Plaintiffs v First and Second Defendants

Supreme Court of Victoria|2009-02-19|Before: WHELAN J

CONTRACT AND TORT - Accountants' concurrent duty in contract and tort to exercise reasonable care and skill - Breach of duty as necessary steps taken too late.

CONTRACT AND TORT - Apportionment and limitation of liability under Part IVAA, Wrongs Act 1958 (Vic) - Whether concurrent wrongdoer must be liable to the plaintiffs.

CONTRACT AND TORT - Apportionment and limitation of liability under Part IVAA, Wrongs Act 1958 (Vic) - Principles to be applied.

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;

(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

At a glance

Court

Decision date

Before

Source

Judgment (498 paragraphs)

Parties

Cases Cited (16)