Plaintiff v Defendant

For Sent, Porter and Mainpoint Developments Pty Ltd

CONTENTS:

Gatto's "general retainer" 92

Gatto's "site allowance retainer" 100

The Royal Commission 105

Original directors' knowledge of cash payments 108

Stuart's evidence 118

A: INTRODUCTION

1 It is convenient to refer to the parties and other persons involved in these proceedings by way of the following abbreviations:

Sent and Porter (and Mainpoint Developments only if the context so requires)

Robert James Champion de Crespigny, Chairman of directors of Primelife from 27 June 2003

Ronald Joseph Walker, a director of Primelife from about June 2003 to 31 December 2005

David Stewart Legge, Chairman of directors of Primelife from about 1993 until 27 June 2003 and thereafter a director until 16 December 2003

Louis James Panaccio, a consultant to Primelife from mid-2000 until 31 October 2001, acting chief financial officer of Primelife during part of the above period, and a director of Primelife from 31 October 2001

Kenneth Hugh Spencer, a director of Primelife from June 2003 (since deceased)

Sandra Veronica McPhee, a director of Primelife from 6 June 2003 to 1 June 2005

Andrew Peter Somerville Kemp, a director of Primelife from 19 August 1988 to 16 December 2003

Stuart James McGregor, a director of Primelife from 1 December 2001 to 26 February 2004

Mainpoint Enterprises (Aust) Pty Ltd, trustee of the Mainpoint Settlement Trust (Sent's family trust)

Mainpoint Enterprises (Aust) Pty Ltd and/or Mainpoint Developments Pty Ltd

People First Retirement Services Pty Ltd (formerly Mainpoint Enterprises), trustee of the Mainpoint Settlement Trust (Sent's family trust)

Williamstown Range Pty Ltd, a subsidiary of Primelife that managed the Williamstown Range retirement village project

Construction, Forestry, Mining and Engineering Union

Gary Cobbledick, Acting CEO of Primelife appointed 25 August 2003

Pasquale Daniele, financial controller of Primelife 1998 to about January 2001, investor relations manager since 2001, national finance manager - operations since October 2005, company secretary 27 September 2000 to 2 June 2004

Gregory David Flood, senior corporate counsel of Primelife from March 2001 to August 2003, Chief Operating Officer from August 2003 to 22 December 2004

Shona Monica Holzer, personal assistant to Porter from about November 1999 to 22 August 2003 and during that time, from time to time, providing similar services for Sent

Michael Lane, an accountant retained by Albany Bay

Maxwell Charles Stuart, general manager of Renaissance Television (a Primelife subsidiary)

Gary Thompson, employed by Primelife and in charge of its construction division

Brian Daniel Tudor, a builder retained by Primelife

Ross Charles Williams, Primelife's general manager - finance and administration, from about January 2001 to October 2004

2 This case is comprised of three proceedings that were heard together. In the first proceeding[1], Sent is plaintiff and the sole remaining defendant is Primelife - "the Sent proceeding". In the second proceeding[2], Porter is plaintiff and Primelife is defendant - "the Porter proceeding". In the third proceeding[3], Primelife is plaintiff and Mainpoint Developments is defendant - "the Point Cook proceeding".

3 The Sent proceeding is a claim by Sent for damages for breach of a contract of employment. Sent was employed as Chief Executive Officer of Primelife pursuant to a written agreement dated 17 July 2003 for a period commencing 1 July 2001 and ending 30 June 2008 ("the Sent agreement"). Sent was dismissed by Primelife on 30 October 2003. Prima facie Primelife's termination of Sent's employment was in breach of the Sent agreement.

4 Primelife's defence involves allegations of conduct by Sent said to constitute such misconduct as would justify his summary dismissal. Primelife summarised Sent's alleged conduct as follows:

(a) purporting to terminate Porter's employment without authority and in contravention of express instructions to the contrary;

(b) receiving cash from Primelife for which he failed to properly account and purportedly paying such cash to Gatto or A&M;

(c) his involvement in the tapping of Primelife employees' telephones;

(d) his involvement in the videotaping of meetings at Primelife's offices, including two meetings of its Board, and failing to carry out an express direction that no further taping occur and the videotaping equipment be removed;

(e) lying to the Board on 27 June 2003 when asked whether the Board Meeting was then being taped;

(f) lying to the Board on 16 July 2003 when asked whether the Board Meeting was then being taped;

(g) providing confidential Board papers and facilitating the provision of other documents to Porter;

(h) refusing to participate in the review conducted by ABL on behalf of the Board.

5 The Porter proceeding is a claim by Porter for damages for breach of a contract of employment in writing dated 1 July 2001, pursuant to which Porter was employed by Primelife as Deputy Chief Executive Officer for a period of five years commencing on 1 July 2001 ("the Porter agreement"). Porter alleges that her employment was wrongly terminated by Primelife on 16 July 2003 or on certain other specified dates from July to November 2003. Prima facie, if Primelife terminated Porter's employment, that termination was in breach of the Porter agreement.

6 In defence, Primelife contends that Porter's employment was not so terminated but that in any event any termination was justified by her alleged conduct said to constitute such misconduct as would justify any such termination or dismissal. Primelife summarised Porter's alleged conduct as follows:

(a) the tapping of Primelife employees' telephones and the destruction of Primelife's property, in the form of the disks upon which the RACAL recordings were made and the data contained on her VAIO computer;

(b) the videotaping of meetings at Primelife's offices, including two meetings of its Board, despite express instructions that such meetings were not to be recorded, and failing to carry out an express direction that the videotaping equipment be removed;

(c) lying to the Board on 27 June 2003 when asked whether the Board Meeting was then being taped;

(d) lying to the Board on 16 July 2003 when asked whether the Board Meeting was then being taped;

(e) facilitating the provision to Sent of cash from Primelife for which Sent has failed properly to account;

(f) removal of boxes of confidential information;

(g) refusing to participate in the review conducted by ABL on behalf of the Board.

7 The Point Cook proceeding is a claim by Primelife to establish the validity of, and enforce, its purported exercise of an option, pursuant to a call option deed dated 17 July 2003 ("the Point Cook option" or "the Deed"), for the purchase from Mainpoint Developments of a property known as Catalina Waters, located on the corner of Sneydes Road and Point Cook Road, Point Cook ("the Point Cook property" or the "Point Cook land"). Mainpoint Developments, a company associated with Sent, contends, for a variety of reasons, that the option was not duly exercised or is not enforceable. The principal matters in issue in the Point Cook proceeding involve questions of construction of the Point Cook option.

8 Sent has had a chequered business history and it is common ground that, rightly or wrongly, he had and has a poor reputation in the business community. Nevertheless it was also common ground that he has and had considerable entrepreneurial flair and many commercial talents. Sent has had a long business association with Porter. As Mr Bick QC (who appeared as Senior Counsel for Sent, Porter and Mainpoint Developments) put it, Sent was the "big picture man" and Porter dealt with all the details. It was really common ground that Sent and Porter had for many years and at all relevant times constituted a business "team". It was abundantly clear from their evidence that Sent was in command of the overall business objectives and was the originator both of the business strategy and the business tactics of Primelife, whereas Porter as his subordinate faithfully implemented all of his instructions and had an encyclopaedic knowledge of all the details of the Primelife business. That is not to say that Sent was unaware of many details of the business but Porter was the one who was familiar with all of the documentation, what was in it and where it was. She composed and sent all of Sent's emails, faxes and letters and received and informed him of and where necessary provided him with copies of emails, faxes and letters addressed to him. She was clearly a prime administrative conduit and, as will appear (it was suggested by some), a "bottleneck" in the Primelife organisation.

9 Broadly speaking, Primelife was in the business of constructing and managing "retirement villages" in Victoria and it was common ground that these establishments were well conducted and that Primelife was a "good brand" in the retirement village industry. This business had been initiated and developed by Sent and had become a substantial business, not without financial and liquidity problems, by the year 2003 when what was referred to as "the cornerstone investor" came on the scene at the instance of Sent and the Board of Primelife in order to solve Primelife's financing problems. The cornerstone investor was a company, Albany Bay, and the leading individuals involved in the company were two prominent Australian company directors, de Crespigny and Walker.

10 In order to understand what occurred and to deal with the issues in these proceedings, it is necessary to refer to the contractual setting and then to state the facts in some detail.

B: CONTRACTUAL SETTING

11 Clause 2.1 of the Sent agreement provided that Sent would continue to be employed by Primelife until 30 June 2008, on the terms and conditions of the agreement, until[4] his employment and the agreement were terminated in accordance with clause 10. Clause 5.4 provided that Sent would within the scope of his duties specified in Schedule 2 use his best endeavours to be fully responsible for the day-to-day operations of Primelife and be immediately responsible and accountable to and perform his duties in accordance with the directions of the Board and report to the Board, fulfil the responsibilities prescribed by any applicable legislation for a person in his position, follow and comply with the lawful instructions of the Board, and so on. Schedule 2 described his position as Chief Executive Officer and set out the duties customarily performed by a chief executive officer.

12 Clause 10.1 of the Sent agreement provided that "the Employer may dismiss the Employee, and thereby terminate this Agreement without notice if the Employee is guilty of Misconduct". Clause 10.6 provided, in effect, that if the employment was wrongly terminated the Employer would pay to the Employee all amounts to which the Employee would have been entitled had he continued his employment for the remainder of the Term.

13 The Sent agreement[5] defined "Misconduct" as having its "ordinary meaning at law" and as including a long list of specified classes of conduct. Somewhat redundantly sub-para (a) of the definition included as misconduct "any material conduct ... which will as a matter of law or pursuant to this Agreement result in summary dismissal". Other relevant classes of conduct included: "(c) not complying with the legislative requirements in a manner material for a person in the Employee's position";[6] "(d) wilful disobedience of the Employer's lawful directions on material matters"; "(g) wilful neglect of duty or gross incompetence"; and "(h) conduct of a sort which may materially injure the Employer's reputation".

14 Clause 24.1 of the Sent agreement provided that "the Employer is required to act reasonably in the exercise of its rights and powers pursuant to this Agreement".

15 Clause 2.1 of the Porter agreement provided that Primelife agreed to employ Porter for a period of five years (from 1 July 2001) as its Deputy Chief Executive Officer and that, unless otherwise directed, she would report directly to the Managing Director, and be accountable in general to the Board. Clause 2.3 provided that Porter's duties might be varied by Primelife from time to time. Clause 3.1 provided that Porter must perform the duties "assigned to her" to the best of her abilities, serve Primelife faithfully and diligently, abide by the directions of her Manager and the Board, give her Manager and the Board any information about the affairs of Primelife when they so requested, act in Primelife's best interests and comply with all law applicable to her position and to the duties assigned to her, and so on. The "duties assigned to" Porter were defined in Schedule 1 as including the duties assigned from time to time by the Managing Director, including any duties that are commonly associated or incidental to the position of Deputy Chief Executive Officer.

16 Clause 10.5 of the Porter agreement provided that Primelife might terminate the agreement at any time with immediate effect by giving notice to her: "if you behave in a way that is considered by Primelife to amount to Serious Misconduct or Misconduct in the course of performing your duties under this agreement ... that is likely to bring Primelife into substantial disrepute"[7]; "if your action or inaction is fundamentally inconsistent with your duties as an employee"[8]; and "if you disobey or neglect any lawful and reasonable order or direction of Primelife"[9]. Schedule 4 headed "Serious Misconduct" provided:

"The following actions are considered to be acts of Serious Misconduct, which could lead to summary dismissal. This list is not all-inclusive and Primelife reserves the right to dismiss summarily for any other act of Serious Misconduct as provided in clause 10.5.1.

...

• Immoral ... conduct during the course of employment

• Falsification of records or making untrue statements which may result in the falsification of records

• Misuse or removal from premises of any property of Primelife without its prior approval

• Abuse or deliberate destruction of property, plant and equipment belonging to Primelife ...

• Lying or any like dishonesty to Primelife in relation to any work matters

...

• A serious or persistent breach of any of the terms or conditions of this agreement ..."

17 Although the above specific provisions in the plaintiffs' employment agreements provide guidance as to the nature of the classes of misconduct which might lead to summary dismissal, the plaintiffs said and I agree that their employment agreements embodied, did not displace and were no wider than the common law notion of misconduct that was sufficiently serious as to justify summary dismissal (hereinafter referred to as "serious misconduct").[10] It follows that Primelife, to succeed in its defences, must prove to the satisfaction of the Court misconduct by Sent and Porter sufficiently serious as to justify summary dismissal. Serious misconduct in this context has been held to include conduct, in relation to important matters, that constitutes a repudiation of or is incompatible with or repugnant to the essential obligations of an employee or is destructive of the relationship of good faith and confidence between employer and employee.

C: FACTS

Prior to 1998

18 Sent came to Australia in 1960 and thereafter entered into various business activities and investments. Porter first met Sent in 1984 when she took up a position as financial controller with a company in which Sent was involved and they have been closely associated in business for most or a considerable part of the time since then.

19 On 21 March 1990 Sent was disqualified from acting as a director for six months. On 29 April 1992 a sequestration order was made against Sent on the application of the Australian Taxation Office. Sent had debts in excess of twenty million dollars. Sent was discharged from bankruptcy on 30 May 1995.

20 Mainpoint Enterprises[11] was the Trustee of the Mainpoint Settlement Trust (Sent's family trust) and became active in the retirement village industry.

21 In or about 1993 Sent and, through him, Mainpoint Enterprises became involved with a company that was subsequently renamed Primelife Corporation Ltd ("Primelife").[12] At that time Primelife was chaired by Legge who remained Chairman until June 2003. Legge also held approximately 20% of the issued share capital in Primelife.

22 In 1993 Primelife entered the retirement village industry by taking a 50% share in a joint venture operating a retirement village project in Altona, together with interests associated with Legge to the extent of 25% and interests associated with Mainpoint Enterprises or with Sent's family to the extent of 25%. Primelife subsequently acquired retirement villages at Viewbank and Williamstown and later developed retirement villages in Camberwell and Essendon. Initially the management of Primelife's retirement villages was contracted by it to Mainpoint Enterprises.

23 From 1994 to 1998, pursuant to an arrangement between Primelife and Mainpoint Enterprises, Mainpoint Enterprises offered retirement village opportunities to Primelife. Primelife made various investments in retirement villages and so did Mainpoint Enterprises and the value of the overall retirement village operations continued to increase.

24 In about July 1997 Daniele commenced working for Mainpoint as group accountant. At that time Porter was general manager and Grace Sent was sales and operations manager. Daniele also acted as a consultant to Primelife preparing its financial statements and managing its accounting records.

25 On 14 October 1997 Porter was appointed as company secretary of Primelife.

26 On 17 November 1997 Sent was appointed a director of Primelife.

1998

27 In January 1998 Primelife, Mainpoint Enterprises and a number of other entities executed heads of agreement under which Primelife was to acquire all of Mainpoint Enterprises' management and ownership rights in a number of retirement villages and similar developments, some of which had formerly been conducted by Mainpoint Enterprises in its own right and others of which were owned or operated by Primelife. The acquisition by Primelife of Mainpoint Enterprises' retirement village interests and an associated allotment of shares in Primelife by way of consideration was subsequently approved by the shareholders of Primelife at a meeting held in June 1998. A public announcement relating to this transaction quoted Legge as saying that the proposed acquisition would not only remove any market uncertainty or confusion over the relationship between the two groups and their respective activities, but would reinforce Primelife's future direction as a specialist operator in the aged care and accommodation industry. Legge noted that on completion of the acquisition the number of units and apartments under ownership and management in Primelife's name would increase from 354 to 818 and that there was also a land bank capable of yielding approximately 200 additional units for which planning permits were being sought. The announcement referred to Primelife's objective of having a minimum of 2000 units and apartments under ownership and management by the year 2002. At or about the same time Sent entered a five year employment contract with Primelife, commencing 30 June 1998, and became the Managing Director and Chief Executive Officer ("CEO") of Primelife.

28 Sent's 1998 employment contract provided for a base salary plus superannuation together with a bonus scheme which was set out in the schedule to the agreement. The bonus was to be calculated by reference to the future profitability of Primelife.

29 After the sale of Mainpoint's retirement village interests to Primelife, Mainpoint's activities (apart from its shareholding in Primelife) were limited to:

• an ownership interest in two facilities which were managed by Primelife;

• an interest in a group of companies operating in the health care sector;

• an interest in an amusement business known as Thrillseekers, managed by Tony de Luca;[13] and

• ownership of vacant land (subsequently including the Point Cook property).

30 As I have said, prior to Primelife's acquisition of Mainpoint Enterprises' business, Mainpoint Enterprises had managed Primelife's retirement village portfolio. At the time of the sale, all Mainpoint Enterprises employees were transferred to Primelife except Porter and Grace Sent. The services of Porter and Grace Sent were provided by Mainpoint Enterprises to Primelife pursuant to a consultancy agreement between Mainpoint Enterprises and Primelife. From 30 June 1998 until 22 August 2003 Porter spent most of her working hours attending to Primelife's business.

31 From 1998 onwards, Sent ran Primelife on a day to day basis, but reported regularly to the Board on strategic issues and on Primelife's financial situation. Sent devoted his full-time attention and efforts to the conduct of Primelife's business, working about 70 hours per week, ordinarily from 7 am to 8 pm during the week and often on weekends. Sent also spoke and met regularly with Legge. Sent testified that during the period from June 1998 until October 2003 Primelife became recognised as one of the largest brands in the retirement village and aged care industry and its market capitalisation, he said, grew from about $400,000 to in excess of $100M. The company employed some 1300 people and operated over 80 retirement villages with some 6000 residents.

32 Porter assisted Sent in the day to day management of Primelife's activities, initially as company secretary and as a consultant supplied by Mainpoint Enterprises to Primelife and from about July 2001 as Primelife's Deputy CEO. Sent testified that Porter was his "right arm" and "confidante". He said that Porter was computer-literate, whereas he was not. He said that Porter was prepared to work extremely long hours; she wrote letters, prepared submissions, made enquiries and carried out investigations. She headed up due diligence exercises conducted in relation to acquisitions. She researched contracts and businesses. Sent testified that he was heavily involved in the business aspects, including the business details and contemplated acquisitions, and that Porter would deal with other matters of detail and was responsible for the implementation of Sent's directions and of the directions of the Board. Porter would take notes at all meetings and follow up to ensure that the matters requiring attention were attended to. Porter would also meet with Sent to discuss the details of such things as "cash-flows, legal matters, acquisitions and disposals". Sent testified that the two of them "functioned very effectively as a 'package'" and had functioned in that way since 1992. I am satisfied that Sent and Porter worked as a team and "hand in glove" and kept in close and constant contact and consultation on all aspects of Primelife's business, although Sent left the administrative details to Porter.

1999

33 In about early 1999 Sent told Legge that he had identified an opportunity to acquire the Point Cook property and suggested to Legge that Primelife should buy it. Legge told Sent that Primelife did not have the funds to buy the property at that time. Sent then offered to acquire the Point Cook property through Mainpoint for on-sale to Primelife at a later date "at cost". The Point Cook project was shown in all subsequent Primelife promotional material as a Primelife project.

34 Sent's employment agreement was orally varied as a result of discussions he had with the other directors of Primelife in about July 1999. The substance of the variation agreed was to increase his base remuneration to $600,000 per annum (inclusive of superannuation entitlements). The variation was documented in October 2000.

2000

35 At all relevant times, Primelife's principal offices were located at 464 Collins Street, Melbourne in an old two-storey building. On the front half of the second floor were situated the offices of Sent (adjacent to the boardroom), of Porter (next to Sent's office) and of Holzer (Sent's and then Porter's personal assistant) and also Primelife's boardroom and an adjoining conference room. In the corridor between the front and back half of the second floor were cupboards where Porter's files were stored. These files consisted of numerous files relating to Primelife's business and the various retirement villages operated or being constructed by Primelife and also a large number of files relating to the activities of Mainpoint.

36 In about early 2000 Primelife arranged for a company ("Kiandra") to install a telephone monitoring system ("the RACAL system") the use of which has given rise to issues in these proceedings.

37 On 27 September 2000 Porter was replaced as company secretary of Primelife by Daniele.

38 From about 2000 onwards Sent had a number of discussions with Legge concerning the structure of his employment package. Legge told him that this existing package was not being well received by the market, that institutional shareholders and lenders were not going to support Primelife while Sent's package remained in its then form and that the market's perception was that the package was too skewed in favour of bonuses. Legge told Sent that the market was also concerned by the number of related party transactions between Mainpoint Enterprises (or other entities controlled by Sent) and Primelife.

39 The evidence shows that in or about October 2000 certain cash withdrawals commenced to be made by Sent from Primelife's funds. Sent alleged that this cash was paid to Gatto and A&M. These cash withdrawals continued for some years and in addition, at a later stage, payments commenced to be made by cheque allegedly for the same or related purposes. The circumstances of these payments occupied a considerable part of the evidence at trial because Primelife contended that the conduct of Sent and Porter in relation to them constituted serious misconduct. I will deal with these facts in more detail in Part E below.

January to June 2001

40 In 2001, as a number of directors perceived it, there was market and media criticism of Sent's remuneration package, in particular his bonus arrangements, and the extent of his related party transactions with Primelife. During 2001 some members of the Board, mainly Legge, Kemp and Panaccio, conducted negotiations with Sent with the aim of restructuring his employment agreement and unwinding the related party transactions.

41 In 2001 Porter deployed the RACAL system in order to monitor telephone calls made by various Primelife employees for the purpose, she said, of identifying the sources of the apparent public leakage of confidential information, thought to be associated with Primelife's involvement in a number of pieces of litigation. The details of this matter are referred to in Part F below.

42 In or about March 2001 Williams replaced Daniele as financial controller of Primelife. On 12 May 2001 Flood was appointed Primelife's in-house counsel.

43 Legge agreed to a one-off increase in Sent's salary for the year ending 30 June 2001 of $100,000. By a memorandum to the accounts department dated 11 June 2001, Legge authorised this salary increase.[14]

July to August 2001

44 In 2001 Porter and Grace Sent became direct employees of Primelife. The Porter agreement was dated 1 July 2001 and provided a $200,000 per annum remuneration package for a period of five years. Porter was employed under the agreement as Deputy Chief Executive Officer of Primelife reporting directly to Sent as Managing Director. Porter testified that her day to day duties and responsibilities did not significantly change from those which she had been performing with Primelife from about mid-1998. Porter testified that, in practical terms, she acted as the Chief Operating Officer of Primelife. She was responsible for the day to day activities of the company and her skills, as she saw them, lay in the detailed nuts and bolts of ensuring the efficient running of the organisation and the carrying through to execution of Sent's vision and concepts as approved by the Board for future retirement village developments. Porter testified that her duties included monitoring the work of executives and senior support staff, analysing operational and financial reports, providing daily guidance and instruction to executives on a wide range of issues, providing strategic advice and financial analysis to Sent in respect of new "products", liaising with advisers, writing property reports and submissions to investors, assisting Sent, Flood and Williams in financial matters, giving instructions to external lawyers in relation to transactions and litigation, overseeing IT infrastructure and office administration and overseeing the development of company policies.

45 The minutes of a meeting of directors of Primelife on 21 July 2001, at which Sent was present, record that discussion took place on the "rearrangement" of Sent's employment contract. The minutes stated:

"[Legge] and [Panaccio] (who have been negotiating with [Sent]) reported on the key issues as follows:

• Shares to be issued in lieu of bonuses accrued to date (plus forecast for remaining two years): five million shares is the figure which the parties have agreed to subject to agreement [with] respect to related matters and final expert's report ...

• On-going salary for [Sent]: figure of approximately $750000 plus on-costs being current amount on the table

• Other matters which lead to related party transactions are to be sold to [Primelife] or divested. In particular:

o Pt Cook: agreement to agree to sell Pt Cook to Primelife to be triggered by future event. Land to be acquired at cost and [Primelife] to pay holding costs including a figure for interest. [Primelife] may commence development at an opportune time (subject to above agreement) ...

All the above issues are subject to shareholder approval at a meeting to be held as soon as possible."

46 On 7 August 2001 Panaccio sent an email to Porter attaching a memorandum on the above subject and broadly in line with the minutes of 21 July 2001. In the memorandum Panaccio referred to the issue of five million shares to satisfy Sent's accrued bonuses as at 30 June 2001 and to compensate for terminating his existing agreement.

47 On 18 August 2001 there was a meeting of the Board of Primelife, the minutes of which record substantially the same matters on the topic of Sent's restructured employment package and related issues as were recorded by the minutes of 21 July 2001, save that the on-going salary "on the table" was noted as approximately $800,000.

48 The minutes of a meeting on 28 August 2001of Primelife's due diligence committee, at which Sent was not present, record that Primelife had agreed to issue Sent with five million shares as compensation for foregoing his accrued bonus and any future bonus, that Sent's annual salary would be in the realm of $850,000 and that the Point Cook land would be purchased by Primelife at cost, at some future time, but that this agreement would be entered into "now".

September 2001

49 In September 2001 the Point Cook property was valued for first mortgage security purposes in the sum of $5M.

50 On 10 September 2001, in order to obtain relevant advice, Panaccio sent a memorandum to McCullough Robertson, Primelife's then solicitors, and to Panell Kerr Forster, Primelife's then accountants, entitled "[Primelife] related party changes and [Sent] revised agreement" which stated, so far as relevant:

"This memorandum is to outline the agreement reached by the [Primelife] Board & [Sent] on the manner to deal with the CEO's bonus agreement and dealings between the company and parties associated with the CEO...

It has been agreed, subject to shareholder approval, to terminate the existing agreement as at 30th June 2001. The original agreement would be replaced by:

- Annual salary package of $850K

- The issue of 5M ordinary shares in [Primelife] to compensate the CEO for foregoing accrued and future entitlements under the original agreement ...

Linked to this transaction is the proposal for [Primelife] to purchase, at cost, [the Point Cook land] ...

It is proposed that [Primelife] enter into an agreement to enter into an agreement to purchase the land on the occurrence of a condition subsequent. Payment for the land will be in cash. It is suggested that the condition subsequent could be: the commencement of construction, the obtaining of development finance or even the granting of the development permit..."

51 On 26 September 2001, in a draft letter from a valuer to the directors of Primelife in relation to the Point Cook property, a valuation of some $9.7 million was given, but only based on the assumption that planning approval for a retirement village be obtained.

October 2001

52 On or about 4 October 2001 Primelife and Sent executed a Share Issue Deed. The deed provided for the issue of shares, subject to the approval of the shareholders, and that, subject to such approval, the execution of the deed would have the consequences that all existing contracts, agreements and understandings between Primelife and Sent as far as they related to any remuneration or bonuses (whether by way of money, ordinary shares or options in Primelife or otherwise) ("Financial Entitlements") payable to Sent for him carrying out his role as the Chief Executive Officer and Managing Director of Primelife should "cease immediately" and that all accrued Financial Entitlements payable to Sent other than holiday leave, sick leave, long service leave or superannuation entitlements were "irrevocably waived" by Sent. The deed then provided that in consideration of Sent waiving his Financial Entitlements, Primelife would issue to him or his nominee 5 million fully-paid ordinary shares. These shares were in fact issued to Sent at some time shortly after the passing of the shareholders' resolutions mentioned below. However, the Sent agreement and the Point Cook option were not finalised or executed until much later, namely in July 2003.

53 On 31 October 2001 a Notice of Annual General Meeting was given to shareholders of Primelife together with a letter to shareholders, proxy form, explanatory memorandum, independent expert's report and projected earnings and cash flows relating to the acquisition of the Point Cook property. The letter to shareholders explained that they were also being asked to vote on items of Special Business concerning the restructuring of the arrangements with Sent. Under the heading "CEO's Executive Service Contract Agreement" the shareholders were informed that Sent would forego all current and potential future entitlements pursuant to the executive service agreement, would enter into a new 5 year service agreement with a remuneration of $850,000 per annum and that Sent or his nominee would be issued with 5 million shares in Primelife. Under the heading "Acquisition of Land" the shareholders were informed that Primelife would acquire 15.8 hectares of land from a company associated with Sent and that the agreement to purchase the land would stipulate that the purchase price was to be the lesser of $6 million or the total expended by the company associated with Sent; provided the cost was below market value at the time of acquisition of the land including holding costs, and subject to town planning approval for the development of a retirement village and that the transaction would only proceed if the formal valuation of the property at the time of acquisition was greater than the price to be paid by Primelife.

November 2001

54 Prior to the Annual General Meeting on 30 November 2001, there was correspondence between ASIC and Primelife's solicitors relating to the material provided to shareholders concerning resolution 6 "Acquisition of Point Cook Property". As a result, on 30 November 2001, Primelife provided to ASIC an undertaking in the following terms:

"If Resolution 6 is passed by members at the annual general meeting of Primelife to be hold on 20 November 2001 (or at any adjournment thereof) Primelife will in implementing that decision:

(a) Pay to Mainpoint a purchase price for the Point Cook property that is:

i. $6 million; or

ii. the total expended by Mainpoint in relation to the Point Cook property at the time of acquisition by Primelife ...

...

(d) will not proceed with the purchase of the Point Cook property in any event, unless and until ... [requirements in relation to valuation, development approval and finance were satisfied]."

55 At the meeting on 30 November 2001 the following resolutions, inter alia, were passed by the shareholders:

"4. That the members approve and authorise the issue to [Sent], or his authorised nominee, of 5 million ordinary shares in [Primelife], in consideration of the termination of his current executive service agreement ... and in satisfaction of all entitlements under that executive service agreement notwithstanding that this issue will or may result in [Sent] becoming entitled (within the meaning of the Corporations Act) to more than 20% of the voting shares in Primelife"

"5. That approval be given to payment of an annual salary package of $850,000 to [Sent] in his capacity as Managing Director of [Primelife]"

"6. That approval be given for [Primelife] to enter into an option to purchase 15.38 hectares of land at Point Cook from Mainpoint Developments .... an entity controlled by ... Sent, Managing Director, for a purchase price of up to $6,000,000 and conditional on [Primelife] obtaining necessary development approvals and sufficient development finance, and also conditional on the directors' obtaining a valuation of the land at the time of the proposed acquisition which exceeds the purchase price."

56 Prior to voting on the above resolutions, the meeting was informed that resolutions 4, 5 and 6 were interdependent and would only be implemented if each of the resolutions was approved by members. Legge told the meeting of the history of the matter including that the original employment contract with Sent had to be viewed as part of the agreement to acquire the business of a private company related to Sent. The revised structure, Legge said, would strengthen the balance sheet by removing the liability for the bonus, remove a constant source of negative publicity, send a clear message to all shareholders of Sent's total commitment to Primelife (saying that, in due course, Sent's only interests in the aged care industry would be his investment in Primelife). Legge further said that it was part of an agreement to terminate all related party transactions that had been a major negative to the market players. In relation to Point Cook, Legge told the meeting that the property was to be acquired at cost, that the Board was confident that the land was an ideal site for a retirement village and that the project would generate significant development profits and an income stream worth $20 to $25 million and that Sent would make no profit on the transaction other than through his shareholding in Primelife. In addition Kemp informed the meeting of the undertaking to ASIC.

57 On 1 December 2001 McGregor joined the Board of directors of Primelife. McGregor testified that at this time the major financial institutions were reluctant to lend money to Primelife at competitive interest rates and that one of the reasons for his appointment was to help Primelife obtain access to bank finance. Another reason for his appointment was expressed by McGregor as follows:

"At the time of my appointment, Primelife needed to strengthen its management. Primelife did not, at that time, have in place the usual checks and balances one expects of a public company. Rather, it was run along the lines of an entrepreneurial private business."

2002

58 In early 2002, Porter recommended to Sent that Primelife install a camera surveillance system that would videotape activities in the ground floor foyer and the two executive meeting rooms (which included the boardroom) on level 2 of the company's premises. A system was installed in or about February 2002. A short time after the installation a notice was posted in the boardroom and also in the adjacent meeting room stating that "Meetings held in this room may be recorded".

59 Porter controlled a dedicated computer that operated the surveillance system which was located in her office. The recordings were accessible only upon scanning the thumb print of the user and, at all relevant times, the only thumb prints recognised were those of Porter and Holzer. The tapes ran continuously and had the capacity to keep recording for about two to three weeks, and later for about thirty days, after which the earliest recorded material would begin to be overwritten, in a continuous loop. If it was desired to preserve any record (of, for example, a meeting) it was necessary to save the record to a separate file on the hard drive of the surveillance computer from which it could subsequently be copied to other media.

60 On 27 February 2002 Gatto gave evidence to the Building Industry Royal Commission[15] to the effect that he had a number of customers who paid him $50,000 to $100,000 per annum and that his customers included Primelife. Gatto's evidence was reported in the media. The context for these events is set out in Part E below, dealing with the cash payments to Gatto.

61 On 16 April 2002 Flood circulated to the "executive"[16] Primelife's video surveillance policy. The policy document stated, inter alia:

"Video surveillance - 464 Collins Street, Melbourne

As you are probably aware the Company has installed video surveillance in the foyer, the second floor small meeting room and the board room at 464 Collins Street, Melbourne.

To ensure that all staff understand the reasons behind this video surveillance and the Company's policies in that regard, I have drafted the following policy. I ask that you hold a meeting with your staff to explain the policy ...

...

2. The video cameras can record these areas 24 hours a day and the second floor installation has the capacity to record sound as well.

...

4. The recording shall only be available to executives after a written request by a staff member, which is to be countersigned by two of Ted Sent, Sandi Porter and Greg Flood.

5. This access will be view only and requests for view access and/or transcripts will be granted only in compelling circumstances.

6. The recordings will, unless specifically held under paragraph 4 or 5 of this policy, be permanently deleted after 21 days.

...

8. Recordings may also be kept if the Primelife party notifies me that they wish a record to be kept of a meeting for a longer period. On receiving such a written request it will be discussed between the CEO, DCEO and myself ...

9. Signage has been installed in meeting rooms to notify attendees of the presence of video surveillance ..."

62 On 12 May 2002 Sent was interviewed on television on a Channel 9 Sunday programme ("the Sent interview"). Matters mentioned in the course of the Sent interview included Sent's previous bankruptcy, his involvement with failed companies and his disqualification as a director. In his evidence Sent agreed that these matters were "common knowledge". In the course of the interview related party transactions were mentioned and Sent stated in relation to the Point Cook property "I wished that I didn't have to sell it in because I sold it in for cost."

63 In April and May 2002, Flood participated in communications with Primelife's solicitors, McCullough Robertson, concerning the terms of the Sent agreement and the Point Cook option but, in order to progress the matter further, Flood needed instructions from Porter and did not receive any during 2002.

64 By late 2002, Primelife had a number of development proposals that required to be financed but Primelife was short of cash and finding it difficult to borrow.

65 In November 2002 Legge publicly announced that the Board were committing to exploring all options available to Primelife to enhance long-term share value including initiatives relating to the position of Chairman, a succession plan for the Managing Director and the appointment of corporate advisers to assist with capital raising. Following this announcement, Primelife engaged consultants to procure a "cornerstone" investor who would be able to provide further equity to Primelife and also might be able to induce institutional investors to support Primelife shares and might be able to assist Primelife in obtaining ongoing credit facilities.

66 A number of proposals were received by Primelife and the one finding favour with the Board came from a company, Albany Bay, a private investment company associated with de Crespigny and Walker. De Crespigny was and is a prominent and well-known Australian businessman. He initially practised as a chartered accountant and became senior partner of the firm now known as KPMG. He was chairman and chief executive of Normandy Mining Ltd from October 1985 to February 2002. By February 2002, when it merged with an international gold producing company, Normandy Mining was capitalised at A$5.25 billion and was Australia's largest gold producer. De Crespigny was and is the chairman or board member of major corporations and other organisations. Walker was and is another prominent and well-known Australian businessman. He was founder and chairman of one of Australia's largest private chemical companies and was co-founder, director and a major shareholder of Hudson Conway Ltd. He is a former Lord Mayor of Melbourne and a chairman or board member of major corporations and other organisations.

67 On 10 December 2002 Walker, by email, caused a message to be sent to de Crespigny in the following terms:

"My dear Robert

There is a public company by the name of Prime Life which is a major player in the retirement village market. Their Chairman is an absolute sleaze but the company is basically very good, but needs an injection of cash. Could your adviser take a quick overview?

You will have noticed the retirement village market is growing very rapidly ...

All the best

Ron."

68 De Crespigny also viewed a tape of the Sent interview that was sent to him by

Walker.

January to February 2003

69 In or about late January 2003 de Crespigny and Walker had an introductory meeting with Sent in Adelaide.

70 On 11 February 2003 there was a meeting between Sent, Walker and de Crespigny at Primelife's offices at 464 Collins Street, Melbourne to discuss whether Albany Bay might be interested in becoming a cornerstone investor. They also discussed the role that Lane, an accountant employed by the de Crespigny interests, might play in any due diligence. On 11 February 2003 Sent and Walker went on a tour of Primelife locations.

March to April 2003

71 On 20 March 2003 Kemp emailed the other directors of Primelife and Porter (for Sent) attaching a "final draft Terms Sheet" from Albany Bay for their consideration. The attached Terms Sheet contained a proposal for the provision of a loan of $6 million for three years at 10% per annum and further proposals in relation to the placement of shares with Albany Bay for an agreed consideration and for the issuing of share options to Albany Bay. The Terms Sheet also referred to a due diligence process over a period of about four weeks and provided for either party withdrawing from the proposed transaction if "unhappy". The Terms Sheet also referred to the "on-going board and management structure" of Primelife and proposed that Walker and de Crespigny join the Board, with de Crespigny as Chairman "to maximise profile", Sent "to commit to remain with" Primelife and a "COO type person (and other senior management as appropriate) to be located to work with" Sent. Walker testified that he understood that this aspect was an "old plan" and they (Albany Bay) were happy for that to continue.

May 2003

72 The evidence shows that in early May 2003 Porter made arrangements to listen to the telephone conversations of Holzer, Flood and a number of other Primelife employees utilising the RACAL system. Details of this matter are set out in Part F below.

73 On 9 May 2003 de Crespigny and Walker, by invitation, attended part of a Primelife board of directors meeting. De Crespigny said to the meeting that, subject to completion of due diligence, he and Walker were keen to proceed with the cornerstone proposal. According to the minutes, de Crespigny tabled a presentation and discussion followed. Among a variety of matters mentioned were the benefits that de Crespigny and Walker could bring to Primelife, including their relationship with the investment community and an immediate cash injection by way of loan and equity. It was indicated that de Crespigny would accept the role of Chairman of the Board and that Walker would also join the Board. Walker suggested the appointment of two new directors, namely, Spencer and McPhee. De Crespigny said that he and Walker had no preconceived ideas or hidden agendas on management personnel.

74 On 13 May 2003 de Crespigny and Sent had a luncheon meeting in Adelaide at the Grange Jetty Kiosk. They discussed generally the aged care industry and the nature of Primelife's business. During the course of that meeting, de Crespigny told Sent that the due diligence had identified a number of matters which needed to be finalised prior to Albany Bay proceeding with its investment, including the employment contract for Sent and the option agreement in relation to the Point Cook property.[17]

75 De Crespigny further testified, and I accept, that, in the course of the above meeting, Sent said to him that when there was unrest on building sites "he had to do matters" and that he (de Crespigny) then said to Sent "that there can be no payments made of any description to any people at all that are not 100% acceptable". I infer that Sent must have made some sort of reference to some payments in the past having been made in cash but there is no evidence that any details were provided by Sent to de Crespigny[18]. De Crespigny further testified, and I accept, that Sent mentioned a problem at a Williamstown site a long time ago and that Sent talked about "eating goat" with senior building union people and that he (de Crespigny) said to him "this is not the type of behaviour that should occur...". De Crespigny testified that Sent treated this as something that had happened in the past.

76 On 14 May 2003 Sent forwarded a three page memorandum to Legge, Kemp, Panaccio and McGregor. This memorandum, like many and probably all documents from Sent, was composed by Porter and produced by her on her computer. In the memorandum Sent purported to provide a summary of the issues discussed with de Crespigny, commenting that he "found the meeting productive and am encouraged that we should be able to see our company grow in the manner that we have all worked towards." In relation to his service agreement, Sent said that it had not been signed and needed to be completed as a matter of urgency. He added:

"The commercial terms will be negotiated between me and Andrew Kemp this week, before being finalised by the company's solicitors. The terms set out below are the key conditions included in the draft ... to be dispatched to Andrew tomorrow. The document was prepared by McCullough Robertson and includes amendments proposed by my solicitor."

77 The memorandum from Sent then set out various key provisions of the proposed service agreement and Sent concluded on this topic:

"At this time, I expect to retire at the end of my current term, subject to the succession plan having successfully identified a suitable replacement, that person's orientation into the role having been completed to my satisfaction, and my investment (or as much of it as I require) having been disposed of for a value acceptable to me."

78 The memorandum then moved on to the subject of board representation and composition and Sent stated that, although he had not specifically discussed it with de Crespigny, "I also require Sandi Porter to attend all board meetings, all audit committee meetings and any other sub committee meetings that the board may yet determine."

79 In relation to Point Cook, the memorandum stated:

"As is outlined in the summary of related party transactions, I have agreed to forego any profit that Mainpoint would generate on the development of the Point Cook property.

When valued in 2001, the land was considered to be worth $5 million with no retirement village permit and $10 million with a permit. Primelife's purchase of the property is capped at $6 million. However, due to rapid escalation of land values in the area over the last 2 years, the land is now worth $12 million - and this will increase once the permit has been obtained. I have already rejected a cash offer of $12 million from a large residential developer.

With the proposed change in Primelife's shareholding and board composition, I consider my tenure at Primelife to be less secure than it has been in the past. In these circumstances, I require the arrangements with respect to Point Cook to be amended in the event that my employment with Primelife is terminated by Primelife before June 2006 on terms that are not amicable and/or I am forced into a position whereby I am unable to quit my shareholding for what I believe to be a fair value.

If any of these events occur, I will agree to Primelife completing its acquisition of Point Cook on the original terms, but I will require compensation to be paid to me for the profit foregone. For example, if Primelife pays $5.5 million for the land and the current market value at the time is $12 million, the compensation required would be $6.5 million."[19]

80 On 26 May 2003 there was a meeting at Primelife's offices between Sent, de Crespigny, Walker and Lane. Issues relating to Primelife's finance and liquidity were discussed. After the meeting, de Crespigny, Walker and Lane met with representatives of the ANZ Bank and discussed the provision of bank finance (which was ultimately made available).

June 2003

81 At some time during the due diligence process, Flood told de Crespigny about the payments to A&M that had been the subject of Gatto's evidence to the Royal Commission. De Crespigny asked Flood whether the payments had definitely ceased but Flood was unable to tell him. As a result, Flood decided to make enquiries with the accounts section and he then discovered that the payments had not ceased but had continued and increased from March 2002 onwards.[20]

82 On 2 June 2003 de Crespigny had a meeting with Sent at Primelife's offices. On 9 June 2003 Sent and Grace Sent went to the United States on holiday.

83 On 24 June 2003 there was a meeting in Primelife's boardroom between de Crespigny, Walker and Sent. This meeting was taped by the videotaping system. A number of aspects of Primelife's business were discussed.

84 On 27 June 2003, although the due diligence process had not been completed, a meeting of Primelife's board of directors was held. By this time, de Crespigny was aware that there was some kind of capacity to tape meetings which occurred in the boardroom. At this meeting de Crespigny was appointed Chairman (replacing Legge), Walker was appointed Deputy Chairman and McPhee and Spencer, who were also present, were appointed as directors. Porter, as was usual, was present throughout the meeting.

85 The minutes of the meeting record the following:

"...de Crespigny also stated that board meetings were not to be taped. He was advised that none would be taped. It was also confirmed that there were no matters arising from previous meetings (that may have been taped without the knowledge of the attendees) leading up to the new boards appointment that should be advised to the meeting or the individuals concerned. And further there were no issues arising from those meetings or tapings that would be used in the future."

86 In that regard, I note that Sent testified that, at an early stage of the meeting, de Crespigny raised the topic of the videotaping of board meetings and asked whether it was company practice to record board meetings. According to Sent, Porter said that it was not. Sent testified in his witness statement that Porter was responsible for overseeing Primelife's IT requirements "which included the video recording" and that he had no reason at the time to doubt that what she said was true. He added that it also accorded with his understanding as to the use which was made of "the video facility" and that "certainly I had never seen recordings of board meetings or [been] told that there were any". However, in cross-examination, the following exchange occurred:

"You were aware of the video system though, weren't you? --- I am aware of the video system.

And you were also aware that the meeting before this one was taped, weren't you? --- No, I was not aware of that one, because as we clearly understand, the video recording was a continuous recording, that only upon decisions to clip something it became actually a document or a history of that particular taping, if you like.

Now, Mr Sent, I am - - - ? --- I am not a technical person, Mr North.

You were aware of the meeting on the 27th being taped at or about the 27th June 2003 or shortly thereafter, weren't you? --- I can't recall. Who told me?

You from your own knowledge were aware, weren't you, that the meeting of the 27th, that is the board meeting of the 27th June was in fact taped, and you became aware on or about 27th June or shortly thereafter, that is a true position, isn't it? --- I believe that all the boardroom happenings were continuously taped and automatically erased at a certain period of time. I have never ever seen other than that one that is subject to these proceedings any of the tapes.

So you agree then that you were aware that the board meeting of 27th June was taped? --- It was, yes. It was continuously taped.

And then you would have also been aware the one of 16th July was continuously taped? --- No, I certainly was not, because at that particular time Mr de Crespigny asked that there would be no more recordings.

On the 16th July? --- On the 16th, he asked on the 27th and on the 16th.

All right. You were asked an interrogatory, "when did you first become aware that the meeting of the 27th was taped?" Your answer was, "at or about the 27th June or shortly thereafter"? --- But that I meant that the meetings of all the board meetings were continuously taped on a revolving loop.

HIS HONOUR: You knew the cameras were running? --- Yes, the cameras were running.

MR NORTH: And you knew that on 27th June in the meeting, didn't you? --- Yes. My understanding of the recording is that the recording is actually kept and not removed or erased after a certain period of time which is what I believe happened with all the tapes.

You were also aware, weren't you, that the meeting in the small meeting room on 24th June was being taped, weren't you? --- As I said, all the meetings were automatically recorded, and only at somebody clipping the recordings would they be actually recorded as such, otherwise they would have just gone and be erased.

...

Now, on 27th June you were sitting in the boardroom knowing that it was being taped, that is right, isn't it? --- Knowing that the cameras were rolling, yes.

And you don't make any difference between the cameras rolling and it being taped, do you? A record of the meeting was being held at that stage because the tape was running? --- The tape was running and consequently in a number of days it would automatically be wiped out unless somebody retained it or clipped it, or whatever it is called.

You do recall the question being put to both you and Ms Porter on 27 June, don't you? --- Yes, I do.

And the question which was put was that you gathered from past procedures that there had been taping, that you'd tape-record meetings, and the question was, is that right, did you answer that question? --- I answered that question.

What did you say? --- I said no board meetings have been recorded at this particular time, to the best of my knowledge was that none of those had ever been clipped or recorded as a record of the actual meeting.

But the question was, is it being taped or a record of the meeting being held, and you answered - - - ? --- No, because in my opinion it is - was not being recorded as a recording, it was merely on a continuous loop that automatically would erase itself.

I want to put to you your answer is recorded as, "M'mm," and then it was asked, "Is it happening now?" And you answered, "Not now"? --- Again - I can't recall that.

But I am telling you that my understanding of the video recording was that it was automatically recording each and every 24 hours a day, 7 days a week.

HIS HONOUR: Until it was erased it could be watched? --- It could - I am sorry?

Until it was erased it could be watched? --- It could be watched if somebody had the opportunity, the authorisation to do so, to open it up or whatever.

MR NORTH: Well, I want to put to you that it went further than that, and, sir, the question was, "And is it happening now?" And you said, "Not now." You recall those words being used, don't you? --- If I said, "Not now," I meant that it wasn't being recorded on the sense that somebody could bring it back next week and say, here is a copy of the recording.

Did you explain that to anybody? --- We didn't get a chance to do that.

You see, immediately thereafter to the same question, is it happening now, you heard Sandi Porter say "No", didn't you? --- Yes.

And the question was then put again, "It is not happening now?" And you heard her answer, "No, we did it selectively." And your answer was "M'mm", and then she said "We had client meetings" - - -

HIS HONOUR: Too many questions.

MR NORTH: Sorry, sir. You heard the question, "It is not happening now?" And you heard Sandi Porter say, "No, we did it selectively"? --- Okay, if I said "m'mm", was only because I didn't know.

You heard what Ms Porter said by the answer "No", that was to indicate to the board members that in fact there was no tape or recording happening at that time, is that right?

MR BICK: That asks the witness to interpret somebody else's answer.

MR NORTH: Do it from yours. When you answered "Not now", the only impression that you knew that would leave was that there was no tape or recording, sir, you agree with that don't you? --- No, I doesn't. The cameras were running 7 days a week, and the recording - and if I said that I certainly didn't mean that it was being recorded, I only meant that the cameras were running on a continuous loop and that they would at a certain time be erasing what was on the tape at that particular time, and they certainly weren't being kept.

Both you and Ms Porter would control what you wanted to save and what you didn't, you agree with that, don't you? --- I agree that both Mr Greg Flood, myself and Sandi were mentioned in the policy that the two of us would need to agree, two of the three would need to agree to be able to keep something. I was never asked and I have never ever given my permission to that.

But you knew that the only person who would do the saving was Sandi Porter? --- It was Sandi who was the person in control of that particular part.

And after 27 June, when the issue of recording and taping had been mentioned, did you then take steps to tell Sandi Porter to turn the machine off? --- I assumed that Sandi would automatically do this after the instructions that was given on 27 June meeting.

Now, the distinction that you make between recording and the running of the machine, you have never made that distinction before, have you, in your explanations about this? --- Well, it has been known to all of those that have been involved in that particular part that it was a continuous running machine.

Who were all involved in those - - - ? --- Mr Flood, for instance.

Anybody else? --- I believe Shona Holzer.

Yes. And just you and Sandi? --- Well, there were a number of other people, I just don't at this particular point of time - I believe Mr David Legge knew, I believe Mr Lou Panaccio knew.

One thing which was asked was "Can I then as well, has it happened with um, ah, when Ron and I had meetings?" Do you recall that question? --- No, I don't recall that question.

Do you recall Sandi Porter saying "No"? --- I don't recall - she could have, I can't recall that.

You knew that she was recording meetings that you and Ron - - - ? --- Yes, it really goes back to the recording.

Did she clip or whatever it is called that particular session? I don't know.

She could listen to it, couldn't she? --- I don't know whether you can listen to it and recording it at the same time. I have never known this particular function.

You and her were a package, weren't you? --- I don't know what you mean by "a package".

Well, you were - - -? --- She was my confidante."

87 Further, Sent's evidence in his witness statement is contradicted in his answers to interrogatories in which he said that he knew that the meeting of 27 June was being taped at or about that date or shortly thereafter because he knew that it was board policy for the board meetings to be videotaped. When cross-examined about this answer, Sent added:

"Ever since we had the video installed, it was working to the best of my knowledge seven days a week and the board meetings were all videotaped."

88 In fact the meeting was videotaped and a transcript of this part of the board meeting is in evidence. The transcript was prepared by Mr Peter Garde, an expert audio engineer, after reviewing the video recording of that part of the meeting. Daniele viewed the relevant portion of the video recording, attempted to identify the speakers and made handwritten notations on the transcript identifying the speakers as hereafter appears. The transcript thus evidences the following discussion:

"De Crespigny: The, the other thing I wanted to raise is something I wasn't aware of, um, about it but I gather that past procedures have been here that you, that you tape and record meetings. Is that right?

[Unidentified male: Mm, mm.]

De Crespigny: And, and is that happening now?

Sent: Not now.

Porter: No.

De Crespigny: It's not happening now?

Porter: No. We did it selectively.

[Unidentified male: Mm, mm.]

Porter: ..., um, that had, we had client meetings ...

[Unidentified male: Mm.]

Porter: ... that we, um, feel need to be, um, recorded, um, we have done it in the past but its been a selective process (INDISTINCT). We wouldn't ...

De Crespigny: Sure.

Porter: ... record or tape record (INDISTINCT)

De Crespigny: Can I ask then as well has it happened with, um, ah, when Ron and I have been in meetings...

Porter: No.

De Crespigny: ... um, before?

Unidentified Female[21]: No.

De Crespigny: So there is nothing. I think it is important if there are any areas that people are concerned or worried about that we can, we can raise them.

Unidentified female[22]: Yes of course."

89 I note that McGregor testified that this was the first time the subject of videotaping had been raised at any board meeting. Panaccio testified that he was aware that cameras were installed but there was no board policy that meetings be taped and he was never told that board meetings were or may be taped and he did not know that Porter had access in her office to the video surveillance.

90 The minutes of the meeting further record that de Crespigny tabled an unaudited short-term cash requirement and profit impact report that highlighted short-term liquidity challenges the company needed to resolve. De Crespigny said that he would not chair the company if these short-term issues were not resolved and that he was concerned about the current financing arrangements in relation to a $5.5 million "Mainpoint loan" that was currently at call. Walker also raised the issue of solvency and expressed concerns in relation to the company's short-term cash requirements. The minutes record that the "board agreed that there were short-term liquidity challenges that needed to be properly addressed but believed the long-term position was sound". It was resolved that a special finance committee comprising of Kemp, Legge, Panaccio and McGregor be appointed to work on the short-term loan arrangement/terms with Mainpoint Enterprises and Albany Bay. Sent advised the meeting that he was prepared "to fix the Mainpoint loan of $5.4m until 31 December 2003".

91 Finally, the minutes of the meeting record that de Crespigny and Sent were to recruit a Chief Operating Officer and the minutes concluded as follows:

" ... de Crespigny indicated that ... Sent should be expected to accept responsibility for his actions and be fully responsible as CEO for the Company. ... Sent stated that he would require additional resources to assist him in discharging his obligations as CEO. ...de Crespigny suggested that we do not employ any new staff at this time and that this request is to be put forward to the People and Strategy and Remuneration committee once established.

It was resolved that the Board of Directors of Primelife expects that the CEO will be accountable for any forecast and financial statements presented to the Board. The directors of Primelife also expect that the CEO will disclose all matters that will impact on the functioning of the company."

92 It was probably shortly after this board meeting that Williams and Flood met de Crespigny at his request. De Crespigny told them that he was the new Chairman and that he wanted to give them the opportunity to speak their minds about things that were bothering them. Williams and Flood indicated three areas of concern: one was recording of telephone conversations - Williams and Flood said that they had heard rumours about this and Williams had mentioned it to Lane during the due diligence process; the second was the taping of meetings - Williams had also mentioned this to Lane during the due diligence process; the third was a matter of ongoing cash payments to Gatto or A&M. De Crespigny asked them to investigate these matters further and bring back any information in respect of them so that the Board could consider the same. About one week later Williams and Flood again met with de Crespigny. Williams provided an incomplete list of payments. They also gave de Crespigny a copy of an email dated 18 October 2002, obtained from Holzer, in which Porter asked Munro of Kiandra to give her access via the RACAL system to extension 576 from 6.30 am to 10.00 am. Flood identified this extension as his own.

93 On 30 June 2003 Primelife drew down $2.2M of the initial investment of $6M from Albany Bay.

July 2003

94 On 2 July 2003 Porter wrote to Landau of SBA in its capacity as solicitor for Mainpoint attaching the draft Point Cook option, ASX announcements regarding the sale of the Point Cook property to Primelife and minutes of various Primelife board meetings. Porter requested Landau to "review these documents on behalf of Mainpoint Enterprises and advise."

95 On 16 July 2003 an Extraordinary General Meeting of Primelife was held at which the shareholders passed resolutions ratifying various aspects of the transaction with Albany Bay and the appointment of the new directors.

96 Following the Extraordinary General Meeting, a board of directors meeting was held at 1pm at Primelife on 16 July 2003, attended by de Crespigny, Sent, Kemp, Legge, McGregor, McPhee, Panaccio, Spencer and Walker (from 2.15pm onwards) as well as Daniele and Porter.

97 Sent testified that, during the meeting, de Crespigny again raised the question of the videotaping of meeting and said that he did not want the company to even have the capacity to record meetings and proposed that the video equipment be removed. Sent testified that he said that there was a need then to ensure that accurate minutes were kept.

98 In fact, again, the meeting was taped and a partial transcript was prepared by Mr Peter Garde after his review of the video recording, and Daniele has again attempted to identify the speakers after viewing the relevant parts of the recording. It would appear from the transcript that, after discussion of a number of matters, de Crespigny indicated that there were three areas that needed to be resolved with Sent, "but when we move to that and ... we have had a discussion with Ted in here and then we will ask ... Ted and Sandi to leave and talk about this ourselves...". De Crespigny then referred to the need for board unity, and then turned to another "area". The transcript at this point proceeds as follows:

"De Crespigny: Now the other area I don't know whether this is difficult or not. I spoke about it last time, it is in the minutes. I am still deeply, deeply troubled by the fact that in a building that we are Directors of that we could be taping or recording people and I am not even talking outside this, last time I confirmed that we would not have this meeting doing it, I, I just don't think that's the way to behave, of course. Now I haven't told Ted that I'm going to raise this and in a minute I'll ask Ted to respond but I would have hoped that we can have a, um, sensible discussion about this and that I would be proposing that we remove all that type of equipment full stop, that if there is someone that we have to tape and record that we don't trust that we should, that we shouldn't deal with him. It is as simple as that, um, and I think that the Company has been dragged through some very unpleasant areas, I would hate to have to defend myself on what I have taped and recorded, um, without the person knowing or because there is a note there saying this could happen. I don't, I think that just looks dreadful for, um, us as a Company and it just, it unnerves me even now. I know we are not being paid for knowing that there is a capacity to be able to do it, it unnerves me and that, that we should be saying this is not the way, the way we operate, is my view is. I have not spoken to anyone in the world about, about it, um, ah, other than to be very fair I did this morning, it's unfair on [Daniele] but I said to you "Tell me how the system works". The system works is somewhere is the ability to do it here and the room next door and that the abilities, er, that, er, can be turned on, I assume, from either end here or in Sandi's[23] office ...

Walker: Ah, I don't want to have any conversations recorded by video or by tape I think it's, ah, ...

De Crespigny: Any employee ... I mean not, not just us ...

Walker: Yeah, abso, absolutely, um, in fact, let's get ...

...

Walker: ... [some statements omitted] ... so, um, I just support you I don't want anything recorded.

Sent: Okay, I'm very happy to take you out, ah, um, where it's on a rental basis, we can just stop the rental and can pull it out. ... now no longer required. I mean I think we are all the worse, well, I am happy to do that now the only thing is that in the case of minutes and things like that, um, we need there a person with plenty of time to ensure that they do in fact reflect exactly what was said.....

...

Walker: Mr Chairman I have got a different view than Ted. ... Um, I sit on the Fairfax Board and nothing is ever taped.

Sent: I'm not the one who tapes it.

Walker: [further comments re the recording of minutes]

...

De Crespigny: But also I think we want to give the instruction, don't we, this, we don't want Primelife to tape or record anyone.

[further discussion]

McPhee: ... Chairman, I, I actually don't think we should make an exception. I think the equipment should go, I don't think it should remain in the (INDISTINCT). I don't think this is, what we stand for ..."

99 After further discussion Walker said "But wasn't the previous board[24], ah, being taped?" to which de Crespigny replied "No, no, it wasn't taped, no." At this point Sent[25] said "They're not taped unless you want it taped."[26] This interpretation of the recording and the transcript is to a substantial extent confirmed by Sent's own evidence, when he testified in his witness statement that de Crespigny asked at one stage "Was the previous board meeting taped?" and that he (Sent) said "No" and that he (Sent) said that "meetings were not taped unless you wanted them taped". Sent further testified that "As far as I knew at the time this was true".

100 The transcript at this stage appears, although it is not entirely clear, to evidence a consensus in relation to the above statement by McPhee. In any event, the minutes record the following:

"Discussion took place in relation to meetings being taped. It was resolved that Primelife will remove all recording devices installed within the building and that it will not record, tape or deliberately listen in on any discussions between any persons dealing with the company or employees of the company. Past practices will now cease. Mr Sent said that time must be allowed in meetings for a full discussion on the issues raised and that accurate minutes must be kept."

101 Porter testified that Sent knew that meetings in the boardroom and the small meeting room were continuously videotaped but that she did not correct Sent at the time. Porter said that when it was said that the previous board meeting had not been taped she "realised then, but not before, that I hadn't turned the switch off as I had intended to do after the meeting on 27 June 2003." Porter went on to testify that she said nothing "because I knew that no copy of the meeting of 27 June 2003 had been made and retained and I thought that the tape may well have been overwritten in any event and if not I would turn the switch off anyway after the meeting".

102 De Crespigny then said to the meeting that there were a number of areas that they needed to deal with "that relates to the extent and associates (sic) and I thought we should have a chat to make sure we have got them there and then ... have a chat on our own." The meeting proceeded to a discussion concerning a number of matters including the Point Cook option and the Sent agreement (neither of which had been finalised), and the Mainpoint loan. After considerable further discussion upon these and related matters, de Crespigny asked Sent and Porter (and Daniele) to "leave us and we have a chat about ...".

103 After Porter and Sent left the meeting, discussion ensued between the remaining directors which was, unknown to those present, also being videotaped.

104 There is, in evidence, a transcript of the discussion that took place amongst the directors in the absence of Sent and Porter.[27] Relevant for present purposes is the discussion concerning the future roles of Sent and Porter and the essence and flavour of this discussion is reflected in the following extracts from the transcript:

"De Crespigny: The problem is with dealing with this bloody Company, and ... Michael Lane[28] has been full time since this bloody thing started trying to actually unravel and understand where all these things are. Whenever you say something is going to happen or be a surprise [Sent] denies or gets ... furious about it. ... we spend all of our time ... in solving crises. I mean we've had four Directors sitting here all morning going through ... an agreement with [Sent]. You know we have spent all this afternoon going through it. Now, the short answer is yes, I'm sure we can, the problem is there is not enough time in the day ... to do all of these things ... You weren't here but he's off wanting to, he's off wanting to do more deals to solve each of the crises. I think we've just got to steady the ship and understand it ... but my hunch is yes it's easily fixed.

...

De Crespigny: Alright, alright, now, Ted, okay now on his pay. Ron heralded the issue, that the rest of the contract is fine, except for this one thing. If we're going to get rid of Ted tomorrow it costs us, um, five, five million, four and a quarter, four and a quarter million, yep.

McGregor: Yes.

De Crespigny: And as every day goes past it is a day less of that amount. So if, ... in two years' time we want to get rid of him it's three times.

[At this stage Walker appears to speak against the concept of a service contract with Sent involving payment of his full entitlement either if he should decide to leave immediately or if the Board should decide that he should do so.]

McGregor: Well, I think in fairness Ron ... he does bring a lot of credibility ... he brings pluses and minuses and there are more a lot of pluses out there and we must not really lose sight of those.

De Crespigny: Can, can I get you ... to argue against that. Not, not the way Ron has. But can you write down the pluses for us and in a minute read them out ... three minutes, quite seriously we need to know, but I disagree with you on that one.

Legge: ... I don't want to be in the position all the time of defending Ted's position but when we started this transaction, a pretty key part of it, ... the reality is that Ted is, ah, who knows what he has right from the start, has been terrified of the fact that, um, the new Board is going to, ah, kick him out the door, um, at the first opportunity. And that was why the contract became a major issue and it wasn't an issue before ... so the negotiation was based on that, him getting some comfort that he wouldn't be terminated ...

[Further discussion ensued on Sent's service contract]

De Crespigny: ... my thought process to you is, first of all, um, I think Ted in, in the area that we all know that he is good at, is outstanding. And, um, we should be doing everything possible to keep him. And that area is, we need to tidy up and simplify the structure on all the ninety-four twenty-fours[29], we need to make sure we put proper development plans together that are achievable and properly understand the financial consequences of, um, some of the projects ... this is what the guy's good at. Can I take, um, issue on nearly everything else. I have not had a positive word about him since this was announced and it is unbelievable. I never get less than one negative and mostly it's three or four. I was down at Victor Harbour the other day giving a talk and at the end a Senator ... walked up to me and said, um, 'I hope someone has told you, you have gone into bed with the biggest crook in Australia'. In Victor Harbour, nine-thirty at night, to go into Ted's reputation is as bad as I have ever seen. So that's why I would take issue on that he is a strength in that area. But, but, and I say to you very definitely, we came in here, um, to do this Ron and I and are very keen that he stays. I want to try and come up with a, a solution for it. I think Sandi is, is the curse that's hurting Ted more than he actually even understands. She is absolute disaster. She works virtually full time for him. She has been stirring all the trouble, going up. Michael Lane ... says he's never heard so much negative about a person. She rules the place with an iron fist, um, she has tried to frustrate this contract at every turn, I am told, um, on the exercise. [De Crespigny then refers to the role of Porter and of Sent in relation to Mainpoint] She has been the one running around and your point on conflict of interest, um, is absolutely right. [Further comments are made about Sent]. He is the world's worst manager ... indeed we will not get any institutional support by Ted sitting. My proposal to you is, that we say to Ted, um, ah, I haven't spoken to, to any of you about this, we say to Ted this is the way it is. We're going to accept the agreement, Ted, ah, as it is, no changes. We are going to do ... Mainpoint.... You are signing Point Cook, um, straight away ... We need you today to agree to two things, Ted. Is one that we can go and appoint either a Chief Executive Officer or Managing Director - you tell us, but that person is going to be the one that operates this business. Not Chief Operating Officer reporting to you ... so there will be some confusion there but we don't want you to lose face. But we need a person to run this business desperately ... . And second is Sandi's got to be finished up and you've got to move all the Mainpoint stuff out of here including Sandi. You've got to move it out and have a separate office and no one from Primelife works for Mainpoint.

...

De Crespigny: ... but he is the world's worst manager. We have to get that break away from Sandi and Ted and we need to say to Ted 'This is the best thing for you'.

Legge: Alright.

De Crespigny: She is just too, too tough. I didn't realise until today that she is the one who does all the settlements and all of the negotiations with these people ... you know she is good, she really is. On the information I have, you know, she is a very successfully self-promoted secretary.

[At this point Legge made a number of positive statements about Porter and emphasised the significance of her relationship with Sent; Walker suggested that Porter would cause more trouble with the staff if she stayed beyond that day; McPhee expressed concern about the consequences of action against Porter without necessarily disagreeing with what was being proposed; De Crespigny complained about the way Porter dealt with the minutes of the last board meeting.]

...

Kemp: ... I disagree. I think she is not just a, you know, a secretary who's kept growing in a role. She is very talented, ... all the litigation stuff, these agreements with the ninety-four twenty-fours, all that kind of thing gets done ... she's got a grasp of the, ah, well all the bits of the business ...

...

Legge: But she, the difficulty she absolutely, um, knows every aspect of these things. I mean if you talked about, you know, fit-outs of, of the offices, if you talked about the total staffing of the Company, if you talked about the legal structure within the villages or the Aged Care Act or, you know, Sandi has a knowledge across ...

Kemp: Everything.

Legge: Everything. And she is a, I, I, look she is a, a lost individual I reckon. And she works, you know, six to eight hours a day and she is on the verge of burnout ...

De Crespigny: That's also, I think, because, um, hers and Ted's baby's changing at the moment and that has put a lot of pressure.

Legge: (INDISTINCT) But even prior to this though, prior to this situation, she is, and she just seemed that she takes it, the load very personally ... we have got two people who are extraordinary individuals who are actually not right for the Company in, you know, the sense of where they are today, but they formed, they have got skills and abilities which are, you know, in certain areas, very, very strong. I mean, Ted's real ability is his ability to think his way through problems. He can always come up with a solution and he never gives up ... he will think his way through and make something that's bad, good. He's got that ability, you know, and ... that's his creative ability but not his management skill so there's not

De Crespigny: He can't manage ... you will not get anyone of any ability to work for Ted ... he's mad.

[Spencer and Kemp made statements about timing and what needed to be done.]

De Crespigny: But I think if Ted, Ted could work in the area that, the area that he is good at, that he is given the respect and responsibilities, ... that he more than deserves ... to have, this guy is a very valuable asset. But we've got to have a very strong powerful Chief Executive ... who won't let Ted have the chequebook and then you might actually have something very special here.

McGregor: I think that's a pretty accurate summary.

Kemp: Mm.

Panaccio: ... what we're actually talking about, is, is something that, that, that we, we've all known was going to happen. We're really talking about the sort of succession of the management of the Company ... it's most likely that there is a role once Ted can be educated ... my preference would be, because I think Ted is a very emotional person and you want to make sure that, that he actually buys into the process that we're actually wanting to, you know, change ... because Ted's got to, got to accept and as you say, I think, Ted is acceptable that Sandi has got to move on. Um, it's a question of working through it is, what does her role become, where does she go, what does Ted's role become, what person you are actually looking for.

[Further discussion ensued; De Crespigny said that he wanted to try and bring things to a head; McPhee said that she was not sure what would be gained by delay but referred to the risks of transition; De Crespigny indicated that Sent's desire to negotiate the unsigned agreements had prompted him to raise these matters and gave them the ability to say to Sent that they were bringing forward what probably would have happened later]

De Crespigny: ... will I summarise what I think we are saying, is that perhaps me on my own in, um, twenty minutes sit down with Ted and say 'Ted, um, it's like this, I want you to sign Point Cook ... and Mainpoint ... we accept the agreement, um, with you. We want you to agree to the following with us, is that, ah, we can immediately, um, go out, um, and look with, with you, you'd be part of the, um, the little committee doing it, Ted, look for a person to be either Chief Executive or Managing Director. You tell us which. Our preference would be that you would become, um, Director Strategy or something. You work out if there is a better name but if there isn't, that you will do it. We want a person to come in and be the person that is solely responsible for running this business. And ... it is time Sandi went back to work for Mainpoint. You put a proposal to us but we want this to be in an area that doesn't hurt this business but be extremely rapid and that if, um, you wanted me to I'll talk to Sandi about it, with or without you Ted...' And that we ought to put that to him now, rather than sit and dally ... . And I hear what [McPhee] says, is that we do give him the option of planning her time of departure but say we have to know that she's (INDISTINCT) with her and he takes her back to Mainpoint, that he agrees no Mainpoint work is done in this place again from today. He has got to go out and, pay, um, and pay for that work to get done... I think he's brought it on by trying to sit and negotiate ... My belief was in six to twelve months time that we'd be having this talk in relation to him and I felt Sandi was a jewel, but this girl is not a jewel. You know, very capable of anything ... I think we are totally dependant on her, you know, if there's a chance drops dead on us tomorrow then, then it's better to (INDISTINCT).

[General discussion amongst the directors followed.]

Walker: Can I, can I, do you mind if I just say something in defence of Ted that Robert and I feel pretty deeply about. Having been with him on Friday and having dealt with a number of property people all my life, this guy has got an incredible nose ... but he, as Robert well said, don't know (INDISTINCT) if they accumulated property but doesn't understand how to get the financial spread underneath it. If he does have a long term role here you know, you've convinced me that the deal we did originally that was five years so then we don't want to let anyone down so deal's a deal's a deal. I think he should stay around here as a property buyer because that's exactly what he knows best.

De Crespigny: And also because the places he runs are just extraordinary.

Walker: Yeah, they are. I mean, there was a great warmth in that hostel environment we went to with those people that he asked me to address on Friday ... it is his life but when you hear the Chairman of the Adelaide Bank say the disparaging things about Ted he said, and all the other people, I mean it really disturbs you.

McGregor: Yeah, but I think in fairness to Ted there is a huge amount of scuttlebutt around in this community which I think is baseless, absolutely unfounded ... in terms of what I think is fair play he has been treated appallingly.

...

De Crespigny: ... I have never had such bad references ... but ... I think we really do want him around. We came in with our eyes open. We want him around. He is a worse manager than I thought, and that's why it is interesting the one bit that has changed my mind is that I think Sandi is the one that lets him down ... and if he only had the confidence and knew how to delegate ... he might have got prepared and freed it up.

[Further discussion ensued.]

De Crespigny: ... I was going to say to Ted is that we've had a talk, that we ought to finish off the other items of the meeting and I sit and have a chat with him afterwards. Would be a better way wouldn't it.

McGregor: Just before we make that decision I think what, where are we with his service agreement as it currently exists.

Legge: We, we accept it.

De Crespigny: Accept it.

[After further discussion, de Crespigny concluded by reiterating that after the meeting had finished he would sit down with Sent and have 'a chat'.]"

105 Towards the end of the discussions held in the absence of Sent and Porter, Walker passed a note to de Crespigny that asked whether he was certain that the meeting was not being taped and de Crespigny then asked Legge to go out of the boardroom and confirm that the meeting was not being videotaped. According to Legge, he left the boardroom and walked into Porter's office. Sent was with Porter in her office. Legge said: "I know you have just said, but can you tell me, you're not taping this meeting?" In Sent's presence, Porter said "No." Legge returned to the board meeting and reported her negative answer to de Crespigny.

106 The evidence[30] of Sent and Porter confirmed that Legge came into Porter's office and asked a question. Neither of them could recall what Legge asked or what answer he was given but neither of them contradicted Legge's evidence, which I accept.

107 After some time Porter and Sent were asked to rejoin the meeting and stayed to its conclusion when de Crespigny asked to see Sent in his office with Panaccio.

108 At that meeting with de Crespigny and Panaccio, Sent testified that he was told by de Crespigny that the Board had decided to appoint an Acting CEO for a six month trial period and Sent was to remain as Managing Director reporting to de Crespigny but the Acting CEO would report to de Crespigny. Sent queried how that could work, and de Crespigny said that was what the Board had decided.

109 Sent testified that de Crespigny then said that despite how much Porter had done for the company the Board was of the view that it would be impossible for any new CEO to work with her. De Crespigny said that she was a bottleneck and had a conflict of interest with her Mainpoint responsibilities, and that all of the senior executives thought she was a bitch. De Crespigny said that the Board wanted her out of the company by Christmas. According to Sent he then said, "Do you mean fire her?" and de Crespigny replied "By December she is no longer with the company. I want her out of the building" (or "out of the door") "straightaway; she can stay until Christmas doing special duties like organising the directors' education seminar." Sent testified that he said that he could not believe that decision and that Sandi had worked for him for eighteen years. Sent testified that de Crespigny made it absolutely clear to him that the appointment of the Acting CEO and removal of Porter were non-negotiable. Sent testified, although only in cross-examination, that de Crespigny told him that all Mainpoint's files and records had to be removed immediately from Primelife's offices.

110 Sent testified that de Crespigny then said that Sent's employment agreement and the Point Cook agreement needed to be signed, and the terms of the variation to the Mainpoint loan finalised, and Sent said that this would not be a problem.

111 De Crespigny's version of the conversation was that he conveyed the Board's view that Porter was a log jam and needed to perform other roles for Primelife and that Sent would need to discuss with her what roles each of them was to play going into the future and report back to him. De Crespigny testified that they went on to discuss who could fulfil the position of Acting CEO and that he believed that Sent was the one who suggested one Cobbledick[31] as well as another candidate. Panaccio, in his evidence, agreed that they discussed Sent's ongoing role and where Porter would fit in, but principally talked about Sent's role and the need for an appropriate replacement and discussed Cobbledick. Panaccio said that they discussed the difficulty of Porter working with a new CEO because of the close working relationship between her and Sent and that therefore a redesignation of her duties was in order.

112 To the extent that the evidence of Sent on the one hand, and of de Crespigny and Panaccio on the other hand, differs as to the content and flavour of this conversation, I prefer the evidence of Sent. Sent's evidence had the ring of truth and conveyed what de Crespigny most probably said - that conclusion is, I think, supported by the content of de Crespigny's subsequent letter to the directors summarising the effect of their discussion in the private part of the meeting on 16 July 2003.[32]

113 Sent testified that he was shocked and distressed by the decisions conveyed to him by de Crespigny. He was upset because Porter had worked closely with him for a number of years, had worked extremely long hours and had shown considerable dedication to Primelife's affairs. He had always depended on Porter greatly in the discharge of his duties as CEO and Managing Director and was of the view that his effectiveness would be compromised by the decision that the Board had made. Sent said that he was of the view that what de Crespigny had told him had placed him in an extremely difficult position, not only in relation to the loss of the services of Porter (on whom he had always depended) but also in that the appointment of an Acting CEO reporting to de Crespigny and not to him would deprive him of his functions as CEO and, in effect, Managing Director. The Acting CEO, responsible for the day to day management of the business, was to report to de Crespigny and he (Sent) was being sidelined. Sent testified that he considered this to be a "breach of my employment". He was now to become Managing Director in name only.

114 Sent further testified, in substance, that his dismay was heightened by the fact that he was a major shareholder of Primelife "owning" about 30% of its shares (through Mainpoint Enterprises). Further, although the Albany Bay transaction had been approved at the shareholder meeting on 16 July 2003, the transaction was still subject to due diligence which was due to be completed by the Friday of that week and de Crespigny had said that the resolution of these issues (i.e. Porter and the Acting CEO) was required. Sent testified that he believed that there was a risk, therefore, if the said issues were not resolved, that the Albany Bay transaction would "fall over" with disastrous consequences for Primelife's share price. In addition, Mainpoint Enterprises had borrowed substantial funds and on-lent them to Primelife with security for Mainpoint Enterprises' loan having been given by it over its shares in Primelife and over other assets of Mainpoint Enterprises. Sent testified that Mainpoint's financial position was therefore at risk, he believed, if de Crespigny's requirements were not met.

115 At about 6 - 7 pm on the same day, Sent met with Porter. The evidence of Sent and Porter concerning this meeting, which I accept, was in substance as follows. Sent said to Porter that they had better have a drink because what he was about to tell her was unbelievable and that Porter poured them both a glass of wine. Sent told Porter that "they want you to go" and "they want you to leave". Sent said to Porter that in their absence the Board had decided to appoint an Acting CEO and that de Crespigny wanted Sent to report directly to de Crespigny and that the CEO was also to report separately to de Crespigny. Sent then said to Porter that she was being removed and that de Crespigny had said that she was a bottleneck, was not respected by the senior executives and had an unacceptable conflict of interest. Sent also said that the Board were of the view that it would be too difficult for her to work with the new Acting CEO because of her long history with Sent. Sent said to Porter that she had to be out of the company by Christmas, in other words fired. Sent told Porter that she would be asked to do some tasks until Christmas relating to directors' education but would be working from outside the office. Porter burst into tears. Sent tried to placate Porter saying that he thought it was a terrible decision and he could not understand why the Board had made it and that it would be impossible for him to run the company without her. Porter told Sent that she would get legal advice and the meeting ended.

116 After the meeting with Sent, Porter decided to watch the recording of the 16 July board meeting. Porter testified that she watched only the section where she and Sent were absent and she made handwritten notes.[33] She further testified that, when she had finished listening, she "saved that section of the meeting onto another file on the hard disk of the computer on which the video surveillance was running" (and also another part of the board meeting). Porter accepted that she had saved the recordings of the board meeting at 9.26 pm and 9.27 pm[34] and left the Primelife offices at about 10.15 pm. Porter went on to testify that she did not tell Sent about the recording. However, in cross-examination, Porter accepted that she could have called Sent on his mobile telephone at 10.15 pm that evening (and left a message) and, further, that Sent "may have" telephoned from his home telephone to her mobile telephone at 5.06 am on 17 July 2003 and spoken to her for a period of 47 minutes and 35 seconds. Sent confirmed that he had a telephone conversation with Porter at this time and that Porter wanted him not to proceed with the deal (i.e. the deal with Albany Bay) and he said that he couldn't stop it. Although Porter accepted that she "may have" spoken to Sent at that time for that duration, she denied telling him that she had watched a video recording of any part of the board meeting. She testified that that was not a topic she discussed with him in any way. When pressed and on being told that there was a record of the making and duration of this early morning telephone call, Porter accepted that it must have happened, but maintained that they discussed "the consequences of the board meeting, but we didn't discuss the tape", and she further maintained that she did not tell Sent that she had taken notes or tell him of their contents. She said that they talked about her termination, they were both extremely distressed, that she said she would get advice and, other than that, she could not remember precisely what they discussed - but possibly there were other general business matters as she was due to go overseas that day.

117 Porter testified that the process for creating a permanent video record was to identify the section of video that you wanted to save, clip it out and paste it into a new file that was saved on the hard disk of the surveillance computer. Porter testified that she could not recall saving on 16 July any other meeting and she doubted that she had done so. Porter further testified that she later arranged for 7the supplier to take away this computer but arranged for a copy to be made "of any clip that had been separately saved (which included the section of the meeting of the 16th July and also some other meetings or incidents which I had earlier determined needed to be saved) but otherwise to erase all the other material". Porter agreed that she did that knowing that she had been directed not to videotape board meetings and knowing that the Board had been concerned to have a private conversation in her absence.

118 On 17 July 2003 Porter travelled overseas for a few days for private reasons.

119 On 17 July 2003 de Crespigny sent an email to the directors, including Sent, as follows:

"Dear Colleagues,

As arranged, I met with Ted last night and he asked that Lou join us. We talked through the issues in what I believe was a very open and frank manner. Ted is reflecting on the proposal in its totality and is aiming to speak to me today.

Hopefully we can get all of these issues tidied up and finalised immediately."

120 Also on 17 July 2003 the Sent agreement was signed as was the Point Cook option and the Mainpoint Loan Variation Agreement. De Crespigny was one of the signatories.

121 On 18 July 2003 there was a meeting between Sent and de Crespigny at Medina Treasury in Adelaide. Among other things, Sent told de Crespigny that Porter was not happy about the change in her role. It was common ground that Sent did not tell de Crespigny that he had terminated Porter's employment but it is clear enough that at this stage he had not done so - he had simply informed Porter of the Board's intentions. Accordingly, Sent testified, and I accept, that he told de Crespigny that he had followed his instruction that Porter had to be "lined up" to be out of Primelife at least by Christmas.

122 On 22 July 2003, there was a meeting between Sent, de Crespigny and Walker at Walker's office. Sent testified that, during the meeting, de Crespigny asked him what was happening with Porter and Sent replied that she was seeking legal advice. De Crespigny said to Sent that the law would be honoured and said that he (Sent) had to line Porter up to be gone in six months time and in the meantime she could spend time on directors' education and other duties working outside the building. De Crespigny's version of this meeting is that Sent did not say that he had terminated Porter's employment but did say that she might be prepared to move to Mainpoint if she was given sufficient remuneration. Walker also testified that Sent did not say that he had terminated Porter's employment. Sent testified that he tried to persuade them to leave Porter in her job and denied that he had not told them that her employment had been terminated. These accounts of the meeting are substantially consistent save as to whether Sent mentioned that he had terminated Porter's employment - as in my opinion he had not as yet terminated her employment I am satisfied that there was no reason for him to say that he had.

123 On 22 July 2003, having returned from overseas the previous day, Porter sought legal advice. After the meeting with de Crespigny and Walker, Sent received a long memorandum from Porter which he read and which relevantly stated (after omitting many of her comments about the business and recent developments):

"Dear Ted,

You have advised me that the Board has instructed you to terminate my employment with Primelife and that needs to be arranged as quickly as possible. You have advised me that the Board is of the view that I will be unable to work effectively in the assimilation of a new CEO when that person is appointed and that I have a conflict of interest due to my involvement as a director of Mainpoint.

To say that my reaction is one of shock and disbelief would be an understatement ... I can only assume that the directive has been initiated by the Chairman and Deputy Chairman, despite your advice that you believe all of the directors had been involved in this decision.

...

We have worked together to build Primelife since taking an interest in the company in 1992. Mainpoint was Primelife for many years ... In 1998 ... Mainpoint and Primelife agreed that I would work full time for Primelife ... In July 2001 ... I moved on to Primelife's payroll. I remained a director of Mainpoint for convenience only ...

Before Robert and Ron joined us, the directors all understood and accepted that position. They know that I work 80+ hours a week - and 99% of that time on Primelife.

...

Anyone who's had anything to do with Primelife over the past 10 years knows that you and I work as a team - and that our respective skills complement those of the other. It is this combined approach that has enabled the company to achieve the success it has ... It is unreasonable for someone to expect that a person with your entrepreneurial flair, marketing creativity and vision will have the patience (and in our case, the time) to handle the level of detail needed to bring those great ideas to fruition. ... You are not a person who drills down into the detail of the business - it's been my job to do that on your behalf. Without my analysis and probing into the accounting, legal, operations, investor reporting, marketing and everything else, huge mistakes would have been made. ...

Having said all that, I realise that you have no choice but to carry out the instructions you have been given. You have asked whether I would be prepared to work with the company over the coming months to facilitate an orderly handover of the work and to assist with the directors' education. Clearly that would be in Primelife's best interests, so I will agree, on certain terms and conditions, namely that:

1. the company pay out the balance of my contract in cash, effective immediately;

2. I work as a consultant to perform the tasks you require of me, at the rate of $100 per hour exclusive of GST;

3. the tasks I am to perform are negotiated and agreed upon within 7 days;

4. I continue to have the use of the equipment and office space currently allocated to me until the work is completed; and

5. the terms of this agreement be immediately documented and signed off by the Board.

I assume you will need to discuss this with the directors and will await your advice.

Regards

Sandi"

124 Porter said that the sentence commencing "I can only assume" was worded in that way because she did not wish to alert Sent to the fact that she had taped the private part of the meeting.

125 Sent did not reply to Porter's memorandum, nor did he provide a copy, or convey its contents, to any other director. According to Sent, the reference in Porter's memorandum to her employment contract led him to ask her for a copy of her contract which she gave him shortly thereafter.

126 De Crespigny travelled overseas on 22 July 2003, returning on 4 August 2003.

127 On Sunday 27 July 2003 Porter and Sent had a breakfast meeting at the Epicure Café in Kew. The expense claim form in Sent's handwriting refers to "Sandi/Ted employment discussions". Porter testified that she had a Sunday morning breakfast meeting with Sent almost every week to generally discuss matters of business that they did not get a chance to discuss during the week.

128 In late July 2003 there was a meeting between Sent and Walker[35]. Sent testified that he told Walker that Porter wanted to be paid out in cash, effective immediately, and that her contract had three years to run, and that Walker said that it would cost the company a large sum to pay her out. Sent testified that "probably at this meeting or at some other occasion" he gave Walker a copy of Porter's employment contract. On the other hand, Walker testified that he did not see the employment contract and he was not told that Sent had terminated Porter's employment. Sent could not recall that he had signed Porter's employment contract and he said that he had never read it but Flood and/or Porter would have told him that it was a five year contract (he could not recall when he was told).

August 2003

129 On Saturday 2 August 2003 Porter met with Sent and his wife and discussed employment related matters.

130 On 4 August 2003 de Crespigny returned from overseas. Sent sent an email to de Crespigny attaching a proposed agenda for a teleconference on 6 August 2003 - one item in his proposed agenda was "Role of Deputy CEO". On 5 August 2003 Walker emailed de Crespigny containing agenda with the reference "Discuss role of Sandi and her ongoing position".

131 Sent testified that he spoke to de Crespigny on 5 August 2003 and that de Crespigny said that he had not been aware of Porter's contract and that no contract had been provided in the due diligence. De Crespigny asked Sent when Porter's contract had been signed and why it had not been disclosed and Sent replied that he did not know but would try and find out.

132 On 6 August 2003 Porter wrote a letter to de Crespigny headed "Termination of Employment" and copied to the other directors of Primelife which read, inter alia, as follows:

"On 16 July last, Ted advised me that my employment with Primelife is to be terminated upon the instruction of the board of directors, on the grounds that (a) I have a conflict of interest due to my involvement with Mainpoint and (b) in view of my long association with Mr Sent, the board considers it unlikely that I would be able to work with an incoming CEO.

...

At Ted's request, I provided him with a copy of my service agreement which I understand he also passed on to Ron. Subsequent to Ted conveying the board's directions to me, I sought legal advice with regards to the terms of my employment before considering my response.

[The letter goes on to debate the merits of the Board's decision]

As a committed, passionate Primelife employee I would ask you to reconsider your decision in light of the above comments. However, if you are unwilling to do so and my termination is to proceed as you have instructed, I hope that we can reach an amicable resolution to the arrangements for my departure. A public argument between the company and me would not be in the best interests of Primelife, but I will have no hesitation in taking action to defend my behaviour, my performance or my rights should that become necessary.

My contract with Primelife has another 3 years to run. I would expect the company to honour it's (sic) obligations under that agreement and pay out my full entitlements upon departure.

[The letter then refers to some outstanding matters that might be appropriate for her to deal with]

Having given this lengthy consideration, I would be prepared to enter into an agreement that provides for an orderly exit and allows these outstanding matters to be properly dealt with.

[The letter concludes by referring to more details of this alternative agreement that might be negotiated]"

133 On 7 August 2003 Sent met with de Crespigny and Walker at Primelife's offices[36]. Sent testified that the substance of the discussions at this meeting, insofar as they related to Porter, was to the following effect. De Crespigny said that he had received Porter's letter and would not speak to her unless she agreed to withdraw her letter. He said that she had made a threat and that he did not take kindly to threats. De Crespigny said that he had not told him (Sent) to terminate her employment but just reorganise her role so that she was moved out of the building straight away and to arrange for her to do some special duties until Christmas. Sent testified that he replied that that was not the case and that de Crespigny had told him to tell Porter that her employment had been terminated. Sent testified, and I accept, that de Crespigny responded that he wanted the Porter situation resolved quickly because he wished to have the new Acting CEO start by the end of the month, so Porter had to be out of the building and her current role by then.

134 On 8 August 2003, Sent told Porter that de Crespigny would not speak to her unless she agreed to withdraw her letter, because it threatened legal action. Porter said that she was not minded to withdraw her letter and would seek further legal advice. Sent testified that he then said (although this statement was probably made later) that Cobbledick was due to start at the end of August 2003 and, in effect, her position had to be sorted out and, if not, she would have to leave before Cobbledick was due to start and that he (Sent) would have to formally write to her confirming the termination of her employment (and that she would have to type up a letter along the lines that Sent then mentioned). Porter agreed to prepare such a letter for Sent to sign.

135 On Sunday 10 August 2003 Porter and Sent had their regular breakfast meeting.

136 On 11 August 2003 Walker had a meeting at his office with Cobbledick.

137 Later on 11 August 2003 there was a meeting between Walker and Sent. Sent told Walker of the impasse between Porter and de Crespigny and that de Crespigny had told him to make sure that Porter was out of the building before Cobbledick started and doing special duties until Christmas. Walker said, according to Sent, "If that's not sacking someone, I don't know what is".

138 Porter testified that on about 11 or 12 August 2003 she commenced packing up her office and that "[w]hilst I had a great deal of Primelife company property in my office and in the filing system I maintained ... I also had a great number of records which were the property of Mainpoint; some but by no means all of which related to transactions between Mainpoint and Primelife".

139 I am satisfied that by about 11 August 2003 Sent had orally terminated Porter's employment, such termination to take effect on or about 22 August 2003 and that Porter was making arrangements for her departure. I am further satisfied, on the evidence, that Porter was aware that de Crespigny was contending that Sent should not have terminated her employment or had not been instructed to do so[37].

140 On 12 August 2003 de Crespigny gave Sent, Walker and McGregor a draft letter he proposed to send to Cobbledick setting out the terms upon which Cobbledick was to be appointed Acting CEO commencing 25 August 2003.

141 On or about 12 August 2003 Porter telephoned SBA in relation to obtaining advice on her employment rights. On that day or shortly thereafter a solicitor from that firm (probably Landau) held a conference with Porter and Sent. There were subsequent telephone calls between SBA and Porter and SBA and Sent. Subsequently there was a conference between Porter, Sent and Appel of SBA at SBA's office. An invoice from SBA headed "Sandi Porter - employment matters" and covering the period 12 August to 25 August 2003 refers to the above and to a number of other matters including the obtaining of counsel's advice and organising representation by another firm, namely S&C (Joseph).

142 On or about 12 August 2003 Porter organised the purchase for Mainpoint of two new laptop computers. At about the same time Porter arranged for all files on her Primelife laptop computer to be deleted. Porter testified, and I accept, that the deleted material was all material that, in the ordinary course of business, would have been and had been backed up onto Primelife's server.

143 At some time or times between 11 and 16 August 2003, Sent instructed Porter to prepare a draft of a letter confirming the termination of Porter's employment, which she did, the letter being ultimately signed by Sent and backdated, on Sent's instructions, to 8 August 2003. Sent had told Porter at some time in this period that her draft letter should be backdated to 8 August and other consequential changes made. The letter read as follows:

"This letter confirms our discussion on the evening of Wednesday 16 July 2003.

Your employment with Primelife has been terminated following a decision of the board taken that day, subject only to you and I reaching agreement on your date of departure. Upon instructing me to convey this directive to you, the Chairman stated that the reasons for the board's decision were that you have a conflict of interest due to your connection with Mainpoint and that the directors consider that you will be unable to work with a new CEO because of our long association.

You have not yet informed me of the date of your departure and the company cannot allow this situation to continue. Accordingly, your termination will become effective on Friday 22 August 2003. These next two weeks will be difficult for you and I will try to give you what assistance I can while you tidy up and hand over your files.

I very much regret that the board has taken this action and you know that I do not agree with their decision. Your dedication to Primelife has been outstanding, and nothing I can say will adequately describe the support you have given to me and the other members of the team. There is no doubt you will be missed by all of us."

144 On 13 August 2003 Porter emailed various Primelife employees advising that "Primelife will no longer be able to work on the Point Cook file on Mainpoint's behalf".

145 On 13 August 2003 de Crespigny faxed a letter of the same date to Sent suggesting changes to an agenda previously forwarded to him by Sent and attaching a draft letter to Cobbledick. The attached draft letter summarised previous discussions with Cobbledick and dealt with his proposed appointment as Acting CEO of Primelife for a period of six months commencing on 25 August 2003. Sent replied by way of a faxed memorandum[38] of the same date to de Crespigny and Walker, attaching a revised agenda (containing a reference to "Sandi Porter's role") and stating:

"I note the draft letter of appointment of Gary Cobbledick and have a few points for you to consider:

1. My position with the company is CEO and Managing Director. It is therefore not appropriate for Gary to be called "Acting CEO" or for me to be only referred to as "Managing Director". You may wish to give him the title of Deputy CEO or COO.

2. It does not send the right message to him or to the market for Gary to be accountable directly to the board. I will need to train him and mentor him. He should therefore be accountable to me as well as to the board and I should be a part of all reviews."

146 On 13 August 2003 Flood saw a number of packed boxes in the area outside Sent and Porter's rooms. According to Sent, Flood asked him what was happening with Porter, saying that it looked to him like she was packing up and leaving and Sent told Flood that Porter's employment had been terminated. According to Flood, Sent did not tell him that Porter's employment had been terminated[39] but simply told him to ask Porter about the boxes.

147 Flood then went to Porter's office and she told him that she was packing personal documents and Mainpoint's records and that Sent had told her that de Crespigny had so instructed. Flood told Porter that he thought he should inspect the documents and Porter said "if you want to" - at that time the boxes were already packed and they were stacked in the foyer outside her office. Porter testified, and there is no evidence to the contrary, that the records belonged to Mainpoint and that a subsequent inspection showed that at worst there were documents to which Mainpoint and Primelife were jointly entitled. Porter told Flood that some of the documents were joint Mainpoint/Primelife documents or relevant to the business of both companies and that a copy could be made for each company. According to Porter she told Flood that the boxes were to be shifted the following day and Flood said that he did not have time to inspect them that afternoon or that evening and agreed that she would take them to her house and leave them taped up and he could inspect them there whenever he was ready. Sent saw Flood talking to Porter in her office and went in. According to Sent, Porter then said to Sent, in Flood's presence, that the boxes were ready to go, and Flood said that he would inspect the records at Porter's home as he was unable to inspect them immediately. According to Flood there was no mention of inspecting the records at Porter's home at this stage and he was not told that the boxes were about to be removed. Flood testified that it was only several days later, after he had discovered that the boxes had gone, that Porter (in the presence of Sent) offered to make them available for inspection at her home.

148 On 14 August 2003 Sent, de Crespigny and Walker had a meeting in Walker's office. Sent told them that Porter was finishing up on 22 August and that no agreement had been reached about special duties for her to perform. De Crespigny told Sent that he had to supervise Porter's departure and make sure that any records removed by Porter were inspected before they were removed. At this meeting, Walker said that if Porter was leaving it was Sent's fault and he would be held responsible for it.

149 Sent testified that at about 4 pm that day he told Porter of de Crespigny's instructions, but Porter said that the records had been taken away at about 11 am that day, but that she had agreed with Flood that he would later inspect them.

150 Early on Monday 18 August 2003, de Crespigny forwarded an email to Sent about a number of matters to be discussed in a meeting on the coming Wednesday and, in that email, he said:

"I would also remind you that I need to send Gary Cobbledick's letter to him today. You undertook to telephone me today with any comments you might have on that letter.

Gary telephoned me over the weekend and we discussed a number of issues. I raised with him the matter that you and I discussed, i.e. that he might be the Acting Deputy Chief Executive Officer now that Sandi has left. I worked through the logic with him but also advised that I was conscious we had already offered him the position of Acting Chief Executive Officer. He has promised to reflect on it but, as I said to you, I do not believe it is something that I could forcibly change. I wanted you to know that I had raised the issue." (emphasis added)

151 In a memorandum of the same day addressed to de Crespigny and Walker, Sent said that he had been giving further thought to Cobbledick's title and responsibilities and pointed out that there were no board minutes recording a decision to appoint an Acting CEO. The memorandum said that, on reflection, Sent believed that it was wrong that Cobbledick should be called Acting CEO and that he should be given the title of COO or, alternatively, with Porter's departure, the title of Deputy CEO and that if he was to mentor and train Cobbledick he had to be accountable to Sent as well as the Board.

152 On 18 August 2003 Porter wrote to Sent in a letter marked "Without Prejudice", in relation to her termination, proposing a "settlement" with a later departure date of Friday 12 September 2003 and a payment of $450,000 by way of compromise of her contractual entitlements. De Crespigny testified that he received a copy of this letter.

153 On 21 August 2003 de Crespigny faxed a letter of that date to Sent, enclosing a copy of a letter to Cobbledick. The attached letter to Cobbledick appointed him as Acting CEO for a period of six months commencing 25 August 2003. The letter said that he was to report directly to the Board and that Sent was to remain as Managing Director and would report separately to the Board. De Crespigny sent a copy of this fax and attached letter to Walker.

154 On 21 August 2003 de Crespigny sent an email to all board members attaching a memorandum headed "Update since Board Meeting" which relevantly read as follows:

"...

I wanted to update you on progress on the rearrangement of our senior management.

You will recall, at that Board Meeting, we resolved to appoint an Acting Chief Executive Officer to report directly to the Board and to look after the Primelife operations, finance and commercial matters. The person would be someone who Ted was both comfortable with and believed he could work with. It was also resolved that Ted should be the Managing Director and be responsible for strategy, project acquisition and disposal and ensuring that the Primelife brand is both protected and developed. Ted would also report directly to us.

Further, we resolved that since Sandi was the "bottleneck" and responsible for so many diverse matters, she should stand down from the position of Deputy Chief Executive Officer and assume a more appropriate position as either an employee or consultant to the business going forwards.

This has been no easy task, but next Monday I believe the following will occur:

1. Ted will assume the position that we have asked. He will continue to report to the Board through me.

2. Gary Cobbledick will assume the position as Acting Chief Executive Officer reporting also to the Board ...

3. I shall meet and speak with Sandi and hope that she will take up the position of Strategic Consultant to work with Ted. I have asked that she carry out her work in an office outside the two Collins Street buildings so as to have a proper separation of responsibilities ..."

155 Also on 21 August 2003 Porter instructed Kiandra to destroy all disks in their possession and uninstall software in their possession.

156 On 22 August 2003 Porter wrote to Sent asserting that her termination was not in accordance with her contract and that Primelife was liable to pay her damages for breach of that contract, and further stating that the offer contained in her letter of 18 August 2003 stood until 5.00 pm on 25 August 2003. Porter departed Primelife's premises at 5.10 pm on 22 August 2003. De Crespigny received a copy of Porter's letter.

157 On 24 August 2003 Sent wrote a letter to de Crespigny (with copies to all other directors) stating that his proposal to appoint Cobbledick as Acting CEO was contrary to Sent's contract with Primelife and that "in the circumstances, you should not proceed with any formal appointment and announcement to the market until you are able to consider my more detailed response".

158 On 25 August 2003 Sent sent a memorandum to all directors expanding upon his letter to de Crespigny of the previous day, reiterating that the appointment of Cobbledick as Acting CEO was in breach of his contract and that the resolutions referred to in de Crespigny's memorandum dated 22 August 2003 did not appear in any board minutes. That day Cobbledick commenced as Acting CEO.

159 On 26 August 2003 Porter's new solicitors, S&C, wrote to Primelife stating that no agreement had been reached about compensation to be paid to Porter arising from Primelife's breach of her employment contract. The letter said that they had instructions to issue legal proceedings and asked whether Primelife had retained solicitors who could accept service.

160 S&C also wrote a letter on behalf of Porter to Primelife dated 26 August 2003 referring to the Primelife board meeting of 16 July 2003. The letter said:[40]

"Ms Porter believes that the discussion by the board in her absence included, as subject matter, her employment contract, and her rights thereunder.

Ms Porter is aware that the proceedings at the meeting were recorded both visually and audibly by video camera.

Ms Porter is aware that the recording remains extant but, if it is to be preserved, it must be detached from the recording system, and safely stored.

Ms Porter hereby requires Primelife to preserve the video recording as aforesaid. Please confirm that this will be done ..."

161 On 26 August 2003 Flood telephoned Rothville of ABL thereby initiating ABL's involvement in the whole matter. Flood explained to Rothville something of the situation that had arisen with Sent, Porter and Primelife and Albany Bay.

162 On 26 August 2003 Primelife announced to the ASX the appointment of Cobbledick as Acting CEO. Also on that date Sent forwarded a memorandum to all staff advising them of Cobbledick's appointment as Acting CEO and informing them that he (Sent) as Managing Director and Cobbledick as Acting CEO would each be reporting directly to the board.

163 On 27 August 2003, according to Porter, she telephoned Sent and told him for the first time that there was a tape of the private part of the board meeting of 16 July 2003. Porter said that she told Sent that the tape would support the instructions that he had given her on 16 July 2003. Porter said that she could not remember whether she showed Sent her notes, but might have read him excerpts from them. Porter added that she thought she had typed her handwritten notes and given a copy to Sent, probably after he was stood down on 29 August 2003. The evidence shows that there were typed notes[41] on the first page of which is a note in Porter's handwriting saying "Copy for TS". On being shown this, Sent accepted that he had received a copy but could not remember when. Sent's attempts, under cross-examination, to recollect what he had seen of Porter's notes and when were unsatisfactory. It cannot be doubted on the evidence that Porter told Sent no later than 27 August 2003 that she had saved the recording of the private part of the 16 July 2003 board meeting and that Porter conveyed to Sent at least the substance of her notes and gave him a copy of the typed version either at that time or shortly thereafter. The only factual issue here, and I do not need to decide it, was when Porter first informed Sent of the existence of a recording and that she had listened to it, although she may well have done so on 17 July 2003 in the early morning telephone conversation.

164 On 27 August 2003 there was a telephone conference between Flood of Primelife and Rothville and Heathcote of ABL. During the course of the conference Flood mentioned, among a number of matters, the RACAL system and the possibility of a criminal offence involving a breach of the Telecommunications (Interceptions) Act having been committed. Flood had a further telephone conversation with Heathcote on 28 August 2003 in which various matters relating to the conduct of Sent and Porter were further discussed.

165 On 28 August 2003 there was a conference at Walker's office between de Crespigny, Walker and Flood of Primelife and Heathcote of ABL. Prior to the conference both Heathcote and Rothville had perused the Sent agreement. De Crespigny testified that he asked ABL to represent Primelife with regard to "the Sandi Porter matter" and also said that it was possible in the next few days they would want to use ABL's services to address difficult issues that they might have regarding Sent.

166 Heathcote's notes of that meeting record:

"1. Sandi Porter's claim - video tape.

2. Ted Sent's future."

167 Most of the matters that were subsequently raised with Sent as being matters of concern to Primelife were raised with ABL at this meeting in a context where advice was clearly being sought as well as topics for investigation being identified. Heathcote's notes also record that as a result of the Sent interview the Board could now decide that it was necessary for there to be a full due diligence for property and business transactions by Primelife involving Sent over the last three to five years. The investigation was to look for any evidence of breach of fiduciary obligations, Corporations law obligations, obligations of due care and diligence and service agreement obligations. If Sent refused to cooperate or answer it would be a breach of his service agreement, and adverse inferences could be drawn. Likewise if Sent gave false or misleading answers it would be a breach of the agreement.

168 By letter dated 29 August 2003 addressed to de Crespigny, ABL wrote to Primelife, inter alia, as follows:

"I refer to our discussions yesterday evening. Enclosed is a draft of a letter to Ted Sent. I have deliberately not referred to the RACAL issue because since meeting last night I have given further thought to how we might better use that information. That is a matter I would like to discuss with you confidentially as soon as convenient.

For your information, the Telecommunications (Interception) Act 1979 (Cth) makes it an offence for anyone to intercept a telephone call (by listening to or recording that call) without the knowledge of the person making the call."

169 The enclosed draft letter from Primelife to Sent was subsequently adopted, with a few amendments, for the purposes of the letter handed by de Crespigny to Sent later that day.[42]

170 Also on 29 August 2003 a board meeting of Primelife was held. De Crespigny told the Board that Sent had purported to terminate Porter's employment. The minutes record, on the topic of Porter's departure, that Walker stated in substance that Porter was not to be dismissed but her duties were simply to be redefined and de Crespigny said that this matter was to be discussed with Sent and the Board at a later date "as the board had never resolved nor planned to terminate her services". I am satisfied that when Sent received a draft of the minutes of this board meeting he wrote against the reported statements by Walker and de Crespigny "not correct listen to tape" and I do not accept his evidence, in cross-examination, that he wrote this note after 30 October 2003.

171 Following the board meeting, at the request of Walker, there was a meeting of the directors of Primelife, other than Sent, held at Walker's office. De Crespigny and Walker outlined to the other directors various matters or "irregularities" that they said they had become aware of that were of great concern to them. These matters were discussed by and amongst the directors present. One matter mentioned was that Sent had terminated Porter without authority. There was also reference to a series of large cash payments being unaccounted for or without any proper records and the directors decided to investigate and determine what those cash payments were about. In that regard, a list or a schedule of some sort was tabled. Another matter mentioned was the removal from the Primelife offices of forty boxes of company property contrary to express instructions given to Sent. Another matter mentioned was Sent's failure to ensure that board meetings were not videotaped. Another matter mentioned was the directors' understanding that board meetings had been recorded on two separate occasions despite the Board having been told that this was not occurring. A further matter mentioned was the taping of the telephone conversations of a number of Primelife executives. A number of other matters were mentioned.

172 De Crespigny and Walker told the directors that they felt that the matters were serious enough to warrant Sent being asked to provide an explanation. De Crespigny and Walker said that it was their advice that the best way of getting Sent's explanation was to appoint an independent party to conduct an investigation and that it was best if, during that period of time, Sent were to stand down. The directors present decided to stand Sent down as Managing Director and CEO pending that investigation. The directors agreed that de Crespigny and Legge should meet Sent and convey that decision to him.

173 De Crespigny and Legge duly spoke to Sent and handed him a letter advising him that he had been stood down, pending the conduct of an independent review. According to Sent, de Crespigny told him that the Board wanted him to step aside for a period of one to two weeks while they investigated a number of matters. De Crespigny said that he (Sent) had fired Porter when all that de Crespigny had asked him to do was give her different duties. Sent said that this was not true and that de Crespigny had asked him to get rid of her. De Crespigny said that Porter had removed records from the company unsupervised contrary to the instructions that he had given to Sent on 14 August. Sent replied that he had gone to another meeting with Walker after receiving that instruction and that by the time he had got back to the office Porter had already removed the records. De Crespigny said that the board meeting of 16 July 2003 had been videotaped contrary to what he had instructed and contrary to what Porter had told him. Sent said that the first that he knew of this was when Porter telephoned him to tell him that her solicitor had sent a letter asking for the tape to be preserved.

174 The letter handed to Sent by de Crespigny relevantly stated:

"I am writing to you as a result of a decision taken by the Primelife Board today as a result of recent events which are of great concern to the Board. Those events include, among other things

1. Your decision to terminate Sandi Porter contrary to the instructions you were given after the Board meeting on 16 July 2003;

2. The events generally surrounding Sandi's departure including the removal of 40 boxes of company property contrary to my express instructions to you that no company property was to be removed from its offices without appropriate supervision;

3. The video/audio recording of the Board meetings and other confidential meetings of directors contrary to my express instructions to you that this was not to occur; and

4. Other matters which have come to the Board's attention since 16 July last.

The Board has decided that having regard to the seriousness of these issues the company should retain solicitors to advise it on these matters. The solicitors will be instructed to conduct an independent review of all relevant matters ... I will advise you of the solicitors to be retained in this matter as soon as that decision has been made.

The Board requires you to give the company's solicitors all reasonable assistance in connection with their review and to provide all information reasonably required by them ... and to meet with them from time to time and to answer questions relating to their review.

The meetings between you and the solicitors shall take place in private at their offices. They may direct that the meetings be tape recorded and in that event you will be provided with a copy of all tapes.

The Board has also decided that in these circumstances it is appropriate that you do not attend at the company's offices and properties until the review has been completed. This direction is effective immediately. Naturally your executive employment agreement ... will remain in full force ..."

175 That evening Flood reported to the rest of the directors as to the steps taken in relation to Sent.

September 2003

176 By letter dated 1 September 2003 addressed to Flood and signed by Rothville, ABL wrote to Primelife under the heading "Executive Employment Issues". In the letter, Rothville said that he would be responsible for the general care and conduct of the matter, together with Heathcote, a partner in their litigation department. Rothville wrote "You have asked us to advise and represent you in relation to Executive Employment issues. Please let us know as soon as possible if we have not correctly summarised the scope of your instructions." The letter went on to deal with costs and enclosed standard terms of engagement.

177 On 4 September 2003 Flood of Primelife met with Heathcote of ABL and obtained advice. Flood took notes of the meeting under the heading "TS Dism" and a variety of issues relating to Sent and investigative and other actions to be taken were discussed.

178 By letter dated 5 September 2003, received by Sent on 8 September 2003, ABL under the signature of Heathcote wrote to Sent advising him that ABL had been "instructed by Primelife Corporation Ltd to conduct a review of various matters relating to the company's business" which were "generally identified in Mr de Crespigny's letter to you dated 29 August 2003". The letter also relevantly stated that:

"We would like to meet with you as soon as conveniently possible to obtain information and to question you in relation to the matters that Mr de Crespigny has adverted to. Those meetings will conducted at our office. The meetings will be tape recorded and you will be provided with a copy of the tapes made. You should bring with you to the meetings all documents that are in your custody or possession that could be relevant to the matters under review.

The meetings will be conducted informally and you will not be required to swear an oath ... however, in accordance with your ... executive employment agreement ... we (and our client) will assume that all answers you give ... will be, to the best of your knowledge, information and belief, true. Therefore ... we and our client will treat your answers as tantamount to answers given 'on oath'.

We have no objection to a legal representative of your choice attending the meetings with you ...

[The letter went on to estimate 5-7 days as the amount of time needed to spend with Sent in questioning him and said that the solicitors had set aside the whole of the week commencing Monday 15 September 2003.]"

179 On 8 September 2003 de Crespigny wrote to Sent advising of Primelife's engagement of ABL to conduct the review.

180 On 10 September 2003 Sent's then solicitors, S&C, wrote an eight page letter to ABL, advising of Sent's intention to provide Primelife with "all reasonable cooperation" and "to observe the terms of his employment contract dated 17 July 2003 in every respect" and that Sent expected Primelife to observe its obligations under the same contract "to act reasonably in the exercise of its rights and powers". S&C also promised to provide a detailed response on Sent's behalf in relation to the three matters raised in the letter of 29 August 2003 and assured ABL that Sent would respond in a timely way to any further enquiries. The letter went on to express the view that ABL had been asked to conduct a critical, detailed and intensive inquiry into Sent's conduct. The solicitors said that they were instructed that Sent had already provided de Crespigny with a full explanation of the specific matters raised but that they would shortly forward a schedule reconfirming those matters. The solicitors expressed the view that matters not yet particularised must be extremely far-ranging given the estimated time of the examination and inquiry and that, upon advice, Sent did not believe that his obligation to provide reasonable cooperation extended to attending ABL's office from five to seven days to spontaneously answer questions about subject matters of which he had no notice. After further criticism of the review process contemplated, the letter concluded that Sent intended to take the advice of Senior Counsel.

181 On 11 September 2003 S&C wrote to ABL enclosing Sent's comments in relation to the three specific matters raised in de Crespigny's letter of 29 August 2003 in substance as follows:

(1) The decision to terminate Porter allegedly contrary to instructions. Sent said that it was not his decision to terminate Porter and he had no interest in doing so unless he had no choice. On 16 July, he was instructed by de Crespigny that Porter's employment should be terminated, that she could continue to work for a few months but that she must leave by Christmas 2003. He informed Porter of the board's decision. On 22 July, at a meeting with de Crespigny, de Crespigny told him to line Porter up to be gone in six months. On de Crespigny's return from overseas and after he had become aware that Porter had a fixed term contract, he then began asserting that he had not instructed Sent to terminate her. On 8 August at a meeting with de Crespigny and Walker, de Crespigny made it clear to Sent that the situation with Porter had to be resolved quickly as de Crespigny intended to have a new Acting CEO start work at the end of the month.

(2) Porter's removal of company property contrary to de Crespigny's instructions to Sent. Sent said that the records removed were not Primelife property but Mainpoint property and on 13 August 2003, to Sent's knowledge, Flood had agreed to inspect them at her home. The instructions of de Crespigny were given to Sent the following day and the records had been removed before he could act on the instructions.

(3) The taping of Board meetings contrary to express instructions. Sent said that the video system was controlled by Porter and that he had no reason to doubt that she had acted on her agreement with de Crespigny on 27 June and her confirmation on 16 July that the recordings had ceased. He first became aware that a recording had been made of the 16 July Board meeting on the afternoon of 27 August when Porter so advised him.

182 On 12 September 2003 de Crespigny sent an email to Heathcote of ABL asking him to forward future correspondence to Flood in the first instance and then stating, inter alia:

"Obviously, [Walker] and I are vitally interested in the work you are doing. I make sure that [Flood] keeps me up to date, at the least, on a daily basis.

We are very keen that you do conduct the review as independently as you believe it can be. As you have quite rightly advised, we are dealing with difficult issues that affect people and it is essential that the company and its officers conduct themselves in a totally appropriate manner. As we have also said, it is essential that both [Sent] and [Porter] are treated in the same way as we would expect to be treated were we in the situation."

183 On 15 September 2003 Heathcote conferred with Holzer.

184 On 15 September 2003 there was a telephone conference between de Crespigny, Heathcote and Flood. Heathcote advised that the original strategy was not possible as Sent would not attend and suggest the new strategy should be to cloak themselves in reasonableness, i.e. that Primelife are reasonable and Sent's refusal was wilful disobedience of the lawful direction of his employer.

185 On 16 September 2003 S&C wrote to ABL following up their previous letters, requesting that the review be conducted without further delay and expressing Sent's willingness to return to performing his functions at Primelife's offices.

186 By a lengthy letter of 18 September 2003, ABL wrote to S&C apologising for the delayed response "because Mr de Crespigny has been interstate and Mr Walker overseas". The letter listed seven additional matters in respect of which ABL wished to question Sent. Only two of those matters are presently relevant, namely: "the purchase, installation and use of the 'RACAL system'" and "the instructions given for and the method of drawing cash cheques, the cashing of those cheques and the disbursement of those monies." The letter then went on to detail the review process envisaged and, in effect, denied that it was unfair or unreasonable. The letter concluded by requesting early advice as to whether Sent was prepared to attend at ABL's office to answer questions in relation to the specified matters and as to the earliest convenient date when that process might begin, and that:

"The matters to be investigated in the review are of importance to Primelife. The Board is very conscious of its duties and obligations and with those in mind has decided that these matters require immediate investigation. It was hoped that Mr Sent would co-operate in that investigation. That co-operation must be genuine."

187 By letter to Primelife dated 19 September 2003, ABL confirmed its retainer to conduct an independent review into a range of matters relating to the employment of Sent.

188 On 23 September 2003 ABL, on behalf of Primelife, briefed Senior Counsel to advise, inter alia, as to whether "in the event that ... Sent refuses to participate, does this refusal amount to misconduct entitling Primelife to summarily dismiss him." On that day, Flood, together with Heathcote and another solicitor from ABL, attended a conference with Senior Counsel, the subject of which was referred to in a subsequent interim account from ABL to Primelife as an attendance in conference regarding strategy for dismissal of Ted Sent. In addition, Flood's notes of the conference are headed "TS Dismissal".

189 By letter dated 25 September 2003 S&C again wrote to ABL. The letter was twelve pages in length and continued the debate between the two firms on a variety of matters relating to the review. The letter reiterated Sent's preference for explanations to be given in writing rather than by attendance at ABL's offices and expressed the view that he should not be required to attend to be interrogated.

190 On 26 September 2003 there was a board meeting of Primelife at which Sent attended. The Board resolved (Sent abstaining) that de Crespigny, Spencer and Panaccio:

"jointly be authorised to give all necessary instructions and directions ... to the company's employees, solicitors and counsel to enable Arnold Bloch Leibler to conduct the independent review in relation to the conduct of ... Sent in his capacity as Chief Executive Officer and Managing Director ... into various matters and on such terms and conditions as [they] consider appropriate ..."

191 The minutes of the meeting dealt with two matters under the heading of S. Porter. The first matter recorded was that de Crespigny advised the meeting that about 63 archived boxes had been returned and inspected and Primelife had copies of all relevant documents and another 20 boxes of accounting records had been removed and taken to another address but these had not been returned. The second matter noted was that "a substantial number of telephones within the organisation were tapped and conversations recorded." Sent testified that in fact de Crespigny had said at the meeting that as many as 65,000 telephone calls made within the company had been recorded without the users' consent and that an investigation was underway. Walker said that this was a criminal matter. In respect of the Point Cook transaction, the minutes record that "Primelife were previously managing the town planning process which was now being done by Mainpoint. Concern was expressed regarding Mainpoint's handling of this process and it was agreed that the town planning process should come back to Primelife."

192 The board meeting of 26 September 2003 was adjourned until further notice.

193 Legge testified that it was at the above board meeting that he learned for the first time of the tapping of telephone conversations of Primelife employees.

194 On 26 September 2003 ABL again wrote to S&C. The letter continued to debate matters relating to the review and called upon Sent to cooperate in the review process by attending at ABL's offices at 10am on Tuesday 7 October 2003 to answer questions in relation to the following topics:

"(a) the instructions given for and the method of drawing cash cheques, the cashing of those cheques and the disbursement of those moneys and the manner in which those payments were treated in the account of Primelife for the period 3 October 2000 to 11 August 2003 (both inclusive).

(b) the instructions given for and the drawing of cheques and the manner in which those payments were treated in the accounts of Primelife relating to cheques made payable to Mediation & Arbitration Pty Ltd.

(c) any agreement, arrangement, understanding or business relationship between Primelife Corporation Limited and Mr Mick Gatto, Arbitration & Mediation Pty Ltd and any other entity associated with Mr Gatto including payments made to any of those persons (either in cash or by cheque) including dates and amounts, how those payments were accounted for by Primelife Corporation Limited and why the procedures adopted were instituted."

195 The letter suggested 7, 8 or 9 October 2003 for a period of three hours and concluded:

"Mr Sent should be aware that if he continues to refuse to participate in the propose review process his employer may treat his refusal as a wilful disobedience of its lawful direction on material maters which by definition constitutes 'misconduct' under Mr Sent's Executive Employment Agreement made on 17 July 2003 and in that event Primelife Corporation Limited reserves the right to treat that conduct as grounds for summary dismissal."

196 On 29 September 2003 de Crespigny sent an email to Flood asking him to "prepare a timetable showing the 'countdown' of what will happen over the next few days leading up to 7 October, when we would like to have a clear definition of where we are going with Ted. As I have said to you, the Board are particularly keen that this whole situation is resolved as quickly as possible and that we can move forwards as a united company." Attached to the email was a proposed letter from de Crespigny to Sent of a critical nature, seeking to pursue questions relating to a number of the matters under investigation. Flood forwarded the email and attached draft letter on to Heathcote asking him to have a look at the attached draft and commenting "it would seem to need your careful editing if it is to be sent to Sent".

197 The letter from de Crespigny to Sent that emerged from this process was dated 30 September 2003 and stated inter alia "I would like to confirm that the Board wants you to attend [ABL's] offices as soon as possible to work through the issues that they have corresponded with you about recently."

October 2003

198 On 1 October 2003 Heathcote emailed Flood advising that if Sent refused to come to ABL to answer questions Primelife would be entitled to treat the refusal as constituting misconduct; whereas if the review started the process would have to be completed before the company could rely upon misconduct to dismiss Sent.

199 On 2 October 2003 there was a conference between de Crespigny, Flood, Panaccio and Spencer of Primelife and Heathcote of ABL and during which, Heathcote advised, inter alia, that he did not think a summary dismissal letter should be prepared at that stage.

200 On 3 October 2003 S&C wrote to ABL stating in substance that although Sent did not regard himself as necessarily bound to cooperate with the review as proposed, he was willing to test it to see if he could establish whether in practice it was selective, discriminatory and unfair, and proposed that the first three hour hearing take place on 17 October 2003 with Sent being accompanied by Senior Counsel.

201 By letter dated 3 October 2003 ABL wrote to S&C enclosing a draft of a proposed announcement to the Australian Stock Exchange relating to the standing aside of Sent and of the independent review. On the same date S&C responded by fax, in substance, challenging the need for an announcement. S&C also faxed a letter of the same date reiterating that Sent was of the view that the review process might not be reasonable and might therefore not be compellable but, in any event, proposing that after Sent had had an opportunity to consult with Senior Counsel the first hearing take place on Friday 17 October 2003 and that Sent ought to provided in advance with copies of any documents about which Primelife wished to question him.

202 On 7 October 2003 Primelife made an announcement to the Stock Exchange to the effect that Sent had been stood aside pending the outcome of an independent review.

203 Also on 7 October 2003, Flood, with Rothville of ABL, attended a conference with Senior Counsel to obtain advice in relation to the termination of Porter's employment. As a result of the advice given by Senior Counsel, Primelife sent a letter to Porter dated 10 October 2003.[43]

204 On 10 October 2003 ABL wrote to S&C confirming that Sent would be in attendance on 17 October 2003 and providing copies of documents.

205 On 14 October 2003 ABL wrote to S&C providing copies of 23 documents in connection with the meeting to be held on 17 October 2003.

206 On 15 October 2003 ABL wrote to S&C proposing arrangements for the continuation of the review after Sent's attendance on the Friday, suggesting that the review be conducted during "Supreme Court sitting hours" and on the 22, 23, 24, 29 and 30 October and 6, 12, 20 and 24 November.

207 On 17 October 2003 Porter received two letters from Primelife, one dated 10 October 2003 and the other dated 16 October 2003. The letter dated 10 October 2003 said in substance that Sent did not have the authority of the Board to terminate Porter's employment and that in all the circumstances the employment had not been terminated by Primelife at all and that the employment continued. The letter said that the Board had nevertheless decided that because of the Sent review it was not appropriate that Porter return to active work or attend Primelife premises but advised that underpayment arising as a result of the cessation of salary payments on 22 August 2003 would be rectified. The letter dated 16 October 2003 advised Porter that those conducting the Sent review would like to question her in respect of a number of matters including the recording of board meetings, the use of the RACAL system and a number of topics relating to Gatto and A&M including the cashing of cheques.

208 On 17 October 2003 Sent attended ABL's offices accompanied by senior counsel (L. Glick QC) and by his solicitor (Joseph of S&C). On arrival they were informed that J. Walker QC was there to question Sent. Sent raised issues concerning the authority of ABL to conduct the review, and also an issue of a perceived conflict of interest in the case of ABL, having regard to Sent's contention that ABL had acted on his behalf in a number of transactions in the early 1970s. The review was adjourned.

209 On 19 October 2003 Sent wrote to Legge, Kemp, McGregor and Panaccio enclosing copies of all correspondence between ABL and S&C (not all of which is referred to above), and expressing concerns that the proposed enquiry was an ambush and that those in control were wanting to get rid of Sent and looking for a basis to do so. The letter expressed Sent's willingness to cooperate with the review provided that it was conducted in a reasonable manner but Sent offered that if each member of the original Board believed that Primelife would be better off without him he would be willing to depart peacefully, provided that it could be done with dignity and on satisfactory terms.

210 On 20 October 2003 de Crespigny wrote to the other directors of Primelife in relation to the RACAL machine, stating that none of the senior managers of Primelife except Porter and possibly Sent were aware of the recordings, that it was a breach of the Telecommunications (Interception) Act 1979 for such conduct to occur and that it was proposed to refer the matter to the Federal Police for investigation. A board meeting was held on that day at which it was resolved to refer the issue of recording of telephone conversations to the Australian Federal Police.

211 On 20 October 2003 there was a board meeting of Primelife by telephone hook-up, reconvening the meeting of 26 September 2003. De Crespigny advised the Board of developments in relation to the review to be conducted by ABL. De Crespigny also advised the Board that he had sent a letter to Porter "reinstating her employment". The Board also resolved to refer the matter of taping/recording of telephone conversations to the Australian Federal Police. The Board resolved to confirm the resolution authorising ABL to conduct an independent review.

212 On 22 October 2003 S&C wrote to ABL expressing surprise that Walker QC had been engaged and observing that his retention and the failure to advise of the prior engagement gave credence to Sent's reservations about the review process and the possibility of ambush. The letter raised two further issues in relation to the alleged conflict of interest, asserting that the 1976 retainer involved "very substantial and sensitive confidential information" and advising as to whether Leibler might attempt to refresh his recollection and secondly expressing a concern in relation to a 2003 retainer accepted by ABL on instruction from Pitcher Partners on behalf of a committee comprising Sent and Porter amongst others. The letter advised that Sent was not presently able to agree that ABL ought to superintend or conduct the process of review and ought to suspend its further involvement until the conflict of interest position had been further reviewed.

213 Also on 22 October 2003 S&C, on behalf of Porter, wrote to ABL responding to Primelife's letters to Porter dated 10 and 16 October 2003, asserting Porter's view that her employment had been terminated and questioning the motives behind the letters.

214 On 23 October 2003 S&C wrote to ABL stating inter alia that Sent did not feel that he should attend their office for the review process until his concerns as previously advised to them were resolved.

215 On 24 October 2003 S&C wrote to ABL advising that Sent would not be in attendance at ABL's offices that morning and that his reasons would be set out in writing and provided to them during the day. A further letter of the same date, comprising nine pages in argumentative terms, inter alia set out those reasons. The letter said that Sent did not dispute that ABL had the authority of the Board of Primelife to conduct the 'review'. The letter noted ABL's position that there existed no conflict of interest precluding them from conducting the 'review' but that "Mr Leibler's opinion is not determinative of that matter." The letter went on to say that Sent remained of the view that Leibler and ABL were in possession of confidential information belonging to him "which is of a quality as must necessarily compromise your firm in the conduct of the proposed 'review'". The letter went on to refer to transactions in which Sent was involved and in relation to which Leibler advised in the 1970s. The letter concluded by advising that Sent had decided that he did not wish to voluntarily attend ABL's offices to answer questions to be put to him by Walker and Heathcote but that he remained willing to answer questions reasonably asked of him by Primelife.

216 On 24 October 2003 ABL wrote to S&C advising that ABL had no conflict of interest and reiterating the request that Sent attend ABL's offices on 29 October 2003. Also on that day Heathcote had a telephone conference with de Crespigny in which it was decided that Heathcote would prepare a report for the Board on 29 October 2003 and draft a letter for de Crespigny to give Sent on 30 October.

217 On 27 October 2003 S&C wrote to ABL requesting advice "on an open basis whether your client maintains that our client has an obligation to your client to do as you asked in paragraph (d) of your letter under reply and the source of that obligation". ABL responded to S&C by letter of the same day, asserting that Primelife did maintain that Sent was so obliged and that the source of the obligation had been stated on more than one occasion.

218 On 27 October 2003 there was a board meeting of Primelife. Sent did not attend due to illness. The minutes record that Sent had again failed to appear at ABL's offices and that Sent's next scheduled meeting with ABL was Wednesday 29 October and that ABL had promised to supply an interim report on the review process on that day. The Board resolved that Flood and Williams were instructed to pursue all outstanding amounts owing by Sent and companies related to him, and that Primelife was to commence the recovery process of any outstanding debts between Sent or his associated companies and Primelife and that Flood was to work with ABL in this matter, and that all interest payments to Mainpoint for outstanding loans were to cease. The board meeting was adjourned until further notice.

219 Flood telephoned Heathcote after the board meeting and said that de Crespigny had advised those in attendance at the meeting that "we are terminating him on Wednesday". De Crespigny admitted in evidence that he could possibly have said this.

220 On 28 October 2003 ABL again wrote to S&C advising that Primelife regarded Sent as being under an obligation to cooperate with the review and that questioning would begin at 10.00 am on 29 October 2003. Also on 28 October 2003 S&C wrote to ABL stating that Sent did not believe that the conflict issue had been resolved and that Sent did not believe he was bound to participate in the review process in all the circumstances and having regard to events occurring on and after 17 October 2003.

221 On 29 October 2003 a further letter from S&C to ABL advised the Sent would not be attending ABL's offices that morning.

222 Also on 29 October 2003 there was a meeting between de Crespigny, Walker and Flood of Primelife and Heathcote of ABL at which it was decided that Heathcote would provide a preliminary report from ABL and give advice on the termination notices but that Heathcote could not prepare the termination letter. Flood was to prepare a termination letter in consultation with Senior Counsel. It was decided that certain matters not be included in the letter but that the refusal to attend the review and the cash payments issues would be raised.

223 On that day S&C wrote to ABL proposing to forward statements to Leibler so that he could refresh his memory in relation to the conflict of interest issue and enabling ABL to review its position.

224 Also on 29 October 2003 Flood faxed to Senior Counsel a draft termination letter for settling. The covering note observed that "Mr Heathcote is naturally not able to advise on the content of this letter as he is currently conducting an independent review into Mr Sent and has provided this afternoon a report setting out his interim findings in relation to Mr Sent."

225 By letter dated 29 October 2003 from ABL to Primelife, ABL advised that in their opinion Sent's failure to attend at their offices to answer questions as part of their review constituted misconduct as defined in Sent's employment agreement. The letter noted that two months had passed during which forty-four letters had been exchanged between Sent's solicitors and ABL and that ABL was satisfied that there was no proper or valid reason for Sent to continue to fail to attend at their offices to answer questions. ABL further expressed the opinion that the directors were entitled to draw an adverse inference against Sent for his failure to answer questions, particularly because for reasons which were set out in their attached preliminary report ("the ABL report" or "the report"), he was the only person who could provide any explanation for a series of payments and transactions which were most unusual in nature and called out for explanation from those involved.

226 The ABL report referred to Primelife's letter to Sent dated 29 August 2003 that informed Sent of the independent review to be conducted by ABL. The ABL report listed the matters causing great concern to the Board as including the use of the RACAL system, the cash payments issues[44] and other matters notice of which was given to Sent's solicitors on 18 September 2003. The report stated that ABL had decided that they first wanted to question Sent in relation to the cash payments issues. The report referred to the results of preliminary inquiries in relation to the cashing of cheques, the existence of some invoices, the absence of any written contract or other document relating to the services to be provided and a number of apparent irregularities appearing from the available documentation. The report referred to the substance of Gatto's evidence at the Royal Commission and summarised evidence obtained from Williams, Holzer and Legge. The report went on to state that there were a number of matters of grave concern about which Primelife must seek to inform itself, including whether any of the cash was used for a service provided by A&M and/or Gatto and, if so, what was the service provided. The report referred to what happened when Sent attended ABL's offices on 17 October 2003 and that ABL had since satisfied itself that there was in fact no substance to the objections raised on behalf of Sent on that date. The report went on to refer to the exchange of numerous letters between Primelife's solicitors and Sent's solicitors and to detail Sent's failure to subsequently attend on appointed dates and concluded, in the light of the foregoing, that "it seems futile to continue to seek ... Sent's cooperation in our review...".

227 Also on 29 October 2003, between 4.58 pm and 5.32 pm, Daniele notified the Primelife directors (including Sent) that the board meeting adjourned on 27 October 2003 would be reconvened the next morning at 8.30 am.

228 About an hour before the board meeting on 30 October 2003 the ABL report was apparently faxed or attempted to be faxed to all directors, including Sent. The board meeting was held at 8.30 am (by telephone). The minutes record that de Crespigny advised the directors that Sent had not met with ABL on Wednesday 29 October 2003 as previously arranged and that ABL had provided its report which was tabled. The minutes further state that ABL had advised that failure by Sent to attend the prearranged meetings, give his full cooperation and answer questions could be defined as misconduct under his executive service contract. Sent indicated that he had not seen the ABL report and further copies were sent to him and to his solicitors.

229 After some discussion, the minutes record that the Board resolved:

"That the employment agreement of Mr Sent as CEO and managing director be terminated immediately following breaches of his Executive Employment Agreement dated 17 July 2003. Those breaches are described in the preliminary ABL report to the board dated 29 October 2003. They include Mr Sent's disobedience of a board direction to co-operate in a review by attending at ABL's offices and answering questions in relation to matters referred to in the Company's letter to Mr Sent of 29 August 2003, ABL's letter to Mr Sent dated 18 September 2003 and ABL's report of 29 October 2003."

230 Sent requested five minutes to address the Board[45] and read out a statement calling upon the directors, before terminating his contract, to first examine and consider all the correspondence between the solicitors, his unresolved complaint that ABL had a conflict and therefore could not superintend any 'review' on behalf of Primelife and the contents of the tape recording of the meeting at ABL on 17 October. Sent reiterated that he was willing to provide all reasonable assistance and information to proper enquiries reasonably made by Primelife. He undertook to issue a proceeding that day in the Supreme Court seeking a ruling as to whether he could be required to attend at ABL as demanded by Primelife.

231 Sent testified that there was also some discussion about matters that were in the ABL report, especially the cash transactions with Gatto that were said not to be substantiated by invoices. De Crespigny said that ABL had written to Gatto the previous day. According to Sent, he told the Board that he did not think there were any invoices missing and that he had called Gatto a few days earlier to tell him that there seemed to be some invoices missing and that Gatto had subsequently provided copies.

232 The minutes of the board meeting record that the directors gave Sent an opportunity to resign rather than be terminated which he declined and then left the meeting. The Board then resolved that his employment agreement be terminated immediately and that he was no longer a director of Primelife.

233 On the same day Primelife wrote to Sent advising of the termination of his employment. The letter stated inter alia:

"The Board resolved to take this action because of breaches by you of your duties as Chief Executive Officer and Managing Director, including breaches of your Executive Employment Agreement dated 17 July 2003. These breaches are described in Arnold Bloch Leibler's report to the Board dated 29 October 2003, of which you have a copy. They include your disobedience of the Board's direction that you should co-operate in a review conducted on behalf of the company by the company's solicitors, Arnold Bloch Leibler, by attending at Arnold Bloch Leibler's offices and answering questions in relation to matters referred to in the company's letter to you of 29 August 2003 and Arnold Bloch Leibler's letter to you of 18 September 2003 and Arnold Bloch Leibler's report of 29 October 2003."

December 2003

234 On 2 December 2003 Sent resigned[46] as a director of the board of Primelife.

235 On 4 December 2003 Primelife served on Mainpoint a call option exercise notice in relation to the Point Cook option. On 5 December 2003 Sent wrote to Flood at Primelife, acknowledging receipt of the call option exercise notice and stating that "[w]e regard your purported exercise of the call option as invalid and ineffective".

2004

236 On 14 October 2004 Primelife commenced the Point Cook proceeding.

237 On 28 October 2004 Primelife submitted a planning application to the Wyndham City Council in relation to the Point Cook property.

238 On 9 November 2004 SBA wrote a letter to Wyndham City Council advising that "Mainpoint, as the registered proprietor of the land, expressly does not consent to and objects to Primelife filing and lodging any application or attempting to deal with the Point Cook land".

239 On 12 November 2004 Mainpoint Developments filed its defence and counterclaim to the Point Cook proceeding. Also on that day there was a telephone conversation between Appel of SBA and a representative of the Wyndham City Council in which the council is said to have confirmed that, as a result of Mainpoint Development's objection, Primelife's town planning application would be held in abeyance. On 15 December 2004 a letter from SBA to the Wyndham City Council was sent reiterating the objection to Wyndham City Council dealing with Primelife's application.

D: VIDEOTAPING OF BOARD MEETINGS

240 Primelife submitted that Porter had wilfully disobeyed three direct instructions from the Board, namely, that the board meeting of 27 June 2003 not be videotaped, that the board meeting of 16 July 2003 not be videotaped and that the videotaping equipment be removed from Primelife's offices. Primelife further submitted that Porter lied to the Board on 27 June 2003 and again on 16 July 2003 in relation to whether the board meeting was then being recorded. Primelife submitted that Sent had failed to ensure that the videotaping of board meetings ceased and that the video recording equipment be removed. Primelife further submitted that Sent had lied to the Board on 27 June 2003 and again on 16 July 2003 in relation to whether the board meeting was then being recorded. Primelife submitted in the alternative that, if Sent did not know that the meetings were then being recorded, his ignorance of the same constituted wilful neglect of duty or gross incompetence. Primelife submitted that the above conduct of the plaintiffs constituted serious misconduct. The plaintiffs submitted that they had not deliberately lied to the Board or deliberately disobeyed its instructions.

241 I am satisfied that when de Crespigny asked whether the board meeting of 27 June 2003 was being taped and recorded[47] and Sent replied "Not now" and Porter replied "No", the answers were false and they each knew that they were false. Further, when de Crespigny repeated the question whether it was happening now and Porter replied "No. We did it selectively" and "that we ... feel need to be ... recorded ... we have done it in the past but it's been a selective process...", the answers were false and they each knew that the answers were false. They were each deliberately lying and acquiescing in each other's lies. They both knew that everything that happened in the boardroom was being continuously videotaped and that the equipment, that is the camera (and the video recorder), was "running" or "rolling". I do not accept that either of them had in mind, as they suggested, a distinction between recording or videotaping the meeting and subsequently keeping or saving such recording before it was overwritten but, even if they did, their answers were still false, or at least seriously misleading, and they knew it.

242 I am further satisfied that, when, during the board meeting of 16 July 2003, de Crespigny said to Walker that the previous board meeting was not being taped[48] and Sent made the comment "They're not taped unless you want it taped", Sent's comment was knowingly false and misleading because he knew that the videotaping was a continuous process and not selective. There was no instruction from the Board at the previous meeting to turn off the tape (presumably because they had been told that the meeting was not being recorded) and there was no instruction from the Board at the previous meeting to remove the recording equipment. There was thus no reason for Sent to believe that Porter had turned off the recording equipment, or had it removed, and there is no evidence that they had any conversation on the subject between the two board meetings.

243 The Board having decided at the 16 July 2003 meeting that meetings should not be taped and that all recording devices should be removed from the building, I am satisfied that Porter did not forget to turn off the equipment but intentionally left it running, thus disobeying the Board's decision. That is to say, even if Porter had formed an intention to turn off the equipment after the 27 June meeting but had forgotten to do so (all of which I doubt), she was present when the relevant discussion occurred at the 16 July meeting, said nothing at the time and intentionally did not, either then or when she subsequently left the boardroom, turn off the equipment.

244 I should add that, when Legge left the meeting and repeated the question about recording the meeting to Porter in Sent's presence, Porter had a further opportunity to tell the truth and to turn off the equipment but she did neither.

245 I would accept that not every deliberately false statement by an executive officer to a board of directors and not every deliberate act of disobedience to the directions of a board would necessarily constitute serious misconduct, but, in the present case, on a matter of obvious importance to the Board and going to the security and confidentiality of its deliberations, the plaintiffs acted deceitfully and, additionally, in Porter's case, disobediently. Their conduct was fundamentally destructive and subversive of the trust which must exist between a company, through its board of directors, and its chief executive officers and demonstrates that their loyalty and cooperation as employees could not be relied upon. I am therefore satisfied that the said conduct of Sent and Porter constituted serious misconduct.

E: CASH PAYMENTS TO GATTO AND A&M

246 In short, Primelife submitted that Sent's misconduct under this heading consisted of receiving cash from Primelife for which Sent failed to properly account and purportedly paying such cash to Gatto or A&M. Primelife submitted that Porter's misconduct under this heading consisted of facilitating the provision to Sent of cash from Primelife for which Sent had failed properly to account.

Relevant facts

247 The evidence shows that in or about October 2000 certain payments commenced to be made by Sent from Primelife's funds. There were in the end a total of 82 cheques, 66 made payable to cash and 16 made payable to A&M, with a total value of $234,650. There was extensive cross-examination as to the circumstances surrounding the drawing of these cheques, and many lists and tables were put in evidence, but the precise details seem to me to be substantially immaterial other than to establish the general course of conduct.

Gatto's "general retainer"

248 Sent testified that, in the year 2000 (it would seem, on the evidence, in or about October 2000), he was told by a number of developer acquaintances that Gatto had expertise in dealing effectively with building unions, that he telephoned Gatto and that he "introduced myself to him".[49] Sent told Gatto that he wished to engage him (or his company A&M)[50] to assist Primelife with its negotiations and relationships with the construction unions. At Gatto's invitation, Sent met him at a restaurant and he offered Gatto "a watching brief asking him to monitor the company's construction sites and try to identify and resolve any issues before they escalated into disputes" that might disrupt construction on any of Primelife's projects. Gatto said that "he would keep his ear close to the ground and deal with any threats to the company including finding out and letting Sent know if any site employees were stealing from the company". According to Sent, Gatto said that the payments to him had to be made in cash. Sent said to Gatto that he would need invoices or receipts for Primelife's records and Gatto said that he would provide those on payment. Sent said to Gatto that he would pay him $1500 per month as a retainer. Gatto said that "he did not get out of bed for $1500". Sent asked him to nominate his best price and he responded "$6000 per month". According to Sent, after further negotiation, they agreed on a monthly retainer of $4000 which would apply "for the year" and then be the subject of review. Gatto said that in addition to his monthly retainer, Sent would have to pay him additional amounts for specific problems that occurred from time to time and that tasks such as negotiating site allowances or lifting black bans would be the subject of a separate fee to be negotiated.

249 Sent testified, vaguely, that he informed Legge of his intention to enter into an arrangement with an industrial consultant (although he did not mention A&M or Gatto). According to Sent, he told Legge that cash payments would be required but that invoices would be provided and Legge said something to the effect that it did not matter as long as there were receipts. I am unable to accept this evidence or that Sent had any conversation of this kind with Legge at or about the time when Sent first entered into the initial arrangement with Gatto. I am satisfied that Sent did have a conversation, at a later time, with Legge about cash payments to an unnamed industrial consultant in the circumstances referred to later below.[51] However I should say at once that having seen and heard Legge give evidence I am satisfied that he did not and would not have said to Sent that it did not matter if Sent made cash payments without invoices as long as there were receipts.

250 Sent described the mode of payment to Gatto. In the first week of each month he would pay in exchange for an invoice. This normally happened at a restaurant where a number of people were lunching with Gatto and he was invited to come. Prior to each luncheon appointment he would ask Porter to organise cash for the payment. In some cases he signed cheques for cash and on some occasions others signed cheques for cash and he would later be provided with the resulting cash by Porter or someone else in an unmarked envelope. At some stage during the lunch with Gatto they would meet away from the table and Sent would hand him the cash or cheque and receive the invoice. Sent testified that Gatto handed him an invoice when he gave him the cash payment "on every occasion". Sent said that after returning from the meeting he handed the invoice either to Porter or to someone else in order that it be forwarded to Primelife's accounts department. Porter, in her evidence, confirmed that Sent on some occasions gave the invoices to her and that on other occasions she saw him give invoices to his personal assistant or to other members of staff.

251 Gatto testified that, through his company A&M, he provided services to a lot of builders who paid him a retainer to look after their union problems and to avoid union hostilities - he was a sort of middleman or buffer. He said that Sent asked him "to be his eyes and ears as far as Primelife is concerned" and he (Gatto) asked to be paid in cash. In cross-examination Gatto said the initial brief was to be the eyes and ears: "I want you to look after my company. Anything you hear that is detrimental to Primelife or me or the building, whatever, I want you to report back to me." Gatto then added "or anything to do with Sent". He then said that there was no specific mention of building or construction projects at the outset, but not long afterwards they were mentioned. Gatto said that building matters were raised when the figures went to $6600. Then he changed his evidence and said that it was "from day one" to do with building, but that he did not "get his teeth into it" until later because there was not much happening.

252 On or about 3 October 2000 Porter asked Holzer to cash a cheque in the amount of $4000 drawn on the account of Williamstown Range, a subsidiary of Primelife. Porter did not tell Holzer what the cash was for - but did tell her not to go to the next door NAB branch (on the corner of William and Collins Streets), rather to go to some other branch of the NAB. Holzer returned with the cash, placed it in a Primelife envelope and handed it to Porter. Porter told her not to put the cash in a Primelife envelope but in a plain unmarked envelope. After this occasion many similar transactions occurred at the instance of Williams or Porter in which Holzer similarly participated.

253 From about late 2000 Porter also began approaching Daniele from time to time and asking him to prepare cheques that were payable to cash. At first she told him that Sent needed the money but did not say why. The cheques were initially drawn on the account of Williamstown Range. Porter said that an invoice would be provided later. Daniele either prepared the cheque or instructed one of the employees in the accounts department to do so. On some occasions Porter instructed Daniele to cash the cheque and give her the cash, which he did.

254 Daniele testified that he was responsible for overseeing the Primelife accounts section from October 2000 until early 2001. About twenty people worked in that section during that period. There were a lot of transactions and many hundreds of invoices per week. About half a dozen staff members were involved in invoice processing.

255 Daniele testified that it was Primelife's usual procedure when it purchased goods or services from a third party to obtain an invoice before it paid for those goods or services and if a consultant of some sort was engaged it was usual for the consultant to provide time sheets.

256 Daniele described the process involved with the A&M invoices: when the cheque was raised without an invoice, data would be keyed in at that date and subsequently the invoice would be attached behind any voucher or remittance advice. The code for the payment might be decided on instructions from Williams or Porter - the code could be altered at any time such as when the invoice came in or when the accountants later looked at the matter. Daniele saw a number of the invoices and was familiar with the name A&M.

257 Daniele testified as to a number of cheques in 2000 that he prepared or arranged to be prepared. He testified that on 10 January 2001 Porter asked him to arrange for a cash cheque payable to A&M. He did not know of the company or what it did and there was no invoice. Daniele testified that there were other cheques in 2001 also drawn on the account of Williamstown Range. The payments were ultimately recorded as "Consultant - other". In May 2001 he organised a cash cheque to be drawn on the account of Primelife but the payment was said to be for the benefit of Williamstown Range. In June 2001 he organised a cash cheque in respect of mediation and arbitration. He was not involved with a number of subsequent cheques. Then in August 2001 he organised a cash cheque on Primelife's account - still entered as being for the benefit of Williamstown Range.

258 Daniele testified that on 8 November 2001 Williams asked him to co-sign four cash cheques totalling $6000 that Porter had requested.

259 Daniele later co-signed some other cheques when Williams or some other signatory was not available.

260 Williams testified that in late 2001 Porter asked him to come to her office. Porter told him that Sent had a relationship or an understanding with a consultant who had influence in the building industry and required payment for his services and advice. She said that Primelife was required to pay cash of about $6000 to this consultant and instructed him to draw a cash cheque in that amount. Williams believed that this was the first time that this had occurred and therefore did not take any steps to ascertain whether there had been any previous cash payments. When Williams told Porter that he would require an invoice she said that payment was to come first and an invoice would follow later. This was contrary to the usual practice in the accounts department whereby cheques were drawn to specific payees on the basis of a purchase order, invoice or cheque requisition form. Williams said to Porter that this was a highly unusual arrangement and she replied in substance that this was Ted's way of doing business and he believed it was money well spent to support the building and construction program that they were facing as a company in the next few years. Williams testified that in his career as a chartered accountant this was the first time he had been asked to draw a cheque to cash for a public company to pay for services but he complied as the instructions came from the Deputy CEO and, effectively, the CEO.

261 I note that Sent testified that he did not ever check the invoices provided to him by Gatto and that he left that to Primelife's accounts department. Of course Primelife's accounts department had no means of checking the invoices because there was no other documentation provided.

262 Williams decided to use a number of cheques rather than one. This idea originated with Williams - he said the reason for it was that he felt it was an unusual arrangement and he did not want any unnecessary interference or inquiries from the bank. When the cheques, dated 8 November 2001, were ready, Williams took them to Porter who asked Holzer to join them. Either Porter or Williams suggested that Holzer take the cheques from Williams and go to four separate branches of the National Australia Bank for the purpose of cashing the cheques.

263 On 9 November 2001 (the next day) Porter instructed Williams to organise cash cheques in the sum of $4000, saying that the sum of $6000 had been for an earlier period and that this amount was required for the current period. He then drew three cheques that were co-signed by Porter and that were left with her. Subsequently Williams received an invoice relating to "arbitration and mediation" for the month of October 2001.

264 The next instructions received by Williams were on 7 December 2001. Porter asked for a cash cheque for $5000 for consultant's fees. Williams drew four cheques in varying amounts. I note that Williams proceeded to give evidence of the history of the drawing on Porter's instructions of the subsequent cheques payable to cash or to A&M, covering the period from December 2001 until August 2003. On 11 August 2003 the last cash payment was made to Gatto or A&M, by cheque payable to cash for $6600.

265 Porter could not explain why cheques were banked at different branches of the same bank and did not know whether it had anything to do with reporting requirements of banks where large sums were drawn. Porter said this was Williams' idea in any event. Porter wrote "Okay to pay" on the invoices even though they always came in after the payment had been made. Porter instructed that the cash should always be placed in an unmarked envelope because it would not look good if an envelope containing cash with Primelife's name was found and people would call for an explanation.

266 Williams said that no requisitions were drawn up for cheques: if it was a computer generated cheque there would be a remittance advice, if it was a hand drawn cheque there would be no remittance advice but the payment would be posted to a ledger and a code determined by him would be applied to it. The accounts section would try and match invoices later received with previously drawn cheques. In relation to the allegedly missing or misplaced invoices, Williams testified that he had never seen the originals of the invoices that were now said to be duplicates of such invoices.

267 Sent testified that on 7 December 2001 he received $5000 from Primelife and paid Gatto $4000 in respect of an invoice for $4000. Sent said that the remaining $1000 was reimbursement to himself for the cost of tips and beverages incurred by him at various lunches with Gatto and his associates. I accept Sent's evidence in this regard.

268 Sent testified that Gatto resolved other problems, from time to time.[52] On one occasion, when the company was involved in the construction of a retirement village in Essendon, a worker had fallen from the first floor of the building and had been seriously injured. The union had shut down the site as a result. Sent asked Gatto to try and resolve the situation and work resumed the next day. Sent, in his evidence, gave a number of other examples of problems on specific sites which had been quickly resolved after he had spoken to Gatto.

269 Sent testified that, in about late 2002 or early 2003, Primelife was experiencing problems at a site in Donvale where the builder's difficulties with the union had resulted in the union stopping all work at the site. At one of their monthly meetings Sent asked Gatto whether he could do something and he said that he would do so for an extra fee. They agreed on a payment of $10,000 in cash, payable by two instalments. Sent said that he paid the first instalment of $5000 on 11 April 2003 and the second instalment on 6 June 2003. Porter confirmed that the cheque dated 11 April 2003 was arranged by her after Sent told her of the required payment and that it related to resolving a problem at the Donvale project (as was the cheque dated 6 June 2003).

270 Porter was cross-examined about cash given to Sent in May 2003 before he went overseas in early June 2003. She said it related to special assignments or work that A&M or Gatto did. There was a total cash payment of $50,000 by means of five cheques in May. It was later established that there was a total sum of $60,000 in cash withdrawn and given to Sent prior to his going overseas, as follows: $15,000 (in April), $40,000 (in May) and $5,000 (in June).

271 Sent described Gatto as having a "remarkable relationship with the union". Sent said that in his estimation Gatto was a lobbyist with the unions. There is no evidence to the contrary although it does not appear from the evidence how or why Gatto had achieved this relationship with the unions. I accept Sent's evidence that he retained Gatto in order to achieve a good relationship between Primelife and the unions and on the terms as to payment described by Sent. I accept the evidence that the intended benefit to Primelife of retaining Gatto related to the maintenance of a good relationship with the relevant unions involved in Primelife's construction activities both in general and in relation to any problems that might arise on specific building sites. I am not confident that the Court has been provided with a full account of the contents of the relevant conversations between Sent and Gatto and, more particularly, the means by which Primelife's relationship with the unions might be enhanced by Gatto's services. I am satisfied that Sent made the payments to Gatto or to A&M in the manner described by him and I am satisfied that he made those payments for what he perceived to be the benefit of Primelife and that he did not use any of the cash received by him for other purposes or for his own purposes.

Gatto's "site allowance retainer"

272 Sent gave evidence in relation to the site allowance negotiation and his payments to Gatto which I broadly accept, unless otherwise indicated.

273 Sent said that there were no actual arbitrations or mediations conducted by A&M but then said that there was one "mediation" that he attended. He detailed problems in early 2001 with the union (CMFEU) in relation to site allowances. A dispute arose in relation to whether or not Primelife's buildings should be characterised as commercial or residential as that characterisation affected the site allowance.[53] The issue arose at first in relation to Lexington Gardens. Thompson told Sent that there had been several discussions with representatives of the CFMEU as to whether a retirement village was a commercial project or a domestic project or partly each - the union considered it to be totally a commercial project. In his evidence, Sent described a meeting at the union headquarters with a number of "highly placed union people" to whom he was introduced by Gatto. Sent testified that "Gatto ... said this is the chap that I've been talking to you about, he is a friend of the union, and he keeps to his word and he then shook their hands and went out." Sent said he then had a discussion with them and subsequently Gatto called him and said that the transaction should be done.[54]

274 Sent expanded on the above evidence as follows. In 2001 Primelife was involved in the construction of two retirement villages. Thompson, the project manager at one of the sites told Sent that the union was seeking a site allowance substantially above the existing allowance. Site allowances were calculated on a per hour/per man basis and their were 75 workers on the particular site with an estimated construction period of 200 eight-hour days per annum for three years. The union's claim would have added significantly to the construction costs and was likely to have led to similar claims on other projects. According to Sent, he asked Gatto to negotiate with the unions on the company's behalf. Gatto said that he would do so, but required a separate fee payable in cash. According to Sent they agreed, after negotiation, on a fee of $50,000 per annum for each of the three years in relation to which the site allowance would be paid. Sent testified that Gatto arranged a meeting for him with a number of union leaders. After introducing Sent to them, Gatto and his associate left. Sent made an offer at the meeting and the union officials were "non-committal" in his presence, but some short time after this meeting Gatto said to Sent "Ted you will get your deal". Shortly afterwards Thompson reported to Sent that the deal as proposed had been put into effect and an agreement signed. The same site allowance arrangement was applied to the other site and later to other Primelife construction sites during the relevant three year period.

275 Tudor operated a commercial building company called B & H Tudor Pty Ltd and was an experienced and licensed builder. After initial employment as construction manager, Tudor was approached by Thompson of Primelife in mid-1999 to become the builder for Primelife on all of its projects under a construction management agreement. This continued until 2004 although Tudor took on less work after some time in 2002 when he became very ill.

276 Tudor attended regular site meetings at about 14 Primelife projects and also attended weekly meetings at Primelife's construction offices in Morwell. In addition he attended site meetings where a specific issue arose. The CFMEU members constituted the majority of the workforce on the various sites.

277 According to Tudor, a handwritten agreement was entered into in 2001 and signed on site, fixing the site allowance for Lexington Gardens (Springvale) and all Primelife building sites. The compromise was the result of negotiation over several weeks between Tudor, Thompson and the CFMEU (one Doyle signed on behalf of CFMEU). Tudor conceded in cross-examination that he did not know what if anything had happened behind the scenes. Tudor had never met Gatto and had never heard of A&M. He said that, to his knowledge, Gatto was never on site and played no role in negotiating the site allowance. The handwritten agreement was in place at the time that building at the Waterford Valley site (Knox) commenced. The CFMEU tried to renegotiate but Primelife told them that agreement had already been reached.

278 Sent was apparently aware that Thompson and Tudor had entered into a handwritten agreement with the union in relation to site allowances (Sent said that this was after he had his meeting with the union officials in Carlton). Sent said that he had not seen the handwritten agreement but that he was told that there was an agreement. Sent testified that the union argued that this agreement only applied to Lexington Gardens but with the help of Gatto they had it committed to all the sites. Sent said that he was not actually present when Gatto did anything.

279 Sent testified that he paid Gatto the first sum of $50,000 in cash from his own money in early 2001. He said that he paid Gatto in cash in a restaurant in Carlton. He got the cash from his safe at home ($20,000) and the rest from banks (by a series of withdrawals, using cheques). He carried the cash to the meeting in a "bag".

280 According to Sent, he told Legge that he had paid $50,000 in cash from his own money, saying that he should be reimbursed by Primelife and that he told Legge that the guy who assisted in the negotiations was a gambler and had been paid in cash. I accept that evidence. Sent testified that Legge then said that he would approve an increase in Sent's salary for the year ending 30 June 2001, for that year only, by $100,000 to compensate him for the sum he had paid to Gatto. I also accept that evidence. Sent explained that the $100,000 in pre-tax income was broadly equivalent to the $50,000 payment that he had made (given his marginal rate of taxation). Sent testified that this explained the memorandum from Legge dated 11 June 2001 to a person in Primelife's accounts department advising that "the Board of Directors has approved an increase of $100,000 per annum in the salary of the Managing Director, effective for the current financial year."

281 Legge gave evidence about a conversation with Sent which, I am satisfied, was the very conversation in 2001 concerning which Sent testified as above set out, although Legge's recollection of the conversation was a little different. Legge testified that Sent told him, in late 2000 (or early 2001), that he had personally been paying a person who was dealing with the unions and that Primelife should pay for this in future as it was his view that this was for Primelife's benefit. Sent also referred to the monthly payments to Gatto. According to Legge, Sent told him that he had in the past used cash and Legge said that he should not be involved in cash transactions and that Primelife would need a proper contract, invoices and supporting documentation. According to Legge, he told Sent not to take money out of Primelife by way of cash other than that, if he wished to make a proper claim for expenses for meals or entertainment, this should be submitted and processed. Legge testified that he did not know that cash payments subsequently continued to be made by Primelife to any such industrial consultant. Sent denied that Legge told him not to be involved in cash transactions and testified that Legge said only that Sent would need to get receipts.[55]

282 I am satisfied that Legge's account of the conversation, although incomplete, is substantially accurate and that the conversation occurred shortly after Sent had paid Gatto $50,000 in cash. The timing of the conversation and Sent's need for it is apparent, in my view, because Sent wanted to obtain reimbursement for the cash paid out by him and this is when the one-off salary increase was agreed upon (although Legge did not remember this part of the conversation). The accuracy of Legge's recollection that Sent told him that he had in the past used cash is supported by the fact that, on the evidence, this was the only occasion when Sent paid a very substantial cash amount to Gatto from his own money. I accept Legge's evidence that he was given no indication that Primelife would be making any cash payments itself in the future, but I think that Sent's mentioning to Legge of his past payments of cash, and that he was paying a gambler, supports the probability of Legge's version that he told Sent that Primelife should not be involved in cash transactions and that Primelife would need proper documentation. Further, I considered Legge to be an honest witness.

283 Sent said that apart from the first year's payment of the "success fee" for the site allowance, he got an invoice for each and every payment made to A&M.

284 Mary Swane, who is employed by Primelife and has been so employed for about six and a half years, was called to give evidence on behalf of Primelife. In 2001 she was Primelife's payroll manager. It is unnecessary to refer to the detail of her evidence. However, having heard her cross-examined, I am satisfied that, on Porter's instructions, she put into effect the necessary mechanisms for achieving payment to Sent by way of cash or shares of the one-off salary increase of $100,000 recorded in the memorandum dated 11 June 2001.

285 Sent testified that another five cash payments were made to Gatto in the period April to May 2003 making up the sum of $50,000 then due in relation to the site allowance agreement. Porter confirmed that Sent instructed her that cash instalments totalling an annual payment of $50,000 needed to be made and this included $10,000 paid on or about 1 May 2003.

286 On 16 March 2006 Porter sent to her solicitors certain documents not previously discovered. One of these documents[56] was an undated letter from A&M to Primelife addressed to Sent. The letter commenced: "This letter is in response to your request that I clarify details in relation to my agreement with Primlife (sic) for services in respect of the Rowville and Springvale projects. This agreement is separate to the contract I currently have for the provision of general advice and assistance on industrial relations for all other Primelife projects which is charged at the agreed rate of $6,000 per month plus GST." The letter went on to refer to this separate contract as being "for the negotiation of site allowances, management of work conduct to create productivity and the cessation of work stoppages". The letter, bearing Gatto's name, but unsigned, also referred to Primelife having saved hundreds of thousands of dollars during the period of "my consultation". This letter was clearly devised, after the event, to evidence the existence of the arrangements between Sent and Gatto. However I am broadly satisfied of the existence of those arrangements without deriving any assistance from this letter.[57]

The Royal Commission

287 On 29 August 2001 a Royal Commission was established under the Royal Commissions Act 1902 (Cth) to enquire into and report on a number of matters in relation to the building and construction industry, including:[58]

"(a) the nature, extent and effect of any unlawful or otherwise inappropriate industrial or workplace practice or conduct, including, but not limited to:

...

(ii) fraud, corruption, ... or inappropriate payments, receipts or benefits ..."

288 On 11 January 2002 the Royal Commissioner wrote to Primelife, requiring production of certain documents. Flood testified and I accept that he sought instructions from both Porter and Sent as to whether Primelife had any documents recording payments made to any persons associated with Primelife in respect of any services in the building industry (excluding architectural, engineering and construction services) and that they told him that no such payments had been made to any person.

289 On 31 January 2002 Primelife wrote to the Royal Commission advising that the company had no records of any payments made to any person or associated entity in respect of any services excluding architectural engineering or construction within the period concerned and further stating that no payments or other benefits were given to or requested by any trade union or official or agent or any person nominated by a trade union employed on any of the projects within the specified period - and therefore there were no such records.

290 On 27 February 2002 Gatto gave evidence at the Royal Commission to the effect that he had a number of customers who paid him $50,000 to $100,000 per annum and that his customers included Primelife. Gatto's evidence was reported in the media. Flood testified that he read of Gatto's evidence in the newspapers and immediately spoke to Sent and Porter in Sent's office. Sent testified that Flood came into him and said that they had misled the Commission. Flood testified that Sent said to him that he was paying Gatto some money but that it had nothing to do with the building industry. According to Flood, Sent went on to say that Gatto was providing him with "overall intelligence in the building industry" and, in substance, that Gatto assisted Sent in dealing with matters like warnings about sub-contractors who were known for pilfering supplies on building sites. Primelife thereafter sought legal advice.

291 Sent testified that he also spoke to Legge about Gatto at this time when Legge asked him what was going on and that Sent said to Legge that "this was the guy I had earlier told him about". Legge, in his evidence, confirmed this conversation but said that Sent did not tell him that Primelife was making the payments in cash and he was not aware that this was alleged. Legge said that he did not become aware that Sent had used cash from Primelife to pay Gatto or A&M until late August 2003. I accept Legge's evidence.

292 Panaccio also read of Gatto's evidence in the newspapers. Panaccio testified that he was not aware before the Royal Commission that Gatto had done work for Primelife. Panaccio said that Legge had never said anything to him about cash payments by Sent. He was not aware of the $100,000 increase in salary or whether it was paid. The evidence of Panaccio in cross-examination satisfied me that, although Panaccio was aware of the payments to Gatto after Gatto's evidence to the Royal Commission, he was not aware that they were cash payments.

293 McGregor testified that he was not aware of cash payments to Gatto until October 2003. He recalled that Primelife's name was mentioned in the Royal Commission, but he was unaware of Gatto's reputation. He had discussed the matter briefly with Sent at the time and was assured by Sent that the payments were appropriate and in support of the development of Primelife's properties, and the matter was left at that. McGregor said that he did not know that the payments were cash payments and he recalled no discussions with other directors. I accept McGregor's evidence.

294 On 5 March 2002 the Royal Commission wrote to Primelife stating that the Commission was of the view that Primelife may well have documents that fell within the categories sought.

295 After Gatto's evidence to the Royal Commission, Sent provided Flood with a number of invoices relating to an organisation that Flood had never heard of before, namely A&M. Flood then obtained from the Primelife accounts department a list of payments that had been made to A&M although invoices could not be found for some of the payments. Sent and Porter then told Flood that at least some of the payments to A&M had been made in cash. According to Flood, he expressed his concern to Sent and Porter about the absence of proper documentary records and that payments in cash were being made by a public company and he told them that there should be no further payments made to A&M. According to Flood, Sent replied in substance "That's probably a good idea". However Sent said that no such conversation occurred and denied that Flood had said to him that there should be no further payments to A&M. I prefer and accept Flood's evidence.

296 On 13 March 2002 Primelife replied by letter to the Royal Commission stating that it had not previously appreciated that documents relating to Gatto fell within relevant categories and attached the documents except those listed as missing. After Gatto's evidence to the Royal Commission, Sent caused Primelife to pay Gatto by cheque except in relation to the site allowance retainer or other special payments. Sent testified that, in about October 2002, Gatto told him that his monthly retainer was too low and they negotiated an increased monthly fee of $6600 which applied from October 2002 onwards.

Original directors' knowledge of cash payments

297 Porter was cross-examined about her personal knowledge of whether Sent had informed other directors of the arrangement with Gatto. Her answers indicated that she had a belief based largely on what she had been told by Sent rather than derived from her own knowledge. However Porter initially asserted that she was present at a discussion at which Kemp was also present (she could not remember who else) where Sent told those present that a consultant had been engaged to help the company negotiate when problems arose that related to unions and to generally look after the well-being of construction progress on sites, but that neither A&M nor Gatto's name was mentioned in this discussion. This evidence is to be contrasted with Porter's answer[59] to an interrogatory ("her Affidavit") in which she said that she was present when Sent advised "one or all of those three", i.e. de Luca[60], Kemp and Legge, of the retainer of A&M, the subject matter of the retainer, and of A&M's requirement through Gatto that it be paid in cash. Porter's answers under cross-examination did not swear up to the contents of her Affidavit, although she subsequently asserted in further cross-examination that cash was mentioned in the relevant conversation although the name of the consultant was not mentioned. I do not accept Porter's evidence, which is not corroborated by Sent, that Sent told any of these three directors in her presence that cash payments were being made to any industrial consultant. I note that Sent testified that at some time he told de Luca about "an arrangement with a negotiator before the company commenced making payments" and that the negotiator (Sent believed he told him it was Gatto) "insisted on being paid in cash but would provide receipts". I am not satisfied of the truth of this evidence - I note that de Luca is in the plaintiffs' "camp"[61] and was not called as a witness.

298 McGregor testified that prior to October 2003 he was not aware that Primelife had made any cash payments to Gatto or to A&M nor had he heard of Gatto or A&M at all. I accept McGregor's evidence that he was not aware that Primelife had made any cash payments to Gatto or A&M until 2003 (probably August 2003). It would seem likely that McGregor was generally aware after Gatto's evidence to the Royal Commission of the making of some payments by Primelife to Gatto in connection with industrial relations matters, but I am satisfied that he did not know that cash payments were being made. I note further that McGregor testified that he considered it inappropriate for a public company to pay anyone in cash,[62] particularly when the cash was obtained in the circumstances now disclosed (i.e. multiple cheques, cashed at different branches and placed in an unmarked envelope).

299 Sent, in his evidence, said that he told Kemp at some unspecified time and date during the course of a board meeting that Primelife was benefiting from the services of an industrial consultant, but he did not suggest that he told Kemp of any cash payments. Kemp testified that he first heard of payments to Gatto after learning of his evidence to the Royal Commission but he was not aware that there were any cash payments. Kemp said that he did not discuss the payments to Gatto with the other directors and it was never discussed at board level. I accept Kemp's evidence. I note further that Kemp[63] expressed the view that even if there was a proper paper trail, cash payments of the type now disclosed should not be made by a public company.

300 I also accept Panaccio's evidence that he had no knowledge at any relevant time of cash payments being made to Gatto (or any industrial consultant).

Submissions

301 Primelife submitted that Sent's conduct in relation to the cash payments was destructive of the confidence which must exist between employer and employee and therefore constituted misconduct at common law. The written submissions provided by Primelife on this topic comprise some eighty pages and I found it difficult to discern the essence of these submissions within the myriad of allegations made. When pressed to encapsulate its submissions in shorter form, either orally or in writing, I was provided by counsel with a five page summary. However, the summary at the outset stated that Primelife relied on each of the matters contained in its principal submissions and that the matter had to be approached in a cumulative fashion. The result is that the submissions of Primelife are based upon a melange of facts and trivial minutiae and it is inappropriate to deal in great detail with every single point in these reasons. The fact that Primelife was not prepared to abandon even the most trivial of its points of criticism has caused me to treat its submissions with considerable caution. In addition, Primelife approached the facts upon the basis that the Court should not be satisfied by the evidence given by Sent and Gatto about the retainers and the making of the payments, notwithstanding that their evidence about the retainers was uncontradicted and not lacking in credibility, particularly as there was abundant evidence of a course of conduct involving cash and other payments in exchange for invoices.

302 The essential elements of Sent's conduct relied upon by Primelife were summarised as follows.

• Legge, in late 2000 or early 2001, upon finding out that Sent was claiming to be making cash payments, directed Sent to cease doing so. Sent did not obey that direction. Neither Legge nor any other member of Primelife's board was aware that Sent was allegedly paying Gatto in cash until about August 2003. After the Royal Commission, Flood told Sent not to make any further payments to A&M but he continued to do so.

• The documents received by Sent in respect of the money he claims to have paid Gatto do not tally with the moneys received by Sent in that there are some twenty "discrepancies" in relation to the invoices in respect of quantum. Sent had a responsibility to ensure that the document given to him matched the payment allegedly made. Sent is unable to verify how much money was given to Gatto and Gatto is unable to say how much money he received.

• Most of the invoices allegedly provided by Gatto, to the knowledge of Sent, incorrectly described the services allegedly provided.

• The circumstances and method of making the payments were highly irregular and called for an explanation.

• It is not apparent what benefit Primelife received from the alleged payments whether in cash or by cheque and there was no cogent evidence that Sent did anything with the cash received by him other than to use it for his own purposes.

303 In response it was submitted on behalf of Sent that:

• The retainer and the remuneration of Gatto were matters for Sent's judgment and within his actual authority as Managing Director and CEO.

• The making of cash payments to Gatto was also a matter for Sent's judgment and within his actual authority and an invoice was provided immediately prior to the making of each payment.

• The original directors were aware of the Gatto "arrangements" at the latest by the time of the Royal Commission - they left these matters to Sent and thereby "condoned the retainer and the payments".

• There was no evidence that Sent retained any of the payments for himself.

• If the evidence of Legge and Flood is accepted that they told Sent not to make payments in cash, they did not have the authority to give such a direction.

• The payments to Gatto involved a number of employees in the accounts department and no attempt was made to hide them, consistent with the genuineness of the arrangements.

304 It was submitted on behalf of Porter in response that the provision of cash to Sent for payment to Gatto was in accordance with instructions given by Sent who had the authority to give such instructions - it would have been misconduct not to comply with Sent's instructions.

Conclusions

305 In my opinion Sent's conduct in making cash payments to Gatto and, in particular, continuing to make cash payments to Gatto in 2003, was destructive of the confidence which must exist between employer and employee and repugnant to the interests of Primelife and therefore constituted serious misconduct, notwithstanding Sent's belief that his conduct was furthering the interests of Primelife.

306 Further it should be recalled that, in early 2001, Legge, who was then Chairman of Primelife, told Sent not to make cash payments to the unnamed industrial consultant. Sent disregarded that advice. In my opinion if Sent wished to challenge the Chairman's stance he ought to have made a full disclosure to the Board both of the retainer of Gatto and of the methods of payment required by him. Indeed, Sent should have made such a full disclosure at the outset having regard to the most unusual nature of the arrangements. Accordingly, in my view, the failure by Sent to make full, or indeed any, disclosure to the Board as a whole of his arrangements with Gatto, and in particular the making of cash payments, should be regarded as a serious breach of the duty of good faith owed by Sent to Primelife and therefore serious misconduct.

307 Again, in my opinion it was serious misconduct by Sent to make the cash payments in the way that he did. I do not consider that any evidence is required to support the proposition that it is in general highly irregular for an executive, even the chief executive, of a public company to make large payments in cash to any other person or company in the absence of contractual documentation or other evidence of services provided (other than unsatisfactory forms of invoices) and without obtaining receipts. The irregularity is highlighted when the cash is collected from sundry bank branches to avoid attracting attention and placed in unmarked envelopes to avoid detection. This kind of conduct offends basic accounting and auditing requirements but also opens a public company to the serious risk of damage to its reputation, goodwill and the market value of its shares. This is particularly the case where the cash payments are made in the sensitive industrial relations context. The latter proposition is highlighted in this case by the establishment of a Royal Commission inquiring into inappropriate payments. The mode of making the payments was thus repugnant to the interests of Primelife, whatever Sent may have believed about it, and thus constituted serious misconduct by Sent.

308 I said that I did not think that evidence was required to support the above proposition but, in the present case, there is supporting evidence from some experienced company directors, which I accept. I also said that it was "in general" highly irregular because there might be circumstances where the making of substantial cash payments could be justified, although it is hard to think of them. However in this case no such circumstances were established. The justification that the recipient said that he was a gambler and needed cash provides a reason against making the payment rather than a reason in favour of it.

309 The irregularity of the payments was said to be compounded by the failure to obtain invoices in every case. The evidence on this aspect is unsatisfactory and although I am not satisfied that Sent did obtain an invoice in every case neither am I positively satisfied that he did not. It is possible that a number of invoices went astray within the Primelife organisation - at any rate I do not think that the evidence rebuts that possibility.

310 I am not attracted by the proposition advanced on behalf of Primelife concerning the "discrepancies" in relation to the invoices in respect of quantum, but it is a valid criticism of Sent's course of conduct that he failed to check that each invoice matched each payment because no other documentation existed and the accounts section in Primelife had no other means to verify that the "correct" amount had been paid. The nature of the various descriptions of the services on the invoices supports the proposition that the payments were made in highly irregular circumstances.

311 I am satisfied that the making of the cash payments and related conduct was not condoned by the Board. None of the directors, original or new, were aware until about August 2003 that Primelife had made substantial cash payments to Gatto or to some "industrial consultant." Indeed the circumstances of the arrangements with Gatto and of the payments (and in particular the cash payments to him) were never disclosed to the Board prior to the ABL review, as they should have been. To the extent that these circumstances have been disclosed, they have been disclosed in the course of these proceedings.

312 In my opinion, in the circumstances to which I have referred, Porter was guilty of serious misconduct by facilitating the making of cash payments to Gatto. I do not consider it to be an answer that she did so pursuant to the instructions of Sent. It is not misconduct to refuse to comply with an improper instruction. In any event, Porter was Deputy Chief Executive Officer and in my view owed a like duty of good faith to Primelife such that she should have made full disclosure to the Board of the course of conduct she adopted in relation to cash payments. Indeed it must have been evident to her, as it must have been evident to Sent, that had the Board been fully appraised of the arrangements, they both would have been instructed, at the least, to forthwith cease making the cash payments.

F: RECORDING AND LISTENING TO EMPLOYEES' TELEPHONE CALLS

313 Primelife submitted that Porter's tapping of Primelife employees' telephones without their consent, and that Sent's knowledge and awareness thereof, was misconduct in breach of their respective contracts of employment including and in particular because the use of the RACAL device in the circumstances was a contravention of s.7 of the then Telecommunications (Interception) Act 1979 (Cth) ("the Telecommunications Act") and s.6 of the Surveillance Devices Act 1999 (Vic) ("the Surveillance Devices Act").

Relevant facts

314 Porter testified that in about early 2000, Sent told her that he had received a number of complaints relating to the performance of Primelife sales staff, staff who dealt with prospective residents and investors by telephone on an "1800 number". Sent told Porter that he had raised these complaints with Primelife's sales manager and had discussed with him the installation of a system which would be able to monitor the sales calls. At a meeting of senior executive staff, at about this time, Sent told those in attendance that an audio monitoring system would be installed so as to enable sales calls to be monitored. Shortly thereafter either Porter or the company's sales manager arranged for Kiandra to install the RACAL system. It cannot be suggested that Sent was not aware of the existence of the RACAL system and its capabilities.

315 Porter testified that, when the software for the RACAL system was installed[64], she had a soundcard installed on her computer so that she could monitor the sales calls and she also arranged for Sent's computer to have the same facility. However, in the event, Porter did not monitor any sales calls. Further, her attempts to teach Sent how to use his computer for this (or any other purpose) were unsuccessful and in late 2000 his computer was "taken away from him and redeployed". According to Porter, in about late 2000 or early 2001, the RACAL system was "disabled for reasons I can no longer recall".

316 Then, in about mid-2001, Kiandra enabled Porter, at her request, to use the RACAL system to record and listen to the telephone conversations of Primelife employees. Porter from time to time nominated to Kiandra the telephone extension lines or numbers that she wished to monitor. Porter testified that this was for the purpose of identifying the sources of the apparent public leakage of confidential information, thought to be associated with Primelife's involvement in a number of pieces of substantial, heavily fought and acrimonious litigation.[65]

317 Once calls on the nominated extensions had been recorded on the RACAL system disks, Porter used the computer in her office to access the system and play any selected recording on that computer and listened to it by means of a pair of earphones (or headphones) that she plugged in to that computer. Porter listened to some of the calls recorded on the nominated extensions over about a twelve month period, generally either when she arrived at work (between 6 am and 7 am) or just before she left (between 8 pm and 10 pm). According to Porter, she listened on a random basis and only continued listening if it appeared that the conversations did not relate to private matters.

318 This "phone tapping" by Porter was, of course, carried out without the knowledge or consent of the relevant employees. The particular employees selected by Porter were those whom, so she said, she considered "were at risk to Primelife" including senior executives, her own personal assistant (Holzer) and group legal counsel (Flood). For example, on 18 October 2002 Porter asked Munro of Kiandra by email to give her access via the RACAL system to Flood's telephone extension from 6.30 am to 10 am.

319 Holzer testified that on one occasion she and Sent together entered Porter's office and saw her sitting at her desk wearing headphones that were connected to her computer and that Sent said to Porter "Don't ever do that during working hours" and "Whatever you do, do not listen during the day time". That such an incident occurred was confirmed by Porter, partially but in significant material respects, both in her witness statement and more strongly in her cross-examination as follows:

Witness statement:

"I invariably utilised the system out of office hours, although perhaps on a few occasions I may have played back some of the calls during office hours. I have no recollection of Mr Sent directing me not to listen to the calls during office hours. No such conversation occurred because Mr Sent did not know that I was using the facility for this purpose. It is possible that Mr Sent may have seen me using the headphones and may have said something in a jocular tone to the effect of 'Take those off, do it in your own time' - but Mr Sent would not have had any idea what I was doing."

Cross-examination:

"You recall the incident where Mr Sent told you to take the earphones off and not do that in work hours, don't you? --- I vaguely recall some comment that Mr Sent made about me wearing headphones at one point during the day, but I can't recall precisely what he said.

...

And Mr Sent told you not to do that during normal work hours, didn't he? --- I can't remember exactly what he said, he may have said that.

Yes? --- But he certainly wouldn't have said it in relation to listening to the phone calls because he did not know that was happening."

320 Sent said that Holzer's evidence was absolutely false and that he believed that the system had been disused and he was not aware that Porter was selecting people to listen to their phone calls.

321 I accept the evidence of Holzer, partially corroborated as it is by Porter's evidence. Further, I consider that the nature of Sent's instructions to Porter, on seeing her using headphones, ("Don't ever do that during working hours" and "Whatever you do, do not listen during the day time") evinces a strong probability that Sent was aware that Porter was listening to employees' telephone calls. Sent's instructions are consistent with a desire that her use of the system not be detected or suspected by staff and no other rational basis for giving her such emphatic instructions was suggested - the instructions were hardly "jocular" as Porter, and indeed Sent also, suggested. The closeness of the relationship between Sent and Porter also supports the probability that Porter had informed Sent of her activities.

322 Flood testified that there were rumours in the company over some years about telephone tapping. Holzer testified that she saw the email dated 18 October 2002 on Porter's computer asking to be able to record calls on Flood's telephone extension. Holzer said that she told Flood about this at the time. Flood said he was not told about this in 2002 but was much later given a copy of the email. However Flood was involved in a series of emails with Kiandra on this topic on Monday 28 October 2002 and I therefore accept Holzer's evidence that she told him on or shortly after 18 October. Flood's email to Kiandra asked for confirmation that only incoming sales calls to Primelife were monitored or recorded in any way and got a response from Munro of Kiandra that he would look into the requests and advise in due course. Flood replied that these should be simple requests to answer and "what is your time frame", and got a further reply that Porter was on leave until Wednesday. Flood testified that at about the same time he raised the matter with Sent who responded that he should wait for Porter to return from holidays and speak to her about it. Flood testified that the next thing that happened was that Porter, who was still on annual leave, telephoned him, asking why he had raised the questions, asking if he had been put up to it by another executive, and saying that the answer was that nothing is recorded.

323 In April 2003 the RACAL system was not being used and Porter was receiving communications from Kiandra as to whether the system should be redeployed or decommissioned. However the evidence shows that in early May 2003 Porter made arrangements to listen to the telephone conversations of Holzer, Flood and a number of other Primelife employees. Porter said that she could not recall why she had done this. Porter agreed that she was particularly intent on listening in May 2003 saying: "Yes I did check something in May 2003" but she could not recall what it was. Porter testified that:

"I cannot now recall the concerns that led me to instruct Kiandra to connect the device in May 2003 on the extensions of Shona Holzer, Danni McCormack, Greg Flood, Peter Clarke and Karee Stone."

324 The records show calls recorded between July 2001 and June 2003, covering 16 named employees, and totalling over 1,328,546 minutes (about 922 days). Porter testified that she did not tell Sent, or any other director, what she was doing and that Sent was not aware of her use of the RACAL system prior to her departure from Primelife. Porter said that she did not tell anyone, including Sent, of her use of the RACAL system because she believed that there was a risk that if she did, somebody might say something which would disclose its use and render it ineffective.

Stuart's evidence

325 Stuart was employed by a Primelife subsidiary and his evidence was both relevant to Porter's use of the RACAL system and suggestive of Sent's knowledge thereof.

326 Stuart is an accountant who had worked in the television industry for many years with GTV Channel 9 Melbourne and in 1969 became general manager of Channel 0 Melbourne and thereafter Chairman of the 0/10 Network. In June 1979 he became self-employed and developed an international business acquiring and reselling television programs and feature films to television networks.

327 In 1999 he was told that Primelife was interested in establishing a television station, subsequently called Renaissance Television (RTV) for providing television programs to be telecast to retirees and senior citizens. He became a consultant to RTV and from some time in 1999 assumed the role of program manager. RTV supplied programs to Channel 31 that were telecast between 8 am and 4 pm on weekdays. Stuart regularly had discussions with Sent concerning programming and other RTV matters. He had an office on level 15 of Primelife's offices at 470 Collins St (adjacent to its 464 Collins St offices). In about 2001 he became general manager of RTV.

328 In about August 2001 Stuart had a number of conversations with Sent about a prospective employee whom he wanted to introduce to RTV (one Ms Di Rolle - "Rolle"). She had been employed as a production assistant at Channel 0 and worked as a publicist for various well-known musical groups. The substance of one of these conversations was as follows. Stuart told Sent that she required $2,000 per month. Sent said that that was ridiculous. Stuart replied that Sent did not know what he was giving away in passing up the opportunity for an asset such as Rolle to work with RTV. Sent told him that he was acting like a schoolkid and was a dinosaur and "what would you know?". Sent confirmed the substance of Stuart's evidence about this conversation and said that it was a heated or angry exchange. Porter said that Sent could have told her that he had said this to Stuart.

329 On or about 7 September 2001 Stuart attended an executive meeting with Sent, another employee of RTV (Grigoriadis) and other Primelife executives. Sent again brought up Rolle's potential employment and repeated comments such as those made previously (Stuart refers to this as ridicule). Sent confirmed that this meeting occurred and agreed that he repeated similar comments to the previous conversation with Stuart adding "we had some problems with Mr Stuart". Sent said that he terminated his employment the next week.

330 Porter testified that she listened to some of Stuart's telephone calls and made notes (she identified the notes in evidence as her handwriting). She said that she would jot down roughly the content to see if there was anything "that would have caused me the concern that I had". She said this was not because she was aware that Sent and Stuart "were at loggerheads about many things, including employees" but "because of the nature of Mr Stuart's personality ... because of the risk that Primelife was suffering at that time in terms of the leakage of information." However Porter conceded that Stuart had no information in relation to Primelife's business other than in relation to the TV business. Porter also said that Sent had related to her "the difficulties that he had and his points of view compared to Mr Stuart's." Porter accepted that none of the conversations of Stuart she recorded had anything to do with the leaking of information "as it turned out". In my opinion it is highly improbable that Porter was listening to Stuart in relation to leaks connected to litigation and I am satisfied she must have been listening to Stuart's telephone calls because of what Sent had told her of his difficulties with Stuart and that this makes it likely that she relayed to Sent anything of Stuart's conversations that might have been of interest to him.

331 Porter noted the following:

"7.02 Di R Ask Di to ring on mobile

if she doesn't perform his job's

on line"

332 Stuart said that this note recorded the contents of a message he left with Rolle on the evening (at 7.02 pm) of 7 September 2001 after the conclusion of the above meeting.

333 Porter also noted the following:

"7.22 Nick - won't be back on Monday

- chastisement not schoolkid

- GF[66] liar so is Ted[67]

- publicist supposed to be paid in advance

- RTV fall in hole on Monday cos I'm not here

- N[68]/ has it happened before cos Ted's reputation is that

- M[69]/ no

- N/ try to relax, talk on Monday

- discussion re events with Di

- Never will they be able to get another program from anyone I have dealt with."

334 Stuart said that this was a record of a conversation with Grigoriadis at 7.22 pm on the same day in relation to the meeting they had just attended, as he recalled a conversation on the telephone at about that time in substance as above. Porter denied telling Sent or anyone else about this conversation. She denied she would have spoken to Sent if she overheard somebody call him a liar. I find this not to be credible.

335 Stuart was shown other notations by Porter which he said substantially accorded with his recollection of other telephone calls that he had had and, in his evidence, he identified the persons involved and the nature of the conversations. One of the conversations noted was the conversation he had with Rolle regarding her proposed employment.

336 Stuart said that he did not tell Porter or anyone else about any of the above conversations. Stuart said that the matters recorded were summaries of telephone conversations he had had with a number of persons on his office telephone, both concerning RTV and his own affairs.

337 Stuart testified that on the following Sunday morning he received a telephone call from Sent. Sent said to him in substance:

"I believe you've been speaking to a number of my executives and they tell me you are not happy. Are you still upset about our conversation on Friday?"

338 Sent then asked Stuart to come in on Monday 10 September 2001.

339 Sent said that he could not recall this telephone conversation and that he did not discuss the Stuart issue with Porter. He said that Porter did not tell him that she had been listening to Stuart's telephone calls and that she "never told me about any intercepted calls" and he did not observe Porter listening to telephone calls before or after work.

340 Stuart testified that the only executive he had spoken to concerning his conversation with Sent was Grigoriadis.

341 On Thursday 13 September 2001 Sent phoned Stuart and asked him to come to his office. He went to Sent's office: Sent and Flood were both there. Sent told him that his services were no longer required. Stuart said to Sent that he had phoned him two days earlier and told him to come back in. Flood asked him to sign a deed of mutual release which he did. Stuart had had no further contact with Primelife, RTV or Sent. Stuart's company, by invoice to a subsidiary of Primelife dated 13 September 2001, charged a termination payment to that date plus one month's notice.

342 Porter's tapping of Stuart's telephone extension in September 2001 was not, I am satisfied, related to the purpose of identifying a "leak" but was for the purpose of obtaining information about the attitudes and activities of Stuart because he was then in conflict with Sent, as Sent had informed her. Porter was "hand in glove" with Sent. They were constantly in communication and also met on a regular basis on Sunday mornings to discuss the events of the week. I find it inconceivable that Porter would not have relayed to Sent the contents of Stuart's conversation with Grigoriadis on Friday 7 September 2001. I am satisfied that Sent knew that Porter was using the RACAL system to listen to Stuart's telephone conversations and that she reported to him about them.

343 Sent further testified that Porter for the first time told him in September 2003 that she had been listening to employees' telephone calls and that she had been doing so periodically for the purpose of trying to find out where the leak in the organisation was. Sent said that he asked Porter why she had not told him to which she replied that she wanted to be sure that there were no further leaks.

344 Although this evidence of Porter had some initial plausibility (for the reasons that she gave in evidence), I think that it is improbable that Porter did not tell Sent of the means by which she was seeking to identify the leak and also improbable that she did not tell Sent that she was listening to employees' telephone conversations generally, for whatever purpose she had from time to time.

345 I note that Porter's use of the RACAL system in May 2003 was not related to the purpose of identifying any leak, whatever the actual purpose may have been.

346 On the whole of the evidence, I am satisfied that at all relevant times Sent was aware that Porter was using the RACAL system to listen to employees' telephone calls without their knowledge or consent and that from time to time Porter kept him informed of any information that she derived from these activities.

Submissions

347 Primelife submitted that Porter's recording and listening to employees' telephone conversations was misconduct and was in breach of s.7 of the Telecommunications Act, and that there was also a breach of s.6 of the Surveillance Devices Act.

348 It was submitted on behalf of Porter that her use of the RACAL system did not contravene any legislation and that her conduct in monitoring the calls should at worse be seen as misconduct, rather than serious misconduct justifying summary dismissal. I take these submission to have been made also on behalf of Sent whilst his primary submission was that he had no knowledge of Porter's activities.

349 In relation to the Telecommunications Act, it was submitted on behalf of Porter and Sent that there was no evidence that the conversations were monitored by any persons when they took place and no evidence of a technical nature as to the manner in which the RACAL system operated such as to enable the conclusion that the recording of the conversation took place whilst the relevant communication was in its passage over a telecommunications system and that the recording may have occurred after the communication had left the telecommunications system.

350 It was further submitted that no breach had arisen because the purpose of the relevant provisions of the Telecommunications Act was to protect the privacy of communications passing between users of the telecommunications system from interception by a third party and that Primelife was not a third party but, in effect, a party to the conversation through its relevant employee and Porter was recording the communications on behalf of Primelife.

Statutory provisions

351 The relevant provisions of the Telecommunications Act provided:

"5 (1) In this Act, unless the contrary intention appears:

...

communication includes conversation and a message[70] ...

telecommunications network means a system ... for carrying communications by means of guided or unguided electromagnetic energy ...

telecommunications system means:

(a) a telecommunications network that is within Australia ...

and includes equipment, a line[71] or other facility that is connected to such a network ...

6 (1) For the purposes of this Act, but subject to this section, interception of a communication passing over a telecommunications system consists of listening to or recording, by any means, such a communication in its passage over that telecommunications system without the knowledge of the person making the communication.

...

7 (1) A person shall not:

(a) intercept;

(b) authorise, suffer or permit another person to intercept; or

(c) do any act or thing that will enable him or her or another person to intercept;

a communication passing over a telecommunications system."

352 The relevant provisions of the Surveillance Devices Act provided:

"(1) ... a person must not knowingly install, use or maintain a listening device to overhear, record, monitor or listen to a private conversation to which the person is not a party, without the express or implied consent of each party to the conversation."[72]

Conclusions

353 I suspect that it would not have been difficult for Primelife to provide some expert evidence explaining the operation of the RACAL system so as to show that the recording of employees' telephone conversations constituted interception, within the meaning of the Telecommunications Act, in the sense that there was a recording of communications in their passage over a system for carrying communications by means of guided or unguided electromagnetic energy. However such evidence was not called and accordingly I am not satisfied that any contravention of s.7 of the Telecommunications Act has been established. It is therefore unnecessary to consider the further submissions in this regard made on behalf of Sent and Porter including the authorities cited by them.

354 However I am satisfied that Porter's recording and listening to Primelife employees' telephone conversations without their consent constituted serious misconduct even on the assumption that it was not in contravention of any statutory provisions.[73] It was a very serious matter to eavesdrop upon the telephone conversations of employees and a potential invasion of their privacy, especially where (in relation to the phone tapping in 2003) it has not been established that there was any apparent justification for doing so based upon the interests of Primelife. Further, it should have been evident to Porter and to Sent and would have been evident to any reasonably prudent executive officer that there was a real risk that the tapping of employees' telephone calls without their knowledge or consent was a criminal offence, whatever was the purported justification for doing so. It was, it seems to me, incumbent upon them to discuss their proposed course of conduct, if not with the Board, at least with the Chairman, or in the first place they might have obtained legal advice. Additionally, in the case of Porter, when Flood (the in-house lawyer) did make enquiries, he was falsely informed by her that nothing was recorded. In my opinion Porter's telephone tapping activities were in serious breach of her obligations and her duty of good faith to Primelife, and, if discovered, likely to damage both the company's reputation and its relationship with its employees and therefore repugnant to Primelife's interests. Her conduct constituted serious misconduct. Her activities were carried on to the knowledge of Sent who was likewise and for the same reasons guilty of serious misconduct.

G: OTHER ALLEGED MISCONDUCT

355 Having regard to my conclusions above, it is unnecessary to canvass in detail all of Primelife's submissions in relation to the other alleged instances of misconduct by the plaintiffs and I propose to deal briefly with them.

Other alleged misconduct by Sent

356 Primelife submitted that Sent had terminated Porter's employment without the authority of the Board and in contravention of express instructions to the contrary. I interpolate that I am satisfied that Sent did not terminate Porter's employment on 16 July 2003 but merely informed her at that time that she was to be fired. I consider that the actual termination of her employment occurred in mid-August 2003 when Sent signed the letter of termination that was backdated to 8 August 2003.

357 It is true that the Board did not expressly decide to terminate Porter's employment and I do not think that de Crespigny told Sent in so many words to terminate her employment. However it was implicit in what was conveyed by de Crespigny to Sent that Porter could not continue as Deputy Chief Executive Officer once a new CEO was appointed. I think that it was within Sent's authority and discretion to conclude that what the Board and de Crespigny required of him necessitated Porter's removal from her duties as Deputy Chief Executive Officer, if not immediately from all employment by Primelife.

358 It is apparent that the Board, and de Crespigny in particular, failed to consider, before Porter had departed, whether the removal of Porter from the duties of Deputy Chief Executive Officer would be in breach of any employment agreement that she had. But, having been informed by Sent that he had terminated Porter's employment and notwithstanding the discovery that she had an employment agreement, de Crespigny acquiesced in the termination of her employment and in her departure and disregarded all of her correspondence. For this purpose the evidence shows that de Crespigny was acting on behalf of the Board because the directors had left it to him to handle this matter. It seems to me that Sent should have sought the Board's express authority and approval before terminating Porter's employment in breach of her employment agreement but de Crespigny (and hence the Board) had every opportunity to override Sent's decision and prevent Porter's termination and departure but instead did nothing and, in substance and effect, condoned Sent's conduct. In my opinion Sent's conduct in terminating Porter's employment did not in these circumstances constitute serious misconduct.

359 It was contended by Primelife that Porter's departure was the product of collusion and consent between Sent and Porter and that there was no substantive termination of her employment (other than by agreement). I reject that contention and accept the brunt of the evidence of Sent and Porter on this question.

360 Primelife further submitted that Sent committed misconduct by refusing to participate in the review conducted by ABL. Sent submitted, among other things, that the review process was not "independent" and hence was unreasonable within the meaning of his employment agreement[74] and that he was therefore not required to participate in the review. It is unnecessary to determine these submissions but I am inclined to the view that, although Primelife was entitled to appoint solicitors as agents of the Board to conduct a review of Sent's conduct, ABL was so involved in the process of advising Primelife on its strategy for the removal of Sent that it was unreasonable of Primelife to appoint ABL to conduct the review. Thus, although I am of the view that Sent did refuse to participate in the review, I am tentatively minded to consider that his failure to do so was not serious misconduct.

361 Primelife finally submitted that Sent had committed misconduct by providing confidential board papers and facilitating the provision of other documents to Porter. I am inclined to think that this allegation borders on the trivial but I need not determine the matter.

Other alleged misconduct by Porter

362 Primelife submitted that Porter committed misconduct by destroying Primelife's property consisting of the disks from which the RACAL recordings were made and the data contained on her laptop computer. It was not disputed that Porter had procured Kiandra to destroy the RACAL system disks containing the recordings of telephone calls or that she had "wiped" all data from the hard disk of her laptop computer. It was submitted on her behalf that it was appropriate and in Primelife's interests that the RACAL data be destroyed and that the data on her own computer had been backed up to Primelife's server. It seems to me to be nonetheless arguable that misconduct was involved in this unilateral destruction of Primelife's property but I need not so decide nor need I decide whether it constituted serious misconduct.

363 Primelife further submitted that Porter committed misconduct by removing boxes containing confidential material or information belonging to Primelife. The evidence from Porter, not really contradicted, was that at worst some of the material was material in which both Primelife and Mainpoint had an interest and further that she had arranged with Flood for the material to be inspected. I am not satisfied on the evidence that the material removed by Porter is correctly to be characterised as simply or solely the property or confidential information of Primelife.

364 Finally Primelife submitted that Porter committed misconduct by refusing to participate in the ABL review. The short answer is that this refusal occurred after her employment had been terminated and she had left Primelife's employ and cannot be relied upon as a ground for her dismissal.

H: COUNTERCLAIMS BY PRIMELIFE IN THE SENT AND PORTER PROCEEDINGS

365 By counterclaim in the Sent proceeding, Primelife sought declarations as to when Sent ceased to be a director and also that his employment was lawfully terminated. These declarations seem to be unnecessary and I did not understand Primelife to be pressing for them. The counterclaim also sought damages and an account of the cash payments and cheques (listed in Annexure A to the counterclaim) in the total amount of $234,650, that Sent received from Primelife.

366 The claim for damages (or an account) insofar as it relates to the payments by Sent to Gatto or A&M was based upon certain principal allegations in the amended defence and counterclaim which may be restated as follows:

• there was no legal obligation of Primelife which would be discharged by the payments (para 19);

• the payments to Gatto and to A&M were not for a proper purpose (para 20);

• the payments were not used for the purpose of paying Gatto or A&M (para 21);

• as a result of these breaches of duty and breaches of contract, Primelife suffered loss and damage (paras 24 and 25) or Sent is liable to account for the payments (paras 26 to 28).

367 As I have indicated, I am satisfied that Sent in substance made the arrangements with Gatto that he described in his evidence. As I understood it, Primelife did not contend that, if Sent did in fact make those arrangements, there was no contractual obligation upon Primelife to make the payments. At any rate, I am not satisfied that Primelife has established that Sent did not place Primelife under any contractual obligation to make the payments to Gatto or A&M which, as I have found, were in fact made. In addition, although I have found that the making of the payments and the manner in which they were made constituted misconduct and thus involved breaches of contract by Sent, I am not satisfied that Primelife suffered any pecuniary loss or damage as a result. Accordingly there could only be a judgment on this aspect of the counterclaim for nominal damages. Finally, given that the payments were made, no basis for a liability to account has been established.

368 The counterclaim also sought damages against Sent being the amount of any liability to pay damages to Porter by reason of Sent's purported termination of her employment. This claim of course fails, as does the third party notice in the same regard, because Porter has failed to recover such damages but the claim would have failed in any event on the facts as I have found them.

369 Primelife did not pursue the other claims for damages contained in the amended defence and counterclaim (see paras 64 and 70).

370 In the Porter proceeding, Primelife counterclaimed for damages on a number of bases but the only one that was pressed in any way related to the payments totalling $234,650. It is sufficient to say the claim fails because Primelife has failed to establish the allegations as to Porter's knowledge pleaded in each of paras 33, 34, 35 and 36 of its amended defence and counterclaim.

I: THE POINT COOK PROCEEDING

Relevant provisions of the Point Cook option

371 The Point Cook option dated 17 July 2003 recited that Mainpoint Developments (or "Vendor") was the owner of the Property and that the Vendor wished to grant Primelife (or "Purchaser") an option to purchase the Property on the terms set out in the Point Cook option (hereafter "the Deed").

372 Clause 1.1 of the Deed contained the following relevant definitions:

'Call Option' means the right granted pursuant to Clause 2;

'Call Option Period' means the period commencing on the date of this Deed and expiring at 5.00 pm on that day which is 30 days after the Due Diligence Date;

'Completion Date' means that day which is 15 days from the date of the Sale Contract;

'Due Diligence Date' means the day which is 5 Business Days after the date on which the Vendor provides the Purchaser with the Due Diligence Material;

'Due Diligence Material' means the documentation referred to in Clause 8.2(b) of this Deed;

'Market Value' means the amount the property is valued at by the Purchaser ...

'Sale Contract' means the sale contract for the purchase of the Property as agreed between the parties after the exercise of the Call Option and containing the terms of the purchase of the Property as set out in this Deed;

'Settlement Date' is the date which is 30 days from the exercise of the Call Option by the Purchaser or such earlier date as may be agreed between the parties.

373 The Deed contained the following further relevant provisions:

2.1 Grant

Subject to Clause 8 of this Deed, the Vendor grants to the Purchaser an option to purchase the Property on the terms and conditions contained in this Deed and the Sale Contract.

3.1 Exercise

The Call Option may only be exercised by delivery to the Vendor during the Call Option Period of a written notice generally in the form contained in Schedule 1.

3.2 Failure to exercise

The Call Option lapses if it is not exercised strictly in accordance with Clause 3.1.

3.3 Effective exercise

Upon exercise of the Call Option the Vendor and the Purchaser are immediately bound to respectively sell and purchase the Property in accordance with the terms set out in this Deed and as agreed in the Sale Contract.

3.4 Sale Contract

Within 72 hours of the exercise of the Call Option, the parties must agree and enter into the Sale Contract which must contain the terms for the purchase of the Property set out in this Deed and otherwise be in accordance with the Law Institute of Victoria's standard Contract of Sale of Real Estate. The date of the Sale Contract is the date of exercise of the Call Option. Delivery and execution of the Sale Contract is not a condition necessary to the parties being bound as set out in Clause 3.3.

7.5 Waiver

A waiver of any right or power under this Deed is ineffective unless it is in writing and signed by the party granting the waiver.

7.6 Variation

No variation or modification of any term of this Deed is effective unless it is in writing and executed by both parties.

7.7 Entire Agreement

This Deed (together with the Sale Contract) embodies the entire agreement and understanding between the parties in relation to the subject matter of the Deed.

7.8 Actions

Any act which this Deed states is to be done by a party, can be done by the other party at the cost and expense of the first party provided that:

(a) the first party has failed to perform such acts when they are due to be performed under this Deed;

(b) the other party notifies the first party of its intention to perform such acts in accordance with this clause; and

(c) the first party has not performed such acts within 5 Business Days of receiving notice from the other party under clause 7.8(b).

8 CONDITIONS PRECEDENT TO SALE

8.1 Sale subject to conditions

The Call Option or sale of the Property is conditional on:

(a) the Vendor obtaining all necessary permits and planning approvals for development of a retirement village on the Property at his own cost; and

(b) the Purchaser obtaining sufficient finance for development of the retirement village mentioned in 8.1(a) at its own cost; and

(c) the Purchaser obtaining a formal valuation of the Property at the time of the proposed acquisition at its own cost; and

(d) the Purchaser certifying by way of board resolution that the value figure is greater than the price to be paid for the Property by the Purchaser ('Purchase Price').

8.2 Purchaser's Due Diligence

(a) This Deed is conditional upon the Purchaser being satisfied in its absolute discretion with the results of a due diligence enquiry under clause 8.2(b) in respect of the conditions set out in clause 8.1 of this Deed by the Due Diligence Date.

(b) As soon as possible and in any event within 5 Business Days following notification pursuant to Clause 8.3, the Vendor must provide to the Purchaser copies of all supporting material required to satisfy the Purchaser that conditions set out in clause 8.1 have been met. The Vendor must also provide to the Purchaser all other information which the Vendor has in relation to the Property which the Purchaser may reasonably require in order to properly carry out its due diligence and to make an appropriate determination in relation to clause 8.1.

8.3 Vendor must notify when planning approval obtained

The Vendor must notify the Purchaser within 5 Business Days of obtaining all necessary permits and planning approvals specified in clause 8.1 of this Deed, and as to whether or not it has satisfied the relevant conditions precedent to sale established in Clause 8.1(a) of this Deed.

8.4 Purchaser may terminate

(a) The Purchaser must notify the Vendor within 2 Business Days of the Due Diligence Date as to whether it is satisfied with its due diligence enquiries; and

(b) If the Purchaser:

(i) notifies the Vendor that it, or the Vendor has not satisfied the conditions specified in Clause 8.1 of this Deed; or

(ii) notifies the Vendor that on completion of its due diligence as specified in Clause 8.2 of this Deed the Vendor has not satisfied the conditions specified in Clause 8.1 of this Deed; or

(iii) does not notify the Vendor that it has satisfied the condition specified in Clause 8.1(a) of this Deed within 2 Business Days of the Due Diligence Date;

8.5 Effect of Termination

If this Deed is terminated under Clause 8.4:

(a) neither party will be under any further obligation to the other; and

(b) the Purchaser can not exercise the Call Option.

9.1 Purchase price of Property

The Purchase Price of the Property shall be the lesser of:

(a) $6,000,000 plus GST; or

(b) the total amount expended by the Vendor in relation to the Property at the Settlement Date, provided the cost is below market value at the time of the Settlement Date, plus GST.

13 FAILURE TO SETTLE UNDER SALE CONTRACT

In the event of the Purchaser exercising the Call Option and failing to complete the Sale Contract by the Settlement Date, the Purchaser will be required to pay, in addition to the costs as set out in this Deed, the following:

(a) interest accruing and payable by the Vendor under any existing mortgage over the Property, on and from the Settlement Date;

(b) legal costs and expenses reasonably and properly incurred by the Vendor in relation to all matters and things directly arising from the failure of the Purchaser to settle the purchase of the Property on the Settlement Date; ...

Submissions

374 The parties exchanged lengthy and substantial written submissions and then counsel spoke to them. The written submissions dealt with every possible alternative argument and contingency. Indeed, there were so many alternative contentions that Primelife produced a Concept Map that was attached to their submissions. I will therefore endeavour to summarise only the essence of the major submissions and thereafter deal with the major submissions, and only with the various alternative contentions insofar as is necessary for the determination of the proceeding.

375 The Vendor (the defendant Mainpoint Developments) submitted that in the circumstances the Deed was not enforceable or the option thereunder was not exercisable or enforceable by the Purchaser (the plaintiff Primelife). It was submitted on behalf of Mainpoint Developments that the option could not be exercised until the conditions set out in cl. 8.1 had been satisfied. The grant of the option was expressly "subject to clause 8". The conditions in cl. 8.1 had not been satisfied in that Mainpoint Developments had not obtained any permits or planning approvals for development of a retirement village on the Property (cl. 8.1(a)) and there was no evidence that Primelife had satisfied the other conditions in cl. 8.1.

376 Mainpoint Developments submitted that the first step in the process was that it had to notify the Purchaser that it had obtained all necessary permits and planning approvals (cl. 8.3) and next it had to provide the Purchaser with the supporting material referred to in cl 8.2(b) (i.e. the Due Diligence Material as defined in cl. 1.1). The Purchaser then had a limited time to carry out the due diligence process (cl. 8.2(a)), namely by the Due Diligence Date (as defined in cl. 1.1). After those steps the Purchaser had to notify the Vendor within 2 business days as to whether it was satisfied with its due diligence enquiries (cl. 8.4(a)). The Deed terminated (cl 8.4(b)) either in the event that the Purchaser did not notify its satisfaction within that time or in the event that it notified the Vendor that the conditions in cl. 8.1 were not satisfied. It was only after those steps, and if the Deed had not been so terminated, that the Purchaser became entitled to exercise the cl. 2.1 option within 30 days after the Due Diligence Date. If the option was then exercised, the Deed provided for a formal sale contract and for settlement.

377 Mainpoint Developments submitted in the alternative that, if the conditions in cl. 8.1 were conditions precedent to the sale of the Property, they were not conditions exclusively for the benefit of Primelife and could not be waived by Primelife.

378 The primary submission on behalf of Primelife was that the conditions in cl. 8.1 were conditions precedent to the sale of the Property and not conditions precedent to the exercise of the option.

379 In support of its primary submission, Primelife referred to four textual matters:

(i) the heading to cl. 8 "CONDITIONS PRECEDENT TO SALE";

(ii) the heading to cl. 8.1 "Sale subject to conditions";

(iii) the reference to "conditions precedent to sale" in cl. 8.3; and

(iv) the language of cl. 8.1 itself, in particular:

• the reference to proposed "acquisition"

• the reference in cl. 8.1(d) to a "Board resolution that the valuation figure is greater than the price to be paid" when the price to be paid could not be determined until the Settlement Date (see cl. 9.1).

380 In further support of its primary submission, Primelife referred to a consideration of the Deed as a whole. First, the Call Option Period commenced on the date of the Deed and a right to exercise the option on that date was inconsistent with a construction that would defer that right until after satisfaction of various conditions. Second, the Sale Contract was to contain the terms of the Deed (cl. 1.1 definition and cl. 3.4) including the conditions precedent. Third, there was no other tenable interpretation to the introductory words of cl. 8.1, namely, "the Call Option or sale of the Property is conditional on ..." (emphasis added). It was submitted that the reference to the "Call Option" here was a reference to the Deed itself and not to the exercise of the call option (and that when exercise was intended it was specifically mentioned)[75].

381 In the alternative, Primelife submitted that due to changes in circumstances between the date of the Deed (17 July 2003), or perhaps more accurately the time in 2001 when the arrangement was formulated in principle and approved by the shareholders, and the date of its purported exercise (4 December 2003) satisfaction of the conditions precedent was no longer necessary because the conditions were for the protection of Primelife and such protection was no longer required because the value of the land, even without planning approval, greatly exceeded the Purchase Price that Primelife would have to pay and because Primelife no longer needed to be protected from the Sent/Mainpoint interests as Sent had resigned as a director and sold his controlling interest in Primelife.

382 In further alternative, Primelife submitted that the conditions precedent could be waived by it as they were included primarily, alternatively solely, for the benefit of Primelife.

383 Primelife further submitted that, in breach of various terms to be implied in the Deed, the Vendor had failed to use its best endeavours to obtain all necessary permits and planning approvals and otherwise obstructed the satisfaction of the conditions precedent, and that as a result the Vendor was not entitled to rely upon the non-fulfilment of the conditions precedent.

Reasons

384 On the plain language of the Deed it is clear that the conditions precedent in cl. 8.1 are conditions precedent to the completion of the sale and not to the exercise of the option. The heading of cl. 8 is "CONDITIONS PRECEDENT TO SALE" and the heading of cl. 8.1 is "Sale subject to conditions". The reference is to "sale" and not to exercise of the option. Importantly, cl. 8.1 itself provides that "the Call Option or sale of the Property is conditional on...". The words "sale of the Property" would be superfluous if the intention was to set up the cl. 8.1 conditions as conditions precedent to the exercise of the option. Again, there is nothing in the Deed expressly providing that the option cannot be exercised unless the conditions in cl. 8.1 are first satisfied and it would have been easy to so provide had that been the intention. Instead cl. 3.1 provides that the option may be exercised during the Call Option Period, a period that is defined by cl. 1.1 to commence on the date of the Deed and not at some later date, such as the date that the Purchaser notifies the Vendor that it is satisfied with its due diligence enquiries (i.e. at some time within 2 business days of the Due Diligence Date)[76]. The Deed thus contemplates that the option might be exercised, for example, prior to the Vendor obtaining the permits and planning approvals referred to in cl. 8.1(a). Indeed, the fact was that when the Deed was executed those permits and planning approvals had not been obtained. So, it must be taken, both from the language of the Deed and the facts surrounding its execution, that the parties contemplated the possibility that the option might be exercised before those permits and approvals had been obtained.

385 Language that could be argued to point to a contrary conclusion is the phrase "Subject to Clause 8 of this Deed" contained in cl. 2.1 of the Deed. However what cl. 2.1 makes subject to cl. 8 is not the exercise of the option but the grant to the Purchaser of the option to purchase on the terms and conditions contained in the Deed. This language is equally consistent with an intention to ensure that the conditions precedent operate to protect the Purchaser after the option is exercised. Further, the Purchaser is not in need of any such protection until it has exercised the option because, before the exercise of the option, the Purchaser can protect itself by refraining from exercising the option. It is only after exercising the option that it is bound to purchase the Property (cl. 3.3) and only then may it be in need of such protection. Clause 3.3 provides that the Vendor and Purchaser are bound to sell and purchase the property on exercise of the option "in accordance with the terms set out in this Deed" - those terms include cl. 8.1.

386 The only other language that might point to a contrary conclusion is the provision in cl. 8.5 that if the Deed is terminated under cl. 8.4 neither party will be under any "further" obligation to the other and "the Purchaser can not exercise the Call Option", but this provision is more consistent with an intent to make it clear that once the Purchaser has notified that the conditions are not satisfied (or it has not notified that they are) the Deed will terminate and there will be no second opportunity to exercise the option.

387 It might be contended that the intent of the Deed was to prevent Primelife when controlled by Sent exercising the option in the interests of Sent (or Mainpoint Developments) to the prejudice of the interests of Primelife. However the contention is flawed because if Primelife were controlled by Sent at the relevant time, the Deed could be abrogated in toto. This was no doubt recognised by ASIC when it imposed a requirement upon Primelife that it give certain protective undertakings to ASIC.[77] On the other hand, if Primelife is not controlled by Sent at the relevant time, it need not exercise the option unless it seems to be in its interests to do so and it then makes sense that the Purchaser be protected by the conditions contained in cl. 8.1 after the exercise of the option.

388 It seems to me for the foregoing reasons that the plain literal construction of the Deed which I prefer is supported in all the circumstances by common sense considerations and gives business efficacy to cl. 8.1.

389 It follow in my opinion that Primelife has validly exercised its option under the Deed to purchase the Point Cook property and as a result there is a binding contract for the sale and purchase of the Property which is subject to the conditions precedent contained in cl. 8.1.

390 Primelife submitted that, if the Court came to the conclusion which I have reached in the previous paragraph, there was no need for it to waive the conditions precedent because Primelife did not need the protection of those conditions in circumstances where the value of the land, even without planning approval, at the time of the exercise of the option far exceeded the price that Primelife would have to pay.

391 In Clark v Refeld[78], the defendants sold certain farming land to the plaintiff pursuant to a contract of sale containing special conditions. One special condition was that the contract was subject to a named bank agreeing on or before a specified date to grant a loan of not less than a specified sum to the purchaser and to the purchaser obtaining that loan on or before the date of settlement on the security of a first mortgage on specified terms. The contract further provided that if any of the special conditions should not be fully satisfied within the time appointed (unless waived by the purchaser in writing) then either party might at any time thereafter cancel the contract by written notice to the other. The purchaser did not apply for the specified loan because he had other funds or finance and did not need the bank loan but he did not purport to waive the special condition. The vendors cancelled the contract.

392 The Full Court of the Supreme Court of South Australia (Mitchell, Zelling and Legoe JJ) dismissed an appeal from the decision of the trial judge (Wells J) that the vendors were not entitled to cancel the contract. The decision depended upon construction of the specific language of the contract but, in essence, the judges both at first instance and on appeal held that the special condition was fully satisfied because the purchaser had the necessary funds to settle the contract and that the vendors therefore derived no further benefit from the special condition. The main object of the contract should not be defeated by a literal interpretation of the special condition.

393 The facts of the present case are of course quite different but I think that the principle is the same. The circumstances at the time of the exercise of the option were such that Primelife undeniably derived a very substantial financial advantage by exercise of the option and neither required nor gained any necessary protection from the cl. 8.1 conditions.

394 The foregoing conclusion no doubt involves the assumption that Mainpoint Developments has no independent interest in the performance of the cl. 8.1 conditions and obtains no benefit from insisting upon their performance, in other words, the conditions are for the exclusive benefit and protection of Primelife. It seems to me on a reading of the Deed that, prima facie, the conditions in cl. 8.1 were inserted exclusively for the benefit and protection of Primelife. On the face of the document there would seem to be no reason why Mainpoint Developments should be concerned as to whether or not Primelife obtained the necessary permits and approvals for development of a retirement village or the necessary finance for the same. This view is reinforced by cl. 8.2(a) providing that the Deed is conditional upon the Purchaser being satisfied in its absolute discretion with the results of a Due Diligence Enquiry, i.e. being satisfied in its absolute discretion that the conditions precedent have been satisfied. The background history of the Deed[79] supports and certainly does not detract from this conclusion.

395 If (contrary to my conclusion) Primelife needs to waive the benefit of the cl. 8.1 conditions, it is able and entitled to do so because, as I have said, they are solely for the benefit and protection of Primelife.[80]

J: ORDERS

396 In each of the Sent and Porter proceedings there will be judgment for the defendant. In the Point Cook proceeding there will be an appropriate declaration as to the enforceability of the contract for the sale and purchase of the Point Cook property. I will hear the parties as to the precise orders and as to costs.

[1] 8625 of 2003

[2] 9502 of 2003

[3] 2062 of 2004

[4] i.e. "unless and until"

[5] Clause 1.1

[6] The reference to "the" legislative requirements is clearly a reference to any legislative requirements applicable to the employee so long as the non-compliance is one that is material for a person in the employee's position.

[7] Clause 10.5.1

[8] Clause 10.5.2

[9] Clause 10.5.6

[10] There was no dispute between the parties as to the relevant legal principles stated and applied in such cases as Blyth Chemicals Ltd v Bushnell [1933] HCA 8; (1933) 49 CLR 66; North v Television Corporation Ltd (1976) 11 ALR 599; Concut Pty Ltd v Worrell [2000] HCA 64; (2000) 176 ALR 693; Bruce v AWB Ltd (2000) IR 129; Rankin v Marine Power International Pty Ltd [2001] VSC 150 and Connor v Grundy Television Pty Ltd [2005] VSC 466.

[11] Now called People First Retirement Services Pty Ltd.

[12] The company was and has continued to be a public company listed on the Australian Stock Exchange, the listing having commenced in or about 1987, its previous names being Permasnow Australasia Ltd and then Thomas McDougall Ltd.

[13] De Luca was for some time a director of Primelife.

[14] As to the reason for this increase, see para 280 below.

[15] See para 287 below.

[16] Primelife's "executive" was, it would seem, constituted by Sent and Porter but Flood testified that the policy document was also circulated to "senior managers".

[17] In his witness statement, de Crespigny said that he also discussed with Sent the need to move him into a role away from management and his opposition to nepotism. Sent denied that these matters were mentioned and I am not satisfied that they were.

[18] De Crespigny testified that he "believed" that he first learned of the continued making of cash payments in August 2003 but he then conceded that he could not dispute that Flood may have told him something earlier, but not before he became Chairman. De Crespigny said, and I accept, that if the making of cash payments had been discovered during the due diligence process, he would, because of their size, have wanted to know to whom they were made, because they were outside the range of "petty cash".

[19] The evidence shows that Legge and Kemp considered that Sent had no basis for seeking such amendments to the Point Cook option.

[20] Flood then told de Crespigny that his investigations were continuing. In late June 2003 he and Williams gave de Crespigny an incomplete list of payments, but it was only after July 2003 that Flood attempted to reconcile the payments with cheque butts, invoices and other records. Flood only reported the details to de Crespigny in mid-August 2003.

[21] I am satisfied upon viewing the video file forming part of exhibit 48 that this unidentified female is Porter - indeed it could not in the circumstances have been the new director, McPhee, the only other female present.

[22] I refer to and repeat the previous footnote.

[23] i.e. Porter

[24] The words "previous board" are fairly clear when the disk in evidence is played, whereas the transcript records these words as "Peter Schaum" - an obvious error.

[25] Daniele identified the speaker as de Crespigny but it is reasonably clear that it was in fact Sent upon a playing of the disk in evidence.

[26] These words are recorded in the transcript as "They're not taped unless she wanted to ..." - again an obvious error.

[27] Exhibit O.

[28] The representative of Albany Bay who conducted the due diligence process.

[29] A reference to certain managed investment schemes utilised by Primelife to raise funds for retirement village developments.

[30] Porter testified that, having left the board meeting, she went to her office and that Sent was there for some of the time. Sent, in his evidence, recalled that Legge "stuck his head in" but could not recall what he asked. Porter confirmed that Legge "popped in at some stage" but said that she could not recall what he said. Porter then said that if Legge had asked whether the private meeting was being recorded, she would have answered no for the same reason she had answered no on 27 June 2003.

[31] Cobbledick had been the subject of earlier consideration for a position of Chief Operating Officer as part of the Sent "succession plan".

[32] See para 154 below.

[33] Porter's notes appear at pages B65-B73 of the Court Book.

[34] These times appeared from the expert evidence of RA Williams.

[35] Sent testified in his witness statement that on 25 July 2003 he wrote a memorandum to Walker advising that he had terminated Porter's services in accordance with de Crespigny's instructions and that he believed he gave this memorandum to Walker at a meeting with him on 31 July 2003 "although it is possible that I did not and that I just used it as a basis for my discussions with him that day insofar as they concerned Miss Porter". There is a memorandum in the Court Book (B2900) purportedly dated 25 July 2003 from Sent to Walker and purportedly copied to the other directors. The memorandum was prepared by Porter (as were all of Sent's memoranda). It is a long memorandum and contains much of the same material as to Porter's attitude along the lines contained in her earlier communication to Sent. However, there is no evidence that Walker or any other director received the memorandum and, in the end, the plaintiffs did not rely upon it.

[36] The meeting was not completed and continued on 8 August 2003.

[37] There is in evidence (Court Book B2986) a memorandum created by Porter which refers to "some irregularity afoot" - it seems from all the evidence that this was probably a reference to the question of whether Sent had been instructed to terminate her employment.

[38] This memorandum was settled by Landau of SBA.

[39] According to Flood, he first learnt of the termination of Porter's employment when he was so informed by de Crespigny on 22 August 2003.

[40] By this letter, the Board became aware for the first time that, contrary to what they had been told, this meeting had been taped. Sent's complicity (if any) was not known to the Board before his dismissal.

[41] Court Book B2739 to B2744.

[42] See para 174 below.

[43] See para 207 below.

[44] "The instructions given for and the method of drawing cash cheques, the cashing of those cheques and the disbursement of the monies."

[45] The minutes suggest that this occurred after the resolution was passed but Sent's own evidence suggests that his statement was made before a vote was taken.

[46] Sent had earlier obtained an interlocutory injunction restraining Primelife from treating him as having been dismissed as a director.

[47] See para 88 above.

[48] See para 99 above.

[49] The last above mentioned piece of evidence was misleading in that Sent already knew Gatto from an earlier involvement. Sent later conceded that he had engaged Gatto once previously in about 1995. Sent said that he had a dispute with someone called Wilson in Sydney about services rendered. Sent said that a good acquaintance told him that a person by the name of Gatto had some information that could be important to Sent. Sent spoke to Gatto who told him in substance that there was a serious threat of personal harm being made against him by someone instructed by Wilson and that Gatto would, if Sent so desired, make contact with Wilson and this other person and "mediate the dispute". Sent said that Wilson and this other person came to Melbourne, they met at a hotel and Gatto did the mediation and resolved the dispute. Sent said that he paid $60,000 to settle the dispute and that Gatto took his fee out of that sum, but he did not know how much. Gatto, in his evidence, had some recollection of this incident and in a convoluted and Runyonesque account confirmed the substance of Sent's evidence.

[50] Gatto testified that, although he was not a director, A&M was effectively him.

[51] See para 281 below.

[52] Gatto in his evidence referred to four or five occasions where he helped to avoid stoppages on sites, including a black ban.

[53] Tudor gave evidence that the Building Industry Association of Victoria published a "green book" dealing with, inter alia, site allowances for commercial projects, the amount of which depended on the cost of the building project. A dispute arose with the union representatives because Primelife developments were typically part-residential. Tudor and also Thompson had several discussions with CFMEU representatives on this topic.

[54] Gatto broadly confirmed Sent's evidence.

[55] Of course on Sent's version this aspect was part of an earlier conversation.

[56] The other documents comprised a receipt for $50,000 for the year September 2002 to September 2003, an invoice for $6,600 for work in August 2003 and an invoice for $50,000 for the year September 2003 to September 2004 (the latter invoice was never paid).

[57] One might speculate as to the identity of the author of the letter (although it was probably typed by Gatto's wife) but I do not regard the letter or the circumstances surrounding it as detracting from the credibility of the oral evidence of Sent and Gatto which I have accepted to the extent indicated.

[58] See Court Book B1900_04 to 1900_05.

[59] In Answers to Interrogatories sworn 13 September 2005

[60] Another then director of Primelife.

[61] See Transcript p235.

[62] McPhee also testified that she was and had been a member of numerous public company boards and that in her experience it was extraordinary for a public company to be paying any supplier of goods or services in cash.

[63] Kemp has a Bachelor of Commerce and is a chartered accountant. He said that at all times he had a good grasp of corporate governance.

[64] The evidence shows that it was installed in April 2000.

[65] Porter's use of the RACAL system for this purpose ceased in about late 2002 after the discovery and removal of listening devices in Primelife's offices (one was found under a lighting bulkhead in the legal department and one was found in the ceiling in the accounts department).

[66] i.e. Flood

[67] i.e. Sent

[68] i.e. Grigoriadis

[69] i.e. Stuart

[70] The definition goes on to cover in substance a conversation or message in any form.

[71] "Line" is defined as having "the same meaning as in the Telecommunications Act 1997".

[72] "Listening device" is defined by s.3 of the Surveillance Devices Act to mean "any device capable of being used to overhear, record, monitor or listen to a private conversation or words spoken to or by any person in private conversation", and "private conversation" is therein defined to mean "a conversation carried on in circumstances that may reasonably be taken to indicate that the parties to it desire to be heard only by themselves".

[73] I therefore do not need to decide whether the Surveillance Devices Act was applicable and contravened.

[74] See cl. 24.1 of the Sent agreement.

[75] As in cll. 3.1, 3.2, 3.4, 4.1, 5.2, 8.5(b), 10 and 13.

[76] See cl. 8.4(a) of the Deed.

[77] See para 54 above. I note that on 9 May 2006 ASIC advised Primelife that it was no longer bound by the undertakings.

[78] (1980) 25 SASR 246.

[79] See para 33 and paras 45 to 56, above.

[80] See generally G&S Koikas v Greenpark Construction Pty Ltd [1970] VicRp 18; (1970) VR 142; Sandra Investments Pty Ltd v Booth [1983] HCA 46; (1983) 153 CLR 153 and Peatties Rd Pty Ltd v Hanson [2004] NSWSC 831.