Surf Road Nominees Pty Limited & Ors v Tass James & Ors

FILE NUMBER(S) : SC 50108/01 Mr TA Alexis SC, Ms KP Sainsbury (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants) COUNSEL : Mr CRC Newlinds SC, Mr AP Coleman (Defendants) (Cross Claimants on First Cross Claim) Mr AJ Bulley (Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim) Pritchard Law Group (Plaintiffs) (First to Fifth and Ninth to Eleventh Cross Defendants) SOLICITORS : The Argyle Partnership Defendants) (Cross Claimants on First Cross Claim) Dibbs Barker Gosling Sixth, Seventh and Eighth Cross Defendants to First Cross Claim) (First to Third Cross Claimants on Second Cross Claim)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50108/01 Surf Road Nominees Pty Limited & Ors v Tass James & Ors JUDGMENT The proceedings 1 For a number of years two licensed real estate agents, Mr Tass Alexander James (and interests associated with him) and Mr Michael Christian (and interests associated with him) personally and/or through their corporate vehicles or trusts carried on business as real estate agents in Caringbah and Cronulla. During the early 1990's each of Mr James and Mr Christian [by themselves or their corporate vehicles or trusts] had become 50 percent shareholders in James Christian Pty Ltd which came to conduct the business, 'Raine & Horne, Cronulla'. In 1996 their wives became 50 percent shareholders in IG Martyn Real Estate Pty Ltd ["IGM" or "IG Martyn"] which conducted the business, 'Raine & Horne, Caringbah'. Sometime prior to 1 July 1999, IG Martyn and James Christian Pty Ltd ["James Christian" or "James Christian Pty Ltd"] entered into an agreement whereby IG Martyn purchased the business of James Christian Pty Ltd for a consideration of $900,000. 2 Mr James and Mr Christian were approached for an expression of interest in relation to the then largest real estate agency in Cronulla which carried on business as Chris Burke & Co Pty Ltd ["the Burke business" or "Chris Burke"] which was initially offered for sale at approximately $1.7 million. Ultimately they were able to acquire this business with the assistance of loan funds borrowed from the Macquarie Bank and from outside investors two of whom are the fourth and fifth plaintiffs. These proceedings concern the rights and obligations of a number of individuals, companies and trusts arising, inter alia, from the complex of contractual arrangements generally entered into upon the occasion of the acquisition in 1999 of the Burke business. Diagrammatic representation of ownership structure at 1 July 1999 3 A convenient diagram of the ownership structure of the Surf Road Trust and the Burke Group on 1 July 1999 was prepared by Horwath. It is appended to this judgment as appendix "A". 4 There is a degree of complexity in following: · the identity of the relevant parties and their interrelationship; · the place which the parties played in relation to the circumstances giving rise to the relief claimed; and · the interrelationship of: (1) the claims to relief made in the third further amended summons;

(2) the claims to relief made in the first cross-claim; and

(3) the claims to relief made in the second cross-claim. 5 A deed dated 1 July 1999 ["the Deed"] is central to one group of claims. A copy of the Deed is appended to this judgment as appendix "B". It suffices in broad overview terms to note that the acquisition of the Burke business required the setting up of a number of corporate entities and trusts as well as commitments flowing from extensive borrowings from a number of parties. The first, second and third defendants namely Mr James, his wife Mrs Janet Margaret James and their family company New South Head Road Nominees Pty Ltd ["the James family company" or "NSHR"] are said to be jointly and severally liable: · pursuant to clause 5 (1) of the Deed to guarantee the obligations of James Christian Pty Ltd in relation to the payment of the amount due by IG Martyn Real Estate Pty Ltd to Macquarie Bank ["the IGM bank debt"] for the benefit of the first plaintiff as trustee for the Surf Road Unit Trust ["SRUT" or "the Surf Road Trust"]; [Declaration 1] · pursuant to clause 5 (1) of the Deed to guarantee the obligations of the first plaintiff as trustee for the SRUT in relation to the payment of preferential distributions by SRUT for the benefit of the fourth and fifth plaintiffs who are respectively WIT Investments Pty Ltd ["WIT"] and DJZ Construction Pty Ltd ["DJZ"]. [Declaration 2] · [Alternatively] pursuant to clause 5 (2) of the Deed to indemnify WIT and DJZ in relation to any loss or damage suffered by them in consequence of the defendants: - failing to ensure payment of the IGM bank debt;

• failing to ensure payment of the preferential distributions. [Declaration 3] Relief sought 6 The relief sought includes: · An order for the entry of judgments against each of the defendants for the moneys found to be due with respect to: (a) the IGM bank debt pursuant to the Deed;

(b) the preferential distributions pursuant to the Deed;

(c) the loss and damage suffered by [WIT] and [DJZ] in relation to the defendant's failure to ensure payment of the IGM bank debt and the preferential distributions;

(d) the conduct of Mr James in breach of his directors duties as pleaded; and/or

(e) moneys borrowed from Chris Burke and/or the Burke Unit Trust ("BUT"), as pleaded; or · Alternatively, damages. 7 Other issues pursued by the plaintiffs concern: · the conduct of Mr James said to have been in breach of his directors duties owed to the first, second and third plaintiffs, respectively Surf Road Nominees Pty Ltd ["the Surf Road company" or "Surf Road Nominees"], Chris Burke and IG Martyn; and · the defendants alleged obligations in respect of moneys used or borrowed from one or more of: - the Surf Road Company; - the SRUT; - Chris Burke; - the BUT; and - IG Martyn. 8 The defendants accept that WIT and DJZ have locus standi to make the claims pursued in declarations 2 and 3 of the third further amended summons but raise outflanking defences asserting the discharge of the subject guarantee by subsequent events. Even if no such discharge is held to have been effected, the defendants raise questions of quantum. They also contend that upon the proper construction of the Deed it was necessary that there be profits made by SRUT prior to the arising of any obligation for the payment of preferential distributions. Expert evidence 9 There were sundry disputes between the experts called by the parties. Many were resolved by agreement following a joint conference. The issues had included whether there was a profit, and if so, what was that profit; an issue as to the quantum of the preferential distributions, if any, which were payable and an issue as to the categorisation of payments received by the investors from the Trust during 2000 and 2001 and not identified at the time of payment as being preferential distributions [the question arose as to whether they were interim dividends]. Many other matters were also raised and considered in the voluminous experts reports but mostly fell away as ultimate live issues. 10 A short note summarising a number of the matters addressed by the accounting experts is to be found in the Ferrier Hodgson Report of 30 January 2004: Horwath Potter Potter Potter Calculation Calculation Calculation Calculation $ Agreed Unknown Rejected $ $ $ Unauthorised Loan To James Family 289,975 168,010 93,965 28,000 Excess Remuneration Paid to James 14,198 NIL NIL 14,198 Excess Reimbursements of the Fairfax Account to James 1,232 NIL NIL 1,232 Payment to Fairfax on Account of James Christian Pty Limited 8,493 8,493 NIL NIL Unauthorised Payments to Maria James 23,250 23,250 NIL NIL Unauthorised Loan - T and J James 6,500 NIL NIL 6,500 Unauthorised Private Rent Paid on Account of James 28,600 28,600 NIL NIL Unauthorised Payment to John Sullivan on Account of James 40,000 NIL 40,000 NIL Unauthorised "Home Loan Partnership" Commissions Paid to James 89,917 NIL 89,917 NIL Total Alleged Unauthorised Payments Claims $502,165 $228,353 $223,882 $49,930

11 Further agreement has been reached in relation to some of these items. 12 The cross-claims raise disparate issues more conveniently explained below. It may however be noted that the first cross-claims are by Mr and Mrs James and the James family company and, inter alia, seek sundry orders, principally, but not exclusively, grounded upon the propositions that: · each of the Surf Road company, Chris Burke and IG Martyn are being conducted in a manner oppressive to, unfairly prejudicial to, or unfairly discriminatory against: - Mr and Mrs James as members of each of these companies; and/or

• the members of each of these companies; and · units and/or shares held by the cross-claimants in Surf Road, Chris Burke and IG Martyn should be ordered to be purchased by any or all of the sixth to 11th cross defendants who may broadly be described as "the investor cross defendants". Central structure of the issues pleaded 13 The core of the third further amended summons pleads: The construction issues · "that by entering into the Deed, the defendants agreed to indemnify WIT and DJZ in relation to any loss or damage suffered by them in consequence of the defendants' failure to ensure the payment of the IGM bank debt and the payment of the preferential distributions. [9] · By reason of the failure of: (a) James Christian Pty Ltd to pay the IGM bank debt; and

(b) the SRUT paying the preferential distributions, each of the defendants are jointly and severally liable to the first plaintiff (Surf Road Company) as trustee for the SRUT in relation to the IGM bank debt and to WIT and DJZ in relation to the preferential distributions, pursuant to the Deed, and continue to be so liable. Particulars of Liability in relation to the IGM bank debt

IGM bank debt $1,044,600.00

Overdraft interest incurred by the first plaintiff as trustee for the SRUT and/or the Third Plaintiff in relation to the reductions of principal of the IGM bank debt made from 1 July 1999 to 30 June 2000 $ 11,049.00

Interest paid to Macquarie Bank by the first plaintiff as trustee for the SRUT and/or the Second Plaintiff from 1 July 1999 to 31 December 2000 on the IGM bank debt $ 134,252.00

Interest paid to Macquarie Bank by the first plaintiff as trustee for the SRUT and/or the Second Plaintiff from 1 January 2001 to 30 September 2002 on the IGM bank debt $ 141,623.00 Particulars of liability in relation to preferential distribution $ 154,841.00 Unpaid preferential distributions (being the sum equal to the amount paid by the first plaintiff as trustee for the SRUT to Macquarie Bank in accordance with clause 12.10 of the Surf Road Unit Trust Deed dated 28 May 1999) - [10]

· Further and by reason of the failure of: (a) James Christian Pty Ltd to pay the IGM bank debt; and

(b) the first plaintiff as Trustee for the SRUT paying the preferential distributions,

each of the defendants are jointly and severally liable to the fourth and fifth plaintiffs for the loss and damage suffered by them in consequence of the failure to ensure payment of the IGM Bank debt and the preferential distributions.

(i) loss of value of the units held by the Fourth and Fifth Plaintiffs in the SRUT, in consequence of the payment of the IGM bank debt by the Second and/or Third Plaintiffs and from the proceeds of sale of the Cronulla and Carringbah rent rolls on 28 February 2003 resulting in the net asset value of the SRUT being reduced by $1,044,600;

(ii) loss of preferential distributions, as particularized in paragraph 10 hereof. [10A] The liability, set off and discharge issues · At all material times while Mr James was a director of the Surf Road Company, Chris Burke and/or IG Martyn, Mr James owed duties pursuant to the Corporations Act and the general law and a fiduciary duty: (a) to act honestly and with fidelity as a director in relation to the affairs of Surf Road Nominees, the SRUT, Chris Burke, the BUT and IG Martyn;

(b) not to prefer his own financial interests and those of Mrs James, the James Family Company and/or the financial interests of his immediate family, to the financial detriment Surf Road Nominees, the SRUT, Chris Burke, the BUT and IG Martyn; and

(c) not to use moneys of Surf Road Nominees, the SRUT, Chris Burke, the BUT and IG Martyn, for purposes unrelated to the businesses of those entities, without first obtaining the fully informed approval and/or consent of the directors of the Surf Road Company , Chris Burke and IG Martyn("the directors' duties"). [11] · At or about the times hereinafter particularised, Mr James in breach of the directors' duties, for himself and for and on behalf of Mrs James and/or the James Family Company:

(a) used moneys of Surf Road Nominees, the SRUT, Chris Burke, the BUT and/or IG Martyn and accounted for those moneys as loans and/or advances to him and/or his family interests, without first obtaining the fully informed approval and/or consent of the directors of the Surf Road Nominees, Chris Burke, and/or IG Martyn;

· 18 January 2001 - closing balance of advances to the "James Family" $289,974.82

(b) used moneys of Surf Road Nominees, the SRUT, Chris Burke, the BUT and/or IG Martyn for purposes unrelated to the businesses of those entities and purported to account for them as legitimate business expenses of those entities, without first obtaining the fully informed approval and/or consent of the directors of Surf Road Nominees, Chris Burke and/or IG Martyn; Particulars · 2 July 1999 - payment to John Sullivan in part payment of a loan from Mr Sullivan to the First Defendant in the sum of $170,000.00, accounted for as "computer expenses" $40,000.00 · August 1999 - moneys paid to Fairfax Community Newspapers on behalf of James Christian Pty Ltd $ 8,493.05 · July 1999 to January 2001 - closing balance of moneys overpaid to the First Defendant's Visa Card, for Fairfax Community Newspapers $ 1,232.00 · April 2000 to February 2001 - rental for 62/1 McDonald Street, Cronulla occupied by the First Defendant and the Second Defendant and accounted for as "business rent" $28,600.00

(c) borrowed moneys of Surf Road Nominees, the SRUT, Chris Burke, the BUT and/or IG Martyn on the implied basis that these moneys would be repayable on demand without first obtaining the fully informed approval and/or consent of the directors of Surf Road Nominees, Chris Burke and/or IG Martyn; Particulars

· July 1999 to October 2000 - monies paid to the First Defendant and/or his family interests from "Home Loan Partnership" commissions $ 89,917.00 · July 1999 to January 2001- monies paid the First Defendant's mother Maria James interest and principal reductions of a loan, on behalf of James Christian Pty Ltd $ 23,250.00 · 23 January 2001 - loan to First Defendant $ 6,500.00 · 18 January 2001 - closing balances of advances to the James family $289,974.82 [12]

Denial of entitlement to relief or damages issues · By reason of the contentions pleaded in paragraph 12, Mr James, Mrs James and/or the James Family Company are liable to Chris Burke and/or the BUT to account for and repay the moneys used or, to the extent that any of the moneys were borrowed from Chris Burke and/or the BUT, to repay those moneys in accordance with the demand hereby made. [13] · On or about 9 July 1999, the James Family Company agreed with the other unitholders in the SRUT, to contribute the sum of $130,000.00 ($10,000.00 per unit) as a loan to the SRUT for working capital (the "working capital loan"). Mr James arranged for the James Family Company to pay the working capital loan to the SRUT from an overdraft facility established with Macquarie Bank in the name of Chris Burke and/or the BUT (the "BUT overdraft"). [14,15] The $18,737 issue · Chris Burke and/or the BUT has paid interest and charges to Macquarie Bank on the BUT overdraft, with respect to the working capital loan in the sum of $18,737.00 (as at 30 September 2001) which it should not have incurred and/or paid and the James Family Company is liable to repay the said interest and charges in accordance with the demand hereby made. [16] · Further, and in addition to the contentions pleaded in paragraph 12 hereof, and on or about 3 August 1999 the Mr James agreed with the other directors of Surf Road Nominees to be remunerated with a salary of $100,000.00 per annum and other benefits as more particularly set out in the minutes of the meeting of the directors of Surf Road Nominees dated 3 August 1999. [17] The management fees and bonuses issue · Mr James paid himself and/or James Christian Pty Ltd and/or entities associated with him, "management fees" in the sum of approximately $56,247.00 and "bonuses" in the sum of approximately $57,951.00 from Surf Road Nominees, the SRUT, Chris Burke, the BUT and/or IG Martyn, during the year ended 30 June 2000. [18]

The overpayment issues · Chris Burke, Surf Road Nominees, the SRUT, the BUT and/or IG Martyn has overpaid Mr James and/or entities associated with him the sum of approximately $14,198.00 during the year ended 30 June 2000 and Mr James is liable to repay these moneys in accordance with the demand made. [19]" The background 14 The material facts in terms of the written agreements which were entered into from time to time and the shareholding and structure of the corporate vehicles and trusts which were set up are not in issue. The convenient course is to simply adopt [albeit with some minor editing] for present purposes the summary of these matters, to be found in the written submissions of the defendants: "Prologue (1990 - December 2000) 1. Prior to 1990, Mr James had interests in two real estate businesses. The first was known as "Raine & Horne Caringbah". It was conducted through a company called Residential Commercial Sales Pty Limited, which company was in turn owned by Mr & Mrs James. The second was a real estate agency known as "James & Fear Real Estate" at Kingsford. 2. Sometime around 1990, Mr James went into business with Mr Christian who prior to that time, had been employed by him. 3. They formed a new company called "James Christian Pty Limited" in which Mr Christian held 49% of the shares and Mr James held 51% of the shares. That company took over the Raine & Horne Caringbah business. 4. Sometime shortly thereafter, James Christian Pty Limited opened a second office in Cronulla. Mr Christian became a licensee of what was then known as "Raine & Horne Caringbah" and Mr James the licensee of "Raine & Horne Cronulla". Both businesses were owned by James Christian Pty Limited. 5. In 1994 the Raine & Horne Caringbah office was closed and the business consolidated as Raine & Horne Cronulla. 6. In 1997 James Christian Pty Limited having lost the Raine & Horne franchise, purchased a small local real estate agency at Caringbah called I.G. Martyn Real Estate Pty Limited. 7. At the time of the purchase of I.G. Martyn Real Estate Pty Limited by James Christian Pty Limited, Mr James sold one share in James Christian Pty Limited to Mr Christian so that thereafter they owned 50% of the shares each in James Christian Pty Limited. 8. The business operated with an office situated at Cronulla and a second office at Caringbah. 9. In 1999 Mr James and Mr Christian became interested in purchasing a large real estate agency in Cronulla known as "Chris Burke & Co Pty Limited". 10. The proposed purchase price was $1.7M. 11. Mr James and Mr Christian were unable to raise finance for the purchase via conventional means and, in particular, were unable to obtain finance from there then financier Macquarie Bank Limited. 12. At the time of the proposed purchase, James Christian Pty Limited was indebted to Macquarie Bank for approximately $1M. Most of this debt had been acquired upon the purchase of the I.G. Martyn Real Estate business. CHAPTER 1 The New Investors 13. Mr James and Mr Christian thereafter approached various individuals with a view to them investing in their business and for those investments assisting in the purchase of Chris Burke & Co Pty Limited. 14. Mr Palmieri was approached. He was a client of James Christian Pty Ltd. Mr Palmieri then referred Mr James and Mr Christian to Mr Mortimer and Mr Wilson. 15. The negotiations continued over some time. Ultimately, it was agreed as between Mr James, Mr Christian, Mr Palmieri, Mr Mortimer and Mr Wilson that they would purchase the business of Chris Burke & Co Pty Limited and that a new corporate vehicle would be established for that purpose. This was Surf Road Nominees Pty Ltd which, as described below, became the trustee of the Unit Trust which was established known as the "Surf Road Unit Trust". 16. Essentially, the arrangement was that each of Mr James and Mr Christian would contribute to the new venture by providing to the new venture all of the assets of James Christian Pty Limited in essence, the I.G. Martyn Real Estate businesses. 17. The new investors would contribute cash. CHAPTER 2 The Structure 18. For reasons that will perhaps never be entirely satisfactorily explained, the parties chose a extremely complicated legal structure for the purpose of the new business venture. 19. …. 20. The structure decided upon was that the parties respective interests would be represented by shares in Surf Road Nominees Pty Limited and units in a trust to be created known as the "Surf Road Unit Trust" the Trustee of which was to be Surf Road Nominees Pty Limited. All of the participants were directors of that company. This company also owned (as Trustee for the Trust) all of the shares in Chris Burke & Co Pty Limited which was the trustee of the Burke Unit Trust. 21. Chris Burke & Co was to be the operating company. Its Directors were Mr James and Mr Christian. It was the parties' intentions that any profits generated by the venture would eventually find their way into Surf Road Nominees and thence into the Surf Road Unit Trust for distribution amongst the participants. 22. For the purpose of the valuation of the units, and for determining the cash price to be contributed by the unit holders, the I.G. Martyn Real Estate business was valued (see Recital D. Bundle Page 167). 23. When that exercise was undertaken the debt due by James Christian Pty Limited and I.G. Martin Pty Limited to the Macquarie Bank was ignored. This debt was known as and is referred to as "the I.G.M. debt". 24. The reason the entity was valued in this way was because it was always intended that whilst James Christian Pty Limited would transfer to the new entity all of its assets, it would not transfer to the new entity, and the new entity would not take on, any obligation to pay the Macquarie Bank the outstanding debt. The purpose being that the new investors would not be exposed to the old debt of James Christian Pty Ltd, or I.G. Martyn Pty Limited. 25. Ultimately, the transaction was finalised and Chris Burke & Co Pty Limited purchased the real estate business known as Chris Burke & Co and had transferred to it all of the business interests and shares in James Christian Pty Limited and I.G. Martyn Pty Limited. 26. A total of 36 units in the Surf Road Unit Trust were issued. 27. Those units were held as follows:- (i) James Christian Pty Limited - 14 units. (ii) Mrs James and Mrs Christian or their Nominees - 12 units. (iii) D.J. Z. Construction Pty Limited (Mr Palmieri's vehicle) - 7 units. (iv) WIT Investments Pty Limited (Mr Wilson's vehicle) - 1 unit. (v) D & A Mortimer Pty Limited (Mr Mortimer's vehicle) - 2 units. 28. Each unit was valued at inception (11 July 1999) at $110,000. That being the cash contribution made by the new investors. 29. Mrs James and Mrs Christian nominated New South Head Nominees Pty Limited and Cottenham Nominees Pty Limited respectively as the holders of their units and subsequently the 12 units initially allocated to Mr & Mrs James were transferred to each of those companies so that each held 6 units. 30. Shortly after the Trust was established, James Christian Pty Limited transferred 1 unit to D.J.Z. Constructions Pty Limited and James Christian Pty Limited transferred 7 of its units to New South Head Road Nominees Pty Limited, and its remaining units (7 units) to Cottenham Nominees Pty Limited. 31. Thereafter the unit holdings were as follows: (i) New South Head Road Nominees Pty Limited as Trustee for J James Trust - 13 units. (ii) Cottenham Nominees Pty Limited as Trustee for M & K Christian Family Trust - 13 units. (iii) D.J.Z. Constructions Pty Limited - 7 units. (iv) WIT Investments Pty Limited - 1 unit. (v) D & A Mortimer Pty Limited - 2 units. 32. The shareholding in Surf Road Nominees Pty Limited was and according to the ASIC extract (Ex ) is as follows: (i) Mr Wilson - 1 share. (ii) Mr Christian - 6 shares. (iii) Mr James - 6 shares. (iv) Mrs Christian - 7 shares (v) Mrs James - 7 shares (vi) Mr Mortimer - 2 shares (vii) Mr Palmieri - 7 shares 33. In other words the share allocation reflected the original allocation of units. It seems clear enough that it was always intended that the parties interest in the venture would be represented by Units in the Trust and accompanying shareholdings in Surf Road Nominees. The value of the shares and the Units being at all times the same. However, over time the Unit holding has been changed and the original shareholding has according to the ASIC extract remained unchanged. 34. ... CHAPTER 3 The Guarantee 35. At the time the transaction was entered into (1 July 1999), a Deed was executed by various (but not all) of the participants. That Deed is referred to in the pleadings, evidence and these submissions either as the "Deed" or the "Deed of Guarantee". It is found at Bundle PX1 page 166-178. 36. It is a central issue in this case as to what is the proper construction of this document. 37. By the Deed, the James interests and the Christian interests undertook certain obligations in relation to moneys due by I.G. Martyn to the Macquarie Bank at the time of the transaction, and in relation to what are described as "preferential distributions" which were an entitlement for the investor unit holders to receive payment over and above other unit holders in an amount equal to any capital or interest paid to the Macquarie Bank pursuant to the Surf Road bank debt. The precise context of those obligations is a central issue in this case. " Defendants' overview submissions 15 The defendants' overview submissions identify the defendants' essential case sufficiently for present exposure. Those submissions [now overtaken by the final written submissions], albeit prepared prior to certain amendments to the pleadings [later treated within this judgment] included the following at paragraphs 37 - 65 inclusive:

37. The plaintiff's claim falls into three separate and distinct categories.

38. The first is a claim based on an alleged guarantee executed by the defendants on 1 July 1999 (paragraph 10 - Second Further Amended Summons). That guarantee in turn is said to secure the payment of three separate liabilities.

39. The second is a claim for money "used or borrowed" by the defendant from the second plaintiff and/or the Trust of which the second plaintiff is Trustee (paragraph 12).

40. There are then some miscellaneous claims totalling to approximately $32,000 (paragraphs 14-19).

There will be considerable evidence at the trial as to the circumstances under which the parties entered into the transaction described above.

Whilst in essence, the transaction could be described as simple, the way it was structured and documented is far from simple.

The Deed upon which the plaintiffs sue creates a number of separate and distinct obligations between different classes of people. It is a far cry from what might be described as a standard form of guarantee.

The document needs to be read in whole but it is important when doing so to note that the defendants are defined as the "the indemnifying parties" (as far as Mr & Mrs James are concerned) and "the unit holders" (as far as New South Head Nominees Pty Limited is concerned).

The obligations of the defendants are set out in Clause 5 of the Deed.

Whilst described in some places throughout the document as an indemnity, in substance what it is is three separate and distinct guarantees. The first is a promise by James Christian Pty Limited given to Surf Road Nominees that it (James Christian) would guarantee the payment of a debt owed by IG Martin Real Estate Limited ("IGM") to the Macquarie Bank and the defendants' guarantee also given to Surf Road Nominees for the performance of James Christian Pty Limited's own guarantee. In other words the Defendants guaranteed the obligations of a guarantor.

The second obligation created by the Deed was a guarantee to secure the obligations of Surf Road Nominees Pty Limited in relation to separate obligations it had to the Macquarie Bank.

The third obligation was a guarantee of entitlements said to be due to the investor unit holders (which included the fourth and fifth plaintiffs) for what is described as "preferential distributions".

So it can be seen that the obligations created are far from usual, and the way that they have been recorded, cannot be described as orthodox.

It is important to focus on precisely what obligations are guaranteed and to note that the Deed was but one of a series of documents created at the same time as part of an overall transaction. The true intention of the parties to the Deed and the conditional nature of the guarantees can only be seen when the entire transaction is considered as a whole.

One thing will be clear. The only basis upon which Mr & Mrs James and their company had any realistic prospect of meeting the obligations created by the Deed, was that Mr James would continue to be employed by the new business, a state of affairs that was assumed by all and was a fundamental basis for the new business arrangement and that Mr & Mrs James would themselves receive distributions in return for the units they were to hold in the Unit Trust.

That fundamental assumption that underpins the whole of the arrangement was resiled from by the plaintiffs when in January 2001 Mr James was summarily dismissed from his employment and thereafter, the 13 units were transferred from the defendants to the plaintiffs for a consideration of $1.00 per unit purportedly in exercise of a Power of Sale created by the Deed.

The defendants say that the Deed is not enforceable against them at least for the following reasons: (i) firstly, properly construed, the guarantee was conditional on Mr James employment continuing absent serious misconduct. It was also conditional on him retaining his units in the Unit Trust. Those conditions having been departed from the guarantee is discharged.

(ii) secondly, there has been a fundamental departure from the common assumption between the parties at the time the Deed was executed. In those circumstances equity would prevent the plaintiff from now relying on the guarantee;

(iii) Thirdly, the guarantee is subject to an implied term to the effect that Mr James' employment is secure which has been breached.

(iv) fourthly, the conduct of the plaintiffs in dismissing Mr James with no justification and converting his units to their own use, amounts to conduct that is so fundamentally prejudicial to Mr & Mrs James' position as guarantors under the Deed, that the guarantee created thereby is discharged or an election by them to not thereafter sue on the guarantee.

(v) fifthly, it is clear that some sort of accord has been reached between the plaintiffs and the James interests which itself has the effect of discharging the liability of the defendant, the obligations created by the Deed being joint several as between the James interests and the Christians interests.

(vi) Finally, in the event any liability is established pursuant to the guarantee, enforcement of any judgment based on the Deed should in all the circumstances be stayed pending enforcement of the cross claim against the Christians.

Moreover, Mr & Mrs James are entitled to set-off a number of claims that they have against the plaintiffs in reduction or extinguishment of the amount the plaintiffs claim. Those claims can be summarised as follows: (i) moneys due to the defendants for unpaid dividends due to be paid in relation to the units they held during the period they held them;

(ii) damages for conversion of Mr & Mrs James' units;

(iii) damages relating to Mr James' unfair dismissal and general breach of his employment contract;

(iv) damages and/or compensation and or discharge of the guarantee being the appropriate remedy for what the defendants by way of cross-claim assert was the oppressive conduct of the majority shareholders in relation to the affairs of the plaintiff companies. 56. Finally, the quantum of the plaintiffs' claim is not accepted.

57. It is very difficult to identify precisely which of the various categories of paragraph 12, the various amounts refer to in the particulars to paragraph 12 are alleged to fall into.

58. Suffice to say, the defendants in relation to the various claims, admit that there is some moneys outstanding, but deny that any money is outstanding upon any other basis of a legitimate loan made by the plaintiff companies to the defendants repayable on demand.

59. The various allegations of breach of fiduciary duty, breach of directors duties, failure to act honestly etc are all denied.

60. Attached to this overview is a spreadsheet which attempts to set out the evidential references to each of the claims made by the plaintiffs, including those for "unauthorised basis" or "breach of directors duty" as pleaded in paragraph 12 of the Second Further Amended Summons.

Miscellaneous Matters 61. If the plaintiffs fail to establish that Mr James acted dishonestly or was otherwise guilty of misconduct, then his dismissal from his employment must, necessarily, have been wrongful.

62. This will result in an award of damages to Mr James over and above any other amounts he is entitled to set off.

Cross Claim against Mr & Mrs Christian and Cottenham Nominees Pty Limited

63. Whatever else can be said about the Deed of Guarantee document, it is clear that the obligations of the defendants are joint and several with Mr & Mrs Christian and their companies' obligations.

64. The Cross Claim simply seeks orders that Mr & Mrs Christian pay to the defendants an amount equal to half of whatever amount the Court may order the defendants pay the Plaintiff.

65. Mr & Mrs Christian offer no evidence in support of this defence at all to this claim. Judgment should be entered accordingly." Flow chart and further explanation 16 The plaintiffs during the course of their opening relied upon a further flow chart [MFI P1] which, together with the description of the transactions given during the opening, are appended to this judgment as appendix "C". Reliability of witnesses 17 This judgment covers a deal of the evidence given by the witnesses who were called and cross-examined. The findings generally make clear which are the areas where particular evidence could or could not be relied upon. The fact is that at the end of the day a combination of the evidence given by the witnesses who were called and the contemporaneous documentary material [usually although not always identified in this judgment] has provided a sound basis for the findings made and the inferences drawn. 18 It is fair to say that the evidence given by Mr Wilson and by Ms Conway is generally accepted as reliable. Both presented as witnesses who had given their best recollection of the events which had occurred. 19 The evidence given by the principal witnesses who were cross-examined, namely Mr Sicuro, Mr Palmieri and Mr Mortimer, certainly displayed very many areas where a partisan and selective recollection often appeared to be at least initially, the order of the day. However, their cross-examination was careful and sustained and it seemed to me ultimately permitted the Court: · to make the findings of fact appropriate to be made; and · to reach the inferences appropriate to be reached

being findings and inferences fairly to be drawn from the net result of the evidence of these persons read in the light of all of the documentary evidence. 20 It is somewhat difficult to be particularly precise as to why each of these witnesses is sometimes accepted in part and sometimes rejected in part. Probably the best explanation is that the Court has carefully followed the documentary evidence and has then tested the evidence given by each of these witnesses against what each other of them and all witnesses had said. Of course the whole of the exercise is unaided by any evidence at all coming forward from Mr James. 21 It has also to be recalled that each of Messrs Sicuro, Palmieri and Mortimer were at the material time very angry with Mr James and that their particular recollections of the relevant investigations and meetings would likely be affected by that emotion. However, the fact is that there was sufficient contemporaneous documentary material for the Court to comfortably reach the findings set out. And in any event there remained only certain factual issues in dispute. 22 Lest there be any doubt about the matter it is to be noted that of these three witnesses, Mr Palmieri appeared to have the most difficulty, on a number of occasions becoming confused in questions asked of him during cross-examination. The impression which he gave was one of frustration in having to be asked questions concerning Mr James whom he obviously considered to have been guilty of serious misconduct. Possibly some of the difficulty which he had in this regard is explained by what I infer to have been a feeling that in giving evidence under cross-examination, it was he and not Mr James who was being roundly stood up in a Court room and required to justify his relevant actions and those of his fellow investors. In any event and as I have said a combination of all of his evidence as well as of all of the evidence given by Mr Sicuro and by Mr Mortimer all examined in the light of the contemporaneous documentary material has permitted the making of the subject findings. 23 Mr Mortimer may be described as a witness barely containing his anger. Notwithstanding that circumstance, this cross-examination carefully tested that which required to be tested and the judgment makes plain where his evidence is not accepted. 24 Mr Sicuro had much difficulty in remembering many facts. However, ultimately it was possible to follow what his best recollection was, particularly as it was tested so closely under cross-examination. One particular area in respect of which his credit was correctly tested and found wanting was his statement [paragraph 46] where he had sworn that the 23 January 2001 cheque for $6500 was a loan which was not authorised by the directors. Under cross-examination he withdrew that paragraph. The evidence 25 Detailed final submissions from the parties identified the course of events proved by the oral and written evidence adduced during the hearing. In the result it is fair to say that to a large extent there was no or little possible dispute as to what had taken place although in relation to a number of matters the evidence did not clarify particular detail. 26 The convenient course is to set out the findings of the Court as to the matters which were clearly proven on the balance of probabilities, and as appropriate to also make clear, in relation to matters which were in dispute, what the findings of the Court are in this regard. In many areas these findings are able to be made by simply adopting the submissions of one party or the other. Background 27 The background established, on the evidence, that by December 2000 the business was certainly not generating and had never generated profit for the purpose of distributions to unit holders. Various ad hoc arrangements had been put in place concerning interim distributions and the like, however, the new investors (Messrs. Mortimer, Wilson, and Palmieri) were disenchanted and from a financial viewpoint, had formed the view that the business was being mismanaged by Mr James who was believed to be funding private expenses unassociated with Chris Burke from Chris Burke. In a series of discussions (sometimes referred to as "marathon meetings" Sicuro T: 178.25-46) throughout December, it was agreed between all concerned (other than Mr James, who had no knowledge of those meetings) that Mr James was to be removed as managing director of the business and also removed as a director of Chris Burke & Co. [Sicuro T:179.6-179.39; 205.52-206.50; Wilson: T:311.29; Palmieri T:335-21-29; Mortimer T399.50-400.7] Key events 28 During cross-examination, particular focus was placed on the following key events: · the events of December 2000 - the backdrop for the meeting held in early 2001; · the 5 January 2001 meeting of the directors of Surf Road [by telephone to Mr and Mrs James]; · the 8 January 2001 Double Bay meeting at which Mr James resigned as a director of Chris Burke; · the 13 January 2001 meeting where the locks had been changed at the Cronulla office; · the 24 January 2001 [or 30 January 2001] meeting at the Double Bay coffee shop between Mr James, Mr Sicuro and Mr Palmieri; · the 6 July 2001 meeting of Surf Road Nominees at which it was resolved that Mr James, Mr Mortimer and Mrs James be removed as directors; that Mr Sicuro be appointed a director; and that the shares of Mr and Mrs Mortimer be transferred to Mr Sicuro; · the 6 July 2001 IG Martyn meeting at which it was resolved that Mrs James be removed as a director; that Mrs Christian's resignation as a director be accepted; and that Mr Sicuro be appointed a director; · the sundry movements in units and shares including the transfer on or about 22 October 2002 of units in SRUT to Mr Palmieri [4 units] and to Mr Sicuro [4 units]; and · other relevant transactions. The evidence of Ms Conway and Mr Wilson 29 It is convenient to commence by noting the evidence given by two witnesses. The evidence of Ms Conway 30 The evidence of Ms Conway serves to describe the position following the amalgamation. Her evidence included the following: · "In approximately 1993, I commenced employment with a Real Estate Agency known as Raine & Horne Cronulla. Mr Tass James and Mr Michael Christian were the principals of the business. · In about 1995, I left the employ of Raine & Horne Cronulla for a period of about 12 months. · In 1996 I returned to the employ of Tass James and Michael Christian's Real Estate Agency in Cronulla. · I returned on a part time basis, three days a week, and some time later I went to four days a week and later still I went onto a full time basis… as at July 1999, I was working full time for the Real Estate business known as IG Martyn. .. · …The businesses of IG Martyn Real Estate Pty Ltd ("IG Martyn") and Chris Burke & Co Pty Ltd were amalgamated. The amalgamated business was known by the trading name of Chris Burke & Co ("Chris Burke"). · After the [mid 1999] amalgamation, separate Trust accounts were maintained in respect of each business, but otherwise the businesses were run as a single business. For some period after the amalgamation, I recorded the day-to-day transactions for two of the three Trust Accounts. I also was responsible for maintaining the General Account records of the amalgamated businesses. However, some time after the take over, another bookkeeper was appointed to record the day-to-day transactions in the two Trust Accounts for which I was responsible. From that time, I was responsible for recording the day-to-day transactions only for the Chris Burke General Account and Sales Trust Account. I also did some Office Manager duties. · From before the take over in mid 1999 of Chris Burke Real Estate, and certainly after the amalgamation of the two businesses, there were constant difficulties in paying trade creditors. Also the PAYG Withholding Tax was permanently in arrears as were payments for employee compulsory superannuation. · …Sometimes, Mr James would say to me, words to the effect of: "Don't tell Michael about this, because he can't handle it."

· During the year and a half after the amalgamation of IG Martyn and Chris Burke, the financial problems of the business became more pronounced and more acute. I was constantly dealing with requests from creditors for payments of outstanding accounts. I used to find that stressful. I, on many occasions, talked to Mr Tass James about the creditors situation. On a number of occasions, I said to Mr James, words to the effect of: "You've got to pay the Tax and Super." He said words to the effect of: "We can't at the moment Helen."

· I reached the point where, I said to Mr James, words to the effect of: "I am not going to be involved in making arrangements with creditors, you will need to do that yourself."

· Mr James did make many arrangements with creditors including the Tax Office. · Mr Tass James Visa Card Account Mr Tass James used to pay Fairfax Newspapers Advertising Account using his Visa Card Account. I remember Fairfax Newspapers were constantly demanding a minimum payment on its advertising account be made or the advertising account would not be kept open. I was directed by Mr James to make the minimum payment required by Fairfax into Mr James' Visa Account. I then made the payment to Mr James' Visa Card account equal to the payment required by Fairfax Newspapers. I do not know whether or not Mr James made a payment to the Fairfax account equal to the amount I paid into his Visa Card Account.

· Mr James' Mortgage Mr James had a mortgage. Mr James would regularly direct me to make payments out of Chris Burke General Account to make payments to the ANZ Bank. I said to him, on occasions, "What about [mentioning the name of other some creditor who was owed money]". Mr James would say something like:

"I've got to pay the mortgage or we will be homeless".

On other occasions when I spoke to him about paying his mortgage in preference to creditors, he said something like:

"Oh, we've got to pay that or I will be out on the streets." Sometimes I made the payments from Chris Burke General Account, sometimes I made the payments from Chris Burke Management Fees Ledger in the Chris Burke Trust Account.

· Drawings Quite frequently, Mr James would come to me and ask for money by way of what I thought was drawings. He would say words to the effect of: "I need $1,000.00". I would give him the $1,000.00 by cheque and post the advance to his Loan Account.. I do not remember if the cheque was made out to Tass James or Cash, but believe I would have made it out to either his own name or to Cash. Mr James would say on some occasions when he asked me for money, something like: "You'd better also make one out for Michael [Christian]." Tass James loan Account

· Annexed hereto and marked respectively "A" and "B" is, to the best of my knowledge and belief, a true copy of the following Chris Burke General Account ledger accounts: A Advance Unit Holder James Family - account number 1-1650

B Interim Distribution James Family - account number 2-1750 Together Annexures A and B record all transactions in Tass James loan account with Chris Burke during the period 1 July 1999 to 18 January 2001 ("the Loan Account")

· The transactions in the Loan Account fall into the following categories: (a) Numerous small cash ($500.00 or less) advances to Tass James or James family members by way either of cash, cheque or from "petty cash". (i) These transactions bear the description "cash", or the name of the payee, in the ledger accounts. These cash advances were made from Chris Burke General Account to Tass James or to James family members. Some advances to Mr James were part of a cash cheque. For example, cheque number 633709. This is a cheque for $400.00, $50.00 of which is a cash advance to Mr James and is debited to his Loan Account. Annexed hereto and marked respectively with the letters "C" and "D" is, to the best of my knowledge and belief, a true copy of: C MYOB Transaction Report in respect of cheque 633709 D Cheque butt stub in respect of cheque 633709

I entered the details of each individual cheque into the MOYB system from the information on the cheque butt stub. (ii) I posted these advances to Mr James Loan Account because to my knowledge they were advances to Mr James. (b) Larger cheques (over $500.00) drawn from Chris Burke General Account in favour of Mr James or another payee as directed by Mr James. I posted all such advances to Mr James Loan Account because they represented advances to Mr James. (c) Payments to third parties on behalf of Mr James I drew cheques on the Chris Burke General Account at the direction of Mr James in favour of the particular third party nominated by Mr James. I then posted the transaction to Mr James Loan Account as the third party payment represented an advance to Mr James as none of those third party payments related to any business expense of Chris Burke. (d) Journal entries to bring to account payments made from the Chris Burke & Co or the IG Martyn Trust Accounts on behalf of Mr James, his family, or interests associated with Mr James. Every month I reconciled the General Account with the Trust Accounts to ensure that all Chris Burke income (such as commissions earned from property sales and property management) was reflected in the General Account. For example from time to time funds were transferred from the management fees ledger in the IG Martyn Trust Account into Mr James IG Martyn Trust Account ledger in order to put Mr James in funds to pay his home mortgage. This was a transfer of Chris Burke monies to Mr James and was then debited to Mr James Loan Account by way of a journal entry. (e) End of year Adjustments. These were adjustments to the Loan Account made at the direction of Chris Burke's accountants, BDO Chartered Accountants, Sydney. " The evidence given by Mr Wilson 31 Mr Wilson had purchased one unit in SRUT in about July 1999. His evidence included: · "The dividends were to be paid into the investors bank accounts. I gave my bank account details to Helen Conway who did the accounts at Chris Burke. No dividend was ever paid into my bank account. I either had to go down to the office of Chris Burke to collect my dividend or I would ask Andy Mortimer to collect mine when he was collecting his. · I remember on one occasion when I went down to collect my dividend, probably about February 2000, I had a conversation with Tass James during which he said words to the effect of "I can't give any dividend this month. We are not travelling too well." · I later rang Andy Mortimer and told him what Tass James had said. Subsequently my dividends were paid each month until December 2000. I have not received any dividend since December 2000. · At about 9.30am on 5 January 2001 I received a telephone call from Sil Sicuro. We said words to the effect of: "We are having a meeting about removing Tass James you must come into town at 4.00pm." · The meeting was at the offices of Dibbs Barker Gosling at 123 Pitt Street, Sydney. At about 3.00pm I met Sil Sicuro. Michael Christian, Vince Palmieri and Andy Mortimer in a coffee shop close to the offices of Dibbs Barker Gosling in the city. During the meeting Sicuro said words to the effect of: "Tass James has been misappropriating funds from Chris Burke. If we don't remove Tass we think the business will go into liquidation."" 32 He also gave evidence that the circumstances which led him to be concerned included the fact that sales agents, that is, Ms Hicks and Mrs Sicuro, were complaining about their commissions not being paid on time and that they were not being paid.

The events of December 2000 33 As earlier indicated, by December 2000 the investors in the Chris Burke venture were disappointed and disillusioned with the financial success of the business, and in particular with the management ability of Mr James [see Palmieri at Transcript 322.44, 336.39; Mortimer at Transcript 399.50; Sicuro at Transcript 179.11]. 34 Mr Sicuro became involved in the affairs of the company sometime in December 2000. It is likely that his original involvement was as a result of his wife's employment in the business and/or his relationship with Mr Mortimer. [See Sicuro T: 207.10-208.43; 219.36-220.29]

35 Whatever the basis upon which he originally became involved, by late December 2000/early January 2001, Mr Sicuro appears to have become an adviser to all concerned (other than Mr James) at various levels [T207.40-208.50]. Mr Sicuro, having determined that the business was probably insolvent or, at the very least, in difficulty [T: 209.35-41] purchased one unit in the SRUT for $110,000 in February 2001 [T227.29-56; 274.6-275.53]. This would suggest that the net asset position of the SRUT at that time was $3,960,000 (36 x $110,000). Ultimately he was put forward by the plaintiffs as their first witness. 36 Further evidence was given by Mr Sicuro that during this period, "marathon meetings" were being held throughout December 2000 to discuss the position of the company [Transcript 178.25-178.46]. It was resolved during these meetings that Mr James was to be removed as managing director of Chris Burke [Palmieri at Transcript 335.21-335.29; Wilson at Transcript 311.29; Sicuro at Transcript 179.27-179.32]. 37 Although close questions were raised during the cross-examination of Mr Sicuro as to the extent of the investigations then carried out by him, the position at the end of the hearing is that the evidence before the Court did establish a number of important matters in relation to the very clear mismanagement of the affairs of Chris Burke importantly resulting from Mr James funding sundry private expenses [having no relationship to the business activities of Chris Burke or IG Martyn] from Chris Burke by a variety of routes and methods. 38 In general terms the evidence adduced established the backdrop to the holding of the relevant meetings of early 2001 as including the following: · there was an ongoing cash flow problem; · the interim distributions to the investors were reduced virtually from the outset; · no preferential distributions were paid to the investors; · there were constant difficulties paying creditors; · pay as you go withholding tax was in arrears; and · the superannuation guarantee levy was not paid. 39 But before returning to examine the so-called marathon meetings in which Mr Sicuro participated it is convenient to examine what is now known following the adducing of the detailed evidence. In particular it is presently convenient to examine certain heads of conduct in respect of which contemporaneous documentary evidence was adduced. It is important not to lose sight of these matters which were generally proved by documents and inferences able to be drawn from other evidence. 40 The heads of conduct relating to the alleged unauthorised payments were treated with by the experts in two distinct categories: · unauthorised borrowings which have been accounted for as loans or advances to the James family interests - "unauthorised loans"; and · unauthorised use of moneys paid on behalf of James or the James family interests and treated for accounting purposes as if they were a legitimate business expense of the real estate activities conducted by the Chris Burke Group - "unauthorised payments". 41 The loan accounts of Mr James [ultimately consolidated to give the resultant debit balance] are to be found: · as to loan account No. 11650 entitled "Advance Unit Holder/James Family" at PX 2/523; and · as to loan account No. 21750 entitled "Interim Distribution James Family" at PX 2/528. The home loan partnership 42 At a meeting of Surf Road Nominees on 3 August 1999 reference was made to Chris Burke being a part of a group of five agents associated with the "Home Loan Partnership" underwritten by Westpac in respect of which members were entitled to trailer commissions paid with respect to loan referrals [PX1/258]. The position established by the evidence and by the appropriate inferences to be drawn from the evidence was, as submitted by senior counsel for the plaintiffs in final address,: · A trust account ledger records the receipt of these commissions [exhibit PX volume 2 at page 574]. · The amount involved is not now in dispute. · The ledger shows relevant entries adjacent to which there is the reference to "TJ". · The same ledger includes reference to Corporate Identity Business Centre [a business owned by Urunga Nominees Pty Limited]. That company was incorporated on 9 July 1999. The sole director of that company was Mrs James. The shareholders of that company were Lisa James, who is Mr and Mrs James' daughter, as to two shares; New South Head Road Nominees, that is to say the James family company as to one share, and Cottenham Nominees, that is to say the Christian family company as to one share]. The Chris Burke & Co ledger demonstrates that moneys were being paid to defray Corporate Identity's expenses. Expenses that were paid by Chris Burke & Co for the benefit of Corporate Identity were expensed to the Corporate Identity loan account. · The same ledger includes reference to Residential and Commercial Sales. Residential and Commercial Sales, according to the search at page 414 of exhibit PX01, is a company, the shareholders and directors of which were Mr and Mrs James. · Hence, there is no issue but that Corporate ID and Residential and Commercial Sales are James entities, save for the 25 percent share of Corporate ID held by the Christian interests. · Nor is there any issue but that money was paid out of Chris Burke for the benefit apparently of one or other of those entities and ultimately expensed back to Mr James' loan account. · All of those transactions are the subject of the conceded amount of loan account. 43 In the result, it is clear that the commissions that were received into the trust account were used to fund expenses of Mr James that had no relationship with the business activities of IG Martyn Real Estate or Chris Burke & Co. 44 A letter from Westpac to Mr James of 23 September 1999, exhibit PX volume 1, page 285 demonstrates that from 1 October 1999, Chris Burke was to receive the commissions. 45 The minutes of a further meeting of Surf Road Nominees on 15 November 2000 record a meeting at which Mr James, Mr Christian and Mr Mortimer were present [page 324 of exhibit PX01]. The following is to be found in those minutes: "Andy Mortimer expressed concern the way the company had been trading. Mortimer advised rumours around that Chris Burke & Co. was in financial trouble, creditors not being paid as well as staff commission, et cetera. Tass James assured him all was well. Mr Mortimer then asked whether the commissions from home loan partnership had been receipted and, if so, through which account. "Tass replied that the money was coming through into Chris Burke account ." [emphasis added] 46 As Mr Alexis submitted, that was plainly a half-truth. The home loan commissions were coming into the trust account of Chris Burke & Co, but were not then transferred into the operating company's general account to be available for the payment of expenses relating to the operation of that business. The funds were used to fund the private expenses of Mr James in the amount now seen to be of the agreed sum of $89,000. Plainly enough that was not disclosed to Mr Mortimer at that meeting. Payments out of Chris Burke general account to ANZ bank on account of Mr James' mortgage 47 The evidence of Ms Conway gives the detail of these payments. A number of relevant entries are to be found at PX 2/523 as by way only of example, the entries of 5 January 2000 ($2,000), 27 January 2000 ($8,000) and 29 February 2000 ($7,512.50). 48 I accept that the inference from Ms Conway's evidence is that Mr James wanted his home mortgage paid. There is reference to him being out on the street if it was not, and the Court infers from that that he was referring to his home at Rose Bay. There are entries in his loan account for regular sums being paid "on "account of mortgage. End of year adjustments 49 The end of year adjustments at 30 June 2000 have now been agreed by the experts as totalling the sum of about $93,000.

50 The Court's finding is that a sum of about $93,000 travelled out of Chris Burke & Co for the benefit of Mr James. The finding is that the adjustment that led to the debiting of his loan account was the result of an instruction from Mr James to the external accountants, BDO Nelson Parkhill [cf the working papers [exhibit PX volume 2 at page 656-entry that the adjustments were "per TJ"]. Mr Weber when he investigated the matter spoke with Mr Goman from BDO Nelson Parkhill and confirmed that those adjustments were on the basis of instructions from Mr James. 51 Mr Potter noted in his report that the relevant transactions recorded in the MYOB accounts are journal entries rather than actual cash payments to, or on account of, Mr James [Potter report, 7.1.29]. 52 Albeit that Mr Potter's position was that he had not been able to find the primary document to demonstrate that a payment actually went out, if, as the Court finds, Mr James was the source of the instruction to make that adjustment, it must follow that he must have received the benefit of the result of that adjustment. No other reason is given for him providing the instruction. Loan to Mr James' mother 53 The Maria James Agreement shows that Maria James lent $75,000 to James Christian Pty Ltd on 20 July 1994 [PX 1]. That agreement provided for the loan to be guaranteed by Mr James and Mr Christian and for the principal to be repaid on 20 July 1995. It provided for a non-default interest rate of 12 percent per annum to be paid monthly and for a default interest rate of 14 percent per annum. During the period from 1 July 1999 to 16 January 2001 payments were made by the Burke Unit Trust to Maria James on account of James Christian Pty Ltd: · $21,000 debited to the Burke Unit Trust MYOB ledger account 2-6300 titled "Loan - James Christian P/L"; and · $2250 debited to the Burke Unit Trust MYOB ledger account 6-4300 titled "Interest". 54 The payment total of $23,250 for the above period is the subject of agreement between the experts: [Potter report at 7.5; First Weber report at 13.15]. 55 Most of the payments made to Maria James were in excess of the interest amount allegedly payable under the Maria James Agreement. A portion of the payments represented principal reductions [see first Weber report at 13.16]. 56 Nothing turns on whether the sum paid out of Chris Burke & Co to Mrs James was principal, interest, whether penalty or otherwise.

57 The only relevant fact is that the moneys were paid out to Chris Burke & Co and expensed so far as Chris Burke & Co was concerned to the James Christian loan account, to be found at page 529 of exhibit PX volume 2].

58 Mr Alexis summarised this issue in a manner which reflects the evidence as follows:

"It is clear from Mr James' loan account that he was servicing from Chris Burke & Co a loan from his mother and the loan agreement with respect to that loan [can be found] at volume 1, page 1 of exhibit PX01, it is a deed of loan and guarantee between James Christian Pty Limited as the borrower, Maria James as the lender and Mr James and Mr Christian as guarantors, and [the Court] will find on page 6 of exhibit PX volume 1 the schedule to the deed of loan and guarantee which identifies the parties…the principal sum [is] $75,000.

And by paying that loan out of Chris Burke & Co it was plainly for the benefit of James Christian Pty Limited because James Christian is identified as the borrower and plainly for the benefit of the guarantors, Mr James and Mr Christian." [Transcript 739] Cronulla rent 59 This item concerns rent in relation to premises at 62/1 McDonald Street, Cronulla where Mr James lived with his family between April 2000 and February 2001. Mr Sicuro gave the following evidence: "On 1 April 2000, James Christian Pty Limited entered into a lease for 62/1 Macdonald Street, Cronulla. The property was occupied by the First Defendant Tass James and his family." [Affidavit of Silvano Sicuro dated 2 December 2002, para 41] 60 This evidence of Mr Sicuro was supported by a copy of a letter exhibited to his affidavit, being a letter to the owners of the property advising them of the new tenant's name, "James Christian Pty Ltd (Tass James) ACN 059 970 633". [Ex SS1-485] 61 The property was one of the residential properties on the rent roll managed by Chris Burke Property Management. Here again the matter was in terms of a summary of the evidence which is accepted as correct, explained by Mr Alexis as follows:

"We then come to the lease by either James Christian Pty Limited or Mr James personally, the lease contains references to each of them, of the premises at …McDonald Street, Cronulla, in a period when there were difficulties with cash flow and creditors apparently were putting pressure on Ms Conway, all of this money was going out to service Mr James' lifestyle, we would respectfully submit.

It is clear that Chris Burke & Co was paying the rent. The trust ledger from which the owners of the property were paid is at exhibit PX volume 2 at page 552 and the rent expense ledger within Chris Burke & Co can be found at page 542. …that ledger at page 542 your Honour will see that the rent -[when one correlates the expense ledger in Chris Burke & Co and the trust ledger, the movement of money is correlated]… [the exhibit] assisted by the asterisks on that exhibit, [shows] that Chris Burke & Co was paying Mr James' private rent and it was being expensed to rent, not loan account.

Mr Sicuro at paragraph 41 of his affidavit gave evidence that Mr James and his family lived there and of course we now have, since the service of Mr Potter's report late last Friday, the concession in relation to this sum. [see concession in Potter Report at 7.7.9]

It is all very well for our learned friends to say, well, that is an expense which can be brought to account on Mr James' loan account, but importantly we would say this was expensed to rent and not expensed to his loan account." [Transcript 739-740] 62 The evidence does not permit of precision as to why the Cronulla premises were rented or as to which members of the James family resided in those premises. Sullivan cheque 63 A loan agreement between Mr Sullivan and Mr James [page 265 of exhibit PX volume 1] makes plain the relationship of debtor and creditor between Mr Sullivan as the lender and Mr James as the borrower for the amount of $170,000.00. Mr Sullivan was paid a sum of $40,000 on 2 July 1999 [the cheque butt for that particular cheque at page 820 of exhibit PX volume 2]. The cheque butt reads "Reimburse computers re J Sullivan $40,000". That expense was posted not to loan account but to computers [cf the expense ledger for computers at page 539]. Hence this is seen to be a repayment to Mr Sullivan by Mr James of an indebtedness of Mr James. 64 In his report, Mr Potter categorised the $40,000 payment as "unknown". However, during oral evidence he accepted that there was a $40,000 payment but did not know what it was for [Transcript 571.4 - 571.25]. The amount of $40,000 is now no longer in issue between the experts. Unauthorised loan to T & J James 65 In final address the plaintiffs withdrew their claim in respect of the payment of $6,500 made to Mr James from the Burke Unit Trust on 23 January 2001. The circumstances in which the cheque was paid are examined below. Excess reimbursements of the Fairfax Account to Mr James 66 Chris Burke advertised extensively through Fairfax Community Newspapers. Mr James had a practice of paying the Fairfax accounts from his credit card for the purpose of earning customer loyalty points. On a regular basis Mr James would arrange for cheques to be drawn by the BUT to reimburse his credit card (see first Weber report [13.2] and the evidence of Ms Conway). 67 The plaintiffs make a claim for $2,132 for overpayment to Mr James in respect of these reimbursements. The Weber calculation is as follows: Overpayment per our First Report (HR:13.2(i)) 20,736 Less error in our calculation (paragraph 11.2) (10,000) Less payment for unknown sources July 1999 (1,000) October 1999 (1,873) July 2000 (2,585) Less payment made directly to Fairfax (par 11.3) (4,046) $1,232

68 The defendants' expert rejects Mr Weber's calculation of $1,232. In 7.3.7 of his report, Mr Potter states:

"A difference of $4,045.55 between the experts relates to the treatment of the payment of $6,630.95 to Fairfax on 20 July 2000. In the absence of any evidence of payment of $6,630.95 in CBPL MYOB cheque account 1-1110 I assumed it was paid by Mr James. However, Horwath allege at paragraph 11.3 of their second report "it is likely that" the payment includes CBPL cheque payment 985721 for $4,045.55 dated 17 July 2000 drawn in favour of Fairfax…" 69 In my view, this item has not been proven by the plaintiffs on the balance of probabilities.

Excess remuneration to Mr James 70 There is a question of whether excess remuneration was paid to Mr James beyond the $100,000 ratified by the directors of Surf Road Nominees during the meeting of directors held on 3 August 1999 [see minutes of meeting PX 272]. 71 The calculations of the experts have been summarised in the following table, extracted from the Potter report: Horwath Calculation Potter Calculation Incl. Tax $ $ Salary NIL 65,000 Management Fees 56,247 18,505 Bonuses 57,951 NIL Less: Authorised Salary (100,000) (104,000) Add: Remuneration Unaccounted For NIL 20,495 Remuneration Overpaid $14,198 NIL

72 The reasoning of the experts can be found at the following references: First Weber report at 7.6-7.12; Second Weber report at 10.1 - 10.6; Potter report at 7.2.1-7.2.21. 73 The issue becomes whether or not the moneys that were paid out by Chris Burke & Co. to James Christian Pty Limited as bonuses were effectively Mr James' and Mr Christian's remuneration [cf Mr Weber's report in chief, Exhibit P3, paragraph 7.6 to 7.12 inclusive, his supplementary report, Exhibit P4, paragraph 10.1 to 10.6 inclusive, and Mr Potter's report paragraphs 7.2.1 through to 7.2.21]. 74 In paragraph 7.2.17 Mr Potter says this:

"The printout [that is to say the printout of James Christian] - shows James Christian may have made salary payments to Mr James totalling $60,000 for the year ended 30 June 2000. It does not follow that such payments are in fact salary payments or automatically reflect Mr James entitlement to receive salary payments from Chris Burke or any other Burke Group entity."

75 The fact is that if the moneys paid to James Christian Pty Ltd were not salary, there is no explanation on the evidence as to what they otherwise could be. 76 Mr Potter continues:

"In my view the fact that Mr James may or may not have received salary payments from James Christian is irrelevant to the Horwath claim." 77 Mr Alexis submitted as follows: "Well, the evidence demonstrates that [Mr James] wasn't paid a salary by Chris Burke & Co.. One assumes that he wouldn't have worked for nothing and that he was paid a salary and the way he was paid was for it to be expensed as bonuses and commissions to James Christian and for that money to be treated in James Christian, no doubt tax effectively, for the benefit of Mr James and Mr Christian.

In addition of course your Honour has the Exhibit P6 which was tendered this morning which was the notice to produce to Mr James for the production of his 2000 tax return which wasn't produced, and so, your Honour, in our respectful submission, that document not having been produced, your Honour is entitled to infer that his "salary" was received from James Christian and that Mr Weber's approach therefore should be accepted. [Transcript 828 - 829] 78 In my view, the plaintiffs have established this claim on the balance of probabilities.

Claim to interest on the Burke Unit Trust overdraft facility 79 As to the claim pleaded [paragraph 16 third further amended summons] by Chris Burke against New South Head Road Nominees for the payment of interest on the Burke Unit Trust overdraft facility, which was arranged so as to provide working capital injections by the unit holders controlled by Mr James and Mr Christian, that claim has been accepted. The sum involved, which is also agreed, is the sum of $18,738. The second plaintiff is entitled to judgment against the third defendant for that sum with interest thereon from 1 October 2001 through to the date of judgment. Returning to late 2000 and following Pressure from Macquarie Bank 80 By mid 2000, Macquarie Bank was insisting upon its debt being refinanced, [cf the letters from Macquarie making demands at page 316 (with respect to the refinancing by 30 September 2000) and 320 (with respect to the refinancing date of 1 December 2000) of exhibit PX1]. The refinancing of the Macquarie Bank debt was the subject of meetings and conversations between the Bank and Chris Burke on 13 July 2000 and 19 October 2000. Australian Taxation Office 81 As at the end of the calendar year 2000, 'Pay As You Go' withholding tax was outstanding in an amount of $85,849. The Superannuation Guarantee Levy for the year ended 30 June 2000 had also not been paid in the sum of $90,778.

Returning to the evidence given by Mr Sicuro and more particularly examining the events of January 2001 82 On the evidence of Mr Sicuro it was also resolved before 5 January 2001 that Mr James was to be removed as a director of Chris Burke [Transcript 179.34-179.39; 205.52-207.4]. This was clearly the position as at 5 January [PX 329]. 83 The evidence before the Court presented an issue as to whether there was an intention on the part of the investors and Mr Sicuro to effect complete termination of Mr James' employment. Their evidence is that he was to be removed as managing director, but that there was no indication as to whether this would permit him to continue employment in some capacity within the company [See: Sicuro Transcript: 179.6-179.39; 206.16-207.7; Palmieri Transcript: 335.30; Wilson Transcript: 311.26-311.46]. 84 In my view the following contemporaneous factors justify the inference (which is drawn) that there was indeed an intention to completely terminate Mr James' employment:

· "the fact that the draft resignation letter, prepared by solicitors for the other parties prior to the 8th of January (PX 1 page 330) does not refer to any ongoing employment relationship and contains a release for any claim to date; · the fact that on any version of the various meetings on 5, 8 and 13 January, the suggestion for Mr James to continue in employment came from Mr James and was not an offer made to him at the time. Indeed, it was conceded by Mr Palmieri [T:343.15] that the other directors had not considered any other employed role for Mr James until Mr James made the suggestion that he be employed as a commissioned agent; · the fact that there was clearly a large degree of antagonism against Mr James by early January 2001. This is evident from the minutes of 4 December 2000 (page PX1 325) and the evidence of Mr Palmieri and Mr Mortimer to the effect that whilst they were not 'aware' of any "misappropriations" in December, they did not trust Mr James and apparently blamed him for their unfortunate investment decision. [Palmieri T: 322.31-323.15; 336; Mortimer T: 399.44 -400.7]". Of course 'awareness' and 'suspicion' are different concepts: cf the beliefs as to Mr James having 'skimmed' large amounts from the accounts of Chris Burke to pay for his 'lifestyle expenses'. 85 In Mr Wilson's case, I accept that his evidence (transcript 300] represented his best recollection as to the position. That recollection is likely mistaken as the passage of time often blurs a recollection. It is somewhat more difficult to reach a finding as to whether or not the same explanation may be attributed to the evidence given by Mr Sicuro and Mr Palmieri. On balance their high state of emotion in relation to the proceedings may have led to a mistaken recollection. 86 The proper inference available from the evidence is that the situation was dynamic with further information coming forward or earlier information being mulled over and re-assessed. The events of January 2001 87 Four key meetings took place in January 2001

5 January 2001 - conference call meeting 88 Sometime prior to 4.00pm on 5 January 2001, Mr Mortimer, Mr Christian, Mr Palmieri, Mr Wilson and Mr Sicuro consulted with and met at the firm of solicitors, Dibbs Barker Gosling. 89 Materials in evidence produced on subpoena by Dibbs Barker Gosling provide some adjectival information as to what occurred. Exhibit DX 1/2016 [followed by 2021, 2021A, and 2022] record a meeting attended by Mr Mortimer, Mr Christian and Mr Palmieri with those solicitors. The handwritten notes are the handwriting of the solicitor Mr Addison. A further, and this time typed set of notes, is to be found at 1/201 7-2018. The typed "notes to file" are explained as "Notes following a meeting with Michael Christian, Andy Mortimer, Vince Palmieri [on the day in question] ". This note includes the following:

"MC has sighted accounting records of CB & Co which indicate that Tass has been skimming upwards of $450,000 from the accounts of CB & Co to pay for his own "lifestyle expenses", such as car release, personal mortgage repayments, wage for staff employed by Tass daughter's company etc.

MC wishes to remove Tass as a director of CB & Co." 90 It is convenient to annex the whole bundle of those notes to this judgment as appendix "D". 91 The proper inference to be drawn from those notes is that Mr Christian, albeit aware that Mr James had loan accounts [as did Mr Christian], had sighted accounting records and other documents showing payments and transactions which Mr James had not disclosed to him and to which Mr Christian had not consented. [See particularly for example the reference to records indicating that Mr James had been "skimming" upwards of $450,000]. The word "skimming" in context needs no further explanation. 92 I interpolate to record that these early notes permit the Court to infer that the telephone call to Thredbo and the later meetings took place in circumstances in which, albeit that Mr Christian was not present at most of the meetings, he was generally aware and informed before the meetings and thereafter of what had been proposed as the business of the meetings, and as to what had occurred at the meetings. 93 Mr James was then telephoned in Thredbo and a short meeting of Surf Road Nominees Pty Ltd took place whereby it was resolved that Surf Road Nominees issue a written request to Chris Burke & Co, Mr Christian and Mr James to hold a meeting of the directors of Chris Burke no later than 8 January at which meeting of the directors of Chris Burke & Co it would be moved that Mr James be removed as a director of Chris Burke & Co Pty Ltd and be replaced by Mr Mortimer. [PX 1/329] 8 January 2001 - Double Bay Cosmopolitan coffee shop meeting 94 Prior to this meeting, Dibbs Barker Gosling had prepared and faxed to probably Mr Palmieri or Mr Mortimer, a draft letter of resignation as a director to be signed by Mr James [PX 330]. It remains unclear on the evidence as to precisely whom instructed the solicitors. The proper inference is that the instructions were given by one or more of Messrs Palmieri, Sicuro or Mortimer with the knowledge and acquiescence of Mr Christian. 95 Mr Mortimer told Mr James that if he did not sign the letter of resignation, the Court would be approached that Friday for the appointment of a provisional liquidator. Although Mr Sicuro at first denied this, his final position was that he could not recall it: Transcript 216.34. Both Mr Palmieri (transcript 341.55) and Mr Mortimer (transcript 391.30) accepted this was said. Their evidence on this issue is accepted as reliable. 96 Mr James was promised payment of $6,500 for outstanding commissions; he was promised that his children could keep their jobs and he was promised that he could work from the following Saturday as a commissioned sales agent. Mr James thereupon signed the letter of resignation of his directorship of Chris Burke & Co. 97 The Court's findings are:

(i) that it was always intended by all concerned that Mr James would either resign or be sacked.

(ii) Mr James' removal as Managing Director of the business was contrary to the assumption made by all when the project was put together that he would continue to work as such (see Palmieri T333.44-334.19; 336.23 and Mortimer at T:399.6-41);

(iii) the reason he was given the ultimatum was because of perceived misappropriations and bad management. 98 There is also in evidence a document by way of minutes of a meeting of 8 January 2001 at 5.00pm where there were present Mr Mortimer, Mr Palmieri, Mr Sicuro, Mr Wilson and Mr Christian which commence:

"Discussed appointment of new directors of Chris Burke, current directors: A Mortimer, V Palmieri. Resolved to appoint T Wilson, V Palmieri, S Sicuro to the board. Motion passed." 99 The position as to the directors of Chris Burke [transcript 891-892] was then: · on and after 5pm on 8 January 2001 the directors were Messrs Christian, Mortimer, Palmieri, Sicuro and Wilson; and · Mr Mortimer left the board on 23 February 2001. 100 Between 8 January and 13 January Mr Sicuro carried out what he has described as an "extensive" but "not very thorough" [transcript 179.56-180.6 but cf 189.1-6] investigation into the accounts of Chris Burke & Co.

101 Mr Sicuro noticed that there were loan accounts in the names of both Mr James and Mr Christian indicating that both of them were indebted to the company in various amounts and identified transactions whereby it was thought that expenses that properly should have been to the account of Mr James had been debited to the company. These proceedings and the evidence now adduced have given chapter and verse to the real situation which had developed in relation to Mr James loan accounts, it being clear that Mr Sicuro's investigations only gave some indications as to the true picture. 13 January 2001 - meeting at boardroom of Chris Burke

102 On 13 January 2001 a meeting took place in the boardroom of Chris Burke. Mr James was confronted with allegations that he had misappropriated money, [these "misappropriations" having been identified by Mr Sicuro during "extensive" but "not very thorough" [transcript 179.56-180.6; cf 189.1-6] investigations into the accounts of Chris Burke & Co between 8 and 13 January 2001]. 103 Mr James denied these allegations and was not told how much he was alleged to owe [see Sicuro transcript 203.41-204.4; Palmieri transcript 348.22]. The Court's finding is that at no stage was he told what estimate was placed on the value of his share in the property developments by those demanding that he sign over his interests. Mr Palmieri's evidence [transcript 346] that the investors did not know the extent of the moneys owed by Mr James, is accepted as reliable on this precise issue. And is also accepted in that Mr James was not given the option of doing other than signing over all of his investments [transcript 348]. His employment was then terminated and he was excluded from the company's premises and business from that time. 104 During the meeting it was demanded of Mr James that he sign over all of his interests in various property developments in which he was involved with Mr Palmieri [see the minute of the meeting at which Mr Sicuro reported to the other directors on the meeting: PX 383]. 105 At this meeting, Mr James offered to give over his and his son's interests in two property development companies (Dunningham Investments Pty Ltd and Station Constructions Pty Ltd) and at no stage denied being indebted to the company in an amount. Mr Mortimer made it entirely clear that he "expected all five commercial properties to be included and…[Mr Mortimer] became abusive and aggressive with [Mr James]…. [Mr James] walked out of the meeting." [PX 383] 106 Mr Mortimer gave the following evidence:

"Q. Mr Sicuro told Mr James that you expected him to sign over all five commercial properties? A. That's correct. Up to the value of - properties up to the value of what we thought he'd taken ." [transcript 395.36-395.39]

107 Mr Mortimer gave evidence that he said to Mr James "you've taken $300,000" [transcript 396.23]. This evidence is not accepted as reliable. It is inconsistent with the evidence elicited under cross-examination from Mr Sicuro and Mr Palmieri. It is also inconsistent with the minute of the later meeting of the same day [PX Vol 1, Page 383]. Nor does it sit well with Mr Mortimer's belief that Mr James' interests in the subject properties which he was being asked to transfer was possibly $450,000 or $400,000 [transcript 396]. 108 Mr James was thereafter (from 13 January 2001) excluded from the company's premises and business. 24 January 2001 - second meeting at Double Bay coffee shop 109 On 24 January 2001 a meeting was held at a coffee shop in Double Bay and was attended by Messrs Palmieri, Sicuro and James. 110 During that meeting Mr James was asked to sign a document prepared by Dibbs Barker Gosling on behalf of Chris Burke & Co. The document [PX 385] required Mr James to hand over all of his interests in Mr Palmieri's property development companies to Mr Christian and also demanded he hand over his interest in his residential property at Rose Bay. 111 Witnesses for the plaintiffs denied giving such instructions to the solicitors [see Sicuro at transcript 238.46-239.1; Palmieri at transcript 357.40-358.2; Mortimer at transcript 397.4-397.40]. 112 Indeed, Mr Sicuro [transcript 240.37-240.39; 282.15] and Mr Palmieri [transcript 357.34] gave evidence that they did not read the document before they handed it to Mr James. 113 There is some confusion as to who gave instructions to Dibbs Barker Gosling to draft the letter and as to what those instructions were: · there is now in evidence a letter from Dibbs Barker Gosling dated 24 January 2001 which is addressed to Messrs Sicuro, Palmieri and Christian (identified as 'Directors Chris Burke & Co) which would suggest that the instructions to prepare the letter were given by the three addressees; · however there is also in evidence [DX 1/202 7-2028] a facsimile from Mr Sicuro [signed both by himself as well as by Mr Palmieri] to Dibbs Barker Gosling of 24 January 2001 which reads: "We V Palmieri and S Sicuro Directors of Chris Burke & Co instruct to prepare a letter directed to Tass James transferring all his interests in the company to Chris Burke & Co ." [emphasis added] 114 Confusion is added to confusion by the further attendance memoranda [DX 1/2030-2032] where Mr Addison summarises a number of telephone attendances and instructions, apparently all of 24 January 2001, which it is also convenient to append to this judgment as appendix "E". These memoranda include references to a letter which is to require the transfer of interests to Chris Burke in exchange for a release and appear to include questions being raised as to whom these solicitors were acting for. 115 Mr James refused to sign the document. 116 At the meeting he was also given a cheque in the sum of $6,500 dated 23 January 2001 in payment for outstanding commissions in accordance with his previous requests. This cheque was approved of by both Mr Christian and Mr Palmieri. 117 After Mr James refused to sign the document, Mr Sicuro and Mr Palmieri reported a week later on the meeting to Mr Christian and Mr Mortimer. (The minutes of this meeting are at PX1 page 386). Mr Mortimer became abusive towards Mr James' son and towards Mr Sicuro and Mr Palmieri for releasing the cheque. Mr Mortimer's denials of such conduct are rejected in light of the minute referred to above and Mr Sicuro's corroborative evidence. 118 I interpolate to note that the plaintiffs no longer press any claim to repayment of this cheque. Sale of units in SRUT - February 2001

119 At some stage in late January or perhaps February 2001, Mr Boardman offered to purchase all of Mr James' units for $230,000 [see Mortimer at transcript 393.19-394.25; Palmieri at transcript 401.45-405.10]. 120 That offer was rejected and was not passed on to Mr James. Thereafter, Mr Mortimer negotiated to sell his two units one each to Mr Sicuro and a company controlled by Mr Palmieri, for $126,000 each. 4 May 2001 - Notice of Demand

121 As already indicated, after 8 January 2001 and certainly by 13 January 2001, Mr James had no access to the company's premises and heard nothing further from the company until he received a document entitled "Notice of Default" on 4 May 2001 [PX 389]. In this document, certain demands were made of him and he was told that if he did not accede to those demands, his units in the SRUT would be sold. The document made demand for moneys paid to Macquarie Bank pursuant to the guarantee and for unpaid distributions. It did not make any demand to pay any amount of money to the company under the loan account or for "misappropriations".

6 July 2001 - Surf Road directors meeting 122 A meeting of the directors of Surf Road was held on 6 July 2001. The minutes of that meeting recorded that it was resolved that Mr and Mrs James and Mr Mortimer be removed as directors of Surf Road and that Mr Sicuro be appointed a director. It was further resolved that Mr and Mrs Mortimer's shares be transferred to Mr Sicuro [PX 407]. 6 July 2001 - IG Martyn directors meeting 123 A meeting of the directors of IG Martyn was also held on 6 July 2001. During that meeting it was resolved that Mrs James be removed as a director and that Mr Sicuro be appointed a director of IG Martyn. Mrs Christian also resigned as director. [PX 408] Transfer of the James' units in SRUT 124 On 22 October 2002, without the knowledge or consent of Mr or Mrs James, the 13 units held by them or their company were transferred to Mr Sicuro (9) and Mr Palmieri (4) for a consideration of $1.00 for each unit. Sale of rent roll - payment of Macquarie Bank 125 On 6 December 2002, contracts for the sale of the Chris Burke - IG Martyn rent rolls were entered into. The sales completed on 28 February 2003. The proceeds of sale were paid by IG Martyn and Chris Burke & Co in full satisfaction of the various debts owed to Macquarie Bank. The payment figures are at PX 494. Other dealings 126 In or about February 2001 [DX 3/1], the plaintiffs and Mr Christian entered into an agreement whereby in consideration of certain payments, it was agreed that the plaintiffs would accept in full settlement of Mr Christian's liabilities to them, a payment of $300,000. 127 By a further agreement made on 5 November 2003, Chris Burke & Co sold the Chris Burke Real Estate business to Mr Christian's company, Cottenham Nominees Pty Ltd, and as a part of that contract purported to release him from any claim that they had pursuant to the guarantee. Dealing with the case The proper construction of the Deed 128 The convenient course is to turn immediately to the proper construction of the Deed, first dealing with some questions of principle and then noting certain preliminary matters. Construction - the principles 129 Access is easily available to the plethora of authority informing the proper approach by the Court to questions of construction: · where a document is sought to be relied upon it is to the words of the document that the Court must attend, looking in that regard to the whole of the document to discern the parties' intent. Where the Court is dealing with a commercial document, in endeavouring to discern the parties intent and in construing the meaning of the words used, the Court will strive to give the document a commercial, reasonable and rational operation: Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 at 109; Hide & Skin Trading v Oceanic Meat (1990) 20 NSWLR 310; · there is abundant authority that "the Court should be astute to adopt a construction which will preserve the validity of the contract": Meehan v Jones (1982) 149 CLR 571 at 529, per Mason J; Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 at 132, per Kirby P. Further, the Court will strive in dealing with a commercial contract to discern the objective intent of the business relationship or other parameters of a contract in order to give effect to that which the parties may be seen to have bargained for. But always it is to the words of the document that the Court must attend looking in that regard to the whole of the document to discern the parties' intent; · most recently, the High Court has observed in Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 at 292-293 that:

"In Codelfa , Mason J (with whose judgment Stephen J and Wilson J agreed) referred to authorities which indicated that, even in respect of agreements under seal, it is appropriate to have regard to more than internal linguistic considerations and to consider the circumstances with reference to which the words in question were used and, from those circumstances, to discern the objective which the parties had in view. In particular, an appreciation of the commercial purpose of a contract: "presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating".

Such statements exemplify the point made by Brennan J in his judgment in Codelfa : "The meaning of a written contract may be illuminated by evidence of facts to which the writing refers, for the symbols of language convey meaning according to the circumstances in which they are used.""

· to similar effect is the observation of Gleeson CJ, Gummow and Hayne JJ in Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 at 248 (para 11), quoting with approval Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913 to the effect that interpretation of a written contract involves the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of contracting; · in Investors Compensation Scheme at 912 - 913, it was said that:

"The background knowledge which a reasonable person in the position of the parties will be regarded as having, for the purposes of the construction of contracts, includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man with the proviso that it should have been reasonably available to the parties". · "There is of course no doubt but that the Court is entitled to inquire beyond the language and to "see what the circumstances were with reference to which the words were used, and the object appearing from those circumstances, which the person using them had in view": Prenn v Simmonds [1971] 1 WLR 1381 at 1384 per Lord Wilberforce: Lakatoi Universal Pty Ltd v Walker [2000] NSWSC 113 at par [1039]." Clause 5 130 The all-important clause 5 of the Deed provides:

"5. (1) The guarantor, unit holders and the indemnifying parties jointly and severally guarantee: (a) payment of the IGM bank debt and the Surf Road bank debt;

(b) that the Trustee will pay the preferential distribution to the Investors. (2) The Indemnifying Parties, the guarantor and the unit holders jointly and severally indemnify the Investors for any loss or damage suffered by the Investors should the Indemnifying parties, the guarantor and the unit holders fail to ensure payment of the bank debts and the preferential distributions." [Note: The joint and several guarantee was thus given by (1) James Christian, (2) the James family company as trustee for the James Trust and Cottenham Nominees as trustee for the Christian Family Trust, and (3) Mr and Mrs James and Mr and Mrs Christian]. By way of internal dictionary, it is presently convenient to refer to this group as "the group of 7 ". Each of the seven persons and entities was jointly and severally liable. ] Movement in the plaintiffs pleaded case and in its submissions 131 During the course of the hearing the plaintiffs sought to move from the initial version of the pleaded case in terms of the proper construction of the Deed. For the first time allegations were made: IGM Bank debt · that the liability of the defendants pursuant to clause 5 (1) to guarantee the obligations of James Christian Pty Ltd in relation to the payment of the IGM Bank debt were promises made "for the benefit of the first plaintiff as trustee of the SRUT"; Preferential Distributions · that the defendants were jointly and severally liable pursuant to clause 5 (1) to guarantee the obligations of the first plaintiff as trustee for the SRUT in relation to the payment of the preferential distributions "for the benefit of the fourth and fifth plaintiffs". 132 WIT and DJZ further assert in the alternative that clause 5(2) requires the defendants to indemnify them for any failure by the defendants to ensure that the IGM Bank debt and preferential distributions were paid (Declaration 3 and Order 4(c)). Significance of fact that certain companies were not parties to the Deed 133 It is significant that neither of Chris Burke nor IG Martyn is a party to the Deed. Assistance from the recitals 134 Particular assistance in terms of the proper construction of the operative terms of the Deed is to be gained from the recitals. This makes the following matters clear: · the value of the interests of the unit holders [namely the James family company as trustee for the James Trust and Cottenham Nominees as trustee for the Christian Family Trust - see the definitions in the Deed] in the SRUT had been determined without reference to the loans payable to the bank by the Surf Road company in its capacity as trustee and by IG Martyn; · the proposal that the SRUT would on the date of the Deed complete the purchase of all of the issued units in the BUT and that the vendors of the units had advanced $400,000 to the SRUT by way of vendor finance to assist with the purchase, the advance being secured by second ranking fixed and floating charges over the assets and undertaking of both trusts; · pending repayment of the bank debts, the indemnifying parties, the guarantor and the unit holders [again as defined] had agreed to guarantee payment [to the investors as A class unit holders] of the preferential distribution referred to in the operative clauses 2 and 3; [It is convenient to interpolate that in my view this guarantee was given for the benefit of the investors as A class unit holders- see clauses 2 and 3 in the Deed]. · James Christian [being indebted to IGM for the same amount that was due by IGM to the bank] had agreed to pay the IGM bank debt, and the indemnifying parties and the unit holders had agreed to guarantee the performance of that obligation by James Christian to pay the IGM bank debt; and · James Christian, the indemnifying parties and the unit holders [as defined] had agreed to indemnify the investors for loss or damage which they may suffer in respect of failure to pay the bank loans and/or failure to pay the preferential distribution, the said unit holders having agreed to grant a mortgage of their units in the SRUT in support of the obligations of the unit holders, James Christian and the indemnifying parties under the Deed. 135 It is clear that the primary liability to pay the Surf Road bank debt was a liability of SRUT [deed clause 1 (b)]. Unlike the circumstance which obtains in relation to the primary liability to pay the IGM bank debt [where the Deed entered into between parties who did not include IGM, made provision, as between the parties to the Deed, that the primary obligor charged with the discharge of the IGM bank debt was to be James Christian], no such provision was made with respect to the primary liability of SRUT to pay the Surf Road bank debt. 136 The issue arises because clause 5 simply does not identify which person, company or entity was intended by the parties to the Deed to have the benefit of the joint and several guarantee of payment of the IGM bank debt. The defendants contend that the answer to this question is that upon the proper construction of the Deed it was the investors who were intended to have the benefit of that guarantee. The plaintiffs contend that upon the proper construction of the Deed the guarantee is seen to have been a promise made for the benefit of Surf Road Nominees as trustee of the SRUT and held in trust for its benefit and the benefit of its wholly owned subsidiary IG Martyn. 137 The plaintiffs' submission [that the liability of the defendants pursuant to clause 5(1) to guarantee the obligations of James Christian in relation to the payment of the IGM Bank debt were promises made for the benefit of the first plaintiff as trustee of the SRUT and held for its benefit and the benefit of IG Martyn] is grounded upon the proposition that the Deed construed in context and taking into account the matrix of circumstances and the nature of the transaction, suggests that approaching the question of construction objectively, this is seen to have been the intention the parties to the Deed. Reliance is also placed upon the following passage in the joint judgment of Mason CJ and Wilson J in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 at 121:

"But the courts will recognise the existence of a trust when it appears from the language of the parties construed in its context, including the matrix of circumstances, that the parties so intended. We are speaking of express trust, the existence of which depends on intention. In divining intention from the language which the parties have employed, the courts may look to the nature of the transaction and the circumstances, including commercial necessity in order to infer or impute intention." 138 Following their oral submissions, the plaintiffs reduced the essence of their submission to writing. The submission was in the following terms:

1.1 The Deed treats the IGM bank debt and the Surf Road bank debt separately. By clause 1, the primary obligation to pay the IGM bank debt was on James Christian Pty. Limited, whereas, the primary obligation to pay the Surf Road bank debt was on the Surf Road Unit Trust. The obligations of guarantee are to be considered separately for each debt, and this is made plain by recitals G and H.

1.2 The promise of guarantee of the IGM bank debt by the guarantor, unit holders and the indemnifying parties, upon the proper construction of the Deed and clause 5(i)(a), was a promise to Surf Road Nominees Pty. Limited as trustee for the Surf Road Unit Trust and held in the Trust for its benefit and the benefit of its wholly owned subsidiary, IG Martyn Real Estate Pty. Limited. This must be so for the following reasons: · James Christian Pty Limited's promise to pay the IGM bank debt, must have been a promise to Surf Road Nominees Pty. Limited as trustee for the Surf Road Unit Trust and held for the benefit of IG Martyn Real Estate Pty. Limited, as IG Martyn Real Estate Pty. Limited was Macquarie Bank's customer and directly liable to repay the debt to the bank (refer to the letter from Macquarie Bank dated 25 June, 1999 at PX Vol. 1 at 179); · IG Martyn Real Estate Pty. Limited is referred to in the Deed, but not as a party to the Deed; · the reason why IG Martyn Real Estate Pty. Limited is not a party to the Deed, is completely explained by recital C; · the object and commercial purpose of the Deed and the promise of guarantee for the IGM bank debt, captured in recital H and clause 5(i)(a), is completely satisfied; and · to not construe the Deed and clause 5(i)(a) in this way, would render the promise of guarantee of the obligation of James Christian Pty. Limited to pay the IGM bank debt, as a completely meaningless promise with no work to do. 1.3 The promise of guarantee of the IGM bank debt was not a promise to the Investors . It is noted that clause 5(i)(b) expressly refers to the Investors . As the Investors would not be liable to Macquarie Bank for the IGM bank debt, they could have no claim against the guarantor, unit holders and the indemnifying parties on the clause 5(i)(a) guarantee. The Investors were otherwise covered to the extent of their unit holding by clause 5(ii). 1.4 Accordingly, the First Plaintiff is entitled to declaration 1, as follows: A declaration that the Defendants are jointly and severally liable pursuant to clause 5 (i) of the Deed dated 1 July, 1999, to guarantee the obligations of James Christian Pty. Limited, in relation to the payment of the IGM bank debt, for the benefit of the First Plaintiff as trustee for the Surf Road Unit Trust." 139 After having given the matter very careful consideration indeed I have come to the view that the plaintiffs' proposition is incorrect. 140 The following factors seem to me to make good the defendants' essential proposition: · The obligation to pay the Surf Road bank debt and the preferential distribution are separate and distinct. The preferential distributions are calculated by reference to the moneys that would be paid by Surf Road Nominees in reduction of principal and interest on an ongoing basis. At the end of each year, the A class unit holders were entitled to be reimbursed for that amount - defined as "the preferential distribution". However, the Surf Road bank debt, upon default by Surf Road Nominees, could be called in by Macquarie Bank and would become payable in full. Self evidently, such payment would be a different amount than was ever contemplated by the concept of preferential distributions. It was for this reason that two separate promises were made in clause 5 (1). The fact that there are two promises is explicable when one understands that the promises are for different obligations. It in no way follows from that premise that the promises are by different entities; in no way does it demonstrate that the promises are to different people. · Once it is accepted that the Surf Road bank debt is part of the obligation guaranteed, it becomes inescapable that the promise cannot be to Surf Road Nominees. This is because it is the principal debtor of that same debt. Such a result is both a commercial and legal nonsense. · In relation to the IGM bank debt, Surf Road Nominees was itself a co-surety and therefore the notion of the guarantee being to Surf Road for the IGM bank debt, an obligation that Surf Road had itself already guaranteed, requires to be rejected. · The plain words of clause 5 (1) (a) - the plaintiffs have been forced in the endeavour to procure their construction, to concede that the words "and the Surf Road bank debt" must be meaningless and should be disregarded as such. But the fact remains that looking at the explicit words of the document, there is a guarantee in clause 5 (1) (a) of the payment both of the IGM bank debt as well as of the Surf Road bank debt. 141 As already observed it is always to the words of the document that the Court must attend, looking in that regard to the whole of the document and to the genesis of the transaction, the background and context to discern the parties' intent. Clause 5 (1) (a) is seen to be a guarantee of both bank debts and to have been given to protect the investors from whatever loss they may suffer upon failure of those debts to be paid by James Christian and Surf Road Nominees, respectively. The investors are seen to have sought to be protected from what were obviously regarded as debts not of the business. Further, it was they who wished to be certain that their preferential dividends were to be paid. Recital I in terms recognises that the investors may suffer loss or damage by reason of a failure to make payment not of only one bank loan but of both bank loans. The recital is in the following terms:

"The guarantor, the indemnifying parties and the unit holders have agreed to indemnify the investors for any loss or damage suffered by them in respect of:

(a) failure to pay the bank loan s (defined as both the IGM debt and the Surf Road debt);

(b) failure to pay the preferential distribution." 142 In the result this is not a circumstance where the parties can be seen to have intended that the liability of the defendants to guarantee the obligations of James Christian in relation to the payment of the IGM bank debt was a promise made for the benefit of Surf Road Nominees as trustee of the SRUT and held in trust for its benefit and the benefit of its wholly-owned subsidiary IG Martyn. Clause 5(1)(b) 143 I do not see that there can be any issue as to the proper construction of clause 5 (1) (b). The promise here is to the investors. 144 Subject to the question of the discharge of the guarantee dealt with below, the investors who sue, namely the fourth and fifth plaintiffs, were clearly entitled to sue on the guarantee comprised in clause 5 (1) (b). 145 Clause 2 of the Deed provides for the investors to be paid a sum, described as a "preferential distribution" being a sum "equal to the amount paid by Surf Road Unit Trust to the bank in accordance with clause 12.10 of the Surf Road Unit Trust Deed." Clause 12.10 is found at page 47 of PX volume 1 and defines the preferential distribution as the amount:

"…….…..equal to the amount of interest or any other money paid by the Trustee in respect of the loan advanced………...in favour of Macquarie Bank Limited in an amount of $300,000. Such preferential distribution to be made in priority to and before distribution of the net income as envisaged by the said clause 12.1 hereof." The defendants' submissions 146 The defendants' submissions include the following: · "The preferential distributions themselves the subject of the Guarantee are oddly enough created by the same document (Clause 2). · Preferential distributions were to be paid from the "profits of the Surf Road Unit Trust". (Guarantee Clause 2) or "the net income of the Surf Road Unit Trust" (Clause 20.12 Trust Deed PX1 page 48). · There is no distinction between "profits" and "net income". The concept of profits equates to the concept of net income. · If there is a difference, the Deed of Guarantee being a subsequent document to the Deed of Trust, is obviously a variation to that Deed. · It is suggested by the plaintiffs that this construction is a commercial nonsense (opening T.26.10). Whether it is or not is beside the point and is the subject of debate. There is no point having that debate because the words used are plain and unambiguous. · More importantly, the concept "the preferential distribution" when it appears in Clause 5 is a defined expression, the definition being found in Clause 2. It is not the same concept as is created by Clause 12.10, but as a new separate and distinct concept and it is only that which is the subject of the Guarantee. · The short answer to this part of the case, is that it has not been proved, indeed it would seem to be inconceivable that it could even be suggested that the Surf Road Unit Trust ever made a profit at all. · Accordingly, this aspect of the guarantee case fails."

Dealing with the issue 147 In my view the plaintiffs' submissions in relation to this issue are of substance and are correct. In short: · the evidence demonstrates that James Christian Pty. Limited never paid the IGM bank debt. Mr and Mrs James and/or NSHR (who together with others were joint and several guarantors of this obligation) failed to honour their guarantee of performance of that primary obligation. In the event, all of the principal repayments, interest and charges had to be made by the SRUT; · the priority that should have been afforded to the payment of the preferential distribution is therefore plain. The amount was to be calculated on the basis of monies paid to Macquarie Bank in relation to the Surf Road bank debt, without reference to profit. The investors never received a preferential distribution from the SRUT, although they did receive from time to time monies on account of the "interim distribution", that is, a distribution of the anticipated annual net profit of the SRUT: clause 4 of the Deed; · the principal of the Surf Road bank debt, namely the sum of $300,000, was reduced by the sum of $98,629 to $201,371, before its discharge, and the interest paid to Macquarie Bank on the Surf Road bank debt to 30 September 2002 totalled the sum of $71,410. The value of the preferential distribution to 28 February 2003, therefore, was $172,698; · there is no substance in the propositions: - that the obligation of the SRUT to pay the preferential distribution to the investors required the SRUT to derive a net profit from which to make the distribution; and

• that absent such a profit, there was no liability of the SRUT to pay the preferential distribution and no liability, therefore, on Mr and Mrs James and/or NSHR to guarantee that obligation. 148 Such a literal construction would in my view render the guarantee a nonsense because its provision must have anticipated circumstances where the SRUT would generate a sufficient net profit from which to pay the preferential distribution, with Mr and Mrs James and/or NSHR guaranteeing payment of the preferential distribution, if it did not. 149 In the result the plaintiffs' submissions are accepted and adopted. Those submissions were as follows: "1.5 The promise of guarantee of the preferential distribution by the guarantor, unit holders and the indemnifying parties , upon the proper construction of the Deed and clause 5(i)(b), was a promise to the Investors. This is clear from clause 2 and the express terms of clause 5(i)(b) itself.

1.6 Accordingly, but subject to the question of discharge of the guarantee dealt with below, the Fourth and Fifth Plaintiffs are prima facie entitled to declaration 2, as follows: A declaration that the Defendants are jointly and severally liable pursuant to clause 5 (i) of the Deed, to guarantee the obligations of the First Plaintiff as trustee for the Surf Road Unit Trust, in relation to the payment of the preferential distributions, for the benefit of the Fourth Plaintiff and the Fifth Plaintiffs." Conclusion in terms of quantification in respect of Declaration 1 150 The first plaintiff has no entitlement to Declaration 1 as sought. Conditional conclusion in terms of quantification in respect of Declaration 2 151 My understanding is that there is no issue as to the calculations, vide: · the fourth and fifth plaintiffs prima facie [ie, subject to the guarantee discharge issue] entitlement by way of quantification of the defendants' liability under Declaration 2 is to the sum of $172,698 plus interest pursuant to Section 94 of the Supreme Court Act 1970 (NSW), from 28 February 2003 to the date of judgment; · the fourth plaintiff as the holder of 7 "A" class units would be entitled to a judgment against the defendants for 70% of that sum. The fifth plaintiff as the holder of 1 "A" class unit would be entitled to a judgment against the defendants for 10% of that sum. 152 The parties have leave to address on the matter should this understanding be incorrect. Declaration 3 153 Likewise, my understanding [cf plaintiffs submissions on construction - 9 February 2004] is that there is no issue as to these calculations, vide: · the first plaintiff having been unsuccessful under the clause 5(1)(a) guarantee with respect to the IGM bank debt, the fourth and fifth plaintiffs become entitled under clause 5(2) to the benefit of the indemnity then provided for by calculations explained in the plaintiffs' written submissions [of 9 February 2004, paragraph 1.9] as follows: "- the quantification of the liability in relation to the failure to ensure payment of the IGM bank debt, in the sum of $1,044,600 plus interest pursuant to section 94, from 28 February 2003to the date of judgment, is not in dispute; and - the fourth plaintiff as the holder of 7 Units is entitled to a judgment against the defendants for 7/36 of that sum and the fifth plaintiff as the holder of 1 Unit is entitled to a judgment against the defendants for 1/36 of that sum." Discharge of the guarantee 154 The defendants claim that the guarantee given by them in clause 5 (1) of the Deed has in any event been discharged. The principles 155 A short summary of the operative principles in this area makes good the following propositions: · depending upon the degree of prejudice established, if a creditor or beneficiary of a guarantee acts in a way as to prejudice the interest of the guarantor, the guarantee may be discharged - Black v The Ottoman Bank (1862) 15 Moo PCC 472; 15 ER 573; · whilst that principle is based on a type of equitable fraud, fraud in this context has been defined as conduct which is unfair to a surety - Mayor of Durham v Fowler (1888) 22 QBD 394 at 419; · that principle is potentially capable of applying to any action by a creditor which prejudicially affects a guarantor;

· the release of a co-surety will stand as a release of every other co-surety;

· a guarantee may contain an express or implied term which makes the continued existence of a co-guarantor a condition of the contract of guarantee. A release of one guarantor in such a case releases the other guarantor from all liability: Ward v National Bank of New Zealand Ltd (1883) 8 App Cas 755 at 764-765;

· in particular, if the liability of the guarantors is stated to be "joint" or "joint and several", that will be construed as making the guarantee dependent on the execution of the guarantee by all those named as "joint and several" guarantors and also as making the guarantee dependent on those co-guarantors remaining parties to the agreement: Ward at 764;

· a general rule, the release of one joint or joint and several promisor discharges all others: Re Pearse [1905] VLR 446; · that is because a joint promise is regarded as single, hence if discharged for one, it is discharged for all: Wolmershausen (1890) 62 LT 541 at 545; Walker v Bowry (1924) 35 CLR 48 at 57-58; · on the other hand, if there is no express or implied term that the co-guarantors will remain parties to the agreement, the release of a co-guarantor will not discharge the other guarantors from all liability but they will be released to the extent that their rights of contribution have been taken away or prejudiced by the release: Hancock v Williams (1942) 42 SR (NSW) 252 at 256 per Jordan CJ.

Joint and several or joint obligations 156 The threshold issue is whether, as a matter of construction, the Deed imposes joint and several or joint obligations on the alleged guarantors. That it does is here beyond doubt: clause 5(1) and clause 5(2) both use the phrase "jointly and severally…". The 5 November 2003 agreement for sale 157 On 5 November 2003 an agreement for the sale of the real estate business 'Chris Burke & Co' was entered into between Chris Burke & Co Pty Ltd as vendor, Cottenham Nominees Pty Ltd as purchaser and others, including DJZ described as "Vendor Guarantor". [Exhibit DX Volume 3 page 14]. The provisions of that agreement included the sale of the units held by Cottenham Nominees in the SRUT [see clause 5.2, page 19, the definition of "Transfer of Units" on page 17 and schedule 9, page 95 where the units are defined as "14 units in the Surf Road Unit Trust"]. 158 That agreement included the following:

"25. Court case against Tass James 25.1 The parties to the agreement acknowledge New South Wales Supreme Court Proceedings 50108 of 2001 ("Supreme Court Proceedings") is on foot and involves the parties to the agreement.

25.2 Subject to the purchaser paying to Pritchard Law Group the sum of $52,000 pursuant to clause 9.1 in Schedule 11, the Vendor, Vincent Palmieri and Silvana Sicuro acknowledge and agree that they are liable and responsible for all fees, disbursements and any other moneys past, present and future owing on any account in respect of the Supreme Court Proceedings to the vendor's solicitor and any counsel, accountant or expert retained by either or all of the vendor, vendor's solicitor, Silvana Sicuro and Vincent Palmieri and that the purchaser shall have no responsibility or liability for the payment of any such moneys. 25.3 The vendor, Silvana Sicuro, Vincent Palmieri and DJZ Constructions Pty Limited release the purchaser, Michael Christian and Katherine Christian from any and all claims, debts, cost damages, judgments, orders, award or liabilities they may have or had against the purchaser Michael Christian or Katherine Christian arising directly or indirectly out of the Supreme Court Proceedings subject to the purchaser paying to Pritchard Law Group the sum of $52,000 pursuant to clause 9.1 and schedule 11. 26. Releases

26.1 Vincent Palmieri and DJZ Constructions Pty Ltd as beneficiary of the guarantee referred to in Schedule 14 expressly covenants and agree to release the Purchaser, Michael Christian and Katherine Christian from any and all liabilities, obligations or surety past, present or future in respect of the guarantee referred to in Schedule 14. 26.2 The Vendor, Silvano Sicuro, Vincent Palmieri and DJZ Constructions Pty Ltd release Michael Christian, Katherine Christian and the Purchaser from any and all claims arising out of debts owed by James Christian Pty Ltd to the Vendor. 26.3 The Vendor, Silvano Sicuro, Vincent Palmieri, DJZ Constructions Pty Ltd and Liscott Investments Pty Ltd indemnify Michael Christian, Katherine Christian and the Purchaser and keep them indemnified in respect of any and all losses or damages suffered or costs incurred by Michael Christian, Katherine Christian and the Purchaser in respect of any and all losses or damages suffered or costs incurred by Michael Christian, Katherine Christian and the Purchaser in respect of any and all claims suits demands actions or causes of action arising directly or indirectly out of the guarantees referred to in schedule 14. 26.4 In consideration of the obligations, representations and payments described in this Deed Michael Christian, Katherine Christian and the Purchaser release and keep released the Vendor, Vincent Palmieri, DJZ Constructions Pty Ltd, Liscott Investments Pty Ltd and Silvano Sicuro in respect of any and all claims they may have or had against each of them jointly or severally arising directly or indirectly by their employment by the Vendor or position as director and/or secretary of the Vendor.

26.5 In consideration of the obligations, representations and resignations described in this Deed the Vendor, Silvano Sicuro, Vincent Palmieri, DJZ Constructions Pty Ltd and Liscott Investments Pty Ltd release and keep released, Michael Christian, Katherine Christian and the Purchaser in respect of any and all claims they may have or had against each of them jointly or severally arising directly or indirectly out of their employment by the Vendor and the position as director and/or secretary of the said companies. 26.6 The parties to this Agreement confirm that a proposed Deed, a copy of which is annexed hereto and forming Schedule 15 was not completed and the parties to this Agreement shall have no rights or claims against any other party to this Agreement as a result of the proposed Deed in Schedule 15." 159 In IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 at 483 Clarke JA gave expression to the width in that case of the words "Any... claim arising out of or related to this Agreement":

"but meaning must be given to the phrase "related to this Agreement or any breach thereof": Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 at 503. It is not only claims arising out of the agreement or any breaches of it which are covered but also those related to the agreement and any breaches of it.

The phrases "in relation to" or "related to" are of the widest import and should not in the absence of compelling reasons to the contrary, be read down: Fountain v Alexander (1982) 150 CLR 615 at 629; Dowell Australia Ltd v Triden Contractors Pty Ltd [1982] I NSWLR 508 at 511 and Ashville Investments ". 160 Kirby P at 475E likewise emphasised that the phrase "arising out of or relating…" was capable of a very wide construction. 161 Notwithstanding the approach taken in IBM, clause 25.3, and in particular 'the release' [the word is presently used in a neutral sense, the question of whether it was no more than a covenant not to sue being examined below] by DJZ of Cottenham Nominees and Mr and Mrs Christian ["the releasees"] therein contained "from any and all claims, debts, cost damages, judgments, orders, award or liabilities [the releasors] may have or had against [the releasees] arising directly or indirectly out of the Supreme Court Proceedings", in my view does not extend to include and embrace the claim by DJZ as a new investor, against the releasees pursuant to the Deed. Whilst the matter is far from clear, it seems to me that no claim against those releasees arose directly or indirectly out of the issues in the current Supreme Court proceedings. Covenant not to sue 162 The plaintiffs sought also to rely upon a qualification to the rule now in focus [that the release of one of a number of debtors jointly, or jointly and severally, liable for the same debt releases all of them from the joint debt - a rule seen to have been applied by the High Court in Walker v Bowry (1924) 35 CLR 48]. The qualification was explained in the following terms in Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164 at 167 per McLelland CJ in Eq:

"…if on the true construction of the instrument in which it appears, that which purports to be a release of one of several (or joint and several) debtors was intended not to operate as a release of the whole obligation by reason that other debtors jointly (or jointly and severally) liable with the debtor purportedly released were intended to remain liable then it will be treated not as a release in the strict sense but as a covenant not to sue the debtor purportedly released…. The same qualification is applicable to a purported release of a guaranteed debt, so far as the liability of a surety is concerned." 163 The qualification provides that whereas a release of one of a number of joint, or joint and several, debtors releases all of them from the joint debt, a covenant not to sue does not. The rationale for this qualification is that where there is a single promisor a release will discharge him by putting an end to the obligation, whereas a covenant not to sue does not directly put an end to the obligation but is a contract not to enforce it. A covenant not to sue does not put an end to the obligation except by virtue of the rule against circuity of action. However, if there are several joint, or joint and several, promisors and the creditor sues others than those whom he covenanted not to sue, the rule against circuity of action does not apply and the action will succeed [see G. L. Williams, Joint Obligations, Butterworth & Co (Publishers) Ltd, London, 1949 at para 51]. 164 The distinction between a release and a covenant not to sue was considered recently by the Full Federal Court in Pollak v National Australia Bank Ltd [2002] FCA 237. In Pollak, the Court at BC200200812 [15] - [17] expressed the matter as follows: · the distinction between a release and a covenant not to sue is a question of construction of the contract between the creditor and the joint debtor in light of the surrounding circumstances; · where an instrument purports to release one of two or more joint debtors it will be construed as a covenant not to sue if it discloses an intention to reserve rights against the other joint debtor; · an agreement may constitute a covenant not to sue, rather than a release, even where there is no express reservation of rights against debtors. 165 In my view the proper construction of the 5 November 2003 agreement for sale yields the conclusion that the release to be found in clause 25.3 is to be construed as a covenant not to sue the releasees. While clause 25.3 is worded as a release and does not contain an express reservation of rights, the language of the clause, construed in light of its immediate context, suggests that such a reservation is implicit. 166 Clause 25.3 refers to the release of "any and all claims, debts, cost damages, judgments, orders, award or liabilities….arising directly or indirectly out of the Supreme Court Proceedings." In my view, clause 25.3 is, by virtue of that language, directed at the claims the subject of these proceedings, not to any and all liabilities and obligations in respect of the Deed. In contrast, clause 26.1, which also deals with the subject matter of releases, specifically refers to the release of liabilities and obligations in respect of a guarantee. That clause refers to the release of "any and all liabilities, obligations or surety past, present or future in respect of the guarantee referred to in Schedule 14". This suggests that clause 25.3 is intended to have a narrower operation than clause 26.1. The inference is open that if it was intended that clause 25.3 have a similar effect to clause 26.1, similar language would likely be used. 167 The submissions put on the subject by Mr Alexis are adopted as correct: · "the first pointer is contained in 26(1), which of course deals with the subject matter of releases … in its express terms Mr Palmieri and DJZ Constructions as beneficiary of the guarantee referred to in the schedule expressly covenant and agree to release.

· so there is an express connection between the release and the subject matter of that release. We don't have that in 25.3. What we have in 25.3 is nothing more...than the undertaking not to sue and that is made plain in our submission by the word "claim". · Importantly… there is a release from any and all claims and debts, costs, damages, judgments, orders, awards or liabilities which are all matters arising from the claim, but what is released is the claim and, properly construed, that is an agreement not to make a claim. · here, because what is released is a claim and other associated matters, in our submission it is quite easy to construe that properly as a covenant not to sue. That submission is fortified by the way in which those subject matters are dealt with in section 26 of this agreement where there is express reference to the subject matter of the release, namely the guarantee." [Transcript 728-729] 168 The matter is one ultimately of impression. The other circumstances sought to be relied upon by the defendants in support of the proposition that the guarantee was discharged 169 In my view there is no substance in the other matters sought to be relied upon by the defendants in support of the proposition that the guarantee was discharged in any event. 170 The defendants in this regard submitted as follows:

"(i) the conduct of the plaintiffs in excluding Mr James from the business in breach of the commonly held assumption that he would continue in the employment, knowing full well that he had no other capacity to meet his obligations pursuant to the Guarantee and then, not passing on Mr Boardman's offer to purchase his shares and then selling those shares for $13.00 and instead of accounting to him for the market price, inviting him to somehow estimate the market price at a time when for at least 6 months he had nothing to do with the business, is conduct that comes within the concept described in cases such as Black v. The Ottoman Bank ;

(ii) moreover the demands made that to satisfy the then unknown liability to Chris Burke & Co Pty Ltd by Mr James signing over all of his units on shares in developments with Mr Palmieri. Clearly, in so demanding an ulterior motive was in play that had nothing to do with recouping money for the benefit of the company but had everything to do with Mr Palmieri's own commercial goals. It was and continues to be unfair to Mr James.

(iii) that, without a shadow of a doubt, leads to the discharge of the Guarantee." 171 I do not see that this conduct can properly be said to fall within the concept or statement of principle to be found in cases such as Black v Ottoman Bank. It is necessary to take into account the whole of the conduct of Mr James in this regard. He is far from innocent in the whole of the exercise. 172 The defendants further seek to rely upon the 2001 deed [Exhibit DX volume 3 page 1] whereunder Mr and Mrs Christian are the recipient of a covenant from Surf Road Nominees and the new investors that any claim against them will be limited to a maximum amount of $300,000 (Clause 6, page 7).

173 The defendants acknowledge that on its own, this agreement probably amounted to nothing more than a covenant not to sue and does not amount to a release. This concession is correct and the Court finds accordingly. 174 There is no parameter of the dealings between the parties of July 2002 which can be said to constitute or amount to a release of the relevant guarantee. The cause of action alleging oppression of Mr James 175 The oppression claims pressed by Mr and Mrs James and their family company in the second further amended cross claim assert that the affairs of each of: · the Surf Road Company [claimed oppression and misconduct said to be against the interests of Mr and Mrs James as members of the Surf Road Company [see the amendment to paragraph 16 G of the second further amended cross claim allowed on 11 February 2004] and the members of the Surf Road Company as a whole]; · Chris Burke [claimed oppression and misconduct said to be against the interests of Mr and Mrs James as members of Chris Burke and the members of Chris Burke as a whole]; and · IG Martyn [claimed oppression and misconduct said to be against the interests of Mr and Mrs James as members of IG Martyn and the members of IG Martyn as a whole],

are being conducted in a manner which is oppressive to, unfairly prejudicial to or unfairly discriminatory against the interests of the above described persons and entities contrary to section 232 of the Corporations Act, 2001 ( Com ) [cf the claims to relief by way of declaration pursued in paragraphs 1,2 and 3 of the second further amended cross claim]. 176 The final written submissions of the cross-claimants in this regard put the matter as follows:

"The oppression of Mr James 1. It seems to be accepted that it was the commonly held assumption by all concerned that Mr James remain Managing Director and the operator of the business [see transcript references in paragraphs 38 - 40 above]. 2. This common assumption created in Mr James a legitimate expectation that he would continue in that role. The Court will look, in appropriate cases (such as this), at the understanding and reasonable expectations of the parties. It will look at the question of legitimate expectation by considering the impact on the oppressed, not the intentions of the oppressors (see the discussion of legitimate expectation by Young J in Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 at 702-704 and on appeal: Fexuto Pty Ltd v Bosnjak Holdings (2001) 37 ACSR 672 at 686-689 per Spigelman CJ; 741-757 per Priestley JA). 3. Mr James' removal in the circumstances described above (which removal had nothing to do with the alleged misappropriation of money but was for "mismanagement") was a direct departure from that common assumption by the Plaintiffs. 4. The following conduct of the Plaintiffs, when considered as a whole, amounts to conduct which is oppressive to, unfairly prejudicial to and unfairly discriminatory against Mr James and Mrs James:

(i) using their superior numbers as shareholders to vote for Mr James to be removed from the business;

(ii) then demanding that he sign over all of his interests in Mr Palmieri's development companies without any reference to the quantification of the amounts owed to the company and the value of those shares and, of course of no benefit to the Company rather of collateral benefit to Mr Palmieri, was self evidently unfair and continued to be so;

(iii) the locking out of Mr James from all of the business conducted by the companies (including Surf Road Nominees in which he continued to be a Director) was manifestly unfair;

(iv) the conduct of the Plaintiffs in not passing onto Mr James, Mr Boardman's offer to purchase his units shortly after he had been locked out of the business for a substantial amount of money (as it turns out almost precisely the money that he was owed) and thereafter proceeding to sell his shares to themselves in breach of the security created by the Guarantee and at a gross undervalue with a bland suggestion that he could of course obtain an account for the true market value but then taking no steps themselves to account for the value is and continues to be manifestly unfair;

(v) the conduct of the parties (including Chris Burke & Co Pty Limited) in relation to the sale of the Station Constructions and Dunningham Investments and the application of the proceeds of sale is nothing short of outrageous behaviour and as such is and was manifestly unfair;

(vi) the making of the original allegations of misappropriation without first having made any proper enquiries as to the truth of those allegations, their subsequent withdrawal and in particular the allegation concerning the $6,500 payment is manifestly unfair;

(vii) the different treatment received by Mr Christian by the majority in the circumstances where he was allowed to remain as a director and employee of the group when he too had "borrowed" a large (and presumably quantified) amount of money is manifestly unfair;

(viii) prior to 5 January 2001 the decision had already been made to replace Mr James as Managing Director and remove him as a director of Chris Burke & Co when primarily for perceived mismanagement he had not been given any opportunity to explain his position or correct any perceived errors; 5. In the circumstances, the conduct of the Plaintiffs falls within s.232 of the Corporations Act." Dealing with the issue The inter-relationship/overlap between the different cases and causes of action 177 The necessary inter-relationship between the different cases and causes of action requires to be understood. One begins with the plaintiffs' causes of action for breach of duties owed by Mr James pursuant to the Corporations Act and the general law and as fiduciary obligations. But for the raising of the issues set out hereunder these causes of action, albeit raising allegations of very serious significance, might well not require to be determined at all for the simple reason that the ultimate position as accepted at the bar table during the final hearing is that Mr James now concedes that he is liable to pay or account to Chris Burke for such moneys as the careful investigations of the parties and the accountants have been able to sheet home as having been paid to or for his account or at his direction. Where no agreement has been reached the concession, as I understand it, extends to such moneys as the Court's findings may be expected to identify as having been paid to Mr James' account or at his direction. 178 The oppression suit pursued in the cross-claim [one element of which covers the alleged wrongful dismissal] and the separate cause of action for damages for wrongful dismissal are, however, defended by the cross-defendants who contend that the conduct of Mr James is shown to have amounted to gross and wilful misconduct justifying his summary dismissal from his employment with Chris Burke. The conduct relied upon by the cross-defendants in this regard is precisely that conduct pleaded by the cross-defendants as plaintiffs under the causes of action pursued for the alleged breaches of statutory and general law and fiduciary obligations by Mr James as director of the relevant companies. 179 This means that in the absence of evidence having been adduced by any party from Mr James or Mr Christian it becomes necessary for the Court, on the evidence which has been adduced, documentary and otherwise, to determine: · whether, on the balance of probabilities, it has been established that Mr Christian [as at the material time one of the two relevant directors of Chris Burke] can be said to have been aware of and to have given his informed consent to the dealings of Mr James which are the subject of the plaintiffs' complaints; · whether Mr James:

• owed relevant duties to inform the board of directors of the parent company, Surf Road Nominees, of relevant matters [essentially the detail of his dealings the subject of the plaintiffs' complaints] concerning the affairs of Chris Burke and of course, by definition, being matters of the highest relevance also to the parent company as it held all the shares in Chris Burke; and

• [in the event that such duties were owed to the parent company], breached those duties. Dealing compendiously with issues arising straddling the cases and causes of action 180 The defendants/cross-claimants [it is unnecessary presently to distinguish as between their different status as propounding or defending claims] appear: · first to assert that the plaintiffs/cross-defendants [again it is unnecessary presently to distinguish as between their different status as propounding or defending claims] have failed to establish on the requisite balance of probabilities that the drawing by Mr James on his loan account of the moneys generally examined in such detail in the experts reports and in the detailed submissions of the parties ["the subject dealings"], had not been (1) authorised or (2) authorised on a fully informed basis by both directors of Chris Burke; · next to assert that in any event the evidence before the Court establishes on the requisite balance of probabilities that the subject dealings had in fact been authorised or authorised on a fully informed basis by both directors of Chris Burke. 181 The contra stance of the plaintiffs/cross-defendants [again it is unnecessary presently to distinguish as between their different status as propounding or defending claims] has been: · first to assert that the defendants/cross-claimants [again it is unnecessary presently to distinguish as between their different status as propounding or defending claims] have failed to establish on the requisite balance of probabilities that the subject dealings had been (1) authorised or (2) authorised on a fully informed basis by both directors of Chris Burke; · next to assert that in any event the evidence before the Court establishes on the requisite balance of probabilities that the subject dealings had not in fact been authorised or authorised on a fully informed basis by both directors of Chris Burke; · additionally to assert that the evidence before the Court establishes on the requisite balance of probabilities that the subject dealings had been the subject of non-disclosure by Mr James to the board of directors of Surf Road Nominees. 182 In the result, no evidence having been given in relation to the question of authorisation [or not] by the two Chris Burke board members who could have given such evidence, the Court is left to the task of drawing such inferences as on the balance of probabilities are available to be drawn from the entirety of the evidence adduced. 183 This is not a simple matter in this case. And of course the question of non-disclosure to the board of the parent company also arises for consideration. Failure to call Mr James on the oppression suit 184 The first matter to be mentioned concerns the failure of Mr James to give any evidence at all. Whilst there may be occasions where an oppression suit has succeeded in the absence of the giving and testing of evidence of the principal person ordinarily presumed to be able to testify in relation to all of the relevant circumstances said to make good the relevant oppressive conduct, it is likely that those cases are few and far between. Hence, in standing back from the detailed evidence and in examining the claimed basis for the section 232, 233 cause of action, the proper approach is, at the least, that the Court will treat with the matter warily and with caution. This does not reflect any mis-application of the rule in Jones v Dunkel [explained below] and is no more than is justified in the particular circumstances. 185 In litigation for final relief, it is accepted that where a party fails to call a witness the Court may infer that the evidence which such witness could have given would not have assisted the relevant party's case. That principle is generally known as the rule in Jones v Dunkel, but altogether outside of that authority, the principle simply expresses an inference which the Court may reach. Jones v Dunkel 186 It is important to recall the principles laid down in Jones v Dunkel (1959) 101 CLR 298. The following extracts clarify the position in this regard:

"The unexplained failure by a party to give evidence, to call witnesses, or tender documents. may - not must - in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The appropriate circumstances exist where it was within the power of the party to tender the evidence which was not tendered." (JD Heydon, Cross on Evidence, 6th ed, Butterworths, Sydney, 2000 at [1215])

"This instance of a Jones v Dunkel inference…, also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party." [ Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, Mason P and Beazley JA agreeing]

"[T]he rule [in Jones v Dunkel ] only applies where a party is "required to explain or contradict" something. What a party is required to explain or contradict depends on the issues as thrown up in the pleadings and by the course of evidence in the case. No inference can be drawn unless evidence is given of facts "requiring an answer". [ Cross on Evidence , Butterworths, [6th Ed] D Byrne, JD Heydon vol 1 at [1215]] [Passage quoted with approval in the joint judgment of Gleeson CJ and McHugh J in Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 at 608 - 609]. Lack of contemporaneous complaint 187 In terms of the substance of the claimed oppression there is, to my mind, special significance in the absence of contemporaneous documentary material of the making of claims of the type one might have expected to come forward from Mr James at many levels and in relation to many areas. Take for example the claim that Mr James was unaware of the amount of money which he owed to the relevant corporate entities. There is no evidence that he made any contemporaneous claim to be ignorant of those matters. There is no evidence of any contemporaneous claim to be supplied with any detail of entry in loan accounts or otherwise. There is no evidence of any contemporaneous claim by Mr James asserting that his dismissal was unjustified or unfair. There is no evidence of any contemporaneous claim that he had not been guilty of gross mis-management of the affairs of Chris Burke. 188 The short position disclosed by the evidence in terms of the communications on and after 24 January 2001 is that no claim in terms of a suggested unfair dismissal was advanced and no claim in respect of oppressive conduct was advanced. Indeed there was no activity at all otherwise than silence from Mr James from 24 January 2001 until receipt of the notices of default. These were sent on 4 May 2001 [a convenient course is to append the terms of the notices to the judgment as appendix "F". [PX 1/389-3 90] 189 The response of some three weeks later from the Argyle Partnership [DX 1/2004], dated 24 May 2001, sought certain further information, the following correspondence including certain materials furnished by the Pritchard Law Group on 13 June 2001, the Argyle Partnership in July 2001 renewing their request for materials and the initial summons in the proceedings being filed on 6 August 2001. 190 Clearly enough the period of some three months which expired after 24 January 2001 was a period in which Mr James was entirely silent and during which one would have expected complaints to come forward had they been justified. All of this together with all of the evidence adduced in the proceedings suggests a proper inference that Mr James well knew and believed that he had no grounds for complaint. That inference is drawn. 191 These are all circumstances which to my mind may be taken into account in the overall assessment of the case and of the claims to oppression pursued by the cross-claimants. The evidence and inferences to be drawn therefrom 192 At the end of the day the evidence suggests no more and no less than that the investors came to believe that Mr James had been responsible for mis-appropriations and mis-management in respect of the affairs of Chris Burke and in a series of reasonably impulsive, rough and ready but sometimes ham-fisted acts set about: · quickly trying to find out as much as they could as to what were the amounts owing by Mr James; · quickly trying to work out how to stop what was perceived as the haemorrhaging of Chris Burke; · confronting Mr James with ultimatums. 193 The investors were businessmen. Their investment was perceived to be at risk. Mr James was seen as someone who was not to be trusted. And an obvious decision was made that he be removed and quickly from his sundry positions at director level and as an employee of Chris Burke. 194 It is certainly the case that heavy-handed and bullying tactics were used by the investors at almost every stage of their dealings with Mr James. On the balance of probabilities it is fair to infer that the investors over-reached in their ham-fisted attempts to claw back moneys which they perceived and believed, at least initially, were simply the subject of defalcations by Mr James and his interests. That over-reaching did not, however, constitute oppression in the circumstances. 195 As earlier indicated: · one of the central planks relied upon by the cross-claimants in support of their general claims concerns the proposition that the Court can and should find that the evidence establishes on the balance of probabilities that each of the two directors of Chris Burke had authorised, or had authorised on a fully informed basis, the drawing by Mr James on his loan account of the moneys generally examined in such detail in the experts reports and in the detailed submissions of the parties; · the simple fact is that, no evidence having been given in relation to this question by the two persons who presumably could have given such evidence namely Mr James and Mr Christian, the Court is left to the task of drawing such inferences as on the balance of probabilities are available to be drawn from the entirety of the evidence adduced. 196 To my mind the matter stands as follows: · whilst the existence of accounting entries and loan accounts certainly does give a proper basis for the prima facie drawing of an inference that both directors would have been aware of the existence of the loan accounts, this does not necessarily take the matter the necessary distance, particularly in relation to the question of whether or not and when, and in relation to what drawings and on what occasions, Mr Christian may have been party to a particular drawing by Mr James and, if so, whether on a fully informed basis; · However, as earlier indicated in this judgment, the references [particularly in the materials produced on subpoena by Dibbs Barker Gosling] to statements and instructions from Mr Christian that he had sighted accounting records of Chris Burke & Co which indicated that Mr James had been skimming extremely large amounts from the accounts of that company to pay for his own lifestyle expenses, and Mr Christian's participation in and determination to have Mr James removed as a director of Chris Burke & Co, makes it proper for the Court to draw the inference that Mr Christian, outside altogether of past discussions with Mr James as to Mr James drawings/activities on loan account, had by then, sighted accounting records and other documents showing payments and transactions which Mr James had not disclosed to him and to which he had not consented and which caused Mr Christian very considerable concern; · these are matters which substantially erode the strength of the first mentioned plank. Obligation of full disclosure to parent company 197 But, as already indicated, the matter extends beyond a consideration of disclosure to the board of directors of Chris Burke. Surf Road Nominees, albeit as trustee for the SRUT, was the parent company of Chris Burke [which was the trustee of the BUT]. In those capacities the parent company had a very clear interest in Chris Burke and its operations. Both Mr James as well as Mr Christian together with a number of investor representatives were members of the board of directors of the parent company. 198 Glover, [Equity, Restitution & Fraud, LexisNexis Butterworths, 2004] puts the matter as follows:

""Fiduciary duties can be modified or displaced if the principal consents after all the material facts have been fully disclosed to him or her". Only a breach which amounts to fraudulent expropriation of a company's property by its directors cannot be ratified with the informed consent of a sui juris principal. Consent, ratification and excuse may also be fiduciaries' only defences to breach of fiduciary duty claims. Lord Wright referred to these in Regal (Hastings) v Gulliver in connection with the profits rule. 'An agent, a director, a trustee or other person in an analogous fiduciary position', he concluded, is not entitled to defeat a claim to account on any ground 'save that he made profits with the knowledge and assent of the other person'….Consent, ratification and excuse are defences which 'confess and avoid' the application of fiduciary obligations. Each of the existence, scope and apparent breach of fiduciary duty are not contested. Liability for the breach is avoided by reason of something represented or held out by the party to whom the duty is owed. Fiduciaries bear the onus of proving this exoneration." [at 4.106]

"Full and frank disclosure of all material things is needed. It is insufficient for fiduciaries to disclose that they have merely 'an interest' in a transaction, or to 'put the principal on inquiry'. Both the nature and extent" - we emphasise extent - "of a fiduciary's intersecting interest or duty must be explained in full.""[at 4.109] 199 It is quite clear that there existed an obligation of full disclosure to the board of directors of the parent company of matters known to either director of Chris Burke: · concerning the use of moneys paid on behalf of Mr James or the James family interests and treated for accounting purposes as if they were legitimate business expenses of the real estate activities conducted by Chris Burke; · concerning borrowings accounted for as loans or advances to the James family interest,

vitally affecting the solvency of Chris Burke [cf as to directors duties of disclosure: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187; Fitzsimmons v R (1997) 23 ACSR 355; South Australia v Clark (1996) 19 ACSR 606; R.J. Barrett 'Resolution of Directors Conflicts' 71 ALJ 677]. 200 These proceedings do not concern any failure by Mr Christian to discharge any such obligation which he had. Had the proceedings involved such an issue, questions would have arisen as to his precise knowledge of such matters. His own dealings would have come under closer scrutiny. 201 The proceedings do concern Mr James and he clearly failed to discharge his duty owed to the board of directors of Surf Road in this regard. The question of whether or not, on the evidence, Mr Christian had acquiesced in, or been party to, particular drawings by Mr James and if so, whether or not on a fully informed basis, or had acquiesced in, or been party to, the other dealings involving Mr James which are now exposed [which question has been one of such sensitivity in terms of cross-contentions as

to the proper findings], does not touch this particular duty of Mr James. The Court's finding however is that this duty was breached and that the subject breach was of a nature and kind [gross and wilful misconduct] justifying the other directors of Surf Road procuring his summary dismissal from his employment with Chris Burke. 202 It is, however, necessary to deal further with the vexed question of whether or not, on the evidence, Mr Christian is seen to have acquiesced in, or been party to, particular drawings by Mr James and if so, whether to not on a fully informed basis, or had acquiesced in, or been party to, the other dealings involving Mr James which are now exposed. I turn to examine that matter. 203 Insofar as the evidence has identified transactions which were not identified in Mr James' loan account [the expensing of the $40,000 loan from Mr Sullivan to computers; the payments to Mr James' mother; the payment for the advertising for James Christian Pty Limited and the moneys from the home loan partnership] the Court has, it seems to me, no proper basis to infer that Mr Christian must have known or acquiesced in those transactions. 204 Next, and notwithstanding that the proper inference is that Mr Christian [who himself had a loan account from which he derived benefit ultimately acceding to the investors demands and settling the issues] must be taken to have been aware of the existence of Mr James' loan account, as already indicated, the references in the evidence to statements and instructions from Mr Christian that he had sighted accounting records of Chris Burke & Company which indicated that Mr James had been skimming extremely large amounts from the accounts of that company to pay for his own lifestyle expenses, and his participation in and determination to have Mr James removed as a director of Chris Burke, make it proper for the Court to draw a particular inference. The inference appropriate to be drawn is that Mr Christian, outside altogether of past discussions with Mr James as to Mr James' drawings/activities on loan account, had by the time of the first meetings with Dibbs Barker Gosling, sighted accounting records and other documents showing payments and transactions which Mr James had not disclosed to him and to which he had not consented. This, as well as the entirety of the accounting evidence now before the Court and the list of transactions not identified in the James' loan account, furnishes unanswered material in support of the finding that Mr James had fallen considerably short of making full or adequate disclosure to Mr Christian of the extent and nature of his relevant dealings. The submission that particular entries should be inferred as no more than accounting entries made by mistake is rejected in the absence of any or any persuasive evidence to that effect. True it is that the weight to be attached to the content of the notes taken at the Dibbs Barker Gosling meetings is a matter of judgment. But the fact remains that the notes, admitted without objection, are in evidence and are a contemporaneous record. 205 There are of course authorities which can be found to the effect that "equity has always held that the fiduciary relation itself imposes upon the party bound to fidelity the obligation of justifying any private advantage he obtains in the course of his trust, or by reason of an interest conflicting, or possibly conflicting, with his duty: Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 at 388 per Isaacs J. Notwithstanding those authorities, in my view the plaintiffs [who positively pleaded failure to obtain fully informed consent] had the onus of proving on the balance of probabilities that Mr James had fallen short of making full or adequate disclosure to Mr Christian of the extent and nature of his relevant dealings [the Court taking into account section 140(2) of the Evidence Act 1995 NSW and in particular subsection (c): cf Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449 - 450]. Once the plaintiffs, as here, had adduced evidence which if unanswered and unexplained, would permit the inference that Mr James had fallen short of making full or adequate disclosure of the extent and nature of his relevant dealings to Mr Christian, an evidentiary onus crossed the bar table obliging the defendants to rebut the inference which the facts, unanswered and unexplained, permitted: United States Surgical Corp v Hospital Products International [1983] 2 NSWLR 157 at 258. The defendants adduced no such evidence. 206 In the result the finding of the Court is that Mr James had fallen short of making full or adequate disclosure to Mr Christian of the extent and nature of his relevant dealings. 207 The next question is whether or not this breach of duty was of a nature and kind to attract the description "gross and wilful misconduct", justifying the summary dismissal of Mr James from his employment with Chris Burke. I note in this regard that "there is no fixed rule of law defining the degree of misconduct which will justify dismissal": Clouston & Co Ltd v Corry [1906] AC 122 at 129 per Lord James of Hereford. 208 It is trite in terms of after acquired knowledge that a termination of contract may be justified by reference to any ground that was valid at the time of discharge: Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339; Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359; Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 262 per Mason CJ, at 278-280 per Gaudron J; Lane v Arrowcrest Group Pty Ltd (1990) 27 FCR 427: 43 IR 210; Lane v Fasciale (1993) 35 AILR 339; Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 at 430 per Brennan CJ, Deane and Dawson JJ, and 467 per McHugh and Gummow JJ; Concut Pty Ltd v Worrell (2000) 75 ALJR 312 at paras [27]-[29] per Gleeson CJ, Gaudron and Gummow JJ and at [51] per Kirby J. 209 The evidence grounding the finding of failure to make full or adequate disclosure to his fellow director of Chris Burke as well as to the directors of Surf Road, seen together with the other evidence before the Court of the nature of the dealings of Mr James and the type and scale of the financial difficulties faced by Chris Burke during the period shortly before the initial instructions given to Dibbs Barker Gosling, the evidence given by Ms Conway and the failure of Mr James to make immediate complaint about his peremptory dismissal, permits the Court's finding of gross and wilful misconduct which finding is made. 210 None of the other matters relied upon by way of conduct said to have been oppressive, unfairly prejudicial to and unfairly discriminatory have substance: · the use of superior numbers and shareholders to vote for Mr James to duly be removed from the business was justified; · as to the demands that Mr James sign over his interest in Mr Palmieri's development companies [said to have been of no benefit to Chris Burke but rather of collateral benefit to Mr Palmieri], there is evidence to the effect that Mr Palmieri directed his companies to pay a substantial amount of money to creditors of Chris Burke & Co for the benefit of that company. Hence, the collateral benefit allegation has not been made good. It is further appropriate to note that these claims were not the subject of a cause of action for duress at common law nor for undue pressure or coercion or the like using equitable doctrines. Here again the lack of complaint is significant. Mr James was no babe in the woods; · the locking out of Mr James was part and parcel of his dismissal; · there is no substance in the alleged oppressive conduct in relation to the non-passing on of Mr Boardman's offer to purchase Mr James' units for a substantial amount of money shortly after he was locked out of the business. There is no evidence from Mr James that he would have been in any way interested in Mr Boardman's offer of $230,000 for all of his units. In addition, in order for such a sale to be consummated the trustee had to consent under the trust deed. Mr Mortimer's evidence and the evidence of the other directors was to the effect that they were anxious to avoid Mr Boardman coming back into Chris Burke & Co and buying it at considerable undervalue. In short there would have been either no or very little prospect of the trustee approving such a transfer; · the issues concerning Station Constructions and Dunningham Constructions which are raised both in the oppression causes of action as well as in the bracket of new claims the subject of late leave to amend the amended cross claim are dealt with below. That set of findings makes plain that there is no substance in this head of claimed oppressions; · the complaint as to the making of the allegations of mis-appropriation without having first made proper inquiries falls away when the evidence as to the steady progression of the investigations and their results is examined and when the amounts in fact owed by Mr James at the end of the day are recognised; · there is no substance at the end of the day in the complaint as to the different treatment received by Mr Christian from the majority, in the circumstances where he was allowed to remain as a director and employee of the group, when he too had borrowed a large amount of money. Mr Christian, when he was confronted with what had happened, paid certain monies and transferred to Mr Palmieri his interest in Mr Palmieri's properties. Mr Palmieri through his companies paid funds into Chris Burke & Co; · there is no substance in the complaint that Mr James was not given the opportunity to explain his position or to correct the perceived errors. Mr James gave no evidence to this effect. As already explained, the investors as businessmen acted quickly in their best attempt to investigate the position, they being entitled in the circumstances to do precisely that, the net result of the investigation being clearly exposed at the end of these contested proceedings. Dunningham Investments and Station Constructions 211 The cross-claimants during the hearing were granted leave to further amend the cross-claim by including a series of allegations concerning the affairs of Dunningham Investments Pty Ltd and the affairs of Station Constructions Pty Ltd. Mr James had participated in investments in relation to properties where these companies became the registered proprietors. A short judgment giving the reasons for permitting the amendment, albeit pursued so late, was delivered. Suffice it to say that section 63 of the Supreme Court Act 1970 NSW as well as the Overriding Purpose Rule meant that the proper exercise of the courts discretion was to permit leave to amend. The leave to amend was sought upon the basis that the cross-claimants had only discovered the relevant facts during the course of cross-examination of the plaintiffs' witnesses. 212 The cross-defendants' submissions were of substance and are generally adopted in what follows, albeit with minor modification. The proper analysis of the pleadings and the reason why each of the subject claims fails is set out hereunder. 213 The cross-defendants make three claims concerning the events surrounding the sale of a property owned by Dunningham Investments Pty Limited ["Dunningham"] and three claims concerning the sale of properties owned by Station Constructions Pty Limited ["Station Constructions"], acting as trustee for the Station Unit Trust, in their second further amended cross-claim ["CC"].

The first Dunningham claim: cross claim contentions paragraphs 21L - 21Q: Mr Palmieri, Mr Mortimer and Mr Wilson induced Dunningham to breach the shareholders' agreement.

· The affairs of the Dunningham were regulated by a Shareholders Agreement dated 21 September 1999. The shareholders included Tass James (1 share), Mr Christian (1 share)), Mr Wilson (2 shares), Mr Mortimer (2 shares) (paragraph 21L of the CC). This contention is made out (Exhibit DX vol 1 p2194); · Clause 4 of the agreement provides that the net profits of Dunningham shall be distributed as dividends to the Shareholders at least once during each financial year, not later than 30 days after the Company's Accountants shall have certified the amount of net profits after making certain allowances (paragraph 21M). This contention is made out (Exhibit DX vol 1 p2189); · Dunningham purchased a property at 36A and 38 President Avenue Caringbah (known as Santa Barbara) to be held in accordance with the provisions of the Shareholders Agreement (paragraph 21N of the CC). This contention is made out (Exhibit DX vol 1 p1970 showing Dunningham as owner of the property); · On or about 3 August 2001, Dunningham sold the property for a sale price of $1,425,000 (paragraph 21O of the CC). This contention is made out (Exhibit DX vol 1 p1970 - Contract of sale of land dated 3 August 2001); · The sale realized a profit of at least $603,351.14 (paragraph 21O of the CC). This contention is not made out because:

(a) $603,351.14 was the balance of the proceeds of sale to be paid by cheque to Dunningham upon settlement of the sale on 21 September 2001. See letter to Dunningham from S.J. Nicolau & Co dated 27 September 2001 Exhibit DX vol 1 p2073. This letter on p2074 confirms that a cheque in favour of Dunningham for this amount was to be provided on settlement. This amount was the balance of the net proceeds of sale rather than the profit.

(b) The Dunningham Income Tax return for 2002, the relevant year when the property was sold, shows 'Other gross income' of $192,511, no CGT event during the year and a Taxable income of $156,680 (Exhibit DX vol 1 p2109), and gross tax of $47,004 (p2110);

(c) The Dunningham Financial Accounts for the Year Ended 30 June 2002 (Exhibit DX vol 1 p2133) show: · Profit on sale of investment of $192,511 (p2142) · Operating Profit of $183,319 (p2142) · Operating Profit after tax of $136,315 (p2136) · Total available for Appropriation Closing Retained Profits $141,995 (p2136)

(d) The amount available for distribution for each share (there being 12 shares Exhibit DX vol 1 p2194) therefore is $141,995/12 = $11,832.90. · The Company has distributed the proceeds of sale of the property in accordance with the Shareholders Agreement to all shareholders other than Mr James in the sum of approximately $53,000 per share, and this is in breach of the Shareholders' Agreement (paragraphs 21P and 21Q of the CC).

(a) This contention is based on the false premise that the Shareholders' Agreement provides for the distribution of the proceeds of sale. As noted in paragraph 2 above, the Shareholders Agreement provides for the distribution of net profits, not proceeds of sale.

(b) Amounts distributed to shareholders of Dunningham after the sale of Santa Barbara presumably included repayment of loans by Dunningham, for example loans provided for in clause 14 of the Shareholders' Agreement (Exhibit DX vol 1 p2193);

(c) The documentary evidence demonstrates that Mr James was paid his share of the net profits for the 2002 year as follows: · Mr James was sent a letter on 20 February 2003 (DX vol 1 p2088) which enclosed a cheque for $4,810.00 being a distribution of the funds remaining in Dunningham Investments Pty Limited and attached a dividend statement (DX vol 1 p2090) which shows Mr James' dividend to be $11,800, which is roughly equivalent to the share entitlement from distributable profits of $11,832.90 as calculated in paragraph 6(d) above. · Mr James was the only shareholder to receive a cheque for $4,810 (see letters to other shareholders Exhibit DX vol 1 pp2081-2088). A cheque for $4,810 was deposited and debited to the bank account of Dunningham on 25 February 2003 (Exhibit P7). Therefore, there is a strong inference that Mr James was paid his share of the net income as per the Shareholders' agreement. · The breach of the Shareholders Agreement by Dunningham was induced by Mr Palmieri, Mr Mortimer and Mr Wilson (paragraph 21R of the CC). This contention is not made out because it is based on the false premise that there was a breach of the Shareholders' Agreement by Dunningham. However, if this is not correct, it is still not made out because:

(a) Vincent Palmieri was not a shareholder of Dunningham (Exhibit DX vol 1 2194). In order for him to induce Dunningham to breach the Shareholders' Agreement, he must have had some involvement with Dunningham. There is no evidence that this was the case. Mr Palmieri was not cross-examined on the serious claim that he induced the breach of the Dunningham Shareholders' Agreement, so he had no opportunity to refute such an allegation.

(b) Andrew Mortimer was cross-examined on his ownership of his share in Dunningham. He was asked whether he received payment for his share of the profits from the venture. He responded that he received between $50,000 and $55,000 (T400.38). His cross-examination did not distinguish between distributable profit and proceeds of sale . It was never put to Mr Mortimer that he induced Dunningham to breach the Shareholders Agreement or that he was involved in the distribution of profit.

(c) Terry Wilson was also cross-examined on what he received upon sale of Santa Barbara (T313.56-317.21). Mr Wilson was not involved in working out what the profit was (T315.9). He stated he received a dividend of about $104,000 or $105,000 (T315.39). However, this was a misconception by Mr Wilson as to the dividend from the net profits, and return of loans made to him by the company. His cross-examination made no distinction between distributable profit and proceeds of sale . Mr Wilson's dividend statement (Exhibit DX vol 1 p2096) shows he received a dividend of $23,600. Mr Wilson did not know who in Dunningham was responsible for directing the accountant to distribute the dividends (T316.26). Therefore, on the evidence, if there had been a breach of the Shareholders Agreement, Mr Wilson was certainly not involved. (And it was not put to Mr Wilson that he was involved in inducing the breach of the Shareholders Agreement, so he had not opportunity to refute such a serious allegation). · Mr Palmieri, Mr Mortimer and Mr Wilson are liable to Mr James to pay damages in the amount of $53,000 being his share of the proceeds of sale or such other amount as may be determined (paragraph 21S of the CC). This contention is not made out for the following reasons:

(a) It is based on the false premise that Mr Palmieri, Mr Mortimer and Mr Wilson were involved in the breach of the Shareholders' Agreement as outlined in the preceding paragraphs;

(b) There has been no breach of the Shareholders' Agreement, because the documentary evidence demonstrates that Mr James was paid his share of the net profits following the sale of Santa Barbara for the year ended 30 June 2002 (see paragraph 6(c) above). · Contrary to the cross-claimants' submissions that Mr James was unaware of the sale of the Dunningham properties (submissions paragraph 91 page 26), it is clear from documents produced by Mr James that he was aware that the assets of Dunningham had been realized as at 3 December 2002 (DX Vol 2 p2542, 2543). The second Dunningham claim: cross claim contentions paragraphs 21T - 21V: Mr Palmieri, Mr Mortimer and Mr Wilson were knowingly concerned in the breach of trust of Chris Burke & Co Pty Limited.

215 This claim is based on the following premises: · The sum of $603,351.14 was paid into the trust account of Chris Burke & Co Pty Limited on trust for Mr James as to his share (paragraph 21T of the CC). This contention is not made out, and is based on two false premises: (a) The sum of $603,351.14 was paid into the trust account of Chris Burke & Co Pty Limited. · This contention appears to be based the letter of S.J Nicolau & Co dated 27 September 2001 to Dunningham, in anticipation of settlement, stating that a cheque for this amount was to be provided on settlement (Exhibit DX vol 1 p2074). · However, on 8 October, there was a deposit of $602,941.13 into Dunningham's bank account (Exhibit DX vol 1 p2075). This correlates with the amount referred to above, less relevant adjustments for a delayed settlement. Therefore, this amount, which is the balance of proceeds of sale due to Dunningham, was never deposited into the trust account of Chris Burke & Co Pty Limited. · Mr Sicuro's evidence also made it clear that the only money which was deposited into the Chris Burke trust account was the deposit, not the balance of proceeds of sale payable to Dunningham on settlement (T259.3; T260.34-T260.45). · The documentary evidence also supports the powerful inference that the balance of the deposit after payment of the agent's commission was paid to Dunningham. The deposit was $71,250.00 (DX vol 1 p1970). The Commission was $10,529.85 (Exhibit DX vol 1 p2078 - Chris Burke Real Estate Ledger for Dunningham showing an entry on 25/10/01 for this amount). The difference between the deposit and commission was $60,720.15. An amount of $58,000 deposited into the account of Dunningham on 17 October 2001 (Exhibit DX vol 1 p2075). This amount was the balance of the deposit received by Dunningham, after commission and other sundry expenses had been deducted.

(b) Even if the proceeds of sale had been deposited into the trust account of Chris Burke & Co Pty Limited, it would have been held on trust for Dunningham as Chris Burke & Co Pty Limited's client, not on trust for Mr James as a shareholder of Dunningham. In those circumstances, Chris Burke & Co Pty Limited would be liable to account to Dunningham, not Mr James. · In breach of trust Chris Burke & Co Pty Limited failed to account to Mr James for the said sum but instead applied the said sum to payment of its own debt (paragraph 21U of the CC). This contention must fail, because it is based on the false premises of paragraph 21T. · Mr Palmieri, Mr Mortimer and Mr Wilson were knowingly concerned in the breach of trust of Chris Burke & Co Pty Limited and as such are liable without set off to pay damages to Mr Tass James or, at the election of Mr Tass James for an account of profits (paragraph 21V of the CC). This contention must fail because: (a) It is based on the false premises contained in paragraphs 21T and 21U;

(b) Even if there had been a breach of trust, the evidence does not establish that Mr Palmieri, Mr Mortimer and Mr Wilson were knowingly concerned in the breach of trust: · The instructions for dealing with Chris Burke & Co Pty trust accounts were given by Mr Christian and Mr Sicuro, not Mr Wilson, Mr Palmieri and Mr Mortimer (T259.45). Neither Mr Christian nor Mr Sicuro are the subject of these claims. · It was not put to any of Mr Palmieri, Mr Mortimer and Mr Wilson that they were knowingly concerned in this breach of trust, and therefore did not have the opportunity to refute this serious allegation. The third Dunningham claim: cross claim Contentions paragraphs 21W - 21X: Mr Mortimer and Mr Wilson breached their fiduciary duties as shareholders in failing to ensure that Mr James was paid $53,000. 216 This claim is based on the following premises: · When dealing with the said sum of $53,000, each of Mr Mortimer and Mr Wilson as shareholders of Dunningham owned fiduciary duties to Mr James in respect of such monies to act honestly, with fidelity and in good faith (paragraph 21W of the CC). There are two false premises in this contention:

(a) Mr Wilson and Mr Mortimer somehow dealt with $53,000. There is no evidence that: · Mr Wilson ever dealt with any money from the proceeds of sale of Santa Barbara. This is made clear in his evidence discussed above... · There is no evidence that Mr Mortimer dealt with any money from the proceeds of sale of Santa Barbara. He was not cross-examined on this issue.

(b) The shareholders were responsible for distributing any monies from Dunningham . It is the role of the directors rather than shareholders to determine the distributable net income of Dunningham, and to distribute it accordingly (clause 4 Shareholders Agreement Exhibit DX vol 1 p2189). · Mr Mortimer and Mr Wilson, in breach of their fiduciary duties to Mr James failed to ensure monies were paid to Mr James (paragraph 21X of the CC). This is based on the false premise that a fiduciary duty involved payment of a share of the proceeds of sale. Any duty concerning the payment of monies could only be operative on the directors in relation to the distributable net income. The first Station claim: cross claim contentions paragraphs 21A - 21H: Chris Burke & Co Limited and Mr Palmieri were knowingly concerned in breach of trust by Station Constructions. 217 This claim is based on the following premises: · By a Deed dated 29 October 1998 as varied by a Deed dated 30 November 1998, a trust was created whereby Station Constructions as Trustee of Station Constructions Unit Trust was to hold property on trust for certain beneficiaries including Tass James upon the terms and conditions of the Trust (paragraph 21A of the CC). This contention is made out (Exhibit DX vol 1 p1971-1992 Station Unit Trust Trust Deed; 1993-1997 Unitholders Deed). · Station Constructions as Trustee for the Trust purchased properties at 85-89 Cronulla Street Cronulla and 74 Croydon St Cronulla (paragraph 21B of the CC). This contention is made out. · In or about August 2001, the said properties were sold for $1,800,000 and $500,000 respectively (paragraph 21C of the CC). This contention is made out (Exhibit DX vol 1 1968 Settlement statement). · The sale of the properties realized a profit of $399,833.04 (paragraph 21C of the CC). This contention is not made out based on the following evidence:

(a) The settlement statement refers to this amount as proceeds of sale, not profit from the sale (Exhibit DX vol 1 p1969);

(b) The Trial Balance for Station Constructions for the year 2002 shows accumulated losses of $57,675.77 for the year ended 30 June 2002 (Exhibit DX vol 1 p2129) which shows there was no distributable net income for the year in which the properties were sold;

(c) Mr Palmieri confirmed in evidence that there was no profit on the sale of these properties (411.49-412.35). · Pursuant to the terms of the Trust, each beneficiary was entitled to share in the proceeds of sale pro rata their respective unitholding in the Station Constructions Unit Trust (paragraph 21D of the CC). This contention is based on a false premise. The Trust Deed, clause 13(a) provides that:

"At any time prior to the expiration of each Accounting Period until the Vesting Day the Trustee shall pay or apply or place to the credit in the books of account of the Trust Fund the whole of the net income of the Trust Fund for such Accounting Period to the Unit Holders in proportion to the number of units held in the Trust Fund." This clause deals with bringing to account the net income, not the proceeds of sale. · Tass James unitholding in the Station Constructions Unit Trust was 35 units of the 200 units issued (paragraph 21E of the CC). This is based on a false premise. 35 units were held jointly by Tass James and Janet James (Exhibit DX vol 1 p1996). · Station Constructions as Trustee was obliged to account to Tass James in the sum of $69,970.78 being his pro rata unit share of the proceeds of sale (paragraph 21F of the CC). This is based on the false premises that:

(b) Station Constructions was obliged to account to Mr James for the proceeds of sale. As noted in paragraph 20 above, unitholders were entitled to net profits, not proceeds of sale. · Station Constructions was in breach of trust by not accounting for this amount (paragraph 21G of the CC). This contention is based on the false premise that there was an obligation to account for the proceeds of sale rather than the profit. · Chris Burke & Co and Mr Palmieri were knowingly concerned in the breach of Trust by Station Constructions Pty Limited (paragraph 21H of the CC).

(a) This is based on the false premise that there was a breach of trust.

(b) The cross-examination of Mr Palmieri did not distinguish between the obligation of Station Constructions to pay net income and the proceeds of sale. The questions asked of Mr Palmieri focused on the failure to account for the proceeds of sale. In any event, Mr Palmieri explained that Mr James did not make any contribution to Station Constructions (409.4 - 410.30; T418.56), and that he was therefore not entitled to any return of any possible capital contribution from the proceeds of sale. · $69,970.78 was deposited into the trust account of Chris Burke & Co Pty Limited on trust for Tass James as to his share pro rata his unit entitlement (paragraph 21I of the CC). This contention is based on two false premises: (a) $69,970.78 was placed into the trust account of Chris Burke & Co Pty Limited . The documentary evidence demonstrates that the net proceeds of sale of $399,833.04 were distributed as follows: · $119,949 being 30% of the net proceeds of sale to Mr and Mrs K W and A F Schreiber (forming part of a cheque made out for $303,801.91 (DX vol 1 p2065; p1966). This was not a percentage of profit; · $279,883.13 being 70% of the net proceeds of sale to Station Constructions Pty Limited. This was paid by a cheque for $215,483.13 made out to Station Constructions upon settlement, and $64,400 by way of the balance of the deposit, paid to Station Constructions by Chris Burke & Co Pty Limited (DX vol 1 p2065; p1966). Therefore, at most, $64,400 was held in trust by Chris Burke & Co Pty Limited for Station Constructions. There is a strong inference that this amount was paid by Chris Burke & Co to Station Constructions, as per the directions in the letter to Chris Burke & Co Pty Limited (Exhibit DX vol 1 p2065)

(b) Monies held in the trust account were held on trust for Mr James. This premise is false because any monies held in the trust account of Chris Burke on the sale of a property owned by Station Constructions as Trustee for the Station Unit Trust, are held on trust for the Trustee, not directly on trust for the beneficiaries for that trust. Therefore, if Chris Burke & Co Pty Limited would be liable to account to Station Constructions and not to Mr James.

The second Station claim: cross claim Contentions paragraph 21J · In breach of trust Chris Burke & Co Pty Limited failed to account to Mr James for $69,970.78 but instead applied the said sum to payment of its own debt (paragraph 21J of the CC). This is based on a false premises that: (a) any monies held in the trust account of Chris Burke were held there in trust for Tass James. Any monies which Chris Burke & Co Pty Limited may have held on trust, were held on trust for Station Constructions Pty Limited as Trustee for the Trust, and not on trust for the beneficiaries of that trust;

(b) the assumption that the total amount of $279,883.13 was held in the trust account of Chris Burke. At most, $64,400 was held in the trust account of Chris Burke on trust for Station Constructions. If the Court does not accept that Chris Burke & Co Pty Limited paid the balance of the deposit of $64,400 to Station Constructions in accordance with the Solicitor's direction, and accepts this sum was used by Chris Burke & Co Pty Limited to pay its creditors, and that Chris Burke has a direct liability to Mr James as a unitholder, then any liability of Chris Burke & Co Pty Limited would be limited to 35/200 * $64,400 = $11,270/2 =$5,635.00 being Mr James half share of his unit jointly held with Mrs James. The third Station claim: cross claim contentions paragraphs 21K: Mr Palmieri was knowingly concerned in breach of trust by Chris Burke & Co. · Mr Palmieri was knowingly concerned in the breach of trust by Chris Burke Pty Limited and as such is liable to pay Mr James damages or at the election of Mr James for an account of profits (paragraph 21K of the CC). This claim must fail because:

(a) It is based on a false premise that Chris Burke & Co were involved in a breach of trust. There being no breach of trust, this claim must fail;

(b) Any authorisation of the use of Chris Burke & Co funds which may have been in breach of trust was made by either Mr Christian or Mr Sicuro, not Mr Palmieri (T259.45). Threshold issues going to the reach of Corporations Act sections 232,233 218 On the approach which the Court as a matter of substance has taken in dealing with the suggested oppression case, it has not been necessary to treat with the juridical basis of the cause of action. There is, however, as I accept, a particular threshold problem with the claim. What one has is a venture protected by a unit trust device superimposed on a company structure. It has to be recalled that Surf Road Nominees acted at all times as trustee. It held as trustee for the SRUT, all of the shares in Chris Burke [itself the trustee of the BUT]. The shares in Surf Road Nominees could only be of nominal value. 219 There is authority for the proposition that sections 232 and 233 of the Corporations Act are inapplicable in the circumstances. Young CJ in Eq put the matter as follows in McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244:

"The sections are directed to the conduct of a company's affairs. It is well established that where oppression has occurred in a company which holds all its assets on trust, there is no diminution in value of the plaintiff's share in the company despite the oppressions: Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606; Re Polyresins Pty Ltd [1999] 1 Qd R 599. In that latter case, Chesterman J said that the Court could not in an application under the sections deal with equitable interests conferred by a trust of which the company is trustee: see Qd R 613." 220 To my mind these authorities correctly state the circumscribed reach of the sections. That being the case the claims to Corporations Act sections 232, 233 relief here pursued were simply misconceived. As pointed out by Young CJ in Kizquari at 612 "if the articles or trust deed make provision for release of the Plaintiffs investment by a certain procedure, normally the plaintiff should be left to put that procedure in motion." It seems to me that the remedy in this type of situation must ultimately rely upon relevant principles which underpin the entitlement to equitable relief where trusts are involved, complemented as necessary by relief appropriate in terms of contract law, the parties having bound themselves by the unit trust device. 221 The holding is that Mr James did resign as managing director on the terms offered to him, namely the offer of employment as a commission agent but that there was then and continuing, a justifiable basis for his being removed as managing director and summarily dismissed. The subsequent withdrawal of the commission agent offer was also justified - further information as to his mis-conduct continually forthcoming: The commission agent offer was made on 8 January, Mr Sicuro carrying out his investigations between the 8 and 13 January lockout. Even had Mr James' been entitled to damages for breach of the promise to employ him as commission agent, those damages would have entitled him to no more than a figure based upon a four week period - being, in my view, the period of reasonable notice of termination on a contract determinable at will. Mr James exclusion from the company's premises and the business from 13 January 2001 constituted a peremptory/summary constructive dismissal from his employment which was justified in the circumstances. The evidence adduced makes good the proposition that his mis-conduct in terms of his mis-management of Chris Burke and relevant non-disclosures justified that dismissal in those terms and without notice. 222 I note that I have real difficulty in understanding the impropriety involved in making clear to a director that absent his resigning, an application is to be made to a Court for the appointment of a provisional liquidator. Where curial rights are held, they can be pursued and Mr James would have been perfectly entitled, had such an application to the Court been made, to be represented or to seek to represent Chris Burke or to seek to have it represented so as to oppose the application. The causes of action for breach of Mr James' duties owed pursuant to the Corporations Act, the general law and by way of fiduciary obligation [third further amended summons paragraph 12] 223 During argument Mr Alexis made it clear that if the cross-claimants failed in terms of the cause of action for oppression and the claim for wrongful dismissal, the terms of the monetary judgment to be directed against Mr James did not necessarily require to be based upon breach of directors duties - as earlier explained there no longer being an issue but that the amounts agreed or found are regarded as repayable. The end result in terms of the amounts are not affected. That being the case and in circumstances where for reasons given above, the cause of action on the cross-claim by way of oppression treated with on the evidence fails and the claim for wrongful dismissal also treated with on the evidence fails, there being an acknowledgement that the indebtedness as conceded or found is to be the subject of a judgment, it does not seem to me to be necessary for the Court to further proceed to deal with the causes of action for breach of directors duties. Dealing with the matters requiring determination and the subject of evidence adduced from the experts 224 Ultimately there remained only very few items where the experts remained at issue. It is possible to deal with these items very shortly. [Note by way of summary detail exhibits P1 and P2 and the table to be found at page 17 of Mr Potter's 30 January 2004 report]. Concession by defendants-$268, 353 225 During final address [transcript 623] Mr Newlinds conceded that an amount was due by Mr James in the sum of $268,353 [comprising Mr Potter's agreed calculation - page 17 column 2 of his 30 January 2004 report- to which there was to be added the $40,000 payment to Mr Sullivan dealt with early in this judgment and which is no longer in issue]. Alleged unauthorised loan - T & J James - $6,500 226 During final address Mr Alexis conceded that this claim was no longer pressed. Excess reimbursements of the Fairfax Account to Mr James - $1,232 227 This item has received a treatment earlier in this judgment. The difference between the experts comes down to an assumption: in paragraph 7.3.7, page 29 of Mr Potter's report he makes the assumption which leads to $1,232 being put in issue by him. The assumption was in these terms:

"A difference of $4,045 between the experts relates to the treatment of the payment $6,630 to Fairfax on 20 July 2000. In the absent of any evidence of payment of $6,630 in Chris Burke Pty Limited MYOB cheque account, I assumed it was paid by Mr James." 228 On the other hand, Mr Weber contends that it is likely that the payment includes a 17 July 2000 cheque for $4,045.55 drawn in favour of Fairfax being a Chris Burke cheque. 229 As earlier indicated, in my view the plaintiffs have failed on the balance of probabilities to establish an entitlement to this item. Excess remuneration paid to Mr James-$14,198 230 This matter has been dealt with early in this judgment. As Mr Alexis submitted, the evidence demonstrates that Mr James was not paid a salary by Chris Burke & Co. The proper inference, on the balance of probabilities, is that the way payment took place was for it to be expensed as bonuses and commissions to James Christian and for that money to be treated in James Christian for the benefit of Mr James and Mr Christian.

231 The plaintiffs have shown an entitlement to the claimed sum of $14,198. Home loan partnership/rent/Maria James payments 232 These items have been dealt with early in this judgment. It is convenient to note that the defendants' 'Notes for submissions in reply' accept that Mr Sicuro's evidence "establishes" that the home loan partnership monies, the rent and the Maria James payments shall properly be to the account of Mr James, both experts accepting this. End of year adjustments 233 This item has been dealt with early in this judgment.

Proper accounting for value of James' units 234 There has never been an issue but that a proper accounting for the value of the James' units is to take place. The date at which the valuation is to be determined is October 2002 being the date of transfer of the units. Disparate remaining issues 235 There were many and inter-related questions treated with by the experts and by the parties in relation to sundry parameters of evidence, logic and relief. Plainly the parties, aided by the findings in this judgment, will be considerably advanced in terms of many of the matters which had separated them during the hearing. Without necessarily being exhaustive in terms of all of the remaining issues, it would appear that attention to certain of them should assist the parties to come forward with short minutes of order or short submissions as to matters still remaining undetermined. I turn to deal with some of the disparate issues. 236 The parties generally addressed by reference to a convenient summary document prepared by Mr Weber identifying where he and Mr Potter had continued to disagree [exhibits P 1 and P 2]. GST 237 One such disagreement concerns a difference of treatment of the GST liability at the material time. Exhibit P 2 [in terms of the consolidation of balance sheets as at 30 June 2001] shows Mr Weber recording a liability of the group for GST as $279,345, whereas Mr Potter allowed only $20,286. 238 The matter essentially reduces to each of the experts having used a different balance sheet. The BUT balance sheet as at 30 June 2001 used by Mr Potter [exhibit D 3 (b)] included an item for the 2001 year in respect of the GST liability as $50,284.62. The balance sheet for the BUT as at 30 June 2002 used by Mr Weber [exhibit DX 623] showed a figure for the 2001 year in respect of the GST liability as $279,345. 239 Mr Potter had set off the figure of $50,254 against the input tax credit of $29,999. He had not used the comparative 2000 figures running down the left-hand column of exhibit D 3 (b) [transcript 580]. 240 In the result both experts were cross-examined in detail as to the reasons why each believed that the balance sheet from which he had worked was the more reliable. Mr Potter emphasised that the set of accounts which he had relied upon was the more reliable because they balanced. However, Mr Potter did not accept that the only difficulty with the balance sheet used by Mr Weber in not balancing had been the accidental omission of the insertion of a figure for "fixed assets". 241 During his re-examination Mr Weber it seemed to me gave evidence of a cogent nature as to why he and not Mr Potter had identified the appropriate figure to be taken into account. His explanation was put in the following terms:

"…we need to know that … that balance sheet [being the one at PX 623 that Mr Weber relied upon] reconciles with the balance sheets at the same date for the IG Martyn Trust and the Surf Road Unit Trust to the extent that on consolidation, the intercompany balances are eliminated because they agree, whereas - and that is, in my view, an important question of reconciliation...the balance sheet relied on by Mr Potter does, in fact, not reconcile with the balance sheets IG Martyn and the Surf Road unit trust at the same date. There is a difference of some $253,000 in the intercompany balances and, therefore, there is no reconciliation and I believe it is inappropriate to use that balance sheet." [transcript 609] 242 Having heard the careful submissions by both parties in relation to the issue I accept that there are three principal reasons why the Court should accept Mr Weber's opinion as reliable in that the subject GST liability of the trust was indeed $279,345: · the first reason is that Mr Weber gave evidence that the balance sheet he relied upon in fact balanced when one takes into account the amount of the fixed assets which were left off the printout [transcript 534.35]; · the second reason is that the balance sheet that Mr Weber relied upon was used for the purpose of the Chris Burke and the BUT's tax returns for the year ended 30 June 2001. As the plaintiff submitted, where confronted with different sets of balance sheets and profit and loss statements for a particular accounting period it is appropriate to infer that one reliable way that an accountant might take to seek to understand which one was the more reliable was to source it back to the tax returns. That is precisely what Mr Weber did. When Mr Potter was asked under cross-examination whether he engaged himself in that exercise with respect to the balance sheet that he relied upon, his evidence was that he had not traced or sourced that back to the tax return. This does undermine the reliance that could be placed on that document; and · the third reason for accepting Mr Weber's reliance upon the balance sheet [exhibit DX 623] that he relied upon is that, in addition to sourcing it back to the tax return, he reconciled it with the financial statements and tax returns of all of the other entities in the group so as to satisfy himself that there was a complete translation from the set of accounts he relied upon to those of the Surf Road Unit Trust [transcript 608.35 and following]. 243 For those reasons the holding is that the approach taken by Mr Weber on the GST item was correct. Discount issue/propriety of valuing net assets of SRUT as on notional liquidation 244 Mr Weber expressed the view that it was appropriate to apply a discount to a non-controlling minority interest in the trust. In his opinion a 15 percent such discount was appropriate [transcript 518]. His report of 5 December 2003 [exhibit P5] includes the following:

"7.13 We note also that the units held by NSHR in the Surf Road Trust (13 units) represent around 36% of the total issued units (36 units) and therefore represent a non-controlling interest. The Ferrier Report does not give consideration to this factor when valuing the James interests in the Surf Road Trust.

7.14 In our opinion, it is appropriate to apply a discount for lack of control and to recognise the difficulties associated with marketing a non-controlling interest of this nature compared to an interest that is readily marketable (for example, a share in a listed company). This matter is addressed in more detail at paragraphs 8.19 - 8.22 below…

8.19 NSHR owns 13 of the 36 units on issue representing around 36% of the capital of the Surf Road Trust. It is usual in such circumstances to discount a non-controlling interest to recognise the lack of control and inherent restricted marketability. The issue is, what would a reasonable buyer expect, and a reasonable seller accept, to allow for the fact that the interest does not carry control and for the delays in realisation and costs of finding a buyer.

8.20 Clause 14.4 of the Surf Road Trust Deed provides as follows: "14.4 The value of a Unit on the Relevant Date or any other date on which it is to be ascertained shall be calculated by dividing the value of the Fund (ascertained in accordance with the provisions of the last preceding sub-clauses 14.2 and 14.3 hereof) on such date by the total number of Units for the time being issued."..

8.22 In our opinion, a discount of around 15% to recognise the lack of control and inherent restricted marketability is appropriate in the circumstances, particularly taking into account: - there is no readily available market for the interest; - discounts for lack of control and marketability are commonly applied in respect of non-controlling interests in companies; - because the present entity is a unit trust the discount could be expected to be less because unit holders can expect distributions of all income each year (although clause 12.7 provides for calculations); and - no other party holds a controlling interest in the entity." 245 Mr Potter did not agree with this approach for the reason that he characterised his task as valuing on a notional winding up basis, that is to say upon a basis which did not recognise that what was being valued was a going concern. He expressed his opinion as follows:

"I agree that ordinarily the valuation of assets such as shares in a business that is a going concern will require a discount for the effect of a sale of a non-controlling interest in that business. However, the valuation of Mr James units in the SRUT does not represent sale of part of a business as a going concern. The assumption adopted by me is the winding up of the SRUT with all assets sold. In this case there is no requirement to consider a discount for the effect of a sale of a non-controlling interest." [8.2.14-Report 30 January 2004] 246 The cross-examination of Mr Potter included the following:

"Q. Can I move to the valuation of the units and it is fair to say, isn't it, that both you and Mr Weber have approached the valuation exercise on the basis of a determination of the net assets of the Surf Road Unit Trust as a going concern? A. No, I've assessed it on the basis that all the assets would be realised and the proceeds distributed to beneficiaries after creditors are paid, so it is a notional liquidation, if you like.

Q. Yes, I noticed in your report that you reject the application of a discount for the minority holding that New South Head Road Nominees had in the Surf Road Unit Trust because such a discount wouldn't be applicable upon the winding up of the Surf Road Unit Trust? A. That's correct.

Q. Have your investigations led you to consider whether or not there was a prospect of a liquidator being appointed and winding up Surf Road Unit Trust and the underlying trust in January 2001? A. No.

Q. Have you considered whether there was any prospect of that occurring in December 2002 when the rent rolls were sold? A. I haven't turned my mind to it, no.

Q. They're the two dates in respect of which you are providing the Court with an opinion as to value, aren't they? A. Yes, they are.

Q. Well, if there was no prospect or you didn't turn your mind to the prospect of liquidation at those two points in time, what is the relevance of assessing the value of the trust on the basis of a winding up? A. Because I took the view that the trusts or the three entities were collectively worth more if there was a notional winding up, the assets were sold and distributed to the beneficiaries rather than as a going concern. This is because the net income of the businesses was negligible or non-existent and as a valuer you would normally try to approach the valuation by taking the approach that arrives at the highest possible value and in this case I believed it was on a notional liquidation of the entities.

Q. You know from Mr Weber's report on valuation that he proceeded to seek to identify the price that would be paid by the hypothetical knowledgeable willing but not anxious purchaser to the knowledgeable willing but not anxious vendor in the open market? A. Yes.

Q. That was a concept in determining price with which you agreed? You said so in your report, Mr Potter. A. Yes, well, I agreed with the net assets approach, yes.

Q. You also know from reading Mr Weber's report that he, in undertaking his valuation, took no account of the existence of any special purchasers to whom the Surf Road Trust might have special or particular value? A. Yes.

Q. And you agreed that excluding the special purchaser was appropriate, didn't you? A. Yes.

Q. Do you agree with the proposition that when valuing shares or units in a unit trust of a business which is a going concern it is appropriate to apply a discount to a non-controlling interest? A. As a going concern, yes, I do.

Q. Do you agree that the application of a discount is appropriate if the interest that is being sold does not provide the purchaser with control? A. Yes.

Q. You also accept, I gather, that a discount should be applied in relation to the interest which is not readily marketable like, for example, shares in a publicly listed company? A. Yes.

Q. So does your difference with Mr Weber come down to nothing more than this, namely, you characterise what you were valuing as something that was not a going concern whereas he has done the opposite? A. Yes, my calculation is a notional winding up, that is the business will sell as best as possible its assets and pay out the beneficiaries rather than continuing in the future, because I had a view that was the way that he should look at it." [transcript 573.5-574.45] 247 Mr Potter accepted, however, that if the Court rejected his valuation reasoning involving the characterisation of the proper approach to the SRUT businesses as not being a going concern, a reasonable discount would ordinarily be approximately 20 percent, so that in those terms Mr Weber's estimate of 15 percent was conservative [transcript 574].

248 The relevant date of the transfer of the units was in October 2002. The businesses at that time were clearly a going concern and remain so. I see no good reason for avoiding a discount for a minority holding by reason of an assumption of a notional realisation by a liquidator [cf the approach taken in United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 at paragraph 57 per Campbell J:

"The question, however, is whether the Lopmand Paton share ought to be valued on the basis that Paton is being at least notionally liquidated. I see no reason why it should be valued on that basis. The effect of the URE purchasing the Lopmand Paton share would be that URE holds all the issued shares in Paton. There is no basis in the evidence for believing that Mr Lindsay Allen has plans to cause Paton to sell the real estate in the foreseeable future. The investment is cash flow positive and has been cash flow positive for many years. Even if the time were to come when Mr Lindsay Allen decided to realise the investment, it would be commercially attractive for him to try and realise it by selling all of his shares".] The first cross-claim against Mr and Mrs Christian and Cottenham Nominees 249 During the hearing the second cross-claim was dismissed. Certain questions pleaded in the first cross-claim remained live. Mr Bulley of counsel, who had until 4 February 2004 appeared for Mr and Mrs Christian and Cottenham Nominees left the bar table on that day but furnished written submissions of his clients in relation to the first cross-claim. 250 It appears that a number of those submissions treat with matters already the subject of findings in the judgment presently delivered. In my view Mr Bulley should be given leave to further address on the findings and orders which are now sought and the first cross-claimants should have the same right. Short minutes of order 251 The parties are given leave to address submissions on any claim not yet dealt with. The parties are directed to endeavour to agree upon short minutes of order. The proceeding will be stood over for a short period in order to enable the parties to apprise themselves of the findings.

I certify that paragraphs 1 - 251 are a true copy of the reasons Corrigendum: for judgment herein of To make the corrections identified in the Appendix to the supplementary judgment in these proceedings [2004] NSWSC 223 delivered on 1 April 2004. the Hon. Justice Einstein given on 20 February 2004

                                                                         Susan Piggott
                                      ___________________                Associate
                                      Susan Piggott                      5 April 2004
                                      Associate
                                      20 February 2004

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