varied by the 1997 Agreement and the 2000 Agreement, which meant that, in my opinion, they were not "reasonable in the circumstances."

729 One valid criticism of the Agreements was that they were completed, in the words of Giles JA in Adler v Australian Securities and Investments Commission[90], "without any legal documentation whatsoever." By that expression I understand his Honour to be referring to the lack of any formal contractual documentation prepared by lawyers acting for each party. Here, the 1995 Agreement and the 2000 Agreement were constituted by correspondence exchanged between the parties, but in the case of the 1997 Agreement it was never reduced to writing. It is, therefore, not surprising that there has been considerable debate between the parties about what actually was agreed between them. Thus, I do not consider that this criticism was simply one going to form and not to the substance or the "terms" of each Agreement. Precisely what financial benefits the related party was entitled to receive should have been carefully spelt out in each Agreement. VRL placed great emphasis on the fact that most of the contractual correspondence emanated from Mr Ziegler, which placed him in a conflict of interest position given that he was drafting contractual terms both on behalf of VRL and his own company Orrong. This invidious situation would have been avoided if lawyers, apart from Mr Ziegler, had been engaged to formalise the agreements negotiated with Mr Ziegler by Mr Kirby, Mr Burke, Mr Foo and Mr Conn.

730 Secondly, the original agreement to give Orrong a performance bonus of 5% of any "non/limited recourse" finance raised was an excessive reward, in my opinion. This up front payment was in no way dependent on a profitable use of that money by VRP. It simply came straight out of the funds raised. Orrong's entitlement was not small. If, for example, the performance bonus of 5% had been paid on the US$750 million raised for Projects Ballarat, Bendigo and Castlemaine, Orrong would have been entitled to receive US$37.5 million as a performance bonus for the work of one man over the course of several years. Moreover, if Project Popcorn had proceeded and raised US$1000 million, as was contemplated, this would have led to Orrong being entitled to receive a further US$50 million. These performance bonuses were payable on top of the existing reasonable base payment or retainer plus expenses. In the circumstances, I consider that this level of remuneration could not be described as "reasonable."

731 Thirdly, the variations to the 1995 Agreement to give Orrong an entitlement first to a 5.25%, and then to a 7.5% interest in VRP was still excessively generous, in my opinion, particularly where the addition of the extra 2.25% was coupled with a payment of US$3 million plus a deferred payment of another US$2 million and an agreement to pay 1% of any further "non/limited recourse" finance raised. At least under this arrangement, there was an alignment to some extent of the interests of VRL's shareholders with those of Orrong, as both would be keen to see VRP producing profits. Nevertheless, to agree to pay forever 7.5% of the profits, not dividends, simply for performing the difficult task of raising limited recourse funding does not seem to me to be appropriately described as a "reasonable" term or condition. On top of this Orrong was to receive 7.5% of the capital gain on any sale or float of VRP. One might well ask what was being left for the shareholders.

732 Fourthly, the Agreements were not reasonable because they provided for numerous performance bonuses without any cap. It is true, of course, that if Mr Zeigler did not "perform" then very little or nothing at all would be payable by way of bonuses. However, the potential was there for Orrong to receive very substantial rewards in any one year without any limit at all. Thus, in the financial year ended 30 June 2001, for example, Orrong received performance bonuses totalling $11.246 million, as well as its retainer of $700,000 plus expenses. In addition, Orrong made a claim in this proceeding for its 7.5% VRP profit share for that financial year of $2,157,750, which was later reduced to $927,750. Further, under the alternative cash claim scenario relied on by Orrong, instead of receiving US$5.5 million or about A$10.27 million in cash plus a 2.25% interest in VRP for its Project Bendigo and Project Castlemaine performance bonuses, it will be seen that Orrong claimed to be entitled to receive US$27.5 million or between A$45 million and A$51 million, depending on the exchange rate used in the calculations. These are quite extraordinary amounts to be paid on top of a retainer. Thus, uncapped or unlimited financial benefits are not the hallmark of a "reasonable" agreement, in my opinion.

733 Fifthly, I consider that the term or condition relating to the "tax savings" performance bonuses was also unreasonable in that there was no means for VRL to set-off or recover any payment made for a claimed "tax saving" which later turned out not to be the case.

734 In considering this question of reasonableness, I have assumed that the terms and conditions are those which I have found them to be. Thus, there is no termination bonus payable on the expiration of the five year term. If this claim had been upheld, then the above arguments about the unreasonableness of the terms and conditions would have been even more persuasive. A termination bonus payable on the expiration of an agreement rather than as a form of liquidated damages for early termination was not "reasonable." The potentially generous nature of the formula for calculating the amount of the termination bonus was also unreasonable, in my opinion. The fact that Orrong's various calculations of the claimed amount of the termination bonus ranged from nearly $42 million to over $208 million is a clear illustration of this point.

735 Orrong submitted that there were a number of matters which militated in favour of the reasonableness of the 1995 Agreement between VRL and Orrong. The relevant "circumstances" applicable to VRL were said to be:

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737 VRL disputed the accuracy of some of these assertions, for example, that VRP had become an extremely valuable entity in its own right and that it was Mr Ziegler who originated the Project Ballarat concept. But even assuming that the relevant "circumstances" relied upon by Orrong are correct, it seems to me that they are not an answer to the criticisms made of the 1995, 1997 and 2000 Agreements. In my opinion, it is not to the point that VRL may have had the policy or practice of providing an incentive to its executives and consultants by offering substantial equity entitlements in the various divisions and subsidiaries of VRL in which such executives were involved as a form of performance bonus. The question is whether the giving of a financial benefit to a related party was "reasonable in the circumstances" because if it was not then shareholder approval must be obtained. Thus, it is not being said that the practice of rewarding executives with performance bonuses in the form of substantial equity entitlements was wrong. It is simply that if the terms and conditions of the agreement are not objectively considered to be "reasonable" then the financial benefits cannot be given unless the informed consent or approval of the shareholders has been obtained. They will be the ones to decide whether the potential benefits to them as shareholders of the proposed performance indicators or hurdles warrant the cost of them of paying the objectively "unreasonable" or "uncommercial" performance bonuses. Reference to other examples of such performance bonuses, for example the 12.5% equity granted to Mr Kirby in "Village Online", does not answer the question of whether the corporations legislation required shareholder approval to be obtained for Orrong's 7.5% equity interest in VRP. After all, shareholder approval may have been, or should have been, obtained for these other performance bonuses.

738 Orrong also sought to justify the quantum of the benefits which could potentially be received by it under the Agreements by referring to the commission which might have been payable to merchant bankers or investment brokers to perform finance raising services. Both Mr Wilson and Mr Conn gave some general evidence about the variety of ways in which these fees might have been calculated, for example, fixed retainers either as a flat fee or on a periodic basis, success fees in cash or equity, and even time based charges. Not surprisingly, this evidence was qualified because of the uncertainty of factors such as the size of the client, the size of the transaction, the nature of the transaction, the probability of the transaction succeeding, and the size of the bankers themselves.

739 However, it seemed to me that when Mr Wilson and Mr Conn were asked to make comparisons with the fees charged by Orrong, their evidence confirmed that the amounts claimed by Orrong exceeded the fees chargeable by investment bankers. Thus, Mr Wilson said, in answer to a hypothetical question, that his company, Salomon Smith Barney, would probably have charged a success fee of between US$5 million and US$10 million for raising in the United States market US$500 million on similar terms to Projects Ballarat and Bendigo for investment in large budget Hollywood films. There might also have been a retainer which would probably be "rebated" against the success fee. Conceivably part of the success fee could have been taken in the form of equity. Mr Conn said that he believed that Merrill Lynch had charged a fee of between 3% and 3.5% for acting as the lead underwriter in relation to the float of VRL's radio division, Austereo, on the Australian Stock Exchange which raised about $350 million.

740 These fees compare favourably with the amounts payable to Orrong under both the 1995 Agreement and the 1997 and 2000 Agreements. A success fee of between US$5 million and US$10 million for raising US$500 million represents a fee of between 1% and 2%. Under the 1995 Agreement Orrong's claim would have been 5% of US$500 million or US$25 million if Project Ballarat and Project Bendigo, in its original form, had been completed. Although Merrill Lynch's fee of between 3% and 3.5% was closer to Orrong's 5%, it is significant that this success fee carried the underwriting risk, whereas there was no risk taken by Orrong and it was receiving in addition its retainer and the payment of all expenses.

741 Thus, even if it is appropriate to compare Orrong's situation with that of an investment or merchant banker, which I doubt, it seems to me that the evidence establishes just how unreasonable or uncommercial Orrong's potential remuneration was.

742 Further, in the Project Ballarat transaction itself VRL agreed to pay CIBC a structuring and placement fee of US$5.3 million and Mr Streeter's company a fee of US$1 million. However, apart from the sum of US$250,000 payable to CIBC regardless of the outcome, both of these fees were only payable if there was a successful outcome.

743 Orrong also placed considerable weight upon what it described as the "glowing unprompted indorsement" of Orrong contained in Mr John Kirby's letter dated 17 November 2000 to a number of shareholders who had queried the executive remuneration. Orrong pointed out that, surprisingly, Mr John Kirby had not been called to give evidence.

744 VRL submitted that the witnesses who were cross-examined about the letter, Mr Robert Kirby, Mr Burke, Mr Foo and Mr Conn, all distanced themselves from it. Disagreement with the contents of the letter were expressed to varying degrees. VRL further submitted that the most important thing to bear in mind when considering this letter was the date upon which it was written. As at 17 November 2000 VRL did not consider that it was liable to pay the termination bonus on the expiration of the 1995 Agreement and the values of the 5.25% and 2.25% equity interest in VRP as at the date of grant had not been valued and therefore the amounts now claimed by Orrong as part of the termination bonus were not known.

745 Other arguments were advanced by VRL in an attempt to restrict the potentially damaging nature of Mr John Kirby's statements to the shareholders. However, all of this is really not to the point, in my opinion. Orrong cannot prove the reasonableness of the relevant Agreements by referring to what one or other of the senior executives said at the time. Clearly, those executives thought the Agreements were reasonable and in the interests of VRL, as otherwise they would not have entered into them, given that it has not been suggested that they were forced by Mr Ziegler to make these Agreements.

746 The question for the Court is whether, as a matter of law, pursuant to the Corporations Law 1995-1999, the financial benefits given by VRL to Orrong were on terms and conditions no more favourable to Orrong than those on which it is reasonable to expect that VRL would have given the benefits directly if dealing with Orrong, at arm's length in the same circumstances, and whether as a matter of law, pursuant to the Corporations Law 2000, the financial benefits given by VRL were on terms that would be reasonable in the circumstances if VRL and Orrong were dealing at arm's length or were less favourable to Orrong than if VRL and Orrong were dealing at arm's length. As I have said, that is not decided by what VRL's senior executives said then, any more than it is by what they might now say.

747 I respectfully adopt what Palmer J said in Australian Securities and Investments Commission v Australian Investors Forum Pty Ltd (No. 2)[91]"

[531]

755 I therefore conclude that, subject to Mr Costello satisfying the other requirements of expert evidence, his third statement overcame the objection to the admissibility of his evidence based on a failure to identify the relevant assumptions of fact.

756 The next objection to consider is that set out in sub-paragraph (a) above, namely, that Mr Costello sought to give evidence as to the ultimate question, in particular as to the application of legal standards of "reasonableness" and "arm's length" negotiations. The first and second statements by Mr Costello were certainly full of statements by him that the terms and conditions of the 1995 Agreement were "more favourable to Orrong than if the parties had dealt at arm's length" and that the 5.25% and 2.25% VRP interests were "not given on terms that would be reasonable if VRL and Orrong were dealing at arm's length".

757 Orrong submitted that in giving such evidence Mr Costello had breached the rule against an expert giving evidence as to the application of a legal standard,[96] particularly where it went to the ultimate question.[97] VRL submitted, on the other hand, that there was reason to doubt that any such ultimate question rule or objection still existed.[98] It submitted that the true rule was one of relevance, and that if the rule operated at all, it only operated to prevent an expert applying a legal standard.[99] If the expert was purporting to give evidence applying a legal standard then that evidence is not based on the expert's specialised knowledge and is therefore inadmissible as is other non-expert opinion.

758 It seems to me that read literally Mr Costello's evidence did purport to offer views as to legal standards which did go to the ultimate question of whether or not these Agreements contravened either s. 243H of the Corporations Law 1995-1999 or s. 208 of the Corporations Law 2000. As Orrong pointed out in its written submissions, this problem was largely brought about by the fact that he was asked by VRL's solicitors to express an opinion in those terms. As Mr Costello was not a lawyer he had no expertise to give legal opinions on the application of legal standards, even if they did not go to the ultimate question. Therefore, those conclusions are irrelevant and therefore inadmissible.

759 However, that is not the end of the matter, in my opinion. On a close examination of the criticisms made by Mr Costello of the Agreements between Orrong and VRL what he was saying was that there were aspects of the Agreements which were not in accordance with Australian market remuneration practice. It was these observations which formed the basis of his inappropriate entry into the area of legal conclusions.

760 Nevertheless, Mr Costello's views about Australian market remuneration practice and its application to the Agreements relied on by Orrong would be admissible if that is an area of relevant expertise and Mr Costello is an expert in that area. I turn then to consider these questions, which were in essence raised by sub-paragraphs (c) and (e) of Orrong's five general objections.

761 VRL called Mr Costello as a witness on the basis that he was an expert in Australian market remuneration practice, including for those companies with staff located overseas as well as in Australia. Mr Costello also gave evidence that he had some experience in, and familiarity with, United States market remuneration practice. Orrong submitted that Mr Costello should not be accepted as an expert both because Mr Costello did not give evidence of any particular industry standard or practice and did not identify any particular specialist field of knowledge or expertise and because he had no specialist knowledge or qualification of "the international film acquisition and distribution industry" or "the Hollywood film industry".

762 I have no doubt that Mr Costello was an expert in Australian market remuneration practice. For nearly 30 years he had been engaged in that field as an employee and partner of an employee remuneration advisory firm and then as founder and director of his own employee remuneration advisory company. It is therefore unnecessary to say anything more about his broad experience in that field. I also reject Orrong's submission that "remuneration planning is not at all a science or body of learning or practice capable of founding opinion evidence", at least as far as remuneration practice goes.

763 The real question it seems to me, is whether Mr Costello's undoubted general expertise in Australian market remuneration practice qualified him to express opinions about the terms of the Agreements between Orrong and VRL. In my opinion it did, and for a number of reasons I reject Orrong's submission that the appropriate area of expertise was "the international film acquisition and distribution industry" or "the Hollywood film industry".

764 First, I agree with VRL's submission that there was no evidence that any international film industry standard or practice as to remuneration of employees existed, let alone any such international film acquisition and distribution industry standard or practice. Further, there was no evidence that any Hollywood film industry standard or practice as to remuneration of employees existed. If Orrong wanted to confine the comparison to such an extraordinarily narrow field as "the international film acquisition and distribution industry" then it was required, in my opinion, to establish not only that there was such a recognised standard or practice but also what it was. This it failed to do.

765 Secondly, I also accept VRL's submission that at the relevant times, perhaps apart from the making of the 2000 Agreement, VRL was not engaged in the international film acquisition and distribution industry or the international or Hollywood film industry. It was not until, at best for Orrong, late 1998 when the first film was made with funding provided by Project Ballarat that VRL could be said to have been engaged in the international film industry. Orrong's argument that this funding was produced after two years of effort of seeking to obtain large off shore insurance related film financing does not answer the point, in my opinion.

766 Thirdly, I agree with VRL's submission that Mr Ziegler, and thus Orrong, were not engaged in the creative side of film production which might have resulted in significant remuneration internationally. Rather, Mr Ziegler was a consultant to VRL, resident in Australia, with particular expertise in Australian tax law and accounting principles, who had been asked to perform the specific task of raising substantial funds for financing films in the international market. There was, therefore, no basis for suggesting that the remuneration payable under the 1995, 1997 and 2000 Agreements was to be benchmarked in accordance with United States levels, whatever they might have been.

767 The remaining general objection to Mr Costello's evidence was that in sub-paragraph (b), namely that his first two statements did not address the relevant issues raised by the corporations legislation and did not address the particular circumstances of Orrong (and Mr Ziegler) or VRL. I find the first part of this objection rather puzzling given that Orrong also submitted that Mr Costello had improperly given evidence about the ultimate question. I have said enough above to indicate why I do not consider that this objection to the admissibility of Mr Costello's evidence has any validity.

768 A further criticism of Mr Costello's evidence made by Orrong in its final submissions was that he "played the role of advocate and not an impartial expert". Numerous alleged examples of this inappropriate conduct were referred to by Orrong. In my opinion, Mr Costello did on occasions appear to abandon the position of impartial expert as he sought to justify his views under a very aggressive cross-examination. I consider that on occasions he also reacted to this cross-examination by overstating his propositions, for example, that he "had more expertise than anyone else in the area" of termination bonuses and that he was the leading world wide expert in that field. Nevertheless, despite these criticisms there was some helpful evidence given by Mr Costello and it is to this that I now turn.

769 Given the opinion I have already expressed about the reasonableness of the 1995, 1997 and 2000 Agreements, I do not propose to spend time considering the merits and criticisms of all of the views expressed by Mr Costello. What follows is a summary of what I consider to be some of the more helpful evidence given by Mr Costello. Based on the survey entitled "the Top 350 Report: Executive & Director Remuneration April 1995", Mr Costello gave evidence that only 3.6% of senior executives in Australia at that time received remuneration of over $400,000, and thus he expressed the view that with Orrong's initial retainer of $400,000 it was being paid reasonably and competitively for providing Mr Ziegler's services. Whatever the criticisms of the gaps in Mr Costello's survey, it seems to me that it provided sufficient material on which to reach this conclusion.

770 Next, Mr Costello stated that best Australian remuneration practice in 1995 was to keep total remuneration reasonable by limiting short term incentives and long term incentives each to 100% of the fixed remuneration, either on a yearly basis or over the term of the contract. Even with the retrospective increases in the annual retainer, in each of the five years of the 1995 Agreement the performance bonuses paid to Orrong were more than double the fixed remuneration, as the following table illustrates:

[558]

790 Orrong referred to a large number of matters which, it submitted, supported its case for relief from the consequences of the contraventions. In my opinion, all of those matters which depended on the claimed benefits to VRL of Mr Ziegler's work are simply irrelevant. The criteria set out in s.1318, that "the person has acted honestly" and that "having regard to all the circumstances of the case the person ought fairly to be excused", do not encompass a matter such as a favourable outcome of work performed by the officer in question. Further, as French J said, relief may be given where the "non-compliance is the product of honest error or inadvertence", so that the focus is on the conduct of an officer of the company

791 In my opinion, it cannot be said that the failure to obtain shareholder approval for the 1995, 1997 or 2000 Agreements came about as a result of "honest error or inadvertence". I am quite satisfied that Mr Ziegler was well aware of the relevant provisions of the corporations legislation He was an expert taxation law and corporations law lawyer and a highly qualified and experienced accountant. Despite the fact that he attempted, quite implausibly in my opinion, to downplay his knowledge of, and expertise in , corporations law Mr Ziegler conceded in evidence that at the relevant times he understood what the phrase "related party" referred to, that he knew that a related party had to deal with a company at arm's length, and that he knew that directors had to have the approval of shareholders to receive options. In his witness statement he had said that in 1994 he had had many conversations regarding the related party provisions and their "potential impact on VRL remuneration policies". Moreover, in the 1993 Employment Agreement (otherwise know as Employ. doc), which Mr Ziegler swore was drafted by him in June 1993, the term "related party" is used in three separate clauses and the term "arm's length" once.

792 I am also satisfied, to the appropriate standard, that Mr Ziegler was prepared to ignore these provisions. For example, in his letter of 27 November 1995 to Mr Burke he stated that:

[560]

In September 1997 Mr Ziegler told Mr Kirby that he may want flexibility to have his promised interest in VRP in the form of a "shadow equity". Then in his memorandum to Mr Kirby dated 3 March 1998 one of the forms of remuneration proposed by Mr Ziegler was a $10 million non-recourse loan to purchase VRL preference shares "or economic equivalent of this loan, if unwilling to seek shareholder approval". And finally Mr Ziegler did not dispute Mr Foo's assertion in his memorandum dated 23 May 2000 that Mr Ziegler had "previously agreed" that the US$3 million payment "would be paid off balance sheet" as otherwise it would "be required to be disclosed as a related party transaction". Mr Ziegler said in evidence that he was "indifferent as to the manner in which the money was paid."

793 In my opinion, this conduct means that the non-compliance cannot be described as "the product of honest error or inadvertence" and Mr Ziegler cannot be said to have "acted honestly". It also means that one of the matters relied on by Orrong as supporting its case for relief, namely that there could be "no suggestion that the failure to seek shareholder approval was in any way related to any default on Orrong's or Mr Ziegler's part", simply cannot be sustained. Mr Ziegler and the other executive directors, Mr Kirby, Mr Burke, Mr Foo and Mr John Kirby, who played a part in negotiating one or more of the 1995, 1997 and 2000 Agreements, or at least approved the informally documented or oral Agreements, were all at fault, in my opinion. Whilst VRL stressed that Mr Ziegler was the trusted expert lawyer, Messrs Kirby, Burke and Foo were all experienced businessmen who knew and understood the requirements of the corporations legislation with respect to related parties. I consider that the correspondence and their conduct demonstrates that each of Mr Ziegler, Mr Kirby, Mr Burke and Mr Foo was prepared to ignore the requirements of the corporations legislation when it suited their immediate purposes.

794 One of the other matters relied on by Orrong does deserve consideration. This was that "had shareholder approval been sought, given the controlling interests of the Messrs Kirby and Mr Burke, all of whom were privy to and approved of the arrangements with Orrong, obtaining such approval would have been a formality".

As I have said previously, the Kirby family and Mr Burke controlled VRL, through their ownership of VRC, which owned around 60% of VRL's ordinary shares.

795 However, it does not follow, in my opinion that this controlling interest means that obtaining shareholder approval would have been a formality. A range of possible scenarios could have ensued if the decision had been made, at the appropriate time, to seek the approval of the shareholders to one or more of the 1995, 1997 or 2000 Agreements. Lawyers might have been instructed to negotiate and draft the terms of those Agreements so that a formal document was available to be put before the shareholders. This may well have resulted in different terms. Or the reaction from other significant shareholders may have been such that VRL may have had to re-think its approach to remunerating Orrong (and Mr Ziegler). Or the Australian Securities and Investment Commission may have become involved, with similar results. It therefore seems to me that it is not persuasive for Orrong to argue that shareholder approval would have been obtained. The fact is that it was not sought when, in my opinion, it should have been.

796 A related point made by Orrong, which has some relevance here, is that the major beneficiaries of the conclusion that Orrong's Agreements with VRL are unenforceable because shareholder approval was not obtained, include the very men who, as discussed above, participated in the failure to seek that shareholder approval. Nevertheless, this circumstance still does not, in my opinion, provide a justification for "excusing" the non-compliance. To do so would be, in my opinion, to "undermine the requirements of the Act."[115]

797 Orrong also relied, in the alternative, on the exculpatory provisions of s.1317JA of the Corporations Law 1995-1999 or s.1317S of the Corporations Law 2000. However, as the criteria for a favourable exercise of the Court's discretion are the same in each of these sections as in s.1318, namely, that "the person has acted honestly" and that "having regard to all the circumstances of the case the person ought fairly to be excused", the same result follows. The non-compliance is not to be excused.

Payments After 15 July 2001

798 On 15 July 2001 the Corporations Law 2000 was replaced by the Corporations Act 2001. However, there was no relevant difference in the sections discussed above between the two pieces of legislation. Thus, any claims by Orrong for payment of profit shares or other performance bonuses after 15 July 2001 are governed by the same principles applicable to the payments made and claimed in the period between 13 March 2000 and 14 July 2001.

Conclusion

799 In my opinion, as a result of the contraventions of the "related party financial benefits" statutory provisions, the Court should not aid Orrong in its attempt to enforce the 1995, 1997 or 2000 Agreements by ordering payment of the "taxes saved" performance bonuses or of the 7.5% profit shares or by making any declarations concerning the ownership interest in VRP.

Directors' Duties

800 As a further basis for the Court refusing, on public policy grounds, to enforce the 1995, 1997 and 2000 Agreements, VRL submitted that Mr Ziegler had breached directors' duties and common law fiduciary duties. The relevant statutory provisions are to be found in ss.232 and 232A of the Corporations Law 1995-1999 and ss.180 to 183, 191 and 195 of the Corporations Law 2000. The duties of directors or officers of a corporation can be summarised as:

[567]

804 The drafting by Mr Ziegler of the 1995 Agreement and the entry into the 1995 Agreement without having it considered by VRL's lawyers or approved by the shareholders was not, in my opinion, a breach by him of any of his duties as an officer of VRL because he was acting on behalf of himself and his company and not VRL. Mr Ziegler negotiated over a lengthy period with several directors of VRL who should have been well able to look after that company's interests. The decision not to have VRL's lawyers draft a formal agreement was made by them not Mr Ziegler. Nevertheless, the failure to obtain the approval of the shareholders of the 1995 Agreement was, as I have held, not an "honest error" by Mr Ziegler.

805 Similar conclusions can be drawn in respect of VRL's complaints about the 1997 Agreement and the 2000 Agreement.

806 The allegations by VRL that the making of the Ballarat representations and the Bendigo representations and the failure to advise VRL of the relevant risks and other matters associated with each of these Projects were breaches of the duty to exercise care and diligence really leads nowhere. I have already dealt with these issues above when considering VRL's misleading conduct and negligence claims. As I said there, unless it was demonstrated that VRL was worse off as a result of these transactions, rather than extraordinarily better off as claimed by Orrong, then VRL's complaints are not made out.

807 Mr Ziegler's failure to disclose to VRL at an early stage his claim to a 5% commission on the funds to be raised by Project Ballarat was a breach of his duty to act honestly and in good faith. In my opinion, Mr Ziegler should have disclosed right from the start of any consideration of Project Ballarat that he had a conflict of interest, in that Orrong stood to gain US$10 million if US$200 million was successfully raised. Such a large amount inevitably affected the economics of the proposal and yet Mr Ziegler remained silent about Orrong's performance bonus even when he was discussing the amount of the fees to be paid to other advisers. Mr Ziegler left the required disclosure so late that one suspects that, despite his protestations, the claim was not going to be mentioned until after the transaction had been finalised.

808 And yet VRL did become aware of Orrong's claim to a performance bonus of US$10 million before the Project Ballarat transaction was entered into, but not, of course, as a result of Mr Ziegler disclosing it but as a result of Mr Foo raising his suspicions with Mr Kirby. Nevertheless, this complaint also goes nowhere because VRL completed the Project Ballarat transaction with the knowledge of Orrong's claimed commission and of the agreed substitute performance bonus in the form of a 5.25% ownership interest in VRP.

809 It is rather surprising, in my opinion, given this history, that VRL should allege a breach of duty on the part of Mr Ziegler in not disclosing to VRL Orrong's claim to a 5% commission on the funds to be raised by Project Bendigo. The history of the matter is that VRL was aware of this claim well before the consideration of the Project Bendigo transaction was concluded.

810 Finally, there is the general allegation that Mr Ziegler was present at directors' meetings while matters in which he had a material personal interest were being considered. I say general because this matter received very little attention. For example, there was no attempt to show that Mr Ziegler voted on any such matters. It seems to me, however, that Mr Ziegler must have been present at directors' meetings while matters, such as Project Ballarat and Project Bendigo, in which he had a material personal interest were being considered.

811 I am not satisfied, therefore, that this additional ground for refusing to enforce the 1995, 1997 and 2000 Agreements is made out. In my opinion, the argument based on the alleged breaches of directors' duties and cognate fiduciary duties adds nothing to the valid claim that the failure to obtain shareholder approval of these Agreements means that they will not be enforced by the Court.

The Legal Practice Act 1996

812 An alternative basis put forward by VRL for the Court refusing to enforce any of the Agreements between Orrong and VRL was founded on the provisions of the Legal Practice Act 1996 (" the LPA"). Section 314 of that Act provided as follows:

[578]

The substantial reduction in the amount claimed to be repayable may have had something to do with one or more of the following matters - the acceptance by VRL that recovery of any amount paid before 23 September 1997 was statute barred[116]; that at least three of the largest payments ($5,055,626.99 on 5 July 2000 for the 1% commission on Project Bendigo, $5,215,247.49 on 7 March 2001 for the 2% commission on Project Castlemaine and $1,137,038 on 22 October 1999 for the 5.25% share of VRP's profits in the 1998 financial year) were made by Village Roadshow Production Limited, not VRL; and the difficulty of linking other payments in the period following 23 September 1997 to the alleged contravention by the unqualified Orrong of the requirement that it "must not engage in legal practice" (for example, the three payments for the share of VRP's profits in the 1998, 1999 and 2000 financial years).

815 VRL stated in its written closing submissions that in its counterclaim it had pleaded breaches of the LPA by both Orrong and Mr Ziegler and that it sought the repayment of monies paid in the course of Orrong or Mr Ziegler conducting a legal practice. This was not correct. There was no plea that Mr Ziegler had "engaged in legal practice" in breach of the LPA even though all of the conduct relied on by VRL was conduct by Mr Ziegler. Nevertheless, VRL submitted that as Orrong could only act through Mr Ziegler and as Mr Ziegler was only carrying out work for VRL because of Orrong's consultancy agreement with VRL, everything relevantly done by Mr Ziegler was done on behalf of Orrong. Therefore, it seems to me that it is necessary to decide, first, whether Mr Ziegler was "engaging in legal practice" and, secondly, if he was, whether he was doing so on behalf of Orrong.

816 Both Orrong and Mr Ziegler in their defences to the counterclaim pleaded that at all material times Mr Ziegler had held a practising certificate authorising him to engage in legal practice as a corporate practitioner. It was common ground at the trial, however, that a corporate practising certificate only permitted the holder to provide legal advice and services to his or her corporate employer, and no one else.

817 It was also common ground that Orrong did not at any time hold a practising certificate. It was not eligible to do so under Part 10 of the LPA. Section 294 requires that each director of an incorporated practitioner must be a "current practitioner", that is a legal practitioner holding a current practising certificate. Similarly, s.295(1) of the LPA says that a share in an incorporated practitioner may be held only by a current practitioner who is a director or employee of the incorporated practitioner, or by a registered foreign practitioner who is an employee of the incorporated practitioner or another incorporated practitioner. At all relevant times, Mr Ziegler's wife was a director and shareholder of Orrong and there was no evidence that she met these requirements.

Standard of Proof

818 In its written closing submissions Orrong submitted that, given the serious nature of a contravention of s.314 of the LPA, being a criminal offence subject to imprisonment for two years or a fine of up to 240 penalty units depending upon the actual contravention, the question of whether Orrong had contravened s.314, the extent of any such contraventions and the relief flowing therefrom were serious matters which required proof by VRL at least to the level of satisfaction required by Briginshaw v Briginshaw[117]. Reference was made to the following statement by the New South Wales Court of Appeal in Kekatos v The Council of the Law Society of New South Wales[118], a case involving alleged unqualified legal practice:

[580]

819 I have reached a similar conclusion on the question of the standard of proof in a proceeding such as this at the commencement of these reasons.

820 However, Orrong further submitted that, given that a person who contravened s.314(1), (2) or (3) committed a contempt of court and was liable to be punished for that contempt in addition to, or instead of, being prosecuted for the contravention, it was strongly arguable that VRL must in fact prove its case beyond reasonable doubt and that insofar as VRL sought to rely upon inferences, then the inference that a person was engaging in unqualified legal practice must be the only inference which could reasonably be drawn from that person's activities.[119] Thus, in The Council of the Law Society of New South Wales v Seymour[120], which was an action for contempt of court alleging breach of an order restraining the respondent from acting or purporting to act as a solicitor, the criminal standard of proof was applicable.

821 It is clear that a contempt must be proved beyond reasonable doubt[121], but that is not this case. As VRL submitted, this is a civil proceeding in which VRL is seeking to resist Orrong's monetary claims and to obtain repayment of monies by, in part, asserting that there has been a breach of s.314 of the LPA. In relation to the Legal Practice Act claims VRL is not seeking imprisonment and/or the imposition of a fine. It is not even seeking a penalty or any order tantamount to disqualification from acting as a solicitor. Therefore, in my opinion, the applicable standard of proof in this part of the case is on the balance of probabilities but, as with the allegations of breaches of the corporations legislation or other serious misconduct, findings of contravention of the LPA should not be made lightly, bearing in mind what the High Court said in Briginshaw as explained by Neat Holdings[122].

Engage in Legal Practice

822 VRL submitted that many of the services provided by Orrong through Mr Ziegler constituted engaging in legal practice. It argued that services by Mr Ziegler such as briefing counsel to advise, interpreting and advising on the effect of legislation including the Income Tax Assessment Act 1936 (Cth), particularly with respect to tax returns**;** preparing or advising on documents which created, transferred or modified the rights and/or liabilities of VRL or VRP; and providing advice, opinions or 'sign off' on the legal effect of particular documents or arrangements all constituted engaging in legal practice.

823 The LPA does not define the expression "engage in legal practice." In Felman v Law Institute of Victoria[123], it was noted that the explanatory memorandum to the Legal Practice Bill (which became the LPA) contained the following passage:

[589]

"It is clear ... that his Honour was not saying that any person who, in the lawful pursuit of an occupation other than law, gives advice (for reward) on matters lying within his or her area of occupational expertise necessarily acts as a solicitor or a legal practitioner simply because the advice involves the expression of an opinion about the requirements of relevant legislation, statutory rules or the like. A person who, in his or her capacity as a tax agent, customs agent or migration agent, proffers advice which touches such matters, does so on account of his or her knowledge of and experience in the fields of taxation, customs, or migration (as the case may be). In this regard, he or she is in no different a position from anyone else who, in the pursuit of an occupation, advises upon a matter within and by virtue of his or her expertise, as, for example, an architect who advises upon the legal ramifications of his proposed design. Pursuing Phillips J's approach, the giving of advice in the course of carrying on an occupation other than a solicitor's (or legal practitioner's) would not fall within either limb 1 or limb 3 of his Honour's test. (Limb 2 is not presently material.) The advice would not, in the circumstances, be given in such a way as to justify the inference that it was given by a solicitor, as required by limb 1, and it could not be said that, in order to protect the public, it had to be given by a lawyer, as required by limb 3. For much the same reasons, the preparation, as an accepted part of an occupation, of a document giving rise to legal rights and obligations would not fall within either limb. In any event, where a statute has (as in Pt VIIA of the Income Tax Assessment Act 1936 (Cth), Pt XI of the Customs Act 1901 (Cth) and Pt 3 of the Migration Act 1958 (Cth)) permitted the carrying on of an occupation by non-lawyers which involves the provision of advice or documents of this kind, there is no basis for saying that the protection of the public requires that the occupation be carried on by lawyers. This is so because Parliament has made a contrary determination.

...

As I have endeavoured to show, a person who gives advice touching legal matters or who prepares documents having legal effect does not act as a solicitor (or legal practitioner) by reason of those acts alone. Some aspects of litigation too can be conducted by a law clerk (providing it can be said that the clerk acts on behalf of his employing solicitor). In limiting his focus simply to the activities of conducting litigation, giving advice and drafting legal instruments, the appellant fails to describe sufficiently fully what is signified by the expression 'engaging in legal practice.' One may need to examine who performs these activities, as well as how, when and where they perform them.

...

In my opinion, the expression to 'engage in legal practice' in s. 314 and elsewhere signifies 'to carry on or exercise the profession of law.' Reference to the definitions of 'engage' and 'practice' in the Oxford English Dictionary supports the view that this is the ordinary and natural meaning of the expression. The carrying on of the profession of law is done by none other than a 'legal practitioner.' Accordingly, in my view the expression 'engage in legal practice' means 'engage in legal practice as a legal practitioner', the italicised words being implicit in the notion of legal practice. This construction is supported by the fact that the expression 'engage in legal practice' was evidently intended to cover both sides of the profession, namely, barristers and solicitors (collectively legal practitioners): see s.8, Sch.2 cll.15 and 17 of the 1996 Act."

[608]

VRL submitted that this paragraph contained both a false denial and an unintended admission of performing legal work. It would appear that Mr Ziegler was acting under a misapprehension because, as previously stated, by the time of final submissions it was common ground that the holder of a corporate practising certificate could only provide legal advice and services to the corporation that employed him, and not otherwise. Thus, VRL submitted that for Mr Ziegler to perform the role of briefing counsel on behalf of VRL went beyond that which was permitted, was something that Orrong could not have done anyway, and amounted to an admission of the performance of legal services.

839 VRL further submitted that the supposed 30 June 1993 Agreement between Orrong and Mr Ziegler clearly showed that Orrong contemplated providing legal services. It recited that the employer "undertakes the business of providing commercial, legal, fund raising, structured finance, taxation and other advice and services ..." and that the employee has "commercial, legal, fund raising ... skills" (emphasis added). VRL submitted that this showed that both Orrong and Mr Ziegler were contemplating providing legal services and that Mr Ziegler was qualified to do so or, if the agreement was prepared at a later date, it showed that Mr Ziegler believed these services had already been provided. Mr Ziegler said that originally when the agreement was drafted it was intended that Peter Ziegler & Co Pty Ltd would undertake the business of providing legal advice, but that he then spoke to the Law Institute and was told that he could not have a company providing both legal and non-legal services, so the company did not provide any legal services. It would appear that Mr Ziegler did not ask the Law Institute about what he was entitled to do as the holder of a corporate practising certificate.

840 A different agreement dated 30 June 2002, between Mr Ziegler and Henderson Avenue Pty Ltd (later renamed Peter Ziegler & Co Pty Ltd), contained identical recitals.

841 VRL also submitted that the pleadings included an admission of the provision of legal services. In the further and better particulars of paragraph 3 of the statement of claim, when asked to particularise the consultancy services referred to therein, the particulars provided (on 11 November 2003) included the following:

[620]

850 With effect from 1 July 2000, the wording of s.251L changed to requiring a broader range of matters, including specifically "giving advice about a taxation law", to be performed by a registered tax agent if a fee was charged. The only other significant change was that the provision of "a BAS service" was not required to be done by a registered tax agent. The exception for lawyers was now to be found in sub-s.(8). Perhaps not coincidentally, it was after the date of the change in the wording of s.251L that the description of the work set out in Orrong's invoices changed to expressions such as: "Advice pertaining to the affairs of the company, its subsidiaries, affiliates and related entities."

851 VRL submitted that for Mr Ziegler, or Orrong, to lawfully charge for work such as providing taxation advice, he must have been acting either as a lawyer or a registered tax agent and that as neither of them was a registered tax agent, neither could charge for the taxation advice and work, unless it was done in the capacity of solicitor or counsel acting in the course of his profession. In the result, VRL submitted, Mr Ziegler the accountant could not have charged for the tax work because of the prohibition in the income tax legislation. Mr Ziegler could only legally have done the work as a solicitor, but as he did not hold an appropriate practising certificate at the time a fee should not have been demanded for it. VRL therefore submitted that Mr Ziegler, on behalf of Orrong, had both given taxation advice and charged for it as a solicitor engaged in legal practice.

852 In its written submissions in reply, Orrong complained about VRL relying on the s.251L argument which it said was not pleaded, opened, put to Mr Ziegler or otherwise the subject of evidence. Nevertheless, it submitted that as the argument was without merit it could be dealt with quickly. Orrong submitted that the wording of this legislation at least in its earlier form did not prohibit the mere provision of advice affecting taxation matters or tax effective investment or structuring advice per se. Rather, it focussed upon the preparation of returns and objections and the actual "transaction of any business on behalf of a taxpayer in income tax matters", none of which Mr Ziegler did. Orrong also submitted that Mr Ziegler came within the exceptions in the current form of this legislation. Section 251L(6)(a) provides that sub-s.(1) does not apply to the provisions of "a BAS service" on behalf of a taxpayer by "a member ... of a recognised professional association." Orrong submitted that as Mr Ziegler was at all times a Member of the Institute of Chartered Accountants and a Fellow of the Society of Certified Practising Accountants, each of which was a "recognised professional association" within the meaning of s.251LA of the ITAA, he came within the "BAS service" exception. However, I do not consider that it was established that any of the work performed by Mr Ziegler was "a BAS service."

853 The inclusion of either the expression "taxation advice" or the expression "advice on tax issues" on all of the invoices referred to above is apt to be misleading, in my opinion. Just why those words were used was not explained, but I am not prepared to accept them as accurately describing the work done by Mr Ziegler in the period from July 1997 to June 2000. Although I find that Mr Ziegler did give taxation advice from time to time during this period, it cannot be correct that this was the only work performed by him pursuant to the retainer.

854 Moreover, although Mr Ziegler undoubtedly gave taxation advice from time to time I am not satisfied that it has been established that he did so as a solicitor engaged in legal practice in contravention of s.314 of the LPA. It seems to me that, with all of his accounting qualifications and experience, Mr Ziegler could have given, and probably did give, the taxation advice as an accountant. I note that in the evidence of Mr Foo quoted above the new role of "Specialist Tax Counsel" was seen by him as Mr Ziegler replacing the services previously provided by the accounting firm of Ernst & Young. The titles "Chief Tax Counsel" and "Group Counsel" really say nothing about the capacity in which Mr Ziegler was giving tax advice.

855 There was no reason why, in my opinion, the taxation advice given by Mr Ziegler, at least prior to 1 July 2000, could not have been given by him as an accountant, albeit not one registered as a tax agent. At that time he would not, in my opinion, have breached s.251L by giving taxation advice when he was not registered as a tax agent, because the section then was concerned with allowing only registered tax agents to be able to charge fees for or in relation to "the preparation of any income tax return or objection" and "the transaction of any business on behalf of a taxpayer in income tax matters." Neither of those expressions is apt, in my view, to include the giving of taxation advice.

856 That situation changed after the amendment of s.251L of the ITAA. It seems to me that it is difficult to resist the conclusion that, after the amendment, an accountant, who is not a registered tax agent, cannot charge a fee for giving taxation advice, however extraordinary that outcome might seem to be.

857 But even if I assume that, in giving taxation advice either before or after 1 July 2000, Mr Ziegler would have been contravening s.251L of the ITAA, I am not persuaded of the logic of VRL's submission that in order not to breach that section, Mr Ziegler must have been acting as a solicitor. It seems to me that equally it could be said that in order not to breach s.314 of the LPA, he must have been acting as an accountant. It could well be said that, apart from any other reason, this was more likely because of the much heavier civil and criminal penalties able to be imposed under the LPA.[137] The position is therefore far from clear and I am not satisfied, on the appropriate standard of proof, that the giving of taxation advice meant that this work was done by Mr Ziegler in such a way as to lead to the reasonable inference that he was acting as a solicitor and engaging in legal practice.

Briefing Counsel

858 I turn next to examine Mr Ziegler's role in the briefing of counsel. VRL submitted that it could hardly be denied that the briefing of counsel constituted the provision of legal services. It also relied, of course, on Mr Ziegler's admission that when counsel were briefed he did that "personally ... as a licensed practitioner." VRL identified the following examples of Mr Ziegler doing so in a variety of taxation and corporations matters:

[628]

The Institute of Chartered Accountants was at all times an approved body for the purpose of that Rule.

863 Thus, Orrong submitted that a reasonable inference was that Mr Ziegler briefed counsel not as a solicitor but as a chartered accountant on behalf of one or other parts of the Village Roadshow Group or as an officer of that "lay client in a matter in which the client [was] directly concerned."

864 Orrong also submitted that the fact that Mr Ziegler expressed his own views to counsel in the briefs was not reasonably, let alone solely, consistent with him engaging in unqualified legal practice. He was after all a Chartered and Certified Practising Accountant experienced in taxation matters.

865 Nevertheless, I agree with VRL's submission that Orrong's assertion that Mr Ziegler was briefing counsel as a chartered accountant or as an officer of VRL flew in the face of the paragraph from Mr Ziegler's witness statement quoted above, which was never retracted, and his description of himself on the brief (adding the words "LL.B (Hons)" after his name).

866 I also agree with VRL's submission that it was irrelevant whether VRL was entitled under the direct access rules of The Victorian Bar Inc to brief counsel through Mr Ziegler in his capacity as a chartered accountant or an officer or agent of VRL. That matter merely established that counsel was entitled to receive briefs from "lay clients" but did not say anything about the nature of the services that Mr Ziegler in fact provided to VRL by briefing counsel in the way he did or that he was entitled to charge for those services.

867 In the light of Mr Ziegler's admission that he briefed counsel "personally ... as a licensed practitioner", together with his description of himself on the back sheet as "Peter Ziegler LL.B (Hons)", without any reference to his accounting qualifications, and the contents of the briefs themselves, I am satisfied that the reasonable inference is that this work was done by Mr Ziegler as a solicitor.

868 I note, however, that all bar one of the briefs to counsel were dated on or prior to 21 March 1996, which means that not only were they prepared during the currency of the 1993 Agreement but also that they are not within the period in respect of which VRL is seeking repayment of the fees paid to Orrong because such a claim would be statute barred. I also note that the one remaining brief, to Mr Beaumont QC to advise Village Roadshow Group on the taxation implications associated with its Employee Share Acquisition Scheme, was dated October 2000 which also puts it outside the relevant period. Finally, I point out that on page 13 of that brief Mr Ziegler has used the expression "instructing solicitor", which can only be, in my opinion, a reference to himself.

Other Examples of Legal Services

869 VRL referred to several more instances of what it maintained were examples of legal services provided by Mr Ziegler or where he was otherwise engaged in legal practice whilst at VRL. They were:

[630]

870 Orrong emphasised that out of a nine year relationship, apart from the questions of taxation advice and briefing counsel (dealt with above) and the issue of legal professional privilege (dealt with below), VRL could only identify these few alleged specific instances of Mr Ziegler purportedly engaging in legal practice. In any event, Orrong submitted that none of these instances supported VRL's claim. Again I note that all of these events occurred during the currency of the 1993 Agreement.

871 The memorandum from Mr Ziegler to Mr Potter dated 19 October 1993 contained "advice regarding possible intellectual property right infringements" by a board game. Although it reads like a solicitor's letter of advice, I consider that an isolated instance such as this does not prove that Mr Ziegler was engaging in legal practice.

872 The only legal documents put to Mr Ziegler in this context were the Village Roadshow Creative Trust Deed and the Film Co-production Joint Venture Agreement between VRL and the trustee of the Creative Trust. Mr Ziegler's evidence was that, although he was involved in preparing the Joint Venture Agreement, it was Herbert Geer & Rundle who drew the Village Roadshow Creative Trust Deed. No evidence was called from Herbert Geer & Rundle disputing that statement. Mr Ziegler also gave evidence that he drafted the tripartite Employment Agreement between VRC and VRL and himself in 1993.

873 No other instances of the drafting of documents were put to Mr Ziegler as being purported examples of him engaging in legal practice. Orrong contended that it would be an absurd assertion for VRL to submit that the mere drafting of an agreement would by itself without more render a person guilty of engaging in unqualified legal practice.

874 Again, I am not satisfied that this evidence proves that Mr Ziegler was engaging in legal practice. Drafting an agreement does not, in my opinion, mean that it is a reasonable inference that the person carrying out that task is acting as a solicitor.

875 As I have pointed out above, most of the briefing of counsel and all of the other instances relied on by VRL occurred during the currency of the 1993 Agreement. This is not surprising, in my opinion, because Mr Ziegler's role undoubtedly changed after the making of the 1995 Agreement. This was reflected in his new title of "Director, Fiscal, Legal and Strategic Objectives." Moreover, I do not consider that the inclusion of the word "Legal" in that title signified that Mr Ziegler was "engaging in legal practice." It could have simply indicated, for example, that he was the person responsible for the solicitors who were doing so. Were it not for the next matter, VRL's argument about "engaging in legal practice" would, therefore, be very thin.

The Claim for Legal Professional Privilege

876 VRL submitted that compelling evidence that Mr Ziegler had been engaged in legal work was the fact that, following an "access visit" by the ATO, he was instrumental in VRL claiming legal professional privilege for documents which related to his work. On 6 August 2002, the ATO raided VRL's offices, Mr Ziegler's home and his accountant's office. Although Orrong's consultancy agreement had come to an end on 30 June 2002, Mr Ziegler was still assisting VRL with ongoing issues at this time. After the raid had commenced, Herbert Geer & Rundle (VRL's lawyers) attended VRL's offices and Mr Ziegler's home. Many documents were seized. There followed negotiations between the ATO and the lawyers concerning the procedure for dealing with claims for legal professional privilege in respect of the documents seized. Due to a possible conflict of interest, Mr Ziegler retained his own solicitors, Clayton Utz, to act on his behalf and on behalf of his wife.

877 VRL subpoenaed documents from Clayton Utz and called evidence from Mr Richard Mereine and Mr Dane McLeod, respectively a partner and a former solicitor of Clayton Utz, as to the circumstances surrounding this claim by VRL for legal professional privilege.

878 Mr Mereine met with Mr Ziegler on 8 August 2002. Arrangements were subsequently made with the Australian Government Solicitor ("the AGS"), acting on behalf of the ATO, for the 54 boxes of documents and computer equipment initially stored at the office of Herbert Geer & Rundle to be moved to Clayton Utz's office. There the contents of the boxes were to be inspected and documents in respect of which a claim for legal professional privilege was to be made were to be identified. These documents were to be copied and the originals then to be placed in sealed envelopes. Lists of the documents in respect of which a claim for legal professional privilege was to be made were to be prepared containing certain details of the documents, including the grounds upon which the claim for legal professional privilege was made and the person in whose name the claim was made. Terms of Inspection dated 12 August 2002 were signed by Mr and Mrs Ziegler and on behalf of the ATO. Mr Ziegler was involved in the negotiations of those terms. He conferred with Mr Mereine about them on 9 August 2002.

879 As part of these arrangements it was necessary to obtain the consent of the parties on whose behalf the claim for legal professional privilege would be made. On 26 August 2002 Mr McLeod prepared a list of 23 names whose consent would be necessary. He sent it to Mr Mereine and Mr Ziegler. At the foot of the list he sent to Mr Ziegler, Mr McLeod wrote: "Please send all the signed consent forms to us before Friday 30 August 2002." Mr Ziegler made a number of corrections to the list in his own handwriting. After taking into account a number of repetitions, there were by my calculations 16 separate persons, companies or firms in the settled list, including VRL, two directors of VRL, the Fowles Auction Group, and two companies associated with Mr Ziegler.

880 At the same time Mr McLeod prepared a draft of the "consent form" to be signed by the person on whose behalf the claim for legal professional privilege would be made. Mr McLeod thought that this draft was based on a proforma document provided by the ATO. The first typed draft letter prepared by Mr McLeod was addressed to the ATO and read as follows:

[634]

881 A copy of that draft was altered by Mr Ziegler by hand so that the above references to himself, instead read "Peter Ziegler & Co Pty Ltd." The second typed draft letter incorporated these changes together with a change of addressee from the ATO to "Mr Peter Ziegler, Peter Ziegler & Co Pty Ltd." This letter was emailed by Mr McLeod to Mr Ziegler at his VRL email address at 3.07 p.m. on 27 August 2002, together with a message confirming that the letter had been amended "as you have suggested so that the replies will be directed to you rather than to the Australian Tax Office." At 4.46 p.m. on the same day the same email and attachment was sent by Mr McLeod to Ms Neree Long, Mr Ziegler's former secretary at VRL, who was continuing to assist him with VRL work even though his formal connection with the Group had ended. Mr McLeod said in evidence that he did so "based on Mr Ziegler's instructions to me on the telephone where best to send these documents so he could have a look at them."

882 According to Mr McLeod's handwritten note, the third form of the letter of consent was discussed in a telephone conversation between Mr Ziegler and Mr Mereine and Mr McLeod on 28 August 2002. This amendment involved all of the above personal references reading "Peter Ziegler of Peter Ziegler & Co Pty Ltd" where previously they had been first "Mr Peter Ziegler" and then "Peter Ziegler & Co Pty Ltd." However, from the emails sent out by Ms Long, which most clients signed without amendment, in the final form of the letter of consent the reference to a retainer was to a retainer of "Peter Ziegler of Peter Ziegler & Co Pty Ltd" whereas the references to the giving of legal advice and the privileged confidential communications was simply to "Peter Ziegler." Ms Long sent out the letters of consent, together with a covering letter from Mr Ziegler, on 28 August 2002. Unlike the letter of consent, the covering letter bore no Clayton Utz footer, although Mr Ziegler said that he believed that it was also prepared by Clayton Utz. By a letter dated 30 August 2002, most of the signed letters of consent were sent by Ms Sharon Yewers, on behalf of Mr Ziegler, to Mr Mereine. Ms Yewers was Mr Pane's secretary at VRL. Clayton Utz forwarded them on to the ATO on the same day. Mr Ziegler said that he might have dictated the letter signed by Ms Yewers but he could not recall. He could not understand why Ms Yewers would be doing this for him, when Ms Long sat very close to Ms Yewers.

883 It seems to me that these events show that Mr Ziegler was closely involved in the arranging of these claims for legal professional privilege. He was involved in settling the list of persons and in drafting the form of the letter of consent; the contact with the clients was made on his behalf by Ms Long; Mr Ziegler probably drafted the proforma covering letter; and the signed letters of consent were returned to him and were then sent to Clayton Utz by Ms Yewers on his behalf. Thus, as VRL submitted, it was Mr Ziegler who clearly facilitated these claims for legal professional privilege from a number of people in respect of work which he alone could have provided and, as the letters suggest, was provided by him. This was, VRL submitted, clear evidence of Mr Ziegler doing legal work (without the proper qualifications) for these people, including VRL. The changes made by Mr Ziegler to the letter of consent also showed that he was conscious that his work had been done on behalf of Orrong.

884 One of the letters of consent was emailed by Ms Long to Mr Tony Pane, the VRL Chief Tax Counsel. Mr Foo signed that letter on behalf of VRL "and certain of its related and associated entities (the 'Group')." It was dated 29 August 2002. Like all of the letters of consent it was headed:

[642]

887 I also consider that in a further effort to distance himself from the suggestion of any involvement in the preparation of the draft letter of consent, Mr Ziegler gave evidence that he believed Mr Mereine had sent the covering letter and the letter of consent to Ms Long for forwarding on to Mr Pane. It is far more likely, in my opinion, that Mr McLeod sent the letter of consent to Mr Ziegler on 27 August 2002, and then later on the same day to Ms Long, at Mr Ziegler's request, and that on 28 August 2002, at Mr Ziegler's request, Ms Long sent the further amended letter of consent and the covering letter to Mr Pane (and the other clients).

888 When confronted with his handwritten alterations to the first draft of the letter of consent, after Clayton Utz's file had been subpoenaed, Mr Ziegler said that he now recollected having seen the document before because it had his handwriting on it. However, he denied playing any role in the further changes. He agreed that he had "input" into the form of the letter of consent, but said: "Mr Mereine acting on my behalf settled it, I believe."

889 The fact that Mr Ziegler participated in this way in the making of a claim for legal professional privilege on behalf of some 16 different persons, companies or firms, including VRL, in respect of their retainer of "Peter Ziegler of Peter Ziegler & Co Pty Ltd" and the giving of legal advice to them by "Mr Peter Ziegler" and privileged confidential communications involving "Mr Peter Ziegler" (as it was finally expressed), seems to me to make it impossible for Orrong to deny that at least on occasions during this period Mr Ziegler did "engage in legal practice" on behalf of VRL. Otherwise, how could the claim be made? The giving of taxation advice, for example, which could lawfully be done by either a lawyer or an accountant, could not give rise to a claim to legal professional privilege if the advice was given by someone in his or her capacity as an accountant. It is only if the lawyer is acting as lawyer in giving that advice that such a claim could arise. This indicates to me, therefore, that the person giving the advice in respect of which privilege was claimed was "engaging in legal practice." On the face of the letter dated 29 August 2002 signed by Mr Foo, Mr Ziegler of Peter Ziegler & Co Pty Ltd had performed some legal work for VRL. That is, Mr Ziegler was acting in this respect on behalf of Orrong in contravention of s.314 of the LPA.

890 What is not at all clear, however, is just what work was involved in the claim for legal professional privilege asserted in the letter of 29 August 2002.

Exhibit 119

891 In an apparent attempt by VRL to overcome this uncertainty, Mr McLeod was recalled to give evidence about what happened to the lists of documents in respect of which legal professional privilege was claimed by the Village Roadshow Group. He said that, according to his file notes, on 3 September 2002 he handed to the ATO's representatives four lists of documents and that on 9 September 2002 he handed over five additional lists of documents. The letter from Clayton Utz accompanying the delivery of the four lists of documents stated as follows:

[646]

The relevant file notes and correspondence became Exhibit 118.

892 Clayton Utz were subpoenaed to produce the nine lists from their file, but only four complete lists and one partial list had been retained. They became Exhibit 119.

893 VRL submitted that the documents for which legal professional privilege was claimed by it included documents relating to Projects Ballarat, Bendigo and Castlemaine and other matters in respect of which Orrong had been paid by VRL or in respect of which claims were being made in this proceeding. It submitted that some of the claims for legal professional privilege were on the basis that Mr Ziegler was providing legal advice. It further submitted that the claims made by Orrong in this proceeding could be shown by the evidence to be made in respect of at least some legal work.

894 VRL further submitted that it was Mr Ziegler who instructed Clayton Utz to make these claims on behalf of VRL on the basis that he was the legal advisor whose communications or advice gave rise to the privilege claim. It submitted that the Court should find (by irresistible inference if necessary) that Mr Ziegler would have been well aware of the nature of the documents for which legal professional privilege was being claimed, even though the lists were prepared by Herbert Geer & Rundle, and that Mr Ziegler provided legal advice in respect of those matters. Before these sweeping assertions could be accepted, it is necessary to examine in some detail just what evidence there was about the preparation of the lists, Mr Ziegler's role in that preparation, the contents of the lists, the claims for legal professional privilege and the validity of those claims.

895 Orrong submitted that even though Mr Ziegler was subjected to many days of cross-examination neither VRL's original versions of Herbert Geer & Rundle's lists nor their contents were put to him in any detail. Nor did VRL seek to recall Mr Ziegler for further cross- examination after the tender of Exhibit 119.

896 Orrong emphasised that the relevant lists claiming legal professional privilege were prepared by Herbert Geer & Rundle on behalf of VRL. They were not prepared by Mr Ziegler or by Clayton Utz on his behalf. No witness was called from Herbert Geer & Rundle to give evidence as to the preparation of those lists, the actual basis upon which claims had been made by VRL for legal professional privilege and any actual connection between Herbert Geer & Rundle's lists and the proposition that this somehow indicated that Mr Ziegler or Orrong was engaging in unqualified legal practice. Orrong drew attention, in particular, to the fact that no evidence was called from Mr Peter Nankivell of Herbert Geer & Rundle, who was the draftsman of the lists constituting Exhibit 119, and that VRL proffered no explanation for the absence of such evidence. Presumably, Mr Nankivell would have been able to produce all nine lists.

897 Similarly, VRL failed to call its own employed lawyer, Mr Simon Phillipson, the author of Exhibit 56, and also failed to explain his absence as a witness. Exhibit 56 was a memorandum by Mr Phillipson, in part, discussing the arrangements between Herbert Geer & Rundle on behalf of VRL and Clayton Utz on behalf of Mr Ziegler. Part of that memorandum read:

[648]

Orrong submitted that it could only be presumed, therefore, that the evidence of Mr Nankivell and Mr Phillipson would not have assisted VRL.

898 Orrong submitted that the file notes and correspondence constituting Exhibit 118 entirely refuted the assertion by VRL that Exhibit 119 gave rise to an inference that Orrong adopted the contents of Herbert Geer & Rundle's lists as being correct. Rather than Clayton Utz purporting to adopt the contents of Herbert Geer & Rundle's lists when it forwarded them on to the ATO, it expressly described the four lists enclosed with the letter dated 30 August, 2002 as being "lists of documents over which Herbert Geer & Rundle wish to maintain and assert legal professional privilege on behalf of Village Roadshow Limited" and said that Herbert Geer & Rundle had requested that copies of the lists be provided "under the Peter Ziegler Terms of Inspection." The subsequent letter dated 5 September 2002, enclosing the remaining five lists was in very similar but not identical terms. Importantly, this letter made it clear that the lists "were prepared by Herbert Geer & Rundle."

899 When one turns to examining the lists constituting Exhibit 119, the first point to note about them is that although each is headed "Peter Ziegler Legal Professional Privilege" they relate to documents obtained from Mr Ziegler's possession and not necessarily to documents in respect of which Mr Ziegler was personally involved in the matters giving rise to the claim for legal professional privilege. This much is obvious from the fact that many documents were neither prepared by nor addressed to Mr Ziegler. Examples are the first entry on page 1 of the list for Box 5 which was an email from Mr Basser to Mr Boxer dated 28 May 2002 attaching legal advice by Mr Pane; the fifth entry on page 1 of the list for Box 7, which was legal advice dated 16 January 2002 provided by Mr John Mendes of Skadden Arps to Mr Basser; the eighth entry on page 2 of the list for Box 8, which was a letter of advice dated 5 November 1997 concerning an attached draft agreement from Pinheiro Guimaraes to VRL; and the fourth entry on page 3 of the list for Box 9, which was a letter of advice regarding related party transactions dated 11 August 2000 from Minter Ellison to Mr Basser.

900 That VRL accepted that many of the documents in the lists had nothing to do with Mr Ziegler is illustrated by the contents of the document entitled "Chapter 13, Annexure 2", which formed part of VRL's written closing submissions. This purported to be a list of "Documents referred to in Exhibit 119 demonstrating LPP claims based on legal work by Ziegler." The 182 documents in Exhibit 119 had been reduced in Annexure 2 to 65, or a reduction of about a third.

901 Next, of the 65 documents in Annexure 2 only 29 documents are said to be communications to Mr Ziegler "for the purpose of obtaining legal advice", or documents prepared by Mr Ziegler "for the purpose of giving legal advice" or documents containing Mr Ziegler's "legal advice." There is no such claim with respect to the remaining 36 documents in Annexure 2. Examples are the first entry in the list for Box 5, which was a bundle of documents said to be communications between Mr Ziegler and Mr Fletcher of CIBC from 8 April 2002 to 7 June 2002 concerning the "proposed variation of the Master Agreement"; the third entry in the list for Box 7, which was an email from Mr Stephen Foster to Mr Boxer, Mr Basser and Mr Ziegler dated 7 June 2002 concerning "revenue timing profiles"; the fourth entry in the list for Box 8, which was a bundle of documents said to be communications between Mr Basser, Mr Ziegler and others from 24 August 2000 to 23 November 2000 concerning Project Popcorn; and the twenty-sixth entry in the list for Box 9, which was an inter-office memorandum from Mr Ziegler to the VRL Board dated 28 April 1999 concerning Project Popcorn.

902 Of the 29 documents which are said to be either communications to Mr Ziegler "for the purpose of obtaining legal advice", or documents said to have been prepared by Mr Ziegler "for the purpose of giving legal advice", or documents containing Mr Ziegler's "legal advice", it is often difficult to discern exactly what were the topics in respect of which the legal advice was said to have been sought or given. Examples of the first category are the first entry in the list for Box 6 which was described as an "email re projects" dated 6 July 1998 from Ms Raffe to Mr Ziegler, Mr Charbel Nader and Mr Foo, and the second entry in the same list which was described as a "letter regarding ESAS" dated 2 March 1998 from Mr Buzzard to Mr Ziegler. Examples of the second category are the first entry in the list for Box 9 which was described as undated "notes" prepared by Mr Ziegler and the second entry in the same list which was described as an undated "structure diagram" prepared by Mr Ziegler. An example of the third category is the sixteenth entry in the list for Box 9 which was described as an "E-mail" dated 20 August 2001 from Mr Ziegler to Mr Burke, Mr John Kirby and Mr Foo.

903 In my opinion, there are only five of the 29 documents which, if accurately described, could be said to relate unequivocally to the work the subject matter of Orrong's remaining claims or of VRL's counterclaim for repayment. They are the second entry in the list for Box 7, which was an inter-office memorandum from Mr Ziegler to Mr Kirby, Mr Burke and Mr Foo dated 23 November 2001 said to contain a legal advice or opinion of Mr Ziegler concerning "Village Roadshow Films (BVI) Ltd capital raising"; the thirteenth entry in the list for Box 9, which was an email from Ms Raffe to Mr Ziegler dated 22 July 1998 concerning "Ballarat" said to have been sent to Mr Ziegler "for the purpose of obtaining legal advice"; the fourteenth entry in the same list, which was a facsimile from Mr Streeter to Mr Ziegler dated 23 February 1998 concerning "Ballarat" said to have been sent to Mr Ziegler "for the purpose of obtaining legal advice"; the fifth last entry in the same list, which was Mr Ziegler's letter to Mr Wilson of Salomon Smith Barney dated 24 May 1999 concerning "Project Bendigo" and, an attached review of structure, said to be "legal advice prepared by" Mr Ziegler; and the fourth last entry on the same list which was a letter from Mr Ziegler to Mr Wilson dated 24 June 1999 concerning "Project Bendigo", and an attached "Warner Village co-production arrangements", which was again said to be "legal advice prepared by" Mr Ziegler.

904 Finally, it has to be said that some of the claims for legal professional privilege in respect of these 29 documents appear to be quite unlikely to be justifiable. Examples are the eleventh entry in the list for Box 9 which was Mr Ziegler's letter to Mr Jackman dated 16 February 1999 concerning Project Bendigo; and the fifth and fourth last entries in the same list, referred to in the previous paragraph. In this context I note that in tendering Exhibits 118 and 119 senior counsel for VRL made the statement that "It doesn't matter if the documents are honestly described or not. They may well be dishonestly described."

905 In a further attempt to make out its case under the LPA, VRL prepared as part of its written closing submissions a document entitled "Chapter 13 - Annexure 1." The sub-heading read: "Evidence of legal work by Ziegler referable to payments made to Ziegler, Orrong and others." In my opinion, Annexure 1 did not advance VRL's case one iota. Listing alleged examples of legal work performed by Mr Ziegler alongside invoices from Orrong where the dates of the two documents more or less coincided achieved nothing. Apart from all of the above criticisms of Exhibit 119, there was rarely any relationship between the work described on the invoice and that described in the document contained in one of the lists constituting Exhibit 119. For example, many of the monthly retainer invoices between September 1997 and December 1998 which contained the work description: "Taxation advice pertaining to Cinema Financing" had placed alongside them the document being the last entry in the list for Box 9 in Annexure 2/Exhibit 119 which was described as "Communication between PZ and Board of Directors, HGR and GWB [Mr Burke] and supporting documents re Project Bendigo" in the period from 5 May 1997 to 18 November 1999 and in respect of which legal professional privilege had been claimed on the ground expressed as follows: "Communication between PZ and HGR and supporting documents." Apart from the dubious claim for legal professional privilege, "Cinema Financing" surely referred to Project Popcorn not Project Bendigo. Therefore, the juxtaposition of these documents revealed nothing about the work the subject of the invoices or the work the subject of the claim for legal professional privilege.

906 Another example is the February 1998 invoice for $300,000 for: "Annual Bonus for Financial Year Ending 30 June 1997 in connection with Advice on Tax Issues." Placed alongside this invoice in the tables in Annexure 1 were the document being the third entry on page 3 of the list for Box 9 in Exhibit 119, which was described as "Facsimile re Ballarat" dated 23 February 1998 from Mr Streeter to Mr Ziegler and said to be a "Communication to PZ made for the purpose of obtaining legal advice", and the same document referred to in the previous paragraph and described as "Communication between PZ and Board of Directors, HGR and GWB and supporting documents re Project Bendigo" in the period from 5 May 1997 to 18 November 1999. Again, the juxtaposition of these documents revealed nothing about the work the subject of the particular invoice or the work the subject of the claim for legal professional privilege.

907 An early example of what was set out in Annexure 1 in respect of "Retainer payments" is Orrong's monthly retainer invoice for February 1996 in the sum of $26,250. That charge was expressed to be:

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The evidence of related legal work was said by VRL to be: "Brief to advise from Peter Ziegler to Neil Forsyth QC dated 27 February 1996." However, that brief was to advise about the taxation consequences of a proposed transaction concerning the Entertainment & Film Unit Trust and appears to have nothing to do with "Multiplex cinema expansion." It seems to me, therefore, that the only relationship is one of time and that otherwise the example does not advance VRL's argument at all.

908 More relevantly, I turn to look at examples of payments made in the period between 23 September 1997 and 27 June 2000.

909 Given the problems I have identified concerning Exhibit 119 and Annexures 1 and 2 and Orrong's valid criticisms of the lack of explanatory or supporting evidence, I am not prepared to place reliance on the contents of the lists, including in particular the descriptions of how legal professional privilege was said to arise. I am not satisfied that Exhibit 119 or Annexures 1 or 2 is a reliable basis on which to make findings adverse to Mr Ziegler and Orrong. If anything was to be made of Exhibit 119 to assist VRL, then that could only have occurred if VRL had adequately explored the relevant transactions the subject of Herbert Geer & Rundle's claim for legal professional privilege to ascertain whether those transactions cast light on the question of whether Mr Ziegler had engaged in legal practice. This evidence was simply not before the Court. Further, I am not satisfied that it was established by the evidence, let alone by "irresistible inference", that Mr Ziegler was "well aware" or even simply aware, of the contents of the lists or that he played any part in their preparation. Therefore, I put to one side the contents of Exhibit 119.

Section 314 and Orrong's Claims and VRL's Counterclaims

910 As set out above, it is my opinion that Mr Ziegler must be taken to have been "engaging in legal practice" in contravention of s.314 of the LPA on occasions in the relevant period. I say on occasions because it seems to me that it is obvious that Mr Ziegler did far more work for the Village Roadshow Group apart from what could be considered to be the provision of legal services. He was far more than simply a lawyer for VRL. As Orrong pointed out, none of the reported cases on this topic come close to the facts of Orrong's relationship with, and activities undertaken for, VRL. The two Nagle cases involved a person holding himself out to the world at large as an attorney. Murray involved an illicit will making franchise business. Bailey involved an unqualified industrial relations advocate describing himself as a solicitor. Felman involved an unqualified law clerk with dishonesty convictions working in his brother's practice and representing that he was a fully qualified solicitor. The New South Wales cases of Seymour and Kekatos both involved disqualified former solicitors continuing to engage in legal practice.

911 Thus, I consider that, in order to decide whether, because of s.314(6) of the LPA, Orrong is "not entitled to recover" the amounts it seeks or "must repay any amount received" from VRL, it is necessary to look at the particular work for which the fees were charged, including how it was described in the relevant invoices.

912 The sub-section provides that an unqualified person is "not entitled to recover any amount in respect of anything done during the course of" (emphasis added) the contravention of the legislation, and that the amount in respect of which repayment must be made extends to payment of "any amount in respect of anything done during the course of" the contravention. In my opinion, an example of a fee charged for something done "during the course of" the contravention would be where an unqualified person has "engaged in legal practice" by purporting to represent a client in court and has charged a fee for the appearance plus the costs of a taxi to the court and photocopying charges. None of those three amounts would be recoverable or, if the account has been paid, all three amounts would have to be repaid. But if on the same day as the court appearance the person who purported to be a lawyer also drew some house plans for the same client and charged for that work, that fee would not be an amount "in respect of anything done during the course of" the contravention and the fee would be recoverable.

913 VRL conceded that Orrong's invoices did not specifically refer to the provision of legal advice. It submitted, however, that the evidence established that Mr Ziegler did significant legal work over a lengthy period of time involving taxation advice, briefing counsel, drafting agreements, settling agreements and advising on a raft of issues including documentation in relation to Projects Ballarat, Bendigo and Castlemaine, and that there could be no doubt that the invoices incorporated significant amounts for legal work. I reject that submission. The only legal work which I consider was done by Mr Ziegler whilst "engaging in legal practice" was briefing counsel and advising VRL "from time to time" on unspecified matters in circumstances giving rise to the claim for legal professional privilege made in the letter of 29 August 2002 signed by Mr Foo. Accordingly, I also reject the submission by VRL that the variety of descriptions of the work on Orrong's invoices were euphemisms for what was a retainer to do legal work.

914 The first claim by Orrong to consider is the two years of the 7.5% share of VRP's profits. In my opinion, it cannot be said that it has been proven that anything done by Mr Ziegler to earn this remuneration was done in contravention of s.314. In working on Project Ballarat and Project Bendigo Mr Ziegler was not "engaging in legal practice." He was attempting to set up a complicated financing structure which would enable the Group to raise large amounts of money on a limited recourse basis. Despite the lengthy cross-examination of Mr Ziegler about his role in those projects, it was never put to him that a particular task involved him in legal work or that he gave legal advice about a particular aspect of the projects. Further, even if, for example, from time to time during this period Mr Ziegler did contravene s.314 by briefing counsel when he did not hold the appropriate practising certificate, that does not mean that the work on Project Ballarat and Project Bendigo was "done during the course of that contravention."

915 The same applies, in my opinion, to the Roadshow Distributors Group's performance bonus claim, if it were otherwise recoverable by Orrong. Nothing done by Mr Ziegler in respect of that claim involved him in "engaging in legal practice."

916 Orrong's claim for the two unpaid "taxes saved" performance bonuses raise other issues. Although no invoices were rendered for the performance bonus in the 2001 and 2002 financial years, the wording of the invoices for the earlier years referred to "advice on tax issues." As previously discussed, I am not satisfied that this was a sufficiently clear indication that Mr Ziegler was "engaging in legal practice." He could well have been acting in his capacity as an accountant, without contravening s.251L of the ITAA. However, the scope of that section was considerably broadened by the amendment to its wording, with effect from 1 July 2000. Nevertheless, I still do not consider that the giving of advice about a range of tax matters contravened the current form of s.251L. In any event, even if I am wrong, there is still the point that there is no logical reason why it must be concluded that Mr Ziegler would breach the LPA in order not to breach the ITAA. The inference cannot be drawn. Moreover, as no cause of action for breach of the ITAA has been pleaded, if indeed Mr Ziegler was acting as an accountant in breach of the ITAA, then this does not assist VRL either to resist Orrong's claim or pursue its own counterclaim.

917 The same reasoning applies, in my opinion, to all of the other work done in raising finance, even though it might have been described on the relevant invoices as "advice on tax issues" associated with the particular type of finance raised. This is important when it comes to considering whether Orrong would be prevented by s.314 of the LPA from recovering the termination bonus, if it were otherwise found to be payable. I do not consider that it would be, because the reason it would be payable and the means of quantifying it would not be associated with "anything done during the course of" the occasional contravention.

918 What I have said so far deals with the question of VRL's recovery of the "taxes saved" performance bonuses and the "finance raised" performance bonuses. There remains the question of the retainer payments. Although it might be arguable that the legal work done by Mr Ziegler could have been charged for in these invoices, I do not reach this conclusion. In my opinion, the retainer amounts were payable by VRL whether or not Mr Ziegler briefed counsel or gave legal advice on some particular topic. It cannot therefore be said that there has been any charge by Orrong for anything constituting the occasional "engaging in legal practice" by Mr Ziegler. VRL was not correct, in my opinion, when it submitted that there was material showing charges were made for legal work.

919 This means that VRL's argument, based on authorities such as Watts v Rake[141] and Purkess v Crittendoen[142], that once VRL has established that there was some material showing charges were made for legal work the evidentiary onus shifted to Orrong to show how much of the amount charged was for non-legal work, is not relevant. Neither is the argument, based on authorities such as Blatch v Archer[143], Murphy v Overton Investments Pty Ltd[144] and Tyco Australia Pty Ltd v Optus Networks Pty Ltd[145], that a court assessing damages is entitled to draw inferences against a party who, although it had the capacity to offer proof, has by its actions made an accurate determination problematic.[146] Nor did I find the many authorities cited by VRL, relating to the topic of the proper approach to cases involving a difficulty of assessing damages in contractual claims, to be of assistance in considering the issue raised by s.314.

920 For all of the above reasons I have, therefore, concluded that VRL's argument based on s.314 of the LPA fails. That section does not prevent Orrong from recovering amounts to which it is otherwise entitled, nor does it require that any of the amounts totalling $5,979,511 be repaid to VRL as sought in its counterclaim.

Alternative Cash Claim

921 In paragraph 32 of the second further amended statement of claim filed on 18 November 2004 Orrong pleaded, as an alternative claim, that, if the 1997 Agreement and 2000 Agreement were found to be void, unenforceable or liable to be set aside, it was entitled under the 1995 Agreement, in part, to:

[654]

These amounts totalled $102.176 million.

923 As has been seen, in its final submissions Orrong varied the amount of the termination bonus, calculated using the same alternative cash amounts, to $42.598 million. Thus, the final total alternative claim was $102.317 million.

924 It was common ground between the parties that on 8 September 1997 (or subsequently) Orrong agreed with VRL that Orrong would forego its claim to a 5% performance bonus in relation to the Project Ballarat transaction in exchange for a 5.25% interest in VRP, although there were disputes as to the precise nature of that interest and as to whether the new benefit was a performance bonus for the purposes of calculating a termination bonus. Similarly, it was common ground that by the letter of 21 June 2000 Orrong agreed with VRL that Orrong would forego its claim to a 5% performance bonus in relation to the Project Bendigo and Project Castlemaine transactions in exchange for an upfront payment of US$3 million plus a deferred payment of US$2 million together with a further 2.25% interest in VRP, although there was a dispute as to the precise nature of that interest.

925 In response to the various defences raised by VRL that neither the grant of the 5.25% interest nor the 2.25% interest in VRP was enforceable by Orrong, it was submitted by Orrong that it was nevertheless entitled to enforce its rights to receive a 5% performance bonus for each of the Project Ballarat, Project Bendigo and Project Castlemaine transactions under the provisions of the original 1995 Agreement.

926 In its written closing submissions, Orrong explained for the first time how this alternative cash claim was put. It submitted that these amounts were recoverable under causes of action such as "a total failure of consideration", "restitution", "unjust enrichment", "mistake" or something that was described as "directly equivalent to, or at least strongly analogous with, VRL having and receiving the sums otherwise payable for the 5% performance bonus" to the use of Orrong. Given the conclusion I reach below, it is unnecessary to examine the validity of the claim that these purported causes of action were open to Orrong.

927 Orrong submitted that it was not enough for VRL to establish some basis upon which Orrong was not entitled to receive the 7.5% interest in VRP to exclude any liability by VRL to pay the 5% performance bonuses otherwise due to Orrong on Projects Ballarat, Bendigo and Castlemaine. Orrong submitted that VRL would otherwise have to establish a change of position defence (which it submitted would be contradictory of its entire case challenging the validity and enforceability of Orrong's claimed 7.5% equity interest in VRP) to entitle it to retain the benefit of Orrong's promise to forego the 5% performance bonuses otherwise due to Orrong on those Projects. It submitted that there was simply no evidence of any material change of position by VRL.

928 Orrong further submitted that where a court was fashioning a remedy by way of restitution, it had a wide discretion to provide a remedy procuring substantial and practical justice in the circumstances. In such circumstances, the Court had the power, for instance in the present case, to uphold VRL's application to set aside the grant of a 7.5% equity interest in VRP to Orrong on the express condition that VRL otherwise pay to Orrong the sum representing the value of the 5% performance bonus otherwise payable by it for Projects Ballarat, Bendigo and Castlemaine.

929 VRL repeated its earlier submissions that Orrong had never pleaded or explained how the alternative claims were said to arise. It submitted that none of the causes of action relied upon in Orrong's closing submissions were pleaded. Orrong had amended its statement of claim several times, but had not sought to introduce any of these causes of action. VRL submitted that if Orrong had done so, it would have been required to plead the material facts upon which it relied in relation to each cause of action, and VRL would have been able to plead its case. Evidence would have been necessary in relation to the material facts. None of this occurred, and this was a direct result of Orrong's failure to plead these causes of action.

930 In any event, VRL submitted that the alternative cash claim could not succeed. It submitted that it was clear on the evidence that Orrong was never going to receive the claimed cash bonuses. VRL had refused to proceed with Project Ballarat while Mr Ziegler maintained his claim for a US$10 million performance bonus. That was why Mr Ziegler felt "bruised and battered." If Project Ballarat had been aborted, there would have been no Project Bendigo and no Project Castlemaine. Thus the alternative claims were based upon the completely false premise that these projects would have proceeded with Mr Ziegler being paid 5% performance bonuses. Further, VRL had in fact changed its position by entering into Project Ballarat after the US$10 million claim was abandoned.

931 In my opinion, the alternative cash claim must fail. Not only was it never properly pleaded by Orrong, it also would make nonsense of my earlier findings to allow Orrong to succeed on this alternative basis. I have already found that each of the 1995, 1997 and 2000 Agreements should have been approved by the shareholders and that because they were not, the Court should not enforce these Agreements. This conclusion applies with equal force to the performance bonuses payable under the 1995 Agreement now sought to be relied on by Orrong.

932 It is therefore unnecessary to resolve the further minor dispute between the parties concerning the amounts calculated by Orrong with respect to the alternative claims. VRL pleaded in its defence and counterclaim that the exchange rates applied by Orrong (being the Reserve Bank of Australia rates for the relevant dates) were incorrect. It said that the applicable exchange rate should be the commercial rates of exchange available for the conversion of United States dollars into Australian dollars at the relevant dates and referred to the telegraphic transfer rate of the Commonwealth Bank on the relevant dates. Orrong submitted that VRL had not provided any basis supporting the use of "the commercial rates of exchange" instead of the Reserve Bank of Australia rates. As the following table by VRL shows, use of one rate rather than another does not always favour the same party. Nevertheless, in the overall scheme of things, the difference is relatively small. The two rates of exchange resulted in the following calculations:

[669]

941 In my opinion, VRL can recover two of these three amounts from Mr Ziegler. As the related party, Mr Ziegler contravened s.243ZE(2), which by s.243ZE(5) is a civil penalty provision, and thus pursuant to s.1317HD(1)(a) VRL may recover from him the amount of the "profit" made by him or another person because of the failure to obtain shareholder approval. I consider that the amount of any payments made pursuant to the terms of the Agreements which have been held to be "unreasonable" or "uncommercial" is the amount of the "profit" made because of the failure to obtain shareholder approval. In this case, the contractual obligation was to make those payments to or, at the direction of, Orrong and thus it is Orrong which has made the profit. Further, it is irrelevant for this purpose that the payment of $1,137,038 was made not by VRL but by Village Roadshow Production on behalf of VRL.

942 Apart from one matter, VRL would therefore be able to recover these three amounts from Mr Ziegler. In my opinion, VRL cannot now recover the payment of $601,504 because that was made following the compromise of a dispute between VRL and Orrong about the latter's entitlement to any fee for the $16 million Project Ballarat equity raising. Therefore, VRL's claim for repayment of that amount cannot succeed under any circumstances.

943 Similarly, pursuant to s.1317HD(1)(b) VRL could recover from Mr Ziegler the amount of the "loss or damage" it suffered as a result of the failure to obtain shareholder approval. Again, payments made by VRL pursuant to the terms of the Agreements which have been held to be "unreasonable" or "uncommercial" is the amount of its "loss or damage". However, as the payment of $1,137,038 was not made by VRL it cannot be included in the calculation of the loss or damage. From VRL's point of view, this particular problem with the payment of $1,137,038 does not matter because it can be recovered under s.1317HD(1)(a), as discussed above.

944 In my opinion, VRL can also recover the amounts of $612,937 and $1,137,038 from Orrong and Remut. Each of them was "party" to the contravention of s.243H and thereby contravened s.243ZE(3), which by s.243ZE(5) is a civil penalty provision, and thus pursuant to s.1317HD(1)(a) VRL may recover from both Orrong and Remut the amount of Orrong's profit made by it because of the failure to obtain shareholder approval.

945 I turn then to the next three payments sought to be recovered by VRL. I have already concluded that the entry by Orrong into the 2000 Agreement without shareholder approval contravened s.208 of the Corporations Law 2000. The question is whether the payment of the profit share of $283,000 on 17 October 2000 and the payment of the performance bonuses of $5,055,627 and $5,215,247 on 5 July 2000 and 8 March 2001 respectively pursuant to the terms of the 2000 Agreement, or the 1995 Agreement as varied by the 1997 and 2000 Agreements, is recoverable by VRL.

946 I have previously quoted s.209 of the Corporations Law 2000 in full. It is sufficient here to repeat sub-section (2) which stated:

[677]

953 I do not consider that VRL made out its claim for unjust enrichment against Remut in respect of these twelve amounts. They were paid to Remut on behalf of, and at the direction of, Orrong. Apart from the question of contravention of the corporations legislation, there is, in my opinion, no basis for VRL to recover these amounts from Orrong and therefore from Remut. I have already held that four of the last six of these payments can be recovered from Remut (and Orrong and Mr Ziegler) on this basis. I have also held that the remaining two payments cannot be recovered because each of them was made following a compromise of a dispute between Orrong and VRL about the entitlement. Whether or not the first six of these payments could have been recovered from Orrong and/or Remut as a result of the failure to obtain shareholder approval of the agreements between Orrong and VRL is a question I do not have to answer because VRL made it quite clear in its final submissions on this aspect of the counterclaim what repayments were sought in respect of which cause of action.

The Advance Payment

954 In case I am wrong about the effect of the corporations legislation and it is subsequently held that the 2000 Agreement is valid and enforceable, it is necessary to consider the remaining part of the counterclaim, namely VRL's claim to repayment of part of what it described as the "advance payment."

955 Pursuant to the 2000 Agreement, if there was an increase in the facility for what was now called Project Castlemaine, Orrong was entitled to a fee of 1%. In October 2000, VRL obtained a further US$250 million funding facility for the production division, which increased the limit of the facility from US$500 million to US$750 million. According to Mr Ziegler, although this transaction settled in October 2000, the conditions subsequent to the settlement were not satisfied until around December 2000. Mr Foo seemed to agree that there were issues still outstanding well after October 2000. By an invoice dated February 2001 from Remut, Orrong sought payment of a fee of US$2.5 million, plus GST of $250,000, for the raising of the extra US$250 million.

956 This apparently straightforward issue became the subject of some disputation because the parties disagreed about what amount the 1% was to be calculated on, which also involved the question of when the fee was payable. There was also the question of whether there was a US$2 million limit on the fee, as pleaded by VRL in its defence and counterclaim.

957 The further facts giving rise to the dispute were as follows. According to Mr Foo, in March 2000 Mr Ziegler telephoned him from Tokyo and said that he had made a "purchase commitment" and needed his fee in respect of the further US$250 million funding paid immediately. Mr Foo said that he told Mr Ziegler he was not entitled to the fee as the funds had not been drawn down at that stage. However, Mr Foo said to Mr Ziegler he would "prepay" the fee "on the basis that it could be repaid or deducted from other entitlements in the event that funds were not drawn down or if there were other problems with the facility requirements, such as the insurance." Mr Foo then sent Mr Ziegler a cheque for $5,215,247.49, being the equivalent of US$2.75 million attached to a memorandum dated 8 March 2001 in which Mr Foo stated:

[679]

The cheque, which was made payable to the "Remuneration Unit Trust", was banked into the Remut account.

958 Mr Ziegler agreed that, when he had not received a cheque for some days after sending the invoice, he telephoned Mr Foo from Tokyo. Mr Ziegler said that he disagreed strongly when Mr Foo said that the fee had not yet been earned. Mr Ziegler did not deny that he had made some substantial "purchase commitments" in the early part of 2001 and, indeed, in cross-examination he said that he "might" have told Mr Foo that, but he just could not "recall." Mr Ziegler agreed that Mr Foo said that he would treat the payment of the fee "as an advance." Mr Ziegler said that he could not recall whether he had a further conversation with Mr Foo after he received the memorandum and the cheque.

959 I accept Mr Foo's evidence that the US$2.75 million was paid "as an advance." That was what he said in his memorandum accompanying the cheque. If Mr Ziegler was not prepared to accept the payment on that basis then he should have returned the cheque and not banked it. However, that conclusion does not resolve the disputed issue about whether VRL is entitled to repayment of part of the advance payment. At the time the invoice was sent and the cheque was banked the amount owing under the facility was less than $500 million. (As at 31 December 2000, the amount owing was $264 million but by 31 March 2001 it had increased to $310 million.) It was not until the end of October 2001 that the amount owing under the facility increased above US$500 million, to US$530 million. In the end, only US$139,577,077 of the extended US$250 million facility was ever drawn down on the terms and conditions negotiated by Mr Ziegler.

960 In these circumstances, VRL submitted that neither Orrong nor Mr Ziegler accrued an entitlement to the full fee paid and that it or he had been paid US$1,104,229 more than its or his entitlement. Relying on what was said in paragraph 2 of Mr Foo's memorandum of 21 June 2000, VRL submitted that the 1% fee was only payable "upon the draw down of the facility" up to a maximum amount of US$2 million.

961 Orrong, on the other hand, submitted that paragraph 8 of Mr Foo's memorandum was also relevant to this issue. It was as follows:

[681]

Thus, Orrong submitted that what the parties agreed was that Orrong would be entitled to a fee of 1% of the amount of any increase in the facility beyond US$500 million, regardless of the maximum sum actually drawn down or "the rolling of the facility balance", payable on the first draw down after the increased facility was finalised, whatever level that brought the actual sum then drawn down to be. Orrong further submitted that there was no cap of US$2 million on that fee.

962 I can deal with that last issue first. In my opinion, there was no limit of US$2 million on the fee in question. The US$2 million referred to in paragraph 2 of Mr Foo's memorandum of 21 June 2000 related to the "either/or" proposal. The US$2 million, being the unpaid balance of "the previously agreed up front US$5m fee", was to be paid either "upon completion" of the 40 pictures or as part of the fee of 1% on any increase in the facility "required to finish the 40 movies." But the US$2 million was not to be paid twice. This was not to say that the 1% fee would not be payable on any additional financing in excess of US$200 million. That is how I construe the parties' agreement on this issue. Certainly Mr Foo never seemed to consider that there was any such limit and his payment of the amount of US$2.5 million "in advance" is telling, in my opinion. If there had been an agreed maximum then there would not have been any question of paying more than US$2 million in advance.

963 I turn then to the other issues. In my opinion, what the parties agreed by paragraphs 2 and 8 of Mr Foo's memorandum of 21 June 2000 was that a fee of 1% of the amount of any increase in the facility beyond US$500 million was payable following the first draw down on the increased facility. I do not agree with VRL's submission that the fee was only payable in respect of the amount of the funding actually utilised by VRL. That is not said anywhere in Mr Foo's memorandum. The reference in Mr Foo's example to Orrong receiving "US$1m upon the draw down of the facility (now totalling US$600 m)" does not mean, in my opinion, that the funds have to be actually drawn down before that amount can be used in calculating the 1% fee. The reference to a draw down is to indicate when the fee is payable. That could be either the first draw down on the increased facility or the first draw down taking the amount owing over the old limit of US$500 million. I favour the former construction but it does not matter which is correct because by 31 October 2001 at the latest that event had occurred and the fee of US$2.5 million was therefore payable in full.

964 It follows from this conclusion that I do not accept the serious criticisms made of Mr Ziegler, contained in the detailed analysis by VRL of his evidence on this topic. VRL submitted that Mr Ziegler adopted three inconsistent positions on when the fee was payable - first, on the completion of the facility; secondly, after the draw down of some part of the additional US$250 million; and thirdly, after the first draw down under the increased facility, whether or not it took the amount owing over the previous limit of US$500 million.

965 Mr Ziegler was clearly not sure, and gave incorrect answers to questions about, how much was owing under the facility from time to time. But I consider that, accepting that he made an error in that respect, he nevertheless maintained throughout his evidence his position that the fee was payable on the first draw down under the increased facility, regardless of the amount then owing.

966 First, I do not accept VRL's submission that when Mr Ziegler said in his witness statement that he had sent the invoice in February 2001 "requesting payment of the agreed 1% fee on the US$250 million upsizing then just completed" he was asserting that the mere completion of the facility (irrespective of whether it had been drawn down or not) entitled him to a fee. (I note, however, that this was exactly what Mr Ziegler asserted in his memorandum to Mr Foo dated 19 October 2001.) Mr Ziegler was cross-examined over two days on this issue. On the first day Mr Ziegler said the following:

[685]

969 There is a further reason why I consider that Orrong was entitled to a fee of 1% of the amount of any increase in the facility beyond US$500 million, regardless of how much of the extra US$250 million was drawn down. Unless that was what was agreed, there was a very real possibility that disputes could occur about how much had actually been drawn down, as repayments were made and advances were drawn down from time to time. It seems to me that paragraph 8 of Mr Foo's memorandum was inserted to avoid this situation. Thus, the 1% fee was to be calculated "on the facility increase" and not "the rolling of the facility balance."

970 Thus, my conclusion is that VRL's claim to repayment US$1,104,229, being that part of the advance payment which Orrong was not entitled to, fails. It is therefore not necessary to go on to consider which, if any, of the numerous causes of action pleaded by VRL would have formed the legal basis for the recovery of the amount in question.

The Valuation of the Termination Bonus

971 Although I have held in the above reasons for judgment that no termination bonus was payable to Orrong on the expiration of the 1995 Agreement on 30 June 2001, and that even if such termination bonus was payable the Court would not enforce the contractual obligation because no shareholder approval of the 1995 Agreement, or of that particular payment to a related party, was ever obtained, it is appropriate to briefly consider the conflicting evidence about the value of the claimed termination bonus in case I am wrong in one or more of my conclusions.

972 The calculation of the amount of the termination bonus claimed by Orrong depends upon the value of the 5.25% ownership interest in VRP as at 31 October 1997 and the 2.25% ownership interest in VRP as at 31 December 1999. I note in passing that I have held that the financial year ended 30 June 1998 was not one of the "three preceding financial years" within the meaning of this term of the 1995 Agreement so that in any event the giving of the 5.25% ownership interest in VRP was not a performance bonus which should be taken into account. Nevertheless, the expert valuation evidence addressed the question of the respective values of Orrong's interest in VRP at the two dates referred to above.

973 Mr Paul Lom was the expert forensic accountant called by Orrong. In his report dated 24 February 2005, Mr Lom calculated that the value of VRP was:

[693]

976 Both Mr Lom and Mr Gower used the discounted cash flow method of valuation. That is, they both sought to determine what future cashflows of VRP would have been reasonably forecast as at 31 October 1997 and 31 December 1999.

977 VRL made submissions extremely critical of Mr Lom's independence. First, it pointed out that it was clear from Mr Lom's evidence that his principal report did not reflect his opinion as to the value of VRP. When asked why he put forward the two different values depending on the gearing used, Mr Lom said that he was "instructed to adopt... two particular gearings which produced widely different results". He said that he had never stated in his report that it was his opinion that it was correct to use the VRP gearing. He considered that it produced "commercially nonsensical" results. Mr Lom conceded in cross-examination that this meant that he had breached the provisions in the Expert Witness Code of Conduct ("the Code") requiring him to state his opinion[148] and not to withhold from the Court matters of significance which the expert regarded as relevant.[149] VRL submitted that these matters also meant that Mr Lom had breached the Code by not assisting the Court impartially[150] and by acting as an advocate for Orrong.[151] Further, it submitted that he had not arrived at his opinion "independently" contrary to paragraph 11.2 of Practice Note No 4 of 2004 (Commercial List). VRL also submitted that this conduct breached paragraph 19 of APS11 - Statement of Forensic Accounting Standards published by the Institute of Chartered Accountants in Australia and CPA Australia, because Mr Lom's report omitted material information.

978 Secondly, VRL submitted that similar criticisms applied to Mr Lom's handling of the issue of the minority discount. In his report, Mr Lom stated that he had been instructed to value Orrong's interest on the basis that no minority discount applied and on the basis that a minority discount, of whatever size he considered appropriate, applied. This, he did. However, nowhere in the report did he state which of these alternative bases he considered to be correct. In cross-examination Mr Lom eventually conceded that he had not stated his opinion on this question, which was that a minority discount should be applied, and that he had known that his report was going to be used by Orrong to argue against a minority discount.

979 Thirdly, VRL submitted that Mr Lom's evidence was seriously compromised as a result of both his extensive contact with Mr Ziegler and the instructions he received from Mr Ziegler and his solicitor. Prior to Mr Lom finalising his principal report on 24 February 2005, he met with Mr Ziegler on at least 16 occasions, according to Mr Ziegler, or between 15 and 20 occasions, according to Mr Lom. In addition, Mr Lom said that he spoke with Mr Ziegler on the telephone on another 15 to 20 occasions.

980 VRL drew attention to the numerous differences between Mr Lom's first draft of his principal report dated 5 February 2005 ("draft 1(a)") and the final version. The changes to the inputs used by Mr Lom in his valuation of VRP as at 31 October 1997 included the surplus cash available to VRP; the corporate tax rate used in the calculation of the discount rate; the beta used in the calculation of the discount rate; the terminal value; and the net present value of VRP's projected future cash flows. The result was that Mr Lom's valuation of VRP as at 31 October 1997 increased from $227 million in draft 1(a) to $501.7 million or $1,408.8 million in his final report.

981 The changes to the inputs used by Mr Lom in his valuation of VRP as at 31 December 1999 included the corporate tax rate; the beta; the gearing (debt/equity) ratio used in calculating the discount rate; the weighted average cost of capital ("WACC"); the terminal value; and the net present value of VRP's projected future cash flows. The result was that Mr Lom's valuation of VRP as at 31 December 1999 increased from $1,136.6 million in draft 1(a) to $1,750 million or $5,515.9 million in his final report.

982 Mr Lom gave evidence that draft 1(a) was not a "draft" but a working document that did not record his opinion. He also said that although draft 1(a) was dated 5 February 2005, it incorporated changes made by him up until 17 February 2005. A copy of draft 1(a) was discussed with Mr Ziegler at a lengthy meeting on 18 February 2005. Mr Lom and Mr Ziegler also had lengthy meetings on 17, 23 and 24 February 2005. Mr Lom agreed that his addition of $80 million to the surplus cash available to VRP in his final 1997 valuation came about because of something Mr Ziegler told him "at some time between the two drafts."

983 VRL pointed out that Mr Lom's time records showed that between 25 October 2004 and 16 February 2005 Mr Lom had spent 125.3 hours on this matter. In the period between 17 and 24 February 2005 he spent a further 47.8 hours on it. VRL submitted that this meant that draft 1(a) was not an insignificant "working document" prepared prior to Mr Lom having properly considered his valuation. It said that draft 1(a) was not really a first draft.

984 In its response, Orrong pointed out that Mr Lom's reduction of the growth rate for terminal value, reduced the value; and that the changed corporate tax rate and beta were the same as those used by Mr Gower. It therefore submitted that these changes were non-controversial. It further submitted that experts are entitled to be informed about factual matters and that provided the facts and assumptions on which an expert's opinion was based were stated, and established by the evidence, it did not matter how the expert had been informed.

985 I agree with the general thrust of this submission. I also consider that experts should be entitled to think through the issues and change their mind without being castigated for giving into pressure from the client or lawyers. Nevertheless, the changes in the amount of the valuations are extraordinary. If this particular criticism stood alone I would be more prepared to accept Mr Lom's evidence that the earlier figures did not represent his opinion. But it does not stand alone.

986 In my opinion, the first two criticisms of Mr Lom's lack of independence are devastating. I do not understand how a person of Mr Lom's standing could have allowed his report to go forward without any qualification to, or expression of his opinion about, the values obtained using the VRP gearing. As it stood, the report was quite misleading and the true picture only emerged during cross-examination. Equally, I consider that Mr Lom was derelict in not stating in his report that it was his opinion that a minority interest/lack of marketability discount should be applied in valuing Orrong's interest. Once again, the true picture only emerged during cross-examination. My concerns about this situation are confirmed by Mr Lom's frank evidence that he "was very unhappy about the instructions at the time" and that he "seriously considered refusing to issue the report".

987 VRL also submitted that Mr Lom did not have the relevant expertise. Mr Lom acknowledged that he had no experience in valuing film cash flows or film production companies. He said that he raised this matter with Orrong's solicitor and was told that "there was sufficient material available" and that Mr Ziegler could provide the explanations needed to put him "in a position to complete the required valuation".

988 Mr Gower also said that he did not have the expertise to project the cash flows from films. He said that another expert was needed to perform the task of valuing the "Film Exploitation Business". Mr Gower confined his work to what he called the "Non Film Exploitation Business". In his report Mr Gower made a number of criticisms of Mr Lom's valuation. Mr Gower was particularly critical of the "fundamentally flawed" way in which Mr Lom had derived his valuations of VRP as at 31 December 1999. Further, he pointed out that at that date the value of VRL was approximately $1.25 billion based on the price of the ordinary and preferential shares quoted on the Australian Stock Exchange. Yet Mr Lom's valuation of VRP alone, which was only one of the five main divisions of VRL, was between $1.75 billion and $5.5 billion. These valuations of VRP therefore represented between 140% and 440% of the equity value of VRL itself. In my opinion, this important comparison casts doubt on the validity of Mr Lom's methodology.

989 Mr Roy Salter was the expert called by VRL to give evidence concerning the projected cash flows from the films acquired as a result of Projects Ballarat and Bendigo. His company, The Salter Group, LLC, was based in Los Angeles in the USA. It was described as an independent financial and strategic advisory firm which specialised in the entertainment and media industry. Mr Salter said that he had valued and advised on over 90 media and entertainment projects with an aggregate value in excess of US$8 billion. I accept that Mr Salter had the necessary qualifications and expertise to give evidence about the projected cash flows from the Ballarat and Bendigo films.

990 At the time of the hearing, Mr Leigh Butterworth was the senior business analyst for VRP and Mr Bryce Wolfe was the finance director of VRP. They prepared two computer models which calculated on a quarterly basis how much of the projected cash flows from the Ballarat and Bendigo films (as determined by Mr Salter) accrued to VRP. No challenge was made to the relevant qualifications and expertise of either Mr Butterworth or Mr Wolfe.

991 The result of the work by Messrs Salter, Butterworth and Wolfe was that Mr Gower placed a nil value on the Film Exploitation Business at both 31 October 1997 and 31 December 1999.

992 Before dealing with some of the more important individual issues, I note for completion that after taking into account a number of matters raised during the course of his evidence, Mr Lom put forward recalculated valuations. He valued VRP:

[697]

993 In making their calculation of the value of VRP as at 31 October 1997, both Mr Lom and Mr Gower started with a March 1998 business plan. One of the importance differences between them was the upward adjustment made to these figures by Mr Lom in respect of the private investor income component of the projection. In the March 1998 projection, private investor income of US$10.2 million was forecast for the year ended 30 June 1998 and US$3.5 million for the following year. Thereafter, it was assumed that there would be no private investor income. Mr Lom assumed additional private investor income of US$6.5 million (on top of the existing projection of US$3.5 million) for the year ended 30 June 1999 and an additional US$10 million for each of the subsequent years. On the other hand, Mr Gower was instructed to assume that "by 31 December 1999 VRP had decided to cease activities generating private investor income" and that such activities had ceased in about June 1999.

994 Mr Lom said that based on the higher levels of private investor income (A$14.4 million and A$21.5 million for the years ended 30 June 1996 and 1997 respectively) and the advice to him by Mr Ziegler that there were as no plans by VRP to cease tax based financing activities, he decided on the above increases. He said that he told Mr Ziegler of the adjustment he proposed to make and that Mr Ziegler told him that it was not unreasonable. Orrong referred in its submissions to documents which it said supported Mr Lom's position, but I am doubtful if they do much more than confirm the reliability of the projections in the March 1998 business plan for the 1998 and 1999 financial years. Orrong also pointed out that private investor income in fact continued in 1999 and 2000 and possibly even 2001. In my opinion, Mr Ziegler's acceptance of Mr Lom's figure as "not unreasonable" does not square with his evidence about what Mr Kirby said to him back in 1995.

995 Both Ms Raffe and Mr Foo gave evidence which supported the instruction to Mr Gower that activities generating private investor income ceased in about June 1999. Ms Raffe said that only where there had been a commitment given prior to June 1999 did the activities continue after that time. Ms Raffe also referred to an email from her to Mr Ziegler and others dated 13 August 2000 which showed ongoing private investor income of only A$4 million. She said that the figure of A$4 million had been provided by Mr Ziegler.

996 In the circumstances, it seems to me that Mr Lom's adjustments to the private investor income figures were not justified, apart perhaps from the addition of something approaching the US$6.5 million figured for the 1999 financial year. Thereafter, there should been no adjustments, certainly not an addition of US$10 million per year.

997 Another importance difference between Mr Lom and Mr Gower was the rate of discount for the minority interest/lack of marketability. Both of them agreed that there should be a discount for such factors. Mr Gower said that they should be viewed separately, whereas Mr Lom considered that they overlapped. As I have said, Mr Lom's combined figure was 40% and Mr Gower's figure, which in the end he did not separate into the two components, was 75%.

998 Undoubtedly there would be difficulties for Orrong in attempting to sell its unusual interest in VRP. Both of the experts appropriately recognised this in their discussion of this question. As Mr Gower said in evidence in a difficult situation such as this it is a matter of "personal professional judgement". Although I have been very critical of Mr Lom's report I do respect his valuation expertise and I therefore pay due regard to his suggested discount rate of 40%. On the other hand, I have found it difficult to fault Mr Gower's evidence and I therefore pay due regard to his suggested rate of 75%. If I had been required to decide the value of the termination bonus I believe that I would have used a discount rate of 60%, as 75% seems just a little too high in all the circumstances.

999 The next importance difference between Mr Lom and Mr Gower was after tax WACC discount rate. Mr Gower calculated a rate of 15% in relation to the 31 October 1997 valuation and a rate of 12% for the 31 December 1999 valuation. Mr Lom's rates were 12.1% and 10.8% respectively. The main reason for this difference seemed to flow from their differing views at to whether VRP was a start up venture at 31 October 1997. Mr Gower gave persuasive evidence as to why he considered that the "new VRP" should be regarded as a start up venture. In my opinion, he correctly stated that:

[699]

Mr Lom's comments on this issued displayed, in my opinion, an inadequate understanding of the differences between the "old VRP" and the "new VRP". I am therefore satisfied that Mr Gower's discount rates are to be preferred.

1000 In making their calculations of the value of VRP as at 31 December 1999 Mr Gower and Mr Lom used different source documents. Mr Gower referred to a five year business plan projection dated 22 December 1999, which was circulated to members of the Executive Committee. The document was entitled "Group Five Year Financial Plan - Executive Summary - Most Likely Case". Mr Lom, on the other hand, used three projections prepared by VRL (a five year cash flow forecast, a five year profit and loss forecast and a five year balance sheet forecast).

1001 The provenance of the documents relied on by Mr Lom was unclear. Mr Ziegler believed that they were produced by VRL in April 2000 to be given to the Telemunchen Group and D G Bank. Ms Raffe said that she believed that the document was prepared in August 2000. She said that the underlying figures were prepared by staff under Mr Ziegler's co-ordination and that she performed the mechanical task of putting them into a profit and loss, balance sheet and cash flow format. What is clear about these documents is that Mr Lom did not know what assumptions underpinned the documents and whether or not they were reasonable. I consider that the reliability of a valuation produced in these circumstances must be doubtful. Thus, I would not be prepared to give any weight to Mr Lom's valuation of VRP as at 31 December 1999.

1002 Although criticisms were made of the December 1999 projection, I consider that the Mr Gower was correct in using it as his starting point rather than the undated three page document. A document dated 22 December 1999 is, of course, contemporaneous with the stated dated of 31 December 1999. A document produced in April 2000 is less relevant and even more so if it were not produced until August 2000.

1003 Before leaving the 31 December 1999 valuation, I must refer to the criticism made by Mr Gower of Mr Lom's method of deriving "annualised" VRP net profits for the year ending 30 June 2000. I agree that it was simply not correct to take the difference between the actual results for the six months to 31 December 1999 and the forecast twelve months to 30 June 2000 as representing the expected results for the six months to June 2000 and then doubling that figure in order to reflect annualised expected results. Mr Lom's calculation assumed that earnings were at consistent levels in each of the two six month periods. That was not correct, but if it were then the annualised figure could have been obtained simply by doubling the actual results for the first six months. Obviously, this error had the effect of overstating the maintainable earnings. However, as I have said, I am not relying in any way on Mr Lom's 1999 valuation.

1004 Thus, in deciding the value of the termination bonus, I would be prepared to accept Mr Gower's calculations in his valuation of the "Non Film Exploitation Business" of VRP as at both 31 October 1997 and 31 December 1999, except in respect of the minority discount rate and to a small extent the private investor income, as discussed above.

1005 In its final submissions, Orrong made a number of criticisms of the work of Messrs Salter, Butterworth and Wolfe both as to their overall methodology and particular issues. I do not accept any of these criticisms and, in the circumstances, I do not propose to extend this already lengthy judgement by discussing each of the issues. This is because even if I rejected the results obtained by Messrs Salter, Butterworth and Wolfe, that outcome would not assist Orrong because there is no other material before the Court which could be relied on in its place in respect of the valuation of VRP as at 31 December 1999. And as I have said previously, it is only the valuation of Orrong's 2.25% interest in VRP as at that date which would fall within the formula for calculating the termination bonus.

1006 It is therefore unnecessary to revive the issue of whether or not I should have allowed Mr Salter to rely on the whole of a further witness statement filed just before he gave evidence at the end of hearing, when Orrong was objecting because it raised matters which had not been put in cross-examination to earlier witnesses. Mr Salter's further evidence was attempting to meet a criticism of his use of the figure of 20 films in his calculations rather than a possibly higher number. But in the absence of any contradictory evidence, it was only speculation as to how a higher number of films would have altered the financial outcome.

Conclusion

1007 I have previously held that subject to issues such as the defences raised by VRL under the corporations legislation, the following amounts would be payable to Orrong:

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