Plaintiffs v First and Second Defendants

1 On 9 March 2001 an administrator was appointed to a company named Universal Logistics Pty Ltd ("Universal Logistics"). At the time of that appointment the first plaintiff, Sam Sali, and his brother, who has since died, Alan Sali, were non-executive directors of the company. Until approximately a week before the company was placed into administration the third defendant, Matthew Blizzard, had been an executive director. The three plaintiffs, Sam Sali, Alan Sali (deceased) and S Sali & Sons Pty Ltd ("S Sali & Sons") were the shareholders in the company. On 5 April 2001 the company went into liquidation. Unsecured creditors totalled $2,641,692, and they have received no dividend.

2 The three plaintiffs, Sam and Alan Sali and their company S Sali & Sons, suffered losses as a consequence of the failure of Universal Logistics. Payments were made to creditors of Universal Logistics, pursuant to guarantees and for other reasons. Funds advanced to Universal Logistics in late 1999 have been lost. Most significantly, S Sali & Sons has been left with unpaid accounts for cartage contracting services totalling over $900,000, upon which nothing has been recovered.

3 The defendants, Metzke & Allen, are a firm of chartered accountants in Shepparton. The firm acted for the Sali brothers and S Sali & Sons for many years. Commencing in early 1999 a partner in the firm, Russell Allen, began attending board meetings of Universal Logistics at the request of the Salis.

4 In this proceeding the plaintiffs claim that the losses they suffered as a result of the collapse of Universal Logistics were caused by breaches of contractual and other duties owed by Metzke & Allen to them. The claim as pleaded separates out two relevant times. The first relevant time is said to be on or about 13 September 1999 when it is alleged that the board of Universal Logistics, acting on the advice of Mr Allen, made decisions to expand Universal Logistics' business. Shortly after these decisions were taken, in October 1999, two of the plaintiffs advanced a total of almost $200,000 to the company so as to provide needed cash flow.

5 The second relevant time is said to be the period between September 1999 and March 2001. It is alleged that during this period there was a continuous failure to properly advise and in particular, as the matter was put in final submissions, to adequately warn the plaintiffs of, or otherwise respond to, risks and circumstances of which Mr Allen was or ought to have been aware.

6 Metzke & Allen deny any breaches of contractual or other duties and allege that if there was any breach the plaintiffs were guilty of contributory negligence.

7 At the instance of Metzke & Allen, Matthew Blizzard was joined as a third defendant. This joinder was solely for the purpose of contending as against the plaintiffs that Mr Blizzard was a concurrent wrongdoer and that any liability Metzke & Allen might have to the plaintiff should be limited pursuant to Part IVAA of the Wrongs Act 1958 (Vic) to an amount reflecting the extent of their own responsibility. Solicitors on behalf of Matthew Blizzard advised during the course of the proceeding that as no relief was sought against him, he did not propose to take any part in the proceeding. There was no appearance on behalf of Matthew Blizzard at the trial.

Nature of the claims made against Metzke & Allen

8 The plaintiffs claim that Metzke & Allen were negligent and in breach of their retainer in relation to advice given or not given, or other steps taken or not taken, concerning a number of issues arising in the period from early 1999 when Mr Allen began attending board meetings until the company went into administration. The term of the retainer which it is alleged Metzke & Allen breached was a term requiring the exercise of reasonable care and skill.

9 The issues to which particular attention was addressed in the trial were:

(a) the acquisition of two new prime movers and specialised trailers, usually referred to as "B doubles";

(b) a budget presented to the board in September 1999;

(c) a cash advance made to the company by two of the plaintiffs in October 1999;

(d) new premises which the company leased in Sydney and Brisbane;

(e) a board meeting in April 2000 where the company's solvency was discussed and critical decisions were made;

(f) the period after April 2000 when, it was said, the board was misled as to the company's trading performance by its managing director, Mr Blizzard.

Legal principles concerning the claims made against Metzke & Allen

10 Before me there was no significant disagreement as to the legal principles to be applied in relation to the claims made by the plaintiffs against Metzke & Allen.

11 I set out below the legal principles to be applied.

12 The scope and extent of an accountant's liability to the client is largely established by the terms of the accountant's retainer.[1] Courts must not impose upon a professional duties beyond the scope of what he or she was retained to do.[2]

13 Where an accountant provides services to a client under a contract it is an implied term of that contract that the accountant will exercise reasonable care and skill in providing the contracted services.[3]

14 Accountants owe duties of care in tort[4] that are concurrent with the implied contractual term to exercise reasonable care.[5] Tort law does not place any additional duty upon the accountant to give advice beyond the scope of the retainer.[6]

15 Where an accountant owes a duty of care to a client, he or she is required to exercise the care and skill of the ordinarily skilled accountant.[7] Where the accountant fails to exercise that standard of care and skill, he or she breaches that duty.

16 In considering whether a professional has failed to exercise the requisite standard of care and skill, the court must guard against hindsight bias. That is, "the standard of care to be expected of a professional...must be based on events as they occur, in prospect and not in retrospect".[8]

17 In order to recover damages against an accountant who fails to exercise the requisite standards of care and skill, a plaintiff must prove that it suffered loss or damage; that there exists sufficient causal connection between the damage suffered and the want of reasonable care and skill; and, that the loss suffered was not too remote.

18 In contract law and in negligence, the question of whether a particular loss was caused by a particular breach is to be answered by reference to common sense and experience.[9] The 'but for' test is a useful aid[10] but it must be applied in a practical common sense way.[11]

19 Where there are multiple causes of a loss, the want of reasonable care and skill need not be the only cause. It is sufficient that the failure materially contributed to the loss, even if other causes played a more significant role in producing it.[12]

20 In cases where there has been a failure to advise, the causation question becomes whether the plaintiff would have acted differently and avoided the loss if properly advised or warned.[13]

21 The plaintiff must then identify the kind of warning or information which the circumstances called for and prove that, if the warning had been given, the loss or injury alleged would not have been suffered.[14]

22 Causation will not be established unless the plaintiff can persuade the court on the balance of probabilities that, if the advice or warning had been given, the plaintiff would have acted differently and avoided the loss. McHugh J in Chappel v Hart said:

"...(1) a causal connection will exist between the failure [to warn of risk or injury] and the injury if it is probable that the plaintiff would have acted on the warning and desisted from pursuing the type of activity or course of conduct involved; (2) no causal connection will exist if the plaintiff would have persisted with the same course of conduct in comparable circumstances even if a warning had been given." [15]

23 Given the effects of hindsight, Courts should be cautious when evaluating a plaintiff's retrospective evidence that he or she would have acted to avoid a loss.[16] When evaluating such evidence, Gummow and Kirby JJ have suggested that Courts should give particular weight to objective factors or to an objective standard.[17]

24 Sam Sali and his brother Alan migrated to Australia with their parents in 1937. Their father established an orchard in Shepparton. Alan Sali left school before completing primary school and began helping his father in the orchard. Sam Sali left school in Year 9 and commenced an apprenticeship as a motor mechanic.

25 Sam and Alan Sali developed a business in partnership transporting fruit from orchards in Shepparton to Melbourne. In 1976 this business was incorporated as S Sali & Sons.

26 Over the years, in addition to their trucking business conducted by S Sali & Sons, the two Sali brothers undertook a number of other business ventures including a business as petroleum carriers, retail store operators, cinema owners and operators, and property developers. Their ventures involved significant sums of money and were structured using corporate entities, unit trusts, and family trusts. While their limited formal education should not be ignored, by the time they determined to become involved in the Universal Logistics venture they were experienced and successful businessmen.

27 Metzke & Allen is a firm of chartered accountants in Shepparton. The firm was originally associated with the international accounting enterprise known as Deloittes. The firm presents itself to the public as offering a high level of quality advice in a variety of areas including business and management, tax and accounting, corporate secretarial, audit, and strategic planning.

Commencement of the Universal Logistics venture and relationship with Metzke & Allen at that time

28 In 1992 a person named Gregory Bowler approached Sam Sali with a proposal to acquire a small freight forwarding company in Melbourne. As a result of that approach the business was acquired and the company, then named S.G.A. Transport Pty Ltd, was incorporated. The letters in the company's name stood for Sam (Sali), Gregory (Bowler), and Alan (Sali). The company's operations were based at Coolaroo in Melbourne.

29 At that time the Salis had a close relationship with a chartered accountant named Neil Allan. He was a partner in a predecessor firm to Metzke & Allen named Metzke & Allan. Neil Allan gave evidence before me and he described the nature of the relationship which he had with the Sali brothers. In substance the description he gave was of a relationship in which he was personally involved in every significant decision which the Sali brothers would make, and in a number of insignificant decisions as well. Bills rendered by Metzke & Allan, which were tendered in evidence, do reflect Neil Allan's close involvement in the initial decision to acquire the S.G.A. freight business. Without reflecting in any way on Mr Allan's credit, I observe that otherwise the bills in evidence do not seem to me to reflect the intensity of the relationship during this period which was described by Neil Allan in his oral evidence.

30 Neil Allan gave evidence that he had attended board meetings of the company. He said his duties in attending board meetings were to give advice about the performance of the business with an "overriding responsibility to protect the Sali family interests". Otherwise, there was no evidence about the specific activities or work done by Neil Allan when attending, or as a consequence of attending, board meetings of the company.

31 In late 1994 or early 1995 Neil Allan left the firm, then named Metzke & Allan, and handed over the Sali family files to his then partner, Russell Allen.

32 On Neil Allan's description of the handover, there was very detailed discussion of the background and character of the Sali brothers and the nature of their various interests. According to Neil Allan, he described to Russell Allen their level of understanding about financial matters, which was said to be limited, and their expectation that the very high level of service and attention he had been giving them would continue. According to him, these discussions took place both between himself and Russell Allen alone, and in the presence of Sam and Alan Sali.

33 Sam Sali's evidence did not reflect Neil Allan's account of the circumstances. His evidence on this issue was very limited.

34 Russell Allen's evidence was that he had meetings with Neil Allan to go through the files, and that they had a meeting with Sam Sali and Alan Sali which was "just a general introduction".

35 Some considerable attention was given during the course of the trial to the exploration of the nature of Neil Allan's relationship with the Salis prior to 1995. This occurred because it was perceived that there was, or might be, controversy as to whether Metzke & Allen had been retained by the individual plaintiffs to provide them with financial and accounting advice in relation to the affairs of Universal Logistics. In the course of the trial, and in particular during Russell Allen's cross-examination, it became clear that there was no real controversy on that aspect of the issue of Metzke & Allen's retainer.

The Universal Logistics venture prior to the arrival of Mr Blizzard

36 The business acquired by the Sali brothers and Mr Bowler was conducted by the company they incorporated for that purpose under the name S G.A. Transport Pty Ltd until 4 May 1999 when it changed its name to Universal Logistics.

37 There is no material in evidence revealing the financial performance of the business which is earlier than the financial accounts for the year ended 30 June 1998. Those accounts reveal that the business then had a turnover of approximately $7,000,000 per year. In the year ended 30 June 1998 it had accumulated losses of $119,064. The accounts indicate that this figure was comprised of a loss of $2,531 in the year to 30 June 1998, a loss of $71,684 in the year to 30 June 1997, and accumulated losses of $44,850 in relation to prior years. The balance sheet as at 30 June 1998 records a deficiency of net assets of $119,055, a small increase on the 30 June 1997 figure of $116,525 as a result of the 1998 loss. There was also a deficiency of current assets of $122,049, up from $96,187 in the prior year. In the notes forming part of the accounts and in the directors' report, signed by Alan and Sam Sali, the following appears:

"Notwithstanding the ... deficiency of net assets, the financial statements have been prepared on a going concern basis as the directors have received a guarantee of continued financial support and the directors believe that such financial support will continue to be made available."

38 An indication of the nature of this financial support which had been provided is given in note 12 to the 1998 accounts. The note records that the company was part of what was described as the "S Sali Transport group" and that charges over assets of "group entities" had been given, that a registered mortgage in respect of properties "held by the group" had been given, and that unlimited joint and several guarantees and indemnities from the directors had been provided. The accounts also record that the directors had guaranteed bank overdraft and commercial bill obligations. Both the bank overdraft and the commercial bill obligations were said to be secured. At 30 June 1998 the overdraft was recorded as $57,071 and the commercial bill obligation, which at that time was with the Bank of Melbourne, was recorded as $200,000.

39 The commercial bill facility had been provided by Bank of Melbourne pursuant to a letter of offer dated 15 February 1995 as varied pursuant to a letter of 19 March 1997. Pursuant to the terms of this facility an audit of the financial accounts of the borrower limited to trade debtors and plant and equipment was to be conducted annually. The relevant term nominated Russell Allen as an acceptable auditor for these purposes.

40 The 1998 accounts reveal, in my view, that as at 30 June 1998 the company was not and had not been profitable, that it had a deficiency of both total and current assets, that the support of the Sali brothers was necessary to enable it to continue, and that the Sali brothers were personally exposed should the company fail.

41 Mr Sali in his evidence said that the company was "progressing fairly steady" in 1998. He suggested that the business was "stable". It seems to me that that description portrays the business in 1998 more positively than is revealed by the accounts. He went on:

"We weren't making sort of any growth that we were looking for. With that in mind, that's when Greg Bowler introduced Blizzard to us."

42 According to Mr Sali, he met with Mr Bowler and Mr Blizzard at a hotel in Coolaroo. Matthew Blizzard made a presentation. Mr Sali said that after that presentation it seemed to him that Mr Blizzard had something to offer the business and he decided to take the matter further by talking to the board of directors in Shepparton and by also discussing it with Russell Allen.

43 At one point in his evidence Mr Sali identified a document which is entitled "S.G.A. Transport towards 2000 Strategic Implementation Plan" which he said was part of Mr Blizzard's presentation. The terms of the document suggest that it was prepared after the initial presentation had been made by Mr Blizzard and after what was said to have been a decision to "commence the next phase". At a later point Mr Sali was less sure that this document was from the original meeting.

44 It seems to me that this document is probably not the first presentation that Mr Blizzard made. But it is dated October 1998, and from its terms it is clear that it represents a proposal put forward in the very early stages of Mr Blizzard's involvement with the company. The following aspects of this early presentation are noteworthy:

• It identified as one of the opportunities for the company what it described as "asset growth - depot facilities/specialised line haul equipment".
• In the detailed "Implementation Plan" section, it referred to the purchase of two B double vehicles in the early stages of the implementation plan and it included a three page profit analysis of these proposed new vehicles.

The reason these features are noteworthy is because they reveal that expansion in both depots and vehicles (the B doubles) was part of Mr Blizzard's plan for the business from his introduction.

45 According to Mr Sali, he returned to Shepparton and contacted Russell Allen. Mr Blizzard then came to Shepparton and basically did the same presentation as he had done before. Mr Sali's evidence was that after that presentation there was a discussion at "board level". Russell Allen was then instructed to make Matthew Blizzard an offer of employment. Mr Allen drafted a letter of offer to Matthew Blizzard, to be signed by the then three directors of the company, dated 25 November 1998. Mr Blizzard accepted that offer in December 1998 and commenced employment in January 1999. At a meeting of directors on 15 January 1999 Mr Blizzard was appointed as a director. Thereafter the board papers and other company documents consistently refer to him as the managing director. In final submissions the plaintiffs submitted that he was the managing director. I accept that.

46 Russell Allen also attended the board meeting on 15 January 1999. That was the first board meeting he attended. He had been asked to attend by Sam Sali, and he attended all the board meetings thereafter. When asked what Sam Sali said to him when he requested him to attend board meetings Mr Allen's evidence was:

"As far as I can recall, it was about assisting Universal through the period of the proposed expansion that Matthew Blizzard had outlined and for me to be the accountant at the board meetings to give some guidance or some advice to the board in an advisory capacity."

47 In his evidence Sam Sali described Russell Allen's role as follows:

"Russell's role was to answer financial questions, protect the Sali interests and also to give further advice and particulars to the board as required."

48 In cross-examination Mr Allen readily conceded that he was the individual plaintiffs' accounting and financial advisor and that Metzke & Allen's retainer was such that he was duty bound to advise and warn them about matters potentially affecting their financial interests in relation to Universal Logistics.

49 At that very first board meeting which both Mr Blizzard and Mr Allen attended, on 15 January 1999, some of the principal matters to which attention was directed at the trial were raised.

50 As was almost invariably the practice from this point onwards, Matthew Blizzard prepared written material in advance of the meeting. Later, this material was usually in the form of a PowerPoint presentation. The material prepared by Mr Blizzard for the 15 January 1999 meeting was entitled "Agenda Discussion Paper - Game Plan". One of the statements made in Mr Blizzard's "Game Plan" document was that all board of directors' meetings would henceforth have minutes taken. Minutes were prepared for this first meeting on 15 January 1999. Later, formal minutes became rare and the proceedings and decisions of the board were generally recorded in Mr Blizzard's presentations and in documents listing agenda items and listing action items.

51 At the meeting on 15 January 1999, the issue of the board's role was raised. It was agreed that Russell Allen would not join the board, at least for what was described as an initial three to six month period during which there was to be what was described as a "business re-engineering process". In his evidence Mr Allen said there was discussion of him becoming a director but it was decided he would not be on the board initially and that he would attend in an advisory capacity.

52 Both the "Game Plan" document and the minutes record Mr Blizzard's insistence upon communications with employees being through the managing director, himself, and not directly from board members to employees. This was a matter which he was to raise again later.

53 Spending authority decisions were made. Among other things, the board determined that purchases related to vehicles and equipment had to be approved by Sam Sali.

54 Another issue raised at Mr Allen and Mr Blizzard's first board meeting was the position in relation to the New South Wales depot, which the "Game Plan" document indicated needed "urgent attention". In his evidence Mr Sali agreed that at that time the New South Wales depot was becoming a bit congested.

55 The board also resolved at the meeting on 15 January 1999 to explore proposals and costings for hardware and software upgrades.

56 According to Mr Sali's evidence the main proposal which emanated from Mr Blizzard when he commenced work at the company was the proposal to acquire the B double vehicles. This had been a significant part of Mr Blizzard's presentations the year before. Mr Blizzard's "Game Plan" document that was presented to the meeting on 15 January 1999 foreshadowed that at the next board meeting one of the key points to be put forward would concern this proposal, which the "Game Plan" document referred to as "specialized company line haul vehicles".

57 The final matter which should be noted in relation to this meeting, which was to become an issue of significant importance to Russell Allen later and which is of significance in this proceeding, concerns financial reporting. Mr Blizzard's "Game Plan" document indicated that among the "standard" board meeting agenda items would be: "Review company financial performance - cash flow - expenses - profit".

58 The records of Mr Blizzard and Mr Allen's first board meeting, and the evidence given about it, confirm that Matthew Blizzard was taken on by the then board of Universal Logistics (Sam Sali, Alan Sali and Greg Bowler) as managing director to pursue a plan of expansion which he had devised, and that from the outset that is what he did.

59 In anticipation of the next board meeting, which was on 1 February 1999, Matthew Blizzard prepared an agenda which included an item: "Review justification for purchasing specialised B-Double linehaul equipment". He also prepared a three page cost analysis in relation to two proposals for the purchase of additional equipment. Proposal 1 concerned the purchase of two prime movers with B double trailers. The calculations set out on that document suggested annual savings of $220,500 would be made.

60 It is necessary to observe that Mr Blizzard's document is potentially confusing if read in isolation. It is a calculation of the savings to be achieved using the B doubles as opposed to sub-contractors. It does this by setting out what were said to be the sub-contract costs as "gross revenue", and then deducting the B double costs to produce a "profit", which is the suggested cost saving.

61 Mr Blizzard's costings document was faxed to Russell Allen in advance of the meeting. Mr Allen gave the B double proposal calculations to an employee of Metzke & Allen named Geoff Cootes, who had knowledge of transport industry costings because his family had what Mr Allen described as a heavy involvement in that industry. Mr Cootes and Mr Allen then undertook an analysis of Mr Blizzard's figures. That analysis was recorded in handwriting on the proposal document that had been faxed to Mr Allen. The analysis indicated that Mr Blizzard's projected savings were too high. Mr Allen took this document to the meeting on 1 February 1999. He took those present through it. Mr Allen's recollection of the discussion was that Mr Blizzard conceded that his cost savings were too high and the matter was left on the basis that there would be further analysis.

62 The minutes of the 1 February 1999 meeting record the following:

"The proposal for new specialised linehaul equipment and costing was put forward - commitment to making the decision by next Board meeting was given, additional time was required to more accurately review potential impact on Sali Business."

63 The minutes do not reflect the evidence of both Russell Allen and Sam Sali on this issue. I have already referred to Russell Allen's evidence that further analysis was required after Mr Blizzard conceded, consequent on the work done by Mr Allen and his employee Mr Cootes, that the projected savings were too high. Sam Sali gave evidence to similar effect. His evidence was that Russell Allen expressed concern with the figures, indicated he was not very happy with them, and expressed the view that a more realistic estimate should be made.

64 The issue which was referred to in the minutes, namely the possible effect on the "Sali business", was also an issue that was raised. S Sali & Sons provided sub-contract cartage services to Universal Logistics. The Sali brothers were concerned that if Universal Logistics acquired the new B doubles, S Sali & Sons' business might be adversely affected because the amount of sub-contracting work could be reduced.

65 After the meeting on 1 February 1999, where Mr Allen presented the results of his firm's analysis, Sam Sali undertook some further inquiries himself. He obtained indications of the costs that would be incurred for insurance and registration and he noted them on the copy of the proposal which he had been given on 1 February 1999.

66 Matthew Blizzard produced some further analysis, which he faxed to Russell Allen on 8 February 1999. This analysis principally concerned projected utilisation. Russell Allen reworked the figures himself and noted his calculations in handwriting on Matthew Blizzard's document. His view that Mr Blizzard had projected the savings at too high a level remained unchanged.

67 Further analysis was also done at this time by another accountant involved in Universal Logistics, one Ronald Panozzo. I will deal with his role more generally below.

68 On 9 February 1999 Mr Panozzo forwarded to Mr Allen a worksheet on the B doubles proposal. Mr Panozzo had recalculated Mr Blizzard's calculation of savings. Russell Allen considered Mr Panozzo's recalculation and made notes in handwriting on his document. Mr Panozzo's calculation suggested annual savings which were less than Mr Blizzard had projected. Mr Panozzo's calculated annual savings amounted to $15,676. Russell Allen noted Mr Panozzo's conclusion that there would be an additional contribution to the business as a result of the proposed acquisition of approximately $15,000. He also noted that if the company could achieve near full utilisation then the additional contribution would be about $50,000 per truck.

69 Mr Panozzo's analysis also addressed the potential effect on S Sali & Sons. He estimated this at between $400,000 and $500,000 per annum.

70 The issue of the potential effect of the proposed acquisition on S Sali & Sons was discussed separately between the Sali brothers and Mr Allen, outside Universal Logistics' board meetings, during March, April and May of that year. These separate discussions were reflective of the approach Russell Allen took when matters that might personally affect the Salis were raised at Universal Logistics' board meetings. His evidence, which I accept, was that he considered that the appropriate thing was to discuss such matters separately with the Sali brothers, and that that is what he did. There is no complaint made in this proceeding about his advice on this aspect of the B doubles issue.

71 Ronald Panozzo is an accountant. At the relevant time he was carrying on business as an accountant in Shepparton under the name "Panozzo Accounting Services". Sam Sali told me that he and his brother, and the family companies, had used Mr Panozzo's services since the early 1980s. Mr Sali explained that Mr Panozzo did the "junior side" of the accounting work. His fees were lower than Metzke & Allen and that was one of the attractions of using his services. Mr Sali described him as having sort of a dual role. He said: "He is employed by us but he is also answerable to Russell at Metzke & Allen". Mr Sali agreed that Mr Panozzo was a person he trusted and respected and whose advice he sought. When asked if that was why he asked Mr Panozzo to attend board meetings of Universal Logistics from the beginning of 1999, he agreed that it was and then added that Mr Panozzo was already attending board meetings before then.

72 Neil Allan gave evidence about the role Mr Panozzo played in relation to Universal Logistics in and prior to 1994. When asked whether Universal Logistics had had an accounts department he replied:

"I think the accounts department was Ron Panozzo and probably they would have had somebody there. I'm pretty sure there was not a bookkeeper but somebody who gathered all the paper and processed it for Ron at a certain stage and then Ron would do it."

73 Neil Allan explained that Ron Panozzo performed a bookkeeping role using a reasonably basic accounting system. He said that Ron Panozzo would go down to Universal Logistics' premises in Coolaroo for this purpose once a week.

74 Mr Panozzo did not give evidence before me. For reasons I will explain I have not drawn any inference against either of the represented parties in relation to that.

75 The documents in evidence reveal a further board meeting was held on 15 February 1999 at which the proposal to purchase the B doubles was again raised. The agenda for this meeting is in evidence. The agenda suggested that the need to purchase the B doubles was prompted by the fact that the company was "currently struggling with its ability to produce a return". Reference was made in the document to "Line haul cost flexibility - variable costs versus fixed (protect GP profit)". Reference was also made to an increase in the company's debt and to "company goes broke left with equipment".

76 The agenda document also put forward the need to consider a one off cash injection of $230,000. Mr Sali wrote on the bottom of the page setting out this cash injection proposal: "We need to move on a step by step basis". In his evidence Mr Sali said a capital injection was on Mr Blizzard's "wish list" but that he and his brother believed the company first needed to "consolidate further".

77 There is in evidence a documentary record of a PowerPoint presentation apparently made by Mr Blizzard at a board meeting on 1 March 1999. Among the items listed for the board's consideration in that PowerPoint presentation were the cash injection proposal and the B doubles proposal. There are no minutes in evidence in relation to this meeting, other than formal minutes apparently prepared for the purpose of recording a change of address by Mr Blizzard. In his oral evidence Mr Sali was referred to Mr Blizzard's presentation. He agreed the B doubles proposal was discussed but not approved at that meeting and that his and his brother's view of the cash injection proposal had not changed.

78 There is in evidence another presentation prepared by Mr Blizzard for a board meeting on 19 March 1999. Again, there are no minutes in evidence. One of the slides portrayed the "proposed executive team". This slide included as directors of the company both Russell Allen and Ron Panozzo. Neither of them were then, or were thereafter, directors of the company. Russell Allen gave evidence that he was prompted by references such as this one to tell Matthew Blizzard that he should not refer to him as a director.

79 On 8 April 1999 the board accepted Greg Bowler's resignation as a director of the company. His shares were transferred to S Sali & Sons. Mr Bowler's resignation occurred after an investigation had been conducted in relation to what were said to be unauthorised dealings with company assets and other matters. The relevant matters were the subject of an audit undertaken by Ron Panozzo and Geoff Cootes, relying on the pretext that an audit had been required by the Bank of Melbourne.

80 There is in evidence a PowerPoint presentation prepared by Mr Blizzard and presented to a meeting of the board of directors on 19 April 1999. There are no minutes of this meeting which reflect the many detailed matters set out in the PowerPoint presentation. There are formal minutes which merely record a resolution to change the company's name to Universal Logistics. Among the material in Mr Blizzard's detailed presentation was a slide setting out the key reasons why he was endeavouring to purchase specialised line haul equipment.

81 In accordance with what by this time can be seen as the regular pattern, there is in the evidence Mr Blizzard's presentation delivered at a board meeting on 17 May 1999, but there are no minutes of the meeting which are in evidence.

82 Mr Blizzard's presentation included a slide which read: "Review the directive for purchasing new linehaul equipment and cost analysis as agreed during previous board meeting". This slide would suggest that by 17 May 1999 a directive had been given to purchase the new line haul equipment. When this was put to Sam Sali he responded: "No way". Mr Sali's evidence was that the decision to purchase the B doubles was not made until September 1999.

83 Russell Allen's evidence was that the decision to purchase the B doubles was made in May or June 1999 and that it was agreed that Sam Sali would proceed to order the trucks from Graham Thomson Motors in Shepparton. His evidence was that after June the only discussion about the B doubles at board level concerned when the trucks were going to arrive and the financing options. Mr Allen's evidence was that the issue of concern about the possible effect of the acquisition of the B doubles on the business of S Sali & Sons had been resolved by the end of May. Mr Allen's evidence was that by then Sam Sali was more comfortable with the level of freight that would still be sub-contracted to S Sali & Sons.

84 On 10 June 1999 Sam Sali visited Graham Thomson Motors in Shepparton and spoke to Lachlan Grant. As a consequence of that conversation Mr Grant placed an order with Kenworth Trucks for two prime movers. According to documents in evidence before me Kenworth Trucks entered the order date as being 11 June 1999. The order contained detailed specifications of the client's particular requirements. The customer was recorded as "S Sali & Sons".

85 Mr Grant gave evidence before me. He said that the orders for the two prime movers, which were the prime movers for the B doubles, were placed with the manufacturer on 11 June 1999.

86 Mr Sali's evidence was that he did not order the trucks in June 1999 but merely obtained a quote. He suggested that dealers may nevertheless place an order even though only a quote has been requested. When Mr Grant was asked what he said about that, he responded: "That can happen". When asked whether it happened on this occasion he said he could not remember.

87 By the middle of 1999 a further person involved in the financial affairs of Universal Logistics had taken up employment with the company. This was John Yiannis. The slide setting out the proposed executive team presented to the board meeting on 19 March 1999 named John Yiannis as "financial controller". He was appointed company secretary on 8 June 1999.

88 A document headed "Minutes of Meeting" and referring to a board meeting on 8 June records a resolution that John Yiannis be appointed company secretary immediately. The same document also records: "Russell Allen and Ron Panozzo act in on advisory to the Board for a period of twelve months arrangement".

89 A board meeting was held on 13 July 1999. The evidence before me includes Mr Blizzard's usual PowerPoint presentation and a document entitled "Board meeting actions".

90 In the part of Mr Blizzard's presentation entitled "Global Key Initiatives" there was the following entry: "Linehaul vehicles ordered (currently sourcing finance)". In a section headed "Performance Summary", under the heading "Highlights", was the entry: "Linehaul Vehicles ordered".

91 Sam Sali was questioned on these entries, given his evidence that the decision to purchase the vehicles was not made until September 1999. His evidence was that he did not recall those comments or statements. He was also asked about the reference to finance being sourced. He said he had no knowledge of that, other than that he thought inquiries may have been made of a financier he referred to as "Paccar", which was associated with the truck manufacturer. He was adamant that he was not himself involved in any such steps to source finance.

Board meeting 13 July 1999 - financial reporting and depot facilities

92 The board meeting actions document for 13 July 1999 included the following entry: "Re design weekly profit & loss statement to reflect direct and indirect costs".

93 Russell Allen's evidence was that this was one of what became persistent requests on his part to the management of the company to produce financial reports which would enable him to assess the profitability of new work being undertaken by the company. Matthew Blizzard's expansionary plans for the company did create substantial new sales. Mr Allen's evidence was that he was concerned to ensure that this new work was profitable, but that the financial reports being presented did not enable him to do this. Sam Sali confirmed in his evidence that he recalled Mr Allen raising this matter.

94 The Blizzard presentation for this meeting recorded as a "low light" the fact that current facilities were proving inadequate. It was put to Mr Sali that by the time of this board meeting the search for a new depot in Sydney had commenced. He said he could not remember the dates specifically but that he knew there were some inquiries going on.

95 On 16 July 1999 Sam Sali faxed to Mr Allen a series of letters addressed to him from "Paccar Financial" quoting proposed financing for two Kenworth prime movers and two B double tautliner combinations. The specified purchase price for the prime movers was the price given or quoted by Graham Thomson Motors of $251,000. Mr Sali was taken to these documents after he had given evidence that he had had no involvement in any approaches for finance to Paccar. He said that he did not recall these quotations.

96 Russell Allen gave evidence that in the middle of 1999 consideration was being given by the board to the capacity of the depots in both Sydney and Brisbane. He said that Matthew Blizzard and Sam Sali were of the opinion that the Sydney depot could be sublet at a good rate which would more than cover the cost of another depot. As to the Brisbane depot his evidence was that the board was looking to shift because the Brisbane depot was not adequate.

Limiting Russell Allen's role as advisor to Universal Logistics

97 By a letter dated 23 July 1999, Mr Blizzard wrote to both Sam Sali and Alan Sali concerning Mr Allen's role. The letter began by referring to the costs which had been incurred for Mr Allen's services and then continued:

"There is no question relating to Russell's ability and value he adds to Universal Logistics and the Sali group, however, he does come at a high cost to Universal and we must keep in control of this cost.

Therefore, I must request that all work being done by Metzke and Allen on behalf of Universal Logistics be done so only after the approval of myself or the Company Secretary, so the cost component of this service is continually managed."

98 The company secretary at the time was John Yiannis.

99 Russell Allen's evidence was that he never saw this letter but that during August/September 1999 he was aware that Mr Blizzard had written such a letter to Sam Sali. He said that it was discussed or raised at board meetings. He said he thought it was first raised at the August meeting. What he was told was that any extra work by Metzke & Allen had to be first approved by Matthew Blizzard and John Yiannis. His evidence was that the reasons that he was given were that Universal Logistics had its own resources, and that the board preferred that any additional work was done by Ron Panozzo because of the difference in cost. I accept that that is what occurred.

100 By a letter dated 2 September 1999 John Yiannis forwarded to Bank of Melbourne a proposal for financing the two B doubles. The proposal submitted to the Bank of Melbourne said the decision to purchase the two B doubles had been made by the board of directors in March 1999.

101 There is in evidence a facsimile transmission of 6 September 1999 from Russell Allen to Sam Sali enclosing what the covering letter describes as a debtor's trial balance and a "list of outstanding creditors". The covering letter suggests that this material was supplied "as requested".

102 The enclosure which is described as a list of outstanding creditors is in fact a list of "unsent cheques". Some of the cheques, albeit for relatively small amounts, appear to be more than a year old.

103 Mr Sali's evidence was that he did not recall getting this fax from Mr Allen.

104 In his evidence Russell Allen said that the unsent cheques were "effectively creditors". He said the practice was that cheques were written out as creditors came in but not sent. He said that historically this practice had begun when Sam and Alan Sali were the only signatories to the accounts and they were in Shepparton. He rather gave the impression that the list of unsent cheques was equivalent to a list of creditors given the practices of this company.

105 On 7 September 1999 John Yiannis faxed to Russell Allen a budget covering the period July 1999 to June 2000. Russell Allen said that the budget was sent to him in advance of the board meeting to be held on 13 September 1999 so that he could peruse it first. The copy of the budget which was forwarded to Russell Allen has some of his handwritten annotations on it. In particular, there are handwritten notations concerning trading figures for the months of July 1999 and August 1999. What is noted is that whereas losses had been budgeted for in those months, according to the company's monthly profit and loss statements, profits had in fact been made.

106 I will return to the issue of Mr Allen's consideration of this budget. For present purposes the matter to be noted is that the budget forwarded to Russell Allen on 7 September 1999 and discussed at the board meeting on 13 September 1999 assumed, and provided for, the acquisition of the two B doubles.

When was the decision to acquire the B doubles made?

107 Mr Sali maintained in his evidence that the decision to acquire the B doubles was not made until the meeting on 13 September 1999. He did so notwithstanding the contemporaneous documentary records to which I have referred, and in particular the records of the orders placed on 10 and 11 June 1999, the reference to the vehicles having been ordered in the board papers of July 1999, the finance applications that had been made, and the budget circulated before 13 September 1999 which assumed the acquisition of the B doubles. Sam Sali's evidence was that after that board meeting in September 1999 he went back to Graham Thomson Motors and placed the order, although on occasions he also referred to having "confirmed" the order.

108 I am unable to accept Mr Salis' evidence on the issue of when the decision was made to purchase the B doubles. In my view, given the documentary evidence, Russell Allen's evidence that the decision to acquire the B doubles was made in May or June 1999 is to be preferred.

109 One of the accounting experts did point out that if a commitment had been made to buy or lease the B doubles before 30 June 1999 a note to that effect should have been included in the 30 June 1999 accounts. There was no such note. While I accept that evidence, as a matter of accounting, I do not think the omission of such a note is significant given the rest of the documentary evidence.

What advice did Russell Allen give about the B doubles?

110 Russell Allen's evidence was that after undertaking the analysis of the figures prepared by Mr Blizzard and Mr Panozzo in relation to the B doubles proposal he came to the following conclusion:

"Provided the directors were comfortable that they could or they would have full utilisation and - provided they had full utilisation, that it was a better proposal or it was a worthwhile proposal in that it would - per truck there was an additional saving of some 50,000 per truck..."

He said that he communicated that to the board in April or May of 1999.

111 Sam Sali's evidence was that the advice about the B doubles proposal was given in September 1999. Leaving aside the issue of timing, his evidence in relation to the advice given by Russell Allen on this issue was not inconsistent with Mr Allen's evidence. His evidence was as follows:

"... [T]he decision wasn't made until that September meeting because at that point in time there were still costings that had to be finalised, and upon the presentation of those costings which were presented by I think - if I remember rightly, the final costings were prepared by Ron Panozzo. At the end of the meeting I stood up and Russell stood up as well and I looked at Russell and I said, virtually, 'What do you think?'. He said, 'You have to go along with it' because the costings were stacking up."

112 On the issue of timing, Mr Sali's own evidence, where he relates the timing of the decision about the B doubles to the presentation of the final costings prepared by Ron Panozzo fortifies my conclusion that Russell Allen's evidence as to timing is to be preferred to Mr Sali's. Mr Panozzo's work on this issue was done in February 1999.

113 The budget was discussed at the meeting on 13 September 1999. This was an issue upon which the evidence of Sam Sali and the evidence of Russell Allen differed. Sam Sali's evidence in relation to the budget discussion was as follows:

"In general terms the budget was presented and it was accepted and at the end of that meeting I stood up, in fact we both stood up and I looked Russell in the eyes and I sort of shrugged my shoulders, if I use the term, as much to say, 'What do you think?'. Russell's comments were that, 'The figures stack up. You should go for it.'"

114 Russell Allen's evidence in relation to his own consideration of the budget was as follows:

"The first thing I noticed was the projection of sales. My first reaction was it was just totally unrealistic. It was ridiculous to think that they were going to get to $14 million in the next 12 months. Really I didn't spend a lot more time on it prior to the meeting because I just didn't think the budget was realistic as to where the company was coming from."

115 In relation to what he then said at the meeting his evidence was as follows:

"... I just raised the question on how realistic the figure was and also just what the basis of the budget was because I made the comment that it was totally unrealistic and whether it should be in fact reviewed and I wanted or requested details of what the basis and the assumptions behind the budget were."

116 Russell Allen said that Mr Blizzard defended the sales figure. He said that Ron Panozzo also expressed the view that the budget did not seem realistic. Russell Allen went on:

"There wasn't a lot more discussion on it. It wasn't adopted at that meeting and as far as I can recall it was never adopted. As far as I can recall, John and Matthew were going to go away and revisit it and look at providing us the basis for the budget."

117 The aspect of the budgeted revenue which Mr Allen said he found particularly difficult to accept was the budgeted revenue towards the end of the 1999/2000 year.

118 Mr Sali's description of Russell Allen's advice to him about the budget in evidence in chief (which I have quoted above) bore a quite striking similarity to his description of Russell Allen's advice to him about the costings on the acquisition of the B doubles. The question to which Mr Sali was responding when he gave that evidence in chief about the budget conflated the issues of the budget, the B doubles and the proposed new leases.

119 In cross-examination Mr Sali said he could recall discussion of the budget, but said he could not recall the specific content of that discussion.

120 It seems to me that the likelihood is that in evidence in chief Mr Sali confused the issues of the B doubles and the budget. Russell Allen's evidence about his analysis of the budget and the subsequent discussion was more detailed and, in my view, more inherently credible than Mr Sali's evidence on this point. Having seen Mr Sali give evidence on this matter I am not confident that he has a recollection of what Mr Allen said about the budget. In the circumstances, on this issue I again prefer the evidence of Russell Allen.

Panozzo material for the 30 June 1999 financial statements

121 The practice in relation to the preparation of the financial statements for Universal Logistics (and for other companies associated with the Sali brothers) was for the initial accounting work to be undertaken by Ron Panozzo who would then provide that material to Metzke & Allen.

122 On or about 11 October 1999 Ron Panozzo provided the financial material he had prepared in relation to the year ended 30 June 1999 for Universal Logistics to Metzke & Allen.

123 Russell Allen could not recall receiving this material personally and he suggested that it may have been left at the office and immediately transmitted to one of his employees.

124 The Metzke & Allen Universal Logistics worksheets record that Mr Allen himself did not work on the Panozzo material until early November, and those worksheets suggest that no-one else worked on it before then either. In his evidence Russell Allen, notwithstanding the worksheets, maintained that his recollection was that an employee had looked at the Panozzo material earlier. He suggested that the employee was a person named Thiru. It subsequently emerged that an employee named Thiru Sivanesan had indeed worked on Universal Logistics matters on 19 October and 20 October for approximately 8 hours. The inability to locate these records at first was a result of the fact that the work was posted to the S Sali & Sons ledger rather than the Universal Logistics ledger. The fact that Thiru was working on the material on or before 19 October is also suggested by a facsimile transmission from Thiru to Ron Panozzo dated 19 October 1999 which set out a list of queries which appear to be in relation to the material provided.

125 The material provided by Ron Panozzo on 11 October 1999, and the issue of when Mr Allen considered it, assumed significance in the trial because Mr Allen gave the Sali brothers advice about a proposal that they advance a sum of $200,000 to the company between the time when the material prepared by Ron Panozzo was received into the offices of Metzke & Allen, on or around 11 October 1999, and the time when Mr Allen first considered it personally, in early November 1999.

126 As already indicated, Ron Panozzo did not give evidence in the trial before me. The financial information which he provided to Metzke & Allen on or about 11 October 1999 is not in evidence before me either.

127 The financial statements which were eventually produced by Metzke & Allen in relation to the year ended 30 June 1999 recorded a loss for that year of $255,191 and a deficiency of assets of $374,255. During much of Mr Allen's cross-examination, and during submissions as well, counsel for the plaintiffs proceeded on the assumption that a perusal of the material provided by Mr Panozzo on or around 11 October 1999 would have revealed the same information to the reader.

128 There are factors that suggest that assumption may not be warranted. First, there were many queries set out by Thiru in the facsimile transmission of 19 October 1999. I do not know what impact, if any, the matters raised might have had upon Mr Panozzo's figures. Second, Russell Allen's evidence was that two abnormal items in the 1999 financial accounts as finalised were included at the instance of Metzke & Allen. They are both expense items, one being a provision for annual leave, and one being costs associated with the company's restructure and the launch of Universal Logistics. The total of these expense items is $189,527. I do not know if those amounts were in the Panozzo materials. On the other hand, in cross-examination Mr Allen accepted, somewhat hesitantly, that the Panozzo material would have reflected the eventual 1998/1999 final financial statements. Further, Metzke & Allen did have, and I presume still have, the material that was provided to them. They could have produced it if they wished to do so. In the circumstances I do proceed on the basis that a consideration of the Panozzo material would have revealed a picture broadly the same as that set out in the eventual final 1998/1999 financial accounts.

The request for a cash injection, the October 1999 board meeting, and the subsequent meeting between the Salis and Mr Allen

129 On 19 October 1999, Mr Panozzo prepared a report on Universal Logistics' cash flow position. Mr Panozzo reported the position in relation to creditors and debtors and the fact that what he called a "cash loss of $82,000" had been recorded in the last financial year. He went on:

"The huge growth in business has also put additional strains on the cashflow as evidenced by the increase in outstanding debtors. The growth has also speeded up some necessary capital purchases to handle the growth.

Obviously, the cause of the critical creditors position are, funding the cash shortfall last year, the increase in Debtors and the capital requirements."

130 Mr Panozzo referred to discussions he had had with Mr Yiannis and then concluded:

"Expected improvement in the Debtors position and the expense cut focus being undertaken over the coming months alone will not solve the present creditor position, the situation is critical, and the pressure on John substantial and obviously our reputation in the market place is suffering. An independent check on our credit rating from a Brisbane source received 18/10/99 was not comforting.

The position will obviously be eased with ongoing profitability but this is not a short term or medium term prospect. The business does need a cash injection to alleviate the growing pressures. In Johns and my opinion some $200,000 is required."

131 Mr Sali agreed in his evidence in chief that he was given this document, and he accepted a proposition put to him by his counsel that it was discussed at a board meeting on 25 October 1999.

132 A board meeting was held on either 22 or 23 October 1999. There is in evidence a fax from John Yiannis to Alan Sali, Sam Sali, Russell Allen, and Ron Panozzo which was transmitted on 21 October 1999 and which enclosed information said to be for a board meeting "tomorrow". This material, provided in advance to the board meeting, includes a profit and loss statement said to be "September 1999 YTD" indicating that the profit before tax was $85,990, which was said to be a result $223,603 better than that which had been budgeted for. There is also in evidence a further facsimile transmission from John Yiannis to the board of directors dated 25 October 1999. This facsimile transmission is said to be referable to a board meeting held on 23 October 1999 and attaches documents described as "Board Presentation" and "Financials". The board presentation includes a number of graphs. One of those graphs, headed "Year on Year Comparisons", depicts a loss in excess of $200,000 sustained in the 1999 financial year and a profit of just below $100,000 earned "2000 YTD". The profit and loss statement for "September 1999 YTD" which had been provided before the meeting was also included in this material.

133 Russell Allen made handwritten notes on the materials supplied in advance of the board meeting. The handwritten notes record his concern to attempt to assess the profitability of the new work that was being undertaken. The later document, circulated after the meeting, reflects this concern and sets out as the first action item: "Re-design monthly reports to reflect direct and indirect costs". The same item had been an action item after the July board meeting.

134 The action items document also records a decision to proceed to the next stage of the proposal to sub-lease the existing New South Wales facilities and move into a new depot.

135 Consequent upon Mr Panozzo's memorandum of 19 October 1999, the action items document from the board meeting in October records the following:

"Alan Sali, Sam Sali, Russell Allen and Ron Panozzo to meet to decide level of Equity Funding to sustain company cash position."

136 That meeting was held between the parties referred to on 25 October 1999 and, according to the relevant Metzke & Allen ledger, the meeting occupied one and a half hours.

137 Given the importance placed upon this meeting by the plaintiffs, it is surprising that Sam Sali did not address it in his evidence in chief. The account which Mr Sali gave of the decision to contribute $200,000 to the company was that the agreement to do so was made at the board meeting, which his counsel put to him as having occurred on 25 October 1999. What Mr Sali said occurred at the board meeting was the following:

"It was agreed that my brother and I make a contribution of $200,000 to help with the cashflow or the ongoing cashflow of the company. At that point in time, if we were advised by Russell that the company was insolvent, there's no way we would have considered further contributions."

138 When asked what he meant by insolvent in that answer he said: "Unable to trade or our debts were beyond management".

139 In cross-examination the documentary record was put to him and he was asked whether he had a recollection of a meeting separate to the board meeting. He said that he did. He then went on:

" ... at that point of time we had grave concerns because I had no money left, or no cash available, my brother had some funds and we were concerned. That's why we had that special meeting. If Russell advised us the company was in the serious position as we now know, there is no way that we would have put that money in at that point in time."

140 Russell Allen's evidence was that after the October board meeting he had a separate meeting with Sam and Alan Sali and with Ron Panozzo. His evidence about the discussion was as follows:

"The discussion was about Sam and Alan injecting the $200,000 capital into the business or into Universal. There was some discussion about the level of funding, but it was Ron's recommendation that $200,000, based on the work he had done with John Yiannis, that that was sufficient funding at that point in time. The discussion then turned to Sam and Alan's ability to inject that $200,000. Sam again indicated, as far as I can recall, that he wasn't in a position to inject that sort of money or his share of that sort of money, so it was discussed that Alan had the access or could access funds to put that sort of equity or capital into Universal. There was then discussion about whether they wanted to or whether they should. Based on Ron and John's work and Ron's report, Ron said that if the $200,000 was not injected into the business there was potential that the business could not continue to trade. We also discussed and I suggested to Sam and Alan or told them that, and as I recall it might have been a question from Alan, was it guaranteed the $200,000 if it was injected into the business, and I said to both Sam and Alan there was no guarantee that if the $200,000 was injected into Universal that in fact the company would be successful. At that point in time I had raised these reservations about the profitability of the business. I also raised, in respect of profitability, whether the work that Matthew was taking on was in fact profitable. I still had reservations about that. ... I raised it at that meeting."

141 According to Russell Allen's evidence, Sam and Alan Sali did not make a decision at the time but went away and then made the decision to inject the capital.

142 Russell Allen was cross-examined extensively on his failure to consider the material Mr Panozzo had provided on or about 11 October 1999 in relation to the year ended 30 June 1999 before advising the Salis about the proposed advance of $200,000. He conceded that he ought to have looked at the material first and that he ought to have considered that material before advising them.

143 An advance of $199,990 was made to the company in October 1999 by Alan Sali and S Sali & Sons. In addition, at the same time, S Sali & Sons paid the sum of $17,250 to acquire Greg Bowler's shares.

144 The B doubles were delivered on 5 November 1999. Finance was obtained through the National Australia Bank (NAB).

145 In late 1999 new software known as "Roadrunner" was introduced to the business.

146 The last board meeting for the year was held on 15 November 1999. In an actions document prepared in relation to that meeting reference was again made to the requirement to re-design the monthly reports to reflect direct and indirect costs. Sam Sali in his evidence was asked about that item. He was asked whether he recalled Mr Allen "harping on" about that particular need. He said he thought that he did. He said he could not remember what response there was from John Yiannis or Matthew Blizzard.

147 Another item referred to in the action items for the board meeting of 15 November 1999 was a business audit to be conducted in April 2000 (mis-described as being in April 1999). In cross-examination, in response to a suggestion that this proposed business audit was not to be conducted until April 2000 because of the implementation in November of the Roadrunner system, Mr Sali said that he did not recall that but that it made sense.

148 On 10 December 1999 Sam Sali and Matthew Blizzard signed an agreement to lease in relation to new premises in Brisbane.

149 Russell Allen's evidence was that Sam Sali and Matthew Blizzard were "pretty well committed" in the latter part of 1999 to proceeding with relocations in both Brisbane and Sydney. His evidence was that he told the board that he could not recommend proceeding with new leases in Sydney and Brisbane. He said he was concerned about these commitments given his understanding of the current trading of the company. His evidence was that he repeated comments he had made in other contexts to the effect that the Salis were "backing Matthew Blizzard to turn this company around". Mr Allen said he played no personal role in locating the premises ultimately leased in Sydney or Brisbane.

150 Mr Sali was asked in examination in chief whether Russell Allen had said at a board meeting that he could not recommend that the company enter into the proposed new leases and his response was "I don't recall it". Earlier in evidence in chief, he had agreed with propositions put to him by his counsel (reading from the Metzke & Allen defence) that Mr Allen had advised that by entering into the leases the company would incur very significant financial commitments, that Mr Allen had said the leases could only be justified if the directors were confident of the success of the company, and that because the leases were guaranteed the lease proposals would expose the directors' assets in the event that the company was not successful.

151 In cross-examination Mr Sali confirmed that when he had said that he did not recall Mr Allen saying he could not recommend that the company enter into the new leases he was not giving evidence that Mr Allen did not say that but rather was giving evidence that he did not have a recollection of him saying that.

152 It seems to me that on this issue there is not a great deal of difference between Mr Allen's evidence and Mr Sali's evidence. I find that Mr Allen did warn about entering into the new leases as he says he did.

153 The true concern expressed by Mr Sali on this issue in his evidence was that Mr Allen "didn't make us aware that the company was not in a position at that point in time to proceed". His complaint was not that he was unaware of the obligations being undertaken and of his personal exposure, but that he had not been properly advised about the position of the company generally.

154 According to the Universal Logistics' financial statements for the year ended 30 June 1999, as at 30 June 1999 the company had bank facilities by way of an overdraft with a limit of $250,000 of which $127,317 was utilised, and bill facilities with a limit of $250,000 which were fully utilised. The financial statements indicate that the bill facility limit had increased from $200,000 to $250,000 between 1998 and 1999. The evidence does not reveal with which bank those facilities were held, although it does reveal that a bill facility agreement in the sum of $200,000 had been established with Bank of Melbourne in 1997.

155 In 2000 the company established facilities with the NAB. It established a debt finance facility pursuant to an agreement executed on 14 January 2000. In March 2000 it established an overdraft facility with a limit of $100,000. Pursuant to a bill facility letter of offer dated 5 January 2000 it established a bill facility with a limit of $250,000.

156 The accounts for the year ended 30 June 2000 were never finalised, but the draft accounts reveal the existence of a bank overdraft. They also reveal the existence of a fully utilised bill facility of $250,000.

157 According to the letter of offer in relation to the bill facility agreement from NAB, that facility was to be guaranteed by the three plaintiffs. The guarantee is not in evidence. According to an affidavit filed by an officer of the NAB, Mark Simsen, and tendered as Exhibit P 10, the outstanding balance due after maturity of the bills the subject of the bill facility agreement was the sum of $99,127.07, which was paid by S Sali & Sons on 17 October 2001.

January 2000 - Misreporting of profit and Panozzo's January 2000 report

158 In January 2000 an incident occurred which caused Sam Sali concern. In January he received what he described in his evidence as "exciting news". Matthew Blizzard told him the company had made a profit of $100,000 for the month of December. Then, within a few days, Matthew Blizzard informed him that the company had in fact made a $60,000 loss not a $100,000 profit. According to Sam Sali he rang Russell Allen about this incident and told him that he was very concerned. He says that he asked Russell Allen to carry out an audit of the accounts at head office but that Mr Allen responded to the effect that while there had been a discrepancy the mistake had been rectified and that he did not see any point.

159 Russell Allen gave an account of the same incident. He agreed that Mr Sali had been unhappily surprised. He was asked whether as a result of that incident he was asked to go and do an audit. He said the issue of an audit was discussed at board meetings and whenever it was discussed what was decided was that Ron Panozzo would go down to Melbourne and do that work. He said Mr Panozzo was not going down to do "audits" but rather to do "checks". He said there was discussion in November 1999 and in the New Year about Mr Panozzo doing checks and, when asked what then happened, he said "there was the one he did in January ...".

160 At the end of January 2000 Ron Panozzo produced a detailed report in relation to accounting practices at Universal Logistics' head office. It is apparent from the terms of the report that Mr Panozzo had been at the head office and had reviewed the systems there. The report was addressed to Matthew Blizzard, and it was copied to Sam Sali, Russell Allen and John Yiannis.

161 Mr Panozzo's report expressed strong concerns about a number of aspects of the company's accounting systems. It referred to missed invoicing and said that that circumstance would indicate an ongoing audit of some sort needed to be undertaken. It referred to debtors and said that the company's present accounting systems meant that accurate completion of financial figures was very difficult. In this area it set out a number of tasks which Mr Panozzo suggested needed to be undertaken with urgency. Mr Panozzo's report also said that accounting in the area of creditors needed prompt attention. The report indicated that the provision of a creditors' listing for the Bank of Melbourne had required "significant guesswork and assumptions". The report suggested that the completion of an accurate aged listing of creditors needed to be compiled as a matter of urgency. The report set out other concerns as well and towards its conclusion it stated:

"I have discussed the above with Russell Allen, who expressed concern that until the debtors, creditors and bank reconciliation issues are addressed, we will have difficulty preparing accurate Profit figures or figures open to question."

162 The financial accounts for the year ended 30 June 1999 were finalised and presented to the board in February 2000. The final accounts recorded an operating loss after income tax of $255,191. The balance sheet recorded a total deficiency of $374,245, and a deficiency of current assets of $371,584. The directors' report stated:

"The company incurred a loss before income tax expense and abnormal items ... of $65,666. Subsequent to a restructure of the business the directors anticipate improved trading results."

163 A board meeting was held on 21 February 2000. The records of that board meeting are a copy of Mr Blizzard's PowerPoint presentation and a list of action items.

164 The introduction of the Roadrunner software, to which I referred earlier, had caused considerable problems. At the board meeting on 21 February 2000 consideration was given to a claim for compensation from Roadrunner in relation to these problems. Matthew Blizzard addressed the problems with Roadrunner and also an issue he described as "how do you lose six months profit in two weeks!" in his presentation. Among the action items listed as a result of the board meeting was a further repetition of Mr Allen's request for reporting to separate direct and indirect costs. When Sam Sali was asked about that matter being raised again he said:

"All I remember is discussing with Russell that the information that he required he had the authority from me to obtain any time he wanted to."

165 The registered office of Universal Logistics was at Metzke & Allen's office. In March 2000 Metzke & Allen began receiving creditors' demands. It received one on 10 March 2000 for $2,462, and it received court process issued by another creditor on 23 March 2000.

166 A board meeting was due to be held on Wednesday 15 March 2000. On Tuesday 14 March 2000 Russell Allen was sent a draft agenda. He made a number of handwritten notations on that agenda and then he spoke to John Yiannis with a view to having the items he had noted included. His notes record that he sought to have included discussion of the January Panozzo report in the context of the item "review actions from previous meeting", and a number of items in the context of financial reporting. Mr Allen's notes indicate he wanted to discuss the provision of a balance sheet and a number of other financial reports. His evidence was that these items did not get on the agenda notwithstanding his request, and they do not appear on the agenda document produced for the meeting.

167 Mr Allen's evidence was that he nevertheless raised all of these matters at the meeting and expressed the need for management to produce the reports that he was requesting. He said:

"As far as I can recall, I just expressed the need again that we have just got to get those reports and without the reports we just can't, or I can't get any comfort as to the profit and losses that were being presented and really can't assess the position of the company without that information."

168 Russell Allen's evidence was that at around this time he felt his presence on the board was not useful because of the inadequacy of the financial reports being provided. According to Russell Allen, he expressed the view to Mr Sali that there was no point him being at the meetings because the information was not there. He said that in response Mr Sali requested that he continue to attend the meetings. When this was put to Mr Sali he responded: "We had that discussion and I asked him to obtain the information". Mr Sali went on to say that he had a lot of discussions with Russell and that his direction to him was that any information he required he had authority to obtain from the office of Universal.

169 On 3 April 2000 further court process, this time seeking a debt of $4,238 was served at Metzke & Allen's offices.

170 A board meeting was due to be held on 18 April 2000. John Yiannis prepared an agenda and Russell Allen discussed it with him in advance of the meeting. Mr Allen and Mr Yiannis agreed that it was necessary in the circumstances to advise the directors about their legal obligations.

171 On 17 April 2000 Matthew Blizzard faxed to Sam Sali, Russell Allen, and Ron Panozzo his PowerPoint presentation for the board meeting the next day. In that report he referred to the fact that the company was "on stop supply from certain suppliers". His report also included the following passage:

"MUST be a clear distinction between the board and the employees of the organisation - To be clear board members WILL not give day to day instructions or have day to day contact with line management."

172 The list of action items document produced after this board meeting records the fact that steps were to be taken in relation to production of a balance sheet by John Yiannis and Ron Panozzo, and that Ron Panozzo was to "audit and prepare financials to March Month End".

173 The matter which Russell Allen and John Yiannis had discussed in advance of the meeting, concerning the legal obligations of the directors, had been included in the agenda. A document was tabled at the meeting which was a seven page extract from the Australian Securities and Investments Commission (ASIC) website detailing the obligations of directors and addressing, among other things, the need to ensure accurate financial records are maintained and the steps which should be taken if a company is unable to meet its existing debts. The seven page document was discussed at the meeting and it was an attachment to the action items document.

174 In his oral evidence Sam Sali said he was unable to remember any specifics in relation to the ASIC document. When asked whether Russell Allen and Mr Yiannis had talked to the members of the board about their legal obligations he said that there had been "general discussion".

175 Mr Sali's evidence on the issue of the discussion at this board meeting about directors' obligations was not satisfactory. He was, in my view, evasive and concerned to argue the case by repeatedly referring to reliance upon Russell Allen rather than to address the issue of what was said at the meeting and what he could recall. In this respect I particularly refer to the following passage:

"Do you recall Mr Allen and Mr Yiannis talking to the board members about the obligation of a director to stop the company trading if the company is unable to meet its existing debts? - - - I don't remember that.

Do you recall them talking to you about the importance of directors ascertaining whether the company is able to meet its existing debts? - - - Your Honour, there was a lot of discussion at that point in time, but I can't remember specifically, and these specific details I just relied on Russell.

Mr Sali, Mr Allen is there in this meeting, I suggest to you, telling the members of the board about their obligations or the importance of them ensuring that the company's able to meet its debts. Do you recall that topic being discussed at the board meeting on 18 April? - - - If it was, but there again I relied on Russell's advice.

Do you recall it being discussed at this meeting? - - - There was discussions.

There were discussions about - - - ? - - - There was a lot of general discussion. I can't remember the specific details.

I'm asking you just about this issue for the moment, Mr Sali. Do you recall there being discussion to the effect, 'director should make sure that the company doesn't incur debts unless the company can meet those debts'? - - - I can't remember that specific.

Mr Sali, do you recall there being a discussion at this meeting about the very question of whether or not Universal could pay its existing debts? - - - I think so.

You think so? - - - Yes.

It is an important topic, isn't it, for a board of directors to talk about? - - - It is.

As a director of this company or any other company, it is a topic that you would take an interest in if it was being discussed? - - - Yes. But I always relied heavily on Russell.

In this meeting, Mr Sali, do you recall Matthew Blizzard expressing the opinion that, yes, Universal could pay its debts? Do you recall him saying that? - - - I can't remember distinctly.

Can you remember it at all that Mr Blizzard expressed that view, that the company was able to pay its existing debts? - - - I'm not too sure, your Honour. I daresay he may have.

Mr Sali, don't you have a better recollection of this particular topic at that meeting? It is an important topic for the directors of a company to discuss, isn't it? - - - Yes. It is eight years ago, too. It is a long time and we have had a lot of discussions and on these finer points, as I said before, I always rely very heavily on Russell for advice."

176 One of the plaintiffs' principal claims in this proceeding concerns a substantial debt owed to S Sali & Sons which is unpaid because Universal Logistics collapsed. The financial records in evidence before me reveal that from April 2000 there was a significant alteration in the nature of the financial dealings between S Sali & Sons and Universal Logistics. Whereas previously S Sali & Sons' accounts had been paid regularly, from April 2000 the debt continuously escalated with only occasional payments being made, often in round figures of amounts not apparently referable to any particular invoice or balance. The reason this occurred was explained in Mr Sali's cross-examination in the following passage:

"Do you recall that at this board meeting one of the matters discussed was the debt that Universal owed to S Sali & Sons? - - - We had a lot of discussions. Could you be a bit more specific in relation to that question?

Yes. Do you recall at this meeting on 18 April 2000 it being said by Mr Blizzard that the company could meet its debts provided that S Sali & Sons didn't want payment of the amount owing to it? - - - Yes, now I understand.

That was discussed, wasn't it? - - - Yes.

Because the concern was expressed that if S Sali & Sons expected to be paid what was owed to it, then perhaps the company wasn't able to pay its debts? - - - Yes. I recall.

Mr Blizzard raised with you and your brother Alan specifically the question of whether S Sali & Sons would press for payment of the debt owed to it? Do you recall that? - - - I can recall there was discussion to that effect.

For you and your brother Alan as directors of S Sali & Sons, that was a pretty important issue to discuss, wasn't it? - - - Yes.

Because Mr Blizzard was saying to you that if the Sali company, S Sali & Sons, didn't demand payment of the debt owed to it, then his view was that Universal could certainly pay the other debts that it had? - - - That's right.

He said that at the board meeting? - - - Yes.

Was that a position that you agreed with? - - - Yes.

As a result, did you tell the persons at the board meeting that thereafter S Sali & Sons would not demand payment of the amounts owed to it by Universal provided that it received some small payments from time to time to assist with cash flow? - - - Yes.

In effect that's what the members of the board agreed would happen as between Universal and S Sali & Sons thereafter? - - - Yes."

177 Russell Allen also gave an account of what occurred in relation to this topic at the board meeting on 18 April 2000. He said that he had decided it was necessary to raise the issue because of the lack of financial information that he had, because he was aware of three or four letters of demand from creditors, because the 1999 financials were "not great", and because of what he said were significant adjustments that had been made subsequent to Ron Panozzo's January report.

178 Russell Allen said that at the meeting John Yiannis raised concerns about creditors and there was discussion about the company's ability to pay its debts. He said he told the directors that he had concerns about the company and that they needed "to really be conscious of the matter going forward". He said there was then a discussion about further capital being injected or S Sali & Sons deferring payment of the amounts due to that company. In relation to the deferral proposal he said the following:

"As far as I can recall, it was something that John and Matthew put up the proposal of deferring payment of S Sali & Sons' invoices. Sam raised concerns about that initially because he was concerned about the impact that would have on S Sali & Sons. But it was ultimately agreed by Sam and Alan that they would look at putting their payment on effectively deferral. So as far as I can recall at that meeting they agreed to do that."

179 He said that after the arrangement that S Sali & Sons' accounts would not be paid was in place, Matthew Blizzard and Sam Sali "were comfortable that that would enable them to pay their debts as the company went forward".

180 To the extent there is any conflict between the evidence of Mr Sali and Mr Allen about what was said and done on this issue at the April board meeting I accept Mr Allen's account.

Discussions between Sam Sali and Russell Allen about audits

181 Mr Sali maintained in his evidence that he asked Russell Allen four or five times to do an audit of Universal Logistics.

182 Russell Allen said that he did not believe that he was asked to do an audit four or five times, but he said there was discussion about audits. He referred to a discussion in November of 1999. When asked what happened then he referred to the fact that Ron Panozzo went to Universal Logistics in early 2000, not to do an audit but to do checks. He also referred to further checks he said Mr Panozzo was to do in relation to the March figures. Russell Allen's version of events was that whenever there was discussion of the need for matters to be checked what was decided was that Ron Panozzo would do it.

183 There are a number of matters specifically referrable to this issue which, it seems to me, support Mr Allen's version of events. They are:

(1) On two important occasions Mr Panozzo attended Universal Logistics' premises and produced significant reports. The first occasion was in October 1999 when he produced the report which led to the $200,000 advance. The second occasion was in January 2000 when he produced the report in relation to the accounting practices that was addressed to Mr Blizzard and was copied to Mr Sali, Mr Allen, and Mr Yiannis.

(2) Historically, Mr Panozzo had regularly attended Universal Logistics' premises. Neil Allan's evidence was that during his time he had been attending there weekly.

(3) In mid-1999 an issue had been raised as to the cost of the work being undertaken by Russell Allen. Russell Allen was told that extra work by Metzke & Allen was only to be undertaken if approved by Matthew Blizzard and John Yiannis, the preference being that if outside resources were to be used Ron Panozzo would be employed.

(4) The "actions" document prepared after the board meeting on 18 April 2000 records a decision that Ron Panozzo was "to audit and prepare financials to March Month End", and notes that item as being an item requiring action by Ron Panozzo and John Yiannis.

(5) Mr Sali's evidence was that after Mr Yiannis left Universal Logistics in July 2000 he requested Mr Panozzo to resume his former practice of regularly attending Universal Logistics' premises to check the figures.

184 In addition to those specific matters, I have reached the conclusion more generally that Russell Allen is a witness upon whom I can more confidently rely than Mr Sali. I reach this conclusion for the following reasons:

(1) It is not surprising that Mr Sali does not have a clear and comprehensive recollection of events, some of which occurred more than eight years ago. Nevertheless, it is still of importance that on many significant issues Mr Sali's recollection was either poor or non-existent. It also must be said that Mr Sali had a tendency to fill gaps in his recollection with statements and comments which he perceived to be advantageous to his case. In this respect I refer to his evidence concerning the timing of the board decision to purchase the B doubles, and concerning his personal involvement, or lack of it, in sourcing finance for the B doubles in the middle of 1999. On one issue, the board discussions in April 2000, my concern as to Mr Sali's evidence goes further. On that issue it seems to me that he was evasive and that his evidence was, as I have indicated, unsatisfactory.

(2) I formed a more positive impression of Russell Allen as a witness. He was considered, and not apparently concerned to tailor his account to advance his case. He was ready to concede matters put to him, even if it was clear that the concession might damage his case. In this respect I refer to his evidence concerning the scope of Metzke & Allen's retainer, and his evidence concerning his failure to consider the material provided by Ron Panozzo prior to advising the Salis about the proposed capital injection in October 1999.

185 For these reasons, I cannot accept Mr Sali's evidence that he asked Russell Allen four or five times to do an audit of Universal Logistics. I do accept that they from time to time discussed concerns about financial reporting and about the need to obtain better information. I do not accept that Russell Allen as a partner in Metzke & Allen was at any time engaged to undertake an audit.

186 This is an issue upon which evidence from Mr Panozzo himself may have been of assistance.

187 The arrangement which was made at the board meeting on 18 April 2000 in relation to the S Sali & Sons debt created a position where the debt owed by Universal Logistics to that company escalated throughout 2000 and into 2001. The balance outstanding as at the end of the specified months was as follows:

188 The amount which was, and is, finally outstanding is $912,076.20.

189 A lease for a new depot in New South Wales, guaranteed by Sam and Alan Sali and Matthew Blizzard, was executed on behalf of Universal Logistics and by the guarantors on 19 May 2000, and by the landlord on 13 June 2000.

190 A lease in relation to new Queensland premises, which had been the subject of the agreement for lease at the end of 1999, was executed on behalf of Universal Logistics on 20 May 2000.

191 A board meeting was held on 21 June 2000. As usual the meeting was attended by the two Sali brothers, Matthew Blizzard, Russell Allen, Ron Panozzo, and John Yiannis. The brief minutes of that meeting reveal that the board was advised the cash position was critical and that Alan Sali and Sam Sali were reviewing the need to inject further capital. The option of selling the business was raised. The minutes also record that concern was expressed that a balance sheet was not available. Sam Sali agreed in his evidence that this concern emanated from Mr Allen.

192 The board meeting on 21 June 2000 was the last one attended by the financial controller, John Yiannis. In July 2000 John Yiannis left the company. Sam Sali agreed in his evidence that when John Yiannis left he asked Mr Panozzo to resume his practice of regularly attending Universal Logistics' offices. It was put to Sam Sali that Mr Panozzo refused to do this and Sam Sali agreed that that was so. It was put to him that Mr Panozzo refused because Universal Logistics owed him money. Mr Sali said that he was not told that that was the reason at the time. Mr Sali said that the reason Mr Panozzo gave him at the time was that he did not want to go because "he wasn't getting cooperation from the staff". According to Mr Sali, before Mr Yiannis had been employed, Mr Panozzo had been responsible for checking the monthly accounts and ensuring the systems were appropriate, and he had attended the premises of Universal every couple of months to do that. According to Mr Sali, Mr Panozzo had continued to attend while Mr Yiannis was employed although less frequently. Mr Panozzo did not resume regular visits to Universal Logistics after Mr Yiannis left. According to a police statement made by Sam Sali in 2003:

"... After July 2000 the company was not checked or audited and all financial operations were BLIZZARDS responsibility."

193 Russell Allen had at least some awareness of problems Mr Panozzo was having in the middle of 2000. He said:

"As far as I recall, he went down to do March figures and then he went down to do June figures, but he took a long while to do those figures and get the information to do those figures."

194 Board meetings were held in July, August, September, October and December 2000. The evidence before me was that:

(1) Requests were made for improved financial reporting, and in particular for balance sheets and cash flow analyses. These were never met by Mr Blizzard.

(2) Profit and loss statements were produced by Mr Blizzard indicating that profits were being made. In particular, the board members were told the profit was $30,796 in August, $32,377 in September, $7,251 in October, and $56,607 in November. The December board meeting was told there was a year to date profit of $156,113.

195 In November 2000 the Deputy Commissioner of Taxation served a statutory demand on the company in relation to a debt of $150,282.90.

196 A monthly profit report for December 2000 was presented to a board meeting on 11 January 2001. Russell Allen said there was no detailed discussion of this report. He said the profit was noted and that it was noted that there had by then been six months of profit. The January report said there had been a December profit of $25,236.

197 In early February 2001 a sequence of events occurred which ultimately revealed that the profit reports over the previous months had been misleading, and which led to Universal Logistics going into administration. The sequence of events is not entirely clear. In large measure this is because Ron Panozzo was central to the events, and he did not give evidence.

198 On 7 February 2001 Mr Panozzo sent Mr Allen a draft written request he was proposing to send to Matthew Blizzard for a series of financial reports including trial balances for debtors and creditors and a general ledger trial balance with all balance sheet details. An employee of Universal Logistics, Karen Hardwick, forwarded to Metzke & Allen material under cover of an email on 14 February 2001. Russell Allen printed that email and then made a note on it as follows: "Discussed with Sam 14.2.1 that still no balance sheet".

199 At some point after 14 February Russell Allen received what was said to be a balance sheet for Universal Logistics as at January 2001. His evidence was that he received this consequent upon Mr Panozzo's written request of 7 February 2001 which was followed up by him. Mr Allen prepared a detailed handwritten review of this balance sheet. He then prepared a list of queries and faxed that to Matthew Blizzard and Karen Hardwick on 23 February 2001.

200 Mr Allen received a response from Karen Hardwick on 26 February 2001. The response was most disturbing. Among other things, the response revealed that an item which had been presented as an asset of $628,245 of "other debtors", was very substantially comprised of figures described as "accrual for uncharged revenue". Components of that item dated back to August 1999.

201 On the same day, 26 February 2001, Mr Allen urgently met with Sam Sali. He asked his partner, Frank Metzke, to attend the meeting. Mr Allen expressed serious concerns which he had about the balance sheet material which had been provided by management and suggested that an urgent meeting be arranged with an insolvency specialist at Deloittes in Melbourne.

202 Sam Sali contacted Neil Allan. Together they went to Universal Logistics' premises with another accountant who Neil Allan had engaged for the purposes. Within a short period of time it was confirmed that the company was in a most parlous financial position.

203 Matthew Blizzard resigned as a director on 2 March 2001. Keith Sutherland was appointed administrator on 9 March 2001.

204 At the conclusion of Mr Allen's cross-examination I raised some matters with Mr Allen. He agreed the company's position was precarious at the end of 1999 and that by April 2000 it was worse than that. He agreed that the stakes for the Salis were then high given the $200,000 they had already advanced and the proposed deferral arrangement. He agreed that throughout 2000 the profit and loss reports indicated things were going well but that he never got a working capital analysis and never got a balance sheet. I then had the following interchange with him:

"Why didn't you not bring it to a head until February 2001? - - - With Sam I kept pushing him to get the information at board meetings. It was always said, no, I'm not to go down there and it was very much that, yes, there were profits being shown in that six months and it wasn't brought to a head because Sam agreed at board meetings that I wasn't, you know, with Matthew and in resolutions, that I wasn't to go down there, Ron Panozzo was going down to do that work, and I was pushing Sam very heavily to get that information, even back in April, as I said yesterday. I said, 'Well, what's the point? If I'm not getting anything, I may as well not be here', and he asked me to continue to come to these meetings, but I just didn't get anything I was requesting.

What was it about February 2001 that prompted you to demand in writing then a balance sheet be provided that hadn't existed earlier? - - - I don't believe that was anything different to earlier. I was wanting balance sheets all the way through.

Why not make the demand in writing in June, July, August? - - - Yes, good question."

205 The plaintiffs called expert accounting evidence from two witnesses, Paul Lom and Russell Munday. Metzke & Allen called expert accounting evidence from Andrew Malarkey. It is necessary to briefly review the evidence each of them gave. They each had produced written reports which were tendered.

206 Paul Lom is a chartered accountant with very extensive experience in forensic accounting and litigation support. In his expert report he addressed three issues. The first was the issue of the solvency of Universal Logistics. The second was the decision made to lease the two B doubles, and in that context he dealt with the budget that was before the board in September 1999. The third issue he dealt with was the financial information which had been provided to the board.

207 The solvency issue which he addressed was solvency within the meaning of the Corporations Act 2001 (Cth), being whether Universal Logistics was at various times able to pay its debts as and when they became due and payable. His opinion was that Universal Logistics was insolvent in this sense by 13 September 1999. In this respect he relied upon the 30 June 1998 accounts, the 30 June 1999 accounts, the 30 June 1999 bank reconciliation, the list of unsent cheques circulated in September 1999 to which I have earlier referred, and the budgeted losses for the months of July and August 1999. Having reached this conclusion he also expressed the conclusion that an accountant in Mr Allen's position had a duty to warn the client not to incur additional debts.

208 In relation to the B doubles issue, Mr Lom did not have the benefit of a detailed description of the work done on the B double costings by Mr Allen, Mr Cootes, and Mr Panozzo. Further, Mr Lom understandably misunderstood the starting point for Mr Blizzard's calculations as he assumed that what was said to be revenue was revenue whereas, as I previously explained, it was in fact sub-contracting costs.

209 Mr Lom was critical of what he assumed was a failure on Mr Allen's part to critically analyse Universal Logistics' own analysis of the B doubles proposal. He concluded from the documents that Mr Allen had done nothing more than re-state the conclusions of others. As the account I have given of the circumstances indicates, Mr Lom's assumption in that respect was not well founded.

210 In the context of the B doubles proposal Mr Lom also made detailed criticisms of the September 1999 budget. He reached the same conclusion that Mr Allen had reached, that it was unrealistic. But Mr Lom reached this conclusion for different reasons. In relation to the revenue projections Mr Lom's criticism was not that the increases could not be achieved but rather that they could not be achieved "without a major injection of capital to fund the consequent working capital requirements". Mr Lom also made criticisms of other aspects of the budget, including the budget's projection of debtor collections. He illustrated the conclusion he had reached that the budget necessarily required a significant increase in working capital by reconstructing a cash flow on the basis of assumptions he considered ought to have been made. The reconstructed cash flow indicates that a sum of approximately $1,000,000 would have been required to fund the increase in creditors which he projects over the period July 1999 to June 2000.

211 In relation to management information, Mr Lom expressed the opinion that for a company in the position of Universal Logistics it was very important that the board be provided with a monthly balance sheet and report as to cash flow. He expressed the opinion that Mr Allen should have advised the board that reporting of this kind "should be implemented". He expressed the view that there is no evidence that Mr Allen provided this advice. Mr Lom was not in possession of the evidence that both Mr Allen and Mr Sali gave about Mr Allen's complaints concerning financial reporting.

212 In Mr Lom's cross-examination the following relevant matters emerged:

(1) Mr Lom had little knowledge of the arrangement put in place in April 2000 concerning forbearance in relation to the S Sali & Sons debt.

(2) When asked what the appropriate course would be if an outside accountant formed the view a company may be insolvent, Mr Lom said the appropriate course was to "alert his client to the danger of trading while insolvent".

(3) Mr Lom was challenged in relation to the conclusions he drew from the unsent cheques. It was put to him that some companies "manage" their creditors in this manner and that the great majority of the unsent cheques had been drawn very recently. In the course of that questioning Mr Lom revealed what might be seen as a strict view of insolvency within the meaning of the Corporations Act. He said: "But if there is one invoice you can't pay when it is due and payable, then you will be trading while insolvent".

(4) Mr Lom agreed that he had not seen evidence of an analysis of the B double proposal undertaken by Mr Allen and he agreed that he had not done his own analysis of the proposal.

(5) Mr Lom added to the criticisms of the B doubles proposal which he had made in his report by observing that the proposal was particularly dangerous to this company as it replaced variable obligations with significant fixed obligations. In re-examination Mr Lom observed that his opinion was the B doubles proposal could not have been a good idea because the company could not fund it.

213 Mr Lom's evidence was very substantially directed to the issue of insolvency and to the issue of the company's capacity to expand without additional working capital. He was referred to the fact that what had occurred was that additional working capital had been provided by the plaintiffs, both by advances and by forbearance on debt. He was asked how his conclusions would alter if the advisability of the provision of this additional working capital was the central object of the inquiry. He responded by saying the question then would be whether those supporting the company in this way would have embarked upon that course if they had known of the extent of the support that would eventually be required. He went on: "I don't believe they would have - if I was in their position, I wouldn't have gone ahead with it".

214 Russell Munday is also a chartered accountant with extensive relevant experience.

215 The important matters set out in his written report were the following:

(1) Mr Munday referred to the fact that in this case there had been no engagement letter. He commented that such a letter would have established what services the accountant was providing. He said that an engagement letter was not a required standard of the Institute of Chartered Accountants in 1999 but it was considered best practice.

(2) Mr Munday was of the view that the financial information available in late 1999 should have led Mr Allen to advise the board "that without additional substantial financial support of the Salis, the company was insolvent". In that context Mr Munday specifically referred to Mr Panozzo's 19 October 1999 paper.

(3) Mr Munday analysed the September 1999 budget and formed the view that it appeared to be extremely optimistic in relation to sales, particularly in the last three months of the 1999/2000 year. He expressed the opinion that Mr Allen should have sought explanations for the substantial increase in sales. He also formed the view that the budget was over optimistic in relation to cash flow as it assumed debtor collections within a much shorter time period than had been the average period of collection in 1998/1999.

(4) Mr Munday was critical of the financial analyses of the B doubles proposal. As was the case with Mr Lom, his criticisms need to be seen in the context that he did not have the detailed evidence given in the trial as to the analysis which was undertaken, and because he assumed (perfectly understandably) that the Blizzard calculations began with a revenue figure rather than the sub-contract cost figure. Nevertheless, Mr Munday expressed the opinion that there were considerable financial risks associated with the B doubles which in his view "far outweighed" the cost savings projected.

(5) Mr Munday reached the conclusion that as at April 2000 "it was clearly apparent that the company was insolvent ... and that Mr Allen should have recommended that the company be placed into administration at this point". It must be observed that it was an odd feature of the material which had been provided to Mr Munday that he was not given any of the monthly profit and loss statements of Universal Logistics for the period April 2000 to March 2001. Further, while he was aware that the S Sali & Sons debt escalated dramatically from April 2000 onwards, his report did not portray any awareness of the arrangement made at the meeting in April 2000 in relation to the S Sali & Sons debt.

(6) Mr Munday expressed the view that given Universal Logistics' financial position "it was imperative that accurate monthly financial accounts were being prepared and reviewed by the board. In the absence of such, Mr Allen should have advised the board to place the company into administration". He went on to say that the lack of proper financial records was such that Mr Allen should have communicated the position in writing to the board and if the position was not rectified he should have ceased to act as an advisor to the board.

(7) When giving his conclusions, the specific relevant criticisms he made of Mr Allen, on the basis of the material which he had, were:

(a) that he did not advise the board of the company's poor financial health as at 31 March 2000;

(b) that he should have identified that the 2000 budget was unrealistic in relation to sales and debtor collection;

(c) Mr Munday was "not aware" that Mr Allen made any attempts to query the assumptions in the B doubles proposal;

(d) it was imperative that accurate monthly financial accounts were prepared and in the absence of them Mr Allen should have advised the board to place the company into administration.

216 In cross-examination the following relevant matters emerged:

(1) Mr Munday agreed that his reference at [5.1.7] of his report to a "point" in time when Mr Allen should have realised the company was having difficult paying its debts was a reference to the time at which the financial accounts for the year ended 30 June 1999 had been completed and were available, which he understood to be December 1999 or January 2000.

(2) Mr Munday conceded that in assessing the company's position as at late 1999 it was necessary to take into account the improved trading performance in the few months after 30 June 1999 and the cash injection of $200,000. Mr Munday observed that the 1998/99 financial accounts should have been completed before a decision was made to advance the company $200,000.

(3) He was asked about the unsent cheques and whether the company might have been "managing creditors". In response, he observed that he felt it was clear the company was having trouble paying its debts and, in that context, said one only had to read the memo to the board asking for the $200,000 injection.

(4) In relation to the position in April 2000, it was clear in Mr Munday's cross-examination that he was not aware of the arrangement which was made in the board meeting concerning the S Sali & Sons debt. He was asked to assume that S Sali & Sons had agreed not to call up its debt and not to seek payment of future debts indefinitely. Upon that assumption he was asked whether he still said the company should have gone into administration that day or whether it was then a more complicated argument. He replied: "It is more complicated then".

(5) He confirmed that his evidence was that a prudent accountant acting reasonably should have formed the view that the budget was extremely optimistic and conveyed that to the board of directors.

(6) He confirmed that he had not done his own analysis of the B doubles proposal. In that context he made an observation Mr Lom had also made about the effect of the B doubles acquisition being to replace a variable cost with a fixed cost.

(7) He agreed that the essential monthly financial information which should have been provided to the board included balance sheets and figures enabling a calculation of working capital.

(8) He agreed that if it were assumed the company was earning profits throughout 2000 a reasonable external accountant could draw some comfort from that even in the absence of a balance sheet, but he observed that by that time the last balance sheet seen would have been as at June 1999 which he said is "a hell of a long time after the event".

(9) In relation to his evidence that a prudent accountant would address the failure to provide proper financial reports in writing, he was asked if it would be reasonable if the accountant ensured his concerns were raised and noted in board minutes or action sheets and he said he would accept that if it has been minuted that is good evidence that it has been communicated.

(10) When asked what an accountant should do if, notwithstanding repeated requests, proper financial information was not being provided, he expressed the view that the advisor should resign.

217 Andrew Malarkey is also a chartered accountant. He is a partner in the firm KordaMentha. While his experience has not been as long in time as that of Mr Lom and Mr Munday, it appears to have been more focused upon corporate recovery issues. He prepared two reports.

218 The conclusions Mr Malarkey reached in his reports differed from those set out in the written reports of Mr Lom and Mr Munday. He rejected the criticisms made of Mr Allen's activities. Fundamentally, it seems to me that there are two reasons why his reports differed from Mr Lom and Mr Munday's reports.

219 First, he was instructed to assume facts in relation to Mr Allen's activities which Mr Lom and Mr Munday did not take into account. He was told to assume that Mr Allen had undertaken an analysis of the B doubles proposal and satisfied himself that the expected costs were less than the current costs using sub-contract drivers, that Mr Allen had expressly dismissed the budget at the board meeting on 13 September 1999 as being unrealistic, and that Mr Allen had told the board between March 1999 and December 2000 that the financial reports being produced by management were inadequate and had requested monthly balance sheets and a working capital summary. He was also instructed to assume that S Sali & Sons was "from time to time" prepared to allow its debt to remain unpaid.

220 The second reason for the differences is that Mr Malarkey takes a less strict view of solvency within the meaning of the Corporations Act. He takes the view that a debt is not relevantly due until the creditor takes action which may be detrimental to the debtor in order to recover it, such as by placing the company on "stop" and refusing to trade with it, or by issuing a statutory demand or other legal proceedings.

221 For reasons I will address later, it is neither necessary nor desirable to resolve the difference between the experts on the proper approach to solvency within the meaning of the Corporations Act. If it were necessary to resolve that issue I would not adopt Mr Malarkey's approach.

222 Otherwise, on most issues the differences between the experts are more apparent than real. If it is assumed that Mr Allen did analyse the B doubles proposal and found that there were cost savings to be made, if it is assumed that he did dismiss the budget when it was put before the board in September 1999, and if it is assumed that he did point out the inadequacy of the financial reports and request that proper reports be made available, then many of the criticisms made by Mr Lom and Mr Munday lose their cogency. The issue then becomes one of fact, whether those things occurred or not, not one of expert opinion.

223 In relation to the company's financial position, while all the experts were of assistance, I found Mr Munday to be the expert of most assistance. It is a pity that neither Mr Lom nor Mr Munday were appraised of the arrangement that was made about the S Sali & Sons debt in April 2000, because on any view that arrangement was significant at that critical point. As Mr Munday said, given that arrangement, the issue of whether the company should have continued or not was then "complicated".

224 In Mr Malarkey's cross-examination the following relevant matters emerged:

(1) Mr Malarkey confirmed it was good practice to have an engagement letter.

(2) Mr Malarkey was of the opinion that the issue of whether concerns about the provision of financial information should have been put in writing or not always depended upon the circumstances. In his opinion if the accountant felt the issues were sufficiently understood orally then that might be sufficient.

(3) Mr Malarkey indicated that he himself had not formed a view as to when this business was insolvent and that he could not give a date when he believed the business was insolvent.

Identifying the key issues in the claims against Metzke & Allen

225 The claim pleaded by the plaintiffs against Metzke & Allen is both simple and broad. The issue is whether Mr Allen was negligent or breached his retainer by failing to exercise reasonable care and skill. The respects in which it is alleged that he was negligent or breached his retainer extend over all of the significant issues addressed by the board between the time when Mr Allen began attending meetings in early 1999 and the time when the company went into administration. It seems to me, however, that the key issues fall under the following headings:

(b) Metzke & Allen's assessment of the B doubles proposal.

(d) The October 1999 cash advance by two of the plaintiffs.

(e) The new leases and facilities in Sydney and Brisbane.

226 Both Mr Munday and Mr Malarkey gave evidence that where an outside accountant is asked to attend board meetings it was at the relevant time good practice to put the terms of the engagement in writing. It hardly needs to be said that if that had been done in this case a good deal of uncertainty and subsequent dispute might have been avoided. At the end of the evidence, however, it seems to me to be clear, and indeed uncontroversial, that:

(a) Metzke & Allen were retained by Sam and Alan Sali and S Sali & Sons, as well as by Universal Logistics;

(b) Metzke & Allen's was retained to give advice to the board of Universal Logistics;

(c) Metzke & Allen was also retained to provide financial and accounting advice to Sam and Alan Sali and S Sali & Sons;

(d) Metzke & Allen were duty bound to warn Sam and Alan Sali and S Sali & Sons if any decision or proposal by Universal Logistics was likely to affect them adversely.[18]

227 While those matters were uncontroversial, at times during the course of evidence and in submissions, the plaintiffs appeared to contend that the retainer necessarily required Mr Allen to perform specific activities such as maintaining written records of board meetings, producing written reports or analyses, attending the premises of Universal Logistics himself to conduct inquiries, and obtaining and reviewing the records of Universal Logistics himself in order to compile balance sheets or cash flow analyses or other documents. In particular circumstances all or any of those activities might be necessary, but insofar as it was contended that the retainer necessarily involved Mr Allen carrying out those activities I cannot accept that that was the case. To impose upon Mr Allen general duties of that kind would be to cast him in a management role, which is a role he never had. It was not for Mr Allen to manage Universal Logistics, that was the responsibility of the board of directors and of the senior managers.

228 The plaintiffs also place particular reliance upon the evidence of Neil Allan when addressing the issue of what Russell Allen should have done consequent upon attending board meetings. I do not find Neil Allan's evidence of much assistance in this respect. First, Neil Allan said he attended board meetings of the company but he did not give any evidence of what specific activities he performed in that connection. Secondly, there was a gap of at least four years between whenever it was that Neil Allan attended board meetings (which must have been in or prior to 1994) and February 1999 when Russell Allen commenced attending board meetings.

229 In assessing Mr Allen's activities in relation to the B doubles proposal, it seems to me that the following matters are the important ones:

(a) Universal Logistics was not profitable prior to 1999. The board was looking for a way to alter the company's operations so as to produce a return. The way that they determined upon was Mr Blizzard's plan of expansion. That plan, at all times, had as a component the acquisition of specialised linehaul vehicles.

(b) The decision to acquire the vehicles was made in May or June 1999, early in Mr Allen's tenure as an advisor to the board.

(c) The decision was made after Mr Allen, and his employee, Mr Cootes, had analysed and tested the assumptions in relation to the projected cost savings prepared by Mr Blizzard, as had Mr Panozzo as well. On the evidence I have heard (and taking into account the understandable misconception by Mr Lom and Mr Munday), there is no basis for a conclusion that the analysis undertaken by Mr Allen was incorrect. Indeed, I heard no expert evidence of any different or competing analysis. As was submitted by counsel for Metzke & Allen, there is no evidence that as matters transpired the cost savings projected were not achieved.

230 Given those matters, my conclusion is that the criticisms made of Mr Allen in relation to his analysis of the B doubles proposal and his advice as to it are not made out.

231 Two aspects of the B doubles proposal nevertheless have continuing significance beyond the decision made in May or June 1999 to acquire the vehicles. The first is that, as Mr Lom and Mr Munday pointed out, the proposal necessarily imposed substantial fixed costs where previously there had been variable costs. The board papers for the meeting of 15 February 1999 reveal that the board was aware of that issue, but it nevertheless has continuing significance in relation to the company's financial position thereafter.

232 The second matter of continuing significance is related to the first. As both Mr Lom and Mr Munday explained, the expansion, of which the B doubles proposal was an important component, was inevitably going to require additional working capital. In due course that working capital was provided by the advances made in October 1999 and by the forbearance agreed to in April 2000. It is important to recall that the issue of the need for additional working capital did not first arise in October 1999. It was also raised very early on, in the board meetings of 15 February 1999 and 1 March 1999. The issue of working capital is of importance in assessing the complaints made in relation to Mr Allen after the decision had been made to acquire the B doubles.

233 The emphasis placed by the plaintiffs on the board meeting in September 1999 in the way in which the case was pleaded and argued is, in my view, misconceived. My finding is that the decision to purchase the B doubles had already been made by then. Indeed, my conclusion is that a general decision to pursue the expansionary plan devised by Mr Blizzard had been made when the then directors decided to employ him. The September 1999 meeting was a further step taken along that path. It did not have the pivotal importance the plaintiffs seek to give it.

234 The matter of significance which did arise at the September 1999 board meeting was the presentation of the budget. Both Mr Lom and Mr Munday criticised the budget in relation to both the revenue projection and the projection as to the collection of debtors. I have accepted Russell Allen's evidence that he also formed the view that the revenue projection was unrealistic and that he expressed that view at the board meeting.

235 It is true, it seems to me, that Mr Allen could have done more to analyse the budget. If he had done so, he may well have discovered the issue concerning debtor collections to which both Mr Lom and Mr Munday referred. I accept that Mr Allen could have done more. But it seems to me that what he did was enough. He did look at the budget. He did form a view about it. His view was that it was unrealistic. The plaintiffs' experts say that his view was correct. Mr Allen expressed his view at the board meeting. He could have done more, but what he did was enough.

236 Again, however, as was the case with the B doubles proposal, the unrealistic budget continued to have significance as a matter which Mr Allen needed to bear in mind as events unfolded thereafter.

237 Mr Allen perceived, quite correctly, that it was necessary for him to separately advise the Sali brothers about the proposed cash injection in October 1999. I accept his account of the advice he gave them. That advice was correct, as far as it went. He advised them that, on the basis of Ron Panozzo's analysis, the $200,000 was necessary to enable the company to continue and he advised them that there was no guarantee that that sum, if advanced, would be recovered.

238 One of the graphs presented to the board at the October meeting suggested that a loss had been incurred in the 1998/1999 financial year of over $200,000. At the time of the meeting that Mr Allen had with the Sali brothers and with Ron Panozzo to consider advancing funds to the company, Ron Panozzo's preliminary work for the financial accounts for the 1998/1999 year was in Metzke & Allen's offices. Mr Allen had not at that stage looked at it, although an employee of his had done so.

239 My conclusion is that Mr Allen should not have advised the plaintiffs on the issue of whether $200,000 should be advanced to the company without first reaching an informed view as to the outcome of the 1998/1999 financial year and advising the Sali brothers of that view. He had the material available which would have enabled him to do that. The indications were that the outcome would not be a good one.

240 In cross-examination Mr Allen himself substantially conceded the correctness of this conclusion.

241 The proposition repeatedly put, particularly early in the trial, on behalf of the plaintiffs that Mr Allen failed in his duties in October 1999 and thereafter because he did not inform Mr Sali that the company was "insolvent" is misconceived. If by "insolvent" what was meant was that the company could not pay its debts as and when due unless further funds were made available to it, then the directors, including Sam Sali, were aware of that. That is the very subject matter of Mr Panozzo's 19 October 1999 document which led to the proposal that further funds be injected.

242 It was clear in Mr Sali's own evidence that this "insolvent" analysis does not reflect his real concern. His concern was whether the company's position was "hopeless". In other words he was concerned about the prospects of the money being lost if advanced. In that context, he and his brother ought to have been advised as to the position as at 30 June 1999 as best Mr Allen could determine it, and indeed as to the position after 30 June 1999 insofar as it was known. Mr Allen did not take the steps that were necessary to give the Sali brothers this advice, and he ought to have done so.

243 It is because of my conclusion that the "insolvent" analysis is misconceived that I do not need to resolve the difference between the experts on that issue.

244 The issue then arises as to what the Sali brothers would have done had Mr Allen taken steps which would have enabled him to advise them in relation to the company's position as at 30 June 1999. It seems to me that, on the evidence before me, the conclusion must be that the funds would still have been advanced.

245 The first reason for this conclusion is that the final result for the year ended 30 June 1999 was not unexpected. It is not entirely clear when the financial statements for the year ended 30 June 1999 were signed by the directors, save to say that it was in early 2000. The accounts as finalised were presented to the board in February 2000. There is no indication in the contemporaneous documents that the final result for 30 June 1999 came as a surprise to the directors. As I have indicated, the directors at the October 1999 board meeting had had a chart before them indicating a loss in excess of $200,000 for the year ended 30 June 1999.

246 The second reason is the agreement made in April 2000. By then the outcome of the 30 June 1999 financial year was known. Sam and Alan Sali made a decision then to, in effect, advance further funds to the company in that knowledge.

247 Finally, it is significant that both Sam and Alan Sali were experienced businessmen. They knew from February 1999 that additional cash of in excess of $200,000 was sought for the expansion. The amount they advanced in October 1999 was somewhat less than what they had been led to expect would be required in February and March 1999.

248 The question was raised by Mr Lom as to whether the Sali brothers might have taken a different course if advised of the likely total amount which would eventually be required before they made any additional contribution. But that is not the plaintiffs' case, either as pleaded or argued, and there is no proper foundation for such a case in Mr Sali's evidence.

249 I have accepted Russell Allen's evidence that he did express concern about these commitments and that he told the board he could not recommend proceeding with the new leases. In the light of that finding the complaints made in relation to that specific issue must be rejected. Again, however, the increased commitments have continuing relevance as they are a factor which Mr Allen needed to bear in mind as events unfolded thereafter.

250 The company's position as at April 2000 was precarious. On any view there were grounds for serious concern as to the company's solvency. I have accepted Mr Allen's evidence that these concerns were addressed by the board with the ASIC document before them. In the absence of the forbearance arrangement that was made, it is my view that Mr Allen should have advised that the company should not continue trading. However, as Mr Munday conceded, the indefinite forbearance arrangement made the issue complicated.

251 Mr Allen did, with Mr Yiannis, direct the directors' minds to the critical issues, being solvency and their duties as directors. The directors decided that, given the forbearance arrangement made in relation to S Sali & Sons, the company could pay its debts.

252 At the meeting in April 2000 Mr Allen might have done more. He might have advised, for example, as Mr Malarkey suggested at one point, that the directors should obtain legal advice. He might have advised that an expert insolvency practitioner be consulted at that point. There are probably other things he might have done. The issue is, however, whether what he did was enough.

253 It seems to me that, as at April 2000, what Mr Allen did was enough. It was not for him to take over management of the company. His job was to warn the directors and to tell them of the issues they needed to address. It seems to me that he did do that. Accordingly, I do not consider that Mr Allen was negligent or in breach of his retainer because of what happened at the April 2000 board meeting.

254 After the April 2000 board meeting Mr Allen was aware of a number of significant matters. They were:

(a) The company had suffered a significant loss in the 1998/1999 financial year, and had also suffered losses in prior years.

(b) A cash advance of $200,000 had been necessary because the company was having trouble meeting its obligations to creditors in October 1999.

(c) Creditors were making demands and issuing proceedings.

(d) The financial reporting to the board was unsatisfactory and that position had not been remedied notwithstanding repeated requests by Mr Allen in that regard.

(e) The company had embarked upon an ambitious expansion plan, involving the undertaking of significant fixed obligations for vehicles and premises, and had presented an unrealistic budget in relation to that plan which had not been revised.

(g) The Sali brothers had agreed that S Sali & Sons would, in effect, be advancing significant monthly sums to the company by way of forbearance in relation to the sub-contract cartage debts.

255 It seems to me that in those circumstances Mr Allen ought not to have allowed management's failure to provide proper financial reports to continue for much longer without taking active steps in that regard. The most obvious step which could have been taken was to make a detailed written request, as was done in February 2001. Other steps which might have been taken include advising the Sali brothers to end the forbearance arrangement, or resigning as an advisor to the board.

256 I acknowledge the force of the submission made on behalf of Metzke & Allen that the regular profit and loss statements indicating that profits were being earned throughout 2000 is a factor to be taken into account. It seems to me that that factor has more significance in relation to the period before John Yiannis left the company. Mr Allen said John Yiannis was a person upon whom he felt he could rely. I am not prepared to conclude Mr Allen failed in his duty by not bringing matters to a head in May or June 2000.

257 It was common ground between the represented parties before me that the profit and loss statements provided to the board in the second half of 2000 by the managing director, Mr Blizzard, were misleading. The truth about the company's trading during that period was not revealed until February 2001. Mr Allen's unchallenged evidence, which I accept, was that these profit reports were used by Mr Blizzard to instil confidence in the directors at the end of 2000 and to persuade them not to pursue options, such as shutting down the business. Mr Allen said:

"By that stage the company was showing or had shown profits for the four or five previous months and he [Blizzard] was confident just with time that they could turn it around and it was more along the lines of looking at the other options, as was Sam. He was still backing Matthew to turn the business around."

258 All the experts, and Mr Allen himself, agreed that the management of this company ought to have been producing to the board a monthly balance sheet and cash flow analysis in 2000. Mr Allen requested material of this kind. His requests were not met.

259 Mr Allen should not have allowed that unsatisfactory position to simply continue indefinitely given the circumstances of the company in 2000. He should have made a detailed request in writing, as he and Mr Panozzo did in February 2001; or he should have advised the Sali brothers to bring the forbearance arrangement to an end; or he should have resigned.

260 My conclusion is he should have done one of these things by the end of July 2000 at the latest. By then, there had been two board meetings since the critical April meeting. The company's position was precarious on any view. Mr Yiannis had left. Mr Allen knew Mr Panozzo was having difficulty getting information. S Sali & Sons exposure was progressively increasing. Proper financial reports were not being provided. It was time to act.

261 If Mr Allen had acted as in my view he should have, my conclusion is that, one way or another, S Sali & Sons' continued work without payment would have ceased. I have reached this conclusion because that is what occurred when Mr Allen did act in 2001. It seems to me that accurate balance sheet information would have exposed or prevented the false profit reports, as it did in 2001.

262 In 2001 approximately a month elapsed between the initial written requests for detailed balance sheet information and the assessment of that information and action by Metzke & Allen and Sam Sali upon it. My conclusion is that a similar period would have elapsed before the forbearance arrangement was ended if Mr Allen had acted at the end of July 2000 as he did in February 2001.

263 The S Sali & Sons debt at the end of August 2000 was $479,624. The amount finally outstanding was $912,076, an increase of $432,452 (on my calculations). My conclusion is that that is the appropriate measure of the loss relevantly suffered by S Sali & Sons.

264 I have already explained why Metzke & Allen are not liable for losses suffered as a consequence of the making of the advance in October 1999. It was not suggested that any part of that advance might have been recovered if Universal Logistics had gone into administration in August 2000 rather than March 2001.

265 Other losses were also claimed but they are also not recoverable given my findings. I specifically refer to those other claims below.

266 It seems to me that the steps Mr Allen eventually took, with Mr Panozzo, in February 2001 were appropriate. They were effective in revealing the truth. The criticism which I consider can properly be made of Mr Allen is that he acted too slowly. What was done in February 2001 should have been done by the end of July 2000, at the latest.

Conclusions on the claims against Metzke & Allen

267 My conclusion is that the plaintiffs have established negligence and a breach of retainer in two respects, only one of which had relevant consequences.

268 Mr Allen failed to exercise reasonable care and skill in October 1999 by not considering and advising the Sali brothers in relation to the financial result for the company for the year ended 30 June 1999, but that failure had no relevant consequence as the funds would have been advanced in any event.

269 Mr Allen also failed to exercise reasonable care and skill in that he delayed too long before taking steps which were necessary in the circumstances to obtain balance sheet information from the management of the company. The necessary steps were taken in February 2001, and they should have been taken by the end of July 2000, at the latest. The consequence of that failure was that the company continued to trade, S Sali & Sons effectively continued to finance the company by undertaking sub-contracting work without payment, and the debt owed to S Sali & Sons increased by $432,452, all of which is irrecoverable. Metzke & Allen's failure to exercise reasonable care and skill was a cause of that loss.

270 The plaintiffs submitted that s 26 of the Wrongs Act 1958 (Vic) does not apply because the contractual duty of care in this case is not concurrent or co-extensive with the duty of care in tort. It was said in submissions that this was because the breaches in this case were "in the nature of nonfeasance rather than misfeasance". The plaintiffs relied upon certain observations of Oliver J in Midland Bank Trust[19] in this respect.

271 I reject the plaintiffs' submission. The plaintiffs' pleading makes it clear that what the plaintiffs allege here is breach of co-extensive contractual and tortious duties. My conclusion is that in two respects such breaches did occur. The passage relied upon in Midland Bank Trust is not applicable to the circumstances here. This is not a case of a failure to perform a contract in the sense discussed in that passage. It is a case of a failure to perform the contract with reasonable care and skill.

272 The plaintiffs also submitted that no contributory negligence had been proven.

273 The only relevant claim for these purposes is the claim by S Sali & Sons. Only it has suffered a relevant loss.

274 In final submissions counsel for Metzke & Allen put the contributory negligence claim against S Sali & Sons as follows:

"... from April 2000 until January 2001, Sali & Sons chose not to demand full payment for the services it was providing, because the Plaintiffs knew that if it did Universal would not be able to pay its other debts. That was a choice that the Plaintiffs made in April 2000 on the basis of all known information as to Universal's financial position and prospects of success. ... Had Sali & Sons not chosen to do so, it would not have suffered the loss that it now seeks to recover from Metzke & Allen. Therefore, to the extent that the loss is a result of a failure to take reasonable care, it can only be due to a failure by Sali & Sons to take reasonable care of its own interests."

275 I reject this submission. A decision was made in April 2000 to, in effect, finance Universal Logistics' continued operation. In the circumstances I do not consider that there is any relevant sense in which it can be said that S Sali & Sons "chose not to demand full payment for the services it was providing". It made an arrangement that it would not demand payment. It does not seem to me that there was any relevant negligence on its part in adhering to that arrangement until it was revealed that the board was being misled as to the company's performance. I do not consider that any negligence of S Sali & Sons relevantly contributed to the loss.

Part IVAA of the Wrongs Act

276 As I indicated earlier, it was common ground between the parties represented in the trial before me that Mr Blizzard was responsible for misleading the board between July 2000 and December 2000 by giving incorrect profit reports. As I have explained, Mr Blizzard was a party but he did not appear.

277 It seems to me that I can conclude on the evidence that the common position of the represented parties before me that Mr Blizzard did produce false reports to the board as to the company's profitability between July 2000 and December 2000 is well founded. The evidence upon which I rely in this respect is:

(a) The evidence of Mr Sali at transcript 199-211. In particular, at page 209 he agreed with the suggestion the monthly profit reports had been "manipulated".

(b) The evidence of Mr Allan at transcript 366-367. In particular, his evidence was that when he attended the premises of Universal Logistics in 2001 his enquiries revealed that entries had been made which "looked to be bogus". He suggested that these entries had increased reported profit by $600,000 or $700,000. He said these entries had been authorised by Mr Blizzard. In relation to the entries he said: "They weren't uninvoiced sales at all; they were just paper entries ...".

(c) The report of the administrator which is in evidence at Court Book 1582 to 1598. He repeats the allegation of "manipulation", and also reports that in the 6 month period to 31 December 2000 the monthly profit and loss statements overstated net profit by $624,409.

(d) Mr Sali's letter to the Major Fraud Group dated 3 June 2002, which is in evidence at Court Book 1740 to 1742, and which again describes the misreporting as "manipulation by MB", a reference to Mr Blizzard.

(e) Mr Allen's evidence concerning the "other debtors" item said to be an asset of $628,245 in the material provided to him on 26 February 2001 at transcript 636 to 639. He said this figure "just didn't appear to be correct and raised real concerns about the figures we had been receiving". He said the uncharged revenue item just seemed to him to be "incredible" and raised concern about the reported profit figures.

278 Counsel for Metzke & Allen submitted that Mr Blizzard owed a duty to the plaintiffs to take reasonable care to ensure that the monthly profit and loss statements he presented to the board during the period July to December 2000 were accurate, that he breached that duty, and that the plaintiffs suffered loss and damage as a result. (As matters have transpired, only the position of S Sali & Sons is relevant in this connection). Counsel for Metzke & Allen then submitted that Matthew Blizzard was a "concurrent wrongdoer" within the meaning of s 24AH(1) of the Wrongs Act and that liability must accordingly be limited as required by s 24AI. No submission was advanced on the basis of liability for misleading conduct.

279 Counsel for the plaintiffs did not seek to defend Mr Blizzard's conduct. Rather, they contended that Mr Blizzard was not liable to the plaintiffs because he owed them no duty of care and that accordingly he was not a concurrent wrongdoer. They also contended there was no evidence the plaintiffs had relied upon Mr Blizzard.

280 The plaintiffs submitted that Mr Blizzard could only be a "concurrent wrongdoer" within the meaning of s 24AH(1) of the Wrongs Act if it were established that the relevant plaintiff, in this case S Sali & Sons, had a cause of action against him. Metzke & Allen made a brief submission, which was not developed, to the effect that there is "no specific requirement" in the legislation that the other person who causes the loss must be a person liable to the plaintiff.

281 In support of its submission on this point the plaintiffs cited two papers presented at conferences[20] and a decision of the Victorian Civil and Administrative Tribunal.[21]

282 My conclusion is that the section does require that before a person can be a concurrent wrongdoer that person must be legally liable to the plaintiff. There are a number of aspects of the legislation which lead me to this conclusion. They are:

(1) The use of the term "wrongdoer" in ss 24AH and 24AI.

(2) The requirement of causation in s 24AH(1). It seems to me that this must be a reference to causation in the context of legal liability, as explained in March v Stramare, and not some concept of causation divorced from legal liability.

(3) The fact that under s 24AI(3) liability can only be apportioned by reference to other parties to the proceeding, and the use of the term "responsibility" in that connection. Thus, a concurrent wrongdoer must be a party and must be "responsible".

(4) The provision made in s 24AK for a subsequent action by the plaintiff against a concurrent wrongdoer, which suggests legal liability exists.

(5) If a plaintiff's recovery was to be limited by reference to the acts or omissions of a person who is not liable to that plaintiff I would have expected the legislation to make that clear.

283 The plaintiffs' counsel submitted that Mr Blizzard owed no duty to S Sali & Sons, relying on the decision of the High Court in Spies v The Queen,[22] and in particular the passage in the judgment of Gaudron, McHugh, Gummow and Hayne JJ where they dealt with directors' duties and referred to the decisions in Walker v Winborne, Re New World Alliance Pty Ltd and Grove v Flavel.[23]

284 Metzke & Allen do not contend that Mr Blizzard is liable to S Sali & Sons on the basis of some general duty owed by him as a director to Universal Logistics' creditors. What Metzke & Allen say is that Mr Blizzard presented monthly profit and loss statements to Sam and Alan Sali in circumstances where he was aware by reason of the discussion in April 2000, and by reason of the subsequent conduct of S Sali & Sons, that those monthly profit and loss statements would be relied upon by Sam and Alan Sali, as directors of S Sali & Sons, in assessing whether or not to permit the forbearance arrangement reached at the board meeting in April 2000 to continue.[24] Metzke & Allen rely on the principles in Esanda Finance Corporation Limited v Peat Marwick Hungerfords.[25]

285 The High Court decision in Spies v The Queen does not address the matter raised by Metzke & Allen in this case. Spies v The Queen is not authority for the proposition that a director who makes negligent misstatements to a creditor of the company can never owe that creditor a duty of care. I accept Metzke & Allen's submission that the issue here is to be analysed in accordance with the ordinary principles applicable to negligent misstatement, as set out by the High Court in Esanda Finance.

286 Under those principles, where the claim is for pure economic loss, as it is here, mere foreseeability of loss is not sufficient to give rise to a duty of care. A relationship of proximity is required before there is a duty of care. This relationship can be established in a number of ways. It might be established where information or advice is sought from a person possessing some special skill and where that person knows or ought to know that reliance is being placed upon the information or advice.[26] Liability will also be imposed whenever a person gives information or advice to another upon a serious matter where that person realises or ought to realise that he or she is being trusted to give the best of his or her information or advice and it is reasonable for the person receiving the information or advice to act on it.[27]

287 In this connection, in the absence of any evidence or submission from Mr Blizzard, I have reached the following relevant conclusions:

(a) At the discussion at the board meeting in April 2000 Sam and Alan Sali must have been acting as directors of S Sali & Sons, and must have been receiving information in that capacity, in addition to acting as directors of Universal Logistics. It is only because they were acting in both capacities that the forbearance arrangement was able to be made. This must have been apparent to all present, including Mr Blizzard.

(b) What was revealed in February 2001 was, in substance, that what had been presented as a significant asset ("other debtors") was, to say the least, not properly accounted for. This was significant not only in relation to the balance sheet but also in relation to the previous profit figures, and was seen as such at the time. The uncovering of this circumstance prompted action which brought the forbearance arrangement to an end, and, indeed, brought the company's entire operations to an end. One reason the company continued on as long as it did was because Sam Sali had been given confidence by the false profit reports which led him to believe the company could be turned around, or which meant he was not disabused of that belief.

(c) Just as Sam and Alan Sali were acting in their capacity as directors of S Sali & Sons in April 2000 when the forbearance arrangement was made, they continued to act in that capacity during the latter part of 2000 when they permitted the arrangement to continue in the false belief that profits were being earned.

(d) Mr Blizzard, as managing director, had special skill and knowledge in relation to the subject matter of the profit reports which were eventually revealed to be false.

(e) Mr Blizzard's profit reports between July 2000 and December 2000 were prepared by him or under his supervision. They were either deliberately false or were prepared in circumstances which must have involved negligence on Mr Blizzard's part.

(f) Mr Blizzard must have known Sam and Alan Sali were relying on his false profit reports, and must have intended them to do so.

288 My conclusion is that Mr Blizzard is a concurrent wrongdoer and that the Wrongs Act requires me to limit Metzke & Allen's liability accordingly.

289 The issue of how to apportion in these circumstances is a difficult one. The submissions of the parties on this issue were limited.

290 Podrebersek v Australian Iron & Steel Pty Ltd[28] provides a useful starting point. The decision concerns the principles to be applied when apportioning responsibility between a plaintiff and defendant, but those principles have been held to apply whenever the issue is apportionment between parties,[29] including under Part IVAA of the Wrongs Act.[30]

291 The High Court in Podrebersek approved of the statement in British Fame (Owners) v Macgregor (Owners) that a finding on a question of apportionment is a finding upon "a question, not of principle or of positive findings of fact or law, but of proportion, of balance and relative emphasis, and of weighing different considerations. It involves an individual choice or discretion, as to which there may well be differences of opinion by different minds.[31]

"[t]he making of an apportionment ... involves a comparison both of culpability, ie of the degree of departure from the standard of care of the reasonable man ... and of the relative importance of the acts of the parties in causing the damage: Stapley v Gypsum Mines Ltd [1953] UKHL 4; [1953] AC 663 at 682; Smith v McIntyre [1958] Tas SR 36 at 42-49 and Broadhurst v Millman [1976] VicRp 15; [1976] VR 208 at 219, and cases there cited. It is the whole conduct of each negligent party in relation to the circumstances of the accident which must be subjected to comparative examination. The significance of the various elements involved in such an examination will vary from case to case; for example, the circumstances of some cases may be such that a comparison of the relative importance of the acts of the parties in causing the damage will be of little, if any, importance."[32]

293 More recently, Chernov JA in Alcoa Portland Aluminium Pty Ltd v Husson & Anor[33] stated that:

"The approach to be adopted ... requires a comparison both of culpability and the relative importance of the acts of the parties in causing the injury, requiring the whole of the relevant conduct of each of the negligent parties to be subject to comparative examination. The tasks involve matters of proportion, balance and relative emphasis and are, in this regard, similar to the exercise of a broad discretion."[34]

294 Chernov JA went on to note that in some cases there may be a "merger or overlap of the question of culpability and importance of the wrongful acts".[35]

295 It seems to me that upon the comparison of the culpability of Mr Blizzard on the one hand and Metzke & Allen on the other, Mr Blizzard's culpability is much greater. He was the person actively engaged in the acts which caused the loss. Mr Blizzard had a direct personal interest in the company continuing as he would remain as its managing director and could continue to pursue the plan he had devised. My conclusion is that Mr Blizzard's culpability is much greater than that of Metzke & Allen.

296 A comparison of the relevant importance of the acts of Mr Blizzard on the one hand and Metzke & Allen on the other is more difficult. Their roles were fundamentally different. Mr Blizzard was the person who was managing the business and was the person reporting to the board. Mr Allen, as a partner of Metzke & Allen, had an entirely different role. His role was to attend board meetings and to advise and warn. Mr Allen was in a position to take steps that would have prevented the relevant loss from being suffered. In a sense, that was the very purpose for which Metzke & Allen had been engaged. Thus, although Mr Blizzard was the active wrongdoer and Mr Allen's fault was, in substance, a delay in taking steps to call Mr Blizzard effectively to account, it seems to me that Mr Allen's expertise and the nature of Metzke & Allen's retainer means that the relative importance of the respective acts of the parties in causing the loss are closer than the comparison of the culpability. I would still put the importance of Mr Blizzard's acts above those of Metzke & Allen.

297 Considering the whole of the conduct of the two relevant parties, and acknowledging the overlap in the relevant considerations, my conclusion is that it is just to limit the amount for which Metzke & Allen is liable, as required by s 24AI of the Wrongs Act, to 30% of the loss which I have found is recoverable. On my calculation, that is $129,735.

298 Counsel for the plaintiffs submitted that the court should draw a Jones v Dunkel[36] inference against Metzke & Allen in respect of what was said to be their unexplained failure to call Mr Panozzo.

299 Before trial Metzke & Allen's solicitors filed an outline of expected evidence in relation to Mr Panozzo. Senior counsel for Metzke & Allen, in opening, referred to Mr Panozzo as a person who had worked for the Sali interest for a number of years and who was their "trusted advisor". Later in the trial, before the plaintiffs had closed their case, senior counsel for Metzke & Allen advised that he was reviewing the question of whether there was any need to call Mr Panozzo because, he said, "there doesn't seem to be dispute about the areas that his outline of evidence deals with". Later, during Metzke & Allen's case, he advised that Mr Panozzo would not be called.

300 The solicitor for the plaintiffs, Mr Timothy Kaine, swore an affidavit on 12 December 2008, which was tendered as Exhibit P 9, setting out conversations he had had with Mr Panozzo in an attempt to arrange a conference with him. Those attempts were unsuccessful. The affidavit concluded by stating that as Metzke & Allen's solicitors had served an outline of evidence for Mr Panozzo he believed he would be called as a witness and he did not pursue his attempts to interview Mr Panozzo further. Mr Kaine's affidavit was admitted on the basis that none of the hearsay material contained in it was relied upon as evidence of the truth of what had been said.

301 Once it was clear that Metzke & Allen did not intend to call Mr Panozzo I indicated to counsel for the plaintiffs that there would be no difficulty in re-opening their case so as to call him if they wished to do so. Senior counsel for the plaintiffs advised they would not take that course as Mr Panozzo had not been interviewed and he had no instructions as to what he would say. Metzke & Allen did not contend that any Jones v Dunkel inference should be drawn against the plaintiffs.

302 In Ronchi v Portland Smelter Services Ltd[37] Eames JA explained the principle which applies as follows:

"The unexplained failure by a party to call a witness who is in the camp of that party, where it might reasonably be expected to have called the witness if that person's evidence would have been favourable to the party, means that it is open to the jury to infer that the evidence would not have assisted the case of the party not calling the person."[38]

303 Two aspects of the applicable principle are important here.

304 The first is an aspect emphasised by Warren CJ in CGU Insurance Ltd v CW Fallaw & Associates Pty Ltd.[39] That is that the inference is only drawn in relation to a person who is "in the camp" of the party against whom the inference is to be drawn.

305 The second important aspect is that the principle only applies where a party is required to explain or contradict something and where it may fairly be supposed that the potential witness had knowledge of relevant material in that respect. This aspect of the principle was dealt with at some length by Nettle JA in Ronchi.

306 I have not analysed the outline filed in relation to Mr Panozzo to assess the validity of what senior counsel for Metzke & Allen said about it. Counsel for Metzke & Allen did not contend that I should do so. Counsel for the plaintiffs contended I should not do so. As the document is not in evidence, I have done as counsel for the plaintiffs submitted.

307 There were issues in relation to which it seems to me that Mr Panozzo might fairly be supposed to have had relevant knowledge but which, as matters transpired, did not require further explanation by Metzke & Allen because Mr Allen was substantially uncontradicted. Into this category I would put issues such as the analysis of the B doubles costings, the fact that Mr Allen was unhappy with the financial reports which were provided to the board and that he made requests for improved reporting, and the sequence of events in February 2001.

308 On the other hand, there were issues upon which it seems to me that Mr Panozzo would have had relevant evidence to give which were controversial or potentially controversial. In this category I would include issues such as whether Mr Panozzo or Mr Allen was to undertake audits or checks at the Universal Logistics' offices, what Mr Panozzo's initial work in relation to the financial statements for the year ended 30 June 1999 showed, and what was said at the meeting on 25 October 1999. The plaintiffs never articulated the specific issues in relation to which it was submitted that adverse inferences ought to be drawn, but there were areas where it might fairly be supposed that Mr Panozzo could have given potentially important evidence which I have had to determine.

309 The issue which must be determined then is whether Mr Panozzo is "in the camp" of Metzke & Allen. The circumstance principally relied upon in that connection by counsel for the plaintiffs was the fact that an outline of evidence in relation to him had been filed. It was suggested I could infer he had been interviewed and "proofed". Reliance was also placed upon evidence given that the role he played in preparing accounts for Universal Logistics was a role he also played for other clients of Metzke & Allen. Mr Allen said he played this role for at least 10 such clients and perhaps more.

310 I have already referred to some aspects of Mr Panozzo's role. I have referred to the evidence given by Mr Sali that Mr Panozzo had done a lot of work for the Sali family and for Sali companies, that they had had a long relationship, that he had been a trusted advisor to them, and that he had begun attending board meetings of Universal Logistics before 1999 when Russell Allen began attending board meetings. I have also referred to the fact that Mr Sali described Mr Panozzo's role, as compared to that of Metzke & Allen, as being the "junior side" of the accounting work.

311 While Mr Panozzo might in a sense have been "junior" to Mr Allen, Universal Logistics' documents, including Mr Blizzard's presentation of the "proposed executive team" in March 1999 and the board resolution concerning the advisors on 8 June 1999, portray them in similar roles.

312 In the context of this dispute between Metzke & Allen on the one hand and the Sali interests on the other, I am unable to conclude that Ron Panozzo is a person "in the camp" of Metzke & Allen. The fact that Metzke & Allen's solicitors filed an outline of evidence for Mr Panozzo and the fact Mr Panozzo also worked for other Metzke & Allen clients is insufficient, given the history of Mr Panozzo's involvement with the Sali interests. On the material in evidence, absent Mr Kaine's affidavit, I would have placed Mr Panozzo in the Sali "camp".

313 I reject the submission that any adverse inference should be drawn against Metzke & Allen on the basis of the rule in Jones v Dunkel by virtue of their failure to call Ron Panozzo.

314 It was also submitted that adverse inferences should be drawn against Metzke & Allen because, so it was said, Mr Allen had failed to give expert evidence in response to the plaintiffs' experts and because Metzke & Allen had failed to call Frank Metzke. I also reject these submissions.

315 Mr Allen gave a full account of the relevant circumstances from his perspective. I am not at all clear what expert evidence it is suggested Mr Allen might have given, in addition to the account which he gave. It is very unlikely I would have been assisted by any additional expert evidence from Mr Allen.

316 As to Mr Metzke, the only relevant event in which he participated was the urgent meeting on 26 February 2001. There was no controversy as to anything said or done at that meeting. Insofar as it was submitted that Mr Metzke also ought to have been called to give expert evidence, it is clear that he would not have been in any sense independent. I am not prepared to draw any adverse inference because a person who is a party was not called to give evidence of that kind.

317 The plaintiffs claimed a sum of $50,000 which was an amount paid to settle a claim by the landlords of the new Brisbane premises against Sam and Alan Sali as guarantors. The payment was actually made by S Sali & Sons. The relevant lease was executed on behalf of Universal Logistics on 20 May 2000. My finding is that Mr Allen told the board he could not recommend proceeding with this lease. I have rejected the specific complaints made against him in this regard.

318 I have also found that Metzke & Allen breached their retainer and breached their duty of care because they failed to take necessary steps by the end of July 2000. Any obligation which Alan and Sam Sali had in relation to the premises in Queensland had already been incurred at that time. There is no evidence that the extent of their liability was increased because of the delay between July 2000 and February 2001.

319 Accordingly, this loss is not recoverable against Metzke & Allen.

320 If it had been necessary to decide the matter, I would not have rejected the claim because the payment was made by S Sali & Sons. I would have accepted the evidence of Neil Allan that the payment by S Sali & Sons must be characterised as a payment on behalf of the guarantors who had the liability.

321 The plaintiffs also claim a sum of $30,000 paid in settlement of a claim by the New South Wales landlord against Sam and Alan Sali as guarantors. The analysis here is the same as that for the Brisbane lease claim.

322 S Sali & Sons claimed a loss of $99,127.07 being the amount paid to NAB on 17 October 2001, to which I referred earlier. The plaintiffs' case in this respect was that the relevant obligation was undertaken on 5 January 2000. In the circumstances the loss is not recoverable for the same reasons as I have given in relation to the payments made concerning the leases. I would have rejected this claim in any event because the evidence reveals that guaranteed bank liabilities existed at 30 June 1998 and at 30 June 1999. There was no evidence that the amount eventually paid, being $99,127.07, would have been lower at any prior time had Universal Logistics ceased trading then.

323 The plaintiffs also claim a sum of $120,000 paid to a creditor named Line Haul Holdings Pty Ltd. In submissions the plaintiffs asserted that this sum was paid because Sam and Alan Sali, as directors, were liable for the debt on the basis that it had been incurred when Universal Logistics was insolvent. I reject this claim because the evidence of Sam Sali made it clear that the only reason the payment was made was that threats were made to him and his family.

324 The plaintiffs claim a sum of $17,250 paid for Greg Bowler's shares in October 1999. This claim fails for the same reason as the claim in relation to the October 1999 advance fails.

(a) Mr Allen failed to exercise reasonable care and skill in October 1999 but there was no relevant consequence as the funds advanced then would have been advanced in any event.

(b) Mr Allen also failed to exercise reasonable care and skill in that he delayed for too long before taking steps which were necessary as a result of the shortcomings in the financial reports provided to the board. He delayed until February 2001. He should have acted by the end of July 2000. Thus, Metzke & Allen breached both their contractual obligations and their duty of care. These breaches were a cause of a loss I calculate at $432,452, which is the increase in the S Sali & Sons debt after the end of August 2000. I have found that if Mr Allen had acted by the end of July 2000 the S Sali & Sons forbearance arrangement would have ceased by the end of August 2000.

(c) The claim that the amount recovered should be reduced for contributory negligence fails.

(d) The claim that Metzke & Allen's liability should be limited having regard to Matthew Blizzard's responsibility for the loss succeeds. Metzke & Allen's liability should be limited to 30% of the relevant loss. I calculate Metzke & Allen's liability at $129,736.

326 I will hear the parties on the orders to be made and on any issues of interest and costs.

I certify that this and the 83 preceding pages are a true copy of the reasons for Judgment of Whelan J of the Supreme Court of Victoria delivered on 19 February 2009.

[1] See for example, Henderson v Amadio [1995] FCA 1300; (1995) 62 FCR 1, 143.

[2] Midland Bank Trust Co Ltd v Hett Stubbs & Kemp (a firm) [1979] Ch 384, 403. ("Midland Bank Trust").

[3] Astley v Austrust Ltd (1999) 197 CLR 1, 22.

[4] Frankston & Hastings Corp v Cohen [1960] HCA 6; (1960) 102 CLR 607, 619.

[5] Astley v Austrust Ltd (1999) 197 CLR 1, 22.

[6] Townsend v Roussety & Co (WA) Pty Ltd [2007] WASCA 40 at [116]. See also Astley v Austrust Ltd (1999) 197 CLR 1, 22.

[7] Voli v Inglewood Shire Council [1963] HCA 15; (1963) 110 CLR 74, 84; Henderson v Amadio Pty Ltd (No 1) [1995] FCA 1300; (1995) 62 FCR 1, 135.

[8] Duchess of Argyll v Beuselinck [1972] 2 Lloyds Rep 172, 185; March v E & MH Stramare [1991] HCA 12; (1991) 171 CLR 506, 515. See also the comments of Hayne J in Vairy v Wyong Shire Council [2005] HCA 62; (2005) 223 CLR 422 at [126] - [129].

[9] March v E & MH Stramare [1991] HCA 12; (1991) 171 CLR 506, 522 (per Deane J). See also 515-6 (Mason CJ), 525 (per Gaudron J).

[10] Ibid, 522 (per Deane J). See also 515-6 (Mason CJ), 525 (per Gaudron J).

[12] Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 at [60] and [106].

[13] Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [24] - [25] and [87].

[14] Qantas Airways Ltd v Cameron [1996] FCA 1483; (1996) 66 FCR 246, 293.

[16] Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [89]-[91]; Chappel v Hart (1998) 195 CLR 232, 246.

[17] Rosenberg v Percival [2001] HCA 18; (2001) 205 CLR 434 at [89]-[91]. See also per Kirby J at [155]-[158]; see also Chappel v Hart (1998) 195 CLR 232, 246 - footnote (64).

[18] This is essentially how the retainer was put by the plaintiffs in final address. See Plaintiffs' Outline of Final Address at [22].

[19] [1979] Ch 384, 434.

[20] The first was a paper entitled "Proportionate Liability: Some Creaking in the Superstructure" delivered by Byrne J to the Judicial College of Victoria on 19 May 2006, and the second was a paper delivered to the Commercial Bar Association entitled "Proportionate Liability: An Analysis of the Victorian and Commonwealth Legislative Schemes" by Uren QC and Aghion on 18 August 2005. I have also considered the 2006 Sydney Law School Legal Studies Research Paper entitled "Proportionate Liability in Australia: the devil in the detail" by Barbara McDonald.

[21] Lawley v Terrace Designs [2006] VCAT 1363. I found this decision difficult to follow on this point. The passage relied upon by the plaintiffs is in Section 13 at [317], but, if this passage supports the plaintiffs, it is in contrast to what was said at [7]-[16].

[22] [2000] HCA 43; (2000) 201 CLR 603.

[23] [2000] HCA 43; (2000) 201 CLR 603, 635-637. A number of other authorities and articles on the issue were dealt with in footnotes.

[24] The substance of this submission is set out in paragraph 170 of Metzke & Allen's final written submission.

[25] [1997] HCA 8; (1997) 188 CLR 241.

[26] Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465.

[27] Mutual Life & Citizens Assurance Co Ltd v Evatt [1970] UKPCHCA 2; (1970) 122 CLR 628.

[28] [1985] HCA 34; (1985) 59 ALR 529.

[29] Alcoa Portland Aluminium Pty Ltd v Husson & Anor [2007] VSCA 209; (2007) 18 VR 112 at [86].

[30] Iannello v BAE Automation and Electrical Services Pty Ltd [2008] VSC 544.

[31] [1985] HCA 34; (1985) 59 ALR 529, 532.

[32] [1985] HCA 34; (1985) 59 ALR 529, 532-3. "Culpability" does not mean moral blameworthiness but the degree of departure from the required standard: Pennington v Morris [1956] HCA 26; [1956] 96 CLR 10.

[33] [2007] VSCA 209; (2007) 18 VR 112.

[36] [1959] HCA 8; (1959) 101 CLR 298.

[37] [2005] VSCA 83.

[38] [2005] VSCA 83 at [32].

[39] [2008] VSC 197 at [16].