Stone v Ebeid

1. The report of Mr Barry Taylor dated 3 February 2020 be adopted in full.
2. The plaintiff send to the defendant a draft index to the Court Book by 17 March 2020.
3. The defendant provide any additional items or modifications to the index to the Court Book to the plaintiff by 20 March 2020.
4. The plaintiff file an electronic version only of the Court Book by 27 March 2020, which contains appropriate bookmarks to the relevant documents.
5. The plaintiff file an outline of submissions by 9 April 2020.
6. The defendant file an outline of submissions by 16 April 2020.
7. The plaintiff file an outline of submissions in reply by 23 April 2020.
8. The defendant pay the plaintiff's costs of the adoption hearing.
9. The matter be listed for hearing on 30 April 2020. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THAWLEY J: 1 On 8 August 2019, the Court made orders under s 54A of the Federal Court of Australia Act 1976 (Cth) referring certain questions to Mr Barry Taylor as a referee for inquiry and report. The questions referred to Mr Barry Taylor were agreed between the parties and related to the solvency of the Cardinal Group of companies from 1 July 2011 to 15 December 2011 and the identification of debts incurred during any period of insolvency. The questions posed were whether three specific entities within the Cardinal Group were insolvent in the period from 1 July 2011 to 15 December 2011, and, if not, whether they were insolvent for part of that period. 2 Mr Taylor provided the report on 3 February 2020. 3 The plaintiff has applied for the report to be adopted, and submitted that the referee is well qualified; the report demonstrated a thorough, analytical and scientific approach to the assessment of insolvency; there is no error of principle in the report; and the conclusions reached in the report are supported by the evidence provided to the referee. 4 The defendant submitted that the Court should not adopt the referee's report, primarily because - so it was contended - the report failed to consider the evidence given by Mr Sam Ebeid and Mr Michael Ebeid, or provide sufficient reasons in respect of its findings about that evidence. The first defendant, Mr Sam Ebeid, and his brother, Mr Michael Ebeid, provided affidavit evidence to the referee stating that Mr Sam Ebeid was able to raise $2-$2.5 million in additional finance from his brother. The defendant submitted that the referee report merely noted this evidence, but provided no analysis about whether it impacted the referee's ultimate finding that relevant entities were unable to raise additional capital. The defendant asked the Court not to adopt the report in its current form, and for the Court to provide further instructions to the referee to clarify the following matters: (1) Where [sic] each of the affidavits considered; (2) What affect if any did the availability to raise finance from Mr. Michael Ebeid have on the findings in the expert report; and (3) What affect if any did the availability to raise finance from Mr. Michael Ebeid have as to solvency or insolvency of any entities being the subject of the expert report. 5 Section 54A of the Federal Court of Australia Act 1976 (Cth) empowers the Court to refer a proceeding or questions in a proceeding to a referee, and empowers the Court to deal with the report as it thinks fit, including by adopting it in whole or in part or varying or rejecting the report: s 54A(3). See also Federal Court Rules 2011 (Cth) r 28.67. 6 These principles concerning adoption were summarised by McDougall J in Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7]: The relevant principles, distilled from those decisions, can be stated as follows: (1) An application under Pt 72 r 13 is not an appeal either by way of hearing de novo or by way of rehearing. (2) The discretion to adopt, vary or reject the report is to be exercised in a manner consistent with both the object and purpose of the rules and the wider setting in which they take their place. Subject to this, and to what is said in the next two sub paragraphs, it is undesirable to attempt closely to confine the manner in which the discretion is to be exercised. (3) The purpose of Pt 72 is to provide, where the interests of justice so require, a form of partial resolution of disputes alternative to orthodox litigation, that purpose would be frustrated if the reference were to be treated as some kind of warm up for the real contest. (4) In so far as the subject matter of dissatisfaction with a report is a question of law, or the application of legal standards to established facts, a proper exercise of discretion requires the judge to consider and determine that matter afresh. (5) Where a report shows a thorough, analytical and scientific approach to the assessment of the subject matter of the reference, the Court would have a disposition towards acceptance of the report, for to do otherwise would be to negate both the purpose and the facility of referring complex technical issues to independent experts for enquiry and report. (6) If the referee's report reveals some error of principle, absence or excessive jurisdiction, patent misapprehension of the evidence or perversity or manifest unreasonableness in fact finding, that would ordinarily be a reason for rejection. In this context, patent misapprehension of the evidence refers to a lack of understanding of the evidence as distinct from the according to particular aspects of it different weight; and perversity or manifest unreasonableness mean a conclusion that no reasonable tribunal of fact could have reached. The test denoted by these phrases is more stringent than "unsafe and unsatisfactory". (7) Generally, the referee's findings of fact should not be re-agitated in the Court. The Court will not reconsider disputed questions of fact where there is factual material sufficient to entitle the referee to reach the conclusions he or she did, particularly where the disputed questions are in a technical area in which the referee enjoys an appropriate expertise. Thus, the Court will not ordinarily interfere with findings of fact by a referee where the referee has based his or her findings upon a choice between conflicting evidence. (8) The purpose of Pt 72 would be frustrated if the Court were required to reconsider disputed questions of fact in circumstances where it is conceded that there was material on which the conclusions could be based. (9) The Court is entitled to consider the futility and cost of re-litigating an issue determined by the referee where the parties have had ample opportunity to place before the referee such evidence and submissions as they desire. (10) Even if it were shown that the Court might have reached a different conclusion in some respect from that of the referee, it would not be (in the absence of any of the matters referred to in sub para (6) above) a proper exercise of the discretion conferred by Pt 72 r 13 to allow matters agitated before the referee to be re-explored so as to lead to qualification or rejection of the report. (11) Referees should give reasons for their opinion so as to enable the parties, the Court and the disinterested observer to know that the conclusion is not arbitrary, or influenced by improper considerations; but that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved. The reasoning process must be sufficiently disclosed so that the Court can be satisfied that the conclusions are based upon such an intellectual exercise. (12) The right to be heard does not involve the right to be heard twice. (13) A question as to whether there was evidence on which the referee, without manifest unreasonableness, could have come to the decision to which he or she did come is not raised "by a mere suggestion of factual error such that, if it were made by a trial judge, an appeal judge would correct it". The real question is far more limited: "to the situation where it is seriously and reasonably contended that the referee has reached a decision which no reasonable tribunal of fact could have reached; that is, a decision that any reasonable referee would have known was against the evidence and weight of evidence". (14) Where, although the referee's reasons on their face appear adequate, the party challenging the report contends that they are not adequate because there was very significant evidence against the referee's findings with which the referee did not at all deal, examination of the evidence may be undertaken to show that the reasons were in fact inadequate because they omitted any reference to significant evidence. (15) Where the court decides that the reasons are flawed, either on their face or because they have been shown not to deal with important matters, the court has a choice. It may decline to adopt the report. Or it may itself look at the detail of the evidence to decide whether or not the expense of further proceedings before the referee (which would be the consequence of non adoption) is justified. 7 Justice McDougall's summary has been endorsed in numerous judgments, including in CPB Contractors Pty Ltd v Celsus Pty Ltd (No 2) (2018) 364 ALR 129 at [67] (Lee J); VoR Environmental Australia Pty Ltd v Taset Inc (No 2) [2019] FCA 1094 at [29] (Lee J); Weston v Rajan [2019] FCA 1455 at [8]-[9] (Stewart J); and Oldendorff Carriers GmbH & Co KG v Tharmalingam [2019] FCA 2020 at [7] (Rares J). 8 Also of assistance, particularly in the present context, are the observations of Allsop CJ in Sheehan v Lloyds Names Munich Re Syndicate Ltd [2017] FCA 1340 at [10], where his Honour stated: Once a referee's report is provided to the Court, the Court will then hold an adoption hearing if adoption of the report is contested. The principles regarding the adoption of a referee's report, albeit within the context of the Supreme Court Rules 1970 (NSW), were distilled succinctly, but comprehensively, by McDougall J in Seven Sydney Pty Ltd v Fuji Xerox Australia Pty Ltd [2004] NSWSC 902 at [12]. They include that a Court should be reluctant to allow factual issues determined by a referee to be argued afresh in Court: Seven Sydney [2004] NSWSC 902 at [12] per McDougall J; Chocolate Factory Apartments Ltd v Westpoint Finance Pty Ltd [2005] NSWSC 784 at [7] per McDougall J. Some error of principle, absence or excess of jurisdiction or patent misapprehension of the evidence should generally be demonstrated to justify the rejection of the referee's report: Super v SJP Formwork 29 NSWLR at 563. The Court will generally not reconsider disputed questions of fact where there exists factual material that is sufficient to entitle the referee to reach the conclusions that he or she did, particularly where the disputed conclusions are made in a technical area in which the referee possesses appropriate expertise: Seven Sydney [2004] NSWSC 902 at [12] per McDougall J. Furthermore, the discretion to reconsider a referee's factual findings will generally only be exercised if the findings are such that no reasonable finder of fact could have made that finding: Franks v Berem Constructions Pty Ltd [1998] NSWCA 87 at 11 per Hodgson CJ in Eq. However, the determination of questions of law and the application of legal principles to facts found by the referee is a matter for the Court: Homebush Abbattoir Corporation v Bermria Pty Ltd (1991) 22 NSWLR 605 at 609; Super v SJP Formwork 29 NSWLR at 563; and Seven Sydney [2004] NSWSC 902 at [12]. 9 As noted by McDougall J in Chocolate Factory Apartments at [7], a referee's reasoning process must be "sufficiently disclosed" such that it can be seen "that the conclusion is not arbitrary, or influenced by improper considerations" and "that it is the result of a process of logic and the application of a considered mind to the factual circumstances proved". 10 The referee expressly referred to the evidence regarding a possible loan between Mr Sam Ebeid and Mr Michael Ebeid, stating that he had read the relevant affidavits: 9. Access to Additional Funding 9.1 I have read the affidavit of Mr Sam Ebeid dated 21 December 2018 filed in the proceedings (Sam Ebeid Affidavit). 9.2 At paragraphs 34 to 39 of the Sam Ebeid Affidavit Mr Ebeid deposed that in about September 2010 and in 2011 he had conversations with his brother Michael Ebeid relating to the borrowing of between $2.0m and $2.5m for Cardinal Group Pty Limited. 9.3 I have read the affidavit of Mr Michael Ebeid dated the 13 February 2019 filed in the proceedings (Michael Ebeid Affidavit). 9.4 Mr Michael Ebeid deposed that he had the financial capacity and was willing to advance funds in excess of $2.5m to his brother Sam Ebeid to inject into Cardinal Group business. 9.5 At paragraph 6 of the Michael Ebeid Affidavit Mr Michael Ebeid deposed that "Sam (Ebeid) did not call upon me to loan him money". 11 In addition, the referee stated at [3.11] what his methodology was. At [3.11.1] he stated that he read, considered and independently analysed all the information which had been provided to him by the plaintiffs and the defendants. 12 The referee also conducted an interview with Mr James Brown, a former consultant and employee acting as Chief Financial Officer of the Cardinal Group, to which I will return. At [6.10.6], [6.14.8] and [6.16.8], the referee expressed a conclusion that the Cardinal Group was unable to obtain an increase in its borrowing facilities with the NAB or raise additional capital or borrowings from the directors or related entities. 13 At [11.55]-[11.56], [12.28]-[12.29] and [13.21]-[13.22] of the report, the referee addressed what he summarised as the various Cardinal Group companies' "Inability to Borrow Further Funds". The referee explicitly stated that he "refer[red] to Section 8 and Section 9 in relation to access to additional funding" and "infer[red] from the surrounding facts that the Cardinal Group was unable to obtain finance during the Period, either internally from related parties or externally from financiers". 14 These paragraphs demonstrate that the referee took the evidence of Mr Sam Ebeid and Mr Michael Ebeid into account and that he did so when concluding that the various Cardinal Group companies could not obtain additional finance either internally or externally. Mr Michael Ebeid had stated in his affidavit that he would provide a loan if Mr Sam Ebeid called upon him to loan monies, but that Mr Sam Ebeid never did call on him. The expert expressly referred to this evidence at [9.5]. In addition, it is plain that the expert had regard to the evidence, because in his interview with Mr Brown, he asked him about Mr Michael Ebeid's preparedness to lend funds. Mr Brown stated that he thought the reason that funds were never lent was because the directors "just couldn't get along". 15 In any event, the loan from Mr Michael Ebeid to Mr Sam Ebeid never eventuated. The conclusion that additional "internal" finance was not available was open on the material before the referee. Indeed, it was patently reasonable for the referee to reach that conclusion. Whatever conversations the brothers had, no loan in fact eventuated. The referee's conclusion that internal finance was not available was consistent with what one would expect on the probabilities from parties in the circumstances of Mr Sam Ebeid and Mr Michael Ebeid. The referee's conclusion was not manifestly unreasonable nor was it a decision "which no reasonable tribunal of fact could have reached": Chocolate Factory Apartments at [7]. I am satisfied that the conclusion was the result of the expert bringing an intellectual process to bear on the evidence before him and was in no sense arbitrary. 16 I agree with the plaintiff's submissions that the report demonstrates a thorough, analytical and scientific approach to the questions asked of the referee. In particular, it responds to the questions that the parties agreed should be asked and the way in which the case has been conducted. For those reasons, the report is to be adopted in full. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Thawley.