WARWICK ENTERTAINMENT CENTRE PTY LTD (RECEIVERS AND MANAGERS APPOINTED) atf THE WARWICK ENTERTAINMENT CENTRE UNIT TRUST -v- SILKCHIME PTY LTD (RECEIVERS AND MANAGERS APPOINTED) atf THE SILKCHIME UNIT TRUST [No 2] [2012] WASC 275 (1 August 2012)

3 Silkchime admits that the first loan of $3.6 million (Loan 1) was correctly recorded as a loan between Warwick and Silkchime, although governed by the joint venture agreement. However, Silkchime contends that the subsequent advances to Silkchime, which are recorded in the accounts of Warwick and Silkchime (Loan 2) as loans made by Warwick to Silkchime, were in fact advances, which ought to have been recorded as a loan made by Warwick to Westpoint Corporation. Silkchime says its accounts incorrectly show that these further advances were made by Warwick to Silkchime and were used to pay for expenses incurred on its behalf, which increased the value of the Warwick Commercial Park, and the value of these expenses was incorrectly recorded as work in progress and an asset of Silkchime. Silkchime contends that the amounts recorded in its work in progress were not improvements made for its benefit but rather were made for the benefit of Westpoint Constructions Pty Ltd. Hence, Silkchime says that the accounts ought not to have recorded a loan made to Silkchime by Warwick. Instead there was a loan by Warwick to Westpoint Corporation, which then lent the money to Westpoint Constructions.

The Warwick Entertainment Centre and Warwick Commercial Park Projects

4 Ping Kuen Ho (Patrick Ho) and Peng Phui Ho (Stephen Ho) (collectively the Ho brothers) live in Singapore. In 1990 Mr Norman Carey was a businessman and company director interested in real estate and property development. In about 1990 Mr Carey met the Ho brothers when the Ho brothers, through Citypride Pty Ltd, purchased a property from a company in which Mr Carey had an interest or which he represented. Citypride was required to have an Australian resident as a director. Mr Carey agreed to be a director of Citypride, together with the Ho brothers, in the expectation that the Ho brothers would build a portfolio of real estate assets in Australia and that they would have an ongoing and growing commercial relationship.

5 In 1991 Erley Pty Ltd, a company associated with Mr Carey, purchased land near the Warwick Shopping Centre (the Warwick Entertainment Centre land). Mr Carey drew a development proposal to undertake a project known as Warwick Entertainment Centre to build a cinema complex on that land. In about 1992 Mr Carey proposed to the Ho brothers that they invest in the Warwick Entertainment Centre. The Ho brothers agreed. In April 1992 Erley, Greenleaf Holdings Pty Ltd, a company controlled by the Ho brothers, and Warwick, which was to be the joint venture vehicle, entered into a joint venture agreement. Warwick is the trustee of the Warwick Entertainment Unit Trust. Erley and Greenleaf agreed to join in a joint venture for the purpose of acquiring the beneficial interest in the land and developing it. Erley and Greenleaf were each to hold 50% of the units in the unit trust. The Warwick Entertainment Centre development was completed in September 1993.

6 Mr Carey became aware that land adjoining the Warwick Entertainment Centre land (the Warwick land) might be available for sale. Forestview Nominees Pty Ltd, a company associated with Mr Carey, acquired an option to purchase the land. Mr Carey worked up a plan for the development of the land. This development became known as the Warwick Commercial Park. In 1994 Mr Carey proposed to the Ho brothers that they should acquire an interest in the Warwick land and become involved in its development. The Ho brothers agreed to this proposal and Silkchime was incorporated to act as the vehicle for the project. The land was transferred to Silkchime in a two step transaction, which occurred on 27 January 1995. The original owner, National Mutual Life Association of Australia Ltd, transferred the land to Forestview. Immediately after this transfer, Forestview transferred the land to Silkchime. The purchase price was $3.6 million. Silkchime held the land as trustee for the Silkchime Unit Trust. This unit trust was created on 6 December 1994. Erley and Greenleaf each held 20 units in the Silkchime Unit Trust.

7 Silkchime admits that Warwick advanced $3.6 million to it by way of loan to purchase the Warwick land but pleads that that advance, and subsequent advances, were made by Warwick to Silkchime pursuant to a joint venture agreement, which was made in about 1994 and was reduced to writing on 20 July 1995 and dated 22 August 1995. As I have said, Warwick denies that the joint venture agreement was executed and says alternatively that if it was executed the sums advanced by Warwick to Silkchime were not advanced pursuant to that joint venture agreement. I will return to those issues later in these reasons.

8 Silkchime then proceeded with the development of the Warwick land. The land was subdivided into lots. Some, but not all, of the lots had been developed and sold when on 24 January 2006, Mark Korda, David Winterbottom and Oren Zohar, of Korda Mentha, were appointed receivers and managers of all the property of Warwick and the lots in the Warwick land still owned by Silkchime. At about the same time the directors of Westpoint Corporation appointed voluntary administrators. Subsequently, the Federal Court ordered the winding up of Westpoint Corporation and appointed liquidators in place of the voluntary administrators. The Australian Securities & Investments Commission conducted investigations into the Westpoint Group and seized a large number of documents from the group. In January 2008 the receivers commenced this action to recover the alleged intercompany debt in the amount of $12,706,904 as recorded in the accounts of Warwick and Silkchime.

9 Warwick and Silkchime were part of the Westpoint Group of companies which were primarily engaged in property development and raising finance for that purpose. Westpoint Corporation was the head company of the group and acted as the group's treasury.

10 Mr Russell Morgan and Mr Martin Langridge each gave evidence of the entries in the accounts of Warwick and Silkchime, their analysis of those entries and the effect of them. Mr Morgan is a chartered accountant and registered company liquidator employed as a senior consultant by Korda Mentha and has had the day to day conduct of the receiverships of Warwick and Silkchime. Mr Langridge is a chartered accountant and a partner of Deloitte Touche Tohmatsu, chartered accountants. He was engaged by Warwick's solicitors to provide an independent expert's report.

11 After 1 July 1997 the accounts of Warwick and Silkchime were maintained on the Triumph system, an electronic accounting system. The general ledger and summaries from the Triumph System are available from 1 July 1997 onwards. Electronic and hard copies of the relevant parts of the general ledger from the Triumph System for Warwick and Silkchime are in evidence. Not all of the accounting records and general ledgers for Warwick or Silkchime are available for the years prior to 1 July 1997. The earliest financial statements able to be obtained by Mr Morgan were for the 1996 financial year, that is the year ended 30 June 1996. This included prior period comparative balances for the 1995 financial year, the first year of operation for Silkchime. The available financial records also include the financial statements for Warwick and Silkchime for each year between the 1995 financial year and the 1997 financial year, various general ledgers and material from internal management accounts.

12 Mr Morgan and Mr Langridge each analysed the financial statements and available financial records prior to 1 July 1997. Mr Morgan's analysis is usefully summarised by Mr Langridge in his report of 17 July 2011. Mr Morgan's analysis of the financial statements for each year between the 1995 financial year and the 1997 financial year indicated that Silkchime had a current and noncurrent liability, recorded as 'loan Warwick Entertainment Centre Pty Ltd', while Warwick had a corresponding receivables balance each year. These three year end balances are summarised as follows:

13 Mr Morgan made the following conclusions in relation to the financial periods prior to 1 July 1997 for Silkchime and Warwick:

(a) Based on Silkchime's financial statements for the 1995 financial year, the loan balance recorded in the balance sheet of $3,931,915 (current and noncurrent amounts owing) comprised of $3,769,920 advanced by Warwick and capitalised interest costs totalling $161,995.

(b) The amount advanced from Warwick to Silkchime in the 1995 financial year was used to purchase the Warwick land.

(c) A further $8,928 was advanced to Silkchime from Warwick in the 1996 financial year. In addition $377,270 in interest was capitalised in the 1996 financial year.

(d) In the 1997 financial year the loan account between Silkchime and Warwick increased due to funds advanced of $3,569,451. In addition, $336,888 of interest was capitalised relating to Loan 1 and $107,422 was capitalised relating to Loan 2.

(e) With regard to Silkchime's balance sheet for the 1997 financial year the loans received by Silkchime during the year, which increased Silkchime's existing loan account balance with Warwick, were real and were applied either wholly or partly towards the development costs incurred on the Warwick land.

Mr Langridge agreed with each of Mr Morgan's conclusions. I find that they correctly summarise the content and effect of the accounting records of Warwick and Silkchime.

14 Mr Morgan based his conclusions for the period 1 July 1997 to 24 January 2006 on the following summary of movements in the Silkchime/Warwick loan account as recorded in the Triumph general ledgers of both Warwick and Silkchime:

Settlement of Bowl, Health, Vet 31.7.1997 (repayment)

Interest on NM at Call Account 31.7.1997 (repayment)

KPMG year end audit adjustments 1998 entered on 30.6.2000

KPMG year end audit adjustments 1999 entered on 30.6.2000

Settlement of Bowl, Health and Vet refers to the receipt of the sales of the proceeds of three lots into which the Warwick land was subdivided. NM refers to National Mutual. Warwick obtained the funds, which it advanced to Silkchime, under a facility with National Mutual.

15 Mr Morgan made the following conclusions from the books and records of Silkchime:

(a) $3,500,000 was used as the base for the interest calculation on 'Loan 1', however, the financial statements recorded the loan as $3,600,000.

(b) The calculation of interest on 'Loan 2' was based on a principal amount of $2,331,858.

(c) After selling three of its properties, Silkchime used some of the proceeds and deposited $1,570,188 into Warwick's National Mutual at Call Account, effectively repaying some of the loan.

(d) The $1,009 outlined in the table above represents a journal entry between Silkchime and Warwick that credits Warwick's ANZ bank account and therefore acts as a partial repayment of the loan.

(e) The journal entry which posted $300,000 to Silkchime's loan account and withdrew it from Warwick's deposit account, was an extension of the funds already advanced to Silkchime.

(f) The two consecutive yearly KPMG audit adjustments to the retained earnings of both Silkchime and Warwick, totalling $1,262,754, were entered to record interest expense between the Westpoint entities. The journal entries resulted in increasing the profit of Warwick and increasing the loan due from Silkchime to Warwick.

16 Based on the conclusions outlined above, Mr Morgan completed the following loan account summary by year:

Mr Morgan concluded that the total amount owed to Warwick from Silkchime for the outstanding loan amounts is $12,706,904.

17 Mr Langridge agreed with each of Mr Morgan's conclusions except for conclusion (b). In relation to that conclusion, Mr Langridge said that he was unable to concur insofar as this conclusion relates to the financial years 1998, 1999, 2001, 2002 and 2003 but concurred with the conclusion insofar as it relates to the 2000 financial year. Mr Langridge disagreed with the conclusion insofar as it relates to financial years 2004 to 2006. Mr Langridge concluded that interest in those years was calculated on a principal amount of $2,231,858. I find that Mr Morgan's loan account summary correctly summarises the balance of the Warwick/Silkchime loan as disclosed by the accounting records of Warwick and Silkchime.

Corporations Act s 1305(1)

18 Corporations Act 2001 (Cth) s 1305(1) provides that a book kept by a body corporate under a requirement of the Act is admissible in evidence in any proceeding and is prima facie evidence of any matter stated or recorded in the book. 'Books' are defined by s 9 of the Corporations Act to include financial reports or financial records, however compiled, recorded or stored. Silkchime concedes that the annual financial statements and other documents relating to the period prior to 1 July 1997 examined by Mr Morgan and Mr Langridge and the information on the Triumph Accounting System are books for the purposes of s 1305(1), but submits that they are not admissible in evidence or prima facie evidence under s 1305 because they are not books kept by Warwick or Silkchime under a requirement of the Corporations Act.

19 Silkchime's argument rests on Corporations Act s 292. Section 292 provides that a financial report and a director's report must be prepared for each financial year by certain companies. A small proprietary company has to prepare the financial report and director's report only in certain circumstances. Those circumstances do not apply to Warwick or Silkchime. Accordingly, Warwick and Silkchime were not required by s 292 to prepare a financial report or director's report. However, s 292 is not relevant to the admissibility of books under s 1305(1). Section 286(1) requires a company to keep written financial records that correctly record and explain its transactions and financial position and performance and would enable true and fair financial statements to be prepared and audited. That obligation extends to all companies, including Warwick and Silkchime. Accordingly, the financial statements and other financial records examined by Mr Morgan and Mr Langridge and tendered in evidence are admissible in evidence and are prima facie evidence of the matters stated or recorded in those statements and records.

20 Section 1305 only provides that the company's books are prima facie evidence of the matters stated or recorded in the books. It is open to Silkchime to adduce evidence to counter that prima facie evidence: see Wood v Inglis [2008] NSWSC 1147 [34] [35] (Barrett J) and Pearce v Mulhern [2010] FCA 446 [47] (Reeves J) in relation to Corporations Act s 176, which provides that in the absence of evidence to the contrary, a register kept under ch 2C of the Corporations Act is proof of the matters shown in the register. In Livingspring Pty Ltd v Kliger Partners [2008] VSCA 93; (2008) 20 VR 377 [37] Maxwell P and Buchanan JA held that s 1305(1) does not establish a presumption that company accounts are prima facie true, correct and accurate and adopted the statement of the Full Federal Court in Whitton v Regis Towers Real Estate Pty Ltd (in admin) [2007] FCAFC 125; (2007) 161 FCR 20 [59] that s 1305 does not elevate an entry in a book of account to prima facie evidence that any such transaction or series of transactions exists. In Whitton v Regis Towers Real Estate Pty Ltd the primary judge had held that evidence in respect of the making of journal entries affecting the director's loan account did not allow a finding to be made that those entries were reliable or authorised. His Honour had found that there were not proper books and records kept in relation to the company. On appeal the Full Court examined the accounts. Some entries in the ledger entries were identified as payments actually made. Some were identified as receipts. However, there were many journal entries, including 'balancing entries', which were the outcome of an undisclosed process of judgment or inference by the staff and the accounting firm, which compiled the accounts retrospectively. In that context Buchanan J, with whom Marshall and Tracey JJ agreed, said:

The particular entry (and many others) is not a direct record of an actual transaction. Section 1305 of the Corporations Act does not elevate the entry to prima facie evidence that any such transaction (or series of transactions) exists. It can be no more than prima facie evidence that an unknown person formed an opinion on an undisclosed basis that, in the absence of any directly recordable transaction nevertheless, as a balancing entry, such a figure should appear in the accounts [59].

21 The relevant entries in the books of Warwick and Silkchime essentially fall into two categories. The first category consists of direct records of transactions in the form of advances or loans by Warwick to Silkchime. They are evidence that the persons who made the entries and supervised the accounts had documents, or instructions from persons involved in the transactions or other grounds for recording those transactions. The second category consists of debiting capitalised interest. In relation to the debiting of capitalised interest, such entries are evidence that the persons who made, and supervised, the entries were instructed by a director or employee of the companies with knowledge of the basis on which the monies were advanced or had other grounds to form the opinion that interest was to be capitalised at the applicable rate.

22 The books of Warwick and Silkchime are prima facie evidence of the matters recorded in them. The books are prima facie evidence that Warwick loaned amounts to Silkchime and that Silkchime was indebted to Warwick for principal and interest in the sum of $12,706,904. The loan recorded in the books of Warwick and Silkchime was verified by a report as to affairs (RATA), submitted to the liquidator of each company by Mr Carey and Mr Rundle on 2 March 2006 pursuant to Corporations Act s 475(1). At the time, and at all relevant times, Mr Carey was a director of each company. Mr Graeme Rundle was the group financial controller or chief financial controller of the Westpoint Group from April 1997 to January 2006. In that position he was responsible for the overall accounting, administration and finance of the companies in the Westpoint Group. He was the company secretary of Warwick and Silkchime. Mr Carey gave evidence that the RATA for Silkchime was prepared for him by Mr Rundle and Mr Greg Nairn. He did not ask them the source of the financial information in the document, which he knew was not up to date. Mr Carey said that a declaration signed by him was sent to the liquidator with each of the RATAs. The declaration said the RATA was compiled on his behalf by Mr Rundle and Mr Nairn who had been responsible for managing the books and records of the company up until the date of appointment by the external controller and that he had not personally verified the contents of the RATA as he did not have the information necessary to do that. The plaintiff denies that such a declaration was sent to the liquidator with the RATA. I will refer to that issue later. It is sufficient to observe at this stage that the Warwick RATA stated that it was owed $12,706,904 by Silkchime and the Silkchime RATA stated that it owed Warwick $12,673,372.

23 Having regard to the evidence of and concerning the accounting records of Warwick and Silkchime and the RATAs, it should be found that Silkchime is indebted to Warwick in the sum of $12,706,904 unless there is evidence to the contrary.

24 There were essentially three issues at trial. The first is whether the alleged joint venture agreement was executed in 1995 and governs the advances made by Warwick to Silkchime such that those advances, and any interest on those advances debited in the accounts, are repayable. This issue gives rise to various subissues. First, was the joint venture agreement executed on 20 July 1995? If so, does it apply to the advances made by Warwick to Silkchime? Third, on its proper construction, what amounts were repayable by Silkchime to Warwick?

25 The second issue is whether or not interest was payable by Silkchime on the loans or advances by Warwick. This involves two subissues. First, are the accounts correct in capitalising interest upon the loan from Warwick to Silkchime and adding this to the amount outstanding from Silkchime? Second, was the joint venture agreement executed in 1995 and did it apply to the advances made by Warwick to Silkchime?

26 The third issue is whether the advances recorded in the accounts of Warwick and Silkchime, after the first loan of $3.6 million, were loans from Warwick to Silkchime. Silkchime contends that the subsequent advances, which were recorded as loans, were not loans from Warwick to Silkchime but advances to Westpoint Constructions.

27 Silkchime admits that Warwick advanced monies to it by way of loan from about 27 January 1995 when Silkchime purchased the Warwick land. Silkchime pleads that the advances made by Warwick to Silkchime were pursuant to a joint venture agreement, which was made in about 1994 and was reduced to writing on 20 July 1995 and dated 22 August 1995. Silkchime says that exhibit 25 is a copy of the joint venture agreement executed by Warwick and Silkchime in 1995. As a matter of convenience I will refer to the alleged joint venture agreement as the JVA. In doing so I am not to be taken to have made any finding or assumption that the original of the document, of which exhibit 25 is a copy, was executed by Warwick or Silkchime in 1995. Warwick says that the JVA was not signed until many years later as an answer to the claim for recovery of the intercompany debt made by Warwick to Silkchime.

28 Mr Carey gave his evidenceinchief by way of a witness statement, a supplementary witness statement and a second supplementary witness statement. In his witness statement Mr Carey gave the following evidence. Patrick Ho came to Perth for the completion of the Warwick Entertainment Centre in 1993 and at that time Mr Carey showed him the Warwick land. In the second half of 1994 Mr Carey spoke with the Ho brothers about them acquiring an interest in the Warwick land and being involved with him in its development. Later the Ho brothers agreed to participate in the development of the Warwick land. Agreement was made in meetings between Mr Carey and the Ho brothers and in telephone conversations between Patrick Ho and Mr Carey in 1993 and 1994. Since 1990 Mr Carey has travelled to Singapore once or twice a year to visit the Ho brothers. On a flight to Singapore to visit the Ho brothers on 19 July 1995 Mr Carey wrote by hand a joint venture agreement between Warwick and Silkchime. He had with him on the flight a document prepared by a solicitor, which he used as a guide for formatting and wording and also a list of permitted uses under the Town Planning Scheme. The JVA was typed in the business centre at the Pan Pacific Hotel in Singapore on the morning of 20 July 1995. Mr Carey met with the Ho brothers in his room at the Pan Pacific Hotel around 11.00 am on 20 July 1995. Mr Carey showed them the JVA. He also showed them mortgage and security documents for a proposed borrowing by Silkchime from Challenge Bank. Mr Carey said that the documents needed to be signed. Patrick and Stephen Ho looked at the documents. The Challenge Bank mortgage and other security documents and the JVA were signed in Mr Carey's hotel room on 20 July 1995. After the document was signed by Patrick Ho, Stephen Ho and Mr Carey, Mr Carey affixed the seal for Silkchime and the seal for Warwick to the JVA. He did not date the JVA in Singapore on the day it was signed. The date is handwritten. The JVA is dated 22 August 1995. Mr Carey dated the document probably on that date in Perth. Mr Carey had taken a seal for Silkchime and a seal for Warwick to Singapore, both of which he affixed to the JVA after it was signed. Mr Carey did not affix the Silkchime seal to the Challenge Bank mortgage because he understood that the seal would be affixed in Perth by David Hewitt. Mr Hewitt was then the financial controller for the Westpoint Group. The seals which Mr Carey took with him to Singapore were given to him by Mr Hewitt or his personal assistant. After the JVA was signed Mr Carey brought it back to Australia. The copy of the JVA, which is exhibit 25, was located by Mr Carey amongst files for the Warwick Commercial Park that were not taken by ASIC. Mr Carey has no knowledge now of the whereabouts of the original JVA.

29 Mr Patrick Ho gave his evidence orally. Mr Ho's first language is Cantonese. A Cantonese interpreter was sworn in and available to assist Mr Ho if he required assistance. However, Mr Ho gave his evidence in English without requiring any assistance from the interpreter. Mr Patrick Ho said that he had a telephone conversation with Mr Carey about the development of the Warwick land. Mr Carey suggested that they should buy the Warwick land so as to enhance the value of Warwick Entertainment Centre. Mr Patrick Ho then spoke to his brother. He then called Mr Carey again and said they would proceed. Mr Ho said that he signed the JVA in Mr Carey's hotel room in Singapore on 20 July 1995 and his brother and Mr Carey each signed the document on the same occasion. Mr Ho said that he read the document before he signed it and that it is roughly the same as what Mr Carey had told him over the telephone.

30 Mr Stephen Ho also gave his evidence orally. His first language is Cantonese. Mr Ho gave his evidence in English. Mr Ho said that he signed the JVA at the Pan Pacific Hotel in July 1995 and that his brother Patrick and Mr Carey signed the document on the same occasion.

31 I find that the JVA was not executed by Warwick or Silkchime in 1995 and was not signed until some years after the relevant advances had been made by Warwick to Silkchime. There are a number of matters which lead me to that finding.

32 When Mr Carey visited the Ho brothers in Singapore in July 1995 he took with him a suite of Challenge Bank financing documents. The Ho brothers signed the documents in Singapore in July 1995. The documents included a mortgage by Silkchime in favour of Challenge Bank; a charge by which Silkchime charged all of its property and undertaking to secure monies advanced by Challenge Bank; a mortgage granted by Silkchime over the Warwick land in favour of Challenge Bank; a guarantee in favour of Challenge Bank executed by Warwick, Greenleaf Holdings, Erley, Mr Carey, Patrick Ho, Stephen Ho, Westpoint Corporation and other Westpoint companies; a deed of subordination between Challenge Bank and Silkchime, Erley, Greenleaf, Mr Carey, Mr Patrick Ho, Mr Stephen Ho, Westpoint Corporation and other Westpoint companies; and a deed of covenant and indemnity between Challenge Bank, Warwick, Erley and Greenleaf. The documents were executed in connection with a facility made available by Challenge Bank to Silkchime. The first drawdown of funds from the facility occurred on or shortly after 23 August 1995. The Challenge Bank documents were all executed in Singapore during Mr Carey's visit in July 1995. The guarantee and indemnity is dated 20 July 1995. It has fixed to it a certificate of independent advice by which Mr N G Joseph, an advocate and solicitor of Singapore, certified that before the guarantee and indemnity was executed by Mr Patrick Ho he explained the content and effect of it to Mr Ho who, in Mr Joseph's opinion, was aware of and fully understood its effect and his obligations pursuant to the guarantee and indemnity. Mr Joseph further certified that in his opinion Mr Patrick Ho was also aware of the nature of the obligations guaranteed and understood the risk assumed. There is a certificate of independent advice in the same terms signed by Mr Joseph in relation to Mr Stephen Ho. Each of the certificates is signed by Mr Joseph and dated 21 July 1995. Mr Carey said that the Challenge Bank documents were executed during his July 1995 trip to Singapore.

33 The JVA bears a common seal of Silkchime and a common seal of Warwick. The JVA says that it was executed as a deed and that the common seal of Silkchime was affixed in the presence of Mr Patrick Ho and Mr Carey. Mr Patrick Ho and Mr Carey each gave evidence that they signed the document. The JVA further says that the common seal of Warwick was affixed in the presence of Mr Stephen Ho and Mr Carey, each of whom gave evidence that they signed the document. The common seal of Silkchime on the JVA is a round seal. The company charge by Silkchime in favour of Challenge Bank is dated 20 July 1995. It bears a common seal of Silkchime. The document says that the common seal was affixed in the presence of two directors who have signed the document. The signatures are those of Mr Carey and Mr Patrick Ho. Mr Patrick Ho said that he signed the document during Mr Carey's visit to Singapore in July 1995. The common seal of Silkchime is a square seal. That is, a different seal of Silkchime has been affixed to the company charge than the JVA. The deed of subordination also bears the square Silkchime common seal and states that it was affixed in the presence of two directors. The signatures of the directors are those of Mr Carey and Mr Patrick Ho. The document is dated 27 July 1995. I find that Mr Patrick Ho signed the document in Singapore during Mr Carey's July 1995 visit. The mortgage by Silkchime in favour of Challenge Bank also bears the square Silkchime common seal and says that it was affixed in the presence of two directors. The signatures of the directors are those of Mr Carey and Mr Patrick Ho. I find that the mortgage was signed by Mr Patrick Ho during Mr Carey's visit to Singapore in July 1995.

34 There are a number of documents in evidence that have been executed by Silkchime. Apart from the JVA, all of those documents bear the square Silkchime common seal.

35 Mr Carey said that the seals were not affixed to the Challenge Bank documents in Singapore. Mr Carey's evidence is that he gave the Challenge Bank documents and the JVA to Mr Hewitt. He gave the Challenge Bank documents to Mr Hewitt when he returned to Perth. He cannot say when he gave the JVA to Mr Hewitt.

36 The Challenge Bank documents were all stamped. The JVA was not. There is no apparent explanation for why Mr Hewitt, or the group financial control section of Westpoint, did not arrange for the JVA to be stamped if, as Mr Carey says, he gave the JVA to group financial control. I note that the Warwick Entertainment Centre joint venture agreement was stamped. That document was prepared by solicitors and it may be that they arranged for it to be stamped.

37 Counsel for Warwick submitted that inferences adverse to Silkchime should be drawn from the failure of Silkchime to call Mr Hewitt to give evidence. On this aspect of the case Mr Hewitt could have given evidence in relation to two matters. First, Mr Carey gave evidence that the seals which he took with him to Singapore were given to him by Mr Hewitt or his personal assistant. Second, Mr Carey said that he gave the executed JVA to Mr Hewitt. Counsel for Warwick, Mr Thompson, submitted that Mr Hewitt could have given evidence in relation to those matters and there was no explanation for the failure of Silkchime to call Mr Hewitt to give evidence about those matters. Mr Carey said in evidence that he thought Mr Hewitt was in Perth at the present time but he had made no enquiries of Mr Hewitt for the purposes of this court case.

38 The unexplained failure by a party to call witnesses may in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The significance to be attributed to the fact that a witness did not give evidence depends upon whether, in the circumstances, it is to be inferred that the reason why the witness was not called was because the party expected to call him feared to do so: Fabre v Arenales (1992) 27 NSWLR 437, 449 450 (Mahoney JA, Priestley & Sheller JJA concurring). Mr Hewitt was Silkchime's group financial controller. The only explanation for not calling him to give evidence offered by Silkchime's counsel was that the events were so long ago that Mr Hewitt would not be expected to remember. That is no explanation for the failure to call Mr Hewitt. If absence of recollection is the explanation for failure to call the witness this should be given by evidence. In West v Government Insurance Office (NSW) [1981] HCA 38; (1981) 148 CLR 62, at 70, Murphy J said:

[Absence of recollection] is not to be presumed from passage of some years. Trials of such cases are commonly heard years after the event; recollections can be refreshed, and various methods are available for proof of records of past recollection.

The proper inference to be drawn is that Mr Hewitt if called would not assist Silkchime's case and the inference may be used to strengthen inferences from circumstances as well as from direct evidence.

39 The objective circumstances point against the JVA having been executed in 1995. The objective circumstances are inconsistent with the JVA having been executed before the advances made by or on behalf of Warwick to Silkchime.

40 Warwick submits that the accounting treatment for the arrangement between Warwick and Silkchime is different to the treatment for a normal joint venture. In his report of 17 June 2011, which is exhibit 177, Mr Langridge said that the Warwick and Silkchime accounts differed from the normal accounting treatment he would expect in respect of a joint venture relationship between the parties in a number of respects. In referring to a joint venture relationship Mr Langridge was referring to what he understood to be the usual features of a joint venture relationship. The relationship created by the JVA does not reflect a relationship that contains some of the features usually found in a joint venture relationship. A joint venture ordinarily consists of a contractual relationship between parties who undertake a business transaction or venture, which is subject to joint control and a sharing of profits and losses. The joint venture is usually governed by a contract that specifies the mutual responsibilities of the parties. The JVA arguably does not confer on Warwick any right to jointly control the acquisition or development of the Warwick land. A joint venture may involve the creation of a new business entity, which is the joint venture vehicle. Alternatively, a joint venturer may recognise the assets, liabilities, revenues and expenses arising from its interest in a joint venture operation in its accounts without the creation of a separate legal entity as a joint venture vehicle. However, in the end, none of this matters. The question is whether the accounts of Warwick and Silkchime reflect the relationship allegedly created by the JVA not whether it reflects a relationship usually recognised by lawyers or accountants as a joint venture.

41 Mr Langridge relevantly concluded that the accounting treatment in the accounts of both Warwick and Silkchime of the balance between Silkchime and Warwick was inconsistent with the existence of a joint venture in the terms set out in the JVA. I find that conclusion is correct. The treatment of the advances from Warwick to Silkchime in the accounts of those companies is inconsistent with the JVA, because in the accounts of both companies the advances were treated as a loan and interest was charged on those loans whereas the JVA specifies that the loan is to be interest free.

42 Before October 1997 Ms Tracey Lodge was responsible for the Warwick and Silkchime accounts. Ms Lodge was a qualified chartered accountant. She was in charge of the management accounting. She reported directly to Mr Carey. Prior to October 1997 Mr Hewitt was the group financial controller. Mr Rundle became chief financial controller around October 1997 and effectively replaced Mr Hewitt. As part of his role Mr Rundle looked at the accounts of Warwick and Silkchime. Mr Rundle did not raise with Mr Carey or anyone else the correctness of the treatment in the Warwick and Silkchime accounts of the loans from Warwick to Silkchime or the charging of interest on those loans. Mr Rundle did not see a copy of the JVA during the time of his employment at the Westpoint Group.

43 I infer that neither Mr Hewitt nor Ms Lodge were aware of the JVA or that there was any contractual arrangement between Warwick and Silkchime to the effect that the loans from Warwick to Silkchime were interest free. Such a contractual arrangement is inconsistent with the accounts which were prepared by or overseen by Ms Lodge and Mr Hewitt. I more readily draw that inference because neither Mr Hewitt nor Ms Lodge were called to give evidence. As I have said, the evidence of Mr Carey is that Mr Hewitt is available to give evidence. There is no evidence that Ms Lodge could not have been called to give evidence.

44 I do not accept Mr Carey's evidence that he gave the JVA to Mr Hewitt some time before he left employment with the Westpoint Group, that is, in late 1997. Mr Hewitt oversaw the accounts of Warwick and Silkchime. Those accounts are inconsistent with the contractual arrangement in the JVA. I infer that Mr Hewitt was not aware of the contractual arrangement in the JVA because he had not been given a copy of the JVA and was not informed of its terms. I more readily draw that inference because Mr Hewitt was not called to give evidence. Furthermore, I infer that Ms Lodge was not informed by Mr Hewitt or Mr Carey of the existence of the JVA or the terms of a loan arrangement between Warwick and Silkchime on the terms contained in the JVA.

45 Mr Carey agreed in crossexamination that he sent the Ho brothers management accounts from time to time. The management accounts are inconsistent with the contractual relationship contained in the JVA. Mr Carey's explanation is essentially that he did not examine the management accounts, or indeed the financial statements of Warwick or Silkchime, so as to see that they accounted for the loans from Warwick to Silkchime in a manner inconsistent with the JVA. The financial statements and various management accounts of Warwick and Silkchime are inconsistent with the contractual relationship between those companies contained in the JVA. That is because the financial statements and various management accounts disclose that the loans were interest bearing. Mr Carey's explanation is essentially that he did not look at those accounts. I do not accept that evidence.

46 Silkchime and Warwick submitted RATAs to the receivers of those companies after they were appointed. Each of those RATAs is signed by Mr Carey and Mr Rundle. They are dated 2 March 2006. The Silkchime RATA shows a debt of $12,673,372 owing to Warwick. The Warwick RATA shows an amount due from Silkchime of $12,706,904. Counsel for Warwick submits that the discrepancy between the two figures is explicable. In any event, the significance of these documents is that they show a debt of $12,706,904, or thereabouts owing by Silkchime to Warwick.

47 Mr Carey says that he signed certain declarations which were attached to each RATA in the following terms (ts 1575):

This RATA was compiled on my behalf by Graeme Rundle and Greg Nairn who have been responsible for managing the books and records of the company up until the date of appointment by the external controller. I have not personally verified the contents of the RATA as I do not have the information necessary to do this.

48 There is an issue whether the declarations were attached to the RATAs as alleged by Mr Carey. Warwick's case is that the RATAs received by Mr Zohar, the relevant receiver, did not contain the declarations. Silkchime's case is that the declarations were attached to the RATAs but must have become detached at some subsequent time. I am unable to resolve that conflict.

49 The declaration, which Mr Carey says he signed, is not a declaration that he had not read or considered the RATAs. The Silkchime RATA shows an amount of $12,960,750 claimed by five creditors. Of that amount $12,673,372 is recorded as claimed by and admitted to be owing to Warwick. If Mr Carey had read the RATA he would have observed that it recorded that an amount of $12,673,372 was admitted as being owing to Warwick. Mr Carey signed the RATA, which stated that he certified that the particulars contained in it were true to the best of his knowledge and belief. Mr Carey could not have done that if he knew that the advances made by Warwick to Silkchime were governed by the JVA which provided that the loans were interest free and nonrecourse.

50 It is significant that Silkchime did not raise the existence of the JVA as a response to the demand for repayment of the debt when it was first made. On 14 June 2007 Mr Zohar, one of the joint receivers of Warwick, wrote to Mr Carey as a director of Silkchime. Mr Zohar said that the RATA for Warwick disclosed a debt to Warwick by Silkchime in the sum of $12,706,904. The letter referred to the RATA signed by Mr Carey and stated that accordingly there was no basis upon which Silkchime could assert that the debt was not owed to Warwick. The receivers demanded payment of the debt within seven days. Mony de Kerloy, solicitors, responded by a letter of 21 June 2007 on behalf of Mr Carey. The letter stated that Silkchime did not owe Warwick the amount alleged or any debt at all. The letter made no reference to the JVA. In crossexamination Mr Carey said that the letter was written on his instructions and that he saw it before it was sent. When it was put to him that if he had a complete answer based on a joint venture agreement he would have put it forward Mr Carey said, 'the situation was that as things evolved, the position was explained in full' (ts 1547). I do not accept that as an adequate explanation for why Mr Carey did not disclose the JVA at an earlier time.

51 On 10 July 2007 Mr Carey's solicitors wrote to the receivers' solicitors. That letter made no reference to the JVA. On 13 July 2007 Mr Carey's solicitors again wrote to the receivers' solicitors. In that letter Mr Carey's solicitors requested that the receivers make a further $20,000 available to fund those solicitors' legal fees and disbursements to deal with the debt claim and 'the assigned loan issue'. The letter made no reference to the JVA. The JVA was first referred to in a letter of 18 July 2007 from Mr Carey's solicitors to the receivers' solicitors. The letter referred to a written agreement between Warwick and Silkchime to work together in relation to any development of the Warwick Entertainment Centre or the Warwick land. The letter stated that Mr Carey was still attempting to locate a copy of the agreement and set out the terms of the agreement 'as recalled by the directors of Silkchime and Warwick'. On 10 December 2007 Mr Carey's solicitors wrote to the receivers' solicitors stating that they had managed to secure a copy of the agreement referred to in their letter of 18 July 2007 and attached a copy.

52 In their letter of 18 July 2007 Mr Carey's solicitors set out the terms of the written agreement between Warwick and Silkchime 'as recalled by the directors of Silkchime and Warwick'. Mr Carey said that he instructed the solicitor who wrote the letter and he provided the solicitor with the information in the letter without any document with him. The terms of the agreement referred to in the letter of 18 July 2007 are very similar to the terms of the JVA. The matters set out in the letter 'by way of background' are very similar to the recitals in the JVA. The terms summarised in the letter are very similar to the operative terms of the JVA. The wording of term 5 in the letter is essentially the same as the wording of cl 5 of the JVA, except that cl 5 of the JVA is written in the present future tense and term 5 in the letter is written in the past future tense. It is unlikely that Mr Carey could have recalled the terms of the JVA so accurately from 12 years previously if he did not have a copy of the document and had not seen it for many years. I do not accept Mr Carey's evidence that the JVA was executed in 1995 and he gave instructions to write the letter in 2007 without any document to assist his recollection of its terms.

53 There is no documentary evidence to support Mr Carey's evidence that he drafted the JVA using another document as a precedent or guide. In his witness statement Mr Carey said that he wrote by hand a joint venture agreement between Warwick and Silkchime on the flight to Singapore on 19 July 1995. He said that he had with him a document prepared by a solicitor which he used as a guide for formatting and wording and also a list of permitted uses under the Town Planning Scheme. In crossexamination Mr Carey agreed that he had not used the Warwick Entertainment Centre joint venture agreement as a model for the JVA. He also agreed that Silkchime had not discovered any document from any other joint venture agreement which contains any terms which look at all like the terms of the JVA.

54 For all of those reasons I do not accept Mr Carey's evidence that he signed the JVA and applied the Silkchime seal to it in July 1995, gave it to Mr Hewitt some time between July 1995 and October 1997, instructed a solicitor as to the terms of the JVA in July 2007 and found a copy of the JVA in or shortly before December 2007.

55 Silkchime further relies upon the evidence of each of the Ho brothers. I do not accept the evidence of either of them in relation to the execution of the JVA. I do not accept the evidence of Mr Patrick Ho. I observe first that Mr Patrick Ho claimed to recall the circumstances in which he signed the JVA in some detail but was unable to recall anything else of substance about his meetings in July 1995 with Mr Carey in Singapore. I found Mr Patrick Ho to be an unsatisfactory witness. I make allowance for the fact that English is not Mr Patrick Ho's first language and for cultural differences. However, those matters are insufficient to explain the unsatisfactory aspects of Mr Patrick Ho's evidence.

56 Mr Patrick Ho claimed that he did not read the accounts of Silkchime and Warwick in any detail and indeed paid little attention to the details of the Warwick Commercial Park project. However, when confronted with a letter from his Australian accountant Mr Patrick Ho agreed that sometimes he telephoned his Australian accountant to discuss accounting aspects of the project. One such discussion included discrepancies in the accounts for an amount of $50.45.

57 Mr Patrick Ho had no independent recollection of the date on which he signed the JVA. Mr Carey told Mr Ho that his itinerary showed that he had travelled to Singapore on 19 July 1995. Mr Ho relied upon the information given to him by Mr Carey to conclude that he signed the JVA on 20 July 1995. Apart from the JVA, Mr Patrick Ho had little or no recollection of other relevant documents he signed.

58 Mr Patrick Ho swore, and signed, an affidavit in this action in Singapore on 6 June 2008. He signed a witness statement dated 4 October 2011. In crossexamination Mr Ho said that he signed a witness statement in 2008. He was then shown his witness statement dated 4 October 2011. When he was shown the 4 October 2011 witness statement he initially said that he had signed it in 2008. Mr Patrick Ho then said that he was mistaken and that he had signed the statement in 2011. His explanation for the change in his evidence is that he was confused. He then said that he had not signed any other witness statement in respect of the JVA. The following day Mr Ho was shown his affidavit of 6 June 2008, which referred to him signing the JVA and annexed a copy of the JVA. When it was put to him that his evidence the previous day that he had only signed one witness statement was not accurate Mr Patrick Ho accepted that was so and said that it was an oversight.

59 Paragraph 12 of the affidavit sworn by Mr Patrick Ho on 6 June 2008 stated that Mr Carey arrived in Singapore on 19 August 1995 and that Mr Patrick Ho, his brother and Mr Carey executed the JVA on the following day. When the 6 June 2008 affidavit was given to Mr Patrick Ho in the course of his crossexamination, he immediately turned to page 4 and said that there was a typing error there. Mr Patrick Ho denied that he had looked at the affidavit between the end of court on 15 December 2011 and being shown the affidavit in court on 16 December 2011. Patrick denied that he immediately turned to page 4 and identified a typing error because he knew that there was a statement on that page that was inconsistent with his current evidence. His explanation for immediately turning to page 4 and there identifying a typing error was:

I know there's something wrong with this document when you bring it up. There I got a sixth sense feeling and there's a divine intervention that ask me to (indistinct) ... (ts 1342).

60 I do not accept the evidence of Mr Patrick Ho. I do not accept that he had a sixth sense or that it was divine intervention that led him to identify what he claimed to be a typing error on page 11. I find that Mr Patrick Ho had recently read, or had his attention drawn to, the affidavit and knew that it contained a statement inconsistent with his evidence that the JVA was executed in Singapore on 20 July 1995. I do not accept Mr Patrick Ho's evidence that his initial evidence in crossexamination that he had only signed one statement concerning the JVA was an oversight. I find that when Mr Ho was giving evidence he sought to not disclose the existence of the affidavit he swore on 6 June 2008 because he knew it contained a statement inconsistent with his evidenceinchief. I find that when he was given the 6 June 2008 affidavit in the course of his crossexamination Mr Patrick Ho immediately turned to page 4 because he knew it contained a statement inconsistent with his evidence and he knew that because he had recently read it. Mr Stephen Ho said in evidence that Mr Patrick Ho had a file of relevant documents which he showed Mr Stephen Ho at the airport when they were travelling to Australia to give evidence.

61 I find that Mr Patrick Ho has no independent recollection of the JVA or signing the document. I find that Mr Patrick Ho's evidence that he and his brother signed the JVA in Singapore on 20 July 1995 is based only on information given to him by Mr Carey. Mr Patrick Ho made his witness statement after discussing with Mr Carey the signing of the JVA. Mr Carey showed Mr Patrick Ho his itinerary to make him feel comfortable about his statement.

62 I find that Mr Stephen Ho has no independent recollection of signing the JVA. In crossexamination Mr Stephen Ho said that he just signed financial documents when his brother Patrick told him to do so. He said that he would just sign documents provided to him by lawyers for the same reason, that is 'as long as Patrick sign already, I will just sign' (ts 1381). He did not read the documents before signing them. At one time in his crossexamination Mr Stephen Ho agreed that he could not say whether he signed the JVA in 1995, 1998, 2007 or 2008. I do not accept that Mr Stephen Ho has any independent recollection of the JVA or signing it.

63 The objective circumstances are inconsistent with the JVA having been executed in 1995. The inference open to be drawn from the objective circumstances is that the JVA was executed some years after the loan made by Warwick to Silkchime. I draw that inference. I do not accept the evidence of Mr Carey, Mr Patrick Ho or Mr Stephen Ho that the JVA was executed in 1995.

64 In his witness statement Mr Carey gave the following account of the agreement to develop the Warwick land. In the course of developing the Warwick Entertainment Centre, Mr Carey became aware of the adjoining Warwick land. Mr Carey investigated the title to the Warwick land and noted that there was a restrictive covenant as to the use of the land in the same terms as the restrictive covenant which applied to the Warwick Entertainment Centre land. The restrictive covenant was for the benefit of Growth Equities Mutual plus the adjoining landowners including Warwick. The restrictive covenant essentially prohibited use of the Warwick land for certain retail purposes. Mr Carey decided to make an offer to purchase the Warwick land. Forestview Nominees, a company associated with Mr Carey, acquired an option to purchase the Warwick land. Mr Carey worked up a plan for the development of the Warwick land. In the second half of 1994 Mr Carey spoke with the Ho brothers about them acquiring an interest in the Warwick land and being involved with Mr Carey in its development. Mr Patrick Ho came to Perth for the completion of the Warwick Entertainment Centre in 1993 and at that time Mr Carey showed him the Warwick land. Mr Carey and the Ho brothers agreed to participate in the development of the Warwick land. This agreement was made in meetings between Mr Carey and the Ho brothers and in telephone conversations between Mr Patrick Ho and Mr Carey in 1993 and 1994. In those discussions Mr Carey said to Patrick and Stephen Ho words to the effect set out in [20] of his witness statement including:

Loans from Warwick to the owner of the Warwick land should be interest free and nonrecourse so that they would not complicate any future borrowings by the owner of the Warwick land.

The Ho brothers agreed with all of those things. In crossexamination Mr Carey confirmed that the discussions that led to the terms of the agreement being agreed occurred prior to the end of 1994 when the land was purchased. In crossexamination Mr Carey maintained that he had conversations with the Ho brothers about the Warwick Commercial Park development in 1993 and 1994. He said there were discussions and some meetings in Singapore and in about September 1993, when the Warwick Entertainment Centre was finished, Mr Patrick Ho came to Perth and Mr Carey showed him the vacant land. Mr Carey said that those discussions progressed mainly in 1994 and he explained to them the benefits there could be to the value of both properties by providing reciprocal car parking and access. He discussed with them the issue of Warwick having borrowing capacity to provide the funds to Silkchime. He discussed with them the issue and the importance of modifying the restrictive covenant and explained to them in some detail showing them diagrams of the importance of building the megascreen for Warwick Entertainment Centre. Mr Carey maintained that the agreement was reached before the end of 1994 but that they were still discussing the building of the megascreen and the reciprocal car parking and access and the modifying of the restricted covenant as operational issues in 1995.

65 In his affidavit sworn 6 June 2008, Mr Patrick Ho swore that over the course of several months in 1995 it was agreed between Mr Carey, his brother and himself that if Silkchime and Warwick worked together, the value of both the Warwick Entertainment Centre property and the Warwick land could substantially increase. In his witness statement of 4 October 2011, Mr Patrick Ho said that before he and his brother purchased units in the Silkchime Unit Trust he had discussions with Mr Carey about the future development of the Warwick Commercial Park. Mr Patrick Ho said that those discussions resulted in a verbal agreement between Mr Carey and himself. In crossexamination Mr Patrick Ho said that the final telephone conversation, which resulted in an agreement, happened in July 1995.

66 Mr Stephen Ho did not give any evidence of an oral agreement being made before the JVA was executed in July 1995. Mr Stephen Ho's evidence was selfcontradictory on important points. It is clear that Stephen only participated in discussions with Mr Carey when his brother Patrick was present. Insofar as Silkchime, the Warwick land and the Warwick Commercial Park development are concerned, Stephen left matters to Patrick. Mr Stephen Ho signed documents when Mr Patrick Ho told him it was appropriate to do so. Mr Stephen Ho's evidence offers no support for the existence of an oral agreement that Warwick lend money to Silkchime on a no interest and nonrecourse basis.

67 I find that there was no oral agreement made by Warwick and Silkchime through Mr Carey and the Ho brothers that Warwick would lend money to Silkchime on a nonrecourse no interest basis. I do not accept the evidence of Mr Carey or Mr Patrick Ho that such an agreement was made. I accept that there were discussions between Mr Carey and Mr Patrick Ho in 1994 and 1995 concerning the Ho brothers participating with Mr Carey in the purchase and development of the Warwick land. I accept that those discussions resulted in an agreement between Mr Carey and the Ho brothers that they would participate in the project through Silkchime. I further accept that they agreed that Warwick would lend funds to Silkchime to enable Silkchime to undertake the development. I do not accept that they agreed that the loans were to be nonrecourse and interest free. Such an agreement is inconsistent with the objective circumstances.

68 There is no contemporaneous document to support such an agreement. There is no evidence that anyone other than Mr Carey or the Ho brothers knew anything about such an agreement. The accounting records of Warwick and Silkchime are inconsistent with such an agreement. It is to be inferred that the people who drew up the accounts for those companies, and the executives who supervised them, knew nothing of such an agreement. The RATAs signed by Mr Carey are inconsistent with such an agreement. The failure of Silkchime or Mr Carey to refer to such an agreement when repayment of the debt was first made is inconsistent with the existence of such an agreement. Furthermore, Silkchime's defence filed on 18 March 2008 pleaded that in or about August 1995 Silkchime and Warwick entered into a joint venture agreement but made no mention of a prior oral agreement. The defence was amended on 3 June 2008 to plead that on or about 22 August 1995 the plaintiff and the defendant entered into a written joint venture agreement but again made no reference to a prior oral agreement. A further amendment to the defence on 20 June 2008 again made no reference to an oral agreement. It was not until the defence was again amended on 17 November 2008 that it was pleaded that in or about 1994 Silkchime and Warwick entered into a joint venture agreement, which was reduced to writing in or about 22 August 1995.

69 It is not necessary to consider the construction of cl 5 of the JVA because I have found it was not executed until many years after the loans had been made by Warwick to Silkchime. Nevertheless, issues concerning the proper construction of cl 5 were debated at trial and I will set out my conclusion about those matters.

70 Warwick says that cl 5 of the JVA does not purport to prescribe an exclusive regime governing the advances of funds by Warwick to Silkchime. It should be construed as applying only to the advance of such funds as the parties agreed, expressly or by their conduct, should be governed by the profit sharing arrangement referred to in cl 5. Silkchime says that cl 5 applies to the advance of any funds by Warwick to Silkchime. This is a question of construction. The question is: what did the parties intend? Where the intention is not expressed, intention must be determined by inference or implication. It will be implied, inferred or imputed on the basis of the words used, read in context and in the light of the contract as a whole. It is an objective enquiry.

71 Clause 5 does not expressly state what funds are to be loaned by Warwick to Silkchime or what funds so advanced are to be governed by the JVA. The clause is ambiguous or susceptible of more than one meaning and evidence of surrounding circumstances is admissible in aid of construction: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337. One possible meaning of the clause is that it refers only to the prospective advance of funds by Warwick to Silkchime. However, that is not a reasonable construction. The clause refers to Warwick loaning funds to assist in the acquisition and development of the Silkchime property. By 21 August 1995 or 20 July 1995 Warwick had already advanced $3.6 million to Silkchime to enable Silkchime to acquire the property.

72 Clause 5 applies to the prospective advance of funds by Warwick to Silkchime as well as the funds already advanced. The clause refers to Warwick loaning funds to assist in the development of the Silkchime property as well as its acquisition. It is apparent from the recitals, and from the evidence that on 20 July 1995 or 22 August 1995, little had been done to advance the development of the Silkchime property and Warwick had not advanced to Silkchime the funds necessary for that purpose.

73 Clause 5 must be construed in its commercial context and in accordance with business commonsense. On 20 July 1995, or 22 August 1995, Warwick had already advanced to Silkchime funds for the acquisition of the Silkchime property. Both companies were controlled and ultimately owned by the same persons. I reject the construction of cl 5 advanced by Warwick. On its proper construction cl 5 provides that Warwick would from time to time loan to Silkchime such amounts as might be reasonably necessary for Silkchime to acquire, subdivide and develop the Warwick land and those advances were to be interest free and on a nonrecourse basis, that is repayable out of the proceeds of the project.

74 Warwick submitted that if the JVA was executed in 1995 then the agreement was abandoned by Warwick and Silkchime and does not apply to the loans made by Warwick to Silkchime. It is strictly not necessary to consider this issue because I have found that the JVA was not executed until many years after the loans had been made. However, the issue was debated at trial and I will set out my conclusions in relation to that issue.

75 In JR Marine Systems Pte Ltd v Wavemaster International Pty Ltd (in liq) [2011] WASCA 16 [42] Murphy JA, with whom Pullin and Newnes JJA agreed, said:

A contract may be said to be abandoned where the court infers that the parties, by their conduct, have discharged their contract by further agreement: Fitzgerald v Masters [1956] HCA 53; (1956) 95 CLR 420, 432. The further agreement, being inferred from the parties' conduct, does not depend upon sequential offer and acceptance. Also, being an inferred agreement, it does not depend upon the subjective intention of the parties, but upon whether, objectively, their conduct manifests an intention to discharge the contract. See Summers v The Commonwealth [1918] HCA 33; (1918) 25 CLR 144, 151 - 152; CGM Investments Pty Ltd v Chelliah [2003] FCA 79 [18] - [22]; (reversed on other grounds; Wallera Pty Ltd v CGM Investments Pty Ltd [2003] FCAFC 279); DTR Nominees Pty Ltd v Mona Homes Pty Ltd [1978] HCA 12; (1978) 138 CLR 423, 434; Marminta Pty Ltd v French [2003] QCA 541 [21] - [22].

76 The conduct of Warwick and Silkchime between July 1995 and January 2006 objectively manifests an intention to abandon or discharge the JVA or an oral agreement made on the same terms. As I have already said, the accounting treatment in the accounts of both Warwick and Silkchime of the balance between Silkchime and Warwick was consistent with an interest bearing loan and inconsistent with funds having been loaned by Warwick to Silkchime on the terms set out in the JVA.

77 Secondly, Warwick made distributions of profit, which would not have been possible if interest was not due from Silkchime on the loans by Warwick. That was demonstrated by Mr Morgan in his reports. Mr Langridge stated in his report of 17 June 2011:

Based on my analysis, I have concluded that the noncapital profit distributions evidently paid to the unit holders of [Warwick] over the period FY98 to FY02 were derived entirely from interest revenue paid by Silkchime. Absent the recording of that income in the financial statements of [Warwick], no noncapital profits would have been derived from which such distributions could have been paid.

I therefore agree with the assertion made by [Warwick] that the distributions of profit made by [Warwick] to its unit holders were made from profits earned by the payment of interest from Silkchime, without which [Warwick] would not have earned a profit.

78 Thirdly, the management accounts for Silkchime show that the profit for Silkchime in respect of the Car Lovers and Ultra Tune projects was split on a 60/40 basis with Westpoint Corporation. That is inconsistent with cl 5 of the JVA.

79 Furthermore, there is no evidence of car bays having been paid for by Silkchime pursuant to cl 4 of the JVA, which provides that Silkchime will provide additional car bays for Warwick if these are required and Warwick will pay Silkchime $10,000 per car bay.

80 Silkchime admits that Warwick loaned Silkchime $3.6 million to acquire the Warwick land (Loan 1). What is contentious is the accounting treatment for subsequent advances made under the facility granted by National Mutual Ltd to Warwick (Loan 2). All of the advances made under that facility were drawn down by 30 June 1997. The total loan balance recorded in the accounts of Warwick and Silkchime consist of the initial loan of approximately $3.6 million (Loan 1), the further draw downs under the National Mutual facility (Loan 2) and interest accrued on the two loans.

81 The accounts of Silkchime record amounts received from Warwick as a loan and accounted for by work in progress. There is no dispute that the relevant amounts originated from the Warwick facility with National Mutual and that they were expended on the Warwick Commercial Park project. Warwick's case is that the amounts were correctly recorded in the accounts as loans from Warwick and accounted for as work in progress for Silkchime. Silkchime's case is that the draw downs under the National Mutual facility were in respect of construction work or work related to construction of buildings on the Warwick Commercial Park. Some of the lots into which the Warwick land was subdivided were subsequently sold. Silkchime concedes in respect of expenditure for work on lots not sold the work in progress that was accrued in the Silkchime accounts was properly so recorded. The lots described as Wiggles and Giggles and the Medical Centre were retained by Silkchime. Silkchime concedes that in so far as the draw downs were used to meet payments for work on those two lots or projects then they were properly incurred by Silkchime and properly recorded as Silkchime work in progress. Silkchime concedes that those amounts are properly recorded as loans by Warwick to Silkchime. However, Silkchime says that insofar as the draw downs were used to meet payments made in respect of the other lots or developments those expenditures should not have been accounted for as work in progress for Silkchime. That is, Silkchime says that those expenditures were not incurred by Silkchime and hence were not loans from Warwick to Silkchime.

82 In his closing submissions counsel for Silkchime, Mr Metaxas, submitted that the costs in relation to the projects other than Wiggles and Giggles and the Medical Centre, which were paid from the National Mutual draw downs, were incurred by Westpoint Constructions. Silkchime's pleading is that the expenditure recorded in its balance sheet as at 30 June 1997 relating to:

(a) design and construct contracts (incorrectly recorded as Design/Consult);

for lots sold to Arcane Pty Ltd, Tarana Holdings Pty Ltd, Indietro Pty Ltd, Bruce Moore, Wah Fat Pty Ltd, Energym (WA) Pty Ltd, Richview Nominees Pty Ltd and Yvonne Gertrude Connell was expenditure by Westpoint Constructions and not by Silkchime.

83 I find the most convenient way of approaching this issue is to examine each of the National Mutual draw downs. Appendix F to Mr Morgan's report of 2 December 2011, which is exhibit 200, includes a summary of the loan draw downs from the National Mutual facility obtained from Silkchime's files. The summary lists the amount of each draw down and breaks it down into categories of expenditure in relation to each lot or project. It is convenient to analyse the draw downs by reference to that summary.

84 The first draw down notice dated 26 November 1996 relates to a draw down on 28 November 1996 of $257,950. I infer that the amount of the draw down notice was spent upon costs incurred in relation to three projects which Silkchime was developing on the Warwick land. The basis for this inference is a file copy of a letter addressed to the Ho brothers dated 29 November 1996 in their capacity as directors of Silkchime. The letter states that the draw down amount of $257,950, which corresponds with the amount of the draw down in the draw down notice, is for the reimbursement of costs in relation to the Car Lovers, Ultra Tune and Professional Centre developments. The costs being reimbursed were costs for licence fees paid to Westpoint Corporation, leasing fees paid to Westpoint Realty, marketing and advertising costs paid to Westpoint Realty and design and consulting costs paid to Westpoint Consulting Group.

85 Agreements to lease and lease documents had been executed by 12 December 1996 in relation to Car Lovers. Agreements for lease and leases were expected to be executed in respect of Ultra Tune by 20 December 1996. By the time that sale of land contracts, or construction contracts, in respect of each development had been entered, leases had already been prepared. Marketing and advertising campaigns had been run since the beginning of 1996. I find that the reimbursement of costs for marketing and advertising to Westpoint Realty in relation to the professional centre was for costs incurred in respect of marketing and advertising that development. Counsel for Warwick submitted that a degree of design and consulting work was required prior to developments on individual lots proceeding. Clause 6(b) of the sale of land contract in respect of the Car Lovers development referred to plans and applications for development, which Silkchime was obliged to submit to local authorities. I find that those plans were prepared on behalf of Silkchime by Westpoint Consulting. In relation to the Ultra Tune development the sale of land contract had a similar clause. The plans to which reference is made were plans prepared by Westpoint Consulting in order for Silkchime to satisfy its obligations under the sale of land contract.

86 The sale of land and construction contracts in relation to the professional centre have not been located. However, it is consistent with the entries in the accounts and with the other sale contracts that it should provide for Silkchime to prepare plans.

87 I find that all of the costs which were paid from the first draw down were costs incurred by Silkchime.

88 The second draw down notice is dated 16 December 1996 in respect of a draw down on that date for $629,129. The draw down was to pay for costs incurred in connection with the development of the Professional Centre, which was a development proposed with Richview Nominees Pty Ltd, a development of the Medical Centre, the development of the Superbowl Centre with Inditero Pty Ltd, the Car Lovers development with Arcane Pty Ltd, the Ultra Tune or Autocare development with Tarana Holdings Pty Ltd and the Taco Bell development.

89 At the time of this draw down notice, construction contracts with Westpoint Constructions had not been executed by the proposed purchasers of four of the six lots: Professional Centre, Medical Centre, Superbowl Centre and Taco Bell. In relation to these projects, where no construction contract had been entered between Westpoint Constructions and the proposed purchaser, I find that the costs had not been incurred by Westpoint Constructions. The costs had been incurred by Silkchime and were properly accounted for in Silkchime's accounts.

90 In relation to the Superbowl development, amounts were drawn down to pay project management fees to Westpoint Corporation and design and consulting fees to Westpoint Consulting Group. Once the sale of land contract was entered into for a sale to Indietro, which occurred at about the same time as the draw down, Silkchime had an obligation to submit plans and an application to the local development authorities within 14 days. It is likely that design and consulting fees were incurred by Silkchime for that purpose and I so find. Furthermore, there were ongoing project negotiations. I find that Westpoint Corporation was engaged to carry out those negotiations and was entitled to a project management fee for doing so. Those amounts were incurred by Silkchime and were properly recorded in Silkchime's accounts as part of Silkchime's work in progress.

91 The two projects where construction contracts with Westpoint Constructions had been executed by the purchaser were the contract with Arcane in relation to the Car Lovers development and the contract with Tarana Holdings in relation to the Ultra Tune or Autocare development. The date of the construction contract between Westpoint Constructions and Arcane is not known but it was drafted in 1996. An amount of $12,000 is recorded as paid from the December draw down to Westpoint Corporation in relation to the Car Lovers project as a project management fee. Plans had been lodged with the local council on behalf of Silkchime for the issue of the building licence which was imminent. I infer that the management fee was incurred by Silkchime for managing the project to the stage when the agreement to lease and lease documents were executed and the sale of land and design and construction contracts were executed.

92 The contract between Tarana Holdings and Westpoint Constructions is dated 8 October 1996. The journal entries for Silkchime show that a project management fee of $2,250 was paid in relation to this project. I find that this was a project management fee incurred by Silkchime in the course of the development of the project in circumstances where the agreement for lease and lease had not been executed by the date of the draw down.

93 The journal entries also show additional claims for land equity costs in relation to the Car Lovers development, the Medical Centre development, the Ultra Tune development and the Taco Bell development. In each case there is said to have been a payment made to Westpoint Corporation for 50% of land equity related to these projects. It is unnecessary to consider why that was so because Silkchime does not challenge the correctness of the land equity costs having been incurred by Silkchime.

94 I find that the amounts drawn down under the second draw down notice were to reimburse costs incurred by Silkchime and were properly accounted for in Silkchime's accounts as work in progress.

95 On 24 January 1997 Warwick drew down $261,650 on a draw down notice of that date. The draw down was used to reimburse payments in respect of the Medical Centre, Superbowl, Car Lovers, amusement centre, Ultra Tune, Taco Bell, health and fitness and veterinary developments.

96 An amount of $18,500 is shown in the accounts of Silkchime as being paid on its behalf by Warwick to Westpoint Consultants for designing and consulting costs. There was no construction contract with Westpoint Constructions in respect of the medical centre. The payment was to reimburse costs incurred by Silkchime.

97 In relation to the Superbowl, $11,350 was drawn down for design and consulting costs. At that time no contracts had been executed between Indietro and Westpoint Constructions. The costs which were being reimbursed were incurred by Silkchime.

98 An amount of $4,550 is recorded as being paid as a project management fee to Westpoint Corporation for the Car Lovers project. This was not an amount paid for construction costs. It was incurred by Silkchime.

99 An amount of $110,625 was drawn down in relation to the amusement centre, that is Wiggles and Giggles. This lot was retained by Silkchime. Silkchime concedes and I find that all costs incurred in relation to this development were costs incurred by Silkchime.

100 There was a draw down of $1,125 in respect of the Ultra Tune project for project management fees paid to Westpoint Corporation. I find that this amount and a similar management fee of $3,000 paid to Westpoint Corporation in respect of the Taco Bell development were properly incurred by Silkchime.

101 The draw down was to reimburse costs including an amount of $65,000 paid to Westpoint Consulting for design and consulting work in respect of the health and fitness centre. A construction agreement in relation to the health and fitness centre had been entered between Westpoint Constructions and Energym (WA) Pty Ltd in late November 1996. It is apparent from the design and construction contract that consulting work had been performed by Westpoint Consulting prior to the construction agreement being entered. A schedule to the contract includes a reference to a specification of construction and schedule of finishes prepared by Westpoint Consulting dated 26 November 1996 and to four sets of design drawings. The specification and construction drawings are dated just prior to the date upon which the construction contact was entered into. That supports the inference that the work performed was carried out by Westpoint Consulting Group on behalf of Silkchime. I draw that inference. The cost was incurred by Silkchime.

102 The costs reimbursed by the draw down include an amount of $47,500 recorded as paid to Westpoint Consulting for the design and consulting work carried out in respect of the veterinary project.

103 I find that all of the amounts drawn down under the third draw down notice were to reimburse costs incurred by Silkchime and were properly accounted for in Silkchime's accounts as work in progress.

104 On 12 February 1997 Warwick drew down $987,882 from its National Mutual facility under a draw down notice of that date. It appears both from Silkchime's journals and a letter accompanying the draw down notice that the draw down was to reimburse costs in relation to the Car Lovers and Ultra Tune developments. $296,248 was paid in respect of land equity costs to Westpoint Corporation. Silkchime accepts and I find that that amount was to reimburse costs incurred by Silkchime.

105 The remainder of the draw down was to reimburse construction costs paid to Westpoint Corporation in relation to the Car Lovers and Ultra Tune projects. Construction works in relation to each of these projects were being carried out upon the land at the time when the draw down was made. A design and construction contract with Westpoint Constructions had been executed by the purchaser in relation to each of these projects. The construction work in relation to each of these projects was being carried out by Westpoint Constructions.

106 I find that the amounts draw down to reimburse the construction costs were to reimburse costs incurred by Westpoint Constructions. As the costs were not incurred by Silkchime the amounts drawn down to reimburse those costs should not have been recorded in the accounts of Warwick or Silkchime as a loan to Silkchime. Those payments total $701,634.

107 On 17 March 1997 Warwick drew down $1,425,774 under the National Mutual facility under a draw down notice of that date. Of the amount drawn down $1,298,899 was to reimburse costs in relation to the amusement centre (Wiggles and Giggles) and the medical centre. Those lots or projects were retained by Silkchime. The costs in relation to those projects were incurred by Silkchime and properly accounted for in its accounts as work in progress.

108 The costs reimbursed included consultants fees and project management fees in respect of the professional centre totalling $20,000. There was no sale contract, or indeed purchaser, for this development in March 1997. The costs in relation to this project were incurred by Silkchime.

109 In relation to the bowling centre an amount of $66,750 was paid in relation to consulting fees. I infer that these fees were paid in relation to consulting work for Silkchime and were incurred by Silkchime.

110 The draw down included reimbursement of project management fees of $12,250 paid in respect of the health and fitness centre. $31,500 was to reimburse the leasing fees in relation to the health and fitness centre. I infer that these fees were incurred by Silkchime and properly accounted for in its accounts as work in progress.

111 The amount drawn down included an amount of $20,250 to reimburse consulting fees in relation to the video centre. I infer that Westpoint Consulting did consulting work prior to the construction contracts and land sale contracts being entered for the sale of the video project. The fees were incurred by Silkchime and properly accounted for in its accounts as work in progress.

Loans made from National Mutual facility conclusion

112 I find that all of the amounts drawn down under Warwick's National Mutual facility were to reimburse costs incurred by Silkchime except for the amount of $701,634, which was to reimburse construction costs incurred by Westpoint Constructions in relation to the Car Lovers and Ultra Tune developments. The balance of the loan from Warwick in Silkchime's financial statements at 30 June 1997 was $8,331,875 recorded as a noncurrent liability portion of $3,600,000 (Loan 1) and a current liability portion of $4,731,875 (Loan 2). The current liability portion of $4,731,875 (Loan 2) incorrectly included the amount of $701,634 which was to reimburse construction costs that were incurred by Westpoint Constructions.

113 The accounts and financial records for Silkchime and Warwick were analysed by Mr Morgan and Mr Langridge. Based on Silkchime's financial statements for the financial year ended 30 June 1995 (FY95) Mr Morgan concluded that the loan balance recorded in Silkchime's balance sheet of $3,931,915 (current and noncurrent amounts owing) comprised of $3,769,920 advanced by Warwick and capitalised interest costs totalling $161,995. Mr Morgan further concluded that the amount advanced from Warwick to Silkchime in FY95 was used to purchase the Warwick land. Mr Morgan said that in FY97 the loan account between Silkchime and Warwick increased due to funds advanced of $3,569,451. In addition $336,888 of interest was capitalised relating to 'Loan 1', that is the initial advance of $3,600,000, and $107,422 was capitalised relating to 'Loan 2', that is the subsequent advances by Warwick to Silkchime. Mr Morgan concluded that the loans received by Warwick during the year, which increased Silkchime's existing loan account balance with Warwick, were real and were applied either wholly or partly towards development costs incurred on the Warwick land. Mr Langridge agreed with those conclusions. I accept those conclusions subject to one qualification. The qualification is that of the amount drawn down by Warwick from the National Mutual facility on 12 February 1997 of $701,634 was not, and should not have been recorded as, a loan from Warwick to Silkchime.

114 Warwick made no further advances to Silkchime after 1 July 1997. After 1 July 1997 movements in the loan balance are principally the result of capitalising accrued interest and a partial repayment of the loan by Silkchime from proceeds of the sale of three of the lots or developments of the Warwick land. The balance of the loan recorded in the accounts of Warwick and Silkchime in January 2006 consist of advances made by Warwick to facilitate the purchase of the Warwick land, the advances made from draw downs on the National Mutual facility to facilitate the development and capitalise accrued interest.

115 Mr Morgan located the monthly work papers prepared by the Westpoint accounting staff in relation to the interest charged by Warwick to Silkchime on the loan account in Warwick's monthly management accounts. These monthly work papers disclose that interest was charged on Loan 1 at 10.12% per annum. The principal amount on which interest was charged was $3,500,000. Mr Morgan could not explain why Loan 1 was stated to be for $3,500,000 whereas the noncurrent portion of the loan was shown as $3,600,000 until the current and noncurrent loan accounts were amalgamated on 1 July 1999. However, this error, if it was an error, is an error in favour of Silkchime. Interest charged was capitalised, that is, it was added to the loan. However, interest was not charged on the interest accrued. Interest on Loan 2, the amounts drawn down from the National Mutual facility, were charged at the same rate as AXA charged Warwick. I understand that the reference to the rate AXA charged Warwick is a reference to the rate paid by Warwick on the funds it drew down under the National Mutual facility. Interest was charged on a principal of $2,231,858. Mr Morgan said that he did not know why the interest was charged on only $2,231,858 when the remaining loan account balance was approximately $4,831,875 at 30 June 1997. However, Mr Morgan said that this may be explained in part by the loan repayments of $1,570,188 made by Silkchime to Warwick on 31 July 1997, which would have reduced the remaining principal portion of the loan to $3,261,687. In any event, the error, if there is one, is in favour of Silkchime and it is not necessary to pursue the matter further. The interest charges were capitalised, that is added to the loan. However, interest was not charged on the interest accrued.

116 Silkchime's case in relation to these interest charges, which were accrued in the accounts, is that there is no legal foundation for them. Silkchime submitted that there is no evidence of any agreement between Warwick and Silkchime for the payment of interest and the accruing of interest in accordance with the amounts recorded in the accounts.

117 The financial statements of Warwick and Silkchime from FY95 to FY06 and the monthly work papers prepared by the Westpoint accounting staff and the entries in the accounts of Warwick and Silkchime include the interest charges and the capitalising of those charges. In the absence of any evidence to the contrary it may be inferred, and I would infer, that those companies had agreed that interest should be paid at the calculated rate and capitalised. However, there is other evidence to be considered apart from the JVA and the evidence of Mr Carey and the Ho brothers in relation to the JVA or an oral agreement proceeding it. The other evidence consists of notes to the Silkchime accounts and loan confirmation letters.

118 A note to the Silkchime financial statements for FY04 states, in effect, that the loan from Warwick is interest free and has no fixed term for repayment. A similar note is appended to the Silkchime financial statements for FY05. Mr Rundle, as company secretary, signed a letter of 30 June 2003 to the trustee directors, Silkchime unit trust, which confirmed that the balance of the loan receivable from Silkchime as at 30 June 2003 was $11,398,669 and stated that the loan was interest free, unsecured and had no fixed term for repayment. The letter further stated that Warwick would not call for repayment of the loan unless Silkchime had the ability to pay its debts as and when they fall due. Mr Rundle signed another loan confirmation letter on 30 June 2004, which stated that the balance of the loan payable to Warwick as at 30 June 2004 was $11,906,582.53 and that the loan was interest free, unsecured and had no fixed term for repayment. Mr Rundle signed a loan confirmation letter of 30 June 2004 from Warwick which also confirmed that the balance of the loan owing by Silkchime was $11,906,582.55 and that the loan was interest free, unsecured and had no fixed term for repayment. The letter stated that Warwick would not call for repayment of the loan unless Silkchime had the ability to pay its debts as and when they fell due. Mr Rundle signed similar loan confirmation letters on behalf of Silkchime and Warwick on 30 June 2005.

119 Mr Rundle was crossexamined about the loan confirmation letters. He stated that the auditors required a loan confirmation and the letters were prepared for the benefit of the auditors. Mr Rundle said his understanding was that the auditors required the loan confirmation to ensure that the intercompany debts would not be called so to enable the auditors to be able to say that the group can operate as a going concern. When it was put to him that a very significant part of the loan as at 30 June 2003 comprised capitalised interest Mr Rundle said:

Having reviewed the accounts and documentation recently, I have become aware that loan balance includes quite a substantial amount of capitalised interest. At the time I signed this letter it was one of probably 30 or 40 prepared by accountants within the group financial control unit and it would appear that statement that the loan is interest free is incorrect (ts 1598).

Mr Rundle said that the same applied to the 2004 loan confirmation letter, that is, he accepted that the statement that the loan was interest free was incorrect. Mr Rundle said that it appeared from the general ledger and the balance in the general ledger, which was reflected in the accounts, that interest was being charged and if that was the case then the statements in the loan confirmation letters were incorrect. Mr Rundle said that he did not check the loan confirmation letters with great care. He explained:

I relied on the accountants who prepared the letters that they had correctly transposed the figures from the general ledger and the financial statements onto the letter. I didn't check it personally myself and nor did I check the statements in relation to whether the interest was being charged or loans were interest free (ts 1600).

120 I find that the loan confirmation letters were prepared by the Westpoint accounting staff as a matter of course to meet what they understood to be the requirements of the auditors. The letters were signed by Mr Rundle as a matter of course and without checking that they were correct. No weight is to be given to them.

121 I place no weight on the notes appended to Silkchime's 2004 and 2005 accounts. They are incorrect on their face in that they state that the loan is interest free when it included capitalised interest. Notwithstanding the note appended to the 2004 financial statements, interest continued to be accrued in the accounting records of Warwick and Silkchime and included in the amount of the loan recorded in the 2005 financial statements. I place no weight on those notes.

122 I find that interest was charged, and capitalised, on the loans from Warwick to Silkchime in accordance with an agreement between those companies. The agreement is to be inferred from their course of dealing from 1995 to 2006. During that period interest was calculated, accrued and recorded in the accounts of each company. The accrued and capitalised interest was included in the financial statements of each company.

123 Warwick submits that if, contrary to my finding, the amounts loaned by Warwick to Silkchime were paid pursuant to or governed by the terms of the JVA then Mr Carey breached his fiduciary duty to act bona fide and in the interests of Warwick, the statutory duty under s 181(1) of the Corporations Act, to exercise his powers and discharge his duties in good faith in the best interests of Warwick and for a proper purpose, his statutory duty pursuant to s 182(1)(a) of the Corporations Act, not to improperly use his position to gain an advantage for someone, and his statutory duty pursuant to s 182(1)(b) of the Corporations Act, not to improperly use his position to cause detriment to Warwick.

124 It is not necessary to decide this issue because I have found that the amounts loaned by Warwick to Silkchime were not paid pursuant to or governed by the terms of the JVA. In the usual course, I would address in my reasons alternative cases advanced by the plaintiff in case the matter goes on appeal. However, in this case Warwick's alternative case based on Mr Carey's alleged breach of fiduciary and statutory duties cannot be considered independently of whether or not Mr Carey and the Ho brothers, on behalf of Warwick and Silkchime, executed the JVA.

125 In Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1 the High Court held that in deciding whether a company should enter into a transaction, which benefits a related company, the directors must have regard to the interests of the company and to its interests alone. That is, the directors must subjectively act in the interests of their company because, as each company is a separate legal entity, directors must specifically consider the interests of their particular company. The effect of s 181(1) of the Corporations Act is that directors may be found to have breached their statutory duty to act in good faith because they have not acted for a proper purpose, even though they have acted bona fide in the interests of the company. This introduces an objective element.

126 To determine whether Mr Carey had a proper regard to the interests of Warwick when determining that Warwick should enter into the JVA the court must make findings concerning the consideration which Mr Carey gave to the separate interests of Warwick when determining that Warwick should enter into the JVA. That involves Mr Carey's consideration of the terms of the JVA and whether they benefitted Warwick. That involves Mr Carey's consideration of the benefit to Warwick from the modification of the restrictive covenant in favour of Silkchime, subdivision to facilitate vehicular and pedestrian traffic, and, in particular, the benefit to Warwick from Silkchime providing additional car bays at $10,000 per car bay. It would be necessary to make findings about Mr Carey's consideration of those matters and his consideration of the terms of the loan from Warwick to Silkchime at the time of entering into the JVA. As I have found that Mr Carey and the Ho brothers did not execute the JVA in July 1995, or enter into an oral agreement on substantially the same terms, it is not appropriate to make findings whether Mr Carey gave proper consideration to the interests of Warwick when entering into the JVA or an oral agreement in substantially the same terms.

127 For those reasons, I make no finding whether or not, if Warwick and Silkchime executed the JVA or made an oral agreement in substantially the same terms, Mr Carey breached his fiduciary and statutory duties. It is unnecessary that I do so because I have found that Warwick and Silkchime did not enter into the JVA or an oral agreement on substantially the same terms.

128 I find that Warwick made loans to Silkchime in the amounts entered in the accounting records of Warwick and Silkchime except for an amount of $701,634 drawn down under the fourth draw down notice of 12 February 1997 from Warwick's National Mutual facility. That amount was paid to reimburse costs incurred by Westpoint Constructions for construction work and was not to reimburse costs incurred by Silkchime. The amount was not loaned to Silkchime. I find that the interest accrued and capitalised in the accounts of Warwick and Silkchime was properly charged except for the interest accrued on the sum of $701,634 referred to.

129 I find that Silkchime is indebted to Warwick for the amount of $12,706,904 less $701,634 and less interest accrued and capitalised on the sum of $701,634. Judgement should be entered for Warwick in the sum so calculated. The parties should confer on the amount for which judgment should be entered for Warwick in accordance with these reasons. If the parties cannot agree on that sum then I will receive further submissions from each party as to how that sum should be calculated.