Surf Road Nominees Pty Limited & Ors v Tass James & Ors - [2004] NSWSC 61 - NSWSC 2004 case summary — Zoe

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

[2004] NSWSC 61

Supreme Court of NSW|2004-02-20|Before: Einstein J

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Court

Supreme Court of NSW

Decision date

2004-02-20

Before

Einstein J

Source

Original judgment source is linked above.

Judgment (232 paragraphs)

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CITATION : Surf Road Nominees Pty Limited & Ors v Tass James & Ors [2004] NSWSC 61 HEARING DATE(S) : 15/12/03 - 19/12/03, 2/2/04 - 6/2/04, 9/2/04, 11/2/04 JUDGMENT DATE : 20 February 2004

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JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Clause 5 of Deed of 1 July 1999 construed; Guarantees not shown to have been discharged; Oppression suit not made out; Dunningham Investments and Station Constructions causes of action not made out; Disparate other issues determined; Short minutes of order to be brought in.

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CATCHWORDS : Contracts - Complex of obligations including guarantees and indemnities entered into by corporations, trusts and individuals parties to deed entered into upon acquisition/reorganisation of real estate group - Construction - Principles - Identification of obligors and obligees - Equity - Trust of a contractual promise - Corporations - Directors duties - Duties not to profit without first obtaining fully informed approval/consent of co-directors - Obligation of full disclosure by directors of wholly owned subsidiary to parent company - Oppression-Sections 232 and 233 Corporations Act inapplicable where venture protected by unit trust superimposed on company structure - Guarantees - Discharge - Release of one joint or joint and several promisor discharges all others - Promises not to sue - Distinction between release and promise not to sue - Rule in Jones v Dunkel - Principles - Onus of proof - Shifting evidentiary onus - Employment law - Summary dismissal for gross and wilful misconduct Corporations Act, 2001 (Com) LEGISLATION CITED : Evidence Act 1995 NSW Supreme Court Act 1970 NSW Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Ashville Investments Ltd v Elmer Contractors Ltd [1989] QB 488 Australian Broadcasting Commission v Australasian Performing Right Association (1973) 129 CLR 99 Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Birtchnell v Equity Trustees Executors and Agency Co Ltd (1929) 42 CLR 384 Black v The Ottoman Bank (1862) 15 Moo PCC 472; (1862) 15 ER 573 Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339 Byrne & Frew v Australian Airlines Ltd (1995) 185 CLR 410 Clouston & Co Ltd v Corry [1906] AC 122 Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Concut Pty Ltd v Worrell (2000) 75 ALJR 312 Dorgal Holdings Pty Ltd v Buckley (1996) 22 ACSR 164 Dowell Australia Ltd v Triden Contractors Pty Ltd [1982] I NSWLR 508 Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688 Fexuto Pty Ltd v Bosnjak Holdings (2001) 37 ACSR 672 Fitzsimmons v R (1997) 23 ACSR 355 Fountain v Alexander (1982) 150 CLR 615 Hancock v Williams (1942) 42 SR (NSW) 252 Hide & Skin Trading v Oceanic Meat Traders Ltd (1990) 20 NSWLR 310 IBM Australia Ltd v National Distribution Services Ltd (1991) 22 NSWLR 466 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 Jones v Dunkel (1959) 101 CLR 298 Kizquari Pty Ltd v Prestoo Pty Ltd (1993) 10 ACSR 606 CASES CITED : Lakatoi Universal Pty Ltd v Walker [2000] NSWSC 113 Lane v Arrowcrest Group Pty Ltd (1990) 27 FCR 427: 43 IR 210 Lane v Fasciale (1993) 35 AILR 339 McEwen v Combined Coast Cranes Pty Ltd (2002) 44 ACSR 244 Maggbury Pty Limited v Hafele Australia Pty Limited (2001) 76 ALJR 246 Mayor of Durham v Fowler (1888) 22 QBD 394 Meehan v Jones (1982) 149 CLR 571 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 Pollak v National Australia Bank Ltd [2002] FCA 237 Prenn v Simmonds [1971] 1 WLR 1381 Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 Re Pearse [1905] VLR 446 Re Polyresins Pty Ltd [1999] 1 Qd R 599 Wolmershausen v Wolmershausen (1890) 62 LT 541 Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 186 ALR 289 Schellenberg v Tunnel Holdings Pty Ltd (2000) 170 ALR 594 Shepherd v Felt & Textiles of Australia Ltd (1931) 45 CLR 359 South Australia v Clark (1996) 19 ACSR 606 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514 United States Surgical Corp v Hospital Products International [1983] 2 NSWLR 157 Walker v Bowry (1924) 35 CLR 48 Ward v National Bank of New Zealand Ltd (1883) 8 App Cas 755 Surf Road Nominees Pty Ltd ACN 087 719 060 (First Plaintiff) Chris Burke & Co Pty Ltd ACN 062 554 849 (Second Plaintiff) IG Martyn Real Estate Pty Ltd ACN 001 210 304 (Third Plaintiff) WIT Investments Pty Ltd ACN 087 762 856 (Fourth Plaintiff} DJZ Construction Pty Limited ACN 087 784 601 (Fifth Plaintiff) Tass Alexander James (First Defendant) Janet Margaret James (Second Defendant) New South Head Road Nominees Pty Ltd CAN 088 322 472 (Third Defendant) First Cross Claim Tass Alexander James (First Cross-Claimant) Janet Margaret James (Second Cross-Claimant) New South Head Road Nominees Pty Ltd (Third Cross-Claimant) Surf Road Nominees Pty Ltd (First Cross-Defendant) Chris Burke & Co Pty Ltd (Second Cross-Defendant) I G Martyn Real Estate Pty Ltd (Third Cross-Defendant) PARTIES : W I T Investments Pty Ltd (Fourth Cross-Defendant) D J Z Construction Pty Ltd (Fifth Cross-Defendant) Michael Christian (Sixth Cross Defendant) Katherine Christian (Seventh Cross Defendant) Cottenham Nominees Pty Ltd (Eighth Cross-Defendant) Vincent Palmieri (Ninth Cross-Defendant) Terry Ian Wilson (Tenth Cross-Defendant) Andrew Peter Mortimer (Eleventh Cross-Defendant) Second Cross Claim [Settled] Michael Christian (First Cross-Claimant) Katherine Christian (Second Cross-Claimant) Cottenham Nominees Pty Limited (Third Cross-Claimant) Tass Alexander James (First Cross-Defendant) Janet Margaret James (Second Cross-Defendant)

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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;

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(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

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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:

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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."

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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.

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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.

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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.

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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

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· "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

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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:

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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

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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:

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(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:

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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:

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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;

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"…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.

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(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:

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[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:

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"[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:

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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"].

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"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:

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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:

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"…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:

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